Armlogi Holding - Earnings Call - Q2 2025

Transcript

Operator (participant)

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.

Matthew Abenante (Head of Investor Relations)

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. Before we get started, I'm going to review the Safe Harbor Statements. 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 derive 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 non-historical in nature, particularly those that use the terminology such as may, should, expects, anticipates, contemplates, estimates, intends, believes, plans, projected, predicts, potential, or hopes, 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 statement. 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. With that, I would like to hand the call to our first speaker, Aidy Chou, Chairman and CEO of Armlogi. Good morning, Aidy.

Aidy Chou (Chairman and CEO)

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. With our top-line growth, we demonstrate strong market demand. We faced the margin pressure this quarter as we executed on our expansion strategy. We will grow from nine to twelve warehouses, expanding our total space from 2 million to over 3.5 million sq ft, with new strategic locations in Savannah, Georgia, Ontario, California, and most recently, a 500,000 sq ft facility in the St. Louis metro area. Looking ahead, we remain confident in our long-term strategy. Our expanded footprint now provides access to 70% of the U.S. population with a two-day 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.

Scott Hsu (CFO)

Thank you, Aidy. I will now take us to 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 extending our revenue performance. While we achieved 21.8% top-line growth, reaching $51.1 million in Q2, the composition of this growth reveals important trends across our business segment. Our Transportation Services revenue grew 20.8% to $36.1 million, driven by increased unit volumes from our expanded warehouse network. Our Warehousing Services revenue showed even stronger growth, increasing 25.7% to $15 million, reflecting the successful addition of our new facilities. Our Other Services revenue, primarily customs brokerage, decreased to $6,243 as we focus on our core operations. However, the growth came with 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 two main factors. First, there was a rise in freight expenses due to higher UPS shipping charges. Second, these expenses increased salary and benefits, and the temporary labor costs increased as we expanded our warehouse and operation teams to support growth. This cost increase reflected both our expansion activities and the industry-wide pressures, resulting in our gross profit margin decreasing 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 three months ended December 31, 2023, to $2.6 million for the same period in 2024, with the primary driver being a $1.2 million increase in professional fees related to the investment financial advisory services.

As a result, our net loss for the three 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 led to a net loss for the six months ended 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 of $12.8 million. Looking to our balance sheet and the liquidity position as of December 31, 2024, and June 30, 2024, we had cash and restricted cash of $7.4 million and $10 million, respectively, which primarily consist of the cash deposits in banks.

Our cash flow analysis shows operating activities used the net cash 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 purchase, 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 securing a $50 million standby equity purchase agreement with YA, establishing up to $21 million in convertible promissory notes, and completing two $5 million tranches of prepaid advance. Our working capital position remains solid, with a total current assets of $42.9 million against current liabilities of $40.2 million, and our total stockholders' equity stands at $33.2 million. A 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 focuses on four 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 to do better inventory and receivable management. Fourth, maintaining adequate liquidity to support our continued growth initiatives. With that, the comprehensive financial overview, I will turn it back to Matt for questions.

Matthew Abenante (Head of Investor Relations)

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?

Scott Hsu (CFO)

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

Matthew Abenante (Head of Investor Relations)

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

Scott Hsu (CFO)

Our Savannah facility has reached 70% utilization within six months, which we are pleased with. Some of our newer facilities are still ramping up. Our target utilization rate is 85% across the network. We expect most facilities to reach this level within 12-18 months of the opening, based on our historical experience. The St. Louis facility just came online, so that will take some time, but Ontario is tracking similarly to Savannah ramp-ups occurred.

Matthew Abenante (Head of Investor Relations)

Now, given the cash burn this quarter and current market conditions, do you anticipate needing to draw down more of the SEPA facility in the near term?

Scott Hsu (CFO)

We end the quarter with $7.4 million in cash and restricted cash, and we have only drawn $10 million of our $50 million SEPA facility. While we believe our current liquidity position is adequate for our near-term needs, having the facility provides important flexibility as we continue to optimize our expanded operations. We will be strategic about any additional costs, balancing growth opportunities with dilution considerations.

Matthew Abenante (Head of Investor Relations)

Thank you. Our last question. You mentioned AI integration in your WMS. Can you quantify the expected efficiency gains and timeline for implementation?

Scott Hsu (CFO)

Yes. The AI-enhanced WMS is currently being rolled out across our network, with full implementation expected by fiscal year end. Early results from our pilot facility show potential for the 15%-20% improvement in picking efficiency and the 25% reduction in worker walking distance. However, we expect the full benefits to materialize over 6-12 months as the system learns from our operations and we optimize its implementation.

Matthew Abenante (Head of Investor Relations)

Thank you, Scott. Thank you, Aidy, for your comments. Thank you, everyone, for participating on today's call. We look forward to providing additional updates in the near future. In the meantime, we can be reached at [email protected], or you can contact me at [email protected].

Operator (participant)

Ladies and gentlemen, this concludes our conference for today. Thank you for your participation, and you may now disconnect.