Jerash Holdings (US), Inc. — Form 10-Q
Reporting period: Quarter and six months ended September 30, 2021 (fiscal 2022 Q2). Unaudited consolidated results cover the apparel and PPE manufacturing business, with production primarily in Jordan and sales concentrated in the United States.
Financial performance
| Metric | Three months ended September 30, 2021 | Six months ended September 30, 2021 |
|---|---|---|
| Revenue | $45.7 million; up 69% year over year | $75.6 million; up 65% |
| Gross profit / margin | $10.1 million / 22%; margin up 0.4 percentage points | $15.7 million / 21%; margin up about 1 percentage point |
| Operating income | $5.6 million | $7.9 million |
| Net income attributable to common stockholders | $4.44 million; $0.39 diluted EPS | $6.38 million; $0.56 diluted EPS |
| Operating cash flow | Not presented separately for the quarter | $10.2 million, versus $1.7 million a year earlier |
Sales growth was primarily driven by increased orders from two major U.S. customers. U.S. sales represented 97% of revenue in both the quarter and six-month period. Export sales mix supported gross-margin improvement; higher SG&A reflected increased freight, recruitment of foreign workers, and pandemic-related medical expenses. Six-month other expense was $38,000, compared with $60,000 of other income in the prior-year period. The six-month effective tax rate was 18.7%, versus 20.6%.
Financial position and liquidity
At September 30, 2021, cash was $25.0 million and restricted cash was $1.3 million. Current assets were $66.9 million and current liabilities $12.6 million, for a 5.3 current ratio and $54.3 million of working capital. Total liabilities were $14.5 million and equity was $62.3 million. Credit-facility borrowings were zero; the company repaid $612,703 of short-term loans during the six months and terminated its HSBC facilities on June 30. It retained access to a Standard Chartered facility of up to $3 million, with no balance outstanding.
Six-month investing cash outflow was $5.1 million, including acquisition deposits and capital spending; financing cash outflow was $1.7 million, mainly dividends and loan repayment. Capital expenditures were $1.6 million. The company paid $1.13 million in dividends during the period ($0.10 per share).
Material changes and unusual items
- Compared with the prior-year six-month period, revenue rose 65%, net income 89%, and operating cash flow increased to $10.2 million from $1.7 million. Inventory fell from $25.0 million at March 31 to $20.6 million; accounts receivable increased from $12.0 million to $13.4 million.
- Customer concentration remains substantial: VF Corporation contributed 75% and New Balance 21% of six-month revenue. In the quarter, they contributed 80% and 14%, respectively.
- The company recorded a $3.2 million investment deposit for acquisitions. It paid $2.7 million toward a $2.8 million garment-factory acquisition completed in October 2021, and $0.5 million toward a separate $2.7 million factory-land and building acquisition expected to close in December 2021.
- On October 4, 2021, the company issued 1.0 million shares in a public offering, receiving approximately $6.25 million net. A selling stockholder sold additional shares; proceeds from those sales went to the seller. The company also declared a subsequent $0.05-per-share dividend.
- Newly granted employee restricted stock units generated $315,813 of six-month stock compensation expense; $926,088 remained unrecognized at September 30.
Outlook, risks, and contingencies
Management said it expected adequate resources to meet working-capital needs for the next 12 months and did not expect COVID-19 to significantly affect fiscal 2022 results, while cautioning that renewed restrictions or disruptions could adversely affect operations and delivery schedules. Management cited approximately $27 million of planned capital expenditures for fiscal 2022 and 2023 combined, including capacity expansion; the dormitory was completed and ready for use at September 30, while other construction plans were underway.
Key risks include reliance on a small number of customers and suppliers, U.S. import and demand conditions, logistics and order timing, operations and regulatory conditions in Jordan, foreign-exchange movements, and COVID-19 uncertainty. The company reported no material legal proceedings and said ordinary-course claims were not expected to have a material adverse effect. It also disclosed a potential JOD 250,000 (about $353,000) payment obligation if specified employment requirements for a government-supported workshop project are breached. Disclosure controls were assessed as effective; no material change in internal control was reported.
Investor verification points
- Confirm customer order levels, fulfillment schedules, and continuing concentration in VF Corporation and New Balance.
- Track receivable collections, customer early-payment program charges, and the effect of those arrangements on cash flows.
- Verify closing and final costs for the two acquisitions, and progress, timing, and funding of planned capital expenditures.
- Assess whether margins and cash generation are sustainable as export mix, freight costs, labor needs, and Jordanian tax rates change.
- Review exposure to Jordan-related political, regulatory, currency, and operating risks, as well as the company’s dependence on cash held at financial institutions outside the United States.