Swiss Water Decaffeinated Coffee Q2 2026 Earnings Report

Swiss Water Decaffeinated Coffee EPS Results

• Actual EPS: C$0.20
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Swiss Water Decaffeinated Coffee Revenue Results

• Actual Revenue: $65.97 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Swiss Water Decaffeinated Coffee Announcement Details

• Quarter: Q2 2026
• Date: 8/5/2026
• Time: After Market Closes
• Conference Call Date: Thursday, August 6, 2026
• Conference Call Time: 4:00PM ET

Swiss Water Decaffeinated Coffee (TSE:SWP) Inc is a specialty coffee company, that offers green coffee decaffeination and Seaforth Supply Chain Solutions Inc providing green coffee handling and storage services. It is a premium green coffee decaffeinator located in the Canadian state of British Columbia. It employs the proprietary Swiss Water Process to decaffeinate green coffee without the use of chemicals, leveraging science-based systems and controls to produce coffee. The company's sales are primarily generated in a single segment of decaffeination of green coffee. It also operates in three geographic areas - Canada, the United States, and other international markets.

Swiss Water Decaffeinated Coffee Q2 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Strong volume and demand recovery: Second-quarter processing volumes rose 17% year over year, supported by established customers, spot orders, and new accounts. The forward order book extends into the first quarter of 2027, although management cautioned that quarterly growth may moderate from Q2 levels.
• Positive Sentiment: Profitability and cash generation improved materially: Gross profit increased 94% to CAD 10.2 million, adjusted EBITDA rose 191% to CAD 5.3 million, and trailing-12-month adjusted EBITDA reached a record CAD 17.1 million. Operating cash flow was CAD 10.7 million in Q2 versus CAD 2 million a year earlier.
• Positive Sentiment: Balance sheet deleveraging continued: Swiss Water repaid approximately CAD 15.3 million of debt during the first half, reducing its operating credit facility balance to CAD 27.5 million from CAD 38.4 million at year-end. The facility maturity was also extended to June 2028, supporting financial flexibility.
• Positive Sentiment: Potential shareholder returns and growth investment: Management plans to seek TSX approval for a normal-course issuer bid of up to 600,000 shares, while also evaluating capacity investments that could add roughly 5%–10% of instantaneous capacity by around Q2 2027. Both initiatives remain subject to capital discipline and, for the buyback, regulatory approval.
• Negative Sentiment: Commodity-market volatility remains a risk: Lower coffee futures prices reduced reported revenue by 3% despite higher volumes, while a rebound in coffee prices could reverse some working-capital benefits seen in Q2. Management also flagged elevated retail prices and potential changes in U.S. grocery demand during the second half of 2026.

Presentation

[Operator]

Note this conference is being recorded. Before Swiss Water Decaffeinated Coffee Inc conference call starts, they are required to remind you that certain information in today's presentation is forward-looking in nature. Any such forward-looking information or statements are based on assumptions that they considered reasonable at the time 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.

[Operator]

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 subsequent events or circumstances, except as required by law. Please refer to Swiss Water Decaffeinated Coffee Inc's management's discussions and analysis posted on SEDAR and Swiss Water's website for a full discussion regarding forward-looking statements and the risks therein. I will now turn the conference over to your host, Frank Dennis, President and CEO at Swiss Water Decaffeinated Coffee Inc. You may begin.

[Frank Dennis, President and CEO at Swiss Water Decaffeinated Coffee Inc]

Thank you, Paul. Good afternoon, everyone, thank you for joining us today. I am Frank Dennis, President and CEO of Swiss Water Decaffeinated Coffee Inc. Joining me on the call is Iain Carswell, our CFO. We are here today to discuss our results for the three and six months ended June thirtieth, 2026. As usual, I will give a brief overview of our performance and the operating environment. Iain will walk through the financials in more detail, and I will come back with a few closing thoughts before we open the line for questions.

[Frank Dennis, President and CEO at Swiss Water Decaffeinated Coffee Inc]

This was a very strong quarter for Swiss Water, and with the momentum in the business, including a solid order book, a growing brand, and a rapidly improving balance sheet, we believe we are well-positioned heading into 2027. Given that improving outlook, we intend to seek TSX approval for a share repurchase program under a normal course issuer bid or NCIB. We believe our share price could be undervalued over the coming year based on our financial performance and future prospects, and that repurchasing shares alongside continued debt reduction is an appropriate use of funds to increase shareholder value.

[Frank Dennis, President and CEO at Swiss Water Decaffeinated Coffee Inc]

The NCIB is subject to TSX acceptance, and we will provide an update on that once it is available. For the last several quarters, we have said that when coffee prices came off their highs and the inversion eased, our customers would return to the market. That is exactly what happened in the second quarter. Processing volumes were up 17% over the second quarter of last year and now 8% year-to-date. That growth was supported by strong demand from our established customers, solid spot order flow, and incremental volume from new customers. Our production lines operate at very high levels of capacity utilization throughout the quarter.

[Frank Dennis, President and CEO at Swiss Water Decaffeinated Coffee Inc]

Our forward order book is as strong as we've seen it, with customers booking well into the first quarter of 2027. That's a very different picture from a year ago. Last year, the NYC was running up sharply. The futures curve was deeply inverted, and customers stayed lean because they didn't want to carry the cost of that inversion. Roasters had to forward cover short and purchase largely for immediate needs. This year, with a strong Brazilian crop and the market well off its highs, that inversion has corrected substantially. When that happens, customers refill pipelines and extend their order horizons to a degree, and that's what we're seeing in our order book.

[Frank Dennis, President and CEO at Swiss Water Decaffeinated Coffee Inc]

The market is still volatile and the trade is still cautious. The direction is becoming clearer. The NYC averaged $2.78 per pound in the quarter against $3.59 in the same period last year. That flows straight through our green coffee revenue. Headline revenue is down 3%, even with volumes up significantly. As we've been very consistent about saying, we don't overinterpret revenue in either direction. What matters to us is volume, gross profit, adjusted EBITDA, cash generation, and whether we're recovering the cost of carrying coffee for our customers. On every one of those, this was a very strong quarter.

[Frank Dennis, President and CEO at Swiss Water Decaffeinated Coffee Inc]

We're particularly encouraged by our trailing 12-month performance. LTM adjusted EBITDA passed CAD 17 million for the first time in our history. That isn't the result of a single quarter. We've now improved sequentially for four quarters running. That progress is visible in our cash flow and our net debt levels. It reflects volume strengthening, our operations maturing and market conditions moving somewhat back towards normal at the same time. Our Delta facility continues to perform very well. Both production lines have been running for over two years now.

[Frank Dennis, President and CEO at Swiss Water Decaffeinated Coffee Inc]

That continuity keeps showing up in quality, consistency, and throughput. We operated at record capacity utilization this quarter. Given the strength of our order book and the demand we're seeing, we're assessing targeted investments to increase capacity, which we would expect to fund from internally generate cash flow and a little debt. We'll evaluate the timing and scope of that work carefully in the near term. Interest in chemical-free decaffeination continues to build.

[Frank Dennis, President and CEO at Swiss Water Decaffeinated Coffee Inc]

Consumers are more label conscious than they've ever been. Regulatory scrutiny of solvent-based processes keeps increasing in both the U.S. and Europe. Those developments are encouraging more roasters to evaluate chemical-free alternatives. They support a conversion we have said for years that the consumer wants. It isn't the only factor driving our growth. It reinforces the value of the process our brand is built on. We are realistic about the market. Coffee futures are still volatile. Inversion is still being priced into both Arabica and Robusta.

[Frank Dennis, President and CEO at Swiss Water Decaffeinated Coffee Inc]

We're watching the U.S. grocery channel closely, where retail prices are still elevated and could create some changes to buying behavior in the back half of this year. Experience tells us it takes time for lower futures to reach the shelf. Our focus doesn't change. We keep coffee available for our customers, price appropriately for the cost of carrying it, operate reliably, and remain disciplined in our use of capital. We go into the second half of the year with strong demand, real forward visibility, high capacity utilization, and meaningfully less debt on the balance sheet than we carried a year ago. With that, I'll turn the call over to Iain to walk through the financial results in more detail. Iain?

[Iain Carswell, CFO at Swiss Water Decaffeinated Coffee Inc]

Thank you, Frank, and good afternoon, everyone. Just a reminder that all the figures I'm going to discuss are in Canadian dollars unless otherwise stated. As Frank mentioned, the second quarter reflected a significant acceleration in volumes, stronger profitability, and continued improvement in cash generation and the balance sheet. Total processing volumes increased by 17% in the quarter and by 8% for the six months of 2026 when compared to the same periods last year. Capacity utilization was very high during the quarter, supported by strong demand from established customers, solid spot order flow, and incremental sales to new customers.

[Iain Carswell, CFO at Swiss Water Decaffeinated Coffee Inc]

Looking at volumes by customer type, shipments to importers, those customers who resell our coffees to roasters where and when they need them, were up 26% 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 up 5% in the quarter. Looking at customer channels another way, specialty volumes were up 17% in the quarter. These accounts serve the out-of-home consumer, primarily in cafes and restaurants in our key geographic markets.

[Iain Carswell, CFO at Swiss Water Decaffeinated Coffee Inc]

Commercial volumes are also up 17% in the quarter. Q2 revenue was CAD 66 million, down 3% from CAD 67.7 million in Q2 2025. Revenue for the first six months was CAD 123.4 million, down 5% from CAD 129.9 million in the same period last year. The primary drivers of the decrease were the lower NYC coffee futures price and reduced tariff costs passed through to customers, partially offset by the increase in volumes.

[Iain Carswell, CFO at Swiss Water Decaffeinated Coffee Inc]

As we've said consistently, we're careful not to over-interpret movements in revenue because the value of green coffee flows through both revenue and cost of sales. In this quarter, the material increase in volumes largely offset the impact of significantly lower NYC. Moving on to our costs. Q2 cost of sales was CAD 55.8 million, down 11% year-over-year. The decrease was primarily driven by lower NYC coffee futures prices, the elimination of U.S. tariff expense, direct labor efficiencies, and lower utility usage and rates. These factors were partially offset by the increase in volumes and higher activity in green coffee logistics and storage services at our subsidiary, Seaforth.

[Operator]

Apologies, Frank. We seem to have lost Iain's line. We'll get him reconnected as soon as possible. Once again, please hold the line. We will try to connect Iain as soon as possible. Once again, apologies. We are still trying to connect Iain. Please hold on the line. Once again, we apologize for this disruption. Frank, we're unable to get in touch with Iain. We're just waiting for him to dial back in.

[Frank Dennis, President and CEO at Swiss Water Decaffeinated Coffee Inc]

Certainly. I can slowly pick up if we need be.

[Operator]

Yes, Frank, if you want to go ahead and we will reconnect Iain as soon as we can.

[Frank Dennis, President and CEO at Swiss Water Decaffeinated Coffee Inc]

Yeah. I'll pick up on our cost structure right now. Moving on to our costs, Q2 cost of sales was CAD 55.8 million, down 11% year-over-year. The decrease was primarily driven by lower NYC coffee futures prices, the elimination of U.S. tariff expense, direct labor efficiencies, and lower utility usage and rates. These factors were partially offset by the increase in volumes and higher activity in green coffee logistics and storage services at Seaforth. As for green coffee costs, the NYC averaged $2.78 per pound during the quarter, compared with $3.59 per pound in Q2 2025, a decrease of 23%.

[Frank Dennis, President and CEO at Swiss Water Decaffeinated Coffee Inc]

For the first six months, the NYC averaged $2.97 per pound, compared with $3.66 per pound in the same period last year, a decrease of 19%. Customer purchasing behavior continued to improve during the quarter as coffee futures prices declined from their late 2025 highs and inversion substantially corrected. Customers accelerated the replenishment of inventories and extended their purchasing horizons to a degree.

[Frank Dennis, President and CEO at Swiss Water Decaffeinated Coffee Inc]

We continue to see caution because the futures market remains volatile, but the ordering environment is much stronger than it was throughout 2025. Exchange rates between the U.S. and Canadian dollar continue to influence our reported results and cash flows. As a reminder, most of our revenues are earned in U.S. dollars, while a meaningful portion of our costs are incurred in Canadian dollars. We also carry U.S. dollar receivables and payables on our balance sheet and use hedging tools to manage our underlying currency exposure. In Q2, the U.S. dollar averaged CAD 1.38, in line with Q2 2025.

[Frank Dennis, President and CEO at Swiss Water Decaffeinated Coffee Inc]

For the first six months, it averaged CAD 1.38, compared with CAD 1.41 in the prior period. Q2 gross profit was CAD 10.2 million, up CAD 4.9 million, or 94% year-over-year. Gross profit for the first six months was CAD 18.1 million, up CAD 5.6 million or 44%. The improvement was driven by higher volumes, improved recovery of inversion expenses, direct labor efficiencies, lower utility usage and rates, and a reduction in foreign exchange losses compared with Q2 2025. Turning now to operating expenses. Q2 operating expenses were CAD 5.9 million, up 53% over last year, led by administrative expenses at CAD 4.4 million, up 47% year-over-year.

[Frank Dennis, President and CEO at Swiss Water Decaffeinated Coffee Inc]

The increase was primarily driven by a higher non-cash share-based compensation associated with a higher share price, as well as higher professional fees due to timing of the activities. Sales and marketing expenses were CAD 1.5 million, up 70%, primarily reflected the early timing of sales and marketing activities in 2026. Q2 net income was CAD 1.9 million compared with a net loss of CAD 400,000 in Q2 2025.

[Frank Dennis, President and CEO at Swiss Water Decaffeinated Coffee Inc]

Net income for the first six months was CAD 2.3 million compared with CAD 100,000 in the same period last year. Aside from the items we've discussed, the improvement in net income reflects lower financing costs. It also reflects the elimination of the embedded option revaluation following the repurchase and cancellation of Mill Road warrants in 2025. The prior year quarter included a gain on that revaluation, which was not present in 2026. On risk management activities, we recorded a loss of CAD 1.1 million in the quarter, in line with Q2 2025.

[Frank Dennis, President and CEO at Swiss Water Decaffeinated Coffee Inc]

For the first six months, the loss was CAD 1.7 million compared with CAD 3.9 million in the prior year period. These losses reflect the realized cost of operating in an inverted coffee futures market, along with mark-to-market movements in commodity and foreign exchange instruments. The market was substantially less reverted in 2026, particularly compared with the first quarter of 2025. As we've consistently said, we price to recover the costs of inversion as the associated coffee is shipped and invoiced.

[Frank Dennis, President and CEO at Swiss Water Decaffeinated Coffee Inc]

Although there can be a timing difference between when those costs are recognized and when they are recovered from customers. Net finance expense was CAD 1 million for the quarter and CAD 2 million year-to-date, representing decreases of 28% and 25%, respectively. The improvement primarily reflects lower average loan balances and more favorable variable interest rates. Q2 adjusted EBITDA was CAD 5.3 million, up CAD 3.5 million or 191% compared with CAD 1.8 million in Q2 2025. Adjusted EBITDA for the first six months was CAD 9.6 million, up CAD 5.8 million or 151%.

[Frank Dennis, President and CEO at Swiss Water Decaffeinated Coffee Inc]

The improvement was primarily driven by the increase in gross profit and materially lower year-to-date losses on risk management activities, partially offset by higher operating expenses. On a trailing 12-month basis, adjusted EBITDA was CAD 17.1 million, the highest in the company's history. Turning now to inventories. Our inventory balance decreased by CAD 10.5 million or 23% from December 31, 2025. The decrease primarily reflects the decline in the value of the NYC together with the reduction in pounds held.

[Frank Dennis, President and CEO at Swiss Water Decaffeinated Coffee Inc]

We remain committed to carrying sufficient spot inventory to ensure that coffee is available for immediate customer needs. We expect inventory volumes to remain at or close to current levels in the near term to support continued spot demand. We will also continue to charge for the carry costs we incur in holding and hedging those inventories.

[Frank Dennis, President and CEO at Swiss Water Decaffeinated Coffee Inc]

At quarter end, Swiss Water held CAD 5.9 million in cash, compared with CAD 6.6 million at year-end. Net working capital was CAD 34.1 million compared with CAD 42.3 million. Net cash generated from operating activities was CAD 10.7 million in the quarter and CAD 16.2 million for the first six months, compared with CAD 2 million generated in Q2 2025 and CAD 9.4 million used in the first half of 2025. The improvement was driven by higher net income and favorable changes in working capital.

[Frank Dennis, President and CEO at Swiss Water Decaffeinated Coffee Inc]

During the first half of the year, we repaid CAD 12 million on our operating credit facility, CAD 2.8 million of construction debt, and CAD 500,000 on the EDC credit facility. The outstanding balance on our operating credit facility was CAD 27.5 million at June 30th, down from CAD 38.4 million at December 31. We also extended the maturity of the operating credit facility to June 23, 2028. We were in compliance with all financial covenants at year-end.

[Frank Dennis, President and CEO at Swiss Water Decaffeinated Coffee Inc]

Our focus remains on using the cash generated by the business to reduce debt, lower interest expense, and improve financial flexibility while retaining the ability to support future growth initiatives. With that, before we open the line, I'll share a few closing thoughts. Like I said, this was a very strong quarter. It reflects the work that has been building for some time. Volumes are growing. Our facility is running at high utilization.

[Frank Dennis, President and CEO at Swiss Water Decaffeinated Coffee Inc]

Our order book extends into 2027. We have now improved sequentially for four consecutive quarters. That consistency, more than any single quarter, is the better measure of the progress we've made. Some of that reflects a market that has moved in our favor. A great deal of it reflects the decisions we made through 2025.

[Frank Dennis, President and CEO at Swiss Water Decaffeinated Coffee Inc]

We kept coffee available when others stepped back from holding it. We priced for the cost of inversion. We remained disciplined on capital while we did it. The steps we're taking on capital, including the NCIB I mentioned earlier, speaks to our confidence in where the business is heading. Our focus from here remains on what we can control. We'll support our customers, operate Delta reliably, evaluate the capacity investments this business needs, and continue reducing debt. We believe Swiss Water is well positioned in the back half of 2026 and heading into 2027. With that, Paul, can we please open the line for questions?

[Operator]

Certainly. At this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. The first question today is coming from Luke Hannan from Canaccord Genuity. Luke, your line is live.

[Luke Hannan, Analyst at Canaccord Genuity]

Thanks. Good afternoon, everyone, congratulations on the results. I wanted to dig in. You touched on several times talking about how capacity utilization is high, and it seems like there's more appetite from your customers to take on inventory. Clearly, it seems like there's a channel fill opportunity here. My question is twofold. First, you talked about incremental investments in order to support that volume growth going forward. When might you expect to be able to deploy dollars related to that? What can we expect as far as incremental volume growth? Then secondly, just in your estimation, and I realize it's probably different by channel and by customer, but how long is the runway for this channel fill opportunity?

[Frank Dennis, President and CEO at Swiss Water Decaffeinated Coffee Inc]

All right, Luke. A couple questions there. I'll try to unpack it as best I can. We saw some additional fill in Q2. I think overall, what's happening is that roasters at the very back end of 2025 started to figure out that, gee, importers, decaffeinators are going to price for this inversion and build that into their 2026 plan. They became overall more comfortable with the elevated NYC. They built that into their plan, they had built in kind of these additional inversion costs. That helped them walk into 2026 feeling more comfortable, somewhat more comfortable to build out their inventories. They aren't at full inventory. I would not say that they're there at all. I think that there is still room to go.

[Frank Dennis, President and CEO at Swiss Water Decaffeinated Coffee Inc]

I think that they waded into the market more aggressively when the [C] dropped, basically through Q2, and we saw that. I think overall, the super hyper cautiousness of 2025 is kind of relaxing in 2026 as roasters have gotten their price that they need to maintain margin on a macro basis into the marketplace, and they are surviving, if not almost thriving now, as opposed to being in a world of hurt in 2025. That's that. The entire coffee market industry, the trade is still expecting somewhat significant decline in the [C] in the back half of this year, maybe after we get past frost, maybe after we get past first notice date, which is coming up shortly.

[Frank Dennis, President and CEO at Swiss Water Decaffeinated Coffee Inc]

There's no absolute crystal ball on this, of course, but there's a lot of coffee in Brazil, and there's a lot of coffee that's being held there. At some point, there should be a decline, but we don't know. That would, again, help roasters fill in their needs going into 2027. Like I said, I think that roasters have figured the environment out into 2026 and are more comfortable with slightly more coverage. A big drop in the NYC would probably change that.

[Frank Dennis, President and CEO at Swiss Water Decaffeinated Coffee Inc]

As far as additional capacity, yeah, we're evaluating that basically over the back half of this year. When we're operating at kind of peak instantaneous capacity like we've been operating for the past four months, that isn't your full annual capacity, but we're certainly operating at peak instantaneous capacity, and that has you review alternatives to add additional capacity so that you're prepared to find additional volume.

[Frank Dennis, President and CEO at Swiss Water Decaffeinated Coffee Inc]

That's what happens with heavy capital industries, is first you got to put the capacity in place to be able to go get the volume. Going and getting that volume isn't just, "Well, gee, I've got capacity, therefore I have volume." It's like, no, it's one before the other. We're at that point now where we're evaluating that, and we'd probably be looking at something into, if we're to execute into Q2 of next year. That would probably bring 5%-10%, approximately, additional available capacity on an instantaneous basis, if we were to execute.

[Frank Dennis, President and CEO at Swiss Water Decaffeinated Coffee Inc]

That enables us to service markets that we are aggressively trying to develop. Also volume will come in chunky, and we can be surprised with volume upside. We want to be prepared to have that additional kind of instantaneous capacity when we become successful. Sometimes we don't know exactly when we're going to become successful because we're operating on so many fronts all at once. Hopefully that answers your question, Luke.

[Luke Hannan, Analyst at Canaccord Genuity]

That does. Very comprehensive. Thanks for that. My second question here is just on your inventory as well. It was very much a working capital tailwind during the quarter, to the extent that your free cash flow conversion was well north of 100%. I guess a similar line of questioning. I am curious to know how much more there is to come on that front, recognizing, yes, there is this channel fill opportunity, but also with the NYC inversion being a little bit less than what it would have been before. I imagine there is just purely a, we will call it an average cost per pound relief that you are getting there. I guess the question is, how much visibility do you have on there being more working capital tailwinds for the balance of the year?

[Frank Dennis, President and CEO at Swiss Water Decaffeinated Coffee Inc]

Yeah. I would be cautious on that one, Luke. The reason is we talk specifically in this conference call to a June 30th. If we look at what has happened with the [C's] the past five weeks, it has run back up. We could see mark-to-market increases in working capital. It is quite possible. We are maintaining inventories. Q3, I would not be racing to say that that is going to be the kind of same tailwind. Like I said, this entire industry has been talking about the size of this Brazilian coffee crop. It is not just Brazil as well. I mean, every origin is seeing these prices, and supply and demand still works.

[Frank Dennis, President and CEO at Swiss Water Decaffeinated Coffee Inc]

I mean, microeconomics still happens, and growers are growing more coffee and trying to export it. They are just trying to get the prices that they have kind of become used to. At some point there can be a decline, but when there are declines, increases kind of follow after that. It is always a volatile industry when you are talking overall commodities. I think we are going to be maintaining our overall inventory pound levels. Where we are at right now, we are reasonably comfortable, maybe a small uptick, because we are seeing increased demand, and that is as I had pointed out.

[Frank Dennis, President and CEO at Swiss Water Decaffeinated Coffee Inc]

Roasters are not loving the idea of institutions or governments reviewing methods for decaffeination. They do not love the scrutiny on methylene chloride, and start to question what their supply chains are. We have had additional questions, maybe not conversions, but interests from major roasters talking about, "Gee, where is your overall capacity? Where are you sitting?" Over time, those things, more often than not, at some point turn into volume. We want to be prepared.

[Luke Hannan, Analyst at Canaccord Genuity]

Got it. Thanks. Last one, then I will pass along. Just on that topic then of free cash flow conversion. Recognizing inventory, maybe you should not be as aggressive there as far as how it relates to how you did during the quarter. Maybe just looking at, I mean, the cash taxes that you guys pay is close to de minimis. You guys have a pretty sizable balance when it comes to tax loss carryforwards. If we are just thinking about this for our models going forward, what would be a realistic timeline, in your view, that you would be able to use these tax loss carryforwards?

[Frank Dennis, President and CEO at Swiss Water Decaffeinated Coffee Inc]

I don't have the exact length of time, but it's somewhere between three and five years, if not more. It's a pretty positive outlook as it relates to forward tax, and I think Iain could probably fill you in more specifically. Unfortunately, he had to drop off here. He would have a better view, but I'll go with the conservative three to five years.

[Luke Hannan, Analyst at Canaccord Genuity]

Got it. Appreciate it. Thanks so much.

[Frank Dennis, President and CEO at Swiss Water Decaffeinated Coffee Inc]

Absolutely. Thank you.

[Operator]

Thank you. The next question is coming from Marla Marin from Zacks. Marla, your line is live.

[Marla Marin, Analyst at Zacks]

Thank you. One question, which is a follow-up on some of what was just discussed during the Q&A. The volume increase in the quarter was actually very strong. It's consistent with what you've been telegraphing for several quarters in terms of when NYC futures prices were lower. It's consistent, it was a very strong volume increase number.

[Marla Marin, Analyst at Zacks]

Based on your conversations with both existing customers and prospective customers, you had said in the past that given the caution that you would see in 2025 with many customers drawing down inventory, what is your sense right now in terms of where some of the key customers are in terms of returning to normalized inventory levels and in terms of what that means going forward for the delta in terms of volume growth that we should expect on a quarterly basis? Obviously, I'm not looking for exact numbers, should we be thinking that it will be at the same level, or this was just a very unusually strong volume growth quarter?

[Frank Dennis, President and CEO at Swiss Water Decaffeinated Coffee Inc]

I think I like the year-to-date number. That quarters do have, of course, greater volatility. I like the year-to-date number, that 8%, not forecasting that, but Q2 was pretty firm, and that was basically customers, like I said to Luke, making decisions late 2025 when they were getting comfortable with their capability to price properly into 2026. That would've been coming through in our Q2. The NYC moving down through Q2 just gave them enough confidence to add coverage.

[Frank Dennis, President and CEO at Swiss Water Decaffeinated Coffee Inc]

I don't think they're all the way there, but I'd be surprised at another big Q2. Like I said, I like our year-to-date number, and I think that's a good indication. As I also mentioned in the prepared remarks, I do see a strong order book. Customers still are making decisions in terms of exactly what to do at the back half of this year. We're going into the heavy roasting season. With our order books in the shape that they're in, we're reasonably confident for a pretty good year.

[Marla Marin, Analyst at Zacks]

Okay. Thank you. When there was a lot of discussion about crop conditions in Brazil and other countries of origin, I think you had talked about how you were looking to evaluate expanding your supplier chain. Is that something that you're still thinking about, or is it a process that you've started? How should we think about that?

[Frank Dennis, President and CEO at Swiss Water Decaffeinated Coffee Inc]

Yeah. We are continuing to build out how we execute into basically the three key origins that drive a lot of our customer demand, Brazil, Colombia, Peru. In each of those, we are slowly, diligently expanding how we operate in those markets, so that we can, A, have better control and better visibility on the flow of coffee. It's super important to us.

[Frank Dennis, President and CEO at Swiss Water Decaffeinated Coffee Inc]

We run a 24/7, 365 plant, and it's very, very important that we have a very consistent supply of coffee so that we are feeding that big machine that needs to run, and that we're managing, of course, the end roaster demand. Improving and expanding the organizations that we do direct business with is certainly a broader industry trend. We aren't trendsetters at all in this. We are doing the work that many other roasters themselves, although we aren't a roaster, we can act like a roaster and look towards more direct purchases, although that wouldn't be our entire position. It does help us build margin, which is something that we're always trying to do.

[Marla Marin, Analyst at Zacks]

Okay, great. Thank you. One last question.

[Frank Dennis, President and CEO at Swiss Water Decaffeinated Coffee Inc]

Yes, Marla.

[Marla Marin, Analyst at Zacks]

Okay, thank you. You noted in your prepared remarks a couple of times that tariffs have had an impact comparability this year versus last year. There has been a lot of noise around tariffs for the past, I guess, two years. I think that the current administration in the U.S. has currently started talking again about tariffs. Can you give us some clarity here on how we should be thinking about tariffs and positions at the moment? Or it is not even expected to be an issue?

[Frank Dennis, President and CEO at Swiss Water Decaffeinated Coffee Inc]

Tariffs are something that our organization was hyper-engaged with at this time last year. At this point, we really barely talk about them. That is primarily because the U.S. administration, thankfully, has essentially given a pass to green coffee. They recognize that coffee is something that has a super high consumer engagement with and use for.

[Frank Dennis, President and CEO at Swiss Water Decaffeinated Coffee Inc]

They gave coffee a pass, I think, in Q3 of last year. In addition, as it relates to being a Canadian entity, thankfully, decaffeination is not seen as a transformative process. In fact, when we decaffeinate a Colombian coffee, it still goes to our customer as a Colombian decaffeinated coffee. The origin is still Colombia. It does not become Canadian. That avoids that particular issue. Roasters might be a different issue. Canadian roasters have a much more difficult path. As far as a decaffeinator and in the green coffee space, it really has become a significantly less burdensome issue.

[Marla Marin, Analyst at Zacks]

Okay. Thank you.

[Frank Dennis, President and CEO at Swiss Water Decaffeinated Coffee Inc]

You're welcome.

[Operator]

Thank you. The next question is coming from Richard Rudgley from Glenbrook Capital. Richard, your line is live.

[Richard Rudgley, Analyst at Glenbrook Capital]

Oh, hi. Yes, great quarter. I just wanted to raise something that hasn't been raised so far. I'm just curious about the size of the buyback, when you'll be able to first start repurchasing, and why you chose a buyback instead of a dividend, which obviously the company a long time had. Just curious on the thinking to do with that. Thank you.

[Frank Dennis, President and CEO at Swiss Water Decaffeinated Coffee Inc]

Thanks, Richard. Okay. As I said, we are seeking TSX approval, so we do not have approval yet, although I think we would expect it. The maximum size of the buyback is something that we would apply for, and that would be 600,000 shares, although I don't know that we're going to be chasing that number down. I think that what we'll start to do is start to give an approval, start to move into the marketplace, and understand what the market looks like. It's difficult to say exactly how that is going to turn out.

[Frank Dennis, President and CEO at Swiss Water Decaffeinated Coffee Inc]

When we see opportunities and we see undervaluation, as I mentioned, that's when we'll pursue. I'm not going to say what the budget is that's in our mind, but there is a capital cost budget that Iain and I have worked out, and that's what we'll be pursuing. That helps us maintain essentially how we want to manage our cash flow going forward, knowing that we're also looking at a capacity expansion, as I had mentioned.

[Frank Dennis, President and CEO at Swiss Water Decaffeinated Coffee Inc]

Relative to a buyback versus a dividend, a buyback is controllable. It has an on and an off feature. At this juncture, yes, we're super confident in terms of where the business is. Our view is that we did not want to step into something that was permanent, given that over the future, we have to make other capital decisions. Like I said, also the capital expansion, and there might be other opportunities that we don't want to be in a situation where we need to walk back from. We like the on/off feature of an NCIB.

[Richard Rudgley, Analyst at Glenbrook Capital]

Okay. Yep. That makes sense. Just to follow up, really. Just seems that [inaudible] as we've discussed before, quite a lot of interest in non-chemical decaffeination in the United States, and particularly California. To what extent are you targeting that? Also, could that be coordinated with financing efforts to develop a better market for the company's stock in the United States? Could you comment on that?

[Frank Dennis, President and CEO at Swiss Water Decaffeinated Coffee Inc]

I'll do my best. Where we sit in the industry is we have a view in terms of where consumer preference is. Consumer preference has continued to change and desire better transparency, and overall better for you food and beverages. We participate along with that growth. It doesn't necessarily behoove us to overly and overtly drive that, because a lot of our customers still need to use methylene chloride. They cannot instantaneously be one or the other. Only small organizations can.

[Frank Dennis, President and CEO at Swiss Water Decaffeinated Coffee Inc]

Larger organizations that we want to continue to do business with need an orderly change and an orderly pathway through to change as they seek out better for you and consumer-preferred foods, beverages, decaffeination processes. We of course follow it very closely. I would not say that we are drivers of any of those initiatives. We don't need to be. We've been kind of on a meta basis, a driver for 30 years of belief that consumers want to know what they're buying with their food and want transparency.

[Frank Dennis, President and CEO at Swiss Water Decaffeinated Coffee Inc]

That's one piece. In terms of access to the U.S. markets, I think we've looked at that several times. I don't particularly love trying to go down the path of additional costs for that expansion. We've done quite well in the past year with doubling our share price here in Canada, and we do know that there's access by U.S. investors into the Canadian market. There are pathways. That's kind of the way that we see it right now. In terms of what's in front of us and what's super important for us to make sure that we're doing, which is driving our volume, driving our capacity. I kind of see trying to get a U.S. listing or sub-listing or whatever it's called, as a bit of a distraction.

[Richard Rudgley, Analyst at Glenbrook Capital]

Okay. Just a final follow-up. Just going back to the buyback. As we all know, the stock is still pretty thinly traded, and maybe a flip side of the buyback is that will maybe further reduce liquidity. I just wondered what you and Iain have thought and discussed about that.

[Frank Dennis, President and CEO at Swiss Water Decaffeinated Coffee Inc]

Well, it is thinly traded, to be sure. I don't really know. I think it's too early to say what exactly will happen. We've done our calculations in terms of what our budget would take, what the maximum would take in terms of reducing the float. How is that going to change liquidity? I don't know. It is thinly traded, and I just don't have the calculus on that.

[Richard Rudgley, Analyst at Glenbrook Capital]

Okay. Yep, that's it for me. Thank you.

[Frank Dennis, President and CEO at Swiss Water Decaffeinated Coffee Inc]

Thank you, Richard. Appreciate it.

[Operator]

Thank you. That concludes today's Q&A session, and that also concludes today's conference. You may disconnect your lines at this time, and thank you for your participation.

Participants

Executives

• Frank Dennis, President and CEO
• Iain Carswell, CFO

Analysts

• Luke Hannan, Analyst at Canaccord Genuity
• Marla Marin, Analyst at Zacks
• Richard Rudgley, Analyst at Glenbrook Capital