Security Federal Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
October 4, 2023

There are 1 speakers on the call.

Operator

Hello, and welcome to EVI Industries Earnings Call for the 4th fiscal quarter and fiscal year ended June 30, 2023. This is Henry Nahmad, 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 our annual report on Form 10 ks for the fiscal year ended June 30, 2023.

Operator

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. Before we get started, I want to share my appreciation for the over 7 50 valued employees that make up EVI today. Our people are our most valuable asset and without the relentless devotion to this company, its mission and the thousands of customers we serve, the record performance I will share with you today would not have been possible.

Operator

Today, I will summarize our operating results for the 4th fiscal quarter and the fiscal year ended June 30, 2023, 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, At the end of my commentary, I will describe the fundamentals of our industry and key attributes of our principles and values. EBI achieved record results in key financial metrics for the 4th fiscal quarter and fiscal 2023, including a record $354,000,000 in revenue, reflecting a 32% increase year over year. Despite record revenues, we maintained a strong customer sales order backlog as of June 30. Amid our growth and continuous investment, we sustained a healthy balance sheet with $29,000,000 of net debt as of June 30.

Operator

We generated $7,600,000 in cash flow from operations during the 4th fiscal quarter and we completed 4 acquisitions during fiscal 2023. Given this exceptional performance and our confidence in the prospects of our company, I am pleased to share that our Board of Directors declared a special cash dividend on the company's common stock of $0.28 per share or approximately $4,000,000 It is through disciplined execution of our buy and build growth strategy and a thriving entrepreneurial culture that we have established EVI as a leader in the highly fragmented North American commercial laundry distribution and services market. As a result of various initiatives since 2016, our revenue, net income and adjusted EBITDA have grown at compounded annual growth rates of 39%, 28% and 37% respectively. And over this period, we experienced a compounded annual growth rate in revenue of 7% at businesses we have owned for at least 3 years. As a refresher, the essential nature of the commercial laundry industry is evidenced by decades of consistent growth and demand for commercial laundry products and services across all end customer markets, including but not limited to healthcare, hospitality, food service, institutional, vended and multifamily.

Operator

Commercial laundries that serve these end markets require advanced planning, thoughtful design, knowledgeable installation and continuous post installation service and support. Given the nature of such laundry operations and that laundry is a critical function to such businesses, customers need the products and services a distributor and service provider provides deliver clean linens and textiles effectively and profitably to the end users they serve. Demand for Laundry products and services is also driven by both functional and economic obsolescence. Specifically, demand has increased because of the introduction of new equipment with advanced technologies and efficiencies that yield attractive returns on invested capital derived from water, utility and labor savings. Our record $354,000,000 in revenue for fiscal 2023 reflects the performance of acquired businesses, including an organic growth rate of 7% at legacy businesses, a more consistent fulfillment of confirmed customer sales order contracts from our equipment sales order backlog, the completion of on demand sales fulfilled from a larger available base inventory and recurring demand for replacement parts and accessories.

Operator

Additionally, the increased readiness of customer locations to accept installations accelerated the speed with which our teams were able to complete the customer sales order fulfillment process as compared to fiscal 2022. These factors combined with continuous demand for the products and services our company provides across all 4 commercial laundry categories and all end customer markets contributed to record revenue in all 4 fiscal quarters and record revenue for fiscal 2023. As we previously described, manufacturers of commercial laundry products experienced inflationary pressures and raised prices accordingly. Since the onset of this inflationary trend in June of 2020, we raised selling prices, focused on solution selling, introduced higher margin products and fine tuned installation and maintenance services. These actions resulted in a 5.90 basis point increase in gross margins from 23.4% for fiscal 2020 to 29.3% for fiscal 2023.

Operator

While the significant increase in gross margins has been a catalyst for driving improved operating profit, our ongoing modernization investments and optimization efforts also had a positive impact on operating profit. These initiatives are designed to reduce cost, enhance efficiency and promote consistency across our company's operations and result in a more agile and responsive organization capable of scaling up with continued growth. Although this fundamental initiative in connection with legacy business units is nearing completion, this is expected to be a perpetual effort in light of our growth strategy. From a financial strength and liquidity perspective, our strong financial position has enabled simultaneous investments in acquisitions, organic growth, working capital and technology deployments. Since June 30, 2021, working capital more than tripled to nearly $50,000,000 And during the same period, we deployed approximately $19,000,000 of capital in connection with acquisitions.

Operator

Despite these investments, the company had low leverage with net debt of $29,000,000 with net income and adjusted EBITDA for fiscal $23,000,000 of approximately $10,000,000 $26,000,000 respectively. We believe this financial strength, our access to low cost capital and our ability to generate cash flow provide comfort and confidence to all stakeholders. Cash provided by operations was $7,600,000 and approximately $1,000,000 for the 4th fiscal quarter and fiscal 2023 respectively. Operating cash flow for fiscal 2023 reflects the continued buildup of working capital started in June of 2021 with the advanced placement of product orders in connection with confirmed customer sales orders in our backlog and stock orders required to fulfill on demand customer orders amid the continuation of an inefficient supply chain as compared to historical. While the speed of the customer order fulfillment process is not yet where it once was, our OEMs and vendors have improved lead times and external parties responsible for pre installation preparations are increasingly performing on schedule.

Operator

Therefore, we do not anticipate further significant investment in working capital in the near term, which we expect will positively benefit future cash flow from operations. On acquisitions, during fiscal 2023, we completed the acquisition of 4 commercial laundry distributors and service providers. In each case, 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 long reputation for providing reliable services. We continue to identify and pursue many acquisition and strategic transactions in the commercial laundry industry across a wide range of exciting and available opportunities in related industries. We believe that our expansion through acquisitions and other strategic transactions is integral our ability to achieve our long term growth goals and given our company's reputation, growth record and entrepreneurial culture, we believe that the EVI family of businesses will continue to grow.

Operator

In summary, it was not long ago that we embarked on a long term journey 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've 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 are a collection of dynamic, well respected and entrepreneurial leaders from across the commercial laundry industry.

Operator

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 these reasons and the others mentioned during our earnings call, we remain excited and optimistic about our long term growth plans and outlook. This concludes my comments related to the 4th fiscal quarter fiscal year ended June 30, 2023. Before I proceed with sharing the EVI story for those who are new to our company. I want to thank our valued employees, our loyal suppliers and customers and our shareholders for your support and participation in EVI.

Operator

Until next time, be well. And now a commentary for new listeners. For those of you that are new to EVI, the following is meant to acquaint you with our company. EVI invests and manages with a long term perspective. We uphold a financial discipline that ensures we always have financial strength and flexibility.

Operator

In buying businesses, we respect the entrepreneurs and management AIMZA joined the EVI family. We promoted an entrepreneurial culture and instill a growth, efficiency and profitability mindset that seeks continuous improvement. We maintain a highly decentralized operating model where the original entrepreneurs and emerging leaders of our business units operate as local businesses. Given this approach, our leaders are empowered to make local decisions and we trust that through continuous collaborations and communications, we will achieve increasingly attractive operating results. In connection with these efforts and to assure alignment between all stakeholders, we incentivize and reward performance with equity participation.

Operator

In the 7 years since the inception of our long term growth strategy, we have consistently upheld these core values and principles and we attribute much of our success to these disciplines. As for our industry, the commercial laundry industry is essential and that is evidenced by decades of consistent growth in demand for commercial laundry products and services across all end customer markets, including but not limited to healthcare, hospitality, food service, institutional, vended and multifamily. Commercial laundries that serve these end markets require advanced planning, thoughtful design, knowledgeable installation and continuous post installation service and support. Given the nature of such laundry operations and that laundry is a critical function to such businesses. Customers need the products and services a distributor and service provider provides to deliver clean linens and textiles effectively and profitably to the end users they serve.

Operator

Demand the commercial laundry products and services is also driven by both functional and economic obsolescence. Specifically, demand has increased because of the introduction of new equipment with advanced technologies and efficiencies that yield attractive returns on invested capital derived from water, utility and labor savings. To best address the various industry growth opportunities, the company uniquely serves as both distributor and service provider. EVI's sales organization has continued to grow and to the company's knowledge now represents the single largest sales organization in the commercial laundry industry, representing the broadest range of commercial laundry and related products sourced from various domestic and international suppliers. With these products, the company sales organization creates laundry solutions predominantly for the replacement market, but also for the new construction markets for industrial, on premise, vended and multifamily laundry applications.

Operator

The company also has the single largest and growing network of technicians in our industry responsible for the proper installation of such laundries and for servicing and supporting commercial laundry facilities throughout its useful life. Given the company's position in the industry value chain, specifically the fact that it owns the end customer relationship, EDI can increasingly capitalize on its visibility to numerous complementary products and services its customers purchase for their laundry operations from other businesses, most of which represent long term growth opportunities for the company. We believe that the time tested fundamentals and favorable attributes of the commercial laundry industry combined with our long term growth strategy, financial strength, entrepreneurial culture, technology initiatives and strong supplier relations are important competitive advantages that support our ability to grow and capture more profitable market share going forward. To date, the sustained execution of the buy component of our buy and build growth strategy has yielded the acquisition of 25 high quality businesses for which we prudently allocated more than $140,000,000 of acquisition capital. Meanwhile, the build component of our growth strategy has provided organic growth opportunities in the form of new product representations, larger distribution territories and enhanced technical service capabilities.

Operator

We have used and continue to use our growing resources to build a deeper management team, to develop the next generation of sales professionals for our company to build a national network of commercial laundry technicians and to implement modern technologies, which we believe are critical to achieving our long term financial and strategic goals. Should you have any questions about our company or wish to learn more, please contact us. Thank you.

Remove Ads
Powered by Quartr
Earnings Conference Call
Security Federal Q4 2023
00:00 / 00:00
Remove Ads