EVI Industries, Inc. — Fiscal 2021 Form 10-K
Reporting period: Fiscal year ended June 30, 2021. This is an annual report, not a standalone 2020 fourth-quarter filing. EVI is a value-added distributor of commercial laundry equipment, parts and boilers, and provides installation, maintenance and technical services. It reports one operating segment.
Financial performance and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $242.0 million | $235.8 million |
| Gross profit / margin | $59.8 million / 24.7% | $55.2 million / 23.4% |
| Operating income / margin | $3.2 million / 1.3% | $2.8 million / 1.2% |
| Net income | $8.4 million | $0.8 million |
| Diluted earnings per share | $0.61 | $0.06 |
| Cash provided by operating activities | $13.7 million | $23.1 million |
Revenue increased 3%; management attributed the increase to acquisitions and growth at some legacy businesses, partly offset by COVID-19-related weakness elsewhere. Gross margin improved mainly from product and customer mix, but lower-margin federal project contracts reduced FY2021 gross margin by 120 basis points. SG&A rose 8% to $56.6 million, or 23.4% of revenue, reflecting acquired-business costs, growth and modernization investments, and higher corporate expenses.
Net income included a $7.0 million gain from forgiveness of the Company’s PPP loans and related accrued interest. The effective tax rate was 15.2%, versus 42.5% in FY2020, with PPP forgiveness and nondeductible compensation affecting the comparison. Interest expense decreased; EVI also recorded a preliminary $314,000 bargain-purchase gain on the Eastern Laundry Systems acquisition.
Cash at year-end was $6.1 million, down from $9.8 million. Operating cash flow fell to $13.7 million, primarily due to working-capital movements. Investing used $7.6 million, including $4.8 million for acquisitions; financing used $9.8 million, including debt repayments. At June 30, 2021, total assets were $177.9 million and total liabilities were $71.1 million. Current assets of $65.2 million compared with current liabilities of $49.5 million. Revolver borrowings were $12.0 million; $30.4 million remained available, and the company reported covenant compliance. The facility matures November 2, 2023. EVI stated that cash, expected operating cash flow and facility availability should fund operations and anticipated capital expenditures for at least 12 months.
Changes, outlook and material risks
- Debt declined from $27.7 million, net of discount and financing costs, at June 30, 2020 to $11.9 million at June 30, 2021. The reported profit increase substantially reflects PPP forgiveness rather than operating income growth.
- Acquisitions included Yankee Equipment Systems in November 2020 and Eastern Laundry Systems in January 2021. FY2021 included approximately $33.0 million of revenue and $1.7 million of net income attributable to businesses acquired during FY2021 and FY2020.
- Management provided no specific quantified revenue or earnings guidance. It expected pandemic-related uncertainty to persist in the near term, citing demand weakness, supplier and delivery constraints, installation delays, and impacts on customer industries including hospitality. The filing also discusses the Delta variant.
- Key risks include acquisition integration and execution, supply-chain disruption, dependence on three manufacturers for 62% of product purchases, competition, floating-rate debt and covenant restrictions, and execution risks from ERP and other technology modernization. SBA retains the right to audit forgiven PPP loans; EVI recorded no liability for a possible adverse audit outcome.
- Goodwill and intangible assets were not impaired in the annual tests. The ELS purchase-price allocation remained preliminary. The independent auditor issued unqualified opinions on the financial statements and internal control; the internal-control assessment excluded YES, which represented 10% of year-end assets and 7% of FY2021 revenue.
Important facts for investors to verify
- Underlying operating performance excluding the $7.0 million PPP forgiveness gain and other acquisition-related effects.
- Whether working-capital changes continue to weigh on operating cash flow, and whether liquidity remains adequate as acquisition and investment spending proceeds.
- Supplier availability, delivery times and the effect of federal project mix on gross margins and customer demand.
- Integration of YES and ELS, final purchase-accounting adjustments, and the SBA’s ability to review PPP forgiveness.
- Progress and costs of ERP modernization, and whether controls at YES are assessed and integrated after its exclusion from the FY2021 control review.
- Governance and ownership concentration: the CEO may be deemed to control approximately 53.3% of voting shares.