Q4 2020 MTY Food Group Inc Earnings Call
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Good morning, ladies and gentlemen, thank you for standing by and welcome to the M. T Y Food Group, Inc. Q4, 2020 earnings Conference call.
At this time all participants are in a listen only mode and following the presentation. We will conduct a question and answer session and instructions will be provided at that time for you to queue up for questions.
If anyone has difficulty hearing the conference. Please press star followed by zero for operator assistance at any time.
Before turning the meeting over to management. Please be advised that this conference call will contain statements that are forward looking at subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated.
I'd like to remind everyone that this conference call is being recorded on Thursday February 18th 2021.
I'd now like to turn the call over to Eric Lefebvre.
Chief Executive Officer.
Please go ahead.
Good morning, everyone and thank you for joining me for MTO wise, 2024th quarter Conference call.
That's released from the MD&A with complete financial statements and related notes were issued earlier. This morning and are available on our website as well as on SEDAR.
All of that stuff like of fun, but think of it because you also take weather out of that group with Arizona.
Please be aware that we will refer to certain indicators that are non <unk> measures you can refer to our MD&A for more details on <unk>.
I'll remind you that all figures presented on today's call are in Canadian dollars unless otherwise stated.
Before I begin I would like to take a moment to thank all of our customers who continue to support our restaurants, despite the heavier restrictions and limitations imposed by some local authorities.
Please continue to support our restaurants, our industry needs every bit of support at the end yet.
I would also like to think of our franchise partners and their staff for being there every day facing hardship and doing everything we can to make a living despite the massive headwinds they're facing at.
As the impact of the pandemic persists I remain impressed by the tremendous work resilience and dedication of our restaurants at head office staff at <unk>.
Sincerely want to think of them all for their commitment to our common success.
First allow me to start with a quick summary of our results looking back at the past year of 2020 was unquestionably marked by many challenges and uncertainties, which forced us to react very quickly and adapt to volatile market conditions.
STREAMWAY proud of the resilience of our business model.
Which in the past years proven robust facing unpredictable unprecedented adversity.
At some point during the last year, there seem to be some panic externally about the future of empty. Why this is in Stark contrast, with what we saw internally, which is the termination passion and creativity.
While our network with severely impacted we still managed to generate record levels of cash flows from operations on free cash flows as you know like of the unique circumstances. Our board of directors determined in March that it was best for us to be prudent during such an unpredictable environment.
And to focus our capital allocation priorities on reducing debt, which is why we repaid and the breadth of $109 million of which over $100 million were repaid after at the beginning of the pandemic.
As you know the results of the past year reflect our quick response to changing conditions and stringent control over expenses and working capital.
Our ability to adapt in the face of ambiguity was also showcasing the rapid adjustment of our marketing strategies and the shift of our sales channels towards online ordering.
At this end, we invested significant time and resources in enhancing our online ordering offered to customers removing friction and enhancing the customer experience. We expanded our third party delivery partnerships with major end local players.
Sequentially, our digital sales increased significantly reaching 25% of total U S system sales and 18% of Canadian system sales during the fourth quarter.
Turning to an overview of our network. We finished the fourth quarter with 7001 locations. We opened 39 locations on permanently closed 161 locations for a net store loss of 122.
While the number of closures remains relatively stable the number of openings is less than half of the previous year's level.
This is explained in large part by the economic uncertainty created by the pandemic, which causes franchisees and banks to be more cautious on until the restrictions recede and business goes back to normal or.
Our pipeline of franchisees remains very healthy and we have no about that at a normal level of restaurant openings will come back in the future.
During the quarter more than 30000 business days were lost and many of our restaurants are operated and the limited capacity.
At the beginning of Q4 364 restaurants were temporarily closed while 338 or approximately 5% of the network.
So at the end of the quarter.
The new wave of restrictions in Quebec, and Ontario hit our restaurants. Following the end of the year that led to additional temporary closures as of today. There are 408 temporarily closed locations.
System sales for the quarter reached $891 4 million down 13% compared to the fourth quarter of 2019.
Following a promising month of September agenda, which showed sequential improvement compared to June July and August.
A new wave of restrictions was imposed on dining rooms, and food courts in October that significantly impacted our business in Quebec, and Ontario for the last two months of the quarter.
In the U S. Our network continued its recovery with increases in sales from all three months during the quarter fueled by the strong performances of Cold Stone Creamery, and Papa Murphy's, which produced a combined $49 $9 million in organic growth in sales.
This performance was realized despite the very heavy restrictions imposed by California that had devastating impacts on some of our brands in the area.
Given the solid performance of U S operations system sales for the market now represent 61% of total sales compared to 49% in 2019 day.
Anodyne International now represent 35% and 4% of system sales respectively.
As for the evolution of our network everyone now understands the impact of of dynamic had on some location types.
For example in Canada, Our mall on office tower sales were down 51% at 85% respectively. During the quarter.
Our street locations fared better with the exception of our casual dining restaurants.
Our casual dining restaurants, which had to operate with other dining rooms in most of the country.
Similar trends affect our U S sales, although to a much lesser expense since malls and office towers, only represent 3% of sales for that market.
As we speak today, we are seeing some restrictions being lifted and some of the markets in which we operate and there is hope that we will see further relaxation during the second quarter of our fiscal year.
We remain subject to help <unk> decisions affecting our restaurants, but we're hopeful that we will see gradual return to normal in 2021 and that our franchise partners can operate their businesses the way to add envisioned when they made the decision to invest in our restaurant.
I will now turn it over to Renee, who will discuss <unk> financial results.
Thank you Eric.
Before I comment on the result.
I would like to remind you that in our first quarter, we implemented the new <unk> 16, accounting standard related to leases.
We opted not to restate comparative figures of permitted.
Perfect day and personnel provision you'll find on more detailed description of the impact of <unk>.
In our financial statements and MD&A.
I invite you to read them carefully.
Impact on carbon business at presented.
Revenue for the quarter were down 19% from $156 8 million.
$27 2 million due primarily to the pandemic.
The decrease came from on a recurring revenue stream, which are closely related to our system sales increased by 13%.
With just under 50% of total system sales.
From Murphy on Cold Stone creamery, and they need to be very strong and as Eric indicated contributed $49 9 million to organic growth in the fourth quarter.
In addition, retail operations continued to benefit from higher consumer spending from grocery store at <unk>.
And the expansion into new crops.
At the end of 2020.
In 2017 branded products for sale in the Canadian market as compared to 102 in 2019.
This translates in sales growth of 11% year over year.
The growth on our retail sector. However was offset by a reduction in sales and on food processing and distribution center, which were impacted by the decrease in sales of the restaurant's day support.
Fourth quarter, adjusted EBITDA of $35 2 million from back to 43 million net for the same period last year.
The decrease of adjusted EBITDA is attributable to Canada, while the U S and international segments posted at at $12 four increased year over year.
This is an exceptional performance given the current circumstances.
The fourth quarter EBITDA decreased by $10 1 million, mostly explained by the decrease in revenue due to the pandemic.
This was offset by a reduction in costs of which reflects aggressive cost curtailment of measures put in place to mitigate lower revenue.
Good thing from perspective.
Weighted and where do you think of recurring controllable expenses by $2 1 million most of which was due to reductions in retail.
And do I think I need to also benefit from the Canada emergency wage subsidy.
For the quarter. This represented at one 6 million.
Excluding the impact of Ifr 16, adjusted EBITDA would have been at.
$32 3 million.
Net income after you get a vote of shareholders was $20 1 million.
Or <unk> <unk> per share for the fourth quarter of 2020 compared to net income of $20 7 million or <unk> 83 per share for the same period end previous year.
Net income remained relatively stable could you reduce operating at operating.
Operating expenses, coupled with the contribution of the U S and international segments as indicated previously.
As far on liquidity and capital resources in the fourth quarter MTV generated cash flow from operating activities of $44 $8 million of 18% compared with $37 9 million for at the same period last year.
Chris was driven by the positive there.
On the taxes paid and free capital management to preserve liquidity.
But at the same period free cash flow increased 1% to $43 9 million or $1 78 per share on a fully diluted basis from Baird.
$1 74 per diluted share in the fourth quarter of last year.
For the year on free cash flow.
$5 68 per diluted share compared to $4 64 in 2019.
As mentioned by Eric.
Focus on repaying debt, we use our cash generated during the quarter to reduce our long term debt.
$37 6 million ending the quarter with $465 million of long term debt.
We also continue to remain well within our credit agreement ratio.
Even with these debt repayments, we continue to have at healthy financial position with $44 3 million of in cash at the end of the year end over 216 margin available on our credit facility welcome.
Well continue to repay debt where possible over the coming quarters, and we'll continue to evaluate our liquidity and where to best utilize that.
Now I'll turn it back to Eric for the conclusion.
Thank you as Renee just mentioned owing to the decisions. We made in 2020, we enter 2021 in a strong financial position.
We will continue to be prudent for the next few months end, we'll prioritize debt debt repayments over other capital allocation strategies on.
Until the skies of Europe.
Priority is and always will be to protect empty why are these shocks such as the one we are going through and as such we choose a conservative approach.
Our balance sheet is improving and as we continue to build our treasure chest. We remain on the lookout for attractive M&A opportunities that may emerge.
Acquisitions are part of our DNA, but we will be patient and do everything we can to make sure which was of red businesses to successfully continue growing NPI in the future.
<unk> always been very disciplined in the choice of our targets and in the prices, we pay and this will still be the case post pandemic.
And upcoming quarters, our road to recovery remains closely tied to the lifting of COVID-19 restrictions.
We spent the last year of adapting our operations marketing strategy and sales channels to new and evolving business environment. We can proudly I can broadly state that in many ways nty stronger now than it was before to face the future.
Finally, I would like to sincerely, thank our employees customers and suppliers for their support during the past years.
With that I. Thank you for your time, and we will now open the lines for questions operator.
At this time I would like to advise everyone in order to ask a question. Please press star followed by the number one on your telephone keypad and we'll pause for just a moment, while we compile the Q&A roster.
And our first question comes from the line of John's MRO of CIBC.
Ahead. Please your line is open.
Thanks, Good morning.
Eric what can you say about franchisee health at the moment in particular assets at the government assistance programs in the U S. On Canada I know, it's a broad objective of different by franchisees by banner at maybe the way. We can free units are you feeling at the franchisee health versus last quarter.
Yes, well, if I compared to last quarter, we're pretty much at this at the same place we were.
I mean, it would be better if everything was opened.
I'm looking specifically at that at California, where they're at.
On the new wave of cares act as of necessarily materialize the way it should have been.
So this is probably where our franchisees are the most vulnerable at the moment.
They need customers.
They need to be able to use their real estate the width of them to do.
They need to be able to.
Use of the assets that they invested into to serve customers. So.
I would say in general in the U S. It's very good if I look at our main brands, but obviously there are buckets, where it's of a bit more fragile and cash.
Canada. The government assistance has been really good for our business and even though it certainly doesn't make up for all of our losses at does compensate food.
A large extent we have we have.
Help them in terms of of wages, we at health in terms of of our rent.
Certain provinces, we have more help in terms of our other fixed costs.
So it's really.
It's really a blessing that we have all of this help to to help us weather that storm and on top of that we have.
Suppliers and landlords.
And other stakeholders that are being patient that are making concessions as well.
I would say in general of the health of hasn't necessarily changed that much versus last quarter, but obviously the lager at this lasts the more difficult. It is going to become so we need to see an opening at some point.
Okay understood.
On the digital sales front I appreciate the added disclosure here, presumably Papa Murphy's is a meaningful driver but are there any of their brands you can call out as meaningful contributors to that and.
And what can you say bouts of digital sales from internal apps versus third party providers.
Yeah, well, we havent, we have many brands that are doing a great job with digital sales and some of them we have made investments.
And in that channel before the pandemic hit them at really paid off on and looking at Papa Murphy's is certainly one of them, where we do have a large proportion of our sales that are going through that channel.
And we do have a lot of sales for closed on for example that are going from online ordering.
Yuzu Sushi and Canada is doing fantastic with online ordering some of those are brands that had.
Stabilize their platforms and then.
Finalize all the testing and done everything before the pandemic hit and then since the pandemic began we did push quite hard on on online ordering to make sure that the takeout option was really good and remove a lot of hurdles at the customers were facing and that that part of our digital environment is growing a lot of.
Faster than the third party environment, where we do have some products that deliver really well and we do have some really good partners to deliver an end to work with with Uber and door Dash and both made some skip in.
There's a bunch of them Grubhub is one so we are dealing with everyone and theyre good partners, but they don't service all of the areas, where we operate especially where we are outside of the major urban centers.
So some of those options are not necessarily available throughout our network. So we need to focus really on our own internal solution for takeout orders and this is also.
Much better.
Profitability in economic model of Florida franchisees, when we use that online ordering channel with our own infrastructure. So we're pushing hard on that we have more investments that are being made now.
We are limited with some brands, but we are still they're still pushing really hard to maximize that and this is something that will keep increasing going forward. So we need to continue to invest and make sure that we are where our customers expect us to be.
Okay. That's helpful. Thanks, and then just one more from me.
Pretty meaningful cost cuts in 2020 at system sales recovery in 2021 can you give us a sense of.
What which of those cost cuts or what percent of those cost cuts of our sustainable versus what should we expect to ramp back up at system sales to increase.
What we have in Q4 is at maturity level, it's not going to get hired in Q4.
For at least the controllable part.
Got it Okay. That's helpful I'll pass it on thank you.
Our next question comes from the line of Nick Corcoran with Acumen go ahead. Please your line is open.
Good morning, and thanks for taking my questions.
I was just starting to EBIT margin can you maybe give a little bit of color.
What the sequential decline.
Decline.
And how much of that was maybe.
Cost of being later document of the business.
Yeah, well, yes margins are lower than in Q3 and in Q3 of <unk> people that our margins were at normally high.
Especially in the U S. So we did we did layer of costs back end, we did invest.
On a little bit like I said in resources and time.
Our online ordering channels of the search.
A number of places on the business, so that would not necessarily look at at Q3 of us.
Normality. So I think Q4 is probably back to where we've been historically.
So in terms of in terms of where we're going as revenues increase obviously, our cost base is going to stay.
More or less where it is there is there are going to be some increases in <unk>.
On some aspects of the sales really ramp back up but nothing major so our margins will increase with revenue going forward.
Great and then maybe switching gears to M&A what are you seeing in terms of the.
The pipeline by their end of the multiples.
Are they at attracting level or of the remained high.
Yeah.
We're competing with multiple different players where M&A end.
Including the IPO market, which has been really hot in the last day.
Last few months, there's a lot of capital out of there so.
There is there are going to be opportunities right now of the market is pretty quiet, but there are going to be opportunities down the road.
I'm not sure exactly what price is going to be but I think a little bit like I was saying before the pandemic. If we if we on board of bigger assets I think that the multiples will go way up just because theres so much capital out there for the private equities.
But if we stay aware of July has always been the most successful.
With the medium size of acquisitions I think there are going to be some good opportunities that will come in the next few years.
Sure.
And just from the last question from me any expectation of on why you.
Do you expect to receive an IV skus or.
Of course, there is there any other government subsidies in Q1.
I'm, sorry, I'm, sorry can you repeat the question on it.
Yes at what do you expect to get in terms of government subsidies at Q1.
Yes.
While the government subsidies are.
In the U S, we're going to get <unk>.
There is a little bit of rent subsidy, it's really not material in terms of wages, it's more or less of what we're seeing in Q4.
As the business recovers we're seeing.
We're seeing less.
Unless subsidies coming our way so I expect to be.
The subsidies will reduce all the way to zero by the end of the period.
We're we're allowed so.
It's not going to be material amounts for Q1 on forward.
Great Thats all from me thanks.
Our next question comes from the line of Saba Khan from RBC Capital Markets. Go ahead. Please your line is open.
Alright, Thanks, and good morning, just a question I guess on the some of the variation you talked about in terms of sales based on where the stores are located at street level versus mall some of them.
I guess franchises you have on in malls or in office towers that are seeing significant declines.
Do you expect there might be a bit of of recycling of franchisees or do you think some of those folks do survive on kind of makes a transition either just how are you thinking about that over the long term at on some of those folks that are seeing these 50% or 80% declines what does that mean for your network going forward.
Yeah, well they are the ones that are suffering the most at the moment there is no question.
I mean, if you look at at Q1, it's not much better where malls were closed for a lot of our territory. So.
Not only that they would not have tables and chairs, but they didn't have a business to operate at all.
But landlords are understanding so we're talking to our landlords and.
We have a good relationship with them.
And we were trying to of being concessions for our franchisees.
Government is still helping where at the closures as mandated by the government of Canada.
I mean, we have the extra kicker that we can claim from the government. So all in all of I think we're for the vast majority of our franchisees are going to be able to coverage of fixed costs.
But I mean, it's a tough situation for them the way of.
And they want to they want to survive, but eventually we will need to see some.
Some reopening and we'll need to see some some some form of normalcy come back. It's a it's a year now that we're into debt than they are making.
Definitely the models on office towers of suffered the most so we need to.
We need to see something some light at the end of it on or at some point.
Alright. Thanks, so radically if we look at the pipeline of new franchisees that we're talking about is that should we assume that is more focused on maybe the areas that are doing better and maybe the U S end Street front type banners or is it mixed buyout of across your network by geography and banner.
Yes.
We don't have many from all of that just because they're not building new models.
We are already in most of them also the pipeline of franchisees for of malls on office towers is limited for that reason not because of that model is not attractive.
I think malls when we go back to normal will still be of great place to do business.
We're going to have more success in the models going forward.
We're happy with that but the pipeline is not there so it's mostly at St.
And where we see the <unk>.
<unk> is really healthy in general.
We're seeing a little bit more action into and converting the pipeline into actual stores, where we at concepts of proven to be.
<unk> group. So we're seeing at Goldstone open we're seeing user of open we're seeing of our sushi brands had been successful.
During the pandemic that we're seeing more of those opened in maybe some of the other brands, where we need to wait a little bit too soon to go back to normal before of the businesses are going full stride again.
So the.
The pipeline is good for many of our brands, but the conversion into actual stores is very different from one breath of the next.
Okay, and then just last one from me on the digital side I guess, it sounds like Youre doing a lot more partnerships with some of the third party aggregators.
See that as a path forward until you have some more clarity on the operating environment or have you identified maybe opportunities for banners, where maybe you didn't think that digital strategy made sense on how you may invest behind it.
Yeah, I think definitely we.
Where we saw digital being maybe a at marginal.
Addition to sales and competition to operations in some brands and now we're seeing at as a necessary sales channel that we need to develop so definitely we're going to push it very hard now with the delivery of you mentioned the aggregators of most of our digital sales are not coming from the Aggregators that are coming from the takeout option with <unk>.
Our own.
On platforms.
This is this is where we will keep pushing the aggregators are great for us and they are.
Helping us generate more sales of that I see them more as a marketing platform then as at.
Delivery service per Se, because you know a lot of people.
They want to go on that platform and being offered at a certain number of options and it's on.
Not necessarily the delivery that's the key point for US there is really to be part of that list of options that people are going to consider for for lunch or dinner.
But yes, so we're going to keep pushing on some brands.
Where a year ago, we would have said, yes digital maybe not now maybe later, we're not prepared for at our operations are going to be complicated we can't really accommodate during rush hour or whatever reason, we have not to do it now.
Now, we're seeing at as a necessary sales channel for us to survive in the future and we are pushing pretty hard to develop those brands and some of them are lagging for various reasons and some of them are pushing forward. So but yeah. We you should certainly expect more progress in the next 12 months silver over digital in general.
Okay, great. Thanks very much.
Our next question comes from the line of George <unk> with Scotiabank go ahead. Please your line is open.
Yeah. Good morning, I, just wanted to dive in a little bit on the 160 locations that were closed in the quarter.
Maybe how many of those our office in mall locations.
I don't have the exact number in front of me, but the proportion is not necessarily.
Out of out of the ordinary.
We did choose to close some locations because we did not want to renew some of the leases of two I had to be on the lease now has a difficult time for us to sign for another 10 years.
Knowing what the future is going to be so.
So there are some quarters that happened in that context, but I wouldn't say that.
The proportion is completely out of out of whack of there to the rest of the closures. So more of an office towers are probably a little bit of heavier than the other types of restaurants, but not nothing crazy.
Okay, and then at cost us anything.
Terms of of payment to close on any of these stores.
Yes at least buyouts are always a thing for a franchise or like empty y and its not because of the pandemic. We've always had a few lease buyouts every quarter.
Every year of our existence so.
I wouldn't say that we're doing more of that now than we were in the past. So yes, we did have to buy outs of leases.
Yes.
That's part of normality for us Unfortunately, with 7000 restaurants, even if you have a very very small proportion of your restaurants that don't succeed there will always be.
One or two every quarter that theyre going to need to work on and buyout of the negotiated with your landlord in.
The pandemic is no different than before the pandemic.
Okay, All right and then just thinking about of that number of late.
Is there any seasonality there like how should we think of that cadence.
As we go into Q on Q2.
Yeah. Good question, yes, normally we do have more seasonality where people go through Christmas period. Because this is this is the hottest period of the year end there.
And then January February and March other than maybe a few brands is generally a little bit quieter.
But this year I think the seasonality is getting is going to be off in terms of store closures and in terms of lease buyouts I think of pandemic is really level of all of the seasons.
Yes.
Okay.
Okay, and maybe just kind of moving over to Papa Murphy's.
Specifically on the corporate locations.
Can you maybe share your game plan on some of the number of stores Youre looking to maybe sell or maybe franchise on close.
2021.
Yeah, well of a pop.
Papa Murphy's is as you know there is a large number of corporate stores at although we did reduce at or over the last day 18 months.
Our goal is always to have no corporate stores. So.
We are working on these corporate stores that we have in the portfolio to improve the profitability stabilize them in some cases and then refranchising them. So that's always that's always the goal for all of our corporate stores.
Papa Murphy's I wouldn't expect anything different we are working on certain territories.
That might not be as successful as we'd hoped for or certain territories, where we of our stores are not optimized to where we need to.
Better our profitability and make the stores more attractive and this is what we've been doing we are also using our corporate stores the best of Nu.
The redesign that we have so we have a few options for our franchisees.
That will be offered very soon for them.
Testing of these options to make sure that we can iron out the Kinks.
But ultimately the goal is to re franchise all of the stores and the timeline is unknown, we'll just wait for at the right time to do at for each individual store and make that decision.
Thanks, and just one more if I may of Eric just kind of reading between the lines it seems that M&A.
M&A activity.
Concurrent with maybe restrictions easing I guess, that's kind of claims of the spring.
But I'm just I'm, just curious what empty wide interest in all of them.
And maybe taking on a turnaround on.
On a more distressed concept if the prices right.
Yeah, we're not closing the door on anything George so ideally, we'd like to buy of successful.
Proven concepts that debt.
Of that have been successful that have had even a great drag during the pandemic on everything but the reality is we need to evaluate the each option based on what it is now with the data in the future at and with plan at is that we have four at and the price that we're paying for to acquire those.
Change on those cash flow so I.
I don't want to say, we're going to go one way or another but all of them going to say is we're not closing the door on anything.
Okay, Eric Thanks for assets.
And again as a reminder, if you'd like to ask a question. Please press star followed by the number one on your telephone keypad. Our next question comes from the line of Derek Lessard with TD Securities Go ahead. Please your line is open.
Thanks, Eric and good morning.
You guys did make a small call out in the MD&A and referenced the ghost kitchens.
Just wondering if you could maybe talk about that that initiative.
And how permanent they are and how.
I guess at reparative, they werent driving online sales.
Delivery yeah, Yeah. That's interesting question in those kitchens are.
There are a little bit controversial.
Because we are we want to make sure of is we protect our franchisees.
We don't want to compete with our franchisees on their own turf.
So we need to be careful with that so it's not something that's going to be widespread and empty line, but we do have opportunities in certain areas to use our assets in the store.
To prepare more food or address different day parts.
So we do we are testing different models with different brands in different territories as well we are also.
Seeing for example, where.
We have at kitchen unlimited that we're that we're testing with where we're testing a few of different options were.
And we want to see how economically viable of the model is.
And so far what we've seen is from our experience at least on I'm not saying, it's the same experience for everyone.
The pure ghost kitchen model doesn't necessarily work for us financially, which we've seen of.
It's good and we do have sales, but the sales are never enough to cover it at costs.
And this is not what we're in business for but where we do implement at ghost kitchen concept of an existing restaurant just to add on to the menu offering or just to add on to another day part this.
This has proven very successful in some cases and it's a model that we're exploring further now we are deploying more and more now that the testing phase is done and we're seeing some success there. So we're at.
Investing too much in.
New equipment, because we don't want to ask our franchisees to invest too much we are seeing a lift in sales in certain concepts based on the gross kitchens that we're offering.
Okay. Thanks for the thanks for the color there and maybe just on the.
You briefly touched on the re imaging of Papa Murphy's just maybe where are you in that initiative and what does that encompass.
We're still in the testing phase I would say.
On.
<unk>.
We did come up at a new logo of new branding new store design.
And then it's how we're going to communicate at two to the markets of the customers.
Do we really make at our own.
And then create a brand identity that is going to be strong enough for us to push it forward.
And we don't want to.
We don't want to deploy at too aggressively in the market before we finished I think at so we are in the testing phase. We did renovate I think five stores now in different capacities from one of them was completely got it.
One of them was more just changing the signage and fresh coat of paint.
Some of them were were in between and we're testing the new design. We are testing how that make line is positioned how this stuff can operate on it.
We're testing our signage also to see how customers respond to it so.
So it's still of the testing phase in.
PMI and Papa Murphy's being such an important brand for us.
And being so successful at the moment, we don't want to.
Do something that would jeopardize what we have so we are going to be cautiously, but let me know.
We're pretty much there now where we think we've landed on what do we need to do for the future.
And the number I'm really happy with it.
Okay and does any of that include.
It's changing the.
The overall product offering.
I mean installing all of it.
And having more of a product.
No and.
Papa Murphy's is there is at they can bake it in.
It's an oddity in the market and we are embracing debt oddity.
The problem with banking and we do bake in Canada, and we do bake also.
And in UAE, but in the U S. We've chosen not to bake in.
If we choose to have a few stores of bake in a few stores that don't it's going to create confusion with our customers and at the discussion we have of every year, but if we wanted to offer to baking option that we'd have to pretty much deploy it across the market.
And our stores are just not.
They're not designed for at some of them.
Because you need to have the.
Number of.
Electrical is more complicated the exhaust facilities need to be installed at some places.
So we are embracing our taken bake at is working in this area of the stores.
We're really good at the moment.
And it's just up to us to communicate at effectively.
Letting people know, who we are and what we are now in terms of R&D at certainly not.
It's not tied to the rebranding, but we are pushing pretty hard on research and development to beef up the lineup of pizza, but also beef up the lineup of other products that we can sell all of our stores. We've run a few tests some of.
Them, we're very successful some of them of us.
And Thats why we test, but yes definitely there's more we're going on sort of product offering as well.
Alright, Eric Thank you very much of a great day.
Our next question comes from the line of Dmitry Khmelnitsky with Fair tax go ahead. Please your line is open.
Hi, good morning.
Eric and thanks for taking my call.
Can you please quantify on.
Sustainable changes on working capital during the quarter Jimmy tool.
What day boats or accelerated receivables collection.
Well to quantify it would be difficult, but I can say that obviously accounts receivable are lower because of our revenues are lower so as revenues go back up I expect net accounts receivable will go back up at the same day and Thats a good problem to have.
In terms of accounts payable.
There is a certain amount of seasonality going on with.
How we spend the advertising dollars that franchisees are.
Our paying us and that we need to deploy in the markets. There is a certain seasonality of various different payments. There, so theres going to be ups and downs, but in terms of saying something thats sustainable or not I would say that debt.
There's nothing special on working cap at the moment.
Okay. Thank you.
Comment a little more about the total for franchisees.
Applications.
Whether you see.
Meaningful increases in overall number of phone calls from patients.
<unk>.
Converts at once.
So all of them.
At <unk>.
Yeah at the pace of applications is really good.
It's going well both sides of the border, we do have a pretty healthy pipeline and we keep adding to that pipeline.
So.
The additions to our pipeline on the number of interested parties is drawing and especially where the brands have been very successful on the last 12 months and franchisees feel comfortable that we can pretty much face anything we are seeing more interest also from existing franchisees to.
To acquire more stores. So that's a really good thing for us.
And then in terms of the pace of conversion into new stores that really depends on how successful the brands have been during the pandemic. So kind of a brand at struggled a little bit more typically of franchisees will be a little bit more patients before day, you choose to build the store.
Where our sales have been through the roof. During the pandemic franchises will be more aggressive trying to capture some of that momentum.
And so I guess some of your brands.
Probably saw a meaningful increase of number of new applications of others.
Yes, that's for sure and Thats always the case.
August Okay. Thank you can you talk a little more about the cost savings.
I remember correctly. It was about 10 year end of our courtyard.
Right.
Q3 was $10 million Q3 was.
Was abnormal as I had mentioned on that call.
Yeah.
For once.
Of course Covid.
Yes in Q4, I think we're at about $2 million in cost savings.
A little bit lower.
And what we what we had expected there is a few items here that that we needed to investing.
As I mentioned earlier on the call.
To help.
Help us grow the business in the future.
But yes, the cost savings now I think our guidance.
That'd be called cost savings now, it's our it's our normal baseline that we're that we have.
It's not it's not necessarily something that will come back up.
And so okay. Let me rephrase at that may be at on an annualized basis, we're getting some of this new.
I know you mentioned that I guess.
North Dakota cost savings, but what you can see that delta.
On the old basis.
In terms of reduced costs.
Versus pre Covid period.
Yeah as I said Q4, I think is now at baseline.
Okay. So just sort of about eight months at Kevin Yoga.
Right.
I'll, let you do the forecast I'm, not giving any guidance no no that's okay.
And then.
Let's see.
Net sales.
Sales of from deeper model.
For the full assortments of excellent food.
Courts or on.
Perhaps lumps of this small stores on a post COVID-19 world.
Yeah for sure everyone needs to adapt.
<unk> has created a new normal and we were not sure exactly what it's going to be.
And it might be different in some places so yes, definitely we need to we need to readjust everything that we're doing everything that we have always done.
I think that.
We were going through some evolution.
Delivery of online.
Ordering was getting bigger and the food trends were different I think the pandemic has just accelerated that everything.
And we will need to adjust how we do business in every place on the non traditional we need to adjust.
With more of an office towers definitely will need to adjust.
The business model and it needs to be adjusted both on customer acquisition and on the cost structure of these stores.
And whatever is on the street also needs to adjust because we even the design of our stores needs to be adjusted now that we have so.
So much online ordering and so much takeout that we need we need to have different store designs to be able to handle that without people having to line up with.
With the cash and so if people want to be in and out of our stores and skip the line, we need to have our stores design of accommodate that so there's a number of changes that need to happen, but it's really everywhere everything needs to be.
Not necessarily changed about everything needs to be incrementally adjusted.
Okay.
What day material of royalty waiver granted four.
Yeah, we did draw on some royalty breaks for some of our franchisees.
I wouldn't say they're material.
But we did we did for for some of our restaurant chains that really had zero a way to make a profit or is it really do business we did.
We have some concessions, but again this is more.
This is more focused now.
And based on individual store reality than it is on a widespread basis. So I wouldn't say, it's anything material.
All of them.
And probably at.
More geared towards the food stores.
Yes.
Of all of US dollars essentially on multifamily and full so let's sort of first of all of you will see the of royalty waivers.
Not necessarily if you look at that at food courts for.
Example, in Quebec, and Ontario to food courts of.
Closed so whether we give of royalty break or not doesn't make a difference of the sale of our zero.
Whether we charge royalties or not is still zero.
When you you would see more of concessions, where we have the full service restaurants.
Have very high rents because of the footprint of the stores.
And very good volume and possibility to do business really.
So this is where it would be concentrated.
Understood. Okay. Thank you.
Okay, I think that's sort of helpful. I appreciate it.
Thank you.
Yeah.
And there are no further questions at this time I'd like to turn the call back over to Mr of a phase.
Thank you again for joining us on this call and we look forward to speaking with you again on our next quarterly call. Thank you.
Ladies and gentlemen, this does conclude today's conference call. We thank you for joining US you may now disconnect.
Okay.
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