Jerash Holdings (US), Inc. — Form 10-Q Summary
Reporting period: Three months ended June 30, 2021, the first quarter of fiscal 2022. Comparisons are with the three months ended June 30, 2020. The company manufactures and exports customized outerwear and personal protective equipment, primarily from Jordan. The interim financial statements are unaudited.
Key financial results
| Metric | Q1 FY2022 | Q1 FY2021 | Change |
|---|---|---|---|
| Revenue | $29.89 million | $18.71 million | +60% |
| Gross profit / margin | $5.63 million / 18.8% | $3.05 million / 16.3% | Margin +2.5 percentage points |
| Operating income | $2.32 million | $1.16 million | +100% |
| Net income | $1.93 million | $0.81 million | +138% |
| Diluted EPS | $0.17 | $0.07 | — |
| Net cash used in operating activities | $11.46 million | $7.57 million | Cash outflow increased |
Net income attributable to Jerash common stockholders was $1.93 million. The effective tax rate was 17.8%, compared with 29.6% a year earlier. The company paid a $0.05-per-share dividend during the quarter.
Liquidity, cash flow and debt
- At June 30, cash was $7.66 million and non-current restricted cash was $0.88 million; combined cash and restricted cash was $8.53 million. Cash and restricted cash fell from $22.86 million at March 31, 2021.
- Current assets were $62.58 million and current liabilities $11.21 million, a 5.6 current ratio and $51.4 million of working capital. Total liabilities were $13.36 million.
- There were no outstanding borrowings under the listed bank facilities at quarter-end. The company terminated its HSBC facilities on June 30, 2021; the separate Standard Chartered facility also had no balance. Operating lease liabilities totaled $1.58 million.
- Operating cash use reflected working-capital investment, including increases of $7.55 million in receivables and $6.26 million in inventory, partly offset by a $2.93 million reduction in supplier advances. Investing cash use was $1.77 million, including a $1.08 million acquisition deposit and $0.63 million of property and equipment purchases. Financing cash use was $1.18 million, mainly dividends and loan repayment.
Changes versus the prior period
- Growth was driven principally by higher shipments to VF Corporation and New Balance. Those customers represented 68% and 31% of quarterly revenue, respectively; the United States generated 99% of sales.
- Higher volume and a greater share of higher-margin export orders improved gross margin. SG&A rose 79% to $3.31 million, attributed to production bonuses, additional staffing, shipment costs, COVID-19 precautions and recruitment.
- Receivables increased to $19.58 million and inventory to $31.30 million from $12.03 million and $25.04 million, respectively, at March 31. The company reported that $16.3 million of quarter-end receivables had been collected by August 10.
- The company reported no significant COVID-19 impact in the quarter, following pandemic-related shutdowns and logistics disruption in the prior fiscal year.
Outlook, risks and notable items
- Management expects available cash and cash generated from operations to support working-capital needs for the next 12 months and said it expects fiscal 2022 results not to be significantly affected by COVID-19. It cautioned that renewed restrictions could adversely affect operations. No revenue or earnings forecast was provided.
- Management projects approximately $27 million of aggregate capital expenditures in fiscal 2022 and fiscal 2023 to expand production capacity. The dormitory project is expected to be ready in fiscal 2022; construction and facility plans remain subject to execution.
- The company agreed to acquire a Jordan garment manufacturer for $2.8 million, with closing expected in September 2021; $1.08 million had been paid by June 30. A separate July agreement covers a $2.7 million acquisition expected to close in November 2021. The filing’s MD&A identifies the quarter’s acquisition deposit as relating to Kawkab, while the notes identify the $1.08 million deposit as relating to the June MK transaction.
- Customer and supplier concentration, dependence on U.S. demand, operations and assets concentrated in Jordan, foreign-exchange exposure, and the potential effects of renewed COVID-19 disruption are material risks. The filing reports no material legal proceedings and no material impact from adopting the new income-tax accounting standard.
- Two major customers offered early-payment options; one program pays invoices seven days after submission at LIBOR plus 3%. Management also noted that Jordanian subsidiaries’ ability to distribute cash is subject to accumulated-profit and statutory-reserve rules.
Important facts for investors to verify
- Receivables collection after August 10, inventory conversion and shipment timing, and the cash implications of customer payment terms.
- Whether the two announced acquisitions close on schedule, the identity and application of the $1.08 million deposit, and remaining purchase-price funding.
- Funding and timing for the projected $27 million of fiscal 2022–2023 capital expenditures, alongside continued dividends.
- Customer concentration, the status of bank financing after termination of HSBC facilities, and exposure to renewed pandemic disruption or changes in Jordanian conditions.