Filing summary
Entity and period: The supplied filing is EnviroStar, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2015, covering fiscal 2015’s third quarter and first nine months. This does not match the request metadata identifying EVI Industries, Inc. and 2014 Q3; verify the issuer and period before relying on this summary.
The company primarily sells commercial and industrial laundry and dry-cleaning equipment and boilers, and also operates license and franchise businesses. The filing was signed May 14, 2015.
Financial performance
| Metric | Nine months ended March 31, 2015 | Prior-year period | Quarter ended March 31, 2015 | Prior-year quarter |
|---|---|---|---|---|
| Total revenue | $22.998 million | $24.878 million | $6.989 million | $6.549 million |
| Operating income | $2.211 million | $1.953 million | $692 thousand | $504 thousand |
| Net earnings | $1.380 million | $1.218 million | $432 thousand | $315 thousand |
| Basic and diluted EPS | $0.20 | $0.17 | $0.06 | $0.04 |
- Revenue and earnings: Nine-month revenue declined 7.6%; third-quarter revenue increased 6.7%. Net earnings rose 13.4% for the nine months and 37.3% for the quarter.
- Margins: Cost of sales fell to 75.0% of net sales for the nine months from 77.6%, and to 75.2% for the quarter from 75.7%. Operating margin was approximately 9.6% for the nine months versus 7.8% and 9.9% for the quarter versus 7.7%. Management attributed improved margins mainly to product mix, as smaller orders generally carry higher margins.
- Cash flow: The cash flow statement reports operating cash used of $3.687 million, investing cash used of $58 thousand, and financing cash used of $1.407 million for the nine months. Cash declined $5.151 million to $4.073 million from $9.224 million at June 30, 2014. The MD&A instead reports operating cash used of $3.387 million, a $300 thousand discrepancy that should be reconciled.
- Liquidity and debt: Current assets were $8.936 million and current liabilities $4.735 million at March 31, 2015. No borrowings were outstanding on the $2.25 million revolving credit facility; it was extended through November 1, 2015. The company said cash, operating cash flow and available credit would fund operations and anticipated capital expenditures for at least 12 months. Total liabilities were $4.735 million; the balance sheet reports no long-term debt.
- Other balance-sheet items: Accounts and trade notes receivable rose to $2.231 million from $924 thousand at June 30, 2014; accounts payable and accrued expenses fell to $1.496 million from $4.750 million. Customer deposits decreased to $2.723 million from $3.671 million.
Changes and management commentary
- Nine-month net sales fell 7.9%, which management attributed mainly to construction delays. Third-quarter net sales rose 4.8%, reflecting shipments of smaller backlog orders.
- Development, franchise, license, commission and other revenue increased 22.2% for the nine months and 217.1% for the quarter, largely because of cancellation and restocking charges on past contracts.
- Foreign sales rose 77.9% in the first nine months, primarily due to a large Caribbean contract shipped during the first quarter.
- Cash use reflected lower payables, receivables growth from heavy March shipments not yet due for payment, reduced customer deposits as backlog orders shipped, payment of bonuses and commissions, and a $1.407 million dividend. Inventory reductions partly offset these uses.
- The company paid a special cash dividend of $0.20 per share in December 2014. A change in control occurred March 9, 2015; the company subsequently received a waiver of a credit-agreement default arising from that change in control.
Outlook, risks and other matters
- No specific revenue or earnings forecast is provided. The 12-month liquidity statement is management’s assessment, not a quantified operating forecast.
- Risks identified include economic and industry conditions, competition and pricing pressure, inventory availability and cost, currency movements, technology change, environmental regulation, execution of business plans, and access to capital. Export customers pay in U.S. dollars; there were no foreign-exchange contracts outstanding.
- The credit facility is secured by substantially all company and subsidiary assets and includes financial ratios and restrictive covenants. The company reported compliance with, or a waiver of, covenants at the stated balance-sheet dates.
- The company reported effective disclosure controls and no material changes in internal control over financial reporting during the period. It noted that the interim results are not necessarily indicative of full-year results.
- A new revenue-recognition standard was expected by management not to have a material effect. The company was potentially subject to federal and state tax examinations for tax years 2011–2014.
- A related-party subsidiary lease with a landlord owned by company insiders began November 1, 2014, for three years; annual rent ranges from $123,300 to $130,800. Management stated the terms were comparable to market terms.
Important facts to verify
- Confirm that EnviroStar’s fiscal 2015 third-quarter filing—not EVI Industries’ 2014 Q3 filing—is the intended document.
- Reconcile operating cash used: $3.687 million in the cash flow statement versus $3.387 million in the MD&A.
- Review the March 2015 change in control, the related credit-agreement default waiver, and applicable covenant terms.
- Assess receivables collection after the heavy March shipments and the sustainability of cash generation given the decline in cash and customer deposits.
- Evaluate whether earnings and margin gains driven partly by product mix and contract cancellation/restocking charges are repeatable.