Business context and reporting period
The filing is EnviroStar, Inc.’s unaudited Form 10-Q for the quarter ended December 31, 2014, covering the second quarter and first six months of fiscal 2015. EnviroStar reports commercial and industrial laundry and dry-cleaning equipment and boiler operations, alongside license and franchise operations. The request identifies EVI Industries, Inc.; the filing itself names EnviroStar, Inc., so verify the issuer identity and any relationship between the companies.
Financial performance and position
| Metric | Three months ended Dec. 31, 2014 | Six months ended Dec. 31, 2014 |
|---|---|---|
| Total revenue | $6.93 million, down 29.6% | $16.01 million, down 12.7% |
| Operating income | $776,780, up 1.5% | $1.52 million, up 4.9% |
| Net earnings | $484,412, up 1.5% | $948,373, up 5.0% |
| Diluted EPS | $0.07, unchanged | $0.13, unchanged |
Cost of sales fell to 71.6% of net sales for the quarter from 79.6% a year earlier, and to 74.9% for the six months from 78.3%. This supported improved earnings despite lower sales. SG&A was nearly flat in dollars but rose as a share of revenue to 18.9% for the quarter and 16.6% for the six months.
Six-month operating cash flow was negative $2.38 million, versus positive $3.35 million in the prior-year period. The company attributed the cash use principally to paying prior-year accounts payable and accrued expenses, lower customer deposits as backlog orders shipped, and payment of bonuses and commissions; inventory reductions partly offset these outflows. Capital expenditures were $52,500, and dividends paid were $1.41 million.
Cash and cash equivalents were $5.38 million at December 31, 2014, down from $9.22 million at June 30, 2014. Current assets were $8.41 million and current liabilities $4.66 million. The company reported no borrowings under its $2.25 million revolving credit facility, extended through November 1, 2015, and said it was in compliance with covenants. Total liabilities were $4.66 million; the filing reports no long-term debt.
Material changes versus comparable periods
- Quarterly net sales fell 30.6%, mainly from a 49.3% decline in equipment sales; spare-parts sales rose 20.9%.
- Six-month equipment sales declined 22.4%, partly offset by a 6.2% increase in spare-parts sales. Foreign sales increased 74.5%, largely due to a large Caribbean order.
- Management attributed sales declines to delayed scheduled shipments and customer order requirements. It said backlog increased by more than 20% from June 30, 2014.
- Improved product mix and margins helped operating income and net earnings rise despite revenue contraction.
Outlook, risks and unusual items
Management stated that existing cash, cash equivalents and expected operating cash flow should fund operations and anticipated capital expenditures for at least the next 12 months. No quantified revenue or earnings guidance was provided. Interim results may not indicate full-year performance.
The board declared and paid a $0.20-per-share cash dividend totaling $1.41 million in December 2014. A new three-year warehouse and office lease with an entity owned by the chairman/president and his brother began November 1, 2014; annual rent is scheduled to rise from $123,300 to $130,800 over the term. Management said the terms are comparable to those available from an unaffiliated party.
Disclosed risks include economic and industry conditions, competition and margins, inventory availability and cost, foreign-currency movements, regulatory compliance, and access to capital. Export customers pay in U.S. dollars; no foreign-exchange contracts were outstanding. Federal and state tax examinations could cover tax years 2011–2014. The company reported effective disclosure controls and no material changes in internal control over financial reporting.
Important facts for investors to verify
- Confirm the issuer: the filing identifies EnviroStar, Inc., while the request identifies EVI Industries, Inc.
- Assess whether shipment delays reverse and whether the reported backlog converts to revenue and cash on expected terms.
- Review the causes and sustainability of stronger margins while equipment sales and total revenue are down.
- Track operating cash flow, customer deposits, and working-capital movements after the large cash outflow.
- Review the revolving-credit covenants and related-party lease terms, and confirm any subsequent developments.