EVI Industries, Inc. — Form 10-Q Summary
Reporting period: Three months ended September 30, 2021 (fiscal first quarter; unaudited), compared with the three months ended September 30, 2020. EVI distributes commercial laundry equipment, parts and accessories, and provides related advisory, installation, maintenance and repair services.
Financial results
| Metric | Quarter ended Sep. 30, 2021 | Quarter ended Sep. 30, 2020 |
|---|---|---|
| Revenue | $63.7 million | $57.9 million |
| Gross profit / margin | $17.6 million / 27.7% | $13.3 million / 23.0% |
| SG&A expense | $15.0 million | $12.4 million |
| Operating income | $2.7 million | $0.9 million |
| Net income | $2.0 million | $0.5 million |
| Diluted earnings per share | $0.15 | $0.04 |
| Cash from (used in) operating activities | $(10.4) million | $4.3 million |
- Revenue increased 10%, which management attributed to recovery from greater pandemic-related disruption in the prior-year quarter, completion of previously delayed projects, and acquired businesses, primarily Yankee Equipment Systems.
- Gross profit rose 32%. Gross margin increased 4.7 percentage points, reflecting higher revenue and more favorable product and customer mix. Changes in longer-term federal government contracts increased margin by 100 basis points.
- SG&A increased approximately 20%, driven by acquired-business costs, higher selling costs, growth and optimization initiatives, and investments in operational technology, including ERP and customer relationship management systems.
- Net interest expense fell to $115,000 from $169,000; the effective tax rate declined to 20.9% from 28.7%. Management attributed the tax-rate decrease mostly to lower nondeductible compensation.
Financial position, liquidity and cash flow
- At September 30, 2021, cash was $2.8 million, total assets were $183.6 million, and total liabilities were $74.3 million. Working capital was $26.8 million, up from $15.8 million at June 30, 2021.
- Operating cash use of $10.4 million reflected working-capital investment, notably increases in receivables and inventory, as well as decreases in accounts payable and contract liabilities. Inventory rose as EVI increased stock levels amid extended supply-chain lead times.
- Investing activities used $848,000, primarily for capital expenditures. Financing activities provided $8.0 million: $15.0 million of borrowings less $7.0 million of repayments. Cash declined by $3.3 million during the quarter.
- Revolving-credit borrowings were $20.0 million gross ($19.9 million net of financing costs), versus $12.0 million gross at June 30, 2021. The $100 million facility, with an option to increase by up to $40 million, matures November 2, 2023. EVI reported $27.5 million available to borrow and compliance with its covenants.
- The weighted-average interest rate on borrowings was 1.33%. EVI estimated that a hypothetical 1 percentage-point increase in daily rates would add approximately $200,000 to annual interest expense.
Outlook, risks and other notable matters
- EVI gave no specific revenue or earnings guidance. Management said existing cash, anticipated operating cash flows and available credit were expected to fund operations and anticipated capital expenditures for at least the next 12 months.
- Management continued to identify COVID-19 and its effects as uncertain, including supply-chain and delivery delays, workforce constraints and vaccine-mandate risks, potential demand weakness (particularly among hospitality customers), and possible effects on customer payments and margins. The company could not predict the pandemic’s overall impact.
- The company’s growth strategy includes acquisitions and organic initiatives. Management cautioned that acquisition execution and integration, added debt, competition, delayed installations, and pricing or mix pressures could affect results.
- Several subsidiaries lease facilities from affiliates of current or former executives and business principals. The Western State Design lease was renewed effective October 2021, with monthly base rent rising from $12,000 to $19,000. Related-party lease payments are detailed in the filing.
- No performance or payment bonds were outstanding at quarter-end. The filing reported no material changes in legal proceedings or risk factors from the prior annual report. Disclosure controls were deemed effective.
Important facts for investors to verify
- Whether operating cash flow improves as receivables and inventory convert to cash, and whether extended supply-chain lead times persist.
- Whether higher gross margins are sustainable as project and customer mix changes, including the contribution from federal government contracts.
- How acquisition-related and modernization spending affects SG&A, operating leverage and future growth.
- Debt levels, remaining borrowing availability, interest-rate exposure and continued compliance with credit-facility covenants.
- The continuing effects of COVID-19, supplier constraints and customer demand on order fulfillment, margins and liquidity.