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Heritage Global Inc. Reports 2016 Fourth Quarter and Full Year Operating Results

HGBL | March 7, 2017

Heritage Global Inc. Reports 2016 Fourth Quarter and Full Year 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 fourth quarter and year ended December 31, 2016 as summarized below.


Summary Financial Data
($ in thousands, except per share amounts)	Quarter Ended December 31,						Year Ended December 31,
($ in thousands, except per share amounts)		2016			2015			2016		2015
Revenues
Services revenue⁽¹⁾	$	3,653		$	3,952		$	15,371	$	13,485
Asset sales⁽²⁾		2,217			1,512			8,410		3,946
Total revenues		5,870			5,464			23,781		17,431
Gross profit		3,782			3,382			12,515		11,180
Operating income (loss)		634			(5,783	)		190		(10,354	)
Net (loss) income		(299	)		(5,504	)		14		(10,421	)
Net (loss) income per share – basic and diluted	$	(0.01	)	$	(0.19	)	$	0.00	$	(0.37	)

(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.

Fourth Quarter 2016 Summary of Financial Results:

Total revenues increased 7% to $5.9 million from the year ago fourth quarter level of $5.5 million. The increase in total revenues was primarily a result of several large asset sales in the fourth quarter of 2016.
Gross profit, or total revenues and earnings of equity method investments net of costs of services revenue and asset sales, increased 12% to $3.8 million from the year ago fourth quarter level of $3.4 million.
During the fourth quarter, Heritage Global completed a number of successful global online sales, including projects for Sanofi, ABB Power-One, Catalyst BioSciences, Artco Group Inc., First Solar, Amgen and Pfizer.
Selling, general and administrative expenses decreased 16% to $3.1 million, compared to $3.6 million in the fourth quarter of 2015.
Operating income swung from a significant loss of $5.8 million in 2015 to a positive $0.6 million in 2016, representing Heritage Global’s strongest quarter in more than four years.
Heritage Global reported a net loss of $0.3 million, or a net loss of $0.01 per share, compared to a net loss of $5.5 million, or $0.19 per share, in the fourth quarter of 2015. In the fourth quarter of 2015 the Company recorded a $5.4 million non-cash impairment charge to reduce the carrying value of intangibles related to the acquisition of HGP. In the fourth quarter of 2016, the Company recorded a $1.0 million charge related to the fair value adjustment of contingent consideration. Excluding the impairment charge, the net loss for the 2015 fourth quarter would have been $67,000, or $0.00 per share. Excluding the fair value adjustment charge, the net income for the 2016 fourth quarter would have been $693,000 or $0.02 per share.

Full Year 2016 Summary of Financial Results:

Total revenues increased by $6.4 million or 36% to $23.8 million in 2016, compared to $17.4 million in 2015. Cost of services revenue and asset sales increased by $4.8 million to $11.3 million, compared to $6.5 million in 2015. The increase in both the revenue and cost of revenue was primarily attributable to the Company’s sale of its real estate inventory in the third quarter of 2016.
Gross profit, or total revenues and earnings of equity method investments net of costs of services revenue and asset sales, increased approximately 12% to $12.5 million, compared to $11.2 million in 2015. The year-over-year increase was primarily the result of the timing of certain asset liquidation transactions.

Key Corporate Events:

Following the changes to Heritage Global’s executive officers and the consolidation of its financial management functions to California during 2015, the Company has continued to pursue initiatives aimed at managing costs and creating operating efficiencies, resulting in $0.4 million of annual savings in 2016. In addition, the Company focused on reducing debt in 2016, utilizing the proceeds of its real estate sale to repay $2.5 million of outstanding principal, plus accrued interest, of its third-party debt, and to repay $0.8 million of the outstanding principal of its related party debt.
Heritage Global returned to profitability in 2016, reporting net income of $14,000 or $0.00 per share, compared to a net loss of $10.4 million or $0.37 per share in the prior year. The 2015 net loss included significant non-cash charges incurred by the Company. The 2015 non-cash charges were a $5.4 million impairment of goodwill and intangible assets, and a $2.7 million inventory write-down related to the Company’s real estate inventory. Excluding these significant charges, the net loss for the comparable 2015 period would have been $2.2 million or a loss of $0.08 per share.

Heritage Global Chief Executive Officer Ross Dove stated, “In line with our stated objectives, the executive management team and I took decisive action beginning in 2015 to de-leverage our balance sheet, reduce operating costs, and enhance our top and bottom-line financial performance. As a result, all of Heritage Global’s operating divisions turned a profit or were on the path to becoming profitable at the end of 2016, marking a significant turnaround for the Company after several consecutive years of operating losses. Heritage Global’s return to profitability and the significant year-over-year improvement in our financial results confirms that we are on the right track toward successfully meeting our goal of achieving sustainable growth and profitability, while enhancing long-term shareholder value.”

“Importantly, Heritage Global’s unique, value-driven corporate and financial asset solutions platform continued to deliver positive results on behalf of our growing base of global clients, as reflected by the 36% increase in 2016 total revenues. In addition, our cost management initiatives led to a 6% year-over-year reduction in selling, general and administrative expense. We are extremely pleased with the progress we made in 2016 and expect the positive momentum to continue, as our ongoing cost management discipline combined with solid financial performance across Heritage Global’s asset liquidation, valuation and advisory services businesses puts us in a strong position to aggressively pursue the next phase of growth for the Company.”

Kirk Dove, Heritage Global’s President and Chief Operating Officer, added, “Looking ahead, we believe that our platform of innovative global asset solutions, combined with our industry-wide reputation for delivering exceptional service to a growing base of global clients, will remain important factors in helping us generate sustainable operating profits over the long-term. In line with our stated objectives, we remain committed to our plan to strategically grow our portfolio of global asset solutions by adding complementary capabilities that serve a broad range of businesses, while creating added value for our corporate clients and customers. Ross, the executive management team and I are energized by the positive results we achieved in 2016 and remain confident about our prospects for future growth and success in 2017 and beyond.”

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)

	Three Months Ended December 31,						Twelve Months Ended December 31,
	2016			2015			2016			2015
Revenues:
Services revenue	$	3,653		$	3,952		$	15,371		$	13,485
Asset sales		2,217			1,512			8,410			3,946
Total revenues		5,870			5,464			23,781			17,431

Operating costs and expenses:
Cost of services revenue		436			1,024			4,187			3,125
Cost of asset sales		1,652			1,239			7,131			3,412
Real estate inventory write-down		—			—			—			2,748
Selling, general and administrative		3,072			3,643			12,009			12,774
Depreciation and amortization		76			85			316			575
Impairment of goodwill and intangible assets		—			5,437			—			5,437
Total operating costs and expenses		5,236			11,428			23,643			28,071
Earnings of equity method investments		—			181			52			286
Operating income (loss)		634			(5,783	)		190			(10,354	)
Other income		80			64			119			69
Fair value adjustment of contingent consideration		(992	)		367			(92	)		228
Interest expense		(29	)		(160	)		(182	)		(349	)
(Loss) income before income tax expense		(307	)		(5,512	)		35			(10,406	)
Income tax (benefit) expense		(8	)		(8	)		21			15
Net (loss) income	$	(299	)	$	(5,504	)	$	14		$	(10,421	)

Weighted average common shares outstanding – basic		28,432,648			28,317,648			28,400,886			28,252,219
Weighted average common shares outstanding – diluted		28,432,648			28,317,648			28,434,832			28,252,219
Net (loss) income per share – basic	$	(0.01	)	$	(0.13	)	$	0.00		$	(0.37	)
Net (loss) income per share – diluted	$	(0.01	)	$	(0.13	)	$	0.00		$	(0.37	)

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


HERITAGE GLOBAL INC. CONSOLIDATED BALANCE SHEETS (In thousands of US dollars, except share and per share amounts) (audited)

	December 31, 2016			December 31, 2015
ASSETS
Current assets:
Cash and cash equivalents	$	2,530		$	2,777
Accounts receivable, net		1,247			639
Inventory – equipment		263			395
Other current assets		393			453
Total current assets		4,433			4,264
Inventory – real estate		—			3,715
Property and equipment, net		156			110
Identifiable intangible assets, net		4,122			4,382
Goodwill		6,158			6,158
Other assets		275			173
Total assets	$	15,144		$	18,802

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	6,746		$	6,639
Current portion of related party debt		664			1,721
Current portion of contingent consideration		961			865
Other current liabilities		199			131
Total current liabilities		8,570			9,356
Non-current portion of related party debt		348			—
Non-current portion of third party debt		—			2,500
Non-current portion of contingent consideration		1,772			2,592
Deferred tax liabilities		960			960
Total liabilities		11,650			15,408

Stockholders’ equity:
Preferred stock, $10.00 par value, authorized 10,000,000 shares; issued and outstanding 569 Class N shares at December 31, 2016 and December 31, 2015		6			6
Common stock, $0.01 par value, authorized 300,000,000 shares; issued and outstanding 28,470,148 shares at December 31, 2016 and 28,467,648 shares at December 31, 2015		285			285
Additional paid-in capital		284,149			284,046
Accumulated deficit		(280,875	)		(280,889	)
Accumulated other comprehensive loss		(71	)		(54	)
Total stockholders’ equity		3,494			3,394
Total liabilities and stockholders’ equity	$	15,144		$	18,802