Ten Peaks Coffee Company Reports Second Quarter and Six-Month Results

Processing Volumes Up by 13% for the First Half of 2018

A conference call to discuss Ten Peaks’ recent financial results will be held tomorrow, August 9 at 9:00am Pacific Time (12:00pm Eastern Time). To access the conference call, please dial (877) 407-9205 (toll free) or (201) 689-8054 (international). A replay will be available through August 23, 2018 at (877) 481-4010 (toll free) or (919) 882-2331 (international), passcode: 36536.

VANCOUVER, British Columbia, Aug. 08, 2018 (GLOBE NEWSWIRE) -- Ten Peaks Coffee Company Inc. (TSX – TPK) (“Ten Peaks” or “the company”) today announced its financial results for the second quarter and first half of 2018. Ten Peaks is a leading specialty coffee company doing business through two wholly owned subsidiaries: Swiss Water Decaffeinated Coffee Company Inc. (“SWDCC”) and Seaforth Supply Chain Solutions Inc. (“Seaforth”), the company’s green coffee handling and storage subsidiary. SWDCC is a premium green coffee decaffeinator which employs the proprietary SWISS WATER® Process to decaffeinate green coffee without the use of chemicals. This is the company’s primary business, and the results reported here reflect SWDCC’s operating performance.

During the second quarter of 2018, the company continued to gain market share against its competitors, increased its existing capacities, and improved its operational efficiencies while remaining focused on producing high-quality premium decaffeinated coffee.  In anticipation of future growth, Ten Peaks’ plans include expanding SWDCC’s presence in Europe and growing its brand by targeting specific customer groups in North America.

“In the first half of this year, we saw growth in volumes shipped to roasters, specialty and commercial accounts,” said Frank Dennis, Ten Peaks’ President and CEO. “This reflects the fact that we have won business with new roasters and increased business with existing customers who have grown their distribution, increased their locations or expanded their product offerings. Some of our new business is from roasters who previously obtained their decaffeinated coffees from a recently decommissioned CO₂ plant in Europe, while other account wins are related to the upcoming closure of a CO₂ plant in Houston, TX this summer. Overall, we continue to gain market share, particularly in the premium decaffeination market.”

Below is a summary of Ten Peaks’ operational and financial results:

Operational highlights

The following table shows increases in volumes shipped during the second quarter and first half of 2018 compared to the same periods in the prior year.

During the second quarter of 2018, Ten Peaks continued to focus on attracting customer attention to the SWDCC brand.  As a result, the company gained new business and won more business with existing customers.  In addition to increased brand awareness, some of this year’s volume growth reflects gains in market share, due to the recent shutdown of a competitor. The shutdown of another competitor is anticipated during this summer.

Financial highlights

¹ EBITDA is calculated as net income before interest, depreciation, amortization, impairments, share-based compensation, gains/losses on foreign exchange, gains/losses on disposal of capital equipment, fair value adjustments on the embedded option, and provision for income taxes.  EBITDA also excludes unrealized gains and losses on the undesignated foreign exchange forward contracts. EBITDA is defined in the ‘Non-IFRS Measures’ section of the MD&A, and is a “Non-GAAP Financial Measure” as defined by CSA Staff Notice 52-306.

² Per-share calculations are based on the weighted average number of shares outstanding during the period.

• Quarterly revenue increased by 3% over Q2 2017 to $22.7 million and six-month revenue improved by 7% to $43.9 million. The increases were due to growth in SWDCC’s processing volumes, partially offset by a lower coffee commodity price (“NY’C’”) and a lower US dollar (“US$”).

• Gross profit margin for Q2 2018 was $4.0 million (17.4%). This is an improvement in margins of $2.8 million (13.4%) in Q1 2018 and $3.4 million (15.4%) in Q2 2017.  The increase in second quarter gross profit was due in part to increased processing volumes, and management’s efforts to review and reduce Ten Peaks’ operating costs in response to margin compression in Q1 2018. Year-to-date gross profit margin remained fairly consistent in both years at $6.8 million (15.5%) in the first half of 2018 compared to $6.4 million (15.6%) in the same period last year. At present, management is actively pursuing margin maintenance and improvements following a period of bearing inflationary cost increases. Management is also seeking variable and fixed cost reduction activities, without sacrificing the quality of SWDCC’s “amazing coffee without caffeine”. 

• Operating expenses increased by 28% to $2.4 million in the second quarter and by 29% to $4.7 million for the first half of 2018, compared to the same periods last year. In both periods, the increase was due to higher staffing and staff-related expenses as the company lays the foundation to quickly fill new capacity coming online in 2019. 

• Operating income increased by $0.1 million, or 4%, to $1.5 million in the second quarter of this year and decreased by $0.7 million, or 24%, to $2.1 million for the first half of 2018. 

• Net income for the second quarter was $1.3 million, compared to $1.7 million in Q2 2017 and year-to-date net income was $1.8 million, compared to $3.2 million in the same period last year. Increases in operating costs (as discussed above), foreign exchange losses in 2018 (as opposed to gains in 2017) and a reduced gain on the embedded option from the convertible debenture contributed to the declines. 

• EBITDA decreased by $0.4 million, or 16%, to $1.9 million in Q2 2018 and by $0.9 million to $3.0 million for the first half of 2018, compared to the same periods in 2017. In both periods, the decline was related to higher operating costs and reduced gains on realized risk management activities, coupled with investments in infrastructure to support future growth. 

Outlook

The company continues to expect to record a double-digit increase in SWDCC’s annual processing volumes in 2018. The market for decaffeinated coffee continues to expand and management believes this increased demand is due, in part, to the premiumization of the coffee market, as well as growing awareness and consumption of premium decaffeinated coffee. The company also believes that growing awareness of the negative effects associated with methylene chloride, as reported by various media sources¹, is driving demand for SWISS WATER® Process decaffeinated coffees, as more consumers than ever seek to avoid food and beverages, that employ artificial ingredients and chemicals in their production.  

Management has been closely reviewing the operations of both SWDCC and Seaforth, to ensure that both companies provide net positive contributions to Ten Peaks’ financial results by the end of this year. As part of this evaluation, management is reviewing its cost structure to increase profit margins for both subsidiaries. Although Seaforth’s operating costs rose substantially in the first quarter of this year, the business achieved a good initial turnaround in operating costs in Q2.  SWDCC’s margins also improved in the second quarter.

“Our primary focus over the next two years will be to position SWDCC for steady future growth, by focusing on driving sales to the European Union and selective customer groups in North America,” said Dennis. “Although we are incurring significant costs to build out our infrastructure, we expect the investment will start generating increased sales orders in the latter part of this year and into early next year, as major account conversions typically take several quarters. Moving forward, the expansion of our European and US sales teams in 2018 will prepare us to ramp up orders and win new business as we add significant capacity with our new facility in 2019. We expect our new state-of-the-art production line will be commissioned in the third quarter of next year, positioning us to meet anticipated long-term growth in demand for our premium decaffeinated coffee well into the future.”

Quarterly Dividends

On July 16, 2018, Ten Peaks paid an eligible dividend in the amount of $0.6 million ($0.0625 per share) to shareholders of record on June 29, 2018.

Company Profile

Ten Peaks is a leading specialty coffee company that owns all of the interests of SWDCC and Seaforth. SWDCC is a premium green coffee decaffeinator which employs the proprietary SWISS WATER® Process to decaffeinate green coffee without the use of chemicals.  Seaforth is a green coffee handling and storage business. Both business are located in Burnaby, British Columbia. 

Additional Information

A more detailed discussion of Ten Peaks’ recent financial results is provided in the company’s Management Discussion and Analysis filed on SEDAR (www.sedar.com) and on the company’s website (http://www.tenpeakscoffee.ca) on August 9, 2018.

Forward-Looking Statements
Certain statements in this press release may constitute “forward-looking” statements which involve known and unknown risks, uncertainties and other factors which may cause the actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. When used in this press release, such statements may include such words as “may”, “will”, “expect”, “believe”, “plan” and other similar terminology. These statements reflect management’s current expectations regarding future events and operating performance, as well as management’s current estimates, but which are based on numerous assumptions and may prove to be incorrect. These statements are neither promises nor guarantees, but involve known and unknown risks and uncertainties, including, but not limited to, risks related to processing volumes and sales growth, operating results, supply of coffee, general industry conditions, commodity price risks, technology, competition, foreign exchange rates, construction timing, costs and financing of capital projects, and general economic conditions.

The forward-looking statements and financial outlook information contained herein are made as of the date of this press release and are expressly qualified in their entirety by this cautionary statement. Except to the extent required by applicable securities law, Ten Peaks Coffee Company Inc. undertakes no obligation to publicly update or revise any such statements to reflect any change in management’s expectations or in events, conditions, or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those described herein.

¹ New York Times has published (https://www.nytimes.com/2017/10/21/us/epa-toxic-chemicals.html) and podcasted https://www.nytimes.com/podcasts/the-daily?_r=0 a piece on EPA regulations, and they are highlighting methylene chloride as a key chemical that isn’t, but should be, regulated, because it’s a hazard to people’s health. Earlier this year, New Scientist published a report (https://www.newscientist.com/article/2138753-ozone-layer-recovery-will-be-delayed-by-chemical-leaks/) about how methylene chloride is slowing the regeneration of the ozone layer. This report was picked up by other media companies as well.