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

Good afternoon, and welcome to the EVI Industries Earnings Call for the First Quarter of Fiscal Year 2021. 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 SEC rules 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. 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 we believe is useful in evaluating performance. Please refer to our earnings press release filed today for additional information. Before I proceed, I hope that all of you and your families are safe and healthy. I also want to share my appreciation for the commitment of our various teams across the country as they navigate challenging circumstances to continue delivering high-value laundry solutions to our customers. Amid the continued disruption caused by COVID-19, our results for the first quarter of fiscal 2021 reflected the attributes of our resilient industry, sustained investment in future growth and initiatives towards optimization of our company. Despite the continued adverse impact of the COVID-19 pandemic, including with respect to certain of the end-user customers we serve, revenue for the first quarter of fiscal 2021 was a record $58 million, reflecting a 4% increase over the same period of the prior fiscal year and an approximately 6% increase compared to the prior fiscal quarter. First quarter revenue from industrial laundry products increased consistent with preplanned delivery and installation schedules reflected in our backlog, including the fulfillment of an increased number of longer-term contracts. Revenue from on-premise laundry products continued to vary by geography and by the speed of recovery of specific end-user customers. Meanwhile, revenue from vended and multifamily laundry products was strong and consistent across nearly all of the geographies we serve. Ultimately, we believe that our record revenue performance reflects the essential nature of the products and services we provide, the benefits of our continued investment in a larger and more dynamic sales and service organization and our ability to outperform our competition in terms of resource deployment and customer care despite the challenging environment posed by the COVID-19 pandemic. While we accomplished record revenues, our gross margin for the first fiscal quarter declined from 25% to 23%. However, the decline was due to a higher mix of revenues derived from longer-term contracts reflected in the quarter. Excluding these longer-term contracts, gross margin increased from 25% in the first fiscal quarter of fiscal '20 to 27% in the first fiscal quarter of fiscal '21. And also increased in successive quarters from 25% to 27%. This higher gross margin net -- gross margin attributable to longer-term contracts principally reflects the margin benefit we derived from providing our customers high-value laundry solutions, including new products and enhanced technical service capabilities. Finally, adjusted EBITDA for the first fiscal quarter was approximately $2.5 million or lower by 3% as compared to prior year, and adjusted EBITDA in successive quarters increased 28%. First quarter adjusted EBITDA was a result of lower gross margin attributed to longer-term contracts reflected in the quarter. This performance also reflects the retention of substantially all of our employees, including a 22% increase in sales professional headcount as compared to this time last year. Lastly, our operating results also reflect continued investment in the modernization and optimization of our company. Notwithstanding these factors, SG&A in successive quarters declined approximately $700,000 or 5%, reflecting a small portion of the benefit we intend to realize from our consolidation and optimization initiatives. Moving to our balance sheet. The strength of our balance sheet is critical to sustaining our long-term buy-and-build strategy. For that reason, we continue to uphold a low leverage principle. As such, net debt decreased 18% from approximately $17.9 million at June 30, 2020, to $14.6 million at September 30, 2020. The decrease in net debt is the result of $4.3 million of operating cash flow in the first fiscal quarter, which reflects a $2.5 million or 140% increase in operating cash flow over the same period of the prior fiscal year. And now our buy-and-build strategy. During the first quarter, we continued to pursue and advance acquisition opportunities for our company. Subsequent to the completion of the first quarter, on November 3, we completed the acquisition of Yankee Equipment Systems, a distributor of commercial lobby products and a provider of related technical installation and maintenance services. Yankee Equipment is led by Peter Limoncelli, a young, well-respected and dynamic leader and entrepreneur that together with a team of 56 skilled laundry professionals have consistently increased Yankee's revenue, profitability and market share in the New England region of the United States. We expect to build upon their long-standing success by expanding their product and service offering and by building distribution and service density for future acquisitions. The acquisition of Yankee Equipment represents our first acquisition in the New England region of the United States and our 15th acquisition in the last 48 months. In closing, at this point, our financial position remains strong with ample liquidity, well-managed working capital and resilient cash flows. We continue to believe we are in a strong position to manage for the current economic environment. And as you may recall from our September earnings call, we commenced certain initiatives that we believe will be instrumental in establishing a stronger position for post-COVID success. Ultimately, we believe our long-term growth opportunities remain robust, that we have the right strategies to capture substantial growth and that the benefit of such growth will be amplified by the continued modernization and optimization of our company. This concludes our comments related to the quarter ended September 30, 2020. In closing, I want to thank our valued employees and our loyal suppliers and customers. I would also like to thank our shareholders for your continued support and participation in EVI. Until next time, be well.