EVI Industries, Inc. (EVI) Earnings Call Transcript & Summary

Good afternoon, everyone. Welcome to EVI Industries' earnings call for the third quarter of fiscal year 2020. This is Henry Nahmad, Chairman and CEO of EVI. Before we proceed, our cautionary statement. This earnings call has forward-looking statements as defined by the SEC laws and regulations. Forward-looking statements are subject to a number of risks and uncertainties, including those set forth in our earnings press release filed today and in our SEC filings, including the Risk Factors section of our annual report on Form 10-K for the fiscal year ended June 30, 2019, and our quarterly report on Form 10-Q for the quarter ended March 31, 2020. And accordingly, ultimate results may differ materially from those expressed in or implied by the forward-looking statements. This call also includes a discussion of adjusted EBITDA, which is a non-GAAP financial measure, which the company believes is useful in evaluating performance. Please refer to our press release and SEC filings for additional information. Once again, good afternoon. The COVID-19 pandemic is having an unprecedented global impact. With health and lives at risk, I hope that you and your families are healthy, that you are exercising the necessary precautions to navigate through this period safely and that conditions improve promptly. I also want to take this opportunity to thank our business leaders and our employees for their dedication throughout these challenging and uncertain times. During this call, we will provide you with an update on our business and the impact of the COVID-19 pandemic on our operations and results. About our financial position, entering the third quarter, EVI maintained a conservatively financed balance sheet. At March 31, 2020, our company had $26 million of net debt, including approximately $4 million of cash and $30 million of borrowings drawn from our own credit facility. This represents a $10 million or a 27% decrease to net debt as compared to June 30, 2019 and a $3 million or a 10% decrease to net debt as compared to December 31, 2019. The strengthening of our balance sheet was driven by a record level of operating cash flow of $14.3 million for the 9-month period ended March 31, 2020. Subsequent to the completion of the third quarter, on April 1, given the impact of the COVID-19 pandemic and as a precautionary measure to preserve financial flexibility, we increased borrowings under our credit facility. Since the onset of the COVID-19 pandemic, our businesses have remained operational as relevant authorities have generally designated the nature of our industry to be essential. And early on, our business leaders acted quickly and decisively to make adjustments in response to the COVID-19 pandemic and changing circumstances. The speed with which our leaders acted to reduce cost and preserve capital is a function of our decentralized operating model, which maintains decision-making authority in the hands of the individual business leaders who are ultimately responsible for managing relations with our employees, customers and suppliers on a daily basis. Given the impact of the COVID-19 pandemic that nearly 75% of our operating expenses are devoted to payroll and that our employees are an integral part of maintaining and improving public health and safety, we accelerated certain of our planned modernization and optimization initiatives, including the elimination and consolidation of facilities, the implementation of certain advanced technology systems, the establishment of certain alternative financing tools and other initiatives meant to increase growth and profitability. While the duration and severity of the COVID-19 pandemic and its impact on our business and results is uncertain, as we navigate through these times, we are bolstered by the depth of experience across our organization, our entrepreneurial culture and the extraordinary dedication and perseverance of our valued employees. Our operating results, which are more thoroughly described in our press release and our Form 10-Q for the quarter ended March 31, 2020, continue to reflect the investments we are making across our company in the pursuit of a modern, efficient and more profitable business. They also reflect the investments required in pursuit of long-term growth, including various acquisition and strategic opportunities combined with the unforeseen impact of the COVID-19 pandemic and related stay-at-home orders, which have been and continue to be a disruption to the economy and our business and results. The 11% increase in revenue for the 9-month period ended March 31, 2020, was due to the results of operations of acquired businesses and increases in revenues resulting from the sales growth strategies certain of our businesses executed to increase market share in existing geographies. The increase for the 9-month period was partially offset by a deceleration of revenue beginning in March 2020, resulting from the onset of the COVID-19 pandemic. This includes the delayed completion of a number of open sales contracts as a result of shelter-in-place orders and other restrictions. Ultimately, the deceleration of revenues combined with our continued investment in the pursuit of modernization and optimization and increases in noncash expenses contributed to revenues and adjusted EBITDA being flat for the 3-month period ended March 31, 2020, as compared to the same period of the prior year. In continuation of our acquisition strategy, during the third quarter and just prior to the onset of the COVID-19 pandemic, we completed the acquisition of the Sevierville, Tennessee-based Laundry Systems of Tennessee and affiliates and the Richmond, Virginia-based Commercial Laundry Equipment. These newly acquired businesses are distributors of on-premise and vended laundry products and providers of related installation and maintenance services. And their addition expands our sales and service presence in the Southeast and mid-Atlantic United States. These businesses are led by great leaders who are now part of our culture and family and they, too, are responding to current events in their respective markets. Finally, it is important to appreciate that our company operates in a historically resilient industry and that our growth strategy and operating model are focused on long-term growth and risk mitigation. We provide commercial laundry products and services to industrial, on-premise, vended and route laundry customers. Our customers operate across a wide range of industries. And given the nature of their operations, our customers need the products and services we provide in order to effectively and profitably deliver clean linens, uniforms, blankets, textiles and the like to the end users they serve especially given the heightened awareness around public health and safety. We operate from 24 distribution locations in 14 states and export to Latin America and the Caribbean from our Florida operations. Across and beyond this geography, we employ approximately 125 sales professionals that partner with our customers by providing planning, designing and consulting services that generally result in long-term customer relationships. And today, we complete tens of thousands of transactions per quarter to thousands of customers. These transactions are sourced by our vast sales organization and are supported and fulfilled by our internal installation and service network, including approximately 200 technicians. Across our business, we offer a wide variety of commercial laundry equipment and an assortment of related parts and accessories, along with specialized water heating, water treatment and material handling products sourced from many suppliers. We source commercial laundry equipment from 12 domestic and international OEMs and sell over 25 brand names with a wide variety of price points, features and capabilities to meet the needs of varying commercial laundry end-user customers. Given our position in the industry value chain, specifically the fact that we own the end customer relationship, we have visibility to and are pursuing revenues and profits from complementary products and services our customers purchase for their laundry operations from other businesses, most of which represent long-term growth opportunities for our company and have been accelerated as a result of the COVID-19 pandemic. The combination of geographic and end-user customer diversity and a broad product range mitigates the risk that a disruption to any one geography, any one end-user customer and any one product category can materially impact the entire company. Despite the short-term turbulence caused by the COVID-19 pandemic, we remain steadfast in our long-term approach to building a significant enterprise. And we believe that favorable industry dynamics, combined with our financial principles, decentralized operating model, entrepreneurial culture and credible reputation are the foundation of our long-term growth and investment strategy. This concludes our comments related to the third quarter of fiscal year 2020. In closing, I want to thank our valued employees, our loyal suppliers and customers, our shareholders and the investor community for your interest and participation in EVI. Until next time, be well.