ALTA EQUIPMENT GROUP INC. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis should be read in conjunction with our interim unaudited consolidated financial statements and related notes included in Item 1 of Part I of this Quarterly Report, and the audited consolidated financial statements and related notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Prospectus filed as part of our S-1 Registration Statement as filed with the U.S. Securities and Exchange Commission on March 25, 2020. This discussion contains “forward-looking statements” reflecting Alta’s current expectations, estimates and assumptions concerning events and financial trends that may affect its future operating results or financial position. Actual results and the timing of events may differ materially from those contained in these forward- looking statements due to a number of factors. Factors that could cause or contribute to such differences include, but are not limited to, economic and competitive conditions, regulatory changes and other uncertainties, as well as those factors discussed below and elsewhere in this Quarterly Report on Form 10-Q, particularly in “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements,” all of which are difficult to predict. In light of these risks, uncertainties and assumptions, the forward-looking events discussed may not occur. Alta assumes no obligation to update any of these forward-looking statements. Recent Developments The impact of the COVID-19 pandemic has created significant volatility in the global economy and led to reduced economic activity. On March 11, 2020, the World Health Organization characterized the outbreak of COVID-19 as a global pandemic and recommended containment and mitigation measures. Subsequent to this characterization international, federal, state, and local public health and governmental authorities have taken extraordinary measures to contain and combat the outbreak and spread of COVID-19. These actions include travel restrictions, local quarantines, “stay-at-home” orders, and similar mandates for many individuals to substantially restrict daily activities and for many businesses to drastically reduce or cease customary operations. The pandemic has resulted, and may continue to result, in significant economic disruption that has and may likely continue to adversely affect our business. 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 . 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 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. 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. 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. 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. 28 Liquidity 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 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 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 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 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 This Form 10-Q contains statements that, to the extent they are not recitations of historical fact, constitute forward-looking statements within the meaning of the federal securities laws, and are based on our current expectations and assumptions. Forward-looking statements include statements about our expectations, beliefs, plans, objectives, intentions, assumptions and other statements that are not historical facts. The words “anticipates,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predicts,” “project,” “should,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. These statements are not indented to guaranty future performance and are subject to risks and uncertainties. Actual results may differ materially due to factors such as: • the impact of the COVID-19 outbreak or future epidemics on our business, including the potential for facility closures or work stoppages, supply chain disruptions, negative impacts on customer payment policies and adverse banking and governmental regulations, resulting in a potential reduction to the fair value of our assets; • federal, state, and local budget uncertainty, especially as it relates to infrastructure projects; • the performance and financial viability of key suppliers, contractors, customers, and financing sources; • economic, industry, business and political conditions including their effects on governmental policy and government actions that disrupt our supply chain or sales channels; • our success in identifying acquisition targets and integrating acquisitions; • our success in expanding into and doing business in additional markets; • the competitive environment for our products and services; • 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; and • 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, 29 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 The Company owns and operates one of the largest integrated equipment dealership platforms in the U.S. Through our branch network, we sell, rent, and provide parts and service support for several categories of specialized equipment, including lift trucks and aerial work platforms, cranes, earthmoving equipment and other industrial and construction equipment. We engage in five principal business activities in these equipment categories: (i) new equipment sales; (ii) used equipment sales; (iii) parts sales; (iv) repair and maintenance services; and (v) equipment rentals. We have operated as an equipment dealership for over 35 years and have developed a branch network that includes 51 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. 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 warehousing and logistics, and 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 nationally recognized Hyster-Yale dealer and multi-year recipient of the Volvo Dealer of the Year award. Business Segments We have two reportable segments: Industrial Equipment and Construction Equipment. Our segments are determined based on management structure, which is organized based on types of products sold and geographic areas, as described in the following paragraph. 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, and Virginia. 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. 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, deferred taxes, income tax provision, transaction costs associated with the reverse recapitalization, and has minor activity all together. Acquisitions Martin Implement Sales, Inc. (“Martin”) 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. 30 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. PeakLogix 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 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. Flagler 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 and growing construction market in the southeastern United States. Liftech 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. On May 1, 2019, we purchased the assets of Northland Industrial Truck Co., Inc. for a total purchase price of $65.6 million. In connection with the purchase, NITCO LLC was created. 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. Financial Statement Components Our revenues and related costs are primarily derived from sale or rental of equipment and related activities, and consist of: New Equipment Sales. We sell new heavy construction and industrial equipment and are a leading regional distributor for over 30 nationally recognized equipment manufacturers, including Hyster, Yale, Volvo, and JCB. Our new equipment sales operation is a primary source of new customers for the rental, parts and services business. The majority of our new equipment sales is predicated on exclusive distribution agreements we have with best-in-class OEMs. 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 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 , 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. Parts Sales. We sell replacement parts to customers and supply parts to our own rental fleet. Our in-house parts inventory is extensive such that we are able to provide timely service support to our customers. The majority of our parts inventory is made up of OEM replacement parts for those OEM’s with which we have exclusive dealership agreements to sell new equipment. 31 Service Support. We provide maintenance and repair services for customer-owned equipment and to our own rental fleet. 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 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 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. 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 has an original acquisition cost (which we define as the cost originally paid to manufacturers plus any capitalized costs) of $381.4 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 our sales and product support activities. Rental Equipment Sales. We also sell rental equipment from our rental fleet. Customers often have options to purchase equipment after or before rental agreements have matured. Rental equipment sales, like new and used equipment sales, generate customer-based equipment field population within our territories and ultimately high-margin parts and services revenue for us. General and Administrative expenses. These costs are made up of three main components: personnel costs, operational costs, and occupancy costs. 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 and rental 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. Other Income (Expense). This section of the financial statements is mostly made up of interest expense and other miscellaneous items that result in income or expense. Interest expense is mostly driven by manufacturer floor plan arrangements, a working capital line-of-credit, and a second lien notes payable. Manufacturer floor plans payable are financing arrangements for new, used inventory and rental equipment. Also included in this section of the financials are non-recurring costs, in particular expenses associated with the extinguishment of debt. 32 Results of Operations Three and nine months ended September 30, 2020 compared to three and nine months ended September 30, 2019 Consolidated Results Three months ended September 30, Increase (Decrease) Nine months ended September 30, Increase (Decrease) 2020 2019 2020 versus 2019 2020 2019 2020 versus 2019 Revenues: New and used equipment sales $ 97.9 $ 61.1 $ 36.8 60.2 % $ 275.2 $ 167.1 $ 108.1 64.7 % Parts sales 35.5 22.9 12.6 55.0 % 92.3 60.0 32.3 53.8 % Service revenue 35.5 27.3 8.2 30.0 % 94.1 67.2 26.9 40.0 % Rental revenue 32.2 27.8 4.4 15.8 % 83.4 66.9 16.5 24.7 % Rental equipment sales 19.5 10.7 8.8 82.2 % 48.2 26.8 21.4 79.9 % Net revenue $ 220.6 $ 149.8 $ 70.8 47.3 % $ 593.2 $ 388.0 $ 205.2 52.9 % Cost of revenues: New and used equipment sales 84.4 53.4 31.0 58.1 % 240.3 146.6 93.7 63.9 % Parts sales 24.3 14.9 9.4 63.1 % 63.3 39.4 23.9 60.7 % Service revenue 13.5 10.0 3.5 35.0 % 35.9 24.3 11.6 47.7 % Rental revenue 5.4 4.3 1.1 25.6 % 14.8 11.4 3.4 29.8 % Rental depreciation and amortization 19.2 13.7 5.5 40.1 % 47.1 32.9 14.2 43.2 % Rental equipment sales 17.1 9.3 7.8 83.9 % 41.7 23.1 18.6 80.5 % Cost of revenue $ 163.9 $ 105.6 $ 58.3 55.2 % $ 443.1 $ 277.7 $ 165.4 59.6 % Gross profit $ 56.7 $ 44.2 $ 12.5 28.3 % $ 150.1 $ 110.3 $ 39.8 36.1 % General and administrative expenses 58.4 37.5 20.9 55.7 % 153.2 95.6 57.6 60.3 % Depreciation and amortization expense 1.8 0.5 1.3 260.0 % 4.5 1.8 2.7 150.0 % Total general and administrative expenses 60.2 38.0 $ 22.2 58.4 % 157.7 97.4 $ 60.3 61.9 % (Loss) income from operations $ (3.5 ) $ 6.2 $ (9.7 ) (156.5 )% $ (7.6 ) $ 12.9 $ (20.5 ) (158.9 )% Other income (expense) Interest expense, floor plan payable – new equipment (0.5 ) (0.9 ) 0.4 (44.4 )% (1.8 ) (2.4 ) 0.6 (25.0 )% Interest expense – other (5.6 ) (4.7 ) (0.9 ) 19.1 % (15.9 ) (12.7 ) (3.2 ) 25.2 % Other income 8.0 0.3 7.7 2566.7 % 8.7 0.9 7.8 866.7 % Change in fair market of warrants — (28.3 ) 28.3 (100.0 )% — (28.3 ) 28.3 (100.0 )% Loss on extinguishment of debt — — — NA (7.6 ) — (7.6 ) NA Total other income (expense) $ 1.9 $ (33.6 ) $ 35.5 (105.7 )% $ (16.6 ) $ (42.5 ) $ 25.9 (60.9 )% Loss before taxes $ (1.6 ) $ (27.4 ) 25.8 (94.2 )% $ (24.2 ) $ (29.6 ) 5.4 (18.2 )% Income tax benefit (1.9 ) — (1.9 ) NA (3.4 ) — (3.4 ) NA Net income (loss) $ 0.3 $ (27.4 ) $ 27.7 (101.1 )% $ (20.8 ) $ (29.6 ) $ 8.8 (29.7 )% 33 Percent of Revenue Percent of Revenue Consolidated Three months ended September 30, Nine months ended September 30, 2020 2019 2020 2019 Revenues: New and used equipment sales 44.4 % 40.8 % 46.4 % 43.1 % Parts sales 16.1 % 15.3 % 15.6 % 15.5 % Service revenue 16.1 % 18.2 % 15.9 % 17.3 % Rental revenue 14.6 % 18.6 % 14.1 % 17.2 % Rental equipment sales 8.8 % 7.1 % 8.1 % 6.9 % Net revenue 100.0 % 100.0 % 100.0 % 100.0 % Cost of revenues: New and used equipment sales 38.3 % 35.6 % 40.5 % 37.8 % Parts sales 11.0 % 9.9 % 10.7 % 10.2 % Service revenue 6.1 % 6.7 % 6.1 % 6.3 % Rental revenue 2.4 % 2.9 % 2.5 % 2.9 % Rental depreciation and amortization 8.7 % 9.1 % 7.9 % 8.5 % Rental equipment sales 7.8 % 6.2 % 7.0 % 6.0 % Cost of revenue 74.3 % 70.5 % 74.7 % 71.6 % Gross profit 25.7 % 29.5 % 25.3 % 28.4 % Revenues: 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. 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. Three months ended September 30, Nine months ended September 30, 2020 2019 Change 2020 2019 Change Consolidated GP% GP% GP% GP% GP% GP% New and used equipment sales 13.8 % 12.6 % 1.2 % 12.7 % 12.3 % 0.4 % Parts sales 31.5 % 34.9 % (3.4 )% 31.4 % 34.3 % (2.9 )% Service revenue 62.0 % 63.4 % (1.4 )% 61.8 % 63.8 % (2.0 )% Rental revenue 23.6 % 35.3 % (11.6 )% 25.8 % 33.8 % (8.0 )% Rental equipment sales 12.3 % 13.1 % (0.8 )% 13.5 % 13.8 % (0.3 )% Consolidated gross profit 25.7 % 29.5 % (3.8 )% 25.3 % 28.4 % (3.1 )% Gross profit (GP): 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. 34 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 $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 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 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. 35 Industrial Equipment Results: Three months ended September 30, Increase (Decrease) Nine months ended September 30, Increase (Decrease) 2020 2019 2020 versus 2019 2020 2019 2020 versus 2019 Revenues: New and used equipment sales $ 58.7 $ 41.5 $ 17.2 41.4 % $ 152.7 $ 98.3 $ 54.4 55.3 % Parts sales 16.7 14.3 2.4 16.8 % 43.7 35.7 8.0 22.4 % Service revenue 23.4 20.2 3.2 15.8 % 61.8 48.4 13.4 27.7 % Rental revenue 12.2 12.0 0.2 1.7 % 34.2 26.9 7.3 27.1 % Rental equipment sales 4.0 0.7 3.3 471.4 % 12.3 2.5 9.8 392.0 % Net revenue $ 115.0 $ 88.7 $ 26.3 29.7 % $ 304.7 $ 211.8 $ 92.9 43.9 % Cost of revenues: New and used equipment sales 48.5 36.1 12.4 34.3 % 129.6 86.3 43.3 50.2 % Parts sales 10.6 8.9 1.7 19.1 % 27.8 22.2 5.6 25.2 % Service revenue 8.5 7.2 1.3 18.1 % 22.4 17.6 4.8 27.3 % Rental revenue 2.2 1.6 0.6 37.5 % 6.0 4.2 1.8 42.9 % Rental depreciation and amortization 5.4 4.5 0.9 20.0 % 14.5 10.2 4.3 42.2 % Rental equipment sales 2.9 0.3 2.6 866.7 % 9.4 1.6 7.8 487.5 % Cost of revenue $ 78.1 $ 58.6 $ 19.5 33.3 % $ 209.7 $ 142.1 $ 67.6 47.6 % Gross profit $ 36.9 $ 30.1 $ 6.8 22.6 % $ 95.0 $ 69.7 $ 25.3 36.3 % General and administrative expenses 31.7 23.8 7.9 33.2 % 80.7 57.7 23.0 39.9 % Depreciation and amortization expense 1.0 0.4 0.6 150.0 % 2.5 1.4 1.1 78.6 % Total general and administrative expenses $ 32.7 $ 24.2 $ 8.5 35.1 % $ 83.2 $ 59.1 $ 24.1 40.8 % Income from operations $ 4.2 $ 5.9 $ (1.7 ) (28.8 )% $ 11.8 $ 10.6 $ 1.2 11.3 % Other income (expense) Interest expense, floor plan payable – new equipment (0.2 ) (0.6 ) 0.4 (66.7 )% (1.0 ) (1.4 ) 0.4 (28.6 )% Interest expense – other (1.2 ) (0.7 ) (0.5 ) 71.4 % (3.3 ) (1.9 ) (1.4 ) 73.7 % Other income — 0.3 (0.3 ) (100.0 )% 0.4 0.7 (0.3 ) (42.9 )% Total other income (expense) $ (1.4 ) $ (1.0 ) $ (0.4 ) 40.0 % $ (3.9 ) $ (2.6 ) $ (1.3 ) 50.0 % Net income $ 2.8 $ 4.9 $ (2.1 ) (42.9 )% $ 7.9 $ 8.0 $ (0.1 ) (1.3 )% 36 Percent of Revenue Percent of Revenue Industrial Equipment Three months ended September 30, Nine months ended September 30, 2020 2019 2020 2019 Revenues: New and used equipment sales 51.0 % 46.8 % 50.1 % 46.4 % Parts sales 14.5 % 16.1 % 14.3 % 16.9 % Service revenue 20.3 % 22.8 % 20.3 % 22.9 % Rental revenue 10.6 % 13.5 % 11.2 % 12.7 % Rental equipment sales 3.5 % 0.8 % 4.0 % 1.2 % Net revenue 100.0 % 100.0 % 100.0 % 100.0 % Cost of revenues: New and used equipment sales 42.2 % 40.7 % 42.5 % 40.7 % Parts sales 9.2 % 10.0 % 9.1 % 10.5 % Service revenue 7.4 % 8.1 % 7.4 % 8.3 % Rental revenue 1.9 % 1.8 % 2.0 % 2.0 % Rental depreciation and amortization 4.7 % 5.1 % 4.8 % 4.8 % Rental equipment sales 2.5 % 0.3 % 3.1 % 0.8 % Cost of revenue 67.9 % 66.1 % 68.8 % 67.1 % Gross profit 32.1 % 33.9 % 31.2 % 32.9 % Revenues: 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): Three months ended September 30, Nine months ended September 30, 2020 2019 Change 2020 2019 Change Industrial Equipment GP% GP% GP% GP% GP% GP% New and used equipment sales 17.4 % 13.0 % 4.4 % 15.1 % 12.2 % 2.9 % Parts sales 36.5 % 37.8 % (1.2 )% 36.4 % 37.8 % (1.4 )% Service revenue 63.7 % 64.4 % (0.7 )% 63.8 % 63.6 % 0.1 % Rental revenue 37.7 % 49.2 % (11.5 )% 40.1 % 46.5 % (6.4 )% Rental equipment sales 27.5 % 57.1 % (29.6 )% 23.6 % 36.0 % (12.4 )% Segment gross profit 32.1 % 33.9 % (1.8 )% 31.2 % 32.9 % (1.7 )% 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. 37 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 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 $0.4 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. 38 Construction Equipment Results Three months ended September 30, Increase (Decrease) Nine months ended September 30, Increase (Decrease) 2020 2019 2020 versus 2019 2020 2019 2020 versus 2019 Revenues: New and used equipment sales $ 39.2 $ 19.6 $ 19.6 100.0 % $ 122.5 $ 68.8 $ 53.7 78.1 % Parts sales 18.8 8.6 10.2 118.6 % 48.6 24.3 24.3 100.0 % Service revenue 12.1 7.1 5.0 70.4 % 32.3 18.8 13.5 71.8 % Rental revenue 20.0 15.8 4.2 26.6 % 49.2 40.0 9.2 23.0 % Rental equipment sales 15.5 10.0 5.5 55.0 % 35.9 24.3 11.6 47.7 % Net revenue $ 105.6 $ 61.1 $ 44.5 72.8 % $ 288.5 $ 176.2 $ 112.3 63.7 % Cost of revenues: New and used equipment sales 35.9 17.3 18.6 107.5 % 110.7 60.3 50.4 83.6 % Parts sales 13.7 6.0 7.7 128.3 % 35.5 17.2 18.3 106.4 % Service revenue 5.0 2.8 2.2 78.6 % 13.5 6.7 6.8 101.5 % Rental revenue 3.2 2.7 0.5 18.5 % 8.8 7.2 1.6 22.2 % Rental depreciation and amortization 13.8 9.2 4.6 50.0 % 32.6 22.7 9.9 43.6 % Rental equipment sales 14.2 8.9 5.3 59.6 % 32.3 21.4 10.9 50.9 % Cost of revenue $ 85.8 $ 46.9 $ 38.9 82.9 % $ 233.4 $ 135.5 $ 97.9 72.3 % Gross profit $ 19.8 $ 14.2 $ 5.6 39.4 % $ 55.1 $ 40.7 $ 14.4 35.4 % General and administrative expenses 24.9 13.4 11.5 85.8 % 60.4 36.8 23.6 64.1 % Depreciation and amortization expense 0.8 0.1 0.7 700.0 % 2.0 0.4 1.6 400.0 % Total general and administrative expenses $ 25.7 $ 13.5 $ 12.2 90.4 % $ 62.4 $ 37.2 $ 25.2 67.7 % (Loss) income from operations $ (5.9 ) $ 0.7 $ (6.6 ) (942.9 )% $ (7.3 ) $ 3.5 $ (10.8 ) (308.6 )% Other income (expense) Interest expense, floor plan payable – new equipment (0.3 ) (0.4 ) 0.1 (25.0 )% (0.8 ) (1.1 ) 0.3 (27.3 )% Interest expense – other (2.4 ) (1.7 ) (0.7 ) 41.2 % (7.0 ) (4.9 ) (2.1 ) 42.9 % Other income — — — NA 0.3 0.2 0.1 50.0 % Total other income (expense) $ (2.7 ) $ (2.1 ) $ (0.6 ) 28.6 % $ (7.5 ) $ (5.8 ) $ (1.7 ) 29.3 % Net loss $ (8.6 ) $ (1.4 ) $ (7.2 ) 514.3 % $ (14.8 ) $ (2.3 ) $ (12.5 ) 543.5 % 39 Percent of Revenue Percent of Revenue Construction Equipment Three months ended September 30, Nine months ended September 30, 2020 2019 2020 2019 Revenues: New and used equipment sales 37.1 % 32.1 % 42.5 % 39.0 % Parts sales 17.8 % 14.1 % 16.8 % 13.8 % Service revenue 11.5 % 11.6 % 11.2 % 10.7 % Rental revenue 18.9 % 25.9 % 17.1 % 22.7 % Rental equipment sales 14.7 % 16.4 % 12.4 % 13.8 % Net revenue 100.0 % 100.0 % 100.0 % 100.0 % Cost of revenues: New and used equipment sales 34.0 % 28.3 % 38.4 % 34.2 % Parts sales 13.0 % 9.8 % 12.3 % 9.8 % Service revenue 4.7 % 4.6 % 4.7 % 3.8 % Rental revenue 3.0 % 4.4 % 3.1 % 4.1 % Rental depreciation and amortization 13.1 % 15.1 % 11.3 % 12.9 % Rental equipment sales 13.4 % 14.6 % 11.2 % 12.1 % Cost of revenue 81.3 % 76.8 % 80.9 % 76.9 % Gross profit 18.8 % 23.2 % 19.1 % 23.1 % Revenues: 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): Three months ended September 30, Nine months ended September 30, 2020 2019 Change 2020 2019 Change Construction Equipment GP% GP% GP% GP% GP% GP% New and used equipment sales 8.4 % 11.7 % (3.3 )% 9.6 % 12.4 % (2.7 )% Parts sales 27.1 % 30.2 % (3.1 )% 27.0 % 29.2 % (2.3 )% Service revenue 58.7 % 60.6 % (1.9 )% 58.2 % 64.4 % (6.2 )% Rental revenue 15.0 % 24.7 % (9.7 )% 15.9 % 25.3 % (9.4 )% Rental equipment sales 8.4 % 11.0 % (2.6 )% 10.0 % 11.9 % (1.9 )% Segment gross profit 18.8 % 23.2 % (4.5 )% 19.1 % 23.1 % (4.0 )% 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. 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 40 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 $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 $0.6 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 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 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 $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 $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 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. 41 Cash Flow from Financing Activities. 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. 6 million. 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 $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. and the other credit parties named therein, the lenders named therein, JP Morgan Chase Bank, N.A., as Administrative Agent, and the syndication agents and documentation agent named therein. In connection with the Amended and Restated Credit Agreement, the Company amended and restated its floor plan facility with its first lien lender by entering into the Fifth Amended and Restated Floor Plan First Lien Credit Agreement (“Floor Plan Credit Agreement”) by and among Alta Equipment Group Inc. and the other credit parties named therein, the lender JP Morgan Chase Bank, N.A., as Administrative Agent, Sole Bookrunner and Sole Lead Arranger. The Amended and Restated Credit Agreement, among other things, (i) moved the $85 million floor plan financing facility of the Fourth Amended and Restated First Lien Credit Agreement out of syndication and into the Floor Plan Credit Agreement, (ii) increased the total aggregate amount of allowed indebtedness of all floor plans from $220 million to $225 million, (iii) increased the revolving line of credit borrowing capacity from $110 million to $300 million, and (iv) modified financial covenants (as defined in the Amended and Restated Credit Agreement. The Floor Plan Credit Agreement, among other things, (i) modified the floor plan financing facility with the Company’s first lien lender from $85 million to $40 million, and (ii) modified financial covenants (as defined in the Floor Plan Credit Agreement). Line of Credit and Floor Plan First Lien Lender The Company has a revolving line of credit with its first lien holder with advances on the line being supported by eligible accounts receivable, parts, and otherwise unencumbered new and used equipment inventory and rental equipment. 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 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 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 OEM captive lender and suppliers’ floor plans payable are financing arrangements for new and used inventory and rental equipment. We have such arrangements with several OEM captive lenders and suppliers each with borrowing capacities ranging from $10 million to $82.0 million. Certain floor plans provide for a five to twelve-month interest only or deferred payment period. In addition, these floor plan agreements provide for interest or principal free terms at the supplier’s discretion. The Company routinely sells equipment that is financed under OEM captive lender floor plans prior to the original maturity date of the financing agreement. The related OEM captive lender floor plans payable is then paid at the time the equipment being financed is sold. Maximum borrowings under the floor plans and the revolving line of credit are limited to $525 million. The total amount outstanding was $295.5 million, exclusive of debt issuance and deferred financings costs of $1.6 million. 42 Term Loan 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. Effective February 14, 2020, the Company entered into a Note Purchase Agreement which comprised of a term loan in an aggregate principal amount of $155.0 million with its second lien lender through syndication, with an initial maturity date of August 2025. In connection with the new Note Purchase Agreement, the Company retired its existing term loan facility. The term loan is payable in quarterly installments of $1.9 million plus interest at LIBOR plus 8%. As of September 30, 2020, the effective interest rate was 9.8%. The loan is collateralized by substantially all assets of the Company. Cash Requirements Related to Operations Our principal sources of liquidity have been from cash provided by our service-related operations and the sales of new, used and rental fleet equipment along with rentals of such equipment, proceeds from the issuance of debt, and borrowings available under our lines of credit and floor plans. Our principal uses of cash have been to fund operating activities and working capital (including new and used equipment inventories), purchases of rental fleet equipment and property and equipment, fund payments due under lines of credit and flooring plans payable, fund acquisitions, and meet debt service requirements. In the future, we may pursue additional strategic acquisitions and seek to open new start-up locations. 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 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. 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 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 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 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. Our failure to comply with these covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all of our debt. Critical accounting policies In the preparation of consolidated financial statements prepared in conformity with U.S. generally accepted accounting principles (“GAAP”), we are required to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and the related disclosures. The SEC has defined a company’s critical accounting policies as the ones that are most important to the portrayal of a company’s financial condition and results of operations, and which require a company to make its most difficult and subjective judgments. The Company also has other key accounting policies, which involve the use of estimates, judgments, and assumptions that are significant to understanding our results. For additional information, see 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. 43 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. Application of the goodwill impairment test requires judgment, including: the identification of reporting units; assignment of assets and liabilities to reporting units; assignment 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 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. We review goodwill for impairment utilizing a one-step process in which we compare the fair value of each of our reporting units’ net assets to the respective carrying value of net assets. If the carrying value of a reporting unit’s net assets is less than its fair value, then we do not recognize an impairment. If the carrying amount of a reporting unit’s net assets is greater than its fair value, we recognize a goodwill impairment for the amount of the excess of the net assets over the fair value. 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 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 September 30, 2020, we did not have any “off-balance-sheet arrangements”, as defined in Item 303(a)(4)(ii) of Regulation S-K. 44 Item 3. Quantitative and Qualitat ive Disclosures About Market Risk. Not Applicable.