Mr. Eric Lefebvre reports

MTY REPORTS SECOND QUARTER RESULTS

MTY Food Group Inc. has released its results for the second quarter ended May 31, 2020.

"Our second quarter presented important operational challenges brought on by the COVID-19 pandemic, with the temporary closure of 2,757 locations at peak level and dramatically reduced sales for many of the locations that remained in operation. While our locations are now gradually reopening, overall customer traffic remains affected by various local regulations and changes in consumer behaviour resulting from work-from-home policies as well as new habits created by shelter-in-place measures that were in effect for a considerable amount of time. During the quarter, we were successful in negotiating an amendment to our existing credit facility that will provide more financial flexibility going forward and reduces the uncertainty related to our capital structure. Very early on in the COVID-19 pandemic, we took decisive actions, implementing a range of measures destined to financially help our franchisees who were facing an abrupt halt in their business. As a result, we had to also implement drastic cost reduction measures, which resulted in the quarter's recurring controllable expenses decreasing by more than $10-million. Although the level at which we reduced our operations is not sustainable in the long run, we will continue to aggressively manage our cash liquidity and adjust to the volatile market conditions," stated Eric Lefebvre, chief executive officer of MTY.

"With the important decline in system sales, EBITDA decreased by 47 per cent to $18.2-million. As an indicator, MTY's network lost a total of 138,931 days of operations. Papa Murphy's take 'n' bake concept had very good traction in the context of COVID-19 and its contribution to consolidated EBITDA was significant. To assist our franchisees in this crisis, we deferred the payment of royalties until September, 2020, for an amount of $7.3-million. With the uncertainty created by COVID-19 and the impact on impairment indicators, we recorded a non-cash impairment charge of $120.3-million during the quarter.

"With cash on hand at the end of the quarter just shy of $50.0-million, over $190.0-million available on our credit facilities,and more flexibility provided by our amended financial covenants, MTY remains in a solid financial position to execute its recovery plan and eventually pursue its growth strategy. Over the next few quarters, our primary focus is to reopen restaurants and provide customers with a safe and friendly environment and optimize the profitability of our restaurants despite the limits and restrictions," concluded Mr. Lefebvre.

                                     FINANCIAL HIGHLIGHTS
              (in thousands of dollars, except per-share information and margin)

                                   Q2 2020   Q2 2019    Six months 2020   Six months 2019

System sales                      $670,700  $832,300         $1,670,200        $1,520,100
Revenues                            97,808   125,571            248,588           232,868
EBITDA
EBITDA margin (%)                    18.6%     27.2%              23.8%             26.8%
Income before taxes (loss)        (118,299)   24,555            (94,159)           43,741
Net loss (income) attributable
to shareholders                    (99,126)   19,337            (80,118)           34,085
Cash flows from operations          19,207    21,077             50,187            47,834
Cash flows from operations
per diluted share                     0.78      0.84               2.02              1.90
Free cash flows                     28,926    21,767             59,664            46,681
EPS basic (loss)                     (4.01)     0.76              (3.23)             1.35
EPS diluted (loss)                   (4.01)     0.76              (3.23)             1.35

Second quarter results

Network:

• At the end of the period, MTY's network had 7,236 locations in operation, of which 137 were corporate, 7,077 were franchised and 22 were in joint ventures. The geographical split of MTY's locations remained steady with the previous quarter with 54 per cent in the United States, 39 per cent in Canada and 7 per cent international.
• System sales were down 19 per cent compared with the same period in 2019, reaching $670.7-million. Excluding the impact of recent acquisitions, the decrease compared to Q2 2019 was 51 per cent (39 per cetn in March, 67 per cent in April and 48 per cent in May).
• The decrease is attributable to COVID-19. At peak level, 2,757 locations were temporarily closed compared with 1,470 as of May 31, 2020. As of July 9, 2020, 573 locations remained temporarily closed, which represents less than 8 per cent of the total network.

Financial:

• The company's revenue decreased 22.1 per cent, from $125.6-million to $97.8-million, due to the COVID-19 pandemic.
• EBITDA (earnings before interest, taxes, depreciation and amortization) decreased 47 per cent to $18.2-million, or 18.6 per cent of sales, as compared with $34.1-million, or 27.1 per cent of sales for the same period last year. Excluding the favourable impact of IFRS 16 (international financial reporting standards), EBITDA would have been $13.3-million.
• Cash flows from operations decreased 8.9 per cent to reach $19.2-million during the quarter.
• Net loss attributable to shareholders was $99.1-million, or $4.01 per share ($4.01 per diluted share), when compared with a net income attributable to shareholders of $19.3-million, or 76 cents per share (76 cents per diluted share), for the same period last year.

Liquidity and capital resources:

• In the second quarter of 2020, cash flows generated by operating activities were $19.2-million, compared with $21.1-million for the same period in 2019. The decline was limited by strict working capital management to preserve liquidities.
• Free cash flows for the quarter amounted to $28.9-million, up 33 per cent compared with the same period last year. The increase was the result of the refranchising of two groups of Papa Murphy's corporate locations during the quarter.
• In the second quarter of 2020, the company used its cash mainly to repurchase and cancel shares for $9.2-million. The payment of dividends to its shareholders was suspended for the second quarter due to COVID-19.
• As at May 31, 2020, the company had $49.9-million of cash on hand and a long-term debt of $536.0-million in the form of holdbacks on acquisition and bank facilities.
• During the quarter, the company negotiated an amendment to its credit agreement with its syndicate of lenders. The result was more flexible covenants for the next four quarters with a return to normal terms following this period, during which the company will be limited in its ability to pay dividends or buy back shares.

Near-term outlook

The company is closely monitoring the global situation surrounding COVID-19 and taking pro-active steps to ensure the well-being and safety of its employees, franchisees and customers, and the continuity of its operations and businesses. Given the dynamic nature of the situation, it is not possible to ascertain what impact there may be on the company's long-term financial performance. MTY is taking the necessary steps to mitigate the potential consequences that this situation may have on its operations, franchisees, partners and service to its customers. Please refer to section highlights of significant events of the company's management discussion and analysis for further details on actions taken in response to COVID-19.

In the very short term, management's primary focus is to reopen the restaurants that have been temporarily closed as a result of the pandemic and to rebuild customer confidence by implementing proper safety measures and adjust the way customers are served. Even after the pandemic is over, customer consumption patterns may shift temporarily or permanently from those traditionally witnessed and MTY will have to adapt to new customer behaviours. Although the company does not foresee sales comparability for at least the next two to three quarters as a result of COVID-19, management believes the company will be able to regain customer confidence in the brands and restore the positive momentum it saw in the first quarter of 2020. The company's focus after the pandemic will still be on innovation, quality of food and customer service in each of the outlets and maximizing the value offered to customers.

The restaurant industry will remain more than ever challenging in the future as customer consumption patterns changes and management believes that the focus on the food offering, innovation, consistency and store design will give MTY restaurants a stronger position to face challenges. Given this difficult competitive context in which more restaurants compete for a finite amount of consumer dollars, each concept needs to preserve and improve the relevance of its offerings to consumers.

Conference call

MTY Group will hold a conference call to discuss these results on July 10, 2020, at 8:30 a.m. Eastern Time. Interested parties can join the call by dialling 1-647-788-4922 (Toronto or overseas) or 1-877-223-4471 (elsewhere in North America). Parties unable to call in at this time may access a recording by calling 1-800-585-8367 and entering the pass code 9599226. This recording will be available on Friday, July 10, 2020, as of 11:30 a.m. Eastern Time until 11:59 p.m. Eastern Time on Friday, July 17, 2020.

About MTY Food Group Inc.

MTY franchises and operates quick-service and casual dining restaurants under over 80 different banners in Canada, the United States and internationally.

We seek Safe Harbor.