- Financial Assets Division Reports 110% Growth in Operating Income for First Nine Months of 2023 -

Heritage Global Inc. (NASDAQ:HGBL) ("Heritage Global," "HG" or "the Company"), an asset services company specializing in financial and industrial asset transactions, today reported financial results for the third quarter and nine months ended September 30, 2023.

Heritage Global Chief Executive Officer Ross Dove commented, "We had another solid quarter, as we continue to capitalize on the opportunities we are seeing in our Industrial and Financial Asset divisions. As we have previously mentioned, our business is benefitting from strong tailwinds related to the challenging economy, with an increased volume of assets coming to market as consumer debt reaches record levels and companies downsize operations.

"At Heritage Global Capital (HGC), the high volume of charged-off portfolios drove strong growth in our loan activity, and we closed the quarter with a loan book of $36 million, representing a solid increase from the previous balance of $30 million at the end of the second quarter. Meanwhile, as consumer collection rates revert back to pre-pandemic (and stimulus) levels, we have increased the Company's non-cash credit loss reserve by $0.9 million, primarily to address a request to amend the existing credit agreements with our largest borrower. Collections on the balance of our loan portfolio, overall, are meeting or exceeding minimum target levels. Overall, reported operating income was $2.8 million for the third quarter and earnings per share was $0.05, after the impact of the reserve. Excluding the non-cash reserve, consolidated net operating income was approximately $3.6 million and earnings per share was $0.07."

Third Quarter and First Nine Months 2023 Summary of Financial Results:

($ in thousands, except per share amounts)	Three Months Ended September 30,				Nine Months Ended September 30,
($ in thousands, except per share amounts)	2023		2022		2023		2022
Operating income	$	2,769	$	3,474	$	9,764	$	7,973
Net income	$	1,977	$	2,300	$	7,585	$	5,523
Net income per share – diluted	$	0.05	$	0.06	$	0.20	$	0.15

(Non-GAAP Financial Measures)⁽¹⁾
EBITDA	$	2,901	$	3,608	$	10,137	$	8,373
Adjusted EBITDA	$	3,076	$	3,778	$	10,719	$	8,757

(1)

EBITDA and Adjusted EBITDA are commonly used non-GAAP financial measures utilized by management as a supplemental tool to evaluate the underlying operating performance of the Company on an ongoing basis and should be considered together with Heritage Global's GAAP financial measures. Definitions and disclosures regarding non-GAAP financial information including reconciliations are included at the end of the press release.

"The fundamentals underlying our Financial Assets business remain strong. Consumer debt has grown to historic levels which, in turn, is driving significant growth in charged-off credit cards and non-performing loans. Our Financial Assets division, which achieved net operating income growth of 110% for the first nine months of 2023, is well positioned to continue to take advantage of the macroeconomic tailwinds. In the short term, consumer repayment speeds are slowing to more historical levels and we are working together with our lending partners and borrowers to prudently manage this transition, as needed. Long term, we believe the flow of distressed financial assets is only going to increase and we have built the relationships and have the right team in place to secure additional brokerage contracts and specialty lending opportunities as they come to market.

"Increased asset flow is also evident in our pipeline and calendar for upcoming industrial auctions, as more businesses make the decision to downsize operations with the corresponding closure of operating facilities and offices, and more buyers are seeking high quality used equipment. Our auction business has a longer sales cycle as it is typically a few months from the time our partners announce closures to their readiness to auction assets and with our visibility today, we are optimistic about the strength of our pipeline through the remainder of the year and beyond.

"We are focused on continuing the momentum we have built to date in 2023 to deliver a strong close to the year. We take a long-term view of our business and remain confident that with our solid foundation, industry leading team and longstanding partnerships, we are ideally suited to maximize the many opportunities we are seeing to drive continued growth as we expand our leadership position and market reach," Mr. Dove concluded.

Third Quarter 2023 Highlights:

The Company achieved operating income of $2.8 million for the third quarter of 2023, as compared to operating income of $3.5 million in the third quarter of 2022. Excluding adjustments related to the non-cash reserve, operating income was $3.6 million.
Net income totaled $2.0 million, or $0.05 diluted earnings per share for the third quarter of 2023, as compared to net income of $2.3 million, or $0.06 diluted earnings per share in the prior-year quarter. Excluding adjustments related to the non-cash reserve, net income totaled $2.6 million and diluted earnings per share was $0.07.
EBITDA totaled $2.9 million in the third quarter of 2023 versus EBITDA of $3.6 million in the third quarter of 2022 and Adjusted EBITDA was $3.1 million compared to $3.8 million in the prior-year quarter.
Heritage Global maintains a strong balance sheet, with stockholders' equity of $56.4 million as of September 30, 2023, compared to $48.3 million as of December 31, 2022. Net working capital was $13.8 million at the end of the third quarter.
On January 1, 2023, the Company adopted accounting pronouncement ASC 326 which, among other items, requires a reserve for potential credit losses. In accordance with the guidance of ASC 326, the Company increased its non-cash credit loss reserve within its Specialty Lending segment by $0.9 million to $1.4 million, or 3.8% of outstanding balances.
As of September 30, 2023, the Company's total balance related to investments in loans to buyers of charged-off and nonperforming receivable portfolios was $35.9 million, of which $20.6 million is classified as Notes Receivable and $15.3 million is classified as Equity Method Investments.

Third Quarter Conference Call

Management will host a webcast and conference call today, Thursday, November 9, 2023, at 5:00 pm ET to discuss financial results for third quarter 2023. Analysts and investors may participate via conference call using the following dial-in information:

1-877-423-9813 (Domestic)
1-201-689-8573 (International)

In addition, individuals can use this link for telephone access to the call via their web browser. The webcast link is available here and will be available in the Investor Relations section of the Company's website. To listen to a live broadcast, go to the site at least 10 minutes prior to the scheduled start time in order to register.

Replay

A replay of the call will be available on the Company's website approximately three hours after the call ends through November 23, 2023. To access the replay, dial 1-844-512-2921 (domestic) or 1-412-317-6671 (international). The replay pin number is 13741453. The replay can also be accessed on the Investor Relations section of the Company's website.

About Heritage Global Inc. ("HG")

Heritage Global Inc. (NASDAQ:HGBL) values and monetizes industrial & financial assets by providing acquisition, disposition, valuation, and lending services for surplus and distressed assets. This aids in facilitating the circular economy by diverting useful industrial assets from landfills and operating an ethical supply chain by overseeing post-sale account activity of financial assets. Specialties consist of acting as an adviser, in addition to acquiring or brokering turnkey manufacturing facilities, surplus industrial machinery and equipment, industrial inventories, real estate, charged-off account receivable portfolios, through its two business units: Industrial Assets and Financial Assets.

Definitions and Disclosures Regarding non-GAAP Financial Information

The Company defines EBITDA as net income/loss plus depreciation and amortization, interest and other expense, and provision for income taxes. Adjusted EBITDA reflects EBITDA adjusted further to eliminate the effects of stock-based compensation. Management uses EBITDA and Adjusted EBITDA in assessing the Company's results, evaluating the Company's performance and in reaching operating and strategic decisions. Management believes that the presentation of EBITDA and Adjusted EBITDA, when considered together with our GAAP financial statements and the reconciliation to the most directly comparable GAAP financial measure, is useful in providing investors a more complete understanding of the factors and trends affecting the underlying performance of the Company on a historical and ongoing basis. The Company's use of EBITDA and Adjusted EBITDA is not meant to be, and should not be, considered in isolation or as a substitute for, or superior to, any GAAP financial measure. You should carefully evaluate the financial information, below, which reconciles our GAAP reported net income to EBITDA and Adjusted EBITDA for the periods presented (in thousands).

Forward-Looking Statements

This communication includes forward-looking statements based on our current expectations and projections about future events. For these statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. While the Company believes the forward-looking statements contained in this communication are accurate, these forward-looking statements represent the Company's beliefs only as of the date of this communication, and there are a number of factors that could cause actual events or results to differ materially from those indicated by such forward-looking statements, including variability in magnitude and timing of asset liquidation transactions, the impact of changes in the U.S. national and global economies, and interest rate and foreign exchange rate sensitivity, as well as other factors beyond the Company's control. Unless required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, you should not place undue reliance on these forward-looking statements, which speak only as of the date of this release. For more details on factors that could affect these expectations, please see our filings with the Securities and Exchange Commission.

-financial tables follow-


HERITAGE GLOBAL INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands of US dollars, except share and per share amounts) (unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
Revenues:
Services revenue	$	9,985		$	7,349		$	30,040		$	16,112
Asset sales		5,566			5,312			15,221			16,971
Total revenues		15,551			12,661			45,261			33,083

Operating costs and expenses:
Cost of services revenue		2,423			2,051			6,570			3,715
Cost of asset sales		3,413			3,015			9,683			12,048
Selling, general and administrative		6,806			5,693			19,546			14,907
Depreciation and amortization		132			134			373			400
Total operating costs and expenses		12,774			10,893			36,172			31,070
Earnings of equity method investments		(8	)		1,706			675			5,960
Operating income		2,769			3,474			9,764			7,973
Interest expense, net		(56	)		(21	)		(225	)		(96	)
Income before income tax expense		2,713			3,453			9,539			7,877
Income tax expense		736			1,153			1,954			2,354
Net income	$	1,977		$	2,300		$	7,585		$	5,523

Weighted average common shares outstanding – basic		36,742,018			36,084,696			36,675,838			36,014,439
Weighted average common shares outstanding – diluted		37,647,321			37,221,430			37,605,363			36,872,977
Net income per share – basic	$	0.05		$	0.06		$	0.21		$	0.15
Net income per share – diluted	$	0.05		$	0.06		$	0.20		$	0.15


HERITAGE GLOBAL INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands of US dollars, except share and per share amounts)


	September 30, 2023			December 31, 2022
ASSETS	(unaudited)
Current assets:
Cash and cash equivalents	$	15,578		$	12,667
Accounts receivable, net		2,889			988
Current portion of notes receivable, net		10,284			4,505
Inventory – equipment		4,446			4,619
Other current assets		681			1,113
Total current assets		33,878			23,892
Non-current portion of notes receivable, net		10,275			4,245
Equity method investments		16,131			13,973
Right-of-use assets		2,698			2,776
Property and equipment, net		1,728			1,571
Intangible assets, net		3,851			4,144
Goodwill		7,446			7,446
Deferred tax assets		8,363			9,449
Other assets		68			64
Total assets	$	84,438		$	67,560

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	5,808		$	8,924
Payables to sellers		10,184			3,188
Current portion of third party debt		3,303			3,411
Current portion of lease liabilities		783			703
Total current liabilities		20,078			16,226
Non-current portion of third party debt		5,941			871
Non-current portion of lease liabilities		2,021			2,164
Total liabilities		28,040			19,261

Stockholders' equity:
Preferred stock, $10.00 par value, authorized 10,000,000 shares; issued and outstanding 563 and 565 shares of Series N as of September 30, 2023 and December 31, 2022, respectively; with liquidation preference over common stockholders equivalent to $1,000 per share		6			6
Common stock, $0.01 par value, authorized 300,000,000 shares; issued 37,151,924 and 36,932,177 shares as of September 30, 2023 and December 31, 2022, respectively; and outstanding 36,908,456 and 36,688,709 shares as September 30, 2023 and December 31, 2022, respectively		372			369
Additional paid-in capital		294,331			293,589
Accumulated deficit		(237,916	)		(245,270	)
Treasury stock at cost, 243,468 shares as of September 30, 2023 and December 31, 2022		(395	)		(395	)
Total stockholders' equity		56,398			48,299
Total liabilities and stockholders' equity	$	84,438		$	67,560

– EBITDA and Adjusted EBITDA (non-GAAP measures) reconciliation follows –


HERITAGE GLOBAL INC. Reconciliation of EBITDA and Adjusted EBITDA (Non-GAAP Measures) (In thousands of US dollars) (unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net income	$	1,977	$	2,300	$	7,585	$	5,523
Add back:
Depreciation and amortization		132		134		373		400
Interest expense, net		56		21		225		96
Income tax expense		736		1,153		1,954		2,354
EBITDA		2,901		3,608		10,137		8,373

Management add back:
Stock based compensation		175		170	582		384
Adjusted EBITDA	$	3,076	$	3,778	$	10,719	$	8,757


HERITAGE GLOBAL INC. Reconciliation of Credit Loss Reserve Adjustments, Net (In thousands of US dollars) (unaudited)

	Three Months Ended September 30,
	Actual		Add-back: Credit Loss Reserve Adjustments, Net		Non-GAAP Financial Measure
Net operating income	$	2,769	$	841	$	3,610
Net income	$	1,977	$	621	$	2,598
Net income per share - diluted	$	0.05	$	0.02	$	0.07

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Heritage Global Inc. Reports Strong Third Quarter 2023 Results