This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
Operator
Hello, and welcome to EVI Industries' earnings call for the third quarter of the fiscal year ending June 30, 2024. This is Henry Naumet, Chairman and CEO of EVI. Before we proceed, we'd 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. 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 on 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 third 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 recorded earnings call published on October 4th of 23, during which I described the fundamentals of our industry and key attributes of our principles and values. As I've shared time and again, EBI invests and manages with a long-term perspective. In 2016, we commenced the execution of a long-term growth strategy to build the undisputed leader in and around the commercial laundry industry, and in doing so, produce attractive returns for our shareholders over the long term. Since 2016, we have established EVI as a leader in the highly fragmented North American commercial laundry distribution and service industry. The company has grown from one business operating from a single location in the state of Florida with 31 employees, including 10 sales personnel and four service personnel, to 26 businesses employing 750 employees, including over 190 sales-focused personnel and over 400 service-focused personnel, each contributing to the company's long-term goals. Since 2016, the thoughtful execution of our long-term growth strategy has resulted in a compounded annual growth rate in revenue, net income, and adjusted EBITDA of 34%, 16%, and 31%, respectively. And now, my comments on our operating results for the three and nine-month periods ended March 31 of 2024. EVI's revenue for the three-month period was $84 million, an 11% decrease versus the same period of prior fiscal year. Meanwhile, EVI's revenue for the nine-month period increased 1% to a record $263 million as compared to the same period of prior year. Our operating results for the three nine-month periods come against the backdrop of record-breaking performance in the comparable periods of the prior fiscal year. The 11% decline in revenue during the third fiscal quarter is primarily attributed to the irregular cadence of industrial revenue and in part the delays in the completion of certain large on-premise laundry customer sales order contracts. Specifically, the third quarter of prior fiscal year included a disproportionately greater amount of industrial revenues derived from a small number of large customer sales order contracts. While the company generates a recurring base of industrial business, the timing of revenue related to industrial projects is subject to longer sales cycles and complex installations that from time to time are uneven as compared to revenue derived from other commercial laundry categories. It is important to note that excluding the impact of large industrial customer sales order contracts in each of the current and comparable prior year periods, during the third fiscal quarter, equipment revenue increased 4.5%, parts revenue increased 5.1%, service revenue increased 13%, and gross margins were 30.7%. These results demonstrate the incremental positive impact derived from our investment in additional sales professionals and service technicians, which are core to our long-term market share strategy. Looking forward, we expect to benefit from the completion of confirmed sales order contracts contributing to our over $100 million equipment sales backlog. Given our long-term objectives, and as mentioned in prior releases, we are investing heavily in key areas aimed to drive future growth and profitability. Our operating results include the total cost and only partial benefit of 21 new and additional sales professionals integral to our sales growth goals. Our operating results also include the total cost of 39 new and additional service-related personnel as compared to the same period of prior fiscal year. Finally, our operating results include increased investment across key areas of our technology strategy. While the combination of these investments adversely impacted operating results in the current period, we are incrementally benefiting from these investments in the form of greater sales and service penetration and a 4% reduction in support personnel as compared to the prior year period, and we expect to benefit more as our scalable technologies are deployed. And now... An update on progress related to our technology strategy. We have established EVI as the leader in the commercial laundry distribution and service industry. While we continue to pursue numerous buy opportunities in and around our core industry and build opportunities aimed to expand the scope of our product and service offering, in 2020, we initiated a comprehensive modernization initiative to transform EVI into a modern data-driven company capable of continuous outperformance in the digital era. In that pursuit, we commenced multiple technology programs aimed to strengthen our leadership position, accelerate sales and profit growth, increase the speed, convenience, and efficiency in serving our customers, extend our reach into new geographies and sales channels, and create scalable operating processes and efficiencies. Since 2020, our technology group has grown significantly, and various third-party technology professionals have been retained. This growing team is leading efforts to consolidate business units into end-state enterprise resource planning systems, configuring multiple softwares, enriching numerous datasets, and building master databases. These initiatives are prerequisites to the efficient utilization of internal applications and to the launch of customer facing technologies aimed to transform the customer experience. The following are four examples of benefits we increasingly derive from certain implemented technologies. One, superior data analytics provide business intelligence that increasingly results in insightful decision making by managers across our company. Two, digital mobile sales quoting applications is empowering sales professionals to deliver instant customer sales order proposals with the benefit of real-time costing, product availability, lead times, installation scheduling, and more. Three, implemented ERP systems have helped to streamline operating processes, improving the speed and reducing the cost of doing business. And four, CRM capabilities are improving customer prospecting and communications, leading to increased While the aggregate cost and expense associated with these and other modernization initiatives adversely impacts our financial performance in the near term, we believe these technological capabilities will be a catalyst to achieving our long-term growth and profitability goals. From a financial strength and liquidity perspective, Operating cash flow for the nine-month period was a record $20.3 million and a $27 million increase over prior year. And for the third quarter was a record $9.4 million. Strong operating cash flows for the three and nine-month periods contributed to a 36% decrease in net debt from $28.9 million as of June 30, 2023, to 18.6 million as of March 31st of 24. Our low leverage profile provides more than $120 million of available cash for deployment in connection with our long-term growth strategy. This record level of operating cash flows follows the payment of a special cash dividend on the company's common stock of 28 cents per share, or $4.1 million in the aggregate, paid during the second quarter of fiscal 24. we aim to uphold our philosophy of sharing increasing amounts of cashflow through higher dividends while maintaining a conservative financial position. Note that future dividends and increases, if any, will be considered in light of investment opportunities, cashflow, general economic conditions, and our overall financial condition. On acquisitions, during the nine months ended March 31 of 24, We completed the acquisition of ALCO Washer Center, a commercial laundry distributor and service provider. This acquisition strengthened our leading market share position in a Northeast region of the United States. Meanwhile, we continue to pursue opportunities in connection with the buy component of our long-term growth strategy. We have a plan for the companies we target, the way they may contribute to our long-term growth strategy, and how to generate growth while mitigating acquisition risks. We have a financial and strategic team that understands the value of each opportunity, leadership teams with a proven record of achieving growth across acquired businesses, technology teams propelling acquired businesses into the digital era, and functional support teams paving the roads to optimization. As such, we are continuously working to harvest opportunities that we believe will create value across our growing enterprise. In closing, We are a long-term focused company with ambitious growth plans. Our confidence is derived from early successes combined with financial strength and wherewithal, the reputation of a knowledgeable and high-quality buyer and builder of businesses, the forthcoming impact of promising technologies, and a heavily invested leadership team to guide the company into the future. As we have stated from the beginning, To achieve our goals, we will always be a long-term growth-focused company. For these reasons and the others mentioned during this and other earnings calls, we remain excited and optimistic about our long-term growth plans and outlook. This concludes my comments related to the third quarter of fiscal 24. In closing, I want to thank our valued employees, our loyal suppliers and customers, and our shareholders for your support and participation in EVI. Until next time, be well.
Disclaimer