Envela (ELA) - 2025 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS This section presents Envela Corporation's unaudited condensed consolidated financial statements for the three months ended March 31, 2025 and 2024, including statements of income, balance sheets, cash flows, and stockholders' equity, along with detailed notes on accounting policies, segment information, and other financial disclosures CONDENSED CONSOLIDATED STATEMENTS OF INCOME The company reported a significant increase in sales and net income for the three months ended March 31, 2025, compared to the same period in 2024, driven by higher gross margin and operating income Condensed Consolidated Statements of Income (Three Months Ended March 31) | Metric | 2025 | 2024 | | :-------------------------- | :----------- | :----------- | | Sales | $48,255,829 | $39,857,780 | | Cost of goods sold | $36,287,805 | $29,537,096 | | Gross margin | $11,968,024 | $10,320,684 | | Operating income | $3,118,421 | $2,340,143 | | Net income | $2,493,347 | $1,907,539 | | Basic earnings per share | $0.10 | $0.07 | | Diluted earnings per share | $0.10 | $0.07 | - Sales increased by 21.1% YoY, from $39,857,780 in Q1 2024 to $48,255,829 in Q1 2025[11] - Net income grew by 30.7% YoY, reaching $2,493,347 in Q1 2025 from $1,907,539 in Q1 2024[11] CONDENSED CONSOLIDATED BALANCE SHEETS The balance sheet shows an increase in total assets and stockholders' equity as of March 31, 2025, compared to December 31, 2024, with a slight decrease in total liabilities Condensed Consolidated Balance Sheets (As of March 31, 2025 and December 31, 2024) | Metric | March 31, 2025 | December 31, 2024 | | :-------------------------- | :------------- | :---------------- | | Total current assets | $53,503,337 | $51,603,807 | | Total assets | $79,664,327 | $77,870,489 | | Total current liabilities | $11,867,713 | $12,518,134 | | Total liabilities | $24,521,468 | $25,218,351 | | Total stockholders' equity | $55,142,859 | $52,652,138 | - Total assets increased by $1,793,838 from December 31, 2024, to March 31, 2025[13] - Total stockholders' equity increased by $2,490,721, reflecting the net income for the period[13] CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Net cash provided by operating activities significantly decreased in Q1 2025 compared to Q1 2024, while cash used in investing and financing activities also decreased, leading to a lower net change in cash and cash equivalents Condensed Consolidated Statements of Cash Flows (Three Months Ended March 31) | Cash Flow Activity | 2025 | 2024 | | :-------------------------- | :----------- | :----------- | | Net cash provided by operations | $1,131,057 | $3,791,721 | | Net cash (used in) investing | $(382,987) | $(644,792) | | Net cash (used in) financing | $(328,808) | $(1,216,915) | | Net change in cash and cash equivalents | $419,262 | $1,930,014 | | Cash and cash equivalents, end of period | $21,028,265 | $19,783,867 | - Net cash provided by operations decreased by 70.2% YoY[14][174] - Net cash used in investing activities decreased by 40.6% YoY, primarily due to reduced spending on ERP systems and new store build-outs[14][175] - Net cash used in financing activities decreased by 73.0% YoY, mainly due to reduced share buybacks[14][176] CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Stockholders' equity increased from January 1, 2025, to March 31, 2025, primarily due to net income, partially offset by share repurchases Condensed Consolidated Statements of Stockholders' Equity (Three Months Ended March 31) | Metric | March 31, 2025 | January 1, 2025 | | :-------------------------- | :------------- | :-------------- | | Total Stockholders' Equity | $55,142,859 | $52,652,138 | | Net Income | $2,493,347 | - | | Shares repurchased (amount) | $(2,626) | - | - Net income contributed $2,493,347 to stockholders' equity in Q1 2025[18] - The company repurchased 500 shares for $2,626 during Q1 2025[18][96] NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) These notes provide detailed explanations of the accounting policies, estimates, and specific financial statement line items, offering crucial context for understanding the company's financial position and performance NOTE 1 – BASIS OF PRESENTATION The unaudited interim condensed consolidated financial statements are prepared in accordance with U.S. GAAP for interim financial information and SEC regulations, and should be read in conjunction with the company's 2024 Annual Report on Form 10-K - Statements are prepared under U.S. GAAP for interim financial information and SEC Regulation S-X[20] - Results for Q1 2025 are not necessarily indicative of the full fiscal year 2025[20] - Company's operations are within the contiguous U.S., and its functional currency is the U.S. Dollar[20] NOTE 2 – PRINCIPLES OF CONSOLIDATION AND NATURE OF OPERATIONS Envela operates as a holding company through subsidiaries in recommerce and recycling sectors, with distinct Consumer and Commercial segments. The Consumer segment focuses on luxury goods and bullion, while the Commercial segment specializes in de-manufacturing electronic assets and ITAD services, both emphasizing circular economy principles - Envela is a holding company operating through subsidiaries in recommerce and recycling[22] - Consumer segment: online and brick-and-mortar sales of authenticated high-end luxury goods (jewelry, diamonds, watches, bullion), incorporating recycled materials for ethical and low-carbon products[23] - Commercial segment: de-manufacturing end-of-life electronic assets for commodity reclamation and ITAD services, focusing on reuse, data security, and environmental sustainability[24][25] NOTE 3 – ACCOUNTING POLICIES AND ESTIMATES This note details the critical accounting policies and estimates used in preparing the financial statements, including revenue recognition for both consumer and commercial segments, inventory valuation, goodwill impairment, and depreciation/amortization of assets. It also covers new accounting standards pronouncements - Revenue recognition follows ASC 606, with specific approaches for consumer (delivery/point of sale, assay-based for precious metals) and commercial segments (transfer of control, SOW completion, outright sales)[29][30][31][32][33][35][36][37] - Inventories are stated at the lower of cost and net realizable value, with cost determined by fair value estimates for consumer goods and retail cost/weighted average for commercial technology assets/materials[66][67] - Goodwill is evaluated for impairment annually in Q4 or earlier if triggering events occur; no impairment recorded in Q1 2025[69] - Property and equipment are depreciated on a straight-line basis over estimated useful lives (e.g., buildings 39 years, machinery 5-10 years)[71] - Finite-lived intangible assets (e.g., customer lists, domain names, ERP systems, trade names) are amortized on a straight-line basis over estimated useful lives (5-10 years)[74] - The company is evaluating the impact of ASU 2024-03, 'Disaggregation of Income Statement Expenses,' effective for annual periods beginning after December 15, 2026[76] NOTE 4 – INVENTORIES Total inventories increased slightly from December 31, 2024, to March 31, 2025, primarily driven by an increase in consumer segment trade inventories Inventories (As of March 31, 2025 and December 31, 2024) | Segment | March 31, 2025 | December 31, 2024 | | :---------------- | :------------- | :---------------- | | Consumer | $24,776,022 | $23,973,333 | | Commercial | $1,348,069 | $1,732,191 | | Total Inventories | $26,124,091 | $25,705,524 | - Consumer segment inventories increased by $802,689 (3.3%) from year-end 2024[78] - Commercial segment inventories decreased by $384,122 (22.2%) from year-end 2024[78] NOTE 5 – GOODWILL Goodwill remained stable for the Commercial segment, while the Consumer segment's goodwill was reduced to zero due to measurement period adjustments related to the Scottsdale Transaction in Fiscal 2024 Goodwill (As of March 31, 2025 and December 31, 2024) | Segment | March 31, 2025 | December 31, 2024 | | :---------------- | :------------- | :---------------- | | Consumer | $0 | $0 | | Commercial | $3,621,453 | $3,621,453 | | Total Goodwill | $3,621,453 | $3,621,453 | - Consumer goodwill decreased by $300,000 in Fiscal 2024 due to measurement period adjustments from the Scottsdale Transaction[79] NOTE 6 – PROPERTY AND EQUIPMENT, NET Net property and equipment increased slightly from December 31, 2024, to March 31, 2025, with increases across all segments, particularly in the Consumer and Corporate segments due to ongoing construction and improvements Property and Equipment, Net (As of March 31, 2025 and December 31, 2024) | Segment | March 31, 2025 | December 31, 2024 | | :---------------- | :------------- | :---------------- | | Consumer | $9,416,070 | $9,315,672 | | Commercial | $604,181 | $677,491 | | Corporate | $3,617,253 | $3,521,999 | | Total | $13,637,504 | $13,515,162 | - Consumer segment property and equipment, net, increased by $100,398, driven by building and leasehold improvements[81] - Corporate segment property and equipment, net, increased by $95,254, including new construction in progress[81] NOTE 7 – INTANGIBLE ASSETS, NET Net intangible assets decreased from December 31, 2024, to March 31, 2025, primarily due to accumulated amortization across all segments, despite some assets under development Intangible Assets, Net (As of March 31, 2025 and December 31, 2024) | Segment | March 31, 2025 | December 31, 2024 | | :---------------- | :------------- | :---------------- | | Consumer | $44,611 | $46,297 | | Commercial | $3,515,782 | $3,673,145 | | Corporate | $354,690 | $378,336 | | Total | $3,915,083 | $4,097,778 | - Total estimated future amortization expense for 2025 is $549,720, with the Commercial segment accounting for the largest portion ($472,086)[83] NOTE 8 – ACCRUED EXPENSES Total accrued expenses decreased from December 31, 2024, to March 31, 2025, mainly driven by reductions in unvouchered inventory payments in the Commercial segment and payroll accruals across all segments, partially offset by increased corporate taxes Accrued Expenses (As of March 31, 2025 and December 31, 2024) | Category | March 31, 2025 | December 31, 2024 | | :-------------------------- | :------------- | :---------------- | | Consumer Sub-total | $325,301 | $506,113 | | Commercial Sub-total | $1,347,681 | $2,407,191 | | Corporate Sub-total | $1,054,577 | $302,039 | | Total Accrued Expenses | $2,727,559 | $3,215,343 | - Commercial segment accrued expenses decreased by $1,059,510, primarily due to a reduction in unvouchered inventory payments[84] - Corporate segment accrued expenses increased by $752,538, largely due to higher accrued taxes[84] NOTE 9 – SEGMENT INFORMATION The company operates in two reportable segments: Consumer and Commercial. The CODM evaluates performance based on operating income. Both segments contributed to consolidated operating income, with the Commercial segment showing significantly higher operating income and total assets Segment Operating Income (Three Months Ended March 31) | Segment | 2025 Operating Income | 2024 Operating Income | | :---------------- | :-------------------- | :-------------------- | | Consumer | $142,365 | $204,023 | | Commercial | $2,976,056 | $2,136,120 | | Consolidated | $3,118,421 | $2,340,143 | Segment Total Assets (As of March 31, 2025 and December 31, 2024) | Segment | March 31, 2025 | December 31, 2024 | | :---------------- | :------------- | :---------------- | | Consumer | $41,000,003 | $40,454,328 | | Commercial | $33,647,370 | $33,068,887 | | Corporate | $5,016,954 | $4,347,274 | | Total Assets | $79,664,327 | $77,870,489 | - Commercial segment operating income increased by 39.3% YoY, while Consumer segment operating income decreased by 30.2% YoY[85] NOTE 10 – REVENUE Consolidated sales increased significantly, primarily driven by the Consumer segment, while the Commercial segment maintained a higher gross margin percentage. Contract liabilities, representing customer deposits and gift cards, increased for the Consumer segment Sales and Gross Margin by Segment (Three Months Ended March 31) | Segment | 2025 Sales | 2025 Gross Margin | 2025 Margin % | 2024 Sales | 2024 Gross Margin | 2024 Margin % | | :---------------- | :----------- | :---------------- | :------------ | :----------- | :---------------- | :------------ | | Consumer | $36,770,604 | $4,210,903 | 11.5% | $28,226,017 | $3,549,189 | 12.6% | | Commercial | $11,485,225 | $7,757,121 | 67.5% | $11,631,763 | $6,771,495 | 58.2% | | Consolidated | $48,255,829 | $11,968,024 | 24.8% | $39,857,780 | $10,320,684 | 25.9% | Contract Liabilities (As of March 31, 2025 and January 1, 2025) | Segment | March 31, 2025 | January 1, 2025 | | :---------------- | :------------- | :-------------- | | Consumer | $974,185 | $435,508 | | Commercial | $0 | $0 | - Consumer sales increased by 30.3% YoY, while Commercial sales decreased by 1.3% YoY[87] - Commercial segment gross margin percentage improved from 58.2% in Q1 2024 to 67.5% in Q1 2025[87] NOTE 11 – LEASES The company's future minimum lease payments for operating leases total $4,788,977 as of March 31, 2025, with a weighted average remaining lease term of 3.2 years and a weighted average discount rate of 4.0% Future Minimum Lease Payments (As of March 31, 2025) | Year | Consumer Operating Leases | Commercial Operating Leases | Total | | :--- | :------------------------ | :-------------------------- | :---- | | 2025 | $690,735 | $963,456 | $1,654,191 | | 2026 | $1,076,141 | $474,320 | $1,550,461 | | 2027 | $777,803 | $33,453 | $811,256 | | 2028 | $542,641 | $0 | $542,641 | | 2029 | $423,234 | $0 | $423,234 | | Thereafter | $148,191 | $0 | $148,191 | | Total Minimum Lease Payments | $3,658,745 | $1,471,229 | $5,129,974 | | Less: imputed interest | $(305,067) | $(35,930) | $(340,997) | | Sub-total | $3,353,678 | $1,435,299 | $4,788,977 | - Operating lease costs increased from $473,534 in Q1 2024 to $602,493 in Q1 2025[92] - Weighted average remaining lease term for operating leases was 3.2 years as of March 31, 2025, up from 2.3 years as of March 31, 2024[92] NOTE 12 – BASIC AND DILUTED AVERAGE SHARES Basic and diluted weighted average shares outstanding decreased in Q1 2025 compared to Q1 2024, primarily due to share repurchases under the company's authorized program Basic and Diluted Weighted Average Shares (Three Months Ended March 31) | Metric | 2025 | 2024 | | :-------------------------- | :----------- | :----------- | | Basic weighted average shares | 25,995,645 | 26,419,039 | | Diluted weighted average shares | 25,995,645 | 26,434,039 | - The Board approved an additional 100,000 shares for repurchase on March 27, 2025, bringing the total authorization to 1,100,000 shares[95] - The company repurchased 500 shares for $2,626 in Q1 2025, at an average price of $5.25[96] NOTE 13 – DEBT Total long-term debt obligations decreased slightly from December 31, 2024, to March 31, 2025, with the company remaining in compliance with all debt covenants. The Avail Transaction note payable was fully paid in January 2025 Long-Term Debt Obligations (As of March 31, 2025 and December 31, 2024) | Segment | March 31, 2025 | December 31, 2024 | | :---------------- | :------------- | :---------------- | | Consumer Sub-total | $5,220,516 | $5,285,948 | | Commercial Sub-total | $5,505,712 | $5,735,838 | | Corporate Sub-total | $2,469,769 | $2,500,393 | | Total Debt | $13,195,997 | $13,522,179 | | Less: current portion | $(3,399,409) | $(3,591,351) | | Net Long-Term Debt | $9,796,588 | $9,930,828 | - The Avail Transaction note payable of $166,667 was paid in full on January 1, 2025[97][103] - Future principal payments on long-term debt are $3,277,078 for 2025 and $7,781,730 for 2026[100] NOTE 14 – STOCK-BASED COMPENSATION There was no stock-based compensation expense recognized for the three months ended March 31, 2025, or 2024 - No stock-based compensation expense was recorded in Q1 2025 or Q1 2024[102] NOTE 15 – RELATED PARTY TRANSACTIONS The company has a policy for identifying and approving related party transactions. It utilizes a space owned by a related party for material processing, with estimated immaterial costs - The company has a corporate policy for reviewing and approving related party transactions[105] - The company uses a related party-owned space for material processing, with estimated immaterial costs[105] NOTE 16 – CONTINGENCIES Management believes that the resolution of currently pending lawsuits, claims, and proceedings will not have a material adverse effect on the company's financial condition, results of operations, or liquidity, and no loss contingencies were reported for the periods presented - Management assesses loss contingencies and establishes liabilities when probable and estimable[106] - No material adverse effect is expected from current legal matters[106] - No loss contingencies were subject to reporting for Q1 2025 and Q1 2024[106] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on Envela's financial condition and results of operations for the three months ended March 31, 2025, compared to 2024. It covers economic conditions, business segments, detailed financial performance metrics, non-GAAP measures like Adjusted EBITDA and Net Cash, and liquidity and capital resources Forward-Looking Statements This section highlights that the report contains forward-looking statements, which are subject to risks and uncertainties that could cause actual results to differ materially from expectations. Readers are cautioned not to place undue reliance on these statements - The report includes forward-looking statements identifiable by terms like 'may,' 'will,' 'expect,' 'intend,' etc[109] - These statements are subject to safe harbors under the Securities Act and Exchange Act[109] - Actual results may differ materially due to various risk factors, as described in the 2024 Annual Report and this Form 10-Q[109] Introduction This introduction sets the scope for the discussion of operations for the three months ended March 31, 2025 and 2024, advising readers to review it alongside the 2024 Annual Report and the unaudited condensed consolidated financial statements - Discussion covers operations for Q1 2025 and Q1 2024[110] - To be read in conjunction with the 2024 Annual Report and unaudited condensed consolidated financial statements[110] Critical Accounting Policies and Estimates There were no material changes to the company's critical accounting policies and estimates from those described in the 2024 Annual Report - No material changes to critical accounting policies and estimates since the 2024 Annual Report[111] Economic Conditions The company addresses the impacts of high interest rates, inflation, and commodity price risks on consumer spending and demand for resale technology assets. It also discusses the potential effects of tariffs on its Consumer and Commercial segments, outlining mitigation strategies Impacts of High Interest Rates and Inflation High interest rates and inflation, coupled with commodity price risk, can affect consumer discretionary spending and demand for resale technology assets. The company adjusts inbound purchase prices and monitors inventory to mitigate these impacts - High interest rates and inflation, along with commodity price risk, can impact consumer spending and demand for resale technology assets[112] - The company adjusts inbound purchase prices for commodity-based products, luxury assets, and resale technology to counterbalance economic cycles[114] - Inventory positions and working capital are continuously monitored to respond to market conditions and seasonal cycles[114] Impacts of Tariffs While the Consumer segment is not directly impacted by tariffs due to domestic sourcing, global market uncertainty can increase commodity costs. The Commercial segment may face increased costs for international purchases of technology assets and parts. Both segments mitigate risks by monitoring inventory, maintaining disciplined buying, and optimizing sales channels - Consumer segment is not directly impacted by tariffs but may see increased commodity costs on safe-haven metals due to global market uncertainty[116] - Commercial segment may incur higher costs for personal technology assets and replacement parts sourced from international markets due to tariffs[117] - Mitigation strategies include monitoring inventory, disciplined buying practices, and using optimal sales channels to maintain margins[116][117] Our Business Envela operates as a holding company with subsidiaries in recommerce and recycling. The Consumer segment focuses on luxury goods and bullion, while the Commercial segment specializes in electronic asset de-manufacturing and ITAD services, both contributing to a circular economy - Envela is a holding company with subsidiaries in recommerce and recycling[120] - Consumer segment: sales of authenticated high-end luxury goods, including pre-owned jewelry, diamonds, watches, and bullion, with a focus on recycled materials[120] - Commercial segment: de-manufacturing of end-of-life electronic assets for commodity reclamation and ITAD services, promoting reuse and environmental sustainability[121] Segment Activities The company's strategy involves expanding its Consumer segment through new store openings and evaluating complementary product offerings, while the Commercial segment aims for organic growth and acquisitions, leveraging existing production facilities - Consumer segment strategy: expand store locations across the U.S. and evaluate complementary product/service offerings[123] - Commercial segment strategy: pursue organic growth and acquisitions, consolidating targets into existing facilities[124] Results of Operations Envela experienced significant consolidated sales and net income growth in Q1 2025 compared to Q1 2024. The Consumer segment drove sales growth, while the Commercial segment improved its gross margin despite a slight sales decrease. Operating expenses increased, but operating income and net income saw substantial gains Consolidated Financial Performance (Three Months Ended March 31) | Metric | 2025 | 2024 | Change Amount | Change % | | :-------------------------- | :----------- | :----------- | :------------ | :------- | | Sales | $48,255,829 | $39,857,780 | $8,398,049 | 21.1% | | Gross margin | $11,968,024 | $10,320,684 | $1,647,340 | 16.0% | | Operating income | $3,118,421 | $2,340,143 | $778,278 | 33.3% | | Net income | $2,493,347 | $1,907,539 | $585,808 | 30.7% | Sales Consolidated sales increased by 21.1% YoY, primarily driven by a 30.3% increase in the Consumer segment due to stronger volumes and pricing in precious metals and bullion. The Commercial segment saw a slight decrease of 1.3% due to lower ITAD settlement volumes, offset by electronic scrap sales and product returns services Sales by Segment (Three Months Ended March 31) | Segment | 2025 Sales | 2024 Sales | Change Amount | Change % | | :---------------- | :----------- | :----------- | :------------ | :------- | | Consolidated | $48,255,829 | $39,857,780 | $8,398,049 | 21.1% | | Consumer | $36,770,604 | $28,226,017 | $8,544,587 | 30.3% | | Commercial | $11,485,225 | $11,631,763 | $(146,538) | (1.3)% | - Consumer segment sales were favorably impacted by exceptional inbound material flow from in-store buying programs and strong online/retail store performance[128] - Commercial segment sales decrease was almost fully offset by sales of electronic scrap grades and growth in product returns service business[129] Cost of Goods Sold Consolidated cost of goods sold increased by 22.9% YoY. The Consumer segment's cost of goods sold rose by 31.9% due to higher volumes and rising gold prices, while the Commercial segment's decreased by 23.3% due to reduced sales volumes in ITAD settlements and personal technology assets Cost of Goods Sold by Segment (Three Months Ended March 31) | Segment | 2025 COGS | 2024 COGS | Change Amount | Change % | | :---------------- | :---------- | :---------- | :------------ | :------- | | Consolidated | $36,287,805 | $29,537,096 | $6,750,709 | 22.9% | | Consumer | $32,559,701 | $24,676,828 | $7,882,873 | 31.9% | | Commercial | $3,728,104 | $4,860,268 | $(1,132,164) | (23.3)% | - Consumer segment COGS as a percentage of sales increased from 87.4% to 88.5% due to product mix and selling into a rising gold market[133] - Commercial segment COGS as a percentage of sales decreased from 41.8% to 32.5% due to a high-margin ITAD settlement and increased revenue from service fees with no associated COGS[136] Gross Margin Consolidated gross margin increased by 16.0% YoY. The Commercial segment saw a significant 14.6% increase in gross margin and an improved margin percentage (67.5% from 58.2%), while the Consumer segment's gross margin increased by 18.6% but its margin percentage slightly declined Gross Margin by Segment (Three Months Ended March 31) | Segment | 2025 Gross Margin | 2024 Gross Margin | Change Amount | Change % | | :---------------- | :---------------- | :---------------- | :------------ | :------- | | Consolidated | $11,968,024 | $10,320,684 | $1,647,340 | 16.0% | | Consumer | $4,210,903 | $3,549,189 | $661,714 | 18.6% | | Commercial | $7,757,121 | $6,771,495 | $985,626 | 14.6% | - Commercial segment's gross margin percentage improved from 58.2% to 67.5% YoY[137] - Consumer segment's gross margin percentage decreased from 12.6% to 11.5% YoY[137] Selling, General and Administrative Consolidated selling, general and administrative (SG&A) expenses increased by 10.0% YoY. The Consumer segment's SG&A rose by 19.6% due to new store cost structures, while the Commercial segment's increased by 3.0% primarily due to human capital costs in its services business Selling, General and Administrative Expenses (Three Months Ended March 31) | Segment | 2025 SG&A | 2024 SG&A | Change Amount | Change % | | :---------------- | :---------- | :---------- | :------------ | :------- | | Consolidated | $8,404,262 | $7,636,976 | $767,286 | 10.0% | | Consumer | $3,887,906 | $3,251,490 | $636,416 | 19.6% | | Commercial | $4,516,356 | $4,385,486 | $130,870 | 3.0% | - Consumer segment SG&A increase was partially offset by reduced costs associated with new store openings compared to Q1 2024[143] - Commercial segment SG&A increase was offset by variable-cost production expenses scaling with sales volumes[144] Depreciation and Amortization Consolidated depreciation and amortization expense increased by 29.6% YoY. The Consumer segment saw a substantial 92.8% increase, primarily due to assets placed into service for new stores, while the Commercial segment had a modest 5.9% increase Depreciation and Amortization Expenses (Three Months Ended March 31) | Segment | 2025 D&A | 2024 D&A | Change Amount | Change % | | :---------------- | :--------- | :--------- | :------------ | :------- | | Consolidated | $445,341 | $343,565 | $101,776 | 29.6% | | Consumer | $180,632 | $93,676 | $86,956 | 92.8% | | Commercial | $264,709 | $249,889 | $14,820 | 5.9% | - Consumer segment's significant increase in D&A is directly linked to the depreciation of assets from new store openings[147] Other Income Consolidated other income decreased by 13.8% YoY. Both Consumer and Commercial segments experienced decreases, primarily due to the absence of rental income present in Q1 2024 and a reduction in earned interest rates for the Commercial segment Other Income (Three Months Ended March 31) | Segment | 2025 Other Income | 2024 Other Income | Change Amount | Change % | | :---------------- | :---------------- | :---------------- | :------------ | :------- | | Consolidated | $205,605 | $238,528 | $(32,923) | (13.8)% | | Consumer | $849 | $8,005 | $(7,156) | (89.4)% | | Commercial | $204,756 | $230,523 | $(25,767) | (11.2)% | - Consumer segment's other income decrease was mainly due to rental income in Q1 2024 not recurring[151] - Commercial segment's other income decrease was attributed to lower earned interest rates and rental income from the prior year[152] Interest Expense Consolidated interest expense decreased by 12.0% YoY. Both Consumer and Commercial segments saw reductions in interest expense, with no material impact from debt additions or amortization in either period Interest Expense (Three Months Ended March 31) | Segment | 2025 Interest Expense | 2024 Interest Expense | Change Amount | Change % | | :---------------- | :-------------------- | :-------------------- | :------------ | :------- | | Consolidated | $(106,321) | $(120,854) | $14,533 | (12.0)% | | Consumer | $(54,047) | $(64,401) | $10,354 | (16.1)% | | Commercial | $(52,274) | $(56,453) | $4,179 | (7.4)% | - The decrease in interest expense was not materially impacted by debt additions or amortization[157][158] Income Tax Expense Consolidated income tax expense increased by 31.6% YoY, with an effective income tax rate of 22.5% in Q1 2025 (vs. 22.4% in Q1 2024). The increase was primarily driven by higher taxable income in the Commercial segment and state/local taxes Income Tax Expense (Three Months Ended March 31) | Segment | 2025 Tax Expense | 2024 Tax Expense | Change Amount | Change % | | :---------------- | :--------------- | :--------------- | :------------ | :------- | | Consolidated | $(724,358) | $(550,278) | $(174,080) | 31.6% | | Consumer | $(20,073) | $(59,151) | $39,078 | (66.1)% | | Commercial | $(704,285) | $(491,127) | $(213,158) | 43.4% | - The effective income tax rate was 22.5% in Q1 2025, slightly up from 22.4% in Q1 2024[160] - Differences from the U.S. federal statutory rate (21.0%) are due to state taxes and non-deductible expenses[160] Net Income Consolidated net income increased by 30.7% YoY. The Commercial segment's net income grew substantially by 33.3%, while the Consumer segment experienced a 21.9% decrease in net income Net Income (Three Months Ended March 31) | Segment | 2025 Net Income | 2024 Net Income | Change Amount | Change % | | :---------------- | :-------------- | :-------------- | :------------ | :------- | | Consolidated | $2,493,347 | $1,907,539 | $585,808 | 30.7% | | Consumer | $69,094 | $88,476 | $(19,382) | (21.9)% | | Commercial | $2,424,253 | $1,819,063 | $605,190 | 33.3% | Earnings Per Share Consolidated basic and diluted earnings per share increased by $0.03, or 42.9%, to $0.10 in Q1 2025 compared to $0.07 in Q1 2024 Earnings Per Share (Three Months Ended March 31) | Metric | 2025 EPS | 2024 EPS | Change Amount | Change % | | :-------------------------- | :------- | :------- | :------------ | :------- | | Consolidated Basic/Diluted EPS | $0.10 | $0.07 | $0.03 | 42.9% | Non-U.S. GAAP Financial Measures This section introduces and reconciles non-U.S. GAAP financial measures, Adjusted EBITDA and Net Cash, which management uses to assess operating performance and liquidity/leverage Adjusted EBITDA Consolidated Adjusted EBITDA increased by 32.8% YoY, reflecting improved operating performance. The Commercial segment contributed significantly to this growth Adjusted EBITDA Reconciliation (Three Months Ended March 31) | Segment | 2025 Adjusted EBITDA | 2024 Adjusted EBITDA | | :---------------- | :------------------- | :------------------- | | Consumer | $322,997 | $297,699 | | Commercial | $3,240,765 | $2,386,009 | | Consolidated | $3,563,762 | $2,683,708 | - Consolidated Adjusted EBITDA increased by $880,054, or 32.8%, YoY[170] - Adjusted EBITDA is used by management to assess operating performance and evaluate strategy effectiveness[169] Net Cash Net Cash, defined as cash and cash equivalents less debt obligations, increased by 10.5% from December 31, 2024, to March 31, 2025, indicating improved liquidity Net Cash (As of March 31, 2025 and December 31, 2024) | Metric | March 31, 2025 | December 31, 2024 | | :-------------------------- | :------------- | :---------------- | | Total cash | $21,028,265 | $20,609,003 | | Less: debt obligations | $(13,195,997) | $(13,522,179) | | Net Cash | $7,832,268 | $7,086,824 | - Net Cash increased by $745,444 from year-end 2024[172] - Net Cash is presented as a measure of liquidity and leverage profile[171] Liquidity and Capital Resources The company's primary liquidity source is cash from operations, which decreased significantly YoY. Investing activities used less cash, and financing activities also saw reduced cash outflow due to fewer share buybacks. The company has access to a line of credit but does not anticipate needing it, focusing on optimizing new store performance and organic/strategic growth in its Commercial business Cash Flow Summary (Three Months Ended March 31) | Activity | 2025 | 2024 | Change Amount | Change % | | :-------------------------- | :----------- | :----------- | :------------ | :------- | | Operating activities | $1,131,057 | $3,791,721 | $(2,660,664) | (70.2)% | | Investing activities | $(382,987) | $(644,792) | $261,805 | (40.6)% | | Financing activities | $(328,808) | $(1,216,915) | $888,107 | (73.0)% | | Net increase in cash | $419,262 | $1,930,014 | $(1,510,752) | (78.3)% | - Primary liquidity source is cash generated from operating activities[177] - No amounts drawn on the $3.8 million secured line of credit as of March 31, 2025[103][177] - Focus in Fiscal 2025 is on optimizing new store performance and growing the Commercial business organically and strategically[180] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a 'smaller reporting company,' Envela is not required to provide the disclosures typically mandated by this item - The company is exempt from this disclosure requirement as a 'smaller reporting company'[182] ITEM 4. CONTROLS AND PROCEDURES Management, including the principal executive and financial officers, concluded that the company's disclosure controls and procedures were effective as of March 31, 2025. No material changes in internal control over financial reporting occurred during the period Evaluation of Disclosure Controls and Procedures Management assessed the effectiveness of disclosure controls and procedures as of March 31, 2025, concluding they were effective in providing reasonable assurance for information reporting - Disclosure controls and procedures were evaluated as effective as of March 31, 2025[183] - Controls are designed to provide reasonable assurance, but not absolute assurance, of achieving objectives[184] Changes in Internal Control over Financial Reporting No material changes in internal control over financial reporting occurred during the three months ended March 31, 2025 - No material changes in internal control over financial reporting during the period[185] PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Management believes that the ultimate resolution of various claims, lawsuits, and pending actions arising in the normal course of business will not have a material adverse effect on the company's financial condition, results of operations, or cash flow - Management does not expect legal proceedings to have a material adverse effect on the company's financials[186] - Outcomes of pending lawsuits cannot be predicted with absolute certainty[186] ITEM 1A. RISK FACTORS There have been no material changes to the risk factors previously disclosed in the company's 2024 Annual Report - No material changes to risk factors since the 2024 Annual Report[187] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES This section details the company's share repurchase activities, including the number of shares purchased, average price paid, and remaining authorization under the program Repurchases The company repurchased 500 shares for $2,626 in March 2025, at an average price of $5.25. The Board authorized an additional 100,000 shares for repurchase, bringing the total authorization to 1,100,000 shares under the program expiring March 31, 2026 Share Repurchases (Three Months Ended March 31, 2025) | Fiscal Period | Shares Purchased | Average Price Paid per Share | Total Price Paid | Shares Available to Purchase | | :-------------------------- | :--------------- | :--------------------------- | :--------------- | :--------------------------- | | Balance as of January 1, 2025 | 928,930 | $4.91 | $4,568,823 | 71,070 | | March 1 - 31, 2025 | 500 | $5.25 | $2,626 | 170,570 | | Balance as of March 31, 2025 | 929,430 | $4.92 | $4,571,449 | 170,570 | - The Board approved an additional 100,000 shares for repurchase on March 27, 2025, increasing the total authorization to 1,100,000 shares[190] - The repurchase program expires on March 31, 2026[190] ITEM 3. DEFAULTS UPON SENIOR SECURITIES This item is not applicable to the company - This item is not applicable[190] ITEM 4. MINE SAFETY DISCLOSURES This item is not applicable to the company - This item is not applicable[190] ITEM 5. OTHER INFORMATION No other information is reported under this item - No other information is reported under this item[191] ITEM 6. EXHIBITS This section lists all exhibits filed with the Form 10-Q, including certifications, XBRL documents, and the interactive data file - Includes certifications pursuant to Rule 13a-14(a) and 18 U.S.C. Section 1350[192] - XBRL Instance Document, Taxonomy Extension Schema, Calculation Linkbase, Definition Linkbase, Label Linkbase, and Presentation Linkbase Documents are filed[192] - Cover Page Interactive Data File is included[192] SIGNATURE The report is duly signed on behalf of Envela Corporation by its Chief Financial Officer, John G. DeLuca, as the Principal Financial Officer - Report signed by John G. DeLuca, Chief Financial Officer, on May 7, 2025[195] GLOSSARY OF DEFINED TERMS This section provides definitions for key terms used throughout the document, such as '2024 Annual Report,' 'Adjusted EBITDA,' 'ASC,' 'ASU,' 'Avail Transaction,' 'Board,' 'CODM,' 'Common Stock,' 'Company,' 'Envela,' 'Exchange Act,' 'Financial Statements,' 'Fiscal 2024,' 'Fiscal 2025,' 'Form 10-Q,' 'FSB,' 'IT,' 'ITAD,' 'NYSE,' 'Net Cash,' 'Securities Act,' 'Scottsdale Transaction,' 'SEC,' 'SOW,' 'TBT,' 'U.S.,' 'U.S. Dollar,' and 'U.S. GAAP' - Provides definitions for key terms used in the Form 10-Q[196] - Includes definitions for financial and regulatory terms like Adjusted EBITDA, ASC, SEC, and U.S. GAAP[196] - Defines company-specific terms such as Avail Transaction and Scottsdale Transaction[196]