MTY Food Group Inc Q1 2020 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Sabahat Khan - RBC Capital Markets, Research Division - Analyst : Just one on reporting. The IFRS 16 impact that you called out of $2.5 million seemed a little on the lighter side compared to what we thought. I guess, is the right way to think about it that you're netting out the leases that are more with the subleased amounts that you have on your books? So how should we think about that $2.5 million impact? And is that the amount we can use every quarter going forward? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. MAY 01, 2020 / 12:00PM, MTY.TO - Q1 2020 MTY Food Group Inc Earnings Call

Question: Sabahat Khan - RBC Capital Markets, Research Division - Analyst : And then this is a good run rate amount, I guess, $10 million for the year, is the right way to think about it?

Question: Sabahat Khan - RBC Capital Markets, Research Division - Analyst : Okay. Great. And then I think in the MD&A, you're calling out some discussions you're having with your lenders regarding your financial ratios and looking for some relief there on the covenant side. I guess, where are those discussions now? And sort of what kind of scenarios is that built on? Is that just even based on this $10 million cash burn, you think where you might push against covenants? Or is that just a precautionary measure? I just want to get your thoughts on where those talks are and the thought process.

Question: Sabahat Khan - RBC Capital Markets, Research Division - Analyst : Okay. And then just one last one for me on sort of working with your franchisees. You indicated that about half of them paid early with a discount. In terms of the relief that you gave them on the 4 weeks of the royalties, is there any other measure that you're looking to take maybe some royalty discounts going forward? Or maybe skipping on the promotional payment that they make? In terms of what other steps are you taking to support your network through kind of this upcoming period?

Question: Vishal Shreedhar - National Bank Financial, Inc., Research Division - Analyst : For the tranche of franchisees that took the second deferral, what percentage of your network was that?

Question: Vishal Shreedhar - National Bank Financial, Inc., Research Division - Analyst : It's mostly...

Question: Vishal Shreedhar - National Bank Financial, Inc., Research Division - Analyst : Okay. And in terms of a view of the kind of consolidated balance sheet of your franchisees, do you have any sense of kind of where that stands? Or how investors should think about that?

Question: Vishal Shreedhar - National Bank Financial, Inc., Research Division - Analyst : Okay. And just switching gears to a little bit kind of more on longer-term questions. Curious with the increase in unemployment, historically, that may have tended towards people looking for franchisees. What's your view on that? Maybe as a situation, do you think there will be more demand for MTY franchises? Or do you think that will taper off? How should investors see that?

Question: Vishal Shreedhar - National Bank Financial, Inc., Research Division - Analyst : Okay. And on delivery, what are your franchisees seeing there? Maybe you can give some sort of color on what's happening to delivery? And what happens to the economics of MTY with delivery? And what happens to the economics of the franchisees?

Question: Vishal Shreedhar - National Bank Financial, Inc., Research Division - Analyst : Okay. And just last one here for me. Obviously, good organic growth trends and some of the initiatives that you've been talking over the last quarters seem to be bearing fruit, at least, in this quarter. So I don't know if this question is relevant, but just kind of getting a sense of are those initiatives that you've implemented, maybe when we get to normal or like, have you implemented -- is there a lot to go yet in terms of your initiatives to drive the organic growth? Or have you implemented a large swath of that and it's probably -- you're not going to do that for the next few years as you try to battle this?

Question: George Doumet - Scotiabank Global Banking and Markets, Research Division - Analyst : I just want to talk a little bit about your guidance. So it looks like you mentioned we're doing 40% of our volumes. And then you said in Q2, we're going to be burning $10 million of cash and in Q3, we are going to be neutral. So I'm just wondering what assumption -- like those 2 numbers, what does that assume in terms of what level of volume will we be in Q2 and in Q3 in your mind?

Question: George Doumet - Scotiabank Global Banking and Markets, Research Division - Analyst : Okay. And is most of that volume gain, is that going to be more you think average unit volume per store? Is it going to be more of the new stores coming online that's going to drive most of that?

Question: George Doumet - Scotiabank Global Banking and Markets, Research Division - Analyst : Okay. And I think last quarter, our net store closure rate was, I don't know, I think, 70 or so. So I'm just wondering, can you talk a little bit about what you expect the store closure rates or percentage or however you want to describe it, to look like maybe as we navigate these more challenging quarters? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. MAY 01, 2020 / 12:00PM, MTY.TO - Q1 2020 MTY Food Group Inc Earnings Call

Question: George Doumet - Scotiabank Global Banking and Markets, Research Division - Analyst : Okay. That's helpful. And just one last one, if I may, and I know this may be a difficult question to answer. But if you look at some jurisdictions globally, I think, Spain mentioned that they did want to open restaurants, 30%, some folks are saying up to 50% capacity. So just your view in terms of can franchisees adopt their business model? Is there anything they can do to maybe make profits or some kind of level of profit operating at that level of capacity?

Question: Sabahat Khan - RBC Capital Markets, Research Division - Analyst : I just had a couple of quick follow-ups. Can you maybe walk us through your mechanics of that, the royalty discount that you offered? I think you mentioned if the franchisees prepay their royalty, they get about a 40% discount. Is this sort of like pay next month's royalties now? And is this ongoing? Just want to understand the time period it relates to and kind of the frequency?

Question: Sabahat Khan - RBC Capital Markets, Research Division - Analyst : Got it. And then on the Papa Murphy's platform that you kind of made a brief comment earlier that it was doing well. Just given the take out nature of that banner, can you maybe walk us through what you saw there over the last few months? And how the trajectory there might be similar or different to some of your other restaurants given the nature of its business? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. MAY 01, 2020 / 12:00PM, MTY.TO - Q1 2020 MTY Food Group Inc Earnings Call