EnviroStar, Inc. — FY2015 Form 10-K Summary
Reporting period: Fiscal year ended June 30, 2015, compared with fiscal 2014. The request metadata says “EVI Industries” and “2014 Q4,” but the supplied filing is EnviroStar, Inc.’s annual report for FY2015.
Business context
EnviroStar distributes commercial and industrial laundry, drycleaning and boiler equipment, parts and accessories, and provides maintenance and system-design services through Steiner-Atlantic. Its DRYCLEAN USA subsidiary franchises and licenses drycleaning stores. Equipment, parts and services generated approximately 98% of revenue; franchise and licensing operations contributed less than 2%. Customers are mainly in the United States, the Caribbean and Latin America.
Financial performance and position
| Metric | FY2015 | FY2014 |
|---|---|---|
| Total revenue | $30.75 million | $33.83 million |
| Operating income | $2.68 million | $2.60 million |
| Net earnings | $1.67 million | $1.62 million |
| Basic and diluted EPS | $0.24 | $0.23 |
| Operating cash flow | ($3.85 million) | $6.16 million |
| Cash and cash equivalents at year-end | $3.91 million | $9.22 million |
- Revenue fell 9.1%; net sales declined 8.9% to $30.18 million. Net earnings rose 3.2%.
- Cost of sales declined to 75.6% of net sales from 78.6%, implying gross margins of approximately 24.4% versus 21.4%. Management attributed the improvement mainly to product mix and smaller, higher-margin orders.
- SG&A rose 1.4% to $5.27 million and increased to 17.1% of revenue from 15.4%, partly due to lower revenue and commissions paid to another distributor.
- Net cash fell $5.32 million. Operating cash use reflected lower accounts payable and accrued expenses, reduced customer deposits as backlog shipped, and increased receivables after heavy June shipments.
- Current assets were $9.04 million and current liabilities $4.53 million at June 30, 2015. Total liabilities were $4.53 million; the filing reports no borrowings under its credit line at either year-end or during either fiscal year.
- A $2.25 million revolving facility was available, secured by substantially all company and subsidiary assets and guaranteed by subsidiaries. It matured November 1, 2015; the company reported compliance with covenants.
Material changes and unusual items
- A customer postponed a substantial equipment order because of construction delays. The company expected shipment in the first half of FY2016.
- Foreign sales declined 9.5% to approximately $8.52 million. Export sales are paid in U.S. dollars, though foreign economic conditions and the dollar’s relative strength may affect demand and competitiveness.
- Franchise and licensing-related revenue declined, principally because FY2014 included payment for the sale of the Mexico master franchise.
- Cash was also reduced by a $0.20-per-share special dividend totaling $1.41 million, compared with $2.81 million of dividends in FY2014.
- Two suppliers each represented approximately 27% of purchases in FY2015, up from respective shares of approximately 35% and 15% in FY2014. The company cautions that losing important vendor relationships could harm its business.
Outlook, risks and other disclosures
- No numerical earnings or revenue guidance was provided. Management expected the delayed customer order to ship in the first half of FY2016 and stated that cash, operating cash flow and available credit were expected to fund operations and anticipated capital expenditures for at least 12 months.
- Key risks discussed include competition and pricing pressure, supplier availability and concentration, economic conditions in export markets, currency-related competitiveness, environmental regulation, and access to capital. The filing’s Item 1A says “Not applicable,” despite these risks being described elsewhere in the report.
- At June 30, 2015, bank deposits exceeded FDIC insurance limits by approximately $3.4 million.
- The company leases its principal facilities from an entity owned by an executive/director and his brother; FY2015 rent under that lease was approximately $130,600. It also paid approximately $83,500 for legal services to a firm where a director is senior counsel.
- No material pending legal proceedings were reported. Management concluded disclosure controls and internal control over financial reporting were effective; the independent auditor gave an unqualified opinion on the financial statements but did not audit internal controls.
Important facts for investors to verify
- Whether the delayed substantial order shipped as expected and converted to cash in FY2016.
- Whether the $2.25 million credit facility was renewed or replaced before its November 1, 2015 maturity.
- Whether working capital and operating cash flow recovered after FY2015’s cash use, including the trends in receivables, customer deposits and payables.
- Supplier concentration, continuity of key manufacturer relationships, and the impact of any changes in purchasing terms.
- The terms and governance oversight of related-party facilities leasing and legal-service arrangements.
- Liquidity exposure from uninsured bank deposits and compliance with credit-facility covenants and dividend restrictions.