MTY Food Group Inc.

Good morning and welcome to the MTY Food Group, Inc., third quarter of 2024 conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. 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 could cause actual results to differ materially from those anticipated. Please note that this conference call is being recorded today, Friday, October 11th, 2024. I would now like to turn the conference over to Eric LaFave, Chief Executive Officer. Eric, please go ahead.

Good morning, everyone. Thank you for joining us for MTY's third quarter conference call for fiscal 2024. The press release and MDNA 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 MDNA for more details. Please note that all figures presented on today's call are in Canadian dollars unless otherwise stated. I'd like to open with a few highlights from last quarter. Normalized adjusted EBITDA for the quarter reached $71.9 million, or $3.01 per diluted share. That compares to $72.9 million, or $2.98 per diluted share last year. Our franchising segment generated a 2% positive year-over-year growth last quarter, with an EBITDA of $57.4 million. Normalized adjusted EBITDA margins for the segment grew to 56% compared to 54% in the third quarter of 2023, as our restructuring efforts are starting to bear fruits. Cash flows provided by operating activities grew by $14.9 million, or 29% over last year, reaching $66.4 million compared to $51.5 million in the same period last year. Free cash flows net of rent payments were $49.3 million in the third quarter, a historical high for MTY. On a diluted share basis, free cash flows net of rent payments were $2.06 per share compared to $1.31 per share last year. During the three-month period ended August 31, 2024, and TY's network generated $1.47 billion in sales, an increase of $5.6 million compared to the same period last year. The U.S. and international segment had overall positive growth in system sales of $22 million for the quarter, while Canada recorded a decline of $16.4 million, or 3%. Canada's decline was felt in all types of restaurants, with fast casual concepts recording the largest drop. The U.S. snack category with brands such as Wetzel's Pretzels and Sweet Frog continued to outperform prior year. Our casual dining concepts, on the other hand, continued to face declines in traffic, offsetting the good performance of our QSR brands. Digital sales once again grew in proportion to overall sales in both countries. They now represent 19% of total sales compared to 17% in the same period last year. This is a reflection of the continued investment of our brands toward creating a smoother and digital sales channel and enhancing the customer experience online as well as in stores. As an overview of MTY's location count, the company ended the third quarter with 7,066 locations, a decline of 41 compared to the end of last quarter. During the third quarter of 2024, the company's network opened 67 locations and closed 108 locations. Store openings were affected by delays and inspections with many new locations opening in the first few days of the subsequent quarter. Store closures were also higher than in previous quarter, mainly because of a higher number of Papa Murphy's closures once again this quarter. Of the 7,066 locations in operation, 6,830, or 97%, were franchised or under operator agreements, and the remaining 236 locations, or 3%, were operated by MTY. I will now turn the call over to Renee, who will discuss MTY's financial results in greater details.

Thank you, Eric, and good morning, everyone. During the quarter, MTY's total revenue decreased to $292.8 million from $298.1 million a year earlier. Looking at the Canadian segment, revenue from franchise locations decreased by 3%. The decrease was attributed to the decrease in recurring revenue streams which is correlated to the 3% decrease in system sales Eric spoke about. Streetfront locations and mall locations had the largest impact on the year-over-year decline, decreasing by 4% each. The U.S. and international franchising segment, however, saw an improvement of 1% year-over-year, reaching $65.6 million. Again, this is tightly correlated to the increase in system sales of 2%. Revenue from corporate-owned locations in Canada increased by 30% to $11.2 million during the quarter due to a net increase in corporate-owned locations year over year, while the U.S. corporate-owned locations saw a decline of 1% due to the decrease in organic system sales of 0.6% compared to the same period last year. Globally, food processing, distribution, and retail revenue decreased by 7% due to lower sales in the Canadian retail segment. Similar to last quarter, this is the result of market conditions and grocers' focused increase on promoting house labels. However, I'd like to note overall segment profits increased year-over-year by $0.8 million, with margins improving to 13% from 10% in prior year. The U.S. retail segment also continues to make strides, with its existing product labels, which generated $0.7 million, increase over prior year. In terms of normalized adjusted EBITDA, we saw a decrease of 1% with $71.9 million in the quarter compared to $72.9 million in Q3 2023. As a reminder, normalized adjusted EBITDA excludes our SAP implementation costs. The U.S. and international normalized adjusted EBITDA contributed to 68% of total normalized adjusted EBITDA, realizing an increase of 1%, while Canada contributed 32% of total normalized adjusted EBITDA a decrease of 6% or $1.5 million compared to the same period last year. For the Canadian segment, the fluctuations were primarily impacted by the changes in recurring revenue streams with operating expenses remaining relatively flat for the quarter year over year, while the U.S. and international segment improvement was largely impacted by cost reductions. As mentioned by Eric, the restructuring initiatives taken in the first half of the year and continuing into the later half are starting to show their impacts on our results. These initiatives are also showing in our franchising segment margins, which improved to reach 56% compared to 54% in Q3 2023. Corporate store margins saw a slight dip to 8% compared to 10% in last year. Turning our attention to the income attributable to owners, for the three-month ended August 31, 2024, a net income attributable to owners of $34.9 million was recorded, or $1.46 per diluted share, compared to $38.9 million or $1.59 per diluted share last year. The decrease is primarily attributable to an impairment charge of $3 million on property, plant and equipment and intangible assets, as well as the charge for revaluation of financial liabilities and derivatives recorded at fair value, which compares to a gain on such revaluations last year. Moving on to look at cash flows. The third quarter generated cash flows from operating activities of $66.4 million compared to $51.5 million in Q3 2023. An increase of $14.9 million mainly attributable to a favorable working capital variance during the quarter and a fluctuation in income taxes received paid year over year. The free cash flows net of lease payments increased to $49.3 million in the quarter compared to $32.1 million in Q3 2023. Regarding liquidity and capital stock resources, as at August 31, 2024, the amount held in cash totaled $51 million, a decrease of $7.9 million since the end of the 2023 fiscal period. During the three months ended August 31, 2024, we repurchased and canceled 254,700 shares for $11.4 million through our NCIB and paid $6.7 million in dividends to our shareholders. During the quarter, we repaid $33.9 million of our long-term debt, bringing the total to $85.4 million in the last 12 months. At the end of the second quarter, we had $506 million drawn from our revolving credit facility. Interest on long-term debt decreased by $0.7 million as a result of entering into fixed interest rate swaps, which have resulted in savings of $0.6 million U.S., or 0.8 million Canadian this quarter. In early June of this year, we sold our fixed interest rate swap of 200 million US dollars for a sum of 4.8 million US dollars or 6.6 million Canadian, which will be recognized on a straight line basis over the period equal to the original hedge date of April 10th, 2026. As mentioned in our subsequent events note, we also entered into two more interest swaps in September, on 100 million Canadian and 50 million Canadian at rates of 2.79% and 2.77% respectively. Finally, looking ahead, I'd like to note the upcoming quarterly dividend payment of 0.28 per share on November 15, 2024. And with that, I will turn the call back to Eric for a few words before the Q&A session.