Q1 2021 Jerash Holdings (US) Inc Earnings Call
Ladies and gentlemen, thank you for your patience Youre holding for todays Josh first quarter fiscal 2021 results call. At this time, we are gathering additional participants and we'll begin momentarily. We appreciate your patience and ask you. Please continue to hold.
[music].
Greetings and welcome to Geraci first quarter fiscal 2021 results call. At this time all participants are in listen only mode. A brief question answer session will follow the formal presentation I'd like to remind you that this conference is being recorded it is now my pleasure to introduce is that correct managing director.
Sure It Darrow Associates Investor Relations Mr., Chris you may begin.
Thanks, Karen.
Morning, and welcome everyone could address holdings fiscal first quarter 2021 result conference call with me today is still currently our Chief Financial Officer.
Hey, good lead our operations in Jordan.
Our results press release issued earlier today is available on the Investor Relations section of our website at Www Dot giraffes holding dot com.
It also see a link titled base mass production in the top level navigation of the site and that introduces some of our new PE products, including a video production out these products in our factories in Jordan.
Today's call is being made is being recorded it will be available for playback all participants will be on listen only mode.
If you need assistance from parents. Please take a conference specialist I seem to starchy followed by Jeff.
The operator will provide a deeper reminder of the Q and a instructions wealth management's completed their prepared remarks today.
But before we begin a quick reminder, about forward looking statements made during the course of this call.
This may be addressed management during the course of this conference call that are not historical facts are considered to be forward looking statements.
Subject to risks and uncertainties.
The private Securities Litigation Reform Act at 1995, providing safe Harbor for such forward looking statements. The words believe expect anticipate estimate will guide outlook indicate suggest forecast target right seek school other similar statements expectation identify forward.
These statements.
Looking statements are subject to certain risks uncertainties and important factors could cause actual results could differ materially from those reflected in the forward looking statements.
These risks and start getting a detail interactions public filings with the U.S. Securities Exchange Commission, including our most recently filed form 10-Q and form 10-K.
That's on this call it cautioned not to place undue reliance on these forward looking statements [laughter] nationally only I love the day here.
The company undertakes no obligation to publicly released the results of any revision to its forward looking statements, there's maybe matrix like events or circumstances. After the date.
Oh reflect the occurrence of unanticipated events.
I'd now like to try to call over to Act. Please go ahead.
[noise] <unk>, how are you going to continue.
No Eric you use that first.
So.
So oh.
Okay I'm pleased to join Oh, you today, what is cool.
So the.
The people bought defaults Eros ended June 30.
And the included the most crediting pulling up the global calling in.
For the U.S. logic and Mike.
Like many we began the quarter with a high degree of uncertainty exactly how this will impact our revenue activities.
And for how long.
Well the good news is that okay. So we'd like to these questions the garage and thought that the that'd be anticipated.
Okay.
In fact is declining.
Yes about 70% over the yet.
[laughter] in lodge, partly due to the two factors.
But back to it.
And winning new business Lafayette pay off no well the lobby leasing on his new customer but.
We.
<unk> about 60% about total revenue.
And do you think would the customers that's the Newbuild and Dick's sporting goods.
<unk> increased activity on new orders from cheaply.
Second factor, the we were able to come from lots and lots of all does with existing customers and particularly our largest customer we F. Corporation did not face right.
I'll be vessel no phase one study the bought about 75% over yet okay. I did it would be still you know tanking filing.
But it is expected to narrow significantly how many quoted based on the current program or the confirmation.
So maybe they do that these two factors.
Huh.
Generally factory, it's well known for its highly reliable manufacturing for quality and on time delivery.
Secondly, the financial benefit, though but duty free input from our factories in Jordan, It's a tremendous cost saving at the time, when our customers looking to reduce costs.
[laughter] very attractive okay. The reason why okay, maybe five I looking what do you see free country production.
I don't think the great brands.
And then they come up with Josh.
Oh, the unless we have worked closely let just well what does that delivery timing.
Including pushing back the mode is when necessary.
Yes that shifted some orders not just into the second often but also into our third quarter.
I want to battery ability not only to work closely with all customer to maximize our business opportunity, but also to remain profitable.
That makes even afraid that spring football team and dedication doing what as they need to get the jumped up.
Hi, I'm I want to say very much boulegeris team for their hard work dedication for this time.
I know, that's all looking forward to get it back to.
Normal.
<unk>.
So that it provides a good bridge to Oh look that's about.
The second quarter added.
34th.
Quarter last year at 30.6 million.
Right now, it's actually thought books to us the minute rates so as people.
But decline of about 80% already but we have a few orders. That's me if that's the right every deal.
And we continue to work closely with customized to manage the free time line.
Either way, we will have could stick with that sequence so growth over the first quarter. I also expect to grow gross margin as we continue to increase volume through the factory.
So I'm going to pass to Alba field.
But before that I want to update you okay on the quarterly situation in Jordan.
I wasn't an exit very fast and decisively early independent dynamic to equal pay it seems like how to increase or.
As you know this affected the last two weeks off our much quota.
While also enabling Jordan to do a very effective job contained in corporate and they tend to manufacturing facility in more quickly.
Anything I would tell me, what fourth who could be actively calling card and Kathy.
We also implemented to the number of addition, no cleaning bitumen and love trade protocols to back to protect the safety about what that.
We continue to do so.
We also making sure that.
At the P.P.E. mazzotta.
First shipments to customers and more orders coming in.
Okay in show in the short while do what you addressed that in more detail Pete skill.
Thank you Eric.
Hello, everyone.
I'm pleased to join ought to you today to discuss our financial results, which were much stronger than expected for the fiscal first quarter ended June thirtyth.
Our results demonstrate the benefits of our new customer development initiatives as well as do we see leniency about business due to east importing economic advantage to our customers cost of goods and overall profitability.
Let's cover somewhat the details from our financials and business performance for a few minutes.
Revenue in the first quarter fiscal 2021 was $18.7 million and about 16% of our revenue into first quarter was related to new customers. The one in last year.
This new customers continue to increase auto volumes with Joe rash.
This helps to further our goal of diversifying our customer base and we are very excited to continue building relationships with new logos.
Revenue from legacy customers was down year over year, mainly due to the impact of the cobot pandemic.
But reflected a higher number of orders reinstated as customers prioritize Gerard for that production.
In total revenue was down approximately 17% year over year, but far less than what we are seeing across the industry.
Oh customers have also seen good success into athletes to shift to online sales and you open went to reopen break and border stores in markets affected by cobot, driven closures a trend that appears to be generally increasing as we continued to move.
I had.
We are pleased to see this continued positive progress and that our customers I finding success in reaching the end customers, which helps drive greater demand for our factories and increased production orders.
Turning to gross margins.
Gross margin declined due to lower battery volumes to 16.3 per cent compared with 20% in the prior year quarter.
Gross margin also reflected changes in product makes and customer makes due to a pandemic and the increase volume from new customers.
Operating expenses continue to decline in the quarter to $1.9 million, a decrease of 27.9% that's compared with 2.6 million in the previous first quarter.
The decline in Opex, we flagged cost saving programs, we implemented as well as a reduction in startup costs for Paramount that were incurred last year.
At the results net income was seven cents per share.
We recently announced a continuation of our dividend payment of five cents per share a common stock shareholders.
We continue to evaluate the dividend each quarter and continue to generate positive cash flows from operations to fund, both our strategic objectives and dividend needs.
Our balance sheet remain very strong with cash and restricted cash at June thirtyth of $18.5 million.
This is showing the 26.9 million at March 31st.
Oh cash flow in the June quarter actually improved by $2.5 billion compared with the same quarter in prior year [noise].
Due to seasonality.
We generally use more cash in the fiscal first quarter building inventory in increasing receivables.
Inventory was $18.1 million, which includes goods produced but the furthest shipment until later part of fiscal 2021.
Accounts receivable increased to $15.9 million due to the later weighting of shipments in the quarter, an extended payment terms granted to some of our customers.
Approximately 81% off the June receivables have been collected up to date.
Perhaps the best Mattea about overall balance sheet improvement is working capital.
Which increased $600000 sequentially to 48.7 million.
At June Thirtyth, compared with 48.1 million that's off March 31st 2020.
We continue to expect the business to generate cash flow from operations on an annualized spaces. We also have untapped lines of credit available for up to an aggregate of $26 million.
We expect giraffes just performance to remain solid in the coming quarters as we continue to work closely with our customers.
Based on orders to date for the quarter ending September Thirtyth.
We expect revenue of about $25 million for 34% sequential growth over the fiscal first quarter.
This could be increased by shipments scheduled late in the quarter or additional p. activity.
But we believe it it's prudent to remain conservative in occurring at environment.
I want to talk about a few other aspects of our business as well most importantly, our entry into the PV markets.
Last quarter, we announced that giraffes produce some <unk> supplies at the request of that you're doing in governments. We subsequently produced and shipped masks to a new U.S. customer and we are willing to just asked that have a business to include our the p. supplies like surgical gowns and all the products.
We're expanding our sales opportunities through qualification to ship to that you and the U.S. and partnering with batteries that have existing certifications and capabilities to accelerate this opportunity.
These new categories, a good opportunities for Drash, and we continue to build on our capabilities.
To facilitate this expansion.
<unk> addressable market and our PV market development athletes giraffes incorporated a new entity.
To Rasta first medical supplies of manufacturing company limited.
Which has received temporary approval from Jordan food and drug administration for the manufacturing and export of products, including non surgical masks and gowns.
We have already produced and shipped some of this sub contracting orders of surgical mask and medical gals for customers in Jordan.
<unk> East and Europe, beginning in July 2020.
Giraffes intends to pursue additional certifications and partnerships for this subsidiary and is presently engaged.
<unk> to do so including U.S.F.D.A.
We're also continuing to work hard on increasing orders with both new and existing customers, particularly in helping our customers lower the cost of goods compared with less favorable manufacturing areas such as China.
What caused a actually hired and Jordan and import tariffs could reach the load 30% range on higher dollar products, while Jurassic <unk> export to the U.S. with zero Paris.
We're also expanding our geographic co production capability for shipments to other regions like Asia Pacific and Europe, particularly for customers like VF and new balance who have multi.
Regional sales network.
The initiative is achieved by working with overseas. So contracting partners in locations, such as Indonesia, and Cambodia, who have to certifications required that by customers.
Finally, we are actively looking for acquisitions and partnerships to expand our business and put a capco to work.
This includes both garments MPT acquisition candidates, but we remain council and diligent on both pricing and risks in the current environment.
Upon finding the right tended that caused strategic actions, we look forward to moving ahead.
We now welcome your questions.
Ladies and gentlemen, the floor is now open for questions. If you do have a question. Please press star one on your telephone keypad at this time.
If you're using a speaker phone, we ask that well posing your question you pick up your handset to provide the best sound quality I.
Again, ladies and gentlemen, if you do have a question or comment. Please press star one on your telephone keypad at this time, we'll take our first question from Mark Argento with Lake Street Capital. Please go ahead.
Hi, good morning, guys.
Just a few quick ones.
Can you estimate right now kind of what kind of.
Percentage that capacity, you're running out and.
Anticipate back at full capacity utilization.
Q2, Q3, maybe walk us.
[music].
Ah Hey, Mark how are you thinking for the question.
About what percentage of capacity of factories are running at.
Maybe Eric could better answer this question because he okay runs the.
Yeah Okay.
Okay, Oh, okay. According to our all this data are currently okay stopping from today until.
To the and study for yourself December Okay. We are fully book that mean, okay. Ceraso is running 100% off its own capacity.
And we are also a little bit Oh, the bulk of about 10% I'm trying to find some contractor okay to make the manufacturing to orders for the although for the over book.
Okay.
<unk>.
And just a follow up there so is that.
Is it a mix thing when you have some your outerwear.
That order book for most customers.
Impeded and then you have pp ramping up so it's.
In a mix shift with it.
Within the capacity utilization.
Well, there's that's definitely a lot of changes going on within our own manufacturing factories.
Ah, Yes, where it was spending some of the capacities on a <unk>, making PPG products.
That was why we started up a new facility a new.
Subsidiary.
Basically dedicating to do do just that we also are using some of our existing capacity in a in Jordan to make some p. products. So a and also for new customers.
Some of them for outerwear.
But some of them I also for or are there other product makes such as Ah T shirts, and and sporting pens and and polo shirts. So there's some changes going on it it's hard to do it's hard to say.
How many million pieces that we are producing and and comparing to our to our existing capacity.
And.
Longer term.
The business model still little bit.
But on the P P.
Product lines do you anticipate.
Margins merger profile similar to the overall business, you know better or worse, what are your thoughts on.
With that.
Product line.
<unk>.
Margin perspective.
Well, we anticipate a pea.
Product.
To be at least.
The gross margin that we have been.
We have been experiencing a with the common in apparel.
Products and that's that's our goal or if not getting a better margin.
Because we do have a raw material as well as to manufacturing costs.
Vantage.
Doing it in Jordan.
So.
At this point, we're still developing the this particular a product line and this.
Business model so.
It is hard for us too.
To estimate what kind of margin, we're going to get it has to depend on where the products a ship to two to what type of customers. If it is shipped to Europe, or the middle east and comparing to shipping to the United States.
Base, where we are trying to develop direct customer relationships, but sometimes we might have to.
To sell to some middle middle men some distributors. So it all depends on what volume I send to what customers.
Generally we want to first cover our Oh factory.
Profitability.
First and then we will look at.
Whether we are being competitive in whatever markets.
We are competing in.
But we're very confident that.
Because of our competitive advantage with using those products enjoyed and we feel that we should be a.
It should be a very profitable business.
HM.
Can be Ted I acting something.
Sure of course.
Yes, well I want to answer my question is okay. Now to Ross has just got that a few months for the P. He brought up okay. We are entering the PD <unk>.
<unk> PB part that's a different category, okay for very big numbers.
Okay applied okay, usually we might get all participate and that the company. Okay. In attendance, usually it's a government tend to like hedge.
For the past two month garage had participated in Tenda for Saudi Arabia, My gut and also the marketing Georgia. Okay for this kind of Tenda, which involve a number of quantities, okay and okay average because in order that we make the price competitive we have to be.
Yeah, I mean to arrive at 10% of our gross profit okay, but for tailor made for some kind of somebody just just like the washable Ah face Mott's, we are doing for a particular, Brad Okay. I'll profit margin can be equal up to what type of is that okay. The different [noise].
Thanks, Eric Thanks for clarifying guys.
Thanks.
Well take our next question from Howard Halpern Taglich Brothers. Please go ahead.
Oh, good morning, gentlemen, I'm, a little bit you to this story so I.
I like to.
Provide a little perspective on how.
The sales process changed in the <unk> over the past few quarters compared to prior years.
Hi, Howard.
Welcome. So your question is how the sales process changed.
Okay last one quarters.
Yeah, well probably less contact.
Customers anymore, you know how is it the process being you know longer I'm, a little more complicated hat how has it evolved I guess now coded environment.
<unk>.
Well definitely because we cannot.
Travel to meet customers, which Eric a used to do quite a bit.
A in the past.
Coming to the United States meeting with Oh, it existing customers or or a new customers, but because the up their travel ban those cannot be done however, I wear our Hong Kong sales and marketing team the merchandisers they constantly.
In a direct contact with the buyers in Hong Kong.
And they will develop or the the they'll they'll orders to the development of samples and merchandising and audit and all the negotiation and purchasing.
So I.
I don't think it really impacts us that much other than not having be being able to just visiting customers.
So but.
<unk> wholesale change or get back to normal reaching well.
Okay.
Do you have a general <unk> on the P.E. side do you have a general feel of what the market size or market potential is or.
If you just take that the mid East and then Europe.
I know you know the U.S. is quite large, but if you could just give us a sense of you know the middle Eastern Europe, and what the potential there is.
I don't have.
The middle Eastern Europe market size, but.
Based on some reports that I read about the global P E, particularly in the health care.
Sector. It is about $16 billion globally.
You asked it's a little bit <unk> is smaller I thing you asked this is only about a $1.7 billion. So.
I think overall Europe Asia.
It's it's probably the majority of the global market.
Okay and the process to get qualification is that.
She that only take that take a couple of months or if it's hard to say when you'll get general qualifications are certifications and approvals to sell into certain markets.
Well for the for Euro and for the Middle East we already have the we already have the a approval to choose to sell a Europe is basically the CE Mark and we are in the process of getting to see eat and we anticipate.
To to get the approval within two months from now okay, but we will also is already producing and shipping to a large customer in France.
Through a relationship that we have a partnership that we have with within not a company that has already got the CE approval. So that is heart is though it is already ongoing Jordan, we already got the Jordan that FDA approval. So we are able to a we're able to selling them either use.
Well the United States.
Obviously is the U.S. after <unk>, we have already register at our facility with the U.S.F.D.A. So that is already done we will be able to shift to the United States, but for certain like more protracted type of TV that are used in surgeries the U.S.
In a medical facilities hospital shows some of those require a higher level of Ah off approval, which is called the five 10-K, a notification and we are in the process of getting that from the U.S. that FDA and this will be quite sometime.
Probably.
A few months up to a up to half a year.
Okay. Okay.
And one final one for me it you know in Jordan what type of.
Production potential or increase you I mean do add the room to increase your capacity within <unk>.
In Jordan build another factory or expand the current factory.
Yeah, we're constantly looking at that but let me ask.
Eric to answer that question more specifically Eric.
Yeah.
Okay and gotten we have a five factory, okay, including one to be so call satellite factory newly setup. So.
Four main factory already 40 bulk, okay and a fault.
For the new factory, we call each a rush number five factory.
Okay, we wish we could see they tend to satellite factory, Okay. We have.
Okay at city of 1000 work.
No. Okay, we have only about 300, welfares booking but inside the factory so let all that.
Increasing we still have the capacity to be able to grove fall and that the okay.
Hundred machine, Okay that that can be that means to ought to be has also grow at least 10% to 15% of I'll go board.
Okay.
Okay.
Well keep up the great work guys. Thanks.
Thank you Howard.
Thank you very much.
Well take our next question from Kt helper with D.A. Davidson. Please go ahead.
Hi, guys I'm thinking so much for some of the clarity on the P. P. E. I was actually a little bit more curious on what the order book looks like for the winter I mean, you guys getting a lot of orders for outerwear, and especially compared to last year. Thank you.
Thank you and Haiti.
So we're.
Our outerwear business is primarily with.
Yeah, or the north face.
And.
What I know is.
Yeah, it's constantly working with our merchandisers in Hong Kong to update their orders updated delivery time, and so far what we.
What we have gotten is the reinstatement of.
At least 80% off there or regional order.
For this for this coming year, so that would be the I guess the winter season.
But we also have new customers.
And that that we're developing for outerwear.
Eric can you yeah.
<unk>.
Yes, okay.
Let me give some I mean.
<unk>, Okay, our pick up to my we athletes that now faced okay for the spring Okay spring all the up from now on until next February I think Oh, we have almost I think these are the same number off quantities like last year, maybe onea, let them faster.
That different okay and for a new model. Okay. We have more audit that I'm expecting more or less than last year, because new pilot is our new customer, okay, and new pilot Ah. Okay last week. Okay. That's all thing team tone tell us that they are shifting most of the orders from and that the country called <unk>.
<unk>, Okay to Georgia to rush it is because the before how easy is producing maybe over 1 billion pieces that you up on new policy, but because of recent on time performance and quality issue. They have decided to stop shifting the oldest torture roster Jordan starting next month told you.
Expecting that a new policy or that we'd be more than last year and also this year. We just thought that with a new customer we have already toxic free country, although from a new customer call American Eagle. So that the total number of pieces, we have taken from American Eagle up Okay. It's the 16000 pieces.
I'm expecting more this will come in the later half of that yet.
And also garage is also picking up more or less on the P. P E. Okay and a month by month I will I think the rhodium off I would be mindful pp manufacturing it will be higher and higher so.
This is the latest situation.
Capacity.
Thank you.
The answer a question Katie.
Yeah that definitely gives me a lot more clarity. Thank you. So much and then I guess just in general how long are you guys expecting to produce P. P. E. I mean, if there's something that you intend to permanently keep within yard.
Offering or is this more on kind of a shorter time horizon like two to three years.
No. This is going to be a a long term a strategic.
Development.
Got it where it.
Definitely entering this particular markets.
That's why we started up a new facility and a new entity.
As to dedicate a on this particular business.
Okay wonderful. Thank you so much.
Thank you.
Well take our next question from Brian Cox Private Investor. Please go ahead.
Hey, guys and I know you're dies or in a highly competitive industry over there I just wanted to get an idea.
Now what the competition looks it over and Jordan.
Saying <unk>.
And are they kind of ramping things back up or are there or slowing down you're picking up there.
Able to pick up.
Thanks.
Thank you Brian.
Yeah, [laughter], we were a in a competitive industry, but we are much better off than than our competitors in Jordan I heard that there are a number of factories, there actually is shutting down or losing business.
Just cannot survive so maybe a Eric you can give some updated information about what's going on in Georgia.
Okay, because stuff that tolerate virus, okay, I loved top up because the most of the factories.
Manufacturing, okay. It make flushing to nearly 200 pedal to the U.S. market because of the duty ft, a free trade agreement between us and Jordan.
So.
Okay stopping in fabry, okay, when the correct.
Right Okay.
Okay. Many of the buyers had reduced the or that suddenly.
Okay. So and Oh. This is the reason that some of the fact, we are facing a cancellation of orders from you that 80% down to it so with that.
So.
Well, some factory, who had not been able to catch up will pretty much older to fill up their capacity. Okay. They are growing die.
The at least five to six factory already shutdown in Georgia, Okay.
The latest situation, but you're right as we bring people okay. Our major by it also we have still facing reduction the older but okay. It's only a Iraq, Alaska tied to that.
We have been able also to catch up okay, with new customers, Okay, and they and that we face some off the capacity being I mean, Qatar <unk> current estimate and also with the emergence of our PV products and that the modeling right. It's the higher.
Day by day, and he's also okay can be able to let up pretty bad all Iowa weaken capacity.
The reseller off the cuff dollar or this by our reaching though.
Brad bias. Okay. This is our situation.
<unk>.
Thanks, Charlie Thanks.
Thank you.
I will conclude our question answer session for today, well now turn the floor back over to Mr. credits for closing remarks.
Thank you okay. Thank you everyone for participating on today's call giraffes talk to us starting fiscal 2021, and our outlook anticipates sequential improvement both revenue and gross margin.
Sure I should be conducting multiple outreach conference events in the coming months, including the L. The virtual conferences on September thirtyth, which anyone can join to listen our presentation.
We have seen one on one meetings with the management team for Investor.
That that.
If you have additional questions wed like to arrange immediate had an upcoming conferences that please contact me directly using the contact information at the bottom of our press release. Thank you for your participation stay safe havens like that.
Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation you may disconnect. Your lines at this time and have a great day.
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