What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2020-08-13 compared with 2020-05-14 · 224 added, 143 removed, 262 unchanged (58% of the section changed)

14 unchanged sentences

In mid-March, the Company started to see a slowdown in its business activity, initially and primarily in the automotive industry and in the state of Michigan due to its customers being impacted by the COVID-19 pandemic .

The Company expects this situation to continue into the second quarter and potentially beyond.

As of the time of this filing, we are unable to predict the exact impact the COVID-19 pandemic will have on our business.

However, we are able to address our response to the pandemic, and how COVID-19 may impact our results and financial condition going forward.

COVID-19’s impact on the Company’s 2020 financial results will depend on future developments, such as the ultimate duration and scope of the outbreak, its impact on the Company’s customers and suppliers and the speed with which economic conditions and demand for the Company’s products return to pre-COVID-19 levels.

While the Company is unable to precisely quantify the impact on ongoing earnings, it expects the full year 2020 results to be adversely affected by COVID-19.

Based on business conditions as of the date of this filing, the Company believes it has sufficient liquidity to fund operations for at least the next twelve months, as we work through the COVID-19 recovery.

If there are significant delays in reopening the economy or the demand for its products and services does not recover as quickly as anticipated, the Company may take additional actions to further reduce costs and/or seek additional financing.

This slowdown reached its most acute level midway through the second quarter.

In mid-May as state and local officials began easing quarantine and “stay at home” orders we saw an increase in business activity levels that continued to trend positively through the remainder of the second quarter.

While the Company expects its business activity to continue to stabilize into the third quarter, as of the time of this filing, we are unable to predict the exact impact the COVID-19 pandemic will have on our business in the second half of 2020.

COVID-19’s impact on our second-half 2020 financial results and beyond will depend on future developments, such as the duration and scope of the outbreak and the potential for future “shelter in place” orders that could impact our employees, customers and suppliers.

Although we’ve seen improvements in business activity as a result of the easing of various restrictions, we expect our full year 2020 results to be adversely affected by COVID-19.

Specifically, if there is a resurrection of the “stay at home” restrictions in the second half of 2020, our business and financial performance would likely be negatively impacted.

Nevertheless, we are able to address our continuing response to the pandemic, and how COVID-19 may impact our results and financial condition going forward.

Based on business conditions as of the date of this filing, the Company believes it has sufficient liquidity to fund operations for the foreseeable future so long as business conditions and economic activity remain at current levels.

However, if there are future “shelter in place” orders or similar measures taken in the geographies where we operate and the demand for our products and services is adversely impacted, we may take additional actions to further reduce costs and/or seek additional financing.

Remote Work Arrangements

In late March 2020, in compliance with the directives of government authorities in the state and local geographic areas in which we have operations, we adjusted our operations to permit virtually all of our sales and back office employees to work remotely.

The remote work arrangements currently remain in place and will remain in place until the state or local governments in the locations housing our operations commence “phasing in” return to normal work arrangements.

Our remote work arrangements have been designed to allow for continued operation of non-revenue producing business-critical functions, including finance and accounting, human resources and information systems.

Our first quarter revenue generated from operations remained strong.

Although we have been deemed an “essential” business in all of our geographies, many of our customers have been drastically impacted by COVID-19 and while we are unable to anticipate the impact of the pandemic on our full year 2020 financial performance we believe we have sufficient liquidity to fund our operations for at least the next twelve months as we work through the COVID-19 recovery.

In response to the expected economic impact of the COVID-19 pandemic and in order to preserve our liquidity, our senior executive officers volunteered to accept pay reductions, we implemented an employee furlough program and have taken various other cost savings measures to prioritize preserving our liquidity position during these uncertain times until our customers are able to resume and sustain more normalized business operations.

If there are significant delays in reopening the economy or the demand for our products and services does not recover as quickly as anticipated, we may take additional actions to further reduce costs and/or seek additional financing.

In late second quarter of 2020, we began phasing in a return to more normalize working conditions as state or local governments began lifting restrictions.

Despite the lifting of certain restrictions, Alta continues to adhere to government issued guidelines and promote a clean and safe environment in all of its branch locations.

Certain non-revenue producing business functions continue to work via remote work arrangements which have been designed to allow for the continued operation of our business while allowing employees to work virtually.

Although we were deemed an “essential” business in all of our geographies, many of our customers were drastically impacted by COVID-19 in the second quarter of 2020, which led to an adverse effect on the Company’s financial performance in the quarter.

Despite the relative reduction in revenues in the second quarter and in order to preserve our liquidity, our senior executive officers volunteered to accept pay reductions , we implemented a n employee furlough program and took various other cost savings mea sures to prioritize preserving our liquidity position.

We believe the measures we took were prudent and successful in helping to preserve our liquidity position.

As of the date of this filing, given current business conditions, w e believe we have suffici ent liquidity to fund our operations as we work through the COVID-19 recovery.

Our Board of Directors and management team continues to monitor and evaluate the continuing impacts of the COVID-19 pandemic on our business and operations , to the extent busin ess conditions regress from current levels we may take additional actions to further reduce costs and/or seek additional financing to bolster our liquidity position .

Safety Protocols

We have established new safety protocols intended to help protect the health and safety of our workforce as many of them have continued to provide services to our customers in the field or within our branch infrastructure during the COVID-19 outbreak.

The protocols include health related screening upon entering our premises, requiring face mask use in our facilities, providing additional personal protective equipment when job requirements do not permit following social distancing guidelines and rigorous facility cleaning protocols.

The protocols comport with state and local guidelines and include, requiring face mask use in our facilities, providing additional personal protective equipment when job requirements do not permit following social distancing guidelines and rigorous facility cleaning protocols.

Forward-Looking Statements

16 unchanged sentences

These are only some of the factors that may affect the forward-looking statements contained in this Form 10-Q.

For a discussion identifying additional important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, see our filings with the SEC including, but not limited to, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019 and Registration Statement on Form S-1, initially filed with the SEC on March 25, 2020, respectively.

For a discussion identifying additional important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, see our filings with the SEC including, but not limited to, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019, Registration Statement on Form S-1, initially filed with the SEC on March 25, 2020, and in this Quarterly Report on Form 10-Q, respectively.

Our forward-looking statements speak only as of the date of their initial issuance, and we do not undertake any obligation to update or revise publicly any forward-looking statement, whether as a result of new information, future events, or otherwise

8 unchanged sentences

(v) equipment rentals.

We have operated as an equipment dealership for 35 years and have developed a branch network that includes 43 total locations in Michigan, Illinois, Indiana, Massachusetts, Maine, Connecticut, New Hampshire, Vermont, New York and Florida .

We have operated as an equipment dealership for over 35 years and have developed a branch network that includes 45 total locations in Michigan, Illinois, Indiana, Massachusetts, Maine, Connecticut, New Hampshire, Vermont, New York, Virginia and Florida.

We offer our customers a one-stop-shop for most of their equipment needs by providing sales, parts, service, and rental functions under one roof.

Within its territories, we are the exclusive distributor of new equipment and replacement parts on behalf of our OEM partners.

More recently, with the acquisition of PeakLogix, we have entered the automated equipment installation and system integration sector, which we believe has natural synergies with our material handling business and positions us to take advantage of the macroeconomic trend in e-commerce.

Within our territories, we are the exclusive distributor of new equipment and replacement parts on behalf of our OEM partners.

We and our regional subsidiaries enjoy long-standing relationships with the leading industrial and construction equipment OEMs, including Hyster-Yale, Volvo, and JCB, among more than 30 others.

We are consistently recognized by OEMs as a top dealership partner and have been identified as a Top 4 Hyster-Yale dealer nationally and multi-year recipient of the Volvo Dealer of the Year award.

We are consistently recognized by OEMs as a top dealership partner and have been identified as a nationally recognized Hyster-Yale dealer and multi-year recipient of the Volvo Dealer of the Year award.

Business Segments

3 unchanged sentences

The operating results for each segment are reported separately to our Chief Executive Officer (our chief operating decision maker) to make decisions regarding the allocation of resources, to assess our operating performance and to make strategic decisions.

The Industrial Equipment segment is principally engaged in operations related to the sale, service, and rental of lift trucks in Michigan, Illinois, Indiana, as well as parts of the northeastern United States including Massachusetts, Maine, Connecticut, New Hampshire, New York, Vermont, and Rhode Island.

The Industrial Equipment segment is made up of the legal entities Alta Industrial Equipment Michigan, LLC, Alta Industrial Equipment Company, LLC, and NITCO, LLC.

The Industrial Equipment segment is made up of the legal entities Alta Industrial Equipment Michigan, LLC, Alta Industrial Equipment Company, LLC, NITCO, LLC, PeakLogix LLC and Alta Industrial Equipment New York, LLC.

The Construction Equipment segment is principally engaged in operations related to the sale, service, and rental of construction equipment in Michigan, Indiana, Illinois and Florida.

The Construction Equipment segment is made up of the legal entities Alta Construction Equipment, LLC, Alta Construction Equipment Illinois, LLC, Alta Heavy Equipment Services LLC and Alta Construction Equipment Florida, LLC.

Alta Equipment Group, Inc.

, Alta Equipment Holdings, Inc.

Alta Equipment Group Inc., Alta Equipment Holdings, Inc.

and Alta Enterprises, LLC ( individually or as sometimes collectively referred to as “Corporate”) are the holding companies for the legal entities noted above that make up each segment.

In addition to being a holding company, Alta Enterprises, LLC also holds corporate debt, debt extinguishment fees, transaction costs associated with the reverse recapitalization, and has minor activity all together.

In addition to being a holding company, Alta Enterprises, LLC also holds corporate debt, debt extinguishment fees, deferred taxes, income tax provision, transaction costs associated with the reverse recapitalization, and has minor activity all together.

On June 12, 2020, the Company acquired all the assets of PeakLogix for a total cash purchase price of $5.7 million, which was paid out of available funds.

Additional consideration includes $1.0 million in an unsecured one-year promissory note at 6% and earn-out payment of a minimum $2.0 million up to $3.7 million to be paid out to former owners based on meeting certain financial targets through-out the 5-year earn-out period.

The acquisition is consistent with our growth strategy in materials handling business and expands our geographic footprint.

On February 14, 2020, the Company acquired all the assets of Flagler for a total purchase price of $75.8 million, which was paid out of funds from the closing of the reverse recapitalization.

1 unchanged sentence

On February 14, 2020, the Company acquired all the assets of Liftech for a total purchase price of $18.4 million, which was paid out of funds from closing of the reverse recapitalization.

The acquisition primarily expands our materials handling segment into the upstate New York market, scales our relationship with a major OEM and provides an opportunity for Alta to drive market share with allied products in the region.

allied products in the region.

Northland Industrial Truck Co., Inc.

11 unchanged sentences

The sale of new equipment to customers, while profitable, acts as a means of generating equipment field population and activity for our higher-margin aftermarket revenue streams, specifically service and parts.

We also provide material handling and automated equipment installation and system implementation solutions.

Used Equipment Sales.

We sell used equipment which is typically equipment that has been taken in on trade from a customer that is purchasing new equipment, equipment coming off a third-party lease arrangement, or equipment that has been designated for disposal and has been transferred to our used inventory from our rental fleet.

Used equipment sales made in our territories, like new equipment s ales, generate parts and services business for us, as well.

Used equipment sales made in our territories, like new equipment sales, generate parts and services business for us, as well.

We sell replacement parts to customers and supply parts to our own rental fleet.

9 unchanged sentences

We rent heavy construction, aerial, industrial, and compact equipment to our customers on a daily, weekly and monthly basis.

Our rental fleet, which we believe to be well maintained, consists of approximately 6,200 pieces of equipment having an original acquisition cost (which we define as the cost originally paid to manufacturers plus any capitalized costs) of $333.5 million.

Our rental fleet, which we believe to be well maintained has an original acquisition cost (which we define as the cost originally paid to manufacturers plus any capitalized costs) of $361.4 million.

The original acquisition cost of our rental fleet excludes the value of assets associated with the guaranteed purchase obligations.

In addition to being a core business, our rental business also creates cross-selling opportunities for us in sales and service support activities.

In addition to being a core business, our rental business also creates cross-selling opportunities for us in our sales and product support activities.

Rental Equipment Sales.

6 unchanged sentences

Personnel costs are made up of hourly and salaried wages for administrative employees, including incentive compensation, and employee benefits, including medical benefits.

Operational costs include marketing activities, costs associated with deploying and leasing our service vehicle fleet, information technology, office and shop supplies, general corporate costs, depreciation on non-sales related assets, and intangible amortization.

Occupancy costs are made up of all expenses related to office and administrative working space, including rent, utilities, property taxes, and building insurance.

5 unchanged sentences

Results of Operations

Three months ended March 31, 2020 compared to three month ended March 31, 2019

Three and six months ended June 30, 2020 compared to three and six months ended June 30, 2019

Consolidated Results

Percent of Revenue

Three months ended

Increase (Decrease)

2020 versus 2019

Six months ended

Increase (Decrease)

2020 versus 2019

New and used equipment sales

12 unchanged sentences

Total general and administrative expenses

(Loss) income from operations

Income (loss) from operations

Other income (expense)

3 unchanged sentences

Total other income (expense)

Loss before taxes

Income tax provision (benefit)

Consolidated revenues increased by $78.2 million, or 76.4%, to $180.5 million for the period ended March 31, 2020 as compared to the same period last year.

The largest drivers of this period over period increase were the acquisitions of NITCO, Flagler, and Liftech occurring in May 2019, February 2020, and February 2020, respectively.

(Loss) income before taxes

Income tax benefit

Net (loss) income

Percent of Revenue

Three months ended

Six months ended

New and used equipment sales

Service revenue

Rental revenue

Rental equipment sales

Cost of revenues:

New and used equipment sales

Service revenue

Rental revenue

Rental depreciation and amortization

Rental equipment sales

Cost of revenue

Consolidated revenues increased by $56.2 million, or 41.4%, to $192.1 million for the three months ended June 30, 2020 as compared to the same period last year.

The largest drivers of this period over period increase were the acquisitions of NITCO, Flagler, Liftech and PeakLogix occurring in May 2019, February 2020, February 2020 and June 2020, respectively.

All revenue streams increased as a result of these acquisitions.

Further promoting the quarter over quarter increase in revenue is the growth in our Illinois operations, especially in the Construction segment.

New and used equipment particularly benefited from the acquisitions, having added $30.4 million of the $37.4 million increase experienced quarter over quarter.

New and used equipment additionally benefited from increased sales volume within our existing markets, representing a 15.7% organic increase quarter over quarter.

Organically, parts and service increases continued to be driven by an increased demand for maintenance on aging equipment previously sold to our customers.

Broadly, our parts and service revenue increases quarter over quarter came as the result of the acquisitions made in 2019 and 2020.

Incorporating the acquisitions into the sales mix, parts and service remained consistent as a percentage of total revenue, with equipment sales, both in terms of new and used as well as rental equipment sales, increased quarter over quarter.

Rental revenue as a percentage of total revenue reduced when taking into account the acquired results.

Gross profit (GP):

Consolidated revenues increased by $134.4 million, or 56.4%, to $372.6 million for the six months ended June 30, 2020 as compared to the same period last year.

All revenue streams increased as a result of the NITCO, Flagler, Liftech and PeakLogix acquisitions that was closed in May 2019, February 2020, February 2020 and June 2020, respectively.

The acquisitions collectively contributed in approximately $61.0 million to the new and used equipment sales year over year.

New and used equipment additionally included approximately 10.0% organic increase year over year due to increased sales volume within our existing markets.

Organically, parts and service revenues both declined as a result of the impact from COVID-19 in both Industrial and Construction segments.

Three months ended

Consolidated:

Six months ended

New and used equipment sales

3 unchanged sentences

Consolidated gross profit

The consolidated gross profit for the three months ended March 31, 2020 was 26.1%, a 0.8% decline from the 26.9% for the same period in 2019.

New and used equipment margins improved slightly in the first quarter compared to the same time last year, led by margin improvements in the industrial segment.

Parts and service gross margins decreased as a whole, in part due to the relative growth experienced between the Construction and Industrial segments.

The Construction segment, whose parts and service margins are typically lower than those of Industrial, outpaced the growth of the Industrial segment, resulting in an overall lower margin on higher sales volumes.

In the quarter ended March 31, 2020 rental equipment sales margins were up slightly from last year, and in line with expectations given the value of the rental fleet.

Gross profit (GP):

The consolidated gross profit for the three months ended June 30, 2020 was 24.1%, a 4.3% decline from the 28.4% for the same period in 2019.

A decline in rental revenue gross margin was the main driver in the overall depressed margin.

The combination of reduced quarter-over quarter utilization of our rental fleet, due to COVID-19 and the fixed depreciation expense on certain product categories of our rental fleet led to this reduction in gross margin.

Additionally, parts and service gross margins decreased as a whole, in part due to the relative sales mix between the Construction and Industrial segments.

The Construction segment, which includes Flagler in the second quarter of 2020, whose parts and service margins are typically lower than those of Industrial, was a larger portion of our product support revenues quarter-over-quarter, resulting in an overall lower margin on higher sales volumes.

It should be noted that cost savings measures in the form of employee furloughs allowed the service department, in the second quarter of 2020, to

maintain a gross margin percentage in line with historic levels.

The consolidated gross profit for the six months ended June 30, 2020 was 25.1%, a 2.7% decline from the 27.7% for the same period in 2019.

The decrease in gross margins were largely driven by the same issues as described above for the reduction in the second quarter of 2020 gross margin when compared with the second quarter of 2019.

General and Administrative expenses:

Consolidated general and administrative (G&A) expenses increased by $25.8 million to $51.1 million for the three months ended March 31, 2020 compared to the same period last year.

This increase was mainly driven by the impact of NITCO acquisition along with recent acquisitions and $7.6 million of transaction costs associated with activities directly attributable to the reverse recapitalization.

Consolidated general and administrative (G&A) expenses increased by $10.9 million to $43.7 million for the three months ended June 30, 2020 compared to the same period last year.

This increase was primarily attributable to the recent acquisitions of Flagler, Liftech in the first quarter and PeakLogix in the second quarter.

Consolidated general and administrative (G&A) expenses increased by $36.7 million to $94.8 million for the six months ended June 30, 2020 compared to the same period last year.

This increase was mainly driven by the impact of recent acquisitions along with the prior year NITCO acquisition and $7.6 million of transaction costs associated with activities directly attributable to the reverse recapitalization.

Outside of the reverse recapitalization and acquisition activities, G&A expenses also increased in support of enterprise-wide growth.

1 unchanged sentence

Consolidated other expense increased by $0.7 million compared to the same period last year.

This change was primarily attributable to the $7.6 million loss on debt extinguishment.

The increase in interest expense was due to increased floorplan interest rates, increased utilization and greater borrowings associated with financing acquisition activity.

This change was mainly due to higher borrowings associated with financing the reverse recapitalization and related acquisition activities, partially offset by lower average effective interest rate.

Consolidated other expense increased by $9.6 million compared to the same period last year.

The year over year change was primarily attributable to the $7.6 million loss on debt extinguishment.

The change in interest expense was primarily attributable to higher borrowings associated with financing the reverse recapitalization and related acquisition activities, partially offset by lower average effective interest rate.

Provision for income taxes:

Income tax benefit for the three months ended March 31, 2020 was $1.1 million compared to $0 for the three months ended March 31, 2019.

This benefit was the result of the level of pre-tax loss for the period from February 14, 2020 to March 31, 2020.

Income tax benefit for the three months ended June 30, 2020 was $0.4 million compared to $0 for the three months ended June 30, 2019.

This benefit was the result of the level of pre-tax loss for the second quarter of 2020.

Income tax benefit for the six months ended June 30, 2020 was $1.5 million compared to $0 for the six months ended June 30, 2019.

This benefit was the result of the level of pre-tax loss for the period from February 14, 2020 to June 30, 2020.

Industrial Equipment Results:

Percent of Revenue

Three months ended

Increase (Decrease)

2020 versus 2019

Six months ended

Increase (Decrease)

2020 versus 2019

New and used equipment sales

6 unchanged sentences

Rental revenue

Rental depreciation

Rental depreciation and amortization

Rental equipment sales

1 unchanged sentence

General and administrative expenses

Depreciation and amortization

Depreciation and amortization expense

Total general and administrative expenses

4 unchanged sentences

Total other income (expense)

Industrial Equipment segment revenues increased by 96.3% to $94.6 million for the three months ended March 31, 2020 as compared to the same period last year.

All revenue streams increased quarter over quarter primarily due to the acquisitions of NITCO and Liftech in May 2019 and February 2020, respectively.

The acquisitions had the largest effect on new and used equipment sales, having accounted for $18.5 million of the $20.8 million increase, and service revenue, having accounted for $8.3 million of the $8.8 million increase.

The acquisitions also effected the majority of the quarter over quarter increase in parts, rental, and rental equipment sales, however, the industrial segment maintained organic revenue growth over the periods of 11.6%.

Percent of Revenue

Industrial Equipment

Three months ended

Six months ended

New and used equipment sales

Service revenue

Rental revenue

Rental equipment sales

Cost of revenues:

New and used equipment sales

Service revenue

Rental revenue

Rental depreciation and amortization

Rental equipment sales

Cost of revenue

Industrial Equipment segment revenues increased by 27.0% to $95.1 million for the three months ended June 30, 2020 as compared to the same period last year.

Overall, revenue streams were up as a result of the NITCO, Liftech and PeakLogix acquisitions in May 2019, February 2020 and June 2020, respectively.

While we experienced an acute reduction in customer demand from the global COVID-19 pandemic early on in the quarter, specifically in parts, service and rental, this was offset by our ability to effectively reduce labor costs and a measured ramp up in our business operations later in the quarter.

Industrial Equipment segment revenues increased by 54.1% to $189.7 million for the six months ended June 30, 2020 as compared to the same period last year.

All revenue streams increased year-over-year primarily due to the acquisitions of NITCO, Liftech and PeakLogix in May 2019, February 2020 and June 2020, respectively.

The new and used equipment sales grew mainly as a result of the recent acquisitions while maintaining steady organic growth.

It should be noted that the majority of our new equipment sales in our Industrial Equipment segment is sold out of a backlog that is generated several months prior to its delivery and sale.

This factor helped to maintain new equipment sales level throughout the second quarter of 2020 as the segment endured COVID-19.

Gross profit (GP):

Three months ended

Six months ended

Industrial Equipment

4 unchanged sentences

Segment gross profit

Industrial Equipment gross profit margins declined slightly on growth of $14.8 million on a nominal basis, moving to 32.1% in the three months period ended March 31, 2020 from 32.4% compared to the same period in 2019.

The overall decline can be attributed to the rental equipment sales in 2020 causing a shift in the overall sales mix to a lower gross margin sales category.

Removing for the impact of the rental equipment sales, overall margins experienced an increase quarter over quarter.

The Industrial segment acquisitions, NITCO and Liftech, had the impact of raising overall new and used equipment profit margins, exceeding our historical experiences in our existing geographies, bringing new higher-margin sales opportunities from customers of the acquired companies.

Overall, parts, service and rental margins remained relatively stable for the Industrial segment, experiencing only slight margin differences when comparing the quarters.

Broadly, the acquisitions have shown to solidify the profitability of our Industrial segment.

Industrial Equipment gross profit margins for the three months ended June 30, 2020 declined 2.9% to 29.1% compared to the same period in 2019.

A decline in rental revenue gross margin was the main driver in the overall depressed margin.

The combination of reduced quarter-over quarter utilization of our rental fleet, due to COVID-19 and the fixed depreciation expense on our Industrial rental fleet led to this reduction in gross margin.

Overall, new and used equipment sales, and parts and service margins remained relatively stable for the Industrial segment.

It should be noted that cost savings measures in the form of employee furloughs allowed the service department in the Industrial segment, in the second quarter of 2020, to maintain a gross margin percentage in line with historic levels.

Industrial Equipment gross profit margins for the six months ended June 30, 2020 declined 1.5% to 30.6% compared to the same period in 2019 for the aforementioned reasons.

General and administrative expenses:

Industrial Equipment general and administrative (G&A) expenses increased by 97.1% to $26.8 million for the three months ended March 31, 2020 as compared to the same period last year.

This increase was primarily due to the inclusion of the G&A from the Industrial segment acquisitions, NITCO and Liftech.

Excluding NITCO, general and administrative costs grew in a similar manner to revenue growth.

NITCO’s G&A expense as a percentage of revenue was fairly consistent with the Industrial Equipment segment as a whole, such that G&A as a percentage of revenue remained consistent over the comparative quarters.

Industrial Equipment general and administrative (G&A) expenses increased by 9.4% to $22.2 million for the three months ended June 30, 2020 as compared to the same period last year.

This increase was primarily due to the inclusion of the G&A from the Industrial segment acquisitions, NITCO, Liftech and PeakLogix.

Industrial Equipment general and administrative (G&A) expenses increased by 44.5% to $49.0 million for the six months ended June 30, 2020 as compared to the same period last year.

This increase was primarily due to the inclusion of the G&A from the Industrial segment acquisitions, NITCO, Liftech and PeakLogix.

It should be noted that cost savings measures in the form of executive compensation reductions, decreases in employee health care costs and fringe benefits, employee furloughs and a reduction in vehicle related costs in the Industrial segment allowed for significant reductions in G&A in the second quarter such that the segment was able to fully offset the second quarter reduction in parts, service and rental gross margin due to COVID-19, when compared with first quarter of 2020.

Other Income (expense):

Industrial Equipment other expense increased to ($1.4) million for the period ended March 31, 2020 as compared to the same period last year.

This was primarily due to interest expense increasing by $0.6 million.

The majority of this increase was due to the addition of debt related to the NITCO acquisition, as its assets were financed via our line of credit and floorplan financing facilities.

Industrial Equipment other expense increased by $0.3 to ($1.1) million for the three months ended June 30, 2020 as compared to the same period last year.

The majority of the quarter-over- quarter increase was the result of the addition of debt related to the NITCO and Liftech acquisitions, as their assets were financed via our line of credit and floorplan financing facilities.

Industrial Equipment other expense increased by $0.9 million to ($2.5) million for the six months ended June 30, 2020 as compared to the same period last year.

The majority of the year-over-year increase was the result of the addition of debt related to the NITCO and Liftech acquisitions, as their assets were financed via our line of credit and floorplan financing facilities.

Construction Equipment Results

Percent of Revenue

Three months ended

Increase (Decrease)

2020 versus 2019

Six months ended

Increase (Decrease)

2020 versus 2019

New and used equipment sales

6 unchanged sentences

Rental revenue

Rental depreciation

Rental depreciation and amortization

Rental equipment sales

1 unchanged sentence

General and administrative expenses

Depreciation and amortization

Depreciation and amortization expense

Total general and administrative expenses

4 unchanged sentences

Total other income (expense)

Construction Equipment segment revenues increased by 58.8% to $85.9 million for the three months ended March 31, 2020 as compared to the same period last year.

As Flagler was acquired on February 14, 2020, the three months ended March 31, 2020 are positively influenced by the acquisition.

However, we were able to increase revenues of the Construction segment organically by 18.6% quarter over quarter.

The organic growth can be attributed primarily to the Illinois and Indiana regions, where we continue to increase our market presence after being named the exclusive Volvo Construction Equipment dealer to the territory in late-2017.

New and used equipment sales have fueled field population to allow for our parts and service revenues to increase as a percentage of total revenue.

The Flagler acquisition expands our Construction Equipment segment into the robust Florida construction market, scales our relationship with a major OEM, and provides the opportunity for us to deploy our aftermarket strategies we’ve instituted in our existing territories.

Net (loss) income

Percent of Revenue

Construction Equipment

Three months ended

Six months ended

New and used equipment sales

Service revenue

Rental revenue

Rental equipment sales

Cost of revenues:

New and used equipment sales

Service revenue

Rental revenue

Rental depreciation and amortization

Rental equipment sales

Cost of revenue

Construction Equipment segment revenues increased by 59.0% to $97.0 million for the three months ended June 30, 2020 as compared to the same period last year.

This increase was mainly attributable to the Flagler acquisition that occurred in the first quarter of 2020.

Organically, we experienced an increase in the sale of equipment, parts and service, despite the global COVID-19 pandemic influencing the majority of the second quarter of 2020.

Organic rental revenues and utilization suffered early in the quarter as several major jobsites were closed or delayed related to COVID-19.

As of the date of this filing our rental utilization continues to lag pre-COVID levels.

Construction Equipment segment revenues increased by 58.9% to $182.9 million for the six months ended June 30, 2020 as compared to the same period last year.

This change was primarily attributable to the positive impact from the acquisition of Flagler business earlier in the year.

Organically, we experienced an increase in the sale of equipment, parts and service, despite the global COVID-19 pandemic beginning in latter portion of the first quarter and extending through the majority of the second quarter of 2020.

Organic rental revenues were pacing with the prior year before the impact of COVID-19 caused utilization to suffer as a result of major jobsite closures or delays across the geographies.

Gross profit (GP):

Three months ended

Six months ended

Construction Equipment

4 unchanged sentences

Segment gross profit

Construction Equipment gross profit decreased by 2.8% to 19.4% in the three months ended March 31, 2020 from 22.2% compared to the same period in 2019.

This decline was attributable to the sales mix increase in new and used equipment sales, representing the lowest margin component of the business, as well as being influenced by lower gross profit margins associated with the Flagler acquisition.

Despite growing revenues and gross profits in the higher margin parts and service departments, gross profit margins decreased as the overall sales mix shifted toward the growing Illinois market, with its traditionally lower service margin profile, and the Florida market, where the mix of service revenue is more heavily weighted toward lower-margin warranty work.

New and used equipment sales margins were down versus the same period last year as larger fleet sales were delivered in greater volume during the quarter, with higher sales levels but lower margins.

The rental margin decline quarter over quarter primarily relates to weaker revenue on fleet assets with fixed depreciation schedules.

Rental equipment sales margins remained relatively consistent period over period.

Construction Equipment gross profit decreased by 4.6% to 19.2% in the three months ended June 30, 2020 from 23.8% compared to the same period in 2019.

A decline in rental revenue gross margin was the main driver in the overall depressed margin.

The combination of reduced quarter-over-quarter utilization of our rental fleet, due to COVID-19 and the fixed depreciation expense on certain product categories of our rental fleet led to this reduction in gross margin.

Additionally, service gross margins decreased quarter-over-quarter because of the acquisition of Flagler in the first quarter of 2020, where the mix of service revenue is more heavily weighted toward lower-margin warranty work and best practices in the service department continue to evolve.

Construction Equipment gross profit decreased by 3.7% to 19.3% in the six months ended June 30, 2020 from 23.0% compared to the same period in 2019.

This decline in gross margins were largely driven by the same issues as described above for the reduction in the second quarter of 2020 gross margin when compared with the same period in 2019.

General and Administrative expenses:

Construction Equipment general and administrative (G&A) expenses increased by 46.9% to $16.6 million for the period ended March 31, 2020 as compared to the same period last year.

The majority of this increase was attributable to the inclusion of Flagler, as well as the operational costs associated with growing the Illinois and Indiana territories, including the costs associated with service fleet vehicles to support increased technician headcount.

Construction Equipment general and administrative (G&A) expenses increased by $6.8 million to $18.9 million for the three months ended June 30, 2020 as compared to the same period in 2019.

The quarter over quarter change was mainly due to the contribution of the Flagler acquisition.

It should be noted that cost savings measures in the form of decreases in employee health care costs and fringe benefits, employee furloughs and a reduction in marketing and travel related costs in the Construction segment allowed for reductions in G&A in the second quarter such that the segment was able to partially offset the impacts of COVID-19 on revenue and gross profit.

Construction Equipment general and administrative (G&A) expenses increased by $12.1 million to $35.5 million for the six months ended June 30, 2020 as compared to the same period in 2019.

This increase was mainly attributable to the inclusion of Flagler, as well as the operational costs associated with growing various territories.

Other Income (expense):

Construction Equipment other expense increased to ($2.2) million for the period ended March 31, 2020 as compared to the same period last year.

This was primarily due to interest expense increasing by $0.3 million.

The increase in interest expense was due to increased interest rates and utilization of our working capital line of credit.

Construction Equipment other expense increased by $0.8 million to ($2.6) million for the three months ended June 30, 2020 as compared to the same period in 2019.

This change was primarily driven by interest expense associated with the Flagler acquisition, as its assets were financed via our line of credit and floorplan financing facilities.

Construction Equipment other expense increased to ($4.8) million for the six months ended June 30, 2020 as compared to ($3.7) the same period in 2019.

This change was primarily driven by interest expense associated with the Flagler acquisition, as its assets were financed via our line of credit and floorplan financing facilities.

Liquidity and Capital Resources

Three months ended March 31, 2020 compared with three months ended March 31, 2019 Cash Flows

Six months ended June 30, 2020 compared with six months ended June 30, 2019 Cash Flows

Cash Flow from Operating Activities .

Cash flows from operating activities include net income adjusted for non-cash items and the effects of changes in working capital.

For the three months ended March 31, 2020, operating activities resulted in net cash used in operations of $57.1 million.

Our reported net loss of $17.0 million, when adjusted for non-cash income and expense items, such as depreciation and amortization, former debt extinguishment, and the share-based payment, used cash outflows of $5.6 million.

Changes in working capital included a $33.6 million increase in inventories, $26.5 million in net payments on manufacturer floor plans, a $3.5 million increase in accounts receivable, a $2.7 million decrease in accounts payable, accrued expenses, customer deposits, and other liabilities, and a $0.4 million cash outflows in prepaid expense and other assets.

Cash flows from operating activities were positively impacted by a $14.4 million increase in proceeds from rental fleets, and a favorable change of $0.8 million in deferred revenue.

For the three months ended March 31, 2019, the cash provided by our operating activities was $3.4 million.

For the six months ended June 30, 2020, operating activities resulted in net cash used in operations of $54.1 million.

Our reported net loss of $21.1 million, when adjusted for non-cash income and expense items, such as depreciation and amortization, former debt extinguishment, and the share-based payments, provided net cash inflows of $6.9 million.

Changes in working capital included a $80.5 million increase in inventories, $15.3 million in net payments on manufacturer floor plans, and a $1.2 million cash outflow in prepaid expense and other assets.

Cash flows from operating activities were positively impacted by a $28.7 million increase in proceeds from the sale of rental equipment, a $3.2 million favorable change in accounts receivable, and a $4.1 million cash inflows from accounts payable, accrued expenses, customer deposits, and other liabilities.

For the six months ended June 30, 2019, the cash used in our operating activities was $7.7 million.

Our reported net loss of $2.2 million, when adjusted for non-cash income and expense items, such as depreciation and amortization, paid-in-kind interest, and provision for losses on accounts receivable, provided positive cash flows of $21.0 million.

Cash flows from operating activities included $13.0 million of net proceeds from manufacturer floor plans, $9.4 million of proceeds from rental fleets, and favorable changes of $14.0 million in accounts payable, accrued expenses, customer deposits, and other current liabilities, and deferred revenue.

This was partially offset by a $20.3 million increase in accounts receivable, a $16.6 million increase in inventories, a $2.8 million increase in prepaid and other expenses along with unfavorable changes of $1.4 million in other liabilities.

Cas h Flow from I nvesting Activities .

For the three months ended March 31, 2020 , our cash used in investing activities was $ 118.3 million.

The acquisition of Flagler and Liftech totaled $ 91.7 million and purchases of rental and non-rental property and equip ment totaled approximately $ 26.7 million.

For the three months ended March 31, 2019, our cash used in investing activities was $6.9 million.

This is mainly due to the purchases of rental and non-rental equipment totaled approximately $7.0 million.

Cash used in operating activities included $36.7 million cash outflows in inventories, an increase in accounts receivable by $8.2 million, a $5.9 million in net payments on manufacturer floor plans, a $1.6 million cash outflows in prepaid expense and other assets, and a $0.7 million use of cash in other liabilities.

This was partially offset by $16.1 million of sources of cash from the sale of rental equipment, $8.3 million favorable changes in accounts payable, accrued expenses, customer deposits, and other current liabilities.

Cash Flow from Investing Activities .

For the six months ended June 30, 2020, our cash used in investing activities was $123.4 million.

This was mainly due to $98.0 million use of cash as a result of the Flagler, Liftech and PeakLogix acquisitions and $25.5 million for purchases of rental equipment and non-rental property and equipment.

For the six months ended June 30, 2019, our cash used in investing activities was $80.9 million.

The acquisition of NITCO totaled $65.7 million and purchases of rental equipment and non-rental property and equipment totaled $15.2 million.

Cash Flow from Financing Activities.

For the three months ended March 31, 2020, cash provided by financing activities was $211.8 million.

The favorable impact is mainly due to $175.7 million proceeds from the completion of the reverse recapitalization.

Net proceeds under our lines of credit and floor plans with an unaffiliated source (i.e.

a non-vendor) for the three months ended March 31, 2020 were $140.3 million and $4.2 million, respectively.

Additionally, net proceeds under long-term debt amounted to $149.4 million.

For the six months ended June 30, 2020, cash provided by financing activities was $183.9 million.

The favorable impact was mainly due to $175.7 million proceeds from the completion of the reverse recapitalization.

Net proceeds under long-term debt and lines of credit were $149.4 and $117.8 million, respectively.

Additionally, proceeds from disgorgement of short swing profits was $1.6 million.

This was partially offset by payments related to the extinguishment of former debt, a line of credit and redemption of former shareholders’ notes payable all of which totaled $221.6 million, an extinguishment of a warrant liability of $29.6 million, expenditures of debt issuance costs of $2.7 million, repurchases of common stock of $2.9 million and a $3.1 million payment on long term debt and capital lease obligations.

For the three months ended March 31, 2019, cash provided by financing activities was $2.6 million.

Net proceeds under our lines of credit and floor plans with an unaffiliated source (i.e.

a non-vendor) for the three months ended March 31, 2019 were $3.1 million and $1.4 million, respectively.

Additionally, net proceeds under long-term debt amounted to $0.2 million partially offset by payments on long term debt of $2.0 million and capital lease obligations of $0.1 million.

Additionally, $0.7 million net payments on the floor plans with an unaffiliated source (i.e.

a non-vendor) were also made.

For the six months ended June 30, 2019, cash provided by financing activities was $87.1 million.

Net proceeds under our lines

of credit and floor plans with an unaffiliated source (i.e.

a non-vendor) for the six months ended June 30 , 2019 were $ 50.3 million and $ 25.1 million, respectively.

Additionally, net proceeds under long-term debt amounted to $ 15.2 million partially offset by payments on long term debt of $ 3.5 million .

Sources of Liquidity

The Company reported $36.4 million in cash for the three months ended March 31, 2020.

The Company reported $6.4 million in cash for the six months ended June 30, 2020.

In conjunction with the reverse recapitalization, effective February 14, 2020, the Company amended and restated its credit facility with its first lien lender by entering into the Fifth Amended and Restated ABL First Lien Credit Agreement (“Amended and Restated Credit Agreement” and the facility thereunder, the “ABL Facility”) by and among Alta Equipment Group Inc.

7 unchanged sentences

The revolving line of credit has a maximum borrowing capacity of $300 million and interest cost is the London Interbank Offered Rate (“LIBOR”) plus an applicable margin or the CB Floating Rate, depending on the borrowing.

As of March 31, 2020, the Company had an outstanding revolving line of credit balance of $133.4 million, excluding unamortized debt issuance costs.

As of June 30, 2020, the Company had an outstanding revolving line of credit balance of $110.8 million, excluding unamortized debt issuance costs.

The Company has a floor plan financing facility with its first lien lender to finance new and used inventory and rental fleet equipment.

This floor plan has a maximum borrowing capacity of $40 million.

At March 31, 2020, the Company had an outstanding balance on their first lien lender floor plan facility of $33.9 million, excluding unamortized debt issuance costs.

At June 30, 2020, the Company had an outstanding balance on their first lien lender floor plan facility of $29.0 million, excluding unamortized debt issuance costs.

Original Equipment Manufacturer (“OEM”) Captive Lenders and Suppliers’ Floor Plans

6 unchanged sentences

Maximum borrowings under the floor plans and the revolving line of credit are limited to $525 million.

The total amount outstanding was $296.0, exclusive of debt issuance and deferred financings costs of $1.6 million

The total amount outstanding was $275.9 million, exclusive of debt issuance and deferred financings costs of $1.6 million.

In connection with the reverse recapitalization, the Company entered into a new Note Purchase Agreement (the “Term Loan”) dated as of February 3, 2020, for the purposes of, among other things, (i) financing the reverse recapitalization, (ii) financing the acquisition of Flagler and Liftech, and (iii) providing for the repayment and refinance of a portion of the Company’s prior existing debt.

2 unchanged sentences

The term loan is payable in quarterly installments of $1.9 million plus interest at LIBOR plus 8%.

As of March 31, 2020, the effective interest rate was 9.8%.

As of June 30, 2020, the effective interest rate was 9.8%.

The loan is collateralized by substantially all assets of the Company.

Extinguishment of Debt

In accordance with ASC Topic No.

470-50, “Debt – Modifications and Extinguishments” (Topic No.

470), the transactions noted above were determined to be an extinguishment of the existing debt and an issuance of new debt.

As a result, the Company recorded a loss on the extinguishment of debt in the amount of $7.6 million in the line item “Loss on Extinguishment of Debt” in its Consolidated Statements of Operations.

Of the $7.6 million loss on the extinguishment of debt, $3.9 million represented early call premiums that the Company paid to the holders of its Senior Lien Holder and OEM Captive Lender as a result of repurchasing both notes prior to their maturity.

The remaining balance represented the write off of deferred financing fees related to the extinguished debt facilities.

Cash Requirements Related to Operations

2 unchanged sentences

In the future, we may pursue additional strategic acquisitions and seek to open new start-up locations.

We anticipate that the above described uses will be the principal demands on our cash in the future.

We anticipate that the above described uses will be the principal demands on our cash and availability under our lines of credit in the future.

The amount of our future capital expenditures will depend on a number of factors including general economic conditions and growth prospects.

Our gross rental fleet capital expenditures for the three months ended March 31, 2020 was approximately $32.2 million, including $6.7 million of transfers from new and used inventory to rental fleet.

Our gross rental fleet capital expenditures for the six months ended June 30, 2020 was approximately $78.8 million, including $55.5 million of transfers from new and used inventory to rental fleet.

This gross rental fleet capital expenditure was offset by sales proceeds of rental equipment of approximately $28.7 million for the six months ended June 30, 2020 as our business model is to sell lightly used inventory to customers from our rental fleet so as to increase field population in our geographies.

In response to changing economic conditions, we have the flexibility to modify our capital expenditures, especially as it relates to rental fleet.

To service our debt, we will require a significant amount of cash.

Our ability to pay interest and principal on our indebtedness, will depend upon our future operating performance and the availability of borrowings un der the lines of credit and/or other debt and equity financing alternatives available to us, which will be affected by prevailing economic conditions and conditions in the global credit and capital markets, as well as financial, business and other factors, some of which are beyond our control.

Based on our current level of operations and given the current state of the capital markets, we believe our cash flow from operations, available cash, and available borrowings under the lines of credit will be adequat e to meet our future liquidity needs for the foreseeable future.

As of March 31, 20 20 , we had $ 139.1 million of available borrowings under the revolving line of credit and floor plans.

Our ability to pay interest and principal on our indebtedness, will depend upon our future operating performance and the availability of borrowings under the lines of credit and/or other debt and equity financing alternatives available to us, which will be affected by prevailing economic conditions and conditions in the global credit and capital markets, as well as financial, business and other factors, some of which are beyond our control.

Based on our current level of operations and given the current state of the capital markets, we believe our cash flow from operations, available cash, and available borrowings under the lines of credit will be adequate to meet our future liquidity needs for the foreseeable future.

As of June 30, 2020, we had $171.4 million of available borrowings under the revolving line of credit and floor plans.

We cannot provide absolute assurance that our future cash flow from operating activities will be sufficient to meet our long-term obligations and commitments.

10 unchanged sentences

Evaluation of Goodwill Impairment

Goodwill is tested for impairment annually or more frequently if an event or circumstance indicates that an impairment loss may have been incurred.

Goodwill is tested for impairment annually or more frequently if an event or circumstance indicates that an impairment loss may

have been incurred.

Application of the goodwill impairment test requires judgment, including:

1 unchanged sentence

assignment of assets and liabilities to reporting units;

assignment of goodwill to reporting units;

assignmen t of goodwill to reporting units;

determination of the fair value of each reporting unit;

and an assumption as to the form of the transaction in which the reporting unit would be acquired by a market participant (either a taxable or nontaxable transaction) .

We estimate the fair value of our reporting units (which are our reportable segments) using a discounted cash flow methodology under an income approach, corroborating the results based on the enterprise value (market capitalization plus interest-bearing liabilities) and operating metrics (e.g., EBITDA) of companies engaged in the same or similar line of business.

We estimate the fair value of our reporting units (which are our reportable segments) using a discounted cash flow methodology under an income approach, corroborating the results with a market approach based guideline-company methodology which analyzes the enterprise value (market capitalization plus interest-bearing liabilities) and operating metrics (e.g., EBITDA) of companies engaged in the same or similar line of business and compares those metrics to those of the Company.

We believe the combination of these valuation approaches, yields the most appropriate evidence of fair value.

3 unchanged sentences

Financial Accounting Standards Board (“FASB”) guidance permits entities to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative goodwill impairment test.

The Company’s share price reduction as a result of the ongoing COVID-19 pandemic during the first quarter of 2020, was determined to be a triggering event for impairment testing under ASC 350.

As such, the Company performed an interim quantitative impairment analysis and determined that goodwill related to the Company’s reporting units was not impaired as of March 31, 2020.

After evaluating and weighing all relevant events and circumstances, as of June 30, 2020, the Company concluded there was no triggering event for a goodwill impairment test.

Off Balance Sheet Transactions

As of March 31, 2020, we did not have any “off-balance-sheet arrangements”, as defined in Item 303(a)(4)(ii) of Regulation S-K.

As of June 30, 2020, we did not have any “off-balance-sheet arrangements”, as defined in Item 303(a)(4)(ii) of Regulation S-K.

Quantitative and Qualitat ive Disclosures About Market Risk.

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis