EVI Industries, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended December 31, 2020. EVI distributes, leases, installs, and services commercial laundry equipment and related products. Amounts below are in U.S. dollars; financial statement amounts are in thousands unless noted.
Financial performance
| Metric | Three months ended Dec. 31, 2020 | Three months ended Dec. 31, 2019 | Six months ended Dec. 31, 2020 | Six months ended Dec. 31, 2019 |
|---|---|---|---|---|
| Revenue | $57,165 | $66,657 | $115,043 | $122,338 |
| Gross profit | $14,380 | $14,075 | $27,713 | $27,909 |
| Gross margin | 25.2% | 21.1% | 24.1% | 22.8% |
| Operating income | $512 | $805 | $1,408 | $2,086 |
| Net income | $461 | $263 | $979 | $843 |
| Diluted earnings per share | $0.03 | $0.02 | $0.07 | $0.06 |
- Quarterly revenue fell 14%; six-month revenue fell 6%. Management attributed the declines mainly to COVID-related delays in orders, deliveries, installations, and service work.
- Gross margin improved 4.1 percentage points for the quarter and 1.3 points for the six months, reflecting more favorable product and customer mix. Excluding lower-margin federal government projects, management reported margins of 25.8% for the quarter and 26.2% for the six months.
- SG&A rose 5% in the quarter and 2% for the six months, mainly from acquired businesses, partly offset by lower commissions and cost reductions. SG&A equaled 24.3% of quarterly revenue versus 19.9% a year earlier.
- Net income increased despite lower revenue, supported by reduced interest expense and a $379 tax benefit from a CARES Act net operating loss carryback. The quarterly effective tax rate was negative 27.3%; six-month rate was 10.1%.
Cash, liquidity, and debt
- Cash was $5.0 million at December 31, 2020, down from $9.8 million at June 30, 2020. Six-month operating cash flow was $7.4 million, compared with $9.6 million a year earlier; capital expenditures were $1.4 million.
- Investing activities used $5.9 million, including $4.5 million of net cash paid for the YES acquisition. Financing activities used $6.3 million, including $6.0 million of net debt repayments.
- Working capital decreased to $15.7 million from $22.2 million at June 30, 2020. Current assets were $67.0 million and current liabilities were $51.3 million.
- Total debt, net of unamortized discount and financing costs, was $22.7 million, including $15.0 million drawn on the revolving credit facility and $7.8 million of PPP loans. The company reported $24.5 million available under its credit facility and compliance with its covenants. The facility matures November 2, 2023.
- Management said existing cash, expected operating cash flow, and available credit should fund operations and anticipated capital expenditures for at least the next 12 months. This is subject to uncertainty, including pandemic-related effects.
Material changes, outlook, and risks
- Acquisitions: EVI acquired Yankee Equipment Systems (YES) on November 3, 2020, for $5.3 million cash and 278,385 shares, and assumed YES’s approximately $916,000 PPP loan. YES contributed approximately $3.5 million of revenue and $138,000 of net income during the six-month period. Purchase price allocation was preliminary and included $7.1 million of goodwill.
- On January 15, 2021, after quarter-end, EVI acquired substantially all assets and assumed substantially all liabilities of Eastern Laundry Systems; consideration was described as not material to EVI on a consolidated basis.
- COVID-19 continued to disrupt customer demand, employee availability, suppliers, transportation, and project completion, with particular exposure to hospitality customers. Management said the duration and overall financial impact remained highly uncertain and provided no quantitative earnings or revenue guidance.
- PPP loan forgiveness was not assured and required lender and SBA approval. The PPP loans carried 1% interest and were generally due within two years; EVI said it intended to apply for forgiveness.
- Other risks include acquisition integration and financing, potential dilution from acquisition shares, project timing and lower-margin contracts, interest-rate exposure, and credit-facility covenants. A 1% rise in daily rates on December 31 borrowings would increase annual interest expense by approximately $150,000.
- The filing reported no material changes in risk factors or legal proceedings from the prior annual report. It also disclosed related-party property leases and noted that bank deposits exceeded FDIC insurance limits.
Important facts for investors to verify
- Whether revenue and installation activity recover as pandemic restrictions and supply-chain delays ease, and whether improved gross margins persist.
- How much of the reported profit improvement reflects the one-time $379,000 tax benefit versus recurring operating performance.
- Final YES purchase accounting, acquired-business performance, and the integration and financing effects of YES and Eastern Laundry Systems.
- PPP loan forgiveness status, remaining cash and credit availability, and continued compliance with debt covenants.
- Contract asset growth tied to large government projects, including timing of completion, revenue recognition, and customer collections.