Heritage (HGBL) - 2022 Q2 - Quarterly Report

Part I. Financial Information Financial Statements 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 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 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 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 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] - 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] - 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][72] 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 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] - 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] - Working capital increased to $10.5 million as of June 30, 2022, from $9.1 million at the end of 2021[115] Results of Operations 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][140][143] Key Performance Indicators 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 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] Controls and Procedures 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] - 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] Part II. Other Information Legal Proceedings 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] Risk Factors 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] Unregistered Sales of Equity Securities and Use of Proceeds 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] 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 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]