Alta Equipment Group Inc. — Q1 2020 10-Q
Reporting period: Three months ended March 31, 2020. Alta sells, services and rents industrial and construction equipment through two reportable segments. The quarter includes Flagler and Liftech from their February 14, 2020 acquisition dates; NITCO was acquired in May 2019. Accordingly, year-over-year results reflect acquisitions and are not directly comparable. The reverse recapitalization closed February 14, 2020.
Financial performance and position
| Metric | Q1 2020 | Q1 2019 / prior balance-sheet date |
|---|---|---|
| Revenue | $180.5 million | $102.3 million |
| Gross profit / margin | $47.1 million / 26.1% | $27.5 million / 26.9% |
| Operating income (loss) | $(5.0) million | $1.6 million |
| Net income (loss) | $(17.0) million | $(2.6) million |
| Basic and diluted loss per share | $(0.91) | $(0.36) |
| Operating cash flow | $(57.1) million | $3.4 million |
| Cash and current assets | $36.4 million cash; $379.0 million current assets | Cash was $0 at December 31, 2019 |
- Revenue rose 76.4%; management attributed the increase primarily to NITCO, Flagler and Liftech, plus organic growth in existing markets. Equipment sales increased 83.5%, parts 73.9%, service 75.6%, rental revenue 48.2%, and rental equipment sales 108.8%.
- Gross margin fell 0.8 percentage points. Management cited a sales mix shift, including faster growth in Construction, whose parts and service margins are generally lower than Industrial.
- General and administrative expense was $52.1 million, up from $25.9 million, reflecting acquisitions, growth-related costs and reverse-recapitalization transaction expenses. Other expense included a $7.6 million debt-extinguishment loss; the filing also attributes $7.6 million of transaction costs to the recapitalization.
- Operating cash use reflected, among other items, a $33.6 million inventory increase and $26.5 million of net payments on manufacturer floor plans. Investing cash use was $118.3 million, including $91.7 million for acquisitions and approximately $26.7 million for rental and other property and equipment. Financing provided $211.8 million, including $175.7 million of reverse-recapitalization proceeds.
- At March 31, current liabilities were $383.2 million, exceeding current assets by $4.2 million. The company reported $36.4 million cash. Its disclosure states $139.1 million of available borrowings under the revolving line and floor plans.
- The amended ABL revolving facility has $300 million capacity; reported outstanding borrowings were $133.4 million before unamortized costs. Floor-plan borrowings totaled $162.6 million, against a $225 million aggregate limit. The new term loan had $155 million principal, $147.3 million net carrying value, an August 2025 initial maturity and a 9.8% effective rate. The company said it was in compliance with financial covenants.
Material changes and unusual items
- The February 14 reverse recapitalization brought $175.7 million of net equity proceeds, replaced or refinanced prior debt, and resulted in 29.5 million shares outstanding at March 31. The comparative weighted-average share counts were 18.8 million in 2020 and 7.3 million in 2019, affecting per-share comparability.
- Flagler was acquired for $74.6 million and Liftech for $17.5 million. Purchase-price allocations were provisional. Flagler’s supplemental pro forma Q1 2020 revenue was $206.3 million and net loss was $17.1 million as if acquired January 1; this is not reported GAAP revenue.
- Goodwill increased from $8.6 million to $30.3 million, primarily from acquisitions. COVID-19-related share-price declines triggered interim impairment testing; no goodwill impairment was recorded at March 31.
- The company repurchased 472,182 shares for approximately $2.9 million under a board-authorized $10 million program, then suspended the program in March.
Outlook, risks and contingencies
- Management expected full-year 2020 results to be adversely affected by COVID-19, but could not quantify the impact. Business activity slowed beginning in mid-March, initially particularly among automotive customers in Michigan; management expected disruption into Q2 and potentially beyond. Suppliers’ manufacturing operations were also reduced.
- Management stated it believed liquidity was sufficient for at least the next 12 months. It cautioned that prolonged reopening delays or a slower demand recovery could require further cost reductions and/or additional financing. Executive pay reductions, employee furloughs and other cost-saving measures were implemented; operations were designated essential and sales and back-office staff largely worked remotely.
- Key risks include pandemic-related demand, customer payment and supply-chain disruptions; equipment utilization and rental activity; economic and public infrastructure spending conditions; acquisition integration; and access to financing. The filing reported routine legal claims not expected to have a material effect and estimated $2.9 million of third-party guarantee exposure, with no liability accrued.
Important facts for investors to verify
- Track post-quarter COVID-19 effects on orders, service activity, rental utilization, collections and supplier availability; the filing gives no quantified full-year forecast.
- Assess liquidity and working-capital needs alongside negative Q1 operating cash flow, current liabilities exceeding current assets, and availability and terms of borrowing facilities.
- Review debt service costs, covenant headroom and refinancing risk, including the term loan’s 9.8% effective rate and floor-plan obligations.
- Separate organic performance from acquired revenue and costs, and monitor provisional acquisition accounting, integration results and goodwill impairment assumptions.
- Consider the $7.6 million debt-extinguishment loss and separately described $7.6 million recapitalization transaction costs when evaluating underlying profitability; confirm their classification and nonrecurring nature.