Heritage Global Inc. Q1 2026 Earnings Call - DebtX Acquisition Drives Margin Expansion Despite Q1 Loss

Conference Call Moderator: Hello, and welcome everyone joining today’s Heritage Global Inc. first quarter twenty twenty-six earnings call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. To register to ask a question at any time, please press star one on your telephone keypad. Please note this call is being recorded, and we are standing by if you should need any assistance. It is now my pleasure to turn the meeting over to John Nesbett, IMS Investor Relations. Please go ahead.

John Nesbett, Investor Relations, IMS Investor Relations: Thank you and good afternoon. Before we begin, I’d like to remind everyone that this conference call contains forward-looking statements based on current expectations and projections about future events and are subject to change based on various important factors. In light of these risks, uncertainties and assumptions, you should not place undue reliance on these forward-looking statements, which speak only as of the date of this call. For more details on factors that could affect these expectations, please see our filings with the Securities and Exchange Commission. Now I’d like to turn the call over to Heritage Global’s Chief Executive Officer, Mr. Ross Dove. Ross, please go ahead.

Ross Dove, Chief Executive Officer, Heritage Global Inc.: Thank you, John. Good afternoon, everyone, welcome, and thank you for joining. As always, I will add a bit of color, then I will turn the call over to Brian to drill down line by line and dime by dime. For me, I can tell you I now really understand the saying, "A million dollars ain’t what it used to be." I can hear my mom saying, "Just okay isn’t okay." I hear you, Mom. Q1 earning a million-dollar NOI was a story really, truly in 2 parts. It was a respectable profit, less than our goals and leaving us with some ground to make up as we move forward. Personally, I like this better, not having as fast a start and having the challenge of making it up than worrying about fizzling later on. I feel good about where we’re at.

We’re used to a challenge here at HG and excited to get the job done. The 2-part story was a solid growth performance across our existing business units and a loss that was larger than expected or anticipated in our newest DebtX acquisition. It is truly not unusual to get out of the starting gate slow right after an acquisition, and I believe that’s just the story here. We have fine-tuned our growth plans and set goals across not just DebtX, but they’re company-wide. After you hear from Brian, I will give you somewhat of an inside look at some of those ongoing programs that have not only begun but are in progress. Brian, you’re up now.

Brian, Chief Financial Officer, Heritage Global Inc.: Thank you, Ross, and welcome, everyone. We started 2026 with a profitable quarter that reflects both the resilience of our core segments and the expansion of our financial asset capabilities, positioning us for improved performance over the course of the year. Consolidated operating income was approximately $1 million in the first quarter of 2026, compared to $1.4 million in the prior year quarter. Our industrial assets division reported steady performance, with operating income of approximately $1.2 million in the first quarter of 2026, compared to $1 million in the first quarter of 2025. In our financial assets division, we reported operating income of $1 million in the first quarter of 2026, compared to $1.7 million in the prior year quarter.

Our industrial assets division saw a continued trend of high volume auction activity throughout the quarter, with limited opportunity to execute large-scale auctions. Against that backdrop, our auction and liquidation business saw sequential quarter-over-quarter growth while capitalizing on our real estate investment in Huntsville, Alabama. We realized a positive impact to operating income of approximately $400,000 as a result of the seller and tenant’s repurchase of the real estate assets in early March. The final exit of our investment in Huntsville related to the machinery and equipment is expected to occur within the next few months. In our refurbishment and resale business, our continued focus on upgrading inventory quality is now translating into tangible results, including faster turnover and increased profitability.

Our financial assets division saw sequential improvement over the fourth quarter of 2025 as well, as NLEX continues to see strong activity across key consumer asset classes, including subprime auto, where elevated delinquencies and charge-offs are driving asset supply. The first quarter transactions reflected meaningful contribution from this asset class, and we remain well-positioned given our deep seller relationships and consistent execution. In January, as mentioned on our fourth quarter 2025 earnings call, we acquired substantially all of the assets of DebtX, a leading full-service loan sale advisor that expands our capabilities in the growing secondary loan market. DebtX reported a first quarter operating loss of approximately $600,000, reflecting the seasonal nature of the business, where transaction activity is typically lowest.

That said, we remain excited about the segment’s prospects for the remainder of 2026 and beyond. Particularly as we integrate the platform and expand our business development capacity to drive incremental opportunities across our broader financial assets division. Additional consolidated financial results include the following. Revenue was $12.7 million in the first quarter of 2026, compared to $13.5 million in the first quarter of 2025. Adjusted EBITDA was $1.4 million, compared to $1.8 million in the prior year period. Net income was approximately $700,000, or $0.02 per diluted share, compared to $1.1 million or $0.03 per diluted share in the first quarter of 2025.

Our balance sheet is strong, with stockholders’ equity of $67.8 million as of March 31, 2026, compared to $67 million at December 31, 2025, with net working capital of $11.6 million. Our cash balance reflects a total of $11.6 million as of March 31, 2026. After removing amounts due to our clients or payables to sellers on our balance sheet, our net available cash balance was $6.2 million. Lastly, we repurchased approximately 107,000 shares in the open market during the first quarter of 2026 at an average cost per share of $1.32. We have approximately $7.4 million in remaining aggregate dollar value shares that may be purchased under the 2025 repurchase program. With that, Ross, I’ll turn it back over to you.

Ross Dove, Chief Executive Officer, Heritage Global Inc.: Thank you, Brian. Our commitment across the board is entirely to growth right now. That is 100% of our focus. I’ll give you a few reasons why I think we’re right on track. Not counting DebtX, everyone else had a quarter where they grew, and everyone else has a pipeline where they believe they can grow throughout the rest of the year, looking at everything they’re doing. We’ve made investments in technology. We’ve made investments in people. We’ve added sales and business development people almost across the board, and we’re still in a hiring and training phase where we believe that headcount will matter and getting more people out there in front of more people is really the answer. There are a lot of openings right now. Just a few examples of some openings. NLEX had a record quarter in the subprime auto sector.

It is a rapidly growing sector, one we’re very good at and really believe can be the needle mover this year. We anticipate a record year in the subprime auto sector, and we’re very confident about it. HTP has added 4 business development sales personnel, and we believe that not too far down the road, that will expand our reach. Our valuation group is bringing in more team members, going after more sectors, focusing on both the banks and also with a harder push into the non-banks. Overall, we’re comfortable with our plan, we’re comfortable with our prospects, and we’re comfortable with our position in the marketplace. Really, at this point in time, it is all about execution and making a solid push for growth.

That is my role as the leader, and that’s what my team and I are putting every bit of effort into. Thank you for sticking with this. We look forward to talking to you throughout the year and showing you how we grow this business. Best to you all. We’re here to answer questions now or any time you wish.

Conference Call Moderator: Thank you. If you’d like to ask a question, press star one on your keypad. To leave the queue at any time, press star two. Once again, that is star one to ask a question. We’ll pause for just a moment to allow everyone a chance to join the queue. We will take our first question from Jacob Stephan with Lake Street Capital Markets. Please go ahead. Your line is open.

Jacob Stephan, Analyst, Lake Street Capital Markets: Hey, guys. Appreciate you taking the questions. It seems like, you know, overall the debt market is, you have a solid positioning there. I’m just curious. I would like to hear a little bit more on the trends that you’re seeing, notably in NLEX and also the DebtX business on the commercial residential side.

Ross Dove, Chief Executive Officer, Heritage Global Inc.: On the NLEX side, we have a really, really strong pipeline now. It’s led by subprime auto. It changes quarter to quarter and year to year based upon everything out there and where the supply is. We still have plenty of headroom in the credit card sector. We have plenty of headroom and some new wins in the buy now, pay later sector. We have some of our clients that are expanding the amount of assets they’re giving us. Overall, I think it’s a very healthy place to be right now. We’re very busy on all fronts. If you said, what are we leading with right now? I think the subprime auto loans would be at least our leader over the next quarter or two of where we think there’s the most expansion.

we’re looking at everything there, and we’re also doing some HELOC loans and a lot of diversified loans. On the DebtX side, we had a slow start that’s rapidly picking up. We’re looking right now at very high prospects for Q2 that we’re excited about bringing to fruition. The slow start sometimes can just be after an M&A deal, and it can also be after the fact that sometimes, you know, the lenders and everybody just don’t get out the gate selling. They get out the gate figuring out what they wanna sell. A lot of times you have a first 90 days where they’re doing the in-house analytics and then bringing the product to market. That sales staff is out every day talking to people. We’ve signed up a bunch of business.

I don’t think there’s any one single CRE sector that’s dominated, and that’s kind of good news that it’s very diverse and across the board. We have some very large deals and some, you know, smaller deals. On the good side, they’re coming from not just banks, but they’re coming from specialty lenders and non-banks and insurance companies. We’ve really got a broad-based offering in Q2 and beyond. It’s kind of why we’re optimistic. I’ll end it there.

Jacob Stephan, Analyst, Lake Street Capital Markets: Great. Maybe just one more. Gross margins were, you know, pretty solid this quarter. I’m curious, you know, as we look forward, with better kind of revenue, it sounds like in the future, especially from DebtX, you know, what’s kind of a good, you know, gross margin kind of level that you feel like you can reach?

Ross Dove, Chief Executive Officer, Heritage Global Inc.: Brian, I’ll let you handle that one.

Brian, Chief Financial Officer, Heritage Global Inc.: Yeah. Our margins, our gross margin this quarter was improved, if you look at a year ago. That really has to do with higher margin service revenue, coming from DebtX or other sides of the financial asset business division. The more revenue we generate at DebtX, the higher the margins should go. You know, we’ve historically had a mix of industrial and financial margins between, you know, 50% and 70%. I think if we get higher to 70% is a good target with a strong performance from the financial side.

Jacob Stephan, Analyst, Lake Street Capital Markets: Got it. I appreciate the color, guys.

Ross Dove, Chief Executive Officer, Heritage Global Inc.: All right. Thank you. Thank you for the questions.

Conference Call Moderator: Thank you. Once again, if you would like to ask a question, please press the star and one on your keypad now. Thank you. At this time, this concludes our question and answer session. I will now turn the meeting back to management for closing remarks.

Ross Dove, Chief Executive Officer, Heritage Global Inc.: Thank you all for listening in, and thank you all for paying attention. I feel good about where we’re at. I would have liked to have delivered a larger profit in Q1, but at the same time, I’m very proud that we delivered a respectable profit, although not as large as we hoped. I think as the year moves on, we have lots of upside to improve from here. We’re very ambitious to do so and very bullish on our products as the year moves by. Stay tuned, and we’re gonna get to work. Thank you.

Conference Call Moderator: Thank you. This concludes today’s meeting. We appreciate your time and participation. You may now disconnect.