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Operator: Good afternoon. I do apologize for the delay in today's start time. There was a technical issue with our dial-in phone number that has now been resolved. Once again, thank you for your patience, and we do apologize for the delay in today's start time. Welcome to the Swiss Water Decaffeinated Coffee Inc. Third Quarter 2025 Conference Call. [Operator Instructions] 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 are considered reasonable at the time the information was prepared. Such information involves known and unknown risks, uncertainties and other factors outside 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 subsequent events or circumstances, except as required by law. Please refer to Swiss Water Decaffeinated Coffee Inc.'s Management Discussion and Analysis posted on SEDAR and Swiss Water's website for a full discussion regarding forward-looking statements and the risks therein. It is now my pleasure to turn the floor over to your host, Frank Dennis, President and CEO of Swiss Water Decaffeinated Coffee Inc. Frank, the floor is yours.
Frank Dennis: Thanks, Tom. Good afternoon, everyone, and thank you for joining us today. I'm Frank Dennis, President and CEO of Swiss Water Decaffeinated Coffee Inc. And with me is Iain Carswell, our CFO. We are here today to discuss Swiss Water's financial results for the 3 and 9 months ended September 30, 2025. As usual, I will begin with a brief review of our performance and operating environment, then Iain will provide more details about our financial results. After that, I will share some closing thoughts before we take your questions. We delivered another solid quarter with 7% volume growth versus Q3 last year, supported by strong demand for our chemical-free decaffeinated coffee and disciplined operations. Improved profitability this quarter reflects effective pricing and cost management, some favorable foreign exchange movements and continued focus on execution across the business. Our approach to managing inventory continues to serve us well, enabling us to meet customer needs consistently in a market where importers are maintaining leaner inventory positions and customers are looking to us to provide immediate available coffee. That reliability has helped us reinforce long-standing relationships and establish new ones as more customers look for supply assurance. Overall, demand for our decaffeinated coffee remains strong. As a benchmark, grocery volume in the United States has declined markedly due to extremely elevated retail prices, while our volumes have grown. That outperformance reflects the quality of our coffee, strength of our customer relationships and our ability to respond quickly to shifting market dynamics. The coffee futures market remains extremely volatile. The NY'C' futures market softened early in the quarter before retracing all of the losses again toward quarter end. The market inversion continues to drive timing and further cost pressure across the...
Operator: Please standby a moment, once again, please stand by while I reconnect the speaker's line. [Technical Difficulty] Thank you once again for standing by, passing the floor back to Frank Dennis.
Frank Dennis: Sorry, folks, a couple of technical issues today. In any case, I'll pick up where I left off, where operationally, the Delta facility continues to perform well. It provides the flexibility we need to manage production efficiently through variable order timing and mix, delivering solid throughput and cost performance. As part of our risk management strategy, we continue to actively manage input cost volatility through our commodity and foreign exchange hedging programs. The NY'C' futures market remained inverted through the quarter, resulting in ongoing short-term EBITDA impacts as hedge positions were rolled forward. These timing differences are expected to continue while the inversion persists. Our approach remains structured and consistent with the rest of the industry as we continue to price for the cost of inversion and expect recovery through customer pricing actions over the coming months and into 2026. Looking ahead, we expect fourth quarter performance to be broadly consistent with the same period last year. The market remains volatile, and we expect the inversion to persist into 2026, but our underlying business fundamentals are strong. Our disciplined execution and ability to meet customer needs reliably continues to differentiate us in the complex environment. As market conditions normalize, our focus will remain on retaining new customers, maintaining price discipline and continuing to strengthen the balance sheet. Overall for the quarter, our business continued to perform well. Operations are running efficiently, and our team continue to execute with focus and discipline. Spot inventory strategy we put in place has proven effective, allowing us to capture opportunities and maintain reliable supply in a volatile market. The consistency of our performance together with ongoing efforts to strengthen the balance sheet through debt reduction demonstrates the resilience of our model and the value of our long-term customer relationships. We're confident that our approach is working and positions us well to continue delivering steady results in a complex and dynamic market. With that, I'll turn the call over to Iain to walk through the financials. Iain?
Iain Carswell: Thanks, Frank. Firstly, we continue to strengthen our balance sheet in the quarter, generating cash from operations and making further progress on debt reduction. These actions, together with improved profitability have enhanced our financial flexibility. Working capital levels remain elevated, but in line with expectations, reflecting both the value of green coffee inventories and timing of customer collections. We expect this to normalize over the next few quarters as higher seasonal sales volumes grow. Our focus remains on maintaining sufficient inventory to support demand while continuing to reduce leverage in a disciplined way. Total shipped volumes increased by 7% when compared with Q3 last year and 4% year-to-date. The increase in volumes was driven primarily by our strategic approach to spot inventory availability, which continues to position us to capture demand in a market where importers are holding leaner inventory levels due to ongoing NY'C' volatility and inversion. Maintaining readily available product allowed us to respond quickly to customer needs and ensure steady supply. This approach, combined with strong demand from our established customers and steady throughput in our regular coffee business, supported overall volume growth during the quarter. 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 16% in the quarter, 8% year-to-date. Our shipments to roasters, those customers who roast in packaged coffee to sell to consumers in their own coffee shops or for home and office consumption were down by 4% in the third quarter, 2% year-to-date. Many of our customers have moved towards a more just-in-time operating model. Looking at our customer channels another way, specialty volumes were up 24% in Q3 and 11% year-to-date. These accounts serve the out-of-home consumer primarily in cafes and restaurants in our key geographic markets. Commercial volumes were down 4% in the quarter, 2% year-to-date. Q3 revenue was up 50% to $62.7 million compared to $41.2 million in Q3 2024. The primary driver of the increase in revenue for the third quarter is higher volumes and elevated coffee prices, with the NY'C' continuing to trade well above historical averages, which flows through our green coffee revenue. The impact was further amplified by inversion and tariff cost recovery and increased contributions from our logistics subsidiary Seaforth. Looking at our costs. Q3 cost of sales was $56.3 million or 59% year-over-year. The increase primarily reflects the elevated NY'C' increased volumes, depreciation of the U.S. dollar and the ongoing impact of tariff costs associated with our sales to U.S. customers. These factors were partially offset by operating cost efficiencies. As for green coffee costs at an average of $3.37 per pound in the third quarter, the NY'C' was up 37% from $2.46 per pound in Q3 last year, while still elevated, this reflects a modest decline from the Q2 2025 average of $3.59. Customers continue to remain cautious with inventory management in response to sustained high coffee futures and ongoing tariff uncertainty. As previously noted, ordering patterns continue to vary through the quarter. Customer mix shifted with importers increasing volumes as they rebuild inventory positions, a change from prior periods when roasters represent a larger share of activity. This shift contributed to ongoing variability relative to historical ordering patterns. Exchange rates between the U.S. and Canadian dollar continue to influence our reported results and cash flow. While our revenues are primarily in U.S. dollars and a meaningful portion of our costs are incurred in Canadian dollars, we also carry U.S. dollar receivables and payables on our balance sheet. This quarter, fluctuations in exchange rate led to a foreign exchange gain, largely reflecting the revaluation of those U.S. dollar balances at period end. We continue to monitor this exposure and use hedging tools where appropriate to manage our underlying risk. In Q3, the U.S. dollar averaged CAD 1.38 up from CAD 1.36 in the same period last year and consistent with CAD 1.38 reported in Q2 of this year. This decrease of the U.S. dollar has a negative impact on our revenues when they are converted to Canadian dollars. Q3 gross profit was $6.4 million and consistent with the prior year. Turning now to operating expenses. Q3 operating expenses increased 16% year-over-year to $4.2 million. Administrative expenses were up 22%, driven by a higher noncash stock-based compensation, driven by an increase in our share price during the quarter. Q3 net income is $216,000 compared to a net loss of $791,000 in Q3 2024. Aside from the factors we discussed previously, Q3's increase in nonoperating or other income and expenses is driven by a $728,000 loss on risk management activities, primarily related the timing of rolling hedge contracts forward in a persistently inverted NY'C' market. This timing difference between recognizing the cost of rolling positions and the recovery of those costs through customer invoicing results in incremental realized losses during the quarter. As Frank mentioned, we continue to price for the cost of the inversion consistent with the industry practice and expect these costs to be covered through customer collections over the coming months and into 2026. We also recorded mark-to-market adjustments reflecting commodity price fluctuations and the U.S. dollar strength. These results are consistent with our structured approach to managing pricing volatility, mitigating risk exposure and maintaining alignment with our supply commitments. As you may recall, during Q2, we reached an agreement with Mill Road Capital to repurchase and cancel their outstanding warrants, as a result of that agreement and subsequent cancellation, we no longer recognize a gain or loss on the fair value of the embedded option during Q3. There was a $659,000 decrease in finance expense, largely attributable to the elimination of the interest related to the Mill Road debenture, which was fully repaid in Q4 2024. In addition, decrease in interest on long-term borrowings after repayments and decreasing interest rates compared to Q3 2024. Q3 adjusted EBITDA was $3.3 million, up $1.1 million or 52% year-over-year. In addition to the factors I mentioned affecting gross profit fluctuations in adjusted EBITDA were driven by the previously mentioned loss on our risk management activities, which we expect to be fully recovered through customer collections and disciplined management of operating expenses over the balance of this year and early 2026. Turning now to inventories. Our inventory balance increased slightly to $51.4 million in the third quarter, primarily reflecting higher green coffee cost due to elevated NY'C'. However, this was offset by a reduction in the hedge accounting component of inventory. Inventory management remains an essential component of our strategy. We continue to take a deliberate forward-looking approach to holding inventory in order to support anticipated customer demand to ensure delivery continuity. We continue to see renewed order activity from smaller roasters with commitments to cover previously deferred purchases due to pricing volatility. In addition, this quarter saw increased ordering from importers within our regular coffee business as the NY'C' moderated during the first half of the quarter before rising again toward quarter end, prompting some to replenish inventories ahead of further price movements. At quarter end, Swiss Water held $3.9 million in cash compared to $8.5 million at the end of 2024 and net working capital of $38.8 million compared with $4 million. The change in net working capital is driven primarily by the reclassification of our operating credit facility to noncurrent borrowings as a result of the renewal during the quarter. We made total debt repayments of $11.9 million in Q3 made up of principal repayments on our long-term borrowings, primarily related to construction of our Delta facility and on our operating credit line. This represents continued progress towards reducing interest costs and strengthening our leverage position over time. With that, I will turn the call back to Frank.
Frank Dennis: Thank you, Iain. Before we turn to questions, I'd like to share a few closing thoughts. The coffee market remains very complex at the moment but our business continues to perform well. The strategy we've put in place is doing what it's designed to do, helping us manage volatility, support customers and deliver consistent results in a very challenging environment. Our inventory management approach, a key component of that strategy, continues to create value by providing flexibility reliability across the supply chain. We have also maintained strong operational execution throughout the quarter and continuing to build financial strength and flexibility through disciplined management. Looking ahead, we expect volatility in coffee markets to persist, but we're confident in our positioning and our ability to manage through it. The fundamentals of our business remains strong, our customer relationships are solid, and our team continues to execute with focus and discipline. We believe we are well positioned to continue delivering stable results and to build on the progress we've made this year. And with that, we'd be happy to take your questions.
Operator: [Operator Instructions] We have a question from Richard Rudgley from Glenbrook Capital.
Richard Rudgley: Yes, I read in the news release, but I'm not sure if you mentioned it in -- when you were speaking about the situation to do with the Brazilian tariffs. I just wondered if you could perhaps expand on that a bit and let us know how you think it's going to impact things overall?
Frank Dennis: Yes. It's a good -- that's a great question, Richard. So the U.S. imports maybe 15% of Brazil's output annual output. And of course, Brazil is the largest coffee-producing nation in the world. What happens in Brazil is what happens in the futures market. It's -- they are intertwined perfectly. So with a 50% tariff rate on Brazilian coffees going into the U.S. many, but not all. Many roasters are essentially racing to find replacements. And these would be coffees that would come from, let's say, Uganda, maybe some from Vietnam as well as some of the Central American coffee producing nations, Nicaragua, Salvador, Honduras. So that's certainly causing some -- it's just dislocation. It's just -- it's rearranging blends, it's changing supply chains quickly, and not really supply chain is maybe suppliers or paths that coffee get to roasters very, very quickly. And so there's a large group of roasters that are basically avoiding Brazilian coffee. There are others who have blends that are very reliant on a particular profile. These would be like large direct consumer organizations that have prepared brewed coffee that they want to keep that profile exactly the same. And so they're taking that Brazilian coffee and they're pricing for it. So we're seeing those that are trying to avoid Brazilian coffees and find alternatives. There are those that are saying, boy, I mean, we've got a customer franchise here that's built on a particular profile, we're just going to have to price for it. We saw significant increases in the data that we launch for U.S. grocery in terms of overall pricing per pound, which increased very rapidly, and a lot of that was tariffs and in particular, Brazil through Q3, although it was still the NY'C' as well that's driving pricing around the world. So net, what's happening is that Brazilian coffee is now flowing off to places like China or places like Russia, and they're picking up what could be potentially cheaper Brazilian coffee. Certainly, more Brazilian coffee is coming to Canada for roasting here. But it's just yet another dynamic that's happening in marketplace. And so we're changing the coffees that we are going to put in position to supply the U.S. into next year right away, starting kind of Jan, Feb, we'll be getting probably more Central American coffees in place to supply kind of those that are avoiding Brazilian coffee. But like I said, there are others that are just saying, no, we have to take it. We're going to keep it. We have a profile that's important for the consumer, and we'll just price for it. So there's the dynamic basically, Richard.
Richard Rudgley: Just a follow-up. Just wondering because sometimes, as you know, these tariffs get reversed quite swiftly, would that just cause logistical problems for you, as you say, you're rearranging the early part of the year to get coffee from elsewhere, but what if things will reverse in the interim? And then just a sort of follow-up question on the future pricing as from my understanding, and obviously, no better, it seems like the concerns about the Vietnam crop. It looks like the weather damage was minimal, and so is that -- that shouldn't be something that's going to affect the price in a negative way by pushing it higher?
Frank Dennis: Yes, that's right. So we're putting on reasonably light coverage as an alternative to Brazil going into the first couple of months of the year, and we'll kind of see how that goes because you're absolutely right. The Brazil 50% number could change next week, could change over the weekend, who knows. So however, we do know that if that number does change, there will be a significant swift response in the NY'C' futures market down. So it would be a wonderful thing, really, if that tariff was to be changed. But yes, I mean, there is -- like I said, there's a lot of tariff arbitrage going on. There are those who are trying to find coffees from nontariff markets. Mexico, for example, has no tariff on its coffee. Wonder -- amazingly, of course, the crop is sold out. So I think that we're just going to continue to see a very elevated 'C' certainly with the Brazil tariffs in place and with a thing we don't talk very much about, which is certified stocks, which are at record lows, certified stocks essentially support the entire market and until we start seeing certified stocks come to about 1 million bags. We are going to remain in an inverted elevated market. So yes, complex.
Operator: [Operator Instructions] And your next question is coming from Grover Wickersham from Glenbrook.
Grover Wickersham: First of all, congratulations. I think there's a really great quarter. I think there was an awful lot of suspense waiting to see how you guys did under the under the tariffs, and it's a relief that you did extraordinarily well. And I think it would be congratulated from that. And I also think that getting out from underneath the commitment to the warrants on Mill Road was also -- that was also a real milestone for the quarter which we're -- obviously that something that we were trying to encourage. Just a couple of comments. As you know, we think the stock is really undervalued. We'd really like to see you do more to cultivate a market in the United States and maybe even at some point, that would open up enough capital that you could avoid tariffs completely by possibly having a facility in the Pacific Northwest or somewhere convenient to Vancouver. But discussing the company, I do get questions from time to time about the CO2 method. And I'm wondering -- I know you've talked to me about that before, but could you perhaps give some more color on what the -- what you see as being the competitive nature of CO2 processing, I know from a cost standpoint and also from a possibly from a consumer and regulatory acceptance standpoint.
Frank Dennis: Sure. Yes, if you want to focus specifically on CO2, we can definitely do that Grover. The CO2 is essentially coming from 1 source only on a third-party basis out of Bremen, Germany. It's a plant that's been producing CO2 for many, many years with an expansion probably about 10 years ago. CO2 is a method that is good quality. Pricing is kind of similar to where we are at. We've seen that overall kind of chemical-free pricing is balancing in around kind of a specific band or range, which is overall, I think, good. And the product itself is essentially limited in that the capital cost of CO2 expansion is significantly higher than any other chemical-free method. And there is a more limited lifetime of the plant due to the fact that they are using supercritical or just sub of critical pressures, which is very, very high pressures. And so the pressure vessels do have a lifetime. So CO2 basically is capped out at the number that it's at right now. That plant is sold out. and kind of remains that way. They have a good base of customers that are loyal and that use the product, but we weren't really seeing growth there, we're probably seeing growth maybe in some of the other processes or methods competitors.
Grover Wickersham: Right. Okay. But in terms of competition, do you see that as competition going forward?
Frank Dennis: Yes, I mean, CO2 is always a competitor. I think other water processes are probably more on a growth trajectory than CO2. We've got [ caffeine ] water process out of Germany that is on the market in the past few years. And they have done well in that kind of part of the world, Europe, primarily maybe some Eastern U.S., but Europe is their focus market. And that's probably more where our attention is focused on is how we remain competitive in a market that honestly was much more methylene chloride dominated. And although methylene chloride has not left the marketplace at all. We are seeing expansion in kind of the chemical-free/natural marketplace for sure.
Grover Wickersham: Yes. I mean I think, hopefully, hopefully, especially with the FDA under the current management, hopefully, in the states. And I also don't understand why it hasn't become an issue in California, but hopefully, there's going to be more awareness and maybe a regulatory intervention at least in terms of labeling so the people out in the community understand the difference. Then if I could, just like 1 other -- I don't if it's a question or an observation, but as you know, we've got probably 1 share less than 10%. And we're close to 10% of the company. I mean I don't know exactly where we are. But we buy stock when we see the opportunity to buy, we always add. But I noticed that properly, I believe they filed a notification that they're over 12%. So I don't -- I'm not sure exactly what maybe you guys know exactly what percentage there, but I seem to recall 12%. So I would just say that so between them and us, we're well into the 20%. I think if we were a group, we would be large shareholders, and frankly, with you and Frank with 2 you guys, we would probably be over -- well over 12% or 13%. But I would just suggest that it might be a good time to look at the constituency of the Board, and it might be a good time for Mill Road to continue writing off into the sunset, so to speak. And have possibly have new representation. And we would be quite happy to see somebody from properly in Calgary, we have 1 of them, Mark or 1 of the other guys involved with that, join the Board, I would think they would represent all the shareholders. I'm sure I would feel represented by them. But I just encourage that as something when you get around to thinking about the Board, something you guys should possibly throwing our two-cents worth on that subject. But no, nothing against the former Mill Road fellows on the Board, and I don't know -- I think -- I don't know it's 1 or 2. I apologize for not having all the details, but having shareholders who have some skin in the game, would -- and certainly, when you're talking to kind of those kind of percentages that would seem to be appropriate. But anyway, I don't know if you -- that may not be something you guys can comment on. I'm just saying that we would request that, that be -- it's something you consider when it comes time to nominate Board members?
Frank Dennis: Yes. Fair enough, Grover, point well taken. I think that Mill Road still has an ownership position, and to be fair, the folks that have served or are serving on our Board have added value. I mean I have good input from them. However, we also understand your point. I think our Chair also understands that and absolutely will be given consideration for sure, recognizing kind of your view in terms of representation.
Grover Wickersham: Yes. Yes. I don't know if you met with them, we had a chance to talk to Mark, who's part of that group and had a few conversations with them. And also, we -- as you probably are aware, we're on Salt Spring Island. And it seems like that's kind of like Baja of Canada and it attracts a lot of Calgary, Albertans that prefer the weather. And so we know of them, Mark and his investors, we know them through other friends on Salt Spring Island, and they have a really good reputation.
Frank Dennis: Yes. No, they do for sure.
Grover Wickersham: I mean no excursions on any of the other Board members with the exception of not being a huge amount of love loss with Mill Road, no offense, or actually moderate offense intended.
Frank Dennis: All right. Thank you very much, Grover. Yes. We'll take that under consideration. Thanks very much. Are there any other questions today?
Operator: There are no further questions in queue at this time, and I'd like to pass the floor back to management for closing remarks.
Frank Dennis: Thanks, Tom. If there are no further questions, we will conclude today's call, and thank you very much for joining us. Have a great weekend.
Operator: Thank you. This does conclude today's conference call. You may disconnect your lines at this time, and have a wonderful day. Thank you once again for your participation.