Good morning, and welcome to Jerash Holdings fiscal 2027 second quarter financial results conference call. At this time, all participants are in a listen-only mode, and we will open up the floor for your questions after the presentation. If you wish to join the queue to ask a question at any time, you can press star one. Should you wish to remove yourself from the queue, press star two. It is now my pleasure to turn the floor over to your host, Roger Pondel, Investor Relations. The floor is yours.
Thank you, operator. Good morning, everyone, and good afternoon to some of you, and welcome to Jerash Holdings fiscal 2027 second quarter conference call. I am Roger Pondel with PondelWilkinson, Jerash Holdings' investor relations firm. On the call today from the company, our 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 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. And with that, it is my pleasure to turn the call over to Sam Choi. Sam?
Thank you, Roger. We delivered meaningful growth in both revenue and profitability for the fiscal second quarter, even as logistics challenges across the Middle East weighed on the operating environment. Over the past several months, regional shipping disruptions and ongoing uncertainty have driven up transportation costs for imported materials, making our results all the more significant. Despite these external pressures, revenue grew by nearly 20%, and gross margin expanded by 320 basis points compared with the prior year quarter. We improved margins by strategically purchasing raw materials early, maintaining disciplined cost controls, reducing waste, and enhancing operation efficiency through automation initiatives. The quarter's results underscore the resilience of our Jordan-based manufacturing platform and the advantages it offers, including duty and tariff-free access for apparel and textile exports to the U.S., Europe, and other key markets.
Just as important, we continue to deliver reliably and on time in a challenging environment. All of this remains a significant competitive advantage for Jerash and for our customers. Turning to demand and capacity, I am happy to report that our production facilities are fully booked through June 2027, and incoming orders remain strong. We are actively looking for ways to expand capacity to support continued growth and pursue new business opportunities. We expect the renovations at our most recently acquired facility and construction of our third satellite factories, supported by the Jordanian government, to be completed by September 2027. The additional capacity will help us meet increasing customer demand and support our long-term growth objectives.
Despite ongoing geopolitical uncertainties and regional conflicts, we have continued to navigate effectively while maintaining our commitment to operational excellence and execution of our growth strategy. We believe Jordan's favorable trade environment will continue to support our future growth, open new opportunities with customers and strategic partners, and strengthen our ability to create long-term value for our customers and shareholders. With that, I will now turn the call over to Eric Tang, who is in charge of our operations in Jordan. Hi, Eric.
Thank you, Sam. Customer interest continues to build, with increasing order volumes and new inquiries from both existing and prospective customers following the July announcement of the US-Jordan trade agreement, which reinforced the benefits of the 2001 free trade agreement, including duty-free access for Jordanian apparel and textile exports. Jerash is uniquely positioned to leverage these advantages to attract new business, deepen customer partnership, and drive sustainable long-term growth.
On the business front, we continue to receive additional orders from Hansoll, our strategic partner in Korea, and have recently completed product development for a potentially significant winter jacket order for its customer, with production that could begin at the start of our fiscal 2028 year. We have completed product development with another strategic partner, a large garment conglomerate, and also are now producing an initial trial order for an iconic American apparel and lifestyle brand.
If the trial order meets expectations, it could lead to additional orders and further enhance our growth momentum. As Sam mentioned earlier, our facilities are fully booked through June of 2027. We are actively pursuing opportunities to expand production capacity, including our previously announced plans to add production lines at two existing manufacturing facilities. Upon completion of the project by December, we expect to increase our overall production capacity by approximately 8%. Another expansion project involves converting our most recent acquired facility into a smart warehouse and cutting operation, while also adding production lines. This phase includes 500 new state-of-the-art sewing machines, additional automation, and the hiring of approximately 11,000 foreign workers. We now expect to complete this phase by September 2027, increasing production capacity by another 15%-20%.
Our partnership with the Jordanian Ministry of Labor continues to deepen as we move forward with construction of a third satellite factory that will expand facility capacity in rural communities and create approximately 500 new local jobs. Since the start of 2027 on April 1, 2026, our Jordan operation have hired over 1,300 local and foreign workers, including a number of replacement workers following the completion of their contract terms. As we continue to hire and train new workers, we expect productivity to improve as they gain experience. We also plan to add shifts as needed to meet consumer demand. At the same time, we continue to manage near-term logistic challenges related to the ongoing conflict in the Middle East. While operation at the Haifa and Aqaba ports has returned to near normal levels with minimum delay, transportation costs remain elevated.
Our team remains optimistic about the opportunities ahead. Jordan's favorable trade environment and our longstanding reputation for quality, reliability, and service continue to enhance our competitive position in the global apparel market. As mentioned, we are strategically expanding our production capacity and operational infrastructure to meet rising demand from existing and new customer. With that, I will turn the call over to Gilbert to discuss our financial results. Gilbert, please.
Thank you, Eric. Just want to make a minor correction. When Eric said that we were hiring approximately 11,000 foreign workers, I would like to correct that. It was actually 1,100. Okay? All right. Revenue for the fiscal 2027 second quarter grew 19.8% to $50.3 million from $42 million in the same quarter last year. The increase primarily reflected higher shipments to our major U.S. customer and others whose orders are primarily for the U.S. Gross profit increased 45.4% to $9.1 million for the fiscal 2027 second quarter from $6.3 million in the same quarter last year. Gross margin for the quarter increased 320 basis points to 18.2% compared with 15% in the same period last year.
The improvement was primarily driven by higher shipments to U.S. customers that typically generate stronger margins, as well as improved efficiency gains from automation, advanced purchases of raw materials, and tighter controls on wastage allowances. Operating expenses totaled $6.1 million in the fiscal 2027 second quarter, compared with $5.2 million in same quarter last year. The increase was primarily attributable to higher sales volume, as well as increased headcounts and related expenses. Operating income for the fiscal 2027 second quarter increased nearly three times to $3.1 million from $1.1 million in the same quarter last year. Total other expenses were $506,000 for the fiscal 2027 second quarter, compared with $456,000 in the same quarter last year.
The increase was primarily attributable to higher interest expense on the mortgage loan used to purchase our new facility in early 2026, as well as higher cost under the company's customer supply chain financing programs from increased shipment volumes. Income tax expenses were $402,000 in the fiscal 2027 second quarter, compared with $154,000 in the same quarter last year. The effective tax rate decreased to 15.7% in the second quarter of fiscal 2027, compared with 24.3% in the prior year period, primarily due to a tax concession in Jordan that lowered the corporate income tax rate from 20% to 10%, effective October 2025. Net income for the fiscal 2027 second quarter advanced 4.5 times the prior year level, reaching $2.2 million, or $0.16 per diluted share, compared with $479,000, or $0.04 per diluted share in the same quarter last year.
Comprehensive income attributable to the company's common stockholders advanced to $2.2 million in the fiscal 2027 second quarter, from $444,000 in the same period last year. As of September 30th, 2026, cash equivalents, and restricted cash totaled $16.9 million, and net working capital was $40.6 million. Inventory was $23.3 million, and accounts receivable amounted to $4.3 million. Net cash provided by operating activities was $7.5 million for the six months ended September 30th, compared with $318,000 in the same period last year. On November 5th, 2026, Jerash's board of directors approved a regular quarterly dividend of $0.05 per share on its common stock, payable on November 23rd, 2026, to stockholders of record as of November 16th, 2026.
As Sam and Eric noted earlier, we are optimistic about the company's future growth as we focus on improving operational efficiency, adapting to current market conditions, and executing on our expansion plans. Looking ahead for the fiscal 2027 third quarter, ending December 31st, 2026, we expect revenue of approximately $49 million-$51 million. Gross margin is expected to range between 16%-17%, reflecting higher import logistic costs for raw materials brought for productions for the next two quarters, and the temporary impact of onboarding new employees. I will now turn the call back to the operator as we open the call for questions.
Thank you. The floor is now open for questions. If you wish to join the queue to ask a question at this time, please press star one. We do ask if listening on speakerphone today, please pick up your handset while asking your question to provide optimal sound quality. Once again, please press star one on your phone at this time to join the queue to ask a question. Please hold a moment while we poll for questions. First question from Ryan Meyers at Lake Street Capital. Please go ahead.
Hey, guys. Thanks for taking my questions. First one for me, just on the gross margin during the quarter. How much of that was kind of permanent efficiency improvements versus how much of that was raw material purchases? Just kind of walk us through and break down the strong gross margin during the quarter, and how much of that stuff will continue going into the future?
Well, it is hard to distinguish how much impact was on the quarter's gross margin was due to permanent operational efficiency or how much is due to purchasing of raw material ahead of time. But I think overall, our long-term gross margin will gradually improve, which is our goal, by working on a number of areas, operational efficiency, productivity, trying to minimize the impact of increasing logistics costs, as well as policy or procedures to reduce the wastage. There are some other headwinds that we are facing. We have to bring in new workers as we grow, and some of the existing workers continue to—
When their contract expires, they have to go back home, and we'll have to bring in replacements, new replacements. Those new workers will take a while, maybe two or three months to get up to speed. That will have some negative impact on our productivity and efficiency. But at the same time, we're trying very hard to improve the overall efficiency on all our manufacturing facilities. Another very important factor is that the customer mix and the product mix, that changes from quarter to quarter and from year to year. It is really difficult to pinpoint which improvement is which, especially when you compare to a year ago.
Okay. Makes sense. Then with the facilities booked through June of 2027, how much of that represents purchase orders that you guys already have versus customers projecting out that far, thinking about what their products are going to look like? Then maybe what else are you guys seeing, and are you seeing an acceleration from new customers?
Well, first of all, correct me if I'm wrong, Eric. I believe when we say that our facilities or our capacities are fully booked through June of 2027, I believe all these are already orders that were confirmed up to this point. And basically—
Yes, it is correct.
We receive customers' orders. Right. Thank you, Eric. There are still orders that keep coming in and that we are anticipating for the second half of the calendar year 2027, that we are working on product development, sampling, pricing exercises. All those demands keep coming in, and I think within the next month or two, those will become confirmed orders.
Okay. Got it. Congrats on the great work, and thanks for taking my questions.
Thank you. Eric, do you have anything to add to this question about new orders, new customers?
Yes. I have a little bit to add. What we mean by the factory booked through June 2027 means we have all confirmed order allocated to all the production lines, and all our production line will be working on full capacity, 100%, until the end of June 2027. Of course, we keep receiving projection orders from customer. At the same time, there are also very solid orders from customer, which require us to deliver before June 2027, of which we don't have capacity. We are now also discussing with those customer, trying to ask them to revise the delivery schedule to the next quarter so that we can accommodate also these orders from the customer. This is what I want to add.
Thank you.
Thank you. Next question comes from Mike Baker with D.A. Davidson. Please go ahead.
Okay. Thanks, guys. I wanted to ask about the capacity expansion. I think you, if I'm sort of hearing it correctly, there are sort of three things that you're doing. You're adding lines to existing facilities. Then there's another project where you're just sort of redoing the whole facility. Then thirdly, a new satellite factory. Is that right? Am I articulating that correctly? The second part of my question is, you kept talking about adding even more capacity. Are you looking to add more capacity even above and beyond those existing projects that you specifically outlined?
Yeah, Mike, thank you for asking the question. You are correct on your articulation of our expansion projects at this point. Adding additional machines or additional production lines in our existing facilities, that will give us a little bit of additional capacity just to kind of ease the pressure from our existing and new customers who want immediate, or well, immediately meaning the next six months or nine months demand. That is kind of ongoing all the time. We try to squeeze more production lines, more machines in our existing facilities by better improvement of layouts and so on.
The second one is to, yes, we purchased a facility earlier this year. I think it was in January or February of 2026, which didn't show up on our current fiscal year. It was actually in our last fiscal year of 2026.
That facility we have been working on designing and. First we wanted to set up a centralized smart warehouse and also a centralized cutting department in that facility, plus some production lines. But now, as we see more pressing demands of production from our customers, now we're going to focus on first developing the production lines and then worry about the centralized warehouse later. So, that's right now what our focus is, and try to get that facility up and running, which still going to be somewhere in the next fiscal year. That is the second project. The third one, like you said, is the addition of satellite factories with the cooperation and working together with the government of Jordan, the Jordanian Ministry of Labor, yeah, sorry, and the Royal Court.
Those will add more capacity, but yeah, those are what we're working on right now. One facility or one factory is already in operation. The other one, we have to build a building, and that should be completed also somewhere in year 2027. I mean, calendar year 2027. So, those are the three that we have been talking about. But then we're still actively looking for other ways to add capacity outside of these three projects. Yeah, you are correct.
Yes.
Okay, go ahead.
Sam, I may try to add one more point to increase our capacity. We will, maybe three months later, we will try a new project, is to working in one of our factory for two shifts. That will be one of our trial project. That means making use of the existing facilities. We are working on two shifts, so to minimize the CapEx, but to increase the capacity as well. That will be another way to increase our capacity.
Got it.
Yeah, that's correct. Thank you, Sam.
Thank you. Two more quick ones here. Well, maybe not quick ones, but I did want to. It sounded like you talked about at least two sort of trial production lines or orders that you're working with or develop, I think product development that you talked about. One with Hansoll for a jacket, I think you said, and then another one with another customer. Any way to sort of quantify the size of those or what kind of visibility, assuming that those come to fruition, what kind of visibility does that give you in terms of overall top-line growth from those kinds of orders?
Well, Mike, without naming names, I think we pretty much know who the end customer is. But in terms of what the quantify or the significance of these two projects, yeah, there are two. One is with Hansoll, and the other one is with another large potential strategic partners. I would let Eric to talk about these two trial orders or developments. Eric, can you articulate on this?
Yes. Thank you, Gilbert. I think we previously already reported a couple of times that we are working very closely with Hansoll, which is one of the biggest apparel group in Korea. We are working very successfully, and we have already delivered a few orders for them with a significant figure. At the same time, in the beginning of this year, we also started discussion with another very big apparel, which is also based in Korea, which is much bigger than Hansoll. After several discussions, we got two trial orders from them, and we already started this month. The two trial orders will be expecting to complete in December. If everything goes well, we are expecting from this another big vendor a significant amount of business for 2027.
And presumably that's—
Can you give approximately how many pieces for these two orders?
For these two orders, each order, the quantity is around 40,000 pieces, which is summed up to 80,000 pieces.
The one with Hansoll?
Hansoll, we have just secured a very big order with them, okay, of which the order quantity is 5.35 million pieces.
Okay. Presumably, this is all above and beyond. Well, the trial orders, that is above and beyond what you have talked about in terms of capacity being full through June 2027. This would go after that, presumably.
Yeah. All these, I mean, projected orders, okay, I mean, okay, already told the customers that we are booked through already June 2027, all the new orders or new projects coming. So, they understand that we can be able to accommodate them after June 2027.
Got it. One more real quick.
Thank you.
Just a broader question on the tax rate. That new tax rate, is that a permanent change? Can we, in our models, think about 15% going forward?
Yeah. The tax rate, the tax concession from the Jordan government or the Jordan Tax Authority is, I wouldn't say permanent, but it is as long as until they change it. As far as we can see.
Yeah. Makes sense. Okay, awesome. Thank you.
Thank you.
Thank you. At this time, I will turn the call back over to Sam Choi, CEO, for closing comments.
Okay. Thank you, operator. Thanks to all of you for joining us today. We appreciate your ongoing support and interest in Jerash and look forward to updating you on our progress in the near future. Thank you very much.
Thank you.
Thank you.
This does conclude today's conference call. 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, everyone.
Thank you.
Thank you.