EVI Industries, Inc. (EVI) Earnings Call Transcript

Hello, and welcome to EVI Industries Earnings Call for the Second Quarter of the Fiscal Year Ending June 30, 2023. This is Henry Nahmad, Chairman and CEO of EVI. Before we proceed, we would like to disclose 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, 2022. 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. And now my comments on the 3- and 6-month periods of fiscal year 2023. EVI is a collection of ambitious people, bound by an entrepreneurial culture and core values focused on winning. That is our formula for success. In 2015, we embarked on a long-term journey to build the undisputed leader in and around the commercial laundry industry, and in doing so, produced attractive returns for our shareholders over the long term. Today's results established new records for revenue, gross profit, gross margin, operating income, net income, earnings per share and adjusted EBITDA for the 3- and 6-month periods ended December 31, 2022. We are proud of the results, but we continue to be focused on achieving a higher level of growth and optimization in pursuit of our long-term goal to build a multibillion-dollar enterprise. And now about our operating performance. Our record fiscal second quarter operating results begin to reflect the benefits of investments we have made into our company through our long-term focused buy-and-build strategy. The record second fiscal quarter revenue resulted in a greater level of operating leverage across our operating businesses. This performance was offset in part by continued investment in our acquisition program, the recruitment and development of sales and service professionals and modernization initiatives, which we believe will continue to be critical to achieving our long-term goals. We reported record second fiscal quarter revenue of approximately $83 million, record net income of $2.2 million and record adjusted EBITDA of approximately $6 million or 7.2% of revenue. For the 6 months ended December 31, 2022, we reported record revenue of approximately $166 million. Record net income of $5.1 million and record adjusted EBITDA of $12.4 million or 7.5% of revenue. As I've stated in prior calls, our sales force is the backbone of our company. We employ the single largest sales organization in the industry with over 125 sales professionals that have priceless industry knowledge and experience they use to build quality customer relationships and secure new business opportunities for our company. We also employ the single largest network of installation and service technicians with nearly 300 technicians, effectively completing installations and maintenance services in support of our customers' laundry operations. Combined with our growing array of products and support services, our company is equipped with the capabilities to serve commercial laundries of all types and sizes. In addition to the significant increase in revenue, gross profit in the second quarter increased 48% to a record $24.8 million, and gross margin increased 230 basis points to a record 30%. For the 6 months ended December 31, 2022, gross profit increased 43% to a record $49.3 million and gross margin increased 200 basis points to a record 29.7%. The increases in revenue and gross profit offset an increase in operating expenses, with 70% of such increase attributed to increase in selling expenses and general and administrative expenses in connection with acquired businesses. Ultimately, operating income in the second quarter increased 275% to a record $3.6 million. Net income increased 321% to a record $2.2 million, and adjusted EBITDA increased 94% to a record $5.9 million or approximately 7.2% of revenue. For the 6 months ended December 31, 2022, operating income increased 121% from $3.6 million to a record $8 million and net income increased 67% to a record $5.1 million and adjusted EBITDA increased 67% to a record $12.4 million or approximately 7.5% of revenue. While our business is getting bigger, we are also getting better. Our leaders are making smarter and faster decisions resulting from our collaborative leadership culture and using better information provided by the advanced technologies we continue to deploy across our company. Given the effectiveness of the initiatives we have undertaken, we remain confident in our ability to achieve a greater level of operating leverage as we scale up our business to provide our customers more products and services in and around our core commercial laundry business. And now to acquisitions. During the second quarter, we continued to execute on the buy component of our long-term growth strategy as we completed our third acquisition of the fiscal year. The completion of our 23rd acquisition in the commercial laundry distribution and service industry is a testament to the positive reputation we have established in our industry and the continued support of our long-term buy-and-build growth strategy among the independent entrepreneurs across our industry. Given our financial strength and flexibility, our team continues to collaborate with our regional and business unit leaders in the pursuit of additional buy opportunities in and around the commercial laundry industry. We remain very active in the pursuit of additional investments and other great businesses, and given our record reputation and appetite for significant growth, EVI is well positioned to capitalize on a growing number of opportunities in and around our existing geographies and industry. As I've mentioned many times, our long-term focus 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, all of which we have demonstrated with the addition of these high-quality businesses. Given the health and strength of our company and the robust pipeline of acquisition opportunities in and around the commercial laundry industry, we remain excited and optimistic about our long-term growth plans and outlook. And now to our balance sheet. Our prudent capital allocation strategy, combined with solid and continuously improving operating performance provides for a strong financial position, which we believe serves as a significant competitive advantage during these times. Given our financial position and ample access to capital, we are well positioned for continued growth. Since the commencement of our long-term buy-and-build strategy, we've been aggressive in our pursuit of growth but consider opportunities based on disciplined financial principles. We have utilized debt -- we have utilized a debt-conservative approach that we believe has provided us with ample flexibility to navigate turbulent times to simultaneously capitalize on attractive growth opportunities. Net debt at the end of the second quarter was $32.5 million, which reflects a $9 million increase as compared to June 30, 2022. The increase in net debt is the result of the company's continued investment in working capital and the acquisitions completed during the 6 months ended December 31, 2022. The $11 million increase in inventory as compared to June 30, 2022, primarily reflects inventory acquired in connection with industrial projects, OPL equipment and vended laundries pending installation and increased stock inventory, reflecting the continuation of a supply chain constraint in an effort to better support short-term customer needs. Despite the increased investment in working capital, EVI's financial position remains strong with low leverage and ample liquidity to execute on investment opportunities in support of the company's long-term growth and profitability objectives. And finally, on our long-term strategy and goals. I want to reiterate that in 2015, we embarked on a long-term journey to build the undisputed leader in and around the commercial laundry industry and in doing so, produced attractive returns for our shareholders over the long term. Through this journey, we have and will continue to uphold the core values and principles to guide our business decisions, invest and manage with a long-term perspective, uphold financial discipline to ensure financial strength and flexibility, respect the entrepreneurs and management teams that joined the EVI family, operate as a local business and empower leaders to make local decisions, promote an entrepreneurial culture, instill a growth mindset and culture of continuous improvement, incentivize and reward performance with equity participation, establish strong relationships with our OEM partners. These core contents of our business culture successfully guided us to build the foundation of EVI. We're proud to demonstrate that with thoughtfulness, commitment to disciplined investing and encourage to execute with conviction, we can and will achieve sustainable long-term success. For these reasons and the others mentioned during this earnings call, we remain excited and optimistic about our long-term growth plans. This concludes my comments related to the second quarter of fiscal year ended June 30, 2023. 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.