Afternoon, everyone. Thanks for joining us. Sorry about the slight delay. We're having some technical issues with Zoom, so if there's any complications with the webinar, please reach out and I can make sure that we get an edited copy up real, real quick. With that out of the way, thanks for joining us today. We have an exciting update with iFabric , who just put out some very, very important news today. The format of the session will be we will talk about the recent Q2 results, plus we'll talk about the exciting news today. I don't believe we're going to work off a presentation, but this session will contain forward-looking statements. You can find out more about those on the company's website. There will be a Q&A session, so please feel free to enter any questions in the Q&A box at the bottom.
With that all out of the way, I'd like to introduce Hylton Karon, CEO, Giancarlo Beevis, COO, and Hilton Price, CFO of iFabric . Thanks for joining me, gentlemen.
Thanks for having us.
Maybe to kick things off, Hylton and Hilton, do you want to talk a little bit about the Q2 results?
Certainly. Should I do it, Hylton?
Please.
Okay. As normal, I'll try and be brief because I'm sure everyone wants to discuss the exciting news. I'll just remind everybody that we did put out a comprehensive press release, very detailed on the Q2 numbers. You can find that on our website as well as SEDAR, together with our MD&A, which fully discusses all the numbers. If you want more information, please feel free to do that. I'm going to focus on what I think are the salient items in the financials or the Q2 financials. I'll start off with revenues. Now, on the face of it, our revenues are flat at $5.8 million. In reality, they were actually around 5% up on the previous year. Let me explain that. We deducted an amount of $350,000 from revenues in respect of brand advertising, which we provided, or brand advertising support that we provided to Costco, I believe, Giancarlo.
Costco.
Yeah, correct.
I think the advantages of this are going to be seen later in the year. I think we're going to, this is mainly in respect of our Roots brand, and we're going to push, especially for the Canadian market, the Canadian nature of our products. Hopefully, that will resonate and the advertising dollars will be well spent. The reason why the $350,000 was deducted from revenues is that there's an IFRS or International Reporting Standards standard that says that if you provide such support and you aren't able to influence how the merchandise is or the products or merchandise in the store or how the advertising dollars are spent, you're obligated to deduct the amount from revenue. Normally, that would be a below-the-line item. Because of the nature of this item, it's an exception. It's not treated as an expense. It's treated as a deduction from revenue.
Actually, in reality, this is a record quarter by very small margins, so we haven't been trumpeting it, but it is a record second quarter for us. Historically, Q1 and Q2 are our weakest quarters, and we're looking at some programs, hopefully, that we'd be able to lock in that will affect our Q1 and Q2 revenues so that we can give these a little push. We'd like to actually see these revenues trend higher, and I think we do have some opportunities to do that. The next item is gross margins. Here again, there was an apparent 5% drop in margins. Factually, this again is the deduction of $350,000 from gross margin calculation, which is the same as for revenues. The full impact or the drop in gross margins of 5% is attributable to the advertising contribution. Take that out and would have had a similar situation.
Expenses, we had a small drop in expenses. That's not bad. From $2.4 million last year to $2.3 million this year. In this regard, we adjusted a couple of provisions where I thought we had overprovided for some expenses, such as regulatory costs and some professional fees and some discounts. Not a big difference, but there was a slight decrease. Lost in exchange. Unfortunately, we lost money in exchange during the quarter, $150,000, which didn't tap down numbers. With the U.S. exchange being all over the place, very difficult. We do take exchange contracts to try and mitigate the effect of exchange, but it's not always easy to get it right when you've got such large fluctuations as in Mr. Trump. Earnings for the quarter were essentially flat. We don't historically make a lot of money, plus or minus, in Q1 and Q2.
That's all going to happen in the second half of the year. That's something to look forward to. Our cash decreased by $3.4 million in the quarter, and that's attributable to a big increase in our deposits against forward purchases of inventory. I'd like to explain that in more detail in a few seconds. The deposit position at the moment actually is the highest level in company history, around about $5 million. We've never been at that level before. The deposit balance is definitely one that's worth discussing further. We normally provide deposits of around 25% of an order at the time of placing the order. What $5 million in deposits tells you is that around $20 million in inventory is inbound to the warehouse. If you extrapolate that to selling value, that would translate to, I would say, around $35 million.
That tells you that sales of $35 million are coming. Normally, that would happen in the next three quarters. When we do plan our purchasing and make our deposits, the actual execution of the sale can happen within the next three quarters. That's our normal timeline. Invariably, Q4 will be the biggest quarter. It's seasonally the biggest, and that's when retailers sell the most products. I look forward to a large fourth quarter as we had last year. In essence, once you look at our deposits balance, you don't need management to tell you or give you guidance. If you look at that number, that'll tell you all you really need to know about what's coming in the short- term in terms of revenue growth. It's a figure that you should keep your eye on.
It was $5 million at the end of the quarter, and I believe it's going to, obviously, it'll reverse at some point when we get the inventory and apply the deposits, but it is a sign of big things.
A quite obvious question here, (Inaudible). How should investors look at EBITDA margins over the next 12-month period?
EBITDA has been quite consistent. I would say that if we're in the 10%- 15% range, hopefully, it's around 15%. Our expenses are not totally predictable. We've got regulatory costs and things like that and advertising like this contribution we made that are not always consistent. Our EBITDA is not a mature thing. At the same time, when we get incremental growth, EBITDA, I mean, our expenses don't grow at the same rate. They're not variable. Our target would be around 15%.
Okay. Great. I'm just looking through. Does anyone have any additional questions about the quarter? We'll move on to today's release. Hylton, were there any of those that you answered that you wanted?
Yeah. I'm just going to hand this over, actually. I think the person who can give the best answer to this is kind of a question that we get quite often, and I think that the market is kind of confused. Giancarlo, if you don't mind. The question is, and I knew from our release that we were going to get this again today. PROTX2 is currently registered with the United States Environmental Protection Agency, EPA, and is free of verbal for use throughout the United States. Does this mean it's already approved? Approved. The question is, if it's approved, why don't we have our kill claim? If you can just break that up in short, please.
Yeah, sure. The U.S. EPA has two different versions of approval/ registration, as they would deem it. The first is a public health claim, which would be the kill claim that we've been discussing over the past few years and what we're working towards. There's also a non-public health claim, which allows us to use PROTX2 in a various amount and in a various range of different products as we are, but cannot make any overt public health claims. We can't claim that it kills 99.9% of bacteria. It's more of an odor control claim, things that we use with lululemon, things that we use with Under Armour and our other customers. That is what's available currently in the market and what EPA is registered for.
What we're working towards is that advanced kill claim that nobody has as of this time that will allow us to make any kind of garment that will be able to claim it kills greater than 99.9% of X, Y, and Z bacteria. We actually do already have a portion of that kill claim granted, which is for non-this. We'll take it on apparel items and garments and things of that nature. I hope that answers that question.
Thank you. There was another question. The Trump administration is making major changes in eliminations at the EPA. Do you see anything that would prevent you from getting your kill claim?
No, we're not seeing any of that. If anything, we're hoping it makes it easier. Our application is very well- known to the EPA. There's very little remaining on what needs to be submitted for it to be approved. We're hopeful that we're on that list of things that just need a rubber stamp once we've provided all the details that they require, which we're doing right now in the form of the leaching study. We're hopeful that as soon as that data is given, we already know what the results are going to be because the product doesn't leach. It will land right in their safety standards, and it should just be a matter of passing through.
Giancarlo, can you clarify now, like with the clinical trial, we can still fully sell our products into the healthcare system?
Yeah.
We can rely on the trial to make the claims, which is a big benefit.
Yeah. What I would say is the clinical trial is the empirical evidence, what we've been looking for. The EPA is just an advertising thing. It'll allow us to put that sticker on that scrub hanging at the store. What the clinical trial does is give healthcare systems, hospitals, anyone, buying groups who are buying, even nurses, that we can sell the story to at retail. Here's empirical evidence that by wearing this, you can actually reduce your chance of getting an infection, reduce the chance of spreading infection, control infection rates within a healthcare setting. It is the real-life proof that we've been trying to achieve. The reason we're doing the EPA at the same time is because we want that double-edged sword to be able to really show the market.
Not only do we have real-life evidence, but here's the advertising that you can show all over town to be able to sell these products in different channels.
How did you capitalize on the peer review received? Is your marketing process changing, or what's the process going forward?
Yeah. We've obviously been priming the pump with some of our customers in certain areas, which you'll see coming up. Unfortunately, we couldn't do too much priming because with a peer-reviewed journal, we don't know when it's going to be published. We're kind of at their mercy. We have been priming the pump with a handful of our customers. We also have our own lines that we've been working on in anticipation of this clinical trial that we'll see in market in fall of this year, with expansion in spring of next year that will take full utilization of the paper that we just published.
Will the EPA kill claim allow us to move to a royalty model for that product?
I don't think that that's the hinge. I think we could move to that model if we so chose at this time. We just haven't so chose at this time. I think that as you see what we launch and some releases that'll come out towards the end of this year and into the beginning of next year, we've already maneuvered ourselves in a different avenue to generate revenue from the use of PROTX and from the use of what we've just proven out in the clinical trial.
Great. I think that's all the questions that I have on the release. Oh, there's one. Oh, no, there's one more. How many times can a scrub be washed before the protection starts to weaken or lessen?
Yeah, it depends on the scrub, depends on the fabric, depends on the brand. Generally, 50 washes is what the general market touts when we use it with other manufacturers. We've proven PROTX can last past 100 industrial-strength washes, not necessarily what we'd like. At the end of the day, we still want people to buy more scrubs, so we don't want it to last. Could we make it last for 200? We don't want that too. We want them to go out and buy new scrubs. We don't want it to last for 100 years. Yes, it doesn't leach out, so it can't come out in the wash. Our general rule of thumb for a retail product is about 50 washes. That's not to say that at wash 51, it's zero efficacy. In actual fact, it probably still remains efficacious + 75 without any drop.
You'll see gradual dropping from there. When we say gradual dropping, 0.5%, 1%, things of that nature. It doesn't just fall off a cliff.
Okay. I saw two questions, Deborah, that I'm going to just try and answer together because it kind of is asking about what do tariffs, are tariffs going to be a permanent reduction of margin, or is it something that's on a temporary? The other question is, what percentage of our sales in the U.S. to Canadian sales, and how is it going to affect 2026 and beyond? The fact of the matter is, there's no company that's going to take any tariff on a full-time permanent reduction of margin, and certainly, we are going to be no different.
I think that while margins are, there might be some minor impact between our suppliers' participation, between our participating in some way, but we've really had some very nice conversations with retailers, and they fully understand retail prices are going to be the lion's share of absorbing any, you know, it's the consumer that's going to pay these tariffs at the end of the day. There's certainly not going to be any permanent impact on margin in the long- term for our business or for anybody for that matter. I, you know, I'm of the belief that we haven't heard the end of tariff reductions, not increases. Keeping in mind, we don't manufacture anything in Canada. Our duties and duties spoken of as from Canada to the U.S. are not pertinent to our business. All our manufacturing is done overseas.
To the second part, which is what percent of our business is really done in Canada, we're talking about quite a substantial increase in business in Canada. As I've always stated, our business is forward-looking. As Hilton Price has stated, our deposits are 4x-5x what they've ever been in the history of the company, which translates into 4x-5x revenue compared to this time last year. I think that we've got opportunities on both sides. For us to put a hard number is really irresponsible. I just see really lovely growth in 2026 beyond 2025. 2025 is certainly going to be another record year.
I can't wait for 2026 to be done because all the programs and whatever is being spoken about that we're working on right now, between new product and increase in size of programs, both in the U.S. and Canada, I don't think it's really important what our revenue number, we're going to take tariffs into account in all these costings going forward. I just think that, you know, as you see what full year 2025 is going to be, and we will bring out guidance again for 2026, there's no reason to believe that. Especially in light of the news that we got today, remember all the pretty impressive, from my point of view, growth that this company has been on the last couple of years, certainly double-digit, was without EPA, without clinical trials, without a journal. The boost in revenue and growth of this company has been done based on what we've had today. Today's news is just icing on the cake for us to speed up entry into medical markets and other areas of business that we haven't supplied into before.
I can only say that we're excited and have never been in a better position from a corporate revenue and growth potential point of view. I know people hear us say it every year, but we've delivered it every year. To go in three, four years from $10 million to $30 million, it's not going to take us four or five years to go from $30 million to $60 million. I think our growth trajectory in the double digits has been year after year, and you're talking double digits every year of bigger numbers. There's no reason why the future won't be able to maintain that kind of trajectory. We're pretty excited about what we've built and where this company as a group is going.
Does today's announcement open up access to new customers?
Yeah. Absolutely. It opens up to hospital groups. It opens up to a whole host of different uniform suppliers, all types of different markets that we worked in today.
Do you have any scrubs customers beyond [Careismatic Brands] ?
Up until this point, we don't, but just stay tuned as we come into the end of this year and into next year. Once we have made the announcement, we'll be able to talk about it. Up until this point, we've been working on an exclusive arrangement with [Careismatic Brands] . That came to an end at the beginning of this year. As we go forward into the rest of this year and into 2026, there are some things that are on the fire that we'll announce once appropriate.
With today's release, will the company now be mainly focused on getting into the scrubs market?
I wouldn't say mainly focused, but it is obviously a big focus for us. Again, things to be announced in the rest of the year and into 2026. Yes, obviously, our renewed focus is there. We have so many other things that are on tap right now that we're getting into, new product segments that are launching this fall that we have not been into and that are planned to expand into next year with an additional new segment that's coming on toward the end of next year as well. It will be one of many.
Can you tell us anything about that additional segment?
I don't think so until we release it. No, unfortunately.
I don't think our brand partners, Deborah, really appreciate us putting the cart before the horse. I think every statement that we have made that we've stated we have delivered on. I think we, as Giancarlo said, in 2025, there will be probably two more nice statements of what we actually, what those new categories are. Those are categories we've never delivered into before. I don't think that our customers would appreciate us trading off their name or what they've worked for the last year, 18 months of development for us to be telling the market in advance what we're going to be delivering. I'm just going to make two statements. Our business three, four years ago was probably three, four containers a year. We've got products where this year, one order is going to be 40 containers. We've grown as a business.
Our whole business model has seriously taken on a new complexion. I want to take this opportunity to congratulate Giancarlo and his team. We said we were going to do this journal. We said we were going to get these reports, and we've done it. These are not things that we can really make a lot of press releases about until we've got it signed, sealed, and delivered. I know people have asked us repeatedly about EPA, and my standard answer is we've never to date had one single rejection from EPA. It is prudent for people to believe, and it's for us to believe. We believe that we still have a chance of getting this one final test. It's not easy. It's not quick. We've got European laboratories working on it. We've expended a lot of resources and time to put this thing to bed.
I think the impressive growth that this company continues to be able to provide without having those things speaks to what we've been able to achieve to date and what kind of a future we're on, regardless of what has happened to date. I'm excited. I think this whole business, that's the culture here, we're taking on more and more development staff because there's just not enough hands on deck for the growth that we're enjoying. The best is yet to come. There will be two more significant announcements in 2025, but as Giancarlo says, when they're on the shelf and we're ready to announce it, we will let people know what we delivered in 2025.
Awesome. Are you guys good to take a couple more audience questions?
Sure.
One of them was, what's your current market share in the health market? I'm not sure that you're able to answer that, but do you have any idea?
Minuscule. Yeah. You know, I hate to use the word billions, but the medical market, the scrubs market alone, the scrubs alone in North America is probably a billion-dollar market. We're just putting our toe into that market, which can be worth multiple millions day one with serious growth opportunities there. Yeah, that's a great forward-looking area of business for us.
With this study, are there medical key community leaders being utilized to educate the medical market through CMEs, medical conference poster sessions, or presentations?
Yeah, we're just getting started on that portion of it. We obviously do have conferences planned for 2026, but without having a hard date, it's kind of really impossible for us to start planning anything until we had it in hand. Yes, we do have a skeleton outline of what we want to do for 2026, and we do have a partner from a retail side of life that will be joining us on those conferences. Again, as we get into announcements, we'll be able to talk about it.
I see a question. Has the journal been published or it's just a press release? No, we had to wait for the journal to do the publication before we had the opportunity to make the.
There's a link in the press release to the actual article.
Correct. Correct. It's published.
Would it be worth exploring partnerships to accelerate market penetration and revenues?
Yeah. I mean, I think we do that all the time. We have a good mix of our business where we do it ourselves and where we have strategic partners. I think that that's kind of already what we do. Do we have some additional stakeholders in key industries that we're not in? Absolutely. We're exploring those as we go forward.
I'd like to just add something. I think that one is going to see in the future where we've come up with our own in-house brands. Where in the past, we use licensing a lot and will continue to use licensing in many strategic ways, I think we've been really successful in 2025 in retailers starting to use our own brands, which means that we're not paying a royalty on every product in every instance to use a royalty where we've now started to really promote our own brand. I think from a bottom-line perspective, from a competitiveness perspective into 2026 and beyond, by using our own in-house brands and getting these brands well- known, I think is great value for the company going forward where we're going to own brands that are going to be recognized in the marketplace. I think that's an important point to bring forward.
Another audience question. Would a clothing line for the immunocompromised make sense? Is that something you've thought about or looked at?
I've actually had conversations with certain people. The problem that we have as a business is we are really geared towards volume. While these things really are a great story and it's, you know, we like to do good with what we, I mean, I think a great part of our company is that our products are all about enhancing quality of life. If we found a brand that was really focused on that market and could bring us sufficient volume to make it worthwhile, it's something that would not be difficult for us to do. It's all a matter of scale and economy of scale. Do we have something that clearly would work for them? The answer is yes. Unfortunately, in some cases, I know a couple of years ago, there was something in Africa with Ebola and everybody got all over us.
It was all about needing 100 beds. It means 100 sets of linen. We're not for the hundreds. We need hundreds of thousands to millions of units for us to be interested in. You know, we are a volume house. While it sounds like great ideas, we unfortunately have economics that come into play.
I think part of the benefit of some of our partnerships, too, is that PROTX is available to the mass. If you go to some of those brands that we've talked about in the past, the lulus and the Under Armours and those guys, I mean, if you're immunocompromised, the PROTX's there. Just because they're not advertising it as an antibacterial, they're advertising it for anti-odor. The product is still there and it still works as it should. Having those strategic partnerships obviously makes it available to the masses and makes it available to those niche markets, just maybe not directly from us.
There is another question. Is there any cash flow required to support the growth beyond current lines of credit? Is there any EDC financing available at a low cost? We certainly work with EDC already. They know us. We have a long-standing relationship with EDC. EDC comes with some pros and cons of financing through them, but we certainly are very familiar with them and have a great relationship and history with them. In our last couple of meetings, they are more than available based on the past of working with us in the future. However, I think we should note that currently, we are not using $0.01 of our current financing and we are growing quite nicely. That does not mean that in the next few months, with the kind of growth we have, we will not be dipping into our financing lines as the business grows.
Is there any immediate need for external capital? The answer is no. I think we could pretty much get to the $50 million, $60 million on what we have right now. However, that number seems to be coming at us quicker and quicker. We will monitor the situation. There are some other creative financing ideas that have come our way out of Europe. We will explore all opportunities as needed, but it is not an immediate concern for us. We have more than enough to finance and run the business with what we have on our plate and still get some nice growth opportunities. It is just something that we do monitor all the time, our cash flow and our credits. Right now, we are in a great position.
I really do not think that is anything that the next 12, 18 months is going to, unless something so monumental comes out of the woodwork that sees us double our business from where we are right now. Bring it on. It will be a nice problem to have, but we do monitor it all the time, obviously.
One last question there, which is for Hilton Price, I guess. Should investors expect 10%- 15% EBITDA margin range in Q3 and Q4?
I believe so. I think that if we see north of $30 million in revenues, we should see 30% to at least 30%. That's 10% and hopefully $4.5 million in EBITDA.
Okay. Great. That's all I have for audience questions. Thank you so much for joining me today and for answering the questions. Thanks to the audience for your participation. Congratulations on a really solid first half of the year. It sounds like you've set yourself up for some really good growth in the back half. Congrats. I look forward to those exciting releases.
Thanks, everyone.
Thank you very much.
Thank you.
Take care.