EnviroStar, Inc. — Form 10-Q Summary
Reporting period: Three months ended September 30, 2013, the first quarter of fiscal 2014. The request identifies EVI Industries, Inc., but the filing names EnviroStar, Inc.; verify the issuer and filing match.
Financial performance
| Metric | Q1 FY2014 | Q1 FY2013 | Change |
|---|---|---|---|
| Total revenue | $8.49 million | $6.51 million | +30.4% |
| Operating income | $683,205 | $242,424 | +181.8% |
| Net earnings | $425,771 | $151,839 | +180.4% |
| Basic and diluted EPS | $0.06 | $0.02 | Up $0.04 |
| Operating cash flow | $2.42 million | $3.89 million | Down $1.47 million |
- Net sales increased 28.9% to $8.33 million. Management attributed the increase to equipment sales growth of 40.7%, spare-parts growth of 14.6%, and foreign-sales growth of 70.4%.
- Development, franchise, license, commission and other revenue rose to $166,024 from $54,463, primarily reflecting supplier sales commissions.
- Cost of sales declined to 76.8% of net sales from 79.2%, which management attributed to improved product mix. SG&A rose 22.2% to $1.41 million, mainly from higher commissions, but declined to 16.6% of revenue from 17.7%.
- Income tax provision was $258,635; the effective rate was 37.8%, versus 38.5%.
Liquidity, cash flow and debt
- Cash and cash equivalents were $8.36 million at September 30, 2013, up from $5.94 million at June 30. Current assets were $12.70 million and current liabilities $6.84 million; working capital was approximately $5.86 million.
- Operating activities provided $2.42 million, compared with $3.89 million in the prior-year quarter. Cash generation included higher customer deposits and accounts payable/accruals, plus collections of receivables; inventory growth and payment of accrued employee expenses partly offset these sources.
- Investing activities used $4,732, principally for capital expenditures. There were no financing activities in either comparison period.
- No borrowings were outstanding on the $2.25 million revolving credit facility. The facility was extended effective November 1, 2013, through November 1, 2014; it is secured by substantially all company assets and subject to financial and other covenants. The company reported covenant compliance at September 30.
- Management said cash, cash equivalents and expected operating cash flow should fund operations and anticipated capital expenditures for at least the next 12 months.
Material changes, outlook and risks
- The commercial and industrial laundry and dry-cleaning equipment and boilers segment generated $8.42 million of revenue and $752,718 of operating income, compared with $6.46 million and $313,642. License and franchise operations generated $72,435 of revenue and $36,796 of operating income.
- On November 8, 2013, the board declared a special dividend of $0.40 per share, payable December 12 to shareholders of record November 27.
- The filing gives no specific revenue or earnings guidance. Management cited new orders and increased inventory to support them; interim results are not necessarily indicative of full-year results.
- Risks identified include economic and industry conditions, competition and product pricing/margins, inventory availability and cost, foreign-exchange movements, regulation, execution of business plans, and access to capital. Export customers pay in U.S. dollars; no foreign-exchange contracts were outstanding at quarter-end.
- The company leases warehouse and office space from a trust associated with its chairman, president and principal shareholder. Rent expense was approximately $31,100 for the quarter; the lease runs through October 31, 2014. Management believes its terms are comparable to market terms.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. Federal and state tax examinations could cover tax years 2010–2013.
Important facts for investors to verify
- Confirm the issuer identity: the supplied request says EVI Industries, Inc., while this 10-Q is for EnviroStar, Inc.
- Assess whether earnings growth and improved cost-of-sales percentage are sustainable, including the contribution of product mix and higher sales commissions.
- Evaluate the quality and repeatability of operating cash flow, given its dependence on customer deposits and increased payables, and the decline from the prior-year quarter.
- Review the special dividend’s cash impact and the company’s liquidity needs alongside the secured credit facility and its covenants.
- Monitor order fulfillment, inventory levels, foreign-market exposure, and the related-party lease.