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spk00: Hello and welcome to EVI Industries' earnings call for the first quarter of the fiscal year ending June 30, 2024. This is Henry Namid, Chairman and CEO of EVI. Before we proceed, we would like to disclose our cautionary statement. This earnings call contains forward-looking statements as defined by SEC laws and regulations. Forward-looking statements are subject to a number of risks and uncertainties, including those set forth in our earnings press release issued today and in our SEC filings, including the risk factors section of the annual report on Form 10-K for the fiscal year ended June 30, 2023. Actual results may differ materially from those expressed in or implied by the forward-looking statements. This call also includes a discussion of adjusted EBITDA, which is a non-GAAP financial measure that the company believes is useful in evaluating performance. Please refer to our earnings press release issued today for additional information regarding adjusted EBITDA including how we define adjusted EBITDA and a reconciliation of adjusted EBITDA to net income, the most comparable GAAP financial measure. Today, I will summarize our operating results for the first quarter of fiscal 24, and I will share our progress in connection with our long-term goals. For those of you that may be new to our company and our long-term growth plans, please refer to the recording previously provided with our fiscal 23 results available on our website, where I describe the fundamentals of our industry and key attributes of our principles and values. EVI achieved record revenue and gross profit for the first quarter of fiscal 24, including a record $88 million in revenue, reflecting a 6% increase year over year, and we delivered record gross profits of approximately $26 million, or a 29.2% gross margin. Despite record revenues, we maintained a strong customer sales order backlog as of September 30th. Amid our growth and continuous investment, we sustained a healthy balance sheet with approximately $30 million of net debt as of September 30th, generated $1.5 million in cash flow from operations, and we completed one acquisition during the quarter. It is through disciplined execution of our buy and build growth strategy and a thriving entrepreneurial culture that that we have established EVI as a leader in the highly fragmented North American commercial laundry distribution and service market. As a result of various initiatives since 2016, our revenue net income and adjusted EBITDA have grown at compounded annual growth rates of 37%, 24% and 35% respectively. The 6% increase in revenue for the quarter was the result of an increase in products available to satisfy steady customer demand and a larger sales organization that is successfully growing market share across various end market segments. Given the increasing installed base of commercial laundry equipment we represent, parts, installation, and routine service revenues also increased. Concurrently, we sustained gross margins of over 29% for the first quarter, reflecting five consecutive quarters of gross margins exceeding 28%. Top-line growth and sustained gross margin reflects the benefits of various initiatives undertaken to improve the customer value proposition, and in turn deliver incrementally better profitability. The first quarter record revenue and gross profit performance was partially offset by an approximately $3 million or 15% increase in SG&A. The SG&A increase includes a one-time expense of $1.2 million of stock compensation expense or approximately 40%, $1 million in additional selling expenses or approximately 33%, and $800,000 in technology investments and expenses in connection with new business acquisitions or approximately 27%. More specifically, our culture to reward performance through a variety of pay for performance incentive programs to our leadership and sales professionals resulted in a one-time stock compensation expense related to the acceleration of the vesting of previously granted restricted stock awards and restricted stock units triggered by the company's achievement of specific financial goals during the fiscal 23. The increase in selling expense is the result of an increase in commissionable sales as compared to the same quarter of the prior fiscal year, an increased headcount of sales professionals across the company in connection with investment in new OEM representations, additional distribution territories, and collaborative strategies with the company's OEM partners in the pursuit of future growth. Finally, the increase in other operating expenses reflect expenses related to acquired businesses and the company's continued investments to modernize and optimize its operations. From a financial strength and liquidity perspective, EVI's strong financial position has been critical to our performance, and at the completion of the first quarter, the company's balance sheet remains strong with $29.7 million of net debt. We believe that a low leverage position allows the company ample liquidity to continue investing in opportunities consistent with our long-term growth strategy. We also believe the financial strength, access to capital, and a history of consistent growth provides comfort and confidence to our stakeholders. During fiscal 23, we invested much of our free cash flow into working capital, primarily in inventory required to support short-term customer equipment and parts needs. and to fulfill confirmed customer sales order contracts. During the first quarter, the company was able to monetize a portion of our inventory investment, resulting in $1.5 million of operating cash flows, reflecting a $7.7 million increase in cash flow from operations as compared to the same period of the prior fiscal year. We understand that managing our financial resources effectively is critical to achieving sustainable growth over the long term. By taking a thoughtful and risk mitigating approach to capital allocation, we believe we can continue to invest in our business and pursue strategic opportunities simultaneously. This approach has served us well in the past, and we remain confident that it has positioned us for success in the years ahead. On acquisitions, during the first quarter, we completed the acquisition of Alco Wash Center, a commercial laundry distributor and service provider. The acquisition strengthens our leading market share position in the Northeast region of the United States. Through this acquisition, we added experienced sales professionals with a track record of growth across an established customer base and a team of knowledgeable service technicians with a longstanding reputation for providing reliable services. Each acquisition is integral to achieving our long-term goal to build North America's largest value-added distributor of commercial laundry and related products and the most dynamic network of commercial laundry technicians. Our company is excited about the benefits already delivered by these businesses and appreciate the value each provides to our growing organization. Looking forward, we continue to see a strong deal pipeline and believe that business owners, customers, and prospective leaders will continue to be attracted to joining the EVI family and to working with our company in the months and years ahead. On technology investments, the technological transformation of our company is a significant undertaking that requires thoughtful and precise executions. To date, our technology investments have primarily been focused on our ERP systems, which are the foundation of a broader technology strategy. Given our progress with the ERP systems, we have increased our focus on deploying customer-facing technology that we believe will facilitate market share growth, new customer acquisitions, accelerate the optimization of newly acquired businesses, margin expansion, and superior customer service. Our technology team is dedicated to this long-term initiative and we are confident in the long-term benefits of these technology investments. More specifically on our enterprise resource planning systems, over the last four years, we consistently made significant investments to modernize and optimize our operations, including successful efforts to regionalize operations and implement new technologies at legacy business units. These investment initiatives are designed to reduce costs, enhance efficiency, and promote consistency across our operations that collectively result in a more agile and responsive organization capable of scaling up with continued growth. Our new enterprise resource planning system provides previously unavailable analytics that management now uses to make decisions aimed to fine-tune continuing operations with greater speed and accuracy. At this point, these fundamental initiatives in connection with legacy business units are nearing completion although we believe this will be a continuous process given the buy component of our long-term growth strategy. Given the state of our ERP systems, subsequent to the completion of the first quarter, we commenced the configuration and implementation of a field service management platform aimed to transform the customer experience. Our future field service management platform will provide our technicians with real-time access to critical information to maximize technician utilization and efficiency. including real-time access to time-sensitive product detail, technical support, parts pricing and inventory availability, warranty management, route optimization, and more. We believe that this advanced technology will not only improve the efficiency of service operations but also drive future product sales growth. In summary, our mission is to build the undisputed leader in and around the commercial laundry industry, and in doing so, produce attractive returns for our shareholders. As we have stated from the beginning, we are a long-term growth-focused company that is thoughtful and committed and that acts with conviction when the opportunity is right. We have stayed true to our financial principles, consistently acquired good businesses, strengthened our customer value proposition, and consistently improved gross and operating margins. We also believe that we are just beginning to realize the benefits of our optimization initiatives. Supporting these efforts is a collection of dynamic, well-respected, and entrepreneurial leaders from across the commercial laundry industry. Our approach and results have earned us a positive reputation in and around our industry, including among owners of quality businesses, which we may add to our growing EVI family, and among talented professionals who we may seek to hire. For those reasons, and the others mentioned during this earnings call, we remain excited and optimistic about our long-term growth plans and outlook. This concludes my comments related to the first quarter of fiscal 24. I want to thank our valued employees, our loyal suppliers and customers, and our shareholders for your support and participation in EVI. Until next time, be well.
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