Overview of Heritage Global Inc.

Heritage Global Inc. is a diversified financial services and asset liquidation company that operates through several subsidiaries. The company’s main business segments are Auction and Liquidation, Refurbishment & Resale, Brokerage, and Specialty Lending.

The Auction and Liquidation segment, operated by Heritage Global Partners (HGP), provides auction, appraisal, and asset advisory services for industrial assets. The Refurbishment & Resale segment, operated by American Laboratory Trading (ALT), focuses on refurbishing and reselling laboratory equipment.

The Brokerage segment, operated by National Loan Exchange (NLEX), brokers the sale of charged-off and nonperforming loan portfolios on behalf of financial institutions. The Specialty Lending segment, operated by Heritage Global Capital (HGC), provides financing solutions to investors in charged-off and nonperforming loan portfolios.

Financial Performance

For the three months ended March 31, 2025, Heritage Global reported total revenues of $13.5 million, up 11% from $12.2 million in the same period in 2024. This increase was driven by a rise in asset sales revenue, which grew 83% to $5.8 million. However, services revenue declined 15% to $7.6 million.

The company’s operating income for the first quarter of 2025 was $1.4 million, down 45% from $2.6 million in the prior year period. This decrease was primarily due to a $0.7 million decline in earnings from equity method investments and a $1.3 million increase in operating expenses.

Net income for the first quarter of 2025 was $1.1 million, down 41% from $1.8 million in the same quarter of 2024. The decline in net income was in line with the drop in operating income.

Segment Performance

Looking at the company’s business segments:

• The Auction and Liquidation segment reported operating income of $0.7 million in Q1 2025, down slightly from $0.8 million in Q1 2024. Gross profit for this segment increased 10% to $2.9 million.

• The Refurbishment & Resale segment generated operating income of $0.3 million, up significantly from $16,000 in the prior year period. Gross profit for this segment grew 47% to $1.3 million.

• The Brokerage segment reported operating income of $1.6 million, down 23% from $2.1 million a year earlier. Gross profit for this segment declined 13% to $3.4 million.

• The Specialty Lending segment had operating income of $79,000, down 91% from $0.9 million in the first quarter of 2024. Gross profit for this segment decreased 58% to $0.4 million.

Strengths and Weaknesses

Key strengths of Heritage Global’s business model include:

• Diversified revenue streams across different asset classes and service offerings
• Exposure to both growing and countercyclical markets (e.g. industrial asset liquidations, distressed debt)
• Experienced management team with deep industry expertise
• Ability to leverage partnerships and joint ventures to access more opportunities

Weaknesses and challenges include:

• Concentration risk, with one borrower accounting for 75% of the company’s total gross notes receivable balance
• Uncertainty around the recoverability of loans to the company’s largest borrower, who is in default
• Potential volatility in revenue and earnings due to the event-driven nature of the business

Outlook and Future Prospects

Looking ahead, Heritage Global believes it is well-positioned to capitalize on several favorable industry trends:

• Increased supply of surplus industrial assets and distressed debt during economic downturns
• Rising consumer lending and charge-off rates, which drive demand for the company’s brokerage and specialty lending services
• Active M&A market in manufacturing industries, leading to more industrial asset liquidations

The company intends to leverage its competitive advantages to drive growth across its business segments, increase synergies between divisions, and improve earnings predictability. Maintaining a diversified portfolio, managing concentration risk, and navigating the default of its largest borrower will be key priorities.

Overall, Heritage Global’s diversified business model, experienced management team, and exposure to both growth and countercyclical markets suggest the company has the potential for long-term success, despite the near-term challenges it faces.