EVI Industries, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended December 31, 2023. Financial statements are unaudited; dollar amounts below are in millions unless stated otherwise. EVI distributes commercial laundry equipment and provides related planning, installation, maintenance, and repair services.
Financial performance
| Metric | Three months ended Dec. 31, 2023 | Year-over-year | Six months ended Dec. 31, 2023 | Year-over-year |
|---|---|---|---|---|
| Revenue | $91.4 | +$8.7; +11% | $179.4 | +$13.4; +8% |
| Gross profit | $26.4 | +$1.6; +6% | $52.1 | +$2.8; +6% |
| Gross margin | 28.9% | 30.0% prior year | 29.0% | 29.7% prior year |
| Operating income | $3.0 | $3.6 prior year | $5.6 | $8.0 prior year |
| Net income | $1.3 | $2.2 prior year | $2.6 | $5.1 prior year |
| Diluted earnings per share | $0.09 | $0.15 prior year | $0.17 | $0.35 prior year |
| Net interest expense | $0.8 | $0.6 prior year | $1.6 | $1.0 prior year |
Management attributed revenue growth primarily to price increases and acquired businesses. Gross profit rose, but gross margin declined due mainly to less favorable product and customer mix. Selling, general and administrative expenses increased 11% for the quarter and 13% for the six-month period, reflecting acquired-business costs, higher selling costs, salaries, rent, technology expenses, and stock compensation. Net income declined primarily because of higher operating expenses. The six-month effective tax rate rose to 34.0% from 27.8%, mainly due to permanent book-tax differences, including nondeductible compensation.
Cash flow, balance sheet, and liquidity
- Six-month cash flow: Operating activities provided $10.9 million, versus $4.9 million used in the prior-year period. Investing activities used $3.4 million, including $2.4 million in capital expenditures and $1.0 million net cash paid for acquisitions. Financing activities used $9.2 million, including $4.1 million of dividends and $4.0 million of net debt repayments.
- Cash: $4.3 million at December 31, 2023, down from $5.9 million at June 30, 2023. Working capital was $44.7 million, down from $49.1 million.
- Debt: $31.0 million outstanding under a revolving credit facility, compared with $35.0 million at June 30, 2023. The facility permits up to $100 million of borrowings, with an accordion option to $140 million; $55.6 million was available at period-end. The facility matures May 6, 2027. EVI reported covenant compliance.
- Interest-rate exposure: The period-end weighted-average borrowing rate was 6.67%. A hypothetical 1% increase in daily rates would increase annual interest expense by approximately $310,000.
- Management outlook: EVI stated that cash, expected operating cash flows, and available credit should be sufficient for operations and anticipated capital expenditures for at least the next 12 months. The filing provides no specific earnings or revenue guidance.
Material developments, risks, and unusual items
- EVI acquired ALCO Washer Center on September 1, 2023, for $987,000 in cash and 8,621 shares valued at approximately $229,000. The acquisition added $793,000 of goodwill; ALCO’s results are included from the closing date.
- EVI paid a special dividend of $0.28 per share, approximately $4.1 million in total, in October 2023. The company does not promise regular future dividends; debt covenants may restrict dividends and share repurchases.
- Stock-based compensation was $2.9 million for the six months, up from $1.5 million. The filing cites acceleration of vesting for certain awards as a contributor to higher expenses.
- The credit facility’s BSBY benchmark is scheduled to be discontinued in November 2024 and, under the agreement, is to be replaced by SOFR plus an adjustment. Borrowings carry variable interest rates.
- Controls: Management concluded disclosure controls were not effective at December 31, 2023 because a previously identified material weakness involving review and approval of manual journal entries at certain subsidiaries remained unremediated. Remediation efforts are ongoing. The company reported no resulting identified misstatements in the periods discussed.
- Management identified risks including economic conditions, inflation and labor costs, supply-chain delays, interest rates, acquisition integration and financing, competition, customer or supplier concentration, and delays in installation that can shift revenue recognition. It reported no material changes to previously disclosed risk factors or legal proceedings; no performance or payment bonds were outstanding at period-end.
Important facts for investors to verify
- Whether lower gross margins and higher operating expenses persist, and whether acquired businesses deliver expected growth and efficiencies.
- Operating cash-flow sustainability and working-capital trends, given that the six-month cash-flow improvement was attributed largely to working-capital changes.
- Debt costs, covenant headroom, and the effect of variable rates and the BSBY-to-SOFR transition.
- Progress and testing of controls remediation, including whether the journal-entry material weakness is fully resolved.
- The future effect of stock-based compensation, special-dividend policy, and acquisition-related cash and share issuance.