Ennis(EBF) - 2022 Q3 - Quarterly Report

PART I: FINANCIAL INFORMATION This section presents Ennis, Inc.'s unaudited consolidated financial statements and related management discussion for the period ended November 30, 2021 Item 1. Financial Statements This section presents the unaudited consolidated financial statements for Ennis, Inc. as of November 30, 2021, including balance sheets, statements of operations, comprehensive income, changes in shareholders' equity, and cash flows Unaudited Consolidated Balance Sheets As of November 30, 2021, total assets increased slightly to $369.7 million, driven by higher cash and inventories, while liabilities remained stable and equity grew Consolidated Balance Sheet Highlights (in thousands) | Account | Nov 30, 2021 | Feb 28, 2021 | | :--- | :--- | :--- | | Total current assets | $161,872 | $148,074 | | Cash | $80,969 | $75,190 | | Inventories | $40,365 | $32,906 | | Total assets | $369,699 | $364,388 | | Total current liabilities | $38,261 | $35,052 | | Total liabilities | $63,755 | $63,839 | | Total shareholders' equity | $305,944 | $300,549 | Unaudited Consolidated Statements of Operations For the three months ended November 30, 2021, net sales increased to $103.0 million, but net earnings decreased to $7.6 million, while the nine-month period saw increased net sales and earnings Statements of Operations Summary (in thousands) | Metric | Three Months Ended Nov 30, 2021 | Three Months Ended Nov 30, 2020 | Nine Months Ended Nov 30, 2021 | Nine Months Ended Nov 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $102,968 | $92,443 | $300,349 | $268,051 | | Gross profit margin | $29,200 | $28,088 | $87,287 | $77,150 | | Income from operations | $11,686 | $11,557 | $33,039 | $26,373 | | Net earnings | $7,563 | $8,363 | $22,327 | $18,969 | Earnings Per Share (Diluted) | Period | 2021 | 2020 | | :--- | :--- | :--- | | Three Months Ended Nov 30 | $0.29 | $0.32 | | Nine Months Ended Nov 30 | $0.85 | $0.73 | Unaudited Consolidated Statements of Cash Flows For the nine months ended November 30, 2021, operating cash flow decreased due to inventory increases, while investing and financing activities used more cash Cash Flow Summary (in thousands) | Activity | Nine Months Ended Nov 30, 2021 | Nine Months Ended Nov 30, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $34,295 | $40,779 | | Net cash used in investing activities | ($7,658) | ($843) | | Net cash used in financing activities | ($20,858) | ($18,836) | | Net change in cash | $5,779 | $21,100 | Notes to Unaudited Consolidated Financial Statements These notes detail accounting policies, recent acquisitions, stock repurchase programs, and the impact of the COVID-19 pandemic on operations - On June 1, 2021, the Company acquired AmeriPrint Corporation for $3.9 million in cash, which generated approximately $6.5 million in sales in its prior fiscal year, and on October 15, 2021, it acquired a digital operation in Illinois for $0.4 million[51][56] - During the nine months ended November 30, 2021, the Company repurchased 102,757 shares of common stock for $1.9 million at an average price of $18.90, with $7.9 million remaining available under the repurchase program as of November 30, 2021[79][23] - In response to the COVID-19 pandemic, the company reduced its workforce by approximately 350 employees and consolidated several facilities, with management believing these cost-cutting measures will not materially impact its ability to service increased customer demand as economic conditions improve[104] - The Board declared a quarterly dividend of $0.25 per share on December 16, 2021, with an expected total payout of approximately $6.5 million[109] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, highlighting increased sales driven by economic recovery and acquisitions, while addressing challenges like supply chain disruptions and maintaining a strong liquidity position Overview and Business Challenges Ennis, a leading manufacturer of business forms and printed products, faces industry consolidation, technological shifts, price competition, and significant paper supply constraints exacerbated by the COVID-19 pandemic - The company operates 57 manufacturing plants in 20 states and is a leading provider of business forms, labels, tags, and envelopes to independent distributors[120] - Key business challenges include: - The ongoing impact of the COVID-19 pandemic on demand and operations - Transformation of the product portfolio away from traditional documents towards digital and specialty products - Severe supply constraints and price inflation for paper, with uncoated papers up 20% and coated papers up 25% from the previous year - Continued consolidation of customers (distributors)[131][142][144][148] Results of Operations For the third quarter, sales rose 11.5% but gross margin declined, leading to a drop in net earnings, while the nine-month period saw sales increase 12.0% with improved gross margin and higher net earnings Q3 FY2022 vs Q3 FY2021 Performance (in millions) | Metric | Q3 2021 | Q3 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales | $103.0 | $92.4 | +11.5% | | Gross Profit | $29.2 | $28.1 | +3.9% | | Gross Margin % | 28.4% | 30.4% | -2.0 ppt | | Net Earnings | $7.6 | $8.4 | -9.5% | Nine Months FY2022 vs FY2021 Performance (in millions) | Metric | YTD 2021 | YTD 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales | $300.3 | $268.1 | +12.0% | | Gross Profit | $87.3 | $77.2 | +13.1% | | Gross Margin % | 29.1% | 28.8% | +0.3 ppt | | Net Earnings | $22.3 | $19.0 | +17.4% | - Acquisitions of Infoseal and AmeriPrint contributed $7.8 million in sales for the quarter and $19.7 million for the nine-month period[154][164] Liquidity and Capital Resources The company maintains a strong liquidity position with increased working capital and cash, having no long-term debt, and expects operating cash flow to fund future needs - The company's cash position increased by $5.8 million during the period to $81.0 million[133] - The company did not renew its Credit Agreement, which expired on November 11, 2021, and has had no outstanding long-term debt since August 2019[179] - Cash from operations decreased to $34.3 million for the nine-month period, down from $40.8 million in the prior year, primarily due to a $6.2 million increase in inventories[176] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company has minimal exposure to interest rate risk as it had no outstanding debt as of November 30, 2021, and does not use derivative instruments for trading - The company had no outstanding debt as of November 30, 2021, and therefore has minimal exposure to interest rate risk[186] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of November 30, 2021, with no material changes in internal control over financial reporting during the quarter - Based on a review and evaluation, the CEO and CFO concluded that the company's disclosure controls and procedures were effective as of November 30, 2021[188] PART II: OTHER INFORMATION This section provides updates on legal proceedings, risk factors, and the company's stock repurchase program Item 1. Legal Proceedings The company reports no material pending legal proceedings, other than ordinary routine litigation incidental to its business - There are no material pending legal proceedings against the company[191] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended February 28, 2021 - No material changes in Risk Factors were reported since the last Annual Report on Form 10-K[192] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company discusses its stock repurchase program, under which it repurchased 102,757 shares for approximately $1.9 million during the nine months ended November 30, 2021 Stock Repurchase Activity (Nine Months Ended Nov 30, 2021) | Metric | Value | | :--- | :--- | | Shares Repurchased | 102,757 | | Average Price Paid | $18.90 | | Remaining Authorization | $7.9 million |