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¶¶ Thank you for watching. © transcript Emily Beynon Thank you for watching!

Thank you for your continued patience. Your meeting will begin shortly. If you need assistance at any time, please press star zero and a member of our team will be happy to help you.

¶¶ ¶¶ © transcript Emily Beynon © transcript Emily Beynon . . . . . . Thank you for watching! . . . . . . Thank you for watching!

Anybody there?

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 and 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. Welcome, everyone, to our third quarter call. Thank you all for joining. Before Brian walks you through the numbers in detail, I want to just 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 seatbelts 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 HGC that was problematic and a distraction and putting all of our focus now completely on three complementary asset life sectors. We have a very solid inlet and indicators to business as a bright finish to the year and well, well beyond. Our two newest acquisitions have had mixed results with Boston Notes exceeding early goals and Dedex not yet where it needs to be or where it can and will be and should be. We liked 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 HGC 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.

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 of 2026, 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 longstanding 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, HGP 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 HCC 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 3 cents per diluted share compared to approximately 600,000 or 2 cents 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, and further in September, we strengthen 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 HGP joint venture investment. And with that, Ross, I'll turn it back over to you.

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 100 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.

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 and 1 to ask a question, and we'll pause for just a moment to allow everyone a chance to join the queue. Once again, that is star and 1 if you would like to ask a question. We'll take our first question from George Sutton with Craig Callum. Please go ahead. Your line is now open.

Hey, guys. Afternoon. This is Logan on for George. So, Ross, I wanted to start with DedEx. I mean, hear your comments that, you know, 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 kind of what's driving that. Is it just performance? Is something changed in the market? I guess, can you just speak to, you know, has your perspective on that business changed at all as we head into next year?

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, you know, we've got a trillion dollars of commercial loans coming due and 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 the solution, if there is a solution, some of it is timing, to be honest with you, and 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. 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.

So it was nice to see the auction results this quarter, and it certainly sounds like you know 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 kind of what signals you're seeing to give you confidence that you know quarters like this are repeatable going forward.

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.

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

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 and 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 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've got a strong couple-year run. Okay. Thanks for taking the questions. Thank you for asking.

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

I don't hear. Hello, everybody. Can you hear me?

We can now, yes. Yes. Yeah, 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 these businesses or do you continue to see opportunities for additional investments?

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. 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. You know, 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 it's 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.

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, two million, in pharmaceutical facilities in Colorado? How does this opportunity fit into your broader industrial asset strategy?

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, et cetera, 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, you know, from a P&L basis next year and the year after.

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

Thank you. Once again, let us start. Antoine, if you would like to ask a question. We'll take our next question from Greg Weaver with Investa Capital. Please go ahead. Your line is open.

Hi, Ross. Thanks for taking the question here. Just a quick one on this HGC wind down. Is there any costs running through the P&O that we see in Q3 here? I'll give that to my CFO, Brian.

Yeah, hi, Antoine. 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. So when you think about specific wind down costs right now, they're not significant.

And the admin costs in the quarter, there's no, is there any kind of revenue to offset that or it's just straight up cost?

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 a $250,000 approximate cost in Q3. I'd expect that to be somewhat similar in Q4 and wind down starting in the new year.

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?

Oh, well, on timing, 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 Thank you all for joining.

We're feeling pretty darn good about to 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...

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