Heritage Global Inc. Reports 2015 Third Quarter Operating Results

SAN DIEGO--()--Heritage Global Inc. (OTCQB:HGBL, CSE:HGP), a leader in distressed and surplus corporate and financial asset valuations and transactions, today reported financial results for the third quarter ended September 30, 2015 as summarized below.

   
Summary Financial Data

(unaudited)

($ in thousands, except per share amounts)        

Three months ended
September 30,

     

Nine months ended
September 30,

2015     2014       2015     2014
Asset liquidation revenue(1)                          
Commissions and other $   2,358         $   1,365         $   7,549         $   4,687  
Asset sales     682             4,738             2,094             6,212  
Total revenue     3,040             6,103             9,643             10,899  
(Losses) earnings of asset liquidation investments(2)     (34 )           (41 )           105             (53 )
Operating loss     (3,469 )           (140 )           (4,571 )           (1,386 )
Net loss     (3,637 )           (188 )           (4,917 )           (26,343 )
Net loss per share – basic and diluted         $   (0.13 )       $   (0.01 )       $   (0.17 )       $   (0.94 )
             
(1) Represents revenue generated from activities where Heritage Global acted in a principal capacity or brokered a transaction.
(2) Represents equity income from investments by Heritage Global in joint ventures that conduct asset liquidation transactions.
 

Third Quarter 2015 Financial Results Summary:

  • Asset liquidation revenues were $3.0 million, compared to the year ago third quarter level of $6.1 million. Asset liquidation expense decreased 85% to $0.5 million, from $3.4 million in the year-ago period. Losses of equity accounted asset liquidation investments were $34,000, compared to $41,000 in the third quarter of 2014.
  • The Asset liquidation gross profit, or Asset liquidation revenue net of Losses of equity accounted asset liquidation investments and Asset liquidation expense, excluding the real estate inventory write-down (discussed below), decreased by $0.2 million to $2.5 million, compared to $2.7 million in the year ago third quarter. The year-over-year decrease reflects the timing of certain asset liquidation transactions.
  • Heritage Global successfully completed a number of global online sales. Some of the Company’s largest auctions during the quarter included Amgen, Utilipath, Aurora Algae, American Electric Power and Pfizer.
  • Selling, general and administrative expenses, including expenses paid to related parties, was $3.0 million during the period, compared to $2.7 million in the 2014 third quarter.
  • Following the changes to Heritage Global’s executive officers and directors in May 2015, the Company continues to actively pursue initiatives aimed at managing costs, creating operating efficiencies and paying down debt.
    • Heritage Global terminated its Management Services Agreement (MSA) with Street Capital Group Inc. (formerly Counsel Corporation) effective August 31, 2015 (more fully described in the Form 8-K filed with the SEC on September 1, 2015). As a result, Heritage Global expects to achieve about $0.5 million in annual cost savings beginning in 2016. There were no one time fees or expenses related to the termination of the agreement.
    • In October, Heritage Global retained a new broker to sell certain Company-owned real estate. In connection with the re-listing of the property, the Company recorded a real estate inventory write-down charge during the 2015 third quarter of $2.7 million. The write-down represented a reduction of the carrying value of the real estate inventory to its net realizable value. No charge was taken in the comparable 2014 period.
  • Net loss for the third quarter of 2015 was $3.6 million, or a loss of $0.13 per common share. This compares to a net loss of $0.2 million, or a loss of $0.01 per common share in the prior year period. A large portion of the 2015 third quarter net loss was attributable to the aforementioned real estate inventory write-down charge, which represented approximately 79% of total third quarter operating loss of $3.5 million. Excluding the real estate inventory write-down charge the net loss for the third quarter of 2015 would have been $0.9 million, or a loss of $0.03 per common share.
  • The asset liquidation gross profit, excluding the real estate inventory write-down, for the nine-month period increased by $1.2 million to $7.6 million, compared to $6.4 million in the year ago period. The 19% year-over-year increase reflects the timing of certain asset liquidation transactions as well as an increase of approximately $2.1 million of net asset liquidation gross profit from National Loan Exchange Inc. (NLEX) from having it for the entire nine months of 2015 compared to only four months in 2014, as Heritage Global acquired NLEX in June of 2014.

Heritage Global Chief Executive Officer Ross Dove stated, “Heritage Global’s executive team continues to make noteworthy progress on our objectives to improve profitability through the implementation and execution of our expense management initiatives and strategies to further de-leverage and strengthen our balance sheet while pursuing new and opportunistic revenue channels. In this regard, during the third quarter we terminated our MSA with Street Capital Group Inc., which will result in meaningful SG&A cost savings. And, while third quarter operating results were impacted by a non-recurring write down charge related to the planned sale of our real estate inventory, we are confident this initiative will facilitate an accelerated sale of this asset, further reducing operating expenses and leading to a significant improvement in our capital structure through debt reduction.”

“Looking ahead, we expect to realize operating efficiencies and financial benefits from our de-leveraging, expense management and profitability initiatives in future periods and are confident these efforts will be critical to our long-term plan to strategically build our organization into a leading provider of diversified and unique global asset solutions and services. Heritage Global’s auction, asset liquidation, advisory, going concern, fixed asset financing, real estate auction services and investment banking businesses all continue to deliver positive results on behalf of our clients.”

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 specializes both in acting as an adviser, as well as acquiring or brokering turnkey manufacturing facilities, surplus industrial machinery and equipment, industrial inventories, accounts receivable portfolios, related intellectual property, and entire business enterprises.

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.

-financial tables follow-

 
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
September 30,

     

Nine Months Ended
September 30,

2015       2014 2015       2014
Revenue:
Asset liquidation
Commissions and other $   2,358 $   1,365 $   7,549 $   4,687
Asset sales     682       4,738       2,094       6,212  
Total revenue     3,040       6,103       9,643       10,899  
 
 
 
Operating costs and expenses:
Asset liquidation 516 3,385 2,128 4,419
Real estate inventory write-down 2,748 2,748
Selling, general and administrative, including expenses paid to related parties 3,045 2,698 8,953 7,456
Depreciation and amortization     166       119       490       357  
 
Total operating costs and expenses     6,475       6,202       14,319       12,232  
(Losses) earnings of equity accounted asset liquidation investments     (34 )     (41 )     105       (53 )
 
Operating loss     (3,469 )     (140 )     (4,571 )     (1,386 )
 
Other income (expenses):
Earnings of other equity method investments 129 5 164
Interest expense – third party (127 ) (79 ) (262 ) (250 )
Interest expense – related party     (21 )     (43 )     (66 )     (149 )
 
Total other (expense) income     (148 )     7       (323 )     (235 )
 
Loss before income tax expense (3,617 ) (133 ) (4,894 ) (1,621 )
Income tax expense     20       55       23       24,722  
Net loss (3,637 ) (188 ) (4,917 ) (26,343 )
Other comprehensive income (loss):
Foreign currency translation adjustments     4       (7 )     (25 )     9  
 
Comprehensive loss $   (3,633 ) $   (195 ) $   (4,942 ) $   (26,334 )
 
 
Weighted average common shares outstanding – basic and diluted (in thousands) 28,468 28,167 28,293 28,167
 
Net loss per share – basic and diluted $ (0.13 ) $ (0.01 ) $ (0.17 ) $ (0.94 )
 

The notes contained in our Quarterly Report on Form 10-Q are an integral part of these condensed 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)
 
       

September 30,
2015

     

December 31,
2014

 
ASSETS
Current assets:
Cash and cash equivalents $   2,657 $   3,633
Accounts receivable, net 757 3,043
Deposits 2 173
Inventory – equipment 435 139
Other current assets     568       587  
Total current assets 4,419 7,575
 
Inventory – real estate 3,760 6,508
Equity method investments 209 1,134
Property and equipment, net 115 150
Identifiable intangible assets, net 7,202 7,657
Goodwill     8,846       8,846  
Total assets $   24,551   $   31,870  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 6,716 $ 7,225
Current portion of third party debt 2,500 525
Current portion of related party debt 1,698 2,985
Contingent consideration – current     1,353       803  
Total current liabilities     12,267       11,538  
 
Long-term third party debt 2,500
Contingent consideration 2,472 3,395
Deferred tax liabilities     960       960  
Total liabilities     15,699       18,393  
 
 
Stockholders’ equity:

Preferred stock, $10.00 par value, authorized 10,000,000 shares; issued and outstanding
  569 Class N shares at September 30, 2015 and 575 Class N shares at December 31, 2014

6 6

Common stock, $0.01 par value, authorized 300,000,000 shares; issued and outstanding
  28,467,648 shares at September 30, 2015 and 28,167,408 shares at December 31, 2014

285 282
Additional paid-in capital 284,005 283,691
Accumulated deficit (275,385 ) (270,468 )
Accumulated other comprehensive loss     (59 )     (34 )
Total stockholders’ equity     8,852       13,477  
Total liabilities and stockholders’ equity $   24,551   $   31,870  
 

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

Contacts

Heritage Global Inc.
Scott West, 858-847-0656
Chief Financial Officer
or
JCIR
Jennifer Neuman, Joseph Jaffoni
212-835-8500
HGBL@jcir.com

Release Summary

Heritage Global Inc. (OTCQB: HGBL, CSE: HGP) a leader in distressed and surplus corporate and financial asset valuations and transactions, reports third quarter financial results.

Contacts

Heritage Global Inc.
Scott West, 858-847-0656
Chief Financial Officer
or
JCIR
Jennifer Neuman, Joseph Jaffoni
212-835-8500
HGBL@jcir.com