Good day ladies and gentlemen and welcome to the Jerash Fiscal Third Quarter 2020 Results Call. After the presentation, there will be a question-and-answer session. [Operator Instructions] At this time, it's my pleasure to turn the floor over to Mr. Matt Kreps. Sir the floor is yours.

Thank you and good morning everyone. Welcome to the Jerash Holdings fiscal third quarter 2020 results conference call. With me today is Gilbert Lee, our Chief Financial Officer. Today's call is being recorded and will be available for playback. All participants will be in a listen-only mode. [Operator Instructions] Before we begin, a quick reminder about forward-looking statements made during the course of this call. Statements made by Jerash management during the course of this conference call that are not historical facts are considered to be forward-looking statements subject to risks and uncertainties. The Private Securities Litigation Reform Act of 1995 provides a Safe Harbor for such forward-looking statements. The words believe, expect, anticipate, estimate, will, guidance, outlook, indicate, suggest, forecast, targets, growth, seek, goal, and other similar statements of expectation identify forward-looking statements. Forward-looking statements are subject to certain risks, uncertainties, and important factors that could cause actual results to differ materially from those detailed in the forward-looking statements. Those risks and uncertainties are detailed in Jerash's public filings with the U.S. Securities and Exchange Commission. Participants on this call are cautioned not to place undue reliance on these forward-looking statements which reflect management's belief only as of the date hereof. The company undertakes no obligation to publicly release the results of any revision to those forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. And with that, I will now turn the call over to Gilbert. Please go ahead.

Thank you, Matt. Hello everyone. I'm pleased to join all of you today for my first results call as CFO of Jerash Holdings. Our strong fiscal third quarter results demonstrate the continued progress Jerash is making on key initiatives to drive second half production volumes, increase total capacity year-round, grow revenue, manage gross margin, and increased net income. Let's dig into the specifics of the financials and business performance for a few minutes. Revenue in the third quarter of fiscal 2020 which ended December 31st, 2019 was $25.4 million. That is an increase of 36% from last year's third quarter which was also a high-growth quarter for the company. The current year third quarter included just over $3 million of production from our second quarter that the customer requested to ship in October rather than September. This is an important trend for the company in our second half production volumes as higher utilization is better absorbing our fixed costs and driving improved profitability. You may recall that Jerash made several investments last year in the second half to open new production programs with existing customers and add new customers. These efforts did have a short-term impact to gross margin which we indicated was an investment in our future success within the ROI from those investments this year, in revenue, gross margin, and net income gains. Speaking of gross margin, we've recorded 19.3% for the quarter compared with 17.1% in the prior year quarter. I should note that second half product mix is naturally less margin-favorable than first half being warmer season clothing and exercise wear versus higher cost and more complex outerwear products, but we have been able to increase our margin performance through a combination of volume and efficiency. Our gains in margin were partially offset by our continued…

Thank you. The floor is now open for questions. [Operator Instructions] And we'll go first to Mark Argento with Lake Street.

Hey, Gilbert. Just a couple of quick questions. In terms of the gross margin nice expansion that's picked up on a year-over-year basis. The seasonality factor, what do you think is a good run rate for Q3 going forward? Is that kind 2019-2020 level sustainable? Or how do you think about gross margins kind of quarter-in quarter-out?

Well, there are going to be fluctuations in gross margins depending on the customer shipments and FOB customer's, which is shipping out of Jordan into the U.S. versus local orders. So it is really hard to predict the quarterly margin. But we tend to focus more on the full year average gross margin and we anticipate that to be more than 20% going forward. So during the quarter, sometimes it will get down a little bit, 19% and whatever. But, overall, from a full year standpoint, we will manage it to maintain it to be above 20%.

How big of a delta is it between FOB and local in terms of kind of gross margin impact?

Well, this also depends on different customers. Our biggest customer, VF Corp., which primarily is North Face, definitely give us the best gross margin. Some of the new customers that we are acquiring, we will, at the beginning, have a little bit of a lower margin, but not that much lower. However, it will be a few percentage points lower than the normal gross margin.

I know you'd mentioned, thinking shifted a little bit in terms of full year outlook from $100 million down a little bit. Could you just, again, remind us what is driving that shift or the move out? Is it just order -- timing of orders or?

Yes. I think the majority of it is, because of the timing of the order. We also tend to be a little bit more conservative. This is basically what we have fully booked in terms of our shipments through the end of the year and might be more that could come in that hasn't been booked yet.

Got it. And then, last for me, in terms of capacity. I know, it sounds like the new capacity is coming on and you're adding orders. Any additional thoughts above and beyond existing capacity expansion into 2020 in either new plant build, another quasi acquisition or maybe something outside of Jordan? Any bigger picture thoughts in terms of continued capacity expansion. Thank you.

Well, I'm glad that you asked that question. Actually, we are in the process of building on a piece of land -- actually, two pieces of land that we purchased, that will increase our capacity. Now, building that will take a while, maybe a year or two, to really get up to speed. But in the immediate following year, we are going to scale up the capacity of Paramount that we have bought. So in fiscal year 2021, we have the benefit of the full capacity -- capability from Paramount. So that will enable us to grow from 2020. Plus we are also going to improve our efficiency in our existing factories. So that will give us a little bit more capacity to take on newer customers and also to increase our sales to existing customers. But we are also constantly looking for possibilities of acquisitions, some existing factories, or existing factories that have existing orders or customers.

Thanks, Gilbert.

You're welcome.

We'll take our next question from Todd Felte with RHK Capital.

Hey. Congratulations on a great quarter, first.

Thanks, Todd.

Secondly, I noticed that the VF Corp. recently closed about 60% of their stores in China due to the coronavirus. Do you anticipate any effect on your order flow from them because of that?

VF Corp. closed the stores in China...

60% of them. Yes.

Our sales are primarily to the U.S. market. So the closing the stores in China, I don't think it will affect us much. And also I have checked with our CEO and they don't believe that the issue that is going on in China will affect our operations at all.

Okay. That's great to hear. And also has there been any discussions on increasing the dividend or making any adjustments to the dividend as you improve your earnings and cash flow?

Well that is definitely on the table. We have been talking about this but no decision has made so far yet but we are looking into that.

Okay. Thanks and congratulations again on a great quarter.

Thank you, Todd

[Operator Instructions] We do have a question coming through from John Morris with D.A. Davidson.

Yes, great. Thanks very much. Congratulations on a great quarter as well.

Thank you.

If – yes if you could tell us again the – of the accounts that you mentioned besides VF Corp. Which of those were actually new this quarter? And just the progress of some of those new accounts if you can elaborate on that? But I – you mentioned a number of other names including New Balance et cetera. So we wanted to kind of a little color there.

New Balance – one of them was the New Balance. New Balance is new and then G-III and DICK'S Sporting Goods and Eddie Bauer was another one.

And are those new categories or classifications for you in terms of what you're actually producing? Or is it primarily continuing to be outerwear? Just wondering if there's any additional classifications that you're doing.

No it's both primarily outerwear for existing customers but we also have some new categories such as Polo shirts, T shirts, sport – exercise pants and so on.

Great. Thank you.

Sure. You’re welcome.

And we'll take our next question from David Schneider [ph].

I was wondering when you get new customer inquiries as they seek to diversify their manufacturing let's say from China. If the coronavirus normalizes and goes away what steps can you take so that you keep these new clients when China gets back to normal?

That's a very good question. I probably have to check with our sales and merchandising people as well as our operations people to understand more about this. However, because of the timing or the lead time, it requires in our industry that we take orders and then it will probably take six months for you to deliver. It is very tricky to switch from suppliers, especially from a completely different region of the world. So once a customer switch it would be less likely – I mean of course this is based on my understanding for the customer to kind of switch back and forth is not that easy.

Okay. So that's good. In any of the new categories that you're moving into – the different categories have let's say all other things being equal with that as the caveat, any specific categories that may have higher gross margins than other categories? I'm thinking longer term as your product mix may change slightly. So obviously, it would be positive if you moved into categories that longer term had higher gross margin to lower gross margin?

Well, looking at our capacity, we don't have unlimited capacity. So definitely we will pick and choose the customers, as well as the categories that would provide us the best possible gross margin. So I'm sure our merchandising team and also our factory people they kind of decide what customers to go after and also what pricing. They tend to not choose customers who would -- whose pricing is not even favorable. So we turn down business if the margin is not at our level. So it's, kind of, a how they evaluate the customer or the product category that the customers are bringing to the table.

Right. Okay. That's good. And as far as the March quarter goes, my understanding is that the shift in revenue is that just a timing thing from March -- some orders that you thought might land in March could fall in June?

Right.

Okay. So that's no big deal. That's good. Just -- if I could give you my $0.02 worth peanut calorie opinion. As far as raising the dividend, you've got a very good dividend right now and giving the valuation on your stock even though it's very illiquid right now. If you could be buying back stock at this price, it would be extremely attractive if you could. It's very hard to buy. But you pull -- you have over $2 net cash per share. The whole -- your numbers are crazy. It's like you're a stock from another planet. It's so chill. But -- so I think, if you could somehow even buyback stock that would be much better than raising the dividend? I mean that's just my opinion.

That's a very good suggestion. And in fact we have talked about it.

Just my opinion.

Yeah sure.

Thank you. Okay, thank you.

Thank you very much.

We'll take our next question from Ivan Su with Morningstar.

Hello. Just a follow-up question related to the coronavirus. What's your supply chain exposure to China? And the reason I'm asking this is because, we've seen some Taiwanese apparel manufacturer coming out saying, how the -- they are facing some supply chain challenges because they source a lot of their raw materials from China. So, I'm just trying to see -- so what's -- are you seeing anything from the supply chain side of things given the recent coronavirus outbreak?

Well, actually fortunately, we don't have any major suppliers that are based in China. Believe it or not. Most of our fabric suppliers are in Korea, in Vietnam, Taiwan. So, yeah, we don't really have any major suppliers in China at all. So it doesn't affect us in terms of our supply chain.

It’s great to hear.

Yeah.

And at this point there are no further questions. Mr. Kreps, I'd like to turn the call back over to you for any closing comments.

Thank you, Tom, and thank you to everyone for participating on today's call. While we are excited about the third quarter and nine-month results, we expect this excitement to continue through the remainder of the year and into next year. Jerash will be conducting multiple outreach and conference events this spring, including the Roth Conference in Los Angeles and the D.A. Davidson Consumer and Industrial Conference in New York both in March plus other events. We welcome an opportunity to meet with you in person at these events or arrange of call if you desire. If you have additional questions or would like to arrange a meeting, please feel free to contact me using the information included on the bottom of the press releases. Thank you for your participation and have a great rest of your day. Thank you.

Thank you.

Ladies and gentlemen, this does conclude today's conference. We appreciate your participation. You may disconnect your lines at this time, and have a great day.