Jerash Holdings (US), Inc. — Form 10-Q Summary
Reporting period: Three months ended June 30, 2023, the first quarter of fiscal 2024. The unaudited results are not necessarily indicative of full-year results. Jerash manufactures and exports customized sportswear, outerwear and PPE, primarily from Jordan. The company reports one operating segment.
Financial performance and liquidity
| Metric | Quarter ended June 30, 2023 | Prior-year quarter / comparison |
|---|---|---|
| Revenue | $34.7 million | Up 4% from $33.4 million |
| Gross profit and margin | $5.6 million; 16.0% | $6.6 million; 19.8% (about 20%) |
| Operating income | $1.1 million | $2.3 million |
| Net income | $495,000; $496,526 attributable to common stockholders | $1.72 million |
| Basic and diluted EPS | $0.04 | $0.14 |
| Operating cash flow | $25,000 | Cash used of $473,000 |
| Investing cash flow | Cash used of $1.77 million | Cash used of $3.38 million |
| Financing cash flow | Cash provided of $2.50 million, including $3.12 million in short-term borrowing and $615,000 in dividends | Cash provided of $213,000 |
| Cash and restricted cash | $20.1 million, including $18.5 million cash and $1.6 million restricted cash | $19.4 million at March 31, 2023 |
| Current assets / current liabilities | $54.8 million / $13.3 million; current ratio about 4.1 | $57.3 million / $14.4 million; ratio about 4.0 |
| Credit facility borrowings | $3.12 million outstanding under DBS Hong Kong facility | None outstanding at March 31, 2023 |
| Total equity | $68.3 million | $68.2 million at March 31, 2023 |
Material changes and management commentary
- Revenue rose by $1.3 million, mainly on increased shipments to major U.S. customers. The United States generated 94% of revenue.
- Gross margin fell about four percentage points. Management attributed the decline to product mix, including more lower-margin orders. Cost of goods sold increased 9%, faster than revenue.
- Net income fell 71%, reflecting lower margins, higher SG&A and higher interest expense. Interest expense rose to $389,000 from $88,000, largely due to customer supply-chain financing charges; the early-payment charge was $356,000 versus $87,000.
- Operating cash flow was nearly break-even despite an $8.9 million inventory reduction, as accounts receivable increased $4.2 million and accounts payable declined $2.2 million. Inventory decreased to $23.8 million from $32.7 million, while receivables rose to $6.4 million from $2.2 million.
- Capital spending included approximately $1.4 million for construction and $61,000 for property and equipment. A factory expansion was completed and entered service in July 2023; the employee dormitory was expected to be ready by year-end 2023.
Outlook, risks and other notable items
- Management stated that cash on hand and operating cash generation should be sufficient for working-capital needs for the next 12 months. It projected capital expenditures of approximately $2.6 million in fiscal 2024 and $8.5 million in fiscal 2025.
- A proposed $10 million Capital Bank of Jordan facility was not yet effective as of the report date; execution remained in process. The existing DBS facility is capped at $5 million and guaranteed by Jerash Holdings.
- Customer concentration is significant: VF Corporation and New Balance represented 66% and 21% of quarterly revenue, respectively. Three customers accounted for 78% of period-end receivables. Supplier concentration is also present.
- The company operates principally in Jordan and identifies political, economic, legal and currency risks. Most cash is held outside the United States; $6.7 million was deposited in Jordanian institutions, where the filing says deposits are not required to be insured.
- Disclosure controls were deemed ineffective as of June 30, 2023. Previously identified material weaknesses involved period-end reporting, including income taxes and account reconciliations, and IT access controls. Remediation is ongoing and requires sustained testing.
- Management did not expect ordinary-course legal matters to have a material adverse impact; the company reported no current material legal proceedings. It has a remaining capital-contribution commitment of approximately HKD 5 million for its China subsidiary, payable by December 31, 2029 as funds permit.
- The board declared a $0.05-per-share dividend payable August 23, 2023. A July 2023 MOU contemplated a possible Jordan fabric facility, but is nonbinding except for specified provisions.
Most important facts for investors to verify
- Whether margins and earnings recover after the product-mix-driven decline, and whether customer orders and pricing support that recovery.
- Collection timing for the sharp increase in receivables, inventory conversion, and the sustainability of operating cash flow.
- Use, cost and repayment terms of the $3.12 million DBS borrowing, and whether the proposed $10 million facility becomes effective.
- Progress and funding of the factory and dormitory projects against management’s capital-spending projections.
- Remediation and independent validation of the disclosed material weaknesses in financial reporting and IT controls.
- Continued dependence on two customers for 87% of quarterly revenue and on concentrated suppliers, alongside overseas cash and operating risks.