Heritage Global, an asset services company specializing in financial and industrial asset transactions, reported financial results for Q3/23 and nine months ended Sept. 30.
“We had another solid quarter, as we continue to capitalize on the opportunities we are seeing in our industrial and financial asset divisions,” Ross Dove global CEO at Heritage Global, said. “ As we have previously mentioned, our business is benefitting from strong tailwinds related to the challenging economy, with an increased volume of assets coming to market as consumer debt reaches record levels and companies downsize operations.
“At Heritage Global Capital, the high volume of charged-off portfolios drove strong growth in our loan activity, and we closed the quarter with a loan book of $36 million, representing a solid increase from the previous balance of $30 million at the end of the second quarter. Meanwhile, as consumer collection rates revert back to pre-pandemic (and stimulus) levels, we have increased the Company’s non-cash credit loss reserve by $0.9 million, primarily to address a request to amend the existing credit agreements with our largest borrower. Collections on the balance of our loan portfolio, overall, are meeting or exceeding minimum target levels. Overall, reported operating income was $2.8 million for the third quarter and earnings per share was $0.05, after the impact of the reserve. Excluding the non-cash reserve, consolidated net operating income was approximately $3.6 million and earnings per share was $0.07.
“The fundamentals underlying our financial assets business remain strong. Consumer debt has grown to historic levels which, in turn, is driving significant growth in charged-off credit cards and non-performing loans. Our financial assets division, which achieved net operating income growth of 110% for the first nine months of 2023, is well positioned to continue to take advantage of the macroeconomic tailwinds. In the short term, consumer repayment speeds are slowing to more historical levels and we are working together with our lending partners and borrowers to prudently manage this transition, as needed. Long term, we believe the flow of distressed financial assets is only going to increase and we have built the relationships and have the right team in place to secure additional brokerage contracts and specialty lending opportunities as they come to market.
“Increased asset flow is also evident in our pipeline and calendar for upcoming industrial auctions, as more businesses make the decision to downsize operations with the corresponding closure of operating facilities and offices, and more buyers are seeking high quality used equipment. Our auction business has a longer sales cycle as it is typically a few months from the time our partners announce closures to their readiness to auction assets and with our visibility today, we are optimistic about the strength of our pipeline through the remainder of the year and beyond.
“We are focused on continuing the momentum we have built to date in 2023 to deliver a strong close to the year. We take a long-term view of our business and remain confident that with our solid foundation, industry leading team and longstanding partnerships, we are ideally suited to maximize the many opportunities we are seeing to drive continued growth as we expand our leadership position and market reach.”
Q3/23 Highlights
- The company achieved operating income of $2.8 million for the third quarter of 2023, as compared to operating income of $3.5 million in the third quarter of 2022. Excluding adjustments related to the non-cash reserve, operating income was $3.6 million.
- Net income totaled $2 million, or $0.05 diluted earnings per share for the third quarter of 2023, as compared to net income of $2.3 million, or $0.06 diluted earnings per share in the prior-year quarter. Excluding adjustments related to the non-cash reserve, net income totaled $2.6 million and diluted earnings per share was $0.07.
- EBITDA totaled $2.9 million in the third quarter of 2023 versus EBITDA of $3.6 million in the third quarter of 2022, and adjusted EBITDA was $3.1 million compared to $3.8 million in the prior-year quarter.
- Heritage Global maintains stockholders’ equity of $56.4 million as of Sept. 30 compared to $48.3 million as of Dec. 31, 2022. Net working capital was $13.8 million at the end of the third quarter.
- On Jan. 1, 2023, the company adopted accounting pronouncement ASC 326 which, among other items, requires a reserve for potential credit losses. In accordance with the guidance of ASC 326, the company increased its non-cash credit loss reserve within its specialty lending segment by $0.9 million to $1.4 million, or 3.8% of outstanding balances.
- As of Sept. 30, the company’s total balance related to investments in loans to buyers of charged-off and nonperforming receivable portfolios was $35.9 million, of which $20.6 million is classified as notes receivable and $15.3 million is classified as Equity Method Investments.
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