Improved Margins Push Up Gross Profit, Operating Income, Net Income and EBITDA
VANCOUVER, BRITISH COLUMBIA--(Marketwired - May 12, 2017) - Ten Peaks Coffee Company Inc. will hold a conference call to discuss its financial results for the three months ended March 31, 2017 on Monday, May 15th at 9:00 am Pacific Time (12:00 pm Eastern Time). To participate, please dial (866) 682-6100 (toll free) or (862) 255-5401 (international) approximately five minutes before the call and provide the company name. A replay will be available through May 29, 2017 at (877) 481-4010 (toll free) or (919) 882-2331 (international) passcode: 10397.
Ten Peaks Coffee Company Inc. (TSX:TPK) ("Ten Peaks" or "the company") today reported financial results for the three months ended March 31, 2017. This period represents the first quarter of the company's 2017 fiscal year. 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 located in Burnaby, BC, 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 three months ended March 31, 2017, Ten Peaks recorded increases in gross profit, operating income, net income and EBITDA, compared to the first quarter of last year. The gains were due to improved margins and lower cash expenses, as quarterly processing volumes were unchanged from 2016.
"We are pleased to see that recent initiatives to grow our margins and reduce our operating costs are having the intended effect," said Frank Dennis, President and CEO of Ten Peaks. "This has enabled us to improve our financial results for the quarter, while continuing to take steps to grow our business in the future."
|In $000s except per share amounts||3 months ended|
|Net income (loss)||1,435||1,188|
|Earnings per share,(2) basic||0.16||0.13|
|Earnings per share,(2) diluted||0.08||0.13|
|(1) EBITDA is calculated and defined in the section on 'Non-IFRS Financial Measures' below.|
|(2) Per-share calculations are based on the weighted average number of shares outstanding during the period.|
A key metric for the company is shipped volumes. Total shipments in the quarter were flat, year-over-year. Volumes shipped to SWDCC's large commercial accounts decreased by 5% year-over-year, while volumes to its smaller specialty accounts rose by 9%. Looking at volumes by customer type, shipments to coffee importers rose by 24% over Q1 2016, while volumes to roasters fell by 9%. A decline in orders from large roasters during the period weighed on SWDCC's overall volume growth.
A large amount of orders were shipped in the last week of March, and those with 'delivered' contract terms were not recognized in revenue in the first quarter. 'Delivered' terms mean that title to the coffee does not change hands until the shipment is received by the customer. A total of 6% of SWDCC's volumes for the period were shipped under 'delivered' terms in the first quarter and were not received by the customer until April. As a result, the associated revenue will be recognized in the second quarter.
First quarter revenue totaled $19.2 million. This was down by 7% from the same period last year, largely due to the timing of shipments and a change in sales mix. Process revenue (the amount SWDCC charges its customer for decaffeinating green coffee) decreased by 3%, while green revenue decreased by 9%. These declines were partially offset by increases in distribution revenue (the amount SWDCC charges its customers for shipping, handling and storing coffee), which rose 13% in the first quarter.
Cost of sales for the quarter totaled $16.2 million, down by 8% compared to the same period last year. The decrease reflects lower green coffee costs owing to the change in sales mix, as well as reduced repair and maintenance costs. This was partially offset by increased depreciation, which related to the capacity expansion project completed at SWDCC's Burnaby, BC facility at the end of Q1 last year.
First quarter gross profit increased by 1% compared to 2016, as lower costs of sales more than offset a decrease in revenue.
Sales and marketing expenses for the period were $0.6 million, down marginally from Q1 2016.
Administration expenses decreased by 5% to $1.1 million from $1.2 million in Q1 of last year. The decrease was mainly due to lower professional fees as well as staff and staff-related expenses, partially offset by higher stock-based compensation expense.
Operating income for the quarter was up by 9% to $1.3 million, due to higher gross profit and lower expenses.
First quarter net income of $1.4 million was up by 21% from the same period last year. A fair value adjustment on the embedded option associated with Ten Peaks' convertible debenture boosted net income, which was partially offset by increased finance expenses in the quarter and a loss on risk management activities.
Quarterly EBITDA of $1.7 million was up by 33% compared to the same period last year. Lower cash expenses drove the increase in EBITDA for the period.
In 2017, management is focused on executing the company's expansion plan, while growing SWDCC's market share in the US and internationally. Overall, management expects volumes to increase in 2017, with volume growth skewed to the second half of the year.
Recent market research from STUDYLOGIC shows that decaf consumption is growing faster than regular coffee(1). Another study by the National Coffee Association(2) indicates that younger consumers are driving this trend, with consumption in the 18-25 age group showing the strongest growth. This same study shows that all consumers are very conscious of their caffeine consumption, particularly the younger demographic.
"Multiple research sources support what we have been saying for some time," said Dennis. "When consumers become aware that they can have Amazing Coffee Without Caffeine any time of the day or night, they choose to drink more coffee. This enables roaster retailers, in turn, to extend their coffee sales later into the day and thus grow their business."
Specialty decaffeinated coffee is showing particularly strong sales gains, with growth outpacing the total coffee market as a whole. This is positive news for SWDCC, as its SWISS WATER® Process decaffeinated coffees are already well-recognized within the industry and by consumers for their superior quality. In addition, the long-established integrity of SWDCC's 100% chemical free process, together with its brand recognition, position it (and its customers) to respond to growing consumer demand for healthier, higher quality foods. As a result of these trends, and the ongoing work SWDCC is doing to increase its market share, the company is confident that SWDCC's volumes will continue to grow over the coming years.
As announced previously, Ten Peaks is preparing to build a state-of-the-art production facility, which will house a new production line in order to meet anticipated long-term growth in demand. Importantly, the site is large enough to accommodate growth well into the future. Construction of the new facility began earlier this month.
(1) STUDYLOGIC report March 2017
(2) National Coffee Association, National Coffee Drinking Trends, 2017
On April 17, 2017, Ten Peaks paid an eligible quarterly dividend of $0.0625 per share to shareholders of record on March 31, 2017.
Non-IFRS Financial Measures
Ten Peaks defines EBITDA as net income before interest, depreciation, amortization, impairments, share-based compensation, gains/losses on foreign exchange, gains/losses on disposal of capital equipment, fair value adjustments on the embedded option, and provision for income taxes. EBITDA also reflects unrealized gains and losses on undesignated foreign exchange forward contracts.
The reconciliation of net income to EBITDA is as follows:
|3 months ended||3 months ended|
|March 31, 2017||March 31, 2016|
|Income for the period||$||1,435||$||1,188|
|Income before tax||1,579||1,595|
|Finance (income) expense||205||(74||)|
|Depreciation & amortization||533||398|
|Unrealized (gain) loss on foreign exchange forward contracts||238||(218||)|
|Fair value adjustment on embedded option||(850||)||-|
|(Gain) loss on foreign exchange||(47||)||(254||)|
A more detailed discussion of Ten Peaks' recent financial results and management's outlook can be found in the company's MD&A for the three months ended March 31, 2017. This document, along with Ten Peaks' condensed consolidated interim financial statements, will be posted on SEDAR (www.sedar.com) and on the company's website (http://www.tenpeakscoffee.ca) on or before May 15, 2017.
Readers are cautioned that the summary information contained in this press release is not a suitable source of information for readers who are unfamiliar with Ten Peaks. This press release should be considered a precursor to, and not a substitute for, reading the financial statements and MD&A, which provide more detailed information related to the company's performance and future prospects.
Ten Peaks is a publicly traded company that owns all of the interests of the Swiss Water Decaffeinated Coffee Company Inc. (SWDCC), a premium green coffee decaffeinator located in Burnaby, BC. It also owns and operates Seaforth Supply Chain Solutions Inc. (Seaforth), a green coffee handling and storage business located in Metro Vancouver.
SWDCC employs the proprietary SWISS WATER® Process to decaffeinate green coffee without the use of chemicals, leveraging science-based systems and controls to produce amazing coffee that is 99.9% caffeine free. The SWISS WATER® Process is a 100% chemical free water process for coffee decaffeination, as well as the world's only consumer-branded decaffeination process. It is certified organic by the Organic Crop Improvement Association.
SWISS WATER® Process decaffeinated green coffees are sold to many of North America's leading specialty roaster retailers, specialty coffee importers and commercial coffee roasters. SWDCC also sells coffees internationally through regional distributors.
Seaforth provides a complete range of green coffee logistics services including devanning coffee received from origin; inspecting, weighing and sampling coffees; and storing, handling and preparing green coffee for outbound shipments. Seaforth's warehouse and handling operation is certified organic by Ecocert Canada.
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.