EnviroStar, Inc. — Form 10-Q Summary
Business context and period. This filing covers the quarter and six months ended December 31, 2012 (the second quarter and first half of fiscal 2013). EnviroStar sells commercial and industrial laundry and dry-cleaning equipment and boilers, and operates a smaller franchise and licensing business. The filing identifies the registrant as EnviroStar, Inc.
Financial results
| Metric | Three months ended Dec. 31, 2012 | Three months ended Dec. 31, 2011 | Six months ended Dec. 31, 2012 | Six months ended Dec. 31, 2011 |
|---|---|---|---|---|
| Total revenue | $6.45 million | $4.98 million | $12.96 million | $11.29 million |
| Operating income | $197,000 | $24,000 | $439,000 | $396,000 |
| Net earnings | $125,000 | $15,000 | $277,000 | $249,000 |
| Basic and diluted EPS | $0.02 | $0.01 | $0.04 | $0.04 |
| Operating cash flow | Not separately reported | Not separately reported | $3.49 million | $116,000 |
- Quarterly revenue rose 29.4% and six-month revenue rose 14.8%. Net earnings increased 712.9% for the quarter, from a low prior-year comparison, and 11.3% for the six-month period.
- Net sales increased 30.3% for the quarter and 15.4% for the half. Management attributed the gains mainly to equipment sales; six-month equipment sales rose 18.1%, while spare-parts sales fell 2.4% and foreign sales fell 11.4%.
- Cost of sales increased to 77.0% of sales for the quarter and 78.1% for the half, versus 76.3% and 76.6%, respectively. Management cited large, lower-margin orders and lower spare-parts sales. SG&A was 20.5% of revenue for the quarter and 19.1% for the half.
- At December 31, cash was $5.78 million; current assets were $9.94 million and current liabilities were $5.90 million. Total assets were $10.25 million and shareholders’ equity was $4.35 million. The company reported no outstanding borrowings under its $2.25 million revolving credit facility, extended to November 1, 2013, and said it was in compliance with facility covenants.
- Six-month cash declined $752,441, from $6.53 million to $5.78 million. Operating activities provided $3.49 million, investing activities used $24,000, and financing activities used $4.22 million, principally for a special dividend. Operating cash flow benefited substantially from a $3.28 million increase in customer deposits.
Changes, outlook, and risks
- Customer deposits rose to $4.35 million from $1.07 million at June 30, 2012. Management said the deposits related to large orders received in the first fiscal quarter. Only a small portion had shipped by the end of the second quarter; most were scheduled for shipment in the second half of fiscal 2013.
- On November 9, 2012, the board declared a $0.60-per-share special cash dividend, totaling $4.22 million, paid December 12. This was the main reason cash fell despite strong operating cash generation.
- Management believed existing cash and expected operating cash flow would fund operations and anticipated capital expenditures for at least the next 12 months. No specific revenue or earnings guidance was provided.
- Risks identified include economic and industry conditions, competition and margin pressure, inventory availability and cost, foreign-currency movements, regulation, execution of business plans, and access to capital. Export customers pay in U.S. dollars; no foreign-exchange contracts were outstanding. Management reported effective disclosure controls and no material changes in internal control over financial reporting.
- The company disclosed a related-party warehouse and office lease with a trust whose trustees include a company director and principal shareholder; the lease runs through October 31, 2014.
Important facts for investors to verify
- Whether the large order backlog shipped as planned in the second half of fiscal 2013, and whether those orders delivered acceptable margins.
- How much of operating cash flow depended on customer deposits and whether deposits convert into recognized sales and cash collection on schedule.
- The sustainability of margins given the higher cost-of-sales ratio and mix shift away from higher-margin spare parts.
- The filing’s cash-flow statement reports a $752,441 decrease in cash, while MD&A states $752,411; verify the discrepancy against the filed financial statements.
- How the special dividend and facility restrictions affect future liquidity and distributions; the filing reports no revolver borrowings at period-end.