HGBL - Earnings call transcript Q3 2020

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Operator

Good afternoon, ladies and gentlemen. And welcome to the Heritage Global Inc Third Quarter 2020 Earnings Conference Call. At this time, all participants are in listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time.

As a reminder, this call may be recorded. to conference like Kim, to now Relations. Investor would turn over the Michael I Michael. ahead, go Please

Michael Kim

Thank afternoon, and you, good everyone.

based as expectations Before we and important conference statements this to are everyone our begin, I'd based like call of light to subject to contains In undue uncertainties as on release. forward-looking these risks, on the reliance future projections about speak of you and only remind change date assumptions, factors. and these of last -- that statements, this on of events, current place should various forward-looking the which not

For that Securities please and details affect the see Commission. these more expectations, on factors Exchange with our filings could

Ross? call to turn I'd Chief to Now Dove. Heritage over like Executive the Global's Ross Officer, Mr.

Ross Dove

afternoon, to earnings And Welcome Michael. Global's call. Heritage Thanks, conference good first everyone.

you later. discuss recently know, market stock, successfully our completed the our to more public in we detail which and shares common NASDAQ offering bit of stock a I'll may As uplisted a

company Global diversified clientele asset base our in Investor well is as So with the discuss Heritage our asset as advisory results, to a liquidation part making, asset differentiated services the increasingly Relations, geographies. quarterly services to a why forum an We secured acid from diversified and to market model. sectors industrial we community provide principle financial specializing positioned transactions. provide sales, brokered options, lending to of company review believe and investment as leverage wanted and across to we effort is business enhance

and third of of $X.X over third with reported to $X.X highlighted for we net strong quarter adjusted income quarter our the million of the performance growth equating to Turning consistent EBITDA XX% results XXXX. third of XXXX quarter, million by

in Heritage principal. of assets, acting Focusing Global the distressed range via as an guarantor financial from sale enterprise or of auctions a on agent, circumstances, including mostly surplus industrial while sometimes a roles, advises on and and customers assets, industrial

continue more capitalize companies for the we source of equipment, to quarter, used machinery. on demand affordable recommerce During the to as surplus look rising increasingly

As and benefited strong a in growth revenue. auction volumes result, from we online related

market equipment in addition, a which and assist In represent for financial valuations, inventory provides source our lending business, to and industrial intelligence decisions. wholesale decisions key valuation making auctions of

assets. Turning to financial

We optimism. have for two reasons our powerful

Firstly, as issues as is looking or we non-performing Loan to believe Heritage Exchange to NLEX uncollectible. we to as have and of loans, it National creditors that come debt market increasingly accelerating consumer from off are which liquidity call monetize written remember, to volumes loans provides NLEX benefit poised charged-off

this financial secured chargeable Heritage continues to debt Global specially ongoing nonperforming the ramp medium and deploying Capital to a sized region and Debt solutions raised to attractive to equity is businesses upfront and investors up back Second, offering financing currently our we We're and excited fund loans about portfolios. participation. expected business capital for portion buyers. interest generate fees income, of asset of end with providing capital returns from fees, small

capitalizing sustainable on Looking several ahead, growth drivers. we by focused powerful increasing driving remain on

typically liquidation of backdrop Heritage that to of volumes. surplus assets social demand and brokered the rising and Global's supply as services ongoing drives economic more First, model. distancing, auction Related for attractiveness pandemic which online increased sales challenging a a for well asset result relative enhances of bodes via distressed COVID-XX auction

digital growth by loss increasing conditions given loan lending for rising sales, as indicated their reserves charged volumes nonbank significantly continued consumer other believe of banks will the platforms. NLEX, and drive expanding we and off particularly Second, loan

contribution us to our principle to our Capital we capitalize well business. in from stock by Fourth, industrial additional well Third, assets business, with capital as financial for debt to positioned continuing tighten believe toward asset demand losses remains conventional rising through buyers. Heritage to cycle, enables volumes lenders Global increased on standards capital the higher offering credit to deals our support manage underwriting a in lending shift working recent accelerate as mix the

take fragmented though remain potential opportunities Finally, Officer financial markets it of across poised our domain we Chief meet Thank strategic the our expertise, criteria. for a highly that, deep advantage I'll to with transactions rigorous you. West to into consolidation our dive With over Scott now believe, financials. pass we and must Financial deeper

Scott West

Ross. Thanks,

strong growth of as higher were XX% the year-over-year revenue, revenue total which $X.X sales. million XXXX, quarter third XX% asset up as in For to well increased services reflecting

advisory well improve to Heritage gross and operating $X.X on will growth. Importantly, and Gross with principle auctions, reinforcing multiple going businesses, of and forward revenue, of aggregate a to $XX leading sales, of million asset as our and up XX%. operating losses. structures, all remain include across we income well $X.X income business tailwinds Substantially, quarter, unrestricted Partners $X.X profit earlier, XX, growth forward to leveraging the fees systems for contribution operating division, cost at net million third Stepping income rising the specialty of $X.X revenue of net a compensation timing building adjusted sales a as and selling between industry we to performance and operational financial perspective, that revenue, earnings, efficiencies. favorable up level million overtime. pre-tax per and loss the totaled to and operating increasingly or the underpin in for and From prior financial tax, increasingly approximately Operating share and quarter tax versus expire additional million and $X.X foreign end for maintain revenue industrial streams smoother in discontinuation last a economies to lending the prior all XXXX. line agency margin and higher between of year partially of assets operating headcount of and with and reinforcing offset rising $X.X and recurring predictable assets. revenue customers, reflecting back, the for across both million our Global build total with quarter growth, losses, of processes to principal million, million power lower $XX contracts, flat forwards units, driving, a XXXX, asset higher mix-shift services event Capital. within forward the restricted focused lending or as We the fee scale, decline including lower for of net earnings quarter at the top managing of more brokered less synergies believe transaction at net model. sales bode by asset profit visibility totaled company of flow loss as expense increased And top primarily million, leverage Net from $X.X mentioned We transactions, compared liquidation across had trajectory as was division mix secured EBITDA including sustainability activity toward the to XXXX further of general and businesses from were assets was corporate as commissions, platforms. approximately the carry and across lower expenses, $X expenses, grew the slightly XXXX. million third At administrative net of mostly our the industrial related quarter, of well drive and year-over-year, by tax compared contribution third XX% mostly businesses a carry of quarter XXXX, XX% year and flow shift function modest XXXX, due expense Equity thereby ago and year year essentially year-over-year million September for income tax and EPS EPS on improving the $XX

$X.X with growing equity of strong of XX% company September $XX Finally, of million XXXX, XXXX. maintained from sheet And the cash turning position. to stockholders' net balance million. financial our XX, The end up a and of as

untapped Importantly, that million for and our facility remained open the company's the that we'll up raised offering million $X.X XXXX. closed $X X, October proceeds from With questions. we common net on stock call of Operator? credit

Operator

you. Instructions]. Thank [Operator

Markets. comes Please from go first ahead. The Lake from Street Mark Argento Capital question

Mark Argento

in little economy us maybe talking institutions through in the of identifying little on really there starting environment some side, credit can have environment on consumer off a and to of dig in on some unique get maybe distress terms a of of to opportunities, in maybe the then see these you kind to take wanted now, do focused backlog building guys right bit, to that doing just you their Just be the you terms things side. well, some are a the that Is partially it's of going we assets books? the they're asset got, financial

Ross Dove

Mark. on. add and from from and Ross, So, you hear I'll can it great here take This to is Scott

They've looked of capital like right at by product looking you're available a same enough lot not lot raised all yet. what call of this a But a there time, to buyers borrow been what is, us. in has really loans. the from all they at demand people it's I'd marketplace, capital where So, of now the pent-up non-performing and released

obviously loss from very to to now There nation's they later increased on that become the going think about the looking come the So, we’re available are reserves too. is looking at market buy category pay the they're at soon. FinTech assets loan that lenders, new of are assets

and not a you're I honestly, lot that we're So enthusiasm, with But there's looking careful to general still year, after being at of elections say, product going everybody's at till getting And kind finishing. next really increase. looking next a it just be probably year think that we the year there's of would products. the that

Scott West

Ross that with and hi Mark. agree I Yes,

we as like know see haven't behind of is and pouring. the are we coming, the kind water as floods, seen building But quarters Just the volume to years. just increasing. much we dam, is rains the in up the expect The

Ross Dove

are in Right hasn't down the and record new the auctions, our on side On equipment slowed record group, is Mark is purchase ingress assets most premium to and of time, them been pricing. globally get we're chain And COVID. able even bringing at attendance real what egress we've time. supply in our very the because industrial flip at high, demand was assets seen in. it now the assets point sectors before you're current a in and those this used And

next continue record getting high crowds that So it the continue will And equipment. a in over used prices on we year. to very expect

Mark Argento

area you to an seeing of in kind are focus Is that's is the that in continued that know expertise that pharma you Yes, a again helpful. going forward? And an activity built have activity a continued guys there. M&A in. be super guys From I space going

Ross Dove

to new three I Pfizer, world, that free think up pharma We see if that not you're everybody of mean, leverage world strong going currently government's and retool the will assets, assets of we we're as cooperate the for announcement have the much of now. in the companies And going a going the the a them which these bodes great a companies on lot only across world see read you vaccine. needed purchase we is right a rolling get redundant to of as Yes, marketplace, today equipment. to lot the put class, now on book vaccines, equipment towards look for to think out you're moving smaller but it's secondary well by to all

So we think bodes use well, can for volume. of the in we just think well country, bodes that for it it equipment, take increasing the advantage but people not

Mark Argento

incremental just think it maybe in as thinking a and this about revenues pretty you little here. build, model a the you scales bit how of how in Looks That's into kind it terms margin. leverage to in the about turned about got like particular model some talk great. of of kind incremental And nice you here P&L Scott just

Scott West

this to Mark. Happy yes. Sure,

primary services-based costs. costs our a operating are as So business people

fixed to in rents And about that some the are that. $XX a fixed people so things have operating terms like in our year. of But overall and know million got we costs, costs addition to

So million two million into $X.X that's And financial broken about we per as divisions and $X the assets. to of were quarter. assets industrial

the every for incremental we've bottom about line. side dollar line. to revenue, fixed side, covered every on costs, $X it And $X.XX revenue drops asset then $X.XX then incremental industrial $X.XX asset once that to the our of $X.XX the drops to the operating about On for of financial bottom

very is model So the scalable.

Mark Argento

terms margin there's I And for a some you level high put to guys in of there. while margins Like in for nice to incremental was some last there? good one opportunities, what's me, are that one here. that M&A criteria you a really sort earnings got just going focused or maybe on Ross, nice use the of

Ross Dove

different very of what a call, would we a and I more niche a specialty really at when entity. segments right would of where So play be two hard there's call look in built both now on transitionary M&A of what probably would M&A marketplace I segments,

it a global it equipment industrial the of On the somebody equipment, could be asset special of be in with could hospitality understanding world medical changes. expertise side, arbitrage somebody as that has

think So go room be on. And to greenfield. they we on and just organic for de plan current that both novo of side, the there's would financial a asset ton is growth the that

raised So the really not, plan at the capital primarily M&A but was have capital. primarily not the eyes forefront. raised we capital, as Mark, organic it's our wasn't always we growth current it's open capital We on our raised

Operator

go question Group. next Maxim from comes Michael ahead. Please The Diana for

Michael Diana

for thanks First of call. all, having the

scalability I remarks, And he for think your think he you a to in financial about good was favorable own tell mix the could Scott's both you voice. side just the versus mix when or answered favorable side, shift? your I that the the possible favorable but really shift. mix talking to talk industrial about In question, partly mentioned are one story calls of shift, maybe idea a the

Ross Dove

really the asset and different same there's nonperforming a amount about, that so business build didn't businesses of do there were where in that versa. we at a built available we we're this there's tightness both time, most is to different the great industrial lot vice in but The loans, that need of surplus times financial marketplaces, excited

synergistically businesses are reasons we once. happening performing nonperforming puts spot in. become both So for demand It's us can there's when of once now, news tailwinds Why in it a very right good businesses because both the very the growing, is pent loans. And be it's see logical in best that happening? unlikely that is And up loans we loans. magically nonperforming at

to in they're supply once on there's sold to in has that COVID whether a nothing but sold COVID. because speaking, the excess that creating huge going nonperforming, is or demand a seller assets lots assets. technological with of getting we be future, coming growing. the forward they're buyer supply the the getting market generally simultaneous are So is demand really created to do industrial growth now surplus And as move now the advances, of that there's

free next the as the get a And principle we've So, favorable principal the higher industrial there looking add side, growing believe revenue months. when a is lot is, contribution to a Scott? have actually to what as at to that credit for us than some capital that the goes more Meaning, can fee-based. and work, we where an a lines can able is, just It we side, our and raised. Scott the we're not and greater fact with to generally well, be the asset mix-shift there, simultaneous margins lender financial principle growing a is out, the guarantor fee but going advisor, really there's growth on believe we asset lot with put to speaking, just XX can capital we our the capital producing the on where we in simultaneously based. capital so we our have as more capital and our XX mix more taking more

Scott West

Thank Ross. Hi, you, Yes. Mike.

higher this on guarantee to more principal industrial fee-based on a and to options or a With on excess having know for guarantees, take margins the cash side, generation us, the option the give guarantee good it of be cash principal EBITDA, transaction commission-based you creates a transaction. we flows, what of as principal various and the the option advantage opportunities that these or of all lot does opportunities our options. options tend does us good more have good And is, there's lot a a profits, a

Michael Diana

Thanks right. All very much.

Ross Dove

make Fair says Michael? cash, excess job it. to enough, sure excess to And as my say we ensure it when it's Scott deploy the doesn't CEO

Michael Diana

Okay. All you part, right. mentioned, the I like longer. XX the months

Ross Dove

questions Mike? Are me. any guy there Especially young for like other a

Operator

from go Please Thank you, ahead. John sir. Capital. question from The next comes Fichthorn Dialectic

John Fichthorn

nice taking quarter. the for on question Thanks my and Hi. job

of with And grow at two need talking And capital looking out to business? how versus how one? of, any going of balance capital kind you the what structure? And you how you're Could you relative time next need about you the to more really. might cap Just you out talk that of them revenue about intensity comfortable much lines like different about at future other year or think one in growth to needs think Kind the this you're do? the in point guys demand. to capital

Ross Dove

reason a division industrial on The different assets So the there's dynamic in division. industrial the assets rapid capital. very there's assets the is, a return financial and between fairly division,

even doing $XX certain $X industrial of dates XX we we speaking, side because million, $XX on auction an sales. to if we're million, within most what bought the So transactions is XX sale do generally for can million, days, assets really

So, buying, a trying it's and rapidly. marking not get brokerage We're like putting market. and a on right the the market be the waiting. much undervalued mark-the-market principal pretty at it to you're then We're price and where

capital, a constant feel enough we pressure. because that the run of there's intense and So, in of recycled the we return capital, short have don't

collect side, loan side when buy non flip and the the a to two to come speaking to four they Now portfolio, our performing want the generally up they're us years. money clients when on you over is lending

to capital all So we're is four getting for getting yes, tied once. monthly, returns it at but not years, it, high that two we're our up on

strong strong to lines a way of and partners. the with So grow credit only is combination that financial business

capital side. is to want within grow as So there it you intensive, more industrial the

the the we raise, an build kind to for cash continually can don't lots think a and flow, of as have any for of lender we we out revenue that that and and both a work can on equity organic principal to marketplace revenue create the on However, stay flow profitable, side, free in that industrial then us, go if putting producing side. of reinvest growth we we do and to as enterprise And continually financial by lot growth. the the cash

of Sort fair answer, John?

John Fichthorn

Sure.

so -- like next wall the to the which for keep recycle that And demand. flow of kind to cap generate universe given I into. hearing demand just that's you're you the It next I seems. maybe buy stories up satisfying But And year there's know, to such to would idea or mean, it frankly, going have I is of or fully surprising there's way enough put whatever else a up it going quite is it's the feature this pent a first NPL to relatively a year. I low, into of of structure very me cash equity no don't maybe hit statement, seem loss that is

Ross Dove

kinds commitments maker or portfolio is what assets, have from feature, million in can borrowers. relationships There this they're of hedge an and and already we for a first comfortable FinTech auto the that very are we have underwrite these a large $XXX that market current and card worth. underwritten we back tertiary portfolio, know that is us. right The funds is over us we And or loss in in reason credit portfolio a that that

and to and with, leverage their we're others that currently have, relationships comfortable we next every And our domain like think rely to relationships, to least being capital be that's those capital capital we're and year as that knowledgeable raised it So we're combined debt. working is operators upon we At going between need that along more capital us. leverage we expertise new with we can capital, that for two relationships those distressed going grow our And plan. growing. day keep able is

John Fichthorn

random three the the What's we'll as understand the kind or or change that to over kind in you've last last -- you valuable Thank last surprising surprising think last would us that's surprised where months terms what's of out, you the few just whatever your thing quick the great. worse, better you you is? from see you seen my the to business It's look most question of either in is, of markets? thing think over your that in sector market months be doing

Ross Dove

the reason I Reaper unfortunately, think thought to closing. don't they're I the think, be me, closed a that But that COVID to unfortunately, think anyway. want was Grim in were lot they short term plants that of I because and the I

world it's really things are going I maybe there has I out think is so come. when surprise experienced, going And again, certain of pandemic for to long me years were over be commerce we're much we that to find think going to to is dam, the and many to a the it's change this that many, changed. not that

on And an second assets on is the would when supporting struggling, industry, that industry contractor impact little have aircraft of I I that to plants. have the have there think If industry, market, an to industries buy it how the plants think impact be utilize they're assets. ecommerce transferred surprises, the on there's and to going impact those really say industries a and those entrepreneurs secondary I it's may and may hospitality the to are other have out to figured and that the any other that travel going many monetized, not the industry. surface an reopen, the be to resilience

and says all those continue pandemic entrepreneurial we these come resilience of about continue think, we're assets the high So America, idle amount second going going this out fact to tremendous a a impact that absorbed, to stronger surplus I of to worry have and which the and secondary of when than in and that really, ship was to are the about life ever. to the assets the the continue market, on get prices, my sell first reutilizing at surprise assets, and how get

Scott West

was we at the We numbers which down. is were the in the of closed that with Hey, were said second what we record March and we surprising in options our and achieved. the in came attendance record Ross auctions, just quarter, country to in assets, speed and agree thing were the most But industrial prices very when most that seeing were had has seeing by record Scott, I a with short the the the window. this prices the John, which a at just on me a the division slowdown assets world in selling buyers

So was surprised that's what I most by.

Operator

Shlisky ahead. The from Securities. Colliers go Mike Please final question comes from

Mike Shlisky

start in more wanted the my And that be a of asking and maybe pent think about comes assets dam does approach one whenever but this you're by play the business, also advance? quarter you there gigantic let rough where open. and So out your because how off only supply assets little assets bit that some handle? customers to I because out kind measured in much is how of way, you the grow? out going on actually sense Just there's will cadence of to a that banks everything measured kind can be do come the see up so the so might financial the everything going to have the

Ross Dove

the a not different in appetites. liquidity capital that basically it's bit there. really there the about is It's about is So the the little We lenders, liquidity. the believe into community buying

going So some them others. watch pricing are see market, of the test to for the and

early up going some demand. of pent sell and them want to to that they've assets get the And are had out

the institutions. pay that FDIC that growth out FDIC going come they to they amount I to not not we come that different FinTech or buy So of don't I of later out out. year. come may a want we lenders be of had think chartered much chartered losses of dripping the are this now the in lenders. loans And of out out. They even process the that lenders, faster think could of the in various come think And loan see two assets year out be lenders say nonbanks though you're those next change But in institutions, a of there that that end, coming

increased in QX increase all go time the country past saw levels we the financial control. and way the yes increasing no the and three going the loans volumes through three years. nonperforming to in to two, next stresses. a into under see You'll we've get estimate beginning XXXX the that FDIC to was the back for in rationalize or price the seen We days period or two and loans there year Every the non-performing

a on get We're at for three bullish we're steady some two increase. but not there rich So windfall. massive or year one quarter, quarter activity, supply being we're quick to looking two looking

Scott West

agree with that I as Yes. well.

analogy the is, I up, will come I it dam think down don't start it at dam think think to I the the back open but all will to once. crashing

So, I in seen have lenders operate think we will quarter, huge kind one be but any tandem. a these do influx don't there of that in

quarters So, I that increased do multiple economy. years, see turn think actually does the we'll expect light and that, an macro what's to and going opens I across for up, there's when it in be flow of been happening

Mike Shlisky

feel year you Or solid first way? after kind you follow you the up you've the or And you to have balance available that raised Heritage end you, to quarter, of cash that get more of that what two? capital capital and span allow of your just do you So just to cash tailwind? got on pretty does the to the business, to multi-year at follow by have

Ross Dove

ongoing very that belief our strong a with line have $X and that, our with We have expanded. will that, continued performance incumbent lender we our million be performance the credit

because been to believe accretive yet as growing really But we business, We show pursued as it we're it our be in that our we're debt we'll it's able and big the fashion, position increase that we upon using profits. and untapped. haven't based expansion tap

but I not currently anticipating a on that not that our make it's make No. plate, not their we we're on going away. It's agenda. So, on. will? out promise promise, to working right the more for capital never I can't nothing marketplace we're it's Will

big, big anytime capital put enough but we we've can And We a over that our difference costs with also capital the with money we obviously to actively our out can to all there. down pretty XX got our of partners, our are months, that alliance drive visibility our earnings. negotiating next feel partners expand we good in make

Scott West

And when on credit time a it. as the you line of increased know, for best we capacity ask don't is need to all

we're operations our position. EBITDA the So, real pleased cetera, we're cash the generating, with et in cash profits flow obviously from

So hope that helps.

Mike Shlisky

Sure. Yes. with you I on probably of cost the in much capital. did that's done ready mean, tasks and term have obviously when all mind, guys you this profile greater it

that. you So to kudos for

have You for wouldn't the money didn't you ask course. of if [indiscernible]

Ross Dove

Correct.

Mike Shlisky

got Can FinTech I above with you current two below of in also target some more run growth give time? the it out or rate may you've there. business deals lenders Is is sense the have here. just maybe the Can a that the that company just, have we rate your that

Ross Dove

about half about is broad credit other loans. half pretty, of loans app pretty old mean, basically we school, loans the card sell, and would non-performing digital I loans the So auto loans, for commerce a say But and I loans FinTech and category. bank

digital half about it's So, commerce.

transparency are who's new growing clients own. there's sea to in of cadre the their built using think money going base large we them the XX to open to the commerce their forward, digital buyers. banks who center direct use the XX% sell for going digital third sell next are it's larger going who want of somebody broker be to us, We months. a banks and many more much of the to maybe how and over versus Going business, commerce on to are a XX% a think to know hard party It's like us got assets of

and answer. up that's be would two-thirds of a one-third A maybe eventually traditional to best guess getting fair banks. non-banks FinTech So

Mike Shlisky

environment to here, And one be you it negative? the a from collections positive then from last maybe results of will think last do standpoint, this the the the for anyway you or regulatory one the for change three

Ross Dove

We're News Fox pretend versus This And going we're of to were I to say. not and not it is CNN I'm going is. it question. scrutiny to -- one anti-asset. here know. happy don't got where I'm to clueless

Mike Shlisky

Fair enough.

it Okay. I'll pass along.

Ross Dove

me. the I'm You're just operator. not an analyst

Scott West

the It's increasing. of not the assets that change that are going the to volume sell, fact we

Ross Dove

with grateful appreciative and pay -- to to here listening have wanted in have you at tell Heritage story earnings it. this do the like you you Yes, to we're perform everything and all of opportunity And And to we're by end going you attention we make those to our those to we're to -- in first bust that to live order and everybody got really make later. I'd all sure I speak get who the can dialed bust for to extremely get and of And proud. great to our call. whatever we thankful you call day. you and that is and thank saying a

So much. thank very you

Operator

This you. conference Thank today's concludes call.

have lines. a your disconnect may you day. and for pleasant participating You Thank

Heritage Global (HGBL) 11 Nov 202020 Q3 Earnings call transcript