EnviroStar(EVI) - 2021 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for EVI Industries, Inc. and its subsidiaries, including statements of operations, balance sheets, shareholders' equity, and cash flows, along with detailed notes explaining accounting policies, debt, leases, income taxes, equity plans, related party transactions, goodwill, and subsequent events Condensed Consolidated Statements of Operations For Q3 2020, revenues slightly increased, but gross profit and net income decreased, with basic EPS at $0.04 | Metric | Q3 2020 (in thousands) | Q3 2019 (in thousands) | | :----------------- | :--------------------- | :--------------------- | | Revenues | $57,878 | $55,681 | | Cost of sales | $44,545 | $41,847 | | Gross profit | $13,333 | $13,834 | | Operating income | $896 | $1,281 | | Net income | $518 | $580 | | Basic EPS | $0.04 | $0.05 | | Diluted EPS | $0.04 | $0.04 | Condensed Consolidated Balance Sheets As of September 30, 2020, total assets increased to $164.0 million from $160.7 million, while total liabilities rose to $75.1 million from $72.9 million | Metric | Sep 30, 2020 (in thousands) | Jun 30, 2020 (in thousands) | | :--------------------- | :-------------------------- | :-------------------------- | | Total assets | $164,037 | $160,718 | | Total liabilities | $75,115 | $72,892 | | Total shareholders' equity | $88,922 | $87,826 | Condensed Consolidated Statements of Shareholders' Equity Total shareholders' equity increased to $88.9 million at September 30, 2020, from $87.8 million at June 30, 2020, primarily due to net income and stock compensation | Metric | Sep 30, 2020 (in thousands) | Jun 30, 2020 (in thousands) | | :-------------------------- | :-------------------------- | :-------------------------- | | Total Shareholders' Equity | $88,922 | $87,826 | | Net income | $518 | N/A | | Stock compensation | $578 | N/A | Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities significantly increased to $4.3 million for Q3 2020, but debt repayments led to a net cash decrease of $4.7 million | Cash Flow Activity | Q3 2020 (in thousands) | Q3 2019 (in thousands) | | :--------------------------- | :--------------------- | :--------------------- | | Net cash from operating activities | $4,319 | $1,833 | | Net cash used in investing activities | $(997) | $(1,610) | | Net cash used in financing activities | $(8,000) | $0 | | Net (decrease) increase in cash | $(4,678) | $223 | | Cash at end of period | $5,111 | $5,261 | Notes to Condensed Consolidated Financial Statements This section details the company's financial reporting, covering accounting policies, debt, leases, income taxes, equity, related parties, goodwill, and subsequent events Note (1) - General EVI Industries is a value-added distributor of commercial laundry equipment and services, with the COVID-19 pandemic negatively impacting business and prompting cost-reduction measures and PPP Loans - EVI Industries is a value-added distributor providing planning, designing, consulting, sales, leasing, parts, accessories, installation, maintenance, and repair services for commercial laundry operations[26] - The COVID-19 pandemic has caused delays and declines in customer orders, equipment/parts installations, and parts order fulfillment, leading to cost reduction actions such as changes to inventory levels, renegotiating supplier payment terms, and reducing hiring activities[28] - The company received approximately $6.9 million in PPP Loans during May 2020 to increase its cash position and preserve financial flexibility amidst COVID-19 uncertainties[30] Note (2) – Summary of Significant Accounting Policies No changes have been made to the company's significant accounting policies from those described in its Annual Report on Form 10-K for the fiscal year ended June 30, 2020 - No changes to the Company's significant accounting policies from those described in the Annual Report on Form 10-K for the fiscal year ended June 30, 2020[33] Note (3) – Recently Issued Accounting Guidance The company is evaluating the potential impact of ASU 2016-13 on credit losses and ASU 2020-04 on reference rate reform on its financial statements - The company is evaluating ASU 2016-13, 'Financial Instruments - Credit Losses,' which introduces a new forward-looking 'expected loss' model, effective for the fiscal year ending June 30, 2022[34] - The company is evaluating ASU 2020-04, 'Reference Rate Reform,' which provides temporary optional guidance for accounting for reference rate reform, available until December 31, 2022[35] Note (4) - Earnings Per Share Basic and diluted earnings per share for the three months ended September 30, 2020, were $0.04, a decrease from basic EPS of $0.05 in the prior year | Metric | Q3 2020 | Q3 2019 | | :----------------- | :------ | :------ | | Basic EPS | $0.04 | $0.05 | | Diluted EPS | $0.04 | $0.04 | | Weighted average shares outstanding (basic) | 11,935 | 11,777 | Note (5) - Debt Total debt, net, decreased to $19.7 million at September 30, 2020, from $27.7 million, with $19.5 million available under the credit facility | Metric | Sep 30, 2020 (in thousands) | Jun 30, 2020 (in thousands) | | :--------------------- | :-------------------------- | :-------------------------- | | Revolving Line of Credit | $13,000 | $21,000 | | PPP Loans | $6,892 | $6,892 | | Total debt, net | $19,724 | $27,710 | - As of September 30, 2020, the company was in compliance with its covenants under the 2018 Credit Agreement and had $19.5 million available to borrow under the revolving credit facility[47] - The PPP Loans, totaling approximately $6.9 million, are for a two-year term with a 1.00% interest rate, deferred for the first six months, with forgiveness subject to approval by the Lender and the U.S. Small Business Administration[49][50] Note (6) – Leases The company adopted ASC 842, recognizing right-of-use assets and liabilities for leases over 12 months, with operating lease liabilities at $7.6 million - The company adopted ASC Topic 842, Leases, effective July 1, 2019, requiring the recognition of right-of-use assets and liabilities on the balance sheet for leases with terms longer than 12 months[55] | Metric | Sep 30, 2020 (in thousands) | | :----------------------------------- | :-------------------------- | | Present value of minimum lease payments | $7,589 | | Current portion of lease liabilities | $1,882 | | Long-term portion of lease liabilities | $5,707 | | Metric | Sep 30, 2020 | | :----------------------------------- | :----------- | | Weighted average remaining lease terms (Operating leases) | 5.9 years | | Weighted average discount rate (Operating leases) | 3.2% | - The company derives a portion of its revenue from equipment leasing arrangements accounted for as sales-type leases, with revenue recognized upon delivery and maintenance/interest recognized monthly[66] Note (7) - Income Taxes Net deferred tax liabilities decreased to $968,000 at September 30,