Organto Foods Inc. ($OGO)

Okay. It looks like everyone in. Hello, everyone, and thank you for joining Organto Foods Q1 2026 Results Review and Business Update. My name is Lauren Bech-Hansen, and I will be monitoring today's session. We will begin with a brief presentation from Steve Bromley, CEO and Co-Chair of Organto Foods, who will walk through the company's first quarter results and operational highlights. Following the presentation, we'll move into the Q&A portion of the session, addressing any questions that were submitted in advance of today's session. 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 and uncertainties, please refer to Organto’s public disclosure documents, including its MD&A under the company's profile on SEDAR. Today's discussion may also reference certain non-IFRS measures, including EBITDA or adjusted EBITDA. These measures do not have standardized meanings under IFRS and may not be comparable to similar measures by other companies. Please refer to Organto’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.

Great. Thanks very much, Lauren, and good afternoon, everyone, or good evening, depending on -- or good morning, depending on where you are. I appreciate you joining the call today as we take a little bit of time to review Q1 and where we're going. So today, we'll talk about our performance, both from an operating point of view and a financial point of view for Q1. We'll take a look at what our priorities are as we're moving forward throughout the year. And then as Lauren mentioned, we'll take as many questions as we can in the time that we have allotted. So thanks again for joining. So as we look at the first quarter, it was a solid quarter for us. We had record growth and our financial position remains quite solid. It was a really busy period for us, and it's busy when you take a look at the sales growth that we had. During the quarter, we added 6 new growing partners in key sourcing regions. We added 8 new European retailers to our customer portfolio. That brought 3 new geographic regions that we're serving to our customer portfolio, and we added Switzerland, Spain and the Ukraine. We added 4 new sea carriers. We added 2 new ports of origin where product was being loaded from, and we added 3 new destination ports. So from an operating and commercial point of view, it was an incredibly busy first quarter. We're proud of the progress that we made. It wasn't perfect. We had some additional costs in the quarter related to all of that expansion and integration, but a heavy lift and a great job by the team. And that resulted in record results. We had our largest sales quarter in the history of the company. Our sales were $25.6 million, up 88% versus the prior year. And that translated into the largest gross profit in the history of the company at $1.8 million. That was up 62% from the prior year. So we didn't see the growth completely in gross profit, i.e., if sales went up 88%, you'd hope gross profit went up 88%. It only went up 62%. We'll talk about it. There were a number of onetime issues that impacted us in the quarter. But even with that -- and those issues were related to all of the platform expansion that was going on, even with that record gross profit, we continue to see our cash operating costs, our SG&A, management fees, labor and benefits continue to lever down. Again, sales down to 6.2% in the first quarter of this year versus 6.5% in the first quarter of last year and 7.7% versus all of last year. Our costs went up later in the year as we onboarded more business versus Q1 of last year. So again, very positive to see that leverage. That translated as we expected into positive EBITDA. So we had positive EBITDA in the quarter, which is in line with what our expectations were. And we had flat earnings of 0 versus a loss in the prior year of EUR 300,000. So really, really solid P&L activity in the month, resulting in a lot of records for us. Our balance sheet continued to be solidified. During the quarter, we expanded our Rabobank flexible funding facility from EUR 4 million to EUR 7 million. That really to support this growth that we're having and fund the working capital that was required. And we also completed an early warrant exercise program in February of last year for gross proceeds of $5 million. We'll get into the balance sheet in a couple of minutes, but it remains very, very strong. At the same time, we've expanded our leadership team during the quarter, and I'm going to talk a little bit more about more expansion today. But we increased the management team by adding -- taking resources that we had and focusing them on key areas really to allow us to both leverage our operating expertise and dedicate time to strategic growth, which is really, really important to us. And during the quarter, we continued to expand our strategic growth pipeline. So we're looking at a number of opportunities to bolt on new businesses to the platform, and we made really good progress on that, and we'll talk about that in a minute. When we're talking about our team, I'm really excited to announce and introduce to everyone Darryl Bergman, who come next Monday will assume the role of President, reporting to myself and working very, very closely with the entire team. We're thrilled to have Darryl join us. He comes with deep operational, financial and strategic growth expertise and lots of public company expertise. He's been involved in numerous business development opportunities, M&A opportunities. And so we're just thrilled to have a guy like Darryl join the team as we prepare ourselves for our next phase of growth. And as I mentioned, Darryl will start on Monday next week with an initial focus on supporting the operations and helping us position the company for continued growth. So we're thrilled to have Darryl joining us, and he'll play a large part in our growth as we continue to build this company. So welcome aboard, Darryl. So just to go back and talk a little bit about the business before we dive into the numbers. Our core products are banana, ginger, mangos and other seasonal items. We provide those as much as we can on a year-round basis. We're dealing with 20 major retail accounts today in Europe, and that includes the #1 and #2 largest grocers in France, Germany, Austria and the #1 and 3 largest grocers in Denmark. So our business platform is delivering, and it's a key part of delivery of core products to this retail base. Today, we're going to market in 16 countries in Europe. Our larger markets are France and Germany and Denmark with other markets continuing to grow. And we have an established and expanding supply and logistics network. So we deal with over 10 key sourcing partners that would represent over 500 growers. We ship product from 20 different ports into 6 ports in Europe. We use 6 different sea carriers. We have over 10 over-the-road type service providers. And last year, we served about 60 customers, and that continues to grow as we grow our business. So it's an expansive operation that we're continuing to build as we build our core business. We always like to talk about our guiding principles because they anchor our growth. Those 3 leaves in our new logo really mean something. They stand for us providing healthy quality organic products and fair trade products. They stand for our commitment to sustainability for responsible, transparent business practices, and they stand for our drive to add value. And to drive value across our entire ecosystem, from our growers and our suppliers, our customers, our shareholders and of course, our team. And so we like to always refer to these as we talk about what we're doing as we grow our business. So when we take a look at the results for Q1, as I mentioned, sales were $25.6 million, up from $13.6 million in the prior year. That's an 88% lift. Gross margins were $1.8 million versus $1.1 million in the prior year, so up 62%. During the quarter, we had 2 key issues that impacted our margins. In bringing on all those new suppliers, bringing on all those new sea carriers, new ports, et cetera, we did have some onetime costs that we couldn't avoid primarily product losses and extra costs related to some logistics as we got everything running appropriately. So that impacted us in the quarter. The good news is that's not an ongoing issue, and the team has worked really hard to address those. It would have been great to avoid those, but that didn't happen. Those cost us in the range of $250,000. And then in addition, later in the quarter, we were impacted by the increased costs related to energy costs with the Gulf -- with the Middle East war. It was in the latter part of the quarter, impacted us by about $50,000, and we're obviously in the process of passing those costs through. But there was some impact in the quarter. So our gross profit was impacted by about $300,000 of costs that hopefully won't be recurring. Obviously, we're dealing with the volatility that comes with the conflict in the Middle East, but our team is doing a good job managing that. So gross profit up 62% versus the prior year. Our cash overheads down to 6.2%. And as I mentioned, EBITDA positive for the quarter. We were EBITDA positive last year. It was our only EBITDA positive quarter of last year. We expect EBITDA positive to continue as we go forward each quarter. From a balance sheet point of view, as I mentioned, a nice strength. We're still seeing nice strength. We have about $5 million -- just a little under $5 million in cash at the end of the quarter. Our working capital was $14.5 million. That was up some $7.6 million at the end of last year, which really goes to the growth that we had in the business, primarily in receivables. Our sales are way up and also in inventory because we have a lot more product moving around on the water. Keep in mind that our product is on the water between 2 and 4 weeks and then in our warehouses, another week, 1.5 weeks as everything gets moved through, ripened and sold. But a nice strong working capital position of $14.5 million. If you went back to the end of fiscal 2024, we had negative working capital. So it's a significant shift in our balance sheet. We have no long-term debt on the balance sheet, and we have equity of $15.7 million, up from $8.8 million at the end of last year, really driven by the early warrant exercise program. And then you compare that versus fiscal '24, where we were negative equity. So nice solid growth in the business and the profitability of the business and a balance sheet that's really nice and stable and positions us to be able to fund our growth initiatives going forward. Our market cap is sitting about $150 million, a reminder that about 19% of the company is held at the Board and management level. And we've seen nice growth in the stock over the last year. And we believe that, that will continue to grow as we move the business forward. Always want to talk about our strategy going forward. Today, our product mix is primarily fresh, high-volume, lower-margin products, and we're going to market in Europe with those products. That's by design. That's by intention when we restructured and repositioned the business, we said, first, -- we get a nice core base in place where we're paying all the bills. We're there now. And now we -- our efforts are focused on continuing to grow the fresh program in Europe, but also adding new products to the portfolio in Europe, new products that offer higher margins. They're not as high volume. There are specialty products where we can add those to our portfolio and take them to our existing group of customers. We'd also like to expand the fresh program into North America. And I know we've been talking about that for a while, but we are working on it, and we have some good opportunities in development. And then, of course, we'd like to move into non-fresh and then value-added products as well over time. The whole idea here is to leverage the core platform that we have in place, but move from volume to value and shift our product mix to higher-value products, and with that increased margins. But strategically, we are where we want it to be right now, which is a nice growing platform, moving into EBITDA positive, paying the bills so that we can fund ourselves as we go and move into higher-margin products. And as I mentioned earlier, we have opportunities that we're assessing in literally every one of the categories that I've noted here. And so we're excited by what the next 6 to 12 months should bring on that regard. So just to wrap this up, our key priorities for 2026. Obviously, we want to continue to grow the business on the Euro fresh platform that we have today, drive to sales of $100 million. We were over $25 million in the first quarter. So we're on pace for over $100 million this year. And hopefully, we'll be able to exceed that a bit. We want to continue to focus on gross margin. I'm really proud of the work that the team did to maintain the margins that we had this quarter, given the complexity that we were building into our supply chain, combined with the volatility that came with some of the geopolitical issues, but we want to continue to improve our gross margin. It's a major focus for us. And we want to continue to leverage, really control our cash operating costs so that we can drive those below 5% of sales. And at the same time, as I mentioned, those are more financially driven. We want to increase the core product portfolio that we have, add new categories with higher margins, add new geographies, add new regions. And then really, we're working hard now to utilize technologies and AI to drive efficiencies and improve transparency and reduce waste across the platform. So that's a major initiative that is underway now, and we'll have a lot more to say about our technological efforts here over the next period of time. We want to continue to build organization depth. And obviously, with the announcement of Darryl joining the team yesterday, that's really positive. The reorganization that was put in place is working really well. We've added more people to the team as we continue to grow. And we need to continue to do that because at the end of the day, it's all about the team, and we're going to succeed as a team -- and so we need good, strong resources in place, and we're continuing to do that. We want to continue to push on our strategic expansion and pipeline development. We've dedicated resources in our reorg to look at strategic expansion and continue to build out that pipeline. We're really excited by what we have in the pipeline. I hope the next time we're chatting, we'll be able to provide more detail into some of the opportunities that we have there. So we're working hard at that. And then lastly, we want to drive market awareness and visibility. Organto is now getting to the point over $100 million and now through EBITDA positive, even covering all of the corporate overheads related to being public. We have a great story to tell, and we're going to be dedicating more effort to get out to make sure that people know who we are, what we're doing and why we're excited about the future. So with that, I'll take a pause and then if the team could gather the questions out of the Q&A bucket, and we'll take questions here for a bit.

Thank you. [Operator Instructions] Please submit. We will start off with one of the first that came in. What drove Organto's Q1 2026 performance?

Well, from a top line basis, there were really 2 key drivers to the top line. The first driver, of course, was we onboarded 8 new customers. Those customers come on between the end of January and kind of the end of February. So they played a large role in the growth of the business. And then expanded growth -- pardon me, expanded sales with our existing customers also was a key factor. I would put those at about 60-40 or 50-50. I apologize, I don't have the exact number, but growth came both from continued growth from existing customers, which is really, really important to us. First, we want to make sure that we're serving our existing customers well and they want to do more business with us because as we bring on more additional customers, we can continue that growth funnel. Very little of the growth came from new products. So it was essentially our core products that were being sold to new and existing customers. So -- and we expect to see that throughout the balance of the year.

Thank you, Steve. Next question, how have inflation, rising fuel costs and potential disruptions around the Strait impacted Organto?

Yes, it's a really good question and changes every day with the craziness that's going on, but it certainly impacted us in the quarter. The major impact has been on fuel, energy and primarily in our particular case, bunker fuel, which is with the ships. And then, of course, there's over-the-road fuel as well. We haven't felt much as far as grower inputs and packaging type costs, although those are all going to come over time. So we were very much limited in the first quarter. We were able to manage everything, and it kind of happened later in the quarter. So it started later in the quarter. So we didn't have a lot of impact. We're seeing more impact as we get into the second quarter as the full impacts are being realized. And so we've taken a number of steps. Obviously, the first step is to get to our end customers and work to pass that cost through, which we're doing. And then at the same time, we've really gone to work on our supply chain to shift certain supply chain routes, shift carriers, et cetera, to really make sure that we have the lowest cost option given the premiums that are being passed through. So it's a big undertaking by our commercial and operating teams. I think we've had good success. We don't expect it to have material impact going forward. But I caveat that answer with this stuff is changing every day. I don't think the higher fuel costs are going away anytime soon, even if there is a resolution to the conflict, it's going to take time. So it's very cooperative. We're working with our growers. We're working with our customers. We're working with our supply chain and logistics partners. And we're all doing the best that we can to manage through. I think we've done a pretty good job. If you take a look at a lot of other sort of larger food producers, everyone is feeling it. And it's not escapable. And I think at the end of the day, the unfortunate reality is we as consumers are going to -- we're going to be paying more for our food going forward because there's really not a lot of other options.

Thank you, Steve. Our next question, M&A was a major part of SunOpta's growth strategy. What is Organto seeing in terms of acquisitions and potential U.S. expansion?

Yes. I think as I said, look, we see a real opportunity here to get out and build off the platform that's in place. The time was not right until recently to do that from the point of view is that you need a platform that's standing on its own. And so we're there now. So we've been building a pipeline. We see real opportunity. We've indicated that we would like to establish a platform in the U.S. We've done a lot of work on it. Unfortunately, we don't have anything concrete to share today, but we really would like to do that. We also have a contingency plan to build it on our own if we can't find something that's a platform, but I'm pretty confident we will. I think it's also a real opportunity to diversify our product portfolio. So acquire additional fresh category products and more importantly, acquire non-fresh categories. So think about seeds and nuts and oils and those sort of things, same capital-efficient business models, but diversifying our product portfolio. And while we're not there, the real opportunity is to margin stack. So today, we're big in banana and ginger as an example on the fresh side. Well, what about banana-type ingredients and banana-type consumer products, same with ginger. So we're looking at a lot of those opportunities as well. So you can take margin on the same product 2 or 3x. So look, I hope it becomes -- we're planning on it becoming a big part of our growth going forward, a nice combination of quick internal growth on the base business and then very selective accretive acquisitions that we can bolt on. So we've got a team of people now that are dedicating a significant amount of time. And for anybody that's been in the M&A world, these things don't happen overnight. And you can get way down the road on things and find out that the deal won't come together. But we're encouraged and we're spending a lot of time there.

Thanks, Steve. Our next question, what caused the increased costs and estimates going forward for Q2?

Sorry, could you repeat the question?

What caused the increased costs and estimates going forward for Q2?

Yes. So I think as I said on the call, we had about $300,000 in incremental costs, give or take, a little bit on -- in gross profit. The bulk of that being from our own like we ended up with situations where because of the new logistics and everything, we had a little bit of the wrong product in the wrong place at the wrong time. And some of that was on us, some of it was on the carriers, but we ended up losing the better part of $250,000 in the quarter on that. Not too much we can do about it. The team has worked incredibly hard, and we don't think those will continue. And then the rest of the cost was really related to cost increases, as I mentioned. And yes, we're managing that best we can and don't think it will have a material impact. So we expect -- we haven't given guidance, but we expect sales to continue to grow in the second quarter. And hopefully, gross profit will move accordingly. Our SG&A spending is tightly controlled. So we expect to continue to see positive results going forward.

Thank you, Steve. Our next question comes from Nicholas. What products drove the growth in Q1? Anything new aside from bananas?

Yes. No, it was primarily banana and ginger where we saw growth. And those are the categories, Nick, that we were really focused on because we saw those as our biggest growth opportunities. The sort of challenge we have is do you add more products for growth or do you just continue to grow hard on what you have in the portfolio. And so we sort of ran with those 2 core products. We've got some other ones, and we're looking to build others, but the bulk of the growth came from those categories.

Our next question also comes from Nicholas. What are your views on the increased accounts receivable quarter-over-quarter? Have you started collecting on that subsequent to the quarter?

Yes. No, receivables certainly went up. And a lot of that was related to the growth in the business. So I can't remember the exact numbers, but less than 5% is over 60 days. And we're collecting on the receivables. We don't think there's any problem with the receivables. They were a little higher as a percentage of sales at the end of the quarter, but the quarter was -- because of the way customers were ramping up the quarter, March was the largest month that we had in the quarter as all the new customers came on. So when you take a look at it, you just can't sort of divide the quarter by 3 and figure out what the days receivables are because the last part of the quarter was higher as we get into the higher products. Not worried about our receivables. And we credit insure our receivables as well. And by the way, we haven't had any significant bad debts, but we're also credit insured on those. So we're feeling -- yes, and they have -- and by the way, receivables have come down a little bit now that we're at the run rate and we're caught up and it's more consistent now. So I don't think there's any issues there.

Great. Thanks, Steve. And our last question, unless there are any others coming through. Do you think that this growth is repeatable through to 2027?

Yes. So listen, we've brought on the bulk of the new business that we expected to bring on in Q1. And if you kind of follow what happened last year, last year is probably the best proxy. We had a nice bump into Q2 and then the rest of the year flattens out a little bit because a lot of the new business that's been brought on has been brought on. And given that much of our business is contracted, you don't -- like we're not going to go from -- we're not going to go to $40 million next quarter, but we're going to see it get up into the -- close to the $30 million range, I would think. And we'll see that throughout the year. Keep in mind that in the summer season, primarily driven by our banana category, we see volumes drop a little bit in the summer. Now we're working with some of our core retailers for some promotions throughout the summer. But summer volumes drop primarily on the banana category, which is a large category for us because in the summer and in heat, that didn't sound right. In the summer, when it's hot out, consumers tend to eat more citrus and local fruits than bananas. And also, I think the statistic is that 80% of school lunch boxes normally either have an apple or a banana in it. And of course, there's no school lunch boxes in the regions that we're selling in, in the summer. So there's not as many bananas going into that. So we normally see a strong Q2, a bit of a dip in Q3 and then strong again in Q4. And then next year, when we get back into the contracting cycle, we see another lift going into Q1 or we plan to see another lift before we go into Q1. That's before any acquisitions, and it's also before any new products that we're also looking at to put in, in the back half of the year.

Great. Thank you, Steve. That's all the time we have for questions today. Thank you, everyone, for joining Organto Foods Q1 2026 Results Review and Business Update. A replay of today's webinar will be made available following the session. For additional information, we encourage you to visit Organto's website at organto.com as well as the company's public filings available on SEDAR. If you have any follow-up questions, please feel free to reach out to Organto directly through the website or contact Steve and the team. Thank you again for joining us, and hope you all have a great day.

Thanks, guys. Take care.