Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the MTY Food Group Inc. Q1 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. If anyone has any difficulties hearing the conference, please press star followed by zero for operator assistance at any time. 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, April 9th, 2021. I would now like to turn the call over to Eric Lefebvre, Chief Executive Officer.
Please go ahead.
Good morning, everyone. Thank you for joining us for MTY's 2021 first quarter results conference call. The press release and the MD&A with complete financial statements and related notes were issued earlier this morning and are available on our website as well as on SEDAR. During the call, we will be referring to certain indicators that are non-IFRS measures. You can refer to our MD&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 and their open mind to new ways to buy and consume our food while restrictions and constraints are imposed by local authorities. Please continue to support our restaurants, which are more often than not owned by small entrepreneurs in your community.
I would also like to thank our franchise partners and their staff who face daily challenges and work extremely hard to serve customers under far from ideal conditions. We also face the roller coaster of restrictions and relief, which characterize some of the territories in which we operate, as demonstrated in recent past in Quebec and Ontario. As the pandemic remains ever present in our daily lives and weighs heavily on people's morale, I can't help but be impressed by the amazing work, resilience, and dedication of the people who work in the MTY family. I sincerely want to thank them all for their commitment to our common success. During the first quarter, we faced unprecedented restrictions imposed on our business in Quebec, Ontario and California, the three territories in which MTY's network normally generates the most sales.
From complete closure of malls, dining rooms, and patios to stay-at-home orders and curfews, the conditions to operate a restaurant when it was even possible, were extremely difficult. While all this happens, we are seeing a gradual lifting of restrictions in some other geographies, mainly in the U.S., showing us that there is light at the end of the tunnel and that customers are eager to return to our restaurants. As we weigh in the circumstances in which we operated for Q1, we are very pleased with our performance for the quarter. As discussed in recent calls, we are constantly investing time and resources in digital sales channels and new digital marketing vehicles to take advantage of the rapid shift in consumer behavior and expectations. The work we've done and our ability to rapidly adapt are well reflected in the growing proportion of our network sales coming from digital channels.
To put things into perspective, digital sales in Canada increased from 5.4% to 30.6% in the first quarter, while in the U.S., they essentially doubled to 28.9%. These numbers are also reflecting sequential increases over the numbers reported for the fourth quarter of 2020. As in previous quarters, we have used our strong cash flows to repay long-term debt, allowing us to reduce our debt level by another CAD 29 million. Since the beginning of the pandemic, we have reduced our total debt level by close to CAD 130 million, bringing MTY's leverage to a comfortable level and at a level that is lower than most of our comparable peers in North America. Now more specifically on results. Heavier restrictions imposed on our business during the quarter translated into over 57,000 lost business days for MTY's network, almost twice the number reported for the fourth quarter.
Lost days were mostly in Canada, where restrictions are the heaviest. On the bright side, we're proud to report positive organic sales growth for the U.S. for the second consecutive quarter. This quarter again, Cold Stone Creamery and Papa Murphy's were the main drivers of the organic growth in the U.S. system sales. Their combined contribution reached an impressive CAD 53 million. This in turn fueled a 23% growth of the EBITDA for the U.S. and international segment. Unfortunately, that growth was more than offset by the 55% decline in Canadian EBITDA, which Renée will address in more details in a few minutes. We finished the first quarter with 6,949 locations. We opened 41 locations and permanently closed 93 for our net store loss of 52. Although that number remains a net erosion of our network, I'm proud of the resilience of our franchisees in the current circumstances.
The number of locations closed was 38% lower than in Q1 of 2020. The number of store openings was lower than expected during the first quarter, mainly driven by the uncertainty created by the pandemic. As indicated last quarter, the pipeline of new franchisees remains healthy, and we expect a normal rate of store openings to resume in upcoming quarters as visibility over the after pandemic becomes better. During the quarter, 1,705 locations were closed for one or more days due to COVID-19. As previously indicated, this represented more than 57,000 business days lost, and many of our restaurants operated in a limited capacity. At the beginning of the first quarter, 338 restaurants were temporarily closed, while 321 remained closed at the end of the quarter. As of today, 302 locations or 5% of our network are temporarily closed.
System sales for the quarter reached CAD 761.1 million, down 24% compared to our great first quarter of 2020. The decline largely reflects a second wave of restrictions in Canada, with monthly sales declines of between 45% and 50% when compared to last year. In the U.S., relatively speaking, our network continued to perform very well. Given the continued solid performance of our U.S. operations, system sales for that market represented 67% of our total sales, compared to 53% in 2020. Canada and international markets represented 29% and 4% of total sales respectively. As for the evolution of our network, the pandemic has changed the picture. Canadian sales in malls and office towers were down 69% and 89% respectively, while sales in casual dining locations were down 65%. In the U.S., the trends were similar, but the exposure to those types of locations is much lower than in Canada.
Consequently, system sales related to mall and office towers and non-traditional formats now represent only 8% of system sales each, while our street locations accounted for 84% of total system sales. I will now turn it over to Renée, who will discuss MTY's financial results.
Thank you, Eric. Good morning, everyone. As Eric mentioned, we're pleased with our first quarter results considering the continuing impact of COVID-19 and the second wave that's hit our Canadian network. More than 57,000 lost days of business due to the pandemic continues, with an additional 400 lost days of business due to the winter storm, or indefinitely impacted MTY's recurring revenue streams, as well as our Adjusted EBITDA. We continue to feel the impact of the current 302 temporarily closed locations and expect to see more locations shut down as Ontario enters a four-week stay-at-home lockdown order, which started last night. These closures and other government-imposed restrictions impacted total revenues significantly for the quarter. Total revenues saw a decrease of 21% to reach CAD 119 million. The decrease came mainly from a decline in our recurring revenue stream.
These are closely related to our system sales, which, as mentioned by Eric, saw a decrease of 24%. Food processing, distribution, and retail revenue operations, however, continued to benefit from higher consumer spending in grocery stores, new SKUs, and extensions in Canadian provinces. In the first quarter, we had 147 branded products for sale in the Canadian market, compared to 109 a year ago. All of these factors combined translated into sales growth of 10% year-over-year. First quarter Adjusted EBITDA decreased to CAD 32.6 million compared to CAD 41 million for the same period last year. While the U.S. and international segment posted a CAD 4.2 million increase year-over-year and organic Adjusted EBITDA growth of CAD 4.7 million, Canada's first quarter Adjusted EBITDA decreased by CAD 12.6 million, mostly to the decline in recurring revenues.
This was partially offset by CAD 6.3 million in savings in recurring controllable expenses, most of which were from reductions in wages resulting from the continuous cost control measures we implemented to mitigate the impact of lower revenues, as well as the reduction in meals and travel costs. We also saw a significant reduction in consulting and professional services year over year. This CAD 6.3 million mentioned does not include amounts received from Canada Emergency Wage and Rent Subsidy, from which MTY continues to benefit. In total, we benefited from these subsidies with a total of CAD 1.8 million in wage subsidies and half a million CAD in rent subsidies in the quarter. I'd also like to point out that this is the first quarter in which we are able to report comparable figures with regards to IFRS 16.
As you may have already seen in our MD&A, we have decided, however, to continue to show the variance year-over-year as we know rents are an important factor in the current context of the pandemic. Net income attributable to shareholders was CAD 13.4 million or CAD 0.64 per share for the first quarter of 2021, compared to CAD 19 million or CAD 0.76 per share for the same period last year. Again, the decrease was mainly due to the effects of the pandemic on MTY's operations. As for our liquidity and capital resources, despite the ongoing impact of the pandemic and its negative impact on revenues and EBITDA, MTY generated solid cash flow from operating activities of CAD 31.3 million in the first quarter of 2021, compared to CAD 31 million for the same period last year.
Following our strict capital management efforts to tightly manage liquidity, free cash flows in the first quarter of 2021 decreased by only 1% to CAD 30.3 million or CAD 1.23 per share on a fully diluted share basis, which was in line with the same period last year. As mentioned by Eric, our focus remained on debt repayments, and we used CAD 29.1 million of the cash generated during the quarter to reduce our long-term debts, which, at the end of the quarter, stood at CAD 441.4 million, mainly in the form of our credit facility and holdbacks on acquisitions. Despite debt repayments, we continue to enjoy a healthy financial position with CAD 39 million of cash on hand at the end of the quarter and over CAD 290 million available from our credit facility. Now I'll turn it back to Eric for the conclusion.
Thank you, Renée. While we can see some light at the end of the tunnel, the next few months will continue to bring some challenges. The intensity and level of government restrictions remain highly unpredictable in many regions. Despite the impact of the pandemic, MTY finds itself in a very strong financial position and has been able to generate solid and steady free cash flows. Over the last 12 months, which coincide with the beginning of the pandemic, MTY has generated CAD 140 million in free cash flows or CAD 5.68 per share, and has repaid over CAD 130 million of its long-term debt, resulting in lower interest payment obligations and a comfortable leverage level. Because of the sacrifices made in the past 12 months, we see better days ahead as the effect of the pandemic gradually dissipates.
In the second half of 2021, we expect to be in a position to resume the payment of dividends and repurchase of MTY shares for cancellation. We remain very attentive to potential attractive acquisition targets, and although we will remain extremely disciplined, we feel ready to acquire new concepts that will fuel our growth in the future. To conclude, I would like to once again thank our franchise partners for their courage and resilience, as well as our employees, customers, and suppliers for their ongoing support. With that, I thank you for your time, and we will now open the lines for questions. Operator?
We will begin with our first question coming from the line of John Zamparo of CIBC.
Thanks. Good morning.
Morning, John.
Morning. I wanted to start with digital sales. Can you give a sense of how sticky these are? I know it's difficult to measure, but maybe you could comment on digital sales in stores or regions that don't have dine-in restrictions versus ones that do.
Yeah, that's a good question, and obviously, we'll know as we get out of the pandemic, but we really think that these new ways for people to order food and to view our menus, I think this is going to stay in the future. Is it going to stay 100%? I don't know, but I think it's going to be close to that, and that's why we keep investing in that new media. Basically, it's a good marketing tool for us. People view our menus. We try to have attractive pictures of the food. The food shots are really important there, the way we present our menu. It gives people time to look at the menu, so you don't have the pressure of being in line in one of our restaurants with people behind you, and that's why also we see a much higher average basket when people order online.
We really think at the moment that these sales are going to be sticky. There's probably going to be less orders at the counter and more orders online. We're starting to see it in the U.S., where restrictions are a lot looser than in Canada. We're seeing it, for example, at Cold Stone, where people order online to skip the line, basically. It makes a much better customer experience, where in the past at Cold Stone, people would complain that the speed of service was a little bit slow, the line might have been long. Now they can customize their order. They order ahead of time, and when they walk in the store, they just take out their order and leave, so they can enjoy the product. It brings certain challenges as well.
The interaction of our staff with our customers is less because of that. We need to find new ways to create that emotional connection with our customers. The quality of our online ordering apps and the quality of our tools that we're using in marketing and food shots and everything, and the quality of our products are key. We really think this is going to be sticky in the future.
Okay, that's helpful. Thanks. I was wondering if we could get some more color on the U.S. business. Clearly, your two biggest banners are performing quite well. You did reach organic system sales growth in the U.S., an outsized performance on EBITDA, with it increasing over 20% year-over-year south of the border. I know we've asked about this before, can you just add some more color on sustainability of the cost cuts that you've done, and how do you see this playing out if there is a recovery of the size that many of us expect in the restaurant space? What might your SG&A in the U.S. look like?
Yeah. Well, even if the business in the U.S. is doing better than Canada, we asked our U.S. divisions to also make efforts in terms of cost-cutting. We see the result of that. It's been 13 months now of pandemic, so obviously, there's been a lot of us taking a step back and reassessing everything we do, reassessing all our processes, and looking at the way we do things. The crisis was an opportunity for us to really hit pause and question everything we're doing. When you're going full throttle, like we were before, it's hard to take the time to do that. We reassessed everything. We reorganized a number of things. The vast majority of the cost savings we have there are going to stay in the future.
There is going to be a portion, especially the portion that's related to travel and meals, that will probably increase a little bit in the future as we go back to normal. The vast majority of those cost savings will stay in the future.
Understood. Okay. One more for me. You mentioned food courts and office towers. I think you said 8% of total system sales in the quarter. Can you give us an approximate split of what that would be in Canada versus the U.S.? I'm trying to get a sense of if you believe a certain % of system sales is permanently altered because of work from home preferences in the future, and what that amount might be, if you think it's immaterial or if it's something that you have to make greater plans for.
Yeah. Well, for sure there's going to be a lasting impact. I don't know if it's going to be permanent, but it's going to last for a certain amount of time. Our presence in malls and office towers in the U.S. is almost nothing. The vast majority of our malls and office towers are in Canada. Yeah, everything that's in an urban center at the moment is under pressure. Everything that depends on office towers, whether you're in a mall, a food court, that is close to office towers or in an office tower itself, it's going to be under pressure for a certain amount of time. We're seeing a lot of places now saying, well, there won't be people in offices before at least September and maybe later. There will be a lasting impact on those businesses. There's no question about it.
It forces us to reassess the economic model for all these restaurants, reassess everything, how we do business, who do we cater to, the type of concepts also that we're going to have in these centers. We need to reassess everything based on the information we have now, which unfortunately is incomplete. We know our current situation, it's hard to predict what's going to happen, there's going to be a lasting impact. Whether it's permanent or not, I think will depend to a certain extent to all the participants that are in these urban centers or in these malls to find new ways to make these places attractive again in the future. That being said, I think when the malls open, you see there's a lot of traffic in malls and people still want to go to malls.
There is a reason why malls exist and there is a reason why the good malls will always exist. I think the lesser malls might disappear in the future, but the good malls will always exist. There's always going to be business to be done there. It's up to us to find a way to be attractive, find a way to give the food or serve the food to our customers that this is what they're going to want in the future. We're adapting, we're constantly rethinking the menus we have, the type of concepts and the way we're going to serve that food. I would say, unfortunately, it's more a stay tuned type of answer. Yeah, there's going to be lasting impact, but I don't know if they're going to be permanent.
Okay, that's helpful. Thank you. I'll get back in the queue.
Thank you. Your next question comes from the line of Derek Lessard of TD Securities.
Yeah, good morning, Eric. Actually, most of my questions have been answered, but, I do have one. I think I asked a question last quarter as well. Just wondering if there's anything new or any new developments or positive takeaways from using the ghost kitchen concepts. Is it something that could really stick post-pandemic?
Yeah. There is positive with ghost kitchens, especially when we use ghost kitchens in existing restaurants, where we don't have to buy new equipment, pay another layer of rent or anything, where we can use what we have. It's actually quite promising for us to open new concepts that don't exist on the street, but that exist on the aggregator apps. It's been working out pretty good for us. We do have a few of those going and the tests have been positive. We're rolling out a certain number of them, where it makes sense. Most of the time when we do ghost kitchens, we just create a new concept that people can associate to that restaurant where the food is being delivered from or where the food is being prepared. It's been working out. It does create some good incremental sales for us.
We're always very careful not to compete with our existing restaurants in the neighborhood. If we have burger restaurants, for example, two blocks down, we're not going to create a ghost kitchen for burgers in another restaurant because we want to protect our franchisees. Where we see opportunities, we go for it, and it's been working out. Where ghost kitchens are most under pressure is where you need to build a restaurant just for the purpose of being a ghost kitchen, even though you might have five or six concepts in there. At the moment, the costs are too high for the returns you're getting. We've tried it in a number of different places, different geographies, different types of restaurants, and so far we've never been able to produce a profit from those.
We're going to focus on our existing assets, our existing restaurant base, try to help our franchisees with additional sales that might come from ghost kitchens. At the moment, for us to build ghost kitchens doesn't make sense economically.
Okay. That's helpful. Are you opening, or are the ghost kitchens in both Canada and the U.S.?
Yeah. In the Middle East as well.
Okay. Thank you.
Okay, your next question comes from the line of Vishal Shreedhar of National Bank.
Hi. Thanks for taking my questions. With respect to inflation in the basket, do you have a sense of what that was and maybe how much of that inflation was caused from the mix shift towards digital?
Yeah. It's a good question. The basket, yeah, digital typically will create a pretty big bump on the average basket size. What the reason is, it varies depending on the brand. Some brands will have higher basket size because people will buy more. Sometimes it's just the orders that are grouped together instead of being individual. Yeah, there's quite a bit of inflation on the basket size. Different brands will have different inflation. We see brands going from 5%-7% inflation, to the more typical 17%-20% basket size increase with digital sales. That being said, we also had to increase our prices pretty much across the board, especially in the last two or three months, where the price of commodities and the price of pretty much everything that goes into our restaurants has been increasing fast.
From the packaging, to the protein, to oil, to any of the products we use in our restaurants, the inflation has been quite abrupt, so we had to increase prices. There's a little bit of both there.
Okay. With respect to the differential on digital versus in-store, just the differential in pricing associated with the different methods of ordering for the same product, do you have a sense of what the average higher price is on digital versus in-store? If that mix shift is also causing the inflation?
It depends on what type of digital we're talking about. If customers are ordering on our own website, typically the prices are the same or actually sometimes lower because we give discounts to people that order using our own platforms. There's no price difference there. Where we do have a price difference is when we're talking about the aggregators. If you're ordering for delivery on Uber, DoorDash, or SkipTheDishes, or all the others that are in the market, we will have a price differential. Then it's mostly up to the franchisees to decide what the price difference is going to be for their stores. We try to tell our franchisees that a 15% price difference is reasonable, but some of them will go lower than that because they want to be more attractive to customers.
Some of them will go higher because they want to cover some of the charges that are related to delivery. I would say on average, we're probably between 10% and 15% higher when we are talking about aggregators.
Okay. Related to digital, what are you seeing on customer perception surveys? I don't know if you track Net Promoter Score, what are the common feedback you're getting? Is there concern about pricing, or is the benefit of convenience overcoming that?
Yeah. Well, it's really a store-by-store thing, and it's not something we can necessarily address at the company or even at the brand level. It's really the quality of the service at the store level that matters. We are tracking these customer reviews, store by store, individually, and trying to improve on those. I can't tell you there's a one-size-fits-all type of comment here. There's, "The food is cold," and, "Took forever to get my food," or, "It's overpriced," or whatever. This is the types of comments we get when they're negative, and when they're positive, it's, "What a great experience. The packaging was great. The food was perfect." There's a lot going into trying to have the right food at the right temperature and the right textures and the right everything. Not all food travels well, so it's a challenge for us.
So far, we're seeing a lot more positive comments than negative, and it's good. We're constantly trying to improve and constantly trying to review these comments. There's always going to be pluses and minuses depending on the execution at the store level.
Okay. Another one here. Royalty rates in the U.S. ticked up a bit. I'm guessing that's due to mix. Just wondering how, with all these changes that are happening in such a quick period of time, how we should think about royalty rates.
Yeah. You're right, it's due to sales mix. As you see our sales mix going back to normal, I guess in the next few months, we'll go back to the type of royalty rates we always had. Being around 5% is normal. Canada went down a little bit. We have a few abatements for some of our stores, and the sales mix is different as well. In the U.S., the sales mix has caused the royalty rates to increase a little bit. You shouldn't expect major changes going forward. It should always be around that 5% mark.
Thank you.
Your next question comes from the line of George Doumet of Scotiabank.
Good morning, Eric. Looking at the Papa Murphy's and the Cold Stone specifically, they've done really well during the pandemic. I'm just wondering to what extent you would expect those concepts to grow their comparison in fiscal 2021 as we kind of anniversary the pandemic.
Yeah, that's the million-dollar question. Right now, we're lapping, to a certain extent, the beginning of the pandemic. Last year, we saw our sales at Papa Murphy's go really strong at late March, beginning of April. We're still comping positive now as we're lapping these early stages of the pandemic. Obviously, we're not in the same high double-digit growth that we had. We're in single digit, but we're still comping positive for now. That's no guarantee for the future, but it's still working out. For Cold Stone, we'll see. It took Cold Stone a few months before the business went back to normal and then caught fire in the summer. Time will tell, but right now, Cold Stone is still selling a lot of ice cream. It's a great product. We've improved a lot of different things just before the pandemic hit.
Hopefully these sales are going to be sticky in the future. We're optimistic, but it's another question where I wish I could have a really great answer for you, but we're going to have to wait and see and do our best to try to maintain those levels.
Okay. I think you allude to five test locations where you were doing renovations for Papa Murphy's. Can you maybe talk to the lift in comps that you saw maybe after those renovations? Are you extending that to more locations as well?
Yeah. Well, the goal of the renos was not necessarily to create a huge lift in sales. We didn't necessarily do a lot of marketing around those renos. What we wanted to do is test the concepts and test the designs that we had and test different iterations of the renos. All our restaurants are doing well in these markets. Those restaurants that were renovated are doing well. What's attributable to the reno or not is difficult to measure. But yeah, we did test those. We did find a few issues with the design we had. We're correcting that, and we're going to be ready for a more aggressive rollout going forward. There's been constant discussions with all our franchise partners as well to make sure that we get it right and that they understand where we're going and that they embrace it.
There's been a lot of discussions. Yeah, if you're asking me how the stores are comping, the stores are comping positive.
Okay. I know this is probably a difficult question, and there's a lot of lumpiness in these numbers, but what would you like to see online penetration maybe as we exit this year and next year, and as COVID becomes maybe less rampant? What's the percentage of takeout versus delivery in that number?
Yeah. Well, takeout is growing faster than delivery. I guess that's good news for our franchisees. Both segments are growing. Where we're going to land when it's all over, I don't know. Even five, six years ago, we started talking about delivery and online order, and we knew it was going to be a thing. With COVID, everything accelerated. We knew it was going to be important. We knew we'd probably get to the percentages we have today. We just didn't know it would be that early. That being said, most of our concepts, they're takeout operations by their very nature. You look at any of our concepts, you look at Cold Stone, you look at Papa Murphy's, you look at Thaï Express, at Sushi Shop, at Taco Time, at Baja Fresh, at Yuzu, all these concepts, they're mostly takeout operations.
The fact that we're doing online ordering is just natural for us because we retain that very nature that's in our DNA, which is takeout. Where we might see shifts is where we have casual dining restaurants. Are we going to be selling more for takeout from casual dining than before? Probably. Where we're going to land, I'm not sure. The customer experience is certainly not the same when you eat in the dining room versus when you take it out to eat at home. I think all of us are learning how to take out food and enjoy it at home as well. Just myself personally, I'm ordering breakfast for takeout, and you know what? I love it, having breakfast with my family at home.
Having the type of breakfast that we have at Allô! Mon Coco or Ben & Florentine or Tutti Frutti, this is a great experience. It's a different experience, and we need to adjust to it. I think it's going to be higher than before, but I'm not sure exactly where we're going to land in the future.
Okay, fair enough. Just one last one, if I may. Can you talk to the closed locations this quarter? Maybe how many of them were early terminations? I know there's seasonality, but looking at it from an annual number, would you expect closures in fiscal 2021 to be comparable to fiscal 2020?
Yeah. Well, not many of the closures we had in the quarter were early terminations. There were some, and there's always some. Whether we're during a pandemic or not, there's always some early terminations, unfortunately. Most of them were more natural types of terminations, where the leases or the franchise agreements were over, and it was time to either move to two blocks down the road because the location would be more relevant or to close down because some demographics in the area were not relevant. Most of them are end-of-lease type of closures. How 2021 will pan out, I'm not sure. It really depends on how tight the restrictions stay, especially in Canada, how much assistance is available to franchisees. We know that the federal government in Canada is offering assistance until June. What happens after?
Are we back to normal life and everything opens, or are we still locked down and then needing more assistance? There's a lot of moving parts now, and it's hard to predict exactly how many of our restaurants will close during the year? I would say that what we're seeing now is the franchisees we have in the system, they're fighting, and they want to succeed, and they want to start their business again, and they want to use their restaurants and produce income and enjoy the type of atmosphere you have in a restaurant. There's too many things we don't control to be able to give you a number, unfortunately.
Okay. Thanks, Eric.
Your next question comes from the line of Michael Glen of Raymond James.
Hey, good morning. Just on the working capital, you've done a really good job with the working capital over the past 12 months, particularly with the account payable. Just wondering if there's something specific going on with the account payable, should we think that that might reverse to some degree in coming quarters?
No, early in the pandemic, when we didn't know where our cash flows were going to be, we certainly asked our suppliers to be more patient with us. We brought that back to normal at the end of last year. There's nothing specific going on with accounts payable. It's just the natural flow of invoice payments and everything. Nothing special going on with the accounts payable or the accounts receivable for that matter. Where we might see differences in the working capital is going to be with payment of income taxes in the future. We haven't paid much in the last year. We do have higher payments expected, especially in Q2, for income taxes. That will create a small blip, I would say, compared to previous quarters. Other than that, there's nothing going on with the working cap.
Do you think you can still generate more positive working capital out of the business?
That's the objective.
Okay. Just on labor, what are you seeing or hearing right now from your franchisees in terms of labor market shortages and inflation on wages?
Yeah. Well, we have different scenarios in different jurisdictions. If you're looking at the U.S., I don't think there's a massive shortage of labor. I think finding people is not necessarily a big problem. There's pockets where it's more complicated, but generally, accessibility of labor is there. Obviously, there's an expectation that wages are going to be higher. We see states increasing minimum wages and everything, so causes some pressure on franchisees, obviously. We're finding ways to try to alleviate that pain, whether it's in becoming more efficient in the restaurant, having more of the food prepared by our suppliers so that we reduce the labor in the store. There's various ways that we're looking at our labor. It's small things. Sometimes you just receive your food pre-portioned instead of having to portion it in the store and makes a big difference.
You save eight, nine, 10 hours a week in the store, and we're a penny business, so it makes a difference. In Canada, it's a much bigger problem, especially for Eastern Canada. You look at Quebec, Ontario, to a certain extent, finding staff is just almost impossible at the moment. Restaurants had to close again in Quebec City, but when we were allowed to reopen early in March, we had franchisees that weren't able to reopen just because they couldn't find staff. It's not about how much you want to pay them. It's literally there is no one. Unfortunately, our federal government has closed the door to expediting the immigration for restaurant workers, whether they're cooks or chefs or any other position in the restaurant. It's going to make it a little bit more complicated, at least for 2021.
We are going to be creative to find ways to adapt to the shortage of staff, but it's certainly a challenge at the moment.
The staffing shortage that you're seeing in Canada, do you think that some of that's being driven by the federal government programs relating to the Wage Subsidy and how some of the workers are able to get paid?
Yeah. At the beginning of the pandemic, I would have said yes. I think now it's a different situation we're facing. Obviously, there's that, but there's also a lot of people that were recycled in other jobs. You look, for example, in Quebec, a lot of people entered the health system, and were trained and heavily subsidized by the government to do so, and that's a good thing because we need these people. Unfortunately, these people are not going back in the restaurants. There's more drivers for all sorts of delivery services, not only restaurants. You see Amazon, you see restaurants, and you see all these other things that are delivering, so a lot of our staff has gone to that as well. A lot of our staff decided to change careers.
Restaurants were the first ones to close and the last ones to reopen, and we're still closed in many places, in most places actually in Canada. People that need work, they will find a job in some other industry that is currently open, and it's hard to get them back after when we reopen. I think it's a perfect storm now of many different things that are unfortunately all going against restaurants. Now we're seeing restaurants are closed in most places in Quebec and Ontario, and it's time for us to hire students, and unfortunately, students are not going to go to restaurants while they're closed, not knowing if they're going to have a job this summer. Students will go to some other industries, creating additional pressure on restaurants again.
It's going to take a while for the balance to be restored in terms of the workforce for restaurants and other industries.
Okay, that's it for me.
Your next question comes from the line of Dimitry Khmelnitsky of Veritas.
Yeah. Good morning, everyone. I was just wondering if you could share with us the proportion of so-called Class A malls locations for your mall, for the food court locations? What's the proportion in higher quality malls?
Yeah, we like to think most of our mall locations are in high-quality malls. I wouldn't say all of them, and unfortunately, Dimitry, I don't have the exact proportion of Class A versus Class B or Class C malls. I would say the majority of our mall locations are in the good malls.
Okay. Understood. Just to touch on the previously asked questions about payables, do you use any supply chain financing arrangements or reverse factoring for your payables?
No, we don't.
Okay. Excellent. Revenue and EBITDA contribution from the ghost kitchen, could you share that with us?
Yeah, it's minimal at the moment for ghost kitchens. Those are mostly tests. They're add-ons to existing locations, so it's still a very minimal proportion.
Okay, understood. Thanks a lot, Eric. That's it from me.
At this time, we have no further questions. I will now turn the floor back over to management for any additional or closing remarks.
Thank you again for joining us on this call. I look forward to speaking to you again for our next quarterly call. Thank you.
Ladies and gentlemen, thank you for your participation in today's event. This concludes the call. You may now disconnect.