MTY Food Group Inc.

Thank you. Thank you for watching. . . . . Thank you for watching. Thank you. Thank you for watching. Thank you. Thank you. Thank you. Thank you. Thank you. . . . . Good morning and welcome to the MTY Food Group 2026 Second Quarter Earnings Conference 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 star zero for operator assistance at any time. Listeners are reminded that the 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 groups, risks, and uncertainties related to these forward-looking statements, please refer to the company's annual information form dated February 19, 2026, which is posted on CDAR+. The company's press release, MD&A, and financial statements were issued earlier this morning and are available on its website and on Cedar+. All figures presented on today's call are in Canadian dollars unless otherwise stated. This morning's call is being recorded on Friday, July 10, 2026, 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, and good morning, everyone. This morning, we released our 2026 second quarter results, which you can find posted on our website. The second quarter was a challenging period with continued consumer confidence issues impacting our results, especially in the corporate location segment. Our network produced same-store sales that were sequentially better than last quarter, but same-store sales remained negative. Traffic remained under pressure during the quarter and was a primary factor driving lower same-store sales. While conditions varied across our markets and brands, same-store sales performance was more closely aligned between the U.S. and Canada than in prior periods, With decreases of 2.2% and 1.8% respectively. Encouragingly, sales trends improved in Canada in June, with the majority of our concepts showing positive same-store sales. Despite the headwinds in the quarter, we continue to generate strong free cash flows. Our asset-light, well-diversified portfolio of banners remains highly cash-generative. Cash generation remains one of the core strengths of our business model and continues to provide us with flexibility as we navigate a complicated consumer environment. Turning to our store network, we generated positive net store growth of six locations in a quarter. We are encouraged by the continued progress of our development pipeline, and we expect an acceleration of the openings in the back half of the year, similar to the seasonal lift we experienced last year. As we discussed last quarter, our pipeline remains robust, Thank you. Thank you. Thank you. As part of our ongoing efforts to improve the quality and profitability of the business, we recently completed a detailed review of our corporate-owned store portfolio. Following that review, we've made the decision to close 68 underperforming corporate-owned stores. Some of the locations are scheduled to close as early as next week. We estimate it will take between six and nine months to complete the process. This was a store-by-store process where we evaluated the performance outlook economic profile of each location. Where we saw a path to improvement, we chose to continue investing efforts into making our existing assets as productive as they can be. Where the fundamentals no longer supported that path, we made the decision to close the store. During the last 12 months, the locations that are set to close have collectively lost over $10 million and their performance was for the most part deteriorating. This is an important step for MTY. The decision will reduce our store count in the near term, but we believe it is the right long-term action for the business. It will allow us to reduce losses, improve the quality of the corporate store portfolio, and focus our resources on locations and brands with stronger return potential. The estimated cost of the closures and the termination of leases is expected to be between $10 to $12 million. This will affect free cash flows in the short term, but will help the teams focus on healthier, more profitable locations in the future. It also demonstrates that we are taking decisive action to improve MTY for the future. We continue to operate the business with discipline and focus on the factors we can control. That includes driving strong cash generation, supporting our franchise network, Advancing our new store pipeline and taking action where we see opportunities to improve the quality and profitability of the business. With that, I'll turn it over to Renee to discuss the financials. Renee.

Thank you, Eric, and good morning, everyone. Before we begin, just a reminder that for fiscal 2026, we transition to a 52-week reporting basis, ending on the Sunday closest to November 30th each year. This quarter reflects that 52-week period, whereas the comparable period in 2025 was based on the calendar month-end basis. For this quarter, the 13-week period ended May 31, 2026 resulted in one day less compared to the 2025 second quarter period. Normalized adjusted EBITDA came in at $60.2 million for the second quarter, a decrease of $9.8 million from the same period last year. The change was mainly attributable to reduce profitability from corporate operations in the U.S. and international segments, as well as lower contributions from franchising operations across both segments. These factors reflected continued pressure from commodity and other operating costs, as well as softer consumer spending in certain markets. Franchise segment profit was $50.6 million in the quarter, representing a 5% decrease over prior year. Franchise revenues was $98.6 million in the quarter compared to $102.8 million in the same period last year. The decrease in revenues was mainly the result of lower turnkey projects in Canada and gift card program-related revenues in the U.S., as well as the $1.4 million negative foreign exchange impact. Franchise operating expenses were also down in the quarter to $48 million compared to $49.6 million last year. The U.S. and international segments saw a reduction of 9% more than offsetting the 4% increase in the Canadian segment. The reduction in the U.S. was the result of lower gift card program-related costs, which were directly related to the similar reduction in revenues, as well as the impact of foreign exchange rates. For Canada, wages increased as a result of normal inflation and consulting fees increased as a result of our strategic review. We also benefited last year from a non-recurring provision adjustment which impacted year-over-year results. This was partially offset by a reduction in turnkey projects. Normalized franchise segment EBITDA was $50.9 million in the quarter compared to $54 million in prior year, with margins relatively stable at 52% compared to 53% last year. As we continue to add higher quality news stores to our network and capture efficiencies from our ongoing initiatives, We expect franchise EBITDA growth to outpace same-store sales growth. Corporate segment profit and adjusted EBITDA were each $5.7 million in the quarter compared to $11.3 million in the same period last year, with margins of 5% compared to 9% in the period last year. Corporate segment revenues decreased by 15% to reach $111.7 million, while operating expenses decreased by 12% to reach $106 million in the quarter. The overall decrease in both revenues and expenses were tightly correlated to the decrease in the number of corporate-owned stores. This reflects not only the company's continued efforts to optimize its restaurant portfolio and increase the relative contribution of its asset-like franchise operation, but also is the result of the sale of a few profitable locations during the back end of 2025 and early 2026. As Eric mentioned, with the decision With the decision to close a series of underperforming corporate-owned stores, we believe we have set the stage to drive improvements in the corporate stores with a greater focus on healthier, more profitable locations in the future. This should enable us to consistently deliver corporate segment margins at the high single-digit level. Our food processing distribution and retail segment delivered operating profits and normalized EBITDA of $3.6 million in the period, with revenues of $39.3 million. Margins came in at 9% in the quarter compared to 12% in the same period last year. The retail segment has been impacted by inflationary pressures, especially as it relates to protein. The resulting reduction in margins forced us to scale down promotional activity on certain key products in 2026, which caused further pressure on sales. We believe meaningful opportunities exist within the retail channel for top-line and margin expansion as we continue to build scale and strengthen our presence in under-penetrated markets. Digital sales were $284.2 million in the quarter, which represented 21% of total sales, in line with the same period last year. Excluding the impact of foreign exchange, digital sales were down 2% from the same period last year, which is in line with the decrease in same-store sales. We continue to believe that digital sales are a growth driver for MCY in the long term and we continue to invest in this channel through in-house technology as well as partnerships with third-party aggregators. Overall, we reported $15.4 million in net income attributable to owners or $0.67 per diluted share compared to $57.3 million or $2.49 per diluted share in prior year. This quarter was impacted not only by the reduction in segment EBITDA but also by the impairment taken on the right-of-use assets related to the corporate locations we are planning to close and a negative variance of $42.7 million in foreign exchange. As Eric mentioned earlier, our asset-like well-diversified model continues to generate strong free cash flows with cash flows from operations of $43 million compared to $34.4 million in the same period last year. The improvement was mainly attributable to lower interest paid and positive working capital fluctuation. Free cash flows net of lease repayments were $32.2 million in the quarter compared to $17.8 million in the same period last year. The improvement was also attributable to lower interest paid and the favorable working capital variance I referenced above. We ended the quarter with net debt of approximately $531 million and improvement of $49 million over prior year. Considering our strong cash flow generating ability, our debt to EBITDA of approximately 1.9 times is at a level that gives us the opportunity to take advantage of the optionality we possess to deliver enhanced shareholder returns. And with that, I'd like to take time to turn it back to Eric for closing remarks.