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 third quarter ended September 30, 2019.
Heritage Global Chief Executive Officer Ross Dove stated, “Heritage Global delivered strong third quarter results highlighted by accelerating growth in revenue and earnings, as we increasingly leverage the Company’s unique and differentiated model. We maintain durable competitive advantages including expertise and relationships built up over our history, global scale, and broad diversification across businesses, products and services, markets, and revenue streams. Over the last 12 months, Heritage Global has generated $4.7 million of Adjusted EBITDA.
“Looking ahead, we remain optimistic about our growth prospects, regardless of the macroeconomic backdrop, given our key strategic initiatives to continue to broaden target markets, ramp up principal investment activities, and build out product and service capabilities. To the point, we recently launched Heritage Global Capital, a new platform providing specialty financing solutions to small- and medium-sized investors in charged-off and nonperforming asset portfolios and other asset-based classes. Over time, we expect Heritage Global Capital to meaningfully enhance the growth, sustainability, and diversification of our revenues.
“In turn, our consistent growth is driving strong and improving financial performance. We remain focused on driving operating efficiencies including recently announced plans to realign our middle market M&A advisory services business, while the continued development of our more predictable fee-based advisory businesses combined with accelerating higher-margin principal activities bodes well for the trajectory and sustainability of our earnings growth.”
Third Quarter 2019 Summary of Financial Results: | ||||||||||
($ in thousands, except per share amounts) | Quarter Ended
| Nine Months Ended
| ||||||||
2019 | 2018 | 2019 | 2018 | |||||||
Revenue | ||||||||||
Services revenue(1) | $ | 5,207 | $ | 4,897 | $ | 14,950 | $ | 16,407 | ||
Asset sales(2) | 1,415 | 231 | 5,647 | 1,351 | ||||||
Total revenue | 6,622 | 5,128 | 20,597 | 17,758 | ||||||
Gross profit | 5,261 | 4,229 | 13,996 | 15,005 | ||||||
Operating income | 1,267 | 416 | 3,496 | 3,451 | ||||||
Net income | 1,216 | 369 | 3,322 | 3,343 | ||||||
Net income per share – diluted | $ | 0.04 | $ | 0.01 | $ | 0.11 | $ | 0.12 | ||
(Non-GAAP Financial Measures) (3) | ||||||||||
EBITDA | $ | 1,341 | $ | 495 | $ | 3,722 | $ | 3,847 | ||
Adjusted EBITDA | $ | 1,404 | $ | 568 | $ | 3,932 | $ | 3,909 | ||
(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. |
Third Quarter 2019 Highlights:
- Total revenue grew 29% to $6.6 million, compared to the year ago level of $5.1 million, as services revenue increased to $5.2 million from $4.9 million, while asset sales grew to $1.4 million from $0.2 million. Results reflect the Company’s building scale and diversification across businesses and revenue streams.
- Gross profit rose to $5.3 million from $4.2 million in the prior-year quarter as higher total revenue more than offset a step up in cost of revenue. The variability in size and timing of asset sale transactions impacted quarterly comparisons.
- Operating income more than tripled to $1.3 million in the third quarter of 2019 from $0.4 million a year ago, reflecting higher gross profit, a more favorable business mix, ongoing expense discipline, and rising operating leverage.
- Net income was $1.2 million, or $0.04 per share, compared to $0.4 million, or $0.01 per share, in the prior-year quarter.
- EBITDA totaled $1.3 million in the third quarter versus $0.5 million in the prior year, while Adjusted EBITDA (excluding non-cash stock-based compensation expense and the fair value adjustment of contingent consideration) was $1.4 million compared to $0.6 million in the prior year.
- Heritage Global maintains a strong balance sheet, with stockholders’ equity of $11.1 million at the end of the quarter, up 46% compared to $7.6 million at December 31, 2018, and net cash of $3.3 million, representing an increase of 26% over the same period.
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 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) | ||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||
Three Months Ended
| Nine Months Ended
| |||||||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||||||
Revenues: | ||||||||||||||||||||
Services revenue | $ | 5,207 | $ | 4,897 | $ | 14,950 | $ | 16,407 | ||||||||||||
Asset sales | 1,415 | 231 | 5,647 | 1,351 | ||||||||||||||||
Total revenues | 6,622 | 5,128 | 20,597 | 17,758 | ||||||||||||||||
Operating costs and expenses: | ||||||||||||||||||||
Cost of services revenue | 435 | 710 | 2,649 | 2,001 | ||||||||||||||||
Cost of asset sales | 926 | 189 | 3,952 | 752 | ||||||||||||||||
Selling, general and administrative | 3,928 | 3,734 | 11,551 | 11,315 | ||||||||||||||||
Depreciation and amortization | 74 | 79 | 226 | 239 | ||||||||||||||||
Total operating costs and expenses | 5,363 | 4,712 | 18,378 | 14,307 | ||||||||||||||||
Earnings of equity method investments | 8 | — | 1,277 | — | ||||||||||||||||
Operating income | 1,267 | 416 | 3,496 | 3,451 | ||||||||||||||||
Fair value adjustment of contingent consideration | — | — | — | 157 | ||||||||||||||||
Interest and other expense, net | (12 | ) | (47 | ) | (57 | ) | (201 | ) | ||||||||||||
Income before income tax expense | 1,255 | 369 | 3,439 | 3,407 | ||||||||||||||||
Income tax expense | 39 | — | 117 | 64 | ||||||||||||||||
Net income | $ | 1,216 | $ | 369 | $ | 3,322 | $ | 3,343 | ||||||||||||
Weighted average common shares outstanding – basic | 28,653,278 | 28,653,278 | 28,653,278 | 28,557,517 | ||||||||||||||||
Weighted average common shares outstanding – diluted | 29,352,812 | 28,823,918 | 28,911,488 | 28,902,499 | ||||||||||||||||
Net income (loss) per share – basic | $ | 0.04 | $ | 0.01 | $ | 0.12 | $ | 0.12 | ||||||||||||
Net income (loss) per share – diluted | $ | 0.04 | $ | 0.01 | $ | 0.11 | $ | 0.12 | ||||||||||||
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) | ||||||||
September 30,
| December 31,
| |||||||
ASSETS | (unaudited) | |||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 3,901 | $ | 4,268 | ||||
Accounts receivable | 1,722 | 400 | ||||||
Inventory – equipment | 230 | 2,405 | ||||||
Other current assets | 1,463 | 607 | ||||||
Total current assets | 7,316 | 7,680 | ||||||
Property and equipment, net | 196 | 175 | ||||||
Equity method investments | 4,338 | 2,767 | ||||||
Right-of-use assets | 865 | — | ||||||
Identifiable intangible assets, net | 3,451 | 3,627 | ||||||
Goodwill | 6,158 | 6,158 | ||||||
Other assets | 224 | 224 | ||||||
Total assets | $ | 22,548 | $ | 20,631 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable and accrued liabilities | $ | 9,273 | $ | 8,101 | ||||
Current portion of debt | 432 | 1,178 | ||||||
Current portion of lease liabilities | 477 | — | ||||||
Other current liabilities | 79 | 892 | ||||||
Total current liabilities | 10,261 | 10,171 | ||||||
Non-current portion of debt | 138 | 438 | ||||||
Non-current portion of lease liabilities | 433 | — | ||||||
Other non-current liabilities | — | 1,838 | ||||||
Deferred tax liabilities | 584 | 584 | ||||||
Total liabilities | 11,416 | 13,031 | ||||||
Stockholders’ equity: | ||||||||
Preferred stock, $10.00 par value, authorized 10,000,000 shares; issued and
| 6 | 6 | ||||||
Common stock, $0.01 par value, authorized 300,000,000 shares; issued and
| 293 | 293 | ||||||
Additional paid-in capital | 284,961 | 284,751 | ||||||
Accumulated deficit | (274,051 | ) | (277,373 | ) | ||||
Accumulated other comprehensive loss | (77 | ) | (77 | ) | ||||
Total stockholders’ equity | 11,132 | 7,600 | ||||||
Total liabilities and stockholders’ equity | $ | 22,548 | $ | 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
| Nine Months Ended
| |||||||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||||||
Net income | $ | 1,216 | $ | 369 | $ | 3,322 | $ | 3,343 | ||||||||||||
Add back: | ||||||||||||||||||||
Depreciation and amortization | 74 | 79 | 226 | 239 | ||||||||||||||||
Interest and other expense, net | 12 | 47 | 57 | 201 | ||||||||||||||||
Income tax expense | 39 | — | 117 | 64 | ||||||||||||||||
EBITDA | 1,341 | 495 | 3,722 | 3,847 | ||||||||||||||||
Management add back: | ||||||||||||||||||||
Fair value adjustment of contingent consideration | — | — | — | (157 | ) | |||||||||||||||
Stock based compensation | 63 | 73 | 210 | 219 | ||||||||||||||||
Adjusted EBITDA | $ | 1,404 | $ | 568 | $ | 3,932 | $ | 3,909 | ||||||||||||
The notes contained in our Quarterly Report on Form 10-Q are an integral part of these consolidated financial statements.
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Contacts:
Chief Financial Officer
Heritage Global Inc.
858/847-0656
