Greetings, and welcome to the Durash Holdings Financial Results for Fiscal 2022 First Quarter Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Roger Pundell, Investor Relations for Jerash Holdings.
Thank you, sir. You may begin.
Thank you, operator, and good morning, everyone. Welcome to Durash Holdings' fiscal 2022 First Quarter Conference Call. I'm Roger Pondell with Pondell Wilkinson, Durash Holdings' Investor Relations firm. It will be my pleasure momentarily to introduce the company's Chairman and Chief Executive Officer, Sam Choi Chief Financial Officer, Gilbert Lee and Eric Tang, who leads the company's operations direct from Jordan. Before I turn the call over to Sam, I want to remind all listeners that today's call may include forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
Such forward looking statements are subject to numerous conditions, many of which are beyond the company's control, including those set forth In the Risk Factors section of the company's most recent Form 10 ks and Form 10 Q as filed with the Securities and Exchange Commission, copies of which are available on the SEC's website at www.sec.gov along with other company filings made with the SEC from time to time. Actual results could differ materially from these forward looking statements And Jirash Holdings undertakes no obligation to update any forward looking statements except as required by law. And with that, it's my pleasure to turn the call over to Sam Choi. Sam?
Thank you, Roger, and hello, everyone. Our fiscal 2022 Q1 results This demonstrates excellent progress. Revenue was at a record level for the Q1, Reflecting robust shipments to our largest customers as a result of strong demand amid the reopening of the U. S. Economy.
Gross profit also represent a record for the Q1, primarily due to higher revenue and gross margin performance. Our gross margin continued to run-in the high teens, Reflecting increased shipment volumes and improved product mix in the Q1. Our robust momentum is continuing further into fiscal 2022 with orders for the 1st 9 months of a year that we believe will lead to a revenue run rate for a year that would exceed our prior record. As a result, we have increased our revenue outlook for the full year, which Gilbert will discuss shortly. We continue to advance plans to increase capacity in our existing facilities and secure additional capacity to meet Our customers' demands, both by building new facilities and through leases and acquisitions.
We recently announced signing of definitive agreements to acquire both the operator of our 71,000 Square feet manufacturing facility in Amman, Jordan and the related fiscal premises. We expect to close this acquisition soon. Eric will provide more details in a moment. I'll now turn the call over to Eric Chang, who is based in Jordan and then to Gilbert Li, We'll cover our financial results. Eric?
Thank you, Sam. Hello, everyone. Our factories in Georgia are extremely busy and we continue to add capacity as quickly as we can. Order volumes are up substantially and customers have returned to more typical ordering patterns. As anticipated, our product mix improved in the Q1, leading to orders of higher average selling prices and margin stand we saw in the last fiscal year.
Moreover, this positive momentum is continuing. Capacity is completely booked through the end of January 2022 based on orders from our 4 largest global brand customers alone. Bookings remain heavily weighted to walk jacket and other outerwear products that have higher ASP and margins. As Sam mentioned, we recently signed agreements to expand our manufacturing capacity in Jordan. This particular acquisition is in 2 stages.
First, we signed an agreement to acquire the operating company of a 71,000 Square Foot Apparel Manufacturing Plant. Under the terms of the first agreement, Gerard assumes the manufacturing licenses and existing physical operations including all machinery equipment, 500 workers and employees and the dormitory. We have taken over production at the new facility as of August 1, And we have begun manufacturing products for our customers. However, because the seller has To complete production for its primary orders, we are allowing them to temporarily maintain 1 production line, which in turn has delayed formal closing of the first part of the acquisition until September. 2nd, we signed a separate agreement to acquire the land and the building that housed the apparel manufacturing operations.
We expect this part of the deal to close in November 2021. The new facility is expected to enable Gerard to produce approximately 2,500,000 to 3,500,000 additional garments per year, Adding approximately 20% to our current annual capacity. In addition, The facility gives us the ability to scale up even further. Customers already are placing orders that are expected To fully book the new factory through January 2022. As mentioned last quarter, We began the construction of a high quality living space for expanding multinational workforce With the higher safety and comfort designs that will help position us for growth and further our ESG goals.
Finally, we recently announced plans to double worker capacity at our facility in Ahasa As part of a special humanitarian project with the Jordanian government that began in 2018, We are very proud of our progress on this project despite the unprecedented disruption caused by the pandemic. The facility currently employs 300 people there and we plan to increase this to 600 by end of 2021. With that, I will turn the call over to Gilbert Li to discuss our financial results and fiscal 2022 outlook. Gilbert, please.
Thank you, Eric, and good morning, everyone. Our fiscal 2022 Q1 revenue rose Potentially to $30,000,000 from $19,000,000 in the same period last year, an increase of nearly 60%. The increase was primarily due to higher shipments to our largest customers in the quarter. The higher sales volume reflects stronger demand as the U. S.
Economy continues to recover from the pandemic. Gross margin expanded 250 basis points to 18.8% in the fiscal 2022 Q1 compared with 16.3% in the same period last year. Gross margin expansion in the quarter Reflects a higher proportion of export orders, which typically carry higher profit margins as well as increased production and sales volumes. Operating expenses totaled $3,300,000 in the fiscal 2022 Q1 compared with $1,900,000 in the same period last year. The increase primarily reflects high headcount additions to support our growth, Higher shipping costs that were in proportion with increased sales volumes and expenses related to COVID-nineteen precaution and recruitment of new migrant workers.
Operating income was $2,300,000 In the fiscal 2022 Q1 compared with $1,200,000 in the same period last year, Comprehensive income attributable to Jiraj's common stockholders was 2,000,000 or $0.17 per share in the Q1 compared with approximately $813,000 or $0.07 per share in the same period last year. Our balance sheet remains strong with cash and restricted cash of $9,000,000 And net working capital of $51,000,000 at June 30, 2021. Inventory was $31,000,000 and accounts receivable was $20,000,000 Net cash used in operating activities was $11,000,000 in the fiscal 2022 Q1 compared with $8,000,000 in the same period last year. The net change was primarily due to working capital activity. Inventories increased in the 1st quarter, primarily reflecting seasonal activity and strong demand.
Accounts receivable also increased In the Q1 due to strong demand, particularly in the month of June, to date, we have collected more than 80% of receivables at the end of We continue to expect the business to generate cash from operating activities On an annual basis, we also have been granted supply chain financing programs by our major customers And an untapped $3,000,000 line of credit available. In terms of our fiscal 2022 outlook, We are increasing our revenue guidance to be in the range of $115,000,000 to $120,000,000 As strong demand continues and our capacity expands, we also anticipate revenue in the fiscal 20 22 Q2 to exceed $40,000,000 Orders continue to be heavily weighted Toward high margin jackets and other outerwear products, we expect this pattern to support gross margins in the high teens for the full fiscal 2022 year. I would also like to point out that operating expenses are expected to be higher in fiscal 2020 Reflecting our growth and the pandemic's impact on last year's first half, we also anticipate Stock based compensation to be at a higher level for the rest of fiscal 2022 compared with the same period last year. While customer orders remain strong, it is important to note that potential risks from the Delta variant of COVID-nineteen could constrain our ability to add workers needed to run our factories at full capacity.
To a certain extent, we already have reflected this risk in our updated outlook. We'll continue to monitor pandemic developments over the next few months and give you an update on the next quarter's earnings call. Our fiscal 2022 Q1 results represent a strong start to the year. This robust momentum is leading to what we believe will be a record year for the company. We look forward to keeping you apprised of our progress as the year unfolds.
Lastly, our Board of Directors approved a regular Quarterly dividend of $0.05 per share to our common shareholders payable on August 24, 2021 to stockholders of record as of August 17, 2021. And with that, we will now open up The call for questions. Operator, may we have the first question, please?
Thank you. We will now be conducting a question and answer session. One moment please while we poll for questions. Thank you. Our first question comes from the line of Mark Argento with Lake Street Capital.
Please proceed with your
Jim? Hi, guys. Good morning and nice quarter. I just wanted to Maybe peel the onion a little bit on the guidance, which was very strong. I had anticipated with the 20% plus capacity expansion through the acquisition that that would Maybe you could talk about what you're seeing that gives you the comfort and confidence To guide as strong as you have here in terms of onboarding that additional capacity.
And then secondly, maybe Could you just talk about your overall order book and are you guys do you have more orders than you do capacity at this point? And is there anything additionally you could do in terms of maybe Leasing some additional space as well. Thanks.
Thank you, Mark. First of all, I think we are Trying to be conservative because there are still a lot of uncertainties all over the world with the pandemic still Going on in various parts of Asia, in particular, With the delta variance, we're right now facing some challenges in bringing in additional I've grown in workers from Asia. Even though we're working very closely with Jordanian government and we see some Very promising opportunities. However, we don't want to overextend ourselves. We do have orders from our major customers that far exceed the projection, We just want to make sure that we have the ability to produce and to ship throughout this fiscal year.
But yes, but we are confident With our capacity and with our ability that we will be able to And we will be able to fulfill this $120,000,000 in revenue.
In terms of the mix of the incremental revenue, is it going to be more outerwear? Maybe Give us a little bit of an idea of how you think about the mix. Is it going to look mostly the same, just another incremental $15,000,000 to $20,000,000 in revenue? Or is it going to change
Well, I think the additional revenue or the increase in the revenue It is going to be highly concentrated in outerwear because that's our intention. Even though The new facility, the new workers, they probably need some time to be trained To manufacture our products, especially those that for our premium customers. Those are rather complex products. So we started out The new factory by producing some of the lower margin or For simple products such as T shirts and Polo shirts And just to use that to get them acclimated to our processes. And once that is done and we anticipate that So maybe after this fiscal quarter, we should be able to convert them into producing The outerwear of the jackets.
So and also we're working on expanding Our satellite facility in Alhassa into making jackets. So we're hiring more people in Alhassa and training them and Converting that facility into producing some higher margin, high ASP products.
And then just last question for me. The new facility that you guys are purchasing or have purchased, is that in the same complex As your current facilities, of course, the HAAS is outside, but within Amman area there in the current campus?
Yes. The new facility that we purchased It's in Amman. Eric, is it in the same industrial park? Yes.
The location, it is situated, okay, in the same industrial city, which the Juraz Main factory is situated. And from walking distance from Gerard's main factories to this new facility is only around 5 minutes by walking.
Great. All right, guys. Appreciate it. Congrats on a strong quarter.
Thank you very much.
Thank you. Thank you, Mark. Yes, and also thank you for all the long time support of the company. Yes.
Our next question comes from the line of Rommel Dionisio with Aegis Capital. Please proceed with your question.
Good morning. Thanks for taking my question. We hear so much about increased freight expense around the world as well as raw materials, maybe raw materials is a little less applicable to you. But I wonder if you could just talk about the impact potential impact that you're seeing in gross margins. If you're seeing any delays, especially on the shipment front, We definitely hear about some challenges in the world of global freight.
Thank you.
Thank you, Raimo. Well, there are some challenges, especially on the incoming freight, On the incoming shipment from Asia for our raw material and supplies. And however, Because we're working with global brand customers, they are very understanding. And if that If there is any delay from raw material, They wouldn't penalize us or they wouldn't complain. They understand.
And if the increase in raw material costs or the Inbound freight, most of the time, they will reflect in the order on the prices To accommodate for that, can you confirm that, Eric?
Yes. Recently, okay. We faced some problems. I cannot say a lot of problems, but some problems In the incoming containers, especially from Southeast Asia countries like Vietnam, Like Taiwan, such countries, because they have there has been locked down recently. So unfortunately, okay, some of the orders fabrics, okay, from North Face, Okay.
They are also from this country. The fabric mail they order is also from this country. But okay, This 500 mill which is situated in Vietnam and Taiwan are the nominated supplier by the brand. So okay, once we place the order, okay, they need they have the responsibility to ship to Georgia on time in order that we can deliver on time. So nowadays because of the lockdown, the shipment came in late for 1 month or 2 months and the brand understands very much It is not the responsibility of a manufacturing being giraffe.
This is the responsibility of the fabric mill. Okay. And so The brand is very willing to grant us extension of the delivery, okay, for 1 or 2 months according to the delay of the container. And sometimes, okay, some of the garments they may need to be rich U. S.
Soil by End of November because they have a big Christmas sale at that time. So they will ask us to air fry some of the garments to U. S, Okay. On the cost of the brand, this is the situation.
Thank you, Eric. Thank you.
Thank you, Eric and Gilbert. And maybe just a follow-up. Gilbert, I think in the prior question, you talked about potential Challenges if delta variant in terms of importing labor, but you obviously have a significant labor base In Jordan, domestic labor as well. And I wonder if you could just refresh our memories on the availability of that. Is there In the event that you have difficulties importing labor from some of the Asian countries, To what extent you can just simply rely on domestic labor within Jordan itself?
Thanks.
Yes. We're actually trying To hire more domestic labor or local laborers in Jordan. So on one hand, We are working on importing more labor from or more workers from Asian countries such India and Bangladesh, but we all know that those two countries right now are kind of in a lockdown, And we don't know how successful that will be. But at the same time, we're comparing to other manufacturers in Jordan. We already have a significant advantage because we already have quite a bit of foreign workers Working for us, and we have very good reputation, and we have very good relationship with the government, And they are helping us or they're trying as much as they could to help us get those workers qualified and imported into Jordan.
So that but however, the pandemic is Nobody can control it. So we do put a little bit of conservatism In our projection just because of that. But at the same time, we are working very hard To recruit local workers, Jordanians, even Syrian refugees who are residing in They live about an hour away from our factory in refugees camps, And they couldn't leave the camp to live in our dormitory because they were now They were not allowed. So we provide them transportation every day for with buses To transport them to our facility to work and bring them back home. So those are the kind of things that we are working on To make sure that we have sufficient workers to satisfy our demand or our increasing production volume.
Okay. That's very helpful and congratulations on the quarter. Thank you.
Thank you very much.
Our next question comes from Michael Wu, a Private Investor. Please proceed with your question.
Hi. Just wanted to ask a question about the North Face order. Do you have any estimate
Hello, Michael. Yes. We do have orders From The North Face for the whole year. And the order amount Really, actually exceeds our capacity or our projection Because they place orders, we may or may not be able to fulfill all the orders. The North Face have been working with us for 6 or 7 years.
And almost every year, they would place orders More than we could supply them. And they are very understanding. They know and they keep increasing the demand for us to produce. It's just that even though we keep increasing our capacity, our productivity, There is always increasing demand from The North Face. But we do have Rolling 12 month orders from The North Face, from New Balance, from a few of the other Global Brand Customers.
Could you just give me Just more of a rough idea. So, I mean, last year is around I mean, down to like more than 15% versus Fiscal 2020, so is that like fairly to assume that you will recover to I mean 2020 level Or at least or maybe even if you said?
I'm sorry. You said last year, Which is fiscal 2021?
Yes. Yes, it was done, right, from Tani. Yes, yes, yes. Yes.
Yes. And obviously because of the global pandemic everybody's sales were down And we were only down 15% from the previous fiscal year, which was $93,000,000 And last year, we were at $90,000,000 because on this in the second half of the last fiscal year, We basically fully recovered from the pandemic. The first half, it was down quite a bit. And but the second half, we were almost at the same level as the previous fiscal year. So that rebound.
I'm sorry?
Sorry. I'm asking about only about the North Face order. It's not about the whole company. So the 10% you the amount from North Face is around $72,000,000 range. So that is 56.
So I was asking maybe the North Face order would be recovered to 2020 or What do you have any idea?
I don't have the numbers in front of me, but I could tell you on face order.
Sorry. Hubert, can I answer this question? Yes, please. Because okay, you are asking about North Face order, the figure. Okay.
The North Face orders, we are increasing almost every month at the request of the customers. Okay. As of today, okay, in dollar value, okay, we have already confirmed orders with not face more than $75,000,000
That's great.
Yes, that's what exactly what I want to know. Okay.
So I think the figures will still going up, okay, As we only started 2 quarter.
Okay. So maybe it will be you guys maybe you will get more quarters, right?
Yes, yes, sure.
Okay. That's great. Second one is, how about How about new balance? Any update? Any trend like from the order from them?
The new balance Compared with the fiscal 2021, we are okay. This year, we are also I mean, increased the customer is also increasing the order Around 20% compared with last year.
Our next question comes from the line of Barry Pasternak, a private investor. Please proceed with your question.
Hey, guys. Congratulations on the quarter, the guidance and
the acquisition.
I was wondering on the Acquisition, how much of a temporary gross margin impact should we expect this fiscal year from digesting the acquisition or On the revenue coming from the acquisition from the factory?
For the new acquisition we expect Yes, will there be
yes, I'm sorry, go ahead.
The new capacity, you're talking about The facility that we just acquired in August, right? Correct. So this one, there's already 500 workers. And obviously, within the 1st 6 months, we need to get the workers Kind of trained and converted into manufacturing our products. Previously, they were manufacturing jeans for their customers.
But now we're turning them into manufacturing our kinds of garments, which is apparel for sports, sporting apparels and also Outerwear jackets. So it will take some time for them to get trained and get acclimated with our system. So we expect the 1st 6 months to be a little bit kind of maybe Not as profitable, but we'll train them first on some of the orders that are less Expensive, less complicated and over time they'll be able to Do the same kind of products and at the same productivity and efficiency As all our other factories and all our other workers. So I would say the 1st 6 months, It will have somewhat of a negative impact to our overall gross margin, But we'll just have to see and we did because of the mix That we put into this factory, but putting all our other factories into manufacturing The higher premium, higher gross margin products. We think the impact would not be very significant.
So in other words Does that answer your question?
Yes. In other words, the impact on the total company gross margin will be At least partly offset by higher margin product being produced in the existing factories. And so There shouldn't be, would you say more than like a 50 basis point, I mean, 50 basis point or less gross margin impact During the 6 months from the acquisition, would that be a fair estimate
for I would say it will be anywhere between 50 100 basis points and the overall. Because right now, we have 5,000 workers In total, in Jordan, and 500 workers in the new facility. So if we mix all the products together, I think the impact probably Would not be more than 100 basis points.
Okay, great. And on the 4 largest Customers you referenced earlier, are those all existing customers from last year or is there a new customer in there?
Yes. They are all existing customers from last year, which New Balance and American Eagle's were new customers last year.
Okay. And is there also a new customer this year That you've started shipping to that is not in the top 4, but has the potential to be say by next year?
So Eric, do we have any new customer in our projection for So this is
We have one new customer in our projection and this is a very big name. This is Adidas. So we have confirmed one trial order with Adidas, okay. And this order is around 35,000 pieces.
So that is very small, right?
Yes, because this is a trial order. Okay. After that, The customer will give serious consideration to place the bulk order to Jeraj next year.
Okay. Okay, great. Thank you.
Thank you.
We have no further questions at this time. Mr. Choi, I would now like to turn the floor back over to you for closing comments.
Okay. Thank you, operator, and thanks again to everyone for Joining us today and for your support and interest in our company. We look forward to speaking with you again soon on our fiscal 2022 Q2 earnings call. Thank you very much.
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.
Thank you. Thank you. Thank you.