Jerash Holdings Fiscal 2027 Second Quarter Financial Results - JERASH HOLDINGS (US) INC

Good morning and welcome to Jurasch Holdings Fiscal 2027 Second Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode, and we will open up the floor for your questions after the presentation. If you wish to join the queue to ask a question at any time, you can press star 1. Should you wish remove yourself from the queue, press star 2. It is now my pleasure to turn the floor over to your host, Roger Prandell, Investor Relations. The floor is yours. Thank you, Operator. Good morning, everyone, and good afternoon to some of you, and welcome to Jurasch Holdings Fiscal 2027 Second Quarter Conference Call. I'm Roger Pondell with Pondel Wilkinson, Jurash Holdings Investor Relations Firm. On the call today from the company are Chief Executive Officer Sam Choi, 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-thinking 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 these forward-looking statements, and Jurasch 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. We deliver meaningful growth in both revenue and profitability for the fiscal second quarter. Even as logistics challenges across the middle east weight on the operating environment over the past several months regional shipping disruptions and ongoing uncertainty have driven up transportation costs for important materials making up results all the more significant Despite these external pressures, revenue grew by nearly 20%, and gross margin expanded by 320 basis points compared with the prior year quarter. We improve margins by strategically purchasing raw materials early, maintaining disciplined cost controls, reducing waste, and enhancing operation efficiency through automation initiatives. The quarter's results underscore the resilience of our Jordan-based manufacturing platform and the advantages it offers, including duty and terrace-free access for apparel and textile exports to the United States, Europe, and other key markets. Just as important, we continue to deliver reliably and on time in a challenging environment. All of this remains a significant competitive advantage for Juresh and for our customers. Turning to demand and capacity, I'm happy to report that our production facilities are fully booked through June 2027 and incoming orders remain strong. We are actively looking for ways to expand capacity to support continued growth and and pursue new business opportunities. We expect the renovations and our most recently acquired facility and construction of our third satellite factories supported by the Sudanese government to be completed by September, 2027. The additional capacity will help us meet increasing customer demand and support our long-term growth objectives. Despite ongoing geopolitical uncertainties and regional conflicts, we have continued to navigate effectively while maintaining our commitment to operational excellence and execution of our growth strategy. We believe Jordan's favorable trade environment will continue to support our future growth. new opportunities with customers and strategic partners, and strengthen our ability to create long-term value for our customers and shareholders. With that, I will now turn the call over to Eric Teng, who is in charge of our operations in Jordan. Hi, Eric. Thank you Sam. Customer interest continues to build with increasing order volumes and new inquiries from both existing and prospective customers. Following the July announcement of the U.S. Jordan Trade Agreement, which reinforced the benefits of the 2001 Free Trade Agreement, including duty-free access for Jordanian apparel and textile experts. Jiraj is uniquely positioned to leverage these advantages to attract new business, deepen customer partnership, and drive sustainable long-term growth. On the business front, we continue to receive additional orders from Hensel, our strategic partner in Korea, and have recently completed product development for a potentially significant winter jacket order for its customer, with production that could begin at the start of our fiscal 2028 year. We have completed product development with another strategic partner, a large garment conglomerate, and also are now producing an initial trial order for an iconic American apparel and lifestyle brand. If the trial order meets expectations, it could lead to additional orders and further enhance our growth momentum. As Sam mentioned earlier, our facilities are fully booked through June of 2027. We are actively pursuing opportunities to expand production capacity, including our previously announced plans to add production lines at two existing manufacturing facilities. Upon completion of the project by December, we expect to increase our overall production capacity by approximately 8%. Another expansion project involves converting our most recent acquired facility into a smart warehouse and cutting operation, while also adding production lines. This phase includes 500 new state-of-the-art sewing machines, additional automation, and the hiring of approximately 11,000 foreign workers. We now expect to complete this phase by September 2027, increasing production capacity by another 15 to 20 percent. Our partnership with the Jordanian Ministry of Labour continues to deepen as we move forward with construction of a third satellite factory that will expand facility capacity in rural communities and create approximately 500 new local jobs since the start of 2027 on April the 1st 2000 and 26th our Jordan operation have hired over 1,300 local and foreign workers including a number of replacement workers following the completion of their contract terms As we continue to hire and train new workers, we expect productivity to improve as they gain experience. We also plan to act shift as needed to meet consumer demand. At the same time, we continue manage near-term logistic challenges related to the ongoing conflict in the Middle East. While operations at the Haifa and Aqaba ports have returned to near normal levels with minimum delay, transportation costs remain elevated. Our team remains optimistic about the opportunities ahead. Jordan's favorable trade environment and our long-standing reputation for quality reliability and service continue to enhance our competitive position in the global apparel market and as mentioned we are strategically expanding our production capacity and operational infrastructure to meet rising demand from existing and new customer. With that, I will turn the call over to Gilbert to discuss our financial results. Gilbert, please. Thank you, Eric. Just want to make a minor correction. When Eric said that we were hiring approximately 11,000 foreign workers, I like to correct that it was actually $1,100. Okay. All right. Revenue for the fiscal 2027 second quarter grew 19.8% to $50.3 million from $42 million in the same quarter last year. The increase primarily reflected higher shipments to our major U.S. customer and others whose orders are primarily for the U.F. Gross profit increased 45.4% to $9.1 million for the fiscal 2027 second quarter from $6.3 million in the same quarter last year. And growth margin for the quarter increased 320 basis points to 18.2% compared with 15% in the same period last year. The improvement was primarily driven by higher shipments to U.S. customers that typically generate stronger margins, as well as improved efficiency gains from automation, advanced purchases of raw materials, and tighter controls on wastage allowances. Operating expenses totaled $6.1 million in the fiscal 2027 second quarter, compared with $5.2 million in same quarter last year. The increase was primarily attributable to higher sales volume, as well as increased headcounts and related expenses. Operating income for the fiscal 2027 second quarter increased nearly three times to $3.1 million from $1.1 billion in the same quarter last year. And total auto expenses were $506,000 for the physical 2027 third quarter compared with $456, 000 in the same quarter last year. The increase was primarily attributable to higher interest expense on the mortgage loan used to purchase our new facility in early 2026, as well as higher costs under the company's customer supply chain financing programs from increased shipment volumes. Income tax expenses were $402,000 in the fiscal 2027 second quarter, compared with $154,000 in the same quarter last year. The effective tax rate decreased to 15.7% in the second quarter of fiscal 2026, compared with 24.3% in the prior year period, primarily due to a tax concession in Jordan that lowered the corporate income tax rate from 20% to 10%, effective October 2025. Net income for the fiscal 2027 second quarter advanced 4.5 times the prior-year level, reaching $2.2 million, or $0.16 per diluted share, compared with $479,000, or 0.04 per dilute share, in the same quarter last year. Comprehensive income attributable to the company's common stockholders advanced to $2.2 million in the fiscal 2027 second quarter from $444,000 in the same period last year. As of September 30th, 2026, cash, cash equivalents, and restricted cash totaled $16.9 million, and net working capital was $40.6 million. Inventory was $23.3 million, and accounts receivable amounted to $4.3 billion. Net cash provided by operating activities was $7.5 million for six months end of September 30th, compared with $318,000 in the same period last year. On November 5, 2026, Jurasch's Board of Directors approved a regular quarterly dividend of $0.05 per share on its common stock, payable on November 23, 2027, to stockholders of record as of November 16, 2028. As Sam and Eric noted earlier, we are optimistic about the company's future growth as we focus on improving operational efficiency, adapting to current market conditions, and executing on our expansion plans. Looking ahead for the fiscal 2027 third quarter, ending December 31, 2026, we expect revenue of approximately $49 million to $51 million. Gross margin is expected to range between 16% to 17%, reflecting higher import logistic costs for raw materials brought for productions for the next two quarters and the temporary impact of onboarding new employees. I will now turn the call back to the operator as we open the call for questions. Thank you. The floor is now open for questions. If you wish to join the queue to ask a question at this time, please press star 1. We do ask if listening on speakerphone today, please pick up your handset while asking your question to provide optimal sound quality. Once again, please push star 1 on your phone at this point. If you have any questions at this moment, please join the cue to ask the question. Please hold a moment while we pull for questions first question from Ryan Mayers at Lake Street Capital. Please go ahead. Hey, guys. Thanks for taking my question. First one for me, just on the gross margin during the quarter, how much of that was kind of permanent efficiency improvement versus how much that was raw material purchases? Just kind of walk us through and break down the strong gross margin during the corridor and how much will that stuff continue going into the future? Well, it is hard to distinguish how much impact was on the quarters gross margin was due to permanent operational efficiency or how much is due to purchasing of raw material ahead of time. But I think overall, our long-term gross margin will gradually improve, which is our goal, by working on a number of areas, operational efficiency, productivity, trying to minimize the impact of increasing logistics costs, as well as policy or procedures to reduce the waste age. And there are some other headwinds that we are facing. So we have to bring in new workers as we grow. some of the existing workers continue to, when the contract expires, they have to go back home and we'll have to bring in replacements, new replacements. So those new workers will take a while, maybe two or three months to get up to speed. So that will have some negative impact on our productivity and efficiency. But at the same time, we're trying very hard to improve the overall efficiency on all our manufacturing facilities. And another very important factor is that the customer mix and the product mix, so that changes from quarter to quarter and from year to year. So it's really difficult to pinpoint which improvement is which, especially when you compare to a year ago. Okay, it makes sense. And then with the facilities booked through June of 2027, you know, how much of that represents purchase orders that you guys already have versus customers projecting out that far, thinking about what their products are going to look like? And then maybe what else are you guys seeing, and are you seeing an acceleration from new customers? Well, first of all, correct me if I'm wrong, Eric. I believe when we say that our facilities or our capacities are fully booked through June of 2027, I believe all these are already orders that were confirmed up to this point. And basically, we receive customer's orders. Right. So there are still orders that keep coming in and that we are anticipating for the second half of the calendar year 2027 that we are working on product development, sampling, pricing exercises. So all those demands keep coming it and I think within the next month or two those will become confirmed orders okay got it congrats on the great work and thanks for taking my questions thank you Eric do you have anything to to add to this question about new orders new customers yes yes i've uh a little bit to add this okay what we mean by uh the the factory okay book through june 2027 means we have all confirmed order allocated to all the production lines and all our production line will be working on full capacity 100 okay until the end of june 2027 of course we keep receiving projection orders okay from customer at the same time they are also very solid orders from customer okay which require us okay to deliver i mean before june 2027 off which we don't have capacity we are now also discussing with those customers trying to, I mean, ask them to revise the delivery schedule to the next quarter so that we can accommodate also these orders from the customer. So this is what I want to ask. Thank you. Thank you, next question comes from Mike Baker with DA Davidson. Please go ahead. Okay, thanks guys. I wanted to ask about the capacity expansion. I think you, if I'm sort of, you know, hearing it correctly, there are sort of three things that you're doing. You're adding lines to existing facilities. Then there's another project where you're just sort of redoing the whole facility. And then thirdly, a new satellite factory. Is that right? Am I articulating that correctly? And then the second part of my question is, you kept talking about adding even more capacity. Are you looking to add more capacity even above and beyond those existing projects that you specifically outlined? Yeah, Mike, thank you for asking the question. You are correct on your articulation of our expansion projects at this point. Adding additional machines or additional production lines in our existing facilities, That will give us a little bit of additional capacity just to kind of ease the pressure from our existing and new customers who want immediate or, well, immediately, meaning the next six months or nine months demand. So that is kind of ongoing all the time. We try to squeeze more production lines, more machines in our existing facilities by better improvement of layouts and so on. And then the second one is to, yes, we purchased a facility earlier this year. I think it was in January or February of 2026, which didn't show up on our current fiscal year. It was actually in our last fiscal year of 2027. So that facility, we have been working on designing and, well, first we wanted to set up a centralized smart warehouse and also a centralized cutting department in that facility, plus some production lines. But now, as we see more pressing demands of production from our customers, now we're going to focus on first developing the production lines and then worry about the centralized warehouse later. So that's right now what our focus is. and try to get that facility up and running, which is still going to be somewhere in the next fiscal year. And so that is the second project. And the third one, like you said, is the addition of satellite factories with the cooperation and working together with the government of Jordan, the Ministry of Labor, and the Royal Court. So those will add more capacity, but those are what we're working on right now. And one facility or one factory is already in operation. And then the other one, we have to build a building. And that should be completed also somewhere in year 2027. I mean, calendar year 2026. So those are the three that we have been talking about. But then we're still actively looking for other ways to add capacity outside of these three projects. And, yeah, you are correct. Yeah, Sam, I mean I may try to add one more. point to increase our capacity. We will, maybe three months later, we will try a new project to work in one of our factories for two shifts. That will be one of our trial projects. That means making use of the existing facilities. We are working on two shifts, so to minimize the capacity, but to increase the capacity as well yeah there will be another another way to increase our capacity got it thank you thank you two more quick ones here well maybe not quick ones but I did want to it sounded like you talked about at least two sort of trial production lines or orders that that you're working with or develop I I think product development that you talked about, one with Hansel for a jacket, I think you said, and then another one with another customer. Can, you know, any way to sort of quantify the size of those or what kind of visibility, assuming that those, you now, come to fruition, what kindof visibility does that give you in terms of, you kno, overall top line growth from those kinds of orders? Well, Mike, without naming names, I think we pretty much know who the end customer is. But in terms of what the quantified or the significance of these two projects, yeah, there are two. One is with Hansel and the other one is with another large potential strategic partners. So I would let Eric to talk about these two trial orders or developments. Eric, can you articulate on this? Yes. Thank you, Gilbert. as well i think we previously already reported a couple of times that we are working very closely and with hansel which is one of the biggest i mean parents group in korea so we are working really successfully and we have already delivered okay a few orders for them with significant figures at the same time okay in the beginning of this year we also start discussion with another very big apparel which is also based in Korea which is much bigger than Hansel so after several discussion we got to trial orders from them okay and we already started this month so it is the truth cloud orders okay we'll be expecting to complete it in December if everything is goes well okay we are expecting okay from this uh i mean another big vendor okay a significant amount of business for 2027. can you give an approximately how many pieces for for these two orders for this to order that each orders is the quantity is around 40,000 pieces 40,00 which is sum up to 80,000 pieces and the one with Hansel Hansel Hansel we have just secure a very big order with them okay of which the order quantity is 5.35 million pieces. Okay. Presumably, this is all above and beyond. Well, the trial order, that's above and beyond what you've talked about in terms of capacity being full through June 2027. This would go after that, presumably. Yes. All these, I mean, projected orders, okay, I mean, okay, already told the customers that we have booked through already June 2027, all the new orders or new projects coming, so they understand that we will have, we can be able to accommodate them after June 2037. Got it. One more real quick. Just a A boring question on the tax rate, that new tax rate. So is that a permanent change? So can we, in our models, think about 15% going forward? Yeah. The test rate, the test concession from the Jordan government or the Jordan test authority is, I wouldn't say permanent, but it is as long as until they change it, as far as we can see. Yeah, makes sense. Okay, awesome. Thank you. Thank you, thank you. At this time, I will turn the call back over to Sam Choi, CEO for Closing Comments. Okay, thank your operator. Thank you all of you for joining us today. We appreciate your ongoing support and interest, Mr. Gresh, and look forward to updating you on our progress in the near future. Thank you very much. Thank you. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.