Good morning, everyone, and welcome to the Jerash Holdings Fiscal 2023 Second Quarter Financial Results Call. It is now my pleasure to introduce your host, Roger Pondel, Investor Relations for Jerash Holdings. Roger, you may proceed.

Thank you very much, Ali, and good morning, everyone. Good evening, I guess, to some of you. We have a truly global call. Welcome to Jerash Holdings' fiscal 2023 second quarter conference call. I am Roger Pondel with PondelWilkinson, Jerash’s Investor Relations firm. It will be my pleasure momentarily to introduce the company’s Chairman and Chief Executive Officer, Sam Choi; 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 all 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 Holdings' most recent Form 10-K and Form 10-Q 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. General market conditions throughout the global retail sector continued to be impacted by inflationary pressure, higher interest rates, and inventory levels, and we also are feeling the impact. Orders received during the current fiscal year from our major customers have generally been smaller, and with our product mix shifting more to goods with lower average selling prices compared with last fiscal year. Also, from a year-over-year comparative expenses perspective, last year was unusually strong due to pent-up demand following the peak of the epidemic. Revenue for fiscal 2023's second quarter was lower than originally expected by approximately $4 million due to shipment postponements as retailers sell through their excess inventories. Nevertheless, as I mentioned last quarter, we see fiscal 2023 to be both a transitional and opportunistic year for Jerash. We are making excellent progress with our initiative to expand and diversify our global brand customer base. Production for two of our newest customers, Timberland and Skechers, has already begun, and initial shipments to both are beginning in the current third quarter. Also, we are continuing to receive inquiries from other major groups of brands, and we believe these prospective customers will play an important role for Jerash this year. We also are pursuing opportunities to gain visibility with high-profile customer brands in other segments of apparel manufacturing, which we believe will further diversify our customer base in the years to come. Just yesterday, we signed our memorandum of understanding for a joint venture company with Busana Apparel Group, one of the world’s largest garment manufacturers and exporters, with 30 manufacturing facilities in Indonesia and Ethiopia. Busana is well-known for its high-quality woven apparel production, specializing in technical garments, active sportswear, and formalwear. We also are gaining visibility into the leisurewear and technical clothing segments from Busana customers that are expressing interest to geographically diversify their production in Jordan, which has longstanding export agreements with the U.S., EU, and other countries. We will keep you apprised of our progress. I will now turn the call over to Eric Tang, who is based in Jordan, and then Gilbert Lee will cover our financial results and discuss details of our approach to guidance for fiscal 2023's third quarter. Hi, Eric.

Thank you, Sam. Hello, everyone. With the challenging external retail environment, orders placed by our top global brand customers have been smaller, and the requested delivery schedules have been later than a year ago. But we continue to actively communicate and maintain excellent relationships with each of our existing customers. We believe current trends will continue through fiscal 2023 as retail works to sell through the excess inventories and the economic and inflation recovery impacts order fulfillment and delivery schedules. Fortunately, Jerash’s competitive advantage and visibility in the marketplace is enabling the company to continue to receive new production inquiries from premium brands as global brand trends continue to diversify supply chains away from Asia, especially China. On the new customer front, as Sam said, we launched production for Timberland and Skechers in the third quarter. We are pleased to be working with these well-known brands, although initial orders are for products that generally have lower margins and are in relatively small quantities. Our first order from Timberland was shipped in late October. We also are working on test orders for two other VF brands and additional leading global brand customers outside of the U.S. We are optimistic about diversifying our customer base, which we believe to be a healthy move for Jerash. And we are confident that over time, revenue from new global brands will grow in a meaningful way. Construction of a new dormitory for our multinational workforce is underway but has been delayed for a few months with the start of the rainy season. We plan to move approximately 1,500 of our multinational workers to this new dormitory during the first quarter of 2023. We will be saving approximately $500,000 in annual rental expenses beginning next fiscal year. With that, I will turn the call to Gilbert to discuss our financial results and the fiscal 2023 outlook. Gilbert?

Thank you, Eric. Revenues for our fiscal 2023 second quarter were $37.8 million compared with $45.7 million in the same quarter last year. Inflationary pressures along with higher interest rates and inventory levels are affecting retailers, which took a toll on our performance. Revenue also was impacted by approximately $4 million in customer shipment postponements. Gross margin was 18.3% in the fiscal 2023 second quarter compared with 22.1% in the same quarter last year. The decrease was primarily driven by the lower proportion of export orders that typically generate higher margins. Operating expenses totaled $4.3 million in the fiscal year 2023 second quarter compared with $4.5 million in the same quarter last year. SG&A expenses remained elevated at $4.3 million in the fiscal 2023 second quarter compared with $4.2 million in the same quarter last year. This was primarily due to our newly established Middle East and North Africa region sourcing team and the expansion of our merchandising and sampling operations this year in Jordan. We have been receiving inquiries and positive feedback from customers for diversifying our material and supply sourcing to reduce the dependency on Asia as well as certain material lead times. This, in turn, will enable us to provide quicker responses to our customers as well as open new opportunities to attract additional global brands. We’re confident that our investments today in SG&A expenses will pay off considerably in the long run. Operating income amounted to $2.6 million in the fiscal 2023 second quarter versus $5.6 million in the same period last year. Interest expenses were $164,000 in the fiscal 2023 second quarter compared with $46,000 in the same quarter last year. Net income for the fiscal 2023 second quarter was $1.8 million or $0.14 per share versus $4.4 million or $0.39 per share in the same period last year. Comprehensive income attributable to Jerash Holdings' common shareholders totaled $1.6 million in the fiscal 2023 second quarter, including a foreign currency translation loss of $216,000 versus comprehensive income attributed to Jerash Holdings' common shareholders of approximately $4.4 million in the same period last year. Jerash’s balance sheet and cash position remain strong, with cash of $23 million and net working capital of $47.5 million at September 30, 2022. Inventory was $36.4 million, and accounts receivable amounted to $4 million. Net cash provided by operating activities was $9.6 million for the six months ended September 30, 2022, compared with $10.2 million for the same period in fiscal 2022. The net change reflects working capital activity attributable to increases in inventory and accounts payable and a decrease in accounts receivable. We are taking a conservative approach to guidance given the inflationary environment that is affecting retail markets and consumer sentiment along with a product mix shift to apparel items with lower margins and lower ASPs. For the fiscal 2023 third quarter, revenue is expected to be in the range of $33 million to $35 million compared with $36.8 million last year. We also are expecting margins to be lower at 16% to 18% on average for the full year. As Sam and Eric pointed out, we view fiscal 2023 to be both transitional and opportunistic for Jerash. Since last year, we were unable to accommodate new customer orders when capacity demands from our top global customers were exceptionally high. We continue to focus on growing our customer base and pursuing other opportunities to enhance our competitive advantage, product capabilities, and offerings. We will continue to closely monitor developments over the next few months and plan to provide an update on our next call. On November 4, our Board of Directors approved a regular quarterly dividend of $0.05 per share, payable November 28 to stockholders of record as of November 18, 2022. On June 13, 2022, Jerash’s Board authorized a $3 million share repurchase program. The share repurchase program will be in effect through March 31, 2023. To date, approximately 105,000 shares have been repurchased at an average price of approximately $5.20 per share and we will remain active in the market in the months ahead. With that, we will now open up the call for questions. Operator, may we have the first question, please?

Thank you. Our first question is coming from Michael Baker with D.A. Davidson. Please go ahead.

Thanks. So, two such questions. First, just on inventory, both your own and what you are seeing from your customers. Your inventory is up significantly year-over-year and at a much higher growth rate than we have seen in the past. Can you talk about any risk in that inventory or the composition of that inventory? And then as it relates to your customers, I think everyone knows that retailers in the U.S. and probably globally have inventories that are too high and are pushing back on orders. That shouldn’t be new to anyone. I guess my question is, in your view, how is the situation today versus three months ago or the last time you reported? Are retailers working down that inventory at all or is it actually getting worse?

Okay. First of all, on the inventory question, yes, inventory levels that we have on our books are higher than normal. Compared to the beginning of the year, our inventory is about $8 million higher. As we said, there are about $4 million worth of finished goods that were pushed over to the third quarter for shipments, reflecting that our customers' inventory levels are also very high and they have postponed the delivery of those finished products. But I think everybody is working off their high inventory levels, and it will just take some time to get them down given the current retail market situation and the global economy where consumers are less willing to spend. Maybe, Eric, you can talk a little bit about the situation, especially in Jordan, compared to two months ago when we reported.

Okay. I think before – okay, I refer to the three months ago when we reported. The situation now is getting a little worse in Jordan for all factories, because almost all the factories are manufacturing for U.S. brands, and 90% of their products are going to the U.S. Now I have spoken to a lot of brands and a lot of factories, and because of the high inventory level, they have cut down the orders or are not placing new orders. Many of our smaller factories, those with only 100 to 200 workers in Jordan, have already closed down because they don’t have their own direct orders from the brands. They only rely on subcontract orders. Now, even the manufacturers don’t have enough orders to fill up all the current capacity, so how can they offer subcontract orders to these small factories? That’s why many of them are closing down. Currently, because they don’t have enough work to fill all the capacity, many are working sometimes only five days a week instead of six. The working hours have also been reduced, some from 12 to 10, others from 10 to 8, and some are even working seven hours a day. For Jerash, we are still trying to use our full capacities, as we still have enough orders to run our production lines. But the situation, which I’ve discussed with many brands and factories, will only reflect the real picture after this Christmas and New Year sales. All of them are saying the same thing.

Yes. I think Eric is right. A lot of our customers are waiting to see what’s going to happen in this Christmas and Thanksgiving season to evaluate their sales before deciding what to do. But definitely, they are sitting on quite a significant amount of inventory.

Okay. Yes, that’s really helpful commentary. If I could ask one more, I guess set of questions, just relative to the model and expectations. So you gave some color on how you expect the third quarter to perform. But I guess – should we expect the sales weakness to continue into the fourth quarter as well? I am wondering if you could comment on that and then, by implication, what the full-year 2023 revenue number should look like? Also, the expenses being a little elevated at $4.5 million or so, do we expect that to continue for the next few quarters? It sounded like from your comments that that’s a reasonable place to project the SG&A for the coming quarters.

Well, first of all, for Q3, we have visibility that it will be off from last year, probably by about 8% compared to last year's Q3. For the full year, we are still quite uncertain about what it’s going to look like in Q4. We think it will continue to be weak, but we just don’t know how weak it is going to be, so we just want to be conservative. I don’t think it will be – well, definitely, it’s going to be down from the previous year. So for the whole year, we are not giving out any guidance, but I think it should be in line with pretty much our global brand customers' sales declining.

Gilbert, one more thing I would like to add is that there is a possibility that our last quarter may see some improvement. This is not certain, but we have gotten some confirmations recently from VF, because one of their vendors in another country, also a duty-free country, has encountered some significant financial problems. So, we are moving some of the orders from that country to Jordan, allowing us to use some extra capacity to accommodate this new order, which is to be shipped before the 31st of March, which is the last quarter.

Okay. But just to be conservative, I think Q4 is going to be better than last year.

Understood.

Then your second question about SG&A and operating expenses: I think it will continue around the $4.3 million, $4.4 million level. We don’t want to cut back too much, especially on SG&A, because what we are investing right now is to expand our sourcing and merchandising, especially in our Jordan facilities so that we can take advantage of sourcing from the MENA region, and we are trying to attract European brand customers. So, I don’t see that coming down significantly.

Fair enough. Thank you.

Sure. Thank you.

Thank you. Our next question is coming from Mark Argento with Lake Street. Please go ahead.

Good morning, guys. Just a couple of quick questions. I just wanted to better understand. I know historically, you guys have talked about how your capacity has been booked up. I assume you work with your customers, they book up and place orders with you to utilize your capacity. Can you walk me through how much latitude your customers have relative to deciding when they want to take delivery of the product?

Well, the customers dictate when they want to take delivery. In times like this, they have the power to postpone the delivery because they don’t want it to be on their books as finished goods inventory. That’s why some of the shipments were pushed off to Q3 from Q2. We constantly communicate with our customers every week to update their delivery schedule. However, because we have very good relationships with our customers like VF and New Balance, they try to work with us. They also understand our situation. For the products we have produced, they will definitely take them. Sometimes they even pay for them in advance. It's just that they do not want us to ship until it’s convenient for them. Anything to add, Eric?

Yes. Our customers are really very loyal to us; they understand the apparel difficulties. For example, one of our major customers, New Balance, they are very good. Although they are trying to postpone some shipments to the next quarter, they still intend to pay us before the shipment because the delay is caused by them.

Got it. That’s helpful. Just a quick question about Busana. Talk a little bit about that relationship.

Busana, yes. They are one of the largest apparel groups in Asia. They have a total of more than 30 facilities in Indonesia and one in Africa, with around 28,000 employees and an annual sales volume of more than $450 million. They work with a lot of brands, and some of the brands overlap with Jerash. The purpose of our joint venture is not because they lack business; they actually have too much. But all their business is concentrated in Asia. Nowadays, they have been told by buyers to move some of the business to duty-free countries, and Jordan is the best location that most brands are discussing. This is the reason they approached us to set up a joint venture. The brands have said that if they stay in Asia and Indonesia, they cannot significantly grow their business anymore. If they move to another country, like a duty-free one like Jordan, we can continue the growth. Establishing a new factory in Jordan may take 1 to 2 years, so they figured they might as well partner with a very good factory in Jordan. After doing a lot of statistics and checking with various sources, they found Jerash to be one of the best in Jordan, so they approached us to set up a facility and move some business there so they can grow together.

Yes, and some of these global brands are customers we have not worked with before. They are premium and very popular brands, some of which are in Asia, while others are in the U.S. and Europe. I think this is a very good opportunity for us to expand and diversify our customer base by partnering with Busana.

How do you anticipate the JV will work economically, and what kind of margins do you think this business can generate for you?

Right now, all the details are still pending. We haven't discussed the specific financials and investments with Busana yet. We have only completed the memorandum of understanding for now. In the next six months, we will begin discussions and explore ways to work together. However, three or four of their customers have already begun sending us samples and discussing styles and what we can produce for them. So that part is already ongoing. As soon as we reach an agreement with Busana, I think we will start acquiring that new business very soon.

Great. And then, last question for me. The stock, even after you trim out maybe the estimates a little bit here for the environment, is still trading at low single digits on an EV to EBITDA basis, which seems incredibly cheap, especially considering you have a substantial amount of cash on the balance sheet. I know you have the buyback and have purchased a few stocks. Can we expect you to be a bit more aggressive with the buyback? I can’t see a better use of capital than buying back your own stock at these levels.

Well, with the trading volume, we can’t really do much on the buyback. I think right now we have stopped because of the reporting. Even during regular purchasing for the repurchase, we could only buy a few thousand shares a day because of the low trading volume. There are many restrictions, so we are unable to do much with that.

Alright. Thanks, guys.

Thank you. Our next question is coming from Aaron Grey with Alliance Global Partners. Please go ahead.

Hi. Good morning and thank you for your question. First one for me: I want to talk about a bit of diversification, particularly with new brands coming on board. Are you seeing increased demand from brands to diversify their own manufacturers, especially given the current climate with excess inventory and supply chain issues? Overall, are you seeing more incoming requests or interest from larger brands for diversification?

Sure. I think for both sides, for Jerash and the potential customers, this year is the perfect timing for exploring new relationships. First, we have the capacity to do the sampling and trial orders for them. Establishing a new manufacturer takes time and energy, so it’s not something immediate. For now, they send us orders to try, which takes time for us to make necessary changes and ensure we meet their requirements. After that, they will send auditors and conduct due diligence. By the time we complete everything, it usually takes 6 to 12 months. We started this process with Timberland about 12 months ago, and we are just now starting to ship to Timberland. I think we are working with some significant brands whose names I cannot disclose at this time. However, after this year, I believe all this will contribute to growth and opportunities for the next fiscal year.

Great. Thanks for that insight. Then, regarding your own diversification in terms of cost inputs: Can you talk about some initiatives you have in place to lower the cost of raw materials, particularly as we navigate the next year with potential pricing pressures?

Well, the inflationary pressure or global inflationary pressure has impacted our costs. However, I believe the logistics cost has recently decreased significantly back to a more normal level. I think this will offset some of the increases, and we're not seeing much of an increase in our costs. If we maintain our facility operating near full capacity, I believe we can sustain efficient production costs. Additionally, we are eliminating some rent and lease costs, which should help our bottom line.

For Jerash, we are implementing several strategies to reduce the operating costs of the factory. For example, moving our migrant workers into the new dormitory can save us $500,000 in the first phase. If we move all migrant workers into the new dormitory, we could save $1 million a year in rent. Secondly, we have discussed plans with a solar company to install solar panels at all our existing factories. This can reduce the electricity costs by at least 40%, and the cost of electricity in Jordan is much higher compared to other countries. Additionally, we have contingency plans in place for scenarios where we don't have enough orders, but we want to maintain our existing capacity to meet future demands during peak season. We can reduce some of the working hours while still accommodating our capacity.

Great. Thanks very much for the clarity. I will jump back in the queue.

Thanks.

Thank you. At this time, there are no further questions in the queue. I will now hand it back to Mr. Choi and the management team for any closing comments.

Good morning. Thanks for taking my question. Gilbert, I think you discussed in prior conference calls looking at different sourcing for fabrics, potentially in regions like Egypt. Could you provide an update on that initiative and whether you expect any cost savings there as well?

Yes, absolutely. In fact, we have already started buying fabrics from Egypt and Turkey for some of our customers’ programs. This process has already begun. I cannot confirm if this will yield a significant amount of cost savings, but it will definitely help shorten lead times and provide more reliability in case of any supply chain disruptions. The cost of sourcing from Egypt and Turkey is comparable to sourcing from China after considering shipping costs.

Okay. Thanks very much.

Thanks, Rommel.

Thank you. I would now like to hand the call back to Mr. Sam Choi for closing comments. Thank you.

Thank you, operator, and thanks again to all of you for joining us today. Our prospects remain healthy. As we navigate the current challenging environment, we greatly appreciate your support and interest in our company. Please have a safe and healthy holiday season, and we look forward to speaking with you again soon. Thank you, everyone.

Thank you.

Thank you.

Thank you, ladies and gentlemen, and this does conclude today’s conference call. You may disconnect your lines at this time. Have a wonderful day, and we thank you for your participation.