Swiss Water Decaffeinated Coffee Inc.

Hi, everyone. Welcome to the Swiss Water Decaffeinated Coffee, Inc. First Quarter 2026 Conference Call. At this time, all participants have been placed on a list-only mode, and the floor will be open for questions and comments after the presentation. Before Swiss Water Decaffeinated Coffee, Inc. Conference Call starts, there are required to remind you that there are certain information in today's presentation that is forward-looking in nature. Any such forward-looking information or statements are based on assumptions that they consider reasonable at the time that the information was prepared. Such information involves known and unknown risks, uncertainties, and other factors outside of our control that could cause actual results to differ materially from those expressed in the forward-looking information. Swiss Water Decaffeinated Coffee Inc. does not assume responsibility for the accuracy and completeness of the forward-looking information. Similarly, they do not undertake any obligation to publicly revise this forward-looking information to reflect the subsequent events or circumstances, except as required by law. Please refer to Swiss Water Decaffeinated Coffee Thinks Management Discussion and Analysis posted on CDAR and Swiss Water's website for full discussion regarding forward-looking statements and the risk therein. It is now my pleasure to turn the floor over to your host, Frank Dennis, the CEO of Swiss Water. The floor is yours.

Thank you, Kelly. Good afternoon, everyone. Thank you for joining us today. I'm Frank Dennis, President and CEO of Swiss Water Decaffeinated Coffee. Joining me on the call is Ian Carswell, our CFO. We're here today to discuss Swiss Water's financial results for the three months ended March 31, 2026. As usual, I'll begin with a brief overview of our performance and the operating environment. Ian will then walk through the financial results in more detail. And I'll come back with a few closing thoughts before we open the line for questions. The coffee market remained complex through the first quarter, but we're beginning to see some of the most extreme dynamics ease Forecasts are pointing to a very strong Brazilian harvest this year, which has been a significant driver in the movements we've seen in the NYC. C came off its record highs, peaking around $3.75 U.S. per pound in January and ended March at $2.98 U.S. per pound, compared to a high of $4.23 U.S. and an average of $3.83 U.S. in 2025. The futures curve has become less inverted frequently, and while the overall cost environment remains elevated, the direction is encouraging. As we've been consistent about saying throughout 2025, that shift in market structure matters. When prices are rising sharply and the curve is heavily inverted, customers stay lean. When prices stabilize and the inversion eases, customers begin to refill pipelines, and we're starting to see that. Against that backdrop, Swiss Water delivered a solid first quarter. Total volumes were down 2% year over year, but that really comes down to one discrete event, an unplanned 10-day downtime in January on one of our production lines following an equipment failure. The disruption was contained. It was resolved quickly and is behind us. Once we were back online, the facility operated at or near full capacity for the balance of the quarter. In fact, March was the strongest production month we've had. From a customer perspective, what we're seeing is encouraging. We are almost fully booked for the second quarter and booking new business out into late summer. That's a very different picture from last year when customers were staying lean and keeping forward coverage short. Roasters are restocking, extending their booking horizons, and that gives us good visibility in the back half of the year. On tariffs, the situation has evolved significantly. The tariffs that created so much uncertainty through 2025 have been removed. And like the rest of the industry, we are now working through the process of recovering tariffs that were paid while they were in place and returning them to our customers. That process takes time, but we're engaged in working through it. Operationally, the Delta facility continues to perform well into Q2. We're seeing continued improvements in consistency, quality, and throughput, and we have the capacity to support growth as demand rebuilds without near-term constraints. Our spot inventory position remains deliberate. We want to be in place where we can respond quickly to customers in a market that still has volatility in it. And we continue to make progress on the balance sheet, reducing debt and improving our financial flexibility. Those fundamentals haven't changed. More broadly, the long-term fundamentals of our business remain intact and continue to strengthen. The decaf category itself is growing. More consumers are making deliberate choices to reduce caffeine, driven by a broader focus on health, sleep, and overall wellness. That's expanding the total market. And within decaf, we're seeing a continued shift toward chemical-free processes as consumers become more label-conscious and more aware of how their coffee is made. As a leading chemical-free decaffeinator, we're well-positioned to capture that demand as market conditions continue to normalize. With that, I'll turn the call over to Ian to walk through the financials. Ian?

Thank you, Frank. Just a reminder that all the figures that I'm going to talk about are in Canadian dollars unless otherwise stated. As Frank mentioned, Q1 results reflect solid underlying performance and improved profitability compared to the same period last year, despite an unplanned downtime on one of our production lines in January. Total volume shipped decreased by 2% in the first quarter compared with Q1 2025. As noted, that decline is largely attributable to the 10-day downtime on one of our production lines in January. Once the line was back up, throughput was strong for the remainder of the quarter and customer demand held up well. Looking at volumes by customer type, shipments to importers, those customers who resell our coffees to roasters where and when they need it, were up 6% in the quarter. Shipments to roasters, those customers who roast and package coffee to sell to consumers in their own coffee shops or for home and office consumption, were down 10% in the first quarter. Looking at customer channels another way, Specialty volumes were down 4% in Q1. These accounts served the out-of-home consumer primarily in cafes and restaurants in our key geographic markets. Commercial volumes were flat in the quarter. Q1 revenue was down 8% to $57.5 million compared to $62.3 million in Q1 2025. The primary driver of the decrease in revenue in the quarter is the NYC, which flows through our green coffee revenue. With the NYC declining through the quarter, the year-over-year revenue comparison looks different than what we saw through much of 2025, when elevated prices were a driver of revenue growth. As we have said consistently, we are careful not to over-interpret revenue movements in either direction. What matters more is how we are executing and what we are generating at the profitability and cash flow levels. Looking at our costs, Q1 cost of sales is $49.5 million. down 10% year-over-year. The primary drivers in the corridor were lower green coffee costs reflecting the decline in NYC, partially offset by an increase in activity at seaforth. On the cost side, the Delta facility continues to deliver efficiency, is up, and the underlying cost structure remains stable. As for green coffee costs, at an average Of $3.16 per pound in the first quarter, the NYC was down 15% from $3.73 per pound in Q1 last year. The declining price environment, while still elevated relative to historical averages, is encouraging for the industry and is influencing customer purchasing behavior, as Frank mentioned previously. Customer ordering patterns in the quarter reflect the gradual normalization we have been expecting. we saw roasters beginning to extend inventory coverage and importers returning to more active purchasing positions, which is consistent with a less inverted, declining price environment. That shift in behavior, while still early, is encouraging. Change rates between the U.S. and Canadian dollar continue to influence our reported results in cash flows. As a reminder, our revenues are primarily earned in U.S. dollars, while a meaningful portion of our cash flows are in Canadian dollars. We also carry U.S. dollar receivables and payables on our balance sheet. This quarter, fluctuations in exchange rates led to a foreign exchange loss, largely reflecting the revaluation of those U.S. dollar balances at period end. We continue to monitor this exposure and hedge to manage our underlying currency risk. In Q1, the U.S. dollar averaged $1.37 Canadian compared to $1.44 Canadian in Q1 2025. This depreciation had a negative impact on our revenues when converted to Canadian dollars. Q1 gross profit was $7.9 million, up $600,000, or 9% year over year. Turning now to operating expenses, Q1 operating expenses were $4.3 million, up 27% year over year. led by administrative expenses, which increased by 33% to $3.2 million, reflecting non-cash stock-based compensation movements driven by changes in our share price, and in addition, higher professional fees. Sales and marketing expenses were up 10% in the quarter to $1.1 million, broadly reflecting the timing of marketing activities. Q1 net income was $1.4 million compared to $515,000 in Q1 2025. Aside from the items we've discussed, the improvement in net income reflects lower risk management losses. On risk management, with the NYC declining through the quarter and the curve becoming less inverted, the losses associated with rolling hedge positions forward were significantly lower than we saw through much of 2025. We recorded a loss on risk management activities of 600,000 in the quarter compared to a loss of 2.8 million in Q1 2025. As we've been consistent about saying, we price for the cost of inversion in line with the rest of the industry, and we continue to recover those costs through customer collections. We also recorded mark-to-market adjustments reflecting commodity price movements and U.S. dollar fluctuations. consistent with our structured approach to managing pricing volatility and staying aligned with our supply commitments. Last year, we reached an agreement with Mill Road Capital to repurchase and cancel their outstanding warrants. The repurchase price was $675,000. As a result of that cancellation, we no longer recognize a gain or loss in the fair value of the embedded option. There was a $300,000 decrease in finance expenses, primarily reflecting continued principal repayments on our long-term borrowings and lower interest rates compared to Q1 2025. Q1 adjusted EBITDA was $4.3 million, up 113% compared to $2 million in Q1 2025. The improvement was driven by stronger gross profit and a lower loss on risk management activities compared to the same period last year. Turning now to inventories, Our inventory balance decreased by $5.4 million in the first quarter. With the NYC declining, the value of green coffee held on our balance sheet is beginning to reflect lower replacement costs, which over time will support a reduction in working capital as volumes flow through. Inventory management remains a core part of how we operate. We continue to take a deliberate, forward-looking approach to holding stock in order to support anticipated customer demand and ensure delivery continuity. At quarter end, Swiss Water held $4.8 million in cash compared to $6.6 million at year end 2025. Networking capital was $38.3 million. During the quarter, we made total debt repayments of $6.4 million, made up of $5 million of repayments on our operating credit facility and $1.4 million of principal repayments of long-term borrowings related to construction of our Delta facility. This represents continued progress toward reducing interest expense and improving our leverage position over time. With that, I turn the call back to Frank.