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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarterly Period Ended August 31, 2024
OR
☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Transition Period from to
Commission File Number 1-5807
ENNIS, INC.
(Exact Name of Registrant as Specified in Its Charter)
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Texas |
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75-0256410 |
(State or Other Jurisdiction of
Incorporation or Organization) |
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(I.R.S. Employer
Identification No.) |
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2441 Presidential Pkwy., Midlothian, Texas |
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76065 |
(Address of Principal Executive Offices) |
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(Zip code) |
Registrant’s Telephone Number, Including Area Code: (972) 775-9801
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
Common Stock, par value $2.50 per share |
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EBF |
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New York Stock Exchange |
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Date File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
☐ |
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Accelerated filer |
☒ |
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Non-accelerated filer |
☐ |
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Smaller reporting company |
☐ |
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Emerging growth company |
☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of October 1, 2024, there were 26,003,854 shares of the Registrant’s common stock outstanding.
ENNIS, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED AUGUST 31, 2024
TABLE OF CONTENTS
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PART I: FINANCIAL INFORMATION |
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Item 1. Condensed Consolidated Financial Statements (unaudited) |
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3 |
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Condensed Consolidated Balance Sheets at August 31, 2024 and February 29, 2024 |
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3 |
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Condensed Consolidated Statements of Operations for the three and six months ended August 31, 2024 and August 31, 2023 |
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5 |
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Condensed Consolidated Statements of Comprehensive Income for the three and six months ended August 31, 2024 and August 31, 2023 |
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6 |
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Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three and six months ended August 31, 2024 and August 31, 2023 |
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7 |
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Condensed Consolidated Statements of Cash Flows for the three and six months ended August 31, 2024 and August 31, 2023 |
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8 |
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Notes to Condensed Consolidated Financial Statements (unaudited) |
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9 |
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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23 |
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Item 3. Quantitative and Qualitative Disclosures About Market Risk |
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30 |
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Item 4. Controls and Procedures |
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30 |
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PART II: OTHER INFORMATION |
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Item 1. Legal Proceedings |
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30 |
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Item 1A. Risk Factors |
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30 |
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
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31 |
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Item 3. Defaults Upon Senior Securities |
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31 |
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Item 4. Mine Safety Disclosures |
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31 |
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Item 5. Other Information |
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31 |
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Item 6. Exhibits |
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31 |
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SIGNATURES |
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32 |
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
ENNIS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands)
|
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|
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|
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|
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August 31, |
|
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February 29, |
|
|
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2024 |
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2024 |
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Assets |
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|
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|
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Current assets |
|
|
|
|
|
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Cash |
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$ |
99,977 |
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$ |
81,597 |
|
Short-term investments |
|
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22,655 |
|
|
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29,325 |
|
Accounts receivable, net |
|
|
43,729 |
|
|
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47,209 |
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Inventories, net |
|
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41,742 |
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40,037 |
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Prepaid expenses |
|
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2,099 |
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|
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2,168 |
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Prepaid income taxes |
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2,157 |
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|
|
1,046 |
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Total current assets |
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212,359 |
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201,382 |
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Property, plant and equipment |
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Plant, machinery and equipment |
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162,724 |
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160,305 |
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Land and buildings |
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67,798 |
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|
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67,121 |
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Computer equipment and software |
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10,589 |
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|
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10,680 |
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Other |
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4,016 |
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|
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4,124 |
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Total property, plant and equipment |
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245,127 |
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|
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242,230 |
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Less accumulated depreciation |
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190,322 |
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187,265 |
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Property, plant and equipment, net |
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54,805 |
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54,965 |
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Operating lease right-of-use assets, net |
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8,386 |
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9,827 |
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Goodwill |
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94,349 |
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94,349 |
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Intangible assets, net |
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36,475 |
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38,327 |
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Net pension asset |
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80 |
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|
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80 |
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Other assets |
|
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360 |
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|
|
260 |
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Total assets |
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$ |
406,814 |
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$ |
399,190 |
|
See accompanying notes to condensed consolidated financial statements.
3
ENNIS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS-Continued
(unaudited, in thousands, except for par value and share amounts)
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August 31, |
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February 29, |
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2024 |
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2024 |
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Liabilities and Shareholders’ Equity |
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Current liabilities |
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Accounts payable |
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$ |
14,293 |
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$ |
11,846 |
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Accrued expenses |
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15,662 |
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17,541 |
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Current portion of operating lease liabilities |
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3,940 |
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4,414 |
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Total current liabilities |
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33,895 |
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|
33,801 |
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Deferred income taxes |
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9,253 |
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9,305 |
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Operating lease liabilities, net of current portion |
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4,214 |
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|
|
5,160 |
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Other liabilities |
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1,083 |
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|
|
1,083 |
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Total liabilities |
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48,445 |
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49,349 |
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Shareholders’ equity |
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Common stock $2.50 par value, authorized 40,000,000 shares; issued 30,053,443 shares at August 31, 2024 and February 29, 2024 |
|
|
75,134 |
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75,134 |
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Additional paid-in capital |
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124,315 |
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126,253 |
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Retained earnings |
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244,235 |
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236,196 |
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Accumulated other comprehensive loss: |
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Minimum pension liability, net of taxes |
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(13,175 |
) |
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(13,019 |
) |
Treasury stock |
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(72,140 |
) |
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(74,723 |
) |
Total shareholders’ equity |
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|
358,369 |
|
|
|
349,841 |
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Total liabilities and shareholders' equity |
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$ |
406,814 |
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$ |
399,190 |
|
See accompanying notes to condensed consolidated financial statements.
4
ENNIS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except share and per share amounts)
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Three months ended |
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Six months ended |
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August 31, |
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August 31, |
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2024 |
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2023 |
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2024 |
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2023 |
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Net sales |
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$ |
99,038 |
|
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$ |
106,760 |
|
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$ |
202,146 |
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$ |
218,054 |
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Cost of goods sold |
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|
69,259 |
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|
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73,661 |
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|
|
141,463 |
|
|
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150,914 |
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Gross profit |
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|
29,779 |
|
|
|
33,099 |
|
|
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60,683 |
|
|
|
67,140 |
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Selling, general and administrative |
|
|
16,557 |
|
|
|
18,341 |
|
|
|
33,727 |
|
|
|
36,684 |
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Loss from disposal of assets |
|
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39 |
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|
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52 |
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|
|
43 |
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|
|
52 |
|
Income from operations |
|
|
13,183 |
|
|
|
14,706 |
|
|
|
26,913 |
|
|
|
30,404 |
|
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
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Interest income |
|
|
1,369 |
|
|
|
878 |
|
|
|
2,728 |
|
|
|
1,694 |
|
Other, net |
|
|
(335 |
) |
|
|
(301 |
) |
|
|
(683 |
) |
|
|
(655 |
) |
Total other income (expense) |
|
|
1,034 |
|
|
|
577 |
|
|
|
2,045 |
|
|
|
1,039 |
|
Earnings before income taxes |
|
|
14,217 |
|
|
|
15,283 |
|
|
|
28,958 |
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|
|
31,443 |
|
Income tax expense |
|
|
3,909 |
|
|
|
4,373 |
|
|
|
7,963 |
|
|
|
8,898 |
|
Net earnings |
|
$ |
10,308 |
|
|
$ |
10,910 |
|
|
$ |
20,995 |
|
|
$ |
22,545 |
|
Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
26,009,876 |
|
|
|
25,886,058 |
|
|
|
26,015,195 |
|
|
|
25,858,154 |
|
Diluted |
|
|
26,054,499 |
|
|
|
26,050,983 |
|
|
|
26,156,161 |
|
|
|
26,010,739 |
|
Earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.40 |
|
|
$ |
0.42 |
|
|
$ |
0.81 |
|
|
$ |
0.87 |
|
Diluted |
|
$ |
0.40 |
|
|
$ |
0.42 |
|
|
$ |
0.80 |
|
|
$ |
0.87 |
|
See accompanying notes to condensed consolidated financial statements.
5
ENNIS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
August 31, |
|
|
August 31, |
|
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
Net earnings |
|
$ |
10,308 |
|
|
$ |
10,910 |
|
|
$ |
20,995 |
|
|
$ |
22,545 |
|
Adjustment to pension, net of taxes |
|
|
(528 |
) |
|
|
333 |
|
|
|
(156 |
) |
|
|
720 |
|
Comprehensive income |
|
$ |
9,780 |
|
|
$ |
11,243 |
|
|
$ |
20,839 |
|
|
$ |
23,265 |
|
See accompanying notes to condensed consolidated financial statements.
6
ENNIS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(unaudited, in thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
Paid-in |
|
|
Retained |
|
|
Comprehensive |
|
|
Treasury Stock |
|
|
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Earnings |
|
|
Income (Loss) |
|
|
Shares |
|
|
Amount |
|
|
Total |
|
Balance May 31, 2024 |
|
30,053,443 |
|
|
$ |
75,134 |
|
|
$ |
123,948 |
|
|
$ |
240,423 |
|
|
$ |
(12,647 |
) |
|
|
(4,110,893 |
) |
|
$ |
(72,485 |
) |
|
$ |
354,373 |
|
Net earnings |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
10,308 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
10,308 |
|
Adjustment to pension, net of deferred tax of ($132) |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(528 |
) |
|
|
— |
|
|
|
— |
|
|
|
(528 |
) |
Dividends paid ($0.25 per share) |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(6,496 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(6,496 |
) |
Stock based compensation |
|
— |
|
|
|
— |
|
|
|
713 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
713 |
|
Exercise of stock options and restricted stock |
|
— |
|
|
|
— |
|
|
|
(346 |
) |
|
|
— |
|
|
|
— |
|
|
|
19,676 |
|
|
|
346 |
|
|
|
— |
|
Common stock repurchases |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(39 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
Balance August 31, 2024 |
|
30,053,443 |
|
|
$ |
75,134 |
|
|
$ |
124,315 |
|
|
$ |
244,235 |
|
|
$ |
(13,175 |
) |
|
|
(4,091,256 |
) |
|
$ |
(72,140 |
) |
|
$ |
358,369 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance February 29, 2024 |
|
30,053,443 |
|
|
$ |
75,134 |
|
|
$ |
126,253 |
|
|
$ |
236,196 |
|
|
$ |
(13,019 |
) |
|
|
(4,250,226 |
) |
|
$ |
(74,723 |
) |
|
$ |
349,841 |
|
Net earnings |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
20,995 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
20,995 |
|
Adjustment to pension, net of deferred tax of ($39) |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(156 |
) |
|
|
— |
|
|
|
— |
|
|
|
(156 |
) |
Dividends paid ($0.50 per share) |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(12,956 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(12,956 |
) |
Stock based compensation |
|
— |
|
|
|
— |
|
|
|
2,473 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,473 |
|
Exercise of stock options and restricted stock |
|
— |
|
|
|
— |
|
|
|
(4,411 |
) |
|
|
— |
|
|
|
— |
|
|
|
250,892 |
|
|
|
4,411 |
|
|
|
— |
|
Common stock repurchases |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(91,922 |
) |
|
|
(1,828 |
) |
|
|
(1,828 |
) |
Balance August 31, 2024 |
|
30,053,443 |
|
|
$ |
75,134 |
|
|
$ |
124,315 |
|
|
$ |
244,235 |
|
|
$ |
(13,175 |
) |
|
|
(4,091,256 |
) |
|
$ |
(72,140 |
) |
|
$ |
358,369 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance May 31, 2023 |
|
30,053,443 |
|
|
$ |
75,134 |
|
|
$ |
126,101 |
|
|
$ |
224,635 |
|
|
$ |
(13,717 |
) |
|
|
(4,239,929 |
) |
|
$ |
(74,472 |
) |
|
$ |
337,681 |
|
Net earnings |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
10,910 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
10,910 |
|
Adjustment to pension, net of deferred tax of $110 |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
333 |
|
|
|
— |
|
|
|
— |
|
|
|
333 |
|
Dividends paid ($0.25 per share) |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(6,463 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(6,463 |
) |
Stock based compensation |
|
— |
|
|
|
— |
|
|
|
685 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
685 |
|
Exercise of stock options and restricted stock |
|
— |
|
|
|
— |
|
|
|
(346 |
) |
|
|
— |
|
|
|
— |
|
|
|
19,719 |
|
|
|
346 |
|
|
|
— |
|
Balance August 31, 2023 |
|
30,053,443 |
|
|
$ |
75,134 |
|
|
$ |
126,440 |
|
|
$ |
229,082 |
|
|
$ |
(13,384 |
) |
|
|
(4,220,210 |
) |
|
$ |
(74,126 |
) |
|
$ |
343,146 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance February 28, 2023 |
|
30,053,443 |
|
|
$ |
75,134 |
|
|
$ |
125,887 |
|
|
$ |
219,459 |
|
|
$ |
(14,104 |
) |
|
|
(4,266,835 |
) |
|
$ |
(74,944 |
) |
|
$ |
331,432 |
|
Net earnings |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
22,545 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
22,545 |
|
Adjustment to pension, net of deferred tax of $239 |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
720 |
|
|
|
— |
|
|
|
— |
|
|
|
720 |
|
Dividends paid ($0.50 per share) |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(12,922 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(12,922 |
) |
Stock based compensation |
|
— |
|
|
|
— |
|
|
|
1,371 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,371 |
|
Exercise of stock options and restricted stock |
|
— |
|
|
|
— |
|
|
|
(818 |
) |
|
|
— |
|
|
|
— |
|
|
|
46,625 |
|
|
|
818 |
|
|
|
— |
|
Common stock repurchases |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Balance August 31, 2023 |
|
30,053,443 |
|
|
$ |
75,134 |
|
|
$ |
126,440 |
|
|
$ |
229,082 |
|
|
$ |
(13,384 |
) |
|
|
(4,220,210 |
) |
|
$ |
(74,126 |
) |
|
$ |
343,146 |
|
See accompanying notes to condensed consolidated financial statements.
7
ENNIS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
|
|
|
|
|
|
|
Six months ended |
|
|
August 31, |
|
|
2024 |
|
2023 |
Cash flows from operating activities: |
|
|
|
|
Net earnings |
|
$20,995 |
|
$22,545 |
Adjustments to reconcile net earnings to net cash provided by operating activities: |
|
|
|
|
Depreciation |
|
4,566 |
|
4,974 |
Amortization of intangible assets |
|
3,864 |
|
3,867 |
Loss from disposal of assets |
|
43 |
|
52 |
Amortization of discount on short-term investments |
|
(737) |
|
— |
Bad debt expense, net of recoveries |
|
177 |
|
235 |
Stock based compensation |
|
2,473 |
|
1,371 |
Net pension expense |
|
992 |
|
959 |
Changes in operating assets and liabilities, net of the effects of acquisitions |
Accounts receivable |
|
4,639 |
|
7,449 |
Prepaid expenses and income taxes |
|
(1,042) |
|
(2,414) |
Inventories |
|
227 |
|
2,583 |
Cash paid to pension plan |
|
(1,200) |
|
— |
Other assets |
|
— |
|
62 |
Accounts payable and accrued expenses |
|
(77) |
|
(6,452) |
Other liabilities |
|
21 |
|
(297) |
Net cash provided by operating activities |
|
34,941 |
|
34,934 |
Cash flows from investing activities: |
|
|
|
|
Capital expenditures |
|
(3,618) |
|
(3,720) |
Purchase of businesses, net of cash acquired |
|
(5,622) |
|
(11,932) |
Purchase of short-term investments |
|
(10,093) |
|
— |
Maturity of short-term investments |
|
17,500 |
|
— |
Proceeds from disposal of plant and property |
|
56 |
|
12 |
Net cash used in investing activities |
|
(1,777) |
|
(15,640) |
Cash flows from financing activities: |
|
|
|
|
Dividends paid |
|
(12,956) |
|
(12,922) |
Common stock repurchases |
|
(1,828) |
|
— |
Net cash used in financing activities |
|
(14,784) |
|
(12,922) |
Net change in cash |
|
18,380 |
|
6,372 |
Cash at beginning of period |
|
81,597 |
|
93,968 |
Cash at end of period |
|
$99,977 |
|
$100,340 |
See accompanying notes to condensed consolidated financial statements.
8
ENNIS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED AUGUST 31, 2024
(unaudited)
1. Significant Accounting Policies and General Matters
Basis of Presentation
These unaudited condensed consolidated financial statements of Ennis, Inc. and its subsidiaries (collectively referred to as the “Company,” “Registrant,” “Ennis,” or “we,” “us,” or “our”) for the period ended August 31, 2024 have been prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP') and pursuant to the rules and regulations of the Securities and Exchange Commission pertaining to interim financial statements. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended February 29, 2024, from which the accompanying consolidated balance sheet at February 29, 2024 was derived. All intercompany balances and transactions have been eliminated in consolidation. In the opinion of management, all adjustments considered necessary for a fair presentation of the interim financial information have been included and are of a normal recurring nature. The preparation of the condensed consolidated financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the disclosure and reported amounts of assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company evaluates these estimates and judgments on an ongoing basis, including those related to bad debts, inventory valuations, property, plant and equipment, intangible assets, pension plan, accrued liabilities, and income taxes. The Company bases estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances. The results of operations for any interim period are not necessarily indicative of the results of operations for a full year.
Recent Accounting Pronouncements
Issued accounting standards not yet adopted
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which aims to improve disclosures about a public entity’s reportable segments. This update addresses requests from investors for more detailed information about a reportable segment’s expenses in order to improve understanding of a public entity’s business activities, overall performance, and potential future cash flows. The amendments in this ASU include a requirement for public business entities to disclose, on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker ("CODM") and are included within each reported measure of segment profit or loss. This update is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years starting after December 15, 2024. This ASU must be applied retrospectively to all prior periods presented. Management expects the adoption of the pronouncement will result in additional segment disclosures in its Consolidated Financial Statements for fiscal year 2025.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which expands disclosures in a public entity’s income tax rate reconciliation table and other disclosures regarding cash taxes paid both in the U.S. and foreign jurisdictions. This ASU is effective for annual periods beginning after December 15, 2024 (fiscal 2026 for the Company), but early adoption is permitted. This ASU should be applied on a prospective basis, although retrospective application is permitted. The Company is assessing the effect of this update on its Consolidated Financial Statements and related disclosures.
Proposed accounting standards
In July 2023, the FASB issued Proposed ASU No. 2023-ED500, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which aims to provide investors with more useful information about an entity’s expenses by improving disclosures on income statement expenses. The amendments in this Proposed ASU would require public business entities to disclose disaggregated information about specific categories underlying certain income statement expense line items. The Company is evaluating this proposed accounting standard.
2. Revenue
Nature of Revenues
Substantially all of the Company’s revenue is derived from the sale of commercial printing products in the continental United States of America and is primarily recognized at a point in time in an amount that reflects the consideration the Company expects to be provided in exchange for those goods. Revenue from the sale of commercial printing products, including shipping and handling fees
ENNIS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED AUGUST 31, 2024
(unaudited)
billed to customers, is recognized when the performance obligation is met upon the transfer of control to the customer, which is generally upon shipment to the customer when the terms of the sale are freight on board ("FOB") shipping point, or, to a lesser extent, upon delivery to the customer if the terms of the sale are FOB destination. Net sales represent gross sales invoiced to customers, less certain related charges, including sales tax, discounts, returns and other allowances. Returns, discounts and other allowances have historically been insignificant.
In a small number of cases and upon customer request, the Company prints and stores commercial printing product for customer specified future delivery, generally within the same year as the product is manufactured. In this case, revenue is recognized upon the transfer of control when manufacturing is complete and title and risk of ownership is passed to the customer. Storage revenue for certain customers may be recognized over time rather than at a point in time. As of the date of this report, the amount of storage revenue is not significant to the Company’s condensed consolidated financial statements. The output method for measure of progress is determined to be appropriate. The Company recognizes storage revenue in the amount for which it has the right to invoice for revenue that is recognized over time and for which it demonstrates that the invoiced amount corresponds directly with the value to the customer for the performance completed to date.
The Company does not disaggregate revenue and operates in one sales category consisting of commercial printed product revenue, which is reported as net sales on the condensed consolidated statements of operations. The Company does not have material contract assets and contract liabilities as of August 31, 2024.
Significant Judgments
Generally, the Company’s contracts with customers are comprised of a written quote and customer purchase order or statement of work, and governed by the Company’s trade terms and conditions. In certain instances, it may be further supplemented by separate pricing agreements and customer incentive arrangements, which typically only affect the contract’s transaction price. Contracts do not contain a significant financing component as payment terms on invoiced amounts are typically between 30 to 90 days, based on the Company’s credit assessment of individual customers, as well as industry expectations. Product returns are not significant as the bulk of our sales are custom in nature.
From time to time, the Company may offer incentives to its customers considered to be variable consideration including volume-based rebates or early payment discounts. Customer incentives considered to be variable consideration are recorded as a reduction to revenue as part of the transaction price at contract inception when there is a basis to reasonably estimate the amount of the incentive and only to the extent that it is probable that a significant reversal of any incremental revenue will not occur. Customer incentives are allocated entirely to the single performance obligation of transferring printed product to the customer and are not considered material.
For customers with terms of FOB shipping point, the Company accounts for shipping and handling activities performed after the control of the printed product has been transferred to the customer as a fulfillment cost. The Company accrues for the costs of shipping and handling activities if revenue is recognized before contractually agreed shipping and handling activities occur.
The Company’s contracts with customers are generally short-term in nature. Accordingly, the Company does not disclose the value of unsatisfied performance obligations nor the timing of revenue recognition.
ENNIS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED AUGUST 31, 2024
(unaudited)
3. Short-term Investments and Fair Value Measurements
Short-term investments are securities with original maturities of greater than three months but less than twelve months and are comprised of U.S. Treasury Bills. The Company determines the classification of these securities as trading, available for sale or held to maturity at the time of purchase and re-evaluates these determinations at each balance sheet date. The Company's short-term investments are classified as held-to-maturity for the period presented as it has the positive intent and ability to hold these investments to maturity. The Company's held-to-maturity investments are stated at amortized cost with a zero credit loss allowance because the probability of default is virtually zero due to the high credit rating, long history of no credit losses and the widely recognized risk free nature of these investments.
Amortized cost and estimated fair value of investment securities classified as held-to-maturity were as follows at August 31, 2024 and February 29, 2024 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
Gross |
|
|
|
|
Cost or |
|
Unrealized |
|
Unrealized |
|
Estimated |
|
|
Amortized |
|
Holding |
|
Holding |
|
Fair |
|
|
Cost |
|
Gains |
|
Losses |
|
Value |
August 31, 2024 |
|
|
|
|
|
|
|
|
Investment securities due in less than one year |
|
$22,655 |
|
$- |
|
$1 |
|
$22,654 |
|
|
|
|
|
|
|
|
|
February 29, 2024 |
|
|
|
|
|
|
|
|
Investment securities due in less than one year |
|
$29,325 |
|
$- |
|
$45 |
|
$29,280 |
The Company’s short-term investments in investment securities are Level 1 fair value measure. The Company did not hold any Level 2 or 3 financial assets or liabilities measured at fair value on a recurring basis. There were no transfers between levels during the three and six months ended August 31, 2024.
4. Accounts Receivable and Allowance for Credit Losses
Accounts receivable are reduced by an allowance for an estimate of amounts that are uncollectible. Substantially all of the Company’s receivables are due from customers in North America. The Company extends credit to its customers based upon its evaluation of the following factors: (i) the customer’s financial condition, (ii) the amount of credit the customer requests, and (iii) the customer’s actual payment history (which includes disputed invoice resolution). The Company does not typically require its customers to post a deposit or supply collateral. The Company’s allowance for credit losses is based on an analysis that estimates the amount of its total customer receivable balance that is not collectible. This analysis includes assessing a default probability to customers’ receivable balances, which is influenced by several factors including (i) current market conditions, (ii) periodic review of customer credit worthiness, and (iii) review of customer receivable aging and payment trends.
The Company writes off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance in the period the payment is received. Credit losses from continuing operations have consistently been within management’s expectations.
The following table presents the activity in the Company’s allowance for credit losses (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Six months ended |
|
|
August 31, |
|
August 31, |
|
|
2024 |
|
2023 |
|
2024 |
|
2023 |
Balance at beginning of period |
|
$1,720 |
|
$1,819 |
|
$1,707 |
|
$1,709 |
Bad debt expense, net of recoveries |
|
67 |
|
100 |
|
177 |
|
235 |
Accounts written off |
|
(11) |
|
(53) |
|
(108) |
|
(78) |
Balance at end of period |
|
$1,776 |
|
$1,866 |
|
$1,776 |
|
$1,866 |
ENNIS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED AUGUST 31, 2024
(unaudited)
The following table summarizes the components of accounts receivable as of the dates indicated (in thousands):
|
|
|
|
|
|
|
August 31, |
|
February 29, |
|
|
2024 |
|
2024 |
Trade receivables, net of allowance for credit losses |
|
$37,109 |
|
$39,665 |
Vendor rebates |
|
2,142 |
|
3,109 |
Notes receivable |
|
4,405 |
|
4,435 |
Other |
|
73 |
|
- |
|
|
$43,729 |
|
$47,209 |
The note receivable related to the sale of an unused manufacturing facility and was structured to be paid in 12 consecutive monthly installments, with a fixed interest rate of 5.95% per annum and a balloon payment due upon completion of the final payment. By mutual agreement, the note receivable has been extended beyond the one-year maturity date due to regulatory delays in clearing the facility for third-party financing. The note receivable is classified as current as the Company believes the regulatory delays will be resolved in the next twelve months.
5. Inventories
With the exception of approximately 7.4% and 7.0% of its inventories valued at the lower of last-in first-out ("LIFO") for the periods ended August 31, 2024 and February 29, 2024, respectively, the Company values its inventories at the lower of first-in, first-out ("FIFO") cost or net realizable value. The Company regularly reviews inventories on hand, using specific aging categories, and writes down the carrying value of its inventories for excess and potentially obsolete inventories based on historical usage and estimated future usage. In assessing the ultimate realization of its inventories, the Company is required to make judgments as to future demand requirements. As actual future demand or market conditions may vary from those projected by the Company, adjustments to inventories may be required. Reserves for excess and obsolete inventory at August 31, 2024 and February 29, 2024 were $1.8 million and $1.8 million, respectively.
The following table summarizes the components of inventories at the different stages of production as of the dates indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
August 31, |
|
|
February 29, |
|
|
|
2024 |
|
|
2024 |
|
Raw material |
|
$ |
22,454 |
|
|
$ |
21,764 |
|
Work-in-process |
|
|
5,766 |
|
|
|
5,621 |
|
Finished goods |
|
|
13,522 |
|
|
|
12,652 |
|
|
|
$ |
41,742 |
|
|
$ |
40,037 |
|
6. Acquisitions
The Company applies the acquisition method of accounting for business combinations. Under the acquisition method, the acquiring entity in a business combination recognizes 100% of the assets acquired and liabilities assumed at their acquisition date fair values with certain limited exceptions permitted under US GAAP. Management utilizes valuation techniques appropriate for the asset or liability being measured in determining these fair values. Any excess of the purchase price over amounts allocated to assets acquired, including identifiable intangible assets and liabilities assumed, is recorded as goodwill. Where amounts allocated to assets acquired and liabilities assumed is greater than the purchase price, a bargain purchase gain is recognized. Acquisition-related costs are expensed in the period incurred.
Acquisition of Printing Technologies
On June 26, 2024, the Company acquired the assets and business of Printing Technologies, Inc. ("PTI"), which is based in Indianapolis, Indiana, for approximately $5.6 million in cash. The Company performed a preliminary allocation of the total estimated consideration and recorded the underlying assets acquired (including certain identified intangible assets) and liabilities assumed based on the estimated fair values using the information available as of the acquisition date. The Company recorded intangible assets with definite lives of approximately $2.0 million in connection with the transaction, which are deductible for tax purposes. This allocation is preliminary and subject to change, which may be material. The acquisition of PTI strengthens our production capabilities and diversifies our product offerings to enable us to better serve our broad customer base.
ENNIS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED AUGUST 31, 2024
(unaudited)
The following table summarizes the Company's preliminary purchase price allocation for PTI as of the acquisition date (in thousands):
|
|
|
Accounts receivable |
|
$1,336 |
Inventories |
|
1,932 |
Other assets |
|
100 |
Right-of-use asset |
|
847 |
Property, plant and equipment |
|
887 |
Intangibles |
|
2,012 |
Operating lease liability |
|
(847) |
Accounts payable and accrued liabilities |
|
(645) |
Acquisition price |
|
$5,622 |
Acquisition of Eagle Graphics and Diamond Graphics
On October 11, 2023, the Company acquired the assets and business of Eagle Graphics, Inc. ("Eagle"), which is based in Annville, Pennsylvania, and Diamond Graphics, Inc. ("Diamond"), which is based in Bensalem, Pennsylvania, for approximately $7.9 million in cash. The Company performed an allocation of the total estimated consideration and recorded the underlying assets acquired (including certain identified intangible assets) and liabilities assumed based on the estimated fair values prepared by management using the information available as of the acquisition date. All goodwill of $0.2 million recognized as a part of this acquisition is deductible for tax purposes. The Company also recorded intangible assets with definite lives of approximately $0.8 million in connection with the transaction, which are also deductible for tax purposes. The acquisition of Eagle and Diamond strengthens our production capabilities to serve our customers in the Northeast United States.
The following table summarizes the Company's purchase price allocation for Eagle and Diamond as of the acquisition date (in thousands):
|
|
|
Accounts receivable |
|
$838 |
Inventories |
|
917 |
Property, plant and equipment |
|
5,304 |
Goodwill and intangibles |
|
971 |
Accounts payable and accrued liabilities |
|
(159) |
Acquisition price |
|
$7,871 |
Acquisition of UMC Print
On June 2, 2023, the Company acquired the assets and business of UMC Print ("UMC"), which is based in Overland Park, Kansas, for approximately $7.5 million in cash plus the assumption of trade payables of approximately $0.8 million. The Company performed an allocation of the total estimated consideration and recorded the underlying assets acquired (including certain identified intangible assets) and liabilities assumed based on the estimated fair values prepared by management using the information available as of the acquisition date. In January 2024, the Company received an indemnity claim from escrow related to a piece of equipment in the amount of $0.2 million. All goodwill of $0.2 million recognized as a part of this acquisition is deductible for tax purposes. The Company also recorded intangible assets with definite lives of approximately $2.7 million in connection with the transaction, which are also deductible for tax purposes. The acquisition of UMC brings the Company expanded commercial print capabilities serving customers throughout the Midwest United States.
ENNIS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED AUGUST 31, 2024
(unaudited)
The following table summarizes the Company's purchase price allocation for UMC as of the acquisition date (in thousands):
|
|
|
Cash |
|
$758 |
Accounts receivable |
|
1,839 |
Inventories |
|
553 |
Property, plant and equipment |
|
2,137 |
Goodwill and intangibles |
|
2,971 |
Accounts payable and accrued liabilities |
|
(789) |
Acquisition price |
|
$7,469 |
Acquisition of Stylecraft Printing
On May 23, 2023, the Company acquired the real estate and operations of Stylecraft Printing Company ("Stylecraft"), which is based in Canton, Michigan, for $5.0 million plus the assumption of trade payables. The Company performed an allocation of the total estimated consideration and recorded the underlying assets acquired (including certain identified intangible assets) and liabilities assumed based on their estimated fair values using the information available as of the acquisition date. All goodwill of $0.2 million recognized as a part of this acquisition is deductible for tax purposes. The Company also recorded intangible assets with definite lives of approximately $0.3 million in connection with the transaction, which are also deductible for tax purposes. The acquisition of Stylecraft expands the Company's product lines and footprint specializing in business forms, integrated products and commercial printing.
The following table summarizes the Company's purchase price allocation for Stylecraft as of the acquisition date (in thousands):
|
|
|
Accounts receivable |
|
$554 |
Inventories |
|
849 |
Right-of-use asset |
|