EVI Industries Inc (EVI) 2022 Q2 法說會逐字稿

Hello, everyone, and welcome to EVI Industries earnings call for the second quarter of the fiscal year ending June 30, 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 issued today 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.

Hello again and thank you for listening to this quarter's earnings call and general business update. Since our last earnings call, we have continued to execute on the buy component of our long-term growth strategy with the acquisition of our 17th commercial laundry distribution and service business, which was completed on February 7, 2022.

During the second quarter of fiscal 2022, we achieved record-operating results in certain performance measures; generated $9.4 million of cash from operating activities that further strengthened our already strong balance sheet; built up our backlog to over $120 million; successfully implemented our advanced operating technologies to two more of our business units; and continued to experience incrementally greater operating leverage across our modernized business units.

We believe that these achievements are a function of the exceptional reputation our company has earned with owners of high-quality businesses, our disciplined financial management, our thoughtful and deliberate operational execution, and the entrepreneurial philosophy which we maintain and promotes a collaborative culture yielding best practices and promising opportunities.

These achievements come despite supply chain challenges we and our industry are experiencing: installation delays and an inflationary environment resulting in increased operating expenses. While we expect these challenges to continue in the near term, we are thankful to our loyal suppliers, all of which are working to fulfill the significant and growing opportunities our company is creating for their products across North America.

With that, I will now provide you additional details on our buy-and-build initiatives, the strength of our company, and the results of our operations. On acquisitions, in our prior quarter remarks, I reminded you that our long-term focused buy-and-build growth strategy requires planting seeds that we believe will result in attractive buy opportunities from which we can build additional revenue and profitability.

On February 7, we acquired Raleigh, North Carolina-based Consolidated Laundry Equipment and its affiliates. Consolidated is a unique acquisition for us in that it serves customers in a geography where EVI already has four businesses operating with wide-ranging capabilities and with distinct product representations.

However, we believe that the addition of Consolidated will strengthen our leading market share position in the southeast region of the United States with over $90 million in revenue derived from thousands of industrial, on-premise, vended, and multifamily laundry customers.

Consolidated also has a significant customer base that is loyal to the knowledge, experience, and capabilities of its sales and service organization, which is highly attractive to us. In addition, Consolidated has a robust operation, which we believe when synchronized with our existing businesses in the geography, results in the largest and most dynamic commercial laundry operation in the region.

As the acquisition of Consolidation (sic -- "Consolidated") was completed after the end of the second quarter of fiscal 2022, the results of operations and financial condition of Consolidated are not included in the company's financial statements for the second quarter of fiscal 2022, but will be included in the company's financial statements commencing with the quarter ending March 31, 2022.

Beyond Consolidated, our pipeline of acquisition opportunities remains deep, and we continue to cultivate new opportunities and thoughtfully pursue long-term growth opportunities for our company.

Moving to the health and strength of the company, our ability to complete acquisitions and to make working capital investments is a function of the continued strength of our balance sheet and the ample liquidity it provides. At December 31, 2021, EVI had net debt of $9 million, which represents a $3.1 million increase in net debt as compared to the end of fiscal 2021.

The change in net debt is due to changes in working capital, including greater levels of inventory, which is primarily the result of delays in the delivery and installation of products at commercial laundries. Despite the changes in working capital, we maintain a healthy and strong balance sheet, including over $100 million of available capital through our debt facility to deploy in connection with potential acquisition opportunities under our buy-and-build growth strategy.

And now to the company's income statement. During the second fiscal quarter, revenue from on-premise laundry customers increased. Revenue from vended laundry customers remained strong due to investment from entrepreneurs, both in the form of new store investments and equipment replacement and repair. In addition, revenue from multifamily customers was consistent with contractual obligations, and we continued to enter into new multifamily lottery agreements.

Finally, revenue from complementary products and services continued to grow. As a result, revenue for the second quarter of fiscal 2022 increased to $61 million, a 6% increase compared to the second quarter of fiscal 2021. This increase was achieved despite revenues being adversely impacted by supply chain disruptions and manufacturers of commercial laundry equipment caused by, among other factors, limited component availability.

Additionally, revenue was adversely impacted by transportation delays and third-party labor shortages slowing what has historically been a fluid and speedy delivery and installation process across our industry. Looking forward, while we expect the supply chain disruptions and delays to installation schedules to continue in the near term, we are encouraged by strong demand for the solutions we provide, evidenced by our company's over $120 million sales order backlog on hand as of December 31, 2021.

Moving to gross profit and gross margin. Like other industries, manufacturers of commercial laundry products have experienced inflationary pressures and have raised prices accordingly. In connection with the inflationary trend, we previously raised selling prices and took certain other measures to improve gross margins.

These actions resulted in an increase in gross margins from approximately 25% for the three months ended December 31, 2020, to a record 28% for the three months ended December 31, 2021. And an increase in gross margins from approximately 24% for the six months ended December 31, 2020, to a record 28% for the six months ended December 31, 2021.

The increases in sales combined with the increase in gross margins resulted in a record $17 million and a record $34 million of gross profit for the three- and six-month periods ended December 31, 2021, respectively. We believe that our continuous gross margin improvement reflects the benefits we derived from, among other factors, our efforts to improve and expand upon the comprehensive commercial laundry solutions we sell to and install for our customers.

In connection with these capabilities, it is important to highlight that in the second quarter of fiscal 2022, nine of the 14 business units included in EVI's operating results had gross margins equal to or greater than 28%, with a high of 37%. Given we are still early in the growth of our company, we are encouraged by this performance and are striving to maximize gross margin performance at all of our business units.

And finally, to our operating performance. Adjusted EBITDA for the second quarter of fiscal 2022 increased 33% to a record $3.1 million or approximately a 5% margin. And adjusted EBITDA for the six-month period ended December 31, 2021, increased 56% to a record $7.4 million or approximately a 6% margin. This performance includes increased operating expenses due in part to higher personnel costs, increased expenditures in connection with our acquisition efforts and one-time expenses related to our consolidation and modernization initiatives.

This performance also includes all corporate operating expenses which indicate that we generated a much greater level of EBITDA from our operating businesses. We believe that the operating performance of our business units is a solid indicator that our investments are yielding continuously improved operating results. And that with additional acquisitions, the alleviation of our industry supply challenges and the fulfillment of sales and installations at a faster pace, we will achieve a significantly greater level of operating leverage.

In closing, as we have stated from the beginning, we are a long-term growth focused company that is thoughtful and committed and that acts with conviction when the opportunity is right. We have stayed true to our financial principles, consistently acquired good businesses, strengthened our customer value proposition, and improved gross and operating margins.

We also believe that we are just beginning to realize the benefits of our optimization initiatives. Supporting these efforts is a collection of dynamic, well-respected, and entrepreneurial leaders from across the commercial laundry industry.

Our approach and results have earned us a positive reputation in and around our industry, including among owners of quality businesses, which we may add to our growing EVI family, and among talented professionals who we may seek to hire. For these reasons, and the 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 second quarter of fiscal 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.