Heritage Global Inc. Delivers Continued Sequential Growth and Its Strongest Operating Income of the Year in Q4 2021

Heritage Global Inc. (NASDAQ:HGBL) ("Heritage Global," "HGI" or "the Company"), an asset services company specializing in financial and industrial asset transactions, today reported financial results for the fourth quarter and year ended December 31, 2021.

Heritage Global Chief Executive Officer Ross Dove commented, "We drove continued momentum in fourth quarter 2021, with sequential improvement across key financial metrics as compared to third quarter 2021. Fourth quarter operating income grew more than 160% to $1.4 million as compared to $0.5 million in the third quarter of 2021 and net income more than doubled to $1.0 million as compared to $0.5 million in third quarter 2021. It is important to note that while operating income was lower than the previous year, the fourth quarter of 2020 included $2.3 million in net profit related to our first completed real estate transaction from our Huntsville partnership holdings.

"As we've previously discussed, we are well positioned in both our Financial Assets Division and in our Industrial Assets Division. On the Financial Assets side of our business, during the past 18 months there have been delays in charge-offs coming to market, as consumers used stimulus money to pay down loans. However, consumer borrowing is on the rise as people resume historical shopping and travel behaviors. During fiscal 2022, we anticipate a significant uptick in the volume of non-performing loans coming to market, and we're positioned to benefit from that volume.

"In our Industrial Assets Division, we're encouraged by the opportunities we're seeing as our client base focuses not just on profitably disposing of surplus equipment and assets, but the environmentally sound disposal of these assets. As our manufacturing and industrial clients focus on sustainability, we expect to see more equipment go to auction rather than to the landfill – which is good for our business and good for the planet," stated Mr. Dove.

Mr. Dove concluded, "At Heritage Global Capital, we continue to work with an active and growing group of borrowers, and our pipeline is strong. We're pleased to have closed 2021 with another profitable quarter, and as the lending and spending landscape continues to improve, we expect to see continued momentum as we move through 2022."

Fourth Quarter & Year End 2021 Summary of Financial Results:

($ in thousands, except per share amounts)	Three Months Ended December 31,				Year Ended December 31,
($ in thousands, except per share amounts)	2021		2020		2021		2020
Operating income	$	1,362	$	3,329	$	3,014	$	6,059
Net income	$	960	$	6,317	$	3,053	$	9,658
Net income per share – diluted	$	0.03	$	0.17	$	0.08	$	0.30

(Non-GAAP Financial Measures)⁽¹⁾
EBITDA	$	1,528	$	3,419	$	3,474	$	6,421
Adjusted EBITDA	$	1,623	$	3,514	$	4,082	$	6,774

(1)

EBITDA and Adjusted EBITDA are commonly used non-GAAP financial measures utilized by management as a supplemental tool to evaluate the underlying operating performance of the Company on an ongoing basis and should be considered together with Heritage Global's GAAP financial measures. Definitions and disclosures regarding non-GAAP financial information including reconciliations are included at the end of the press release.

Fourth Quarter 2021 Highlights:

The Company achieved operating income of $1.4 million for the fourth quarter of 2021, as compared to operating income of $3.3 million in the fourth quarter of 2020, which included $2.3 million in net profit related to the real estate transaction noted above.
Net income of $1.0 million, or $0.03 diluted earnings per share for the fourth quarter of 2021, as compared to net income of $6.3 million, $0.17 diluted earnings per share in the fourth quarter of 2020, which included an income tax benefit of $3.0 million.
EBITDA totaled $1.5 million in the fourth quarter of 2021 versus EBITDA of $3.4 million in the fourth quarter of 2020 and Adjusted EBITDA (excluding non-cash stock-based compensation) was $1.6 million compared to $3.5 million in the prior-year quarter. EBITDA and Adjusted EBITDA in the fourth quarter of 2020, included $2.3 million in net profit related to the real estate transaction noted above.
Heritage Global maintains a strong balance sheet, with stockholders' equity of $32.6 million as of December 31, 2021, compared to $29.9 million as of December 31, 2020, and net working capital of $9.1 million.

Fourth Quarter 2021 Conference Call

Management will host a webcast and conference call today, Thursday, March 17, 2022, at 5:00 pm ET to discuss financial results for fourth quarter 2021. Analysts and investors may participate via conference call, using the following dial-in information:

1-844-826-3033 (Domestic)
1-412-317-5185 (International)
The conference call will also be available in the Investor Relations section of the Company's website at http://www.hginc.com/. To listen to a live broadcast, go to the site at least 10 minutes prior to the scheduled start time in order to register.

About Heritage Global Inc. (www.heritageglobalinc.com)

Heritage Global Inc. (NASDAQ:HGBL) is an asset services company specializing in financial and industrial asset transactions. The company provides a full suite of services including market making, acquisitions, dispositions, valuations and secured lending. Heritage Global focuses on identifying, valuing, acquiring and monetizing underlying tangible and intangible assets across twenty-eight global sectors. The company acts as an adviser, as well as a principal, acquiring or brokering turnkey manufacturing facilities, surplus industrial machinery and equipment, industrial inventories, accounts receivable portfolios, intellectual property, and entire business enterprises.

Definitions and Disclosures Regarding non-GAAP Financial Information

The Company defines EBITDA as net income/loss plus depreciation and amortization, interest and other expense, and provision for income taxes. Adjusted EBITDA reflects EBITDA adjusted further to eliminate the effects of stock-based compensation and separation costs. Management uses EBITDA and Adjusted EBITDA in assessing the Company's results, evaluating the Company's performance and in reaching operating and strategic decisions. Management believes that the presentation of EBITDA and Adjusted EBITDA, when considered together with our GAAP financial statements and the reconciliation to the most directly comparable GAAP financial measure, is useful in providing investors a more complete understanding of the factors and trends affecting the underlying performance of the Company on a historical and ongoing basis. The Company's use of EBITDA and Adjusted EBITDA is not meant to be, and should not be, considered in isolation or as a substitute for, or superior to, any GAAP financial measure. You should carefully evaluate the financial information, below, which reconciles our GAAP reported net income to EBITDA and Adjusted EBITDA for the periods presented (in thousands).

Forward-Looking Statements

This communication includes forward-looking statements based on our current expectations and projections about future events. For these statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. While the Company believes the forward-looking statements contained in this communication are accurate, these forward-looking statements represent the Company's beliefs only as of the date of this communication, and there are a number of factors that could cause actual events or results to differ materially from those indicated by such forward-looking statements, including variability in magnitude and timing of asset liquidation transactions, the impact of changes in the U.S. national and global economies, and interest rate and foreign exchange rate sensitivity, as well as other factors beyond the Company's control. Unless required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, you should not place undue reliance on these forward-looking statements, which speak only as of the date of this release. For more details on factors that could affect these expectations, please see our filings with the Securities and Exchange Commission.

-financial tables follow-

HERITAGE GLOBAL INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands of US dollars, except share and per share amounts)

	(unaudited) Three Months Ended December 31,						Year Ended December 31,
	2021			2020			2021			2020
Revenues:
Services revenue	$	5,934		$	6,168		$	19,954		$	21,806
Asset sales		1,590			2,163			5,838			4,377
Total revenues		7,524			8,331			25,792			26,183

Operating costs and expenses:
Cost of services revenue		1,264			2,976			4,499			6,320
Cost of asset sales		1,059			1,431			2,929			2,789
Selling, general and administrative		3,677			3,933			14,811			14,449
Depreciation and amortization		166			90			460			362
Total operating costs and expenses		6,166			8,430			22,699			23,920
Earnings of equity method investments		4			3,428			(79	)		3,796
Operating income		1,362			3,329			3,014			6,059
Interest and other expense, net		(28	)		(7	)		(22	)		(45	)
Income before income tax expense (benefit)		1,334			3,322			2,992			6,014
Income tax expense (benefit)		374			(2,995	)		(61	)		(3,644	)
Net income	$	960		$	6,317		$	3,053		$	9,658

Weighted average common shares outstanding – basic		35,974,702			34,318,122			35,458,938			30,200,053
Weighted average common shares outstanding – diluted		37,140,930			37,071,983			36,901,390			32,708,235
Net income per share – basic	$	0.03		$	0.18		$	0.09		$	0.32
Net income per share – diluted	$	0.03		$	0.17		$	0.08		$	0.30

The accompanying notes are an integral part of these condensed consolidated financial statements.

-balance sheets follow-

HERITAGE GLOBAL INC. CONSOLIDATED BALANCE SHEETS (In thousands of US dollars, except share amounts)

	December 31,
	2021			2020
ASSETS
Current assets:
Cash and cash equivalents	$	13,622		$	23,385
Accounts receivable		2,732			1,496
Current portion of notes receivable, net		2,254			1,338
Inventory – equipment		3,220			235
Other current assets		1,456			498
Total current assets		23,284			26,952
Non-current portion of notes receivable, net		1,784			748
Equity method investments		4,683			2,402
Right-of-use asset		2,694			963
Property, plant and equipment, net		1,471			130
Intangible assets, net		4,565			3,123
Goodwill		7,446			5,585
Deferred tax assets		4,488			4,402
Other assets		49			250
Total assets	$	50,464		$	44,555

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	11,244		$	13,609
Current portion of third party debt		2,479			—
Current portion of lease liabilities		501			380
Total current liabilities		14,224			13,989
Non-current portion of third party debt		1,352			—
Non-current portion of lease liabilities		2,249			623
Total liabilities		17,825			14,612

Commitments and contingencies (Note 13)

Stockholders' equity:
Preferred stock, $10.00 par value, authorized 10,000,000 shares; issued and outstanding 565 Series N shares at December 31, 2021 and 568 shares at December 31, 2020		6			6
Common stock, $0.01 par value, authorized 300,000,000 shares; issued and outstanding 36,574,702 shares at December 31, 2021 and 35,281,183 shares at December 31, 2020		366			353
Additional paid-in capital		293,030			293,400
Accumulated deficit		(260,763	)		(263,816	)
Accumulated other comprehensive loss		—			—
Total stockholders' equity		32,639			29,943
Total liabilities and stockholders' equity	$	50,464		$	44,555

The accompanying notes are an integral part of these condensed consolidated financial statements.

– EBITDA and Adjusted EBITDA (non-GAAP measures) reconciliation follows –

HERITAGE GLOBAL INC. Reconciliation of EBITDA and Adjusted EBITDA (Non-GAAP Measures) (In thousands of US dollars) (unaudited)


	Three Months Ended December 31,					Year Ended December 31,
	2021		2020			2021			2020
Net income	$	960	$	6,317		$	3,053		$	9,658
Add back:
Depreciation and amortization		166		90			460			362
Interest and other expense, net		28		7			22			45
Income tax expense (benefit)		374		(2,995	)		(61	)		(3,644	)
EBITDA		1,528		3,419			3,474			6,421

Management add back:
Stock based compensation		95		95			408			353
Separation Agreement		—		—			200			—
Adjusted EBITDA	$	1,623	$	3,514		$	4,082		$	6,774

The notes contained in our Quarterly Report on Form 10-Q are an integral part of these consolidated financial statements.

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HGBLHeritage Global Inc

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