Q1 2022 Jerash Holdings (US) Inc Earnings Call
[music].
Greetings and welcome to the drag holdings financial results for fiscal 2022 first quarter conference call.
At this time all participants are in a listen only mode.
A brief question and answer session will follow the formal presentation.
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As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Roger Upon Dell Investor Relations for dress holdings. Thank you Sir you may begin.
Thank you operator, and good morning, everyone. Welcome to dress Holdings fiscal 2022 first quarter conference call I'm, Roger on Dell on to a little concerned Drash holdings Investor Relations firm.
It will be my pleasure moving materially to introduce the company's chairman and Chief Executive Officer.
Sam joined as Chief Financial Officer, Leigh and Eric Chang, who leads the company's operations direct from Jordan.
Before I turn the call over to Sam.
To remind all listeners that today's call may include forward looking statements.
Within the meaning of the private Securities Litigation Reform Act of 1995.
Such forward looking statements are subject to numerous conditions, many of which are beyond the company's control, including those set forth.
And the risk factors section.
The company's most recent form 10-K and form 10-Q as filed with the Securities and Exchange Commission copies of which are available on the SEC's website.
At Www Dot S. A C dot gov.
Along with other company filings made with the as you see from time to time.
Actual results could differ materially from these forward looking statements and drew Ranch holdings undertakes no obligation to update any forward looking statements, except as required by law.
With that it's my pleasure to turn the call over to Sam Troy Sam.
Thank you Roger and Hello, everyone.
Our fiscal 2022 first quarter was so that.
Demonstrate excellent progress.
Revenue was at a record level, but that's what's up.
Reflecting robust shipments to our largest customers.
So a strong demand.
The reopening of the U S economy.
Gross profit also represent a record for the first quarter.
D due to higher revenue and gross margin performance.
Our gross margin continued to run in the high teens, reflecting increased shipment volumes and improved product mix in the first quarter.
Our robust momentum continuing further into fiscal 2022.
Holders for the first nine months of the year debt, we believe will lead to a revenue run rate per year that would exceed our prior record.
As a result.
Increase our revenue outlook for the full year.
H B.
<unk> will discuss shortly.
Well, we continue to advance plans to increase capacity in our existing.
Facilities and see.
Additional capacity to meet our customers' demands.
Both by building, new facilities, and food leases and acquisition.
We recently announced the signing of definitive agreements to acquire both the operator of a 71000 square feet manufacturing facility in Amman, Jordan and the related physical premises.
Expect to close this acquisition soon.
Eric will provide more details on a moment.
I'll now turn to Kohl's overdue Eric Tang.
Oh, he space in Jordan, and then to Cuba D will cover our financial results Eric.
Thank you Sam Hello, everyone.
Our factories in Georgia dock extremely busy.
And we continue to add capacity as quickly as we can.
All the audio was up substantially and cash.
Customers have returned to a more typical ordering pattern.
As anticipated our product mix improved in the first quarter low.
Leading to orders with higher average selling prices and margin stent, we saw in the last fiscal year.
Moreover, this positive momentum is continuing.
Capacity is completely booked through the end of January 2022.
Based on orders from our four largest global brand customers alone.
Bookings remain heavily weighted toward ticket and other out till way of products that have higher E. S. P. A margin.
As Sam mentioned, we recently signed agreements to expand on manufacturing capacity in Jordan.
This particular acquisition is in two stages.
First we signed an agreement to acquire the operating company almost 71000 square foot per roll manufacturing product.
Under the terms of the first agreement.
As soon as the manufacturing licenses and existing physical operations, including all of them, but chenier equipment, 500, bookers and employees and at dollar tree.
We have taken over production that the new facility as of August the first and we have begun manufacturing products for our customers.
However, because the seller has yet to come on production for its prime year orders, we are allowing them to a temporary maintain wasn't picked up share right, which in turn has delayed from the closing of the first part of the acquisition on.
Till September.
Second we signed a separate agreement to acquire the land at the building to house the apparel manufacturing operations.
We expect this part of the deal to close in November 2021.
The new facility is expected to enable us to deal with approximately two 5 million to free up on 5 billion additional garments per year.
Adding approximately 20% to our current annual capacity.
In addition, the facility it gives us the ability to scale up even further.
Customers already on placing orders that are expected to fully booked the new factory through January 2022.
As mentioned last quarter, we began construction of a high quality living space for.
Spanning thing multinational work force.
The higher safety and comfort design that will help position us for growth on first of all yes chico's.
Finally, we recently announced plans to double what coke capacity at our facility in a hostile.
As part of a special humanitarian project with a Jordanian government that began in 2018.
We have a favorite cloud with our progress on this project debt.
The other.
Debt unprecedented disruption caused by the pandemic.
The facility currently employ 300 people there.
Brent we increased it to 600 by end of 2021.
With that I will turn the call over to Gail, but Lee to discuss our financial results and fiscal 2022 outlook.
Great.
Thank you, Eric and good morning, everyone.
Our fiscal 2022 first quarter revenue rose.
Actually to $30 million from $19 million in the same period last year.
An increase of nearly 60 per cent.
The increase was primarily due to higher shipments to our largest customers in the quarter.
The higher sales volume reflects stronger demand as the U S economy continues to recover from the pandemic.
Gross margin expanded 250 basis points to 18, 8% in the physical 2020 to first quarter.
On parent with $16 three per cent in the same period last year.
Gross margin expansion in the quarter reflects a higher proportion that'd be on export orders, which typically carry higher profit margins as well as increased production and sales volumes.
Operating expenses totaled $3.3 million in the physical 2022 first quarter compared with $1.9 million in the same period last year.
The increase primarily reflect.
Alright head count additions to support our growth higher shipping costs that were in proportion with increased sales volumes and expenses related to COVID-19, precautions and requested I mean, new migrant workers.
Operating income was $2.3 million in the physical 2022 first quarter compared with $1.2 million in the same period last year.
Comprehensive income attributable to <unk>.
Common stockholders was 2.0 million or 17 cents per share in the first quarter.
Compared with approximately $813000 or seven cents per share in the same period last year on.
Balance sheet remains strong with cash and restricted cash of $9 million and net working capital of 51 million at June 30 of 2021.
Inventory was $31 million in accounts receivable was 20 million.
Net cash used in operating activities was $11 million in the fiscal 'twenty 'twenty, two first quarter compared with $8 million in the same period last year than.
The net change was primarily due to working capital activity.
Inventories increased in the first quarter, primarily reflecting seasonal activity and strong demand.
Accounts receivable also increased in the first quarter due to strong demand, particularly in the month of June to date, we have collected more than 80 per cent of receivables at the end of June.
We continue to expect the business to generate cash from operating activities on.
On an annual basis.
We also have been granted supply chain financing programs by our major customers.
And then untapped $3 million line of credit available.
In terms of a fiscal 'twenty 'twenty two outlook, we are increasing our revenue guidance to be in the range of 115 million to 120 million balance.
As strong demand continues in all access.
Passive east expands.
We also anticipated revenue into fiscal 2022 second quarter to exceed $40 million.
Orders continue to be heavily weighted towards high margin jackets and other out of the way of products. We expect this pattern to support gross margins in the high teens for the full fiscal 2022 a year.
I would also like to point out the operating expenses are expected to be higher in fiscal 2022, reflecting a growth independent impact on last year's first half.
We also anticipate stock based compensation to be at a higher level for the rest of fiscal 2022 compared with the same period last year.
While customer orders remain strong it is important to note debt.
Potential risks from the Delta variant of COVID-19.
Could constrain our ability to add workers needed to run our factories at full capacity.
To a certain extent, we already have reflected this risks and our updated outlook.
We will continue to monitor pandemic developments over the next few months and give you an update on the next quarter's earnings call.
Our fiscal 2022 first quarter results represent a strong start to the year. This robust momentum is leading to what we believe will be a record year for the company.
We look forward to keeping you apprised of our progress as the year unfolds.
Lastly, our board of directors approved a regular quarterly dividend of five cents per share to all common shareholders.
Payable on August 24th 2021 to stockholders of record as of August 17, 2021.
And with debt, we will now open up the call for questions.
Operator may we have the first question. Please.
Thank you we will now be conducting a question and answer session.
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One moment, please while we poll for questions.
Thank you. Our first question comes from the line of Mark Argento with Lake Street Capital. Please proceed with your question.
Hi, guys, good morning, and nice quarter I just wanted to.
You'll be on your on a little bit on the guidance, which was very strong.
I had anticipated.
20% plus.
The capacity.
Expansion through the acquisition that that would take maybe a little bit longer to come on line. Maybe you could talk about what you're seeing that gives you the comfort and confidence to guide as strong as you do you have here in terms of.
On boarding on additional capacity and then secondly, maybe you could just talk about your overall order book.
As you know do you have more orders than you do capacity at this point and is there anything additional you could do in terms of maybe leasing some additional space as well thanks.
Yeah.
Thank you Mark.
First of all I think we're on.
Trying to be conservative because there is still a lot of uncertainties on.
All over the world.
The pandemic steel.
Going on.
In various parts of Asia.
In particular with the.
With the Delta of variants.
We're right now facing some challenges in bringing in additional.
Mike when you workers from Asia.
Even though we're working very closely with the Dania and government and we see some very promising opportunities.
However, we don't want to over.
Extend ourselves we do have orders from.
Our major customers that far exceed the.
Projection.
But we just wanted to make sure that we have the ability to produce and to ship.
Throughout this fiscal year.
But.
Yeah.
No.
But we are confident with.
With our capacity and with our ability.
That our debt, we will be able to there we will be able to fulfill this.
$120 million in revenue.
In terms of the in terms of the mix of that incremental revenue is going to be more outerwear.
Can you give us a little bit of an idea on how you think about that.
Taxes are gonna look mostly the same just another incremental $15 million to $20 million on revenue or is it going to change materially.
Well I think the additional revenue or the increase in the net revenue.
Is going to be a highly concentrated in outerwear.
That's all that's our intention even though the deal because the new facility the new workers.
They probably need some time to be trained to manufacture our products, especially those that four hour.
Premium customers.
Those are rather complex.
Products. So we started out the new factory by producing some of the lower margin or more simple products, such as T shirts and polo shirts.
And just to use that to get them acclimated to our processes.
And once that is done and we anticipate that maybe after this phase after this fiscal quarter.
We should be able to convert them into producing the outerwear that.
Jackets.
So and also where we're working on expanding our.
Oh, a satellite facility in El Paso.
Into making jackets. So we're hiring more people you know Hesse and.
Training them and converting debt facility into producing some high margin high ASP product.
Yeah.
And then just last question from me.
New facility that you guys are purchasing or on purchase is that on the same complex.
Hum.
Your current facilities and of course, the awesome outside but.
Within our within.
Omar on every other than that.
The current campus.
Yes, the new facility that we purchase is in Oman.
Eric is it in the same industrial.
Park.
Industrial location. It is situated okay in the same industrial city, which garage manufacturing situated and from walking just for walking distance from Jos main factories to this new facility is only around five minutes by walking.
Yeah.
Great.
Hey, guys I appreciate it congrats on the strong quarter.
Thank you very much.
Thank you. Thank you Mark Yeah, and also other types.
On the long time support from the company.
Uh huh.
Our next question comes from the line of Rommel Dionisio with Aegis capital. Please proceed with your question.
Good morning, Thanks for taking my question.
On the you know we hear so much about increased freight expense around the world.
Gross raw materials.
Maybe relative little less applicable to you, but I wonder if you could just talk about the impact.
Potential impact that you're seeing on gross margins, if you're seeing any delays, especially on the shipment front.
We definitely hear about there was.
Some challenges in Memorial day Global freight thank you.
Thank you Remo.
Well there there are some challenges.
That's really on the incoming freight on the incoming shipments from Asia.
Raw material and supplies.
And however.
Because we're working with a global brand customers, they're very understanding.
And is back.
If there is any delay from.
From raw material.
They wouldn't.
They wouldnt penalize us they wouldn't complain they understand and if the if the increase in raw material costs are the inbound freight.
Yes.
On the time, they will reflect in the order on the prices to accommodate for that.
Can you confirm that Eric.
Yes recently after okay.
When you face a lot on something or some pulp from so I cannot say a lot of Paul gross but southern poverty in the income and containers, especially from South East Asia countries like Vietnam.
Like Taiwan.
Such countries.
Because they have a.
They have to get locked on recently so.
Unfortunately, some of the orders probably break okay from a north face. Okay. They are also from this country. The Mayo day order is also from these countries.
Okay.
This vibrant meal, which is situated in Vietnam and Taiwan.
That normally to supplier by the brand.
So okay. Once we place the order okay. They need they have the responsibility to ship to GA on time in order that we can deliver on time.
So nowadays because of the locked on the shipment came into late for one month or two months and the breath understand very much. It is not the responsibility of our manufacturing being garage spaces.
The responsibility of the topic mail, okay, and so the bread is very willing to cry on this extension of the day referee okay for one or two months. According to the delay of the contained on.
And sometimes okay. Some of the governments they may need.
There will be a rich U S soil by end of November because they have a big Christmas sales at that time. So they will all start to fight some of the governments to U S. Okay on the cost of the brand.
This is the situation.
Thank you Ernie.
Thank you.
Thank you, Eric and Gilbert and maybe just a follow on particularly I think in a prior question you talked about low potential challenges if delta variant on terms of importing labor, but you obviously have a significant labor day.
In Jordan, you know domestic labor as well and I Wonder if you could just refresh our memories on the availability of debt is there.
Plenty.
In the event that you know you have difficulties.
On putting labor from from some of the Asian countries.
To what extent you can just simply rely on domestically and from within Jordan itself. Thanks.
Yeah, where we're actually trying to high on board domestic labor or low code labors in Jordan.
So on the on one hand, we're working on are importing more labor from or more workers from from Asian countries, such as India, and Bangladesh, but we all know that those two countries right now are kind of in a locked down and we don't know how to.
First of all that would be.
But at the same time comparing to other manufacturers and Jordan, we already have.
That was a nickel.
Nick and then vantage because we already have.
Quite a bit of a foreign workers working for us and we have very good reputations.
And we have very good relationship with the government and they are helping us or they're trying.
As much as they could to help us.
Get those workers quantified and.
Imported into Jordan.
So debt, but however, it depend damning as nobody.
Nobody can can control it.
So we do put a little bit of conservatism in our in our projection.
Just because of that but at the same time, we we are working very hard to recruit low co workers to the unions.
Even styrene refugees, who are residing in refugee camps and we provide those.
Those workers.
They don't have transportation and day live about an hour away from our factory in refugees cans and they couldn't.
Leave the a cam two to live in our dormitory because they they went out they were not allowed so we provide them transportation every day cool with buses too to transport them to a facility to work.
Bring them back home so those other kinds of things that we are working on to make sure that we have sufficient workers.
To to satisfy demand or increase in production volume.
Okay, that's very helpful and congratulations on the quarter. Thank you.
Thank you. Thank you Rami.
Mhm.
Our next question comes from Michael a private Investor. Please proceed with your question.
Hi.
Just wanted to ask a question about Oh space on a day.
On <unk> I'll tell you.
So on a from north veins.
Hello, Michael Yes.
Yes.
We do have orders.
From the north face, but a whole year.
And the order amount.
Really absolutely exceeds our.
Our capacity or our projections.
Because they place orders are.
We.
May or may not be able to fulfill all the orders, but the north face on being working with us for six or seven years.
And almost every year they would place orders.
More than we could.
Supply them.
And they aren't there very understanding they know.
And they keep increasing the demand.
For sticking with us.
It's just that.
Even though we keep increasing our oh capacity on productivity there.
It is always on increasing demand from the north face.
But we do happen we do have.
Rolling 12 months orders from the north face from new balance from.
From a few of the other.
Global brand customers.
Yeah.
Could you just give me.
Mobile rough idea, so I mean last year it was wrong.
Dumped on more than 15 per fan.
As you know.
It's called tiny planning so.
Suddenly fairly to assume that you weren't recovered to.
Tiny level on.
On these are maybe even you can.
I'm, sorry, you said last year.
Which is physical Taiwan, where yes, yeah. It was done right from it was down 10, yeah, Yeah, yeah yeah.
Yeah.
And obviously because of the global pandemic, everybody sales were down and we were only down 15% from the previous fiscal year.
Which was $93 million and last year, we were at $90 million because on this in the second half of the last fiscal year.
We basically fully recovered from the pandemic the first half it was down.
Quite a bit and but the second half we were almost at the same level as the previous fiscal year.
So you get that rebound.
I'm sorry.
I'm asking about only about the north face on it it's not about the whole company.
So the 10th kind of you on that.
Maam you from North face that's around 70 total media dollars right. So nothing is 50 cents. So.
Asking maybe.
The north face on or would it be recovered two tiny tiny or you know what do you have.
Yeah.
I don't have the numbers in front of me, but.
I could tell you its already on order nobody can I answer this question.
Okay.
Because oh, Okay, you are asking about north face all the debt figure okay.
The north face order, we are increasing.
Almost every month at the request of the pest come on.
Hey.
As of two day, Okay in dollar where you. Okay. We have already come from oldest well north face more than $75 million.
That's great Yeah, that's what exactly what I'm on to now Oh, Okay. So I think the fact that we are still going up okay. As we only started to quota.
Okay. So maybe well be you guys or what maybe you wouldn't get more quarters right.
Yes, yes sure.
Okay.
That's great second one and.
How about the.
How about new balance and any other.
And you touched on off from the order from them.
The new part as compared with the fiscal 2021 be okay. This year. We are also I mean, the increase there on the customer is also increasing the order around 20%.
Compared with last year.
As a reminder, if you would like to ask a question press star one on your telephone keypad.
Our next question comes from the line of Barry Pasternak, a private Investor. Please proceed with your question.
Hey, guys congratulations on the quarter the guidance on the acquisition I was wondering on the acquisition how much of a temporary gross margin impact should we expect this fiscal year from digesting the acquisition or you know on the revenue coming from the acquisition from the factory.
For the new acquisition, we expand will there be yeah I'm sorry go ahead.
The new capacity you are talking about a debt facility that we just acquired.
In August right. So they're one there's already 500 workers and obviously within the first six months, we need to get the workers kind of trained and converted into manufacturing our products.
Previously they were manufacturing genes for their customers, but now we're turning them into manufacturing our kinds of garment.
Which is apparel for a sports sporting apparel and also Oh was aware jackets.
So it will take some time for them to to get a day to get trained and get acclimated with our with our system.
So we expect the first six months to be to be a little bit kind of a maybe.
Not as Pos not as profitable but.
We will train them first on some of the orders debt laughs.
Laughs expense.
Expensive less complicated and overtime, there there'll be able to.
Do the same kind of products and at the same.
Our productivity and efficiency.
All other factories in or other workers.
So I.
I would say the first six months.
It will have a somewhat of a negative impact to our overall gross margin.
But.
But we'll just have to we just have to see and we did.
Because of the mix that.
Debt, we put into this fast this factory.
But putting all our other factories into manufacturing the high premium.
Higher gross margin products.
We think the impact would not be.
Very significant.
Okay.
So in other words answering your question total company.
Yes in other words the impact on the total company gross margin will be at least partly offset by you know higher margin product being produced in the existing factories and so there shouldn't be would you say more than like a 50 basis point, I mean 50 basis points or less gross margin impact during the six.
<unk> from the acquisition.
Would that be.
Their Illinois, or I always say to be anywhere between 50 to 100 basis point.
And the overall I guess right now we have 5000 workers.
In total in Jordan.
And 500 workers.
In our in the nuc that new facility.
So if we makes all the.
All other products together are I think the impact probably.
Not be more than one on 100 basis points.
Okay, great and on the on the four largest customers you referenced earlier are those all existing customers from last year or is there a new customer.
Isn't there.
Yes, they're all existing customers from last year in which new balance and American Eagles, where new customers last year.
Okay and is there a.
Also a new customer this year that.
You've started shipping to that is not on the top floor, but has the potential to be say by next year.
Or are you focusing haynesville Eric.
Barry do we have any new customer in our projection for this year, we have one new customer in our protection and this is a very a big name. This is adidas.
So we have a con from one trial or debt with Adidas, Okay, and this all day that around 35.45000 pieces.
Good day, it's very small right.
Yeah, because this is a trial order, okay, I'll say that the customer will give serious consideration to to praise the bulk order total rush next year.
Okay, Okay great.
Thank you.
Thank you.
We have no further questions at this time, Mr. Troy I would now like to turn the floor back over to you for closing comments.
Okay. Thank you operator, and thanks again to everyone for joining us today.
And for all your support and interest in our company.
We look forward to speaking with you again soon on our physical.
2022 second quarter earnings call. Thank you very much.
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.
Thank you. Thank you. Thank you.
Yeah.