Organto Foods Inc. (OGO) Earnings Call Transcript

Hello, everyone, and thank you for joining Organto Foods' Q2 2026 Results Review and Business Update. My name is Lauren Bech-Hansen, and I will be moderating today's session. We will begin with a brief presentation from Steve Bromley, CEO and co-chair of Organto Foods; and Darryl Bergman, President of Organto Foods, who will walk through the company's second quarter results and operational highlights. Following the presentation, we'll move into the Q&A. [Operator Instructions] Before we begin, I'll note that today's discussion may include forward-looking information and forward-looking statements within the meaning of applicable Canadian securities laws. These statements may relate to Organto's expectations, plans, objectives, strategies, financial outlook, anticipated growth, operating performance, market opportunities, expansion plans and other future events or developments. Forward-looking statements are based on management's current expectations, assumptions, estimates and beliefs and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied. For a discussion of these risks, assumptions, uncertainties, please refer to Organto's public disclosure documents, including its MD&A available under the company's profile on SEDAR. Today's discussion may also reference certain non-IFRS financial measures, including EBITDA or adjusted EBITDA. These measures do not have standardized meanings under IFRS and may not be comparable to similar measures used by other companies. Please refer to Organic's public disclosure documents for additional information, including reconciliations where applicable. Nothing discussed today should be considered investment, financial, legal or tax advice. Organto undertakes no obligation to update forward-looking statements, except as required by applicable law. Thanks again for taking the time to join us today. I'll now hand things over to Steve Bromley, CEO and Co-Chair of Organto Foods. Steve, over to you.

Thanks a lot, Lauren, and good morning or good afternoon, wherever you might be. It's wonderful to have a chance to talk to you and update you on our second quarter results and the record first half that we've had at Organto Foods. Today, we'll cover operational highlights and the high-level performance review. We'll dive into the financial statements a bit Darryl, welcome in your role as President, Darryl will take us through our key priorities going forward, and then we'll open up the call to Q&A. So thanks again for joining, and really look forward to updating you on how things have gone. So a record second quarter for the company. We continue to realize record growth, and we have a very solid financial position. So we're very pleased to be here today with a very positive outlook on our business and the performance that we've had. The first 6 months have been a very busy period for the company, as you'll see from the financial results that we'll go through. But we've added 6 new growing partners in key sourcing regions, which was very important. We've added 8 new European retailers to our customer portfolio. We moved into 3 new geographic regions, being Switzerland, Spain and the Ukraine. We've added 4 new sea carriers, 2 new ports of origin, 3 destination ports. And some of that may sound really simple on the surface, but there's a lot of work that goes into making all of that happen. And so we're very pleased with the efforts of our team and our partners throughout our organization who have really helped set us up for a good start to the year. At the same time, we've expanded our operating platform and resources. So as the business continues to grow, we're adding new team members and new processes and new systems. And while we're adding that, we're leveraging the platform that's in place. So we've now opened up a center of excellence in Madrid, Spain, and we also have an expanded center of excellence in Munich, Germany to go along with our operations that are based in Breda in the Netherlands. So our European footprint continues to expand in hand with the expansion in the business. And we've really ramped up our implementation of a number of digital technologies, including artificial intelligence technologies to really provide us with more business insights and also increase efficiency. And efficiency is really important for us because one of the core platforms that we're operating on is to drive efficiency through our overheads, and it's a key metric that we track. And so utilizing advanced digital technologies is really, really important to us. And quite frankly, we think we're on the start of a long digital journey in the company, which we'll be talking about in the coming quarters. So a really busy, busy start to the first half of the year and into the second quarter. Our leadership team, we continue to fortify it for growth. We were pleased to have Darryl join us on June 1 as President, and he's been a critical new resource to the organization to bring more depth given the growth efforts that we have underway. And we reorganized our management team. So a number of people were elevated leaders in the organization were elevated to focus on the operations. and we freed up some other leadership to really help us with strategic growth. So that's been underway as well. And you'll hear the word growth a lot, but growth is important to us. And so positioning the team to be able to execute on that has been really important, and we've made some great strides in that regard. Our strategic growth pipeline, our M&A pipeline, our strategic partnership pipeline, our new business opportunity pipeline is continuing to grow, and we don't have any news for you today, but I would hope that before the end of the year, we'll have more than a few opportunities to talk about our strategic growth pipeline and opportunities that we're working to bring to fruition. So a lot going on in the first half. So when we peel back the onion a little bit on the second quarter, we had record sales, and we'll dive into the numbers here a little bit in a minute. We had record sales of $27.7 million, largest sales quarter in the history of the company, up 61% versus the prior year. The really great news is that gross profit grew 65%. So gross profit grew faster than sales in the second quarter, a gross profit record of $2.1 million. And in that same time, up 204% when you factor in currency hedging, which we'll talk about later. But again, largest sales quarter, largest gross profit quarter. Our cash operating costs continue to leverage down as a percentage of sales. They were down to 6.3% versus 6.8% in the prior year and 7.6% in all of fiscal 2025. So as we're growing the top portion of our business, we're also growing our overheads, but they're growing a lot slower than our sales, which is exactly the target that we're after. And as I mentioned, digital technologies, et cetera, continue to also provide some great support there. And we had record positive EBITDA of $400,000 versus negative $500,000 in the prior year. So a real turnaround on our EBITDA. And really, when we started this year, we said this was a year of positive EBITDA. We're now up to about $500,000. And so we're on the trend. We're on a journey. We're frankly quite frankly, exactly where we thought we'd be at this stage of the game. And I think equally important is with those results, we are now running at an annualized sales rate of over $100 million. So real positives on the operating side of the business. And at the same time, we've maintained a nice, strong balance sheet. So we ended up with a cash position of $5.4 million. On top of that, we had restricted cash of another $1 million. Our working capital increased to $15.3 million. So a very solid working capital position. We have no long-term debt. Our equity is up 87% since year-end to $16.4 million. And at the same time, we expanded our Rabobank flexible funding facility to fund the growth in the business as well from EUR 4 million to EUR 7 million. And we completed the early exercise -- warrant early exercise program in Q1 for some growth proceeds as well. So overall, when we take a look at Q2, and we'll dive into it in a bit more detail, record growth and combined with a solid financial position and lots of exciting things in the pipeline. We always like to take a minute and talk about our guiding principles. These are the principles that shape how we grow. So we're focused on providing healthy organic food products. We're focused on driving value across our entire ecosystem. That's for our growers, for our suppliers, for our shareholders, for our team members. We want to bring value throughout. And we're about sustainability. We're committed to responsible, transparent and sustainable operations and business practices. And those are the core principles that really guide us on a day-to-day basis. To step back and take a look, we're now serving 20 major retail accounts across Europe in 16 different countries. We serve the #1 and #2 largest grocers in France, Austria and Germany and the #1 and #3 largest growers in Denmark. So we have a vital role to play in servicing the customers and linking our customers with strategic growers and making sure that, that product gets to market. Our core products remain bananas, ginger, mangoes and blueberries, other seasonal products. And over time, you'll see us add to the portfolio. But our first and foremost goal was to stabilize the platform drive growth and get to EBITDA positive. So we are there. And so now the real fun begins. Also, on our operating platform, as I mentioned, we go to market in 16 countries in Europe. We source from numerous places around the world. And as noted on here, we now have the 3 centers of excellence operating to support the European platform today. So if we dive a little bit more into the numbers for the quarter, we were up 61% in sales to $27.7 million and up to $53.3 million year-to-date, so up 73%. That $53.3 million leaves us tracking well over $100 million run rate and the $27.7 million in Q2 really puts you at about $110 million run rate. Our gross profit, as I mentioned, was $2.1 million or 7.5% of sales in the quarter and $3.9 million or 7.3% of sales in the year-to-date for the 6 months. So up 65% in the quarter and 63% year-to-date. The growth when you factor in the impact of our currency hedging initiatives was up 204% over the prior year. So we had a very poor position last year. We have a stable position this year. And so that's really driven some nice growth, 204% and 108% year-to-date. Our cash overheads are $1.7 million in the quarter. So you see how our cash overheads grew from $1.2 million to $1.7 million in the quarter, but as a percentage of sales declined from 6.8% to 6.3%, and we expect that to continue to trend down. Our longer-term goal is to have those cash overheads well under 5% and heading for 4%. And on a year-to-date basis, 6.2% of sales, so a little bit up in the first -- in Q2 because we added more team members to deal with the growth of the business. And record EBITDA of $400,000, about 1.5% of sales. We have no intention of stopping there. We want to continue to grow EBITDA as a percentage of sales. But in our journey, this is where we expected to be. So we're very pleased by that. And year-to-date, $500,000 versus negative $200,000 in the prior year. So heading in the direction we expected and feeling positive about how the financials shook out. When we take a look at the balance sheet, our current assets grew to $27.5 million versus $14.9 million at year-end. When you think that the business doubled in size, the working capital doubled in size as well, going from $7.6 million to $15.3 million but compare that to minus $14.6 million in 2024. So a combination of the strengthening of our operations and the restructuring of our balance sheet leaves us in a really good position with strong working capital. No outstanding debt or short-term loans and an equity position of $16.4 million. So strong growth and profitability coming into the business combined with a strong balance sheet. Just taking a look, we have 190 million shares outstanding. About 20% is owned between management and the Board. Our fully diluted shares are about 210 million and our market cap is sitting in and around $120 million, $125 million. So with the earnings comes a stable positioning with our cap table. Last, before I turn it over to Darryl is I want to go back and talk about our focus on evolving our product mix from volume to value and with that driving increased margins. We readily focused when we repositioned, we focused the business on categories where we really felt we deserve to win understanding that they weren't always the highest margin categories, and we would go back to some of the higher-margin categories as we build the business. So we're in the process of doing that. Clearly, as part of our growth strategy, we want to continue to grow our Euro Fresh platform, which is where we go to market today to the 16 countries and the key customers that we have. So we want to add new customers and geographies and also add new higher-margin products. So over the course of this year, you should expect to hear from us on new products that we'd like to add to the portfolio. We want to expand this portfolio into North America. So we're looking at a number of options to do that, which is very exciting. And why do we want to be in North America? That would leave us as the only current organically focused business that we're aware of with in the fresh side of the business with operations on both sides of the ocean. And we think that would bring some huge benefits to both our customers and our growers. So we're actively working on that, and it's a key focus for us. And then with the platform in place, we want to add nonfresh products. So think about oils, nuts and seeds and those sort of things. and then also value-add. So think about further processing of a number of those raw materials and fresh products that we -- or non-fresh products that we have today into value-added ingredients or right into consumer packaged products. So it's a long journey, but we're on the journey, and it's where we're really focused, and we're spending a lot of time in that area. And of course, we want to support all of these developments with a digital technology platform and shared services platform as well. So we're in the early stages of what we expect to be a very exciting growth platform -- growth curve for the business as we go forward. So with that, let me turn it over to Darryl to talk about our key priorities as we look to the back half of the year and beyond, and then we'll wrap it up with some Q&A. Darryl?

Sounds good. Thanks, Steve. Turning to key priorities. Let me jump right in. Our primary focus for the balance of 2026 is going to be execution. We've built significant momentum in the first half, and our priority is going to be converting that momentum into sustainable, profitable growth. We'll continue scaling our core European Fresh platform, as Steve noted. We already are operating at an annualized run rate at about -- sorry, $100 million, and we see further opportunities through existing new customers, existing customers, and a broader product portfolio. That said, I believe it's important to note that growth is not just about revenue. We're focused on managing gross margin through better supply chain leverage, product mix, pricing and risk management while continuing to drive operating cash flows towards that target that Steve mentioned of just below 5% of sales. We're continuing to focus on leveraging our platform, which means continuing to grow our core categories. while selectively adding higher-margin products and using technology and AI to improve efficiency, transparency and waste reduction, strengthening the organization to support the next phase of growth is always in focus. The additional resources and organizational changes we have made are intended to give us operating depth and execution capability. We deeply believe in talent that talent drives growth, and we will continue to look to talent to accelerate our strategy. Strategic expansion remains an important part of our growth plan. We have dedicated resources to building our pipeline and evaluating strategic growth and M&A opportunities. The emphasis is on opportunities that complement our platform that's -- and support our longer-term growth objectives. Finally, we believe that there's an opportunity to increase market awareness of what Organto is building particularly with investors focused on health and wellness and sustainability. So as we look to the balance of 2026, the message is straightforward. We continued growing the core business protect and improve margins and operating leverage, strengthen the platform and selectively pursue strategic opportunities that fit our strategy, will accelerate our growth, and we've built momentum. We will continue to drive forward all while striving for best-in-class execution. I'll pass it back to Steve.

Super. Thanks, Darryl. Appreciate it. Yes. So with that, that's the end of our opening remarks. Clearly, we're pleased with the progress that we've made. We've got lots of work to do. The job is just beginning. It's not over, and that's the fun and that's the opportunity. But clearly, we're very excited about the future. And as we say, the future is bright. Execution is key and the time is now. So with that, Lauren, I'll turn it back over to you, and you can queue up the Chat if there's any questions, hopefully, there are. So I'll leave it with you for a sec.

Yes. No, of course. So that brings us to the end of the formal presentation. We do have a couple of questions in the queue already [Operator Instructions] Well, I think we're good to begin. Let's start with the first question here. How much of your growth this year was with new customers versus increases with existing customers? You have now reported 2 consecutive EBITDA positive quarters.

Yes. So...

Sorry, ignore that one.

Sorry. So the first question that you raised was how much comes from existing customers and how much came from new customers?

Yes, that's correct.

In really ballpark numbers, about 60% of our growth. So if you think about the 73% growth that we had this year, about 60% of that give or take a few percentage points comes from new customers that we've added to the portfolio. Keep in mind that we added Switzerland and Spain and Ukraine as new countries to serve. So about 60% in -- from new customers and about 40% of our growth from existing customers. So I guess if you peel the onion back on the 70% growth about 30-plus percent would be internal -- from existing customers year-over-year and then 40% from new customers.

Great. Thanks, Steve. Our next question here. You have now reported 2 consecutive EBITDA positive quarters. Do you expect this trend to continue? And what are your longer-term expectations?

I'll grab that one, Steve.

Okay.

I think the answer to the trending is yes. We don't give specific guidance, but as I addressed in my speaking to the key priorities, we are focusing on long term and continuing to drive our top line with a focus on managing gross margins through our better supply management leverage our product mix, our pricing, our risk management, while, again, as we have told -- mentioned a few times in the presentation, we continue to drive those operating costs towards our target of below 5%.

Okay. Great. Thank you. Next question. How are the organic and sustainable foods markets faring with rising inflation?

Darryl, I can take this one. Look, it's a crazy time out there right now. There's super inflation, a lot of inflation is landing in food products. And so all of us go to the shopping well, most of us go to the shopping center and you see the increases in prices. It's interesting. The organic and sustainable foods consumers. They're lifestyle choices that are made. And so for the most part, we don't see demand fall off because of what we're seeing at the moment. I mean, I guess there's a limit to everything, how high can the prices go. Normally, what's happening, though, the organic and the conventional are, they're both going up and down. And so we haven't seen a real erosion in the consumer. We're watching it all the time. And I guess the good news for us is that consumers are continually focusing more and more on healthy and organic foods, which is great and connecting lifestyle and diet to health, which is positive. So there's growth in the category. Might the category slow down a little bit for a period of time? We haven't seen it, but I can't predict the future. But look, we've realized continued growth. And what we're not seeing is sort of a rapid change of flavor for consumers where I look at, I just can't afford any of that stuff anymore. What we see is that consumers, once they've made the lifestyle choice, they continue to buy what they buy and they make purchasing -- they change other purchasing decisions. But the whole health and wellness thing is important. And so they're not trading down.

Okay. Thank you. Next question. How sticky are -- I think this is referring to the earlier question that we had answered. How sticky are these new customers? As long as you can provide quality supply, do they keep ordering?

Yes. So most of our customers, depending on the product category, make commitments of sort of annual commitments or in some categories every 3 months. Look, they're sticky, but we have a job to do, and they won't be sticky if we don't do our job. So we've got to get them product. We've got to execute on all of these steps in the process that we're responsible for, and we've got to get them good quality product. That's what we have to do. And so long as we do it, we feel that they can be sticky customers. If you think about it, and you take a look at our growth, we grew 194% last year and the year before, I think we grew 40% or 50%. A lot of that's with existing customers. And as I said in the numbers earlier, like 30% of our growth is from existing customers. So one is for them to be sticky and two is for them to be -- I don't know what the right word is sticky, sticky. We want not only to continue to do business, but we want to do more and more every year. And so far, we've been lucky. But look, we're like everybody, we're not perfect. We'll end up with quality challenges at times, and that will impact our volumes with a particular customer for a period of time. But if we do our job, they're good partners and sticky to us.