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. and its subsidiaries (“Alta” or the “Company”) is engaged in the retail sale, service, and rental of material handling and construction equipment in the states of Michigan, Illinois, Indiana, New York (including New York City in our Material Handling segment), Virginia and Florida as well as the New England region (including Boston) of the United States.
Alta Equipment Holdings, Inc. is the holding company 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; PeakLogix, LLC; Alta Construction Equipment, LLC; Alta Construction Equipment Illinois, LLC; Alta Heavy Equipment Services, LLC; NITCO, LLC; Alta Construction Equipment Florida, LLC, Alta Material Handling Upstate New York, LLC, Alta Construction Equipment Ohio, LLC, and Alta Construction Equipment New York, LLC.
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 nine months ended September 30, 2021 is not necessarily indicative of the results that may be expected for the year ending December 31, 2021, and therefore, the results and trends in these interim consolidated financial statements may not be the same for the entire year. These interim unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s 2020 Annual Report on Form 10-K.
The Company updated the depreciable useful lives of certain of its rental equipment product categories based on our 2020 year-end analysis of fair value relative to book value, prior-year utilization trends and a review of market participants approach to depreciation for similar products. The updates to depreciable useful lives were adjusted on prospective basis. Specifically, the notable changes for 2021 is extending the depreciable life on lift trucks in our Material Handling segment to 84 months, extending the depreciable life on certain aerial and crane related assets in our Construction Equipment segment to 120 months and applying straight-line depreciation to underutilized construction equipment assets that are being depreciated on a unit-of-activity basis to the extent the assets meet certain underutilization thresholds. These accounting policies of the Company were also described in Note 2 to the audited consolidated financial statements contained in the Company’s 2020 Annual Report on Form 10-K.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates are based on assumptions that we believe are reasonable under the circumstances. Due to the inherent uncertainty involved with estimates, actual results may differ. Additionally, the COVID-19 outbreak has had an impact on our approach to these estimates and assumptions, specifically in 2020 during the more acute phases of the pandemic, and any increased severity of the pandemic on our business could result in a reassessment of these estimates and assumptions which, in turn, could affect the reported amounts on our financial statements. Please see section titled Risk Factors in our 2020 Annual Report on Form 10-K for a discussion of risks associated with the COVID-19 pandemic.
Impairment of Long-lived Assets
The Company evaluates long-lived assets, such as property and equipment and intangible assets subject to amortization, for impairment 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 did not identify any indications necessary to perform an interim impairment test for the long-lived assets as of and for the period ended September 30, 2021.
7
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 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 September 30, 2021.
Income Taxes
The Company was formed in 2020 for 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.
We use the guidance in FASB ASC Topic 740-270, Income Taxes in Interim Periods, where tax provision or benefit from income taxes for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that are considered in the relevant period. At the end of each interim reporting period, we update our estimate of the annual effective tax rate, and if our estimated tax rate changes, we make a cumulative adjustment.
The computation of the annual expected effective income tax rate at each interim period requires certain estimates and assumptions including, but not limited to, the expected income (loss) before income taxes for the year, projections of the proportion of income (and/or loss) earned and taxed, permanent and temporary differences, and the likelihood of the realizability of deferred tax assets generated in the current year. The estimates used to compute the provision or benefit for income taxes may change as new events occur, additional information is obtained or the Company’s tax environment changes. In addition, the effect of changes in enacted tax laws or rates, tax status, judgment on the realizability of a beginning-of-the-year deferred tax asset in future years or to the extent that the expected annual effective income tax rate changes, the effect of the change on prior interim periods is included in the income tax provision in the period in which the change in estimate occurs. We establish valuation allowances for our deferred tax assets if the amount of expected future taxable income is not likely to allow for the use of the deduction or credit.
Share Based Compensation
The Board of Directors approved the Company’s 2020 Omnibus Incentive Plan, which enables the Company to grant stock options, stock appreciation rights, restricted stock, restricted stock units, unrestricted stock, other share based awards and cash awards to directors, employees and consultants to improve the ability of the Company to attract, retain, and motivate individuals upon whom the Company’s sustained growth and financial success depend, by providing such persons with an opportunity to acquire or increase their proprietary interest in the Company.
We measure the employee stock-based awards at grant-date fair value using provisions of ASC 718 – Stock Compensation and record compensation expense over the vesting period of the award. The Company made an accounting election upon adoption of Accounting Standard Update (“ASU”) 2016-09 and will recognize forfeitures when they occur. The Company treated equity awards granted to non-employee directors similarly to the equity awards to employees upon adoption of ASU 2018-07.
New Accounting Pronouncements
Pronouncements Not Yet Adopted
Leases (Topic 842)
In February 2016, the FASB issued ASU 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.
8
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, 2021, with an effective date of January 1, 2021, and the interim reporting periods beginning January 1, 2022. The Company will adopt the guidance using the modified retrospective transition method whereby the cumulative effect of adopting the standard is recognized in equity on the date of initial application and Topic 842 will apply to all leases existing at, or entered into after, January 1, 2021. The Company continues to perform a comprehensive evaluation on the impacts of adopting Topic 842 and believes this standard will primarily result in a material increase in right-of-use assets and lease liabilities on its consolidated balance sheet. The Company is progressing in its implementation of lease administration software and continues to assess the impact to our accounting policies, systems, processes, and internal controls. While the Company’s evaluation is ongoing, existing processes, controls, and information systems are expected to be impacted. The Company continues to analyze all the practical expedients and plans to elect the package of practical expedients as of the effective date to carryforward our historical assessments of (1) whether contracts are or contain leases, (2) lease classification, and (3) initial direct costs. The Company does not plan to apply Topic 842 to arrangements with lease terms of 12 months or less or elect the hindsight practical expedient.
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. 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 January 1, 2023. 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.
Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848)
In March 2020, the FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848). This guidance is intended to provide optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform (e.g., discontinuation of LIBOR) if certain criteria are met. The new standard was effective upon issuance and generally can be applied to applicable contract modifications through December 31, 2022. The amendments of this ASU should be applied on a prospective basis. Our potential exposure related to the expected cessation of LIBOR is limited to the interest expense we incur on our Credit Facility. We cannot predict the effect of the potential changes to or elimination of LIBOR, the establishment and use of alternative rates or benchmarks, but do not expect a significant impact on our consolidated financial position, and results of operations.
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 infrequent, judgment is required to determine whether performance obligations specified in these agreements are distinct and should be accounted for as separate revenue transactions for recognition purposes. In these types of agreements, 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 to repurchase 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”).
9
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 September 30, 2021 and December 31, 2020, the total lease liability relating to these various equipment sale transactions amounted to $3.2 million and $3.8 million, respectively. The Company also recognized a liability for its guarantee to repurchase the equipment at the residual amounts of $7.5 million and $9.0 million as of September 30, 2021 and December 31, 2020, 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 customers where it provides automated equipment installation and system integration services and installation and set-up of warehouse management systems and related hardware and software support services. Revenue from the installation services is recognized over time as the performance obligation is satisfied, determined using the cost-to-cost input method, based on contract costs incurred to date to total estimated contract costs. Revenue from recurring support services is recognized ratably over the contract period.
Revenue from periodic maintenance service sales is recognized upon completion of the service. Revenue from guaranteed maintenance contracts is recognized over the contract period in proportion to the costs expected to be incurred in performing services under the contract, typically three to five years.
Payment terms vary by the type and location of the customer and the products or services offered. Generally, the time between when revenue is recognized, and payment is due is not significant. The Company does not evaluate whether the selling price includes a financing interest component for contracts that are less than a year, or if payment is expected to be received less than a year after the good or service has been provided. Sales and other taxes collected from customers and remitted to government authorities are accounted for on a net basis and, therefore, excluded from revenue. Shipping and handling costs are treated as fulfillment costs and are included in cost of revenue.
Costs to obtain contracts, such as sales commissions, are expensed as incurred given that the terms of the contracts are generally less than one year.
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.
Deferred Revenue
The Company recognizes deferred revenue with respect to automated equipment installation and system integration services, service sales and rental agreements. Deferred revenue with respect to service sales represents the unearned portion of fees related to guaranteed maintenance contracts for customers covering equipment they have previously 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 automated equipment installation and system integration services, service sales agreements and rental agreements as of September 30, 2021 and December 31, 2020 was $18.2 million and $9.6 million, respectively.
10
Disaggregation of Revenues
The following table summarizes the Company’s disaggregated revenues as presented in the Consolidated Statements of Operations for the three months September 30, 2021 and 2020 by revenue type, and by the applicable accounting standard.
|
|
Three Months Ended
September 30, 2021
|
|
|
Three Months Ended
September 30, 2020
|
|
|
|
Topic 840
|
|
|
Topic 606
|
|
|
Total
|
|
|
Topic 840
|
|
|
Topic 606
|
|
|
Total
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New and used equipment sales
|
|
$
|
—
|
|
|
$
|
136.8
|
|
|
$
|
136.8
|
|
|
$
|
—
|
|
|
$
|
97.9
|
|
|
$
|
97.9
|
|
Parts sales
|
|
|
—
|
|
|
|
44.8
|
|
|
|
44.8
|
|
|
|
—
|
|
|
|
35.5
|
|
|
|
35.5
|
|
Service revenue
|
|
|
—
|
|
|
|
41.9
|
|
|
|
41.9
|
|
|
|
—
|
|
|
|
35.5
|
|
|
|
35.5
|
|
Rental revenue
|
|
|
41.7
|
|
|
|
—
|
|
|
|
41.7
|
|
|
|
32.2
|
|
|
|
—
|
|
|
|
32.2
|
|
Rental equipment sales
|
|
|
—
|
|
|
|
29.8
|
|
|
|
29.8
|
|
|
|
—
|
|
|
|
19.5
|
|
|
|
19.5
|
|
Net revenue
|
|
$
|
41.7
|
|
|
$
|
253.3
|
|
|
$
|
295.0
|
|
|
$
|
32.2
|
|
|
$
|
188.4
|
|
|
$
|
220.6
|
|
The following table summarizes the Company’s disaggregated revenues as presented in the Consolidated Statements of Operations for the nine months September 30, 2021 and 2020 by revenue type, and by the applicable accounting standard.
|
|
Nine Months Ended
September 30, 2021
|
|
|
Nine Months Ended
September 30, 2020
|
|
|
|
Topic 840
|
|
|
Topic 606
|
|
|
Total
|
|
|
Topic 840
|
|
|
Topic 606
|
|
|
Total
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New and used equipment sales
|
|
$
|
—
|
|
|
$
|
392.6
|
|
|
$
|
392.6
|
|
|
$
|
—
|
|
|
$
|
275.2
|
|
|
$
|
275.2
|
|
Parts sales
|
|
|
—
|
|
|
|
130.3
|
|
|
|
130.3
|
|
|
|
—
|
|
|
|
92.3
|
|
|
|
92.3
|
|
Service revenue
|
|
|
—
|
|
|
|
123.0
|
|
|
|
123.0
|
|
|
|
—
|
|
|
|
94.1
|
|
|
|
94.1
|
|
Rental revenue
|
|
|
113.0
|
|
|
|
—
|
|
|
|
113.0
|
|
|
|
83.4
|
|
|
|
—
|
|
|
|
83.4
|
|
Rental equipment sales
|
|
|
—
|
|
|
|
97.6
|
|
|
|
97.6
|
|
|
|
—
|
|
|
|
48.2
|
|
|
|
48.2
|
|
Net revenue
|
|
$
|
113.0
|
|
|
$
|
743.5
|
|
|
$
|
856.5
|
|
|
$
|
83.4
|
|
|
$
|
509.8
|
|
|
$
|
593.2
|
|
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.
11
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 bill-and-hold arrangements primarily apply to sales when physical shipment of heavy equipment to the customer is prohibited by law (e.g. frost laws) or requested by the customer due to their inability to arrange freight simultaneous to revenue being recognized, both are limited circumstances. The customer equipment sold under a bill-and-hold arrangement is physically separated from Company inventory and that equipment cannot be used by Alta or sold to another customer. The Company does not offer material rights of return. The Company recognized approximately $35.2 million and $7.1 million in revenues for the nine month period ended September 30, 2021 and 2020, respectively and approximately $13.8 million and $6.6 million in revenues for the three month period ended September 30, 2021 and 2020, respectively, from automated equipment installation and system integration services as the performance obligations were 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 $13.9 million and $12.0 million for the nine month period ended September 30, 2021, and 2020, respectively and $5.0 million and $4.2 million for the three-month period ended September 30, 2021, and 2020, 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. The Company recognizes warranty revenues at the time such services are completed.
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 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.
12
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 nine months ended September 30, 2021 and September 30, 2020 was $3.6 million and for both the three months ended September 30, 2021 and September 30, 2020 was $1.2 million.
NOTE 5 — INVENTORIES
The components of inventories, net, consisted of the following (amounts in millions):
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
New equipment
|
|
$
|
122.4
|
|
|
$
|
153.5
|
|
Used equipment
|
|
|
32.4
|
|
|
|
31.4
|
|
Work in process
|
|
|
7.2
|
|
|
|
5.4
|
|
Parts
|
|
|
46.7
|
|
|
|
41.6
|
|
Gross Inventory
|
|
$
|
208.7
|
|
|
$
|
231.9
|
|
Inventory reserves
|
|
|
(3.8
|
)
|
|
|
(2.9
|
)
|
|
|
$
|
204.9
|
|
|
$
|
229.0
|
|
Direct labor of $1.1 million and $1.7 million incurred for open service orders were capitalized and included in work in process at September 30, 2021 and December 31, 2020, respectively. The remaining work in process balances as of September 30, 2021 and December 31, 2020 primarily represent parts applied to open service orders. Rental depreciation expense in connection with our new and used equipment was $1.3 million and $4.5 million for the three and nine months ended September 30, 2021 and was $0.9 million and $2.4 million for the three and nine months ended September 30, 2020.
NOTE 6 — PROPERTY AND EQUIPMENT
Property and equipment, net, consisted of the following (amounts in millions):
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Land
|
|
$
|
2.1
|
|
|
$
|
0.1
|
|
Rental fleet
|
|
|
465.8
|
|
|
|
418.5
|
|
Equipment and leasehold improvements:
|
|
|
|
|
|
|
|
|
Machinery and equipment
|
|
|
6.4
|
|
|
|
5.5
|
|
Autos and trucks
|
|
|
6.5
|
|
|
|
7.0
|
|
Leasehold improvements
|
|
|
9.9
|
|
|
|
8.7
|
|
Office equipment
|
|
|
3.3
|
|
|
|
3.1
|
|
Computer equipment
|
|
|
10.8
|
|
|
|
9.4
|
|
Total Cost
|
|
$
|
504.8
|
|
|
$
|
452.3
|
|
|
|
|
|
|
|
|
|
|
Less: accumulated depreciation and amortization
|
|
|
|
|
|
|
|
|
Rental fleet
|
|
|
(147.8
|
)
|
|
|
(124.6
|
)
|
Equipment, auto and trucks, leasehold improvements and computer and office equipment
|
|
|
(18.7
|
)
|
|
|
(15.8
|
)
|
Total accumulated depreciation and amortization
|
|
|
(166.5
|
)
|
|
|
(140.4
|
)
|
|
|
$
|
338.3
|
|
|
$
|
311.9
|
|
13
Total depreciation and amortization on property and equipment was $62.4 million and $47.8 million for the nine months ended September 30, 2021, and 2020 respectively and $22.3 million and $19.4 million for the three months ended September 30, 2021, and 2020, 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 $3.8 million and $4.0 million, and accumulated amortization balances totaling $2.8 million and $2.5 million, as of September 30, 2021, and December 31, 2020, respectively. Of the $465.8 million and $418.5 million of gross cost of rental fleet, $11.3 million and $13.0 million were represented by guaranteed purchase obligation (“GPO”) assets as of September 30, 2021, and December 31, 2020, respectively.
NOTE 7 — GOODWILL
The following table summarizes the changes in the carrying amount of goodwill in total and by reportable segment as of September 30, 2021, and December 31, 2020 (amounts in millions):
|
|
Material
Handling
|
|
|
Construction
Equipment
|
|
|
Total
|
|
Balance, December 31, 2020
|
|
$
|
10.2
|
|
|
$
|
14.1
|
|
|
$
|
24.3
|
|
Additions
|
|
|
2.3
|
|
|
|
—
|
|
|
|
2.3
|
|
Adjustments to purchase price allocations
|
|
|
—
|
|
|
|
(1.4
|
)
|
|
|
(1.4
|
)
|
Balance, September 30, 2021
|
|
$
|
12.5
|
|
|
$
|
12.7
|
|
|
$
|
25.2
|
|
See Note 16, Business Combinations for further information.
NOTE 8 — INTANGIBLE ASSETS
The gross carrying amount of intangible assets and accumulated amortization as of September 30, 2021 and December 31, 2020 were as follows (amounts in millions):
|
|
September 30, 2021
|
|
|
December 31, 2020
|
|
|
|
Gross carrying
amount
|
|
|
Accumulated
amortization
|
|
|
Net carrying
amount
|
|
|
Gross carrying
amount
|
|
|
Accumulated
amortization
|
|
|
Net carrying
amount
|
|
Customer relationships
|
|
$
|
28.2
|
|
|
$
|
(5.2
|
)
|
|
$
|
23.0
|
|
|
$
|
25.9
|
|
|
$
|
(3.1
|
)
|
|
$
|
22.8
|
|
Tradenames
|
|
|
1.8
|
|
|
|
(0.6
|
)
|
|
|
1.2
|
|
|
|
1.6
|
|
|
|
(0.4
|
)
|
|
|
1.2
|
|
Non-compete agreements
|
|
|
0.7
|
|
|
|
(0.2
|
)
|
|
|
0.5
|
|
|
|
0.8
|
|
|
|
(0.1
|
)
|
|
|
0.7
|
|
Favorable market rent
|
|
|
1.7
|
|
|
|
(0.2
|
)
|
|
|
1.5
|
|
|
|
1.7
|
|
|
|
(0.1
|
)
|
|
|
1.6
|
|
Total
|
|
$
|
32.4
|
|
|
$
|
(6.2
|
)
|
|
$
|
26.2
|
|
|
$
|
30.0
|
|
|
$
|
(3.7
|
)
|
|
$
|
26.3
|
|
Amortization of intangible assets were $0.8 million and $2.3 million for the three and nine months ended September 30, 2021, and $0.7 million and $1.4 million for the three and nine months ended September 30, 2020, respectively. The amortization of favorable market rent is recorded to rent expense.
NOTE 9 — LINES OF CREDIT AND FLOOR PLANS
On April 1, 2021, the Company entered into a Sixth Amended and Restated ABL First Lien Credit Agreement (the “Amended and Restated ABL Credit Agreement”) 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. The Amended and Restated ABL Credit Agreement, among other things, (i) increased the asset based revolving line of credit (the “ABL Facility”) borrowing capacity from $300 million to $350 million, (ii) modified certain financial covenants, and (iii) removed the limitation on credit line borrowings if floorplan facilities exceeded $225 million.
On January 11, 2021, the Company amended its Fifth Amended and Restated ABL First Lien Credit Agreement 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. The amendment generally allowed for dividend payments to be made on the Preferred Stock without having to meet a leverage threshold, it excluded the Preferred dividend payments from affecting the second lien prepayment requirement, and it increased vendor floor plan limits from $225 million to $250 million; however, credit line borrowings would begin to be limited in the instance amounts borrowed on floor plan facilities exceed $225 million. The Fifth Amended and Restated ABL First Lien Credit Agreement was superseded and replaced by the Sixth Amended and Restated ABL First Lien Credit Agreement.
On April 1, 2021, the Company entered into a Sixth Amended and Restated Floor Plan First Lien Credit Agreement (the
14
“Amended and Restated Floor Plan Credit Agreement”, which establishes the “First Lien Floor Plan Facility”, and together with the Amended and Restated ABL Credit Agreement, collectively the “Credit Agreements”) 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, which among other things, 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, which is collateralized by substantially all assets of the Company, has a maximum borrowing capacity of $350 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 September 30, 2021, the Company had an outstanding ABL Facility balance of $47.8 million, excluding unamortized debt issuance costs. The effective interest rate was 2.0% at September 30, 2021. As of December 31, 2020, the Company had an outstanding ABL Facility balance of $159.1 million, excluding unamortized debt issuance costs. The effective interest rate was 2.0% at December 31, 2020.
The Company has a First Lien Floor Plan Facility with its first lien lender to primarily finance new inventory. This First Lien Floor Plan Facility has a maximum borrowing capacity of $40 million. The interest cost for the First Lien Floor Plan Facility is LIBOR plus an applicable margin. The First Lien Floor Plan Facility is collateralized by substantially all assets of the Company.
As of September 30, 2021, the Company had an outstanding balance on their First Lien Floor Plan Facility of $33.8 million, excluding unamortized debt issuance costs. The effective interest rate at September 30, 2021 was 2.8%. As of December 31, 2020, the Company had an outstanding balance on their First Lien Floor Plan Facility of $35.3 million, excluding unamortized debt issuance costs. The effective interest rate at December 31, 2020 was 2.9%.
Original Equipment Manufacturer (“OEM”) Captive Lenders and Suppliers’ Floor Plans
The Company has floor plan financing facilities with several OEM captive lenders and suppliers (the “OEM Floor Plan Facilities”, and together with the First Lien Floor Plan Facility, collectively the “Floor Plan Facilities”) for new and used inventory and rental equipment, each with borrowing capacities ranging from $2 million to $102 million. Primarily, the Company utilizes the OEM Floor Plan Facilities for purchases of new equipment inventories. Certain OEM Floor Plan Facilities provide for up to twelve-months interest only or deferred payment periods. In addition, certain OEM Floor Plan Facilities provide for interest and principal free terms at the OEMs’ discretion. The Company routinely sells equipment that is financed under OEM Floor Plan Facilities prior to the original maturity date of the financing agreement. When this occurs, the payable under the applicable OEM Floor Plan Facility related to the financed equipment being sold becomes due to be paid at the time of sale.
With the recent acquisitions, some of the Company’s OEM Floor Plan Facilities were amended to include new locations and new entities. The OEM Floor Plan 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 September 30, 2021 ranged from 0.0% to 9.1%. As of September 30, 2021, and December 31, 2020, the Company had an outstanding balance on the OEM Floor Plan Facilities of $115.8 million and $122.2 million, respectively.
The total aggregate amount of financing under the Floor Plan Facilities cannot exceed $250.0 million at any time. The total outstanding balance under the Floor Plan Facilities as of September 30, 2021, and December 31, 2020, was $149.6 million and $157.5 million, respectively, excluding unamortized debt issuance costs. For the nine months ended September 30, 2021, and 2020, the Company recognized interest expense associated with new equipment financed under its Floor Plan Facilities of $1.4 million and $1.8 million, respectively and $0.4 million and $0.5 million for the three months ended September 30, 2021, and 2020 respectively.
Maximum borrowings under the floor plans and ABL Facility are limited to $600 million unless certain other conditions are met. The total amount outstanding as of September 30, 2021, and December 31, 2020, was $197.4 million and $316.6 million, exclusive of debt issuance and deferred financings costs of $2.6 million and $1.5 million, respectively.
NOTE 10 — LONG-TERM DEBT
On April 1, 2021, the Company completed a private offering of our Senior Secured Second Lien Notes (the “Notes”), for the purposes of, among other things, repayment and refinancing of a portion of the Company’s prior existing debt, reducing interest rate exposure and providing liquidity for financing of future growth initiatives.
Senior Secured Second Lien Notes
On April 1, 2021, the Company sold $315 million of our 5.625% Notes which are due in 2026. The Notes are guaranteed (the “Guarantees” and, together with the Notes, the “Securities”) by the guarantors that are party thereto (the “Guarantors”) on a second lien, senior secured basis. The Notes were sold in a private placement in reliance on Rule 144A and Regulation S under the Securities Act of 1933, as amended, pursuant to a purchase agreement among the Company, the Guarantors, and J.P. Morgan Securities LLC, as representative of the initial purchasers.
15
The Notes are guaranteed by each of our existing and future domestic subsidiaries that becomes a borrower or guarantor under our or the Guarantors’ indebtedness, including the Credit Agreements, as amended and restated concurrently with the closing of the Notes offering. The Notes and the Guarantees are secured, subject to certain exceptions and permitted liens, by second-priority liens on substantially all of our assets and the assets of the Guarantors that secure on a first-priority basis all of the indebtedness under our ABL Facility and the Floor Plan Facility and certain hedging and cash management obligations, including, but not limited to, equipment, fixtures, inventory, intangibles and capital stock of our restricted subsidiaries now owned or acquired in the future by us or the Guarantors.
The Notes bear interest at the rate of 5.625% per annum and will mature on April 15, 2026. Interest on the Notes is payable in cash on April 15 and October 15 of each year, beginning on October 15, 2021. The October 15, 2021 interest payment was made on or about October 15, 2021.
As of September 30, 2021, outstanding borrowings under the Notes were $309.7 million, which included $5.3 million deferred financing costs and original issue discounts. The effective interest rate on the Notes, taking into account the original issue discount, is 5.93%.
Term Loan
On February 14, 2020, the Company entered into a Note Purchase Agreement which comprised of a second lien term loan (the “Term Loan”) in an aggregate principal amount of $155.0 million with a second priority lien lender through syndication, with an initial maturity date of August 2025. The term loan was payable, at the lender’s option, in quarterly installments of $1.9 million plus interest at LIBOR plus 8%. On April 1, 2021, in connection with the issuance of the new Notes, the Company repaid all of its outstanding obligations under the Term Loan, $147.3 million, completely discharging the Company of any further obligations to the lender.
Extinguishment of Debt
In the second quarter of 2021, and in connection with the repayment of the Term Loan, the Company recorded a loss on the extinguishment of debt in the amount of $11.9 million in the line item “Loss on Extinguishment of Debt” in its Consolidated Statements of Operations. This was in accordance with ASC Topic No. 470-50, “Debt – Modifications and Extinguishments” (Topic No. 470), as the transaction was determined to be an extinguishment of the existing debt and an issuance of new debt.
In the second quarter of 2020, 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. This was in accordance with ASC Topic No. 470-50, “Debt – Modifications and Extinguishments” (Topic No. 470), as the transaction was determined to be an extinguishment of the existing debt and an issuance of new debt.
The Company’s long-term debt consists of the following (amounts in millions):
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
High yield notes
|
|
$
|
315.0
|
|
|
$
|
—
|
|
Term loan
|
|
|
—
|
|
|
|
149.2
|
|
Unamortized debt issuance costs
|
|
|
(1.1
|
)
|
|
|
(1.8
|
)
|
Debt discount
|
|
|
(4.2
|
)
|
|
|
(4.6
|
)
|
Capital leases
|
|
|
0.8
|
|
|
|
1.5
|
|
Total debt and capital leases
|
|
$
|
310.5
|
|
|
$
|
144.3
|
|
Less: current maturities
|
|
|
(0.6
|
)
|
|
|
(8.7
|
)
|
Long-term debt and capital leases, net
|
|
$
|
309.9
|
|
|
$
|
135.6
|
|
As of September 30, 2021, the Company was in compliance with the financial covenants set forth in its debt agreements.
16
Promissory Note
On June 12, 2020, the Company entered into an unsecured promissory note for $1.0 million at an interest rate of 6.0% on the unpaid principal sum in connection with the PeakLogix acquisition which was due one year from the date of the acquisition. During the second quarter of 2021, the Promissory Note of $1.1 million, inclusive of accrued interest, was paid in full.
Notes Payable – Non-Contingent Consideration
The Company acquired all the assets of PeakLogix on June 12, 2020. Pursuant to the asset purchase agreement, Sellers are entitled to additional cash payments of a minimum of $2.0 million throughout a 5-year earn-out period. As of September 30, 2021, the Company recorded a $1.8 million liability which included a $1.7 million related to present value of these minimum cash payments using a market participant discount rate and $0.1 million of imputed interest. This additional future liability is recorded as non-contingent liability in “Other current liabilities” and “Other liabilities” on the Consolidated Balance Sheets. See Note 15, Fair Value Instruments and Note 16, Business Combinations for further information.
NOTE 11 — CONTINGENCIES
Guarantees
As of September 30, 2021, and December 31, 2020, 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 two to six 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 $1.7 million and $2.4 million at September 30, 2021 and December 31, 2020, 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 September 30, 2021 and December 31, 2020, respectively.
Legal Proceedings
During the nine months ended September 30, 2021 and September 30, 2020, various claims and lawsuits, incidental to the ordinary course of our 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.
Contractual Obligations
The Company does not believe there are any off-balance sheet arrangements that have, or are reasonably likely to have, a material effect on the Company. As of each of September 30, 2021, and December 31, 2020 there was $1.4 million in outstanding letters of credits issued in the normal course of business.
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.
17
The income tax provision (benefit) for the three and nine months ended September 30, 2021 and 2020 consisted of the following:
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Federal taxes-current
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Federal taxes-deferred
|
|
—
|
|
|
|
(1.4
|
)
|
|
|
0.4
|
|
|
|
(2.6
|
)
|
State taxes-current
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
State taxes-deferred
|
|
—
|
|
|
|
(0.5
|
)
|
|
|
0.1
|
|
|
|
(0.8
|
)
|
|
$
|
—
|
|
|
$
|
(1.9
|
)
|
|
$
|
0.5
|
|
|
$
|
(3.4
|
)
|
Our tax provision or benefit from income taxes for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that are considered in the relevant period. At the end of each interim reporting period, we update our estimate of the annual effective tax rate, and if our estimated tax rate changes, we make a cumulative adjustment.
The Company recorded an income tax expense of $0.0 million and a benefit of $1.9 million for the three months ended September 30, 2021, and 2020 and an income tax expense of $0.5 million and an income tax benefit of $3.4 million for the nine months ended September 30, 2021 and 2020 respectively. As a result of Alta’s third quarter 2021 analysis of the realizability of its deferred tax asset, and after considering tax planning initiatives and other inputs, Alta determined that it was more likely than not that deferred tax asset would not be realized and has thus maintained a full valuation allowance against the deferred tax asset.
Alta reviews the realizability of its deferred tax asset on a quarterly basis, or whenever events or changes in circumstances indicate that a review is required. In determining the requirement for a valuation allowance, the historical and projected financial results are considered, along with any other positive or negative evidence. All of the factors that Alta considers in evaluating whether and when to establish or release all or a portion of the deferred tax asset valuation allowance involve significant judgment.
The effective tax rate for the nine months ended September 30, 2021 was (2.3)% when compared to 24.1% for the period from February 14, 2020 to September 30, 2020 in connection with the reverse recapitalization. This was mainly due to the impact of the establishment of the valuation allowance during the first quarter of 2021.
As of December 31, 2020, the Company has federal net operating tax loss carryforwards of approximately $27.0 million, which may be carried forward indefinitely and are eligible to offset 80% of future taxable income.
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.
The CARES Act did not materially impact our effective tax rate for prior periods, although it will impact the timing of future cash payments for taxes. As of September 30, 2021, we have deferred employer payroll taxes of $5.6 million under the CARES Act, with half of the deferred amounts due by December 31, 2021, and the remaining half due by December 31, 2022.
NOTE 13 — EQUITY
Preferred Stock
On December 22, 2020, the Company closed its underwritten public offering of depositary shares, each representing 1/1000th of a share of 10% Series A Preferred Stock, par value $0.0001 per share. The liquidation preference of each share of Series A Preferred Stock is $25,000 ($25.00 per Depositary Share). At the closing, the Company issued 1,200 shares of Series A Preferred Stock represented by 1,200,000 Depositary Shares issued.
We will pay cumulative cash dividends on the Series A Preferred Stock, when and as declared by our Board of Directors, at the rate of 10% of the $25,000 liquidation preference ($25.00 per depositary share) per year (equivalent to $2,500 or $2.50 per depositary share).
Dividends are payable quarterly in arrears, on or about the last day of January, April, July and October, beginning on or about April 30, 2021; provided that if any dividend payment date is not a business day, then the dividend which would otherwise have been payable on that dividend payment date may be paid on the next succeeding business day, and no interest, additional dividends or other sums will accumulate. Dividends will accumulate and be cumulative from, and including December 22, 2020, the date of original issuance. On April 9, 2021, the Company declared a cash dividend $0.89 per depositary share, which was paid on April 30, 2021 to
18
holders of record as of the close of business on April 15, 2021. This dividend payment covered the period from and including December 22, 2020 through, but not including April 30, 2021. On July 2, 2021, the Company declared a cash dividend $.625 per depository share, which was paid on August 2, 2021 to holders of record as of the close of business on July 15, 2021. The dividend payment covered the period from and including April 30, 2021 through, but not including July 31, 2021.
Warrants
On April 12, 2021, we exchanged all 8,668,746 of our outstanding warrants into shares of our common stock at an exchange ratio of 0.263 shares of common stock per warrant, for an aggregate issuance of approximately 2,279,874 shares of common stock in the exchange.
As of December 31, 2020, there were warrants outstanding to acquire 8,668,746 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 were to expire five years after February 14, 2020, the date the reverse recapitalization was completed or earlier upon redemption or liquidation.
Prior to the reverse recapitalization, 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 2017 Warrants”). The 2017 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 2017 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 of the warrants simultaneously at a per common share price equal to the per unit set for the sale transaction.
On February 14, 2020, the Company consummated its reverse recapitalization. As a result, the Company redeemed all the 2017 Warrants outstanding upon closing of the reverse recapitalization and as of December 31, 2020, there were no warrant liabilities on the Consolidated Balance Sheets associated with the 2017 Warrants.
NOTE 14 — SHARE BASED COMPENSATION
During the second quarter 2021, the Compensation Committee of our Board of Directors approved the grant of 114,292 shares of Restricted Stock Units (“RSUs”) to certain directors, officers and employees of the Company under the 2020 Omnibus Incentive Plan. The Company’s plan is to have broad-based, long-term programs intended to attract and retain talented employees and align stockholder and employee interests. We calculated the fair value of the RSUs at grant date based on the closing market price of our common stock at the date of grant. The compensation expense is recognized on a straight-line basis over the requisite vesting period of the award.
The Company recognized total compensation expense of $0.9 million and $3.2 million for the nine months ended September 30, 2021, and 2020 respectively.
As of September 30, 2021, the total unrecognized compensation expense related to the non-vested portion of the Company's restricted stock awards was $2.3 million, which is expected to be recognized over a weighted average period of 2.2 years.
The following table summarizes our restricted stock unit activity as of September 30, 2021:
Restricted Stock Units
|
|
Number of units
|
|
|
Weighted average grant date fair value
|
|
Unvested as of December 31, 2020
|
|
|
300,000
|
|
|
$
|
7.60
|
|
Granted
|
|
|
114,292
|
|
|
|
13.31
|
|
Vested-issued
|
|
|
(65,000
|
)
|
|
|
7.60
|
|
Vested-unissued
|
|
|
(40,000
|
)
|
|
|
7.60
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
Unvested as of September 30, 2021
|
|
|
309,292
|
|
|
$
|
9.71
|
|
19
NOTE 15 — 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 September 30, 2021 and December 31, 2020.
The following is a description of the valuation methodologies used for assets and liabilities measured at fair value on a recurring basis:
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 acquisitions upon the achievement of certain performance milestones. The earn-out for the acquisitions is measured at fair value in each reporting period, based on level 3 inputs, with any change to the fair value recorded in the Consolidated Statements of Operations.
PeakLogix LLC (“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 performance milestones. We estimated the fair value of the incremental $1.7 million earn-out payment based on a probability weighted range of outcomes analysis and applied a discount rate that appropriately captures a market participant's view of the risk associated with the obligation. 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 Company concluded the future minimum cash payments of $2.0 million will be treated as a non-contingent liability and recorded a $1.7 million liability related to the present value of these minimum cash payments. See Note 10, Long-Term Debt and Note 16, Business Combinations for further information.
In addition to the non-contingent liability, there is a potential earn out payment of $1.7 million to be paid to Sellers over a five-year period. The Company recorded a $1.0 million earn out liability as the acquisition date fair value in “Other Liabilities” on the Consolidated Balance Sheet. See Note 16, Business Combinations for further information.
Hilo Equipment & Services (“Hilo”)
The purchase agreement for the Hilo acquisition provides an earn-out payment of $1.0 million based on meeting certain financial target which can be earned through July 1, 2023. We estimated the fair value of the earn-out liability based on the present value of probability weighted expected future results and recorded a $0.8 million liability. See Note 16, Business Combinations for further information.
The following table sets forth, by level of hierarchy, the Company’s recurring measures at fair value as of September 30, 2021 and December 31, 2020, which was presented in “Other Liabilities” on the Consolidated Balance Sheet:
|
|
September 30, 2021
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Liabilities: Contingent consideration
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Liabilities: Contingent consideration
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1.8
|
|
20
The following is a summary of changes to Level 3 instruments as of September 30, 2021 and December 31, 2020:
|
Contingent Consideration
|
|
Balance, January 1, 2020
|
$
|
—
|
|
Acquisition of PeakLogix
|
|
1.0
|
|
Acquisition of Hilo
|
|
0.8
|
|
Change in fair value
|
|
—
|
|
Balance, December 31, 2020
|
|
1.8
|
|
Change in fair value
|
|
—
|
|
Balance, September 30, 2021
|
$
|
1.8
|
|
NOTE 16 — BUSINESS COMBINATIONS
The following table summarizes the net assets acquired from the acquisitions in 2021 (amounts in millions):
|
ScottTech
|
|
Baron
|
|
Cash
|
$
|
0.5
|
|
$
|
—
|
|
Accounts receivable
|
|
0.9
|
|
|
—
|
|
Inventory
|
|
0.3
|
|
|
0.3
|
|
Prepaid and other assets
|
|
0.1
|
|
|
0.3
|
|
Rental fleet, net
|
|
—
|
|
|
—
|
|
Property and equipment, net
|
|
0.4
|
|
|
0.2
|
|
Intangible assets
|
|
—
|
|
|
—
|
|
Goodwill
|
|
1.5
|
|
|
0.8
|
|
Total Assets
|
$
|
3.7
|
|
$
|
1.6
|
|
|
|
|
|
|
|
|
Floor plan payable
|
|
—
|
|
|
—
|
|
Accounts payable
|
|
(0.3
|
)
|
|
—
|
|
Accrued expenses
|
|
(0.1
|
)
|
|
—
|
|
Other current liabilities
|
|
(0.9
|
)
|
|
(0.3
|
)
|
Other liabilities
|
|
—
|
|
|
—
|
|
Total liabilities
|
$
|
(1.3
|
)
|
$
|
(0.3
|
)
|
|
|
|
|
|
|
|
Net Assets Acquired
|
$
|
2.4
|
|
$
|
1.3
|
|
|
|
|
|
|
|
|
Assets acquired net of cash
|
$
|
1.9
|
|
$
|
1.3
|
|
SCOTTTECH, LLC (“ScottTech”)
On March 1, 2021, the Company acquired all the assets of ScottTech, for a total purchase price of $2.4 million, paid out of available funds.
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 intangible assets recognized to be 100% deductible for income tax purposes. Costs and expenses related to the acquisition have been expensed as incurred in operating expenses.
Baron Industries (“Baron”)
On September 1, 2021, the Company acquired all the assets of Baron for a total purchase price of $1.3 million, of which $1.2 million was paid out of available funds, and the remaining $0.1 million will be paid out subject to finalization of working capital adjustments.
The acquisition has been accounted for as a purchase business combination. Under the purchase method of accounting, the assets acquired, and liabilities assumed have been recorded at the acquisition date at their respective fair values in our consolidated financial statements.
21
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 intangible 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 acquisitions in 2020 (amounts in millions):
|
Flagler
|
|
Liftech
|
|
Peak
|
|
Hilo
|
|
Martin
|
|
Howell
|
|
Vantage
|
|
Total
|
|
Cash
|
$
|
0.4
|
|
$
|
—
|
|
$
|
3.0
|
|
$
|
2.1
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
5.5
|
|
Accounts receivable
|
|
15.1
|
|
|
4.4
|
|
|
4.6
|
|
|
5.4
|
|
|
1.0
|
|
|
5.2
|
|
|
3.6
|
|
|
39.3
|
|
Inventory
|
|
37.5
|
|
|
9.6
|
|
|
0.4
|
|
|
4.7
|
|
|
6.8
|
|
|
6.3
|
|
|
7.5
|
|
|
72.8
|
|
Prepaid and other assets
|
|
0.5
|
|
|
1.0
|
|
|
0.2
|
|
|
0.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.9
|
|
Rental fleet, net
|
|
47.8
|
|
|
4.7
|
|
|
—
|
|
|
7.5
|
|
|
6.3
|
|
|
12.4
|
|
|
15.9
|
|
|
94.6
|
|
Property and equipment, net
|
|
2.9
|
|
|
1.2
|
|
|
0.2
|
|
|
1.7
|
|
|
—
|
|
|
1.1
|
|
|
1.0
|
|
|
8.1
|
|
Intangible assets
|
|
14.6
|
|
|
1.2
|
|
|
5.8
|
|
|
2.4
|
|
|
1.5
|
|
|
2.4
|
|
|
—
|
|
|
27.9
|
|
Goodwill
|
|
5.8
|
|
|
1.5
|
|
|
0.7
|
|
|
3.2
|
|
|
0.8
|
|
|
1.7
|
|
|
0.5
|
|
|
14.2
|
|
Total Assets
|
$
|
124.6
|
|
$
|
23.6
|
|
$
|
14.9
|
|
$
|
27.2
|
|
$
|
16.4
|
|
$
|
29.1
|
|
$
|
28.5
|
|
$
|
264.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floor plan payable
|
|
(29.0
|
)
|
|
(3.5
|
)
|
|
—
|
|
|
(4.4
|
)
|
|
—
|
|
|
(0.8
|
)
|
|
(2.1
|
)
|
|
(39.8
|
)
|
Accounts payable
|
|
(14.0
|
)
|
|
(1.6
|
)
|
|
(1.5
|
)
|
|
(2.8
|
)
|
|
(0.2
|
)
|
|
(1.0
|
)
|
|
(1.4
|
)
|
|
(22.5
|
)
|
Accrued expenses
|
|
(4.1
|
)
|
|
—
|
|
|
(0.1
|
)
|
|
(0.3
|
)
|
|
(0.1
|
)
|
|
(0.3
|
)
|
|
(0.6
|
)
|
|
(5.5
|
)
|
Other current liabilities
|
|
—
|
|
|
(0.1
|
)
|
|
(3.9
|
)
|
|
(0.4
|
)
|
|
—
|
|
|
—
|
|
|
(0.1
|
)
|
|
(4.5
|
)
|
Other liabilities
|
|
(1.3
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1.3
|
)
|
Total Liabilities
|
$
|
(48.4
|
)
|
$
|
(5.2
|
)
|
$
|
(5.5
|
)
|
$
|
(7.9
|
)
|
$
|
(0.3
|
)
|
$
|
(2.1
|
)
|
$
|
(4.2
|
)
|
$
|
(73.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Assets Acquired
|
$
|
76.2
|
|
$
|
18.4
|
|
$
|
9.4
|
|
$
|
19.3
|
|
$
|
16.1
|
|
$
|
27.0
|
|
$
|
24.3
|
|
$
|
190.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets acquired net of cash
|
$
|
75.8
|
|
$
|
18.4
|
|
$
|
6.4
|
|
$
|
17.2
|
|
$
|
16.1
|
|
$
|
27.0
|
|
$
|
24.3
|
|
$
|
185.2
|
|
Flagler
On February 14, 2020, in connection with the reverse recapitalization, the Company consummated its acquisition of Flagler for a total purchase price, net of cash, of $75.8 million, which was paid out of funds from the closing of the reverse recapitalization.
The acquisition has been accounted for as a purchase business combination. Under the purchase method of accounting, the assets acquired, and liabilities assumed have been recorded at the acquisition date at their respective fair values in our consolidated financial statements.
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. Costs and expenses related to the acquisition were expensed as incurred in operating expenses.
Based on the purchase price and the amount of floorplan eligible new equipment inventory acquired in the transaction, the Company estimates total enterprise value at close to be $79.0 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, 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 assets acquired, and liabilities assumed have been recorded at the acquisition date at their respective fair values in our consolidated financial statements.
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. Costs and expenses related to the acquisition were expensed as incurred in operating expenses.
22
Based on the purchase price and the amount of floorplan eligible new equipment inventory acquired in the transaction, the Company estimates total enterprise value at close to be $15.2 million.
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 $3.7 million to be paid out to former owners based on meeting certain financial targets throughout a 5-year earn-out period, collectively resulting in an estimated enterprise value of $6.4 million net of cash acquired. In connection with the purchase, PeakLogix LLC was created. See Note 10, Long-Term Debt and Note 15, Fair Value Instruments for further information.
The acquisition has been accounted for as a purchase business combination. Under the purchase method of accounting, the assets acquired, and liabilities assumed have been recorded at the acquisition date at their respective fair values in our consolidated financial statements.
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 property, plant, and equipment were estimated to approximate their respective acquisition date net book values. Costs and expenses related to the acquisition were expensed as incurred in operating expenses.
The following table summarizes the components of the purchase price at June 12, 2020:
Cash consideration paid *
|
|
$
|
5.7
|
|
Promissory Note
|
|
|
1.0
|
|
Present value of non-contingent earn-out liability
|
|
|
1.7
|
|
Earn-out liability
|
|
|
1.0
|
|
Total purchase price
|
|
$
|
9.4
|
|
* Includes $3.0 million cash acquired as part of the Business Combination
Hilo
On July 1, 2020, the Company acquired all the assets of Hilo for total purchase price, net of cash, of $17.2 million which was paid out of available funds, and potential earn out payments of an additional $1.0 million.
The acquisition has been accounted for as a purchase business combination. Under the purchase method of accounting, the assets acquired, and liabilities assumed have been recorded at the acquisition date at their respective fair values in our consolidated financial statements.
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. Costs and expenses related to the acquisition were expensed as incurred in operating expenses.
Based on the purchase price and the amount of floorplan eligible new equipment inventory acquired in the transaction, the Company estimates total enterprise value at close to be $19.0 million.
The following table summarizes the component of the purchase price at July 1, 2020:
Cash consideration paid *
|
|
$
|
18.5
|
|
Earn-out liability
|
|
|
0.8
|
|
Total purchase price
|
|
$
|
19.3
|
|
* Includes $2.1 million cash acquired as part of the Business Combination
23
Martin Implement Sales, Inc. (“Martin”)
On September 1, 2020, the Company acquired all the assets of Martin for a total purchase price of $16.1 million, which included floorplan eligible new equipment inventories that was paid out of available funds.
The acquisition has been accounted for as a purchase business combination. Under the purchase method of accounting, the assets acquired, and liabilities assumed have been recorded at the acquisition date at their respective fair values in our consolidated financial statements.
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. Costs and expenses related to the acquisition were expensed as incurred in operating expenses.
Based on the purchase price and the amount of floorplan eligible new equipment inventory acquired in the transaction, the Company estimates total enterprise value at close to be $10.6 million.
Howell Tractor and Equipment, LLC (“Howell”)
On October 30, 2020, the Company acquired all the assets of Howell for a total cash consideration of $23.0 million. The Company also issued 507,143 shares of its common stock, valued at $4.0 million, in connection with the purchase agreement, yielding a total purchase price of $27.0 million. Based on the purchase price and the amount of floorplan eligible new equipment inventory acquired in the transaction, the Company estimates total enterprise value at close to be $23.7 million.
The acquisition has been accounted for as a purchase business combination. 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.
Subsequent to the 2020 year-end audit, before one year from the acquisition date, the Company recorded a purchase price allocation and working capital adjustment of $0.6 million which yielded a total purchase price of $27.0 million.
Costs and expenses related to the acquisition were expensed as incurred in operating expenses.
Vantage Equipment, LLC (“Vantage”)
On December 31, 2020, the Company acquired all the assets of Vantage for a total purchase price of $24.3 million. Based on the purchase price and the amount of floorplan eligible new equipment inventory acquired in the transaction, the Company estimates total enterprise value at close to be $22.6 million.
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.
Subsequent to the 2020 year-end audit, before one year from the acquisition date, the Company recorded a purchase accounting adjustment to its Vantage acquisition that increased net assets acquired by $0.1 million which yielded a total purchase price of $24.3 million.
Costs and expenses related to the acquisition were expensed as incurred in operating expenses.
Pro forma financial information – 2021
The financial effect of the 2021 acquisitions were not material to the consolidated financial statements. As such, pro forma results of operations have not been presented.
24
Pro forma financial information – 2020
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. The pro forma information below gives effect to the Flagler acquisition as if the acquisition occurred on January 1, 2020.
|
|
|
|
(amounts in millions)
|
|
The Company
|
|
|
Flagler
|
|
|
Total
|
|
Total revenues
|
|
$
|
593.2
|
|
|
$
|
25.8
|
|
|
$
|
619.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(20.8
|
)
|
|
$
|
(0.1
|
)
|
|
$
|
(20.9
|
)
|
The financial effect of the other acquisitions, individually and in the aggregate, was not material to the consolidated financial statements. As such, pro forma results of operations including other acquisitions have not been presented.
NOTE 17 — SEGMENTS
The Company has two reportable segments: Material Handling and Construction Equipment. The “Material Handling” segment has been previously reported as our “Industrial” segment. 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 Material Handling segment is principally engaged in operations related to the sale, service, and rental of lift trucks and other material handling equipment in Michigan, Illinois, Indiana, New York (including New York City), Virginia as well as the New England region (including Boston) of the United States. As of September 30, 2021, the Material Handling segment included the ScottTech and Baron acquisitions and its related results for the quarter.
The Construction Equipment segment is principally engaged in operations related to the sale, service, and rental of construction equipment in Michigan, Illinois, New York (not including New York City), Florida and the New England region (including Boston) of the United States.
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. For the quarter ended September 30, 2021, Corporate incurred expenses associated with compensation (including shared based compensation) of our directors, corporate officers and certain members of our shared-services leadership team, consulting and legal fees related to acquisitions and capital raising activities, corporate governance and compliance related matters, certain corporate development related expenses and interest expense associated with original issue discounts and deferred financing cost related to previous capital raises, which were offset with income tax benefit. Corporate incurred $11.9 million and $7.6 million in debt extinguishment fees for the nine months ended September 30, 2021 and September 30, 2020 respectively. Corporate incurred an additional $7.6 million in transaction costs and other expenses associated with the reverse recapitalization for the nine months ended September 30, 2020.
Additionally, as it relates to certain allocated corporate level expenses (e.g. audit, tax and other professional fees, interest, IT and HR related expenses, certain corporate marketing expenses, etc.), the Company evaluates and analyzes the appropriateness of expense allocations to each of its business units (and therefore segments) on an annual basis and makes necessary adjustments to these allocations at year-end. The Company uses metrics such as headcount, revenue and total assets, where appropriate, to develop these allocations.
In connection with the purchase of NITCO LLC in 2019, the Company expanded its full-service material handling and construction equipment dealer operations into New England market. Given that the sales of the business were more heavily weighted to material handling versus construction and that NITCO’s reporting systems made it difficult for the construction business to be observed separate from the Material Handling operation, NITCO’s total financial results were historically presented within our Material Handling segment. On January 1, 2021, with the migration of the NITCO business to the Company’s main ERP system, the Company is now able to report the results for the Material Handling and Construction Equipment results within their respective segments for the NITCO business unit. As such, the Company has re-casted certain prior period segment-level results for the NITCO business unit to be consistent with the current period presentation for appropriate period-over-period comparability.
25
The following table presents the Company’s results of operations by reportable segment for the nine months ended September 30, 2021 (amounts in millions):
|
|
Nine Months Ended September 30, 2021
|
|
|
|
Material
Handling
|
|
|
Construction
Equipment
|
|
|
Corporate
|
|
|
Total
|
|
New and used equipment sales
|
|
$
|
174.7
|
|
|
$
|
217.9
|
|
|
$
|
—
|
|
|
$
|
392.6
|
|
Parts sales
|
|
|
47.7
|
|
|
|
82.6
|
|
|
|
—
|
|
|
|
130.3
|
|
Service revenue
|
|
|
70.4
|
|
|
|
52.6
|
|
|
|
—
|
|
|
|
123.0
|
|
Rental revenue
|
|
|
35.1
|
|
|
|
77.9
|
|
|
|
—
|
|
|
|
113.0
|
|
Rental equipment sales
|
|
|
0.8
|
|
|
|
96.8
|
|
|
|
—
|
|
|
|
97.6
|
|
Total revenue
|
|
$
|
328.7
|
|
|
$
|
527.8
|
|
|
$
|
—
|
|
|
$
|
856.5
|
|
Interest expense
|
|
|
6.1
|
|
|
|
10.1
|
|
|
|
1.4
|
|
|
|
17.6
|
|
Depreciation and amortization
|
|
|
13.6
|
|
|
|
55.6
|
|
|
|
—
|
|
|
|
69.2
|
|
Net income (loss)
|
|
$
|
6.7
|
|
|
$
|
(5.2
|
)
|
|
$
|
(23.4
|
)
|
|
$
|
(21.9
|
)
|
The following table presents the Company’s results of operations by reportable segment for the three months ended September 30, 2021 (amounts in millions):
|
|
Three Months Ended September 30, 2021
|
|
|
|
Material
Handling
|
|
|
Construction
Equipment
|
|
|
Corporate
|
|
|
Total
|
|
New and used equipment sales
|
|
$
|
57.2
|
|
|
$
|
79.6
|
|
|
$
|
—
|
|
|
$
|
136.8
|
|
Parts sales
|
|
|
16.8
|
|
|
|
28.0
|
|
|
|
—
|
|
|
|
44.8
|
|
Service revenue
|
|
|
23.7
|
|
|
|
18.2
|
|
|
|
—
|
|
|
|
41.9
|
|
Rental revenue
|
|
|
12.6
|
|
|
|
29.1
|
|
|
|
—
|
|
|
|
41.7
|
|
Rental equipment sales
|
|
|
—
|
|
|
|
29.8
|
|
|
|
—
|
|
|
|
29.8
|
|
Total revenue
|
|
$
|
110.3
|
|
|
$
|
184.7
|
|
|
$
|
—
|
|
|
$
|
295.0
|
|
Interest expense
|
|
|
2.0
|
|
|
|
3.4
|
|
|
|
0.6
|
|
|
|
6.0
|
|
Depreciation and amortization
|
|
|
4.6
|
|
|
|
19.8
|
|
|
|
—
|
|
|
|
24.4
|
|
Net income (loss)
|
|
$
|
3.4
|
|
|
$
|
(0.2
|
)
|
|
$
|
(3.7
|
)
|
|
$
|
(0.5
|
)
|
The following table presents the Company’s results of operations by reportable segment for the nine months ended September 30, 2020 (amounts in millions):
|
|
Nine Months Ended September 30, 2020
|
|
|
|
Material
Handling
|
|
|
Construction
Equipment
|
|
|
Corporate
|
|
|
Total
|
|
New and used equipment sales
|
|
$
|
137.5
|
|
|
$
|
137.7
|
|
|
$
|
—
|
|
|
$
|
275.2
|
|
Parts sales
|
|
|
40.2
|
|
|
|
52.1
|
|
|
|
—
|
|
|
|
92.3
|
|
Service revenue
|
|
|
58.5
|
|
|
|
35.6
|
|
|
|
—
|
|
|
|
94.1
|
|
Rental revenue
|
|
|
31.2
|
|
|
|
52.2
|
|
|
|
—
|
|
|
|
83.4
|
|
Rental equipment sales
|
|
|
6.0
|
|
|
|
42.2
|
|
|
|
—
|
|
|
|
48.2
|
|
Total revenue
|
|
$
|
273.4
|
|
|
$
|
319.8
|
|
|
$
|
—
|
|
|
$
|
593.2
|
|
Interest expense
|
|
|
4.0
|
|
|
|
8.1
|
|
|
|
5.6
|
|
|
|
17.7
|
|
Depreciation and amortization
|
|
|
15.0
|
|
|
|
36.6
|
|
|
|
—
|
|
|
|
51.6
|
|
Net income (loss)
|
|
$
|
5.7
|
|
|
$
|
(12.6
|
)
|
|
$
|
(13.9
|
)
|
|
$
|
(20.8
|
)
|
26
The following table presents the Company’s results of operations by reportable segment for the three months ended September 30, 2020 (amounts in millions):
|
|
Three Months Ended September 30, 2020
|
|
|
|
Material
Handling
|
|
|
Construction
Equipment
|
|
|
Corporate
|
|
|
Total
|
|
New and used equipment sales
|
|
$
|
53.1
|
|
|
$
|
44.8
|
|
|
$
|
—
|
|
|
$
|
97.9
|
|
Parts sales
|
|
|
15.4
|
|
|
|
20.1
|
|
|
|
—
|
|
|
|
35.5
|
|
Service revenue
|
|
|
22.1
|
|
|
|
13.4
|
|
|
|
—
|
|
|
|
35.5
|
|
Rental revenue
|
|
|
11.0
|
|
|
|
21.2
|
|
|
|
—
|
|
|
|
32.2
|
|
Rental equipment sales
|
|
|
1.4
|
|
|
|
18.1
|
|
|
|
—
|
|
|
|
19.5
|
|
Total revenue
|
|
$
|
103.0
|
|
|
$
|
117.6
|
|
|
$
|
—
|
|
|
$
|
220.6
|
|
Interest expense
|
|
|
1.3
|
|
|
|
2.8
|
|
|
|
2.0
|
|
|
|
6.1
|
|
Depreciation and amortization
|
|
|
5.6
|
|
|
|
15.4
|
|
|
|
—
|
|
|
|
21.0
|
|
Net income (loss)
|
|
$
|
2.1
|
|
|
$
|
(7.9
|
)
|
|
$
|
6.1
|
|
|
$
|
0.3
|
|
The following table presents the Company’s identified assets by reportable segment for the period ending September 30, 2021 and December 31, 2020 (amounts in millions):
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
Segment assets:
|
|
|
|
|
|
|
|
|
Material handling
|
|
$
|
249.6
|
|
|
$
|
221.5
|
|
Construction equipment
|
|
|
533.7
|
|
|
|
523.4
|
|
Corporate
|
|
|
4.1
|
|
|
|
1.3
|
|
Total assets
|
|
$
|
787.4
|
|
|
$
|
746.2
|
|
NOTE 18 — EARNINGS PER SHARE
Basic earnings per share is calculated by dividing net income by the weighted-average number of shares outstanding during the period. Diluted earnings per share is calculated by dividing net income by the weighted-average number of common shares outstanding, after giving effect to all dilutive potential common shares outstanding during the period. We include all common shares granted under our share-based compensation plan which remain unvested (“restricted stock units”), in the number of shares outstanding for our diluted EPS calculations using the treasury method.
Basic and diluted earnings per share for the three months ended September 30, 2021, and 2020, and for the nine months ended September 30, 2021 and 2020 were calculated as follows (amounts in millions, except per share amounts):
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
(in millions, per share amounts)
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Basic net (loss) income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
$
|
(0.5
|
)
|
|
$
|
0.3
|
|
|
$
|
(21.9
|
)
|
|
$
|
(20.8
|
)
|
Basic weighted average common shares outstanding
|
|
32,363,376
|
|
|
|
29,221,460
|
|
|
|
31,484,906
|
|
|
|
25,689,145
|
|
Basic net (loss) income per share of common stock:
|
$
|
(0.02
|
)
|
|
$
|
0.01
|
|
|
$
|
(0.69
|
)
|
|
$
|
(0.81
|
)
|
Diluted net (loss) income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
$
|
(0.5
|
)
|
|
$
|
0.3
|
|
|
$
|
(21.9
|
)
|
|
$
|
(20.8
|
)
|
Basic weighted average common shares outstanding
|
|
32,363,376
|
|
|
|
29,221,460
|
|
|
|
31,484,906
|
|
|
|
25,689,145
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive non-vested restricted stock units
|
|
—
|
|
|
|
89,214
|
|
|
|
—
|
|
|
|
—
|
|
Diluted weighted average common shares outstanding
|
|
32,363,376
|
|
|
|
29,310,674
|
|
|
|
31,484,906
|
|
|
|
25,689,145
|
|
Diluted net (loss) income per share of common stock:
|
$
|
(0.02
|
)
|
|
$
|
0.01
|
|
|
$
|
(0.69
|
)
|
|
$
|
(0.81
|
)
|
Securities excluded from the calculation of diluted loss per share were approximately 157,000 for the three months ended September 30, 2021, and approximately 155,000 and 54,000 for the nine months ended September 30, 2021 and 2020, respectively, because the inclusion of such securities in the calculation would have been anti-dilutive. There were no anti-dilutive securities during the three months ended September 30, 2020.
27
NOTE 19 — SUBSEQUENT EVENTS
On October 1, 2021, the Company closed its acquisition of all the assets of Gibson Machinery, LLC (“Gibson”), a privately held premium equipment distributor based in Oakwood Village, near Cleveland, Ohio. The purchase price for the acquisition was $15.5 million and consisted of $11.1 million of cash paid at closing. The Company assumed $4.4 million of equipment financing at closing. The purchase price is subject to certain post-close adjustments. Included in the purchased assets of Gibson are approximately $1.2 million worth of floorplan-eligible new equipment inventory, yielding an enterprise value at close of approximately $14.3 million.
28