Aug 9, 2017   SOURCE: BusinessWire

Heritage Global Inc. Reports 2017 Second Quarter Operating Results

Heritage Global Inc. (OTCQB: HGBL, CSE: HGP) (“Heritage Global,” “HGI” or “the Company”), a value-driven, innovative leader in corporate and financial asset liquidation transactions, valuations and advisory services, today reported financial results for the second quarter ended June 30, 2017 as summarized below.

   
($ in thousands, except per share amounts)

Quarter Ended
June 30,

 

Six Months Ended
June 30,

2017   2016   2017   2016
Revenue                
Services revenue(1) $ 3,945     $ 3,702     $ 8,406     $ 7,894  
Asset sales(2)   837       259       1,409       1,487  
Total revenue   4,782       3,961       9,815       9,381  
Gross profit   3,106       2,911       6,787       6,276  
Operating income (loss)   27       (234 )     420       (42 )
Net (loss) income   (199 )     624       55       684  
Net (loss) income per share – basic and diluted $ (0.01 )   $ 0.02     $ 0.00     $ 0.02  
   
(Non-GAAP Financial Measures) (3)                
EBITDA $ (75 )   $ 772     $ 285     $ 979  
Adjusted EBITDA   $ 166     $ (132 )     707     $ 179  
 

(1)

 

Services revenue represents revenue generated from activities in which Heritage Global acted as an agent by either brokering a transaction or providing some other fee-based service.

(2)

Asset sales represent revenue generated from activities in which Heritage Global acted in a principal capacity, reselling assets that it had purchased.

(3)

Definitions and disclosures regarding non-GAAP financial information including reconciliations are included on pages 3 and 7 of the press release.

 

Second Quarter 2017 Summary of Financial Results:

  • Total revenues were $4.8 million, compared to $4.0 million in the second quarter of 2016, representing an increase of 21%. The increase was due to the Company executing a greater number of principal transactions in the second quarter of 2017, with asset sales revenue increasing by 223% to $0.8 million in the second quarter of 2017 from $0.3 million in the second quarter of 2016. Service revenue increased 7% to $3.9 million in the second quarter of 2017 from $3.7 million in the second quarter of 2016.
  • Gross profit, or total revenues net of costs of revenues, increased 7% to $3.1 million in the second quarter of 2017 from $2.9 million in the second quarter level of 2016, due principally to the timing and magnitude of certain asset liquidation transactions.
  • During the second quarter, Heritage Global completed a number of successful global online sales, including projects for Amgen, Pfizer, Textron Systems, Aerojet Rocketdyne, First Solar, SunEdison, Sun Power and Tellabs.
  • Selling, general and administrative expenses decreased 2% to $3.0 million in the second quarter of 2017 from $3.1 million in the second quarter of 2016.
  • The continued improvement in Heritage Global’s operations is the result of its improved performance across all of its business lines (asset liquidation, valuation and advisory services), coupled with continued cost management discipline. As a result, Heritage Global reported positive operating income in the second quarter of 2017, compared to an operating loss of $0.2 million in the second quarter of 2016.
  • Heritage Global recorded a $0.2 million non-operating loss in the second quarter related of 2017 to the non-cash fair value adjustment of its contingent consideration from the acquisition of National Loan Exchange Inc. (NLEX), compared to a $0.9 million non-operating gain in the second quarter of 2016. As a result, the Company recorded a net loss of $0.2 million in the second quarter of 2017, or $0.01 per share, compared to net income of $0.6 million in the second quarter of 2016, or $0.02 per share.
  • Adjusted EBITDA, a commonly used non-GAAP financial measure, was $0.2 million in the second quarter of 2017, a reversal from the loss of $0.1 million in the second quarter of 2016. Adjusted EBITDA is used 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.

Commenting on the first half of 2017 and second quarter of 2017 results, Heritage Global Chief Executive Officer, Ross Dove, stated, “Our value-driven corporate and financial asset solutions platform continued to boost results on behalf of our growing base of global clients, as reflected by the 21% increase in total second quarter revenues. Importantly, solid year-to-date performance across all Heritage Global asset liquidation, valuation and advisory business divisions, coupled with our continued cost management, resulted in significant gross margin improvement and adjusted EBITDA growth of 295% in the first half of 2017.”

“In addition, during the second quarter we continued to pursue our strategy of further building our diversified global corporate and financial asset solutions platform by advancing our business development efforts. In this regard, in late May we promoted Michael Aho to the newly created position of National Sales Manager, responsible for overseeing all business development and sales initiatives across the United States for Heritage Global’s asset valuation, appraisal and advisory services division. With his deep industry knowledge and consistent track record of generating strong sales performance, we believe Michael is the ideal person to support the growth and development of Heritage Global’s North American client base.”

“In closing, we are very pleased with the initial success of our profitability and expansion initiatives and the progress we have made year-to-date in improving the Company’s operations and financial performance. Looking ahead, we expect the positive operating momentum will continue into the second half of the year. We remain focused on aggressively pursuing the next phase of growth for the Company and are confident that this direction will enable us to meet our goal of enhancing long-term shareholder value as we move through 2017 and beyond.”

Subsequent Event

  • On and effective as of August 7, 2017, Heritage Global’s Board of Directors appointed Emmett DeMoss to serve as a Class III director. Mr. DeMoss graduated from Princeton University, served as a U.S. Marine Corps pilot and earned his MBA from Stanford University. He worked in the business sector as a Corporate Finance Officer for Dean Witter and for Hambrecht & Quist, where he managed the initial public offerings (“IPO”) of several companies. He later served as Chief Operating Officer of Grubb & Ellis (“G&E”), a commercial real estate brokerage and advisory firm, where he helped grow the business to $350 million in annual revenues and led the reverse IPO of the Company. Mr. DeMoss has extensive executive leadership experience with growing businesses and was the founder director and senior officer of Rackwise and Real Bid, the first on-line Company to offer indicative bidding for commercial real estate, which eventually merged with CoStar (Nasdaq: CSGP). He also held positions as a director and senior officer of Docutel.
  • HGI’s Board believes Mr. DeMoss’ unique perspective and operational experience will be valuable in guiding HGI’s executive management team.

Mr. Dove noted, “We are pleased to announce the appointment of Emmett DeMoss to HGI’s Board of Directors. Emmett is a proven executive who brings outstanding leadership and entrepreneurial skills to our Board as well as a record of success in efficiently scaling real-estate auction and financial services companies to a position of market leadership. I am confident he will make meaningful contributions as we continue to execute our strategies aimed at continued growth and expansion.”

Commenting on his Board appointment, Mr. DeMoss stated, “I am honored to be elected to serve on the Company’s Board of Directors. With a diversified offering of global corporate and financial asset solutions, Heritage Global is well positioned to continue delivering value to its corporate clients, customers and partners and has strong prospects for long-term growth. I look forward to working with Ross, the Board and HGI’s executive management team to build on their success and to advance the Company’s goals for near and long-term growth and the ongoing enhancement of shareholder value.”

Definitions and Disclosures Regarding non-GAAP Financial Information

Adjusted EBITDA reflects the standard definition of EBITDA (net income plus depreciation and amortization, interest and other expense, and provision for income taxes), adjusted further to eliminate the effects of fair value adjustments of contingent consideration and stock-based compensation. Management believes that the presentation of this non-GAAP financial measure, when considered together with the GAAP financial measures and the reconciliation to the most directly comparable GAAP financial measure, provides a more complete understanding of the factors and trends affecting the Company than could be obtained absent these disclosures. Management uses Adjusted EBITDA to make operating and strategic decisions and to evaluate the Company’s performance. The Company has disclosed this non-GAAP financial measure so that investors have the same financial data that management uses, with the intention of assisting investors to make comparisons to the Company’s historical operating results and analyze its underlying performance. Management believes that Adjusted EBITDA is a useful supplemental tool to evaluate the underlying operating performance of the Company on an ongoing basis. The use of 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 cited in the tables at the end of this news announcement which reconciles GAAP reported net income to Adjusted EBITDA for the periods presented herein.

About Heritage Global Inc. (www.heritageglobalinc.com)

Heritage Global Inc. (OTCQB: HGBL, CSE: HGP) is a value-driven, innovative leader in corporate and financial asset liquidation transactions, valuations and advisory services. Heritage Global focuses on identifying, valuing, acquiring and monetizing underlying tangible and intangible assets in twenty-eight global manufacturing and technology sectors. Heritage Global acts as an adviser, as well as a principal, acquiring or brokering turnkey manufacturing facilities, surplus industrial machinery and equipment, industrial inventories, accounts receivable portfolios, intellectual property, and entire business enterprises.

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. The forward-looking statements contained in this communication are based on knowledge of the environment in which the Company currently operates and are subject to change based on various important factors, including variability in magnitude and timing of asset liquidation transactions, the impact of changes in the U.S. national and global economies, 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 OPERATIONS

(in thousands of US dollars, except share and per share amounts)

(unaudited)

   

Three Months Ended

Six Months Ended

June 30,

June 30,

2017

  2016 2017   2016
Revenues:
Services revenue $ 3,945 $ 3,702 $ 8,406 $ 7,894
Asset sales   837   259   1,409   1,487
Total revenues   4,782   3,961   9,815   9,381
 
Operating costs and expenses:
Cost of services revenue 710 866 1,769 1,869
Cost of asset sales 966 184 1,259 1,236
Selling, general and administrative 3,002 3,064 6,212 6,154
Depreciation and amortization   77   81   155   164
Total operating costs and expenses   4,755   4,195   9,395   9,423
Operating income (loss)   27   (234 )   420   (42 )
Fair value adjustment of contingent consideration (179 ) 925 (290 ) 857
Interest and other expense, net   (32 )   (65 )   (47 )   (113 )
(Loss) income before income tax expense (184 ) 626 83 702
Income tax expense   15   2   28   18
Net (loss) income $ (199 ) $ 624 $ 55 $ 684
 
Weighted average common shares outstanding – basic 28,480,148 28,418,582 28,456,750 28,368,774
Weighted average common shares outstanding – diluted 28,480,148 28,431,406 28,472,910 28,381,278
Net (loss) income per share – basic $ (0.01 ) $ 0.02 $ 0.00 $ 0.02
Net (loss) income per share – diluted $ (0.01 ) $ 0.02 $ 0.00 $ 0.02
 
The notes contained in our Quarterly Report on Form 10-Q are an integral part of these consolidated financial statements.

-balance sheets follow-

 

HERITAGE GLOBAL INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of US dollars, except share and per share amounts)
(unaudited)
   

June 30,
2017

December 31,
2016

ASSETS
Current assets:
Cash and cash equivalents $ 2,600 $ 2,530
Accounts receivable, net 1,144 1,247
Inventory – equipment 264 263
Other current assets   366   393
Total current assets 4,374 4,433
Property and equipment, net 124 156
Identifiable intangible assets, net 3,999 4,122
Goodwill 6,158 6,158
Other assets   309   275
Total assets $ 14,964 $ 15,144
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 6,941 $ 6,746
Current portion of related party debt 496 664
Current portion of contingent consideration 465 961
Other current liabilities   145   199
Total current liabilities   8,047   8,570
Non-current portion of related party debt 120 348
Non-current portion of contingent consideration 2,158 1,772
Deferred tax liabilities   960   960
Total liabilities   11,285   11,650
 
Stockholders’ equity:
Preferred stock, $10.00 par value, authorized 10,000,000 shares; issued and

outstanding 569 Class N shares at June 30, 2017 and December 31,

2016

6 6
Common stock, $0.01 par value, authorized 300,000,000 shares; issued

and outstanding 28,480,148 shares at June 30, 2017 and

28,470,148 shares at December 31, 2016

285 285
Additional paid-in capital 284,282 284,149
Accumulated deficit (280,820 ) (280,875 )
Accumulated other comprehensive loss   (74 )   (71 )
Total stockholders’ equity   3,679   3,494
Total liabilities and stockholders’ equity $ 14,964 $ 15,144
 
The notes contained in our Quarterly Report on Form 10-Q are an integral part of these consolidated financial statements.

- 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
June 30,

 

Six Months Ended
June 30,

2017   2016 2017     2016
Net Income $ (199 ) $ 624 $ 55 $ 684
Add back:
Depreciation and amortization 77 81 155 164
Interest and other expense, net 32 65 47 113
Income tax expense   15   2   28   18
EBITDA (75 ) 772 285 979
 
Management add back:
Fair value adjustment of contingent consideration 179 (925 ) 290 (857 )
Stock based compensation   62   21   132   57
Adjusted EBITDA $ 166 $ (132 ) $ 707 $ 179
 
The notes contained in our Quarterly Report on Form 10-Q are an integral part of these consolidated financial statements.