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 Iain Carswell, our CFO. We're here today to discuss Swiss Water's environment.

Iain 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 NY'C'. The 'C' came off its record highs, peaking around $3.75 US per pound in January and ended March at $2.98 US per pound compared to a high of $4.23 US and an average of $3.83 US in 2025.

The futures curve has become less inverted, 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 and 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. 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. 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 Iain to walk through the financials.

Iain?

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 our customer channels another way, specialty volumes were down 4% in Q1. These accounts serve the out-of-home consumer primarily in cafés 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 NY'C', which flows through our green coffee revenue. With the NY'C' 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've said consistently, we are careful not to overinterpret 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 was $49.5 million, down 10% year-over-year. The primary drivers in the quarter were lower green coffee costs reflecting the declining NY'C', partially offset by an increase in activity at Seaforth.

On the cost side, the Delta facility continues to deliver. Efficiency is up, and underlying cost structure remains stable.

As for green coffee costs, at an average of $3.16 US per pound in the first quarter, the NY'C' 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. Exchange rates between the US and Canadian dollar continued to influence our reported results and cash flows.

As a reminder, our revenues are primarily earned in US dollars, while a meaningful portion of our costs are incurred in Canadian dollars. We also carry US-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 US-dollar balances at period end. We continue to monitor this exposure and hedge to manage our underlying currency risk.

In Q1, the US 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 NY'C' 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 US 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 on 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 NY'C' 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.

Net working 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.

Thank you, Iain. Before we open the line for questions, I'll share a few closing thoughts.

The coffee market remains complex, but our business is performing well. The 10-day outage in January was a real disruption in the context of a single quarter, but the team managed through it, and the facility was back operating at or near full capacity quickly.

The underlying business delivered solid results, improved net operating income and EBITDA, and continued progress on debt reduction. We're also encouraged by the direction of the market.

The NY'C' has come off its highs, the curve is less inverted, and we're seeing customers begin to refill pipelines and extend their booking horizons. We're moving in the right direction, and the business is well positioned for what comes next.

Our focus remains on what we can control: consistent operations, disciplined working capital management, and continued strengthening of the balance sheet. We believe we are well positioned to support our customers as conditions continue to normalize, to build on the progress we've made.

With that, operator, Kelly, please open the line for questions.

Thank you. It's very encouraging to see that the NY'C' looks like it's finally starting to stabilize.

You also said, I think, in your prepared remarks that you're operating near or at full capacity. Do you think that you can continue to try to develop new business in existing markets and open new geographic markets, which I think had been part of the strategy in the past, with the kind of production capacity you currently have online?

Thanks for that question. Good question.

What we're seeing I think is some pipeline refill into Q1 and into Q2 as we're looking at our order book. Inventories were super lean, especially with importers last year, who didn't want to suffer the cost of inversion and reduced their inventories.

That's I think partially why we see the importer number in the segmented numbers come back so much and roasters maybe a little bit less. We absolutely have room for growth, I think.

We are just seeing kind of a reversion, hopefully, directionally back to normal through kind of the first half of the year. Absolutely, we have room to continue to look for new business.

I think as we've mentioned in the past, we have for somewhat limited amounts of capital expense the ability to expand our operation here in situ, and we continue to evaluate when and where we might execute that. It's a reasonably simple process.

Some debottlenecking needs to be done.

As the NY'C' is starting to stabilize, there's a sense that there'll be a record harvest out of Brazil, and some customers are starting to feel a little bit more confident about extending their booking horizon. Can you put that in context, you're seeing some visibility into the back half of this year.

Before all of the noise that we've seen over the past several quarters with tariffs and with really skyrocketing NY'C' prices, when the industry was operating under a more, I guess I would call it normalized basis, would that be considered what you would have expected being able to see in May visibility on what demand would be through the back half of the year or shorter or longer time horizon under normal circumstances?

That's also a good viewpoint to contemplate. Yes, last year, and our team internally talked constantly about customers, roasters purchasing hand to mouth.

We would be midway through the month and not exactly sure what the numbers were going to be two weeks later. That was extremely abnormal just because of the length of the supply chain for coffee.

We do typically see longer horizons. It's much less expensive to purchase forward, to book coffees forward, and plan in a way that's much more thoughtful than buying for immediate delivery on a spot market, as you can imagine.

We're absolutely starting to see that return to just some forward visibility of customers going, "Yeah, I can book some spreads. Why don't we look at some deliveries across these two or maybe even three futures periods?"

We price those costs in, we execute the coffee for them, they know their costs coming forward, and they aren't as worried about where the market might go. There is some differential pressure short-term right now in Colombia, and so those types of things will continue to happen, but absolutely we're seeing better visibility.

Great. Thanks.

Then if I may just ask one last question and then I'll hop out of the queue. In the past, you've cited supermarket prices for coffee just sort of as a benchmark.

Now,

I can imagine that there is a lag between seeing NY'C' come down and seeing any kind of impact on prices at the grocers. To what extent do we actually see that giveback to the end consumer at the retail level?

I would think that there'd be some stickiness at the higher price point, but I just am wondering what you see.

That's another good question and good insight. Experience tells us that we'll see 6 months, 9 months of kind of elevated prices just because of the length of supply chain, and still the market is pricing for inversion.

That's still in place. That brings with it additional risk that's being priced into the market.

Although the 'C' is down, certainly inversions are absolutely being priced for going forward. If I think back to I think 2014, when there was a big run-up in the 'C', and roasters were able to ultimately price for that, it was a good amount of time before there was a real kind of drift back in terms of pricing, because on the front side, I think roasters are always kind of caught out when the 'C' runs up, and they haven't been able to price through, and so there's a, I guess, a rebalancing, if you will, of how they view it.

Again, I'm not a roaster. I don't price to the end grocer, but that's just kind of experientially what we've seen.

Thanks very much.

You're welcome. Thank you.

Oh, hi, guys. Good quarter obviously, but I just wanted to ask about caffeine as a byproduct in terms of how likely it is that you would pursue that, and if so, what kind of costs are involved and over what period of time would we look at that unfolding?

Thank you.

The recovery and sale of caffeine from a water process is notoriously difficult. I think we've thought about this for about 40 years, honestly, and the ability to execute is developmental at this point at best, and to be able to point directionally with certainty to capital cost and timing I think is simply too early.

We continue to work on it as an ongoing project, and that's really all I can comment on at this point.

Hi, Frank. It's good to connect with you again, and hello, Iain.

We haven't met yet, but I've been following the transition to Delta closely. I have a primary question and then a follow-up.

Frank, I remember touring the old Burnaby facility with you and seeing everything now consolidated and running at such high level in Delta is a notable change, especially seeing the adjusted EBITDA double this quarter is really good. A previous caller touched on the expansion, which was going to be my original question, let me shift to the conversion pipeline.

We've seen significant movement lately including petitions filed at the FDA just this past March and April to remove methylene chloride as a permitted solvent in other food-related categories. Given the regulatory heat, what happened with the EPA last year, are you seeing an increase in trial runs in onboarding inquiries from major MC-using roasters now that the Delta facility is fully operational, and after the brief downtime in January, are you confident the facility is now kind of battle-tested enough to flip the switch on these large-scale commercial conversions immediately?

Yeah.

Hi, Mark. Great to hear from you again.

To answer kind of the big question, which impacts broader decaf universe, yeah, there was something filed in March around oleoresins, methylene chloride being used for I think turmeric and paprika and one other basically powder. I can't remember what.

In any case, I don't know if that's going to extend into decaffeination. Certainly it's not that far away, is it, really, to be thinking about removing methylene chloride from common household spices, to think about that extending into the decaffeinated segment.

I think that our view going forward is that those types of filings will concern some roasters increasingly over time. I think that we have for several years, Mark, had increased interest and conversion because of the noise that's coming through consumers.

It is being picked up by the EPA, as you mentioned. It's being picked up by the FDA in other categories.

It's supporting long term the conversion from methylene chloride and potentially even ethyl acetate over to clean decaffeination that we've said forever the consumer prefers. It's pretty simple.

We are seeing increased demand, and we have a view to how we can add additional capacity. Coming back to the January thing, I think we already were battle-tested.

When a small little motherboard goes on a blower, it was a very small issue that just had a bit of an outage on one line. It doesn't fuss us at all.

Those things over the past 25 years work right through them, and that's what's great about having two operating lines for sure. The big answer is, yeah, we are absolutely tracking and being as close as we can get to the FDA, which isn't very close at all, but certainly tracking what they are looking at.

I'd certainly like the National Coffee Association in the United States to be a little bit more forthright with the industry in terms of what they're seeing. I think that would be positive, and it behooves them to do that.

From here, yeah, we watch and we prepare for additional capacity expansion.

Yeah. That's really helpful.

For my follow-up, it's on branding. Swiss Water really is the only decaf process that consumers actually recognize by name.

It's a brand name that you folks have been developing for well over 25 years. We're now seeing, sugarcane process in quotes, which is the main process out of Colombia, and other natural-sounding methods popping up everywhere.

My second question is this: How do you plan to really lean into the Swiss Water brand to make sure that you're staying ahead and capturing new market potential? I just heard Iain mentioning a 10% increase in marketing budget in his talk on this call.

Is there a push to get the logo on more bags or do more to let the average person know that Swiss Water is the actual gold standard compared to these other processes? Part of the reason why I'm asking this question is I'm right now staring at a bag of coffee from Social Coffee out of Ontario.

They're selling a decaf process Swiss Water. There's no logo on the bag for Swiss Water.

We want to have our logo as well as the wordmark. Am I as satisfied with wordmark as I am logo?

No. Can I convince every roaster to use the logo, even though they are spending more for it?

We do our very best. We've relaunched an online marketplace for our customers' decaffeinated coffee, and that has taken some time.

The reason we wanted to do that is because the biggest fault here has always been, "Well, you can maybe go to this store, go to that store, or whatever," but they really couldn't find out. We've created excellent online marketplace.

Here we are going to be building that marketplace and advertising the brand/marketplace to help consumers understand that we are the best, the highest quality, clean decaffeination process. Through doing that, that's how we encourage roasters to use the brand, use the logo.

They're paying more for it, and often they won't, "Oh, it's too hard," or "I don't want to change my packaging. I don't want to change my film."

We encourage them to do that, and depending on the size of the roaster, we will actually provide support, dollar support for that, as we always have. It's not just a contractual basis, but we will in fact provide marketing support to do conversions as and when necessary and as and when they come to us.

As you can imagine, Mark, there's hundreds, if not thousands, of roasters in the United States/Canada, and managing with a small marketing team of 5 people, thousands of roasters, all we can do is essentially try to provide the online services and access, and licensing agreement—there is a licensing agreement that's necessary—to enable them to use our brand, and certainly we encourage that. The most important thing is in fact to get to the US consumer about our brand, and that will be ramping up in the back part of this year.

We've been sitting tight on that because a couple of reasons: we didn't have the marketplace completely developed and in good shape in 2025, plus we also had a bit of a difficult year. Now we're looking at a much more kind of positive outlook and looking forward to getting back to rebuilding that brand.

Okay. Just one tiny little follow-up: The 10% increase in marketing that Iain mentioned, is that primarily involving the website or is there actual marketing towards the end consumer?

The 10% is basically a timing thing. The back part of this year is when we're going to be heavying up direct to consumer.

Perfect. Thank you.

That was helpful.

All right, Mark. Nice talking to you.