ALTA EQUIPMENT GROUP INC

Previous wording

In addition to strategic acquisitions, we intend to leverage our platform, deep roster of existing customers, and decades of equipment dealership experience to grow organically by establishing new relationships with equipment OEMs that are synergistic to our existing business. Recent examples of this facet of our growth strategy is evidenced by our new relationship with Case Power and Equipment in Western Pennsylvania, which launched in late 2023, and the ongoing development of our e-mobility offerings and partnerships in the class 3 through 8 commercial electric vehicle markets.

Current wording

In addition to strategic acquisitions, we intend to leverage our platform, deep roster of existing customers, and decades of equipment dealership experience to grow organically by establishing new relationships with equipment OEMs that are synergistic to our existing business. Recent examples of this facet of our growth strategy are evidenced by our new relationship with Case Power and Equipment in Western Pennsylvania, which launched in late 2023, and the ongoing development of our e-mobility offerings and partnerships in the class 3 through 8 commercial electric vehicle markets.

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 $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.

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 $592.2 million as of September 30, 2024. The original acquisition cost of our rental fleet excludes $6.8 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-owned equipment field population within our territories that ultimately yield high-margin parts and service revenues for us.

Current wording

Rental equipment sales. We also sell rental equipment from our rental fleet. Rental equipment sales may occur at various stages in an equipment’s lifecycle, depending on customer demand and original purchase intentions of the equipment. Rental equipment purchased directly into the rental fleet tends to be rented for the majority of its useful life before being sold (defined earlier as rent-to-rent equipment), and rental equipment purchased as new inventory then later transferred into the rental fleet tends to be rented until a retail opportunity presents itself (defined earlier as rent-to-sell equipment). In our Material Handling segment, our rental equipment sales are primarily of rent-to-rent equipment and in our Construction Equipment segment, our rental equipment sales are primarily of rent-to-sell equipment. 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

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%.

Current wording

Revenues: Consolidated revenues decreased by $17.4 million, or 3.7%, to $448.8 million for the three months ended September 30, 2024 as compared to the same period last year. Organic revenues for the three months ended September 30, 2024 decreased 8.4% compared to the same period last year. Uncertainty related to the outcome of the upcoming U.S. presidential election and a continued high interest rate environment have softened current demand for new and used equipment in our markets, however we believe the core long-term fundamentals in the markets we serve remain solid. With overall demand for new equipment depressed in nearly all of our markets, organic new and used equipment sales decreased by $45.5 million, or 17.9%, to $208.1 million for the three months ended September 30, 2024, partially offset by increased organic rental equipment sales of $5.1 million. While new equipment sales suffered on lower overall market volumes, demand for aftermarket products and services remained strong as organic parts sales increased by $1.8 million, or 2.6%, to $71.3 million for the three months ended September 30, 2024 as compared to the same period last year, and organic service revenues increased $3.4 million, or 5.6%, making for a total aftermarket revenues increase of $5.2 million organically, or 4.0%. Rental revenues for the quarter reached $50.1 million organically, or a decrease of 7.2% primarily due to reduced fleet on rent during the quarter.

Previous 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.

Current wording

In the nine months ended September 30, 2024, organic new and used equipment revenues decreased 8.4% against a strong comparative nine months ended September 30, 2023 when supply of new equipment was in the 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 nine months ended September 30, 2024 were down $18.5 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 4.2% organically for the nine months ended September 30, 2024. Our rental business remained steady for the nine months ended September 30, 2024 as rental revenues grew 0.4% organically from increased fleet on rent when compared to the same period last year. Rental equipment sales organically increased 9.6% for the nine months ended September 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 growth in rental rates and fleet utilization moderate.

Previous 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.

Current wording

The consolidated gross profit margin for the three months ended September 30, 2024 was 27.8%, an 80 basis point increase from the same period in 2023. The overall increase in the quarter can be attributed to a relatively greater sales mix of our higher margin aftermarket business lines. New and used equipment sales margins decreased 30 basis points to 16.1%, as margin compression was observed in both our Material Handling and Construction Equipment segments. With inventory availability normalizing, new and used equipment sales margins have also normalized modestly from higher pricing levels experienced in the prior year. The impact of pricing normalization also affected the sales of our rental equipment, which led to a 410 basis point gross margin decrease when comparing the year-over-year periods. Parts gross margins decreased by 90 basis points from the same period in 2023 but remained within our range of expectation. Service gross margins improved in the third quarter when compared to the same period last year, increasing 300 basis points, primarily due to an improved rate realization on service labor. We realized a 200 basis point decrease in rental revenues gross margin for the three months ended September 30, 2024, largely a result of replenishing our rental fleet and the related increase in depreciation expense.

Previous wording

The consolidated gross profit for the six months ended June 30, 2024 was 27.2%, a 70 basis point decrease from the 27.9% for the same period in 2023. New and used equipment sales margins decreased 210 basis points to 15.8%, a reflection of a comparably softened pricing environment. On sales of our rental equipment, gross margin compression was less, a slight 60 basis point decrease 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 80 basis points and 70 basis points for each department, respectively. We realized a 180 basis point decrease in rental revenues gross margin for the six 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.

Current wording

The consolidated gross profit margin for the nine months ended September 30, 2024 was 27.4%, a 20 basis point decrease from 27.6% for the same period in 2023. New and used equipment sales margins decreased 150 basis points to 15.9%, a reflection of a comparably softened pricing environment. On sales of our rental equipment, gross margin was similarly compressed on a softened pricing environment, posting a 180 basis point decrease when comparing the year-over-year periods. Parts gross margins remained consistent year to date when compared to the same time last year, improving 20 basis points, and service gross margins improved by 150 basis points. The improvement in year-to-date service gross margins was largely attributable to improved customer margins for shop and preventative maintenance work, as well as improved margins in our warranty and fleet accounts with our OEMs. We realized a 190 basis point decrease in rental revenues gross margin for the nine months ended September 30, 2024, largely a result of an increase in depreciation expense associated with a replenished fleet.

Previous wording

Consolidated operating expenses increased by $23.4 million to $243.2 million for the six 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.

Current wording

Operating expenses: Consolidated operating expenses increased by $5.6 million to $117.8 million for the three months ended September 30, 2024 compared to the same period last year. The increase is primarily driven by the full period impact from our 2023 acquisitions. Rising employee benefit costs, such as medical and pension, largely account for the remainder of the increase. Aside from those increases, the Company has been able to reduce various operating costs to combat top line revenue reductions for the three months ended September 30, 2024.

Previous 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.

Current wording

Consolidated operating expenses increased by $29.0 million to $361.0 million for the nine months ended September 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, attributed to a higher average headcount and higher average wages and benefits, largely account for the remainder of the increase. A higher branch count in the 2024 time period relative to 2023 also contributed to increased operating expenses as well, with associated one-time costs, such as grand openings and initial stocking costs, and ongoing facility costs, such as rent and utilities. Further, during the nine-month period ended September 30, 2024 there were non-cash adjustments to contingent consideration made for earn-outs on previous acquisitions, which influenced the year-to-date costs by an incremental $0.7 million.

Previous 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.

Current wording

Other expense, net: Consolidated other expense, net for the three months ended September 30, 2024 was $22.9 million compared to $13.8 million for the same period in 2023. The increase is primarily due to an increased amount of interest expense, namely a result of the refinance of our Senior Secured Second Lien Notes during the second quarter of 2024.

Previous wording

Consolidated other expense, net for the six months ended June 30, 2024 was $40.1 million compared to $24.5 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 due to increased effective interest rates, higher inventory and rental fleet levels, and more debt from financed acquisitions as compared to same period last year.

Current wording

Consolidated other expense, net for the nine months ended September 30, 2024 was $63.0 million compared to $38.3 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 due to increased effective interest rates, higher inventory and rental fleet levels, and more debt from financed acquisitions as compared to same period last year.

Previous wording

Revenues: Material Handling segment revenues increased by $6.5 million to $175.6 million for the three months ended June 30, 2024 as compared to the same period last year. Organically, the segment revenues increased 3.6% in the second quarter over the same period in the prior year despite a weakened market. New and used equipment sales are effectively flat year over year on an organic basis as we continue to work through a notable equipment sales backlog. Also, on an organic basis product support revenues, made up of the combined parts and service departments, improved by 4.7%, with service revenues increasing 7.6% in the second quarter over the same period in the prior year. Rental revenues increased 8.1% on an organic basis for the three months ended June 30, 2024 as compared to the same period last year related to a higher nominal level of fleet on rent and moderately increased rates. Rental equipment sales increased $1.9 million organically, or 211.1%, 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.

Current wording

Revenues: Material Handling segment revenues increased by $0.3 million to $168.9 million for the three months ended September 30, 2024 as compared to the same period last year, all on an organic basis. New and used equipment sales are relatively flat year over year as we continue to work through a notable equipment sales backlog, while managing a depressed demand environment in the equipment spot market. Product support revenues, made up of the combined parts and service departments, improved by 3.5%, with service revenues increasing 4.5% in the third quarter over the same period in the prior year, reflecting our ability to pass along inflationary-based pricing increases to our customers to support their fleets in a period of flat demand. Rental revenues decreased from $19.6 million to $19.3 million, or 1.5%, for the three months ended September 30, 2024 as compared to the same period last year, despite the Material Handling segment holding a larger average fleet size when comparing the two periods. Rental equipment sales increased $1.2 million organically, or 75.0%, on low volume as we have strategically targeted and disposed of underperforming rental units or rental units that have reached the end of their useful life in our fleet.

Previous 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.

Current wording

Material Handling segment revenues increased by $16.3 million, or 3.2%, to $518.8 million for the nine months ended September 30, 2024 as compared to the same period last year. Organically, the segment revenues increased by $14.5 million, or 2.9%, year to date over the same period in the prior year. Organic new and used equipment sales increased 1.3% while working through a notable equipment sales backlog during the year. On an organic basis, product support revenues, made up of the combined parts and service departments increased by 2.7%, with improved productivity measures and rates when compared to the same period last year. Rental revenues increased 3.7% on an organic basis for the nine months ended September 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 $4.2 million organically, or 107.7%, 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 June 30, 2024 increased 80 basis points to 33.9% compared to the same period in 2023. New and used equipment gross margins remained constant despite increased competitive pressures from increased availability of equipment in the marketplace relative to the prior year. Parts gross margins have similarly remained relatively consistent year over year and in line with expectations. The 290 basis point service margin increase for the three 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 220 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 margin for the three months ended September 30, 2024 decreased 110 basis points to 33.6% compared to the same period in 2023. New and used equipment gross margins decreased as a result of heightened competitive pressures from greater availability of equipment in the marketplace relative to the prior year. Parts gross margins decreased 200 basis points on higher restocking fees. The 220 basis point service margin increase for the three months ended September 30, 2024 compared to the prior year same period can be attributed to margin improvements in customer-billed service work, whereas OEM-billed warranty and fleet service margins decreased in the quarter. Rental revenues gross margins have declined 440 basis points primarily due to replenishing and increasing the size of our rental fleet and the associated increase in depreciation expense. Rental equipment sales margins decreased on low volume of sales and pricing pressures from greater availability of equipment in the marketplace relative to the prior year.

Previous 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.

Current wording

Material Handling gross profit for the nine months ended September 30, 2024 decreased 90 basis points to 33.3% 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 210 basis point service margin increase for the nine months ended September 30, 2024 compared to the prior year same period can be attributed to margin improvements in major service categories, customer and OEM warranty and fleet work, on better pricing and technician productivity measures. Rental revenues gross margins have declined 490 basis points primarily due to replenishing and increasing the size of our rental fleet and the associated increase in depreciation expense. Rental equipment sales margins decreased on low volume of sales and pricing pressures from greater availability of equipment in the marketplace relative to the prior year.

Previous 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.

Current wording

Material Handling operating expenses increased by $3.5 million to $149.7 million for the nine months ended September 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 and personnel-related cost increases in wages and benefits.

Previous 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.

Current wording

Other (expense) income, net: Material Handling other (expense) income, net increased by $9.5 million to $6.4 million for the three months ended September 30, 2024 as compared to the same period last year. The increase is mainly related to the aforementioned cumulative change in intercompany expense allocation for shared service functions and increased interest expense due to higher effective interest rates, inventory, and rental fleet levels.

Previous wording

Material Handling other expense, net decreased by $5.2 million to $10.8 million for the six 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.

Current wording

Material Handling other expense, net increased by $4.3 million to $17.2 million for the nine months ended September 30, 2024 as compared to the same period last year. The increase is mainly related to increased interest expense due to higher effective interest rates, inventory, and rental fleet levels.

Previous 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.

Current wording

Revenues: Construction Equipment segment revenues decreased by $19.7 million to $262.3 million for the three months ended September 30, 2024 as compared to the same period last year. Organic segment revenues decreased 14.7% for the three months ended September 30, 2024 over the same period in the prior year, amid a softer demand backdrop. New and used equipment sales decreased organically by $44.5 million, or 29.5%, while rental equipment sales increased for the three months ended September 30, 2024 by $3.9 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. Despite a challenging environment for equipment sales, product support revenues, consisting of parts and service revenues, increased 4.1% organically as we have been able to increase skilled technician headcount and improve rate realization on service labor. Rental revenues decreased 10.9%, on an organic basis for the three months ended September 30, 2024 as compared to the same period last year on reduced utilization.

Previous wording

Construction Equipment segment revenues increased by $35.9 million to $550.5 million for the six months ended June 30, 2024 as compared to the same period last year. Organic segment revenues increased 0.2% for the six months ended June 30, 2024 over the same period in the prior year. New and used equipment sales decreased organically by $10.4 million, or 4.0%, while rental equipment sales increased for the six months ended June 30, 2024 by $0.6 million. Product support revenues increased 6.8% organically due to higher technician headcount and favorable pricing. Rental revenues increased 3.0%, on an organic basis for the six months ended June 30, 2024 as compared to the same period last year, as rental demand remains stable yet pricing is moderating.

Current wording

Construction Equipment segment revenues increased by $16.2 million to $812.8 million for the nine months ended September 30, 2024 as compared to the same period last year, primarily related to the full-period impact from the Burris and Ault acquisitions made in the fourth quarter of 2023. Organic segment revenues decreased 5.0% for the nine months ended September 30, 2024 over the same period in the prior year. New and used equipment sales decreased organically by $54.9 million, or 13.3%, while rental equipment sales increased for the nine months ended September 30, 2024 by $4.5 million. As has been the experience the last several quarters, the industry continues to struggle with high interest rates and uncertainty surrounding the U.S. presidential election causing hesitancy amongst new equipment buyers, resulting in lower sales volumes from fewer market opportunities. Product support revenues increased 5.9% organically due to higher technician headcount and improved rates on service labor. Rental revenues decreased 2.2% on an organic basis for the nine months ended September 30, 2024 compared to the same period last year as rental demand is moderating.

Previous wording

Construction Equipment gross profit decreased by 30 basis points to 22.9% in the three months ended June 30, 2024 from 23.2% in the same period in 2023. New and used equipment sales margins decreased 270 basis points to 12.9%, primarily related to greater equipment supply in the market resulting in tighter sales margins this year when compared to the same period last year. Notably, the 12.9% margin realized in the second quarter is similar to our first quarter 2024 new and used equipment sales margin of 12.8%. Parts sales margins for the three months ended June 30, 2024 increased when compared to the same time last year and in line with expectations on favorable pricing and have been helped by a growing mix of aggregate parts sales from our 2023 acquisition of Ault. Service gross margins increased by 80 basis points year over year with improved rate realization on service labor. Rental revenues gross margin for the three months ended June 30, 2024 was unchanged from a year ago, as costs moved in tandem with sales.

Current wording

Construction Equipment gross profit increased by 130 basis points to 23.6% in the three months ended September 30, 2024 from 22.3% in the same period in 2023. New and used equipment sales margins decreased 90 basis points to 11.9%, primarily related to greater equipment supply on the market coupled with declining used equipment pricing when compared to the same period last year. Parts sales margins for the three months ended September 30, 2024 decreased modestly when compared to the same time last year, but remain in line with expectations. Service gross margins increased by 480 basis points year over year with improved productivity and rate realization on service labor. Rental revenues gross margin for the three months ended September 30, 2024 decreased by 50 basis points from a year ago, but remained within our expected range. Finally, gross margins on rental equipment sales experienced a reduction when compared to the same time last year amid industry-wide pricing pressures on used equipment.

Previous 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.

Current wording

Construction Equipment gross profit increased by 20 basis points to 23.4% in the nine months ended September 30, 2024 from 23.2% in the same period in 2023. New and used equipment sales margins decreased 160 basis points to 12.6%, primarily related to greater equipment supply in the market resulting in tighter sales margins this year when compared to the same period last year, and pricing pressures on used equipment. Parts sales margins for the nine months ended September 30, 2024 increased 120 basis points when compared to the same time last year. The 2023 acquisition of Ault has improved the parts sales margins during the nine months ended September 30, 2024 as parts for specialized aggregate and mining equipment command a premium compared to traditional construction equipment parts. Service gross margins increased by 100 basis points year over year mainly from improved rate realization. Rental revenues gross margin for the nine months ended September 30, 2024 were relatively flat from a year ago, consistent with expectations. Gross margins on rental equipment sales for the nine months ended September 30, 2024 were reduced from a year ago amid the aforementioned pricing pressures on used equipment.

Previous wording

Operating expenses: Construction Equipment operating expenses increased by $11.4 million to $61.5 million for the three 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 by higher wage levels, rising benefit costs, and increased customer, service vehicle, and facility related expenses. Additionally, and similar to the Material Handling segment, a $3.3 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.

Current wording

Operating expenses: Construction Equipment operating expenses increased by $0.2 million to $60.0 million for the three months ended September 30, 2024 as compared to the same period in 2023. The overall 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 relatively higher personnel and facility-related expenses. Organic operating expenses remained flat between the comparative three month periods. Additionally, and similar to the Material Handling segment, a year-to-date cumulative change in the allocation of intercompany expenses for shared service functions from Other income to General and administrative expenses was made during the third quarter of 2023, partially offsetting the aforementioned increases from acquisitions.

Previous 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.

Current wording

Construction Equipment operating expenses increased by $22.8 million to $182.4 million for the nine months ended September 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 marketing, and facility-related expenses. Notably, with the change to the Condensed Consolidated Statements of Operations classification of the allocation of intercompany expenses for shared service functions made in the third quarter of 2023, the comparative year-to-date values align consistently between one another.

Previous 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.

Current wording

Other expense, net: Construction Equipment other expense, net increased by $10.5 million to $12.7 million for the three months ended September 30, 2024 as compared to the same period in 2023. The variance was mainly due to increased floor plan interest expense related to a combination of higher effective interest rates on higher levels of new inventory that were no longer within the subsidized period of our OEMs, higher effective interest rates on operating debt borrowings, increased debt from financed acquisitions within the segment, and the aforementioned cumulative change in shared service function intercompany segment allocations.

Previous wording

Construction Equipment other expense, net increased by $1.2 million to $20.7 million for the six months ended June 30, 2024 as compared to the same period in 2023. The variance was driven by the same aforementioned factors for the three months ended June 30, 2024.

Current wording

Construction Equipment other expense, net increased by $11.7 million to $33.4 million for the nine months ended September 30, 2024 as compared to the same period in 2023. The variance was driven by the same aforementioned factors driving increased interest costs for the three months ended September 30, 2024.

Previous 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.

Current wording

Master Distribution segment revenues for the nine months ended September 30, 2024 were $47.7 million, a decrease of $18.5 million from the prior year same period. 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 nine months ended September 30, 2023, but particularly within the first six months of 2023. With the dealer channel full and a challenging equipment demand environment due in part to an elevated interest rate environment, volumes and revenues have suffered comparably in 2024. Conversely, and despite being a smaller portion of the total sales mix, 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 based on mix, as we sold multiple large component parts in the nine months ended September 30, 2023 when compared to the same period this year.

Previous 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.

Current wording

For the three months ended September 30, 2024, gross profit margin on new and used equipment sales were 26.1%, up 500 basis points from prior year, but overall in line with expectations considering product mix. Parts gross profit margin was 68.2% for the three months ended September 30, 2024, up 1,220 basis points compared to the same period last year, above expectations for a single quarter result due to a parts obsolescence reserve adjustment made during the quarter.

Previous wording

For the three months ended June 30, 2024, gross profit margin on new and used equipment sales were 25.0%, down 300 basis points from prior year, but in line with expectations. Parts gross profit margin was 50.0% for the three months ended June 30, 2024, down 200 basis points compared to the same period last year primarily related to the margin pressures from aftermarket competitors.

Current wording

For the nine months ended September 30, 2024, gross profit margin on new and used equipment sales were 25.5%, flat from prior year and in line with expectations. Parts gross profit margin was 52.1% for the nine months ended September 30, 2024, up 20 basis points compared to the same period last year, in line with expectations.

Previous 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.

Current wording

Master Distribution segment operating expenses were $13.4 million for the nine months ended September 30, 2024, an increase of $1.6 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 benefits, and sales-related expenses represented the remainder of the increase in operating expenses of the Master Distribution segment year over year.

Previous 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.

Current wording

Other expense, net: Master Distribution other expense, net was $1.6 million for the three months ended September 30, 2024, an increase over prior year partially attributed to higher interest costs on larger inventory balances, but primarily related to exchange rate fluctuations.

Previous wording

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

Current wording

The nine months ended September 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 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.

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 nine months ended September 30, 2024, operating activities resulted in net cash provided by operations of $22.1 million. Our reported net loss of $51.5 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 $56.2 million. Changes in working capital included $152.2 million of inventory purchased (of which $105.6 million was transferred into our rental fleet for replenishment), and a $26.5 million decrease in accounts receivable. Cash flows from operating activities were favorably impacted by $92.5 million due to proceeds from the sale of rent-to-sell equipment, $8.4 million in net inflows related to manufacturer floor plans, and by a $4.3 million net change in prepaid expenses and other assets and leases, deferred revenue, and other liabilities and unfavorably impacted by a $13.6 million decrease in accounts payable, accrued expenses, customer deposits, and other current liabilities.

Previous 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.

Current wording

For the nine months ended September 30, 2023, operating activities resulted in net cash used in operations of $23.1 million. Our reported net income of $10.8 million, when adjusted for non-cash income and expense items, such as depreciation and amortization, inventory obsolescence and bad debt reserves, and stock-based compensation, provided net cash inflows of $91.5 million. Changes in working capital included $247.4 million of inventory purchased (of which $143.0 million has been transferred into our rental fleet for replenishment and growth purposes), and a $32.7 million increase in accounts receivable. Cash flows from operating activities were favorably impacted by $87.0 million due to proceeds from the sale of rent-to-sell equipment, $97.9 million in net inflows related to manufacturer floor plans and unfavorably impacted by a $6.9 million decrease in accounts payable, accrued expenses, customer deposits, and other current liabilities and by a $12.5 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 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.

Current wording

Cash Flow from Investing Activities. For the nine months ended September 30, 2024, our cash used in investing activities was $48.0 million. This was mainly due to $59.2 million purchases of rental equipment, non-rental property and equipment, and other investing activities partially offset by $8.9 million proceeds from the sale of rent-to-rent equipment and $2.3 million proceeds from the sale of non-rental property and equipment.

Previous 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.

Current wording

For the nine months ended September 30, 2023, our cash used in investing activities was $56.9 million. This was mainly due to $61.4 million purchases of rental equipment, non-rental property and equipment, and other investing activities as well as acquisition activity partially offset by $3.7 million proceeds from the sale of rent-to-rent equipment and $0.8 million proceeds from the sale of non-rental property and equipment.

Previous 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.

Current wording

Cash Flow from Financing Activities. For the nine months ended September 30, 2024, cash provided by financing activities was $9.7 million. This cash inflow was mainly due to the $353.5 million of net proceeds from our line of credit, long-term borrowings, and finance lease obligations, which funded the $319.4 extinguishment of our Senior Secured Second Lien Notes due April 2026 and the increase in net working capital previously noted. These cash inflows also were partially offset by payments of $8.1 million for preferred and common stock dividends, net payments of $9.3 million related to non-manufacturer floor plans, $2.0 million for common stock repurchases, and $3.1 million related to other financing activities.

Previous 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.

Current wording

For the nine months ended September 30, 2023, cash provided by financing activities was $78.2 million. The favorable impact was mainly due to $81.5 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 and net proceeds of $9.8 million related to non-manufacturer floor plans. This was partially offset by payments of $7.9 million for preferred and common stock dividends and $5.2 million related to other financing activities.

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 $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.

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 $14.6 million in cash as of September 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

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.

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 nine months ended September 30, 2024 was $151.2 million, including $105.6 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 $101.4 million for the nine months ended September 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.