EVI Industries, Inc. — Form 10-Q Summary
Reporting period: Three months ended September 30, 2023, compared with the three months ended September 30, 2022. This is the company’s first fiscal quarter of fiscal 2024; the request metadata’s “2023 Q1” does not match the filing period.
Business context and financial performance
EVI distributes commercial laundry equipment and related parts, and provides planning, installation, maintenance and repair services. Its growth strategy combines organic initiatives with acquisitions.
| Metric | Q1 FY2024 | Prior-year quarter |
|---|---|---|
| Revenue | $88.1 million | $83.4 million |
| Gross profit / margin | $25.7 million / 29.2% | $24.5 million / 29.4% |
| Operating income | $2.6 million | $4.4 million |
| Net income | $1.3 million | $2.8 million |
| Diluted earnings per share | $0.09 | $0.20 |
| Net cash from (used in) operations | $1.5 million | $(6.2) million |
Revenue increased 6%, primarily from price increases and sales by businesses acquired in fiscal 2023 and the reported quarter. Gross profit rose 5%, while gross margin edged down 0.2 percentage points. SG&A increased 15% to $23.1 million; the filing attributes the increase to acquired-business costs and investments, higher selling costs and compensation, rent, technology and depreciation expenses. Net income fell 55%, reflecting higher operating costs, increased interest expense and a higher effective tax rate.
Cash, debt and liquidity
- Cash was $4.2 million at September 30, down from $5.9 million at June 30, 2023.
- Operating activities provided $1.5 million; investing activities used $2.0 million, including $1.0 million of capital expenditures and $1.0 million paid for an acquisition. Financing activities used $1.3 million, with $19.0 million of debt proceeds and $20.0 million of repayments.
- Revolver borrowings were $34.0 million ($33.9 million net of financing costs), versus $35.0 million at June 30. The company reported $55.1 million of borrowing availability and covenant compliance at quarter-end. The facility matures May 6, 2027.
- Working capital was $51.2 million, up from $49.1 million at June 30. Total liabilities were $115.5 million; total assets were $249.5 million.
- Quarter-end debt carried a weighted-average interest rate of 6.19%. The company estimates a 1 percentage-point rate increase would add approximately $340,000 to annual interest expense.
Material changes, outlook and risks
- On September 1, EVI acquired Pennsylvania-based ALCO Washer Center for $987,000 cash and 8,621 shares valued at approximately $229,000. The filing does not separately quantify ALCO’s contribution to quarterly revenue or earnings.
- SG&A included $1.2 million of additional stock-compensation expense associated with accelerated vesting; total stock compensation was $1.9 million, versus $680,000 a year earlier.
- After quarter-end, the board declared a $0.28-per-share special dividend, paid October 26, 2023. Future dividends remain discretionary and may be restricted by debt covenants.
- Management expects cash, operating cash flow and available credit to fund operations and anticipated capital expenditures for at least the next 12 months. No specific earnings or revenue guidance was provided.
- Risks cited include variable-rate debt and interest costs, inflation and labor costs, supply-chain and installation delays, acquisition integration and financing, competition and customer or supplier concentration. Management says inflation did not significantly affect reported-period results, but cautions that cost increases may not be fully offset by pricing.
- Disclosure controls were deemed ineffective at September 30 because a previously identified material weakness in review and approval of manual journal entries at certain subsidiaries remained unremediated. Remediation is ongoing; management reported no identified financial-statement misstatements from the weakness.
- The company adopted the expected-credit-loss accounting standard on July 1, 2023; adoption had no material impact. No performance or payment bonds were outstanding at quarter-end; ordinary-course litigation remains a potential contingency.
Important facts for investors to verify
- How much of revenue growth came from pricing, acquisitions and underlying organic volume, and ALCO’s post-acquisition contribution.
- Whether elevated SG&A and stock-compensation costs persist, and whether gross margins stabilize or recover.
- Debt pricing, borrowing availability, covenant headroom and sensitivity to further rate changes.
- Progress and testing results for remediation of the material weakness in internal controls.
- The impact of the October special dividend on liquidity and any constraints under the credit agreement.