• Net Operating Profit: $1.5 million for the third quarter of 2024.
• Cash Flow: $2 million in cash flow for the quarter.
• Term Loan Repayment: Fully paid down approximately $5.7 million in July.
• Share Repurchase: Repurchased roughly 600,000 shares in the open market during the third quarter.
• Repurchase Program: Increased to $6 million through June 2025, with $4.1 million remaining as of September 30, 2024.
• Industrial Assets Division Operating Income: $700,000 in the third quarter of 2024, compared to $2.1 million in the prior year period.
• Financial Assets Division Operating Income: $1.8 million for the quarter.
• Brokerage Business Operating Income: $1.7 million, compared to $2.1 million in the third quarter of 2023.
• Lending Business Operating Income: Approximately $200,000.
• Consolidated Operating Income: $1.5 million in the third quarter of 2024, compared to $2.8 million in the third quarter of 2023.
• Adjusted EBITDA: $1.9 million for the quarter, compared to $3.1 million in the prior year period.
• Net Income: $1.1 million or $0.03 per diluted share, compared to $2 million or $0.05 per diluted share in the third quarter of 2023.
• Stockholders' Equity: $66.1 million as of September 30, 2024, up from $61.1 million on December 31, 2023.
• Net Working Capital: $16.2 million as of September 30, 2024.

• Warning! GuruFocus has detected 6 Warning Signs with HGBL.

Release Date: November 07, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Heritage Global Inc (NASDAQ:HGBL) reported a net operating profit of $1.5 million and a cash flow of $2 million for the quarter.
• The company has successfully paid down its term loan of approximately $5.7 million and repurchased roughly 600,000 shares in the open market.
• The board of directors approved an amendment to the repurchase program, increasing the maximum aggregate dollar amount of repurchases to $6 million through June 2025.
• Heritage Global Inc (NASDAQ:HGBL) is seeing more first-time clients becoming sellers, indicating potential growth in their market.
• The company is strategically positioned to invest in its core auction and brokerage segments, with a strong available cash position and potential financing capabilities.

Negative Points

• The industrial assets division reported a decrease in operating income to $700,000 from $2.1 million in the prior year period, primarily due to the absence of larger auctions.
• Consolidated operating income decreased to $1.5 million from $2.8 million in the third quarter of 2023.
• Net income dropped to $1.1 million or $0.03 per diluted share compared to $2 million or $0.05 per diluted share in the third quarter of 2023.
• The lending business faced challenges with loans in non-accrual status with its largest borrower, impacting operating income.
• There was a significant concentration risk with one large borrower in the lending segment, which the company acknowledges as a lesson learned.

Q & A Highlights

Q: Can you review the size of the lending book and provide an update on the status with your large borrower? A: We have approximately $31 million as a net balance related to the loan box specialty lending segment as of September 30, which is a decline of over $3 million from the previous balance. We are cautiously looking at new loans and plan to invest judiciously in low-risk, accretive loans. Our largest borrower's loans are in non-approval status, and we are working to increase collections through legal methods. There have been no changes to our credit loss reserve this quarter.

Q: Is there anything structurally affecting the industrial assets business, or was it just smaller activities with larger ones pushed to Q4? A: Our pipeline remains strong, and our win rate is fine. Larger transactions were delayed, possibly due to macroeconomic factors, but they are expected to roll into Q4 and Q1. We anticipate having significant quarters ahead despite the recent slow quarter.

Q: Are you planning to shift focus from lending to M&A, given recent industry consolidation? A: Yes, we are considering M&A opportunities as the industry consolidates. We have built up enough cash and credit to pursue acquisitions and aim to be a leader in this consolidation. We are not hoarding cash but are ready to make strategic acquisitions.

Q: What are your goals for potential acquisitions in terms of geography and sector presence? A: We are looking at expanding geographically, particularly outside North America, and enhancing our sector presence. We aim to acquire entities that can significantly contribute to growth, focusing on areas where we can achieve dominance similar to our BioPharma lab sector.

Q: Was having a large concentration with one lender a mistake, and have changes been made to address this risk? A: In retrospect, having too much concentration with one client was a mistake. We have learned from this and plan to lend more judiciously, ensuring a broad client base to avoid dependency on any single entity.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.