EVI Industries Inc (EVI) 2022 Q1 法說會逐字稿

Hello, everyone, and welcome to EVI Industries' earnings call for the first quarter of the fiscal year ending June 30, 2022, which is sometimes referred to, in this call, as fiscal 2022. 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.

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 earnings 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 first-quarter results reflect a steady recovery across our end customer categories and a continued increase in demand for the commercial laundry products and services we provide, resulting in a 10% increase in revenue. 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 increased sales 10%, increased gross profit 32% to a record $18 million, increased gross margin 470 basis points to a record 27.7%, and increased adjusted EBITDA 78% to a record $4.4 million.

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. 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 September 30, 2021, EVI had net debt of $17 million, which represents an $11 million increase in net debt as compared to the end of fiscal 2021. The increase in net debt was due to a change in working capital caused primarily by a $4.8 million increase in accounts receivable, which is due in large part to a 10% increase in sales and a $3.9 million increase in inventory, which is the result of an increase in stock orders and delays in the delivery and installation of products at commercial laundries.

Consequently, we experienced negative operating cash flow of $10 million during the first quarter of fiscal 2022. Despite the change in working capital, which was largely a result of supply chain disruptions, we maintain a healthy and strong balance-sheet, including over $100 million of available capital through our debt facility to deploy in connection with acquisition opportunities the company is pursuing under a buy-and-build growth strategy.

During the first fiscal quarter, revenue from industrial laundry customers was consistent with pre-planned delivery installation schedules reflected in our backlog. Revenue from on-premise laundry customers increased, including hospitality, driven by an increase in leisure and business travel. Revenue from vended laundry customers remained 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 multi-family customers was consistent with contractual obligations. As a result, revenue for the first quarter of fiscal 2022 increased to $64 million, a 10% increase compared to the first quarter of fiscal 2021. Despite the improvement, revenue was adversely impacted by supply chain disruptions at manufacturers of commercial laundry equipment, caused by component availability, labor shortages, transportation delays, or other supply chain challenges, all of which have impacted typical lead times and overall availability of commercial laundry products.

While supply chain disruptions adversely impacted sales during the first quarter of fiscal 2022, we nonetheless experienced an increase in sales, and are encouraged by a steady demand, evidenced by continued growth in our sales order backlog. We expect the supply chain disruptions to continue for the foreseeable future, including during fiscal 2022, and are actively working with our suppliers in an effort to timely fulfill strong end user demands.

Moving to gross margin, during calendar 2021, like other industries, manufacturers of commercial laundry products have experienced significant inflationary pressure and have raised prices accordingly. We actively monitor market conditions and communicate with our suppliers in order to sustain competitiveness and profitability. In connection with the inflationary trend, we raised selling prices and took certain other measures to improve gross margins, including the promotion of specific sales methods aimed at delivering enhanced solutions to customers and further implementation of our gross margin incentive program, which is designed to reward our sales professionals for higher gross margin sales.

The combination of these actions, together with the continued recovery from COVID-19 pandemic and the benefit of favorable product and customer mix, resulted in a 470-basis-point increase in gross margins from 23% to 27.7% for the first quarter of fiscal 2022.

And now to our operating performance. Operating expenses increased during the first quarter of fiscal 2022 due in part to higher personnel costs and other operating expenses in connection with measures taken to service customers in light of the supply chain disruptions. While there is no assurance when the supply chain disruptions will end, we expect these incremental costs to be temporary and moderate during the beginning part of fiscal 2023 as the supply chain starts to normalize.

Additionally, we continued to incur one-time expenses in connection with various parts of our consolidation and modernization initiatives, which to date have proven to deliver improved operating performance. We also continued to invest in the deployment of advanced operating technologies. Spending in connection with our technology investments increased 150% in the first quarter of fiscal 2022 as compared to the same period of the prior fiscal year.

This ongoing initiative has enabled us to accelerate the consolidation of our regional groups of businesses, which has resulted in optimization of operating expenses and facilitated improved sales force and service personnel productivity. We expect that the complete installation of our operating technologies will result in an optimized business with the capacity to achieve our expected operating leverage on a sustained basis.

Adjusted EBITDA for the first quarter of fiscal 2022 continues to reflect a recovery from the 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 first quarter increased 78% from $2.5 million to a record $4.4 million or approximately 7%, and net income increased from $0.5 million to a record $2 million.

Finally, on acquisitions. Our results demonstrate that the measures we are taking to optimize our business have been effective. 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 expect to achieve revenue and profitability growth. This approach requires thoughtfulness, discipline, and patience. Given the health and strength of our company, we remain excited and optimistic about our long-term growth plans and outlook.

This concludes our comments related to the first quarter of the fiscal year ending June 30, 2022.

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.