Filing summary
Entity and period: The supplied filing is EnviroStar, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2016, covering its fiscal third quarter and nine months ended. This does not match the request metadata naming EVI Industries, Inc. and 2015 Q3; verify the intended company and filing before relying on this summary.
Business context and results
EnviroStar sells commercial and industrial laundry and dry-cleaning equipment and boilers, and operates a smaller license and franchise business. The equipment segment generated nearly all revenue. Management attributed the sharp third-quarter sales increase primarily to shipments of large orders from backlog.
| Metric | Three months ended Mar. 31, 2016 | Three months ended Mar. 31, 2015 | Nine months ended Mar. 31, 2016 | Nine months ended Mar. 31, 2015 |
|---|---|---|---|---|
| Total revenue | $12.76 million | $6.99 million | $27.62 million | $23.00 million |
| Operating income | $1.24 million | $0.69 million | $2.10 million | $2.21 million |
| Net earnings | $0.77 million | $0.43 million | $1.31 million | $1.38 million |
| Basic and diluted EPS | $0.11 | $0.06 | $0.19 | $0.20 |
Financial position, cash flow and liquidity
- For the nine-month period, operating cash flow was $455,000, investing cash outflow was $1,563, and financing cash outflow was $1.41 million, primarily the cash dividend. Cash decreased by $954,000 to $2.96 million.
- At March 31, 2016, current assets were $10.38 million and current liabilities were $5.91 million. Total assets were $10.57 million; shareholders’ equity was $4.66 million.
- The company had no borrowings under its $2.25 million revolving credit facility. The facility, secured by substantially all company and subsidiary assets and subject to financial and other covenants, was extended to November 1, 2016. The company reported covenant compliance.
- Management believed cash, operating cash flow and available credit would fund operations and anticipated capital expenditures for at least 12 months. No off-balance-sheet financing arrangements were reported.
Changes and management commentary
- Nine-month revenue increased 20.1%; third-quarter revenue increased 82.6%. Net sales rose 21.7% and 87.3%, respectively. Management linked growth to backlog shipments, including large orders.
- Nine-month net earnings declined 5.1%, while third-quarter earnings increased 79.1%. Management said the prior-year nine-month comparison benefited from large-margin installations and recognized restocking charges.
- Cost of sales rose to 78.0% of sales for the nine months from 75.0%, and to 77.9% from 75.2% for the quarter. Management cited product mix and large orders that historically carry lower margins. SG&A increased in dollars but declined as a percentage of revenue.
- Other development, franchise, license, commission and related revenue declined 71.6% for the nine months, primarily because of lower cancellation, restocking and franchise fees.
- Cash flow reflected working-capital movements: accounts receivable increased $1.56 million and prepaid vendor deposits increased $1.08 million, while accounts payable and accrued expenses increased $2.41 million. Customer deposits declined $1.38 million, principally as backlog orders shipped.
Outlook, risks and notable items
- The filing provides no quantified revenue or earnings guidance. Management’s liquidity statement covers at least the next 12 months; it also noted potential future capital raising, including for acquisitions under its buy-and-build strategy.
- Risks cited include economic and industry conditions, competition and margins, inventory availability and cost, foreign-currency movements, regulation, shipment timing and revenue recognition, and execution and financing risks relating to acquisitions.
- A $0.20-per-share cash dividend, totaling approximately $1.41 million, was paid in December 2015. The company reported a related-party warehouse and office lease with an affiliate of its COO; rent expense was approximately $100,600 for the nine months.
- The company identified potential federal and state tax examinations for tax years 2012–2015 and said it knew of no uncertain tax positions expected to result in a tax liability. Management reported effective disclosure controls and no material change in internal control over financial reporting.
- Management was evaluating the potential effects of new accounting standards for revenue recognition, deferred-tax balance-sheet classification and leases.
Facts investors should verify
- Confirm that this EnviroStar filing for the quarter ended March 31, 2016—not an EVI Industries 2015 Q3 filing—is the intended document.
- Reconcile the prior-year operating cash flow: the cash-flow statement reports $(3.69) million, while the MD&A narrative and table cite approximately $(3.4) million, with the table showing $(3.39) million.
- Assess whether lower gross margins on large orders and the timing of backlog shipments persist, and whether receivables and vendor deposits convert to cash as expected.
- Review credit-facility renewal and covenant terms, dividend and acquisition funding plans, and the related-party lease terms.