Jerash Holdings (US) Q3 2024 Earnings Call Transcript

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Provided by Quartr
February 8, 2024

There are 8 speakers on the call.

Operator

Greetings. Welcome to Jerash Holdings Fiscal 2024 Third Quarter Financial Results. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note that this conference is being recorded.

Operator

I will now turn the conference over to your host, Roger Pondell, Investor Relations. You may begin.

Speaker 1

Thank you, Kelly, and good morning, everyone. Welcome to Jerash Holdings Fiscal 20 24 Third Quarter Conference Call. I'm Roger Pondell with Pondell Wilkinson, Juraish Holdings' Investor Relations firm. It will be my pleasure momentarily to introduce the Company's Chairman and Chief Executive Officer, Samuel 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 has filed with the Securities and Exchange Commission and copies of which are available on the SEC's website atwww.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 Durash Holdings undertakes no obligation to update any forward looking statements, except as required by law. And with that, it's my pleasure to turn the call over to Sam Choi. Sam?

Speaker 2

Thank you, Roger. Before we review our fiscal Q3 results, I want to provide an update regarding the Middle East situation and how it is affecting duress, which I know is on everyone's mind. As we have all been reading and seeing in the news, DQ political turmoil has caused supply chain disruptions throughout the region, which in return for us has delayed shipments of raw materials from Asia. We took swift and decisive action And since December, we were able to adopt an alternative route to receive the import of raw materials through the port of Jebel Ali in United Arab Emirates. Additionally, The Jordanian Ministry of Foreign Affairs specifically reassure our team that the government is proactive in maintaining a safe and stable environment for businesses, including the protection of export seagrudes.

Speaker 2

And although there was a temporary shutdown At the Haifa port, exports from Jordan at both Haifa and the port of Aquaba are now flowing as normal. While revenue was significantly down for the fiscal 2024 Q3, Due in large part to the ongoing geopolitical situation and supply chain issues in the region, We were able to achieve profitability and improve the gross margin. Importantly, orders from our customers were delayed, but they were not canceled. We continue to make good progress attracting a fresh pipeline of orders from new customers We have established global brands. We are particularly excited about our growth opportunity in Europe, where we have gained another European based high end apparel brand and have begun to produce several trial orders.

Speaker 2

In addition, Vans and Dickies, both VF brands, have placed trial orders for U. S. And European markets. These are all positive indicators for the future. I will now turn the call over to Eric Tang, who is on the ground in Jordan to talk about our operations there.

Speaker 3

Thank you, sir. Hello, everyone. The supply chain disruptions have slowed down our production, which in turn resulted in delayed shipments to our customers for our fiscal Q1. That said, Our operations currently are fully active. Despite some of the current external logistical challenges, We have now put contingency plans in place that will enable us to produce and ship orders as necessary.

Speaker 3

We are continuing to execute on our strategic initiative to diversify our customer base, While maintaining strong relationships with our long established customers, order flow from our newly customers is increasing steadily, and we are consistently attracting new global brands. As Sam mentioned earlier, we are excited to see further penetration into the European market. Attracted yet another European based high end apparel brand too. Following several months of new garment sampling and costing, We are now producing several trial orders. Geras is continuing to be a trusted manufacturing partner for VF Corporation.

Speaker 3

In addition to producing a payroll for its North Face and Timberland brands, We picked up Vans and Dickies brands during the fiscal Q3. Both brands have placed trial orders for the U. S. And the We look forward to rolling out production in the new fiscal year. Orders from new customers through our joint venture with Fusen are still committed, but they are being pushed into early fiscal 20 25.

Speaker 3

Meanwhile, joint marketing efforts are continuing, and we believe the partnership will flourish in the future. As well, plans are moving forward for our joint venture with Newtek Textile to build a state of the art fiber mill in Jordan. We are in active discussion and are collaborating with the Jordanian government for certain financial incentives and have identified a location for the mill, although the precise construction day has not yet been determined. Our long term goal remains intact, namely Being a trusted manufacturing partner, providing sustainable textile solutions and growing responsibly as an environmentally conscious leader in the apparel industry. We are well on our way to fulfilling that mission.

Speaker 3

I will now turn the call over to Gilbert to discuss our financial results. Gilbert, please.

Speaker 4

Thank you, Eric. Revenue for our fiscal 2024 3rd quarter amounted to $27,500,000 compared with $43,000,000 for the same period last year. The decrease was primarily due to the supply chain interruptions with fewer shipments being delivered to some of the major customers in the U. S. Gross profit was $4,500,000 for the fiscal 2024 Q3, compared with $5,800,000 in the same quarter year.

Speaker 4

Gross margin improved 2 70 basis points to 16.2% compared with 13.5% a year ago. The increase was primarily due to improved product mix as we continue to produce larger proportion of orders for our U. S. Customers that generate higher margins. Operating expenses for the fiscal 2024 Q3 were $4,100,000 compared with $4,500,000 in the same quarter last year.

Speaker 4

SG and A expenses were lower At $3,800,000 in the fiscal year 2024 Q3 compared with $4,500,000 in the same quarter last year, Stock based compensation expenses were $243,000 compared with none in the same quarter last year. Operating income totaled $366,000 in the most recent Q3 versus $1,300,000 in the same period last year. Total auto expenses were $105,000 in the fiscal 20243rd quarter and net income was $232,000 or $0.02 per diluted share in the fiscal year 2024 Q3 compared with 891,000 or $0.07 per diluted share in the same period last year. Chirascia's balance sheet and cash position remained strong. In the fiscal year 2024 Q3, with $21,200,000 of cash and restricted cash and net working capital of $40,500,000 As of December 31, 2023, inventory was $15,900,000 and accounts receivable was $8,500,000 Net cash provided by operating activities was approximately $7,900,000 for the 9 months ended December 31, 2023, compared with $9,900,000 for the same period last year.

Speaker 4

On February 5, 2024, Our Board of Directors approved a quarterly dividend of $0.05 per share payable on February 23, 2024 to stockholders of record as of February 16, 2024. Lastly, with the ongoing geopolitical uncertainties In the Middle East, it would be prudent for us to provide formal guidance at this time on what to expect for our fiscal Q4. With that, we will now open up the call for questions. Operator, may we have the first question, please?

Operator

Certainly. At this time, we'll be conducting our question and answer session. Your first question is coming from Mike Baker with D. A. Davidson.

Operator

Please pose your question. Your line is live.

Speaker 5

Okay. Thanks. Good morning. So the Red Sea issues, I think perfectly understandable. If you could give us I have two questions.

Speaker 5

1, the first is, if you could give us a little bit of a better sense of what you think true underlying demand would be if you could adjust For the Red Sea situation and the delays, in other words, maybe what does the backlog look like and How does that sort of inform underlying demand? And then a second question, I suppose related, but maybe a different question. Can you talk about the situation? Thank you.

Speaker 4

Concerning the true underlying demand, It is hard to it is really hard to put a number together because right now there are just So many contingencies and so many uncertainties both in the market and also in the Geographical region and some of the customers, they are Being their concern, obviously, and we keep on communicating with them and they're not canceling any orders. They're just not certain when to ship. Sometimes they want to push off the shipment to further down the road, But sometimes because of the situation in the logistics interruption, they want to get the shipments earlier. So it is really hard to predict. But overall, the demands are still there.

Speaker 4

They still want to get the goods. Now that is kind of proven because some of them actually won the shipments faster earlier because their other concern is that they can't get the product in time for their sales in the market. So I don't know how to really put a number together. We kind of have an internal projection for the Q4 and it is not pretty Because we don't want to put something down that we cannot achieve and we just don't know how this thing is going to go, which direction it's going to go. So but On the other hand, I think Fluxanta is kind of also in the same boat because most of the customers are in the U.

Speaker 4

S. And so for calendar year 2024, some of The marketing and the sales are pushed further down to our fiscal year 2025, But the orders are still there. It's just that there may be some delay. Eric, do you have anything to add or

Speaker 3

Yes. About Boussaint, actually, okay, the progress is quite convincing because We have already confirmed, I think, 2, 3 months ago with 4 or 5 new customer, okay, ranging from Busaner side. Okay. So but unfortunately, the RASI crisis happened in December. Although we have already finished the costing and some trial samples with those customer, okay, So 2 of the customers still confirm to go ahead with us, okay, and we will continue the production.

Speaker 3

But 2 of the customers that they will try to look into the situation in the Middle East, okay, before They officially give the PO to us. And I think we'll be able to know better the situation maybe after 1 month. But we I'm still optimistic about the joint venture with Fusen now.

Speaker 5

Okay, great. Thank you for that color.

Speaker 3

Thank you. Okay.

Operator

Your next question is coming from Mark Argento with Lake Street. Please pose your question. Your line is live.

Speaker 6

Yes, good morning guys. Just kind of getting back to the core issue about the supply chain. So maybe you could explain a little more. So the slowdown, you aren't able to even the raw materials to be able to turn those into finished goods and then ship them out or you're having problems shipping? Just trying to understand a little bit where the bottleneck And then lastly, are these anything maybe there's $5,000,000 of product you couldn't ship this quarter.

Speaker 6

Do you end up shipping it out or is it actually lost revenue? Just maybe kind of get down in the weeds a little bit more would be helpful. Thanks.

Speaker 4

Well, the situation is many Many folks. First of all, the outbound shipments At the beginning of the Red Sea crisis, there was some interruption. I think the Heizer port was shut down for a short period of time. But since then, it has In reopened and both the Haifa port, which is in Israel and the Akaba port are now working normally. We're facing more problems about the raw material inbound shipment because it has to come through Yemen because the raw material comes from Asia.

Speaker 4

Going out, it goes out without passing through Yain. Now Since then, since December, we have established an alternative route of getting the raw materials in, which is through the UAE and that part is working well. We just have to get it to the port at UAE and then use truck to send the raw materials in. So raw materials are slowly getting in. Now we might have to pay a little bit more to get it in, I don't know.

Speaker 4

It all has to be negotiated and settled. But there are a few containers that We're already on the sea and it just cannot reach. So those are the raw materials that we are waiting for and they are already trying to get to The port through the Red Sea, but they just can't reach and but we anticipate that within the next 2 weeks, We should know we should have a better picture of how to get those 2. But At this point, we're getting the inflow of raw materials. So there are just some delays.

Speaker 4

And those are not lost revenues. It will just be pushed down the road. Now another situation here is, as soon as the crisis started, The shipping companies, they just took advantage of the situation and increased the price, just like when it was during COVID. So that is another situation that we have to deal with. But I think we can manage that.

Speaker 4

Eric and his team are working very hard to handle that. So I don't think I think it is just a temporary issue. Is that right, Eric? Do you have anything to add?

Speaker 3

Yes. I think to make it more simple for easy understanding, it is that as soon as The situation in Red Sea, okay, occurred. So, Girard actually is the 1st payroll, okay, to change the routing. So about the supply of raw material from Asia to Jordan. The original routing is From Asia, from China, Taiwan, Vietnam, okay, and shipping through Agapa port, it has to go through the Red Sea.

Speaker 3

Okay. But as soon as the crisis started, we changed the routing to rather to go through the rest of the rest, we go to the port of Jabali in UAE and then buy truck from UAE to Jordan. Okay. Of course, it is costing us a little bit more expensive in the logistics, but anyhow we can receive the container within the scheduled time we require it. Okay.

Speaker 3

So one of the reasons main reason why we cannot want to give the forecast is because around 10 containers, okay, 15 container maximum, okay, at that time, okay, which is already on the sea heading to Agrabah when the crisis started. So it was started, okay, before we enter into the battery. And we still did not be able to receive any containers. I think we received 2 or 3. Okay.

Speaker 3

But why it takes another one to 1.5 months time before it can reach Akerbot is because They turn away. Now the shipment company gives direction that, okay, the ship the vessel is to be go away from Rafi and they will go to through the South Africa and then go to Georgia. So it will take another 1 month to 1.5 month time. Okay. And we overall inform the customer that these containers are delayed and those raw materials will be delayed.

Speaker 3

Those raw materials is scheduled to arrive Jordan in December, so that we can start production and ship by the end of December. So this is the reason why, okay, we cannot be able to start the production as scheduled. And this will be carried forward to the next quarter. So as Gilbert mentioned, The customer is well aware of the situation, and they still need the garments, and the order is not canceled. Only it is kept the revenue will be carried forward to the next Quarter.

Speaker 3

Okay. I hope it will be more clear like this.

Speaker 6

No, That's super helpful. And then obviously you're communicating with your customers. Do you sense like they're moving orders to other manufacturers at this point or are they still committed to you guys and Jordan from Manufacturing capacity perspective going forward, what's the attitude of the customer here?

Speaker 3

Yes. At the current situation, no customers have given or informed us that they are going to move any orders to another apparel in Jordan because only apparel suffered the same situation. And up till now, they did not Consider moving out from Jordan or giving the orders to other country as well. Because to them, Jordan is still their best, I mean, desirable places for manufacturing.

Speaker 6

Appreciate the color guys and good luck.

Speaker 3

Thank you. Thank you.

Operator

Your next question is coming from Todd Felty with Aegis Financial. Please pose your question. Your line is live.

Speaker 7

Hey, guys. Good work despite the challenging times. I noticed that in the last four quarters, you've continued to pay your dividend of $0.05 a share, but you haven't quite had the earnings per share of $0.05 I was wondering if You've thought about investing close to $20,000,000 in cash and short term treasuries. It looks like that could add an extra $0.01 or 2 per share to your earnings and hopefully get you back to even when you're paying that dividend of $0.05 a share.

Speaker 3

Hello? Hello?

Speaker 7

Hello?

Speaker 4

Yes. Yes.

Speaker 7

Were you able to hear me?

Speaker 4

Yes. It's just cutting off a little bit. I'm sorry?

Speaker 7

Would you like me to repeat my question?

Speaker 4

Yes. Would you please talk, I'm really sorry about that.

Speaker 7

Okay. I just wanted

Speaker 4

to see You were talking about the dividend payments and the lack of profitability. Is that what your question is about?

Speaker 7

Well, my question was you have the $20,000,000 in cash and I don't notice any significant interest income. Have you considered investing that in some short term securities with interest rates pretty high around the world where you could boost your interest income and hopefully get your earnings back at least even with the dividend?

Speaker 4

Yes, we do have investments not in securities, not in short term securities, but We have fixed deposits at many banks for the cash that we don't use And we're earning pretty good interest on those deposits. So that kind of offsets some of the interest expenses That we have to pay for raw material purchases for supply chain and anything. But in terms of significant income coming from short term investments, There is no such thing. We don't speculating in the market, we don't invest in any short term securities.

Speaker 7

So even do you invest in any U. S. Treasuries or anything like that that could provide a higher yield for you?

Speaker 4

We could consider that, but at this point, we have not.

Speaker 1

Okay. And my second question?

Speaker 4

We do have to keep certain amount of cash and working capital for working capital purposes.

Speaker 7

Sure. And then my second question kind of relates to Other possibilities for transport, I know when I was over there and visited you guys, I think it was 20 In 2019, the Kingdom of Jordan had announced a large railway system and transport system that they were building and they Started that in 2011, I think it was called the FESTA system and it was supposed to link to Saudi Arabia, Syria, Iraq And at the in Aqaba, is there any progress that's been made on that? And is there any possibility for rail transport To help you guys out.

Speaker 4

All the raw material imports?

Speaker 7

Yes. I know that if they completed that link to Saudi Arabia or Turkey that talked about expanding that that might give you some other possibilities to use other ports and transport raw materials by rail.

Speaker 4

Eric, can I ask a question?

Speaker 3

Yes, absolutely. Yes. Because Okay. At that time, there's such a cross country big railway project, which involved Saudi Arabia, Jordan, a lot of countries, neighboring countries to connect to improve the logistics. Okay.

Speaker 3

It was serious consider in 2019. But after that, when they almost reached agreement, the corona started for 3 years. And okay, they will hold the project. Until recently, okay, they are also open to discussion again. This is the latest development.

Speaker 7

Okay. And is there any possibility that, that could be completed in the next couple of years or is that too far away to even speculate on?

Speaker 3

My opinion that it is quite too far away. Even though They can confirm the project this year. I think it at least took 3 to 5 years to finish the project.

Speaker 7

Okay. I appreciate the update. Thank you very much.

Speaker 4

Thanks a lot. Thanks a lot.

Operator

We have reached the end of the question and answer session. I would now like to turn the call back over to the CEO, Sam Choi for closing remarks.

Speaker 2

Thank you, operator, and thanks to all of you for joining us today and for your continuous support. While we are grateful that day to day life in Jordan remains normal, our hearts go out to the innocent victims on all sides of the Middle East conflict, and we are hopeful for a near term resolution. We look forward to speaking with you next quarter. Thank you. Thank you everyone.

Speaker 4

Thank you.

Operator

This concludes today's conference you may disconnect your phone lines at this time. Thank you for your participation and have a wonderful day.

Speaker 4

Thank you.

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Earnings Conference Call
Jerash Holdings (US) Q3 2024
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