MTY Food Group Inc.

Good day, and welcome to the MTY Food Group Fiscal 2024 Fourth Quarter Results. All participants will be in 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 and then two. Please note this event is being recorded. I would now like to turn the conference over to Eric Lathot, CEO of MTY Food Group. Please go ahead.

Thank you. Good morning, everyone. Thank you for joining us for MTY's fourth 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 CEDAR. 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. MTY delivered a remarkable financial performance once again in fiscal 2024. Despite a more challenging macroeconomic environment, our free cash flows net of rent payments reached $5.75 per share, or $137.9 million. Those funds were used to return a record amount to our shareholders in the form of share buybacks and dividend payments, which totaled over $68.6 million combined. MTY also paid back over $79.5 million of its long-term debt during the year, making our balance sheet healthy and well-positioned for future growth. During the fourth quarter and for the first time in 10 years, MTY achieved a net positive location growth in a quarter with a net of plus 13 restaurants. This is a major milestone for our teams. We had been pursuing this objective for a long time. A strong pipeline of new locations and a good control of closures remain two of our top priorities for the future. We were able to align the two metrics during the last quarter with 92 openings and 79 closures. During our 2024 fiscal period, our system sales remained flat at over $5.6 billion. Sales sequentially improved every quarter, starting the year with a minus 2% in the first quarter and finishing with a plus 2% in the fourth quarter. Our snack brands in the U.S. performed especially well, with Cold Stone Creamery, Wetzel's Pretzels, and Sweet Frog leading the way. In the fourth quarter, the Canadian, US, and international segments all saw organic growth in system sales, coming mostly from the performance of recently opened locations. I'm also encouraged by the positive outcome of the company's increased efforts in usage of data, digital marketing, online ordering, and websites during the past year. Our digital sales grew 9% year-over-year to $1.1 billion in fiscal 2024. There's still a lot of work to do to achieve our objectives, and we continue to take steps to make the customer experience as seamless and engaging as possible so that the growth momentum continues in the future. Digital sales are now 20% of MPY's total sales and still represent a significant opportunity for growth, especially in Canada. Our dual growth strategy, leveraging strategic acquisitions and organic growth, largely enabled us to overcome uncertain market conditions and inflationary pressure during the past years. Although MTY did not find a suitable acquisition target at an attractive price during the year, our team still intends to diligently pursue accretive acquisition targets while maximizing the performance of the brands in our existing portfolio. At the end of the fourth quarter, our network had 7,079 locations in operation, of which 6,827 were franchised or under operator agreements, representing 96.4% of our total store count. while 252 were corporately owned, representing 3.6% of our network. At November 30th, 57% of our restaurants were located in the U.S., reducing 66% of our network sales. Of note, 84% of our locations are now street front or non-traditional, with only 16% being in shopping malls or office tower food courts. 2024 was a year of adjustments for MTY. Following the major acquisitions of the last few years, we undertook a restructuring process that led to the elimination of several senior positions in the organization and to the redefinition of others. Our industry is changing at a fast pace and it was important for MTY's present and future success to have the right structure and more importantly, the right talent in the right position. Although we need to continue challenging ourselves to further adjust and be more efficient, We anticipate more stability in 2025 as we hope to harvest the fruits of the cost control measures and synergies realized in 2024. This should culminate later this year with the delivery of our new ERP, which promises to make MTY's infrastructure more robust and built for significant future growth. I will now turn the call over to Renee, who will discuss MTY's fourth quarter results in greater details.

Thank you, Eric, and good morning, everyone. In the fourth quarter, normalized adjusted EBITDA totaled 59.4 million, a decrease of 1.6% from the 60.4 million realized in the fourth quarter of 2023. Our franchising segment had an exceptional quarter with franchising margins increasing from 47% last year to 51% this year, generating a 7.9% increase in normalized adjusted EBITDA year over year. This performance is aligned with the realizations we made in the previous quarter and it's further evidence of the reliability, consistency, and resilience of our main business component, which represents 83% of normalized adjusted EBITDA. Our corporate restaurant segment, however, had a challenging fourth quarter. While revenues were up during the quarter, mainly as a result of additional locations repossessed during 2024, our margins were under pressure, causing our EBITDA to decrease by 39%. Some of our predominantly corporate concepts, such as Barrio Queen and Granite City, saw top-line sales decreases, which caused a decline in the profitability of these restaurants. Of note, our corporate location sales performance has trailed that of our franchise location, and our teams have implemented various initiatives in 2025 to reverse that trend and restore profitability to these corporate restaurants. Our retail distribution and manufacturing, which represents 6% of our total normalized adjusted EBITDA, concluded a difficult 2024 fiscal period with a decrease of 12% compared to prior year. Our manufacturing plans continued to perform well during the quarter, but our retail business once again struggled to generate the desired level of sales as grocery stores continued, customers continued to migrate to discount brands and house labels during the period. During the fourth quarter, a reassessment of the valuation of certain tangible and intangible assets led to non-cash impairment charge of 64.6%, sorry, charge of 64.6 million. The charge on property, plant, and equipment was recorded on certain recently acquired corporate locations that did not perform at the level expected when their valuation was established, while the charge on intangible assets was due to lower than expected 2024 performance for some brands. Similarly, we recorded goodwill impairment charge on our Papa Murphy's brand based on past performance and lower expected future growth. The volatility in foreign exchange rates also caused a charge of 26.3 million during the fourth quarter. This was driven by the conversion of some intercompany loans dominated in U.S. dollars, the result of which is a large charge to our net income and a corresponding gain in our statement of comprehensive income. As a result of the impairment charge and the accounting for the foreign exchange variations on intercompany loans, NCY reported a net loss attributable to owners of 55.3 million during the fourth quarter or 3.34 per diluted share. That accounting loss should not, however, overshadow the strong performance realized during 2024, including the fourth quarter, during which we generated $2.52 in normalized adjusted EBITDA per share and $1.85 in operating cash flows per share. We are wrapping the year with just over $11 per share in normalized adjusted EBITDA, $8.54 in operating cash flows per share, and $5.75 in free cash flows, net of rent payments per share. Those metrics, once again, prove the strength of our business model and demonstrate the financial health of MTY. We end the year with a net debt of $656 million, a reduction of over $52 million compared to the end of 2023. Considering our strong cash flow generating ability, our debt to EBITDA of approximately 2.5 times is a level of debt that gives us flexibility to make acquisitions should the opportunity arise, while we continue to return capital to shareholders in the form of dividends and share buybacks. And with that, I'd like to thank you for your time and we'll now open the lines for questions. Operator?