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

Good afternoon, and welcome to the EVI Industries earnings call for the third 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 issued 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 issued today for additional information. It has been a year since the onset of the COVID-19 pandemic and despite the challenging circumstances and continued disruptions, EVI achieved record revenue, gross profit and adjusted EBITDA during the quarter ended March 31, 2021. These results reflect, in our view, the attributes of our resilient industry and were driven by geographic expansion through acquisition, strong sales of industrial laundry products, continued growth in vended equipment sales, steady revenues from multifamily laundry contracts and parts and service revenues, partially offset by lower sales of on-premise laundry products as conditions continue to vary by geography and by the speed of recovery of specific end-user customers in this product category. It is important to remember that we are a long-term growth-focused company. Just 4 years ago, our business was comprised of 1 distributor with a single facility in Miami, Florida, $30 million in annual revenue and 32 employees. Today, our operations include 17 businesses operating from a total of 25 distribution locations in 14 states, with significantly higher revenue and over 500 employees. Weeks before the onset of the COVID-19 pandemic, we had just completed the acquisition of 2 commercial laundry distributors. And by that point in time, we had allocated over $120 million of capital to acquisitions since the implementation of our buy and build growth strategy in 2015. The adverse conditions caused by the COVID-19 pandemic have tested our financial principles, operating model and entrepreneurial culture. One year later, while certain adverse conditions persist, our balance sheet is strong with a mere $20 million of net debt and over $100 million of liquidity available for growth. And we sustained the vast majority of our workforce. Consequently, our company is strong, real strong, and we believe it is positioned and poised now more than ever before to accomplish significant growth. Despite the continued albeit diminishing adverse impact of the COVID-19 pandemic, including with respect to certain of the end-user customers we serve and supply chain delays or disruptions, revenue for the third quarter was a record $62 million, reflecting a 6% increase over the same period of the prior fiscal year and an approximately 9% increase compared to the prior fiscal quarter. Gross profit for the fiscal third quarter increased 14% to a record $16 million, with gross margins having increased 180 basis points to 25% and 26% net of longer-term contracts. Finally, adjusted EBITDA increased 43% from $2.1 million to a record $3 million or approximately 5%. As we have shared, one of our strategic objectives include the opportunity for our sales professionals to design what we believe to be the most effective, efficient and technologically advanced laundry solutions from a broader product range and enhancements of our ability to complete installation and maintenance services for our customers. We believe that accomplishing these objectives will create a significant competitive advantage, and as a result, positively impact efforts to enter into long-term customer relationships from which we expect to also derive a greater level of profitability. While we execute our growth strategy, we are simultaneously working towards optimizing our business to an extensive modernization agenda under a thoughtful and measured approach that seeks to limit disruption and mitigate risks to our business. To that end, we successfully implemented our advanced technology system across 1 of our 5 operating subsidiaries, which includes 3 of our 17 businesses. Concurrent with that implementation, we also deployed certain field, sales and service technologies aimed to quote, execute and fulfill sales and services faster, more efficiently and with improved customer service, and we continue to consolidate our operating support functions. These are significant undertakings, and we are pleased thus far with the implementation processes and adoption of these new and advanced technologies. Given the success of these efforts, we commenced the implementation of these systems across 2 more of our 5 operating subsidiaries, representing an additional 5 of our 17 businesses. To support these activities, we hired additional technology professionals, and we retain the services of various firms with the experience necessary to fulfill these and other technology objectives on time lines that we believe will facilitate the achievement of a greater level of operating performance. Considering these initiatives are ongoing and at different points across our operating subsidiaries, we expect to incrementally experience the benefits of our modernized and optimized operations in the months and quarters ahead. Amid these initiatives and the significant costs associated with them, our balance sheet is strong with less than $20 million of net debt and over $100 million of liquidity for growth. During the fiscal third quarter, we successfully acquired Eastern Laundry Systems, a New England-based commercial laundry distributor that is already amplifying our efforts to build market share in the region following our acquisition of Yankee Equipment Systems, New England's premier commercial laundry distributor and service provider in November of 2020. In summary, our business principles continue to prove valuable, evidenced by our ability to simultaneously grow, invest in our operations and maintain financial strength, all while managing through a challenging business environment. Although we expect the circumstances caused by COVID-19 to run further into calendar 2021, our markets are improving, and we believe that the increasing rate of vaccination along with the easing of social and government restrictions will provide further support for economic recovery. We expect that these improvements together with our investments and the work we have and continue to do to modernize and optimize our operations, including cost efficiency measures will help drive strong future performance. Finally, we believe the company is positioned for significant growth over the mid and long term. In a world where there is an increasing focus on environmental sustainability, including water and energy consumption, where hygiene standards are rising, where infection risk awareness has reached new levels and where labor rates are increasing, we believe that our differentiated value proposition as the leader in designing and selling sustainable, efficient, effective and technologically advanced laundry solutions supported by our vast growing installation and service network positions us to capture this accelerating growth trends. Accordingly, we continue to pursue acquisition and joint venture opportunities in the commercial laundry industry and in those product and service categories that meet our financial and strategic criteria. Ultimately, we believe that the combination of our value proposition, which is derived from the investments being made to expand our distribution and service network, including the breadth of our product offerings, increasingly makes us the provider of choice for industrial on-premise, vended and multifamily laundry customers and the most attractive partner for domestic and global companies seeking growth in the North American commercial laundry industry. This concludes our comments related to the fiscal third quarter ended March 31, 2021. 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.