Jerash Holdings (US), Inc. Price & Performance (JRSH)

Thank you, Jenny. Good morning, everyone, and welcome to Holdings fiscal twenty twenty five Third quarter conference call. I'm Roger Pundell with Pondell Wilkinson, Gerash Holdings' Investor Relations firm. On the call today from the company are Chairman and Chief Executive Officer, Sam Choi and Chief Financial Officer, Gilbert Lee Eric Tang, who leads the company's operations in Jordan and Ringo Ng, Head of Marketing. Before I turn the call over to Sam, I want to mention or 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 Factors section of Girash's most recent Form 10 ks filed with the Securities and Exchange Commission, copies of which are available on the SEC's website 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.

Jirash Holdings undertakes no obligation to update any forward looking statements except of course as required by law. And with that, it's my pleasure to turn the call over to Sam Choi. Sam? Thank you, Roger.

Our business is continuing to gain traction With increasing inquiries from new and existing customers, [indiscernible] to add manufacturing partners in territory, countries, such as Jordan. Our fiscal third quarter revenue in increased by nearly 30% Yes. Results were lower than originally anticipated. Sales were impacted by congestion at Israel Hyperpore, due to further geopolitical turmoil in the region. Which caused a long delays in shipments. We estimated that close to 6,000,000 of Finnish schools were not shifted until early in the fiscal fourth quarters. Nevertheless, we are pleased to report that export trade rules since late January have markedly improved and ocean containers are being shipped in a more timely manner. We are hopeful that stability in our operating environment will continue. And we are eager to resume our focus on growth. On the new business front, we are encouraged by growing interest from international apparel companies including well recognized brands in Europe, and the Persian Gulf region.

This supports direct goal of diversifying our customer base expanding product mix. Our optimism further reflects new possibilities in today's environment. Based on the competitive advantage for companies doing business in Jordan, [indiscernible] long history and reputation for quality, built over the past twenty plus years in the industry. [indiscernible] We do believe we are in an excellent position to capture greater [indiscernible] the years ahead. [indiscernible] To support anticipated growth, we recently started expanding two of our existing manufacturing facilities With expectations of being completed, by June of this year. The expansions will increase our production capacity [indiscernible] Separately, we are actively working with the Jordanian government to expand our existing facilities in El Hasa. Which by the end of this calendar year additional 5% to 10% of production capacity And we also are assessing long term larger scale expansion plans. [indiscernible] who is in charge of our operation in Jordan, will share more about that shortly. I will now turn the call over to him. Eric? Thank you, Sam. Jordan remains secure and stable as a country. But the broader political situation in the region has impacted our business since October 2023. Especially with regard to both import and export shipping logistics, During the past [indiscernible] we again experienced export shipping delays of up to four weeks at the Hyfa Port.

By late January, however, the port congestion had much And today, condition are essentially back to normal. And ocean containers are being shipped [indiscernible] I'm also happy to report that our factories are fully booked through August. And orders from our global brand customers are increasing steadily. We are receiving a growing number of new business [indiscernible] in part because of the tariff free advantage of exporting to The U. S. EU and other countries from Jordan. As Sam mentioned, we are hearing from both existing customers as well as prospects from international apparel companies. Currently, we are working on sample orders and pricing for several well known brands in Europe.

And the Persian Gulf region. Along with leading manufacturers in Asia.

This is all positive news. Securing large orders from high profile global brands takes [indiscernible] we are confident that Giraj's history and reputation for developing and producing quality garments will ensure trust among new customers. [indiscernible] and position us as a reliable and responsible manufacturing partner. Now I'd like now to provide a few details on our expansion plans to accommodate the growth that we see ahead. In addition to the current expansion underway, at two of our existing primary manufacturing facility, that would add 15% of production capacity by mid year are working closely With the Jordanian Minister of Labor, to finalize a land grant adjacent to our existing facility in Alhasa. Big operation began as a joint venture project between Duraj and Jordan Ministry of Labor in 2018 to create employment opportunities For women, in remote areas, where unemployment rates were as high as 70%. We are planning to enlarge the facility in the Hata. To double its size and increase local hiring of women from four fifty to 800. According to our current trend, upon completion of this project, by the end of twenty twenty five, production capacity expects to increase by another 5% to 10%. We also are assessing longer term larger scale expansion plans to construct manufacturing [indiscernible] Warehousing and housing facilities on land that we purchased several years ago.

This point, we have commenced engineering site studies to review various [indiscernible] With that, I will now turn the call over to Gilbert to discuss our financial Thank you, Eric. Revenue for our fiscal twenty twenty five third quarter increased 28.6% to $35,400,000 from 27,500,000.0 for the same quarter last year. The quarter's revenue reflected an increased in shipments to Girash's Major U. S. Customers.

As Sam mentioned, due to congestion at Israel's hyperport which caused delays in shipments revenue for the quarter was impacted by approximately $6,000,000 We estimated $3,800,000 of finished apparel was kept at the port. Along with incurring more than $100,000 of [indiscernible] Additionally, we held back another $2,000,000 of finished product in our warehouse for the same reason. Gross profit for the fiscal twenty twenty five third quarter, increased 20.6% to $5,400,000 from $4,500,000 in the same quarter last year. Gross margin was 15.2% in the fiscal twenty twenty five third quarter compared with 16.2% in the same quarter last year. The decrease was primarily driven by higher logistics costs arising from the geopolitical turmoil, in the Middle East region, Operating expenses for the fiscal twenty twenty five Third quarter total $4,700,000 compared with $4,100,000 in the same period last year. SG and A expenses were $4,200,000 in its fiscal third quarter compared with $3,800,000 in the same quarter last year. The increase was primarily due to higher Stock based compensation expenses for the fiscal twenty twenty five third quarter were 474,000 compared with 243,000 for the same quarter last year. Operating income increased 88.3% to $708,000 in the fiscal twenty twenty five third quarter from 376,000 in the same quarter last year.

Total audit expenses were $252,000 in the fiscal twenty twenty five third quarter compared with 105,000 in the same quarter a year ago. The increase was primarily due to higher interest expenses from supply chain financing programs. Provided by the two major customers. Income tax expenses for the fiscal twenty twenty five third quarter were approximately $450,000 compared with $39,000 for the same period in fiscal twenty twenty four. The increase was mainly due to a prior year tax provision adjustment of approximately 274,000 The effective tax rate amounted to 98.6%. Third quarter compared with 14.2% for the same period in fiscal twenty twenty four. Net income was $6,000 in the fiscal twenty twenty five third quarter or zero per share.

Versus $232,000 or $0.02 per diluted share in the same quarter last year. As of December 31, 2024, Jiras had $14,800,000 in cash and restricted Jerash. And net working capital was $34,800,000 Inventory was 19,100,000.0 and seven point two million dollars in accounts receivable.

Net cash used by operating activities was approximately 581,000 for the nine months ended December 31, 2024, compared with net cash provided by operating activities of $7,900,000 for the same period last year. As Sam and Eric mentioned, we are optimistic about Girash growing business.

And our factories are fully booked through August.

Revenue for the fiscal twenty twenty five fourth quarter is expected to increase by 50% to 53% from the prior year quarter. Revenue for the fiscal twenty twenty six first quarter is expected to be in nine with the fiscal twenty twenty five first quarter. Which was a record and included $3,000,000 to $4,000,000 in delayed shipments from the fiscal twenty twenty four fourth quarter. Our gross margin goal for the fiscal twenty twenty five fourth quarter is expected to be approximately 15% to 16%.

Subject to logistics and shipping charges and product mix. On 02/05/2025, Gerasa's Board of Directors approved a regular quarterly dividend of $0.05 per share on its common stock payable on February 25, 2025, to stockholders of record as of 02/18/2025. We will now open up the call for questions. I will turn the call back to the operator.

Thank you very much. We will now Your first question is coming from Mark Argento of Lake Street. Mark, you Hey, good morning guys. Just a quick question given all the talk about this morning, can you guys hear me right? [indiscernible] Given all the talk about tariffs recently with the new [indiscernible] or increased the number of conversations you're having? It sounds like it has. Maybe you could help quantify that. And then maybe talk a little bit about the timing of the new capacity coming on and how quickly you can see that impact the business?

Well, as we said, at the call, We are already fully booked through the summer through the August. [indiscernible] calendar year actually 2025. And new orders are still in the pipeline.

And we anticipate that the growth opportunities that we have in this fourth quarter as well as the 2026 fiscal year. Are all going to be limited by how fast we can grow our [indiscernible] And we're already expanding our Our internal capacity at the existing facilities and that will add 10% to 15% after we we expand the facility adding more lines And we anticipate that to be finished by June is it by June?

By June, Yes, by the June. So which is very quick. And then the other project that we're working on is to satellite factory in El Hazza, which we will add more workers from four fifty people to 800 people And even though that is a smaller facility, so the overall increase in capacity is we are looking at maybe 5% to 10% I mean, comparing to the overall capacity.

So those those two are very [indiscernible] And the longer term Increase will come from the piece of land that we have had for over five years now And we are doing engineering study looking at different options on how to how to build and what kind of cost So once that is done, and once we make a decision on what to do, then we will be able to quantify the increase in capacity and the timing of it But as of now, because of the tariff situation getting really We anticipate more and more brands and buyers are going to well, it has already started maybe four to five years ago that people looking for production and manufacturing facilities in the tariff free countries, but now it is just more urgent and so that is a great opportunity for us. [indiscernible] another quick follow-up. In terms of if you run kind of a test order for a customer, what's the typical conversion rate from test run to more of a full production run? Is it 50%, 25%, 75%? Maybe you could help us better understand that kind of sales cycle conversion rate [indiscernible] what conversion rate are you referring to?

New customer test to new customer full production.

New customer test and Typically, the customer gives you a test order Gilbert, typically a customer gives you a test order. Before they give you a full production order. And I'm just wondering, you convert 100% of the time, or 50% of the time? What's your conversion? I mean [indiscernible] From a test order to a full blown Correct. The timing Well, Eric said the timing is is going to take a long time. It's going to take at least nine months to convert But the conversion rate that you are looking for I think the rate is pretty high. Once Once we start a tax [indiscernible] [indiscernible] in most cases, I don't know how many percent, but in most cases, the customer will We'll issue the long term orders. [indiscernible] According to my past experience with Giraj and Merit, So once the customer places for a trial order, okay, maybe after six months, okay, they will place us the bulk quantity orders. We have never failed any customer for the past ten years.

Great. Appreciate the additional color. Good luck guys. Thank you.

Okay.

Thank you. [indiscernible] Your next question is coming from Michael Baker of D. A. Davidson.

Great. Thanks.

I'm just wondering outside of the increased demand that you're seeing just because of tariffs and people wanting to get out of Asia Any comment on what you're seeing In terms of demand as it relates to The U. S. Consumer and the apparel inventories and buying, it seems to be that apparel inventories are starting to tick up a little bit. Consumer spending has been good. What are you hearing from your customers in terms of overall apparel demand? [indiscernible] Have you heard any comments from customers about the demand on the products on the apparel overall in the market? Yes, I have a lot of response from different kinds of customer. Some of the customers say they're still trying to absorb the high level of inventories, 60% of the customer told us that they Most of the inventories they already absorbed during the past two year. They are going to place new orders to Giraj. This is what I heard from the from the buyers. From the buyers, yes.

Great. And the delayed shipments, the $6,000,000 dollars when does that flow through the P and L? Does that come in the fiscal fourth quarter? Is that part of that growth plan of 50% to 53%?

Yes, that's part of the 5653% growth. The fourth quarter and shift apparel products most of them were shipped in January already.

So but with With those delayed shipments, we that's how we anticipate that the growth is going to be 50% to 53% It is still a relatively estimate that we have right now But we're still kind of being conservative due to even though the situation in The Middle East is kind of calming down the cease fire. We don't know whether it's going to hold or not. But it seems like it's heading to the right direction, but we there's still a lot of uncertainties that we're looking at And then usually the the fourth quarter is a slow quarter for us. Especially in March, it's Ramadan And last year, Last fiscal year in 2024, we spent a lot of money trying to catch up the production to ship out the products to our customers. So we spend like close to $1,000,000 in overtime because in Ramadan if you want people to work because normally they will work Full shift or work eight or nine hours But in order for Ramadan, they don't want to work. So we have to we have to motivate them to work and offer them over time.

This year, we want to control our cost.

And even though our customers we're going to work with our customers to really plan out our production so that we don't incur too much overtime labor cost. And still be able to meet our customers' delivery time. So that's why we [indiscernible] We forecast a lower Fourth quarter. But it is still a pretty healthy growth from last year. That makes perfect sense. If I could follow-up on that then, understanding that overtime issue as well as some of the costs incurred at the port dollars 100,000, first of all, was that incurred in the third quarter? But really the larger question is how should we think about the SG and A costs going forward? Is that sort of low $4,000,000 a good run rate? [indiscernible] The low $4,000,000 would be a good run rate. I mean SG and A a lot of it depends on on the sales volume, the sales revenue.

And we incur significant amount in the first quarter because we have to air freight Some of the shipments due to the delay of production because of the raw material containers didn't get into Jordan. If you remember the Red Sea crisis, So we're trying to control our costs as much as we could but it is still higher than what it was before. But [indiscernible] a low four would be a good estimate.

Understood. Perfect. Thank you. Thank you.

Thank you very much. Your next question is coming from Egon Novgorodsev of Layers Capital. Igor, your line is live.

Hello, and thank you for taking my question.

So you mentioned the situation in January now with the cease fire and much better situation in The Middle East has remarkably improved. Could you just break it down a little bit more in detail, especially in terms of the largest [indiscernible] you getting them now through the Red Sea? And also how this improved logistics would impact your gross margins, which I recall correctly were as high as 19% during COVID? So maybe just not necessarily quantitative, but at least qualitative.

Well, we are getting containers through the Red Sea. Before the Red Sea was blocked, because of the blockage And but now We are getting our importing raw material containers through the Red Sea to Jordan. But we do have to pay slightly higher container shipment costs but not as high as the first two quarters. So we are We are doing very diligent job in controlling our costs. So and that is reflected in the gross margin. And then on the export side, we We had to pay let's say, dollars 100,000 in the third quarter because of the port storage fee. Because the containers that were stuck at the port for four weeks. So we incur additional cost in there. But now it is getting back to normal. So the exporting part of it is going to be much improved in the in this quarter, in the fourth quarter as well as the the first quarter of twenty twenty six.

Does that answer your question? Yes. And maybe just not to too hard, but what would you consider your like normalized good gross margin for your like the business Q2 and Q3? Q2 and Q3 of 2025 Yes, just in general. Even if you don't provide the guidance, what kind of growth margins will you consider to be happy and you say this is my normal life? Gross margin because you had them very high during the COVID.

Obviously, because there was a huge demand. And then there was an issue of oversupply, so they fell drastically. So now as I normalizing now, what would be your target gross margin where you would say, okay, this is a gross margin giving our competition and the market pricing that we'd be happy with. Well, we anticipate this this fiscal year, the 2025 the year we will end up around 15% to 16%. And going forward, we still [indiscernible] try to target somewhere between 15% to 16% because let me tell you why, because we are we are bringing in a lot of new customers and new products. [indiscernible] And because of new customers, the margin at the beginning is usually not that good. Because there's a lot of sampling. There's a lot of inefficiency trying to learn [indiscernible] so when the volume is No.

But the styles many it is it is hard to to have a very efficient production. But once the volume gets up gets ramped up, then we will we will be able to realize a better margin.

So we anticipate that 2026 we still want to place the gross margin in around 15% to 16%.

Okay. My other question is about your joint venture with Posana, How is it going? Could you just tell us a little bit more details about it?

Well, the Busana joint venture it is still we're still working on that.

And the growth is relatively flat but that was because there were turmoils in the region last year. Or in the past twelve months, And some of the new buyers, new customers people like Macy, like Brooks Brothers, they are kind of cautious They send us test order, trial orders. But we finished it and they are satisfied but we're still waiting for them to really jump into the high volume bulk orders. I see. Does Busana make a lot of products like traditional textile manufacturing countries such as apparel manufacturing countries such as Indonesia and Vietnam and Bangladesh, which do have tariffs on U. S. If U. S. Accepts reciprocal tariffs. Or what is a do you expect that they might consider moving some of their factories in the joint venture to Jordan? Is that a potential play? So I might I'm Eric. I can answer you this question because Busan has a lot of customers. Okay, and dealing with different kinds of pricing and also different kind of stuff. They have manufacturing bases in Indonesia, also in in Africa, And also our joint venture in Jordan and Bangladesh also recently, I think nine months ago, they started another joint venture in Brandedash.

But that doesn't affect to us because usually the customer try to tailor make those higher FOB where you ordered. Okay, which the buyer can enjoy more tariff savings they will place the order to to show this. While for the low end products, maybe they don't need too much duty savings, they will place in Brandedash. So for Busan, we are working with them like with orders like from buyers like Hugo Boss, like Brooks Brothers, these are the high end customers and high FOB where you order. Okay. Thank you. That's interesting to know.

Thank you. I don't have any more questions. Thank you.

Thank you very much. Your next question is coming from Mike Disla of AMX Holdings. Mike, your line is live.

Yes. Good day, gentlemen.

This question is how are you all doing? This question is for Gilbert. No disrespect Sam or Eric.

I was just wondering if you anticipate that you would have to tap the credit markets to fund that longer term large scale expansion plan that you're planning with the property you already have.

We did consider having the theft market actually maybe Maybe twelve months ago, we were talking to the World Bank and looking at maybe borrowing some money through the World Bank And we're right now, we're open to to any financing opportunities.

Maybe we can go to the equity market and maybe we'll borrow some money, but we definitely need to raise some capital to [indiscernible] support our expansion plan, especially the largest scale expansion. But right now, we haven't really decided which way to go. Maybe it's a combination of both. Right.

Sounds prudent. I suspect and you need not comment. I suspect suspect that the Jordanian Commissioner Labor is will be part of that plan based on the ownership responsibilities.

And towards that, I know that your main your dividend has been a fairly high priority since inception, since you went public. And I suspect it will remain so.

Only because it provides a floor for the stock price among other reasons So in the grand scheme of things, that really is important, but the reality of just figuring out the prudent way to approach the markets, the credit markets now.

For that long term build out sounds like you're on the right track. So thank you very much for the update.

Thank you.

Thank you. All right. Yes, be well guys.

Thank you very much. I will now hand back over to Sam as we have reached the end of our Okay. Thank you, Jenny.

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 very much.

Thank you.

Thank you very much.

This does conclude today's conference. You may disconnect your phone lines at Thank you very much. Thank you very much. Have a good day. [indiscernible]