ALTA EQUIPMENT GROUP INC

Previous wording

We have operated as an equipment dealership for 40 years and have developed a branch network that includes over 85 total locations in Michigan, Illinois, Indiana, Ohio, Pennsylvania, Massachusetts, Maine, Connecticut, New Hampshire, Vermont, Rhode Island, New York, Virginia, Nevada and Florida and the Canadian provinces of Ontario and Quebec. We offer our customers end-to-end solutions for their equipment needs by providing sales, parts, service and rental offerings. Additionally, we provide warehouse design and build services, automated equipment installation and system integration solutions within our Material Handling segment.

Current wording

We have operated as an equipment dealership for 40 years and have developed a branch network that includes over 85 total locations in Michigan, Illinois, Indiana, Ohio, Pennsylvania, Massachusetts, Maine, Connecticut, New Hampshire, Vermont, Rhode Island, New York, Virginia, Nevada and Florida and the Canadian provinces of Ontario and Quebec. We offer our customers end-to-end solutions for their equipment needs by providing sales, parts, service and rental offerings. Additionally, we provide warehouse design and build services related to automated equipment installation and warehouse management system integration solutions within our Material Handling segment.

Previous wording

Our growth strategy is predicated on making strategic acquisitions that expand our geographic reach, broaden our capabilities and service offerings and diversify our customer and supplier bases. We believe these acquisitions, both immediately and over the long term, will be accretive to our financial performance.

Current wording

Our growth strategy is multifaceted and primarily predicated on making strategic acquisitions that expand our geographic reach, broaden our capabilities and service offerings, and diversify our customer and supplier bases. We believe these acquisitions, both immediately and over the long term, will be accretive to our financial performance. Recent examples of strategic acquisitions were the Ault and Burris acquisitions that closed in late 2023.

Previous wording

New equipment sales. We sell new heavy construction, material handling and environmental processing equipment and are a leading regional distributor for nationally recognized equipment manufacturers. Our new equipment sales operation is a primary source of new customers for our rental, parts and service business. The majority of our new equipment sales are predicated on exclusive distribution agreements we have with best-in-class OEMs. The sale of new equipment to customers, while profitable from a gross margin perspective, 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 and services related to our material handling equipment offerings which include, but are not limited to, automated equipment and related installation, warehouse systems integration solutions and related controls software.

Current wording

New equipment sales. We sell new heavy construction, material handling and environmental processing equipment and are a leading regional distributor for nationally recognized equipment manufacturers. Our new equipment sales operation is a primary source of new customers for our rental, parts and service business. The majority of our new equipment sales are predicated on exclusive distribution agreements we have with best-in-class OEMs. The sale of new equipment to customers, while profitable from a gross margin perspective, 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 and services related to our material handling equipment offerings which include, but are not limited to, automated equipment installation and warehouse management systems integration.

Previous wording

Service revenues. We provide maintenance and repair services for customer-owned equipment and 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 45% of our employees are skilled service technicians.

Current wording

Service revenues. We provide maintenance and repair services for customer-owned equipment and 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 44% of our employees are skilled service technicians.

Previous wording

Rental revenues. We rent heavy construction, compact, aerial, material handling, and a variety of other types of 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 $601.0 million as of March 31, 2024. The original acquisition cost of our rental fleet excludes $8.3 million of assets associated with our guaranteed purchase obligations, which are assets that are not 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.

Current wording

Rental revenues. We rent heavy construction, compact, aerial, material handling, and a variety of other types of 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 $609.9 million as of June 30, 2024. The original acquisition cost of our rental fleet excludes $7.3 million of assets associated with our guaranteed purchase obligations, which are assets that are not 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.

Previous wording

Rental equipment sales. We also sell rental equipment from our rental fleet. In our Construction Equipment segment, our rental equipment sales are primarily related to lightly-used equipment that is in the initial years of its useful life. Selling lightly-used construction equipment from our rental fleet allows us to meet customer demand for specific model years of equipment at various price points (versus only offering brand new equipment to the market). 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 service revenues for us.

Current wording

Rental equipment sales. We also sell rental equipment from our rental fleet. In our Construction Equipment segment, our rental equipment sales are primarily related to lightly-used equipment that is in the initial years of its useful life. Selling lightly-used construction equipment from our rental fleet allows us to meet customer demand for specific model years of equipment at various price points versus only offering brand new equipment to the market. 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-owned equipment field population within our territories that ultimately yield high-margin parts and service revenues for us.

Previous wording

Other expense, net. This section of the Condensed Consolidated Statements of Operations is mostly comprised of interest expense and other miscellaneous items that result in income or expense. Interest expense is driven by our OEM floor plan financing arrangements, line of credit, senior secured second lien notes, and finance lease arrangements.

Current wording

Other expense, net. This section of the Condensed Consolidated Statements of Operations is mostly comprised of interest expense and other miscellaneous items that result in income or expense. Interest expense is driven by our Floor Plan Facilities, ABL Facility, Notes, and finance lease arrangements.

Previous wording

The three months ended March 31, 2024 and 2023

Current wording

Revenues: Consolidated revenues increased by $19.7 million, or 4.2%, to $488.1 million for the three months ended June 30, 2024 as compared to the same period last year. Organic sales for the three months ended June 30, 2024 increased 0.1% compared to the same period last year. Continuous headwinds from general economic uncertainty related to the outcome of the upcoming U.S. presidential election and a continued high interest rate environment have softened demand for new and used equipment, but the core long-term fundamentals in many of the markets we serve remain solid. Organic new and used equipment sales decreased by $14.2 million, or 5.6%, to $240.4 million for the three months ended June 30, 2024, partially offset by increased revenues from rental equipment sales of $5.2 million, organically. Organic parts sales increased by $2.6 million, or 3.6%, to $73.9 million for the three months ended June 30, 2024 as compared to the same period last year, and organic service sales increased $5.5 million, or 9.2%, making for a total aftermarket sales increase of $8.1 million organically, or 6.2%. Rental revenues for the quarter reached $51.0 million organically, or an increase of 2.8%.

Previous wording

In the three months ended March 31, 2024, organic new and used equipment revenues remained relatively steady, decreasing a modest 0.5%, against a strong comparative three months ended March 31, 2023 when supply of new equipment was in the initial phase of meeting high levels of pent-up demand that existed post-pandemic. This dynamic was most prominent in our Master Distribution segment, which sells equipment to stocking dealers, as segment revenues for the three months ended March 31, 2024 were down $13.9 million from the prior year same period. While new and used equipment revenues stagnated versus the same period last year, our product support departments (parts and service) grew 2.5% organically during the quarter. Our rental business remained strong for the period as rental revenues grew 7.1% organically on higher rates and increased fleet on rent when compared to the same period last year. Rental equipment sales declined 5.5% for the three months ended March 31, 2024 as compared to the same period last year, primarily related to the heightened demand for lightly-used equipment in the first quarter of 2023.

Current wording

In the six months ended June 30, 2024, organic new and used equipment revenues remained relatively steady, decreasing a modest 3.2% against a strong comparative six months ended June 30, 2023 when supply of new equipment was in the initial phase of meeting high levels of pent-up demand that existed post-pandemic. This dynamic was most prominent in our Master Distribution segment, which sells equipment to sub-dealers, as segment revenues for the six months ended June 30, 2024 were down $18.6 million from the prior year same period. While new and used equipment revenues stagnated on weaker demand versus the same period last year, our product support departments (parts and service) grew 4.4% organically for the six months ended June 30, 2024. Our rental business remained strong for the six months ended June 30, 2024 as rental revenues grew 4.8% organically from increased fleet on rent when compared to the same period last year. Rental equipment sales increased 5.8% for the six months ended June 30, 2024 as compared to the same period last year, as we look to sell rental equipment to help bolster field population for our aftermarket departments, especially as rental rates and utilization begin to moderate from their highs.

Previous wording

The consolidated gross profit for the three months ended March 31, 2024 was 27.3%, a 150 basis point decrease from the 28.8% for the same period in 2023. New and used equipment sales margins decreased 270 basis points to 15.8%, a reflection of sales mix, as we generated less volume from our higher-margin warehouse solutions platform, Peaklogix, and our Master Distribution segment in the period when compared to the same period last year. With inventory availability normalizing, new and used equipment sales margins in our core businesses (construction and material handling) have also normalized modestly from pricing highs experienced in the prior year. However, on sales of our rental equipment, our flexible rent-to-sell model, which allows us to sell previously depreciated but well-maintained rental fleet, led to a 140 basis point increase when comparing the year-over-year periods. Parts and service gross margins remained consistent year to date when compared to the same time last year, improving 10 basis points and declining 50 basis points for each department, respectively. We realized a 300 basis point decrease in rental revenues gross margin for the three months ended March 31, 2024, largely a result of replenishing and increasing the size of our rental fleet and the related incremental increase in depreciation expense.

Current wording

The consolidated gross profit for the three months ended June 30, 2024 was 27.0%, a 10 basis point decrease from the same period in 2023. New and used equipment sales margins decreased 170 basis points to 15.7%, as margin compression was observed in both our Construction Equipment and Master Distribution segments. With inventory availability normalizing, new and used equipment sales margins have also normalized modestly from pricing highs experienced in the prior year. The impact of pricing normalization also effected the sales of our rental equipment, which led to a 190 basis point decrease when comparing the year-over-year periods. Parts and service gross margins improved in the second quarter when compared to the same time last year, improving 130 basis points and 190 basis points for each department, respectively, primarily due to the 2023 acquisition of Ault's impact on overall parts margin and improved rate realization on service labor. We realized an 80 basis point decrease in rental revenues gross margin for the three months ended June 30, 2024, largely a result of replenishing and increasing the size of our rental fleet and the related incremental increase in depreciation expense.

Previous wording

Operating expenses: Consolidated operating expenses increased by $12.3 million to $121.5 million for the three months ended March 31, 2024 compared to the same period last year. The increase is primarily driven by the full period impact from our 2023 acquisitions. Organic headcount growth and rising costs of employment, such as wages and benefits, largely account for the remainder of the increase.

Current wording

Operating expenses: Consolidated operating expenses increased by $11.1 million to $121.7 million for the three months ended June 30, 2024 compared to the same period last year. The increase is primarily driven by the full period impact from our 2023 acquisitions. Rising costs of employment, such as wages and benefits, largely account for the remainder of the increase, along with non-cash adjustments to contingent consideration for earn-outs on previous acquisitions, and increased costs for certain non-recurring services and events such as new store openings.

Previous wording

Other expense, net: Consolidated other expense, net for the three months ended March 31, 2024 was $15.2 million compared to $11.0 million for the same period in 2023. The increase is primarily due to an increase in interest expense from higher interest rates and more debt outstanding as a result of debt-financed acquisitions in the fourth quarter of 2023 and higher inventory and rental fleet levels relative to the first quarter of 2023.

Current wording

Other expense, net: Consolidated other expense, net for the three months ended June 30, 2024 was $24.9 million compared to $13.5 million for the same period in 2023. The increase is primarily due to the loss on extinguishment of debt of $6.7 million and an increased amount of interest expense.

Previous wording

Provision for income taxes: The Company recorded a $4.2 million income tax benefit and $0.1 million income tax expense for the three months ended March 31, 2024 and 2023, respectively. The income tax benefit was a result of the losses incurred during the 2024 period.

Current wording

Provision for income taxes: The Company recorded an income tax benefit of $2.7 million and an expense of $0.3 million for the three months ended June 30, 2024 and 2023, respectively and an income tax benefit of $6.9 million and an expense of $0.4 million for the six months ended June 30, 2024 and 2023, respectively. The income tax benefit was a result of the losses incurred during the 2024 period.

Previous wording

Revenues: Material Handling segment revenues increased by $9.5 million to $174.3 million for the three months ended March 31, 2024 as compared to the same period last year. Organically, the segment revenues increased 4.9% year to date over the same period in the prior year based on a favorable demand backdrop and equipment availability, allowing for throughput on our equipment sales backlog. On an organic basis, product support revenues, made up of the combined parts and service departments, remained relatively stable, decreasing slightly by 0.2%, with similar service call volumes when compared to the same period last year. Rental revenues increased 5.0% on an organic basis for the three months ended March 31, 2024 as compared to the same period last year on higher rental rates and nominal level of fleet on rent. Rental equipment sales increased $1.1 million organically, or 78.6%, on low volume as we dispose of rental equipment that has reached the end of its useful life in our fleet.

Current wording

Material Handling segment revenues increased by $16.0 million to $349.9 million for the six months ended June 30, 2024 as compared to the same period last year. Organically, the segment revenues increased 4.3% year to date over the same period in the prior year. On an organic basis, product support revenues, made up of the combined parts and service departments, remained relatively stable, increasing by 2.3%, with similar service call volumes when compared to the same period last year. Rental revenues increased 6.6% on an organic basis for the six months ended June 30, 2024 as compared to the same period last year primarily related to a higher nominal level of fleet on rent and moderately increased rates. Rental equipment sales increased $3.0 million organically, or 130.4%, on low volume as we have strategically sold underperforming rental units or disposed of rental equipment that reached the end of its useful life in our fleet.

Previous wording

Material Handling gross profit for the three months ended March 31, 2024 decreased 240 basis points to 32.5% compared to the same period in 2023. New and used equipment gross margins compressed due to sales mix variances, with reduced sales coming from Peaklogix, our higher margin warehousing solutions platform, and increased competitive pressures from increased availability of equipment in the marketplace relative to the prior year. Parts gross margins have remained relatively consistent year over year and in line with expectations. The 120 basis point service margin increase for the three months ended March 31, 2024 compared to the prior year same period can be attributed to margin improvements in each major service category: customer, warranty, and fleet work. Rental revenues gross margins have declined 810 basis points primarily due to replenishing and increasing the size of our rental fleet and the associated incremental increase in depreciation expense. Rental equipment sales margins remained relatively consistent and in line with expectations on low volume of sales.

Current wording

Material Handling gross profit for the six months ended June 30, 2024 decreased 80 basis points to 33.2% compared to the same period in 2023. New and used equipment gross margins compressed slightly due to sales mix variances, with reduced sales coming from Peaklogix, our higher margin warehousing solutions platform, and increased pressure on used equipment pricing. Parts gross margins have remained relatively consistent year over year and in line with expectations. The 200 basis point service margin increase for the six months ended June 30, 2024 compared to the prior year same period can be attributed to margin improvements in each major service category: customer and OEM warranty and fleet work. Rental revenues gross margins have declined 510 basis points primarily due to replenishing and increasing the size of our rental fleet and the associated incremental increase in depreciation expense. Rental equipment sales margins remained relatively consistent and in line with expectations on low volume of sales.

Previous wording

Operating expenses: Material Handling operating expenses increased by $6.1 million to $51.1 million for the three months ended March 31, 2024 as compared to the same period last year, mainly due to the full period impact from the M&G acquisition in March 2023, personnel-related cost increases in wages and benefits, and a $3.7 million change in the Condensed Consolidated Statements of Operations classification of the intercompany allocation of shared service expenses with an offsetting impact in Other income (expense).

Current wording

Material Handling operating expenses increased by $10.7 million to $100.1 million for the six months ended June 30, 2024 as compared to the same period last year, mainly due to the full period impact from the M&G acquisition in March 2023, personnel-related cost increases in wages and benefits, and a change in the Condensed Consolidated Statements of Operations classification of the intercompany allocation of shared service expenses with an offsetting impact in Other income (expense) of $7.8 million.

Previous wording

Other expense, net: Material Handling other expense, net decreased by $2.4 million to $5.0 million for the three months ended March 31, 2024 as compared to the same period last year. The decrease is mainly related to the aforementioned change in intercompany expense allocation for shared service functions and contingent consideration adjustments for previous acquisitions partially offset by increased interest expense associated with an increase in total borrowings used to support a larger rental fleet, higher inventory levels, and debt-financed acquisitions, combined with a rise in interest rates on our floating-rate debt versus the same period last year.

Current wording

Other expense, net: Material Handling other expense, net decreased by $2.8 million to $5.8 million for the three months ended June 30, 2024 as compared to the same period last year. The decrease is mainly related to the aforementioned change in intercompany expense allocation for shared service functions and contingent consideration adjustments for previous acquisitions partially offset by increased interest expense due to increased effective interest rates and higher inventory and rental fleet levels.

Previous wording

Revenues: Construction Equipment segment revenues increased by $22.5 million to $255.6 million for the three months ended March 31, 2024 as compared to the same period last year. Organic segment revenues increased 2.8% for the three months ended March 31, 2024 over the same period in the prior year, amid a stable demand backdrop. New and used equipment sales increased organically by $4.3 million, or 3.8%, while rental equipment sales decreased for the three months ended March 31, 2024 by $3.4 million, resulting in overall equipment sales comparable to prior year same period. New equipment availability increased throughout the industry, resulting in an increased competitive environment compared to a year ago. With the greater availability of new equipment, our sales mix shifted toward new equipment and away from sales out of our rental fleet. Product support revenues increased 5.4% organically due to higher technician headcount and favorable pricing. Rental revenues increased 7.9%, on an organic basis for the three months ended March 31, 2024 as compared to the same period last year primarily attributable to an increased rental rate environment and a greater dollar amount of fleet on rent between the comparable periods.

Current wording

Revenues: Construction Equipment segment revenues increased by $13.4 million to $294.9 million for the three months ended June 30, 2024 as compared to the same period last year. Organic segment revenues decreased 1.9% for the three months ended June 30, 2024 over the same period in the prior year, amid a softer demand backdrop. New and used equipment sales decreased organically by $14.7 million, or 9.9%, while rental equipment sales increased for the three months ended June 30, 2024 by $4.0 million. Market demand for equipment from medium and small contractors has declined as interest rates have stayed elevated and new project funding has become more challenging. Further, heightened new equipment availability and dealer stock levels throughout the industry have resulted in an increased competitive environment compared to a year ago making holding market share in certain regions and product categories more difficult. Product support revenues increased 8.1% organically as we have been able to increase skilled technician headcount and improved rate realization on service labor. Rental revenues decreased 1.0%, on an organic basis for the three months ended June 30, 2024 as compared to the same period last year on reduced utilization and as rental rates have moderated.

Previous wording

Construction Equipment gross profit decreased by 80 basis points to 23.6% in the three months ended March 31, 2024 from 24.4% in the same period in 2023. New and used equipment sales margins decreased 130 basis points to 12.8%, primarily related to greater equipment supply in the market resulting in more normalized equipment sales margins this year when compared to the same period last year. The flexibility afforded by the availability of new equipment in our markets allowed for a more deliberate approach to rental equipment sales which led to rental equipment sales margins remaining flat despite lower sales volume when comparing the year-over-year periods. Our "rent-to-sell" approach in our Construction Equipment segment allows us to offer differing, well-maintained, vintages of equipment at various price points to a wide range of customers and applications with the goal of increasing our equipment field population leading to additional future high-margin product support revenues. Parts sales margins for the three months ended March 31, 2024 remained consistent when compared to the same time last year and in line with expectations. Service gross margins decreased by 240 basis points year over year on increased non-billable time as the mild winter in our northern regions led to less heavy machinery being used on soft grounds and there were fewer instances of snow equipment repair or startup issues related to extreme cold. Rental revenues gross margin for the three months ended March 31, 2024 increased 130 basis points from a year ago, primarily related to lower repair and maintenance costs associated with the fleet, on a relative basis, year over year.

Current wording

Construction Equipment gross profit decreased by 50 basis points to 23.2% in the six months ended June 30, 2024 from 23.7% in the same period in 2023. New and used equipment sales margins decreased 220 basis points to 12.8%, primarily related to greater equipment supply in the market resulting in tighter sales margins this year when compared to the same period last year. Parts sales margins for the six months ended June 30, 2024 increased when compared to the same time last year and have been helped by improving parts gross margins from our 2023 acquisition of Ault. Service gross margins decreased by 80 basis points year over year mainly from an increase of non-billable time in the first quarter of the year as the mild winter in our northern regions led to less heavy machinery being used on soft grounds and there were fewer instances of snow equipment repair or startup issues related to extreme cold. Rental revenues gross margin for the six months ended June 30, 2024 increased 60 basis points from a year ago, primarily related to lower repair and maintenance costs associated with the fleet year over year.

Previous wording

Operating expenses: Construction Equipment operating expenses increased by $11.2 million to $60.9 million for the three months ended March 31, 2024 as compared to the same period in 2023. The increase is mainly due to the full period impact from the Burris and Ault acquisitions made in the fourth quarter of 2023 but is also influenced by general headcount increases in the segment reflected in higher wage levels, and rising benefit costs. Lastly, a $3.0 million change in the Condensed Consolidated Statements of Operations classification of the allocation of intercompany expenses for shared service functions increases the level of operating expenses compared to the prior year but are offset by a reduction of expense allocated in Other expense, net.

Current wording

Construction Equipment operating expenses increased by $22.6 million to $122.4 million for the six months ended June 30, 2024 as compared to the same period in 2023. The increase is mainly due to the full period impact from the Burris and Ault acquisitions made in the fourth quarter of 2023 but is also influenced primarily by higher wage levels, rising benefit costs, and increased customer, service vehicle, and facility related expenses. Lastly, a $6.2 million change in the Condensed Consolidated Statements of Operations classification of the allocation of intercompany expenses for shared service functions increased the level of operating expenses compared to the prior year but were offset by a reduction of expense allocated in Other expense, net.

Previous wording

Other expense, net: Construction Equipment other expense, net increased by $0.6 million to $9.4 million for the three months ended March 31, 2024 as compared to the same period in 2023. The variance was mainly due to the increase in interest rates on our floating-rate debt and the interest expense related to a larger rental fleet and higher inventory levels partially offset by the aforementioned change in shared service function intercompany segment allocations.

Current wording

Other expense, net: Construction Equipment other expense, net increased by $0.6 million to $11.3 million for the three months ended June 30, 2024 as compared to the same period in 2023. The variance was mainly due to increased floor plan interest expense related to increased new inventory levels that were no longer subsidized by our OEMs and higher effective interest rates, higher inventory and rental fleet levels, and increased debt from financed acquisitions partially offset by the aforementioned change in shared service function intercompany segment allocations.

Previous wording

Revenues: Master Distribution segment revenues for the three months ended March 31, 2024 were $12.8 million, a decrease of $13.9 million from the prior year same period. This variance is primarily related to, 1) the Master Distribution segments business model, which is to sell equipment to sub-dealers that hold stock inventory and ultimately sell to end users and, 2) the supply and demand dynamic that existed in the first quarter of 2023, as supply of new equipment was in the initial phase of meeting high levels of pent-up post-pandemic demand and our Master Distribution sub-dealers fulfilled stocking needs. This dealer-stocking dynamic led to higher than typical sales volume for our Master Distribution for the three months ended March 31, 2023. Parts sales were slightly down based on mix, as we sold multiple large component parts in the three months ended March 31, 2023 when compared to the same period this year.

Current wording

Revenues: Master Distribution segment revenues for the three months ended June 30, 2024 were $16.7 million, a decrease of $4.7 million from the prior year same period. The Master Distribution segment has two primary sales channels for which it sells equipment: (1) through its dealer channel whereby contractual relationships are established with sub-dealers that hold stock inventory and ultimately sell to end users and (2) through direct sale relationships whereby end customers source specific types of equipment direct. During the three months ended June 30, 2024, the dealer channel exhibited a softer demand dynamic than what existed in the second quarter of 2023, as the market for environmental processing equipment was down overall. As dealer channel sales depend on sub-dealer stocking levels, in 2023 the supply of new equipment was in the initial phase of meeting high levels of pent-up post-pandemic demand and our Master Distribution sub-dealers fulfilled stocking needs. This dealer stocking dynamic led to higher than typical sales volume for our Master Distribution segment for the three months ended June 30, 2023. With the dealer channel full and a challenging equipment demand environment, volumes and revenues have suffered comparably. Conversely, the Master Distribution segment's direct sale business, primarily consisting of compost turning and bulk commercial food waste processing machinery, has improved as we sell to environmentally conscious customer end-users throughout North America. Parts sales were slightly down as end-market dynamics negatively influenced aftermarket sales as well, and an uptick in aftermarket (non-OEM) part competitors, primarily on high-volume wear parts, have added some pricing pressure to the recent quarter.

Previous wording

Gross profit margin on new and used equipment sales were 25.3%, down slightly from prior year but in line with expectations. Parts gross profit margin was 40.0% for the three months ended March 31, 2024, down 830 basis points compared to the same period last year primarily related to the aforementioned large component parts sales in first quarter of last year.

Current wording

For the six months ended June 30, 2024, gross profit margin on new and used equipment sales were 25.1%, down slightly from prior year but in line with expectations. Parts gross profit margin was 44.9% for the six months ended June 30, 2024, down 510 basis points compared to the same period last year primarily related to the aforementioned large component parts sales in first quarter of last year.

Previous wording

Operating expenses: Master Distribution segment operating expenses were $4.9 million for the year ended March 31, 2024, an increase of $1.5 million primarily related to non-cash adjustments for contingent consideration earnouts associated with the acquisition of Ecoverse in November 2022. Personnel costs, such as wages and commissions, and sales-related expenses are the primary operating expenses of the Master Distribution segment and remained flat year over year.

Current wording

Master Distribution segment operating expenses were $9.5 million for the six months ended June 30, 2024, an increase of $1.9 million primarily related to non-cash adjustments for contingent consideration earn-outs associated with the acquisition of Ecoverse in November 2022. Personnel costs, such as wages and commissions, and sales-related expenses are the primary operating expenses of the Master Distribution segment and remained relatively flat year over year.

Previous wording

Other expense, net: Master Distribution other expense was $0.9 million for the three months ended March 31, 2024 a slight increase over prior year primarily due to higher floor plan interest expense from higher interest rates and inventory levels.

Current wording

Other expense, net: Master Distribution other expense was $1.1 million for the three months ended June 30, 2024, a slight increase over prior year primarily due to higher floor plan interest expense primarily from higher inventory levels.

Previous wording

The three months ended March 31, 2024 and 2023 Cash Flows

Current wording

The six months ended June 30, 2024 and 2023 Cash Flows

Previous wording

Cash Flow from Operating Activities. Cash flows from operating activities include net income adjusted for non-cash items and the effects of changes in working capital. For the three months ended March 31, 2024, operating activities resulted in net cash used in operations of $11.9 million. Our reported net loss of $11.9 million, when adjusted for non-cash income and expense items, primarily depreciation and amortization, the gain on sale of rental equipment, inventory obsolescence and bad debt reserves, and stock-based compensation, provided net cash inflows of $17.8 million. Changes in working capital included $66.3 million of inventory purchased (of which $38.8 million has been transferred into our rental fleet for replenishment and growth purposes), and an $8.0 million decrease in accounts receivable. Cash flows from operating activities were favorably impacted by $27.6 million due to proceeds from the sale of rental equipment, $0.4 million in net inflows related to manufacturer floor plans, and a $5.0 million net change in prepaid expenses and other assets and unfavorably impacted by a $4.4 million decrease in accounts payable, accrued expenses, customer deposits, and other current liabilities and leases, deferred revenue, net of current portion and other liabilities.

Current wording

Cash Flow from Operating Activities. Cash flows from operating activities include net income adjusted for non-cash items and the effects of changes in working capital. For the six months ended June 30, 2024, operating activities resulted in net cash used in operations of $21.0 million. Our reported net loss of $23.8 million, when adjusted for non-cash income and expense items, primarily depreciation and amortization, the gain on sale of rental equipment, inventory obsolescence and bad debt reserves, loss on debt extinguishment, deferred income taxes, and stock-based compensation, provided net cash inflows of $38.4 million. Changes in working capital included $109.6 million of inventory purchased (of which $83.0 million was transferred into our rental fleet for replenishment and growth purposes), and a $6.5 million increase in accounts receivable. Cash flows from operating activities were favorably impacted by $66.3 million due to proceeds from the sale of rental equipment, and $5.2 million in net inflows related to manufacturer floor plans and unfavorably impacted by a $14.5 million decrease in accounts payable, accrued expenses, customer deposits, and other current liabilities, and a $0.3 million net change in leases, deferred revenue, net of current portion and other liabilities.

Previous wording

For the three months ended March 31, 2023, operating activities resulted in net cash used in operations of $20.1 million. Our cash flows from operating activities related to net income adjusted for non-cash income and expenses, primarily depreciation and amortization, the gain on sale of rental equipment, inventory obsolescence and bad debt reserves, and stock-based compensation, generated $23.9 million for the three months ended March 31, 2023. This was partially offset by $44.0 million of net working capital investments. Changes in working capital included $114.3 million of inventory purchased (of which $42.7 million was transferred into our rental fleet for replenishment and growth purposes), and a $1.3 million decrease in accounts receivable. Cash flows from operating activities were favorably impacted by $29.0 million due to proceeds from the sale of rental equipment, $57.0 million in net inflows related to manufacturer floor plans and unfavorably impacted by a $6.5 million decrease in accounts payable, accrued expenses, customer deposits, and other current liabilities and a $10.5 million net change in prepaid expenses and other assets and leases, deferred revenue, net of current portion and other liabilities.

Current wording

For the six months ended June 30, 2023, operating activities resulted in net cash used in operations of $33.8 million. Our reported net income of $3.4 million, when adjusted for non-cash income and expense items, such as depreciation and amortization, inventory obsolescence and bad debt reserves, and share-based compensation, provided net cash inflows of $56.4 million. Changes in working capital included $200.6 million of inventory purchased (of which $96.4 million was transferred into our rental fleet for replenishment and growth purposes), and a $1.5 million decrease in accounts receivable. Cash flows from operating activities were favorably impacted by $62.2 million due to proceeds from the sale of rental equipment, $86.1 million in net inflows related to manufacturer floor plans and unfavorably impacted by a $27.7 million decrease in accounts payable, accrued expenses, customer deposits, and other current liabilities and by a $11.7 million net change in prepaid expenses and other assets and leases, deferred revenue, and other liabilities.

Previous wording

Cash Flow from Investing Activities. For the three months ended March 31, 2024, our cash used in investing activities was $18.1 million. This was mainly due to $18.2 million purchases of rental equipment, non-rental property and equipment, and other investing activities partially offset by $0.1 million proceeds from the sale of non-rental property and equipment.

Current wording

Cash Flow from Investing Activities. For the six months ended June 30, 2024, our cash used in investing activities was $37.4 million. This was mainly due to $39.3 million purchases of rental equipment, non-rental property and equipment, and other investing activities partially offset by $1.9 million proceeds from the sale of non-rental property and equipment.

Previous wording

For the three months ended March 31, 2023, our cash used in investing activities was $18.9 million. This was mainly due to $17.7 million purchases of rental equipment and non-rental property and equipment and $1.7 million net use of cash for 2023 acquisitions and adjustments to the purchase prices of our 2022 acquisitions partially offset by $0.5 million of proceeds from other investing activities.

Current wording

For the six months ended June 30, 2023, our cash used in investing activities was $40.6 million. This was mainly due to $41.3 million purchases of rental equipment, non-rental property and equipment, and other investing activities as well as acquisition activity partially offset by $0.7 million proceeds from the sale of non-rental property and equipment.

Previous wording

Cash Flow from Financing Activities. For the three months ended March 31, 2024, cash provided by financing activities was $4.6 million. This cash inflow was mainly due to $12.9 million of net borrowings under our line of credit which funded the increase in net working capital previously noted. Additionally, there were net borrowings of $1.9 million related to non-manufacturer floor plans. These cash inflows were partially offset by payments of $2.7 million for preferred and common stock dividends, $5.5 million related to other financing activities and $2.0 million payments on finance lease obligations.

Current wording

Cash Flow from Financing Activities. For the six months ended June 30, 2024, cash provided by financing activities was $32.1 million. This cash inflow was mainly due to $373.1 million of net proceeds from our line of credit and long-term borrowings which funded the extinguishment of our Senior Secured Second Lien Notes due April 2026 and the increase in net working capital previously noted. These cash inflows were partially offset by payments of $5.4 million for preferred and common stock dividends, net payments of $3.3 million related to non-manufacturer floor plans, $2.0 million for common stock repurchases, and $9.1 million related to other financing activities.

Previous wording

For the three months ended March 31, 2023, cash provided by financing activities was $37.9 million. The favorable impact was mainly due to $38.3 million of net proceeds under our line of credit, which funded the increase in net working capital and rental fleet as previously noted, net borrowings of $1.0 million related to non-manufacturer floor plans and $2.4 million related to other financing activities. These cash inflows were partially offset by $2.7 million related to preferred and common stock dividend payments and $1.1 million payments on finance lease obligations.

Current wording

For the six months ended June 30, 2023, cash provided by financing activities was $74.1 million. The favorable impact was mainly due to $70.0 million of net proceeds under our line of credit, long-term debt, and finance lease obligations, which funded the increase in net working capital and rental fleet as previously noted, net proceeds of $5.0 million related to non-manufacturer floor plans, and $4.3 million related to other financing activities. This was partially offset by payments of $5.2 million for preferred and common stock dividends.

Previous wording

Our principal sources of liquidity have been from cash provided by our service, parts and rental related operations and the sales of new, used, and rental fleet equipment, proceeds from the issuance of debt, and borrowings available under our line of credit and floor plans. The Company reported $5.6 million in cash for the period ended March 31, 2024. For more information on our available borrowings under the revolving line of credit, senior secured second lien notes, and floor plans, please refer to Note 8, Floor Plans and Note 9, Long-term Debt. We consider the undistributed earnings of our foreign subsidiaries to be indefinitely reinvested as we do not anticipate the need to repatriate funds to the U.S. to satisfy domestic liquidity needs.

Current wording

Our principal sources of liquidity have been from cash provided by our service, parts and rental related operations and the sales of new, used, and rental fleet equipment, proceeds from the issuance of debt, and borrowings available under our line of credit and floor plans. The Company reported $4.5 million in cash for the period ended June 30, 2024. For more information on our available borrowings under the revolving line of credit, senior secured second lien notes, and floor plans, please refer to Note 8, Floor Plans and Note 9, Long-term Debt. We consider the undistributed earnings of our foreign subsidiaries to be indefinitely reinvested as we do not anticipate the need to repatriate funds to the U.S. to satisfy domestic liquidity needs.

Previous wording

Our principal uses of cash have been to fund operating activities and working capital, including but not limited to new and used equipment inventories, purchases of rental fleet equipment and personal property, payments due under line of credit and floor plans, acquisitions, debt service requirements, and preferred stock and common stock dividends. In the future, we may pursue additional strategic acquisitions and seek to open new start-up locations. We anticipate that the uses described above encompass the principal demands on our cash and availability under our line of credit and floor plans in the future.

Current wording

Our principal uses of cash have been to fund operating activities and working capital, including but not limited to new and used equipment inventories, purchases of rental fleet equipment and personal property, payments due under line of credit and floor plans, acquisitions, debt service requirements, stock repurchases, and preferred stock and common stock dividends. In the future, we may pursue additional strategic acquisitions and seek to open new start-up locations. We anticipate that the uses described above encompass the principal demands on our cash and availability under our line of credit and floor plans in the future.

Previous wording

The amount of our future capital expenditures will depend on a number of factors including general economic conditions and growth prospects. Our gross rental fleet capital expenditures for the period ended March 31, 2024 was $51.7 million, including $38.8 million of transfers from new and used inventory to rental fleet. This gross rental fleet capital expenditure was offset by sales proceeds of rental equipment of $27.6 million for the period ended March 31, 2024 as our business model is to sell lightly-used inventory to customers from our rental fleet to increase field population in our geographies. In response to changing economic conditions, we have the flexibility to modify our capital expenditures, especially as it relates to rental fleet.

Current wording

The amount of our future capital expenditures will depend on a number of factors including general economic conditions and growth prospects. Our gross rental fleet capital expenditures for the period ended June 30, 2024 was $113.6 million, including $83.0 million of transfers from new and used inventory to rental fleet. This gross rental fleet capital expenditure was offset by sales proceeds of rental equipment of $66.3 million for the period ended June 30, 2024 as our business model is to sell lightly-used inventory to customers from our rental fleet to increase field population in our geographies. In response to changing economic conditions, we have the flexibility to modify our capital expenditures, especially as it relates to rental fleet.

Previous wording

To service our debt, we will require a significant amount of cash. Our ability to pay interest and principal on our indebtedness, will depend upon our future operating performance and the availability of borrowings under the line of credit and/or other debt and equity financing alternatives available to us, which will be affected by prevailing economic conditions and conditions in the global credit and capital markets, as well as financial, business and other factors, some of which are beyond our control. Based on our current level of operations and given the current state of the capital markets, we believe our cash flows from operations, available cash, and available borrowings under the line of credit will be adequate to meet our future liquidity needs for the foreseeable future. As of March 31, 2024, we had $173.1 million of available borrowings under the revolving line of credit and floor plans.

Current wording

To service our debt, we will require a significant amount of cash. Our ability to pay interest and principal on our indebtedness, will depend upon our future operating performance and the availability of borrowings under the line of credit and/or other debt and equity financing alternatives available to us, which will be affected by prevailing economic conditions and conditions in the global credit and capital markets, as well as financial, business and other factors, some of which are beyond our control. Based on our current level of operations and given the current state of the capital markets, we believe our cash flows from operations, available cash, and available borrowings under the line of credit will be adequate to meet our future liquidity needs for the foreseeable future. As of June 30, 2024, we had $339.0 million of available borrowings under the ABL Facility and Floor Plan Facilities.