EVI Industries, Inc. (EVI) Earnings Call Transcript

Hello and welcome to EVI Industries Earnings Call for the Third 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 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, 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 9-month periods ended March 31, 2023. This time last year, our leadership team successfully navigated supply chain constraints, unpredictable lead times, inflation and labor shortages, each of which adversely impacted prior year results. You might recall, however, that despite the challenges we faced then, the central theme of my commentary this time last year was long-term confidence. While certain of these challenges persist, our results for the 3- and 9-month periods of fiscal year 2023 support my confidence then and, as you might expect, provide the basis of our continued confidence in the significant future growth opportunities for EVI. We are early in our long-term growth strategy, and many may be new to our story. Therefore, it is important to reiterate the core values and principles we have for our business and which serve as the foundation of our company. EVI invests and manages with a long-term perspective. We uphold a financial discipline aimed to ensure that we always have financial strength and flexibility. In buying businesses, we respect the entrepreneurs and management teams that join the EVI family. We promote an entrepreneurial culture and instill a growth and profitability mindset that seeks continuous improvement. We maintain a highly decentralized operating model where the original entrepreneurs and leaders of our operations operate as a local business. Given this approach, we empower them to make local decisions and trust that through continuous collaborations and communications, we will achieve the most effective strategies for our company. Given our goal is to create significant shareholder value, we seek to incentivize and reward performance with long-term equity participation to align the interest of our business leaders with those of our other stakeholders and with the performance of our company. About our results. We believe that our results for the 3- and 9-month periods of fiscal year 2023 prove that our financial disciplines, operating philosophy, entrepreneurial culture, principles and values and long-term perspective are effective at building a dominant business. We experienced a 57% and 41% increase in revenue to a record $94 million and $260 million for the 3- and 9-month periods ended March 31, 2023, respectively. We also set records for gross profit, operating profit, net income, earnings per share and adjusted EBITDA in both the 3- and 9-month periods. We achieved these results while continuing to make investments aimed at driving new growth opportunities, achieving a more efficient and optimized operation and transforming the technological infrastructure and capabilities of our company as well as hiring highly qualified professionals to drive these initiatives. Best of all, we achieved these results and made these investments while maintaining low leverage and, therefore, a healthy and strong balance sheet that we believe continues to provide us with ample liquidity to take advantage of strategic transactions and other growth opportunities, which the company is actively pursuing. The 57% increase in revenue during the 3-month period was the result of a significant increase in products available for sale to satisfy steady customer demand, including products from new OEM relationships, a greater amount of industrial sales and a larger sales organization that is successfully growing market share across our end market segments. In support of this sales growth, our installation teams continue to complete new commercial laundry installations and add-on and/or replacement installations. Given the increasing installed base of commercial laundry equipment our company represents, parts and service revenues also increased in both the 3- and 9-month periods. Meanwhile, the slight decrease in gross margin to 28.3% for the 3-month period reflects the impact of greater industrial sales during the 3-month period as compared to the same period of the prior fiscal year. EVI's record 29.2% gross margin for the 9-month period, however, reflects the benefits of various initiatives undertaken to improve the customer value proposition and in turn, deliver incrementally better profitability. Our record revenue and record gross profit performance for the 3 and 9 month periods drove record operating income, net income and adjusted EBITDA. And now to our financial strength and liquidity. Our strong financial position has been instrumental to our growth and performance in recent periods. Since April 1, 2020, our investment in working capital increased by 90% from $27 million (sic) [ $24 million ] to $51 million. The primary contributor to this increase was our investment in inventory, which increased by 132% from $27 million to $63 million. Additionally, during this 3-year period, we invested $19 million of cash in connection with acquisitions. Notwithstanding these investments, our financial position remains strong with net debt of $35 million on March 31, and with ample liquidity to continue investing in opportunities consistent with our long-term growth and profitability objectives. On acquisitions, during the 9-month period, we continued to execute on the buy component of our long-term growth strategy, having completed 3 acquisitions. I'm pleased to share that each acquired business is not only having a positive impact on sales and profitability, but also that the entrepreneurs and professionals in these businesses are making valuable contributions in the advancement of our operations. As I've mentioned many times, the buy component of our strategy requires planting seeds that we believe will result in attractive growth opportunities. Our approach requires thoughtfulness, discipline, patience and a nurturing culture, all of which we have demonstrated through a consistently successful acquisition program. While the current environment presents challenges, including for those that have a high amount of leverage or rely on a high amount of leverage to complete transactions, we believe that our financial strength and broad-based capital resources position EVI to execute opportunistically when others may be challenged. As such, we maintain a robust pipeline of acquisition opportunities in the commercial laundry industry and are actively working on opportunities that meet specific strategic and financial criteria around our industry. In closing, while our company continues to set growth and performance records, no achievement is more rewarding and more critical to our long-term success than the formation and continued growth of the EVI family. Today, we are a group that includes most of the original owners of our acquired businesses and over 700 professionals that are bound by beyond our shared values and principles, a common goal to first build the undisputed leader in the North American commercial laundry distribution and service industry. As we've 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 propositions and improved gross and operating margins. We also believe that we're 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 reputation, 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 third quarter of fiscal 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.