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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2022

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

ALTA EQUIPMENT GROUP INC.

(Exact name of registrant as specified in its charter)

 

Delaware

001-38864

83-2583782

(State or other jurisdiction
of incorporation)

(Commission
File Number)

(IRS Employer
Identification No.)

 

13211 Merriman Road, Livonia, Michigan 48150

(Address of principal executive offices)

 

(248) 449-6700

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YesNo

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YesNo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Large accelerated filer

 

Accelerated filer

 

 Non-accelerated filer

 

Smaller reporting company

 

Emerging growth company

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common stock, $0.0001 par value per share

 

ALTG

 

The New York Stock Exchange

Depositary Shares representing a 1/1000th fractional interest in a share of 10% Series A Cumulative Perpetual Preferred Stock, $0.0001 par value per share

 

ALTG PRA

 

The New York Stock Exchange

 

As of May 6, 2022, there were 32,454,025 shares of Common Stock, $0.0001 par value, and 1,200 shares of Preferred Stock, $0.0001 par value, which Preferred Stock is evidenced by 1,200,000 depositary shares, outstanding.

 

Auditor Id: 1195

Auditor Name: UHY

Auditor Location: New York, New York, United States

 

 


 

INDEX

 

 

 

Page

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

2

 

Consolidated Balance Sheets (Unaudited)

2

 

Consolidated Statements of Operations (Unaudited)

3

 

Consolidated Statements of Stockholders Equity (Deficit) (Unaudited)

4

 

Consolidated Statements of Cash Flows (Unaudited)

5

 

Notes to Unaudited Consolidated Financial Statements

6

 

Note 1.

Organization and Nature of Operations

6

 

Note 2.

Summary of Significant Accounting Policies

6

 

Note 3.

Revenue Recognition

9

 

Note 4.

Related Party Transactions

11

 

Note 5.

Inventories

11

 

Note 6.

Property and Equipment

12

 

Note 7.

Goodwill

12

 

Note 8.

Intangible Assets

13

 

Note 9.

Lines of Credit and Floor Plans

13

 

Note 10.

Long-Term Debt

14

 

Note 11.

Leases

15

 

Note 12.

Contingencies

17

 

Note 13.

Income Taxes

18

 

Note 14.

Equity

19

 

Note 15.

Share Based Compensation

19

 

Note 16.

Fair Value Instruments

20

 

Note 17.

Business Combinations

22

 

Note 18.

Segments

23

 

Note 19.

Earnings Per Share

25

 

Note 20.

Subsequent Events

25

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

26

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

40

Item 4.

Controls and Procedures

40

PART II

Item 1.

Legal Proceedings

42

Item 1A.

Risk Factors

42

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

42

Item 3.

Defaults Upon Senior Securities

42

Item 4.

Mine Safety Disclosures

42

Item 5.

Other Information

42

Item 6.

Exhibits

42

Signature

 

43

 

 

1


 

PART I

Item 1. Financial Statements

ALTA EQUIPMENT GROUP INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in millions, except share and per share amounts)

 

March 31,
2022

 

 

December 31,
2021

 

ASSETS

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

Cash

 

$

1.6

 

 

$

2.3

 

Accounts receivable, net of allowances of $11.9 and $10.7 as of March 31, 2022 and December 31, 2021, respectively

 

 

189.3

 

 

 

182.7

 

Inventories, net

 

 

291.0

 

 

 

239.2

 

Prepaid expenses and other current assets

 

 

22.8

 

 

 

24.4

 

Total current assets

 

$

504.7

 

 

$

448.6

 

 

 

 

 

 

 

 

PROPERTY AND EQUIPMENT, NET

 

 

337.0

 

 

 

344.5

 

OPERATING LEASE RIGHT-OF-USE ASSETS, NET

 

 

101.9

 

 

 

102.6

 

OTHER ASSETS

 

 

 

 

 

 

Goodwill

 

$

43.5

 

 

$

41.9

 

Intangible assets, net

 

 

42.0

 

 

 

43.4

 

Other assets

 

 

1.5

 

 

 

1.6

 

Total other assets

 

$

87.0

 

 

$

86.9

 

TOTAL ASSETS

 

$

1,030.6

 

 

$

982.6

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

Lines of credit, net

 

$

113.9

 

 

$

98.4

 

Floor plan payable – new equipment

 

 

147.5

 

 

 

114.2

 

Floor plan payable – used and rental equipment

 

 

39.5

 

 

 

40.6

 

Current portion of long-term debt

 

 

2.7

 

 

 

2.6

 

Accounts payable

 

 

63.6

 

 

 

73.5

 

Customer deposits

 

 

18.6

 

 

 

16.7

 

Accrued expenses

 

 

46.5

 

 

 

39.3

 

Current operating lease liabilities

 

 

16.4

 

 

 

16.2

 

Other current liabilities

 

 

22.0

 

 

 

19.1

 

Total current liabilities

 

$

470.7

 

 

$

420.6

 

 

 

 

 

 

 

 

LONG-TERM LIABILITIES

 

 

 

 

 

 

Long-term debt, net of current portion

 

 

310.2

 

 

 

310.0

 

Finance lease obligations, net of current portion

 

 

9.7

 

 

 

9.0

 

Deferred revenue, net of current portion

 

 

3.8

 

 

 

4.2

 

Guaranteed purchase obligations, net of current portion

 

 

4.7

 

 

 

5.2

 

Long-term operating lease liabilities, net of current portion

 

 

88.3

 

 

 

88.4

 

Deferred tax liability

 

 

6.9

 

 

 

6.9

 

Other liabilities

 

 

3.3

 

 

 

3.6

 

TOTAL LIABILITIES

 

$

897.6

 

 

$

847.9

 

CONTINGENCIES - NOTE 12

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Preferred stock, $0.0001 par value, 1,000,000 shares authorized, 1,200,000 Depositary Shares representing a 1/1000th fractional interest in a share of 10% Series A Cumulative Perpetual Preferred Stock, $0.0001 par value per share, issued and outstanding at March 31, 2022 and December 31, 2021, respectively

 

$

 

 

$

 

Common stock, $0.0001 par value, 200,000,000 shares authorized; 32,363,376 issued and outstanding at March 31, 2022 and December 31, 2021, respectively

 

 

 

 

 

 

Additional paid-in capital

 

 

217.7

 

 

 

217.4

 

Treasury stock

 

 

(5.9

)

 

 

(5.9

)

Accumulated deficit

 

 

(78.8

)

 

 

(76.8

)

TOTAL STOCKHOLDERS’ EQUITY

 

$

133.0

 

 

$

134.7

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

1,030.6

 

 

$

982.6

 

The accompanying notes are an integral part of these consolidated financial statements.

2


 

ALTA EQUIPMENT GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

Three Months Ended March 31,

 

(in millions, except share and per share amounts)

2022

 

 

2021

 

Revenues:

 

 

 

 

 

New and used equipment sales

$

151.6

 

 

$

123.8

 

Parts sales

 

53.4

 

 

 

41.4

 

Service revenue

 

48.2

 

 

 

38.7

 

Rental revenue

 

37.7

 

 

 

33.1

 

Rental equipment sales

 

40.8

 

 

 

31.8

 

Net revenues

$

331.7

 

 

$

268.8

 

Cost of revenues:

 

 

 

 

 

New and used equipment sales

$

123.9

 

 

$

106.5

 

Parts sales

 

36.7

 

 

 

28.7

 

Service revenue

 

20.1

 

 

 

14.5

 

Rental revenue

 

5.4

 

 

 

5.5

 

Rental depreciation

 

20.3

 

 

 

19.4

 

Rental equipment sales

 

33.9

 

 

 

26.9

 

Cost of revenues

$

240.3

 

 

$

201.5

 

Gross profit

$

91.4

 

 

$

67.3

 

General and administrative expenses

$

82.9

 

 

$

64.8

 

Depreciation and amortization expense

 

3.9

 

 

 

2.0

 

Total general and administrative expenses

$

86.8

 

 

$

66.8

 

Income from operations

$

4.6

 

 

$

0.5

 

Other (expense) income:

 

 

 

 

 

Interest expense, floor plan payable – new equipment

$

(0.3

)

 

$

(0.5

)

Interest expense – other

 

(5.8

)

 

 

(5.3

)

Other income

 

0.3

 

 

 

0.1

 

Total other expense

$

(5.8

)

 

$

(5.7

)

Loss before taxes

$

(1.2

)

 

$

(5.2

)

Income tax provision

 

 

 

 

0.5

 

Net loss

$

(1.2

)

 

$

(5.7

)

Preferred stock dividends

 

(0.8

)

 

 

 

Net loss available to common shareholders

$

(2.0

)

 

$

(5.7

)

Basic loss per share

$

(0.06

)

 

$

(0.19

)

Diluted loss per share

$

(0.06

)

 

$

(0.19

)

Basic weighted average common shares outstanding

 

32,363,376

 

 

 

30,018,502

 

Diluted weighted average common shares outstanding

 

32,363,376

 

 

 

30,018,502

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

3


 

ALTA EQUIPMENT GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(Unaudited)

 

 

 

Three Months Ended March 31, 2022

 

 

 

Preferred Stock

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

(amounts in millions, except share amounts)

 

Number
of Shares

 

 

Amount

 

 

Number of
Shares

 

 

Amount

 

 

Additional
Paid-in
Capital

 

 

Accumulated
Deficit

 

 

Treasury Stock

 

 

Total
Stockholders'
Equity (Deficit)

 

Balance at December 31, 2021

 

 

1,200,000

 

 

$

 

 

 

32,363,376

 

 

$

 

 

$

217.4

 

 

$

(76.8

)

 

$

(5.9

)

 

$

134.7

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1.2

)

 

 

 

 

 

(1.2

)

Dividends on preferred stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(0.8

)

 

 

 

 

 

(0.8

)

Share based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

0.3

 

 

 

 

 

 

 

 

 

0.3

 

Balance at March 31, 2022

 

 

1,200,000

 

 

$

 

 

 

32,363,376

 

 

$

 

 

$

217.7

 

 

$

(78.8

)

 

$

(5.9

)

 

$

133.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2021

 

 

 

Preferred Stock

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

(amounts in millions, except share amounts)

 

Number
of Shares

 

 

Amount

 

 

Number of
Shares

 

 

Amount

 

 

Additional
Paid-in
Capital

 

 

Accumulated
Deficit

 

 

Treasury Stock

 

 

Total
Stockholders'
Equity (Deficit)

 

Balance at December 31, 2020

 

 

1,200,000

 

 

$

 

 

 

30,018,502

 

 

$

 

 

$

216.2

 

 

$

(53.4

)

 

$

(5.9

)

 

$

156.9

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5.7

)

 

 

 

 

 

(5.7

)

Share based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

0.3

 

 

 

 

 

 

 

 

 

0.3

 

Balance at March 31, 2021

 

 

1,200,000

 

 

$

 

 

 

30,018,502

 

 

$

 

 

$

216.5

 

 

$

(59.1

)

 

$

(5.9

)

 

$

151.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

4


 

ALTA EQUIPMENT GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

Three Months Ended March 31,

 

(amounts in millions)

 

2022

 

 

2021

 

OPERATING ACTIVITIES

 

 

 

 

 

 

Net loss

 

$

(1.2

)

 

$

(5.7

)

Adjustments to reconcile net loss to net cash flows provided by (used in) operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

24.2

 

 

 

21.4

 

Amortization of debt discount and debt issuance costs

 

 

0.3

 

 

 

0.5

 

Imputed interest

 

 

0.1

 

 

 

0.1

 

Gain on sale of rental equipment

 

 

(6.8

)

 

 

(4.9

)

Inventory obsolescence

 

 

1.1

 

 

 

0.2

 

Provision for bad debt

 

 

1.2

 

 

 

0.6

 

Share based compensation

 

 

0.3

 

 

 

0.3

 

Changes in deferred taxes

 

 

 

 

 

0.5

 

Changes in:

 

 

 

 

 

 

Accounts receivable

 

 

(7.8

)

 

 

(5.9

)

Inventories

 

 

(82.6

)

 

 

(33.4

)

Proceeds from sale of rental equipment

 

 

40.8

 

 

 

31.8

 

Prepaid expenses and other assets

 

 

1.7

 

 

 

0.5

 

Proceeds from floor plans with manufacturers

 

 

127.1

 

 

 

84.8

 

Payments under floor plans with manufacturers

 

 

(105.4

)

 

 

(86.9

)

Accounts payable, accrued expenses, customer deposits, and other current liabilities

 

 

0.2

 

 

 

(3.8

)

Leases, deferred revenue, and other liabilities

 

 

0.1

 

 

 

0.5

 

Net cash (used in) provided by operating activities

 

$

(6.7

)

 

$

0.6

 

INVESTING ACTIVITIES

 

 

 

 

 

 

Proceeds from the sale of assets

 

$

0.1

 

 

$

0.7

 

Expenditures for rental equipment

 

 

(15.1

)

 

 

(6.2

)

Expenditures for property and equipment

 

 

(1.8

)

 

 

(1.5

)

Expenditures for guaranteed purchase obligations

 

 

(0.6

)

 

 

(0.9

)

Expenditures for acquisitions, net of cash acquired

 

 

(1.2

)

 

 

(1.9

)

Net cash used in investing activities

 

$

(18.6

)

 

$

(9.8

)

FINANCING ACTIVITIES

 

 

 

 

 

 

Proceeds from lines of credit

 

$

86.3

 

 

$

73.5

 

Payments under lines of credit

 

 

(70.9

)

 

 

(61.7

)

Proceeds from floor plans with unaffiliated source

 

 

30.2

 

 

 

24.2

 

Payments under floor plans with unaffiliated source

 

 

(19.5

)

 

 

(25.3

)

Preferred dividends paid

 

 

(0.8

)

 

 

 

Payments on long-term debt

 

 

 

 

 

(1.9

)

Payments on finance lease obligations

 

 

(0.7

)

 

 

(0.2

)

Net cash provided by financing activities

 

$

24.6

 

 

$

8.6

 

 

 

 

 

 

 

 

NET CHANGE IN CASH

 

 

(0.7

)

 

 

(0.6

)

 

 

 

 

 

 

 

Cash, Beginning of year

 

 

2.3

 

 

 

1.2

 

Cash, End of period

 

$

1.6

 

 

$

0.6

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

 

 

 

 

 

 

Cash paid for interest

 

$

1.3

 

 

$

5.3

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

5


 

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, Ohio, 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 Material Handling New York State, LLC; Alta Construction Equipment, LLC; Alta Construction Equipment Illinois, LLC; Alta Heavy Equipment Services, LLC; NITCO, LLC; Alta Construction Equipment Florida, LLC; Alta Construction Equipment Ohio, LLC; Alta Construction Equipment New England, LLC; Alta Mine Services, LLC; Alta Construction Equipment New York, LLC; and Alta Electric Vehicles, LLC.

Alta Construction Equipment, LLC is the holding company for Alta Kubota Michigan, LLC which is the holding company of Ginop Sales, Inc.

Alta Electric Vehicles, LLC is the holding company for Alta Electric Vehicles North East, LLC and Alta Electric Vehicles South West, 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 three months ended March 31, 2022 is not necessarily indicative of the results that may be expected for the year ending December 31, 2022, 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 2021 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.

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 March 31, 2022.

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.

6


 

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 March 31, 2022.

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 our 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, we generally allocate sales price to each distinct performance obligation based on the observable selling price.

We enter into various equipment sale transactions with certain customers, whereby customers purchase equipment from us and then lease the equipment to a third party. In some cases, we provide 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. We are precluded from recognizing a sale of equipment if we guarantee to repurchase the sold equipment back or guarantee the resale value of the equipment. Rather, these transactions are accounted for in accordance with ASC 842, Leases (“ASC 842”).

The deferred revenue, 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 lease contract period up to the first exercise date of the guarantee. At March 31, 2022 and December 31, 2021, the total deferred revenue relating to these various equipment sale transactions amounted to $2.6 million and $2.9 million, respectively. The Company also recognized a liability for its guarantee to repurchase the equipment at the residual amounts of $6.9 million and $7.2 million as of March 31, 2022 and December 31, 2021, 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 ASC 842. 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 design and build solutions, automated equipment installation and system integration and software services, referred to herein as project-based revenues. These project-based revenues are 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.

The Company recognizes deferred revenue with respect to project-based revenues, 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 project-based revenues, service sales agreements and rental agreements as of March 31, 2022 and December 31, 2021 was $18.8 million and $16.5 million, respectively.

Periodic and ad-hoc maintenance service revenue is recognized upon completion of the service and the agreement of terms with the customer. 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

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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 revenues.

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.

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 Interim Reporting, 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.