Heritage Global Q3 2026 Earnings Call Transcript

Heritage Global (NASDAQ:HGBL) reported third-quarter financial results on Thursday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

Heritage Global reported a profitable third quarter with $1 million in net operating income, driven by strong performance in the Industrial Assets division, which saw a significant increase in operating income compared to the previous year.

The company highlighted strategic acquisitions and a robust pipeline in multiple sectors, including a $2 million investment in pharmaceutical sites in Colorado, with plans to maximize real estate potential through various strategic options.

Heritage Global is winding down its HTC business to focus on asset-light sectors, with positive early results from its Boston Note acquisition, though Dedex has underperformed expectations.

For future outlook, the company is optimistic about a strong finish to 2026 and beyond, with plans to expand service lines and integrate offerings across its divisions.

Financial metrics for the quarter included a revenue increase to $14.6 million, although adjusted EBITDA decreased slightly compared to the previous year. The company also secured a new $10 million revolving line of credit to enhance financial flexibility.

Full Transcript

OPERATOR

Anybody there?

John (Investor Relations)

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, 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)

Thank you, John. Welcome everyone to our third quarter call. Thank you all for joining. Before Brian walks you through the numbers in detail, I want to take a few moments to give you my thoughts on what the numbers say to me from my upfront, close view. Making a million dollars in NOI was positive movement forward, but there is more to digest. It’s always also about how we made it and what worked and what still needs work. On the real good news front, we had a great Industrial quarter with diverse auction sectors and larger transactions. It was highlighted by also winning many quality assignments for Q4 along with a major acquisition of plant and real estate in Longmont and Boulder, Colorado. With our great partner team, our pipeline now has multiple large opportunities that include other campuses and potential acquisitions, which is really very refreshing. After a pause and slowdown, we’re back with fences to swing at and a feeling many stalled projects are now really in motion.

We’ve got our seat belts fastened to drive it hard and fast. As I often say, we’re not the leading indicator but the trailing benefactor, and in the marketplaces we see, they’re open for business across multiple sectors, and we’re very busy. On the Financial Assets side, Financial Assets has lots of promise but also plenty of work to be done. We’re winding down the business of HTC that was problematic and a distraction, and putting all of our focus now completely on three complementary asset-light sectors.

We have a very solid NLEX and indicators the business has a bright finish to the year and well, well beyond. Our two newest acquisitions have had mixed results, with Boston Note exceeding early goals and Dedex not yet where it needs to be or where it can and will be and should be. We like our plan of integrating the offering of all three and expanding the service lines and believe in 2027 getting our capability and our stories out to the market. Along with the HTC cost eventually gone and finally compete, we’re poised to capture our full potential. Morale and confidence in our team is high for a strong close to 2026 and a great next year and beyond. We’re very confident and we feel good about our position today. Brian, take it away.

Brian (Chief Financial Officer)

Thank you and welcome everyone. We delivered a profitable third quarter that reflects solid execution across our core business, led by a strong performance from our Industrial Assets division. Consolidated operating income was 1 million in the third quarter of 2026 compared to 1.3 million in the prior-year quarter. Our Industrial Assets division reported operating income of 1.5 million in the third quarter of 2026 compared to approximately 900,000 in the third quarter of 2025.

In our Financial Assets division, we reported operating income of approximately 800,000 in the third quarter compared to 1.6 million in the prior-year quarter. Our Industrial Assets division had a strong quarter highlighted by healthy auction volume and a return of larger-scale transactions. The industry range of our auction activity was also more diverse than prior quarters as we executed auctions across the transportation, metalworking, and semiconductor sectors, among others, in addition to continuing our long-standing biotech and pharma activity. We’re encouraged by the depth and quality of our auction pipeline as we move into the fourth quarter and 2027.

During the quarter, HCP also made a $2 million investment in a joint venture that acquired two pharmaceutical sites in Colorado. We currently have multiple planned auctions to monetize the equipment assets and are evaluating strategic options to maximize the real estate potential of the sites through lease, sale, or development. In our refurbishment and resale business, ALT delivered another good quarter as we’ve continued to upgrade the quality of our inventory and add assets to the business.

Our Financial Assets division delivered another profitable quarter as NLEX reported solid results, and we continue to see steady activity across the charge-off and non-performing loan space. We’re also very pleased with the early performance of Boston Note, which we acquired in late July, as the team delivered strong execution during the quarter while integrating quickly with the business. Results from Dedex did not meet our expectations for the third quarter; however, we remain confident in the business. We continue to see real opportunities in the CRE marketplace, and we’re strengthening our sales and marketing efforts to better drive deal flow. Meanwhile, the wind-down of HTC is progressing as planned and is allowing us to sharpen our focus on growing our core, capital-light business.

Additional consolidated financial results include the following: Revenue was 14.6 million in the third quarter of 2026 compared to 11.4 million in the third quarter of 2025. Adjusted EBITDA was 1.4 million compared to 1.6 million in the prior-year period. Net income was 1 million, or $0.03 per diluted share, compared to approximately 600,000, or $0.02 per diluted share, in the third quarter of 2025. Our balance sheet continues to be a strength. Stockholders’ equity was 53.1 million as of September 30, 2026, compared to 67 million at December 31, 2025.

With net working capital of 8 million, our cash balance reflects a total of 15.6 million as of September 30, 2026, and after removing amounts due to our clients, our net available cash balance was 6.4 million. Further, in September, we strengthened our financial flexibility by entering into a new $10 million revolving line of credit with C3 Bank that runs through January 2028, replacing our prior facility that matured this past July. As of September 30, 2026, we had a $2 million outstanding balance on the facility drawn in connection with the initial cash outlay for our most recent HCP joint venture investment.

And with that, Ross, I’ll turn it back over to you.

Ross Dove (Chief Executive Officer)

Thank you, Brian. So, watching my son run 100-mile races, it’s changed my thinking about quarters. I don’t see them as finish lines anymore, but actually as rest stops—a time to take a quick breather and refuel, head back up and down the hills until you run the tape, and then get ready for the next hundred miles. It’s a long race, and hopefully we can take a few moments again in 90 days to talk about it again. If you guys want to chat sooner, just reach out because we can run and talk at the same time.

We’re ready now for any questions. We thank you for participating, and we look forward to continued participation and us performing at a level to get you excited. Thanks a lot, guys.

OPERATOR

Thank you. If you’d like to ask a question, press Star-1 on your keypad. To leave the queue at any time, press Star-2. Once again, that is Star-1 to ask a question. We’ll pause for just a moment to allow everyone a chance to join the queue. Once again, that is Star-1. We’ll take our first question from George Sutton with Craig-Hallum. Please go ahead. Your line is now open.

Logan (Analyst at Craig-Hallum)

Hey, guys. Afternoon. This is Logan on for George. So, Ross, I wanted to start with Dedex. I hear your comments that the performance hasn’t been kind of up to par so far this year. Just wondered if you could give us some more details on what’s driving that. Is it just performance? Has something changed in the market? I guess, can you just speak to—has your perspective on that business changed at all as we head into next year?

Ross Dove (Chief Executive Officer)

I remain just as excited about the business as I was before we bought it and after we closed it. So it hasn’t changed my encouragement, but it’s been slower than I expected in a marketplace where we’ve got a trillion dollars of commercial loans coming due, and there’s been a lot of struggle with a lot of companies to refinance them. I just think there’s been a bit of a lag in my anticipation of how fast we’d be able to jump in and monetize those.

So, you know, the solution, if there is a solution—some of it is timing, to be honest with you. And, you know, they’re forecasting a much stronger Q4. So it’s a little bit of a wait-and-see there. But we’re not operating it like a wait-and-see company. We’re looking to expand our sales force to reach a broader audience. There’s more sales coming from non-banks than traditionally, where most of the CRE sales were coming from banks selling the assets.

Plenty of assets have been transferred to non-banks who are also looking to monetize assets. So we’re just going to expand and broaden our coverage and keep pushing forward in a market that we know is solid and growing. So we’re ambitious about proving the acquisition right and confident we’re going to.

Logan (Analyst at Craig-Hallum)

So it was nice to see the auction results this quarter, and it certainly sounds like—I know you guys have been doing work across some different verticals, and it sounds like you’re seeing good momentum there. So I just wonder if you could speak a little bit to what signals you’re seeing and give you confidence that quarters like this are repeatable going forward.

Ross Dove (Chief Executive Officer)

So, like I said many, many times, we’re not the leading indicator; we’re the trailing benefactor for what’s happened over the last two years. And what’s happened over the last two years is we saw a lot of layoffs. We saw a lot of companies file Chapter 11s. Many of those have been converting to Chapter 7s now as there’s been a time lag, and on the layoffs—obviously those layoffs produce assets six months, a year, and a year and a half later. So the pendulum has swung in our favor now, and we’ve just seen a lot of larger assets, some of which we’ve been able to monetize in a very solid Q3, some of which we’ll monetize in Q4.

And the pipeline has multiple large opportunities in it right now across multiple sectors. You know, there’s a lot of potential trucking auctions, there’s a lot of potential food and process auctions, there’s a lot of medical device potential auctions. So there’s lots of broadened opportunity besides just our core business of the pharma and the bio. So our core business is now expanding to a lot of different core business sectors, which bodes well for not just Q4, but it bodes very well for 2027.

Logan (Analyst at Craig-Hallum)

Okay, last one for me. I think you referred to NLEX as kind of performing steady. Can you just walk through maybe the supply and demand sides over there and just talk about what’s the limiting factor on growth right now?

Ross Dove (Chief Executive Officer)

So right now we’re doing a lot of sales. The prices have slowed down a bit from the rising tides you saw, you know, kind of during the pandemic and right post-pandemic because there’s actually increased supply, but there’s increased supply at a little lower price. So that means we need more volume to grow, which we’re working on—signing up more new forward-flow clients. Why do I feel really good about it? Because what hasn’t slowed down is the capital raise in alternative lending.

So as the capital raise in alternative lending continues, over a period of time that turns into sales for us. And, you know, we’ve seen now that a lot of the non-performing loans are beginning to convert to charge-offs that were non-performing loans six months ago, nine months ago, a year ago. So, you know, if you just look at it and step back and say, are we getting more and more charge-offs or less charge-offs? It’s not decreasing, and it is growing.

So it’s us getting new clients, and there are a lot of new clients out there that are fintech clients that are just starting to see that over the last two or three years they’ve created part of their asset portfolio that needs to be monetized in an NPL fashion. So I think we got a strong couple-year run.

Logan (Analyst at Craig-Hallum)

Okay, thanks for taking the questions.

Ross Dove (Chief Executive Officer)

Thank you for asking.

OPERATOR

Thank you. We’ll take our next question from Marlon Kamabowskos with Freedom Broker. Please go ahead. Your line is open.

Marlon Kamabowskos (Analyst at Freedom Broker)

I don’t hear. Hello everybody, can you hear me?

OPERATOR

We can now. Yes.

Marlon Kamabowskos (Analyst at Freedom Broker)

Yes, thank you for taking the question. My question will be on the capital allocation. So following the investments in Dedex and Boston Note, how are you thinking about capital allocation priorities going forward? Is the focus now more on scaling businesses, or do you continue to see opportunities for additional investments?

Ross Dove (Chief Executive Officer)

So it’s a good question. We have a very active board discussing capital allocation and what’s the best use of our money and what’s the best use of our funds. And, you know, there’s multiple choices. Right now, I would say M&A does not have the same urgency it did before our last two acquisitions. Right now we really want to focus internally on getting everything in sync—finding all of the synergies in all of our core businesses. There’s lots of opportunities that look like they’re coming up to basically put out capital, and potentially larger capital, on industrial acquisitions.

So we’re really kind of more focused on building our capital, building the amount of cash we have available, than we are deploying it. There’s talk, obviously always, about it’s important to have a buyback program in place—that exists. There’s talk about always wanting to have capital available if an M&A transaction comes up that is just such a good fit that we don’t want to wait. But if you ask me, the primary concern right now is let’s grow organically what we have, this core.

Marlon Kamabowskos (Analyst at Freedom Broker)

All right, understood. Thank you. And one more question from me about your new joint venture investment. Could you please provide some additional color on that investment—2 million in pharmaceutical facilities in Colorado? How does this opportunity fit into your broader Industrial Asset strategy?

Ross Dove (Chief Executive Officer)

Right. So you’re not really going to see the revenue this year. We’re doing sales this year of the capital assets, so it’s a significant amount of sales this year. We’re doing five auctions of over 5,000 lots of pharma assets, biotech assets, etc. That will bring back a substantial amount of money. But until we monetize the real estate, which is multiple buildings on two campuses, you won’t see the revenue profit. So that’s anticipated not to begin until 2027 and very possibly not to be completed until 2028.

There’ll be some significant potential expenditures and decisions to make. So look at that as something you’ll see, from a P&L basis, next year and the year after.

Marlon Kamabowskos (Analyst at Freedom Broker)

Okay, got it. Thank you. That will be it for me.

Ross Dove (Chief Executive Officer)

Thank you for asking.

OPERATOR

Thank you. Once again, that is Star-1 if you would like to ask a question. We’ll take our next question from Greg Weaver with Invecta Capital. Please go ahead. Your line is open.

Greg Weaver (Analyst at Invecta Capital)

Hi Ross, thanks for taking the question here. Just a quick one on this HTC wind-down. Is there any costs running through the P&L that we see in Q3 here?

Ross Dove (Chief Executive Officer)

I’ll give that to my CFO, Brian.

Brian (Chief Financial Officer)

Yeah, the costs related to the wind-down specifically, there’s not much. So you have an immaterial amount of legal costs going through Q3 and probably into Q4. But mainly we’re looking at operating costs. So when attacking this wind-down, I’m really thinking about how to limit operating costs, which is mainly made up of administrative and compensation, and quickly wrap it up so those costs don’t trail out multiple quarters into 2027 and beyond. So when you think about specific wind-down costs right now, they’re not significant.

Greg Weaver (Analyst at Invecta Capital)

In the admin cost in the quarter, is there any kind of revenue to offset that, or is it just straight-up cost?

Brian (Chief Financial Officer)

In Q3 we had a minor amount of revenue from a servicing standpoint, but all of our assets are held non-accrual status at cost recovery, so not much. You’ll see on our segment reporting that the specialty lending segment had approximately a $250,000 cost in Q3. I’d expect that to be somewhat similar in Q4 and wind down starting in the new year.

Greg Weaver (Analyst at Invecta Capital)

Okay, helpful. Thanks, Brian. And just any color on any recovery hope there? It sounds like you were pretty aggressive with the write-down and hopeful that maybe something will roll back. But any thoughts there on progress or timing?

Brian (Chief Financial Officer)

Well, on the timing side, I think that our goals are to work through this as quickly as possible, and the best-case scenario would be in Q4. I think I hold on any type of data on recovery right now as we’re kind of right in the middle of working through the last item. So that’s probably more of a report in our March call.

Greg Weaver (Analyst at Invecta Capital)

Okay. Appreciate the color. Thank you.

Brian (Chief Financial Officer)

Thank you.

OPERATOR

Thank you. At this time, there are no further questions. I will now turn the meeting back to management for closing remarks.

Ross Dove (Chief Executive Officer)

So thank you all for joining. We’re feeling pretty darn good about the go-forward. Like I said earlier, there are things to fix, but I don’t know if there’s ever been a time in my career where everything was perfect and there was nothing to fix. But I like our plan and I like our go-forward plan and I like our prospects. So we’re feeling confident, but we’re not feeling overconfident because we know we have work to do, but we’re ready to get to work.

So thank you all, and we’ll talk soon.

OPERATOR

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

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company’s SEC filings and official press releases. Corporate participants’ and analysts’ statements reflect their views as of the date of this call and are subject to change without notice.