Q1 2025 MTY Food Group Inc Earnings Call

Operator: Good morning and welcome to the MTY Food Group 2025 First Quarter Results Earnings 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 for you at that time for questions, and if anyone has any difficulty hearing the conference, you may press star zero for operator assistance at any time.

Good morning, and welcome to the empty life puts you plenty 25 first quarter results earnings call. At this time, all participants are in a listen only mode.

The present, these and we will conduct a question and answers.

Instructions will be provided for you at that time for a question and if anyone has any difficulty hearing the conference you May press Star zero for I'll say rather assistance.

Hi.

Operator: Listeners are reminded that portions of today's discussion may contain forward-looking statements that reflect current views with respect to future events. Any such statements are subject to risk and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. For more information on MTY Food Group's risk and uncertainties related to these forward-looking statements, please refer to the company's annual information form dated February 13, 2025, which is posted on CDERplot.

Listeners are reminded that portions of today's discussion may contain forward looking statements that reflect current English with respect to future events any such statements are subject to risk and you certainties that could cause actual results to differ materially from those projected in the forward looking statements were more informed.

Patient and empty wife with troops rescue necessary piece related to dish quite weird looking statements. We used to refer to the company's annual information form and it's their body 13, 2025, which is posted on SEDAR place. He can finish press release, MD&A and find that state administered.

Operator: The company's press release, MDNA, and financial statements were issued earlier this morning and are available on its website and on feeder plus. All figures presented on today's call are in Canadian dollars, unless otherwise stated. This morning's call is being recorded on Friday, April 11, 2025, at 8.30 a.m. Eastern Time.

Earlier this morning.

Billable on its website and on T. There plus all figures presented on today's call are in Canadian dollars unless otherwise stated.

This mornings call is being recorded on Friday April 11th 2025 at 830, a M eastern time.

Operator: I would now like to turn the call over to Mr. Eric Lefebvre, Chief Executive Officer of MTY Food Group. Please go ahead, sir. Thank you.

Eric Lefebvre: I would now like to starting the call over to Mr. Eric Lefebvre, Chief Executive Officer of empty White Food group. Please go ahead Sir.

Eric Lefebvre: Thank you.

Eric Lefebvre: Good morning, everyone, and thank you for joining us for MTY's Rene St. Onge, our Chief Financial Officer, is also with us. The word I would use to summarize our first quarter performance from my perspective is resilience. In the face of an uncertain macro backdrop, MTY and its franchisees continue to execute well. We're taking a measured and thoughtful approach in response to emerging market After adjusting for the impact of an extra day resulting from the leap year last year, same store sales remained largely stable. This performance comes despite significant weather disruptions throughout the quarter, during which we witnessed a higher frequency of extreme cold, floods, and snowstorms, keeping customers home and increasing temporary store closures.

Eric Lefebvre: Good morning, everyone and thank you for joining us for N P wise.

Eric Lefebvre: And twenty-five first quarter conference call.

Speaker Change: And they say Oh, our Chief Financial Officer is also with us today.

Speaker Change: The word I would use to summarize our first quarter performance from my perspective is resilience.

Speaker Change: In the face of an uncertain macro backdrop and T y and its franchisees continue to execute well.

Speaker Change: We're taking a measure measured and thoughtful approach in response to emerging market headwinds.

Speaker Change: After adjusting for the impact of an extra day, resulting from the leap year last year same store sales remained largely stable. This performance comes despite significant weather disruptions throughout the quarter during which we witnessed a higher frequency of extreme cold and snow storms, keeping customers home and increasing temporary store.

Speaker Change: Closures.

Eric Lefebvre: These conditions placed a downward pressure on system-wide sales during the quarter, particularly on the QSR frozen treats. Our other snack brands, such as Wetzel's Pretzels, continue to perform well on all key metrics. The casual dining restaurant segments in both Canada and the U.S. remain resilient as consumers continue to strive for positive restaurant experiences that are priced. We continue to make positive progress within our digital channel. Digital sales increased by 7% in the first quarter and now represent 22% of total sales. This growth reflects our ongoing investments and brand-level initiatives aimed at enhancing the off-premise customer experience.

Speaker Change: These conditions placed downward pressure on system wide sales during the quarter, particularly under U S. R frozen treats segments.

Speaker Change: Our other snack brands, such as Wetzel Pretzels continued to perform well on all key metrics.

Speaker Change: The casual dining restaurant segments in both Canada, and the U S remained resilient as consumers continue to strive for positive restaurant experiences that are priced right.

Speaker Change: We continue to make positive progress within our digital channels.

Speaker Change: Digital sales increased by 7% in the first quarter and now represents 22% of total sales.

Speaker Change: This growth reflects our ongoing investments and brand level initiatives aimed at enhancing the off premise customer experience.

Eric Lefebvre: We are today in a better position to implement more targeted and data-driven marketing strategies with our larger brands, and we continue to improve our ability to use all the best in class. As a reminder, the average digital sale carries a significantly higher average check than non-digital.

Speaker Change: We are today in a better position to implement more targeted and data driven marketing strategies with our larger brands and we continue to improve our ability to use all the best in class tools with a number of smaller brands.

Speaker Change: As a reminder, the average digital sale carries a significantly higher average check than non digital sales.

Eric Lefebvre: During the first quarter of 2025, we opened 70 locations and closed 102, resulting in a net decrease of 30. The first quarter has historically been a challenging period for openings and typically brings higher. Encouragingly, Our current pipeline is strong with over a hundred locations currently under control. As such, we anticipate an improvement in the pace of restaurant openings in Q2 and Q3. While there will always be ups and downs, we remain committed in achieving net locations growth in the future and are confident in our ability to deliver.

Speaker Change: During the first quarter of 2025, we opened seven new locations and closed 102, resulting in a net decrease of 32.

Speaker Change: The first quarter has historically been a challenging period for openings and typically brings higher closures.

Speaker Change: Thank you regionally.

Speaker Change: <unk> pipeline is strong with over 100 locations currently under construction.

Speaker Change: We anticipate an improvement in the face of restaurant openings in Q2 and Q3.

Speaker Change: While there will always be ups and downs, we remain committed in achieving net locations growth in the future and are confident in our ability to deliver growth.

Eric Lefebvre: At the end of Q1, NCY's network comprised 7,047 locations, of which 96.4% were franchised or under operator agreement, and 3.6% were corporately owned. Turning to our financial results, normalized adjusted EBITDA increased modestly despite the negative impact resulting from the leap year last year. and the U.S. headwinds mentioned earlier. All segments were relatively flat year over year with small increases in the franchise and retail segments and a small decrease in corporate revenue. Margins across all segments held steady, displaying the resilience of our. MTY continues to generate very strong free cash flows as one would expect from our asset-like model.

Speaker Change: At the end of Q1 and to your wife network comprised 7047 locations.

Speaker Change: Which 96, 4% were franchised or other operator agreement and three 6% word corporately owned.

Speaker Change: Turning to our financial results normalized adjusted EBITDA increased modestly despite the negative impact, resulting from the leap year last year in the U S headwinds mentioned earlier.

Speaker Change: All segments were relatively flat year over year with small increases in the franchise and retail segments and a small decrease in corporate restaurants.

Speaker Change: Margins across all segments held steady displaying the resilience of our business.

Speaker Change: <unk> continues to generate very strong free cash flows as one would expect from our asset light model.

Eric Lefebvre: Cash flows generated from operating activities were $58.5 million, up 9% year-over-year, and free cash flows net of lease payments. Pre-cash flows, net of lease payments, represented 72% of normalized adjusted EBITDA, demonstrating the company's impressive free cash flow generation capability. We remain focused on building financial capacity for strategic opportunities, while also returning value to shareholders to share buybacks and dividends in the quarter. We once again repurchase just under three hundred thousand shares under our normal course issuer. bringing the total shares repurchased in the last 12 months to 1.1 million shares, or 4.6% of our float at the beginning of that period.

Speaker Change: Cash flow generated from operating activities were $58 5 million up nine.

Speaker Change: Percent year over year and free cash flow is net of lease payments.

Speaker Change: Came in at $43 $5 million up 18% year over year.

Speaker Change: Free cash flow net of lease payments represented 72% of normalized adjusted EBITDA, demonstrating the company's impressive free cash flow generation capabilities.

Speaker Change: We remain focused on building financial capacity for strategic opportunities, while also returning value to shareholders through share buybacks and dividends in the quarter. We once again repurchased just under 300000 shares under our normal course issuer bid, bringing the total shares repurchased in the last 12 months to $1 1 million.

Speaker Change: Shares or four 6% of our float at the beginning of that period.

Speaker Change: With that.

Rene St: Now turn it over to Rene, who will discuss MTY's financial results in greater detail. Thank you, Eric, and good morning, everyone. Like Eric mentioned, normalized adjusted EBITDA came in at $60.2 million for the first quarter of 2025, up 1% year-over-year compared to the same period last year. MTY system sales grew by 2.5% year-over-year, and company revenues saw a 2.2% boost. Looking at each operating segment separately, franchising operations Canadian revenues dipped by 2% to $34.5 million. This was mainly due to a $0.4 million decrease in recurring revenues and a $0.5 million decline in turnkey project sales.

Speaker Change: Now I'll turn it over to Renee, who will discuss <unk> financial results in greater details.

Speaker Change: Thank you Eric and good morning, everyone like Eric mentioned normalized adjusted EBITDA came in at $60 2 million for the first quarter of 2024 or two.

Speaker Change: 2025, excuse me up 1% year over year compared to the same period last year and DIY system sales grew by two 5% year over year and company revenues saw a two 2% is.

Speaker Change: Looking at each operating segment separately franchising operations Canadian revenues dipped by 2% to $34 5 million. This was mainly due to a 0.4 million decrease in recurring revenues and is there a point 5 million decline in turnkey project sales.

Rene St: Meanwhile in the U.S. and international segments, franchise operations saw a 2% increase in revenues reaching $58.5 million. A favorable foreign exchange swing of $3.6 million led to the increase, partially offset by a decrease in recurring revenue streams, which was the result of our organic system sales decrease of 3.1%. On the expense side, operating costs in Canada went up by 2% year-over-year to $19.7 million, mostly due to higher wages.

Speaker Change: Meanwhile, in the U S and international segment franchise operations saw a 2% increase in revenues, reaching $58 5 million.

Speaker Change: A favorable foreign exchange swing of $3 6 million led to the increase partially offset by a decrease in recurring revenue stream, which was the result of our organic system sales decrease of three 1%.

Speaker Change: On the expense side operating cost in Canada went up by 2% year over year to $19 7 million, mostly due to higher wages the U S and international operating segment.

Rene St: The U.S. and international operating expenses rose by 3% to $30.9 million, affected by $2 million foreign exchange impact, as well as $1.7 million in SEP project implementation and acquisition-related transaction costs. We are happy to say, however, that these increases were partially offset by a $2.1 million reduction in controllable expenses, thanks to the company's continued focus on cost discipline, resulting partly due to the restructuring initiatives put into place in 2024. As for profitability, normalized adjusted EBITDA for the franchise operations came in at $44 million, a 1% increase from last year's $43.4 million, with the margins remaining steady at 47%.

Speaker Change: Spencers rose by 3% to $30 9 million affected by $2 million foreign exchange impact as well as $1 7 million in FCB project implementation and acquisition related transaction costs.

Speaker Change: We are happy to say however that these increases were partially offset by a $2 1 million reduction in controllable expenses. Thanks to the company's continued focus on cost discipline, resulting partly due to the restructuring initiatives put into place in 2024.

Speaker Change: As for profitability normalize adjusted EBITDA for the franchise operations came in at 44, Million% to 1% increase from last year's $43 4 million with margins remaining steady at 47%.

Rene St: Moving over to the corporate operations, Canadian revenues rose 17% to $9.8 million due to a net increase in corporate-owned locations as well as a shift in mix resulting in an increase in casual dining restaurants year over year.

Speaker Change: Moving over to the corporate operations Canadian revenues rose, 17% to $9 8 million due to a net increase in corporate owned locations as well as the shift in mix, resulting in an increase in casual dining restaurants year over year.

Rene St: U.S. and international revenues rose by 2% to $116.1 million also due to an increase in corporate locations. The increase in corporate store restaurants in the U.S. was the result of taking back select locations in certain underperforming territories in the later half of 2024 with the objective of turning the operations around and re-franchising the restaurants. Operating expenses for the Canadian segment rose by $1.3 million to $10.2 million, while the U.S. and international segment rose by 3% to $103.5 million due to a higher number of corporate stores as well as higher wages and supply chain costs. Normalized adjusted EBITDA of the corporate store segment came in at $12.2 million, relatively stable from last year's $12.4 million, with margins in line at 10%.

Speaker Change: U S and international revenues rose by 2% to $116 1 million also due to an increase in corporate location.

Speaker Change: The increase in corporate store restaurants in the U S was the result of taking back select locations and certain underperforming territories in the later half of 2024 with the objective of turning the operations around and Refranchising to restaurants.

Speaker Change: Operating expenses for the Canadian segment Rose by $1 3 million to $10 2 million, while the U S and international segment rose by 3% to $103 5 million due to a higher number of corporate stores as well as higher wages and supply chain costs.

Speaker Change: Normalized adjusted EBITDA of the corporate store segment came in at $12 2 million relatively stable from last year's $12 4 million with margins in line at 12% at 10%.

Rene St: Globally, revenue from food processing, distribution and retail grew by 7% thanks to stronger sales in the Canadian retail segment. A big driver for the increase was the strong Super Bowl performance. Normalized adjusted EBITDA for this segment reached $4 million, up 8% from $3.7 million last year, with margins holding steady at 10%.

Speaker Change: Globally revenue from food processing distribution and retail grew by 7% thanks to stronger sales in the Canadian retail segment, a big driver for the increase was a strong Super Bowl performance.

Speaker Change: Normalized adjusted EBITDA for the segment reached 4 million up 8% from $3 7 million last year with margins holding steady at 10%.

Rene St: Turning our attention to our income attributable to owners, it amounted to $1.7 million or $0.07 per diluted share compared to $17.3 million or $0.71 per diluted share in Q1 2024. The decline was mainly due to accounting for the foreign exchange variations on intercompany loans. This accounting loss has no bearing on our healthy operational and financial highlights in the corner, which saw significant growth in operating and free cash flows. Excluding this foreign exchange impact, adjusted EPS was $0.87 per diluted share versus $0.69 per diluted share in the first quarter of 2024, highlighting the impressive overall performance during the quarter.

Speaker Change: Turning our attention to <unk>.

Speaker Change: Income attributable to owners it amounted to $1 7 million or seven cents per diluted share compared to $17 3 million or 71 cents per diluted share in Q1 2024.

Speaker Change: The decline was mainly due to accounting for the foreign exchange variations on intercompany loans.

Speaker Change: This accounting loss has no bearing on our healthy operational and financial highlights in the corner, which saw significant growth in operating and free cash flow exclude.

Excluding this foreign exchange impact adjusted EPS was <unk> 87 cents per diluted share versus 69 cents per diluted share in the first quarter of 2024, highlighting the impressive overall performance during the quarter.

Rene St: On that note, moving over to cash flows, as Eric briefly mentioned, the first quarter had cash flows from operating activities of $58.8 million compared to $54.2 million in Q1 of 2024, an increase of $4.6 million, mainly attributable to the decrease in interest paid on long-term debt. Free cash flows net of lease payments increased to $43.5 million in the quarter compared to $36.9 million last year, mainly due to lower capital expenditures. For 2025, we are targeting capital expenditure levels lower than 2024. Moving over to liquidity and capital resources, as of the end of the quarter, the amount held in cash totaled $68.8 million, an increase of $18.4 million since the end of the 2024 fiscal period.

Speaker Change: On that note moving over to cash flows as Eric briefly mentioned the first quarter I had cash flows from operating activities of $58 8 million compared to $54 2 million in Q1 of 2024, an increase of $4 6 million, mainly attributable to the decrease in interest paid on long term debt free.

Speaker Change: Free cash flows out of lease payments increased to $43 5 million in the quarter compared to $36 9 million last year, mainly due to lower capital expenditures.

Speaker Change: For 2025, we are targeting capital expenditure levels lower than 2024.

Speaker Change: Moving over to liquidity and capital resources as of the end of the quarter. The amounts held in cash totaled it totaled $68 8 million an increase of $18 4 million since the end of the 2020 for fiscal period.

Rene St: As Eric mentioned, during the three months ended February 28, 2025, we repurchased and canceled 287,400 shares for $13.8 million through our NCIB and paid $7.7 million in dividends to our shareholders. We ended the quarter with a net debt of $643.9 million. Considering our strong cash flow generating ability, our debt to EBITDA of approximately 2.5 times is a level of debt that gives us flexibility to make acquisitions should the opportunity arise, while we continue to return capital to shareholders in the form of dividends and share buybacks.

Eric Lefebvre: As Eric mentioned during the three months ended February 28, 2025, we repurchased and canceled 287400 chairs for $13 8 million through our N CIB and paid $7 7 million in dividends to our shareholders.

Eric Lefebvre: We ended the quarter with a net debt of $643 9 million.

Eric Lefebvre: Our strong cash flow generating ability our debt to EBITDA of approximately two five times is the level of debt that gives us flexibility to make acquisitions should the opportunity arise. While we continue to return capital to shareholders in the form of dividends and share buybacks and with that I'd like to thank you for your time and I'll turn it back to Eric for closing remarks.

Eric Lefebvre: And with that, I'd like to thank you for your time, and I'll turn it back to Eric for closing remarks. Thanks, Rene. We've navigated the challenging last few years, the inflationary cycle of 22 and 23, turning to macroeconomic headwinds of 24 and early 25. The tools at our disposal to address these headwinds are plentiful. We will continue to drive the business forward with discipline, foresight, and a proactive approach to sustainable growth.

Eric Lefebvre: Okay.

Eric Lefebvre: Thanks Renee.

Speaker Change: We've navigated the challenging last few years, the inflationary recycle a 22 and 'twenty three turning to macroeconomic headwinds of 24 in early 'twenty five.

Speaker Change: The tools at our disposal to address these headwinds are plentiful, we will continue to drive the business forward with disciplined foresight and a proactive approach to sustainable growth.

Eric Lefebvre: Tyrants have dominated the headlines and are front of mind for everyone. It's a rapidly evolving and volatile situation and we're actively monitoring development. Our U.S. stores are somewhat insulated because most of our supply chain is U.S.-centric for delivery. We don't source 100% within the U.S., but our exposure is more. In Canada, we also purchase most of what we need domestically, but there are some products that inevitably need to be imported. If counter tariffs were imposed by the Canadian government We would need to manage their. In both countries, our supply chain teams are working hard to identify alternative sources for the goods that are imported and organize the supply chain in case we need to move from one supplier to another.

Speaker Change: Tariffs have dominated the headlines in our front of mind for everyone.

Speaker Change: Rapid leave Alba and volatile situation and we're actively monitoring developments.

Speaker Change: Our U S stores are somewhat insulated because of because most of our supply chain is U S centric for new stores.

Speaker Change: We don't source, a 100% within the U S, but our exposure is more limited.

Speaker Change: In Canada. We also purchased most of what we need domestically, but there are some products that inevitably need to be imported if garner tariffs were imposed by the Canadian government.

Speaker Change: We would need to manage their impact.

Speaker Change: In both countries our supply chain teams are working hard to identify alternative sources for the goods that are imported and organize the supply chain in case, we need to move from one supplier to another.

Eric Lefebvre: We are confident in our ability to manage any situation by leaning into our robust supply chain and procurement capabilities, strategic menu adjustments, and if necessary, pricing.

Speaker Change: We are confident in our ability to manage any situation by leaning into a robust supply chain and procurement capabilities strategic menu adjustments and if necessary pricing actions.

Speaker Change: I'd like to end up by saying that this quarter has demonstrated resilience in our system sales and we feel good about our pipeline of new store openings.

Eric Lefebvre: I'd like to end off by saying that this quarter has demonstrated resilience in our system sales, and we feel good about our pipeline of new store openings. Cash flow generation remains strong and our balance sheet is healthy. We remain committed to achieving long-term growth and delivering strong results.

Speaker Change: Hello generation remains strong and our balance sheet is healthy we remain committed to achieving long term growth and delivering strong results.

Speaker Change: Strong returns for our shareholders.

Operator: Thank you for your time, and we will now open the lines for questions. Thank you.

Speaker Change: Thank you for your time, and we will now open the lines for questions operator.

Speaker Change: Thank you, ladies and gentlemen, we'll now conduct a question and answer session. If you have a question. Please press star followed by one on your Touchtone phone you will hear a one Chilean pump the holiday junior request.

Operator: Ladies and gentlemen, we will now conduct the question and answer session. If you have a question, please press star key followed by one on your touchtone phone. You will hear a one-tone prompt acknowledging your request. Your questions will be polled in the order they are received. And if you would like to decline from the polling process, please press the pound key. Please ensure you lift the handset if you are using a speakerphone before pressing any keys.

Speaker Change: Questions will be pulled in the order. They are received and if he would like to decline from the pone process. Please press the pound key. Please ensure you lift the handset. If you are using a speaker phone before pressing any keys one moment for your first question.

Operator: One moment for your first question.

Vishal Shreedhar: Our first question comes from the line of Vishal Shreedhar from National Bank. Your line is open. Hi, thanks for taking my question.

Speaker Change: Our first question comes from the line of Vishal Street Heller from National Bank. Your line is now open.

Speaker Change: Hi, Thanks for taking my question I just wanted to.

Eric Lefebvre: I just wanted to get your thoughts on a comment that was indicated in the disclosure material where you say, we see significant value in share repurchases at current levels as a highly accretive use of capital, and we're going to remain disciplined in evaluating strategic acquisition opportunities. Wondering if something has changed, more so from the last quarter, and how we should contemplate acquisitions and even the pace of repurchases going forward. No, I don't think anything's changed. It's a continuity of what we're seeing out there. I mean, our priority remains to. Acquire. Good companies and good concepts that we can add to our portfolio, but that being said.

Speaker Change: Get your thoughts on a comment that was indicating the disclosure material where.

Speaker Change: Where you say, we see significant value in share repurchases at current levels as a highly accretive use of capital.

Speaker Change: We're going to remain disciplined in evaluating strategic acquisition opportunities wondering if something has changed and more so from the last quarter and how we should contemplate.

Speaker Change: Acquisitions, and even the pace of repurchases going forward.

Speaker Change: No I don't think anything's changed it to continue.

Speaker Change: What we're seeing out there.

Speaker Change: Priority remains too.

Speaker Change: Acquire acquire.

Speaker Change: Good companies and good concepts that we can add to our portfolio.

Speaker Change: But that being said.

Speaker Change: Acquiring <unk> at the moment makes sense, given our share price.

Eric Lefebvre: Requiring MTY at the moment makes sense given our share price. So we're buying back shares at around the same pace we've been acquiring. For the last few months, we're. position now at the pace we're going we're going to reach the maximum amount allowed by the TSX. So we're still on pace for that, we're still buying back our shares, and we're still building our treasure chest for acquisitions, so it's just that.

Speaker Change: So where we're buying back shares.

Speaker Change: The same pace we've been acquiring.

Speaker Change: For the last few months, where.

Speaker Change: In a position now at the pace, we're going we're going to reach their maximum amount allowed by the <unk>.

Speaker Change: So we are we're still on pace for that they were still buying back our shares.

Speaker Change: And we're still building our treasure chest for acquisitions. So it's just that.

Eric Lefebvre: It's not if we want to acquire companies, it's more when we'll be able to cross the finish line with some of the projects.

Speaker Change: It's not if we want to acquire companies, it's more when it will be able to cross the finish line with some of the projects we're working on.

Eric Lefebvre: Okay, and how do you evaluate the backdrop right now for acquisitions? Obviously, it's a very volatile situation, as you commented. And I presume the earnings outlook as we go through the year, you know, may may change or the consumer backdrop may change. So. Once you get your thoughts, do you think there's better prices available and it's something to be prudent, or do you think it's more of a long-term view and you'll buy it as Well, it's always a long-term view. Whenever we acquire something, it's not about next quarter or the quarter after it. As you know, they.

Speaker Change: Okay, and how do you evaluate the.

Speaker Change: The backdrop right now for acquisitions, obviously, it's a very volatile situations you commented.

Speaker Change: And I presume the earnings outlook as we go through the year.

Speaker Change: They may change or the consumer backdrop may change so.

Speaker Change: I want to get your thoughts or do you think theres better prices available and it's something to be prudent or do you think it's more of a long term view and you'll buy it as available.

Speaker Change: Well, it's always a long term view whenever we acquire something it's not about next quarter to quarter. After its island as you know.

Speaker Change: These acquisitions are based on long term forecasts that we have for them.

Speaker Change: The cash flow generation and the growth potential of each of these concepts.

Eric Lefebvre: But, yeah, just to comment on.

But just to comment on what Youre seeing in the consumer.

Eric Lefebvre: what you're seeing in the consumer. There's a lot of noise about what the consumer is doing or might be doing, but right now... As we stand today, I'm not seeing any material change in consumer behavior. There are ups and downs based on all the various factors we're seeing and all the noise that we're hearing in the media, but the consumer is still there. People still look for positive experiences in our restaurants. I don't think it has a material impact on valuations yet. I'm not sure if it will have an impact. But time will tell. As far as we're concerned, it's a...

Speaker Change: There's a lot of noise about the about what the consumer is doing or it might be doing.

Speaker Change: Right now.

Speaker Change: As we stand today I am not seeing any material change in consumer behavior.

Speaker Change: There are ups and downs based on all the various factors we're seeing in all the noise that we're hearing in the media, but the consumer is still there.

Speaker Change: People still look for positive experiences in our restaurants so.

Speaker Change: Hi.

Speaker Change: I don't I don't think.

Speaker Change: I don't think it has a material impact on our valuations yet I'm not sure. If it will have an impact because the consumer is still there.

Speaker Change: But time will tell.

Speaker Change: As far as we're concerned it's.

Eric Lefebvre: It's not smooth sailing because of everything that's going on, but consumers are still there and it's business as usual.

Speaker Change: It's not smooth sailing because of everything that's going on but that consumers are still there and it's business as usual.

Eric Lefebvre: Okay, and with respect to that comment where you said the consumers are still there, is that a comment in Canada and the U.S. and it applies in equal proportion for both? Well, on the Canadian side, it's certainly stronger than the U.S. at the moment. There are periods where one territory is going to be stronger than the other. Right now, we're seeing Canada. The other strongest territory is the same also since the beginning of Q2. But the U.S. consumer is still there. It's a little bit more choppy in the U.S., but there's still good potential, and we have a lot of concepts that are still there.

Speaker Change: Okay.

Speaker Change: And with respect to that comment where you said the consumers are still there is that the comment in Canada and the U S pricing.

Speaker Change: In equal proportion for both.

Speaker Change: While on the Canadian side, it's certainly stronger than the U S at the moment.

Speaker Change: There are periods, where one territory is going to be stronger than the other right now we're seeing again it is their strongest.

Strongest territory. It's the same also since the beginning of Q2.

Speaker Change: But the U S consumer is still there, it's a little bit more choppy in the U S.

Speaker Change: But there's still good potential and we have a lot of concepts that are still doing well.

Speaker Change: Thank you.

Speaker Change: Okay.

Derek Lessard: Our next question came from the line of Derek Lessard from TD Cohen. Your line is open. Good morning, everybody. So, Eric, I just maybe wanted to touch a little bit on the Canadian same-store sales for Q1. So, maybe talk about, I guess, the order of magnitude of the weather impact and the extra day, and maybe just maybe a comment around the GST holiday. It doesn't seem like you guys benefited much, if any. Yeah, well, the extra day is important. Obviously, say it was a Thursday last year that February 29th. So we had five Thursdays in that.

Speaker Change: Our next question comes from the line of Derek Lessard from TD Cowen Your line is open.

Derek Lessard: Hey, good morning, everybody. So Erika just maybe wanted to touch a little bit on the Canadian same store sales for Q1. So let me talk about I guess, the order of magnitude of the weather impact and the extra today and maybe just.

Derek Lessard: Maybe a comment around the GST holiday it doesn't seem like you guys benefited much if any.

Speaker Change: Yeah, well the extra day is important obviously.

Speaker Change: I'd say it was a Thursday last year that February 29th So we had five thursdays in that month.

Eric Lefebvre: It's just over 1% on same-store sales, the impact, so it brings our same-store sales total to about flat, just under flat, and it brings our Canadian same-store sales total to about 1%. As far as the weather is concerned, there hasn't been much weather in Canada. We did have a snowstorm on Valentine's Day weekend.

Speaker Change: It's just over 1% same store sales of the impact. So it brings on a same store sales total to about flat.

Speaker Change: Just under flat and it brings our Canadian same store sales positive.

Speaker Change: As far as the weather is concerned there hasn't been much.

Speaker Change: Weather in Canada, we did have a snow storm Valentine's day weekend.

Speaker Change: The historical snow storms in Quebec, and Ontario.

Speaker Change: As I said, Thursday, Friday, Saturday and Sunday, so that hurt us a little bit, but it's hard to measure exactly what the impact of that would have been versus a normal Valentine's day weekend.

Eric Lefebvre: All right. We'll be back. Okay. And on the GST holiday, you know, anything to talk about there? Yeah, well, again, it's another one that's hard to measure and certainly in Quebec, it had no impact, the 5%. really necessarily make a big difference for the consumer. The impact is probably a little bit bigger in the Atlantic provinces because the entire sales tax was wiped away. We were performing well before and we're still performing well after. It's hard to measure whether it had an impact or not, but what's important is that the sales are still there before and after.

Speaker Change: Okay.

Speaker Change: On the GST holiday.

Speaker Change: Anything to talk about there.

Speaker Change: Yeah, well again, it's another one that's hard to measure.

Speaker Change: Get back that they had no impact.

Speaker Change: 5%.

Speaker Change: It is really nice necessarily make a big difference for the consumer.

Speaker Change:

Speaker Change: The impact is probably a little bigger a little bit bigger in the Atlantic provinces, because the entire sales tax was wiped away but.

Speaker Change: We were performing well before and we're still performing well after so.

Speaker Change: It's hard to measure whether it had an impact or not but.

Speaker Change: What's important is that the sales are still there before and after so.

Okay.

Eric Lefebvre: I can't really comment whether that. Okay, and that's fair. And just maybe one last one for me. Could you maybe talk about, you said you're actively monitoring the tariff developments. I understand that it's an extremely fluid environment, but you did say that you're implementing some mitigation strategies. Just curious if you could maybe talk about some of those strategies that you've got on the go. Yeah, well, we're we're not necessarily implementing the strategies because right now the impact We are planning in case there would be counter tariffs between Canada and the US for example, or if there are massive tariffs impacting some of our food products.

Speaker Change: Really comment whether that.

Speaker Change: It created some lift or not.

Speaker Change: Okay.

Speaker Change: That's fair and just maybe one last one for me.

Speaker Change: Could you maybe talk about you said you're actively moderate moderate during.

Speaker Change: The tariff developments I understand that it's extremely fluid environment, but you did say that you're implementing some mitigation strategies. Just curious if you could maybe talk about some of those strategies that you've got on the go.

Speaker Change: Yeah, well, we're not necessarily implementing the strategies because right now the impact.

Speaker Change: It is relatively minimal.

Speaker Change: So we don't have to change much. We're just preparing they always say plan for the worst and hope for the best.

Speaker Change: So we're planning in case, it would be counter tariffs between Canada and U S. For example, or if there is massive tariffs impacting some of our.

Speaker Change: Supply chain coming from from Mexico for our produce for example for example, so we're we're preparing a bunch of scenarios to prepare and.

Eric Lefebvre: Please see the complete disclaimer at https://sites.google.com or at https://sites.google.com. These counter tariffs or heavy tariffs do come to fruition or not necessarily fruition in this case, but they are enacted. number of different scenarios. We have a tariff task force that's implemented now. We're just preparing to make sure that we don't run out of food and to make sure that our franchisees are not. to penalize and also to make sure we don't we don't take pricing where we would need. Okay. Thanks, Eric. I appreciate the commentary.

Speaker Change: If these counter tariffs or heavy tariffs do come to fruition or not necessarily fruition in this case, but they.

Speaker Change: Are enacted.

Speaker Change: The entire supply chain will will reorganize itself and what the impacts are going to be is there's still a big question Mark So we're preparing for.

Speaker Change: A number of different scenarios, we have diverged task force that's implemented now in and our groups and.

Speaker Change: We're just preparing.

Speaker Change: To make sure that we don't run out of food and to make sure that our franchisees are not.

Speaker Change: <unk> been alive and also to make sure. We don't we don't take pricing, where we would need to take pricing.

Speaker Change: Okay. Thanks, Eric I appreciate the commentary.

John Zamparo: Our next question comes from the line of John Zamparo from Scotiabank. Your line is open. Thank you very much. Good morning. I wanted to come back to the same store sales performance subsequent to the quarter. I appreciate the comments so far. It's such a dynamic environment. I wonder if you've seen any noticeable shift in spending within segments. In other words, quick service versus fast casual versus casual. Our top performing concepts at the moment are the casual dining. And we haven't really seen major shifts. I would say that the Right now we're seeing more variation than normal, so the ups are higher and the downs are lower than normal.

Speaker Change: Our next question comes from the line of Johnson <unk> from Scotiabank. Your line is open.

Speaker Change: Thank you very much good morning.

Speaker Change: Wanted to come back to the same store sales performance subsequent to the quarter.

Speaker Change: Appreciate the comments so far it's such a dynamic environment I wonder if you've seen any noticeable shifts in spending within segments in other words quick service versus fast casual versus casual.

Speaker Change: Our top performing concepts at the moment or to casual dining.

Speaker Change: And we haven't really seen major shifts.

Speaker Change: I would say that the.

Speaker Change: Now, we're seeing more variation than normal so the ups are higher and the downs are lower.

Eric Lefebvre: So we don't we don't see the small changes that we typically see. We see heavier changes in both ways. But we haven't seen. any major shift in consumer spending.

The normal so we don't we don't see the small changes that we typically see we see heavier changes it both ways.

Speaker Change: But we haven't seen.

Speaker Change: Any major shift in consumer spending right now so.

Speaker Change: Hopefully that stays that way.

Eric Lefebvre: And then shifting to franchisees, I wonder how you would describe the sentiment among that group at the moment, both thinking about their profitability levels, but also their willingness to open new stores in this environment. Well, you know, as I mentioned earlier, our new store pipeline is really, really strong, probably the strongest it's ever. So we're pretty happy with that. We're swinging hammers on over 100 stores. very confident with our pace of openings for Q2 and Q3. The desire to open new stores and proven concepts hasn't necessarily gone down. And as far as profitability is concerned.

Speaker Change: Okay.

Speaker Change: And then shifting to franchisees I wonder how you would describe the sentiment among that group at the moment, both boats thinking about their profitability levels, but also their willingness to open new stores in this environment.

Speaker Change: Well.

Speaker Change: As I mentioned earlier, our new store pipeline is really really strong probably the strongest it's ever been.

Speaker Change: So we're pretty happy with that we're swinging hammers on over 100 stores.

Speaker Change: As we speak.

Speaker Change: Very confident with our pace of openings for Q2 and Q3.

Speaker Change: So.

Speaker Change: B.

Speaker Change: The desire to open new stores in proven concepts hasn't necessarily gone down.

Speaker Change: And as far as profitability is concerned.

Eric Lefebvre: franchisees are entrepreneurs. They're small business owners. I think it's normal that they're worried about profitability because of all the noise that we hear in the media and because of all the back and forth that creates a lot of uncertainty, but their profitability hasn't been affected by everything that's going on. If it does get impacted, then I can give an example when eggs riced soared in the U.S. This is a challenging time for our village and franchisees who sell a lot of food. So we need to address that and take some pricing in these cases to make sure that our margins So, there are a number of tools that we can use, but where there's no substitute for a certain product and price increases, we will need to, we'll need to protect our.

Our franchisees are entrepreneurs there there are small business owners so.

Speaker Change: I think it's normal that they're worried about profitability because of all the noise that we hear in the media.

Speaker Change: And because of all the back and forth.

Speaker Change: A lot of uncertainty.

Speaker Change: But their profitability hasnt been affected by everything that's going on yes, so hopefully it won't be.

Speaker Change: It does get impacted then I can give you. An example, when eggs right soared in the U S. It was it was a challenging time for our village and franchisees, who sell a lot of eggs.

Speaker Change: So we need to address that and take some pricing in these cases to make sure that our margins remain.

Speaker Change: Viable. So there are a number of tools that we can use but where there is no substitute for a certain product and price increases we will need to we need to protect our franchisees and I think consumers understand that if they are buying aggregate they understand that it's a little bit more expensive XR are back to a more normal.

Eric Lefebvre: back to a more normal.

Speaker Change: A more normal price, but there are ups and downs that are a little bit more abruptly.

Eric Lefebvre: Okay, on M&A, coming back to that topic, I think, correct me, but I think typically you've been fairly agnostic on restaurant type or geography for what you'd target. Is that still the case, would you say, or are there specific segments or regions or brands? Maybe you don't have to share what they are, but are you getting more targeted in what you're interested in? We're still largely agnostic on geography and type of restaurant. Obviously, we're primarily going to focus on very heavy franchise model. We're not necessarily that interested in corporate store models. which which tend to be a little bit more challenged these days.

Speaker Change: Okay.

Speaker Change:

Speaker Change: On M&A coming back to that topic, I think correct me, but I think typically you've been fairly agnostic on restaurant type or geography for what your target is that still the case would you say are there specific segments or regions or brands and maybe you don't have to be sure. What they are but are you getting more targeted and what your interest.

Speaker Change: On the M&A side.

Speaker Change: Yeah.

Speaker Change: We're still largely agnostic on geography and type of restaurant, obviously were.

Speaker Change: Primarily going to focus on very heavy franchise model.

Speaker Change: We're not necessarily that interested in corporate store models.

Speaker Change: Which tend to be a little bit more challenge these days.

Eric Lefebvre: We're seeing a lot of monitoring, but this is not necessarily our primary focus. But other than that... Any type of restaurant, any geography can do well. There's an appeal to potential consumers, so we're agnostic and we look at each opportunity. on its own, not necessarily based on the type of food or.

Speaker Change: Seeing a lot of.

Speaker Change: Activity on the corporate store chains were.

Speaker Change: We are monitoring, but this is not necessarily our primary focus but other than that.

Speaker Change: I mean any type of restaurants, and any geography can do well if it's if it's operated well and if.

Speaker Change: If people do a good job and if there is.

Speaker Change: There is an appeal to potential consumers. So we're agnostic and we look at each opportunity.

Speaker Change: On its own not necessarily based on the type of food or geography.

Speaker Change: Got it Okay and then one last one for me spin.

Eric Lefebvre: Okay, and then one last one for me. Specific to this quarter, the closure skewed more towards Canada. Can you add some color there? Was there anything that was sort of one time that you think will not impact other quarters? I know this is always tough to predict, but is there anything you can add on that? Yeah, there was, it was a little bit of a mixed bag in terms of closures during Q1. Obviously, there is one, the Guzo theatres that went bankrupt affected our TCBY chain. So, we had to close all those stores at once.

Speaker Change: Specific to this quarter that the closures skewed more towards Canada.

Speaker Change: Can you add some color. There was was there anything that was sort of one time that you think will not impact other quarters. I know this is always tough to predict but is there anything you can add on that topic.

Speaker Change: Yes, there was it was a little bit of a mixed bag in terms of closures.

Speaker Change: During Q1.

Speaker Change: Obviously, there is one.

Speaker Change: The guzzo theaters that went bankrupt.

Speaker Change: You're affected our ECB why change so we had we have to close all of those stores at once.

Eric Lefebvre: So, that obviously won't happen again in the future. But other than that, it's a little bit of a mixed bag. Q1 typically has. This slide is a little bit more sensitive. January and February are typically lower months. There's no necessarily discernible trend that we'd say. Okay, great. Understood.

Speaker Change: So that obviously I won't read it wont happen again in the future.

Speaker Change: But other than that it's a little bit of a mixed bag Q1 typically has.

Speaker Change: Is it a little bit more sensitive January and February, particularly typically slower months.

Speaker Change: And this is when.

Speaker Change: Some of our franchisees choose to.

Speaker Change: Stop operations after the Christmas period. So it's historically, it's been it's been like that.

Speaker Change: Going to be like that in the future as well.

Speaker Change: But there's no necessarily a discernible trend that we that we'd say, yes. This is something that's going to last in the future.

Speaker Change: Okay, great understood I'll leave it there thank you very much.

Eric Lefebvre: I'll leave it there. Thank you very much.

Operator: Ladies and gentlemen, if there are any additional questions at this time, please press star followed by 1. As a reminder, if you are using a speakerphone, please lift the handset before pressing the key.

Speaker Change: Ladies and gentlemen, if there are any additional questions at this time, Please press star followed.

Speaker Change: As a reminder, if you are using a speaker phone please lift the handset before pressing the.

Speaker Change: Keith.

Michael Glen: Our next question comes from the line of Michael Glen from Raymond James. Your line is open. Hey, good morning.

Speaker Change: Our next question comes from the line of Michael Glen from Raymond James James Your line is open.

Michael Glen: Hey, good morning.

Eric Lefebvre: Eric, the change in CapEx cadence that you're seeing in this year versus last year, can you just help give some insight into what's changed on the CapEx front where you're spending less money this year versus last year? Yeah, for sure. Last year, we had some some construction that we had to do on a few stores, for example, the two Baton Rouge. There are some other stores that we needed to build because they were pre-committed. That doesn't happen this year. There's no intention to build corporate stores other than the famous Dave's new prototype that we just built and that we just...

Speaker Change: Eric the change in Capex cadence that youre seeing in this.

Michael Glen: This year versus last year can you.

Michael Glen: Just help give some insight into what's changed on the Capex front, where you're spending less money this year versus last year.

Michael Glen: Yes for sure last year, we had some.

Michael Glen: We've got some construction that we have to do on a few stores for example, the two Baton Rouge and Theres our day in Lasalle, we had there.

Michael Glen: We had some some some other stores that we needed to build because they were pre committed that doesn't happen this year.

Michael Glen: There is no intention to build corporate stores other than the famous Dave's new prototype that we just built in that we just opened.

Eric Lefebvre: A few weeks ago. So, we announced all of last year, we announced that the CAPEX cadence would slow down and that we had visibility on... and we're just realizing what we see.

Michael Glen: A few weeks ago.

Michael Glen: So we announced all of last year, we announced that the Capex cadence would slow down and that we had visibility on.

Michael Glen: On the lower Capex and we're just realizing what we said we would.

Eric Lefebvre: Okay, and did you guys give a number for CapEx for the year, a guidance on it? No, we didn't give a number. All we were saying is that it should be materially lower. OK.

Michael Glen: Okay.

Speaker Change: Did you guys give a number for capex for the year our guidance on it.

Speaker Change: No we didn't give a number all we're saying is that that should be materially lower than last year.

Speaker Change: Okay.

Eric Lefebvre: And then in the opening remarks, Rene sort of highlighted that there has been a creeping higher uptick in corporate stores taking place, and he spoke to some of that. But is there any specific intention on MTY's part to divest its corporate casual dining stores in the U.S.? Yes and no. So we don't want to give them away because they're deproduced. Valid EBITDA, they bring dollars back home. There's no desire to increase that portfolio right now. The stores you see being added are mostly Papa Murphy's. where territories are being abandoned by some large franchisees, where we think...

Speaker Change: And then in the.

Speaker Change: Opening remarks.

Speaker Change: Rene sort of highlighted that there has been a key.

Speaker Change: Higher uptick in corporate stores, taking place and you spoke to some of that but is there any specific intention on empty wise part to divest its corporate casual dining stores in the U S.

Speaker Change: Yes, and no. So we we don't want to give them away because they produce.

Speaker Change: EBITDA.

Speaker Change: Dollars back home.

Speaker Change: Theres no desire to increase that portfolio right now with where the stores you see being added are mostly Papa Murphy's.

Territories are being abandoned by some large franchisees, where we think the.

Eric Lefebvre: Operations were not optimal and we can turn them around and refranchise them down the But yes, there will be some sales of targeted sales of corporate stores. I don't want to announce numbers. It won't necessarily be all of our stores for sure. But there will be some targeted sales of corporate stores in the casualty. Okay, perfect.

Speaker Change: Operations were not optimal and we can turn them around and refranchising them down the road.

Speaker Change: But yes, there will be some sales of targeted sales of corporate stores I don't want to announce numbers.

Speaker Change: It won't necessarily be all of our stores for sure, but there will be some targeted sales of corporate stores in the casual dining portfolio accounting.

Speaker Change: Okay perfect.

Eric Lefebvre: And then just on the consumer, you have seen headlines, and I know you referenced, you read about this in the media, but a very active push to value menu offerings in the US. Are you responding across any of your brands right now to competitive intensity on the value side? Yes, I think every brand, whether it's U.S. or Canada, needs to have a value offer to attract consumers. get people into the Consumers won't necessarily buy that value offer, but at least it gives them a reason to buy it. So yes, I would say pretty much every brand.

Speaker Change: And then just on the.

Speaker Change: The consumer.

Speaker Change: You have seen headlines and I know you referenced you read about this in the media, but a very active pushed too.

Speaker Change: <unk> menu offerings in the U S. Our.

Speaker Change: Are you responding across any of your brands right now too.

Speaker Change: And competitive intensity on the value side.

Speaker Change: Yes, I think every brand, whether it's U S or Canada needs to have a value offer to attract consumers.

Speaker Change: And get people into the store.

Speaker Change: They won't necessarily by that consumers won't necessarily buying that value offer but at least it gives them a reason to come into the store.

Speaker Change: So, yes, I would say pretty much every brand.

Speaker Change: As to play in that value offer we.

Speaker Change: We have no choice.

Eric Lefebvre: Okay.

Speaker Change: Okay, and then from your franchisees on the U S side are you hearing anything or any dialogue regarding.

Eric Lefebvre: And then from your franchisees on the U.S. side, are you hearing anything or any dialogue regarding labor challenges or labor availability coming up? No, I think labor is pretty stable. There are pockets here and there where it's more complicated. There always is. But I wouldn't say the labor situation. better or worse than it's been before. We're in a business where we have a high churn in our employees and we need to constantly renew our.

Speaker Change: Labor challenges or labor availability.

Speaker Change: Coming up.

Speaker Change: No I think labor is pretty stable there are pockets here and there where it's more complicated there always is.

Speaker Change: But I wouldn't say the labor situation is better or worse than it's been before it's.

Speaker Change: We're in a business, where we have a high churn and our employees and we need to constantly renew our workforce.

Speaker Change: And that's the nature of our business and.

Speaker Change: This year or this month is no different than it was before.

Operator: Okay, thank you for taking the question. There are no further questions at this time. This concludes the conference call for today. Thank you for participating. You may now disconnect.

Speaker Change: Okay. Thank you for taking the question.

Speaker Change: There are no further questions at this time. This concludes the conference call for today. Thank you for participating you may now disconnect.

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Speaker Change: [music].