A & W Food Services of Canada Inc.

Hello everyone, thank you for joining us and welcome to the A&W Food Services of Canada Inc's Q3 2025 Financial Results Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please raise your hand. If you have dialed into today's call, please press star 9 to raise your hand and star 6 to unmute. I will now hand the call over to Susan Senecal, President and CEO. Please go ahead.

Thanks very much, Sarah, and good afternoon, everyone. Thanks for taking the time to attend our call today. I'm Susan Senecal, President and CEO of A&W Food Services of Canada, and I'm joined by Kelly Blankstein, our Chief Financial Officer. Today, we're presenting A&W's results for the third quarter of fiscal 2025, which was a 12-week period that ended on September 7, 2025. Before we begin, as a reminder, remarks on this call may include our expectations, future plans and intentions that may constitute forward-looking information within the meaning of applicable securities laws in Canada. Such forward-looking information is based on estimates and assumptions made by management regarding, among other things, general economic and geopolitical conditions, as well as the competitive environment. actual results may differ materially from the conclusions, forecasts, or projections expressed by the forward-looking information. We refer you to Food Services Q3 2025 MDNA and 2024 Annual Information Form, both of which include a summary of the material assumptions made by management, as well as risks and factors that could affect ANW's future performance and our ability to deliver on the forward-looking information. We also refer you to Food Services Q3 2025 MD&A for definitions and reconciliations of any non-IFRS financial measures mentioned on today's call. Our Q3 earnings press release, financial statements, MD&A, as well as our 2024 annual information form are each available on Food Services' CDAR Plus profile, as well as on our investor website at www.awinvestors.ca. We're pleased to report A&W's third consecutive quarter of positive same-store sales growth. Building on the positive momentum from the first half of the year, we achieved system sales growth of 3.1% and same-store sales growth of 1.4% in Q3 2025. Our marketing campaigns and commitment to delivering exceptional value continue to be well-received by our guests. In Q3, We expanded A&W's value offerings through the introduction of a dedicated value deals menu. The value deals menu provides guests with a variety of items with a price point under $4, making A&W's offerings more accessible and appealing to more customers. Although tariffs have not had a material direct impact on food services, we believe that there has been an impact on A&W system sales in 2025 due to the broader economic effects of tariffs, which have influenced the general economy and the disposable income of many Canadians. The introduction of the expanded value deals menu solidifies our position as a brand that understands and responds to the evolving needs and economic considerations of its guests. We're also making excellent progress on the implementation of our new five-star operating system. As of today, approximately 900 A&W restaurants have completed the training and onboarding program, leading to notable improvements in speed of service and guest feedback. In terms of unit growth, we opened three new A&W restaurants in Q3, bringing our year-to-date openings to 14. We remain strategically focused on growth across Canada, particularly in Ontario and Quebec, where nine of our 14 new restaurants have opened, and through our partnership with CENCOR. During the quarter on August 21st, we celebrated our annual Burgers to Beat MS Day and raised over $1.7 million in support of MS Canada, surpassing the number of teen burgers sold during last year's campaign. A big thank you to everyone on the call who participated and purchased a teen burger. Our partnership with Pret-a-Manger is also progressing well. As mentioned on our Q2 call, We signed a lease for a second corporately owned PrEP location in Toronto, which is expected to open in Q1, 2026. We are also actively pursuing additional sites in Vancouver, Calgary, Toronto, and Montreal, and we anticipate future PrEP expansion to primarily occur under a franchise model. We also continue to progress on our strategic target of achieving a 30% increase in franchisee profitability over a five-year period. We are nearly through the first two years of that five-year period and are on track to achieve our target. We originally anticipated franchisee profit improvement would stem from both sales growth and expense efficiency, so we are particularly satisfied with this outcome, considering the more challenging sales environment. With that, I'll now turn things over to Kelly, who will take us through A&W's financial highlights for Q3.

Kelly? Thank you, Susan. And good afternoon, everyone. I'll start off by giving a high level overview of our results for the third quarter of fiscal 2025. And then I'll give a brief update on our results for the year to date through Q3. So total revenue decreased by 4.8 million, primarily due to a difference in the timing of restaurant openings. There were seven fewer openings in Q3 2025 compared to the same quarter in 2024, as the timing of restaurant openings is subject to various factors and fluctuates each quarter. This decrease was partially offset by an increase in revenue from service fees, contributions to the National Advertising Fund, and revenue generated from the distribution of food and supplies. These revenues were higher in Q3 2025 as compared to Q3 2024 as they are driven by system sales, which were up 3.1% quarter over quarter. Our same store sales growth for Q3 2025 was positive 1.4%, which is a significant improvement from negative 1% reported for the same quarter in 2024. Q3 2024 was when we really started to see sales at A&W restaurants impacted by the slowdown in consumer spending in response to that economic environment. The positive same-store sales growth in Q3 2025 was due to an increase in both average check size and guest counts. The increase in guest counts was largely driven by the success of the marketing campaigns and value offerings mentioned by Susan earlier on this call, which were designed to address the evolving needs and economic considerations of A&W's guests. Amidst a challenging macroeconomic environment that continues to create headwinds for sales at A&W restaurants, we believe that achieving positive growth in sales and guest counts is a significant achievement. Average check size increased and is impacted by menu prices, menu mix, party size, and changes in consumers' discretionary spending. Our corporate restaurant also continued to experience growth in sales volume. On the operating cost side, operating costs for Q3 2025 totaled $31.8 million and decreased as compared to Q3 2024, a decrease of $14.2 million or 31%. The decrease in operating costs correlates with the decrease in revenue mentioned earlier and is primarily due to seven fewer new A&W restaurants opened in the quarter compared to Q3 2024, as well as lower marketing related costs incurred by the National Advertising Fund, which we refer to as the NAF. In Q3 2025, the NAF's contributions exceeded its expenses by $4.5 million, whereas in Q3 2024, the NAF's expenses exceeded its contributions by $3.3 million, meaning there was a resulting swing of $7.8 million quarter over quarter in net income before taxes. All contributions to the NAF are of course spent on advertising activities, and so the quarter over quarter differences in NAF expenses is purely a timing difference. General and administrative expenses for Q3 2025 were held flat with Q3 2024 and totaled $10.8 million. Our income before income taxes for Q3 2025 increased by $14.6 million or 163% to $23.6 million. The growth in income before taxes is largely a function of the cessation of the royalty expense following the strategic combination of food services with A&W Revenue Royalties Income Fund which completed in October, 2024. And we refer further on as the combination transaction. It's important to know that our Q3, 2024 results included a royalty expense of 13.7 million, which is no longer applicable following the combination transaction. Net finance expense increased by 3.4 million in Q3, 2025, primarily due to the increased average debt balance from financing the combination transaction in October, 2024. We also recognize an unrealized loss of $1.4 million on our interest rate swap in Q3 2025, which was entered into earlier this year in quarter two to manage interest rate risks associated with our credit facility. The loss on our interest rate swap is a non-cash expense. At the bottom line, adjusted EBITDA increased by $1.1 million or 5% to $25.8 million for Q3 2025. Our adjusted EBITDA margin also improved to 36.2% in Q3 2025, up from 32.5% in Q3 2024. Adjusted EBITDA improved primarily due to lower operating costs, and the decrease in operating expenses was partially offset by the decrease in revenue. However, on a net basis, it reflects an increase in margin that was driven by the growth in system sales. Now I'll just briefly touch on how we are performing on our key business performance metrics year-to-date. For the 36-week year-to-date period ended September 7, 2025, system sales increased by 2.9% to $1.33 billion and total revenue increased by 1% to $201.1 million. Income before income taxes grew by 84%. to 53.3 million and adjusted EBITDA increased as well by 8% to 70.7 million. During the year-to-date period, we opened 14 new A&W restaurants and declared cash dividends totaling $1.44 per share. We remain committed to maintaining the current level of quarterly dividends for the foreseeable future. During our Q1 call, we updated our 2025 outlook for adjusted EBITDA, system sales growth, same-store sales growth, and total units. and there has been no change to the outlook since then. I'll now hand it back over to Susan for some closing remarks. Back to you, Susan.