Armlogi Holding - Earnings Call - Q3 2025

Executive Summary

• Q3 FY2025 revenue rose 19.3% year over year to $45.84M, but margins compressed sharply (gross margin ~0.6%) and EPS turned to a loss of $(0.09), driven by higher freight and expansion-related costs.
• Sequentially, revenue declined vs Q2 FY2025 ($51.1M), indicating ongoing pressure despite sustained demand; gross margin in Q2 was ~0.9%, underscoring persistent cost headwinds.
• Management highlighted tariff reductions from recent U.S.-China talks as a potential margin tailwind and emphasized operational optimization and technology investments to improve efficiency.
• No formal quantitative guidance was provided; management pointed to gradual margin improvement as utilization increases and carrier diversification progresses.

What Went Well and What Went Wrong

What Went Well

• Strong demand and top-line momentum: Q3 revenue increased by ~$7.4M (+19.3% YoY) to $45.84M, reflecting sustained demand for services.
• Positive macro backdrop: Management cited successful U.S.-China trade talks with tariff reductions as encouraging for sector volumes and margin relief (“substantial reduction in tariff fees…positive signal for Armlogi”).
• Strategic focus on efficiency and technology: Management reiterated initiatives around operational optimization and tech-driven efficiency to mitigate cost pressures and improve profitability.

What Went Wrong

• Margin compression: Q3 gross margin fell to ~0.6% from ~8.6% a year ago; gross profit declined to $0.28M, highlighting increased freight and expansion costs.
• Profitability deterioration: Loss from operations was $(4.19)M and net loss $(3.76)M (EPS $(0.09)), reflecting rising G&A ($4.47M) and cost of sales ($45.57M).
• Carrier cost inflation: Management flagged significant freight cost increases from major carriers (FedEx/UPS) and earlier noted UPS-related cost pressures; diversification efforts are ongoing but industry-wide headwinds persist.

Transcript

Operator (participant)

Thank you for standing by, and welcome to the Armlogi Holding Corp.'s Third Quarter and First Nine Months of Fiscal Year 2025 earnings call. Please note that today's call is being recorded. I will now turn the meeting over to Matthew Abenante, Investor Relations for Armlogi Holding Corp.

Matthew Abenante (President of Strategic Investor Relations)

Thank you, and thanks to everyone joining us today for Armlogi's earnings conference call to discuss the third quarter and first nine months of fiscal year 2025 results. Please note that our earnings press release was issued on Wednesday, along with our quarterly report on Form 10-Q, which was also filed 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 is Scott Hsu, Chief Financial Officer of the company. The format of our call will consist of brief comments, 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 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 derive from the information currently available to us. Such forward-looking statements relate to the 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, 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 statements. Forward-looking statements are only predictions. We are not obligated to publicly update or revise any forward-looking statements 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 Scott Hsu, Chief Financial Officer of Armlogi. Good morning, Scott.

Scott Hsu (CFO)

Good morning, Matt, and thank you everyone for joining us today. Our Chairman and CEO, Aidy Chou is unfortunately away for [Armlogi] company business today and sent his regards. This quarter, we continue to see revenue growth, reflecting the sustained demand for our comprehensive logistics solutions. A particularly significant and an encouraging development is the recent success in U.S.-China trade talks. As many of you know, this has resulted in a substantial reduction in tariff fees, and we believe these will have a positive impact on all sectors, and for Armlogi specifically. We will touch on them more throughout the call. Our third quarter and the nine-month results reflect a period of continued revenue growth, which underscores the ongoing demand for our logistics solutions. However, we also faced significant operational investments, and a market-related cost pressure that impacted our profitability.

We are diligently working to optimize our extended warehouse footprint, and enhance operational efficiency across all our service lines. A significant and encouraging development is the recent success in U.S.-China trade talks, which has resulted in a substantial reduction in tariff fees. This is a major point of optimism for Armlogi and the broader logistics sector. We anticipate that these positive trade developments will help alleviate some of the cost pressures we have been experiencing, and create a more favorable operating environment, while we maintain a cautious approach in our overall planning, prioritizing sustainable growth and improve the profitability. The resolutions in trade tensions allow us to look forward with greater confidence. Our commitment to leveraging technology and providing comprehensive supply chain solutions for our clients remains steadfast, as we navigate the evolving economic landscape and position of Armlogi to capitalize on these new opportunities for future success.

Now, let's turn to our financial performance for the third quarter and the first nine months of the fiscal year 2025. As a reminder, for a detailed breakdown of our financial results, I encourage you to refer to our earnings press release and our Form 10Q, both of which are available on our investor relations website. My comments here will provide a high-level overview. The third quarter ended March 31st, 2025, we saw continued top-line momentum, with total revenue reaching $45.8 million, an increase of 19.3% compared to the same period last year. This growth reflects the continued demand for our services. Cost of sales for the quarter was $45.6 million. As we have discussed, these costs were higher primarily due to operational investments, and the expansion of our footprint. This impacted our gross profit, which was $0.28 million for the quarter.

We are actively implementing measures to improve efficiency and profitability, and we anticipate that the recent positive developments in U.S.-China trade relations may contribute to alleviating some of these cost pressures in the future. General and administrative expenses were $4.47 million, reflecting investments to support our growing operations. This resulted in a loss for operations of $4.19 million for the third quarter. Our net loss for this quarter was $3.76 million, or $0.09 per basic and the diluted share. Looking at the nine-month period, ended March 31st, 2025, total revenue grew 14.6% to $139.5 million, again underscoring the sustained demand for our comprehensive logistics solutions. Cost of sales of the nine months were $142.3 million. This resulted in a gross loss of $2.85 million for the period. We are focused on strategic initiatives to address these margin challenges.

As mentioned, the recent positive developments in U.S.-China trade discussions are expected to contribute favorably to mitigating some of these cost pressures going forward. General and administrative expenses for the nine months were $10.8 million. The loss from operations for the nine-month period was $13.65 million, and our net loss was $10.06 million, or $0.24 per basic and diluted share. We are managing operations prudently and focused on initiatives to improve our profitability as we move forward, especially in light of the more favorable trade environment we anticipate. Looking ahead, we are navigating a dynamic market environment, while evolving global trade policies and the inflationary pressures have certainly presented ongoing challenges. The recent successful conclusion of U.S.-China trade talks marks a significant positive development. This breakthrough, resulting in reduced tariff fees is expected to create a more favorable operating landscape for the logistics sector and importantly, for Armlogi.

We are proactively working to optimize our operations, managing costs, and enhancing our service delivery. We anticipate that this improvement in trade relations will contribute to alleviating some of the cost pressures we have experienced. While the full impact of these macroeconomic shifts will unfold over time, we are cautiously optimistic. Our focus remains squarely on leveraging our expanding infrastructure, and our technological capabilities to drive long-term value for you, our shareholders. We are committed to improving our profitability, and we will continue to make strategic investments to support sustainable growth and strengthen our market position, now with a more positive backdrop for international trade. In summary, while we have navigated some headwinds, we have continued to grow our revenue, demonstrating the underlying demand for our services.

We are proactively managing costs, and are particularly encouraged by the significant positive developments in U.S.-China trade relations, which we believe will benefit our operations and industry at large. We remain confident in Armlogi's strategy, our dedication and our ability to create value in the evolving global logistics landscape. I want to sincerely thank our shareholders for their continued support and trust in Armlogi. With that comprehensive financial overview, I will turn it back to Matt for questions.

Matthew Abenante (President of Strategic 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, despite cost pressures, the company is continuing to show revenue growth. Could you elaborate on the key drivers behind this sustained demand for Armlogi services, and how the company is working to improve profitability moving forward?

Scott Hsu (CFO)

That's an excellent question. The continued revenue growth of 19.3% for the quarter and 14.6% for the nine months, truly underscores the essential nature of our comprehensive logistics solutions and the strong relationship we have with our clients. The demand is driven by the ongoing needs of cross-border e-commerce, and the value we provide in managing complex supply chains. Regarding profitability, we are very focused on optimizing our extended operational footprint, enhancing efficiencies through our technology and diligently managing our costs. Furthermore, as we discussed, the recent positive development in U.S.-China trade relations, with reduced tariff fees, is expected to alleviate some of their external cost pressures, which should contribute favorably to our margin improvement efforts over time. We are confident in our strategic initiatives to navigate the current environment and to enhance shareholder value. Thank you.

Matthew Abenante (President of Strategic Investor Relations)

The recent success in U.S.-China trade talks seems to be a significant positive. Can you provide a bit more color on how specifically Armlogi is positioned to benefit from this improved trade environment?

Scott Hsu (CFO)

Certainly, the success for U.S.-China trade talks and the resulting tariff reductions are indeed very encouraging news for the entire logistics sector, and particularly for a company like Armlogi that facilitates trans-Pacific trade. Specifically, we anticipate several benefits. Firstly, reduced tariff fees can lower the landing costs of goods for our customers, potentially stimulating higher trade volumes. Secondly, it reduces a significant element of uncertainty, that has been impacting planning and investment for many businesses, which can lead to more stable and predictable demand for our services. Thirdly, it may ease some of the direct and indirect cost pressures we have seen in the supply chain. We are well-positioned with our extensive warehouse network, and the comprehensive services offered to support our clients as they capitalize on this more favorable trade environment. We have already begun factoring this into our strategic planning to maximize these emerging opportunities.

Matthew Abenante (President of Strategic Investor Relations)

Considering the dynamic market and the recent positive trade news, how does Armlogi view its long-term strategic positioning and its ability to capture future growth opportunities?

Scott Hsu (CFO)

Yes, we are very confident in our long-term strategic positioning. Armlogi has built a robust infrastructure with a significant warehouse footprint in key U.S. locations, offering a comprehensive suite of logistics services. This allows us to be a one-stop solution for many of our clients, particularly in the cross-border e-commerce space. The recent positive developments in U.S.-China trade talks further strengthen our outlook, creating a more stable and potentially expansive market. Our strategy remains focused on leveraging our core strengths, our infrastructure, our technology, our experienced team, and our customer-centric approach. We will continue to make [through-cash] investments to support sustainable growth, enhance our service capabilities, and expand our market reach. We believe we are well-equipped to navigate the evolving landscape and capitalize on the growth opportunities ahead.

Matthew Abenante (President of Strategic Investor Relations)

Thank you. With that, that's our last question. I want to thank 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]. Thank you.

Operator (participant)

Ladies and gentlemen, that does conclude our conference today. Thank you for your participation. You may now disconnect.