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 ...

Financial Data and Key Metrics Changes - The company reported operating income of $3.5 million for Q3 2022, a significant increase from $533,000 in Q3 2021 [8] - Net income was $2.3 million or $0.06 per share, compared to $474,000 or $0.01 per share in Q3 2021 [9] - EBITDA improved to $3.6 million from $638,000 in Q3 2021, with adjusted EBITDA growing to $3.8 million from $740,000 [9][10] - Stockholders' equity increased to $38.3 million as of September 30, 2022, from $32.6 million as of December 31, 2021 [10] Business Line Data and Key Metrics Changes - The Industrial Assets division reported operating income of $3.1 million in Q3 2022, up from $765,000 in Q3 2021, reflecting a substantial increase [8] - The Financial Assets division saw a 249% growth in operating income to $1.6 million compared to $449,000 in Q3 2021 [8] Market Data and Key Metrics Changes - The company experienced a more than 350% increase in asset sales in the Industrial Assets division compared to Q3 2021, with one-third of this growth attributed to the acquisition of American Laboratory Trading [6][8] - Services revenue grew significantly due to increased consumer spending and a rise in charge-off loans available in the market [7] Company Strategy and Development Direction - The company is optimistic about future growth across all five revenue streams, particularly in the Industrial and Financial Assets divisions [13][19] - The auction business has secured new five-year contracts with major clients in the pharmaceutical sector, ensuring revenue growth [14] - The company anticipates growth in the valuation market due to predictions of a recession, which typically increases demand for asset-based loans [15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to capitalize on the anticipated increase in nonperforming loans as COVID-driven aid ends [7] - The company is positioned to meet increased opportunities with a strong balance sheet, including a $10 million untapped credit line [7][10] - Management remains conservative in guidance due to the transactional nature of a significant part of the business, but is bullish on exceeding expectations [23] Other Important Information - The company has repurchased approximately 184,000 shares of common stock for an aggregate cost of $296,000 as of September 30, 2022 [11] Q&A Session Summary Question: Follow-up on guidance for net operating income - Management acknowledged a conservative approach to guidance due to the transactional nature of the business but expressed confidence in exceeding it [23] Question: Size of net operating losses (NOLs) - NOLs are approximately $78 million, with adjustments expected in the next quarter [24] Question: Breakdown of revenue by functional group - Management provided insights on the significant increase in asset sales, attributing one-third to acquisition and over 50% to organic growth [25] Question: Ratio of net operating income from industrials and financials - Management indicated that the contributions from both divisions can fluctuate based on market conditions, with potential for equal participation in revenue generation [30][31] Question: Deployment of the expanded $200 million line of credit - Management indicated that they have deployed $80 million to date and anticipate deploying the new line within 36 months [33] Question: Sourcing and demand for loans in the lending group - Management detailed the niche focus on servicing a limited number of clients in the charge-off loan market, emphasizing their expertise in underwriting [39][40] Question: Impact of interest rates on lending margins - Management confirmed that they negotiated a fixed rate for the new funding facility, which will not increase even if traditional rates rise, potentially improving lending margins [44][45]

Financial Performance - Total revenues for the nine months ended September 30, 2022, were $33.1 million, up 81.5% from $18.3 million in the same period in 2021[143]. - Revenues for the three months ended September 30, 2022, were $12.7 million, a 111.7% increase from $6.0 million in the same period in 2021[140]. - Gross profit for the nine months ended September 30, 2022, was $17.3 million, an increase of approximately $4.2 million or 32% compared to $13.2 million in the same period in 2021[143]. - Gross profit for the three months ended September 30, 2022, was $7.6 million, reflecting an increase of approximately $3.4 million or 80% compared to $4.2 million in the same period in 2021[140]. - Net income for the nine months ended September 30, 2022, was $5.5 million, a 164% increase from $2.1 million in the same period in 2021[136]. - Net income for the three months ended September 30, 2022, was $2.3 million, compared to $474,000 in the same period in 2021[149]. - Adjusted EBITDA for the nine months ended September 30, 2022, was $8.757 million, significantly higher than $2.459 million in the same period in 2021[149]. Assets and Capital - As of September 30, 2022, the company reported working capital of $13.0 million, an increase from $9.1 million as of December 31, 2021[115]. - As of September 30, 2022, current assets increased to $26.5 million from $23.3 million as of December 31, 2021, primarily due to cash generated from operating activities[117]. - Cash and cash equivalents rose to $17.5 million as of September 30, 2022, compared to $13.6 million as of December 31, 2021, marking an increase of approximately $3.9 million[124]. - Stockholders' equity increased to $38.3 million from $32.6 million as of December 31, 2021[122]. Operational Highlights - The company has issued a total of $63.2 million in loans to investors through Heritage Global Capital LLC since its inception in 2019, with the company's portion being $21.5 million[104]. - The acquisition of American Laboratory Trading in 2021 has strengthened the company's service offerings in the biotech and pharma sectors[106]. - The company anticipates increased activity in its Financial Assets Division due to rising delinquency and charge-off rates, as well as expanding volumes of nonperforming consumer loans[93]. - The company plans to expand NLEX's services into the FinTech lenders, peer-to-peer lending, and Buy Now Pay Later sectors, indicating potential for significant growth[103]. - The company has multiple revenue streams across its brokerage, auction services, advisory services, and secured lending services, which are expected to drive growth[97]. - The company aims to leverage its competitive advantages to grow within each service line and across platforms, maintaining high incremental margins and improving earnings predictability[94]. Expenses - Selling, general and administrative expenses for the nine months ended September 30, 2022, were $14.9 million, a 34% increase from $11.1 million in the same period in 2021[144]. - Selling, general and administrative expenses for the three months ended September 30, 2022, were $5.7 million, a 63% increase from $3.5 million in the same period in 2021[141]. - The increase in selling, general and administrative expenses was primarily due to increased compensation and operational expenses related to the acquisition of ALT[144]. - Travel and entertainment expenses increased due to the lift in travel restrictions related to the COVID-19 pandemic[142]. Cash Flow - Cash provided by operating activities was $2.6 million during the nine months ended September 30, 2022, a significant improvement from cash used in operating activities of $4.1 million during the same period in 2021, reflecting a change of approximately $6.7 million[125]. - Cash used in financing activities was approximately $2.6 million during the nine months ended September 30, 2022, compared to cash provided by financing activities of $1.2 million for the same period in 2021[131]. - The company expects to fund operations and debt service obligations for at least 12 months from the date of filing through cash flows from ongoing asset liquidation operations and proceeds from the 2020 Public Offering[119]. Management and Expertise - The company has a strong management team with deep domain expertise, including its President and CEO, who has over thirty years of experience in the auction business[100].

Company Overview - Heritage Global Inc (HGBL) values and monetizes industrial & financial assets through valuation, acquisition, disposition, and lending services[6] - The company operates through two divisions: Industrial Assets and Financial Assets[7] - HGBL facilitates the circular economy by diverting useful industrial assets from landfills and overseeing post-sale account activity of financial assets[8] Financial Performance - The company has a proven track record of profitability and an attractive margin profile[16] - As of June 30, 2022, HGBL had $16.1 million in cash and cash equivalents, $10.5 million in working capital, and $36.0 million in total shareholders' equity[18] - The Annual Return on Capital Employed (ROCE) for H1 2022 was 24%[18] - For the six months ended June 30, 2022, the company's operating income was $4.499 million and net income was $3.223 million, or $0.09 per diluted share[17] - Adjusted EBITDA for the six months ended June 30, 2022, was $4.979 million[17] - The company has $78 million in Net Operating Loss (NOL) carryforwards as of December 31, 2021[16] Growth Drivers - Post-pandemic industrial manufacturing landscape will increase surplus asset flows[13] - Rising consumer spending and accelerating defaults and charge-offs will increase available volume of financial assets to sell[13]

Heritage Global Inc. (NASDAQ:HGBL) Q2 2022 Earnings Conference Call August 10, 2022 5:00 PM ET Company Participants John Nesbett – Investor Relations Ross Dove – Chief Executive Officer Brian Cobb – Chief Financial Officer Conference Call Participants Mark Argento – Lake Street Michael Diana – Maxim Group Operator Good afternoon and welcome to the Heritage Global Second Quarter 2022 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions]. Please note, this event is ...

Part I. Financial Information [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) The financial statements present the company's financial position and performance as of June 30, 2022, highlighting significant growth in revenues, net income, and total assets [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of June 30, 2022, total assets increased to **$53.5 million**, with total stockholders' equity growing to **$36.0 million** Balance Sheet Highlights (in thousands of US dollars) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | **Total current assets** | $25,032 | $23,284 | | **Total assets** | $53,479 | $50,464 | | **Total current liabilities** | $14,494 | $14,224 | | **Total liabilities** | $17,506 | $17,825 | | **Total stockholders' equity** | $35,973 | $32,639 | [Condensed Consolidated Statements of Income](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) For Q2 2022, total revenues significantly increased to **$11.1 million**, driving net income to **$2.6 million** ($0.07 per diluted share) Financial Performance (in thousands of US dollars, except per share data) | Metric | Q2 2022 | Q2 2021 | H1 2022 | H1 2021 | | :--- | :--- | :--- | :--- | :--- | | **Total revenues** | $11,065 | $5,176 | $20,422 | $12,277 | | Asset sales | $6,470 | $1,008 | $11,659 | $3,079 | | **Operating income** | $3,624 | $73 | $4,499 | $1,119 | | **Net income** | $2,578 | $587 | $3,223 | $1,619 | | **Net income per share – diluted** | $0.07 | $0.02 | $0.09 | $0.04 | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended June 30, 2022, net cash provided by operating activities was **$1.1 million**, a significant improvement from the prior year Cash Flow Summary (in thousands of US dollars) | Activity | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $1,119 | $(4,290) | | Net cash provided by (used in) investing activities | $2,177 | $(780) | | Net cash used in financing activities | $(842) | $(790) | | **Net increase (decrease) in cash** | **$2,454** | **$(5,860)** | [Notes to Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes detail accounting policies, business segments, and financial instruments, highlighting segment performance and changes in debt and notes receivable - The company's reportable segments consist of the Financial Assets Division and the Industrial Assets Division[19](index=19&type=chunk) - The company's notes receivable balance, consisting of loans to buyers of charged-off receivable portfolios, decreased from **$4.0 million** at year-end 2021 to **$2.4 million** as of June 30, 2022[40](index=40&type=chunk) - Total debt decreased from **$3.8 million** at year-end 2021 to **$3.1 million** as of June 30, 2022. The outstanding balance on the **$10.0 million** revolving line of credit was **$1.4 million**[71](index=71&type=chunk)[72](index=72&type=chunk) Net Operating Income by Segment (in thousands of US dollars) | Segment | Q2 2022 | Q2 2021 | H1 2022 | H1 2021 | | :--- | :--- | :--- | :--- | :--- | | Industrial Assets Division | $3,343 | $433 | $4,189 | $1,773 | | Financial Assets Division | $1,183 | $462 | $1,914 | $923 | | Corporate and Other (Loss) | $(902) | $(822) | $(1,604) | $(1,577) | | **Consolidated** | **$3,624** | **$73** | **$4,499** | **$1,119** | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=18&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes strong H1 2022 performance to asset liquidation, with significant growth in both Industrial and Financial Assets divisions and improved liquidity - The company operates through two main divisions: the Industrial Assets Division (auction, appraisal, advisory) and the Financial Assets Division (accounts receivable brokerage, specialty financing)[95](index=95&type=chunk) - Management expects increased activity for its NLEX (nonperforming loans) and HGC (specialty financing) businesses as COVID-19 stimulus payments conclude and consumer loan charge-offs trend upward[94](index=94&type=chunk) - Working capital increased to **$10.5 million** as of June 30, 2022, from **$9.1 million** at the end of 2021[115](index=115&type=chunk) [Results of Operations](index=24&type=section&id=Results%20of%20Operations) Q2 2022 total revenues more than doubled to **$11.1 million**, driven by a **542% increase** in asset sales, leading to a substantial rise in operating income Comparison of Results of Operations (in thousands of US dollars) | Metric | Q2 2022 | Q2 2021 | % Change | H1 2022 | H1 2021 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **Total revenues** | $11,065 | $5,176 | 114% | $20,422 | $12,277 | 66% | | Asset sales | $6,470 | $1,008 | 542% | $11,659 | $3,079 | 279% | | **Operating income** | $3,624 | $73 | 4864% | $4,499 | $1,119 | 302% | | **Net income** | $2,578 | $587 | 339% | $3,223 | $1,619 | 99% | - Selling, general and administrative (SG&A) expenses increased by **35%** in Q2 2022 and **21%** in H1 2022, primarily due to increased compensation from the ALT acquisition and a **204% rise** in travel and entertainment expenses[139](index=139&type=chunk)[140](index=140&type=chunk)[143](index=143&type=chunk) [Key Performance Indicators](index=26&type=section&id=Key%20Performance%20Indicators) Adjusted EBITDA, a key non-GAAP indicator, significantly increased to **$3.9 million** in Q2 2022 and **$5.0 million** for H1 2022, reflecting strong operational performance Reconciliation of Net Income to Adjusted EBITDA (in thousands of US dollars) | Metric | Q2 2022 | Q2 2021 | H1 2022 | H1 2021 | | :--- | :--- | :--- | :--- | :--- | | Net income | $2,578 | $587 | $3,223 | $1,619 | | EBITDA | $3,757 | $171 | $4,765 | $1,308 | | **Adjusted EBITDA** | **$3,865** | **$239** | **$4,979** | **$1,719** | [Quantitative and Qualitative Disclosures About Market Risk](index=27&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 not required to provide quantitative and qualitative disclosures about market risk as it qualifies as a Smaller Reporting Company[149](index=149&type=chunk) [Controls and Procedures](index=27&type=section&id=Item%204.%20Controls%20and%20Procedures) The company's disclosure controls and procedures were deemed effective as of June 30, 2022, with no material changes in internal control over financial reporting during the quarter - The Certifying Officers concluded that the company's disclosure controls and procedures were effective as of June 30, 2022[150](index=150&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal controls[151](index=151&type=chunk) Part II. Other Information [Legal Proceedings](index=28&type=section&id=Item%201.%20Legal%20Proceedings) No material changes to legal proceedings have occurred since the last Annual Report on Form 10-K filing - No material changes to legal proceedings have occurred since the last Form 10-K filing[153](index=153&type=chunk) [Risk Factors](index=28&type=section&id=Item%201A.%20Risk%20Factors) As a Smaller Reporting Company, Heritage Global Inc. is not required to provide risk factor disclosures - The company is not required to provide risk factor disclosures as it qualifies as a Smaller Reporting Company[154](index=154&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=28&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During Q2 2022, the company repurchased **71,512 shares** of common stock as part of a **$4.0 million** repurchase program, with **$3.9 million** remaining - On May 5, 2022, the Board of Directors authorized a **$4.0 million** share repurchase program, which expires in June 2025[156](index=156&type=chunk) Common Stock Repurchases (Q2 2022) | Period | Total Shares Purchased | Average Price Paid per Share | Approximate Dollar Value Remaining Under Program | | :--- | :--- | :--- | :--- | | June 1 - June 30, 2022 | 71,512 | $1.46 | $3,895,592 | [Exhibits](index=29&type=section&id=Item%206.%20Exhibits) The report includes various exhibits such as corporate governance documents, the 2022 Equity Incentive Plan, and officer certifications - Exhibits filed with the report include the 2022 Heritage Global Inc. Equity Incentive Plan and certifications from the Principal Executive Officer and Principal Financial Officer[161](index=161&type=chunk)

Financial Data and Key Metrics Changes - The company reported net operating income of $875,000 for Q1 2022, a decrease from $1 million in Q1 2021 [8] - Adjusted EBITDA for Q1 2022 was $1.1 million, down from $1.5 million in Q1 2021 [8] - Net income for Q1 2022 was $645,000 or $0.02 per diluted share, compared to $1 million or $0.03 per diluted share in Q1 2021 [8] Business Line Data and Key Metrics Changes - In the industrial assets division, net operating income was $846,000 in Q1 2022, down from $1.3 million in Q1 2021 [7] - The financial assets division saw net operating income of $731,000, a 59% increase from $461,000 in Q1 2021 [7] Market Data and Key Metrics Changes - The company anticipates closing two remaining Huntsville real estate transactions in Q2 or Q3, expected to contribute over $2.5 million in combined net profit [9] - The company has aggregate tax net operating loss carry forwards of approximately $78 million, which could be valuable as it generates positive results [10] Company Strategy and Development Direction - The company is optimistic about growth across all five revenue streams and expects Q2 to be a record quarter [13] - The focus is on capitalizing on anticipated market conditions and increasing demand for both financial and industrial assets [6][13] - A $4 million stock repurchase plan has been instituted, indicating confidence in the company's future [19] Management's Comments on Operating Environment and Future Outlook - Management noted a significant rise in consumer spending, which is expected to lead to increased defaults and charge-offs, benefiting the company's operations [14] - The company is seeing an increase in supply from sellers who are now monetizing surplus assets due to stronger ESG metrics [26][27] - Management expressed confidence that 2022 will be the most profitable year since the company's founding [41] Other Important Information - The balance sheet remains strong with stockholders' equity of $33.4 million as of March 31, 2022, compared to $32.6 million at the end of 2021 [11] - The company has renewed a $100 million partnership line with a New York hedge fund, enhancing its lending capabilities [29] Q&A Session Summary Question: Can you break down the revenue contribution from financial assets versus industrial assets? - Financial assets contributed $746,000 in net operating income, while industrial assets contributed $846,000 for the quarter [22][23] Question: Are you seeing more portfolios come to market? - Management noted a tremendous amount of growth and expects sequential growth for the next couple of years due to rising consumer spending [24] Question: How does the current economic environment affect industrial assets? - An increase in layoffs is producing surplus assets, and companies are now pressured to monetize these assets due to ESG metrics [26][27] Question: What is the company's position regarding capital deployment? - The company is comfortable deploying capital and is underwriting more deals than in the past, indicating a solid position for future opportunities [29][30] Question: Can you provide more details about the St. Louis acquisition? - The St. Louis acquisition involves two facilities with high-end processing equipment, and the company plans to monetize these assets similarly to the Huntsville transactions [36]

[Part I. Financial Information](index=3&type=section&id=Part%20I.%20Financial%20Information) This section provides the unaudited condensed consolidated financial statements and management's discussion and analysis for Heritage Global Inc [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for Heritage Global Inc. as of March 31, 2022, and for the three-month period then ended [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets increased to $52.1 million as of March 31, 2022, from $50.5 million at year-end 2021, driven by a rise in cash and cash equivalents Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $15,097 | $13,622 | | Total current assets | $24,148 | $23,284 | | Goodwill | $7,446 | $7,446 | | **Total assets** | **$52,108** | **$50,464** | | **Liabilities & Equity** | | | | Payables to sellers | $9,774 | $6,451 | | Total current liabilities | $15,381 | $14,224 | | Total liabilities | $18,741 | $17,825 | | Total stockholders' equity | $33,367 | $32,639 | | **Total liabilities and stockholders' equity** | **$52,108** | **$50,464** | [Condensed Consolidated Statements of Income](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) For the three months ended March 31, 2022, total revenues increased by 31.7% year-over-year to $9.4 million, but net income decreased to $0.6 million Condensed Consolidated Statement of Income (in thousands, except per share data) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Total revenues | $9,357 | $7,101 | | Operating income | $875 | $1,046 | | Net income | $645 | $1,032 | | Net income per share – diluted | $0.02 | $0.03 | [Condensed Consolidated Statements of Stockholders' Equity](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) Total stockholders' equity increased from $32.6 million at the end of 2021 to $33.4 million as of March 31, 2022, primarily due to net income - Stockholders' equity grew to **$33.4 million** at March 31, 2022, up from **$32.6 million** at December 31, 2021, mainly due to net income of **$0.6 million**[13](index=13&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) The company generated $3.1 million in cash from operating activities in Q1 2022, a significant improvement from the $5.8 million used in Q1 2021 Summary of Cash Flows (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $3,093 | $(5,827) | | Net cash used in investing activities | $(978) | $(1,588) | | Net cash used in financing activities | $(640) | $(118) | | **Net increase (decrease) in cash** | **$1,475** | **$(7,533)** | [Notes to Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes detail the basis of presentation, significant accounting policies, and specific financial accounts, including segment performance and a new share repurchase program - The company's reportable segments are the Financial Assets Division and the Industrial Assets Division[19](index=19&type=chunk) - The company anticipates positive impacts as COVID-19 stimulus payments conclude, including increased activity for NLEX and HGC due to expanding volumes of nonperforming loans and increased funding opportunities[24](index=24&type=chunk) - As of March 31, 2022, the company had outstanding notes receivable of **$3.2 million**, net of unamortized fees and costs, down from **$4.0 million** at year-end 2021[42](index=42&type=chunk) - Total debt decreased to **$3.2 million** as of March 31, 2022, from **$3.8 million** at year-end 2021, including a **$10.0 million** revolving line of credit and a **$2.0 million** subordinated promissory note[71](index=71&type=chunk)[72](index=72&type=chunk) - Subsequent to the quarter end, on May 5, 2022, the Board of Directors authorized a share repurchase program for up to **$4.0 million** of the company's common stock over a three-year period[81](index=81&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=17&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's performance, financial condition, and outlook, highlighting revenue growth driven by asset sales despite a decline in operating income [Overview, History and Recent Developments](index=17&type=section&id=Overview%2C%20History%20and%20Recent%20Developments) Heritage Global Inc. operates through several subsidiaries, including HGP for auctions, NLEX for brokering receivables, HGC for specialty financing, and ALT for refurbished lab equipment - The company's core businesses include HGP (global auction/advisory), NLEX (broker of charged-off receivables), HGC (specialty financing), and ALT (supplier of refurbished lab equipment)[84](index=84&type=chunk)[85](index=85&type=chunk)[86](index=86&type=chunk) [COVID-19 Impact](index=18&type=section&id=COVID-19) While the COVID-19 pandemic had a negative impact in 2021, the company does not expect material negative impacts going forward and anticipates positive effects as stimulus programs end - The company expects positive impacts as stimulus payments conclude, including increased activity for NLEX and HGC, more funding opportunities for HGC, and more valuation opportunities for its valuation business[92](index=92&type=chunk) [Liquidity and Capital Resources](index=21&type=section&id=Liquidity%20and%20Capital%20Resources) The company's working capital stood at $8.8 million as of March 31, 2022, with cash increasing by $1.5 million during the quarter, and management believes current resources are sufficient for the next 12 months - Working capital was **$8.8 million** as of March 31, 2022, compared to **$9.1 million** as of December 31, 2021[113](index=113&type=chunk) - Cash provided by operations was **$3.1 million** for the three months ended March 31, 2022, a significant turnaround from **$5.8 million** used in the same period in 2021[121](index=121&type=chunk) - On May 5, 2022, the Board authorized a share repurchase program of up to **$4.0 million** over a three-year period[125](index=125&type=chunk) [Results of Operations](index=23&type=section&id=Results%20of%20Operations) For Q1 2022, total revenues increased 32% year-over-year to $9.4 million, driven by a 151% surge in asset sales, though operating income decreased 16% Consolidated Results of Operations (in thousands) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Change (%) | | :--- | :--- | :--- | :--- | | Services revenue | $4,168 | $5,030 | (17)% | | Asset sales | $5,189 | $2,071 | 151% | | **Total revenues** | **$9,357** | **$7,101** | **32%** | | Total operating costs and expenses | $8,564 | $6,055 | 41% | | Operating income | $875 | $1,046 | (16)% | | **Net income** | **$645** | **$1,032** | **(38)%** | Net Operating Income by Segment (in thousands) | Segment | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Industrial Assets Division | $846 | $1,340 | | Financial Assets Division | $731 | $461 | | Corporate and Other (Loss) | $(702) | $(755) | | **Consolidated Net Operating Income** | **$875** | **$1,046** | EBITDA and Adjusted EBITDA Reconciliation (in thousands) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Net income | $645 | $1,032 | | EBITDA | $1,008 | $1,137 | | **Adjusted EBITDA** | **$1,114** | **$1,480** | [Quantitative and Qualitative Disclosures About Market Risk](index=25&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 - As a Smaller Reporting Company, Heritage Global Inc. is not required to provide quantitative and qualitative disclosures about market risk[140](index=140&type=chunk) [Controls and Procedures](index=25&type=section&id=Item%204.%20Controls%20and%20Procedures) The Chief Executive Officer and Principal Financial Officer concluded that the company's disclosure controls and procedures were effective, with no material changes in internal control over financial reporting during the quarter - The Certifying Officers concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[142](index=142&type=chunk) - No changes in internal control over financial reporting occurred during the three months ended March 31, 2022, that have materially affected, or are reasonably likely to materially affect, internal controls[142](index=142&type=chunk) [Part II. Other Information](index=27&type=section&id=Part%20II.%20Other%20Information) This section covers other required disclosures, including legal proceedings, risk factors, unregistered sales of equity securities, and exhibits [Legal Proceedings](index=27&type=section&id=Item%201.%20Legal%20Proceedings) There have been no material changes to the legal proceedings as discussed in the company's Annual Report on Form 10-K - There have been no material changes to the legal proceedings discussed in our Form 10-K[143](index=143&type=chunk) [Risk Factors](index=27&type=section&id=Item%201A.%20Risk%20Factors) As a Smaller Reporting Company, the company is not required to provide the information for this item - As a Smaller Reporting Company, we are not required to provide the information required by this item[144](index=144&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=27&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities during the period - None[145](index=145&type=chunk) [Exhibits](index=28&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the quarterly report, including corporate governance documents, a warrant agreement, officer certifications, and Inline XBRL data files - Exhibits filed include officer certifications (31.1, 31.2, 32.1, 32.2) and Inline XBRL documents (101 series)[150](index=150&type=chunk)

ERITAGE An Asset Services company specializing in financial and industrial asset transactions Investor Presentation March 2022 FORWARD LOOKING STATEMENTS This communication includes forward-looking statements based on our current expectations and projections about future events. All statements contained in this communication other than statements of historical fact, including any statements regarding our future operating results and financial position, our business strategy and plans, potential acquisitions ...

Financial Data and Key Metrics Changes - The company reported a net operating income of $1.4 million in Q4 2021, a significant increase from $533,000 in Q3 2021, but down from $3.3 million in Q4 2020 [7][10] - EBITDA for Q4 2021 was $1.5 million, compared to $3.4 million in Q4 2020, with adjusted EBITDA at $1.6 million for the quarter [9] - Net income doubled to $1 million or $0.03 per share in Q4 2021, compared to $500,000 in Q3 2021, and total net income for the year was just over $3 million or $0.08 per share [10] Business Segment Data and Key Metrics Changes - In the Industrial Assets Division, net operating income grew from $765,000 in Q3 2021 to $855,000 in Q4 2021 [7] - Financial Assets saw a 45% sequential growth in net operating income, increasing from $449,000 in Q3 2021 to $652,000 in Q4 2021 [7] Market Data and Key Metrics Changes - The company noted a 20-year high in credit card usage and an increase in defaults, which is expected to positively impact its brokerage and lending practices [18] - The Industrial Assets market is seeing a shift towards reworking and repurposing assets, driven by ESG initiatives among large global companies [19] Company Strategy and Development Direction - The company aims to enhance asset supply, execution capacity, and maintain profitability through cost controls [14] - Recent hiring of a Chief Marketing Officer is expected to improve product offerings and marketing strategies [15][26] - The acquisition of ALT, a leader in life science asset recycling, is seen as a strategic move to capitalize on sustainability trends [15] Management Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's direction, citing strong execution capabilities and a growing asset supply pipeline [14][20] - The company anticipates solid growth in both Financial and Industrial Assets over the next few years, contingent on effective execution [20] Other Important Information - As of December 31, 2021, the company had tax net operating loss carryforwards of approximately $78 million, which are expected to be valuable as the company generates positive results [11] - The balance sheet remains strong with stockholders' equity of $32.6 million, up from $29.9 million a year earlier [12] Q&A Session Summary Question: Situation regarding American Laboratory Trading acquisition - The company acquired a 20-year-old firm with a solid reputation, retaining a key ambitious employee, and sees significant growth potential in the life science asset market [24][25] Question: Progress on Huntsville disposition - The company has sold all capital assets and monetized one of three buildings, with positive expectations for the remaining properties [29]