Freeport-McMoRan Q2 2024 Earnings Call Transcript

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November 13, 2023

There are 7 speakers on the call.

Operator

Greetings, and welcome to the Jirash Holdings Fiscal 20 24 Second Quarter Financial Results. At this time, all participants are in a listen only mode and the floor will be open for questions after the presentation. Please note this conference is being recorded. I will now turn the conference over to your host, Mr. Roger Pondell, Investor Relations.

Operator

You may begin.

Speaker 1

Thanks so much, operator, and good morning again, everyone. Welcome to Jerash Holdings fiscal 'twenty four second quarter conference call. I'm Roger Pondell with Pondell Wilkinson, Durash Holdings' Investor Relations firm. It will be my pleasure momentarily To introduce the company's Chairman and Chief Executive Officer, Sam Choi its Chief Financial Officer, Gilbert Lee and Eric Tang, who leads the company's operations in Jordan. Before I turn the call over to Sam, I want to remind our listeners that today's call may include forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Speaker 1

Such forward looking statements are subject to numerous conditions, many of which are beyond the company's control, including those set forth in the Risk Factors section of the company's most recent Form 10 ks as filed with the Securities and Exchange Commission, copies of which are available on the SEC's website at www.sec.gov, along with other company filings made with the SEC from time to time. Actual results could differ materially from these forward looking statements, And Jirash Holdings undertakes no obligation to update any forward looking statements, except as required by law. And with that, it's my pleasure to turn this call over to Sam Choi. Sam?

Speaker 2

Thank you, Roger, and hello, everyone. Our 2nd quarter performance again demonstrated Jarett's ability to attract new customers and our resiliency in a challenging apparel environment. Retail market conditions for global brands in the U. S. And Europe has been Slow to recover, which in return is impacting our business compared with the prior year.

Speaker 2

Customers' orders have generally shift to lower priced items, which carry lower margins. Nevertheless, our revenue and gross margin remained essentially Stable on a consequent basis. During the quarter, good progress was made with our Pusena joint venture partner. Thus far, 5 Joint Venture Premium Brand customers have committed to placing orders. Marketing to As you know, prospective customers is continuing and feedback is encouraging.

Speaker 2

Current projections from the joint venture for the next 12 months call for about $8,000,000 to $9,000,000 in new orders, Starting in a meaningful way in our fiscal 4th quarters. On Juraish customer front, Timberland has increased its order significantly and has became the 2nd largest global brand to Juresh. We are also producing our first trial orders for WENZ Apparel, another WEF corporate brand and confident order flow From whence we will increase significantly next fiscal year. As well, Business from our 1st European based high end apparel brand continues to expand. We are currently projecting a doubling of orders in the second half of fiscal twenty twenty four.

Speaker 2

Furthermore, we are excited about the opportunity created by our recently established joint venture with Newtek Textile, a textile innovation and solution company. This Venture is expected to enable Touresh to employ the latest technology to offer customers a new array of sustainable and innovative textile products. The proprietary textile dyeing process technology is expected to reduce water usage by approximately 90%, energy consuming by approximately 65% And carbon footprint by over 50% in comparison with traditional processes. To achieve this, we plan to build a state of the art fabric facility in Jordan with construction to begin in 2024 and emerged to Rausch as a leader in ESG textile manufacturing, which is in keeping with our long standing commitment to sustainability and responsible growth. Lastly, I want to give an update regarding Middle East, which is on everyone's mind.

Speaker 2

Since turmoil began, we have been closely monitoring the situation and keeping our customers informed. Early, production is ongoing as usual. There have been no changes With customers order or commitment. And both ports that Jirair's uses for import and export are functioning normally. I will now turn the call over to Eric to talk about our operations, And Gilbert will then discuss financial results.

Speaker 3

Thank you, Sam. Hello, everyone. Activities in Jordan continue to progress at fixed pace. We are expected about both of our joint ventures. Our Busana partnership is well underway and bearing fruit.

Speaker 3

Marketing efforts continue to accelerate, and we believe the partnership is forging a well positioned for growth ahead. Now we are very busy forming plans with our new textile joint venture partner. At this juncture, we are actively identifying potential sites in the nearby industrial zone on which to build our new textile complex. Jirash is conferring with the Jordanian government for possible support and collaboration on this project, which will foster new employment in high-tech related jobs. The spending patterns at the consumer level are still geared toward lower margin items, which in turn have impacted order mix as well as volume from our customers.

Speaker 3

However, we are maintaining and growing our strong Duraage is a trusted manufacturing partner for VF Corp, which owns multiple global brands. We have been producing jackets and other apparel for its North Face brand for more than 8 years. Starting last fiscal year, We began producing apparel for Timberland, another WEF brand, and the order volume has increased significantly, becoming our 2nd largest brand now. We look forward to working closely with other weird brands such as Vans. Our first European based high end apparel brand is also progressing very well, And order volume is anticipated to double for the second half of fiscal twenty twenty four.

Speaker 3

Additionally, we are receiving inquiries from other high profile global brands, both from the U. S. And Europe, With new garment sampling and costing underway. To amplify on Sam's comment regarding the Middle East situation, We use both the Akabar and Haifa ports for import and export. Thankfully, so far, Both ports are operating with business as usual.

Speaker 3

That said, in the event of any potential impact on the ports, We have a contingency plan, which is in place that has been approved by our major customers for temporary relocating production And as necessary, to alternate regions. Our leadership position in Jordan provides unique and tangible benefits to customers around the group. The initiatives and plans we have in place, Including vertical integration, sustainable textile solutions and focus on the environment position, Gerard was a distinct competitive advantage, and we believe an attractive partner for premium apparel brands. I will now turn the call over to Gilbert to discuss our financial results and the fiscal 2024 outlook. Gilbert, please?

Speaker 4

Thank you, Eric. Revenue for our fiscal 2024 second quarter amounted to $33,400,000 compared with $37,800,000 for the same period last year. The decrease was primarily due to fewer shipments Being delivered to some of the major customers in the U. S, partially offset by shipments to other new geographical locations, including Hong Kong and Germany. Gross profit was $5,400,000 For the fiscal 2024 Q2 compared with $6,900,000 in the same quarter last year.

Speaker 4

The gross margin was 16.1% compared with 18.3% a year ago, principally driven by a shift in customer mix with lower profit margin orders. Operating expenses for the fiscal 2024 Q2 increased slightly to $4,500,000 from $4,300,000 last year. Operating income totaled $888,000 in the most recent 2nd quarter versus $2,600,000 in the same period last year. Total auto expenses were $167,000 in the fiscal year 2024 Second Quarter compared with $106,000 in the same quarter last year. The increase was primarily due to higher interest expenses arisen from participating in supply chain financing programs of certain customers, partially offset by incomes from fixed deposits in banks.

Speaker 4

Net income was $369,000 or $0.03 per share in the fiscal year 2024 Second Quarter compared with $1,800,000 or $0.14 per diluted share in the same period last year. Jirash's balance sheet and cash position remains strong with $22,800,000 of cash and restricted cash and net working capital of $40,500,000 as of September 30, 2023, Inventory was $18,700,000 and accounts receivable was 5,200,000 Net cash provided by operating activities was approximately $8,200,000 for the 6 months ended September 30, 2023 compared with $9,600,000 for the same period last year. As Sam mentioned earlier, retail market conditions have not yet fully recovered. Therefore, we are taking a conservative approach to guide our revenue for fiscal 2024 to be down about 3% to 5% from last fiscal year. Our gross margin goal for the current full fiscal year is expected to be approximately 15% to 16%.

Speaker 4

Our outlook is subject to final product mix of shipments as well as order flow from the new customers through our joint venture with Boussana. Lastly, on November 3, 2023, Our Board of Directors approved a quarterly dividend of $0.05 per share payable on November 28 to stockholders of record as of November 14. With that, we will now open up the call for questions. Operator, may we have the first question, please?

Operator

Thank you very much. At this time, we are opening the floor for Thank you. Your first question is coming from Mike Baker of D. A. Davidson.

Operator

Mike, your line is live.

Speaker 5

Okay, thanks. Just I'm going to ask 2 questions. First, maybe it's obvious, but What are you hearing from your big customers in the U. S. As it relates to consumer spending, Holiday outlook, those kinds of things.

Speaker 5

Is that what is really causing the results to come in a little bit less than expected? Is it Weakness in U. S. Consumer spending or is there something else to consider?

Speaker 4

Well, thanks, Mike. Yes. I think it is mainly because of the slowly recovering of the consumer market That the spending is still not back to the same level as before. So our existing customers' orders Shifting more toward the lower margin products instead of the high dollar value, high margin Products such as the North Face jackets. Eric, do you have anything to say about this?

Speaker 3

Yes. You've

Speaker 4

been talking to the customers more.

Speaker 3

I totally agree to what you have mentioned. I talked to many, many brands. Okay. You're right because the spending power in the U. S.

Speaker 3

Is still did not recover so much And still very weak. So people are trying not to spend too much on the luxurious brands or luxurious product like our North Face jackets Or other kinds of highwear jackets. So the order pricing to us is slightly less than before, but we have Very big demand for low cost T shirt, low cost jackets from some other brands, Which is also very popular in the U. S. So that's why we can still be able to occupy all our current capacity And running on the full time basis.

Speaker 3

This is the situation.

Speaker 5

Okay. That makes sense. Thanks. One other question as it relates to the new joint venture for the textile situation. Can you just talk about So you said I think construction begins in 2024.

Speaker 5

I assume you meant calendar 2024. And what the cost of that might be? What are your expected Ways to fund that, just some of the CapEx involved in that joint venture. Who funds it, you guys or your partners, etcetera?

Speaker 4

Well, the joint venture is a 5,149 joint venture and Jirash owns 51%. So any funding will be in that proportion to the joint venture company. And yes, you're right, the 2024 is calendar year. I think we have almost finalized the site of where we're going to build. And we have been discussing funding opportunities with A number of financing parties and at this point We cannot disclose who they are yet, because nothing has been finalized, but there will be Financing parties from China, from Asia, from Hong Kong and also Possibly from the Middle East.

Speaker 4

Yes, part of the funding Could be financed from our own cash flow, from our operating cash flow, But that would definitely not be enough because if I'm correct, I think The overall projection for the CapEx is about $20,000,000 to $30,000,000 Am I correct, Eric?

Speaker 3

Yes, you are absolutely correct. It's between $25,000,000 to $30,000,000 Okay. They're already very interested, the financial institution. Okay. They are very interested in this project.

Speaker 3

We are, okay, Discussing with them, so it's not appropriate to disclose the identity of each one. But all of them are very positive about The funding of this project.

Speaker 5

And that $25,000,000 to $30,000,000 that's the total cost, not your 51 percent?

Speaker 3

That's the total cost, not the 51% overall.

Speaker 6

Got it.

Speaker 2

And I would say from China's viewpoint, this is a one fell, one roll project. So China will definitely support this project financially. So this will be And not only a One Belle, One Road project, but also a One Belle, One Road ESG project. So we'll attract Some interest party for this project.

Speaker 5

Understood. Thank you.

Speaker 4

Certainly. Because of the ESG part of it, both China and both The Middle East, they are the governments, they are very interested in supporting us.

Speaker 5

Understood. Thank you.

Operator

Thank you very much. Your next question is coming from Mark Argento of Lake Capital. Mark, your line is live.

Speaker 6

Thanks. Good morning, guys. Just a couple of quick questions. So In terms of BOSATA, you said you anticipate seeing revenue from that partnership in Q4. And then I think you mentioned $8,000,000 to $9,000,000 for the next 12 months.

Speaker 6

Maybe just help us think through like what does that mean for Q4? Is it a couple of 1,000,000 Q4 and getting bigger from there is $8,000,000 to $9,000,000 in Q4. A little clarity around that would be helpful.

Speaker 4

Eric, you want to take this one? Eric?

Speaker 2

Yes, maybe Sam answered this one. Yes. According to your present projection, I think A few million in the Q4 of fiscal 2024 will be in the orders from Plucena. After that, I think our order will be growing with the solicitation of orders from at least 5 customers Derived from Puxenem, and I think that will be very promising.

Speaker 6

So I guess maybe just asking another question, so another way. That $8,000,000 to $9,000,000 what in revenue is that for Q4 or is that the next 12 months?

Speaker 4

I would say that was the projection for me. That was the projection for the next 12 months, starting from Q4 of fiscal 2024. So basically, in the next 12 months or in the calendar year of 2024, We are projecting about $8,000,000 to $9,000,000 in additional incremental revenues From the Boussana JV.

Speaker 6

Okay. So $8,000,000 to $9,000,000 in incremental revenue Calendar 2024. Right. Got it. All right.

Speaker 6

That's helpful. And then more of a housekeeping Question for you, Gilbert, I saw the tax rate was up a little bit. I know it was up in Q1 for the first time. In the 3rd quarter, I think it was, I think, 40 some percent. What's going on in the tax rate there?

Speaker 4

Well, the tax rate, most of our income is really from Jordan. That's where we book most of our income. And our U. S. And operation and also the Hong Kong operations are mainly just expenses.

Speaker 4

So The expenses kind of remain the same and slightly increasing because of the growing in size, but income has dropped Significantly. So when you combine all of those, as the earnings as the consolidated earnings Fine. So the proportion of the tax comparing to the Operating income is at a higher proportion. Now when income goes back up, this Effective tax rate will come back down.

Speaker 6

All right. Maybe I'll follow-up with you offline and Alan, you can walk me through that a little bit more. Just lastly for me on Yes. Kind of just total capacity and then with Boussana coming online, are you building incremental capacity Need to support the Boussana JV or are you using some of your existing capacity at this point? And then are you guys booked up through the end of the year?

Speaker 6

Or maybe just talk about your order book right now?

Speaker 4

I think right now, we're pretty much fully booked through the end of the fiscal year. Maybe there Depending on the order flow that maybe there are a couple of 100,000 pieces in one of those months that we still have capacity. But that is also filling up very quickly. We are afraid to be double booked and not able to deliver. But we are also looking at ways to be able to take the order and get a complete fully booked And our capacity, and if we really need additional capacity, we could outsource some of the productions.

Speaker 4

And this is all approved by our customers. Now with BOSANA business coming in And you know we have always been very conservative. And last year, we have increased Internally, we have expanded our capacity internally. And we believe we will be able to handle At least for the next fiscal year, the increase in business. But overall, I think It will be a reverse of our this year's situation.

Speaker 4

When Boussana business come in, it will be also For premium brands, for department stores that are in the U. S, That will be for the products that are of higher ASP and higher gross margin. This year, we were able to Backfill some of the reduced orders from the higher end Products or the higher end brands by lower gross margin products, Some Centimeters orders with high volume, but low gross margin, low gross profit. But next year, when Bozana business comes in, We will be able to take the higher margin orders, but Forgo some of the low margin orders. We have already told So the new customers that we are doing business with that next year we may not be able to handle all their orders.

Speaker 4

So if they want the business, they might have to increase the price or increase the margin that they give us. So I think the situation next year when new business from Bozena comes in, It will give us opportunity to improve our ASP and improve our gross margin.

Speaker 6

That's helpful. And to this point, you guys have been able to hold on to your production staff using some of the lower margin Orders, that was the objective, right, to be able to keep everything intact so you could service the Customer when the order books return for the higher price price?

Speaker 4

Exactly. That has been our strategy. I mean, if you compare Jiraj with other manufacturing Facilities, other companies in Jordan, other companies, their business are down It's almost 50%, some are 60%, 70%, and they have significant layoffs of their workers. Shiraz, we are keeping a very conservative approach. We would rather field up our capacity than Letting go of our workers because it will be very difficult to find and to Backfill our capacity when business turn comes back.

Speaker 4

So our strategy has been to even To take on lower margin and lower profit orders and customers than to Shut down the factory or to let our workers go because we know The business will come back very soon.

Speaker 6

Great. Thanks guys and good luck the rest of the way this year.

Speaker 4

Thank you. Thank you.

Operator

Thank you very much. Well, we appear to have reached the end of our question and session. I will now turn the call back over to Sam Choi for closing remarks.

Speaker 2

Okay. Thank you, Jenny, And thanks to all of you for joining us today and for your continuous support. We look forward to speaking with you next quarter and reporting on our business progress. Thank you very much.

Speaker 3

Thank you.

Operator

Thank you very much, everybody. That does conclude today's conference. You may disconnect your phone lines at this time and have a today. Thank you for your participation.

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Earnings Conference Call
Freeport-McMoRan Q2 2024
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