Good morning. Welcome to Jerash Holdings Fiscal 2025 Third Quarter Financial Results. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Roger Pondel, Investor Relations, Jerash Holdings. The floor is yours.

Thank you, Jenny. Good morning, everyone, and welcome to Jerash Holdings Fiscal 2025 Third Quarter Conference Call. I'm Roger Pondel with PondelWilkinson, Jerash Holdings Investor Relations firm. On the call today from the company are Chairman and Chief Executive Officer, Sam Choi; Chief Financial Officer, Gilbert Lee; Eric Tang, who leads the company's operations in Jordan; and Ringo Ng, Head of Marketing. Before I turn the call over to Sam, I want to mention or 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 Jerash'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 of course, as required by law. And with that, it's my pleasure to turn the call over to Sam Choi. Sam?

Thank you, Roger. Our business is continuing to gain traction with increasing inquiries from new and existing customers, that are looking to add manufacturing partners in tariff-free countries, such as Jordan. Our fiscal third quarter revenue increased by nearly 30%, yet results were lower than originally anticipated. Sales were impact by congestion at Israel Haifa Port due to further geopolitical turmoil in the region, which caused long delays in shipments. We estimated that close to 6 million of finished goods were not shifted until early in the fiscal fourth quarter. Nevertheless, we are pleased to report that export trade rules since late January has markedly improved. And ocean containers are being shipped in a more timely manner. We are hopeful that stability in our operating environment will continue, and we are eager to resume our focus on growth. On the new business front, we are encouraged by growing interest from international apparel companies, including well recognized brands in Europe and the Persian Gulf region. This supports Jerash goal of diversifying our customer base and expanding product mix. Our optimism further reflects new possibilities in today's environment. Based on the competitive advantage for companies doing business in Jordan, combined with Jerash long history and reputation for quality built over the past 20-plus years in the industry. We do believe we are in an excellent position to capture greater opportunities in the years ahead. To support anticipated growth, we recently started expanding 2 of our existing manufacturing facilities with expectations of being completed by June of this year. The expansions, we increased our processing capacity by 15%. Separately, we are actively working with the Jordanian government to expand our existing facilities in Al-Hasa, which by the end of this calendar year, could add an additional 5% to 10% of production capacity. And we also are assessing long-term larger-scale expansion plans. Eric Tang, who is in charge of our operation in Jordan will share more about that shortly. And I will now turn the call over to him. Eric?

Thank you, Sam. Jordan remains secure and stable as a country, but the broader geopolitical situation in the region, has impacted our business since October 2023, especially with regard to both import and export shipping logistics. During the past quarter, we again experienced export shipping delays of up to 4 weeks at the Haifa Port. By late January, however, the port congestion has much improved. And today, conditions are essentially back to normal, and ocean containers are being shipped without undue delay. I am also happy to report that our factories are fully booked through August this year, and orders from our global brand customers are increasing steadily. We are receiving a growing number of new business inquiries in part because of the tariff-free advantage of exporting to the U.S., EU and other countries from Jordan. As Sam mentioned, we are hearing from both existing customers as well as prospects from international apparel companies. Currently, we are working on sample orders and pricing for several well-known brands in Europe and the Persian Gulf region, along with leading manufacturers in Asia, this is all positive news. But as a reminder, securing large orders from high-profile global brands takes time. We are confident that Jerash history and reputation for developing and producing quality garments will ensure trust among new customers, and position us as a reliable and responsible manufacturing partner. Now I'd like now to provide a few details on our expansion plans to accommodate the growth that we see ahead. In addition to the current expansion underway at 2 of our existing primary manufacturing facility, that would add 15% of production capacity by midyear, we are working closely with the Jordanian Ministry of Labor to finalize a land grant adjacent to our existing facility in Al-Hasa. This operation began as a joint venture project between Jerash and Jordan Ministry of Labor in 2018 to create employment opportunities for women in remote areas, where unemployment rates were as high as 70%. We are trailing to enlarge the facility in Al-Hasa to double its size and increased local hiring of women from 450 to 800. According to our current trend upon completion of this project by the end of 2025, production capacity is expected to increase by another 5% to 10%. We also are assessing longer-term larger-scale expansion plans to construct manufacturing, warehousing and housing facilities on land that we purchased several years ago. At this point, we have commence engineering size studies to review various options. With that, I will now turn the call over to Gilbert to discuss our financial results.

Thank you, Eric. Revenue for our fiscal 2025 third quarter increased 28.6% to $35.4 million from $27.5 million for the same quarter last year. The quarter's revenue reflected an increase in shipments to Jerash's major U.S. customers. As Sam mentioned, due to congestion at Israel's Haifa Port, which caused the delays in shipments, revenue for the quarter was impacted by approximately $6 million. We estimated $3.8 million of finished apparel was kept at the port, along with incurring more than $100,000 of port storage fees. Additionally, we held back another $2 million of finished product in our warehouse for the same reason. Gross profit for the fiscal 2025 third quarter increased 20.6% to $5.4 million from $4.5 million in the same quarter last year. Gross margin was 15.2% in the fiscal 2025 third quarter compared with 16.2% in the same quarter last year. The decrease was primarily driven by higher logistics costs arising from the geopolitical turmoil in the Middle East region. Operating expenses for the fiscal 2025 third quarter totaled $4.7 million compared with $4.1 million in the same period last year. SG&A expenses were $4.2 million in its fiscal third quarter compared with $33.8 million in the same quarter last year. The increase was primarily due to higher export logistics costs. Stock-based compensation expenses for the fiscal 2025 third quarter were $474,000 compared with $243,000 for the same quarter last year. Operating income increased 88.3% to $708,000 in the fiscal 2025 third quarter from $376,000 in the same quarter last year. Total other expenses were $252,000 in the fiscal 2025 third quarter compared with $105,000 in the same quarter a year ago. The increase was primarily due to higher interest expenses from supply chain financing programs provided by the 2 major customers. Income tax expenses for the fiscal…

[Operator Instructions] Your first question is coming from Mark Argento of Lake Street.

A quick question, given all the talk about -- given all the talk about tariffs recently with the new administration, could you -- has that benefited or increased the number of conversations you're having? It sounds like it has, but maybe you could help quantify that? And then maybe talk a little bit about the timing of the new capacity coming on? And how quickly you can see that impact the business.

Well, as we said, we are already fully booked through the end of August for this fiscal -- for this calendar year actually 2025. And new orders are still in the pipeline, and we anticipate that the growth opportunities that we have in this fourth quarter as well as the 2026 fiscal year are all going to be limited by how fast we can grow our capacity. And we are already expanding our internal capacity at the existing facilities, and that will add 10% to 15% after we expand the facility, adding more lines, and we anticipate that to be finished by June -- is it by June, Eric?

Yes.

By June -- by the end of June. So -- which is very quick. And then the other project that we are working on is to expand our satellite factory in Al-Hasa, which we will add more workers from 450 people to 800 people. And even though that is a smaller facility, so the overall increase in capacity is we are looking at maybe 5% to 10%, I mean, comparing to the overall capacity. So those 2 are very realistic. And -- but the longer-term increase will come from that piece of land that we have had for over 5 years now. And we are doing engineering study looking at different options on how to build and what kind of cost. So once that is done and once we make a decision on what to do, then we will be able to quantify the, increase in capacity and the timing of it. But as of now, because of the tariff situation getting really heated up, we anticipate more and more brands and buyers are going to -- well, it has already started maybe 4 to 5 years ago that people are looking for production and manufacturing facilities in the territory countries, but now it is just getting more urgent. And so that is a great opportunity for us.

Got it. That makes sense. Just another quick follow-up. In terms of -- if you run kind of a test order for a customer, what's the typical to conversion rate from test run to more of a full production run? Is it 50%, 45%, 75%? Maybe you could help us better understand that kind of sales cycle conversion rate.

I'm sorry, what conversion rate are you referring to?

New customer test to new customer full production.

New customer test and...

Typically, if a customer gives you a test order, Gilbert, typically a customer gives you a test order before they give you a full production order. And I'm just wondering, do you convert a 100% of the time or 50% of the time? What's your conversion from a customer from test to full production.

From a test order to a full-blown order.

Correct.

The timing -- well, Eric said, the timing is going to take a long time. It's going to take at least 9 months to convert. But the conversion rate that you are looking for, I think the rate is pretty high. Once we start a test order in most cases, I don't know how many percent. But in most cases, the customer will issue the long-term orders from us.

Yes. According to my past year experience with Jerash, [ I merit ]. So once the customer places us with a trial order, okay, maybe after 6 months, okay, they will place us the bulk quantity orders. We have never failed any customer for the past 10 years.

Your next question is coming from Michael Baker of D.A. Davidson.

Great. I'm just wondering, outside of the increased demand that you're seeing just because of tariffs and people wanting to get out of Asia. Any comment on what you're seeing in terms of demand as it relates to the U.S. consumer and apparel inventories and buying it seems to be that inventory -- apparel inventories are starting to tick up a little bit. Consumer spending has been good. What are you hearing from your customers in terms of overall apparel demand?

Eric, have you heard any comments from customers about the demand on the products, on the apparel overall in the market?

Yes, I have a lot of response from different kinds of customers. Some of the customers say they're still, I mean, trying to absorb the high level of inventories, but 60% of the customer told us that they most of the inventories they already absorbed during the past 2 years, they are going to place new orders to Jerash. This is what I heard from the...

From the buyers?

From the buyers, yes.

Great. And the delayed shipments, the $6 million, when does that flow through the P&L? Does that come in, in the fiscal fourth quarter? Is that part of that growth plan of 50% to 53%?

Yes, that's part of the [ 56 ]% -- 53% growth. The fourth quarter, those unshipped apparel products, most of them were shipped in January already. So -- but with those delayed shipments, we -- that's how we anticipate that the growth is going to be 50% to 53%. It is still a relatively conservative estimate that we have right now. but we're still kind of being conservative due to -- even though the situation in the Middle East is kind of calming down the cease fire. We don't know whether it's going to hold or not, but it seems like it's heading to the right direction. But we -- there's still a lot of uncertainties that we're looking at. And then usually, the fourth quarter is a slow quarter for us, especially in March, it's Ramadan. And last year, last fiscal year in 2024, we spent a lot of money trying to catch up the production to ship out the products to our customers. So we spent like close to $1 million in over time because in Ramadan, if you want people to work because normally, they will work a full shift or work like 8 or 9 hours, but in order for Ramadan, they don't want to work. So we have to motivate them, to work and offer them over time. This year, we want to control our cost. And even though our customers, we're going to work with our customers to really plan our production so that we don't incur too much overtime labor cost and still be able to meet our customers' delivery time. So that's why we forecast a lower fourth quarter, but it is still a pretty healthy growth from last year.

That makes perfect sense. If I can follow up on that then, understanding that overtime issue as well as some of the costs incurred at the port, that $100,000 [ per sale ], was that incurred in the third quarter, but really, the larger question, how should we think about the SG&A costs going forward? Is that sort of low $4 million a good run rate?

Yes, the low $4 million would be a good run rate. I mean SG&A, a lot of it depends on the sales volume, the sales revenue. And we incur a significant amount in the first quarter because we have to air freight some of the shipments due to the delay of production because of the raw material containers didn't get into Jordan, if you remember the Red Sea crisis. So we are trying to control our costs as much as we could, but it is still higher than what it was before. But a low $4 million would be a good estimate.

Your next question is coming from Igor Novgorodtsev of Lares Capital.

So you mentioned the situation in January now with the cease fire and much better situation in the Middle East has remarkably improved. Could you just break it down a little bit more in detail, especially in terms of the logistics of getting things through the Red Sea. Are you getting them out to the Red Sea and also how this improved logistics would impact your gross margin, if I recall correctly or as high as 19% during COVID. So maybe just not necessarily quantitative, but at least qualitative.

Well, we are getting containers through the Red Sea, before the Red Sea was blocked because of the blockage -- and -- but now we are getting our importing raw material containers through the Red Sea to Jordan. But we do have to pay slightly higher container shipment costs, but not as high as the first 2 quarters. So we are doing a very diligent job in controlling our costs. So -- and that is reflected in the gross margin. And then on the export side, we had to pay, let's say, $100,000 in the third quarter because of the port storage fee because there are containers that were stuck at the port for 4 weeks. So we incur additional costs in there. But now it is getting back to normal. So the exporting part of it is going to be much improved in this quarter, in the fourth quarter as well as the first quarter of 2026. Does that answer your question?

Yes. And maybe just not to push it too hard, but what would you consider your like normalized good gross margin for your -- like the busiest Q2 and Q3?

Q2 and Q3 of 2025?

Yes, just in general, even if you don't provide the guidance, what kind of gross margins will you consider to be happy, and you say this is my normalized gross margin because you had the very high during the COVID, obviously, because there was a huge demand, and then there was a mix of oversupply. So they fell drastically. So now are they normalizing now, what would be your like target gross margin, but you would say, okay, this is a gross margin, given our competition and the market pricing that we'd be happy with.

Well, we anticipate this fiscal year, the 2025, the year, we will end up around 15% to 16%. And going forward, we still would try to target somewhere between 15% to 16% because let me tell you why because we are we are bringing in a lot of new customers and new products on FOB basis. And because of new customers, the margin at the beginning is usually not that good because there's a lot of sampling, there's a lot of inefficiency, trying to learn -- and so when the volume is low, but the [ styles ] are many, it is hard to have a very efficient production. But once the volume gets up, gets ramped up, then we will be able to realize a better margin. So we anticipate that 2026, we still want to play the gross margin in around 15% to 16%.

Okay. My other question is about your joint venture with Busana. How is it going? Could you just tell us a little bit more details about it?

Well, the Busana joint venture, it is still -- we're still working on that. And the growth is relatively flat, but that was because there were turmoils in the region last year or in the past 12 months and some of the new buyers, new customers, people like [indiscernible], like Brooks Brothers, they are kind of cautious. They send us test order, trial orders. But we finish it and they are satisfied but we're still waiting for them to really jump into the high-volume bulk orders.

I see. That Busana make a lot of products like traditional -- many of the textile manufacturing countries such as apparel manufacturing countries such as Indonesia and Vietnam and Bangladesh, which do have tariffs on U.S. U.S. reciprocal tariffs? Or what is -- do you expect that they might consider moving some of their factories in the joint venture to Jordan. Is that a potential play?

So I might -- I'm Eric. I can answer you this question because Busana have a lot of customers, okay? And dealing with different kinds of pricing and also different kind of stuff. They have a manufacturing basis in Indonesia, also in Africa and also our joint venture in Jordan and Bangladesh also recently, I think 9 months ago, they started another joint venture in Bangladesh. But that doesn't affect Jerash because usually the customer, okay, they would try to tailor make those higher FOB value orders, okay? Which the buyer can enjoy more tariff savings, they will place the order to Jordan. While for the low-end products, maybe they don't need too much duty savings, they will place in Bangladesh. So for Busana, we are working with them like with orders like from buyers like Hugo Boss, both like Brooks Brothers. These are the high-end customers and high FOB value orders.

Your next question is coming from Mike Distler of AMX Holdings.

This question is for Gilbert. No disrespect, Sam or Eric. I was just wondering if you anticipate that you would have to tap the credit markets to fund that longer-term large-scale expansion plan that you're planning with the property you already have?

We did consider having the debt market actually maybe 12 months ago, we were talking to the World Bank and looking at maybe borrowing some money through the World Bank. And we're -- right now, we're open to any financing opportunities. Maybe we can go to the equity market and maybe we'll borrow some money but we definitely need to raise some capital to support our expansion plan, especially the largest scale expansion. But right now, we haven't really decided which way to go. Maybe it's a combination of both.

Right. Sounds prudent. I suspect, and you need not comment. I suspect that the Jordanian Commissioner labor is -- will be part of that plan based on the ownership responsibilities. And towards that, I know that you're maintaining your dividend has been a fairly high priority since inception, since you went public. And I suspect it will remain so only because it provides a floor for the stock price among other reasons. So in the grand scheme of things, that really is important, but the reality of just figuring out the prudent way to approach the markets, the credit markets now, for that long-term build-out sounds like you're on the right track. So thank you very much for the update.

Thank you.

I will now hand back over to Sam as we have reached the end of our question-and-answer session. Over to you.

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. Thank you very much.

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

Thank you very much.

Thank you very much. Have a good day.