MTY Food Group Inc.

Good morning and welcome to the MTY Food Group 2025 First Quarter Results Earnings Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question and answer session. Instructions will be provided for you at that time for questions, and if anyone has any difficulty hearing the conference, you may press fire zero for operator assistance at any time. Listeners are reminded that portions of today's discussion may contain forward-looking statements that reflect current views with respect to future events. Any such statements are subject to risk and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. For more information on MTY Food Group's risk and uncertainties related to these forward-looking statements, please refer to the company's annual information form dated February 13, 2025, which is posted on Cedar Plus. The company's press release MD&A and financial statements were issued earlier this morning and are available on its website and on Cedar Plus. All figures presented on today's call are in Canadian dollars, unless otherwise stated. This morning's call is being recorded on Friday, April 11, 2025 at 8.30 a.m. Eastern Time. I would now like to turn the call over to Mr. Eric Lefebvre, Chief Executive Officer of MTY Food Group. Please go ahead, sir.

Thank you. Good morning, everyone, and thank you for joining us for MTY's 2025 First Quarter Conference Call. René Saint-Ange, our Chief Financial Officer, is also with us today. The word I would use to summarize our first quarter performance from my perspective is resilience. In the face of an uncertain macro backdrop, NTUI and its franchisees continue to execute well. We're taking a measured and thoughtful approach in response to emerging market headwinds. After adjusting for the impact of an extra day resulting from the leap year last year, same-store sales remained largely stable. This performance comes despite significant weather disruptions throughout the quarter, during which we witnessed a higher frequency of extreme cold, floods, and snowstorms, keeping customers home and increasing temporary store closures. These conditions placed downward pressure on system-wide sales during the quarter, particularly on the QSR frozen treats segment. Our other snack brands, such as Wetzel's Pretzels, continue to perform well on all key metrics. Casual dining restaurant segments in both Canada and the US remained resilient as consumers continue to strive for positive restaurant experiences that are priced right. We continue to make positive progress within our digital channels. Digital sales increased by 7% in the first quarter and now represent 22% of total sales. This growth reflects our ongoing investments and brand level initiatives aimed at enhancing the off-premise customer experience. We are today in a better position to implement more targeted and data-driven marketing strategies with our larger brands and we continue to improve our ability to use all the best-in-class tools with a number of smaller brands. As a reminder, the average digital sale carries a significantly higher average check than non-digital sales. During the first quarter of 2025, we opened 70 locations and closed 102, resulting in a net decrease of 32. The first quarter has historically been a challenging period for openings and typically brings higher closures. Encouragingly, our current pipeline is strong with over 100 locations currently under construction. As such, we anticipate an improvement in the pace of restaurant openings in Q2 and Q3. While there will always be ups and downs, we remain committed in achieving net locations growth in the future and are confident in our ability to deliver growth. At the end of Q1, NTWISE network comprised 7,047 locations, of which 96.4% were franchised or under operator agreement, and 3.6% were corporately owned. Turning to our financial results, normalized adjusted EBITDA increased modestly, despite the negative impact resulting from the leap year last year, and the U.S. headwinds mentioned earlier. All segments were relatively flat year-over-year, with small increases in the franchise and retail segments, and a small decrease in corporate restaurants. Margins across all segments held steady, displaying the resilience of our business. MTY continues to generate very strong free cash flows, as one would expect from our asset-light model. Cash flows generated from operating activities were $58.5 million, up 9% year-over-year, and free cash flows net of lease payment came in at $43.5 million, up 18% year-over-year. Free cash flows net of lease payments represented 72% of normalized adjusted EBITDA, demonstrating the company's impressive free cash flow generation capabilities. We remain focused on building financial capacity for strategic opportunities while also returning value to shareholders through share buybacks and dividends. In the quarter, we once again repurchased just under 300,000 shares under our normal course issuer bid, bringing the total shares repurchased in the last 12 months to 1.1 million shares, or 4.6% of our float at the beginning of that period. With that, I'll now turn it over to Renee, who will discuss MTOI's financial results in greater detail.

Thank you, Eric, and good morning, everyone. Like Eric mentioned, normalized adjusted EBITDA came in at $60.2 million for the first quarter of 2025, up 1% year-over-year compared to the same period last year. MTY system sales grew by 2.5% year-over-year and company revenues saw a 2.2% boost. Looking at each operating segment separately, franchising operations Canadian revenues dipped by 2% to $34.5 million. This was mainly due to a $0.4 million decrease in recurring revenues and a $0.5 million decline in turnkey project sales. Meanwhile, in the U.S. and international segment, franchise operations saw a 2% increase in revenues, reaching 58.5 million. A favorable foreign exchange swing of 3.6 million led to the increase partially offset by a decrease in recurring revenue streams, which was the result of our organic system sales decrease of 3.1%. On the expense side, operating costs in Canada went up by 2% year-over-year to 19.7 million, mostly due to higher wages. The U.S. and international operating expenses rose by 3% to 30.9 million, affected by 2 million foreign exchange impact, as well as 1.7 million in SEP project implementation and acquisition-related transaction costs. We are happy to say, however, that these increases were partially offset by a 2.1 million reduction in controllable expenses, thanks to the company's continued focus on cost discipline, resulting partly due to the restructuring initiatives put into place in 2024. As for profitability, normalized adjusted EBITDA for the franchise operations came in at $44 million, a 1% increase from last year's $43.4 million, with the margins remaining steady at 47%. Moving over to the corporate operations, Canadian revenues rose 17% to $9.8 million due to a net increase in corporate-owned locations as well as a shift in mix resulting in an increase in casual dining restaurants year over year. U.S. and international revenues rose by 2% to 116.1 million, also due to an increase in corporate locations. The increase in corporate store restaurants in the U.S. was the result of taking back select locations in certain underperforming territories in the later half of 2024, with the objective of turning the operations around and re-franchising the restaurants. Operating expenses for the Canadian segment rose by 1.3 million to 10.2 million, while the U.S. and international segment rose by 3% to 103.5 million due to a higher number of corporate stores as well as higher wages and supply chain costs. Normalized adjusted EBITDA of the corporate store segment came in at 12.2 million, relatively stable from last year's 12.4 million with margins in line at 10%. Globally, revenue from food processing, distribution, and retail grew by 7%, thanks to stronger sales in the Canadian retail segment. A big driver for the increase was the strong Super Bowl performance. Normalized adjusted EBITDA for the segment reached $4 million, up 8% from $3.7 million last year, with margins holding steady at 10%. Turning our attention to our income attributable to owners, it amounted to $1.7 million, or $0.07 per diluted share, compared to $17.3 million, or $0.71 per diluted share, in Q1 2024. The decline was mainly due to accounting for the foreign exchange variations on intercompany loans. This accounting loss has no bearing on our healthy operational and financial highlights in the corner, which saw significant growth in operating and free cash flows. Excluding this foreign exchange impact, adjusted EPS was 87 cents per diluted share versus 69 cents per diluted share in the first quarter of 2024, highlighting the impressive overall performance during the quarter. On that note, moving over to cash flows, as Eric briefly mentioned, the first quarter had cash flows from operating activities of 58.8 million compared to 54.2 million in Q1 of 2024, an increase of 4.6 million, mainly attributable to the decrease in interest paid on long-term debt. Free cash flows net of lease payments increased to 43.5 million in the quarter compared to 36.9 million last year, mainly due to lower capital expenditures. For 2025, we are targeting capital expenditure levels lower than 2024. Moving over to liquidity and capital resources, as of the end of the quarter, the amount held in cash totaled 68.8 million, an increase of 18.4 million since the end of the 2024 fiscal period. As Eric mentioned, during the three months ended February 28, 2025, we repurchased and canceled 287,400 shares for 13.8 million, through our NCIB and paid $7.7 million in dividends to our shareholders. We ended the quarter with a net debt of $643.9 million. 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 I'll turn it back to Eric for closing remarks.