Armlogi Holding Corp. (BTOC) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Armlogi Holding Corp. Second Quarter and First Half of Fiscal Year 2025 Earnings Call. Please note that today's call is being recorded. I'll now turn the meeting over to Matthew Abenante, Investor Relations for Armlogi Holding Corp.

Thank you, operator, and thanks to everyone for joining us today for Armlogi's earnings conference call to discuss the second quarter and first half of 2025 results. Please note that our earnings press release was issued yesterday, along with our quarterly report on Form 10-Q, which was also filed yesterday with the Securities and Exchange Commission. Both are available in the Investor Relations section of our website at ir.armlogi.com. Joining us on the call today are Aidy Chou, Chairman and Chief Executive Officer of Armlogi; and Scott Hsu, Chief Financial Officer. The format of our call will consist of comments provided by management, followed by a question-and-answer session addressing the questions that were submitted by investors. We thank everyone for submitting these questions. And before we get started, I'm going to review the safe harbor statement. Please note that today's discussion will contain forward-looking statements. In addition, from time to time, we or our representatives may make forward-looking statements orally or in writing. We base these forward-looking statements on our expectations and projections about future events, which we derived from the information currently available to us. Such forward-looking statements relate to future events or our future performance, including our financial performance and projections our growth in revenue and earnings and our business prospects and opportunities. You can identify forward-looking statements by those that are not historical in nature, particularly those that use the terminology such as may, should, expect, anticipate, contemplates, estimates, intends, believes, plans, projected, predicts, potential or hope or the negative of these or similar terms. In evaluating these forward-looking statements, you should consider various factors, including our ability to change the direction of the company, our ability to keep pace with new technology and changing market needs and the competitive environment of our business. These and other factors may cause our actual results to differ materially from any forward-looking statements. Forward-looking statements are only predictions. We are not obligated to publicly update or revise any forward-looking statement, whether as a result of uncertainties or assumptions. The forward-looking statements discussed on this call and other statements made from time to time by us or our representatives may not occur, and actual events and results may differ materially and are subject to risks, uncertainties and assumptions about us. And with that, I would like to hand the call to our first speaker, Aidy Chou, Chairman and CEO of Armlogi. Good morning, Aidy.

Good morning, Matt, and thank you, everyone, for joining us today. I would like to discuss our second quarter and first half results for fiscal 2025 and outline our strategic progress. For Q2 FY 2025, we generated revenue of $51.1 million, representing growth of 21.8% compared to the same period last year. Where our top line growth demonstrates strong market demand, we faced margin pressure this quarter as we executed on our expansion strategy. We will grow from 9 to 12 warehouses, expanding our total space from 2 million to over 3.5 million square feet with new strategic locations in Savannah, Georgia, Ontario, California and most recently as a 500,000-square feet facility in the St. Louis Metro Area. Looking ahead, we remain confident in our long-term strategy. Our expanded footprint now provide access to 70% of the U.S. population with a 2 days' drive. Our focus remains on optimizing this facility while maintaining our high service level. I will now turn it over to our new CFO, Scott Hsu, who will provide a detailed review of our financial performance.

Thank you, Aidy. I will now take us through a comprehensive review of our financial results and operational metrics for both the second quarter and the first half of the fiscal year, 2025. Let me start by expanding our revenue performance, while we achieved a 21.8% top line growth, reaching 51.1 million in Q2, the composition of this growth reveals important trends across all business segments. Our Transportation services revenue grew 20.8% to $36.1 million, driven by increased shipment volumes from our expanded warehouse network. Our warehousing services revenue showed even stronger growth increased 25.7% to $15 million, reflecting the successful addition of our new facilities. Our other services revenue, primarily custom brokerage, decreased to 6,243 as we focus on our core operations. However, the growth came with a significant cost pressures. Our total cost of sales increased by $16.3 million or 47.6% to $50.9 million in Q2. The increase was driven by 2 main factors. First, there was a rise in freight expense due to higher UPS shipping charge. Second, lease expense, employee salary and the benefits and the temporary labor costs increased as we expand our warehouse and operations teams to support growth. This cost increase reflecting both our expansion activities and the industry-wide pressures resulting in our gross profit margin decreased to 0.9% in Q2 fiscal year 2025 from 18.3% in Q2 fiscal year 2024. General and administrative expenses decreased by $0.3 million or 9% from $2.9 million for the 3 months end December 31, 2023, to $2.6 million for the same period in 2024, of which the primary driver being a $1.2 million increased professional fees related to the investment, financial and advisory services. As a result, our net loss for the 3 months ended December 31, 2024, was $1.6 million compared with the net income of $3.7 million for the same period in 2023, representing a decrease of $5.4 million. Looking at our first half performance, total revenue grew 12.5% to $93.6 million. However, the cost pressure I described earlier, the net loss of the 6 months end December 31, 2024, of $6.3 million compared with the net income of $6.5 million for the same period in 2023, representing a decrease by $12.8 million. Turning to our balance sheet and the liquidity position. As of December 31, 2024 ended June 30, 2024, we had cash and restricted cash of $7.4 million and $10 million, respectively, which primarily consists of the tax deposits in banks. Our cash flow analysis shows operating activities used a net tax of $9.2 million in the first half primarily due to our expansion-related expenses. Investing activities used $1 million mainly for the property and equipment purchases, while financing activities provided $7.4 million primarily from our standby equity purchase agreement. We have taken a significant step to strengthen our financial flexibility. This includes the securing of $50 million Standby Equity Purchase Agreement with YA, establishing up to $21 million in convertible promissory notes and completing two $5 million tranches of pre-paid advances. Our working capital position remains solid with the total current assets of $42.9 million against current liability of $40.2 million, and our total stockholders' equity stands at $33.2 million. Particularly encouraging metric, is our growing customer base, which has expanded from 105 at the end of June 2024 to 298 active customers as of December 31, 2024. The nearly 3x growth in our customer base demonstrates strong market demand for our service despite the near-term margin pressure. Looking ahead, our financial strategy focused on 4 key areas: first, improving utilization rates at our new facility to drive better operating leverage. Second, implementing automation and efficiency initiatives to manage operating costs; third, optimizing working capital through a better inventory and the receivable management; and four, maintaining adequate liquidity to support our continued growth initiatives. With that comprehensive financial overview, I will turn it back to Matt for questions.

Thank you, Scott. We will now move to the question-and-answer portion of the call. Thank you to everyone who has submitted questions. Our first question. Can you provide more color on the UPS cost increases? And what steps you're taking to mitigate the impact on margin?

Yes. The UPS cost increase contributed significantly to our $8.3 million rise in current expenses this quarter. We are addressing this through the multiple initiatives. First, our recent integration with Amazon Shipping provides an alternative carrier options that we expect will help to diversify our shipping costs. Second, we are leveraging our new PortPro transportation management software for optimizing the routing and consolidated shipping where possible. Finally, we are in ongoing discussions with multiple carriers to ensure competitive rates as we continue to grow our volume.

Thank you. Your warehousing footprint has grown significantly, but utilization seems mixed. What's your target utilization rate and time line for reaching it across the new facility?