MTY Food Group Inc.

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the MTY Food Group, Inc. first quarter 2024 earnings conference call. At this time, all participants are in listen-only mode. Following the presentation, we will conduct a question and answer session. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star then zero. Before turning the meeting over to management, please be advised this conference call will contain statements that are forward-looking and subject to a number of risks and uncertainties that cause actual results to differ materially from those anticipated. I would like to remind everyone that this conference call is being recorded today, Friday, April 12, 2024. I would now like to turn the call over to Eric Lefebvre, Chief Executive Officer. Please go ahead, sir. Thank you.

Good morning, everyone. Thank you for joining us for NTUI's first quarter conference call for fiscal 2024. The 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 CDAR. During the call, we will be referring to forward-looking statements and to certain numbers that are non-IFRS measures. You can refer to our MD&A for more details. I also remind you that all figures presented on today's call are in Canadian dollars unless otherwise stated. Following two years of strong system sales growth amid a challenging economic environment, first quarter results were adversely affected by extreme weather, primarily in January and the first two weeks of February. Extreme cold temperatures throughout most of North America caused significant downward pressure on our system sales, especially to the frozen treats portion of our QSR restaurants, while poorly timed snowstorms affected sales in the northeast portion of our portfolio. MTY's performance was more or less aligned with the industry data for casual dining restaurants. However, our QSR restaurants lagged the industry, mainly as a result of the significant weight of our frozen treats brands have in our portfolio, as well as to the material impact on Papa Murphy's sales of the decrease in government funding of the Supplemental Nutrition Assistance Program. More specifically, EBT sales represented 14.69% of system sales for the brand last year, compared to 8.75% this year. Canada and the US reported same-store sales decreases of 2.7% and 3.6% respectively, while the international region was down 7.4% compared to the first quarter of 2023. Consistent with what I just described, the decrease in same-store sales is primarily attributable to extreme weather patterns in certain regions, during the quarter, which compounded the impact of uncertain economic conditions and sluggish consumer spending. The first quarter has historically been a challenging period for both new store openings and control of store closures, as the months of January and February tend to be the most difficult for our industry. Despite that seasonal reality, our network once again came within a few locations of breaking even in terms of openings versus closures in the quarter. During the first quarter of 2024, we opened 75 locations and closed 79 others for a net decrease of four. Although we are not pleased with falling short of our objective to be net store positive, we are encouraged by the trends we are seeing. We ended the first quarter with a total of 7,112 locations, of which 97% were franchised or under operator agreements, and 3% were corporate-owned. The geographical split of MTY's locations remained stable year-over-year at 58% based in the U.S., 35% in Canada, and 7% international. In terms of financial results, the lower sales volume did affect the EBITDA for the franchising and corporate locations segment negatively, as Rene will explain in a minute. The retail segment was also under pressure in the first quarter, resulting in our normalized adjusted EBITDA reaching $59.5 million, down 7% from $64 million last year. Despite system sales and EBITDA being slightly lower than last year in the first quarter, NTY generated the highest operating cash flows in the company's history at $54.2 million. For their part, free cash flows net of lease payments more than doubled to $36.9 million in Q1 2024. The strong cash flow generation enabled debt repayments of $34.6 million in the quarter, bringing total repayments to $103.5 million in the last 12 months. Given the high interest rate environment, we believe debt repayments are a good use of the cash we generate as we reduce the burden of interest payments and build a treasure chest for future opportunities. As announced in January, we also raised our quarterly dividend payment to $0.28 per share for the quarter, and repurchase $3.6 million worth of shares under our normal course issuer bid, rewarding shareholders who support our long-term value creation strategy. Our share buybacks are done in a systematic way, keeping in mind the limitations imposed on MTY by its credit agreement, which limits annual distributions to shareholders to $50 million. This amount includes both dividends and share buybacks. I will now Now turn the call over to Renee, who will discuss NTWISE financial results in greater detail.

Thank you, Eric, and good morning, everyone. As mentioned by Eric, normalized adjusted EBITDA, which excludes acquisition-related expenses and SAP project implementation costs, amounted to $59.5 million in the first quarter of 2024, down 7% from $64 million in the first quarter of 2023. Company revenue, meanwhile, declined 3% year-over-year to $278.6 million in the first quarter, mainly due to less recurring revenue streams that were tightly correlated to reduced system sales. In Canada, revenue from franchise operations decreased 7% year-over-year, while food processing, distribution, and retail sales dropped 8%. Lower revenues from these subdivisions were partially offset by an 11% increase from corporate-owned stores due to a net increase in such locations year over year. In the U.S. and international segments, revenues from both franchise operations and corporate-owned stores decreased 1% year over year, while the retail segment dropped $7.7 million, mainly due to the termination of a retail licensing agreement. The lower revenue levels from the franchise and corporate-owned store subdivisions were mainly impacted by the decrease in recurring revenue streams, similar to Canada's. These were partially offset by higher sales of material and services to franchisees and greater initial fees demonstrating the strength of the company's pipeline for new openings. U.S. revenues were also positively impacted by the acquisitions of Wetzel's pretzels and sauce pizza and wine, which were finalized in December 2022. The year-over-year decrease in normalized adjusted EBITDA was primarily driven by lower system sales in all geographies, slightly lower cost of doing business, as well as a decline in the performance of our retail segment. In terms of net income attributable to owners, it amounted to $17.3 million or $0.71 per diluted share in the first quarter of 2024, slightly lower from last year's $18.4 million or $0.75 per diluted share. This decrease is attributable to the lower year-over-year EBITDA, as well as impairment charges taken on the value of the property and equipment of a few U.S. corporate restaurant locations and one trademark in Canada. Looking at liquidity and capital resources, as mentioned by Eric, we generated all-time record high cash flows from operations of 54.2 million in the first quarter of 2024, up 20.7 million from 33.5 million in the same period last year. The increase is mainly attributable to an improvement in non-cash working capital items which is primarily the result of improvements in our accounts receivable collection, including the collection of a few large transactions related to insurance, gift cards, and taxes owing to the company. Excluding variations in non-cash working capital items, income taxes, interest pay, and other, we generated $59.1 million in cash flows from operations compared to $63.3 million in the same period last year. Free cash flows net of least Expenses, meanwhile, grew 139% to $36.9 million or $1.52 per diluted share in the first quarter of 2024, compared to $15.4 million or $0.63 per diluted share in the first quarter of 2023. In the first quarter of 2024, we reimbursed $34.6 million of long-term debt, paid $6.8 million in dividends to our shareholders, and repurchased 70,800 shares for a total consideration of 3.6 million on top of paying 12.3 million in interest on our bank facilities. At the end of the quarter, NCUI had a cash position of 50.6 million and long-term debt of 736.2 million, mainly in the form of bank facilities and promissory notes on acquisitions. Our revolving credit facility has an authorized amount of 900 million, a width of which $536.3 million USD has been drawn. Hedging strategies, including three-year and two-year fixed interest rate swaps, have provided the company with a quarterly savings of approximately $1.9 million on interest payments. Following the quarter end, we successfully extended the maturity of our revolving credit facility by 17 months to March 15, 2027, while maintaining our current interest rates stable. Finally, our net deaths normalized adjusted EBITDA ratio stood at 2.6 times at quarter end, a sequential improvement from 2.8 times in the fourth quarter of 2023. And with that, I thank you for your time and will now open lines for questions. Operator?