Mty Food Group Stock

Good morning, and welcome to the MTY Food Group 2026 Third 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 and 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 9, 2026, at 8:30 a.m. Eastern Time.

I would now like to turn the call over to Mr. Eric Lefar, Chief Executive Officer of MTY Food Group. Please go ahead, sir.

Thank you, and good morning, everyone. Renee and I will begin today's call by going through our third quarter results, followed by addressing the conclusion of the company's strategic review.

Starting with our third quarter results, there was a combination of challenges and advancements over the summer. We were pleased to see same-store sales sequentially improve in Canada to essentially flat, while softer results prevailed in the U.S. at minus 2.7%. The third quarter was not only impacted by persistent consumer caution, but also by the timing of Labor Day, which pushed the lucrative long weekend into Q4.

In the current environment, we remain focused on driving compelling guest experiences, exciting menu innovation and leveraging the power of digital sales to drive our banners. Despite growing complexity in the restaurant industry, our discipline has allowed us to maintain our core franchise segment margin stable at 54% and increased our free cash flows to shareholders by over 10% in Q3. Last quarter's performance brings our free cash flows net of rent payments per diluted share to $5.57 in the last 12 months, an increase of 6.7% over the previous 12 months.

The food processing, distribution and retail segment was also able to maintain relatively stable margins despite facing challenges and timing issues on key product promotions. Although revenues for this segment were down this quarter, our brands continued to have significant growth potential in this category, and we expect results to show steady improvement in the coming quarters.

Shifting to store openings. Our pipeline remains robust as demand for some of our concepts from new and existing franchisees remain strong. 27 New stores that were slated for Q3 have been pushed into Q4 as a result of various uncontrollable delays resulting in negative net openings in the third quarter. Therefore, we continue to expect a healthy level of net new store openings by next quarter and in subsequent periods.

Moving to corporate stores. Our decision to exit numerous underperforming locations is well underway, and we expect the bulk of these onetime costs to be reflected over the next 2 quarters. The associated benefits will gradually follow starting next quarter. We've also identified an additional 7 stores foreclosure in addition to the 68 previously announced, bringing the total to 75 stores.

Our cost estimate remains the same as before, despite the additional locations identified for closure. The rationalization of corporate store marks an important step for the company in our pursuit of value creation, growth and taking the size of action. In the past 12 months, we've shown our commitment to creating shareholder value, and I'm excited by the many opportunities before us.

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

Thank you, Eric, and good morning, everyone. Before we begin, just a reminder that we transitioned to a 52-week reporting basis, ending on the Sunday closest to quarter end. And in this case, it's August 30. Therefore, there is a 1 day less in actual results compared to the prior year.

Normalized adjusted EBITDA came in at $60.8 million during the 13-week period, a decrease of $13.2 million due to a reduction in profitability for the corporate store segment. Corporate store segment profits were negatively impacted by a combination of weaker sales, a $4.6 million delta in nonrecurring employee retention credits that we received last year as well as $0.5 million in lease exit costs.

We remain disciplined in our analysis of corporate stores, identifying those that are worth reinvesting in and others that are better suited for closure. We anticipate significant improvements in the segment next year, including an estimated $2.5 million benefit directly attributable to the closures of underperforming locations. At the end of Q3, we had already closed 50 of the 75 locations identified for closure.

Turning to our bread and butter, the franchise segment. Revenue increased 1.6% to $102.4 million for the quarter. The lifted revenues came from the U.S. and International segment with increases in recurring revenue streams and higher sales related to our gift card program. Consolidated normalized adjusted EBITDA for the segment improved by 1% while margins held steady at 54% as we offset wage inflation by improved cost efficiency in our controllable expenses.

Moving to the food processing, distribution and retail segment. Revenues decreased by 12.6% to $41.6 million, primarily due to delays in promotional activities. MTY has launched several new exciting products in this segment, and we expect a recovery in sales momentum by next year. Normalized adjusted EBITDA decreased by $0.7 million, broadly in line with the decline in revenues as operating expenses remain closely aligned with sales levels.

Despite the decrease, normalized adjusted EBITDA margins improved to 11% compared to 10% in the prior year. Digital sales totaled $279.2 million this quarter, an increase of 0.5%, excluding the impact of foreign exchange. The sales channel represented 19.8% of total sales in Q3, up from 19.3% last year. We continue to see significant potential in Canada to expand our market share in digital sales.

In terms of net income, we saw an increase of 5.9% in adjusted earnings per share in Q3, reaching $1.26 per share, primarily due to foreign exchange and lower income tax expenses. We continue to generate strong free cash flows net of lease payments with an increase of 10.3% and primarily due to lower taxes paid and improved working capital movement compared to prior year as well as higher proceeds on disposal of corporate stores.

Moving to our balance sheet. We ended the quarter with net debt of $515.1 million and have repaid over $20 million so far in Q4. This brings our net debt-to-EBITDA ratio by approximately 1.9x.

And with that, I'll turn the call over to Eric to discuss the conclusion of our strategic review.

As mentioned in our press release dated November 17, 2025, the company undertook a thorough and comprehensive review of strategic options to determine the best path forward to maximize shareholder and stakeholder value. Throughout the process, the company engaged with a range of interested parties and considered a broad set of alternatives. The process generated strong interest among potential investors and reaffirmed the strength, resilience and strategic value of MTY's platform.

Following this comprehensive review, the special committee of independent directors and the Board of Directors have unanimously concluded that the most compelling path forward to drive shareholder value is to accelerate the evolution of MTY's current strategic plan with a sharpened focus.

I'm sorry to interrupt. Can we please confirm that people can hear the call, I've just received a note that they can only hear the music. Operator?

We are live.

The company's proposed actions in the short term will include increasing our quarterly dividend to $0.50, restoring the normal course issuer bid and evaluate the potential for a substantial issuer bid. And TI will also work to optimize its portfolio of brands and intend to revert to its asset-light franchising model in which there was a minimal number of corporate locations. All functions will be evaluated in light of the current and future plans with the intention to streamline and generate operational efficiencies.

These proposed actions reflect the Board and management's confidence in MTY's underlying business and its disciplined approach to capital allocation. While mergers and acquisitions are part of MTY's DNA, the Board of Directors believes the best opportunity available today is MTY itself. Few acquisition targets offer the value and quality that MTY does. So for the moment, the company will focus on returning capital directly to shareholders by buying back MTY's owned shares for cancellation and paying an increased dividend.

MTY is at an inflection point, well positioned to harvest the benefits of the investment made over the last 2 years in our new ERP, which was delivered on time and on budget as well as in our data infrastructure and systems architecture. We've also taken decisive action to strengthen our corporate restaurant portfolio and have begun franchising strong performing restaurants, continuing our evolution towards the pure-play asset-light franchisor that has long been the foundation of our success.

Our balance sheet is healthy. Our cash generation remains strong, and we're entering this next phase with the discipline and focus needed to create lasting value. With that, we'll now open the lines for questions. Operator?

[Operator Instructions] We have our first question comes from Vishal Shreedhar National Bank.

Just on the stand-alone plan and the strategic initiatives announced, can you give us some more concrete data points on how we should evaluate management and how much value that should create, say, over the next 12 to 18 months, what specifically made the stand-alone plan more compelling to the Board? And what milestones or financial metrics should we evaluate over the next 12 to 18 months to judge whether the plan is successful and on track?

Yes, there's going to be numerous different initiatives going on, as you can imagine. But 1 of the things we want to accomplish is reduce the corporate store portfolio and go back to being pure-play franchisor like we used to be with maybe 1% of our stores being corporate. So that's certainly 1 thing that we're trying to accomplish here. And that's going to simplify our operations greatly. And hopefully, with that, we'll be able to continue to have a very strong margins for franchising. A lower weight of corporate stores and do better on our retail operations and manufacturing.

And then there's a number of different things that will be happening. I can't necessarily give you a list of all the initiatives we're going to have. But there's certainly added emphasis on evaluating each 1 of our brands and trying to realize the potential of our brands. And if we see that some brands would be better in somebody someone else's hands, then maybe we'll need to take action on that as well.

So there's a number of different things. I can't necessarily point you to an exact figure, but 1 thing for sure is that we want to go back to growth in general. Which is something that we've been lacking. We had a really good period following COVID, the years, '22, '23 were very strong, and we've been declining last year and this year. So restoring a healthy consolidated growth in EBITDA and free cash flows in general. And with all the metrics that are required to get there is the main objective here. So I think if you want to use 1 main metric is we need to return to growth.

Okay. With respect to the brands that you'll evaluate outside of corporate stores, the corporate stores that you're eliminating, those are underperforming stores, but the other brands, is everything on the table, for instance, some of your stronger performing brands, which may command a high multiple. But if you remove those, it will place pressure on the residual business, should we consider some of your higher-performing brands up for sale as well? Or are you mainly considering underperforming brands?

Well, the goal here is not to sell the crown jewels for sure. Everything is for sale if the price is right, I would say that. But there's no -- there's no strong desire to divest of good brands, the brands that -- every brand will need to be evaluated for its potential and for the plan we have to make it grow. And the brands we might decide to that are no longer relevant might not necessarily be the underperforming brands, but it might be brands for which we don't have plans or we can't come up with value creation for certain brands. But Yes, I would expect that more underperforming brands will be discussed in the top brands that are performing well.

Okay. And with respect to the corporate store EBITDA it was a bit lighter than we would have otherwise anticipated. And I understand there were some items in there, which were disclosed in the discussion off the top. But nonetheless, I would have anticipated some benefit from the closures that you had implemented. So can you talk about what benefit you're seeing in that $10 million-ish number that you talked about previously that is that still something we should use for the benefit that we should expect from the closures?

Yes. It's still the right number. I mean the closures we had during the quarter were all happened towards the end of the quarter. So we -- and it's -- Q3 is a weak quarter for most of the stores that we that we want to close. So we did sustain the losses and the exit costs for some of these stores. So there was added pressure from these locations.

The benefit will start trickling in next quarter and probably more into '27. But yes, just in this quarter, the stores that were closed and slated for closure lost $2.5 million plus the exit cost. So the figures that were provided are still valid figures.

Your next question comes from John Zamparo from Scotiabank.

As part of the comments related to the conclusion of the strategic review, you said you'd potentially explore an SIB. And I wonder what factors do you or the board at this point when looking to do one?

Yes, we're motivated to do an SIB. We just need to go through all the regulatory steps to get there. but we're certainly motivated to do an SIB. So more likely than not.

Understood. Okay. And then following up on the asset light or franchising mix topic, it sounds like you do plan to refranchise additional stores. I wonder how quickly should we expect that to happen? Does that require franchise agreements concluding? Or if franchisees wish to do that, can you perhaps do that in 2027?

Yes. We've already started, and it does take time because we -- it's not a fire sale process. We're not going to give the stores away. This is good valid EBITDA that we're selling. So it's not like we want to give it away, we'll find good franchisees to put the stores in good hands where it can perform, and make sure that our network is healthy. So again, we want to reduce that number of corporate stores, but we'll do it systematically with the right valuation for the stores.

It does require to have an asset purchase agreement when the franchisees take over the stores, and it does require franchise agreements to be drafted, disclosure needs to be done in the disclosure provinces and jurisdictions in the U.S. So it is a process that takes some time. But again, we've started already. So the wheels are turning, and we just franchised our first 2 sauclocations, for example, that network was fully corporate. So we're really starting to do more franchising, and we should expect the pace to accelerate.

And I'll add 1 last one, also related to the strategic review. The optimization plans for your brand portfolio, you commented a bit on this. I wonder if you could elaborate it. It sounds like it's perhaps some mix of asset sales if you get bids that you like, but potentially, you'd also transfer some brands or franchisees would open different brands upon franchise exploration. I wonder how we interpret that. Ultimately, it sounds like you want to get to a lower brand count, but I wonder what the likely path is to get there near term?

Yes. Well, the attrition of brands happen -- it happens naturally. Every year, there's 4, 5, 6 brands that disappear by attrition where we convert into stronger concepts. So that happens naturally every year. So we don't need to advertise that. Our number of brands goes down naturally. So that's just normal.

And for the other brands, well, where we have franchise agreements, we have a duty to our franchisees to do our best with the brand to try to help them as much as possible with their brand with their operations with the marketing and try to help them make money as much as possible. So it's not like we can terminate a brand unilaterally and decide that we no longer operate that brand. We just need to respect our commitments to our franchisees that are in these franchise agreements.

So it's a review that's going to happen, which brands are slated for natural extinction, but also which brands might be better in somebody else's hands. Again, it's not going to be a fire sale process. Some underperforming brands might have a bright future, and we've turned around a number of brands in the past. So if we have a plan and if we think that we can do better than we're doing now, we're probably going to retain these brands, but there are brands out there that maybe would be more valuable in somebody else's hands, and we're going to have to review that carefully. And I have nothing to announce at the moment in terms of which brands that would represent, but it's certainly reviewed that's happening.

Your next question comes from Cheryl Chan from TD Colin.

Maybe focus on the quarter a little bit. On the same-store sales, Canada is doing better than the U.S. I wonder if you can elaborate on the difference there. What are you seeing into each market and consumer behavior?

Yes. Yes, Canada, in general, is doing well. Consumers are very resilient. And I guess our brand portfolio is relevant for today's market. We have brands, obviously, that are performing better than others. But on a consolidated basis, we're not doing as good as we'd like to be, and we're still short of our expectations, but we're doing better.

In the U.S., it's a little bit more choppy. We have good periods followed by bad periods that are a little bit more difficult to explain. But the vast majority of our brands in the U.S. have had a rough quarter in Q3, and even our top brands suffered to a certain extent. So the market is a little bit different. The consumer seems to be a little bit more volatile, and unpredictable. So we're trying to address that, and we're trying to make our offers relevant for today's environment as much as possible in all of our brands. And I guess that requires a little bit more work at the moment.

Right. Great. Any early read on the sales trend so far in?

Yes. It's a little bit more of the same, Canada had Well, Labor Day is a strong weekend for most of our brands. So we had a really good start of September for both Canada and U.S. just because the shift in Labor Day is a real thing and it does impact our sales quite materially. In Canada, most of September was good. So followed on the trend of Q3. And in the U.S., the last 2 weeks of September were a little bit more difficult. So again, following on the trends we see in Q3.

And maybe just last 1 before I requeue. So openings, can you elaborate on -- or update us on the pipeline the new openings in Q4 in 2027. And what are the biggest constraints in your openings today as the permit, side availability or like elevated construction costs? Any color there would be helpful?

Yes. permits are still a challenge in inspections, preopening inspections are also a challenge. So we're seeing that pretty much everywhere. Cost construction, I think, is elevated, but it's not more elevated than it was before. Just a combination of different factors led to 27 stores being pushed from Q3 to Q4, where we were really confident that opened in Q3. And that gives me really good hope that Q4 should be probably our best quarter ever in terms of number of store openings.

So we're pretty ambitious. The pipeline is still very strong. environment is complicated, but we have a really good solid pipeline of stores that are set to open in Q4. And we have identified most of the stores that need to open in '27 as well, and '27 should be strong as well. So we're pretty bullish on that.

[Operator Instructions] Your next question comes from Michael Glen from Raymond James.

Eric, can you maybe frame for us how you think about the return on capital proposition from reinvesting some of MTY's available capital into some of the brands versus pursuing an SIB?

I think 1 doesn't necessarily go against the other. I don't think we need to choose between 1 or the other. I think we can do both. And again, we haven't yet determined the amount of the SIB if we're going to do one. But yes, I don't think we need to put these 2 in contradiction. I think we can do both, and we will do both as we're going to have a proper return on both alternatives.

And have you then made a decision? Or have you come to the conclusion that MTY does need to increase its investment in some of the brands, which could mean a higher level of CapEx for the company?

No. We're -- even if we invest in our brands, it's not going to be in the form of CapEx. We're not going to build new stores ourselves. So if we invest in our brands, it's going to be it's going to be from the P&L money, not from CapEx. And we don't expect that we're going to have a more elevated expense item and investing in our brands, we might reshuffle some budgets. We might rework the way we do certain things. We might prioritize certain brands maybe over a more widespread type of expenditures. But we don't expect that we're going to increase our expenses.

And then how do we think about an SIB, like maybe update on where the view of the appropriate leverage for MTY is?

Yes. Right now, we're in a really good place in terms of leverage. We paid down a lot of debt. We've paid down an additional $26 million since the beginning of Q4. So our leverage is in a really good place. We're comfortable with that. And we can certainly increase our leverage, we're comfortable up to 3x EBITDA. I think there is really no problem. I'm not saying we're going to create an SIB that would get us there. But I'm saying we're in a place where no matter how big the size of the SIB is going to be, we're not going to put too much leverage on the company that would make it complicated.

Okay. And I guess 1 more for me. Like of the corporate stores that your -- like I know there's this kind of revolving set of corporate stores that occurs because there are franchisees that naturally exit the system and you need to take those on. So are those the stores that you're closing right now, are those part of that process? Or were those more stores that you bought yourselves with the intention of running?

There were mostly repossessed stores, the ones that we closed. There were a few that resulted from acquisitions over the past few years. But the most part, there were stores that were repossessed, for example, the Papa Murphy's portfolio of stores that we took over 2 years ago with the hope of being able to turn them around and came to the realization that maybe the brands were the brand was a little bit more damage and these stores were a little bit more damage in these specific regions. So we made a decision on those. But for the most part, the stores we're closing our stores that we repossess from franchisees and did not succeed turning them around.

Your next question comes from Vishal Shreedhar from National Bank.

With respect to the franchisees and the pressure on the same store, is there any way for investors to ascertain the franchisee financial health? And how do you feel about that given that they're operating through such challenging times?

Yes. For the most part, I think our obviously, there's pressure on our franchisees. Sales and traffic are certainly a challenge for our brands at the moment. There's no question, and costs are still a challenge as well. But for the information we have from our franchisees, I think our -- in general, the profitability of our stores and of our networks is still really high compared to industry average. It's not to say that, obviously, with 7,000 locations, there are stores that are struggling. So there's no question and we're trying to help our franchisees in these cases.

But I think for the vast majority of our franchisees are operating way below -- way above industry average. And it's our job to try to help them as much as possible navigating these difficult times where, for example, the cost of proteins has become very expensive and where traffic might be a little bit more challenged. So it's normal for our industry to go through these cycles, and we're prepared for that. We have 45 years of experience in doing that, and we're trying to help our franchisees navigate.

Okay. And I'm not sure you're able to, but is there any ability you could provide any more color on the actual strategic review process? And what caused the Board to believe that go it alone was the best approach. Were there offers -- was it the economic environment? What were the factors that caused the Board to decide to go it alone? And how long will it take for us to see the any potential asset sales that have not been previously specified like brand sales that may be in a better hands elsewhere?

Yes. I can't -- unfortunately, I can't give you more information on the process. I'll need to stick to what I mentioned in my script and in the press release. As far as timing on maybe optimizing the portfolio of brands, I don't want to put a time line in place because it's -- again, it's not a fire sale price. So it's not like we're going to go out there and say we need to commit to a certain time, and we're going to let the brands go no matter what.

So -- we love all our brands, we want them to do well. We want all our franchisees to do well. And if we're going to sell a brand, it's going to be for the right value and also we're the right buyer. So I don't want to commit to a time line. Obviously, time is of the essence, and it's not something that we're going to -- we want to agonize over forever. So you should see some action probably in '27, but I can't commit to a time line or a number of brands or anything like that.

Okay. And with respect to the same-store sales growth trends, is there anything that management can do to reinvigorate the store base via some of the tactics that we've talked about over the last several years or new marketing programs? Or is it just a function of the search for value and the competition out there and it's just a matter of tweaking the existing menu. Is there any large initiatives or you think it's going to be status quo for a while on the comps?

Yes, there are many initiatives. And each brand has different initiatives. We're also working really hard on all our data infrastructure and our data scientists that we have in-house to help the brand have more intelligence about the brands and have a better ability to address our existing consumers and also work in consumer acquisition, which is always a challenge. So we have a lot of smaller initiatives at the brand level, we have larger initiatives at the company level.

And what you mentioned regarding value and -- it's a real thing for sure, especially in some segments, it's not necessarily applicable to all our brands. For example, if we're looking at wet pretzels, maybe value is not necessarily what consumers are looking for, where it's an indulgence and impulse buy. But when you look at pizza, obviously, it's a super competitive environment where our competitors are pretty much giving away the product these days. So the value is very important.

So not all brands need to operate the same promotions and need to operate under the same set of assumptions. So it's -- we can't have a one-size-fits-all type of company-wide initiative. So it's really important that each brand keeps their identity in each brand tries to operate the right levers. But there are some corporate-wide initiatives like everything related to data that will be critical for the company's success in the future.

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

Maybe just start just on the sequential improvement in same-store sales growth for Canada this quarter, are you able to kind of unpack the drivers there and maybe what you're seeing across traffic or average basket size?

Yes. The I think traffic for a lot of our brands is still a challenge even in Canada. It's there's -- the basket size is good for most of our brands, the basket size is on the rise. So we're able to optimize each visit. But the traffic is still a challenge. So we really need to work on the number of visits and the frequency of each visit for consumers. But in Canada, it's consumer is a little bit more resilient. Our mall concepts had a really good quarter in Q3 in Canada. So that was good to see after a few periods that -- where it was a little bit more complicated. And in general, our breakfast places are doing well, our sushi concepts are doing exceptionally well. So we have a number of concepts that are really pulling the company upwards in Canada.

Okay. And excluding the locations that have been closed or are being closed, like could you just give us an update on the health and performance of the remaining Papa Murphy's portfolio? And just whether you're seeing any stabilization in the sales trajectory there as I know you do have some kind of ongoing initiatives there?

Yes. Papa Murphy's is our franchisees who are doing well at Papa Murphy's are doing extremely well. The business model and the economic model and the margins we drive with Papa Murphy's are really good. And that helps even when sales are going down slightly, the stores remain profitable. But there are some pockets of where it's a little bit more challenging, where sales need a serious lift for franchisees to be able to turn a good healthy profit and deliver on their return on investment expectations. So it's a challenge, but I will say that the business model for Papa Murphy's allows for a little bit more sales variations because the margins are still healthy.

Got it. And maybe just last for me. I know you called out strength in the construction pipeline for Q4. But I guess looking further out, just given the current macro and we have higher interest rates like -- are you hearing anything from existing or prospective franchisees around just the appetite to open new locations looking further out?

No. It's actually where -- our franchising teams are doing exceptional at the moment. We're selling as many, if not more locations as we have in the past. Our pipeline remains very strong. Obviously, some brands are performing better than others in terms of new stores, and we have a lot of existing franchisees reinvesting in the brand. That's actually more than half of the locations we have in the pipeline are from existing franchisees. And that's a good validation for our business models also. So there's no concerns on that side.

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

Good morning and welcome to the MTY Food Group 2026 Second Quarter Earnings Conference Call. [Operator Instructions] Listeners are reminded that the portions of today's discussion may contain forward-looking statements that reflect current views with respect to future events. Any such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements.

For more information on MTY Food 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, July 10, 2026 at 8:30 a.m. Eastern Time. I would now like to turn the call over to Mr. Eric Lefebvre, Chief Executive Officer of MTY Food Group. Please go ahead, sir.

Thank you and good morning everyone. This morning we released our 2026 second quarter results which you can find posted on our website. The second quarter was a challenging period with continued consumer confidence issues impacting our results, especially in the corporate location segment. Our network produced same-store sales that were sequentially better than last quarter, but same-store sales remained negative. Traffic remained under pressure during the quarter and was a primary factor driving lower same-store sales. While conditions varied across our markets and brands, same-store sales performance was more closely aligned between the U.S. and Canada than in prior periods, with decreases of 2.2% and 1.8% respectively. Encouragingly, sales trends improved in Canada in June, with the majority of our concepts showing positive same-store sales.

Despite the headwinds in the quarter, we continue to generate strong free cash flows. Our asset-light, well-diversified portfolio of banners remains highly cash generative. Cash generation remains one of the core strengths of our business model and continues to provide us with flexibility as we navigate a complicated consumer environment. Turning to our store network, we generated positive net store growth of 6 locations in a quarter. We are encouraged by the continued progress of our development pipeline, and we expect an acceleration of the openings in the back half of the year, similar to the seasonal lift we experienced last year. As we discussed last quarter, our pipeline remains robust, supported by a meaningful number of locations under construction, and by continued demand from experienced franchise operators. We continue to see particular strength in brands such as Cold Stone Creamery and Wetzel's Pretzels, and we also expect openings across a broader group of banners in the second half of the year.

Our priority remains adding high-quality stores with strong franchise partners in locations where we see attractive long-term economics. As part of our ongoing efforts to improve the quality and profitability of the business, we recently completed a detailed review of our corporate-owned store portfolio. Following that review, we've made the decision to close 68 underperforming corporate-owned stores. Some of the locations are scheduled to close as early as next week. We estimate it will take between 6 and 9 months to complete the process. This was a store-by-store process where we evaluated the performance outlook and economic profile of each location. Where we saw a path to improvement, we chose to continue investing efforts into making our existing assets as productive as they can be.

Where the fundamentals no longer supported that path, we made the decision to close the store. During the last 12 months, the locations that are set to close have collectively lost over $10 million, and their performance was for the most part deteriorating. This is an important step for MTY. The decision will reduce our store count in the near term, but we believe it is the right long-term action for the business. It will allow us to reduce losses, improve the quality of the corporate store portfolio, and focus our resources on locations and brands with stronger return potential. The estimated cost of the closures and the termination of leases is expected to be between $10 million to $12 million. This will affect free cash flows in the short term, but will help the teams focus on healthier, more profitable locations in the future. It also demonstrates that we are taking decisive action to improve MTY for the future.

We continue to operate the business with discipline and focus on the factors we can control. That includes driving strong cash generation, supporting our franchise network, advancing our new store pipeline, and taking action where there are opportunities to improve the quality and profitability of the business. With that, I'll turn it over to Renee to discuss the financials. Renee?

Thank you, Eric, and good morning, everyone. Before we begin, just a reminder that for fiscal 2026, we transition to a 52-week reporting basis ending on the Sunday closest to November 30 each year. This quarter reflects that 52-week period, whereas the comparable period in 2025 was based on the calendar month-end basis. For this quarter, the 13-week period ended May 31, 2026 resulted in 1 day less compared to the 2025 second quarter period. Normalized adjusted EBITDA came in at $60.2 million for the second quarter, a decrease of $9.8 million from the same period last year. The change was mainly attributable to reduced profitability from corporate operations in the U.S. and international segments, as well as lower contributions from franchising operations across both segments.

These factors reflected continued pressure from commodity and other operating costs, as well as softer consumer spending in certain markets. Franchise segment profit was $50.6 million in the quarter, representing a 5% decrease over prior year. Franchise revenues was $98.6 million in the quarter compared to $102.8 million in the same period last year. The decrease in revenues was mainly the result of lower turnkey projects in Canada and gift card program-related revenues in the U.S., as well as the $1.4 million negative foreign exchange impact. Franchise operating expenses were also down in the quarter to $48.0 million compared to $49.6 million last year. The U.S. and international segments saw a reduction of 9%, more than offsetting the 4% increase in the Canadian segment. The reduction in the U.S. was the result of lower gift card program related costs, which were directly related to the similar reduction in revenues, as well as the impact of foreign exchange rates.

For Canada, wages increased as a result of normal inflation and consulting fees increased as a result of our strategic review. We also benefited last year from a non-recurring provision adjustment which impacted year-over-year results. This was partially offset by a reduction in turnkey projects. Normalized franchise segment EBITDA was $50.9 million in the quarter compared to $54.0 million in prior year, with margins relatively stable at 51% compared to 53% last year. As we continue to add higher quality new stores to our network and capture efficiencies from our ongoing initiatives, we expect franchise EBITDA growth to outpace same-store sales growth. Corporate segment profit and adjusted EBITDA were each $5.7 million in the quarter compared to $11.3 million in the same period last year, with margins of 5% compared to 9% in the period last year. Corporate segment revenues decreased by 15% to reach $111.7 million, while operating expenses decreased by 12% to reach $106.0 million in the quarter.

The overall decrease in both revenues and expenses were tightly correlated to the decrease in the number of corporate-owned stores. This reflects not only the company's continued efforts to optimize its restaurant portfolio and increase the relative contribution of its asset-light franchise operations, but also is the result of the sale of a few profitable locations during the back end of 2025 and early 2026. As Eric mentioned, with the decision to close a series of underperforming corporate-owned stores, we believe we have set the stage to drive improvements in the corporate stores with a greater focus on healthier, more profitable locations in the future. This should enable us to consistently deliver corporate segment margins at the high single-digit level. Our food processing, distribution, and retail segment delivered operating profits and normalized EBITDA of $3.6 million in the period with revenues of $39.3 million. Margins came in at 9% in the quarter compared to 12% in the same period last year. The retail segment has been impacted by inflationary pressures, especially as it relates to protein.

The resulting reduction in margins forced us to scale down promotional activity on certain key products in 2026, which caused further pressure on sales. We believe meaningful opportunities exist within the retail channel for top-line and margin expansion as we continue to build, scale, and strengthen our presence in under-penetrated markets. Digital sales were $284.2 million in the quarter, which represented 21% of total sales, in line with the same period last year. Excluding the impact of foreign exchange, digital sales were down 2% from the same period last year, which is in line with the decrease in same-store sales. We continue to believe that digital sales are a growth driver for MTY in the long term, and we continue to invest in this channel through in-house technology as well as partnerships with third-party aggregators. Overall, we reported $15.4 million in net income attributable to owners or $0.67 per diluted share compared to $57.3 million or $2.49 per diluted share in prior year. This quarter was impacted not only by the reduction in segment EBITDA, but also by the impairment taken on the right-of-use assets related to the corporate locations we are planning to close and a negative variance of $42.7 million in foreign exchange.

As Eric mentioned earlier, our asset-light, well-diversified model continues to generate strong free cash flows with cash flows from operations of $43.0 million compared to $34.4 million in the same period last year. The improvement was mainly attributable to lower interest paid and positive working capital fluctuation. Free cash flows net of lease repayments were $32.2 million in the quarter compared to $17.8 million in the same period last year. The improvement was also attributable to lower interest paid and the favorable working capital variance I referenced above. We ended the quarter with net debt of approximately $531 million, an improvement of $49 million over prior year. 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 time to turn it back to Eric for closing remarks.

Thank you, Renee. Over the past 46 years, we've built a durable, resilient, and dependable 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. While Q2 was a difficult quarter, the business continues to generate strong free cash flows, with an active development pipeline that is as robust as any I have seen during my tenure at the company, and a team that's focused on disciplined execution. The decision to close the underperforming corporate-owned stores is a clear example of that discipline. It's a decisive action following a detailed review of the portfolio, and we believe it will strengthen the business over time by improving the quality of our corporate store base and reducing the exposure to locations that are not meeting our return expectations. We remain focused on cash generation, new store development, supporting our franchisees, and actions required to position MTY for stronger performance as market conditions improve. Before I open the line 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. At the same time, we continue to run the business 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?

Ladies and gentlemen, we will now begin the question and answer session. [Operator Instructions] We have your first question comes from Cheryl Zhang from TD Cowen. Please go ahead.

Hey, good morning, Eric and Renee. My first question is on the sales trend. You mentioned that it improved in June. Do you have any color on what's changed since Q2? Any changes in consumer behavior or competition?

It is hard to draw conclusions after just a month. We will need to take a little bit more time to analyze the results. What we have seen is that early June started slowly improving and then the back half of June it became a lot stronger in Canada. So we do see Canada has been positive for the month of June, which is really good to see. In the U.S., we saw a continued trend that's similar to the pattern we saw in Q2. If we exclude Papa Murphy's from that trend, we're relatively flat in the U.S., but Papa Murphy's in such a competitive environment for pizza is currently suffering a little bit more.

Makes sense. That's helpful. And then on the store closures, can you comment on which banners were affected?

Yes, there's a little bit of everything in the portfolio. Papa Murphy's has a bigger weight as you might expect. You remember 2 years ago we repossessed 3 clusters of stores that we believe we could turn around. And after nearly 2 years of efforts and some successful turnarounds in those markets, we came to the conclusion that these markets are probably not appropriate for Papa Murphy's at this time, and we chose to close a lot of these stores in these locations. So, there's a larger weight of Papa Murphy's restaurants. That being said, they don't account for the majority of the losses or of the costs of the stores we're going to close. There are a certain number of other locations that will cost more and that also will draw bigger benefits.

Got it. Then should we expect further portfolio optimization, maybe store closures in the coming quarters?

Yes, it's going to take between 6 and 9 months to complete, so we're going to update the markets on where we're at. We have a first series of stores that are scheduled to close next week. And then we're going to go systematically. And we don't want to rush into any of these decisions and cause further damage. So we will do things in order to protect the staff also that's in the store and take the time to negotiate properly with the landlords, handle all the distribution issues that might arise from closing a certain number of locations. So it's going to happen over a 6 to 9 month period. So yes, you should expect that.

But in terms of closing other stores, there might be other store closures that happen. There will also be probably some stores that we're selling. We've been slowly but gradually disposing of some stores where it makes sense for us. So it's not a fire sale, but we're also in a process where we can reduce the corporate store portfolio.

That's helpful. Thanks so much. I'll requeue.

Your next question comes from John Zamparo from Scotiabank. Please go ahead.

Good morning. A couple follow-ups or clarifications to begin. I want to start on the corporate store closures. Can you say anything else about the expected cadence of those? Your last answer I think was a few in the coming weeks. Over the next 3 quarters, will any one quarter have a disproportionate amount of closures?

Yes, we expect that it's going to be heavier in Q3. The first few are going to be the easier ones, and then there might be some stragglers at the end. So Q3, the immediate future, is going to be where you see the bulk of those. The more difficult ones to close are going to happen over time.

Okay, got it. And then I think you'd referenced $10 million in losses from the underperforming stores. Is that at the net earnings level or should we think about that as a four-wall EBITDA number?

That's the four-wall number.

Okay, understood. And then I wonder if you could add some color on the state of the consumer, in your opinion, in the U.S. versus Canada. Do you think the performance of MTY's same-store sales is more a product of your particular restaurant banners, or do you think there is a tangible difference in consumer sentiment and consumer spending in U.S. versus Canada?

Yes, I mean, I'm not a scientist in these fields, so it's hard for me to draw exact conclusions for sure. We're seeing that in the pizza space, it's extremely competitive in the U.S., and we see that brand suffering a little bit more than the others. We run different promotions and we see that there's very little loyalty in that market and the consumer will go where the pizza is the cheapest at any given time. So the promotional activity is super productive, but we need to protect our franchisees and their profit margins. So our teams are actively seeking more data on all the promotions we run to try to adjust them to make it as profitable as possible for our franchisees. But in other segments, we see that the demand is a little bit choppier. It's hard to say that the consumer is not consuming because they are going to restaurants.

Consumers are out there. But they're certainly a little bit more difficult to attract to our stores at the moment. People are not throwing money at us. We really need to work for each opportunity, each meal opportunity. So I don't know if the consumer has gotten a little bit more discerning, but it's more challenging to get consumers. Now, maybe other people will draw direct conclusions, but for sure, I mean, I look at gas prices in the U.S. that always has an impact. So hopefully that's a short-term pressure. And then the market is going to go back to normal after.

But that does take away consumer discretionary dollars out of the restaurant space because it's going into the gas tank. So we're looking forward to see things going back to normal, and then we can probably measure it a little bit better.

I appreciate the call. Thank you.

Your next question comes from Anshul Agarwala from National Bank of Canada Capital Markets. Please go ahead.

Hi, this is Anshul for Vishal Shreedhar. I wanted to follow up on the store closures. How many of the planned closures include the ones converted from franchise stores recently?

You mean the Papa Murphy's?

Yes. In one of the calls you mentioned, 50 of the stores were converted to corporate. Were there other banners as well?

Yes, there's other banners. I think there's, and I'll go from memory here, there's between 45 and 50 of the store closures that are Papa Murphy's, and the rest is other brands.

Understood. How can we think about the franchise health of the remaining stores, specifically how many of the stores if you're able to quantify were below break even over the last 12 months?

Yes, we don't have the exact data on franchisee profitability. We have information for some of our brands but not for all of our brands. This is something we're working on. So it's hard for me to answer exactly your question, but I can assure you that when franchisees are in situations where they no longer make money, they raise their hands and we have a pretty good handle on which ones they are. We're trying to help them as much as possible. We can try with local promotional activities, and we can try to help them with their operations and rolling out different things. There are always a certain proportion of our stores that are unprofitable, but it's hard for us to quantify exactly how many that represents. It's certainly not a very large number.

Most of our stores are extremely profitable, but there are some in the network for sure.

Great. And finally, you mentioned in the back half you expect net store openings to accelerate. Does that include the planned store closures as well?

Yes, so if we exclude the plan, we do expect to be positive in store growth this year. Q2 was good, we expect Q3 and Q4 to be significantly stronger. But obviously with 68 closures planned, that's going to make it difficult for us to be net store positive this year. So, yes, long answer to your question. If we exclude the 68 stores we plan on closing in the corporate store portfolio, we're going to be net store positive, but if we include the 68, we'll probably be net store negative this year.

Thank you.

Hey, good morning. Eric, can you maybe just touch on some of the broad other inflationary issues that franchisees are up against, food costs, labor, rent? What are some of the big pressure points right now?

Yes, labor is no longer a significant pressure point. There are pockets out there that might be a little bit more difficult. But we're not seeing major inflation on labor or shortage of labor. So labor is really stabilized now and I think we're in a better place. Rent is what it is. I mean, you have your lease for 10 years and then you know the renewal of your lease is always a surprise. I think most landlords are extremely reasonable because they want to protect their tenants. There is the landlord here and there that might be a little bit greedier where we might have to abandon some stores and we have to make that decision sometimes when the math doesn't work anymore.

But in general, I would say the rent is too expensive to my taste, but not facing super significant inflation either because of the long-term contracts. In food, obviously, everybody's been talking about it and it's certainly a problem at the moment, especially with the cost of proteins. You look at chicken or beef, it's gotten a lot more expensive. The availability of some of our products, for example, our ribs, is a little bit more challenging and the cost is going up. So there is inflation on the food portion. And there's a few bright points here and there, but for the most part, it's challenging. So we're trying to help our franchisees with different menu items, with different promotions to try to alleviate part of that problem.

Obviously, we had to take pricing in some of our restaurants to alleviate some of the pressure. But yes, food inflation is definitely up there in our list of concerns. But we have a great team trying to source our products for better prices. We have also great suppliers that understand that they need to make money. Everybody needs to make money, and that includes our franchisees. So they're trying to help us find solutions. For the most part we get there, but there are some parts that are inevitable. If we sell a rib steak, the cost has gone up.

So there's nothing we can do about it other than trying to source better and sometimes increase prices where it's needed.

What's the prospect for putting price through right now? Are you, like you mentioned, you did take some price, but can you give some sense as to what has been the response in situations where you do put some price through?

Yes, it always depends on what product we put price. If we put price on the rib steak, which I just mentioned, I think the consumer understands it a little bit better. So, in general, I would say the response is not an adverse response since people shake their heads and understand that the cost of this product has gone up. That's a choice they're making. But obviously for a lot of our other products, it's tough to put price out there just because there's competition, there are expectations, and people have been talking about the price of restaurants being more expensive in the last few years. We need to be careful how we choose to do price. And if we choose to do price on certain items, then we need to provide consumers with a proper entry point that's going to give them a good value product if they choose to go for the cheaper option or the more value-oriented option that they have one in each of our concepts.

Okay, and then can you just touch on how the closures will impact same-store sales growth? I'm guessing these are going to be excluded from the calculation, but maybe if you could give some insight there.

Yes, I mean the 68 stores overall is 1% of our store base, so it won't impact same-store sales that much. But all I can say is that these stores were performing significantly worse than the average. They were in a minus, between minus 8% and minus 9% range on average for those 68 stores. So although we won't have a material impact or almost virtually no impact on same-store sales for the network as a whole, these stores were not performing well.

Okay. And then just on your CapEx, is the guidance on CapEx maintained at, is it $25 million?

No, that's too high.

What's the CapEx guidance again for the year?

Yes, if we do $25 million, some people won't be happy with me. No, the capex should be around the same level as last year.

Okay. Is that number too low? I don't know. Do you like it? Well, I guess my question is, we saw some elevated capex a few years ago. You took the capex lower, but now we're seeing some elevated corporate store closures come through the network. I'm just trying to understand if there's a relationship between the two items.

No, there's no relationship. We're just not building stores. The elevated capex came from the 2 acquisitions we made with Wetzel's and BBQ Holdings, where we had commitments to build stores at that time. And those commitments don't exist anymore and we're just not building locations. So that's the reason for the lower capex. I think we're in a good place in terms of the maintenance capex for the existing stores. We are renovating some stores where it's needed. We've refreshed some of our Village Inns, for example.

Not all of them, but a good portion. We've also tried some additional concepts in 2 of our Famous Dave's locations where we introduced another concept. So that cost some capex but it's all built into the budget we have for the capex. Our plants do use some capex as well. It's not very large numbers, but they require some capex. But we're in a good place in terms of capex and the stores we're closing, it's certainly not for lack of trying and lack of maintaining the stores in proper condition.

Your next question comes from Yaozhi Zhang from TD Cowen.

Hi Eric, thanks. Just a couple of follow-ups. So in Canada you highlighted that the decline in franchise revenue was tied to fewer turnkey projects. I wonder if you could unpack what's driving that?

Yes, those are one-offs. So it's, I mean, sometimes they increase, sometimes they decrease, but there's no driver for it. It's just, those are one-offs. We try not to do turnkeys anymore. Sometimes we do have to do a turnkey here and there. We have, I think we have 1 or 2 at the moment that are ongoing. Those are exceptions and we try to make it 0 if we can. So there's not necessarily a driver, it's just that you're going to see them go up and down. And because a turnkey might be, you know, depending on the brand, could be a million bucks.

If you do 2 or 3, then it shows in our revenues because the proportion of franchise revenues is higher, but it doesn't mean something's going on with the business.

Okay, understood. And on the unit growth, you did highlight a pretty strong slate of opening for the rest of '26. I'm curious, which banners are you seeing the strength and do you have a sense of the rough cadence of opening?

Yes, so the banners that show strength are the same. It's Cold Stone and Wetzel's are the 2 champions for our store growth. Those are 2 incredible brands that have a lot of good tailwinds, lots of existing franchisees wanting to invest further in those brands, and that helps always. It helps with the success of the new stores. It helps with a lot of different things. It helps with the validation as well. And we do have a good number of new franchisees that are coming into these brands as well.

So those are the 2 main ones. But we have a lot of our brands that will open between 3 and 5 stores also in the back half of this year. And those are equally valuable. We have a lot of Thai Express and Taco Time, for example, in Canada that are opening. We've just opened 2 Baton Rouge, and we have some more coming in the pipeline so you know even though they're not necessarily big numbers of stores like Cold Stone and Wetzel's, they are meaningful when you aggregate all the openings.

Okay, that's great. And speaking of Cold Stone and Wetzel's Pretzels, what do you think is driving their outperformance relative to your other banners?

Well, we have a great iconic brand, so that helps. And we have a great team also. Great pool of franchisees, super engaged, very enthusiastic about the brand. They really believe in the product. Our team is creating miracles with very limited resources also and maintaining the higher standards. New products are coming in, also the LTOs we're running are great. So there's a combination of factors.

It's not 1 thing that drives it, but in this case, just the iconic brand and the way our teams have been able to put the brand up there and show that we're better than any other option is certainly a good factor.

Great, thank you. And just last one from me. So looking at same-store sales by concept, can you talk about the relative underperformance of QSR versus the fast casual and casual concepts? What do you think is driving that?

Yes, well in QSR for sure you have a few brands that drove that. Papa Murphy's, certainly in the U.S., has been struggling more than our other brands as of recent. So that's a significant weight on QSR. We have some other brands also that have been exposed where we have various initiatives that are coming, but nothing of the magnitude of the struggles we have with Papa Murphy's.

Okay, great. Thank you so much.

Your next question comes from Ryland Conrad from RBC Capital Markets. Please go ahead.

Hey, good morning. To start, just on Q3, we've seen some data points around the World Cup boosting restaurant spending, but sounds like it's been somewhat mixed across formats. So, curious if you've seen any noticeable impact there.

It's really hard to measure something like that. There's been, for sure when the U.S. played their last game, we saw a lift in Papa Murphy's sales, which is amazing. I wish we had more games with the U.S. because that really helps sales. But those are one-offs. Other than that, it's been hard to measure the impact. The same way we had the hockey playoffs where Montreal lasted a little bit longer in the playoffs and that was not good for our sales because we don't have the sports bar type of environment. The World Cup did help when the U.S. played, but the impact of the other games is hard to measure. I'm not sure if it helps or if it hurts.

Okay, got it. I appreciate that. And then on the international business, just acknowledging that things do remain somewhat volatile in the Middle East. Are you seeing a continuation of the Q2 trends into the back half of this year or is there some normalization?

Well, we're dependent on some external factors here that we don't control. So it's hard to predict. I wish I had a better answer for you, but the international portion of our portfolio, and given how heavy the Middle East is in that portfolio, it's hard to give you a prediction.

Understood. And maybe just lastly for me on the franchise margins, could you unpack the variance there between Canada, which continues to see a bit more meaningful pressure, and in the U.S., which seems to be a bit less severe? Just what are the drivers there, and to what extent should we expect that pressure to continue?

Yes, I wouldn't necessarily call it pressure. It's just the portfolios are built differently for the brands themselves. And there's also a factor where we have a lot of our overhead that's in Canada and that we don't necessarily allocate to the U.S. So if you look at a lot of our functions in the shared services, we have a predominant weight in Canada that we don't necessarily ship to the U.S. You'll see Canada be lower than the U.S. for the foreseeable future for that reason. It doesn't mean there's pressure. Sometimes we also choose to hire in certain markets versus others when we have openings and that causes the margins to shift between one country and the other. I think in this case it's probably something you should look in aggregate instead of looking country by country.

Got it. Very helpful. Thank you.

There are no further questions. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.

[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.