Alta Equipment Group Inc. — FY2021 Form 10-K
Reporting period: Year ended December 31, 2021; comparison is with the year ended December 31, 2020. Unless noted, amounts are in millions of dollars. Alta sells, rents, and services material-handling and construction equipment through 64 locations in 12 states. It reports Material Handling and Construction Equipment segments.
Financial performance and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net revenue | $1,212.8 | $873.6 |
| Gross profit / margin | $314.4 / 25.9% | $214.5 / 24.6% |
| Operating income (loss) | $18.0 | $(8.1) |
| Net loss | $(20.8) | $(24.0) |
| Net loss available to common shareholders | $(23.4), or $(0.74) per share | $(24.0), or $(0.90) per share |
| Cash and cash equivalents at year-end | $2.3 | $1.2 |
- Revenue increased 38.8%. Management attributed growth to recovery and organic demand, the full-year contribution of 2020 acquisitions, and, to a lesser extent, 2021 acquisitions. Organic revenue also grew across equipment, parts, service, rentals, and rental-equipment sales.
- Construction Equipment revenue rose 51.1% to $745.3; Material Handling revenue rose 22.9% to $467.5. Segment operating results were $13.2 and $15.4, respectively, for Construction Equipment and Material Handling; the latter segment table reports net income of $10.2.
- Gross margin improved 1.3 percentage points. Stronger equipment pricing and rental utilization, and a larger contribution from higher-margin design/build and integration work, helped; service and parts margins declined modestly.
- Cash flow from operating activities was $30.7 in FY2021 versus cash used of $35.0 in FY2020. Investing activities used $113.4, including $63.4 for acquisitions; financing activities provided $83.8.
- Year-end total assets were $982.6 and total liabilities $847.9. Current assets were $448.6 versus current liabilities of $420.6. The balance sheet included $310.0 of long-term notes, $100.7 outstanding under the ABL facility, and $154.9 of aggregate first-lien and OEM floor-plan borrowings, excluding applicable financing costs.
- Alta reported $385.2 of available borrowing capacity under its revolving line and floor plans at year-end. The filing says management believed cash, operating cash flow, and borrowing availability would meet foreseeable liquidity needs, while cautioning that future cash generation and refinancing are not assured.
Material changes and financing
- FY2021 acquisitions included ScottTech, Baron, Gibson, Midwest Mine, Ginop, and Ambrose. They broadened warehousing/logistics integration, construction and agricultural equipment, and regional coverage. The 2020 comparison also reflects a series of acquisitions and is not purely organic.
- In April 2021, Alta issued $315.0 of 5.625% senior secured second-lien notes due April 2026, and refinanced its credit arrangements. The notes’ reported year-end carrying amount was $310.0, including deferred financing costs and original issue discount; effective interest was 5.93%.
- The refinancing included a $350.0 maximum ABL facility, subject to its borrowing base, and a first-lien floor-plan facility with a $50.0 maximum. The notes and facilities are secured and subject to covenants. Alta reported compliance with financial covenants at year-end.
- Alta exchanged all outstanding warrants in April 2021 for approximately 2.28 million common shares. Preferred dividends were $2.6 in 2021; the Series A preferred stock carries a 10% cumulative dividend when declared.
Outlook, risks, and unusual items
- Outlook: The filing provides no specific revenue, earnings, or other quantified FY2022 guidance. Management said supply-chain constraints had extended OEM equipment lead times beyond historical norms, creating a large sales backlog. It expected to monitor demand, labor, and rental utilization and adjust staffing and fleet levels. Management described business activity as generally at or above pre-pandemic levels but warned that worsening supply issues or renewed pandemic effects could hurt results.
- Profit and cash-flow considerations: Net loss persisted despite positive operating income, in part reflecting $35.2 of total other expense, including $11.9 of debt-extinguishment loss, and a $3.6 income-tax provision. The 2020 comparison included $8.0 of key-person life-insurance proceeds and temporary pandemic cost reductions.
- Key risks: Economic and construction cycles, seasonality and weather, inflation and OEM supply constraints, dependence on major manufacturers, competition, skilled-labor availability, rental-fleet residual values and repair costs, acquisition integration, customer credit, interest rates and substantial indebtedness, and cybersecurity and regulatory exposure.
- Internal controls: Management identified three material weaknesses: IT access and segregation-of-duties controls, parts inventory controls, and order-to-cash authorization and review controls. Management concluded internal control over financial reporting was ineffective at December 31, 2021; the auditor issued an adverse opinion on internal control, while giving an unqualified opinion on the financial statements. Management expected remediation before FY2022 year-end, but stated it was not yet complete.
- Other items: Alta adopted ASC 842 lease accounting in 2021, recognizing $102.6 of operating lease right-of-use assets and $104.6 of operating lease liabilities at year-end. It shortened certain acquired tradename useful lives, accelerating amortization. It reported no material pending litigation and no material off-balance-sheet arrangements; estimated exposure on third-party lease guarantees was $1.7, with no accrual recorded.
Important facts for investors to verify
- Reconcile operating cash flow: the cash-flow statement reports $30.7 provided in FY2021, but the MD&A narrative says $30.7 was used. The filing text is internally inconsistent on this point.
- Review the three material weaknesses, remediation progress, and whether controls operated effectively for a sufficient period in FY2022.
- Assess available borrowing capacity against borrowing-base limits, debt maturities, interest costs, covenants, and the company’s low year-end cash balance.
- Separate organic growth from acquisition-driven growth and evaluate whether OEM supply constraints, pricing, rental utilization, and backlog convert into sustained margins and cash flow.
- Check subsequent disclosures on acquisition purchase-price allocations, contingent earn-outs, rental-fleet values, preferred dividends, and any changes in supplier or customer conditions.