Organto Foods Inc. (OGO) Earnings Call Transcript & Summary

Well, good morning, everyone, or good afternoon, depending on where you are. I appreciate you joining our call today. I'm Steve Bromley, Chair and Co-CEO of Organto. I'm joined on the call today by Rients van der Wal, who is co-CEO based in the Netherlands and who will be doing most of the talking today and also John Rathwell, who is our Senior Vice President of Investor Relations and Corporate Development. So thanks a lot for joining us today. The format for today is we'll have some opening comments, walk through some slides. John has received a number of questions from folks who have joined the call today. We'll run through those questions at the end of the call. So thanks again for joining. So real quickly, as we focus on Organto, our focus is on the fast-growing healthy foods platforms and specifically on organic and nongenetically modified fruit and vegetable products. These are categories that have seen nice growth, and we believe we'll continue to see nice growth as consumers really focus on healthy eating and healthy living. We have an asset-light business model. So for those of you who have followed the company, we transitioned from an asset heavy to an asset-light business model in late 2018, early 2019. We've had record growth since that time. So we don't own the farms, and we don't own the manufacturing assets, but we add value to everything in between. We have a broad and flexible product offering. So we do both organic and nongenetically modified fruit and vegetables. We don't handle any genetically modified fruit and vegetables. And we do bulk private label and branded. So we're able to really meet consumer needs. Our product mix today is about 80% organic. We have 170 customers in 19 countries. That's up substantially over the last couple of years and we source product from 50 suppliers in about 18 countries around the globe. We're a growth platform. We've now had 5 consecutive years of revenue growth versus the same year -- versus the prior year and we have a strong outlook, which Rients will talk about today. And we have a multitier branded product offering. So we have our I AM Organic brand. That is our flagship organic brand, and we have 2 non-GMO brands, which we launched this year, ORO and =AWESOME fruits, and Rients will update you on those during the call. We have a proactive acquisition strategy. So we completed 4 acquisitions over the last 3-plus years, 3 in 2021 and one right at the end 2023, which continues to add to our portfolio. And we have an experienced team on board with over 200 years of combined foods experience. So with that, let me turn it over to Rients, who will walk through some of the key numbers and where we are in the business today. So Rients, over to you.

Perfect. Thank you, Steve. Hello, everybody. We would like to update you and introduce you where applicable to Organto. We're all about organic foods, organic fruits and vegetables that is -- we are no growers. We are no retailers, but we are everything in between. And we are a publicly listed company at the TSXV with a dual listing at the Frankfurt Stock Exchange and at the OTCQB. Founded in 2015, transitioned to an asset-light business model in 2019, over 50 strategic growers from which we source, more than 18 countries, serving 99% the European market, over 170 customers, 19 countries that we are actively distributing in Europe, 14 key strategic retailers with an access to over 40,000 retail stores. As Steve mentioned, we've got 3 brands: the I AM Organic, that's the high-end brand organically and 2 mid-level brands. We're fully certified organic plus Demeter and Bio Suisse certified and fully socially certified. The landscape in which we operate we're all about healthy living. We see that continued growth for global organic foods of which food and vegetables is the largest category in organics and we continue to see consumers being very focused on health, on what the product does for them and also on understanding much better for where the product is coming from and what the supply chains look like. And the political landscape in Europe is also a massive tailwind for us. There's an EU Green deal which is targeting for 25% of the EU farming to be organic by 2030. As a result of that, if you're farming it, you also need to offer it, of course, to consumers and we already see that this green deal is already very high on the agenda with some of our key retailers where the translation for some of our retailers is not 30% to 25%, but it's already targeted for 25%, 26%. So combined with the consumer trends that we see moving more and more into our direction, the governmental support in the -- from the European Union and a fragmentated space that organic fruit and vegetables is we see a massive opportunity for us as a business. And to talk you through our evolution, the business model has evolved and progressed. We have successfully transitioned from an asset heavy to an asset-light business, 16 consecutive quarters of sales growth versus the same quarter of the prior year, developed a multi-tier branded offering, a proactive acquisition strategy with 3 acquisitions completed. And again, that's in a fragmented space where we are operating so where we see a lot of opportunity for us to consolidate and with a very strong leadership team in place. We believe our long-term strategy is on target. It's building supply. So working together with our growers to plan supply according to the demand that we have certifying that supply, running the logistics, adding value by branded concepts and private label concepts and having the infrastructure to effectively distribute it to all the customers that we are serving. We have made significant progress in our business. I think a very good way to display that progress is in the retail listing base. If we would be talking last year at the same time, we would be talking about 6 strategic customers that has grown and developed into 14. I would like to emphasize that obtaining retail listings is a very complicated process, which takes quite a long time. The interesting part is where we are, if you take in account that -- the German market is the largest organic market in Europe. I think we have a very interesting presence already there today covering as well Scandinavian Retail, Switzerland and Austria and the Benelux and slowly entering as well into France. Now what does that all mean? The retail listing base that we have right now, if we can flip the page, it's providing us with a lot of opportunities for growth, both having the listing is one, actively distributing it is another one. And the listings that we have just shown you on the previous page are all retail listings where we are actively distributing. The opportunity that we have is that most of those retail listings, we are distributing with only 1 SKU. And the opportunity is, of course, being present with one SKU is to really build from there. Build to presence, build your relationship and cross-selling, build your gross margin profile and further expand your business there. We can turn the page. Another interesting element, which is a good reflection of the inflection point in which we believe our business is at. The banana is a key category for us and significantly growing. We have entered the banana category through the acquisition we did with Beeorganic, really being active on the organic specialty retail side in Europe with the acquisition of NFG that we did earlier in this year. We have also added the mainstream retail distribution side of bananas, and we foresee significant growth potential there. It's also interesting to realize why the bananas is such an interesting category for us. And it's a massive opportunity because it allows us -- it's the queen of the fruit. It allows us to be 52 weeks per year present with our retailers, gives us a relationship straightaway of significance because of the rotation and the revenue value it also represents for retailers and at the same time, being such a structured and present category. It also allows us to really build on the supply side with our suppliers. We really see when we look at our participation of Fruit Attraction, one of the key fresh produce trade shows that we have participated. We see a very, very good reception for our unique way of presenting ourselves with a branded and added value concepts. We see that we are really being recognized by both our suppliers and our customers as now as a proven and as an established strong partner for them, which gives us a lot of opportunity to further grow and develop our business. And if we see that evolution that also has taken place in our participations at these trade shows, it's very interesting to see how much program, actual program and deals we have basically in the pipeline and discussed coming from the last trade show. And the branded portfolio, we touched on it already a little bit, the I AM Organic brand, that's the premium organic brands that we have. Oral is a premium non-GMO brand that we have out there that we are distributing mainly in Austria at the moment, and the =AWESOME is also a non-GMO brand that we're mainly pushing in out-of-home channels. Next to that, you see the gross margin evolution. Of course, we had a setback due to inflation in 2022 and we see that the gross margin profile is improving again in 2023. To talk you a little bit through some more background around the I AM Organic brands. We're all about creating that visibility and that linkage with consumers. We believe that our products should not be sold anonymously, we believe that they should have an identity that's recognizable, that's connectable to consumers that they can come back and repeat their purchases with. And at the same time, we are also realistic that we're not like Nestle or Procter & Gamble, that we can build brands because our gross margin profile is not 80% to 90%. So we have to be creative and we have to be clever. We have created digital passwords where people can access a digital password through QR code. QR code being nothing innovative by itself, but the platform itself, we believe, is very innovative. It creates a connection with the consumer, they're in-store, they are scanning the QR code. They're seeing the full supply chain of the banana, they're seeing the face of the grower. They're seeing the nutritional values of the product. They're seeing the carbon footprint, the offsetting and the insetting that we have with it and we all sell it in a very fun and accessible way. It's creating transparency, it's creating a connection and at the same time because consumers enter our platform, it's also from a data collection point of view, a very interesting tool that we have. And if you can flip the page, Steve. Why do we believe it's an inflection point. We really see that on the supply side, we have to develop the key strategic relationships in order for us to scale and to grow. We see customer expansion in the retail slide that we touched on, I think, is a very good visualization going from 6 to 14 key retailers where we are actively supplying and scaling our business. It's the brand expansion, trying to also deal with inflational pressures and having multiple offering towards consumers. It's ultimately as well a market expansion where today, our business is really into Europe. It's retailers that are asking us as well to look at the other continents and both suppliers as well. So it's also entering the North American market and of course, a continued acquisition pipeline. Again, keep in mind that the transition is towards organic and healthier food solutions. Organic fruits and vegetables is a key driving factor behind that growth and it's all happening from quite a fragmented industry, it's very interesting for us to play a consolidated growth.

So just to sort of pull that all together and lay out our key priorities for 2024 before I turn the call over to John. Clearly, there's 5 key priorities that we're focused on. One is continuing to drive our growth in key product category underpinned by deep supply relationships. So these are categories where we have a right to win. I think we've learned over time that some of the categories that we were participating in we didn't bring enough value and differentiation. And because of that, we've reduced our focus on those categories. But when you think about the key categories on the -- on the tropical fruit side, it's banana, avocado and mango. We also do soft fruits, et cetera, but they are not as much of a current focus and then I think on the tastemaker side and the products like herbs and ginger and asparagus and those sort of products. So we're really focused on continuing to drive the growth in these -- those key product categories and we'll bring the rest along over time. Our second focus is to drive gross margin. And how are we doing that? We're doing it by deepening our supplier relationships with key strategic growers. As we grow, we get supply chain efficiencies as the platform expands. So you saw we doubled the size of the banana category this year, and our intention is to double the size of it again next year. With that comes efficiencies throughout the whole supply chain, which helps us move margins and then focusing on higher value-added and branded product mixes. So we have products in our portfolio where the margins are 15% to 20% and obviously, focusing on those becomes a critical factor as we move forward. Third, over and above the top line and the margin line is to leverage the platform and drive efficiencies and process improvements on the platform that we have. We've invested heavily in our platform so that we can grow, and it's now time to -- I don't want to say milk those, but really leverage and drive our business from there, including digital platform expansion. We've been building out a digital platform, and we believe that continued automation of processes, continued streamlining of processes and using as much system-generated information as we can to drive efficiencies across our platform is critical. We're targeting -- we're targeting annualized sales and gross margins in excess of current analyst estimates. When you think about revenues, the analysts are between $48 million to $57 million for next year, I think $53 million is the average. Clearly, we are targeting to beat those estimates and also beat the gross margin estimates that they have in place. And most importantly, as Rients has quoted the other day, priority 1, 2, 3 and 4 is the target EBITDA positive, and we're targeting to achieve that during the first half of 2024. So that's a combination of continuing to grow the top line, drive margins and leverage the efficiencies in our system. And if you take a look at our cash operating costs from Q1 to Q3 of this year, they're down about 20%, and that's really related to the reorganization and rationalization of spending that we implemented based on where we are in the business in late Q2. So really, really a focused list of priorities for 2024. We're very excited about what lies ahead of us. And looking forward to continuing to grow this business and realize our goal of being a leading player in organic and non-GMO fruit and vegetables. So with that, let me quickly turn it over to John for a couple of wrap up slides. And then I think, John, you've passed questions along to Karen so that she can...

Yes. I got a handful of those yesterday. And I think in this slide, the key thing to point out, outside of how bad the market as we all know for small caps has been is we did a 10 for 1 consolidation fairly recently. So we have a lot less shares out. I think that's going to be helpful from a number of perspectives, especially from those that do a lot of trading and understand how bad the algo market is. So we've been able to better manage the stock, I would say, and some flip on to the next one.

I'm the flipper -- sorry.

Steve, the flipper. And yesterday, we've just gone through a number of growth initiatives. It's from Rients and Steve. So we were out yesterday with a $2 million private placement, 6 million shares-ish at $0.33. And that -- we also alluded to the fact that we do have a number of insiders and cornerstone shareholders that have committed and will participate in this round and the closing of the round is the end of October 28.

End of November.

End of November.

Yes, October is over. All right. Those are our remarks. John, do you want to just coordinate with Karen to -- I know there were some questions that came in.

Karen, do you have them?

Yes I do. Good morning. So first question is inflation has been an issue for a lot of companies in the food business? And how are you seeing this in your business? That's question number one.

Rients, do you want to take that.

For sure we have definitely seen the inflation pressure. And you can see it in our gross margin profile as well for 2022. Our response has been really to put more focus. So to put more focus on the categories where we really have our strength and also to increase the offerings. As a result of inflational pressure, a lot of retailers have mainly focused on putting a lot of promotional offers out there. Of course, organics can fully follow that. We have also built in more concepts, more value for concepts on the organic side. And also at the same time, we have really built in the new offering for the 2 non-GMO brands that we have put together. So inflation is definitely something that is impacting our business. I do think we have found the right tools to respond to it. And at the same time, we also firmly believe that trends and the movements that we see on the consumer level, on the political level, but also on the retail level, are really focused on a transition in food. So we do really believe that we are quite well positioned to be a driving factor for our suppliers and customers in facilitating that growth.

Rients, if I could just add to that, Karen, that we do organic and non-GMO. So we cover 2 very -- the non-GMO is more of your traditional conventional products. So we can -- and as I mentioned earlier, I think about 80% of our product portfolio is organic and the other 20% is non-GMO. We've done that intentionally. We have growers who have both product and we have customers that want both products and one of the key drivers is supply chain efficiencies. So you don't want to be shipping a 3/4 container of something. So you make sure that the containers are full all the time. So we do organic and non-GMO. And then on top of that, we do three different levels, right? We'll do bulk products. So if the retailer wants the lowest cost, we have examples of boxes of product. Well, that's the way the retailer wants to market those, that's the lowest cost option. And then we can go into packaged formats, private label and branded. So we can move up and down the value chain. So I'm with Rients, inflation is an issue all over the place. Some place is worse than others. But beyond that, we have the ability to serve a wide range and a wide spectrum of products. So I think we're -- I agree with Rients, we're really well positioned there.

Our second question. Can you please give us an idea of where you think your revenues will be for 2023?

Yes. I think we're comfortable that we will be in the CAD 30 million plus range. I think that would represent approximately 35% to 40% growth and will be the largest sales year that we've ever had. And I think mainly also which is underneath those revenue numbers is the significant value that we see in a shift of focus to the core categories that we are active in and the buildup in the retail listings center and the supply that we have. So we feel quite comfortable that this will generate a significant growth beyond 2023 as well.

Next question. As we're getting close to end of the year, can you give us a view on how you see 2024 coming together?

When we look at 2024, it's quite interesting to see all the processes and negotiations that are underway at the moment on some of our core categories with our retailers. I think Steve mentioned earlier as well that the average analyst range is just around $50 million plus and well, we believe that we're quite well positioned to beat that target.

Our next question is that we've announced a $2 million fundraising. And to whatever extent you can, how do you break down the use of the proceeds?

I think the main reason for the fund raise at the moment is the growth that we foresee. As indicated, we are in active negotiations with all our retail partners for the programs for next year. And for the key categories, most of those programs are defined between basically starting at the trade show in Madrid that we showed in the presentation and closing around December to mid-January. And basically, for what we see and the growth that we are expecting there, and it's growth capital, basically to help us realize that growth.

It was mentioned in our press release that insiders and cornerstone investors will be participating in this private placement. How much of these group is committed to?

John, do you want to take that one?

Yes. That's a fairly short answer. So it's $1.2 million to $1.3 million of the $2 million.

And we've one last question come in, just came in. The last one is you made your first investment tour in Europe a few weeks ago. How good was the feedback? And are there new investors coming on board?

Yes. It was a very interesting trip. I think it helps a lot for -- because the trip was in Germany, and we have a very strong footprint in German retail, where we are actively supplying them. So it goes a long way to make that connection where you say, "Hey, have you seen this product an organic mango in store and some people can connect to quite well. Of course, we are now mainly active in the European market, with, of course, looking to expand beyond that. But if you look at our business today, it's a European business. So for European investors to understand the consumer behaviors and the retailers, our positioning, our activities, which are operationally also focused in Europe. I think the feedback was very positive. And yes, we look forward to also bringing shareholdership on the European side to our business.

Maybe just to add a couple of comments on that. We were in 4 cities. We've had approximately 120 investors. The story was really well received, and it was really fun in that a lot of the people we met could actually they've seen our product and who we were. So I think it was very positive, and we're looking forward to growing that investor base substantially. Next question, Karen?

That is the end of our questions.

That's the end of our questions. All right. Well, we really appreciate everyone joining today. As always, feel free to reach out to any of us. Happy to have further discussions and anxious to keep everyone updated. So I appreciate you joining today, and we'll look forward to speaking with you again soon. Thanks very much.

Thanks everyone.