Heritage Global Inc. Reports 2016 Third 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 third quarter ended September 30, 2016 as summarized below.
           
($ in thousands, except per share amounts)   Three Months Ended

September 30,
    Nine Months Ended

September 30,
2016   2015     2016   2015
Revenues                
Services revenue (1) $ 3,824   $ 2,993     $ 11,718   $ 9,533
Asset sales (2)   4,758     767       6,193     2,434
Total revenues   8,582     3,760       17,911     11,967
Gross profit   2,457     2,535       8,733     7,798
Operating loss   (402)     (3,469)       (444)     (4,571)
Net (loss) income   (371)     (3,637)       313     (4,917)
Net (loss) income per share - basic and diluted $ (0.01)   $ (0.13)     $ 0.01   $ (0.17)
                   
   

(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.
 

Third Quarter 2016 Financial Results Summary
  • Total revenues increased approximately 128% to $8.6 million from the year ago third quarter level of $3.8 million, while the cost of revenues increased by $4.9 million. The increase in total revenues and cost of revenues reflects the Company completing the sale of its real estate inventory for $4.1 million, as well as 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, remained flat at $2.5 million for the third quarter of 2016.
  • During the third quarter, Heritage Global completed a number of successful global online sales for clients, including StemCells Inc., Sunpower, Seven Stone Surface Fabrication, Entergy Vermont, Sanofi, Amgen and Pfizer.
  • Selling, general and administrative expenses decreased 10% to $2.8 million during the current period, compared to $3.1 million in the 2015 third quarter.
  • Heritage Global reported a net loss of $0.4 million or a net loss of $0.01 per share, compared to a net loss of $3.6 million or a loss of $0.13 per common share in the year ago period. The Company recorded a real estate inventory write-down charge during the 2015 third quarter of $2.7 million, which represented approximately 75% of the 2015 third quarter net loss. No charge was taken in the 2016 period. Excluding the real estate inventory write-down charge, the net loss for the comparable 2015 third quarter would have been $0.9 million, or a loss of $0.03 per common share.
  • In July 2016 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 the Form 8-K filed with the SEC on July 8, 2016). In August 2016 the Company repaid $0.8 million of the $1.7 million outstanding principal on its related party debt. As a result of both the real estate inventory sale and the debt repayments, Heritage Global expects to achieve approximately $0.4 million in annual cost savings.

Ross Dove, Heritage Global Chief Executive Officer stated, "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 128% increase in total revenues. Importantly, the noteworthy progress we are achieving on our expense management initiatives led to a 10% year-over-year reduction in third quarter selling, general and administrative expense. In July we de-leveraged and strengthened our balance sheet by using a portion of the proceeds we received from the sale of the Company's real-estate inventory to repay and extinguish $2.5 million in debt, and in August we further de-leveraged by repaying a portion of our related party debt. The combination of these transactions will result in $0.4 million of annual cost savings. Looking ahead, we will continue to make appropriate process and operating adjustments to ensure that HGI remains efficient and competitive, while simultaneously pursuing initiatives to further strengthen our balance sheet and improve our capital structure."

"In closing, the significant improvement in our third quarter and year-to-date financial performance reflects our strong commitment to building Heritage Global into a leading provider of diversified and unique global asset solutions and services. We remain confident that the ongoing successful execution of our de-leveraging, expense management and profitability initiatives will lead to sustainable growth and the enhancement of long-term 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.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE (LOSS) INCOME

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

(unaudited)
 
Three Months Ended September 30, Nine Months Ended September 30,
2016   2015 2016   2015
Revenues:
Services revenue $ 3,824 $ 2,993 $ 11,718 $ 9,533
Asset sales   4,758   767   6,193   2,434
Total revenues   8,582   3,760   17,911   11,967
 
Operating costs and expenses:
Cost of services revenue 1,882 653 3,751 2,101
Cost of asset sales 4,243 538 5,479 2,173
Real estate inventory write-down 2,748 2,748
Selling, general and administrative 2,783 3,090 8,937 9,131
Depreciation and amortization   76   166   240   490
Total operating costs and expenses 8,984 7,195 18,407 16,643
(Losses) earnings of equity method investments     (34 )   52   105
Operating loss   (402 )   (3,469 )   (444 )   (4,571 )
Other income 16 39 5
Fair value adjustment of contingent consideration 43 (87 ) 900 (139 )
Interest expense   (17 )   (61 )   (153 )   (189 )
(Loss) income before income tax expense (360 ) (3,617 ) 342 (4,894 )
Income tax expense   11   20   29   23
Net (loss) income $ (371 ) $ (3,637 ) $ 313 $ (4,917 )
 
Weighted average common shares outstanding - basic 28,432,648 28,317,648 28,390,221 28,230,169
Weighted average common shares outstanding - diluted 28,432,648 28,317,648 28,425,256 28,230,169
Net (loss) income per share - basic $ (0.01 ) $ (0.13 ) $ 0.01 $ (0.17 )
Net (loss) income per share - diluted $ (0.01 ) $ (0.13 ) $ 0.01 $ (0.17 )
 

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)
   
September 30, 2016 December 31, 2015
ASSETS
Current assets:
Cash and cash equivalents $ 3,341 $ 2,777
Accounts receivable, net 1,105 639
Inventory - equipment 887 395
Other current assets   336   453
Total current assets 5,669 4,264
Inventory - real estate 3,715
Property and equipment, net 160 110
Identifiable intangible assets, net 4,183 4,382
Goodwill 6,158 6,158
Other assets   282   173
Total assets $ 16,452 $ 18,802
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 8,189 $ 6,673
Current portion of related party debt 1,090 1,721
Current portion of contingent consideration 1,053 865
Other current liabilities   54   97
Total current liabilities   10,388   9,356
Non-current portion of related party debt 460
Non-current portion of third party debt 2,500
Non-current portion of contingent consideration 877 2,592
Deferred tax liabilities   960   960
Total liabilities   12,683   15,408
 
Stockholders' equity:

Preferred stock, $10.00 par value, authorized 10,000,000 shares; issued and outstanding 569 Class N shares at September 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 September 30, 2016 and 28,467,648 shares at December 31, 2015
285 285
Additional paid-in capital 284,121 284,046
Accumulated deficit (280,576 ) (280,889 )
Accumulated other comprehensive loss   (67 )   (54 )
Total stockholders' equity   3,769   3,394
Total liabilities and stockholders' equity $ 16,452 $ 18,802
 

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

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