Heritage (US:HGBL)2025-11-06 21:01Financial Performance - The gross profit for the three months ended September 30, 2025, was $7.3 million, compared to $7.2 million for the same period in 2024, reflecting a slight increase[112]. - For the nine months ended September 30, 2025, the gross profit was $23.7 million, compared to $23.8 million for the same period in 2024, indicating a marginal decrease[113]. - The Company recorded operating income of $1.3 million for the three months ended September 30, 2025, compared to $1.5 million for the same period in 2024[112]. - The operating income for the nine months ended September 30, 2025, was $4.9 million, down from $7.6 million for the same period in 2024[113]. Investments and Receivables - As of September 30, 2025, the Company held a gross balance of investments in notes receivable of $28.4 million, with the largest borrower's balance at $21.7 million, representing 76% of total gross notes receivable[43]. - The allowance for credit losses as of September 30, 2025, was approximately $1.467 million, with specific allocations of $134,000 for accounts receivable, $346,000 for notes receivable, and $987,000 for equity method investments[47]. - The Company's notes receivable balance related to loans to buyers of charged-off and nonperforming receivable portfolios was $8.9 million as of September 30, 2025, down from $9.6 million as of December 31, 2024[64]. - The Company performed a quarterly review of all outstanding loan receivables to assess credit quality and potential impairment indicators[53]. - The Company engaged in a due diligence process to mitigate concentration risk, requiring security from each borrower and leveraging its valuation expertise[45]. - The Company has not experienced significant collectability issues with its accounts receivable, which are primarily related to well-known academic and financial institutions[49]. Stock and Compensation - The Company issued options to purchase 70,000 shares of common stock and canceled 83,500 options during the nine months ended September 30, 2025[68]. - As of September 30, 2025, there were 2,204,100 outstanding options with a weighted average exercise price of $1.74 and an intrinsic value of $761,000[68]. - Stock-based compensation expense related to common stock options was $0.4 million for both the nine months ended September 30, 2025 and 2024[68]. - The Company recognized stock-based compensation expense of approximately $0.4 million for restricted stock awards for the nine months ended September 30, 2025 and 2024[72]. - The unrecognized stock-based compensation expense related to unvested common stock options was approximately $0.6 million as of September 30, 2025[68]. Joint Ventures - The Company's joint ventures generated total revenues of $8.264 million for the nine months ended September 30, 2025, compared to $21.692 million for the same period in 2024[75]. - The net income from joint ventures for the nine months ended September 30, 2025, was $7,875,000, compared to $13,353,000 for the same period in 2024[75]. - As of September 30, 2025, the Company recognized approximately $1.2 million in life-to-date earnings from equity method investments related to KNFH II LLC[77]. Assets and Liabilities - The total right-of-use assets as of September 30, 2025, amounted to $1,694,000, down from $2,208,000 as of December 31, 2024[88]. - The total lease liabilities as of September 30, 2025, were $1,799,000, compared to $2,317,000 as of December 31, 2024[88]. - The Company purchased real estate for $7.4 million on February 11, 2025, which includes $2.8 million allocated to the building and $4.6 million to the land[91]. - As of September 30, 2025, total property and equipment, net, was $9,486,000, an increase from $1,643,000 as of December 31, 2024[92]. - The total estimated principal repayments on outstanding debt as of September 30, 2025, were $4,100,000, with no current debt outstanding[96]. - The Company’s goodwill remained unchanged at $7,446,000 as of September 30, 2025, compared to December 31, 2024[95]. - Amortization expense for the nine months ended September 30, 2025, was $0.2 million, down from $0.3 million for the same period in 2024[93]. Regulatory and Compliance - The Company plans to adopt ASU 2025-05 related to credit losses for accounts receivable and contract assets for the fiscal year beginning January 1, 2026[59]. - The Company anticipates that ASU 2024-03 will require additional disclosures related to income statement expense information starting with the Annual Report for the year ended December 31, 2026[58]. - The Company entered into a Loan Modification Agreement on December 27, 2024, extending the maturity date of the 2021 Credit Facility to June 27, 2026, and raising the interest rate floor by 0.25% to 7.0%[101]. - As of September 30, 2025, there was no outstanding balance on the 2021 Credit Facility, and the Company was in compliance with all financial and negative covenants[102]. - The Company had aggregate federal net operating loss carry-forwards of $41.0 million as of September 30, 2025, with $22.5 million expected to be utilized[107]. - The Company does not expect the One Big Beautiful Bill Act to have a material impact on its annual effective tax rate in 2025[110].