EnviroStar, Inc. — FY2016 Form 10-K
Reporting period: Fiscal year ended June 30, 2016. Although the request metadata identifies EVI Industries and 2015 Q4, the supplied filing is EnviroStar, Inc.’s FY2016 10-K. The company distributes commercial and industrial laundry, dry-cleaning and boiler equipment, parts and services, principally in the U.S., Caribbean and Latin America. The filing reports one operating segment after its licensing business’s activity declined.
Financial performance and position
| Metric | FY2016 / June 30, 2016 | FY2015 / June 30, 2015 |
|---|---|---|
| Total revenue | $36.02 million | $30.75 million |
| Operating income | $2.79 million | $2.68 million |
| Net earnings | $1.74 million | $1.67 million |
| Basic and diluted EPS | $0.25 | $0.24 |
| Operating cash flow | $1.44 million | $(3.85) million |
| Capital expenditures | $1,563 | $58,021 |
| Cash and cash equivalents | $3.94 million | $3.91 million |
| Total assets | $10.16 million | $9.28 million |
| Total liabilities | $5.07 million | $4.53 million |
| Revolver borrowings | None outstanding | None outstanding |
- Revenue rose 17.1%; equipment net sales increased 18.6% to $35.78 million, largely on shipments from backlog, including several large orders. License fees, commissions and other income fell 58.4% to $240,255.
- Net earnings increased 4.1%. Cost of sales rose to 77.7% of net sales from 75.6%, reducing gross margin to approximately 22.3% from 24.4%; management attributed the change to product mix and lower-margin large orders. SG&A declined to 15.1% of revenue from 17.1%. The effective tax rate was 37.7% in both years.
- Operating cash flow improved by approximately $5.29 million year over year. FY2016 cash generation included higher payables and accrued expenses, while customer deposits decreased as backlog orders shipped; vendor deposits increased for specialized equipment. Cash dividends of $1.41 million were paid in each year.
- Current assets were $9.99 million and current liabilities $5.07 million at year-end. The company had a $2.25 million revolving credit facility, secured by substantially all company assets, with no year-end borrowings; it matured November 1, 2016. The company reported covenant compliance at June 30, 2016.
Changes, outlook and material items
- Export revenue declined to approximately $4.6 million from $8.5 million; FY2016 exports were 12.9% of revenue. Management cited increased domestic sales, partly offset by lower foreign sales, as the primary driver of growth.
- After year-end, on September 7, 2016, the company agreed to acquire substantially all assets and assume certain liabilities of Western State Design for stated consideration of $28 million: $18 million cash, subject to adjustments, and 2,044,990 shares. The transaction remained subject to closing conditions and financing; the filing gives no assurance it would close.
- Proposed acquisition financing included a $6 million private placement of 1,290,323 shares to Symmetric Capital II, controlled by CEO and controlling stockholder Henry M. Nahmad, and a Wells Fargo commitment for up to $20 million in senior secured facilities. About $12 million of debt was intended to fund the remaining cash consideration. Definitive debt documents and closing conditions remained outstanding.
- The filing estimates the acquisition and private placement together could add 3,335,313 shares—an approximately 47% increase based on then-outstanding shares. Some acquisition shares required shareholder approval; if additional shares were not issued within six months after closing, a cash payment could be due for the unissued amount. The contemplated stockholder agreement would further increase Mr. Nahmad’s voting control.
- Management said existing cash, operating cash flow, available credit and proposed financing were expected to fund operations and anticipated capital expenditures for at least 12 months. No specific earnings or revenue guidance was provided. The company’s existing revolver was due to mature shortly after the filing date, and management expected to seek an extension.
- The company reported effective disclosure controls and internal control over financial reporting; the auditor did not attest to internal control effectiveness. The financial statement audit opinions were unqualified. Ordinary-course legal proceedings were not expected to have a material adverse effect.
Principal risks and contingencies
- Acquisition execution, financing, integration, leverage, potential dilution and management capacity; the proposed Western State Design transaction was not assured.
- Concentration: one customer represented approximately 12% of FY2016 revenue; three suppliers represented approximately 68% of purchases. Two customers accounted for 33% of year-end accounts and trade notes receivable.
- Receivable collectability and estimate risk: net receivables were approximately $1.83 million and the doubtful-account allowance was $160,000. The company reported approximately $3.4 million of bank deposits above FDIC insurance limits.
- Competitive pressure, supplier relationship dependence, foreign-market and U.S.-dollar risks, environmental regulation, product performance claims, and hurricane or flood exposure at Miami facilities.
- Mr. Nahmad could be deemed to control approximately 50.3% of voting power under existing arrangements; his interests may differ from those of other shareholders. The proposed transactions could increase his control.
Investor verification points
- Confirm the actual issuer and period: this supplied filing is EnviroStar’s FY2016 10-K, not an EVI Industries 2015 Q4 filing.
- Check subsequent filings for whether the Western State Design acquisition and related-party share placement closed, final financing terms, stockholder approval, and the resulting dilution and voting control.
- Track the November 2016 revolver maturity and any extension or replacement, alongside debt covenants and post-acquisition liquidity.
- Assess whether FY2016 backlog shipments and working-capital movements—including elevated payables and lower customer deposits—were repeatable, and whether gross margins recovered.
- Monitor customer and supplier concentration, receivable collections, and uninsured cash balances.