- Earnings call transcript Q3 2022

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Operator

Good afternoon, ladies and gentlemen, and welcome to the Heritage Global Third Quarter 2022 Earnings Call. All participants will be in a listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to John Nesbett, Investor Relations for Heritage Global. Please go ahead.

John Nesbett

afternoon, good and you, everyone. Thank

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

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

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

Ross Dove

and Hi. our everyone. quarter good to Welcome afternoon, Thanks, XXXX John, third call. earnings conference

with will Cobb, Officer. date. Brian Financial to performance call discuss financial you’re Chief He up. Brian, our start Let’s our today’s

Brian Cobb

Thanks, Ross.

momentum third profitability strong in experienced we in on the results, reflected of operating million, built which income Our half as $X.X our million. the EBITDA operating of $X.X quarter year the of first and included improved

during reflected the XXXX, nine ended the months third Assets Industrial and our quarter XX, division. performance both Financial performance September and from strong financial our Our

Trading’s of third Laboratory third ALT growth the asset in XXXX. American attributable number to lab business than asset Industrial substantial the a continue the Roughly of the in principal the third reported increase for our to has same sales We executed in transactions acquisition one of XXXX. XXX% compared in period Assets sales the is we see where excellent in grew an third but not the quarter division, equipment significantly an of more year-to-date. volume be Services quarter to to in used of source increase XXXX to quarter HGB, the COVID-driven also to to auctions nonperforming quarter, increased in increasing the related which market. will just in third spending, continue as we revenue increase in largely proven becoming charge-off more for loans driving resulting come available. loans environment an stream economic is of in aid is With ended, current consumer also anticipate resale

landscape XXX% million On the saw per of company to Net lending the increase quarter quarter was significantly the division, quarter for improved close third untapped position and quarter diluted third of deploy a compared quarter the our Assets EBITDA million of $XXX,XXX continues, XXXX, the specialty $X.X in funding compared EBITDA grew income Industrial Financial operating third our and compared $X.X Assets In as XXXX. the income of million. of in $XXX,XXX as consolidated to the $XXX,XXX facility, share third the of operating million and Operating $X.X The was million of basic cash and $X.X a of on XXXX. $XXX,XXX senior from XXXX. EBITDA to third to quarter third in will up of hand the $X.X adjusted third of we $X.XX XXXX. credit in current quarter an $XXX,XXX growth or a income that opportunity for the $X.X income meet of net Assuming share strong line basic with our to see we and to the quarter of compared to as significant XXXX, basis, to $XX into income XXXX. per in we diluted to million is the out or in $X.XX in our increased expect XXXX $XXX,XXX in XXXX. quarter XXXX group extended cash of million increase was was division in in compared anticipated third

grow the everyone results. carryforward, But to valuable continue which company tax that in a will nonetheless, I a improvement to continued have see loss very be to profits. pleased we operating remind our as asset We’re we our large

as net sheet remains $XX.X XX, of of million with and equity strong of on as compared approximately shares a of a million. XXXX, stock the aggregate now common $XXX,XXX. our September September capital to December repurchased company balance that, Ross. turn XXXX, With XXX,XXX to million note, XXXX, back an for as of Our working has the of of final $XX.X I’ll cost XX, $XX XX, stockholders’ over And call

Ross Dove

joining thank Thanks, Brian, everyone and for today. in

the be I I’m say, CEO earnings can’t not but may help to thrilled it our So myself. After release, am the team. on typical with an the performance thrilled of I across team, great me today. QX, thought optimism five asking it repeatable. asked was prevalent revenue investors optimism all streams, if I that several there management followed was is I our up of When

through you then starting industrial walk to me with moving and Let each, financial.

know. side, On you three have industrial we as businesses, the

an auction have which and valuation we services science ALT, a business, life the have business we We community. have

let’s auction start So There’s the business. with news there. great

years clients Our those both entire are them almost the two five largest and the extensions, one clients signed of sector, quarter company of so have that, of On growth. is exception in of ever. on revenue the have and top for the we we in largest history of QX pipelines five-year largest can auctions. count pharma our new the

by we is right now. recession, the Why? for the going some market predictions. asset-based over It is growing growth steadily Because there’s years. see next believe market grows. there be and recession, to growing, reasons a to valuation valuation three In currently at are Our certain loans least a

world all growing in future American revenue So on and largest push industrial streams clients. year. industrial towards year positioned three and ESG next the of growth a is the and the for Trading this are big side, by Lab because clients pharma poised we the think largest

often, they maybe coming clearly put We do relying and refurb circular and us they’re always landfill, ALT into so and streams back on these assets quarter-after-quarter, think more revenue avoid can year-after-year. the resell to of more and to grow, As to not them each but that, want economy. they

my So over we’re solid belief. there in

which revenue move is you our our Financial to if board, the stream, of Now Asset other across division. the half

there. We two groups have

that anticipate. amount are think loans they’re million On to we’ve added card the lend. We XX well the from loans, bodes capacity there there the stimulus is grow? platform, have high auto a grow down of for we because going that NLEX. continue to is brand-new capacity Why clients, the the to having revenue to We now. not an much is years old, a where of growing charge-off last the asset entrusting all-time next the buyers That of products was $XXX will as NLEX-type year our NLEX we a pandemic record billion. products loans. one today to et We lend The as years. sells went that and and reason We were going of bit of our has $XX is that that, to card That there in offer over rapidly debt is existing with. announced amount when we and high have anticipate clients flow checks. a from that $XXX spending group are market. We top two believe assets credit reached cetera, many called to this Credit new slowed during of current lending out not million $XXX we charge-off likelihood million now week. month-after-month a It’s us

years growth growth. belief forward division that for in continued two can our we’ve the With strong companies the go the a capacity the Financial next the with onboarded, and have Asset growth in we

So opportunity, with worked people across thrilled am and I’m am future this the I with how thrilled our they’ve I us put board, thrilled with in our projects. hard the and to position,

any welcome I And much. from very you thank questions So anybody.

We’re always always we’re here and available.

Operator

Argento Mark you. first line Lake proceed Thank Please your question Instructions] [Operator from of with The with the Street. comes question.

Mark Argento

Brian. hey, Ross, Hey,

Just to quickly deck presentation. in guys up wanted that the or the had on follow the you guidance in

$X you year I compared around last income mentioned expect you – best in year million net operating for had X%. I think was the think the

a nice that’s So increase. obviously

guys little you math bit being through thing little and Any implying think kind so – [ph] Is helpful. of I us there? a maybe would going almost talk be know, any $X on million a I guidance you obviously, one my could of there. here, QX, conservative the in have done a I thoughts there momentum lot don’t think

Ross Dove

We’re significant get you bit is, reason transactional. quarter. we being business still that, is there, bit conservative we’re being of in the a a of early our as The visibility don’t always of conservative yes. because little know, the part And a little beginning

give to some we gave guidance. And wanted that tell we’re we extremely on ourselves basically beat can that the room. with So trying bullish to you and I guidance comfortable we’re

Mark Argento

the NOLs. us Remind And you is right big stand Where how had now? Great. does NOL. it mentioned Brian, the then

Brian Cobb

Yes.

million approximately don’t So $XX year. this the quarter-over-quarter. change them NOLs We are

part NOLs. that have we’ll our an process tax quarter, As update next adjustment the to of

Mark Argento

revenue kind do the asset and functional and know you you then And group, and segment, Great. could I then by services guys of you report services the maybe sale, financials? – now breakdown have industrials reporting the

Brian Cobb

report in We we or on increase. the was we see, to the on was Based So approximately in to say I sales, don’t sales don’t one-third. which of that the financials. touched revenues that increase asset can acquisition financials. But can had increases here. large buckets what asset related of that And we XX% about three part I large earlier, by report what in acquisition. there’s a There’s related the division

up source us principal than is auctions the have in And for as small part a also ALT make last deals, is in our piece We growth division XX%. of well. greater that of increase to that which organic of able auctions

Ross Dove

So DNA really a Mark, as trading an think company. advisory its of company, ALT not but as

Most So rather revenue model fee-based vast auction model. revenue their the trading. buy-sell a its principal than is is bulk of a of

a they increase amount they of deals year you’re we the significant see going because will each as as grow. do So grow, each to principal year grow

Mark Argento

the financials? kind makeup see do running two-thirds ratio? financially... looks of you Great. one-third you from see you Or income, do operation industrials, of was at of As that it of net contributing that the terms then kind in from – And operating like move roughly, the on,

Ross Dove

the don’t when There multiple built-to-last same literally had assets pandemic supply an earned pandemic assets industrial equipment great always do was hit on less way It’s a a had years clogged new of that simultaneous lot is and and the assets. chain credit model pandemic where the and where the the they grow, the things on from happened is than negative to it No. financial a we there checks significant the build financial more same one about of on this there we industrial – or company spending. time. were impact What them stimulus where the benefits inability for and assets were at was

So We you see could it’s macro will more side And the think an be annually, whereas to flip a always race for industrial maybe has given different make long on and any profits auction who’s growth more financial economies. side more transactional revenue. that cumulative run, going year. it bit on on in because the bit business the can have lending even little spikes business a little in the the more over

participants. So them of as kind of equal think

Mark Argento

That’s then last queue. I’ll back helpful. And in hop question, the

$XXX then that capital? how have And Just the how expanded Thanks. talking those you enhanced What turn quickly about quickly us as – million do quickly the think $XX how well. you deployed you on or line? loans remind But deploy you million line. and could

Ross Dove

million, We on own date, to million of free of out self-funded $XX prior deployed of it all line. out transactions, came It but cash some basically off flow. So sheet. balance smaller lot of our of our that the wasn’t own a the we’ve $XX

to the when an talked That’s we reasonable convincing capital. guideline of to XX be So unless it you within new X.X would the firms deploy that XX years. asking obviously, give don’t to million line deploy Nobody went can kind takes about for multiple months a when out so line it. you’re creating a $XXX in the to years analysis get that to and you three end, wants pretty deploy, you’re And you the a did line. goal out we

Mark Argento

Good Great. rest on Well quarter. Thanks. way the the work year. of the nice luck this here

Ross Dove

Thank you. soon. Talk

Operator

the Maxim proceed question Group. your line Diana comes question. Michael with Please from with And the of next

Ross Dove

Hi, Ross Dove. I’m Michael.

Michael Diana

Ross. Hey

demand years, help rates increased few little or about for a you Obviously, chance the you just you more about you loans forecast how either group there? you is And much. really doing, just to those talk additional the capacity. also given gotten Could excellent the a how what source about your lending quarter, the loans? haven’t hurt over last you interest and you Fed those As talked the talk

Ross Dove

Sure.

very, a it’s So very practice. specialty niche

BNPL consumer purchasers loans a on lender like auto the of really a specialist through consumer the And These charge-off loans, cetera, of servicing it’s new only the market. one consumer we’re world specialize charge-off And cards, loans, selling nonpublic that XX XX like loans fintech are the largest are loans. most underwrite loans. those capable peer-to-peer et in loans in to about clients to XX like probably because we’re to So loans, clients, loans is the there’s in We type held, to the in old-school of XX that NLEX those selling kind focused a loans. of everything those privately period. from people like credit

money. went and we out onboarded their loans, buy to difficult made the an go SOX companies very charge-off companies been So that FDIC-chartered XX it’s we’ve institution sure those them to that compliant. that We’ve nonperforming about to reputable, facilities. And they’re borrow we’ve when they’re and for

for we points, $XXX do often a We three very the interest, we’re us and have that larger they our five-year pay going sometimes, our comfortable where capital, revenue on to we is loans that with us. used but to funding be are some on on that do Generally of unfortunately million speaking, them that capital. own which higher form $XX we these charge to for of back and the we four And loans. unfortunate and which fortunate do we assets them of are provider the share the charge million. and ones understand because rate, end the So them,

growth. So Because we why more did we money, Michael? get anticipate

a During now these public products a lot degree. of product a of the this entrepreneurial available, – was With pandemic, large of at cost agencies, greater work are sold companies more who purchasing a us have to coming did didn’t funds. collection low through lot

for fill need we our so needed that and And capital greater, became to need.

Michael Diana

do on assume And you’re I lend will then the – anticipate with your – interest at you do but you How rate can go rates rates. that... up, higher up, obviously, line going you

Ross Dove

did multiyear No. bragging is rate. without fixed a negotiated What we we

traditional up rate primary The bank, that our on would because on up. it’s rate. our fixed fixed on only Diego is is rate up. So if won’t a go San facility, our line $XXX with up that this we million first local negotiated But will facility. rate even which up that go It won’t funding go rates conventional go go lender, a

Michael Diana

Well, that’s All right. great.

you lending So expect the term. actually – near your go right? up in could over margins that Is

Ross Dove

capital. raise of think right our the capital. at we’re our of not the of Basically, we’re at on the looking day, end spot to now We cost that right cost

So we think margin. have the we right

work going a the and just we right that that back we to We’re us of by the with get efficient, margin hope the so being pick diligence best increase more amount more tremendous of the and the end. clients, we’re to a have going and do borrowers underwriting and due upside. our hard we larger profitable portfolios best most And part them to

So that our therein is lies. where skill

Michael Diana

right. All

driven? demand more it’s So

Ross Dove

Yes.

Michael Diana

Okay, great. Thanks a lot.

Ross Dove

Thank you. Michael. great Have a day

Operator

this at no turn host. And the time. now to questions I back further presentation the there are will

Ross Dove

again once participating. to like everybody This I’d thank is for Ross.

that always questions a in more like setting. ask private to We’re available has if they’d anybody

we I’m is you’d you know. there’s free like really available. feel the out if day Brian, us, support thank ongoing keeps – basis, a excited can great continue hope everyone. really given Have that shareholders. an and big to level we a about that Bye. perform you to anything And at any all available. else CFO, you’ve to for time, like on We’d Our guys at reach to

Operator

for you conclude your your please participation That We and conference does line. thank disconnect today’s that call. you ask

Heritage Global (HGBL) 12 Nov 222022 Q3 Earnings call transcript