Q2 2023 MTY Food Group Inc Earnings Call
Good morning, ladies and gentlemen, thank you for standing by.
Come to the M. T Y <unk> Food Group, Inc. Second quarter 2023 earnings Conference call.
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Following the presentation, we will conduct a question and answer session.
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Before turning the meeting over to management.
Be advised that this conference call will contain statements that are forward looking and subject to a number of risks and.
Certainties that could cause actual results to differ materially from those anticipated.
I would like to remind everyone that this conference call is being recorded today Tuesday July 11th 2023.
I'd now like to turn the call over to Eric Lefebvre, Chief Executive Officer. Please go ahead Sir.
Good morning, everyone. Thank you for joining us for <unk> second quarter conference call for fiscal 2023 press release, and 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.
During the call we will be referring to forward looking statements into certain numbers that are non ifr's measures you can refer to our MD&A for more details.
Also remind you that all figures presented on today's call are in Canadian dollars unless otherwise stated.
We're delighted by MTO is continuing robust financial performance in the second quarter of 2023 marked by adjusted EBITDA of $74 $6 million and record high system sales of $1 $5 billion.
The company has made significant strides towards its objective to supplement acquisitive growth with steady organic growth by investing in its banners supporting franchise partners and improving operating creativity and efficiency.
During the last quarter same store sales rose, 5% year over year, Canada reported the strongest growth in same store sales with 6% followed by the U S and international regions with improvements of four and 2% respectively.
The second quarter of 2023 represents the first fully comparable quarter on a year over year basis. Since the outbreak of COVID-19. So we have reintroduced some same store sales data and provided some historical information in the MD&A.
During the quarter, we opened 73, new locations and closed 77, four net loss of four luxurious four locations.
This remains short of our objective to grow our store count organically.
It represents our best quarterly net result in the last nine years narrowing.
Narrowing the gap between openings and closings as a key objective as we continue to build better practices to limit network erosion, while opening more new restaurants.
This growth momentum on the heels of a robust first quarter also reflects the successful integration of recent acquisitions in the U S.
Two thirds of system sales are now derived south of the border the acquisitions of barbecue holdings in the fourth quarter of 2022, along with Wetzel spreads also in source pizza in wine in the first quarter of 2023.
We've continued the transformation of MTI into a truly diversified north American franchising company.
Without losing sight of where we come from we aspire to continue expanding throughout North America and globally via our local partners.
At the end of the quarter, 58% of our 7124 locations. We're based in the U S, 35% in Canada and 7% internationally.
Our top five banners in terms of system sales.
Predominantly operate in the U S, namely Papa Murphy's Cold Stone creamery famous Dave's wetzel spread solves and diligent.
Through our recent acquisitions, we've also diversified our restaurant offering which includes 90 different vendors of all types and formats.
Though we still operate some locations in mall than food courts their weight that steadily diminished over the years system sales generated in mall to an office towers represented 15% of total sales in the first half of 2023, while street front locations accounted for most of our network sales at 77%.
In comparison those proportions in the second quarter of 2013, a decade ago, where 46% in malls and office towers and 44% on the street.
Yeah.
Turning to our capital allocation strategy with the increased leverage resulting from recent acquisitions and the rapid increase in interest rates. The interest charges on our long term long term debt increased to $13 5 million last quarter, a sharp increase over last year.
As a result, we intend to prioritize debt reduction in the near term, while keeping a watchful eye on accretive tuck in acquisitions on an opportunistic basis.
M. T Y continues to generate strong free cash flows as shown once again by the $45 $1 million generated in the second quarter, and we expect that our capital allocation allocation strategy will quickly provide additional flexibility for future capital allocation decisions.
I will now turn the call over to Renee, who will discuss empty wise financial results in greater details.
Eric and good morning, everyone. As previously mentioned normalized adjusted EBITDA totaled $74 6 million in the second quarter of 2023 up 57% from $47 6 million in the second quarter of 2022.
The strong year over year increase in normalized adjusted EBITDA is largely due to the acquisitions of barbecue holdings with both pretzels and Sofie Sun wine, which positively impacted our U S and international segment in the second quarter of 2023.
The U S and international business segments generated 70% of normalized adjusted EBITDA in the second quarter, while Canada accounted for 30% demonstrating as Eric mentioned that our U S and international segments continue on their growth momentum as we further increase our presence across North America.
In terms of net income attributable to owners it amounted to $30 4 million or $1 24 per diluted share in the second quarter of 2023 compared to $28 6 million or $1 17 per diluted share in the same period last year.
Year over year improvement can be attributed to higher normalized adjusted EBITDA and lower income taxes.
This was partially offset by an increase in depreciation and amortization, which is the result of the increase in property plant and equipment as well as the increase in our intangible stemming from the acquisition.
The company's interest in long term debt also increased as a result of our higher leverage and the increase in market interest rates.
The company's revenues grew 88% to $305 2 million in the second quarter of 2023, and $162 5 million in the second quarter of 2022.
The year over year increase is mainly due to the three acquisitions, which computers to revenue growth of $16 5 million and $119 nine respectively to franchise operations and corporate restaurants in the U S and international segment.
In Canada. We are also extremely extremely proud that revenues from franchise operations and corporate restaurants improved 10% and 6% respectively.
This is the first quarter in which we can say we had no impact from the pandemic when compared to prior year. The Canadian revenues grew on the strength of organic growth from increased customer traffic.
As mentioned before the stems primarily from the growth in system sales, which increased by 7% during the quarter compared to prior year.
Turning to liquidity and capital resources cash flow from operations amounted to $56 3 million in the second quarter of 2023 compared to $30 1 million in the second quarter of 2022.
The increase of 87% and operating cash flows as a result of higher EBITDA generated.
And a more favorable variation in working capital, which were partially offset by higher interest and income taxes paid.
Okay great.
Free cash flows reached $45 1 million or $1 84 per diluted share in the second quarter of 2023 compared to $25 3 million or a dollar in four cents per diluted share in the same period in 2020 to improve.
The improvement in free cash flow is due to the same reason I mentioned for the increase in operating cash flows partially offset by an increase in capex spend the.
The increase in Capex spend is mainly the result of preexisting corporate store commitments that we had an acquisition some village and refreshes the reconstruction of the flagship alcohol, whose restaurant in downtown Montreal as well as further investments in our cyber protection and technology infrastructure.
In the second quarter of 2023, we also reimburse $26 8 million in long term debt and paid $6 1 million in dividends to our shareholders.
At the end of the quarter MTI had cash had a cash position of $62 6 million and long term debt of $816 $2 million, mainly in the form of bank facilities and promissory notes on acquisition.
Our net debt to normalized adjusted EBITDA ratio stood at three one times at quarter end.
The company is the company also has a revolving credit facility of 900 million of which U S.
$593 million had been drawn as of May 31.
Our hedging strategy with fixed interest rates swaps was implemented last quarter and we continue to utilize cross currency interest rate swaps in order to provide additional financial flexibility.
Okay.
Although we didn't repurchase shares in the first quarter first half of 2023, we recently renewed our normal course issuer bid our N CIB.
The N CIB allows us to repurchase for cancellation up to one 2 million shares representing approximately 5% of outstanding common shares during the 12 month period ending on July 2nd 'twenty 'twenty four we believe the timely purchase of common shares at prevailing market rates is it worthwhile part of our capital allocation strategy.
And with that I. Thank you for your time, and we will now open the lines for questions operator.
Thank you.
We will now begin the question and answer session join.
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Possibly a woman as color starting to queue.
The first question comes from John <unk> of CIBC.
Go ahead.
Thank you very much good morning.
Wanted to start on on the net closure rates and improvement in that.
The metric in the quarter I really want to get a sense of the sustainability of it I Wonder if you can talk about what banners were driving the improvement either from the perspective of openings or closures versus the past year or two.
Yeah, well, it's it's an effort that we have in all of our brands, where we try to.
Preserve the integrity of our network. So it's not necessarily driven by one brand or another it's more consolidated effort with all our brands to you'll have the difficult discussions with our franchisees to make sure we try to avoid surprises as much as possible.
Wherever franchisee wants out of the system that we find.
A good solution, where a franchisee can sell their assets instead of closing them or abandoning.
So, but it's not a one Brian thing, it's really all the brands are working together and trying to achieve better results.
Now as far as.
Your question about whether it's sustainable or not.
Obviously as I said, we're trying to avoid surprises, but we can always happen.
But I think we are.
We're doing much better now.
I wouldn't say that we're in.
It's early going to be positive or negative in one quarter or another.
I think we're doing better in terms of store opening.
We have a good steady base now of opening stores, even though there is still some hurdles for us to to get to get the stores.
Operating.
And in terms of store closures.
We're trying our best to limit the number of closures.
And to find elegant solutions for our franchisees.
But again can't give guidance on the future.
Yes.
Okay understood Okay.
And then sticking with that topic it looks like a disproportionate amount of the improvement was from international.
And non traditional.
Can we assume the non traditional debt a reasonable proportion of adds from wetzel and on the international front, where any of those reopening of previously closed sites.
Hmm.
Two parts to your question on the non traditional yes that would be mostly attributable to wetzel.
Those spreads will says is opening in many different formats very successfully so.
Which is really interesting for Florida, Brandon for empty why in general as far as international is concerned there are they are all new locations. They are not reopening of pre existing locations and they're mostly goldstone.
Got it okay.
Sticking with M&A.
But the contribution from wet foods and be Btu and starts it was well above what we forecast and I Wonder if you can share the same store sales growth or system sales growth year over year on those standards.
Not necessarily because I don't I don't want to rely on.
On former owners provide data.
As you know, sometimes a systems are not necessarily the systems or the controls that we have in place.
All I'm going to say is there is it's a mixed bag.
There are some.
There are some initiatives that the seller is always put through that are geared towards Jack.
Jacking up the system sales artificially.
Very detrimental practices. So we're directing that sometimes it results in a negative same store sales even though.
It's more profitable for our franchisees or four empty.
Empty why if we have corporate stores.
I would say, it's a mixed bag, it's not it's not 100% positive or 100% negative to our brands on both sides of the zero.
Okay. That's good insight and then one more on the outlook.
A noticeable shift this quarter and I kind of wanted to get your broad thoughts and that's I assume some of it is just a pandemic dissipating, but it does seem like like your brands are quite resilient in this environment I Wonder if you think the performance of your quick service standards means you're benefiting from a trade down transition from consumers or if you.
This is just a really strong and resilient category just would love to get your thoughts on the ship that I would look at this quarter.
Yeah.
I don't really believe in trade downs.
Think people either go or don't go.
So I think quick service is popular because we're offering a very good experience to our customers.
I think the big gap in the quality of food between quick service and casual dining has really narrowed in the last few years and I think customers are recognizing that and appreciating the quality of the.
Food and overall experience we're offering.
The other restaurants are doing just as well.
Right now we are.
I think I think restaurants in general and not only M. P wise, but I think restaurants in general in North America are doing well.
Customers are still enjoying our food.
And hopefully we're going to be able to capture that momentum and gain market share while it while it's happening.
Okay, Great I appreciate the color I've I've got a couple of others, but I'll get back in the queue. Thank you.
Okay.
The next question comes from Arthur <unk> of RBC capital markets. Please go ahead.
Hey, good morning.
My first question is on same store sales growth.
Would you just be able to provide some color on pricing versus traffic growth and then as a follow up how do you feel about your pricing today are you happy with where you're at or are you looking to increase prices anytime soon.
Yeah, well, there's been a lot of pricing in the last in the last few years I think we've reached a point where.
We're kind of maturity with pricing, we have a few brands that that might have gone a little bit too far and pricing and we're seeing the impact of that.
So we have to be extremely cautious on how we approach pricing and is this for most of our brands. This is how we've.
We've done it also in the last 12 to 15 months, where.
No there there needs to be some pricing on some items, but we got pushed pricing across the board and we need to be extremely careful.
Where we have webinars and meetings to try to educate our franchisees also on how do they need to implement pricing.
And where do you need to implement pricing. So so we need to be extremely careful so I would say the price increases on average haven't been very high in the last 12 months, just because we've kind of reached that point, where we need to find other ways to make up for increased costs where were to happen.
So most of the most of the same store sales in the recent past has been driven by traffic.
Okay.
Got it. Thank you and then just wondering how youre thinking about M&A going forward are you happy with your current corporate franchise makes or would you be willing to lean further into corporate going forward and then also what is the current acquisition pipeline looks like today, what are you seeing in terms of.
Valuation multiples out there.
Yeah.
Yeah multiple questions in there in terms of in terms of M&A I mean, we will be opportunistic on on what presents itself. Our preference is always to go.
With franchise models.
It's not to say that we're never going to do another deal where there are more corporate stores, but it's certainly not our preference.
Now we have a good group of people that have the expertise on how to run them.
But we still prefer a franchise systems for sure.
Now as far as the pipeline is concerned there is it seems to be a lot of activity recently on when people are trying to liquidate part or all of their networks.
Not all of it is good not all of it is interesting either.
So.
As we've always done in the past we're going to be.
Looking at what presents itself.
And you'll be patient for multiple periods of time, sometimes for a few months, sometimes for even longer we've been patient waiting for the right targets and sometimes they all happened at the same time like we have last fall.
So I mean as far as the pipeline is concerned I am not worried but we just need to find the right target and the right fit for MTI before we decide to pull the trigger, especially in this environment, where the cost of money is a little higher than it was in the past many years.
Yeah.
Got it and then last one for me now that we're operating in a post pandemic environment.
Just curious how youre thinking about digital penetration going forward.
Yeah digital is really key.
I think we have a few paragraphs on that in the MD&A and digital is not only the sales platforms idea online sales platforms, I think digital needs to be the overall experience of our customers where people used to shop in the store now people spend a lot more time interacting with us on on our websites.
As the primary source of information for a lot of people and then.
Whether it's stick dock or Instagram or Facebook or any other type of digital platform to become really important vehicles of information for us we need to be.
Top of mind, we also need to be top of the list a few search for restaurants near me for example, and we need to have a good.
Guest ratings also for our restaurants. So the overall digital experience is really key and it's integrated it's not only the online sale that that's important because that's the that's the ultimate goal, but there is a lot goes into it before we get there so.
Key area of focus for us.
Some brands are.
Some brands are way ahead of others in our portfolio, which is understandable given the 90 brands, we have but we're trying to work together to really accelerate the pace.
And be better at innovation and hopefully be a b in front of our competitors.
Okay.
The next question comes from Vishal sweetheart of National Bank. Please go ahead.
Hi, Thanks for taking my questions in your.
In your remarks in your disclosures you indicated that the backdrop is.
Yeah well.
We're seeing as consumers.
Are they a little bit more demanding in terms of the experience they're going to have at the restaurant, but there are still there.
There is still shopping and theres still going to restaurants.
And what I mean by that is with the increased prices also comes increased expectations from our customers from our guests.
So we can't take them for granted we need to give them the best possible experience that's going to match the price we're charging now.
But as far as as available.
<unk> resources to go into restaurants, there customers seems to.
You have them and to be willing to spend the money to get that experience. So so far so good.
No I don't have a crystal ball to tell you what's going to happen in a year from now but at the moment that's.
It's very good for us and for our brands.
Okay.
You start reporting same store sales growth, obviously, a lot of things in that number.
Including including the inflation the trash Atkins.
Benefits from the various initiatives that <unk> implemented.
As we look at that number what is it good.
Heuristics or or kind of somehow what empty why should achieve on same store sales growth over the long term given given all these initiatives that you've been working on over the next several years, but should we anticipate them to watch a beaver inflation or inflation a good proxy of how should we think about it.
Yes, that's a good question I wish I had the answer to that.
Nowhere.
We're trying to beat inflation all the time.
With a portfolio of brands the size and the size of ours, it's challenging because theres always a few brands that are way above and a few brands that are that are unfortunately under and that we need to implement some initiatives, but we.
I can't tell you, what we're going to achieve but I can tell you what our goal is and our goal is to beat inflation.
Okay and with respect to some of the challenges that we've been talking about over the last many quarters.
The labor challenges supply chain I was just wondering if you can update us on where.
Including the <unk>.
Yeah.
The challenges with installing new.
These sites just wondering if you can update us on your views on where we're at.
In terms of supply chain.
It's getting better there are some pockets here and there.
Some distributors for example, experiencing their own set of issues not necessarily the supply chain itself and the global supply chain, but some some buckets with some suppliers and some distributors in particular, but in general it's getting better it's not perfect, but I think.
Perfect doesn't really exist in our world, there's always something else.
But I would say, it's largely receded in.
It's more in control than it was before for the vast majority of our change in territories.
As far as labor is concerned here again, there are some areas where it's complicated.
Eastern Quebec for example is complicated and there are some other areas.
Where we faced bigger challenges, but in general I would say labor has stabilized its a lot better than it was a year ago.
And hopefully it's going to keep improving a little bit but in general we're able to staff our restaurants adequately now.
It's not perfect again, but you know theres, a tradeoff between having low unemployment rates and people, having disposable income to shop in our restaurants, and having high unemployment rates and being fully staffed but with less customers. So.
If I if I have to take one situation I think what we're experiencing now.
Okay and before you commented on difficulty is installed restaurants due to widen some challenges we still seeing that and do you think goes that's dissipated to some degree.
Permitting and inspections are still a big challenge.
I won't I won't lie.
New restaurants take forever to.
To be built into open and pretty most part its not because of supply chain and construction itself, it's because cities take a long time too.
Grant permits and to even look at the files and then inspections also will take a long time we.
We try to book appointments for final inspections, and you can think months in some cities.
So so the construction itself is fine, but the cities are having a hard time keeping up with.
Their requirements basically.
Yeah.
This is a situation that we have to live with this is not something we can control.
We have a team of experts that.
Our.
Learning how to navigate through these through these problems that we have and hopefully again another one that I hope we will receive in the next few months.
Thank you.
Yeah.
The next question comes from George You May of Scotiabank. Please go ahead.
Yeah morning, Aric, congrats on a strong quarter.
Just wanted to get started on the Canadian comp was 6% any areas of strength that you want to call out.
How should we how should we think about in general like the the performance intra quarter.
Over there did you see an acceleration as the quarter moved arms are pretty stable.
Yeah, it's pretty steady.
I mean, our restaurants are performing well, we obviously like I said earlier, we have a few brands, where we have a little bit more work to do and that's always going to be the case, given the 90 brands in the portfolio.
But our brands are generating good sales on a steady clip and theirs.
Is.
As the CEO of the company I don't like surprises, whether they're positive or negative I, just I, just like smooth sailing and I like predictability and right. Now. This is what our network is giving us very predictable very reliable sales are or what they are in.
Other than.
Unusual weather in some pockets here and there.
Generally we'd set where we're in a good place now.
Any any banners that you want to call out that contributed to that number.
Yes.
Yes, there there are a lot of good banners I don't want to call them out necessarily because I don't want to forget about some important ones.
But we do have a few banners that are performing extremely well for sure.
Okay.
Moving over to the corporate margins. They came in pretty strong 13, and a half I think last quarter. They were closer to nine and I think last quarter, you mentioned, you're only expecting modest expansion. It seems like came in a lot stronger. So maybe you can talk a little bit about.
What drove that strength in the corporate margins and maybe how we should think of those margins going forward.
Yeah, they're they're high this quarter, there's no question about that and our team is.
I mean there.
Outstanding attention to detail is what drives these margins.
There are there are seasonal variations in margins, where we have patio season, we'll generate some margins that might be different from indoor season for example.
But yeah. Our team is working very diligently trying to improve margins as much as possible and optimize.
The way, we operate our restaurants and as a result of their efforts.
Now are we going to be able to expand on the number we have now to be honest I don't think so.
This is this is a very strong margin and I know they are on the Gulf So they're probably going to take this as a challenge.
But I think those margins are pretty high now an expectation should be that it's going to be at that at that or between what we had in Q1 and Q2.
Got it thanks, and I think he also a last word on Papa Murphy I think you mentioned an inflection in performance acceleration into Q2. So can you talk a little bit about how Papa Murphy did specifically in the quarter. Please.
Yeah, we're super happy of the result of Papa Murphy's same store sales.
Everything that's going on at the moment, it's a it's been a really good.
It's a good story of where we've been able to turn around in a situation that was a little bit more difficult last year into something that's really positive.
No a number of initiatives and it's never one thing thats going to drive.
An inflection like this one it is going to be a grind in many different initiatives.
And this one was a team where they were patient and the annuity we're doing the right thing.
And we gave them the resources and we were patient with them, while they were implementing all their initiatives and now it's paying off and I think I think the franchise partners also.
Where we had maybe challenges of unfortunately, when sales go down.
Franchise partners look at us and ask us to to be accountable for this.
And now I think they're they're all really happy that we've been able to turn this around and.
Produce really good steady.
Positive mid single digit same store sales.
Okay. That's helpful. Thanks, and just one.
One last month from Europe , obviously, a lot of <unk>.
<unk> been taking to AI.
And the restaurant industry as of late can you talk a little bit about the use of AI for us maybe what banners, you think lend themselves to greater usage in the medium to longer term.
Yeah, we've been using AI for a long time actually.
We don't necessarily use it in the restaurant operation.
No we've seen a number of people try to do it and we haven't seen the right technology, yet, but we use it a lot for our marketing initiatives.
And then obviously larger banners will tend to have more resources and more depth to be able to to use AI. But this is certainly part of our digital journey, where we want to be more efficient that using the data we have and the data we collect.
And do a better usage of it.
We need to be smart on how we use customer data, it's very sensitive and.
We don't want to abuse, but at the same time, if we can make better use of it we will.
And this is where AI will really help us to quantity of data that's available to us is mind boggling.
Not something you can really use is using an excel spreadsheet.
So AI will be instrumental there.
Okay. Thanks for answers to the bottom line.
The next question comes from Gerrick Lazard TD Cowen. Please go ahead.
Yes, Thanks, and I Echo the congrats to you, Eric and Rene and your team on a great quarter I just want to hit again, maybe on the Papa Murphy's.
Could you just maybe remind us of some of the or add some color to some of the initiatives that you have on the go that you think were were big drivers of the results over the last year or so.
Yeah for sure I mean, there's hundreds.
Hundreds of different initiatives that have small incremental.
Value, but obviously theres opt.
Operational experience excellence is always part of our initiatives and Papa Murphy's operate slightly differently from our other brands. So we needed to tweak that a little bit but operational excellence is always there.
And there is a.
Research and development is coming up with new products. If you look in the pizza category. There's obviously a lot of competition and you've seen a lot of new products come out in the last few months and we've been we've been launching some new products as well and adjourn.
Generating some buzz around.
Our campaigns.
And then in terms of marketing also you need do you need to innovate in terms of what your campaign are going to do how much budget can create around around your campaigns.
And also in the type of campaigns were going to run.
We've been running more national campaigns more digital campaigns now.
Again using.
Some some AI to help us along the way and also working with really good business partners.
So it's a lot of different things, but it all adds up incrementally and it turns into good results.
Okay, Thanks for that and maybe just.
Few most of my questions have been answered, but won't be quite housekeeping.
Does your does your DNA in Q2 include any one time items tied to acquisitions.
Or what sorry.
Our G&A.
Depreciation does it include any one time items in there.
No.
Okay and one last one for me in terms of your Capex again relatively elevated about 11 million box.
Do you still expect it to fall back to a normal cadence so that.
$6 million to $8 million a year.
Yeah, well, it's going to be higher than that on a yearly basis. Just just a number of corporate stores. We have in the maintenance capex required is going to be a little bit higher than what we've experienced historically.
But if you if you look in the quarter. We spent a lot of money on that flagship bottom erosion in downtown Montreal was about $3 $5 million.
That's not going to happen again, there is some residual in Q3, but.
<unk> is set to open in the coming days and.
Hopefully, we'll be able to recover some of that as well from the insurance companies.
Then we had some preexisting commitments on barrier Queen and on Wetzel spreads cells are there is there is still one on each that is going to be built.
So, but those will be completed probably in Q3 and that won't happen again after.
So theres a few things that contribute to the higher capex.
Think that by the end of Q3, we should pretty much be done with these pre acquisition commitments and then we're going to find a normal run rate that's going to be slightly higher than what we had before the acquisition.
Okay. That's helpful and maybe just one last one for me I know you've got 90 banners Eric.
Hard to tell but as I was.
Curious if you could maybe add some color around your franchisee health and <unk>.
And your ability now which seems to be behind some good momentum to attract.
Hugh and good qualified franchisees to the system.
Yeah, well the good news is we're acquiring a lot of new franchisees, but we also have a really good validation where a lot of our franchise sales at the moment, our two existing franchisees, we want to invest more in our network.
So that's a really good sign of <unk>.
They are doing and how they're happy with the franchisee the franchise <unk> performance as well.
So I would say roughly probably about 60%, 60% to 60% to 70% of our <unk>.
New stores that we saw at the moment, our two existing franchisees in that.
Probably the best source for us because there we.
We know who we're going to be dealing with the understand.
Their franchise already understand how the brands work.
We have experience.
So that's a really good source for us and really good validation at the same time and it's always good to have new blood in the system also with new franchisees that might be coming from different industries or from the restaurant industry and looking for different investments.
But yes, just the validation from existing franchisees as probably the best Testament to our Franchisees' health.
Thank you and actually one last one for me, we haven't touched on the food processing segment.
<unk> did seem to slow a little bit there.
Can you just talk about what.
What's driving that and sort of your expectations of that business going forward.
Yeah, the food processing itself is doing well and the distribution as well, where we where we suffered a little bit more is on the retail side.
It's been a little bit more complicated with.
Selling our products into grocery stores and I'm sure. It's well documented how these guys are doing.
So in terms of the volumes and in terms of introduction of new Skus, it's been a little bit more challenging than we anticipated.
And this is where you see the slowdown happening so the retail.
I would say it might be challenging it's in the next few months, it's still a <unk>.
Really high priority for US we believe that there is.
Very good business to be made there.
For <unk> and for our franchisees as well.
But we just need to be patient and we need to we need to grind because it's a it's a complicated period for retailers in.
It complicates our life as well for retail.
Thanks for your answers that Eric Thank you.
The next question comes from Michael Glen of Raymond James. Please go ahead.
Good morning, Eric So in the press release, you speak about the integration efforts or the.
The successful integration.
It's gone with Wetzel barbecue and some of the other could you just work through like what you like the leadership at Wetzel MBV queue, now and what type of integration activity is completed.
Yeah, well the integration is it comes on many fronts.
Whether its systems or practices or processes or optimization of supply chain for example.
No coordination of franchise sales of real estate any shared service we might have.
So theres always a lot going on in terms of the integration.
And also more importantly.
Yeah.
But making sure that the people are comfortable working for MTI because the people that worked for barbecue holdings are for Wetzel has never never chose to work with empty why they chose to work with barbecue holdings are with Wetzel.
And then the merger kind of forces them to to change that and making sure that these people stick around.
Is really key for us.
In both cases, we have good stable leadership teams.
We lost the CEO of both.
Entities, but everyone that was a really make it making a drain for both divisions have stayed so we have Alan Adam.
And they're in their team stayed at barbecue holdings.
Kim John and Vincent stage, four for Wetzel, and we're really happy with that with how they're doing in their performance.
I am very confident in the future.
Cost savings or synergies would you say that those.
Like are you achieving any sort of level of.
Cost savings or synergy that's been above your expectations or anything along those lines.
Yeah and in both cases, we didn't anticipate.
Material cost savings barbecue holdings was run really tight.
<unk>.
And certainly the synergies, we're not going to come from from cost savings at least not on in terms of G&A.
We have we have some people working now on the supply chain, which is probably an area, where we can make a bigger difference, especially given the number of corporate stores we have.
So that's probably where most of the synergies will come from for a barbecue holdings for Wetzel, the same thing pretty tight ship.
Run by a private equity firm that was going to sell their assets. So obviously there is there is no fat in that company.
So again this is not where we saw the value for for Wetzel. So in terms of cost savings and synergies I wouldn't expect much too to come out of these two targets.
Okay, and then I know food Court now has a much smaller part of your mix, but when you look at where food court is now.
Do you think it's.
Reached the bottom at this point in time or do you think that there's like a is it should we think about okay. It's all upside from here at this point in time or do you think theres still.
There could be some more pain in there.
Yes, there can be some more pain and food courts. The sales havent recovered if I look globally. The sale of 11 to recover to 2019 levels. The good mall is a really good malls are still really really good so.
If youre if youre in the top top malls. This year your sales are back to 2019 and over.
But the BMC malls haven't recovered and some of them might never recover.
So it's a question of.
Does it make sense for us to continue.
These food courts, and if it does at what price.
Obviously, we hope that all of these malls will recover but I think be the lag.
Last four years have changed People's habits to a certain extent and there might be some malls that there might be some casualties there.
So it's up to us to monitor the situation and work with our landlords try to.
<unk> worked together to improve traffic and improve the customer experience.
And help our franchisees make.
To make money in these malls and office towers.
AAA malls, millwork, and VNC malls are a little bit more challenging at the moment.
Okay and then.
Finally, just on the EBITDA.
Yes.
Okay, and then and then once we're past that adjustment.
As we think about next year it wouldn't it wouldn't come through again, it would just be kind of a flat number I guess.
It should be fairly stable.
Okay. Okay. Thanks.
Once again, if you have a question. Please press Star then one please press Star then one now.
The next question comes from John <unk> of CIBC. Please go ahead.
Thanks, just a few follow ups.
I wanted to clarify from the MD&A, the 11% system sales growth for Papa Murphy's and cold stone in the quarter I just wanted to confirm that includes FX changes is that right.
Yes, it does.
Okay.
The change in control payments, you had to make to exiting Ceos can you quantify that and was that entirely in Q2.
Okay.
I'd have to I'd have to check where it ends I won't I certainly won't give you a amount for it.
But I do believe.
It would have been at least in one on one case it was all in Q2.
And I'd have to check for the other.
Got it okay.
I think I've asked this in the past, but I wonder if your views have evolved on it at all would you consider selling some of your underperforming brands and the portfolio, obviously it might not be immediately accretive to the stock, but could improve reported unit growth and same store sales growth or so would you consider divesting of those would you rather keep these and try to it.
Uh huh.
I don't like abandoning on brands.
I don't want to give up on brands and our franchisees as well.
That being said I think everything's for sale of the prices right.
<unk>.
But we haven't we haven't been active trying to market any of our brands.
If someone comes in and offers US a lot of money that we feel is good for our shareholders in general.
Probably consider it.
But this is this is not something that we're contemplating now or that we're doing.
Nobody's come knocking our door and try to buy assets from us as well.
Yes.
Okay understood and then one last one I wonder if you could talk about the early returns on twisted by Wetzel and I know you don't have a crystal ball on this either but I wonder if he had the vision of what you want that concept to be do you think it's likely to be like a niche banner or do you think this could potentially grow to hundreds of units.
On its own.
I hope it grows to one hundreds of units on its own.
I've been there it was really good food was impressive and decadent.
I like the brand, where I think with one store, it's a little bit hard to draw a conclusion, we have a second store opening I believe later this month and the third one opening a couple months later.
I think once we reach that in different territories different different markets.
With three stores will be better able to tell if Mr concept has legs or if its just one store is really working well and the rest is.
Is not so hopefully everything works out and the concept has legs as I think it will but it remains to be tested.
Okay. That's all for me thank you very much.
As there are no other questions from the phones. This concludes the question and answer session and today's conference call. You may disconnect. Your lines. Thank you.
You for participating and have a pleasant day.
Okay.
Yeah.
Yes.
Okay.
Okay.
Yeah.