Ladies and gentlemen, thank you for standing by, and welcome to the Alta Equipment Group First Quarter 2020 Earnings Call. [Operator Instructions] I would now like to turn the call over to your speaker today, Sinem McDonald, Director of External Reporting. Please go ahead.

Thank you, Josh. Good afternoon, everyone. Thanks for joining us today to discuss Alta's first quarter 2020 results. With me on the line today, we have our Chairman and CEO, Ryan Greenawalt; and our Chief Financial Officer, Tony Colucci. We will begin with some prepared remarks before we open the call for your questions. Before we begin, I'd like to remind you that today's call contains forward-looking statements, including statements about future financial results, our business strategy and financial outlook and other nonhistorical statements as described in our press release. These forward-looking statements are subject to certain risks, uncertainties and assumptions, including those related to Alta's growth, market opportunities and general economic and business conditions. These statements also include our expectations regarding risks related to the continued impact of the COVID-19 pandemic on our business, operations and financial results. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. Although we believe these expectations are reasonable, we undertake no obligation to revise any statement to reflect changes that occur after this call. Descriptions of these and other risks that could cause actual results to differ materially from these forward-looking statements are discussed in our reports filed with the SEC, including our press release that was issued today. During this call, we may present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today's press release, which is available at investors.altaequipment.com. And with that, I'll now turn the call over to Ryan.

Thank you, Sinem, and welcome to Alta's First Quarter 2020 Earnings Conference Call. I hope all of you on the call today are well. I will focus my remarks on what we are seeing and the actions we've taken to effectively operate our business during the COVID-19 pandemic. Tony Colucci, our CFO, will then provide Q1 financial results and an update on our liquidity and capital structure. We got off to a strong start for the year and saw relatively limited impact from the COVID-19 pandemic in our first quarter financial results. In fact, while the first quarter feels like a long time ago, it's worth noting that our performance demonstrated the underlying power of our business model, both in terms of parts- and service-driven organic growth and our ability to identify and close acquisitions. When we spoke -- when we last spoke with you in late March, we were just starting to see the change in the business environment as shelter-in-place mandates went into effect across many of our markets. Rapid change in the business climate materialized in March, and we immediately began executing the playbook that enabled us to emerge in a strong position from the Great Recession of 2008 and '09. While the current crisis is different and more multifaceted, the same dexterity in the model allowed us to take aggressive mitigation actions that we have -- that have helped fortify the business and position Alta for the economy's reopening and recovery. The last 6 weeks have been some of the most difficult we've seen in our careers, but we are open for business at all of our locations, and we are beginning to see some bright spots in our markets and indications of increased demand for our products and services. As you heard me say on…

Thank you, Ryan. Good evening, everyone, and thank you for listening in today and for your continued interest in Alta. Like Ryan, I want to first thank all of Alta's employees and their families as their efforts, understanding and professionalism have been an inspiration to myself and the senior leadership team during the past few months as we navigate the COVID-19 crisis together as 1 team, in line with one of our guiding principles. I also want to thank Alta's senior leadership team for their guidance, experience and support. You guys have made difficult decisions in tight windows balancing the needs of all of Alta's stakeholders, and you've done it with the proper amounts of due care, expertise and business acumen. Thank you. My remarks today will focus on 4 areas: a brief recap of financial performance in Q1 2020 versus Q1 '19, focusing on organic figures; pro forma review of trailing 12-month financial metrics, given that the leaseback is now behind us and Flagler and Liftech are now part of the Alta story. I'll touch on our capital structure and focus on 3/31 leverage and liquidity levels. And lastly, I would like to present the impact COVID-19 has had on Alta from a financial perspective and give some insights into our financial playbook, which I've coined the MMR or Measure, Mitigate and Recover. This acronym mimics our financial management philosophy over the past 2 months. First, financial performance in Q1, and I'll be focusing specifically on organic metrics. Overall, we believe we had a solid quarter. Revenue grew to $118 million for the quarter or 15% on an organic basis, with 2/3 of that growth coming from the CE segment. Product support was up 11% on an organic basis across the enterprise. Gross profit grew to almost $30 million…

Your first question at this time comes from Alex Rygiel with B. Riley.

Ryan and Tony, congratulations on a strong quarter.

Thanks, Alex. Good evening.

Could you do me a favor and dig a little bit deeper into the very strong organic growth in the quarter. Anything unique about the customers or the geography or the service line that experienced such strong organic growth?

Sure. Sure, Alex. The organic growth is kind of runs right parallel to our business model in terms of taking over what was a more dormant territory in Illinois for Volvo. And so we continue to populate -- or have great field population and then follow that field population with more and more mechanics, which leads to parts and service. And so the primary driver of that growth is in the Construction business on the Illinois side of the segment.

Very helpful. And then relative to the 2 acquisitions, Flagler and Liftech, how have they performed relative to your expectations since you've owned it? And how are they faring during COVID?

I'll take this one. This is Ryan. So they're very different businesses and very different markets and responses to COVID. So Liftech was upstate New York, basically all of New York, excluding the metropolitan area. And that business is -- we need to start rebuilding their sales effort. The market share is not where it needs to be. It's kind of lags the national average for the brands that we have there. And so that business is -- will be having a lot of attention in rebuilding the field population and the sales effort. Florida Flagler in contrast, and this is something that we messaged a lot on our road show, we were stepping into a territory that actually had very good market share for the Volvo brand. And the low-hanging fruit for us in Florida really was to bolster their product support business. And I think it's remarkable that in Q1, with this -- the headwind of the COVID hitting on the tail end of the quarter, that we were actually able to grow that headcount of service technicians over 20% in Florida just taking it over. So that was our -- our mission was to hit the ground running there and start adding skilled labor, and we were able to do that even in what have turned into more difficult conditions. The business, you could also sort of delineate that construction is primarily outdoor. Most markets, the construction businesses held up better than our industrial and material handling type products, which are -- have been more impacted by the stay home, stay safe orders that have impacted the different geographies. So Florida is definitely -- for us, it's the brightest spot we have. And we -- not only have we hit the ground running in terms of the product support into the business and bolstering that and adding technicians, but we've also -- we've had some very successful conversations with some of our OEM partners and have some early wins in expanding that product portfolio, taking some of our legacy relationships from the North down to Florida and having more products to sell into that market.

And as it relates to the 20% increase in the skilled labor in Florida, what's your target goal there? And what kind of time line should we think about for you to achieve that target?

Yes, headcount target. Our target near term is to more than double that. The run rate that we have of adding -- that was over a dozen mechanics in 2 months, that's -- we'd like to continue that pace. So really, that will be driven by demand. But what's different in Florida is that we have -- even as the market is anemic or coming down a bit, there's demand for service on the field population that's there. I would say, pent-up demand where they had done a better job selling Volvos and other machinery into the market than they had done harvesting the product support and taking care of the customer need. And that's where had some early success. And that's Alta's culture. That's Alta's vision is to be a -- we're service first. And so we're going to raise the bar in terms of what the Florida customers are used to experiencing, and it's exciting what's going on down there. It will build from there.

That's great. And then on cash flow, how has your cash position and cash flow changed subsequent to the end of the quarter during COVID? And how should we think about cash flow in an unmitigated versus best-case mitigation effort?

Alex, I'll take that one. In terms of our cash liquidity position, like I mentioned in my prepared remarks, we're actually in a better spot than we expected to be coming out of the de-SPAC. We have been able to maintain collections throughout this epidemic here with very few issues kind of on the collection side. So cash flow in that regard has been fine. In terms of the cash flows, I would refer you to our economic EBIT metric, which is holding right around 50% of EBITDA from a conversion perspective. Now at the levels that I mentioned, in terms of the severe downside case, we would not be replenishing fleets. We would age it out. And so -- and in the event that we would start defleeting to rightsize our fleet, we think we could stay cash flow positive in that extreme downside case. So we want to use our fleet kind of as a lever for cash flow. Now as you're defleeting, you're also giving up borrowing base. And so there's a give and a take to that, but that's how we see it.

Your next question comes from Mike Shlisky with Dougherty & Co.

So I wanted to real quick -- just get one quick housekeeping item out of the way. You didn't really put a table in the press release directly, but looking at the end of the release, the EBITDA table, the adjustment in EBITDA table, checking out some of the onetime items in that listing, not the D&A, of course, but the various transaction costs, the equity-linked incentives, the debt extinguishment, if you add up all of what's listed in there, just from trying to get to a net income or EPS perspective, I'm kind of calculating that we need to add back like $15 million to try and find some kind of more normalized net income for the quarter. So perhaps your loss of $17 million might be kind of more like loss of $2 million or even a little bit less than that? Am I on the right track there?

Mike, you nailed it. That's exactly right. We have -- you have about $15 million of add-backs all associated with the de-SPAC process. And so if you add it back, like you said, a net income loss of $2 million. Keep in mind that Q1 is usually our worst quarter on that metric, just given seasonality and that we continue to build out in the Construction segment. The Industrial segment, as you'll note, when you get into the Q, remains profitable throughout the first quarter.

Got it. And I don't think you gave us direct guidance here, but you did mention that the first quarter is 20% of EBITDA for the year, and I guess in a more normal year. Can you give us any kind of direction as to how different this year is going to look like from a normal year? I know you've only just bought them as companies a few months ago, but just a general feel for kind of how rough the Q2 numbers might look very broadly speaking, if you wouldn't mind?

Yes, Mike, that I could speak to that. That was -- the commentary in the slides were purposeful in terms of the impact that we saw in April. And we think, as we mentioned, that we found a bottom here in April. So downside best case, like I mentioned in my remarks, we feel like we, for April, at least, might come in right in the middle, given all of our mitigation efforts. And we're starting to retrace some of that downturn. We're hopeful that automotive comes back in a strong way. But there's been kind of fits and starts to that process. And if that comes back, that will help us tremendously. What helped us last week was the lifting of the restrictions on commercial construction here in Michigan. And we've seen a big chunk of our rental fleet that was otherwise sitting go out. And so I don't know that we're going to be able to fully retrace here in Q2. But to the extent things open up, I would expect us to be somewhere between -- what I mentioned was that middle ground on a monthly basis and something more normalized.

When you say normalized, you mean the best case column or even better than that, a more normal average month for you?

Probably more of the latter because we would expect the revenue to return. Correct.

Got it. Perfect. Guys, any thoughts on -- I know you had some M&A deals in the pipeline. You've talked with a few counterparties. Have things been put on hold since the COVID crisis hit? Or are you still having some active discussions with some new partners?

No, it's -- this is Ryan. We are still in active discussions. In our last call, we had spoken to maybe reshuffling some priorities given the uncertainty in the market. So there are some conversations emerging out of this volatility, but the things that we've been working on are still moving forward, and they're just -- they're too preliminary to disclose at this time.

Okay. On the skilled labor question, it sounds like you've got some areas where you're hiring, of course, in Florida, and other areas you had to have furloughs or some reductions. I guess maybe given the broader employment picture across the country, and I would imagine across your footprint, are you seeing more interest from promising graduates or folks who have had other careers looking to switch into a more stable? Or how do you scale good payroll like your company? Or is that still too early to tell on that?

Mike, I think it's too early to tell on that. It's one of the themes that we've always talked about it is that we want to be a preferred employer in our industry. There aren't enough skilled people coming into the trades in our industry, and we are very deliberate in trying to have pipelines of bringing talent in. There's -- right now, our efforts have been on retaining -- managing through this volatility and keeping our team intact and retaining the talent that we've invested in developing. So right now, we don't have an issue with -- of needing talent. There's an overcapacity of labor out there for what the market is. But we think that will snap back. So we're continuing -- we're not taking our foot off the gas in those development areas or recruiting efforts. We obviously don't need additional capacity in areas hard to hit like Michigan or upstate New York, but in Florida and in construction, in general, there's still a need, and we'll be continuing to put attention on that.

There are currently no further questions at this time. I'll turn the call back to the presenters for any closing remarks.

This is Tony. I just want to thank everybody for joining. I think the overriding theme for us is we're thankful that we were named an essential business. And we like to think that we're part of the solution in a lot of ways. There's been pockets of our business that have ramped up, and we've supported medical supply end markets, food and beverage and of course, infrastructure in terms of just being able to have people move around that needed to. So we're thankful that given our position relative to other industries and other verticals of the impacts here because we know it could be worse. And we're also kind of bullish on maybe some of the macro themes that could play out from a robotics perspective or a potential infrastructure play here when this is all said and done. So anyway, thank you, everybody, for joining, and we appreciate your interest in Alta.

This concludes today's conference call. Thank you for your participation. You may now disconnect.