Heritage Global Inc. Reports 2018 Fourth Quarter and Full Year 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 fourth quarter and full-year ended December 31, 2018 as summarized below.

($ in thousands, except per share amounts)	Quarter Ended December 31,		Year Ended December 31,
	2018	2017	2018	2017
Revenue
Services revenue^(1)	$ 5,251	$ 5,300	$ 21,658	$ 17,937
Asset sales^(2)	655	277	2,006	2,192
Total revenue	5,906	5,577	23,664	20,129
Gross profit	4,611	4,696	19,616	15,416
Operating income	627	(372)	4,078	364
Net income	408	(387)	3,751	(249)
Net income per share – basic and diluted	$ 0.01	$ (0.01)	$ 0.13	$ (0.01)
(Non-GAAP Financial Measures)^(3)
EBITDA	$ 707	$ (694)	$ 4,554	$ (261)
Adjusted EBITDA	$ 777	$ 909	$ 4,686	$ 2,065

(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)	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.

Heritage Global Chief Executive Officer Ross Dove stated, “Our strong fourth quarter and full year 2018 financial results mark the conclusion of another year of significant growth and success for Heritage Global. The double-digit increase in annual revenues, combined with our ability to maintain a healthy gross margin resulted in a 27% jump in annual gross profit and a more than thirteen-fold increase in operating income. Importantly, the ongoing execution of our strategies to profitably grow the top line and control costs led to record annual adjusted EBITDA of $4.7 million, representing growth of 127% compared to the prior year period.

“We continued to further expand our portfolio of diversified global asset solutions in key sectors throughout the year to create new value for our corporate clients, customers, partners and shareholders. In this regard, during the fourth quarter our Heritage Global Partners asset advisory and auction services division entered into a strategic partnership with Napier Park Global Capital to pursue acquisition opportunities for industrial machinery, equipment, real estate and turnkey manufacturing facilities. This partnership represents another strategic and financially compelling growth opportunity for the Company as it delivers the potential to enhance revenue and capture market share.

“Our initiatives to position Heritage for near- and long-term growth and profitability are yielding positive results as we execute on all facets of our business. We continue to follow the successful strategies we have established in terms of building the top line, maintaining close control of costs and opportunistically managing our capital structure to maximize cash flow. As a result, we ended 2018 with a significantly improved balance sheet and liquidity position, with our cash and cash equivalents on hand increasing by 102%, compared to year-end 2017 levels.

“In summary, the fourth quarter marked a strong end to a record year of financial performance for Heritage Global, as well as the beginning of what we expect to be another significant period of growth for the Company in 2019. We remain committed to profitably expanding the business both organically and through select accretive acquisitions that will add complementary capabilities to our platform. With the positive operating momentum across our business and a strengthening balance sheet, Heritage has a solid foundation to continue pursuing a range of near- and long-term growth opportunities that we are confident will deliver enhanced shareholder value in 2019 and beyond.”

Fourth Quarter 2018 Summary of Financial Results:

• Total fourth quarter revenue was $5.9 million, compared to the year ago level of $5.6 million, representing an increase of 6%. Services revenue was essentially flat at $5.3 million, while asset sales revenue more than doubled to $0.7 million in the fourth quarter of 2018 from $0.3 million in the prior year.
• Gross profit, or total revenue net of costs of revenue was $4.6 million in the fourth quarter of 2018 compared to the year ago level of $4.7 million.
• Operating income was $0.6 million in the fourth quarter of 2018, compared to an operating loss of $0.4 million, representing a year-over-year increase of $1.0 million.
• Heritage Global recorded net income of $0.4 million in the 2018 fourth quarter, or $0.01 per share, compared to a net loss of approximately $0.4 million, or $0.01 per share, in the prior year.
• EBITDA was $0.7 million in the fourth quarter, compared to an EBITDA loss of $0.7 million in the prior year.
• Adjusted EBITDA was $0.8 million in the fourth quarter of 2018, compared to $0.9 million in the prior year. Adjustments in the 2017 fourth quarter related to one-time or non-recurring items including a non-cash fair value adjustment of its contingent consideration from the acquisition of NLEX and the settlement costs related to an almost decade old litigation matter. No such one-time or non-recurring adjustments were made in the 2018 fourth quarter.

Full Year 2018 Summary of Financial Results:

• Total revenue in 2018 was $23.7 million, compared to the year ago level of $20.1 million, representing an increase of 18%. The increase was primarily driven by a $3.7 million, or 21%, year-over-year rise in services revenue, which more than offset a $0.2 million, or 8%, year-over-year decline in asset sales revenue.
• Gross profit, or total revenue net of costs of revenue, increased 27% to $19.6 million in 2018 from $15.4 million in 2017, due principally to the mix in 2018 of higher margin services revenue and the timing and magnitude of certain asset liquidation transactions which together resulted in a $0.6 million, or 14%, reduction in the cost of total revenue.
• Full year 2018 operating income rose more than 13-fold to $4.1 million in 2018, compared to $0.3 million.
• Heritage Global recorded net income of $3.8 million in 2018, or $0.13 per share, compared to a net loss of approximately $0.3 million, or $0.01 per share, in the prior year. Heritage Global’s continued financial improvement reflects growing results from its asset liquidation business line, coupled with continued organization-wide operational and cost discipline.
• EBITDA was $4.6 million in 2018, compared to an EBITDA loss of $0.3 million in 2017.
• Adjusted EBITDA increased 127% to $4.7 million in 2018, compared to $2.1 million in 2017. Adjustments in the comparable 2017 related to one-time or non-recurring items including the non-cash fair value adjustment of its contingent consideration from the acquisition of NLEX and the settlement costs related to an almost decade old litigation matter. Adjustments in the 2018 period include the non-cash fair value adjustment of its contingent consideration from the acquisition of NLEX.

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 December 31,						Year Ended December 31,
	2018			2017			2018			2017
Revenues:
Services revenue	$	5,251		$	5,300		$	21,658		$	17,937
Asset sales		655			277			2,006			2,192
Total revenues		5,906			5,577			23,664			20,129
Operating costs and expenses:
Cost of services revenue		903			716			2,904			3,007
Cost of asset sales		392			165			1,144			1,706
Selling, general and administrative		3,904			3,846			15,219			13,597
Depreciation and amortization		80			80			319			313
Settlement accrual		—			1,142			—			1,142
Total operating costs and expenses		5,279			5,949			19,586			19,765
Operating income (loss)		627			(372	)		4,078			364
Fair value adjustment of contingent consideration		—			(402	)		157			(938	)
Interest expense		(13	)		(51	)		(214	)		(95	)
Income (loss) before income tax expense		614			(825	)		4,021			(669	)
Income tax expense (benefit)		206			(438	)		270			(420	)
Net income (loss)	$	408		$	(387	)	$	3,751		$	(249	)
Weighted average common shares outstanding – basic		28,653,278			28,480,148			28,581,654			28,468,545
Weighted average common shares outstanding – diluted		28,835,511			28,480,148			28,894,927			28,468,545
Net income (loss) per share – basic	$	0.01		$	(0.01	)	$	0.13		$	(0.01	)
Net income (loss) per share – diluted	$	0.01		$	(0.01	)	$	0.13		$	(0.01	)

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

-balance sheets follow-

	December 31,
	2018			2017
ASSETS
Current assets:
Cash and cash equivalents	$	4,268		$	2,109
Accounts receivable (net of allowance for doubtful accounts of $0 in 2018; $110 in 2017)		400			384
Inventory – equipment		2,405			170
Other current assets		607			357
Total current assets		7,680			3,020
Property and equipment, net		175			145
Equity method investments		2,767			14
Intangible assets, net		3,627			3,877
Goodwill		6,158			6,158
Other assets		224			236
Total assets	$	20,631		$	13,450
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	8,101		$	5,019
Current portion of related party debt		—			382
Current portion of third party debt		1,178			356
Contingent consideration		—			2,774
Other current liabilities		892			133
Total current liabilities		10,171			8,664
Non-current portion of third party debt		438			786
Other non-current liabilities		1,838			—
Deferred tax liabilities		584			512
Total liabilities		13,031			9,962
Commitments and contingencies
Stockholders’ equity: [Please fix formatting/spacing below?]
Preferred stock, $10.00 par value, authorized 10,000,000 shares; issued and outstanding 569 Class N shares at December 31, 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 December 31, 2018 and 28,470,148 shares at December 31, 2017		293			285
Additional paid-in capital		284,751			284,396
Accumulated deficit		(277,373	)		(281,124	)
Accumulated other comprehensive loss		(77	)		(75	)
Total stockholders’ equity		7,600			3,488
Total liabilities and stockholders’ equity	$	20,631		$	13,450

The notes contained in our Annual Report on Form 10-K 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 December 31,					Year Ended December 31,
	2018		2017			2018			2017
Net income (loss)	$	408	$	(387	)	$	3,751		$	(249	)
Add back:
Depreciation and amortization		80		80			319			313
Interest and other expense, net		13		51			214			95
Income tax expense (benefit)		206		(438	)		270			(420	)
EBITDA		707		(694	)		4,554			(261	)
Management add back:
Stock based compensation		70		59			289			246
Settlement accrual		—		1,142			—			1,142
Fair value adjustment of contingent consideration		—		402			(157	)		938
Adjusted EBITDA	$	777	$	909		$	4,686		$	2,065

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