Good morning, everyone. And thank you for joining us for MTY’s 2021 third 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 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&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 commend our franchise partners and all our crew members for their resilience and extend heartfelt thanks to customers who continue to support the MTY family. Despite the ongoing impact of the pandemic and related short-term challenges, we’re seeing light at the end of the tunnel with customer traffic gradually returning to pre-pandemic levels for many of our brands and progressing in the right direction for the others.

Now turning to our results, given the lingering impact of COVID-19 pandemic restrictions and robust quarterly results reported in the same period last year, we are very proud of our financial results for the third quarter of 2021. We delivered a 13% year-over-year increase in system sales, 15% growth in adjusted EBITDA and 21% improvement in cash flows from operating activities.

Some of these key metrics reached record highs or near record highs in the third quarter, including a record adjusted EBITDA of $49.7 million and a record free cash flows of $45.6 million. During the third quarter, MTY’s network lost about 19,300 business days due to COVID-related restrictions and many restaurants that were operating were doing so in a restricted capacity.

These lost business days were at their lowest levels since the pandemic began, but they remain material for our franchise partners and for MTY. While the business is far from fully recovered, major brands such as Cold Stone, SweetFrog, Baton Rouge, Thai Express, Sushi Shop and Mikes are outperformed compared to the same period last year.

Casual dining restaurants had a very strong recovery posting a 45% year-over-year growth, while mall locations at a 42% growth over the third quarter of last year. This was realized despite restrictions on dining room and food court capacity in many jurisdictions throughout the quarter.

Once again we use our strong cash flows predominantly to reduce our debt level in the third quarter. The $35.2 million applied to debt this quarter brings total repayment since the start of the pandemic to approximately $180 million.

This discipline deleverage brings the business well within our target leverage ratios with net debt to adjusted EBITDA for the last 12 months sitting at 2.06 times. Turning to our network, we ended the third quarter with 6,848 locations.

We opened 59 locations including three via joint ventures, permanently close 105 and dispose of 13 for a net store loss of 59 locations. Although, this represents a slight erosion in our location count, we are reassured to see that the number of closures this quarter is the lowest we’ve experienced in the third quarter since 2016.

As of August 31st, the 6,848 locations in our network represented 95% -- 94% of the locations we had before the pandemic implying a net erosion of approximately 6%. Our teams are actively working with franchise partners and landlords to prevent store closures to the extent possible, working on franchisee profitability and renewals.

We’ve also put everything in place to accelerate the pace of store openings. Our objective is to bring our network back to where it was before the pandemic and keep expanding past this point.

We still had 164 temporary closed locations at the end of the quarter. Many of those locations are in movie theaters, airports, colleges, health clubs and in major urban centers, which have not yet recovered.

Since the end of the quarter, 25 of those locations have reopened. We’re actively working with our franchise partners to reopen the remaining temporarily closed locations.

Although, we are hopeful they will reopen, we will get a clear picture in the next quarter or two. As for new store openings, we are slowly rebuilding momentum and we remain confident we can continue this upward trend.

Due to labor shortages and supply chain issues, the process to build a new restaurant unfortunately takes much longer than before. That being said, the pipeline of new franchisees remains healthy and we expect a more normal rate of store openings to resume in the upcoming quarters as supply chain issues subside and construction goes back to normal level.

System sales for the quarter reached $1.02 billion, up 13% compared to the third quarter of 2020. Our network benefited from a strong rebound of some of our brands and continued strong performance of others.

This performance was realized despite adverse foreign exchange variations, which shaved $43.4 million from our sales during the quarter. Our system sales were up 29% in Canada, 5% in the U.S.

and 7% internationally. I will now turn the call over to Renée who will discuss MTY’s financial results.

Thank you, Eric, and good morning, everyone. Although, the COVID-19 pandemic appears to be easing in North America, the restaurant industry remains challenging in the short-term with labor shortages and supply chain disruptions being felt across the network.

We believe, however, that our brands continue to focus on innovation, product quality and store design, position MTY well for the future. Now let’s start with our network.

In total, 456 locations were closed at least one day during the third quarter, which resulted in about 19,300 lost days of business. The majority of these lost days of business were in Canada, primarily due to the Ontario shutdown, which impacted a good portion of our third [quarter sales] (ph).

These closures, as well as various other government imposed restrictions impacted our recurring revenue streams and adjusted EBITDA. [Specifically] (ph), we still have 139 restaurants temporarily closed, an improvement over the 164 locations we had closed as at August 31st.

As mentioned by Eric, of the 164 temporarily closed locations, a majority of these are located in non-traditional locations such as health clubs, cinemas, universities and airports, where our ability to encourage re-openings is [not] (ph) constrained. We expect this figure, however, to continue dropping as more restrictions are lifted and restaurants are doing normal operations once again.

In the third quarter, total revenues grew by 11% to reach $151 million. Our franchise operation revenues increased 13% as recurring revenue streams from franchise locations rose $5.4 million in Canada and $3.3 million in the U.S.

and international markets. These are closely related to our system sales, which were up 13%.

The increase stem primarily from malls, which outperformed prior years, with sales growth of 42%, as well as a strong performance in the Canadian casual dining segment, which saw similar growth of 42%. These increase in restaurant sales also contributed to the increase in promotional fund revenue, which had a quarterly increase of 20% compared to prior year.

Revenues from our food processing, distribution and retail operations remained stable at $31 million. While our food processing and distribution centers had increases in revenues stemming from the increased restaurant demand, our retail segment saw a slight decrease as customer steadily shifted back to the restaurants.

Corporate store revenues also saw an increase of 14%, mainly due to the reopening of locations that were temporarily closed in Q3 of last year. Digital sales continued to be an important sales channel in our third quarter, reaching 18.8% of total system sales.

Although, overall digital sales decreased, excuse me, in the third quarter as a percentage of total sales dropping from $21.2 in the prior year, the Canadian segments continued to deliver solid results with a year-over-year improvement of $16.9 million. The U.S.

declined from $24.5 of total sales to 20.7%, reflecting the gradual effects of the reopening. Our third quarter adjusted EBITDA increased 15% to $49.7 million, compared to $43.4 million for the same period last year.

This was mainly due to the increase in restaurant sales, which as mentioned earlier, led to a significant increase in our franchising revenues, as well as our continued efforts to manage our controllable expenses. The Canadian segments contributed 42% of total adjusted EBITDA, representing a year-over-year increase of $3.2 million or 18%, while the U.S.

and international segments contributed 58% of total adjusted EBITDA, accounting for a year-over-year increase of $3.1 million or 12%. During the quarter, we also continued to benefit from the Canadian Emergency Wage and Rent Subsidy.

It represented $0.8 million in total, split evenly between wage and rent subsidies. This represents a decrease of $1.8 million compared to last year, mainly attributable to MTY not qualifying for the program for the -- for two out of three of the month in Q3.

We also saw a recovery in expected credit loss on accounts receivable of $1.3 million, which comes mainly from better than expected collections from franchisees. Net income attributable to shareholders was $24.3 million or $0.99 per share for the third quarter of 2021, compared to $22.9 million or $0.93 per share for the same period last year.

Turning to liquidity and capital resources, with the impressive data generated by MTY during the third quarter, we generated solid cash flow from operating activities of $46.6 million, compared to $38.6 million for the same period last year. This growth was driven by higher profitability and productive cash management.

Free cash flows increased by $8.5 million or 23% to $45.6 million or $1.84 per diluted share from $1.50 per diluted share for the same period last year. This significant increase was primarily driven by higher adjusted EBITDA.

In the quarter, we also reinstated the distribution to our shareholders and paid $4.6 million of dividends or $18.5 per share. Now turning to a financial position, we continued to pay down our debt, at the end of the third quarter, long-term debt mainly in the form of bank facilities and holdbacks on acquisition stood at $387 million, down from $426 million in the second quarter.

We also ended the quarter with $56 million of cash on hand. And with that, I’ll turn it back to Eric for the conclusion.

Thank you, Renée. Given these strong financial results in the third quarter, and improved financial situation and a positive outlook for business, I’m proud to see MTY -- the MTY family navigating through this pandemic with utmost resilience and determination.

We now have more options in terms of our capital allocation strategy. During the third quarter, we lowered our long-term debt, restored our quarterly dividend and renewed our NCIB share buyback program.

Looking ahead, our long-term strategic plan remains to deliver organic growth, while searching for accretive acquisition targets at the right price with the right attributes. In closing, I would like to sincerely thank our employees, customers and suppliers for their ongoing support.

With that, thank you for your time and we will now open the lines for questions. Operator?

Hi. Thanks for taking my questions.

Just wondering if you can give us some perspective on supply chain challenges and labor challenges and how that’s impacting your restaurants and maybe if you expect those charges to get worse in the future?

Yeah. And that’s a really interesting question.

That’s -- obviously labor is -- has been widely discussed in the last few weeks, last few months and it’s been a challenge throughout North America, some pockets are better than others. But it’s certainly a challenge for us and also for our suppliers.

So, obviously, we’re struggling with our restaurants and finding staff is not easy. For our suppliers, they face the same problems, whether it’s our distributors, whether it’s our suppliers, we’re all facing the same thing.

So supply chain is definitely disrupted. There are some challenges in terms of inflation and cost, but also in terms of getting the products.

But the good news is, we have a great team. They’re working really hard to try to find substitute products when the main product is not available, finding ways to make sure distribution is done on time as much as possible.

We are seeing the distribution situation get a little bit better in the last few weeks. So that’s encouraging.

And in terms of supply chain, I mean, it’s disrupted. I’m not sure how long it’s going to take to go back to normal.

This is an unprecedented situation. So it’s hard to base ourselves on anything that happened in history to look at how it’s going to be resolved.

But I do anticipate that supply chain is going to be a challenge for a certain amount of time. And in terms of our labor shortage, I mean, the demographic deficit that we’re facing throughout North America is nothing new and it’s going to be around us for a certain period of time.

So again, there’s going to be a period of adjustments, but I don’t see that problem going away in the next few months. So we’re going to have to learn to live with it, find ways to be more efficient, find ways to offer good experiences to our customers with the amount of stuff that we have available and that’s all it is.

So whether it’s an adjusting our menus to make sure that the menus are a little bit easier to execute or working with our suppliers to have a certain portion of whatever it is that we’re producing that gets automated. I’m not sure what the solution is and it’s probably not only from one place that this solution is going to come from, it’s going to be working together that’s we’re going to solve it.

But I don’t see anything here that that’s insurmountable. So we’ll get there.

Okay. With respect to inflation, obviously, another major topic in the industry and we’re hearing indications from companies that they’re increasing wages for employees to attract and attract employees.

Can you comment on the pressures that your franchisees are seeing and the inflation that you had in your P&L and what should we expect looking forward?

Yeah. There’s definitely inflation and getting access to resources is not as easy as it was before.

And with the labor shortage, we’re finding ourselves in the market that’s easier for employees and harder for employers. So, obviously, there’s inflation in terms of salaries, but it’s not only the amount of money you’re going to pay people, it’s how you treat them, it’s the other benefits that you’re offering them that are going to make a difference.

So people are asking for a little bit more than just money nowadays. So it’s a slightly different perspective.

So we have to be aware of that and we need to be adaptable to the situation. So there’s definitely inflation on our side and our restaurants labor cost is a certain amount of pressure for MTY or franchisor as well.

And then you look at our suppliers and they’re facing the same thing. Their suppliers are increasing their prices.

They have to pay people more to have access to them and they face inflation as well. So it goes throughout the supply chain and there’s inflation at every step of the way.

So, again, it’s something that we need to adjust to. Unfortunately, it forces us to increase our prices slightly in some of our restaurants.

But we really have no choice, this is the way it is in 2021 and I’m not sure how it’s going to unfold for the future, but right now we’re facing a certain amount of inflation and we need to adjust.

Okay. And lastly, with respect to organic growth, obviously, that was a focus for MTY pre-pandemic and it seems like it’s [all lives] (ph) back on organic growth looking forward.

So can you give us some comments on what you think will be the major drivers to establish sustainable organic growth for MTY?

Yeah. Well, it all starts with franchisee profitability.

Ultimately, we have franchisees that are making an investment and they’re looking for return in exchange for that investment that they’re making and if they do realize that return, they will invest more in their businesses, they’ll talk to other people about the investment that they can make and we will reduce the number of closures, we will increase the number of new openings, and ultimately, this is where it starts and this is where it ends. We need to focus on franchisee profitability.

We need to make our franchisees lives as easier -- as easy as possible as a franchisor and make them proud of being associated to a certain brand and the rest will go well. Now new store opening is always the easiest way for us to grow organically and this is certainly an area of focus for us.

Okay. And are we talking about marketing investment or maybe other investments into infrastructure to help as well, is that a major factor?

Well, there’s a number of different areas where we need to invest and every brand is different, so I’m not going to list the brands and the required investments. But obviously, online ordering is a big thing.

Technology is a big thing. Investing in menu innovation, making sure that our store designs are new and fresh, and this is what people are looking for.

Obviously, the pandemic has changed a few things there as well. So we need to work on a number of different fronts.

Just buying marketing is one way to address a situation, but it’s certainly not the only one.

Okay. Congrats to the team on the results.

Thank you.

Thank you.

Thank you. Good morning, I wanted to start on M&A and I’m curious what you’re seeing here at the moment.

We’ve seen a few names go public recently, at 20 times plus EBITDA valuations. Are you seeing that in negotiations right now and would you say there’s a divergence between private valuations versus public?

Yeah. There’s no question we’re competing with the very hot IPO market.

So there’s a certain standard that’s set and a certain expectation. Obviously, it applies only to the larger companies.

But yeah, it’s also, I mean, you’ve seen some IPOs, there’s going to be more I’m sure in the market in the fall and in the winter. The number of different players are rumored to be looking for IPO.

So, obviously, when it comes to larger targets, we’re competing with private equities and we’re competing with IPO valuation. And as you know, MTY has always been disciplined in acquiring companies and we’re not going to pay multiples of that magnitude.

That being said, if you look at smaller targets, I think, there the valuations are probably a little bit more reasonable. Expectations are still high.

Expectations are still a certain number. But realistically, I think, if you’re at a size where private equities are not necessarily interested and you don’t have access to the IPO market, you need to be a little bit more reasonable.

So the deal flow is still relatively slow when it comes to M&A at the moment, especially for the smaller targets. So we’ll be patient what we’re seeing on the market.

There’s good and bad. There’s a number of companies that are not ticking all the boxes that we want to look at.

So we’re going to be patient. But, yeah, I’m expecting the deal flow to accelerate at some point in the near future, and hopefully, we’ll be there to be able to acquire new companies.

We’re building our treasure chest now. We’ve paid down a lot of our debts, where we’re comfortable with where we are and it’s just a matter of finding the right targets at the right price and we’ll be back on the M&A journey.

Okay. That’s helpful.

Thanks. And then I want to stick with that topic on capital allocation.

You referenced the balance sheet. It’s been really healthy shaped.

M&A may take a pause for a little bit. So given that, is it fair to expect that you’d make some investments to drive organic growth, whether that’s incentivizing new store growth or renovations and contributing towards those or investments in technology for point-of-sale integration, those types of things.

Is that something you might accelerate given the current M&A environment and the stable balance sheet?

Well, whatever we’re going to do in the future is something we’re going to do no matter what the M&A market looks like. So we are investing in renovating our stores.

We have a number of programs in place to rejuvenate some of our older brands and some even of our recent brands that need to take -- maybe take the next step. But whatever the M&A market is, it’s not going to prevent us from investing in our existing network, which is, the most important for us.

We need to take care of what we have in our portfolio before we get site. So the IP investments are ongoing and this is not something that we detailed, but it’s ongoing.

The investments and rejuvenation of our networks are also ongoing and they’ve been going forever, but not forever, but for many years. So this is not something that we detailed for you for the markets, but this is not related to whatever we do in M&A.

So we managed a business on a decentralized basis. M&A is one thing and it doesn’t distract people away from making sure that their stores and their brands are operating optimally.

So we’re going to keep investing where we’re investing at the moment. There might be an acceleration or not, but whether there’s M&A or not, this is not going to make a difference on that.

Okay. Understood.

One more on capital allocation, how do you think about using the NCIB versus paying down debt with the balance sheet where it is?

Yeah. Well, we’re looking at both options.

The NCIB is always there for us. Buying back shares is, I think, a very valid capital allocation and we were buying back shares before the pandemic.

We haven’t bought back shares in Q3. Doesn’t mean we’re not going to buy shares back in the future.

Especially in the context if we ended up in a place where M&A is not available for us maybe buying MTY is going to be our best target. But this is something that we talk at the Board level every quarter, every meeting and it’s a regular topic.

So I am not saying we’re going to buy or we’re not going to buy on the NCIB, but it’s there for us and it’s a very valid capital allocation strategy that we appreciate.

Okay. That’s helpful.

Thanks. And then last one for me, you talked in the past about being encouraged about the franchisee pipeline and the prospects for driving unit growth?

How would you characterize the likelihood of closures moving forward? Do you think the restaurants that we’re going to close as a result of the pandemic have most of those largely closed and is it reasonable to think that you get to positive net unit growth in, I don’t know, the timeline, but the not too distant future?

Yeah. This is certainly what we’re aiming for.

We’d like to have positive store growth at some point. We’re always going to have some closures for whatever reason, given the size of our network, I think, it’s normal to have some non-renewals of leases or some stores that are underperforming might close.

So we’re always going to have some, whether there’s a pandemic or not. That being said that or it’s hard to predict where the closures are going to be going forward.

We have -- there’s so many market forces that are at stake now with -- we’re working with landlords, we’re working with our franchisees, the employment market is difficult, getting our franchisees to renew is certainly a challenge for us, not because they’re not profitable, but because of the supply chain and labor challenges they have and the investment they need to make, not knowing if they’re going to be operating to optimize their assets that they’re buying. But I mean, in terms of closures, time will tell.

There’s still a certain number of stores that are at risk because of the pandemic and I am thinking of major urban centers, for example, that have not yet recovered are still fragile. There’s still some pockets and that depend largely on tourism, for example, that are a little bit more fragile.

So we need to be -- we need to monitor the situation closely and work with our franchisees. And in terms of new store opening, the pipeline is really healthy.

So at least we have that. Hopefully, we’ll get in -- we’re going to be able to accelerate the pace of opening.

I think people are seeing now that restaurants are backed and it’s an investment that makes sense. It’s interesting that customers are there for the right brands.

Banks are lending money again, where banks perceived restaurants, maybe as a little bit riskier a year ago and now we just need to figure out the supply chain and find people to build our stores and find the equipment to operate our stores. But, yeah, to your point, we’re definitely aiming at positive store growth at some point.

Timeline and -- is unpredictable, but we’re -- this is certainly a goal we have internally.

Great. That’s all for me.

Thank you very much.

Good morning and congrats on the strong quarter.

Thanks, Nick.

My first question is just has to do with the Papa Murphy’s look like sequentially was down a bit. I understand Q3 was typically a seasonally weaker quarter.

But can you give a little bit of more color on how you felt performed in the quarter and what you’re expecting going forward?

Yeah. Well, Papa Murphy’s, you’re right, the performance in Q3 was a little bit softer, but not that much softer than last year.

We still performed really well with Papa Murphy’s. We’re really happy with the performance.

We have a number of initiatives that are being put in place to continue on the momentum we have. So we’re really bullish on Papa Murphy’s at the moment.

We’re accelerating the pace of selling stores and opening new stores. We’re rejuvenating our network at the moment and number of franchisees are reinvesting in their stores and making them look fresh again.

So lots of enthusiasm around the brand, so we’re really happy where we are and we had a slightly softer quarter. But to me it’s, I mean, it can be a function of many different things.

There’s a lot of factors that are at play there and including the very hot weather in all the West Coast which are a very big territories, very important territories for Papa Murphy’s. If you look at the entire West Coast in the summer, it was much warmer than normal and lots of forest fires, lots of everything, doesn’t necessarily encourage people to turn on the oven in their house and create more heat.

So we’ll see. I don’t want to draw conclusions based on our Q3.

I am pretty excited with what’s coming going forward. So we’re still very bullish about that brand.

Great. And you mentioned the pipeline for new franchisees as healthy keys, any color on the U.S.

versus Canada and where the new franchisees may be coming from?

Yeah. Well, the pipeline is healthy in both countries.

If you look at the U.S., obviously, we have some brands that are proven to be COVID proof. Those were easier to sell, and obviously, it takes a certain amount of time to -- between time we reach an agreement with a franchisee to open a store and the store opening, especially when it’s so hard to build new stores.

So very, very strong pipeline in the U.S. If we’re looking at Canada, the pipeline is also really healthy.

So really proud of the job our teams made to really create a buzz around our brands and making the best they can of the tough situation during the pandemic and really highlighting the strength of our brands during the pandemic that really shown for many of our brands and we’re talking a lot about all the negative that happened during the pandemic, but there’s also a lot of positive. And if you look at our performance over the last 18 months, I think, we’ve proven that a lot of our concepts are resilient or are nimble and some of our concepts performed extremely well during the pandemic.

And obviously, these concepts are a little bit easier to sell now and we’re focusing on the positive here.

The last question for me, I believe you’re in the process of replacing your burn app [ph] with brand specific apps. Can you maybe get some color on how that’s going and when you expect those to roll out?

Yeah. It’s not an easy process for sure to have the brand specific loyalty and gift cards, the brand specific online ordering.

So we’re still happy with where burn app is and we’re happy with the partner, we have to operate burn app and we’re still going through it. Keep doing business with the same partner on the certain number of different things.

So burn app is still working well. We are in the process of implementing the brand specific items.

There’s a timeline in place. We sent a first communication to our burn app customers.

I think it was last week of September. So the process is going as planned and I expect that in November, most of the new solutions are going to be implemented and the brand specific, online ordering, loyalty and to a certain extent gift card are going to be fully deployed, probably, by the end of November.

That’s all for me. Thanks for taking my questions.

Yeah. Thanks.

Congratulations, Eric, to you and your team on a solid quarter and the recovery. So a lot of my questions have been asked.

I’m just going to ask some follow ups. I guess in terms of pricing, I am curious as to how much you were able to pass-through and sort of what has been if any pushback that you’re seeing from customers there?

Yeah. Well, unfortunately, we had to push pricing on most of our brands.

There are some brands that were a little bit immune based on -- maybe on the input costs that we have, but for the most part, we’ve had to push pricing. The customers adjust well.

I would say, people expect that there’s going to be pricing, there’s inflation in everything and MTY’s brands are not the only ones that are increasing prices in the restaurant. So we try to keep it as reasonable as possible.

We try to limit it as much as possible, because we know there’s eventually going to be a line where the customers are going to slow down their visits to our stores. So we’re trying to push pricing, but we’re very cautious about it, trying to maybe come up with new menu items that have better food costs and less labor involved, for our franchisees trying to help them as much as possible, trying to direct customers to certain different skews that might be more advantageous for or to franchisee, but pricing is happening across our brands and there’s been a certain amount of pricing done during the pandemic.

There’s -- for many of our brands, there’s another round of pricing that’s taking place now or in the very near future. But we’re trying to limit it as much as possible.

Okay. Thanks for that as well.

I think I was curious to get your opinion on things like vaccine, passports, in terms of, whether or not you think they’re helping restaurant sales or keep some of your restaurants opened up might have otherwise closed? And maybe just a follow up to that is, if you can highlight some of the mall and office traffic trends that you’re seeing coming back?

Yeah. Well, on the vaccine pass, obviously, it’s a trade-off here where we’re -- I mean, obviously, we’d like to not have the vaccine pass and we’d like to not have all the other measures that are in place or in our restaurants.

But if those are necessary to keep our dining rooms open, then we’ll accept the measures temporarily. And this is where we’re at.

Obviously, the vaccine pass prevents a certain number of our customers to visit our stores. So we are losing some sales.

But it’s certainly a better solution than having our dining rooms close. So, I mean, we’re working with our governments.

Where we’re the vaccine pass has been implemented, we’re trying to reduce the other measures, because we are trying to be logical and not duplicate and maybe triple the measures. But, yeah, as a temporary measure to keep our restaurants open, I think, it’s a valid option.

When it comes to mall, well, obviously, if you look at our sales in Canada compared to 2019, before the pandemic, the most of the difference that’s last between 2021 and 2019 is coming from malls. Certain malls are doing really well in some areas.

But for the vast majority mall traffic is down, dwell time in the malls is down and now in Canada with the vaccine pass and most provinces now, obviously, it’s creating an additional hurdle for our customers to enjoy the food in the food court. So malls are still a challenge for us and the vaccine pass is, again, if it’s makes a difference between closing the food court or keeping the food court open with some restrictions, I’ll take the vaccine pass.

But it’s not a very pleasant experience. I don’t know if you visited the food court recently, but when you approach a seating area with your tray in your hands and you need to drop everything, take out your wallet to show your ID, take out your phone to show your vaccine pass.

It’s not a very pleasant experience. But, again, if it keeps our food courts open, I’m happy to do it for a certain amount of -- if pandemic goes away.

Okay. And what we haven’t touched on is maybe you also were able to get some decent margin expansion.

You’ve obviously had some costs come back into the business naturally and you’ve had lower government subsidy, so curious on the drivers of the -- of your margin?

Yeah. Well, our structure is very scalable and it’s always been.

So the margins are slightly higher than normal, I think, in this quarter. And not necessarily because the EBIT does not normal, but because maybe we have fewer turnkey restaurants that we’re building, we have fewer low margin items that are impacting our business, they’re not items that will reduce our profit, but they’re items that will push our margins down a little bit.

So it looks like the margins are higher than normal. But, yeah, we, I mean, we don’t have that much costs in MTY, other than the staff we have, because our -- by far our biggest expense is a franchisor is the workforce we have.

And if our restaurants open or if the sales in a given restaurant go up 50% that doesn’t require more stuff, that’s just -- it’s just the same people that are visiting the same restaurants and helping and assisting the same franchisees and these franchisees are just doing better. So, yeah, there’s a scalability to our structure, and obviously, during the pandemic, we have to address the way we do things and we’re probably a little bit more nimble than we were before.

Certainly a little bit leaner than we were before and that’s why the margins are so high.

Okay. And just to confirm, you said you -- there was two months that you didn’t qualify for the subsidy in this quarter, is that because you were showing sales growth I believe?

Yeah. There’s sales growth.

There’s also new rules that have been published by the government. Well, they’re not published.

They’ve been floated by the government that seemed to indicate that we might no longer qualify. We don’t know exactly what those rules are yet.

So we chose not to take the subsidies until the rules are published. And if we qualify, we’ll definitely go for the money.

But if we don’t qualify then we would rather not claim the money has to return it. So -- yeah, so we’re waiting for clarification on a certain set of rules, and obviously, our business is doing better, so that this qualifies us for certain number of items as well.

Right. Okay.

That’s helpful. And maybe just one last one for me and just touch on the labor for the last time.

I was wondering if you’ve seen any financial impact or impact on sales because of the difficult labor environment.

No. There’s no question about it.

I mean, we have a number of our restaurants that can open seven days anymore. Number of our restaurants are constrained and they need to open fewer days open.

Some restaurants we’re doing the three-day parts, now we’re doing only two-day parts or even only one day part. So we’ve lost some day parts.

We’ve lost some business days. Those are not counted by the way and the number of 19,000 lost business days, we mentioned.

Lots of restaurants are closing one day a week or two days a week, because they just can’t staff. So, yeah, definitely there’s an impact on sales from not being to operate at full capacity.

And even if the restaurant is open, sometimes you’re going to find yourself with a section closed, because we just can’t service it properly and we want to make sure the customer experience is adequate. So, yeah, definitely, it’s really hard to measure what the impact on sales is, but there’s definitely an impact.

Okay. That’s it for me.

Thanks, Eric. Congratulations on this journey in tough environment.

Thank you.

Hi. Thanks and good morning.

Just I guess a question on your comment earlier around just trying to adjust to the current environment with, we’re digging menus where possible so forth to address the labor shortage. I guess, how are you guys thinking about it, because, I would think, adjusting the menu, training staff might take a little while and by then things could get better.

Now, how are you guys managing or balancing kind of the short-term solutions versus maybe just adjusting to this as maybe this could go on for a long time?

Yeah. Well, the key is always to have the best possible customer experience and the customer experience comes from the food, it comes from the service, it comes from the value proposition.

So whenever we make changes, we keep all these things in mind. So I mean -- so we’re trying to make our menu simpler to execute.

To compensate for the labor shortage, we’re also trying to make our menus more profitable for franchisees. So, I mean, I think, in the short-term, we have no choice.

We have to go through that process. And if anything, it’s probably once again teaching us some valuable lessons.

As you know, the last 18 months, we’ve learned so much about ourselves and about the market and about our business and I think this is no different. This is just a continuation of the learning process that we’ve had for 18 months and forces us to rethink the way we operated and I think, ultimately, for the long run, it’s going to be a good thing.

Okay. And then just, I guess, a commentary on digital sales earlier, based on the investments or how you’re going about it now, are you assuming -- do you have an assumption for, hey, look, going forward coming out of the pandemic, X percent of our sales are going to be digital, so let’s invest to get to that level or is it still [Audio Gap] just want to understand how you’re making those decisions?

Yeah. Well, I think, digital is here to stay and there’s -- there are many positive attributes with digital.

The first one is, you have a way to communicate with your customer that’s outside of the store which is very valuable for us, higher average basket which is really interesting, and I mean, it’s just more orders, a lot of people are looking for digital solutions now, instead of being on premise. So, yeah, we’re seeing the future in digital.

I’m not sure exactly where it’s heading in the future. I know it’s going to grow.

So we’re investing massively in both U.S. and Canada.

Obviously, in the U.S. we’re a little bit ahead of Canada, but I think with the investments we’re making now in Canada, we’re hoping to close the gap.

But I think online ordering is here to stay and it’s going to grow. At what pace it’s going to grow.

I don’t know. But one thing’s for sure, we can’t afford not to be there.

Okay. And then just a follow up there, I guess, as digital continues to grow and as a franchisor, I guess, just the focus will be shift to some extent on more productive stores versus just expanding store count, if the same store can do a lot more volume with digital and in-store, is that something you guys are thinking about?

Well, we -- yeah, we’ve always wanted to make our stores more productive. So that’s not -- that’s nothing new.

We’re trying to improve the sales for each of our locations and whether we have digital or not, this is -- this has been an ongoing thing for the last 40 years for MTY, trying to improve the sales for each of our location and make our locations more productive. So this is nothing new and digital is certainly going to help.

It’s easier to sometimes get sales outside of the peak hours or get sales differently. So you don’t have someone that’s taking the orders.

Instead, you’re just producing the orders. So you’re using your staff more efficiently, making your stores more productive.

I don’t think we need to choose between opening new stores and making our stores more productive. I think those are two objectives that need to go hand in hand.

So we’re going to keep pushing on both.

Okay. Great.

Thanks very much.

Yeah. Thanks.

Good morning and congrats on the good quarter, Eric. I just wanted to talk a little bit about Cold Stone, maybe how the outlook looks over the next 12 months as the cold weather comes and as we lap a very successful last 12 months, just wondering your view on the ability for that banner to continue to grow on top of the solid growth?

Yeah. I wish I had a crystal ball, George.

But, yeah, we’re certainly, I think, we’re doing all the right things to make sure that we can continue growth and it’s not only the last 12 months. I mean, this brand has been on a fantastic pace for a number of years in terms of same-store sales, in terms of making the stores more productive as we just mentioned.

And now we’re implementing new tools. We have new ways to do marketing.

We have a lot of new product innovation that’s just outstanding. We have really good associations and partnerships that we’re making with worldwide renowned brands that are really exciting.

So I mean we’re pushing all the right buttons. How this is going to translate into sales.

I can’t make promises. But I think we’re doing a lot of good things with Cold Stone now to just make the brand incredible with the best possible experience and decadent ice cream as we’ve always had so.

So I’m -- again the Cold Stone is a great brand. I really believe in it.

It’s a brand that and we had some network erosion in the past few years with some stores closing, but we’re -- I think we’re on the right pace now to reverse that trend and start growing the unit count again. So, yeah, just to have -- when we have a lot of good things about Cold Stone is certainly no negative in the forecast.

Okay. And last question I promise on labor shortage, are there any banners that you’d like to call out that are maybe facing the more -- most -- more acute challenges there or any geographies, any flavor you can give there?

No. It’s a problem for everyone.

Obviously, if you have 50 employees and you’re missing 20, it’s more employees. But if you have five employees and you’re missing one, it’s still a big problem.

So I think all our franchisees are facing that problem. There are regions where it’s more difficult to hire.

I’m thinking of Québec at the moment is probably one of the most challenging geographies, especially the farther east you go in Québec, the more difficult it get. But we’re facing problems everywhere in North America.

So I wouldn’t say one brand is suffering more than the other. I think all our brands are facing the same problems.

Okay. And just to follow up on, you just mentioned there’s a new round of price increases on, that you mentioned earlier, can you maybe quantify that, is it low-single digits, is it mid-single digits and more than that, and what do you think the likelihood of you getting any pushback from your franchisees, just maybe worried about losing sales there?

Yeah. Well, that’s always a concern of our franchisees.

They’re the ones that are facing the customers every day and they’re the ones that are taking in the comments if we increase prices too aggressively. So, obviously, we need to try to balance that and the price increases generally are low to very low-single digits.

If we need to go higher than that we need to have some value proposition that we’re going to offer an exchange to try to make it up to our customers or give them options. But, yeah, we’re -- price increases are, they’ve always been there and now this year there’s probably a little bit more pressure to increase prices.

So far customers have been understanding about the price increases. But, yeah, again, we need to be -- we don’t know where that line is, it’s not easy to determine how much the right price increases and where the customers are going to stop visiting our stores.

So we need to be -- we need to move very cautiously. So we’re trying to keep it to very low numbers so that doesn’t have drastic repercussions on our brands.

Okay. And then just last one [ph], can you talk to the 139 locations that remain closed in the quarter?

I understand that there’s a large number of non-trad, I’m just trying to get a sense of the likelihood of all of them reopening maybe over the next couple of quarters?

Yeah. Well, the likelihood of all reopening, I think is not very high.

There will be some closures in that number unfortunately. We are working with our franchise partners for all of these locations.

But some of them might end up with the end of their lease, some of them might end up and especially the ones, for example, that are more volatile in movie theaters or university campuses are a little bit more unpredictable. So I wouldn’t say they will all reopen, there’s probably going to be some floaters here and our role here is to try to limit that number as much as possible so that the vast majority of them reopens and we don’t lose too many stores.

Okay. And last one for me, can you maybe remind us of the rationale for the divestiture of Houston’s last quarter?

And I guess, how do you think of future divestiture especially given the high valuations out there? Is that something that we can see MTY maybe do more of?

Well, nothing is impossible, but it’s certainly not something we’re contemplating. This is not something we normally do in terms of divestitures.

In this case, we had a brand where, we still like the brands a lot. I still actually visit the brands.

But, yeah, we just -- we have partners in that brand and we reached a point where we felt we either had to buy them out or they had to buy us out and they chose that option to buy us out. So it was amicable and we ended the relationship this way.

We sold it back to the people that had sold it to us. They’re great brands.

But at some point if we don’t have the right plan for it as a franchisor and as MTY then maybe it’s better for us to leave it in good hands with other people and that’s what we chose to do. But this is an anomaly.

This is not something we’re looking to do and even with high valuations generally we’re pretty protective of our brands and we’re not looking to sell any of them.

Okay. Thanks for answers.