What you need to know: • Organto reported Q2 financial results that missed our estimates on revenue but beat our estimates on gross margin and adjusted EBITDA. • Management has updated its guidance and now expects to exceed a $50M run rate at the end of 2023 and to be EBITDA positive in H1/24 (previously H2/23). • Find our recently published management interview here. Yesterday evening, Organto Foods (OGO:TSXV) reported Q2/23 financial results that were softer than our expectations on revenue but beat our estimates on profitability metrics. We remain highly confident in OGO’s roll-up strategy and progression to profitability, despite it taking longer than expected. We are maintaining our BUY rating and $0.20/share target price on OGO. Key Highlights • OGO reported $7.6M in revenue during the quarter, compared to our estimate of $10.1M and $5.1M in Q2/22. This represents 48% YoY and 1% QoQ growth, led by the acquisition of NFG. This represented OGO’s largest quarterly revenue in its history and its 16th consecutive quarter of positive revenue growth (currency adjusted). The miss was driven by changes in account development plans and supply chain challenges. Management now expects to exceed a $50M run rate at the end of 2023. • Gross margin for the quarter came in at 9.0% compared to our estimate of 8.0% and 4.1% in Q2 last year. We reiterate that the improvement in gross margin has indicated that the supply chain and political headwinds are dissipating while management improves its internal processes. This compares to the peak gross margin of 12.3% posted in Q3/21. Despite the revenue miss, gross profit came in at $0.7M compared to our expected $0.8M. • Adj. EBITDA for the quarter came in at ($1.1M) vs. our estimate of ($1.2M) due to an operational reorganization that resulted in cost savings on a percentage of sales basis. SG&A expenses as a percentage of sales came in at 10% compared to 13% last year while labour costs were 12% of sales compared to 17% last year. As a result of sales target misses, OGO now expects to be EBITDA profitable by H1/24 (previously H2/23) with progressive improvements. • Organto ended the quarter with $1.2M in cash and $8.8M in debt.