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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended November 30, 2022

OR

☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Transition Period from to

Commission File Number 1-5807

ENNIS, INC.

(Exact Name of Registrant as Specified in Its Charter)

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, there were 25,836,392 shares of the Registrant’s common stock outstanding.

ENNIS, INC. AND SUBSIDIARIES

FORM 10-Q

FOR THE PERIOD ENDED NOVEMBER 30, 2022

TABLE OF CONTENTS

PART I: FINANCIAL INFORMATION |  |
| Item 1. Condensed Consolidated Financial Statements (unaudited) |  | 3
| Condensed Consolidated Balance Sheets at November 30, 2022 and February 28, 2022 |  | 3
| Condensed Consolidated Statements of Operations for the three and nine months ended November 30, 2022 and November 30, 2021 |  | 5
| Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended November 30, 2022 and November 30, 2021 |  | 6
| Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three and nine ended November 30, 2022 and November 30, 2021 |  | 7
| Condensed Consolidated Statements of Cash Flows for the nine months ended November 30, 2022 and November 30, 2021 |  | 8
| Notes to Condensed Consolidated Financial Statements (unaudited) |  | 9
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |  | 19
| Item 3. Quantitative and Qualitative Disclosures About Market Risk |  | 26
| Item 4. Controls and Procedures |  | 26
PART II: OTHER INFORMATION |  |
| Item 1. Legal Proceedings |  | 27
| Item 1A. Risk Factors |  | 27
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |  | 27
| Item 3. Defaults Upon Senior Securities |  | 28
| Item 4. Mine Safety Disclosures |  | 28
| Item 5. Other Information |  | 28
| Item 6. Exhibits |  | 28
SIGNATURES |  | 29

PART I. FINANCI AL INFORMATION

Item 1. FINANC IAL STATEMENTS

ENNIS, INC. AND SUBSIDIARIES

C O NDENSED CONSOLIDATED BALANCE SHEETS

(unaudited, in thousands)

|  | November 30, |  |  | February 28, |
|  | 2022 |  |  | 2022 |
Assets |  |  |  |  |  |
Current assets |  |  |  |  |  |
Cash |  | $ | 87,000 |  |  | $ | 85,606 |
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 |
Inventories, net |  |  | 49,922 |  |  |  | 38,538 |
Prepaid expenses |  |  | 2,434 |  |  |  | 1,863 |
Total current assets |  |  | 185,094 |  |  |  | 165,029 |
Property, plant and equipment |  |  |  |  |  |
Plant, machinery and equipment |  |  | 153,504 |  |  |  | 151,126 |
Land and buildings |  |  | 59,987 |  |  |  | 59,642 |
Computer equipment and software |  |  | 18,430 |  |  |  | 18,368 |
Other |  |  | 4,321 |  |  |  | 4,275 |
Total property, plant and equipment |  |  | 236,242 |  |  |  | 233,411 |
Less accumulated depreciation |  |  | 186,802 |  |  |  | 179,778 |
Net property, plant and equipment |  |  | 49,440 |  |  |  | 53,633 |
Operating lease right-of-use assets, net |  |  | 14,214 |  |  |  | 15,544 |
Goodwill |  |  | 93,438 |  |  |  | 88,677 |
Intangible assets, net |  |  | 44,078 |  |  |  | 45,569 |
Other assets |  |  | 386 |  |  |  | 392 |
Total assets |  | $ | 386,650 |  |  | $ | 368,844 |

See accompanying notes to condensed consolidated financial statements.

3

ENNIS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS-Continued

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

|  | November 30, |  |  | February 28, |
|  | 2022 |  |  | 2022 |
Liabilities and Shareholders’ Equity |  |  |  |  |  |
Current liabilities |  |  |  |  |  |
Accounts payable |  | $ | 15,361 |  |  | $ | 16,678 |
Accrued expenses |  |  | 19,117 |  |  |  | 15,422 |
Current portion of operating lease liabilities |  |  | 4,914 |  |  |  | 5,090 |
Total current liabilities |  |  | 39,392 |  |  |  | 37,190 |
Liability for pension benefits |  |  | 3,729 |  |  |  | 5,729 |
Deferred income taxes |  |  | 11,905 |  |  |  | 11,405 |
Operating lease liabilities, net of current portion |  |  | 9,215 |  |  |  | 10,241 |
Other liabilities |  |  | 987 |  |  |  | 464 |
Total liabilities |  |  | 65,228 |  |  |  | 65,029 |
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 |
Additional paid-in capital |  |  | 124,593 |  |  |  | 123,990 |
Retained earnings |  |  | 213,725 |  |  |  | 197,998 |
Accumulated other comprehensive loss: |  |  |  |  |  |
Minimum pension liability, net of taxes |  |  | (17,086 | ) |  |  | (18,587 | )
Treasury stock |  |  | (74,944 | ) |  |  | (74,720 | )
Total shareholders’ equity |  |  | 321,422 |  |  |  | 303,815 |
Total liabilities and shareholders' equity |  | $ | 386,650 |  |  | $ | 368,844 |

See accompanying notes to condensed consolidated financial statements.

4

ENNIS, INC. AND SUBSIDIARIES

C O NDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

|  | Three months ended |  |  | Nine months ended |
|  | November 30, |  |  | November 30, |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Net sales |  | $ | 110,245 |  |  | $ | 102,968 |  |  | $ | 329,145 |  |  | $ | 300,349 |
Cost of goods sold |  |  | 76,768 |  |  |  | 73,768 |  |  |  | 226,445 |  |  |  | 213,062 |
Gross profit |  |  | 33,477 |  |  |  | 29,200 |  |  |  | 102,700 |  |  |  | 87,287 |
Selling, general and administrative |  |  | 17,292 |  |  |  | 17,513 |  |  |  | 52,916 |  |  |  | 54,523 |
(Gain) loss from disposal of assets |  |  | 15 |  |  |  | 1 |  |  |  | 15 |  |  |  | (275 | )
Income from operations |  |  | 16,170 |  |  |  | 11,686 |  |  |  | 49,769 |  |  |  | 33,039 |
Other expense |  |  |  |  |  |  |  |  |  |  |  |
Interest expense |  |  | — |  |  |  | (3 | ) |  |  | - |  |  |  | (7 | )
Other, net |  |  | (496 | ) |  |  | (878 | ) |  |  | (1,010 | ) |  |  | (1,136 | )
Total other expense |  |  | (496 | ) |  |  | (881 | ) |  |  | (1,010 | ) |  |  | (1,143 | )
Earnings before income taxes |  |  | 15,674 |  |  |  | 10,805 |  |  |  | 48,759 |  |  |  | 31,896 |
Income tax expense |  |  | 4,388 |  |  |  | 3,242 |  |  |  | 13,652 |  |  |  | 9,569 |
Net earnings |  | $ | 11,286 |  |  | $ | 7,563 |  |  | $ | 35,107 |  |  | $ | 22,327 |
Weighted average common shares outstanding |  |  |  |  |  |  |  |  |  |  |  |
Basic |  |  | 25,809,581 |  |  |  | 26,020,210 |  |  |  | 25,812,216 |  |  |  | 26,053,898 |
Diluted |  |  | 25,888,815 |  |  |  | 26,020,210 |  |  |  | 25,892,873 |  |  |  | 26,151,480 |
Earnings per share |  |  |  |  |  |  |  |  |  |  |  |
Basic |  | $ | 0.44 |  |  | $ | 0.29 |  |  | $ | 1.36 |  |  | $ | 0.86 |
Diluted |  | $ | 0.44 |  |  | $ | 0.29 |  |  | $ | 1.36 |  |  | $ | 0.85 |
Cash dividends per share |  | $ | 0.250 |  |  | $ | 0.250 |  |  | $ | 0.750 |  |  | $ | 0.725 |

See accompanying notes to condensed consolidated financial statements.

5

ENNIS, INC. AND SUBSIDIARIES

C O NDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited, in thousands)

|  | Three months ended |  |  | Nine months ended |
|  | November 30, |  |  | November 30, |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Net earnings |  | $ | 11,286 |  |  | $ | 7,563 |  |  | $ | 35,107 |  |  | $ | 22,327 |
Adjustment to pension, net of taxes |  |  | 717 |  |  |  | 885 |  |  |  | 1,501 |  |  |  | 1,482 |
Comprehensive income |  | $ | 12,003 |  |  | $ | 8,448 |  |  | $ | 36,608 |  |  | $ | 23,809 |

See accompanying notes to condensed consolidated financial statements.

6

ENNIS, INC. AND SUBSIDIARIES

C O NDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

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

|  |  |  |  |  |  |  |  |  |  |  |  | Accumulated |  |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  | Additional |  |  |  |  |  | Other |  |  |  |  |  |  |  |  |  |
| Common Stock |  |  | Paid-in |  |  | Retained |  |  | Comprehensive |  |  | Treasury Stock |  |  |  |
| Shares |  |  | Amount |  |  | Capital |  |  | Earnings |  |  | Income (Loss) |  |  | Shares |  |  | Amount |  |  | Total |
Balance, 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 |
Adjustment to pension, net of deferred tax of $179 |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 717 |  |  |  | — |  |  |  | — |  |  |  | 717 |
Dividends paid ($0.25 per share) |  | — |  |  |  | — |  |  |  | — |  |  |  | (6,459 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (6,459 | )
Stock based compensation |  | — |  |  |  | — |  |  |  | 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, 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 |
Adjustment to pension, net of deferred tax of $375 |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 1,501 |  |  |  | — |  |  |  | — |  |  |  | 1,501 |
Dividends paid ($0.75 per share) |  | — |  |  |  | — |  |  |  | — |  |  |  | (19,380 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (19,380 | )
Stock based compensation |  | — |  |  |  | — |  |  |  | 1,497 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 1,497 |
Exercise of stock options and restricted stock |  | — |  |  |  | — |  |  |  | (894 | ) |  |  | — |  |  |  | — |  |  |  | 51,071 |  |  |  | 894 |  |  |  | — |
Common stock repurchases |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (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 |

See accompanying notes to condensed consolidated financial statements.

7

ENNIS, INC. AND SUBSIDIARIES

C O NDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

|  | Nine months ended |
|  | November 30, |
|  |  | 2022 |  |  |  | 2021 |
Cash flows from operating activities: |  |  |  |  |  |
Net earnings |  | $ | 35,107 |  |  | $ | 22,327 |
Adjustments to reconcile net earnings to net cash provided by operating activities: |  |  |  |  |  |
Depreciation |  |  | 7,766 |  |  |  | 7,752 |
Amortization of intangible assets |  |  | 5,280 |  |  |  | 6,137 |
(Gain) loss from disposal of assets |  |  | 15 |  |  |  | (275 | )
Bad debt expense, net of recoveries |  |  | 585 |  |  |  | 408 |
Stock based compensation |  |  | 1,497 |  |  |  | 2,444 |
Net pension expense |  |  | 1 |  |  |  | 945 |
Changes in operating assets and liabilities: |  |  |  |  |  |
Accounts receivable |  |  | (5,898 | ) |  |  | (569 | )
Prepaid expenses and income taxes |  |  | (487 | ) |  |  | (357 | )
Inventories |  |  | (10,921 | ) |  |  | (6,227 | )
Other assets |  |  | (570 | ) |  |  | (15 | )
Accounts payable and accrued expenses |  |  | 1,471 |  |  |  | 2,090 |
Other liabilities |  |  | 151 |  |  |  | (365 | )
Net cash provided by operating activities |  |  | 33,997 |  |  |  | 34,295 |
Cash flows from investing activities: |  |  |  |  |  |
Capital expenditures |  |  | (3,338 | ) |  |  | (4,143 | )
Purchase of businesses, net of cash acquired |  |  | (8,767 | ) |  |  | (4,340 | )
Proceeds from disposal of plant and property |  |  | — |  |  |  | 825 |
Net cash used in investing activities |  |  | (12,105 | ) |  |  | (7,658 | )
Cash flows from financing activities: |  |  |  |  |  |
Dividends paid |  |  | (19,380 | ) |  |  | (18,916 | )
Common stock repurchases |  |  | (1,118 | ) |  |  | (1,942 | )
Net cash used in financing activities |  |  | (20,498 | ) |  |  | (20,858 | )
Net change in cash |  |  | 1,394 |  |  |  | 5,779 |
Cash at beginning of period |  |  | 85,606 |  |  |  | 75,190 |
Cash at end of period |  | $ | 87,000 |  |  | $ | 80,969 |

See accompanying notes to condensed consolidated financial statements.

8

ENNIS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED NOVEMBER 30, 2022
(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 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, from which the accompanying consolidated balance sheet at February 28, 2022 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 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 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 are no recent accounting pronouncements that are anticipated to have a material impact on the Company's condensed consolidated financial statements.

2. Revenue

Nature of Revenues

Revenues from contracts with customers for the sale of commercial printing products in the continental United States 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.

In a small number of cases and upon customer request, the Company prints and stores commercial printing product for customer specified future delivery, generally within the same year as the product is manufactured. In this case, revenue is recognized upon the transfer of control when manufacturing is complete and title and risk of ownership is passed to the customer. Storage revenue for certain customers may be recognized over time rather than at a point in time. As of the date of this report, the amount of storage revenue is not significant to the Company’s condensed consolidated financial statements. The output method for measure of progress is determined to be appropriate. The Company recognizes storage revenue in the amount for which it has the right to invoice for revenue that is recognized over time and for which it demonstrates that the invoiced amount corresponds directly with the value to the customer for the performance completed to date.

The Company does not disaggregate revenue and operates in one sales category consisting of commercial printed product revenue, which is reported as net sales on the condensed consolidated statements of operations. The Company does not have material contract assets and contract liabilities as of November 30, 2022.

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

9

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. 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 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.

The following table presents the activity in the Company’s allowance for doubtful receivables (in thousands):

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

10

ENNIS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED NOVEMBER 30, 2022
(unaudited)

4. Inventories

With the exception of approximately 12.3% and 14.0% of its inventories valued at the lower of last-in first-out ("LIFO") for the periods ended November 30, 2022 and February 28, 2022, 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 and fiscal year ended February 28, 2022 were $1.6 million and $1.5 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, |
|  | 2022 |  |  | 2022 |
Raw material |  | $ | 31,982 |  |  | $ | 25,276 |
Work-in-process |  |  | 7,576 |  |  |  | 5,547 |
Finished goods |  |  | 10,364 |  |  |  | 7,715 |
|  | $ | 49,922 |  |  | $ | 38,538 |

5. 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. 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 as incurred.

Acquisition of School Photo Marketing

On 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. 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 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 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 as of the acquisition date (in thousands):

Accounts receivable |  | $1,403
Inventories |  | 463
Other assets |  | 84
Right-of-use asset |  | 487
Property, plant and equipment |  | 250
Goodwill and intangibles |  | 7,974
Operating lease liability |  | (487)
Accounts payable and accrued liabilities |  | (1,407)
|  | $8,767

Acquisition of AmeriPrint Corporation

11

ENNIS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED NOVEMBER 30, 2022
(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 million in connection with the transaction. The acquisition of AmeriPrint, 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.

The following is a summary of the purchase price allocation for AmeriPrint (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 |

6. 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 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 and November 30, 2021.

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 |

12

ENNIS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED NOVEMBER 30, 2022
(unaudited)

Weighted Average Remaining Lease Terms |  |  |
Operating leases |  | 3 Years |
Weighted Average Discount Rate |  |  |
Operating leases |  |  | 3.84 | %

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

|  | Operating |
|  | Lease |
|  | Commitments |
2023 (remaining 3 months) |  | $ | 1,025 |
2024 |  |  | 5,248 |
2025 |  |  | 4,514 |
2026 |  |  | 2,893 |
2027 |  |  | 1,168 |
2028 |  |  | 153 |
Thereafter |  |  | - |
Total future minimum lease payments |  | $ | 15,001 |
Less imputed interest |  |  | 872 |
Present value of lease liabilities |  | $ | 14,129 |

7. 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, 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.

13

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 |  |  |  |  |  |  |  |  |  |
|  | Average |  |  |  |  |  |  |  |  |  |
|  | Remaining |  |  | Gross |  |  |  |  |  |  |
|  | Life |  |  | Carrying |  |  | Accumulated |  |  |  |
As of November 30, 2022 |  | (in years) |  |  | Amount |  |  | Amortization |  |  | Net |
Amortized intangible assets |  |  |  |  |  |  |  |  |  |  |  |
Trademarks and trade names |  |  | 10.4 |  |  | $ | 29,328 |  |  | $ | 11,786 |  |  | $ | 17,542 |
Customer lists |  |  | 5.3 |  |  |  | 79,126 |  |  |  | 52,666 |  |  |  | 26,460 |
Non-compete |  |  | 2.8 |  |  |  | 235 |  |  |  | 159 |  |  |  | 76 |
Total |  |  | 7.3 |  |  | $ | 108,689 |  |  | $ | 64,611 |  |  | $ | 44,078 |
As of February 28, 2022 |  |  |  |  |  |  |  |  |  |  |  |
Amortized intangible assets |  |  |  |  |  |  |  |  |  |  |  |
Trademarks and trade names |  |  | 11.0 |  |  | $ | 28,207 |  |  | $ | 10,301 |  |  | $ | 17,906 |
Customer lists |  |  | 6.1 |  |  |  | 76,458 |  |  |  | 48,903 |  |  |  | 27,555 |
Non-compete |  |  | 3.3 |  |  |  | 877 |  |  |  | 769 |  |  |  | 108 |
Total |  |  | 8.0 |  |  | $ | 105,542 |  |  | $ | 59,973 |  |  | $ | 45,569 |

Aggregate amortization expense was $5.3 million and $6.1 million for the 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 |
2025 |  |  | 7,180 |
2026 |  |  | 6,565 |
2027 |  |  | 5,481 |

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 |

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

14

ENNIS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED NOVEMBER 30, 2022
(unaudited)

8. Accrued Expenses

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

|  | November 30, 2022 |  |  | February 28, 2022 |
Employee compensation and benefits |  | $ | 13,907 |  |  | $ | 11,587 |
Taxes other than income |  |  | 1,513 |  |  |  | 947 |
Accrued legal and professional fees |  |  | 534 |  |  |  | 251 |
Accrued interest |  |  | - |  |  |  | 31 |
Accrued utilities |  |  | 128 |  |  |  | 108 |
Accrued acquisition related obligations |  |  | 9 |  |  |  | 34 |
Income taxes payable |  |  | 2,160 |  |  |  | 1,606 |
Other accrued expenses |  |  | 866 |  |  |  | 858 |
|  | $ | 19,117 |  |  | $ | 15,422 |

9. 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, the Company had $0.5 million outstanding under a standby letters of credit arrangement secured by a cash collateral bank account.

10. 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 period ended November 30, 2022. 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, $23.9 million remained available to repurchase shares of the Company’s common stock under the program.

11. 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 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, the Company has 977,277 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 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 and November 30, 2021, the Company included in selling, general and administrative expenses, compensation expense related to stock-based compensation of $0.6 million and $0.6 million, respectively. For the nine months ended November 30, 2022 and November 30, 2021, the Company

15

ENNIS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED NOVEMBER 30, 2022
(unaudited)

included in selling, general and administrative expenses, compensation expense related to stock-based compensation of $1.5 million and $2.4 million, respectively.

Stock Options

The Company had no outstanding vested or unvested stock options at any time during the nine months ended November 30, 2022 and November 30, 2021. No stock options were granted during the nine months ended November 30, 2022 and November 30, 2021.

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:

|  |  |  | Weighted |
|  |  |  | Average |
| Number of |  |  | Grant Date |
| Shares |  |  | Fair Value |
Outstanding at March 1, 2022 |  | 67,164 |  |  | $ | 18.73 |
Granted |  | 22,000 |  |  |  | 19.78 |
Terminated |  | — |  |  |  | — |
Vested |  | (39,381 | ) |  |  | 19.00 |
Outstanding at November 30, 2022 |  | 49,783 |  |  | $ | 18.99 |

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

Restricted Stock Units

During the nine months ended November 30, 2022, 39,574 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. 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:

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

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

16

ENNIS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED NOVEMBER 30, 2022
(unaudited)

12. Pension Plan

The Company and certain subsidiaries have a noncontributory defined benefit retirement plan (the "Pension Plan"), covering approximately 13% 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 |
|  | November 30, |  |  | November 30, |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Components of net periodic benefit cost |  |  |  |  |  |  |  |  |  |  |  |
Service cost |  | $ | 236 |  |  | $ | 269 |  |  | $ | 708 |  |  | $ | 806 |
Interest cost |  |  | 492 |  |  |  | 420 |  |  |  | 1,475 |  |  |  | 1,261 |
Expected return on plan assets |  |  | (924 | ) |  |  | (931 | ) |  |  | (2,774 | ) |  |  | (2,792 | )
Amortization of: |  |  |  |  |  |  |  |  |  |  |  |
Unrecognized net loss |  |  | 601 |  |  |  | 639 |  |  |  | 1,806 |  |  |  | 1,919 |
Settlement charges |  |  | 786 |  |  |  | 750 |  |  |  | 786 |  |  |  | 750 |
Net periodic benefit cost |  | $ | 1,191 |  |  | $ | 1,147 |  |  | $ | 2,001 |  |  | $ | 1,944 |

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"). Due to the enactment of the Highway and Transportation Funding Act ("HATFA") in August 2014, 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, we had an unfunded pension liability recorded on our balance sheet of approximately $3.7 million.

13. 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.

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

|  | Three months ended |  |  | Nine months ended |
|  | November 30, |  |  | November 30, |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Basic weighted average common shares outstanding |  |  | 25,809,581 |  |  |  | 26,020,210 |  |  |  | 25,812,216 |  |  |  | 26,053,898 |
Effect of dilutive RSUs |  |  | 79,234 |  |  |  | — |  |  |  | 80,657 |  |  |  | 97,582 |
Diluted weighted average common shares outstanding |  |  | 25,888,815 |  |  |  | 26,020,210 |  |  |  | 25,892,873 |  |  |  | 26,151,480 |
Earnings per share |  |  |  |  |  |  |  |  |  |  |  |
Net earnings - basic |  | $ | 0.44 |  |  | $ | 0.29 |  |  | $ | 1.36 |  |  | $ | 0.86 |
Net earnings - diluted |  | $ | 0.44 |  |  | $ | 0.29 |  |  | $ | 1.36 |  |  | $ | 0.85 |
Cash dividends |  | $ | 0.250 |  |  | $ | 0.250 |  |  | $ | 0.750 |  |  | $ | 0.725 |

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

17

ENNIS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED NOVEMBER 30, 2022
(unaudited)

to each participating security. Accordingly, the presentation above is prepared on a combined basis. No options were outstanding for the nine months ended November 30, 2022 and November 30, 2021.

14. 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, cash balances included $86.2 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. Related Party Transactions

The Company leases a facility and sells product to an entity controlled by a member of the Board who was the former owner of Integrated Print & Graphics, a business that the Company acquired. 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 nine months ended November 30, 2022, total lease payments made to, and sales made to, the related party were approximately $0.3 million and $3.0 million, respectively.

16. 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 and 2021 was 28.0% and 30.0%, 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. The Company made cash payments for income taxes of $13.1 million and $9.7 million, respectively, for the nine months ended November 30, 2022 and 2021.

17. Subsequent Events

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

18

ENNIS, INC. AND SUBSIDIARIES

FORM 10-Q

FOR THE PERIOD ENDED NOVEMBER 30, 2022

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

Cautionary Note 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.

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 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; the impact of the 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; 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. 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 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 Pandemi c and Results of Operations, below.

19

ENNIS, INC. AND SUBSIDIARIES

FORM 10-Q

FOR THE PERIOD ENDED NOVEMBER 30, 2022

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 55 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 Labels SM, ColorWorx®, Enfusion®, Uncompromised Check Solutions®, VersaSeal®, Ad Concepts SM, FormSource Limited SM, Star Award Ribbon Company®, Witt Printing®, B&D Litho®, Genforms®, PrintGraphics®, Calibrated Forms®, PrintXcel®, Printegra®, Forms Manufacturers SM, Mutual Graphics®, TRI-C Business Forms SM, Major Business Systems SM, Independent Printing SM, Hoosier Data Forms®, Hayes Graphics®, Wright Business Graphics SM, Wright 360 SM, Integrated Print & Graphics SM, the Flesh Company SM, Impressions Direct SM and AmeriPrint SM; 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 & Label SM (which provides custom printed, high performance labels and custom and stock tags); Allen-Bailey Tag & Label SM, 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); Infoseal SM and PrintXcel® (which provide custom and stock pressure seal documents). School Photo Marketing is a one-stop shop for over 1,300 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, we acquired the assets and business of AmeriPrint in Harvard, Illinois. The acquisition of AmeriPrint, 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.

20

ENNIS, INC. AND SUBSIDIARIES

FORM 10-Q

FOR THE PERIOD ENDED NOVEMBER 30, 2022

On November 30, 2022, we acquired the net assets and business of SPM in Morganville, New Jersey. The acquisition of SPM brings a new channel with products produced through our existing manufacturing operations.

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:

COVID-19 Pandemic – The global spread of the novel strain of COVID-19 has significantly impacted health and 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 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 fiscal year ended February 28, 2022 and we continue to see strong demand for our product. Although the U.S. economy has gained in recovery, it continues to be significantly impacted by 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.

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 the value of the U.S. dollar can have a significant impact on the pricing and supply of paper. The weakening of the U.S. dollar will usually result in the dissipation of any pricing advantage that foreign imports have over domestic suppliers, which typically results in lower levels of imported papers and an increase in domestic exports. With increased pricing power, domestic paper producers can better control 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 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 will remain in a range which will not

21

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 due to our primary material supplier’s commitment to the Company. Consistent with our historical practice, 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.

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.

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, 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, 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 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.

Recent Accounting Pronouncements

There are no recent accounting pronouncements that are anticipated to have a material impact on our consolidated financial statements.

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 consolidated financial statements and notes thereto, which are incorporated herein by reference. The operating results of the Company for the three and nine months ended November 30, 2022 and the comparative period for 2021 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, |
Operations - Data (in thousands) |  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Net sales |  | $ | 110,245 |  |  |  | 100.0 | % |  | $ | 102,968 |  |  |  | 100.0 | % |  | $ | 329,145 |  |  |  | 100.0 | % |  | $ | 300,349 |  |  |  | 100.0 | %
Cost of goods sold |  |  | 76,768 |  |  |  | 69.6 |  |  |  | 73,768 |  |  |  | 71.6 |  |  |  | 226,445 |  |  |  | 68.8 |  |  |  | 213,062 |  |  |  | 70.9 |
Gross profit margin |  |  | 33,477 |  |  |  | 30.4 |  |  |  | 29,200 |  |  |  | 28.4 |  |  |  | 102,700 |  |  |  | 31.2 |  |  |  | 87,287 |  |  |  | 29.1 |
Selling, general and administrative |  |  | 17,292 |  |  |  | 15.7 |  |  |  | 17,513 |  |  |  | 17.0 |  |  |  | 52,916 |  |  |  | 16.1 |  |  |  | 54,523 |  |  |  | 18.2 |
(Gain) loss from disposal of assets |  |  | 15 |  |  |  | — |  |  |  | 1 |  |  |  | — |  |  |  | 15 |  |  |  | — |  |  |  | (275 | ) |  |  | (0.1 | )
Income from operations |  |  | 16,170 |  |  |  | 14.7 |  |  |  | 11,686 |  |  |  | 11.3 |  |  |  | 49,769 |  |  |  | 15.1 |  |  |  | 33,039 |  |  |  | 11.0 |
Other expense |  |  | (496 | ) |  |  | (0.5 | ) |  |  | (881 | ) |  |  | (0.8 | ) |  |  | (1,010 | ) |  |  | (0.3 | ) |  |  | (1,143 | ) |  |  | (0.4 | )
Earnings before income taxes |  |  | 15,674 |  |  |  | 14.2 |  |  |  | 10,805 |  |  |  | 10.5 |  |  |  | 48,759 |  |  |  | 14.8 |  |  |  | 31,896 |  |  |  | 10.6 |
Provision for income taxes |  |  | 4,388 |  |  |  | 4.0 |  |  |  | 3,242 |  |  |  | 3.1 |  |  |  | 13,652 |  |  |  | 4.1 |  |  |  | 9,569 |  |  |  | 3.2 |
Net earnings |  | $ | 11,286 |  |  |  | 10.2 | % |  | $ | 7,563 |  |  |  | 7.4 | % |  | $ | 35,107 |  |  |  | 10.7 | % |  | $ | 22,327 |  |  |  | 7.4 | %

22

ENNIS, INC. AND SUBSIDIARIES

FORM 10-Q

FOR THE PERIOD ENDED NOVEMBER 30, 2022

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

Net Sales. Our net sales were $110.2 million for the quarter ended November 30, 2022, compared to $103.0 million for the same quarter in the prior year, an increase of $7.2 million, or 7.0%. Our net sales increased on a year-over-year basis due to continued strong customer demand for our product and increased pricing to cover inflationary cost. Our net sales decreased slightly $(1.0) million or -0.9% on a sequential quarter basis, from $111.2 million for the quarter ended August 31, 2022 to $110.2 million for the current quarter due to lower sales volumes.

Cost of Goods Sold and Gross Profit Margin. Our cost of goods sold increased $3.0 million, or 4.1%, from $73.8 million for the three months ended November 30, 2021 to $76.8 million for the three months ended November 30, 2022. Our gross profit was $33.5 million for the quarter ended November 30, 2022 compared to $29.2 million 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 gross profit margin to 30.4% in the third quarter of 2022 compared to the prior year’s third quarter of 28.4%.

Selling, general, and administrative expense. For the three months ended November 30, 2022, our selling, general, and administrative ("SG&A") expenses were $17.3 million compared to $17.5 million for the three months ended November 30, 2021, a decrease of $0.2 million, or 1.3%. As a percentage of net sales, SG&A expenses for the current quarter were 15.7% and 17.0% for the three months ended November 30, 2022 and November 30, 2021, respectively. The decrease in SG&A costs were a result of savings from operational efficiencies and the consolidation of our underperforming manufacturing facilities in the prior year.

Gain (loss) from disposal of assets. The $15,000 net loss from disposal of assets during the prior year quarter is 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 was $16.2 million, or 14.7% of net sales, as compared to $11.7 million, or 11.3% of net sales, for the three months ended November 30, 2021. Income from operations decreased on a sequential quarter basis by $1.1 million from $17.3 million for the quarter ended August 31, 2022.

Other expense. Other expense was $0.5 million for the three months ended November 30, 2022 compared to other expense of $0.9 million for the three months ended November 30, 2021.

Provision for income taxes. Our effective tax rate was 28.0% for the three months ended November 30, 2022 as compared to 30.0% for the three months ended 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.

Net earnings. Net earnings, due to the factors above, were $11.3 million for the three months ended November 30, 2022 as compared to $7.6 million for the comparable quarter in the prior year, an increase of $3.7 million. Net earnings per diluted share for the three months ended November 30, 2022 were $0.44, compared to $0.29 for the same quarter in the prior year.

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

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FORM 10-Q

FOR THE PERIOD ENDED NOVEMBER 30, 2022

of net sales, SG&A expenses for the period were 16.1% and 18.2% for the nine months ended November 30, 2022 and November 30, 2021, respectively. The decrease in SG&A costs was a result of savings from operational efficiencies and the consolidation of our underperforming manufacturing facilities in the prior year.

Gain (loss) from disposal of assets. The $15,000 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 was $49.8 million, or 15.1% of net sales, as compared to $33.0 million, or 11.0% of net sales, for the nine months ended November 30, 2021.

Other expense. Other expense was $1.0 million for the nine months ended November 30, 2022 compared to expense of $1.1 million for the nine months ended November 30, 2021.

Provision for income taxes. Our effective tax rate was 28.0% for the nine months ended November 30, 2022 as compared to 30.0% for the nine months ended 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.

Net earnings. Net earnings, due to the factors above, were $35.1 million for the nine months ended November 30, 2022 as compared to $22.3 million for the comparable period in the prior year, an increase of $12.8 million. Net earnings per diluted share for the nine months ended November 30, 2022 were $1.36, compared to $0.85 for the same period in the prior year.

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 and the payment of dividends to our shareholders. We expect to generate sufficient cash flows from operations necessary 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

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ENNIS, INC. AND SUBSIDIARIES

FORM 10-Q

FOR THE PERIOD ENDED NOVEMBER 30, 2022

million in the nine months ended November 30, 2021. An increase in accounts payable 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. The increase in accounts receivable in the current period was primarily due to higher sales volumes and increases 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 to 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 raw material purchases accordingly.

Cash flows from investing activities. Cash used in investing activities was $12.1 million in the nine months ended November 30, 2022 compared to $7.7 million in the nine months ended November 30, 2021. Capital expenditures primarily of equipment was $3.3 million and $4.1 million for the nine months ended November 30, 2022 and November 30, 2021, respectively. In the nine months ended November 30, 2022, $8.8 million was used to acquire businesses as compared to $4.3 million used to acquire businesses in the nine-month period ended November 30, 2021.

Cash flows from financing activities. We used $0.4 million less cash in financing activities during the nine months ended November 30, 2022 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 resulted from $0.8 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.

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, we had $0.5 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.

Pension Plan – We are required to make contributions to our Pension Plan. These contributions are required under the minimum funding requirements of ERISA. Due to the enactment 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. 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. 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, we had an unfunded pension liability recorded on our balance sheet of $3.7 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 million. For the nine months ended November 30, 2022, we have spent approximately $3.3 million on capital expenditures. We expect to fund these expenditures through existing cash flows.

Contractual Obligations – There have been no significant changes in our contractual obligations since February 28, 2022 that have, or are reasonably likely to have, a material impact on our results of operations or financial condition.

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ENNIS, INC. AND SUBSIDIARIES

FORM 10-Q

FOR THE PERIOD ENDED NOVEMBER 30, 2022

Item 3. QUANTITATIVE AND QUALITA TIVE 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, 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 with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our “disclosure controls and procedures” 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 that our disclosure controls and procedures were ineffective as of November 30, 2022 due to the deficiencies in our IT controls as discussed below.

The Company experienced a cyber-attack between November 30, 2022 and December 2, 2022. Due to a limited gap in the protection provided by 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 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 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 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

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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.

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 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 are no material pending proceedings, other than ordinary routine litigation incidental to the business, to which the Company or any of its subsidiaries is a party or of which any of their property is subject.

Item 1A. Ri sk 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.

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.

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.

The Company was targeted with an encryption ransomware attack on 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.

Item 2. Unregistered Sales of Equi ty 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.

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ENNIS, INC. AND SUBSIDIARIES

FORM 10-Q

FOR THE PERIOD ENDED NOVEMBER 30, 2022

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. As of November 30, 2022, $23.9 million remained available to repurchase shares of the Company’s common stock under the program.

Items 3, 4 and 5 are not appl icable 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, filed on January 10, 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

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ENNIS, INC. AND SUBSIDIARIES

FORM 10-Q

FOR THE PERIOD ENDED NOVEMBER 30, 2022

SIGNAT URES

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, 2023 |  | /s/ Keith S. Walters
|  | Keith S. Walters
|  | Chairman, Chief Executive Officer and President
Date: January 10, 2023 |  | /s/ Vera Burnett
|  | Vera Burnett
|  | Chief Financial Officer, Treasurer and
|  | Principal Financial and Accounting Officer

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