Heritage Global Inc. Reports 2014 Q2 Operating Results

SAN DIEGO & TORONTO--()--Heritage Global Inc. (OTCQB: HGBL, CSE: HGP) (“HGI” or the “Company”), a leader in asset liquidation transactions, valuations and advisory, today reported financial results for the second quarter ended June 30, 2014 as summarized below.

 
Summary Financial Data

(unaudited)

($ in thousands, except per share amounts)       Three months ended

June 30,

    Six months ended

June 30,

2014

 

2013

   

2014

 

2013

Total asset liquidation revenue(1) $ 2,811 $ 1,932 $ 4,796 $ 3,324
Earnings (loss) of equity accounted asset liquidation investments(2) 18 7 (12 ) 809
Operating loss (469 ) (1,107 ) (1,246 ) (2,012 )
Net loss (584 ) (743 ) (26,155 ) (1,390 )
Loss per diluted common share       $ (0.02 )   $ (0.03 )     $ (0.93 )   $ (0.05 )
 
(1)   Represents revenue generated from activities where Heritage Global acted in a principal capacity or had majority interest in a transaction.
(2) Represents equity in income (loss) from activities where Heritage Global acted as a member of a syndicate in a transaction. Figure is net of tax of $0.

2014 Q2 Summary:

  • On March 20, 2014, the Company’s former majority shareholder, Counsel Corporation (“Counsel”), declared a dividend of all of its ownership shares. This dividend was paid on April 30, 2014 to Counsel’s common shareholders of record as of April 1, 2014. This transaction completed Counsel’s planned disposition of its interest in HGI.
  • On April 29, 2014, Heritage Global listed its shares on the CSE (Canadian Securities Exchange) under the stock ticker HGP.
  • On June 2, 2014, the Company acquired National Loan Exchange, Inc. (“NLEX”), a leading broker of charged-off receivables in the US and Canada. The purchase price consisted of $2.0 million cash and up to $5.0 million of contingent consideration based on NLEX earnings during the following four years.
  • The Company successfully completed the sale of the Lufthansa Technik Airmotive Ireland (LTAI) Dublin Plant assets, in collaboration with Cloud Investment Partners, with proceeds exceeding expectations. The sale featured a wide range of engineering, inspection, test equipment, works transport and other items. Over 420 bidders participated – from 11 countries and three continents – acquiring more than 1,800 lots in aggregate.
  • Asset liquidation revenues rose approximately 45% to $2.8 million. Asset liquidation expense increased to $569,000, compared to $341,000 in Q2 2013. Earnings of equity accounted asset liquidation investments were $18,000, versus $7,000 in 2013. The net earnings of these three items were $2.3 million in 2014, up significantly compared to $1.6 million in the year-ago period.
    • The increased Q2 net earnings reflects the variances in the timing of asset liquidation transactions as well as the acquisition of NLEX, which was responsible for $281,000 of the quarter’s net asset liquidation earnings.
  • SG&A expenditures, including expenses paid to related parties, were unchanged at $2.6 million.
  • Total operating costs and expenses increased 8% to $3.3 million, due to higher asset liquidation costs.
  • The Company’s operating loss narrowed to $469,000, down from $1.1 million in the 2013 Q2 period.
  • Net loss was $584,000, or $0.02 per diluted common share, representing a 21% improvement versus the 2013 Q2 period.

Heritage Global Partners Managing Partner Ross Dove stated, “Heritage Global continues to focus on building a sustainable, long-term global capital asset solutions business as we grow and further diversify our comprehensive range of asset liquidation offerings. In this regard, during Q2 the Company again expanded its operations with the acquisition of National Loan Exchange, Inc. (NLEX). As the largest volume broker of charged-off receivables in the US and Canada, its offerings include national, state and regional portfolios on behalf of many of the world’s top financial institutions. We expect NLEX’s top- and bottom-line financial contributions to enhance future operating results.”

Heritage Global Partners Managing Partner Kirk Dove added, “The notable 45% year-over-year increase in total Q2 revenue underscores the fact that Heritage Global’s auction, asset liquidation, advisory, going concern and investment banking businesses all continue to deliver positive results on behalf of our clientele. Despite these impressive top-line gains, the Company’s Q2 bottom-line results were impacted by higher asset liquidation expenses and non-recurring costs within our SG&A. These costs included consulting expenses as well as legal and professional fees related to our NLEX acquisition and Counsel Corporation’s decision to dividend their entire Heritage Global holdings to their shareholders. Although there are higher fixed costs that come with managing a larger organization, we believe our growing portfolio of value-added services, combined with our emphasis on client service excellence, will remain important factors in helping us produce favorable operating results over the long-term.”

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

Heritage Global Inc. (OTCQB: HGBL, CSE: HGP) is a value-driven, innovative leader in asset liquidation transactions, valuations and advisory. The Company focuses on identifying, valuing, acquiring and monetizing surplus and distressed capital assets in 25 global manufacturing and technology sectors. It specializes in both acting as an advisor as well as acquiring turnkey manufacturing facilities, surplus industrial machinery and equipment, industrial inventories, accounts receivable portfolios and related intellectual property.

Forward-Looking Statements

The statements made in this release that are not historical facts contain forward-looking information that involves risks and uncertainties. All statements, other than statements of historical facts, which address the Company's expectations, should be considered as forward-looking statements. Such statements are based on knowledge of the environment in which the Company currently operates, but because of the factors listed herein, as well as other factors beyond the Company's control, actual results may differ materially from the expectations expressed in the forward-looking statements. Important factors that may cause actual results to differ from anticipated results include, but are not limited to, obtaining necessary approvals and other risks detailed from time to time in the Company's securities and other regulatory filings.

       
HERITAGE GLOBAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(in thousands of US dollars, except share and per share amounts)
(unaudited)
 
Three Months Ended Six Months Ended
June 30, June 30,
2014   2013 2014   2013
Revenue:
Asset liquidation
Asset sales $ 499

$

152

$

1,474

$ 598
Commissions and other   2,312   1,780   3,322     2,726  
Total asset liquidation revenue 2,811 1,932 4,796 3,324
Intellectual property licensing   --   --   --     200  
Total revenue   2,811   1,932   4,796     3,524  
 
Operating costs and expenses:
Asset liquidation 517 226 921 582
Inventory maintenance 52 115 113 189
Patent licensing and maintenance 5 6 16 156
Selling, general and administrative, including expenses paid to related parties 2,604 2,580 4,742 5,178
Depreciation and amortization   120   119   238     240  
Total operating costs and expenses   3,298   3,046   6,030     6,345  
(487 ) (1,114 ) (1,234 ) (2,821 )
Earnings (loss) of equity accounted asset liquidation

investments (net of tax of $0)

  18   7   (12 )   809  
Operating loss   (469 ) (1,107 ) (1,246 )   (2,012 )
Other expense:
Interest expense – third party (100 ) (174 ) (171 ) (269 )
Interest expense – related party   (39 ) --   (106 )   --  
Total other expense   (139 ) (174 ) (277 )   (269 )
Loss before the undernoted (608 ) (1,281 ) (1,523 ) (2,281 )
Income tax expense (recovery) -- (500 ) 24,667 (853 )
Earnings of other equity accounted investments (net of tax of $0)   24   38   35     38  
Net loss (584 ) (743 ) (26,155 ) (1,390 )
Other comprehensive income (loss):
Currency translation adjustment (net of tax of $0)   22   (2 ) 16     (9 )
Comprehensive loss $ (562 )

$

(745

)

$

(26,139

) $ (1,399 )
 
Weighted average common shares outstanding – basic and diluted (in thousands) 28,167 28,954 28,167 28,949
 
Net loss per share – basic and diluted $ (0.02 )

$

(0.03

)

$

(0.93

) $ (0.05 )
 

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

       
HERITAGE GLOBAL INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of U.S. dollars, except share and per share amounts)
(unaudited)
 

 

June 30,

2014

December 31,

2013

ASSETS
Current assets:
Cash and cash equivalents $ 2,357 $ 3,213
Amounts receivable (net of allowance for doubtful accounts of $0; 2013 - $0) 1,113 1,670
Deposits 1 17
Inventory – equipment 266 578
Other current assets 564 479
Income taxes recoverable 22 1
Deferred income tax assets -- 1,366
Total current assets 4,323 7,324
Non-current assets:
Inventory – real estate 6,328 6,078
Asset liquidation investments 967 1,380
Investments 1,398 1,769
Property, plant and equipment, net 45 32
Intangible assets, net 4,584 4,810
Goodwill 11,486 5,301
Deferred income tax assets -- 23,301
Total assets $ 29,131 $ 49,995
 
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 5,924 $ 6,510
Debt payable to third parties 2,751 1,438
Debt payable to a related party 2,655 2,550
Total current liabilities 11,330 10,498
Non-current liabilities:
Contingent consideration 4,198 --
Total liabilities 15,528 10,498
Commitments and contingencies
Equity:

Preferred stock, $10.00 par value, authorized 10,000,000 shares; issued and
outstanding 575 Class N shares at June 30, 2014 and 579 Class N shares at
December 31, 2013, liquidation preference of $575 at June 30, 2014 and
$579 at December 31, 2013

6 6

Common stock, $0.01 par value, authorized 300,000,000 shares; issued and
outstanding 28,167,408 shares at June 30, 2014 and 28,167,248 shares at
December 31, 2013

282 282
Additional paid-in capital 283,452 283,207
Accumulated deficit (270,109) (243,954)
Accumulated other comprehensive loss (28) (44)
Total equity 13,603 39,497
Total liabilities and equity $ 29,131 $ 49,995
 

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

Contacts

Stephen A. Weintraub, 416-866-3058
Executive Vice President, Secretary & CFO
sweintraub@counselcorp.com
or
JCIR
Robert Rinderman or Jennifer Neuman
HGBL@jcir.com or 212-835-8500

Sharing

Contacts

Stephen A. Weintraub, 416-866-3058
Executive Vice President, Secretary & CFO
sweintraub@counselcorp.com
or
JCIR
Robert Rinderman or Jennifer Neuman
HGBL@jcir.com or 212-835-8500