Heritage (US:HGBL)2024-05-09 20:00PART I – FINANCIAL INFORMATION Presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis for the period Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements of Heritage Global Inc. for the three months ended March 31, 2024, and 2023, including balance sheets, statements of income, stockholders' equity, and cash flows, along with detailed notes explaining the basis of presentation, significant accounting policies, and specific financial line items Condensed Consolidated Balance Sheets Presents the company's financial position, including assets, liabilities, and equity, at specific points in time | Metric | March 31, 2024 (unaudited) | December 31, 2023 | | :-------------------------------- | :------------------------- | :------------------ | | Total assets | $83,706 thousand | $83,168 thousand | | Total liabilities | $20,674 thousand | $22,088 thousand | | Total stockholders' equity | $63,032 thousand | $61,080 thousand | - Total assets increased by $538 thousand (0.65%) from December 31, 2023, to March 31, 2024, primarily driven by an increase in cash and cash equivalents7 - Total liabilities decreased by $1,414 thousand (6.4%) from December 31, 2023, to March 31, 2024, mainly due to a decrease in accounts payable and accrued liabilities7 - Total stockholders' equity increased by $1,952 thousand (3.2%) from December 31, 2023, to March 31, 20247 Condensed Consolidated Statements of Income Details the company's revenues, expenses, and net income for the reporting periods | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | Change (YoY) | | :-------------------------------- | :-------------------------------- | :-------------------------------- | :----------- | | Total revenues | $12,161 thousand | $16,612 thousand | (26.8%) | | Operating income | $2,558 thousand | $3,894 thousand | (34.3%) | | Net income | $1,799 thousand | $2,829 thousand | (36.4%) | | Net income per share – basic | $0.05 | $0.08 | (37.5%) | | Net income per share – diluted | $0.05 | $0.08 | (37.5%) | - Total revenues decreased by $4,451 thousand (26.8%) year-over-year, primarily due to lower asset sales and services revenue10 - Net income decreased by $1,030 thousand (36.4%) year-over-year, resulting in a basic and diluted EPS decrease from $0.08 to $0.0510 Condensed Consolidated Statements of Stockholders' Equity Shows changes in the company's equity accounts over the reporting periods | Metric | As of March 31, 2024 | As of December 31, 2023 | | :-------------------------------- | :------------------- | :---------------------- | | Total stockholders' equity | $63,032 thousand | $61,080 thousand | | Common stock shares issued | 37,336,392 | 37,157,616 | | Additional paid-in capital | $294,674 thousand | $294,522 thousand | | Accumulated deficit | $(231,227) thousand | $(233,026) thousand | - Total stockholders' equity increased by $1,952 thousand, driven by net income of $1,799 thousand and stock-based compensation expense of $228 thousand12 Condensed Consolidated Statements of Cash Flows Reports the cash inflows and outflows from operating, investing, and financing activities | Cash Flow Activity | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by operating activities | $1,676 thousand | $8,945 thousand | | Net cash provided by (used in) investing activities | $2,119 thousand | $(6,786) thousand | | Net cash (used in) provided by financing activities | $(497) thousand | $907 thousand | | Net increase in cash and cash equivalents | $3,298 thousand | $3,066 thousand | | Cash and cash equivalents as of end of period | $15,577 thousand | $15,733 thousand | - Net cash provided by operating activities significantly decreased from $8,945 thousand in Q1 2023 to $1,676 thousand in Q1 202414 - Investing activities shifted from a net cash usage of $6,786 thousand in Q1 2023 to a net cash provision of $2,119 thousand in Q1 2024, primarily due to higher payments received on notes receivable and returns from equity method investments14 - Financing activities moved from providing $907 thousand in Q1 2023 to using $497 thousand in Q1 2024, mainly due to debt repayments14 Notes to Unaudited Condensed Consolidated Financial Statements Provides detailed explanations and additional information supporting the unaudited condensed consolidated financial statements Note 1 – Basis of Presentation Outlines the company's structure, business segments, and the basis for preparing the financial statements - Heritage Global Inc. (HG) and its subsidiaries (HGP, NLEX, HG LLC, HGC, ALT) are collectively referred to as 'the Company'17 - The Company provides auction and appraisal services, traditional asset disposition sales, and specialty financing solutions18 - Reportable segments include Auction and Liquidation (HGP), Refurbishment & Resale (ALT), Brokerage (NLEX), and Specialty Lending (HGC)18 - The Board of Directors authorized a share repurchase program on May 5, 2022, for up to $4.0 million in common shares over three years, with approximately $3.2 million remaining as of March 31, 2024, and no shares repurchased in Q1 202421 Note 2 – Summary of Significant Accounting Policies Describes the key accounting principles and estimates used in preparing the financial statements - Revenue recognition follows ASC Topic 606 for services and asset sales, and ASC Topic 310 for specialty lending activities252631 - Specialty Lending has a concentration risk with one borrower accounting for 63% of notes receivable as of March 31, 2024, up from 62% in December 2023, mitigated by diversified underlying portfolios and security requirements343536 - The Company has incurred no actual credit losses from its specialty lending program through March 31, 202437 - Allowance for credit losses for notes receivable was $0.6 million as of March 31, 2024, and $0.7 million as of December 31, 2023, with an allowance rate of 3.6% due to concentration risk and declining collections44 - Allowance for credit losses for equity method investments was $0.9 million as of March 31, 2024, with a rate of 4.4% for similar reasons46 - The Company is evaluating the impact of new FASB ASUs 2023-07 (Segment Reporting) and 2023-09 (Income Tax Disclosures), effective for fiscal years beginning after December 15, 2023, and December 15, 2024, respectively4748 Note 3 – Accounts Receivable, net Details the company's accounts receivable and related allowance for credit losses - The reserve for credit losses related to accounts receivable remained approximately $0.1 million as of March 31, 2024, and December 31, 2023, with no material adjustments recorded in Q1 202451 Note 4 – Notes Receivable, net Provides information on outstanding notes receivable, new investments, and principal repayments | Metric | March 31, 2024 (in thousands) | | :-------------------------------- | :---------------------------- | | Notes receivable as of Dec 31, 2023 | $18,262 | | Investment in notes receivable | $2,256 | | Principal repayments | $(2,520) | | Notes receivable, as of March 31, 2024 | $17,998 | | Deferred financing fees and costs, net | $(143) | | Allowance for credit loss | $(643) | | Notes receivable, net, March 31, 2024 | $17,212 | - Outstanding notes receivable, net, decreased slightly from $17.5 million as of December 31, 2023, to $17.2 million as of March 31, 202452 - Activity in Q1 2024 included $2.3 million in new investments offset by $2.5 million in principal payments52 - The allowance for credit losses for notes receivable was $0.6 million as of March 31, 2024, a decrease from $0.7 million as of December 31, 202353 Note 5 – Stock-based Compensation Explains the company's stock option and restricted stock award programs and related expenses - The Company issued options to purchase 20,000 shares and canceled 12,750 options in Q1 202456 | Stock Options | As of Dec 31, 2023 | As of March 31, 2024 | | :-------------------------------- | :------------------- | :------------------- | | Outstanding Options | 2,265,350 | 2,268,850 | | Weighted Average Exercise Price | $1.71 | $1.72 | | Aggregate Intrinsic Value | $3,059 thousand | $2,322 thousand | - Stock-based compensation expense for common stock options was $0.1 million for both Q1 2024 and Q1 202357 - Unrecognized stock-based compensation expense for unvested options was approximately $1.3 million as of March 31, 2024, to be recognized over 2.3 years57 - The Company granted 128,044 shares of restricted common stock to employees and 75,000 shares to non-executive directors on March 7, 2024, vesting on March 7, 20256364 - Stock-based compensation expense related to restricted stock awards was approximately $0.1 million for both Q1 2024 and Q1 202365 Note 6 – Equity Method Investments Describes the company's investments in joint ventures and their financial performance - The Company holds significant influence over several joint ventures in both Industrial Assets (CPFH LLC, KNFH LLC, DHC8 LLC, KNFH II LLC) and Financial Assets (HGC Origination I LLC, HGC Funding I LLC, HGC MPG Funding LLC) divisions66 - The Company's share of the allowance for credit losses for equity method investments was approximately $0.9 million as of March 31, 2024, primarily related to HGC Origination I LLC and HGC MPG Funding LLC67 - No actual credit losses have been incurred through equity method investments as of March 31, 202467 | Joint Venture Revenues and Net Income (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Total revenues and gross profit | $2,702 | $2,182 | | Total operating income and net income | $2,599 | $1,672 | - Total revenues and gross profit from joint ventures increased by $520 thousand (23.8%) year-over-year68 - Total operating income and net income from joint ventures increased by $927 thousand (55.4%) year-over-year68 | Joint Venture Assets and Liabilities (in thousands) | March 31, 2024 | December 31, 2023 | | :-------------------------------------------------- | :------------- | :---------------- | | Total assets | $76,593 | $81,973 | | Total liabilities | $6,324 | $5,401 | Note 7 – Earnings Per Share Explains the calculation of basic and diluted earnings per share - Basic EPS is calculated using the two-class method due to preferred stock dividend rights, but earnings allocated to preferred shares were not material70 | Shares for Diluted EPS Calculation | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--------------------------------- | :-------------------------------- | :-------------------------------- | | Basic weighted average shares outstanding | 36,592,801 | 36,005,150 | | Treasury stock effect of common stock options and restricted stock awards | 774,467 | 1,329,309 | | Diluted weighted average common shares outstanding | 37,367,268 | 37,334,459 | - Approximately 0.2 million and 0.3 million potential common shares were excluded from diluted EPS computation for Q1 2024 and Q1 2023, respectively, as their inclusion would have been anti-dilutive72 Note 8 – Leases Details the company's operating lease arrangements, right-of-use assets, and lease liabilities - The Company leases office and warehouse space in four locations, all classified as operating leases73 | Lease Assets and Liabilities (in thousands) | March 31, 2024 | December 31, 2023 | | :------------------------------------------ | :------------- | :---------------- | | Total right-of-use assets | $2,377 | $2,539 | | Total lease liabilities | $2,489 | $2,648 | - The weighted average remaining lease term for operating leases is 3.9 years, and the weighted average discount rate is 5.35% as of March 31, 202475 - Lease expense was approximately $0.2 million for both Q1 2024 and Q1 202376 | Undiscounted Future Minimum Lease Payments (in thousands) | | :-------------------------------------------------------- | | 2024 (remainder) | $594 | | 2025 | $661 | | 2026 | $649 | | 2027 | $543 | | 2028 | $299 | | Total | $2,746 | | Less: imputed interest | $(257) | | Present value of lease liabilities | $2,489 | Note 9 – Intangible Assets and Goodwill Provides information on the company's amortizable and indefinite-lived intangible assets and goodwill | Intangible Assets (in thousands) | March 31, 2024 | December 31, 2023 | | :------------------------------- | :------------- | :---------------- | | Total amortizable intangible assets | $1,218 | $1,316 | | Indefinite-lived intangible assets (Trade Name NLEX) | $2,437 | $2,437 | | Total intangible assets | $3,655 | $3,753 | - Amortization expense was $0.1 million for both Q1 2024 and Q1 202378 | Estimated Amortization Expense (in thousands) | | :-------------------------------------------- | | 2024 (remainder) | $293 | | 2025 | $263 | | 2026 | $186 | | 2027 | $32 | | 2028 | $32 | | Thereafter | $412 | | Total | $1,218 | | Goodwill (in thousands) | March 31, 2024 | December 31, 2023 | | :---------------------- | :------------- | :---------------- | | ALT | $1,861 | $1,861 | | HGP | $2,041 | $2,041 | | NLEX | $3,544 | $3,544 | | Total goodwill | $7,446 | $7,446 | - No additions or impairments to goodwill were recorded in Q1 202480 Note 10 – Debt Details the company's third-party debt, credit facilities, and compliance with covenants | Debt (in thousands) | March 31, 2024 | December 31, 2023 | | :------------------ | :------------- | :---------------- | | Current portion | $1,765 | $1,733 | | Non-current portion | $5,040 | $5,495 | | Total third party debt | $6,805 | $7,228 | - Total third-party debt decreased by $423 thousand from December 31, 2023, to March 31, 202481 - The 2021 Credit Facility (revolving line of credit) had no outstanding balance as of March 31, 2024, and its maturity date was extended to October 27, 202484 - The ALT Note had an outstanding balance of $0.8 million as of March 31, 2024, with a maturity date of August 23, 202586 - The 2023 Credit Facility (Term Loan) had an outstanding balance of $6.0 million as of March 31, 2024, with a maturity date of April 27, 202887 - The Company was in compliance with all financial and negative covenants for its debt facilities as of March 31, 20248487 - The weighted average interest rate on short-term borrowings decreased from 9.51% as of December 31, 2023, to 8.75% as of March 31, 202485 Note 11 – Income Taxes Discusses the company's net operating loss carryforwards and deferred tax assets and liabilities - The Company has aggregate federal net operating loss (NOL) carryforwards of $50.0 million, beginning to expire in 2024, subject to Section 382 limitations88 - A partial valuation allowance of approximately $2.2 million was provided against net deferred tax assets as of March 31, 2024, and December 31, 2023, due to cumulative losses and uncertainty regarding future taxable income90 Note 12 – Related Party Transactions Discloses transactions with related parties, including lease agreements - The Company leases office space in Edwardsville, IL, from David Ludwig, President of NLEX and a board member, with payments to the related party approximately $28,000 for both Q1 2024 and Q1 202391 Note 13 – Segment Information Presents financial performance data for the company's Industrial and Financial Assets Divisions | Segment Operating Income (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------------------------- | :-------------------------------- | :-------------------------------- | | Industrial Assets Division: | | | | Auction and Liquidation | $796 | $1,468 | | Refurbishment & Resale | $16 | $1,101 | | Total divisional operating income | $812 | $2,569 | | Financial Assets Division: | | | | Brokerage | $2,067 | $2,045 | | Specialty Lending | $865 | $477 | | Total divisional operating income | $2,932 | $2,522 | | Corporate operating expense & other income | $(1,186) | $(1,197) | | Consolidated operating income | $2,558 | $3,894 | - Industrial Assets Division operating income decreased significantly from $2,569 thousand in Q1 2023 to $812 thousand in Q1 2024, primarily due to lower performance in Refurbishment & Resale and Auction and Liquidation93 - Financial Assets Division operating income increased from $2,522 thousand in Q1 2023 to $2,932 thousand in Q1 2024, driven by strong growth in Specialty Lending93 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition, liquidity, capital resources, and results of operations for the three months ended March 31, 2024, compared to the same period in 2023. It also covers the Company's business overview, competitive landscape, and key performance indicators Overview, History and Recent Developments Provides background on the company's incorporation, name changes, corporate structure, and business activities - Heritage Global Inc. was incorporated in 1983 and has undergone several name changes, with the current name adopted in 2013 to better reflect its auction and specialty lending businesses96 - The Company's corporate structure includes wholly-owned subsidiaries: Heritage Global Partners, Inc. (Auction and Liquidation), Heritage Global LLC (Holding Company), National Loan Exchange, Inc. (Brokerage), Heritage Global Capital LLC (Specialty Lending), and Heritage ALT LLC (Refurbishment and Resale)100101104 Specialty Lending - Concentration and credit risk Discusses the concentration of notes receivable with a single borrower and mitigation strategies - As of March 31, 2024, investments in notes receivable totaled $37.3 million, with one borrower accounting for approximately $23.4 million (63%), an increase from 62% as of December 31, 2023102 - Concentration risk is mitigated by diversifying underlying portfolios (FinTech, installment, credit card accounts) across six separate sellers and requiring security from borrowers103104 - The Company has not incurred any actual credit losses from its specialty lending program since inception through March 31, 2024104 Industry and Competition Describes the fragmented markets in which the company operates and its competitive positioning - The Company operates in the highly fragmented market of industrial asset liquidation and charged-off receivable brokerage and specialty financing105 - The business is positioned to grow in all economic cycles, with wider margins on asset sales and higher volumes of nonperforming assets during recessions, and growth based on competitive advantages during economic growth106 - Joint Ventures are a key strategy in Specialty Lending and Auction and Liquidation to access more opportunities and mitigate competition107 Our Competitive Strengths Highlights the company's differentiated business model, macro growth drivers, return on capital opportunities, and strong management team - Differentiated business model with multiple revenue streams (brokerage, principal-based auction, refurbishment, advisory, secured lending) and repeat, forward-flow contracts109 - Compelling macro growth drivers include increased supply of surplus assets during recessions, rising consumer charge-offs, and M&A activity in manufacturing110 - Opportunity for high return on invested capital by acting more frequently as principal in auctions and growing secured loans through HGC111 - Strong management team with deep domain expertise, including CEO Ross Dove (third-generation auctioneer) and specialized Presidents for Industrial and Financial Assets Divisions112 Financial Assets Division Focuses on the performance and growth opportunities within the company's brokerage and specialty lending segments Brokerage Segment Details the company's role as an advisor for sales of charged-off and nonperforming asset portfolios - Through NLEX, the Company acts as an advisor for sales of charged-off and nonperforming asset portfolios via an electronic auction exchange platform115 - NLEX has sold over $200 billion face value of assets since the 1980s, with sales concentrated in online, automotive, credit card, secured/unsecured consumer/business loans, and real estate charge-offs115 - Anticipates significant growth opportunities due to large increases in delinquency and charge-off rates, especially from new lending facilities like FinTech and Buy Now Pay Later lenders115 Specialty Lending Segment Describes the company's specialty financing solutions for investors in charged-off and nonperforming asset portfolios - Through HGC, the Company provides specialty financing solutions to investors in charged-off and nonperforming asset portfolios, having issued $151.7 million in total loans since 2019, with the Company's portion being $65.2 million116 - Income from secured lending includes upfront fees, interest income, monthly monitoring fees, and backend profit share, with an expected annual rate of return of approximately 20% or more116 - As of March 31, 2024, total investments in loans to buyers of charged-off and nonperforming receivable portfolios were $35.9 million ($17.2 million Notes Receivable, $18.7 million Equity Method Investments)116 - Growth opportunity through increased penetration of the underserved market of mid-tier buyers of charged-off receivables117 Industrial Assets Division Focuses on the performance and growth opportunities within the company's auction, liquidation, refurbishment, and resale segments Auction and Liquidation Segment Details the company's global full-service auction, appraisal, and asset advisory services - Through HGP, the Company offers global full-service auction, appraisal, and asset advisory services, including acquisition of turnkey manufacturing facilities and used industrial machinery and equipment119 - Fees typically range from 15%–50% depending on the role and transaction, targeting sellers of surplus or distressed 'inside the building' assets119 Refurbishment & Resale Segment Describes the company's specialization in refurbishing and reselling laboratory equipment - Through ALT, the Company specializes in refurbishing and reselling laboratory equipment, particularly in the biotech and pharma sectors120 Growth Opportunities Outlines strategies for expanding auction and valuation services - Growth in auction services is expected through securing ongoing contracts with multinational sellers, being a first mover in emerging sectors, and gaining market share121 - Growth in valuation services is expected through adding incremental bank-approved vendor lists, geographic expansion, and deeper penetration with existing bank relationships121 Government Regulation Discusses the regulatory environment and potential compliance costs affecting the company - The Company is subject to federal, state, and local consumer protection laws, including privacy and unfair trade practices, which could result in substantial compliance costs122 - Increased regulatory and compliance costs for public companies due to legislation may lead to additional future expenses123 Critical Accounting Policies and Estimates Identifies key accounting estimates and confirms no changes in policies or off-balance sheet arrangements - Significant estimates include collectability of revenue, valuation of receivables, inventory, investments, goodwill, intangible assets, liabilities, deferred income tax assets/liabilities, and stock-based compensation125 - No off-balance sheet arrangements and no dividends paid or expected126 - No changes to critical accounting policies in the three months ended March 31, 2024126 Management's Discussion of Financial Condition Analyzes the company's liquidity, capital resources, and cash flow activities Liquidity and Capital Resources Discusses the company's working capital, current liabilities, and ability to fund operations and debt service | Metric | March 31, 2024 | December 31, 2023 | | :----------------- | :------------- | :---------------- | | Working capital | $15.0 million | $11.6 million | - Working capital increased by $3.4 million, primarily due to a $3.3 million increase in cash, partially offset by decreases in inventory and accounts receivable128 - Current liabilities decreased by $0.8 million, mainly due to a $2.6 million decrease in accounts payable and accrued liabilities, partially offset by a $1.8 million increase in payables to sellers128 - The Company believes it can fund operations and debt service for at least 12 months through working capital, cash flows, and existing credit facilities130 - Stockholders' equity increased from $61.1 million as of December 31, 2023, to $63.0 million as of March 31, 2024134 Cash Position and Cash Flows Provides an overview of changes in cash and cash equivalents from operating, investing, and financing activities - Cash and cash equivalents increased by approximately $3.3 million, from $12.3 million as of December 31, 2023, to $15.6 million as of March 31, 2024136 - Cash provided by operating activities decreased by $7.2 million year-over-year, from $8.9 million in Q1 2023 to $1.7 million in Q1 2024, mainly due to changes in operating assets and liabilities and lower net income137 - Cash provided by investing activities was $2.1 million in Q1 2024, a significant improvement from $6.8 million cash used in Q1 2023, driven by higher payments received on notes receivable and returns from equity method investments139140141 - Cash used in financing activities was $0.5 million in Q1 2024, compared to $0.9 million provided in Q1 2023, primarily due to debt repayments142 Management's Discussion of Results of Operations Analyzes the company's revenues, cost of revenues, operating expenses, and key performance indicators Revenues and cost of revenues Details the changes in total revenues, asset sales, services revenue, and gross profit | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | Change (Dollars) | Change (Percent) | | :------------------------ | :-------------------------------- | :-------------------------------- | :--------------- | :--------------- | | Services revenue | $8,983 thousand | $10,245 thousand | $(1,262) thousand | (12)% | | Asset sales | $3,178 thousand | $6,367 thousand | $(3,189) thousand | (50)% | | Total revenues | $12,161 thousand | $16,612 thousand | $(4,451) thousand | (27)% | | Cost of services revenue | $1,480 thousand | $2,340 thousand | $(860) thousand | (37)% | | Cost of asset sales | $2,411 thousand | $4,335 thousand | $(1,924) thousand | (44)% | | Gross profit | $8,270 thousand | $9,937 thousand | $(1,667) thousand | (16)% | - Total revenues decreased by 27% year-over-year, primarily due to a 50% decrease in asset sales and a 12% decrease in services revenue145149 - Gross profit decreased by approximately $1.6 million (16%) in Q1 2024 compared to Q1 2023, mainly attributed to a significant one-time principal auction transaction in the Industrial Asset Division in Q1 2023 and normal variability in asset liquidation transactions149 Selling, general and administrative expense Analyzes the components and changes in selling, general, and administrative expenses | SG&A Component (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | % Change | | :------------------------------ | :-------------------------------- | :-------------------------------- | :------- | | Compensation - Auction and liquidation | $1,290 | $1,443 | (11)% | | Compensation - Refurbishment and resale | $595 | $505 | 18% | | Compensation - Brokerage | $1,431 | $1,770 | (19)% | | Compensation - Specialty lending | $515 | $210 | 145% | | Stock-based compensation | $228 | $179 | 27% | | Accounting, tax and legal professional fees | $503 | $339 | 48% | | Provision for credit losses | $(12) | $102 | (112)% | | Total selling, general & administrative | $6,358 | $6,300 | 1% | - Total selling, general and administrative (SG&A) expense remained largely consistent, increasing by 1% year-over-year to $6.4 million150152 - Notable changes include a 145% increase in Specialty Lending compensation and a 48% increase in accounting, tax, and legal professional fees150 - The provision for credit losses shifted from an expense of $102 thousand in Q1 2023 to a credit of $(12) thousand in Q1 2024150 Depreciation and amortization expense Reports the depreciation and amortization expenses for the period - Depreciation and amortization expense was $0.1 million for both Q1 2024 and Q1 2023, primarily related to intangible assets152 Key Performance Indicators Presents the company's GAAP and non-GAAP performance metrics, including net income, EBITDA, and Adjusted EBITDA - Operating income is considered the most important GAAP measure of operational performance153 - EBITDA and Adjusted EBITDA are key non-GAAP performance indicators used by management153154 | KPI (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :----------------- | :-------------------------------- | :-------------------------------- | | Net income | $1,799 | $2,829 | | EBITDA | $2,699 | $4,014 | | Adjusted EBITDA | $2,927 | $4,193 | - Adjusted EBITDA decreased by $1,266 thousand (30.2%) year-over-year, reflecting the decline in net income and operating performance155 Item 3. 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 exempt from providing market risk disclosures as a Smaller Reporting Company156 Item 4. Controls and Procedures The Chief Executive Officer and Principal Financial Officer evaluated the Company's disclosure controls and procedures, concluding they were effective as of March 31, 2024. No material changes to internal control over financial reporting occurred during the quarter - Disclosure controls and procedures were evaluated and deemed effective as of March 31, 2024157 - No material changes in internal control over financial reporting occurred during the three months ended March 31, 2024158 PART II – OTHER INFORMATION Contains legal, risk, equity, and other miscellaneous disclosures not covered in the financial information section Item 1. Legal Proceedings There have been no material changes to the legal proceedings previously discussed in the Company's Form 10-K - No material changes to legal proceedings since the last Form 10-K filing159 Item 1A. Risk Factors As a Smaller Reporting Company, Heritage Global Inc. is not required to provide the information regarding risk factors - The Company is exempt from providing risk factor disclosures as a Smaller Reporting Company160 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities or use of proceeds to report during the period - No unregistered sales of equity securities or use of proceeds to report161 Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities to report during the period - No defaults upon senior securities to report162 Item 4. Mine Safety Disclosures This item is not applicable to the Company - Mine Safety Disclosures are not applicable to the Company163 Item 5. Other Information No director or Section 16 officer adopted or terminated any Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements during the quarter ended March 31, 2024 - No Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted or terminated by directors or Section 16 officers in Q1 2024164 Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including organizational documents, warrant agreements, certifications from executive officers, and XBRL-related documents - Exhibits include Amended and Restated Articles of Incorporation, Restated Bylaws, Warrant Agreement, Certifications of Principal Executive and Financial Officers (Rule 13a-14(a), 18 U.S.C. Section 1350), and Inline XBRL documents166 Signature Page The report is duly signed on behalf of Heritage Global Inc. by Ross Dove, Chief Executive Officer, and Brian J. Cobb, Chief Financial Officer, as of May 9, 2024 - The report was signed by Ross Dove (CEO) and Brian J. Cobb (CFO) on May 9, 2024170