The following discussion and analysis should be read in conjunction with our
interim unaudited consolidated financial statements and related notes included
in Item 1 of Part I of this Quarterly Report, and the audited consolidated
financial statements and related notes thereto and Management’s Discussion and
Analysis of Financial Condition and Results of Operations contained in our
Annual Report on Form 10-K for the fiscal year ended
discussion contains “forward-looking statements” within the meaning of the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995
reflecting Alta’s current expectations, estimates and assumptions concerning
events and financial trends that may affect its future operating results or
financial position. Actual results and the timing of events may differ
materially from those contained in these forward- looking statements due to a
number of factors. Factors that could cause or contribute to such differences
include, but are not limited to, economic and competitive conditions, regulatory
changes and other uncertainties, as well as those factors discussed below and
elsewhere in this Quarterly Report on Form 10-Q, particularly in “Risk Factors”
and “Cautionary Note Regarding Forward-Looking Statements,” all of which are
difficult to predict. In light of these risks, uncertainties and assumptions,
the forward-looking events discussed may not occur. Alta assumes no obligation
to update any of these forward-looking statements.
Recent Developments
COVID-19
The economic volatility and disruptions caused by the COVID-19 pandemic caused
an adverse effect on our business and our financial results in fiscal year 2021.
Currently, our business is experiencing “recovery-related” supply-chain
constraints that have affected some of our OEM equipment suppliers.
Specifically, lead-times from OEMs for new equipment has been pushed beyond
historic norms. While we believe our diversified cash flow streams, the breadth
of our product portfolio, geographic reach and our ability to source used
equipment will help mitigate the impact of the current supply-chain disruptions
we are facing, an extended period or worsening of the supply chain issues our
OEM equipment providers are experiencing could impact our financial results
adversely. Although currently COVID-19 is not impacting our business activity
levels and we believe the worst of the pandemic’s effect on our business to be
behind us, the potential future emergence of additional variant strains of
COVID-19 remains and how those variant strains would impact the macroeconomic
environment and our business is uncertain.
While our operations in 2021 and in the first quarter of 2022, in general,
performed beyond pre-COVID levels, we will continue to monitor key performance
metrics such as labor hour demand and rental utilization and, in-turn,
rationalize our skilled labor and rental fleet levels to match expected demand
in 2022 and through the end of the COVID-19 pandemic.
We believe that the acquisitions and investments made in the calendar year 2021
expanded our service capabilities, geographic reach, end market diversification
and product offerings; each of which will ultimately strengthen our resiliency
to economic shocks and will help to preserve liquidity over the long term.
While we have sufficient liquidity to fund our operations currently, our Board
of Directors and management team continue to monitor and evaluate the ongoing
impacts of the COVID-19 pandemic and “recovery-related” supply-chain constraints
on our business and operations, and to the extent business conditions regress
from current levels we may take actions to reduce costs and/or seek additional
financing to bolster our liquidity position.
Exchange of Warrants
On
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.
On
Senior Secured Second Lien Notes due 2026 (the “Notes”) and Amended and Restated
our First Lien Credit Agreements (collectively, the “2021 Refinance”). The 2021
Refinance allowed the Company to, among other things, repay and refinance of a
significant portion of the Company’s debt, reduce its borrowing costs and
interest rate risk, and enhance liquidity for future growth initiatives.
Forward-Looking Statements
This Form 10-Q contains statements that, to the extent they are not recitations
of historical fact, constitute forward-looking statements within the meaning of
federal securities laws, and are based on our current expectations and
assumptions. Forward-looking statements include statements about our
expectations, beliefs, plans, objectives, intentions, assumptions and other
statements that are not historical facts. The words “anticipates,” “believe,”
“continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,”
“possible,” “potential,” “predicts,” “project,” “should,” “would” and similar
expressions may identify forward-looking statements, but
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the absence of these words does not mean that a statement is not
forward-looking. These statements are not intended to guarantee future
performance and are subject to risks and uncertainties. Actual results may
differ materially due to factors such as:
•
the impact of the COVID-19 outbreak or future epidemics on our business,
including the potential for facility closures or work stoppages, supply chain
disruptions, inflationary pressures resulting from supply chain disruptions or a
tightening labor market, negative impacts on customer payment policies and
adverse banking and governmental regulations, resulting in a potential reduction
to the fair value of our assets;
•
federal, state, and local budget uncertainty, especially as it relates to
infrastructure projects;
•
the performance and financial viability of key suppliers, contractors,
customers, and financing sources;
•
economic, industry, business and political conditions including their effects on
governmental policy and government actions that disrupt our supply chain or
sales channels;
•
our success in identifying acquisition targets and integrating acquisitions;
•
our success in expanding into and doing business in additional markets;
•
our ability to raise capital at favorable terms;
•
the competitive environment for our products and services;
•
our ability to continue to innovate and develop new business lines;
•
our ability to attract and retain key personnel, including, but not limited to,
skilled technicians;
•
our ability to maintain our listing on the
•
the impact of cyber or other security threats or other disruptions to our
businesses;
•
our ability to realize the anticipated benefits of acquisitions or divestitures,
rental fleet investments or internal reorganizations;
•
federal, state, and local budget uncertainty, especially as it relates to
infrastructure projects; and
•
other risks and uncertainties identified in the section entitled “Risk Factors”
in our annual report on Form 10-K and other filings with the
Exchange Commission
These are only some of the factors that may affect the forward-looking
statements contained in this Form 10-Q. For a discussion identifying additional
important factors that could cause actual results to differ materially from
those anticipated in the forward-looking statements, see our filings with the
Financial Condition and Results of Operations” and “Risk Factors” in our Annual
Report on Form 10-K for the year ended
Report on Form 10-Q. Our forward-looking statements speak only as of the date of
their initial issuance, and we do not undertake any obligation to update or
revise publicly any forward-looking statement, whether as a result of new
information, future events, or otherwise.
Business Description
The Company owns and operates one of the largest integrated equipment dealership
platforms in the
parts and service support for several categories of specialized equipment,
including lift trucks and aerial work platforms, cranes, paving and asphalt
equipment, earthmoving equipment and other material handling and construction
equipment. We engage in five principal business activities in these equipment
categories:
(i) new equipment sales; (ii) used equipment sales; (iii) parts sales;
(iv)
repair and maintenance services; and
(v)
equipment rentals.
We have operated as an equipment dealership for over 37 years and have developed
a branch network that includes over 60 total locations in
York
equipment needs by providing sales, parts, service, and rental functions under
one roof. More recently, with the acquisitions of
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automated equipment installation and system integration sector, which we believe
has natural synergies with our material handling business and positions us to
take advantage of the macroeconomic trend in e-commerce and logistics.
Within our territories, we are the exclusive distributor of new equipment and
replacement parts on behalf of our OEM partners. We enjoy long-standing
relationships with leading material handling and construction equipment OEMs,
including Hyster-Yale, Volvo, and JCB, among more than 30 others. We are
consistently recognized by OEMs as a top dealership partner and have been
identified as a nationally recognized Hyster-Yale dealer and multi-year
recipient of the Volvo Dealer of the Year award. In
entered into a dealer agreement with Nikola Corporation to become the authorized
dealer to sell and service Nikola medium and long-haul class 8 electric vehicle
trucks in the
markets. More recently, the Company has added
with Nikola.
Business Segments
We have two reportable segments: Material Handling and Construction Equipment.
Our “Material Handling” segment has been previously reported as our “Industrial”
segment. Our segments are determined based on management structure, which is
organized based on types of products sold and customer end markets, as described
in the following paragraph. The operating results for each segment are reported
separately to our Chief Executive Officer (our chief operating decision maker)
to make decisions regarding the allocation of resources, to assess our 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 in
York
segment is made up of the legal entities
LLC
State, LLC
Electric Vehicles, LLC
Electric Vehicles South West, LLC
The Construction Equipment segment is principally engaged in operations related
to the sale, service, and rental of construction equipment in
Construction Equipment segment is made up of the legal entities
Construction Equipment, LLC
Heavy Equipment Services, LLC
Construction Equipment Ohio, LLC
Sales, Inc.
the wholly-owned subsidiary of
explained below,
Handling and the Construction Equipment segment within a common legal entity.
LLC
the holding companies for the legal operating entities noted above that make up
each segment. In addition to being holding companies, the Corporate entities
also hold compensation (including share 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, interest expense associated with
original issue discounts and deferred financing cost related to previous capital
raises, and the Company’s income tax provision.
Acquisitions
Ginop
On
compact construction and agricultural equipment distributor, for a total
purchase price of
the Ginop business. Alta acquired
estimated excess working capital in the transaction, yielding an enterprise
value of approximately
construction product and service offerings in
relationship with Kubota.
Ambrose
On
held construction equipment distributor, for a total purchase price of
million
occurred subsequent to the 2021 year-end audit. The Company acquired
million
transaction, yielding an enterprise value of approximately
Ambrose has been the Northeast’s premier asphalt equipment dealer for more than
33 years, with locations in
28 --------------------------------------------------------------------------------
Massachusetts .Midwest Mine
On
purchase price of
aggregate processing plants for quarries, mines, and recycling operations
throughout
markets.
On
premium equipment distributor, for a total purchase price of
acquisition included
and the Company assumed
an enterprise value at close of approximately
geographic footprint and presence into
equipment product portfolio, OEM relationships, and service offerings.
Baron
On
company, for a total purchase price of
commercial overhead loading dock doors and equipment, hydraulic lifts, and
vertical reciprocating conveyors. The acquisition is another step in the
Company’s strategy to build out a full-service warehousing and logistics
offering within the Material Handling segment.
On
handling, warehouse control software, and turn-key warehouse system integration
services provider, for a total purchase price of
has natural synergies with the Company’s prior year acquisition of
further bolsters our capabilities with customers in the warehousing and
logistics, distribution and e-commerce end-markets.
Financial Statement Components
Our revenues and related costs are primarily derived from sale or rental of
equipment and related activities, and consist of:
New Equipment Sales. We sell new heavy construction and material handling
equipment and are a leading regional distributor for over 30 nationally
recognized equipment manufacturers, including Hyster,
new equipment sales operation is a primary source of new customers for the
rental, parts and services business. The majority of our new equipment sales is
predicated on exclusive distribution agreements we have with best-in-class OEMs.
The sale of new equipment to customers, while profitable, acts as a means of
generating equipment field population and activity for our higher-margin
aftermarket revenue streams, specifically service and parts. We also sell
tangential products related to our material handling equipment offerings and,
with the acquisition of
automated equipment installation, system integration and warehouse controls
software.
Used Equipment Sales. We sell used equipment which is typically equipment that
has been taken in on trade from a customer that is purchasing new equipment,
equipment coming off a third-party lease arrangement where we purchase the
equipment from the finance company, or used equipment that is sourced for our
customers in the open market by our used equipment specialists. In the case of
our Material Handling segment, rental fleet that has been designated for
disposal is transferred to our used inventory which is then sold to an end
customer. Used equipment sales made in our territories, like new equipment
sales, generate parts and services business for the Company, as well.
Parts Sales. We sell replacement parts to customers and supply parts to our own
rental fleet. Our in-house parts inventory is extensive such that we are able to
provide timely service support to our customers. The majority of our parts
inventory is made up of OEM replacement parts for those OEM’s with which we have
exclusive dealership agreements to sell new equipment.
Service Support. We provide maintenance and repair services for customer-owned
equipment and we maintain our own rental fleet. In addition to repair and
maintenance on an as needed or scheduled basis, we provide ongoing preventative
maintenance services and warranty repairs for our customers. We have committed
substantial resources to training our technical service employees and have a
full-scale service infrastructure that we believe differentiates us from our
competitors. Approximately half of our employees are skilled service
technicians. Training, paid time off, and other non-billable costs of
maintaining our expert technicians flow through this department in addition to
the direct customer-billable labor.
Equipment Rentals. We rent heavy construction, aerial, material handling, and
compact equipment to our customers on a daily, weekly and monthly basis. Our
rental fleet, which is well-maintained has an original acquisition cost (which
we define as the cost originally paid to manufacturers plus any capitalized
costs) of
our rental fleet excludes the
guaranteed purchase obligations, which are assets that are not
29 --------------------------------------------------------------------------------
in our day-to-day operational control. In addition to being a core business, our
rental business also creates cross-selling opportunities for us in our sales and
product support activities.
Rental Equipment Sales. We also sell rental equipment from our rental fleet.
Customers often have options to purchase equipment after or before rental
agreements have matured. Rental equipment sales, like new and used equipment
sales, generate customer-based equipment field population within our territories
and ultimately yield high-margin parts and services revenue for us.
General and Administrative Expenses. These costs are comprised of three main
components: personnel costs, operational costs, and occupancy costs. Personnel
costs are comprised of hourly and salaried wages for administrative employees,
including incentive compensation, and employee benefits, including medical
benefits. Operational costs include marketing activities, costs associated with
deploying and leasing our service vehicle fleet, insurance, information
technology, office and shop supplies, general corporate costs, depreciation on
non-sales and rental related assets, and intangible amortization. Occupancy
costs are comprised of all expenses related to our facility infrastructure,
including rent, utilities, property taxes, and building insurance.
Other Income (Expense). This section of the income statement is mostly comprised
of interest expense and other miscellaneous items that result in income or
expense. Interest expense is mostly driven by our OEM floorplan financing
arrangements, a working capital line of credit, and our second lien secured
notes. Also included in this section of the financials are non-recurring costs,
in particular expenses associated with the extinguishment of debt.
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