Greetings, and welcome to the Jerash Holdings Fiscal 2024 Second Quarter Financial Results. [Operator Instructions] Please note, this conference is being recorded. I'll now turn the conference over to your host, Mr. Roger Pondel, Investor Relations. You may begin.

Thanks so much, operator, and good morning again, everyone. Welcome to Jerash Holdings Fiscal '24 Second 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's my pleasure to turn this call over to Sam Choi. Sam?

Thank you, Roger, and hello, everyone. Our second quarter performance again demonstrated Jerash's ability to attract new customers and our resiliency in the challenging apparel environment. Retail market condition for group of brands in the U.S. and Europe has been slow to recover, which in return is impacting our business compared with the prior year. Customers' orders have generally fit the lower priced items, which carry lower margins. Nevertheless, our revenue and gross margin remain extensively stable on a sequent basis. During the quarter, good progress was made with our Busana joint venture partner. Thus far, 5 joint venture premium brand customers have committed to placing orders. Marketing to additional prospective customers is continuing and feedback is encouraging. Current projections from the joint venture for the next 12 months call for about $8 million to $9 million in new orders, starting in a meaningful way in our fiscal fourth quarters. On Jerash customer front, Timberland has increased its order significantly and has become the second largest group of brand to Jerash. We are also producing our first trial orders for Vans apparel, another VF corporate brand, and are confident order flow from Vans will increase significantly next fiscal year. As well, business from our first European-based high-end apparel brand continues to expand. We are currently projecting a doubling of orders in the second half of fiscal 2024. Furthermore, we are excited about the opportunity created by our recently established joint venture with Newtech Textile, a textile innovation and solution company. This venture is expected to enable Jerash to unplug the latest technology to offer customers in new array of sustainable and innovative textile products. The proprietary textile dyeing process technology is expected to reduce water usage by approximately 90%, energy consuming by approximately 65% and carbon footprint by over 50% in comparison with traditional processes. To achieve this, we plan to build a state-of-the-art fabric facility in Jordan, with construction to begin in 2024, and emerge Jerash as a leader in ESG textile manufacturing, which is in keeping with our longstanding commitment to sustainability and responsible growth. Lastly, I want to give an update regarding Middle East, which is on everyone's mind. Since the turmoil began, we have been closely monitoring the situation and keeping our customers informed. Early production is ongoing as usual. There have been no changes with customers' order or commitment. And both ports Jerash uses for import and export are functionally normally. I will now turn the call over to Eric to talk about our operations, and Gilbert will then discuss financial results.

Thank you, Sam. Hello, everyone. Activities in Jordan continue to progress at fixed pace. We are excited about both of our joint ventures. Our Busana partnership is well underway and bearing fruit. Marketing efforts continue to accelerate, and we believe the partnership is forging and well positioned for growth ahead. Now we are very busy forming plans with our new textile joint venture partner. At this juncture, we are actively identifying potential sites in the nearby industrial zone on which to build our new textile complex. Jerash is conferring with the Jordanian government for possible support and collaboration on this project, which will foster new employment in high-tech related jobs. The spending patterns at the consumer level are still geared toward lower-margin items which, in turn, has impacted order mix as well as volume from our customers. However, we are maintaining and growing our strong relationship with existing customers and moving forward with Jerash's initiatives to diversify and add to our customer base. Jerash is a trusted manufacturing partner for VF Corp, which owns multiple global brands. We have been producing and other apparel for its North Face brand for more than 8 years. Starting last fiscal year, we began producing apparel for Timberland, another VF brand, and the order volume has increased significantly, becoming our second largest brand now. We look forward to working closely with other VF brands such as Vans. Our first European-based high-end apparel brand is also progressing very well and order volume is anticipated to double for the second half of fiscal 2024. Additionally, we are receiving inquiries from other high-profile global brands, both from the U.S. and Europe with new garment sampling and costing underway. To amplify on Sam's comment regarding the Middle East situation, we used both the Aqaba and Haifa ports for import and export. Thankfully, so far, both ports are operating with business as usual. That said, in the event of any potential impact on the ports, we have a contingency plan, which in place that has been approved by our major customers for temporary relocating production if and as necessary to alternate regions. Our leadership position in Jordan provides unique and tangible benefits to customers around the globe. The initiatives and plans we have in place, including vertical integration, sustainable textile solutions and focus on the environment position Jerash with a distinct competitive advantage and we believe an attractive partner for premium apparel brands. 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 second quarter amounted to $33.4 million compared with $37.8 million for the same period last year. The decrease was primarily due to fewer shipments being delivered to some of the major customers in the U.S., partially offset by shipments to other new geographical locations, including Hong Kong and Germany. Gross profit was $5.4 million for the fiscal 2024 second quarter compared with $6.9 million in the same quarter last year. The gross margin was 16.1% compared with 18.3% a year ago, principally driven by a shift in customer mix with lower profit margin orders. Operating expenses for the fiscal 2024 second quarter increased slightly to $4.5 million from $4.3 million last year. Operating income totaled $888,000 in the most recent second quarter versus $2.6 million in the same period last year. Total other expenses were $167,000 in the fiscal year 2024 second quarter compared with $106,000 in the same quarter last year. The increase was primarily due to higher interest expenses arisen from participating in supply chain financing programs of certain customers, partially offset by income from fixed deposits in banks. Net income was $369,000 or $0.03 per share in the fiscal year 2024 second quarter compared with $1.8 million or $0.14 per diluted share in the same period last year. Jerash's balance sheet and cash position remains strong, with $22.8 million of cash and restricted cash and net working capital of $40.5 million as of September 30, 2023. Inventory was $18.7 million and accounts receivable was $5.2 million. Net cash provided by operating activities was approximately $8.2 million for the 6 months ended September 30, 2023, compared with $9.6 million for the same period last year. As Sam mentioned earlier, retail market conditions have not yet fully recovered. Therefore, we are taking a conservative approach to guide our revenue for fiscal 2024 to be down about 3% to 5% from last fiscal year. Our gross margin goal for the current full fiscal year is expected to be approximately 15% to 16%. Our outlook is subject to final product mix of shipments as well as order flow from the new customers through our joint venture with Busana. Lastly, on November 3, 2023, our Board of Directors approved a quarterly dividend of $0.05 per share payable on November 28 to stockholders of record as of November 14. With that, we will now open up the call for questions. Operator, may we have the first question, please?

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

Just I'm going to ask 2 questions. First, maybe it's obvious, but what are you hearing from your big customers in the U.S. as it relates to consumer spending, holiday outlook, those kinds of things. Is that what is really causing the results to come in a little bit less than expected? Is it weakness in U.S. consumer spending? Or is there something else to consider?

Well, thanks, Mike. Yes, I think it is mainly because of the slowly recovering of the consumer market that the spending is still not back to the same level as before. So our existing customers' orders are shifting more toward the lower-margin products instead of the high-dollar value, high-margin products such as the North Face jackets. Eric, do you have anything to say about this? You've been talking to the customers more.

Yes, I totally agree to what you have mentioned. I talk to many, many brands. Okay, you are right because the spending power in the U.S. still did not recover so much and still very weak. So people are trying not to spend too much on the luxurious brands or luxurious product like our North Face jackets or other kinds of high-value jackets. So all the pricing to us is slightly less than before. But we have a very big demand for low-cost T-shirt, low-cost jackets from some other brands, which is also very popular in the U.S. So that's why we can still be able to occupy all our current capacity and running on a full-time basis. This is the situation.

Okay. That makes sense. One other question as it relates to the new joint venture for the textile situation. Can you just talk about -- so you said I think construction begins in 2024. I assume you meant calendar 2024, and what the cost of that might be. What are your expected ways to fund that, just some of the CapEx involved in that joint venture. Who funds it, you guys or your partners, et cetera?

Well, the joint venture is a 51%-49% joint venture, and Jerash owns 51%. So any funding will be in that proportion to the joint venture company. And -- yes, you are right, the 2024 is calendar year. I think we have almost finalized the site of where we're going to build. And we have been discussing funding opportunities with a number of financing parties. And at this point, we cannot disclose who they are yet because nothing has been finalized, but there will be financing parties from China, from Asia, from Hong Kong and also possibly from the Middle East. Yes, part of the funding could be financed from our own cash flow, from our operating cash flow, but that would definitely not be enough because if I'm correct, I think the overall projection for the CapEx is about $20 million to $30 million. Am I correct, Eric?

Yes, you are absolutely correct. It's between $25 million to $30 million. Okay. They are already very interested, the financial institution. Okay. They are very interested in this project. We are discussing with them. So it's not appropriate to disclose the identity of each one, but all of them are very positive about the funding of this project.

And that $25 million to $30 million, that's the total cost, not your 51%?

That's the total cost, not the 51%. Overall.

And I would say from China's viewpoint, this is a One Belt One Road project. So China will definitely support this project financially. So this will be not only One Belt One Road project, but also a One Belt One Road ESG project. So we will attract some interested party for this project.

Absolutely. Because of the ESG part of it, both China and both the Middle East, they are -- the governments, they are very interested in supporting us.

Your next question is coming from Mark Argento of Lake Street Capital.

Just a couple of quick questions. So in terms of Busana, you said you anticipate seeing revenue from that partnership in Q4. And then I think you mentioned $8 million to $9 million for the next 12 months. Maybe just help us think through like what does that mean for Q4? Is it a couple of million in Q4 and getting bigger from there? Is it $8 million to $9 million in Q4? A little clarity around that would be helpful.

Eric, do you want to take this one? Eric?

Yes, maybe, Sam, I answer this one. Yes. According to the present projection, I think a few million in the fourth quarter of fiscal 2024 will be in the orders from Busana. But after that, I think our order will be growing with the solicitation of orders from at least 5 customers derived from Busana. And I think that will be very promising.

So I guess maybe just to ask another question so -- another way. That $8 million to $9 million, what -- in revenue, is that for Q4? Or is that in the next 12 months?

That was the projection for the next 12 months, starting from Q4 of fiscal 2024. So basically, in the next 12 months or in the calendar year of 2024, we are projecting about $8 million to $9 million in additional incremental revenues from the Busana JV.

Okay. So $8 million to $9 million in incremental revenue in Calendar '24.

Right.

Got it. All right. That's helpful. And then more of a housekeeping question for you. Gilbert, I saw the tax rate was up a little bit. I know it was up in Q1 for the first time and then in the third quarter, it was, I think, 40-some percent. What's going on in the tax rate there?

Well, the tax rate, most of our income is really from Jordan. That's where we book most of our income. And our U.S. operation and also the Hong Kong operations are mainly just expenses. So the expenses kind of remain the same and slightly increasing because of the growing in size, but the income has dropped significantly. So when you combine all of those as the earnings -- as the consolidated earnings decline, so the proportion of the tax comparing to the operating income is at a higher proportion. Now when income goes back up, this effective tax rate will come back down.

All right. Maybe I'll follow up with you offline and you can walk you through that a little bit more. And just lastly for me on kind of just total capacity. And then with Busana coming online, are you building incremental capacity to support the Busana JV? Or are you using some of your existing capacity at this point? And then are you guys booked up through the end of the year? Or maybe just talk about your order book right now.

I think right now, we're pretty much fully booked through the end of the fiscal year. Maybe they're -- depending on the order flow that maybe there are a couple of hundred thousand pieces in one of those months that we still have capacity. But that is also filling up very quickly. We are afraid to be double booked and not able to deliver. But we are also looking at ways to be able to take the order and get a complete, fully booked at our capacity. And if we really need additional capacity, we could outsource some of the productions. And this is all approved by our customers. Now with Busana business coming in, and you know we have always been very conservative. And last year, we have increased internally, we have expanded our capacity internally. And we believe we will be able to handle at least for the next fiscal year, the increase in business. But overall, I think it will be a reverse of this year's situation. When Busana business come in, it will be also for premium brands for department stores that are in the U.S. That will be for the products that are of higher ASP and higher gross margin. This year, we were able to backfill some of the reduced orders from the higher-end products or the higher-end brands by lower gross margin products, some CM orders with high volume but low gross margin, low gross profit. But next year, when Busana business comes in, we will be able to take the higher-margin orders, but forgo some of the low-margin orders. We have already told some of the new customers that we are doing business with that next year, we may not be able to handle all their orders. So if they want business, they might have to increase the price or increase the margin that they give us. So I think the situation next year when new business from Busana comes in, it will give us opportunity to improve our ASP and improve our gross margins.

That's helpful. And to this point, you guys have been able to hold on to your production staff using some of the lower margin orders, that was the objective, right, to be able to keep everything intact so you can service the customer when the order books return for the higher price...

Exactly, that has been our strategy. I mean if you compare Jerash with other manufacturing facilities, other companies in Jordan, other companies, their business are down almost 50%, some are 60%, 70%. And they have significant layoffs of their workers. Jerash, we are keeping a very conservative approach. We would rather fill up our capacity than letting go of our workers because it will be very difficult to find and to backfill our capacity when business turns -- comes back. So our strategy has been to even to take on lower margin and lower profit orders and customers than to shut down the factory or to let our workers go because we know the business will come back very soon.

Well, we appear to have reached the end of our question-and-answer session. I will now turn the call back over to Sam Choi for closing remarks.

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

Thank you.

Thank you.

Thank you very much, everybody. That does conclude today's conference. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.