Mty Food Group Aktie

[Interpreted] Note that the meeting will be conducted in both French and English. Ladies and gentlemen, good day, the 2026 Annual General Meeting of MTY Food Group will now come to order. My name is St-Pierre, and as Director of the Corporation and with the consent of the meeting, I will act as Chairman and Secretary of the meeting. Also present are Mr. Eric Lefebvre, CEO; and Mrs. Renee St-Onge, CFO. We have elected this year again to hold a hybrid annual meeting. For shareholders online, instructions on how to ask questions and the voting procedures are currently on your screens. Please note that only registered shareholders or duly appointed proxyholders will be able to vote or ask questions. If you have already voted by proxy, note that you do not need to take any action. As described in the notice of meeting, we have 4 items of business on the agenda, of which the following 3 will require your votes.

One, the election of directors; two, to appoint the auditor for the ensuing year and to authorize the directors to fix their remuneration; and three, on an advisory basis to vote on the Board's approach to executive compensation. To facilitate matters for the meeting, for each item of business, I will first read the idea of business in French then in English. Thereafter, I will make a motion, and I will ask if a shareholder of the corporation seconds the motion, and we will proceed with the vote. I will mention the time allotted for voting at each resolution. Please note the resolution will then appear on your screens, and you will have the allocated time to vote. If registered shareholders, beneficial shareholders who have appointed themselves as proxyholders or other proxyholders are present at a meeting in person, ballots will be distributed for voting purposes as needed.

Note that as in past years, the vast majority of votes have been cast in advance of the meeting by proxy through the various available channels. Preliminary vote results will be announced later during the meeting after all matters have been voted and polls are closed. Please note that after the formal part of the meeting, Mr. Lefebvre will be available to answer questions, I would kindly ask shareholders to withhold questions until then. With your approval, I shall ask Mr. [ Charles Mizulem ] of Computershare Investor Services, register and transfer agent for the corporation present year in person to act as scrutineer. [ Mr. Charles Mizulem ] has provided a written confirmation of mailing to shareholders of Notice of Meeting, Information Circular, a formal proxy, VIF and return card for the financial statement mailing list. I direct that the proof of mailing be kept with the records of the meeting.

I'm advised by the scrutineer that there is a current presence. I direct that the scrutineers' report be kept with the minutes of the meeting. I now declare the meeting duly regularly called and properly constituted for the transaction of business, I therefore propose to proceed with the business of the meeting. I refer you to Item 1 of the Notice of Meeting, respecting the receipt of the financial statement of the corporation and the report of the auditor thereon for the fiscal year ended November 30, 2025, a copy of which are now available for the records of the meeting. A copy of the financial statements is also available on SEDAR+ under the corporation's profile for public filing and on the corporation's website. I declare the financial statements for the fiscal year ended November 30, 2025, together with the auditor's report thereon be considered received by shareholders as submitted to the meeting.

The next item of business relates to the election of directors. It is proposed that 7 directors be elected for the ensuing year, subject to such increases as may be permitted by the articles of the corporation, Page 9 and 10 of the information secret for the names of management's nominees to the Board of Directors. I now declare the meeting open for nominations. I nominate the following 7 director nominees for election to the Board of Directors. Murat Armutlu, Eric Lefebvre, Stanley Ma, Victor Mandel, Dickie Orr, Claude St-Pierre and a Suzan Zalter. I advise that no further nominees have been nominated person to the provisions of the corporation's bylaw. Therefore, I now declare the nomination for directors closed. I move that each person nominated be elected Directors of the corporation, each to hold office until the close of the next Annual General Meeting of shareholders unless they cease to be directors of the corporation before then. May I have a seconder for the motion? Thank you. Mr. Ma. I now declare the polls open. I would ask the voting shareholders to please enter your votes. You have 1 minute.

[Voting]

[Interpreted] Voting closed. I refer you to Item 2 of the Notice of Meeting calling for the appointment of auditor and to authorize the directors to fix the remuneration of the auditor. I, therefore, make a motion to appoint -- I'm sorry, PriceWaterhouseCoopers as auditor of the corporation for the ensuing year and that the directors be authorized to fix the remuneration of the auditor. May have you heard the motion. May I have a seconder? Thank you. Mr. Ma. We will now proceed with the vote. I would ask the voting shoulders to please enter your vote. You have 15 seconds.

[Voting]

I declare voting closed. I refer you to Item 4 of the notice of meeting regarding executive compensation.I, therefore, make a motion that on an advisory basis and not to diminish the role and responsibilities of directors to shareholders accept the Board's approach to executive compensation as disclosed in the information circular. To accept the price proposition. May I have a seconder? Thank you, Mr. Ma. We will now proceed with the vote. I would ask the voting shareholders to please enter your vote. You have 15 seconds.

[Voting]

I declare the voting closed. We will now pause here for 2 minutes to compile votes. The scrutineer, I'm sorry, as provided from a preliminary report based on proxies received prior to the meeting. We will announce these results in moment -- sorry, soon. I know that the corporation will report the detailed final voting results, including those votes submitted online at the meeting once the tabulation is completed after the meeting. Here are the preliminary vote results on the election of directors. The majority of the votes have been cast in favor of the appointment of the 7 nominees, I therefore declare these individuals duly elected as directors of the corporation until the next annual meeting of the corporation unless they cease to be directors of the corporation before then. Here are the preliminary results on the appointment of auditor. The majority of the votes have been cast in favor. I declare PriceWaterhouseCoopers, duly reappointed as auditor of the corporation for the ensuing year and that the directors be authorized to fix the remuneration of the auditor.

Here are the preliminary results on the advisory vote on executive compensation. The majority of the votes have been cast in favor, I declare the resolution regarding the Board's approach to executive compensation approved. As there are no further business to be brought before the meeting, this concludes all matters before our Annual General Meeting, and I now declare the Annual General Meeting terminated. On behalf of the Board of Directors, sincere thanks for your attendance and support, we hope to see you next year until do well. Having concluded the formal part of the meeting. I will now pass the floor to Mr. Eric Lefebvre, CEO. Eric, over to you.

Just before we start, so I will take questions in French and English but I'll answer in English only for practical reasons. I have a short statement concerning the process. So we confirm that the process referred to in our previous disclosure, is still active and ongoing. The company cannot provide a specific time line or assurance that any transaction will result. As you can appreciate, we also cannot and will not comment on market rumors or speculation. The company will provide an update or make an announcement as appropriate or as required by law. So if anyone has questions.

So the question is if we have a target, whether we have a target, a long-term target for the number of restaurants in MTY. To that, I would answer, it's hard to have a specific target when you're acquisitive as we have been and you want to acquire companies for the right reasons, not to satisfy a target. But obviously, we want to keep growing the company as we have in the past. And the fact that there hasn't been an acquisition in the last 4 years, it doesn't mean we're not trying to acquire companies. It just means that sometimes it's -- things are just not meant to happen, and we stay disciplined and keep the course on what we've done before. But our ambition is still to grow the company organically and via acquisitions.

For 2025, we achieved breakeven in a number of openings and closures for the first time in a long, long time. We believe we can do better than that in 2026. We have our pipeline of openings lined up. And we hope that going forward, we'll be able to grow both organically and be the acquisitions (sic) [ acquisitive ]. But to give you a number for the long term would be very difficult for us other than we want to keep growing. So the question is regarding the health of each of our brands. Obviously, we have a lot of brands. So I got to go through the entire portfolio today, but we've made it clear that right now, our top brands are Cold Stone and Wetzel's Pretzels in terms of growth. We've been opening a lot of locations for these 2 brands. We have other brands that are doing extremely well. TacoTime, for example, in Canada, we think we can double the number of locations between now and 2030. So we have a few brands that are doing well.

The number of good soldiers also in the portfolio. And as you can expect in the portfolio of 80 brands, there are a few that are struggling a little bit more. I would name our burger brands, for example, are experiencing some struggles as of late. Everybody has a good burger on their menu. And it's hard to survive in a burger environment, especially in the premium burger category. We've been also pretty transparent about what's going on at Papa Murphy's that we're trying to turn around. So obviously, there's a lot of talk about the brands that are not doing well. We'd rather focus on the brands that are doing well because we think this is what's going to take us to where we want to go and the growth we want to achieve, even though we have to put a lot of attention on those that require a little bit of fixing.

But in a nutshell, those are the top brands we have and the ones that are struggling a little bit more. So we have a question from the audience. With protein being recommended for diets, are you making changes to menus and keep up the good work. So yes, the protein-rich menus are certainly interesting. And we try to adjust to the trends. There has been, over the years, over the past 20 years, there's been a lot of trends that the gluten-free trend was important, and we introduced a lot of vegetarian menu items on our menus. I think all of our brands now have at least a few vegetarian options.

And now with the focus on protein, obviously, we need to change that as well, and we need to adjust to that. If people are demanding more protein, we'll need to we need to observe that, and we don't want to lose customers because our food is not to the standards that we expect. So every one of our brand is looking at their menu trying to come up with the options that are relevant and that will satisfy customers, especially in the new diets that are GLP-1 focused that require more protein. So we need to adjust to that for sure. I don't think reducing the portion size is the right approach for us. We've tried that before and that hasn't been the right approach. So we don't want to do have portions instead we'll adjust our menu to have a good attributes that people are looking for. Okay. Well, there are no more questions. That will conclude the meeting, and I remain open for discussions after. Thank you.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]

Good morning, and welcome to the MTY Food Group 2026 First Quarter Earnings Conference Call. [Operator Instructions]

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 these forward-looking statements, please refer to the company's annual information form dated February 19, 2026, which is posted on SEDAR+. The company's press release, MD&A and financial statements were issued earlier this morning and are available on its website and on SEDAR+. All figures presented on today's call are in Canadian dollars, unless otherwise stated. This morning's call is being recorded on Friday, April 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 first quarter results, which you can find posted on our website. The macroeconomic conditions remain challenging through the first quarter. Consumer confidence remains low and impacts consumer spending negatively, as reflected in our same-store sales figures and traffic trends. Encouragingly, early Q2 data shows signs of sequential improvement and gives us cautious optimism for the second quarter despite the broader global dynamics.

Same-store sales for the first quarter were stronger in Canada than in the U.S. and International segments. Overall, same-store sales decreased by 2.5% in the quarter. Canada was down 0.8%, with the impact of last year's nonrecurring sales tax holiday being felt in most provinces, while U.S. locations were up 3.6%. Some of our seasonal brands had a soft first quarter, while for some of our other U.S. brands, we took some actions late in 2025 that are in the best interest of our brands in the long term, but that hurt us in the short term. For example, we interrupted gift card sales at Costco for some brands, resulting in reduced visits in the first few months of the year following the holiday period. Most U.S. brands did sequentially better in March than in the first quarter.

Digital sales held steady at 23% of total sales in the quarter. Excluding foreign exchange, digital sales grew 3% compared to the same period last year. Digital sales in Canada were up 13%, while they remained flat in the U.S. with the positive momentum we are seeing across the basket of brands in the U.S., offset by the weakness of one brand. One of the areas we've been focused on is enhancing the digital experience for our guests. We continue to invest in technologies that improve the way we interact with our consumers to improve their overall experience by bringing a more personal touch to our marketing efforts. New tools are being deployed in the U.S. to achieve that, and Canada is finally catching up and should be able to begin deploying similar solutions in Q2. We believe digital sales are a key component for our growth in our industry.

As we mentioned on our last call, Q1 is typically a seasonally weaker period for new location openings. We opened 52 locations in the quarter, and we closed 90. We also ended our master agreement with TCBY, which resulted in the elimination of 8 stores. The negative store growth in the first quarter was anticipated. We remain confident that 2026 will produce net locations growth as everything is in place to meet our objectives. We've had a good start in Q2, and we have a large number of stores in the pipeline. There are currently just under 200 locations under construction, and we expect new stores to be a bright spot for 2026. Our new store pipeline is robust and ranks among the strongest we've ever seen at MTY.

A growing share of our new location is being driven by existing franchise operators. Today, a significant portion of our pipeline comes from these experienced franchisees will offer a stronger, lower-risk expansion profile. We're also investing in new tools that support identifying the best locations for new stores where white space exists in the market, and that shows signs of strong traffic flows.

With that, I'll turn it over to Renee to discuss the financials. Renee?

Thank you, Eric, and good morning, everyone. Starting this quarter, we've transitioned to a 52-week reporting basis, ending on the Sunday closest to November 30th each year. This quarter reflects a 13-week period ending March 1, 2026, whereas the comparable period in 2025 is based on the calendar month-end basis ending February 28, 2025. Normalized adjusted EBITDA came in at $60.1 million for the first quarter, in line with the same period last year. This 2026 period benefited from a $5.5 million employee retention credit related to [ 2020 to 2022 ] fiscal year received from the U.S. government.

Franchise normalized adjusted EBITDA was $43.2 million in the quarter, down slightly compared to $44 million reported in the same period last year. Franchise revenue was $90.7 million in the quarter compared to $92.9 million in the same period last year, primarily impacted by foreign exchange variations due to a weaker U.S. dollar as well as lower system sales. The Canadian segment was essentially flat, while the U.S. and International segment was down 3% compared to the prior year period. Franchise normalized operating expenses were also down in the quarter to $47.5 million compared to $48.9 million last year, primarily due to the impact of foreign exchange and lower gift card program costs.

Normalized franchise EBITDA margins for the quarter improved slightly to 48% compared to 47% in the same period last year. As we continue to add higher quality new stores and capture efficiencies from our ongoing initiatives, we expect franchisee EBITDA growth to outpace same-store sales growth. Segment and normalized adjusted EBITDA for the Corporate Store segment came in at $13.2 million up 8% or $1 million from the same period last year. This includes the $5.5 million employee retention credits I mentioned previously. Excluding this, margins for the segment were 7% compared to 10% in the last period last year.

Corporate segment's revenue was $109.7 million and operating expenses was $96.5 million in the quarter. Corporate revenue and expenses were tightly correlated to lower system sales and a decrease in the number of corporate-owned locations in the U.S. We are confident in our ability to drive improvements in the corporate store over time as macroeconomic trends improve and system sales accelerate. This would enable us to consistently deliver corporate segment margins in the high single-digit levels.

Our Food Processing, Distribution and Retail segment delivered segment and normalized adjusted EBITDA of $3.7 million in the period off of a revenue of $40.8 million compared to EBITDA of $4 million and revenue of $38.2 million in prior year. Margins came in at 9% in the quarter, slightly below the 10% in the same period last year on account of higher supply chain costs. 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 underpenetrated markets. We reported $36.9 million in net income attributable to owners or $1.62 per share per diluted share compared to $1.7 million or $0.07 per diluted share in the prior year.

As Eric mentioned earlier, our asset-light well diversified model continues to generate strong free cash flows. This performance provides us with significant optionality to reduce debt, invest for the future and return capital to shareholders. Cash flows from operations were $40.9 million compared to $64.6 million in the same period last year, and free cash flows net of lease repayments of $29 million in the quarter compared to $49.3 million in the same period last year. The change is mainly attributable to fluctuations in working capital and income taxes paid, partially offset by lower interest paid.

The decrease in working capital is mostly due to variances in accounts receivable, payables and accruals due to timing of transactions and payments. We generated $59.9 million in cash flows from operations compared to $58.6 million last year, once you exclude variations in noncash working capital, income taxes and interest paid. We ended the quarter with net debt of approximately $549 million. Considering our strong cash flow generating ability, our debt-to-EBITDA of approximately 1.9x is at a level that gives us the opportunity to take advantage of the optionality we possess to deliver enhanced shareholder return.

And with that, I'd like to take your time -- I'd like to thank you for your time and turn it back to Eric for closing remarks.

Thank you, Renee. We've built a great business. Our asset-light model is well diversified across geographies, brands and formats, and we continue to invest in the business to drive long-term returns and growth. Our focus on further strengthening the business during the past 2 years has positioned us for stronger performance once the persistent macroeconomic conditions improve. The strength of our brands and the experience of our team and franchise owners have enabled us to manage through these challenging conditions. While we navigate the recent volatility of the consumer sentiment, we continue to believe in the long-term fundamentals of the business to deliver for shareholders.

Before we open the lines for the question period, please note that I cannot comment on the strategic review process that is currently underway. We will provide an update or make announcements as appropriate or as required by law. We cannot provide a specific timeline or assurance that any transaction will result. In parallel, MTY continues to run the business as usual with the same discipline and long-term focus that's defined the company since our founding.

With that, let's open the lines for questions. Operator?

[Operator Instructions] Your first question comes from the line of John Zamparo with Scotia Bank.

I wanted to ask about the comment of sales in March improving from Q1. It's difficult to reconcile this against the timing of the war. So just wondering if you could elaborate on that? And do you see any impact in consumer sentiment from the start of the war?

Well, it's hard to find any correlations now. I think it's too early, but all I can say is our sales have been significantly better in March and continues in April so far. We had a little period in mid-March where there was snowstorms and ice storms in most of Canada, and that also affected the U.S. But other than that, March and April are pretty strong. So I'm not sure if or what the impact of the war is, but so far, it's showing in our data that our consumers are resilient and showing up to our stores.

Okay. And in the outlook for this year, you've added some language about potential for higher inflation from higher oil and gas prices. I wonder if you could elaborate what the key components are through your supply chain from the potential for higher for longer inflation this year?

Yes. Well, obviously, for supply chain shipping is complicated right now and the cost of shipping, whether it's ground or air or maritime is also becoming more expensive as fuel prices increase. Obviously, we don't know how long that's going to last, and we hope that the solution will come and fuel prices will go down. But for now, we're starting to see more and more fuel surcharges on our network. And obviously, that funnels through the chain. So there is inflation there that's coming only from fuel charges. And then we'll see if -- how the supply chain is affected depending on how long the problems last in the Middle East.

Okay. And then one more, and I'll pass it on. I wonder how you feel about the current corporate versus franchise mix at MTY? Should we expect that you might want to sell more corporate stores, if so, would those be more in casual or quick service? Anything you can say on that front?

Yes, for sure. There's -- I mean, we're a little bit heavy on corporate right now. So we are selling some corporate stores. We don't have specific initiative to run a fire sale process where we liquidate everything because they do produce good EBITDA, and we don't want to give it away. But we are reducing the number of corporate stores. We have sold a few in Q1, and we have already a few that are sold in Q2 as well. So I mean, you should expect that -- well, not necessarily the number to go down because I can't control everything. But our desire is to reduce that number of corporate stores right now systematically, so it's not going to be a fire sale. But gradually, you should see some corporate stores go into the franchise world instead of being run by MTY.

Your next question comes from the line of Vishal Shreedhar with National Bank.

I wanted to get your perspective on discounting, particularly as it relates to the pizza category, but more broadly and how you see that evolving and how you think MTY needs to respond?

Yes. It's a competitive environment, for sure, and whether you look at one category or the other, ultimately, every time you miss a meal opportunity, you miss a meal opportunity that never comes back. So every food dollar that's spent is competitive. And I think we should not necessarily look at certain segments more than others just because we all compete for the same meal opportunity. It's competitive for sure. Discounting is part of what's necessary for a lot of our brands. It doesn't mean you need to discount all your products. You also don't want to offer discounts where it's not necessary, where you just basically reduce your revenues for consumers you would have had anyways. But you do need to have an entry point for every customer that will satisfy them and not push them away from your store because you don't want to miss on a group of 4, for example, if -- because 1 person looking for more discounts or was looking for an easier entry point.

So we always have to be conscious of that. So the key for us is to offer something an entry point and hope that consumers won't necessarily go for it. And if they do go for it, that they buy something else with it, but it's become a necessity for a lot of our brands. We do have brands where it's not as required. You look at Cold Stone and Wetzel's, for example, you don't need to offer those discounts. But for the vast majority of the other brands, you do need to have an entry point that's a little bit easier for consumers.

Okay. So do you see through the course of the year discounting at MTY's brands going up? And I wanted to relate that as well? If so, how do you perceive the health of the franchisee at the MTY base?

Yes. I don't think we need to ramp up more discounting. We have the programs we needed to have. I mean they're in place. They've been in place for some time. So I don't think we need to do more. What we need to do is make sure that we have a variety in that space and that the entry point is not always the same product and that these consumers that are looking for budget-friendly option that they also have some variety. So I don't expect that it would go up. And as far as franchisees are concerned, obviously, for us, it's always the #1 priority.

It's easy as a franchisor to discount your product to a point where your franchisee no longer makes money. But that can only last so long for your franchisees get in trouble. So for us, the key is to have healthy franchisees that are financially sound and to offer discounts on products that are also profitable, and find ways -- to find creative ways to help everyone make money even with slightly discounted products. So if you have a higher discount, you'll probably want to have higher velocity to make up for the lost margin and ultimately have the same amount of dollars in the bank account.

Okay. And I was hoping to get your perspective on the customer -- the suite of customer-facing technologies scheduled to launch at Papa Murphy's and it's already launched, if I'm not mistaken. And to get your perspective on how we should anticipate that to benefit trends? Is it something that we'll see? Or is it more of a gradual benefit?

Yes. I mean, that remains to be seen. I hope it will be seen. I think realistically, it's going to be seen over time. The goal here is -- I mean, there's many goals you have on one side, you have customer acquisition, which is always a little bit more challenging. And then you have your customer win back also for consumers you might have lost or that might have forgotten about you. And then you have initiatives for existing consumers to try to improve frequency or improve basket. So I mean, we have a number of tools that are already in place, especially for our main U.S. brands.

We're improving those tools. We're adopting new technologies that we hope will help us communicate better with these consumers, and help us create frequency but also make sure that we don't lose them. And for the consumers that we might have lost try to win them back. In Canada, we don't really have anything in place at the moment. It's very primitive. So we feel the adoption of these technologies in the next few months should really create a lift. But that -- I mean, that remains to be tested. We've experienced really good trends when we adopted these technologies in the U.S., and we hope we're going to see the same thing in Canada.

Your next question comes from the line of Derek Lessard with TD Cowen.

So Eric, maybe could you just talk about the thinking behind the interrupted gift card sales, I think you said to Costco? And then in those comments, you also said that you have other actions going on. So maybe just talk about the other initiatives you got going on in this area.

Yes. Well, for the gift cards at Costco specifically, I mean it's always difficult because of the discount that's required by Costco. So we did continue the Cold Stone program, for example, which is really key for Cold Stone. But for some other brands, financially didn't make sense anymore to have that program at Costco. So we might choose to do maybe some seasonal offers or timely offers for Costco again because I mean people do visit Costco. But we don't want it to become almost a cheat code where people go to Costco before they go to our restaurants by $100 of Costco gift cards for $75 and then go to our restaurants that they would have gone anyways.

So we're trying to avoid that -- we're trying to avoid that discount that's given to consumers for the wrong reasons. But that does create a problem, especially after the holiday season, where we have fewer redemptions. But it's just a program we couldn't afford anymore with some specific brands. And we're suffering in the short term. There's no doubt about it. But that's going to free up a lot of resources for other initiatives that we're going to be putting forward with the team.

Okay. And maybe one last one for me. In your prepared remarks, you did highlight some new tools for site selection. So curious on what you've seen so far? And any incremental results that you can share with us would be helpful.

Yes. The tools are deploying as we speak. So I mean, again, this is something we're pretty positive about that we're going to be better -- even better at site selection. We did have some tools in the past that were good and served a purpose, but we feel like in today's world, the amount of data you can feed into a tool and how it processes it is really key. And the new tools we're deploying are far superior in our opinion and not only to evaluate a given property, but also to find white space where we might see our competitors are successful, and we have no restaurants. Sometimes you don't suspect some areas to be so productive, and then you realize from the data you now own that maybe you should have a restaurant in there, and the prospects are better.

So again, everything we do is to try to find sites that are going to be productive for our franchisees and profitable, and try to avoid sites that might not necessarily be as productive as they might look. So it's all trying to find the right balance for our franchisees to be profitable.

Your next question comes from the line of Michael Glen with Raymond James.

Eric, just in terms of the digital strategy that you're talking about, are you able just to elaborate a bit more? Is this something that is considered into your CapEx? Is it expensive? I'm just trying to understand how some of that spending gets funded?

Yes. There's no CapEx there. Most of the funding is done by the advertising funds of the various brands that are using it. We do have some -- we do have like a data science team internally. That's grown quite a bit in the last few years because of how important it is, and that's funded by MTY. And they're allocated to certain projects right now that are marketing driven, but you won't see that in CapEx, and you also won't see a lift in the amount of OpEx because these people are already on payroll. So you won't see an impact of these new projects.

Okay. And is this -- do you think we could see for the company a common development or something along those lines? Or it would be a digital strategy, brand by brand?

It's brand by brand. We've tried the common app in the past and it took us 2 years to be able to detangle everything. Different brands require different strategies and different promotions and different ways to address your consumers. So no, it's going to be a brand-by-brand thing. But what we're doing is building platform and all the connectors with the various new tools that we have, and then each brand is going to have their own strategy, their own set of data that they're going to be using. So it's going to be a common tool, but it's going to be a brand-by-brand strategy.

Okay. And then what are the -- like Digital is now becoming a larger portion of your sales? What are the franchise economics for digital sales equivalent to an in-store sale or just some insight into how digital sales impact the franchisee?

It really depends which type of digital sales, because we tend to lump everything into the third-party aggregator world. But a lot of our digital sales are also first party. So on first party, if anything, it's probably better for the franchisee economically. The menu price is the same as in store, but it's also typically in order that's slightly larger. So we really like these first-party orders that go through our own websites or our own apps. And you have a lot of that. I'll give you the example of Papa Murphy's, almost 100% of our digital sales is done through our first-party app, which is really, really productive for everyone. So that's good economics.

Now if you look at third-party aggregators, obviously, it's a little bit more complicated. The business model is interesting. As long as these sales are incremental sales, we can make it profitable. Obviously, our prices are slightly higher on these platforms, but the cost is also higher because of the commission and because of the packaging and everything. But if it's an incremental sale, it's still a profitable proposition for the franchisee where it gets less profitable if you have a substitution of an in-store order by third-party aggregator order, obviously, then that becomes a little bit more challenging.

Okay. Then on working capital, there was some investment in working capital that took place through the back half of last year Q2 to Q4. Are you able to give some outlook on how we should think about working capital for the balance of this year?

Yes. I mean the way we look at working cap, I mean, there were some timing differences in Q1, and it seems that everything that had a potential to be in our face ended up in our face. But for 2026, we feel like working cap should be about flat compared to last year. So there's no reason why the investment we had this quarter wouldn't come back to us.

Okay. And then just one more for me. I mean, with your leverage where it is right now or should we think about you looking at M&A? Are you actively looking at M&A?

Yes. We continue to look at M&A. So it's always a possibility. Obviously, no promises because we don't control the 100% of the sequence there. But yes, we continue to look at M&A. Our leverage is very favorable. As we mentioned, in previous calls, we wanted to create optionality for ourselves where we could go M&A, we could go NCIB or SIB or any possibility that's going to be deemed appropriate by the Board. So everything is on the table.

Okay. So we could expect you to become active on the share repurchase program in the near term as well?

We have that option open.

[Operator Instructions] Your next question comes from the line of Ryland Conrad with RBC.

I guess just to start off on the store network, I appreciate the seasonal weakness, but I was a bit surprised to see net closings increase year-over-year. Were there any one-offs to call out in the quarter? And I guess, bigger picture, just with respect to the construction pipeline. Are you able to characterize the strength that you're seeing relative to last year? Like correct me if I'm wrong, but I think you were previously referencing roughly 100 locations in the pipeline.

Yes. I mean, I'll start off by saying I was disappointed by the Q1 numbers as well. So I mean, again, it was that type of quarter where we had a little bit more closures than anticipated a little bit fewer openings than anticipated. But again, the pipeline is really strong. We have just under 200 locations under construction at the moment in addition of the ones that we've already opened during the quarter. So what we're seeing now is that there's no reason to believe that 2026 would not be a positive net store opening. So nothing specific to call out. There were no major one-timers other than, obviously, TCBY master license being terminated. But other than that, there were no one-timers. It's just -- I mean the cards fell this way for Q1, but we're still feeling very bullish about 2026. We feel like the net store opening is going to be a bright spot for us, and the fact that we're swinging hammers on so many stores is really positive.

Okay. Got it. And then just the MD&A, I believe mentioned in organic system sales decline of about 8% for Papa Murphy's. Are you able to put that performance into context, just relative to recent quarters where I think you saw a bit of sequential improvement?

Yes. I'm not sure exactly about the numbers you quote, but I mean, Papa Murphy's is certainly facing headwinds in terms of sales right now. We're -- again, they should benefit from the tools that we're deploying now. So hopefully, that's going to create a dent in the trajectory. We're also revising the way we do marketing and which promotions we want to push a little bit harder for Papa Murphy's. We have the Detroit pizza is out now. It seems to be doing a reasonable job in the PMIX and creating maybe some excitement around the brand. And hopefully, that's going to result in more repeat business going forward. But there's no doubt that Papa Murphy's, we had a reasonable 2024 with Papa Murphy's, but then '25 was complicated and it's continuing in '26.

Okay. And just on Papa Murphy's. I think you took ownership of about 50 underperforming locations last year. Could you give an update just where you're at with respect to turning those around and kind of getting them back to breakeven in refranchise?

It's proving to be more complicated than anticipated. I won't lie to you. We do see somewhat of a sales mix and somewhat of an improvement, not a sales mix but a sales lift and some improvement in the way we operate the business, but it's taking longer than we thought to turn those around. We are suffering losses with these restaurants. At the moment, we did franchise a few, but not many.

So I mean, we're not giving up. We still believe in these restaurants, the fundamentals that were there in the markets still exist, but it's not impossible that we might have to make decisions with certain stores if we're continuing to incur losses, and we see that there might be less hope. But for now, we're not giving up, but it's taking longer than anticipated.

I appreciate the color there. And then lastly for me, I was surprised to see the employee retention credit as I thought that was largely done last quarter. So could you just give an update there? And should we expect to see any more this year?

Yes. We were surprised as well, to be honest. Pleasant surprise. But now we feel like it's really done done. So there should be no more ERCs in the future.

We have no further questions. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

Good morning, and welcome to MTY Food Group 2025 Fourth Quarter and Year-End Results Earnings Conference Call.

[Operator Instructions]

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 forward-looking statements.

For more information on MTY Food Group's 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 SEDAR+. The company's press release, MD&A and financial statements were issued earlier this morning and are available on its website and on SEDAR+. All figures presented on today's call are in Canadian dollars, unless otherwise stated.

This morning's call is being recorded on Thursday, February 19, 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 2025 Q4 and fiscal year-end results, which you can find posted on our website. While macro conditions remain challenging throughout 2025, Q4 showed continued strengthening in many of our core metrics. We are encouraged by the acceleration in positive net unit growth, deepening of our development pipeline, robust free cash flow generation and lower leverage, which grants us greater financial flexibility.

After many years of strategic focus, MTY's store network is now in its healthiest position in over a decade. Building off last quarter's positive momentum, Q4 experienced a net addition of 19 locations, which pushed us into positive territory on an annual basis for the first time since 2013. This has been achieved through a combination of strengthening of our partnerships with existing franchisees, selectively investing where we see the strongest returns and developing more tools to energize and monitor our business. Excluding normal seasonal weakness expected in Q1, we believe that we're in a good position for this positive momentum to continue into 2026.

Turning to same-store sales growth. The macroeconomic backdrop remained challenging as consumers and business owners faced a variety of shocks throughout 2025. In Q4, our same-store sales declined by 1.7% overall, with Canada flat and the U.S. down 2.8%. Results were generally similar by restaurant type within each region. To counteract these pressures, MTY must continue investing for the long term in both the guests and the franchisee experience. Our priorities remain enhancing consumer engagement and decision-making through data science, fueling our omnichannel experience, which has significant white space in Canada and reinforcing all our brands through continuous improvements and innovation.

Moving to profitability this quarter. Franchise operations segment profit reported a 53% improvement in Q4, which was primarily due to gift card breakage income, which Renee will address in a moment. Net of this impact, franchise operations in Canada remained flat, while the U.S. had a decline, which aligns with their corresponding same-store sales results that I mentioned earlier. During 2025, our free cash flows per share net of lease payments reached $5.68. The last 2 years have been the 2 best in our history, showcasing the resilience of our model and cash flow profile across business cycles. As such, we also raised our quarterly dividend by 12% last month to $0.37 per share.

Before I pass the line to Renee, I would like to comment on the strategic review that was recently initiated by the Board of Directors. We cannot provide a specific time line or assurance that any transaction will result. I can confirm that the process is ongoing and active. For the purpose of today's call, I cannot comment on the process, but I can assure you that we will provide an update or make announcements as appropriate or as required by law. In parallel, MTY continues to be run as business as usual with the same discipline and long-term focus that's defined the company since our founding.

With that, I'll turn it over to Renee to discuss the financials. Renee?

Thank you, Eric, and good morning, everyone. Normalized adjusted EBITDA came in at $87.7 million for the fourth quarter, up 48% year-over-year compared to the same period last year. This increase was primarily due to a onetime $29.5 million increase in gift card breakage income related to unredeemed gift card balances related to an acquisition we made several years ago. At the time, we took a conservative approach to the unused portion of the gift cards for that brand pending the accumulation of sufficient reliable redemption data. Based on the clear pattern that can be derived from this additional decade of usage data, we are catching up on the estimates of the portion of the gift cards that will not be redeemed.

Moving forward, we expect the usage to remain consistent.

As mentioned by Eric, this gift card breakage fee also positively impacted our franchise operations segment profit and normalized adjusted EBITDA. Net of this impact, franchise operations segment profit in Canada were flat, while the U.S. decreased by 12% Canada franchising revenue saw an increase of 1% due to higher recurring revenue streams from the increase in system sales generated by this segment, while the U.S. was impacted by a decrease to recurring revenue streams as a result of lower system sales.

On the expense side, franchise operating costs in Canada were in line with the same period last year, while the U.S. and international were up $2.5 million. The increase were primarily due to higher wages as a result of normal inflation as well as IT licensing costs and expenses related to our gift card program. We continue to add higher quality new stores and capture efficiencies from our ongoing initiatives. We expect franchisee EBITDA growth to outpace same-store sales growth.

Segment profit and normalized adjusted EBITDA for the Corporate Store segment came in at $7.9 million, up 23% or $1.5 million from last year. Margins improved to 7% compared to 5% in the same period last year. We remain confident in our ability to drive improvements in corporate store over time, which should result in margins moving towards the high single digits.

Food Processing Distribution and Retail segment delivered revenue growth of 27%, driven by a shift in our retail model from a licensing agreement to vendor on record for some of our products. Our profit margins remained stable between the 2 periods at 11%. 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 underpenetrated markets. We reported $32.1 million in net income attributable to owners or $1.40 per diluted share, an increase of more than $87 million from the prior period. The improvement was primarily due to a onetime impairment loss recorded last year in relation to Papa Murphy's as well as the gift card breakage recorded this year.

As Eric mentioned earlier, our asset-light and well-diversified business model continues to generate strong free cash flows. This performance provides us with significant optionality to reduce debt, invest for the future and return capital to shareholders. In the fourth quarter, cash flow from operations were $46.2 million compared to $43.7 million in the same period last year. Free cash flow net of lease repayments was $37.6 million, up 38% compared to $27.4 million in the same period last year. We ended the quarter with net debt of approximately $580 million. Considering our strong free cash flow generating ability, our debt-to-EBITDA of approximately 2x is at a level that gives us the opportunity to take advantage of the options we possess to deliver enhanced shareholder value.

And with that, I'd like to thank you for your time and turn it back to Eric for closing remarks.

Thank you, Renee. During the last 2 years, we focused on strengthening the core fundamentals of the business and laying the groundwork for improved performance as market conditions evolve. We've made significant strides, but our job is not done. There continues to be many opportunities to enhance shareholder value, we're pursuing them with both vigor and discipline. While near-term volatility in consumer sentiment remains, we believe MTY is well positioned to navigate this environment due to the strength of our people, the breadth of our portfolio and proven resilience of our business model.

With that, let's open the line for questions. Operator?

[Operator Instructions] The next question comes from the line of Derek Lessard with TD Cowen.

Eric, nice to see the positive store growth, the net new growth there. Again, in the quarter, you reported another 19 net new openings, and you noted a strong development pipeline. So I was curious if you can maybe talk about which of the banners that you're seeing interest and/or the greatest strength in.

Yes. Thank you, Derek. Yes, there's a few brands. Obviously, we -- not all our brands have the same strength. But for now, I mean, Cold Stone and Wetzel's remain our champions for the number of store openings and the growth we see in these 2 brands. But there is strength in other areas of our portfolio. I can name, for example, Taco Time in Canada, where we have a very strong development pipeline, very achievable and ambitious targets for this year and next year. Thai Express is another example where we finished the year strong, and we have ambitious targets for '26. So it's more than just Cold Stone and Wetzel's, but they remain the 2 champions.

Okay. That's great color. And just maybe on the -- I noticed on the digital sales -- there was one -- I guess it was Papa Murphy's that dragged down your results. So the first question is -- the first question on Papa Murphy's is sort of when do you expect some stabilization in that banner. But then -- and as a follow-up, you also -- excluding that decline, digital sales in the U.S. were up actually 6%. So curious on some of the initiatives or platform improvements that you have going on that are driving that strong performance.

Yes. Well, for Papa Murphy's, it's a pretty important brand for us. Obviously, in terms of sales, it's our #1 brand, and it's got a heavy component of digital sales. So if there's a decline in sales for Papa Murphy's, it automatically impacts the ratio for the entire business. That being said, Papa Murphy's had a reasonable Q4. It was not great, but it was -- sequentially, it was better than in some previous quarters. So stabilization is it's hard to know exactly when that's going to happen because we have good periods and then sometimes there's periods that are a little bit more challenging that follow.

So we are in that volatile environment where we do a lot of things. We're trying a lot of things. We're trying hard to make the business work and to improve sales on a sustainable basis for this brand. But it remains challenging. Pizza is super competitive, as you know. A lot of our competitors have very aggressive promotions. And promotions, to be honest, that are hard for us to match. We need our franchisees to have a chance to turn profitability. And if you give the product away, it makes it difficult for them to achieve that. And even for our corporate stores that we own in the chain, we have skin in the game for Papa Murphy's. So obviously, if our franchisees feel the pain, we feel it as well.

So I mean, we're working hard. We have a number of technologies that are being deployed. First leg of some new tools is going to kick in probably late March, early April. And we hope that's going to help us drive better business, help us communicate with our customers more effectively, hopefully acquire customers as well. So these new technologies are coming live soon, and Papa Murphy's will go first. and then other brands will be able to follow with these.

And the second part of your question was regarding low-hanging fruits that we might have. And you can look at brands, for example, like Wetzel's Pretzels, where we're just only beginning with loyalty. We're just only beginning with digital. It represents almost nothing in our portfolio -- in our current sales. So we do see an opportunity there. And as mentioned in previous calls, we're lagging in Canada in terms of technology. We're almost there now with the cleaning up and preparing our data and making sure that we accumulate reliable and usable data. And we're almost there now with being able to deploy these tools. So we're pretty bullish on the potential of these technologies on the business. It took a little bit longer than expected for us to get there, but we're just there now.

The next question comes from Bea Fabrero with Scotiabank.

For your U.S. market, do you expect same-store sales to turn around this year given the tax refunds and potential rate cuts?

Well, yes, the U.S. market is -- it's volatile. I would say we had a good beginning of the year with some of our brands and more challenging for some others. I can't necessarily comment on refunds and rate cuts because I don't want to speculate on the impact and timing of these things. But obviously, they would help. They can't be negative for us. So if these things come, it's going to help. We're lapping a certain number of things this year. There was the -- in Q1, there was the tax abatement in Canada that we're lapping now that doesn't exist this year, obviously. So any help we can get from our regulators and our government is going to help for sure.

And another one on your franchisee profitability, have you seen any headwinds across the industry? Like how are your franchisees faring?

Yes. Yes, there's -- our industry, by definition, always faces headwinds. There's always something. I mean it's the nature of our business. It's a competitive business and consumers right now are feeling the pinch, especially the lower-income consumers. But as far as franchisee profitability, there's pressure coming from costs and commodities, especially on the protein side.

But from the data we accumulate, our franchisees' profitability is stable or improving for most of our brands. So I mean, we're taking many actions on a day-to-day basis to try to help that, whether it's purchasing, distribution, any different types of products or services they need in their locations. And that we also need in our corporate stores. So we're trying to take action. We're trying to measure it better and better also to be able to take action quicker as we might see symptoms coming in. And I think with more data and more granularity in our business, I think we're able to take more informed decisions and faster.

The next question comes from Ryland Conrad with RBC Capital Markets.

Just to maybe start off on CapEx, obviously, a lot lower this year. So could you just share some high-level expectations on CapEx for 2026? And related to that, I know the focus has been on delevering recently, but how are you thinking about your free cash flow priorities evolving as this year progresses?

Yes. Well, for CapEx, I think the year 2025 is the new normal. We do expect to have limited CapEx. There's always going to be some for our restaurants or for our plants. We have projects that have good ROIs, but we shouldn't see the massive CapEx that we saw in '23 and '24. I think that '25 is expected to be the new normal.

As far as free cash flow opportunities, obviously, I can't comment on what we expect to do with our cash flows as there is a number of different things that are in the air at the moment. But we want to increase our optionality, paying down our debt seems to be the sensible choice now because that opens all the doors for us, and it makes all possibilities open for MTY going forward. So I won't comment on that further.

Okay. And then just on same-store sales, still seeing that bifurcation between Canada and the U.S. So could you speak a bit to what you're seeing there in terms of traffic and average check and just how those dynamics might be differing between the 2 markets?

Yes. It's interesting to see that in the U.S., we're doing better with QSR and our casual dining is struggling a little bit, and we tend to see similar trends with our peers. It's a little bit more complicated to generate the traffic and also improve the basket size in our U.S. casual dining business. In Canada, we're seeing the opposite where not all of our casual dining brands are thriving at the moment. But on average, we're doing really good with most of our brands. And then QSR is struggling a little bit more and predominantly where we have mall-based locations in Canada, it seems that it's a little bit more of a challenge. So it's hard to understand exactly where each market is going, but we're trying to correct course on brands that are challenging and double down on the brands that are thriving at the moment.

Okay. And then just on Papa Murphy's again. I know last quarter, you unpacked quite a few of the initiatives underway there, including the loyalty program revamp. Could you just provide a bit of a progress update there and just whether you've seen greater engagement with that banner?

Yes. Yes, we did -- the loyalty push that we did enabled us to gain a lot of new members to our loyalty program. And then in turn, that enables us to communicate with these customers more effectively and try to incentivize them and increase frequency with these new customers that we gained. The proof is in the pudding, though, we'll see in the coming months. It takes a little bit of time to be able to measure the impact of all these initiatives. We can measure a certain number of customers joining our loyalty program. We can measure a certain number of things, but it's the test of time that will tell whether that was successful or not.

Certainly, an interesting push for us and trying to make the brand as relevant as possible to as many different types of consumers and generations of consumers as possible is critical for Papa Murphy's. So it's not going to be only one thing that matters. It's a collection of many different initiatives that we're pushing right now and that we will be pushing in the coming months that will matter.

The next question comes from Michael Glen with Raymond James.

Eric, I'm just hoping maybe you can speak to what was the underlying motivation to pursue a strategic review at this point in time? And then are you able to indicate when the strategic review did actually begin? I know we saw the newspaper article about it, but had the review already been ongoing at that time?

Yes. Unfortunately, Michael, I can't answer those questions. I apologize.

Okay. And then can you -- are you able to -- are you precluded or you're restricted from pursuing a normal -- the share repurchase program while the strategic review is ongoing?

Yes, I can't answer that question either.

Okay. Then across the banners, you spoke about Papa Murphy's and Cold Stone. When we look across the U.S. banners, how should we think about -- when we're thinking about the consolidated margin you're reporting, how do we think about the variance of the profitability across the banners?

Yes. Well, the first thing I'll say is that all our banners are profitable over a long period of time. There is some ups and downs depending on certain items. But the goal for us is to make all our brands profitable. And it's not necessarily all the big brands that are more profitable than the smaller brands. But in general, we're trying to achieve similar profit margins with all our brands. And whether a brand has 50 stores or 1,500 stores shouldn't preclude it from achieving profitability and having ambitious targets. So we're trying to achieve the same thing.

There are exceptions to that. Obviously, some brands are a little bit harder to manage than others, depending on how spread out some geographies are and maybe some heavy lifting temporary for certain things, for example, for retraining our franchisees or major initiatives that require a lot of our people to be on the field to retrain or implement something. But over a long period of time, all our brands should have similar margins and similar profitability metrics.

Okay. And how do you -- across the QSR segment, there's been quite a large push in the U.S. towards more value offerings hitting menus. Are you seeing that impact in terms of the traffic at your stores?

For some brands, yes. I mentioned Papa Murphy's earlier. As you know, pizza is a super competitive space and our peers are heavily discounting their products. So obviously, there's an impact. What we're seeing, and maybe I'll exclude the snack brands for that, where typically, we don't need to discount these products as much. But for most of the other brands, you do need to give your customers an entry point where they'll feel value. You might try to direct them to something else, but you do need to have that entry point for people to be able to compare. And if they need something to be more cost effective, you need to be able to offer it to the customers. So it's a fine line between over-discounting our product and offering an entry point that will be relevant in the market and also trying to create a habit to come to our stores and avoiding creating a habit of going to our competitors because the win back is always more expensive than the maintenance of a customer.

Okay. And then just finally, in the notes, and maybe you can actually disclose the number, but in the notes, there's -- the catch-up on the card breakage is indicated at something like $29.5 million. Is that the figure that we should use to come to -- like should we be -- is it fair to exclude that number from the EBITDA to get a sense as to what the impact was in the quarter?

Yes. That number is -- should be excluded from the baseline. The breakage income is more or less -- other than that onetime adjustment, the breakage income would be more or less in line with previous years and is not expected to vary significantly in future years either. So that number can be used, yes.

[Operator Instructions] We have reached the end of the question-and-answer session. This concludes today's conference, and you may now disconnect your lines at this time. Thank you all for your participation.

Good morning, and welcome to the MTY Food Group 2025 Third Quarter Results Earnings Call. [Operator Instructions] 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 these forward-looking statements, please refer to the company's annual information form dated February 13, 2025, which is posted on SEDAR+. The company's press release, MD&A and financial statements were issued earlier this morning and are available on its website and on SEDAR+. 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 Lefebvre, Chief Executive Officer of MTY Food Group. Please go ahead, sir.

Thank you and good morning, everyone. I'd like to begin by expressing how proud I am of MTY and our franchise partners for the discipline and resilience in executing our strategy even amid the volatile environment. As I also mentioned in the past, MTY's team remains laser-focused on driving organic growth through positive same-store 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-light 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.

Cold Stone 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.

MTY system sales remained 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 sweetFrog, 2 brands at their seasonal highs during the third quarter and continued strong performance by Village Inn. Canada 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 trends experienced so far in 2025, while our Canadian operations are showing signs of improvement across most of our banners. Although this reflects just 1 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 carried 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 MTY, innovation is at the heart of what we do. It's 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 of -- in a competitive value-conscious market while driving the top line growth and operational efficiencies.

We remain confident in the underlying strength of our brands and the resilience of our business model. At the same time, we are mindful of external factors that could affect near-term growth. The 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 the strongest growth and guest engagement.

These actions ensure the brand is on strong footing and remains healthy, sustainable and well positioned for future expansion. A recent example of this successes 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 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 [ system ] designed to both attract new guests and increased 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, cue rationalization and an entirely new lineup of exciting pizzas 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 Lehr, 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 MTY. 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 time line 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 period. 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 trends seen in same-store sales, while margins for the segment remained 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 franchisee EBITDA growth at a pace above same-store sales 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 $0.5 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 credit received, partly offset by a higher cost, reflecting a higher number of corporate store locations.

Food Processing, Distribution and Retail segment 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 the 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 result 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 segments and 3 brands in Canada.

Moving over to cash flows. MTY's asset-light model continues to generate strong free cash flows, providing meaningful flexibility to reduce debt, pursue strategic acquisitions and enhanced 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 million 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 noncash 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 flow 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 2.3x is the 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.

Thanks, Renee. Before we move to questions, I want to emphasize that MTY is built for resilience and growth. With our asset-light model, strong cash flows and diverse portfolio of brands, we are well positioned to navigate near-term challenges and capture long-term opportunities.

Our focus remains on driving efficiency, accelerating store development and investing where we see the strongest returns. With the strength of our people and the proven power of our model, we are confident in MTY's ability to deliver sustainable growth and last shareholder value.

Thank you for your time, and we will now open the lines for questions. Operator?

[Operator Instructions] With that, our first question comes from the line of Vishal Shreedhar with National Bank.

I wanted to get your perspective on the net location growth. Last quarter, you noted more than 100 locations under construction. And this quarter, there were 96 openings. So how should we [ think the ] pipeline going forward?

Yes. The pipeline remains really strong. I mean, of note that I'm sure our construction teams are listening now, we took possession of a large number of locations in the last few weeks. So the pipeline remains super strong for the next year or so, even the next 18 months.

So I'm really happy with where we stand in terms of our pipeline and franchisee engagement is really good. So what you're seeing? I mean there's going to be seasonal highs and lows on new store openings, but the pipeline remains as strong as it was at the end of last quarter.

With respect to the employee retention credit, should we expect more of that? Or is it more of a onetime benefit in this quarter?

Yes. That was -- the largest amount has come in. That was the largest one we were expecting. There might be some more coming in Q3 and Q4, but it's not going to be of the magnitude of what we received in Q3.

With respect to the menu prices that were talked about last quarter in the U.S. corporate stores, were those enacted? And did that help profitability to the extent [ envisioned? ] And was there an impact on traffic? And how should we think about pricing going forward?

Yes. We did take price on certain brands, predominantly Village Inn and Famous Dave's. For Village Inn, there was no impact on traffic. We're really happy. The brand is doing well. We seem to have really, really good momentum with that brand. With Famous Dave's, I mean, the impact was good. I don't think there was an impact on traffic.

The problem we have is those commodities that we sell at Famous Dave's keep soaring in prices. So if you just look at the price of beef, for example, the cost of brisket for us is going up rapidly. So we do face some issues. Ribs are getting more expensive as well.

So we can increase prices only by so much, and then we need to figure out ways to control our prime costs. And unfortunately, the market is not going in the right direction for our proteins at the moment.

Okay.

And your next question comes from the line of Derek Lessard with TD Cowen.

So a couple for me. You did have a pretty good pop in same-store sales in Canada in Q2, but it looks like they softened again in Q3. Just maybe if you could talk about what you're seeing in terms of maybe the consumer dynamic in your restaurant network?

Yes. If we dissect Q3 a little bit more, we see that it's really the mall locations in Canada that hurt us a little bit more. So the fact that same-store sales turned negative for the quarter, I don't think it means anything in terms of the consumer.

It probably speaks to the incredible weather we've had and that people are not necessarily going to malls as much, which I don't want to blame weather for everything, but I mean, it's factual that our mall locations declined in Q3 more than anything else. So we're doing pretty good with the other types of locations -- so I don't think we should draw conclusions on where the consumer is just based on that Q3.

Okay. That's fair. And maybe just switching gears to the U.S. Obviously, there was a sequential improvement there. I think in the press release, you did talk about Cold Stone and Wetzel's improvement there. So just maybe talk about those concepts in particular and whether the improvements that you've seen are -- how you think about in terms of sustainability.

Yes. I mean, the U.S. market is a little bit more volatile. It reacts to different situations a little bit faster than what we're seeing in Canada. Cold Stone is still a great brand and Wetzel is still a great brand. So I have no doubt that in the long-term, those 2 brands are going to be successful. Now will they respond positive -- respond positively or negatively to certain inputs, probably. Like the rest of the market, but I remain super confident.

What we're seeing so far in Q4 is a little bit of the same, where we see some really good periods and then some troubles here and there in sequence, where we can't really explain it by anything we're doing. So it really responds to different inputs that the market is receiving.

But overall, I mean, if you look at our Q3, it was an improvement for most of our brands with the exception of Papa Murphy's that struggled a little bit more. So I mean, overall, the portfolio looks good. I mentioned during the more formal part of the call that we have a number of initiatives going on for Papa Murphy's. The relaunch of the loyalty program is really important.

It's coming -- it's going live with a soft launch now and there's going to be more aggressive marketing around it at the end of the month. And we're pretty positive for that brand. So overall, things are looking good. I mean, we do have some work to do with a number of our brands. But overall, it's looking positive.

And at Papa Murphy's is it -- is it issues tied to competitiveness within the pizza vertical? And I guess how close are you to getting that store base stabilized?

Yes. For sure, it's a very competitive space with the pizza. You look at our competitors and they're -- I mean, they all admitted to invest, over-investing in marketing in the last few quarters, some of them $30 million, $40 million. So that's something we can afford to do. So we need to compete differently.

In our case, I mean, the space is competitive, we remain positive on the brand. We have a lot of new things that are coming also for next year that we can't necessarily announce now. But pretty pumped about what we're doing with the brand, and it's looking really good.

What we're seeing also at the moment is we have some franchisees that are pulling out a little bit of their local marketing efforts. And as you know, Pizza is very marketing-driven. So as soon as you close the tap, you see the sales going down right away. And unfortunately, some franchisees are just not putting their money into their businesses at the moment.

So we're trying to work with them to have the right material and have the right campaigns for them to be, I guess, motivated to deploy some capital and invest in marketing. So we're working on that. But other than that, the brand is generally doing well. Will there be more store closures in the future? Probably a few, but I think you're not going to see closures of the magnitude we've seen in the last 2 years.

Hopefully, we're getting close to stabilization there. And we're also going to be opening more stores as the pipeline is developing. Our sales team is doing a really good job, and we should see the pace of opening pick up next year. So obviously, that happens gradually, but now we're starting from very little openings to almost none. And now we're seeing some momentum picking up, and we're going to have more openings in '26.

And your next question comes from the line of Ryland Conrad with RBC Capital Markets.

I guess just starting off on retail. Could you maybe unpack the strong performance there? Are you rolling out more products or seeing distribution gains? Or is that mainly driven by just the shift in consumer spending from out-of-home to at-home dining?

Yes. I mean you need to look at the increase in revenues 2 ways for retail. One of them is just driven by a shift from a licensing model to a vendor-on-record model. So it's not really -- the fact that our revenues are increasing by that much doesn't necessarily mean we have great performance there.

And -- but we do have great performance when it's all said and done. We have some really good opportunities in that market. We have some really good products and the team is doing a fantastic job now expanding the network of stores where we deploy our products.

I think we've made some changes in the organization last year in Q4, and we continue to evolve that organization and as our pipeline is growing and as we get traction with more initiatives, we should see significant growth in that space. So really happy with where we are now. Numbers might be a little bit misleading this quarter just because of the change in model. But overall, it's a great business, and it's 1 of the areas of our business where we see the most growth for the next few years. So we're really happy with where we are.

Okay. And then just shifting gears a bit to M&A. I guess with the macro pressure that we're seeing across the U.S., can you just provide us an update at a high level kind of what you're seeing with the current M&A environment and just whether seller expectations have begun to normalize at all and how that pipeline is progressing?

Yes, where it's interesting. The market is very dynamic. There is a good amount of deal flow at the moment. So it's just a matter of finding the right deal for MTY. There's been a lot of corporate store networks that were not necessarily interesting for us. There's been a lot of fixer uppers, a lot of Chapter 11 situations where this is not necessarily what we're focused on.

But I feel like the market is starting to be in a better place now. And it's just a matter of us to be at the table for those right deals when they come and to be able to make them cross the finish line. So market seems to be a little bit more favorable at the moment for MTY and we'll see what it -- I mean there's no guarantee it's going to lead to anything significant in the future, but there's also a better opportunity now than there was maybe a year ago.

And your next question comes from the line of Michael Glen with Raymond James.

So just on CapEx, Eric, your CapEx spending has come down. It was notably quite low in the fiscal third quarter. I'm just trying to get a better sense with the corporate stores that you do own, is this level of CapEx sustainable? Are there some pent-up projects that you're going to have to start to look at next year?

No. I mean we've been saying that CapEx would normalize this year for a long, long time, and we're delivering on that promise. I mean we don't normally give guidance, but that was one area where we said that CapEx was going to be the way it is. So this is normal CapEx now. We're doing what we have to do at our manufacturing plants, and we're doing what we have to do in our corporate stores.

So it's not like we're underinvesting in anything. So no, we're actually refreshing a few stores at the moment. We try to do it very cost effectively, and we try to be disciplined with that. But there's no pent-up CapEx coming. So the level you're seeing now is the normal level going forward.

Okay. And just on -- you referenced the lower expenses -- lower expense levels. Is there -- can you better describe is there a broader expense initiative that you're going after here within the organization?

Yes. I mean you've known MTY for a long time. This is a review we do continuously try to be more effective and try to stretch every dollar to go a little bit further. So this is part of what we do. I mean we've -- over the last -- also over the last 18 months, we've restructured a number of our departments. We've consolidated a number of different things.

We see also SAP enabling maybe some lower expenses in some areas. So it's a continuous process at MTY. We never take it for granted that we're at the right level, and we're always trying to be more and more disciplined with our expenses. So there's no specific initiative that I can announce or that I can point to, but it's a continuous effort that we're trying to reduce the amount of external help.

We need to reduce the number of consultants, try to maximize every employee we have. And now with our investments in technology, I think we're going to be able to make everyone a little bit more efficient in the company, and that should result in some savings as well. So -- but there's no specific initiative.

I guess I've never known the company to be overly egregious on the expense line. So I'm just curious where you're finding incremental buckets, it must be hard to find.

There's always something.

And then just circling back to M&A. I know that you do keep your sort of criteria list rather broad, but like what -- if you're looking at opportunities I guess, probably more in the U.S., like what -- can you describe what represents something that would be ideal for you to go after?

Yes. Well, the one thing is we'd like to go into franchise systems as much as possible. Corporate stores, we don't hate corporate stores, but we also like franchise better. So this would probably be the one criteria.

And then obviously, you want to look at type of food, type of market you're going into and try to find an area where there's probably more room to grow and probably an easier environment. But there's no specific criteria. I mean there could be some really good targets in the wrong -- in the wrong areas that would be very cost effective, so that -- that might be one or there could be some really good growth companies that would be a little bit more expensive, where we can see a longer runway. So that could be another one.

So I mean, it's all about the return we can generate for shareholders in the end. And this is how we look at it. So we're pretty agnostic in the type of food, the geography. I mean the one thing where we're probably less agnostic is where we want to go into franchise systems.

[Operator Instructions] Your next question comes from the line of John Zamparo with Scotiabank.

I wonder if you could talk a bit more about franchisee profitability. There's some new disclosure on that from your prepared remarks. Maybe first, can you just remind us of the visibility that you have on this metric and has the ERP system helped with that?

We have visibility for some of our brands. We don't have visibility for all our brands. So in many cases, we have some tools like Crunchtime or ProfitKeeper, for example, where we're going to be able to track profitability a little bit better. And that applies for some of our larger brands like Cold Stone and Papa Murphy's, for example. So we do have access to franchisee profitability.

And I mean there's always some franchisees that are doing extremely, extremely well, franchisees that are struggling a little bit more and a large number of franchisees that are operating at expected profits. So that's the normal. And this is -- what we're seeing now is no different than what we were seeing before. For the other brands, we'll work with the annual financial statements that we're getting and also with our theoretical models.

We know how much rent franchisees pay, and we know how much they should have in food costs and labor costs. So typically, we have a pretty good idea of where our franchisees stand. And I mean, it's a daily battle for all our brands and all our operations people. We need to make our best effort to help our franchisees be profitable with their business.

And what we're seeing now, I mean, is a good validation that what we're doing is right. We have a lot of current franchisees who want to reinvest in the business, and a lot of these new stores we're opening are coming from existing franchisees. So it tells me that although we might not be perfect, we're doing a large number of good things and that we're helping franchisees be profitable.

Okay. That's good color. And does SAP help with that? Or is that separate what that's contributing?

Yes. That's not SAP. That's one of the aspects SAP doesn't cover. It's not scoped in. It's -- we have other tools, other technologies that enable that. It doesn't mean one day it won't be in there. But -- because franchisees numbers are not our numbers, typically, we try not to mix the two. So I suspect that we'll keep that out of SAP.

Okay. And it sounds like you're relatively optimistic on being able to grow overall franchisee profitability even if the outlook on the sales environment is maybe more moderate. Are there plans to take out costs within the 4-wall operations?

Yes. I mean this is what we do on a daily basis. We need to -- we need to do a great job at purchasing, a great job at trying to help our franchisees maximize every product that they have in the store. We have some better practices, best practices, let's say, for example, that you shouldn't bring in a SKU in a restaurant if it doesn't have at least 3 uses.

So those are the types of initiatives we try to come up with where we're trying to obviously bring some new innovation but try to innovate with the existing SKUs. So innovate within the box we already have and where we need to bring in new SKUs, and we'll need to maximize them and use them a little bit more. So those are the types of initiatives we're trying to come up with.

We're also working with a number of our suppliers to try to help us reduce the labor needed in our restaurants. So a certain number of prep, for example, some items can be prepped with our suppliers. So we don't have to do a new store to have better volume to automate maybe some of these functions.

So there's a number of different initiatives we look at to try to do that. AI is coming into the staffing also. It's been -- it's been a thing for maybe 5 or 6 years, but it's obviously getting more refined now. So we're trying to have the proper level of staffing at every hour to try to, again, take out costs in the restaurant and maximize the staff when they're in the restaurant.

So this -- but it's ongoing initiatives. So I can't say it's one thing. We're not one initiative we're doing now. It's something we do every day.

Right. Okay. Switching gears to the small business administration loans. I wonder if you could say historically what percent of U.S. store openings have relied on this program?

Oh, the vast majority of them.

Okay. And typically, what percent approximately of total funding would come from that program? Is it significant? Is it a small contributor?

Yes, the funding does not come directly from the SBA. The SBA is more a federal program that will guarantee a certain portion of the loan for banks to loan. We have the same program in Canada, it's SBL in Canada.

So it's the same type of program where the government guarantees a portion of the loan to incentivize the banks to support small businesses. So it's the same thing in the U.S. And if SBA loan doesn't get approved, it's a little bit harder for the banks to lend the money without having that government support.

Okay. Understood. A couple more. On the openings this quarter, these skewed fairly heavily towards the nontraditional format. I wonder if you could add some more color there. Was that 1 or 2 banners, which the reopening of previously closed stores? Anything you can say there?

No. Well, it's -- Wetzel's is a brand that will have more non-trads where we might open, for example, in the Walmart or we might open in -- we used to open more in Macy's. You can open food trucks, for example, or airports or campuses. Those will all be categorized as non-traditional.

So it's a pretty large bucket you have in there that will skew non-trads. So it's mostly from volume of non-trad mostly from the Wetzel's. We also have some coffee shops that are opening in other locations that might be considered non-trads as well. So you'll see that. But I'll say it's mostly Wetzel's.

Right. That makes sense. Okay. And then lastly, I wonder how you're thinking about the buyback. You were not active in Q3. You referenced in your prepared remarks that you're pretty pleased about where leverage stands.

I wonder what investors should expect on the buyback over the next year, particularly given valuation levels and where does this lie in your list of capital priorities?

Yes. I mean, it's something we discuss all the time. We made the choice last quarter to focus a little bit more on our debt and put a little bit more money on debt repayments. Paying down debt helps us build flexibility, whether it is for buying back shares through the NCIB or even an SIB. It gives us flexibility if we find attractive opportunities out there.

So -- I mean, we like buybacks. We also like reducing our debt. So it's a balance right now. I'd say we'd probably expect that at least for today -- at least for the next quarter, we should probably expect that we're going to keep focusing on debt, and then we'll reassess regularly as we always do.

Thank you. And showing no further questions at this time. Ladies and gentlemen, this now concludes today's conference call. Thank you all for joining. You may now disconnect.

Good morning, and welcome to the MTY Food Group 2025 Second Quarter Results Earnings Call. [Operator Instructions]

Listeners are reminded that portion 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 these forward-looking statements, please refer to the company's annual information form dated February 13, 2025, which is posted on SEDAR+.

The company's press release, MD&A and financial statements were issued earlier this morning and are available on its website and on SEDAR+.

All figures presented on today's call are in all Canadian dollars, unless otherwise stated. This morning's call is being recorded on Friday, July 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 Second Quarter of 2025 Conference Call. I'm joined today by our Chief Financial Officer, Renee St-Onge. Last quarter was a tale of 2 geographies. Current macroeconomic conditions remain highly fluid and in some cases, challenging. U.S. consumers have been particularly affected by economic uncertainty, which is being reflected in our results and that of the broader restaurant industry.

On the other hand, Canada was a bright spot throughout Q2. Following a soft Q1, business improved sequentially in March, April and May. Canadian same-store sales increased by 1.4%, reflecting broad-based strength across most of our banners, especially those in our casual dining segment. The story was more challenging in the U.S. where the volatility we saw in Q1 became more pronounced, resulting in a 3.8% decline in same-store sales.

The softness was broad-based across our U.S. portfolio, regardless of banner or restaurant segment. although there were some bright spots such as Village In, nearly all banners were impacted by a more cautious consumer, including Cold Stone Creamery and Wetzel’s Pretzels. Performance was similar across all our restaurant segments, be it QSR, fast casual or casual dining. Our year-to-date performance is largely in line with the North American restaurant industry.

In the current environment, it's become even more important for MTY to intensify initiatives that will increase the pace, energy and agility of our company. Over the past few years, we've made significant improvements to strengthen our roster of talent and increase the pace of innovation in food, technology or business practices. I'm incredibly excited by what I see in the pipeline, and I believe we are in the early innings of an evolution that will gradually bear fruit.

One fundamental change I'm especially enthusiastic about is our product innovation. Most brands typically have 3 to 5 new product launch or LTO windows per year, which is -- which in the past were organized just a few months in advance. Due to the short lead times and the many departments involved in making a new product launch successful, execution sometimes suffered and launches were not as effective as they could have been.

Fast forward to today, the vast majority of our brands plan their product launches 12 to 15 months in advance compared to very few just 3, 4 years ago. We are driving brands towards adding more product launches and LTOs to increasingly delight and excite our guests. All of this is part of our strategy of being a high-paced, high-energy and nimble company that will thrive in today's environment.

Another investment that I am ardent about is digital, which you've heard me discuss in previous quarters. MTY is a company rich in consumer data and combined with our growing investment in technology, data scientists, consumer data platforms and AI, we believe we can unlock even more demand potential for our restaurants and improve our overall guest experience.

Digital sales grew by 3% this quarter and now represent 21% of total system sales. Currently, our digital successes are more concentrated in some of our U.S. brands, and we're excited about the benefits this experience will bring to our Canadian business and smaller U.S. brands once it's rolled out across our network. Shifting gears to store count. We opened 76 locations and closed 77, resulting in a net decrease of 1 location for the quarter. Enhancing the profitability of our restaurant network remains a key focus, and we continue to strengthen our portfolio of locations through a combination of closures of underperforming locations and building a strong pipeline of openings.

As of July 1, we had a total of 108 locations under construction and our goal of net location growth over the medium to long term remains unchanged. Of note, we opened 35 new locations in the month of June alone, indicating a good start to our third quarter.

Turning to our normalized adjusted EBITDA performance. We experienced a 5% decline this quarter. The decline was entirely driven by our corporate store segment, partially by design. As I just mentioned, we are focused on enhancing our store network, and we made a strategic decision in the last few months to take back ownership of nearly 50 underperforming Papa Murphy's locations that have high potential.

Our corporate stores were also impacted by the combination of cautious consumer and prime cost pressures. This quarter, normalized EBITDA margins of our Corporate segment came in at 9%, which we believe is a healthy and acceptable level given the composition of our portfolio. It's also important to highlight that our franchising segment, which represents our bread and butter, delivered a growth of 3%, while our retail segment also grew by 9%.

Retail remains a powerful category for MTY with substantial growth potential. We're optimistic owing to the early success of several products and our nascent listings outside Quebec. MTY continues to generate very strong free cash flows, consistent with the strength of our asset-light business model.

In the second quarter, cash flows from operations was up approximately $40 million and free cash flows net of lease payment came in at around $24 million. Both figures were largely flat compared to last year. The second quarter typically generates lower cash flows than other quarters because of many annual recurring variances that happen consistently every year.

We remain committed to a balanced capital allocation strategy, one that supports strategic growth while also returning value to shareholders through dividends and share repurchases. During the quarter, we repurchased just under 300,000 shares under our normal course issuer bid, in line with the prior quarter. Going forward, we will continue to be flexible and opportunistic regarding our use of cash.

Finally, I would like to take a moment to highlight the significant progress we've made on our ERP implementation, a truly foundational initiative for MTY. I'm pleased to report that our Canadian go-live was completed on time and on budget, marking a major milestone for the organization. This type of changes is never completely frictionless, but we're encouraged by how quickly and smoothly our teams have adopted the new system.

I want to extend my sincere thanks to our head office staff across all functions for their exceptional effort, long hours, steadfast commitment throughout the process. Their dedication has been and continues to be instrumental to the successful rollout.

Looking ahead, we're gearing up for the U.S. implementation, which will take place in 2 phases, the first in October, followed by a second one in December. We remain confident in our time line and are leveraging the lessons learned from Canada to ensure a seamless transition. With that, I'll -- now I'll turn it over to Renee, who will discuss MTY's financial results in greater detail.

Thank you, Eric, and good morning, everyone. Looking more closely at our operating segments, Canadian franchising revenues increased by 4% to $37.5 million, mainly due to increases in both sales of material to franchisees and recurring revenue streams. Canadian recurring revenue streams increased as a result of the improvements in our organic system sales of 3%.

Meanwhile, in the U.S. and International segment, franchisee operations saw largely flattish year-over-year revenues at $65.3 million, a slight improvement of $0.3 million over prior year. This was the result of a favorable foreign exchange swing of $2.2 million, offset by a 4% decline in organic system sales.

On the expense side, operating costs in Canada went up by $1.2 million year-over-year to $21.5 million, mostly due to cost of sales of material to franchisees. The cost of sales to franchisees fluctuated in line with the increase in revenues. Meanwhile, I'm happy to report that in the U.S. and International segment, operating expenses decreased by 1.4% to $28.1 million.

This was the result of a $1.2 million decrease in controllable expenses, reflecting MTY's continued focus on disciplined cost management. This was partly offset by an unfavorable $1 million foreign exchange impact. As for profitability, normalized adjusted EBITDA for the franchise operations came in at $54 million, an increase of 4% compared to last year's [ $52.6 million ] with margins of 53%, a 1% improvement over prior year's margins of 52%.

Moving over to the corporate operations. Canadian revenues decreased by 5% to $11.2 million due to a reduction in the number of corporate stores. U.S. and international revenues declined by 1% to $120.3 million due to a decline in same-store sales, which was partially offset by a higher number of corporate locations compared to the second quarter of 2024.

Operating expenses for the Canadian segment decreased by $1.1 million to $10.7 million, while the U.S. and International segment rose by 5% to $109.5 million due to a higher number of corporate stores as well as generalized pressures on prime costs. Normalized adjusted EBITDA for the Corporate Stores segment came in at $11.3 million, down $5.5 million from last year. As Eric mentioned earlier, this decline explains our year-over-year decline in consolidated normalized adjusted EBITDA.

Globally, revenue from food processing, distribution and retail grew by 4.4% to $40.2 million, driven by an increase in retail sales of 4% and an increase in food processing and distribution of 6%. The retail segment continues to be a segment with a multitude of growth opportunities across Canada and the U.S. Normalized adjusted EBITDA for the segment reached $4.7 million, up 9% from last year, with margins up to 12% from 11% last year.

Turning our attention to the income attributable to owners, it amounted to $57.3 million or $2.49 per diluted share compared to $27.3 million or $1.13 per diluted share in Q2 2024. The increase was mainly due to accounting for the positive foreign exchange variations on intercompany loans.

Moving over to cash flows. We continue to generate strong operating and free cash flows. The second quarter had cash flows from operating activities of $40.2 million compared to $40.6 million in Q2 of 2024. Free cash flows net of lease payments decreased slightly to $23.6 million in the quarter compared to $24.3 million last year.

The decline was largely due to lower EBITDA, partly offset by lower capital expenditures. As mentioned in previous quarters for 2025, we are targeting capital expenditure levels lower than 2024. As mentioned by Eric, during the 3 months ended May 31, 2025, we repurchased and canceled 297,000 shares for $12.6 million through our NCIB and paid $7.6 million in dividends to our shareholders. We ended the quarter with a net debt of $623.5 million, a net reduction of $32.7 million since November 2024.

Since Q2 of 2024, we have repaid a total of $69.1 million in long-term debt. Considering our strong cash flow generating ability, our debt-to-EBITDA of approximately 2.4x is a level of debt that continues to give 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.

Thanks, Renee. Having experienced what I described as a tale 2 geographies this quarter, we remain motivated by our strategic vision of strengthening MTY's dynamism, creativity and entrepreneurial spirit. I personally have never been as inspired as I am today about our people and new initiatives that are taking hold.

Whether it's the macroeconomic backdrop or tariff uncertainty, we are building MTY to be resilient and innovative in the face of any challenges that come our way. With our strong cash flow generation and balance sheet deleveraging, we believe we remain well positioned to take advantage of any opportunities that arise. Thank you for your time, and we will now open the lines for questions. Operator?

[Operator Instructions] Your first question comes from the line of Vishal Shreedhar from National Bank.

I'm just looking for more insight on how trends evolved through the quarter. Last quarter -- and I know things are moving quickly. The last quarter, management indicated that they weren't seeing any material change in consumer behavior and you said the U.S. is a little bit more choppy. So maybe you can describe what changed and maybe how it changed? I guess we're focusing on the U.S. here and what, in particular, the company did to respond?

Yes. So yes, the choppiness just became less choppy and more consistent and the negative, I guess, if you want to label it this way in the U.S. portfolio. In Canada, we're still seeing more stability. But yes, I mean, what happens is hard to explain.

There are certainly layers that can that can guide us through what happened, but what we're seeing is -- and we're seeing the same industry trends where the restaurant industry is down slightly. So we're -- unfortunately, we're following the trend here. And as far as what it is that we're doing, it's not necessarily anything very different from what we were doing last quarter.

We are doubling down for sure on everything we do digital. It's right to have more personalized marketing approaches. So we're -- those are long-term strategies that take time to implement, and we're certainly accelerating some of them, and we have accelerated also some of our marketing programs and marketing spend to try to alleviate some of the pain.

And brand by brand, we're looking at our portfolio and some of them, it needs to be maybe provide consumers with a more favorable entry point to go into our restaurants and have a more value offering. But what we're finding is alcohol consumption is down. Value offerings are important, but they're also not the only thing that matters.

And we just need to go brand by brand and have a systematic approach on what it is that we're doing today and what it is that we that we were trying to accomplish on the long-term strategy point of view and what we can do to accelerate it if we can. And if we can't, then we just need to have that -- keep that same systematic approach to deliver what we were planning to deliver on time and create that amazing consumer experience, not only in-store, but also with all our various digital platforms, consumers are not in store as much as they used to be, and we need to be able to replicate that consumer experience, whether they're in store or not. So it's more of the same, just a little bit of an acceleration on the spend and trying to come up with various initiatives that are brand by brand.

Okay. With respect to the price increases that you're taking, are they targeted to specific brands or geographies? And what can we put in for modeling purposes on the price increase? Should we expect it to be meaningful on the same-store line?

Not necessarily. They are meaningful for sure. And we're taking a very diligent approach. There's a science to it. We're trying to come up with price increases in areas that might not necessarily affect traffic as much, but we do have to take some pricing. And as you know, in the U.S., we don't dictate price for our franchisees. So franchisees are free to take price whenever they like, and we try to suggest price for them, but they don't necessarily have to follow our suggestions.

Corporate stores, we didn't take price in many of our brands for 2 or 3 years for some of them. And now we're facing maybe a stiffer pressure on the prime cost on food cost primarily and to a certain extent on labor cost as well, and we reached a point where it was no longer sustainable to not take price. So we have to use a surgical approach and take price on certain commodities that are a little bit more expensive these days.

Okay. So the pressure that you saw in the U.S. corporate store line, to some degree, that should alleviate with the pricing that you on EBITDA, the pressure on EBITDA. You should see that alleviate to some degree next quarter as you implement the pricing. Is that a fair comment? Or are there other factors I should consider?

Yes. There's -- well, the portfolio is pretty broad, and we're taking price. We have taken price on one of our brands already. There is some pricing going live now, and there is some pricing scheduled also for later this quarter. So it won't be fully reflected in this quarter, but it will be fully reflected in Q4.

Now as far as creating a material lift on sales, I'm not sure. But what we're going to try to do is direct consumers maybe to where there's better profit margins for us. And if they choose to go where there's not as much profit margins, and it's going to be a little bit more expensive for them.

But as far as seeing a major difference on margins or same-store sales, I wouldn't necessarily go there. I think we're more in defensive mode here and protect what we have instead of being in a place where we can increase our margins at the expense of consumers.

Okay. And just one last one here before I circle back. Given the pressure you're seeing in the U.S. and exacerbating through the quarter. Can you comment on how that may impact the store pipeline? And could you see some of that pipeline, which you've indicated you're seeing some optimism in fade as franchisees question the backdrop, if that's even a legitimate question to ask.

I mean we're not seeing it yet. I'm not saying it's impossible that it would happen. But right now, the pipeline is very strong. As I mentioned, we've opened 35 locations just in the month of June, which is a great month. And then we're swinging hammers on a lot of stores as well. So still feeling really confident about our pipeline of store openings. And I'm just looking at the new franchise where we're awarding every day that are now 26 projects and the pipeline is still strong, and we're -- our franchising people are still delivering the number of stores that we're expecting. So I'm not saying it's impossible that there would be some delays or people with question marks in terms of investing in restaurants. But right now, I'm not seeing it.

And your next question comes from the line of Michael Glen from Raymond James.

Eric, I'm just wondering if you can give us some insight into profitability across the banners? Like is the -- is it kind of structured like the 80-20 rule? Or is it something a little more concentrated on your top banners from a profitability perspective?

So I assume you're talking about profitability for the franchisor. Yes, it's really the 80-20 rule for sure. Our larger brands will bring in more profits than the smaller ones. But the smaller ones accumulate because of the number of brands they accumulate to a material number. But yes, there is definitely an 80-20 factor here.

Okay. And I think we've -- I've asked you this in the past, but like what's the outlook for some of these, call it, the bottom 10% of brands? Like is there -- if you were to -- are there some negative EBITDA brands in the portfolio that could lead to a lift if you were to get rid of those?

No, all our brands are profitable. We do make sure that our brands are profitable and some are marginally profitable, some have highs and lows depending on where they are in their cycle. But divesting of brands would not result in higher profits. Now there might be some one-offs here with locations that we could get rid of that would result in higher profits. But as far as brands are concerned, no, all our brands are good.

Okay. And I think you said there was a strategic decision to take on 50 Papa Murphy's locations. That was -- is that post the quarter end, just to be clear?

No, no. Those happened mostly in late 2024 and early 2025. Those are stores that we talked about in previous quarters. And there are stores that have been poorly operated in most cases, where we feel that the turnaround is possible. The turnaround does take between 9 and 12 months to realize.

So we're still in a place where we're losing money with these stores and investing in turning around the stores. We did refranchise one location successfully after turning it to profit in the last few weeks. So this is still the plan. We want to turn them around and refranchise them and then repeat the cycle.

Okay. And overall, like your view as MTY as an operator of corporate stores, do you have -- is that something that you think MTY is properly structured to do? Or do you need to add more resources there to your corporate store initiatives to add more cost to be straightforward to your corporate stores to ensure they're successful in the long term.

No. We have amazing people to run the corporate stores. So we're happy with where we are. We do have challenges with corporate stores here and there. I would say we've reinvested in the corporate store structure a little bit more in Canada in the past few months because we didn't have that proper structure. It requires the company to be wired a little bit differently to run those corporate stores, and we were purely wired as a franchisor. And in today's environment, we have to be able to run some corporate stores to, again, turn them around and refranchise them. In the U.S., we do have the proper structure. We have amazing people where we have concentration of corporate stores in our BBQ Holdings portfolio and also in our Wetzel’s portfolio, we have a little bit of a higher proportion, and we have great people to run the corporate store performance there.

So no need to reinvest, but there's always some churn. And where we need to invest is in really good quality restaurant managers, which are critical to our successes. We can have all the greatest people at the head office. But if we don't have someone boots on the ground in the restaurant to run it, it makes it difficult. And this is where there's a constant reinvestment and there's a little bit more churn, as you know, in the restaurant staff. So this is a continued effort.

And your next question comes from the line of Derek Lessard from TD Cowen.

Eric, I just wanted to maybe touch on your 2 geographies analogy. I was wondering if you had a sense as to what's behind the Canadian consumer resilience that you're seeing?

Yes. Great question. I don't know. All I can measure is traffic and whether they come to our restaurants or not. I'm not an expert into analyzing how and why the Canadian consumer is more resilient at the moment than maybe the U.S. consumer. But if you look at the past few years, we've certainly been a lot stronger in the U.S. than we've been in Canada. So there's maybe a little bit of that where Canada is a little bit more stable and on the upwards trend, whereas the U.S. is probably taking a pause after many, many years of great results.

Yes. I was thinking along the lines, maybe it was due to the sort of the trade issues that we're having and more Canadians staying home, but that -- okay, that's fair.

The EBITDA pressure in the U.S., you mentioned was somewhat by design with taking in the 50 Papa Murphy's stores. But in the press release, you did say that you were actively, I guess, evaluating strategic options, including accelerating franchising efforts with one and broader transformative changes with the other. So I guess, number one, what's the other banner in question in those remarks? And number two, maybe you could just add some color around the transformative changes you're talking about?

Yes. There's a few brands. Obviously, Papa Murphy's, we took back 50 stores. So that's a pretty big transformation for the brand. And we are learning as we're doing it. But certainly, big effort on turning these stores around and showing what we can do and demonstrating the business model.

In other brands that are concerned by some more fundamental changes, you're looking at, for example, Barrio Queen, which is -- it's a small chain with fewer restaurants, but they're highly profitable restaurants and variations in their profitability becomes a little bit more material for that reason. So we are in the middle of some franchising efforts here.

We've never had a franchisee for Barrio Queen, and we're curious to see what a franchisee would do with these stores. Unfortunately, we had a little bit of delays in franchising. We wish it was done already. But so we will franchise a few stores. For Barrio Queen, we also hired an external firm to come and assess our operations to see why our sales are declining, where is our traffic going and how can we win back those customers and win back this traffic.

The alcohol mix is a little bit higher at Barrio Queen. So I suspect that probably plays a part, but there's probably something else as well. So we're ready to implement some transformative changes. We've also changed the management team for some of our brands, including Barrio Queen. So we are doing a certain number. We're taking steps into figuring out what's happening with this brand specifically and where can we go over there.

There's other brands that are feeling a little bit more pressure, and I'll name, for example, Granite City. Again, that's a smaller chain. They are all corporate stores, very high proportion of alcohol. We're brewery. So obviously, that's what we do. So feeling a little bit more pressure at the moment.

So we are also in the middle of implementing some changes there to try to regain customers and win back those customers. And whatever it takes, it it's -- if we need to win them back, they're using other products than beer, and we'll do it. So the team is actively looking at solutions for these brands.

Okay. And I guess on the Papa Murphy's, how far down the road or along the process do you think you are in getting them back to profitability and then perhaps refranchising them?

Yes. We repurchased a few clusters of stores. So I'll go cluster by cluster. there's the first one we reacquired last year is at breakeven now. So we're pretty much there. And then the other 2 clusters came in at timing. We're probably in this 6 to 9 months period now, and I'm thinking it's probably going to take 9 to 12 before we get them to breakeven. Some were poorly managed for a longer period of time.

So it takes longer to convince consumers to come into the door once again and win back customers is more difficult than when you open a store and start fresh.

So we're probably 3 to 6 months away from being able to say we're there at breakeven with these stores, and we're going to be successful.

Okay. And maybe one final one on weather. Just curious if there's any impact on, I guess, Cold Stone Creamery but frozen treat sales in the Northeast. It was pretty cold in the lead up to summer here or it took longer for summer to arrive. Just curious if you had any weather impacts on the business.

Yes. We're monitoring weather, for sure. And as much as I don't like to blame weather for everything we sell ice cream. So it does have an incidence that's maybe higher than other restaurants. But yes, Northeast was a little bit more challenging. And although the timing of weather events was bad, and that includes Canada, when it's raining on Saturdays and Sundays and sunny on Mondays and Tuesdays, it doesn't necessarily help our business.

So we do feel some impact on weather, but probably weather happens every year, so we'll take it over a longer period of time to assess. And hopefully, we have a mild hurricane season this year and not too many wildfires impacting some of our some of our brands. So yes -- so weather is a thing. And obviously, when you sell frozen treats, it does have a bigger impact. But hopefully, it stabilizes, and we're better now.

And your next question comes from the line of Jan Zamparo from Scotiabank.

I wanted to follow up on the strategic alternatives comment for your corporate banners or some of them. Are potential brand divestitures among the alternatives that you're considering at the moment?

Nothing is off the table. So we're certainly not aggressively trying to market our brands. But nothing is off the table. I think it's part of a reasonable capital allocation strategy to look at acquisitions and divestitures. And that's certainly part of the discussions we're having, and we're not aggressively marketing any of our brands, but it's not impossible it would happen one day.

Right. Okay. And coming back to the corporate store margins, independent of the price increases you talked about, I think you said in your prepared remarks that the 9-ish percent level you're at now that, that represents a reasonable number over the medium term. Is that a fair interpretation? Like should we expect flattish margins over the next couple of quarters?

Yes. If you remember last year, when we realized the margins we did in Q2, I did mention that we were on the very high side and people ask -- were asking me if there's further margin expansion. And I remember saying, no, there's -- this is -- we're probably a little bit too high. So last year, we were probably a little bit too high. This year, we're a little bit lower for various reasons.

But I do think that being around the 9% is a reasonable place to be. And I mean there's going to be variations in our margins, whether they're up or down in the future, both can happen. But I think over a longer period of time, if we're in that 9% range, we're probably the right place given our portfolio where we have some stores that are losing money that we're trying to turn around and some stores that are vastly profitable.

Okay. That's helpful. On the store network, the commentary on openings, particularly in June, that's encouraging. I wonder about your sense of what closures might look like over the next few quarters. I know these can be lumpy and tough to predict, but any sense of how closures might evolve in the rest of '25 versus the last couple of years?

Yes. There's always going to be some closures given the size of our network. So I do anticipate there's going to be more where we were, I think, in Q2 was -- is probably a reasonable place, unfortunately. I'd like to close fewer, but this is probably what we should expect on average for the next few quarters.

So I don't expect that we would close dramatically fewer stores or dramatically higher stores unless there's a surprise out there. So I think the Q2 number is probably a reasonable place to pull an average.

Understood. And then one last one and more broadly on the industry, we've lapped the launch of, I would say, an increased focus on price promotions and value offerings from some of the larger industry players, particularly within quick service. Do you get a sense that the industry will start to focus more on profitability rather than traffic and pricing anytime soon? Or is the consumer not in the right state for your competitors to maybe shift their positioning on messaging?

Yes. I'm not sure -- yes, I think there's less intensity. And certainly, the spotlight is less on just providing these crazy value offers, but they're still out there and a lot of people are still focusing on traffic rather than profitability for various reasons.

So I don't think that's going to change that much in the foreseeable future. There is less intensity on very aggressive price promotions than there was a year ago, but it's still a thing.

And your next question comes from the line of Ryland Conrad from RBC Capital Markets.

I guess just to start off, curious from your perspective how just the macro environment is evolving. I think last quarter, you mentioned Q2 started off stronger. And then in the press release, you do kind of call out macro headwinds as being short term. So could you just shed some light on how things progressed through the quarter and kind of the cadence of the performance in the U.S.? And just why that broad-based pressure is being sustained so far into Q3?

Yes. I mean we went from choppiness to more sustained drops during Q2. What we're seeing so far in Q3, and I only have 1 month of data, but it seems to be more of the same for this. So I'm not seeing a crazy reversal in June. So it's not worse, but it's also not better. Hopefully, the end of the summer will turn to the better. But right now, we're -- we don't have visibility on a drastic change one way or another.

Okay. Got it. And then just -- on the newly passed Republican bill just targeting cuts to SNAP. Can you just remind us what Papa Murphy's system sales exposure to that program?

Yes, we're at 9% of our sales are SNAP.

Okay. That's helpful. And then just lastly, I know in your outlook, just the expectation for CapEx to be lower this year, certainly a meaningful step down so far in the first half. So would that be a good run rate for the remainder of the year? Or should we expect any kind of step up?

No, it's a good run rate. I don't anticipate a big step-up on CapEx. We do have some spending left on SAP. There's probably about $2 million left between now and the end of the year on SAP. But for the rest on CapEx, I don't anticipate any major changes from the trend of Q1 and Q2.

Your next question comes from the line of Michael Glen from Raymond James.

Eric, I'm just wondering how you balance capital allocation between, say, given where the share price is, given -- how would you capital allocation between an SIB or a substantial issuer bid versus M&A?

Yes, that's a question we talk about all the time at the Board. So I mean, we weigh these -- all these alternatives that we have. The SIB is not impossible. The M&A is also not impossible. Right now, we're repaying debt a little bit more aggressively in the last few weeks. So we're seeing that the interest rates are not going down as fast in the U.S. as we thought they would.

So we're repaying a little more debt, building our treasure chest and trying to bring our leverage down. But I would say SIB is certainly a possibility and M&A is certainly a possibility like any other capital allocation strategy.

And how would you characterize right now the M&A environment? Do you see a favorable M&A environment? Are sellers reasonable with their assumptions?

In most cases, no, they're not reasonable, and that's why you haven't seen MTY do M&A recently. It's just that we need the right transaction at the right price, and we haven't been able to cross the finish line with any of these transactions we found to be in that category. And a lot of what we see is fixer uppers that we're not necessarily looking for at the moment. And we're also seeing a lot of good networks that are commanding very, very high multiples and that we're not necessarily willing to pay the price for -- we don't want to pay a high price for the wrong reasons. So we remain disciplined in our approach.

Okay. And my last one, the Canadian ERP implementation. So what are the -- what is the additional functionality or benefits to MTY from this implementation?

Yes. Well, first, it's the same ERP across all our networks. So we did the rollout in Canada first, but it's -- we just needed to go by division, so we don't jeopardize the entire thing if it doesn't work. It was successful, but there's -- it's not an easy thing to do.

So one of the benefits is we're going to remove a lot of these old dated systems that are end of life or past end of life that are vulnerable and also that are not capable of producing the information we need or accumulating the information we need to run our business in today's environment. So what we're seeing is a system that's going to be a lot more flexible, a lot a lot more robust also to take a lot of data and to spit out a lot of data when we need it as well.

So just better systems, state-of-the-art systems that will enable a lot of different things and unlock a lot of potential for MTY while also reducing our vulnerability to older systems that needed to be changed anyways.

Thank you. There are no further questions at this time. This concludes today's call. Thank you for participating. You may now disconnect.