EVI Industries, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended June 30, 2020, compared with fiscal 2019. Although the request metadata says “2019 Q4,” this filing reports a full fiscal year, not a standalone quarter. EVI is a value-added distributor of commercial laundry and dry-cleaning equipment, parts, and boilers, with installation, maintenance, and repair services. It reports one operating segment.
Financial performance and position
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $235.8 million | $228.3 million |
| Gross profit / margin | $55.2 million / 23.4% | $52.7 million / 23.1% |
| Operating income / margin | $2.8 million / 1.2% | $7.0 million / 3.1% |
| Net income | $0.8 million | $3.7 million |
| Diluted earnings per share | $0.06 | $0.29 |
| Operating cash flow | $23.1 million | $(8.7) million |
| Cash and cash equivalents at year-end | $9.8 million | $5.0 million |
- Revenue rose 3%, reflecting fiscal 2020 and prior-year acquisitions and some growth in legacy businesses, partly offset by COVID-related declines.
- Net income fell 79%. SG&A increased 15% to $52.4 million and rose from 20.0% to 22.2% of revenue, outweighing the modest gross-margin improvement. The effective tax rate increased to 42.5% from 33.4%.
- Operating cash flow improved by $31.8 million, mainly from working-capital movements, including lower receivables and inventory and higher customer deposits. Capital expenditures were $3.4 million; investing activities used $4.8 million.
- At June 30, 2020, total assets were $160.7 million and total liabilities were $72.9 million. Current assets of $64.7 million exceeded current liabilities of $42.5 million.
- Debt included $21.0 million outstanding on the revolving credit facility and $6.9 million of PPP loans; debt was $27.7 million net of discounts and financing costs. The revolver had $12.8 million available, and the company reported compliance with its covenants. The facility matures November 2, 2023.
Material changes and operating developments
- COVID-19 disruptions began affecting the business late in the fiscal third quarter, delaying or reducing customer orders, installations, and parts fulfillment. Revenue declined in both the third and fourth fiscal quarters versus the comparable prior-year periods.
- EVI completed acquisitions during FY2020, including Professional Laundry Systems, Laundry Systems of Tennessee businesses, and Commercial Laundry Equipment Company. Their consideration included approximately $1.6 million cash, assumed debt, and 132,726 shares. Revenue growth also benefited from a full year of results from certain FY2019 acquisitions.
- Working-capital actions included tightening customer credit, intensifying collections, reducing inventory levels, and renegotiating supplier payment terms. Total assets increased to $160.7 million from $154.5 million; total liabilities were nearly unchanged.
- The company adopted ASC 842 lease accounting on July 1, 2019, recording operating lease assets and liabilities; adoption did not materially affect earnings or cash flows.
- EVI paid no common-stock dividend in FY2020, compared with a $0.13-per-share special dividend in FY2019.
Outlook, risks, and unusual items
- Outlook: Management provided no quantified revenue or earnings guidance. It stated that existing cash, expected operating cash flow, and available credit should fund operations and anticipated capital expenditures for at least the next 12 months. It cautioned that COVID-19’s duration and effects remained highly uncertain.
- PPP loans: Approximately $6.9 million was borrowed at 1% interest, with a two-year term. Forgiveness was not assured and depended on qualifying use, employee requirements, lender approval, and SBA approval. Failure to meet PPP commitments could also trigger a default under the credit agreement.
- Margins and demand: Certain longer-term federal government equipment contracts carried lower margins. Management expects the installed equipment base could create future parts, supplies, and service opportunities, but that benefit is uncertain.
- Concentration and strategy: Three manufacturers represented approximately 63% of product purchases. Acquisition integration, acquired-business performance, supplier relationships, and leverage are material risks.
- Governance and other exposures: CEO and Chairman Henry M. Nahmad could vote approximately 54.7% of outstanding shares. The company also disclosed related-party facility leases and floating-rate debt exposure; a 1% rate increase was estimated to add approximately $210,000 to annual interest expense at year-end balances.
- Unusual items: The independent auditor issued an unqualified opinion on the financial statements and internal controls. Management and the auditor excluded businesses acquired during FY2020 from the internal-control assessment; those businesses represented 4% of year-end assets and 2% of FY2020 revenue, in aggregate.
Most important facts for investors to verify
- Subsequent revenue, orders, installation activity, collections, and margins as COVID-related effects evolved after June 30, 2020.
- Whether PPP loans were forgiven, and the resulting debt, cash, and covenant implications if forgiveness was denied or partial.
- Current revolver availability, covenant headroom, debt service, and exposure to changing benchmark rates.
- Acquisition performance and integration, including whether acquired businesses improve earnings and cash generation.
- Dependence on three major suppliers, related-party lease terms, and the implications of concentrated voting control.