Q4 2021 MTY Food Group Inc Earnings Call
Good morning, ladies and gentlemen, thank you for standing by.
Speaker 1: Good morning, ladies and gentlemen, thank you for standing by. Welcome to the MTY Food Group Inc Q4 2021 earnings conference call. At this time, all participants are in a listen only mode. Following the presentation, we will conduct a question and answer session. Instructions will be provided at that time for you to queue up for questions.
Welcome to the M. T Y Food Group, Inc, Q4, 2021 earnings conference call.
At this time all participants are in a listen only mode.
Following the presentation, we will conduct a question answer session and instructions will be provided at that time for you to queue up for questions.
Speaker 1: If anyone has any difficulties hearing the conference, please press star followed by zero for operator assistance at any time.
If anyone have any difficulties hearing the conference. Please press star followed by zero for operator assistance at any time.
Speaker 1: Before turning the meeting over to management, please be advised that this conference call will contain statements that are forward looking and subject to a risk, a number of risks and uncertainties that could cause actual results differ materially from those anticipated.
Before turning the meeting over to management. Please be advised that this conference call will contain statements that are forward looking and subject to arrest a number of risks and uncertainties that could cause actual results to differ materially from those anticipated.
Speaker 1: I would like to remind everyone that this conference call is being recorded on Thursday, February , 17th, 2022.
I would like to remind everyone that this conference call is being recorded on Thursday February 17th 2022.
Speaker 1: I would now like to turn the call over to Eric Lefesque, Chief Executive Officer. Please go ahead.
I'd now like to turn the call or call over to the.
The Chief Executive Officer. Please go ahead.
Speaker 2: Good morning, everyone, and thank you for joining us for MPY's 2021 fourth quarter results conference call. The press release and MDNA with complete financial statements and related notes, as well as the annual information form were issued earlier this morning, and are also available on our website as well as on our website.
Good morning, everyone and thank you for joining us for <unk> 2021 fourth quarter results Conference call.
Its release and MD&A with complete financial statements and related notes as well as the annual information form were issued earlier. This morning and are also available on our website as well as on SEDAR.
Speaker 2: During the call, we will be referring to forward-looking statements and to certain indicators that are non-IFRS measures. You can refer to our mDNA for more details.
During the call, we will be referring to forward looking statements and to certain indicators that are non <unk> measures you can refer to our MD&A for more details.
Speaker 2: I also remind you that all figures presented on today's call are in Canadian dollars unless otherwise stated.
I'll remind you that all figures presented on today's call are in Canadian dollars unless otherwise stated.
After nearly two years of navigating through the COVID-19 pandemic the incredible resilience of our franchise partners and staff made it possible for <unk> to once again deliver robust financial results and fiscal 'twenty, one demonstrating the strength of its business model and the benefits of having a diversified portfolio of great brands.
Speaker 2: After nearly two years of navigating through the COVID-19 pandemic, the incredible resilience of our franchise partners and staff made it possible for MPY to once again deliver robust financial results in Fiscal 21, demonstrating the strength of its business model and the benefits of having a diversified portfolio of great brands.
Speaker 2: Those results were highlighted by recorded adjusted EBITDA and cash flows from operations of $168.6 million and $139.3 million, respectively, for the year ended November 30, 2021.
Those results were highlighted by record adjusted EBITDA and cash flows from operations of $168 $6 million and $139 3 million respectively for the year ended November 32021.
Altogether system sales improved 5% in 2021 to reach $3 6 billion. Despite the adverse impact of foreign exchange rates capitalizing on the momentum some of our brands gained into during 2020 and on the opportunities offered by the growing appetite for online takeout or delivery ordering.
Speaker 2: Altogether, system sales improved 5% in 2021 to reach $3.6 billion, despite the adverse impact of foreign exchange rates, capitalizing on the momentum some of our brands gained during 2020, and on the opportunities offered by the growing appetite for online takeout or delivery ordering. All this while many of our brands are still in recovery mode following heavy restrictions resulting from the pandemic.
All of this while many of our brands are still in recovery mode. Following heavy restrictions, resulting from the pandemic.
Turning to our fourth quarter results in 2021, adjusted EBITDA increased 22% year over year to $42 8 million, mainly driven by a sharp increase in high quality recurring revenue streams.
Speaker 2: Turning to our fourth quarter results in 2021, adjusted EBITDA increased 22% year over year to $42.8 million, mainly driven by a sharp increase in high quality recurring revenue.
Speaker 2: Major brands such as Cold Stone, Sweet Frog, Taco Time, Thai Express and Sushi Shop, for example, continue to perform exceptionally well, while many casual dining brands recovered their 2019 sales levels and food court restaurants were getting gradually...
Major brands, such as Goldstone Sweet Taco time by expressing Sushi shop. For example continues to perform exceptionally well, while many casual dining brands recovered their 2019 sales levels and food court restaurants, we're getting gradually stronger.
Speaker 2: The network's overall scalability allowed margins to increase to 55% for the franchising division, highlighting the high quality of revenue generated in MCOI's discipline when it comes to cost management.
The networks overall scalability allowed margins to increase to 55% for the franchising division highlighting the high quality of revenue generated in Mti's discipline when it comes to cost management.
Defense sales. Meanwhile grew 8% in Q4 2021.
Speaker 2: System sales, meanwhile, grew 8% in Q4 2021, mainly due to a reduction of the impact of government-imposed restrictions during the period, which led to increased customer traffic in the most recent quarter. The casual dining concepts contributed $41.7 million to the increase, a surge of 36% year-over-year, despite still facing some restrictions.
Mainly due to a reduction of the impact of government imposed restrictions during the period, which led to increased customer traffic in the most recent quarter. The casual dining concepts contributed $41 7 million to the increase the surge up 36% year over year, despite still facing some restrictions.
Speaker 2: The geographical split of MTY system sales remained relatively stable compared to 2020, with 62% in the United States, 35% Canada, and 3% international. For the fourth quarter, these proportions were 57% for the United States, 40% for Canada, and 3% for the United States or international.
The geographical split of MTI system sales remained relatively stable compared to 2020 with 62% in the United States, 35% agenda, and 3% international for the fourth quarter. These proportions were 57% for United States, 40% for Canada, and 3% for the United.
Our international.
Moving onto our network, we opened 16 locations and permanently closed 189 in the fourth quarter of 2000 2021 for a net store loss of 129 MTI ended the fourth quarter with 6719 locations.
Speaker 2: Moving on to our network, we opened 60 locations and permanently closed 189 in the fourth quarter of 2021 for a net store loss of 129. MPY ended the fourth quarter with 6,719 locations.
Speaker 2: of which 6,603 were franchises, 93 were corporate, and 23 were joint ventures.
Of which $6 603 of our franchises 93, where corporate them 23 way joint ventures.
Although delays to open new locations has significantly increased due to supply chain disruptions and scarcity of labor.
Speaker 2: Although delays to open new locations have significantly increased due to supply chain disruptions and scarcity of labor, we are very pleased with the strong pipeline of future new locations to be opened by new and existing franchise partners in North America and internationally.
Very pleased with the strong pipeline of future new locations to be opened by new and existing franchise partners in North America and internationally.
Speaker 2: Altogether, 259 locations were closed at least one day because of COVID-related issues during the fourth quarter of 2021, which resulted in approximately 9,500 lost businesses.
Altogether to 159 locations were closed at least one day because of Covid related issues during the fourth quarter of 2021, which resulted in approximately 9500 loss business days.
Speaker 2: Although this number has fallen to its lowest level during the pandemic, we expect this figure to increase in Q1 2022 due to additional government mandated restrictions that started in December 2021 in Canada.
Although this number has fallen to its lowest level during the pandemic. We expect this figure to increase in Q1 2022 due to additional government mandated restrictions that started in December of 2021 agenda.
Speaker 2: On the bright side, many governments have since announced plans to lift these restrictions in upcoming weeks. So the impact should be limited to the first quarter of 2018.
On the bright side, many governments have since announced plans to lift these restrictions in upcoming weeks. So the impact should be limited to the first quarter of 2022.
The pandemic also had numerous side effects that are impacting our industry on a daily basis.
Speaker 2: The pandemic also has numerous side effects that are impacting our industry on a daily basis.
Speaker 2: and TY has not been immune to supply chain and labor issues, which are affecting many industries worldwide.
<unk> has not been immune to supply chain and labor issues, which are affecting many industries worldwide.
Speaker 2: We are proactively helping staff and franchisees mitigate supply chain constraints by introducing novel workarounds and pricing increases on menu offerings, while labor shortage issues are being addressed with a more global approach involving in some cases menu reductions or streamlining, working with suppliers to provide products requiring less employee hours in the restaurants, rethinking operations, and enhanced training offered to our crews, etc.
We are proactively helping staff and franchisees mitigate supply chain constraints constraints by introducing novel workarounds and pricing increases on menu offerings, while labor shortage issues are being addressed with a more global approach involving in some cases menu reductions are streamlining working with suppliers to provide products requiring less employee hours in the restaurants rethinking.
Operation.
And enhanced our training offered to our crews et cetera.
Speaker 2: We expect these headwinds to persist in 2022 and further solutions are being looked at to address the situation.
We expect these headwinds to persist in 2022 and further solutions are being looked at to address the situation.
Speaker 2: During the fourth quarter of 2021, MTY repaid a further 22.7 million in long-term debt.
During the fourth quarter of 2021, <unk> repaid a further $22 7 million in long term debt.
Speaker 2: bringing the total repayments for the year to 102.2 million and to 211.4 million during the last two years, despite all the turbulence that affected our business. These repayments bring our leverage to a very comfortable level, allowing us to repurchase MTY shares for cancellation, restore and subsequently increase the dividend paid to our shareholders and aggressively pursue new acquisitions.
Bringing the total repayments for the year to $102 2 million and two $211 4 million during the last two years. Despite all the turbulence that affected our business. These repayments, bringing our leverage to a very comfortable level, allowing us to repurchase <unk> shares for cancellation restore and subsea frequently increase the dividend paid to <unk>.
Shareholders and aggressively pursue new acquisitions.
Speaker 2: In TY's capital strategy, our priority remains to find attractive strategic acquisitions to enhance our network and provide more opportunities to grow in the future.
<unk> capital strategy, our priority remains to find attractive strategic acquisitions to enhance our network and provide more opportunities to grow in the future aligned.
Speaker 2: Aligned with our growth strategy, we closed the acquisition of Couteau Consoir à Tartare, a fast-growing chain of tartare restaurants, following quarter end.
Aligned with our growth strategy, we closed the acquisition of Credo compliance without a fast growing chain of dark our restaurants following quarter end.
Speaker 2: I will now turn the call over to Rene, who will discuss NCY's financial results in greater detail.
I will now turn the call over to Renee, who will discuss <unk> financial results in greater detail.
Thank you Eric and good morning, everyone, let's start with our network. So as mentioned by Eric and total 259 locations or close at least one day during the fourth quarter of 2021, which resulted in approximately 9500 loss business days.
Speaker 1: Thank you, Eric, and good morning, everyone. Let's start with our network. So, as mentioned by Eric, in total, 259 locations were closed at least 1 day during the 4th quarter of 2021, which resulted in approximately 9500 lost business days.
Speaker 1: Although this number has fallen to its lowest level during the pandemic, it still affected our recurring revenue streams and adjusted EBITDA.
Though this number has fallen to its lowest level during the pandemic is still affected our recurring revenue streams and adjusted EBITDA.
Speaker 1: Although we have had an increase in temporarily closed locations during our first quarters due to additional government restrictions in Quebec, Ontario and the Maritimes, we are happy to report that currently we have 71 restaurants temporarily closed, a decrease of 11 since November 30th, 2021. We expect this number to further decrease over the course of the next couple of weeks as more of these government restrictions are lifted.
Although we have had an increase in temporary closed location during our first quarter due to additional government restrictions in Quebec, Ontario, and the Maritime we are happy to report that currently we have 71 restaurants temporarily closed a decrease of 11 since November 32021.
We expect this number to further decrease over the course of the next couple of weeks as more of these government restrictions are lifted.
In the fourth quarter of 2021 total revenues grew by 15% to $146 3 million, mainly due to the recovery in Canada from the onset of the pandemic second wage and related government imposed restrictions in the same period of 2020.
Speaker 1: In the fourth quarter of 2021, total revenues grew by 15% to $146.3 million, mainly due to the recovery in Canada from the onset of the pandemic's second wave and related government-imposed restrictions in the same period of 2020.
Speaker 1: Franchising revenues in Canada improved 22% year-over-year to $33.7 million, while food processing, distribution and retail revenues increased 40% to $34.6 million.
Franchising revenues in Canada improved 22% year over year to $33 7 million, while fluid processing distribution and retail revenue increased 40% to $34 6 million.
Speaker 1: As mentioned by Eric, the growth in the franchising segment comes primarily from recurring revenue streams, which we expect to continue to grow as restrictions are further lifted and the world adjusts to the new normal of living with COVID.
As mentioned by Eric the growth in the franchising segment comes primarily from recurring revenue stream, which we expect to continue to grow as restrictions are further lifted and the world adjusts to the new normal of living with Covid.
Speaker 1: In the U.S. and international, franchising revenues decreased 2% to 39.7 million, largely caused by a negative foreign exchange impact.
In the U S and international franchising revenues decreased 2% to $39 7 million largely caused by a negative foreign exchange impact.
Speaker 1: Recurring revenue streams were in fact up 1.8 million year over year in the U.S. and international segment.
Recurring revenue streams or in fact up $1 $8 million year over year in the U S and international segment.
What is promising is that although our recurring revenue stream increased by $6 3 million and $1 8 million for Canada, and the U S respectively. During the quarter, our recurring controllable and non controllable expenses only increased by $1 2 million and $3 million showcasing the true cost management efforts, we put.
Speaker 1: What is promising is that although our recurring revenue streams increased by $6.3 million and $1.8 million for Canada and the U.S. respectively during the quarter, our recurring controllable and non-controllable expenses only increased by $1.2 million and $0.3 million, showcasing the true cost management efforts we put into place and the continued positive impacts it is having on our results.
Into place and the continued positive impact it is having on our results.
Quarterly adjusted EBITDA increased 22% year over year to $42 8 million in the fourth quarter of 2000 2021.
Speaker 1: Quarterly adjusted EBITDA increased 22% year-over-year to $42.8 million in the fourth quarter of 2021. The Canadian segment contributed 47% of total adjusted EBITDA in Q4 2021, representing a year-over-year increase of $5.8 million, while the U.S. and international segments contributed 53% of total adjusted EBITDA, accounting for a year-over-year increase of $1.8 million.
This segment contributed 47% of total adjusted EBITDA in Q4, 2021, representing a year over year increase of $5 8 million, while the U S and international segments contributed 53% of total adjusted EBITDA accounting for a year over year increase of $1 8 million.
Speaker 1: We are extremely pleased with our overall franchising EBITDA margin of 55%, which not only surpassed our 2020 margin of 46%, but also our 2019 margin of 51%.
We are extremely pleased with our overall franchising EBITDA margin of 55%.
Not only surpassed our 2020 margin of 46%, but also our 2019 margin of 51%.
Our retail processing and distribution segments, although we had a drop in our margins from 16% to 11% due to an increase in input labor and transportation costs. We are happy to report a revenue growth of 39% for the segment.
Speaker 1: For our retail, processing, and distribution segments, although we had a drop in our margins from 16 to 11 percent due to an increase in input, labor, and transportation costs, we are happy to report a revenue growth of 39 percent for the segment.
Speaker 1: Net income attributable to owners reached $24.9 million or $1 per diluted share in the fourth quarter of 2021 compared to $20.1 million or $0.81 per diluted share for the same period last year.
Net income attributable to owners reached $24 9 million or $1 per diluted share in the fourth quarter of 2021 compared to $20 1 million or <unk> 81 per diluted share for the same period last year.
Speaker 1: Now turning to liquidity and capital resources, cash flows from operations amounted to $31.9 million in the fourth quarter of 2021 compared to $44.8 million in the fourth quarter of 2020.
Now turning to liquidity and capital resources.
Flows from operations amounted to $31 9 million in the fourth quarter of 2021 compared to $44 8 million in the fourth quarter of 2020.
Speaker 1: decrease them mostly from an increase in tax installments made during the fourth quarter of 2021, as well as higher than normal collection of accounts receivable in 2020 due to the deferred royalties we provided earlier in that year.
The decrease stems mostly from an increase in tax and tax installments made during the fourth quarter of 2021 as well as higher than normal collection of accounts receivable in 2020 due to the deferred royalties we provided earlier in last year.
Speaker 1: Free cash flows reached $35.6 million, or $1.44 per diluted share in the fourth quarter of 2021, compared to $43.9 million, or $1.78 per diluted share for the same period last year.
Free cash flows reached $35 6 million or $1 44 per diluted share in the fourth quarter of 2021 compared to $43 9 million or $1 78 per diluted share for the same period last year.
During the fourth quarter, we used cash to reduce reduce our debt by $22 7 million paid out a dividend of $18 five per share and.
Speaker 1: During the fourth quarter, we used cash to reduce our debt by $22.7 million, paid out a dividend of $18.5 cents per share, and repurchased 36,600 shares for a total consideration of $2.2 million under our NCIB program. Following the quarter end, we raised our dividend by 14% to $0.21 per share. This represents our ninth increase over the past 12 years when we first introduced dividends.
We purchased 36600 shares for total consideration of $2 2 million under our <unk> program.
Following the quarter end, we raised our dividend by 14% to 21 per share.
This represents our ninth increase over the past 12 years, when we first introduced dividends.
Speaker 1: At the end of the fourth quarter, long-term debt, mainly in the form of bank facilities and holdbacks on acquisitions
At the end of the fourth quarter long term debt, mainly in the form of bank facilities and hope axon acquisition.
Speaker 1: stood at $347.6 million. We also ended the quarter with $61.2 million of cash on hand. And with that, I'll turn it back to Eric for the conclusion.
At $347 6 million. We also ended the quarter with $61 2 million of cash on hand, and with that I will turn it back to Eric for the conclusion.
Yes.
Speaker 2: Thank you, Renee. So, just a few takeaways before we open the lines for questions.
Thank you Renee.
Just a few takeaways before we open the lines for questions.
Speaker 2: First, MTY delivered solid financial results in the fourth quarter and fiscal 21 while still improving its balance sheet. Our balance sheet is in great shape and is ready for potential acquisitions, large or small.
First <unk> delivered solid financial results in the fourth quarter and fiscal 'twenty, one while still improving its balance sheet. Our balance sheet is in great shape and is ready for potential acquisition larger small.
Speaker 2: Second, both staff and franchises have responded proactively to pandemic-related challenges along with global supply chain and labor issues.
Both SAP and franchisees have responded proactively to pandemic related challenges along with robust global supply chain and labor issues.
Our teams are doing a phenomenal job everyday to keep the lights on and make sure our franchisees face as little disruption as possible.
Speaker 2: Our teams are doing a phenomenal job every day to keep the lights on and make sure our franchisees face as little disruptions as possible.
Our sound growth strategy combined with the sustainable business model should generate stronger profitable growth as key end markets begin to reopen on a large scale basis in 2022.
Speaker 2: Our sound growth strategy, combined with a sustainable business model, should generate stronger, profitable growth as key end markets begin to reopen on a large-scale basis in 2020.
Finally, I am pleased to report that <unk> published its first ESG report during fiscal 'twenty, two highlighting our commitment to sustainability diversity and good governance practices. We are currently in the process of laying the foundation for our ESG objectives understanding.
Speaker 2: Finally, I'm pleased to report that NPY will publish its first ESG report during fiscal 2022, highlighting our commitment to sustainability, diversity, and good governance practices.
Speaker 2: We are currently in the process of laying the foundation for our ESG objectives, understanding where we're at in establishing priorities for the next months, years, and decades.
We are at and establishing priorities for the next months years and decades. Our goal is to ensure our targets are measurable tangible and that we work on what matters most to the communities we operate in and the various stakeholders that are involved with MTR.
Speaker 2: Our goal is to ensure our targets are measurable, tangible, and that we work on what matters most to the communities we operate in and the various stakeholders that are involved with MTY. Ultimately, it will allow MTY to integrate ESG considerations into our daily operations and strategic decision making.
It will allow <unk> to integrate ESG considerations into our daily operations and strategic decision, making.
Speaker 2: clothing. I would like to sincerely thank our employees, franchise partners, customers, and suppliers for their ongoing support. With that being said, we will now open the lines for questions. Operator?
<unk> I would like to sincerely, thank our employees franchise partners customers and suppliers for their ongoing support with that being said, we will now open the lines for questions operator.
Speaker 3: Thank you. As a reminder to ask a question, please press star followed by the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster.
Thank you as a reminder to ask a question. Please press star followed by the number one on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.
Speaker 3: Our first question will come from Derek Lessard from TD Securities. Please go ahead, your line is open.
Our first question will come from Derek <unk> from TD Securities. Please go ahead. Your line is open.
Yes, thanks, and good morning, everybody congratulations on a great quarter.
Speaker 4: Yeah, thanks. And good morning, everybody. Congratulations on a good quarter. I guess my first question is impressive growth on the on the distribution side. Maybe you could just talk about some of those drivers, I think, in the NDA, in the NDNA. Sorry. He also said that the improvement is tied to to the higher restaurant sales. So I was wondering if you could talk to that. And then finally, you know, what is the long term plan for this business in particular?
I guess my first question is.
Impressive growth on the on.
On the distribution side can you just talk about some of those drivers I think in the NPA and the MD&A sorry.
He also said that the improvement is tied to the higher restaurant sales. So I was wondering if you could talk to that and then finally what is the long term plan for this business in particular.
Yes, good morning Derek.
Yes on the distribution side.
Speaker 2: Yeah, on the distribution side, you know, we have two small distribution centers that serve two of our brands, Van Antenne and the other one is Cazegrec. So, Cazegrec, obviously, in Q4 of this year, was doing better than the year before, so that helped a great deal with growing the distribution revenues. But that being said, that segment also has the retail revenues in it and also has the manufacturing revenues in it. And most of the increase you see, obviously, Cazegrec is...
We have two small distribution centers that.
Serve two of our brands.
And the other one is Cathy correct.
Correct, obviously in Q4 of this year was doing better than the year before so that helped a great deal with growing the distribution revenues.
That being said that segment also has the retail revenues and also has a manufacturing revenues in it.
Most of the increase you see obviously <unk> has caused a substantial amount of the growth, but retail is also a segment that is very strategic for us.
Speaker 2: cause a substantial amount of the growth, but retail is also a segment that's very strategic for us.
Speaker 2: So, so a portion of the growth you're going to see in the future is going to come from retail more than more than the distribution.
So a portion of the growth youre going to see in the future is going to come from retail more than more than the distribution.
Speaker 2: So yeah, retail is a key strategic component for us of our growth. We believe that there's a really good market for branded products, high quality products that we
Retail is a key strategic.
Components for us of our growth we believe that there there is a really good market for branded products high quality products that we.
Speaker 2: that we can sell to the end customers that might not be visiting restaurants. So we'll push on that for sure in the future.
As we can sell today.
And customers that might not be visiting restaurants.
So we're pushing on that for sure in the future.
Speaker 2: Okay, that's helpful, Eric. One more and I'll recue. On your digital sales, I was just wondering if you think if this sales opportunity has peaked for you. I mean, the revenue was pretty flat year over year. Yeah, no.
Okay. That's helpful, Eric and one one more and I'll requeue.
On your digital sales I was just wondering if you think.
The sales opportunity.
Peak for you I mean, the the.
The revenue was pretty flat.
Year over year.
Yes, no certainly not.
We are.
In the U S, where we're still investing in new technologies.
Speaker 2: In the U.S., we're still investing in new technologies. For example, at Papa Murphy's, we're investing heavily in new technologies to drive more digital. We believe that digital is the way of the future, not only because of the skip the line aspect of it, but more so with the amount of time customers are a lot, you know,
For example at Papa Murphy's, we're investing heavily in new technologies to drive more digital we believe that digital is the way of the future.
Not only because of the skip the line aspect of it but.
More so with the amount of time customers are aligned.
Okay.
Speaker 2: you know, have at their disposal if they decide to go digital, they can look at the menu, spend a little bit more time on it, and maybe buy different things. So we'll certainly push on digital. Papa Murphy's investing for a lot of our brands in the U.S. We are, you know, with Kahala, we have a number of our brands also.
The disposal if they decide to.
Go digital we can look at the menu is spend a little bit more time on it.
Maybe by different things.
So we will certainly push on digital Papa Murphy's is investing.
For a lot of our brands in the U S. We are.
We have a number of our brands also.
Speaker 2: where we're changing certain aspects of the digital world, marketing, loyalty, online ordering. And then in Canada, it's still a untapped potential for us. So we have...
We are changing certain aspects of the digital world.
Marketing loyalty.
Online ordering and then in Canada, it's still untapped potential for us so we.
We have on.
Speaker 5: basically undone everything we've done in the past because we wanted to start over in Canada for the most part. So that happened in November and now we're relaunching digital and online ordering opportunities for a lot of our brands. So we're still working on the kinks here.
Basically.
I'm done everything we've done in the past that because we wanted to start over in Canada for the most part.
So that happened in November and now we are re launching digital and online ordering opportunities for a lot of our brands. So.
So we're still working on the Kinks here, but.
Speaker 2: I think in the next few months, you're going to see a little bit more marketing around it and there's certainly a very large opportunity and one of the aspects that's really interesting is to look at that.
I think in the next few months youre going to see a little bit more marketing around it and there are certainly.
The larger opportunity and one of the aspects that's really interesting is to look at that.
Speaker 2: the amount of our digital sales that are coming from aggregators versus the ones that are coming from our own platforms. And in the U.S., you're looking at about a third of our orders coming from aggregators and two-thirds coming from our own platforms, which is really a desirable mix. And in Canada, it's about the opposite. So a lot more coming from aggregators, which is a lot less profitable, and about a third coming from our own platforms, which is, you know, the segment that we want to push. So it tells us that there's.
The amount of our digital sales that are coming from aggregators versus the ones that are coming from our own platforms.
And in the U S. Youre looking at about a third of our orders coming from Aggregators and two thirds coming from our end platforms, which is really a desirable mix and <unk> about the opposite so we'll.
Lot more coming from Aggregators, which is a lot less profitable and about a third coming from our owned platforms, which is the segment that we want to push so it tells US that there is there is there is ways to grow in Canada, and the fact that we're now investing in the right technologies and that the brands have the capabilities to really expand on that I think.
Speaker 2: There's ways to grow in Canada and the fact that we're now investing in the right technologies and that the brands have the capabilities to really expand on that I think is really promising for the future.
Is really promising for the future.
Thanks for that Eric.
Our next question comes from Michael <unk> from Raymond James. Please go ahead. Your line is open.
Speaker 3: Our next question comes from Michael Glenn from Raymond James. Please go ahead, your line is open.
Hey, Thanks for taking my question, so maybe just to start.
Speaker 6: Hey, thanks for taking the question. So, maybe just to start, Eric, with things transitioning to a more normalized environment, how do you think about where your corporate SG&A sits and where you would like that level to be?
Eric.
Things transitioning to a more normalized environment, how do you think about where your corporate SG&A.
And where you would like that level today.
Speaker 2: Yeah, I think in terms of SG&A, we're pretty much where we're going to be.
Yes, yes.
I think in terms of SG&A, we're pretty much where we're going to be.
Speaker 2: We obviously, like every other company, have a number of vacant positions that we need to fill. But unfortunately, I think for every position we fill, we're gonna have another one that we're gonna need to fill. So I think SGNA is probably at the right level now. There's pluses and minuses here that go, there's a certain portion of it that's not necessarily controllable. But I think now would be a good baseline for the SGNA.
We obviously.
Every other company has a number of vacant positions that we need to fill.
But unfortunately I think for every position we feel we're going to have another one that we're going to need to fill so I think SG&A is probably at the right level now there's pluses and minuses here that go there is a certain portion of it that's not necessarily controllable.
But.
I think now would be a good baseline for <unk>.
Okay.
And then <unk>.
Speaker 6: balance sheet. It looks like you're sub two times. Maybe correct me on that if I'm not right.
Balance sheet it looks like just.
Two times net debt to EBITDA maybe.
Awesome.
Right.
What.
Speaker 6: What is, is there something specific out there that's perhaps holding up M&A for MTY, or is it a more competitive market? Is it the opportunity set? Just trying to gauge what's happening there.
Interesting.
Pacific out there that perhaps holding up M&A.
For Q1 or is it a more competitive market.
The opportunity set just trying to gauge what's happening there.
Speaker 2: Yeah, it's a little bit of everything you mentioned. Certainly, our balance sheet is not holding MTY back in terms of acquisitions. So I think we need to see the deal flow become a little bit more dynamic. And from the deals we've seen, a lot of it.
Yes, it's a little bit of everything you mentioned.
Our balance sheet is not a holding <unk> back in terms of acquisitions. So I think we need to see the deal flow I become a little bit more dynamic.
And from the deals that we've seen a lot of it is very large companies on.
Speaker 2: very large companies owned by private equities that are in harvest.
On the buy private equities that are in harvest mode now.
Speaker 2: Unfortunately, you've seen some of the multiples that some of our competitors have paid for.
Fortunately <unk> seen some of the multiples that some of our.
Some of our competitors have paid for acquisitions and <unk>.
Speaker 2: We're not playing in these types of acquisitions where people pay over 20 times EBITDA for
<unk>.
We're not playing in these in these types of acquisitions, where people pay over 20 times EBITDA floor.
Speaker 2: for a deal, so we're going to be a little bit more patient here. We are seeing some movement in terms of deal flow, so whether or not it ends up in two opportunities for MTOI, time will tell. But I think, you know, among the factors, the multiples and the…
Or a deal so we're going to be a little bit more patients here.
Seeing some movement in terms of deal flow.
So whether or not it ends up in two opportunities for MTI time will tell.
But I think among.
Among the factors that multiples in the competitive market that's certainly one.
Speaker 2: The competitive market is certainly one, especially for the larger deals, and then the deal flow needs to become a little bit more dynamic, but I have a feeling that this is starting to become a little bit more dynamic.
Especially for the larger deals.
Then the deal flow it needs to become a little bit more dynamic, but I have a feeling that this is starting to become a little bit more normal.
Speaker 6: And if we're thinking about where M&A might be, do you have a preference right now between Canada and the US for M&A?
And if we're thinking about where M&A might be a do you have a preference right now between Canada and the U S for M&A.
Yeah, No we're very agnostic when it comes to M&A.
Speaker 2: No, we're very agnostic when it comes to M&A, geography. I don't think we'd go overseas necessarily. So we're happy with North America for now. But yeah, there's plenty of opportunities. I think naturally there's going to be more deal flow in the U.S. just because of how deep the market is. But there are still good companies in Canada that we're also interested in. And if they ever become for sale, we'll certainly be listening. So.
Geography, I don't think we'd go overseas and necessarily so where we're happy with North America for now.
But yes, there is plenty of opportunities I think naturally there is going to be more deal flow.
In the U S. Just because of how deep the market is but there are still good companies in Canada that we're also interested in and if they ever become for sale well, we will certainly be listening so.
Speaker 2: We're very agnostic when it comes to geography, but I think naturally the U.S. will become a little bit bigger just because of the depth of that market.
We're very agnostic when it comes to geography, but.
I think naturally the U S will will become a little bit bigger just because of the depth of that market.
Okay. Thanks for taking the questions.
Speaker 3: Our next question comes from John Zamparo from CIBC. Please go ahead, your line is open.
Our next question comes from Jonathan <unk> from CIBC. Please go ahead. Your line is open.
Speaker 2: Thank you very much. Good morning. I wanted to start with the, the impact of labor shortages and the supply chain that you referenced, Eric and beyond the stores that were closed solely because of government restrictions. Can you quantify the impact of reductions to operating hours from from staffing shortages in the quarter and subsequent to it? Is this is this being a drag on system?
Thank you very much good morning, I wanted to start with the impacted labor shortages in the supply chain that you referenced Eric and beyond the stores that were closed.
Solely because of government restrictions can you quantify the impact of reductions to operating hours from from staffing shortages in the quarter and subsequent to it is this is this being a drag on system sales.
Speaker 2: Yeah, for sure. It's a drag. There's no question about it. It's really hard for us to quantify it because
Yeah for sure. It's a drag there is no question about it it's really hard for us to quantify it.
Speaker 5: We don't always know, and sometimes we find out after the facts that, you know, operating hours were reduced, or, you know, a day or two was closed during a certain week, or labor shortages are everywhere. They're affecting our suppliers. They're affecting our distributors. They're affecting even construction of restaurants. So we're seeing it a little bit everywhere, but to quantify the impact would be tough.
We don't always know.
And sometimes we find out after the fact.
Operating hours were reduced or.
They are too.
Closed during a certain week are.
Labor shortages are everywhere they are affecting our suppliers are hedging our distributors they are affecting even construction of restaurants.
So we're seeing it a little bit everywhere, but to quantify the impact would be tough.
Speaker 2: I mean, we even had situations where our franchisee is short of staff and they have to work all the hours. They catch COVID and they have nobody else to open the store, so they need to close for a week. So we've had quite a few of those.
I mean, we even had situations where our franchisee.
As short of staff and they have to work all the hours the cash COVID-19 have nobody else to open the store so they need to close for a week. So we've had quite a few of those.
Speaker 2: So I wouldn't I wouldn't necessarily speculate on how much it represents, but I can certainly Say for sure that it's a
So I wouldn't I wouldn't necessarily speculate on how much it represents but I can certainly.
Say for sure that it's a drag on system sales.
Okay. That's helpful. Thanks.
Speaker 7: Okay, that's helpful. Thanks. I appreciate the disclosure on the different restaurant types year over year. I was wondering if you can say where casual restaurants and malls and office towers are versus Q4, 2019, even if just approximately to get a sense of how those are varying versus pre pandemic.
Appreciate the disclosure on the different restaurant types year over year I was wondering if you can say, where casual restaurants, and malls and office towers or versus Q4 2019, even if just approximately.
A sense of how those are faring versus pre pandemic.
Speaker 2: Yeah well the good news is for casual dining and not all of our concepts but many of them have recovered 2019 levels or even exceeded them. Unfortunately we had to suffer more closures and more restrictions in Q1 for Quebec and Ontario and Atlantic provinces but
Yeah, well the good news is for casual dining and not all of our concepts, but many of them have recovered 2019 levels.
Or even exceeded them.
Fortunately we had two.
We had to suffer more more closures in more restrictions in Q1 for Quebec and Ontario.
And Atlantic provinces, but.
Speaker 2: It's really encouraging to see that our franchisees have been able to, you know, find staff and find a rhythm to be able to operate and generate sales. And before we had to close again in December , the sales were for a lot of our concepts exceeding 2019. Now, that's not.
It's really encouraging to see that our franchisees have been able to find staff and find a rhythm to be able to operate and generate sales.
Before we had to close again and then December sales.
Sales were for a lot of our concepts exceeding 2019 now that's not that's not for all our concepts or thats not off for all of our restaurants.
Speaker 2: That's not for all our concepts, so that's not all for all our restaurants, if we're in major urban centers, for example, workers and, you know, Christmas parties haven't recovered, but for for a lot of our concepts, it's really positive.
We're in major urban centers for example.
Workers in.
Christmas Party 11th recovered.
But for for a lot of our concepts, it's really positive when it comes to.
Speaker 5: when it comes to malls and food courts and office hours in general, that's still a struggle. The sales are creeping up, so we're going in the right direction and we're certainly...
Malls and food courts in office towers in general.
That's still a struggle.
The sales are creeping up so we're going into right direction and we're certainly.
Speaker 5: making leaps and bounds with pretty large numbers in terms of increases, but we're still way short of 2019.
Making leaps and bounds.
Pretty large numbers in terms of increases, but we're still way short of 2019.
Speaker 2: The traffic hasn't recovered. A lot of these are located in major urban centers, again, that are dependent on lunch hour for office workers or for tourists, and we just haven't recovered that yet. So.
Traffic hasn't recovered.
These are located in major urban centers again that are dependent on launching our floor for office workers or for tourists.
And we just haven't recovered that yet so.
We still have a little bit of.
We still have a little bit of a struggle.
Speaker 2: We still have a little bit of struggle with these situations, but we're also going in the right direction. And if we're getting better every month, I think we'll eventually recover 2019 and exceed it. But there's still a little bit of ways to go.
With these situations, but we're also going into right direction, and we're getting better every month.
I think we will eventually recover 2019 and exceed it but.
There's still a little bit of ways to go.
Okay, and as a follow up to that.
Speaker 7: Okay. And as a follow-up to that, we did see an elevated level of closures in the quarters and that was disproportionately skewed towards office towers and food courts and malls. And I'm wondering when you have conversations with these franchisees, do you get a sense that that elevated closure level could sustain in 22 because of the roll-off of subsidies or is there a level of confidence that these franchisees actually have relatively healthy operations and can keep operating?
You did see an elevated level of closures in the quarter and that was disproportionately.
<unk> towards office towers in food courts in malls and I am wondering when you have conversations with these franchisees.
Do you get a sense that that elevated closure level could sustain in 'twenty two because of the roll off of subsidies are or is there a level of confidence that these franchisees actually have relatively healthy operations and Keith.
Operating people without the subsidy.
Speaker 2: For the vast majority of our franchisees, financially, they're doing well. I think the mental strain of opening and closing is probably more difficult than the financial aspect.
Therefore, the vast majority of our franchisees financially they are doing well I think that the mental strain of opening and closing is probably more difficult than the financial aspect.
So.
Speaker 5: Yeah, the closures are related to a number of different.
Yes, the closures are related to a number of different.
Speaker 2: know, different items that happen. It's really case by case. But I will say in terms of closures, Q4 is always a little bit heavier than the other quarters historically. So we always have a little bit more, you know, our seasonal
Different items that happen, it's really case by case, but.
I will say in terms of closures Q4 is always a little bit heavier than the other quarters historically so.
So we always have a little bit more.
Our seasonal.
Speaker 2: Frozen treats, for example, will tend to close after the summer if they have to close, so we've lost a few there.
Frozen treats for example will tend to close after the summer if they have to close so we've lost a few there.
Speaker 5: We also, unfortunately, we have one of our partners internationally that's not doing well financially. They've gotten insolvent.
We also.
Unfortunately, we have one of our partners internationally, that's that's not doing well financially they've gone insolvent. So we have a certain number of quarters that are related to that that partner. They all happen at one time at the same time, so it looks like a bigger number.
Speaker 2: We have a certain number of closures that are related to that partner, you know, they all happen at one time at the same time. So it looks like a bigger number and there's also.
And there is also a pretty thorough review we did in Q4 of our.
Speaker 2: pretty thorough review we did in Q4 of our
Temp closed locations because we wanted to see that after nearly two years of pandemic. The extent both locations are they ever reopening and there were some adjustments there where we found out that some of these restaurants will not reopen so even though we had hoped and even though our franchise partner kept saying.
Speaker 5: Temp closed locations, because we wanted to see that, you know, after nearly 2 years of pandemic, these templates locations, are they ever reopening? And there were some adjustments there where we found out that some of these restaurants will not reopen. So, even though we had hope, and even though our franchise partner kept saying.
Speaker 2: that they were going to reopen. There were a certain number of them that after discussion, we come to the conclusion that they are not going to reopen. So there was a certain adjustment there also in terms of which store we believe will reopen and which store we believe
They were going to reopen there were a certain number of them that after a discussion.
We come to the conclusion that they are not going to reopen so there was a certain adjustment. There also in terms of which store. We believe we will reopen and which store we believe well.
Speaker 5: And obviously those, I don't expect to carry into 2022. So, I don't have a crystal ball, I don't know what's going to happen in the future, but I do expect that this very high number of closures is going to be more of a one-timer than something that's going to reoccur in the future.
And obviously those I don't expect to.
To carry into 2022.
I don't have I don't have a crystal ball I don't know, what's going to happen in the future but I.
I do expect that this very high number of closures, it's going to be more of a one timer than something thats going to re.
Reoccur in the future.
Okay. That's great color and then the last one for me a follow up on a prior question I Wonder how you think about the leverage ratio with the balance sheet, where it is and in a period, where youre seeing maybe lighter M&A deal flow in higher valuation.
Speaker 7: Okay, that's great color. And then the last one for me, a follow-up on a prior question. I wonder how you think about the leverage ratio with the balance sheet where it is. And in a period where you're seeing maybe lighter M&A deal flow and higher valuations, and you take a pause on M&A versus what you've done in the past, would you lean more on the NCIB? And do you have a target leverage ratio?
And when you take a pause on M&A versus what you've done in the past would you lean more on the CIB and do you have a target leverage ratio in mind.
Speaker 2: Yeah, well, the target ratio.
Yes, well.
Our debt ratio.
Speaker 5: Right now, we're comfortable with our debt. We'd like to have acquisitions and add a little bit more, not because we like debt, but because we'd like acquisitions. So we're very comfortable where we are. So we did continue to acquire shares of MTY after year end. So you saw that we have a small number in November and we continued after November .
Right now we're comfortable with our debt.
We would like to have acquisitions and add a little bit more not because we liked but because we'd like acquisitions.
So we're very comfortable where we are so we did that we did continue to acquire shares of empty why after year end. So you saw that we have.
We have a small number in November and we continued after after November .
Speaker 2: So we did buy back shares, we increased our dividend, but in terms of capital allocation at the moment, the priority is really to find good.
So we did buy back shares we increased our dividend, but in terms of capital allocation at the moment the priority is really to find good.
Good strategic acquisitions that we can really make a difference.
Speaker 2: good strategic acquisitions that we can really make a difference for MTY and for the franchise partners.
For <unk> four for the franchise partners so.
Speaker 5: Yeah, we'd like to add leverage in the right circumstances for acquisitions, so that's top priority for us.
Yes, we would like to add leverage in the right circumstances for acquisitions.
Desktop priority for us.
Okay I appreciate the color I'll pass it on thank you.
As a reminder to ask a question. Please press star followed by the number one on your telephone keypad.
Speaker 3: As a reminder, to ask a question, please press star followed by the number one on your telephone keypad.
Speaker 3: Our next question comes from George Dumais from Scotiabank. Please go ahead, your line is open.
Our next question comes from George <unk> from Scotiabank. Please go ahead. Your line is open.
Speaker 8: Hi, good morning, guys. How does Dr. Murphy do this quarter, Eric, on a year-over-year basis? And if I ask you to maybe look at your crystal ball, do you think we've seen the toughest of the comps for that banner, or do you maybe think that they're coming up?
Yes, hi, good morning, guys.
Papa Murphy due this quarter, Eric on a year over year basis.
And if I ask you to maybe look at your Crystal Ball do you think we've seen the toughest of the comps for that banner or do you maybe think that they are coming up.
Yes, My Crystal ball is pretty muddy George so they don't drive flex.
Speaker 2: Yeah, my crystal ball is pretty muddy, George, so I don't trust it as much, but yeah, Papa Murphy's did better in Q4 than it did in Q3, so pretty reasonable Q4 comping against very difficult numbers, but in general comping well, a little bit off of 2020 levels.
But that yes, Papa Murphy's did better in Q4 than it did in Q3, so pretty reasonable Q4 comping against.
Very difficult numbers, but in general.
Jumping well a little bit off of 2020 levels.
Speaker 2: but in general comping well. Now, you know, the only thing I can say is Q1 return to more Q3 levels or Q1 at the moment is a little bit more off than we'd like it to be.
But in general are Comping well now.
The only thing I can say is that Q1 returned to a more.
Q3 levels or Q1 at the moment is a little bit more off than we'd like it to be.
Speaker 2: But have we seen the worst?
But.
We seen the worst.
Speaker 5: I hope we've seen the worst. I think we have a lot of good stuff in store for Papa Murphy's. There are...
I hope to think.
Hope we've seen the worst I think we have a lot of good stuff in store for Papa Murphy's.
There are.
Speaker 5: things that are happening in the markets that we don't control, but I do believe that we're doing the right thing for this brand and I'm pretty bullish about the future.
Things that are happening in the markets that we don't control.
But I do believe that we're doing the right thing for just Brandon.
I'm pretty bullish about the future so.
Speaker 2: I won't read into a week or a month or even a quarter whether the brand is doing well or not. I'll evaluate the performance of the team over a longer period of time. We're not off by numbers that are.
I won't I won't read into a week or a month or even a quarter, whether it's a brand is doing well or not that will evaluate the performance of the team over a longer period of time.
Not off by numbers that are.
Speaker 5: causing very big concerns for us so it's not it's not like we were off double digits or something so we're we're not anywhere close to that. So doing the right things keep trust the process and make sure you you do everything right and everything you can and and the rest will happen and you know we just we just need to keep plugging and
Causing very big concerns for us so it's not it's not.
Like we were off double digit theres, some things, so where we're not anywhere close to that.
So doing the right things keep.
Throughout the process and make sure you do everything right and everything you can and the rest will happen.
We just we just return.
Keep plugging in.
I figure it out.
Speaker 8: Okay. And I saw some activity on the corporate stores in that banner. So can you maybe talk a little bit about where we are in terms of selling those or franchising those?
Okay, and I saw some activity on our corporate stores and that banner. So can you maybe talk a little bit about where we are in terms of selling those or franchising mill.
Speaker 5: Yeah, we franchised a large number of corporate stores in the last few months. So we have a few pockets of corporate stores left for that brand, but we don't have that many. If you remember when we acquired the brand, we had over 100 corporate stores and we're not anywhere close to that now. So we franchised some really good markets. Minneapolis was the latest.
Yes, we franchise and a large number of corporate stores.
The last few months.
We have we have a few buckets of corporate stores left for that brand, but we don't we don't have that many if you remember when we acquired the brand we had over 100 corporate stores.
And we're not anywhere close to that now so we franchise. Some some really good markets Minneapolis was the latest.
Speaker 5: with over 25 stores being franchised at one time. So we're really happy to have this new franchise partner.
With over.
25 stores being franchise at one time.
So we're really happy to have this new franchise partner.
And the MTI family and that we're going to work with them to do the best we can and now with a few markets that we have left are in markets that are.
Speaker 5: in the MTY family and we're going to work with them to do the best we can. And now the few markets that we have left are markets that are a little bit more difficult, so we're going to work hard to turn them around and make them franchisable.
A little bit more difficult. So we're going to work hard to turn them around and make them from <unk>.
Okay. That's helpful. And then your commentary about the I guess the store locations that you've accelerated a little bit can you comment a little bit on that.
Speaker 8: Okay, that's helpful. And on your commentary about the, I guess, store locations that have accelerated a little bit, can you comment a little bit on the temporary closed locations? I think there's a smidge over 70 there. So, can you talk a little bit about, you know, the likelihood, I guess, that those can close over the near term or any commentary there?
The temporary closed locations I think theres a smidge over 70, there. So can you talk a little bit about.
The likelihood I guess, both can close over the near term or any commentary there.
Yes, well the tempo of locations are.
I mean, there are not many so now they're getting easier and easier to track a large number of those are for example movie theaters in Canada.
And we do expect those to reopen at some point.
But I guess.
The owners of movie theaters are waiting for the next blockbuster or they're waiting to be able to operate at full capacity I'm not sure exactly.
Speaker 5: What's happening there and how their restaurants are performing, but there's there's a large number that are related to to movie theaters there's also a number that are related to
What's happening there and how their restaurants are performing but.
There's a large number that are related to the movie theaters.
There's also a number of that are related to.
For example, if you.
Familiar with Toronto.
Franz that are in the path, where the path is supposed to be really busy at the moment and it's not that busy so.
So we have some there.
So major urban centers, where you would find normally a lot of tourists and a lot of office workers that are just not present at the moment.
Speaker 2: So those make up the bulk of our Temp-Closed locations, and after very thorough review, we do believe that the ones that are Temp-Closed at the moment will reopen, and we're working with our franchise partners to get that done. So yeah, we're pretty optimistic about the ones that are left.
So those make up the bulk of our.
Closed locations.
Very thorough review, we do believe that the ones that are temp closed at the moment will reopen and we're working with our franchise partners to get that done.
So we're pretty optimistic about the ones that are left.
Speaker 8: Okay. And free cash flow conversion has been jumping around quite a bit, Eric, I guess, in fiscal 20 and fiscal 21. But if we were to look at this year, how should we think of conversion from, I guess, for me without a free cash? Is that kind of more normalized?
Okay.
Free cash flow conversion has been jumping around quite a bit Eric I guess.
2019 fiscal 'twenty one.
But if you really look at this year.
How should we think of conversion from <unk>.
I guess from EBITDA to free cash is that kind of more normalized.
Maybe provide there.
Speaker 5: Yeah, well, free cash flow conversion has been really high in the last two years. I think probably.
Yes, well free cash flow conversion has been really high in the last two years.
I think probably.
More than normal.
Speaker 5: more than normal. Normally you'd have your EBITDA and then you pay your interest on the debt and a normal rate of income taxes and that should be pretty much our free cash flow conversion for MTY because we don't have much capex at all.
You will normally.
Have your EBITDA and then you figure your interest on the debt and the normal rate of of <unk>.
Income taxes and that should be pretty much of our free cash flow conversion for <unk>, because we don't have much capex at all.
And.
Speaker 2: And in the past few years, in the past two years, we've paid less in taxes, we've really optimized the working cap. So maybe numbers are a little bit higher than they should be in terms of percentage conversion. We'll probably go back to normal, I guess, in 22. So the number should be a little bit lower than what we experienced.
And in the past few years in the past two years, we've paid less in taxes, we really optimize the working cap.
So.
Maybe maybe numbers are a little bit higher than they should be.
Terms of percentage conversion.
We will probably go back to normal I guess in 'twenty two.
So the number should be a little bit lower than what we've experienced recently.
Speaker 8: Okay, I just want to ask a minute before I go on general on M&A, have you noticed the gap between acquisition multiples in Canada and the U.S. maybe widened more than usual and maybe as a result, should we expect maybe a higher cadence of smaller deals in Canada, just your thoughts there.
Okay. It's helpful and just one last <unk>.
General and M&A.
The gap between acquisition multiples in Canada, and the U S maybe widen.
More than usual.
Maybe as a result should we expect maybe a higher cadence of smaller deals and kind of just your thoughts there.
Speaker 2: Well, for a certain period of time, the SPAC market was really hot for restaurants, so the expectations of multiples became really high in the U.S. I think now that the SPAC market is not completely dry, but I think it's...
Well for a certain period of time just backwards the stock market was really hot for restaurants. So so the expectations of multiples became really high in the U S.
I think now that.
The stock market is not completely dry, but I think it's.
Speaker 2: It's a little bit closed back, closed down on restaurants. So I think the multiples are going back to multiples that are to.
It's a little bit close back those down on.
Our restaurants, so I think the multiples are going back to multiples that are too.
Numbers that are a little bit closer to historical averages.
Speaker 5: numbers that are a little bit closer to historical averages. So, yeah, there's always been.
So yes, there is always been there.
Speaker 2: certain gap between US and Canada but it's not it's not
Certain gap between U S and Canada.
But it's not it's not.
Speaker 5: not different than it was historically. I think the gap is more in terms of the size of the deal where the smaller deals will come in normal multiples and the larger the deal, the larger the multiple is going to get because private equities are getting more excited. We've seen some going for over 20 times EBITDA. The size was gigantic, but 20 times EBITDA is also really impressive.
Not different than it was historically I think the gap is more aware in terms of the size of the Delaware.
The smaller deals will come and normal multiples and the larger the deal the larger the multiple is going to get because private equities are getting more excited and we've seen some going for over 20 times EBITDA the size was gigantic.
But 20 times EBITDA is also really impressive.
Speaker 5: So, I think the larger the deal, the higher the multiple regardless of geography at the moment. So, I think we're going back towards normal levels except for very large deals.
So I think the larger the deal.
Hired a multiple regardless of geography at the moment so.
I think we're I think we're going back towards normal levels, except for very large deal.
Okay. That's helpful.
Yes.
Speaker 3: Our next question comes from Sabat Khan from RBC Capital Markets. Please go ahead, your line is open.
Our next question comes from Scott <unk> from RBC Capital markets. Please go ahead. Your line is open.
Alright, Thanks, and good morning, just a commentary earlier around some Python that you took I guess, what did you find that net impact to <unk>.
Speaker 3: Okay, thanks and good morning. Just a commentary earlier around some pricing that you took, I guess. What did you find the net impact to be of consumers generally accepting a price in this environment? Was there any slowdown in traffic at all? Any comments on maybe different trends by banner when you took pricing?
Consumers generally accepting of price in this environment, whether the slowdown in traffic at all.
Comments on maybe different trends by banner when you took pricing.
Speaker 5: Yeah, and yeah, we do take pricing. We have taken pricing and in last year and we are taking pricing at the moment as well. So it's something we can't avoid unfortunately.
Yes, and yes, we do take pricing, we have taken pricing in last year, and we are taking pricing at the moment as well.
<unk>.
<unk>.
It's something we can avoid unfortunately, our competitors are.
Speaker 5: are seeing the same thing. So it's hard to know exactly the impact of pricing on traffic because there's just so many other factors that are at play, especially at the moment with COVID and restrictions and the new variants and governments saying one thing one day and saying a different thing the next day.
We're seeing the same thing so it's hard to know exactly the impact of pricing on traffic because there's just so many other factors that are at play, especially at the moment with Dover and restrictions in the new variance in government, saying, one thing one day and saying different things the next day.
Speaker 2: It's hard to really isolate the impact of pricing on traffic.
It's hard to really isolate the impact of pricing on traffic.
Speaker 2: So obviously customers prefer low prices, I'm certainly one of them, but I think customers at the moment expect the price to go higher.
So so obviously customers prefer low prices.
I am certainly.
Certainly one of them.
But I think customers at the moment expect that price to go higher.
Speaker 2: We are taking price the same way everybody else is taking price. So it doesn't necessarily mean anything in terms of our competitive positioning because everybody's taking very similar price increases. So I don't believe that decline in traffic related to pricing is.
We are.
Taking price in the same way everybody else is taking price so it doesn't necessarily.
I mean anything in terms of our competitive positioning because everybody is thinking very similar price increases. So I don't believe the decline in traffic related to pricing is.
Speaker 5: is really material. I might be wrong. Again, it's hard to measure with everything that's going on at the moment. But yeah, I think customers are expecting pricing. You go to the grocery store, you see your prices go through the roof, you go pretty much anywhere and the inflation is really important. So restaurants are no different and I don't think the impact on traffic is still material.
Is really material.
Might be wrong again, it's hard to measure with everything thats going on at the moment.
But yes, I think customers are expecting pricing you go you go to the grocery store you see your prices go through the roof Yugo.
Pretty much anywhere in the inflation is really important so the restaurants are no different and I don't think the impact on traffic, it's raw material at the moment.
Speaker 3: Okay, great. And then on the M&A, there was quite a bit of discussion on this earlier, but just in terms of the volume of deals, relative to what you may have expected a little while ago, is there just generally less
Okay, Great and then just on the M&A, there's quite a bit of discussion on this earlier, but.
Just in terms of the volume of deals is that relative to what you may have expected a little while ago. Just is there just a generally less.
Speaker 3: Deal activity in the space. Do you think it's because, you know, restaurants are generally fearing better coming out of the pandemic than maybe we would have thought just for comment on the volume of activity across.
Deal activity in the space do you think it's because our restaurants are generally feeling better coming out of the pandemic than maybe we would've thought just your comment on the volume of activity across North America.
Speaker 5: It's starting to get back to normal. For a while it was really quiet. You had these restaurant operations that did really well that wanted to ride the wave a little longer and you had these restaurant operations that really struggled, that didn't want to.
It's starting it's starting to get back to normal.
For a while it was really quiet.
Yet you had these these restaurant operations that did really well that wanted to ride the wave a little longer and you have these restaurant operations that really struggled but didn't want to go for fire sale prices.
Speaker 2: go for fire sale prices, so everybody was just sitting on their assets, but I think now the deal flow is going back towards something a little bit closer to normal, so pretty optimistic about the future, obviously.
So so everybody was just sitting on their assets, but I think now the deal flow is going back towards something a little bit closer to normal.
So I'm pretty optimistic about the future obviously.
Speaker 5: There's no guarantees that we're going to be able to make deals, but we're certainly happy to see deals flow and to have discussions with owners and bankers about potential acquisitions.
There is no guarantee that we're going to be able to to make deals, but we're certainly happy to see deal flow and to have discussions with the with owners and bankers about about potential acquisitions.
Great. Thanks, very much for the color.
Speaker 9: Our next question comes from Michael Glenn from Raymond James. Please go ahead, your line is open.
Our next question comes from Michael Glen from Raymond James. Please go ahead. Your line is open.
Speaker 6: Hey, Eric, as you think about the past and your franchisee recruitment network, like the desire among new franchisees to come in and open new restaurants, like how would you characterize that? Has there been a change there? Do you see as strong demand in the past? Do you think it could be improved? Like, how would you think about that?
As we think about that.
Pat.
No our franchisee recruitment network.
That's our model.
New franchisees come in and open new restaurants, like how would you characterize that has there been a change there do you see a strong demand in the past do you think it could be approved how would you think about that.
Speaker 5: Yeah, we're really happy with that in terms of not only in terms of new franchisee acquisition, but also in terms of the desire of existing franchisees to open more stores. I think both are probably at close to historical highs that we've had. So the pipeline is really good. It's a challenge now to find good real estate at reasonable prices and to build the stores.
Yes, we're really happy with that in terms of.
And not only in terms of new franchisee acquisition, but also in terms of the desire of existing franchisees to open more stores.
Both are.
Probably close to historical highs that we've had so the pipeline is really good.
It's a challenge now too.
Find good real estate at reasonable prices and to build the stores.
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Speaker 5: There are some pieces of equipment that just don't exist on the market anymore, so we need to be patient. So, it takes time to convert a sale of a franchise into an existing store, where we used to have stores open in three to six months, now we're talking about 18 to 24 months in some cases.
There are some and some pieces of equipment that just don't exist on the market anymore. So we need to be patient.
So it takes time to convert a sale of our franchise into an existing store, where we used to have stores open.
And three to six months now where we're talking about 18 to 24 months in some cases.
Speaker 2: So it takes a lot longer. So a lot of the sales and a lot of the new franchises that we've signed even in 2020, some of them are not even in the store yet just because construction and real estate is a little bit more complicated. But we're really happy with where the pipeline sits. And it's pretty good for the future.
So it takes a lot longer so a lot of the sales.
And then relative to new franchises that we've signed and even in 2020.
Some of them are not even in the store yet just because construction and real estate is a little bit more complicated.
We're really happy with where the pipeline sits.
Yes.
That's pretty good for the future.
Speaker 6: And if we're thinking about this coming year, do you do you think that you can track closer to a net neutral type number on store openings and closures?
And of course looking at though.
Coming here.
Do you think that you can.
N track closer to a net neutral type number on store openings and closures.
Speaker 5: That's always our goal, you know, we, I always said that we, it's hard to control the closures, it's easier to control the opening, but at the moment, even the openings are hard to control because.
That's always our goal.
We had.
I always said that we it's hard to control the closures, it's easier to control the opening but at the moment, even the openings are hard to control because.
Speaker 2: We have restaurants, there's an example now of a restaurant, a casual dining restaurant that's ready to open and the HVAC equipment won't be available for another six months.
We have restaurants, there as an example, now of our restaurants and casual dining restaurants, that's ready to open in the HVAC equipment won't be available for another six months, so I mean.
Speaker 5: So, I mean, it's hard to open without an HVAC system, even though the restaurant is ready. So, even the openings are a little bit more difficult to control now. So, we're always pushing to be net positive and that's been an objective of ours for a long time. I think we'll get there at some point, but when exactly that's going to happen, I wouldn't be able to make a prediction on that.
It's hard to open without an HVAC system, even though the restaurant there is ready.
So even though the openings are a little bit more difficult to control now so we're always pushing to be net positive and thats been an objective of ours for a long time.
I think we'll get there at some point.
But when exactly thats going to happen there wouldn't be able to.
To make a prediction on that.
Okay.
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We have no further questions in queue. This will conclude today's conference call. Thank you for participating you may now disconnect.
Speaker 9: We have no further questions in the queue. This will conclude today's conference call. Thank you for participating. You may now disconnect.
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Speaker 10: The host has ended this call. Goodbye.
The host has ended this call goodbye nanometer will have a question.