iFabric Corp. ($IFA)

All right. Good morning, good afternoon, depending on where you're dialing in from. Thanks for joining us today. We have an update with iFabric, who just reported their Q1 numbers earlier this week. So, with me today, I have Hylton Karon, CEO; Hilton Price, CFO; and Giancarlo Beevis, COO. I don't think we're going to work off a presentation, but as always, this session will contain forward-looking statements. If you'd like to know more about those, you can find them on the presentation on the company's website. There will be a Q&A section. So feel free to enter any questions you have in the Q&A box. And I'm just going to read a quick little disclaimer. So as announced in the press release yesterday, the company is undertaking a short-form prospectus offering due to Canadian securities laws and a regulatory quiet period, management is strictly prohibited from discussing the proposed financing, the offering terms, or the specific use of proceeds. Therefore, the remarks today will focus entirely on the recently released financial results, and we will not be taking any questions regarding the offering. So, apologies that we can't get into that until after the close, but those are the rules. With that out of the way, I'll turn the mic over to Hilton to talk a little bit about the quarter. Thanks for joining us.

Thank you. Good afternoon, everyone. Thanks for joining us. As I normally preface my discussion, I just want to advise everybody that we did a fairly comprehensive press release on the quarterly results and financial position, which you can find on our website together with the financial statements and the MD&A. And you can also find those on SEDAR+. They're available at both places. So I'm going to focus as I normally do on what I consider the important aspects of the results and our financial position to help you get a better understanding of where we're at and what we achieved in Q1. So starting with the revenue that came in at $27.5 million compared to $7.1 million in 2025, and that was slightly ahead of the guidance we provided previously, which was $20 million to $25 million and an absolute record for the company. I think I should smile. I'm often accused of not smiling enough, but that makes me smile. Looking at revenues by division, Intelligent Fabrics, $23.6 million compared to $5.8 million last year. Intimate apparel -- sorry about that. Intimate apparel, $3.9 million compared to $1.3 million, both records, huge records for those -- the divisions. In terms of the main drivers for revenues, Intelligent Fabrics, we had new scrubs and footwear programs, plus we saw some expansion of existing programs as well as organic growth in our core lines. For the Intimate Apparel Division, we saw the launch of our new brand Nudish to replace the prior Maidenform brand. So we had to repopulate all the stores at our major clients, in particular, Coles and Target. Also, we saw the launch of a new major intimates program at Walmart U.S., and we're hoping that's going to do well. Next item I'd like to deal with is inventory. We were carrying $16.9 million in inventory at the end of the quarter, and that may appear high. But generally, we normally carry about 4 to 6 months' worth of inventory. We actually employ 3 full-time analysts to track sales trends and sell-throughs and which products are doing well and which products are doing less well. However, even with this, sell-through rates on new programs are a guess at best. So when we have as many new programs as we have now, we tend to bring in a bit more inventory than we need because if we run out of inventory, that's an absolute momentum breaker. So we'd rather carry a bit more. Our goods are not fashion items, so there's no real chance of them -- of us being stranded with any of these products. It just may take a little longer to sell, but it's all good inventory. And actually, I see with the spike in oil prices, I'm expecting that fabric prices are going to go up. A lot of the fabrics we use are polyester based. So investment into inventory might have been even a wiser move if that happens. Next item is accounts receivable. We're sitting with $25.5 million on the book, obviously related to the revenues for the quarter. Our collection cycle is normally around 75 days. So that would be in line with that. And when you're dealing with the likes of Walmart, Costco, the collections tend to run like clockwork. If we have any doubt as to the creditworthiness of a new customer or client, we will obtain credit insurance. So, in fact, very little risk actually attaches to our book. Gross margin. The quarter came in at 33%, which is up from 26% in the prior quarter, definitely headed in the right direction. My target for the year would be 35% or just north of 35%. So we seem to be moving towards that. And the real driver there of the margin is the high proportion of Intelligent Fabric sales, which do carry a lower margin than intimate apparel. Intimate apparel is the highest gross margin earner in the business. There was also a small impact from tariffs, and I'm glad to see that mid-February or towards the end of February, they were struck down. In fact, we've got a claim pending to recover around $850,000 in tariffs that we paid to the date that the tariffs were declared no longer in effect. So I don't know how long it's going to take. I haven't recognized that as an asset on the books. I've taken a cautious approach, and we'll recognize any recoveries in income as and when we receive the cash. Selling and admin costs, there was a $1.5 million increase there, and that's mainly attributable to variable costs, royalties, commissions and the like, some small cost increases in our base overhead. But I think I mentioned a while back that above $35 million, I expected a large proportion of the margin to drop to the bottom line and the $5.7 million in adjusted EBITDA in this quarter bears that out. In fact, in terms of variable costs, I just cut a check to Roots for $1 million for royalties paid on Roots product sales to Costco. Our current ratio is a healthy 2:1 at the end of the quarter. When I calculate the current rate, I exclude term loan, which is actually the mortgage in our building, which is shown as current, unfortunately, even though it's a term loan, in terms of the banking agreement, it's also demand loan. So when that happens, we need to classify as current, even though we'll only pay the minimum payments during the course of the year. So I exclude that. And as I said, the ratio is 2:1, which I believe is fairly healthy. For deposits for purchasing down to $1.3 million compared to $6 million peak. Obviously, far less product is coming in, in the short term, but I would expect a buildup of that amount, again as we begin the process of ordering for the year-end programs. I expect -- well, Q4 is normally one of our massive or bigger quarters. So it takes a while to put things into production, order the goods, design everything. So we'll see a buildup in deposits over the course of the year. And the last item I would deal with is our operating debt. We were carrying $9.3 million in operating debt at the end of the quarter. And with our earnings converting to cash and the collection of our receivables, I would expect that to be paid down at a fairly rapid rate. I suppose with the capital raise now an effect, that's new. I think that's all I really have to say. Questions?

Thanks, Hilton. I don't see any questions coming. There are a couple, give me a second here. All right. So did the higher volume of intimate apparel revenue this quarter have a positive impact on gross margin in the quarter? If so, could you indicate by how much?

Absolutely. Again, I mean, it's mix related, and we had a massive amount of Intelligent Fabric sales in that quarter. I don't have the exact number if I was to give a number off the top of my head. I would say 1 to 2 points, 2 points, at least 2 points.

Okay. And could you quantify the Q1 '26 revenue for us again? Is it largely in fulfilling the 1,000 additional Walmart stores? Did it include some of the $8 million related to the Roots contract? How much is related to the fulfillment of the Walmart stores?

I defer to Giancarlo.

Yes. So Q1 obviously had some of those additional 1,000 stores going into Walmart. It also was an expansion of our leak-proof program within Walmart USA. It was the addition of the new Walmart program in the intimate side of the business as well. And then obviously, the relaunch of our Nudish brand and the other 2 major retailers being Coles and Target. So it was kind of a mix of all of that. To address the Roots part, yes, part of it was in Q1, but also part of it was in Q4. So it was a mix of all of those different things in Q1.

And what's the status of Walmart adding more stores? Do you have an update on that?

I mean, I'm not sure that that's something we're allowed to speak about at this point for future business given our quiet period. So I'll defer to that as my response.

I'll just jump in here very quickly and say, I know people would like a lot of forward-looking what we've got planned. But we are, as Giancarlo said, in a quiet period because of the raise, and the raise has not blessed you. The raise has not been -- has not closed. So we've been cautioned by counsel to really try to stick to this review as the review of Q1. We will have another webinar. We'll gladly have another webinar once the raise is closed so that we can talk with a lot more clarity about future plans that we will -- obviously, we raised the money for. So once it's done, we will circle back to everyone and have another webinar and address that. I just hope that people appreciate the fact where we are today.

Understood. I'm going to have to skip a couple of those questions then. This one maybe you can answer. What's the expected quarterly revenue cadence? I mean, historically, Q1 and Q4 are your seasonally strongest quarters. Would you expect that to remain the same?

No, that again is forward-looking. I think we should avoid -- we should leave that for the next webinar. Let's try and hold something shortly after the capital raise to deal with those kind of questions.

What are your payment terms with Walmart and Costco?

Our payment terms generally run from around 60 to 90 days at the longest. They're generally 60 days before we collect, it can -- it will extend out to 75 by the nature of our clients' computer systems, et cetera, et cetera, and the time that it takes for goods to hit their warehouse. So the terms are between 60 and 90 and our average collection period is around 75 days.

And were there any onetime items impacting the adjusted EBITDA margin in Q1?

Yes, tariffs is one. And I think we had a couple of hundred thousand in the residual cost of transitioning to the -- from the Maidenform license to our own brand. We were selling through residual product. Giancarlo, what other costs were there on the transition?

There's a handful -- a little bit of markdown, not a great deal.

Markdown is the one, yes. Yes.

Yes.

It wasn't an overly material figure. It was about 150 or 200. And I would guess you're right, the vast majority of that would have been markdowns.

Okay. And the level of deposits falling sharply, Previously, deposits were used to suggest the coming 2 quarters revenue. You can't answer them.

No, I think just to Hilton's point before, if our inventory is up already, I would suggest that, that might indicate that we've been priming the pump already. So deposits might be down, but inventory is at an all-time high.

Got it. And what's the principal market for your new Nudish line? Is it U.S. or Canada?

I would say both, and it expands not only the traditional solution bra and bra accessory market, but expands into our leak-proof product into some sleepwear product and then traditional intimates as well.

Yes. The Maidenform license restricted us on what we could do. And I think the unburdening is the fact that now we can do a lot more with our license and it opens up new areas for us. Again, we'll discuss that at the follow-up webinar, and we'll provide more color on that.

Okay. I think the rest of the questions that I have are all forward-looking. I'm assuming you can't talk about the leaching study.

No. Other than things are moving ahead. I don't know that we can give any other further color on at this stage, but it is moving ahead.

Okay. And here's polyester prices have seen sharp increases due to the Strait of Hormuz. Have you seen any price changes for your materials?

No. And I think, again, to Hilton's previous point is that even having this inventory in place has been a benefit to us that we're not seeing that. And we do some polyester, but not a lot of it is polyester. We're into some other fabrications as well. So we've been able to avoid it to a large degree.

Okay. Congrats on a fantastic quarter and start to the year, very interesting numbers. Hylton, Giancarlo, Hilton, anything you want to add that we didn't cover that we can cover?

I know people are looking for forward statements. And as I said, we will have a webinar. If there is a dip from one quarter to another, that's by no means an indication of a soft quarter. I think that the business is still in unbelievable shape and really -- everything is pointing forward in a very nice manner, and it's really positive. So I think that there's really no alarm bells in any way, shape or form. And as I said, let's get through this raise, and then we'll be able to give more color on that going forward.

You are on mute, Deb.

I was saying thank you so much for your time. I think you're scheduled to close, is it June 4?

Well, I think closing is around sometime in the first week of June. So, very soon thereafter, we can -- please, we'll schedule something to go forward.

Okay. Great. Well, thanks for your time. Thanks for the audience members for your questions. Sorry, but we'll get to them as soon as we can. Thanks, everyone, and have a good day.

Thank you.