MTY Food Group Inc Q3 2019 Earnings Call Transcript

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

Question: Sabahat Khan - RBC Capital Markets, LLC, Research Division - Analyst : Just maybe a question around your commentary on the EBITDA margin, some of the drivers of that. I think you indicated that part of it is accounting statements and part of it is going to be some of the investments. Can you maybe talk about how we should think about Q4 and what the potential restatement impact could be on even prior year? Because I think this quarter, there was I think borderline about 10 percentage points step down in the prior year EBITDA margin as a result of the restatement. So just trying to get a better handle on the impact of the accounting side of things.

Question: Sabahat Khan - RBC Capital Markets, LLC, Research Division - Analyst : I'm sorry. Yes, so it was along the lines of just the Q3 '18 margin under the restated accounting versus what it was when you reported it last year. I was thinking part of that might be driven by IFRS 15? 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. OCTOBER 11, 2019 / 12:30PM, MTY.TO - Q3 2019 MTY Food Group Inc Earnings Call

Question: Sabahat Khan - RBC Capital Markets, LLC, Research Division - Analyst : Okay. Great. And then just on the Papa Murphy's. You said the closures were in line with expectations this year. Can you maybe talk about some of the initiatives that you're undertaking there since you acquired the business? And so your outlook based on what you have seen over the last few months for that platform?

Question: Sabahat Khan - RBC Capital Markets, LLC, Research Division - Analyst : All right. And then just one last one from me. Can you maybe talk about what you're seeing with the just the broader consumer across the U.S. and Canada in your markets? I mean the comps look to be slightly above positive in both of those markets, but are you seeing any -- did the trends change across the quarter? Are there any other banners that are maybe doing a little bit better? Just want to understand the consumer uptake in both of your major markets.

Question: Vishal Shreedhar - National Bank Financial, Inc., Research Division - Analyst : Maybe we can take a few steps back here and just get your assessment, Eric, on -- in the quarter, things that you were pleased with and things that maybe you'll put a little bit more effort on in the quarters ahead. Just high-level bullet points.

Question: Vishal Shreedhar - National Bank Financial, Inc., Research Division - Analyst : Thank you for that additional data. I could see it, but I have to review your points thoroughly. Last quarter, and I know it was very little of the quarter, but last quarter you gave us some early insight into Papa Murphy's same-store performance. Wondering if you could give us a little color on that in the quarter into the same-store and maybe also Cold Stone as well just given the materiality of that business in this quarter.

Question: Vishal Shreedhar - National Bank Financial, Inc., Research Division - Analyst : Okay. So -- right. Noting the weather, it would be fair to say Papa Murphy's may be a little bit negative on same-store and Cold Stone a little bit positive on same-store. That'd be a fair -- okay...

Question: Vishal Shreedhar - National Bank Financial, Inc., Research Division - Analyst : Okay. In terms of organic EBITDA growth, I think you gave us that negative $2.4 million and maybe this isn't the right question for the call, but just wondering if management considers that metric to be key. I know as I look through your disclosure, there's some transient things in there like nonmaterial differences or consulting and stuff like that. So is that an important metric that management looks at? Or would you more look at the variance in recurring revenues and expenses in the corporate store EBITDA cadence?

Question: Vishal Shreedhar - National Bank Financial, Inc., Research Division - Analyst : Okay. And I think I may -- you may have alluded to this last quarter in terms of your insight to provide this color, but on the same store, is it predominantly traffic, basket or both on an aggregate basis?

Question: George Doumet - Scotiabank Global Banking and Markets, Research Division - Analyst : I just wanted to follow up on the questions about the organic EBITDA. I think how you guys put that out on a bridge there. So I -- I want to talk about maybe 2 factors, the -- seems to be a little bit of weakness in the corporate restaurant category, corporate store category and then I think 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. OCTOBER 11, 2019 / 12:30PM, MTY.TO - Q3 2019 MTY Food Group Inc Earnings Call you alluded to higher OpEx for people and resources. So can you just give us a little bit of color on both those categories and, kind of, where you see them playing out over the next 12 months?

Question: George Doumet - Scotiabank Global Banking and Markets, Research Division - Analyst : Okay. Great. And can you maybe quantify the -- I think you alluded to earlier, like, we're hiring some folks and we're investing in accounting standards. Can you maybe quantify that amount for us?

Question: George Doumet - Scotiabank Global Banking and Markets, Research Division - Analyst : Okay. That's really helpful. I see you guys called out a bit of weakness in Ontario from the malls. Just maybe a little bit color there, is -- maybe which malls that would be and I am just wondering if you think that could be a start of a bigger trend there.

Question: George Doumet - Scotiabank Global Banking and Markets, Research Division - Analyst : I guess the category, maybe.

Question: George Doumet - Scotiabank Global Banking and Markets, Research Division - Analyst : Okay. That's helpful. And just one last one if I may on -- I am just wondering if there's a reason why the Papa Murphy's corporate stores underperformed the rest of the network, I guess, from a same-store sales perspective. And can you maybe just share with us like a timeline as to when you think you can, kind of, franchise those corporate stores?

Question: Elizabeth Johnston - Laurentian Bank Securities, Inc., Research Division - Analyst : Just going back to the International segment, definitely good to see an improvement directionally in same-store sales growth. But can you talk maybe a little bit more about what you think could be done to continue to improve or what you're already doing in terms of strategy? You already mentioned the -- some of the closures there. Is it just a matter of closing underperforming locations? Any additional color would be helpful. 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. OCTOBER 11, 2019 / 12:30PM, MTY.TO - Q3 2019 MTY Food Group Inc Earnings Call

Question: Elizabeth Johnston - Laurentian Bank Securities, Inc., Research Division - Analyst : So in that regard then, have you been -- have you implemented a lower royalty rate or royalty fee relief in order to help franchisees in that region?

Question: Elizabeth Johnston - Laurentian Bank Securities, Inc., Research Division - Analyst : Okay. And I suppose if I were to ask you how long you think it will be negative for, it'd be almost impossible to say.

Question: Elizabeth Johnston - Laurentian Bank Securities, Inc., Research Division - Analyst : Okay. No, understood. I'm just turning over to different topic here on M&A. I'm just wondering when it comes to valuations, have you seen multiples in Canada and the U.S. for deals starting to move higher on average? Have you found that you've had to pay more for some of your deals? Any color on when it comes to valuation. 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. OCTOBER 11, 2019 / 12:30PM, MTY.TO - Q3 2019 MTY Food Group Inc Earnings Call

Question: Elizabeth Johnston - Laurentian Bank Securities, Inc., Research Division - Analyst : Okay. Great. And just one final question from me with respect to the food processing and distribution sales. Obviously, we're seeing very strong growth in that. Can you just discuss a little further? You already alluded to in your prepared remarks, but maybe more detail of what we expect in terms of the growth and the contribution either for Q4 if you're able to give those specifics or just generally, when we look out to the future?