MTY Food Group Inc. (MTY) Earnings Call Transcript & Summary

Good morning, and welcome to the MTY Food Group 2025 Second Quarter Results Earnings Call. [Operator Instructions] Listeners are reminded that portion of today's discussion may contain forward-looking statements that reflect current views with respect to future events. Any such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. For more information on MTY Food Group's risks and uncertainties related to these forward-looking statements, please refer to the company's annual information form dated February 13, 2025, which is posted on SEDAR+. The company's press release, MD&A and financial statements were issued earlier this morning and are available on its website and on SEDAR+. All figures presented on today's call are in all Canadian dollars, unless otherwise stated. This morning's call is being recorded on Friday, July 11, 2025, at 8:30 a.m. Eastern Time. I would now like to turn the call over to Mr. Eric Lefebvre, Chief Executive Officer of MTY Food Group. Please go ahead, sir.

Thank you. Good morning, everyone, and thank you for joining us for MTY's Second Quarter of 2025 Conference Call. I'm joined today by our Chief Financial Officer, Renee St-Onge. Last quarter was a tale of 2 geographies. Current macroeconomic conditions remain highly fluid and in some cases, challenging. U.S. consumers have been particularly affected by economic uncertainty, which is being reflected in our results and that of the broader restaurant industry. On the other hand, Canada was a bright spot throughout Q2. Following a soft Q1, business improved sequentially in March, April and May. Canadian same-store sales increased by 1.4%, reflecting broad-based strength across most of our banners, especially those in our casual dining segment. The story was more challenging in the U.S. where the volatility we saw in Q1 became more pronounced, resulting in a 3.8% decline in same-store sales. The softness was broad-based across our U.S. portfolio, regardless of banner or restaurant segment. although there were some bright spots such as Village In, nearly all banners were impacted by a more cautious consumer, including Cold Stone Creamery and Wetzel’s Pretzels. Performance was similar across all our restaurant segments, be it QSR, fast casual or casual dining. Our year-to-date performance is largely in line with the North American restaurant industry. In the current environment, it's become even more important for MTY to intensify initiatives that will increase the pace, energy and agility of our company. Over the past few years, we've made significant improvements to strengthen our roster of talent and increase the pace of innovation in food, technology or business practices. I'm incredibly excited by what I see in the pipeline, and I believe we are in the early innings of an evolution that will gradually bear fruit. One fundamental change I'm especially enthusiastic about is our product innovation. Most brands typically have 3 to 5 new product launch or LTO windows per year, which is -- which in the past were organized just a few months in advance. Due to the short lead times and the many departments involved in making a new product launch successful, execution sometimes suffered and launches were not as effective as they could have been. Fast forward to today, the vast majority of our brands plan their product launches 12 to 15 months in advance compared to very few just 3, 4 years ago. We are driving brands towards adding more product launches and LTOs to increasingly delight and excite our guests. All of this is part of our strategy of being a high-paced, high-energy and nimble company that will thrive in today's environment. Another investment that I am ardent about is digital, which you've heard me discuss in previous quarters. MTY is a company rich in consumer data and combined with our growing investment in technology, data scientists, consumer data platforms and AI, we believe we can unlock even more demand potential for our restaurants and improve our overall guest experience. Digital sales grew by 3% this quarter and now represent 21% of total system sales. Currently, our digital successes are more concentrated in some of our U.S. brands, and we're excited about the benefits this experience will bring to our Canadian business and smaller U.S. brands once it's rolled out across our network. Shifting gears to store count. We opened 76 locations and closed 77, resulting in a net decrease of 1 location for the quarter. Enhancing the profitability of our restaurant network remains a key focus, and we continue to strengthen our portfolio of locations through a combination of closures of underperforming locations and building a strong pipeline of openings. As of July 1, we had a total of 108 locations under construction and our goal of net location growth over the medium to long term remains unchanged. Of note, we opened 35 new locations in the month of June alone, indicating a good start to our third quarter. Turning to our normalized adjusted EBITDA performance. We experienced a 5% decline this quarter. The decline was entirely driven by our corporate store segment, partially by design. As I just mentioned, we are focused on enhancing our store network, and we made a strategic decision in the last few months to take back ownership of nearly 50 underperforming Papa Murphy's locations that have high potential. Our corporate stores were also impacted by the combination of cautious consumer and prime cost pressures. This quarter, normalized EBITDA margins of our Corporate segment came in at 9%, which we believe is a healthy and acceptable level given the composition of our portfolio. It's also important to highlight that our franchising segment, which represents our bread and butter, delivered a growth of 3%, while our retail segment also grew by 9%. Retail remains a powerful category for MTY with substantial growth potential. We're optimistic owing to the early success of several products and our nascent listings outside Quebec. MTY continues to generate very strong free cash flows, consistent with the strength of our asset-light business model. In the second quarter, cash flows from operations was up approximately $40 million and free cash flows net of lease payment came in at around $24 million. Both figures were largely flat compared to last year. The second quarter typically generates lower cash flows than other quarters because of many annual recurring variances that happen consistently every year. We remain committed to a balanced capital allocation strategy, one that supports strategic growth while also returning value to shareholders through dividends and share repurchases. During the quarter, we repurchased just under 300,000 shares under our normal course issuer bid, in line with the prior quarter. Going forward, we will continue to be flexible and opportunistic regarding our use of cash. Finally, I would like to take a moment to highlight the significant progress we've made on our ERP implementation, a truly foundational initiative for MTY. I'm pleased to report that our Canadian go-live was completed on time and on budget, marking a major milestone for the organization. This type of changes is never completely frictionless, but we're encouraged by how quickly and smoothly our teams have adopted the new system. I want to extend my sincere thanks to our head office staff across all functions for their exceptional effort, long hours, steadfast commitment throughout the process. Their dedication has been and continues to be instrumental to the successful rollout. Looking ahead, we're gearing up for the U.S. implementation, which will take place in 2 phases, the first in October, followed by a second one in December. We remain confident in our time line and are leveraging the lessons learned from Canada to ensure a seamless transition. With that, I'll -- now I'll turn it over to Renee, who will discuss MTY's financial results in greater detail.

Thank you, Eric, and good morning, everyone. Looking more closely at our operating segments, Canadian franchising revenues increased by 4% to $37.5 million, mainly due to increases in both sales of material to franchisees and recurring revenue streams. Canadian recurring revenue streams increased as a result of the improvements in our organic system sales of 3%. Meanwhile, in the U.S. and International segment, franchisee operations saw largely flattish year-over-year revenues at $65.3 million, a slight improvement of $0.3 million over prior year. This was the result of a favorable foreign exchange swing of $2.2 million, offset by a 4% decline in organic system sales. On the expense side, operating costs in Canada went up by $1.2 million year-over-year to $21.5 million, mostly due to cost of sales of material to franchisees. The cost of sales to franchisees fluctuated in line with the increase in revenues. Meanwhile, I'm happy to report that in the U.S. and International segment, operating expenses decreased by 1.4% to $28.1 million. This was the result of a $1.2 million decrease in controllable expenses, reflecting MTY's continued focus on disciplined cost management. This was partly offset by an unfavorable $1 million foreign exchange impact. As for profitability, normalized adjusted EBITDA for the franchise operations came in at $54 million, an increase of 4% compared to last year's [ $52.6 million ] with margins of 53%, a 1% improvement over prior year's margins of 52%. Moving over to the corporate operations. Canadian revenues decreased by 5% to $11.2 million due to a reduction in the number of corporate stores. U.S. and international revenues declined by 1% to $120.3 million due to a decline in same-store sales, which was partially offset by a higher number of corporate locations compared to the second quarter of 2024. Operating expenses for the Canadian segment decreased by $1.1 million to $10.7 million, while the U.S. and International segment rose by 5% to $109.5 million due to a higher number of corporate stores as well as generalized pressures on prime costs. Normalized adjusted EBITDA for the Corporate Stores segment came in at $11.3 million, down $5.5 million from last year. As Eric mentioned earlier, this decline explains our year-over-year decline in consolidated normalized adjusted EBITDA. Globally, revenue from food processing, distribution and retail grew by 4.4% to $40.2 million, driven by an increase in retail sales of 4% and an increase in food processing and distribution of 6%. The retail segment continues to be a segment with a multitude of growth opportunities across Canada and the U.S. Normalized adjusted EBITDA for the segment reached $4.7 million, up 9% from last year, with margins up to 12% from 11% last year. Turning our attention to the income attributable to owners, it amounted to $57.3 million or $2.49 per diluted share compared to $27.3 million or $1.13 per diluted share in Q2 2024. The increase was mainly due to accounting for the positive foreign exchange variations on intercompany loans. Moving over to cash flows. We continue to generate strong operating and free cash flows. The second quarter had cash flows from operating activities of $40.2 million compared to $40.6 million in Q2 of 2024. Free cash flows net of lease payments decreased slightly to $23.6 million in the quarter compared to $24.3 million last year. The decline was largely due to lower EBITDA, partly offset by lower capital expenditures. As mentioned in previous quarters for 2025, we are targeting capital expenditure levels lower than 2024. As mentioned by Eric, during the 3 months ended May 31, 2025, we repurchased and canceled 297,000 shares for $12.6 million through our NCIB and paid $7.6 million in dividends to our shareholders. We ended the quarter with a net debt of $623.5 million, a net reduction of $32.7 million since November 2024. Since Q2 of 2024, we have repaid a total of $69.1 million in long-term debt. Considering our strong cash flow generating ability, our debt-to-EBITDA of approximately 2.4x is a level of debt that continues to give us flexibility to make acquisitions should the opportunity arise. And with that, I'd like to thank you for your time and turn it back to Eric for closing remarks.

Thanks, Renee. Having experienced what I described as a tale 2 geographies this quarter, we remain motivated by our strategic vision of strengthening MTY's dynamism, creativity and entrepreneurial spirit. I personally have never been as inspired as I am today about our people and new initiatives that are taking hold. Whether it's the macroeconomic backdrop or tariff uncertainty, we are building MTY to be resilient and innovative in the face of any challenges that come our way. With our strong cash flow generation and balance sheet deleveraging, we believe we remain well positioned to take advantage of any opportunities that arise. Thank you for your time, and we will now open the lines for questions. Operator?

[Operator Instructions] Your first question comes from the line of Vishal Shreedhar from National Bank.

I'm just looking for more insight on how trends evolved through the quarter. Last quarter -- and I know things are moving quickly. The last quarter, management indicated that they weren't seeing any material change in consumer behavior and you said the U.S. is a little bit more choppy. So maybe you can describe what changed and maybe how it changed? I guess we're focusing on the U.S. here and what, in particular, the company did to respond?

Yes. So yes, the choppiness just became less choppy and more consistent and the negative, I guess, if you want to label it this way in the U.S. portfolio. In Canada, we're still seeing more stability. But yes, I mean, what happens is hard to explain. There are certainly layers that can that can guide us through what happened, but what we're seeing is -- and we're seeing the same industry trends where the restaurant industry is down slightly. So we're -- unfortunately, we're following the trend here. And as far as what it is that we're doing, it's not necessarily anything very different from what we were doing last quarter. We are doubling down for sure on everything we do digital. It's right to have more personalized marketing approaches. So we're -- those are long-term strategies that take time to implement, and we're certainly accelerating some of them, and we have accelerated also some of our marketing programs and marketing spend to try to alleviate some of the pain. And brand by brand, we're looking at our portfolio and some of them, it needs to be maybe provide consumers with a more favorable entry point to go into our restaurants and have a more value offering. But what we're finding is alcohol consumption is down. Value offerings are important, but they're also not the only thing that matters. And we just need to go brand by brand and have a systematic approach on what it is that we're doing today and what it is that we that we were trying to accomplish on the long-term strategy point of view and what we can do to accelerate it if we can. And if we can't, then we just need to have that -- keep that same systematic approach to deliver what we were planning to deliver on time and create that amazing consumer experience, not only in-store, but also with all our various digital platforms, consumers are not in store as much as they used to be, and we need to be able to replicate that consumer experience, whether they're in store or not. So it's more of the same, just a little bit of an acceleration on the spend and trying to come up with various initiatives that are brand by brand.

Okay. With respect to the price increases that you're taking, are they targeted to specific brands or geographies? And what can we put in for modeling purposes on the price increase? Should we expect it to be meaningful on the same-store line?

Not necessarily. They are meaningful for sure. And we're taking a very diligent approach. There's a science to it. We're trying to come up with price increases in areas that might not necessarily affect traffic as much, but we do have to take some pricing. And as you know, in the U.S., we don't dictate price for our franchisees. So franchisees are free to take price whenever they like, and we try to suggest price for them, but they don't necessarily have to follow our suggestions. Corporate stores, we didn't take price in many of our brands for 2 or 3 years for some of them. And now we're facing maybe a stiffer pressure on the prime cost on food cost primarily and to a certain extent on labor cost as well, and we reached a point where it was no longer sustainable to not take price. So we have to use a surgical approach and take price on certain commodities that are a little bit more expensive these days.

Okay. So the pressure that you saw in the U.S. corporate store line, to some degree, that should alleviate with the pricing that you on EBITDA, the pressure on EBITDA. You should see that alleviate to some degree next quarter as you implement the pricing. Is that a fair comment? Or are there other factors I should consider?

Yes. There's -- well, the portfolio is pretty broad, and we're taking price. We have taken price on one of our brands already. There is some pricing going live now, and there is some pricing scheduled also for later this quarter. So it won't be fully reflected in this quarter, but it will be fully reflected in Q4. Now as far as creating a material lift on sales, I'm not sure. But what we're going to try to do is direct consumers maybe to where there's better profit margins for us. And if they choose to go where there's not as much profit margins, and it's going to be a little bit more expensive for them. But as far as seeing a major difference on margins or same-store sales, I wouldn't necessarily go there. I think we're more in defensive mode here and protect what we have instead of being in a place where we can increase our margins at the expense of consumers.

Okay. And just one last one here before I circle back. Given the pressure you're seeing in the U.S. and exacerbating through the quarter. Can you comment on how that may impact the store pipeline? And could you see some of that pipeline, which you've indicated you're seeing some optimism in fade as franchisees question the backdrop, if that's even a legitimate question to ask.

I mean we're not seeing it yet. I'm not saying it's impossible that it would happen. But right now, the pipeline is very strong. As I mentioned, we've opened 35 locations just in the month of June, which is a great month. And then we're swinging hammers on a lot of stores as well. So still feeling really confident about our pipeline of store openings. And I'm just looking at the new franchise where we're awarding every day that are now 26 projects and the pipeline is still strong, and we're -- our franchising people are still delivering the number of stores that we're expecting. So I'm not saying it's impossible that there would be some delays or people with question marks in terms of investing in restaurants. But right now, I'm not seeing it.

And your next question comes from the line of Michael Glen from Raymond James.

Eric, I'm just wondering if you can give us some insight into profitability across the banners? Like is the -- is it kind of structured like the 80-20 rule? Or is it something a little more concentrated on your top banners from a profitability perspective?

So I assume you're talking about profitability for the franchisor. Yes, it's really the 80-20 rule for sure. Our larger brands will bring in more profits than the smaller ones. But the smaller ones accumulate because of the number of brands they accumulate to a material number. But yes, there is definitely an 80-20 factor here.

Okay. And I think we've -- I've asked you this in the past, but like what's the outlook for some of these, call it, the bottom 10% of brands? Like is there -- if you were to -- are there some negative EBITDA brands in the portfolio that could lead to a lift if you were to get rid of those?

No, all our brands are profitable. We do make sure that our brands are profitable and some are marginally profitable, some have highs and lows depending on where they are in their cycle. But divesting of brands would not result in higher profits. Now there might be some one-offs here with locations that we could get rid of that would result in higher profits. But as far as brands are concerned, no, all our brands are good.

Okay. And I think you said there was a strategic decision to take on 50 Papa Murphy's locations. That was -- is that post the quarter end, just to be clear?

No, no. Those happened mostly in late 2024 and early 2025. Those are stores that we talked about in previous quarters. And there are stores that have been poorly operated in most cases, where we feel that the turnaround is possible. The turnaround does take between 9 and 12 months to realize. So we're still in a place where we're losing money with these stores and investing in turning around the stores. We did refranchise one location successfully after turning it to profit in the last few weeks. So this is still the plan. We want to turn them around and refranchise them and then repeat the cycle.

Okay. And overall, like your view as MTY as an operator of corporate stores, do you have -- is that something that you think MTY is properly structured to do? Or do you need to add more resources there to your corporate store initiatives to add more cost to be straightforward to your corporate stores to ensure they're successful in the long term.

No. We have amazing people to run the corporate stores. So we're happy with where we are. We do have challenges with corporate stores here and there. I would say we've reinvested in the corporate store structure a little bit more in Canada in the past few months because we didn't have that proper structure. It requires the company to be wired a little bit differently to run those corporate stores, and we were purely wired as a franchisor. And in today's environment, we have to be able to run some corporate stores to, again, turn them around and refranchise them. In the U.S., we do have the proper structure. We have amazing people where we have concentration of corporate stores in our BBQ Holdings portfolio and also in our Wetzel’s portfolio, we have a little bit of a higher proportion, and we have great people to run the corporate store performance there. So no need to reinvest, but there's always some churn. And where we need to invest is in really good quality restaurant managers, which are critical to our successes. We can have all the greatest people at the head office. But if we don't have someone boots on the ground in the restaurant to run it, it makes it difficult. And this is where there's a constant reinvestment and there's a little bit more churn, as you know, in the restaurant staff. So this is a continued effort.

And your next question comes from the line of Derek Lessard from TD Cowen.

Eric, I just wanted to maybe touch on your 2 geographies analogy. I was wondering if you had a sense as to what's behind the Canadian consumer resilience that you're seeing?

Yes. Great question. I don't know. All I can measure is traffic and whether they come to our restaurants or not. I'm not an expert into analyzing how and why the Canadian consumer is more resilient at the moment than maybe the U.S. consumer. But if you look at the past few years, we've certainly been a lot stronger in the U.S. than we've been in Canada. So there's maybe a little bit of that where Canada is a little bit more stable and on the upwards trend, whereas the U.S. is probably taking a pause after many, many years of great results.

Yes. I was thinking along the lines, maybe it was due to the sort of the trade issues that we're having and more Canadians staying home, but that -- okay, that's fair. The EBITDA pressure in the U.S., you mentioned was somewhat by design with taking in the 50 Papa Murphy's stores. But in the press release, you did say that you were actively, I guess, evaluating strategic options, including accelerating franchising efforts with one and broader transformative changes with the other. So I guess, number one, what's the other banner in question in those remarks? And number two, maybe you could just add some color around the transformative changes you're talking about?

Yes. There's a few brands. Obviously, Papa Murphy's, we took back 50 stores. So that's a pretty big transformation for the brand. And we are learning as we're doing it. But certainly, big effort on turning these stores around and showing what we can do and demonstrating the business model. In other brands that are concerned by some more fundamental changes, you're looking at, for example, Barrio Queen, which is -- it's a small chain with fewer restaurants, but they're highly profitable restaurants and variations in their profitability becomes a little bit more material for that reason. So we are in the middle of some franchising efforts here. We've never had a franchisee for Barrio Queen, and we're curious to see what a franchisee would do with these stores. Unfortunately, we had a little bit of delays in franchising. We wish it was done already. But so we will franchise a few stores. For Barrio Queen, we also hired an external firm to come and assess our operations to see why our sales are declining, where is our traffic going and how can we win back those customers and win back this traffic. The alcohol mix is a little bit higher at Barrio Queen. So I suspect that probably plays a part, but there's probably something else as well. So we're ready to implement some transformative changes. We've also changed the management team for some of our brands, including Barrio Queen. So we are doing a certain number. We're taking steps into figuring out what's happening with this brand specifically and where can we go over there. There's other brands that are feeling a little bit more pressure, and I'll name, for example, Granite City. Again, that's a smaller chain. They are all corporate stores, very high proportion of alcohol. We're brewery. So obviously, that's what we do. So feeling a little bit more pressure at the moment. So we are also in the middle of implementing some changes there to try to regain customers and win back those customers. And whatever it takes, it it's -- if we need to win them back, they're using other products than beer, and we'll do it. So the team is actively looking at solutions for these brands.

Okay. And I guess on the Papa Murphy's, how far down the road or along the process do you think you are in getting them back to profitability and then perhaps refranchising them?

Yes. We repurchased a few clusters of stores. So I'll go cluster by cluster. there's the first one we reacquired last year is at breakeven now. So we're pretty much there. And then the other 2 clusters came in at timing. We're probably in this 6 to 9 months period now, and I'm thinking it's probably going to take 9 to 12 before we get them to breakeven. Some were poorly managed for a longer period of time. So it takes longer to convince consumers to come into the door once again and win back customers is more difficult than when you open a store and start fresh. So we're probably 3 to 6 months away from being able to say we're there at breakeven with these stores, and we're going to be successful.

Okay. And maybe one final one on weather. Just curious if there's any impact on, I guess, Cold Stone Creamery but frozen treat sales in the Northeast. It was pretty cold in the lead up to summer here or it took longer for summer to arrive. Just curious if you had any weather impacts on the business.

Yes. We're monitoring weather, for sure. And as much as I don't like to blame weather for everything we sell ice cream. So it does have an incidence that's maybe higher than other restaurants. But yes, Northeast was a little bit more challenging. And although the timing of weather events was bad, and that includes Canada, when it's raining on Saturdays and Sundays and sunny on Mondays and Tuesdays, it doesn't necessarily help our business. So we do feel some impact on weather, but probably weather happens every year, so we'll take it over a longer period of time to assess. And hopefully, we have a mild hurricane season this year and not too many wildfires impacting some of our some of our brands. So yes -- so weather is a thing. And obviously, when you sell frozen treats, it does have a bigger impact. But hopefully, it stabilizes, and we're better now.

And your next question comes from the line of Jan Zamparo from Scotiabank.

I wanted to follow up on the strategic alternatives comment for your corporate banners or some of them. Are potential brand divestitures among the alternatives that you're considering at the moment?

Nothing is off the table. So we're certainly not aggressively trying to market our brands. But nothing is off the table. I think it's part of a reasonable capital allocation strategy to look at acquisitions and divestitures. And that's certainly part of the discussions we're having, and we're not aggressively marketing any of our brands, but it's not impossible it would happen one day.

Right. Okay. And coming back to the corporate store margins, independent of the price increases you talked about, I think you said in your prepared remarks that the 9-ish percent level you're at now that, that represents a reasonable number over the medium term. Is that a fair interpretation? Like should we expect flattish margins over the next couple of quarters?

Yes. If you remember last year, when we realized the margins we did in Q2, I did mention that we were on the very high side and people ask -- were asking me if there's further margin expansion. And I remember saying, no, there's -- this is -- we're probably a little bit too high. So last year, we were probably a little bit too high. This year, we're a little bit lower for various reasons. But I do think that being around the 9% is a reasonable place to be. And I mean there's going to be variations in our margins, whether they're up or down in the future, both can happen. But I think over a longer period of time, if we're in that 9% range, we're probably the right place given our portfolio where we have some stores that are losing money that we're trying to turn around and some stores that are vastly profitable.

Okay. That's helpful. On the store network, the commentary on openings, particularly in June, that's encouraging. I wonder about your sense of what closures might look like over the next few quarters. I know these can be lumpy and tough to predict, but any sense of how closures might evolve in the rest of '25 versus the last couple of years?

Yes. There's always going to be some closures given the size of our network. So I do anticipate there's going to be more where we were, I think, in Q2 was -- is probably a reasonable place, unfortunately. I'd like to close fewer, but this is probably what we should expect on average for the next few quarters. So I don't expect that we would close dramatically fewer stores or dramatically higher stores unless there's a surprise out there. So I think the Q2 number is probably a reasonable place to pull an average.

Understood. And then one last one and more broadly on the industry, we've lapped the launch of, I would say, an increased focus on price promotions and value offerings from some of the larger industry players, particularly within quick service. Do you get a sense that the industry will start to focus more on profitability rather than traffic and pricing anytime soon? Or is the consumer not in the right state for your competitors to maybe shift their positioning on messaging?

Yes. I'm not sure -- yes, I think there's less intensity. And certainly, the spotlight is less on just providing these crazy value offers, but they're still out there and a lot of people are still focusing on traffic rather than profitability for various reasons. So I don't think that's going to change that much in the foreseeable future. There is less intensity on very aggressive price promotions than there was a year ago, but it's still a thing.

And your next question comes from the line of Ryland Conrad from RBC Capital Markets.

I guess just to start off, curious from your perspective how just the macro environment is evolving. I think last quarter, you mentioned Q2 started off stronger. And then in the press release, you do kind of call out macro headwinds as being short term. So could you just shed some light on how things progressed through the quarter and kind of the cadence of the performance in the U.S.? And just why that broad-based pressure is being sustained so far into Q3?

Yes. I mean we went from choppiness to more sustained drops during Q2. What we're seeing so far in Q3, and I only have 1 month of data, but it seems to be more of the same for this. So I'm not seeing a crazy reversal in June. So it's not worse, but it's also not better. Hopefully, the end of the summer will turn to the better. But right now, we're -- we don't have visibility on a drastic change one way or another.

Okay. Got it. And then just -- on the newly passed Republican bill just targeting cuts to SNAP. Can you just remind us what Papa Murphy's system sales exposure to that program?

Yes, we're at 9% of our sales are SNAP.

Okay. That's helpful. And then just lastly, I know in your outlook, just the expectation for CapEx to be lower this year, certainly a meaningful step down so far in the first half. So would that be a good run rate for the remainder of the year? Or should we expect any kind of step up?

No, it's a good run rate. I don't anticipate a big step-up on CapEx. We do have some spending left on SAP. There's probably about $2 million left between now and the end of the year on SAP. But for the rest on CapEx, I don't anticipate any major changes from the trend of Q1 and Q2.

Your next question comes from the line of Michael Glen from Raymond James.

Eric, I'm just wondering how you balance capital allocation between, say, given where the share price is, given -- how would you capital allocation between an SIB or a substantial issuer bid versus M&A?

Yes, that's a question we talk about all the time at the Board. So I mean, we weigh these -- all these alternatives that we have. The SIB is not impossible. The M&A is also not impossible. Right now, we're repaying debt a little bit more aggressively in the last few weeks. So we're seeing that the interest rates are not going down as fast in the U.S. as we thought they would. So we're repaying a little more debt, building our treasure chest and trying to bring our leverage down. But I would say SIB is certainly a possibility and M&A is certainly a possibility like any other capital allocation strategy.

And how would you characterize right now the M&A environment? Do you see a favorable M&A environment? Are sellers reasonable with their assumptions?

In most cases, no, they're not reasonable, and that's why you haven't seen MTY do M&A recently. It's just that we need the right transaction at the right price, and we haven't been able to cross the finish line with any of these transactions we found to be in that category. And a lot of what we see is fixer uppers that we're not necessarily looking for at the moment. And we're also seeing a lot of good networks that are commanding very, very high multiples and that we're not necessarily willing to pay the price for -- we don't want to pay a high price for the wrong reasons. So we remain disciplined in our approach.

Okay. And my last one, the Canadian ERP implementation. So what are the -- what is the additional functionality or benefits to MTY from this implementation?

Yes. Well, first, it's the same ERP across all our networks. So we did the rollout in Canada first, but it's -- we just needed to go by division, so we don't jeopardize the entire thing if it doesn't work. It was successful, but there's -- it's not an easy thing to do. So one of the benefits is we're going to remove a lot of these old dated systems that are end of life or past end of life that are vulnerable and also that are not capable of producing the information we need or accumulating the information we need to run our business in today's environment. So what we're seeing is a system that's going to be a lot more flexible, a lot a lot more robust also to take a lot of data and to spit out a lot of data when we need it as well. So just better systems, state-of-the-art systems that will enable a lot of different things and unlock a lot of potential for MTY while also reducing our vulnerability to older systems that needed to be changed anyways.

Thank you. There are no further questions at this time. This concludes today's call. Thank you for participating. You may now disconnect.