The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
NOTE 1 — ORGANIZATION AND NATURE OF OPERATIONS
Alta Equipment Group, Inc. (formerly known as B. Riley Principal Merger Corp.) (individually or as sometimes collectively together with its direct and indirect subsidiaries referred to herein as the “Company”), was incorporated in Delaware on October 30, 2018 as a blank check company for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, recapitalization, reorganization or other similar business combination with one or more businesses or entities. On February 14, 2020, the Company consummated a reverse recapitalization pursuant to which the Company acquired Alta Equipment Holdings, Inc. pursuant to an agreement and plan of merger between the Company, BR Canyon Merger Sub Corp., a Delaware corporation and wholly-owned subsidiary of the Company (“Merger Sub”), Alta Equipment Holdings, Inc. and Ryan Greenawalt. This business merger will be referred to as “reverse recapitalization” throughout this document.
In connection with the reverse recapitalization, Merger Sub merged with and into Alta Equipment Holdings, Inc., with Alta Equipment Holdings, Inc. 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.
The Company and Alta Equipment Holdings, Inc. are the holding companies for Alta Enterprises, LLC. Alta Enterprises, LLC is the holding company for Alta Industrial Equipment Michigan; LLC; Alta Industrial Equipment Company, LLC; Alta Industrial Equipment New York, LLC; Alta Construction Equipment, LLC; Alta Construction Equipment Illinois, LLC; Alta Heavy Equipment Services, LLC; NITCO, LLC; Alta Construction Equipment Florida, LLC, and PeakLogix, LLC.
The Company is engaged in the retail sale, service, and rental of lift trucks and construction equipment in the states of Michigan, Illinois, Indiana, Virginia and Florida as well as the Northeastern part of the United States.
Unless the context otherwise requires, the use of the terms “the Company”, “we,” “us,” and “our” in these notes to the unaudited consolidated financial statements refers to Alta Equipment Group Inc. and its consolidated subsidiaries.
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited interim consolidated financial statements include the consolidated accounts of the Company and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). All significant intercompany transactions and balances have been eliminated in the preparation of the consolidated financial statements. Certain amounts in the prior year have been reclassified to conform with the presentation in the current year.
The interim financial information is unaudited, but reflects all normal recurring adjustments that are, in the opinion of management, necessary to fairly present the information set forth herein. Operating results for the six months ended June 30, 2020 is not necessarily indicative of the results that may be expected for the year ending December 31, 2020, and therefore, the results and trends in these interim consolidated financial statements may not be the same for the entire year. These interim consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements and related notes in our Registration Statement on Form S-1, filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 25, 2020 (the “Registration Statement”), from which the consolidated balance sheet amounts as of December 31, 2019 were derived.
There have been no material changes in the Company’s significant accounting policies as compared to the significant accounting policies described in the Registration Statement on Form S-1, filed on March 25, 2020.
COVID-19 Pandemic
On March 11, 2020, the World Health Organization characterized the outbreak of COVID-19 as a global pandemic and recommended containment and mitigation measures. Subsequent to this characterization international, federal, state, and local public health and governmental authorities have taken extraordinary measures to contain and combat the outbreak and spread of COVID-19. These actions include travel restrictions, local quarantines, “stay-at-home” orders, and similar mandates for many individuals to substantially restrict daily activities and for many businesses to drastically reduce or cease customary operations.
The Company’s response to the global COVID-19 pandemic has been measured, swift and determined with an emphasis on health and safety, operating costs and liquidity. Consistent with the actions taken by governmental authorities, virtually all of our sales and back office operations employees began working remotely in mid-March in order to reduce the spread of COVID-19. Broadly, as the Company was deemed “essential” by state and local governments, our facilities were able to remain open, albeit at reduced capacity during the beginning of the second quarter. As of June 30, 2020, all of our branches are fully operational although some of our administrative employees continued to work remotely. Despite the Company remaining operational during the second quarter of
7
2020, certain segments of our customer base were negatively impacted by COVID-19 and, as such, our revenues were negatively impacted as well. To mitigate the impact of reduced revenues, the Company implemented various cost savings measures in the second quarter of 2020. These cost savings measures were temporary in nature and were minimized as increased demand for our products and services returned toward the end of the quarter.
COVID-19’s impact on our second-half 2020 financial results and beyond will depend on future developments, such as the duration and scope of the outbreak and the potential for future “shelter in place” orders that could impact our employees, customers and suppliers. Although we’ve seen improvements as a result of the easing of various restrictions, we expect our full year 2020 results to be adversely affected by COVID-19.
We believe we have sufficient liquidity to fund our operations as we work through the COVID-19 recovery. However, if there are future “shelter in place” orders or similar measures taken in the geographies that we operate in and the demand for our products and services is adversely impacted, we may take additional actions to further reduce costs and/or seek additional financing.
Use of Estimates
The COVID-19 outbreak has caused significant disruptions to national and global economies. Our businesses are designated as critical infrastructure companies by the government and, as such, have remained open. We have instituted various initiatives throughout the company as part of our business continuity programs, and we are working to mitigate risk when disruptions occur. While we continue to expect this situation to be temporary, and we believe we have successfully navigated the second quarter of 2020, any longer-term impacts of COVID-19 (or a future pandemic of its nature) is currently difficult to predict with certainty.
The nature of our business requires that we make estimates and assumptions in accordance with GAAP. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. The COVID-19 outbreak has an impact on the approach to these estimates and assumptions and will continue to do so. Any increased severity of the COVID outbreak and the related future financial impacts cannot be estimated at this time. Our estimates at the end of the second quarter assumed no material impact from the disruptions caused by COVID-19.
The Company assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to the Company and the unknown future impacts COVID-19 as of June 30, 2020 and through the date of this report. The accounting matters assessed included, but were not limited to, the Company’s allowance for doubtful accounts, inventory and related reserves and the carrying value of goodwill and other long-lived assets. While there was no material impact to the Company’s consolidated financial statements as of and for the quarter ended June 30, 2020, the Company’s future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in material impacts to the Company’s consolidated financial statements in future reporting periods.
Impairment of Long-lived Assets
The Company evaluates long-lived assets, such as property and equipment and intangible assets subject to amortization, for impairment annually and whenever events or changes in circumstances indicate that the carrying value of any asset group may not be recoverable.
If the estimated future cash flow (undiscounted and without interest charges) from the use of an asset are less than the carrying value, a write-down would be recorded to reduce the related asset to its estimated fair value. When reviewing long-lived assets for impairment, the Company groups long-lived assets with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. After evaluating and weighing all relevant events and circumstances, the Company concluded that it was not necessary to perform an interim impairment test for the long-lived assets as of and for the period ended June 30, 2020.
Goodwill
Pursuant to the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 350, Intangibles-Goodwill and Other (“ASC 350”), goodwill is recorded as the excess of the consideration transferred plus the fair value of any non-controlling interest in the acquiree at the acquisition date over the fair values of the identifiable net assets acquired.
The Company evaluates goodwill for impairment at least annually, or more frequently if triggering events occur or other impairment indicators arise which might impair recoverability. Impairment of goodwill is evaluated at the reporting unit level. A reporting unit is defined as an operating segment (i.e. before aggregation or combination), or one level below an operating segment (i.e. a component). A component of an operating segment is a reporting unit if the component constitutes a business for which discrete
8
financial information is available and segment management regularly reviews the operating results of that component.
After evaluating and weighing all relevant events and circumstances, the Company concluded there was no triggering event that constitutes the need to perform a goodwill impairment test for the period ended June 30, 2020. It should be noted that at March 31, 2020, the Company’s share price reduction as a result of the ongoing COVID-19 pandemic during the first quarter of 2020, was determined to be a triggering event for impairment testing under ASC 350. The Company performed an interim quantitative impairment analysis and the fair value of reporting units was determined based on valuation techniques using the best available information, primarily cash flow projections. We determined no goodwill impairment existed for the period ended March 31, 2020.
Offering Costs and Transaction Expenses
The Company incurred costs directly attributable to its initial public offering, such as underwriter, registration and filing fees along with direct incremental legal, accounting, and professional fees relating to the Business Combination. The Company evaluated all the fees and approximately $2.6 million of expenses were recorded as an offset against proceeds of the reverse recapitalization. As of December 31, 2019, there were $0.7 million deferred as prepaid expenses and other current assets in our accompanying Consolidated Balance Sheets. These were deferred until completion of the reverse recapitalization, at which time $0.4 million were reclassified to additional paid-in capital as a reduction of the proceeds. Recurring and other incremental organizational costs including accounting and legal fees that were not directly attributable to the offering were expensed as incurred.
Income Taxes
The Company is a newly formed corporation for the income tax purposes. Alta Enterprises, LLC was historically and remains a partnership for federal income tax purposes, with each partner being separately taxed on its share of taxable income (loss). There is no federal income tax expense (benefit) reflected in the Company’s financial statements for any period prior to the reverse recapitalization on February 14, 2020. As the activity resides in Alta Enterprises, LLC, the income tax impact to the Company represents the current income tax calculated at the Consolidated Return level, (“Alta Equipment Group, Inc and Subsidiaries”), and the deferred impact of the interest in the lower tier partnership.
When looking at the Consolidated Return filer, and considering the operating entity is a 100% owned partnership, the Company uses the guidance in FASB ASC Topic 740 - Income Taxes, asset and liability method of accounting for income taxes, under which deferred tax assets and liabilities are recognized for the future tax consequences of (i) temporary differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities and (ii) operating loss and tax credit carryforwards. Deferred income tax assets and liabilities are based on enacted tax rates applicable to the future period when those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period the rate change is enacted. Deferred income tax assets are subject to valuation allowance considerations to recognize only amounts that are more likely than not to be ultimately realized.
Equity and Warrants
In conjunction with the reverse recapitalization, the Company made changes to its capital stock. The Company’s Amended and Restated Certificate of Incorporation authorizes the issuance of 201,000,000 shares of capital stock, consisting of (i) 200,000,000 shares of common stock, (the “Common Stock”) and (ii) 1,000,000 shares of preferred stock, par value $0.0001 per share. As of June 30, 2020, no shares of preferred stock issued have been issued. As a result of the reverse recapitalization, the shares issued to Alta Equipment Holdings, Inc. shareholders in connection with the transaction are reflected as if they were issued and outstanding beginning on January 1, 2019.
As of June 30, 2020, there were warrants outstanding to acquire 8,668,750 shares of the Company’s Common Stock. These warrants were issued in connection with the equity infusion related to reverse recapitalization. The Warrants entitle the registered holder to purchase one share of our Class A Common Stock at a price of $11.50 per share, subject to certain adjustments. The warrants will expire five years after the completion of our initial reverse recapitalization or earlier upon redemption or liquidation.
New Accounting Pronouncements
Recent Accounting Pronouncements Adopted in 2020
Fair Value Measurement — Disclosure Framework (Topic 820)
In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement.” This ASU eliminates, modifies, and adds certain disclosure requirements on fair value measurements. Entities are no longer required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but public companies are required to disclose the range and weighted average used to
9
develop significant unobservable inputs for Level 3 fair value measurements. For public companies, this ASU is effective for financial statements issued for annual periods beginning after December 15, 2019, and interim periods within those annual periods, with early adoption permitted. Entities were permitted to early adopt any eliminated or amended disclosures and delay adoption of the additional disclosure requirements until the effective date. We adopted this ASU on the effective date of January 1, 2020. The adoption of this accounting standard update has not had a material impact on our on our consolidated financial statements and disclosures.
Pronouncements Not Yet Adopted
Leases (Topic 842)
In February 2016, the FASB issued ASU No. 2016-02, Leases (“Topic 842”) that replaces the existing leasing guidance. Topic 842 establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. This guidance also expands the requirements for lessees to record leases embedded in other arrangements and the required quantitative and qualitative disclosures surrounding leases. Accounting guidance for lessors is largely unchanged.
The Company is still assessing the impact Topic 842 will have on its future revenue and expenses. The new accounting standard is effective for the annual reporting period ended December 31, 2022 with an effective date of January 1, 2022, and the interim reporting periods beginning January 1, 2023. Early adoption is permitted. Management is currently assessing the impact the adoption of this standard will have on the Company’s consolidated financial statements as well as the available transition methods.
Financial Instruments — Credit Losses (Topic 326)
In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). This standard prescribes an impairment model (known as the current expected credit loss (“CECL”) model) that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses, which is intended to result in the timely recognition of losses. Under the CECL model, entities will estimate credit losses over the entire contractual term of the instrument from the date of initial recognition of the financial instrument.
Measurement of expected credit losses is to be based on relevant forecasts that affect collectability. The scope of financial assets within the CECL methodology is broad and includes trade receivables from certain revenue transactions and certain off-balance sheet credit exposures. Different components of the guidance require modified retrospective or prospective adoption. As amended by ASU 2019-10, the ASU 2016-13 is effective for the annual reporting period beginning on or after December 15, 2022. The Company believes ASU 2016-13 will only have applicability to the Company’s receivables from revenue transactions, or trade receivables, except those arising from rental revenues as ASU 2016-13 does not apply to receivables arising from operating leases. The Company is currently evaluating whether the new guidance, while limited to our non-operating lease trade receivables, will have an impact on the consolidated financial statements or existing internal controls.
NOTE 3 — 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 the Company’s 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 rare, 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, the Company generally allocates sales prices to each distinct performance obligation based on the observable selling price.
The Company enters into various equipment sales transactions with certain customers, whereby customers purchase equipment from the Company and then lease the equipment to a third party. In some cases, the Company provides 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. The Company is precluded from recognizing a sale of equipment if it guarantees the repurchase of the sold equipment back or guarantees 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”).
10
The 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. At June 30, 2020 and December 31, 2019, the total lease liability relating to these various equipment sale transactions amounted to $4.6 million and $5.5 million, respectively. The Company also recognized a liability for its guarantee to repurchase the equipment at the residual amounts of $11.0 million and $12.5 million as of June 30, 2020 and December 31, 2019, respectively.
The Company also enters into various rental agreements whereby owned equipment is leased 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 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.
The Company also enters into contracts with customer where it provides automated equipment installation and system integration services. Revenue from the installation services are recognized over time as the performance obligation is satisfied, determined by the percentage of completion or input method, measured by the percentage of costs incurred to the estimated total costs for each contract.
Deferred Revenue
The Company recognizes deferred revenue with respect to service sales, rental agreements and automated equipment installation and system integration services. Deferred revenue with respect to service sales represents the unearned portion of fees related to guaranteed maintenance contracts for customers covering equipment purchased. These amounts are recognized based on an estimated rate at which the services are provided over the life of the contract. The Company also recognizes deferred revenue related to rental agreements. Total deferred revenue relating to service sales agreements, rental agreements and automated equipment installation and system integration services as of June 30, 2020 and December 31, 2019 was $10.9 million and $4.7 million, respectively.
Disaggregation of Revenues
The following table summarizes the Company’s disaggregated revenues as presented in the Consolidated Statement of Operations for the three months and six months ended June 30, 2020 and 2019 by revenue type, and by the applicable accounting standard.
|
|
Three months ended
June 30, 2020
|
|
|
Three months ended
June 30, 2019
|
|
|
|
Topic 840
|
|
|
Topic 606
|
|
|
Total
|
|
|
Topic 840
|
|
|
Topic 606
|
|
|
Total
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New and used equipment sales
|
|
$
|
—
|
|
|
$
|
95.1
|
|
|
$
|
95.1
|
|
|
$
|
—
|
|
|
$
|
61.2
|
|
|
$
|
61.2
|
|
Parts sales
|
|
|
—
|
|
|
|
28.1
|
|
|
|
28.1
|
|
|
|
—
|
|
|
|
20.6
|
|
|
|
20.6
|
|
Service revenue
|
|
|
—
|
|
|
|
28.4
|
|
|
|
28.4
|
|
|
|
—
|
|
|
|
22.7
|
|
|
|
22.7
|
|
Rental revenue
|
|
|
26.0
|
|
|
|
—
|
|
|
|
26.0
|
|
|
|
22.1
|
|
|
|
—
|
|
|
|
22.1
|
|
Rental equipment sales
|
|
|
—
|
|
|
|
14.5
|
|
|
|
14.5
|
|
|
|
—
|
|
|
|
9.3
|
|
|
|
9.3
|
|
Net revenue
|
|
$
|
26.0
|
|
|
$
|
166.1
|
|
|
$
|
192.1
|
|
|
$
|
22.1
|
|
|
$
|
113.8
|
|
|
$
|
135.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended
June 30, 2020
|
|
|
Six months ended
June 30, 2019
|
|
|
|
Topic 840
|
|
|
Topic 606
|
|
|
Total
|
|
|
Topic 840
|
|
|
Topic 606
|
|
|
Total
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New and used equipment sales
|
|
$
|
—
|
|
|
$
|
177.3
|
|
|
$
|
177.3
|
|
|
$
|
—
|
|
|
$
|
106.0
|
|
|
$
|
106.0
|
|
Parts sales
|
|
|
—
|
|
|
|
56.8
|
|
|
|
56.8
|
|
|
|
—
|
|
|
|
37.1
|
|
|
|
37.1
|
|
Service revenue
|
|
|
—
|
|
|
|
58.6
|
|
|
|
58.6
|
|
|
|
—
|
|
|
|
39.9
|
|
|
|
39.9
|
|
Rental revenue
|
|
|
51.2
|
|
|
|
—
|
|
|
|
51.2
|
|
|
|
39.1
|
|
|
|
—
|
|
|
|
39.1
|
|
Rental equipment sales
|
|
|
—
|
|
|
|
28.7
|
|
|
|
28.7
|
|
|
|
—
|
|
|
|
16.1
|
|
|
|
16.1
|
|
Net revenue
|
|
$
|
51.2
|
|
|
$
|
321.4
|
|
|
$
|
372.6
|
|
|
$
|
39.1
|
|
|
$
|
199.1
|
|
|
$
|
238.2
|
|
11
The Company believes that the disaggregation of revenues from contracts to customers as summarized above, together with the discussion below, depicts how the nature, amount, timing and uncertainty of its revenues and cash flows are affected by economic factors.
Leases revenues (Topic 840)
New and used equipment sales: The Company enters into various equipment sale transactions with certain customers, whereby customers purchase equipment from the Company and then lease the equipment to a third party. In some cases, the Company provides 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. The Company is precluded from recognizing a sale of equipment when it is obligated or has an option to repurchase or guarantees the resale value of the equipment to the customer for contracts determined to be operating leases. For these arrangements, because the Company generally receives the full amount of the consideration at the beginning of the arrangement, the Company initially records deferred revenue for the amount received and recognizes revenue on a pro-rata basis over the term of the contract under Topic 840.
Rental revenue: Owned equipment rentals represent revenues from renting equipment. The Company accounts for these rental contracts as operating leases. The Company recognizes revenue from equipment rentals in the period earned, regardless of the timing of billing to customers. 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.
Revenues from contracts with customers (Topic 606)
Accounting for the different types of revenues pursuant to Topic 606 are discussed below. Substantially all of the Company’s revenues under Topic 606 are recognized at a point in time rather than over time.
New and used equipment sales: With the exception of bill-and-hold arrangements, the Company’s revenues from the sale of new and used equipment are recognized at the time of delivery to, or pick-up by, the customer, which is when the customer obtains control of the promised good. Under bill-and-hold arrangements, revenue is recognized when all configuration work is complete and the equipment has been set aside for final shipment, at which point the Company has determined control has been transferred. The Company does not offer material rights of return. The Company recognized $0.5 million in revenues for the year-to-date period ended June 30, 2020 from automated equipment installation and system integration services as performance obligation was satisfied over time using the cost-to-cost input method, based on contract costs incurred to date to total estimated contract costs.
Parts sales: Revenues from the sale of parts are recognized at the time of pick-up by the customer for over the counter sales transactions. For parts that are shipped to a customer, the Company elected to use a practical expedient of Topic 606 and treat such shipping activities as fulfillment costs, thereby recognizing revenues at the time of shipment. The Company does not offer material rights of return.
Service revenue: The Company records service revenue primarily from guaranteed maintenance and periodic maintenance contracts with customers. The Company recognizes periodic maintenance service revenues at the time such services are completed, which is when the control of the promised services is transferred over to the customer. The Company recognizes guaranteed maintenance service revenues over-time using an input method of costs incurred to estimated costs over the life of the related contract. Revenue recognized from guaranteed maintenance contracts totaled $7.8 million and $7.2 million for the year-to-date period ended June 30, 2020 and 2019, respectively. The Company also records service revenue from warranty contracts whereby the Company performs service on behalf of the Original Equipment Manufacturer (“OEM”) or third-party warranty provider.
Rental equipment sales: The Company also sells rental equipment from our rental fleet, these sales are recognized at the time of delivery to, or pick-up by, the customer, which is when the customer obtains control of the promised good. In some cases, certain rental agreements contain a rental purchase option, whereby the customer has an option to purchase the rented equipment during the term of the rental agreement. Revenues from the sale of rental equipment are recognized at the time the rental purchase option agreement has been approved and signed by both parties, as the equipment is already in the customer’s possession under the previous rental agreement, and therefore control has been transferred as title has been transferred.
Contract costs
The Company does not recognize assets associated with the incremental costs of obtaining a contract with a customer that the Company expects to recover (for example, a sales commission). Most of the Company’s revenue is recognized at a point in time or over a period of one year or less, and the Company has used the practical expedient that allows it to recognize the incremental costs of
12
obtaining a contract as an expense when incurred if the amortization period of the asset that the Company otherwise would have recognized is one year or less. The amount of the costs associated with the revenue recognized over a period of greater than one year is insignificant.
Receivables and contract assets and liabilities
The Company has contract assets associated with contracts with customers. Contracts with customers do not generally result in material amounts billed to customers in excess of recognizable revenue. Deferred revenue associated with service contracts represents the unearned portion of revenue related to guaranteed maintenance contracts for customers covering equipment purchased. These amounts are recognized based on an estimated rate at which the services are provided over the life of the contract.
Payment terms
The Company’s revenues do not include material amounts of variable consideration under Topic 606. Payment terms may vary by the type of customer, location, and the type of products or services offered. The time between invoicing and when payment is due is not significant, and contracts do not generally include a significant financing component. Contracts with customers do not generally result in significant obligations associated with returns, refunds or warranties.
Contract estimates and judgments
The Company’s revenues accounted for under Topic 606 generally do not require significant estimates or judgments as the transaction price is generally fixed and clearly stated in the customer contracts. Contracts generally do not include multiple performance obligations, and accordingly do not require estimates of the standalone selling price for each performance obligation. Substantially all of the Company’s revenues are recognized at a point in time and the timing of the satisfaction of the applicable performance obligations is readily determinable. The Company’s revenues under Topic 606 are generally recognized at the time of delivery to, or pick-up by, the customer.
NOTE 4 — RELATED PARTY TRANSACTIONS
The Company leases a subset of its operating facilities from three real estate entities related through common ownership. Total rent expense under these lease agreements for both the six months ended June 30, 2020 and June 30, 2019 was $2.4 million and for both the three months ended June 30, 2020 and June 30, 2019 was $1.1 million.
NOTE 5 — INVENTORIES
The components of inventories, net, consisted of the following (amounts in millions):
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
New equipment
|
|
$
|
145.5
|
|
|
$
|
92.8
|
|
Used equipment
|
|
|
34.3
|
|
|
|
25.2
|
|
Work in process
|
|
|
3.9
|
|
|
|
3.3
|
|
Parts
|
|
|
33.0
|
|
|
|
24.8
|
|
Gross Inventory
|
|
$
|
216.7
|
|
|
$
|
146.1
|
|
Accumulated depreciation
|
|
|
(7.2
|
)
|
|
|
(7.0
|
)
|
Inventory reserve
|
|
|
(2.8
|
)
|
|
|
(1.9
|
)
|
|
|
$
|
206.7
|
|
|
$
|
137.2
|
|
Direct labor of $1.3 million and $1.2 million incurred for open service orders were capitalized and included in work in process at both June 30, 2020 and December 31, 2019. The remaining work in process balances as of June 30, 2020 and December 31, 2019 primarily represent parts applied to open service orders.
13
NOTE 6 — PROPERTY AND EQUIPMENT
Property and equipment, net, consisted of the following (amounts in millions):
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Rental fleet
|
|
$
|
377.7
|
|
|
$
|
285.1
|
|
Equipment and leasehold improvements:
|
|
|
|
|
|
|
|
|
Machinery and equipment
|
|
|
4.5
|
|
|
|
3.4
|
|
Autos and trucks
|
|
|
6.1
|
|
|
|
4.6
|
|
Leasehold improvements
|
|
|
8.2
|
|
|
|
7.0
|
|
Office equipment
|
|
|
2.5
|
|
|
|
2.3
|
|
Computer equipment
|
|
|
8.2
|
|
|
|
6.2
|
|
Total Cost
|
|
$
|
407.2
|
|
|
$
|
308.6
|
|
Less: accumulated depreciation and amortization
|
|
|
|
|
|
|
|
|
Rental fleet
|
|
|
(113.1
|
)
|
|
|
(100.0
|
)
|
Equipment and leasehold improvements
|
|
|
(13.8
|
)
|
|
|
(12.1
|
)
|
Total accumulated depreciation and amortization
|
|
|
(126.9
|
)
|
|
|
(112.1
|
)
|
|
|
$
|
280.3
|
|
|
$
|
196.5
|
|
Total depreciation and amortization on property and equipment was $28.4 million and $19.2 million for the six months ended June 30, 2020 and 2019 and $14.6 million and $10.1 million for the three months ended June 30, 2020 and 2019, respectively. The Company had assets related to capital leases, which are included in the machinery and equipment balance above. Such assets had gross carrying values totaling $3.9 million and $3.5 million, and accumulated amortization balances totaling $1.9 million and $1.3 million, as of June 30, 2020 and December 31, 2019, respectively. Of the $377.7 million and $285.1 million of gross cost of rental fleet, $16.3 million and $18.4 million were represented by GPO assets as of June 30, 2020 and December 31, 2019, respectively.
NOTE 7 — GOODWILL
The following table summarizes the changes in the carrying amount of goodwill in total and by reportable segment as of June 30, 2020 and December 31, 2019 (amounts in millions):
|
|
Industrial
Equipment
|
|
|
Construction
Equipment
|
|
|
Total
|
|
Balance, December 31, 2019
|
|
$
|
4.8
|
|
|
$
|
3.8
|
|
|
$
|
8.6
|
|
Additions
|
|
|
8.1
|
|
|
|
5.0
|
|
|
|
13.1
|
|
Balance, June 30, 2020
|
|
$
|
12.9
|
|
|
$
|
8.8
|
|
|
$
|
21.7
|
|
See Note 14, Business Combinations for further information.
NOTE 8 — INTANGIBLE ASSETS
The gross carrying amount of intangible assets and accumulated amortization as of June 30, 2020 and December 31, 2019 were as follows (amounts in millions):
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
|
|
Gross carrying
amount
|
|
|
Accumulated
amortization
|
|
|
Net carrying
amount
|
|
|
Gross carrying
amount
|
|
|
Accumulated
amortization
|
|
|
Net carrying
amount
|
|
Customer relationships
|
|
$
|
17.7
|
|
|
$
|
(1.9
|
)
|
|
$
|
15.8
|
|
|
$
|
5.4
|
|
|
$
|
(2.8
|
)
|
|
$
|
2.6
|
|
Non-compete agreements
|
|
|
0.2
|
|
|
|
—
|
|
|
|
0.2
|
|
|
|
0.4
|
|
|
|
(0.3
|
)
|
|
|
0.1
|
|
Tradenames
|
|
|
1.3
|
|
|
|
(0.2
|
)
|
|
|
1.1
|
|
|
|
0.7
|
|
|
|
(0.4
|
)
|
|
|
0.3
|
|
Total
|
|
$
|
19.2
|
|
|
$
|
(2.1
|
)
|
|
$
|
17.1
|
|
|
$
|
6.5
|
|
|
$
|
(3.5
|
)
|
|
$
|
3.0
|
|
14
Amortization of intangible assets were $0.6 million and $0.7 million for the three and six months ended June 30, 2020 and $0.0 million and $0.1 million for the three and six months ended June 30, 2019, respectively.
The Company concluded there was no triggering event that constitutes the need to perform a finite-lived intangible assets for impairment for the period ended June 30, 2020.
NOTE 9 — LINES OF CREDIT AND FLOOR PLANS
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” and the facility thereunder, the “Floor Plan Facility”) 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 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 certain financial covenants.
The Floor Plan Credit Agreement, among other things, (i) modified the floor plan financing facility with its first lien lender from $85 million to $40 million, and (ii) modified certain financial covenants.
Line of Credit and Floor Plan — First Lien Lender
The Company has an ABL Facility 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 ABL Facility has a maximum borrowing capacity of $300 million and interest cost is the London Interbank Offered Rate (“LIBOR”) plus an applicable margin or the CB Floating Rate, depending on the borrowing. As of June 30, 2020, the Company had an outstanding ABL Facility balance of $110.8 million, excluding unamortized debt issuance costs. The effective interest rate was 2.0% at June 30, 2020.
The Company has Floor Plan Facility with its first lien lender to finance new and used inventory and rental fleet equipment. This Floor Plan Facility has a maximum borrowing capacity of $40 million. The interest cost for the first lien lender floor plan facility is LIBOR plus an applicable margin. The effective interest rate at June 30, 2020 was 2.9%. The floor plan is collateralized by substantially all assets of the Company. As of June 30, 2020, the Company had an outstanding balance on their first lien lender floor plan facility of $29.0 million, excluding unamortized debt issuance costs.
In relation to information regarding to our former line of credit and floor plans as of December 31, 2019, please refer to the “Lines of Credit and Floor Plans” footnote in our Registration Statement on Form S-1, filed with the SEC on March 25, 2020.
Original Equipment Manufacturer (“OEM”) Captive Lenders and Suppliers’ Floor Plans
The Company has floor plan financing facilities with several OEM captive lenders and suppliers for new and used inventory and rental equipment, each with borrowing capacities ranging from $10 million to $82.0 million. Primarily, the Company utilizes the facilities for purchases of new equipment inventories. Certain floor plans provide for a five to twelve-month interest only or deferred payment periods. In addition, certain floor plans provide for interest and principal free terms at the suppliers’ 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. When this occurs, the related OEM captive lender floor plan payable becomes due to be paid at the time the equipment being financed is sold.
With the recent acquisitions, the Company’s floor plan financing facilities with its OEM capital lenders and suppliers were amended to include the new locations and new entities. The floor plan financing facilities are secured by the equipment being financed, and contain operating company guarantees. The interest is LIBOR plus an applicable margin. The effective rates, excluding the favorable effect of interest-subsidies, as of June 30, 2020 ranged from 3.1% to 4.2%. As of June 30, 2020, the Company had an outstanding balance on these floor plans of $136.1 million.
The total aggregate amount of indebtedness related to floor plan financing activities (including the first lien lender floor plan) facility cannot exceed $225.0 million at any time. Total borrowings related to floorplan financing as of June 30, 2020 was
15
$165.1 million excluding unamortized debt issuance costs. For the six months ended and three months ended June 30, 2020 the Company recognized interest expense associated with new equipment financed under its floor plan facilities of $1.3 million and $0.3 million.
Maximum borrowings under the floor plans and ABL Facility are limited to $525 million. The total amount outstanding as of June 30, 2020 was $275.9 million, exclusive of debt issuance and deferred financings costs of $1.6 million.
NOTE 10 — LONG-TERM DEBT
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 acquisitions of Flagler and Liftech; and (iii) providing for the repayment and refinance of a portion of the Company’s prior existing debt.
Notes Payable — Senior Lien Holder
On December 27, 2017, the Company entered into a Note Purchase Agreement (the “Prior Note Purchase Agreement”) with a lender with an initial note commitment of $40 million, plus an additional delayed draw note commitment of $20 million. On April 31, 2018 and July 31, 2018, the Company borrowed $3.5 million and $5 million, respectively, against the $20 million delayed draw commitment. On May 1, 2019, the Company borrowed an additional $11.5 million against the $20 million delayed draw commitment. The notes were subject to payment-in-kind (PIK) interest at 10% on any unpaid principal amount from the date of issue through repayment, with all PIK interest added to the outstanding principal. The balance at December 31, 2019 included the initial note commitment of $40 million and delayed draws totaling $20 million, plus PIK interest of approximately $11.2 million, accrued from the initial funding date through the end of the year. The note was secured by a second priority lien on substantially all of the assets of the Company, including a pledge of equity interests, and were to mature on June 27, 2023. In connection with the December 27, 2017 note, warrants were issued enabling the purchase of 25% of the common units outstanding on a fully diluted basis at $0.01 per warrant unit.
On February 14, 2020, in connection with the reverse recapitalization and in conjunction with entering into the Amended and Restated Credit Agreement and Term Loan, the Company repaid this note payable in full, completely discharging the Company of any obligations to the lender.
Subordinated Debt
On December 27, 2017, the Company entered into notes payable to former shareholders of Alta Equipment Company, Inc., the Company’s former parent Company. The notes were unsecured, were subject to interest at 5%, with rights subordinated to the first lien lender and second lien lender. During the term of the notes, the Company paid holders’ semi-annual installments of accrued interest but maintained the option to capitalize such accrued interest amounts into the principal sum of each note. The notes were to mature December 2027.
On February 14, 2020, in connection with the reverse recapitalization, and in conjunction with entering into the Amended and Restated Credit Agreement and Term Loan, the Company repaid in full the subordinated debt to the former shareholders of Alta Equipment Company and terminated all commitments and discharged all guarantees related to those agreements. As of June 30, 2020, the Company has no subordinated debt on its Consolidated Balance Sheet.
Term Loan
On February 14, 2020, the Company entered into a Note Purchase Agreement which comprised of a term loan in an aggregate principal amount of $155.0 million with its second priority lien lender through syndication, with an initial maturity date of August 2025. In connection with the new Term Loan, the Company retired the Prior Note Purchase Agreement. The term loan is payable, at the lender’s option, in quarterly installments of $1.9 million plus interest at LIBOR plus 8%. As of June 30, 2020, the effective interest rate was 9.8%. The Term loan is collateralized by substantially all assets of the Company.
As of June 30, 2020, outstanding borrowings under the term loan were $145.7 million, which included $7.4 million deferred financing costs and original issue discounts.
Notes Payable — OEM Captive Lender
On May 9, 2014, the Company entered into a Master Note Agreement with an OEM captive lender. These notes were payable in
16
monthly installments, with interest ranging from 3.29% to 4.99%. The notes were secured by the specific assets financed and were to mature at various dates through October 2024.
On February 14, 2020, in connection with the reverse recapitalization, the Company repaid in full the balance of the notes payable to the OEM captive lender. As of June 30, 2020, there were no notes payable to an OEM captive lender on our Consolidated Balance Sheet.
Extinguishment of Debt
In accordance with ASC Topic No. 470-50, “Debt – Modifications and Extinguishments” (Topic No. 470), the transactions noted above were determined to be an extinguishment of the existing debt and an issuance of new debt. As a result, the Company recorded a loss on the extinguishment of debt in the amount of $7.6 million in the line item “Loss on Extinguishment of Debt” in its Consolidated Statements of Operations. Of the $7.6 million loss on the extinguishment of debt, $3.9 million represented early call premiums that the Company paid to the holders of its Senior Lien Notes and OEM Captive Lender as a result of repurchasing both notes prior to their maturity. The remaining balance represented the write off of deferred financing fees related to the extinguishment of these debt facilities.
The Company’s long-term debt consists of the following (amounts in millions):
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Term Loan
|
|
$
|
153.1
|
|
|
$
|
—
|
|
Senior lien holder
|
|
|
—
|
|
|
|
71.2
|
|
OEM captive lender
|
|
|
—
|
|
|
|
14.8
|
|
Subordinated debt
|
|
|
—
|
|
|
|
6.7
|
|
First lien lender – term loan
|
|
|
—
|
|
|
|
4.3
|
|
Subtotal
|
|
$
|
153.1
|
|
|
$
|
97.0
|
|
Unamortized debt issuance costs
|
|
|
(2.2
|
)
|
|
|
(2.5
|
)
|
Debt discount
|
|
|
(5.2
|
)
|
|
|
(0.9
|
)
|
Total debt
|
|
$
|
145.7
|
|
|
$
|
93.6
|
|
Less: Current maturities of long-term debt, net
|
|
|
(7.8
|
)
|
|
|
(7.1
|
)
|
Long-term debt, net
|
|
$
|
137.9
|
|
|
$
|
86.5
|
|
As of June 30, 2020, the Company was in compliance with the financial covenants set forth in its debt agreements.
Promissory Note
On June 12, 2020, the Company acquired PeakLogix. As part of this acquisition agreement, the Company incurred a $1.0 million unsecured one-year promissory note at an interest rate of 6.0% on the unpaid principal sum. Due to the short-term nature of the note, this liability was included in “Other current liabilities” on the Consolidated Balance Sheet as of June 30, 2020.
NOTE 11 — CONTINGENCIES
Guarantees
As of June 30, 2020, and December 31, 2019, the Company was party to certain contracts in which it guarantees the performance of agreements between various third-party financial institutions. 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 obligations as specified in the contract. The estimated exposure related to these guarantees was $2.5 million and $3.3 million at June 30, 2020 and December 31, 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 June 30, 2020 and December 31, 2019.
17
Legal Proceedings
During the six months ended June 30, 2020 and June 30, 2019, various claims and lawsuits, incidental to the ordinary course of business, were pending against the Company. In the opinion of management, after consultation with legal counsel, resolution of these matters is not expected to have a material effect on the Company’s consolidated financial statements.
NOTE 12 — INCOME TAXES
The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted rates in effect for the year in which the difference is expected to reverse. Additionally, the impact of changes in the tax rates and laws on deferred taxes, if any, is reflected in the financial statement in the period of enactment. The deferred tax liabilities and assets for the Company represent the difference between the financial statement and tax basis of the partnership interest in Alta Enterprises, LLC. As such, the Company is using the single line item approach.
The income tax benefit for the three and six months ended June 30, 2020 and 2019 consisted of the following:
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Federal taxes-current
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Federal taxes-deferred
|
|
|
0.4
|
|
|
|
—
|
|
|
|
1.2
|
|
|
|
—
|
|
State taxes-current
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
State taxes-deferred
|
|
|
—
|
|
|
|
—
|
|
|
|
0.3
|
|
|
|
—
|
|
|
|
$
|
0.4
|
|
|
$
|
—
|
|
|
$
|
1.5
|
|
|
$
|
—
|
|
The Company recorded an income tax benefit of $0.4 million and $0 for the three months ended June 30, 2020 and 2019, income tax benefit of $1.5 million and $0 for the six months ended June 30, 2020 and 2019 respectively. For the period ended June 30, 2019, the Company was not in existence and therefore does not have a comparable period. The income tax benefit covers the period starting with the reverse recapitalization on February 14, 2020 through the period ended June 30, 2020. The income tax results from the period January 1, 2020 through the day prior to the reverse recapitalization will be recognized by the predecessor. The income tax benefit of $0.4 million and $1.5 for the three months and six months ended June 30, 2020, respectively, was primarily driven by the level of pre-tax loss of $6.8 million for the period from February 14, 2020 to June 30, 2020. The effective income tax rate for the period from February 14, 2020 to June 30, 2020 of 22.7% was affected by non-deductible expenses and state income taxes.
As of June 30, 2020, the Company had $17.4 million of net deferred tax liabilities. As discussed above, this represents the GAAP to tax difference in the basis of the underlying partnership, Alta Enterprises, LLC. This basis difference mirrors the GAAP to tax differences within the partnership, which primarily relate to property and equipment assets and other temporary items where the tax basis differs from the GAAP carrying amounts.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, includes various income and payroll tax provisions, modifications to federal net operating loss rules, business interest deduction limitations, and bonus depreciation eligibility for qualified improvement property. At this time, we plan to take advantage of both the payroll tax deferral and the employee retention credit. We are currently evaluating the full impact of these provisions and recent IRS guidance, but note that any portion of accrued payroll tax not paid out by December 31, 2020 may not be deductible for income tax purposes in 2020. Further evaluation is required to determine the current year impact. With regard to the Employee Retention Credit, as this only impacts payroll taxes which are recorded in pre-tax income, there would be no impact on the income tax provision.
NOTE 13 — FAIR VALUE INSTRUMENTS
The carrying value of financial instruments reported in the accompanying Consolidated Balance Sheets for cash, accounts receivable, accounts payable and accrued expenses payable and other liabilities approximate fair value due to the immediate or short-term nature or maturity of these financial instruments. Based upon current borrowing rates with similar maturities, which are Level 2 fair value inputs, the carrying value of lines of credit, long-term debt, and the guaranteed purchase obligations approximates the fair value as of June 30, 2020 and December 31, 2019.
The following is a description of the valuation methodologies used for assets and liabilities measured at fair value on a recurring basis:
18
The Company granted warrants to purchase 33,333.33 shares of common units in connection with the stock purchase and redemption that occurred on December 27, 2017. The warrants had an exercise price of $0.01 and included a conditional put option, allowing the holder to require the Company to purchase the outstanding warrants, via a settlement upon the following events: (1) upon 75% repayment of senior indebtedness, (2) change in control from a sale transaction, and (3) the maturity of the related debt, which required the Company to settle the warrants in cash. The warrants were to expire December 27, 2027. The warrants also included a limited call right, where in the event of a sale transaction, the Company had the right to redeem, in cash, all the warrants simultaneously at the per common share price equal to the price set for the sale transaction.
On February 14, 2020, the Company consummated its reverse recapitalization.
The Company recorded the warrants issued based on the fair value at the date of grant and re-measured at each balance sheet date. The fair value of warrants classified as liabilities at the date of grant was estimated using a market approach. The market-based approach valuation methodology was primarily a using participants in the industry of industrial and heavy-equipment retailing, wholesaling, and rental. A range of multiples was established taking company-specific risks into consideration and applied to Alta’s reported EBITDA to derive an implied enterprise value. To derive equity value, interest-bearing debt was removed.
The preceding methods described produced a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although management believed its valuation methods to be appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could have resulted in a different fair value measurement at the reporting date.
The Company redeemed all the warrants outstanding upon closing of the reverse recapitalization on February 14, 2020 and as of June 30, 2020, there were no warrant liabilities on the Consolidated Balance Sheet.
PeakLogix
The purchase agreement for the PeakLogix acquisition provides for earn-out payments of a minimum of $2.0 million up to $3.7 million which can be earned through June 30, 2025 based on meeting certain financial targets. The initial earn-out liability was recorded at net present value based on a probability weighted range of outcomes analysis. This analysis considered the earn-out payment thresholds, the minimum and maximum range of earn-out payments per the agreement and the expected future cash flows of PeakLogix. The earn-out will be remeasured at each balance sheet date using this approach and any resulting increase or decrease will be reflected in the income statement. Going forward, volatility in the amount of PeakLogix’s actual results and forecasted scenarios could impact the fair value of this contingent consideration.
The contingent consideration liability represents the fair value of the future earn-out liability that the Company may be required to pay in conjunction with the acquisition of PeakLogix.
The following table sets forth, by level of hierarchy, the provisional fair value of contingent liability for the earn-out consideration at net present value as of June 30, 2020, which was presented in “Other liabilities” on the Consolidated Balance Sheet:
|
June 30, 2020
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Liabilities: Contingent consideration
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2.3
|
|
NOTE 14 — BUSINESS COMBINATIONS
PeakLogix
On June 12, 2020, the Company acquired all the assets of PeakLogix for a total purchase cash consideration of $5.7 million, which was paid out of available funds. Additional consideration includes $1.0 million in an unsecured one-year promissory note at 6% and earn-out payment of a minimum $2.0 million up to a cap of $3.7 million to be paid out to former owners based on meeting certain financial targets through-out 5-year earn-out period. In connection with the purchase, PeakLogix LLC was created.
The estimated fair values of assets acquired, and liabilities assumed are provisional and are based on the information that was available as of the balance sheet date. The Company expects to finalize the valuation and complete the purchase price allocation as soon as practical but no later than one year from the acquisition date. The Company expects the goodwill recognized to be 100% deductible for income tax purposes.
19
The following table summarizes the net assets acquired from the acquisition (amounts in millions):
Cash
|
|
$
|
3.0
|
|
Accounts Receivable
|
|
|
4.6
|
|
Inventory
|
|
|
0.4
|
|
Other assets
|
|
|
0.2
|
|
Property and equipment
|
|
|
0.2
|
|
Goodwill
|
|
|
6.1
|
|
Total Assets
|
|
$
|
14.5
|
|
|
|
|
|
|
Accounts payable
|
|
|
(1.5
|
)
|
Accrued expenses
|
|
|
(0.1
|
)
|
Other current liabilities
|
|
|
(3.9
|
)
|
|
|
|
|
|
Total Liabilities
|
|
$
|
(5.5
|
)
|
|
|
|
|
|
Net Assets Acquired
|
|
$
|
9.0
|
|
|
|
|
|
|
Assets acquired net of cash
|
|
$
|
6.0
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the components of the purchase price at 6/12/2020:
Cash consideration paid
|
|
$
|
5.7
|
|
Promissory Note
|
|
|
1.0
|
|
Earn-out liability
|
|
|
2.3
|
|
Total purchase price
|
|
$
|
9.0
|
|
Flagler
On February 14, 2020, in connection with the reverse recapitalization, the Company consummated its acquisition of Flagler for a total purchase price of $75.8 million, which was paid out of funds from the closing of the reverse recapitalization.
The acquisition has been accounted for as a purchase business combination. Under the purchase method of accounting, the fair value of the assets acquired, and liabilities assumed have been recorded at the acquisition date of acquisition in our consolidated financial statements and may be subject to adjustment pending completion of final valuation.
The fair value of accounts receivable was determined based on the acquisition date net book value and an evaluation of amounts deemed recoverable through subsequent collection. The fair value of inventory and property, plant, and equipment were estimated to approximate their respective acquisition date net book values.
The Company expects the goodwill recognized to be 100% deductible for income tax purposes. Costs and expenses related to the acquisition have been expensed as incurred in operating expenses.
20
The following table summarizes the net assets acquired from the acquisition (amounts in millions):
Cash
|
|
$
|
0.4
|
|
Accounts Receivable
|
|
|
15.1
|
|
Inventory
|
|
|
37.5
|
|
Prepaid and other assets
|
|
|
0.5
|
|
Property and equipment
|
|
|
50.7
|
|
Intangible Assets
|
|
|
14.0
|
|
Goodwill
|
|
|
5.0
|
|
Total Assets
|
|
$
|
123.2
|
|
|
|
|
|
|
Floor plan payable
|
|
|
(29.0
|
)
|
Accounts payable
|
|
|
(14.0
|
)
|
Accrued expenses
|
|
|
(4.1
|
)
|
Other liabilities
|
|
|
(0.3
|
)
|
Total Liabilities
|
|
$
|
(47.4
|
)
|
|
|
|
|
|
Net Assets Acquired
|
|
$
|
75.8
|
|
|
|
|
|
|
Assets acquired net of cash
|
|
$
|
75.4
|
|
It should be further noted that, upon the acquisition’s close, the Company established additional floorplan borrowings for new equipment on its Floor Plan Facility with its first lien lender in the amount of $1.2 million.
Liftech
On February 14, 2020, in connection with the reverse recapitalization, the Company consummated its acquisition of Liftech for a total purchase price of $18.4 million adjusted for the $1.5 million working capital, which was paid out of funds from the closing of the reverse recapitalization. The $1.5 million working capital will be settled in the third quarter of 2020.
The acquisition has been accounted for as a purchase business combination. Under the purchase method of accounting, the fair value of the assets acquired, and liabilities assumed have been recorded at the acquisition date in our consolidated financial statements and may be subject to adjustment pending completion of final valuation.
The fair value of accounts receivable was determined based on the acquisition date net book value and an evaluation of amounts deemed recoverable through subsequent collection. The fair value of inventory and property, plant, and equipment were estimated to approximate their respective acquisition date net book values.
The Company expects the goodwill recognized to be 100% deductible for income tax purposes. Costs and expenses related to the acquisition have been expensed as incurred in operating expenses.
The following table summarizes the net assets acquired from the acquisition (amounts in millions):
Accounts receivable
|
|
$
|
4.4
|
|
Inventory
|
|
|
9.6
|
|
Other current & non-current assets
|
|
|
1.0
|
|
Property, plant, and equipment
|
|
|
5.9
|
|
Intangible Assets
|
|
|
0.7
|
|
Goodwill
|
|
|
2.0
|
|
Total Assets
|
|
$
|
23.6
|
|
|
|
|
|
|
Floor plan payable
|
|
|
(3.5
|
)
|
Accounts payable and accrued expenses
|
|
|
(1.6
|
)
|
Other liabilities
|
|
|
(0.1
|
)
|
Total Liabilities
|
|
$
|
(5.2
|
)
|
|
|
|
|
|
Net Assets Acquired
|
|
$
|
18.4
|
|
21
It should be further noted that, upon the acquisition’s close, the Company established additional floorplan borrowings for new equipment on its Floor Plan Facility with its first lien lender in the amount of $2.5 million.
Northland Industrial Truck Co., Inc.
On May 1, 2019, the Company purchased the assets of Northland Industrial Truck Co., Inc., or NITCO, for a total purchase price of $65.6 million. In connection with the purchase, NITCO, LLC was created.
The goodwill of $1.0 million arising from the acquisition consists largely of an assembled workforce and is expected to be deductible for income tax purposes. The total balance of goodwill was allocated to the Industrial Equipment segment.
The acquisition has been accounted for as a purchase business combination. Under the purchase method of accounting, the assets and liabilities assumed are recorded at the date of acquisition at their respective fair values.
The fair value of accounts receivable was determined based on the acquisition date net book value and an evaluation of amounts deemed recoverable through subsequent collection. The fair value of inventory and property, plant, and equipment were estimated to approximate their respective acquisition date net book values.
The following table summarizes the net assets acquired from the acquisition (amounts in millions):
Accounts receivable
|
|
$
|
13.9
|
|
Other current & non-current assets
|
|
|
0.5
|
|
Inventory
|
|
|
35.7
|
|
Guaranteed purchase obligation asset
|
|
|
9.7
|
|
Property, plant, and equipment
|
|
|
18.8
|
|
Identifiable intangible assets
|
|
|
3.3
|
|
Goodwill
|
|
|
1.0
|
|
Total Assets
|
|
$
|
82.9
|
|
|
|
|
|
|
Accounts payable
|
|
|
(5.2
|
)
|
Guaranteed purchase obligation liability
|
|
|
(9.7
|
)
|
Capital lease obligations
|
|
|
(1.3
|
)
|
Other liabilities
|
|
|
(1.1
|
)
|
Total Liabilities
|
|
$
|
(17.3
|
)
|
|
|
|
|
|
Net Assets Acquired
|
|
$
|
65.6
|
|
Pro forma financial information
The Company completed the Flagler acquisition on February 14, 2020. Therefore, operating results of Flagler are included in the Company’s Consolidated Statement of Operations from February 14, 2020. Pursuant to ASC 805, pro forma disclosures should be reported whenever the year or interim period of the acquisition is presented. Since the Flagler acquisition was completed in the period ended March 31, 2020, the pro forma information below gives effect to the Flagler acquisition as if the acquisition occurred on January 1, 2020.
|
|
6 Months ended June 30, 2020
|
|
|
|
The Company
|
|
|
Flagler
|
|
|
Total
|
|
Total revenues
|
|
$
|
372.6
|
|
|
$
|
25.8
|
|
|
$
|
398.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(21.1
|
)
|
|
$
|
(0.1
|
)
|
|
$
|
(21.2
|
)
|
22
Pro forma financial information
The Company completed the NITCO acquisition on May 1, 2019. Therefore, operating results of NITCO are included in the Company’s Consolidated Statement of Operations from May 1, 2019. Pursuant to ASC 805, pro forma disclosures should be reported whenever the year or interim period of the acquisition is presented. Since the NITCO acquisition was completed in the period ended December 31, 2019, the pro forma information below gives effect to the NITCO acquisition as if the acquisition occurred on January 1, 2019.
The Company, for this presentation, prorated NITCO pro forma financial information presented in our Registration Statement on Form S-1, filed with the SEC on March 25, 2020.
|
|
6 Months ended June 30, 2019
|
|
|
3 Months ended June 30, 2019
|
|
|
|
The Company
|
|
|
NITCO
|
|
|
Flagler
|
|
|
Total
|
|
|
The Company
|
|
|
NITCO
|
|
|
Flagler
|
|
|
Total
|
|
Total revenues
|
|
$
|
238.2
|
|
|
$
|
45.2
|
|
|
$
|
91.4
|
|
|
$
|
374.8
|
|
|
$
|
135.9
|
|
|
$
|
11.5
|
|
|
$
|
49.6
|
|
|
$
|
197.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(2.2
|
)
|
|
$
|
1.0
|
|
|
$
|
(1.4
|
)
|
|
$
|
(2.6
|
)
|
|
$
|
0.4
|
|
|
$
|
(0.2
|
)
|
|
$
|
(1.5
|
)
|
|
$
|
(1.3
|
)
|
The Liftech and PeakLogix acquisitions were not deemed material for proforma financial information disclosure.
NOTE 15 — SEGMENTS
The Company has two reportable segments: Industrial Equipment and Construction Equipment. The Company’s segments are determined based on management structure, which is organized based on types of products sold, as described in the following paragraph. The operating results for each segment are reported separately to the Company’s Chief Executive Officer to make decisions regarding the allocation of resources, to assess the Company’s operating performance and to make strategic decisions.
The Industrial Equipment segment is principally engaged in operations related to the sale, service, and rental of lift trucks in Michigan, Illinois, Indiana and New York, as well as parts of the northeastern United States. As of June 12, 2020, the Industrial Equipment segment also includes PeakLogix. The Construction Equipment segment is principally engaged in operations related to the sale, service, and rental of construction equipment in Michigan, Illinois and Florida.
The Construction Equipment segment is principally engaged in operations related to the sale, service, and rental of construction equipment in Michigan and Illinois.
The Company retains various unallocated expense items at the general corporate level, which the Company refers to as “Corporate” in the table below. Corporate holds corporate debt and has minor activity all together. During the first quarter 0f 2020, Corporate incurred $7.6 million in debt extinguishment fees, $7.6 million in transaction costs and other expenses associated with the reverse recapitalization. During the second quarter of 2020, Corporate primarily incurred expenses associated with consulting and legal fees, acquisition costs and interest expense.
The following table presents the Company’s results of operations by reportable segment for the six months ended June 30, 2020 (amounts in millions):
|
|
Industrial
Equipment
|
|
|
Construction
Equipment
|
|
|
Corporate
|
|
|
Total
|
|
New and used equipment sales
|
|
$
|
94.0
|
|
|
$
|
83.3
|
|
|
$
|
—
|
|
|
$
|
177.3
|
|
Parts sales
|
|
|
27.0
|
|
|
|
29.8
|
|
|
|
—
|
|
|
|
56.8
|
|
Service revenue
|
|
|
38.4
|
|
|
|
20.2
|
|
|
|
—
|
|
|
|
58.6
|
|
Rental revenue
|
|
|
22.0
|
|
|
|
29.2
|
|
|
|
—
|
|
|
|
51.2
|
|
Rental equipment sales
|
|
|
8.3
|
|
|
|
20.4
|
|
|
|
—
|
|
|
|
28.7
|
|
Total revenue
|
|
$
|
189.7
|
|
|
$
|
182.9
|
|
|
$
|
—
|
|
|
$
|
372.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
2.9
|
|
|
|
5.1
|
|
|
|
3.6
|
|
|
|
11.6
|
|
Depreciation and amortization
|
|
|
10.6
|
|
|
|
20.0
|
|
|
|
—
|
|
|
|
30.6
|
|
Net income (loss)
|
|
$
|
5.1
|
|
|
$
|
(6.2
|
)
|
|
$
|
(20.0
|
)
|
|
$
|
(21.1
|
)
|
23
The following table presents the Company’s results of operations by reportable segment for the three months ended June 30, 2020 (amounts in millions):
|
|
Industrial
Equipment
|
|
|
Construction
Equipment
|
|
|
Corporate
|
|
|
Total
|
|
New and used equipment sales
|
|
$
|
51.7
|
|
|
$
|
43.4
|
|
|
$
|
—
|
|
|
$
|
95.1
|
|
Parts sales
|
|
|
12.0
|
|
|
|
16.1
|
|
|
|
—
|
|
|
|
28.1
|
|
Service revenue
|
|
|
17.8
|
|
|
|
10.6
|
|
|
|
—
|
|
|
|
28.4
|
|
Rental revenue
|
|
|
10.5
|
|
|
|
15.5
|
|
|
|
—
|
|
|
|
26.0
|
|
Rental equipment sales
|
|
|
3.1
|
|
|
|
11.4
|
|
|
|
—
|
|
|
|
14.5
|
|
Total revenue
|
|
$
|
95.1
|
|
|
$
|
97.0
|
|
|
$
|
—
|
|
|
$
|
192.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
1.4
|
|
|
|
2.7
|
|
|
|
1.6
|
|
|
|
5.7
|
|
Depreciation and amortization
|
|
|
5.4
|
|
|
|
11.3
|
|
|
|
—
|
|
|
|
16.7
|
|
Net income (loss)
|
|
$
|
3.6
|
|
|
$
|
(3.8
|
)
|
|
|
(3.9
|
)
|
|
$
|
(4.1
|
)
|
The following table presents the Company’s results of operations by reportable segment for the six months ended June 30, 2019 (amounts in millions):
|
|
Industrial
Equipment
|
|
|
Construction
Equipment
|
|
|
Corporate
|
|
|
Total
|
|
New and used equipment sales
|
|
$
|
56.8
|
|
|
$
|
49.2
|
|
|
$
|
—
|
|
|
$
|
106.0
|
|
Parts sales
|
|
|
21.4
|
|
|
|
15.7
|
|
|
|
—
|
|
|
|
37.1
|
|
Service revenue
|
|
|
28.2
|
|
|
|
11.7
|
|
|
|
—
|
|
|
|
39.9
|
|
Rental revenue
|
|
|
14.9
|
|
|
|
24.2
|
|
|
|
—
|
|
|
|
39.1
|
|
Rental equipment sales
|
|
|
1.8
|
|
|
|
14.3
|
|
|
|
—
|
|
|
|
16.1
|
|
Total revenue
|
|
$
|
123.1
|
|
|
$
|
115.1
|
|
|
$
|
—
|
|
|
$
|
238.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
2.0
|
|
|
|
3.9
|
|
|
|
3.6
|
|
|
|
9.5
|
|
Depreciation and amortization
|
|
|
6.7
|
|
|
|
13.8
|
|
|
|
—
|
|
|
|
20.5
|
|
Net income (loss)
|
|
$
|
3.1
|
|
|
$
|
(0.9
|
)
|
|
$
|
(4.4
|
)
|
|
$
|
(2.2
|
)
|
The following table presents the Company’s results of operations by reportable segment for the three months ended June 30, 2019 (amounts in millions):
|
|
Industrial
Equipment
|
|
|
Construction
Equipment
|
|
|
Corporate
|
|
|
Total
|
|
New and used equipment sales
|
|
$
|
35.3
|
|
|
$
|
25.9
|
|
|
$
|
—
|
|
|
$
|
61.2
|
|
Parts sales
|
|
|
12.4
|
|
|
|
8.2
|
|
|
|
—
|
|
|
|
20.6
|
|
Service revenue
|
|
|
16.4
|
|
|
|
6.3
|
|
|
|
—
|
|
|
|
22.7
|
|
Rental revenue
|
|
|
9.0
|
|
|
|
13.1
|
|
|
|
—
|
|
|
|
22.1
|
|
Rental equipment sales
|
|
|
1.8
|
|
|
|
7.5
|
|
|
|
—
|
|
|
|
9.3
|
|
Total revenue
|
|
$
|
74.9
|
|
|
$
|
61.0
|
|
|
$
|
—
|
|
|
$
|
135.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
1.1
|
|
|
|
1.9
|
|
|
|
2.0
|
|
|
|
5.0
|
|
Depreciation and amortization
|
|
|
4.0
|
|
|
|
7.4
|
|
|
|
—
|
|
|
|
11.4
|
|
Net income (loss)
|
|
$
|
2.4
|
|
|
$
|
0.4
|
|
|
|
(2.4
|
)
|
|
$
|
0.4
|
|
24
The following table presents the Company’s identified assets by reportable segment for the period ending June 30, 2020 and December 31, 2019 (amounts in millions):
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
Segment assets:
|
|
|
|
|
|
|
|
|
Industrial equipment
|
|
$
|
236.8
|
|
|
$
|
207.5
|
|
Construction equipment
|
|
|
414.8
|
|
|
|
246.0
|
|
Corporate
|
|
|
12.7
|
|
|
|
0.7
|
|
Total assets
|
|
$
|
664.3
|
|
|
$
|
454.2
|
|
NOTE 16 — SUBSEQUENT EVENTS
On July 1, 2020, the Company closed its acquisition of Hilo Equipment & Services, distributor of material handling equipment with three branches in the New York City metro area. Under the terms of the agreement, the purchase price at close was $17.3 million in cash and potential earn out payments tied to post closing performance of the Hilo business.
On July 31, 2020, the Company announced its entry into a definitive agreement to acquire Martin Implement Sales, Inc., a privately held premium distributor of construction and agricultural equipment in the greater Chicago area. The acquisition is expected to close during the third quarter of 2020.
25