Heritage Global Inc. Reports 2017 First Quarter Operating Results

SAN DIEGO--(BUSINESS WIRE)--Heritage Global Inc. (OTCQB: HGBL, CSE: HGP) (“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 first quarter ended March 31, 2017 as summarized below.

($ in thousands, except per share amounts)	Quarter Ended March 31,
	2017		2016
Revenue
Services revenue^(1)	$	4,462	$	4,192
Asset sales^(2)		571		1,228
Total revenue		5,033		5,420
Gross profit		3,681		3,365
Operating income		394		192
Net income		255		60
Net income per share – basic and diluted	$	0.01	$	0.00
(Non-GAAP Financial Measures)^(3)
EBITDA	$	360	$	232
Adjusted EBITDA	$	541	$	336

(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 2 and 6 of the press release.

First Quarter 2017 Summary of Financial Results:

• Total revenues were $5.0 million, compared to the year ago first quarter level of $5.4 million, representing a decline of 7.1%. The decrease in the total revenue was due to the Company executing fewer principal deals in the first quarter of 2017, with asset sales revenue declining 53.5% from $1.2 million in 2016 to $0.6 million in 2017. Service revenue increased 6.4% to $4.5 million in 2017 from $4.2 million in the first quarter of 2016.
• Gross profit, or total revenues net of costs of revenues, increased 9.4% to $3.7 million from the year ago first quarter level of $3.4 million, due principally to improved gross margin on the asset sales and higher services revenue in the first quarter of 2017 as compared to the prior year quarter.
• During the first quarter, Heritage Global completed a number of successful global online sales, including projects for Sanofi, Medivir, Xoma, KLN Manufacturing, First Solar, AeroJet, Pfizer, and Amgen.
• Selling, general and administrative expenses were $3.2 million, compared to $3.1 million in the first quarter of 2016.
• Operating income increased 105% to $0.4 million from the year ago first quarter level of $0.2 million.
• Heritage Global reported net income of $0.3 million, or net income of $0.01 per share, compared to net income of approximately $0.1 million, or $0.00 per share, in the first quarter of 2016. The continued improvement in Heritage Global’s operations is the result of its strong performance across all of its business lines (asset liquidation, valuation and advisory services), coupled with continued cost management discipline. As a result, 2017 first quarter net income rose 325%, compared to the prior year period.
• Adjusted EBITDA, a commonly used non-GAAP financial measure, grew 61% to $0.5 million from the year ago first quarter level of $0.3 million. 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.

Heritage Global Chief Executive Officer, Ross Dove, stated, “The positive momentum we achieved in 2016 has continued into 2017, as Heritage Global recorded significantly improved first quarter financial performance with operating income and net income growth of 105% and 325%, respectively, compared to the prior year period. The progress we have made to drive growth and profitability across our business divisions is further reflected by the 61% year-over-year increase in first quarter Adjusted EBITDA. In line with our stated objectives, we have continued to focus on building our organization into a leading provider of diversified and unique global asset solutions and services. In this regard, in late March we launched Heritage Global Patents & Trademarks (HGPT), our Intellectual Property auction and brokerage services division that will allow us to more effectively market and monetize clients’ IP and intangible assets. Following the launch, we completed the successful sale of Nuclea Biotechnologies’ sophisticated patents and technologies in mid-April and we are confident that HGPT will continue to deliver strong results for our clients and partners.”

“In closing, we are pleased with the improved first quarter financial performance across Heritage Global’s value-driven corporate and financial asset solutions platform and will continue to ensure that HGI remains efficient and competitive as we undertake the next phase of growth for the Company. Looking ahead, while we understand that there is still much work to be done, we are confident that the initial success of our profitability and expansion initiatives, combined with our industry-wide reputation for delivering exceptional service to a growing base of global clients, will remain important factors in our ability to achieve sustainable growth and the enhancement of long-term 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 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 March 31,
	2017			2016
Revenues:
Services revenue	$	4,462		$	4,192
Asset sales		571			1,228
Total revenues		5,033			5,420
Operating costs and expenses:
Cost of services revenue		1,059			1,003
Cost of asset sales		293			1,052
Selling, general and administrative		3,210			3,090
Depreciation and amortization		77			83
Total operating costs and expenses		4,639			5,228
Operating income		394			192
Other income		–			25
Fair value adjustment of contingent consideration		(111	)		(68	)
Interest expense		(15	)		(73	)
Income before income tax expense		268			76
Income tax expense		13			16
Net income	$	255		$	60
Weighted average common shares outstanding – basic		28,433,092			28,318,967
Weighted average common shares outstanding – diluted		28,467,350			28,350,892
Net income per share – basic	$	0.01		$	0.00
Net income per share – diluted	$	0.01		$	0.00

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)
	March 31, 2017			December 31, 2016
ASSETS
Current assets:
Cash and cash equivalents	$	3,846		$	2,530
Accounts receivable, net		998			1,247
Inventory – equipment		52			263
Other current assets		327			393
Total current assets		5,223			4,433
Property and equipment, net		141			156
Identifiable intangible assets, net		4,061			4,122
Goodwill		6,158			6,158
Other assets		283			275
Total assets	$	15,866		$	15,144
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	7,250		$	6,746
Current portion of related party debt		538			664
Current portion of contingent consideration		868			961
Other current liabilities		220			199
Total current liabilities		8,876			8,570
Non-current portion of related party debt		235			348
Non-current portion of third party debt		—			—
Non-current portion of contingent consideration		1,976			1,772
Deferred tax liabilities		960			960
Total liabilities		12,047			11,650
Stockholders’ equity:
Preferred stock, $10.00 par value, authorized 10,000,000 shares; issued and outstanding 569 Class N shares at March 31, 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 March 31, 2017 and 28,470,148 shares at December 31, 2016		285			285
Additional paid-in capital		284,220			284,149
Accumulated deficit		(280,620	)		(280,875	)
Accumulated other comprehensive loss		(72	)		(71	)
Total stockholders’ equity		3,819			3,494
Total liabilities and stockholders’ equity	$	15,866		$	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 March 31,
	2017		2016
Net Income	$	255	$	60
Add back:
Depreciation and amortization		77		83
Interest expense		15		73
Income tax expense		13		16
EBITDA		360		232
Management add back:
Fair value adjustment of contingent consideration		111		68
Stock based compensation		70		36
Adjusted EBITDA	$	541	$	336

The notes contained in our Quarterly Report on Form 10-Q are an integral part of these consolidated financial statements.