10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended May 31, 2022

☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Transition Period from to

Commission File Number 1-5807

ENNIS, INC.

(Exact Name of Registrant as Specified in Its Charter)


Texas		75-0256410
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

2441 Presidential Pkwy., Midlothian, Texas		76065
(Address of Principal Executive Offices)		(Zip code)

Registrant’s Telephone Number, Including Area Code: (972) 775-9801

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading
Symbol(s)

Name of each exchange on which registered

Common Stock, par value $2.50 per share

EBF

New York Stock Exchange

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Date File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☒

Non-accelerated filer	☐	Smaller reporting company	☐

		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of June 24, 2022, there were 25,816,392 shares of the Registrant’s common stock outstanding.

ENNIS, INC. AND SUBSIDIARIES

FORM 10-Q

FOR THE PERIOD ENDED MAY 31, 2022

TABLE OF CONTENTS


PART I: FINANCIAL INFORMATION

	Item 1. Financial Statements	3

	Unaudited Consolidated Balance Sheets at May 31, 2022 and February 28, 2022	3

	Unaudited Consolidated Statements of Operations for the three months ended May 31, 2022 and May 31, 2021	5

	Unaudited Consolidated Statements of Comprehensive Income for the three months ended May 31, 2022 and May 31, 2021	6

	Unaudited Consolidated Statements of Changes in Shareholders’ Equity for the three ended May 31, 2022 and May 31, 2021	7

	Unaudited Consolidated Statements of Cash Flows for the three months ended May 31, 2022 and May 31, 2021	8

	Notes to Unaudited Consolidated Financial Statements	9

	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

	Item 3. Quantitative and Qualitative Disclosures About Market Risk	25

	Item 4. Controls and Procedures	25

PART II: OTHER INFORMATION

	Item 1. Legal Proceedings	25

	Item 1A. Risk Factors	25

	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	25

	Item 3. Defaults Upon Senior Securities	26

	Item 4. Mine Safety Disclosures	26

	Item 5. Other Information	26

	Item 6. Exhibits	26

SIGNATURES		27

PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

ENNIS, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEETS

(in thousands)


	May 31,		February 28,
	2022		2022
Assets
Current assets
Cash	$	91,221	$	85,606
Accounts receivable, net of allowance for doubtful receivables of $1,335 at May 31, 2022 and $1,200 at February 28, 2022		40,877		39,022
Prepaid expenses		1,718		1,863
Inventories		43,900		38,538
Total current assets		177,716		165,029
Property, plant and equipment
Plant, machinery and equipment		151,958		151,126
Land and buildings		59,705		59,642
Computer equipment and software		18,448		18,368
Other		4,301		4,275
Total property, plant and equipment		234,412		233,411
Less accumulated depreciation		182,364		179,778
Net property, plant and equipment		52,048		53,633
Operating lease right-of-use assets		14,965		15,544
Goodwill		88,677		88,677
Intangible assets, net		43,812		45,569
Other assets		392		392
Total assets	$	377,610	$	368,844

See accompanying notes to consolidated financial statements.

ENNIS, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEETS-Continued

(in thousands, except for par value and share amounts)


	May 31,			February 28,
	2022			2022
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable	$	16,663		$	16,678
Accrued expenses		19,872			15,422
Current portion of operating lease liabilities		4,926			5,090
Total current liabilities		41,461			37,190
Liability for pension benefits		5,729			5,729
Deferred income taxes		11,506			11,405
Operating lease liabilities, net of current portion		9,823			10,241
Other liabilities		464			464
Total liabilities		68,983			65,029
Shareholders’ equity
Common stock $2.50 par value, authorized 40,000,000 shares; issued 30,053,443 shares at May 31, 2022 and February 28, 2022		75,134			75,134
Additional paid-in capital		123,862			123,990
Retained earnings		203,158			197,998
Accumulated other comprehensive loss:
Minimum pension liability, net of taxes		(18,283	)		(18,587	)
Treasury stock		(75,244	)		(74,720	)
Total shareholders’ equity		308,627			303,815
Total liabilities and shareholders' equity	$	377,610		$	368,844

See accompanying notes to consolidated financial statements.

ENNIS, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts)


	Three months ended
	May 31,
	2022			2021
Net sales	$	107,667		$	96,930
Cost of goods sold		73,663			67,744
Gross profit		34,004			29,186
Selling, general and administrative		17,682			18,915
(Gain) loss from disposal of assets		—			(277	)
Income from operations		16,322			10,548
Other expense
Interest expense		—			(2	)
Other, net		(172	)		(112	)
Total other expense		(172	)		(114	)
Earnings before income taxes		16,150			10,434
Income tax expense		4,523			3,130
Net earnings	$	11,627		$	7,304
Weighted average common shares outstanding
Basic		25,812,078			26,029,355
Diluted		25,855,370			26,113,359
Earnings per share
Basic	$	0.45		$	0.28
Diluted	$	0.45		$	0.28
Cash dividends per share	$	0.250		$	0.225

See accompanying notes to consolidated financial statements.

ENNIS, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)


	Three months ended
	May 31,
	2022		2021
Net earnings	$	11,627	$	7,304
Adjustment to pension, net of taxes		304		299
Comprehensive income	$	11,931	$	7,603

See accompanying notes to consolidated financial statements.

ENNIS, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(in thousands, except share and per share amounts)


											Accumulated
					Additional						Other
	Common Stock				Paid-in			Retained			Comprehensive			Treasury Stock
	Shares		Amount		Capital			Earnings			Income (Loss)			Shares			Amount			Total
Balance February 28, 2022		30,053,443	$	75,134	$	123,990		$	197,998		$	(18,587	)		(4,253,824	)	$	(74,720	)	$	303,815
Net earnings		—		—		—			11,627			—			—			—			11,627
Adjustment to pension, net of deferred tax of $95		—		—		—			—			304			—			—			304
Dividends paid ($0.25 per share)		—		—		—			(6,467	)		—			—			—			(6,467	)
Stock based compensation		—		—		467			—			—			—			—			467
Exercise of stock options and restricted stock		—		—		(595	)		—			—			34,032			595			—
Common stock repurchases		—		—		—			—			—			(64,082	)		(1,119	)		(1,119	)
Balance May 31, 2022		30,053,443	$	75,134	$	123,862		$	203,158		$	(18,283	)		(4,283,874	)	$	(75,244	)	$	308,627

Balance February 28, 2021		30,053,443	$	75,134	$	123,017		$	194,436		$	(20,282	)		(4,103,630	)	$	(71,756	)	$	300,549
Net earnings		—		—		—			7,304			—			—			—			7,304
Adjustment to pension, net of deferred tax of $95		—		—		—			—			299			—			—			299
Dividends paid ($0.225 per share)		—		—		—			(5,866	)		—			—			—			(5,866	)
Stock based compensation		—		—		1,166			—			—			—			—			1,166
Exercise of stock options and restricted stock		—		—		(1,437	)		—			—			82,164			1,437			—
Common stock repurchases		—		—		—			—			—			—			—			—
Balance May 31, 2021		30,053,443	$	75,134	$	122,746		$	195,874		$	(19,983	)		(4,021,466	)	$	(70,319	)	$	303,452

See accompanying notes to consolidated financial statements.

ENNIS, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)


	Three months ended
	May 31,
		2022			2021
Cash flows from operating activities:
Net earnings	$	11,627		$	7,304
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation		2,621			2,543
Amortization of intangible assets		1,757			2,091
Gain from disposal of assets		—			(277	)
Bad debt expense, net of recoveries		180			38
Stock based compensation		467			1,166
Net pension expense		405			398
Changes in operating assets and liabilities:
Accounts receivable		(2,035	)		2,148
Prepaid expenses and income taxes		145			209
Inventories		(5,362	)		(3,398	)
Other assets		—			(3,829	)
Accounts payable and accrued expenses		4,435			3,463
Other liabilities		(3	)		31
Net cash provided by operating activities		14,237			11,887
Cash flows from investing activities:
Capital expenditures		(1,036	)		(707	)
Proceeds from disposal of plant and property		—			825
Net cash (used in) provided by investing activities		(1,036	)		118
Cash flows from financing activities:
Dividends paid		(6,467	)		(5,866	)
Common stock repurchases		(1,119	)		—
Net cash used in financing activities		(7,586	)		(5,866	)
Net change in cash		5,615			6,139
Cash at beginning of period		85,606			75,190
Cash at end of period	$	91,221		$	81,329

See accompanying notes to consolidated financial statements.

ENNIS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED MAY 31, 2022

1. Significant Accounting Policies and General Matters

Basis of Presentation

These unaudited consolidated financial statements of Ennis, Inc. and its subsidiaries (collectively referred to as the “Company,” “Registrant,” “Ennis,” or “we,” “us,” or “our”) for the period ended May 31, 2022 have been prepared in accordance with generally accepted accounting principles for interim financial reporting. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended February 28, 2022, from which the accompanying consolidated balance sheet at February 28, 2022 was derived. All intercompany balances and transactions have been eliminated in consolidation. In the opinion of management, all adjustments considered necessary for a fair presentation of the interim financial information have been included and are of a normal recurring nature. In preparing the financial statements, the Company is required to make estimates and assumptions that affect the disclosure and reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company evaluates these estimates and judgments on an ongoing basis, including those related to bad debts, inventory valuations, property, plant and equipment, intangible assets, pension plan, accrued liabilities, and income taxes. The Company bases estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances. The results of operations for any interim period are not necessarily indicative of the results of operations for a full year, especially in light of the uncertainties surrounding the impact of the novel coronavirus (COVID-19) pandemic.

Recent Accounting Pronouncements

Recently Issued Accounting Updates

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides companies with optional guidance, including expedients and exceptions for applying generally accepted accounting principles to contracts and other transactions affected by reference rate reform, such as the London Interbank Offered Rate (“LIBOR”). This new standard was effective upon issuance and generally can be applied to applicable contract modifications through December 31, 2022. The Company is currently evaluating ASU 2020-04, but does not expect it to have a significant impact on its consolidated financial statements.

2. Revenue

Nature of Revenues

Revenues from contracts with customers for the sale of commercial printing products in the continental United States is primarily recognized at a point in time in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods. Revenue from the sale of commercial printing products, including shipping and handling fees billed to customers, is recognized upon the transfer of control to the customer, which is generally upon shipment to the customer when the terms of the sale are freight on board (“FOB”) shipping point, or, to a lesser extent, upon delivery to the customer if the terms of the sale are FOB destination.

In a small number of cases and upon customer request, the Company prints and stores commercial printing product for customer specified future delivery, generally within the same year as the product is manufactured. In this case, revenue is recognized upon the transfer of control when manufacturing is complete and title and risk of ownership is passed to the customer. Storage revenue for certain customers may be recognized over time rather than at a point in time. As of the date of this report, the amount of storage revenue is immaterial to the Company’s financial statements. The output method for measure of progress is determined to be appropriate. The Company recognizes storage revenue in the amount for which it has the right to invoice for revenue that is recognized over time and for which it demonstrates that the invoiced amount corresponds directly with the value to the customer for the performance completed to date.

The Company does not disaggregate revenue and operates in one sales category consisting of commercial printed product revenue, which is reported as net sales on the consolidated statements of operations. The Company does not have material contract assets and contract liabilities as of May 31, 2022.

ENNIS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED MAY 31, 2022

Significant Judgments

Generally, the Company’s contracts with customers are comprised of a written quote and customer purchase order or statement of work, and governed by the Company’s trade terms and conditions. In certain instances, it may be further supplemented by separate pricing agreements and customer incentive arrangements, which typically only affect the transaction price. Contracts do not contain a significant financing component as payment terms on invoiced amounts are typically between 30 to 60 days, based on the Company’s credit assessment of individual customers, as well as industry expectations. Product returns are not significant.

From time to time, the Company may offer incentives to its customers considered to be variable consideration including volume-based rebates or early payment discounts. Customer incentives considered to be variable consideration are recorded as a reduction to revenue as part of the transaction price at contract inception when there is a basis to reasonably estimate the amount of the incentive and only to the extent that it is probable that a significant reversal of any incremental revenue will not occur. Customer incentives are allocated entirely to the single performance obligation of transferring printed product to the customer.

For customers with terms of FOB shipping point, the Company accounts for shipping and handling activities performed after the control of the printed product has been transferred to the customer as a fulfillment cost. The Company accrues for the costs of shipping and handling activities if revenue is recognized before contractually agreed shipping and handling activities occur.

The Company’s contracts with customers are generally short-term in nature. Accordingly, the Company does not disclose the value of unsatisfied performance obligations nor the timing of revenue recognition.

3. Accounts Receivable and Allowance for Doubtful Receivables

Accounts receivable are reduced by an allowance for an estimate of amounts that are uncollectible. Substantially all of the Company’s receivables are due from customers in the United States. The Company extends credit to its customers based upon its evaluation of the following factors: (i) the customer’s financial condition, (ii) the amount of credit the customer requests, and (iii) the customer’s actual payment history (which includes disputed invoice resolution). The Company does not typically require its customers to post a deposit or supply collateral. The Company’s allowance for doubtful receivables is based on an analysis that estimates the amount of its total customer receivable balance that is not collectible. This analysis includes the pooling of receivables based on risk assessment and then assessing a default probability to these pooled balances, which can be influenced by several factors including (i) current market conditions, (ii) historical experience, (iii) reasonable forecast, and (iv) review of customer receivable aging and payment trends.

The Company writes off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance in the period the payment is received.

The following table presents the activity in the Company’s allowance for doubtful receivables (in thousands):


	Three months ended
	May 31,
	2022			2021
Balance at beginning of period	$	1,200		$	961
Bad debt expense, net of recoveries		180			38
Accounts written off		(45	)		(45	)
Balance at end of period	$	1,335		$	954

ENNIS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED MAY 31, 2022

4. Inventories

With the exception of approximately 12.6% and 14.0% of its inventories valued at the lower of last-in first-out (“LIFO”) for the periods ended May 31, 2022 and February 28, 2022, respectively, the Company values its inventories at the lower of first-in, first-out (“FIFO”) cost or net realizable value. The Company regularly reviews inventories on hand, using specific aging categories, and writes down the carrying value of its inventories for excess and potentially obsolete inventories based on historical usage and estimated future usage. In assessing the ultimate realization of its inventories, the Company is required to make judgments as to future demand requirements. As actual future demand or market conditions may vary from those projected by the Company, adjustments to inventories may be required.

The following table summarizes the components of inventories at the different stages of production as of the dates indicated (in thousands):


	May 31,		February 28,
	2022		2022
Raw material	$	28,057	$	25,276
Work-in-process		6,124		5,547
Finished goods		9,719		7,715
	$	43,900	$	38,538

5. Acquisitions

The Company applies the acquisition method of accounting for business combinations. Under the acquisition method, the acquiring entity in a business combination recognizes 100% of the assets acquired and liabilities assumed at their acquisition date fair values. Management utilizes valuation techniques appropriate for the asset or liability being measured in determining these fair values. Any excess of the purchase price over amounts allocated to assets acquired, including identifiable intangible assets and liabilities assumed, is recorded as goodwill. Where amounts allocated to assets acquired and liabilities assumed is greater than the purchase price, a bargain purchase gain is recognized. Acquisition-related costs are expensed as incurred.

On June 1, 2021, the Company acquired the assets and business from AmeriPrint Corporation ("AmeriPrint"), which is based in Harvard, Illinois, for $3.9 million in cash plus the assumption of trade payables, subject to certain adjustments. Goodwill of $0.5 million recognized as a part of the acquisition is deductible for tax purposes. The Company also recorded intangible assets with definite lives of approximately $1.1 million in connection with the transaction. The acquisition of AmeriPrint which prior to the acquisition generated approximately $6.5 million in sales for its fiscal year ended December 31, 2020, brings added capabilities and expertise to our expanding product offering including barcoding and variable imaging.

The following is a summary of the purchase price allocation for AmeriPrint (in thousands):


Accounts receivable	$	417
Inventories		732
Property, plant & equipment		2,000
Goodwill and intangibles		1,607
Accounts payable and accrued liabilities		(834	)
	$	3,922

The results of operations for AmeriPrint are included in the Company’s consolidated financial statements from the date of acquisition. The following table sets forth certain operating information on a pro forma basis as though all AmeriPrint operations had been acquired as of March 1, 2021, after the estimated impact of adjustments such as amortization of intangible assets, depreciation expense and interest expense and related tax effects (in thousands, except per share amounts).


	Three months ended		Three months ended
	May 31, 2022		May 31, 2021
Pro forma net sales	$	107,667	$	98,598
Pro forma net earnings		11,627		7,264
Pro forma earnings per share - diluted	$	0.45	$	0.28

The pro forma results are not necessarily indicative of what would have occurred if the acquisitions had been in effect for the period presented.

ENNIS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED MAY 31, 2022

6. Leases

The Company leases certain of its facilities and equipment under operating leases, which are recorded as right-of-use assets and lease liabilities. The Company’s leases generally have terms of 1 – 5 years, with certain leases including renewal options to extend the leases for additional periods at the Company’s discretion. At lease inception, all renewal options reasonably certain to be exercised are considered when determining the lease term. The Company currently does not have leases that include options to purchase or provisions that would automatically transfer ownership of the leased property to the Company.

Operating lease expense is recognized on a straight-line basis over the lease term, and variable lease payments are expensed as incurred. The Company had no variable lease costs for the three months ended May 31, 2022 and May 31, 2021.

The Company determines whether a contract is or contains a lease at the inception of the contract. A contract will be deemed to be or contain a lease if the contract conveys the right to control and direct the use of identified property, plant, or equipment for a period of time in exchange for consideration. The Company generally must also have the right to obtain substantially all of the economic benefits from the use of the property, plant, and equipment.

Operating lease assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. To determine the present value of lease payments not yet paid, the Company estimates incremental borrowing rates based on the BBB Corporate Bond Rate at lease commencement date as rates are not implicitly stated in most leases.

Components of lease expense for the three and three months ended May 31, 2022 and May 31, 2021 were as follows (in thousands):


	Three months ended
	May 31, 2022		May 31, 2021
Operating lease cost	$	1,513	$	1,639

Supplemental cash flow information related to leases was as follows:
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	1,511	$	1,630

Right-of-use assets obtained in exchange for lease obligations
Operating leases	$	806	$	2,603


Weighted Average Remaining Lease Terms
Operating leases	3 Years

Weighted Average Discount Rate
Operating leases		3.64	%

ENNIS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED MAY 31, 2022

Future minimum lease commitments under non-cancelable operating leases for each of the fiscal years ending are as follows (in thousands):


	Operating
	Lease
	Commitments
2023 (remaining 9 months)	$	3,763
2024		4,592
2025		3,827
2026		2,340
2027		1,074
2028		81
Thereafter		-
Total future minimum lease payments	$	15,677
Less imputed interest		928