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]

[PART I – FINANCIAL INFORMATION](index=3&type=section&id=Part%20I.%20Financial%20Information) Presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis for the period [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements of Heritage Global Inc. for the three months ended March 31, 2024, and 2023, including balance sheets, statements of income, stockholders' equity, and cash flows, along with detailed notes explaining the basis of presentation, significant accounting policies, and specific financial line items [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Presents the company's financial position, including assets, liabilities, and equity, at specific points in time | Metric | March 31, 2024 (unaudited) | December 31, 2023 | | :-------------------------------- | :------------------------- | :------------------ | | Total assets | $83,706 thousand | $83,168 thousand | | Total liabilities | $20,674 thousand | $22,088 thousand | | Total stockholders' equity | $63,032 thousand | $61,080 thousand | - Total assets increased by **$538 thousand (0.65%)** from December 31, 2023, to March 31, 2024, primarily driven by an increase in cash and cash equivalents[7](index=7&type=chunk) - Total liabilities decreased by **$1,414 thousand (6.4%)** from December 31, 2023, to March 31, 2024, mainly due to a decrease in accounts payable and accrued liabilities[7](index=7&type=chunk) - Total stockholders' equity increased by **$1,952 thousand (3.2%)** from December 31, 2023, to March 31, 2024[7](index=7&type=chunk) [Condensed Consolidated Statements of Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) Details the company's revenues, expenses, and net income for the reporting periods | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | Change (YoY) | | :-------------------------------- | :-------------------------------- | :-------------------------------- | :----------- | | Total revenues | $12,161 thousand | $16,612 thousand | (26.8%) | | Operating income | $2,558 thousand | $3,894 thousand | (34.3%) | | Net income | $1,799 thousand | $2,829 thousand | (36.4%) | | Net income per share – basic | $0.05 | $0.08 | (37.5%) | | Net income per share – diluted | $0.05 | $0.08 | (37.5%) | - Total revenues decreased by **$4,451 thousand (26.8%)** year-over-year, primarily due to lower asset sales and services revenue[10](index=10&type=chunk) - Net income decreased by **$1,030 thousand (36.4%)** year-over-year, resulting in a basic and diluted EPS decrease from **$0.08 to $0.05**[10](index=10&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) Shows changes in the company's equity accounts over the reporting periods | Metric | As of March 31, 2024 | As of December 31, 2023 | | :-------------------------------- | :------------------- | :---------------------- | | Total stockholders' equity | $63,032 thousand | $61,080 thousand | | Common stock shares issued | 37,336,392 | 37,157,616 | | Additional paid-in capital | $294,674 thousand | $294,522 thousand | | Accumulated deficit | $(231,227) thousand | $(233,026) thousand | - Total stockholders' equity increased by **$1,952 thousand**, driven by net income of **$1,799 thousand** and stock-based compensation expense of **$228 thousand**[12](index=12&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Reports the cash inflows and outflows from operating, investing, and financing activities | Cash Flow Activity | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by operating activities | $1,676 thousand | $8,945 thousand | | Net cash provided by (used in) investing activities | $2,119 thousand | $(6,786) thousand | | Net cash (used in) provided by financing activities | $(497) thousand | $907 thousand | | Net increase in cash and cash equivalents | $3,298 thousand | $3,066 thousand | | Cash and cash equivalents as of end of period | $15,577 thousand | $15,733 thousand | - Net cash provided by operating activities significantly decreased from **$8,945 thousand** in Q1 2023 to **$1,676 thousand** in Q1 2024[14](index=14&type=chunk) - Investing activities shifted from a net cash usage of **$6,786 thousand** in Q1 2023 to a net cash provision of **$2,119 thousand** in Q1 2024, primarily due to higher payments received on notes receivable and returns from equity method investments[14](index=14&type=chunk) - Financing activities moved from providing **$907 thousand** in Q1 2023 to using **$497 thousand** in Q1 2024, mainly due to debt repayments[14](index=14&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) Provides detailed explanations and additional information supporting the unaudited condensed consolidated financial statements [Note 1 – Basis of Presentation](index=9&type=section&id=Note%201%20%E2%80%93%20Basis%20of%20Presentation) Outlines the company's structure, business segments, and the basis for preparing the financial statements - Heritage Global Inc. (HG) and its subsidiaries (HGP, NLEX, HG LLC, HGC, ALT) are collectively referred to as 'the Company'[17](index=17&type=chunk) - The Company provides auction and appraisal services, traditional asset disposition sales, and specialty financing solutions[18](index=18&type=chunk) - Reportable segments include Auction and Liquidation (HGP), Refurbishment & Resale (ALT), Brokerage (NLEX), and Specialty Lending (HGC)[18](index=18&type=chunk) - The Board of Directors authorized a share repurchase program on May 5, 2022, for up to **$4.0 million** in common shares over three years, with approximately **$3.2 million** remaining as of March 31, 2024, and no shares repurchased in Q1 2024[21](index=21&type=chunk) [Note 2 – Summary of Significant Accounting Policies](index=10&type=section&id=Note%202%20%E2%80%93%20Summary%20of%20Significant%20Accounting%20Policies) Describes the key accounting principles and estimates used in preparing the financial statements - Revenue recognition follows ASC Topic 606 for services and asset sales, and ASC Topic 310 for specialty lending activities[25](index=25&type=chunk)[26](index=26&type=chunk)[31](index=31&type=chunk) - Specialty Lending has a concentration risk with one borrower accounting for **63%** of notes receivable as of March 31, 2024, up from **62%** in December 2023, mitigated by diversified underlying portfolios and security requirements[34](index=34&type=chunk)[35](index=35&type=chunk)[36](index=36&type=chunk) - The Company has incurred no actual credit losses from its specialty lending program through March 31, 2024[37](index=37&type=chunk) - Allowance for credit losses for notes receivable was **$0.6 million** as of March 31, 2024, and **$0.7 million** as of December 31, 2023, with an allowance rate of **3.6%** due to concentration risk and declining collections[44](index=44&type=chunk) - Allowance for credit losses for equity method investments was **$0.9 million** as of March 31, 2024, with a rate of **4.4%** for similar reasons[46](index=46&type=chunk) - The Company is evaluating the impact of new FASB ASUs 2023-07 (Segment Reporting) and 2023-09 (Income Tax Disclosures), effective for fiscal years beginning after December 15, 2023, and December 15, 2024, respectively[47](index=47&type=chunk)[48](index=48&type=chunk) [Note 3 – Accounts Receivable, net](index=15&type=section&id=Note%203%20%E2%80%93%20Accounts%20Receivable%2C%20net) Details the company's accounts receivable and related allowance for credit losses - The reserve for credit losses related to accounts receivable remained approximately **$0.1 million** as of March 31, 2024, and December 31, 2023, with no material adjustments recorded in Q1 2024[51](index=51&type=chunk) [Note 4 – Notes Receivable, net](index=15&type=section&id=Note%204%20%E2%80%93%20Notes%20Receivable%2C%20net) Provides information on outstanding notes receivable, new investments, and principal repayments | Metric | March 31, 2024 (in thousands) | | :-------------------------------- | :---------------------------- | | Notes receivable as of Dec 31, 2023 | $18,262 | | Investment in notes receivable | $2,256 | | Principal repayments | $(2,520) | | Notes receivable, as of March 31, 2024 | $17,998 | | Deferred financing fees and costs, net | $(143) | | Allowance for credit loss | $(643) | | Notes receivable, net, March 31, 2024 | $17,212 | - Outstanding notes receivable, net, decreased slightly from **$17.5 million** as of December 31, 2023, to **$17.2 million** as of March 31, 2024[52](index=52&type=chunk) - Activity in Q1 2024 included **$2.3 million** in new investments offset by **$2.5 million** in principal payments[52](index=52&type=chunk) - The allowance for credit losses for notes receivable was **$0.6 million** as of March 31, 2024, a decrease from **$0.7 million** as of December 31, 2023[53](index=53&type=chunk) [Note 5 – Stock-based Compensation](index=15&type=section&id=Note%205%20%E2%80%93%20Stock-based%20Compensation) Explains the company's stock option and restricted stock award programs and related expenses - The Company issued options to purchase **20,000 shares** and canceled **12,750 options** in Q1 2024[56](index=56&type=chunk) | Stock Options | As of Dec 31, 2023 | As of March 31, 2024 | | :-------------------------------- | :------------------- | :------------------- | | Outstanding Options | 2,265,350 | 2,268,850 | | Weighted Average Exercise Price | $1.71 | $1.72 | | Aggregate Intrinsic Value | $3,059 thousand | $2,322 thousand | - Stock-based compensation expense for common stock options was **$0.1 million** for both Q1 2024 and Q1 2023[57](index=57&type=chunk) - Unrecognized stock-based compensation expense for unvested options was approximately **$1.3 million** as of March 31, 2024, to be recognized over **2.3 years**[57](index=57&type=chunk) - The Company granted **128,044 shares** of restricted common stock to employees and **75,000 shares** to non-executive directors on March 7, 2024, vesting on March 7, 2025[63](index=63&type=chunk)[64](index=64&type=chunk) - Stock-based compensation expense related to restricted stock awards was approximately **$0.1 million** for both Q1 2024 and Q1 2023[65](index=65&type=chunk) [Note 6 – Equity Method Investments](index=17&type=section&id=Note%206%20%E2%80%93%20Equity%20Method%20Investments) Describes the company's investments in joint ventures and their financial performance - The Company holds significant influence over several joint ventures in both Industrial Assets (CPFH LLC, KNFH LLC, DHC8 LLC, KNFH II LLC) and Financial Assets (HGC Origination I LLC, HGC Funding I LLC, HGC MPG Funding LLC) divisions[66](index=66&type=chunk) - The Company's share of the allowance for credit losses for equity method investments was approximately **$0.9 million** as of March 31, 2024, primarily related to HGC Origination I LLC and HGC MPG Funding LLC[67](index=67&type=chunk) - No actual credit losses have been incurred through equity method investments as of March 31, 2024[67](index=67&type=chunk) | Joint Venture Revenues and Net Income (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Total revenues and gross profit | $2,702 | $2,182 | | Total operating income and net income | $2,599 | $1,672 | - Total revenues and gross profit from joint ventures increased by **$520 thousand (23.8%)** year-over-year[68](index=68&type=chunk) - Total operating income and net income from joint ventures increased by **$927 thousand (55.4%)** year-over-year[68](index=68&type=chunk) | Joint Venture Assets and Liabilities (in thousands) | March 31, 2024 | December 31, 2023 | | :-------------------------------------------------- | :------------- | :---------------- | | Total assets | $76,593 | $81,973 | | Total liabilities | $6,324 | $5,401 | [Note 7 – Earnings Per Share](index=18&type=section&id=Note%207%20%E2%80%93%20Earnings%20Per%20Share) Explains the calculation of basic and diluted earnings per share - Basic EPS is calculated using the two-class method due to preferred stock dividend rights, but earnings allocated to preferred shares were not material[70](index=70&type=chunk) | Shares for Diluted EPS Calculation | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--------------------------------- | :-------------------------------- | :-------------------------------- | | Basic weighted average shares outstanding | 36,592,801 | 36,005,150 | | Treasury stock effect of common stock options and restricted stock awards | 774,467 | 1,329,309 | | Diluted weighted average common shares outstanding | 37,367,268 | 37,334,459 | - Approximately **0.2 million** and **0.3 million** potential common shares were excluded from diluted EPS computation for Q1 2024 and Q1 2023, respectively, as their inclusion would have been anti-dilutive[72](index=72&type=chunk) [Note 8 – Leases](index=19&type=section&id=Note%208%20%E2%80%93%20Leases) Details the company's operating lease arrangements, right-of-use assets, and lease liabilities - The Company leases office and warehouse space in four locations, all classified as operating leases[73](index=73&type=chunk) | Lease Assets and Liabilities (in thousands) | March 31, 2024 | December 31, 2023 | | :------------------------------------------ | :------------- | :---------------- | | Total right-of-use assets | $2,377 | $2,539 | | Total lease liabilities | $2,489 | $2,648 | - The weighted average remaining lease term for operating leases is **3.9 years**, and the weighted average discount rate is **5.35%** as of March 31, 2024[75](index=75&type=chunk) - Lease expense was approximately **$0.2 million** for both Q1 2024 and Q1 2023[76](index=76&type=chunk) | Undiscounted Future Minimum Lease Payments (in thousands) | | :-------------------------------------------------------- | | 2024 (remainder) | $594 | | 2025 | $661 | | 2026 | $649 | | 2027 | $543 | | 2028 | $299 | | Total | $2,746 | | Less: imputed interest | $(257) | | Present value of lease liabilities | $2,489 | [Note 9 – Intangible Assets and Goodwill](index=21&type=section&id=Note%209%20%E2%80%93%20Intangible%20Assets%20and%20Goodwill) Provides information on the company's amortizable and indefinite-lived intangible assets and goodwill | Intangible Assets (in thousands) | March 31, 2024 | December 31, 2023 | | :------------------------------- | :------------- | :---------------- | | Total amortizable intangible assets | $1,218 | $1,316 | | Indefinite-lived intangible assets (Trade Name NLEX) | $2,437 | $2,437 | | Total intangible assets | $3,655 | $3,753 | - Amortization expense was **$0.1 million** for both Q1 2024 and Q1 2023[78](index=78&type=chunk) | Estimated Amortization Expense (in thousands) | | :-------------------------------------------- | | 2024 (remainder) | $293 | | 2025 | $263 | | 2026 | $186 | | 2027 | $32 | | 2028 | $32 | | Thereafter | $412 | | Total | $1,218 | | Goodwill (in thousands) | March 31, 2024 | December 31, 2023 | | :---------------------- | :------------- | :---------------- | | ALT | $1,861 | $1,861 | | HGP | $2,041 | $2,041 | | NLEX | $3,544 | $3,544 | | Total goodwill | $7,446 | $7,446 | - No additions or impairments to goodwill were recorded in Q1 2024[80](index=80&type=chunk) [Note 10 – Debt](index=23&type=section&id=Note%2010%20%E2%80%93%20Debt) Details the company's third-party debt, credit facilities, and compliance with covenants | Debt (in thousands) | March 31, 2024 | December 31, 2023 | | :------------------ | :------------- | :---------------- | | Current portion | $1,765 | $1,733 | | Non-current portion | $5,040 | $5,495 | | Total third party debt | $6,805 | $7,228 | - Total third-party debt decreased by **$423 thousand** from December 31, 2023, to March 31, 2024[81](index=81&type=chunk) - The 2021 Credit Facility (revolving line of credit) had no outstanding balance as of March 31, 2024, and its maturity date was extended to October 27, 2024[84](index=84&type=chunk) - The ALT Note had an outstanding balance of **$0.8 million** as of March 31, 2024, with a maturity date of August 23, 2025[86](index=86&type=chunk) - The 2023 Credit Facility (Term Loan) had an outstanding balance of **$6.0 million** as of March 31, 2024, with a maturity date of April 27, 2028[87](index=87&type=chunk) - The Company was in compliance with all financial and negative covenants for its debt facilities as of March 31, 2024[84](index=84&type=chunk)[87](index=87&type=chunk) - The weighted average interest rate on short-term borrowings decreased from **9.51%** as of December 31, 2023, to **8.75%** as of March 31, 2024[85](index=85&type=chunk) [Note 11 – Income Taxes](index=25&type=section&id=Note%2011%20%E2%80%93%20Income%20Taxes) Discusses the company's net operating loss carryforwards and deferred tax assets and liabilities - The Company has aggregate federal net operating loss (NOL) carryforwards of **$50.0 million**, beginning to expire in 2024, subject to Section 382 limitations[88](index=88&type=chunk) - A partial valuation allowance of approximately **$2.2 million** was provided against net deferred tax assets as of March 31, 2024, and December 31, 2023, due to cumulative losses and uncertainty regarding future taxable income[90](index=90&type=chunk) [Note 12 – Related Party Transactions](index=25&type=section&id=Note%2012%20%E2%80%93%20Related%20Party%20Transactions) Discloses transactions with related parties, including lease agreements - The Company leases office space in Edwardsville, IL, from David Ludwig, President of NLEX and a board member, with payments to the related party approximately **$28,000** for both Q1 2024 and Q1 2023[91](index=91&type=chunk) [Note 13 – Segment Information](index=26&type=section&id=Note%2013%20%E2%80%93%20Segment%20Information) Presents financial performance data for the company's Industrial and Financial Assets Divisions | Segment Operating Income (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------------------------- | :-------------------------------- | :-------------------------------- | | Industrial Assets Division: | | | | Auction and Liquidation | $796 | $1,468 | | Refurbishment & Resale | $16 | $1,101 | | Total divisional operating income | $812 | $2,569 | | Financial Assets Division: | | | | Brokerage | $2,067 | $2,045 | | Specialty Lending | $865 | $477 | | Total divisional operating income | $2,932 | $2,522 | | Corporate operating expense & other income | $(1,186) | $(1,197) | | Consolidated operating income | $2,558 | $3,894 | - Industrial Assets Division operating income decreased significantly from **$2,569 thousand** in Q1 2023 to **$812 thousand** in Q1 2024, primarily due to lower performance in Refurbishment & Resale and Auction and Liquidation[93](index=93&type=chunk) - Financial Assets Division operating income increased from **$2,522 thousand** in Q1 2023 to **$2,932 thousand** in Q1 2024, driven by strong growth in Specialty Lending[93](index=93&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the Company's financial condition, liquidity, capital resources, and results of operations for the three months ended March 31, 2024, compared to the same period in 2023. It also covers the Company's business overview, competitive landscape, and key performance indicators [Overview, History and Recent Developments](index=27&type=section&id=Overview%2C%20History%20and%20Recent%20Developments) Provides background on the company's incorporation, name changes, corporate structure, and business activities - Heritage Global Inc. was incorporated in 1983 and has undergone several name changes, with the current name adopted in 2013 to better reflect its auction and specialty lending businesses[96](index=96&type=chunk) - The Company's corporate structure includes wholly-owned subsidiaries: Heritage Global Partners, Inc. (Auction and Liquidation), Heritage Global LLC (Holding Company), National Loan Exchange, Inc. (Brokerage), Heritage Global Capital LLC (Specialty Lending), and Heritage ALT LLC (Refurbishment and Resale)[100](index=100&type=chunk)[101](index=101&type=chunk)[104](index=104&type=chunk) [Specialty Lending - Concentration and credit risk](index=28&type=section&id=Specialty%20Lending%20-%20Concentration%20and%20credit%20risk) Discusses the concentration of notes receivable with a single borrower and mitigation strategies - As of March 31, 2024, investments in notes receivable totaled **$37.3 million**, with one borrower accounting for approximately **$23.4 million (63%)**, an increase from **62%** as of December 31, 2023[102](index=102&type=chunk) - Concentration risk is mitigated by diversifying underlying portfolios (FinTech, installment, credit card accounts) across six separate sellers and requiring security from borrowers[103](index=103&type=chunk)[104](index=104&type=chunk) - The Company has not incurred any actual credit losses from its specialty lending program since inception through March 31, 2024[104](index=104&type=chunk) [Industry and Competition](index=29&type=section&id=Industry%20and%20Competition) Describes the fragmented markets in which the company operates and its competitive positioning - The Company operates in the highly fragmented market of industrial asset liquidation and charged-off receivable brokerage and specialty financing[105](index=105&type=chunk) - The business is positioned to grow in all economic cycles, with wider margins on asset sales and higher volumes of nonperforming assets during recessions, and growth based on competitive advantages during economic growth[106](index=106&type=chunk) - Joint Ventures are a key strategy in Specialty Lending and Auction and Liquidation to access more opportunities and mitigate competition[107](index=107&type=chunk) [Our Competitive Strengths](index=29&type=section&id=Our%20Competitive%20Strengths) Highlights the company's differentiated business model, macro growth drivers, return on capital opportunities, and strong management team - Differentiated business model with multiple revenue streams (brokerage, principal-based auction, refurbishment, advisory, secured lending) and repeat, forward-flow contracts[109](index=109&type=chunk) - Compelling macro growth drivers include increased supply of surplus assets during recessions, rising consumer charge-offs, and M&A activity in manufacturing[110](index=110&type=chunk) - Opportunity for high return on invested capital by acting more frequently as principal in auctions and growing secured loans through HGC[111](index=111&type=chunk) - Strong management team with deep domain expertise, including CEO Ross Dove (third-generation auctioneer) and specialized Presidents for Industrial and Financial Assets Divisions[112](index=112&type=chunk) [Financial Assets Division](index=29&type=section&id=Financial%20Assets%20Division) Focuses on the performance and growth opportunities within the company's brokerage and specialty lending segments [Brokerage Segment](index=31&type=section&id=Brokerage%20Segment) Details the company's role as an advisor for sales of charged-off and nonperforming asset portfolios - Through NLEX, the Company acts as an advisor for sales of charged-off and nonperforming asset portfolios via an electronic auction exchange platform[115](index=115&type=chunk) - NLEX has sold over **$200 billion** face value of assets since the 1980s, with sales concentrated in online, automotive, credit card, secured/unsecured consumer/business loans, and real estate charge-offs[115](index=115&type=chunk) - Anticipates significant growth opportunities due to large increases in delinquency and charge-off rates, especially from new lending facilities like FinTech and Buy Now Pay Later lenders[115](index=115&type=chunk) [Specialty Lending Segment](index=31&type=section&id=Specialty%20Lending%20Segment) Describes the company's specialty financing solutions for investors in charged-off and nonperforming asset portfolios - Through HGC, the Company provides specialty financing solutions to investors in charged-off and nonperforming asset portfolios, having issued **$151.7 million** in total loans since 2019, with the Company's portion being **$65.2 million**[116](index=116&type=chunk) - Income from secured lending includes upfront fees, interest income, monthly monitoring fees, and backend profit share, with an expected annual rate of return of approximately **20% or more**[116](index=116&type=chunk) - As of March 31, 2024, total investments in loans to buyers of charged-off and nonperforming receivable portfolios were **$35.9 million** (**$17.2 million** Notes Receivable, **$18.7 million** Equity Method Investments)[116](index=116&type=chunk) - Growth opportunity through increased penetration of the underserved market of mid-tier buyers of charged-off receivables[117](index=117&type=chunk) [Industrial Assets Division](index=31&type=section&id=Industrial%20Assets%20Division) Focuses on the performance and growth opportunities within the company's auction, liquidation, refurbishment, and resale segments [Auction and Liquidation Segment](index=31&type=section&id=Auction%20and%20Liquidation%20Segment) Details the company's global full-service auction, appraisal, and asset advisory services - Through HGP, the Company offers global full-service auction, appraisal, and asset advisory services, including acquisition of turnkey manufacturing facilities and used industrial machinery and equipment[119](index=119&type=chunk) - Fees typically range from **15%–50%** depending on the role and transaction, targeting sellers of surplus or distressed 'inside the building' assets[119](index=119&type=chunk) [Refurbishment & Resale Segment](index=31&type=section&id=Refurbishment%20%26%20Resale%20Segment) Describes the company's specialization in refurbishing and reselling laboratory equipment - Through ALT, the Company specializes in refurbishing and reselling laboratory equipment, particularly in the biotech and pharma sectors[120](index=120&type=chunk) [Growth Opportunities](index=31&type=section&id=Growth%20Opportunities) Outlines strategies for expanding auction and valuation services - Growth in auction services is expected through securing ongoing contracts with multinational sellers, being a first mover in emerging sectors, and gaining market share[121](index=121&type=chunk) - Growth in valuation services is expected through adding incremental bank-approved vendor lists, geographic expansion, and deeper penetration with existing bank relationships[121](index=121&type=chunk) [Government Regulation](index=31&type=section&id=Government%20Regulation) Discusses the regulatory environment and potential compliance costs affecting the company - The Company is subject to federal, state, and local consumer protection laws, including privacy and unfair trade practices, which could result in substantial compliance costs[122](index=122&type=chunk) - Increased regulatory and compliance costs for public companies due to legislation may lead to additional future expenses[123](index=123&type=chunk) [Critical Accounting Policies and Estimates](index=33&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Identifies key accounting estimates and confirms no changes in policies or off-balance sheet arrangements - Significant estimates include collectability of revenue, valuation of receivables, inventory, investments, goodwill, intangible assets, liabilities, deferred income tax assets/liabilities, and stock-based compensation[125](index=125&type=chunk) - No off-balance sheet arrangements and no dividends paid or expected[126](index=126&type=chunk) - No changes to critical accounting policies in the three months ended March 31, 2024[126](index=126&type=chunk) [Management's Discussion of Financial Condition](index=33&type=section&id=Management%27s%20Discussion%20of%20Financial%20Condition) Analyzes the company's liquidity, capital resources, and cash flow activities [Liquidity and Capital Resources](index=33&type=section&id=Liquidity%20and%20Capital%20Resources) Discusses the company's working capital, current liabilities, and ability to fund operations and debt service | Metric | March 31, 2024 | December 31, 2023 | | :----------------- | :------------- | :---------------- | | Working capital | $15.0 million | $11.6 million | - Working capital increased by **$3.4 million**, primarily due to a **$3.3 million** increase in cash, partially offset by decreases in inventory and accounts receivable[128](index=128&type=chunk) - Current liabilities decreased by **$0.8 million**, mainly due to a **$2.6 million** decrease in accounts payable and accrued liabilities, partially offset by a **$1.8 million** increase in payables to sellers[128](index=128&type=chunk) - The Company believes it can fund operations and debt service for at least 12 months through working capital, cash flows, and existing credit facilities[130](index=130&type=chunk) - Stockholders' equity increased from **$61.1 million** as of December 31, 2023, to **$63.0 million** as of March 31, 2024[134](index=134&type=chunk) [Cash Position and Cash Flows](index=35&type=section&id=Cash%20Position%20and%20Cash%20Flows) Provides an overview of changes in cash and cash equivalents from operating, investing, and financing activities - Cash and cash equivalents increased by approximately **$3.3 million**, from **$12.3 million** as of December 31, 2023, to **$15.6 million** as of March 31, 2024[136](index=136&type=chunk) - Cash provided by operating activities decreased by **$7.2 million** year-over-year, from **$8.9 million** in Q1 2023 to **$1.7 million** in Q1 2024, mainly due to changes in operating assets and liabilities and lower net income[137](index=137&type=chunk) - Cash provided by investing activities was **$2.1 million** in Q1 2024, a significant improvement from **$6.8 million** cash used in Q1 2023, driven by higher payments received on notes receivable and returns from equity method investments[139](index=139&type=chunk)[140](index=140&type=chunk)[141](index=141&type=chunk) - Cash used in financing activities was **$0.5 million** in Q1 2024, compared to **$0.9 million** provided in Q1 2023, primarily due to debt repayments[142](index=142&type=chunk) [Management's Discussion of Results of Operations](index=37&type=section&id=Management%27s%20Discussion%20of%20Results%20of%20Operations) Analyzes the company's revenues, cost of revenues, operating expenses, and key performance indicators [Revenues and cost of revenues](index=39&type=section&id=Revenues%20and%20cost%20of%20revenues) Details the changes in total revenues, asset sales, services revenue, and gross profit | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | Change (Dollars) | Change (Percent) | | :------------------------ | :-------------------------------- | :-------------------------------- | :--------------- | :--------------- | | Services revenue | $8,983 thousand | $10,245 thousand | $(1,262) thousand | (12)% | | Asset sales | $3,178 thousand | $6,367 thousand | $(3,189) thousand | (50)% | | Total revenues | $12,161 thousand | $16,612 thousand | $(4,451) thousand | (27)% | | Cost of services revenue | $1,480 thousand | $2,340 thousand | $(860) thousand | (37)% | | Cost of asset sales | $2,411 thousand | $4,335 thousand | $(1,924) thousand | (44)% | | Gross profit | $8,270 thousand | $9,937 thousand | $(1,667) thousand | (16)% | - Total revenues decreased by **27%** year-over-year, primarily due to a **50%** decrease in asset sales and a **12%** decrease in services revenue[145](index=145&type=chunk)[149](index=149&type=chunk) - Gross profit decreased by approximately **$1.6 million (16%)** in Q1 2024 compared to Q1 2023, mainly attributed to a significant one-time principal auction transaction in the Industrial Asset Division in Q1 2023 and normal variability in asset liquidation transactions[149](index=149&type=chunk) [Selling, general and administrative expense](index=39&type=section&id=Selling%2C%20general%20and%20administrative%20expense) Analyzes the components and changes in selling, general, and administrative expenses | SG&A Component (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | % Change | | :------------------------------ | :-------------------------------- | :-------------------------------- | :------- | | Compensation - Auction and liquidation | $1,290 | $1,443 | (11)% | | Compensation - Refurbishment and resale | $595 | $505 | 18% | | Compensation - Brokerage | $1,431 | $1,770 | (19)% | | Compensation - Specialty lending | $515 | $210 | 145% | | Stock-based compensation | $228 | $179 | 27% | | Accounting, tax and legal professional fees | $503 | $339 | 48% | | Provision for credit losses | $(12) | $102 | (112)% | | Total selling, general & administrative | $6,358 | $6,300 | 1% | - Total selling, general and administrative (SG&A) expense remained largely consistent, increasing by **1%** year-over-year to **$6.4 million**[150](index=150&type=chunk)[152](index=152&type=chunk) - Notable changes include a **145%** increase in Specialty Lending compensation and a **48%** increase in accounting, tax, and legal professional fees[150](index=150&type=chunk) - The provision for credit losses shifted from an expense of **$102 thousand** in Q1 2023 to a credit of **$(12) thousand** in Q1 2024[150](index=150&type=chunk) [Depreciation and amortization expense](index=41&type=section&id=Depreciation%20and%20amortization%20expense) Reports the depreciation and amortization expenses for the period - Depreciation and amortization expense was **$0.1 million** for both Q1 2024 and Q1 2023, primarily related to intangible assets[152](index=152&type=chunk) [Key Performance Indicators](index=41&type=section&id=Key%20Performance%20Indicators) Presents the company's GAAP and non-GAAP performance metrics, including net income, EBITDA, and Adjusted EBITDA - Operating income is considered the most important GAAP measure of operational performance[153](index=153&type=chunk) - EBITDA and Adjusted EBITDA are key non-GAAP performance indicators used by management[153](index=153&type=chunk)[154](index=154&type=chunk) | KPI (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :----------------- | :-------------------------------- | :-------------------------------- | | Net income | $1,799 | $2,829 | | EBITDA | $2,699 | $4,014 | | Adjusted EBITDA | $2,927 | $4,193 | - Adjusted EBITDA decreased by **$1,266 thousand (30.2%)** year-over-year, reflecting the decline in net income and operating performance[155](index=155&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=41&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a Smaller Reporting Company, Heritage Global Inc. is not required to provide quantitative and qualitative disclosures about market risk - The Company is exempt from providing market risk disclosures as a Smaller Reporting Company[156](index=156&type=chunk) [Item 4. Controls and Procedures](index=41&type=section&id=Item%204.%20Controls%20and%20Procedures) The Chief Executive Officer and Principal Financial Officer evaluated the Company's disclosure controls and procedures, concluding they were effective as of March 31, 2024. No material changes to internal control over financial reporting occurred during the quarter - Disclosure controls and procedures were evaluated and deemed effective as of March 31, 2024[157](index=157&type=chunk) - No material changes in internal control over financial reporting occurred during the three months ended March 31, 2024[158](index=158&type=chunk) [PART II – OTHER INFORMATION](index=43&type=section&id=Part%20II.%20Other%20Information) Contains legal, risk, equity, and other miscellaneous disclosures not covered in the financial information section [Item 1. Legal Proceedings](index=43&type=section&id=Item%201.%20Legal%20Proceedings) There have been no material changes to the legal proceedings previously discussed in the Company's Form 10-K - No material changes to legal proceedings since the last Form 10-K filing[159](index=159&type=chunk) [Item 1A. Risk Factors](index=43&type=section&id=Item%201A.%20Risk%20Factors) As a Smaller Reporting Company, Heritage Global Inc. is not required to provide the information regarding risk factors - The Company is exempt from providing risk factor disclosures as a Smaller Reporting Company[160](index=160&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=43&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) There were no unregistered sales of equity securities or use of proceeds to report during the period - No unregistered sales of equity securities or use of proceeds to report[161](index=161&type=chunk) [Item 3. Defaults Upon Senior Securities](index=43&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) There were no defaults upon senior securities to report during the period - No defaults upon senior securities to report[162](index=162&type=chunk) [Item 4. Mine Safety Disclosures](index=43&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the Company - Mine Safety Disclosures are not applicable to the Company[163](index=163&type=chunk) [Item 5. Other Information](index=43&type=section&id=Item%205.%20Other%20Information) No director or Section 16 officer adopted or terminated any Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements during the quarter ended March 31, 2024 - No Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted or terminated by directors or Section 16 officers in Q1 2024[164](index=164&type=chunk) [Item 6. Exhibits](index=44&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including organizational documents, warrant agreements, certifications from executive officers, and XBRL-related documents - Exhibits include Amended and Restated Articles of Incorporation, Restated Bylaws, Warrant Agreement, Certifications of Principal Executive and Financial Officers (Rule 13a-14(a), 18 U.S.C. Section 1350), and Inline XBRL documents[166](index=166&type=chunk) [Signature Page](index=45&type=section&id=Signature%20Page) The report is duly signed on behalf of Heritage Global Inc. by Ross Dove, Chief Executive Officer, and Brian J. Cobb, Chief Financial Officer, as of May 9, 2024 - The report was signed by Ross Dove (CEO) and Brian J. Cobb (CFO) on May 9, 2024[170](index=170&type=chunk)

Financial Data and Key Metrics Changes - Consolidated operating income for Q4 2023 was $4.6 million, up from $3.1 million in Q4 2022, while adjusted EBITDA increased to $4.9 million from $3.4 million year-over-year [13][19] - Full year 2023 operating income reached $14.3 million, indicating strong performance across the business [19] - Net income for Q4 2023 was $4.9 million or $0.13 per diluted share, down from $10 million or $0.27 per diluted share in Q4 2022, primarily due to reduced income tax valuation allowance [22] Business Line Data and Key Metrics Changes - Specialty Lending segment reported a gross investment balance in notes receivable of $38.4 million, an increase of $16.3 million compared to the prior year [9] - Financial Assets division's operating income increased by 90% to $8.9 million, driven by an expanded client base and higher volumes of charged-off loans [20][42] - Core Auction and Resale segments saw growth in transaction volumes, with operating income of $7.8 million, down from $9.2 million in 2022 due to the absence of earnings from real estate joint ventures [10] Market Data and Key Metrics Changes - The addressable market has significantly increased due to the highest-ever consumer debt levels, which is expected to drive growth in the coming years [11][30] - The auction business is anticipated to maintain strong momentum into 2024, supported by high consumer debt and increased volumes of charged-off credit cards [42] Company Strategy and Development Direction - The company aims to leverage the growing addressable market and is focused on managing risk in its loan portfolio while redeploying principal remittances for higher quality collateral [47][59] - There is a strategic emphasis on synergistic growth through acquisitions, such as American Lab trading, which enhances the auction business [61] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving a solid and profitable year in 2024, despite the challenges of comparing against record performance in previous years [26][28] - The company is optimistic about the stability of profits over the next two to three years, given the current supply dynamics in the market [30] Other Important Information - The balance sheet remains strong, with stockholders' equity increasing to $61.1 million as of December 31, 2023, up from $48.3 million a year earlier [45] Q&A Session All Questions and Answers Question: How does the company view growth in 2024 given the macro environment? - Management indicated that while it is challenging to predict growth after a record year, the addressable market is larger than last year, suggesting potential for increased profitability [26][49] Question: What is the status of the loan book and reserves? - Management confirmed that no significant changes were made to the credit loss reserve in Q4, and they feel comfortable with the current position based on thorough analysis and borrower performance [50] Question: How sustainable is the growth at NLEX? - Management noted that the growth is supported by both macro dynamics and an increasing number of customers, indicating a favorable environment for continued growth [51]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2023 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 001-39471 HERITAGE GLOBAL INC. (Exact Name of Registrant as Specified in Its Charter) Florida 59-2291344 (State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer ...

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 September 30, 2023 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 Org ...

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 June 30, 2023 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. 12625 High Bluff Drive, Suite 305, San Diego, CA 92130 (Address of Principal Executive Offices) (858) 847-0659 ( ...

Heritage Global Inc. (NASDAQ:HGBL) Q1 2023 Earnings Conference Call May 11, 2023 5:00 PM ET Company Participants John Nesbett - IR Ross Dove - CEO Brian Cobb - CFO Conference Call Participants Mark Argento - Lake Street Operator Welcome to the Heritage Global Inc. First Quarter 2023 Earnings Call. [Operator Instructions] I will now turn the call over to your host, John Nesbett, IMS Investor Relations. You may begin. John Nesbett Thank you, and good afternoon, everyone. Before we begin, I'd like to remind ev ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION For the quarterly period ended March 31, 2023 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 Organization) WASHINGTON, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT O ...

Financial Performance - Total revenues increased to $46.9 million in 2022, up from $25.8 million in 2021, representing an increase of approximately 82%[115] - Gross profit rose to $26.0 million in 2022, compared to $18.4 million in 2021, an increase of approximately $7.6 million or 42%[120] - Operating income for 2022 was $11.1 million, compared to $3.0 million in 2021, marking a significant increase[115] - Net income rose significantly from $3,053 thousand in 2021 to $15,493 thousand in 2022, marking an increase of 408%[127] - EBITDA increased from $3,474 thousand in 2021 to $11,656 thousand in 2022, representing a growth of 236%[127] - Adjusted EBITDA also saw a substantial rise from $4,082 thousand in 2021 to $12,196 thousand in 2022, an increase of 199%[127] Expenses - Selling, general and administrative expenses increased to $21.3 million in 2022, up from $14.8 million in 2021, reflecting a 44% increase[121] - Total selling, general and administrative expense increased by 44% from $14,811 thousand in 2021 to $21,326 thousand in 2022[123] - The total depreciation and amortization expense for both 2022 and 2021 was $0.5 million, primarily related to intangible assets[123] Cash Flow and Assets - Cash provided by operating activities was $6.5 million in 2022, a turnaround from cash used of $2.6 million in 2021, indicating a change of approximately $9.1 million[105] - Current assets increased to $23.9 million at December 31, 2022, compared to $23.3 million at December 31, 2021, primarily due to a $2.3 million increase in notes receivable[95] - Cash and cash equivalents decreased to $12.7 million at December 31, 2022, from $13.6 million at December 31, 2021[104] Liabilities and Equity - Current liabilities rose to $16.2 million at December 31, 2022, up from $14.2 million at December 31, 2021, an increase of $2.0 million[96] - The company had stockholders' equity of $48.3 million at December 31, 2022, compared to $32.6 million at December 31, 2021[101] Future Expectations - The company expects future net cash flows from operating activities to continue as the primary source of cash for ongoing operations[100] - The company expects an adjustment to retained earnings between $0.3 million and $0.4 million due to the adoption of ASU 2016-13 effective January 1, 2023[128] Acquisitions and Credits - The acquisition of American Laboratory Trading in August 2021 was for approximately $5.6 million, with fair value assessments conducted for purchase price allocation[146] - The company recorded a $0.6 million receivable related to the Employee Retention Credit as of December 31, 2022[144] Other Financial Information - The deferred revenue balance as of December 31, 2022, was $0.4 million, primarily related to customer deposits on asset sales[132] - Goodwill is tested for impairment annually on October 1, with a qualitative approach followed by a quantitative analysis if necessary[148] - The company recorded a net deferred tax asset balance of approximately $9.4 million in Q4 2022, indicating a belief that a significant portion of net operating loss carryforwards will be utilized[150] - Stock-based compensation is primarily in the form of options, with fair value calculated using the Black-Scholes model and expensed over the vesting period[151] - As of December 31, 2022, the company had not recorded an allowance for credit losses related to notes receivable outstanding[141]

Heritage Global Inc. (NASDAQ:HGBL) Q4 2022 Earnings Conference Call March 9, 2023 5:00 PM ET Company Participants John Nesbett - IR Ross Dove - CEO Brian Cobb - CFO Conference Call Participants Mark Argento - Lake Street Michael Diana - Maxim Group Operator Thank you for standing by. This is the conference operator. Welcome to the Heritage Global Inc. Fourth Quarter and Year-end 2022 Conference Call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. [Operator Ins ...