Armlogi - Q4 2024

Executive Summary

• Fiscal Q4 2024 capped a year of strong top-line growth but significant margin compression; FY2024 revenue rose 23.6% to $167.0M while gross margin fell to 10.8% from 19.1% due to warehousing cost pressure.
• Q4 2024 quarterly revenue was $45.29M and EPS was $0.01; Street consensus from S&P Global was unavailable at the time of this analysis, limiting beat/miss assessment.
• Management highlighted expansion catalysts (IPO proceeds, SAV1 launch, trucking expansion) and confidence in long-term value creation, while acknowledging freight and lease-related headwinds that drove margins lower.
• Near-term stock catalysts hinge on visible margin stabilization (freight and lease normalization, warehouse utilization ramp) and execution on operational efficiency initiatives; no quantitative forward guidance was provided.

What Went Well and What Went Wrong

What Went Well

• Strong FY2024 revenue growth: $167.0M (+23.6% YoY), with Transportation Services $115.3M (+18.8%) and Warehousing Services $51.5M (+38.1%).
• Strategic expansion: SAV1 warehouse (733,200 sq ft near Port of Savannah) became operational and quickly reached ~70% occupancy; IPO generated $8.0M gross proceeds to fund growth.
• Tone of confidence: “We are proud to report strong revenue growth… opening of our SAV1 warehouse and the expansion of our trucking department… confident in our ability to navigate the evolving logistics landscape” — Aidy Chou, CEO.

What Went Wrong

• Margin compression: FY2024 gross margin fell to 10.8% (from 19.1% FY2023), driven by higher freight, rental, labor, temporary labor, and warehouse expenses tied to rapid expansion.
• Costs of sales grew faster than revenue: +36.2% YoY to $148.9M vs revenue +23.6%, pressuring profitability; FY2024 net income decreased to $7.4M from $13.9M.
• Elevated operating lease liabilities and warehouse expense ramp indicate near-term profitability headwinds until utilization and pricing normalize.

Transcript

Operator (participant)

Thank you for standing by, and welcome to the Armlogi Holding Corp fiscal year 2024 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 (Investor Relations)

Thank you, operator, and thanks to everyone joining us today for Armlogi earnings call to discuss the full year results of 2024. Please note that our earnings press release was issued earlier today, and our annual report on Form 10-K was filed with the Securities and Exchange Commission. Both are available on 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, along with Ian Zhou, Chief Financial Officer, and Scott Hsu, Board Secretary. 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. Now, 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 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 terminology such as may, should, expect, anticipate, contemplate, estimates, intends, believes, plans, projected, predict, 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 assumption. The forward-looking events 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 Chief Executive Officer of Armlogi. Good afternoon, Aidy.

Aidy Chou (Chairman and CEO)

Good afternoon, and thank you all for joining us for our fiscal year 2024 earnings call, in which we will discuss results for the fiscal year ending June 30,2024. Armlogi is a dynamic and a rapidly growing U.S.-based warehousing and logistics service provider. We offer a comprehensive suite of supply chain solution, encompassing warehousing, management, and fulfillment, catering to the evolving needs of the business in an increasingly interconnected world. The e-commerce boom, fueled by the internet and globalization, has created a landscape where merchants increasingly seek to expand their reach through international platforms like Amazon and eBay. However, this expansion come with a logistic complexity, particularly in cross-border shipping, long delivery time, high damage rates, and a peak season congestion as an transferable challenger. Armlogi solution is strategic and impacts from overseas warehouses.

By establishing local storage facility in target country, we empower cross-border merchants to export those goods in bulk, ensuring swift and secure delivery to consumer upon order placement. This approach significantly reduce delivery time and the damage rate, enhancing the overall customer experience. Our commitment to excellence is reflected in our one-stop warehousing and logistics service, tailored to cross-border e-commerce merchants outside the U.S., our strategically located warehouse. Equipped with the state-of-the-art technology, provide a nationwide footprint and then temporary storage space. We offer a full spectrum of service, customer broker to transportation and a comprehensive warehouse management ensure seamless operation for our clients.

Our dedication to quality is unwavere. We able to ISO-9001 standard ensure tight inventory, accuracy, and providing 24/7 customer support. This commitment, coupled with our large volume of processed goods, allow us to offer competitive service and deliverability, further strengthening our value proposition. Technology is the heart of our operations. Our proprietary platform, anchoring in Amazon Web Services cloud, empowers us to manage shipment efficiently, provide a real-time update, and ensure the integrity of the deliveries. This technology-driven approach not only reduce costs, but also minimize the errors, enhancing customer satisfaction. As we look ahead, our growth strategy are clear and, and ambitious. We will expand and our diversify our customer base, targeting key markets in China, Southeast Asia, and Mexico.

We are enhancing our customer supply chain efficiency by broadening our solution and services, including expanding our international ocean freight capability. We will continue to invest in cutting-edge supply chain technology, leveraging AI, data analytics, and a smart system to optimize operations and deliver value insight, and we will pursue diligently to expand our capability and generate attractive return. Now, I will now turn the call over to Ian Zhou, our Chief Financial Officer, of his remarks.

Thank you, Aidy. We achieved several strategic and operational milestone in fiscal years of 2024 and subsequent to the year-end, which I will go through now. In May, we closed our initial public offering of 1.6 million shares of common stock at a public offering price of $5 per share, for a total of $8 million of gross proceeds to the company before deducting underwriting discounts and offering expenses. Net proceeds from the offering are being used to expand the company's warehouse network and develop warehousing and logistics services, international ocean freight services, and port trucking services, among other things. In addition, we signed a lease for a new 733,200 sq ft warehouse located nearby the Port of Savannah in Georgia. In August, that warehouse, known as the SAV1, became fully operational and has quickly become the biggest and busiest among our nine warehouses.

SAV1 is equipped with the logistics technology and is designed to support a wide range of supply chain activities, from storage and distribution to complex logistics solutions. A strategic location and one of the busiest ports in the United States provide optimal access for importers and exporters, further enhancing Armlogi logistics service offering. Since June 2024, the facility has handled over 800 container shipments and maintains over 70% occupancy. We've also become an authorized warehouse provider for sellers on the Temu marketplace in June. Through this collaboration, we will offer Temu sellers streamlined access to our warehousing facility and end-to-end logistics service to provide fast order fulfillment and improve inventory management.

This collaboration will allow us to serve more e-commerce sellers and will allow Temu seller to leverage Armlogi logistics expertise to improve delivery speeds, reduce operational costs, and enhance overall customer experience. Furthermore, we announced a strategic partnership with Massimo Group, a manufacturer and distributor of powersport vehicle and pontoon boat, to provide streamlined warehousing and logistics service for the assembly and distribution of vehicles, with the aim of meeting the rising market demand across key U.S. regions. This collaboration has resulted in the integration of Massimo quality control standards into Armlogi distribution process, improving our service reliability. Under the terms of agreement, we will manage the reception of container shipments containing Massimo's vehicle kits from Asian suppliers.

We will provide access to our facility located throughout the U.S., which are equipped with technology and specialized equipment necessary for handling and storage large and bulky items, adhering to the ISO 9001 industrial standards. Massimo will conduct vehicle assembly within our warehouse, while we will oversee inventory management, storage service, and the logistic required for delivering the assembly vehicle to their final order destination across the United States. In July, we announced the leasing of a new 60,000 sq ft warehouse in the City of Industry, California, to support our expansion trucking operations and our partnership with Massimo Group. The facility, which is equipped with state-of-the-art infrastructures and technology, will provide additional storage and further streamline the distribution process.

Subsequent to the end of our fiscal years of 2024, we announced the expansion of our trucking department in July, doubling its capacity and extending service to key clients, including Amazon. We enhance our logistics service and expand our customer base, particularly in the e-sport logistics industry. Investments in staffing, training, and equipment aim to meet rising demands and improve our service quality. In August, we announced our participation in the Low Carbon Fuel Standard program, including electrical forklift across our California warehouse operations to reduce greenhouse gas emissions. The initiative underscore our commitment to embrace the renewable energy technologies and our role as a forward-thinking organization that prioritize sustainability in its operations. In addition, our participation in this program qualify Armlogi for monthly energy rebate.

This viable strategy and operational milestone achieved in fiscal year 2024 and beyond, will allows us to better serve, our existing clients as well as expanding our reach to the new market. Now, I will turn it to Scott Hsu, Board Secretary for Armlogi, to provide an overview of our financial performance.

Scott Hsu (Board Secretary)

Thank you, Yan, and good afternoon, everyone. For further information regarding our full year ended June 30, 2024 financial results and the disclosures, please refer to our earnings release and the annual report on Form 10-K filed with the SEC. Total revenue for the full year ended June 30, 2024, were $167 million, up 103.6% from $135 million in fiscal year 2023. Our transportation services segment reported revenue of $115.3 million, an increase of 18.8% from $97 million in fiscal year 2023. The increase was driven by the rapid expansion of our business in 2023, as we expanded our warehouse operational capacities in California and New Jersey. This segment comprise providing third-party carrier services to our customers.

Our warehousing services segment generated $51.5 million, a 38.1% increase from $37.3 million in fiscal year 2023. This growth was driven by the growth in our transportation services. This segment comprises inventory management and the storage offerings. Our other services segment generated revenue of $0.6 million in fiscal year 2024, which was a decrease of $0.5 million compared to previous years. The segment, by delivery, consists of customs brokerage services. Our cost of sales were $148.9 million in fiscal year 2024, an increase of 36.2%, or $39.6 million, compared with the $109.3 million in fiscal year 2023.

This increase in cost is primarily driven by growth in transportation and warehousing services, leading to higher expenses across warehouse operations, particularly rental, labor, and the operational expenses. Gross profit margin decreased from 19.1% in fiscal year 2023 to 10.8% in 2024. Although the profit margin of our transportation services, which include our ocean freight and the truck deliveries, remained stable or slightly higher compared to 2023. Our profit margin for our warehousing services decreased during the same period. General and administrative expenses increased by $2.2 million-$10 million for fiscal year 2024, from $7.8 million for fiscal year 2023, representing an increase of 28%.

The increase was due to increased administrative activities, specifically related to office supplies and the repairs and the maintenance to accommodate our business expansion. Our net income was $7.4 million and $30.9 million for the full year ended June 30, 2024 and 2023, respectively. In conclusion, we execute several important strategic initiatives and deliver strong revenue growth in fiscal year 2024. Looking ahead, we are confident in our ability to navigate the evolving logistics landscape and continue driving value for our shareholders and partners. Our success would not be possible without our hardworking employees, loyal customers, and the valuable shareholders. Thank you for your continued support and the belief in our vision. We look forward to updating you on our business during future earnings calls. Back to you, Matt.

Matthew Abenante (Investor Relations)

Thank you, Scott. We will now move to the question and answer portion of the call. Again, thank you to everyone who has submitted questions. Our first question: While Armlogi growth is impressive, could you elaborate on the current competitive landscape? Who are your main competitors, and how does Armlogi differentiate itself in this space?

Ian Zhou (CFO)

That's a great question. Thank you, Matt. The warehousing and logistics industry is indeed highly competitive. We face competition from both established players and emerging startups. However, Armlogi differentiate itself through several key factors. Firstly, our focus on quality, evident in our ISO 9001 certification and high inventory accuracy, sets us apart. Secondly, our ability to handle bulky items efficiently, thanks to our specialized warehouse infrastructures and technology, give us a unique advantage. Finally, our comprehensive one-stop solution, including international over freight and advanced supply chain technology, offer a level of convenience and value that many competitors struggle to match.

Matthew Abenante (Investor Relations)

Can you address some of the potential challenges related to your expansion plans, including the complexity of international expansion, the need for significant capital investment, and the potential for execution risk?

Ian Zhou (CFO)

Sure. We are fully aware of the challenge associated with the expansion. International expansion require careful navigation of regulatory and cultural differences. We are mitigating this risk by conducting thorough market research and adopting a serious approach to expansion. Capital investment is indeed necessary, but we have a strong track record of financial management and are open to exploring various funding option to support our growth. As for execution risk, we have a seasoned management team with a proven ability to execute complex project. We are also invested in robust project management system and processes to ensure a smooth implementation.

Matthew Abenante (Investor Relations)

Our last question. Armlogi's emphasis on technology is commendable. However, could you provide more specifics on the expected return on investment from these technology investments? How will these investments translate into tangible benefits for the company and its shareholders?

Ian Zhou (CFO)

That's an excellent question. Our technology investments are strategic and aim at driving a long-term sustainable growth. We expect this investment to yield a significant ROI through several advantages. Firstly, improving efficiency and automation will lead to cost savings and increasing productivity. Secondly, advanced data analytics and supply chain optimization will enable us to make more informed decisions, leading to better inventory management, faster delivery times, and enhanced customer satisfaction. Finally, our technology platform will open up new revenue streams, such as offering value-added services to our customers and partners. These benefits will ultimately translate into increased profitability and shareholder value.

Matthew Abenante (Investor Relations)

Thank you, Ian, and thanks to 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, that concludes our conference for today.