Heritage Global Inc Stock

Thank you. assistance at any time, please press star zero and a member of our team will be happy to help you. Hello and welcome everyone joining today's Heritage Global, Inc. second quarter 2026 earnings call. 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 1 on your telephone keypad. Please note this call has been recorded. We are standing by should you need any assistance.

It is now my pleasure to turn the meeting over to Jen Belladeau. Please go ahead. Thank you, and good afternoon, everyone. Before we begin, I'd like to remind everyone that this conference call contains forward-looking statements based on our 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 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 at the Securities and Exchange Commission. Now I'd like to turn the call over to Heritage Global's Chief Executive Officer, Mr. Ross Dove. Please go ahead, Ross.

Welcome everyone and thanks for joining us today. Before I turn it over to Brian to go through the financials, I want to take a few minutes to add some color to our recent news. Closing Heritage Capital was at a point of no return where it became both obvious and necessary on multiple fronts. First, the distraction on managed management team, then coupled with the continued lag on collections that was not improving. Our board and many investors had weighed in for several months that all focus should now be on growing the business units that are both profitable and strong and core to our future. Honestly, it's a relief moving forward to just do that. It can be hard to fold, but I look at the great poker player Stu Unger, and maybe he had the best advice of all.

Fold to live to fold again. With that, everyone here is moving on, building the business units that are built to last. On the financial side, our acquisition of Boston Note that followed the DedEx acquisition is very exciting. With DedEx, along with NLEX and Boston Note, we have an asset-light brokerage now that truly serves a broad and diverse range of purposes. financial asset classes, both performing and non-performing, and covering institutional and private sellers, with all the building blocks ready to accelerate growth. It's exciting. On the industrial side, we have expanded our sales force and already see an expanded and more diverse sector pipeline with more bankruptcy assignments and also added transportation and construction products which are additive to our well respected and key manufacturing and processing auctions. We have built an extremely robust inventory holding at ALT us more buyers to the HG family as well. The trucker is simple and up to us. grow it strong, and build to last.

With that, I pass it back to Brian.

Thank you, Ross, and welcome, everyone. During the second quarter, we made the strategic decision to substantially wind down Heritage Global Capital in In connection with this wind down, we recorded approximately $21.7 million in non-cash charges during the second quarter related to the write down of non-performing loans within our specialty lending business. The second quarter impact, we believe this is the right path forward in order to create a stronger platform anchored in the fundamentals of our core business that allows for growth and long-term shareholder value. We recorded a consolidated operating loss of 20.9 million in the second quarter of 2026 compared to consolidated operating income of 2.2 million in the prior quarter. Our Industrial Assets Division reported operating income of approximately $600,000 in the second quarter of 2026, compared to $1.3 million in the second quarter of 2025. In our financial assets division, due to the wind down of HGC, we reported an operating loss of 20.4 million in the second quarter of 2026, compared to operating income of 2.2 million in the prior year quarter. Our Industrial Assets Division continued to execute on a steady volume of auction activity, though we've continued to see a similar trend of smaller-scale opportunities absent larger auctions in the marketplace.

With that said, we're seeing a solid pipeline of activity and remain confident in our ability to capitalize on opportunities in this space as they arise. Our refurbishment and resale business has been performing well, as we're seeing our improvements to the quality of inventory continuing to translate to meaningful increases in asset turnover and improved profitability. Our financial assets division was impacted this quarter by non-cash charges associated with the wind down of HCC. Excluding these charges, the division reported a decent quarter as we saw continued activity in NLEX across the charge-off and non-performing loan space and began to realize gains from DedEx, a leading full-service loan sale advisor that we acquired in January of 2026. Subsequent to the quarter, we completed the acquisition of substantially all of the assets of the Boston Note Company, a seller financed real estate brokerage with over 30 years of operating history in the residential space. The transaction acts as a bolt onto DedEx and expands our financial assets platform as we look to enter additional asset classes and distribution channels while expanding upon the seller note category, which we believe is ripe with opportunity. We look forward to integrating Boston Note into the business and building upon their well-earned reputation in the marketplace.

Additional consolidated financial results include the following. Revenue was 12.3 million in the second quarter of 2026, compared to 14.3 million in the second quarter of 2025. Adjusted EBITDA was 1.2 million compared to 2.8 million in the prior year period. Net loss was 15.9 million or 46 cents per diluted share compared to net income of 1.6 million or 5 cents per diluted share in the second quarter of 2025. Our balance sheet remains a strength with stockholders equity of 51.9 million as of June 30, 2026, compared to 67 million at December 31, 2025. with a net working capital of 9.4 million. Our cash balance reflects a total of 13.2 million as of June 30, 2026. And after removing amounts due to our clients or payables to sellers on our balance sheet, net available cash balance was 6.5 million.

With that, Ross, I'll turn it back over to you.

Thank you, Brian. So just as an ending, my thinking on all of this. 50 years ago, when I lost my first deal, I took the long walk from the front of our warehouse to the back of the warehouse to face my grandfather. And I told my grandfather, I feel really, really bad about the loss. He was at 5 o'clock having his normal bourbon, sitting at his desk, and he said to me, Rossy boy, kid, I feel really, really good that you feel really bad. Now, flash forward 50 years to where I'm the age he was then, and I understand exactly what he meant, and I know exactly what we need to do to get out of feeling really bad and start feeling really good. So that is the plan. That is all the effort, and that is everything we're going to do. to move forward on the platforms that are strong and say goodbye to the platform that held us back. So, an onward and upward, I'm proud to announce, thank you all for everything you've done, sticking with us and staying with us, and we're on our way in the right direction. Best to all, and we're around to answer any questions.

Thank you. At this time, we will open the floor for questions. And we'll take our first question from Jacob Steffen with Lake Street Capital Market. Please go ahead. Your line is open.

Hey, guys, appreciate you taking the questions. Maybe just first, kind of focusing on, you know, the two businesses that were recently acquired and maybe, you know, touching on how they kind of fit together. I'm wondering if you could talk about, you know, DedX's performance relative to Q1. And then also just, you know, how does Boston Note fit in with that?.

I'll start with how Boston Note fits in. This is Ross talking. We originally looked at Boston Note, and we didn't see where we were the perfect partner to Boston Note until after we acquired DedEx. Once we acquired DedEx, we really saw that there was an opportunity for Boston Note to convert from just doing seller financed residential products to also seller financed commercial products. And we knew that Dedex had an unparalleled exit platform if as long as they could find the assets. We ran a trial for several months and during the trial we closed eight transactions. and over a half a million dollars in revenue. And it really became kind of air apparent that they fit like a glove. We had already acquired Dedex and we knew that putting Boston Note in tandem with them was going to really create some synergy.

We also knew that Boston Note turned down pretty much every kind of non-performing loan that was brought to them and we had an avenue, second to none, on non-performing loans with NLEX. So when we looked at it, we said, putting these three companies under one roof will give us a commanding position in the marketplace. And we feel that on a go-forward basis, you're going to see that over the next six months, year, two years as we blend them together, unify our sales pitch, and get them all working in consortiums. So we're really excited about what we think we can build there.

Got it. And then, sorry, I might have missed this in the comments, but the DedEx acquisition relative to Q1,.

I guess your comments made it seem like things have improved off of a seasonally slow quarter, but any kind of comments there? They're a company that over the last, maybe, and Brian can give you the exact details, but over at least the last half decade, almost... 50 to 60 percent, sometimes even two-thirds of their revenue comes in Q4. Their revenue primarily comes from banks, and while their revenue comes from banks, it's very common for the banks to wait until the end of the year for a lot of the asset flow. So we'll we'll know a lot better by January 1st, how well we're doing, but the pipeline is growing and transactions are closing, and we're also adding the Boston note transaction. So, you know, I don't want to overstate, you know, what hasn't happened yet, but we're on the right track.

Okay. And then maybe just touching on the auction activity, it sounded like the larger type auctions were a little bit softer or few and far between in the first half. I guess, what are you seeing in the second half that kind of gives you confidence in the pipeline that you referenced? Yes.

It's almost like when we're slow for one or two quarters, we almost follow with one or two, three strong quarters afterwards. I've been doing this for five decades, and it's just the nature of the business that everything kind of comes in shifts. Yes. you go from doing a bunch of smaller auctions to do a bunch of bigger auctions just to just by the sheer nature of the macro economy. Our pipeline has larger auctions now than it did in Q1 or Q2, and we're signing several of those. So all roads lead to a positive second half of the year. And the good news is a lot of the things we're signing now are not just in our strongest sectors, the pharma sector, the food and beverage sector, but they're in a lot of diverse sectors where we're also good. So, you know, I think there's bright days ahead on the industrial side.

Great. I appreciate all the color. I'll turn it over. Thank you. We'll take our next question from George Sutton with Kirk Callum. Please go ahead. Your line is open.

George hey hey Ross Brian you actually have Logan on for George here thanks for taking the question so First one, Ross, obviously the capital segment has been in a tough spot here for several quarters. I wonder if you could just talk about what moving away from that opens up in terms of time and management focus. I guess how should we think about this move kind of lending itself to your desire to do more acquisitions? Yes, it became a real burden because in the end of the day,.

it was taking a lot of management time without us necessarily doing anything really, truly effective to improve it. And in the end of the day, I mean, nobody can ever be sure with thousands of accounts what you're going to collect back. But if you're in a junior position, there's always risk. So it just got to the point where we said, look, this is not the best place for us going forward to either operate or to put more capital. That there's way better places to put our capital. It's time to... It's time to basically end trying to fix something that is difficult to fix and try to focus all the energy on building what doesn't need fixing but is ripe for growing. So it became kind of obvious. of investors kept saying it's the right move.

Lots of board members kept saying it was the right move. And at some point in time, everyone in management kind of all stood up together and said, all right, if we're ever going to do it, let's do it now. So, you know, the best thing I can tell you is it does feel good to have it over.

with. Got it. And you mentioned doing some more hiring on the industrial side. I mean, in the past, you've talked about maybe trying to add more business on that side that's outside the building. I'm curious if any of that hiring is focused there, or maybe just in general, help us understand kind of where you see opportunity to win new business there. We've been winning in most of the time.

more diverse auctions, not just outside the building, but in other sectors. You know, there's lots of new sectors that are basically getting busy now. The EV sector is getting busy. The cannabis sector is getting busy. Lots of the food and beverage sectors are getting busy. So there's lots of kind of inside the building manufacturing getting busy, coupled with a lot of outside the building construction and transportation transportation. So when you see this kind of broad group of asset classes getting busy, We're just building up because we think the amount of auctions and the size of auctions are going to grow over the next year or two years.

And we want to make sure that we have the right sector and geographic coverage. So, you know, this is not the type of business where we're looking to hire dozens of people. but we're going to add some select people to make sure we get as broad a coverage as we can.

Okay, thanks for taking the questions. Thank you. Thank you. We'll take our next question from Michael Diana with Maxim Group. Please go ahead. Your line is open. Hi, Michael.

Thank you. Hey, Ross. So you mentioned construction and transportation, which has been very successful for other people. What is your strategy or niche or whatever that you're going for there?.

Yes, the really, really big firms doing it, and there's obviously one monster firm, we're not out to try to take them on. There are lots of regional auctions. where in the end of the day, they're underneath the radar of somebody at that size. Half a million dollar auctions, million dollar, two million dollar auctions. And those are really kind of our sweet spot. The auctions, you know. from basically half a million to five to 10 million of our sweet spot. We're not looking to win the $50 million fleet auctions, but the individual owner retiring or the struggled company with some financial trouble that needs someone to come in right away with a lot of hand holding, kind of really fits our DNA and culture. And we've won what I'll call kind of one-off transactions that aren't from the biggest institutions or the biggest rental companies, but from individual sellers who were looking to really with somebody on a one-on-one basis and and we think there's a lot of that coming forward right now and so we just want to make sure we can serve that market Michael.

Yes, okay, that's what I figured, that's great. So you're in an area where you can compete well. Going to Boston Node, I'm somewhat ignorant on the terminology there. Could you just explain to us what a seller node and a carryback node is?.

I sure can. So when an individual sells a property, it could be his residential property. It could be multifamily. It could be any really category of property. It could be any kind of commercial property. And an individual sells that property. And for whatever reason. The buyer won't either qualify for a bank loan or the seller of the property wanted a steady income and said, you don't need to go to the bank. I will become your lender. He carries back the loan. So the seller carried back a first deed of trust. trust secured by the collateral of the property he used to own.

Now, one year later, two years later, three years, four years later, for whatever reason, he wishes he could monetize that loan and he really would like to get all of this cash, not get the month. payments anymore. So he didn't really know where to go. He or she, as an individual, it wasn't that simple to go find a bank, to sell it to. So Boston Note for the last 30 years, primarily on the residential side, it says, come to us. and we will get you all cash and get you out of that seller carry back and you'll be done with it and have the money in the bank. We figured out with the CEO of Boston Note, what if you did this for commercial loans, which is, you know, 50X bigger business, and what if you did this for larger jumbo real estate loans and non-performing loans and really extended the offering, what would it look like? And he said, would it look like a lot more profitable, a lot larger company? How can you execute this? And we said, we think because of the two companies we already own, that putting everything together, we think it can really scale.

Okay, that sounds very logical. Do you have any idea, does anybody keep track of the magnitude of just the residential part of the market? I mean, how many of these carry-back notes are out there? Yes.

All I know, I don't have the exact number, when we did the original... basically analysis you know we were under two percent of the market so the market is you know a hundred times bigger than what boston note which is the boutique firm was doing.

Okay. Okay, great. Okay. Thanks, Ross. Thank you, Michael.

Thank you. I'm showing no additional questions at this time. I'd like to now turn the meeting back to Rosto for any additional or closing remarks.

Thank you all for attending. We got our work cut out for us, but we're very comfortable that we're in the right place at the right time with the right plan. So, you know, keep an eye on us and I think you'll be very pleased as we move forward through the year. Thank you all and anybody who has questions, And just you can contact us at any time, and we'd love to chat with you. Thank you again. Bye-bye.

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

Hello, and welcome, everyone, joining today's Heritage Global Inc. First Quarter 2026 Earnings Call. [Operator Instructions] 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.

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.

Thank you, John. Good afternoon, everyone, and welcome, and thank you for joining. As always, I will add a bit of color, and 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 bucks ain't what it used to be". I can hear my mom saying, "just okay, isn't okay". And I hear you mom.

Q1 earning $1 million NOI was the story really truly in two parts. It was a respectable profit but 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.

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.

And 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 tenants 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 a 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, and as mentioned on our fourth quarter 2025 earnings call, we acquired substantially all of the assets of the Debt Exchange, a leading full-service loan sale adviser 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, and after removing amounts due to our clients or payables to sellers on our balance sheet. Our net available cash balance was $6.2 million. And 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 of shares that may be purchased under the 2025 repurchase program. And with that, Ross, I'll turn it back over to you.

Thank you, Brian. So our commitment across the board is entirely to growth right now. That is 100% of our focus, and 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, and we anticipate a record year in the subprime auto sector, and we're very confident about it. HGP has added four 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 nonbanks.

Overall, we're comfortable with our plan. We're comfortable with our prospects, and we're comfortable with our position in the marketplace. So really, at this point in time, it is all about execution and making a solid push for growth. And 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 us. We look forward to talking to you throughout the year and showing you how we grow this business. Best to you all, and we're here to answer questions now or any time you wish.

[Operator Instructions] And we will take our first question from Jacob Stephan with Lake Street Capital Markets.

So it seems like 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.

So 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. And we have some of our clients that are expanding the amount of assets they're giving us.

So 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, but 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 the lenders and everybody just don't get out the gate selling. They get out the gate figuring out what they want to sell. So 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 smaller deals. And on the good side, they're coming from not just banks, but they're coming from specialty lenders and nonbanks and insurance companies. So we've really got a broad-based offering in Q2 and beyond. And it's kind of why we're optimistic. I'll end it there.

Great. And maybe just one more. It seems like gross margins were pretty solid this quarter. I'm curious, as we look forward with better kind of revenue, it sounds like in the future, especially from DebtX, what's kind of a good gross margin kind of level that you feel like you can reach?

Brian, I'll let you handle that one.

Yes. So 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. So the more revenue we generate at DebtX, the higher the margins should go. We've historically had a mix of industrial and financial margins between 50% and 70%. I think as we get higher to 70% is a good target with a strong performance from the financial side.

And at this time, this concludes our question-and-answer session. I will now turn the meeting back to management for closing remarks.

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. So stay tuned, and we're going to get to work. Thank you.

Thank you. This concludes today's meeting. We appreciate your time and participation. You may now disconnect.

Hello, and welcome, everyone, joining today's Heritage Global Inc. Fourth Quarter 2025 and Year-End Conference. [Operator Instructions] Please note this call is being recorded and we are standing by should you need any assistance. It is now my pleasure to turn the meeting over to John Nesbett of IMS Investor Relations. Please go ahead.

Thank you, and good afternoon, everyone. Before we begin, I'd like to remind everyone that this conference call contains forward-looking statements based on our 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, go ahead.

Thank you, John, and welcome, everyone, to the call. We're glad to have you. Just a few brief comments before I turn it over to Brian to drill down on the quarter and the year. 2025 is in our rearview mirror. It was a good profitable year with lots of transactions, but just no needle movers. Some years, you want to never end, but there are years where saying goodbye feels more than ready. 2025 felt mostly like we were rode hard and put to bed wet. 2026 feels like a break loose year is right here and right now.

When that happens, it almost always follows with a period of larger transaction as companies and lenders do not hold back asset flows year after year, they ultimately break loose. What we're seeing now is not just new deals entering the pipeline more aggressively than before, but many, many of the carryover deals now starting to convert to transactions, which really bodes well for the start of 2026 and beyond. Our own internal growth drivers are completely in place now and all the divisions we see expanding, and we're looking at more supply, more activity, and on that front, we're adding business personnel across the board.

We recently moved into a brand-new, shiny facility that we're very excited and proud about. And that opens up space in our warehouse capacity to increase auction activity, and it also opens up office space to where we have room to add the personnel in an integrated situation where we can really work together as a team, so that's very exciting for all of us.

M&A remains a front burner, and we're aggressively looking at many, many opportunities. We are very proud and excited that we did complete the DebtX acquisition. We're now focused there on integrating the team with really optimistic goals that we did the right thing at the right time and the CRE markets are under a lot of pressure to release loans in our marketplace and in their sweet spot.

The goal for 2026 is to define it as the year of the needle mover. We're putting all our feet on the gas, and we believe everyone that had two feet on the brakes is getting ready to move, and we're getting ready to move with them. With that, I'll turn it over to Brian, and I'll add some additional comments afterwards. Have a great day. Brian?

Thank you, Ross, and good afternoon, everyone. I'll begin with a brief overview of our fourth quarter operating results before walking through our industrial and financial segment performance. Consolidated operating income was approximately $800,000 in the fourth quarter of 2025 compared to $1.5 million in the fourth quarter of 2024. It's worth noting that included in the 2025 fourth quarter was approximately $400,000 in expenses related to due diligence associated with our M&A efforts.

Our Industrial Assets division reported operating income of approximately $1.1 million in the fourth quarter of 2025 compared to approximately $800,000 in the prior year quarter. Our Financial Assets division reported operating income of approximately $900,000 in the fourth quarter of 2025 compared to $1.9 million in the prior year quarter. Our Industrial Assets division had a solid quarter as the division continued to capitalize on key auction and liquidation opportunities.

ALT delivered a strong close to the year, reporting operating income of $538,000 in the fourth quarter of 2025 compared to $276,000 in the prior year period. We saw a high volume of asset transactions in the quarter, although many were smaller in scale as companies continue to delay larger decisions amid ongoing economic uncertainty.

Following the close of the quarter, we announced that HGP has opened its new San Diego facility, which consolidates HGP's warehouse and operations and will serve as Heritage Global's corporate headquarters. The new purpose-built facility was designed to accelerate growth, increase operating efficiency, provide ability to add personnel and scale, and we're confident it is the right space and location for us to drive our next phase of growth.

Our Financial Assets division maintained strong profitability in the fourth quarter of 2025, although we saw lower revenues from recurring clients in our NLEX segment, reflecting fluctuations in charge-off volumes. With that said, consumer loan delinquencies, such as credit card and auto remain at elevated levels, and we ultimately expect those delinquencies to translate to increased charge-offs moving forward.

Subsequent to the quarter, we announced our acquisition of substantially all of the assets of the Debt Exchange, a leading full-service commercial and residential real estate loan sale brokerage and advisory platform. The DebtX integration has gone very smoothly, and this addition further expands our capabilities and reach in our Financial Assets segment. We believe this acquisition will be accretive in calendar year 2026 with potential quarter-to-quarter variability. Moving forward, we remain focused on capitalizing on our pipeline of opportunities and driving continued profitability in the division.

Additional consolidated financial results include the following: revenue was $11.9 million in the fourth quarter of 2025 compared to $10.8 million in the fourth quarter of 2024. Adjusted EBITDA was $1.1 million compared to $2.1 million in the prior year period. Net income was approximately $300,000 or $0.01 per diluted share compared to a loss of approximately $200,000 or $0.01 per diluted share in the fourth quarter of 2024.

Fourth quarter 2025 net income was impacted by a noncash tax allowance adjustment of $0.1 million related to expiring net operating loss carryforwards compared to a noncash adjustment of $1.3 million in the fourth quarter of 2024. Our balance sheet is strong with stockholders' equity of $67 million as of December 31, 2025, compared to $65.2 million at December 31, 2024, with net working capital of $18.1 million.

Our cash balance reflects a total of $20.5 million as of December 31, 2025, and after removing amounts due to our clients or payables to sellers on our balance sheet, our net available cash balance was $13.2 million. At December 31, 2025, approximately $18.9 million of federal net operating loss carryforwards were unused and expired. We expect to utilize our remaining net operating loss carryforwards of approximately $15.5 million and as such, have removed the valuation allowance against our deferred tax assets.

And lastly, we did not repurchase any shares in the fourth quarter of 2025, but intend to resume share repurchases moving forward. As a reminder, the company authorized a new share repurchase program on July 31 that authorizes the repurchase of up to $7.5 million in common stock for the next 3 years. Ross, I'll turn it back over to you.

Thanks. So I'll just add one thought. When I look at everything with kind of a CEO dashboard, one of the most important things I look at is the sentiment of our business development team, and they're all very pumped up.

They're all very convinced they're going to have a great year this year, and I've talked to them individually one by one, and we enter very, very excited closing out the first quarter that we're in the right place at the right time and anxious to not just perform but outperform for you guys. So thank you all for joining, and I'm here and Brian is here for any questions, and we're always easy to get a hold of. Thank you again.

[Operator Instructions] And we'll take our first question from Mark Argento of Lake Street.

Congrats on the DebtX acquisition, and it sounds like things are starting to progress nicely there and the overall business. But just kind of getting in the weeds on the acquisition, when you say you expect it to be accretive, is that on a net income basis, adjusted EBITDA basis? I hate to split hairs, but it would be helpful to at least better understand what accretive means.

Brian, I'll let you handle that one.

Yes. So we expect it to be accretive on an operating income basis as well as net income basis. So we've disclosed a couple of numbers just on the stand-alone DebtX 2025 result, which, as a reminder, that wasn't a part of our consolidated results, but they reported $800,000 in operating income in 2025. And even with adjustments that we'll disclose in Q1 numbers for pro forma purposes, it will still be -- that number will still be accretive if they were to make that, and we expect them to do more.

Got it. And I know you mentioned some variability quarter-to-quarter, which is understandable. Is there any traditional seasonality to that business?

They generally have a very strong Q4, Mark. As you know, primarily, their business is driven by lenders, by banks, more than by specialty lenders. Their primary client is banks. So there always seems to be in the last 60 days, a desire to clean up, so to speak, so generally, Q4, you'd expect to be their big quarter, sometimes over 50% of the revenue.

Okay. That's helpful. And then in terms of the broader macro, you touched on it a little bit, you're seeing default rates continue to work higher on the consumer. Obviously, a lot of the headlines recently have been in and around private credit. There's been -- seems to be some disruption there. Do you guys have any exposure to that part of the market? Does DebtX get you any exposure there? How are you thinking about private credit and maybe that opportunity?

There's a big opportunity right now. Obviously, I mean the DebtX acquisition was tied to the problems in the CRE market and the amount of loans coming due that are struggling to get refinanced. A lot of those loans have transferred from the banks already to private credit, but there's still going to be a desire to take out the more struggling part of the portfolios.

So we see growth kind of overall right now and not just the CRE with DebtX but there was a lot of holdback in NLEX. We had a very profitable year, but not close to our record year. We just didn't see as aggressive movement from the sellers as we anticipated. So we think there's a pent-up amount of assets to come to market.

[Operator Instructions] And we'll take our next question from George Sutton of Craig-Hallum.

So Ross, I'm curious, as you talk about 2026 being a year of hopefully some larger transactions, and I know you've already signed a large oil and gas deal. Can you just give us a picture of what you see relative to larger transactions? And maybe a little sense on why did we not see it last year? Why would we see it differently this year?

I mean I'm not going to be like the general economist and try to outsmart the marketplaces. I can only tell you from my front row seat talking to clients, and from my front row seat, there was a hesitation to make decisions.

And just from a geopolitical, they're going back and forth on the tariffs and many other macro issues, people weren't sure exactly what they wanted to do, so I don't want to say that people don't have a lot of assets they wanted to sell, but it just appeared that, yes, they would chip away at the smaller sales, the stuff that was really obviously declared surplus. But on the larger transactions where maybe you have to replace the assets and you're worried about the availability, maybe you're not sure if you're going to expand or hold back.

There was just a general sentiment that not just Heritage saw, but I think everybody watching the economy saw many, many companies in a wait and see, and in a wait and see, auctions are not your first move. They're a tertiary move once you have the other plans in place, so we had a lot of people just say, call us back in a month, call us back in 2 months, call us back in 3 months.

So the good news is we didn't really lose our conversion rate. It's just that a lot of the transactions just didn't happen that we thought were going to happen, so they're starting to come back now. That's why I say I feel positive that I've never seen a year after year wait-and-see period where eventually people don't commit. So I feel good about 2026, George.

Well, let me ask a little more specifically. You mentioned we're about to close out Q1. Are we starting to see the indications of these larger deals? And again, I'll point to the oil and gas transaction. I think that was happening earlier in the year. If you could just -- if you have any sense...

Yes, you're starting to see the signing of them. We're going to have a decent Q1 for sure on the industrial side. When I say decent, meaning I'm excited about the amount of auctions we're doing in Q1, and some of them are of a larger nature, so it looks good on the industrial side. On the financial side, it takes a little longer for the pickup in the curve. But all signs point to the amount of meetings they're having and that they're signing some new forward flows.

So I think you'll see that pick up as the year goes on, maybe a little bit slower than you'll see the pickup in industrial. But we're busy on all fronts. And it feels like when you start a year busy, it usually stays busy all year, George. It usually doesn't tail off.

One small question for Brian on the specialty lending side. It normally is a modest positive every quarter, and it was modestly negative this quarter. What do you account for that delta?

The main reason why we're kind of right around that breakeven point or slightly under is the lack of funding. We've been only funding smaller loans on a self-funded basis without any partners and at a low level, so in order to maintain profitability, we have to be able to and be willing to put more dollars out to work with new borrowers in 2026.

At this time, there are no further questions in queue. I'll now turn the meeting back to management for closing remarks.

It's Ross. Thank you all once again for joining. We really appreciate it. If any of you have other questions, please feel free to contact us at any time, and we're always open to chat, always look forward to chatting and always look forward to talking and getting to know you guys, so feel free to reach out at any time.

We're hoping for a dynamic year. We're putting all of our feet on the gas, like I said, and we're optimistic. So hopefully, you're optimistic with us, and we appreciate you joining. Have a great evening.

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

Hello, and welcome to today's Heritage Global Inc. Third Quarter 2025 Earnings Call. [Operator Instructions] Please note this call may be recorded. [Operator Instructions]

It is my pleasure to turn the program over to IMS Investor Relations, John Nesbett.

Thank you, and good afternoon, everyone. Before we begin, I'd like to remind everyone that this conference call contains forward-looking statements based on our 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 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?

Thank you, John, and welcome, everyone, and thank you for joining. The older I get, the faster every 90 days seems to come. What never changes is every 90 days presents new opportunities and challenges. Earning $1.4 million in EBITDA in this 90 days was to me more than meets the eyes.

My brother and lifetime business partner always said, Ross, numbers don't lie. To put that in context, every Sunday he was on the golf course, and I was in the card room. Of course, he was correct. But what I have learned is there are many factors to the story beyond the numbers. The greatest challenge in the business is not always execution, but equally significant, how you play the cards you dealt.

For many reasons, we were challenged and succeeded through a wait-and-see economy for transactions. We made a profit more like a journeyman fighter going all 12 rounds because we kept swinging. With many large transactions slowed in a wait-and-see time with interest rate and tariff considerations and overall less ability to execute large transactions, there were no needle movers. Opportunities we performed were at a high conversion rate on transactions. That did occur, albeit a lot of smaller ones.

Without overemphasizing the future outlook, on the financial side, regional banks continue to report an increase in distressed assets and every indicator says asset flow is on the rise. On the industrial side, a continued push towards lean manufacturing and the prediction of more consolidation over time also bodes well for increased asset flow.

We have built both our balance sheet and staffing and systems very prepared to garner market share as opportunities arise. Further, I am excited to report after a 2-year phased approach to our M&A, we are well past fine-tuning our strategy and 100% now in tactical execution. We have isolated the companies that I define as plugging in the gaps, that will create long-term shareholder value with the fastest accretion dynamics.

I call it our GS plan, geography and sector growth. We know the sectors we believe we can serve as needle movers and the geographies we can win and execute in. We are also in advanced negotiations with who we have identified as best practices and as important, a shared vision, like-minded DNA and all in one to new paddles in tandem. When is day 1 on this. Near term is now our emphasis and all hands are on deck.

With that, it's time for Brian to drill down on the quarter, and I'm here to answer any questions once he shares the current results. Thank you all for joining. Brian, you're up.

Thank you, Ross, and good afternoon, everyone. I'll begin with a brief overview of our third quarter operating results before walking through our Industrial and Financial segment performance.

Consolidated operating income was $1.3 million in the third quarter of 2025 compared to $1.5 million in the third quarter of 2024. Our Industrial Assets division reported operating income of approximately $900,000 in the third quarter of 2025 compared to approximately $700,000 in the prior year quarter. Our Financial Assets division reported operating income of $1.6 million in the third quarter of 2025 compared to $1.8 million in the third quarter of 2024.

Our Industrial Assets division executed well on Auctions and Liquidation opportunities, and we saw growth in our Refurbishment and Resale segment. ALT reported improved operating income of approximately $400,000 in the third quarter compared to approximately $200,000 in the third quarter of 2024. The third quarter also included a healthy amount of auctions, though the volume was primarily comprised of smaller scale activity as certain companies opted to hold off on larger scale nonessential transaction decisions amid ongoing economic uncertainty.

As we close out the year, we are energized by the opportunities ahead and proud to be nearing the completion of our new facility in San Diego, a key milestone that supports our next phase of growth. Our Financial Assets division reported solid profitability in the third quarter. While our Brokerage business was down slightly quarter-over-quarter, NLEX continues to proactively add new sellers to our existing clients.

Transaction volumes from our largest recurring clients softened early in the quarter, but ended September in an upward trend leading into the fourth quarter, which historically represents a stronger period as lending institutions work to optimize their balance sheets ahead of year-end.

Overall, consumer debt remains at high levels even as credit performance metrics suggest that the market has stabilized this year. At the same time, regional banks are facing increased scrutiny over the quality of their loan portfolios, which we believe will lead to higher charge-offs and nonperforming loan volumes as these institutions begin to offload underperforming assets.

Additional consolidated financial results include the following: adjusted EBITDA was $1.6 million compared to $1.9 million in the prior year period. Net income was approximately $600,000 or $0.02 per diluted share compared to net income of $1.1 million or $0.03 per diluted share in the third quarter of 2024. The change largely due to a noncash adjustment made to the valuation allowance against our deferred tax assets as we fine-tune our estimated utilization of net operating loss carryforwards prior to expiration at year-end.

Our balance sheet is strong with stockholders' equity of $66.5 million as of September 30, 2025, compared to $65.2 million at December 31, 2024, with net working capital of $17.9 million. Our cash balance reflects a total of $19.4 million as of September 30, 2025. And after removing amounts due to our clients or payables to sellers on our balance sheet, our net available cash balance was $12.6 million.

M&A remains a critical component of our long-term strategy and capital deployment framework. Now with a sharpened focus, our team is laying the groundwork for accretive transactions that will define the next phase of the company's strategy and growth prospects. We are optimistic and motivated. This is the right time and the opportunities ahead are compelling.

We did not repurchase any shares in the quarter as we have prioritized maintaining our cash position given our advancing progress on the M&A front. With that said, the company authorized a new share repurchase program on July 31 that allows for the repurchase of up to $7.5 million in common stock over the next 3 years, though it remains a part of a capital allocation strategy.

And with that, I'll send it back over to Ross.

Thank you, Brian. After hearing you, I think it's worthwhile to take a moment to add some details to our M&A strategy. We're focused on businesses that are very capable of operating independently that we also believe can scale significantly and thrive within HG, companies with systems and processes that are a match day 1. Our goal is to build shareholder value that both lasts long term and have built a last heritage, while we're also mindful that the value also needs to be transferable to the market at large. This took a long time to get there, but we're well on the way now and excited about our future. Thank you all for listening in. We're here for any questions.

[Operator Instructions] We'll take a question from Mark Argento of Lake Street.

Just one in terms of capital allocation question. I know M&A is important from a strategy perspective, you guys have been focused on it for a while. But with the stock kind of where it's at, you kind of come into this question of just -- do you just get aggressive and buy more of your own stock back in the business you know and know well versus allocating capital to new acquisitions. Probably the answer is somewhere in between, but how do you guys think about it? What are the criteria when you're looking at M&A from both the strategic perspective, but also from an accretive financial perspective?

Right. So we thought these M&A transactions were more in the distance than they are then we would have put a greater emphasis on buying the stock back. Yes, we think the stock is way undervalued. But at the same time, we think that these acquisitions are really going to help grow the company and showing growth in the company is really the most significant and most important thing we can do. However, we did authorize $7.5 million and are prepared to flip the switch, so to speak, and start buying stock back. But right now, there's a heightened emphasis on getting some things that are right in front of us done first, Mark, if that's a fair answer.

Yes. No, that's a fair answer. Just pivoting to the business. You said the Industrial Assets, you saw a decent amount of activity, but there were smaller -- either smaller ticket type transactions or a little different mix. What is it in particular? I think you've kind of called it taking a wait-and-see approach, but what is it that you see a lot of these potential sellers or customers? What are they waiting for? Are they waiting to see government...

It felt like a lot of companies were releasing some surplus assets in kind of a hold-on mode rather than shutting down. And it felt like other companies were holding assets because they're looking at -- and these are the larger companies. They were looking at M&A, but they have concerns about if the supply chain is going to be wide open and they can get new assets. So there was just a certain amount of people that weren't making the significant big decisions.

So we made a profit working really hard, doing a lot of work on a lot of smaller transactions that were less needle movers, but fortunately, you added them all up together and they added up to a profit. But we didn't have that 1 big or 2 big or 3 big, really large auctions that we usually get in the quarter.

Got it. And one more housekeeping one for Brian. So it looks like you guys paid off the remaining couple of million dollars on that ALT note. And really, at this point, really the only real debt you guys have on the books is just the mortgage, right, for your new headquarters. Am I looking at that correctly?

Yes. So we purchased the building early this year for $7.3 million approximately and took out a $4.1 million interest-only mortgage for 3 years. And we did pay off the ALT note after 4 years. So that's the only debt currently on the balance sheet other than we have the capacity on our line of credit, which is at a 0 balance currently, $10 million capacity.

[Operator Instructions] And it appears that we have no further questions. I'd be happy to return the call to management for closing comments. Actually, we do have a follow-up from Mark Argento of Lake Street.

If I got the mic, I got the mic, right? Let's keep going.

Yes. Go for it. Go for it.

Well I was going to ask, but I wanted to see if somebody else would was just any updates on any progress in regards to Heritage Capital and working down of the portfolio there and the related assets there?

There's real progress, but I'll let Brian take over. Brian, go ahead.

Yes. So just a couple of high-level notes. This is really a long-term workout that requires a couple of things, meaning, one, alignment with our senior lenders and the borrowers, so all parties that are involved and requires a good plan. So we do have alignment with our senior lenders, and we do have a plan. And we've talked about the plan being one of the key initiatives in that plan being allocating cash to the legal process. So we've been spending. We've been investing in that process since late last year and initial results are positive right now, and we're kind of on an accelerated time frame now after those results to get as many consumer accounts into the process as we can.

So progress is solid right now. No change to the reserve. And as long as we continue along this path, I think we'll be in the best position in the long term.

Got it. It looks like you guys maybe paid it down a little bit, like a couple of hundred thousand dollars or something in the quarter. Is that accurate?

Yes. We have a small portion of really high-performing loans and good borrowers that spins off some interest income. So we do -- we are operating at a small profit right now.

And it appears that we have no further questions at this time. I'd be happy to once again return the program to our management for closing comments.

Thank you all for joining. Thank you all for listening. Thank you all for sticking with us. I leave the call, like I started the call, feeling very positive that we're in the right place at the right time with the right opportunities right in front of us, and we positioned ourselves well to capture and optimize what exists in front of us. So I'm feeling good, and hopefully, you enjoyed the call, and we've given you some decent insight into where we're going. So thanks for joining. We're always available if you want to check in with us. Everyone, have a great day.

This does conclude today's conference. You may now disconnect your lines, and everyone, have a great day.