HERITAGE GLOBAL INC 2026 Q2 Earnings Call

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.

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 Global Capital was at a point of no return where it became both obvious and necessary on multiple fronts. First, the distraction on 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 Ungar, 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 DebtX acquisition is very exciting. With DebtX along with NLEX and Boston Note, we have an asset-light brokerage now that truly serves a broad and diverse range of 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, bringing us more buyers to the HG family as well.

The trigger is simple and up to us. Grow what's strong and built 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 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. Despite 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 year 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 HCC, 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 the 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 The Debt Exchange, 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-on to DebtX 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 Company 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 $0.46 per diluted share, compared to net income of $1.6 million or $0.05 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 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, our net available cash balance was $6.5 million. With that, Ross, I'll turn it back over to you.

Thank you, Brian. Just as an ending, my thinking on all of this. Fifty 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 five o'clock having his normal bourbon, sitting at his desk, and he said to me, "Rossie 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.

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. Onward and upward, I'm proud to announce thank you all for everything you've done, sticking with this and staying with this, and we're on our way in the right direction. Best to all, and we're around to answer any questions.