A & W Food Services of Canada Inc.

Hello, everyone. Thank you for joining us and welcome to the A&W Food Services of Canada Quarter 4 2025 Earnings Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. To withdraw your question, press star 1 again. I will now hand the call over to Susan Senecal, President and CEO.

Please go ahead. Thanks, Jade, and good afternoon, everyone. Thank you for joining us to discuss A&W Food Services of Canada's results for the fourth quarter and fiscal year ended December 28th, 2025. I'm Susan Senecal, President and CEO, and I'm joined today by A&W's Chief Financial Officer, Kelly Blankstein. 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 Service's Fiscal 2025 MDNA and Fiscal 2025 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 A&W's future performance and our ability to deliver on the forward-looking information. We also refer you to Food Services Fiscal 2025 MD&A for definitions and reconciliations of any non-IFRS financial measures mentioned on today's call. Our Q4 Earnings Release Financial Statements MD&A, as well as our Fiscal 2025 Annual Information Form, are all available on Food Service's CDAR Plus profile, as well as on our investor website at www.awinvestors.ca. Following the strategic combination with A&W Revenue Royalties Income Fund in October 2024, we entered 2025 with a simplified corporate structure and a clear focus on driving long-term value for our guests and franchisees. I'm pleased to report we delivered both top and bottom line growth in 2025, despite operating in a challenging environment that's been marked by difficult economic conditions and an extremely competitive burger QSR market in Canada. In fiscal 2025, we achieved positive same-store sales growth in all four quarters, opened 26 new A&W restaurants, and met our annual guidance to the markets. We are pleased with how our value-based promotions and dedicated value menu contributed to food services growth in 2025, and we remain committed to making sure that A&W stays affordable for Canadians looking to enjoy the high quality and great taste that our brand is known for. Strategically, we continue to focus on growing restaurant counts across Canada, with a particular focus on Ontario and Quebec, and in partnership with CENCOR. We opened 26 new restaurants in fiscal 2025, 15 of which were in the important markets of Ontario and Quebec, and 12 of which were in partnership with CENCOR. Our partnership with Pret-a-Manger is also progressing well. We opened our second corporately owned Pret location in Toronto in January, 2026, and are actively pursuing sites in Vancouver, Calgary, Toronto, and Montreal that we expect to open as franchise locations. We also continue to progress on our strategic target of achieving a 30% average increase in franchisee profitability over a five-year period as measured against actual restaurant profitability for 2023. We achieved an average of 5% improvement in 2024 and an additional average of 7% improvement in 2025 and are on track to achieving the 30% improvement by 2028. The franchisee business model was further strengthened in 2025 by food services' successful efforts to reduce construction and modernization costs. Specifically, the cost of building a new freestanding A&W restaurant was reduced by nearly $500,000. and the cost to modernize an existing one was lowered by about $40,000. The first freestanding restaurant built with the new lower-cost design opened on December 31, 2025. With that, I'll now turn things over to Kelly, who will take us through A&W's financial highlights for Q4 and the year, and discuss the 2026 guidance that we released today, along with our Q4 results. Kelly?

Excellent. Good afternoon, everyone. And thank you, Susan. I'll start by giving an overview of our financial results for the fourth quarter of fiscal 2025, which was 16 weeks and ended on December 28th, 2025. I will then provide a brief summary of our annual results for fiscal 2025, which was 52 weeks and ended December 28th, 2025. Total revenue for the fourth quarter was $93 million and was in line with total revenue for quarter four of 2024. Franchising revenue increased due to a 2.5% increase in system sales and the opening of three more A&W restaurants, but was offset by a decrease in contributions to advertising funds. This decrease in contributions to advertising funds is attributed to a reduction in contribution rates year over year for specific regional advertising funds, as well as timing differences related to the sale of coupons and other promotional materials managed by the National Advertising Fund. As a reminder, all of the contributions to the national and regional advertising funds are used to fund marketing activities and the impact of food services net income related to the advertising funds is merely a reflection of timing differences between when contributions are made and when the marketing funds are spent. System sales increased 2.5% in Q4 2025. due to same-store sales growth of 0.9% and an increase in the number of A&W restaurants. Revenue from service fees and revenue generated from the distribution of food and supplies fluctuate with the movement in system sales, and as such, we're up quarter over quarter along with system sales. A&W same-store sales growth for Q4 2025 was positive 0.9%. This positive same-store sales growth was due to an increase in both average check size and guest counts. The increase in guest counts was largely driven by the strength of the marketing campaigns and value offerings mentioned by Susan earlier in the call. Amidst a challenging macroeconomic environment and highly competitive QSR landscape, both of which continue 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. Operating costs for the fourth quarter of 2025 were $48.8 million and in line with operating costs for Q4 of 2024. General and administrative expenses for Q4 2025 were $16.9 million and were $1.9 million or 12% higher than G&A expenses for Q4 of 2024. The increase quarter over quarter is attributable to timing differences between when certain costs were incurred in fiscal 2025 versus fiscal 2024, general inflationary increases and increase in professional fees and the launch of our equity incentive plan in 2025. Net finance expense increased by 900,000, primarily due to the debt taken in October of 2024, partway through the fourth quarter of 2024. which was of course used to finance the strategic combination of food services with A&W Revenue Royalties Income Fund, which I'll refer further on to as the combination transaction. We also recognized an unrealized non-cash gain of $859,000 on our interest rate swap in Q4 2025, which was entered into in Q2 2025 to manage interest rate risk associated with our credit facility. Income before income taxes for the fourth quarter of 2025 increased by $2.5 million or 12% to $23.4 million. The growth in income before taxes is largely a function of the cessation of the royalty expense following the combination transaction. It's important to note that our Q4 2024 results included a royalty expense of $5.8 million as well as income from associates of $1.2 million, both of which are no longer applicable following the combination transaction. Adjusted EBITDA increased by 1.4 million or 5% to 29.3 million for the fourth quarter of 2025. Our adjusted EBITDA margin also improved to 31.5% in the fourth quarter of 2025, up from 30% in the fourth quarter of 2024. The increase in adjusted EBITDA is primarily attributable to the increase in revenue, excluding the revenue related to the advertising fund contributions that are excluded for the purposes of calculating adjusted EBITDA, And they're partially offset by an increase in operating costs and general and admin expenses, but excluding such items as depreciation, stock-based compensation, and expenses associated with the advertising fund, which are added back for the purposes of calculating adjusted EBITDA. So I'll just turn now to highlighting how we performed on our key business performance metrics for the full fiscal year of 2025. For the full year, system sales increased by 2.8% to 1.92 billion, and total revenue increased by 1% to 294.1 million. Income before income taxes grew by 53% to 76.7 million and adjusted EBITDA increased by 7% to 100 million. The growth in income before taxes is largely a function of the cessation of the royalty expense following the combination transaction. Our fiscal 2024 results included a royalty expense of 44 million as well as income from associates of 9.5 million, both of which are no longer applicable following the combination transaction. In fiscal 2025, we opened 26 new A&W restaurants and increased our net annual restaurant unit growth from 1.8% to 2.0% in the current year. Just now quickly turning to the balance sheet, in fiscal 2025, we were able to deleverage while maintaining a dividend yield that ranged from 4.7% to 6.8%. We reduced our net debt to adjust to the EBITDA ratio from 2.5 to 2.3 to end the year. And we reduced our CapEx to revenue ratio from 1.6% to 1%. We paid cash dividends totaling 192 per share in 2025 and remain committed to maintaining the current level of quarterly dividends for the foreseeable future. Overall, we are pleased with the strength of our balance sheet ending fiscal 2025 after having taken on debt to fund the combination transaction in fiscal 2024. In the news release that we put out earlier today, we provided guidance for fiscal 2026, which incorporates the actual results from fiscal 2025 and reflects the challenging economic environment that food services continues to operate in. Specifically, The guidance accounts for the results seen to date in 2026 in Ontario, where approximately 30% of A&W restaurants are located. This region has been affected by severe weather, economic uncertainty stemming from ongoing trade friction and a notable shift in demographic trends, including rising unemployment and near zero population growth. Our fiscal 2026 guidance includes achieving adjusted EBITDA within the range of $103 million to $105 million, ending fiscal 2026 within the range of 1,112 to 1,120 A&W restaurants. It includes a forecast of achieving system sales for 2026 growth in the range of 2.5% to 5%, and achieving same-store sales growth between the ranges of 0.5% and 3%. This guidance replaces the fiscal 2026 and 2027 long-term targets prepared in connection with the October 2024 transaction. So with that said, I'll just now hand it back to Susan for some closing remarks.