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 EndedNovember 30, ~~2022~~2023

☐ 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)


Texas		75-0256410
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

2441 Presidential Pkwy., Midlothian, Texas		76065
(Address of Principal Executive Offices)		(Zip code)

Registrant’s Telephone Number, Including Area Code: (972) 775-9801

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock, par value $2.50 per share

EBF

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.


Large accelerated filer	☐	Accelerated filer	☒

Non-accelerated filer	☐	Smaller reporting company	☐

		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 December ~~30, 2022,~~29, 2023, there were ~~25,836,392~~25,874,699 shares of the Registrant’s common stock outstanding.

ENNIS, INC. AND SUBSIDIARIES

FORM 10-Q

FOR THE PERIOD ENDED NOVEMBER 30, ~~2022~~2023

TABLE OF CONTENTS


PART I: FINANCIAL INFORMATION

	Item 1. Condensed Consolidated Financial Statements (unaudited)	3

	Condensed Consolidated Balance Sheets at November 30, ~~2022~~2023 and February 28, ~~2022~~2023	3

	Condensed Consolidated Statements of Operations for the three and nine months ended November 30, ~~2022~~2023 and November 30, ~~2021~~2022	5

	Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended November 30, ~~2022~~2023 and November 30, ~~2021~~2022	6

	Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three and nine ended November 30, ~~2022~~2023 and November 30, ~~2021~~2022	7

	Condensed Consolidated Statements of Cash Flows for the nine months ended November 30, ~~2022~~2023 and November 30, ~~2021~~2022	8

	Notes to Condensed Consolidated Financial Statements (unaudited)	9

	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	1922

	Item 3. Quantitative and Qualitative Disclosures About Market Risk	2630

	Item 4. Controls and Procedures	2630

PART II: OTHER INFORMATION

	Item 1. Legal Proceedings	2730

	Item 1A. Risk Factors	2730

	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	2731

	Item 3. Defaults Upon Senior Securities	2831

	Item 4. Mine Safety Disclosures	2831

	Item 5. Other Information	2831

	Item 6. Exhibits	2831

SIGNATURES		2932

PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

ENNIS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited, in thousands)


	November 30,		February 28,		November 30,		February 28,
	2022		2022		2023		2023
Assets
Current assets
Cash	$	87,000	$	85,606	$	83,902	$	93,968
Accounts receivable, net of allowance for doubtful receivables of $1,692 at November 30, 2022 and $1,200 at February 28, 2022		45,738		39,022
Short-term investments						18,495		-
Accounts receivable, net						48,140		53,507
Inventories, net		49,922		38,538		42,325		46,834
Prepaid expenses		2,434		1,863		2,818		2,317
Prepaid income taxes						3,640		-
Total current assets		185,094		165,029		199,320		196,626
Property, plant and equipment
Plant, machinery and equipment		153,504		151,126		159,092		153,074
Land and buildings		59,987		59,642		66,980		59,163
Computer equipment and software		18,430		18,368		10,691		18,832
Other		4,321		4,275		4,124		4,292
Total property, plant and equipment		236,242		233,411		240,887		235,361
Less accumulated depreciation		186,802		179,778		184,923		187,572
Net property, plant and equipment		49,440		53,633
Property, plant and equipment, net						55,964		47,789
Operating lease right-of-use assets, net		14,214		15,544		11,188		13,133
Goodwill		93,438		88,677		92,391		91,819
Intangible assets, net		44,078		45,569		42,075		44,088
Other assets		386		392		272		380
Total assets	$	386,650	$	368,844	$	401,210	$	393,835

See accompanying notes to condensed consolidated financial statements.

ENNIS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS-Continued

(unaudited, in thousands, except for par value and share amounts)


	November 30,			February 28,			November 30,			February 28,
	2022			2022			2023			2023
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable	$	15,361		$	16,678		$	10,860		$	18,333
Accrued expenses		19,117			15,422			18,617			18,067
Current portion of operating lease liabilities		4,914			5,090			4,811			4,847
Total current liabilities		39,392			37,190			34,288			41,247
Liability for pension benefits		3,729			5,729			646			646
Deferred income taxes		11,905			11,405			11,458			11,098
Operating lease liabilities, net of current portion		9,215			10,241			6,140			8,162
Other liabilities		987			464			1,051			1,250
Total liabilities		65,228			65,029			53,583			62,403
Shareholders’ equity
Common stock $2.50 par value, authorized 40,000,000 shares; issued 30,053,443 shares at November 30, 2022 and February 28, 2022		75,134			75,134
Common stock $2.50 par value, authorized 40,000,000 shares; issued 30,053,443 shares at November 30, 2023 and February 28, 2023								75,134			75,134
Additional paid-in capital		124,593			123,990			127,135			125,887
Retained earnings		213,725			197,998			232,519			219,459
Accumulated other comprehensive loss:
Minimum pension liability, net of taxes		(17,086	)		(18,587	)		(13,024	)		(14,104	)
Treasury stock		(74,944	)		(74,720	)		(74,137	)		(74,944	)
Total shareholders’ equity		321,422			303,815			347,627			331,432
Total liabilities and shareholders' equity	$	386,650		$	368,844		$	401,210		$	393,835

See accompanying notes to condensed consolidated financial statements.

ENNIS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited, in thousands, except share and per share amounts)


	Three months ended						Nine months ended						Three months ended						Nine months ended
	November 30,						November 30,						November 30,						November 30,
	2022			2021			2022			2021			2023			2022			2023			2022
Net sales	$	110,245		$	102,968		$	329,145		$	300,349		$	104,621		$	110,245		$	322,675		$	329,145
Cost of goods sold		76,768			73,768			226,445			213,062			74,090			76,768			225,004			226,445
Gross profit		33,477			29,200			102,700			87,287			30,531			33,477			97,671			102,700
Selling, general and administrative		17,292			17,513			52,916			54,523			17,410			17,292			54,094			52,916
(Gain) loss from disposal of assets		15			1			15			(275	)
Loss from disposal of assets														1			15			53			15
Income from operations		16,170			11,686			49,769			33,039			13,120			16,170			43,524			49,769
Other expense
Interest expense		—			(3	)		-			(7	)
Other income (expense)
Interest income														1,020			232			2,714			317
Other, net		(496	)		(878	)		(1,010	)		(1,136	)		(324	)		(728	)		(979	)		(1,327	)
Total other expense		(496	)		(881	)		(1,010	)		(1,143	)
Total Other income (expense)														696			(496	)		1,735			(1,010	)
Earnings before income taxes		15,674			10,805			48,759			31,896			13,816			15,674			45,259			48,759
Income tax expense		4,388			3,242			13,652			9,569			3,910			4,388			12,808			13,652
Net earnings	$	11,286		$	7,563		$	35,107		$	22,327		$	9,906		$	11,286		$	32,451		$	35,107
Weighted average common shares outstanding
Basic		25,809,581			26,020,210			25,812,216			26,053,898			25,894,578			25,809,581			25,826,691			25,812,216
Diluted		25,888,815			26,020,210			25,892,873			26,151,480			26,083,301			25,888,815			25,991,567			25,892,873
Earnings per share
Basic	$	0.44		$	0.29		$	1.36		$	0.86		$	0.38		$	0.44		$	1.26		$	1.36
Diluted	$	0.44		$	0.29		$	1.36		$	0.85		$	0.38		$	0.44		$	1.25		$	1.36
Cash dividends per share	$	0.250		$	0.250		$	0.750		$	0.725

See accompanying notes to condensed consolidated financial statements.

ENNIS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited, in thousands)


	Three months ended				Nine months ended				Three months ended				Nine months ended
	November 30,				November 30,				November 30,				November 30,
	2022		2021		2022		2021		2023		2022		2023		2022
Net earnings	$	11,286	$	7,563	$	35,107	$	22,327	$	9,906	$	11,286	$	32,451	$	35,107
Adjustment to pension, net of taxes		717		885		1,501		1,482		360		717		1,080		1,501
Comprehensive income	$	12,003	$	8,448	$	36,608	$	23,809	$	10,266	$	12,003	$	33,531	$	36,608

See accompanying notes to condensed consolidated financial statements.

ENNIS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(unaudited, in thousands, except share and per share amounts)


											Accumulated																						Accumulated
					Additional						Other																Additional						Other
	Common Stock				Paid-in			Retained			Comprehensive			Treasury Stock									Common Stock				Paid-in			Retained			Comprehensive			Treasury Stock
	Shares		Amount		Capital			Earnings			Income (Loss)			Shares			Amount			Total			Shares		Amount		Capital			Earnings			Income (Loss)			Shares			Amount			Total
Balance, August 31, 2022		30,053,443	$	75,134	$	124,031		$	208,898		$	(17,803	)		(4,266,835	)	$	(74,944	)	$	315,316
Balance August 31, 2023																								30,053,443	$	75,134	$	126,440		$	229,082		$	(13,384	)		(4,220,210	)	$	(74,126	)	$	343,146
Net earnings																								—		—		—			9,906			—			—			—			9,906
Adjustment to pension, net of deferred tax of $120																								—		—		—			—			360			—			—			360
Dividends paid ($0.25 per share)																								—		—		—			(6,469	)		—			—			—			(6,469	)
Stock based compensation																								—		—		1,041			—			—			—			—			1,041
Exercise of stock options and restricted stock																								—		—		(346	)		—			—			(666	)		(11	)		(357	)
Balance November 30, 2023																								30,053,443	$	75,134	$	127,135		$	232,519		$	(13,024	)		(4,220,876	)	$	(74,137	)	$	347,627

Balance February 28, 2023																								30,053,443	$	75,134	$	125,887		$	219,459		$	(14,104	)		(4,266,835	)	$	(74,944	)	$	331,432
Net earnings																								—		—		—			32,451			—			—			—			32,451
Adjustment to pension, net of deferred tax of $359																								—		—		—			—			1,080			—			—			1,080
Dividends paid ($0.75 per share)																								—		—		—			(19,391	)		—			—			—			(19,391	)
Stock based compensation																								—		—		2,055			—			—			—			—			2,055
Exercise of stock options and restricted stock																								—		—		(807	)		—			—			45,959			807			—
Balance November 30, 2023																								30,053,443	$	75,134	$	127,135		$	232,519		$	(13,024	)		(4,220,876	)	$	(74,137	)	$	347,627

Balance August 31, 2022																								30,053,443	$	75,134	$	124,031		$	208,898		$	(17,803	)		(4,266,835	)	$	(74,944	)	$	315,316
Net earnings		—		—		—			11,286			—			—			—			11,286			—		—		—			11,286			—			—			—			11,286
Adjustment to pension, net of deferred tax of $179		—		—		—			—			717			—			—			717			—		—		—			—			717			—			—			717
Dividends paid ($0.25 per share)		—		—		—			(6,459	)		—			—			—			(6,459	)		—		—		—			(6,459	)		—			—			—			(6,459	)
Stock based compensation		—		—		562			—			—			—			—			562			—		—		562			—			—			—			—			562
Balance, November 30, 2022		30,053,443	$	75,134	$	124,593		$	213,725		$	(17,086	)		(4,266,835	)	$	(74,944	)	$	321,422
Balance November 30, 2022																								30,053,443	$	75,134	$	124,593		$	213,725		$	(17,086	)		(4,266,835	)	$	(74,944	)	$	321,422

Balance, February 28, 2022		30,053,443	$	75,134	$	123,990		$	197,998		$	(18,587	)		(4,253,824	)	$	(74,720	)	$	303,815
Balance February 28, 2022																								30,053,443	$	75,134	$	123,990		$	197,998		$	(18,587	)		(4,253,824	)	$	(74,720	)	$	303,815
Net earnings		—		—		—			35,107			—			—			—			35,107			—		—		—			35,107			—			—			—			35,107
Adjustment to pension, net of deferred tax of $375		—		—		—			—			1,501			—			—			1,501			—		—		—			—			1,501			—			—			1,501
Dividends paid ($0.75 per share)		—		—		—			(19,380	)		—			—			—			(19,380	)		—		—		—			(19,380	)		—			—			—			(19,380	)
Stock based compensation		—		—		1,497			—			—			—			—			1,497			—		—		1,497			—			—			—			—			1,497
Exercise of stock options and restricted stock		—		—		(894	)		—			—			51,071			894			—			—		—		(894	)		—			—			51,071			894			—
Common stock repurchases		—		—		—			—			—			(64,082	)		(1,118	)		(1,118	)		—		—		—			—			—			(64,082	)		(1,118	)		(1,118	)
Balance, November 30, 2022		30,053,443	$	75,134	$	124,593		$	213,725		$	(17,086	)		(4,266,835	)	$	(74,944	)	$	321,422

Balance, August 31, 2021		30,053,443	$	75,134	$	123,116		$	196,809		$	(19,685	)		(4,006,268	)	$	(70,053	)	$	305,321
Net earnings		—		—		—			7,563			—			—			—			7,563
Adjustment to pension, net of deferred tax of $295		—		—		—			—			885			—			—			885
Dividends paid ($0.25 per share)		—		—		—			(6,525	)		—			—			—			(6,525	)
Stock based compensation		—		—		642			—			—			—			—			642
Exercise of stock options and restricted stock		—		—		(14	)		—			—			826			14			—
Common stock repurchases		—		—		—			—			—			(102,757	)		(1,942	)		(1,942	)
Balance, November 30, 2021		30,053,443	$	75,134	$	123,744		$	197,847		$	(18,800	)		(4,108,199	)	$	(71,981	)	$	305,944

Balance, February 28, 2021		30,053,443	$	75,134	$	123,017		$	194,436		$	(20,282	)		(4,103,630	)	$	(71,756	)	$	300,549
Net earnings		—		—		—			22,327			—			—			—			22,327
Adjustment to pension, net of deferred tax of $494		—		—		—			—			1,482			—			—			1,482
Dividends paid ($0.725 per share)		—		—		—			(18,916	)		—			—			—			(18,916	)
Stock based compensation		—		—		2,444			—			—			—			—			2,444
Exercise of stock options and restricted stock		—		—		(1,717	)		—			—			98,188			1,717			—
Common stock repurchases		—		—		—			—			—			(102,757	)		(1,942	)		(1,942	)
Balance, November 30, 2021		30,053,443	$	75,134	$	123,744		$	197,847		$	(18,800	)		(4,108,199	)	$	(71,981	)	$	305,944
Balance November 30, 2022																								30,053,443	$	75,134	$	124,593		$	213,725		$	(17,086	)		(4,266,835	)	$	(74,944	)	$	321,422

See accompanying notes to condensed consolidated financial statements.

ENNIS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)


	Nine months ended							Nine months ended
	November 30,							November 30,
		2022			2021				2023			2022
Cash flows from operating activities:
Net earnings	$	35,107		$	22,327			$	32,451		$	35,107
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation		7,766			7,752				7,465			7,766
Amortization of intangible assets		5,280			6,137				5,830			5,280
(Gain) loss from disposal of assets		15			(275	)
Loss from disposal of assets									53			15
Accrued interest on short-term investments									(102	)		—
Bad debt expense, net of recoveries		585			408				373			585
Stock based compensation		1,497			2,444				2,055			1,497
Net pension expense		1			945				1,439			1
Changes in operating assets and liabilities:
Changes in operating assets and liabilities, net of current assets and liabilities of acquired businesses:							Changes in operating assets and liabilities, net of current assets and liabilities of acquired businesses:
Accounts receivable		(5,898	)		(569	)			8,228			(5,898	)
Prepaid expenses and income taxes		(487	)		(357	)			(4,126	)		(487	)
Inventories		(10,921	)		(6,227	)			6,828			(10,921	)
Other assets		(570	)		(15	)			81			(570	)
Accounts payable and accrued expenses		1,471			2,090				(7,763	)		1,471
Other liabilities		151			(365	)			(312	)		151
Net cash provided by operating activities		33,997			34,295				52,500			33,997
Cash flows from investing activities:
Capital expenditures		(3,338	)		(4,143	)			(4,884	)		(3,338	)
Purchase of businesses, net of cash acquired		(8,767	)		(4,340	)			(19,907	)		(8,767	)
Purchase of short-term investments									(18,393	)		—
Proceeds from disposal of plant and property		—			825				9			—
Net cash used in investing activities		(12,105	)		(7,658	)			(43,175	)		(12,105	)
Cash flows from financing activities:
Dividends paid		(19,380	)		(18,916	)			(19,391	)		(19,380	)
Common stock repurchases		(1,118	)		(1,942	)			—			(1,118	)
Net cash used in financing activities		(20,498	)		(20,858	)			(19,391	)		(20,498	)
Net change in cash		1,394			5,779				(10,066	)		1,394
Cash at beginning of period		85,606			75,190				93,968			85,606
Cash at end of period	$	87,000		$	80,969			$	83,902		$	87,000

See accompanying notes to condensed consolidated financial statements.

ENNIS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED NOVEMBER 30, ~~2022~~2023
(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 November 30, ~~2022~~2023 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 28, ~~2022,~~2023, from which the accompanying consolidated balance sheet at February 28, ~~2022~~2023 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

Recently Issued Accounting Updates

~~There~~In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which expands disclosures about a public entity’s reportable segments and requires more enhanced information about a reportable segment’s expenses, interim segment profit or loss, and how a public entity’s chief operating decision maker uses reported segment profit or loss information in assessing segment performance and allocating resources. The update will be effective for annual periods beginning after December 15, 2023 (fiscal 2025 for the Company). We are ~~no recent accounting pronouncements that are anticipated to have a material impact~~assessing the effect of this update on ~~the Company's condensed~~our consolidated financial ~~statements.~~statements and believe the adoption of this standard is likely to add material additional segment disclosures.

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. The update will be effective for annual periods beginning after December 15, 2024 (fiscal 2026 for the company). We are assessing the effect of this update on our consolidated financial statements and related disclosures.

2. Revenue

Nature of Revenues

~~Revenues~~Substantially all of the Company's revenue from contracts with customers ~~for~~consists of the sale of commercial printing products in the continental United States and is primarily recognized at a point in time in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods. Revenue from the sale of commercial printing products, including shipping and handling fees billed to customers, is recognized 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 customer, less certain related charges, including sale 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

ENNIS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED NOVEMBER 30, 2023
(unaudited)

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 November 30, ~~2022.~~2023.

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 transaction price. Contracts do not contain a

~~ENNIS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

FOR THE PERIOD ENDED NOVEMBER 30, 2022
(~~unaudited)~~

significant financing component as payment terms on invoiced amounts are typically between 30 to 60 days, based on the Company’s credit assessment of individual customers, as well as industry expectations. Product returns are not significant.

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.

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.

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, which approximated fair value, and are periodically assessed for other-than-temporary impairment..

Amortized cost and estimated fair value of investment securities classified as held-to-maturity were as follows at November 30, 2023 (in thousands):


	November 30, 2023
		Gross	Gross
	Cost or	Unrealized	Unrealized	Estimated
	Amortized	Holding	Holding	Fair
	Cost	Gains	Losses	Value
November 30, 2023
Investment securities due in less than one year	$18,495	$-	$4	$18,491

February 28, 2023
Investment securities due in less than one year	$-	$-	$-	$-

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 nine months ended November 30, 2023.

ENNIS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED NOVEMBER 30, 2023
(unaudited)

4.Accounts Receivable and Allowance for Doubtful Receivables

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 the United States. 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 doubtful receivables is based on an analysis that estimates the amount of its total customer receivable balance that is not collectible. This analysis includes the pooling of receivables based on risk assessment and then assessing a default probability to these pooled balances, which can be influenced by several factors including (i) current market conditions, (ii) historical experience, (iii) reasonable forecast, and (iv) review of customer receivable aging and payment trends.

The following table summarizes the components of accounts receivables as of the dates indicated (in thousands):


	November 30,	February 28,
	2023	2023
Trade Receivables, net of allowance for doubtful receivables	$40,452	$44,645
Vendor Rebates	3,239	4,354
Notes Receivable	4,449	4,508
	$48,140	$53,507

Accounts receivable at November 30, 2023 and February 28, 2023 includes a $4.4 million receivable related to the sale of an unused manufacturing facility. The note has a one-year maturity but the payments are calculated based on a 30-year amortization schedule with monthly payments until maturity, at which point the remaining balance will be due and owing. The note has a fixed interest rate of 5.9% per annum.

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 doubtful receivables (in thousands):


	Three months ended					Nine months ended						Three months ended						Nine months ended
	November 30,					November 30,						November 30,						November 30,
	2022			2021		2022			2021			2023			2022			2023			2022
Balance at beginning of period	$	1,523		$	1,016	$	1,200		$	961		$	1,866		$	1,523		$	1,710		$	1,200
Bad debt expense, net of recoveries		192			249		585			408			138			192			373			585
Accounts written off		(23	)		-		(93	)		(104	)		(46	)		(23	)		(125	)		(93	)
Balance at end of period	$	1,692		$	1,265	$	1,692		$	1,265		$	1,958		$	1,692		$	1,958		$	1,692

ENNIS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED NOVEMBER 30, ~~2022~~2023
(unaudited)

4.5. Inventories

With the exception of approximately ~~12.3~~8.4% and ~~14.0~~6.1% of its inventories valued at the lower of last-in first-out ("LIFO") for the periods ended November 30, ~~2022~~2023 and February 28, ~~2022,~~2023, 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 November 30, ~~2022~~2023 and fiscal year ended February 28, ~~2022~~2023 were $~~1.6~~1.9 million and $~~1.5~~1.6 million, respectively.

The following table summarizes the components of inventories at the different stages of production as of the dates indicated (in thousands):


	November 30,		February 28,		November 30,		February 28,
	2022		2022		2023		2023
Raw material	$	31,982	$	25,276	$	24,176	$	30,308
Work-in-process		7,576		5,547		5,601		6,174
Finished goods		10,364		7,715		12,548		10,352
	$	49,922	$	38,538	$	42,325	$	46,834

5.6. 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.~~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 asin the period incurred.

Acquisition of ~~School Photo Marketing~~Eagle Graphics and Diamond Graphics

On ~~November 30, 2022,~~October 11, 2023, the Company acquired the assets and business ~~from School Photo Marketing~~of Eagle Graphics, Inc., which is based in Annville, Pennsylvania, and Diamond Graphics, Inc. ("~~SPM"~~Eagle"), which is based in ~~Morganville, New Jersey,~~Bensalem, Pennsylvania, for ~~$8.8~~approximately $8.0 million ~~(with additional potential earn-out~~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 prepared by management using the information available as of upthe acquisition date. This allocation is preliminary and subject to ~~$1,000,000 over~~change, which may be material. All goodwill of $0.2 million recognized as a ~~four-year period upon~~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 ~~attainment~~transaction, which are also deductible for tax purposes.

The following table summarizes the Company's preliminary purchase price allocation for Eagle as of ~~specified financial benchmarks)~~the acquisition date (in thousands):


Accounts receivable		$841
Inventories		917
Other assets		15
Property, plant and equipment		5,304
Goodwill and intangibles		942
Accounts payable and accrued liabilities		(41)
Acquisition price		$7,978

ENNIS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED NOVEMBER 30, 2023
(unaudited)

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 $7.7 million in cash plus the assumption of trade payables of approximately $0.8 million. 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 prepared by management using the information available as of the acquisition date. This allocation is preliminary and subject to ~~certain adjustments.~~change, which may be material. 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 following table summarizes the Company's preliminary purchase price allocation for UMC as of the acquisition date (in thousands):


Cash		$758
Accounts receivable		1,839
Inventories		553
Property, plant and equipment		2,356
Goodwill and intangibles		2,970
Accounts payable and accrued liabilities		(789)
Acquisition price		$7,687

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 a preliminary 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. This allocation is preliminary and subject to change, which may be material. All goodwill of ~~$4.8~~$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 ~~$3.2~~$0.3 million in connection with the transaction, which are also deductible for tax purposes.

The following table summarizes the Company's ~~preliminary~~ purchase price allocation for ~~SPM~~Stylecraft as of the acquisition date (in thousands):


Accounts receivable		$~~1,403~~554
Inventories		~~463~~
~~Other assets~~		84849
Right-of-use asset		~~487~~28
Property, plant and equipment		~~250~~3,161
Goodwill and intangibles		~~7,974~~476
Operating lease liability		(~~487~~)(12)
Accounts payable and accrued liabilities		(~~1,407~~)(28)
Acquisition price		$~~8,767~~5,028

Acquisition of ~~AmeriPrint Corporation~~School Photo Marketing

11On November 30, 2022, the Company acquired the assets and business from School Photo Marketing ("SPM"), which is based in Morganville, New Jersey, for $8.8 million (with additional potential earn-out consideration of up to $1,000,000 over a four-year period upon the attainment of specified financial benchmarks) plus the assumption of trade payables, subject to certain adjustments. At November 30, 2023 and February 28, 2023, the contingent earn-out liability amounted to $0.8 million and zero, respectively. The seller shall receive fifty percent (50%) of Purchaser's annual earnings from the business, before interest and taxes in excess of $1.4 million. Goodwill of $3.1 million recognized as a part of this acquisition is deductible for tax purposes. The Company also recorded

ENNIS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED NOVEMBER 30, ~~2022~~2023
(unaudited)

~~On June 1, 2021, the Company acquired the assets and business from AmeriPrint Corporation ("AmeriPrint"), which is based in Harvard, Illinois, for $3.9~~ ~~million in cash plus the assumption of trade payables, subject to certain adjustments. Goodwill of $0.5~~ ~~million recognized as a part of the acquisition is deductible for tax purposes. The Company also recorded~~ intangible assets with definite lives of approximately $~~1.1~~5.1 million in connection with the ~~transaction.~~transaction, which are also deductible for tax purposes. The acquisition of ~~AmeriPrint, which prior~~SPM brings printing, yearbook publishing and marketing related services to over 1,400 school and sports photographers servicing schools around the ~~acquisition generated approximately $~~country.~~6.5~~ ~~million in sales for its fiscal year ended December 31, 2020, brings added capabilities and expertise to our expanding product offering including barcoding and variable imaging.~~

The following ~~is a summary of~~table summarizes the Company's purchase price allocation for ~~AmeriPrint~~SPM as of the acquisition date (in thousands):

Accounts receivable

$
417

Inventories

732

Property, plant and equipment

2,000

Goodwill and intangibles

1,607

Accounts payable and accrued liabilities

(834
)

$
3,922


Accounts receivable		$1,403
Inventories		516
Other assets		84
Right-of-use asset		487
Property, plant and equipment		250
Goodwill and intangibles		8,262
Operating lease liability		(487)
Accounts payable and accrued liabilities		(1,748)
Acquisition price		$8,767

The results of operations for SPM, Stylecraft, UMC and Eagle are included in the Company’s consolidated financial statements from the respective dates of acquisition. The following table sets forth certain operating information on a pro forma basis as though each acquisition had occurred as of the beginning of the comparable prior period (that is, March 1, 2022). The following pro forma information includes the estimated impact of adjustments such as amortization of intangible assets, depreciation expense and interest expense and related tax effects (in thousands, except per share amounts).


	Three months ended				Nine months ended
	November 30, 2023		November 30, 2022		November 30, 2023		November 30, 2022
Pro forma net sales	$	105,233	$	120,446	$	333,036	$	360,101
Pro forma net earnings		9,975		12,275		33,847		38,974
Pro forma earnings per share - diluted	$	0.38	$	0.47	$	1.30	$	1.51

The pro forma results are not necessarily indicative of what would have occurred if the acquisitions had been in effect for the full duration of the comparative periods presented.

7. Leases

The Company leases certain of its facilities and equipment under operating leases, which are recorded as right-of-use assets and lease liabilities. The Company’s leases generally have terms of 1 – 5 years, with certain leases including renewal options to extend the leases for additional periods at the Company’s discretion. At lease inception, all renewal options reasonably certain to be exercised are considered when determining the lease term. The Company currently does not have financing leases that include options to purchase or provisions that would automatically transfer ownership of the leased property to the Company.

Operating lease expense is recognized on a straight-line basis over the lease term, and variable lease payments are expensed as incurred. The Company had no variable lease costs for the nine months ended November 30, ~~2022~~2023 and November 30, ~~2021.~~2022.

The Company determines whether a contract is or contains a lease at the inception of the contract. A contract will be deemed to be or contain a lease if the contract conveys the right to control and directs the use of identified property, plant, or equipment for a period of time in exchange for consideration. The Company generally must also have the right to obtain substantially all of the economic benefits from the use of the property, plant, and equipment.

Operating lease assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. To determine the present value of lease payments not yet paid, the Company estimates incremental borrowing rates based on the BBB Corporate Bond Rate at lease commencement date, as rates are not implicitly stated in most leases.

~~Components of lease expense for the three and nine months ended November 30, 2022 and November 30, 2021 were as follows (in thousands):~~

Three months ended

Nine months ended

November 30, 2022

November 30, 2021

November 30, 2022

November 30, 2021

Operating lease cost

$
1,517

$
1,454

$
4,545

$
4,688

Supplemental cash flow information related to leases was as follows:

Cash paid for amounts included in the measurement of lease liabilities

Operating cash flows from operating leases

$
1,522

$
1,459

$
4,550

$
4,675

Right-of-use assets obtained in exchange for lease obligations

Operating leases

$
2,042

$
—

$
2,848

$
3,441

1214

ENNIS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED NOVEMBER 30, ~~2022~~2023
(unaudited)

Components of lease expense for the three and nine months ended November 30, 2023 and November 30, 2022 were as follows (in thousands):


	Three months ended				Nine months ended
	November 30, 2023		November 30, 2022		November 30, 2023		November 30, 2022
Operating lease cost	$	1,390	$	1,517	$	4,241	$	4,545

Supplemental cash flow information related to leases was as follows:
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	1,394	$	1,522	$	4,256	$	4,550

Right-of-use assets obtained in exchange for lease obligations
Operating leases	$	214	$	2,042	$	993	$	2,848


Weighted Average Remaining Lease Terms
Operating leases	3 Years

Weighted Average Discount Rate
Operating leases		~~3.84~~4.03	%

Future minimum lease commitments under non-cancelable operating leases for each of the fiscal years ending are as follows (in thousands):


	Operating		Operating
	Lease		Lease
	Commitments		Commitments
2023 (remaining 3 months)	$	1,025
2024		5,248
2024 (remaining 3 months)			$	901
2025		4,514		5,177
2026		2,893		3,355
2027		1,168		1,487
2028		153		496
Thereafter		-
2029				167
Total future minimum lease payments	$	15,001	$	11,583
Less imputed interest		872		632
Present value of lease liabilities	$	14,129	$	10,951

7.8. Goodwill and Intangible Assets

Goodwill represents the excess of the purchase price over the fair value of net assets of acquired businesses and is not amortized. Goodwill and other intangible assets are tested for impairment at a reporting unit level. The annual impairment test of goodwill and intangible assets is performed as of December 1 of each fiscal year.

The Company uses qualitative factors to determine whether it is more likely than not (likelihood of more than 50%) that the fair value of a reporting unit exceeds its carrying amount, including goodwill. Some of the qualitative factors used in applying this test include consideration of macroeconomic conditions, industry and market conditions, cost factors affecting the business, overall financial performance of the business, and performance of the share price of the Company.

If qualitative factors are not deemed sufficient to conclude that the fair value of the reporting unit more likely than not exceeds its carrying value, then a one-step approach is applied in making an evaluation. The evaluation utilizes multiple valuation methodologies, including a market approach (market price multiples of comparable companies) and an income approach (discounted cash flow analysis). The computations require management to make significant estimates and assumptions, including, among other things,

ENNIS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED NOVEMBER 30, 2023
(unaudited)

selection of comparable publicly traded companies, the discount rate applied to future earnings reflecting a weighted average cost of capital, and earnings growth assumptions. A discounted cash flow analysis requires management to make various assumptions about future sales, operating margins, capital expenditures, working capital, and growth rates. If the evaluation results in the fair value of the goodwill for the reporting unit being lower than the carrying value, an impairment charge is recorded.

~~ENNIS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

FOR THE PERIOD ENDED NOVEMBER 30, 2022
(~~unaudited)~~

Definite-lived intangible assets are amortized over their estimated useful lives and tested for impairment if events or changes in circumstances indicate that the asset may be impaired.

The carrying amount and accumulated amortization of the Company’s intangible assets at each balance sheet date are as follows (in thousands):


	Weighted								Weighted
	Average								Average
	Remaining		Gross						Remaining		Gross
	Life		Carrying		Accumulated				Life		Carrying		Accumulated
As of November 30, 2022	(in years)		Amount		Amortization		Net
Amortized intangible assets
As of November 30, 2023									(in years)		Amount		Amortization		Net
Definite-lived intangible assets
Trademarks and trade names		10.4	$	29,328	$	11,786	$	17,542		7.6	$	30,654	$	13,883	$	16,771
Customer lists		5.3		79,126		52,666		26,460		5.4		82,844		58,168		24,676
Non-compete		2.8		235		159		76		1.9		238		167		71
Technology										6.0		650		93		557
Total		7.3	$	108,689	$	64,611	$	44,078		6.3	$	114,386	$	72,311	$	42,075

As of February 28, 2022
Amortized intangible assets
As of February 28, 2023
Definite-lived intangible assets
Trademarks and trade names		11.0	$	28,207	$	10,301	$	17,906		10.1	$	28,977	$	12,294	$	16,683
Customer lists		6.1		76,458		48,903		27,555		5.4		80,733		54,020		26,713
Non-compete		3.3		877		769		108		2.7		210		145		65
Technology										6.7		650		23		627
Total		8.0	$	105,542	$	59,973	$	45,569		7.2	$	110,570	$	66,482	$	44,088

Aggregate amortization expense was $~~5.3~~1.9 million and $~~6.1~~5.8 million for the three and nine months ended November 30, 2023, respectively and $1.8 million and $5.3 million for the three and nine months ended November 30, 2022, ~~and November 30, 2021,~~ respectively.

The Company’s estimated amortization expense for the current and next four fiscal years is as follows (in thousands):


2023	$	7,130
2024		7,354	$	7,810
2025		7,180		7,772
2026		6,565		7,148
2027		5,481		6,059
2028				4,562

Changes in the net carrying amount of goodwill as of the dates indicated are as follows (in thousands):

Balance as of March 1, 2021

$
88,647

Goodwill acquired

30

Balance as of February 28, 2022

88,677

Goodwill acquired

4,761

Balance as of November 30, 2022

$
93,438


Balance as of March 1, 2022		88,677
Goodwill acquired		3,142
Balance as of February 28, 2023		91,819
Goodwill acquired		572
Balance as of November 30, 2023	$	92,391

During fiscal year ~~2022, the Company recorded a measurement period adjustment of~~2024, $~~0.5~~0.2 million ~~to reduce goodwill related to the Infoseal acquisition. The Company records additions of $0.5~~ ~~million and less than $0.1~~ ~~million~~was added to goodwill related to the acquisition of ~~AmeriPrint~~Stylecraft, $0.2 million was added to goodwill related to the acquisition of UMC and ~~Superior Copies, respectively. Additionally,~~ $~~4.8~~0.2 million was added to goodwill related to the acquisition of Eagle and Diamond. During fiscal year 2023, $3.1 million was added to goodwill related to the acquisition of SPM.

1416

ENNIS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED NOVEMBER 30, ~~2022~~2023
(unaudited)

8.9. Accrued Expenses

The following table summarizes the components of accrued expenses as of the dates indicated (in thousands):


	November 30, 2022		February 28, 2022		November 30, 2023		February 28, 2023
Employee compensation and benefits	$	13,907	$	11,587	$	14,240	$	14,823
Taxes other than income		1,513		947		1,555		1,154
Accrued legal and professional fees		534		251		527		376
Accrued interest		-		31
Accrued utilities		128		108		108		129
Accrued acquisition related obligations		9		34
Contingent earn-out liability related to acquisition of SPM						200		-
Income taxes payable		2,160		1,606		757		552
Other accrued expenses		866		858		1,230		1,033
	$	19,117	$	15,422	$	18,617	$	18,067

9.10. Long-Term Debt

~~The Company did not renew its Credit Agreement which expired~~ ~~November 11, 2021. The Company has had~~ no ~~outstanding long-term debt under the revolving credit line since paid in full in August 2019.~~ As of November 30, ~~2022,~~2023, the Company had $~~0.5~~0.3 million outstanding under a standby letters of credit arrangement secured by a cash collateral bank account.

~~10.~~11. Shareholders’ Equity

The Company’s board of directors (the "Board") has authorized the repurchase of the Company’s outstanding common stock through a stock repurchase program, which authorized amount is currently up to $60.0 million in the aggregate. Under the repurchase program, purchases may be made from time to time in the open market or through privately negotiated transactions depending on market conditions, share price, trading volume and other factors. Such purchases, if any, will be made in accordance with applicable insider trading and other securities laws and regulations. These repurchases may be commenced or suspended at any time or from time to time without prior notice.

~~During the nine months ended November 30, 2022, the Company repurchased~~ ~~64,082~~ ~~shares of common stock under the program at an average price of $17.46~~. There were no repurchases of common stock during the ~~three-month~~nine-month period ended November 30, ~~2022.~~2023. Since the program’s inception in October 2008, there have been 2,213,111 common shares repurchased at an average price of $16.29 per share. As of November 30, ~~2022,~~2023, $23.9 million remained available to repurchase shares of the Company’s common stock under the program.

~~11.~~12. Stock Based Compensation

The Company grants stock options, restricted stock and restricted stock units ("RSUs") to key executives and managerial employees and non-employee directors. Prior to June 30, 2021, the Company had one stock incentive plan, the 2004 Long-Term Incentive Plan of Ennis, Inc., as amended and restated as of May 18, 2008 and was further amended on June 30, 2011 (the "Old Plan"). The Old Plan expired June 30, 2021 and all remaining unused shares expired. Subject to the affirmative vote of the shareholders, the Board adopted the 2021 Long-Term Incentive Plan of Ennis, Inc. (the "New Plan") on April 16, 2021 authorizing 1,033,648 shares of common stock for ~~awards and~~awards. The New Plan was approved by the shareholders at the Annual Meeting on July 15, 2021 by a majority vote. The New Plan expires June 30, 2031 and all unissued stock will expire on that date. At November 30, ~~2022,~~2023, the Company has ~~977,277~~815,872 shares of unissued common stock reserved under the New Plan for issuance and uses treasury stock to satisfy option exercises and restricted stock awards.

The Company recognizes compensation expense for stock options and restricted stock grants based on the grant date fair value of the award for stock options, restricted stock grants and RSUs on a straight-line basis over the requisite service period. The estimated number of shares to be achieved for performance based RSUs is updated each reporting period. For the three months ended November 30, ~~2022~~2023 and November 30, ~~2021,~~2022, the Company included in selling, general and administrative expenses, compensation expense related to stock-based compensation of $~~0.6~~0.7 million and $0.6 million, respectively. For the nine months ended November 30, ~~2022 and November 30, 2021, the Company~~2023

1517

ENNIS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED NOVEMBER 30, ~~2022~~2023
(unaudited)

and November 30, 2022, the Company included in selling, general and administrative expenses, compensation expense related to stock-based compensation of $~~1.5~~2.0 million and $~~2.4~~1.5 million, respectively.

Stock Options

The Company had the following stock option activity for the nine months ended November 30, 2023. noNo ~~outstanding vested or unvested~~ stock options ~~at any time~~were outstanding during the nine months ended November 30, ~~2022~~2022.


					Weighted
			Weighted		Average		Aggregate
	Number		Average		Remaining		Intrinsic
	of Shares		Exercise		Contractual		Value(a)
	(exact quantity)		Price		Life (in years)		(in thousands)
Outstanding at March 1, 2023		—	$	—		—		—
Granted		52,500		19.88
Terminated		—		—
Exercised		—		—
Outstanding at November 30, 2023		52,500	$	19.88		9		71
Exercisable at November 30, 2023		—		—		—		—

The following is a summary of the assumptions used and ~~November 30, 2021.~~ Nothe weighted average grant-date fair value of the stock options ~~were~~ granted during the nine months ended November 30, ~~2022 and~~2023.


		November 30,
		2023
Expected volatility		19.55%
Expected term (years)		3
Risk free interest rate		3.87%
Dividend Yield		4.94%
Weighted average grant-date fair value		$2.47

A summary of the status of the Company’s unvested stock options at November 30, ~~2021.~~2023 and the changes during the nine months ended November 30, 2023 are presented below:


		Weighted
		Average
	Number	Grant Date
	of Options	Fair Value
Unvested at March 1, 2023	—	—
New grants	52,500	2.47
Vested	—	—
Forfeited	—	—
Unvested at November 30, 2023	52,500	2.47

ENNIS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED NOVEMBER 30, 2023
(unaudited)

As of November 30, 2023, there was $0.1 million of unrecognized compensation cost related to unvested stock options granted under the Plan. The weighted average remaining requisite service period of the unvested stock options was 2.4 years.

Restricted Stock

The following activity occurred with respect to the Company’s restricted stock awards for the nine months ended November 30, ~~2022, of which~~ ~~22,000~~ ~~shares were granted under the New Plan:~~2023:


				Weighted					Weighted
				Average					Average
	Number of			Grant Date		Number of			Grant Date
	Shares			Fair Value		Shares			Fair Value
Outstanding at March 1, 2022		67,164		$	18.73
Outstanding at March 1, 2023							49,783		$	18.99
Granted		22,000			19.78		21,672			20.31
Terminated		—			—		—			—
Vested		(39,381	)		19.00		(29,324	)		18.36
Outstanding at November 30, 2022		49,783		$	18.99
Outstanding at November 30, 2023							42,131		$	20.11

The total fair value of shares vested during the nine months ended November 30, 2023 and November 30, 2022 was $0.6 million and $0.7 million, respectively.

As of November 30, ~~2022,~~2023, the total remaining unrecognized compensation cost related to unvested restricted stock was approximately $~~1.1~~0.7 million. The weighted average remaining requisite service period of the unvested restricted stock awards was ~~1.7~~2.0 years.

Restricted Stock Units

During the nine months ended November 30, ~~2022,~~2023, ~~39,574~~no ~~performance-based RSUs and~~ ~~9,893~~ ~~time-based~~ RSUs were granted under the New Plan. The fair value of the time-based RSUs was estimated based on the fair market value of the Company’s stock on the date of ~~grant of $19.47~~ ~~per unit.~~grant. The fair value of the performance-based RSUs, using a Monte Carlo valuation model, was $23.17 per unit. The performance measures include a threshold, target and maximum performance level providing the grantees an opportunity to receive more or less shares than targeted depending on actual financial performance. The award will be based on the Company’s return on equity, EBITDA and adjusted for the Company’s Relative Shareholder Return as measured against a defined peer group.

The performance-based RSUs will vest no later than March 15, 2024, which is the deadline for the Compensation Committee to determine the extent of the Company’s attainment of the Performance Goals during the Performance Period that ends on February 29, 2024. The time-based RSUs vest ratably over two to three years from the date of grant.

The following activity occurred with respect to the Company’s restricted stock units for the nine months ended November 30, ~~2022:~~2023:


	Time-based					Performance-based				Time-based					Performance-based
				Weighted				Weighted					Weighted				Weighted
				Average				Average					Average				Average
	Number of			Grant Date		Number of		Grant Date		Number of			Grant Date		Number of		Grant Date
	Shares			Fair Value		Shares		Fair Value		Shares			Fair Value		Shares		Fair Value
Outstanding at March 1, 2022		35,071		$	20.38		140,287	$	23.17
Outstanding at March 1, 2023											33,274		$	20.11		233,819	$	23.17
Granted		9,893			19.47		39,574		23.17		—			—		—		—
Terminated		—			—		—		—		—			—		—		—
Vested		(11,690	)		20.38		—		—		(16,635	)		20.11		—		—
Outstanding at November 30, 2022		33,274		$	20.11		179,861	$	23.17
Outstanding at November 30, 2023											16,639		$	20.11		233,819	$	23.17

The total fair value of shares vested during the nine months ended November 30, 2023 and November 30, 2022 was $0.3 million and $0.2 million, respectively.

As of November 30, ~~2022,~~2023, the total remaining unrecognized compensation cost of time-based RSUs was approximately $~~0.4~~0.1 million over a weighted average remaining requisite service period of ~~1.8~~0.8 years. As of November 30, ~~2022,~~2023, the total remaining unrecognized compensation of performance-based RSUs was approximately $~~1.7~~0.7 million over a weighted average remaining requisite service period of ~~1.7~~1.0 years.

1619

ENNIS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED NOVEMBER 30, ~~2022~~2023
(unaudited)

~~12.~~13. Pension Plan

The Company and certain subsidiaries have a noncontributory defined benefit retirement plan (the "Pension Plan"), covering approximately 1312% of the Company’s aggregate employees. Benefits are based on years of service and the employee’s average compensation for the highest five compensation years preceding retirement or termination.

Pension expense is composed of the following components included in cost of goods sold and selling, general, and administrative expenses in the Company’s consolidated statements of earnings (in thousands):


	Three months ended						Nine months ended						Three months ended						Nine months ended
	November 30,						November 30,						November 30,						November 30,
	2022			2021			2022			2021			2023			2022			2023			2022
Components of net periodic benefit cost
Service cost	$	236		$	269		$	708		$	806		$	168		$	236		$	504		$	708
Interest cost		492			420			1,475			1,261			614			492			1,841			1,475
Expected return on plan assets		(924	)		(931	)		(2,774	)		(2,792	)		(776	)		(924	)		(2,328	)		(2,774	)
Amortization of:
Unrecognized net loss		601			639			1,806			1,919			474			601			1,422			1,806
Settlement charges		786			750			786			750			-			786			-			786
Net periodic benefit cost	$	1,191		$	1,147		$	2,001		$	1,944		$	480		$	1,191		$	1,439		$	2,001

The Company is required to make contributions to the Pension Plan. These contributions are required under the minimum funding requirements of the Employee Retirement Income Security Act of 1974 ("ERISA"). The assumption used to calculate the pension funding deficit are different from the assumption used to determine the net pension obligation for purposes of our condensed consolidated financial statements. Due to the enactment of the ~~Highway and Transportation Funding Act~~American Rescue Plan ("~~HATFA~~ARP") ~~in August 2014,~~Act of 2021, plan sponsors can calculate the discount rate used to measure the Pension Plan liability using a 25-year average of interest rates plus or minus a corridor. ~~The Company’s minimum required contribution to the Pension Plan is~~ ~~zero~~ ~~for the Pension Plan year ending February 28, 2023.~~ Assuming a stable funding status, the Company would expect to make a cash contribution to the Pension Plan of between $1.5 million and $3.0 million per year. However, changes in actual investment returns or in discount rates could change this amount significantly. There was a $2.0 million contribution made in September 2022 to avoid a Pension Benefit Guaranty Corporation variable premium. As our Pension Plan assets are invested in marketable securities, fluctuations in market values could potentially impact our funding status, associated liabilities recorded and future required minimum contributions. At November 30, ~~2022,~~2023, we had an unfunded pension liability recorded on our balance sheet of approximately $~~3.7~~0.6 million.

~~13.~~14. Earnings Per Share

Basic earnings per share have been computed by dividing net earnings by the weighted average number of common shares outstanding during the applicable period. Diluted earnings per share reflect the potential dilution that could occur if stock options, performance-based RSUs or other contracts to issue common shares were exercised or converted into common stock. This is calculated using the treasury stock method.

The following table sets forth the computation for basic and diluted earnings per share for the periods indicated:


	Three months ended				Nine months ended				Three months ended				Nine months ended
	November 30,				November 30,				November 30,				November 30,
	2022		2021		2022		2021		2023		2022		2023		2022
Basic weighted average common shares outstanding		25,809,581		26,020,210		25,812,216		26,053,898		25,894,578		25,809,581		25,826,691		25,812,216
Effect of dilutive RSUs		79,234		—		80,657		97,582
Effect of dilutive stock options, restricted stock and RSUs										188,723		79,234		164,876		80,657
Diluted weighted average common shares outstanding		25,888,815		26,020,210		25,892,873		26,151,480		26,083,301		25,888,815		25,991,567		25,892,873
Earnings per share
Net earnings - basic	$	0.44	$	0.29	$	1.36	$	0.86	$	0.38	$	0.44	$	1.26	$	1.36
Net earnings - diluted	$	0.44	$	0.29	$	1.36	$	0.85	$	0.38	$	0.44	$	1.25	$	1.36
Cash dividends	$	0.250	$	0.250	$	0.750	$	0.725
Cash dividends per share									$	0.25	$	0.25	$	0.75	$	0.75

The Company treats unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) as participating securities, which are included in the computation of earnings per share. Our unvested restricted shares participate on an equal basis with common shares; therefore, there is no difference in undistributed earnings allocated

1720

ENNIS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED NOVEMBER 30, ~~2022~~2023
(unaudited)

to each participating security. Accordingly, the presentation above is prepared on a combined basis. At November 30, 2023, 52,500 shares related to outstanding stock options were not included in the computation of earnings per diluted share as they were considered anti-dilutive. No options were outstanding for the nine months ended November 30, ~~2022 and November 30, 2021.~~2022.

~~14.~~15. Concentrations of Risk

Financial instruments that potentially subject the Company to a concentration of credit risk principally consist of cash and trade receivables. Cash is placed with high-credit quality financial institutions. For the purposes of the condensed consolidated statements of cash flows, the Company considers cash to include cash on hand and in bank accounts. The Federal Deposit Insurance Corporation insures accounts up to $250,000. At November 30, ~~2022,~~2023, cash balances included $~~86.2~~82.8 million that was not federally insured because it represented amounts in individual accounts above the federally insured limit for each such account. This at-risk amount is subject to fluctuation on a daily basis. While management does not believe there is significant risk with respect to such deposits, no assurance can be made that the Company will not experience losses on the Company’s deposits.

The Company believes its credit risk with respect to trade receivables is limited due to industry and geographic diversification. As disclosed on the condensed consolidated balance sheets, the Company maintains an allowance for doubtful receivables to cover the Company’s estimate of credit losses associated with accounts receivable.

The Company, for quality and pricing reasons, purchases its paper products from a limited number of suppliers. While other sources may be available to the Company to purchase these products, they may not be available at the cost or at the quality the Company has come to expect.

~~15.~~16. Related Party Transactions

The Company leases a facility and sells product to an entity controlled by a member of the ~~Board who~~Board. The total right-of-use asset and related lease liability as of November 30, 2023 was ~~the former owner of Integrated Print & Graphics, a business that the Company acquired.~~$0.5 million and $0.5 million, respectively. The total right-of-use asset and related lease liability as of November 30, 2022 was $0.8 million and $0.9 million, respectively. During the three and nine months ended November 30, ~~2022,~~2023, total lease payments ~~made to,~~ and sales made to the related party were approximately $~~0.3~~0.2 million and $~~3.0~~2.4 million, respectively. During the three and nine months ended November 30, 2022, total lease payments and sales made to the related party were approximately $0.2 million and $1.9 million, respectively.

~~16.~~17. Income Taxes

The Company is subject to U.S. federal income tax as well as income taxes of multiple state jurisdictions. The quarterly income tax provision was computed based on our estimated annualized effective tax rate and the full-year forecasted income or loss plus the tax impact of unusual, infrequent, or nonrecurring significant items during the period.

Our effective tax rate for the ~~three and~~ nine months ended November 30, ~~2022~~2023 and ~~2021~~2022 was ~~28.0~~28.3% and ~~30.0~~28.0%, ~~respectively, which varied from the U.S. federal statutory tax rate of~~ ~~21.0% primarily due to the effects of state income taxes, nondeductible compensation and other permanent items.~~respectively. The Company made cash payments for income taxes of $~~13.1~~16.2 million and $~~9.7~~13.1 million, respectively, for the nine months ended November 30, ~~2022~~2023 and ~~2021.~~2022.

~~17.~~18. Other Contingencies

We are subject to a variety of claims and suits that arise from time to time in the ordinary course of our business. Although management currently believes that resolving claims against us, individually or in the aggregate, will not have a material adverse impact in our consolidated financial statements, these matters are subject to inherent uncertainties and management's view of these matters may change in the future.

19. Subsequent Events

On December ~~15, 2022~~13, 2023, the Board declared a quarterly dividend on the Company's common stock of 25.0cents per share, which will be paid onFebruary ~~2, 2023~~1, 2024 to shareholders of record as of January ~~5, 2023~~4, 2024. The expected payout for this dividend is approximately $6.5 million.

1821

ENNIS, INC. AND SUBSIDIARIES

FORM 10-Q

FOR THE PERIOD ENDED NOVEMBER 30, ~~2022~~2023

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary ~~Note~~Statement Regarding Forward-Looking Statements

The following “Management’s Discussion and Analysis of Financial Condition and Results of Operations” should be read together with the unaudited consolidated financial statements and related notes of Ennis, Inc. (collectively with its subsidiaries, the “Company,” “Registrant,” “Ennis,” or “we,” “us,” or “our”), included in Part 1, Item 1 of this report, and with the audited consolidated financial statements and the related notes of the Company included in our Annual Report on Form 10-K for the fiscal year ended February 28, ~~2022.~~2023.

All of the statements in this report, other than historical facts, are forward-looking statements, including, without limitation, the statements made in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” As a general matter, forward-looking statements are those focused upon anticipated events or trends, expectations, and beliefs relating to matters that are not historical in nature. The words “could,” “should,” “feel,” “anticipate,” “aim,” “preliminary,” “expect,” “believe,” “estimate,” “intend,” “intent,” “plan,” “will,” “foresee,” “project,” “forecast,” or the negative thereof or variations thereon, and similar expressions identify forward-looking statements.

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for these forward-looking statements. In order to comply with the terms of the safe harbor, the Company notes that forward-looking statements are subject to known and unknown risks, uncertainties and other factors relating to its operations and business environment, all of which are difficult to predict and many of which are beyond the control of the Company. These known and unknown risks, uncertainties and other factors could cause actual results to differ materially from those matters expressed in, anticipated by or implied by such forward-looking statements.

These statements reflect the current views and assumptions of management with respect to future events. The Company does not undertake, and hereby disclaims, any duty to update these forward-looking statements, even though its situation and circumstances may change in the future. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this report. The inclusion of any statement in this report does not constitute an admission by the Company or any other person that the events or circumstances described in such statement are material.

We believe these forward-looking statements are based upon reasonable assumptions. All such statements involve risks and uncertainties, and as a result, actual results could differ materially from those projected, anticipated or implied by these statements. Such forward-looking statements involve known and unknown risks, including but not limited to: general economic, business and labor conditions and the potential adverse effects of potential recessionary concerns, inflationary issues and supply chain disruptions and the potential impact on our operations; our ability to implement our strategic initiatives and control our operational costs; dependence on a limited number of key suppliers; our ability to recover the rising cost of raw materials and other costs (including energy, freight, labor and benefit costs) in markets that are highly price competitive and volatile; uninsured losses, including those from natural disasters, catastrophes, pandemics, theft, ~~sabotage, or cyber attacks;~~sabotage; the impact of the novel coronavirus COVID-19 pandemic or future pandemics on the U.S. and local economies, our business operations, our workforce, our supply chain and our customer base; our ability to timely or adequately respond to technological changes in the industry; cybersecurity risks, the impact of the internet and other electronic media on the demand for forms and printed materials; the impact of foreign competition, tariffs, trade regulations and import restrictions; customer credit risk; competitors’ pricing strategies; a decline in business volume and profitability could result in an impairment in our reported goodwill negatively impacting our operational results; our ability to retain key management personnel; our ability to identify, manage or integrate acquisitions; the impact of a data-breach of sensitive information, ransomware attack or other cyber incident on the Company; and changes in government regulations including measures intended to minimize the impact of COVID-19.acquisitions.; In addition to the factors indicated above, you should carefully consider the risks described in and incorporated by reference herein and in the risk factors in our Annual Report on Form 10-K for the fiscal year ended February 28, ~~2022~~2023 before making an investment in our common stock.

Overview

Ennis, Inc. (formerly Ennis Business Forms, Inc.) (collectively with its subsidiaries, “the “Company,” “Registrant,” Ennis,” or “we,” “us,” or “our”) was organized under the laws of Texas in 1909. We and our subsidiaries print and manufacture a broad line of business forms and other business products. We distribute business products and forms throughout the United States primarily through independent distributors. This distributor channel encompasses independent print distributors, commercial printers, direct mail, fulfillment companies, payroll and accounts payable software companies, and advertising agencies, among others. We also sell products to many of our competitors to satisfy their customers’ needs.

~~For a discussion regarding the impact of the ongoing COVID-19 pandemic on our business, please see~~ ~~Business Challenges—COVID-19 Pandemic and~~ ~~Results of Operations,~~ ~~below.~~

1922

ENNIS, INC. AND SUBSIDIARIES

FORM 10-Q

FOR THE PERIOD ENDED NOVEMBER 30, ~~2022~~2023

Business Overview

Our management believes we are the largest provider of business forms, pressure-seal forms, labels, tags, envelopes, and presentation folders to independent distributors in the United States.

We are in the business of manufacturing, designing, and selling business forms and other printed business products primarily to distributors located in the United States. We operate 5559 manufacturing plants throughout the United States in 20 strategically located states as one reportable segment. Approximately 96% of the business products we manufacture are custom and semi-custom products, constructed in a wide variety of sizes, colors, number of parts, and quantities on an individual job basis, depending upon the customers’ specifications.

The products we sell include snap sets, continuous forms, laser cut sheets, tags, labels, envelopes, integrated products, jumbo rolls and pressure sensitive products in short, medium and long runs under the following labels: Ennis®, Royal Business Forms®, Block Graphics®, 360º Custom LabelsSM, ColorWorx®, Enfusion®, Uncompromised Check Solutions®, VersaSeal®, Ad ConceptsSM, FormSource LimitedSM, Star Award Ribbon Company®, Witt Printing®, B&D Litho®, Genforms®, PrintGraphics®, Calibrated Forms®, PrintXcel®, Printegra®, Forms ManufacturersSM, Mutual Graphics®, TRI-C Business FormsSM, Major Business SystemsSM, Independent PrintingSM, Hoosier Data Forms®, Hayes Graphics®, Wright Business GraphicsSM, Wright 360SM, Integrated Print & GraphicsSM, the Flesh CompanySM, Impressions DirectSM ~~and~~, AmeriPrintSM, StylecraftSM, UMC PrintSM; Eagle GraphicsSM and Diamond GraphicsSM. We also sell the Adams McClure® brand (which provides Point of Purchase advertising); the Admore®, Folder Express®, and Independent Folders® brands (which provide presentation folders and document folders); Ennis Tag & LabelSM (which provides custom printed, high performance labels and custom and stock tags); Allen-Bailey Tag & LabelSM, Atlas Tag & Label®, Kay Toledo Tag®, and Special Service Partners® (SSP) (which provides custom and stock tags and labels); Trade Envelopes®, Block Graphics®, Wisco®, and National Imprint Corporation® (which provide custom and imprinted envelopes) and Northstar® and General Financial Supply® (which provide financial and security documents); InfosealSM and PrintXcel® (which provide custom and stock pressure seal documents). School Photo Marketing is a one-stop shop for over ~~1,300~~1,400 school portrait photographers and professional photo labs nationwide, providing them with a complete array of products and services that reach over 15 million families and 30,000 schools, primarily in the K-8 market. We sell predominantly through independent distributors, as well as to many of our competitors. Northstar Computer Forms, Inc., one of our wholly-owned subsidiaries, also sells direct to a small number of customers, generally large banking organizations (where a distributor is not acceptable or available to the end-user). Adams McClure, LP, a wholly-owned subsidiary, also sells direct to a small number of customers, where sales are generally through advertising agencies.

The printing industry generally sells its products either predominantly to end users, a market dominated by a few large manufacturers such as R.R. Donnelley and Sons, Staples, Inc., Standard Register Co. (a subsidiary of Taylor Corporation), and Cenveo, Inc., or, like the Company, through a variety of independent distributors and distributor groups. While it is not possible, because of the lack of adequate public statistical information, to determine the Company’s share of the total business products market, management believes the Company is the largest producer of business forms, pressure-seal forms, labels, tags, envelopes, and presentation folders in the United States distributing primarily through independent distributors.

There are a number of competitors that operate in this segment, ranging in size from single employee-owned operations to multi-plant organizations. We believe our strategic locations and buying power permit us to compete on a favorable basis within the distributor market on competitive factors, such as service, quality, and price.

Distribution of business forms and other business products throughout the United States is primarily done through independent distributors, including business forms distributors, resellers, direct mail, commercial printers, payroll and accounts payable software companies, and advertising agencies.

Raw materials principally consist of a wide variety of weights, widths, colors, sizes, and qualities of paper for business products purchased primarily from one major supplier at favorable prices based on the volume of business.

Business products usage in the printing industry is generally not seasonal. General economic conditions and contraction of the traditional business forms industry are the predominant factors in quarterly volume fluctuations.

Recent Acquisitions

On ~~June 1, 2021,~~October 11, 2023, we acquired the assets and business of ~~AmeriPrint~~Eagle Graphics, Inc. in ~~Harvard, Illinois.~~Annville, Pennsylvania, and Diamond Graphics, Inc. in Bensalem, Pennsylvania. The acquisition of ~~AmeriPrint,~~Eagle Graphics and Diamond Graphics, which prior to the acquisition generated approximately $6.5 million in sales for its fiscal year ended December 31, 2020, brings added capabilities and expertise to our expanding product offering including barcoding and variable imaging.

2023

ENNIS, INC. AND SUBSIDIARIES

FORM 10-Q

FOR THE PERIOD ENDED NOVEMBER 30, ~~2022~~2023

generated approximately $8.7 million in sales for its fiscal year ended December 31, 2022, strengthens our production capabilities to serve our large and growing customer base in the Northeast part of the country.

On June 2, 2023, we acquired the assets and business of UMC Print in Overland Park, Kansas. The acquisition of UMC Print, which prior to the acquisition generated approximately $16 million in sales for its fiscal year ended December 31, 2022, adds strategic locations and capabilities to drive growth with our distributor partners.

On May 23, 2023 we acquired the real estate and operations of Stylecraft Printing Company in Canton, Michigan which prior to the acquisition generated approximately $7.0 million in sales for its fiscal year ended December 31, 2022. Stylecraft is a trade only printer since 1967 specializing in business forms, integrated products and commercial printing.

On November 30, 2022, we acquired the net assets and business ~~of SPM~~from School Photo Marketing ("SPM") in Morganville, New ~~Jersey. The~~Jersey, which prior to the acquisition ofgenerated approximately $5.9 million in sales for its fiscal year ended December 31, 2021. SPM ~~brings a new channel with products produced through our existing manufacturing operations.~~provides printing, yearbook publishing and marketing related services to over 1,400 school and sports photographers servicing schools around the country.

Our Business Challenges

Our industry is currently experiencing consolidation of traditional supply channels, product obsolescence, paper supplier capacity adjustments, and increased pricing and potential supply allocations due to demand/supply curve imbalance. Technology advances have made electronic distribution of documents, internet hosting, digital printing and print-on-demand valid, cost-effective alternatives to traditional custom-printed documents and customer communications. Improved equipment has become more accessible to our competitors. We face highly competitive conditions throughout our supply chain in a price-competitive print industry. The challenges of our business include the following:

Inflation and COVID-19 Pandemic – ~~The global spread of the novel strain of COVID-19 has~~Our sales were significantly impacted ~~health and~~by economic conditions ~~throughout the United States and the world, including the markets in which we operate. Beginning in March 2020 in response to the sales impact of~~driven by the COVID-19 pandemic ~~we made modifications to our cost structure by reducing employee cost, ceasing operations at an under-utilized facility, as well as exiting two facilities with expiring leases~~ and ~~moving production to our other facilities. The Company saw economic improvement during~~resulted in a decrease in sales volume and earnings in fiscal year ~~ended February 28, 2022 and we continue to see strong~~2021. We expect that its acute impact is mostly behind us as the demand for our ~~product. Although~~products strengthened in fiscal year 2022 and fiscal year 2023. Changes in macroeconomic factors, particularly high inflation and the ~~U.S. economy has gained~~resulting rise in ~~recovery, it continues~~interest rates could dampen business activity which could reduce demand for our products. While the markets appear to ~~be significantly impacted by~~have recovered from the more direct negative impacts of the pandemic, we remain watchful as the longer term effects of the pandemic, including supply chain disruptions ~~labor shortages,~~ and ~~shifting demand.~~

There continues to be significant uncertainties associated with the COVID-19 pandemic. The full extent of the impact of the COVID-19 pandemic on the Company’s operational and financial performance is currently uncertain and will depend on many factors outside the Company’s control discussed under the caption, “Risk Factors”, in Item 1A of our Annual Report on Form 10-K for the fiscal year ended February 28, 2022. For further information, please see “Cautionary Note Regarding Forward-Looking Statements,” above and “Risk Factors” contained within our Annual Report on Form 10-K for the fiscal year ended February 28, 2022.

inflationary pressures, are unknown. We will continue to monitor incoming order volume as well as rising raw material and other input costs so that we can proactively adjust our pricing and costs accordingly.

Transformation of our portfolio of products – While traditional business documents are essential in order to conduct business, many are being replaced through the use of cheaper paper grades or imported paper, or devalued with advances in digital technologies, causing steady declines in demand for a portion of our current product line. ~~In addition, the impact of COVID-19 on the speed of this transformation is unknown, but it is expected to accelerate the decline for some of our products.~~ Transforming our product offerings in order to continue to provide innovative, valuable solutions through lower labor and fixed charges to our customers on a proactive basis will require us to make investments in new and existing technology and to develop key strategic business relationships, such as print-on-demand services and product offerings that assist customers in their transition to digital business environments. In addition, we will continue to look for new market opportunities and niches through acquisitions, such as the addition of our envelope offerings, tag offerings, folder offerings, healthcare wristbands, specialty packaging, direct mail, pressure seal products, secure document solutions, innovative in-mold label offerings and long-run integrated products with high color web printing, which provide us with an opportunity for growth and differentiate us from our competition. The ability to make investments in new and existing technology and/or to acquire new market opportunities through acquisitions is dependent on the Company’s liquidity and operational results. While currently the pandemic has not materially impacted our liquidity and it is not currently expected to, a protracted delay or reversal in the economy recovering could have a negative impact on our continued ability to make the aforementioned investments or to consummate acquisitions.

Production capacity and price competition within our industry – ~~Changes~~In 2022 there was a build-up of paper mill’s customer inventory and 2023 data showed an inventory correction in reduced spending. Paper mill shipments were down across the ~~value~~board through the first half of 2023 as buyers worked through elevated inventories of their products. Uncoated Free Sheet and Coated Free Sheet shipments through the ~~U.S. dollar can have a significant impact on~~first half of 2023 sustained levels near 2020 COVID lows when the ~~pricing and supply of paper. The weakening of~~government implemented mandatory lockdowns. Producers responded to the ~~U.S. dollar will usually result in the dissipation of any pricing advantage that foreign~~sluggish demand conditions with heavy downtime rather than permanent closures keeping prices mostly stable. Foreign imports have ~~over domestic suppliers, which typically results in lower~~fallen from previous years as demand levels ~~of imported papers~~are low. The current quarter reflected demand for North America Printing and ~~an increase in domestic exports. With increased pricing power, domestic paper producers can better control~~Writing Paper has stabilized indicating the supply of paper by eliminating capacity or changing the products produced on their large paper machines. The strengthening of the U.S. dollar usually has the opposite effect: more cheap imported paper; less domestic exports; and lower pricing power in the hands of domestic paper producers. Domestic paper suppliers typically seek to balance supply and demand, including by (if possible) taking capacity out of the market, whether by taking production off-line or switching production to alternative paper products. Generally, if mills are running at high capacity, suppliers are able to raise prices.

~~As the economy has improved, demand has increased for coated and uncoated freesheet papers which has reduced the excess inventory in the market. It~~severe destocking cycle is unclear whether this is a temporary situation or if conditions could stretch for a more extended amount of time. Regardless of these factors, many of which are cyclical, we continue to believe paper pricing willdissipating. While margins remain ~~in a range which will not~~

~~ENNIS, INC. AND SUBSIDIARIES~~

~~FORM 10-Q~~

~~FOR THE PERIOD ENDED NOVEMBER 30, 2022~~

~~unfavorably impact our margins. Additionally, the possibility of paper shortages in the market is not a major concern~~under pressure due to ~~our primary material supplier’s commitment to~~ the ~~Company. Consistent with our historical practice,~~resulting weak volumes, we intend to continue to focus on effectively managing and controlling our product costs through the use of forecasting, production and costing models, as well as working closely with our domestic suppliers to reduce our procurement costs, in order to minimize effects on our operational results. In addition, we will continue to look for ways to reduce and leverage our fixed ~~costs.~~
costs and focus on maintaining our margins.

ENNIS, INC. AND SUBSIDIARIES

FORM 10-Q

FOR THE PERIOD ENDED NOVEMBER 30, 2023

Continued consolidation of our customers – Our customers are distributors, many of which are consolidating or are being acquired by competitors. We continue to maintain a majority of the business we have had with our customers historically, but it is possible that these consolidations and acquisitions, which we expect to continue in the future, ultimately will impact our margins and sales.

For further information, please see “Cautionary Statement Regarding Forward-Looking Statements,” above and “Risk Factors” contained within our Annual Report on Form 10-K for the fiscal year ended February 28, 2023.

Critical Accounting ~~Policies and~~ Estimates

In preparing our condensed consolidated financial statements, we are required to make estimates and assumptions that affect the disclosures and reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. We evaluate our estimates and judgments on an ongoing basis, including those related to allowance for doubtful receivables, inventory valuations, property, plant and equipment, intangible assets, pension plan obligations, accrued liabilities and income taxes. We base our estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. Our Annual Report on Form 10-K for the year ended February 28, ~~2022,~~2023, includes a description of certain critical accounting estimates, including those with respect to the pension plan, goodwill and other intangible assets, revenue recognition ~~inventories~~ and ~~income taxes,~~inventories, which we believe are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management's judgments and estimates. ~~There~~During the quarter ended November 30, 2023, there have been no material changes to the critical accounting ~~policies, significant judgements and~~ estimates described in our Annual Report on Form 10-K for the year ended February 28, ~~2022.~~2023.

Recent Accounting Pronouncements

~~There are no~~See Note 1 of the accompanying unaudited condensed consolidated financial statements for a discussion of recent accounting ~~pronouncements that are anticipated to have a material impact on our consolidated financial statements.~~guidance.

Results of Operations

The following discussion provides information which we believe is relevant to understanding our results of operations and financial condition. The discussion and analysis should be read in conjunction with the accompanying interim unaudited consolidated financial statements and notes ~~thereto, which are incorporated herein by reference.~~included in this filing. The operating results of the Company for the three and nine months ended November 30, ~~2022~~2023 and the comparative period for ~~2021~~2022 are set forth ~~in the unaudited consolidated financial information included~~ in the tables below.

Consolidated Summary


Unaudited Consolidated Statements of	Three Months Ended November 30,										Nine Months Ended November 30,										Three Months Ended November 30,									Nine Months Ended November 30,
Operations - Data (in thousands)	2022					2021					2022					2021					2023				2022					2023				2022
Net sales	$	110,245		100.0	%	$	102,968		100.0	%	$	329,145		100.0	%	$	300,349		100.0	%	$	104,621	100.0	%	$	110,245		100.0	%	$	322,675	100.0	%	$	329,145		100.0	%
Cost of goods sold		76,768		69.6			73,768		71.6			226,445		68.8			213,062		70.9			74,090	70.8			76,768		69.6			225,004	69.7			226,445		68.8
Gross profit margin		33,477		30.4			29,200		28.4			102,700		31.2			87,287		29.1			30,531	29.2			33,477		30.4			97,671	30.3			102,700		31.2
Selling, general and administrative		17,292		15.7			17,513		17.0			52,916		16.1			54,523		18.2			17,410	16.6			17,292		15.7			54,094	16.8			52,916		16.1
(Gain) loss from disposal of assets		15		—			1		—			15		—			(275	)	(0.1	)
Loss from disposal of assets																						1	—			15		—			53	—			15		—
Income from operations		16,170		14.7			11,686		11.3			49,769		15.1			33,039		11.0			13,120	12.5			16,170		14.7			43,524	13.5			49,769		15.1
Other expense		(496	)	(0.5	)		(881	)	(0.8	)		(1,010	)	(0.3	)		(1,143	)	(0.4	)
Other income (expense)																						696	0.7			(496	)	(0.4	)		1,735	0.5			(1,010	)	(0.3	)
Earnings before income taxes		15,674		14.2			10,805		10.5			48,759		14.8			31,896		10.6			13,816	13.2			15,674		14.2			45,259	14.0			48,759		14.8
Provision for income taxes		4,388		4.0			3,242		3.1			13,652		4.1			9,569		3.2			3,910	3.7			4,388		4.0			12,808	4.0			13,652		4.1
Net earnings	$	11,286		10.2	%	$	7,563		7.4	%	$	35,107		10.7	%	$	22,327		7.4	%	$	9,906	9.5	%	$	11,286		10.2	%	$	32,451	10.0	%	$	35,107		10.7	%

2225

ENNIS, INC. AND SUBSIDIARIES

FORM 10-Q

FOR THE PERIOD ENDED NOVEMBER 30, ~~2022~~2023

Three months ended November 30, ~~2022~~2023 compared to three months ended November 30, ~~2021~~2022

Net Sales. Our net sales were ~~$110.2~~$104.6 million for the quarter ended November 30, ~~2022,~~2023, compared to ~~$103.0~~$110.2 million for the same quarter in the prior year, ~~an increase~~a decrease of ~~$7.2~~$5.6 million, or ~~7.0%~~-5.1%. ~~Our net sales increased on a year-over-year basis~~Sales decreased $11.6 million due to ~~continued strong customer~~weaker volume demand ~~for~~and stock rebalancing by legacy customers, as well as some of our ~~product~~print partners experiencing slowness in their sales and ~~increased pricing~~reducing their outsourced work to ~~cover inflationary cost. Our net sales decreased slightly $(1.0)~~us. These decreases were offset by approximately $6.0 million ~~or -0.9% on a sequential quarter basis,~~in revenues from ~~$111.2 million~~our recent acquisitions for the quarter ended ~~August 31, 2022~~November 30, 2023 compared to ~~$110.2 million for~~ the ~~current~~ quarter ~~due to lower sales volumes.~~ended November 30, 2022.

Cost of Goods Sold and Gross Profit Margin. ~~Our~~As a result of decreased sales volume, our cost of goods sold ~~increased $3.0~~decreased $2.7 million, or ~~4.1%~~3.5%, from ~~$73.8 million for the three months ended November 30, 2021 to~~ $76.8 million for the three months ended November 30, ~~2022.~~2022 to $74.1 million for the three months ended November 30, 2023. Our gross profit was ~~$33.5~~$30.5 million or 29.2% of revenue for the quarter ended November 30, ~~2022~~2023 compared to ~~$29.2~~$33.5 million or 30.4% of revenue for the same quarter in the prior year. ~~We made pricing adjustments to cover inflationary costs and improved operational efficiencies all of which contributed to improve our~~Our gross profit margin for the quarter of 29.2% showed a 180 basis point decline from 31.0% in the immediately preceding quarter ending August 31, 2023 and declined 120 basis points to 29.2% compared to 30.4% in the same prior year quarter. Our gross profit margin as a percentage of sales was impacted by our recent acquisitions, which had a dilutive impact of approximately 40 basis points on our margin for the third ~~quarter~~quarter. We believe once we have fully analyzed the acquired business’ cost structures and implemented our ERP system, the margins of ~~2022 compared~~the acquired businesses will improve to ~~the prior year’s third quarter of 28.4%.~~expected levels.

Selling, general, and administrative expense. For the three months ended November 30, ~~2022,~~2023, our selling, general, and administrative ("SG&A") expenses were ~~$17.3~~$17.4 million compared to ~~$17.5~~$17.3 million for the three months ended November 30, ~~2021,~~2022, a ~~decrease~~slight increase of ~~$0.2~~$0.1 million, or ~~1.3%~~0.6%. As a percentage of net sales, SG&A expenses for the current quarter were ~~15.7%~~16.6% and ~~17.0%~~15.7% for the three months ended November 30, ~~2022~~2023 and November 30, ~~2021,~~2022, respectively. ~~The decrease~~Our recent acquisitions added $0.9 million in SG&A ~~costs were a result of savings from operational efficiencies and~~expenses during the ~~consolidation of our underperforming manufacturing facilities in the prior year.~~quarter which was offset by lower expenses related to lower product volume.

Gain ~~(loss)~~ from disposal of assets. The $1,000 net loss from disposal of assets during the three-month period ended November 30, 2023 and the $15,000 net loss from disposal of assets during the ~~prior year quarter is~~three-month period ended November 30, 2022 was primarily attributed to the sale of equipment.

Income from operations. Primarily due to factors described above, our income from operations for the three months ended November 30, ~~2022~~2023 was ~~$16.2~~$13.1 million, or ~~14.7%~~12.5% of net sales, as compared to ~~$11.7~~$16.2 million, or ~~11.3%~~14.7 % of net sales, for the three months ended November 30, ~~2021.~~2022. Income from operations ~~decreased~~declined on a sequential quarter basis by ~~$1.1~~$1.6 million ~~from $17.3~~and was $14.7 million for the quarter ended August 31, ~~2022.~~2023.

Other ~~expense.~~income (expense). Other income was $0.7 million for the three months ended November 30, 2023 compared to other expense ~~was~~of $0.5 million for the three months ended November 30, ~~2022 compared to other expense of $0.9~~2022. Our increase in income was primarily from an increase in interest income from higher interest rates in the current quarter, $1.0 million for the three months ended November 30, ~~2021.~~2023 compared to $0.2 million for the three months ended November 30, 2022.

Provision for income taxes. Our effective tax rate was 28.3% and 28.0% for the three months ended November 30, ~~2022 as compared to 30.0% for the three months ended~~2023 and November 30, 2021. The primary reason for the decrease in the effective tax rate is permanent non-deductible expense resulting from final distributions in the prior year from our deferred compensation plan which was terminated in November 2020.2022, respectively.

Net earnings. Net earnings, due to the factors above, were ~~$11.3~~$9.9 million for the three months ended November 30, ~~2022~~2023 as compared to ~~$7.6~~$11.3 million for the comparable quarter in the prior ~~year, an increase of $3.7 million.~~year. Net earnings per diluted share for the three months ended November 30, ~~2022~~2023 were ~~$0.44,~~$0.38, compared to ~~$0.29~~$0.44 for the same quarter in the prior year. Diluted earnings per share were negatively impacted approximately $0.02 per diluted earnings per share. Additional expense related to the recent acquisitions negatively impacted the quarter earnings.

~~Nine months ended November 30, 2022 compared to nine months ended November 30, 2021~~

~~Net Sales.~~ Our net sales were $329.1 million for the nine-month period ended November 30, 2022, compared to $300.3 million for the same period last year, an increase of $28.8 million, or 9.6%. Our net sales increased due to continued strong customer demand for our products and increase in pricing to cover inflationary costs. In addition, AmeriPrint, our acquisition completed on June 1, 2021, positively impacted our net sales by approximately $1.9 million during the current period compared to the same period last year.

~~Cost of Goods Sold and Gross Profit Margin.~~ Our cost of goods sold increased $13.3 million, or 6.2%, from $213.1 million for the nine months ended November 30, 2021 to $226.4 million for the nine months ended November 30, 2022. Our gross profit was $102.7 million for the nine-month period ended November 30, 2022 compared to $87.3 million for the same period in the prior year. We made pricing adjustments to cover inflationary costs and improved operational efficiencies all of which contributed to improve our gross profit margin to 31.2% from the prior year nine-month period of 29.1%.

~~Selling, general, and administrative expense.~~ For the nine months ended November 30, 2022, our SG&A expenses were $52.9 million compared to $54.5 million for the nine months ended November 30, 2021, a decrease of $1.6 million, or 2.9%. As a percentage

2326

ENNIS, INC. AND SUBSIDIARIES

FORM 10-Q

FOR THE PERIOD ENDED NOVEMBER 30, 2023

Nine months ended November 30, 2023 compared to nine months ended November 30, 2022

Net Sales. Our net sales were $322.7 million for the nine-month period ended November 30, 2023, compared to $329.1 million for the same period last year, a decrease of $6.5 million, or 2.0%. Sales decreased approximately $23.2 million due to weaker volume demand and customers stock rebalancing by legacy customers, as well as some of our print partners experiencing slowness in their sales and reducing their outsourced work to us. This decrease was offset by approximately $16.7 million in revenues from our recent acquisitions for the nine-month period ended November 30, 2023 compared to the nine-month period ended November 30, 2022.

Cost of Goods Sold and Gross Profit Margin. Our cost of goods sold decreased $1.4 million, or -0.6%, from $226.4 million for the nine months ended November 30, 2022 to $225.0 million for the nine months ended November 30, 2023. Our gross profit was $97.7 million for the nine-month period ended November 30, 2023 compared to $102.7 million for the same period in the prior year. Our gross profit margin of 30.3% for the current nine-month period, decreasing from the prior year nine-month period of 31.2%, is within our target range. Our gross profit margin as a percentage of sales was higher in the prior year nine-month period ending November 30, 2022 due to a higher absorption of fixed costs driven from greater volumes shipped.

Selling, general, and administrative expense. For the nine months ended November 30, 2023, our SG&A expenses were $54.1 million compared to $52.9 million for the nine months ended November 30, 2022, an increase of $1.2 million, or 2.2%. As a percentage of net sales, SG&A expenses for the period were ~~16.1%~~16.8% and ~~18.2%~~16.1% for the nine months ended November 30, ~~2022~~2023 and November 30, ~~2021,~~2022, respectively. ~~The decrease~~Our recent acquisitions added $2.4 million in SG&A ~~costs was a result of savings from operational efficiencies~~expenses during the current nine-month period. We continue to look for ways to more fully leverage our SG&A expenses, and to reduce SG&A expenses following acquisitions through the ~~consolidation~~implementation of our ~~underperforming manufacturing facilities in~~systems and processes, which allows us to integrate many of the ~~prior year.~~acquired companies’ back-office processes.

Gain ~~(loss)~~ from disposal of assets. The $53,000 net loss from disposal of assets during the nine-month period ended November 30, 2023 and the $15,000 net loss from disposal of assets during the nine-month period ended November 30, 2022 was primarily attributed to the sale of equipment. The $0.3 million net gain from disposal of assets during the nine months ended November 30, 2021 is primarily attributed to the sale of a previously held-for-sale facility that had transferred its operations to another facility.

Income from operations. Primarily due to factors described above, our income from operations for the nine months ended November 30, ~~2022~~2023 was ~~$49.8~~$43.5 million, or ~~15.1%~~13.5% of net sales, as compared to ~~$33.0~~$49.8 million, or ~~11.0%~~15.1% of net sales, for the nine months ended November 30, ~~2021.~~2022.

Other ~~expense.~~income (expense). Other income was $1.7 million for the nine months ended November 30, 2023 compared to expense ~~was~~of $1.0 million for the nine months ended November 30, ~~2022 compared to expense of $1.1~~2022. Our increase in income was primarily from an increase in interest income from higher interest rates in the current period, $2.7 million for the nine months ended November 30, ~~2021.~~2023 compared to $0.3 million for the nine months ended November 30, 2022.

Provision for income taxes. Our effective tax rate was 28.3% and 28.0% for the nine months ended November 30, ~~2022 as compared to 30.0% for the nine months ended~~2023 and November 30, 2021. The primary reason for the decrease in the effective tax rate is permanent non-deductible expense resulting from final distributions in the prior year from our deferred compensation plan which was terminated in November 2020.2022, respectively.

Net earnings. Net earnings, due to the factors above, were ~~$35.1~~$32.5 million for the nine months ended November 30, ~~2022~~2023 as compared to ~~$22.3~~$35.1 million for the comparable period in the prior year, ~~an increase~~a decrease of ~~$12.8~~$2.7 million. Net earnings per diluted share for the nine months ended November 30, ~~2022 were $1.36,~~2023 was $1.25, compared to ~~$0.85~~$1.36 for the same period in the prior year. Our recent acquisitions added approximately $0.04 in diluted earnings per share for the nine-month period offset by sales volume decline.

Liquidity and Capital Resources

We rely on our cash flows generated from operations to meet all cash requirements of our business. The primary cash requirements of our business are payments to vendors in the normal course of business, capital expenditures, compensation ~~obligations~~to employees and the payment of dividends to our shareholders. We ~~expect~~have no debt and anticipate timely access to ~~generate sufficient~~credit should larger acquisition opportunities materialize. We believe that our current cash balance of $83.9 million and cash flows from operations ~~necessary~~should be adequate to cover ~~our operating and capital requirements for~~ the ~~foreseeable future. We believe our strong liquidity position will help us mitigate the ongoing adverse impacts of COVID-19 and the inflationary environment.~~

November 30,

February 28,

(Dollars in thousands)

2022

2022

Working capital

$
145,702

$
127,839

Cash

$
87,000

$
85,606

~~Working Capital.~~ On November 30, 2022, we had $87.0 million in cash. During the period, our cash position increased by $1.4 million and our working capital increased $17.9 million or 14.0%, from $127.8 million at February 28, 2022 to $145.7 million at November 30, 2022. Our current ratio, calculated by dividing our current assets by our current liabilities, increased from 4.4 to 1.0 at February 28, 2022 to 4.7 to 1.0 at November 30, 2022. Our working capital and current ratio were positively impacted primarily by an increase in our cash, inventories and accounts receivable offset by an increase in our income taxes payable.

Nine months ended November 30,

(Dollars in thousands)

2022

2021

Net cash provided by operating activities

$
33,997

$
34,295

Net cash used in investing activities

$
(12,105
)

$
(7,658
)
Net cash used in financing activities

$
(20,498
)

$
(20,858
)

~~Cash flows from operating activities.~~ Cash provided by operating activities was $34.0 million in the nine months ended November 30, 2022 compared to $34.3 million in the comparative period ended November 30, 2021. Our net earnings increased $12.8 million for the nine months ended November 30, 2022 compared to the nine months ended November 30, 2021. An increase in accounts receivable used cash of $5.9 million in the current period compared to an increase in accounts receivable using cash of $0.6 million in the prior year. An increase in inventories used cash of $10.9 million in the nine months ended November 30, 2022 compared to $6.2

2427

ENNIS, INC. AND SUBSIDIARIES

FORM 10-Q

FOR THE PERIOD ENDED NOVEMBER 30, ~~2022~~2023

next twelve months and beyond of our operating and capital requirements. Our capital requirements are expected to be within our historical levels of between $3.0 million and $6.0 million.


	November 30,		February 28,
(Dollars in thousands)	2023		2023
Working capital	$	165,032	$	155,379
Cash	$	83,902	$	93,968
Short-term investments	$	18,495	$	-

Working Capital. On November 30, 2023, we had $83.9 million in cash and $18.5 million in short-term investments. During the period, our cash position decreased by $10.1 million and our working capital increased $9.7 million or 6.2%, from $155.4 million at February 28, 2023 to $165.0 million at November 30, 2023. Our current ratio, calculated by dividing our current assets by our current liabilities, increased from 4.8 to 1.0 at February 28, 2023 to 5.8 to 1.0 at November 30, 2023. Our working capital and current ratio were positively impacted primarily by an increase in our cash and inventories offset by a decrease in our accounts payable and accrued expenses.


	Nine months ended November 30,
(Dollars in thousands)	2023			2022
Net cash provided by operating activities	$	52,500		$	33,997
Net cash used in investing activities	$	(43,175	)	$	(12,105	)
Net cash used in financing activities	$	(19,391	)	$	(20,498	)

Cash flows from operating activities. Cash provided by operating activities was $52.5 million in the nine months ended November 30, ~~2021. An~~2023 compared to $34.0 million in the comparative period ended November 30, 2022. A decrease in accounts receivable, net of accounts receivable from acquired business since the prior fiscal year end provided cash of $8.2 million in the current year nine-month period, while an increase in accounts receivable used cash of $5.9 million in the comparable nine-month period of the prior year. A decrease in inventories provided cash of $6.8 million in the nine-month period ended November 30, 2023 and used cash of $10.9 million in the same period of 2022. A decrease in accounts payable and accrued expenses used cash of $7.8 million in the current year nine-month period and an increase in accounts payable and accrued expenses provided cash of $1.5 million in the ~~nine months ended November 30, 2022 compared to an increase in accounts payable providing cash of $2.1 million in the nine months ended November 30, 2021.~~prior year comparable nine-month period. The ~~increase~~decrease in accounts receivable in the current period was primarily due to ~~higher sales volumes~~decreased sales. The decrease in inventory, accounts payable and ~~increases~~accrued expenses during the current period was primarily due to a decrease in selling prices as well as timing of payments from customers. Our days sales outstanding, which measures how quickly receivables are collected, increased slightly to 38 days from 36 days (February 28, 2022). There are multiple factors that have contributed topurchasing activities and improved predictability in the ~~increased inventory balances. First, raw material prices are higher. Second, some plants have ordered additional paper supplies to accommodate large orders amidst less predictable~~ supply chain conditions. ~~Our days’ sales of inventory increased to 53 days from February 28, 2022 (46 days).~~ We continue ~~to closely monitor and manage our outstanding trade receivables and inventories. The Company continues~~ to monitor incoming orders and ~~is adjusting its~~adjust raw material purchases accordingly.

Cash flows from investing activities. Cash used in investing activities was $43.2 million in the nine months ended November 30, 2023 compared to $12.1 million in the nine months ended November 30, ~~2022 compared to $7.7 million in the nine months ended November 30, 2021.~~2022. Capital expenditures primarily of equipment was ~~$3.3~~$4.9 million and ~~$4.1~~$3.3 million for the nine months ended November 30, ~~2022~~2023 and November 30, ~~2021,~~2022, respectively. In the nine months ended November 30, ~~2022, $8.8~~2023, $19.9 million was used to acquire businesses, as compared to ~~$4.3~~$8.8 million used to acquire businesses infor the ~~nine-month~~first nine months of the prior year. During the current period, ~~ended November 30, 2021.~~we purchased approximately $18.4 million of U.S. government treasury bills with staggered maturities of between three months and twelve months.

Cash flows from financing activities. We used ~~$0.4~~$1.1 million less cash in financing activities during the nine months ended November 30, ~~2022~~2023 compared to the same period in the prior year. The decrease in cash used during the nine months ended November 30, ~~2022 compared to the nine months ended November 30, 2021~~2023 resulted from ~~$0.8~~$1.1 million ~~less of~~ common stock repurchased under our stock repurchase program in the ~~current period compared to the~~ nine months ended November 30, ~~2021 and the payment of $0.5 million more in dividends in the current period.~~2022.

Credit Facility – We did not renew our Credit Agreement, which expired November 11, 2021. We have had no outstanding long-term debt under the revolving credit line since paid in full in August 2019. As of November 30, ~~2022,~~2023, we had ~~$0.5~~$0.3 million outstanding under a standby letters of credit arrangement secured by a cash collateral bank account. It is anticipated that our cash and funds from operating cash flows will be sufficient to fund anticipated future expenses.

ENNIS, INC. AND SUBSIDIARIES

FORM 10-Q

FOR THE PERIOD ENDED NOVEMBER 30, 2023

Pension Plan – ~~We are required to make contributions to~~The funded status of our Pension ~~Plan. These contributions are required under the minimum~~Plan and funding requirements is dependent on many factors, including returns on invested assets, the level of ~~ERISA. Due to~~market interest rates and the ~~enactment~~level of HATFA in August 2014, which effectively raises the discount rates mandated for determining the value of a plan’s benefit liability and annual cost of accruals, our minimum required contribution to the Pension Plan is zero for the Pension Plan year ending February 28, 2023.funding. Assuming a stable funding status, we would expect that our future contributions to be between $1.0 million and $3.0 million per year. However, changes in actual investment returns or in discount rates could change this amount significantly. There was a $2.0 million contribution made in September 2022 to avoid a Pension Benefit Guaranty Corporation variable ~~premium.~~premium and we anticipate making a required contribution of approximately $1.2 million prior to the end of the current fiscal year. As our Pension Plan assets are invested in marketable securities, fluctuations in market values could potentially impact our funding status, associated liabilities recorded and future required minimum contributions. At November 30, ~~2022,~~2023, we had an unfunded pension liability recorded on our balance sheet of ~~$3.7~~$0.6 million.

Inventories – We believe our inventory levels are sufficient to satisfy our customer demands and we anticipate having adequate sources of raw materials to meet future business requirements. We have long-term contracts in effect with paper suppliers that govern prices, but do not require minimum purchase commitments. Certain of our rebate programs do, however, require minimum purchase volumes.

Capital Expenditures – We continue to make capital expenditures for operational maintenance purposes, as may be required. Additionally, we will carefully review and make new capital expenditures for equipment to the extent such expenditures make economic sense by improving our operations and not jeopardizing our strong liquidity position. We expect our capital requirements for our current fiscal year, exclusive of capital required for possible acquisitions, will be within our historical levels of between $3.0 million and ~~$5.0~~$6.0 million. For the nine months ended November 30, ~~2022,~~2023, we have spent approximately ~~$3.3~~$4.9 million on capital expenditures. We expect to fund these expenditures through existing cash ~~flows.~~on the November 30, 2023 balance sheet.

Contractual Obligations – There have been no significant changes in our contractual obligations since February 28, ~~2022~~2023 that have, or are reasonably likely to have, a material impact on our results of operations or financial condition. We do not have off-balance sheet arrangements or special-purpose entities.

2529

ENNIS, INC. AND SUBSIDIARIES

FORM 10-Q

FOR THE PERIOD ENDED NOVEMBER 30, ~~2022~~2023

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk

Interest Rates

From time to time, we are exposed to interest rate risk on short-term and long-term financial instruments carrying variable interest rates. We may from time to time utilize interest rate swaps to manage overall borrowing costs and reduce exposure to adverse fluctuations in interest rates. We do not use derivative instruments for trading purposes. While we had no outstanding debt at November 30, ~~2022,~~2023, we will be exposed to interest rate risk if we borrow in the future.

This market risk discussion contains forward-looking statements. Actual results may differ materially from this discussion based upon general market conditions and changes in domestic and global financial markets.

Item 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures. We maintain “disclosure controls and procedures” as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act, is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosures. Our controls and procedures are tested and evaluated at regular intervals to confirm that they are adequate and followed by our personnel to prevent misstatement of the Company’s financial statements. Due to the inherent limitations of control systems, not all misstatements may be detected. Those inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple errors or mistakes. Additionally, controls could be circumvented by the individual acts of some persons or by collusion of two or more people. Our controls and procedures can only provide reasonable, not absolute, assurance that the above objectives have been met. ~~Pursuant to Exchange Act Rules 13a-15 and 15d-15, a review and evaluation were carried out under the supervision and~~Our management, with the participation of our ~~management, including our~~Chairman of the Board, President and Chief Executive Officer (“CEO”) and ~~our~~ Chief Financial Officer ofand Treasurer (“CFO”), has evaluated the effectiveness of the design and operation of our ~~“disclosure~~disclosure controls and ~~procedures”~~procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our CEO and CFO have concluded that, as of November 30, 2022. Based upon that review and evaluation, the company concluded that there were deficiencies in certain aspects of our information technology controls that permitted a threat actor to gain access to the Company’s network on November 30, 2022 and subsequently launch a ransomware attack that resulted in the encryption of some of the Company’s servers and desktop computers. While the encryption attack did not result in any impairment of the Company’s financial data in its ERP system, the deficiencies in our network access IT controls that made our network vulnerable to the ransomware attack constituted a material weakness. Accordingly, we concluded that2023, our disclosure controls and procedures ~~were ineffective as of November 30, 2022 due~~are effective to provide reasonable assurance that information relating to us (including our consolidated subsidiaries), which is required to be disclosed by us in reports that we file or submit under the ~~deficiencies in our IT controls as discussed below.~~

~~The Company experienced a cyber-attack between November 30, 2022~~Exchange Act is recorded, processed, summarized and ~~December 2, 2022. Due to a limited gap~~reported within the time periods specified in the ~~protection provided by~~SEC’s rules and forms, and is accumulated and communicated to our network security software, a threat actor was able to gain access to a remote server at one of our plants during the evening hours of November 30, 2022, the last day of our third quarter of our fiscal year. By gaining access to that remote server, the threat actor was able to glean corporate administrator credentials that had been recorded on that remote server, which gave the threat actor the ability to launch a ransomware attack on servers at the corporate headquarters that was carried out on December 2, 2022. That ransomware attack was detected while in progress and immediate action was taken to isolate our network and eradicate the ransomware from our servers so that we could begin the process of restoring the affected devices from backups. Notably, the databases used for our financial reporting and disclosures were not affected by the cyber-attack and we validated that our third quarter financial data recorded before the attack was the same as the financial data following the attack. Nevertheless, the aggregate deficiencies in our network access IT controls that permitted the cyber-attack constitute a material weakness in that they created a possible opportunity for the threat actor to impair our systems and accounting processes to the extent that there could be a reasonable possibility that a material misstatement of the company’s annual or interim financial statements would not be prevented or detected in a timely manner. However, in this instance, based on our subsequent investigation we believe that the material weakness did not result in any identified misstatements to the financial statements and there are no changes in previously released financial results.

~~Our~~ management, including ~~our Chief Executive Officer~~the CEO and ~~Chief Financial Officer, has concluded that, notwithstanding the material weakness arising out of the aggregate deficiencies in some of our network access IT controls that were evident~~CFO, as of November 30, 2022, the consolidated financial statements in this Form 10-Q fairly present, in all material respects, our financial position, results of operations and cash flows for the period presented in conformity with U.S. GAAP.

~~The Company has already taken corrective action~~appropriate, to address the network access IT control deficiencies that permitted the cyber-attack. The Company has also retained independent experts to assist in the investigation of the cyber-attack. As the Company continues

~~ENNIS, INC. AND SUBSIDIARIES~~

~~FORM 10-Q~~

~~FOR THE PERIOD ENDED NOVEMBER 30, 2022~~

~~its investigation with the assistance of its retained experts, it may identify further deficiencies in its IT controls which will then be addressed in the Company’s continuing remediation efforts.~~allow timely decisions regarding required disclosure.

There have been no ~~other~~ changes in our internal control over financial reporting (as defined in Rule 13a–15(f) or Rule 15d–15(f) of the Exchange Act) that occurred during the nine months ended November 30, ~~2022~~2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

~~There~~From time to time, we are noinvolved in various litigation matters arising in the ordinary course of our business. We do not believe the disposition of any current matter will have a material ~~pending proceedings, other than ordinary routine litigation incidental to~~adverse effect on our consolidated financial position or results of operations.

In April, 2023, Crabar/GBF, Inc., a subsidiary of Ennis, was awarded $5.0 million in actual and punitive damages in a case against Wright Printing Company, its owner Mark Wright, and CEO Mardra Sikora. On September 19, 2023, the ~~business, to which~~Court vacated the ~~Company or any~~jury’s $1.0 million breach of ~~its subsidiaries~~contract award against Mark Wright because Crabar had not asserted a contract claim against him. The Court also awarded Crabar $1.85 million in attorney’s fees for a total amended judgment of $5.85 million. The impact of the judgment has not been reflected in the accompanying consolidated financial statements as of November 30, 2023 and will be reflected when the judgment is ~~a party or of which any of their property is subject.~~collected.

Item 1A. Risk Factors

There have been no material changes in our Risk Factors as previously discussed in our Annual Report on Form 10-K for the year ended February 28, ~~2022.~~2023.

Increasing global cybersecurity attacks and regulatory focus on privacy and security issues could impact our business, expose us to increased liability, subject us to lawsuits, investigations and other liabilities and restrictions on our operations that could significantly and adversely affect our business.ENNIS, INC. AND SUBSIDIARIES

Along with our own data and information in the normal course of our business, we and our customers and partners collect and retain significant volumes of certain types of data, some of which are subject to specific laws and regulations. Complying with varying jurisdictional requirements is becoming increasingly complex and could increase the costs and difficulty of compliance, and violations of applicable data protection laws. Many of our clients provide us with information they consider confidential or sensitive, and many of our client’s industries have established standards for safeguarding the confidentiality, integrity and availability of information relating to their businesses and customers. Data stored in our systems or available through web portals is susceptible to cybercrime or intentional disruption, which have increased globally across all industries in terms of sophistication and frequency. Disclosure of data maintained on our network, a security breach of our systems or other similar events may damage our reputation, subject us to regulatory enforcement action, third party litigation and cause significant reputational or financial harm for our clients and partners. Any of these outcomes may adversely affect our results of operations, financial condition and cash flows.FORM 10-Q

~~The Company was targeted with an encryption ransomware attack on November~~FOR THE PERIOD ENDED NOVEMBER 30, 2022. The attack was discovered while it was in process and immediate action was taken to isolate our network to limit the scope of any damage. The attack resulted in brief disruption to the operation of our systems as we took our servers offline to eradicate the ransomware and restore our data and applications from secure backups. The Company did not communicate with the ransomware threat actor and never considered paying any ransom demand. Instead, the Company eliminated the ransomware and immediately proceeded to restore its critical files and functions. The Company incurred no material expense in connection with the ransomware attack. Based on the Company’s assessment to date and on the information currently known, the incident has not had a significant financial impact and the Company does not believe the incident will have a material impact on its business or future operating results.

2023

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

At its July 14, 2022 meeting, the Ennis, Inc. Board of Directors authorized an additional $20 million in funding for the Company’s share repurchase program that was first implemented in 2008. With this latest funding authorization, the cumulative funds authorized for share repurchases totals $60 million. Under the repurchase program, purchases may be made from time to time in the open market or through privately negotiated transactions depending on market conditions, share price, trading volume and other factors. Such purchases, if any, will be made in accordance with applicable insider trading rules and other securities laws and regulations. These repurchases may be commenced or suspended at any time or from time to time without prior notice.

~~ENNIS, INC. AND SUBSIDIARIES~~

~~FORM 10-Q~~

~~FOR THE PERIOD ENDED NOVEMBER 30, 2022~~

During the nine months ended November 30, ~~2022,~~2023, the Company ~~repurchased 64,082~~did not purchase any shares of common stock under the ~~program at an average price of $17.46.~~program. As of November 30, ~~2022,~~2023, $23.9 million remained available to repurchase shares of the Company’s common stock under the program.

Items 3, 4 and 5 are not applicable and have been omitted

Item 6. Exhibits

The following exhibits are filed as part of this report.


Exhibit Number		Description

Exhibit 3.1(a)		Restated Articles of Incorporation, as amended through June 23, 1983 with attached amendments dated June 20, 1985, July 31, 1985, June 16, 1988 and November 4, 1998, incorporated herein by reference to Exhibit 3.1(a) to the Registrant’s Form 10-Q filed on October 6, 2017 (File No. 001-05807).

Exhibit 3.1(b)		Amendment to Articles of Incorporation, dated June 17, 2004, incorporated herein by reference to Exhibit 3.1(b) to the Registrant’s Annual Report on Form 10-K for the fiscal year ended February 28, 2007 filed on May 9, 2007 (File No. 001-05807).

Exhibit 3.2		Fourth Amended and Restated Bylaws of Ennis, Inc., dated July 10, 2017, incorporated herein by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on July 10, 2017 (File No. 001-05807).

Exhibit 31.1		Certification Pursuant to Rule 13a-14(a) of Chief Executive Officer.*

Exhibit 31.2		Certification Pursuant to Rule 13a-14(a) of Chief Financial Officer.*

Exhibit 32.1		Section 1350 Certification of Chief Executive Officer.**

Exhibit 32.2		Section 1350 Certification of Chief Financial Officer.**

Exhibit 101		The following information from Ennis, Inc.’s Quarterly Report on Form 10-Q for the quarter ended November 30, ~~2022,~~2023, filed on January ~~10,~~5, 2023, formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Shareholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) the Notes to Consolidated Financial Statements, tagged as blocks of text and in detail.*

Exhibit 104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

* Filed herewith

** Furnished herewith

2831

ENNIS, INC. AND SUBSIDIARIES

FORM 10-Q

FOR THE PERIOD ENDED NOVEMBER 30, ~~2022~~2023

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		ENNIS, INC.

Date: January ~~10,~~5, 2023		/s/ Keith S. Walters
		Keith S. Walters
		Chairman, Chief Executive Officer and President

Date: January ~~10,~~5, 2023		/s/ Vera Burnett
		Vera Burnett
		Chief Financial Officer, Treasurer and
		Principal Financial and Accounting Officer

2932


Balance as of March 1, 2021	$	88,647
Goodwill acquired		30
Balance as of February 28, 2022		88,677
Goodwill acquired		4,761
Balance as of November 30, 2022	$	93,438