MTY Food Group Inc.

Good morning and welcome to the MTY Food Group 2025 Third 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. If anyone has any difficulty hearing the conference, you may press the star 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 risks 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 risks and uncertainties related to this forward-looking statement, please refer to the company's annual information form dated February 13, 2025, which is posted on CEDAR+. 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, October 10, 2025, at 8.30 a.m. Eastern Time. I would now like to turn the call over to Mr. Eric Leperve, Chief Executive Officer of MTY Food Group. Please go ahead, sir.

Thank you. Good morning, everyone. I'd like to begin by expressing how proud I am of MTY and our franchise partners for their discipline and resilience in executing our strategy, even amid the volatile environment. As I often mentioned in the past, MTY's team remains laser-focused on driving organic growth through positive things to our sales and net unit growth across our portfolio. Combined with greater efficiency and scale, these efforts should translate into meaningful EBITDA growth over time. With our asset-like diversified business model, we believe MTY is well-positioned to navigate this challenging macro environment and to continue delivering long-term value. During the third quarter, we achieved an important part of that objective by delivering a net gain of 15 locations, supported by a robust pipeline of new locations and continued interest from our franchise partners to further invest in our brands. Goldstone Creamery, Wetzel's Pretzels, Planet Smoothie, and Thai Express continue to be key contributors, while many of our smaller brands add locations regularly and also contribute an important portion of the overall number. With momentum building, we are well positioned to continue expanding our network steadily over the medium and long term. MCY system sales remain stable at $1.5 billion. Same-store sales, on the other hand, have not reached the level we aimed for last quarter, but I'm encouraged by the sequential improvement in the U.S., driven by Cold Stone and Sweet Frog, two brands at their seasonal highs during the third quarter, and continued strong performance by Village Inn. Canada's same-store sales were largely flat during the quarter. Many street-based brands performed well, including our breakfast concepts and sushi brands, but that was offset by a 2.5% decline experienced by our mall-based locations. Looking ahead to the start of Q4, We've seen continued volatility in the U.S., similar to the trend experience so far in 2025, while our Canadian operations are showing signs of improvement across most of our banners. Although this reflects just one month of the quarter, it reinforces the importance of our diverse portfolio as we navigate these market dynamics. Turning to our digital channels, digital sales grew 1% in Q3 and now represent 19% of total sales. The slight moderation in growth is primarily due to Papa Murphy's system sales decline. Papa Murphy's drives approximately 40% of its sales from online transactions, so a decline on Papa Murphy's carries significant weight on the consolidated number. Excluding Papa Murphy's and the impact of foreign exchange, consolidated digital sales increased 3% during the quarter over prior year. We see significant opportunity to increase our digital penetration over time, and we believe our investment in people, infrastructure, and technologies, along with brand-level initiatives, are enhancing the off-premise guest experience while building a long-term growth engine. Digital also enables us to leverage data-driven insights for more targeted marketing, stronger customer loyalty, delivering scalable impact across both our large and emerging banners. While most of our U.S. brands are already well into their digital journey, we're only scratching the surface in Canada with significant improvements coming in the next few months as our data infrastructure reaches the required level to activate the value of the data we own. At MCY, innovation is at the heart of what we do. It's not just about new menu items. It's about finding smarter ways to engage guests, streamline operations, and drive incremental traffic across our brands. From digital tools that simplify ordering and enhance the off-premise experience to data-driven marketing and bold menu concepts, our teams are continuously experimenting and scaling what works. This approach helps us stay ahead in a competitive, value-conscious market while driving the top-line growth and operational efficiency. We remain confident in the underlying strength of our brand and the resilience of our business model. At the same time, we are mindful of external factors that could affect near-term growth. A prolonged U.S. government shutdown could delay SBA loan approvals, which are an important source of financing for some of our franchise partners, and as a result could temporarily slow the pace of new restaurant development. The shutdown could also impact the availability of SNAP benefits, which may put pressure on consumer spending, particularly for low-income guests. I'd like to take a moment to walk you through some of the key objectives and initiatives underway at Papa Murphy's. As part of our ongoing efforts to strengthen the brand and position it for long-term success, we've made the difficult but strategic decisions in partnership with our franchisees to close a certain number of underperforming locations over the last year. This allows us to focus our time, resources, and support on markets and stores where we are seeing strongest growth in guest engagements. These actions ensure the brand is on strong footing and remains healthy, sustainable, and well-positioned for future expansion. A recent example of this success is our opening in Deer Park, Washington. The newly opened location currently generates sales of more than twice our brand's average unit volume. We're also making targeted investments in marketing, including exciting collaborations like our recent partnership with Mike's Hot Honey. Additionally, one of our most impactful investments initiatives on the horizon is the relaunch of the Papa Murphy's Loyalty Program. This updated program transitions from a surprise and delight structure to a rewards-based design to both attract new guests and increase visit frequency among our loyal customers. Aggressive incentives will be offered to customers to generate interest around the relaunch, which should offer an opportunity to reconnect with some guests and reengage them with the brand. Other initiatives include menu optimization, Q rationalization and an entirely new lineup of exciting pieces launching next year, all aimed at driving innovation, simplifying operations, and enhancing the guest experience. We're confident these strategic moves will drive continued momentum and growth for the brand. Papa Murphy's team is focused on building a stronger, more agile business, one that honors our heritage, while evolving to meet the needs of today's guests and tomorrow's opportunities. While we are on the topic of Papa Murphy's, I would like to announce the departure of Adam Lear, who was the co-COO for the barbecue holdings in Papa Murphy's divisions. Al Hank, who was Adam's co-COO, will take the solo lead for the division. We wish Adam the best of luck as he becomes a franchise owner for Famous Dave's Barbecue and Champs restaurants. On a different topic, I'd like to highlight the significant progress we've made on our ERP implementation, a cornerstone initiative that will drive efficiency and scalability across NTUI. Our Canadian go-live was completed on time and on budget, and we are now in the first phase of the U.S. rollout with the final phase scheduled for December. We remain confident in our timeline and are applying the lessons learned in Canada to ensure a successful transition. Already, the system is enabling us to develop tools that improve visibility, streamline processes, and enhance efficiency in every part of our operations. I want to take a moment to recognize the exceptional work and efforts of our head office teams, whose dedication has been instrumental in achieving this milestone. With that, I'll now turn it over to Renee, who will discuss MTY's financial results in greater details.

Thank you, Eric, and good morning, everyone. Normalized adjusted EBITDA came in at $74 million for the third quarter, up 3% year-over-year compared to the same period last year. This was aided by the recognition of a $5.8 million employee retention credit from the U.S. government, which pertained to the 2020 and 2021 periods. Excluding this credit, normalized adjusted EBITDA would have shown a modest year-over-year decline. Our franchise segment delivered results that were in line with the overall business performance. with a 2% decline that mirrors the trend seen in same-store sales, while margins for the segment remain stable at 56%. Canadian revenues for the segment decreased by 2% to $36.4 million, mainly due to lower sales of materials to franchisees, partly offset by higher recurring revenue streams. Meanwhile, in the U.S. and international segment, franchise operations revenue also saw a modest 2% decline to $64.4 million, driven mainly by an unfavorable foreign exchange variation. On the expense side, operating costs in Canada went up by $1.4 million year over year to $20 million, mostly due to normal inflation on wages and increases in consulting and SAP implementation costs. Meanwhile, I'm happy to report that in the U.S. and international segments, operating expenses decreased by 4% to $25.6 million. Looking ahead in the franchising segment, we expect the higher quality of new stores opened and those about to open, along with the efficiencies from our ongoing initiatives to drive franchise EBITDA growth at a pace above same-store sale growth levels. Normalized adjusted EBITDA of the corporate store segment came in at $13.1 million, up $3.8 million from last year. After normalizing for the $5.8 million employee retention credit, EBITDA was softer this quarter, reflecting a decline in sales and a higher cost of goods. That said, we view these pressures as temporary and in most cases addressable. We remain confident in our ability to manage these effectively and drive improvements over time, and we expect this segment's margins to be closer to the high single-digit level experienced last year. Canadian corporate store revenues decreased by 4% to $10.8 million due to a reduction in the number of corporate stores, while U.S. and international revenues declined by 1% to $107.7 million due to a 2% reduction in system sales. Operating expenses for the Canadian segment decreased by half a million to 10.9 million, while the U.S. and international segment decreased by 5% to 94.5 million. The U.S. decrease was due to the recognition of the 5.8 million employee retention credits received, partly offset by a higher cost reflecting a higher number of corporate store locations. Food processing distribution in retail segments delivered revenue growth of 19%, driven by a shift in our retail model from a licensing agreement to vendor on record for some of our products, as well as successful promotional activities and higher volumes across our core retail products. Looking ahead, we see meaningful opportunities for both revenue growth and margin expansion as we continue to build scale and strengthen our presence in underpenetrated markets. Normalized adjusted EBITDA for the segment reached $4.9 million, down 6% from last year, with margins coming in at 10%. The decline in the margin was primarily due to the results of the move from a licensing model to being the vendor on record for certain products. Turning our attention to net income attributable to owners, it amounted to $27.9 million, or $1.22 per diluted share, compared to $34.9 million, or $1.46 per diluted share, in Q3 2024. The decline was mainly due to a $6.2 million net impairment charge on intangible costs related to one brand in the U.S. and international segment and three brands in Canada. Moving over to cash flows, MTY's asset-like model continues to generate strong free cash flows, providing meaningful flexibility to reduce debt, pursue strategic acquisitions, and enhance shareholder returns, all while continuing to invest in the long-term growth of our brands. In the third quarter, cash flows from operations were $39 million compared to 66.4 in Q3 2024, representing a decrease of $27.4 million. The lower-than-expected amount mainly reflects a temporary working capital decrease tied to delayed invoicing for the retail segment during the SAP rollout. To ensure accuracy and establish a sustainable process, invoicing was pushed to the later part of Q3 and is now fully up-to-date. We expect full collection on the amounts outstanding at quarter end within the next month, with no material risk as all the receivables are related to major retailers and grocers in Canada. Cash flows before non-cash working capital items, interest and taxes were $73.6 million compared to $71.4 million in Q3 2024. On a trailing 12-month basis, free cash flows net of lease payments stands just over $120 million, representing roughly 14% of our market capitalization. This underscores both the strength of our cash generation profile and the attractive value of our shares. We ended the quarter with net debt of approximately $602 million. Considering our strong cash flow generating ability, our debt to EBITDA of approximately 2.3 times is a level of debt that gives us flexibility to make acquisitions should the opportunity arise. And with that, I'd like to thank you for your time and turn it back to Eric for closing remarks.