Q1 2020 Earnings Call
Why group Inc. Q1, Twentytwenty earnings Conference call.
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Turning to meeting over to management. Please be advised thisconference call contain statements that are forward looking and subject to a number of risk and uncertainties that could cause actual results to differ materially from those anticipated.
I would like to mind, everyone. This conference call is being recorded on Friday may 1st Twentytwenty I would now that you tend to call it over to except five Chief Executive Officer. Please go ahead.
Thank you.
Good morning, everyone and thank you for joining me for Mt. While first quarter of 2020 conference call.
Press release in the Mdna would complete financial statements and related notes were issued earlier. This morning are available on our website and on SEDAR.
Well it spark a fun nothing gets you also do it around I guess.
Perfect.
Please be aware that we will refer to certain indicators that are non <unk> forest measures you can refer to our mdna for more details I also remind you that all figures expressed on today's call art in Canadian dollars unless otherwise stated.
Before we begin I would like to extend my sincere gratitude to all our restaurants stuff that go into work everyday to serve our delicious food. Despite the potential health risks associated with their job.
Without them, we wouldn't be where we are today.
You are vital part of our network and we are thankful, we can count on that.
So want to thank our franchisees, who kept their business open and continue to grind everyday to make a living and difficult to not certain circumstances.
Let's start to discussion with a brief overview of our network.
We entered 220 20 with us all the solid first quarter.
Building on the momentum of the previous year and delivering on the number of key metrics, we generated positive organic growth in both EBITDA and system sales and recent acquisitions performed well and as expected.
Network sales for the first quarter were up 45% to 999.5 million.
The growth is primarily a tribute attributable to the recent Papa Murphy's acquisition, which generated 26% of our system sales during the first quarter as well as other acquisitions realized last year.
And that organic change in our network sales was 6.2 million for the quarter fueled by the impact of positive same store sales.
We finished the quarter with 7300 locations during the first quarter. We added 23 locations through the acquisition of Turtle Jackson's Coca Grill, Coop, Wicked chicken and frets casino.
We opened 53 locations of which about half were in Canada, and the rest of the U.S. and international and we closed 149 locations of which 61 weren't Canada 72 in the U.S. and 16 international.
For the first quarter, the proportion of our system sales realized in malls and office towers decreased to 15%, while the proportion of our sales from street front locations increased to 75%. The decrease in our mall exposure reflects a diversification achieved with our recent acquisitions.
So I'll do that same store sales grew by 2.1% during the first quarter candid about posted positive same store sales growth for the 10th consecutive quarter with a 1.6% growth.
Good back Western provinces, and the Maritimes continued their upward trend.
Positive same store sales growth of 2.9%, 0.6% and 3.5%, respectively, While Ontario had a slight decline of 0.8%, mostly due to weakness in mall sales.
Same store sales in the United States, who sort of fourth consecutive quarter of growth with a robust 4.3% increase as our various initiatives continue to bear fruit.
As mentioned on previous calls our exposure to the West Coast is important and we're pleased to report the growth of 2.6% in that region.
As far as the East coast is concerned or regions performance remained strong with a 5.5% increase.
We continue to experience negative same store sales growth in our stores located outside North America. The decline of 5.4% is primarily attributable.
Through our stores in the middle Eastern Asia.
Got it 19 also impacted these cells in the quarter as it affected Asia a few weeks earlier it in North America.
Finally same store sales for Papa Murphy's, which are not included in the consolidated same store sales posted a negative 2.4% for franchise location and negative 1.2% for corporate locations.
Our Chief Financial Officer, and they say Tony will discuss MP wise financial results.
Thank you Eric Good morning, everyone before I comment on the results I'd like to remind you then December 1st 2019, the company retrospectively adopted I ever 16 leases, but 2019 comparative haven't been restated as allowed by the standard please refer to the M. DNA for further details.
For the first time this quarter. Our results were presented playing I first 16 significant changes were made to lease accounting with a distinction between operating in finance leases removed and write abuse assets and lease liabilities recognize in respect of all leases and leases receivable in respect of all subleases.
Lease related expenses previously recorded an operating expenses, primarily as occupancy costs are now recorded depreciation on the right up because I said and finance interest charge on unwinding that discount on the lease liabilities.
Lease related revenue as previously recorded and rental revenues are not recorded as finance income.
I ever a 16 also changes the presentation of cash flows relating to leases in the company's consolidated statement of cash flow, but it doesn't cause a difference in the amount of cash transfer between the parties Italy.
Although the standard didn't change the accounting for most lesser significantly it does change the matter in which intermediates lessard to determine the classification of sublease arrangement between operating and finance leases.
I have first 16. This assessment is determined relative to weather the subleased trends for significant risks and rewards of the rate of use about.
We have like you elected not to restate comparative figures as permitted under the specific transitional provisions in the standard you can see a more detailed description of the impact of the new standard in our financial statements and mdna, including the impact of I have for that I have for 16 had on our EBITDA.
I invite you to read those carefully they haven't material impact on how the business is presented.
We're very pleased with our first quarter results revenues for the quarter increased 41% to 150.8 million, mainly driven by acquisition, particularly Papa Murphy's.
Oh listen revenue was also driven by our food processing distribution in retail revenues, which increased 21% mainly as a result, the lunch of new products and the expansion into new provinces.
As a result, our first quarter EBITDA increased 45% to reach 41 million or a margin of 27.2 person compared to 28.4 million or a margin of 26.4% for the same period last year.
Excluding the impact to buy a for a 16 EBITDA would've been 38.5 million or an increase of 36 person compared to 2019.
The increase was mainly driven by acquisitions, most particularly Papa Murphy's in the U.S. and the acquisitions of animal cocoa using uses machine and turtle Ducs Misco grille in Canada.
We're also very proud to report the positive organic EBITDA growth of 6% for the first quarter of 2020.
The organic growth was made possible by generating organic growth and system failed focusing on the highest quality revenue maintaining the required disciplines controller expenses and developing new lines of business like our retail operations.
The net income attributable to shareholders increased to 19 million or 16 cents per share for the first quarter of 2020 from 14.7 million or 59 cents per share for the same period last year.
The increase is mostly due to the acquisitions from the past 15 month.
Now turning to liquidity and capital resources.
In the first quarter of 2020, and see why generated cash flows from operating activities of 31 million compared to 26 million last year.
Putting the variation in noncash working capital items income taxes, and interest paid operations generated $41.1 million in cash flows in the first quarter of 2020 up 43% compared to $20.7 million in 2019, mostly due to the increase in EBITDA.
In the first quarter of 2020, we deployed our capital mainly to make acquisitions of $19.1 million repurchased and canceled shares for 9.7 million and Peter quarterly dividends to shareholders a $4.6 million.
For free cash flows for the quarter were 30.7 million up significantly from 24.9 million for the same period last year.
On a per diluted share basis, our free cash was reached a dollar and 23 cents and 2020 compared to 99 cents and 29, King an increase of 24%.
Anyway ended the quarter with a healthy financial position as of February 29, we had $56.8 million of cash on hand, and a long term debt a 561.7 million mainly in the form of hold backs and on acquisition and bank facilities.
We also have over 160 million available on our credit facilities should we need additional funds.
Now turning it back to Eric who will provide an update on the impact of Covance related measure measures on anyway.
Thank you really.
Although we are very proud of the results achieved in our first quarter and the momentum to past few quarters. We expect at least the next two quarters to be negatively impacted by the Cobi Corbett 19th and damage.
After two strong first weeks of March health authorities started warning the population about the waiver school that that was coming to North America.
We took proactive steps to ensure to well being 50 of our employees franchisees and customers and when possible to continue any of our operations and business.
Sheltering measures rapidly became more drastic in the population reacting strongly loading done for centuries and staying at home.
Restaurants sales dropped to broccoli abruptly malls were forced to close in office towers become deserted.
It became obvious our franchisees would need massive assistance to weather. The storm empty why was the leader leader in its industry offering or first four week deferral on the collection of royalties and advertising fund contributions to all franchisees.
Consequently, we implemented drastic cash spending reduction measures in an effort to preserve capital resources.
We laid off over half of our global workforce reduce the salaries of upper management, both formed rent payments minimize capital and operational spending and suspended the quarterly dividend.
We're working closely with our various business partners, such as franchisees landlords financial institutions in vendors to limit the impacts of on the company's liquidity.
Following the first four week royalties deferral period, we granted some bar franchisees an additional four we defer was their capital resources were scar Cindy needed further assistance.
We also offered our franchisees the option to pay the deferred amounts really an exchange, 4% to 440% abatement on royalties.
Over half of our network has chosen to paid early showing how robust our network is.
We continue to monitor to situation closely and we'll adapt our measures as needed going forward.
Although the disruption to operations is currently expected to be temporary there remains significant uncertainty going forward from the impact of the pandemic.
Therefore, while we expect this matter to negatively impact the company's result for the next two quarters.
The related financial impact is difficult to estimate at this time.
There are just too many variables.
There are just too many variables.
Some sales for the month of March were down 9% compared to the Mark the month of March last year, excluding the impact of acquired brands. The decrease for March would've been 39%.
Sales seem to have reached a bottom around the second week of April and have started to slowly go back up.
As of yesterday, we still had approximately 202200 restaurants closed, but we're seeing more and more franchisees reopening their stores and operating with a limited offer with a skeleton crew.
Approximately half the closed restaurants are located in malls and office towers of the balance over 200 or casual dining restaurants.
Locations that are in movie theaters health clubs gems schools and airports are obviously affected adversely as well.
For the future is concerned there isn't an infinite number of possible outcomes and as a result that it is very difficult to come up with reliable estimates.
The visibility we have as of today, we expect to burned approximately $10 million in cash in the second quarter as our cost reduction measures took some time to bear fruit.
Obviously the range of outcomes for subsequent periods is very wide and good range materially could change materially depending on how the sheltering measures are relaxed and whether there's a second we recorded or not.
Want to highlight was that we anticipate liquidities and forecasted cash flows to be sufficient to meet the company's obligation commitments and budgeted expenditures for period that hopefully will be long enough to make it to the other side of the crisis.
In the near term our primary focus is to reorder reopened the temporarily closed restaurants by rebuilding customer confidence through the implementation of best in class safety measures and adjusting the way we serve customers.
Even after dependent make is over customer spending patterns might shift temporarily or permanently from those traditionally witness an empty why will have to adapt to new customer behaviors and preferences.
Innovation will still be Akita success, even though we might not need it might not mean, the same thing Matt two months ago.
Our focus after to pandemic will still be on innovation quality or food and customer service in each of our outlets and maximizing the perceived value offered to our customers.
With that I. Thank you for your time and I will not proceed to the to answer your question.
Thank you at this time, if you'd like to ask the question Press Star one on your telephone keypad to withdraw your question press the pound key piece holds Bobby compiled the question.
Your first question comes from the line of sub <unk> with RBC capital markets. Please go ahead.
Thanks, and good morning, I'm, just one on reporting <unk> first 16 impact that you called out of 20 million seemed a little on a lighter side compared to what we thought I guess is or what to think about it that youre netting out.
The leases that are more with the subleased amounts that you have on your.
On your books or how should we think about that two and a half million dollar impact in is that the amount. We can use every quarter going forward.
Yes. It was prior to April 16, we did not.
Our policy was to net rental revenues against rental expenses. So we kept that policy going forward into I have for 60, So where does the net of the too.
And then the this is a good run rate amount I guess for 10 million for the years are right wouldn't think about it.
Yeah, I mean, it might fluctuate a little bit, but that's that's approximately how much were expecting.
Okay, Great and then I think in DMD I know, you're calling out you know some discussions you're having with your lenders regarding Europe financial ratios and looking for some relief there on the covenants side I guess, where are those discussions now and sort of what kind of scenario is a built built on is that just even based on this 10 million dollar cash burn you think will you might push against those covenants or are you.
That just cautionary measures want to get your top thoughts on our words those talks are and the thought process.
Yeah, well there there is a possibility we might push against the covenants. So we need to be proactive and make sure that we're ready for it if it happens we don't want to be caught a after the fact, so we're talking to our bankers.
Syndicate seems to be very supportive at the moment.
It will require some amendments to our credit agreement and and we're working diligently with our bankers, but so far there is no indication that.
Our bankers would do anything that would be detrimental to the company.
So at the moment, it's looking positive we don't think we'll need additional liquidities, but we need to be ready for that as well in case, we need them, but so far the discussions are positive.
Okay, and then just one last one for me on sort of working with your franchisees you indicated that about half empty at early discount.
In terms of the release that you gave them on the four weeks of the World Peace you know its or any other measure that you're looking take maybe some.
Royalty it all discount quite a floor or maybe skipping on the promotional payment that they make in terms of what other steps are you taking to support your network through this stuff can trade.
Well the first thing we did was the first four month. The first four week deferral and we added a second for we deferral for to afford a franchises that needed them. So it's not applied to all of our network because we have some brands that don't require.
More deferrals.
And we offered that abatement and as a measure for franchisees to you know what they do they come forward do you happen to be wise liquidities and in their case, they save some money.
So it was it was a win win situation.
Terms of what we're gonna do into future does a wide range of possibilities and obviously, it's hard to know what's going to happen tomorrow and with the crisis were all following a what's happening and.
It's it's very unpredictable.
As far as going into the promotional funds I don't think we're going to go there at the promotional funds are not empty wise money, there franchisees money and they are important for us too.
To be strong and be there for a for our customers and make sure that were top of mind and make sure that we have the proper rebound. After the crisis is over so I don't think we're going to reduce the advertising funds.
Great. Thank you.
Your next question comes on line of Vishal Shreedhar with National Bank. Please go ahead.
Hi, Thanks for taking my question, what he onshore of content in the second accrual what percentage of the network one huh.
It's most of the network.
It's not the are one of bonus one notable X. One notable exception is Papa Murphy's where.
Papa Murphy's is doing well.
So network for most of the franchisee did not need further deferrals. So that's the main exception to that rule of up to four week.
Okay and in terms of a can you.
On a consolidated balance sheet of your franchisees do you have any sense of kind of where that stands or how investors should think about Uh huh.
Yeah. That's a good question and we were in the process of deploying the tools required to be able to track that.
With more granularity at the moment, it's a little bit difficult for us to have the.
Proper visibility on all of our franchisees balance sheets and piano tiles.
And with we know is that our franchisees have invested significant amount of money in their stores.
Obviously, they take on some that and the work really hard every day to try to make a living now that happens it's abrupt there were some losses and food.
Obviously, there they're going to need some working capital to restart the businesses after because it's not just.
Turning on the turning on to walks and starting to do.
Food again, so we need we need to have some working capital injection.
The government measures on both sides of the border were adequate to bring some lifelines for the short term for our franchisees.
The 40000 dollar loan in Canada, and the SB, a 70 loans into your west were adequate I think we're going to need more than that but at least for the short term. It was enough to make sure that our franchisees can this weather to the front part of the storm.
Okay.
And just switching gears here, a little bit kind of more on on.
Longer term question.
You know curious with the increase in unemployment historically that man.
Tended towards looking people looking for franchisees, what's your view on that maybe a situation do you think there will be more demand for Mt wise.
Franchises or do you think that will taper off how should investors to that.
Okay excellent question and I wish I had an answer for you.
This is.
This is a little bit farther into future and it's really are unpredictable. This is unprecedented times that we're going through and.
For me to speculate on what's going to happen after and when after is going to be.
I think you wouldn't be prudent for me.
And maybe maybe not I don't know I don't know people will flocking to restaurants again or people.
Stay away and then what's going to happen with everything so I'm not going to speculate on what's going to happen on our.
Pipeline of possible franchisees.
Okay and go on ongoing livery what are your franchisees seem there maybe you can give us some sort of color on what kind of top what's happened to delivery and what happens to economics empty why with delivery and what happens becomes a franchisee.
Yeah, well delivery, obviously, that's it spiked a considerably so we're seeing.
At the moment the stats we have.
We have about tripled the amount we had to take out.
On average for franchisees and we about doubled the amount we had with delivery.
But that being said, that's that's not even close to coming to the numbers. We had in sales before so it's really it's not goes to compensating for the losses, we have.
As far as the economics are concerned generally our franchisees charger higher price on these platforms than they do on on on premise.
So I think the economics were to franchisees are fair.
I'd like to the fees to be lower and more importantly, the fees to be gaps.
Customers, sometimes a very large orders and win when it's a percentage fee at the delivery becomes very honors.
But I think for for a moment the pn Alan given the situation I think we're going to try to make the best of it.
We see we'd all like to have the charges lower.
There are they are high and some.
Some of our Aggregators are taking advantage of the situation. Unfortunately in their flexing their muscles on an empty weighing on our franchisees, but in general people are playing ball and especially in the U.S.. We are seeing some good concessions from aggregators and trying to two to help everyone and maximize the business.
Okay and I'm just last one here for me.
Obviously, I feel good organic growth trends and somebody in Michigan talking as last quarter's seem to be bearing fruit have instant in this quarter. So so.
You know I don't know if this question is relevant but just kind of getting a sense as well that's initiatives that you implemented maybe want to get to normal or are you implemented Oh is there a lot to go yet in terms of bigger initiatives to drive the organic growth or.
Have you implemented a large swaths of that and it's probably probably.
You're not going to do that for the next few years since you try to battle there.
No we have the we had a lot in the pipeline.
We were.
It was still just the beginning of everything we had in store.
We had a lot of food innovations a lot of different ways to operate our businesses a lot of different way to market to customers. We were no rapidly changing the way we market rapidly changing the way we address our customers.
Our operations were getting stronger and stronger everyday. So we had we hit the pause button for most of these initiatives for now because they're not necessarily relevant during the crisis.
And it might not necessarily be time for certain things that we had in store.
But we're certainly going to resume that as the new normal is.
He's going to.
Unfold I don't know when and I don't know how it might be slightly different from what we had in mind because again I.
I mean, the customer's going to be different than the way to receive our messages and our and our innovation is going to be different but we're certainly going to adapt but we still have to lock a lot and store.
Thanks for the color.
Your next question comes on the line of charge demand with Scotiabank. Please go ahead.
Good morning, or.
One George.
I just want to talk a little bit about your guidance. So.
It looks like you mentioned, we're doing 40% Arrow volumes and then you setting Q2, we're gonna be a burning 10 million a caution in Q3, we're going to be neutral. So I'm just wondering what assumption those two numbers what does that assume in terms of of what we know what level of volume will we be in Q2 and in Q3 your mind.
Yeah, we're not necessarily going to disclose our assumptions that Georgia, there's there's just.
The area of possible outcomes is too high and we provided guidance because the market was asking for some form of guidance.
So for Q2, our cash burn is approximately 10 million. That's what we have that's what we're seeing now for Q3, we didn't fab, we didn't say we wouldn't be.
Cash flow neutral, we said, we hope to be cash flow neutral I think there's an important distinction.
But yeah it depends on too many things at the moment, so I'm not going to start disclosing aldi, that's various assumptions that go into the model, but obviously the longer just last the longer our cash management.
Policies are going to be in place and we need to reduce our spending in accordance with the revenues that we have.
So we will have to do that for as long as the crisis last.
Okay as most of that volume game, it's not going to be more you think average unit volume per store is going to be more that you stores coming on line, it's going to drive more.
Yeah, we're gonna have both.
What we're seeing at the moment, especially in the past three weeks the volumes have crept up quite a bit.
We're far from.
From from where we were before the crisis, but we haven't few brands where I.
I think we have four brands at the moment that are.
Positive same store sales.
For the past two weeks.
So we are seeing some customer dollars going back into the market than pantry loading happened and then the pantry depletion happened and now I think people are ready to go out a little bit and enjoy different food. We're not I think the north Americans are not wired to Cook 21 meals a week at home.
You can do that for only for so long before you get tired and you need to have something else.
So hopefully the sales trend that we're seeing now is going to continue into future, but it certainly promising and what we're seeing in the U.S. is about three weeks delayed behind which we're seeing in Canada. So we are.
Hitting the bottom of of ourselves now in the U.S. and hopefully we're going to creep up the same way Canadian Canada did.
Okay, and I think last quarter or our net store closure rate was I don't setting 70, or so so I'm just wondering.
Can you talk a little bit about what you expect via the store closure rates or percentage or however, you want describe it to look like maybe as we navigate these more challenging quarters.
Yeah.
I have no clue, Georgia, I wish I had a better answer for you but.
The number of store closures will really depend on on how long. This is going to last and on the government assistance. So we are seeing some.
Use that could be positive in Canada regarding that commercial rent, we don't know yet this if it's going to be positive because there's there's we're still to miss missing too many details.
But it certainly promising at least we're talking about it.
And these these measures could go a long way to save a lot of restaurants. So it's too early for us to estimate how many casualties are going to be unfortunately, I think there will be some some people that might not make it faster crisis, but so far as far as.
What we're seeing now from our network and our communications with our franchisees, it's really well within control.
We only have.
Very few franchisee that have indicated they wouldn't reopened so we're pretty happy with that at the moment, but it doesn't mean that theres not going to be more when the time comes to inject working capital to restart the business.
Okay. That's helpful on swaps Latin America I know this maybe a difficult on question to answer that.
If you look out you know some jurisdictions globally.
I think Spain mentioned that did one open restaurants, 30% some folks are saying up to 50% capacity. So just your view in terms of.
Franchisees adopter business model is there anything they can do.
To maybe make profits or some kind of level profit.
Operating at that level capacity.
Yeah, we're gonna have to be creative.
For sure, especially for casual dining restaurants, where do you need to operate with 50% of your.
City, if you're not allowed to have groups.
Which are important in the business.
There will be there will need to be some adjustments to the business model.
And I think we're going to need some assistance as well.
Because if you're paying the rent for 6000 square feet and you can only use half of it than during your tables, maybe a little bit faster, but again during your tables faster is good sometimes but as you can also be detrimental if your customers or are not there to consume for long enough. So we'll need to adjust the business model I think it's early now.
Now to start.
Discussing about how it's going to happen into what we what it is that we're going to do to achieve that but we're certainly preparing for it and we're having discussions everyday on how this is all going to work. We know our dining rooms are not going to be opened with 100% capacity and 100% of the normal volume that we would get so we were going to need to adjust.
To the new reality and.
I think at the moment, we it's too early to discuss the after cool video I think we need to discuss the with Goldman.
And that might last for a few months, so we need to be prepared for it.
Okay. Thanks Russ.
Your next question comes on line has definitely saw with TD Securities. Please go ahead.
Yeah, Good morning, Eric.
I was just wondering if you could.
If you have to split between.
The Canadian.
Yes restaurant closures in that 2200 number there.
Yeah, it's its about 1400 in Canada, and the rest in the U.S. and international.
So we have a much higher number of closures in Canada, and I think its related mostly to our mall exposure.
So the mall exposure is quite a bit higher in Canada.
We also have more casual dining restaurants that are not necessarily prepared for delivery in takeout.
We have more breakfast restaurants also that our maybe less natural so we are adjusting the offer for all these restaurants now to be able to reopen and have a relevant experience for the customer, but yes, Canada is definitely hired in the U.S.
Okay, and maybe just a follow up to that when you kind of pointed to it as I was wondering if you.
Like what's the percentage of your network has takeout or and the work.
[music].
Okay, well I mean, you they all have capabilities.
Everybody can do take out.
Yeah. The ones that are in malls, obviously, there you can do take out because they can access the location, but all the others.
If the issue I mean, if we want to do take out we can do take out.
Some restaurants, maybe are less relevant or not located in areas, where it might be.
Popular option or.
Economically viable option.
But I think we can all do that we are onboarding.
Restaurants that are not on delivery platforms. Yet we are we are on boarding them at the moment.
It's taking a little bit more time, obviously, there's there's a lot of demand for the aggregators now to onboard a bunch of restaurants.
But as far as takeout capabilities, everyone can do it but then it doesn't mean, it's going to be a profitable operation for for some of them for some of our restaurants, if it doesn't make sense. Unfortunately.
Where are you guys on Pandora Gosh I, just wondering if there's been an impact with them exit in Canada.
Trying to find another third party aggregator.
Yeah, we are on door dash and if you go in our stores, you'll see that most of our stores now have a rolodex of of tablets, where you have all the aggregators indoor dash was one of them.
It is still one of them.
So.
Yeah, we most of our restaurants are with more than one.
Aggregator.
Okay.
Maybe just switching gears here.
You talk about the initiatives you've got going on.
On the food processing side, just wondering if if you've got in a boost from the greater retail uptake versus foodservice in this environment.
Yeah definitely retailers a big thing our retail group is is really firing on all cylinders, we had to add staff to the group because of the demand.
Fortunately with retail were limited by production capabilities from our suppliers. So.
The demand is more than with our suppliers can produce at the moment.
So we are selling a lot more than we would in normal times.
But we're not selling as much as we could because there's just simply no production capacity at the moment.
So we're limited by that but it's a good problem to have.
When we're happy with the results of retail since the beginning of the crisis.
Okay.
And just maybe one one housekeeping for me I was wondering if you guys had an estimate for the.
For the IRS impact on on the bottom line or.
Yes.
No we haven't done them out basically you can take 10 million divided by our number of shares.
Yes.
Yeah, No I guess because the E.
The higher.
Interesting depreciation.
Yeah, we we don't have that number Eric we haven't there we haven't made it all and all they were down PPS.
Okay.
That's it for me thanks.
Your next question comes to learn as Michael Glenn with Raymond James. Please go ahead.
Hi, Thanks for taking the question. There can you just maybe comment on there's been some articles written about negotiations with landlords can you talk little bit it, though your head leases and how some of.
Those discussions with landlords are going for you guys.
Yeah, well for 99% of our landlords have discussions are going really well.
Landlords are understanding.
That we're facing difficult situation they are they're facing a difficult situation as well they have obligations as well they have no payments to me that they need to make real estate taxes and bunch of other things.
So we're discussing with them into their positive discussions at the big problem. We have is that.
We don't know what's in front of US we don't know how long. This is going to last we don't know how the sale that will rebound after in our capacity to.
Amortize deferred amounts over a certain amount of time.
So we are requesting from our landlords that they basically be patient and that we buy time until this is all over and we can have more meaningful discussion on our capacity today.
But I would say 99% of our landlords are really good in there, they're playing ball with us.
We're also all waiting, especially in Canada, where all waiting for to government program to be detailed and defined.
So that we understand whether empty why qualifies whether I'm, Dan franchisees qualify or whether our landlords qualify and then if our landlords want to opt in for the program or not so we're waiting for a number of details and at the moment. The most important thing for US is to just allow time and be patient.
And I think everything is going to unfold positively for everyone and as I said the landlords like like other business partners are all not all but virtually all very good with us.
And.
<unk> for your head leases have you.
I had any requirements at this point in time to cover some of those rent payments.
Yeah, there's there's still that 1% of landlords that are.
That are not that show no flexibility. So yeah. There are there are discussions that are a little bit harder.
Okay.
And.
On the negative on the CAD $10 million free cash burn.
In Q2 would that include just to be clear that would include the ER the royalty deferment.
But you're thinking just for the period.
Yes.
Oh, okay.
And in terms of the lender you're talking about the lender negotiation.
There's two covenants mentioned that you go through what where would the would it be a breach potentially on both covenants or just one in particular.
No. The one that's that's a that's more challenged the debt to EBITDA.
That's even though okay yep.
And just.
In terms of the Q1 reporting itself.
The results themselves I mean everything that I've.
In the.
Emdeon in the financial statements and.
And.
You know find I'm, just wondering why why the company chose to suffer the the reporting jurgen.
Yeah, well, there's there's a new normal not only four restaurants, but there's a new normal for work environments as well and the reality is.
A lot of people that are involved in our financial reporting including our consultants.
Our second home they have young children running around them all day.
It's a little bit harder to coordinate the efforts of all the team.
I have to work long hours because they have to work the night shift after to give their home and that's part of the new normal. So it just took a little bit longer for us to implement I. If our 16 for that reason and that we needed some of the additional two weeks to get that done.
Okay and do you also have.
Some sense, that's too in the U.S. with the payment protection program do you have a sense as to what percentage of your U.S. franchisees were able to.
Ah, yes, some help on do that.
Yeah, well, we have prepared our franchisees early and we knew the top with would run dry pretty quickly. So we have prepared our franchisees and we had told them look it's going to be first come first service will be ready today that the demands are open you need to be ready so.
We we did have a number of franchisees that missed the first got but now would be the additional payments that were made this week I'm not sure how many franchisees received payments and how many did not they don't have the the latest.
It's good that you asked a question I'd like to mention about MTR wise eligibility and on these payments. So when do you I had made for.
Demands for payments totaling about $3 million.
Two of our demands went through with the first.
With the first leg of it.
And we did receive $1.2 million in in payroll protection program.
And then the the clarifications came from the government.
We decided to returned at $1.2 million back to the government to make it available to our franchisees and two other small businesses and that money was returned to earlier this week and we canceled the other two requests we hadn't so we're never going to get that $1.8 million. So we really want to help our franchisees at the moment.
Our goal was not certainly not to take money away from them.
I don't think we realize how quickly that would run dry and.
We also didn't realize that those clarifications would come after all they request would be made so.
Thank you for asking the question and reminding me to make that clarification.
Okay, but you would have had an all your franchise number your franchisees would have received funds as well.
Yes, the 1.2 million that you received okay. Okay.
That's that's it for me thanks for taking my question.
Your next question comes from the line sub <unk> with RBC capital markets. Please go ahead.
Okay. Thanks, it's sort of a couple of quick follow up some you maybe walk us through the mechanics of that the royalty discount that you offer I think you mentioned the franchisees please prepare their royalty.
Got it about a 40% discount it just sort of like you know paid next month royalties now and is this ongoing just want to extend the time period, it relates to and kind of frequency.
Yeah, well no it's not exactly what you described.
So basically what we did as we deferred royalties collection for franchisees for an indefinite period, we are not going to define the windows will need to be paid Intel.
We have a little bit more clarity on the after crisis.
So so that would be basically a liability there would be 40 franchisees and we offered franchisees to pay those early and make the liability go away in exchange for a 40% abatement.
So for example, franchisees that had not paid their march royalties.
Because they were deferred had the option to keep the deferred and basically it's an interest free loan to them or to take advantage of for over 40% abatement than be early or pay now as their normal schedule would be.
Alright, Thanks, and then I'm on the on the Papa Murphy's platform that you kind of made a brief comment earlier there was doing well just given the takeout nature of that that banner can you maybe walk us through what you saw it there over the last few months and how the trajectory there might be similar or different because somebody or other restaurants, given the nature of its business.
Hi, good trajectory is completely different.
So our sales did suffer a little bit and.
In March and the first week of April I think pizza is very event driven.
And we missed March madness.
Greatly the first week of April where March madness comes to an end.
We certainly suffered a little bit, but since then our sales or.
Going really well.
We have been double digit positive for most of the month of April.
So so we seem to be picking up we have.
Great team at Papa Murphy's they turned around to really quickly the.
Redid the entire marketing.
Around our brand and around the context also that that we're going through.
We we completely read everything and re thought everything.
Adjusted to the approach adjusted the messaging.
And it's really paying off now so nothing it's going to be like that forever, but at the moment. We're certainly in a very good run with Papa Murphy's.
We are missing the sporting events.
But all in all its been very positive.
Especially for the last three weeks of April.
Great. Thank you.
Again, if you'd like to ask the question Press Star one on your telephone keypad and your next question comes from one of the Hecla Saab at TD Securities. Please go ahead.
Yeah. Thanks sub it asked my question systems.
And your next question comes from minus Demetri. Please go ahead.
Hi, good morning, everyone.
Can you please talk a little bit more about the.
What about what you see in the casual restaurant that you own.
And.
You'll prognosis, if you will there.
Yeah, well, yeah casual casual dining restaurants, obviously the dining rooms are closed so we're we're missing a large portion of our business.
So I mean, what we see that we're missing a large portion of our business because the dining rooms are closed.
Do we do have a number of restaurants that are reopening now in a takeout and delivery option.
But it's never going to make up for what we're missing in the dining room.
And there are no further question at this time I will turn the call back over to the presenters for closing remarks.
Thank you again for joining me on this call I look forward to speaking with you again on our next quarterly call. Thank you.
This concludes today's conference call you may now disconnect.
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