Alta Equipment (ALTG) - 2023 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements Total revenues increased by 26.8% to $420.7 million, resulting in $0.2 million net income, while total assets grew to $1,376.8 million Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (in millions) | (in millions) | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $729.5 | $663.3 | | Total Assets | $1,376.8 | $1,290.6 | | Total Current Liabilities | $525.8 | $471.2 | | Total Liabilities | $1,238.7 | $1,150.8 | | Total Stockholders' Equity | $138.1 | $139.8 | - Total assets increased to $1,376.8 million as of March 31, 2023, from $1,290.6 million at the end of 2022, primarily driven by a significant increase in net inventories, which rose from $399.7 million to $469.1 million[11] - Total liabilities rose to $1,238.7 million from $1,150.8 million, largely due to increases in floor plan payables (from $256.8 million to $314.8 million) and the line of credit (from $217.5 million to $256.0 million)[11] Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations (in millions, except per share) | (in millions, except per share) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Total Revenues | $420.7 | $331.7 | | Gross Profit | $121.3 | $91.4 | | Income from Operations | $12.1 | $4.6 | | Net Income (Loss) | $1.0 | ($1.2) | | Net Income (Loss) to Common Stockholders | $0.2 | ($2.0) | | Diluted EPS | $0.01 | ($0.06) | - Total revenues increased by 26.8% year-over-year, driven by strong growth in new and used equipment sales, which rose 44.9% to $219.6 million[14] - The company swung to a net income of $1.0 million in Q1 2023 from a net loss of $1.2 million in Q1 2022, reflecting higher revenues and improved gross profit[14] Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (in millions) | (in millions) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | ($20.1) | ($6.7) | | Net cash used in investing activities | ($18.9) | ($18.6) | | Net cash provided by financing activities | $37.9 | $24.6 | | Net change in cash | ($1.0) | ($0.7) | - Net cash used in operating activities increased to $20.1 million, primarily due to a $114.3 million increase in inventories, partially offset by a $57.0 million increase in manufacturers floor plans payable[23] - Financing activities provided $37.9 million in cash, mainly from $97.0 million in proceeds from line of credit and long-term borrowings, used to fund working capital needs and acquisitions[23] Notes to Unaudited Condensed Consolidated Financial Statements - On March 1, 2023, the company acquired the assets of M&G Materials Handling Co. ("M&G"), a Yale dealer in Rhode Island, for a purchase price of $2.3 million[101] Segment Assets (in millions) | (in millions) | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Material Handling | $446.5 | $416.3 | | Construction Equipment | $829.9 | $775.5 | | Master Distribution | $81.2 | $77.6 | | Corporate and Other | $19.2 | $21.2 | | Total assets | $1,376.8 | $1,290.6 | - The company began separately reporting Master Distribution as a new segment in the first quarter of 2023, following the acquisition of Ecoverse in late 2022. Financial data for 2022 has been recast to reflect this change[106] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Consolidated revenues grew 26.8% with 16.2% organic growth, improving gross profit margin to 28.8% and maintaining solid liquidity Results of Operations Consolidated Results of Operations (Q1 2023 vs Q1 2022, in millions) | (in millions) | Q1 2023 | Q1 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenues | $420.7 | $331.7 | 26.8% | | New and used equipment sales | $219.6 | $151.6 | 44.9% | | Parts sales | $68.4 | $53.4 | 28.1% | | Service revenue | $60.2 | $48.2 | 24.9% | | Gross Profit | $121.3 | $91.4 | 32.7% | | Income from Operations | $12.1 | $4.6 | 163.0% | | Net Income (Loss) | $1.0 | ($1.2) | (183.3%) | Organic Revenue Growth Reconciliation (Q1 2023, in millions) | (in millions) | Total Revenues | Acquisitions Revenues | Total Organic Revenues | Organic Growth (%) | | :--- | :--- | :--- | :--- | :--- | | Q1 2023 | $420.7 | $35.4 | $385.3 | 16.2% | - Consolidated gross profit margin increased by 120 basis points to 28.8% in Q1 2023 from 27.6% in Q1 2022, driven by a favorable pricing environment and a higher margin on rental equipment sales[144] Segment Results - Material Handling revenues grew 31.2% to $164.8 million, with organic growth of 21.2%, resulting in $5.1 million income before taxes[148][150] - Construction Equipment revenues increased 13.1% to $233.1 million entirely from organic growth, reporting a loss before taxes of $1.6 million, an improvement from the prior year[154][156] - Master Distribution, a new segment from the Q4 2022 Ecoverse acquisition, generated $26.7 million in revenue and $3.4 million in income before taxes in its first full quarter[161][162] Liquidity and Capital Resources - The company's principal sources of liquidity are cash from operations, debt issuance, and borrowings under its line of credit and floor plans[171] - Net cash used in operating activities was $20.1 million for Q1 2023, compared to $6.7 million in Q1 2022, primarily due to a seasonal build of new equipment inventory[166][167] - As of March 31, 2023, $229.4 million of available borrowings under revolving line of credit and floor plan facilities are deemed adequate for future liquidity needs[174] Item 3. Quantitative and Qualitative Disclosures About Market Risk Primary market risks are interest rate and foreign currency, with a 1% rate increase potentially reducing pre-tax earnings by $1.7 million - The company is exposed to interest rate risk on its ABL Facility and Floor Plan Facilities, which are based on floating rates like SOFR[178] - As of March 31, 2023, a 1% increase in interest rates on variable rate debt would reduce annual pre-tax earnings by $1.7 million, net of hedging impacts[179] - Foreign currency risk exists due to operations in Canada, affecting revenues and expenses denominated in Canadian dollars and European currencies, with forward contracts used to hedge a portion of this exposure[180] Item 4. Controls and Procedures Disclosure controls and procedures were ineffective due to an un-remediated material weakness in internal control over financial reporting - Management concluded that disclosure controls and procedures were not effective as of March 31, 2023, due to a material weakness in internal control over financial reporting[182] - The material weakness relates to the sales process and was previously disclosed in the 2022 Annual Report on Form 10-K[182] - A remediation plan is underway, focusing on training, system enhancements, and implementing regular management monitoring controls, with remediation considered complete once these controls operate effectively for a sufficient period[184][185] PART II – OTHER INFORMATION Item 1. Legal Proceedings The company is not involved in any material legal proceedings beyond routine litigation incidental to its business - There are no material legal proceedings to which the company is a party or to which any of its property is subject, aside from routine legal matters incidental to the business[189] Item 1A. Risk Factors No material changes to risk factors were reported from those disclosed in the prior year's Annual Report on Form 10-K - No material changes have occurred from the risk factors previously disclosed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2022[190]