Ennis(EBF) - 2023 Q3 - Quarterly Report

PART I: FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (unaudited) Presents Ennis, Inc.'s unaudited condensed consolidated financial statements, including balance sheets, operations, and cash flows, for periods ended November 30, 2022 Condensed Consolidated Balance Sheets Total assets increased to $386.7 million by November 30, 2022, driven by inventories and goodwill, with shareholders' equity also rising Condensed Consolidated Balance Sheet Highlights (in $M) | Account | Nov 30, 2022 | Feb 28, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash | $87.0M | $85.6M | | Inventories, net | $49.9M | $38.5M | | Total current assets | $185.1M | $165.0M | | Goodwill | $93.4M | $88.7M | | Total assets | $386.7M | $368.8M | | Liabilities & Equity | | | | Total current liabilities | $39.4M | $37.2M | | Total liabilities | $65.2M | $65.0M | | Total shareholders' equity | $321.4M | $303.8M | | Total liabilities and shareholders' equity | $386.7M | $368.8M | Condensed Consolidated Statements of Operations Net sales and earnings significantly increased for both Q3 and the nine months ended November 30, 2022, driven by strong performance Statements of Operations Highlights (in $M, except per share data) | Metric | Q3 2022 | Q3 2021 | 9 Months 2022 | 9 Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $110.2M | $103.0M | $329.1M | $300.3M | | Gross profit | $33.5M | $29.2M | $102.7M | $87.3M | | Income from operations | $16.2M | $11.7M | $49.8M | $33.0M | | Net earnings | $11.3M | $7.6M | $35.1M | $22.3M | | Diluted EPS | $0.44 | $0.29 | $1.36 | $0.85 | Condensed Consolidated Statements of Cash Flows Operating cash flow slightly decreased to $34.0 million for the nine months ended November 30, 2022, while investing and financing activities used more cash Cash Flow Summary (in $M) | Cash Flow Activity | Nine months ended Nov 30, 2022 | Nine months ended Nov 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $34.0M | $34.3M | | Net cash used in investing activities | ($12.1M) | ($7.7M) | | Net cash used in financing activities | ($20.5M) | ($20.9M) | | Net change in cash | $1.4M | $5.8M | | Cash at end of period | $87.0M | $81.0M | Notes to Condensed Consolidated Financial Statements Detailed notes explain significant accounting policies and financial statement items, covering revenue, acquisitions, goodwill, equity programs, pensions, and income taxes - On November 30, 2022, the Company acquired the assets of School Photo Marketing ("SPM") for $8.8 million, resulting in $4.8 million of goodwill and $3.2 million of definite-lived intangible assets[43] - As of November 30, 2022, the Company had an unfunded pension liability of approximately $3.7 million; a $2.0 million contribution was made in September 2022 to avoid a Pension Benefit Guaranty Corporation variable premium[79] - The Company's stock repurchase program has $23.9 million remaining available for repurchases as of November 30, 2022; during the first nine months of the fiscal year, 64,082 shares were repurchased at an average price of $17.46[67] - The effective tax rate for the nine months ended November 30, 2022 was 28.0%, compared to 30.0% for the same period in 2021, primarily due to state income taxes and non-deductible compensation[90] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, highlighting revenue growth from strong demand and pricing, improved margins, liquidity, capital resources, and business challenges Results of Operations Significant year-over-year growth in net sales and earnings for Q3 and the first nine months of fiscal 2023, driven by strong demand and pricing Q3 2022 vs Q3 2021 Performance (in $M) | Metric | Q3 2022 | Q3 2021 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $110.2M | $103.0M | +7.0% | | Gross Profit Margin | 30.4% | 28.4% | +2.0 ppt | | Income from Operations | $16.2M | $11.7M | +38.5% | | Net Earnings | $11.3M | $7.6M | +48.7% | Nine Months 2022 vs 2021 Performance (in $M) | Metric | 9 Months 2022 | 9 Months 2021 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $329.1M | $300.3M | +9.6% | | Gross Profit Margin | 31.2% | 29.1% | +2.1 ppt | | Income from Operations | $49.8M | $33.0M | +50.9% | | Net Earnings | $35.1M | $22.3M | +57.4% | Liquidity and Capital Resources The company maintains a strong liquidity position with $87.0 million cash and $145.7 million working capital, with no outstanding long-term debt - Working capital increased by 14.0% to $145.7 million at November 30, 2022, from $127.8 million at February 28, 2022[144] - The company has had no outstanding long-term debt since August 2019 and did not renew its credit agreement which expired in November 2021[150] - Expected capital expenditures for the fiscal year are between $3.0 million and $5.0 million, with $3.3 million spent in the first nine months[153] Item 3. Quantitative and Qualitative Disclosures About Market Risk With no outstanding debt as of November 30, 2022, the company faces minimal interest rate risk, but future borrowing would introduce exposure - The company had no outstanding debt at November 30, 2022, and thus minimal exposure to interest rate risk[156] Item 4. Controls and Procedures A ransomware attack on November 30, 2022, led to a material weakness in IT controls, rendering disclosure controls ineffective, though financial statements remain fairly presented - A ransomware attack on November 30, 2022, which encrypted some servers, revealed deficiencies in network access IT controls[158] - These IT control deficiencies were concluded to be a material weakness, rendering disclosure controls and procedures ineffective as of the end of the quarter[158][159] - Despite the material weakness, management concluded that the financial statements in the Form 10-Q are fairly presented in all material respects, as the attack did not impair financial data in the ERP system[159][160] PART II: OTHER INFORMATION Item 1. Legal Proceedings The company reports no material pending legal proceedings beyond routine litigation incidental to its business - There are no material pending legal proceedings against the company[166] Item 1A. Risk Factors No material changes to risk factors from the last 10-K, but highlights increasing cybersecurity risks, noting the November 2022 ransomware attack had no material financial impact - The company was targeted by a ransomware attack on November 30, 2022, but it was detected in progress and immediate action was taken to isolate the network[169] - The company did not pay any ransom and incurred no material expense in connection with the attack, which is not expected to have a material impact on the business[169] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Update on the share repurchase program, with an additional $20 million authorized in July 2022, bringing the total to $60 million, and $23.9 million remaining - The Board authorized an additional $20 million for the share repurchase program in July 2022, for a cumulative total of $60 million[170] - During the nine months ended November 30, 2022, the company repurchased 64,082 shares at an average price of $17.46[172] - As of November 30, 2022, $23.9 million remained available for future share repurchases under the program[172] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q report, including articles of incorporation, bylaws, and CEO/CFO certifications