Jerash Holdings (US), Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended December 31, 2023. The company manufactures and exports customized sportswear and outerwear, along with personal protective equipment, primarily from Jordan. Interim financial statements are unaudited.
Financial performance
| Metric | Three months ended Dec. 31, 2023 | Year-over-year change | Nine months ended Dec. 31, 2023 | Year-over-year change |
|---|---|---|---|---|
| Revenue | $27.52 million | Down 36% | $95.61 million | Down 16% |
| Gross profit | $4.46 million | Down 23% | $15.40 million | Down 20% |
| Gross margin | 16% | Up from 13% | 16% | Down from 17% |
| Operating income | $0.38 million | Down from $1.33 million | $2.36 million | Down from $6.25 million |
| Net income attributable to Jerash common stockholders | $0.22 million; $0.02 per diluted share | Down from $0.89 million; $0.07 per share | $1.08 million; $0.09 per diluted share | Down from $4.40 million; $0.35 per share |
For the nine-month period, operating cash flow was $7.87 million, versus $9.86 million a year earlier. Investing cash outflow was $4.26 million, mainly for property, plant, and equipment and construction; financing cash outflow was $1.81 million, primarily dividends. Cash and restricted cash increased by $1.81 million to $21.23 million, including $19.62 million of unrestricted cash and $1.61 million of non-current restricted cash.
At December 31, 2023, current assets were $49.41 million and current liabilities were $8.94 million, a reported current ratio of about 5.5:1 and working capital of $40.5 million. Total liabilities were $9.55 million and total equity was $68.24 million. Inventory fell to $15.94 million from $32.66 million at March 31, while net accounts receivable rose to $8.47 million from $2.24 million. No balance was outstanding under the disclosed DBSHK facility; total operating lease liabilities were $0.48 million. The company paid $1.84 million in dividends during the nine months, or $0.15 per share.
Changes and management commentary
- Management attributed lower revenue mainly to fewer shipments to major U.S. and Hong Kong customers amid inflation and high interest rates. Red Sea-related logistics disruption delayed some shipments and temporarily curtailed production near quarter-end.
- Quarterly gross margin improved as a larger share of shipments went to a higher-margin U.S. customer. Year-to-date margin declined because of customer mix and lower-margin orders. Nine-month net income also reflected lower sales, increased financing charges, and a higher effective tax rate.
- VF Corporation represented 63% of quarterly revenue and 67% of nine-month revenue; New Balance represented 13% in each period. The filing describes substantial customer concentration. U.S. sales accounted for 81% of quarterly and 88% of nine-month revenue.
- The company began using the Port of Jebel Ali in the UAE as an alternative raw-material import route in December 2023. It says production was ongoing as usual at the time of filing and describes a customer-approved plan to relocate production temporarily if port operations are affected.
Outlook, investment, and risks
- Management believes cash on hand and operating cash flow should meet working-capital needs for the next 12 months. No revenue or earnings guidance is provided.
- Management projects capital expenditures of approximately $4.7 million in fiscal 2024 and $12.6 million in fiscal 2025. The employee dormitory was expected to be ready by fiscal year-end 2024. A new 51%-owned joint venture plans a Jordan fabric facility requiring approximately $29.9 million of company investment; the filing describes contributions in installments but does not provide a full funding schedule.
- A $10 million Capital Bank of Jordan facility was not yet effective because execution remained in process. DBSHK offered a revised $5 million facility on January 4, 2024; availability is subject to its terms and financial covenants. The company suspended participation in one customer supply-chain financing program as interest rates rose; nine-month related early-payment charges were $0.92 million, versus $0.45 million a year earlier.
- Risks include customer and supplier concentration, Jordan and regional political and economic conditions, currency exposure, and possible disruption to shipping routes. The Jordanian sales-tax exemption was extended through February 5, 2024.
- Management reported disclosure controls and procedures were ineffective at December 31, 2023, citing previously identified material weaknesses in period-end financial reporting, including income-tax and account-reconciliation controls, and IT access controls. Remediation is ongoing; management states the financial statements fairly present the company’s financial position and results.
- The filing reports no material legal proceedings and says management does not expect ordinary-course claims to have a material adverse impact. The nine-month results are not necessarily indicative of the full fiscal year.
Important facts for investors to verify
- Whether major-customer orders and shipments recover, and whether revenue concentration remains high.
- Progress in mitigating Red Sea and other logistics risks, including performance of the Jebel Ali route and any production relocation plan.
- Funding, timing, and expected returns for the planned fabric facility and projected capital expenditures.
- Whether the proposed bank facilities become effective, and the cost and use of customer supply-chain financing.
- Progress and testing of remediation for the reported material weaknesses in financial reporting and IT controls.
- Cash collection trends and working-capital movements, particularly rising receivables alongside reduced inventory.