EVI Industries, Inc. — Q2 FY2022 10-Q
Business and period: EVI is a value-added distributor of commercial laundry equipment, parts and accessories, and related installation, maintenance, repair, advisory and technical services. This unaudited report covers the three and six months ended December 31, 2021; the fiscal year ends June 30.
Financial performance
| Metric | Three months ended Dec. 31, 2021 | Prior year | Six months ended Dec. 31, 2021 | Prior year |
|---|---|---|---|---|
| Revenue | $60.7 million | $57.2 million | $124.4 million | $115.0 million |
| Gross profit / margin | $16.8 million / 27.7% | $14.4 million / 25.2% | $34.4 million / 27.7% | $27.7 million / 24.1% |
| Operating income | $1.0 million | $0.5 million | $3.6 million | $1.4 million |
| Net income | $0.5 million | $0.5 million | $2.5 million | $1.0 million |
| Diluted EPS | $0.04 | $0.03 | $0.18 | $0.07 |
- Revenue rose 6% in the quarter and 8% for the six-month period. Management attributed growth to projects delayed by COVID-19 that were completed in 2021, product and service price increases, and contributions from businesses acquired in 2020, particularly Yankee Equipment Systems.
- Gross margin increased year over year, which management attributed primarily to higher revenue and more favorable product and customer mix. Changes in federal government contracts added 10 basis points to quarterly margin and 50 basis points to six-month margin versus the prior-year periods.
- SG&A increased 14% for the quarter and 17% for the six months, reflecting acquired-business costs, higher sales-related expenses, growth and optimization initiatives, and investments in operating systems and technology.
- Quarterly net income increased modestly despite higher operating income; the reported tax provision was $293,000 versus a $99,000 tax benefit in the prior-year quarter. The six-month effective tax rate was 24.5%, compared with 10.1% a year earlier; the prior-year comparison included a CARES Act NOL carryback benefit.
Financial position, cash flow and liquidity
- At December 31, 2021, cash was $6.0 million, total assets $186.8 million, total liabilities $76.3 million, and shareholders’ equity $110.5 million. Working capital was $23.8 million, up from $15.8 million at June 30, 2021.
- Inventory rose to $33.1 million from $25.1 million at June 30, largely due to higher stock levels and procurement timing amid extended supply lead times. Customer deposits increased to $16.7 million from $10.3 million; contract liabilities fell to zero from $3.2 million, principally following completion of certain large projects.
- Six-month operating cash flow was a use of $1.0 million, compared with $7.4 million provided in the prior-year period. Inventory absorbed $7.8 million of cash; customer deposits provided $6.3 million. Capital expenditures were $2.0 million. Financing activities provided $2.9 million, including $25.0 million of borrowings and $22.0 million of repayments.
- Long-term debt, net, was $14.9 million, up from $11.9 million at June 30. The revolving facility had $34.4 million available; EVI reported covenant compliance. The facility matures November 2, 2023. Outstanding borrowings carried a weighted-average rate of 1.35%; management estimated a 1 percentage-point rate increase would raise annual interest expense by about $150,000.
- Management stated that cash, anticipated operating cash flow and available credit should fund operations and anticipated capital expenditures for at least the next 12 months.
Outlook, risks and notable items
- No specific financial guidance was provided. Management described continued uncertainty from COVID-19, including the Omicron variant, supply-chain delays, employee availability, customer demand and possible restrictions. These conditions may affect sales, margins, fulfillment and liquidity.
- Inflation had not significantly affected results in the reported periods, but management cautioned that rising costs and supply constraints may pressure margins if price increases do not offset costs.
- The company was negotiating with its lender on replacement rates as LIBOR is phased out. Debt covenants and secured borrowing obligations may constrain certain actions.
- On February 7, 2022, after quarter-end, EVI acquired Consolidated Laundry Equipment for approximately $10.0 million: $5.0 million cash and 179,087 common shares. Its results are expected to be included beginning in the quarter ending March 31, 2022.
- The filing reports related-party facility leases, including a renewed lease with an affiliate of company executives. No performance or payment bonds were outstanding at December 31, 2021. The filing reports no material changes in legal proceedings or risk factors from the prior annual report.
Important facts for investors to verify
- Whether supply-chain constraints, inventory growth and customer deposits translate into timely order fulfillment and operating cash generation.
- Whether higher gross margins and price increases persist as costs, product mix and federal project activity change.
- Integration, financing and potential dilution effects of the February 2022 acquisition and future buy-and-build transactions.
- Availability of revolving credit, covenant headroom, interest-rate exposure and the outcome of LIBOR replacement negotiations.
- Continuing effects of COVID-19, inflation, customer demand and employee availability on operations and liquidity.