EnviroStar(EVI) - 2020 Q4 - Annual Report

Part I Business Overview EVI Industries is a value-added distributor and service provider for commercial laundry and dry cleaning equipment, pursuing a "buy-and-build" growth strategy - EVI Industries, Inc. is a value-added distributor of commercial laundry and dry cleaning equipment, parts, and services, incorporated on June 13, 1963, and renamed on December 21, 2018[24][25] - The company implemented a "buy-and-build" growth strategy in 2015, focusing on strategic acquisitions and fostering growth in acquired entities[27][37] - EVI serves approximately 65,000 diverse customers across the United States, Canada, the Caribbean, Latin America, and Asia[26][47][48] - The company offers a comprehensive product line, including washroom, finishing, material handling, and mechanical equipment, along with installation, maintenance, and repair services, aiming for a "one-stop shop" experience[33][34][35][36] General EVI Industries, Inc. was incorporated in Delaware in 1963 and operates as a value-added distributor and service provider - EVI Industries, Inc. was incorporated on June 13, 1963, in Delaware and changed its name on December 21, 2018[24] - The company operates as a value-added distributor and provides advisory and technical services for commercial laundry operations[25] - EVI serves a broad customer base, including government, institutional, industrial, commercial, and retail clients[26] Products and Services EVI distributes a wide range of commercial laundry and dry cleaning equipment, parts, and related services - EVI distributes an extensive line of commercial and industrial laundry and dry cleaning equipment, boilers, and related replacement parts and accessories[33][34] - The product portfolio includes washroom, finishing, material handling, and mechanical equipment, positioning EVI as a "one-stop shop"[34][35] - Beyond product distribution, the company provides competitively priced installation, maintenance, and repair services[36] Buy-and-Build Growth Strategy Since 2015, EVI has pursued a "buy-and-build" strategy through strategic acquisitions to expand its market presence - Since 2015, EVI has pursued a "buy-and-build" strategy involving strategic acquisitions to complement existing business and foster growth[37] - The strategy typically involves both cash and stock consideration for acquisitions, aligning interests of sellers and key personnel with EVI's long-term success[37] - Since 2015, EVI has completed 14 business acquisitions, including notable ones like Western State Design (2016) and PAC Industries (2019)[39][40][41][42][43] Customers and Markets EVI serves approximately 65,000 diverse customers across multiple geographies, with no significant seasonality - EVI serves approximately 65,000 customers across the United States, Canada, the Caribbean, Latin America, and Asia[47] - The customer base is diverse, including vended laundry facilities, industrial laundries, government institutions, hospitals, and hotels[48] - No single customer accounted for more than 10% of the Company's revenues in fiscal 2020 or 2019, indicating a diversified revenue stream[47] - The company has not observed significant seasonality in its operations[49] Sales, Marketing and Customer Support EVI employs sales personnel and prioritizes customer satisfaction through comprehensive offerings and support - EVI employs sales personnel to market products in the US, Canada, Caribbean, Latin America, and Asia, utilizing exclusive and nonexclusive distribution rights[50] - Customer satisfaction is prioritized through an experienced sales and service organization, comprehensive product offerings, and competitive pricing[51] - Employee training includes in-person sessions, videos, and vendor seminars, with technical staff preparing manuals in English and Spanish[52] Foreign Sales Foreign revenues are primarily from commercial laundry equipment sales, all denominated in United States dollars - Substantially all foreign revenues come from sales of commercial and industrial laundry/dry cleaning equipment and boilers to customers in Canada, the Caribbean, Latin America, and Asia[53] - All foreign sales require payment in United States dollars, making them susceptible to the strength of the USD and economic conditions of customer countries[54] Sources of Supply EVI sources products from numerous manufacturers, with three major ones accounting for approximately 63% of purchases - EVI sources products from numerous manufacturers, with three major manufacturers accounting for approximately 63% and 62% of product purchases in fiscal 2020 and 2019, respectively[56] - The company generally maintains good working relationships with suppliers, often with established, long-standing ties and contracts providing competitive advantages[56] - EVI primarily purchases equipment after customer orders but also maintains inventory for standardized items and to leverage favorable pricing[58] Competition The commercial laundry and boiler distribution market is highly competitive and fragmented, with EVI competing through service and product breadth - The commercial and industrial laundry and boiler distribution market is highly competitive and fragmented, with over 500 distributors in the US, mostly operating locally[59] - Competition is based on effective facility planning/design, competitive pricing, reliable products, in-house services, and timely delivery[59] - EVI competes by employing experienced professionals, offering a comprehensive product line, maintaining a robust service network, and expanding value-added services[59][61] Research and Development EVI's research and development efforts and expenses are generally immaterial, as manufacturers conduct their own R&D - EVI's research and development efforts and expenses are generally immaterial, as most products are distributed for manufacturers who conduct their own R&D[62] Service Marks and Tradenames The company owns the United States service mark registration for DRYCLEAN USA®, which it licenses to retail dry cleaning establishments - The Company owns the United States service mark registration for DRYCLEAN USA®, which it licenses to retail dry cleaning establishments[63] Compliance with Environmental and Other Government Laws and Regulations EVI's industry is subject to environmental protection laws, but compliance is not expected to materially affect its financial position - EVI's industry is subject to federal, state, and local environmental protection laws, with customers primarily responsible for compliance[64] - The company does not believe that compliance with current environmental regulations has had, or will have, a material effect on its capital expenditures, earnings, or competitive position[65] Employees As of August 14, 2020, EVI had 493 full and part-time employees, none subject to collective bargaining - As of August 14, 2020, EVI had 493 full and part-time employees[66] - None of the company's employees are subject to a collective bargaining agreement, and relations are considered satisfactory[66] Risk Factors EVI Industries faces various risks, including significant negative impacts from the COVID-19 pandemic, acquisition uncertainties, and challenges related to its indebtedness - The COVID-19 pandemic has caused delays and declines in customer orders, installations, and parts fulfillment, leading to revenue declines in Q3 and Q4 fiscal 2020, and its future impact remains highly uncertain[69][70][74] - EVI's "buy-and-build" growth strategy carries risks such as difficulty identifying/integrating acquisitions, diversion of management attention, strain on resources, loss of key relationships, and exposure to liabilities of acquired businesses[75][76] - The company's indebtedness, including a $100 million revolving credit facility and $6.9 million in PPP Loans, increases vulnerability to economic changes and imposes restrictive covenants on operations, dividends, and further financing[81][82][83][86][87][88] COVID-19 Pandemic Risks The COVID-19 pandemic has negatively impacted EVI's business, causing order delays and revenue decreases, with future impacts remaining uncertain - The COVID-19 pandemic has negatively impacted EVI's business, causing delays and declines in customer orders, installations, and parts fulfillment, leading to revenue decreases in Q3 and Q4 fiscal 2020[69] - The company has responded by reducing costs, adjusting inventory, renegotiating supplier terms, and cutting hiring, but significant uncertainty remains regarding the pandemic's duration and full impact[69][70] - EVI received approximately $6.9 million in PPP Loans in May 2020 to increase cash and preserve financial flexibility, but there is no assurance these loans will be forgiven[71][73] Acquisition Risks EVI's acquisition strategy involves risks such as integration difficulties, resource strain, and potential underperformance of acquired businesses - Acquisitions, a key growth strategy, involve risks such as difficulty identifying and integrating targets, diverting management attention, straining resources, and potential loss of key employees or customer/supplier relationships[75] - Acquired businesses may not achieve anticipated revenues, earnings, cash flows, or synergies, potentially leading to higher costs and lower financial performance[76] - Acquisitions can result in dilutive equity issuances, increased debt, contingent liabilities, amortization expenses, or impairment of goodwill/assets, adversely affecting financial condition[78] Indebtedness Risks EVI's indebtedness, including a $100 million revolving credit facility, requires cash for debt service and imposes restrictive covenants - EVI's indebtedness, including a $100 million revolving credit facility (with $21.0 million outstanding as of June 30, 2020), requires cash for debt service and increases vulnerability to economic downturns[82][83] - The 2018 Credit Agreement contains financial covenants (maximum leverage, minimum interest coverage) and other restrictions on asset disposal, acquisitions, investments, dividends, and share repurchases[86] - Floating interest rates (LIBOR-based) expose the company to interest rate risk, and regulatory changes like the phasing out of LIBOR could necessitate renegotiation of credit agreements[84] Product Performance and Reliability Risks Product defects or failures could lead to higher service costs, damage customer relationships, and potentially result in lawsuits - Product defects or failures to meet specifications could lead to higher service costs, damage customer relationships and reputation, and potentially result in lawsuits[89] Supplier and Customer Relationship Risks EVI relies on a few key manufacturers, and the deterioration or loss of these or significant customer relationships could materially impact business - EVI relies on a few key manufacturers, with three accounting for 63% of purchases in fiscal 2020; deterioration or loss of these relationships could materially impact business[91] - Many supplier contracts are short-term or terminable on short notice, and efforts to mitigate losses from supplier changes may not always be successful[91] - Loss of a significant customer or failure to meet customer expectations could materially and adversely impact operating results and financial condition[92][93] Competition Risks The commercial and industrial laundry and boiler distribution market is highly competitive and fragmented, with some competitors possessing greater financial resources - The commercial and industrial laundry and boiler distribution market is highly competitive and fragmented, with many independently owned distributors[94] - Some competitors may possess greater financial resources or less indebtedness, potentially impacting EVI's ability to compete effectively and maintain profitability[94] Facility Damage/Disruption Risks EVI's facilities are vulnerable to natural disasters, which could materially affect business despite insurance coverage - EVI's facilities, particularly in Florida, Georgia, Texas (hurricane/flood risk) and California (earthquake risk), are vulnerable to natural disasters, which could materially affect business despite insurance[95] Environmental and Other Regulation Risks The company is subject to various environmental and other regulations, and non-compliance or changes in laws could lead to significant costs - The company is subject to various federal, state, local, and foreign environmental and other regulations, and non-compliance could lead to significant costs, liabilities, or litigation[96] - Changes in laws or their interpretation could also result in significant compliance costs[96] Uninsured Losses Risks Certain catastrophic losses may be uninsurable or not economically insurable, potentially impacting EVI's financial condition - While EVI aims for adequate insurance, certain catastrophic losses (e.g., wars, terrorism, major natural disasters, pollution) may be uninsurable or not economically insurable, or subject to high deductibles[97] - If insurance coverage is insufficient or uninsured losses occur, EVI's operating results and financial condition could be adversely impacted[97][99] Foreign Sales Risks Foreign sales are exposed to currency fluctuations, economic conditions in customer countries, and various international business risks - Foreign sales, primarily to Canada, the Caribbean, Latin America, and Asia, are conducted in USD but are affected by the strength of the USD and economic conditions in customer countries[100] - International business inherently involves risks such as export/trade restrictions, changing regulations, tariffs, cultural issues, collection problems, and political instability[101] Control by Henry M. Nahmad Risks Henry M. Nahmad controls approximately 54.7% of EVI's voting stock, impacting corporate governance and stock price volatility - Henry M. Nahmad, Chairman, CEO, and President, controls approximately 54.7% of EVI's voting stock, allowing him to elect directors and approve stockholder actions[103] - His control means EVI is a "controlled company" under NYSE American standards, exempting it from certain corporate governance requirements, which could affect stockholder protections[104][105][106] - This concentration of ownership also contributes to limited trading volume and increased price volatility for EVI's common stock[107] "Smaller Reporting Company" Disclosure Risks As a "smaller reporting company," EVI utilizes reduced disclosure requirements, which may make its common stock less attractive to investors - As a "smaller reporting company" (market value of non-affiliate common stock < $250 million), EVI utilizes reduced disclosure requirements, which may make its common stock less attractive to investors[108] Internal Control over Financial Reporting Risks Compliance with Sarbanes-Oxley Act Section 404 requires substantial resources, and there's no assurance of timely compliance or effective integration for acquisitions - Compliance with Sarbanes-Oxley Act Section 404 requires substantial management time and resources, and there's no assurance of timely compliance or that significant deficiencies won't be identified[109][110] - Integrating internal controls for acquired businesses presents challenges and expenses, with no guarantee that identified issues will be remedied efficiently[112] Key Personnel Dependence Risks EVI's success is highly dependent on its executive officers, and the company faces intense competition for qualified personnel - EVI's success is highly dependent on its executive officers (Henry M. Nahmad, Dennis Mack, Tom Marks), and the loss of any could harm the business[113] - The company faces intense competition for qualified management and other personnel, and may not succeed in attracting and retaining such talent[113] Data Integrity Risks Failure to maintain data integrity and protection could lead to faulty business decisions, reputational damage, costs, or lawsuits - Failure to maintain the integrity and protection of internal and customer data could lead to faulty business decisions, operational inefficiencies, reputational damage, costs, fines, or lawsuits[114][115] - EVI's information systems are vulnerable to security breaches, cyber attacks, system failures, and human error, which could disrupt operations and adversely affect financial performance[116] Equity Issuance Risks The Board of Directors is authorized to issue preferred and common stock, which could dilute existing stockholders' rights or have an anti-takeover effect - The Board of Directors is authorized to issue up to 200,000 shares of preferred stock and 20,000,000 shares of common stock, which could dilute existing stockholders' rights or have an anti-takeover effect[117][118][119] Litigation Risks EVI may face litigation and legal proceedings, which are inherently uncertain and could result in significant expenses and adverse outcomes - EVI may face litigation and legal proceedings, which are inherently uncertain and could result in significant expenses and adverse outcomes impacting financial condition and operating results[120][121] Unresolved Staff Comments The company has no unresolved staff comments from the SEC - There are no unresolved staff comments[123] Properties EVI's principal executive offices are in Miami, Florida, and it operates 23 leased warehousing and distribution facilities across 14 U.S. states - EVI's principal executive offices are located in Miami, Florida[124] - As of June 30, 2020, the company leased 23 warehousing and distribution facilities across 14 U.S. states, totaling approximately 337,000 square feet[125] - The company believes its current facilities are sufficient to meet present operating needs[125] Legal Proceedings EVI is not currently aware of any pending material legal proceedings, though it is involved in routine claims - EVI is not aware of any pending legal proceedings expected to be material to the company as of the filing date[126] - The company is routinely involved in legal and regulatory claims in the ordinary course of business, but litigation outcomes are inherently uncertain[126] Mine Safety Disclosures This item is not applicable to EVI Industries, Inc - Not applicable[128] Part II Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities EVI's common stock trades on the NYSE American under "EVI," with approximately 240 record holders, and future dividends are discretionary and subject to debt covenants - EVI's common stock is traded on the NYSE American under the symbol "EVI"[132] - As of September 1, 2020, there were approximately 240 holders of record of the company's common stock[132] - A special cash dividend of $0.13 per share was paid in fiscal 2019, but no dividends were paid in fiscal 2020, with future dividends discretionary and subject to debt covenants[133] Shares Repurchased for Tax Withholding (Quarter Ended June 30, 2020) | Period | Total Number of Shares Purchased | Average Per Share Price | | :----- | :------------------------------- | :---------------------- | | June 1 – June 30, 2020 | 7,090 | $20.80 | | Total | 7,090 | $20.80 | Selected Financial Data This item is not required for the company - Not required[137] Management's Discussion and Analysis of Financial Condition and Results of Operations EVI Industries experienced a 3% revenue increase in fiscal 2020, driven by acquisitions, but net income decreased by 79% due to COVID-19 impacts and increased operating expenses - Total revenues for fiscal 2020 increased by 3% compared to fiscal 2019, primarily due to acquisitions and growth in certain legacy businesses[144] - Net income for fiscal 2020 decreased by 79% from fiscal 2019, mainly due to revenue declines in legacy businesses from the COVID-19 pandemic and increased operating expenses related to growth strategy investments[145][146] - The company secured approximately $6.9 million in PPP Loans in May 2020 to ensure ample liquidity amidst the COVID-19 pandemic[149] General This section provides management's discussion and analysis of EVI's financial condition and results of operations - This section provides management's discussion and analysis of EVI's financial condition and results of operations, to be read in conjunction with the Consolidated Financial Statements[139] Overview EVI operates as a value-added distributor and service provider for commercial laundry, pursuing a "buy-and-build" growth strategy - EVI operates as a value-added distributor and provider of advisory and technical services for commercial laundry operations[140] - The company serves a diverse customer base, and since 2015, has pursued a "buy-and-build" growth strategy through acquisitions[141][142] - EVI reports its results of operations through a single reportable segment[143] Fiscal Year Financial Performance (2019 vs 2020) | Metric | Fiscal Year Ended June 30, 2020 | Fiscal Year Ended June 30, 2019 | Change (%) | | :----- | :------------------------------ | :------------------------------ | :--------- | | Total Revenues | $235,802 (in thousands) | $228,318 (in thousands) | +3% | | Net Income | $775 (in thousands) | $3,743 (in thousands) | -79% | Impact of COVID-19 on the Company's Business The COVID-19 pandemic caused revenue declines in fiscal 2020, prompting cost reductions and the securing of PPP Loans - The COVID-19 pandemic caused delays and declines in customer orders, installations, and parts fulfillment starting in Q3 fiscal 2020, leading to revenue decreases[148] - EVI responded by reducing costs, adjusting inventory, renegotiating supplier terms, and decreasing hiring activities to preserve liquidity[148] - The company received approximately $6.9 million in PPP Loans in May 2020 to bolster its cash position and maintain financial flexibility[149] - Significant uncertainty remains regarding the pandemic's magnitude, duration, and overall impact on EVI's business, operations, liquidity, or financial condition[150][151] Buy-and Build Growth Strategy Since 2015, EVI has completed 14 business acquisitions, utilizing both cash and stock consideration - Since 2015, EVI has completed 14 business acquisitions, including four in fiscal 2019 and four in fiscal 2020[153][158][159] - Fiscal 2019 acquisitions involved $3.5 million in cash (net of cash acquired) and 141,000 shares of common stock[158] - Fiscal 2020 acquisitions involved $1.6 million in cash (net of cash acquired), assumption of $129,000 in long-term debt, and issuance of 132,726 shares of common stock[159] - Each acquisition is effected through a separate wholly-owned subsidiary, with acquired businesses' financial results consolidated into EVI's statements post-acquisition[162] Consolidated Financial Condition Total assets increased by $6.2 million in fiscal 2020, primarily due to ASC 842 adoption and acquisitions, while liabilities remained stable Total Assets and Liabilities (June 30, 2019 vs 2020) | Metric | June 30, 2020 (in millions) | June 30, 2019 (in millions) | Change | | :----- | :-------------------------- | :-------------------------- | :----- | | Total Assets | $160.7 | $154.5 | +$6.2M | | Total Liabilities | $72.9 | $73.0 | -$0.1M | - The increase in total assets was primarily due to the adoption of ASC 842 (operating lease asset), an increase in cash, and assets from fiscal 2020 acquisitions, partially offset by decreases in accounts receivable and inventory due to COVID-19 related strategic initiatives[163] - The slight decrease in total liabilities was mainly due to a decrease in long-term debt, partially offset by increases in accounts payable, accrued expenses, customer deposits, and the establishment of an operating lease liability under ASC 842[163] Liquidity and Capital Resources EVI's cash position increased by $4.8 million in fiscal 2020, driven by operating activities and PPP Loans, with sufficient liquidity for the next twelve months Cash Position (June 30, 2019 vs 2020) | Metric | June 30, 2020 (in millions) | June 30, 2019 (in millions) | Change | | :----- | :-------------------------- | :-------------------------- | :----- | | Cash | $9.8 | $5.0 | +$4.8M | - The increase in cash was driven by operating activities, PPP Loan proceeds, and earnings, partially offset by debt repayments, capital expenditures, and cash used for acquisitions[164] Consolidated Statements of Cash Flows (in thousands) | Activity | Fiscal Year 2020 | Fiscal Year 2019 | Change | | :------- | :--------------- | :--------------- | :----- | | Operating activities | $23,066 | $(8,725) | +$31,791 | | Investing activities | $(4,754) | $(15,521) | +$10,767 | | Financing activities | $(13,561) | $27,954 | -$41,515 | - Operating activities generated significant cash flow in fiscal 2020, a reversal from cash usage in fiscal 2019, primarily due to favorable changes in working capital[165] - Investing activities used less cash in fiscal 2020 ($4.8 million vs. $15.5 million in 2019) due to decreased cash paid for acquisitions, partially offset by capital expenditures[168] - Financing activities shifted from providing $28.0 million in fiscal 2019 to using $13.6 million in fiscal 2020, driven by higher debt repayments and share repurchases[169] - EVI had $21.0 million outstanding under its $100 million revolving credit facility as of June 30, 2020, with $12.8 million available to borrow, and was in compliance with covenants[172][83] - The company believes existing cash, anticipated cash from operations, and available credit will be sufficient to fund its operations and capital expenditures for at least the next twelve months[178] Off-Balance Sheet Financing As of June 30, 2020, EVI had no off-balance sheet financing arrangements - As of June 30, 2020, EVI had no off-balance sheet financing arrangements[179] Results of Operations Revenues increased by 3% in fiscal 2020 due to acquisitions, but SG&A expenses rose by 15%, leading to a higher effective tax rate - Revenues increased by approximately $7.5 million (3%) in fiscal 2020, driven by fiscal 2020 acquisitions and a full year of revenues from fiscal 2019 acquisitions, partially offset by COVID-19 related declines[180] - Gross margin improved slightly to 23.4% in fiscal 2020 from 23.1% in fiscal 2019, primarily due to product and customer mix[184] - Selling, general and administrative expenses increased by $6.7 million (15%) in fiscal 2020, rising to 22.2% of revenues, due to acquired business operations, growth investments, and increased personnel[186] - Interest expense remained flat at approximately $1.4 million in both fiscal 2020 and 2019, as increased average outstanding debt was offset by lower interest rates[187] - The effective income tax rate increased to 42.5% in fiscal 2020 from 33.4% in fiscal 2019, mainly reflecting the net impact of permanent book-tax differences from nondeductible compensation[188] Inflation Inflation did not have a significant effect on the Company's operations during fiscal 2020 or 2019 - Inflation did not have a significant effect on the Company's operations during fiscal 2020 or 2019[189] Transactions with Related Parties Several EVI subsidiaries lease warehouse and office space from affiliates of company principals or former officers - Several EVI subsidiaries lease warehouse and office space from affiliates of company principals or former officers[191][192][193][194][195][198] Related Party Lease Payments (in thousands) | Subsidiary | Related Party | Fiscal 2020 Payments | Fiscal 2019 Payments | | :--------- | :------------ | :------------------- | :------------------- | | Steiner-Atlantic | Michael S. Steiner affiliate | $148 | $146 | | Western State Design | Dennis Mack & Tom Marks affiliate | $144 | $144 | | Tri-State Technical Services | Matt Stephenson affiliate | $252 | $252 | | AAdvantage Laundry Systems | Mike Zuffinetti affiliate | $481 | $369 | | Scott Equipment | Scott Martin affiliate | $137 | $114 | | PAC Industries | Frank & Rocco Costabile affiliate | $176 | $73 | Critical Accounting Policies EVI's critical accounting policies involve significant estimates and assumptions, particularly for asset impairment, revenue recognition, and deferred taxes - EVI's critical accounting policies involve significant estimates and assumptions, particularly for asset impairment (goodwill, intangibles), useful lives of property/equipment, inventory net realizable value, deferred tax asset recoverability, allowances for doubtful accounts, revenue recognition timing, and sales returns[199][301] - Revenue is primarily recognized when control of products (equipment, parts) transfers to the customer upon shipment (87% of fiscal 2020 revenue)[200][204][281] - Revenue from longer-term contracts (equipment sales with installation/construction services, maintenance/service contracts) is recognized over time using the cost-to-cost method (13% of fiscal 2020 revenue), requiring significant judgment in cost estimation[200][202][204][279][282] - Goodwill is tested for impairment annually (or more frequently if circumstances change) using a qualitative assessment followed by a quantitative comparison of carrying value to fair value if necessary[206][291] - Customer relationships, tradenames, and other finite-lived intangible assets are amortized over 5-10 years, while indefinite-lived tradenames are tested for impairment annually[208][296] - Deferred tax assets and liabilities are recognized for temporary differences between financial reporting and tax bases, measured using enacted tax rates, with a valuation allowance if realization is not probable[209][210][318][321] Quantitative and Qualitative Disclosures about Market Risk EVI's primary market risk is interest rate risk from its variable-rate indebtedness, while foreign sales are exposed to currency fluctuations and economic conditions - EVI's primary market risk is interest rate risk, due to its variable-rate indebtedness under the 2018 Credit Agreement, where interest accrues at LIBOR or Base Rate plus a margin[213][214][216] - As of June 30, 2020, with $21.0 million outstanding at a weighted average rate of 1.68%, a hypothetical 1% increase in daily interest rates would raise annual interest expense by approximately $210,000[216] - All foreign sales require payment in United States dollars, exposing revenues to the strength of the USD and economic conditions in customer countries, though the company had no foreign exchange contracts outstanding[217] - Cash is held in bank accounts exceeding FDIC insured limits, but the company believes it is not exposed to significant credit risk due to the financial position of the depository institutions[218] Financial Statements and Supplementary Data This section presents EVI Industries' audited consolidated financial statements for fiscal years 2020 and 2019, with an unqualified opinion from the independent auditor - The section includes the audited consolidated financial statements of EVI Industries, Inc. and Subsidiaries for the fiscal years ended June 30, 2020, and 2019[226][227] - The independent registered public accounting firm, BDO USA, LLP, issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting as of June 30, 2020[227][228] - The company changed its method of accounting for leases as of July 1, 2019, due to the adoption of ASC Topic 842, Leases[229] Report of Independent Registered Public Accounting Firm BDO USA, LLP provided an unqualified opinion on EVI's consolidated financial statements and internal control over financial reporting - BDO USA, LLP provided an unqualified opinion on EVI's consolidated financial statements for fiscal years 2020 and 2019, affirming fair presentation in accordance with GAAP[227] - BDO also issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of June 30, 2020, based on COSO criteria[228] - The report notes the change in accounting principle for leases as of July 1, 2019, due to the adoption of ASC Topic 842[229] Consolidated Balance Sheets Total assets increased by $6.2 million to $160.7 million, while total liabilities remained stable at $72.9 million, with ASC 842 adoption impacting lease recognition Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2020 | June 30, 2019 | Change | | :----- | :------------ | :------------ | :----- | | Total Assets | $160,718 | $154,485 | +$6,233 | | Total Liabilities | $72,892 | $72,983 | -$91 | | Total Shareholders' Equity | $87,826 | $77,262 | +$10,564 | | Cash | $9,789 | $5,038 | +$4,751 | | Accounts Receivable, net | $23,042 | $30,557 | -$7,515 | | Inventories, net | $24,063 | $26,445 | -$2,382 | | Long-term debt, net | $25,030 | $40,563 | -$15,533 | - The adoption of ASC 842 resulted in the recognition of $5,311 thousand in operating lease assets and $5,329 thousand in operating lease liabilities as of June 30, 2020[237][242] Consolidated Statements of Operations Revenues increased by 3.28% to $235.8 million, but operating income decreased by 60.31% due to a 14.74% rise in SG&A expenses, leading to a 79.30% drop in net income Consolidated Statements of Operations (in thousands, except per share data) | Metric | Fiscal Year 2020 | Fiscal Year 2019 | Change | Change (%) | | :----- | :--------------- | :--------------- | :----- | :--------- | | Revenues | $235,802 | $228,318 | +$7,484 | +3.28% | | Cost of sales | $180,595 | $175,620 | +$4,975 | +2.83% | | Gross profit | $55,207 | $52,698 | +$2,509 | +4.76% | | Selling, general and administrative expenses | $52,427 | $45,693 | +$6,734 | +14.74% | | Operating income | $2,780 | $7,005 | -$4,225 | -60.31% | | Interest expense, net | $1,432 | $1,389 | +$43 | +3.10% | | Income before provision for income taxes | $1,348 | $5,616 | -$4,268 | -75.99% | | Provision for income taxes | $573 | $1,873 | -$1,300 | -69.41% | | Net income | $775 | $3,743 | -$2,968 | -79.30% | | Net earnings per share – basic | $0.06 | $0.30 | -$0.24 | -80.00% | | Net earnings per share – diluted | $0.06 | $0.29 | -$0.23 | -79.31% | - Gross profit increased by 4.76% to $55.2 million in fiscal 2020, with gross margin improving to 23.4% from 23.1% in fiscal 2019, primarily due to product and customer mix[245][184] - Operating income significantly decreased by 60.31% to $2.8 million in fiscal 2020, largely due to a 14.74% increase in selling, general and administrative expenses[245][186] Consolidated Statements of Shareholders' Equity Total shareholders' equity increased by $10.6 million in fiscal 2020, driven by increases in additional paid-in capital and retained earnings Shareholders' Equity Summary (in thousands, except share data) | Metric | June 30, 2020 | June 30, 2019 | Change | | :----- | :------------ | :------------ | :----- | | Common Stock Amount | $301 | $296 | +$5 | | Additional Paid-in Capital | $79,127 | $73,010 | +$6,117 | | Retained Earnings | $10,410 | $9,635 | +$775 | | Treasury Stock Cost | $(2,012) | $(1,439) | -$573 | | Total Shareholders' Equity | $87,826 | $77,262 | +$10,564 | - Total shareholders' equity increased by $10.6 million in fiscal 2020, driven by increases in additional paid-in capital and retained earnings, partially offset by an increase in treasury stock[249] - Common stock issued for acquisitions contributed $3.77 million in fiscal 2020 and $21.29 million in fiscal 2019 to additional paid-in capital[252] - Share-based compensation expense was $2.3 million in fiscal 2020 and $1.7 million in fiscal 2019[436] Consolidated Statements of Cash Flows Operating activities generated $23.1 million in cash in fiscal 2020, a significant reversal from prior year usage, while financing activities shifted to a net cash outflow Consolidated Statements of Cash Flows (in thousands) | Activity | Fiscal Year 2020 | Fiscal Year 2019 | Change | | :------- | :--------------- | :--------------- | :----- | | Net cash provided (used) by operating activities | $23,066 | $(8,725) | +$31,791 | | Net cash used by investing activities | $(4,754) | $(15,521) | +$10,767 | | Net cash (used) provided by financing activities | $(13,561) | $27,954 | -$41,515 | | Net increase in cash | $4,751 | $3,708 | +$1,043 | | Cash at end of year | $9,789 | $5,038 | +$4,751 | - Operating activities generated significant cash flow in fiscal 2020, a reversal from cash usage in fiscal 2019, primarily due to favorable changes in working capital[252][165] - Cash used in investing activities decreased by $10.8 million in fiscal 2020, mainly due to lower cash consideration paid for acquisitions[252][168] - Financing activities shifted from providing $28.0 million in fiscal 2019 to using $13.6 million in fiscal 2020, driven by higher debt repayments and share repurchases for tax obligations[252][169] Notes to Consolidated Financial Statements The notes provide detailed information on EVI's business, accounting policies, acquisitions, debt, and equity plans - The notes provide detailed information on EVI's business, significant accounting policies, acquisitions, financial statement components, related party transactions, and equity plans[254][274][339][365][366][407][419][434] - Note 2 details the adoption of ASC 842 for leases on July 1, 2019, which required balance sheet recognition of ROU assets and lease liabilities for operating leases, without a material impact on operations or cash flows[326][330] - Note 3 provides specifics on acquisitions, including the SEI Acquisition ($6.5 million cash, 209,678 shares) and PAC Acquisition ($6.4 million cash, 179,847 shares) in fiscal 2019, and four additional acquisitions in fiscal 2020 ($1.6 million cash, 132,726 shares)[339][347][358] - Note 13 details the 2018 Credit Agreement ($100 million revolving facility, $21.0 million outstanding at June 30, 2020) and the $6.9 million PPP Loans received in May 2020, outlining terms, covenants, and forgiveness uncertainty[410][412][414][417] Changes in and Disagreements With Accountants on Accounting and Financial Disclosure There have been no changes in or disagreements with accountants on accounting and financial disclosure - None[449] Controls and Procedures EVI's management concluded that disclosure controls and internal control over financial reporting were effective as of June 30, 2020, with the independent auditor concurring - As of June 30, 2020, EVI's management, with CEO and CFO participation, concluded that disclosure controls and procedures were effective[451] - Management also concluded that the company's internal control over financial reporting was effective as of June 30, 2020, based on COSO criteria[456] - The independent registered public accounting firm, BDO USA, LLP, issued an unqualified opinion on the effectiveness of internal control over financial reporting, excluding recently acquired businesses (PLS, LST, CLE) due to timing of acquisition[458][462][466] - Total assets and revenues of the excluded acquired businesses represented 4% and 2%, respectively, of consolidated financial statement amounts as of June 30, 2020[457][466] - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2020[459] Evaluation of Disclosure Controls and Procedures EVI's management concluded that disclosure controls and procedures were effective as of June 30, 2020 - EVI's management, including the principal executive and financial officers, evaluated the effectiveness of disclosure controls and procedures as of June 30, 2020, concluding they were effective[451] - The company acknowledges that control systems provide only reasonable, not absolute, assurance and can be subject to inherent limitations[452] Management's Report on Internal Control over Financial Reporting Management concluded that internal control over financial reporting was effective as of June 30, 2020, excluding recently acquired businesses - Management is responsible for establishing and maintaining adequate internal control over financial reporting and concluded it was effective as of June 30, 2020, based on COSO criteria[453][456] - Recently acquired businesses (PLS, LST, CLE) were excluded from management's assessment of internal control over financial reporting for June 30, 2020, as their total assets and revenues were not significant (4% and 2% respectively of consolidated amounts)[457] Report of Independent Registered Public Accounting Firm BDO USA, LLP issued an unqualified opinion on the effectiveness of EVI's internal control over financial reporting, excluding recently acquired businesses - BDO USA, LLP audited EVI's internal control over financial reporting as of June 30, 2020, and expressed an unqualified opinion on its effectiveness based on COSO criteria[462] - The auditor's opinion on internal control over financial reporting did not include an evaluation of the internal controls of PLS, LST, and CLE, which were acquired during fiscal 2020[466] Changes in Internal Control over Financial Reporting There were no material changes in EVI's internal control over financial reporting during the quarter ended June 30, 2020 - There were no changes in the Company's internal control over financial reporting during the quarter ended June 30, 2020, that materially affected, or are reasonably likely to materially affect, its internal control over financial reporting[459] Other Information On September 11, 2020, EVI's Board adopted Amended and Restated Bylaws, introducing advance notice provisions and allowing virtual stockholder meetings - On September 11, 2020, EVI's Board adopted Amended and Restated Bylaws[471] - The amendments include advance notice provisions for stockholders to nominate directors or bring business before meetings, specifying timing and required information[471] - The revised Bylaws also permit virtual or hybrid virtual stockholder meetings, as determined by the Board[471] Part III Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance will be incorporated by reference from the company's 2020 Annual Meeting of Stockholders Proxy Statement - Information for this item will be incorporated by reference from the company's Definitive Proxy Statement for the 2020 Annual Meeting of Stockholders[473] Executive Compensation Information regarding executive compensation will be incorporated by reference from the company's 2020 Annual Meeting of Stockholders Proxy Statement - Information for this item will be incorporated by reference from the company's Definitive Proxy Statement for the 2020 Annual Meeting of Stockholders[474] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section provides information on equity compensation plans, showing 276,467 securities available for future issuance, with other beneficial ownership details incorporated by reference Equity Compensation Plan Information (June 30, 2020) | Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted-average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | | :------------ | :------------------------------------------------------------------------------------------ | :---------------------------------------------------------------------------- | :-------------------------------------------------------------------------------------------------------------------------------------------------------- | | Equity compensation plans approved by security holders | 0 | $- | 276,467 | | Equity compensation plans not approved by security holders | 0 | $- | 0 | | Total | 0 | $- | 276,467 | - Other information required by this item will be incorporated by reference from the company's Definitive Proxy Statement for the 2020 Annual Meeting of Stockholders[477] Equity Compensation Plan Information As of June 30, 2020, 276,467 securities were available for future issuance under security holder-approved equity compensation plans Equity Compensation Plan Information (June 30, 2020) | Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted-average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | | :------------ | :------------------------------------------------------------------------------------------ | :---------------------------------------------------------------------------- | :-------------------------------------------------------------------------------------------------------------------------------------------------------- | | Equity compensation plans approved by security holders | 0 | $- | 276,467 | | Equity compensation plans not approved by security holders | 0 | $- | 0 | | Total | 0 | $- | 276,467 | Other Information The remaining information for Item 12 will be incorporated by reference from the company's 2020 Annual Meeting of Stockholders Proxy Statement - The remaining information for Item 12 will be incorporated by reference from the Company's Definitive Proxy Statement for the 2020 Annual Meeting of Stockholders[477] Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships, related transactions, and director independence will be incorporated by reference from the company's 2020 Annual Meeting of Stockholders Proxy Statement - Information for this item will be incorporated by reference from the company's Definitive Proxy Statement for the 2020 Annual Meeting of Stockholders[479] Principal Accounting Fees and Services Information regarding principal accounting fees and services will be incorporated by reference from the company's 2020 Annual Meeting of Stockholders Proxy Statement - Information for this item will be incorporated by reference from the company's Definitive Proxy Statement for the 2020 Annual Meeting of Stockholders[480] Part IV Exhibits, Financial Statement Schedules This section lists all documents filed as part of the report, including consolidated financial statements and an index of exhibits, many incorporated by reference - This item includes the consolidated financial statements of the Company and its subsidiaries, as presented in Part II, Item 8 of this Report[482][483] - All financial statement schedules have been omitted as the information is either not applicable, not required, or included within the consolidated financial statements or their notes[483] - A comprehensive list of exhibits is provided, with many incorporated by reference from prior SEC filings, covering corporate documents, credit agreements, and equity plans[484][485][487][489] Form 10-K Summary The company has not provided a Form 10-K Summary - None[491]