Claros Mortgage Trust Q2 2025 Earnings Call Transcript

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Provided by Quartr
November 12, 2024

There are 7 speakers on the call.

Operator

Greetings. Welcome to Jerash Holdings Fiscal 2025 Second Quarter Financial Results Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded.

Operator

I will now turn the conference over to your host, Roger Pundell of Investor Relations. Roger, you may begin.

Speaker 1

Thank you, Paul, and good morning, everyone. Welcome to Jerash Holdings fiscal 2025 Second Quarter Conference Call. I'm Roger Pondell with Pondell Wilkinson, Jerash Holdings' 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 Teng, 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.

Speaker 1

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 ks 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 those forward looking statements, and Jirash 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?

Speaker 2

Thank you, Roger. Our second quarter solidified the positive momentum that began earlier in the fiscal year. Revenue increased nearly 21% over last year's Q2. And I'm pleased to report that purchase orders for export shipments to our customers in the U. S.

Speaker 2

And Europe have been steadily increasing. Our factories are now fully booked through the first half of calendar year twenty twenty five. Results for the quarter reflected the confidence that our global customers are working with Duraesh and highlight the competitive advantages we provide by manufacturing in Jordan, which has friendly ties and free trade agreements with the U. S, the EU and other countries. On the geopolitical front, yet another positive note, export trade routes in the region returned to a more normalized and stable stage since mid August.

Speaker 2

This, in turn, is benefiting profitability. Gross margin for fiscal Q2 increased to 17.5%

Speaker 3

from

Speaker 2

16.1% a year ago and from 11.3% in the preceding Q1. We are encouraged by the positive momentum, hopeful that stability in the operating environment will be sustained and that our focus will turn to growth, attracting new and diversified global brands and producing a wider selection of garments. We continue to receive inquiries from major brands in the U. S. And Europe for pricing, followed by trial orders as more companies seek manufacturing partners outside of Asia in tariff free countries that offer a cost effective production environment with the capability to deliver high quality finished products.

Speaker 2

With good visibility well into fiscal 2026, we are beginning to plan for potential expansion of manufacturing capacity to support future growth. Eric Tang, who is in charge of our operations in Jordan, will share more about that shortly. And I will now turn the call over to him. Hi, Eric.

Speaker 4

Thank you, Sam. Despite the geopolitical instability and tension environment in many parts of the Middle East, Jordan remains stable and secure, and the ports of Akapa and Haifa are open and safe with asset security checkpoints. We are fortunate that our customers continue to trust Duraj as the reliable and responsible manufacturing partner for producing high quality garments. Operationally, we are starting to realize the benefits of our initiative to diversify our customer base. Today, we are producing garments for more than 20 brands, and we are continuing to expand our product mix with new garment categories.

Speaker 4

In response to an increasing number of export orders, we are now able to better plan for workflow and effectively utilize production capacity year round, reducing revenue seasonality. It is gratifying that all our manufacturing facilities are completely booked beyond the first half of the next calendar year. Gerard currently operates 6 production facilities and 4 warehouses, employing a diverse workforce of approximately 6,000 people. Our current annual production capacity is about 20,000,000 pieces. As Sam mentioned, we are beginning to explore production capacity expansion and additional workforce as growth dictates.

Speaker 5

Our marketing efforts with our joint venture partner, Wusanda Apparel Group, are ongoing, and we have begun production for 4 global brands through this partnership.

Speaker 4

We anticipate further new business opportunities will emerge in the future. Our optimism reflects opportunities on a number of fronts, including attracting new global brands based on Gerard's leadership position and strong industry reputation built over the past 20 plus years, as well as the competitive advantages of operating in Jordan. With that, I will now turn the call over to Gilbert to discuss our financial results. Gilbert, please?

Speaker 3

Thank you, Eric. Revenue for our fiscal 2025 Q2 increased 20.6 percent to $40,200,000

Speaker 5

from

Speaker 3

$33,400,000 for the same quarter last year. The quarter's revenue reflected an increase in shipments to Jiraj's major U. S. Customers and growth from new customers in other regions that the company on boarded during the past 2 years. Gross profit for the fiscal 2025 Q2 increased 31.4 percent to $7,100,000 from $5,400,000 in the same quarter last year.

Speaker 3

Gross margin increased 140 basis points to 17.5% from 16.1% in the same period last year. The expansion was primarily due to high production volumes with increased orders that typically carry higher margins shipped to U. S. Customers. Operating expenses for the fiscal 2025 Q2 totaled $5,900,000 compared with $4,500,000 in the same period last year.

Speaker 3

SG and A expenses were $5,400,000 in this fiscal 2nd quarter compared with $4,200,000 in same quarter last year, and the increase was primarily due to higher export logistics costs to catch up with garment shipment schedules and higher shipping volume. Stock based compensation expenses for the fiscal 2025 Q2 were $474,000 compared with $243,000 for the same quarter last year. Operating income increased to $1,100,000 in the fiscal 2025 Q2 from $888,000 in the same period last year. Total other expenses were $364,000 in the fiscal 2025 Q2 versus $167,000 in the same quarter last year. The increase primarily reflected higher interest expenses.

Speaker 3

Net income in the fiscal 2025 Q2 increased 80.1 percent to $665,000 from $369,000 for the prior year quarter. Net income per diluted share for the fiscal 2025 Q2 increased to $0.05 from $0.03 in the same quarter last year. As of September 30, 2024, Jirash had cash and restricted cash of $17,900,000 and net working capital of $35,200,000 Inventory was $20,200,000 and accounts receivable was $5,800,000 Net cash provided by operating activities was approximately $2,400,000 for the 6 months ended September 30, 2024, compared with $8,200,000 for the same period last year. As Sam and Eric mentioned earlier, purchase orders are coming in with larger quantities from our global customers beyond this fiscal year, and we are hopeful this will this more robust activity will continue. Accordingly, we are increasing our guidance with 3rd quarter revenue now expected to increase by 35% to 38% from the prior year quarter and full year 2025 revenue anticipated to grow by 30% to 35%.

Speaker 3

Our gross margin goal for the fiscal 2025 year is expected to be approximately 14% to 15%, subject to logistics charges and product mix. On November 8, 2024, Jirash's Board of Directors approved a regular quarterly dividend of $0.05 per share on its common stock payable on November 29, 2024 to stockholders of record as of November 22, 2024. We will now open up the call for questions. And I will turn the call back to the operator.

Operator

Thank you. At this time, we will be conducting a question and answer The first question is coming from Mark Argento from Lake Street. Mark, your line is live.

Speaker 6

Good morning, guys. Just a couple of quick questions here. And Eric, thanks for that additional color and kind of the what the scale and scope of the business looks like today. I mean, if we could kind of translate that into revenue opportunity for the platform currently at, like you said, the capacity is roughly 20,000,000 pieces. Can you try to help us kind of put a revenue number against that if that's kind of a fully productive if you have the facilities running on a relatively fully productive basis?

Speaker 6

Is that $140,000,000 $150,000,000 $160,000,000 in revenue? Could you maybe just peel the onion a little bit for us there? That would be helpful.

Speaker 3

Well, right now, we're looking at our we're running at full capacity, and we anticipate all the factories are going to be full until well, right now, we're booked until June or July of next calendar year, 2025. So depending on the product mix and the customer mix, because some customers we have or most of the customers we have FOB orders. And I think those are averaging maybe $15 to $20 a piece. Is that right, Eric? Or Yes, average.

Speaker 3

Average, right. And then some customers, especially when we don't have enough FOB orders, we will fill up the factories with Centimeters orders, kind of make orders. And those are at a lower sale price because we don't include the fabric cost in the sales. So those are averaging maybe $5 to $10 a piece. So it is hard to determine what the total scale is going to be because of the mix.

Speaker 3

But at this point, we're looking we're anticipating more FOB orders in the upcoming 6 months comparing to previous years because we're seeing a lot of our FOB customers placing orders and placing higher quantity orders. So that's why we anticipate the second half of the year is not going to be having significant seasonality versus our prior experience. So our 1st 6 months, we came in at $81,000,000 I believe, and we think the second half is still going to be strong. Currently, we're looking at total year growth to be about 30% to 35% increase from last year. So it is going to be close to between $155,000,000 to $160,000,000 And we just yes, so we're just going to stick with our projection of 30% to 35% growth.

Speaker 3

But we're looking at expansion because we need more capacity to satisfy the increase in demand.

Speaker 6

That's helpful. And that's exactly my follow-up question. On the expansion side, how many millions of pieces of additional production are you contemplating? And then what's the related upfront cost to bring that production online?

Speaker 3

Well, currently, we're still analyzing the numbers and looking at all kinds of opportunities. One opportunity that we have been contemplating and actually planning is to utilize the piece of land that we have been owning for the past 4 to 5 years. We have worked on building on it a new factory, but then because of COVID, we stopped and because of the war, the uncertainty, we kind of put it aside. But now we're aggressively working on all kinds of scenarios. First, we try to build a warehouse so that we can utilize the land, but also not having to pay for warehouse rental.

Speaker 3

So that will save some manufacturing costs. But then we also looking at maybe build another level of view, another story on top of the warehouse so that we can have space for new machineries, additional capacity. So we're still working on a projection of how much we need. And at the same time, we're working on a 3 year plan, gathering information from our sales and marketing team, our customers and projecting the next 2 to 3 years growth. So once we get all those information in, then we will have a more solidified plan, both in terms of sales growth, earnings growth and expansion needs.

Speaker 3

And at that time, we will be more prepared to answer the question about how much capacity we will need and what kind of project cost we want to require to build a new factory. Now at the same time, there might be other opportunities that comes up. Maybe we can purchase or lease another building or other factories. So we don't know. Just whatever comes across, then we will consider.

Speaker 6

Do you think that's at 2025 calendar year 2025 opportunity to bring additional capacity on? Or are we out another year? How long would it take if you decided to build something? Is that a year plus? Or would that move a little more quickly?

Speaker 3

If we need to build something, it could be in multiple stages. So like I said, if we start building a warehouse just using the land, it will take probably less than 12 months because right now what we are talking with the construction people, there are some kind of methods that can shorten the required time if just building a warehouse. But if we need to build factories or production facilities, that might take longer, maybe longer than a year, but definitely we will probably want to shorten that to less than 2 years. Is that what you think about Sam and Eric?

Speaker 4

Yes. Yes.

Speaker 2

Yes. Yes.

Speaker 4

I mean, our expansion plans will be divided into stages. Maybe we will consider on the 1st phase to build a warehouse together with 1 production floor. Okay, this is our initial training. But at the same time, already we are increasing some capacity, I mean, in our own factory with our, I mean, internal, I mean, renovation. So actually, we don't spend a lot of money because we still have some spaces, okay, in our existing facility.

Speaker 4

And we are already making full utilization of that. And that we already increased maybe

Speaker 5

7%

Speaker 4

to 8% of our current capacity, means 1,000,000 to 1,300,000, okay. We already have increased it in our capacity, okay, while we are waiting for the big expansion plan.

Speaker 3

Yes. And I also want to add is that in our construction plan, we will make the foundation capable of multiple stories, even though we may not build all the stories. I think it will sustain maybe 5 or 6 stories if we want to build on it, but we'll prepare the foundation to be able to bear that kind of building. But at the initial stage, we might just build 1 or 2 stories to start.

Speaker 6

Great. That's super helpful. And then just one last one for me, kind of a bigger picture question. Just got done with the elections in the U. S.

Speaker 6

Obviously, tariffs are a big talking point politically. The Trump administration and kind of the historical tariffs that administration has put forward, Is that a net positive for you in terms of additional tariffs on China and more product flow looking to move around and get out of China and potentially benefit from that, moving some of that to Jordan. Maybe you can just refresh us what historically you guys have seen in this prior administration?

Speaker 3

Yes. We've been seeing this trend of getting out of China for 3 or 4 years now. But I think with the new administration, it will I think it will speed up the process if the tariff rate is going to be heightened, especially from China. But you can never replace completely the sourcing from China, but I think a lot or more of our customers will try to speed up that process. So that is a positive to us.

Speaker 6

Great. I appreciate the time and nice work working through the last year or 2. I know it's been not easy for you guys, but nice job.

Speaker 3

Thank you, Mark.

Speaker 2

Yes. Thank you. Yes. In fact, in terms of the growth of the business, I think, besides a few customer being brought in from Prusen joint venture, I think for Tourette's itself, there is currently at least 5 new customer knocking our door and give us trial orders. And it presents a very clear picture that most customers would like to place order to duty free or offshore country instead of China.

Speaker 2

Yes. So I mean, so we are quite optimistic about the order book. And as we just discussed, besides the warehouse, we may immediately have a plan to build the factory endometri as well. So I think in these few months, we will have a final decision whether we should embark on the expansion plan or not. Yes, we'll let you know, yes, after we have a 3 year plan.

Speaker 6

Thank you.

Operator

Thank you. The next question is coming from Igor Novgorodsev from Laris Capital. Igor, your line is live.

Speaker 5

Hello, and thank you for taking my question. And first of all, congratulations. I'm very happy to see the signs of a real turnaround, both in a much improved quarter results and in a much stronger guidance. So I know the situation has been very difficult last couple of years. So I'm very, very happy and pleased to see it as a major investor.

Speaker 5

Thank you. Yes. You're welcome. My question is about your utilization of your cash. And I think it's been brought up a couple of times before.

Speaker 5

But my question is from this point of view, you've been incurring significant interest expenses, several 100,000 every quarter, yet you have a significant cash on hand. I do realize you have a complex corporate structure and not everything is so easy to transfer the cash, but can you be perhaps find a way to reduce your interest expense going forward because it looks like the rates will stay high for quite some time? And maybe talk a little bit about the source of this interest expenses?

Speaker 3

Okay. Yes. Our we are going to really focus on trying to reduce costs even as we increase sales or with a higher growth rate. However, in the past two quarters, because of the sudden increase in volume and sales volume, we were in the need of more working capital, and we utilized something called the supply chain financing program, which is offered by 2 of our major customers, North Face, well, VF Corp and also New Balance. What it does is allowing us to get paid by the customers, banks, and but then we have to pay some form of interest.

Speaker 3

Now the interest rate is not as high as the regular bank loans, but it is still according to or it is based on SOVAS. So as the interest rate globally is higher than previously, at least than previous years, So that's why we incur a higher interest expenses along with higher sales, but we are watching this very closely. Another source of interest expenses is on the credit line that we have with our bank. I think it's DBS. And this credit line is not significant, but however, it is something that we use to pay for raw materials, sometimes with LCs.

Speaker 3

And so we try not to use the credit line as much, but our experience is from time to time, we have to use it. Otherwise, the banks are going to cut it because of non usage. But we are watching it very closely. We want to please the bank at the same time, trying to save interest expenses. So I hope that answers your question and we will try to watch it more closely and balance the way of using the loan, using the financing program as well as not having to spend too much on interest.

Speaker 5

Thank you. That's a very comprehensive answer. My other question, we already covered recent U. S. Election, but my other question is also geopolitical.

Speaker 5

Recent turmoil in Bangladesh a few months ago, basically a coup of some sort. I know that Bangladesh is a major hub of garment manufacturing. Do you see any opportunity there? Are any companies looking to diversify from Bangladesh now that it seems to be just a much less stable company than it was perceived?

Speaker 3

Maybe Eric or Sam, you can answer that question. Do you see any opportunity of companies moving their sourcing from Bangladesh to Jordan?

Speaker 4

So actually, okay, during the past 6 months already there are already 1 or 2 big apparel group launch in Jordan and they already opened new factories and start production. And Mirage was also approached by Song Branded Dash Apparel Group, okay, so to discuss of some business opportunity or cooperation together. So but still we did not go into any confirmed agreement. But we are definitely we have been approached by them.

Speaker 3

By manufacturers?

Speaker 4

Yes, by manufacturer in Bangladesh.

Speaker 5

Okay. Great to hear that actually gives us tremendous opportunity given how important Bangladesh is in your market. Right? Thank you. I don't have any more questions.

Speaker 5

Thank you for your answers. Okay.

Speaker 2

Thank you. Thank you.

Operator

There were no other questions in queue at this time. I would now like to hand the call back to Sam Choi for closing remarks.

Speaker 2

Okay. Thank you, Paul, and thanks to all of you for joining us today and for your continuous support. We look forward to speaking with you next quarter. Thank you. Thank you, everyone.

Speaker 2

Thank you.

Operator

Thank you. This does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.

Speaker 2

Thank you very much. Thank you.

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