Welcome to Jerash Holdings Fiscal 2023 Q3 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. I will now turn the conference over to your host, Roger Pondel, Investor Relations for Jerash Holdings. You may begin. Thank you, operator, and good morning, everyone. Welcome to Jerash Holdings Fiscal 2023 Q3 conference call. I'm Roger Pondel with PondelWilkinson, Jerash 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 Factors section of the company's most recent Form 10-K 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 those forward-looking statements, and Jerash Holdings undertakes no obligation to update any forward-looking statements except as required by law. With that, it's my pleasure to turn the call over to Sam Choi. Sam? Thank you, Roger. Hello, everyone. Our fiscal Q3 performance demonstrated the company's ability to navigate through continued challenging market conditions, the broad retail sector. Although orders received from our major global brand customers continued to be smaller compared with last fiscal year, our team in Jordan was able to keep our facilities running at full capacity by adding supplementary production for other customers. Accordingly, we achieved record Q3 revenue. Nevertheless, we continue to see fiscal 2023 as a transitional and opportunistic year for Jerash while we make progress on our initiative to diversify our customer base and product mix. Since last conference call, we have successfully begun to ramp up production on orders from Timberland and Skechers, which are newer group of brand customers. Test runs for our previously announced first European-based high-end apparel brand were well-received, with initial shipments to begin at the end of March. Our plans to form a joint venture with Busana Apparel Group are proceeding well. We anticipate launching the venture early in our new fiscal year, giving Jerash additional opportunities to serve Busana's group of brand customers that have expressed interest in shifting their production from Southeast Asia to Jordan, which has long-standing duty-free agreements with the US, EU, and other countries. We are gaining visibility into the leisure wear and technical clothing segment since Busana is well-known for its high-quality woven apparel production in technical garments, active sportswear, and formal wear. Before I turn the call over to Eric, who is based in Jordan, I want to say that our thoughts and prayers go out to all of the families that were impacted by the recent devastating Turkey-Syria earthquakes. I will now turn the call over to Eric Tang to talk about our operations, and Gilbert will then discuss the quarter's financial results. Thank you, Sam. Hello, everyone. Okay. Thank you, Sam, and hello, everyone. As Sam mentioned, with the challenging retail environment, orders placed by our top global brand customers have been smaller while retailers continue to work through economic and inflationary recovery. We expect these trends to continue for several more months. During this time, we are actively communicating and maintaining excellent relationships to better understand our customers' needs going forward as market conditions improve. Fortunately, we continue to receive inquiries from other premium brands as global brands trends remain to diversify supply chains away from Asia, especially China. On the new customer front, we produce and ship initial orders for Timberland and Skechers in the Q3 and are scheduling additional production for both. In the current quarter, we recently began production for our first European-based high-end apparel brand with initial shipments to start soon. Please keep in mind that new customer inquiries and test runs for premium brands typically take several months. Also, initial new customer orders are in relatively small quantities, with generally lower margins to start. During this time frame, we are able to maintain our full staff and our facilities fully booked by adding supplementary production of products for buyers other than our major customers in the US. We are also expanding the capacity at some of our factories to gear up for our joint venture with Busana that Sam mentioned earlier. Lastly, please know that our sourcing of fabric and other materials from new partners in the Middle East and North Africa is continuing and is not expected to be impacted by the earthquake. With that, I will turn the call to Gilbert to discuss our financial results and the fiscal 2023 outlook. Gilbert, please. Thank you, Eric. Revenue for our fiscal 2023 Q3 increased 17% to a record $43 million from $36.8 million in the same period last year. The increase was mainly due to supplementary sales to customers outside of the US with lower margin products. The gross margin was 13.5% in the fiscal 2023 Q3, compared with 18.8% in the same quarter last year. The decrease was primarily driven by the lower proportion of export orders to two major customers in the US that typically generate higher margins. Operating expenses totaled $4.5 million in the fiscal 2023 Q3, mainly from SG&A, compared with essentially the same amount in last year's Q3, including SG&A expenses of $4.2 million and stock-based compensation expenses of $319,000. Operating income totaled $1.3 million in the fiscal 2023 Q3 versus $2.4 million in the same period last year. Total audit expenses were $111,000 in the fiscal 2023 Q3 compared with $80,000 in the same quarter last year. Interest expenses were $249,000 versus $73,000 a year ago. Net income for the most recent Q3 was $900,000 or $0.07 per diluted share, versus $1.7 million or $0.13 per diluted share in the same period last year. Comprehensive income attributable to Jerash Holdings common stockholders totaled $929,000 in the fiscal 2023 Q3 versus $1.7 million last year. Jerash's balance sheet and cash position remain strong with cash of $26.2 million and net working capital of $47.1 million at December 31st, 2022. Inventory was $26.7 million and accounts receivables amounted to $5.5 million. Net cash provided by operating activities was $9.9 million for the nine months ended December 31st, 2022, compared with $14.6 million in the prior year. The net change reflects working capital activities attributable to reduced net income, increases in advances to suppliers, partially offset by smaller decreases in accounts payable and accrued expenses. We continue to take a conservative approach to guidance, given that the general retail markets are still recovering from inflationary pressures and weaker economic conditions. For the current Q4, revenue is expected to be in the range of $26 million-$28 million, compared with $30.9 million last year. We are maintaining our margin goal for the full fiscal year to be in the range of 16%-18%. We continue to focus on growing our customer base and pursuing other opportunities to enhance our competitive advantage and offerings. We're proud to be able to navigate through this challenging environment and that we can achieve essentially the same level of business for the full 2023 fiscal year as we did in fiscal 2022, which experienced the highest growth rate in the company's history. Our strategy of maintaining full capacity and expanding some production space at some of our existing facilities now will allow us to be ready to accommodate anticipated growth in fiscal 2024 from newer and long-term customers, as well as from our proposed joint venture. We will continue to closely monitor developments over the next few months and will provide an update on our progress on the next call. On February 3, our board of directors approved a quarterly dividend of $0.05 per share, payable February 21st to stockholders of record as of February 14, 2023. As of the end of our fiscal Q3, approximately 156,600 shares have been repurchased at an average price of approximately $4.90 per share under the share repurchase program authorized by the board in June 2022. The program expires on March 31st 2023. With that, we will now open up the call for questions. Operator, may we have the first question, please? At this time, we will be conducting a question and answer session. Your first question for today is coming from Mike Baker at D.A. Davidson. Okay. Hi, guys. Thanks. A couple questions. Can you talk about the state of your larger customers and the inventory situation in the US versus what it was three months ago? Some of the big customers, maybe not all your customers, but some of the big apparel sporting goods retailers in the US like VF Corp, Under Armour, Columbia, the inventory is actually getting larger, growing, not decelerating as many would have expected. Is the situation better or worse than it was three months ago for your larger customers? Eric, do you want to take this? Yes. I talked to some of our major buyers, like the VF Corp, the New Balance. Okay. They are saying that they also have re-recorded some growth in the past couple of months in the sales. Okay. They are still not too optimistic about the coming several months. They are still trying to absorb and trying to reduce the level of the inventory. Despite the fact that there's a growth in the sales, they are still not placing too many new orders, okay, until the inventory level is down to a level which is they think more safe and acceptable to them. This is the latest information I get from my buyers. Thank you. Okay, thanks. Maybe, maybe as a follow-up on that, you, I think Gilbert had mentioned, growth in 2024. You used the word growth. now understanding you're not- Yeah. -giving 2024 guidance right now, but, you know, that expresses a level of confidence that you will grow next year. Can you tell us, you know, what gives you that confidence? Well, I mean, with our existing customers like TNF and New Balance, they are being very cautious in issuing new orders for us. Normally, in a normal year, they would have already kind of filled up our capacity in the first half of the next fiscal year by now because we have to start planning for the winter season, for the fall season, and so on. However, this year, they're still being cautious, and the orders are smaller than previous. We're still waiting on them t hat's why we're not comfortable in providing guidance for the next fiscal year or the first half. We're confident that with our efforts in this past fiscal year this 2023, when we have some breathing room to onboard some new customers, such as the very high quality premium European brand, which we all know who they are. We cannot say. Their order is already starting. We have passed everything. They came to our factory. All the quality people have already certified us or approved our factories to start producing. The shipment will actually begin pretty soon. Also with our joint venture. I mean, maybe we'll talk about the joint venture later. The good news is we are progressing very, very well, and we anticipate the joint venture agreement will be signed. Last quarter we signed the MOU. Over this past quarter, we have been working with Busana in developing the joint venture agreement, and everything is basically agreed upon. We're just making some final changes in the wording and so on. We anticipate that will be signed very soon. Then we will start working together. Busana will. In fact, they have already started doing the marketing. They're coming to the US in the next couple of weeks to start going to all their customers, and they're going to represent Jerash, and they will move those orders to Jerash. We are very confident that the impact from this joint venture is going to help us, even though we may not have substantial growth or maybe maintaining the same level of business with our existing customers. This additional opportunity from the joint venture will help us move Jerash forward. That's why we're cautious, but we are optimistic in the next fiscal year. I cannot give you a guidance at this point. All we can say is that currently we are looking at the first half of the year being at. We're confident that we will maintain the same level of business, maybe a little bit of growth. Depends on the timing of the new business coming in. Okay. One more, if I could, and related to that the Q4, guidance that you've given, two questions on that. One, you know- Yeah. You just grew your sales 17% and we're at $43 million. Why the implied? Well, the guidance for the Q4 in sales is down 10%-16%. Why would that reverse so much? The gross margin, I understand you just kept the full year number, but could you tighten that up a little bit? Mm-hmm. Because basically it backs into, my math at least, for the Q4, anywhere between 12% on the gross profit line, gross margin line, to 22%. You know, if you could help tighten that range a little bit, Q4. Sure. Let me try to explain. First of all, understand that the Q3 we had record revenues, and that is primarily because we supplemented the lack of orders or the reduction in orders from our major customers. That's why gross margin for Q3 dropped down to 13.5%, all right, compared to 18.8% in the previous year Q3. Sales increased. Sales increased by 17% in Q3-to-quarter, I mean, year-to-year for the Q3. Margin basically dropped a lot. That was because of the local orders to third party t hat's why margin was very low. Q4 would be a little bit of a different picture. We're doing more or higher proportion of the FOB order to The North Face and New Balance, but we are going to do less of the lower margin orders. GM or the gross margin percentage of the Q4, this current quarter that we are in is going to go back up to between 16%- 18%. All right? That will give us the full year around 17%. Sales will be down in terms of dollar amount comparing to last year. Okay. Understood. In the press release, it says full year guidance 16- 18. Mm-hmm. Gross margin. You're saying that is also good guidance for the Q4. That's also for the Q4. Exactly. Understood. Yep. Okay. Thank you very much. Sure. Thank you. Your next question is coming from Mark Argento at Lake Street Capital Markets. Yeah. Hi, good morning, guys. Just to follow up on the Busana relationship. I know last quarter when you talked about it, you're still working out some of the details. It sounds like maybe you have better understanding of the agreement. When you think about the economics of the deal, can you talk a little bit about will it be accretive to gross margins, or how will this flow through your P&L once you start booking revenue? Well, the joint venture is going to be a separate company. It's just a new company that we set up in Hong Kong. Company is already registered, we just need to wait until the joint venture agreement is signed. This company will be formed by two shareholders or two partners. One is Jerash Holdings and the other is Busana Apparel Group. Jerash will own 51% and Busana will own 49%. We will consolidate Busana's revenue, gross margin, all the profits and then 49% will go to Busana. That's how the sales and the profit will flow to our consolidated. Great. That's helpful. I think it was Eric in prepared remarks mentioned that you guys are expanding capacity or adding capacity for that relationship. Can you talk a little bit about where you stand right now in terms of production capacity and what you're looking to add? Mm-hmm. Eric? Gilbert, shall I answer this question? Yeah, please. About capacity expansion. Okay. Well, regarding our current capacity, okay, we are running in full capacity until July. I'm also expecting that we will continue to running full capacity until maybe September to October, okay, with the coming in of the Busana orders. Okay. For Busana, because all their factories are located in Asia, The reason why they have a joint venture with us is because they are requested by the buyers to move the orders out from Asia, okay, and then to the duty-free country. The selection from the buyer is Jordan. Jordan is because of the duty saving issues. We will be expecting t he inflow of Busana order starting maybe between July and August, okay, will be continuous. For the capacity, I think we also make announcement that, okay, we are going already started our in-house expansion from in Jerash one. We are expecting the in-house capacity, we can increase four production lines, okay, by the end of July. Okay. This is a standby extra capacity, okay, for Busana, if they have more orders to inject into Jerash, I mean, the joint venture company. You're taking existing facilities and adding on to those? Maybe could you just give us a little more color on how you're adding the capacity? The building, actually, I mean for the extension. We basically added an extension to the existing building. I think we added one more floor, and then the building was expanded horizontally also. I believe we estimated it will increase our capacity by about 15% for that particular factory. by adding. Of course, adding more machineries and adding more people. You expect that to be complete by July? Is that done already? Right. Yeah. Right. No, we're still working on it. We anticipate it will be done by July. I mean, earlier I think we started this in 2022. We're just because of the market condition, we're just kind of taking the time and not really pushing to get it done earlier. Right now we're almost done. We're just finishing up, and we anticipate this could be put into use by July. Just one follow-up. In terms of, the capital required to do the expansion, is it relatively nominal or what are you, what are you kind a thinking from a CapEx perspective? For the CapEx, I think this is just slightly above $1 million, or $1.1 million or $1.3 million. Great. Thanks, guys. Thanks. Your next question for today is coming from Aaron Grey at Alliance Global Partners. Hi, good morning, thank you for the questions. First question for me. Hi. Just in terms of the, you know, supplemental sales that you guys had with the lower margin, you know, is that more a function for the quarter, just waiting to get some revenue in, you know, due to some underutilization, given the larger clients, you know, are having smaller orders? It sounds like it's not gonna continue for the next quarter. You guys do have, you know, full capacity from July to September. Can you just help us understand maybe that you're gonna have that full utilization, maybe why it was just a maybe a one-time thing to where you went more local to get that revenue even at the lower margin if not gonna be a potential need going forward? Thank you. Sure, Aaron. Yeah, this is just for this Q3 that there's substantial amount of local order and order at a lower margin because we want to keep running and utilizing all our capacity. I mean, first of all, we can more allocate or more absorb our fixed cost of the factories that we have. We also don't want to lay off or reduce our workers because we need those workers when the business turns around, when the market turns around. Unlike other factories in Jordan, many of those have already reduced their staff, laying off people, and some smaller factories even went out of business. Everybody is suffering even in Jordan. We decided, and our strategy is we have to prepare for the business to come back and for even future growth because we're talking about a joint venture, we're talking about new customers that we're onboarding. We don't want to cut into the bone. We wanna keep everybody busy, and that's why we went out and we brought in a lot of this supplementary business. These are people that we have done business with before and they are very happy to send us the business. In this current quarter, Q4 of 2023, we are kind of busy with the business with our existing customers like New Balance and The North Face, actually, we're quite busy this quarter. We're going to be busy in the Q1 of 2024, which is the April to June quarter, producing for these two largest customers also. The amount of the supplementary orders or what we call the CM orders is going to reduce. It's not going to be as high proportion as in this current quarter. If we need to use up the capacity, we will accept these kind of orders. It's all the mix of the business or the mix of the orders, and that will affect the gross margin and also the top-line top-line sales. Does that answer your question? No, it does. Absolutely. That was actually really helpful. Then actually, then turning to the flip side of that, as you continue to kind of ramp up some of these new ones, Timberland, Skechers and some of the Athletes as well, you know, as those progress and potentially, you know, advance into bigger and larger orders. Can you just give us any update maybe on the timing of that, you know, and whether or not then if you are at full capacity now, you know, for the next couple of months? and then how you potentially kind of ramp up, you know, those lines as well, along with the current ones for your two largest customers, particularly in a scenario of when the business turns around and then you're back at full with the legacy and you've also ramped up these new brands. Thank you. The ramp-up of these new brands, I mean, first of all, I think we started courting Hugo Boss about almost a year ago. Now we're... Correct me if I'm wrong, Eric, I think we're going to start shipping the first orders for Hugo Boss maybe in March. Is that correct? Exactly. There will be a ramp-up. Yes, correct. There will be a ramp-up period. I think after the first few test orders, they will just continue to bring us new styles. Also, Hugo Boss is a long-time customer of Busana. In fact, Busana helped us a bit, quite a bit, to onboard Hugo Boss. Even though we first contact with Hugo Boss about a year ago, but Busana came in and they assisted us on a lot of the technical area and how to do business with Hugo Boss. Eventually, Hugo Boss will be part of the joint venture when we start doing business with Busana. Besides Hugo Boss, there are a lot of other premium brands that Busana has been working with, and those will come in. Of course, it will take time for them to for them to do the sampling, to do the test and make sure all the quality is up to their standard. I don't know, it could be the timing could be tricky. It also has to do with our capacity and our manpower. By that time, Busana will be on board, and they will be assisting us. We feel very optimistic, cautiously optimistic about this this coming year. Okay, great. Thank you very much. I'll jump back in the queue. Thanks. Your next question for today is coming from Rommel Dionisio with Aegis Capital. Yes, good morning. you know, I wonder if you could just expand on your initiative to source additional fabric from local partners in the Middle East. I know you touched on this in prior quarters, but there are many moving parts in gross margin. Obviously, the customer mix had a shift, resulting in a shift in gross margins. Did the additional sourcing from local partners have a beneficial impact in the quarter, and what your outlook is for that, those initiatives going forward? Thank you. Yeah, sure. We started the sourcing in the Middle East and North Africa region, probably more than a year ago. I remember that it was December when I first went to Egypt and Turkey to start the sourcing effort. Now we already are purchasing fabrics from both Turkey and Egypt. For Egypt, I think it's primarily for the Timberland products. Turkey, I think it's also Timberland too. That, besides giving us a much less dependency on the Asia fabric sourcing, especially China, especially during the pandemic, there were a lot of shutdowns and interruptions. It is more strategic and more long-term. I think without going to the MENA region to source, we wouldn't be doing the Timberland business at least not so soon. That really helped us in getting this new customer, Timberland. It opens up other opportunities to other European customers or potential customers. The cost for the raw material may not be may not have a big difference because comparing to China, the Middle East fabrics and the supplies are the prices are higher. However, we save the freight costs. The most important thing is to the save the shortening of the logistics time from shipping from Asia than comparing to shipping from the Middle East. That is the biggest benefit for us, is the quicker turnaround, and we don't have to carry so much inventory, I mean, raw material inventory and so on. Yeah, there are pros and cons, but I think there are more pros than cons, and it opens up a lot more opportunities for us to grow our customer base. Okay. Just as a follow-up, I think you mentioned that, you know, it's a difficult situation for some of your competitive factories in Jordan. Is that causing any sort of impact on your labor base? Are you able to source more domestic workers within Jordan? Or how is that sort of affecting your everyday operations from a labor perspective? Thanks. Eric, do you wanna take this question about sourcing local workers, maybe some opportunities? Just now, it is mentioned that some small factories are already closing down. Some of the big factories, because of the order situation, they also reduce the number of workers. It will become more easy for Jerash to source, especially the local workers, who is very easily to shift from one factory to another. For the foreign workers, of course, if the factory is getting down, they need to go finish the contract and go back to the country. I mean, there's a more chances, more opportunities for them to come to work in Jordan for Jerash. Mm-hmm. Great. Thank you very much. Thank you. Yeah. That's the reason why we want to hold on as much as possible to our existing workers because they are very familiar with our operations, and they are very experienced. It is a big cost if you want to go out and find new workers, whether it's local workers or import workers. Okay. Thank you. Thank you. We have reached the end of the question and answer session. I will now turn the call over to Sam Choi for closing remarks. Thank you, operator. We are optimistic about Jerash's prospects and the progress of our strategic initiatives. We look forward to speaking with you again soon and appreciate your continuing support. Thank you. Thank you. This concludes today's conference. Goodbye, everyone. You may disconnect your lines at this time. Thank you for your participation. Thank you. Thank you, everyone. Thank you very much. Have a nice day. Mm-hmm.