Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the MTY Food Group Inc. Q2 2021 Earnings Conference Call. At this time, all participants are in a listen only mode.
Following the presentation, we will conduct a question and answer session. Instructions will be provided at that time for you to queue up for questions. Before turning the meeting over to management, please be advised that this conference call will contain statements that are forward looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. I would like to remind everyone that this conference call is being recorded on Friday, July 9, 2021. I would now like to turn the call over to Eric Liszeca, Chief Executive Officer.
Please go ahead.
Good morning, everyone, and thank you for joining us for MTY's 2021 Second Quarter Results Conference Call. The press release and the MD and A with complete financial statements and related notes were issued earlier this morning and are also available on our website as well as on SEDAR. During the call, we will be referring to forward looking statements and to certain indicators that are non IFRS measures. You can refer to our MD and A for more details. I also remind you that all figures presented on today's call are in Canadian dollars unless otherwise stated.
Before I begin, I would like to take a moment to thank our customers for their continued support, patience and understanding. The last 15 months been an intense roller coaster of COVID related restrictions being at times heavier and at times looser. But despite all the changes, our customers have always been there to consume our food with an open mind regarding the type of experience we will get. Restaurant owners still have a tough road ahead in their quest to return to profitability, While facing a major labor shortage problem in a dislocated supply chain that is also struggling to find its balance, NTY has built its foundation on We are seeing the benefit today as restrictions are gradually being lifted and customers return into our dining rooms, food courts and office towers. I would also like to highlight the work of our franchise partners and their staff who have continued to serve customers under difficult conditions.
Your resilience and dedication as people who work in the NTY family have been nothing short of exceptional. I wish to sincerely thank all of them for the commitment to our common goal and success. Now to our results. We are pleased with our 2nd quarter results during which we operated facing heavy COVID related restrictions in some of our key markets throughout the quarter. During the Q2, NTY's network lost more than 38,000 business days because of those restrictions and many restaurants that were still operating were doing so in a much reduced capacity.
While the 38,000 lost business days marked a sequential improvement over the Q1, the number is higher than in the Q4 of last year, reflecting the new wave of restrictions in Quebec and Ontario that started in December 2020. Together, these markets account for approximately a quarter of our total system sales in normal times. We are extremely pleased to report that adjusted EBITDA for the quarter more than doubled over last year lingering impact of the pandemic and the adverse variation in foreign exchange rates. While the business is far from fully recovered, Our recurring streams of revenues are improving, especially in the U. S.
Where Cold Stone, Papa Murphy's and a few other brands continued to perform extremely well during the quarter. Once again, we used our strong cash flow to reduce our debt level. The $15,000,000 applied for debt this quarter brings total repayments since the start of the pandemic also $145,000,000 bringing the business well within our target leverage ratios and providing the necessary flexibility to explore various capital allocation possibilities. We finished the Q2 with 6,907 locations. We opened 61 locations and permanently closed 103 for net store loss of 42.
Although that number remains a net erosion of our network, we are happy to see the number of closures is relatively stable at a level that is lower than in the Q2 of 2020 2019. We still have 359 temporary closed locations at the end of the quarter. Although we are hopeful those will reopen, we will get a better picture once all restaurants are in a position to reopen. Since the end of the quarter, 101 of those have reopened already. As for new store openings, we reached the highest level since Q4 of 2019 and our confidence we will continue to improve in the coming quarters.
As indicated in the past few quarters, the pipeline of new franchisees remains healthy We expect a more normal rate of store openings to resume in upcoming quarters as visibility over the after pandemic becomes better. System sales for the quarter reached $891,500,000 up 33% compared to the Q2 of 2020, A quarter that was materially impacted by the pandemic. This performance was realized despite the adverse impact of foreign exchange variation, which shaved $53,800,000 from our sales during the quarter. System sales were up 56% in Canada, 24% in the U. S.
And 38 International. During the quarter, 23.5 percent of system sales came from digital channels compared to 22.6% in the same period last year. As mentioned in the past, we are aggressively investing in technology to improve the customer experience Our teams are continuously rolling out new solutions that we hope will have a positive impact on our sales. Although the sales mix will shift As other sales channels are reopening, we expect digital channels to grow in the foreseeable future and are hoping to position MTY as a leader in the industry for the quality of its solutions in the next 12 to 18 months. I will now turn it over to Renee, who will discuss NTY's financial results.
Thank you, Eric, and good morning, everyone. Notwithstanding some challenges that remain ahead of us, we're encouraged by our Q2 financial results, especially since our Canadian network and parts of our USA network was still impacted by ongoing government imposed restrictions related to the COVID-nineteen pandemic. As mentioned by Eric, Quebec, Ontario as well as California, meeting 3 of our most prominent territories, still had the most restrictions imposed during the Q2. In total, 977 locations were closed at least one day during the quarter, which resulted in over 38,000 losses of business. Lease closures and other government imposed restrictions impacted our recurring revenue streams and adjusted EBITDA.
Currently, we still have 258 restaurants temporarily closed, an improvement over the 359 locations we had closed as of May 31. And we expect this figure to continue to come down as more Canadian provinces move into the reopening phases. In the Q2, total revenues improved by 39% to reach $136,000,000 as the impact as the pandemic was more severe than Q2 of last year. Our franchise operations revenue increased 49% as recurring revenue streams from franchise locations, gross $8,800,000 in Canada $15,500,000 in the U. S.
And international. These are closely related to our system sales, which as mentioned by Eric, were up 33%. Revenue for our food processing, distribution and Retail Operations increased 33% as it continues to benefit from higher consumer spending in grocery stores, extension in Canadian provinces and additional SKUs. The number of branded products for sale in the Canadian market continued to progress in the 2nd quarter, reaching 158 compared to 147 in the Q1 and 114 a year ago. Corporate store revenues also saw an increase of 21%, mainly due to the reopening of locations that were temporarily closed in Q2 of the prior year.
As mentioned by Eric, digital sales for the Q2 increased to reach 23.5% of total system sales compared to 22.6% for the prior year. While Canada was up 26.7% this quarter versus 19.7 percent last year. The percentage in the U. S. Slightly declined from 23.6% last year to 22.1% this year, reflecting the gradual impact of the reopening.
However, the year over year increase in digital sales remains very solid in Canada with more than doubling its digital sales footprint and the USA increasing by 16.2%. Our 2nd quarter adjusted EBITDA increased to $43,500,000 compared to $18,200,000 for the same period last year. The U. S. And International segment adjusted EBITDA posted a $14,100,000 increase year over year.
Excluding the impact of foreign exchange, the segment posted with organic growth of $15,300,000 In Canada, adjusted EBITDA improved $11,200,000 The severe adverse impacts of the onset of the COVID-nineteen pandemic in the Q2 of last year are the primary reason for the increases, with such an improvement in recurring franchising revenues of $24,300,000 NTY also continues to benefit from the Canadian emergency wage and rent subsidies. In total, we benefited from these subsidies with a total of $1,400,000 in wage subsidies $9,500,000 in rent subsidies during the quarter. We also saw a decrease in expected credit losses on accounts receivable of $2,800,000 which stems mainly from better than expected collection from franchisees. These gains were reduced by an increase in wages as NTY had temporarily furloughed about half of its workforce at the onset of the pandemic in 2020, most of which were brought back by the Q3. Linens are attributable to shareholders with $23,000,000 or $0.93 per share for the Q2 of 2021 compared to a net loss of $99,000,000 or $4.01 per share for the same period last year.
Last year's loss was mostly due to a non cash impairment charge of $120,300,000 As for our liquidity and capital resources, despite the ongoing impact of the pandemic and its negative impact on revenues and EBITDA. NTY generated solid cash flow from operating activities of $29,500,000 in the Q2 of 2021 compared to $19,200,000 for the same quarter last year. As we continue to tightly manage our liquidity, free cash flows remained solid in the Q2 of 2021 with a marginal decrease of $1,400,000 to $27,500,000 or $1.11 per share on a fully diluted share basis compared to $1.17 for the same period last year. Decrease is mostly due to the franchising of multiple corporate stores in 2020, which generated cash of $7,700,000 On the balance sheet front, at the end of the quarter, long term debt stood at $426,100,000 mainly in the form of our credit facility and hold backs on acquisitions. Furthermore, to lower our standby fees and increase our financial flexibility.
We renegotiated our existing credit facility during the Q2. Our revolving credit facility now has an authorized amount of $600,000,000 instead of $700,000,000 and in the quarterly future was increased by $100,000,000 to $300,000,000 The maturity was also extended to April 22, 2024 and many financial covenants were reinstated to prepend any levels thereby lowering overall interest costs. Now I'll turn it back to Eric for the conclusion.
Thank you, Rene. With restrictions having been lifted recently in some of our major markets, we are cautiously optimistic about the future even though our Customers are showing the necessary food and our team is excited to deploy a wide array of innovations that will allow our customers even more. Overall, we are confident about our prospects and our goal is to return The business momentum we experienced just prior to the pandemic. Our optimism is also supported by the tough but necessary actions we have to take, Which are giving MTY a lot of flexibility today. These decisions now place us in the next round financial position with $41,500,000 of cash on hand over $205,000,000 in available credit and with leverage ratios well within our comfort zone.
In light of our financial situation and with more favorable outlook, we are very proud to announce that we are restoring our quarterly dividend. The quarterly dividend resumes at the same level as before, which is to say $0.185 per share. The next quarterly dividend will be paid on August 13, 2021 to shareholders registered at the end of the business day on August 3, 2021. Restoring the dividend is a major step for MTY following the crisis we faced in the last 15 months. It shows the confidence we have in our network and our ability to continue to produce strong free cash flows.
We want to thank our shareholders for their patience with NTY. We have also renewed our normal course issuer bid and will continue to have the ability to buy back our own shares based on internal considerations and market conditions. Finally, with regards to potential acquisitions, we remain active and are in a strong position to take advantage of opportunities. In closing, I would like to sincerely thank our employees, customers and suppliers for their ongoing support. With that, Thank you for your time.
We'll now open the lines for questions. Operator?
Thank you. Your first question will come from John Zamparo from CIBC. Please go ahead. Your line is open.
Thank you. Good morning. Hi, John. I wanted to ask about, Papa Murphy's and Cold So you mentioned they performed well in the quarter. Is there any more color you can add there either on a year over year basis or maybe versus pre pandemic?
And are you seeing any divergence within those brands and markets that are more reopened versus ones where restrictions still exist. Yes. I'll start with Cold Stone. Cold Stone It's performing extremely well, well above double digit performance compared to 2020 or 2019. During Q2 and even after Q2 ended, I think, Coastal is still performing extremely, extremely well.
So we're really happy with that. For Papa Murphy's, Q2 was very strong, still comping strong over 2020 and very, very strong over 2019. We did lose a little bit of steam since the end of Q2 as we're lapping stronger periods and Also with the massive heat wave in the Pacific Northwest that we had, we suffered a little bit in terms of our pizza offering. We're confident we're going to go back to a better momentum. We're still over 2019, but we lost a little bit of momentum compared to 2020 since the end of the quarter.
Got it. That's helpful. Thanks. I wanted to move to Sushi Shoppe, which is now in your top 5.
This is a category that's done really well in the pandemic.
Can you just remind us what percent of your system sales come from this category overall and how have they been performing versus pre pandemic levels? You mean the sushi category or just sushi shop itself? The category in general. Yes, the category is probably just under 10%. It's performed really well during the pandemic, And it was already performing extremely well before the pandemic.
So there was a lot of good tailwinds for Sushi brands and our sushi brands are also some of those that are the most advanced in terms of technology, Online ordering and everything, the marketing is really up there. So those are brands that performed well before the pandemic. You performed well during the pandemic, and you continue to perform well as we're getting out of that crisis. Got it. Thanks.
And then last one for me and I'll pass it on. We've seen a flurry of M and A deals of late, Mostly smaller, but maybe some in the areas you'd be interested in. I'm curious what comments you can make on deal flow for NTY, What you're seeing on valuations and maybe what your preference on M and A versus use of
the NCIB through the rest of this
year? Yes. Well, the deal flow seems to be coming back slowly. There are opportunities that are presented to NTY More than we had maybe in the previous 15 months. That being said, it's still not at the normal pace of deal flow, and it's Probably not also in the sweet spots of what we might be looking for in terms of valuation or in terms of Quality of chains that are being offered to us.
So we're still going to be very disciplined. I mean, We're eager to do M and A. We haven't done an acquisition in a certain amount of time, and it's in our DNA to to acquire and grow the acquisition. So we will eventually go back to do more acquisitions, but we'll stay disciplined. And if we can't find the right target, We'll stay on the sidelines while things settle down and valuations go back to a more normal level.
And ultimately, we can buy back our own shares. We can continue to pay down our debt and build a treasure chest. And when the time comes, we'll be ready to pounce. But I would say the deal flow is starting to be better. So it's I'm cautiously optimistic about the future.
Okay. That's helpful. Thank you very much.
Your next question comes from Derek Lessard from TD Securities. Please go ahead. Your line is open.
Yes, thanks and good morning, Eric, and Congratulations to you and your team navigating through all this craziness. Just anecdotal observation, We were in Trumbull in the past couple of days. The drive through at McDonald's alone was at least half an hour. Even our hotel restaurant was closed on Monday and Tuesday and everything was because of the shortage of labor, which you did point to and some inflation pressures. Just wondering, I guess how you're seeing the impact play out currently?
And what's your view For your guys' ability to pass on prices. Yes. Well, shortage of labor It is certainly a big problem everywhere in North America. There are pockets where we're better and there are pockets where it's more of a problem. But all in all, there is just not enough workforce to work in hospitality and And even for our suppliers and their manufacturers, it's also not enough quality people and even for the Unqualified labor that we might be looking for, for certain duties, it's hard to find good reliable staff.
So There's going to be an impact on the cost of labor for sure. We're already paying more than we were paying Before the pandemic, even though labor was already a problem before the pandemic in a lot of regions. So We're going to end up paying more. Suppliers are also paying more for their staff. Our distributors are also struggling to find drivers and to find people to work in their distribution centers.
So the problem is everywhere. And in terms of our ability to pass prices, it's not like we have many options The ability of our franchisees to absorb these costs is nonexistent. We work with very tiny margins. We're a penny business, And we'll need to figure it out, but it's either going to be through gaining efficiencies, working with our suppliers to reduce the number of hours we need to work in our restaurants or it's going to have to go through prices, but Our franchisees can't absorb more. So ultimately, we're going to need to do pricing and pass it on to our customers.
And hopefully, we'll be able to We'll revamp some of our menus to focus more on the better food cost items. We're going to be able also to do promotions to direct our customers to items that are a little bit more profitable for our franchisees. But ultimately pricing will need to happen. And we I don't think we're any different from anyone else in the Everyone is going to have to take prices not only for the shortage of labor, but also for the inflation that's happening in food costs at the moment. Has some of those pricing actions already taken place or been implemented?
We had to do some pricing already, and there's going to be more pricing in the next few months also. It depends. Some brands did it early, some brands did it Great. In some cases, we staged it over 2 or 3 different increments of price increases. So it's going to have to happen over time, but This situation is evolving so quickly that it's hard to say I'm going to do one batch of price increases and that's going to be it.
We need to be more involved than that. We just look at the price of a container, for example, it's probably the best example where you ship something from Asia, the cost of the container is Probably about 10 times what it was a year ago. So it's not even the food, it's just shipping it that's costing a lot more. So and That changed over a 4 to 6 week span. So if we're not nimble with our pricing, we're going to end up in a place where we can't support the cost structure anymore.
Okay. Thanks for that. I guess, but you also had a strong rebound in your margins this quarter. I assume A lot of that is just operating leverage, but are you able to point to any other positive margin contributors this quarter? Yes.
Well, there's one large item there that's contributing to the margin that might be a little bit more pollution than anything else. It's the reversal expected credit losses. Last year, when we looked at our numbers, we had a Certain number of risks and a lot of uncertainty. So and collection was lower, so it forced us to take a little bit more provisions for these Expected credit losses and now we're collecting more than anticipated at this time, so we had to reverse a certain amount of it. So that does contribute to the margins for sure, and that's not going to last forever.
I mean, once we reverse the provision, it's reversed and it's not coming back. So If that contributes more forward to revs, you're right. It's operating We're more efficient. And as we grow sales, we bring in royalties. Our cost structure is pretty much fixed.
So as the business continues to recover, You might see a little bit more weight on the top line and not necessarily more weight on the bottom line, on the middle line with the So margins should continue to be strong if everything stays constant and business keeps improving. Thanks for that, Eric. And one last one for me actually is, have your traditional revenues or your revenues from your traditional business fully recovered to pre pandemic levels. And then maybe if you could just talk to us about the outlook For the nontraditional sort of the mall office sites and where those sales are in relation to pre pandemic? Yes.
We're not even close to where we were pre pandemic, and we're not even close to it being fully recovered. So if you look at The major urban centers, those have not come back yet. Anything that's in a mall hasn't come back. Yes. I mean, you just look at Ontario, and so under lockdown, still not allowed to have dining rooms or food courts Operating properly, so malls are not even close.
And even if you look at other major areas like Quebec For Q2, we were still under lockdown for pretty much the entire quarter. We're a little bit more relaxed in terms of restrictions now, but for the quarter, we were still under lockdown. So our mall operations are not close to being back. And in terms of nontraditional, airports are certainly not back to where they were, although in the U. S, it's starting to get better.
University campuses, for example, are not back yet. So we do have a long road ahead to Fully recover in terms of our sales. Okay. Thanks, Eric.
Your next question comes from Vishal Shreedhar from National Bank. Please go ahead. Your line is
open. Hi. Thanks for taking my question. I just wanted to follow-up on some of the questions asked earlier, particularly on inflation. I was noticing that inflation at restaurants in general seems to be meaningfully higher than inflation at grocery stores.
And I'm wondering If you, in general, if you agree with that perspective for your banners. And number 2, if as a result of this Higher inflation at restaurants. If you see the restaurant sector is actually grabbing back all the share that it lost to grocery stores. Is Is that viable or is it still in the open? Yes.
I'm not sure how we can compare grocery stores and restaurants Because obviously, there are items in the grocery stores that are not necessarily comparable to what we sell in restaurants. But I would say, in our case, in our restaurants hasn't been that much higher than what you would miss in the grocery store if you wanted to buy the ingredients to prepare that same type of food. We try to be pretty cautious with price increases, and we don't do more than we need to do. So yes, it's hard to compare in terms of what happens in the future to grocery stores, to restaurants in terms of inflation. I wouldn't risk trying to speculate about where all that's going.
But yes, I do think that restaurants will Fully recover at some point. When that's going to happen, I'm not sure. But I do think restaurant sales will recover to And we can resume growth as maybe in the next few years. I don't know exactly when that's going to happen because I wish I had a crystal ball that would be very reliable, but unfortunately, I don't. Okay.
And continuing along the same theme, I noticed that the grocery stores are seeing a little bit more pressure year over year in their recent months, but The food processing business at MTY seems to still be doing quite well. So wondering what you attribute that to. Is Market share gains, is it new products and how should we think about that business going forward? Yes. Well, that segment is made up of 3 different sub segments.
You have our distribution centers that are serving our brands. In Q2, Those were really struggling because our brands were more or less idle, the brands that are supported by these distribution centers. Our food processing was doing well though. Our food processing does products for retail and does products for some of our brands that are performing well. So the food processing is doing well and it seems to be in a really good place now where we can see some good growth in the future.
And in terms of our retail operations, I think we are capturing market shares. We are launching new SKUs that have been successful. We have A few champions there in terms of our products that we're really proud of and that seem to be performing really well. We're developing new sales channels as well and trying to Expand in terms of geography where we sell those products. So it's really promising in terms of the retail, in terms of selling to grocery stores, selling to Other retailers like Costco or Walmart or Giant Tiger or other retailers like that.
So I'm pretty optimistic about That segment and the growth that we can see in coming years, even though grocery stores are might be seeing Feeling the weight of lapping a very strong year. I think in our case, we can capture and share with our existing products and with new products as well. Okay. And I'm hoping to expand upon your thoughts on acquisitions. Has this pandemic Change the way NTY thinks about acquisitions.
And when you talked about your sweet spot earlier, wondering what is your sweet spot in terms of region of acquisition in terms of types of acquisitions that are turnaround, is it a larger chain, smaller chain? Is there any more color you can give us and what constitutes a good deal for NTY? Yes. Well, in terms of geography, we're pretty agnostic. So as long as it's in North America, we're happy to see if there's any opportunity.
We're present everywhere, and I think we can integrate well throughout North America. The type of offering is the same thing. There are a few things that we'd rather stay away from. But in general, the type of food doesn't really matter for us. So it's more in terms of Where the business is in its life cycle and the valuation that's related to it.
And it needs to be The sweet spot is a moving target depending on which brand we're considering and where it is in its life cycle. So I'm not necessarily going to give you numbers, But we do have a certain number of metrics that we use internally That we want to any position to fit in. And if we don't find something that does go into that sweet spot, we will not necessarily Go after it. We want to be disciplined about it. And if the pandemic showed us one thing is that We need to be very careful in terms of how we deploy capital, and we need to be very protective of MTY because there's no guarantee That the business is going to keep growing forever and that there's not going to be another pandemic at one point, maybe in 5 years, in 10 years, in 20 years, I don't know.
So we need to be careful what we buy, how we buy it, how we integrate it and how comfortable we are with everything That becomes part of NTY's portfolio. Okay. And maybe lastly, you commented that Papa Murphy's performance That's going a little bit subsequent to quarter end, if I got that right. I was just wondering if you could Comment on some of the initiatives, the improvement initiatives you implemented at the brand and whether you're pleased with those initiatives, If they're working or not in your estimation and what next brand should and should we anticipate MTY to roll out its improvement initiatives to? Yes.
Well, yes, we're really proud of the progress we've made with Papa Murphy's. Some of the initiatives related to technology Really paying off the online ordering and the constant improvement of those platforms is really interesting. The investments we're making with the marketing So really paying off the research and development, which we're doing. It's interesting. We have a product now That's gotten a lot of attention in the U.
S. And even in regions where we're not operating with our Frito's Outlaw Pizza In partnership with Pepsi. So that was huge for us. So there's a number of things that we're doing now That are really paying off and gives me a lot of hope to be that we're going to continue to grow that brand in the future. So Really happy with it.
We're pushing hard now on development because we feel the brand is ready to start growing again. So all in all, a lot of positives. And in terms of the other brands, I would say all the other brands are pushing hard now on Major initiatives when it comes to technology, online ordering, better usage of data, more efficient marketing. So there's a lot going on for all our brands in Canada and in the U. S.
So I wouldn't necessarily Be able to pinpoint one brand in particular and tell you this one is doing more than the others because we're pushing on all fronts now. Okay. Thank you.
Your next question comes from George Doumet from Scotiabank. Please go ahead. Your line is open.
Good morning, guys. Congratulations on a strong quarter. I just wanted to ask about the store openings, so the 61 in the quarter. Eric, can you maybe give us a little bit of flavor in terms of what's being opened? Is it maybe by banners or by geographies?
Give me some flavor there. Yes. Well, we're opening a lot of the brands that performed well during the pandemic. So the brands that we're opening are the ones you would expect to open. So it's not necessarily the answer you might be looking for, but unfortunately, This is Reale.
We're opening a lot of Yuzu, a lot of Goldstone. We're still opening Glena's Smoothies. So those are brands that performed well during the pandemic and that keep opening. So and You should be expecting, I guess, those brands to continue to open for a certain amount of time because there's good momentum there. Okay.
And maybe focusing on the closures, they're obviously lower than what we've seen in the past. But I'm just wondering to what extent you think that will pick up again when The aid, the government aid must subsides or continues to subside into the fall. Yes. I'm hoping that by that Time, the sales will be high enough that we won't see a flurry of closures. And what we're seeing now is that in general, Sales for the majority of our restaurants are picking up nicely.
So I don't necessarily Expect a flurry of quarters. I'm not seeing huge amount of risk. I'm not saying there's going to be none, but I'm not seeing a huge amount of in Canada or in the U. S. For massive closures in the future.
I would say international might be a little bit more challenging There's still massive lockdowns going on in certain countries. But for Canada and U. S, I'm not expecting a flurry of quarters. Okay, great. And just getting back to your commentary about Papa Murphy's kind of moving steam exiting the quarter.
Obviously, there's a COVID hangover, but I'm just wondering how much of that is maybe due to aggressive promotions we're seeing by some of our more delivery focused competitors in the pizza category? And do you guys at all plan on responding to that? Yes. There's certainly an impact. I mean, We're seeing some of the major competitors really go aggressive on the pricing and on promotions.
I mean Papa Murphy's has always been a little bit more expensive than these guys. Our product is higher quality. So we don't necessarily want to discount our product the same way they do. We do have some value offers that are going on. But would we go to the same levels These guys are going.
I mean, the brand has done it in the past. It's shown that it increases the top line. So for the franchisor, maybe it's good, but it doesn't necessarily increase the franchisees' bottom line, which is ultimately The goal for all of us. So we're not necessarily going through that deep discounting strategy because We don't believe that's the long term solution for our franchisees and for the industry in general. Okay.
And this last one for me, Eric. On the credit reversals that you guys called out. Do you have that number for this quarter, how much the total number was? And maybe, I guess, more importantly, If we look at Q3 and Q4, should we expect similar level of reversals, like half the reversals this quarter? Anything you can give us there would be appreciated.
Yes. The number is presented in the table in the MD and A. It's $2,800,000 So we really put it on a single line because we wanted We didn't want to hide it. We wanted to make it obvious. Are we going to have the same level of reversals in the future?
No, I don't think so. This is all based on actuarial models that we have that the team is running every quarter. But yes, once the expected credit loss is reversed, it can't be reversed again. So I don't think there's going to be the same level going forward. Okay.
Thank you.
Your next question comes from Dmitry Kamalitsky from Derivables. Please go ahead. Your line is open.
Hi, and thanks a lot for taking my questions. A lot of them were already asked, But I still have a few. Just to confirm, the reversal of provisions was in the quarter was 2,800,000 Right. That's the contribution to EBITDA. That's correct.
Got it. Okay. And If you can comment on how Synchro's stores in malls have performed after the very limited reopening that we've I know a lot of the food sports, you can't sit in there, but you can take takeout and some people went back to most to shop. Any comments on what you've seen in terms of performance from food court locations and malls? Yes, it's recovering slowly.
It's we need to recreate habits and customers. So it's going to take a certain amount of time. I'm not sure how long it's going to take, but what we're seeing is that it's recovering Slowly, but at least we're trending in the right direction. Some malls are performing a lot better than others. Some malls are more lifestyle type of malls where people will go hang out, and I guess those are performing better.
Some malls are more in and out That type of operation and those tend to take a little bit longer. So we'll see what the future holds for us, but at least we're trending in the right direction. And can you comment on the health of the franchisees, particularly in the food courts? Yes. Well, obviously, our franchisees have been under pressure, getting Massive lockdowns and then the reopening with no seating.
And so it's been challenging for franchisees. Most of our landlords have been really good to us and working with us to alleviate some of that pain. So at least we have good collaboration from our important business partners. But it's going to take a while for franchisees to make up the losses of the past 15 months. So we're working hard with them to To make the offering as good and as relevant as possible and to try and help their operations.
Please go back to Profitability Now and then Recover. So you don't expect a wave of closures Jewel franchisee house in the 4th quarter over the next year. Not a big wave. No, there might be Here and there. And I guess, I can have some surprises.
There are always some surprises, but I'm not expecting a massive wave of closures. Understood, Eric. Thank you. And in terms of food courts in the offices, in the office towers, those have been hit particularly hard. What's the strategy there?
And also in terms of franchisee health there, I presume This has been hit very hard and it's still uncertain how long the reopening period will really take, how many people will Yes. Office hours have been beaten up. The good news is that most of the landlords are working with us, and the abatement on rent is pretty aggressive for most of them. So at least The fixed cost portion of our franchisees operations is taken care of. And where landlords refuse to house, there has been some just because it's not possible to make a living if you're not selling, if you don't have any customers in the office tower.
So those this is more challenging. Where landlords work with us, I think we have a path forward to reopen and be profitable As people come back to the offices, but we need good collaboration. Now the good news is that we are gradually seeing people come back to offices. New York seems to be a little bit more busy now. We're seeing people coming back in offices in Montreal.
Toronto is still locked down, so it's fewer people. But we're seeing some major cities come back to life. And Hopefully, office towers will be back in full force in the fall and then our franchisees can resume operations and hope Hope for profit. Okay, understood. Thanks for that.
And so you already Address a question about acquisitions. I just want to dig deeper, if possible. Is there a particular Price tag above which you wouldn't go up. And you mentioned you have some certain sweet spot metrics. If you can just talk to us about what metrics, in particular, are you looking at financial metrics and operating metrics when you make an acquisition?
Yes. We don't want to close the door on any specific price tag. So if the price tag is heavy, but the business is a good opportunity, we'll go for it. So we don't want to limit ourselves or close the door on something just for one reason. So I mean, every business needs to be evaluated for its own merits without us placing hurdles where there shouldn't be.
And in terms of giving you more accurate numbers or more precise numbers, I want for competitive reasons, it would be Would that be right as a smart move for me to say how much we're willing to pay for something? Because then that pretty much sets the price tag for the next time someone calls us. That's fine. Any comments on maybe EBITDA margins or revenue growth profile that you're looking at? Yes.
Well, again, there's a price for everything. I mean, there's a price for a mature business that might not be growing, and there's a price for a strong growth business. So we adjust our buying strategy based on the business we have. Obviously, Especially with COVID now, there have been some concepts that have shown more COVID proof than others. So maybe those tend to be a little bit more attractive.
And then franchisee profitability and franchisee health is a major criteria. Buying And network of franchisees that are under is not necessarily something that's that interesting for us at the moment. Understood. Okay. And if you can comment on some of your older brands, how they are doing, in particular, Country Style and Mr.
Saab, and there's a couple of more. Yes. Well, you know what, Country Style, It largely depends on business traffic, on frequent fee of purchases and everything. So like most of our coffee brands, country style has been affected by the pandemic and as traffic resumes and as people commute a little bit more, I think we're going to see the business recover. In terms of Mr.
Sub, it's a really well performing brand. It's a mature brand, but that's performing extremely well. I'm really proud of what the Performing really well and it has been for many years. Is it growing organically or declining? If you can give any details on its growth profile.
Yes. I'm not necessarily going to give you specific numbers on the brand. So yes, I'll stop my comment there. Okay. And any comments on Extreme Pita and Mucho Burrito.
Yes, Extreme Pita has been struggling for Since we acquired it, well, I mean, it's and the pandemic affected it even more. So we're working hard on Extreme Pita. We have a new product line So that's being tested at the moment, but hopefully, we'll reverse the transfer of Extreme Pita. So cautiously optimistic about it. We We have a lot of in the pipeline to try to bring it back to where it should be because we always believed in the foods.
But for some reason, we weren't able to either market it or communicate it well to our customers or the response wasn't the one we expected. So But we have a lot of new things going on for Extreme Pita, so we're cautiously optimistic. Nutriov Burrito was still one of our top growth brands. It's a very strong brand, really good product offering. Still working on the brand on product, on the marketing, And even the core image, the design and everything, so constantly evolving that.
But in general, really proud of neutral burrito, and it's one of our top growing brands, and we want to keep it that way. And when you made that acquisition back some time ago. In terms of the store numbers, was the majority of them Did the majority relate to Extreme Pizza? Or was it like what was the split between Extreme Pizza and Mucha burrito? That was back in 2017, I think.
Yes. You're going pretty deep in my memory, so I won't be able to quote you the exact numbers, but I tell you, Street Pita was a lot larger than Mutual Burrito at the time. So and now that's reversed. Street Pita has Reduced the number of restaurants since we acquired it, and Mucho Burrito has grown really nicely. So where
Your next question comes from Michael Flynn from Raymond James. Please go ahead. Your line is open.
Hey, good morning. Just Eric, you called out the $2,800,000 credit loss provision. What's the item on there? It says variance Due to impact of IFRS 16 on impairment of lease receivables, it was a $1,300,000 in the quarter. Is that A one time item or is that something else?
No, it's well, it's something That we reassess every quarter and it's a little bit more complicated, but it's basically an estimation of our Collection ability on the leases that will be receivable in the future, not necessarily for what was receivable in the past. So it's an assessment that's a going looking forward assessment of our ability to collect.
Okay. So it would kind of bounce back and forth between this type of level in any given period?
It could go up and down, yes, depending on various different factors.
And any comments you can give on the outlook for working capital Over coming quarters, like any notable items that we should think about?
Well, not necessarily. I mean, as the business is growing and recovering, I think we're going to have higher sales and that's going to generate higher accounts receivable, and that's a good thing, I guess, because it means the business is doing better. I think you should expect our prepaids to be amortized over the next two quarters. We had some pretty heavy payments in the 1st two quarters. But other than that, in terms Working GAAP, I don't see anything major coming in the next few quarters.
Okay. And then I think and you can correct me if I'm wrong, I think you made a comment during the opening remarks just about Strong Royalty Collections during the period. Was that is that something you said? Or did I mishear something?
No, you did hear that. It's we're collecting more of our old royalties Than we had anticipated and that's why you have the reversal and expected credit loss.
Okay. Okay. Thanks for taking the questions.
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