Ennis(EBF) - 2024 Q2 - Quarterly Report

PART I: FINANCIAL INFORMATION Overview of Ennis, Inc.'s unaudited condensed consolidated financial statements and management's discussion for the periods ended August 31, 2023 Item 1. Condensed Consolidated Financial Statements (unaudited) Presents Ennis, Inc.'s unaudited condensed consolidated financial statements, including balance sheets, income statements, and cash flows, with accompanying notes Condensed Consolidated Balance Sheets Total assets increased to $398.9 million, liabilities decreased, and shareholders' equity grew to $343.1 million as of August 31, 2023 Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | August 31, 2023 | February 28, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash | $100,340 | $93,968 | | Total current assets | $198,939 | $196,626 | | Property, plant and equipment, net | $51,988 | $47,789 | | Goodwill | $92,217 | $91,819 | | Total assets | $398,870 | $393,835 | | Liabilities & Equity | | | | Total current liabilities | $35,613 | $41,247 | | Total liabilities | $55,724 | $62,403 | | Total shareholders' equity | $343,146 | $331,432 | | Total liabilities and shareholders' equity | $398,870 | $393,835 | Condensed Consolidated Statements of Operations Net sales decreased to $106.8 million for Q2 and were flat at $218.1 million for H1, with net earnings declining in both periods Statement of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended Aug 31, 2023 | Three Months Ended Aug 31, 2022 | Six Months Ended Aug 31, 2023 | Six Months Ended Aug 31, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $106,760 | $111,233 | $218,054 | $218,900 | | Gross profit | $33,099 | $35,219 | $67,140 | $69,223 | | Income from operations | $14,706 | $17,277 | $30,404 | $33,599 | | Net earnings | $10,910 | $12,194 | $22,545 | $23,821 | | Diluted EPS | $0.42 | $0.47 | $0.87 | $0.92 | Condensed Consolidated Statements of Cash Flows Operating cash flow significantly increased to $34.9 million, while investing cash outflow rose due to acquisitions, leading to a $6.4 million cash increase Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months Ended Aug 31, 2023 | Six Months Ended Aug 31, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $34,934 | $21,755 | | Net cash used in investing activities | ($15,640) | ($1,801) | | Net cash used in financing activities | ($12,922) | ($14,040) | | Net change in cash | $6,372 | $5,914 | | Cash at end of period | $100,340 | $91,520 | Notes to Condensed Consolidated Financial Statements Notes detail accounting policies, revenue recognition, and significant events including 2023 acquisitions, stock repurchase program status, and dividend declarations - On June 2, 2023, the Company acquired UMC Print for approximately $7.7 million in cash, adding $0.2 million to goodwill[43] - On May 23, 2023, the Company acquired Stylecraft Printing Company for $5.0 million, adding $0.2 million to goodwill[46] - As of August 31, 2023, $23.9 million remained available under the company's stock repurchase program, with no shares repurchased during the six-month period[73] - On September 15, 2023, the Board declared a quarterly dividend of $0.25 per share, payable on November 3, 2023[103] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 net sales decrease, gross profit margin decline, and the company's strong liquidity position with $100.3 million cash and no debt Business Overview and Challenges Ennis operates 57 plants, serving distributors, facing industry consolidation, digital shifts, and competition, while pursuing growth through strategic acquisitions - The company operates 57 manufacturing plants across 20 states, primarily serving independent distributors in the U.S[113] - Acquired UMC Print on June 2, 2023, which had prior fiscal year sales of approximately $16 million[119] - Acquired Stylecraft Printing Company on May 23, 2023, which had prior fiscal year sales of approximately $7.0 million[121] - Key business challenges include industry consolidation, product obsolescence due to digital technology, and intense price competition within the print industry[123][125][127] Results of Operations Q2 net sales decreased 4.0% to $106.8 million, and H1 net sales decreased 0.4% to $218.1 million, both impacted by legacy business declines Q2 FY2024 vs Q2 FY2023 Performance (in millions) | Metric | Q2 FY2024 | Q2 FY2023 | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales | $106.8 | $111.2 | -4.0% | | Gross Profit | $33.1 | $35.2 | -6.0% | | Gross Profit Margin | 31.0% | 31.7% | -70 bps | | Income from Operations | $14.7 | $17.3 | -15.0% | | Net Earnings | $10.9 | $12.2 | -10.7% | | Diluted EPS | $0.42 | $0.47 | -10.6% | - For Q2, recent acquisitions contributed approximately $6.5 million in revenue, but this was offset by a $10.9 million decline in legacy business volume[134] H1 FY2024 vs H1 FY2023 Performance (in millions) | Metric | H1 FY2024 | H1 FY2023 | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales | $218.1 | $218.9 | -0.4% | | Gross Profit | $67.1 | $69.2 | -3.0% | | Gross Profit Margin | 30.8% | 31.6% | -80 bps | | Income from Operations | $30.4 | $33.6 | -9.5% | | Net Earnings | $22.5 | $23.8 | -5.5% | | Diluted EPS | $0.87 | $0.92 | -5.4% | - For H1, recent acquisitions added approximately $10.6 million in revenue, offset by an $11.4 million reduction from the legacy business[144] Liquidity and Capital Resources The company maintains strong liquidity with $100.3 million cash, no debt, increased operating cash flow, and projected capital expenditures - The company has no debt and believes its cash balance of $100.3 million and operating cash flows are adequate for the next twelve months[151] Key Liquidity Metrics (in thousands) | Metric | August 31, 2023 | February 28, 2023 | | :--- | :--- | :--- | | Cash | $100,340 | $93,968 | | Working Capital | $163,326 | $155,379 | - Net cash provided by operating activities was $34.9 million for the six months ended August 31, 2023, a significant increase from $21.8 million in the prior-year period[155] - Capital expenditures for fiscal year 2024 are expected to be between $3.0 million and $6.0 million[161] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces interest rate risk on financial instruments but has no outstanding debt as of August 31, 2023, mitigating current exposure - The company had no outstanding debt as of August 31, 2023, but would be exposed to interest rate risk if it borrows in the future[166] Item 4. Controls and Procedures CEO and CFO concluded disclosure controls and procedures were effective as of August 31, 2023, with no material changes to internal controls - Management, including the CEO and CFO, concluded that as of August 31, 2023, the company's disclosure controls and procedures were effective[168] - No changes in internal control over financial reporting occurred during the six months ended August 31, 2023, that have materially affected, or are reasonably likely to materially affect, internal controls[169] PART II: OTHER INFORMATION Provides details on legal proceedings, risk factors, equity sales, and exhibits for the reporting period Item 1. Legal Proceedings The company is involved in ordinary course litigation, with a subsidiary awarded an unrecorded $5.85 million judgment - In April 2023, a subsidiary was awarded $5.0 million in damages in a legal case, with the court later amending the total judgment to $5.85 million, including attorney's fees, which has not yet been recorded in the financial statements[172] Item 1A. Risk Factors No material changes in risk factors have occurred since the February 28, 2023 Annual Report on Form 10-K - No material changes in Risk Factors have occurred since the company's Annual Report on Form 10-K for the year ended February 28, 2023[173] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company made no share repurchases during the period, with $23.9 million remaining available under its program - The company did not purchase any shares of common stock during the six months ended August 31, 2023[176] - As of August 31, 2023, $23.9 million remained available for share repurchases under the company's program[176] Item 6. Exhibits This section lists exhibits filed with the Quarterly Report on Form 10-Q, including CEO/CFO certifications and Inline XBRL data - The report includes exhibits such as CEO and CFO certifications (Exhibits 31.1, 31.2, 32.1, 32.2) and Inline XBRL data (Exhibit 101)[179]