Heritage Global (HGBL) Q1 2026 Earnings Transcript

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DATE

May 7, 2026 at 5 p.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Ross Dove
• Chief Financial Officer — Brian Cobb

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TAKEAWAYS

• Revenue -- $12.7 million, down from $13.5 million in the same period last year.
• Consolidated operating income -- $1 million versus $1.4 million in the prior-year quarter.
• Industrial Assets division operating income -- $1.2 million, up from $1 million a year ago, driven by high-volume auctions despite limited large-scale events.
• Financial Assets division operating income -- $1 million, down from $1.7 million in the prior-year quarter, though showing sequential improvement from Q4 2025.
• DebtX acquisition operating loss -- $600,000 in its first quarter as part of the company, attributed to the "seasonal nature of the business," according to Brian Cobb.
• Adjusted EBITDA -- $1.4 million compared to $1.8 million in the prior-year period.
• Net income -- $700,000, or $0.02 per diluted share, compared to $1.1 million, or $0.03 per diluted share, last year.
• Share repurchase -- 107,000 shares bought in the open market at an average cost of $1.32 per share, with $7.4 million remaining under the 2025 program.
• Cash and liquidity -- $11.6 million in cash; net available cash balance of $6.2 million after deducting client and seller payables.
• Gross margin trend -- Brian Cobb stated, "our gross margin this quarter was improved if you look at a year ago," citing contribution from higher-margin DebtX service revenue.
• Industrial real estate divestiture -- Approximately $400,000 positive operating income from seller and tenant repurchase of Huntsville, Alabama, real estate assets.
• Technology and talent investment -- Company added sales and business development personnel across divisions; Ross Dove said, "We've made investments in technology. We've made investments in people."
• Subprime auto loan sector performance -- NLEX business achieved a "record quarter" in subprime auto and anticipates a "record year" in this sector, according to Ross Dove.
• Gross margin target -- Historical gross margin has ranged between 50% and 70%, with 70% cited as a "good target" by Brian Cobb.

SUMMARY

Heritage Global (NASDAQ:HGBL) reported lower revenue and net income as the DebtX integration weighed on results, while management emphasized ongoing investments in sales, technology, and talent to drive future growth. The quarter featured notable strength in the Industrial Assets division, sequential operating improvements in Financial Assets, and momentum in subprime auto asset classes within NLEX. Huntsville real estate divestiture contributed to operating income, and management reiterated their focus on margin expansion and a robust deal pipeline.

• Management highlighted that core business units, excluding the new acquisition, "grew" during the quarter, and maintain pipelines supporting "grow throughout the rest of the year."
• The company expects higher gross margins as DebtX revenue scales, with Brian Cobb noting the positive margin impact from financial assets revenue mix.
• Ongoing headcount expansion, especially in business development and the valuation group, was described as pivotal for market reach and sector diversification.
• Diversification of DebtX deal flow now spans banks, nonbanks, insurance companies, and both large and small CRE transactions, suggesting broadening client engagement in upcoming quarters.

INDUSTRY GLOSSARY

• NLEX: National Loan Exchange, a subsidiary specializing in brokering and trading distressed consumer asset portfolios, including subprime auto loans and credit card receivables.
• DebtX: Debt Exchange, acquired business providing a marketplace and advisory services for secondary loan sales, primarily across commercial real estate and other loan assets.
• Subprime auto: Automotive loans to borrowers with lower credit ratings; these assets are often traded at a discount and have higher delinquency risk.
• HELOC: Home equity line of credit, a type of loan secured by equity in residential real estate.
• CRE: Commercial real estate, an asset category encompassing loans and properties used for business or income-producing purposes.

Full Conference Call Transcript

Ross Dove: 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.

Brian Cobb: 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.

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

Jacob Stephan: 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.

Ross Dove: 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.

Jacob Stephan: 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?

Ross Dove: Brian, I'll let you handle that one.

Brian Cobb: 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.

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

Ross Dove: 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.

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

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