EVI Industries, Inc. — Form 10-Q Summary
Reporting period: Three months ended September 30, 2022, the company’s fiscal first quarter of fiscal 2023. The unaudited results are compared with the three months ended September 30, 2021. EVI distributes commercial laundry equipment, parts and accessories, and provides related advisory, installation, maintenance and repair services.
Financial performance
| Metric | Q1 FY2023 | Q1 FY2022 | Change |
|---|---|---|---|
| Revenue | $83.4 million | $63.7 million | Up $19.7 million, or 31% |
| Gross profit | $24.5 million | $17.6 million | Up $6.9 million, or 39% |
| Gross margin | 29.4% | 27.7% | Up 1.7 percentage points |
| Selling, general and administrative expenses | $20.1 million | $15.0 million | Up approximately $5.2 million, or 34% |
| Operating income | $4.4 million | $2.7 million | — |
| Interest expense, net | $377,000 | $115,000 | Higher, primarily due to increased average effective borrowing rates |
| Net income | $2.8 million | $2.0 million | — |
| Diluted earnings per share | $0.20 | $0.15 | — |
The effective tax rate was 28.9%, compared with 20.9%; management attributed the increase primarily to nondeductible compensation. The filing does not provide a clear standalone operating cash flow margin.
Cash flow, liquidity and debt
- Operating activities used $6.2 million of cash, versus $10.4 million used a year earlier. Investing activities used $2.0 million, including $1.2 million of acquisition payments and $771,000 of capital expenditures. Financing activities provided $8.0 million. Cash declined $200,000 to $3.8 million.
- Working capital was $41.7 million at September 30, 2022, up from $30.8 million at June 30, 2022. Current assets were $115.5 million and current liabilities were $73.8 million.
- Long-term debt, net, was $35.8 million, compared with $27.8 million at June 30, 2022. Revolver borrowings were $36.0 million; $32.1 million remained available. The facility matures May 6, 2027, and is secured by substantially all company assets. EVI reported compliance with its covenants.
- Management stated existing cash, expected operating cash and available credit were sufficient for operations and anticipated capital expenditures for at least the next 12 months and thereafter.
Material changes and notable items
- Revenue growth reflected improved conditions as the business recovered from pandemic-related disruption, completion of previously delayed projects, price increases, and contributions from acquired businesses. Gross margin improved with more favorable product and customer mix and increased solution selling.
- Inventory rose to $54.2 million from $49.4 million at June 30, 2022. Management cited stock staged for customer orders affected by supply constraints, partial manufacturer deliveries and higher product costs. Contract assets rose to $5.4 million from $1.5 million, largely reflecting progress on large federal-government laundry projects.
- On September 1, 2022, EVI acquired Aldrich Clean-Tech Equipment Corp. and K&B Laundry Service, LLC for $1.2 million in cash, net of cash acquired, funded by revolver borrowings. The acquisitions added $639,000 of goodwill. A further acquisition, Wholesale Commercial Equipment Company SE, LLC, closed November 1, 2022; consideration was described as not material.
- The company granted 222,672 restricted stock awards and 93,789 restricted stock units during the quarter. Share-based compensation expense was $680,000, compared with $479,000 a year earlier.
Outlook, risks and contingencies
- No specific revenue, earnings or margin guidance was provided. Management cautioned that interim results are not necessarily indicative of full-year results.
- Risks highlighted include supply-chain delays and product availability, inflation and the ability to pass on costs, labor shortages and labor expense, lingering COVID-19 impacts, customer or project installation delays, and acquisition execution and integration. Lower-margin pricing or large contracts may also affect near-term margins.
- Borrowings are exposed to variable interest rates. The reported weighted-average rate was 3.95%; a hypothetical 1 percentage-point increase in daily rates would raise annual interest expense by approximately $360,000 based on quarter-end borrowings.
- The company disclosed ordinary-course litigation exposure and possible federal and state tax examinations for tax years 2018–2021. No performance or payment bonds were outstanding at quarter end. No material changes to previously disclosed risk factors or legal proceedings were reported.
- Management said inflation had not significantly affected reported-period results, but warned that cost increases and inability to raise prices sufficiently could adversely affect results. Bank deposits exceeded FDIC insurance limits.
Important facts for investors to verify
- Whether the improved gross margin and revenue growth are sustainable after accounting for acquisitions, pricing changes and project timing.
- Whether supply constraints, staged inventory and federal-project contract assets convert into timely deliveries, collections and cash flow.
- How borrowing costs, debt levels and covenant headroom evolve as EVI funds working capital and its acquisition strategy.
- The integration and financial contribution of the September acquisitions and the November 2022 acquisition.
- Whether labor, inflation and pandemic-related pressures affect costs, service capacity, customer demand or margins.