The following discussion and analysis should be read in conjunction with the information contained in the unaudited condensed consolidated interim financial statements ofHeritage Global Inc. (together with its consolidated subsidiaries, "we", "us", "our" or the "Company") and the related notes thereto for the three and three month periods endedMarch 31, 2022 and 2021, appearing elsewhere herein, and in conjunction with the Management's Discussion and Analysis of Financial Condition and Results of Operations set forth in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2021 , filed with theSecurities and Exchange Commission ("SEC") onMarch 17, 2022 (the "Form 10-K").
Forward-looking information
This Quarterly Report on Form 10-Q (the "Report") contains certain "forward-looking statements" as defined by the Private Securities Litigation Reform Act of 1995 that are based on management's exercise of business judgment as well as assumptions made by, and information currently available to, management. When used in this document, the words "may," "will," "anticipate," "believe," "estimate," "expect," "intend," and words of similar import, are intended to identify any forward-looking statements. You should not place undue reliance on these forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These statements are subject to certain risks, uncertainties, and assumptions, including the important factors noted under Item 1A "Risk Factors" in our Form 10-K, and as noted below. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, our actual results could differ materially from those anticipated in these forward-looking statements. We undertake no obligation, and do not intend, to update, revise or otherwise publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof, or to reflect the occurrence of any unanticipated events. Although we believe that our expectations are based on reasonable assumptions, we can give no assurance that our expectations will materialize.
Overview, history and recent developments
Heritage Global Inc. ("HGI") was incorporated in theState of Florida in 1983 under the name "MedCross, Inc. " The Company's name was changed to "I-Link Incorporated " in 1997, to "Acceris Communications Inc. " in 2003, to "C2Global Technologies Inc. " in 2005, to "Counsel RB Capital Inc. " in 2011, and to "Heritage Global Inc. " effective in 2013. The most recent name change more closely identifies the Company with its core auction business,Heritage Global Partners, Inc. ("HGP"). In 2014, HGI acquired all of the issued and outstanding capital stock inNational Loan Exchange, Inc. ("NLEX"), a broker of charged-off receivables inthe United States andCanada . As a result of this acquisition,NLEX operates as one of our wholly-owned divisions.
In 2019, the Company created
In 2021, HGI acquired certain assets and liabilities ofAmerican Laboratory Trading, one of the largest suppliers of premium refurbished lab equipment inNorth America and a key provider of surplus asset services for the life sciences. As a result of this acquisition, American Laboratory Trading operates as one of our wholly-owned divisions, ALT. 17 -------------------------------------------------------------------------------- The organization chart below outlines our basic domestic corporate structure as ofMarch 31, 2022 . Heritage Global Inc. (Florida) (1) 100% 100% 100% 100% Heritage Global Heritage Global National Loan Heritage Global Partners, Inc. LLC Exchange, Inc. Capital LLC (California) (2) (Delaware) (3) (Illinois) (5) (Delaware)(6) 100% Heritage ALT LLC (Delaware) (4) (1) Registrant. (2) Full service global auction, appraisal and asset advisory company that also acquires and monetizes distressed and surplus assets. (3) Holding Company. (4) Supplier of refurbished lab equipment. (5) Broker of charged-off and nonperforming receivables. (6) Specialty financing solutions for charged-off and nonperforming asset portfolios.
COVID-19[feminine]
The novel coronavirus ("COVID-19") pandemic had a negative impact on our performance during 2021 due to evolving travel and work restrictions, stimulus payments and credit policies impacting debt sales by financial institutions, and a delay in the typical process for the sale of certain industrial assets by manufacturing companies. Going forward, and subject to the caveat below, we do not believe the COVID-19 pandemic will have material negative impacts on our financial performance, as we expect that the supply of surplus industrial assets will return to pre-pandemic levels and the continuing disruptions to the global supply chain, particularly those involving industrial assets, will further increase demand forU.S. -based surplus assets. Further, as stimulus payments conclude, we expect that the COVID-19 pandemic will have the following positive impacts:
•
increased activity for
•
increased funding opportunities for HGC as lenders begin to increase loan volume while loosening underwriting standards, which will subsequently increase loans available to debt buyers of charged-off accounts; and
•
additional valuation opportunities for our valuation business due to the collateral focus on bank balance sheets.
Further surges in COVID-19 infection rates could result in the continuation of stimulus payments and the implementation of additional credit policies impacting debt sales that may result in delayed revenues depending on the scope and magnitude of such policies. 18
--------------------------------------------------------------------------------
Industry and Competition
Our asset liquidation business consists primarily of the auction, appraisal and asset advisory services provided by our Industrial Assets division and the accounts receivable brokerage and specialty financing services provided by our Financials Assets division, each of which is further described below. Our asset liquidation business also includes the purchase and sale, including at auction, of industrial machinery and equipment, real estate, inventories, accounts receivable and distressed debt. The market for these services and assets is highly fragmented. To acquire auction or appraisal contracts, or assets for resale, we compete with other liquidators, auction companies, dealers and brokers. We also compete with them for potential purchasers. Some competitors have significantly greater financial and marketing resources and name recognition. We believe that our business is positioned to grow in all economic cycles. As the economy encounters situations of recession, flattening yield curves and rising credit costs, the asset liquidation business may experience wider margins on principal asset sales, a favorable lending cycle for charged-off and nonperforming asset portfolios, higher volumes of nonperforming assets and building surplus inventories and bankruptcies. In times of economic growth, our asset liquidation business has demonstrated its ability to experience growth based on our competitive advantages in the industry, including our domain expertise related to deal sourcing and execution capabilities, our diversification of integrated service platforms and our experience across underserved markets. We intend to continue to leverage our competitive advantages to grow within each service line and across platforms through increasing synergies, maintaining high incremental margins, improving earnings predictability, strengthening financial metrics reflected on our balance sheet and managing expenses.
Our business strategy includes the ability to partner with one or more additional buyers pursuant to a partnership, joint venture, or limited liability company agreement (collectively, “Joint Ventures”).
Our competitive strengths
We believe that we have attributes that differentiate us from our competitors and provide us with significant competitive advantages. Our main competitive strengths are described below.
Differentiated Business Model. We believe we have diversified business lines serving the financial and industrial asset liquidation market. We have multiple revenue streams in our brokerage and principal based auction services, advisory services and secured lending services. Further, our business is event-driven and we have repeat, forward-flow contracts in place with industry leading customers. We expect to drive growth in our revenue streams by taking different roles, and using partners as needed. Compelling Macro Growth Drivers. Consumer lending and resulting charge-offs are expected to continue their upward trend to meet, and possibly exceed, pre-pandemic levels which we believe will drive an increased supply of non-performing consumer loans. Additionally, we believe an active market for mergers and acquisitions in manufacturing industries drives demand for industrial asset liquidations and our services. The market in which we operate is highly fragmented, presenting a continued opportunity for the Company to increase market share and drive consolidation.
High return on
Strong Management Team. We have built an experienced executive-level management team with deep domain expertise. Our President and Chief Executive Officer,Ross Dove , is a third-generation auctioneer and a pioneering innovator in applying technology to the asset liquidation industry.Mr. Dove began his career in the auction business over thirty years ago, beginning with a small family-owned auction house and helping to expand it into a global firm, DoveBid, which was sold to a third party in 2008. In addition, our senior management team has deep domain expertise in both industrial asset and financial asset transactions. OnSeptember 17, 2020 , we entered into an Employment Agreement withKirk Dove , the former President and Chief Operating Officer of the Company. Upon his resignation,Kirk Dove continued his employment with us in an advisory capacity, and is expected to do so untilDecember 31, 2024 . Also, during 2020,Nick Dove was appointed as President, Industrial Assets Division, andDavid Ludwig was appointed as President, Financial Assets Division.Nick Dove previously served as Executive Vice President of Sales ofHeritage Global Partners sinceAugust 2017 .David Ludwig previously served as President ofNLEX , a wholly owned subsidiary of the Company, and has served in such capacity since the Company acquiredNLEX in 2014. Financial Assets Division Our Financial Assets division provides liquidity to issuers of consumer credit that are looking to monetize nonperforming and charged-off loans - loans that creditors have written off as uncollectable. Nonperforming and charged-off loans typically originate from banks that issue unsecured consumer credit. 19 -------------------------------------------------------------------------------- ThroughNLEX , we act as an advisor for sales of charged-off and nonperforming asset portfolios via an electronic auction exchange platform for banks, theU.S. government, and other debt holders throughoutthe United States andCanada . Since the 1980s,NLEX has sold over$150 billion face value of performing, nonperforming and charged-off assets.NLEX sales are concentrated in online, automotive, consumer credit card, student loan and real estate charge-offs. The typical credit we broker sells at a deep discount to face value, and we typically receive a commission for these services from both buyers and sellers. We have existing relationships with high quality, top-tier and mid-tier debt buyers.NLEX is in the process of expanding into the FinTech lenders, peer-to-peer lending and Buy Now Pay Later sectors, where we believeNLEX has opportunity for significant growth. In addition, we plan to add post-sale initiatives, making our services more attractive to our customers as compared to our competitors. Through HGC, we provide specialty financing solutions to investors in charged-off and nonperforming asset portfolios. Since the inception of HGC in 2019, we have issued$44.6 million in total loans to investors by both self-funded loans and in partnership with senior lenders. Our portion of the total loans funded since inception is$16.4 million . Our income from secured lending consists of upfront fees, interest income, monthly monitoring fees and backend profit share. In general, we expect to earn an annual rate of return on our share of notes receivable outstanding of approximately 20% or more based on established terms of the loans funded and performance of collections. Our management team has decades of domain expertise with the ability to leverage extensive funding activity and widespread industry relationships. We believe we have the opportunity for growth through increased penetration of the underserved market of mid-tier buyers of charged-off receivables, providing more economic financing options and a greater variety of funding solutions to our customers. Industrial Assets Division Our Industrial Assets division advises enterprise and financial customers on the sale of industrial assets mostly from surplus and sometimes distressed circumstances while acting as an agent, guarantor or principal in the sale. The fees for our services typically range from 15-50%, depending on our role and the transaction. This division predominantly targets sellers of surplus or distressed "inside the building" assets. Our buyers consist of both end-users and dealers. The acquisition of ALT further strengthens our service offering in the biotech and pharma sectors, which have been key verticals over the past decade. Our management team has decades of domain expertise with the ability to leverage extensive industry relationships, real time access to databases of buyers and sales, as well as a deep understanding of the underlying asset value across the more than 25 industrial sectors in which we operate. We believe we have the opportunity for growth in our auction services through our ability to secure ongoing contracts with large multinational sellers, to be a first mover in emerging sectors, and to gain market share in sectors in which we are currently less active. Our extensive network and ability to find and source new opportunities are key factors for expansion. We believe we have the opportunity for growth in our valuation services through the addition of incremental bank-approved vendor lists, geographic expansion and through deeper penetration with our existing bank relationships.
Government regulations
We are subject to federal, state and local consumer protection laws, including laws protecting the privacy of customer non-public information and regulations prohibiting unfair and deceptive trade practices. Many jurisdictions also regulate "auctions" and "auctioneers" and may regulate online auction services. These consumer protection laws and regulations could result in substantial compliance costs and could interfere with the conduct of our business. Legislation inthe United States has increased public companies' regulatory and compliance costs as well as the scope and cost of work provided by independent registered public accountants and legal advisors. As regulatory and compliance guidelines continue to evolve, we may incur additional costs in the future, which may or may not be material, in order to comply with legislative requirements or rules, pronouncements and guidelines by regulatory bodies.
Critical accounting policies
Management's Discussion and Analysis of Financial Condition and Results of Operations references our unaudited condensed consolidated interim financial statements, which have been prepared in accordance with generally accepted accounting principles inthe United States of America ("GAAP"). This requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. Management bases its estimates and judgments on historical experience and various other factors that are considered to be reasonable under the circumstances. Actual results could differ from those estimates. 20 -------------------------------------------------------------------------------- Significant estimates required in the preparation of the unaudited condensed consolidated interim financial statements included in this Report include the assessment of collectability of revenue recognized, and the valuation of accounts receivable, inventory, other assets, right-of-use assets, goodwill, intangible assets, liabilities, deferred income tax assets and liabilities and stock-based compensation. These estimates are considered significant either because of the significance of the financial statement items to which they relate, or because they require judgment and estimation due to the uncertainty involved in measuring, at a specific point in time, events that are continuous in nature.
We have no off-balance sheet arrangements.
We have not paid any dividends and do not expect to pay any in the future.
The significant accounting policies used in the preparation of our audited consolidated financial statements are described in our Form 10-K. No changes have been made to these policies in the past three months
Management’s analysis of the financial situation
Cash and capital resources
Liquidity
We had a working capital of
OnOctober 6, 2020 , we completed a public offering (the "2020 Public Offering") of 5,462,500 shares of our common stock, at a public offering price of$1.75 per share, which included a full exercise of the underwriters' option to purchase 712,500 additional shares of common stock from us. We received approximately$8.7 million of net proceeds, after deducting underwriting discounts and commissions, but before offering expenses. During 2021 and the three months endedMarch 31, 2022 , we deployed proceeds to fund the ALT acquisition, as well as various principal transactions in both our Financial Assets and Industrial Assets Divisions. Our current assets as ofMarch 31, 2022 increased to$24.1 million compared to$23.3 million as ofDecember 31, 2021 primarily due to an increase cash as a result of cash provided by operating activities during the three months endedMarch 31, 2022 . Our current liabilities as ofMarch 31, 2022 increased to$15.4 million compared to$14.2 million as ofDecember 31, 2021 . The most significant change was an increase of$3.3 million in our payables to sellers due to the timing of certain asset liquidation settlements, offset by a decrease in accounts payable and accrued liabilities of$1.7 million and further offset by a decrease in the current portion of third party debt of$0.5 million . During the three months endedMarch 31, 2022 , our primary source of cash was the cash on hand plus the cash provided by our asset liquidation business. Cash disbursements during the three months endedMarch 31, 2022 consisted primarily of investments in equity method investments of$2.1 million , repayment on our 2021 Credit Facility of$0.5 million , payment of operating expenses, and settlement of auction liabilities. We believe we can fund our operations and our debt service obligations for at least 12 months from the date of filing this quarterly report through a combination of cash flows from our on-going asset liquidation operations, proceeds from the 2020 Public Offering, and draws on our 2021 Credit Facility, as needed. Our indebtedness consists of a promissory note datedAugust 23, 2021 (the "ALT Note") issued in the amount of$2.0 million as part of the aggregate purchase price paid to acquire certain assets and liabilities ofAmerican Laboratory Trading, as well as any amounts borrowed under our Credit Facility. We are required to pay off the ALT Note in 48 equal installments of approximately$44,000 with an interest rate of 3% per annum and a maturity date ofAugust 23, 2025 . OnMay 5, 2021 , we entered into a secured promissory note, business loan agreement, commercial security agreement and agreement to provide insurance (the "Credit Facility") withC3bank, National Association for a$10.0 million revolving line of credit. The Credit Facility matures onMay 7, 2023 and replaces our previous credit facility with C3bank of$5.0 million , which matured onApril 5, 2021 . We are permitted to use the proceeds of the loan solely for our business operations. As ofMarch 31, 2022 , we had an outstanding balance of$1.4 million on the Credit Facility. 21 --------------------------------------------------------------------------------
Ownership structure and capital resources
•
From
•
On
•
We determine our future capital and operating requirements based upon our current and projected operating performance and the extent of our contractual commitments. We expect to be able to finance our future operations through cash flows from our asset liquidation business, proceeds from the 2020 Public Offering, and draws on the 2021 Credit Facility, as needed. Capital requirements are generally limited to repayment of our debt obligations, investments in notes receivables, purchases of surplus and distressed assets and payment on lease obligations. We believe that our current capital resources are sufficient for these requirements. In the event additional capital is needed, we will draw on the 2021 Credit Facility. Cash Position and Cash Flows
Cash and cash equivalents at
Cash provided by (used in) operating activities. Cash provided by operations was$3.1 million during the three months endedMarch 31, 2022 as compared to cash used in operating activities of$5.8 million during the same period in 2021. The approximate$8.9 million change was primarily attributable to a change of$9.2 million in operating assets and liabilities during the three months endedMarch 31, 2022 as compared to the same period in 2021. The amount was further attributable to a change in net income adjusted for noncash items, which was$0.3 million lower during the three months endedMarch 31, 2022 as compared to the same period in 2021. The significant changes in operating assets and liabilities during the three months endedMarch 31, 2022 as compared to the same period in 2021 are primarily due to the nature of our operations. We earn revenue from discrete asset liquidation deals that vary considerably with respect to their magnitude and timing, and that can consist of fees, commissions, asset sale proceeds, or a combination thereof. The operating assets and liabilities associated with these deals are, therefore, subject to the same variability and can be quite different at the end of any given period. Cash used in investing activities. Cash used in investing activities during the three months endedMarch 31, 2022 was$1.0 million compared to cash used in investing activities of$1.6 million during the same period in 2021. The approximate$0.6 million change was attributable to investing activities related to our specialty lending division, in both notes receivable and equity method investments. Cash used in financing activities. Cash used in financing activities was approximately$0.6 million during the three months endedMarch 31, 2022 compared to cash used in financing activities of$0.1 million during the three months endedMarch 31, 2021 . Financing activities during the three months endedMarch 31, 2022 consisted primarily of a$0.5 million repayment to our 2021 Credit Facility,$0.1 million in repayments to our ALT Note, and payments of tax withholdings related to cashless exercises of stock option awards, in excess of proceeds from issuance of common stock related to standard exercises of stock option awards. Financing activities during the three months endedMarch 31, 2021 consisted primarily of payments of tax withholdings related to cashless exercises of stock option awards, in excess of proceeds from issuance of common stock related to standard exercises of stock option awards.
Share buyback program
OnMay 5, 2022 , the Company's Board of Directors authorized the repurchase of up to$4.0 million of the Company's outstanding shares of common stock over a three-year period following the effective date of the share repurchase program ("2022 Repurchase Program"). The timing and actual number of shares repurchased will depend on a variety of factors, including price, general business and market conditions, and the existence of opportunities in the Company's business. Under the repurchase program, repurchases can be made from time to time using a variety of methods, including open market purchases. The repurchase program does not obligate the Company to acquire any particular amount of common shares, and the repurchase program may be suspended or discontinued at any time at the Company's discretion. 22 --------------------------------------------------------------------------------
Contractual obligations
Our significant contractual obligations are our third party loans, client and partner asset liquidation settlement payments and lease obligations. The loan and lease obligations are fully described in the notes to the condensed consolidated financial statements included in our Form 10-K. OnAugust 23, 2021 , a wholly-owned subsidiary ("ALT Purchaser") of HGI acquired (the "Transaction") certain assets and liabilities ofAmerican Laboratory Trading, pursuant to the terms and conditions of an Asset Purchase Agreement (the "Asset Purchase Agreement"), datedAugust 18, 2021 , among the Company, American Laboratory Trading and certain individuals named therein. The aggregate purchase price paid to American Laboratory Trading was approximately$4.3 million , consisting of$2.3 million in cash and a$2.0 million subordinated promissory note with an interest rate of 3% per annum and a maturity date ofAugust 23, 2025 (the "ALT Note"). The Asset Purchase Agreement contains customary representations and warranties and covenants by each party. American Laboratory Trading and ALT Purchaser are obligated, subject to certain limitations, to indemnify the other under the Asset Purchase Agreement for losses arising from certain breaches of the Asset Purchase Agreement and for certain other liabilities, subject to applicable limitations set forth in the Asset Purchase Agreement. HGI has guaranteed the obligations of ALT Purchaser under the terms of the Asset Purchase Agreement and the ALT Note.
Management comments on operating results
The following table sets out the Company's condensed consolidated results of operations for the three months endedMarch 31, 2022 and 2021 (dollars in thousands). Three Months Ended March 31, Change 2022 2021 Dollars Percent Revenues: Services revenue$ 4,168 $ 5,030 $ (862 ) (17 )% Asset sales 5,189 2,071 3,118 151 % Total revenues 9,357 7,101 2,256 32 % Operating costs and expenses: Cost of services revenue 754 1,175 (421 ) (36 )% Cost of asset sales 3,402 820 2,582 315 % Selling, general and administrative 4,275 3,969 306 8 % Depreciation and amortization 133 91 42 46 % Total operating costs and expenses 8,564 6,055 2,509 41 % Earnings of equity method investments 82 - 82 100 % Operating income 875 1,046 (171 ) (16 )% Interest and other expense, net (38 ) 3 (41 ) 1367 % Income before income tax expense 837 1,049 (212 ) (20 )% Income tax expense 192 17 175 1029 % Net income $ 645$ 1,032 $ (387 ) (38 )% Our asset liquidation business model has several components: (1) traditional fee-based asset disposition services, such as commissions from on-line and webcast auctions, liquidations and negotiated sales, and commissions from theNLEX charged-off receivables business, (2) the acquisition and subsequent disposition of distressed and surplus assets, including industrial machinery and equipment and real estate, and (3) fees earned for appraisal, management advisory services and specialty finance services. We report segment information based on the "management" approach. The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of our reportable segments. We manage our business primarily on differentiated revenue streams for services offered. Our reportable segments consist of the Industrial Asset Division and Financial Assets Division. Our Industrial Assets Division advises enterprise and financial customers on the sale of industrial assets mostly from surplus and sometimes distressed circumstances while acting as an agent, guarantor or principal in the sale. Our Financial Assets Division provides liquidity to issuers of consumer credit that are looking to monetize nonperforming and charged-off loans - loans that creditors have written off as uncollectable. Nonperforming and charged-off loans typically originate from banks that issue unsecured consumer credit.
We assess the performance of its reportable segments primarily on the basis of net operating income. Additionally, we do not use asset segment information to assess the performance of its reportable segments and we do not include intercompany transfers between segments for management reporting purposes.
23 --------------------------------------------------------------------------------
The following table sets forth certain financial information for the Company’s reportable segments (in thousands):
Three Months Ended March 31, 2022 2021 Industrial Assets Division: Net operating income $ 846 $ 1,340 Financial Assets Division: Net operating income $ 731 $ 461 Corporate and Other: Net operating loss$ (702 ) $ (755 ) Consolidated: Net operating income $ 875 $ 1,046
Three-month period ended
Revenues and cost of revenues - Revenues were$9.4 million during the three months endedMarch 31, 2022 compared to$7.1 million during the same period in 2021. Costs of services revenue and asset sales were$4.2 million during the three months endedMarch 31, 2022 compared to$2.0 million during the same period in 2021. The gross profit of these items was$5.2 million during the three months endedMarch 31, 2022 compared to$5.1 million during the same period in 2021, an increase of approximately$0.1 million , or approximately 2%. The increased gross profit in the first quarter of 2022 reflects the vagaries of the timing and magnitude of asset liquidation transactions.
Selling, general and administrative expenses – Selling, general and administrative expenses have been
Significant components of selling, general and administrative expense for the three months endedMarch 31, 2022 andMarch 31, 2021 are shown below (dollars in thousands): Three Months Ended March 31, 2022 2021 % change Compensation HGP$ 1,249 $ 1,613 (23 )% ALT 380 - 100 % NLEX 867 873 (1 )% HGI 261 288 (9 )% HGC 145 130 12 % Stock-based compensation 106 143 (26 )% Consulting 16 13 23 % Board of Directors fees 73 67 9 % Accounting, tax and legal professional fees 311 255 22 % Insurance 117 121 (3 )% Occupancy 263 222 18 % Travel and entertainment 212 39 444 % Advertising and promotion 113 87 30 % Information technology support 86 68 26 % Other 76 50 52 %
Total selling, general and administrative expenses
3,969 8 % 24
-------------------------------------------------------------------------------- As compared to the first quarter of 2021, there was an increase in selling, general and administrative expense during the first quarter of 2022 due to increased compensation expense related to the acquisition of ALT in the third quarter of 2021 and increased travel and entertainment as a result of lifted travel restrictions related to the COVID-19 pandemic. The increase was offset by decreased compensation expense within our HGP division as a result of declined financial performance as compared to the first quarter of 2021. Depreciation and amortization expense - Depreciation and amortization expense was$0.1 million during the three months endedMarch 31, 2022 and the same period in 2021, which consisted primarily of amortization expense related to intangible assets. Key Performance Indicators We monitor a number of financial and non-financial measures on a regular basis in order to track our underlying operational performance and trends. Other than the operating income of our liquidation business (a GAAP financial measure as shown in our condensed consolidated income statements), which we believe is the most important measure of our operational performance and trends, we believe that EBITDA and Adjusted EBITDA (non-GAAP financial measures) are key performance indicators (KPIs) for our business. These KPIs may not be defined or calculated in the same way as similar KPIs used by other companies. We prepared our unaudited condensed consolidated financial statements in accordance with GAAP. We define EBITDA as net income plus depreciation and amortization, interest and other expense, and provision for income taxes. Adjusted EBITDA reflects EBITDA adjusted further to eliminate the effects of stock-based compensation. Management uses EBITDA and Adjusted EBITDA in assessing the Company's results, evaluating the Company's performance and in reaching operating and strategic decisions. Management believes that the presentation of EBITDA and Adjusted EBITDA, when considered together with our GAAP financial statements and the reconciliation to the most directly comparable GAAP financial measure, is useful in providing investors a more complete understanding of the factors and trends affecting the underlying performance of the Company on a historical and ongoing basis. Our use of EBITDA and Adjusted EBITDA is not meant to be, and should not be, considered in isolation or as a substitute for, or superior to, any GAAP financial measure. You should carefully evaluate the financial information below, which reconciles our GAAP reported net income to EBITDA and Adjusted EBITDA for the periods presented (in thousands). Three Months Ended March 31, 2022 2021 Net income $ 645$ 1,032 Add back: Depreciation and amortization 133 91 Interest and other expense, net 38 (3 ) Income tax expense 192 17 EBITDA 1,008 1,137 Management add back: Stock based compensation 106 143 Separation Agreement - 200 Adjusted EBITDA$ 1,114 $ 1,480
© Edgar Online, source