Heritage (HGBL) - 2022 Q1 - Quarterly Report

Part I. Financial Information This section provides the unaudited condensed consolidated financial statements and management's discussion and analysis for Heritage Global Inc Financial Statements 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 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 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 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] Condensed Consolidated Statements of Cash Flows 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 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] - 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] - 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] - 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][72] - 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] Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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][85][86] COVID-19 Impact 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] Liquidity and Capital Resources 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] - 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] - On May 5, 2022, the Board authorized a share repurchase program of up to $4.0 million over a three-year period[125] Results of Operations 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 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] Controls and Procedures 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] - 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] Part II. Other Information This section covers other required disclosures, including legal proceedings, risk factors, unregistered sales of equity securities, and exhibits Legal Proceedings 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] Risk Factors 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] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None[145] Exhibits 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]