[March 13, 2018] |
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Heritage Global Inc. Reports 2017 Fourth Quarter and Full Year Operating Results
Heritage
Global Inc. (OTCQB:HGBL, CSE:HGP) ("Heritage Global," "HGI (News - Alert)" or "the
Company"), a value-driven, innovative leader in corporate and financial
asset liquidation transactions, valuations and advisory services, today
reported financial results for the fourth quarter and full-year ended
December 31, 2017 as summarized below.
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($ in thousands, except per share amounts)
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Quarter Ended
December 31,
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Twelve Months Ended
December 31,
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|
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2017
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|
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2016
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2017
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2016
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Revenue
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Services revenue(1)
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$
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5,300
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|
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$
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3,653
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$
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17,937
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$
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15,371
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Asset sales(2)
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277
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2,217
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2,192
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8,462
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Total revenue
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5,577
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5,870
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20,129
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23,833
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Gross profit
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4,696
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3,782
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15,416
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12,515
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Operating (loss) income
|
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(372
|
)
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634
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|
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364
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|
|
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190
|
Net (loss) income
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(387
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)
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(299
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)
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(249
|
)
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14
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Net (loss) income per share - basic and diluted
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$
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(0.01
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)
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$
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(0.01
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)
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$
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(0.01
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)
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$
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0.00
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(Non-GAAP Financial Measures) (3)
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EBITDA
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$
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(694
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)
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$
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(282
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)
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$
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(261
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)
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$
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414
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Adjusted EBITDA
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$
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909
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$
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738
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$
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2,065
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$
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605
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(1)
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Services revenue represents revenue generated from activities
in which Heritage Global acted as an agent by either brokering a
transaction or providing some other fee-based service.
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(2)
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Asset sales represent revenue generated from activities in
which Heritage Global acted in a principal capacity, reselling
assets that it had purchased.
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(3)
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Definitions and disclosures regarding non-GAAP financial
information including reconciliations are included at the end of
the press release.
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Fourth Quarter 2017 Summary of Financial Results:
-
Total revenue in the fourth quarter declined 5%, from $5.9 million to
$5.6 million. However, the decrease in total revenue was due to a $1.9
million, or 88%, decline in asset sales revenue versus the prior year,
with the absence of several large asset sales in 2017 being mostly
offset by a $1.6 million, or 45%, year-over-year increase in
higher-margin services revenue.
-
Gross profit, or total revenue net of costs of revenue, increased 24%
to $4.7 million in the fourth quarter of 2017 from $3.8 million in the
fourth quarter level of 2016, due principally to higher margin
services revenue and the timing and magnitude of certain asset
liquidation transactions together resulting in a $1.2 million, or 58%,
reduction in the cost of total revenue.
-
During the fourth quarter, Heritage
Global completed a number of successful global online sales,
including projects for Pfizer, Amgen, PharmaScience, Vericel,
Pharmaceutics International, Aerospace Manufacturing Group, and
Astellas.
-
Selling, general and administrative expenses were $3.8 million in the
fourth quarter of 2017, compared to $3.1 million in the fourth quarter
of 2016. The increase in selling, general and administrative expenses
was largely attributable to compensation related items from variable
compensation arrangements.
-
Heritage
Global recorded a $0.4 million non-operating loss in the fourth
quarter of 2017 related to the non-cash fair value adjustment of its
contingent consideration from the acquisition of National Loan
Exchange Inc. (NLEX), compared to a non-operating loss of
approximately $1.0 million in the fourth quarter of 2016.
-
The Company recorded a net loss of approximately $0.4 million in the
fourth quarter of 2017, or $0.01 per share, essentially flat compared
to the prior year period.
-
Adjusted EBITDA, a commonly used non-GAAP financial measure, was $0.9
million in the fourth quarter of 2017, compared to $0.7 million in the
fourth quarter of 2016. Adjusted EBITDA is used 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. Adjustments in the quarter
related to one-time or non-recurring items including the non-cash fair
value adjustment of its contingent consideration from the acquisition
of NLEX and the settlement costs related to a matter originating in
2009.
Full Year 2017 Summary of Financial Results:
-
Total revenue in 2017 declined 16%, from $23.8 million to $20.1
million. However, the decrease in total revenue was due to a $6.3
million, or 74%, decline in asset sales revenue versus the prior year,
with the sale of the Company's real estate inventory in 2016
accounting for most of the decline. Lower asset sales were partially
offset by a $2.6 million, or 17%, year-over-year increase in
higher-margin services revenue.
-
Gross profit, or total revenue net of costs of revenue, increased 23%
to $15.4 million in 2017 from $12.5 million in 2016, due principally
to higher margin services revenue and the timing and magnitude of
certain asset liquidation transactions together resulting in a $6.6
million, or 58%, reduction in the cost of total revenue.
-
Adjusted EBITDA, a commonly used non-GAAP financial measure, was
increased 241% to $2.1 million in 2017, compared to $0.6 million in
2016. Adjusted EBITDA is used 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. Adjustments for the year related
to one-time or non-recurring items including the non-cash fair value
adjustment of its contingent consideration from the acquisition of
NLEX and the settlement costs related to an almost decade old
litigation matter.
-
The 2017 Tax Cuts and Jobs Act (the Tax Act) was enacted on December
22, 2017, and significantly affected U.S. tax law by changing how the
U.S. imposes income tax on multinational corporations. The Tax Act
reduces the U.S. statutory corporate tax rate from 35% to 21% for HGI
tax years beginning in 2018. The re-measurement of the federal portion
of the Company's deferred tax liabilities as of December 31, 2017
resulted in an approximate $1.4 million reduction HGI's deferred tax
liabilities. Additionally, the Company had no impact in the U.S. with
respect to the Toll Charge under the Tax Act, as a result of the
allocation of foreign subsidiary deficits against positive earnings.
Heritage Global Chief Executive Officer Ross
Dove stated, "Heritage Global ended 2017 on a strong note and
delivered another year of solid financial performance across our asset
liquidation, valuation and advisory services businesses, resulting in a
23% increase in gross profit, compared to the prior year. The execution
of our strategies to grow our platform, coupled with the progress we are
making in improving the Company's financial results, led to a
significant gross margin improvement and record adjusted EBITDA growth
to $2.1 million in 2017.
"HGI's unique, value-driven corporate and financial asset solutions
platform continued to generate positive results reflecting our growing
base of global clients, with strong growth particularly in our brokerage
and M&A
advisory services divisions, which saw a 17% rise in services
revenue.
"Looking ahead, HGI remains committed to strategically grow our
portfolio of global asset solutions by adding complementary capabilities
that serve a broad range of businesses, while creating added value for
our corporate clients and customers. To support our goals for near and
long-term growth, we will continue to implement our initiatives focused
on enhancing profitability and driving efficiencies across our platform,
while actively managing our capital structure to maximize cash flow and
reduce leverage.
"In closing, we are pleased with our 2017 financial performance and the
success we have achieved in improving top and bottom-line results. HGI's
business divisions focused on auction services, M&A advisory services,
patents and trademarks, brokerage and real estate services continue to
deliver value to our corporate clients, customers and partners. We
remain confident that our strategy to further expand our platform of
diversified global asset solutions, combined with the ongoing successful
execution of our expense management and profitability initiatives, is a
formula for sustainable financial growth and enhancement of long-term
shareholder value."
Definitions and Disclosures Regarding non-GAAP Financial Information
Adjusted EBITDA reflects the standard definition of EBITDA (net income
(loss) plus depreciation and amortization, interest and other expense,
and provision for income taxes), adjusted further to reflect the effects
of settlement accrual charges, plus or minus fair value adjustments of
contingent consideration and plus stock-based compensation. Management
believes that the presentation of this non-GAAP financial measure, when
considered together with the GAAP financial measures and the
reconciliation to the most directly comparable GAAP financial measure,
provides a more complete understanding of the factors and trends
affecting the Company than could be obtained absent these disclosures.
Management uses Adjusted EBITDA to make operating and strategic
decisions and to evaluate the Company's performance. The Company has
disclosed this non-GAAP financial measure so that investors have the
same financial data that management uses, with the intention of
assisting investors to make comparisons to the Company's historical
operating results and analyze its underlying performance. Management
believes that Adjusted EBITDA is a useful supplemental tool to evaluate
the underlying operating performance of the Company on an ongoing basis.
The use of 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 cited in the tables at the end of this news announcement
which reconciles GAAP reported net income to Adjusted EBITDA for the
periods presented herein.
About Heritage Global Inc. (www.heritageglobalinc.com)
Heritage Global Inc. (OTCQB: HGBL, CSE: HGP) is a value-driven,
innovative leader in corporate and financial asset liquidation
transactions, valuations and advisory services. Heritage Global focuses
on identifying, valuing, acquiring and monetizing underlying tangible
and intangible assets in twenty-eight global manufacturing and
technology sectors. Heritage Global 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.
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. The forward-looking statements contained
in this communication are based on knowledge of the environment in which
the Company currently operates and are subject to change based on
various important factors, including variability in magnitude and timing
of asset liquidation transactions, the impact of changes in the U.S.
national and global economies, 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-
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HERITAGE GLOBAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands of US dollars, except share and per share amounts)
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Three Months Ended December 31,
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Twelve Months Ended December 31,
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2017
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2016
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2017
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2016
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Revenues:
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|
|
|
|
|
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|
|
|
|
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|
|
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Services revenue
|
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$
|
5,300
|
|
|
$
|
3,653
|
|
|
$
|
17,937
|
|
|
$
|
15,371
|
|
Asset sales
|
|
|
|
277
|
|
|
|
2,217
|
|
|
|
2,192
|
|
|
|
8,462
|
|
Total revenues
|
|
|
|
5,577
|
|
|
|
5,870
|
|
|
|
20,129
|
|
|
|
23,833
|
|
|
|
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|
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Operating costs and expenses:
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|
|
|
|
|
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Cost of services revenue
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|
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716
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|
|
|
436
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|
|
|
3,007
|
|
|
|
4,187
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|
Cost of asset sales
|
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|
165
|
|
|
|
1,652
|
|
|
|
1,706
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|
|
|
7,131
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|
Selling, general and administrative
|
|
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|
3,846
|
|
|
|
3,072
|
|
|
|
13,597
|
|
|
|
12,009
|
|
Depreciation and amortization
|
|
|
|
80
|
|
|
|
76
|
|
|
|
313
|
|
|
|
316
|
|
Settlement accrual
|
|
|
|
1,142
|
|
|
|
-
|
|
|
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1,142
|
|
|
|
-
|
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Total operating costs and expenses
|
|
|
|
5,949
|
|
|
|
5,236
|
|
|
|
19,765
|
|
|
|
23,643
|
|
Operating (loss) income
|
|
|
|
(372
|
)
|
|
|
634
|
|
|
|
364
|
|
|
|
190
|
|
Fair value adjustment of contingent consideration
|
|
|
|
(402
|
)
|
|
|
(992
|
)
|
|
|
(938
|
)
|
|
|
(92)
|
|
Interest expense
|
|
|
|
(51
|
)
|
|
|
51
|
|
|
|
(95
|
)
|
|
|
(63
|
)
|
(Loss) income before income tax expense
|
|
|
|
(825
|
)
|
|
|
(307
|
)
|
|
|
(669
|
)
|
|
|
35
|
|
Income tax (benefit) expense
|
|
|
|
(438
|
)
|
|
|
(8
|
)
|
|
|
(420
|
)
|
|
|
21
|
|
Net (loss) income
|
|
|
$
|
(387
|
)
|
|
$
|
(299
|
)
|
|
$
|
(249
|
)
|
|
$
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Weighted average common shares outstanding - basic
|
|
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|
28,480,148
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|
|
|
28,432,648
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|
|
|
28,468,545
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|
|
|
28,400,886
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|
Weighted average common shares outstanding - diluted
|
|
|
|
28,480,148
|
|
|
|
28,432,648
|
|
|
|
28,468,545
|
|
|
|
28,434,832
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|
Net (loss) income per share - basic
|
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
0.00
|
|
Net (loss) income per share - diluted
|
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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The notes contained in our Annual Report on Form 10-K are an integral
part of these consolidated financial statements.
-balance sheets follow-
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HERITAGE GLOBAL INC.
CONSOLIDATED BALANCE SHEETS
(In thousands of US dollars, except share and per share amounts)
(audited)
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|
|
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|
|
|
December 31, 2017
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|
December 31, 2016
|
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ASSETS
|
|
|
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Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
$
|
2,109
|
|
|
$
|
2,530
|
|
Accounts receivable, net
|
|
|
|
384
|
|
|
|
1,247
|
|
Inventory - equipment
|
|
|
|
170
|
|
|
|
263
|
|
Other current assets
|
|
|
|
357
|
|
|
|
393
|
|
Total current assets
|
|
|
|
3,020
|
|
|
|
4,433
|
|
Property and equipment, net
|
|
|
|
145
|
|
|
|
156
|
|
Identifiable intangible assets, net
|
|
|
|
3,877
|
|
|
|
4,122
|
|
Goodwill
|
|
|
|
6,158
|
|
|
|
6,158
|
|
Other assets
|
|
|
|
250
|
|
|
|
275
|
|
Total assets
|
|
|
$
|
13,450
|
|
|
$
|
15,144
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
$
|
5,019
|
|
|
$
|
6,746
|
|
Current portion of related party debt
|
|
|
|
382
|
|
|
|
664
|
|
Current portion of third part debt
|
|
|
|
356
|
|
|
|
-
|
|
Current portion of contingent consideration
|
|
|
|
2,774
|
|
|
|
961
|
|
Other current liabilities
|
|
|
|
133
|
|
|
|
199
|
|
Total current liabilities
|
|
|
|
8,664
|
|
|
|
8,570
|
|
Non-current portion of related party debt
|
|
|
|
-
|
|
|
|
348
|
|
Non-current portion of third party debt
|
|
|
|
786
|
|
|
|
-
|
|
Non-current portion of contingent consideration
|
|
|
|
-
|
|
|
|
1,772
|
|
Deferred tax liabilities
|
|
|
|
512
|
|
|
|
960
|
|
Total liabilities
|
|
|
|
9,962
|
|
|
|
11,650
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity:
|
|
|
|
|
|
|
|
|
|
Preferred stock, $10.00 par value, authorized 10,000,000 shares;
issued and
outstanding 569 Class N shares at December 31, 2017 and December
31,
2016
|
|
|
|
6
|
|
|
|
6
|
|
Common stock, $0.01 par value, authorized 300,000,000 shares; issued
and outstanding 28,480,148 shares at December 31, 2017 and
28,470,148 shares at December 31, 2016
|
|
|
|
285
|
|
|
|
285
|
|
Additional paid-in capital
|
|
|
|
284,396
|
|
|
|
284,149
|
|
Accumulated deficit
|
|
|
|
(281,124
|
)
|
|
|
(280,875
|
)
|
Accumulated other comprehensive loss
|
|
|
|
(75
|
)
|
|
|
(71
|
)
|
Total stockholders' equity
|
|
|
|
3,488
|
|
|
|
3,494
|
|
Total liabilities and stockholders' equity
|
|
|
$
|
13,450
|
|
|
$
|
15,144
|
|
|
|
|
|
|
|
|
|
|
|
The notes contained in our Annual Report on Form 10-K are an integral
part of these consolidated financial statements.
- EBITDA and Adjusted EBITDA (non-GAAP measures) reconciliation follows -
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|
|
|
|
|
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HERITAGE GLOBAL INC.
Reconciliation of EBITDA and Adjusted EBITDA (Non-GAAP Measures)
(In thousands of US dollars)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
|
Twelve Months Ended
December 31,
|
|
|
|
|
2017
|
|
|
|
|
2016
|
|
|
|
|
2017
|
|
|
|
|
2016
|
Net Income
|
|
|
$
|
(387
|
)
|
|
|
$
|
(299
|
)
|
|
|
$
|
(249
|
)
|
|
|
$
|
14
|
Add back:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
80
|
|
|
|
|
76
|
|
|
|
|
313
|
|
|
|
|
316
|
Interest and other expense, net
|
|
|
|
51
|
|
|
|
|
(51
|
)
|
|
|
|
95
|
|
|
|
|
63
|
Income tax (benefit) expense
|
|
|
|
(438
|
)
|
|
|
|
(8
|
)
|
|
|
|
(420
|
)
|
|
|
|
21
|
EBITDA
|
|
|
|
(694
|
)
|
|
|
|
(282
|
)
|
|
|
|
(261
|
)
|
|
|
|
414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management add back:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value adjustment of contingent consideration
|
|
|
|
402
|
|
|
|
|
992
|
|
|
|
|
938
|
|
|
|
|
92
|
Stock based compensation
|
|
|
|
59
|
|
|
|
|
28
|
|
|
|
|
246
|
|
|
|
|
99
|
Settlement accrual
|
|
|
|
1,142
|
|
|
|
|
-
|
|
|
|
|
1,142
|
|
|
|
|
-
|
Adjusted EBITDA
|
|
|
$
|
909
|
|
|
|
$
|
738
|
|
|
|
$
|
2,065
|
|
|
|
$
|
605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The notes contained in our Annual Report on Form 10-K are an integral
part of these consolidated financial statements.
View source version on businesswire.com: http://www.businesswire.com/news/home/20180313006492/en/
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