Good morning. And welcome to Jerash Holdings Fiscal 2022 Fourth Quarter and Full Year Conference Call. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] I would now like to turn the conference over to Roger Pondel. Please go ahead.

Thank you, Operator. Good morning, everyone. And welcome to Jerash Holdings fiscal 2022 fourth quarter and full year 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 Factor section of the company’s most recent Form 10-K and Form 10-Q 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. Jerash 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, and hello, everyone. Our fiscal 2022 fourth quarter and full year sales demonstrated, Jerash underlying foundational strength and attractiveness of its manufacturing capabilities to quibble bend. While our topline was up sharply, gross profit for the fourth quarter was impacted by product mix that includes fewer than expected jacket orders, as U.S. retailers faced the strains of a weaker economic environment due to inflation. On the positive side, we were able to quickly shift manufacturing to produce other premium brand sportswear items such as pants and polos, although these items carry lower margins. Jerash is in the fortunate position of having strong customer relationships, along with the ability to attract new customers even during the current macroeconomic environment. Our operations in Jordan offer unique benefits of free trade agreements with the U.S. and EU. Combined with our ability of producing highly complex apparels, the company is positioned as an attractive alternative manufacturing partner outside of Asia for global apparel brands. I’m happy to report that we have received orders from our first European-based high-end apparel brands. Other new customers are in the pipeline, as we continue to focus on diversifying and expanding our customer bases. We are taking conservative approach with respect to our guidance, and Gilbert will discuss those details momentarily. From a growth and topline perspective, our business outlook remains strong. Accordingly, we are continuing to explore clients to increase capacity. In April, we started expansion in one of our existing factories to add approximately 1.3 million pieces to our capacity. This expansion is expected to be completed by the end of 2022. We also have room for in-house renovation in other premises that could increase an aggregate of 2 million pieces in preparation of continuous growth in customer demands. I’ll now turn the call over to Eric Tang, who is based in Jordan and then Gilbert Lee will cover our financial results. Eric?

Thank you, Sam. Hello, everyone. Order volumes continue to be strong in the fiscal fourth quarter and into the new fiscal year from our current top global brand customers. Our manufacturing capacity is completely booked through December 2022. Further, we have received production inquiries from several new premium brand customers, which will allow us to further diversify our customer base. As Sam mentioned, we recently have received orders from Jerash first European based high-end apparel brand to produce jackets and other outerwear for its Sportswear division. Production from our new leased facility that we acquired and took over in August last year has now fully transitioned to manufacture products for our own customers. We continuously train our employees and enhance efficiency from this facility to further expand our capacity for new customer order and new production categories. Construction of a new dormitory for our multinational workforce is progressing on schedule and it is expected to be completed by September 2022. The high quality living space with comfort designs and the highest safety measures will have positioned us for growth and further our ESG goals. Please take a look at Jerash Holdings website to see updated videos for the dormitory and recent factory expansion. Lastly, we are proud that Jerash was featured by the World Bank throughout this week for World Refugee Day on June 20th, highlighting the company’s ongoing efforts to employ Syrian workers at its factories and providing transportation for these workers. This recognition served as a prime example for the private business sector to help refugees settle into a new hosting country. With that, I will turn the call to Gilbert to discuss our financial results and the fiscal 2023 outlook. Gilbert, please.

Thank you, Eric. Fiscal 2022 was a record performing year for Jerash, achieving revenue of $143.4 million, up 59% from fiscal 2021. Net income jumped 91% to $7.9 million or $0.67 per share from $4.1 million or $0.37 per share in fiscal 2021. Revenue for our fiscal 2022 fourth quarter rose 30% to $30.9 million from $23.8 million in the same period last year. The increase was primarily due to higher shipments to our current customers [Technical Difficulty] due to increased capacity from our newest factory. Gross margin was lower by 445 basis points to 15.1% in the fiscal 2022 fourth quarter, compared with 19.6% in the same period last year. Gross margin was mainly impacted by fewer than expected jacket orders, which carry much higher margin. To a lesser extent margins were impacted by high material and ocean freight costs during late 2021 and early 2022. But the good news is, the ocean freight costs are now coming down since Shanghai reopened earlier this month. Operating expenses totaled $4.4 million in the fiscal 2022 fourth quarter, compared with $3.5 million in the same period last year. The increase was primarily due to increase headcount and shipments and increase in stock-based compensation and recruitment for new migrant workers, as well as higher shipping costs. Operating income for our most recent fourth quarter was $275,000, compared with $1.1 million in the same period last year. Income tax expense was $405,000, due to higher provision for annualized consolidated global income. Net loss for the fiscal 2022 fourth quarter was $130,000 or $0.01 per share after $312,000 of stock-based compensation expenses, compared with net income of $681,000 or $0.06 per share a year ago. Jerash’s balance sheet and cash position remains strong, with cash of $25 million and net working capital of $56…

Certainly. [Operator Instructions] And the first question is coming from Mike Baker from D.A. Davidson. Mike, your line is live. Please go ahead.

Okay. Hi. Thanks, guys. So a couple of questions. On the -- well, I guess, I’ll ask on the margins and new customers, so Sam, can you talk about percent of sales from new customers and what that should look like in 2023, and how that impacts your gross margins? I guess what I’m trying to get at is the gross margin pressure more about the mix away from jackets and towards pants or in other apparel items or is there also an impact from taking on more new customers, which will take us probably positive for the longer term, but as I understand it, new customers come on at lower gross margins?

You’re absolutely right, Mike. It’s actually both. We’re taking on new customers. But, of course, the percentage or the mix of new customers is not going to be big for this coming fiscal year anyway. We’re putting -- new customer takes a while to get there into the ordering stream. We do have first orders from our European based premium brand customers that we just successfully brought them on Board, plus a few other global brand customers. But those are not going to be significant comparing to our existing customers. So even though, yeah, their margins are going to be lower at the beginning and gradually we will improve on the margins for these new customers once we get to learn how to make their products and get up to speed on efficiencies and pricing and so on. But the other impact is also coming from the mix of the products. A lot of our existing customers, especially VF and New Balance, they place a lot of orders in fiscal 2022 and especially VF because of the North Face, most of their orders are on outerwear and on jackets. So that grew exponentially in 2022 comparing to 2021. That’s how we achieve a 59% growth in sales and a significant amount in terms of gross margin. But that kind of pull down especially in the last fiscal quarter, the fourth quarter of 2022. So we had to switch our gear and filled up the capacity with low margin products, with lower margin customers, mainly customers who are more local in nature, like in Jordan, and also customers who are in the mass merchandising area, such as, Costco and Walmart. And so that we anticipate to continue, because the outlook in the upcoming year is kind of uncertain, so we don’t know whether or when the recession will hit and how it will affect the ordering behavior of our customers, such as, VF and New Balance. So we will lower their participation or their mix in our projection and put more, because we can always filled up our capacity. Well, not without effort, we can always find customers but at a lower margin. So that’s why we’re projecting a lower margin and we experienced a lower margin in the fourth quarter and we’re just kind of extending that out in the fiscal 2023.

Yeah. Okay. That makes sense. One other question, if I could. At the midpoint, your first quarter sales guidance, I think, is up 4$ -- 15%. You said full year up marginally. Does marginally mean -- to me that means up less than 15%, which I guess implies slower growth for the next three quarters after the first quarter? Is that the right interpretation and I guess why?

Well, for the first fiscal quarter, Q1, we’re projecting it will have, I guess. 15%.

Yeah. $34 million…

But…

… is 16%. Yeah.

Right. And then, I think Q2, Q2 last year was exceptionally high. So we don’t see much growth in Q2 and we’re already at full capacity. Then Q3, we also anticipate Q3 will be strong. So that will have a pretty significant growth comparing to Q3 of 2022. But we -- after that, it will be really difficult to see on Q4. So I think, overall, we’re looking at the full year growth at about 14%, 15% just from this point of view.

Okay. Understood. Okay. Thanks. I’ll -- one more if I could, you talked about some margin pressure from ocean freight, material cost, et cetera. What’s your ability to pass that through to your customers, through price increases or have them absorb those costs?

Well, for new orders, we normally could pass it on as soon as we find out that the raw material costs, when we source the fabrics and the other materials that we know the pricing are -- that the raw material costs are coming up, then we can negotiate to increase our prices to our customers. But for orders that are already in the system, if we experience a certain change of prices of raw material cost and those in freight, those are almost impossible to get the customers to, because they already committed or we already committed to the price. So it would be a mixed bag. Sometimes we can get the customers to absorb the increased price and sometimes we have to eat it.

Understood. Okay. I’ll pass it on to someone else. Thank you.

Thank you. And your next question is coming from Mark Argento from Lake Street. Mark, your line is live. Please go ahead.

Hi, guys. Just a quick question on capacity, maybe can you just remind us what capacity you’re at right now in terms of the number of pieces? Then I think, Sam, in your opening remarks, you’ve mentioned that, you’re undertaking expansion, if you could, in particular facility, can you just talk about what you have today, specifically, in terms of piece capacity, what you think you can expand that to, because really it sounds like, this mix from quarter in, quarter out moves around, but really the gating factor to growth here is the ability to source additional capacity. So just wanted to drill down on that a little bit? Thanks.

Well, yeah, Mark, at the end of our last fiscal year, which is March 31st, we estimated our capacity for -- our annual capacity was about 14 million pieces. And we started expansion of our -- one of our existing factories and that will add about, well, a little bit less than 10%, which is 1.3 million pieces to our capacity. And we also have plans to also add production lines to our other factories and that would give us another 2 million pieces. So, altogether, maybe by the end of this fiscal year, we will have another 3.3 million pieces, which is about 20% of our increase in our current capacity.

Great. And then so the -- for fiscal year you just completed, was that a 14 million pieces, is that what you said or is that a year ago?

Yeah. No. That’s the fiscal year that we just ended.

Okay. And then the business you acquired, you’re kind of weaning off some of their existing customers and then bringing Jerash customers on it sounds like that’s fully complete. What was the capacity again of that facility and how much additional recall Jerash capacity you gain here this year by having a fully under manufacturing for your customers?

Okay. That’s the MK Factory that we purchased last year and we brought online in August. Eric, can you give an update on the capacity of that factory?

Yeah. When we took up the MK Factory last October, okay. The -- at that time the current capacity -- total capacity for whole year is around 3.5 million pieces. Okay, after we took up the factory immediately, okay, we took up some expansion measures and we already add in another 100 workers, okay, from overseas and created another two production lines, okay. Now our annual capacity from MK Factory is jumping from 3.5 million pieces up to another additional 1 million, 4.5 million pieces a year.

And then when you were shifting from the legacy customers to the Jerash customers, does that have a big impact in terms of margins, was that running much lower margin on the existing or the previous customers. I’m just trying to understand that the dynamic there and how that might work through into the numbers this year?

Because in the beginning when we took up the MK Factory, so the, okay, so we took up also a new production management and also new -- and also workers which belongs to the old management. Okay, so we have to spend some time to train the workers, okay, to the level that can that they are capable to do Jerash own customers. So in the beginning two months to three months we only assigned to MK Factory workers some subcontract orders we took from outside, okay. We are not allocating any of our own FOB orders to the workers in order to play safe, but after two months to three months training, they are -- okay they are very good and we see that the efficiency can be -- and capability can be able to produce our own customers order. So starting November, okay, last year and December, we start filling up with MK Factory our own orders.

Great. And then just my last question…

Yeah. Okay.

…in terms of. Go ahead.

I’m sorry, Mark, I guess, to answer your question. At the beginning, because we were just using the MK Factory to produce low margin products, more simple items, items that we do the for contract manufacturing, so those are typically much lower than the FOB orders that we normally produce for the North Face and New Balance. So but since then -- I guess, since the end of the last calendar year, they are now able and have the skill and the efficiency to produce our higher margin FOB orders.

Great. That’s helpful. And then just my last kind of follow up question is around, build versus buy. Obviously, you were able to acquire some capacity, the MK last year, doesn’t seem like there’s a lot of additional of those types of facilities that are available for sale this time then maybe that changes in this environment. But when you think about build versus buy and you got $25 million in cash, how do you juxtapose or how do you think about getting more aggressive in adding capacity here? Do you just be opportunistic and try to acquire something that already exists or do you put a shovel in the ground and actually Greenfield, build a new facility here at some point?

Well, we did have a plan to build on the land that we have, that we have purchased two years or three years ago and we will continue to finalize the engineering study and the design of that facility. But right now, we’re just kind of putting it off until we absolutely need it, until we can see the -- how the market is going and whether we get some really solid commitment from our -- either our existing customer or some larger new customers, before we decide to start the construction. And the construction will only take about a year or at least based on our design, that new factory will take up to a year to finish. Now, we always keep our eyes open for any purchase opportunity, any acquisition opportunity that that we can buy. Now, like you said, the -- those kinds of opportunities are rare. But who knows, in this market condition, maybe there something will come up and we do have to cast to do it if we need to. But at this point, because of the uncertainty in the market and the economy, we just want to play it safe and be more conservative until we can see more clearly.

Great. Thanks, guys.

Thank you.

Thank you.

Thank you. Your next question is coming from Rommel Dionisio from Aegis Capital. Rommel, your line is live. Please go ahead.

Thanks and good morning. I think on a prior conference call you discuss the possibility of looking for alternative sources of fabric in the Jordan area and I wonder if you could just give us an update on how that initiative is going and if you’ve made some progress there? Thank you.

Sure. Eric, you want to talk about the fabric sourcing?

Yes. Maybe I can talk a little bit. Okay, so all along, okay, Jerash sourcing team is located in Hong Kong and China, okay. But from -- but our recent strategy is, we are now setting up, okay, a new marketing, sourcing and development department in Jordan, okay. Okay, so we have already employed some of very experienced staff to fill up the key positions. The purpose of this department is to help the customer to solve trims and fibers, okay, in the Middle East countries, like, Turkey, Egypt, et cetera. Okay, one of the main reasons why we are doing so, it is under the request of most of the buyers, okay. Because we have been facing a lot of problem about logistic problem from container leaving from China, Vietnam and Taiwan, Korea to Jordan and then, okay, it create a much longer lead time than before during the epidemic, okay, and especially during a couple of months before when Shanghai started lockdown we also faced problem with the logistic, the delay of containers, which also jeopardize, okay, the production of the garments, which -- and affect the delivery schedule, which already set up by the buyers. So, if the sourcing of the trims and the fiber, okay, can be from, I mean, the neighboring countries like, Turkey, Egypt, okay. So the lead time from that country -- this countries to Jordan is much, much shorter, at least maybe by 50% or even 60% of the lead time and it will become, I mean, much more controllable and easily accessible by the buyers. And then another reason why we are doing so, because, okay, some, especially the cotton, everybody knows about the cause, cotton problem about Xinjiang in China and more and more buyers or almost all the buyers are not buying from or using the cotton from us, Xinjiang anymore. And also many of the buyers, okay, would like to have some kind of alternative trend for trims and fabrics in the Middle East countries. So this is the reasons why we have already started, okay, a new -- completely new development, marketing and sourcing department. And actually our teams, which consists of more than 10 members already started this job since a couple of months ago. They already go and make study and visit many fabric mills and trim supplier in Turkey and Egypt, and business already started, okay. And recently we also have orders from buyers that we have also brought the trims and fabrics instead from China or Taiwan, which is before and now, okay. The supplier in Turkey and Egypt became the replacement supplier. Okay, this is the new -- latest situation and I think this trend will go on and our department, I think, the business will grow because of this new setup.

Okay. Thank you very much. It’s very helpful.

Thank you.

Thank you. We have a follow up question from Mike Baker from D.A. Davidson. Mike…

Thank you.

…your line is live. Please go ahead. Hello, Mike. Your line is now live. Please pose your follow up question.

Thanks. Sorry about that. I wanted to follow up on the question or the point about potentially delaying some of your construction. And I guess, the question, two-part question, but one, what are you seeing in terms of inventory in the U.S.? Is there an apparel or a jacket inventory glut and are you seeing order cancellations and is that what is leading you to maybe push out some of that construction?

Well, we do feel that our key customers, they do have an abundance of inventory, because they have reduced their orders. So, of course, they won’t tell us that they have too much inventory. But the -- we think that the inventory situation is only going to slow down the increase purchasing. It is not going to cause them to cancel orders, because they -- we do have orders that filled up our capacity until the end of December. So we’re not worried about kind of like when the pandemic hits that customers are canceling their order or putting it out. We won’t see anything like that.

Okay. One more if I could, I think, in your 10-K from last year, you guys disclose the jackets were 25% of your mix, which had come down pretty substantially. Any idea what it was? I guess, we’ll wait and see the K, but what it was in 2022 and where we should expect that to be for 2023?

You mean the mix of jackets?

Yes.

Don’t remember what we said on the 10-K about the mix of product categories, but maybe we can give an estimate. Eric, do you know what the mix of jacket was for 2022?

For -- you mean for 2024, 2023, 2023 is it…

Well, I was…

And also the expectation for 2023?

Our expectation for 2023 is, I mean, not only for the jacket order, for most, for orders from current customers, okay. I think they will reduce a little bit of the orders, okay. Not like last year when they are keeping -- and they are asking us to increase capacity for them. I think one of the reasons, I just mentioned, okay is, because I think they have at least adequate inventory, okay, to be able to provision for providing to customers for a certain period of time. But I’m sure that I think moving forward after six months to seven months, they will -- the customer will except. No matter its jacket or polo shirt or pants, they will come up and start placing the orders same like before.

Okay. Thanks for the color.

Thanks.

Thank you. This does conclude the Q&A session for today. I would now like to turn the call back to Mr. Choi for closing remarks.

Oh! Thank you, Operator. And thanks again to all of you for joining us today. We appreciate your support and interest in our company and we look forward to speaking with you again soon on our fiscal 2023 first quarter call. Thank you everyone.

Thank you.

Thank you.

Thank you.

Thank you, ladies and gentlemen. 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.