
iFabric Corp
TSX:IFA

iFabric Corp
iFabric Corp. engages in the designing, marketing and sale of intimate apparel. The company is headquartered in Markham, Ontario and currently employs 28 full-time employees. The company went IPO on 2007-08-28. The company provides intelligent properties, including antiviral and antibacterial characteristics, water-repellence, and ultraviolet protection. The Company’s segments include Intimate Apparel, Intelligent Fabrics and Other. The Intimate Apparel segment includes the design and distribution of women’s intimate apparel and accessories. The Intelligent Fabrics segment includes the development and distribution of products and treatments that are suitable for application to textiles, plastics, liquids, and hard surfaces. The Other segment includes leasing of property to group companies, related parties and third parties. The firm offers a variety of products and services through its subsidiaries, Intelligent Fabric Technologies (North America) Inc. (IFTNA) and Coconut Grove Pads Inc. (Coconut Grove).
Earnings Calls
iFabric achieved a record Q1 revenue of $7.1 million, up 5% from last year. The Intelligent Fabrics division thrived, growing 25% to $5.8 million, while the Intimate Apparel division faced a 40% revenue drop, attributed to fewer new programs. Gross margins fell to 39%, but the company aims to stabilize around 40% for the fiscal year. Total cash increased by $3.6 million to $5.6 million. A new banking agreement raised the credit line to $12 million, enhancing liquidity. iFabric anticipates double-digit growth in 2025 and is well-positioned for future expansion as new products are developed for 2026.
Good morning. Thanks for joining us today. We have an update with iFabric, who last week reported their Q1 2025 results [Technical Difficulty] Hilton Price, CFO; and Hylton Karon, CEO. And this presentation will be an overview of the quarter and then right into Q&A. We're not going to work off a presentation. But regardless, the session will contain forward-looking statements. If you'd like to know more about those, you can find them on the company's presentation on the website. [Operator Instructions] And with that out of the way, I'd like to introduce Hylton Karon, CEO [Technical Difficulty].
Hilton, do you want to jump in and do the presentation of the financials, and then I'll make some statements and then we can get into Q&A, please.
Sure. Deborah, I don't know why, but you're breaking up. So I didn't hear that at all.
My apologies. I will try to get on different WiFi. I'll be right back.
We'll take it from you for now. We'll deal with it in the interim. Thank you. Good morning, everyone. I'm Hilton Price, the CFO of iFabric. As I normally state before I get into the synopsis of the quarter, we did put out a very comprehensive press release on our quarterly results. If you're interested in reading the full release, you can find it on SEDAR as well as our website, together with the financial statements and MD&A relating to Q1, and that will give you all the information you need in depth as regards to the quarter.
So in this discussion, I'll be focusing mainly on what I consider to be the main or salient aspects of the quarter. I'll start with revenue. The revenue came in at $7.1 million compared to $6.8 million last year, an increase of $300,000 or 5%, and yes, by a small margin, that was a record first quarter for the company. And given all the negative factors in the market at the moment, reduced consumer confidence, tariffs, I don't have to discuss all of those. I think it was a pretty solid quarter and reasonably satisfying for ourselves to actually see an increase, however small it may be.
In terms of our revenue by division, revenue in our Intelligent Fabrics division increased by 25%, $1.2 million from $4.6 million last year to $5.8 million this year, and that is as a result of new programs in both U.S. and Canada, mainly Canadian. Canadian programs are outstripping U.S. at the moment. By contrast, unfortunately, revenue in Intimate Apparel division decreased by 40% or $800,000 from $2.1 million last year to $1.3 million this year. And the main reason for this is that we had a new program -- or a new major program commenced shipping last year. This quarter, we didn't have any new programs that were the equivalency. So that was the main reason for that decrease.
And in addition to that, our Intimate Apparel division, Q1 is historically the weakest quarter for this division. It's post-Christmas, shoppers are tired, so invariably this is a slow quarter for that division. Gross margins. We did see a drop in margins from 44% in 2024 to 39% this year, and that's attributable to the product mix for the quarter and really as a result of the drop in Intelligent -- I mean, Intimate Apparel revenues, which do carry higher margins. And whenever we see a drop in those revenues, margins will decrease. Through the year, our goal is to try and maintain margins around the 40% level. And I'm hopeful that we will be able to do that.
Expenses. We did see an increase in expenses of around $300,000 in the quarter, and that is mainly due to the costs of our leaching study. We did pay some big invoices in the quarter for the final part of the leaching study, which hopefully is now getting to the end. I'll leave Mr. Karon to discuss that in further depth, but we did incur some large costs in the quarter with regard to the study. We also paid some costs relating to reorganizing our bank line, which I'll discuss further in a few minutes.
And also, we had other increased expenses like travel, we're really pushing to increase business. So travel is one of the expenses that does increase significantly as a result of those efforts.
EBITDA as a result of the lower margin contribution, higher expenses as anticipated, adjusted EBITDA did drop by $500,000 from $800,000 last year to $300,000 in 2025. Cash. We had a very strong collections quarter. And encouragingly, we saw cash increase of $3.6 million, ended the quarter with $5.6 million in the bank, which is very encouraging. Now dealing with the 2 new things or new major things that happened in the quarter. One, banking agreement. We signed a new banking agreement with BMO, which increased our credit line from $6,750,000 to $12 million. The line is currently unutilized. And therefore, is fully available to fund new business. And we do expect to use it this year. In the past, we haven't used our credit line. But given what I think is coming forward or it seems to be coming forward, I think we will be using our credit line this year.
And the last main thing that happened in the quarter was that we acquired the remaining 25% of the company that owns our Markham warehouse. The cost of this acquisition was around $2.2 million. And in addition to that, we repaid the minority shareholder debt of around $500,000, which means that we laid out about $2.7 million in total. This is funded by a new mortgage of $3.7 million, which is used to repay the existing mortgage of around $800 million as well as the cost of the shares and repayment of minority shareholder debt.
Now strategically, we felt this acquisition was necessary as the minority shareholders placed limitations on how we could use our Markham property. So removing them was instrumental in our ability to sign a new banking agreement. And as you can see, the bank we were quite happy to significantly increase our credit line by us being able to fully use the Markham warehouse as a security instrument. So all in all, a very busy quarter for iFabric. I think basically, that's all I really have to say. And I'll take any questions if there are any.
All right, Hilton, thank you. I'm going to jump in and just give a little presentation, a little bit of an update -- some updates and some -- just some points that I think it's important at this time for the investor community to understand as we navigate these rather challenging times.
The breakdown of our revenue in Q1 was about 10% export, which is chemicals in the Asian market, about 23% in the United States and over 65% of the revenue of our company is still in Canada. So I think it's important for the investor community to understand that predominance of our Canadian -- of our revenue is still Canadian-based, while '25 and '26 have got those great growth potentials in the United States as we start these programs and as they do well, they will grow and we see the future, as I've stated many times, where there's going to be more revenue in the United States than in Canada. It's still -- Canada is still enjoying rather significant growth in '25 in Q4, as you saw Q4 of last year, I think that Q4 of this year, please keep in mind, we have to have orders in-house in order to produce the goods, bring them in from overseas and distribute them in a 4-, 5-month window.
So with where we sit today in May, it goes without saying that we're -- we've pretty much put '25 to bed and development work that the staff and customers are working on is well into the 2026 calendar year. So I'm really very comfortable with the growth that we put out. We said double digit, whether it's 15% or 20%, I think as the year progresses, and we'll put out updates to -- as we are closer to shipping windows to put more color on how we proceed, but there's no doubt that '25 will represent another growth year for the company.
Another thing that I just -- that it's very well worth highlighting is that we've been doing this business a long time, and we've been working with overseas supply for a long time. And one thing that we did as a corporation is we took a strategy not to cancel one order. We kept full production on every single order, while numbers of 145% were floated. We've got a rather interesting strategy. We've used it for many years in Canada, and we've just opened it in the United States. And what we do is we have a bonded warehouse.
So we bring goods in duty free, and we store them in our facilities duty free, which means that when we bring it into Canada, the only time that they -- the goods actually incur a great preservation of cash, is the only time that those goods incur, the duty bill is the day we ship the goods to the customer. So they can sit on the shelf for a month, 2 or 3, and for every $1 million that we purchase, that's a $200,000 preservation of cash, 20% is the ballpark duty that we pay.
With that said, in the U.S., we've opened up a -- we're doing the final touches of opening up the bonded warehouse in our Houston warehouse location. And what we're currently working on is what has been stated openly as the current duty being 30%. So we were paying north of 20% already. That was the standard practice for many, many years. So what are we looking at? We're looking at, on average, about an 8% to 10% increase in first cost. We've negotiated with our suppliers. We might take minor hits of 1% or 2% or 3%, but really minor compared to the 145% we are bringing in the goods duty-free. We will then turn around to the retailers as their shelves get leaner. And we're already so close, I think that there will be minor -- they have made it abundantly clear, retail prices in the United States are going up.
So at the end of the day, will there be an impact on our financials minor at worst and almost insignificant at best because of this being a global supply chain. And as I say, China being the major supplier into the United States for our segment of goods, I think 30% is very, very workable and attainable with the cooperation of the retailers. So I think our strategy to not stop any production is going to pay off where a lot of our competitors could have delayed and canceled orders completely, we did not stop any production.
Hilton did make a statement on the EPA study on the leaching study in Europe that we had to pay some rather significant money towards -- and that just tells everybody this thing is going ahead, full steam ahead. They are having to -- these are very expensive bills because they have to develop new science in order to get this leaching study done. This is all pioneering work. I've said it over and over and over again to people about this exercise. We are the world's first to do it. And as each phase is put upon us -- in a lot of cases, we've had to develop all the lab has had to develop the science as we go.
Not a quick, not easy and not a cheap exercise. But every indication is that we're moving forward and that this, according to EPA, while I cannot guarantee it is that this is their statement that they have said this is the last thing that they need to give us an apparel designation. So we're very optimistic that we'll get it when very tough to say, but we're pushing hard. It's a daily thing internally in our company.
We don't take it lightly. We've invested a lot of time and effort, but the result will be there in the end, and we will have many years of being the world's only fabric with a medical kill claim, and I think that will serve this company for many, many years to come.
So with that, I'm going to hand it over to Q&A, please.
I think my WiFi holds. If there's an issue, just let me know, and I'll turn my camera off to ask the questions. So just starting with the leaching study, can you be more specific on the cost of the study in the quarter and where it goes from here timing-wise?
Well, the actual study, I believe, is, Hilton, you've got the invoices. I don't have them in front of me. I think it's close to $300,000. I know...
In the quarter, we paid about $170,000.
So we pay it as things progress, we don't just pay the...
There will be some more bills going forward. But I think we're at the end game in terms of our cost. As far as I'm aware that the final hour in terms of putting the study to bed. So I don't expect beyond the next quarter or so that we will have any further costs, which I suppose speaks to the fact that we anticipate that the study will be complete.
Okay. And then in terms of timing, like when are you expecting completion? And I think you're also waiting on a peer review. Do you have any indication?
Thanks, Deborah. Those are 2 different things. The peer reviews, just for the medical journal, that's got nothing to do with the EPA. So when it comes to timing on these things, it's just irresponsible to put a -- we would love to say a month or 2 or 3. From the time we give the GLP study for the EPA on the leaching study, it's about -- and I say that about because it's about a 4-month window.
So we're waiting for the study, whether it's a month, whether it's 2 months what I continually tell our followers and our investors who've been with us a long time. If it's another 4 months or 5 months in the bigger picture for the years of what it means to our customers, and that's really the reason why we're doing it is what does it do to our marketing ability with our customers. Are we going to stay the course?
And I think that '25 into '26, we all know these customers have built and we've grown this business in 5 years from $10 million to $30 million, and it's not taking us another 5 years from $30 million to $60 million because people understand and they understand what the significance of what we're working on, what it means to them. So I think that we're -- and the fact that we're showing that we're continuing and remaining committed to it speaks volume to them that we're going to stay the course.
So to give a date is really hard. On the journal, once again, this is not a paid thing that we can control the narrative. This is completely done on an arm's length approach. So once again, we are pushing. But these people have got 30, 40 journals that the submissions that they work on at a time, we would love to believe that we keep calling and being a pain to try and get our -- but once again, it's out of our hands. This is not something that we could pay more to get it done quicker or to call a lobbyist or any of those things. It's just -- these things take what time they do. We had phenomenal actual lab results of the clinical trial. So we know that the empirical data proves how significant our technology is in that market. And so we just got to wait -- let the journal run its course.
Okay. Another audience question. If the $3 million in revenue that was expected to fall into Q4 hadn't fallen into Q1 revenue, Q1 would have been down 40% year-over-year. Is this a concern?
Let me answer that. That guidance that we gave was our feeling of where the year would end. But the fact of the matter is all our inventory, even the stuff from -- that was delayed by the strike did hit our warehouse and the bulk of it was shipped to customers in last year. So we were a bit short of our estimate I think that's unfortunate, but we still had a record year and a lot to be proud of. The fact that there were these delays did not majorly impact Q1 because you would have shipped all orders that we received from customers up to the year-end. We may have had some backlog or order book at that point, but that's always the case.
Every quarter going forward, there's a backlog of orders that get shipped in the following quarter. So I believe that most of the impact on Q1 was possibly a few hundred thousand dollars $200,000, $300,000. And I don't think it's something to get bent out of shape over. It is what it is. I think having records both last year and in the current quarter, does make us -- it does do us proud. So other than saying that I don't think there was a $3 million impact on the current quarter. Absolutely, there wasn't.
Okay. I've got a number of questions on tariffs. So let's start with this one. Group Dynamite quickly moved its production to Bangladesh, Cambodia and Vietnam to avoid the tariffs in China. Is iFabric looking to do something similar?
So as I stated, I think I've addressed this. We've brought the duties. I mean they were 145%. They're down to 30%, and who knows where the final number, but it's going to be in that range is our guesstimate. And as I said, we've been paying north of 20% for many, many -- for decades, north of 20% was the average duty we're already paying. You're looking at about a 6% to 8% difference at first cost, which is something that we can negotiate with our suppliers.
They still want our business. We've got factories that make the kind of quality and we've built our business and grown our business because of the kind of suppliers we have. So no, while we have looked at Vietnam, we have looked at Cambodia, the problem that people don't understand is textiles and clothing are -- the way it's controlled and tariff is based on where the raw material comes from. So what people don't understand is that these countries like Cambodia, like Vietnam, they actually don't have a supply of fabrics of raw materials.
So all the raw materials are going to come from China anyway. So by moving our production the cut and sew and printing to other countries, all it is, it's adding weeks of additional logistics to take fabric from one country to another. And there's really no benefit. You're not going to get any kind of a cost savings. So I really think that the clothing industry, we've done it for a long time. And we are -- we've worked with the same factories and the same business people for many, many years. We've been able to successfully grow this business at a pretty impressive rate and going forward, what they've done for us going forward.
So no, I don't think that China from a global aspect is going to be a -- is not going to be the #1 source of clothing well into the future. I really think that, that is something that -- and if we had to try and find factories to do our product, it would take years for us to get them up to speed, for them to make samples for us to really find out what they can do and are they reliable sources. So we are not going to gamble when we deal with the Walmarts of the world, the Targets of the world, the Coles, the Costcos, timely delivery is critical for us to be their suppliers and grow with them, excuse me. And we have to have this ability to continually deliver on time.
So I think that no, it's something we will look at, but it's not something that I honestly see as now that we've bought the duty rates down to within well under 10% difference, it's just not going to be -- it's just not going to impact our industry.
Okay. And I had another question just on your U.S. business. Do you view this as being at risk given the tariff situation?
Not at all. Not at all. I think that, once again, it's an industry-wide situation. And as I said, the retailers have communicated with us that they are willing to change their retail pricing. So they are not -- they've also been doing this for decades, and they know where these commodities come from. And from raw material right through finished production, these are really well-groomed industries that have been put in place. So honestly, I don't see a change in source of supply for our industry. I think China is going to be back in a very big way.
And do you foresee destocking on the shelves in the U.S.?
No. People still need underwear. People -- it's just go find a Hanesbrand, all these big companies. They manufacture overseas. So they appear as North American or U.S. brands, but go look at the label of where their product is made. It's made overseas. So no, I don't see destocking of brands. I know you go to the LCBO here and you can't find your California wine. It's very different when it comes to apparel and clothing. People need underwear. People are going to need their denim jeans. It's not made in the United States anymore, and it never -- those industries that are not coming back. Can they bring back some car production? Can they bring back some big ticket items? Can they bring back the metal industry? Probably, they're going to give it a try. It's going to take years and years and years. This is not a flick of the switch situation.
And in the interim, people have got short attention span. They're going to want their new fashion. They're going to want their new clothing, and we're going to be able to supply it. And there's no way where the North American who works for $10, $15 an hour and you're paying $10 a day manufacturing overseas. Even if they put 200%, it's still cheaper manufacturing overseas, So those industries are not coming back to North America period. Not going to happen.
Sorry, Hilton. I thought you were saying something, my apologies. Could you expand on who pays the tax on your products, your U.S. customers, i.e., Walmart or does iFabric land [indiscernible]?
No. We are the -- unfortunately, we are the lander of the goods. So what we do, believe it or not, and with a lot of our suppliers, we do what's called DDP, duty delivered duty paid. So that it's included in their price to us. They've got to land the goods at the port through customs as part of our negotiated price with them. So there's really only 2 models, either they pay it or we pay it. So it's just a negotiation on what -- how we get the best pricing. But we are moving more and more and more towards them and then the risk, so when the goods are on the water, as opposed to us owning the goods, FOB, the port in Asia, then we've got to carry the insurance risk, et cetera, et cetera, and pay bigger deposits. It's far more advantageous for us to leave the risk. So until the goods are off the ship, at the port, in the container, cleared through customs, that's when ownership gets transferred to us.
Got it. Okay. And then are you impacted in any way by the elimination of the de minimis tariff exemption by the U.S. for China and Hong Kong?
I'm going to plead ignorance, I'm not going to...
Exemption. So if goods were under, I think it's $800.
$800. That's not our market.
That's not our business. We ship container loads to our customers. So we don't ship to the individual consumer. So that's just something that people that run websites are going to try and it will impact them.
Got it. Okay. And last quarter, you indicated that the U.S. margin might be impacted by 10% and the Canadian by 5%. Is this still your thinking?
Probably less. It's probably going to be less. I think that, as I said, we've had these stable suppliers for many, many years. We negotiate prices well in advance. So there might be some minor pricing. I think now that we've got pricing from them, I think there might be more impact on the U.S. side, to be honest. But as I said, it's under 25% of our revenue.
Canada this year is going to be in the fourth quarter. I mean, we know what we're producing now in new segments. We've actually got 2 new segments that we will make some noise about closer to the delivery time. Our customers wouldn't be happy with us putting out announcements about what we've developed for them for putting on the shelf later in the year, which is both the U.S. and Canadian.
In product segments, we've never delivered into before. So while our core business remains solid, these are going to be very exciting new additions to the business in no insignificant way.
Okay.
Can I add something there, Hylton? I mean, it's not only about tariffs, currency also plays a part of our costing structure. So actually, if the U.S. dollar gets weaker and it did get weaker recently, our goods get cheaper and that can offset some of the tariff costs or quite a big chunk of it. So we've got a strategy for ForEx. We have forward contracts, and we try and lock in our margin with clever currency manipulation. So it's not all about the tariffs. Currency can actually play a big part in mitigating the currency risk. I mean the tariff risk.
Understood. Okay. that seems sensible. A couple more audience questions. So the weakness in the Intimates Apparel division, do you foresee this being an ongoing issue? Or is it just a 1-quarter anomaly?
I would say it's more of a 1-quarter anomaly. We've got some very nice initiatives going into '26 where that business is still relevant to the overall. But as we've stated over and over again, the intimates business is not the business that's taking us to $50 million and $100 million. It's a core small segment business that will turn its $8 million, $10 million a year. It really -- we've got such a small and unique little segment in the specialty area of lingerie that it really is never -- since we've introduced intelligent fabrics and all the variety of products that we continually grow in, we do, as Hilton said, we do -- it's a great margin contributor to the bottom line. So where we can find pertinent programs, we will continue to service that segment of the market.
But it's not something that's going to really impact the bottom line of the total group at the end of the year. And so it's not great. I mean, retailers, they have some good quarters, some bad quarters. As Hilton says, when you put in, in Q4, Q1 is traditionally the weakest quarter for that business.
Yes. Can I add to that as well? We did bring quite a lot of inventory pre-tariffs. So hopefully, we'll be cushioned for at least 1 quarter. We do carry a significant inventory in the U.S. and Canada for that matter. And in the U.S. that inventory that we held or we currently hold came in pre-tariff.
Okay. And have you had any reluctance by customers to place orders for 2026? Are you seeing any slowdown?
Not at all. Absolutely not at all. In fact, there are certain programs where we opening them in '25 and before we've even delivered the first unit, they've already told what '26 looks like, they're that encouraged by the business. So no, not at all. I think now that, as I said, the tariffs have come down so precipitously, it is now a real opportunity -- it's pretty much business back to normal.
A question about current and future contracts in the defense sector. Do you currently have any contracts in defense?
No, we don't. We believe that we've got something that's pertinent to that part of life. It's something we will continue to try and get some audience at some point in time. I think the fact that the business is growing at the rate that it's growing at and when people see in Q4, what we've added to the business for '25 and '26, it's a lovely thing that we've got so much generic organic growth in this business for so many years to come, but the military application and pertinence is something that is absolutely been on our radar, and we'll just continue to just try and find the right audience for people to appreciate what we can add to that industry and it's not something that we're blind to. It's something we will continue to find entree into that industry.
But too early to talk about revenue and margin?
Yes. There's no specific program that's been -- that's at the stage of product design at this point in time, absolutely not.
And then another audience question asking about the online direct customer business and how that's performing?
We've got it. It's not -- it's -- once again, it's not a great revenue driver for us. We're not in the -- we're really not in the retail business. I mean, we offer it and we offer it at retail prices, so the margin is pretty phenomenal for us. But really, our core business is volume delivery to the major retailers. And I think that, that's a model that works well for us. And I think that for the future, and that's pretty much what we've got to continue. That's what we've known for and what we're comfortable with.
Yes. I'll add to that. We've got our own brand that we do the retail through and we're promoting that brand. Ultimately, at the end of the day, we're actually short of brands for major retailers. And as a strategy, we might give that brand over to one of the major retailers, having promoted it because as Hylton says our business is volume. And once a brand is recognized and we can get it in at major retailers, we might well transition and do it that way.
Got it. Okay. One last audience question, just talking about growth drivers and upcoming catalysts. Maybe you could list some of those for us.
I think that -- I think we've seen it last year, and you're going to see it again this year. As I said, you've got to know year after year, month after month, we have to have orders in-house now in order to deliver 3, 4, 5 months from now. So the drivers for this year are these new programs, are these new products over and above the core generic growth of these programs that are growing so well and continue to really deliver for our customer. I mean, that's what it's all about at the end of the day is the goods checking out on their shelves, and we're just so happy that we've had such success that they keep inviting us, and the question always is, well, what else can you do for us?
So I think that when one sees -- and you can hold us to it, when one sees the end of '25 come out, never mind '26, we've got some wonderful new product segments in nice, really nice numbers that will go on top of really strong business. So honestly, there's really not much more to say than that right now. It's really -- we are so pleased with our order book for this year, it's going to be another record year for the company. And we've always stated numbers, and we've always come pretty damn close. So we're comfortable saying that this year is going to be another significant move up for the company.
That's great. Well, congrats on a solid start to the year. Q1 looks really good. And yes, looking forward to seeing this company perform over the coming quarters and seeing some of those milestones hopefully achieved and it would be great to see some value unlocked. Yes, thank you for your time. Thank you to the audience for participating and for your questions. If anyone has any follow-up questions or would like a call with Hilton, please feel free to reach out. I'd be happy to arrange that for you. Hilton and Hylton, congratulations. Thanks for your time.
Thank you.
Thanks.