Ennis(EBF) - 2024 Q1 - Quarterly Report

PART I Item 1. Condensed Consolidated Financial Statements (unaudited) Unaudited financial statements for Q1 2023 show increased assets and operating cash flow, with stable net sales and earnings Condensed Consolidated Balance Sheets Total assets grew to $396.0 million due to higher cash, while liabilities decreased, boosting shareholders' equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | May 31, 2023 | February 28, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash | $102,106 | $93,968 | | Accounts receivable, net | $46,627 | $53,507 | | Inventories, net | $48,048 | $46,834 | | Total current assets | $198,714 | $196,626 | | Total assets | $395,990 | $393,835 | | Liabilities & Equity | | | | Total current liabilities | $38,378 | $41,247 | | Total liabilities | $58,309 | $62,403 | | Total shareholders' equity | $337,681 | $331,432 | | Total liabilities and shareholders' equity | $395,990 | $393,835 | Condensed Consolidated Statements of Operations Net sales rose 3.3% to $111.3 million, with stable gross profit and flat net earnings of $11.6 million Condensed Consolidated Statements of Operations (in thousands, except per share data) | Metric | Three months ended May 31, 2023 | Three months ended May 31, 2022 | | :--- | :--- | :--- | | Net sales | $111,294 | $107,667 | | Gross profit | $34,041 | $34,004 | | Income from operations | $15,698 | $16,322 | | Net earnings | $11,635 | $11,627 | | Diluted EPS | $0.45 | $0.45 | Condensed Consolidated Statements of Comprehensive Income Comprehensive income slightly increased to $12.0 million, driven by pension liability adjustments Comprehensive Income (in thousands) | Metric | Three months ended May 31, 2023 | Three months ended May 31, 2022 | | :--- | :--- | :--- | | Net earnings | $11,635 | $11,627 | | Adjustment to pension, net of taxes | $387 | $304 | | Comprehensive income | $12,022 | $11,931 | Condensed Consolidated Statements of Changes in Shareholders' Equity Shareholders' equity grew to $337.7 million driven by net earnings, partially offset by dividend payments - Key activities affecting shareholders' equity in the three months ended May 31, 2023, included net earnings of $11.6 million, dividend payments of $6.5 million ($0.25 per share), and stock-based compensation of $0.7 million[19] - In the comparable period of the prior year (three months ended May 31, 2022), the company repurchased $1.1 million of its common stock, with no repurchases made in the current quarter[19] Condensed Consolidated Statements of Cash Flows Operating cash flow increased to $21.7 million, with acquisitions impacting investing activities and cash rising by $8.1 million Summary of Cash Flows (in thousands) | Cash Flow Activity | Three months ended May 31, 2023 | Three months ended May 31, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $21,726 | $14,237 | | Net cash used in investing activities | $(7,129) | $(1,036) | | Net cash used in financing activities | $(6,459) | $(7,586) | | Net change in cash | $8,138 | $5,615 | | Cash at end of period | $102,106 | $91,221 | - Investing activities in Q1 2023 included $2.1 million in capital expenditures and $5.0 million for the purchase of businesses[22] Notes to Condensed Consolidated Financial Statements (unaudited) Notes detail accounting policies, recent acquisitions like Stylecraft Printing for $5.0 million, and the $23.9 million stock repurchase program - On May 23, 2023, the Company acquired Stylecraft Printing Company for $5.0 million, resulting in the recognition of $0.2 million in goodwill[44] - The company's stock repurchase program has $23.9 million remaining available as of May 31, 2023, with no shares repurchased during the quarter[68] - Subsequent to the quarter end, on June 2, 2023, the company acquired UMC Print for approximately $7.7 million, and on June 16, 2023, the Board declared a quarterly dividend of $0.25 per share[94] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses 3.3% revenue growth from acquisitions, a 100 basis point gross margin decline, and strong $102.1 million cash liquidity Business Overview and Recent Acquisitions Ennis, Inc., a major printed products manufacturer with 55 plants, expanded through recent strategic acquisitions to drive growth - The company operates 55 manufacturing plants in 20 states and is described as the largest provider of business forms, labels, tags, envelopes, and presentation folders to independent distributors in the U.S[104][105] - Recent acquisitions include UMC Print (June 2023), Stylecraft Printing Company (May 2023), and School Photo Marketing (November 2022), aimed at adding strategic locations and capabilities[111][113][114] Results of Operations Net sales rose 3.3% to $111.3 million from acquisitions, with gross margin declining to 30.6% and net earnings flat - Net sales increased by $3.6 million (3.3%) year-over-year, with recent acquisitions contributing approximately $4.1 million, offsetting a slight decline in organic sales volume[126] - Gross profit margin decreased by 100 basis points to 30.6% compared to 31.6% in the prior year quarter, but improved by 300 basis points sequentially from the quarter ending February 28, 2023[127] - Net earnings were flat at $11.6 million, and diluted EPS was also flat at $0.45 compared to the prior year quarter[131] Liquidity and Capital Resources Liquidity remains strong with cash at $102.1 million and no long-term debt, with capital expenditures funded by operating cash flows Key Liquidity Metrics (in thousands) | Metric | May 31, 2023 | February 28, 2023 | | :--- | :--- | :--- | | Working capital | $160,336 | $155,379 | | Cash | $102,106 | $93,968 | - Net cash from operating activities was $21.7 million for the quarter, a significant increase from $14.2 million in the prior year period, primarily due to improved collections on accounts receivable[134] - The company did not renew its credit facility and has no outstanding long-term debt, with future expenses expected to be funded by cash on hand and operating cash flows[137] - Capital expenditures for the fiscal year are expected to be between $3.0 million and $6.0 million, with approximately $2.1 million spent in the first quarter[140] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's market risk exposure to interest rates is minimal due to no outstanding debt as of May 31, 2023 - The company is exposed to interest rate risk but had no outstanding debt as of May 31, 2023, mitigating current risk[143] Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective, with no material changes in internal control over financial reporting - Based on an evaluation as of the end of the period, the CEO and CFO concluded that the company's disclosure controls and procedures were effective[145] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[146] PART II: OTHER INFORMATION Item 1. Legal Proceedings The company reports no material pending legal proceedings outside of ordinary routine litigation incidental to its business - There are no material pending legal proceedings against the company other than ordinary, routine litigation[148] Item 1A. Risk Factors There have been no material changes to the company's risk factors since those disclosed in its Annual Report on Form 10-K for the fiscal year ended February 28, 2023 - No material changes in risk factors have occurred since the company's last Annual Report on Form 10-K[149] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase any shares of its common stock during the three months ended May 31, 2023, with $23.9 million remaining available for future repurchases - The company's share repurchase program has a cumulative authorization of $60 million[151] - No shares were repurchased during the three months ended May 31, 2023, and as of this date, $23.9 million remained available under the program[152] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications from the CEO and CFO, and financial data formatted in Inline XBRL - Exhibits filed with the report include CEO and CFO certifications (Exhibits 31.1, 31.2, 32.1, 32.2) and financial statements in Inline XBRL format (Exhibit 101)[154]