Mty Food Group Inc. · TSX:MTY
Mty Food — Q1 2023 Earnings Presentation
46 slides from Mty Food's earnings presentation, Apr 12, 2023
Slide 1: Investor Presentation
APRIL 12, 2023 INVESTOR P R E S E N TAT I O N
Slide 2: Forward-Looking Statements
FORWARD-LOOKING STATEMENTS This presentation may contain written and oral statements that constitute forward-looking statements. These forward-looking statements may involve, but are not limited to, comments with respect to our business or financial objectives, our strategies or future actions, our
Slide 3: Non-GAAP Measures, Non-GAAP Ratios and Supplementary Financial Measures
Non-GAAP Measures, Non-GAAP Ratios and Supplementary Financial Measures Unless otherwise indicated, the financial information presented below, including tabular Free cash flows – Represents the net cash flows: provided by operating activities; used in amounts, is expressed in Canadian dollars and pr
Slide 4: Adoption of IFRS 16, Leases
Adoption of IFRS 16, Leases Effective December 1, 2019, the Company implemented IFRS 16, Leases, but has not restated comparatives for the 2019 reporting period, as permitted under the specific transitional provisions in the standard. Please refer to the section Changes in accounting policies in the
Slide 5: Agenda
AGENDA INVESTMENT OVERVIEW OF UPDATE ON MARKET THESIS MTY GROUP CURRENT CHALLENGES OVERVIEW STRATEGY AND FINANCIAL Q1-2023 APPENDIX FUTURE GROWTH TRENDS RESULTS (Historical Data) 5
Slide 6: Investment Thesis
INVESTMENT THESIS 6
Slide 7: Investment Thesis
INVESTMENT THESIS • Proven consolidator with disciplined acquisition strategy • Track record of growth • Strong cash flow generation ability • Recurring revenue streams in the franchising segment • Diversified portfolio of approximately 90 brands • Knowledgeable and committed team • Well positioned
Slide 8: Overview of MTY Group
OVERVIEW OF MTY GROUP 8
Slide 9: MTY Group at a Glance
MTY GROUP AT A GLANCE Franchises and operates quick-service, fast-casual and casual dining restaurants » 90 brands MTY Group Underlying Network International 3% Non-traditional Food court 21% 16% 27% 40% Corporate Franchise Stores $862M Operation 60% $4.7B 37% 7,128 LTM Q1-2023 US LTM Q1-2023 Canada
Slide 10: Milestones in ~40-Year History
MILESTONES IN ~40-YEAR HISTORY 1st acquisition: • Fontaine Santé Acquires Acquires Kahala Brands Papa Murphy’s Listed on Vancouver Acquires Stock Exchange Acquires BBQ Holdings Acquires • Casa Grecque Acquires Acquires • The Works Burger • South Street Acquires Country Style • Jus Jugo Juice • Dagwo
Slide 11: Track Record of Growth
TRACK RECORD OF GROWTH(1&2) Revenues (M$) Adjusted EBITDA(3) (M$) Normalized Adjusted EBITDA(3) 216 862 187 182 209 169 717 169 152 551 552 147 138 138 511 2019 2020 2021 2022 LTM 2019 2020 2021 2022 LTM 2019 2020 2021 2022 LTM Q1-23 Q1-23 Q1-23 Net Income (loss) (M$) Operating Cash Flow(4) (M$) FCF
Slide 12: International Network in 40 Countries
INTERNATIONAL NETWORK IN 40 COUNTRIES 7,128 locations and $4.7B in System Sales (1) for LTM Q1-2023 Canada International 2,526 $1,738M 469 $141M US 4,133 $2,850M (1) This is a supplementary financial measure. Please refer to page 3 of this presentation. 12
Slide 13: Network Evolution
NETWORK EVOLUTION System Sales by System Sales by Geography (M$)(1) Type (M$)(1) 4,728 4,728 3,620 3,620 2019 2020 2021 2022 LTM 2019 2020 2021 2022 LTM Q1-23 Q1-23 Food Court Street front Non-traditonal Canada US International Locations by Type Locations by Geography 7,373 7,128 7,373 7,128 2019 20
Slide 14: Growing by Acquisitions
GROWING BY ACQUISITIONS MTY has realized over 50 acquisitions since 1999 1999-2005 2011-2015 2016 2017 2019 • Fontaine Santé/Veggirama • Jugo Juice • Steak Frites St-Paul • La Crémière Kahala Brands Ltd • Giorgio Ristorante Papa Murphy’s • Mr. Submarine • Croissant Plus • The Works Gourmet • Casa Gr
Slide 15: Diversified Portfolio of Over 90 Brands
DIVERSIFIED PORTFOLIO OF OVER 90 BRANDS Protects MTY from shifts in customer preferences Asian & Indian Frozen treats & smoothies American Sandwiches & Salads Mediterranean Italian Breakfast Mexican Coffee & snacks 15
Slide 16: Strong Brands Make Up a Large Part of Portfolio
STRONG BRANDS MAKE UP A LARGE PART OF PORTFOLIO Top 10 brands represent 61% of System Sales(1) Frozen treats & smoothies represent 31% of locations Breakfast 3% Italian 2% Mediterranean 1% Mexican 7% Sandwiches & Salads 6% 31% 39% $4.7B 61% Coffee & snacks 7,128 Frozen treats & smoothies Other Brand
Slide 17: Stock Price Performance Since Listed on TSX
STOCK PRICE PERFORMANCE SINCE LISTED ON TSX As at April 12, 2023, management and the Board own 19.5% of shares 80 Shares outstanding 24.4M Float 20.4M 52 week average daily volume 37,833 April 12 60 52 week high-low (intraday) $73.50-$45.20 $59.91 Market capitalization $1.5B 40 20 0 3 Ju 3 O 3 N 6 M
Slide 18: Knowledgeable and Committed Management Team
KNOWLEDGEABLE AND COMMITTED MANAGEMENT TEAM Eric Lefebvre Renée St-Onge Jason Brading Nick Rupp Marie-Line Beauchamp Chief Executive Officer Chief Financial Officer COO Quick Service COO Papa Murphy’s COO Casual Dining Restaurants International Restaurants Marc Benzacar Jeff Smit Al Hank Vincent Mon
Slide 19: Market Overview
MARKET OVERVIEW 19
Slide 20: Market Size by Sales
MARKET SIZE BY SALES MTY has less than 1% market share in North America Commercial Food service Sales in Canada Restaurant Industry Sales in the US (in billions of CAD $) (in billions of US $) $974 $997 $80.6 $84.6 $842 $64.7 $55.1 $659 2020 2021 2022F 2023F 2020 2021 2022 2023F Source: 2020 https:/
Slide 21: Market Size by Number of Restaurants
MARKET SIZE BY NUMBER OF RESTAURANTS Number of restaurants constantly growing Fast Food Restaurant Businesses (Canada) Fast Food Restaurant Businesses (US) 21,529 201,865 20,762 193,305 2019 2020 2021 2022 2023 2019 2020 2021 2022 2023 Source: IBISWorld: https://www.ibisworld.com/canada/number-of- S
Slide 22: Market Size by Food Dollars Spent in Restaurants
MARKET SIZE BY FOOD DOLLARS SPENT IN RESTAURANTS Proportion of food dollars spent in restaurants on the rise in Canada but still below that of the US % Spent of food $ (Canada) % Spent of food $ (US) 38.8% 39.3% 37.1% 35.7% 2018 2019 2020 2021 2022F 2017 2018 2019 2020 2021 Source: Restaurants Canad
Slide 23: Highly Competitive Industry with Low Barriers to Entry
HIGHLY COMPETITIVE INDUSTRY WITH LOW BARRIERS TO ENTRY MTY competes with a variety of players in each of its local markets Competitive Factors Restaurants • Quality, variety and value perception of food Convenience products offered food stores • Quality of service • Number of banners Coffee Shops •
Slide 24: MTY Key Success Factors
MTY KEY SUCCESS FACTORS MTY effectively responds to consumer needs MTY Competitive Advantages • Preparation often in front of customers enhances perception of freshness and quality • Approximately 90 banners, often with multiple banners in one given location to capture customers’ food dollars • Dece
Slide 25: Strategy & Future Growth
STRATEGY & FUTURE GROWTH 25
Slide 26: Growth Strategy – Increasing Market Share
GROWTH STRATEGY – INCREASING MARKET SHARE LEVERAGING DEVELOPPING our solid platforms to expand our Canadian brands throughout North America in the US FOCUSING SEEKING on high quality of revenues that international Master franchise are recurring in nature opportunities IMPROVING UPGRADING MTY’s digit
Slide 27: Growth Strategy – Acquisitions
GROWTH STRATEGY – ACQUISITIONS REINFORCING Canadian platform by regions Strong reputation for LEVERAGING paying a ‘fair’ price our US platform to integrate acquisitions PROVIDING Experienced integration team additional depth and breadth in offering PAYING FAIR PRICE for good quality earning potentia
Slide 28: Key Acquisitions — BBQ Holdings
KEY ACQUISITIONS — BBQ HOLDINGS • More than 300 casual and fast-casual dining restaurants • Enhances U.S. portfolio with addition of nine unique brands • Strong network of franchise partners and well-run corporate restaurants • Highly proficient in running corporate-owned locations (1/3 under that b
Slide 29: Key Acquisitions — Wetzel's Pretzels (Post Year-End)
KEY ACQUISITIONS—WETZEL’S PRETZELS (POST YEAR-END) • More than 360 quick-service restaurants • Enables MTY to enter snack category • Adds another iconic brand to U.S. portfolio • Steady customer traffic and efficiently run operations • Delivered strong results for MTY during holiday season in Decemb
Slide 30: Financial Trends
FINANCIAL TRENDS 30
Slide 31: Diversifying Product Mix
DIVERSIFYING PRODUCT MIX Consistent growth in revenue in our core franchising operations. Corporate segment expanding footprint via recent acquisitions. $862M $115M 2014 2015 2016 2017 2018 2019 2020 2021 2022 LTM Q1-23 Fra nchise Corporate Stores Promotional Funds Food Processing, distribution & Re
Slide 32: Growing Street Front & Non-Traditional Locations
GROWING STREET FRONT & NON-TRADITIONAL LOCATIONS Malls & office towers not prone to grow, reflecting shopping center limited growth 7,128 2,727 2014 2015 2016 2017 2018 2019 2020 2021 2022 Q1-23 Food Court Street front Non-traditonal 32
Slide 33: Continuing to Penetrate the US Market
CONTINUING TO PENETRATE THE US MARKET Close to 60% of our locations are in the US 7,128 2,727 2014 2015 2016 2017 2018 2019 2020 2021 2022 Q1-23 Canada U.S. International 33
Slide 34: Growing Normalized Adjusted EBITDA Consistently
GROWING NORMALIZED ADJUSTED EBITDA(1) CONSISTENTLY Normalized Adjusted EBITDA as a % of Revenues(1) is primarily driven by the franchising segment 250 55% $216M 200 48% 48% 49% 50% 48% 45% 45% 49% 50% 150 37% 35% 34% 34% 31% 28% 31% 100 27% 26% 25% 50 $43M - 2014 2015 2016 2017 2018 2019 2020 2021 2
Slide 35: Deploying Capital Mainly for Acquisitions
DEPLOYING CAPITAL MAINLY FOR ACQUISITIONS Not a capital intensive business $588M Dividend payments $362M restored and $310M increased by 14%. Acquisitions $261M Several Acquisition of of Wetzel’s acquisitions, BBQ Holdings(1) Pretzels and Acquisition of including $146M Several Sauce Pizza Kahala(1)
Slide 36: Increasing Dividends Consistently
INCREASING DIVIDENDS CONSISTENTLY Dividend typically represents 15-20% of FCF(1) Dividend payments $1.00 restored as at July 9 $0.84 Temporarily $0.66 $0.60 suspended the dividend in response $0.46 $0.46 to COVID-19 $0.40 $0.37 $0.34 The number of shares increased in $0.19 2017 2014 2015 2016 2017 2
Slide 37: Optimizing Financing Structure
OPTIMIZING FINANCING STRUCTURE Maintaining a solid balance sheet 800 3.6x 3.3x 3.2x 3.0x 600 2.7x $781M Acquisition 400 of Kahala 1.8x 1.8x 1.9x 200 0.5x 0.3x - 2014 (1) 2015 (1) 2016 2017 2018 2019 2020 2021 2022 LTM Q1-23 Net Debt (2) Net Debt / LTM Norm. Adj. EBITDA(3) (1) On a total debt basis.
Slide 38: Q1-2023 Results
Q1-2023 RESULTS 38
Slide 39: Typical Seasonality of MTY Results
TYPICAL SEASONALITY OF MTY RESULTS System sales(1) fluctuate with the seasons Q1 Q2 Q3 Q4 Dec-Jan-Feb March-Apr-May June-July-Aug Sept-Oct-Nov Winter Spring Summer Fall Sales for Frozen treats & SOFT STRONG STRONGEST SOFT smoothies Sales for Papa Murphy’s STRONG STRONG SOFT STRONGEST Sales for Wetze
Slide 40: Q1-23 Revenues Increase Mainly Due to Acquisitions
Q1-23 REVENUES INCREASE MAINLY DUE TO ACQUISITIONS Acquisitions of BBQ Holdings, Wetzel’s Pretzel and Sauce Pizza and Wine contributed to the increases in revenue for franchise operations and corporate restaurants in the US and International segment of 43% and 2,398%, respectively $286.0M $286.0M In
Slide 41: Q1-23 Normalized Adjusted EBITDA Increased
Q1-23 NORMALIZED ADJUSTED EBITDA(1) INCREASED Normalized Adjusted EBITDA increased 79% year-over-year in Q1-2023, on the strength of recent acquisitions in the US and a return to pre-pandemic market conditions in Canada. $64.0M $64.0M $35.6M $35.6M 25.3% 25.3% 22.4% 22.4% Q1-22 Q1-23 Q1-22 Q1-23 Fra
Slide 42: Q1-23 Metrics
Q1-23 METRICS Normalized Adjusted EBITDA/share(1) Net income FCF(2)/ diluted Net income / diluted share(1,3) share $2.62 $18.5M $1.47 $16.7M $0.68 $0.75 $1.46 $1.19 Q1-22 Q1-23 Q1-22 Q1-23 Q1-22 Q1-23 Q1-22 Q1-23 FCF (2)/ diluted share decreased due to two non-recurring payments totaling $10.4 milli
Slide 43: Q1-23 Healthy Financial Position
Q1-23 HEALTHY FINANCIAL POSITION MTY has a healthy cash on hand balance of $58.7M and US$75M available on its credit facilities Net Debt(1) Revolver (in USD) $781M $501M $900M $900M Higher flexibility and $600M $600M $600M $310M $293M lower cost $260M thanks to modified existing credit facility Q1-2
Slide 44: Valuation Conundrum
VALUATION CONUNDRUM Calculations based on Q1-23 data (in thousand except stock price) Bloomberg / Factset MTY Stock price as at February 28, 2023 $64.40 $64.40 # shares 24,413 24,413 Market cap. $1,572,227 $1,572,227 Bloomberg & LTD 829,578 829,578 Factset do not account for Current LTD 10,100 10,10
Slide 45: Q1-23 In Store Sales vs Digital Sales
Q1-23 IN STORE SALES VS DIGITAL SALES(1) Digital sales(1) increased 17% year-over-year in Q1-23, representing 19% of total system sales as more traditional sales channels reopened. Canada – In store vs digital sales US – In store vs digital sales $901.2M $423.9M $532.0M 178.2 (2) $320.3M 68.0 76.7 1
Slide 46: MTY Group
GROUPE MTY GROUP