Business context and reporting period
The filing is EnviroStar, Inc.’s unaudited Form 10-Q for the three months ended September 30, 2015, the first quarter of fiscal 2016, compared with the same quarter of fiscal 2015. The filing identifies the registrant as EnviroStar, Inc.; this differs from the “EVI Industries, Inc.” name in the request metadata.
The company operates commercial and industrial laundry, dry-cleaning equipment and boiler businesses, and license and franchise operations.
Financial performance and liquidity
| Metric | Q1 FY2016 | Q1 FY2015 |
|---|---|---|
| Total revenue | $6.237 million | $9.084 million |
| Operating income | $252,000 | $743,000 |
| Net earnings | $157,000 | $464,000 |
| Basic and diluted EPS | $0.02 | $0.07 |
| Operating cash flow | $4.397 million | $(4.677) million |
- Net sales were $6.168 million, down 31.8%; other revenue was $69,000, up 76.2%. Gross profit, calculated as net sales less cost of sales, was approximately $1.365 million versus $2.047 million. Gross margin was 22.1% versus 22.6%.
- Operating margin was 4.0% of total revenue versus 8.2%; net margin was 2.5% versus 5.1%. SG&A was $1.182 million, or 19.0% of revenue, compared with $1.344 million, or 14.8%.
- Cash and cash equivalents were $8.306 million at September 30, up from $3.909 million at June 30, 2015. Current assets were $12.189 million and current liabilities $7.506 million.
- No borrowings were outstanding on the $2.25 million revolving credit facility. It was extended effective November 1, 2015, with maturity extended to November 1, 2016. The company reported compliance with its covenants.
- There were no investing cash flows in the quarter and no financing activities. The filing reports no off-balance-sheet financing arrangements.
Changes versus the prior comparable period
- Revenue declined 31.3% and net earnings declined 66.2%. Management attributed a significant part of the decline to a customer construction delay: a large order scheduled for shipment in the quarter shipped in October 2015 instead.
- Operating cash flow swung from a $4.677 million use to a $4.397 million source. The main driver was a $3.335 million increase in customer deposits, largely related to new orders; collections of receivables and lower inventory also contributed.
- Customer deposits rose to $5.814 million from $2.480 million at June 30. Management said inventory was expected to increase in coming months to support the backlog.
- The equipment and boiler segment generated $6.230 million in revenue and $388,000 in operating income, versus $9.048 million and $857,000. License and franchise operations had $8,000 in revenue and a $16,000 operating loss.
Outlook, risks and other notable items
- Management reported increased new orders and a significant September 30 backlog expected to ship during the remainder of fiscal 2016; it said the delayed order would contribute to second-quarter results. No quantified earnings or revenue guidance was provided.
- Management believed cash, operating cash flow and available credit would be sufficient for operations and anticipated capital expenditures for at least the next 12 months.
- Key risks cited include shipment timing and revenue recognition, backlog conversion and fiscal 2016 results, economic and industry conditions, competition and margins, inventory availability and cost, foreign-currency movements, regulation, and acquisition or strategic-opportunity execution.
- Foreign sales are payable in U.S. dollars; a stronger dollar reduced royalty and franchise fee revenue. The company had no foreign-exchange contracts outstanding.
- Related-party arrangements include a warehouse and office lease from an affiliate of the COO and legal services from a firm where a director is senior counsel. The company reported no material change in internal control over financial reporting and said disclosure controls were effective.
- The company was subject to potential federal and state tax examinations for 2012–2015. Adoption of the new revenue-recognition standard was under evaluation; the filing did not quantify its expected impact.
Important facts for investors to verify
- Whether the delayed October shipment was recognized as expected and whether the reported backlog converted to sales and cash during the rest of fiscal 2016.
- How much of the cash increase reflects customer deposits and the company’s obligations to fulfill related orders, including the expected inventory build.
- Whether margins and earnings recover as shipment volumes normalize, given lower operating income and higher SG&A as a percentage of revenue.
- Continued covenant compliance, credit availability, and any changes to liquidity needs or the revolving facility.
- The issuer identity and reporting period: this filing names EnviroStar, Inc. and covers the quarter ended September 30, 2015.