Q3 2021 Jerash Holdings (US) Inc Earnings Call
[music].
Greetings and welcome to the duress third quarter fiscal 2021 results conference call. At this time all participants are in listen only mode. A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad as a reminder, this conference is being recorded.
I'd now like to turn the conference over to your host Matt Kreps Investor Relations for Duress Holdings. Please go ahead Mr. Cribbs.
Thank you and good morning, and welcome to the Duress Holdings fiscal third quarter 2021 results conference call.
Joining the call today is Sam Choy, our Chief Executive Officer, Gilbert Lee, Our Chief Financial Officer, and Eric <unk>, who leads our operations in Jordan.
Our quarterly results press release was issued earlier today and available on the Investor Relations section of our website at Www Dot Drash holdings Dot com.
Today's call is being recorded and will be available for playback on that site. All participants will be in a listen only mode should you need assistance. Please click on the operator for pressing the star key followed by debt.
The operator will provide a detailed reminder for Q&A instructions after management completes their prepared remarks on today's call.
Before we begin a quick reminder, about forward looking statements made during the course on this call.
Statements made by duress management for and of course of this presentation. They are not purely historical may be forward looking statements and are subject to the safe Harbor protection available under applicable securities laws.
Important factors that could cause actual results to differ materially from those in our forward looking statements are discussed in our filings with SEC.
In particular, our most recent form 10-K on form 10-Q.
These documents are available on the Investor Relations section of our website under the link to SEC filings, we do not update our forward looking statements.
<unk> undertakes no obligation to publicly release the results of any revision to its forward looking statements, which may be made to reflect events or circumstances. After the date hereof or to reflect the occurrence of unanticipated events.
I will now turn the call over to Sam Schwartz. Please go ahead.
Thank you Matt.
Hello to everyone joining us on the coach day.
Our December quarter demonstrate most of the typical seasonality in our business for the most important part of the quarter for managed.
So over the course.
With all those collected during the quarter we had.
Now setting up for not only our food service plus the rough when you increase in the fourth quarter, but also a record for fiscal two O two true starting April 1st.
That includes significant revenue growth in our first and second quarters ending in June.
On September.
That would generate free cultures in the role of strong year over year growth.
This back to gross margins in the high teens.
Giving better performance through the income statement.
We have taken a conservative stance on prudence during the past few quarters and he has served us well and we are now set for growth.
Right now we are almost halfway through our fiscal fourth quarter.
Which we expect will show significant year over year growth compared to last year.
We also expect a rise in gross margin sexual our historical every shrink.
We believe this will result in full recovery to last year's second half growth for new levels.
And revenue in excess of the 5 billion target for the full year.
Orders for the first six months for fiscal two or two true.
Our checkpoint and ultra where capacity so I'll even about our.
Total capacity through September at revenue baffles debt would be true quantitatively, so yeah, well above our prior record quantities, but from you all for just three five for India.
Achieving those targets would flow through.
Cash on track for which resonate well about.
100 for media.
And we issued our initial guidance to support our enthusiasm for this outlook.
When the Covid pandemic first from birth.
In eastern installed cancellation from our customers.
Most of those folders were swiftly reinstate on.
Access for person to come by other customers.
Debt was good news for plumbing the shipments over the past few quarters was more fluid than in prior years, which is what you are seeing in a certain call for quarters result, right now.
This is certainly a positive recovery and duress, one Adams has been less in pets than sales in all end customers, indicating that they harvest ties production at all for citizens to ensure access to high quality and zero terrorists.
He saw disorder, where now we have excellent very fast from increased capacity.
Our existing facilities.
For additional capacity to meet their quantity of units.
Revenues in the December quarter was 20.7 media.
Down 19% from 'twenty, four 'twenty for $25 4 million a year ago.
82, two timing shipments, which is when the what's nice for revenue.
As such.
Our fourth quarter is expected to be in excess of 20 median up from 14 four for medians, Yeah go and increase of 13, 9%.
Taken all together our second.
Revenue will be fully recovered to pre COVID-19 levels and more evenly distributed naposki is a positive move for our disposal.
Gross margins declined in the quarter to 12%, mainly due to mix as we ship higher volume soft local and discounts for in the December quarter.
And we'd be shipping capacity on major bring orders.
Higher margins in the fourth quarter.
As a result, we expect fourth quarter gross margin to be at least.
<unk> per cent compared to 90% a year ago.
We're excited for the next nine months, we returned to growth and higher margins and can return to investments in our roll through capacity expansion and the relaunch of our construction plans for from construction plans for new buildings on our land.
Sure so.
With that I will turn the call over to Eric to discuss our factory operation in Jordan, then Cooper will call for some financial data.
Thank you for Sam.
Hello, everyone.
My comments today will be somewhat brief as the news is all very positive and D C to stake.
As Sam said, our customers are returning to a more typical pattern.
And doing so at much higher on the audience.
Said in another way, we are past debt that make and back to growth.
Our factories and Jordan are very P C.
And we are actively adding capacity.
Looking at the third and fourth quarters.
Revenue has even out between this quarters.
Just one of our long term goals.
The mix is a bit different between the quarters accounting for the gross margin difference between our third quarter report and our fourth quarter outlook.
Looking at mix in more detail the third quarter has a higher percentage of local and discount store orders, which are usually lower ESP and margin that orders from a major customer.
This is due to a timing shift in the customer delay for reschedule that shifted most of our major brand customer shipments into the fourth quarter.
But you shouldn't even referred to with this major brand or F. O B. All for you on book of term day, swapping to shipping Beth Haut and pulling debt, which we recognize revenue.
So that means that fourth quarter will be almost all F. O b orders for this major global brands, raising both revenue and gross margin compared to last year that's true.
Guiding in the press release.
Even better news this debt customer orders for the first half of the fiscal 2022, which stopped April one show we are back to growth.
Order from just our for pick us grow both bread customers have filed capacity come Treacly book until the end of September.
On the bookings are heavily weighted for ejected out to where which are better E. S. P. A margin items.
As a result, we expect the June September quarters might be at near or above our previous revenue record of 33 5 million in the second quarter of fiscal 2019.
In fact, I'm looking extra rights out to install additional production to life in our own factories and secure more capacity to ensure we meet the demand and debt distrust from our largest customer.
We are also restarting our construction programs, that's what planted for a year ago, but.
But put on hold due to Covid pandemic.
We bought land some time ago for this project and we will start construction on both a dollar tree building and then additional factories there.
This will allow us to grow our work force and manufacturing capacity and possibly also be crazy. These facilities with more cost a favorable owned facilities.
The dumps also help us for what extent housing to our workers in keeping with our commitment to ESG and doing what is best to care for the webcast, which in turn drives our business well.
We are very excited about how the development and growth ahead over the next three quarters that we have booked.
Our opportunities to continue that growth into the second half of next year.
And with debt I would turn the call to Gilbert for financials and outlook.
Thank you Eric Hello, everyone. The third quarter ended December 30 for what's benign with our forecast and demonstrated a shift in mix and timing between the third and fourth quarters as well as levering, our second half revenue compared to prior year.
Where the fourth quarter was fast ball other than the rest of the year.
Revenue in the third quarter was $27 million, a decrease of 19% from $25 4 million in the third quarter of fiscal 2020.
The change in revenue reflected a shift in customer timing related to the COVID-19 pandemic, causing several third quarter orders to ship in the fourth quarter, which delayed revenue recognition.
Margin for the third quarter was 12 per cent compared with 19% in the third quarter of physical 2020, mainly due to a shift in product mix with third quarter being weighted toward local and discount store orders, while our fourth quarter will be heavily global brands.
Yeah.
We are guiding for higher gross margin in the fourth quarter to reflect this.
Operating expenses for the third quarter of fiscal 2021 was $2 $4 million a decrease of 9% from $2 6 million in the third quarter fiscal 2020, mainly due to slightly lower labor cost.
Operating income for the third quarter was zero point $1 million GAAP net income for the third fiscal quarter, what's the other point 1 million or one cent per diluted share.
In short the.
Third quarter was solid but positions us for an improved fourth quarter ending in March.
Plus the trains that Eric described position Drash for potential record quarters in June and September and a record physical year, breaking the $100 million in revenue target.
Digging into that more we expect fourth quarter revenue to be in excess of $20 million, an increase of at least 38% on a year over year basis with gross margins in the high teens due to more favorable mix.
We're booking orders now for all of fiscal 2021st half, which will be the June and September quarters.
We're fully booked for all capacity through September with orders from a major brand customers.
They need jackets, and outerwear, which provide more favorable asps and gross margin opportunities.
We believe those orders represent an opportunity for both the June and September quarters to be near or above our previous quality record revenue of $33 5 million.
We expect the favorable makes in orders will put gross margins in the high teens.
Achieving that goal with Puds duress, well on track to break $100 million in revenue in fiscal 2022.
So we would expect this momentum to carry into the second half as well.
Additionally, the board has announced approval and other five cent dividend for.
For the December quarter.
Our balance sheets remain very strong with cash and restricted cash at December 31st of $29 $2 million and working capital of $53 million.
Inventory was $19 2 million up from $10 3 million at the end of the second quarter, reflecting goods produced for shipment in the fourth quarter to applebee customers.
Receivables collection remains consistent 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 asset based lending should they be opportune.
We expect full year sales to be more than $85 million down slightly year over year from a record $93 million last year due to COVID-19 impacts in the first half.
Then increase to a range of $100 million to $102 million in physical 2022.
Is this just our initial forecast and more complete physical 'twenty 'twenty two guidance will be provided at a later date.
A few other notes we continue to expand on PPE shipments and see this as a sustainable business with.
We're focusing on surgical gowns.
Total mask and receipt, Glenn reusable masks, where we believe we have cost and quality competitive.
We continue to expand our capabilities and sales in this product category, including registrations with the FDA to expand our sales opportunities in the U S market.
Second.
We previously discussed that your rash is diversifying our geographical production capability.
Hence our competitiveness in Asia Pacific, particularly for customers like <unk>, and new balance who have multi regional sales networks.
This effort includes working with overseas the contracting partners in APAC locations, who have existing certifications required by these customers.
We collaborate with these manufacturers to place the order on behalf of our brand customers and ensure quality and timely delivery.
We believe this is a good growth opportunity and represents a capital light.
And minimal risk approach to expanding our reach into Asia Pacific markets.
In terms of revenue recognition, we will recognize the full value of the order and the cost of production.
Because we do not do the actual production on <unk>.
<unk> will be lower in dose on day sales.
On our cost structure is minimal resulting in net positive impact to the bottom line as we get to scale.
In conclusion, we reported a solid third quarter expense.
Net strongly improved financial performance in the fourth quarter with revenue growth of approximately 38 per cent and higher gross margin.
We will also sold out on capacity through September of this year and expect at or close to record revenue June and September quarters, which are the first and second quarters in fiscal 'twenty to 'twenty two.
With strong gross margin to accompany the increase revenue share.
In fact, the growth and moving swiftly to take full advantage of these opportunities.
We now welcome your questions.
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Yeah.
The first question is from Mark Argento Lake Street Capital. Please go ahead Sir.
Hey, guys. This is John on for Mark Thanks for taking my question.
First can you just update us on where your total capacity that currently and then second how much capacity came from this new construction and new production lines at over the next year or so.
Yeah.
Sarah you want to answer it.
The capacity question about how much capacity increase we can put in for the.
For the next fiscal year.
You mean for the next fiscal year, Okay, we are per annum.
For and the increase of our for production lives.
In house, Okay for all production lines are means we will add additional around five to 600 workers and that we can increase our capacity by around.
Half a million pieces. Okay. This is the I mean, this we will trying to implement in the coming six months.
Awesome, Okay, and then as far as some of the new construction that you guys are resuming what is kind of the timing as.
As far as the dorms and facilities go from a construction standpoint, and then at what point can that additional capacity start to come on line.
Hmm Silke.
Okay.
You're going to answer all I will answer.
Ah I can answer and then you could you you could add anything so John we're planning to start construction.
As soon as.
The S J S U S. We approved the.
The engineering designs of the dormitory and.
And factory, but it's going to take at least one and a half year to two years to complete.
So.
Nothing is going to add.
At any capacity in the next coming fiscal year.
Yeah.
Okay.
And then last question for me just thinking about the strategic partnership business in Asia.
How quickly can you start to ramp that up I know you mentioned some of the profitability dynamics, but really you don't how long is it going to take.
To get that portion of the business for scale, where it has a meaningful impact on the bottom line.
In fact for that.
I tried to I guess go.
Go ahead go ahead on some.
Yeah in fact for the diversification.
Our orders tools factually he's in Asia, just like Indonesia or China.
And we have trials from trial orders sobriety.
And we received very good feedback from new balance our existing customer.
And.
We expect in the coming years debt will be close to these maybe.
Five to 10 million U S dollars or the debt we can secure flow.
These stuffs diversification to the offshore factories in Asia Pacific region.
And pulse.
Caustic wise I mean, the margin will be maybe.
Maybe around 10% to 12% or some up to 10 per se and because we don't need to.
We produce ourselves so oh I'm of course.
<unk> in for soon disorders is low so we expect these GAAP.
I mean, the net margin.
Yeah.
<unk> 10 per cent I can see food.
For this triangle for orders also discounting of diversification to our APAC countries.
Yes.
Okay. Thanks, guys.
Thank you thanks John.
The next question is from Rommel Dionisio Ages capital. Please go ahead Sir.
Yes. Good morning, Thank you for taking my question.
She's got a share.
Adding.
Production capacity I know that there are different countries have different.
Rules and regulations regarding.
You know people from overseas coming in and Quarantines and all that so is the plan to continue.
Continue to import workers into Jordan from.
Bangladesh, India, Sri Lanka, you know those types of countries or to increase the <unk>.
Percentage of workers come from Jordan, and if so would there be a.
The impact on margins would there be a margin implication for us more domestic labor and Jordan. Thank you.
Alright, you can answer that yeah, okay actually okay.
Our percentage for migraine and local work or it is 75 per cent is from overseas and tried to five per cent from local is true.
The ratio okay.
The other direction of the Ministry of Labor here, Okay, but for the last year to 1000 and trend because of the pandemic, Okay Jordan government already.
I mean band.
Of the migrant workers, so almost one year, we do not happen day would come from overseas.
And starting from the 15th of January Okay. When the for damage is well controlled and Jordan the Ministry of Labor. Okay has reopened the migraine because we said, okay and now starting I mean this month, okay. So every month around 50 new mine.
Workers, but it'll be coming to Jordan to John's Suraj factory.
Okay at the same time, okay, because last year, we cannot bring in.
The migrant workers. We also have increased some of the local number of local workers.
One of our factory.
Okay and this yeah. Okay. We also have to plans to increase the number of local workers by keeping them the appropriate training. So that they can I mean be able to handle more complicate the style.
The debt before so.
If our training program for us to be successful then we can probably more local workers and they can also.
<unk> reduced the cost of the operation of the factory this outbreak.
Okay. That's very helpful. Thank you very much.
Margin looks like in terms of margin impact there there should be a.
Minimal or maybe no negative impacts to our overall manufacturing cost.
On them.
To the bottom line on to the gross margin impact is that right.
Yes.
Okay. Thank you perfect. Thank you Gilbert Thank you Eric.
Yeah.
We have a question from a private investor Michael Weil. Please go ahead Mr. Boyd.
Hello, Hi, I wanted to ask a question about the revenue shift from like delayed shipment from Q3 to Q4. So could you disclose Hum my time marches on.
Oh, it's about $1.1 million.
And in those.
Those those order.
Those orders were already shipped as of today.
Yeah. So.
So.
Like it's around like one point from 1 million outer range cars.
Is that day.
Yeah.
So that means like.
Thank you you previously you have guided to like Q4, and Q3 together should be roughly the same as last year. So it seems even adding back the debt of one 1 million. So.
And I don't see any kind of catch up on a run that that numbers like this.
So Q4 is tiny.
This this quarter is Chinese.
This quarter is Chinese cities 40 range.
Oh, yes.
Okay.
Yeah. So last year, you got like 40 around party.
For the last day to hop right. Okay. That's great.
Could you provide it was on stat as alpha for Facebook order on that sorry, sorry, not phrase or like.
Once a person day count this quarter on our next quarter. Thank you.
So far in Q3.
Roughly.
Oh I don't understand.
Oh, sorry, sorry, sorry, sorry, sorry on so what is the like what's the other kind of compared to lots of year like from North face.
Right.
The non <unk> 75 per cent, yes, yes.
Uh huh.
Uh huh.
Yeah.
So.
Information about north face sales.
Okay.
Well north face sales declined.
In the.
In the in the last quarter.
Pretty significantly in the third quarter.
Alright.
Awesome.
Okay.
Whole year whole Cisco here, the northeast or the okay was.
<unk> reduced around.
18% to 19% over the year.
Okay. So they're trained is almost the same rate like I mean kill focus we are almost the same range.
Well because on the timing of the shipment in Q3 on north.
North face sales was down significantly.
But he will pick back up in Q4, because some of the shipments were delayed to Q4.
But you said you saw my 1.1 meeting day.
I mean, that's probably the most from our nurses.
Yeah, only $1 1 million was supposed to ship in in Q3.
But it got delayed to Q4.
So that's from the north face.
Yeah.
Okay, great. So about that in the next fiscal year or so do you have an estimate like order flow from North face you said like Jack hit we're back kind of normal.
So what is the I mean, what is the auto number from a north face for next fiscal year 'twenty Chinese cool comparable for the next fiscal year, which is a 20, Okay April 1st.
Our 2021 to and March 2022, Okay.
The north face has already given us a projection for the first.
In six or seven months, which is around 4% for free for 4 million pieces, which is already maybe a more than 60 million U S. Dollar and for the later half of 2000 and a 21, okay to talk to the early quarter itself 2022, okay.
Ralph basis going to place another order I mean for around one five to 2 million pieces.
So I think and other I think more than 10.
10 to 15 billion U S. Dollar so the hope for the whole year North face protection.
For the 5% more than last year.
Okay. So it's around like 60 or something I forgot you said, yes.
Southern White kill but that's just a set in his speech that Oh, Okay. We will come to a I mean, Rick rutkowski ear of Oh for 100 million sales.
But yeah I'm not try to crashing is but you know Mike previously your revenue from non space is actually quite bigger.
On to this excellent in tiny.
For fiscal <unk> ending.
And in like a tiny tiny is around 72 million I guess so.
Yeah.
So which means indicate you will get.
We get orders from other.
Companies like to add up to the 100 minute range. Yes, we will have also increased especially from the bottoms or other okay. New balance has a respiratory increased by 50 per cent for 2021 for 22, according to the projection.
Okay. Okay, great. Okay. That's all my questions. Thank you very much okay. Thank you.
Yeah.
We have a question from another private investor Mr. Chris Glynn. Please go ahead Mr. Glenn.
Hey, Thanks for taking my question. So historically V. F Corporation made up on majority of Jerash as revenue.
So I'm looking to get a sense of if there are any specific reasons why you believe that VF will keep giving you business into the future are there any major switching cost if they were to change to a different manufacturer is there a specialized technology jerash has that other manufacturers don't have.
Trying to get a sense of why do you think the V. F for relationship is likely to stick and why they arent likely to move their business from us to another manufacturer.
Yeah.
Okay.
Did I answer this question.
Yes. Please okay actually okay. The reason why we are placing a lot of order to garage that's a key.
Couple of reasons first of all okay. According to the priority of most other major Bret replica boat brands. Okay. Like for you have no faith. Okay. They are now selecting countries well for.
Well, which is eligible for free duty for exporting to the U S market. Okay. So for free deal with your two U S. Okay. They don't have much choices. Okay. The free two day countries, mostly in crude Jordan Egypt, Okay in some.
Countries, India, I mean Central America, and also Africa.
But okay amount or this country and amount of other factories located in this countries. Okay. The Jordan factories on let the most capable one off for manufacturing complicated jackpot style for north face.
Among all the 50 and 60 factories in Jordan, they're only less than five factories in Jordan, who can and don't come pre K to check the style and garage is spun off Tam and Suraj is also located in the free duty country. Okay. This is the reason widened on faces continuously.
Facing order total rush at the same time, we have also okay. We'll consider okay. The on time performance for quality performance. Okay. At this time to affect US I'll also important factors, that's north Facebook on C would consider placing additional orders or increasing the orders okay for next year okay.
For the past five years, our track record with Knauf basis excellent yeah, Okay, well you know what that almost on the on.
On time performance quality performance also 98%. So we had the number one okay, sometimes number tool okay as classified by the north face their system major reasons, why dollface is continuing pricing all the toothbrush.
Got it thank you thank.
Thank you.
Okay.
[noise] gentlemen, there are no more further questions I'd like to turn the conference over for closing remarks to Mr. Matt Kreps. Please go ahead Sir.
Thank you Jerry.
And thank you everyone for participating in today's call will be conducted several outreach conference events on the coming weeks and months. If you have additional questions or like from a range of virtual meeting with management. Please contact me directly using my email and phone number that are included at the bottom of our press release. Thank you everyone for your participation and have a great day.
Yeah.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
Okay. Thank you.
Okay. Thank you very much for everyone.
Yeah.
Yeah.