EVI Industries Inc (EVI) 2021 Q4 法說會逐字稿

Hello, everyone, and welcome to EVI Industries' earnings call for the fourth quarter and fiscal year ended June 30, 2021. This is Henry Nahmad, Chairman and CEO of EVI.

Before we proceed, our cautionary statement. This earnings call contains forward-looking statements as defined by 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 issued 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, 2021, filed today. Actual 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 that the company believes is useful in evaluating performance. Please refer to our press release and SEC filings for additional information regarding adjusted EBITDA, including how we define adjusted EBITDA, and a reconciliation of adjusted EBITDA to net income, the most comparable GAAP financial measure.

Starting with a brief overview, strong fourth-quarter results reflect a steady recovery across certain of our end customer categories, resulting in a significant increase in demand for the commercial laundry products and service solutions we provide. Amid the recovery and increased demand, we are actively managing through supply chain disruptions and labor shortages causing delays in product lead times, pricing volatility, cost increases, and other adverse conditions.

Despite these challenges, we grew our operations, albeit not at the growth rates we have previously experienced under our buy-and-build growth strategy. While we recognize that sustaining and exceeding our historical growth rate and achieving scale is central to achieving the potential of our business in nearly every respect, we believe that we are a stronger company today than at any time in the past. And consequently, we are better positioned to execute on our long-term growth objectives.

Since the commencement of our long-term buy-and-build strategy, we have been aggressive in our pursuit of growth, but consider opportunities based on disciplined financial principles. Specifically, we have utilized a debt conservative approach that we believe has provided us with ample flexibility to navigate turbulent times and to simultaneously capitalize on attractive growth opportunities.

At the completion of fiscal 2021, EVI had net debt of less than $6 million, which represents a 68% decrease in net debt as compared to the end of fiscal 2020. The significant decrease in net debt includes two consecutive fiscal years of strong cash flows and forgiveness of the PPP loans we received under the CARES Act, offset in part by our deployment of cash in connection with multiple acquisitions and expenses associated with our optimization initiatives, including one-time expenses related to our ongoing implementation of a new ERP system across our businesses.

Given the health and strength of our balance sheet, including a significant amount of liquidity, I believe we are well positioned to deploy cash in connection with attractive buy-and-build opportunities we are actively pursuing.

During the fiscal fourth quarter and throughout fiscal 2021, revenue from industrial laundry customers was consistent with pre-planned delivery and installation schedules reflected in our backlog. Revenue from on-premise laundry customers varied by end user and geography. Revenue from vended laundry customers was strong due in part to low interest rates that continue to spur investment from entrepreneurs, both in the form of new store investments and equipment replacement and repair. In addition, revenue for multifamily customers was consistent with contractual obligations.

Despite the continued adverse impact of the COVID-19 pandemic and extended supplier lead times for key products, we capitalized on a significant increase in customer demand for the commercial laundry products and service solutions we provide. Consequently, revenue for the fourth quarter of fiscal 2021 increased to $65 million, a 19% increase compared to the fourth quarter of fiscal 2020. And revenue for fiscal 2021 increased 3% compared to fiscal 2020 to a record $242 million.

As we manage through these circumstances, including supply chain disruptions, our sales forces are winning an increasing number of new sales opportunities, building a bigger sales order backlog, and fulfilling them as quickly as possible.

Continuing the revenue discussion, our customers are increasingly attracted to the ease and carefree solution our full-service leasing programs provide. As such, during fiscal 2021, we significantly increased the total number of on-premise laundry units on lease. Additionally, in certain markets where we have an extensive customer base and service operation density, we have experienced increased success in winning new business across a broad range of consumables.

Our businesses that offer chemicals and other consumables increased such revenues by over 125% year over year. Although the revenue contribution from these areas individually is not yet material to our consolidated revenue, we believe they are strong evidence that supports our mission to offer our customers fast, easy and competitively priced lease and finance solutions and to execute on buying and building chemical and consumable businesses.

Ultimately, we believe that expanding the product and service solutions we offer will broaden our customer base and result in a greater level of profitability.

Moving to gross margin, we improved our gross margin despite numerous cost increases and pricing volatility. Gross margin for the fourth quarter of fiscal 2021 increased to approximately 25%, an increase of 70 basis points compared to the fourth quarter of fiscal 2020. Meanwhile, gross margin for the fiscal year 2021 increased 130 basis points to approximately 25%.

Long-term contracts with certain customers for complex laundries, however, lowered gross margins by 120 basis points during fiscal 2021. Managing through this period was and continues to be a difficult challenge, but also one that provides an opportunity to improve pricing, gross margin and contribution margins, throughout the adoption -- through the adoption of best practices. Our focus was to leverage the positive pricing environment to protect and strengthen our gross margins and to do so while further enhancing our customer value proposition.

To that end, we evaluated historical transaction data and other metrics. And based on our findings, we implemented a performance management system, updated sales incentives, established key performance indicators, and increasingly utilized our new technologies.

And now to our operating performance. Adjusted EBITDA for the fourth quarter and fiscal year ended June 30, 2020, reflect the continued adverse impact of the COVID-19 pandemic and our continued investment in achieving an optimized operation through our modernization and consolidation initiatives. Accordingly, adjusted EBITDA for the fiscal fourth quarter increased 100 basis points to 4.5% and adjusted EBITDA for fiscal 2021 increased 70 basis points to 4.4%. We believe it is important we generate balanced revenues between our four commercial laundry product categories previously mentioned, consolidate the operating functions of our various businesses within a region, and modernize our operations with new and advanced technologies.

I am pleased to share with you that certain of our businesses are balanced, consolidated, modernized, and therefore optimized. These businesses achieved a low double-digit EBITDA margin during fiscal 2021. This achievement is evidence that the thoughtful execution of our optimization initiatives across our consolidated company is effective at achieving our targeted operating results.

Therefore, you should note that our remaining businesses are undergoing their modernization and consolidation initiatives and provided we execute consistent with our plans and mitigate risks and disruptions as we have thus far, we expect to experience improved consolidated operating results in the future.

Finally, on acquisitions, as I've mentioned many times, our long term focused, buy-and-build strategy requires planting seeds that we believe will result in attractive buy opportunities through which we will achieve significant revenue and profitability growth. Our approach requires thoughtfulness, discipline, patience, and a nurturing culture.

During fiscal 2021, we successfully acquired two businesses, Yankee Equipment Systems, and Eastern Laundry Systems, both of which are New England based commercial laundry distributors and service providers. In adding these businesses, we strengthened our existing Northeast operations, and we gained an influential, young, dynamic, and entrepreneurial leader with an exceptional team. It is also important to share with you that the acquisitions we made just before the onset of COVID-19 in the third quarter of fiscal 2020 have exceeded our expectations in terms of market share growth and operating performance.

To summarize, while we are a long-term growth focused company, balancing growth with health was ever more critical amid the challenging times we faced during this fiscal year. Through these times, we stayed true to our fundamentals, strengthened our customer value proposition, protected and improved gross margins, began to realize the benefits of our optimized initiatives, acquired two businesses, continued to cultivate others, planted more seeds in pursuit of future acquisitions and organic growth, and stayed focused on the long term.

Today, we have what we believe is the most dynamic, well-respected, and entrepreneurial leadership team in the commercial laundry industry. We are more efficiently organized. We utilized new and advanced technologies, providing us better information. We maintain mutually beneficial partnerships with many loyal suppliers. We have financial strength and deep financial resources. We have a corporate team that has prudently allocated capital and is successfully executing a robust optimization agenda. We have an employee base of over 25% of individuals, many of which, including myself and the original owners of the businesses which we have acquired, are heavily invested in our company.

This has earned us a reputation among, within, and around our industry, including among owners of quality businesses, which we may seek to acquire to join our growing EVI family, and among talented professionals, who we may seek to hire. For those reasons, and others mentioned during this earnings call, we remain excited and optimistic about our long-term growth plans and outlook.

This concludes our comments related to the quarter and fiscal year ended June 30, 2021. In closing, I want to thank our valued employees, our loyal suppliers and customers, and our shareholders for your support and participation in EVI. Until next time, be well.