Q4 2021 Heritage Global Inc Earnings Call

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Good day and welcome to the Heritage Global incorporated fourth quarter and year end earnings Conference call. All participants will be in a listen only mode.

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After today's presentation there'll be an opportunity to ask questions.

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Please note. This event is being recorded I.

I would now like to turn the conference over to John <unk> Investor Relations for Heritage Global. 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 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 the date of this call.

For more details on 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 Harris Global's, Chief Executive Officer Rostow go ahead Ross.

Brian why don't you take off and start ups and then I'll follow up afterwards go ahead Brian.

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.

At 1.4 million net operating income grew significantly over the third quarter's net operating income of 533000.

Breaking that down between the two segments.

Net operating income in the industrial assets Division grew sequentially from 765000 to 855000 in the fourth quarter and we saw a 45% sequential growth in financial assets from 449000 to 652000.

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.

And our business model it periodically purchased 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.

Yes.

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 640000 and 740000, 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 <unk> <unk> per share compared to 500000 in the third quarter.

For the full year, we achieved just over $3 million and net income or <unk> <unk> per share.

Yeah.

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.

Stanchion 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.

Well, thank you Brian.

So to me. These calls can sometimes do you own compensating 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 three factors really drive.

The first one is garnering more acid supply. The second one is ensuring we have the execution capacity to support that growth and finally, the third one is maintaining consistent profitability through rigid cost controls in supply of birds today.

Today, we have high confidence we're headed in the right direction.

Well, let's start with execution.

Hired a world class Chief Marketing Officer recently, that's really going to ensure that our product offerings are constantly expanding and growing.

As you know we acquired recently L T, which is a world leader in life science asset recycling as the market moves constantly to more sustainability and we believe there is heightened growth there we've built a highly skilled valuation teams and all of this week.

While expanding our warehouse capabilities and building out of operations why did we do this.

For the last 18 months, we've consistently believed that we're gaining momentum that we're garnering more supply and we have growth. So right now we're sitting with execution capabilities, where we could have 234 times the current sell through rate without raising opex.

So we're really pleased as supply grows so now let me go to supply.

And why we think supply is going to grow and some of it is very very micro because we're looking at our pipeline and we're seeing the growth in our pipeline, but some of it is also macro what we're looking at the total opposite financial environment. So, let's start with financial assets, and then I'll roll into it.

Real assets on the financial asset side for the past 18 months, we've seen constant stimulus packages that have impacted the amount of charge offs go into the marketplace, which is our core business. That's changing now theres not just stopping of the stimulus.

But theres been looking at the fed reports extremely large rope in the amount of lending activity you've seen a 20 year high in credit card usage, you've seen the beginning of increased defaults all of that bodes well 369 months for both our.

Brokerage practice, and lax, which sells these loans on a fee basis, and our lending practice heritage global capital, which funds. The buyers of these loans as that market expands our buyers are not the public companies, mostly a lot of our buyers are the private companies that also need lending service.

This from us.

So we're bullish not just on our pipeline, but on all the evidence we're seeing from the outside world looking at now moving to industrial assets industrial assets has remained profitable just like financial assets. However, we see a really good win.

Though into an uptick that is really tied to ESG and a big push for the largest global companies in the world to do far less salvage far less scrap and far more reworking and repurposing their assets to resell to build a circular economy that bodes.

Very well for us as an international buyer base and the ability to market those assets all over the world even trailing asset may not be basically hugely valuable to a brand new company, but very valuable to our growing company.

You can't afford new assets or that is bogged down with the supply chain, where the orders on new assets can take longer than they expected. So we feel solid across the board in both financial and industrial assets, we see a clear path over the next couple of years.

Solid growth and it's really just up to us the execute to continue to do the three things.

That are most important to us to garner the acid supply to ensure execution capacity and to maintain consistent profitability too rigid cost controls. So far we've executed on all three platforms in that agenda, and we're confident that going forward.

We can deliver the kind of results that Thunder shareholder support. So thank you all for hearing me out we're always available anytime anybody who wants to chat with us talk with us or get more information and were very pleased with all the support we've received thank you all all ended here.

We will now begin the question and answer session.

To ask a question you May Press Star then one on your Touchtone phone if.

If you are using a speakerphone please pick up your handset before pressing the keys.

If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.

At this time, we will pause momentarily to assemble our roster.

The first question comes from Michael Diana with Maxim Group. Please go ahead.

Alright, Thank you Hey, Ross.

Hi, Michael.

You mentioned American laboratory trading I know when you bought it you were excited about what you see in her interaction you have with them already and you look forward to a lot of synergies coming out of that can you remind us.

The situation was when you bought it and and how that's improved since.

So we acquired a 20 year old company with a solid reputation in.

In the Repurposing and the reselling of life Science assets, we got them at an influx where there was two 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 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 that.

That said and the remarketing of assets and getting those assets out to other companies versus sending them to landfills 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 theyre 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. 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 5000 surface parts. We did we didn't own any service parts. So somebody needs to machine that we can enhance the value of we now have a full service inhouse partner so.

It's early.

It is early for bragging rights, but we're confident it's going to bode well Michael.

Okay, that's great.

And you you spoke very highly of your new Chief marketing officer are without giving away any competitive secrets can you give us like an example, or a category.

The things that youre going to have that person worked on.

So Racine, who we hired to come in as the CMO.

Came from multibillion dollar publically traded auction technology group.

Which is the largest provider in the world of services to industrial auctioneers. They run the bid sputter form platform. They run the proxy bid platform and she was a key contributor to building those platforms and marketing industrial assets all over the world. So she brings a high.

And approach to advancing not just our technology, but our marketing component and so that's I would say a big part of why we were so excited but another part is we haven't really had the kind of marketing push forward as an enterprise. So we think we know.

<unk> should get to get visibility from investors.

So overall well.

We're thrilled to have somebody on board is a real problem.

Okay, great. Thanks Ross.

The next question comes from Walter Bellinger with May file a capital. Please go ahead.

He got Hey, guys. Just a quick question for me How's it going with your Huntsville disposition.

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 and all of the buildings, we monetize one of the three buildings and the good news is we've done all of the capital.

On this on the other two buildings to get them prepared for sale. So there is no more capital expenditures whatsoever other than the minimal operating costs and holding cost 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.

Yeah.

Okay, great. Thank you that's it for me thanks.

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

Yeah.

So as a closing remark from management as always we are thankful for your participation. We are extremely thankful for everyone Who's basically stepped onboard and supported us by investing in us as shareholders and stakeholders all.

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 continued 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 turning in.

Yes.

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