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The past couple of weeks were active with live Fireside Chat and Management Morning Briefing style interviews with companies that we are watching closely, have written some detailed content on (think RFTs), and/or fill spots on our Model Portfolios.

We will continue to strongly suggest that you attend these meetings or at least view the replays, as they offer so much more information than you would glean from earnings conference calls and related press releases and SEC filings. They are an extremely valuable and integral part of our due diligence. WIthout them, it’d be much more difficult and time consuming to profile the companies given the sometimes limited information available on public platforms. It’s a no brainer.

The one we held on April 11, 2023 with a company involved in the asset liquidation and charge-off loan platform businesses, Heritage Global Inc. (OTC:HGBL), was particularly timely given the combination of our focus on bankruptcy special situations of late and the case of distressed company $NMCI that caught peoples’ attention when it rallied over 200% when it filed for bankruptcy protection that same day.

When NCMI disclosed this news, it put a spotlight on how some companies can potentially emerge from bankruptcy, sometimes cleaner & stronger than ever. Clear success is not a done deal for the company, as there are still many unknowns on how clean it will come out on the other side.

However, it’s definitely given us a chance to continue to reflect upon the opportunities presented to us with bankruptcy plays on 2 fronts – companies that benefit from an increased flow of delinquencies in a recessionary environment, and companies that intend to restructure their businesses in ways that we covered in detail, here.

Regarding the latter, a great rundown of the nuts and bolts of the NCMI’s situation can be read about at a Substack post by @junkbondinvest. The author broke down down the risk/reward opportunity related to the the company’s Chapter 11 restructuring, concluding:

“…the recent run-up in the stock can be supported by fundamentals. In fact, there is a scenario where the stock can be worth 2-3x today’s price. Whether the risk/return meets your thresholds is a different question and one that warrants further due diligence.”

On the former, what we want to briefly focus on this week are a few clips from the HGBL Management Morning Briefing, in which the company’s CEO, Ross Dove, his CFO, Brian Cobb, and CMO, Raspina Jannesar, joined us to elaborate on the landscape of the industry that they operate in. The slides used for the chat can be found here, and full MMB, here at GeoInvesting’s pro portal.

A key investor sentiment issue revolving around HGBL is potential lumpiness in quarterly financial results that can result from the asset liquidation business. However, we are curious if the revenue of the liquidation business is entering a period of more consistency due to the weaker economic environment.

They are in a unique position to incentivize themselves to compile a wealth of information that is available on catalytic events happening at distressed companies that might warrant them to take specific actions. It is in their best interest to do the deep dives on what Ross Dove admits is public information, but intimates to the fact that the company has a secret sauce for finding great deals.

“Without giving away our secret sauce of what we’re looking at, there is so much public information right now on plant closures that basically every plant closure in America almost…you can find through basically different publications and Warren notices, etc. And every public company that’s going to do a plant closing, or sell a lot of assets prior to doing that, is going to take an impairment charge…that is also a public record. So, the Information Age has really changed the ability to know where to go and who to talk to and who to call in advance. So you know, as long as we’re the guys that are going to put the most effort into making the most calls, we’re not having a hard time finding out who to call.

So, given that a sluggish economy results in opportunity for HGBL, and in turn perhaps for investors in HGBL, it only makes sense to get some updates on what the company is specifically looking at and what the executive team’s opinions are on the current environment.

We’ve taken to doing introductions to our chats to get GeoInvesting subs up to speed on what we intend to gather from the back and forth with executive management teams. In the following clip, Maj gives an overview of some of the key points of interest  prior to getting started with HGBL.

Basically, on top of giving a bird’s eye view of the company financials, Maj preps the call with his intentions to ask the HGBL team to address the segments of the company, tailwinds and headwinds in the target markets in light of the current economic environment, the experience of the company with past recessions and the acquisition opportunities.

Read on for commentary from the executive management team of HGBL…

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