Heritage Global Inc. Announces 2019 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 diversified financial services company providing asset-based acquisition, disposition, valuation, and lending services, today reported financial results for the fourth quarter and full year ended December 31, 2019.

Heritage Global Chief Executive Officer Ross Dove stated, “2019 was a year of tremendous accomplishment for Heritage Global. We launched Heritage Global Capital, a new platform providing specialty financing solutions to small- and medium-sized investors in charged-off and nonperforming asset portfolios and other asset-based classes, with $2.8 million of lending activity since the September 2019 launch through end of year. We realigned and streamlined our middle market M&A advisory services business to improve operating efficiencies. And earlier this year, National Loan Exchange (NLEX) introduced a new online portal for post-sale account management designed to enhance customer service and retention across the firm’s loan sale advisory client base.”

“From a financial perspective, our recent initiatives to further diversify our unique and differentiated model, combined with our existing predictable fee-based advisory businesses, together has us well positioned to drive consistent and sustainable revenue growth across market cycles. Moreover, our ongoing focus on realizing operating efficiencies, combined with accelerating higher-margin principal investments, bodes well for improving profitability in the coming quarters.”

“Looking ahead, we remain focused on increasingly penetrating target markets, broadening our product and service capabilities, and extending principal investment activities, which we believe will drive long-term shareholder value.”

Fourth Quarter 2019 Summary of Financial Results:
($ in thousands, except per share amounts)	Quarter Ended December 31,					Year Ended December 31,
		2019			2018		2019		2018
Revenue
Services revenue^(1)	$	5,150		$	5,251	$	20,100	$	21,658
Asset sales^(2)		421			655		6,068		2,006
Total revenue		5,571			5,906		26,168		23,664
Gross profit		4,433			4,611		18,429		19,616
Operating (loss) income		(446	)		627		3,050		4,078
Net income		577			408		3,899		3,751
Net income per share – diluted	$	0.02		$	0.01	$	0.13	$	0.13
(Non-GAAP Financial Measures)^(3)
EBITDA	$	(367	)	$	707	$	3,355	$	4,554
Adjusted EBITDA	$	279		$	777	$	4,211	$	4,686

(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.

Fourth Quarter 2019 Highlights:

• Total revenue of $5.6 million compared to $5.9 million in the prior-year quarter, as services revenue edged lower to $5.2 million from $5.3 million, while asset sales declined to $0.4 million from $0.7 million. Year-over-year comparisons were mostly a function of the volume, size and timing of asset liquidation transactions during the respective quarters.
• Gross profit totaled $4.4 million versus $4.6 million in the prior-year quarter, with the decline in total revenue partially offset by lower cost of revenue. As always, the variability in size and timing of asset sale transactions can skew quarterly comparisons.
• For the fourth quarter of 2019, the company posted an operating loss of $0.4 million compared to operating income of $0.6 million a year ago. The operating loss primarily reflected a previously-announced $0.6 million non-cash goodwill impairment charge related to the Equity Partners separation, as well as compensation for the new employees within our HGC division.
• During the fourth quarter of 2019, the company recognized an income tax benefit of $1.0 million compared to an income tax expense of $0.2 million a year ago. Based on the past several years of taxable income and projections of taxable income in 2020, the company determined that it is more likely than not that it will utilize a portion of its net operating loss carryforwards of $7.7 million and thus released $1.8 million of its valuation allowance against its deferred tax assets.
• Heritage Global reported net income of $0.6 million, or $0.02 per share, for the fourth quarter of 2019 compared to $0.4 million, or $0.01 per share, in the prior-year quarter.
• EBITDA was negative for the fourth quarter of 2019 at $(0.4) million compared to positive $0.7 million in the prior year. That said, Adjusted EBITDA (excluding non-cash stock-based compensation expense and the goodwill impairment charge) was $0.3 million compared to $0.8 million in the prior year.
• Heritage Global maintains a strong balance sheet, with stockholders’ equity of $11.8 million as of December 31, 2019, up 56% compared to $7.6 million at December 31, 2018, and net cash of $2.3 million.

Full Year 2019 Highlights:

• Total revenue increased 11% to $26.2 million compared to $23.7 million in 2018, as asset sales growth of $4.1 million more than offset a $1.6 million decline in services revenue. Results reflect the company’s building scale and diversification across businesses and revenue streams.
• Gross profit declined to $18.4 million from $19.6 million in the prior year which was primarily driven by a decline in the performance of the Equity Partners division of $1.2 million in 2019 compared to 2018.
• Operating income totaled $3.1 million versus $4.1 million in 2018, with the decline largely a function of the previously-announced impairment charge of $0.6 million to reduce the carrying value of goodwill in connection with the Equity Partners separation transaction at the end of 2019, as well as the underperformance for the Equity Partners division during 2019 and compensation for new employees within our HGC division.
• Net income totaled $3.9 million versus $3.8 in 2018, or $0.13 per diluted share in each year.
• EBITDA totaled $3.4 million in 2019 versus $4.6 million in the prior year, while Adjusted EBITDA (excluding non-cash stock-based compensation expense, goodwill impairment charges, and the fair value adjustment of contingent consideration) totaled $4.2 million compared to $4.7 million in 2018.

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, impairment of goodwill and fair value adjustment of contingent consideration. 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 diversified financial services company providing asset-based acquisition, disposition, valuation, and lending 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, real estate, 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)
	Three Months Ended December 31,							Year Ended December 31,
	2019				2018			2019			2018
			(Unaudited)
Revenues:
Services revenue	$	5,150			$	5,251		$	20,100		$	21,658
Asset sales		421				655			6,068			2,006
Total revenues		5,571				5,906			26,168			23,664
Operating costs and expenses:
Cost of services revenue		725				903			3,374			2,904
Cost of asset sales		413				392			4,365			1,144
Selling, general and administrative		4,323				3,904			15,874			15,219
Impairment of goodwill		573				—			573			—
Depreciation and amortization		79				80			305			319
Total operating costs and expenses		6,113				5,279			24,491			19,586
Earnings of equity method investments		96				—			1,373			—
Operating (loss) income		(446		)		627			3,050			4,078
Fair value adjustment of contingent consideration		—				—			—			157
Interest and other expense, net		(7		)		(13	)		(64	)		(214	)
Income before income tax (benefit) expense		(453		)		614			2,986			4,021
Income tax (benefit) expense		(1,030		)		206			(913	)		270
Net income	$	577			$	408		$	3,899		$	3,751
Weighted average common shares outstanding – basic		28,689,060				28,653,278			28,662,297			28,581,654
Weighted average common shares outstanding – diluted		30,129,432				28,835,511			29,271,375			28,894,927
Net income per share – basic	$	0.02			$	0.01		$	0.14		$	0.13
Net income per share – diluted	$	0.02			$	0.01		$	0.13		$	0.13

The notes contained in our Annual Report on Form 10-K 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)
	December 31, 2019			December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	2,728		$	4,268
Accounts receivable		1,859			400
Current portion of notes receivable, net		1,295			—
Inventory – equipment		104			2,405
Other current assets		784			607
Total current assets		6,770			7,680
Property and equipment, net		221			175
Non-current portion of notes receivable, net		1,366			—
Equity method investments		2,516			2,767
Right-of-use asset		1,483			—
Intangible assets, net		3,392			3,627
Goodwill		5,585			6,158
Deferred tax assets		372			—
Other assets		212			224
Total assets	$	21,917		$	20,631
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	8,110		$	8,101
Current portion of third party debt		403			1,178
Lease liabilities		577			—
Other current liabilities		3			892
Total current liabilities		9,093			10,171
Non-current portion of third party debt		35			438
Non-current portion of lease liabilities		942			—
Other non-current liabilities		—			1,838
Deferred tax liabilities		—			584
Total liabilities		10,070			13,031
Stockholders’ equity:
Preferred stock, $10.00 par value, authorized 10,000,000 shares; issued and outstanding 569 Series N shares at December 31, 2019 and December 31, 2018		6			6
Common stock, $0.01 par value, authorized 300,000,000 shares; issued and outstanding 29,339,061 shares at December 31, 2019 and 29,253,278 shares at December 31, 2018		293			293
Additional paid-in capital		285,099			284,751
Accumulated deficit		(273,474	)		(277,373	)
Accumulated other comprehensive loss		(77	)		(77	)
Total stockholders’ equity		11,847			7,600
Total liabilities and stockholders’ equity	$	21,917		$	20,631

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,
	2019			2018		2019			2018
Net income	$	577		$	408	$	3,899		$	3,751
Add back:
Depreciation and amortization		79			80		305			319
Interest and other expense, net		7			13		64			214
Income tax (benefit) expense		(1,030	)		206		(913	)		270
EBITDA		(367	)		707		3,355			4,554
Management add back:
Fair value adjustment of contingent consideration		—			—		—			(157	)
Stock based compensation		73			70		283			289
Impairment of goodwill		573			—		573			—
Adjusted EBITDA	$	279		$	777	$	4,211		$	4,686

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