JRSH

Please note, this conference is being recorded. I will now turn the conference over to your host, Mr. Roger Pondel, Investor Relations. Sir, you may begin.

Thank you, operator, and hello everyone. Good morning. Welcome to Jerash Holdings' Fiscal 2026 Third-Quarter Conference Call. I'm Roger Pondel with PondelWilkinson, Jerash Holdings' Investor Relations firm. On the call today from the company are the Chairman and Chief Executive Officer, Sam Choi; the Chief Financial Officer, Gilbert Lee; Eric Tang, who leads the company's operations in Jordan; and Ringo Ng, the company's Head of Marketing. 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 factor section of the company's most recent Form 10-K 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 as required by law. With that behind us, it is my pleasure to turn the call over to Sam Choi. Sam?

Thank you, Roger. Jerash achieved sharply improved financial results across both the top line and bottom lines for the fiscal third quarter. The performance reflected continued growing demand from our longstanding global customers, complemented by initial large orders placed in June from our new strategic partner, Hansoll Textile, in Korea. Our collaboration with Hansoll is progressing well and delivering mutual benefits as we continue to work together on additional orders for its largest customers, a U.S.-based multinational omnichannel retail company. At the same time, our longstanding global brand customers are seeking to secure greater production capacity with Jerash. Turning to our recent announcement made just last week, we are very excited about the acquisition of our 184,000 sq ft manufacturing building and land in Amman, Jordan, from the Housing Bank for Trade and Finance. This transaction represents an important milestone as we advance the company's next five-year growth strategy.

We plan to establish these facilities at Jerash's new flagship production complex through an additional investment of approximately $3 million in renovations and $2 million in advanced manufacturing equipment. Renovations are anticipated to be completed before the end of 2026. Once fully operational, this strategic investment is expected to increase our manufacturing capacity by at least 40%. This expansion will meaningfully enhance our ability to support growing demand from existing customers while positioning the company to pursue new business opportunities. Since the new physical capacity and advanced technological capabilities allow us to scale responsibly while maintaining the quality and reliability our customers expect. As part of our ongoing strategy, we continue to diversify both our customer base and product mix, which supports more stable year-round production and reduces the impact of seasonality of business.

These initiatives, combined with our planned capacity expansion, position us to accommodate growing order volumes across new and expanded product offerings. As we scale, we remain focused on driving further improvements in gross margins while maintaining operational and cost control discipline. With that, I will now turn the call over to Eric Tang, who is in charge of our operations in Jordan. Eric?

Thank you, Sam. As we mentioned during our last quarterly call, the recent shifts in tariff policy have heightened the urgency for many global brands to diversify their manufacturing footprint, and many are turning to Jordan. Jordan today is being recognized as one of the world's preferred manufacturing hubs. Accordingly, since mid-2025, in response to rising capacity requirements from our customers, we have been actively pursuing opportunities to expand our production capacity.

Hence, we are very thrilled with the opportunity to acquire the bank-owned manufacturing building and land, as Sam mentioned. We expect to begin renovations immediately, with completion currently anticipated before the end of 2026. Once operational, the new facility is expected to gradually employ up to approximately 2,500 workers. As demand and order volumes increase, recruiting efforts will begin ahead of the completion of renovations and before new equipment is installed, allowing us to ramp up operations quickly and efficiently once the facility comes online. We are now completing production of the final phase of the initial order of 3 million pieces of girls' shorts from Hansoll, with shipments expected to be completed during the current fiscal quarter. At the same time, we are working closely with Hansoll, its largest customer, on the second purchase order for a different style.

Buyers from major customers have submitted increased order projections for calendar year 2026, and we also are continuing to see new inquiries from global brands and other strategic partners. Our facilities are now fully booked through July, with customers' commitments coming in for the rest of the calendar year soon. We are looking at different ways to expand our production capacity. Currently, we are collaborating with the Jordan Ministry of Labor to develop additional facilities in two rural towns, supporting both our growth objectives and local employment opportunities. We expect this project to be completed within fiscal 2027. Once finished, these new facilities are expected to add an additional 5%-10% to our total production capacity. This additional production capacity will enable Jerash to expand existing customer relationships while capturing new growth opportunities.

Our long-term strategy is to more than double our current production capacities in the next five years while continuing to focus on diversifying both our customer base and product mix. Through capacity optimization, our goal is to drive stronger, more consistent top line growth and improve margins throughout the year. With that, I will now turn the call over to Gilbert to discuss our financial results. Gilbert?

Thank you, Eric. Revenue for the fiscal 2026 third quarter grew 18% to $41.8 million from $35.4 million in the same quarter last year. The increase was primarily driven by higher shipment volumes to the company's major export markets, including the U.S., and a new customer in Korea. Gross profit increased 31% to $7 million for the fiscal 2026 third quarter from $5.4 million in the same quarter last year. Gross profit margin for the quarter improved to 16.9% from 15.2% in the same period last year, primarily driven by a favorable product mix from new customers and the benefits of economies of scale. Operating expenses totaled $5.1 million in the fiscal 2026 third quarter compared with $4.7 million in the same quarter last year. The increase was primarily due to higher sales volumes and increased recruitment costs, and partially offset by lower stock-based compensation.

Operating income nearly tripled to $1.9 million in the fiscal 2026 third quarter from $708,000 in the same quarter last year. Total order expenses were $418,000 in the fiscal 2026 third quarter compared with $252,000 in the same quarter last year. The increase was primarily due to the increase in financing needs to support business growth and exchange losses. Income tax expenses were $368,000 in the fiscal 2026 third quarter compared with $450,000 in the prior year quarter. Net income rose to $1.2 million or $0.09 per diluted share for the fiscal 2026 third quarter from $6,000 or $0.00 per diluted share for the same quarter last year. Comprehensive income attributable to the company's common stockholders advanced to $1.2 million for the third quarter from a comprehensive loss of $147,000 in the same quarter last year. Excuse me.

As of December 31st, 2025, Jerash had cash and restricted cash totaled $13.2 million, and net working capital was $36.4 million. Inventory was $26 million, and accounts receivable amounted to $7.8 million. Net cash used in operating activities was approximately $3.5 million for the nine months ended December 31, 2025, compared with $581,000 for the same period in fiscal 2025. The increase in net cash used in operating activities was primarily driven by higher receivables during the first nine months, along with a smaller reduction in inventory from the beginning of the year, partially offset by improved net income and modest increase in prepaid expenses and advances to suppliers. On February 3, 2026, Jerash's board of directors approved a regular quarterly dividend of $0.05 per share on its common stock, payable on February 20th, 2026, to stockholders of record as of February 13th.

As both Sam and Eric noted earlier, we are optimistic about our future prospects and performance ahead. We remain focused on cost controls and improving operating efficiency as we implement and execute our long-term expansion strategy. Looking ahead, we expect revenue for the fiscal 2026 fourth quarter to increase by 23%-26% over the same quarter last year, and our gross margin target for the fiscal 2026 fourth quarter is 14%-16%. We want to note that the Ramadan holiday this year falls at the end of March, whereas last year it occurred in early April. Depending on production and shipping schedules, some shipments may experience delays into the following quarter. We will now open up the call for questions, and I will turn the call back to the operator.

Thank you. Ladies and gentlemen, at this time, we will be conducting our question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue, and you may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. Thank you. Our first question is coming from Mike Baker with D.A. Davidson. Your line is live.

Thanks, guys. Just real quick, a couple of questions on how these expansions impact your income statement and balance sheet. So I guess first, how do you finance the $5 million needed for renovations? Where does that just come out of cash, or do you borrow to fund that $5 million? And then, I guess, secondly, in related, where does the $2.8 million for the, you know, from the, that's being financed from the Housing Bank, where does that show up? Does that show up? Is that gonna show up as debt on your balance sheet? Thanks.

Thank you, Mike. The first question about the $5 million, that we estimated cost for renovation as well as equipment installation. The total is $5 million, which includes the renovation, which is $2 million, and also the no, no, the renovation is $3 million, and the equipment is $2 million. This $5 million is going to be financed by the Housing Bank also, but it is separately applied for because the Housing Bank is going to apply for it from the Central Bank, which provides a subsidy on the interest rate, which we will get a lower-than-market interest rate for this $5 million loan, and this will show up on our balance sheet as long-term debt. I think the repayment is eight years, but we have a one-year grace period. In other words, we don't have to pay back the principal until February of 2027.

Now, the $2.8 million for the building and the land is going to be a mortgage by the Housing Bank, and, that is also an eight-year loan. The interest rate, I believe, is 8%, and, also, there will be a grace period. So the first year, we only have to pay, quarterly interest, but then it will start, repayment of the principal a year later.

Okay. That makes sense. So total then it's gonna be and so that's gonna show up on the balance sheet, that mortgage. So total is gonna be $7.8 million showing up in term for the Housing Bank.

Yeah. Approximately $7.8 million. Yeah. Right.

Okay. Fair enough. If I could ask one more, a little more detail, if you wouldn't mind, on those other I think you said two other facilities that you're thinking about. It sounds like they're smaller 'cause it'll increase capacity by 5%-10%, but, can you yeah, just a little bit more detail on, the size of those facilities and, and, I guess, similarly, you know, how those would be financed?

Yeah. If you remember, a few years ago, we, we worked with the Department of, or the Ministry of Labor to start up a satellite factory in a rural area, which is about one and a half hours outside of Amman, and that has been quite successful. Now, this is mainly to help the Department of Labor to promote business in rural areas and also to create job opportunities for those areas that, that have high unemployment rates. So, and by working with the Department of Labor, they will work with us, cooperate with us, to give us the privilege or the permits to import foreign workers, which we depend on because those are skillful workers, and we, we import a lot of those, and we accommodate them in our industrial city, and that has been working out very well for us.

So, as a win-win cooperation with the Jordanian government, we agree to set up another two satellite factories in rural areas, not too far from our main industrial zone, maybe an hour or two hours away, but that will allow us to hire more local workers, which will keep the Ministry of Labor happy and continue to cooperate with us when we need their help. But our goal is to utilize those to train up our local workers as well as to work on some not-so-complicated garment styles and improve our overall efficiency. So I think, overall, this is going to be a cost savings to us because those local workers, they don't need to take a long commute, and we of course we provide them transportation, and that will help us save our transportation costs.

So those are smaller-scale kind of factories, just like the one that we started a few years ago. The amount of capacity that they will bring is not going to be like one of the main factories that we have in Amman. Does that answer your question?

Yes. Thank you. Understood. Very clear.

Eric, do you have anything to add?

Oh. Also, because we have this kind of satellite project, which helped the Jordanian government to increase the job opportunities in the rural area, so this is the reason why Housing Bank can get, for Jerash from the Central Bank, a subsidy of the interest rate in our financing the $2 million of our machinery and renovation cost.

Yeah. That's right.

Got it.

Thank you. Our next question is coming from Ryan Myers with Lake Street Capital Markets. Your line is live.

Hey, guys. Thanks for taking my questions. First one for me. So with the 40% capacity, that sounds like it'll come online, you know, towards the end of this year and into next year. You know, just curious, how quickly will you guys be able to ramp that up? You know, how much of that is new versus existing business? How much visibility do you have into that? Just, you know, as we should think about, you know, how you're gonna be able to kinda start recognizing revenue through that facility. Just the details there would be helpful.

Well, I think we anticipate the renovation to be finished by the end of this calendar year, so by the end of 2026, and, like Eric said, we will start recruiting for new workers and start training them before the renovation is complete and before the equipments are installed. So we're going to take the slower season to kind of integrate the new workers and also the new capacity into our production. So, hopefully, by the end of this fiscal year or the beginning of next, not by the end of this calendar year or the beginning of 2027, we'll be able to be online this new facility, and that will increase our capacity up to or at least 40% once it is fully occupied and 2,500 workers brought in. I think this whole process is probably going to take 1-2 years to complete.

Okay. Got it. That's helpful, and then just thinking about gross margins for the quarter, it came in pretty healthy. You know, can you just walk us through, you know, how much of that was the higher overall product mix or just economies of scale, and then maybe how we should think about gross margins going forward and kinda where that balances out at?

Well, this past quarter, we focused a lot on the high-volume orders that we're doing with Hansoll, and that turned out to be a really great enhancement to our efficiency because it is just very simple, not that simple, but we don't have to change over the styles from styles, and it's just one product that we just keep running. So it improves our efficiency a lot and also the economies of scale because we utilize our full capacity, and overall, the per-unit cost definitely, especially the fixed cost per unit, will go down. So that turns out to be improving our margin. Going forward, we're kind of probably going back into working on more difficult styles, especially with our long-term customers, and the volume will be lower and multiple styles.

So we anticipate the margin will somewhat be lower than this current quarter. However, I think we have been working on some efficiency improvements. We have in some of our facilities we have installed hanger systems to help the efficiency, and we're looking at other kinds of technological improvements to help us reduce the overall cost in manufacturing, but to be more automated in our factory and also in our warehouses. So I think the improvement will come, and our new facility, the new building that we bought, we're going to install the state-of-the-art equipment and utilize more automation. So this one is going to help us in controlling our costs and improving the output.

Got it. Thanks for taking my question. Thank you.

Thank you. Our next question is coming from Igor Novgorodtsev with Lares Capital. Your line is live.

Good morning, and thank you for taking my questions. Congratulations on a very strong quarter.

Thank you.

My first question is, couple several years ago, obviously, you had great disruption be-.

Apologies, sir. One moment, please.

Hello?

One moment, please. Sorry, Igor. We have your line back, sir.

Okay. Sorry. I'll start my question again. So, last couple of years, you had great disruption because of the war in Gaza. So now with the situation up in the air again between, you know, U.S., Iran, and, you know, Israel, and not everybody's sure what's going to happen. What is your contingency plan? What is you gonna do different this time now that it's more anticipated?

Eric or Sam, do you wanna take this one?

Yeah. Eric, first, please. Yeah.

So, I think, because we are closely monitoring the political situation here, so we are almost every month, we okay. As one of the biggest investors in Jordan, we also have meetings with the Ministry of Foreign Affairs to monitor the very sensitive political situation here, especially okay, it's about the possibility of the occurrence of a war in Iran. But still now, okay, according to the latest information, everything is still very stable in the region, and, okay, we don't know whether the war will happen, but even though it has happened, we are being assured our government has been assured that Jordan it will not affect Jordan. Jordan will be still the most safest haven in the region of the Middle East. Okay. We are closely monitoring the situation, and we are closely also related this information to our major buyers.

Okay. I was more concerned about the delivery and closure of the Haifa port and so on. So basically, you had a real issue shipping stuff in and shipping stuff out. So I assume that you have the contingency plan now because we don't know how that's gonna go.

Nowadays, currently, for the past six months, the Haifa port and the Aqaba port are working very efficiently and very stable, not like before. So we for the past six months okay. So we don't encounter any obstacle in the delivery of our export container.

Okay. My other question is, I see that your expansion and purchase is going to be financed with debt, and I understand that the rates are quite attractive. But you still have quite a bit of cash on your balance sheet, which doesn't quite earn anything close to 8% that you're gonna be paying on your debt. What are you planning to do with cash?

Well, Larry, actually, we have been utilizing our cash more extensively in the past year or so, because of our growth in business and some of the new customers. For our old customers, such as VF and New Balance, they have supplier financing programs that we can rely on to get early payments on the receivables. But new customers, we have to use more cash to finance our purchasing and also our operating expenses. But once we get used to dealing with these new major customers, I think the cash flow will be much easier and right now, we're working with some banks, some local banks to finance the receivables, finance the LC that our customers are providing us. So cash flow is fine.

It's just that we might have to take on a little bit more short-term debt, and for the expansion, we will have to take on some long-term debt. But it's okay. I think for the time being, we will rely on debt to finance our growth, our working capital growth, and also our expansion. But once we reach a more comfortable level, we will consider other financing alternatives.

Okay. My last question is about the health of your overall still largest customers, VF Corp. Obviously, they had a lot of turmoil last few years. How are they doing? Do you still experience a lot of pricing pressure from them? And maybe you can talk a little bit about your relations with them.

Well, let me try to give you some big picture of, but then Eric and Sam could add to it. I think we do experience some pricing pressure from our customers, but I think that is because of the tariff situation that is affecting everybody. So it's not just affecting our customers. It is affecting everyone else, even other suppliers. It's affecting our competitors. So the market is reacting to it. But the good thing is we are considered as a highly capable, and we deliver high-quality and very reliable manufacturers in Jordan. So sometimes our customers, even though they try to put pressure on us, but they know we may be their only choice or we might be one of their few choices if they want to have productions in Jordan.

So there's always a power going back and forth between our customers and us. But I think overall, we strike a balance, and we will continue to do business. If it doesn't make sense, then nobody will do business. Okay? I think overall, as long as we provide competitive pricing and good quality and good service, everybody will be in good shape.

Okay. Thank you, and

I would like to. I would like to.

Oh, okay. Go ahead. I'm sorry.

Yep. So I would like to add a few points as well in terms of the pricing pressure from customers. First of all, I mean, the tariff situation in Jordan compared with other countries in the world I mean, except Egypt, they enjoy 10% receivable tariff, but Jordan enjoys 15%. It will be amongst the lowest among all other countries in addition to the basic duty-free, I mean, privilege. That's one point. Other point is, I mean, yes, the customer will give pressure on the FOB price because of the tariff.

But, I mean, of the total garment breakdown cost breakdown, I mean, trims and fabric, they also will give some room for us in terms of pricing. So, I mean, although we got pressure from customer in terms of the FOB price, but other costs like fabric and trims, they also will lower the price. So, I mean, that will counterbalance the overall reduction in pricing pressure from customers. Yeah.

Okay. Thank you very much, and again, congratulations on an excellent quarter.

[crosstalk]

Thank you.

Thank you. Our next question is coming from Barry Pasternack, who is an investor. Your line is live.

Hey, guys. Thanks for taking my call. Congrats on the quarter. It looks like your tax rate was 24% for the quarter, which was lower than recent quarters. As I recall on a previous call, you mentioned that you were working with a tax consulting firm on tax strategy. Could you talk about whether any progress has been made on that front and how you're thinking about, or, you know, whether that's part of the reason for the lower tax rate this quarter and how you're thinking about the tax rate going forward?

Well, the effective tax rate was lower this quarter primarily because we have high income. In the past, our consolidated income was suffering because of some disruptions because, as you know, the past two years have not been good. But we still have to pay taxes. So, that kind of hit our effective tax rate. Plus, we had to make some adjustments for the Subpart F income because of our global operations. So but that is behind us. So going forward, our effective tax rate should be normalized, and yes, we have engaged a tax consultant to help us do some tax planning to see where we could save some tax expenses. But that is still being worked on. I think going in the future, we will try and utilize some better planning so that our effective tax rate will improve.

Okay. Great. Would 24% or, let's say, under 30% how would under 30% going forward, or what would be the estimate for the effective book tax rate?

Right now, I think we're projecting between 25%-30%.

Okay. All right. Thanks very much.

Thank you. Ladies and gentlemen, this does conclude today's question and answer session. I would like to turn the call back over to Mr. Choi for any closing remarks.

Thank you very much, Operator. Thanks to all of you for joining us today. We appreciate your continued support and interest in Jerash and look forward to speaking with you soon about our progress. Thank you very much.

Thank you.

Thank you. Ladies and gentlemen.

Thank you. Thank you all. Yeah.

Thank you.

Thank you.

This does conclude today's conference, and you may disconnect your lines at this time. We thank you for your.