What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-13 compared with 2020-11-12 · 236 added, 275 removed, 245 unchanged (68% of the section changed)

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.

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 Annual Report on Form 10-K for the fiscal year ended December 31, 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.

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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.

The economic volatility and disruptions caused by the COVID-19 pandemic caused in adverse effect on our business and our financial results in 2020.

Our business activity levels, with the exception of rental utilization in certain geographies, stabilized in the third quarter to near pre-COVID levels, and since that time have generally held at or, in certain geographies, went beyond pre-COVID levels.

Currently, our business is experiencing “recovery-related” supply-chain constraints that have affected some of our OEM equipment suppliers.

Specifically, lead-times from OEMs for new equipment has been pushed beyond historic norms.

While we believe in our diversified cash flow streams, the breadth of our product portfolio, geographic reach and our ability to source used equipment will help mitigate the impact of the current supply-chain disruptions we are facing, an extended period or worsening of the supply chain issues our OEM equipment providers are experiencing could impact our financial results adversely.

Although our business could be subject to substantial disruption from further COVID-19 outbreaks or the outbreak of additional pandemics, based on current business levels, we believe the worst of the pandemic’s effect on our business to be behind us.

COVID-19 Response

Starting in mid-March 2020 we took and are continuing certain operational actions to address the pandemic and the directives of governmental authorities in the state and local geographic areas in which we have operations.

These actions included those described below:

Remote Work Arrangements

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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.

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.

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

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.

Although we, and certain segments of our customer base, were deemed an “essential” business in all of our geographies, many of our customers were drastically impacted, and in certain instances continue to be impacted, by COVID-19.

This led to an adverse effect on the Company’s financial performance specifically in the last three quarters of 2020, with the second and third quarters of 2020 realizing the most significant impact.

While our operations in the first quarter of 2021, in general, are performing at pre-COVID levels, we will continue to monitor key performance metrics such as labor hour demand and rental utilization and, in-turn, rationalize our skilled labor and rental fleet levels to match expected demand for the remainder of 2021 and through the end of COVID-19 pandemic.

We believe that the acquisitions and investments made in the calendar year 2020 and in the first quarter of 2021, expanded our service capabilities, geographic reach, end market diversification and product offerings;

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

We believe we have sufficient liquidity to fund our operations as we work through the COVID-19 recovery and beyond.

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 and 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.

Exchange of Warrants

On April 12, 2021, we exchanged all 8,668,746 of our outstanding warrants into shares of our common stock at an exchange ratio of 0.263 shares of common stock per warrant, for an aggregate issuance of approximately 2,279,874 shares of common stock in the exchange.

Also, on April 12, 2021, the Acting Chief Accountant and Acting Director of the Division of Corporation Finance of the SEC released the Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (the “SEC Statement”).

The SEC Statement sets forth the conclusion of the SEC’s Office of the Chief Accountant that certain provisions included in warrant agreements entered into by many special purpose acquisition companies require such warrants to be accounted for as liabilities measured at fair value, rather than as equity securities, with changes in fair value during each financial reporting period reported in earnings.

Prior to the exchange, we have previously classified our private placement warrants and public warrants as equity.

We evaluated the SEC Statement with respect to our accounting treatment of our warrants and have determined that such guidance would have resulted in the private placement warrants, and not the public warrants, being classified as liabilities on the balance sheet as of December 31, 2020 with the mark to market change in fair value reflected in the statement of operations.

Accordingly, we have performed an evaluation of the materiality of this matter in accordance with Staff Accounting Bulletin 99 (“SAB 99”).

Notably, of the 8,668,746 warrants that were outstanding since the Business Combination was consummated on February 14, 2020 only 206,250 were private placement warrants subject to liability treatment based on the SEC Statement.

To that end, based on our SAB 99 assessment, which included fair value analysis of the 206,250 private placement warrants, we determined that classifying the private placement warrants as liabilities on the balance sheet, versus equity, is immaterial to our historic financial statements and that a restatement is unnecessary.

Issuance of 5.625% Senior Secured Second Lien Notes due 2026

On April 1, 2021, we completed a private offering of $315 million of our 5.625% Senior Secured Second Lien Notes due 2026 (the “Notes”).

The Notes were sold in a private placement in reliance on Rule 144A and Regulation S under the Securities Act of 1933, as amended, pursuant to a purchase agreement among the Company, the guarantors party thereto (the “Guarantors”) and J.P.

Morgan Securities LLC, as representative of the initial purchasers.

The Notes are guaranteed by the Guarantors (the “Guarantees” and, together with the Notes, the “Securities”) on a second lien, senior secured basis.

The Notes will also be guaranteed by each of our existing and future domestic subsidiaries that becomes a borrower or guarantor under our or the Guarantors’ indebtedness, including the Credit Agreements (as defined below), amended and restated concurrently with the closing of the Notes offering.

The Notes and the Guarantees are secured, subject to certain exceptions and permitted liens, by second-priority liens on substantially all of our assets and the assets of the Guarantors that secure on a first-priority basis all of the indebtedness under our ABL Facility (as defined below) and the Floor Plan Facility (as defined below) and certain hedging and cash management obligations, including, but not limited to, equipment, fixtures, inventory, intangibles and capital stock of our restricted subsidiaries now owned or acquired in the future by us or the Guarantors.

The Notes were issued pursuant to an indenture dated April 1, 2021 (the “Indenture”), among us, the Guarantors and Wilmington Trust, National Association, as trustee and as collateral agent.

The Notes will bear interest at the rate of 5.625% per annum and will mature on April 15, 2026.

Interest on the Notes is payable in cash on April 15 and October 15 of each year, beginning on October 15, 2021.

Amended and Restated Credit Arrangements

On April 1, 2021, in connection with the offering of the Notes, we entered into:

(i) a Sixth Amended and Restated ABL First Lien Credit Agreement, dated April 1, 2021, among us, our subsidiaries, JPMorgan Chase Bank, N.A., as Administrative Agent and the lenders who are parties to the agreement (the “ABL Credit Agreement” and the facility thereunder, the “ABL Facility”);

(ii) a Sixth Amended and Restated Floor Plan First Lien Credit Agreement among us, certain of our subsidiaries, JPMorgan Chase Bank, N.A., as Administrative Agent and the lenders who are parties to the agreement (the “Floor Plan Credit Agreement” and the facility thereunder, the “Floor Plan Facility”).

The ABL Facility is an asset-based revolving loan facility that provides for borrowings of up to the lesser of $350 million or the borrowing base, in each case, less outstanding loans and letters of credit.

The ABL Facility has a maturity date of the earlier of (a) April 1, 2026, or (b) December 1, 2025 if the Notes remain outstanding on December 1, 2025.

The Floor Plan Facility is an asset-based revolving loan facility related to the floor plan equipment that provides for borrowings of up to $40 million.

The Floor Plan Facility has an expiration date of the earlier of (a) April 1, 2026, or (b) December 1, 2025 if the Notes remain outstanding on December 1, 2025.

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.

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 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.

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our success in expanding into and doing business in additional markets;

our ability to raise capital at favorable terms;

the competitive environment for our products and services;

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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, 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

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

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.

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;

(v) equipment rentals.

new equipment sales;

used equipment sales;

repair and maintenance services;

equipment rentals.

We have operated as an equipment dealership for over 35 years and have developed a branch network that includes 55 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.

More recently, with the acquisition of PeakLogix, we have entered the warehouse design, 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 enjoy long-standing relationships with leading Material Handling 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.

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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.

Material Handling and Construction Equipment.

Our “Material Handling” segment has been previously reported as our “Industrial” segment.

Our segments are determined based on management structure, which is organized based on types of products sold and customer end markets, 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.

The Material Handling segment is principally engaged in operations related to the sale, service, and rental of lift trucks in Michigan, Illinois, Indiana, New York, Virginia and throughout the New England states.

The Material Handling 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, New York, Florida and throughout the New England States.

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.

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

In addition to being a holding company, Alta Enterprises, LLC also holds compensation (including shared based compensation) of our directors, corporate officers and certain members of our shared-services leadership team, consulting and legal fees related to acquisitions and capital raising activities, corporate governance and compliance related matters, certain corporate development related expenses and interest expense associated with original issue discounts and deferred financing cost related to previous capital raises and the Company’s income tax provision.

In connection with the purchase of NITCO LLC in 2019, the Company expanded its full-service material handling and construction equipment dealer operations into New England market.

Given that the sales of the business was more heavily-weighted to material handling versus construction and that NITCO’s reporting systems made it difficult for the construction business to be observed separate from the material handling operation, NITCO’s total financial results were historically presented within our Material Handling segment.

On January 1, 2021, with the migration of the NITCO business to the Company’s main ERP system, the Company is now able to report the results for the Material Handling and Construction Equipment results within their respective segments for the NITCO business unit.

As such, the Company has re-casted certain prior period segment-level results for the NITCO business unit to be consistent with the current period presentation for appropriate period-over-period comparability.

SCOTTECH, LLC (“ScottTech”)

On March 1, 2021, the Company acquired the assets of ScottTech, a Material Handling, warehouse control software, and turn-key warehouse system integration services provider, for a total purchase price of $2.4 million.

The acquisition has natural synergies with the Company’s prior year acquisition of PeakLogix and further bolsters our capabilities with customers in the warehousing and logistics, distribution and e-commerce end-markets.

Vantage Equipment, LLC

On December 31, 2020, the Company acquired the assets of Vantage, a construction equipment dealer in Upstate New York, for a total purchase price of $24.2 million.

Based on the purchase price and the amount of floorplan eligible new equipment inventory acquired in the transaction, the total enterprise value at close was $22.5 million.

This acquisition further diversifies our customer base and will complement our Liftech business which serves the Upstate New York Material Handling market.

Howell Tractor and Equipment, LLC

On October 30, 2020, the Company acquired the assets of Howell, a construction equipment and crane dealer in the greater Chicagoland area, for cash consideration of $22.4 million.

Additionally, the Company issued 507,143 shares of its common stock in connection with the purchase agreement, valued at $4.0 million, yielding a total purchase price of approximately $26.4 million.

Based on the purchase price and the amount of floorplan eligible new equipment inventory acquired in the transaction, the total enterprise value at close was $23.1 million.

This acquisition expands our presence in the Northern Illinois and Northwest Indiana markets adding a best-in-class product to our portfolio and additional service offerings.

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.

On September 1, 2020, the Company acquired the assets of Martin, a compact equipment dealer in the greater Chicagoland area, for a total purchase price of $16.1 million.

Based on the purchase price and the amount of floorplan eligible new equipment inventory acquired in the transaction, the total enterprise value at close was $10.6 million.

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.

Hilo Equipment & Services

On July 1, 2020, the Company acquired the assets of Hilo, a Material Handling equipment dealer with three branches in the New York City metro area, for a total purchase price, net of cash, of $17.2 million, which includes potential earn-out payments of $1.0 million tied to post closing performance of the Hilo business.

Based on the purchase price and the amount of floorplan eligible new equipment inventory acquired in the transaction, the total enterprise value at close was $19.0 million.

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.

PeakLogix, Inc.

On June 12, 2020, the Company acquired the assets of PeakLogix, a warehouse design, automated equipment installation and systems integrator, for a total purchase price, net of cash, of $6.4 million, which 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 throughout 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.

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.

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.

Liftech Equipment Companies, Inc.

On February 14, 2020, the Company acquired the assets of Liftech, a Material Handling equipment dealer in Upstate New York, for a total purchase price of $18.4 million, which was paid out of funds from closing of the reverse recapitalization.

Based on the purchase price and the amount of floorplan eligible new equipment inventory acquired in the transaction, the total enterprise value at close was $15.2 million.

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.

FlaglerCE Holdings, LLC

On February 14, 2020, the Company acquired the assets of Flagler, a construction equipment dealer in Florida, for a total purchase price, net of cash, of $75.8 million, which was paid out of funds from the closing of the reverse recapitalization.

Based on the purchase price and the amount of floorplan eligible new equipment inventory acquired in the transaction, the total enterprise value at close was $79.0 million.

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.

Financial Statement Components

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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.

We sell new heavy construction and Material Handling equipment and are a leading regional distributor for over 30 nationally recognized equipment manufacturers, including Hyster, Yale, Volvo, JCB, New Holland, and Kubota.

Our new equipment sales operation is a primary source of new customers for the rental, parts and services business.

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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 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.

We also sell tangential products related to our Material Handling equipment offerings and, with the acquisition of PeakLogix and ScottTech, we provide warehouse design, automated equipment installation, system integration and warehouse controls software.

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.

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 or financing lease arrangement, or, as is primarily the case in our Material Handling 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 the Company, as well.

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

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Service Support.

We provide maintenance and repair services for customer-owned equipment and to our own rental fleet.

We provide maintenance and repair services for customer-owned equipment and we maintain 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.

We have committed substantial resources to training our technical service employees and have a full-scale service 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.

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.

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.

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

Our rental fleet, which is well-maintained has an original acquisition cost (which we define as the cost originally paid to manufacturers plus any capitalized costs) of $408.9 million.

The original acquisition cost of our rental fleet excludes the value of assets associated with our guaranteed purchase obligations, which are assets that are not in our day-to-day operational control.

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

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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.

Rental equipment sales, like new and used equipment sales, generate customer-based equipment field population within our territories and ultimately yield high-margin parts and services revenue for us.

General and Administrative Expenses.

These costs are made up of three main components:

These costs are comprised 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.

Personnel costs are comprised 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, personal property related insurance, information technology, office and shop supplies, general corporate costs, depreciation on non-sales and rental related assets, and intangible amortization.

Occupancy costs are comprised 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.

This section of the financial statements is mostly comprised of interest expense and other miscellaneous items that result in income or expense.

Interest expense is mostly driven by our OEM floorplan financing arrangements, a working capital line of credit, and a second lien term loan.

Also included in this section of the financials are non-recurring costs, in particular expenses associated with the extinguishment of debt.

Results of Operations

Three and nine months ended September 30, 2020 compared to three and nine months ended September 30, 2019

Three months ended March 31, 2021 compared to three months ended March 31, 2020

Consolidated Results

Three months ended

September 30,

Nine months ended

September 30,

2020 versus 2019

Increase (Decrease)

2021 versus 2020

13 unchanged sentences

Total general and administrative expenses

(Loss) income from operations

Income (loss) from operations

Other income (expense)

1 unchanged sentence

Interest expense – other

Change in fair market of warrants

Loss on extinguishment of debt

1 unchanged sentence

Loss before taxes

Income tax benefit

Net income (loss)

Percent of Revenue

Income tax provision (benefit)

Percent of Revenue

Three months ended

September 30,

Nine months ended

September 30,

Three months ended March 31,

New and used equipment sales

9 unchanged sentences

Cost of revenue

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,

Consolidated revenues increased by $88.3 million, or 48.9%, to $268.8 million for the three months ended March 31, 2021 as compared to the same period last year.

The primary drivers of this period over period increase were the favorable full period impact from the acquisitions completed in 2020.

All revenue streams increased comparatively as a result of these eight acquisitions.

If excluding the effects of acquisition by observing the consolidated results on an organic basis, new and used equipment sales were largely flat, exhibiting a decrease of 0.2% over the same period last year as a result of extended lead times from manufacturers of new equipment.

Organic parts and service revenues increased by 1.4% over the same period last year as field population growth contributed further to growing aftermarket revenues.

Rental revenue exhibited growth on an organic basis of 0.9% period over period as physical utilization trends rebound and rental rates increase.

Lastly, and in following with the pattern from the fourth quarter of 2020, rental equipment sales increased organically by 54.5% as we actively manage our fleet mix, and our rent-to-sell model enables us to meet customer demand for lightly used equipment while lead times for new equipment were extended in the first quarter of 2021.

Three months ended March 31,

New and used equipment sales

4 unchanged sentences

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.

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.

The consolidated gross profit for the three months ended March 31, 2021 was 25.0%, a 1.1% decline from the 26.1% for the same period in 2020.

New and used equipment sales, as well as rental equipment sales, margins improved slightly in the first quarter compared to the same time last year as retail pricing levels improved, especially for used equipment.

While we realized a decline in rental revenue gross margin in the first quarter of 2021, it should be noted that this is a result of an increase in rental depreciation expense, non-cash, contained within cost of revenues, as a result of a higher mix of our rental revenues coming from our Construction segment in the first quarter compared to the same time last year, which was the main driver in the overall depressed margin.

Additionally, parts sales gross margins decreased as a whole, in part due to the relative segment sales mix while service gross margins improved modestly.

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.

Consolidated general and administrative (G&A) expenses increased by $ 14.8 million to $ 6 6.9 million for the three months ended March 31, 2021 compared to the same period last year.

This increase was mainly driven by the full period impact from our 2020 acquisitions as well as an increase in certain corporate-level administrative and compensation related expenses, many of which are incremental expenses associated with our status as a public company .

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.

Consolidated other expense for the three months ended March 31, 2021 was $(5.6) million compared to $(13.1) million for the same period in 2020.

This change was mainly driven by the $7.6 million loss on debt extinguishment that occurred in the previous year.

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.

Industrial Equipment Results:

Income tax provision for the three months ended March 31, 2021 was $0.5 million compared to the income tax benefit of $1.1 for the three months ended March 31, 2020.

This change is due to establishing valuation allowance within the period against the deferred tax assets associated with losses for which we may not realize a related tax benefit in 2021.

Material Handling Results:

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2020 versus 2019

Increase (Decrease)

2021 versus 2020

19 unchanged sentences

Percent of Revenue

Industrial Equipment

Three months ended

September 30,

Nine months ended

September 30,

Material Handling

Three months ended March 31,

New and used equipment sales

9 unchanged sentences

Cost of revenue

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.

Material Handling segment revenues increased by 21.9% to $106.8 million for the three months ended March 31, 2021 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.

While continuing to improve, the Material Handling segment has been slower to recover from the impact of the COVID-19 pandemic versus the Construction segment.

On an organic basis, new and used equipment sales decreased 3.5%, and the aftermarket parts and service revenues are 6.3% off when comparing to the same period last year.

Rental revenue remains depressed on an organic basis, as comparatively it has declined by 14.4% from the same period last year.

Gross profit (GP):

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Industrial Equipment

Three months ended March 31,

Material Handling

New and used equipment sales

3 unchanged sentences

Segment gross profit

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.

Material Handling gross profit for the three months ended March 31, 2021 increased 1.0% to 33.8% compared to the same period in 2020.

We realized improved used equipment gross margin in the first quarter of 2021 when compared to the same period in 2020 as retail pricing for used equipment has strengthened.

New equipment sales gross margin realized modest increase due to favorable impact from PeakLogix to the sales mix in the three months ended March 31, 2021.

We also realized increase in rental revenue gross margin in the first quarter of 2021 as cost of revenues decreased, mainly due to our updated depreciation method as described in our Note 2 to the Consolidated Financial Statements.

Additionally, service revenue gross profit margin improved by 0.7% while the parts sales gross profit margins declined by 2.7% in the first quarter of 2021 compared to the same period in 2020.

Parts margin declines can be attributed to a smaller volume of in-store counter sales, as customers have elected other methods of parts procurement rather than in-person walk-up business, which lessens our ability for to be more consultative with the customer and limits add-on sales opportunities.

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.

Material Handling general and administrative (G&A) expenses increased by 7.3 million to $33.4 million for the three months ended March 31, 2021 as compared to the same period last year.

This change was mainly driven by the higher employee related and general expenses attributable to the Material Handling segment acquisitions 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.

Material Handling other expense increased by $0.

4 ) million for the three months ended March 31, 2021 as compared to the same period last year.

The m ajority of the quarter- over - quarter increase was the result of the addition of debt related to the Liftech, Peak Logix and Hilo acquisition s , as their assets were financed via our line of credit and floorplan financing facilities.

Construction Equipment Results

Three months ended

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Nine months ended

September 30,

2020 versus 2019

Increase (Decrease)

2021 versus 2020

13 unchanged sentences

Total general and administrative expenses

(Loss) income from operations

Income from operations

Other income (expense)

1 unchanged sentence

Interest expense – other

Other (expense) income

Total other income (expense)

Percent of Revenue

Construction Equipment

Three months ended

September 30,

Nine months ended

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Three months ended March 31,

New and used equipment sales

9 unchanged sentences

Cost of revenue

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.

Construction Equipment segment revenues increased by 74.4% to $162.0 million for the three months ended March 31, 2021 as compared to the same period last year.

This increase was mainly attributable to the full period results from the Flagler, Martin, Howell and Vantage acquisitions that occurred throughout 2020.

The Construction Equipment segment, which was less operationally impacted by COVID-19 versus our Material Handling segment, has also been quicker to recover from the impact of the COVID-19 pandemic than our Material Handling segment.

On an organic basis, new and used equipment sales increased 3.8%, and the aftermarket parts and service revenues are up 14.3% when comparing to the same period last year.

Rental revenue has increased on an organic basis of 13.8%, and rental equipment sales nearly doubled from the same time a year ago on an organic basis.

Our rental department experienced an increase in both utilization and rate improvement, along with an increase in the demand for customers seeking the purchase of lightly used equipment amid OEM production shortages for new equipment.

Sustaining our rental fleet size throughout the COVID-19 pandemic has proven beneficial to begin 2021 as we are positioned well to secure rental and sales opportunities in a strong pricing environment.

Gross profit (GP):

Three months ended

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Three months ended March 31,

Construction Equipment

4 unchanged sentences

Segment gross profit

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

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.

Construction Equipment gross profit decreased by 0.5% to 19.3% in the three months ended March 31, 2021 from 19.8% compared to the same period in 2020.

A decline in rental revenue gross margin was the main driver in the overall depressed margin, which is largely attributable to having a full period impact of Flagler and Vantage in the first quarter of 2021 versus last year and our updated depreciation method as described in our Note 2 to the Consolidated Financial Statements.

Parts and service revenue margins were modestly up 1.5% and 0.2% in the first quarter of 2021 compared to the same period in 2020, respectively, and in line with historic norms.

Additionally, rental equipment sales and new and used equipment gross margin improved by 1.3% amongst favorable retail pricing conditions in the industry.

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.

Construction Equipment general and administrative (G&A) expenses increased by $ 1 2.4 million to $ 30 .7 million for the three months ended March 31, 2021 as compared to the same period in 20 20 .

The quarter over quarter increase was mainly attributable to the full period G&A impact as a result of the construction segment acquisitions of Flagler, Martin, Howell and Vantage throughout 2020 .

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.

Construction Equipment other expense increased by $1.5 million to ($3.8) million for the three months ended March 31, 2021 as compared to the same period in 2020.

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

Three months ended March 31, 2021 compared with three months ended March 31, 2020 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.

For the three months ended March 31, 2021, operating activities resulted in net cash used in operations of $0.3 million.

Our reported net loss of $5.7 million, when adjusted for non-cash income and expense items, such as depreciation and amortization, changes in deferred taxes and the share-based payments, provided net cash inflows of $13.2 million.

Changes in working capital included $34.2 million of net new inventory purchased which was offset by transfers of $37.9 million to used and rental fleet, a $5.9 million increase in accounts receivable, a $4.7 million decrease in accounts payable, accrued expenses, customer deposits, and other liabilities and $2.1 million in net payments on manufacturer floor plans.

Cash flows from operating activities were favorably impacted by $31.8 million due to proceeds from the sale of rental equipment, and $1.6 million favorable change in prepaid expenses and other assets and leases and other liabilities.

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

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

Changes in working capital included a $33.6 million of net new inventory purchased which was offset by transfers of $6.7 million to used and rental fleet, $26.5 million in net payments on manufacturer floor plans, a $3.5 million increase in accounts receivable, a $2.7 million decrease in accounts payable, accrued expenses, customer deposits, and other liabilities, and a $0.4 million cash outflows in prepaid expense and other assets.

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

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.

For the three months ended March 31, 2021, our cash used in investing activities was $8.9 million.

This was mainly due to $1.9 million use of cash for the recent ScottTech acquisition and $7.0 million purchases of rental equipment and non-rental property and equipment offset by proceeds from the sale of assets.

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

The acquisition of Flagler and Liftech totaled $91.7 million and purchases of rental and non-rental property and equipment totaled approximately $26.7 million, offset by proceeds from the sale of assets.

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.

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.

For the three months ended March 31, 2021, cash provided by financing activities was $8.6 million.

The favorable impact was mainly due to $11.8 million net proceeds under our lines of credits.

This was partially offset by net payments of $1.1 million related to the floor plans with an unaffiliated source (i.e.

a non-vendor) and $ 2.1 million payments on long term debt and capital lease obligations.

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

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

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

a non-vendor) for the 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.

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

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

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 $1.0 million payment on long term debt and capital lease obligations.

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.

The Company reported $0.6 million in cash for the three months ended March 31, 2021.

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.

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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).

On January 11, 2021, the Company amended its Fifth Amended and Restated ABL First Lien Credit Agreement 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.

The amendment generally allows for dividend payments to be made on the Preferred Stock without having to meet a leverage threshold, it excludes the Preferred dividend payments from affecting the second lien prepayment requirement, and it increases vendor floor plan limits from $225 million to $250 million, however, credit line borrowings would begin to be limited in the instance amounts borrowed on floor plan facilities exceed $225 million.

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).

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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 September 30, 2020, the Company had an outstanding revolving line of credit balance of $140.5 million, excluding unamortized debt issuance costs.

As of March 31, 2021, the Company had an outstanding revolving line of credit balance of $170.9 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.

At March 31, 2021, the Company had an outstanding balance on their first lien lender floor plan facility of $34.3 million, excluding unamortized debt issuance costs.

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

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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.

The related OEM captive lender floor plans payable is then due and payable at the time the equipment being financed is sold.

Maximum borrowings under the floor plans and the revolving line of credit are limited to $550 million.

The total amount outstanding was $295.5 million, exclusive of debt issuance and deferred financings costs of $1.6 million.

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

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 total amount outstanding as of March 31, 2021 and December 31, 2020 was $325.2 million and 316.6 million, exclusive of debt issuance and deferred financings costs of $1.4 million and $1.5 million, respectively.

Each of the ABL Facility and the Floor Plan Facility was amended and restated in its entirety on April 1, 2021.

See Note 18, Subsequent Events – Amended and Restated Credit Arrangements for further information.

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.

The Term Loan has an aggregate principal amount of $155.0 million and has second lien priority and the Company’s assets, with an initial maturity date of August 2025.

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%.

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

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

On April 1, 2021, we completed a private offering of $ 315 million of our 5.625% Senior Secured Second Lien Notes due 2026 (the “Notes”).

The Company used the net proceeds from the sale of the Notes and the new borrowings under the ABL Facility and the Floor Plan Facility, to repay its $ 147.

3 million second lien term loan facility, to repay and refinance a portion of the ABL Facility and the Floor Plan Facility and to pay related fees and expenses.

See Note 18, Subsequent events – Issuance of 5.625% Senior Secured Second Lien Notes due 2026 for further information.

Cash Requirements Related to Operations

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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.

Our gross rental fleet capital expenditures for the period ended March 31, 2021 was approximately $44.1 million, including $37.9 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 $31.8 million for the period ended March 31, 2021 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 September 30, 2020, we had $197.6 million of available borrowings under the revolving line of credit and floor plans.

As of March 31, 2021, we had $207.0 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.

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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.

The Company does not have any off-balance sheet arrangements that have, or are reasonably likely to have, a material effect on the Company.

As of March 31, 2021, there was $1.4 million in outstanding letters of credits issued in the normal course of business.

The Company was also party to certain contracts in which it guarantees the performance of lease agreements between various third-party leasing companies.

The terms of the guarantees range from three to five years.

In the event of a default by a third-party lessee, the Company would be required to pay all, or a portion of the remaining unpaid lease obligation as specified in the contract.

The estimated exposure related to these guarantees was $1.8 million and $2.4 million at March 31, 2021 and December 31, 2020, respectively.

It is anticipated that the third parties will have the ability to repay the debt without the Company having to honor the guarantee;

therefore, no amount has been accrued on the Consolidated Balance Sheets at March 31, 2021 and December 31, 2020, respectively.

Critical accounting policies

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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.

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.

Our management, on an ongoing basis, reviews these estimates and assumptions.

While we believe the estimates and judgments we use in preparing our consolidated financial statements are appropriate, they are subject to future events and uncertainties regarding their outcome and, therefore, actual results may materially differ from these estimates.

The Company updated the depreciable useful lives of certain of its rental equipment product categories based on our year-end analysis of fair value relative to book value, prior-year utilization trends and a review of market participants approach to depreciation for similar products.

Per our accounting policy the updates to depreciable useful lives will be adjusted on prospective basis.

Specifically, the notable changes for 2021 will be extending the depreciable life on lift trucks in our Material Handling segment to 84 months, extending the depreciable life on certain aerial and crane related assets in our construction segment to 120 months and applying straight-line depreciation to underutilized construction equipment assets that are being depreciated on a unit-of-activity basis to the extent the assets meet certain underutilized thresholds.

Refer to Part I, Item 1, Note 2 of the Notes to our Consolidated Financial Statements for disclosures regarding the use of estimates and assumptions .

See Note 2 to the audited consolidated financial statements contained in the Company’s 2020 Annual Report on Form 10-K for a summary of our significant accounting policies.

Quantitative and Qualitat ive Disclosures About Market Risk.

Not Applicable.

As a “smaller reporting company” as defined by Rule 10(f)(1) of Regulation S-K, the Company is not required to provide this information.

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