Mr. Eric Lefebvre reports

MTY REPORTS FOURTH QUARTER AND FISCAL 2023 RESULTS

MTY Food Group Inc. has released its financial results for its fourth quarter and fiscal year ended Nov. 30, 2023.

"MTY delivered a remarkable financial performance in fiscal 2023 on the strength of record results across the board, including system sales of $5.6-billion and a normalized adjusted EBITDA [earnings before interest, taxes, depreciation and amortization] of $271.9-million that resulted in free cash flows of $154.1-million, or $6.30 per diluted share, realized despite the increase in interest payments and higher than normal capital expenditures during the year," stated Eric Lefebvre, chief executive officer of MTY. "Our dual growth strategy, leveraging strategic acquisitions and organic growth, largely enabled us to overcome uncertain market conditions and inflationary pressure during the past year.

"In the fourth quarter of 2023, we continued generating strong profitability and cash flows, although same-store sales dropped 0.9 per cent year-over-year as consumers reined in discretionary spending, affecting certain segments of our portfolio. The comparable store decline came mainly from brands commanding a higher price point, while our fundamental quick service restaurant business remained solid in Canada and the U.S. I am also pleased to report we opened the most locations in the company's history in the fourth quarter of 2023, bringing us within a few stores of breaking even versus closures for a third consecutive reporting period. On the operating efficiency side, we plan to consolidate business units and implement cost-control measures in 2024 to maximize synergies across the entire organization, now that our latest acquisitions are fully integrated within MTY's operations," Mr. Lefebvre added.

Fourth quarter results

Network:

• At the end of the fourth quarter of 2023, MTY's network had 7,116 locations in operation, of which 6,897 were franchised or under operator agreements and 219 were corporate-owned. The geographical split among MTY's locations consisted of 58 per cent in the United States, 35 per cent in Canada and 7 per cent international.
• During the fourth quarter of 2023, MTY's network did not acquire any location (Q4 2022 -- 301 locations), opened a record 94 locations (Q4 2022 -- 60 locations) and closed 97 locations (Q4 2022 -- 178 locations). Excluding newly acquired brands, the average monthly unit volume of a new location opened was approximately $47,000 compared with that of a recently closed store of approximately $35,000.
• System sales increased 11 per cent year-over-year to $1.3-billion in the fourth quarter of 2023. The United States contributed most of the growth, with an 18-per-cent improvement year-over-year, largely attributable to the acquisitions of BBQ Holdings, Wetzel's Pretzels, as well as Sauce Pizza and Wine. Excluding acquisitions, system sales decreased 2 per cent year-over-year.
• Same-store sales declined 0.9 per cent year-over-year in the fourth quarter of 2023, with quick-service restaurant brands continuing their strong performance, while fast casual and casual dining brands faced challenges and reported negative same-store sales.

Financial:

• Company revenue grew 16 per cent year-over-year to $280-million in the fourth quarter, mainly driven by the BBQ Holdings, Wetzel's Pretzels, and Sauce Pizza and Wine acquisitions, which were the primary contributors to the growth in corporate restaurants and franchise operations of 50 per cent and 18 per cent, respectively, in the U.S. and international segment. In Canada, revenue from franchise operations declined 1 per cent year-over-year, while food processing, distribution and retail sales dropped 10 per cent based on current market conditions and grocers' heightened focus on promoting house labels.
• Normalized adjusted EBITDA, which excludes acquisition-related expenses, improved 13 per cent year-over-year to $60.4-million in the fourth quarter of 2023, on the strength of the BBQ Holdings, Wetzel's Pretzels, and Sauce Pizza and Wine transactions.
• Net income attributable to owners totalled $16.4-million, or 67 cents per share (67 cents per diluted share), in the fourth quarter compared with $7.1-million, or 29 cents per share (29 cents per diluted share), for the same period in 2022. The year-over-year improvement can mainly be attributed to higher normalized adjusted EBITDA and lower income taxes. These factors were partially offset by several items, including, amongst others, greater depreciation of property, plant and equipment, and right-of-use assets, and higher interest on long-term debt.

Fiscal 2023 results

Network:

• System sales improved 33 per cent to an all-time high of $5.6-billion in fiscal 2023. Excluding acquisitions and foreign exchange impact, system sales were up 4 per cent year-over-year, with Canada accounting for most of the organic growth. The casual dining and quick-service restaurant concepts in Canada drove the increase, contributing 45 per cent and 37 per cent, respectively, of total year-over-year organic growth.
• Digital sales grew 25 per cent year-over-year to $1-billion in fiscal 2023. Excluding acquisitions and foreign exchange impact, digital sales rose 5 per cent. As a percentage of system sales, digital sales represented 19 per cent of sales in 2023 compared with 20 per cent in 2022. The lower proportion of digital sales year-over-year was primarily caused by the return of in-person dining postandemic in Canada, while in the U.S., the acquisitions of BBQ Holdings and Wetzel's Pretzels carried lower digital penetration rates to MTY.
• MTY's network acquired 379 locations (2022 -- 332 locations) in fiscal 2023, opened 330 locations (2022 -- 245 locations) and closed 381 locations (2022 -- 507 locations).

Financial:

• Company revenue rose 63 per cent in fiscal 2023 to exceed the $1-billion mark ($1.2-billion) for the first time in MTY's history. The year-over-year growth can mainly be attributed to a 413-per-cent revenue increase from U.S. and international corporate-owned stores, driven by the BBQ Holdings, Wetzel's Pretzels, and Sauce Pizza and Wine acquisitions. Franchise operations in the U.S. and international segments also contributed to the growth, with a 33-per-cent increase in 2023 on the strength of the Wetzel's Pretzels and BBQ Holdings transactions. In Canada, both corporate-owned stores and franchise operations generated annual growth of 9 per cent.
• Normalized adjusted EBITDA grew 45 per cent to a record $271.9-million in 2023 from $187.4-million in 2022.
• Net income attributable to owners totalled $104.1-million, or $4.26 per share ($4.25 per diluted share), in 2023 compared with $74.8-million, or $3.06 per share ($3.06 per diluted share), in 2022. The improvement over the prior year can mainly be attributed to higher normalized adjusted EBITDA and lower income taxes. These factors were partially offset by several items, including, amongst others, greater depreciation of property, plant and equipment, and right-of-use assets, higher amortization of intangible assets, higher interest on long-term debt, and an increase in net interest expense on leases.

Liquidity and capital resources:

• In the fourth quarter of 2023, cash flows generated by operating activities amounted to $47.8-million compared with $37.4-million in the fourth quarter of 2022.
• MTY reimbursed $27.6-million of its long-term debt, paid $6.1-million in dividends to shareholders, and repurchased 80,800 shares for a total consideration of $4.2-million in the fourth quarter of 2023.
• As at Nov. 30, 2023, MTY had $58.9-million of cash on hand and long-term debt of $767.4-million, mainly in the form of bank facilities and promissory notes on acquisitions. The company also had a revolving credit facility with an authorized amount of $900-million, of which $558-million (U.S.) had been drawn at year-end. Hedging strategies, including three-year and two-year fixed interest rate swaps, have provided the company with monthly savings of approximately $500,000 on interest payments.

Dividend payment

On Jan. 24, 2024, the company announced a 12-per-cent hike to its quarterly dividend payment, increasing from 25 cents to 28 cents per common share. The 28-cent-per-share dividend will be paid on Feb. 15, 2024, to shareholders registered in the company's records at the end of the business day on Feb. 5, 2024.

Conference call

The MTY Group will hold a conference call to discuss its results on Feb. 15, 2024, at 8:30 a.m. ET. Interested parties can join the call by dialling 1-604-638-5340 (Vancouver or overseas) or 1-800-319-4610 (elsewhere in North America). Parties unable to call-in at this time may access a recording by calling 1-855-669-9658 and entering the passcode 0650. This recording will be available on Thursday, Feb. 15, 2024, as of 11:30 a.m. ET until 11:59 p.m. ET on Thursday, Feb. 22, 2024.

About MTY Food Group Inc.

The MTY Group franchises and operates quick-service, fast-casual and casual dining restaurants under more than 90 different banners in Canada, the U.S. and internationally. Based in Montreal, MTY is a family whose heart beats to the rhythm of its brands, the very soul of its multibranded strategy. For over 40 years, it has been increasing its presence by delivering new concepts of restaurants, making acquisitions and forging strategic alliances, which have allowed it to reach new heights year after year. By combining new trends with operational know-how, the brands forming the MTY Group now touch the lives of millions of people every year. With 7,116 locations, the many flavours of the MTY Group hold the key to responding to the different tastes and needs of today's consumers as well as those of tomorrow.

Note to readers: The management's discussion and analysis (MD&A), consolidated financial statements, and notes thereto for the fourth quarter and fiscal year ended Nov. 30, 2023, are available on SEDAR+ and on the company's website.