Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the MTY Food Group in Q1 2023 Earnings Conference Call. At this time, all participants are on a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. If anyone has any difficulty hearing the conference, please press star followed by zero for operator assistance at any time. Before turning the meeting over to management, please be advised that 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. I would like to remind everyone that this conference call is being recorded today, Wednesday, April 12, 2023. I would now like to turn the call over to Eric Lefebvre, Chief Executive Officer. Please go ahead. Good morning, everyone. Thank you for joining us for MTY's First Quarter Conference Call for Fiscal 2023. The press release in MD&A with complete financial statements and related notes were issued earlier this morning and are available on our website as well as on SEDAR. 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. We're pleased with the robust operation and financial performance realized in the first quarter of 2023, highlighted by normalized adjusted EBITDA of CAD 64 million and a record-high system sales of CAD 1.4 billion. We're particularly proud of that organic growth complemented our business acquisitions with year-over-year organic growth of 20% in consolidated normalized adjusted EBITDA and 14% in system sales. During the first quarter, the average unit volume of our restaurants was 39.6% higher than it was during the first quarter of 2020, which was the last quarter before the pandemic. This organic growth reflects the impact of numerous initiatives put in place many months ago that are now bearing fruit. The key performance indicators are flashing green across our management dashboard, but we're not yet satisfied, and we will keep pushing for more. That being said, the acquisitions of Wetzel's Pretzels and Sauce Pizza & Wine during the quarter, along with the BBQ Holdings transaction, which closed last fall, largely contributed to the year-over-year growth in EBITDA and system sales. Wetzel's Pretzels, which added over 360 locations to MTY's network, delivered strong results during the holiday season in December. We expect this deal to be accretive to MTY's earnings, EBITDA, and free cash flow per share in 2023. On the Canadian side, our network generated 32% system sales growth in the first quarter as the business continued on its strong momentum compared to a quarter marked by pandemic-related restrictions last year. Digital sales for the first quarter, meanwhile, increased 17% year-over-year to CAD 246.2 million, including the positive impact of acquisitions and foreign exchange rate. Our digital sales, which consist mostly of takeout orders and delivery sales, benefit from the increased focus of our team put on digital marketing and sales channel, emphasizing the growing importance of the customer experience when they are away from our restaurants. Looking deeper at normalized adjusted EBITDA, our consolidated margins declined to 22% in Q1 2023 due to the higher weight of corporate stores following recent acquisitions. Taken individually, our segment margins are all trending favorably compared to last year, with the exception of the U.S. franchising, which is mostly flat at just above 50% when excluding acquisition costs. Turning to our network, we ended the first quarter with a total of 7,128 locations, of which approximately 97% were franchised. We acquired 379 locations during the quarter, opened 76, closed 115 others in what we consider a typical turnover for the first quarter of any period. Both openings and closings were slightly better than our 10-year average in proportion of our network, which is in line with our objective of reducing closures and increasing the pace of openings. Construction and supply chain issues have largely subsided early in 2023, We're still experiencing significant delays to obtain permits and final inspections in many jurisdictions. Despite these temporary issues, our management team remains dedicated to delivering healthy organic growth and maximizing the assets in our portfolio. Finally, looking ahead to capital allocation priorities for 2023, we will continue to opportunistically seek acquisitions, reduce debt, invest in our business, and reward shareholders with dividends. I will now turn the call over to Renee, who will discuss MTY's financial results in greater details. Thank you, Eric. Good morning, everyone. As previously mentioned by Eric, MTY delivered record-breaking normalized adjusted EBITDA of CAD 64 million in the first quarter of 2023, which excludes CAD 1.1 million in acquisition-related expenses. The 79% year-over-year increase in normalized adjusted EBITDA is largely due to the acquisitions of BBQ Holdings, Wetzel's Pretzels, and Sauce Pizza & Wine, which positively impacted our U.S. and international segments in the first quarter of 2023, generating CAD 13 million in EBITDA when excluding the impacts of IFRS 16. This is a 63% improvement to the U.S. and international segment over prior year and is a strong and early indicator of the strength of the brands we just acquired. The Canadian segment also generated a 52% year-over-year growth in normalized adjusted EBITDA with a return to pre-pandemic market conditions in Canada. Organic growth in the Canadian segment accounted for 96% of the total improvement generated primarily by our franchising segment. In terms of net income attributable to owners, it amounted to CAD 18.4 million or CAD 0.75 per diluted share in the first quarter of 2023, compared to CAD 16.6 million or CAD 0.68 per diluted share in the same period last year. Net income in the first quarter was negatively affected by a few factors, including higher interest on long-term debt caused by our increased borrowings, as well as higher borrowing rates, increases in the depreciation of property, plant and equipment and right of use assets due to the higher number of corporate stores in our portfolio, additional unrealized foreign exchange losses and acquisition-related transaction expenses linked to the Wetzel's Pretzels and Sauce Pizza & Wine deals in the amount of $1.1 million. Although we know that some of these items are non-recurring in nature, we expect some of these increases, such as the increase in our interest expense and amortization of tangible assets, to remain for the foreseeable future. Looking at our revenues, the company saw a growth of 104% year-over-year to $286 million in the first quarter of 2023. Revenues more than doubled, driven by the BBQ Holdings, Wetzel's Pretzels and Sauce Pizza & Wine transactions that raised revenues for franchise operations and corporate store restaurants in the U.S. and international segments by $14.1 million and $110 million, respectively. In Canada, franchise operations, corporate restaurants as well as food processing, distribution and retail revenue improved 33%, 31% and 5%, respectively, as the overall business recovered from government-imposed restrictions related to the pandemic in the first quarter of 2022. Turning to liquidity and capital resources, cash flows from operations totaled CAD 36.7 million in the first quarter of 2023, compared to CAD 38.8 million in the first quarter of 2022, while free cash flows amounted to CAD 29.2 million or CAD 1.19 per diluted share in the first quarter of 2023, compared to CAD 36.1 million or CAD 1.47 per diluted share in the first quarter of 2022. Both our cash flows from operations and free cash flows were impacted by higher interest rates as well as two one-time non-recurring payments totaling CAD 10.4 million during the first quarter of this year. Excluding the impacts of those non-recurring payments, the conversion of EBITDA into cash flow is in line with the potential of MTY to turn EBITDA into cash flows in this higher interest environment. Excluding variations in non-cash working capital items, income taxes, interest paid and other, operations generated CAD 63.3 million in cash flows in the first quarter of 2023, compared to CAD 36 million in the same period last year. In the first quarter of 2023, we also reimbursed CAD 29.6 million of long-term debt and paid CAD 6.1 million in dividends to our shareholders. At the end of the first quarter, MTY had a healthy cash on hand balance of CAD 58.7 million and long-term debt of CAD 839.7 million, mainly in the form of bank facilities and promissory notes on acquisition. Our net debt to normalized adjusted EBITDA ratio stood at 3.6x at quarter end, which is at the higher end of our comfort level. The company has a revolving credit facility of $900 million, of which $609 million or CAD 827.1 million has been drawn. A hedging strategy with interest swaps has been implemented to provide additional financial flexibility as well as minimize interest payments during a time when market rates are extremely high and volatile. With that, I thank you for your time, and we will now open the lines for questions. Operator? Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star one followed by the number. If you want to withdraw your question, please press star two. Your questions will be posed in the order they are received. If you are using a speakerphone, please leave the handset before pressing any keys. One moment please for your first question. Your first question comes from John Zamparo from CIBC. Please go ahead. Thank you very much. Good morning. I wonder if we could start on your latest deals, and I wonder if you could provide some color on the same-store sales, but also unit growth at Wetzel's and BBQ in the quarter. Yeah, sure. I'll start with the more recent with Wetzel's. Sales are going strong. We had a really good month of December, which is an important month for Wetzel's, given the mall presence. All things are trending well for Wetzel's. In terms of unit growth, I think it's a little bit premature for us to comment on unit growth. It's only three months of business. I mean, we're working on a very healthy pipeline, that was there when we acquired the business. We are opening stores, and we will be opening stores in the future. It's not, it's not a business that we acquired with no pipeline and where we had to build it. It's a business that already had some really good momentum, that was doing a lot of good things. Starting off with a healthy pipeline is always good. We should expect some unit growth in the next few months. For BBQ, it's a little bit of, more of a struggle in terms of sales. December, we had some really bad weather event in the two weeks leading to New Year's that didn't help with our sales performance. January and February were fine, but, you know, those two weeks really hurt us. That's not the only brand that was hurt by these weather events that were a little bit unusual. But other than that, BBQ's doing really well. We're happy with the performance of the brand. We acquired some really good brands there and a good group of also franchisees. We're doing the right things, and the sales are gonna come. In terms of pipeline for BBQ, the pipeline was empty when we acquired. This is something we're building. It takes a few months for us to build a pipeline and then another few months for us to build the stores. We're gonna have to be a little bit more patient there, but that was something that we expected. No surprise there. Okay. That's helpful. Thanks for that. On the outlook, you continue to call out the labor environment, and I wonder if you can frame that versus prior quarters. Is it improving? Is it worsening? Are there specific regions or formats that are disproportionately impacted? Yeah, it's improving. There's no question about that. It still remains a challenge. There are areas that are more difficult than others, and sometimes they can vary. Yeah, the labor is still a challenge for us and for our suppliers as well. Sometimes we, if we do have the labor, sometimes our suppliers are running short. I mean, this is an environment we're gonna have to get used to. I don't see that getting dramatically better in the future. We already had some labor issues before the pandemic, and the pandemic didn't help. I mean, this is something we're gonna have to live with probably for the next decade. It's up to us to be more attractive and make sure that we solve our labor problems and help our suppliers and business partners to solve their labor problems so that we have a pretty seamless operation. Okay. Understood. A couple housekeeping questions. The commentary on malls and office towers, I think you said that was up 49% year-over-year. Correct me if I'm wrong, are those at pre-pandemic levels yet, or can you quantify the gap to pre-pandemic for that format? Well, office towers are... You know, we have very few restaurants in office towers, so I mean, this is hit and miss. We have some that are up, but we have for the vast majority of them, they're down dramatically still. It's a very minute portion of our restaurants. As far as malls are concerned, the good malls are up in traffic versus pre-pandemic, so the good malls are doing really well. I would say the B& C malls are struggling a little bit more to attract traffic now. The good news is we don't have that many stores in those B& C malls, but we do have some. You know, sales are not coming back the way they are for the really good malls, which are, you know, firing on all cylinders now. Right. Okay. Then lastly, CapEx. I mean, this is kind of new to MTY, which has historically been a really low level of CapEx intensity, but because of the corporate presence of BBQ, you've got a more meaningful number there. The $8 million or so in the quarter, is that a reasonable run rate? Is there anything kind of one time in there? No, it's on the high side. When we acquired both Wetzel's and BBQ, we had some pre-deal commitments that we have to honor. We are building some stores. We are building our first street stores called Twisted by Wetzel's for Wetzel's Pretzels. We're building in New Barrio Queen in Surprise for the BBQ division, we have some renovations going on on the Village Inn. We also have some stores that are being built now that will probably be sold as we get closer to opening in various brands. I would say the $8 million's on the high side. Not a lot of that is maintenance CapEx. A lot of that is related to pre-deal transactions that we have to honor. That will probably continue for Q2, but I expect that after Q2, it should go down to a more normal level. Okay. appreciate the color. I'll pass it on. Thank you. Thank you. Your next question comes from Vishal Shreedhar from National Bank. Please go ahead. Thanks for taking my questions. Just on the acquisition backdrop, wanted to get management's sense on, how willing it is to close on acquisitions. Are we thinking about smaller ones? How should we think about balance sheet, and where would leverage top out, where management would feel, that it's a, you know, a level that, you know, they don't wanna exceed? How should we think about that? Yeah. Well, at the moment, if, I mean, there's always ways if we find a real great transaction to find capital and, and do what we need to do, if it's right for the business. I'd say if we wanted to look at acquisitions today, realistically, it would probably be smaller or medium-sized acquisitions. I don't, I don't see MTY extending the leverage much past where it is now. If we wanted to do acquisitions, I mean, we are producing good cash flows, and we will be paying down our debt, and creating some wiggle room for future acquisitions, but, you know, we don't know what the market's gonna throw at us. If we have small acquisitions, we'll make small acquisitions, but if the market has very large acquisitions that we consider are, you know, can't miss, we're gonna go for it. We'll be creative, and we'll find a way to raise the required capital. You know, realistically, we should expect smaller and medium-sized acquisitions for now, as our leverage is on the high side now. How about the acquisition backdrop? Is there anything that you're noticing changing? Are there still attractive deals out there? Well, you know what? It's, the market is a little bit volatile now, so we're seeing some deal flow. It's not a super active market. I think a lot of the sellers are seeing that, you know, the multiples are depressed and, there's not that many buyers out there. You know, we've seen what happened with Subway. You know, they're trying to get high value for their asset, and if a brand like Subway can't do it, then, you know, maybe other people are gonna think about it. You know, it's up to us to maintain our relationships and, you know, we, this is what we do when we're not acquiring. We're nurturing relationships, and we're making sure that we stay top of the list for attractive companies to call us when they want to sell their business. But right now, the deal flow is there. It's certainly not a seller's market now, what we're seeing is, you know, multiples becoming a little bit more reasonable. But people being a little bit more cautious about maybe waiting for a few months or a few years to see how the market evolves before they sell their companies. Okay. How would you characterize, the backdrop right now? Obviously, results were strong, in the quarter, and management gave us that color about, its initiatives, flashing green. It seems fairly constructive from what we're seeing, but just wondering if you could add any perspective to that. Well, you know what? We're really happy with the performance of the company in general. We, our brands are doing a lot of good things. Our teams are amazing. We have a lot of initiatives going for each of our brands. Some brands are doing fantastic, some brands are turning around. As you know, it takes a few months for anything to really gain traction. In general, it's all flashing green on the dashboard. We're really happy. We don't want to stop 'cause we know once you lose momentum, it's harder to regain it. We're pushing hard to keep our momentum and accelerate. The teams are all hands on deck. Everybody's pretty happy with the performance. It's really encouraging. The vibe is very positive in the company, and everybody's happy with where we're going. Thank you. Thank you. Your next question comes from George Doumet from Scotiabank. Please go ahead. Yes. Good morning, Eric. I just wanted to get your prognosis on the consumer in general, and maybe how that can relate to restaurant sales, I guess, given the higher inflation and recessionary concerns. It feels that everything internally is going really well, but maybe from a macro perspective, just kind of your view there. Yeah. I don't know if it's fair to ask me for a view on the macro environment. I can talk about our restaurants. I mean, people are coming to our restaurants. People are happy to gather socially and enjoy our food, and we're trying to do the right things to make sure that we're top of the list when people want to consume food in restaurants. As far as the customer is concerned, all I know is the MTY customer is still showing up to our restaurants. I can't necessarily talk for the others. For the moment, you know, people talk about inflation, people talk about a lot of different things. I don't know if it's a fad, I don't know if it's, you know, flavor of the week until we talk about something else, but for the moment, it's affecting us for sure, but customers are there, so we're happy with the situation. Okay, that's helpful. On your earlier comments on the 40% AUV growth versus pre-pandemic, how much of that is pricing? If you exclude Papa Murphy's from that, like, can you maybe call out some banners that you think saw the more impressive growth? Well, there's some pricing in every brand, for sure. It's not a very large portion of the increase, though. Our pricing is not up by anything close to that proportion. Some brands have increased prices by 15%, some brands have increased prices by 6% or 7%, but no brands have increased their prices by 40%. I mean, it's hard for me to give you an exact answer given the number of brands we have. As far as brands performing really well, I mean, most of our brands are performing really well, and for most of our brands, the AUV is up significantly, I don't necessarily want to pinpoint one brand and forget about all the others. Yeah. I would say in general, it's going really well, and AUV is increasing for most of our brands. Okay. The corporate restaurants saw EBITDA margins in the mid-nines this quarter. I'm just wondering, is there room for continued improvement there? I mean, how should we see that margin evolving for the rest of the year? Yeah, that number is a pretty strong number. I think in terms of margins, we're always working to improve the margins, but, you know, we need to be realistic also. It's a pretty strong number when you consider that there are some stores also that are underperforming in that portfolio. Pretty strong numbers. Our primary focus is to work on top line and increase sales. There are opportunities in a lot of our restaurants to jack up the top line. If we can maintain those margins with higher top line, it's gonna be better for our shareholders. I don't see much margin expansion there. There's gonna be variations up and down depending on seasonality. Where we're focusing the most is on top line. Okay, one last one from me, Eric. I feel like I always ask you this question, but Papa Murphy's, how did it do in the quarter? Are you seeing at all maybe a pronounced slowdown at all, or a slowdown in the takeout delivery part of that business? I'm happy you asked the question because it's doing fantastic. Very good. Yeah, we're finally gaining tractions with a lot of the initiatives we had put in place. Last year, you asked me that question, and I was like, "Yeah, we have a lot of initiatives on the go, but they take time to get traction." Now we're seeing we're getting traction. Our sales are up. System sales, comp sales are up. Traffic is up also. Check average is up. A lot of our metrics are pointing up also. Online ordering is up. We have a lot- That's great. A greater proportion of our sales going up. The good news is after the quarter ended, we continued to see that momentum continue to pick up. You know, December was good, January was slightly better, February was slightly better, March was even better than those previous months. We're onto something with Papa Murphy's. We're not, you know, it's a small sample. It's been doing much better in the past five, six months. Hopefully we'll be able to keep that momentum going and keep, you know, picking up the pace. Great. Thanks for your answers. Welcome back to you. Thank you. Your next question comes from Sharon Zackfia from William Blair. Please go ahead. Yeah. You highlighted the CAD 10 million on the free cash number. You indicated the CAD 10 million of extra payments there. I didn't see those. Where do I see those? In the cash flow or in the financial statement? They're disbursements that are out of accounts payable. If you look at the working capital, this is one of the large items that affected working capital. They're both related to transactions. One is related to a payable we had following the Kahala transaction in 2016. It was a relatively old one, and one is related to the Wetzel's Pretzels payment that were done after the transaction. Were those earn-outs then? No, they're not earn-outs. They're amounts that are payable at the transaction, at the time of transaction and that are paid after the transaction. Okay. The other item on the cash flow is the lease payments line, it was about CAD ten and a half million. Does that include everything that for Q1, should that be at that level through the balance of the year, all else equal? Yeah, this is what we expect. Okay. Just going back to the corporate stores, the CapEx moderation in the back half of the year. Like, can you describe, like, what does the renovation cycle look like on those corporate stores? Yeah. We're renovating our Village Inns at the moment. The refreshes, we're gonna do half the refresh this year, half the refresh next year. We're showing some really good ROIs on those refreshes, so it's a good investment of our money. Then there's always a few stores that need to be refreshed. Sometimes it's just a fresh coat of paint, so it's relatively inexpensive and not necessarily a CapEx item. Sometimes it needs to be a little bit more. You know, you should expect, you know, renovations between seven and 10 years for every store, depending on traffic and depending on the type of store. For most of the stores, it's relatively inexpensive to renovate. Eric, as you work through this higher level of corporate stores, I think you've said on prior conference calls, you would keep these stores. Is there any evolving thought process there as to whether there could be a divestment of these corporate stores at some point down the road? No, we're happy with our corporate stores. We have, you know, we have a group now that's wired to do corporate store performance. This is something we did not have before. With the critical mass we have, it's worth it to have these people, and they're doing a fantastic job. You know, it's a large part of profitability. For me to go out and sell our corporate stores for, you know, maybe 4x or 5x EBITDA, doesn't necessarily bring value to the company or to the shareholders. I'd rather keep them, and maximize their performance and work on them. We're not necessarily looking to build more corporate stores, and we might divest the store here and there, if it makes sense geographically because it's out of the way or something. Other than that, we intend on keeping the stores for now. Okay. I think you said leverage was 3.6x. Do you have like a pro forma figure? Is that the LTM EBITDA, or is that a pro forma number? No, that's based on LTM. LTM. Do you have a pro forma number handy? No. We do, but we don't share guidance, as you know. Okay. Okay, thanks. Thank you. Ladies and gentlemen, as a reminder, should you have a question, please press star one. Your next question comes from Derek Lessard from TD Cowen. Please go ahead. Yeah, thanks. Good morning, everybody. Congratulations on the results. A couple of questions for me. Eric, I just wanted to kinda come back to what you're seeing in terms of pricing and volume. I think you mentioned some brands were pushing through prices. If I'm looking at the industry data, it would suggest that menu inflation's up, you know, high single digits. Does that imply that your volumes would be down, particularly if we're looking at the U.S. with 4% organic growth? No. Our pricing is certainly not up in, you know, around 10% for the last 12 months. you know, maybe there's some elements that are up 10%, but, you know, we're nowhere close to that for most of our brands. No. Our, you know, traffic is good for most of the brands. I'm not saying 100% of the brands have traffic going up, but for most of our brands, the traffic is up, and there is some food inflation, but nowhere close to the number you mentioned. Okay. Maybe could you just talk about what you're seeing on the competitive front and sort of promotional activity as, you know, as you would expect some consumers may be pulling back on the purse strings? Yeah. You know what? It's not bad at the moment. We don't, you know, there's always some value proposition. There's always some discounting. We're not seeing some of the crazy stuff that we see in other times. We have seen, you know, some competitors go very aggressively to try to get traffic up. In general, I would say the environment is a good one to operate in for restaurant operators. Yeah, everybody wants to get their traffic up, but everybody is also realizing more than ever that we're working on thin margins, and if you discount something too much, you might run into trouble. you know, we'd rather keep our prices where they are at the normal level and make sure our franchisees realize the right margins for their businesses and, you know, make money and get a return on their investment. Okay. It's been a slow start to spring here in Quebec. Just wondering if that's impacted you at all early on, and was, you know, the slower Quebec spring here representative of what you're seeing in other regions? Maybe just, you know, if you expected any impact on the, I guess, the electricity outage in Quebec last week? Yeah. We're looking forward for patio season to start, to be honest with you. Not only in Quebec, you know, you look at Ontario, you look at our stores that we have in Minnesota, for example, it's still. I mean, I think it was minus 25 early this week still. I mean, we need patio season to start for our sales to go up in some of our concepts. You're right, that's a slow start of the spring so far. We're not seeing any dramatic impact 'cause, you know, there's ups and downs at this time of the year. We'll need a good patio season, like we always do. Hopefully this week is gonna cure that, and we're gonna be able to open patios and customers are gonna be happy to be outside. As far as the power outage in Quebec is concerned, you know, a lot of our restaurants were affected, some very positively, some very negatively. We had some restaurants that were closed for four or five days. We also had restaurants that didn't lose power that, you know, crushed it during the weekend and, you know, ran out of food, which is a good problem to have. We had a little bit of both extremes. All in all, we lost a little bit, but it shouldn't be anything material, and It's not something that should show in our sales results for Q2. Okay. That's helpful. Then maybe just one housekeeping for me. You did fix interest rates on about $230 million or so U.S. Could you give us an indication of what you fixed those interest rates at? It's not necessarily something we want to discuss in exact figures, but we got a pretty favorable deal. We got a pretty favorable deal from our banks. We disclose it in subsequent events notes, if you want to refer to it to get a little bit more specific. We believe that the time is right. The curve is inverted. We don't necessarily want to speculate about rates, it's also a favorable environment for us to lock a certain portion of our borrowings. Okay. Thanks, Eric. Thanks, everybody. Thank you. There are no further questions at this time. Ladies and gentlemen, this concludes the conference call for today. We thank you for participating and ask that you please disconnect your lines.