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

Good morning, and welcome to the EVI Industries' Earnings Call for the Second Quarter of Fiscal Year 2021. My name is Henry Nahmad, Chairman and CEO of EVI. I hope all of you and your families are safe and healthy. 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. We will start today's call with a brief reminder that we are a long-term growth-focused company. We are aggressive in our pursuit of growth, yet conservative in our plans to finance it. We maintain a highly entrepreneurial culture and a flexible operating model, and we are deeply invested in our company. We uphold these business principles for a variety of reasons, one of which is to ensure that we maintain the necessary flexibility to quickly adapt to changing circumstances and to capitalize on growth opportunities when others may not be able to. Our company entered the fiscal second quarter with a conservatively financed balance sheet, including less than $15 million of net debt and approximately $85 million of liquidity available for the execution of our buy-and-build growth strategy. Given our financial position and our unrelenting pursuit of growth, we successfully acquired Yankee Equipment Systems, a leading commercial laundry distributor with over $31 million in revenue derived from the New England region of the United States. And shortly after the completion of the fiscal second quarter, we followed up by adding Eastern Laundry Systems, another New England-based commercial laundry distributor that will amplify our efforts to build market share in the region. While we continued to execute the buy component of our growth strategy, our business generated over $3 million of operating cash flows during the fiscal second quarter and over $7 million of operating cash flows during the 6-month period. Despite the ongoing challenges caused by the COVID-19 pandemic, we completed the fiscal second quarter with a healthy balance sheet, including net debt of less than $18 million or nearly flat as compared to the fiscal year ended June 30, 2020 and with ample liquidity to continue the thoughtful execution of our long-term growth and value-creation strategy. Moving to our operations. Our results reflect the continued impact from the COVID-19 pandemic. The extension of local, state and/or federal orders related to COVID-19 continues to restrict the normal course of business including limiting the ability of the company's employees to timely complete sales, installations and services. More specifically, in the fiscal second quarter, revenue derived from industrial laundry products was adversely impacted due to the delays in the delivery and installation of complex industrial laundries under longer-term contracts ongoing in states where business activity is disproportionately limited. Revenue from on-premise laundry products continue to vary by geography and by the speed of recovery of specific end-user customers. Revenue from the sale of vended products was strong across nearly all of the geographies we serve. And revenue for multifamily laundry customers were consistent with contractual obligations. As a result of these circumstances, revenue for the fiscal second quarter and the 6-month period declined 14% and 6%, respectively, as compared to all-time highs during the same period of the prior fiscal year. However, revenue in sequential quarters was flat, and we are encouraged that our business units are experiencing increased sales activity, we believe, is a function of pent-up demand after several months of restricted activity. As we have shared, one of our strategic objectives include that our sales professionals have the opportunity to design the most appropriate, effective and efficient laundry solutions from a broader product range and that we expand our ability to complete installations and maintenance services for our customers. We believe that accomplishing these objectives will create a significant advantage over any competitor. And as a result, we will enter into long-term customer relationships from which we, too, will derive a greater level of profitability. Although we are early in accomplishing these objectives, we are beginning to experience the benefits of our strategy, evidenced by the growth in gross margin during the fiscal second quarter, and the 6-month period increase from 21% to 25% and from 23% to 24%, respectively. Further, gross margin net of longer-term contracts for the fiscal second quarter and the 6-month period increased from 23% to 26% and from 24% to 26%, respectively. This higher gross margin in each period also reflects favorable shifts in customer and product mix and the benefits of our strategy to build sales and service density in each geography we serve. Looking forward, we intend to further expand our capabilities by acquiring businesses that specialize in related product and service categories by adding more products to our current portfolio and by investing in more sales and service professionals to support our growth objectives. While we execute on our growth strategy, we are simultaneously working towards optimizing our business under a thoughtful and measured approach aimed to mitigate certain risks and limit disruption to our operations such that we may ultimately accomplish a much greater level of operating leverage. To that end, we continue taking the steps necessary to consolidate our company from 17 businesses into 5 operating subsidiaries with 12 branches. We eliminated 3 facilities and moved 1 into a more efficient space. We implemented an advanced technology system in 1 of our 5 operating systems. We accelerated the deployment of certain field technology aimed to create efficiencies and improve customer service. We started to consolidate operating functions into certain of our operating subsidiaries, and we hired leaders with the experience necessary to fulfill these and other future objectives. Given these initiatives are ongoing and at different points across all 5 of our operating subsidiaries, we will incrementally experience the benefits of our optimized operations in the months ahead. In summary, the impact of COVID-19 on revenue, combined with the ongoing investments and activities underway in the pursuit of an optimized operation, offset our record fiscal second quarter gross profit and improved gross margins, resulting in adjusted EBITDA that for the fiscal second quarter and the 6-month period increased marginally over the same periods of the prior year. In summary our business principles continue to prove valuable, evidenced by our ability to meaningfully grow and invest in our operation while managing through a challenging business environment. Although we expect the circumstances caused by COVID-19 to run fairly deeply into calendar 2021, we believe we have the right leaders to effectively manage through the current business environment that the initiatives underway will result in a more profitable operation, and that we are in a strong financial position to execute on attractive growth opportunities ahead. This concludes our comments related to the fiscal second quarter ended December 31, 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.