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Hello, and welcome everyone joining today's Heritage Global Inc. first quarter 2026 earnings call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. To register to ask a question at any time, please press star one on your telephone keypad. Please note this call is being recorded, and we are standing by if you should need any assistance. It is now my pleasure to turn the meeting over to John Nesbett, IMS Investor Relations. Please go ahead.

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

We're used to a challenge here at HG and excited to get the job done. The two-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. In our financial assets division, we reported operating income of $1 million in the first quarter of 2026, compared to $1.7 million in the prior year quarter.

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

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

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

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

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

It is a rapidly growing sector, one we're very good at and really believe can be the needle mover this year. We anticipate a record year in the subprime auto sector, and we're very confident about it. 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 non-banks. Overall, we're comfortable with our plan, we're comfortable with our prospects, and we're comfortable with our position in the marketplace. Really, at this point in time, it is all about execution and making a solid push for growth. That is my role as the leader, and that's what my team and I are putting every bit of effort into. Thank you for sticking with this. We look forward to talking to you throughout the year and showing you how we grow this business. Best to you all. We're here to answer questions now or any time you wish.

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

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

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

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

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

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

Brian, I'll let you handle that one.

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

Got it. I appreciate the color, guys.

All right. Thank you. Thank you for the questions.

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

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

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. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions in the question-and-answer session. Please note this call is being recorded. 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 would 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 would like to turn the call over to Heritage Global Inc.’s Chief Executive Officer, Mr. Ross Dove. Ross? Go ahead.

Thank you, John, and welcome, everyone, to the call. We are 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 the 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 transactions as companies and lenders do not hold back asset flows year after year; they ultimately break loose. What we are 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 are looking at more supply, more activity, and on that front, we are adding business personnel across the board. We recently moved into a brand-new shiny facility that we are 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 is very exciting for all of us. M&A remains a front burner, and we are aggressively looking at many, many opportunities. We are very proud and excited that we did complete the DebtX acquisition. We are 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 the marketplace and in their sweet spot. The goal for 2026 is to define it as the year of the needle mover. We are 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 are getting ready to move with them. With that, I will turn it over to Brian, and I will add some additional comments afterwards. Have a great day.

Brian?

Thank you, Ross, and good afternoon, everyone. I will begin with a brief overview of our fourth quarter operating results before walking through our Industrial and Financial segment performance. Consolidated operating income was $800,000 in 2025 compared to $1,500,000 in 2024. It is 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 $1,100,000 in 2025 compared to approximately $800,000 in the prior-year quarter. Our Financial Assets division reported operating income of approximately $900,000 in 2025 compared to $1,900,000 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 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 continued 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 Inc.’s corporate headquarters. The new purpose-built facility was designed to accelerate growth, increase operating efficiency, provide the ability to add personnel and scale, and we are 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 2025, although we saw lower revenues from recurring clients in our NLEX segment reflecting fluctuations in the 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 $11,900,000 in 2025 compared to $10,800,000 in 2024. Adjusted EBITDA was $1,100,000 compared to $2,100,000 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 2024. Fourth quarter 2025 net income was impacted by a non-cash tax allowance adjustment of $100,000 related to expiring net operating loss carryforwards, compared to a non-cash adjustment of $1,300,000 in 2024. Our balance sheet is strong with stockholders’ equity of $7,000,000 as of 12/31/2025, compared to $65,200,000 at 12/31/2024, with net working capital of $18,100,000. Our cash balance reflects a total of $20,500,000 as of 12/31/2025, and after removing amounts due to our clients, or payables to sellers on our balance sheet, our net available cash balance was $13,200,000. At 12/31/2025, approximately $18,900,000 of federal net operating loss carryforwards were unused and expired. We expect to utilize our remaining net operating loss carryforwards of approximately $15,500,000, and as such, we have removed the valuation allowance against our deferred tax assets. And lastly, we did not repurchase any shares in 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 $7,500,000 in common stock for the next three years. Ross, I will turn it back over to you.

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

Thank you. If you would like to ask a question, press star 1 on your keypad. To leave the queue at any time, press star 2. Once again, press star 1 to ask a question. We will pause for just a moment to allow anyone a chance to join the queue. We will take our first question from Mark Nicholas Argento of Lake Street. Please go ahead. Your line is open.

Congrats on the DebtX acquisition and sounds like things are starting to progress nicely there and in the overall business. But just 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—you know, splitting hairs—but it would be helpful to at least better understand what accretive means.

Brian, I will let you handle that one.

Yes. So we expect it to be accretive on an operating income basis as well as a net income basis. We have disclosed a couple of numbers just on the stand-alone DebtX 2025 result, which, as a reminder, was not a part of our consolidated results. They reported $800,000 in operating income in 2025, and even with adjustments that we will disclose in Q1 numbers for pro forma purposes, 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 have 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 would expect to be their big quarter—over 50% of their revenue.

Got it. That is helpful. And then in terms of the broader macro, you touched on it a little bit. You are 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 seems to be some disruption there. Do you have any exposure to that part of the market? Does DebtX get any exposure there? How are you thinking about private credit and maybe that opportunity?

So there is a big opportunity right now. Obviously, 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 is 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 in 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 did not see as aggressive movement from the sellers as we anticipated. So we think there is a pent-up amount of assets to come to market.

Great. Well, I appreciate you answering questions. I will hop back in the queue.

Thank you, Mark.

Thank you. To ask a question, you may press star 1 now. We will take our next question from George Sutton of Craig-Hallum. Please go ahead. Your line is open.

Hi, George.

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

I am 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. Just from a geopolitical standpoint, the going back and forth on the tariffs and many other macro issues—people were not sure exactly what they wanted to do. So I do not want to say that people do not 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 are worried about the availability, maybe you are not sure if you are going to expand or hold back, there was just a general sentiment that not just Heritage Global Inc. 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 are a tertiary move once you have had the other plans in place. So we had a lot of people just say, call us back in a month, call us back in two months, call us back in three months. But the good news is we did not really lose our conversion rate; it is just that a lot of the transactions just did not happen that we thought were going to happen. So they are starting to come back now. That is why I say I feel positive. But I have never seen a year-after-year wait-and-see period where eventually people do not commit. So I feel good about 2026, George.

Let me ask a little more specifically. You mentioned we are about to close out Q1. Are we starting to see the indications of these larger deals? And again, I will point to the oil and gas transaction—I think that was happening earlier in the year.

Yes, you are starting to see the signing of them. We are going to have a decent Q1 for sure on the Industrial side. When I say decent, some of them are of a larger nature. I am excited about the amount of auctions we are doing in Q1, so it looks good on the Industrial side. On the Financial side, it takes a little longer for the pickup in the curve. But, you know, all signs point to the amount of meetings they are having and that they are signing some new forward flows. So I think you will see that pick up as the year goes on, maybe a little bit slower than you will see the pickup in Industrial. But we are busy on all fronts, and it feels like when you start a year busy, it usually stays busy all year, George. It usually does not tail off.

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

The main reason why we are kind of right around that breakeven point or slightly under is the lack of funding. We have always 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.

Gotcha. Okay. Thanks, guys.

Thank you, George.

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

Hi, it is 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 are always open to chat. We always look forward to chatting, and we always look forward to talking and getting to know you. So feel free to reach out at any time. We are hoping for a dynamic year. We are putting all of our feet on the gas, like I said, and we are optimistic. So, hopefully, you are optimistic with us. We appreciate your 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.