What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2020-11-12 compared with 2020-08-13 · 188 added, 154 removed, 332 unchanged (51% of the section changed)

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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.

While business activity levels stabilized in the third quarter to near pre-COVID levels, with the exception of our rental fleet utilization which continues to lag 2019 levels, 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 fourth quarter of 2020 and into 2021.

COVID-19’s impact on our fourth quarter of 2020 and 2021 financial results and beyond will depend on future developments, such as the duration and scope of outbreaks 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 in the third quarter of 2020 when compared to the second quarter of 2020, 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 fourth quarter 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.

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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.

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.

In late second quarter of 2020, we phased 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.

Where and when applicable, certain non-revenue producing business functions have been able to operate 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.

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 an employee furlough program and took various other cost savings measures 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 .

As business conditions and customer demand returned to more normalized levels, many of these cost savings measures and furlough programs were removed and eliminated in the third quarter.

While our sales and services related operations are performing at near pre-COVID levels, our rental fleet utilization has lagged pre-COVID performance which prevented the Company from generating an optimal level of cash flow commensurate with pre-COVID levels in the third quarter.

The Company will continue to monitor utilization and, in-turn, rationalize rental fleet levels to match expected demand in the fourth quarter of 2020 and through the end of COVID-19 pandemic.

Additionally, we believe that the acquisitions and investments made in the second and third quarters of 2020 expand our service capabilities, geographic reach, end market diversification and product offerings;

each of which ultimately strengthens our resiliency to economic shocks and will help to preserve liquidity over the long term.

After considering current business conditions, we believe we have sufficient 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 business 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

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the competitive environment for our products and services;

our ability to continue to innovate and develop new business lines and to attract and retain key personnel;

our ability to continue to innovate and develop new business lines;

our ability to attract and retain key personnel, including, but not limited to, skilled technicians;

our ability to maintain our listing on the New York Stock Exchange;

the impact of cyber or other security threats or other disruptions to our businesses;

our ability to realize the anticipated benefits of acquisitions or divestitures or internal reorganizations.

our ability to realize the anticipated benefits of acquisitions or divestitures, rental fleet investments or internal reorganizations.

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”, “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

Registration Statement on Form S-1, filed with the SEC on March 25, 2020, Registration Statement on Form S-1, filed with the SEC on October 26, 2020 and in this Quarterly Report on Form 10-Q, respectively .

Our forwa rd-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

Business Description

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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.

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.

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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.

Martin Implement Sales, Inc.

On September 1, 2020, the Company acquired all the assets of Martin for a total purchase price of $16.2 million, which included floorplan eligible new equipment inventories, which was paid out of available funds.

This acquisition enhances our position in the Illinois construction market, broadens our product portfolio in the compact segment of the construction equipment market and adds valuable service capabilities in the region.

Hilo Equipment & Services (“Hilo”)

On July 1, 2020, the Company acquired all the assets of Hilo, a distributor of material handling equipment with three branches in the New York City metro area.

Under the terms of the agreement, the purchase price at close was $18.2 million in cash, including certain new floorplan inventory and potential earn out payments of $1.0 million tied to post closing performance of the Hilo business.

The acquisition aligns with our growth strategy by expanding our distribution footprint with a major OEM, giving us a strategic presence in yet another densely populated major market and strengthens our overall coverage of the Northeastern United States.

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.

The acquisition represents the Company’s entrance into 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 warehousing and logistics, and e-commerce.

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.

The acquisition expands our heavy equipment segment into the Florida construction market, scales our relationship with a major OEM and provides an opportunity for us to deploy our aftermarket strategies in a robust construction market.

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.

Northland Industrial Truck Co., Inc.

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In connection with the purchase, NITCO LLC was created.

The acquisition expands our business into the New England market providing Alta a growth platform on the East Coast of the United States.

The acquisition expands our business into the New England market, diversifies our end market exposure, and provides Alta a growth platform on the East Coast of the United States.

The acquisition adds a best-in-class full-service materials handling and construction equipment dealer with operations in Massachusetts, Connecticut, New Hampshire and Maine.

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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.

We also sell tangential products related to our material handling equipment offerings and, with the acquisition of PeakLogix, we provide 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.

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 , as is primarily the case in our industrial segment, 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 sales, generate parts and services business for us, as well.

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In addition to repair and maintenance on an as needed or scheduled basis, we provide ongoing preventative maintenance services and warranty repairs for our customers.

We have committed substantial resources to training our technical service employees and have a full-scale services infrastructure that we believe differentiates us from our competitors.

We have committed sub stantial resources to training our technical service employees and have a full-scale services infrastructure that we believe differentiates us from our competitors.

Approximately half of our employees are skilled service technicians.

Training, paid time off, and other non-billable costs of maintaining our expert technicians flow through this department in addition to the direct customer-billable labor.

Training, paid time of f, and other non-billable costs of maintaining our expert technicians flow through this department in addition to the direct customer-billable labor.

Equipment Rentals.

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Results of Operations

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Consolidated Results

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Total general and administrative expenses

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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.

Consolidated revenues increased by $70.8 million, or 47.3%, to $220.6 million for the three months ended September 30, 2020 as compared to the same period last year.

The primary drivers of this period over period increase were the favorable impact from the acquisitions of Flagler, Liftech, PeakLogix, Hilo and Martin which occurred between February 2020 and September 2020.

All revenue streams increased as a result of these acquisitions.

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.

Notably, our new and used equipment sales increased by approximately 11.0% on an organic basis compared to the same period in 2019 due to increased sales volume within our existing markets.

Additionally, parts and service increased by 7.5% and 4.2% on an organic basis, respectively, quarter over quarter.

While sales, parts and service increased on an organic basis, our rental revenue decreased by approximately 13.0% on an organic basis due to a decrease in utilization for the three months ended 2020 compared to the same period in 2019.

Consolidated revenues increased by $205.2 million, or 52.9%, to $593.2 million for the nine months ended September 30, 2020 as compared to the same period last year.

Overall, the revenue streams increased as a result of the NITCO, Flagler, Liftech, Peak Logix, Hilo and Martin acquisitions that closed between May 2019 and September 2020.

All revenue streams increased as a result of these acquisitions.

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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.

The consolidated gross profit for the three months ended September 30, 2020 was 25.7%, a 3.8% decline from the 29.5% for the same period in 2019.

We also realized a decline in rental revenue gross margin in the third quarter of 2020, which was the main driver in the overall depressed margin;

specific factors of this decline in rental revenue gross margin are further described herein in the segment levels results.

Additionally, parts and service gross margins decreased as a whole, in part due to the relative sales mix being more heavily weighted to our construction segment year over year.

This was partially offset by higher gross margin on new and allied products as a result of the PeakLogix acquisition.

Additionally, we realized better used equipment gross margin in our industrial segment in the third quarter of 2020 when compared to the same period in 2019.

The consolidated gross profit for the nine months ended September 30, 2020 was 25.

3 %, a 3.1 % decline from the 28.4 % for the same period in 2019.

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

General and Administrative expenses:

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.

Consolidated general and administrative (G&A) expenses increased by $22.2 million to $60.2 million for the three months ended September 30, 2020 compared to the same period last year.

This increase was mainly driven by the impact from the acquisitions of Flagler, Liftech, PeakLogix, Hilo and Martin.

In addition to the acquisitions, the Company incurred $3.2 million share-based compensation expense mainly due to the immediate vesting of restricted stock units related to the passing of our Construction Group President.

Consolidated general and administrative (G&A) expenses increased by $60.3 million to $157.7 million for the nine months ended September 30, 2020 compared to the same period last year.

This increase was mainly due to the same drivers described above in addition to the $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.

Other Income (expense):

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

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.

Consolidated other income for the three months ended September 30, 2020 was $1.9 million compared to $(33.6) million for the same period in 2019.

This change was mainly due to $8.0 million in key man life insurance proceeds as a result of the passing away of our Construction Group President, which offset higher borrowings associated with the financing of our recent acquisitions.

For the three months ended 2019, the Company incurred a $28.3 million expense as a result of the recognition of an increase in the fair value of warrants held by a former minority shareholder.

The increase in fair value was triggered by the implied valuation of the company in the reverse recapitalization

Consolidated other expense decreased by $25.9 million compared to the same period last year.

The year over year favorable change was primarily attributable to the activities described above.

In addition to the above, the Company incurred $7.6 million loss on debt extinguishment in the reverse recapitalization and had higher borrowings associated with the reverse recapitalization and acquisition related activities during the nine months ended September 30, 2020.

Provision for income taxes:

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.

Income tax benefit for the three months ended September 30, 2020 was $1.9 million compared to $0 for the three months ended September 30, 2019.

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

Income tax benefit for the nine months ended September 30, 2020 was $3.4 million compared to $0 for the nine months ended September 30, 2019.

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

Industrial Equipment Results:

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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.

Industrial Equipment segment revenues increased by 29.7% to $115.0 million for the three months ended September 30, 2020 as compared to the same period last year.

Overall, revenue streams were up as a result of the Liftech, PeakLogix and Hilo acquisitions that closed in February 2020, June 2020 and July 2020, respectively.

While we experienced an acute reduction in customer demand from the global COVID-19 pandemic in the second quarter of 2020, specifically in parts and service, we were able to rebound in the third quarter and both parts and service revenue lines increased by approximately $3.4 million each compared to the second quarter, or up by 28.3% and 19.3%, respectively.

Industrial Equipment segment revenues increased by 43.9% to $304.7 million for the nine months ended September 30, 2020 as compared to the same period last year.

The year-over-year increase was mainly due to the contributions from the acquisitions of NITCO, Liftech, PeakLogix and Hilo that occurred between May 2019 and July 2020.

Gross profit (GP):

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Industrial Equipment

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Segment gross profit

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.

Industrial Equipment gross profit margins for the three months ended September 30, 2020 declined 1.8% to 32.1% compared to the same period in 2019.

New equipment sales gross margin benefited from the addition of PeakLogix to the sales mix in the third quarter of 2020.

As PeakLogix “design and build” higher margin business line realizes higher gross margin than the gross margin on new and allied products in our legacy business.

Additionally, we realized better used equipment gross margin in the third quarter of 2020 when compared to the third quarter of 2019.

We also realized a decline in rental revenue gross margin in the third quarter of 2020 which was the main driver in the overall depressed margin.

This reduction in rental gross margin was the result of reduced quarter-over-quarter utilization of our rental fleet and the fixed depreciation on our Industrial rental fleet and an increase in repairs and maintenance and subleasing expense quarter-over-quarter as a percentage of revenue.

Notably, overall, our gross profit for the three months ended September 30, 2020 increased by $9.2 million, or 33.2% versus the second quarter of 2020.

This increase in gross profit is almost exclusively related to the increase in business activity we experienced once “stay at home” orders and related restrictions were relaxed near the end of the second quarter.

Industrial Equipment gross profit margins for the nine months ended September 30, 2020 declined 1.7% to 31.2% 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 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.

Industrial Equipment general and administrative (G&A) expenses increased by 8.5 million to $32.7 million for the three months ended September 30, 2020 as compared to the same period last year.

This change was mainly driven by the addition of the G&A from the Industrial segment acquisitions Liftech, PeakLogix and Hilo.

As business activity recovered in the third quarter of 2020, cost mitigation efforts related to COVID in the form of pay reductions, employee furlough programs and reductions in benefits ceased, causing an increase in G&A in the third quarter when compared to the second quarter.

Industrial Equipment general and administrative (G&A) expenses increased by 24.1 million to $83.2 million for the nine months ended September 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, PeakLogix and Hilo.

Other Income (expense):

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.

Industrial Equipment other expense increased by $0.4 to ($1.4) million for the three months ended September 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 Liftech, PeakLogix and Hilo acquisitions, as their assets were financed via our line of credit and floorplan financing facilities.

Industrial Equipment other expense increased by $1.3 million to ($3.9) million for the nine months ended September 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, Liftech, PeakLogix and Hilo acquisitions, as their assets were financed via our line of credit and floorplan financing facilities.

Construction Equipment Results

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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.

Construction Equipment segment revenues increased by 72.8% to $105.6 million for the three months ended September 30, 2020 as compared to the same period last year.

This increase was mainly attributable to the Flagler and Martin acquisitions that occurred in the first and third quarter of 2020.

Organically, we experienced an increase in the sale of equipment by 30.5% over the third quarter of 2019, parts and service increased by 14.6% over the same period in 2019, despite the global COVID-19 pandemic that was still impacting the broader economy in the third quarter of 2020.

However, organic rental revenues and utilization decreased in the third quarter of 2020, leading to a 13.9% decrease in organic rental revenue when compared to the same period in 2019.

Construction Equipment segment revenues increased by 63.7% to $288.5 million for the nine months ended September 30, 2020 as compared to the same period last year.

This increase was primarily attributable to the favorable impact from the acquisitions of Flagler and Martin businesses during first and third quarter of 2020, respectively.

Organic rental utilization metrics were outpacing prior years before the impact of COVID-19 negatively impacted our rental utilization and, in turn, our rental revenues.

Gross profit (GP):

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Construction Equipment

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Segment gross profit

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.

Construction Equipment gross profit decreased by 4.5% to 18.8% in the three months ended September 30, 2020 from 23.2% 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.

Rental margins decreased primarily due to the acquisition of Flagler in the first quarter of 2020.

Flagler’s rental fleet, when compared to the rental fleet that existed in the third quarter of 2019, is more heavily weighted to larger capacity construction equipment which we depreciate at a higher rate than lower capacity construction equipment Secondarily, 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 also contributed to this reduction in gross margin.

Despite parts margins being down quarter over quarter, we note that the 27.1% realized in the third quarter is in line with expectations and historic gross margin levels.

Additionally, service gross margins, and parts

to a less extent, decreased quarter-over-quarter due to acquisition of Fl agler in the first quarter of 2020, where the mix of service and parts revenue is more heavily weighted toward lower-margin warranty work and where best practices in the service department continue to be implemented.

Notably, the service gross margin incr eased by 3.0% when compared to the second quarter of 2020 .

Additionally, in the third quarter of 2020 our used and rental equipment sales gross margins were below historic levels realized as the company used wholesale brokers to sell certain tranches of us ed equipment that was underutilized.

Construction Equipment gross profit decreased by 4.0% to 19.1% in the nine months ended September 30, 2020 from 23.1% 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 third 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 $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.

Construction Equipment general and administrative (G&A) expenses increased by $12.2 million to $25.7 million for the three months ended September 30, 2020 as compared to the same period in 2019.

The quarter over quarter increase was mainly attributable to the additional G&A as a result of the Flagler and Martin acquisitions.

In addition to the acquisitions, the Construction equipment segment incurred $3.0 million stock compensation expense mainly due to the immediate vesting of the restricted stock units for the passing of its Construction Group President.

Construction Equipment general and administrative (G&A) expenses increased by $25.2 million to $62.4 million for the nine months ended September 30, 2020 as compared to the same period in 2019.

The year over year change was mainly driven by the aforementioned reasons.

Other Income (expense):

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.

Construction Equipment other expense increased by $0.6 million to ($2.7) million for the three months ended September 30, 2020 as compared to the same period in 2019.

The quarter over quarter increase was mainly due to the interest expense respective to the Flagler and Martin acquisitions, as the assets were financed through our line of credit and floorplan financing facilities.

Construction Equipment other expense increased to ($7.5) million for the nine months ended September 30, 2020 as compared to ($5.8) million during the same period in 2019.

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

Liquidity and Capital Resources

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

Nine months ended September 30, 2020 compared with nine months ended September 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 six months ended June 30, 2020, operating activities resulted in net cash used in operations of $54.1 million.

For the nine months ended September 30, 2020, operating activities resulted in net cash used in operations of $44.7 million.

Our reported net loss of $20.8 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 $28.9 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.

Changes in working capital included a $102.8 million increase in inventories, $32.6 million in net payments on manufacturer floor plans, and an $8.6 million cash outflow in prepaid expense and other assets and other liabilities.

Cash flows from operating activities were impacted by a $48.2 million favorable change in proceeds from the sale of rental equipment, a $6.2 million favorable change in accounts receivable, and a $16.0 million cash inflows from accounts payable, accrued expenses, customer deposits, and other liabilities.

For the nine months ended September 30, 2019, the cash used in our operating activities was $4.0 million.

Our reported net loss of $29.6 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 $37.3 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 used in operating activities included $53.2 million cash outflows in inventories, an increase in accounts receivable by $14.2 million, a $5.3 million in net payments on manufacturer floor plans, a $1.3 million cash outflows in prepaid expense and other assets.

Cash flows from operating activities was positively impacted by a $5.9 million favorable changes in accounts payable, accrued expenses, and other current liabilities and leases and other 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.

For the nine months ended September 30, 2020, our cash used in investing activities was $166.3 million.

This was mainly due to $128.8 million use of cash as a result of the recent acquisitions and $38.5 million for purchases of rental equipment and non-rental property and equipment.

For the nine months ended September 30, 2019, our cash used in investing activities was $85.6 million.

The acquisition of NITCO totaled $65.6 million and purchases of rental equipment and non-rental property and equipment totaled $20.1 million.

Cash Flow from Financing Activities.

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.

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.

For the nine months ended September 30, 2020 , cash provided by financing activities was $ 211.1 million.

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

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

a non-vendor) were $14 7 .4 and $ 2.2 million, respectively.

N et proceeds under long-term debt amounted to $149.4.

Additionally, proceeds from disgorgement of short swing profits was $1.

This was partially offset by payments related to the extinguishment o f 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 cost s of $2.7 million, repurchases of common stock of $ 5 .9 million and a $ 5.4 million payment on long term debt and capital lease obligations .

For the nine months ended September 30, 2019, cash provided by financing activities was $90.2 million.

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

a non-vendor) for the nine months ended September 30, 2019 were $49.4 million and $30.7 million, respectively.

Additionally, net proceeds under long-term debt amounted to $10.9 million partially offset by payments on long term debt of $0.7 million.

Sources of Liquidity

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

The Company reported $0.1 million in cash for the nine months ended September 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.

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

As of September 30, 2020, the Company had an outstanding revolving line of credit balance of $140.5 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 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.

At September 30, 2020, the Company had an outstanding balance on their first lien lender floor plan facility of $30.7 million, excluding unamortized debt issuance costs.

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

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

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

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

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

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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 and availability under our lines of credit in the future.

We anticipate that the uses described above encompass 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 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.

Our gross rental fleet capital expenditures for the nine months ended September 30, 2020 was approximately $115.1 million, including $80.6 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 $48.2 million for the nine months ended September 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.

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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.

As of September 30, 2020, we had $197.6 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.

If we are unable to generate sufficient cash flow from operating activities in the future to service our indebtedness and to meet our other commitments, we will be required to adopt one or more alternatives, such as refinancing or restructuring our indebtedness, selling material assets or operations, or seeking to raise additional debt or equity capital.

Given current economic and market conditions, including the significant disruptions in the global capital markets, we cannot assure investors that any of these actions could be affected on a timely basis or on satisfactory terms or at all, or that these actions would enable us to continue to satisfy our capital requirements.

Given current economic and market conditions, including the volatility in the global capital markets, we cannot assure investors that any of these actions could be affected on a timely basis or on satisfactory terms or at all, or that these actions would enable us to continue to satisfy our capital requirements.

In addition, our existing debt agreements, as well as any future debt agreements, contain or may contain restrictive covenants, which may prohibit us from adopting any of these alternatives.

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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:

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assignment of assets and liabilities to reporting units;

assignmen t of goodwill to reporting units;

assignment of goodwill to reporting units;

determination of the fair value of each reporting unit;

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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.

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.

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

Share Based Compensation

The board of directors approved the Company’s 2020 Omnibus Incentive Plan, which enables the Company to grant stock options, stock appreciation rights, restricted stock, restricted stock units, unrestricted stock, other share based awards and cash awards to directors, employees and consultants to improve the ability of the Company to attract, retain, and motivate individuals upon whom the Company’s sustained growth and financial success depend, by providing such persons with an opportunity to acquire or increase their proprietary interest in the Company.

We measure the employee stock-based awards at their grant-date fair value using provisions of ASC 718 – Stock Compensation and record compensation expense over the vesting period of the award.

The Company made an accounting election upon adoption of ASU 2016-09 and will recognize forfeitures when occurred rather than estimating expected forfeitures.

The Company treated equity awards granted to non-employee directors similarly to the equity awards to employees upon adoption of ASU 2018-07.

Off Balance Sheet Transactions

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.

As of September 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.

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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