EVI Industries, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended June 30, 2023. The filing is an annual report for FY2023, not a report for calendar-year 2022 Q4.
Business context
EVI is a value-added distributor of commercial and industrial laundry equipment, parts and accessories, and related installation, maintenance, repair, and advisory services. It operates as one reportable segment and pursues a “buy-and-build” strategy, combining organic growth with acquisitions. During FY2023 it acquired four businesses: Aldrich Clean-Tech Equipment, K&B Laundry Service, Wholesale Commercial Laundry Equipment, and Express Parts and Services.
Key financial metrics
| Metric | FY2023 | FY2022 |
|---|---|---|
| Revenue | $354.2 million | $267.3 million |
| Gross profit / gross margin | $103.7 million / 29.3% | $73.7 million / 27.6% |
| Operating income | $16.5 million | $6.4 million |
| Net income | $9.7 million | $4.1 million |
| Diluted earnings per share | $0.67 | $0.29 |
| Operating cash flow | $0.9 million | $(1.9) million |
| Capital expenditures | $3.7 million | $4.0 million |
| Cash at year-end | $5.9 million | $4.0 million |
| Long-term debt, net | $34.9 million | $27.8 million |
| Total assets / total liabilities | $253.8 million / $122.9 million | $230.8 million / $113.1 million |
Revenue rose 32% (about $86.9 million), while net income increased 137%. Gross margin improved to 29.3% from 27.6%, reflecting favorable product and customer mix and solution-selling efforts. SG&A increased 30% to $87.2 million, but declined as a share of revenue to 24.6% from 25.2%. Interest expense increased to $2.5 million from $0.7 million as average borrowings and rates rose. The effective tax rate was 30.6%, versus 28.3%.
Working capital remained a significant cash use: inventory was $59.2 million, up from $49.4 million, and accounts receivable was $48.4 million, up from $43.0 million. Operating cash flow improved year over year but was modest relative to net income. Investing cash use was $6.0 million, including $2.3 million net cash paid for acquisitions and $3.7 million of capital expenditures.
Liquidity and debt
At June 30, 2023, EVI had $35.0 million drawn on its revolving credit facility and $57.3 million available to borrow. The facility has a $100 million commitment, expandable by up to $40 million, and matures May 6, 2027. Borrowings bear variable rates; the weighted-average rate at year-end was 5.81%. A hypothetical 1 percentage-point rate increase was estimated to add about $350,000 to annual interest expense at the year-end balance. EVI reported compliance with its financial covenants and said cash, expected operating cash flow, and facility availability should fund operations and anticipated capital expenditures for at least the next 12 months.
Changes, outlook, risks, and unusual items
- Management attributed revenue growth to recovery from pandemic-related delays, completion of postponed projects, price increases, acquisitions, and a full year of contribution from certain FY2022 acquisitions. The acquired businesses contributed approximately $37.8 million of FY2023 revenue and $0.9 million of net income, on the filing’s stated basis.
- Some longer-term federal government equipment contracts generated lower margins; management estimated a 30-basis-point reduction in FY2023 gross margin from these contracts. Management expects the larger installed equipment base may create future parts, supplies, and service opportunities, but this is not assured.
- The filing provides no quantitative FY2024 revenue or earnings guidance. Management stated that inflation did not significantly affect FY2023 or FY2022 results, while noting continued risk from product, labor, and operating cost increases.
- Key risks include acquisition integration and execution, supplier concentration (three manufacturers represented 61% of product purchases, versus 56% in FY2022), supply-chain and delivery disruptions, labor availability and cost, competition, variable-rate debt, and ERP, cybersecurity, and data-security issues.
- Internal controls: Management and the independent auditor concluded internal control over financial reporting was ineffective at June 30, 2023 because of a material weakness in review and approval of manual journal entries at certain subsidiaries. The auditor gave an adverse opinion on internal controls but an unqualified opinion on the financial statements. Management reported no identified financial-statement misstatements from the weakness and expects remediation before June 30, 2024; acquired FY2023 businesses were excluded from the controls assessment.
- No dividends were paid in FY2023 or FY2022. After year-end, on October 4, 2023, the board declared a special $0.28-per-share cash dividend, payable October 26, 2023.
- No pending legal proceeding was identified as expected to be material. The filing reports no outstanding performance or payment bonds at year-end.
Most important facts for investors to verify
- Whether operating cash flow can improve as inventory and receivables grow, and how effectively working capital converts reported earnings to cash.
- Whether FY2023 growth and margin gains persist after separating organic growth, pricing, pandemic recovery, and acquisition contributions.
- Progress and testing results for remediation of the manual journal-entry control weakness, including controls at acquired businesses.
- Debt, interest-rate exposure, covenant headroom, and the funding implications of future acquisitions and dividends.
- Exposure to concentrated suppliers, delivery delays, lower-margin project work, and the realization of expected post-sale service and parts revenue.