Heritage Global Inc.
Q4 2021 Earnings Call Transcript

Published: 17 Mar 2022

[Operator:]

Good day, and welcome to the Heritage Global Inc. Fourth Quarter and Year-end Earnings Conference Call. . Please note, this event is being recorded. I would now like to turn the conference over to John Nesbett, Investor Relations for Heritage Global. Please go ahead.

[John Nesbett:]

Thank you, and good afternoon, everyone. Before we begin, I'd like to remind everyone that this conference call contains forward-looking statements based on our current expectations and projections about future events and are subject to change based on various important factors. In light of these risks, uncertainties and assumptions, you should not place undue reliance on these forward-looking statements, which speak only as of date of this call. For more details and factors that could affect these expectations, please see our filings with the Securities and Exchange Commission. Now I'd like to turn the call over to Heritage Global's Chief Executive Officer, Ross Dove. Go ahead, Ross.

[Ross Dove:]

Brian, why don't you take off and start this? And then I'll give a follow-up afterwards. Go ahead, Brian.

[Brian Cobb:]

Thanks, Ross. We are excited to announce the company's strong performance in the fourth quarter, posting its highest net operating income for the year with continued sequential growth. At $1.4 million, net operating income grew significantly over the third quarter's net operating income of $533,000. Breaking that down between the 2 segments, net operating income in the Industrial Assets Division grew sequentially from $765,000 to $855,000 in the fourth quarter. And we saw a 45% sequential growth in Financial Assets from $449,000 to $652,000. Net operating income was $1.4 million compared to $3.3 million in the fourth quarter of 2020. The year-over-year comparison is not apples-to-apples, given the operating income in the fourth quarter of 2020 included $2.3 million in net profits related to our first completed real estate transaction from our Huntsville partnership holdings. In our business model, we periodically purchase real estate as part of the assets we acquire for resale. These real estate sales can be a profitable aspect of our business, albeit a bit lumpy. We recorded EBITDA of $1.5 million in the fourth quarter of 2021 compared to EBITDA of $3.4 million in the fourth quarter of 2020. Adjusted EBITDA was $1.6 million for the quarter. Sequentially, we achieved improved EBITDA and adjusted EBITDA, which were $640,000 and $740,000, respectively, in the third quarter of 2021. EBITDA for the full year ended December 31, 2021, was $3.5 million and adjusted EBITDA for the full year was $4.1 million. We have shown the resiliency and strength of our business model and our ability to remain profitable during the pandemic. Net income in the fourth quarter doubled to $1 million or $0.03 per share compared to $500,000 in the third quarter. For the full year, we achieved just over $3 million in net income or $0.08 per share. At December 31, 2021, we had aggregate tax net operating loss carryforwards of approximately $78 million, including $62 million of unrestricted net operating tax losses and approximately $16 million of restricted net operating tax losses. Substantially all of the net operating loss carryforwards will expire between 2024 and 2037. We believe that the considerable amount of loss carryforwards will prove to be a valuable asset to the company as we continue to generate positive and upward results. Finally, our balance sheet remains strong 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. And with that, I will now turn the call back over to Ross.

[Ross Dove:]

Well, thank you, Brian. So to me, these calls can sometimes be all encompassing on the numbers. But sometimes not enough insight into our plans and how we measure our progress against our plans. As the CEO, I look at 3 factors to really drive us

[Operator:]

. The first question comes from Michael Diana with Maxim Group.

[Michael Diana:]

You mentioned American Laboratory Trading. I know when you bought it, you were excited about what you -- the interaction you have with them already and you look forward to a lot of synergies coming out of that. Can you remind us what the situation was when you bought it and how that's improved since?

[Ross Dove:]

So we acquired a 20-year-old company with a solid reputation in the repurposing and the reselling of life science assets. We got them at an influx where there was 2 people running the company, one ready to retire and another one very ambitious to stay. And we were able to retain the younger, more ambitious one. The whole concept is that we see this company as rapidly growing as the life science industry is really pushing forward to be basically a leader in the repurposing of assets and the remarketing of assets and getting those assets out to other companies versus sending them to landfill. Years ago, the big, big pharma companies didn't really worry about de minimis surplus. They were basically stripping apart machines and scrapping machines. Now they're looking at repurposing machines and rebuilding and helping a circular economy. And that really flows into our auction format, where we're doing auctions for Pfizer, for Amgen, where we have this large database of buyers. So we saw a lot of synergy there, and we saw a lot of synergy in the fact that they own 5,000 service parts. We didn't own any service parts. So if somebody needs a machine that we can enhance the value of, we now have a full-service in-house partner. So it's early for bragging rights, but we're confident it's going to bode well, Michael.

[Michael Diana:]

Okay. That's great. And you spoke very highly of your new Chief Marketing Officer. Without giving away any competitive secrets, can you give us like an example or a category of things that you're going to have that person work on?

[Ross Dove:]

So Raspina, who we hired to come in as the CMO came from a multibillion-dollar, publicly-traded auction technology group, which is the largest provider in the world of services to industrial auctioneers. They run the BidSpotter platform. They run the Proxibid platform. And she was a key contributor to building those platforms and marketing industrial assets all over the world. So she brings a heightened approach to advancing not just our technology but our marketing component. And so that's, I'd say, a big part of why we are so excited. But another part is we haven't really had the kind of marketing push forward as an enterprise that we think we now should get to get visibility from investors. So overall, we're thrilled to have somebody on board who's a real pro.

[Operator:]

The next question comes from Walter Bellinger with Mayflower Capital.

[Unidentified Analyst:]

Just a quick question for me. How is it going with your Huntsville disposition?

[Ross Dove:]

So I guess the first word to say, well, so we're at the point now where we sold all of the capital assets, all the machinery and equipment in all of the buildings, we've monetized 1 of the 3 buildings, and the good news is we've done all of the capital requirements on the other 2 buildings to get them prepared for sale. So there is no more capital expenditures whatsoever other than the minimal operating costs and holding costs. And we're very positive -- feeling very positive that they will be monetized in the near term. I'm not going to put a date on it for you, Walter, but I will say as the CEO of the company, I'm bullish that we're going to monetize them at a profitable price in the near versus the long term.

[Operator:]

This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

[Ross Dove:]

So as a closing remark from management, as always, we're thankful for your participation. We're extremely thankful for everyone who's basically stepped on board and supported us by investing in us as shareholders and stakeholders. All of us in management are also shareholders and stakeholders, and we continue to invest in the company and truly are proud of the fact that many of you also continue to invest in the company. And we have very ambitious goals for the future. And I'll always say the same thing. We're responsible and we're accountable and you should hold us responsible and accountable to perform. So thank you all for tuning in. Bye.

[Operator:]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.