Heritage Global Inc. Announces 2019 First Quarter Operating Results

SAN DIEGO--(BUSINESS WIRE)--Heritage Global Inc. (OTCQB: HGBL, CSE: HGP) (“Heritage Global,” “HGI” or “the Company”), a global diversified financial services and asset trading company with industry-leading capabilities across corporate and financial asset monetization, advisory, and valuation services, today reported financial results for the first quarter ended March 31, 2019.

Heritage Global Chief Executive Officer Ross Dove stated, “This quarter’s profitable results reinforce the ongoing evolution of our business. Total revenue increased 13% year-over-year, with higher asset sales offsetting lower services fees, which were impacted by variability in the timing of transactions. As we work and invest to grow, scale and build a diverse business, we also continue to focus on disciplined expense management and overall profitability.

“Looking ahead, we remain confident in our ability to generate consistent and sustainable growth, reflecting the diversification we have built across businesses, revenue streams, and geographies, and as our newer, complimentary businesses continue to season. Furthermore, we maintain ample flexibility to fund future growth – through both strategic/complimentary acquisitions and joint ventures, as well as organic growth – via our strong balance sheet and recently upsized credit facility.

“As always, we remain focused on becoming a leading solutions provider in monetizing assets across all classes and geographies, with an overarching objective of continuing to build shareholder value.”

First Quarter 2019 Summary of Financial Results:
($ in thousands, except per share amounts)	Quarter Ended March 31,
	2019		2018
Revenue
Services revenue^(1)	$	4,408	$	5,039
Asset sales^(2)		2,143		775
Total revenue		6,551		5,814
Gross profit		4,660		4,986
Operating income		659		1,405
Net income		612		1,289
Net income per share – basic and diluted	$	0.02	$	0.05
(Non-GAAP Financial Measures)^(3)
EBITDA	$	735	$	1,489
Adjusted EBITDA	$	806	$	1,550

(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 previously purchased assets.
(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.

First Quarter 2019 Highlights:

• Total revenue grew 13% to $6.6 million, compared to the year ago level of $5.8 million, as asset sales increased to $2.1 million from $0.8 million, offsetting a $0.6 million decrease in services revenue.
• Gross profit was $4.7 million compared to $5.0 million in the prior-year quarter, largely reflecting the variability in size/timing of asset liquidation transactions and sales.
• Operating income was $0.7 million versus $1.4 million in the first quarter of 2018. The comparison between the first quarters was negatively impacted by the completion of “contingent consideration” acquisition payments to NLEX division management in 2018, which was replaced by a conventional bonus structure in 2019, resulting in a $0.3 million negative income statement variance.
• Net income was $0.6 million, or $0.02 per share, compared to $1.3 million, or $0.05 per share, in the prior year.
• EBITDA totaled $0.7 million versus $1.5 million in the prior year, while Adjusted EBITDA (excluding non-cash stock-based compensation expense) was $0.8 million compared to $1.6 million in the prior-year quarter.
• Stockholders’ equity increased 9% to $8.3 million from $7.6 million at December 31, 2018.
• In March 2019, the Company amended its revolving line of credit to provide for aggregate loan capacity of up to $3.0 million.

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/minus stock-based compensation. Management believes that the presentation of this non-GAAP financial measure, when considered together with 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 believes that Adjusted EBITDA is a useful supplemental tool to evaluate the underlying operating performance of the Company on an ongoing basis and make operating and strategic decisions. 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. 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 press release which reconciles GAAP reported net income to EBITDA and Adjusted EBITDA for the periods presented herein.

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

Heritage Global Inc. (OTCQB: HGBL, CSE: HGP) is a global diversified financial services and asset trading company with industry-leading capabilities across corporate and financial asset monetization, advisory, and valuation services. Heritage Global focuses on identifying, valuing, acquiring and monetizing underlying tangible and intangible assets across twenty-eight global sectors. The company 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 INCOME
(in thousands of US dollars, except share and per share amounts)
(Unaudited)
	Three Months Ended
	March 31,
	2019			2018
Revenues:
Services revenue	$	4,408		$	5,039
Asset sales		2,143			775
Total revenues		6,551			5,814
Operating costs and expenses:
Cost of services revenue		731			559
Cost of asset sales		1,160			269
Selling, general and administrative		3,925			3,497
Depreciation and amortization		76			84
Total operating costs and expenses		5,892			4,409
Operating income		659			1,405
Interest expense and other expense, net		(23	)		(116	)
Income before income tax expense		636			1,289
Income tax expense		24			—
Net income	$	612		$	1,289
Weighted average common shares outstanding – basic		28,653,278			28,480,148
Weighted average common shares outstanding – diluted		28,814,149			28,489,128
Net income per share – basic	$	0.02		$	0.05
Net income per share – diluted	$	0.02		$	0.05

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. CONSOLIDATED BALANCE SHEETS (In thousands of US dollars, except share and per share amounts)
	March 31,			December 31,
	2019			2018
ASSETS	(unaudited)
Current assets:
Cash and cash equivalents	$	1,836		$	4,268
Accounts receivable		1,326			400
Inventory – equipment		1,526			2,405
Other current assets		670			607
Total current assets		5,358			7,680
Property and equipment, net		163			175
Equity method investments		2,767			2,767
Right-of-use assets		1,103			—
Intangible assets, net		3,568			3,627
Goodwill		6,158			6,158
Other assets		224			224
Total assets	$	19,341		$	20,631
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	5,577		$	8,101
Current portion of debt		1,184			1,178
Current portion of lease liabilities		534			—
Other current liabilities		549			892
Total current liabilities		7,844			10,171
Non-current portion of debt		340			438
Non-current portion of lease liabilities		628			—
Other non-current liabilities		1,662			1,838
Deferred tax liabilities		584			584
Total liabilities		11,058			13,031
Stockholders’ equity:
Preferred stock, $10.00 par value, authorized 10,000,000 shares; issued and outstanding 569 Class N shares at March 31, 2019 and December 31, 2018		6			6
Common stock, $0.01 par value, authorized 300,000,000 shares; issued and outstanding 29,253,278 shares at March 31, 2019 and 29,253,278 shares at December 31, 2018		293			293
Additional paid-in capital		284,822			284,751
Accumulated deficit		(276,761	)		(277,373	)
Accumulated other comprehensive loss		(77	)		(77	)
Total stockholders’ equity		8,307			7,600
Total liabilities and stockholders’ equity	$	19,341		$	20,631

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,
	2019		2018
Net income	$	612	$	1,289
Add back:
Depreciation and amortization		76		84
Interest and other expense, net		23		116
Income tax expense		24		—
EBITDA		735		1,489
Management add back:
Stock based compensation		71		61
Adjusted EBITDA	$	806	$	1,550

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