Q3 2021 Heritage Global Inc Earnings Call
[music].
[noise] good afternoon, and welcome to the Heritage Global third quarter, 20th 21 earnings call all participants.
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Please note. This event is being recorded I would now like to turn the conference over to John Nesbitt. Please go ahead. 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 very.
Most important factors and why do 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 conference call for more details on factors that could affect decent expectations. Please see our filings with the Securities and Exchange Commission now I'd like to turn the call over.
To Herridge Globals, Chief Executive Officer, Mr. Rostov Ross.
[noise]. Thank you John and high let me first turn the call over to Brian They give a quarterly play by play and then I'll join afterwards with some color commentary Brian Europe.
Thanks, Ross let.
Let me first state that we are especially proud of our employees and collectively our business segments have responded to disruptions in the industry related to the pandemic.
Although the supply of financial and industrial assets remained relatively low we have seen strong progress as it relates to the development of new and existing customer relationships and have remained profitable in each quarter of 2021.
That in combination with a recent acquisition of Allt during the quarter is evidence of an even stronger foundation to support improved performance in each of our revenue streams, which we anticipate to be further improved by an increase in assets supply.
The company achieved operating income of 533000 for the third quarter of 2021 compared to operating income of $1.6 million in the third quarter of 2020.
This decline was primarily due to relatively low asset flow volumes across bought our industrial and financial segments.
That said, we did see sequential improvement as compared to operating income of 73000 in the second quarter of 2021, and we believe that this trend will continue into the fourth quarter.
Where the nine months ended September 32021, the company achieved operating income of $1.7 million compared to operating income of $2.7 million in the nine months ended September 30th 2020.
Net income was 474000 or one per diluted share for the third quarter of 2021 compared to 1.3 million or four cents per diluted share in the third quarter of 2020.
Net income year to date was $2.1 million compared to a net income of $3.3 million for the nine months ended September 30th 2020.
We recorded EBITDA of 638000 in the third quarter of 2021 compared to $1.7 million in the third quarter of 2020.
Adjusted EBITDA was 740000 for the quarter again, while down year over year, we saw sequential improvement in EBITDA and adjusted EBITDA as compared to the second quarter of 2021.
EBITDA for the nine months ended September 30th 2021 was $1.9 million compared to $3 million in the first nine months of 2020.
Adjusted EBITDA for the first nine months of 2021 was $2.5 million compared to $3.3 million in the first nine months of 2020.
At September 30th 2021, we had aggregate tax net operating loss carry boards of approximately $78 million, including $62 million of unrestricted net operating tax losses, and approximately $16 million a restricted net operating tax losses.
Substantially all of their net operating loss carry forward expire between 2024 and 2037.
Our balance sheet remained strong with stockholders equity of 32 million as of September 32021, compared to 30 million as of December 31, 2020, and networking capital of nine 9 million.
Cash used in investing activities during the nine month period was $7.3 million, which was primarily attributable to that acquisition of allt $4.3 million and the purchase of real estate used in allt's business for $1.3 million during the third quarter.
In closing, while our business environment is dynamic we're confident in our future and believe we are well positioned for further growth in queue for and into 2022.
With that I will now turn the call back over to Ross.
Thanks, Brian.
So for the last two earnings calls I asked afterwards colleagues and friends, how do they do and they all had the same answer Ross you did okay, but it sounds scripted.
So I've made a game change in.
This is an edited.
Rostov, where I'm talking to you without a script just telling you how I feel and what I think about us going forward.
So think of this more like.
You and I are both sitting on bar stools, having a beer and I'm, just bragging about heritage and how proud I am of it.
So here goes.
Where do I look at it from my CEO dashboard, we have five revenue streams I believe we've works really hard.
For the pandemic and in the pandemic to get all five revenue streams poised for growth I'm very charged up on what I see is a bullish next year and the year. After so let me just touch real briefly on each of the five revenue streams and give you kind of the CEO inside of.
How I look at it two of them are on the financial side three of them are on the industrial side on the financial side, where a broker of charge offs and we're a lender to the buyers.
That business has not grown in the last 18 months because a very simple factors, there's been massive stimulus checks that have impacted the amount of volume.
The fact that consumer spending has hit all time lows what did we see going forward. We see that people are now starting to travel what we see that people are now starting to spend money. We've seen it looks like the parents of growth in consumer spending if there's growth in consumer spending both are.
Borrowers can buy more products. So we can learn more and are sellers will have more volume to give us. We can't tell you what's going to happen next week or next month, but we can tell you that all signs point to growth over the next 24 to 36 months, we've seen an increase already we have an <unk>.
Increase in product and buy now pay later coming on board in December and January we have an increase in fintech peer to peer loans and we have a solid belief that we're on a track forward and financial assets shifting to industrial assets. We have three revenue streams two of them.
I've talked about forever or industrial auction division in our valuation division.
[noise] solid during the pandemic and they've actually in many ways Growan Q4 could be one of our largest quarters ever an industrial asset auctions and we've got a strong pipeline on the valuation and.
Asked base lending is growing in the universe of lenders looking more to the collateral and less just to the enterprise value is increasing so that business bodes well over the next 24 months, but the secret sauce the thing that I'm most suggest about.
The acquisition of American Lab trading we believe we bought that fundamentally at the perfect time and the economy was the perfect acquisition of the right management team with the right business strategy that fits today, everyone knows that the top 2000 global manual.
Actors are focused far more than they were two years ago or three years ago on being environmentally sound and <unk>.
G practices as they focus on ESG practices, you'll see more and more assets not go to landfill and more and more assets returned to the marketplace. Allt is the best position company in America, and the Biopharma sector in the pharmacy sector.
To repurpose and reposition assets were sitting on 12000 assets right now and spare parts. We can go out to the marketplace and we can tell the marketplace send the assets to us we will refer them, we will repair them, we will test them, we will certify them.
And then unlike any other auctioneer in America, we can sell them not as is where is but we can place a one year warranty on those assets and drive premium prices. So I believe both the industrial sector and the financial sector have hit the sweet spot for the next two years where there.
Should really truly be on a growth trajectory.
That's me on the Barstool bragging and.
Loud to be bragging cause I think we really are in the right direction with the right team the right people and the right motivation. So I'll end it there and turn it over for questions and thank you for hearing me out.
We will now begin the question and answer session.
To ask a question. Please press Star then one on your telephone keypad.
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Our first question comes from Mark Argentina.
From Lake Street [laughter]. Please go ahead.
They are often drawn.
I'm doing good mark good to hear your voice what's up.
I had a couple of curriculum for you so.
Been kind of waiting on the financial assets to come off again.
Balance sheets, the non-performing from off the balance sheets liquidated what is it.
I guess, how a couple of things are how are the financial institutions able to hold onto these portfolios for as long as they are without having to run some type of charred drop process, maybe they already and just read them off and give you just hold on to them.
And then what what do you see out there like real time in terms of your confidence that this market is actually going to come to fruition again.
What stimulus market.
Cruising delinquency rates with consumer credit what are the things that you guys focus on any kind of try to forecast our business.
So you are looking at two different kind of financial institutions, you're looking at FDIC chartered financial institutions, which have regulations on charge all sand rules on when they have to basically go to the market would charge offs or at a mall and you're looking at Fintech lenders an alternative.
Lenders, who basically are not chartered by the government and they write them off on different terms, but both of them have one thing in common mark and that is that there is a rising amount of consumer spending and that rising amount of can.
Sumer spending correlates to a rising amount of charge offs down the road. So what do we think we think that we're really tied the one common denominator the more money that is <unk>.
Utilized basically in the marketplace to borrow as the more supply. We eventually get so is a good impact. This next month, probably not but next year probably yes.
Got it and then in terms of the industrial side of the business subjects are pretty bullish for Q4 what are Ya.
Got a obviously a good real time pipeline.
And what's driving that is it just kind of your kind of purge coming off the books out here for the year round or what what's going on in the driving that the man.
You're seeing a lot of plant closings that happened.
Literally in Q1, Q2, and Q3, where they were really not yet ready to monetize the assets are they going to mothball. The plant are they going to reopen the plant what are they going to do in the process of looking at the future starting to rationalize their decisions now and sell assets.
So the plant closings that you saw earlier on in the year are now coming to fruition as planned dispositions. So plant closings don't always when you see the announcement.
Create plant dispositions, but we're starting to see more and more either Alaska is coming to markets.
Raymond lost one L.
L T. It sounds like you guys are pretty excited about that.
Business are you, leaving that as a separate standalone business are you guys cross selling already.
So services or how you treat Nick will runs industrial as oversight over American lab trading, but we're leaving the brand in place.
We're leaving the current incumbent president in place running it.
But we're trying to integrate it more and more into our business. In fact, we're actually doing an auction of surplus from their facility in this quarter and.
The best I can tell you is very synergistic and we're working as a team.
Alright, thanks for asking what goes slower this year.
Thank you Mark right something good about us.
The next question is from Michael Fianna with Maxim Group. Please go ahead.
[noise] Hey, Ralph.
Hey, Michael.
You.
You are excited about a L. P. I know you you have a history with asthma.
And also I think it gives me energy.
I think that history sort of place and do that.
Could you just give us.
A more complete description.
Of how the whole thing came about.
And how about the forms.
Synergies going forward.
Sure Michael So American lab trading has been <unk>.
20 year old business in the Biopharma and pharma sector, selling scientific equipment doing a combination of acquiring it and doing advisory work for the community and helping with the reverb the recalibration the recertification and the remark.
Getting of the assets over the last three years, they came to us with needed capital to buy assets they came to us when they needed.
An auction capability, we came to them and we needed some help in the valuation certain times of the assets and we formed a collaboration that collaboration turned into a relationship that was very positive where we looked at the reality of the fact that we thought one in one equals.
Three rather than one in one equals two and if we joined together at the hips and became one entity, we could scaled both their company better which became our company and our company we work with their management team their management team saw the logic.
Our findings that we were better off together.
We worked a while they had an investment banker they looked around and they finally came to terms with the right buyer at the right time and a lot of it is tied to the.
The new regulations on ESG and the largest corporations in the world really focusing now on being environmentally strong and safe and they have the ability that we didn't have on our own to basically take assets in would have been cannibals.
In the old World and in the new World Reverb, reprogram and repurpose to get out into the circular economy and we thought.
By being a bigger part of the circular economy. It will just grow our enterprise overall.
Okay.
Is it true that they tend to deal in smaller assets you a bigger asset so it's a good combination.
So if you really look at how it works, there's really two kinds of assets out there to be marketed there is aggregated assets in an aggregate assets in the aggregated acid category, where the dominant player. If there's 500000 a million $2 million in one facility in.
One factory, we're not a dominant player in the Anagrelide data that says where there is a scientist this working basically at a university in the us to access to sell it really didn't have a program for him they do.
So we're now.
I tried to basically.
Aggregate, an aggregate assets, where they can do 1234 at a time and create a 100 200 assets, Dave aggregated from a community of lots of scientists and lots of engineers did we can then present in an auction format where are we.
We have enough product to get the marketplace interested.
We couldn't have done that on their own but they have the capacity to do that they also have the capacity to buy these assets 123 at a time or to take the minimum consignment.
Stem to basically make sure they're operating and then to relocate them into our auction process.
Alright, well.
Every everybody when they make an acquisition.
This one actually sounds like it is.
Well, everyone says that but the difference is.
The auctioneer for Pfizer, where the auctioneer for Amgen, where the auctioneer for Genentech, So buying a company that specializes in scientific and lab assets was not far reaching to us it was inner sweet spot. So everyone says it but when we're saying it is true Michael.
Yeah, Okay, great. Thanks for us.
Be good.
Again, if you have a question. Please press Star then one.
At this time there are no further questions. So that concludes our question and answer session.
I would like to turn the conference back over the roster for any closing remarks.
Thank you. So we thank everybody for joining and we very much appreciate your interest in our company and we look forward and we're very easy to access to talking to you at anytime you have more questions. You can reach out to me rostow or you can reach out to.
Brian Cobb head of finance were around and were easier to access and we're very appreciative of you joining in and have a great afternoon. Thank you.
Okay.
The conference now concluded. Thank you for attending today's presentation you may now disconnect.