EVI Industries, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended March 31, 2021 (fiscal Q3 2021); filed May 10, 2021. The request metadata says “2020 Q3,” but the filing covers 2021 Q3.
Business context and financial performance
EVI distributes, leases, installs and services commercial laundry equipment, parts and systems. It also provides planning and technical services and pursues a buy-and-build acquisition strategy.
| Metric | Three months ended March 31, 2021 | Nine months ended March 31, 2021 |
|---|---|---|
| Revenue | $62.4 million, up 6% | $177.5 million, down 2% |
| Gross profit / margin | $15.8 million / 25.2% | $43.5 million / 24.5% |
| Operating income | $0.7 million | $2.1 million |
| Net income | $0.6 million | $1.6 million |
| Diluted earnings per share | $0.04 | $0.12 |
Compared with the prior-year periods, quarterly revenue rose from $59.0 million and net results improved from a $12,000 loss; nine-month revenue declined from $181.4 million while net income increased from $0.8 million. Gross margins improved from 23.4% to 25.2% for the quarter and from 23.0% to 24.5% for nine months, primarily due to product and customer mix. SG&A increased 11% for the quarter and 5% for nine months, partly reflecting acquired businesses.
Cash flow, balance sheet and liquidity
- Nine-month operating cash flow was $5.5 million, versus $14.3 million a year earlier. Investing used $6.8 million, including acquisition spending; financing used $5.6 million. Cash declined $6.9 million to $2.9 million.
- At March 31, 2021, total assets were $184.1 million and total liabilities were $84.6 million. Working capital was $16.4 million, down from $22.2 million at June 30, 2020.
- Reported debt, net of unamortized discount and financing costs, was $22.8 million, including $16.0 million drawn on the revolver and $6.9 million of PPP loans. The company had $25.0 million available under its $100 million revolving facility and was compliant with its covenants.
- Credit-facility borrowings had a 1.36% weighted average interest rate at quarter-end. Management estimated a 1% rate increase would add about $160,000 to annual interest expense.
- Management stated that cash, anticipated operating cash flow and available credit should fund operations and expected capital expenditures for at least the next 12 months.
Material changes, outlook and risks
- Revenue for the nine-month period was affected by COVID-19-related delays and disruptions; quarterly revenue benefited from projects delayed earlier in the pandemic being completed, as well as acquisitions. Management said pandemic effects could continue, with uncertain duration and magnitude.
- EVI acquired Yankee Equipment Systems in November 2020 and Eastern Laundry Systems in January 2021. The acquisitions expanded its Northeast presence. Purchase accounting for YES remained preliminary; ELS generated a preliminary $361,000 bargain-purchase gain in the quarter.
- In April 2021, EVI applied for forgiveness of its approximately $6.9 million PPP loans. Forgiveness was not assured; any unforgiven balance was due by May 2022. A separate approximately $916,000 PPP loan assumed with YES was forgiven, with no gain recorded due to seller indemnification.
- Management gave no specific revenue or earnings guidance. It cited risks from COVID-19, supply and delivery constraints, customer demand and payment capacity, acquisition integration and valuation, competition, margins, interest rates and credit-facility covenants. Large federal-government projects may carry lower near-term margins and can be delayed by customer-site readiness.
- No performance or payment bonds were outstanding at quarter-end. The filing reported no material change in legal proceedings or risk factors from the prior annual report. Management reported effective disclosure controls and no material change in internal control during the quarter.
Important facts for investors to verify
- Confirm the intended period: the supplied filing is for the quarter ended March 31, 2021, not 2020 Q3.
- Track PPP-loan forgiveness decisions and any repayment obligation.
- Review final purchase-price allocations for YES and ELS, including any adjustment to the ELS bargain-purchase gain.
- Monitor cash conversion and contract assets, which rose to $12.3 million from $3.4 million at June 30, 2020, largely in connection with large federal projects.
- Assess whether pandemic-related recovery, acquisition contributions and improved gross margins persist, while watching liquidity, debt costs and covenant compliance.