Financial Data and Key Metrics Changes - Consolidated operating income was $2,200,000 in Q2 2025, down from $3,500,000 in Q2 2024 [16] - Adjusted EBITDA decreased to $2,660,000 from $4,000,000 year-over-year [19] - Net income was $1,600,000 or $0.05 per diluted share, compared to $2,500,000 or $0.07 per diluted share in the prior year [19] Business Line Data and Key Metrics Changes - The Industrial Assets division reported operating income of $1,300,000 in Q2 2025, down from $2,100,000 in the prior year [16] - The Financial Assets division's operating income was $2,200,000 in Q2 2025, compared to $2,700,000 in Q2 2024 [17] - The appraisals business achieved operating income of approximately $250,000, recovering from a loss in the first quarter [17] Market Data and Key Metrics Changes - The company noted a healthy spread of large multinational firms managing their surplus diligently, leading to increased surplus assets and plant closures [8][9] - There is a growing trend of new sellers entering the market, particularly among regional banks and alternative lending companies [41][42] Company Strategy and Development Direction - The company is in a serious acquisition mode, actively looking at multiple companies to drive growth [12][14] - The focus is on building a stable operating platform and achieving consistent performance above the $2,000,000 operating income mark [25][26] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's stability and capability to navigate the current macroeconomic challenges [6][7] - There is a belief that the company is well-positioned to seize growth opportunities in the coming quarters [21][22] Other Important Information - The company repurchased approximately 750,000 shares for a total of $1,600,000 at an average cost of $2.13 per share [19] - The repurchase program has been extended for an additional three years with an allowable spend of $7,500,000 [19] Q&A Session Summary Question: Is $2,000,000 in operating income a good baseline? - Management indicated that while $2,000,000 is a reasonable expectation, it requires consistent performance and effort to maintain and exceed this level [25][26] Question: Are there more portfolios coming to market? - Management noted an increase in new sellers, particularly regional banks and alternative lenders, entering the market [41][42] Question: How are tariffs affecting demand for used equipment? - Management observed that there is a preliminary increase in demand for modern equipment, with concerns about supply chain issues driving buyers to pay premiums for timely access [33] Question: What types of new sellers are entering the NLEX market? - The company is seeing a mix of regional banks and alternative lenders, with a steady growth in the number of sellers [41][42] Question: Are there still opportunities for acquisitions in Europe? - The company confirmed ongoing interest in expanding internationally, particularly in Europe, with multiple opportunities being evaluated [44][45] Question: Any updates on legal collections for large borrowers? - Management stated that progress is steady, but no significant developments have been disclosed at this time [48][49]

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, including balance sheets, income statements, statements of stockholders' equity, and cash flow statements, along with detailed notes [Key Balance Sheet Metrics (in thousands)](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------- | | Total Assets | $87,686 | $81,309 | | Total Liabilities | $21,980 | $16,108 | | Total Stockholders' Equity | $65,706 | $65,201 | | Property and equipment, net | $9,126 | $1,643 | | Non-current portion of third party debt | $4,100 | $0 | [Condensed Consolidated Statements of Income](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) For the six months ended June 30, 2025, total revenues increased by 15% to $27.8 million, but net income decreased by 37% to $2.7 million, primarily due to a 95% drop in equity method investment earnings [Key Income Statement Metrics (in thousands)](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) | Metric | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | Change (%) | | :-------------------------------- | :------------------------------------------ | :------------------------------------------ | :--------- | | Total Revenues | $27,763 | $24,184 | 15% | | Net Income | $2,701 | $4,296 | (37)% | | Earnings of equity method investments | $123 | $2,522 | (95)% | | Net income per share – basic | $0.08 | $0.12 | (33)% | [Condensed Consolidated Statements of Stockholders' Equity](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) Stockholders' equity increased slightly to $65.7 million at June 30, 2025, driven by net income, partially offset by common stock repurchases totaling approximately $5.6 million [Key Stockholders' Equity Metrics (in thousands)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------- | :----------------------------- | :------------------------------- | | Total Stockholders' Equity | $65,706 | $65,201 | | Accumulated deficit | $(225,143) | $(227,844) | | Treasury stock at cost | $(5,619) | $(2,992) | - The Company repurchased **2,897,658 common shares** for approximately **$5.6 million** under its share repurchase program, which ended on June 30, 2025[23](index=23&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operating activities decreased to $4.5 million in H1 2025, while investing activities shifted to using $8.6 million, and financing activities provided $2.2 million from new mortgage debt [Key Cash Flow Metrics (in thousands)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) | Cash Flow Activity | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :----------------------------------- | :------------------------------------------ | :------------------------------------------ | | Net cash provided by operating activities | $4,496 | $7,730 | | Net cash (used in) provided by investing activities | $(8,581) | $5,507 | | Net cash provided by (used in) financing activities | $2,182 | $(933) | | Net change in cash and cash equivalents | $(1,903) | $12,304 | | Cash and cash equivalents as of end of period | $19,846 | $24,583 | - Cash used in investing activities during H1 2025 was primarily driven by the purchase of property and equipment ($7.6 million) and investments in notes receivable ($3.0 million)[17](index=17&type=chunk)[162](index=162&type=chunk) - Cash provided by financing activities in H1 2025 included **$4.1 million** in proceeds from a new mortgage and **$1.1 million** from secured borrowing, partially offset by **$2.6 million** in common stock repurchases[17](index=17&type=chunk)[164](index=164&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed disclosures on the Company's financial statements, covering accounting policies, specific asset and liability accounts, equity changes, and segment information [Note 1 – Basis of Presentation](index=8&type=section&id=Note%201%20%E2%80%93%20Basis%20of%20Presentation) - Heritage Global Inc (HG) consolidates its subsidiaries, including Heritage Global Partners, National Loan Exchange Inc, Heritage Global Capital LLC, and Heritage ALT LLC, operating in Auction and Liquidation, Refurbishment & Resale, Brokerage, and Specialty Lending segments[19](index=19&type=chunk)[20](index=20&type=chunk) - The Company's share repurchase program ended on June 30, 2025, with approximately **$5.6 million** utilized out of the authorized **$6.0 million** for the repurchase of **2,897,658 common shares**[23](index=23&type=chunk) [Note 2 – Summary of Significant Accounting Policies](index=9&type=section&id=Note%202%20%E2%80%93%20Summary%20of%20Significant%20Accounting%20Policies) - Significant estimates in financial statements include collectability of revenue, valuation of accounts/notes receivable, inventory, investments, goodwill, intangible assets, liabilities, deferred income tax assets/liabilities, and stock-based compensation[26](index=26&type=chunk) - Revenue recognition follows ASC Topic 606 for services and asset sales, and ASC Topic 310 for lending activities[27](index=27&type=chunk)[28](index=28&type=chunk)[33](index=33&type=chunk) - The amortized cost basis of loans in nonaccrual status was **$22.4 million** as of June 30, 2025 (**$4.9 million** in notes receivable and **$17.5 million** in equity method investments), primarily due to the largest borrower's default since June 2024[39](index=39&type=chunk) [Allowance for Credit Loss Summary (in thousands)](index=9&type=section&id=Note%202%20%E2%80%93%20Summary%20of%20Significant%20Accounting%20Policies) | Allowance for Credit Loss | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :------------------------ | :----------------------------- | :------------------------------- | | Accounts Receivable | $135 | $132 | | Notes Receivable | $376 | $383 | | Equity Method Investments | $985 | $986 | | **Total** | **$1,496** | **$1,501** | - The Company adopted ASU 2023-07 (Segment Reporting) as of December 31, 2024, and ASU 2023-09 (Income Taxes) effective January 1, 2025. ASU 2024-03 (Expense Disaggregation Disclosures) is effective for fiscal years beginning after December 15, 2026[53](index=53&type=chunk)[54](index=54&type=chunk)[55](index=55&type=chunk) [Note 3 – Accounts Receivable, net](index=16&type=section&id=Note%203%20%E2%80%93%20Accounts%20Receivable,%20net) - The reserve for credit losses related to accounts receivable remained approximately **$0.1 million** as of both June 30, 2025, and December 31, 2024, with no material adjustments during H1 2025[47](index=47&type=chunk)[57](index=57&type=chunk) [Note 4 – Notes Receivable, net](index=16&type=section&id=Note%204%20%E2%80%93%20Notes%20Receivable,%20net) [Notes Receivable Summary (in thousands)](index=16&type=section&id=Note%204%20%E2%80%93%20Notes%20Receivable,%20net) | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :----------------------------------- | :----------------------------- | :------------------------------- | | Notes receivable, net | $9,167 | $10,409 | | Amortized cost basis of nonaccrual notes receivable | $4,900 | $5,300 | - During H1 2025, the Company made additional investments in notes receivable of approximately **$3.0 million**, offset by principal payments of approximately **$3.9 million**[59](index=59&type=chunk)[60](index=60&type=chunk)[61](index=61&type=chunk) [Note 5 – Stock-based Compensation](index=17&type=section&id=Note%205%20%E2%80%93%20Stock-based%20Compensation) [Stock Option Summary](index=17&type=section&id=Note%205%20%E2%80%93%20Stock-based%20Compensation) | Stock Options | June 30, 2025 | December 31, 2024 | | :------------------------------------ | :------------ | :---------------- | | Outstanding Options | 2,211,600 | 2,231,600 | | Weighted Average Exercise Price | $1.74 | $1.77 | | Options Exercisable | 1,672,725 | N/A | | Stock-based compensation expense (H1) | $0.3 million | $0.3 million | - Unrecognized stock-based compensation expense for unvested common stock options was approximately **$0.7 million** as of June 30, 2025, expected to be recognized over **1.5 years**[63](index=63&type=chunk) - Stock-based compensation expense related to restricted stock awards was approximately **$0.2 million** for both H1 2025 and H1 2024, with **$0.4 million** unrecognized as of June 30, 2025[68](index=68&type=chunk) [Note 6 – Equity Method Investments](index=19&type=section&id=Note%206%20%E2%80%93%20Equity%20Method%20Investments) - The Company holds significant influence in several joint ventures across Industrial Assets (CPFH LLC, KNFH LLC, DHC8 LLC, KNFH II LLC, DLZ Solutions LLC) and Financial Assets (HGC Origination I LLC, HGC Funding I LLC, HGC MPG Funding LLC)[69](index=69&type=chunk) - As of June 30, 2025, the amortized cost basis of the Company's share of loans in nonaccrual status recorded in equity method investments was **$17.5 million**, with no actual credit losses incurred[70](index=70&type=chunk) [Joint Venture Financial Performance (in thousands)](index=19&type=section&id=Note%206%20%E2%80%93%20Equity%20Method%20Investments) | Joint Venture Financials | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :----------------------- | :------------------------------------------ | :------------------------------------------ | | Total Revenue | $5,538 | $18,622 | | Total Net Income (loss) | $5,221 | $10,309 | | Total Assets | $69,602 | $75,759 | | Total Liabilities | $2,861 | $4,318 | - In January 2025, DLZ Solutions LLC (**20% share**) purchased a pharmaceutical plant for approximately **$7.8 million** and entered a lease agreement with a purchase option. Concurrently, the Company purchased a **20% participating interest** in a financial asset for **$1.6 million** to acquire machinery and equipment at the same plant, also with a leaseback and purchase option[74](index=74&type=chunk)[75](index=75&type=chunk) [Note 7 – Earnings Per Share](index=21&type=section&id=Note%207%20%E2%80%93%20Earnings%20Per%20Share) [Shares Outstanding Summary](index=21&type=section&id=Note%207%20%E2%80%93%20Earnings%20Per%20Share) | Shares Outstanding | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Basic weighted average shares outstanding | 35,120,131 | 36,674,620 | | Diluted weighted average common shares outstanding | 35,800,352 | 36,759,995 | - Approximately **0.9 million potential common shares** for H1 2025 (**0.8 million** for H1 2024) were excluded from diluted EPS calculation due to their anti-dilutive effect[79](index=79&type=chunk) [Note 8 – Leases](index=23&type=section&id=Note%208%20%E2%80%93%20Leases) [Lease Assets and Liabilities (in thousands)](index=23&type=section&id=Note%208%20%E2%80%93%20Leases) | Lease Assets & Liabilities | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :------------------------- | :----------------------------- | :------------------------------- | | Total right-of-use assets | $1,868 | $2,208 | | Total lease liabilities | $1,975 | $2,317 | - The weighted average remaining lease term for operating leases is **2.7 years**, and the weighted average discount rate is **5.5%** as of June 30, 2025[83](index=83&type=chunk) - Lease expense was approximately **$0.4 million** for both the six-month periods ended June 30, 2025, and 2024[84](index=84&type=chunk) [Note 9 – Property and Equipment, net](index=24&type=section&id=Note%209%20%E2%80%93%20Property%20and%20Equipment,%20net) [Property and Equipment Details (in thousands)](index=24&type=section&id=Note%209%20%E2%80%93%20Property%20and%20Equipment,%20net) | Property and Equipment, net | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------- | :----------------------------- | :------------------------------- | | Building | $3,797 | $985 | | Land | $4,985 | $397 | | Construction in progress | $182 | $0 | | **Total Property and equipment, net** | **$9,126** | **$1,643** | - On February 11, 2025, the Company purchased real estate for **$7.4 million**, consisting of land and a building, to be used as its future corporate headquarters and warehouse/office space for HGP operations[86](index=86&type=chunk) [Note 10 – Intangible Assets and Goodwill](index=25&type=section&id=Note%2010%20%E2%80%93%20Intangible%20Assets%20and%20Goodwill) [Intangible Assets Summary (in thousands)](index=25&type=section&id=Note%2010%20%E2%80%93%20Intangible%20Assets%20and%20Goodwill) | Intangible Assets | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :------------------------ | :----------------------------- | :------------------------------- | | Total amortizable intangible assets | $794 | $925 | | Indefinite-lived intangible assets (Trade Name NLEX) | $2,437 | $2,437 | | **Total intangible assets** | **$3,231** | **$3,362** | - Amortization expense for H1 2025 was **$0.1 million**, compared to **$0.2 million** for H1 2024[89](index=89&type=chunk) [Goodwill by Segment (in thousands)](index=25&type=section&id=Note%2010%20%E2%80%93%20Intangible%20Assets%20and%20Goodwill) | Goodwill | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :--------- | :----------------------------- | :------------------------------- | | ALT | $1,861 | $1,861 | | HGP | $2,041 | $2,041 | | NLEX | $3,544 | $3,544 | | **Total goodwill** | **$7,446** | **$7,446** | - There were no additions to goodwill and no impairments recorded during H1 2025[91](index=91&type=chunk) [Note 11 – Debt](index=26&type=section&id=Note%2011%20%E2%80%93%20Debt) [Debt Summary (in thousands)](index=26&type=section&id=Note%2011%20%E2%80%93%20Debt) | Debt | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------- | :----------------------------- | :------------------------------- | | Current portion of third party debt | $134 | $395 | | Non-current portion of third party debt | $4,100 | $0 | | **Total third party debt** | **$4,234** | **$395** | - A new **$4.1 million mortgage loan** was entered into on February 6, 2025, to purchase real property for the Company's future corporate headquarters[99](index=99&type=chunk)[101](index=101&type=chunk) - The 2021 Credit Facility had no outstanding balance as of June 30, 2025, and its maturity date was extended to June 27, 2026[96](index=96&type=chunk)[97](index=97&type=chunk) - The outstanding balance of the ALT Note was **$0.1 million** as of June 30, 2025, with a maturity date of August 23, 2025[98](index=98&type=chunk) [Note 12 – Income Taxes](index=29&type=section&id=Note%2012%20%E2%80%93%20Income%20Taxes) - The Company had aggregate federal net operating loss carryforwards of **$40.7 million** as of June 30, 2025, beginning to expire in 2025[102](index=102&type=chunk) - A partial valuation allowance of approximately **$3.5 million** is maintained against net deferred tax assets as of June 30, 2025, and December 31, 2024[104](index=104&type=chunk) - The One Big Beautiful Bill Act (OBBB) is not expected to have a material impact on the Company's annual effective tax rate in 2025[105](index=105&type=chunk) [Note 13 – Related Party Transactions](index=29&type=section&id=Note%2013%20%E2%80%93%20Related%20Party%20Transactions) - Payments to David Ludwig (President of NLEX and board member) for office space lease were approximately **$58,000** for H1 2025, a slight increase from **$57,000** in H1 2024[106](index=106&type=chunk) [Note 14 – Segment Information](index=29&type=section&id=Note%2014%20%E2%80%93%20Segment%20Information) - The Company's reportable segments are Auction and Liquidation, Refurbishment & Resale, Brokerage, and Specialty Lending[168](index=168&type=chunk) [Consolidated Segment Performance (in thousands)](index=29&type=section&id=Note%2014%20%E2%80%93%20Segment%20Information) | Segment Performance (H1) | 2025 (in thousands) | 2024 (in thousands) | Change (%) | | :------------------------- | :------------------ | :------------------ | :--------- | | Consolidated Gross Profit | $16,422 | $16,572 | (1)% | | Consolidated Operating Income | $3,635 | $6,102 | (40)% | | Earnings from equity method investments | $123 | $2,522 | (95)% | [Segment Operating Income (H1 2025) (in thousands)](index=29&type=section&id=Note%2014%20%E2%80%93%20Segment%20Information) | Segment Operating Income (H1 2025, in thousands) | | :-------------------------- | :----------------------------- | | Auction and Liquidation | $1,639 | | Refurbishment & Resale | $675 | | Brokerage | $3,577 | | Specialty Lending | $260 | | Corporate and other | $(2,516) | [Note 16 – Subsequent Events](index=30&type=section&id=Note%2016%20%E2%80%93%20Subsequent%20Events) - On July 31, 2025, the Board of Directors authorized a new share repurchase program (2025 Repurchase Program) for up to **$7.5 million** of common stock, effective through June 30, 2028, following the termination of the previous program[111](index=111&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=31&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the Company's financial performance and condition, covering history, business segments, competitive landscape, strategic advantages, liquidity, capital resources, cash flows, and results of operations [Overview, History and Recent Developments](index=31&type=section&id=Overview,%20History%20and%20Recent%20Developments) - Heritage Global Inc (HG) was incorporated in 1983 and adopted its current name in 2013 to better reflect its auction and specialty lending business lines[114](index=114&type=chunk) - The Company's corporate structure includes wholly-owned subsidiaries: Heritage Global Partners, Heritage Global LLC, National Loan Exchange, Heritage Global Capital LLC, and Heritage ALT LLC[118](index=118&type=chunk) [Nonaccrual Loans](index=32&type=section&id=Nonaccrual%20Loans) - The Company's largest borrower defaulted in June 2024, leading to **$22.4 million** in nonaccrual loans as of June 30, 2025 (**$4.9 million** in notes receivable and **$17.5 million** in equity method investments)[123](index=123&type=chunk) - The Company does not expect to realize any return from these nonaccrual loans in 2025, and future realization remains uncertain[123](index=123&type=chunk) [Industry and Competition](index=33&type=section&id=Industry%20and%20Competition) - The Company operates in highly fragmented markets for industrial asset disposition and charged-off receivable brokerage/specialty financing, competing with various liquidators, auction companies, dealers, and brokers[124](index=124&type=chunk) - The business is positioned to grow in all economic cycles, benefiting from increased surplus assets and distressed debt during downturns, and leveraging competitive advantages during growth periods[125](index=125&type=chunk) - Joint ventures are a key strategy to access more opportunities, mitigate competition, and contribute to the objective of being a leading resource for clients[126](index=126&type=chunk) [Our Competitive Strengths](index=33&type=section&id=Our%20Competitive%20Strengths) - Differentiated business model with diversified business lines (brokerage, principal-based auction services, refurbishment and resale, advisory services, secured lending) and multiple revenue streams[128](index=128&type=chunk) - Compelling macro growth drivers include increased supply of surplus assets during recessions, rising consumer lending charge-offs, and active M&A markets in manufacturing[129](index=129&type=chunk) - Strong management team with deep domain expertise, including Ross Dove (CEO), Nick Dove (President, Industrial Assets Division), and David Ludwig (President, Financial Assets Division)[132](index=132&type=chunk) [Financial Assets Division](index=35&type=section&id=Financial%20Assets%20Division) - The Brokerage Segment (NLEX) acts as an advisor for sales of charged-off and nonperforming asset portfolios, having sold over **$200 billion** face value of assets since the 1980s[134](index=134&type=chunk) - The Specialty Lending Segment (HGC) provides financing solutions to investors in charged-off and nonperforming asset portfolios, having issued **$157.2 million** in total loans since 2019 (**$70.8 million** funded by the Company)[135](index=135&type=chunk) - As of June 30, 2025, the net balance related to investments in loans to buyers of charged-off portfolios was **$27.1 million** (**$8.7 million notes receivable**, **$18.4 million equity method investments**)[135](index=135&type=chunk) - A significant concentration risk exists with one borrower, whose **$21.8 million note balance** represents **77%** of total gross notes receivable and is currently in nonaccrual status due to default[136](index=136&type=chunk) [Industrial Assets Division](index=36&type=section&id=Industrial%20Assets%20Division) - The Auction and Liquidation Segment (HGP) offers global full-service auction, appraisal, and asset advisory, with fees typically ranging from **15%-50%**[140](index=140&type=chunk) - The Refurbishment & Resale Segment (ALT) specializes in refurbishing and reselling laboratory equipment, particularly in the biotech and pharma sectors[141](index=141&type=chunk) - Growth opportunities include securing ongoing contracts with large multinational sellers, being a first mover in emerging sectors, and expanding valuation services geographically and with existing bank relationships[142](index=142&type=chunk) [Government Regulation and Activities](index=36&type=section&id=Government%20Regulation%20and%20Activities) - The Company is subject to federal, state, and local consumer protection laws, including privacy and trade practices, and regulations for auctions, which may incur substantial compliance costs[143](index=143&type=chunk) - The current domestic and international political environment, including tariffs and trade disputes, contributes to economic uncertainty, potentially increasing demand for used industrial assets but also affecting distressed debt collectability[145](index=145&type=chunk) [Critical Accounting Policies and Estimates](index=36&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) - Management's financial statements rely on significant estimates and assumptions, including collectability of revenue, valuation of accounts/notes receivable, inventory, investments, goodwill, intangible assets, liabilities, deferred income tax assets/liabilities, and stock-based compensation[147](index=147&type=chunk) - There were no material changes to the Company's critical accounting policies during the six months ended June 30, 2025[148](index=148&type=chunk) - The Company has no off-balance sheet arrangements and does not expect to pay any dividends in the future[148](index=148&type=chunk) [Management's Discussion of Financial Condition](index=38&type=section&id=Management's%20Discussion%20of%20Financial%20Condition) [Financial Condition Summary (in millions)](index=38&type=section&id=Management's%20Discussion%20of%20Financial%20Condition) | Metric | June 30, 2025 (in millions) | December 31, 2024 (in millions) | | :-------------------------- | :-------------------------- | :---------------------------- | | Working capital | $16.4 | $18.5 | | Current assets | $32.1 | $33.1 | | Current liabilities | $15.7 | $14.6 | | Net cash available (net of payables to sellers) | $11.7 | $14.3 | - The Company believes it can fund its operations and debt service obligations for 12 months and beyond through a combination of working capital, cash flows from operations, and its existing line of credit[152](index=152&type=chunk) - Indebtedness includes the ALT Note (**$0.1 million** outstanding) and a new Mortgage (**$4.1 million** outstanding), with no outstanding balance on the 2021 Credit Facility[153](index=153&type=chunk)[154](index=154&type=chunk)[155](index=155&type=chunk) [Management's Discussion of Results of Operations](index=40&type=section&id=Management's%20Discussion%20of%20Results%20of%20Operations) [Financial Data Table (in thousands)](index=40&type=section&id=Management's%20Discussion%20of%20Results%20of%20Operations) | Metric | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | Change ($k) | Change (%) | | :-------------------------------- | :------------------------------------------ | :------------------------------------------ | :---------- | :--------- | | Total Revenues | $27,763 | $24,184 | $3,579 | 15% | | Asset sales | $9,849 | $6,720 | $3,129 | 47% | | Cost of services revenue | $4,647 | $2,930 | $1,717 | 59% | | Total operating costs and expenses | $24,251 | $20,604 | $3,647 | 18% | | Earnings of equity method investments | $123 | $2,522 | $(2,399) | (95)% | | Operating income | $3,635 | $6,102 | $(2,467) | (40)% | | Net income | $2,701 | $4,296 | $(1,595) | (37)% | - Gross profit for H1 2025 was **$16.4 million**, a slight decrease of **1%** from **$16.6 million** in H1 2024, primarily due to normal changes in the timing and magnitude of asset liquidation transactions[180](index=180&type=chunk) - Selling, general and administrative expense remained generally consistent at **$12.7 million** for both H1 2025 and H1 2024[181](index=181&type=chunk) [Key Performance Indicators](index=47&type=section&id=Key%20Performance%20Indicators) - Management uses EBITDA and Adjusted EBITDA as key performance indicators (KPIs) to assess results and make strategic decisions, in addition to GAAP operating income[186](index=186&type=chunk) [EBITDA and Adjusted EBITDA Reconciliation (in thousands)](index=47&type=section&id=Key%20Performance%20Indicators) | Metric | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :-------------------------- | :------------------------------------------ | :------------------------------------------ | | Net income | $2,701 | $4,296 | | Depreciation and amortization | $236 | $288 | | Interest expense, net | $(74) | $200 | | Income tax expense | $1,008 | $1,606 | | **EBITDA** | **$3,871** | **$6,390** | | Stock based compensation | $509 | $518 | | **Adjusted EBITDA** | **$4,380** | **$6,908** | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=47&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 detailed quantitative and qualitative disclosures about market risk in this report - The Company is a Smaller Reporting Company and is not required to provide quantitative and qualitative disclosures about market risk[188](index=188&type=chunk) [Item 4. Controls and Procedures](index=47&type=section&id=Item%204.%20Controls%20and%20Procedures) The CEO and Principal Financial Officer concluded that the Company's disclosure controls and procedures were effective as of June 30, 2025, with no material changes in internal control over financial reporting - The Company's disclosure controls and procedures were effective as of June 30, 2025, as concluded by the Certifying Officers[189](index=189&type=chunk) - There were no material changes in the Company's internal control over financial reporting during the six months ended June 30, 2025[190](index=190&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=48&type=section&id=Item%201.%20Legal%20Proceedings) There have been no material changes to the legal proceedings previously discussed in the Company's Annual Report on Form 10-K - No material changes to the legal proceedings discussed in the Company's Form 10-K[191](index=191&type=chunk) [Item 1A. Risk Factors](index=48&type=section&id=Item%201A.%20Risk%20Factors) As a Smaller Reporting Company, Heritage Global Inc is not required to provide specific risk factor disclosures in this quarterly report - The Company is a Smaller Reporting Company and is not required to provide risk factor information[192](index=192&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=48&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The Company repurchased **744,424 shares** of common stock for approximately **$1.6 million** during Q2 2025 under its Repurchase Program, which concluded on June 30, 2025, utilizing approximately **$5.6 million** of the authorized **$6.0 million** [Common Stock Repurchases (Q2 2025)](index=48&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :----------------------------- | :----------------------------- | :--------------------------- | | April 1 through April 30, 2025 | 199,328 | $2.08 | | May 1 through May 31, 2025 | 291,129 | $2.15 | | June 1 through June 30, 2025 | 253,967 | $2.15 | | **Total (Q2 2025)** | **744,424** | **$2.13** | - The Repurchase Program ended on June 30, 2025, with approximately **$5.6 million** utilized out of the authorized **$6.0 million** for the repurchase of **2,897,658 common shares**[195](index=195&type=chunk) [Item 3. Defaults Upon Senior Securities](index=48&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The Company reported no defaults upon senior securities during the period covered by this report - No defaults upon senior securities were reported[196](index=196&type=chunk) [Item 4. Mine Safety Disclosures](index=48&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the Company's operations - This item is not applicable to the Company[197](index=197&type=chunk) [Item 5. Other Information](index=49&type=section&id=Item%205.%20Other%20Information) James Sklar adopted a Rule 10b5-1 trading plan on June 25, 2025, for the sale of **33,606 shares** between October 1, 2025, and June 25, 2026, with no other directors or officers adopting or terminating trading arrangements during the quarter - James Sklar, Executive Vice President, General Counsel and Secretary, adopted a Rule 10b5-1 trading plan on June 25, 2025, to sell **33,606 shares** of common stock between October 1, 2025, and June 25, 2026[198](index=198&type=chunk) - No other directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the fiscal quarter ended June 30, 2025[199](index=199&type=chunk) [Item 6. Exhibits](index=50&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including corporate organizational documents, a warrant agreement, certifications from executive officers, and various Inline XBRL taxonomy documents - Exhibits include Second Amended and Restated Articles of Incorporation, Restated Bylaws, a Warrant Agreement, Certifications of Principal Executive Officer and Principal Financial Officer (pursuant to Sarbanes-Oxley Act), and Inline XBRL Instance, Schema, Calculation, Definition, Labels, and Presentation Linkbase Documents[201](index=201&type=chunk) [Signature Page](index=51&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, on August 7, 2025 - The report was signed by Ross Dove, Chief Executive Officer, and Brian J Cobb, Chief Financial Officer, on August 7, 2025[205](index=205&type=chunk)

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]

Employee and Management Overview - As of December 31, 2024, the company had a total of 86 employees across its segments, with 34 in Auction and Liquidation, 19 in Brokerage, 22 in Refurbishment & Resale, 5 in Specialty Lending, and 6 in corporate roles[22]. - The management team has extensive domain expertise, with the CEO having over 40 years of experience in the auction business, which enhances the company's operational capabilities[31]. - The company is dependent on key personnel, particularly executive officers, and their loss could adversely affect business operations[55]. Financial Performance - Total revenues for 2024 were $45.4 million, a decrease of 25% from $60.5 million in 2023, driven by declines in both services revenue and asset sales[123]. - Net income for 2024 was $5.2 million, down from $12.5 million in 2023, reflecting a decrease of 58%[123]. - Operating income for 2024 was $9.1 million, compared to $14.3 million in 2023, reflecting a decrease of approximately 36%[129]. - EBITDA for 2024 was $9.7 million, down from $14.8 million in 2023, a decline of approximately 35%[137]. - Adjusted EBITDA decreased to $10.9 million in 2024 from $15.6 million in 2023, a reduction of approximately 30%[137]. Cash Flow and Liquidity - Cash provided by operating activities was $7.7 million in 2024, a decrease of $5.3 million compared to $13.0 million in 2023[116]. - Cash flows from investing activities were positive at $10.9 million in 2024, contrasting with cash used of $15.9 million in 2023[118]. - Cash and cash equivalents increased to $21.7 million at December 31, 2024, from $12.3 million at December 31, 2023[115]. - The company expects future net cash flows from operating activities to continue being the primary source of cash for ongoing operations[112]. Assets and Liabilities - Total assets decreased from $83,168,000 in 2023 to $81,309,000 in 2024, a decline of approximately 2.2%[208]. - Total stockholders' equity increased from $61,080,000 in 2023 to $65,201,000 in 2024, reflecting a growth of 6.5%[208]. - The company’s total liabilities decreased from $22,088,000 in 2023 to $16,108,000 in 2024, a decline of 26.9%[208]. Revenue and Expense Trends - Gross profit fell to $31.2 million in 2024, down from $39.8 million in 2023, representing a decrease of approximately $8.6 million or 22%[129]. - Selling, general and administrative expenses decreased to $24.3 million in 2024, down from $26.0 million in 2023, a reduction of $1.8 million or 7%[130]. - The cost of services revenue decreased to $5,805 million in 2024 from $8,007 million in 2023, a reduction of about 27%[210]. Credit and Financing - The allowance for credit losses was $1.5 million as of December 31, 2024, compared to $1.7 million as of December 31, 2023[138]. - The company may require additional financing in the future, which may not be available or may not be available on favorable terms[64]. - The company recorded a reduction to the valuation allowance of $2.2 million in 2023, resulting in a net deferred tax asset balance of approximately $9.1 million[162]. Market and Competitive Landscape - The company faces significant competition from larger organizations with greater resources for asset acquisition and marketing[47]. - The company anticipates growth opportunities in its brokerage segment due to elevated delinquency and charge-off rates in the consumer credit market[33]. Regulatory and Compliance Risks - The company is subject to environmental risks associated with the purchase and resale of buildings and land, which could have a material adverse effect on operations[61]. - The company is subject to the U.S. Foreign Corrupt Practices Act, and failure to comply could result in penalties and legal expenses[60]. - The company is subject to significant financial reporting obligations as a public company, which may increase legal and compliance costs[84]. Stockholder Information - The company has not declared any dividends on its common stock to date and does not anticipate doing so in the foreseeable future[77]. - As of March 1, 2025, executive officers, directors, and their affiliates hold 12% of the company's common stock, potentially influencing significant corporate decisions[78]. - The company has established procedures for stockholder nominations to the Board, which will be detailed in the proxy materials for the 2025 Annual Meeting[177]. Internal Controls and Governance - The company's internal control over financial reporting was assessed as effective as of December 31, 2024[171]. - There were no changes in internal control over financial reporting during the fourth fiscal quarter of 2024 that materially affected its effectiveness[172]. - The company has adopted a code of ethics applicable to all employees, including principal executive, financial, and accounting officers[180].

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]