Heritage Global Inc.

loans in non-accrual status, including interest, will be applied against the outstanding balance. As of June 30, 2024, the amortized cost basis of loans in non-accrual status was $24.6 million, compared to no loans in non-accrual status as of December 31, 2023. Primarily due to the loss of interest income from the cost recovery accounting treatment, The default is currently expected to reduce the company's total 2024 operating income by approximately 1.6 million. It is important to reiterate that Heritage Global is a profitable, diversified business with multiple growth avenues going forward. Reflecting the strength of our cash flow and balance sheet, the company completely paid off the remaining principal balance outstanding under its 2023 credit facility with C3 Bank. which was executed subsequent to the quarter and in advance of the loan's maturity date in 2028. Now to the financial results. Consolidated operating income was 3.5 million in the second quarter of 2024, compared to 3.1 million in the second quarter of 2023. For the quarter, we reported adjusted EBITDA of 4 million, compared to 3.5 million in the prior year period. Net income was $2.5 million or $0.07 per diluted share compared to net income of $2.8 million or $0.07 per diluted share in the second quarter of 2023. Our balance sheet remains strong with stockholders' equity of $65.8 million as of June 30, 2024, up from $61.1 million at December 31, 2023, and net working capital of $17.9 million. As we move through the second half of 2024, our core auction and brokerage segments are expected to produce continued strong operating results with an attractive pipeline of opportunities in the marketplace. We're steadfast in our mission to continue driving organic growth and profitability while positioning the company to take advantage of M&A opportunities when they arise. With that, I will turn the call back over to Ross.

Thank you, Brian. So let me take a few minutes to tell you why we're actually very excited about both our organic growth and the increased opportunities we're seeing in M&A across both sides of our business, the financial assets and the industrial assets. Let me kind of start with the financial assets. It's pretty clear right now that everyone can see that our pipeline is solid because of the macro economy and also all the efforts we're doing to garner new clients and win business and execute. But on the macro side, we're looking at consumer debt has been rising since 2021. Our revenue is rising along with it. We've now got household debt at $17.5 trillion, if you can imagine that, and up $200 billion in just one quarter. We're looking at credit card balances now of over $1 trillion, adding $50 billion this quarter. All of that just shows you that the volume is continuing to grow and grow. With that volume, the amount of charge-offs has to grow with it, and we think our business has solid growth for years organically. We're now looking on the credit cards at 49% of all credit cards basically going month-to-month on payments rather than paying them off at the end of the month, which is the first telltale sign into more growth in charge-offs. And we're now looking at 6% of credit card accounts being past due. You know, just two, three years ago, it was 4%. So is our business growing? Yes. Will our business continue to grow? If you say our business grows because supply grows, then there is clearly no argument our business won't grow. What that does is it gives us more and more cash flow and more and more strength in a position where we're stronger in the market to do M&A. There are now companies available in M&A that basically were doing okay during a pandemic. and have struggled afterwards, which is the opposite of NLEX, which is growing afterwards. So we see opportunities there for bolt-ons that we're aggressively looking at, and hopefully we can get something done within the next year, year and a half, that will be highly accretive. So we're solid there. We believe in M&A opportunities, and we're solid there, and we believe continued organic growth. Now, move on over to industrial. If you're looking at industrial right now, you are seeing that a lot of companies are doing well, but simultaneously, many companies are experiencing sluggish manufacturing right now, and you don't have to basically look too far to basically see every day. If you look at a Google or Yahoo announcement, you see another headcount reduction. As I said over and over again, these headcount reductions produce surplus assets and produce industrial auctions. They don't happen the day you notice that the headcount reduction has been announced. There's a period of three, four, five months where they have to basically execute on the headcount reduction, do the layoffs, and discover the surplus. That's happening now from the layoffs four and five and six months ago. But what bodes well for the future is there are still sectors of the economy where the manufacturing is sluggish, and there's also sectors of the economy where the manufacturing is It's a heightened growth, but it's heightened growth is adding AI in a lot of instances, which frees up surplus machinery. It's focusing on lean manufacturing, which also frees up surplus machinery. So the Institute of Supply Management says, It's saying that there will be an increase in secondhand equipment on the market over the next one to two to three years. So we see organically our industrial business being very bullish and prices holding up. The fact that we've had several years of inflation now has actually increased the value of used assets. So at our auctions, we're actually getting very high prices for the equipment, and we think that will continue even if the economy and inflation softens. So we think organically we're very, very solid there. There is the beginning of talks about roll-ups in the industry where we think we'll be a significant player in the fact that basically more and more of these sectors are coming together to where the guys that do pharma are also have a great database for medical, et cetera, kind of across all the specters. So we see that there will be a consolidation of industrial auctioneers that we believe will be one of the significant leaders in. That M&A should happen over the next two, three years. So we stand ready to grow both organically and through M&A. We're working through multiple issues with Heritage Global Capital. We've hired a special advisor to work with us. And I'm very excited because we see prospects there to really get that thing humming once again. There's been some difficulty in collections. But we think overall Heritage Global is in a very solid position. So thank you all for sticking with us. Thank you all for hearing us out. We're open to any questions at any time and appreciate your interest very much.

Thanks again.