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 third quarter and nine-months ended September 30, 2018 as summarized below.
| ($ in thousands, except per share amounts) |
Quarter Ended
September 30, |
Nine Months Ended
September 30, |
||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||
| Revenue | ||||||||||||||
| Services revenue(1) | $ | 4,897 | $ | 4,231 | $ | 16,407 | $ | 12,637 | ||||||
| Asset sales(2) | 231 | 506 | 1,351 | 1,915 | ||||||||||
| Total revenue | 5,128 | 4,737 | 17,758 | 14,552 | ||||||||||
| Gross profit | 4,229 | 3,933 | 15,005 | 10,720 | ||||||||||
| Operating income | 416 | 316 | 3,451 | 736 | ||||||||||
| Net income | 369 | 83 | 3,343 | 138 | ||||||||||
| Net income per share – basic and diluted | $ | 0.01 | $ | 0.00 | $ | 0.12 | $ | 0.00 | ||||||
| (Non-GAAP Financial Measures) (3) | ||||||||||||||
| EBITDA | $ | 495 | $ | 148 | $ | 3,847 | $ | 433 | ||||||
| Adjusted EBITDA | $ | 568 | $ | 448 | $ | 3,909 | $ | 1,155 | ||||||
| (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. |
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| (2) |
Asset sales represent revenue generated from activities in which Heritage Global acted in a principal capacity, reselling assets that it had purchased. |
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| (3) |
Definitions and disclosures regarding non-GAAP financial information including reconciliations are included at the end of the press release. |
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Third Quarter 2018 Summary of Financial Results:
- Total third quarter revenue was $5.1 million, compared to the year ago level of $4.7 million, representing an increase of 8%. The year-over-year growth in total revenue reflects a higher volume and magnitude of certain asset liquidation transactions. Services revenue increased to $4.9 million in the third quarter of 2018 from $4.2 million in the third quarter of 2017, while asset sales revenue decreased to $0.2 million in the third quarter of 2018 from $0.5 million in the prior year.
- Gross profit, or total revenue net of costs of revenue, increased 8% to $4.2 million in the third quarter from the year ago level of $3.9 million, due principally to higher services revenue and stable year-over-year gross profit margins.
- During the third quarter, Heritage Global completed a number of successful global online sales, including projects for Pfizer, Ignyta, RJ Reynolds, Wargaming and multiple breweries.
- Selling, general and administrative expenses were $3.7 million in the third quarter, compared to $3.5 million in the prior year. The increase is largely attributable to variable compensation arrangements resulting in higher commissions due to improved performance.
- Operating income was $0.4 million in the third quarter, compared to the year ago level of $0.3 million, representing an increase of 32%.
- Heritage Global’s net income was $0.4 million in the third quarter, or $0.01 per share, compared to net income of approximately $0.1 million, or $0.00 per share, in the prior year. The continued financial improvement in Heritage Global’s operations versus 2017 performance is being driven by improved results in its asset liquidation business line, coupled with steady operational discipline.
- Adjusted EBITDA, a commonly used non-GAAP financial measure, was $0.6 million in the third quarter of 2018, compared to $0.4 million in the prior year, representing growth of 27%. 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.
- During the third quarter, Heritage Global repaid approximately $3.2 million of debt using cash from operations, which primarily consisted of a $2.6 million final contingent consideration payment related to the acquisition of National Loan Exchange Inc. (NLEX). As of September 30, 2018, the contingent consideration had been fully satisfied in accordance with terms stated within the NLEX stock purchase agreement. In addition, the Company repaid $0.4 million of outstanding principal, plus accrued interest, on its related party debt, and terminated the loan agreement with the related party creditor.
- On September 27, 2018, the Company entered into a secured promissory note and business loan agreement (the “Credit Facility”) with First Choice Bank, for a $1.5 million revolving line of credit that accrues at a prime variable interest rate. The Credit Facility matures October 5, 2019 and replaces a $1.5 million related party secured promissory note, which was undrawn and subsequently terminated at the end of the third quarter (for more information, see the Form 10-Q filed with the SEC on November 5, 2018).
Heritage Global Chief Executive Officer, Ross Dove, commented, “Heritage Global delivered overall improved financial results in the 2018 third quarter, reflecting the continued success of our disciplined approach to scaling our leading platform of diversified global asset solutions and services. The strong year-over-year growth in third quarter revenues, combined with our ability to maintain a healthy gross margin resulted in an 8% increase in gross profit and 32% increase in operating income. Importantly, the ongoing execution of our strategies to profitably grow the top line by managing costs and maintaining a strong balance sheet led to adjusted EBITDA of $3.9 million in the first nine months of 2018, representing growth of 238% versus 2017.
“In order to have the financial flexibility to support our near and long-term growth initiatives, we remain focused on opportunistically managing our capital structure and cost of capital to maximize cash flow. In this regard, during the third quarter, we strengthened our balance sheet by allocating cash from operations to repay $3.2 million in debt, and subsequently entered into a new $1.5 million credit facility. In addition, we enhanced our liquidity position by increasing our cash and cash equivalents on hand by 53%, compared to year-end 2017.
“In closing, our strong third quarter and year-to-date financial performance reaffirms our progress in positioning the Company for sustainable growth and profitability. With the positive operating momentum across our business lines and a healthy balance sheet, Heritage Global has a solid foundation to continue pursuing a range of return-focused organic and acquisitive growth opportunities. Looking ahead, we will follow the approach we have successfully deployed to build the top and bottom line, while optimizing the balance sheet and capital structure and are confident that this direction will result in enhanced long-term shareholder value as we move through the remainder of 2018 and beyond.”
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. | ||||||||||||||||
| CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||
| (in thousands of US dollars, except share and per share amounts) | ||||||||||||||||
|
Three Months Ended |
Nine Months Ended |
|||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Revenues: | ||||||||||||||||
| Services revenue | $ | 4,897 | $ | 4,231 | $ | 16,407 | $ | 12,637 | ||||||||
| Asset sales | 231 | 506 | 1,351 | 1,915 | ||||||||||||
| Total revenues | 5,128 | 4,737 | 17,758 | 14,552 | ||||||||||||
| Operating costs and expenses: | ||||||||||||||||
| Cost of services revenue | 710 | 522 | 2,001 | 2,291 | ||||||||||||
| Cost of asset sales | 189 | 282 | 752 | 1,541 | ||||||||||||
| Selling, general and administrative | 3,734 | 3,539 | 11,315 | 9,751 | ||||||||||||
| Depreciation and amortization | 79 | 78 | 239 | 233 | ||||||||||||
| Total operating costs and expenses | 4,712 | 4,421 | 14,307 | 13,816 | ||||||||||||
| Operating income | 416 | 316 | 3,451 | 736 | ||||||||||||
| Fair value adjustment of contingent consideration | — | (246 | ) | 157 | (536 | ) | ||||||||||
| Interest and other expense, net | (47 | ) | 3 | (201 | ) | (44 | ) | |||||||||
| Income before income tax expense | 369 | 73 | 3,407 | 156 | ||||||||||||
| Income tax expense | — | (10 | ) | 64 | 18 | |||||||||||
| Net income | $ | 369 | $ | 83 | $ | 3,343 | $ | 138 | ||||||||
| Weighted average common shares outstanding – basic | 28,653,278 | 28,480,148 | 28,557,517 | 28,464,635 | ||||||||||||
| Weighted average common shares outstanding – diluted | 29,823,918 | 28,481,296 | 28,902,499 | 28,474,997 | ||||||||||||
| Net income per share – basic | $ | 0.01 | $ | 0.00 | $ | 0.12 | $ | 0.00 | ||||||||
| Net income per share – diluted | $ | 0.01 | $ | 0.00 | $ | 0.12 | $ | 0.00 | ||||||||
The notes contained in our Annual 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) | ||||||||
|
September 30, |
December 31,
2017 |
|||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 3,228 | $ | 2,109 | ||||
| Accounts receivable (net of allowance for doubtful accounts of $0 in 2018; $110 in 2017) | 720 | 384 | ||||||
| Inventory – equipment | 114 | 170 | ||||||
| Other current assets | 693 | 357 | ||||||
| Total current assets | 4,755 | 3,020 | ||||||
| Property and equipment, net | 177 | 145 | ||||||
| Identifiable intangible assets, net | 3,691 | 3,877 | ||||||
| Goodwill | 6,158 | 6,158 | ||||||
| Other assets | 251 | 250 | ||||||
| Total assets | $ | 15,032 | $ | 13,450 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued liabilities | $ | 6,407 | $ | 5,019 | ||||
| Related party debt | — | 382 | ||||||
| Current portion of third party debt | 372 | 356 | ||||||
| Contingent consideration | — | 2,774 | ||||||
| Other current liabilities | 84 | 133 | ||||||
| Total current liabilities | 6,863 | 8,664 | ||||||
| Non-current portion of third party debt | 535 | 786 | ||||||
| Deferred tax liabilities | 512 | 512 | ||||||
| Total liabilities | 7,910 | 9,962 | ||||||
| Stockholders’ equity: | ||||||||
|
Preferred stock, $10.00 par value, authorized 10,000,000 shares;
issued and
outstanding 569 Class N shares at September 30, 2018 and December 31, 2017 |
6 | 6 | ||||||
|
Common stock, $0.01 par value, authorized 300,000,000 shares; issued
and outstanding 29,253,278 shares at September 30, 2018 and 28,480,148 shares at December 31, 2017 |
293 | 285 | ||||||
| Additional paid-in capital | 284,681 | 284,396 | ||||||
| Accumulated deficit | (277,781 | ) | (281,124 | ) | ||||
| Accumulated other comprehensive loss | (77 | ) | (75 | ) | ||||
| Total stockholders’ equity | 7,122 | 3,488 | ||||||
| Total liabilities and stockholders’ equity | $ | 15,032 | $ | 13,450 | ||||
The notes contained in our Annual 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 |
Nine Months Ended
September 30, |
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| 2018 | 2017 | 2018 | 2017 | ||||||||||||
| Net Income | $ | 369 | $ | 83 | $ | 3,343 | $ | 138 | |||||||
| Add back: | |||||||||||||||
| Depreciation and amortization | 79 | 78 | 239 | 233 | |||||||||||
| Interest and other expense, net | 47 | (3 | ) | 201 | 44 | ||||||||||
| Income tax expense | — | (10 | ) | 64 | 18 | ||||||||||
| EBITDA | 495 | 148 | 3,847 | 433 | |||||||||||
| Management add back: | |||||||||||||||
| Fair value adjustment of contingent consideration | — | 246 | (157 | ) | 536 | ||||||||||
| Stock based compensation | 73 | 54 | 219 | 186 | |||||||||||
| Adjusted EBITDA | $ | 568 | $ | 448 | $ | 3,909 | $ | 1,155 | |||||||
The notes contained in our Annual Report on Form 10-Q are an integral part of these consolidated financial statements.
