Ennis, Inc. — Form 10-Q Summary
Reporting period: Third quarter and nine months ended November 30, 2022. Ennis manufactures and sells business forms and other printed products, primarily through independent distributors, and reports as one segment.
Financial performance
| Metric | Three months ended Nov. 30, 2022 | Year-over-year | Nine months ended Nov. 30, 2022 | Year-over-year |
|---|---|---|---|---|
| Net sales | $110.2 million | +7.0% | $329.1 million | +9.6% |
| Gross profit / margin | $33.5 million / 30.4% | 28.4% margin prior year | $102.7 million / 31.2% | 29.1% margin prior year |
| Operating income / margin | $16.2 million / 14.7% | $11.7 million / 11.3% | $49.8 million / 15.1% | $33.0 million / 11.0% |
| Net earnings | $11.3 million | $7.6 million | $35.1 million | $22.3 million |
| Diluted EPS | $0.44 | $0.29 | $1.36 | $0.85 |
Management attributed higher sales to strong customer demand and price increases to offset inflation. Gross margins improved with pricing actions and operating efficiencies. SG&A declined 1.3% for the quarter and 2.9% for the nine-month period, reflecting efficiencies and prior facility consolidations. Nine-month sales also included approximately $1.9 million of incremental AmeriPrint contribution.
Cash flow, liquidity and capital
- Nine-month operating cash flow was $34.0 million, versus $34.3 million a year earlier. Higher earnings were offset in part by cash use from receivables ($5.9 million) and inventories ($10.9 million).
- Cash was $87.0 million at November 30, 2022, up $1.4 million from fiscal year-end. Working capital was $145.7 million and the current ratio was 4.7, compared with $127.8 million and 4.4 at February 28, 2022.
- Investing activities used $12.1 million, including $8.8 million for the School Photo Marketing acquisition and $3.3 million of capital expenditures. Financing activities used $20.5 million, including $19.4 million of dividends.
- No long-term debt was outstanding. The former revolving credit agreement expired in November 2021; $0.5 million of standby letters of credit was secured by cash collateral.
- Inventories rose to $49.9 million from $38.5 million at fiscal year-end. Days’ inventory increased to 53 from 46, and days sales outstanding to 38 from 36.
Material changes, outlook and risks
- On November 30, 2022, Ennis acquired School Photo Marketing for approximately $8.8 million, plus potential earn-out consideration of up to $1.0 million over four years. The purchase-price allocation was preliminary; the acquisition added $4.8 million of goodwill and approximately $3.2 million of definite-lived intangibles.
- The company reported a ransomware incident spanning November 30 to December 2. It said financial reporting databases were unaffected, it identified no resulting financial-statement misstatement, and it incurred no material expense. However, deficiencies in network-access IT controls constituted a material weakness, and management concluded disclosure controls and procedures were ineffective as of November 30. Remediation and an expert-assisted investigation were underway.
- Management expects operating cash flow and existing cash to fund anticipated needs, and expects current-year capital expenditures, excluding acquisitions, to remain within its historical $3 million–$5 million range. The filing gives no specific earnings or revenue guidance.
- Key business risks include declining demand for traditional printed forms as digital alternatives expand, inflation and recovery of higher paper, labor, freight and energy costs, dependence on a limited number of paper suppliers, customer consolidation, competitive pricing, and acquisition integration. Management noted ongoing supply-chain and labor uncertainty.
- At November 30, $86.2 million of cash was above FDIC-insured limits. The pension liability was $3.7 million; a $2.0 million contribution was made in September, and future contributions may vary with investment returns and discount rates.
Investor verification points
- Follow the ransomware investigation and remediation, including whether further IT-control deficiencies or business impacts emerge.
- Review the final purchase-price allocation and operating contribution of School Photo Marketing.
- Track inventory and receivables conversion, paper supply and input-cost trends, and whether pricing continues to protect margins.
- Assess pension funding needs and the sustainability of dividends and share repurchases; $23.9 million remained authorized for repurchases.
- Confirm the next quarterly dividend: $0.25 per share, declared December 15, 2022, payable February 2, 2023.