EnviroStar, Inc. — Form 10-Q Summary
Period: Three months ended September 30, 2014, the first quarter of fiscal 2015; comparisons are with the three months ended September 30, 2013. The filing identifies the registrant as EnviroStar, Inc. The request metadata names EVI Industries, Inc.
Financial performance
| Metric | Q1 FY2015 | Q1 FY2014 | Change |
|---|---|---|---|
| Total revenue | $9.084 million | $8.493 million | +7.0% |
| Operating income | $743,000 | $683,000 | +8.8% |
| Net earnings | $464,000 | $426,000 | +9.0% |
| Basic and diluted EPS | $0.07 | $0.06 | Increased |
| Operating cash flow | $(4.677) million | $2.424 million | Decreased |
- Net sales rose 8.6% to $9.045 million. Equipment sales increased 13.6%, more than offsetting a 6.1% decline in spare-parts sales; foreign sales increased 61.3%.
- Other revenue, including development, franchise and license fees and commissions, fell 76.4% to $39,189, mainly because the prior-year quarter included a supplier direct-sale commission.
- Cost of sales was 77.4% of net sales versus 76.8%, with management attributing the change to product mix. SG&A declined 4.9% to $1.344 million and was 14.8% of total revenue versus 16.6%.
- Approximate operating margin was 8.2% versus 8.0%; net margin was 5.1% versus 5.0%. The effective tax rate was 37.6%, compared with 37.8%.
Financial position and liquidity
- Cash and cash equivalents were $4.500 million at September 30, down $4.724 million from June 30, 2014. Current assets were $9.976 million and current liabilities were $5.311 million.
- Operating cash use was primarily associated with a $1.903 million increase in receivables and decreases in accounts payable and accrued expenses of $2.520 million and customer deposits of $1.389 million. Management linked these movements to large September shipments, including receivables not yet due for payment.
- Inventory decreased by $862,000 during the quarter. Capital expenditures were $47,502. The company reported no financing activities.
- No amounts were drawn on the $2.25 million revolving credit facility at quarter-end or during fiscal 2014 and the first quarter of fiscal 2015. The facility was extended effective November 1, 2014, through November 1, 2015. It is secured by substantially all company assets and subject to financial and other covenants; the company reported covenant compliance.
- The balance sheet reports no long-term debt. Management said existing cash, cash equivalents and expected operating cash flow would be sufficient for operations and anticipated capital expenditures for at least the next 12 months.
Outlook, risks and other matters
- Management expected inventories to increase in the second quarter to support a solid backlog following large September shipments; no quantified forecast or formal earnings guidance was provided.
- Risks identified include economic and industry conditions, competition and pricing/margins, inventory availability and cost, currency movements, regulation, execution of business plans, and access to capital. Export customers pay in U.S. dollars; the company had no foreign-exchange contracts outstanding.
- On November 1, 2014, the company entered a new three-year warehouse and office lease with an entity owned by the Sheila Steiner Revocable Trust, a related party. Annual rent increases of 3% begin that date. Management stated the terms were comparable to those available from an unaffiliated party.
- Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter. Potential federal and state tax examinations cover tax years 2011–2014.
Important facts for investors to verify
- Whether the large September shipments convert to cash on schedule, given the quarter’s sharp receivables increase and negative operating cash flow.
- Whether inventory replenishment and the reported backlog support subsequent sales without materially pressuring cash or margins.
- The terms, collateral and covenant requirements of the extended revolving credit facility, and continued covenant compliance.
- The economics and approval process for the new related-party lease.
- The drivers and sustainability of foreign-sales growth, and exposure to currency, supplier and product-mix risks.