Summary of Heritage Global Inc. Conference Call Company Overview - **Heritage Global Inc.** is a leader in valuing and monetizing industrial and financial assets, including both healthy and distressed assets [3][4] - The company operates two main business segments: financial asset sales, primarily charged-off loans, and industrial asset auctions across various sectors [3][5] Financial Assets Segment - The financial assets business is experiencing growth due to record-high consumer debt levels, including credit cards and auto loans [4][10] - The company has seen a strong increase in client activity, particularly in the second half of the first quarter, with expectations for continued strong performance in upcoming quarters [11][12] - There is a significant backlog of consumer debt that is expected to convert into charge-offs over the next 24 months, providing a robust pipeline for the financial assets segment [19][20] - Asset pricing has stabilized after a pandemic-driven spike, leading to a normalized market where competitive bidding is expected [22][23] Industrial Assets Segment - The industrial assets business is influenced by macroeconomic factors such as tariffs and supply chain issues, which can increase demand for used equipment [25][28] - The company is currently experiencing steady auction activity, with a growing number of buyers shifting from new to used equipment due to supply chain delays [29][30] - There is a focus on late-model equipment, which attracts more aggressive bidding compared to older equipment [31] Real Estate and Joint Ventures - The company is involved in real estate transactions, with ongoing deals expected to yield profits in the following year [32][34] - There is a pipeline of potential deals across various sectors, including food processing and cannabis, with a goal to initiate at least one new deal within six months [34] M&A Strategy - Heritage Global is actively pursuing multiple M&A opportunities, with a balanced focus on both financial and industrial asset businesses [38][41] - The company has signed NDAs with several entities and is in advanced discussions for potential acquisitions [39] Legal and Collection Efforts - The company has implemented legal strategies to enhance collection operations, showing early positive results in recovery efforts [42][43] AI and Technology Integration - AI is being utilized to improve asset visibility and predict surplus assets, enhancing the sales process and auction strategies [46][47][48] Capital Allocation Strategy - The company prioritizes growth and earnings per share (EPS) in its capital allocation strategy, weighing stock buybacks against M&A and organic growth opportunities [52][56] Competitive Advantages - Heritage Global has established significant barriers to entry in the financial asset sector, particularly through its secure handling of sensitive information and compliance measures [64][65] Conclusion - The company is optimistic about its revenue streams for the remainder of the year, with strong performance expected in both financial and industrial asset segments [14][12]

Financial Data and Key Metrics Changes - Consolidated operating income decreased to $1,400,000 in Q1 2025 from $2,600,000 in Q1 2024 [8] - Adjusted EBITDA was $1,800,000 compared to $2,900,000 in the prior year period [12] - Net income was $1,100,000 or $0.03 per diluted share, down from $1,800,000 or $0.05 per diluted share in Q1 2024 [12] - Stockholders' equity increased to $65,400,000 as of March 31, 2025, from $65,200,000 at December 31, 2024 [12] - Cash balance was $18,800,000 as of March 31, 2025, with a net available cash balance of $10,200,000 after removing amounts due to clients [12] Business Line Data and Key Metrics Changes - Industrial Assets Division reported operating income of $1,000,000 in Q1 2025, up from $800,000 in the prior year [8] - Financial Assets Division reported operating income of $1,700,000 in Q1 2025, down from $2,900,000 in Q1 2024 [8] - Auction business in the Industrial Assets Division saw increased activity, while the appraisal business generated $300,000 to $400,000 less than anticipated [9] - The Brokerage segment in the Financial Assets Division reached $1,600,000 in operating income, with a shift towards normalized pricing levels for non-performing loans [11] Market Data and Key Metrics Changes - The market sentiment shifted from a "wait and see" approach to a more active selling environment around mid-February 2025 [5][19] - Increased corporate bankruptcy filings have led to a greater demand for auctioneer services [6] - Financial asset sellers are moving quickly to recapture values on non-performing loans, with consumer debt remaining at record levels [6] Company Strategy and Development Direction - The company is focusing on both organic growth and M&A initiatives to fuel growth [5][13] - There is an emphasis on maintaining a strong cash position and being opportunistic in capital deployment [30][32] - The company aims to raise the bar from steady profits to growing profits, indicating a focus on long-term growth [15] Management's Comments on Operating Environment and Future Outlook - Management expressed a positive outlook for revenue generation and contract conversion, expecting trends to continue throughout 2025 and into 2026 [6][15] - The geopolitical landscape is influencing asset-based lenders to ensure strong cash positions [6] - Management believes that the supply of assets is growing, with increasing demand for quality used and refurbished industrial assets [15] Other Important Information - The company repurchased approximately 500,000 shares in the open market during Q1 2025 [12] - The company is evaluating strategic opportunities for M&A as part of its growth strategy [13] Q&A Session Summary Question: Can you talk about the type of assets you're seeing in the market? - Management noted that the market sentiment shifted to a more active selling environment around mid-February, leading to a strong second half of the quarter [19] Question: Do you anticipate growth in the financial assets business? - Management indicated that they are in a growth trajectory, with record highs in consumer debt suggesting an increase in asset flow [22] Question: Where does the loan book currently stand? - The gross loans outstanding are around $29,000,000, with cash inflows being observed due to reduced funding [23] Question: What motivated the prepayment with C3? - The company aims to avoid paying interest on unnecessary funds while maintaining available credit for opportunistic transactions [30] Question: How sustainable is the performance of NLEX? - Management believes that while prices have normalized, there is still significant volume to process, indicating a stable performance [34] Question: What growth opportunities do you see? - Management sees opportunities across both financial and industrial sectors, including expanding into new types of loans and international markets [36]

Financial Data and Key Metrics Changes - Consolidated operating income decreased to $1,400,000 in Q1 2025 from $2,600,000 in Q1 2024 [7] - Adjusted EBITDA was $1,800,000 compared to $2,900,000 in the prior year period [12] - Net income was $1,100,000 or $0.03 per diluted share, down from $1,800,000 or $0.05 per diluted share in Q1 2024 [12] - Free cash flow exceeded $1,500,000, providing resources for growth initiatives [4] Business Line Data and Key Metrics Changes - Industrial Assets Division reported operating income of $1,000,000 in Q1 2025, up from $800,000 in the prior year [7] - Financial Assets Division's operating income decreased to $1,700,000 in Q1 2025 from $2,900,000 in Q1 2024 [7] - The auction business within the Industrial Assets Division saw increased activity, while the appraisal business underperformed by approximately $300,000 to $400,000 [8][10] Market Data and Key Metrics Changes - There is a noted increase in corporate bankruptcy filings, with more Chapter 11 filings converting to Chapter 7 liquidations, which increases demand for auctioneer services [5] - Financial asset sellers are moving quickly to recapture values on nonperforming loans, with consumer debt remaining at record levels [5][11] Company Strategy and Development Direction - The company is focusing on both organic growth and M&A initiatives, with a strong emphasis on maintaining a robust cash position [4][13] - The management believes that the supply of assets is growing while demand for quality used and refurbished industrial assets is increasing [15][16] - The company is exploring opportunities in both financial and industrial sectors without favoritism, aiming to expand market share and enter new loan types [37] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the momentum built in the latter half of Q1 2025, expecting this trend to continue into Q2 and beyond [5][14] - The geopolitical landscape has created a sense of urgency among asset-based lenders to ensure strong cash positions [5] - The management is confident in the company's ability to transition from steady profits to growing profits [16] Other Important Information - The company repurchased approximately 500,000 shares in the open market during Q1 2025 [12] - As of March 31, 2025, stockholders' equity was $65,400,000, reflecting a slight increase from $65,200,000 at the end of 2024 [12] Q&A Session Summary Question: Insights on the financial assets business and market trends - Management noted that the initial slow start was due to a "wait and see" sentiment, but activity picked up significantly in the latter half of Q1 [19][20] Question: Anticipated growth in the financial assets business - Management indicated that while pricing has stabilized, there is a growth trajectory expected due to high levels of consumer debt [22][23] Question: Status of the loan book and non-accrual lending - The gross loans outstanding were reported at just over $29,000,000, with cash inflows being observed due to reduced funding [25] Question: Performance and sustainability of NLEX - NLEX performance was high during the pandemic but has normalized; management believes there is still significant volume to process [35][36] Question: Growth opportunities in specific sectors - Management is exploring growth in both financial and industrial sectors, including expanding into new types of loans and international markets [37]

Financial Position - As of March 31, 2025, the Company held a gross balance of investments in notes receivable of $29.3 million, with the largest borrower's balance at $22.1 million, representing 75% of total gross notes receivable[38]. - The allowance for credit losses as of March 31, 2025, was approximately $1.495 million, with specific allocations of $0.130 million for accounts receivable, $0.381 million for notes receivable, and $1.0 million for equity method investments[42][48][50]. - The Company's notes receivable balance related to loans to buyers of charged-off and nonperforming receivable portfolios was $9.3 million as of March 31, 2025, reflecting an investment of approximately $1.2 million and principal repayments of $1.5 million during the quarter[57]. - The SCALE rate for credit loss allowance specific to notes receivable was 3.8% as of March 31, 2025, which is higher than the general SCALE rate of 1.3718% due to concentration risk and declining collections industry-wide[48]. - The Company recorded no material adjustments for credit losses in selling, general and administrative expense related to accounts receivable during the three months ended March 31, 2025[55]. - The Company performs a quarterly review of all outstanding loan receivables to assess credit quality and potential impairment indicators[48]. Portfolio Diversification - The Company has diversified its portfolio across 11 distinct loan agreements, including FinTech loans, installment loans, and credit card accounts, to mitigate concentration risk[39]. Stock and Compensation - The Company issued options to purchase 70,000 shares of common stock during the three months ended March 31, 2025, while canceling 60,000 options due to employee resignations[61]. - Stock-based compensation expense related to restricted stock awards was approximately $0.1 million for both the three months ended March 31, 2025 and 2024[66]. - The unrecognized stock-based compensation expense as of March 31, 2025 was approximately $0.5 million, expected to be recognized over a weighted average period of 2.1 years[66]. Joint Ventures and Investments - Joint venture revenues for the three months ended March 31, 2025 totaled $2.779 million, with a net income of $2.547 million[69]. - The Company recognized approximately $1.2 million in earnings from equity method investments related to KNFH II LLC as of March 31, 2025[71]. - The Company entered into a purchase agreement for a pharmaceutical plant in Fenton, Missouri, with a purchase price of $8.0 million[70]. - The Company purchased a 20% participating interest in a financial asset for approximately $1.6 million related to machinery and equipment at a pharmaceutical plant[73]. - The amortized cost basis of the Company's share of loans in nonaccrual status recorded in equity method investments was $17.8 million as of March 31, 2025[68]. - The total assets of the Company's joint ventures as of March 31, 2025 were $71.025 million[69]. - The total liabilities of the Company's joint ventures as of March 31, 2025 were $2.920 million[69]. Real Estate and Lease Agreements - The Company entered into a lease agreement for 6,627 square feet of industrial space in San Diego, California, with an initial monthly base rent of $11,266, increasing to $13,180 by the final year[78]. - The Company amended its Edwardsville office lease, extending the term to May 31, 2027, with an initial monthly base rent of $9,412, increasing to $9,914 in the final year[79]. - As of March 31, 2025, total right-of-use assets amounted to $2,041,000, while total lease liabilities were $2,150,000[80]. - The Company recognized lease expenses of approximately $0.2 million for both the three months ended March 31, 2025, and March 31, 2024[81]. - The Company purchased real estate for $7.4 million for future corporate headquarters, allocating $2.8 million to the building and $4.6 million to the land[83]. - As of March 31, 2025, total property and equipment, net, was $9,048,000, up from $1,643,000 as of December 31, 2024[84]. - The Company's total goodwill remained unchanged at $7,446,000 as of March 31, 2025[88]. Debt and Financing - The outstanding debt as of March 31, 2025, totaled $4,365,000, with $265,000 classified as current debt[89]. - The Company entered into a $10.0 million revolving line of credit under the 2021 Credit Facility, with no outstanding balance as of March 31, 2025[90][94]. - The ALT Note outstanding balance as of March 31, 2025, was $265,000, down from $395,000 as of December 31, 2024[95]. - Heritage Nancy Ridge LLC entered into a $4.1 million Mortgage Loan Agreement with C3bank, with a maturity date of February 5, 2035[96][97]. - The interest rate for the first three years of the Mortgage is set at 6.5%, transitioning to a variable rate based on one-month Term SOFR plus a margin of 2.25% thereafter[97]. - As of March 31, 2025, the outstanding balance of the Mortgage was $4.1 million[98]. Tax and Operating Losses - The Company has federal net operating loss carry forwards of $40.7 million, beginning to expire in 2025[99]. - The valuation allowance against the Company's deferred tax assets was approximately $3.5 million as of March 31, 2025[101]. - The Company has no net operating loss carry forwards limited under Section 382 of the Internal Revenue Code as of March 31, 2025[99]. Segment Performance - For the three months ended March 31, 2025, the gross profit from the Auction and Liquidation segment was $2.876 million, compared to $2.604 million for the same period in 2024, reflecting a 10.4% increase[103]. - Operating income for the Auction and Liquidation segment was $731,000 for the three months ended March 31, 2025, compared to $796,000 for the same period in 2024[103]. - The total amount paid to a related party for office space was approximately $29,000 for the three-month period ended March 31, 2025[102]. Subsequent Events - There were no material subsequent events requiring recognition or disclosure in the Quarterly Report on Form 10-Q[105].

Financial Data and Key Metrics Changes - The company reported a consolidated operating income of $1.5 million in Q4 2024, down from $4.6 million in Q4 2023 [21] - Adjusted EBITDA decreased to $2.1 million from $4.9 million year-over-year [21] - The company recorded a net loss of $200,000 or one cent per diluted share, compared to net income of $4.9 million or thirteen cents per diluted share in the same quarter last year [22] - Stockholders' equity increased to $65.2 million as of December 31, 2024, up from $61.1 million a year earlier [23] - The company ended the year with no long-term debt and a cash balance bolstered by operations and investment activities [24] Business Line Data and Key Metrics Changes - The industrial assets division reported operating income of $800,000 in Q4 2024, down from $1.6 million in the prior year [16] - The financial assets division reported total operating income of $1.9 million, while the brokerage business recorded $1.7 million, down from $2.7 million in Q4 2023 [18] Market Data and Key Metrics Changes - The company noted a significant increase in defaults and charge-offs, indicating a robust market for auctioneers in the coming months [10][13] - The demand for used equipment is at an all-time high due to supply chain tightening and potential tariff impacts on new equipment [12] Company Strategy and Development Direction - The company is focusing on expanding its warehouse and staffing to meet increased demand and asset flow [8] - M&A efforts are producing multiple prospects, with a focus on capitalizing on opportunities in the current economic environment [9][26] - The company is optimistic about the auction market in 2025, anticipating increased activity due to economic pressures leading to more defaults and asset liquidations [10][12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate economic challenges and capitalize on market opportunities [14] - The CEO highlighted the importance of maintaining profitability and a strong balance sheet to seize new opportunities [27] - Management acknowledged the challenges faced in 2024 but remains positive about the future, citing a strong pipeline of opportunities [28] Other Important Information - The company repurchased approximately 1.3 million shares in the open market during fiscal 2024, with $3 million remaining under the share repurchase program [25] - A new mortgage loan agreement for $4.1 million was entered into for the company's new corporate headquarters, which will provide expanded office and warehouse space [26] Q&A Session Summary Question: Did you increase any more provisions on the loan book? - Management stated that they have not increased or substantially decreased the reserve against the loan book, maintaining a consistent reserve level [31] Question: What is needed to grow the brokerage business? - The CEO indicated that an increase in defaults would lead to more charge-offs, which would benefit the brokerage business in the future [39] Question: What is the capacity to serve the market now? - The CEO mentioned that the company has expanded its capacity significantly, allowing for more asset relocation and acquisitions [49] Question: Are you able to take advantage of higher interest rates on cash balances? - Management confirmed that they are utilizing short-term vehicles to earn interest income, but are primarily focused on deploying cash into the business [111] Question: What is the current status of non-accrual loans? - Management disclosed that the amount in non-accrual status is approximately $22 million to $23 million [75] Question: How is management compensation structured? - Management compensation is variable and based on performance, with bonuses tied to the company's profitability [89]

Financial Data and Key Metrics Changes - The company reported a consolidated operating income of $1,500,000 in Q4 2024, down from $4,600,000 in Q4 2023 [12] - Adjusted EBITDA decreased to $2,100,000 from $4,900,000 year-over-year [12] - The company recorded a net loss of $200,000 or $0.01 per diluted share compared to a net income of $4,900,000 or $0.13 per diluted share in the same quarter last year [12] - Stockholders' equity increased to $65,200,000 as of December 31, 2024, up from $61,100,000 a year earlier [13] Business Line Data and Key Metrics Changes - The Industrial Assets division reported operating income of $800,000 in Q4 2024, down from $1,600,000 in the prior year [9] - The Financial Assets division reported total divisional operating income of $1,900,000, while the Brokerage business recorded operating income of $1,700,000, down from $2,700,000 in Q4 2023 [10] Market Data and Key Metrics Changes - Demand for used equipment is at an all-time high due to tightening supply chains and potential tariffs on new equipment [7] - Charge-offs of credit cards and delinquencies hit decade-plus highs, indicating a strong market for the next 6 to 18 months [7] Company Strategy and Development Direction - The company is focused on capitalizing on increased charge-offs in non-performing loans and anticipates a robust auction market in 2025 [10][11] - The company has expanded its warehouse size and staffing to meet increased asset flow and demand [4] - M&A efforts are ongoing, with a focus on acquiring companies in the bio sector to enhance presence at ALT [34] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating economic pressures and anticipates increased momentum in the auction pipeline [10] - The company is optimistic about the future, citing a favorable market environment for auctioneers and a strong cash flow position [8][16] Other Important Information - The company ended the year with no long-term debt and a strong cash balance, allowing for share repurchases [14][15] - A new mortgage loan agreement for $4,100,000 was entered into for expanded corporate headquarters [15] Q&A Session Summary Question: Did the company increase provisions on the loan book? - Management stated that they have not increased or substantially decreased the reserve against the loan book, maintaining a consistent reserve [21][22] Question: What is needed for the financial asset business to grow? - Management indicated that an increase in defaults will lead to more charge-offs, which will benefit their marketplace [25] Question: What is the capacity to serve the market now? - The company has increased its capacity significantly to handle a wave of plant closings and asset relocations [30] Question: Is the company able to earn interest on its cash balance? - The company is taking advantage of short-term vehicles to earn interest income, but is primarily focused on deploying cash into the business [73] Question: What is the current status of the share repurchase program? - The company has approximately $3,000,000 remaining under the share repurchase program, which is expected to be deployed in the first half of 2025 [74]

Loan and Credit Losses - As of September 30, 2024, the amortized cost basis of restructured loans was $51.6 million, representing 59% of the total charged-off asset portfolio loans[76] - The allowance for credit losses related to restructured loans increased to $1.1 million as of September 30, 2024, up from $1.0 million as of September 30, 2023[76] - The company has incurred no actual credit losses from the inception of the specialty lending program through September 30, 2024[77] - The company’s largest borrower restructured loans totaling $22.2 million, which accounted for 57% of its share of the loan book[76] - As of September 30, 2024, approximately 75% of the total balance of loans outstanding were in nonaccrual status due to a default by the largest borrower[84] - The company's net balance related to investments in loans to buyers of charged-off and nonperforming receivable portfolios was $30.8 million as of September 30, 2024[84] Financial Performance - Revenues for the three months ended September 30, 2024, were $10.4 million, a decrease of approximately 33.3% from $15.6 million in the same period in 2023[103] - Gross profit for the three months ended September 30, 2024, was $7.2 million, down approximately 26% from $9.7 million in the same period in 2023[103] - Total revenues for the nine months ended September 30, 2024, were $34.6 million, down from $45.3 million in the same period in 2023, representing a decrease of approximately 23.5%[105] - Gross profit for the nine months ended September 30, 2024, was $23.8 million, a decrease of approximately 18% from $29.0 million in the same period in 2023[105] - Net income for the three months ended September 30, 2024, was $1.1 million, a decrease of approximately 45% from $1.9 million in the same period in 2023[103] - The company reported a net income of $5,385,000 for the nine months ended September 30, 2024, down from $7,585,000 in 2023, a decrease of 29%[109] Operating Income and Expenses - Operating income for the three months ended September 30, 2024, was $1.5 million, a decline of approximately 47% from $2.8 million in the same period in 2023[102] - The Auction and Liquidation segment reported operating income of $583,000 for the three months ended September 30, 2024, down from $1.1 million in the same period in 2023[102] - The Brokerage segment generated operating income of $1.7 million for the three months ended September 30, 2024, compared to $2.1 million in the same period in 2023[102] - Selling, general and administrative expenses decreased to $5.7 million for the three months ended September 30, 2024, compared to $6.8 million in the same period in 2023, a reduction of approximately 16%[104] - Total selling, general, and administrative expense decreased by 6% to $18,390,000 for the nine months ended September 30, 2024, compared to $19,546,000 in 2023[31] Cash Flow and Working Capital - Working capital increased to $16.2 million as of September 30, 2024, compared to $11.6 million as of December 31, 2023[91] - Current assets rose to $37.0 million as of September 30, 2024, up from $26.3 million as of December 31, 2023, primarily due to a $14.3 million increase in cash[91] - Cash and cash equivalents increased to $26.6 million as of September 30, 2024, compared to $12.3 million as of December 31, 2023[93] - Cash provided by operations was $13.3 million during the nine months ended September 30, 2024, compared to $12.6 million during the same period in 2023[94] - Cash provided by investing activities was $8.9 million during the nine months ended September 30, 2024, compared to cash used of $14.5 million during the same period in 2023[95] - Cash used in financing activities was approximately $7.8 million during the nine months ended September 30, 2024, compared to cash provided of $4.9 million during the same period in 2023[96] Equity and Investments - Stockholders' equity increased to $66.1 million as of September 30, 2024, from $61.1 million as of December 31, 2023[92] - Earnings in Equity Method Investments increased to $2,600,000 for the nine months ended September 30, 2024, up from $700,000 in the same period in 2023, primarily due to a $1,300,000 share of earnings from the KNFH II LLC joint venture[31] Specialty Lending and Expenses - The Specialty Lending Segment has issued a total of $153.9 million in loans since its inception in 2019, with the company's portion being $67.5 million[84] - Specialty lending expenses rose by 66% to $1,287,000 for the nine months ended September 30, 2024, compared to $773,000 in 2023[31] EBITDA and Compensation - EBITDA for the nine months ended September 30, 2024, was $8,021,000, down from $10,137,000 in 2023, reflecting a decrease of 21%[109] - Adjusted EBITDA for the nine months ended September 30, 2024, was $8,822,000, compared to $10,719,000 in 2023, representing a decline of 17.7%[109] - Stock-based compensation increased by 38% to $801,000 for the nine months ended September 30, 2024, compared to $582,000 in 2023[31] - The company reported a significant decrease in performance-related compensation, contributing to the reduction in selling, general and administrative expenses[104] Other Expenses - Travel and entertainment expenses decreased by 27% to $458,000 for the nine months ended September 30, 2024, compared to $627,000 in 2023[31] - Depreciation and amortization expense remained stable at $440,000 for the nine months ended September 30, 2024, compared to $373,000 in 2023[31] - Provision for credit losses improved significantly, decreasing by 135% to $(219,000) for the nine months ended September 30, 2024, from $632,000 in 2023[31]

Financial Data and Key Metrics Changes - Consolidated operating income increased to $3.5 million in Q2 2024 from $3.1 million in Q2 2023 [9] - Adjusted EBITDA rose to $4 million in Q2 2024 compared to $3.5 million in the prior year [9] - Net income decreased to $2.5 million or $0.07 per diluted share in Q2 2024 from $2.8 million or $0.07 per diluted share in Q2 2023 [9] - Stockholders' equity increased to $65.8 million as of June 30, 2024, up from $61.1 million at December 31, 2023 [9] Business Line Data and Key Metrics Changes - The Industrial Assets division reported operating income of $2.1 million, up from $1.5 million in the prior year [5] - The Financial Assets division maintained operating income of $2.7 million, consistent with the prior year [6] - The auction business within the Industrial division experienced strong performance due to increased economic pressures leading to downsizing and office closures [5] Market Data and Key Metrics Changes - The total amortized cost basis of loans to buyers of charged-off and nonperforming receivable portfolios was $35.2 million as of June 30, 2024 [7] - The amortized cost basis of loans in nonaccrual status was $24.6 million, compared to none as of December 31, 2023 [8] - The company anticipates a reduction in total 2024 operating income by approximately $1.6 million due to defaults [8] Company Strategy and Development Direction - The company is focused on organic growth and is actively seeking M&A opportunities in both Financial and Industrial Assets [11][15] - The Industrial business is expected to benefit from increased secondhand equipment availability due to economic conditions and manufacturing trends [14] - The company aims to enhance collection efforts and recover funds from nonperforming loans while maintaining a conservative approach to credit loss reserves [18][25] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the strong pipeline and client retention for Q3 and Q4 2024 [4] - The macroeconomic environment is expected to drive growth in charge-offs, which will benefit the company's Financial Assets business [12] - Management believes the company is well-positioned for future growth despite current challenges in collections [30] Other Important Information - The company has fully paid off the remaining principal balance under its 2023 credit facility with C3Bank [8] - The company is working with a special adviser to improve the performance of Heritage Global Capital [15] Q&A Session Questions and Answers Question: What happens going forward with the impairment or change in status of the loan book? - Management is focused on enhancing collection efforts and does not anticipate selling the loan book at this time [17] Question: Have you stopped any additional lending to other customers? - The company is being very selective with new funding, focusing only on high-performing customers [20] Question: Can you walk us through the underlying assumptions regarding the credit loss reserve? - Management conducted a thorough review and believes no further increase in the credit loss reserve is necessary at this time [24]

Financial Data and Key Metrics Changes - Consolidated operating income was $2.6 million in Q1 2024, down from $3.9 million in Q1 2023 [15] - Adjusted EBITDA decreased to $2.9 million from $4.2 million year-over-year [15] - Net income was $1.8 million or $0.05 per diluted share, compared to $2.8 million or $0.08 per diluted share in the prior year [15] - Stockholders' equity increased to $63 million as of March 31, 2024, up from $61.1 million at the end of 2023 [15] Business Line Data and Key Metrics Changes - Financial Assets division reported operating income of $2.9 million in Q1 2024, a 16% increase from $2.5 million in the same period last year [5] - Specialty lending segment within Financial Assets saw an operating income of approximately $900,000, an 81% increase year-over-year [6] - Brokerage segment in Financial Assets recorded $2.1 million in operating income, slightly up from $2 million in the prior year [10] - Industrial Assets division's operating income was $800,000, down from $2.6 million in Q1 2023 due to fewer large auctions [12] Market Data and Key Metrics Changes - The company noted a strong pipeline of opportunities in the Financial Assets division, particularly in specialty lending and brokerage [11] - The Industrial Assets division is expected to see increased auction activity in Q2 2024, following a significant addition to the current pipeline [12] Company Strategy and Development Direction - The company is focusing on organic growth while increasing its emphasis on strategic M&A to drive long-term growth [16] - Plans to balance lending between financial and industrial assets, leveraging a database of nearly $1 billion in industrial assets [19] - Initiatives to monetize data-driven revenue are underway, aiming to expand revenue streams [20] - The company is exploring growth opportunities across various manufacturing sectors and geographies, particularly outside North America [21] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's performance and growth trajectory, highlighting a strong start to Q2 2024 [8] - There is an expectation of continued availability of charged-off products throughout the year, which could support future growth [38] Other Important Information - The company is working on expanding segment-specific disclosures to provide more transparency for shareholders by the end of 2024 [14] Q&A Session Summary Question: Criteria for M&A opportunities - Management looks for synergy and cultural fit in acquisitions, not just immediate financial accretion [24][25] Question: Performance of the Financial Assets business - The lending business is performing well, with expectations for growth in the charged-off loan segment as new clients are onboarded [26][30] Question: Economics of the pharmaceutical plant acquisition - Details on the transaction are still being finalized, with a focus on how revenue recognition will be handled [27][33] Question: Industrial lending offering - The company plans to provide capital to buyers of assets at auctions, expanding its lending capabilities in the industrial sector [35][36] Question: Charge-off volume expectations - Management sees a significant amount of product becoming available, indicating ongoing opportunities despite potential normalization in charge-off volumes [37][38]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2024 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 001-39471 HERITAGE GLOBAL INC. (Exact name of registrant as specified in its charter) (State or Other Jurisdiction of Incorporation or Organiz ...