Jerash Holdings (US), Inc.

Gentlemen, and welcome to the Juresh Fiscal Third Quarter 2020 Results Call. After the presentation, there will be a question and answer session. If you should require assistance during the call, please press star zero and an operator will assist you. At this time, it's my pleasure to turn the floor over to Mr. Matt Kreps. Sir, the floor is yours.

Thank you, and good morning, everyone. Welcome to the Juresh Holdings Fiscal ThirdQuarter 2020 Results Conference Call. With me today is Gilbert Lee, our Chief Financial Officer. Today's call is being recorded and will be available for playback. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, press star then one on your telephone keypad. To withdraw your question, please press star then two. The operator will provide a brief, a detailed reminder of the Q&A instructions once management has completed the prepared remarks. Before we begin, a quick reminder about forward-looking statements made during the course of this call. Statements made by direct management during the course of this conference call that are not historical facts are considered to be forward-looking statements subject to risks and uncertainties. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for such forward-looking statements. The words believe, expect, anticipate, estimate, will, guidance, outlook, indicate, suggest, forecast, target, growth, seek, goal, and other similar statements of expectation, identify forward-looking statements. Forward-looking statements are subject to certain risks, uncertainties, and important factors that could cause actual results to differ materially from those detailed in the forward-looking statements. Those risks and uncertainties are detailed and addressed as public violence with the U.S. Securities and Exchange Commission. Participants on this call are cautioned not to place undue reliance on these forward-looking statements. who reflect manager's belief only as of the day hereof. The company undertakes no obligation to publicly release the results of any revision to those forward-looking statements which may be made to reflect events or circumstances after the day hereof or to reflect the occurrence of unanticipated events. And with that, I will now turn the call over to Gilbert. Please go ahead.

Thank you, Matt. Hello, everyone. I'm pleased to join all of you today for my first results call as CFO of Gerrard's Holdings. Our strong fiscal third quarter results demonstrate the continued progress Durash is making on key initiatives to drive second-half production volumes, increase total capacity year-round, grow revenue, manage gross margin, and increase net income. Let's dig into the specifics of the financials and business performance for a few minutes. Revenue in the third quarter of fiscal 2020 which ended December 31st, 2019 was $25.4 million. That is an increase of 36% from last year's third quarter, which was also a high growth quarter for the company. The current year third quarter included just over $3 million of production from our second quarter that the customer requested to ship in October rather than September. This is an important trend for the company in our second half production volumes as higher utilization is better absorbing our fixed costs and driving improved profitability. You may recall that Jiraj made several investments last year in the second half to open new production programs with existing customers and add new customers. These efforts did have a short-term impact to gross margin, which we indicated was an investment in our future success. We're seeing the ROI from those investments this year in revenue, gross margin, and net income gains. Speaking of gross margin, we recorded 19.3% for the quarter, compared with 17.1% in the prior year quarter. I should note that second half product mix is naturally less margin favorable than first half. Being warmer season clothing and exercise wear versus higher cost and more complex outerwear products, but we have been able to increase our margin performance through a combination of volume and efficiency. Our gains in margin were partly offset by our continued ramping of the Paramount facility as we have previously discussed. This ramp-up process has progressed very well, and we expect this addition to potentially be profit-equitice in the fiscal fourth quarter. Notably, we have shipped more than 7 million pieces in the first nine months of the fiscal year, with another 2 million-plus pieces scheduled in the final quarter this year. This keeps Jirash on target to exceed 8 million pieces this fiscal year, which reflects our target with Paramount operating at full capacity. This already represented a 23% increase in capacity against the 6.5 million pieces produced last year. And we believe we can further scale our production at the existing facilities. Working down the remainder of the P&L sheet, SG&A expense in the third quarter was $2.6 million, down from $3.1 million in the second quarter. SG&A included additional costs to onboard and train additions to our workforce for the new facility. We have also expanded our Asia-based team for sales and marketing activities to continue generating new customer orders for a factory space in Jordan. Operating income in the third quarter was $2.3 million, compared with $1 million in the prior year quarter. Taking all of this into account, GAAP net income was $2.1 million, or 18 cents per diluted share for the quarter, based on approximately 11.5 million diluted shares outstanding. Through nine months, we are tracking very well to our objectives with revenue at $78.6 million, gross margin holding at 21.3%, and diluted net income of 63 cents per share, up from 47 cents this time last year. Now turning to the balance sheet, we believe we remain well capitalized to fund our growth plans and Cell Fund are growing working capital leads. We also continue to pay a quarterly dividend of $0.05 per share, which equates to an annual dividend of $0.20 per share. Cash and restricted cash at December 31st stood at $27.8 million. Inventory was $14.1 million, and AR was $10 million. We continue to expect the business to generate substantial cash flow from operations on an annualized basis. We also have untapped lines of credit available for up to an aggregate of $26 million. Year to date, we have begun to invest in additional expansion for the future, including $2.2 million we have invested into the purchase of the Paramount Manufacturing Assets, and more recently, Land Pop Property to further expand our production facilities and workers' armatories as part of our multi-year facilities expansion plan. As you can see, Jiraj has reported strong sales growth and profitability in the first nine months of fiscal 2020. We believe the third quarter performance keeps us on track for a rapid second half, as we discussed on the last update call. I want to take a few moments to comment on other areas of the business as well, especially progress on new customer accounts. Our customer, DF Cork, and in particular the North Face brand, continues to increase orders each year with garage. They are a top global brand and excellent customer. We believe they have been growing their production with jarash at a rate higher than their market growth the past several years, reflective of jarash's important role in the global manufacturing and supply chain. That is not a position we take lightly, and we work every single day to ensure they receive the quality and timely delivery that has earned us this position. However, we also recognize the importance of growing our business with other customers' logos. These include Big Sporting Dukes, New Balance, G3, and other well-known brands which we have previously stated are expected to add meaningful revenue. Those orders reflected a large portion of all-for-all revenue in the third quarter, as we scale with those new accounts. We expected these new customers and more diversified orders will help minimize our quarter-to-quarter volatility and maximize our planned efficiency. Additionally, I want to note that while we are posting strong growth this fiscal year, our first half was still capacity constrained. fiscal 2021 beginning in April will be the first year that we have the full benefit of the paramount capacity on a full year basis, affording us additional growth opportunity on the top line. That capacity is being boasted and giving us a clear indication to continue buying and building additional capacity for future years to support the increasing customer opportunities we are seeing. as more and more global brands recognize Jordan as a high-quality, tariff-advantaged manufacturing source. I want to point out that we have seen some reduction in average gross margin as we have expanded volume, but that expansion is also driving increased net income for our shareholders, which we see as a fair trade. Growth margin has historically been an important metric for garage and will continue to be so in the future. However, we're implementing a number of processes to help us better balance the exchange between higher average growth margin and higher total net income. Going forward, we will continue to manage growth margin closely but also make opportunistic decisions where we believe that incremental utilization of our production facility is positive to net income and beneficial to our investors. Finally, I want to note that for fiscal 2020, we have adjusted our revenue outlook slightly, which to anticipate continued revenue growth through both expanding business with existing customers and the addition of new customers. Total revenues for fiscal 2020 are projected to be approximately $95 million, representing about 12% organic growth over fiscal 2019. The change primarily reflects some adjustments to customers' shipping schedules in our FOB orders, moving them into April rather than March. With that, I just want to reiterate our excitement for the remainder of the year as we continue to grow this business for both the current fiscal year and even more so for fiscal 2021 as our new capacity and customer relationships continue to mature.