Ladies and gentlemen, greetings, and welcome to the Heritage Global Inc. Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star and zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, John Nesbett, with IMS Investor Relations. Please go ahead, sir. 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 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? Thank you, John, and thank everyone for attending and listening. Before Brian gives you an overview of what we feel was an extremely good quarter, I wanted to take a few moments upfront to walk everyone through our non-cash $900,000 loan loss reserve, the reasons why we took it, and how we feel about it. So our largest borrower came to us and said that they would like to extend the term of their loan, that they believe they'll definitely be able to pay off. However, the collection curves have slowed, and they've asked for an extension. The first thing I thought about them asking for an extension is, thank God, I'm only 71 years old, so I've got plenty of time to extend it. So we feel comfortable that it's going to work, but we took the $900,000 charge because the buyer is asking for an extension. So over time, we'll have to figure out whether or not that charge or that non-cash reserve will stay on the books. For now, we believe it was prudent and the safest thing to do. So after I thought about it for a long time, I started thinking about a story from very early in my career that my grandfather, our founder, told me. He said to me, "Kid, never worry too much about the money that people owe you. Worry far more about the people you owe money to." So the good news there is our loan book has grown to $35 million plus, while our bank debt is only $7 million. So with that perspective in mind, I feel very comfortable about our future here. So everybody kind of looking at the market right now, and I'll talk about it later on after Brian speaks, says it looks like there's rocky roads coming ahead. After 50 years of doing this, I can tell you over and over again that rocky roads have been ice cream to liquidators, and we think our time is going to get better and better over the next two or three years. The $13 million guidance we gave for this year, I'm still confirming after we took the loan loss reserve, and I'm positive that next year and the year after, you'll see growth. With that, I'll turn it over to Brian to walk you through the quarter. Once he does walk you through the quarter, I'll kind of walk you through why I see there's growth over the next two years, three years, and beyond. Brian, go ahead. You're up. Thank you, Ross. This was another very positive quarter for the company, where we delivered strong operating results on both sides of our business. Within our industrial assets division, we are seeing increased auction interest, specifically in the biotech and pharmaceutical sector, as the industry continues to consolidate. Industrial posted a solid third quarter operating income of $2.1 million, with strong results from its core auction business. It is important to note that in the comparable quarter last year, we realized $1.5 million in earnings from equity method investments related to a real estate building closure, and we did not have any real estate transactions this quarter. Our financial asset division posted an excellent quarter as well, with operating income for the three and nine months ended up 18% and 110% compared to the prior year periods, respectively. We are seeing sustained tailwinds with the current state of the economy, given consumer debt at record levels and high volumes of charged-off portfolios. The brokerage segment is positioned to capitalize from continued growth in the volume of non-performing loans and charged-off credit card accounts. In this environment, however, the offsetting impact is that consumers have less capacity to pay their debts, resulting in lower collections in the near term, which we are seeing across the industry. We recognize that there exists an elevated risk related to the underlying collateral and thus our loan book, due to the reduced collection rates. As Ross mentioned, we are working diligently with our partners to complete amended agreements with our largest borrower to extend their maturity. In light of the situation with this particular borrower, as well as the overall macro trends in the collections market, we felt it was prudent to increase our non-cash credit loss reserves by approximately $900,000, resulting in a total balance of $1.4 million as of September 30, 2023. The increase to our credit loss reserve runs through the income statement against SG&A and as an offset of the earnings from equity method investments, with a roughly even split between the two accounts. This situation is not having an impact on our other operating businesses, including NLEX, which continues to perform at record levels. Turning to the financial results. Consolidated net operating income was $2.8 million in the third quarter. Excluding the total impact of our credit loss reserve adjustments, consolidated net operating income was approximately $3.6 million. Net income was $2 million, or $0.05 per diluted share, and including our credit loss reserve adjustments, earnings per share was $0.07. For the quarter, we reported Adjusted EBITDA of $3.1 million. Our balance sheet remains strong, with stockholders' equity of $56 million as of September 30, 2023, up from $48 million at December 31, 2022, and a net working capital of $13.8 million. Additionally, our total balance related to investments in loans to buyers of charged-off non-performing receivable portfolios was $35.9 million as of September 30, 2023, of which $20.6 million is classified as notes receivable and $15.3 million is classified as equity method investments. The total increase in our loan book was $6 million during the quarter and $14 million year to date. So I'll wrap this up by reiterating that this was a great quarter for us, with strong macro tailwinds and both sides of our business performing well and benefiting from increased asset volume. With that, Ross, I'll pass it back to you. Thank you, Brian. So over the next 30 days, we should really have a lot more visibility to report back to you on our ability to come up with an extension that works for our senior lender and works for us, and let you know in basically more detail, exactly where we're at and how we hopefully avoided a default, which we are very promisingly believe we can as of today. During that next 30 days, we'll also be able to add guidance to our Q4 numbers. Q4 looks like it has the potential to be a record quarter. We don't have all of the numbers in yet, and we're still conducting auctions. But let me tell you why we're so bullish, kind of across the board, where I think each of our divisions could have a record quarter that would offset really any loan loss reserve, in my opinion, as we're growing our business pretty dramatically. On the NLEX side, we are now, as you can see, basically each month adding new clients, and not just are we adding new clients, our existing clients are giving us more and more supply of assets to sell because they have more and more need to sell the assets, as non-performing loans are growing more rapidly now than they even were last year. Defaults are growing, and as defaults grow, ultimately, charge-offs grow. So the flood of assets into our marketplace is growing at a faster pace than it has been in the past. NLEX had a record quarter in the brokerage business, this last quarter, and is forecasting a record quarter once again. I've already addressed that Heritage Global Capital is struggling at some point with the amount of loans being paid off as fast as we anticipated. We don't have any other borrowers asking for an extension at this point in time. We don't currently anticipate that we will. So we're working through our one large buyer and their issues, and we're being prudent in new loans. We expect the financial asset business to stay profitable and the loan book to grow, albeit a little bit more cautiously and slowly over the next couple of years. And we're very bullish across both the businesses going forward. On the industrial side, we're having literally the most auctions conducted in one quarter we've had since the inception of Heritage Global Partners. If you look at our calendar, you'll see that there's literally almost an auction every day. We have an extremely robust full calendar. We have an extremely robust pipeline into Q1 and beyond, and we're very, very comfortable that there's multiple years of growth. There's still literally hundreds and hundreds of biotech companies that are struggling and are gonna need the assets to be sold. So that stays solid. Along with that staying solid, our valuation business is dramatically growing right now. Why is it growing? Because when we're moving into times with a little bit more rocky roads, in those times, valuation businesses are more needed. American Lab Trading has massively upgraded its inventory, and basically, at this point in time, there's growth over the next two or three years as they continue to upgrade their inventory, and more and more buyers, as we move into a more difficult economy, want the savings of buying used equipment. ... So we're bullish across financial and industrial, and we're looking at that charge very seriously. And at the same time, we're extremely confident in the future and open to any questions anyone has. And once again, thank you all for your time. We greatly appreciate it. Thank you for being shareholders, and we'll keep on trying to perform at the very best we can and feeling pretty good about where we sit today. Thank you. Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. If you would like to ask a question, please press star and one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Ladies and gentlemen, we will wait for a moment while we poll for questions. Our first question is from the line of Mark Argento with Lake Street Capital Markets. Please go ahead. Hi, Mark. Hey, Brian. Just feeling a little bit of the onion on the loan loss reserve. Could you just maybe give a little color on, is it a particular type of portfolio, like a, you know, consumer credit versus student loan or whatnot? And have you guys done, you know, pretty in-depth work in terms of understanding the exposure, just given the environment we're in? It's a mixed portfolio of all different types of consumer loans. There is some auto blended with some credit card, not a lot of student loans. So primarily that with fintech stuff at the same time, a combination of BNPL and peer-to-peer loans. So it's really across all the consumer sectors, and it it's been performing obviously with collections every month. They were a little aggressive in how fast they thought they could collect. So by being a little aggressive in how fast, the market changed after they stopped the stimulus, and they're going through the same issue that every single person in the collection business is going through. If you saw that the big public companies, PRA and Encore, also announced that the collection curves have slowed. So it's an industry-wide issue, that collection curves have slowed, and that's why we're working with them, Mark. That makes sense. And then when you're thinking about putting additional capital out at this point, you know, how do you take... You know, how do you kinda price the, you know, the credit, you know, in terms of do the rates go up, do terms change? What are you seeing in terms of pricing when you guys are putting out additional capital? Well, the first thing we're gonna do is make sure that when we put any, any money out at all, two things: Do we get a little bigger down payment? And that we understand that it's gonna take a longer cycle to get paid back. So the biggest thing on our underwriting is understanding that what we thought could be a three-year payback could turn into a five-year payback. So we're gonna have to do the analytics on, you know, whether it makes sense or not to do a loan that comes back in five years. So that, that's the real difference. The loans basically are going to extend right now. If people are going after judgments, the courts are crowded. There's way more product on the market, way more people buying product. So, you know, we're looking at the collection curves extending not just this year and not just next year, but maybe for the next couple of years while we go through this massive volume increase. Got it. In terms of the loan loss reserve, is that something that you guys look at, obviously, quarterly, annually? What's the probability of having to continue to tweak that materially here going forward? Obviously, we're looking at it every quarter, always. We think that it's sufficient, and we don't anticipate doing it again. At least from everything we see today, we think that what we did was conservative and aggressive in taking the $900,000. By making it conservative and aggressive, we think we've got ourselves covered for next year and beyond. Great. Appreciate the extra color. I'll hop back in the queue. All right. Well, thank you very much, and, we'll talk soon. Be good, Mark. Thank you. Our next question is from the line of George Sutton with Craig-Hallum. Please go ahead. Hi, George. Thank you. Thank you. Hi, Ross. Sorry, I missed your earlier prepared comments, so if my questions are confused, there's a good reason. But, it was very clear in listening to PRA's call that, you know, they were talking about this rapid cliff of charge-offs coming. They were talking about well above forward flow arrangements, opportunities, in the market. That would, correct me if I'm wrong, directly lead to brokered business, of which you are the, primary player. Is that a fair statement on your buy side? In the prepared remarks, I told them that NLEX had a record Q3. It's having a true record Q4, and not just are we getting new sellers, but the current sellers are giving us more and more product now because they have more and more product to sell. So we're forecasting next year being the biggest year in the history of NLEX. Our marketplaces are really full. This quarter coming up, Q4, I think will be the best quarter in the history of NLEX. So right now, yeah, you're right. I mean, and I think it's sustainable for the next couple of years. If you listen to PRA, you listen to Encore, they're all saying that the collection curves are slowing, but at the same time, the collection curves are slowing, the volume is growing literally quarter by quarter, George. Now, relative to the capacity that your buyers have on the brokerage side, how much, assuming this lender that you're specifically referencing and related to the charge-off, I'm sorry, related to the, Loan loss. Higher assumption. Loan loss reserve. Thank you. Very different than a charge-off for, for those listening. Yeah. If they don't have capacity, how much does that impact your ability in the market to get that sort of normal opportunity? So the absorption rate is still very, very strong. We're getting bids on everything we put out. The pricing has gone down to more normal levels. During the pandemic, there wasn't enough supply, and people were paying very high prices and thinking that the collection curves were quicker than they are now. But the absorption rate is 100%. We haven't had a portfolio that we've been unable to get bids on. And so we think that'll continue. A lot of these people really couldn't spend any money during the pandemic, and now all of a sudden, they're basically back in business. So I think we, there's a solid base of buyers right now. Quick question on the biotech side. We're somewhat stunned by the number of auctions that you've had. How much is that impacting the buyer side in terms of their willingness to pay up in these auctions and, you know, understanding that if I don't buy today, there's a number of other auctions coming? It's been really good because most of what we're doing is not for the Fortune 1000, the big Pfizers of the world, the Amgens of the world. Most of what we're doing is for companies that are struggling, that basically have newer equipment. So because we're selling much newer equipment, because we're getting it from, you know, venture-type companies, that the equipment's one, two, three, four years old, we're getting very aggressive bids. And what happens, that people may not understand, when times get tighter, there's an increase, not a decrease, in the volume of people that will buy used equipment. So people that won't look at used equipment when they're getting $20 million funding from their VCs, and they can buy everything brand new, shiny, without any kind of worries, are now not getting that kind of money. And so as they're trying to basically balance their supply chain, they're more and more looking at used equipment. We're selling used equipment now to guys that are buying used equipment for the first time. Gotcha. Okay, that's it for me. Thank you. Thank you. Thank you. Ladies and gentlemen, if you wish to ask a question, please press star and one. Our next question is from the line of Michael Diana with Maxim Group. Please go ahead. Hi, Michael. Hey, Ross. Hey, Ross. I'd like to just... You talked about absorption rates, in other words, the demand for the charged-off loans. And you said the absorption rates were still high, although the pricing maybe is a little softer. So can you remind us how you get paid on these sales of the charged-off loans? Yes, so we're never- Yeah, go ahead. How that dynamic, you know, will impact your revenue? So we're never a principal, we're never a financial risk at all. We're 100% a broker. We give no guarantees on the pricing. We try to give them guidance on what we think it's worth to make sure that they're going to be happy with our performance, and we get paid a basically a commission, a seller's commission. So it's the same way that CBRE or, you know, Cushman & Wakefield would get paid a brokerage. So it's a brokerage fee, and we get paid at closing. All right. So we're really focused. We make more money 100% on volume, so if the pricing is lower, that is not as being an impact, as long as we're selling more and more loan portfolios. So if the pricing goes from $0.10 to $0.08, it's not that huge a difference in how much money we're making. The difference is if we go from doing 200 to 300 offerings in a year. Right. Right. So you get, you get a fixed percentage of the amount sold, right? Yes. Of volume. Yeah, correct. Yes. So as you say, you can make it up in volume, right? Even if the pricing's- We can make up in volume, and the great news there is it's really easy to make it up in volume because in this business, you're not raising your OpEx. You don't need more people to sell more loans. We've got pretty much the staff in place that can handle the growth. Because in the end, it's different in the industrial auction business. You're not setting up the plants, you don't have shippers, you don't have riggers, you're not checking out the plants. Here, you're literally just selling paper, so there's tremendous leverage. Okay, great. Thank you. Thank you, Michael. Thank you. As there are no further questions, I would now hand the conference over to the management for closing comments. Thank everyone for listening in. We always appreciate having an audience of people that pay attention, that want to learn about our company, that want to get more knowledge about our company. We're very accessible. If anybody wants to contact us after this call and have any one-on-one discussion, we'd love to have a one-on-one discussion with you. We think that next year is going to be the best year in the history of the company, and we have every reason to believe that and every indication to believe that, looking at the pipeline across the board. This is about as excited as we can get. We got a lot of work to do, and we're going to do that work. We realized that we're going to basically have to wait a little longer to get all of our money paid back. But as I said in the earnings call, I'm pretty glad that people owe me $35 million. So that's a good feeling. And if it takes a little longer to get paid back, we don't need the money tomorrow. We have excellent cash flow, we have excellent operating leverage, and we're in a fantastic position if we have to wait another six months or a year, a year and a half to get paid back on some of this, because we did everything right to be strong enough that we can wait. So everybody, have a great day, and thank you all for listening. Thank you. The conference of Heritage Global Inc. has now concluded. Thank you for your participation. You may now disconnect your lines.