Alta Equipment Group Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless otherwise noted. Alta sells, services and rents material-handling and construction equipment, primarily across the Midwest, Northeast and Florida. Figures below are in millions of dollars except per-share data.
Key financial metrics
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $268.8 | $180.5 |
| Gross profit / margin | $67.3 / 25.0% | $47.1 / 26.1% |
| Operating income (loss) | $0.4 | $(5.0) |
| Net loss | $(5.7) | $(17.0) |
| Basic and diluted loss per share | $(0.19) | $(0.91) |
| Cash used in operating activities | $(0.3) | $(57.1) |
| Cash used in investing activities | $(8.9) | $(118.3) |
| Cash provided by financing activities | $8.6 | $211.8 |
- Revenue grew 48.9%. Q1 2021 revenue included $123.8 equipment sales, $41.4 parts, $38.7 service, $33.1 rental and $31.8 rental-equipment sales.
- At March 31, cash was $0.6; current assets were $381.3 and current liabilities $439.6. Total assets were $745.0 and stockholders’ equity $151.5.
- Debt and floor-plan financing at March 31 included $170.9 outstanding on the ABL, $154.3 in floor plans and $147.3 principal on the second-lien term loan. The balance sheet reported $141.3 of total long-term debt, net of financing costs and discount, including current maturities.
- Management reported $207.0 of available borrowings under revolving credit and floor-plan facilities and stated it believed liquidity was sufficient for the foreseeable future. The company was in compliance with debt covenants at quarter-end.
Changes versus prior year
- Growth primarily reflected the full-period contribution of 2020 acquisitions. Management reported organic new and used equipment sales were nearly flat, while organic parts and service rose 1.4%, rental revenue rose 0.9%, and rental-equipment sales rose 54.5%.
- Construction Equipment revenue increased 74.4% to $162.0, supported by acquisitions and stronger organic demand. Material Handling revenue increased 21.9% to $106.8, but management said that segment’s recovery remained slower; organic equipment sales, aftermarket revenue and rental revenue declined.
- Gross margin fell 1.1 percentage points to 25.0%. Higher rental-equipment depreciation and revenue mix weighed on rental margins; equipment and rental-equipment sales margins improved. G&A increased 28.4% to $66.9, mainly reflecting acquisitions and public-company costs.
- Net loss narrowed by $11.3, partly because Q1 2020 included a $7.6 debt-extinguishment loss. Q1 2021 also included a $0.5 income-tax provision to establish a valuation allowance against deferred tax assets.
- Operating cash use improved substantially year over year, but cash remained low. Working-capital needs included a $34.2 inventory increase; rental-equipment sale proceeds were $31.8.
Outlook, risks and unusual items
- No specific revenue, earnings or cash-flow guidance is provided. Management said Q1 activity was generally at pre-COVID levels and believed the worst pandemic effects were behind the business, while continuing to monitor labor demand and rental utilization.
- Management cited recovery-related OEM supply constraints and longer-than-normal new-equipment lead times. It warned that prolonged or worsening disruption could adversely affect results; used equipment and diversified revenue streams may help mitigate the effects.
- On April 1, 2021, after quarter-end, Alta issued $315.0 of 5.625% senior secured second-lien notes due 2026 and used proceeds, alongside new facility borrowings, to repay the $147.3 term loan, refinance portions of ABL and floor-plan debt, and pay fees. Amended facilities provide ABL borrowings up to the lesser of $350.0 or the borrowing base and floor-plan borrowings up to the lesser of $40.0 or the borrowing base; stated maturity is generally April 2026, with an earlier December 2025 trigger if the notes remain outstanding.
- On April 12, 2021, the company exchanged all 8.67 million warrants for approximately 2.28 million common shares. It concluded the potential historical accounting reclassification of 206,250 private-placement warrants was immaterial and no restatement was required.
- Alta changed estimated useful lives and depreciation methods for certain rental assets prospectively in 2021. The filing says these changes affected depreciation; investors should consider their effect when comparing margins and earnings.
- Guarantees of third-party lease obligations had estimated exposure of approximately $1.9 at March 31, with no accrual recorded. Routine litigation was not expected by management to materially affect the financial statements. Management reported effective disclosure controls.
Important facts for investors to verify
- How much of reported growth and profitability is sustainable organically versus attributable to acquisitions and rental-equipment sales.
- Current borrowing-base availability, debt service and refinancing implications following the April 1 notes offering and credit-facility amendments.
- Whether OEM supply constraints, rental utilization and equipment pricing persist, and how rental depreciation changes affect reported margins.
- Cash conversion and working-capital requirements, including inventory investment and the company’s low quarter-end cash balance.
- The assumptions behind the deferred-tax valuation allowance, acquisition earn-outs and unaccrued guarantee exposure, as well as the dilution from the warrant exchange.