EDGAR 10-K Filing

Company CIK: 1759824
Filing Year: 2021
Filename: 1759824_10-K_2021_0001564590-21-014150.json

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ITEM 1. BUSINESS
Item 1. Business.
References herein to “the Company”, “Alta”, “we”, “our” or “us” mean Alta Equipment Group Inc., and its wholly owned subsidiaries, unless the context requires otherwise.
Overview
We own and operate one of the largest integrated equipment dealership platforms in the Unites States (“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 material handling and construction equipment. We engage in five principal business activities in these equipment categories:
(i)
new equipment sales;
(ii)
used equipment sales;
(iii)
parts sales;
(iv)
repair and maintenance services; and
(v)
equipment rentals.
We have operated as an equipment dealership for over 35 years and have developed a branch network that includes 54 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, Inc. (“PeakLogix”) in June 2020, we have entered the automated equipment installation and system integration sector, which we believe has natural synergies with our material handling business and positions us to take advantage of the macroeconomic trend in e-commerce and logistics.
Within our territories, we are the exclusive distributor of new equipment and replacement parts on behalf of our Original Equipment Manufacturer (“OEM”) partners. We and our regional subsidiaries 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.
We are committed to providing our customers with a best-in-class equipment dealership experience. Our customers are principally focused on equipment reliability and up-time, and our teams of skilled technicians and commitment to service are key to establishing and maintaining long-term customer relationships, representing a critical competitive advantage. Parts and service are also our most predictable and profitable businesses, with the dealership model structured to drive aftermarket parts and service revenue. Through our new and used equipment sales and our sale of rental fleet, we populate our exclusive territories with serviceable equipment. As the field population ages, we capitalize on aftermarket parts and service sales through the equipment maintenance cycle.
We have experienced significant organic and acquisition-led growth since 2008, completing over 20 acquisitions in that timeframe. We expect that acquisition activity to continue, as OEM partners support us as a consolidator by granting us new exclusive territories or by consenting to our acquisition of existing dealers.
On May 1, 2019, we successfully acquired Northland Industrial Truck Co., Inc. (“NITCO”) to become the exclusive dealer of Hyster-Yale and JCB equipment in the New England states. Concurrently with the closing of the business combination on February 14, 2020, we consummated the acquisition of each of Liftech Equipment Companies, Inc. (“Liftech”) and FlaglerCE Holdings, LLC (“Flagler”). Liftech is the Hyster-Yale and JCB dealer in Upstate New York and Vermont, and Flagler is the Volvo dealer in Florida and portions of Georgia. Since the closing of the business combination, we have consummated acquisitions of certain assets of PeakLogix, Inc. a national material handling systems integrator, Hilo Equipment and Services (“Hilo”) the exclusive Hyster-Yale dealer in New York City, Martin Implement Sales, Inc. (“Martin”) a premium equipment distributor in the Chicago metropolitan area, Howell Tractor and Equipment, LLC (“Howell”) a heavy equipment dealer serving Northern Illinois and Northwest Indiana and Vantage Equipment, LLC (“Vantage”) the Volvo dealer operating in the geographic area of Upstate New York.
Products and Services
New Equipment Sales. We sell new material handling and construction equipment and are a leading dealer for over 30 nationally recognized OEMs. Our new equipment sales generate customers for our parts sales and service operations, which grow with an expanding equipment field population in our territories. Additionally, with our recent acquisition of PeakLogix, we provide warehouse design and build, automated equipment installation and system integration solutions.
Used Equipment Sales. We sell used equipment, primarily from equipment trade-ins from our new and returning customers. Used equipment sales, like new equipment sales, generate parts and services business for us.
Parts Sales. We are the exclusive distributor of OEM parts in our territories. Our in-house parts inventory is extensive, enabling us to provide timely service support to our customers.
Service Support. We provide maintenance and repair services for our customers’ equipment and maintain our own rental fleet. In addition to repair and maintenance on an as needed or scheduled basis, we provide ongoing maintenance services and warranty repairs for our customers. We have committed substantial resources to recruiting and retaining skilled technicians, including partnerships with technical and trade schools near each of our branch locations. We believe that our service capabilities differentiate us from our competitors.
Equipment Rentals. We rent material handling and construction equipment to our customers. We view our rental fleet as an important component of our one-stop-shop model, and customers rely on our rental equipment when flexing up their fleet capacity for a project or when customer-owned equipment is being serviced. Our rental business also supports our rent-to-sell strategy, in which we sell equipment from our rental fleet to customers who prefer to purchase slightly used equipment. As with new and used equipment sales, the rent-to-sell solution generates parts and service revenue as equipment is sold into our territories.
Industry Background
The industry for material handling and construction equipment is driven by a broad range of economic factors and trends, including the ongoing transition of consumer preferences toward online retail and the associated warehousing and logistics requirements, residential, non-residential and infrastructure related construction trends, and general construction and industrial machinery demand. In addition, regional factors have an impact, particularly where equipment dealerships have territorial exclusivity with OEM partners.
As a one-stop-shop equipment dealership platform, we sell, rent, and provide parts and services support. We believe this gives us a competitive advantage over our single channel competitors and traditional equipment rental houses, which may have difficulty expanding due to the infrastructure, training, and relationships necessary to support a growing population of equipment in a designated territory and that typically have limited parts and service offerings.
OEMs have pushed for consolidation in their dealership networks, and we believe that we will remain one of the few natural consolidators in our industry. We are one of a very limited number of public equipment dealerships and we believe that our public profile will be a significant advantage when sourcing and competing for acquisition targets. Furthermore, many equipment dealerships are family-owned operations, and retiring management teams have struggled to develop succession plans. We are a recognized consolidator in the industry, and many incumbent dealership owners have approached our management about potential sale transactions as a result. We believe that these dynamics will contribute to a steady acquisition pipeline at attractive valuation levels.
Competitive Strengths
We believe that the following attributes are important to our ability to compete effectively and to achieve our financial objectives:
Integrated Dealership Platform Providing Full Scale Solutions to Customers. Our integrated equipment sales, service, and rental platform provide a one-stop-shop for a highly diverse group of customers, enabling us to profitably grow our revenue throughout the years. With our 54 dealership locations, we believe that we are the leading provider of material handling and construction equipment and aftermarket parts and service support in our territories.
Superior Parts and Services Operations Supporting Customer Relationships. We provide parts and service to our customers 24 hours a day, 365 days a year. Our parts and service capabilities support customers in maximizing equipment uptime, which we believe is a key consideration when an equipment customer is making a selection among competing product offerings. The aftermarket parts and service businesses provide us with a predictable, high-margin revenue source that is relatively insulated from the typical business cycle.
Ability to Attract and Retain Skilled Technical Employees. We believe that we provide best-in-class parts and service support to our customers, and the ability to attract and retain skilled technicians is critical to aftermarket performance. We have partnered with trade and technical schools near many of our branches, and these relationships, along with our recruiting prowess, provide us with a pipeline of skilled employees. To retain employees, we offer attractive benefits, clean facilities with the most advanced diagnostic software, modern tools, and OEM parts. Above all, we view our technicians as key contributors to future success, and we accord respect to our skilled technicians.
Leading Dealer for Equipment Manufacturers. We are a leading U.S. dealer for over 30 nationally recognized material handling and heavy construction OEMs, including Hyster-Yale, Volvo, and JCB. Our primary dealer agreements grant us exclusivity for new equipment and replacement part sales in our territories. The OEM relationships also promote our acquisition strategy, as the OEMs prefer to partner with fewer, financially stronger dealerships and view us as a prominent consolidator.
High-Quality Rental Fleet for Rent-to-Sell and Rent-to-Rent Programs. Equipment rental is complementary to our new and used equipment sales and is an important component of our one-stop-shop model. Rental operations are fully aligned with our dealership strategy, as the rent-to-sell solution provides an additional sales channel by which we are able to populate our territories with equipment and generate high-margin parts and service revenue. In addition, our existing equipment customers rely on our rental fleet when facing short-term equipment needs and when customer equipment is being serviced.
Experienced Management Team. Our senior management team is led by Chief Executive Officer Ryan Greenawalt and Chief Financial Officer Anthony Colucci, each of whom has substantial experience in the equipment distribution industry. Our senior leadership is well known and highly respected in the industry. Industry relationships provide a meaningful portion of our acquisition pipeline, as dealership owners frequently approach our management team to discuss a sale to us. Additionally, our senior leadership team is experienced in managing our business throughout the business cycle, which is critical in navigating the COVID-19 pandemic.
Business Strategy
We employ the following business strategies:
Leverage the Field Population of Equipment in Our Territories to Grow Parts and Service Revenue. We actively populate our territories with new and used equipment, which generates predictable, high-margin parts and service revenue. For example, we followed the strategy developed in Michigan when we expanded into the Chicago construction equipment market in 2018, growing the field population of equipment through our new, used, and rent-to-sell sales channels upon market entry. As a result, we expect future benefits from increasing aftermarket parts and service revenue driven by the equipment maintenance cycle.
Recruit Skilled Technicians to Expand the Parts and Service Operations. We depend on our teams of technicians to provide customers with best-in-class parts and service support, and we have developed a multifaceted strategy to recruit skilled mechanics. Critically, our partnerships with technical schools and community colleges provide consistent access to new technicians. For example, we provide floor space and equipment at our Detroit location to the Detroit Training Center (“DTC”), a vocational school for skilled trades. In addition, we regularly hire mechanics away from independent rental or service businesses in our markets, where a lack of access to OEM parts and diagnostic tools make servicing increasingly sophisticated equipment difficult. Additionally, we have been successful hiring skilled technicians from other industries, such as automotive industry. We intend to replicate this strategy as we acquire additional dealership territories.
Pursue Strategic Acquisitions. Our management team has successfully completed over 20 acquisitions. We have two primary areas of focus when pursuing acquisitions:
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Territory In-Fill. Within our existing territories, we pursue acquisitions that provide new customer relationships and pools of skilled technicians, such as regional rental houses or independent service businesses. These acquisitions advance the parts and service strategy by simultaneously increasing the field population within the existing territory and expanding the number of skilled technicians to generate predictable, high-margin service and parts revenue.
•
Territorial Expansion. Our geographic footprint has grown through acquisition, from our original Michigan lift truck territory to a leading equipment dealer in the Midwest, New York, New England and Florida. In selecting additional territories for acquisition, we prioritize geographically contiguous markets that can be improved by our systems and processes and/or markets with a high density of equipment users.
History
Through our predecessor companies, we have been in the equipment sales, service, and rental business for approximately 35 years. Alta Holdings was formed in 1984 as Yale Materials Handling-Michigan, Inc. and was solely a material handling forklift distributor. We were originally owned and operated by Steven Greenawalt, current Chief Executive Officer Ryan Greenawalt’s father. Ryan Greenawalt returned to the Company in a senior management capacity in 2008, following professional experience in financial
services. Under Ryan Greenawalt’s leadership, we broadened our material handling offering, expanded into construction equipment distribution, and launched an acquisition strategy that has resulted in over 20 successful transactions. In 2017, Ryan Greenawalt executed a buy-out of his father and other family members, becoming the Company’s sole owner.
On February 14, 2020, Alta Equipment Group Inc. (formerly known as B. Riley Principal Merger Corp.), consummated a reverse recapitalization pursuant to which the Company acquired of Alta Equipment Holdings, Inc. (“Alta Holdings”), pursuant to the agreement and plan of merger between the Company, BR Canyon Merger Sub Corp. (“Merger Sub”), a Delaware corporation and wholly-owned subsidiary of the Company, Alta Holdings and Ryan Greenawalt.
Upon the consummation of the business combination, Merger Sub merged with and into Alta Holdings, with Alta Holdings surviving the reverse recapitalization as a direct, wholly owned subsidiary of the Company, and the Company changed its name from B. Riley Principal Merger Corp. to Alta Equipment Group Inc.
Prior to the Business Combination, our business was conducted through Alta Enterprises, LLC and its operating subsidiaries. Today, Alta Enterprises, LLC is a subsidiary of Alta Holdings.
On May 1, 2019, we acquired the assets and business of NITCO. NITCO brought us into the material handling and construction equipment market in Massachusetts, Maine, Connecticut, New Hampshire, Vermont, and Rhode Island. Our NITCO business unit’s primary OEM partners are Hyster-Yale for material handling equipment and JCB for construction equipment. NITCO has provided the platform for continued expansion, particularly in material handling in the Northeast.
During 2020, our acquisitions of Liftech and Flagler enhanced our presence in Upstate New York, Vermont, Florida and portions of Georgia. With the acquisition of PeakLogix, we entered the warehouse design, automated equipment installation and system integration sector, which is consistent with the growth strategy in our material handling segment and expands our geographic footprint. Our acquisition of Hilo aligns with our growth strategy by expanding our distribution footprint and presence in the New York City area which gives us a major market foothold and strengthens our overall coverage of the northeastern United States. The acquisition of Martin Implement added an exceptional compact equipment distributor and enhances our growth in the Illinois construction market and broadens our product portfolio and service capabilities. With the acquisition of Howell Tractor, we expanded our presence in the Northern Illinois and Northwest Indiana markets adding a best in class product to our portfolio and additional service offerings. Our acquisition of Vantage further expanded our geographic footprint with Volvo in Upstate New York.
Customers
We serve customers in our territories in Michigan, Illinois, Indiana, Massachusetts, Maine, Connecticut, New Hampshire, New York, Florida, Georgia, Vermont, Rhode Island, and Virginia. Our primary customer end markets include diversified manufacturing, food and beverage, wholesale/retail, construction, automotive, municipal/government, and medical. Our customers vary from small, single machine owners to large construction contractors and leading multi-national commercial companies. In 2020, no single customer accounted for more than 1% of our total revenues. Our top ten customers combined accounted for approximately 6% of our total revenues in 2020.
Floorplan Financing
New equipment inventory is primarily financed with OEM floorplan facilities with an initial promotional period that is either subsidized or interest-free. OEMs provide this financing to enable dealers to carry equipment in anticipation of customer orders and to increase market share. In many cases we sell the equipment financed by its floorplan facilities before the expiration of the promotional interest period. We view floorplan financing on new equipment inventory that is less than a year old as a component of our working capital, and do not consider floorplan financing on new equipment as part of our corporate indebtedness.
Sales and Marketing
We have two distinct sales forces aligned around equipment type: material handling and construction. We believe maintaining separate sales forces for equipment allows our sales teams to effectively meet the demands of different types of customers while understanding sales strategies tailored to the equipment type. We have commission-based compensation programs for our sales forces.
We provide extensive training, including frequent factory and in-house training by OEM representatives regarding the operational features to further develop our sales team’s knowledge and experience. This training is essential, as our sales personnel regularly call on customers’ job sites and facilities, often assisting customers in assessing their immediate and ongoing equipment needs.
We utilize a customized Enterprise Resource Planning (“ERP”) tool, called e-Emphasys, which provides sophisticated customer relationship management functionality. e-Emphasys was designed for heavy equipment dealerships and was expanded to include our broad product portfolio, including material handling. We believe that this comprehensive customer and sales tool enhances our
territory management by increasing the productivity of our sales teams and by tracking equipment service history to advance our customer support goals.
While our specialized, well-trained sales force strengthens our customer relationships and fosters customer loyalty, we also promote our business through marketing and advertising, including industry publications, direct mail campaigns, television and radio and our website at www.altaequipment.com. The information contained on such websites is not a part of this Annual Report on Form 10-K and is not deemed incorporated by reference into this Annual report on Form 10-K or any other public filing made with the SEC.
Suppliers
We purchase a significant amount of equipment and parts from over 30 manufacturers with whom we have distribution agreements. We purchased approximately 40% of our new equipment, rental fleet, and replacement parts from two major OEMs (Hyster-Yale and Volvo) during the year ended December 31, 2020. Notably, we are the exclusive OEM replacement part distributor within our territories, allowing us to provide superior service support to our customers from an aftermarket perspective.
Information Technology Systems
Among other metrics, our information systems track rental inventory and labor utilization statistics, and detailed operational and financial information. Our integrated services platform enables us to closely monitor our performance and our business. Our point-of-sale system enables us to link all of our facilities, permitting universal access to real-time data concerning equipment located at the individual facility locations and the rental status and maintenance history for each piece of equipment. Our business system is a full suite of highly integrated software solutions intended to manage equipment dealership activities at all essential levels. Real-time data and analytics provide detailed visibility to information across all functional areas, promoting proactive, data-driven decisions. Over 40 points of integration with our OEMs have been implemented which have greatly streamlined activities in the areas of parts inventory management and pricing, warranty claims handling, accounts payable automation, and supporting commercial credit accounts. Additional operational efficiencies are gained through our use of integrated solutions such as electronic document management, service scheduling and technician dispatch, mobile field service, and mobile equipment inspection. Analytics are provided through a data warehouse which is tightly integrated with the business system, providing real-time reports and KPI dashboards that are tailored to meet the specific needs of each department and region.
Our customer relationship management system provides sales and customer information, available rental fleet and inventory information, a quote system and other organizational tools to assist our sales forces. We maintain an extensive customer database which allows us to monitor the status and maintenance history of our customers’ owned equipment and enables us to more effectively provide parts and services to meet their needs. Our critical systems run on servers and other equipment that is current technology and is readily available from reputable suppliers and serviceable through existing maintenance agreements.
Product Warranties
Product warranties for new equipment and parts are provided by our OEM partners. The term and scope of these warranties vary greatly by supplier and by product. The OEMs pay us for repairs we perform on equipment under warranty in our territories.
Seasonality
The demand for our construction rental equipment tends to be less in the winter months, and equipment rental performance will generally correlate to the levels of current construction activities, so the severity of weather conditions can have an impact, especially in our Northern territories.
Parts and services activities are less affected by changes in demand caused by seasonality, especially in our material handling segment, and are highly predictable based on historical maintenance and service trends as equipment ages.
Competition
The material handling and construction equipment sales and distribution industry is competitive and remains fragmented, with large numbers of competitors operating on a regional or local scale. Within our territories, our competitors range from multi-location, regional operators to single-location dealers of competing equipment brands. We compete with other equipment dealers that sell other brands of equipment that we do not represent or that we do not represent in a particular market. We also compete with local and nationwide rental businesses in certain product categories.
Competition among equipment dealers, whether they offer material handling or construction equipment or both, is primarily based on customer service, including repair and maintenance service provided by the dealer, reputation of the OEM and dealer, quality and design of the products, and price. In our experience, reliability and up-time are the key considerations for customers in selecting material handling and construction equipment, and we believe that our focus on parts and service support has helped us win and
maintain customer business. In contrast, price is not typically a customer’s key point of differentiation in selecting among competing equipment, as OEM partners often provide pricing flexibility in order to drive market share.
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 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.
Environmental, Health and Safety Regulations
Our facilities and operations are subject to various, comprehensive, and frequently changing federal, state and local environmental and occupational health and safety laws and regulations in the U.S. These requirements govern, among other things, the handling, storage, use and disposal of hazardous materials and wastes and, if any, the associated cleanup of properties affected by discharges, releases, or exposure to pollutants, air quality (emissions) and wastewater, as well as the protection of human health and safety. We do not currently anticipate any material adverse effect on our business or financial condition or competitive position as a result of our compliance with such requirements. We will continue to take necessary steps to comply with environmental requirements, but we do not expect to incur material capital or other expenditures for environmental controls or compliance.
In the future, federal, state or local governments could enact new or more stringent laws or issue new or more stringent regulations concerning environmental and worker health and safety matters or effect a change in their enforcement of existing laws or regulations, that could affect our operations. There can be no assurance that we, or various environmental regulatory agencies, will not discover previously unknown environmental non-compliance or contamination, for which we could be held liable. It is possible that changes in environmental and worker health and safety laws or liabilities from newly discovered non-compliance or contamination could have a material adverse effect on our business, financial condition and results of operations.
Human Capital
Employees
As of December 31, 2020, we had approximately 2,000 employees. Of these employees, 950 are hourly and salaried corporate and administrative personnel, and 900 are skilled technicians paid on an hourly basis. A collective bargaining agreement relating to 19 of our locations covers approximately 375 of our employees. We believe our relations with our employees are good, and we have never experienced a work stoppage. We are committed to fostering a diverse workforce and an inclusive environment and have instituted various initiatives to increase our diversity as it relates to recruiting and training opportunities.
Generally, the total number of employees does not significantly fluctuate throughout the year. However, acquisition activity may increase the number of our employees. Fluctuations in the level of our business activity could require some staffing level adjustments in response to actual or anticipated customer demand.
Health and Safety
The health and safety of our employees is an important focus at Alta. As part of our continuing goal to reduce our recordable injuries, we are committed to regularly reinforcing the importance of our safety programs and encouraging a culture of safe work practices in all of our locations. As part of our evaluation of our management employees, we evaluate the safety records of the employees for whom they have management responsibility.
COVID-19 reinforced the importance of a safe and healthy workforce, and in response to the pandemic, the Company implemented safeguards to protect our employees, including increased intensity of cleaning and disinfecting, social distancing practices, face coverings, temperature screening and other measures consistent with specific regulatory requirements and guidance from health authorities. We also instituted travel restrictions and remote work-from-home protocols for our employees who were not required to be on-site or at a customer site to perform their respective work functions.
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 the late second quarter of 2020, we began phasing in a return to more normalized working conditions as state or local governments began lifting restrictions. Despite the lifting of certain restrictions, Alta continues to adhere to government issued guidelines and promote a clean and safe environment in all of its branch locations. Certain non-revenue producing business functions have continued to work via remote work arrangements which have been designed to allow for the continued operation of our business while allowing employees to work virtually.
Talent Development and Employee Training
Our goal is to attract, develop and retain a talented and high-performing workforce. We are committed to our employees and their development; and we strive to create opportunities for the continual professional development of our employee base. These opportunities include continuing education and specialty training.
Compensation and Benefits
We are committed to providing competitive compensation and benefits programs for our employees, as we believe competitive compensation arrangements are core to an engaged and productive employee base. We believe our compensation programs align individual compensation with individual and team contributions to both our culture and our performance results.
Legal Proceedings
There is no material litigation, arbitration or governmental proceeding currently pending against us or any members of our management team in their capacity as such.
Available Information
We electronically file annual reports, quarterly reports, proxy statements and other reports and information statements with the SEC. We make our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports, as well as our other SEC filings, available on our website, www.investors.altaequipment.com, free of charge, as soon as reasonably practicable after they are electronically filed with or furnished pursuant to section 13(a) or 15(d) of the Exchange Act. The SEC maintains a website that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC and the address of that site is http://www.sec.gov.
Our principal executive offices are located at 13211 Merriman Road, Livonia, Michigan 48150, and our telephone number is (248) 449-6700. We also make available on our website copies of materials regarding our corporate governance policies and practices, including our Corporate Governance Guidelines; our Code of Business Conduct and Ethics; and the charters relating to the committees of our Board of Directors.
Emerging Growth Company
Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such an election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard.

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors.
Risks Related to the COVID-19 Pandemic
The COVID-19 pandemic, or similar global health concerns, could materially adversely impact our business, results of operations and/or financial condition, supply chain and customer base.
COVID-19 was identified in late 2019 and spread globally thereafter. The rapid spread and the initial response to the virus (such as travel bans, shelter in place orders and shutdowns) initially resulted in weaker demand for our products and services. These factors impacted our operations and may impact all or portions of our workforce and operations in the future.
Economic uncertainties related to the COVID-19 pandemic could affect demand for our products and services, the value of the equipment we sell and lease and the financial condition and credit risk of our customers.
Continuing uncertainties related to the magnitude and duration of the COVID-19 pandemic, including new strains of the virus, may significantly adversely affect our business. These uncertainties could include, among other things: the resurgence in COVID-19 cases in any geographic area in which we operate and the measures taken to address the resurgence; disruptions in our supply chain as a result of shutdowns or other operating limitations placed on manufacturers and transporters; increased logistics and operating costs associated with addressing the safety of our employees and customers; the impact of the pandemic on the Company’s customers; and potential disruptions in the global capital markets which could impact the Company’s ability to obtain funding in the future. While the
timing of the post-COVID-19 economic recovery remains unclear, a return to Q2 2020 operating limitations associated with the COVID-19 pandemic could materially and adversely impact our business, results of operations and/or financial condition.
Risks Related to the Company’s Business and Industry
The Company’s business could be adversely affected by declines in construction and material handling activities, or a downturn in the economy in general, which could lead to decreased demand for equipment, depressed equipment rental rates and lower sales prices, resulting in a decline in the Company’s revenues, gross margins and operating results.
The Company’s equipment is principally used in connection with construction and material handling activities. Consequently, a downturn in construction or material handling activities, or the economy in general, may lead to a decrease in the demand for equipment and services or depress rental rates and the sales prices for the Company’s equipment. The Company’s business may also be negatively impacted, either temporarily or long-term, by:
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a reduction in spending levels by customers;
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unfavorable credit markets affecting end-user access to capital;
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adverse changes in federal, state and local government infrastructure spending;
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an increase in the cost of construction materials;
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adverse weather conditions or natural disasters which may affect a particular region;
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a labor work stoppage or shortage of skilled technicians;
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a prolonged shutdown of the U.S. government;
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an increase in interest rates;
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terrorism or hostilities involving the United States; or
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the ongoing impact of the global COVID-19 pandemic.
The Company’s inability to forecast trends accurately may adversely impact the Company’s business and financial condition.
An economic downturn or economic uncertainty makes it difficult for the Company to forecast trends, which may have an adverse impact on the Company’s business and financial condition. Uncertainty regarding future equipment product demand could cause the Company to maintain excess equipment inventory and increase the Company’s equipment inventory carrying costs. Alternatively, this forecasting difficulty could cause a shortage of equipment for sale or rental that could result in an inability to satisfy demand for the Company’s products and a loss of market share.
The Company’s revenue and operating results may fluctuate, which could result in a decline in the Company’s profitability and make it more difficult for the Company to grow its business.
The Company’s revenue and operating results may vary from quarter to quarter and by season. Periods of decline could result in an overall decline in profitability and make it more difficult for the Company to make payments on its indebtedness and grow the Company’s business. We expect the Company’s quarterly results to fluctuate in the future due to a number of factors, including:
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general economic conditions in the markets where we operate;
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the cyclical nature of the Company’s customers’ business, particularly the Company’s construction customers;
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seasonal sales and rental patterns of the Company’s construction customers;
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changes in the size of the Company’s rental fleet and/or in the rate at which it sells its used equipment from the fleet;
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changes in corporate spending or changes in government spending for infrastructure projects;
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changes in interest rates and related changes in the Company’s interest expense and the Company’s debt service obligations;
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the effectiveness of integrating acquired businesses and new start-up locations; and
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timing of acquisitions and new location openings and related costs.
In addition, the Company incurs various costs when integrating newly acquired businesses or opening new start-up locations, and the profitability of a new location is generally expected to be lower in the initial months of operation.
The Company is subject to competition, which may have a material adverse effect on the Company’s business by reducing the Company’s ability to increase or maintain revenues or profitability.
The equipment rental and retail distribution industries are highly competitive, and the equipment rental industry is highly fragmented. Many of the markets in which the Company operates are served by a large number of competitors, ranging from national and multi-regional equipment rental companies to small, independent businesses with a limited number of locations. Some of the Company’s competitors have significantly greater financial, marketing and other resources than the Company does, and may be able to reduce rental rates or sales prices. The Company may encounter increased competition from existing competitors or new market entrants in the future, which could have a material adverse effect on the Company’s business, financial condition and results of operations.
The Company purchases a significant amount of its equipment from a limited number of manufacturers. Termination of one or more of the Company’s relationships with any of those manufacturers could have a material adverse effect on the Company’s business, as it may be unable to obtain adequate or timely parts or rental and sales equipment.
The Company purchases most of its sales and rental equipment, and aftermarket parts from leading, nationally known original equipment manufacturers. Approximately 45% of the Company’s sales and rental equipment, and aftermarket parts are purchased from three major manufacturers (Hyster-Yale, Volvo, and JCB). Although the Company believes that it has alternative sources of supply for the sales and rental equipment, and aftermarket parts it purchases in each of its core product categories, termination of one or more of the Company’s relationships with any of these major suppliers could have a material adverse effect on the Company’s business, financial condition or results of operations if it were unable to obtain adequate or timely parts or sales and rental equipment.
The Company’s suppliers of new equipment and aftermarket parts may appoint additional distributors, sell directly or unilaterally terminate the Company’s distribution agreements, which could have a material adverse effect on the Company’s business due to a reduction of, or inability to increase, the Company’s revenues.
The Company is a distributor of new equipment and parts supplied by leading, nationally known suppliers. Under the Company’s distribution agreements with these suppliers, manufacturers generally retain the right to appoint additional dealers and sell directly to national accounts and government agencies. Primarily, the Company has distribution agreements with the Company’s equipment suppliers, operates under its established course of dealing with the suppliers and is subject to applicable state laws regarding such relationships. In most instances, the suppliers may appoint additional distributors, elect to sell to customers directly or unilaterally terminate distribution agreements with the Company at any time without cause. Any such actions could have a material adverse effect on the Company’s business, financial condition, and results of operations due to a reduction of, or an inability to increase, the Company’s revenues.
The cost of new equipment that the Company sells or purchases for use in its rental fleet may increase and, in some cases, the Company may not be able to procure new equipment on a timely basis due to supplier constraints.
The cost of new equipment from manufacturers that the Company sells or purchases for use in its rental fleet may increase as a result of increased raw material costs, including increases in the cost of steel, which is a primary material used in most of the equipment the Company uses, or due to increased regulatory requirements, such as those related to emissions. These increases could materially impact the Company’s financial condition or results of operations in future periods if the Company is not able to pass such cost increases through to the Company’s customers. Similarly, any increase in the cost of parts the Company purchases for resale could materially impact the Company’s financial condition or results of operations in future periods if the Company is not able to pass such cost increases through to the Company’s customers.
The Company’s rental fleet is subject to residual value risk upon disposition.
The market value of any given piece of rental equipment could be less than its depreciated value at the time it is sold. The market value of used rental equipment depends on several factors, including: the market price for new equipment of a like kind; wear and tear on the equipment relative to its age; worldwide and domestic demands for used equipment; the supply of used equipment on the market; and general economic conditions.
Any significant decline in the selling prices for used equipment could have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows.
The Company incurs maintenance and repair costs associated with its rental fleet equipment that could have a material adverse effect on its business in the event these costs are greater than anticipated.
As the Company’s fleet of rental equipment ages, the cost of maintaining such equipment, if not replaced within a certain period of time, generally increases. Determining the optimal age for the Company’s rental fleet equipment is based on subjective estimates
made by the Company’s management team. The Company’s future operating results could be adversely affected because the Company’s maintenance and repair costs may be higher than estimated.
Security breaches and other disruptions in the Company’s information technology systems, including the Company’s customer relationship management system, could limit the Company’s capacity to effectively monitor and control its operations, compromise its or its customers’ and suppliers’ confidential information or otherwise adversely affect the Company’s operating results or business reputation.
The Company’s information technology systems, some of which are managed by third parties, facilitate the Company’s ability to monitor and control the Company’s operations and adjust to changing market conditions, including processing, transmitting, storing, managing and supporting a variety of business processes, activities and information. Further, as the Company pursues its growth strategy it is also expanding and improving its information technologies, resulting in a larger technological presence and corresponding exposure to cybersecurity risk. Any disruption in any of these systems, including the Company’s customer management system, or the failure of any of these systems to operate as expected could, depending on the magnitude of the problem, adversely affect the Company’s operating results by limiting the Company’s capacity to effectively monitor and control the Company’s operations and adjust to changing market conditions.
The Company collects and stores sensitive data, including proprietary business information and the proprietary business information of the Company’s customers and suppliers, in data centers and on information technology networks, including cloud-based networks. The secure operation of these information technology networks and the processing and maintenance of this information is critical to the Company’s business operations and strategy. Despite security measures and business continuity plans, the Company’s information technology networks and infrastructure may be vulnerable to damage, disruptions or shutdowns due to attacks by cyber criminals or breaches due to employee error or malfeasance or other disruptions during the process of upgrading or replacing computer software or hardware, power outages, computer viruses, telecommunication or utility failures, terrorist acts or natural disasters or other catastrophic events. The growing use and rapid evolution of technology, including mobile devices, has heightened the risk of unintentional data breaches or leaks. The occurrence of any of these events could compromise the Company’s networks, and the information stored there could be accessed, publicly disclosed, lost or stolen. In addition, the Company may need to invest additional resources to protect the security of the Company’s systems or to comply with evolving privacy, data security, cybersecurity and data protection laws applicable to the Company’s business.
Any failure to effectively prevent, detect and/or recover from any such access, disclosure or other loss of information, or to comply with any such current or future law related thereto, could result in legal claims or proceedings, liability or regulatory penalties under laws protecting the privacy of personal information, disrupt operations, and damage the Company’s reputation, which could adversely affect the Company’s business.
Fluctuations in fuel costs or reduced supplies of fuel could harm the Company’s business.
The Company could be adversely affected by limitations on fuel supplies or significant increases in fuel prices that result in higher costs related to the Company’s field service fleet and for transporting equipment from one location to another. A significant or protracted disruption of fuel supplies could have an adverse effect on the Company’s financial condition and results of operations.
The Company is dependent on key personnel. A loss of key personnel could have a material adverse effect on the Company’s business, which could result in a decline in the Company’s revenues and profitability.
The Company’s success is dependent, in part, on the experience and skills of the Company’s management team. Competition for top management talent within the Company’s industry is generally significant. If the Company is unable to fill and keep filled all of the Company’s senior management positions, or if the Company loses the services of any key member of the Company’s senior management team and is unable to find a suitable replacement in a timely manner, the Company may be challenged to effectively manage its business and execute its strategy.
If the Company fails to maintain an effective system of internal controls, the Company may not be able to accurately report financial results or prevent fraud.
Effective internal controls are necessary to provide reliable financial reports and to assist in the effective prevention of fraud. Any inability to provide reliable financial reports or prevent fraud could harm the Company’s business. If the Company fails to maintain the adequacy of its internal controls, as such standards are modified, supplemented or amended from time to time, the Company could be subject to regulatory scrutiny, civil or criminal penalties or stockholder litigation.
In addition, failure to maintain effective internal controls could result in financial statements that do not accurately reflect the Company’s financial condition or results of operations. There can be no assurance that the Company will be able to maintain a system
of internal controls that fully complies with the requirements of the Sarbanes-Oxley Act or that the Company’s management and independent registered public accounting firm will continue to conclude that the Company’s internal controls are effective.
Labor disputes could disrupt the Company’s ability to serve its customers and/or lead to higher labor costs.
The Company has approximately 375 employees who are covered by a collective bargaining agreement and approximately 1,645 employees who are not represented by unions or covered by collective bargaining agreements. Various unions periodically seek to organize certain of the Company’s nonunion employees. Union organizing efforts or collective bargaining negotiations could potentially lead to work stoppages and/or slowdowns or strikes by certain of the Company’s employees, which could adversely affect the Company’s ability to serve its customers. Further, settlement of actual or threatened labor disputes or an increase in the number of the Company’s employees covered by collective bargaining agreements can have unknown effects on the Company’s labor costs, productivity and flexibility.
Risk Related to the Company’s Acquisitions, Growth and Integration
The Company may not be able to identify or complete transactions with attractive acquisition candidates. Future acquisitions may result in significant transaction expenses and the Company may involve significant costs. The Company may experience integration and consolidation risks associated with future acquisitions.
An important element of the Company’s growth strategy is to selectively pursue on an opportunistic basis acquisitions of additional businesses, in particular rental companies that complement the Company’s existing business and footprint. The success of this element of the Company’s growth strategy depends, in part, on selecting strategic acquisition candidates at attractive prices and effectively integrating their businesses into the Company’s own, including with respect to financial reporting and regulatory matters. The Company cannot assure you that it will be able to identify attractive acquisition candidates or complete the acquisition of any identified candidates at favorable prices and upon advantageous terms and conditions, including financing alternatives.
The Company may not have sufficient management, financial and other resources to integrate and consolidate any future acquisitions. Any significant diversion of management’s attention or any major difficulties encountered in the integration of the businesses the Company acquire could have a material adverse effect on the Company’s business, financial condition or results of operations, which could decrease the Company’s profitability and make it more difficult for the Company to grow its business. Among other things, these integration risks could include:
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the loss of key employees;
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the disruption of operations and business;
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the retention or transition of the existing customers and vendors;
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the integration of corporate cultures and maintenance of employee morale;
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inability to maintain and increase competitive presence;
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customer loss and revenue loss;
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possible inconsistencies in standards, control procedures and policies;
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problems with the assimilation of new operations, sites or personnel, which could divert resources from the Company’s regular operations;
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integration of financial reporting, treasury and regulatory reporting functions; and/or
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potential unknown liabilities.
In addition, general economic conditions or unfavorable capital and credit markets could affect the timing and extent to which the Company can successfully acquire or integrate new businesses, which could limit the Company’s revenues and profitability.
The Company may not be able to facilitate its growth strategy by identifying and opening start-up locations, which could limit the Company’s revenues and profitability.
An element of the Company’s growth strategy is to selectively identify and implement start-up locations in order to add new customers. The success of this element of the Company’s growth strategy depends, in part, on identifying strategic start-up locations. The Company cannot be sure that it will be able to identify attractive start-up locations, and opening start-up locations may involve significant costs and limit the Company’s ability to expand its operations.
The Company may not have sufficient management, financial and other resources to successfully operate new locations. Any significant diversion of management’s attention or any major difficulties encountered in the locations that the Company opens in the future could have a material adverse effect on the Company’s business, financial condition or results of operations, which could decrease the Company’s profitability and make it more difficult for the Company to grow its business.
Financial Risk and Risk Related to our Indebtedness
The Company’s substantial indebtedness could adversely affect the Company’s financial condition.
The Company has, and will continue to have, a significant amount of indebtedness outstanding. The Company’s indebtedness may result in important consequences, such as:
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increasing the Company’s vulnerability to general adverse economic, industry and competitive conditions;
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requiring the Company to dedicate a substantial portion of its cash flow from operations to payments on its indebtedness, thereby reducing the availability of its cash flow to fund working capital, capital expenditures, acquisitions and other general corporate purposes;
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limiting the Company’s flexibility in planning for, or reacting to, changes in the Company’s business and the industry in which it operates;
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placing the Company at a competitive disadvantage compared to its competitors that have less debt; and
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limiting the Company’s ability to obtain additional financing for working capital, capital expenditures, acquisitions or general corporate purposes.
The Company expects to use cash flow from operations and borrowings under its credit facilities to meet its current and future financial obligations, including funding its operations, debt service and capital expenditures. The Company’s ability to make these payments depends on the Company’s future performance, which will be affected by financial, business, economic and other factors, many of which the Company cannot control. The Company’s business may not generate sufficient cash flow from operations in the future, which could result in the Company’s being unable to repay indebtedness, or to fund other liquidity needs. If the Company does not have enough capital, it may be forced to reduce or delay its business activities and capital expenditures, sell assets, obtain additional debt or equity capital or restructure or refinance all or a portion of its debt. The Company cannot make any assurances that it will be able to accomplish any of these alternatives on terms acceptable to it, or at all. In addition, the Company’s current and future credit arrangements may limit the Company’s ability to pursue any of these alternatives.
The Company may not be able to generate sufficient cash to service all of the Company’s indebtedness and may be forced to take other actions to satisfy its obligations under its indebtedness, which may not be successful.
The Company’s ability to make scheduled debt payments depends on its financial and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond the Company’s control. The Company cannot make assurances that we will maintain a level of cash flows from operating activities sufficient to permit it to pay scheduled payments of principal and interest on the Company’s indebtedness. In the absence of adequate operating performance, the Company could face substantial liquidity problems and might be required to dispose of material assets or operations to meet its debt service and other obligations. The Company may not be able to consummate those dispositions, and any proceeds it does receive from a disposition may not be adequate to meet any debt service obligations then due.
If the Company’s cash flows and capital resources are insufficient to fund its debt service obligations, the Company may be forced to reduce or delay capital expenditures, sell assets or operations, seek additional capital or restructure or refinance its indebtedness.
The agreements governing credit facilities may restrict the Company’s business and its ability to engage in certain corporate and financial transactions.
The agreements governing the credit facilities contain certain covenants that, among other things, may restrict or limit the Company and its subsidiaries’ ability to:
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incur more debt;
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pay dividends (including dividends on preferred stock) and make distributions;
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make investments;
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repurchase stock;
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create liens;
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enter into transactions with affiliates;
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enter into sale and lease-back transactions;
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merge or consolidate; and
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transfer and sell assets.
Events beyond the Company’s control may also affect its ability to comply with other provisions governing the Company’s credit facilities. The Company’s failure to comply with obligations under the agreements may result in an event of default. A default, if not cured or waived, may permit acceleration of this indebtedness and the Company’s other indebtedness. The Company may not be able to remedy these defaults. If the Company’s indebtedness is accelerated, it may not have sufficient funds available to pay the accelerated indebtedness and may not have the ability to refinance the accelerated indebtedness on terms favorable to the Company or at all.
The Company’s business could be hurt if it is unable to obtain additional capital as required, resulting in a decrease in the Company’s revenues and profitability. In addition, the Company’s inability to refinance its indebtedness on favorable terms, or at all, could materially and adversely affect the Company’s liquidity and its ongoing results of operations.
The cash that the Company generates from its business, together with cash that it may borrow, if credit is available, may not be sufficient to fund the Company’s capital requirements. The Company may require additional financing to obtain capital for, among other purposes, purchasing equipment, completing acquisitions, establishing new locations and refinancing existing indebtedness. Any additional indebtedness that the Company incurs will make it more vulnerable to economic downturns and limit the Company’s ability to withstand competitive pressures. Moreover, the Company may not be able to obtain additional capital on acceptable terms, if at all. If it is unable to obtain sufficient additional financing in the future, the Company’s business could be adversely affected by reducing its ability to increase revenues and profitability.
In addition, the Company’s ability to refinance indebtedness will depend in part on the Company’s operating and financial performance, which, in turn, is subject to prevailing economic conditions and to financial, business, legislative, regulatory and other factors beyond the Company’s control. In addition, prevailing interest rates or other factors at the time of refinancing could increase the Company’s interest expense. A refinancing of the Company’s indebtedness could also require it to comply with more onerous covenants and further restrict the Company’s business operations. the Company’s inability to refinance the Company’s indebtedness or to do so upon attractive terms could materially and adversely affect the Company’s business, prospects, results of operations, financial condition and cash flows, and make it vulnerable to adverse industry and general economic conditions.
Unfavorable conditions or disruptions in the capital and credit markets may adversely impact business conditions and the availability of credit.
Disruptions in the global capital and credit markets as a result of an economic downturn, economic uncertainty, changing or increased regulation, reduced alternatives or failures of significant financial institutions could adversely affect the Company’s customers’ ability to access capital and could adversely affect the Company’s access to liquidity needed for business in the future. Additionally, unfavorable market conditions may depress demand for the Company’s products and services or make it difficult for the Company’s customers to obtain financing and credit on reasonable terms. Unfavorable market conditions also may cause more of the Company’s customers to be unable to meet their payment obligations to the Company, increasing delinquencies and credit losses. If the Company is unable to manage credit risk or customer risk adequately, the Company’s credit losses could increase above historical levels and the Company’s operating results would be adversely affected. the Company’s suppliers may also be adversely impacted by unfavorable capital and credit markets, causing disruption or delay of product availability. These events could negatively impact the Company’s business, financial position, results of operations and cash flows.
Risk Related to Our Series A Preferred Stock and Depositary Shares
The Series A Preferred Stock and the depositary shares rank junior to all of our indebtedness and other liabilities and are effectively junior to all indebtedness and other liabilities of our subsidiaries.
In the event of our bankruptcy, liquidation, dissolution or winding-up of our affairs, our assets will be available to pay obligations on the Series A Preferred Stock only after all of our indebtedness and other liabilities have been paid. The rights of holders of the Series A Preferred Stock to participate in the distribution of our assets will rank junior to the prior claims of our current and future creditors and any future series or class of preferred stock we may issue that ranks senior to the Series A Preferred Stock. In addition, the Series A Preferred Stock effectively ranks junior to all existing and future indebtedness and other liabilities of (as well as any preferred equity interests held by others in) our existing subsidiaries and any future subsidiaries. Our existing subsidiaries are and any future subsidiaries would be separate legal entities and have no legal obligation to pay any amounts to us in respect of dividends due on the Series A Preferred Stock. If we are forced to liquidate our assets to pay our creditors, we may not have sufficient assets to pay amounts due on any or all of the Series A Preferred Stock then outstanding. We and our subsidiaries have incurred and may in the future incur substantial amounts of debt and other obligations that will rank senior to the Series A Preferred Stock. We may incur additional indebtedness and become more highly leveraged in the future, which could harm our financial position and potentially limit our cash available to pay dividends. As a result, we may not have sufficient funds remaining to satisfy our dividend obligations relating to our Series A Preferred Stock if we incur additional indebtedness. In addition, our existing credit arrangements include
events of default which could result in acceleration of such indebtedness upon the occurrence of certain events, including failure to meet certain financial covenants.
We may not be able to pay dividends on the Series A Preferred Stock if we have insufficient cash or available ‘surplus’ as defined under Delaware law to make such dividend payments.
Our ability to pay cash dividends on the Series A Preferred Stock requires us to have either net profits or positive net assets (total assets less total liabilities) over our capital, and that we have sufficient working capital in order to be able to pay our debts as they become due in the usual course of business. Our ability to pay dividends may also be impaired by a number of factors, including the other risks identified herein. Also, payment of our dividends depends upon our financial condition and other factors as our board of directors may deem relevant from time to time. Our businesses may not generate sufficient cash flow from operations or future borrowings may not be available to us in an amount sufficient to enable us to fund out liquidity needs and make distributions on our common stock, if any, and preferred stock, including the Series A Preferred Stock to pay our indebtedness.
Our depositary shares representing interests in the Series A Preferred Stock have extremely limited voting rights.
The voting rights of holders of our depositary shares are limited. Our common stock is the only class of our securities that carries full voting rights. Voting rights for holders of depositary shares will exist primarily with respect to the ability to elect (together with the holders of other outstanding series of our preferred stock, or depositary shares representing interests in our preferred stock, or additional series of preferred stock we may issue in the future and upon which similar voting rights have been or are in the future conferred and are exercisable) two additional directors to our Board of Directors in the event that six quarterly dividends (whether or not declared or consecutive) payable on the Series A Preferred Stock are in arrears, and with respect to voting on amendments to our articles of incorporation or certificate of designation (in some cases voting together with the holders of other outstanding series of our preferred stock as a single class) that materially and adversely affect the rights of the holders of depositary shares representing interests in the Series A Preferred Stock (and other series of preferred stock, as applicable) or create additional classes or series of our stock that are senior to the Series A Preferred Stock, provided that in any event adequate provision for redemption has not been made. Other than the limited circumstances included in the certificate of designations for the Series A Preferred Stock and the agreement creating the depositary shares, holders of depositary shares will not have any voting rights.
Legal and Regulatory Risks Related to the Company’s Operations
The Company is exposed to various risks related to legal proceedings or claims that could adversely affect the Company’s operating results. The nature of the Company’s business exposes it to various liability claims, which may exceed the level of the Company’s insurance coverage resulting in the Company not being fully protected.
The Company is a party to lawsuits in the normal course of the Company’s business. Litigation in general can be expensive, lengthy and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict. Responding to lawsuits brought against the Company, or legal actions that the Company may initiate, can often be expensive and time-consuming. Unfavorable outcomes from these claims and/or lawsuits could adversely affect the Company’s business, results of operations, or financial condition, and the Company could incur substantial monetary liability and/or be required to change its business practices.
The Company’s business exposes it to claims for personal injury, death or property damage resulting from the use of the equipment it rents or sells and from injuries caused in motor vehicle accidents in which the Company’s delivery and service personnel are involved and other employee related matters. Additionally, the Company could be subject to potential litigation associated with compliance with various laws and governmental regulations at the federal, state or local levels, such as those relating to the protection of persons with disabilities, employment, health, safety, security and other regulations under which the Company operates.
The Company carries comprehensive insurance, subject to deductibles, at levels it believes are sufficient to cover existing and future claims made during the respective policy periods. However, the Company may be exposed to multiple claims, and, as a result, could incur significant out-of-pocket costs before reaching the deductible amount which could adversely affect the Company’s financial condition and results of operations. In addition, the cost of such insurance policies may increase significantly upon renewal of those policies as a result of general rate increases for the type of insurance the Company carries as well as the Company’s historical experience and experience in the Company’s industry. Although the Company has not experienced any material losses that were not covered by insurance, the Company’s existing or future claims may exceed the coverage level of the Company’s insurance, and such insurance may not continue to be available on economically reasonable terms, or at all. If the Company is required to pay significantly higher premiums for insurance, is not able to maintain insurance coverage at affordable rates or if it must pay amounts in excess of claims covered by the Company’s insurance, the Company could experience higher costs that could adversely affect the Company’s financial condition and results of operations.
The Company has operations throughout the United States, which exposes it to multiple federal, state and local regulations. Changes in applicable law, regulations or requirements, or the Company’s material failure to comply with any of them, can increase the Company’s costs and have other negative impacts on the Company’s business.
The Company’s 54 branch locations in the United States are located in 11 different states, which exposes it to different federal, state and local regulations. These laws and requirements address multiple aspects of the Company’s operations, such as worker safety, consumer rights, privacy, employee benefits and more, and can often have different requirements in different jurisdictions. Changes in these requirements, or any material failure by the Company to comply with them, could increase the Company’s costs, affect its reputation, limit its business, drain management’s time and attention or otherwise, generally impact its operations in adverse ways.
The Company could be adversely affected by environmental and safety requirements, which could force it to use significant capital resources, increase operational costs and/or may subject it to unanticipated liabilities.
The Company’s operations, like those of other companies engaged in similar businesses, require the handling, use, storage and disposal of certain regulated materials. As a result, the Company is subject to the requirements of federal, state and local environmental and occupational health and safety laws and regulations. The Company is subject to potentially significant civil or criminal fines or penalties if it fails to comply with any of these requirements. The Company has made and will continue to make capital and other expenditures in order to comply with these laws and regulations, but the requirements of these laws and regulations are complex, change frequently, and could become more stringent in the future. It is possible that these requirements will change or that liabilities will arise in the future in a manner that could have a material adverse effect on the Company’s business, financial condition and results of operations.
Environmental laws also impose obligations and liability for the cleanup of properties affected by hazardous substance spills or releases. These liabilities can be imposed on the parties generating or disposing of such substances or the operator of the affected property, often without regard to whether the owner or operator knew of, or was responsible for, the presence of hazardous substances. Accordingly, the Company may become liable, either contractually or by operation of law, for remediation costs even if a contaminated property is not currently owned or operated by the Company, or if the contamination was caused by third parties during or prior to the Company’s ownership or operation of the property. Given the nature of the Company’s operations (which involve the use of petroleum products, solvents and other hazardous substances for fueling and maintaining the Company’s equipment and vehicles), there can be no assurance that prior site assessments or investigations have identified all potential instances of soil or groundwater contamination. Future events, such as changes in existing laws or policies or their enforcement, or the discovery of currently unknown contamination, may give rise to additional remediation liabilities, which may be material.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments.
None.

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ITEM 2. PROPERTIES
Item 2. Properties.
As of December 31, 2020, we leased substantially all of our facilities used in our operations. These leases are generally with terms ranging from month-to-month at some locations to an expiration date in 2035 and are typically structured to include renewal options at our election. We believe that our properties, taken as a whole, are in good operating condition, are suitable and adequate for our current business operations, and that additional or alternative space will be available on commercially reasonable terms for future use and expansion.

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ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings.
Other than routine legal proceedings incident to our business, there are no material legal proceedings to which we are a party or to which any of our property is subject.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures.
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our common stock is traded on the New York Stock Exchange (“NYSE”) under the symbol “ALTG.” Our public warrants and depositary shares are traded on the NYSE under the symbols “ALTG.WS” and “ALTG PR A”, respectively.
Holders
As of March 15, 2021, there were 23 holders of record of our common stock, 14 holders of record of our warrants, and 1 holder of record of our depositary shares.
Dividends
We have not paid any cash dividends on our common stock to date. The Series A Preferred Stock underlying our depositary shares accrues a dividend equivalent to $25,000.00 liquidation preference ($25.00 per depositary share) per year (equivalent to $2,500 or $2.50 per depositary share). The payment of cash dividends in the future including payment of accrued dividends related to the depositary shares, will be dependent upon our revenues and earnings, if any, capital requirements and general financial condition. The payment of any cash dividends will be within the discretion of our board of directors.
Securities Authorized for Issuance Under Equity Compensation Plans
The information called for by this item regarding equity compensation plans is incorporated by reference to Part III, Item 12 of this Annual Report on Form 10-K.
Recent Sales of Unregistered Securities; Use of Proceeds from Registered Offerings
We did not issue any equity securities during the year ended December 31, 2020 that were not registered under the Securities Act and that have not otherwise been described in a Quarterly Report on Form 10-Q or a Periodic Report on Form 8-K.
Securities Repurchases
None during the fourth quarter of fiscal year 2020.

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ITEM 6. SELECTED FINANCIAL DATA
Item 6. Selected Financial Data.
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.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be read in conjunction with the financial statements and related notes included elsewhere in this annual report. This discussion contains “forward-looking statements” reflecting Alta’s current expectations, estimates and assumptions concerning events and financial trends that may affect its future operating results or financial position. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors. Factors that could cause or contribute to such differences include, but are not limited to, economic and competitive conditions, regulatory changes and other uncertainties, as well as those factors discussed below and elsewhere in this annual report, particularly in “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements,” all of which are difficult to predict. In light of these risks, uncertainties and assumptions, the forward-looking events discussed may not occur. Alta assumes no obligation to update any of these forward-looking statements.
COVID-19
The COVID-19 pandemic has created significant volatility in the global economy and resulted in significant disruptions to our business in the year ended December 31, 2020. The extent and duration of the COVID-19 impact on our operations and financial position, and on the domestic and global economy, remain uncertain.
Prior to mid-March 2020, our performance was generally in accordance with our expectations. In mid-March 2020, 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. Generally, our business activity levels stabilized in the third quarter to near pre-COVID levels, and then held at or went beyond pre-COVID levels towards the end of the year, other than our rental fleet utilization, which continued to lag 2019 levels. Based on current business levels, we believe the worst of the pandemic’s effect on our business to be behind us.
Notably, the Company was classified as “essential businesses” and our branch infrastructure has remained operational, with minimal disruptions, since the beginning of the COVID-19 pandemic. Additionally, many of our customers in human sustenance, food and beverage, e-commerce, medical supplies and construction were also deemed “essential” early on in the pandemic.
Starting in mid-March 2020 we took several 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 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.
Liquidity
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 by COVID-19, which led to an adverse effect on the Company’s financial performance throughout the last three quarters of 2020, with the second and third quarters of 2020 realizing the most significant impact.
In order to preserve our liquidity, during the second quarter of calendar year 2020, 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 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 fourth quarter. The Company will continue to monitor utilization and, in-turn, rationalize rental fleet levels to match expected demand in 2021 and through the end of COVID-19 pandemic.
We believe that the acquisitions and investments made in the calendar year 2020 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. 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.
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 material handling and construction equipment. We engage in five principal business activities in these equipment categories:
(i)
new equipment sales;
(ii)
used equipment sales;
(iii)
parts sales;
(iv)
repair and maintenance services; and
(v)
equipment rentals.
We have operated as an equipment dealership for over 35 years and have developed a branch network that includes 54 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.
Within our territories, we are the exclusive distributor of new equipment and replacement parts on behalf of our OEM partners. 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.
Business Segments
We have two reportable segments: 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 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, 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, Alta Construction Equipment Florida, LLC and Alta Construction Equipment New York, LLC.
Alta Equipment Group Inc., Alta Equipment Holdings, Inc. and Alta Enterprises, LLC (individually or as sometimes collectively referred to as “Corporate”) are the holding companies for the legal operating 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 our preferred stock, and has minor operational activity all together.
Acquisitions
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 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
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.
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.
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.
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.
Northland Industrial Truck Co., Inc.
On May 1, 2019, we purchased the assets of Northland Industrial Truck Company, Inc., a material handling equipment dealer in New England for a total purchase price of $65.6 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 $42.1 million. The acquisition expanded our business into the New England market, diversifies our end market exposure, and provided Alta a growth platform on the East Coast of the United States. The acquisition added a best-in-class full-service materials handling and construction equipment dealer with operations in Massachusetts, Connecticut, New Hampshire and Maine.
Financial Statement Components
Our revenues and related costs are primarily derived from sale or rental of equipment and related activities, and consist of:
New Equipment Sales. We sell new heavy construction and material handling equipment and are a leading regional distributor for over 30 nationally recognized equipment manufacturers, including Hyster, Yale, Volvo, and JCB. Our new equipment sales operation is a primary source of new customers for the rental, parts and services business. The majority of our new equipment sales is predicated on exclusive distribution agreements we have with best-in-class OEMs. The sale of new equipment to customers, while profitable, acts as a means of generating equipment field population and activity for our higher-margin aftermarket revenue streams, specifically service and parts. We also sell tangential products related to our material handling equipment offerings and, with the acquisition of PeakLogix, we provide warehouse design, automated equipment installation and system integration solutions.
Used Equipment Sales. We sell used equipment which is typically equipment that has been taken in on trade from a customer that is purchasing new equipment, equipment coming off a third-party 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.
Parts Sales. We sell replacement parts to customers and supply parts to our own rental fleet. Our in-house parts inventory is extensive such that we are able to provide timely service support to our customers. The majority of our parts inventory is made up of OEM replacement parts for those OEM’s with which we have exclusive dealership agreements to sell new equipment.
Service Support. 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 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 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, 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 $405.5 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.
Rental Equipment Sales. We also sell rental equipment from our rental fleet. Customers often have options to purchase equipment after or before rental agreements have matured. Rental equipment sales, like new and used equipment sales, generate customer-based equipment field population within our territories and ultimately yield high-margin parts and services revenue for us.
General and Administrative Expenses. These costs are comprised of three main components: personnel costs, operational costs, and occupancy costs. 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 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
Year ended December 31, 2020 compared to the year ended December 31, 2019
Consolidated Results
Years ended December 31,
Increase
(Decrease)
Percent of Revenue
Consolidated
2020 versus 2019
2020 versus 2019
Revenues:
New and used equipment sales
$
410.3
$
244.6
$
165.7
67.7
%
47.0
%
43.9
%
Parts sales
129.6
82.7
46.9
56.7
%
14.8
%
14.8
%
Service revenue
128.5
92.7
35.8
38.6
%
14.7
%
16.6
%
Rental revenue
118.8
95.2
23.6
24.8
%
13.6
%
17.1
%
Rental equipment sales
86.4
42.2
44.2
104.7
%
9.9
%
7.6
%
Net revenue
$
873.6
$
557.4
$
316.2
56.7
%
100.0
%
100.0
%
Cost of revenues:
New and used equipment sales
356.4
215.4
141.0
65.5
%
40.8
%
38.6
%
Parts sales
89.1
54.1
35.0
64.7
%
10.2
%
9.7
%
Service revenue
49.5
34.6
14.9
43.1
%
5.7
%
6.2
%
Rental revenue
20.2
17.5
2.7
15.4
%
2.3
%
3.1
%
Rental depreciation and amortization
68.4
47.3
21.1
44.6
%
7.8
%
8.5
%
Rental equipment sales
75.5
36.4
39.1
107.4
%
8.6
%
6.5
%
Cost of revenue
$
659.1
$
405.3
$
253.8
62.6
%
75.4
%
72.7
%
Gross profit
$
214.5
$
152.1
$
62.4
41.0
%
24.6
%
27.3
%
General and administrative expenses
216.0
137.6
78.4
57.0
%
24.7
%
24.7
%
Depreciation and amortization expense
6.6
2.8
3.8
135.7
%
0.8
%
0.5
%
Total general and administrative expenses
$
222.6
$
140.4
$
82.2
58.5
%
25.5
%
25.2
%
(Loss) income from operations
$
(8.1
)
$
11.7
$
(19.8
)
(169.2
)%
(0.9
)%
2.1
%
Other income (expense)
Interest expense, floor plan payable - new equipment
(2.3
)
(2.9
)
0.6
(20.7
)%
(0.3
)%
(0.5
)%
Interest expense - other
(21.5
)
(17.6
)
(3.9
)
22.2
%
(2.5
)%
(3.2
)%
Other income
8.9
1.3
7.6
584.6
%
1.0
%
0.2
%
Change in fair market of warrants
-
(27.9
)
27.9
(100.0
)%
-
(5.0
)%
Loss on extinguishment of debt
(7.6
)
-
(7.6
)
NA
(0.9
)%
-
Total other income (expense)
$
(22.5
)
$
(47.1
)
$
24.6
(52.2
)%
(2.6
)%
(8.4
)%
Loss before taxes
$
(30.6
)
$
(35.4
)
4.8
(13.6
)%
(3.5
)%
(6.4
)%
Income tax benefit
(6.6
)
-
(6.6
)
NA
(0.8
)%
-
Net loss
$
(24.0
)
$
(35.4
)
$
11.4
(32.2
)%
(2.7
)%
(6.4
)%
Revenues: Consolidated revenues increased by $316.2 million, or 56.7%, to $873.6 million for the year ended December 31, 2020 as compared to the previous year. The primary drivers of the year over year increase were the favorable impact from the acquisitions completed in 2020 of Flagler, Liftech, PeakLogix, Hilo, Martin, and Howell, along with the impact of full period results from the acquisition of NITCO in May 2019. The Vantage acquisition, although completed in 2020, has no impact to the 2020 revenues due to its closing date of December 31, 2020. Excluding the effects of acquisitions, new and used equipment sales increased on an organic
basis by approximately 7.0% within our existing markets. Service and parts revenues similarly increased on an organic basis year over year by 2.6% mainly driven by demand for ongoing maintenance on equipment previously sold to our customers. On an organic basis, service and parts revenues increased 4.9% and 0.1%, respectively. While equipment sales and our aftermarket service and parts revenues increased organically year over year, rental revenue decreased on an organic basis despite growing 24.8% overall when factoring in the impact of acquisitions. As the impact of COVID-19 became more widespread in March 2020, our equipment rental utilization and sales volumes began to decline as certain of our customers suspended operations or delayed project starts. The decline in rental performance, when compared to prior years, began in the second quarter of 2020, and continued to lag 2019 performance in the third and fourth quarters of 2020. However, the rental performance lag versus prior years incrementally improved through the second half of 2020. Even with sequential improvements in the second half of 2020, our organic rental revenues for the year ended December 31, 2020, were 7.5% lower than those of the year ended December 31, 2019. In the fourth quarter of 2020, similar to prior years, we saw a notable increase in the sales of our rental equipment, which leads to more optimized fleet levels as we begin 2021.
Gross profit (GP):
Years ended December 31,
Change
Consolidated
GP%
GP%
GP%
New and used equipment sales
13.1
%
11.9
%
1.2
%
Parts sales
31.3
%
34.6
%
(3.3
)%
Service revenue
61.5
%
62.7
%
(1.2
)%
Rental revenue
25.4
%
31.9
%
(6.5
)%
Rental equipment sales
12.6
%
13.7
%
(1.1
)%
Consolidated gross profit
24.6
%
27.3
%
(2.7
)%
Consolidated gross profit decreased by 2.7% from 27.3% in the year ended December 31, 2019 to 24.6% in the same period in 2020. The overall gross profit margin declined due to a combination of a sales mix change year over year toward lower-margin sales channels such as new and used equipment sales. A portion of the sales mix change can be attributed to our acquisitions, however, COVID-19 contributed to the mix change as well. As mentioned previously, reduced year-over-year utilization of our rental fleet, resulting from factors attributed to COVID-19 and the surrounding macroeconomic factors, combined with fixed depreciation expense contained within rental cost of revenues on certain product categories of our rental fleet, thereby compressing margins, also had an impact on gross profit margin in 2020. The reductions were partially offset by improved new and used equipment margins, mainly in our Material Handling segment. Additionally, and expectedly, parts and service gross margins regressed, in part due to the relative sales mix between the Construction and Material Handling segments.
General and Administrative expenses: Consolidated general and administrative (“G&A”) expenses increased by 58.5% to $222.6 million for the year ended December 31, 2020 as compared to the same year last year. This increase was mainly attributable to the seven acquisitions that were closed throughout 2020 along with consolidated full period results of NITCO in 2020. Additionally, the Company incurred $7.6 million of transaction costs associated with activities directly attributable to the reverse recapitalization, $3.6 million share-based compensation expense mainly due to the immediate vesting of restricted stock units in the third quarter related to the passing of our Construction Group President. Outside of the reverse recapitalization, share based compensation and acquisition activities, G&A expenses also increased in support of enterprise-wide growth as notable portion of our G&A expenses are variable in nature.
Other Income (expense): Consolidated other expense decreased by $24.6 million for the year ended December 31, 2020 compared to the same period last year. The favorable change was primarily attributable to $8.0 million in key man life insurance proceeds as a result of the passing away of our Construction Group President. This was offset by higher borrowings associated with the reverse recapitalization and acquisition related activities during year. Additionally, in 2019, the Company incurred $27.9 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.
Provision for income taxes: Income tax benefit for the year ended December 31, 2020 was $6.6 million compared to $0 for the year ended December 31, 2019, which was prior to the reverse recapitalization. This benefit was the result of the level of pre-tax loss for the period from February 14, 2020 to December 31, 2020.
Material Handling Results
Years ended December 31,
Increase
(Decrease)
Percent of Revenue
Material Handling
2020 versus 2019
2020 versus 2019
Revenues:
New and used equipment sales
$
225.1
$
151.1
$
74.0
49.0
%
51.9
%
48.4
%
Parts sales
60.8
50.1
10.7
21.4
%
14.0
%
16.0
%
Service revenue
83.9
66.8
17.1
25.6
%
19.3
%
21.4
%
Rental revenue
46.9
38.3
8.6
22.5
%
10.8
%
12.3
%
Rental equipment sales
16.9
6.0
10.9
181.7
%
3.9
%
1.9
%
Net revenue
$
433.6
$
312.3
$
121.3
38.8
%
100.0
%
100.0
%
Cost of revenues:
New and used equipment sales
189.4
131.8
57.6
43.7
%
43.7
%
42.2
%
Parts sales
38.7
31.1
7.6
24.4
%
8.9
%
10.0
%
Service revenue
31.1
24.6
6.5
26.4
%
7.2
%
7.9
%
Rental revenue
7.6
6.1
1.5
24.6
%
1.8
%
2.0
%
Rental depreciation and amortization
20.4
14.8
5.6
37.8
%
4.7
%
4.7
%
Rental equipment sales
13.1
4.4
8.7
197.7
%
3.0
%
1.4
%
Cost of revenue
$
300.3
$
212.8
$
87.5
41.1
%
69.3
%
68.1
%
Gross profit
$
133.3
$
99.5
$
33.8
34.0
%
30.7
%
31.9
%
General and administrative expenses
114.3
81.5
32.8
40.2
%
26.4
%
26.1
%
Depreciation and amortization expense
3.6
2.2
1.4
63.6
%
0.8
%
0.7
%
Total general and administrative expenses
$
117.9
$
83.7
$
34.2
40.9
%
27.2
%
26.8
%
Income from operations
$
15.4
$
15.8
$
(0.4
)
(2.5
)%
3.6
%
5.1
%
Other income (expense)
Interest expense, floor plan payable - new equipment
(1.2
)
(1.6
)
0.4
(25.0
)%
(0.3
)%
(0.5
)%
Interest expense - other
(4.5
)
(3.0
)
(1.5
)
50.0
%
(1.0
)%
(1.0
)%
Other income
0.6
0.4
0.2
50.0
%
0.1
%
0.1
%
Total other income (expense)
$
(5.1
)
$
(4.2
)
$
(0.9
)
21.4
%
(1.2
)%
(1.3
)%
Net income
$
10.3
$
11.6
$
(1.3
)
(11.2
)%
2.4
%
3.7
%
Revenues: Material Handling segment revenues increased by 38.8% to $433.6 million for the year ended December 31, 2020 as compared to the same period last year. All revenue streams were increased primarily due to the numerous acquisitions in 2020 and consolidated full period results of NITCO in 2020 relative to 2019. In 2020, we experienced a reduction in customer demand, specifically in parts, service and rental, reflective of the impact of the COVID-19 pandemic on several of our end markets in the Material Handling segment. This was partially offset by the continuity of many of our customers in the medical, warehousing, and distribution industries, among other “essential business” customers that we serve, and the recovery of business operations for our most impacted customers in the second half of the year.
Gross profit (GP):
Years ended December 31,
Change
Material Handling
GP%
GP%
GP%
New and used equipment sales
15.9
%
12.8
%
3.1
%
Parts sales
36.3
%
37.9
%
(1.6
)%
Service revenue
62.9
%
63.2
%
(0.2
)%
Rental revenue
40.3
%
45.4
%
(5.1
)%
Rental equipment sales
22.5
%
26.7
%
(4.2
)%
Consolidated gross profit
30.7
%
31.9
%
(1.1
)%
Material Handling gross profit declined slightly to 30.7% in the year ended December 31, 2020 from 31.9% compared to the same period in 2019. New and used equipment margins benefited from the addition of PeakLogix to the sales mix and improved sales of higher margin allied and specialized product offerings. Further, used equipment sales margins showed an improvement over the previous year. Rental revenue margins declined comparably as a result of reduced utilization of our rental fleet and the fixed
depreciation on our Material Handling rental fleet. With the reduction in utilization, rental fleet expenses such as repairs and maintenance and subleasing costs increased as a percentage of revenue to drive the depressed margin in the department year over year. Parts and service gross profit experienced a modest decline year over year but are generally aligned with expectations despite lower sales volume in these departments.
General and administrative expenses: Material Handling general and administrative (“G&A”) expenses increased by 40.9% to $117.9 million for the year ended December 31, 2020 as compared to the same period last year. This increase was primarily attributable to the acquisitions of Liftech, PeakLogix and Hilo in 2020 along with consolidated full period results of NITCO in 2020 relative to 2019. At the onset of the COVID-19 pandemic, the Material Handling segment initiated immediate cost mitigation in the form of pay reductions, employee furlough programs and reductions in benefits. As state and local restrictions lifted and business activities resumed, employee pay and benefits were reestablished to previous levels, and employees were sequentially called back from furlough in the third quarter of the year.
Other Income (expense): Material Handling other expense increased by $0.9 million to ($5.1) million for the year ended December 31, 2020 as compared to the same period last year. This was primarily due to interest expense increasing by $1.1 million to ($5.7) million. This change was mainly the result of the addition of acquisition debt related to the purchase of Liftech, PeakLogix and Hilo during the year, as their assets were financed via our line of credit and floorplan facilities and interest expense was allocated to the segment accordingly.
Construction Equipment Results
Years ended December 31,
Increase
(Decrease)
Percent of Revenue
Construction
2020 versus 2019
2020 versus 2019
Revenues:
New and used equipment sales
$
185.2
$
93.5
$
91.7
98.1
%
42.1
%
38.1
%
Parts sales
68.8
32.6
36.2
111.0
%
15.6
%
13.3
%
Service revenue
44.6
25.9
18.7
72.2
%
10.1
%
10.6
%
Rental revenue
71.9
56.9
15.0
26.4
%
16.3
%
23.2
%
Rental equipment sales
69.5
36.2
33.3
92.0
%
15.8
%
14.8
%
Net revenue
$
440.0
$
245.1
$
194.9
79.5
%
100.0
%
100.0
%
Cost of revenues:
New and used equipment sales
167.0
83.6
83.4
99.8
%
38.0
%
34.1
%
Parts sales
50.4
23.0
27.4
119.1
%
11.5
%
9.4
%
Service revenue
18.4
10.0
8.4
84.0
%
4.2
%
4.1
%
Rental revenue
12.6
11.4
1.2
10.5
%
2.9
%
4.7
%
Rental depreciation and amortization
48.0
32.5
15.5
47.7
%
10.9
%
13.3
%
Rental equipment sales
62.4
32.0
30.4
95.0
%
14.2
%
13.1
%
Cost of revenue
$
358.8
$
192.5
$
166.3
86.4
%
81.5
%
78.5
%
Gross profit
$
81.2
$
52.6
$
28.6
54.4
%
18.5
%
21.5
%
General and administrative expenses
87.8
51.2
36.6
71.5
%
20.0
%
20.9
%
Depreciation and amortization expense
3.0
0.6
2.4
400.0
%
0.7
%
0.2
%
Total general and administrative expenses
90.8
51.8
$
39.0
75.3
%
20.6
%
21.1
%
(Loss) income from operations
$
(9.6
)
$
0.8
$
(10.4
)
(1300.0
)%
(2.2
)%
0.3
%
Other income (expense)
Interest expense, floor plan payable - new equipment
(1.1
)
(1.3
)
0.2
(15.4
)%
(0.3
)%
(0.5
)%
Interest expense - other
(9.5
)
(6.5
)
(3.0
)
46.2
%
(2.2
)%
(2.7
)%
Other income
0.3
0.9
(0.6
)
(66.7
)%
0.1
%
0.4
%
Total other income (expense)
$
(10.3
)
$
(6.9
)
$
(3.4
)
49.3
%
(2.3
)%
(2.8
)%
Net loss
$
(19.9
)
$
(6.1
)
$
(13.8
)
226.2
%
(4.5
)%
(2.5
)%
Revenues: Construction Equipment segment revenues increased by 79.5% to $440.0 million for the year ended December 31, 2020 as compared to the same period last year. This increase was primarily attributable to the Flagler, Martin and Howell acquisitions that occurred in the first, third and fourth quarters of 2020, respectively. Organically, all revenue streams improved over the prior year with the exception of rental revenues. New and used equipment sales increased organically year over year by 22.4%, and the aftermarket sales departments of parts and service increased by 13.6% organically. Our rental revenues were unfavorably impacted by weaker utilization metrics as a result of the macroeconomic factors surrounding and related to the COVID-19 pandemic. With rental
equipment being returned and utilization suffering, we focused on a fleet sales effort concentrated in the fourth quarter to increase rental equipment sales, achieving over $12.0 million increase organically in rental equipment sales in the fourth quarter of 2020 over the same period in 2019.
Gross profit (GP):
Years ended December 31,
Change
Construction
GP%
GP%
GP%
New and used equipment sales
9.8
%
10.6
%
(0.8
)%
Parts sales
26.7
%
29.4
%
(2.7
)%
Service revenue
58.7
%
61.4
%
(2.6
)%
Rental revenue
15.7
%
22.8
%
(7.1
)%
Rental equipment sales
10.2
%
11.6
%
(1.4
)%
Consolidated gross profit
18.5
%
21.5
%
(3.0
)%
Construction Equipment gross profit decreased by 3.0% to 18.5% for the year ended December 31, 2020, from 21.5% 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 prior, 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 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. Service and parts gross margins, decreased year-over-year, due to acquisition of Flagler 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.
General and Administrative expenses: Construction Equipment general and administrative (G&A) expenses increased by 75.3% to $90.8 million for the year ended December 31, 2020 as compared to the same period last year. The increase was primarily due to the impact from the acquisitions of Flagler, Martin, and Howell. 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. Additionally, G&A expenses also increased in support of growth in certain departments and geographies, as notable portion of our G&A expenses are variable in nature.
Other Income (expense): Construction Equipment other expense increased to ($10.3) million for the year ended December 31, 2020 as compared to the same period last year. This was primarily due to interest expense increasing by $2.8 million to ($10.6) million respective to the Flagler, Martin, and Howell acquisitions, as these assets were financed via our availability on our line of credit and floorplan facilities.
Liquidity and Capital Resources
Year ended December 31, 2020 compared with year ended December 31, 2019 Cash Flows
Cash Flow from Operating Activities. Cash flows from operating activities include net income adjusted for non-cash items and the effects of changes in working capital. For the year ended December 31, 2020, operating activities resulted in net cash used in operations of $38.4 million. Our reported net loss of $24.0 million, when adjusted for non-cash income and expense items, such as depreciation and amortization, former debt extinguishment, provision for losses on accounts receivable , and the share-based payments, provided net cash inflows of $44.8 million. Changes in working capital included a $140.8 million increase in inventories, $38.0 million in net payments on manufacturer floor plans, and a $6.8 million increase in accounts receivable and prepaid expenses and other assets. Cash flows from operating activities were favorably impacted by $86.4 million due to proceeds from sale of rental equipment, and a $16.0 million favorable change in accounts payable, accrued expenses, customer deposits, leases and other liabilities.
For the year ended December 31, 2019, operating activities resulted in net cash used in operations of $5.5 million. Our reported net loss of $35.4 million, when adjusted for non-cash income and expense items, such as depreciation and amortization, paid-in-kind interest, provision for losses on accounts receivable, and the change in the fair value of the warrants, provided positive cash flows of $46.8 million. These cash flows from operating activities were offset by cash outflows attributable to a $23.2 million increase in accounts receivable, a $72.2 million increase in inventories, and a $2.0 million increase in prepaid expenses and other assets. Cash flows from operating activities were positively impacted by a net $42.2 million due to proceeds from sale of rental equipment, $18.8 million increase in accounts payable, accrued expenses, customer deposits, and other current liabilities, and a $0.6 million
increase in liabilities associated with sale contracts containing guaranteed purchase obligations and other liabilities. Additionally, net payments on manufacturer floor plans decreased cash flows by $16.5 million.
Cash Flow from Investing Activities. For the year ended December 31, 2020, our cash used in investing activities was $224.5 million. This was mainly due to $180.0 million use of cash as a result of the recent acquisitions and $44.5 million purchases of rental equipment and non-rental property and equipment offset by proceeds from the sale of assets.
For the year ended December 31, 2019, our cash used in investing activities was $87.8 million. The acquisition of NITCO totaled $65.6 million and purchases of rental and non-rental equipment totaled approximately $22.3 million.
Cash Flow from Financing Activities. For the year ended December 31, 2020, cash provided by financing activities was $264.1 million. The favorable impact was mainly due to $175.7 million proceeds from the completion of the reverse recapitalization. Net proceeds under our lines of credits and floor plans with an unaffiliated source (i.e. a non-vendor) were $166.1 million and $6.8 million, respectively. Net proceeds under long-term debt amounted to $149.4 million. Additionally, we had cash inflows as a result of proceeds from issuance of common stock and preferred stock of $ 32.2 million and disgorgement of short swing profits of $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 $5.9 million and a $7.9 million payment on long term debt and capital lease obligations.
For the year ended December 31, 2019, cash provided by financing activities was $91.8 million. Net proceeds under our lines of credit and floor plans with an unaffiliated source (i.e. a non-vendor) for the year ended December 31, 2019 were $44.7 million and $40.1 million, respectively. Additionally, net proceeds under long-term debt amounted to $8.0 million, partially offset by payments on capital lease obligations of $0.9 million.
Sources of Liquidity
The Company reported $1.2 million in cash as of December 31, 2020.
In conjunction with the reverse recapitalization, effective February 14, 2020, the Company amended and restated its credit facility with its first lien lender by entering into the Fifth Amended and Restated ABL First Lien Credit Agreement (“Amended and Restated Credit Agreement” and the facility thereunder, the “ABL Facility”) by and among Alta Equipment Group Inc. and the other credit parties named therein, the lenders named therein, JP Morgan Chase Bank, N.A., as Administrative Agent, and the syndication agents and documentation agent named therein.
In connection with the Amended and Restated Credit Agreement, the Company amended and restated its floor plan facility with its first lien lender by entering into the Fifth Amended and Restated Floor Plan First Lien Credit Agreement (“Floor Plan Credit Agreement”) by and among Alta Equipment Group Inc. and the other credit parties named therein, the lender JP Morgan Chase Bank, N.A., as Administrative Agent, Sole Bookrunner and Sole Lead Arranger.
The Amended and Restated Credit Agreement, among other things, (i) moved the $85 million floor plan financing facility of the Fourth Amended and Restated First Lien Credit Agreement out of syndication and into the Floor Plan Credit Agreement, (ii) increased the total aggregate amount of allowed indebtedness of all floor plans from $220 million to $225 million, (iii) increased the revolving line of credit borrowing capacity from $110 million to $300 million, and (iv) modified financial covenants (as defined in the Amended and Restated Credit Agreement).
The Floor Plan Credit Agreement, among other things, (i) modified the floor plan financing facility with the Company’s first lien lender from $85 million to $40 million, and (ii) modified financial covenants (as defined in the Floor Plan Credit Agreement).
Line of Credit and Floor Plan First Lien Lender
The Company has a revolving line of credit with its first lien holder with advances on the line being supported by eligible accounts receivable, parts, and otherwise unencumbered new and used equipment inventory and rental equipment. The revolving line of credit has a maximum borrowing capacity of $300 million and interest cost is the London Interbank Offered Rate (“LIBOR”) plus an applicable margin or the CB Floating Rate, depending on the borrowing. As of December 31, 2020, the Company had an outstanding revolving line of credit balance of $159.1 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 December 31, 2020, the Company had an outstanding balance on their first lien lender floor plan facility of $35.3 million, excluding unamortized debt issuance costs.
Original Equipment Manufacturer (“OEM”) Captive Lenders and Suppliers’ Floor Plans
OEM captive lender and suppliers’ floor plans payable are financing arrangements for new and used inventory and rental equipment. We have such arrangements with several OEM captive lenders and suppliers each with borrowing capacities ranging from $2.0 million to $102.0 million. Certain floor plans provide for a five to twelve-month interest only or deferred payment period. In addition, these floor plan agreements provide for interest or principal free terms at the supplier’s discretion. The Company routinely sells equipment that is financed under OEM captive lender floor plans prior to the original maturity date of the financing agreement. The related OEM captive lender floor plans payable is then 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 $525 million. The total amount outstanding as of December 31, 2020 was $316.6 million, exclusive of debt issuance and deferred financings costs of $1.5 million.
Term Loan
In connection with the reverse recapitalization, the Company entered into a new Note Purchase Agreement (the “Term Loan”) dated as of February 3, 2020, for the purposes of, among other things, (i) financing the reverse recapitalization, (ii) financing the acquisition of Flagler and Liftech, and (iii) providing for the repayment and refinance of a portion of the Company’s prior existing debt.
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. In connection with the new Note Purchase Agreement, the Company retired its existing term loan facility. The term loan is payable in quarterly installments of $1.9 million plus interest at LIBOR plus 8%. As of December 31, 2020, the effective interest rate was 9.8%. The loan is collateralized by substantially all assets of the Company.
Cash Requirements Related to Operations
Our principal sources of liquidity have been from cash provided by our service-related operations and the sales of new, used and rental fleet equipment along with rentals of such equipment, proceeds from the issuance of debt, and borrowings available under our lines of credit and floor plans. Our principal uses of cash have been to fund operating activities and working capital (including new and used equipment inventories), purchases of rental fleet equipment and property and equipment, fund payments due under lines of credit and flooring plans payable, fund acquisitions, and meet debt service requirements. In the future, we may pursue additional strategic acquisitions and seek to open new start-up locations. We anticipate that the uses described above encompass the principal demands on our cash and availability under our lines of credit in the future.
The amount of our future capital expenditures will depend on a number of factors including general economic conditions and growth prospects. Our gross rental fleet capital expenditures for the year ended December 31, 2020 was approximately $159.4 million, including $117.9 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 $86.4 million for the year ended December 31, 2020 as our business model is to sell lightly used inventory to customers from our rental fleet so as to increase field population in our geographies. In response to changing economic conditions, we have the flexibility to modify our capital expenditures, especially as it relates to rental fleet.
To service our debt, we will require a significant amount of cash. Our ability to pay interest and principal on our indebtedness, will depend upon our future operating performance and the availability of borrowings under the lines of credit and/or other debt and equity financing alternatives available to us, which will be affected by prevailing economic conditions and conditions in the global credit and capital markets, as well as financial, business and other factors, some of which are beyond our control. Based on our current level of operations and given the current state of the capital markets, we believe our cash flow from operations, available cash, and available borrowings under the lines of credit will be adequate to meet our future liquidity needs for the foreseeable future. As of December 31, 2020, we had $215.7 million of available borrowings under the revolving line of credit and floor plans.
We cannot provide absolute assurance that our future cash flow from operating activities will be sufficient to meet our long-term obligations and commitments. If we are unable to generate sufficient cash flow from operating activities in the future to service our indebtedness and to meet our other commitments, we will be required to adopt one or more alternatives, such as refinancing or restructuring our indebtedness, selling material assets or operations, or seeking to raise additional debt or equity capital. Given current economic and market conditions, including the volatility in the global capital markets, we cannot assure investors that any of these actions could be affected on a timely basis or on satisfactory terms or at all, or that these actions would enable us to continue to satisfy our capital requirements. In addition, our existing debt agreements, as well as any future debt agreements, contain or may contain restrictive covenants, which may prohibit us from adopting any of these alternatives. Our failure to comply with these covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all of our debt.
Critical Accounting Policies
In the preparation of consolidated financial statements prepared in conformity with U.S. generally accepted accounting principles (“GAAP”), we are required to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and the related disclosures. 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. We consider the following items in the consolidated financial statements to require significant estimation or judgment. See Note 2 to our consolidated financial statements for the year ended December 31, 2020 for a summary of our significant accounting policies.
Revenue Recognition
Revenues are recognized when control of promised goods or services is transferred to customers in an amount that reflects the consideration the business expects to be entitled to in exchange for those goods or services. Control is transferred when the customer has the ability to direct the use of and obtain the benefits from the goods or services. The majority of our sales agreements contain performance obligations satisfied at a point in time when control is transferred to the customer. For agreements with multiple performance obligations, which are infrequent, judgment is required to determine whether performance obligations specified in these agreements are distinct and should be accounted for as separate revenue transactions for recognition purposes. In these types of agreements, we generally allocate sales price to each distinct performance obligation based on the observable selling price.
We enter into various equipment sale transactions with certain customers, whereby customers purchase equipment from us and then lease the equipment to a third party. In some cases, we provide a guarantee to repurchase the equipment back at the end of the lease term between the customer and third party lessee at a set residual amount set forth in the initial sales contract or pay the customer for the deficiency, if any, between the sale proceeds received for the equipment and the guaranteed minimum resale value. We are precluded from recognizing a sale of equipment if we guarantee to repurchase the sold equipment back or guarantee the resale value of the equipment to the customer for contracts determined to be operating leases. Rather, these transactions are accounted for in accordance with ASC 840, Lease Accounting (“Topic 840”).
Lease liability, with respect to the aforementioned sale transactions, represents the net proceeds upon the equipment’s initial transfer. These amounts, excluding the guaranteed residual value, are recognized into rental revenue on a pro-rata basis over the leased contract period up to the first exercise date of the guarantee.
We also enter into various rental agreements whereby owned equipment is rented to customers. Revenue from the majority of rental agreements is recognized over the term of the agreement in accordance with Topic 840. A rental contract includes rates for daily, weekly or monthly use, and rental revenues are earned on a daily basis as rental contracts remain outstanding. Because the rental contracts can extend across multiple reporting periods, the Company records unbilled rental revenues and deferred rental revenues at the end of each reporting period. Unbilled rental revenues are included as a component of “Accounts receivable” on the Consolidated Balance Sheets. Rental equipment is also purchased by customers outright (“rental conversions”). Rental revenue and revenue attributable to rental conversions, are recognized in “Rental revenue” and “Rental equipment sales” on the Consolidated Statements of Operations, respectively.
Periodic and ad-hoc maintenance service revenue is recognized upon completion of the service and the agreement of terms with the customer. Revenue from guaranteed maintenance contracts is recognized over the contract period in proportion to the costs expected to be incurred in performing services under the contract, typically three to five years.
We also enter into contracts with customers where we provide automated equipment installation and system integration services. Revenue from the installation services are recognized over time as the performance obligation is satisfied, determined using the cost-to-cost input method, based on contract costs incurred to date to total estimated contract costs.
Payment terms vary by the type and location of the customer and the products or services offered. Generally, the time between when revenue is recognized, and payment is due is not significant. We do not evaluate whether the selling price includes a financing interest component for contracts that are less than a year, or if payment is expected to be received less than a year after the good or service has been provided. Sales and other taxes collected from customers and remitted to government authorities are accounted for on a net basis and, therefore, excluded from revenue. Shipping and handling costs are treated as fulfillment costs and are included in cost of revenue.
Useful Lives of Rental Equipment and Property and Equipment
We depreciate rental equipment and property and equipment over their estimated useful lives. The useful life of rental equipment is determined based on our estimate of the period the asset will generate revenues. The principal methods of depreciation used are straight-line basis over the estimated useful lives or percentage of rental revenue based on the unit of activity method. We
periodically review the assumptions used in calculating rates of depreciation. We may be required to change these estimates based on changes in our industry or other changes in circumstances. If these estimates change in the future, we may be required to recognize increased or decreased depreciation expense for these assets. The amount of depreciation expense we record is highly dependent upon the estimated useful lives assigned to each category of equipment.
The useful lives and methods of depreciation are reviewed at each financial year-end and adjusted prospectively, if appropriate.
Generally, we assign the following useful lives to the below categories of Property and Equipment:
Estimated
Useful Life
Transportation equipment
2 - 5 years
Machinery and equipment
3 - 20 years
Office equipment
5 - 7 years
Computer equipment
2 - 5 years
Leasehold improvements
3 - 15 years
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. A decrease in our EBITDA could materially affect the determination of the fair value and could result in an impairment charge to reduce the carrying value of goodwill, which could be material to our financial position and results of operations.
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 the two-step goodwill impairment test.
In connection with our goodwill impairment tests that were conducted as of December 31, 2020 and 2019, we bypassed the qualitative assessment for each reporting unit and proceeded directly to the first step of the goodwill impairment test. We estimated the fair values of our reporting units based on financial information of companies that we deemed were comparable to our business. We made judgments the comparability of publicly traded companies engaged in similar businesses and based our judgments on factors such as size, growth rates, profitability, business model and risk.
Our annual goodwill impairment testing conducted as of September 30, 2020, indicated that all of our reporting units had estimated fair values which exceeded their respective carrying amounts. Our goodwill impairment testing as of December 31, 2019, indicated that all of our reporting units had estimated fair values which exceeded their respective carrying amounts.
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
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 December 31, 2020, 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 $2.4 million and $3.3 million at December 31, 2020 and 2019, 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 December 31, 2020 and 2019, respectively.

---

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. 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.

---

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Data.
The consolidated financial statements required to be filed pursuant to this Item 8 are appended to this report. An index of those financial statements is found in Item 15.

---

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.

---

ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Annual Report on Form 10-K. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost benefit relationship of possible controls and procedures. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective to ensure that the information required to be disclosed by us in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that information required to be disclosed in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as our principal financial and accounting officer, to allow timely decisions regarding required disclosures.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management utilized the criteria established in the Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) to conduct an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2020. Management has excluded from its evaluation the internal control over financial
reporting of all current year acquisitions, which were included in the December 31, 2020 consolidated financial statements. Based on the assessment, management has concluded that, as of December 31, 2020, our internal control over financial reporting was effective.
As an emerging growth company, management’s assessment of internal control over financial reporting was not subject to attestation by our independent registered public accounting firm.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the year ended December 31, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

---

ITEM 9B. OTHER INFORMATION
Item 9B. Other Information.
None.
PART III

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance.
The information required by this Item is incorporated by reference to the applicable information in our definitive proxy statement, which will be filed no later than 120 days after the close of the fiscal year covered by this annual report.

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ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation.
The information required by this Item is incorporated by reference to the applicable information in our definitive proxy statement, which will be filed no later than 120 days after the close of the fiscal year covered by this annual report.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this Item is incorporated by reference to the applicable information in our definitive proxy statement, which will be filed no later than 120 days after the close of the fiscal year covered by this annual report.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this Item is incorporated by reference to the applicable information in our definitive proxy statement, which will be filed no later than 120 days after the close of the fiscal year covered by this annual report.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accounting Fees and Services.
The information required by this Item is incorporated by reference to the applicable information in our definitive proxy statement, which will be filed no later than 120 days after the close of the fiscal year covered by this annual report.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits, Financial Statement Schedules.
(1)
Financial Statements
The consolidated financial statements listed in the accompanying Index to Consolidated Financial Statements are filed as part of this Annual Report on Form 10-K.
(2)
Exhibits
The Exhibits listed below are filed as part of this Annual Report on Form 10-K.