A & W Food Services of Canada Inc.

Hello everyone, thank you for joining us and welcome to the A&W Food Services of Canada Q1 2026 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, Melissa. Good morning, everyone, and thank you 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 this morning by A&W's Chief Financial Officer, Kelly Blankstein. Today, we're presenting A&W's results for the first quarter of fiscal 2026, which was a 12-week period that ended on March 22nd, 2026. 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 Q1 2026 MDNA and Fiscal 2025 Annual Information Form, both of which include a summary of the material assumptions made by management, as well as the 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 Q1 2026 MDNA for definitions and reconciliations of any non-IFRS financial measures mentioned on today's call. Our Q1 earnings release, financial statements, MD&A, as well as our fiscal 2025 annual information form are all available on Food Services' CDAR Plus profile, as well as on our investor website at awinvestors.ca. A&W's same-store sales growth for Q1 was near flat at minus 0.4%, but reflected regional differences in performance, with positive same-store sales growth in the western provinces and territories being offset by negative same-store sales growth in the eastern provinces. A&W restaurants in the western part of Canada reported growth in both sales and guest counts and outperformed the market, confirming the effectiveness of our marketing strategy and value promotions. Sales in Q1 2026 from our A&W restaurants in the east were negatively impacted by severe weather events which caused temporary closures and restricted customer access to both our restaurants and delivery services. These weather-related factors, combined with the non-recurrence of last year's federal tax holiday, resulted in a quarter-over-quarter decline in guest counts and same-store sales in the eastern provinces. In Ontario specifically, we're actively addressing the challenges posed by changing demographics and a complex macro environment marked by economic and consumer uncertainty. We remain committed to adapting our approach to meet the evolving needs of our guests. 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 four new A&W restaurants in Q1, 2026 two of which were in the important markets of Ontario and Quebec, and three of which were in partnership with Suncor. Our partnership with Pret-a-Manger is progressing well. We're excited to share that we opened our second corporately-owned Pret location in Toronto in January 2026, and we've secured leases for additional Pret locations we expect to open with three to four franchise locations by the end of fiscal 2026. We continue to actively work to further expand Pret's presence in Canada and are actively pursuing sites in Vancouver, Calgary, Toronto, and Montreal. With that, I'll now turn things over to Kelly, who will take us through A&W's financial highlights for Q1.

Thank you, Susan, and good morning, everyone. I'll provide an overview of our financial results for the first quarter ended March 22, 2026. Total revenue for the quarter was $59.4 million, a decrease of 3% compared to Q1 of 2025, and this decrease was primarily due to three fewer new restaurant openings this quarter compared to the same quarter last year. Our net annual restaurant unit growth for the trailing four quarters ending in Q1 2026 was 1.7%, which is consistent with the 1.8% achieved for the trailing four quarters ending Q1 2025. As a reminder, The timing of restaurant openings fluctuates each quarter and impacts revenue from equipment sales and turnkey restaurants. These decreases were partially offset by increases in service fees and distribution revenue, which are driven by system sales. The ongoing migration of A&W restaurants moving from the 2.5% to the 3.5% service fee rate also contributed to the increase in service fee revenue and the margin expansion in Q1, 2026. System sales increased by 1.5% to $402.8 million, driven primarily by the increase in our total restaurant count. Same store sales growth was negative 0.4%, reflecting the regional disparity Susan described earlier. Operating costs for the quarter were $33.3 million, a 2% decrease from Q1 2025, largely attributed to and associated with the fewer A&W restaurant openings. This was partially offset by timing differences in marketing spend, which resulted in the advertising funds having a $3.3 million negative impact to net income before taxes this quarter. General and administrative expenses were $11.7 million, up 7%, or $0.8 million from Q1 2025. This increase relates to higher employee compensation, including a $.3 million increase in stock-based compensation, as well as resources added to support the Pratt brand expansion. Income before income taxes increased by $1.2 million in Q1 2026, largely as a result of a $2.6 million gain on the interest rate swap and decreases in both operating costs and net finance expense. These decreases were partially offset by a decrease in revenue and an increase in G&A expenses. Adjusted EBITDA for the quarter was $19.5 million and in line with Q1 2025's adjusted EBITDA of $19.4 million. Adjusted EBITDA increased due to lower operating costs, excluding depreciation and advertising fund expenses, which are added back when calculating adjusted EBITDA. This decrease in operating expenses was offset by lower revenue, excluding advertising fund contributions, which are excluded from adjusted EBITDA and higher G&A expenses, excluding items like depreciation and stock-based compensation, which are added back when calculating adjusted EBITDA. Adjusted EBITDA margin increased 110 basis points to 32.9% up from 31.8% in Q1 of last year. Our outlook for fiscal 2026 remains unchanged with the guidance we provided on March 5th and includes achieving adjusted EBITDA within the range of $103 million to $105 million, up from the $100 million achieved in 2025. It also includes ending fiscal 2026 within the range of 1,112 restaurants to 1,120 A&W restaurants, up from 1,094 at the end of 2025. We expect to achieve system sales growth in the range of 2.5% to 5%, compared to the 2.8% achieved in 2025, and expect to achieve same-store sales growth in the range of 0.5 and 3%, compared to 1.2% achieved in 2025. Turning to the balance sheet, in Q1, 2026, we were able to further deleverage and reduce the net debt to adjusted EBITDA ratio from 2.3 at the end of 2025 to 2.2. The capex to revenue ratio was 1.2% for Q1, 2026, up 30 basis points from 0.9% for Q1, 2025. In Q1 of 2026, Food Services invested capital in plant and equipment, readying the second Pret Stand Alone location for opening in January 2026, leading to an increased capital investment in plant and equipment in the first quarter of 2026 as compared to the first quarter of 2025. We declared a cash dividend of 0.48 per share in Q1 2026 and remain committed to maintaining the current level of quarterly dividends for the foreseeable future. We announced on March 18th that the TSX had approved a normal course issuer bid that allows us to purchase up to 600,000 A&W shares over the 12-month period beginning March 20th, 2026 and ending March 19th, 2027. We have launched at NCIB because A&W's management and its board believe that from time to time the market price of A&W shares do not reflect A&W's intrinsic value and that repurchasing the shares is an attractive and appropriate use of corporate funds. To facilitate share purchases during regulatory restrictions or self-imposed blackout periods, A&W also entered into an automatic share purchase plan with a designated broker. A&W did not repurchase any common shares under the NCIB in Q1, 2026. And as of today, have repurchased a total of 5,391 common shares and an average price of $36.16 per share. I'll now hand it back to Susan for some closing remarks.