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Heritage Global Inc. Reports 2016 Second Quarter Operating Results

HGBL | August 8, 2016

Heritage Global Inc. Reports 2016 Second Quarter Operating Results

Heritage Global Inc. (OTCQB: HGBL, CSE: HGP), a value-driven, innovative leader in corporate and financial asset liquidation transactions, valuations and advisory services, today reported financial results for the second quarter ended June 30, 2016 as summarized below.


($ in thousands, except per share amounts)	Three Months Ended June 30,						Six Months Ended June 30,
($ in thousands, except per share amounts)	2016			2015			2016			2015
Revenues
Services revenue⁽¹⁾	$	3,702		$	2,856		$	7,894		$	6,540
Asset sales⁽²⁾		215			678			1,435			1,667
Total revenues		3,917			3,534			9,329			8,207
Gross profit		2,911			2,553			6,276			5,263
Operating loss		(234	)		(670	)		(42	)		(1,102	)
Net income (loss)		624			(693	)		684			(1,280	)
Net income (loss) per share – basic and diluted	$	0.02		$	(0.02	)	$	0.02		$	(0.05	)

		(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 assets that it had purchased.

Second Quarter 2016 Financial Results Summary

Total revenues increased approximately 11% to $3.9 million from the year ago second quarter level of $3.5 million, while the cost of revenues remained flat at $1.1 million. The increase in total revenues reflects a higher volume of transactions and the timing of certain asset liquidation transactions.
Gross profit, or total revenues and earnings of equity method investments net of costs of services revenue and asset sales, increased 14% to $2.9 million from $2.6 million in the year ago second quarter.
During the second quarter, Heritage Global completed a number of successful global online sales for clients, including Pfizer, Mattia College, Amgen, Timken Aerospace and Circor Aerospace.
Selling, general and administrative expenses remained flat at $3.1 million in the current period compared to the 2015 second quarter.
Heritage Global generated net income of $0.6 million or income of $0.02 per share, compared to a net loss of $0.7 million or a loss of $0.02 per common share in the year ago period. The Company recorded a $0.9 million non-operating gain in the second quarter related to the non-cash fair value adjustment of its contingent consideration from the acquisition of National Loan Exchange Inc. (NLEX) in 2014.
In July 2016, pursuant to the previously disclosed purchase and sale agreement, the Company completed the sale of its real estate inventory for $4.1 million in cash. Subsequently, the Company repaid $2.5 million of outstanding principal, plus accrued interest, on its Third Party Debt, and terminated the loan agreement with the third party creditor (for more information, see Form 8-K filed with the SEC on July 8, 2016). As a result, Heritage Global expects to achieve approximately $0.2 million in annual cost savings. There were no early termination penalties or one-time costs in connection with the debt extinguishment.

Key Corporate Events

On August 4, 2016, Heritage Global’s Board of Directors appointed Michael Hexner to serve as a Class II director. Mr. Hexner co-founded Wheel Works in 1976 and led it for 26 years. As CEO he helped grow the business into the largest independent tire chain in the United States and successfully sold the company to a strategic Fortune 500 buyer. He has extensive executive leadership experience with growing businesses and currently serves as an Operating Partner of Fundamental Capital, a private equity firm, and as Chairman of Zoomvy.com.
HGI’s Board believes Mr. Hexner’s unique perspective and operational experience will be valuable in guiding HGI’s executive management team.

Ross Dove, Heritage Global Chief Executive Officer stated, “Heritage Global generated strong second quarter operating performance. Our unique global asset solutions and services platform continues to deliver positive results on behalf of our growing client and customer base, as reflected by the 11% increase in total revenues. Importantly, the ongoing successful execution of our de-leveraging, expense management and profitability initiatives resulted in a significant financial improvement compared to the prior year. We are extremely pleased with the progress we have made in the first half of 2016 to improve top and bottom-line financial performance and remain confident that we are on the right path to achieve sustainable growth and profitability, while enhancing long-term shareholder value.

“The second half of 2016 is off to a great start. In July, we used a portion of the proceeds we received from the sale of the Company’s real estate inventory to further de-leverage and strengthen our balance sheet by repaying and extinguishing $2.5 million in Third Party Debt, which will result in $0.2 million of annual cost savings.

“Finally, we are pleased to announce the appointment of Michael Hexner to HGI’s Board of Directors. Michael is a proven executive leader that brings a unique perspective as well as significant financial and operational expertise to our board. I’m confident he will make meaningful contributions in support of our initiatives aimed at improving profitability and enhancing operational effectiveness as we pursue our strategy to further grow our value-driven diversified global corporate and financial asset solutions platform.”

Commenting on his Board appointment, Mr. Hexner stated, “Heritage Global is strongly positioned to deliver value to its corporate clients, customers and partners through its diversified offering of global asset solutions, and I am honored to be elected to serve on the Company’s Board of Directors. Heritage Global is at an inflection point in its corporate evolution and I look forward to working with Ross, the Board and HGI’s executive management team to accelerate the positive operating momentum while building on the success they have achieved thus far to improve HGI’s financial performance and enhance shareholder value.”

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 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.


HERITAGE GLOBAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands of US dollars, except share and per share amounts)
(unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2016			2015			2016			2015
Revenues:
Services revenue	$	3,702		$	2,856		$	7,894		$	6,540
Asset sales		215			678			1,435			1,667
Total revenues		3,917			3,534			9,329			8,207

Operating costs and expenses:
Cost of services revenue		866			517			1,869			1,448
Cost of asset sales		184			569			1,236			1,635
Selling, general and administrative		3,064			3,058			6,154			6,041
Depreciation and amortization		81			165			164			324
Total operating costs and expenses		4,195			4,309			9,423			9,448
Earnings of equity method investments		44			105			52			139
Operating loss		(234	)		(670	)		(42	)		(1,102	)
Other (expense) income		(2	)		—			23			5
Fair value adjustment of contingent consideration		925			38			857			(52	)
Interest expense		(63	)		(61	)		(136	)		(128	)
Income (loss) before income tax expense		626			(693	)		702			(1,277	)
Income tax expense		2			—			18			3
Net income (loss)	$	624		$	(693	)	$	684		$	(1,280	)

Weighted average common shares outstanding – basic		28,418,582			28,203,801			28,368,774			28,185,705
Weighted average common shares outstanding – diluted		28,431,406			28,203,801			28,381,278			28,185,705
Net income (loss) per share – basic	$	0.02		$	(0.02	)	$	0.02		$	(0.05	)
Net income (loss) per share – diluted	$	0.02		$	(0.02	)	$	0.02		$	(0.05	)

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


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

	June 30, 2016			December 31, 2015
ASSETS
Current assets:
Cash and cash equivalents	$	2,041		$	2,777
Accounts receivable, net		704			639
Inventory – equipment		301			395
Inventory – real estate		3,715			—
Other current assets		483			453
Total current assets		7,244			4,264
Inventory – real estate		—			3,715
Property and equipment, net		159			110
Identifiable intangible assets, net		4,245			4,382
Goodwill		6,158			6,158
Other assets		270			173
Total assets	$	18,076		$	18,802

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	6,483		$	6,673
Current portion of third party debt		2,500			—
Related party debt		1,745			1,721
Current portion of contingent consideration		414			865
Other current liabilities		54			97
Total current liabilities		11,196			9,356
Non-current portion of third party debt		—			2,500
Non-current portion of contingent consideration		1,786			2,592
Deferred tax liabilities		960			960
Total liabilities		13,942			15,408

Stockholders’ equity:
Preferred stock, $10.00 par value, authorized 10,000,000 shares; issued and outstanding 569 Class N shares at June 30, 2016 and December 31, 2015		6			6
Common stock, $0.01 par value, authorized 300,000,000 shares; issued and outstanding 28,507,648 shares at June 30, 2016 and 28,467,648 shares at December 31, 2015		285			285
Additional paid-in capital		284,107			284,046
Accumulated deficit		(280,205	)		(280,889	)
Accumulated other comprehensive loss		(59	)		(54	)
Total stockholders’ equity		4,134			3,394
Total liabilities and stockholders’ equity	$	18,076		$	18,802