Q2 2021 Jerash Holdings (US) Inc Earnings Call
Greetings and welcome to the <unk> second quarter fiscal 2021 results.
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<unk>.
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I will now turn the conference over to your host Mcwraps maybe it.
Thank you Charlie good morning, and welcome to the dress holdings fiscal second quarter or 2021 results conference call with me.
Hey, satisfy our Chief Executive Officer, Gilbert Lee, our Chief Financial Officer and Terry.
Turning to lead our operations in Jordan.
Our results press release issued earlier today and available on the Investor Relations section of our website at Www Dot <unk> Dot com.
You can also see a rank in the top navigation.
Introduces some of our new PV products and a video production in our factories and that list continues to expand.
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The operator will provide a detailed reminder of the Q and a instructions once management has completed their prepared remarks today before.
Before we begin a quick reminder, about forward looking statements made during the course of this call sales.
Statements made by the rash management during the course of this conference call that are not historical facts are considered to be forward looking statements subject to risks and.
That in certain sees the private Securities Litigation Reform Act of 1995 provides a safe harbor for such forward looking statements. The words believe expect anticipate estimate well guidance outlook indicates suggest workouts target growth seeks school other.
Other similar statements of expectation.
By forward looking statements.
Were looking statements are subject to certain risks uncertainties and important factors that could cause actual results to differ materially from those reflected in the forward looking statements.
These risks and uncertainties are detailed into rashes public filings with Us Securities and Exchange Commission.
Participants on this call are cautioned not to place.
Undue reliance on these forward looking statements, which reflects sales split only as of the date hereof.
The company undertakes no obligation to publicly release the results of any revision to these forward looking statements, which may be made to reflect events or circumstances. After the date hereof or to reflect the occurrence of unanticipated events.
And with that I will now turn the call over to Sam short. Please go ahead.
Thank you, Matt and Hello to everyone joining us on the call today.
Our September quarter, so well strong recovery from the call we'd nitin disruptions.
In Jordan given.
Bring and early summer.
Such a ranch, we took a conservative stands our quick caution.
Well the impacts are much less than we have anticipated.
Many of our customers.
We have prioritized their production into rush in Jordan over the country.
Countries around the world.
Well, we did see some cancellations in the fiscal first half due to cobi impacts, which reduce revenue over year over year. There is no longer the case.
Now Andy capacity available for the rest of the year.
Recent order being 10, so which has been snapped up by our newer customers, helping us not only positioned for strong second half at least equal to last year's second house.
But also make faster progress towards further diversifying our revenue base.
Revenue in the September quarter increased rapidly to 27.1 billion up.
45% from the previous quarter.
Gross margin increased to 22%.
Net income increased to 2.6 million.
Or 23 cents per share.
I'm pleased to say that we have increased our factory capacity estimates, reflecting both higher productivity and changes in product mix net allow us to generate more volume.
We have 40 bill.
Two capacity into summer opt to old two one.
And customers a few seeking additional capacity with us.
To address increased demand above our internal capacity.
We're contracting with additional factory resources.
And that typically looking for prospective victory acquisitions.
We are excited for the rest of the year as we continue to work on now for parents and expand with both existing and new Grupo brand customers.
More and more brands.
Recognizing the high quality and favorable economics of manufacturing in Jordan and.
And dress is leading the way.
With that I will turn to call over to Eric to discuss our affect your operation in Jordan Dan Gilbert.
Can cover some financial data.
Yes.
Thank you Sam.
Hello, everyone.
As Sam has just mentioned our factories in Jordan are very busy and we are actively looking for additional capacity.
We believe the strong return of the custom.
The more orders reflect several factors.
Firstly shoppers have adapted to the carbonite into damaged and.
And our customers are seeing increased sales of their products.
Our core products of outerwear athletic wear and casual wear on the high demand for work.
Come home style.
Second.
The new customers, we won during the past year, such as the new balance American Eagle three free and some others are all praising increased orders as they continue to grow the production at Tiffany T Wolff to rush.
Yeah.
In fact, they are taking any capacity released by our largest customer helping us diversifying our revenue base more quickly.
Thirdly, our largest customer is indicating order sizes for coming production sitos that give us increased confidence in growth for next year.
Just by this customer returning to normal while keeping the gains me makeup of our customer this year.
Firstly, we have strong.
We have strongly diversify our products since the IPO.
Making investments to start new programs that acted several categories.
As of governments and more fully utilize our production capabilities.
While we saw some deferrals early in our fiscal year.
More the in fact more than 85% of our custom orders have now be reinstated.
As our customers realized the high demand for the product.
Yeah, those cancel orders accounted for most of our first half difference year over year.
And the excess capacity that opened up now is easily being booked very quickly as customers are competing for our capacity.
We expect second half revenue to be at least.
Yes on par to the primary year, although timing of shipments will wait revenue more toward fourth quarter. This fiscal year.
As oppose to the potential.
You bet, which is causing shipping containers and some supplies to arrive later this year.
So this is really a timing issue only.
On the TV market.
Where we are producing both disposable and reuse of old products. Our efforts are progressing very quickly.
We ship good quantities of modern guns to multiple customers in the port.
Tara and continue to expand our sales reach SP work well for growing list of prospective customers and tenders.
Today, our Marcellus down products has been well received and we remain excited about this business.
And with that I will turn the call for two kilobits.
For financials and outlook.
Thank you Eric Hello, everyone.
The second quarter ended September Thirtyth was a good quarter.
Revenue rising sequentially gross margin improving back to our targeted range accretion okay and.
Installer.
Net income.
Our results continue to demonstrate the benefits of new customer wins as well as the high demand from our long term customers, who are increasingly moving production out of China in favor of higher quality and more cost effective locations such as Jordan.
Well even see.
Turning customers booking our capacity to take over production done in other low cost markets, such as Haiti, where they just can't get the quality of work we offer.
Let's cover some of the details from our financials and business performance for a few minutes.
Revenue in the second quarter of fiscal <unk>.
The 21 was $27.1 million, we had guided for revenue of 25 million leading to a strong beat over guidance.
Revenue was only down 12% from the prior year.
Primarily due to covert related shipping changes.
Our factory.
Once again operating at full capacity and customers continue to seek increased volumes with GE Raj.
With diversifying customer relationships by growing new business faster than we grow business with his toric clients.
And we are using the pandemic as an opportunity to more quickly ramp.
New customer orders in our capacity allocations whenever we have a deferral or push out from a legacy customer.
In fact for the September quarter at the North face was 74% of sales versus 87% last year.
No phase will still be our number one customer but with.
Are you seeing any capacity they release being snapped up by our customers.
In us accelerate progress on this key metric.
Turning to gross margins gross.
Gross margin improved to 22% from the first quarter's 16%.
Just down slightly from 24%.
This year ago.
The sequential increase was the benefit of more fully utilizing our factory overhead across the higher order volumes and the absence of shutdown costs incurred early in the first quarter due to covert lochs dams in Jordan.
The decline year over year.
Yes, we.
Reflecting our efforts to further diversify our production and fully load the factories by adding new categories, most of which have lower average gross margin and now jacket products that dominated first half production in prior years.
However.
Here, we believe that the growth opportunities and year round mess the migration of our factories can drive overall improvement in net income and continue to work towards that target.
Operating expenses were $2.9 million down from 3.1 million a year ago.
Even though we have increased our workforce by several hundred employees and added the Paramount and now has a sewing workshop to our operating base.
Bringing all of these to the bottom line net income for the September quarter was $2.6 million or 23 cents.
Earnings per share.
Through the first half we have now generated 30 cents per share and net income.
And declared a 10 cents per share in dividends.
We.
Correct.
To be profitable in the second half as well and to maintain our dividend policy, which is we will figure out.
Elite by the board for potential increases.
Our balance sheet remains very strong with cash and restricted cash at September thirtyth of $28 million up from 19 million a quarter ago.
We converted inventory back to cash per hour typical seasonal.
The trends.
We self funded our working capital needs, which were $51 million at September Thirtyth out of our cash reserves and have the option to deploy our bank facilities should it be needed well should we find a suitable acquisition with which to expand our production capacity.
Inventory was $10 million and includes goods produced but deferred for shipment until later part of fiscal 2021.
Accounts receivable increased to $20 million due to seasonally typical large number of shipments in the quarter.
Receivables collection continues.
No to be strong with no customer issues.
We expect the business to generate cash flow from operations on an annualized basis.
We also have untapped lines of credit available for up to an aggregate of $26 million.
Which does not include the opportunity for additional.
Additional asset based lending should be on [noise].
Turning to our outlook, we expect full year sales to be approximately $85 million.
Down slightly year over year from a record 93 million last year.
The difference is entirely orders impacted by.
People get 19 in the first half.
As we are expecting a second half at least equivalent to the prior year.
This could be increased by additional shipments that deliver early or additional PT activity, but.
But we believe it is prudent to.
We remain conservative in the current.
Okay environments.
I wanted to talk about a few other aspects of our business as well.
First we began shipping PB to a few customers last quarter, including a U.S. customer and we see this as a sustainable business.
We are focusing on the selection of the P. supplies suggest.
Surgical gals disposable masks and reusable mass.
These new categories are good opportunities puts rash.
And we continue to expand our capabilities in sales in this product category.
Second we are diversifying our geographic co production capability.
<unk>.
To enhance our competitiveness in Asia Pacific and Europe.
Regularly for customers like the AFE and new balance who have multiple regional sales networks. This.
This effort includes working with overseas subcontracting partners in locations, such as Indonesia and Cambodia.
<unk>, who have existing certifications required by these customers.
They can collaborate with giraffes to meet our exacting standards on behalf of these important customers.
We believe these efforts will generate additional revenue in the second half and set us up for further growth.
Next year.
Finally, we continue to look for acquisitions and partnerships to expand our business and put our capital to work.
This includes both governments and P. acquisition candidates, but.
But we remain careful and diligent on both pricing.
Sales and risks in the current environment.
Upon finding the right candidate for strategic actions, we look forward to moving ahead.
We now welcome your questions.
[noise] and at this time, we'll be conducting a question and answer session. If you.
I'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is it a question you May press star two if you like to remove your question from the queue for participants usually speaker equipment. It may be necessary to pick up your handset before freshness turnkeys.
One moment, please while we poll for questions.
[noise].
Our first question is from Mark our until Lake Street Capital. Please proceed with your question.
Hey, guys good morning.
The business bouncing back your pretty nicely, especially going into the second half, but just a couple of quick questions. I know your your backup Affectively Airport.
Capacity when you think about the type of product you guys are or manufacturing.
The balancing capacity utilization with kind of gross margins or average kind of gross profit per piece, maybe talk about how you are thinking through that in terms of.
New business.
Orchestra, and keeping some additional supplier or I should say capacity available.
To land, some newer or potentially higher margin business going forward.
Mhm.
Sam you want to answer that or Eric.
<unk>.
Hi, guys I guess first yes.
Okay. So mark how are you [laughter] longtime though [laughter].
Yep.
Hi, Eric.
Okay. So I think okay.
Well, Okay, now I have to rush.
Moving to what I mean.
The other times cellphone manufacturing like philosophy, you have already mentioned this to PV products, okay, because before that okay. Most of the U.S. medical sales by as a buying from China, but now okay. I think okay. They are looking to the.
<unk> chases in other countries, so talk Jordan I'm expecting Jordan will be down one of their I mean, a good option <unk>. Because we are also selling to talk to you as a on the duty free places we.
Yeah, now converting our one of our factory because your Ros number five to produce.
She is the 100% Pea protein in this factory.
And this is and in this factory, we are producing a washable face mask the disposable onetime face mask the magical gang and also to cover all four different customers. Okay. Now this factories in full operations.
And we have four orders too okay to continue so looking forward. Okay. We are expecting more orders for becoming in 2021 and.
No matter in the I mean, what area or number of workers. We are planning to expand also in 2021 too.
<unk>.
Well our demand from the medical company in Europe and also in the U.S. Okay. This is a one of our major planned for the next year.
And then when you're thinking about these new customers.
Just thinking about gross.
Jim Puppies, you know, there's one part of the model that fluctuates quite a bit is that gross margin line. So you know historically you know the the the winter wear jackets or some of the higher priced units ended up you know being the biggest kind of gross margin revenue generators per piece.
You know on the on the flip side, you know if you're filling capacity with a t. shirts or something with a lower and you have got a dollar value gross profit profile I'm just trying to better understand you know should we be thinking about a target gross margin you know kind of the the the mid to low twentys going forward or that's really.
What I'm really trying to do that okay.
Okay. So let me answer your lightest okay. So.
So for the PT pp product, if we are not going to I mean and to participate.
In the form of a tender okay. If it is a confirmed order okay with a particular customer what we are doing now okay.
Some of the older. Okay. We men for the face masks and also for the medical quantum we are maintaining around that 15% of the GP up the gross profit at least.
Okay, sometimes as high as 20% or even more than 20%, okay, but.
Both very big order, which.
We have two in white to dissipate.
Dissipate in some kind of a tender okay like in the middle East market, the Ministry of health in Jordan or the Ministry of housing Saudi Arabia also in line to Toronto to participate this tender.
Then we are phasing severe competition from other suppliers, especially.
Actually in Vietnam, Turkey, and China, then we have to we have to lower our profit margin okay.
Who maybe 8% to 10% in all the okay to be able to have a better chance to be a what that the tender. So this is the two ways, we got doing dealing with this kind of business.
Got it thanks, Mark it is more a concern about the the odd to business that the government's business because he he is thinking about okay. The Jack is probably in the 20.
Percent margin or 25% margin, but then.
When we were producing teasers colos and those smaller items. The ASP is much lower as well as the margins or even though the volumes are higher so.
So I guess Mark is trying to figure out what kind of margin can we expect.
Of course the TV.
And he is a growing oh growing sentiment enough out of out of the business, but we're still a majority of our sales are coming from the common manufacturing.
[noise] actually okay for the common manufacturing, okay. Most of our I mean capacity I producing.
Thing I would tell Westjet tennis athletic getting this kind of things okay for the other products. We are manufacturing in relation which is common related we are also producing T shirts and pants for the T. shirt. Okay. We normally boomed. Okay T shirts, we usually produced during the low season.
Which we took as Ah onez C.M. basis, okay to in order to fill up the capacity, okay, but okay.
Okay. This is when we don't have enough fob or the.
But for the PANSS, Okay, which now we get a big number from the our new customer new parlance.
Our average.
GP is still on that 16% to 18% okay for the PANSS. This is another category of part of our government related products.
Mhm.
Right. Thanks, guys. That's helpful I'll hop back in the queue.
Okay. Thanks, Okay. Thanks.
Thanks Mark.
<unk>.
And our next question is from Canada, <unk>, a private Investor. Please proceed with your question.
Good morning, everyone. Thank you for the update yes, I have been a private investor with a number of my friends since inception since the IPO when the stock was released at seven.
So I've been thought certainly follow it up since inception and wondering.
What we can do to boost I understand the latest dynamic relating to the cold, but it really pushed back hasn't moved much and I would expect it to move up you know the since the previous years have had good earnings growth.
Good margins you know so I'm wondering what can we do to bolster the stack it looks to me like.
And I don't discuss what anyone so help me out here it looks to me like you know, there's just not enough stock being floated. So maybe there is there any type of conversation what we can do to increase the float.
Hello, and thank you for.
Yes.
And.
There aren't any more questions.
Overhead as well.
Now, let me I'm going to try to answer that question, we do realize that the float off out of our stock in the market is a is limited and actually a lot of investors.
Or funds they're trying.
Hi, but they just can't buy enough.
In the open market. So we're working on multiple and so we're we're talking to some larger.
Larger shareholders to see if they can give.
Give up some of their shares and to sell as Brock.
And and.
Depending on the other hand, we have filed a an S. One oh no S three shelf registration.
Registration.
So we're just waiting for the for the right timing.
And when when the timing is right we could we.
We could raise some capital and.
And put some more shares out in the market but.
Ultimately I think what we're working is focusing on growing our business and delivering a good performance financial performance. So that people will continue to support our our company and.
And people will continue to to buy our shares and when the share price goes up that will be the the good timing for us to release more shares in into the market.
And we're looking for acquisitions or.
And once we got a good candidate perhaps.
Perhaps at that time, we will need.
Capco and a baby raise a few million dollars just a very small a small fund raising but that will also put some more shares out in the market.
Yeah.
And.
Next question is from Rama.
You know Junos East Nishio with Aegis capital. Please proceed with your question.
Yes. Thanks for taking my question. Good morning, I'm on it you know you guys talked about expanding your supply relationships and looking for acquisitions.
I just wanted to reconcile though and you also talked about expanding potentially in Asia Samir.
Customers have businesses there.
So as you look to expand production capacity either through acquisition or.
Other strategic relationships is that primarily Asia, then or are you also considering Jordan.
Also.
So is there room to expand production capacity within your existing facility in Jordan, whether that's through additional labor shifts or just you know building out the factory a little further thank you.
[noise], Hey, Rommel this.
Yeah, Hi, good first of all they.
We do have room to expand our capacity in our existing capacity in our existing facilities.
Eric has told us that we could.
Potentially hire more people, especially in.
In the satellite factory, we still have room over there.
Just high more people and then the increased the machines them they can or that.
We have goes out capacity over there.
I think Jurassic floor, well, which is paramount it's still we still have room there to put the two the more people. So that's good but at the same.
Yeah, but at the same time, we also are conducting a a engineering study.
Because we have a couple of pieces of land inside industrial zone that we that we plan to Bill [laughter].
Dormitories and factories to expand but that will take a longer time.
So that is also showing ongoing.
However, we are also looking at renting.
Additional factories inside Jordan to ER and to increase our capacity over there.
So there are multiple ways that we can do it and we're doing it or to see just which one.
One will will be successful.
Acquisition buying a and now the factory and that doesn't limit us to to just Jordan, but we are also focusing on countries, where there aren't a free trade agreements with the U.S. and with Europe. So that we can also ticket.
And they do that.
So yeah and.
But what you are talking about are expanding our sales and related customer relationships in Asia Pacific.
In Europe.
What we're talking about is with our existing customers such as Ah the north face.
And new balance they they have sales in those areas they have.
But we cannot really supply those from Jordan, because it wouldn't make sense to make it in Jordan and then ship it to China. So we're working with some of our partners.
In a impressive in Asia Pacific to.
So because we already have the relationship lift in our phase in ins and such and we're just going to.
Stop contract.
If we have in fact, we're already doing it.
We have done that in in the past and ER substantially in the second quarter of this year, so that that will be ongoing and that will be a way for us to expand our sales in other geographical regions, but we don't have to really produce.
In those in those regions, but by sub contracting to factories that we have a relationship with that though has.
The factories to half the quality standards that our customers can accept.
So that is what we're talking about.
Okay.
Thank you that's very helpful. Thanks pretty much.
Thanks, Andrew.
And we have reached the end of our question and answer session and I will now turn the call over to macro EPS for closing remarks.
Thank you and thank you all participating.
Today's call dresses after a strong start in fiscal 2021, and our outlook anticipates continued performance in the second half definitely.
Sure absolutely conducting multiple Outreaching conference events, including several events next week.
If you have additional questions wed like to arrange a meeting at one of our upcoming Investor Conference events. Please contact.
They are using the information at the bottom of our press release.
Thank you for your participation today and have a good day.
Thank you.
Okay.
Thank you yeah.
And this concludes today's conference and you may disconnect. Your line at this time. Thank you for your participation.
Thank you.
Thank you.
Yeah.