What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-08-12 compared with 2021-05-13 · 169 added, 153 removed, 328 unchanged (50% of the section changed)

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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.

This discussion contains “forward-looking statements” within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 reflecting Alta’s current expectations, estimates and assumptions concerning events and financial trends that may affect its future operating results or financial position.

Actual results and the timing of events may differ materially from those contained in these forward- looking statements due to a number of factors.

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Recent Developments

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.

The economic volatility and disruptions caused by the COVID-19 pandemic caused an 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 of 2020 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

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

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

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

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

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.

While we believe 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 based on current business levels we believe the worst of the pandemic’s effect on our business to be behind us, uncertainty remains regarding emerging variant strains of COVID-19 and how long it will take for the COVID-19 pandemic to subside, including how quickly and completely vaccines will be broadly administered in the United States and the rest of the world, and the effectiveness of such vaccines in reducing the spread of COVID-19.

While our operations in the second quarter of 2021, in general, performed at, or beyond, 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

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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 are 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 First Lien 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.

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(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.

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The words “anticipates,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predicts,” “project,” “should,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking.

These statements are not indented to guaranty future performance and are subject to risks and uncertainties.

These statements are not intended to guaranty future performance and are subject to risks and uncertainties.

Actual results may differ materially due to factors such as:

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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” 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.

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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 have operated as an equipment dealership for 37 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 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.

More recently, with the acquisition of PeakLogix and subsequent acquisition of ScottTech, 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.

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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 Material Handling segment is made up of the legal entities Alta Industrial Equipment Michigan, LLC, Alta Industrial Equipment Company, 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.

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, Alta Construction Equipment Florida, LLC and Alta Construction Equipment New York, LLC.

As further explained below, NITCO, LLC, engages in operations related to both the Material Handling and the Construction Equipment segment within a common legal entity.

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

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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.

In connection with the purchase of NITCO LLC in 2019, the Company expanded its full-service m aterial h andling and c onstruction e quipment dealer operations into New England market.

Given that the sales of the business was more heavily weighted to m aterial h andling versus construction and that NITCO’s reporting systems made it difficult for the construction business to be observed separate from the m aterial h andling operation, NITCO’s total financial results were historically presented within our M aterial H andling 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”)

SCOTTTECH, 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.

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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.

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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Results of Operations

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

Three and six months ended June 30, 2021 compared to three and six months ended June 30, 2020

Consolidated Results

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Increase (Decrease)

Six months ended

Increase (Decrease)

2021 versus 2020

New and used equipment sales

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Rental revenue

Rental depreciation and amortization

Rental depreciation

Rental equipment sales

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Income tax provision (benefit)

Preferred stock dividends

Net loss available to common shareholders

Percent of Revenue

Three months ended March 31,

Percent of Revenue

Three months ended June 30,

Six months ended June 30,

New and used equipment sales

6 unchanged sentences

Rental revenue

Rental depreciation and amortization

Rental depreciation

Rental equipment sales

Cost of revenue

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,

Consolidated revenues increased by $100.6 million, or 52.4%, to $292.7 million for the three months ended June 30, 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, coupled with the impact COVID-19 had on the 2020 comparative period.

If excluding the effects of acquisition by observing the consolidated results on an organic basis, thereby including only the results of the entities that appear fully in both periods, new and used equipment sales increased 6.7% over the same period last year as market demand for equipment increased and despite supply chain issues with obtaining new equipment.

Organic parts and service revenues increased by 30.5% and 31.1%, respectively, over the same period last year, as the impact of COVID-19 had an acute reduction on the aftermarket revenue streams in 2020.

Similarly, rental revenue exhibited growth on an organic basis of 30.9% period over period as physical utilization trends improve and rental rates have increased.

Lastly, and in following with the pattern from the first quarter of 2021, rental equipment sales increased organically by 93.5% as we continue to 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 are extended amid the global supply chain issues of many manufacturers.

Importantly, despite macro-level supply chain issues, our robust parts inventory and ongoing parts availability from key OEMs has allowed us to continue to service customers and maintain profitability in our high margin product support departments.

Consolidated revenues increased by $188.9 million, or 50.7%, to $561.5 million for the six months ended June 30, 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, as well as when factoring the negative impact the COVID-19 pandemic had on our 2020 comparative period.

Three months ended June 30,

Six months ended June 30,

New and used equipment sales

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Gross profit (GP):

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.

The consolidated gross profit for the three months ended June 30, 2021 was 26.3%, a 2.2% increase from the 24.1% for the same period in 2020, which represents an increase of 1.3% in comparison to the first quarter of 2021.

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

We realized an increase in rental revenue gross margin in the second quarter of 2021, largely as a result improved physical utilization of the rental fleet.

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

The consolidated gross profit for the six months ended June 30, 2021 was 25.7%, a 0.6% increase from the 25.1% for the same period in 2020.

General and Administrative expenses:

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.

Consolidated general and administrative (G&A) expenses increased by $28.3 million to $73.7 million for the three months ended June 30, 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.

Further, many temporary cost-saving measures were enacted in the three months ended June 30, 2020, including but not limited to a reduction in executive-level compensation, employee furloughs, travel and entertainment restrictions, discretionary spending freezes, and a suspension of matching contributions into the 401(k), which assisted in defraying the reductions in revenue amid the beginning of the COVID-19 pandemic, while such measures were not in place in the three months ended June 30, 2021.

Consolidated general and administrative (G&A) expenses increased by $43.1 million to $140.6 million for the six months ended June 30, 2021 compared to the same period last year.

Other Income (expense):

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.

Consolidated other expense for the three months ended June 30, 2021 was $(17.8) million compared to $(5.4) million for the same period in 2020.

This change was mainly driven by the $11.9 million loss on debt extinguishment that occurred within the current quarter.

Consolidated other expense for the six months ended June 30, 2021 increased by $4.9 million compared to the same period last year.

The year over year change was primarily attributable to the $11.9 million loss on debt extinguishment.

Provision for income taxes:

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.

Income tax provision for the six months ended June 30, 2021 was $0.5 million compared to the income tax benefit of $1.5 for the six months ended June 30, 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.

Preferred Stock Dividend:

Preferred stock dividends were $1.1 million for the three months ended June 30, 2021.

This relates to the Company’s first dividend payout on its Series A Preferred Stock that it issued on December 22, 2020.

The dividend payment paid on April 30, 2021, covered the period from and including December 22, 2020 through, but not including April 30, 2021.

Material Handling Results:

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Increase (Decrease)

Six months ended

Increase (Decrease)

2021 versus 2020

New and used equipment sales

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Rental revenue

Rental depreciation and amortization

Rental depreciation

Rental equipment sales

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Percent of Revenue

Material Handling

Three months ended March 31,

Three months ended June 30,

Six months ended June 30,

New and used equipment sales

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Rental revenue

Rental depreciation and amortization

Rental depreciation

Rental equipment sales

Cost of revenue

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 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.

Material Handling segment revenues increased by 34.8% to $111.6 million for the three months ended June 30, 2021 as compared to the same period last year.

Overall, revenue streams were up as a result of the PeakLogix and Hilo acquisitions that closed in June 2020 and July 2020, respectively, as well as a recovery from the COVID-19 impact that greatly influenced Material Handling revenues in the second quarter of 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, and global supply chain issues with OEM suppliers have tempered the first half results of 2021.

On an organic basis, and due to supply chain delays, new and used equipment sales decreased 5.2%, however, importantly, aftermarket parts and service revenues increased 31.5% when comparing to the same period last year.

Rental revenue increased 7.6% on an organic basis from the same period last year.

Material Handling segment revenues increased by 28.2% to $218.4 million for the six months ended June 30, 2021 as compared to the same period last year, again attributable to the influence of acquisitions made in 2020 and a recovery from the influence of COVID-19 on 2020 results.

Gross profit (GP):

Three months ended March 31,

Material Handling

Three months ended June 30,

Six months ended June 30,

New and used equipment sales

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Segment gross profit

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.

Material Handling gross profit for the three months ended June 30, 2021 increased 5.2% to 35.3% compared to the same period in 2020.

We realized improved new and used equipment gross margin in the second quarter of 2021 when compared to the same period in 2020 as retail pricing for equipment has strengthened amid increased demand for equipment and a dearth of new supply.

Increased equipment margins for the three months ended June 30, 2021 are also attributable to Peaklogix and ScottTech’s influence, as their design and build projects realize higher margins than lift truck sales.

We also realized an increase in rental revenue gross margin in the second 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.

Service revenue gross profit margins decreased by 2.0% while the parts sales gross profit margins increased by 1.1% in the second quarter of 2021 compared to the same period in 2020.

Service margin declines can be attributed to the cost-saving measures taken in the second quarter of 2020, which caused margin increase in that time frame, as technicians remaining on staff were able to be utilized efficiently at customers that were able to remain open, many of which were deemed essential businesses, through the shutdowns experienced during the initial stages of the COVID-19 pandemic.

Material Handling gross profit margins for the six months ended June 30, 2021 increased 3.1% to 34.6% compared to the same period in 2020 for the aforementioned reasons.

General and administrative expenses:

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.

Material Handling general and administrative (G&A) expenses increased by $14.6 million to $36.2 million for the three months ended June 30, 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 of PeakLogix and Hilo.

Additionally, many cost-saving measures were enacted in the three months ended June 30, 2020 which assisted in defraying the reductions in revenue amid the most acutely impacted periods of the COVID-19 pandemic, these measures were no longer in place during the three months ended June 30, 2021.

Material Handling general and administrative (G&A) expenses increased by 45.9% to $69.6 million for the six months ended June 30, 2021, as compared to the same period last year for the same reasons as discussed above.

Other Income (expense):

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.

Material Handling other expense increased by $0.2 to ($1.2) million for the three months ended June 30, 2021, 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 PeakLogix and Hilo acquisitions, as their assets were financed via our line of credit and floorplan financing facilities.

Material Handling other expense increased by $0.3 million to ($2.6) million for the six months ended June 30, 2021, as compared to the same period last year.

Construction Equipment Results

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Increase (Decrease)

Six months ended

Increase (Decrease)

2021 versus 2020

New and used equipment sales

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Rental revenue

Rental depreciation and amortization

Rental depreciation

Rental equipment sales

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Percent of Revenue

Construction Equipment

Three months ended March 31,

Three months ended June 30,

Six months ended June 30,

New and used equipment sales

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Cost of revenue

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.

Construction Equipment segment revenues increased by 65.7% to $181.1 million for the three months ended June 30, 2021 as compared to the same period last year.

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

On an organic basis, new and used equipment sales increased 18.2%, and parts and service revenues are up 29.9% when comparing to the same period last year, as we have realized increased technician headcount on an organic basis.

Rental revenue has increased on an organic basis of 48.1%, and rental equipment sales increased 107.5% 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.

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

Construction Equipment segment revenues increased by 69.7% to $343.1 million for the six months ended June 30, 2021 as compared to the same period last year.

Gross profit (GP):

Three months ended March 31,

Construction Equipment

Three months ended June 30,

Six months ended June 30,

New and used equipment sales

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Segment gross profit

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.

Construction Equipment gross profit increased by 1.1% to 20.7% in the three months ended June 30, 2021, from 19.6% compared to the same period in 2020.

New and used equipment sales margins as well as parts margins held flat compared to the same period in 2020.

Service revenue margins were up 3.2% in the second quarter of 2021 compared to the same period in 2020, and in line with expectations.

Rental revenue gross margins improved amid strengthening physical utilization and a positive rate environment.

Additionally, rental equipment sales gross margin improved by 3.1% as favorable pricing conditions exist in the market for lightly used equipment.

Construction Equipment gross profit increased by 0.3% to 20% in the six months ended June 30, 2021, from 19.7% compared to the same period in 2020.

General and Administrative expenses:

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 .

Construction Equipment general and administrative (G&A) expenses increased by $13.7 million to $34.9 million for the three months ended June 30, 2021, as compared to the same period in 2020.

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

Construction Equipment general and administrative (G&A) expenses increased by $26.1 million to $65.6 million for the six months ended June 30, 2021, as compared to the same period in 2020 for the same reasons as discussed above.

Other Income (expense):

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 by $1.6 million to ($4.3) million for the three months ended June 30, 2021, as compared to the same period in 2020.

The quarter over quarter increase was mainly due to the interest expense respective to the 2020 acquisitions, as assets were financed through our line of credit and floorplan financing facilities.

Construction Equipment other expense increased to ($8.1) million for the six months ended June 30, 2021, as compared to ($5.0) the same period in 2020.

Liquidity and Capital Resources

Three months ended March 31, 2021 compared with three months ended March 31, 2020 Cash Flows

Six months ended June 30, 2021 compared with six months ended June 30, 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 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.

For the six months ended June 30, 2021, operating activities resulted in net cash provided by operations of $8.6 million.

Our reported net loss of $20.3 million, when adjusted for non-cash income and expense items, such as depreciation and amortization, debt extinguishment, changes in deferred taxes and the share-based payments, provided net cash inflows of $30.6 million.

Changes in working capital included $87.4 million of net new inventory purchased which was offset by transfers of $88.1 million to used and rental fleet, a $18.6 million increase in accounts receivable and $9.3 million unfavorable change in prepaid expenses and other assets and leases and other liabilities.

Cash flows from operating activities were favorably impacted by $67.8 million due to proceeds from the sale of rental equipment, a $19.5 million increase in accounts payable, accrued expenses, customer deposits, and other liabilities and a $6.0 million in net proceeds from manufacturer floor plans.

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

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

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

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

Cash Flow from Investing Activities .

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.

For the six months ended June 30, 2021, our cash used in investing activities was $27.6 million.

This was mainly due to $25.0 million purchases of rental equipment and non-rental property and equipment offset by proceeds from the sale of assets and $2.6 million use of cash for the recent ScottTech acquisition and Howell working capital adjustment.

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

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

Cash Flow from Financing Activities.

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 three months ended March 31, 2020 were $140.3 million and $4.2 million, respectively.

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

For the six months ended June 30, 2021, cash provided by financing activities was $19.6 million.

The favorable impact was mainly due to $310.2 million net proceeds from the Notes issuance.

This was partially offset by $153.1 million payments related to the extinguishment of term loan, $126.2 million of net payments under our lines of credits, net payments of $5.4 million related to the floor plans with an unaffiliated source (i.e.

a non-vendor), $2.2 million payments on long term debt and capital lease obligations, $2.1 million payments related to preferred dividend and promissory notes, and $1.6 million of payments related to debt issuance costs.

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

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

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

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

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

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

a non-vendor) were also made .

Sources of Liquidity

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.

In connection with the Amended and Restated Credit Agreement, the Company amended and restated its floor plan facility with its first lien lender by entering into the Fifth Amended and Restated Floor Plan First Lien Credit Agreement (“Floor Plan Credit Agreement”) by and among Alta Equipment Group Inc.

and the other credit parties named therein, the lender JP Morgan Chase Bank, N.A., as Administrative Agent, Sole Bookrunner and Sole Lead Arranger.

The Amended and Restated Credit Agreement, among other things, (i) moved the $85 million floor plan financing facility of the Fourth Amended and Restated First Lien Credit Agreement out of syndication and into the Floor Plan Credit Agreement, (ii) increased the total aggregate amount of allowed indebtedness of all floor plans from $220 million to $225 million, (iii) increased the revolving line of credit borrowing capacity from $110 million to $300 million, and (iv) modified financial covenants (as defined in the Amended and Restated Credit Agreement).

On January 11, 2021, the Company amended its Fifth Amended and Restated ABL First Lien Credit Agreement by and among Alta Equipment Group Inc.

The Company reported $1.8 million in cash for the six months ended June 30, 2021.

On April 1, 2021, the Company completed a private offering of $315 million of its 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 and J.P.

Morgan Securities LLC, as representative of the initial purchasers.

The Notes are guaranteed by the guarantors on a second lien, senior secured basis.

The Notes were issued pursuant to an indenture dated April 1, 2021 among the Company, the guarantors and Wilmington Trust, National Association, as trustee and as collateral agent.

The Notes 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.

Effective April 1, 2021, the Company amended and restated its credit facility with its first lien lender by entering into the Sixth 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.

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).

Line of Credit and Floor Plan First Lien Lender

Subject to the borrowing base limitation in the Amended and Restated Credit Agreement, the ABL Facility provides borrowings of up to $350 million and matures on the earlier of April 1, 2026 or December 1, 2025 if any of the Notes remain outstanding as of December 1, 2025.

In connection with the offering of the Notes and the Amended and Restated Credit Agreement, the Company amended and restated its floor plan facility with its first lien lender by entering into the Sixth Amended and Restated Floor Plan First Lien Credit Agreement (“Floor Plan Credit Agreement”) by and among Alta Equipment Group Inc.

and the other credit parties named therein, the lender JP Morgan Chase Bank, N.A., as Administrative Agent.

The Floor Plan Credit Agreement is an asset-based revolving loan facility related to the floor plan equipment that provides for borrowings of up to the lesser of $40 million or the borrowing base.

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.

Line of Credit and First Lien Floor Plan Facility

The Company has a revolving line of credit with its first lien holder with advances on the line being supported by eligible accounts receivable, parts, and otherwise unencumbered new and used equipment inventory and rental equipment.

The revolving line of credit has a maximum borrowing capacity of $350 million and interest cost is the London Interbank Offered Rate (“LIBOR”) plus an applicable margin or the CB Floating Rate, depending on the borrowing.

As of March 31, 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 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.

As of June 30, 2021, the Company had an outstanding revolving line of credit balance of $33.8 million, excluding unamortized debt issuance costs.

The Company has a First Lien Floor Plan Facility with its first lien lender to primarily finance new inventory.

This First Lien Floor Plan Facility has a maximum borrowing capacity of $40 million.

The interest cost for the First Lien Floor Plan Facility is LIBOR plus an applicable margin.

The First Lien Floor Plan Facility is collateralized by substantially all assets of the Company.

As of June 30, 2021, the Company had an outstanding balance on their First Lien Floor Plan Facility of $30 million, excluding unamortized debt issuance costs.

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

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Maximum borrowings under the floor plans and the revolving line of credit are limited to $600 million.

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 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.

The total amount outstanding as of June 30, 2021 and December 31, 2020 was $191.5 million and $316.6 million, exclusive of debt issuance and deferred financings costs of $2.7 million and $1.5 million, respectively.

Senior Secured Second Lien Notes

As of June 30, 2021, outstanding borrowings under the Senior Secured Second Lien Notes were $315.0 million, which included $5.7 million deferred financing costs and original issue discounts.

As of June 30, 2021, the effective interest rate was 5.625%.

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 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.

Our gross rental fleet capital expenditures for the period ended June 30, 2021 was approximately $110.9 million, including $88.1 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 $67.8 million for the period ended June 30, 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 March 31, 2021, we had $207.0 million of available borrowings under the revolving line of credit and floor plans.

As of June 30, 2021, we had $367.4 million of available borrowings under the revolving line of credit and floor plans.

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

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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.

As of June 30, 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.

1 unchanged sentence

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.

The estimated exposure related to these guarantees was $1.3 million and $2.4 million at June 30, 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.

therefore, no amount has been accrued on the Consolidated Balance Sheets at June 30, 2021 and December 31, 2020, respectively.

Critical accounting policies

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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.

Quantitative and Qualitative Disclosures About Market Risk.

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