EVI Industries, Inc. — Form 10-Q Summary
Period clarification: The filing covers the fiscal quarter and nine months ended March 31, 2022. Although the request metadata says “2021 Q3,” the filing itself is for fiscal 2022 Q3. Unless noted otherwise, amounts below are in U.S. dollars.
Business context and reporting period
EVI is a value-added distributor and service provider for commercial laundry operations, selling and leasing equipment and related parts and providing installation, maintenance, repair, and advisory services. Its growth strategy combines organic initiatives with acquisitions. The statements are unaudited.
Financial performance
| Metric | Nine months ended Mar. 31, 2022 | Prior year | Three months ended Mar. 31, 2022 | Prior year |
|---|---|---|---|---|
| Revenue | $184.5 million | $177.5 million | $60.0 million | $62.4 million |
| Gross profit / margin | $51.5 million / 27.9% | $43.5 million / 24.5% | $17.1 million / 28.4% | $15.8 million / 25.2% |
| Operating income / margin | $3.8 million / 2.1% | $2.1 million / 1.2% | $0.2 million / 0.3% | $0.7 million / 1.2% |
| Net income | $2.6 million | $1.6 million | $40,000 | $625,000 |
| Diluted EPS | $0.18 | $0.12 | $0.00 | $0.04 |
For the nine months, revenue increased 4% and gross profit increased 18%. For the quarter, revenue fell 4%, while gross profit rose 8%. Management attributed improved gross margins to product and customer mix, pricing, and reduced discounting and promotional pricing amid supply constraints. SG&A increased 15% over nine months and 12% for the quarter, reflecting acquired-business costs, growth and optimization investments, and modernization projects. The quarter’s net income was nearly breakeven.
Nine-month net interest and other expense was $390,000 versus $122,000 in the prior year; the comparison included a $361,000 bargain-purchase gain in the prior-year period. The effective tax rate was 24.8% for nine months and 36.5% for the quarter, up from 20.4% and 32.5%, respectively.
Cash flow, balance sheet, and liquidity
- Nine-month operating cash flow was negative $6.1 million, compared with positive $5.5 million in the prior year. The principal working-capital uses included a $13.5 million inventory increase and a $3.1 million increase in accounts receivable; customer deposits provided $10.1 million.
- Investing cash outflow was $6.3 million, including $3.1 million of capital expenditures and $3.2 million net cash paid for acquisitions. Financing provided $11.9 million, including $46.0 million of borrowings and $34.0 million of repayments.
- Cash was $5.6 million at March 31, 2022, down from $6.1 million at June 30, 2021. Working capital was $32.5 million, up from $15.8 million.
- Total assets were $205.2 million and total liabilities were $90.2 million. Current assets were $88.8 million versus current liabilities of $56.4 million.
- Long-term debt, net, was $23.9 million, compared with $11.9 million at June 30, 2021. The company reported $27.5 million available under its revolving facility and compliance with its covenants at March 31, 2022.
- Management said existing cash, expected operating cash flow, and available credit should fund operations and anticipated capital expenditures for at least the next 12 months and thereafter. This is management’s assessment, not a numerical earnings forecast.
Material changes, outlook, and risks
- Acquisition: EVI acquired Consolidated Laundry Equipment and Central Equipment Company (CLK) on February 7, 2022 for approximately $7.0 million net of acquired cash, consisting of cash and 179,087 shares. CLK contributed approximately $2.4 million in revenue and $186,000 in net income after closing during the reported nine-month period. The purchase-price allocation remained preliminary in certain working-capital areas.
- Subsequent events: After quarter-end, EVI signed an agreement to acquire Clean Designs and completed acquisitions of Laundry South Systems and Repair and Spynr. Consideration for the latter two transactions was described as not material on a consolidated basis; Clean Designs’ anticipated consideration was also not expected to be material. Clean Designs’ closing remained subject to conditions.
- Credit facility: On May 6, 2022, EVI amended its revolving credit agreement, replaced LIBOR with BSBY, and extended maturity from November 2023 to May 2027. The amendment also reduced the maximum commitment fee rate to up to 0.125% of unused commitments.
- Operating risks: Management cited supply-chain constraints, longer inventory lead times, delivery and construction delays, labor shortages, inflation, and continued COVID-19 effects. These pressures may delay revenue recognition, affect customer demand and margins, and increase costs. EVI noted there is no assurance it can raise prices enough to offset cost increases.
- Other matters: The company’s growth strategy may require additional capital and can involve acquisition integration, dilution, and increased indebtedness. Credit-facility covenants restrict certain activities. EVI reported no material change in its previously disclosed risk factors, no outstanding performance or payment bonds at March 31, 2022, and no material changes in legal proceedings. It also disclosed multiple leases with affiliates of current or former subsidiary principals.
Important facts for investors to verify
- Whether supply and construction delays ease, and whether the elevated customer deposits and inventory convert into timely deliveries, revenue, and operating cash flow.
- Whether gross-margin improvement is sustainable as pricing, product mix, discounting, and supply constraints change.
- Working-capital needs and debt levels, including the effect of acquisition financing, interest-rate changes, and credit-facility covenants.
- Final purchase accounting and subsequent operating results for CLK, and the completion and integration of the announced or completed post-quarter acquisitions.
- The costs and expected benefits of ERP, customer-relations, and digital sales and service modernization investments.
- Terms and governance of related-party leases, and the potential effects of inflation, labor constraints, COVID-19, and supplier or customer disruption.