Jerash Holdings (US), Inc.

Greetings. Welcome to Jerash Holdings Fiscal 2025 Second Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Roger Pondell of Investor Relations. Roger, you may begin.

Thank you, Paul, and good morning, everyone. Welcome to Jurasch Holdings' fiscal 2025 second quarter conference call. I'm Roger Pondell with Pondell Wilkinson, Jurasch Holdings' investor relations firm. It will be my pleasure momentarily to introduce the company's chairman and chief executive officer, Sam Choi, its chief financial officer, Gilbert Lee, and Eric Tang, who leads the company's operations in Jordan. Before I turn the call over to Sam, I want to remind our 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 factor section of the company's most recent Form 10-K, as filed with the Securities and Exchange Commission, and 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 those forward-looking statements, and Juresh Holdings undertakes no obligation to update any forward-looking statements except as required by law. And with that, it is my pleasure to turn the call over to Sam Choi. Sam?

Thank you, Roger. Our second quarter solidified the positive momentum that began earlier in the fiscal year. Revenue increased nearly 21% over last year's second quarter. And I'm pleased to report that Purchase orders for export shipments to our customers in the U.S. and Europe have been steadily increasing. Our factories are now fully booked through the first half of calendar year 2025. Results for the quarter reflected that the confidence that our global customers have working with Juresh and highlight the competitive advantages we provide by manufacturing in Jordan, which has friendly ties and free trade agreements with the US, the EU, and other countries. On the geopolitical front, yet another positive note. Export trade routes in the region return to a more normalized and stable state since mid-August. This, in turn, is benefiting profitability. Gross margin for fiscal second quarter increased to 17.5% from 16.1% a year ago, and from 11.3% in the preceding first quarter. We are encouraged by the positive momentum, hopeful that stability in the operating environment will be sustained. and that our focus will turn to growth, attracting new and diversified global brands and producing a wider selection of garments. We continue to receive inquiries from major brands in the US and Europe for pricing, followed by trial orders as more companies seek manufacturing partners outside of Asia. In tariff-free countries, that offer a cost-effective production environment with the capability to deliver high-quality finished products. With good visibility well into fiscal 2026, we are beginning to plan for potential expansion of manufacturing capacity to support future growth. Eric Tang, who is in charge of our operations in Jordan, will share more about that shortly. And I will now turn the call over to him. Hi, Eric. Thank you, Sam.

Despite the geopolitical instability and tension environment in many parts of the Middle East, Jordan remains stable and secure. And the ports of Aqaba and Haifa are open and safe with added security checkpoints. We are fortunate that our customers continue to trust Garage as a reliable and responsible manufacturing partner for producing high-quality garments. Operationally, we are starting to realize the benefits of our initiative to diversify our customer base. Today, we are producing garments for more than 20 brands. and we are continuing to expand our product mix with new garment categories. In response to an increasing number of export orders, we are now able to better plan for workflow and effectively utilize production capacity year-round, reducing revenue seasonality. It is gratifying that all our manufacturing facilities are completely booked beyond the first half of the next calendar year. Gerrard currently operates six production facilities and four warehouses. Employing a diverse workforce of approximately 6,000 people, our current annual production capacity is about 20 million pieces. As Sam mentioned, We are beginning to explore production capacity expansion and additional workforce as growth dictates. Our marketing efforts with our joint venture partner, Usanda Apparel Group, are ongoing. And we have begun production for four global brands through this partnership. We anticipate further new business opportunities will emerge in the future. Our optimism reflects opportunities on a number of fronts, including attracting new global brands based on Gerard's leadership position and strong industry reputation built over the past 20 plus years, as well as the competitive advantages of operating in Jordan. With that, I will now turn the call over to Gilbert to discuss our financial results. Gilbert, please.

Thank you, Eric. Revenue for our fiscal 2025 second quarter increased 20.6% to $40.2 million from $33.4 million for the same quarter last year. The quarter's revenue reflected an increase in shipments to Jurassic's major U.S. customers and growth from new customers in other regions. that the company unbordered during the past two years. Gross profit for the fiscal 2025 second quarter increased 31.4% to $7.1 million from $5.4 million in the same quarter last year. Gross margin increased 140 basis points to 17.5% from 16.1% in the same period last year. The expansion was primarily due to high production volumes with increased orders that typically carry higher margins shipped to U.S. customers. Operating expenses for the fiscal 2025 second quarter totaled $5.9 million, compared with $4.5 million in the same period last year. SG&A expenses were $5.4 million in this fiscal second quarter compared with $4.2 million in the same quarter last year. And the increase was primarily due to higher export logistics costs to catch up with government shipment schedules and higher shipping volume. Stock-based compensation expenses for the fiscal 2025 second quarter. were $474,000 compared with $243,000 for the same quarter last year. Operating income increased to $1.1 million in the fiscal 2025 second quarter from $888,000 in the same period last year. Total other expenses were $364,000 in the fiscal 2025 second quarter versus 167,000 in the same quarter last year. The increase primarily reflected higher interest expenses. Net income in the fiscal 2025 second quarter increased 80.1% to $665,000 from $369,000 for the prior year quarter. Net income per diluted share for the fiscal 2025 second quarter increased to five cents from three cents in the same quarter last year. As of September 30th, 2024, Jirash had cash and restricted cash of $17.9 million and networking capital of 35.2 million. Inventory was 20.2 million and accounts receivable was $5.8 million. net cash provided by operating activities was approximately 2.4 million for the six months ended september 30th 2024 compared with 8.2 million for the same period last year as sam and eric mentioned earlier purchase orders are coming in with larger quantities from our global customers beyond this fiscal year and we are hopeful this will this more robust activity will continue. Accordingly, we are increasing our guidance with third quarter revenue now expected to increase by 35 to 38% from the prior year quarter and full year 2025 revenue anticipated growth by 30 to 35%. Our gross margin goal for the fiscal 2025 year is expected to be approximately 14% to 15%, subject to logistics charges and product mix. On November 8, 2024, Jurasch's Board of Directors approved a regular quarterly dividend of $0.05 per share on its common stock, payable on November 29, 2024, to stockholders of record as of November 22, 2024. We will now open up the call for questions, and I will turn the call back to the operator.

Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, please press star 1 on your phone at this time if you wish to ask a question. One moment please while we poll for questions. Once again, that's star 1 if you wish to ask a question today. The first question is coming from Mark Argento from Lake Street. Mark, your line is live.

Good morning, guys. Just a couple quick questions here. Eric, thanks for that additional color and what the scale and scope of the business looks like today. I mean, if we could, you know, kind of translate that into, you know, revenue opportunity for the platform currently at, like you said, the capacity is roughly 20 million pieces. Can you try to help us kind of, you know, put a revenue number against that if that's kind of a fully productive, you know, if you have the facilities running on a relatively fully productive basis? Is that, you know, is that 140 million, 150 million, 160 million in revenue? Could you maybe just peel the onion a little bit for us there? That would be helpful.

Well, right now we're looking at our, we're running at full capacity, and we anticipate all the factories are going to be full until, well, right now we're booked until June or July of next calendar year, 2025. So depending on the product mix, and the customer mix because some customers we we have uh for most of the customers we have fob orders and i think those are averaging maybe uh 15 to 20 dollars a piece is that right eric or yeah average average right and then some customers uh especially when we don't have in enough uh fob orders we will uh we will fill up the factories with CM orders, cut and make orders. And those are at a lower sale price because we don't include the fabric cost in the sales. So those are averaging maybe $5 to $10 a piece. So it is hard to determine what the total scale is going to be because of the mix. But at this point, we're looking, we're anticipating more FOB orders in the upcoming six months comparing to previous years because we're seeing a lot of our FOB customers placing orders and placing higher quantity orders. So that's why we anticipate the second half of the year it's not going to be having significant seasonality versus our prior experience. So our first six months, we came in at $81 million, I believe. And we think the second half is still going to be strong. Currently, we're looking at total year growth to be about 30% to 35%. increase from from last year so it is going to be close to a between 155 to 160 million and uh we just yeah but we just want to stick with our our projection of 30 to 35 percent growth but uh but we're looking at the expansion uh because we we need more capacity to satisfy the increasing demand.

That's helpful, and that's exactly my follow-up question. On the expansion side, how many millions of pieces of additional production are you contemplating, and then what's the related upfront cost to bring that production online?

Well, currently, we're still analyzing the numbers and looking at all kinds of opportunities. One opportunity that we have been contemplating and actually planning is to utilize the piece of land that we have been owning for the past 45 years. We have worked on building on it a new factory. But then because of COVID, we stopped. And then because of the war, the uncertainty, we kind of put it aside. But now we're aggressively working on all kinds of scenarios. First, we try to build a warehouse so that we can utilize the land, but also not having to pay for warehouse rental. so that we save some manufacturing costs. But then we also looking at maybe build another level or build another story on top of the warehouse so that we can have space for new machinery, additional capacity. So we're still working on a projection of how much we need. And at the same time, we're working on a three-year plan, gathering information from our sales and marketing team, our customers, and projecting the next two to three years' growth. So once we get all those information in, then we'll have a more solidified plan, both in terms of sales growth, earnings growth and expansion needs. And at that time, we will be more prepared to answer the question about how much capacity we will need and what kind of project cost we're going to require to build a new factory. Now, at the same time, there might be other opportunities that comes up Maybe we can purchase or lease another building or other factories. So we don't know. Just whatever comes across, then we will consider it.

Do you think that's a 2025, calendar year 2025 opportunity to bring additional capacity on, or are we out another year? How long would it take if you decided to build something? Is that a year plus or would that move a little more quickly?

If we need to build something, uh, it could be, it could be a, uh, in, in multiple stages. So like I said, if we, if we start building a warehouse, just using the land, it will take Corey less than 12 months because, uh, right now what we are talking with, uh, with the construction people, uh there are some kind of methods that can shorten the required time if just building a warehouse but if we need to build factories or production facility that might take longer maybe maybe longer than a year but definitely we would probably want to shorten that to less than two years is that uh Is that what you think about, Sam and Eric? Oh, yes.

I mean, our expansion plans will be divided into stages. Maybe we will consider on the first phase to build a warehouse together with one production floor. Okay, this is our initial planning. But at the same time, already we are increasing some capacity I mean, in our own factory with our, I mean, internal, I mean, renovation. So, actually, we don't spend a lot of money because we still have some spaces, okay, in our existing facility, and we are already making full utilization of that. And that, we already increased maybe a, 7% to 8% of our current capacity means 1 million to 1.3 million. OK, we already have increased in our capacity. OK, while we are waiting for the big expansion plan.

Yeah. And I also want to add is that in our construction plan, we will make the foundation capable of multiple stories, even though we may not build all the stories. I think, um, it will sustain maybe five or six stories if we want to build on it, but we'll prepare the foundation to be able to, to, uh, to bear that kind of, uh, building. But at the initial stage, we might just build one or two stories to start.

Great. That, uh, That's super helpful. And then just one last one for me, kind of a bigger picture question, you know, just got done with the elections in the US. Obviously, tariffs are a big, you know, talking point politically. You know, the, you know, the, you know, Trump administration and kind of the historical tariffs that that administration has put forward. Is that a net positive for you in terms of additional tariffs on China and more product flow looking to move around and get out of China and potentially benefit from that, moving some of that to Jordan. Maybe you just refresh us what historically you guys have seen in this prior administration.

We've been seeing this trend of getting out of China for three or four years now. But I think with the new administrations, I think it will speed up the process if the tariff rate is going to be heightened, especially from China. But you know, you can never replace completely the sourcing from China. But I think a lot or more of our customers will try to speed up that process. So that is a positive to us.

Great. I appreciate the time and nice work working through the last year or two. It's been not easy for you guys, but nice job.

Thank you, Mark. Yeah, thank you. Thank you.

Yeah, in fact, in terms of the growth of the business, I think besides a few customers being brought in from present joint venture, I think for Tourette's itself, there is currently at least five new customers knocking on our door and giving us trial orders. And it presents a very clear picture that most customers would like to place an order to duty-free or offshore countries instead of China. So, I mean, we are quite optimistic about the order book. And as we just discussed, besides the warehouse, we may immediately have a plan to build the factory and dormitory as well. So I think in these few months, we'll have a final decision whether we should embark on the expansion plan or not. Yeah, we'll let you know. After we have a three-year plan.

Thank you. Thank you. And once again, it is star one. If you wish to ask a question today, please press star one on your phone if you wish to ask a question. The next question is coming from Igor Novgorodsev from Lars Capital. Igor, your line is live.

Hello, and thank you for taking my question. And first of all, congratulations. I'm very happy to see the signs of a real turnaround, both in the much improved quarter results and in a much stronger guidance. So I know the situation has been very difficult last couple of years. So I'm very, very happy and pleased to see it as a major investor. Thank you. Yeah, you're welcome. My question is about your utilization of your cash. And I think it's been brought up a couple of times before. But my question is from this point of view, you've been incurring significant interest expenses, several hundred thousand every quarter. Yet you have a significant cash on hand. I do realize you have a complex corporate structure and not everything is so easy to transfer the cash. But can you be perhaps find a way to reduce your interest expense going forward? Because it looks like the rates will stay high for quite some time and maybe talk a little bit about the source of this interest expenses.

Okay. Yeah. We are going to really focus on trying to reduce costs, even as we increase sales with a higher growth rate. However, in the past two quarters, because of the sudden increase in volume, in sales volume, we were in the need of more working capital, and we utilized something called the Supply Chain Financing Program, which is offered by two of our major customers, VF Corp and also New Balance. What it does is allowing us to get paid by the by the customers' banks, but then we have to pay some form of interest. Now, the interest rate is not as high as the regular bank loans, but it is still according to or it is based on SOVA. So as the interest rate globally is higher than previously, at least than previous years, So that's why we incur a higher interest expenses along with higher sales. But we are watching this very closely. Another source of interest expenses is on the credit line that we have with our bank. I think it's DBS. And this credit line is not significant, but however, It is something that we use to pay for raw materials, sometimes with LC's and so we try not to use the credit line as much, but our experience is from time to time we have to use it. Otherwise, the banks are going to cut it because of non-usage, but we're watching it very closely. We want to please the bank at the same time trying to save interest expenses. So I hope that answers your question, and we will try to watch it more closely and balance the way of using the loan, using the financing program, as well as not having to spend too much on interest.

Thank you. That's a very comprehensive answer. My other question, we already covered recent U.S. election, but my other question is also geopolitical. Recent turmoil in Bangladesh a few months ago, basically a coup of some sort. I know that Bangladesh is a major hub of garment manufacturing. Do you see any opportunity there? Are any companies looking to diversify from Bangladesh now that it seems to be just a much less stable company than it was perceived?

Maybe Eric or Sam, you can answer that question. Do you see any opportunity of companies moving their sourcing from Bangladesh to Jordan?

So actually, okay, during the past six months already, there are already one or two big apparel group launch, okay, launch in Jordan, and they already opened new factories and start production. And garage was also approached by some Bangladesh apparel group, okay, so to discuss of some business opportunity or cooperation together. So, but still, we did not go into any, I mean, confirmed agreement. But we are definitely, we have been approached by them. By manufacturers? Yeah, by manufacturers in Bangladesh.

Okay, great to hear that. Actually, it's a tremendous opportunity given how important Bangladesh is in your marketplace. Right. Thank you. I don't have any more questions. Thank you for your answers. Okay.

Thank you. Thank you. There were no other questions in queue at this time. I would now like to hand the call back to Sam Choi for closing remarks.

Okay. Thank you, Paul. And thanks to all of you for joining us today and for your continuous support. We look forward to speaking with you next quarter. Thank you. Thank you, everyone. Thank you.

Thank you. This does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.