Greeting. Welcome to the Jerash Holdings Fiscal 2023 Fourth Quarter and Full Year Financial Results Conference Call. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, Roger Pondel, Investor Relations for Jerash Holdings. You may begin.

Thank you, Holly, and good morning, everyone. Welcome to Jerash Holdings Fiscal 2023 Fourth Quarter and Year-End 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 CEO, Sam Choi; Chief Financial Officer, Gilbert Lee; and Eric Tang, who leads the company's operations in Jordan and today will -- is calling in from Indonesia. 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 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 Jerash Holdings undertakes no obligation to update any forward-looking statements, except of course, 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. The retail sector is facing challenging times following the pandemic. Persistently rising interest rates, the inflationary impact and other factors are having an impact on consumer spending. Apparel brands have not been in new to today's environment, which [indiscernible] translates to smaller orders and the product mix shift to lower margin growth and an impact on our fourth quarter results. Fourth quarter revenue also was negatively impacted by approximately 3 million of orders that were deferred by customers to the current first fiscal quarters. Nevertheless, during this period, we are continuing to focus on our initiatives to diversify Jerash customer base, both through our own marketing activities and through our recently signed joint venture with Busana Apparel Group. In March, we announced the Busana agreement to form a joint venture, which is progressing well in this formative stages. We have received positive feedback from Busana's [ Ripple ] customers with expressions of keen interest in geographically diversifying the production from Asia to Jordan to take advantages of 2 to 3 agreements with the U.S. and other countries. In fact, discussion already have begun for costing and pricing of a number of stores with 3 potential joint venture customers, and we anticipate initial orders for a joint venture to start as early as the second half of the current fiscal year. Also, on the positive front, our fiscal 2023 initiative of diversifying Jerash customer base is paying off, having gained additional new group of brand customers. We are making good progress in ramping up production for Timberland. And moving into our new fiscal year, we are continuing to produce high-margin products for our new European-based apparel brand. I will now turn the call over to Eric Tang to talk about our operations and then to Gilbert, who will then financial results.

Thank you, Sam. Hello, everyone. The fiscal year and final quarter were both busy and challenging as we endure and responded to changing and challenging market conditions. And at the same time, trend for what we believe will be a productive future. Orders are still coming from our large global brand customer, but the product mix has changed from the higher margin growth such as jacket to lower-margin items. In part, the mix shift reflects the inflationary environment and changes in spending capital at the consumer level. We were able to keep our facility running at full capacity also by adding supplementary production for other customers, many of which are local. As I mentioned on our last call, we are maintaining active communication and outstanding relationship with all our customers who appreciate Jerash's responsive service and are working closely with them to anticipate their needs going forward. In fact, production for one of our newly global brand customer, Timberland which is a part of the PL operation brand has now grown to be meaningful. Production demand from another long-term customer, G-III has also been increased which further diversifies our customer and product mix. Longer term, as external market condition improves, we believe we will be in an excellent position for growth. In that regard, we are cautiously moving forward with plans to develop the land we currently own to add more capacity in part to accommodate anticipated new business from our Busana joint venture. Positively, we continue to receive inquiries from other premium brands as global trend remains a diversified supply chain away from Asia, especially China. We are actively aware that in addition to adding new customers and the expanding of our existing customer, it is critical to maintain tight core inflow. We also are continuing our program of identifying new and cost-effective sourcing of fiber and other materials from new partners in the Middle East and North Africa, which will benefit Jerash and our customers. I will now turn the call over to Gilbert to discuss our financial results and fiscal 2024 outlook. Gilbert, please.

Thank you, Eric. Revenue for our fiscal 2023 4th quarter amounted to $23.8 million, which was down about 23% from $30.9 million for the same period last year. The decrease primarily reflected lower sales from 2 major U.S. customers based on the changed economic environment, and brisk consumer spending versus last year. Revenue also was negatively impacted by shipments of approximately $3 million of contracted orders being deferred by customers to the current first fiscal quarter. Gross profit was $2.5 million in the fiscal 2023 4th quarter compared with $4.7 million in the same period last year. The gross margin was 10.3% compared with 15.1% a year ago, driven principally by a lower proportion of U.S. orders and the broader product mix shift. Operating expenses for the fiscal 2023 4th quarter totaled $4.3 million, slightly decreased from last year, primarily because of smaller stock-based compensation expenses. SG&A expenses were slightly lower due to sales decline and partially offset by increased travel costs for migrant workers. Operating loss for the most recent fourth quarter was $1.8 million compared with operating income of $126,000 for the same period last year. Total other expenses were $86,000 in the fiscal 2023 4th quarter compared with total other income of $148,000 in the last year's fourth quarter and interest expenses were $268,000 versus $63,000 a year ago. Jerash sustained a net loss of $2 million or $0.16 per share for the fiscal 2023 4th quarter compared with a net loss of $131,000 and or $0.01 per share in the same period last year. The company's balance sheet and cash position remains strong with $19.4 million of cash and net working capital of $42.8 million as of March 31, 2023. Inventory at fiscal 2023 year-end was $32.7 million and we had about $2.2 million in accounts…

[Operator Instructions] Your first question for today is coming from Mike Baker at D.A. Davidson.

Okay. A couple of questions. First, I'm just curious why the deferral of $3 million? Is that -- I mean, it doesn't sound like that's an economic issue, if they're taking the product, why did your customer decide to push it out 3 months?

Well, I believe it was just a timing thing. A lot of times at the end of the month or at the end of the quarter, a lot of things can change, even though the orders may be scheduled to ship out by the end of the month, but sometimes because of the freight forwarders scheduling, some of the containers may not make the cutoff. So it happens a lot of times, so we just need to do a better job in forecasting. Do you have anything to add, Eric?

Because just now -- my connection is not very good as I'm in Indonesia.

Okay. So the question was how come there was a $3 million deferral of shipment at the end of last quarter. And I said it's mostly because of the timing and the freight forwarder scheduling of the shipments.

Yes. Actually, I would like to explain because when we are doing our forecast, even -- okay, not as early as, I mean the February. So we still include 1 order of 400,000 piece to Costco, okay? So it will generate a couple of million revenue by the end of the last quarter. But at the last moment, which is our last quarter first week, okay. We were told by Costco that the inventory level is still high, they would like to defer this shipment in the next quarter or 2 months later. So that's why okay, we are keeping this ready garment in our warehouse for Costco. This is the main reason.

Thanks, Eric.

That makes sense. If I could ask another -- a couple of bigger picture questions. One, it sounds like there's a lot of promising things going on in terms of new customers, new customers that you already have signed up that are ramping or potentially new customers that are showing interest, plus what's going on with the JV. So all that sounds good, yet the revenues are declining. So I guess, can you just -- is that just a timing thing? Can you sort of square that with the idea that like -- you have all this new demand, yet it's not translating into sales yet. How long -- when can we expect that to occur, all that potential to show up in actual revenues on the P&L?

Well, Mike, I think very early on this fiscal year, we were talking about this year is going to be tough. The economy -- global economy is kind of -- everybody is clear of inflation -- and inflation as well as the fear of recession coming. Now we don't know whether we are actually in the recession or not, but everybody thinks it's coming. So people stop -- have stopped buying, especially buying the more high-priced products. So people are still buying, but they are buying the less expensive products, and that was basically what we have -- has been telling us or has been telling the world that there's sales in the higher premium products such as TNF, The North Face is going to be either flat or declining but the lower-priced products on Timberland and Vans, they are growing. So that happens or that translates to our business, too. we knew this year was difficult. So -- but we also knew that we are onboarding quite a few new customers such as HUGO BOSS, such as Timberland. Timberland was already on board, but we're growing Timberlands tremendously. The volume gets into millions of pieces. And the other sculpture is actually not as much as we anticipated. But what was the other -- G-III. G-III actually doubled their volume with us. So we see a lot of positive things, but a lot of the garment manufacturers in Jordan or in anywhere else, Southeast Asia or whatever, they are seeing 30% to 40% decline in the volume. But we have always take the strategy as we knew more business is coming, the growth is coming, especially with signing this joint venture with Busana, but it takes time. It takes time for us to get the new customers on board. It…

I would like to add some new information to explain to the investor about our 2024 business. What Gilbert is saying is absolutely very accurate because we have -- we are doing maybe a lot of business with them before for The North Face. We have already told that in 2024, they are also -- the trend is also they are reducing some of The North Face business to all apparel because of the spending pattern of the people in the United States. So I asked here, do we still need to keep the same capacity like before? He said certainly. Jerash is very good factory. I don't like to lose Jerash capacity for -- it is for the future. So do you think that although North Face business is reduced, I'm going to give you, as Gilbert mentioned, more Timberland business. In 2023 fiscal year, all year because it's the first year we are doing Timberland, we have around 600,000 pieces over the year. But the confirmed order and projection, Timberland already gave Jerash for 2024 is over 1.3 million, which is 2 to 3x more than before. And at the same time, okay, one of the reputable brand in Germany, okay, which Gilbert just mentioned the same, also has tripled the business for high-end jackets, okay, and in fact, jackets with Jerash. And the business volume, okay, from 2023, which is 2.5 million, maybe go up to 7 million to 8 million. And also a very important thing is to Busana Group. And I'm here in Indonesia because Busana Group is one of the biggest apparel in Indonesia. They have a very, very strong marketing team. They are doing a brands all over the world for more than 50. So we have signed a joint venture agreement. The…

Thank you. And that's great color on trends. So with all that, one more question. Where are you with capacity utilization? I think you said you're still running at full capacity. And so do you need to build more capacity? And do you need to invest CapEx or any additional cost to build the capacity for all that demand that's coming.

Actually, we don't need to increase our CapEx. This is what Busana thinks because according to Busana [indiscernible] investigation. So 40% of Jerash order in 2023, as mentioned in the earnings script, are doing subcontract and some of them are from local. Just we are earning some money to break the line even. If we are going to deliver this 40% capacity, we do FOB order work together with Busana, which will be a huge number of business. So Busana look at this point and then because they understand that the joint venture may not be -- may not need to increase so much on the CapEx and then they start using the 40% of contract capacity to do FOB order.

Right. But we are also -- we have always been preparing and planning to expand our capacity. This past fiscal year, we already did that internally by expanding 1 building to allow more -- to allow for more production lines. So if we need additional capacity, we have that. And then we also have another piece of land that we are preparing to build as soon as the business with Busana comes in, and it may take a year or maybe 1.5 years to get that done. And definitely, by that time, we will need additional capital to finance it. And we have been looking at bank without the financing possibilities in Busana, if we do it with them, they will definitely also contribute according to the joint venture agreement. So yes, to answer your question, we definitely are looking at capacity expansion, but it is all depending on the timing.

Your next question for today is coming from Mark Argento at Lake Street.

A lot of my questions have already been asked or covered in your commentary, but I just wanted to better understand the -- I know that the $3 million worth of revenue that got pushed out, was there -- was that higher margin revenue that got pushed out? I think the last quarter, you guys were talking, you thought you'd be kind of in that mid-teens range on a gross margin basis. Just wanted to reconcile that a little bit.

Well, like Eric said, the $3 million order that was pushed out with Costco orders, and we do that Costco business with a -- an importer. So the margin on that order is not great. And like Eric said, throughout the -- probably the latter half of fiscal 2023, we've been taking on a lot of this kind of subcontract and lower-margin orders, just so that we have fully utilize our capacity.

And also about this $3 million value, which is in or 400,000 pieces, okay. In the last moment, Costco assets to put down, okay, to 1 or 2 months. So before this earnings call, we also -- our merchandising also contact them to try to get some clear picture of how they are going to do with this 400,000 pieces. They said next month, they are going to, I mean send the final inspection team for first 100,000 pieces. They may not be shipping down whole quantity in one shipment. But definitely, they will need the garment, they will split the shipment.

Great. And then just quickly, in terms of Busana, when that business comes online, targeted gross margins for those types of products are those higher-end type products or where can we expect to see those come in at?

Busana, okay. Also is doing a lot of different kind of products. Not like Jerash, we are doing mainly for the jackets and the Polo, okay. They are doing maybe more than 20, 30 kind of style, including different types of jacket, different kinds of shirt and also different kinds of Polo and even they are doing with maybe big number of ladies dress -- lady dress, which the FOB price is lifted. So - meanwhile, so they are also studying the opportunities of shifting some of this order or new kind of style to Jerash. And recently, our factory manager already started producing samples of the style Jerash didn't not do before, and Busana is going to send to the end buyers where the Jerash is qualified. Just like Gilbert mentioned our reputable brand in Germany, we are also doing the same. In the beginning, they give a small number to see if Jerash is qualified for this kind of synthetic jacket. So after a couple of months, they thinks -- they feel comfortable that Jerash is qualified, now they are sending a big number for 2024. This would be the same as other new customers coming from Busana.

I think Mark's question was more about what kind of margin are we expecting from the new business that come through with Busana. Is that right, Mark?

Yes. I was just curious what kind of -- is it going to be kind of mid-teens. I know typically, obviously, you do the VF, the North Face product, higher price point products, you guys are able to get a little better margin than, say, when you're doing T-shirts for Costco. So I was just curious what your expectations were for the gross margin profile, the revenue, the business that you might book with Busana.

Well, I think it is still up in the air because we're still doing the pricing exercise with them. And those are the products like Eric said, maybe some of them we haven't done before. So we don't really know or we don't have a good grasp of what the cost is going to be. So at this point, it is really difficult to say what we expect that the gross margin is going to be. However, I believe the strategy for Busana business is that they will place the higher -- high priced, higher-value kind of products because they want to take the full advantage or the customers wanted to take the full advantage of the duty-free or free trade agreement, shipping out of Jordan to U.S. and Europe in order to save as much as the tariffs as possible.

Yes. Actually, Busana also told me that this is the buyer intention. Because of the duty savings, they are not going to transfer all the light cotton order, which they think the buyers can enjoy 9% duty saving. Instead, they are going to send, I mean, orders with synthetic fibers which the buyer can earn more than 33% of the duty saving and they will also give the joint venture a better price when they move the order to Jordan.

[Operator Instructions] Your next question for today is coming from Aaron Grey at Alliance Global Partners.

A lot covering, a lot of my questions already answered. But just one quick one for me, higher level. A lot of trouble is not to see you guys, but for the -- a lot of your competitors, I'm sure. So I would appreciate any color you might have in terms of the competitive environment and how it's changed in the past few months since we last spoke about it, but ow you're seeing any shakeout closures or more so just operators lowering staff levels that you had mentioned previously.

You mean in the -- in Jordan, in terms of how this...

Yes, Jordan, China and otherwise.

Okay. Eric, you want to answer this question about the business environment in Jordan, what our competitors are facing or maybe even in the China or Southeast Asia area?

Yes. Nowadays, there are a couple of reasons why most of the buyers are launching to Jordan and makes -- an exit from Southeast Asia country, particularly the China. First of all, the China machine operators, all of them are earning, I think, at least $1,000 a month already. So even in Vietnam, okay, they are earning $500, okay. So in Jordan, because 70% of our workers, workforce are from migrants, from Bangladesh, from India, from Sri Lanka, multi nationalities. So they're earning around $300 as the basic salary, including over time. Of course, we are providing them with accommodation, [indiscernible] and food, everything. Okay. But in general, it is -- our cost is still competitive. And bear in mind that when customer is transferring orders from other currencies, non-duty countries to Jordan, okay, they are okay -- they can earn as much as 33% of the duty savings. For [indiscernible] reputable jacket brand, the FOB price is $50. The 33% moving from China, Indonesia, to Jordan, a buyer can save $15 for the duty saving. So is it a big money because otherwise, the buyer has to pay if it produced in China or Vietnam or other Asia countries. So the buyer is pushing Busana to diversify -- to transfer the order to Jordan so that not only it will benefit the joint venture, it will also benefit the buyer also.

What about the situation among the -- our competitors in Jordan. So obviously, they are paying comparable or similar wages to their workers. And because of the economic downturn, because of losing customers, losing orders, I heard that Classic is laying off about 10,000 workers. So these are the kind of competitive environment even within Jordan, that our competitors are facing. Jerash is already doing much better because our business didn't really go down. Our sales was only down like 2%, 3% from last year. We maintained the same business even though we couldn't keep the high-margin business, but we substitute a high-margin business by taking in a lot more lower margin but high-volume business to keep our workers busy, but our competitors, some of them even closed their shops, some of them lay off a lot of people. So that's really what is going on in the world of garment manufacturing. So I guess maybe, Eric, you can talk a little bit more about that as well as what you see in Southeast Asia and China, what all the other garment factories are doing? Because what I see here in the U.S. is that a lot of those garment factories, they are going all out to try to find business.

Yes. Actually, all the apparels in the world, no matter it is in China, Southeast Asia, Central America and Jordan because of the market is very weak in U.S. and Europe. This is the reason why they reduced a lot of orders. So by reducing a lot of orders, for example, it will affect, okay, their production capacity. If they don't have orders, they have to -- I mean, if they are not going to reduce the workforce, they are going to absorb a lot of cost. For example, one of the biggest factory in Jordan is Classic apparel. Before they've 30,000 workers and they are concentrated on Walmart and JCPenney but because Walmart and JCPenney already close from many of their retail shop and among the order has been reduced to 35%. So this -- because this is a very significant number to this factory. So this factory, everybody enjoys and understand they are already sending 9,000 workers going back to the country, even though the contract is not finished. So this is -- what they're doing is correct. But for Jerash, we tend not to do so because I'm still -- we are still confident that the market okay, even though it will pick up slowly, we need another 1 year, I mean, to face the difficult situation. But with Busana joint venture coming, I'm sure that they can fill up our -- most of our contract order capacity. So this is the reason why Jerash does not intend to reduce significantly our workforce.

We have reached the end of the question-and-answer session, and I will now turn the call over to Sam Choi, CEO, for closing remarks.

Thank you, operator, and thanks to all of you for joining us today and for your continued support. Jerash has a solid foundation from the company's leading industry position with quality, loyal customer relationships and strong balance sheet. Those attributes give us great confidence in the company's future and that we will get through the current period in a position of strength. We look forward to speaking with you again soon and reporting on our progress. Thank you.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.

Thank you.

Thank you very much.