EVI Industries, Inc. — Form 10-Q Summary
Business context and period. EVI distributes, leases, installs, maintains, and repairs commercial laundry equipment and related products. This unaudited report covers the fiscal quarter and six months ended December 31, 2022; comparisons are with the periods ended December 31, 2021. Amounts are in U.S. dollars.
Financial performance
| Metric | Three months ended Dec. 31, 2022 | Three months ended Dec. 31, 2021 | Six months ended Dec. 31, 2022 | Six months ended Dec. 31, 2021 |
|---|---|---|---|---|
| Revenue | $82.6 million | $60.7 million | $166.1 million | $124.4 million |
| Gross profit / margin | $24.8 million / 30.0% | $16.8 million / 27.7% | $49.3 million / 29.7% | $34.4 million / 27.7% |
| Operating income | $3.6 million | $1.0 million | $8.0 million | $3.6 million |
| Net income | $2.2 million | $0.5 million | $5.1 million | $2.5 million |
| Diluted EPS | $0.15 | $0.04 | $0.35 | $0.18 |
| Net interest expense | $0.6 million | $0.2 million | $1.0 million | $0.3 million |
Financial position, cash flow, and liquidity
- At December 31, 2022, cash was $4.4 million, working capital was $45.6 million, and total assets were $246.7 million. Working capital increased from $30.8 million at June 30, 2022.
- Six-month operating cash flow was negative $4.9 million, versus negative $1.0 million a year earlier. Investing cash flow was negative $3.7 million, including $1.9 million for acquisitions and $1.8 million of capital expenditures. Financing provided $9.0 million, including $32.0 million of debt proceeds and $23.0 million of repayments.
- Long-term debt, net, was $36.9 million, compared with $27.8 million at June 30, 2022. Revolver borrowings were $37.0 million, with $38.8 million available. The facility matures May 6, 2027; borrowings have variable rates. The company reported a 5.37% weighted-average rate at December 31 and compliance with its covenants.
- Management said existing cash, expected operating cash, and available credit should fund operations and anticipated capital expenditures for at least the next 12 months and thereafter.
Changes, outlook, and risks
- Revenue increased 36% for the quarter and 33% for the six-month period. Management attributed growth to recovery-related project completions and improved conditions, pricing, and acquired businesses. Gross-margin expansion reflected more favorable product and customer mix and solution selling.
- SG&A rose 34% in both comparative periods, reflecting acquired-business costs, higher sales commissions and payroll, and increased depreciation, amortization, and stock compensation. Higher average debt and interest rates drove increased interest expense.
- EVI acquired Aldrich Clean-Tech Equipment and K&B Laundry Service on September 1, 2022, and substantially all assets of Wholesale Commercial Laundry Equipment on November 1, 2022. The filing does not provide a quantified contribution from these acquisitions to revenue or earnings.
- Inventory increased to $60.1 million from $49.4 million, partly from products held for customer projects delayed by facility readiness or partial manufacturer deliveries, as well as higher product costs. Contract assets rose to $8.8 million from $1.5 million, largely reflecting progress on complex federal-government laundry projects. These working-capital needs contributed to negative operating cash flow.
- No formal financial guidance is provided. Management notes risks from supply-chain disruption, inflation and pricing recovery, labor availability and costs, interest rates and debt, acquisition integration and financing, competition, and potential customer installation delays. It said inflation had not significantly affected reported results, but future effects and the ability to offset costs through pricing remain uncertain.
- The company disclosed related-party facility leases, including leases with affiliates of executives and former subsidiary principals. It reported no outstanding performance or payment bonds and no material changes in legal proceedings or risk factors from its prior annual report.
Important facts for investors to verify
- Whether contract assets and project-related inventory convert into timely deliveries, recognized revenue, and cash collections.
- How much recent growth and margin improvement is sustainable organically versus attributable to acquisitions, pricing, and delayed-project completions.
- Acquisition integration progress, returns on invested capital, and any additional debt or share issuance needed to fund the buy-and-build strategy.
- Exposure to floating interest rates and covenant headroom; a hypothetical 1% rate increase was estimated to add approximately $370,000 to annual interest expense at the reported debt balance.
- Potential dilution and future expense from equity awards; six-month stock compensation was $1.5 million, and substantial unrecognized compensation expense remained.