EVI Industries, Inc. — Form 10-Q Summary
Period clarification: The request identifies “2019 Q3,” but the supplied filing is for the quarter ended March 31, 2020—EVI’s fiscal 2020 third quarter. Financial amounts below are in millions of dollars unless stated otherwise; the statements are unaudited.
Business context and reporting period
EVI distributes and leases commercial laundry equipment and provides related planning, installation, maintenance, and repair services. It pursues a buy-and-build acquisition strategy. The filing reports the three and nine months ended March 31, 2020, compared with the same periods in 2019.
During the nine-month period, EVI completed three acquisitions: Professional Laundry Systems, Laundry Systems of Tennessee/Premier Laundry Solutions, and Commercial Laundry Equipment Company. Consideration included approximately $1.5 million in cash net of cash acquired, $0.129 million of assumed debt, and 132,726 EVI shares. Preliminary purchase accounting recorded approximately $2.0 million of goodwill and $1.09 million of identified intangible assets.
Key financial metrics
| Metric | Three months ended March 31 | Nine months ended March 31 |
|---|---|---|
| Revenue | 2020: $59.041; 2019: $59.290 | 2020: $181.379; 2019: $163.436 |
| Gross profit | 2020: $13.830; 2019: $13.423 | 2020: $41.739; 2019: $36.821 |
| Gross margin | 2020: 23.4%; 2019: 22.6% | 2020: 23.0%; 2019: 22.5% |
| SG&A | 2020: $13.479; 2019: $12.316 | 2020: $39.302; 2019: $32.180 |
| Operating income | 2020: $0.351; 2019: $1.107 | 2020: $2.437; 2019: $4.641 |
| Net income (loss) | 2020: $(0.012); 2019: $0.466 | 2020: $0.831; 2019: $2.527 |
| Diluted EPS | 2020: $(0.00); 2019: $0.04 | 2020: $0.06; 2019: $0.20 |
Net interest expense was $0.343 million for the quarter and $1.198 million for the nine months. The nine-month effective tax rate was 32.9%; the quarterly rate was 250.0%, affected by the very small pretax income.
At March 31, 2020, cash was $3.917 million, current assets $61.744 million, current liabilities $34.805 million, and working capital $26.9 million. Long-term debt, net, was $29.804 million; operating lease liabilities totaled $5.804 million. Stockholders’ equity was $87.428 million.
For the nine months, operating cash flow was $14.327 million, investing cash flow was $(4.119) million, and financing cash flow was $(11.329) million. Cash declined $1.121 million to $3.917 million. Capital expenditures were $2.785 million and cash acquisition spending was $1.334 million. EVI repaid $18.930 million of debt and borrowed $8.000 million during the period.
Material changes versus the prior comparable period
- Nine-month revenue rose 11%, primarily due to acquisitions and sales initiatives; quarterly revenue declined less than 1%, with COVID-19-related disruption emerging near quarter-end.
- Gross margin increased year over year, attributed mainly to product and customer mix. Management said longer-term federal contracts reduced reported margins; excluding those contracts, it stated margins would have declined year over year in both periods.
- SG&A rose 22% for the nine months and 9% for the quarter, reflecting acquired operations, growth investments, personnel, technology, amortization, depreciation, and share-based compensation. SG&A rose to 21.7% of nine-month revenue from 19.7%.
- Despite higher revenue and gross profit for the nine months, operating income and net income fell as expense growth more than offset those gains. Quarterly net income turned to a small loss.
- Operating cash flow improved from $(9.618) million to $14.327 million, chiefly due to working-capital movements, including lower receivables, inventory, and contract assets and higher customer deposits.
- Debt declined from $40.563 million at June 30, 2019 to $29.804 million at March 31, 2020. The balance sheet also reflects adoption of the lease accounting standard, adding right-of-use assets and lease liabilities; management said adoption did not materially affect earnings or cash flows.
Outlook, risks, contingencies, and unusual items
- COVID-19: Management expects the sales decline to continue in the near term and possibly longer, but cannot predict the pandemic’s duration or overall financial impact. Risks include weaker demand, customer payment delays, supply and delivery disruption, operating restrictions, and potential effects on margins and asset values.
- Response and liquidity: EVI reported cost and spending actions, inventory adjustments, supplier credit-term renegotiations, and reduced hiring. It said existing cash, expected operating cash flow, and credit availability should fund operations and anticipated capital expenditures for at least 12 months. This is management’s assessment, not a quantified earnings forecast.
- Subsequent borrowing and PPP applications: EVI borrowed approximately $9.0 million under its credit facility on April 1, 2020, bringing borrowings to approximately $39 million. Subsidiaries applied for approximately $7.3 million of PPP loans but had not received them as of the filing; acceptance, receipt, and forgiveness were uncertain.
- Credit facility: The revolving facility has a $100 million commitment, an accordion option up to $140 million, and matures November 2, 2023. EVI reported $10.0 million available at March 31 and stated it believed it was covenant-compliant. Borrowings are secured by substantially all company assets and are subject to financial and other covenants.
- Other exposures: Performance and payment bonds outstanding totaled $8.0 million, with no estimated costs to complete the related projects. The filing describes ordinary-course legal proceedings but reports no material change from the prior annual report. Goodwill and intangible-asset impairment testing prompted by COVID-19 identified no impairment as of March 31.
- Related parties: Certain subsidiaries lease facilities from affiliates of company executives or directors. The filing reports payments under these arrangements; investors may wish to review the terms and amounts in the notes.
Important facts for investors to verify
- Confirm the intended reporting period: the supplied filing is fiscal 2020 Q3, not 2019 Q3.
- Track revenue, orders, contract completion, gross margins, and customer collections as COVID-19 effects evolve.
- Check subsequent credit-facility borrowings, remaining availability, covenant compliance, and debt-service capacity.
- Verify whether the applied-for PPP loans were received or accepted and whether any forgiveness was obtained.
- Assess integration and performance of the three acquired businesses, along with final purchase-price allocations and potential impairment risk.
- Monitor operating cash generation and whether cost reductions offset weaker sales without impairing service capacity or growth.