Hello, and welcome, everyone, joining today's Heritage Global, Inc., second 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 1 on your telephone keypad. 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 Jen Bellido. Please go ahead.

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 on factors that could affect these expectations, please share our filings the Securities and Exchange Commission. Now I'd like to turn the call over to Heritage Global's Chief Executive Officer, Mr. Ross Dove. Please go ahead, Ross.

Welcome, everyone, and thanks for joining us today. Before I turn it over to Brian to go through the financials, I want to take a few minutes to add some color to our recent news. Closing Heritage's capital was at a point of no return where it became both obvious and necessary on multiple fronts. First, the distraction on management team, then coupled with the continued lag on collections that was not improving. Our board and many investors had weighed in for several months that all focus should now be on growing the business units that are both profitable and strong and core to our future. So honestly, it's a relief moving forward to just do that. It can be hard to fold, but I look at the great poker player, Stu Unger, and maybe he had the best advice of all. Fold to live to fold again. With that, everyone here is moving on, building the business units that are built to last. On the financial side, our acquisition of Boston Note that followed the Deadex acquisition is very exciting. With Deadex, along with Enlex and Boston Note, we have an asset-like brokerage now that truly serves a broad and diverse range of financial asset classes, both performing and non-performing and covering institutional and private sellers with all the building blocks ready to accelerate growth. It's exciting. On the industrial side, we have expanded our sales force and already see an expanded and more diverse sector pipeline with more bankruptcy assignments and also added transportation and construction products which are additive to our well-respected and key manufacturing and processing auctions. We have built an extremely robust inventory holding at ALT, bringing us more buyers to the HG family as well. The Trugger is simple and up to us. Grow it strong and built to last. With that, I pass it back to Brian.

Thank you, Ross, and welcome, everyone. During the second quarter, we made the strategic decision to substantially wind down Heritage Global Capital. In connection with this wind down, we recorded approximately $21.7 million in non-cash charges during the second quarter related to the write-down of non-performing loans within our specialty lending business. Despite the second quarter impact, we believe this is the right path forward in order to create a stronger platform anchored in the fundamentals of our core business that allows for growth in long-term shareholder value. We recorded a consolidated operating loss of $20.9 million in the second quarter of 2026 compared to consolidated operating income of $2.2 million in the prior year quarter. Our industrial assets division reported operating income of approximately $600,000 in the second quarter of 2026 compared to $1.3 million in the second quarter of 2025. In our financial assets division, due to the wind down of HGC, we reported an operating loss of $20.4 million in the second quarter of 2026 compared to operating income of $2.2 million in the prior year quarter. Our industrial assets division continued to execute on a steady volume of auction activity, though we've continued to see a similar trend of smaller scale opportunities absent larger auctions in the marketplace. With that said, we're seeing a solid pipeline of activity and remain confident in our ability to capitalize on opportunities in the space as they arise. Our refurbishment and resale business has been performing well, as we're seeing our improvements to the quality of inventory continuing to translate to meaningful increases in asset turnover and improved profitability. Our financial assets division was impacted this quarter by non-cash charges associated with the wind down of HGC. Excluding these charges, the division reported a decent quarter as we saw continued activity in NLEX across the charge-off and non-performing loan space and began to realize gains from DebtX, a leading full-service loan sale advisor that we acquired in January of 2026. Subsequent to the quarter, we completed the acquisition of substantially all of the assets of the Boston Note Company, a seller-financed real estate brokerage with over 30 years of operating history in the residential space. The transaction acts as a bolt onto DebtX and expands our financial assets platform as we look to enter additional asset classes and distribution channels while expanding upon the seller note category which we believe is ripe with opportunity we look forward to integrating boston note into the business and building upon their well-earned reputation in the marketplace additional consolidated financial results include the following revenue was 12.3 million in the second quarter of 2026 compared to 14.3 million in the second quarter of 2025. Adjusted EBITDA was $1.2 million compared to $2.8 million in the prior year period. Net loss was $15.9 million, or $0.46 per diluted share, compared to net income of $1.6 million, or $0.05 per diluted share in the second quarter of 2025. Our balance sheet remains a strength with stockholders' equity of $51.9 million as June 30, 2026 compared to $67 million at December 31, 2025 with net working capital of $9.4 million. Our cash balance reflects a total of $13.2 million as of June 30, 2026, and after removing amounts due to our clients or payables to sellers on our balance sheet, our net available cash balance was $6.5 million. With that, Ross, I'll turn it back over to you.

Thank you, Brian. So just as an ending, my thinking on all of this, 50 years ago, when I lost my first deal, I took the long walk from the front of our warehouse to the back of the warehouse to face my grandfather. and I told my grandfather, I feel really, really bad about the loss. He was at 5 o'clock having his normal bourbon, sitting at his desk, and he said to me, Rossi boy, kid, I feel really, really good that you feel really bad. Now, flash forward 50 years to where I'm the age he was then, and I understand exactly what he meant and I know exactly what we need to do to get out of feeling really bad and start feeling really good. So that is the plan. That is all the effort and that is everything we're going to do to move forward on the platforms that are strong and say goodbye to the platform that held us back. So, and onward and upward, I'm proud to announce, thank you all for everything you've done sticking with this and staying with this, and we're on our way in the right direction. Best of all, and we're around to answer any questions.

Thank you. At this time, we will open the floor for questions. If you'd like to ask a question, please press star 1 on your touchstone phone now. If you'd like to remove yourself from the queue, you may press star 2. Again, that is star 1 to ask a question. And we'll take our first question from Jacob Steffen with Lake Street Capital Market. Please go ahead. Your line is open.

Hey, guys. Appreciate you taking the questions. Maybe just first, kind of focusing on, you know, the two businesses that were recently acquired and maybe, you know, touching on how they kind of fit together. I'm wondering if you could talk about, you know, Dead X's performance relative to Q1. And then also just, you know, how does Boston Note fit in with that?

I'll kind of start with how Boston Note fits in. This is Ross talking. We originally looked at Boston Note, and we didn't see where we were the perfect partner to Boston Note until after we acquired Dead X. Once we acquired Deadex, we really saw that there was an opportunity for Boston Note to convert from just doing seller finance to residential products to also seller finance commercial products. And we knew that Deadex had an unparalleled exit platform as long as they could find the assets. we ran a trial for several months and during the trial we closed eight transactions and over a half a million dollars in revenue and it really became kind of air apparent that they fit like a glove we'd already acquired dead X and we knew that putting Boston node you know in tandem with them was going to really create some synergy we also knew that boston note turned down all pretty much every kind of non-performing loan that was brought to them and we had an avenue second to none on non-performing loans with enlex so when we looked at it we said putting these three companies under one roof will give us a commanding position in the marketplace, and we feel that on a go-forward basis, you're going to see that over the next six months, year, two years, as we blend them together, unify our sales pitch, and get them all working in consortiums. So we're really excited about what we think we can build there.

Got it.

And then, sorry, I might have missed this in the comments but the the dead x acquisition relative to q1 um it seemed like i guess your comments made it seem like you know things have improved off of a seasonally slow quarter but um any kind of they're they're a company they're a company that over the last maybe and brian can give you the the exact details but over at least the last half decade almost 50 to 60 percent sometimes even two-thirds of their revenue comes in Q4. Their revenue primarily comes from banks. And while their revenue comes from banks, it's very common for the banks to wait till the end of the year for a lot of the asset flow. So we'll know a lot better by January 1st, you know, how well we're doing but you know the pipeline is growing and transactions are closing and we're also adding the boston note transaction so you know you know i don't want to overstate you know what hasn't happened yet but we're on the right track um and then maybe just touching on the auction activity um it sounded like you know the larger type auctions were a little bit softer or few and far between in the first half.

I guess, what are you seeing in the second half that kind of gives you confidence in the pipeline that you referenced?

Yeah, it's almost like when we're slow for one or two quarters, we almost follow with one or two, three strong quarters afterwards. I've been doing this for five decades, and it's just the nature of the business that everything kind of comes in shifts. So you go from doing a bunch of smaller auctions to do a bunch of bigger auctions just by the sheer nature of the macroeconomy. You know, our pipeline has larger auctions now than it did in Q1 or Q2. And we're signing several of those. So, you know, all roads lead to a positive second half of the year. And the good news is a lot of the things we're signing now are not just in our strongest sectors, the pharma sector, the food and beverage sector, but they're in a lot of diverse sectors where we're all so good. So, you know, I think there's bright days ahead on the industrial side. Great.

I appreciate all the color. I'll turn it over.

Thank you. We'll take our next question from George Sutton with Kirk Hallam. Please go ahead. Your line is open.

Hi, George. Hey, Ross, Brian, you actually have Logan on for George here. Thanks for taking the question. So first one, Ross, obviously the capital segment has been in a tough spot here for several quarters. I wonder if you could just talk about what moving away from that opens up in terms of time and management focus. I guess how should we think about this move kind of lending itself to your desire to do more acquisitions?

It became a real burden because in the end of the day, it was taking a lot of management time without us necessarily doing anything really, truly effective to improve it. And in the end of the day, I mean, nobody can ever be sure with thousands of accounts what you're going to collect back. But if you're in a junior position, there's always risk. So it just got to the point where we said, look, this is not the best place for us going forward to either operate or to put more capital, that there's way better places to put our capital. It's time to, you know, it's time to basically, you know, end, you know, trying to fix something that is difficult to fix and try to focus all the energy on building what doesn't need fixing but is ripe for growing. So it became kind of obvious. Lots of investors kept saying it's the right move. Lots of board members kept saying it was the right move. And at some point in time, everyone in management kind of all stood up together and said, all right, if we're ever going to do it, let's do it now. So, you know, the best thing I can tell you is it does feel good to have it over with.

Got it. And you mentioned doing some more hiring on the industrial side. I mean, in the past, you've talked about maybe trying to add more business on that side that's outside the building. I'm curious if any of that hiring is focused there. or maybe just in general help us understand kind of where you see opportunity to win new business there?

We've been winning in more diverse auctions, not just outside the building, but in other sectors. You know, there's lots of new sectors that are basically getting busy now. The EV sector is getting busy. The cannabis sector is getting busy. Lots of the food and beverage sectors are getting busy. So there's lots of kind of inside the building manufacturing getting busy coupled with a lot of outside the building construction and transportation. So when you see this kind of broad group of asset classes getting busy, we're just building up because we think the amount of auctions and the size of auctions are going to grow over the next year or two years, and we want to make sure that we have the right sector and geographic coverage. So, you know, this is not the type of business where we're looking to hire dozens of people, but we're going to add some select people to make sure we get as broad a coverage as we can.

Thanks for taking the questions.

Thank you.

Thank you. We'll take our next question from Michael Diana with Maxim Group. Please go ahead. Your line is open. Hi, Michael.

Thank you. Hey, Ross. So you mentioned construction and transportation, which has been very successful for other people. What is your strategy or niche or whatever that you're going for there?

Yeah, the really, really big firms doing it, and there's, you know, obviously one monster firm, we're not out to try to take them on. There are lots of regional auctions where, in the end of the day, they're underneath the radar of somebody at that size. Half a million dollar auctions, million dollar, two million dollar auctions. And those are really kind of our sweet spot. The auctions, you know, from basically half a million to five to ten million are our sweet spot. We're not looking to win the $50 million fleet auctions. But the individual owner retiring or the struggled company with some financial trouble that needs someone to come in right away with a lot of hand-holding kind of really fits our DNA and culture. and we've won what I'll call kind of one-off transactions that aren't from the biggest institutions or the biggest rental companies but from individual sellers who were looking to really work with somebody on a one-on-one basis. And we think there's a lot of that coming forward right now, and so we just want to make sure we can serve that market, Michael.

Yeah, okay. That's what I figured. That's great. So you're in an area where you can compete well. Going to Boston node, I'm somewhat ignorant on the terminology there. Could you just explain to us what a seller node and a carryback node is?

I sure can. So when an individual sells a property, it could be a residential property, it could be a multifamily, it could be any really category of property, it could be any kind of commercial property. and an individual sells that property, and for whatever reason, the buyer won't either qualify for a bank loan or the seller of the property wanted a steady income and said, you don't need to go to the bank. I will become your lender. He carries back the loan. So the seller carried back a first deed of trust secured by the collateral of the property he used to own now one year later two years later three years four years later for whatever reason he wishes he could monetize that loan and he really would like to get all of this cash not get the monthly payments anymore so he didn't really know where to go he or she as an individual it wasn't that simple to go find a bank to sell it to so Boston Note for the last 30 years primarily on the residential side it says come to us and we will get you all cash and get you out of that seller carry back and you'll be done with it and have the money in the bank. We figured out with the CEO of Boston Note, what if you did this for commercial loans, which is, you know, 50x bigger business? And what if you did this for larger jumbo real estate loans and non-performing loans and really extended the offering? What would it look like? And he said, would it look like a lot more profitable, a lot larger company. You know, how can you execute this? And we said, we think because of the two companies we already own, that putting everything together, we think it can really scale.

Okay. That sounds very logical. Do you have any idea, does anybody keep track of the magnitude of just the residential part of the market? I mean, how many of these carry-back notes are out there?

All I know, I don't have the exact number. When we did the original, basically, analysis, you know, we were under 2% of the market. So the market is, you know, 100 times bigger than what Boston Note, which is a boutique firm, was doing.

Okay, okay, great.

Okay. Thanks, Ross.

Thank you, Michael.

Thank you. And I'm showing no additional questions at this time. I'd like to now turn the meeting back to Ross Dove for any additional or closing remarks.

Thank you all for attending. We've got our work cut out for us, but we're very comfortable that we're in the right place at the right time with the right plan. So, you know, keep an eye on us, and I think you'll be very pleased as we move forward through the year. Thank you all, and anybody who has questions, you can contact us at any time, and we'd love to chat with you. Thank you again.

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