Mr. Frank Dennis reports

TEN PEAKS COFFEE COMPANY REPORTS RESULTS FOR FIRST QUARTER 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 15, at 9 a.m. PT (12 p.m. ET). 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 has released its financial results for the three months ended March 31, 2017. This period represents the first quarter of the company's 2017 fiscal year.

During the three months ended March 31, 2017, Ten Peaks recorded increases in gross profit, operating income, net income, and earnings before interest, taxes, depreciation and amortization, compared with 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 chief executive officer 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."

            PERFORMANCE HIGHLIGHTS
    (in $000s except per-share amounts)

                              Three months ended
                                        March 31   
                                    2017    2016
                                               
Sales                            $19,223 $20,653
Gross profit                       3,035   3,017
EBITDA (1)                         1,677   1,263
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-international financial reporting standards
    measures.                 
(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 per cent year over year, while volumes to its smaller specialty accounts rose by 9 per cent. Looking at volumes by customer type, shipments to coffee importers rose by 24 per cent over Q1 2016, while volumes to roasters fell by 9 per cent. 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 per cent 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 totalled $19.2-million. This was down by 7 per cent 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 per cent, while green revenue decreased by 9 per cent. 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 per cent in the first quarter.

Cost of sales for the quarter totalled $16.2-million, down by 8 per cent compared with 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, B.C., facility at the end of Q1 last year.

First-quarter gross profit increased by 1 per cent compared with 2016, as lower costs of sales more than offset a decrease in revenue.

Sales and marketing expenses for the period were $600,000, down marginally from Q1 2016.

Administration expenses decreased by 5 per cent 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 per cent to $1.3-million, due to higher gross profit and lower expenses.

First-quarter net income of $1.4-million was up by 21 per cent 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 earnings before interest, taxes, depreciation and amortization of $1.7-million were up by 33 per cent compared with the same period last year. Lower cash expenses drove the increase in EBITDA for the period.

Outlook

In 2017, management is focused on executing the company's expansion plan, while growing SWDCC's market share in the United States and internationally. Over all, 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 Mr. 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-per-cent-chemical-free process, together with its brand recognition, positions it (and its customers) to respond to growing consumer demand for healthier, higher-quality foods. As a result of these trends and the continuing 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

Quarterly dividends

On April 17, 2017, Ten Peaks paid an eligible quarterly dividend of 6.25 cents per share to shareholders of record on March 31, 2017.

Non-IFRS financial measures

EBITDA

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.

Additional information

A more detailed discussion of Ten Peaks' recent financial results and management's outlook can be found in the company's management discussion and analysis for the three months ended March 31, 2017. This document, along with Ten Peaks' condensed consolidated interim financial statements, will be posted on SEDAR and on the company's website on or before May 15, 2017.

About Ten Peaks Coffee Company Inc.

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, B.C. It also owns and operates Seaforth Supply Chain Solutions Inc., a green coffee handling and storage business located in Metro Vancouver.

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