Executive Summary / Key Takeaways

• Ennis, Inc. operates as a leading manufacturer and distributor of printed business products, primarily serving independent distributors in a mature and consolidating industry facing secular decline from digital alternatives.
• The company's strategic focus involves leveraging its distributed manufacturing network for cost efficiency and responsiveness, pursuing accretive acquisitions to diversify its product portfolio and geographic reach, and implementing cost management initiatives.
• Recent performance in Q1 2025 showed a 5.7% revenue decline year-over-year, driven by weaker legacy demand, but partially offset by contributions from recent acquisitions, while gross profit margin improved slightly to 31.1%.
• Despite decreased operating cash flow in the quarter due to strategic inventory build (specifically for carbonless paper ahead of a mill closure) and acquisition spending, EBF maintains a strong liquidity position with a 3.0x current ratio and expects sufficient cash flow to cover operations and planned capital expenditures ($4M-$7M annually).
• EBF differentiates itself through its extensive distributor network and operational efficiency in traditional print, maintaining profitability and a strong balance sheet (low debt, robust cash flow) compared to larger, more diversified competitors, although it faces challenges in matching their pace of digital integration and overall growth rates in a shrinking market.

The Enduring Print Partner in a Digitalizing World

Ennis, Inc., established in 1909, has built a long history as a key player in the business forms and printed products industry. Evolving from its roots, the company today stands as a significant manufacturer and distributor, primarily serving a vast network of independent distributors across the United States. This distributor-centric model is foundational to EBF's strategy, differentiating it from larger competitors who often focus on direct sales to end-users. Operating 57 manufacturing plants spread across 20 states, EBF leverages this distributed footprint to offer a wide array of custom and semi-custom printed products, including forms, labels, envelopes, and promotional items, under numerous distinct brands.

The industry landscape is characterized by maturity and ongoing transformation. Secular trends, driven by technological advancements like electronic document distribution and digital printing, have led to declining demand for traditional print products. This environment fosters intense price competition and consolidation among both manufacturers and customers (distributors). EBF competes in this space against larger, more diversified players like Quad/Graphics (QUAD), R.R. Donnelley & Sons (RRD), Deluxe Corporation (DLX), and Cimpress (CMPR), as well as numerous smaller, regional printers. While precise, directly comparable market share figures for all niche competitors are not publicly detailed, EBF believes it is the largest provider to the independent distributor channel for many of its core product lines.

EBF's strategic response to these market dynamics centers on operational efficiency, targeted acquisitions, and maintaining a strong financial position. The company aims to transform its product portfolio by investing in new technologies and developing offerings that provide value in a changing environment, such as pressure seal products and specialty packaging. This strategy is underpinned by a focus on cost management, leveraging its scale for favorable raw material procurement, and maintaining close relationships within its distributor network.

Operational Technology and Strategic Adaptation

Ennis's competitive edge is significantly tied to its operational technology and its strategically distributed manufacturing network. While not focused on a single, breakthrough core technology in the vein of advanced materials, EBF's strength lies in the efficient management and utilization of its printing and manufacturing equipment across its numerous facilities. This decentralized operational model allows for greater responsiveness to customer orders and potentially lower regional fulfillment costs compared to competitors relying on fewer, larger plants.

The company's investments in "new and existing technology" are aimed at enhancing production capabilities and supporting the shift towards digital business environments. Initiatives include exploring print-on-demand services and diversifying into product lines that may utilize different or more modern printing techniques, such as innovative in-mold labels or high-color web printing for integrated products. These efforts are strategic adaptations to declining demand in traditional areas, seeking to provide valuable solutions and differentiate EBF's offerings.

However, the competitive landscape analysis indicates that EBF may lag some larger peers, like Deluxe Corporation, in the speed of digital integration and offering digitally-enabled services. This gap could translate to higher upfront costs for EBF's products in certain contexts compared to competitors with more streamlined digital workflows. The "so what" for investors is that while EBF's operational efficiency in traditional print provides a cost advantage and supports stable margins in its core business, its ability to capture growth in new areas and maintain competitiveness long-term will depend on the success of its strategic technology investments and its capacity to adapt its operational model to support a more digitally-integrated future.

Recent Financial Performance and Liquidity

Ennis's financial performance in the first quarter of fiscal year 2026 (ended May 31, 2025) reflects the ongoing industry challenges and the company's strategic responses. Net sales for the quarter were $97.20 million, a decrease of 5.7% from $103.10 million in the same period last year. This decline was primarily attributed to weaker volume demand from legacy operations ($11.40 million decrease), partially offset by approximately $5.50 million in revenue contributed by recent acquisitions. Increased competition and softening demand as customers transition to digital alternatives continue to exert pressure on sales volumes and pricing.

Despite the revenue decrease, EBF demonstrated resilience in profitability. Gross profit margin improved slightly to 31.1% in Q1 2025 from 30.0% in Q1 2024. This margin maintenance is a result of the company's cost management and pricing strategies aimed at offsetting market pressures. Selling, general, and administrative (SGA) expenses decreased by 1.7% to $16.90 million, contributing to relatively stable income from operations, which stood at $13.30 million (13.7% of net sales) compared to $13.70 million (13.3% of net sales) in the prior year quarter. Net earnings for the quarter were $9.80 million, down from $10.70 million, primarily impacted by the lower revenue base and a decrease in other income (mainly interest income due to lower cash balances).

Liquidity remains a key strength for EBF, although the recent acquisition impacted the balance sheet. Working capital decreased by $29.20 million to $90.20 million at May 31, 2025, largely due to the $34.90 million cash outlay for the NEC and ESS acquisitions. The current ratio decreased from a very strong 4.6x to 3.0x, still indicating a healthy short-term financial position.

Cash provided by operating activities significantly decreased to $8.00 million in Q1 2025 from $23.10 million in Q1 2024. This was primarily driven by changes in working capital, notably a substantial increase in inventory ($14.30 million) and receivables ($8.80 million), partially offset by higher payables ($12.40 million). The inventory build was a deliberate strategic move to secure carbonless paper supply ahead of a planned closure of the sole US mill producing this product. Cash used in investing activities totaled $30.80 million, dominated by the acquisition spending. Cash used in financing activities increased to $11.54 million, primarily due to higher share repurchases ($5.00 million in Q1 2025 vs $1.80 million in Q1 2024).

Strategic Initiatives and Future Outlook

EBF's strategic path forward involves continued adaptation and growth through targeted actions. The recent acquisitions of Northeastern Envelope Company and Envelope Superstore for $34.90 million and Printing Technologies for $5.50 million are central to this strategy. The NEC/ESS acquisition, which generated approximately $26.00 million in sales in 2024, specifically aims to bolster production capabilities and market presence in the Northeast. The PTI acquisition was intended to strengthen capabilities and diversify product offerings. These moves highlight EBF's reliance on external growth to counter organic declines in traditional segments.

Management anticipates that cash flows from operations, expected to be similar to prior periods (excluding the Q1 working capital fluctuations related to inventory build), combined with the current cash balance ($32.60 million), will be sufficient to fund operating and capital requirements for the next twelve months and beyond. Capital expenditures for operational maintenance are projected to be between $4.00 million and $7.00 million over the next year, consistent with historical levels. The company continues to evaluate opportunities for additional equipment investments that improve operations and maintain its strong liquidity.

The stock repurchase program remains active, with $16.60 million available under the current $60.00 million authorization, signaling a commitment to returning capital to shareholders. The company also declared a quarterly cash dividend of $0.25 per share, payable in August 2025. While specific forward-looking revenue or earnings guidance figures were not provided in the recent filing, the commentary suggests management is focused on managing costs, integrating acquisitions, and navigating supply chain challenges (like the carbonless paper mill closure) to maintain profitability and cash generation in a challenging market.

Competitive Landscape and Key Risks

EBF operates within a highly competitive print industry. Compared to larger, more diversified competitors like RRD and QUAD, EBF maintains a strong focus on the independent distributor channel, which provides a degree of insulation but also limits direct access to large end-user contracts. Financial comparisons using TTM ratios show EBF with a healthy EBITDA margin (17.64%) and net profit margin (10.12%), competitive with or exceeding some peers, and notably strong liquidity with a low Debt/Equity ratio (0.01) and robust current ratio (2.97). EBF's Return on Invested Capital (ROIC) and Return on Equity (ROE) have historically been strong, suggesting efficient capital deployment relative to some competitors. However, EBF's revenue growth rates have lagged behind some peers who have successfully diversified into digital services or packaging.

Key risks for EBF stem from the fundamental challenges facing the print industry. The ongoing transition from print to digital products poses a significant secular headwind, potentially leading to continued volume declines in traditional product lines. Increased competition, particularly on price, can pressure margins. Dependence on a limited number of paper suppliers, coupled with industry consolidation and mill closures (like the carbonless paper mill), creates supply chain risk and potential price volatility for raw materials. While EBF is building buffer stock, this is a temporary measure. The ability to successfully integrate acquired businesses and realize anticipated synergies is also crucial. Furthermore, customer consolidation within the distributor channel could impact EBF's sales and negotiating leverage. Cash concentration risk exists, with a significant portion of cash balances exceeding federal insurance limits.

Conclusion

Ennis, Inc. presents an investment profile characterized by stability and strategic adaptation within a challenging industry. While facing secular declines in traditional print markets and intense competition, EBF leverages its established distributor network, operational efficiencies, and a disciplined approach to cost management to maintain profitability and generate strong cash flow. The company's strategy of pursuing targeted, accretive acquisitions is a key lever for diversifying its product portfolio and offsetting organic revenue pressures.

Recent performance reflects these dynamics, with sales impacted by market weakness but margins holding firm due to cost control. EBF's balance sheet remains robust, providing the financial flexibility needed for continued operations, capital expenditures, and potential future acquisitions, despite the cash outlay for recent deals. The investment thesis hinges on EBF's ability to successfully execute its acquisition strategy, effectively integrate new businesses, continue to manage costs and supply chain risks, and adapt its offerings to remain relevant in a digitalizing world. For investors seeking a stable, cash-generative business with a strong balance sheet and commitment to shareholder returns in a mature sector, EBF warrants consideration, provided they are mindful of the inherent industry headwinds and the execution risks associated with portfolio transformation.