Heritage Global Inc. Reports 2018 First Quarter Operating Results

SAN DIEGO--(BUSINESS WIRE)--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 first quarter ended March 31, 2018 as summarized below.

($ in thousands, except per share amounts)	Quarter Ended March 31,
	2018		2017
Revenue
Services revenue^(1)	$	5,039	$	4,462
Asset sales^(2)		775		571
Total revenue		5,814		5,033
Gross profit		4,986		3,681
Operating income		1,405		394
Net income		1,289		255
Net income per share – basic and diluted	$	0.05	$	0.01
(Non-GAAP Financial Measures)^(3)
EBITDA	$	1,489	$	360
Adjusted EBITDA	$	1,550	$	541

(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 at the end of the press release.

First Quarter 2018 Summary of Financial Results:

• Total revenues were $5.8 million, compared to the year ago first quarter level of $5.0 million, representing an increase of 16%. The year-over-year growth in total revenues reflects the timing and magnitude of certain asset liquidation transactions and a higher volume of deals for the NLEX division. Services revenue increased 13% to $5.0 million in the first quarter of 2018 from $4.5 million in the first quarter of 2017, while asset sales revenue increased 36% to $0.8 million in the first quarter of 2018 from $0.6 million in the first quarter of 2017.
• Gross profit, or total revenue net of costs of revenues, increased 35% to $5.0 million from the year ago first quarter level of $3.7 million, due principally to higher services revenue and improved gross margin on the asset sales, which together, resulted in a $0.5 million, or 39%, year-over-year reduction in the cost of total revenue.
• During the first quarter, Heritage Global completed a number of successful global online sales, including projects for Pfizer, Amgen, Lightsail and Pharmakea.
• Selling, general and administrative expenses were $3.5 million, compared to $3.2 million in the first quarter of 2017. The increase was largely attributable to variable compensation arrangements.
• Operating income more than tripled to $1.4 million from the year ago first quarter level of $0.4 million.
• Heritage Global reported net income of $1.3 million, or net income of $0.05 per share, compared to net income of approximately $0.3 million, or $0.01 per share, in the first quarter of 2017. The continued financial improvement in Heritage Global’s operations is the result of its strong performance of its asset liquidation business line, coupled with continued operational discipline. As a result, 2018 first quarter net income rose 405%, compared to the prior year period.
• Adjusted EBITDA, a commonly used non-GAAP financial measure, was $1.6 million in the first quarter of 2018, compared to $0.5 million in the first quarter of 2018. 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, “Heritage Global began fiscal 2018 on a strong note with solid first quarter performance. The successful execution of our strategies to grow the top-line, coupled with our continued cost management initiatives, resulted in significant gross margin improvement and first quarter operating income and net income growth of 257% and 405%, respectively.

“Our divisions are maturing together into a very synergistic and seamless platform. Clients globally are reaping the benefits of our integrated valuation and disposition platforms working across asset classes from enterprise sales to capital assets to real estate to financial assets as well as patents and trademarks. We are excited to have Heritage on a clear path to execute its strategy of full service value creation.

“In closing, we are extremely pleased with the progress we made in the first quarter and expect the positive momentum to continue throughout 2018. We believe that our platform of innovative global asset solutions, combined with our industry-wide reputation for delivering exceptional service to a growing base of global clients, will allow us to generate sustainable operating profits as we undertake the next phase of growth for the Company. We remain confident that Heritage Global’s ongoing initiatives to improve top and bottom-line performance, combined with the prudent management of our capital structure, are a formula for sustained long term financial growth and the enhancement of shareholder value.”

Definitions and Disclosures Regarding non-GAAP Financial Information

Adjusted EBITDA reflects the standard definition of EBITDA (net income (loss) plus depreciation and amortization, interest and other expense, and provision for income taxes), plus or minus fair value adjustments of contingent consideration and plus 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,
	2018			2017
Revenues:
Services revenue	$	5,039		$	4,462
Asset sales		775			571
Total revenues		5,814			5,033
Operating costs and expenses:
Cost of services revenue		559			1,059
Cost of asset sales		269			293
Selling, general and administrative		3,497			3,210
Depreciation and amortization		84			77
Total operating costs and expenses		4,409			4,639
Operating income		1,405			394
Fair value adjustment of contingent consideration		—			(111	)
Interest expense		(116	)		(15	)
Income before income tax expense		1,289			268
Income tax expense		—			13
Net income	$	1,289		$	255
Weighted average common shares outstanding – basic		28,480,148			28,433,092
Weighted average common shares outstanding – diluted		28,489,128			28,467,350
Net income per share – basic	$	0.05		$	0.01
Net income per share – diluted	$	0.05		$	0.01

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, 2018			December 31, 2017
ASSETS
Current assets:
Cash and cash equivalents	$	1,596		$	2,109
Accounts receivable (net of allowance for doubtful accounts of $0 in 2018 and $71 in 2017)		1,757			384
Inventory – equipment		227			170
Other current assets		387			357
Total current assets		3,697			3,020
Property and equipment, net		179			145
Identifiable intangible assets, net		3,815			3,877
Goodwill		6,158			6,158
Other assets		247			250
Total assets	$	14,366		$	13,450
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	4,661		$	5,019
Current portion of related party debt		262			382
Current portion of third party debt		329			356
Current portion of contingent consideration		2,774			2,774
Other current liabilities		235			133
Total current liabilities		8,261			8,664
Non-current portion of third party debt		755			786
Deferred tax liabilities		512			512
Total liabilities		9,528			9,962
Stockholders’ equity:
Preferred stock, $10.00 par value, authorized 10,000,000 shares; issued and outstanding 569 Class N shares at March 31, 2018 and December 31, 2017		6			6
Common stock, $0.01 par value, authorized 300,000,000 shares; issued and outstanding 28,480,148 shares at March 31, 2018 and December 31, 2017		285			285
Additional paid-in capital		284,457			284,396
Accumulated deficit		(279,835	)		(281,124	)
Accumulated other comprehensive loss		(75	)		(75	)
Total stockholders’ equity		4,838			3,488
Total liabilities and stockholders’ equity	$	14,366		$	13,450

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,
	2018		2017
Net Income	$	1,289	$	255
Add back:
Depreciation and amortization		84		77
Interest expense		116		15
Income tax expense		—		13
EBITDA		1,489		360
Management add back:
Fair value adjustment of contingent consideration		—		111
Stock based compensation		61		70
Adjusted EBITDA	$	1,550	$	541

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