Greetings. Welcome to the Jerash Holdings Fiscal 2024 First Quarter 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 2024 First Quarter 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 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 these forward-looking statements and 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 first quarter demonstrated resiliency in a challenging retail environment. Revenue was up slightly, although as expected, profitability was impacted principally by a product mix shift to lower-margin items. Although inflationary pressures and rising interest rates are still having an impact on consumer spending. Retail market trends are showing signs of improvement. We are starting to receive new inquiries from global brands, including test runs and sample orders. On the new customer front, Timberland has grown to be a significant global brand for Jerash. Besides Timberland, we are now working on confirming the first batch of orders for Vans branded apparel, also a part of VF Corporation brands. Initial orders are scheduled to be received in mid-August with finished garments to be shifted in the third quarter. Our newly added European-based high-end apparel brand continues to progress well. Orders received thus far this fiscal year have significantly increased. We are optimistic that over time, these new global brands will grow in importance for Jerash. Also, on the positive front, initial marketing by our joint venture partner, Busana Apparel Group, to its global brand customers is being well received. Jerash has begun working on pricing and sample development for more than 10 additional brands. We anticipate meaningful orders for the joint venture to begin during the fourth quarter of the current fiscal year. One of our corporate initiatives has been to explore vertical integration, and I'm happy to report some good news on this front. We have been in discussion with NTX, one of the global leaders in sustainable textile dyeing solutions to form a joint venture that will provide Jerash with vertical integration manufacturing capability. Our plan is to bring about a new area of sustainable and innovative textile dyeing process in Jordan with our proprietary technology that according to the presentation and information from NTX could result in more than 80% water usage reduction and 50% carbon footprint reduction from traditional textile dyeing process. The proposed joint venture is expected to benefit our customers through shortening fabric sourcing lead times and will further reduce our dependency on suppliers in Southeast and Eastern Asia. The joint venture further demonstrates Jerash's commitment to sustainability and social responsibility. I'll now turn the call over to Eric Tang to talk about our operations and also to Gilbert will then discuss financial results.

Thank you, Sam. Hello, everyone. This was a busy first quarter. As we continue to plan for what we believe will be a positive and productive future and response to evolving market conditions. The spending patterns at the customer level are still geared toward lower-margin items. However, as Sam mentioned, retail trends seems to be improving, and some of our global brand customers are inquiring about additional styles for future orders. VF Corporation continues to be our major customer, and order volume from North Face is increasing. And also another brand from VF Corporation Timberland increased multiple, and we will be very soon producing for Vans, which is another VF brand. Production demand from G-III and Skechers have also been increasing. Our European-based high-end apparel brand is placing more orders as well, which further diversify our customer and product mix. We are excited about starting production for our joint venture customer. Test runs are underway for an array of potential global brand customers, which in turn is fulfilling our corporate initiatives of expanding our customer base and diversifying our product mix. Jerash is in a good position to attract premium brands, our leadership position in Jordan offers unique, meaningful benefits to customers. And our plans for vertical integration in sustainable textile solution we believe will provide Jerash with a distinct competitive advantage. I will now turn the call over to Gilbert to discuss our financial results and the fiscal 2024 outlook. Gilbert, please.

Thank you, Eric. Revenue for our fiscal 2024 first quarter amounted to $34.7 million, up 3.9% from $33.4 million for the same period last year, reflecting an increase in shipments to some of the company's major U.S. customers. Gross profit was $5.6 million for the fiscal 2024 first quarter compared with $6.6 million in the same quarter last year. The gross margin was 16.0% compared with 19.8% a year ago, primarily reflecting a shift in product mix. Operating expenses for the fiscal 2024 first quarter increased slightly to $4.5 million from $4.3 million last year. Operating income totaled $1.1 million in the most recent first quarter versus $2.3 million a year ago. Total other expenses were $299,000 for the most recent first quarter compared with $28,000 in the same quarter last year. The increase was primarily due to higher interest expenses occurred from participating in supply chain financing programs of certain customers. Interest expenses were $389,000 in the fiscal '24 first quarter compared with $88,000 a year ago. The effective tax rate amounted to 38% for the fiscal 2024 first quarter compared with 25% last year. The increase primarily resulted from a higher corporate income tax rate in Jordan, along with higher proportion of the operating losses of a Hong Kong subsidiary and our U.S. holding company. In the fiscal 2024 first quarter, net income was $495,000 or $0.04 per share compared with $1.7 million or $0.14 per share in the same period last year. Jerash's balance sheet and cash position remained strong with $20.1 million of cash and restricted cash and net working capital of $41.5 million as of June 30, 2023. Inventory was $23.8 million and accounts receivable was $6.4 million. Net cash provided by operating activities was approximately $25,000 for the quarter ended June 30 (sic) [ March 30 ] compared with net cash used in operating activities of $473,000 for the same period last year. Even though we are starting to see some indications of improvement in retail market trends, we are taking a conservative approach to guidance and projecting revenue for fiscal 2024 full year to be maintained at a similar level as in fiscal 2023. With gross margin goal for the full fiscal 2024 to be around 15% to 16%. Our outlook is subject to final product mix of shipments as well as order flow from the new customers introduced through our joint venture with Busana. Lastly, on August 4, 2023, our Board of Directors approved a quarterly dividend of $0.05 per share payable on August 23 to stockholders of record as of August 16. Our new joint venture development is off to a great start as we look forward to working with a new and diverse range of global customers and products. We're cautiously moving forward with plans to add additional capacity on our property to accommodate future growth. With that, we will now open up the call for questions. Operator, may we have the first question, please?

[Operator Instructions] Your first question for today is coming from Mark Argento with Lake Street Capital.

Just had a few specific ones. One, regarding the potential JV with the vertical integration partner. Can you talk a little bit more about what specifically that capability gives you what competitive advantage? And how quickly if you guys decided to move forward, could you actually implement something like that?

Sam, do you want to take that question? Or do you want me to answer it?

Okay. Yes, maybe I try to talk about the vertical integration joint venture. In fact, I mean our joint partner NTX which has been in the industry for almost 20 years and they have been in separate joint venture in China, in Vietnam, in Cambodia and also Thailand. The expertise is mainly in the dyeing or waterless dyeing of fabric, which is quite innovative. The waterless dyeing process can save up to 80% or 90% of water usage compared with the traditional dyeing process. And also the carbon footprint emission will be much, much lesser. So it is a ESG project. And to Jerash, I mean we will set up a factory at the joint venture a separate manufacturing mills in Jordan. We will mainly supply the fabric and mainly the polyester fabric to Jerash on use. And so we believe, I mean, in a certain lead time, it will be a sustainable accessibility project that the cost we estimate will be quite similar to the traditional polyester fabric. So I mean, with that vertical integration, we believe under the consolidated profit and loss account of Jerash, I mean the gross margin is much enhanced because that will include the gross margin of the fabric. And we also anticipated EBITDA will be also much enhanced. And we will keep the -- because we just signed the MOU, and then we will have a joint share with joint venture agreement very soon. By that time, we will give some indication on the financial impact on Jerash. Yes, that is the basic idea on this vertical integration joint venture.

Yes. Thank you, Sam. I think I would like to add that this is an ESG initiative and everybody is very excited about this, including the Jordanian government. This is probably one of the first fabric mills that is going to be built and established in Jordan because as we know, Jordan has very little supply of water. And all along water has been the major issues for having a fabric mill. And so the Jordanian government, they are going to be very supportive with all kinds of incentives and the participation of in terms of land, in terms of tax abatement. And financing entities such as the World Bank is also very interested about this project and want to support us. So I think this is going to also besides providing us a better earnings and better profitability, growth in sales, it also will project Jerash as in having an image of being socially responsible and focus on sustainability. It is a new, innovative and proven technology. So everybody is very excited about it. And we believe that with this joint venture and with this vertical setup, we will be able to attract more global customers, global brands who are also focused on ESG.

That's very exciting. Just one just quick follow-up. In terms of timing, how quickly if you move to a JV get going, assuming you have to build out a facility, is this a calendar year 2025, 2026. How quickly could you see something like this come online?

Oh, it is going to be very quickly. Actually, we are already drafting the JV agreement as we speak. And both sides want to sign the JV as soon as possible. And we have been also talking with financing people. It's just a matter of who we want to work with to get the financing. And of course, NTX is going to contribute up to their -- up to their proportion of the joint venture. And Jerash is going to have the majority of the holding of the joint venture company. So it will be consolidated with our company. And we have already looked at sites, governments are on board. So once we sign the joint venture, it's going to move quite quickly.

Tentatively, we expect the production of the separate mill will be June 2024, the first production. That means about 10 months later.

Aggressive time line, but very exciting. Just one follow-up or just one quick one in terms of the operating business. Obviously, you guys just reported your -- I guess it was your Q4 back in May. So we got an update then. It seems like just the tone of the call -- it seems like maybe things are improving a little bit in terms of the end market, with customers and just looks like orders are kicking back in a little bit from some of the big guys. Can you just characterize what's changed in the last couple of months, if anything?

Eric, maybe you can answer this, what you're seeing in terms of the market turning around or order flows coming from key customers and also potential new customers?

Yes. Hopefully, recently, we had meetings with several brands who are the major customers of Jerash. All of them, okay, was that the market is, okay, are those still weak, but it still -- it's already improving. And they are also -- okay, I mean, that the inventory level are already down to a certain level that very soon, they are going to place additional orders. So we are expecting some of our major customers will place more orders to Jerash, okay. And actually, according to our -- the forecast we got from the first 2 customers, which is VF and New Balance, okay, the order projection for the whole year, already slightly more than last year. So they told us that it will be improving, okay, maybe after another 1 or 2 quarters.

Yes. I think we are seeing some positive signs in the global retail market and customers are starting to feel less cautious, but I think they are still cautious because if you remember, right after the pandemic every customer, everybody just order a ton load of products. And that's why they got stuck last year with a lot of inventory and had to reduce their orders. They don't want to make the same mistake again. And besides, we are already past the pandemic and logistics issues is way past us. So they're not afraid of not getting sufficient products for the retail stores. So they have been optimistic, but cautiously optimistic with the future. So I think we're seeing signs of improvement. But again, we're still going to be cautious about the next 12 months. We believe that starting from the fourth quarter of our fiscal year, which is the Q1 of the calendar year of 2024. And by that time, we should also see some orders that we will be producing for our joint venture with Busana.

In fact, I mean -- in fact based on sample developments for the fiscal 2025, we do believe, I mean, 2024 fiscal, I think is the worst. But for the fiscal 2025 based on the customer inquiries and the product development for them and also some new customer and also the joint venture with Busana, we do believe, I mean 2025 fiscal will be a good year compared with the past.

Your next question for today is coming from Matthew Hayes at D.A. Davidson.

This is Matthew Hayes on for Michael Baker, D.A. Davidson. There was an article on the Wall Street Journal out a couple of days ago citing the difficulty of apparel manufacturers retaining young workers in countries like China, India and Vietnam causing upward wage pressures on labor. I was wondering if you're seeing a similar development happen in Jordan. Do you still see the $4.2 million level as a sort of quarterly run rate on the SG&A line?

Yes. Maybe Eric, there's still, of course, there are inflation in Jordan as well. But I guess we're not seeing as much impact in our operating expenses. There will be some increases, I believe, but I think the $4.2 million quarterly operating expenses is still a pretty good gauge. Eric, what do you think? What are you seeing in Jordan?

Yes. I agree with what you said because large portion of our operating expenses fall into the salary of the migrant and local workers because we have 5,200 workforce currently. So the basic salary, the government already announced will remain the same, and we will not be increased until, I mean, another fiscal year. So the salary and including over time, of our workers, I think it will be remain stable as before. So I'm pretty sure, I'm very confident that our operating expense will not be much different compared in the future -- in the coming fiscal year.

Okay. That's helpful. And then my one other question has to do with your tax rate. It came in at 38% this quarter and I believe, on listening, I think I thought that it had to do with the loss of one of your Hong Kong subsidiaries. Is there any way you could kind of unpack that for us to kind of help us think how to think about the tax rate going forward? Is 38% is kind of the new normal or is this was a onetime thing? Any color you could provide there would be appreciated.

Well, I think the -- just to kind of explain it very -- in a very simple term. We pay most of our taxes to the Jordanian government because our operating -- our operations are in Jordan. So the income mostly in Jordan. And our Hong Kong subsidiary, which is Treasure Success is primarily a sales and marketing, administrative, shipping and auditing. So we have a staff in Hong Kong, and we don't really have much income, even though there is some income in terms of developing samples, in our subsidiary. But we don't really pay much taxes, but we have a significant amount of overhead and losses in Hong Kong as well as in the U.S., our corporate headquarters and our holding company in the U.S. So -- we don't -- we cannot offset the Jordanian taxes that we pay with our losses in Hong Kong and in U.S. So when the proportion -- when the income comparing to the losses, the proportion shift and we have a higher proportion of losses versus a smaller proportion of income in Jordan, then your effective tax rate just went up. Now as we have globally or consolidated net income or income before tax to go back to the normal level, which means we will make more money in Jordan, then the average or the effective tax rate for the consolidated company will come back down. Now we are also looking at ways, but we will have to talk with our test consultants in the U.S. first to see if there are some ways of shifting some of the income to our subsidiaries, which we can do some billings from our Hong Kong subsidiary and offset some of the losses over there, which we are going to look into that with our tax consultants and look at ways to lower the effective tax rate.

Okay. And do you anticipate making more money in Jordan in proportion to the corporate losses incurred in Hong Kong and the U.S. over the next 3, 4 quarters? Or how do you see that proportion playing out?

Well, I think in fiscal 2024, we're not going to see much improvement in this situation. But we will try to look at how we could reduce our operating expenses and make more money in Jordan as well as controlling our expenses in the other subsidiaries such as U.S. and Hong Kong. So it may come down slightly. But I think until we can increase our revenue, increase our bottom line, our operating expense -- income for the consolidated company disproportion of income and losses will continue.

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

Thank you, Holly, and thanks to all of you for joining us today and for your continued support to Jerash. We look forward to speaking with you next quarter and reporting on our business progress. Thank you. Thank you everyone.

Thank you. Bye-bye.

Thank you. This does conclude today's event. You may disconnect your lines at this time, and have a wonderful day. Thank you for your participation.