MTY Food Group Inc

TSX:MTY

Earnings Call Transcript 2023-Q1

[Operator]

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to MTY's Food Group Inc. Q1 2023 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. [Operator Instructions]

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 today, Wednesday, April 12, 2023.

I would now like to turn the call over to Eric Lefebvre, Chief Executive Officer. Please go ahead.

[Eric Lefebvre, CEO]

Good morning, everyone. Thank you for joining us for MTY's first quarter conference call for fiscal 2023. The press release and 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 forward-looking statements and to certain numbers 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.

We're pleased with the robust operational and financial performance realized in the first quarter of 2023 highlighted by normalized adjusted EBITDA of $64 million and a record high system sales of $1.4 billion. We're particularly proud of that organic growth complemented our business acquisitions with year-over-year organic growth of 20% in consolidated normalized adjusted EBITDA and 14% in system sales.

During the first quarter, the average unit volume of our restaurants was 39.6% higher than it was during the first quarter of 2020, which was the last quarter before the pandemic. This organic growth reflects the impact of numerous initiatives put in place many months ago, that are now bearing fruit. The key performance indicators are flashing green across our management dashboard but we're not yet satisfied and we will keep pushing for more.

That being said, the acquisitions of Wetzel's Pretzels and Sauce Pizza and Wine during the quarter along with the Barbecue Holdings transaction which closed last fall largely contributed to the year-over-year growth in EBITDA and system sales.

Wetzel's Pretzels, which added over 360 locations to MTY's network delivered strong results during the holiday season in December. We expect this deal to be accretive to MTY's earnings, EBITDA and free-cash flow per share in 2023.

On the Canadian side, our network generated 32% system sales growth in the first quarter as the business continued on its strong momentum compared to a quarter marked by pandemic-related restrictions last year.

Digital sales for the first quarter, meanwhile, increased 17% year-over-year to $246.2 million, including the positive impact of acquisitions and foreign exchange rate. Our digital sales, which consists mostly of takeout orders and delivery sales benefit from the increased focus of our team but on digital marketing and sales channel, emphasizing the growing importance of the customer experience when they are away from our restaurants.

Looking deeper at normalized adjusted EBITDA. Our consolidated margins declined to 22% in Q1 2023 due to the higher weight of corporate stores following recent acquisitions. However, taken individually, our segment margins are all trending favorably compared to last year with the exception of the U.S. franchising, which is mostly flat at just above 50% when excluding acquisition costs.

Turning to our network. We ended the first quarter with a total of 7,128 locations, of which approximately 97% were franchised. We acquired 379 locations during the quarter, opened 76 and closed 115 others in what we consider a typical turnover for the first quarter of any period. Both openings and closings were slightly better than our 10-year average in proportion of our network, which is in line with our objective of reducing closures and increasing the pace of openings.

Construction and supply chain issues have largely subsided early in 2023, but we're still experiencing significant delays to obtain permits and final inspections in many jurisdictions. Despite these temporary issues, our management team remains dedicated to delivering healthy organic growth and maximizing the assets in our portfolio.

Finally, looking ahead to capital allocation priorities for 2023, we will continue to opportunistically seek acquisitions, reduce debt, invest in our business and reward shareholders with dividends.

I will now turn the call over to Renée, who will discuss MTY's financial results in greater details.

[Renée St-Onge, CFO]

Thank you, Eric, and good morning, everyone.

As previously mentioned by Eric, MTY delivered record-breaking normalized adjusted EBITDA of $64 million in the first quarter of 2023 which excludes $1.1 million in acquisition-related expenses. The 79% year-over-year increase in normalized adjusted EBITDA is largely due to the acquisitions of BBQ Holdings, Wetzel's Pretzels and Sauce Pizza and Wine which positively impacted our U.S. and International segment in the first quarter of 2023, generating $13 million in EBITDA when excluding the impact of IFRS 16. This is a 63% improvement to the U.S. and International segment over prior year and is a strong and early indicator of the strength of the brands we just acquired.

The Canadian segment also generated a 52% year-over-year growth in normalized adjusted EBITDA with a return to pre-pandemic market conditions in Canada. Organic growth in the Canadian segment accounted for 96% of the total improvement generated primarily by our franchising segment.

In terms of net income attributable to owners, it amounted to $18.4 million or $0.75 per diluted share in the first quarter of 2023 compared to $16.6 million or $0.68 per diluted share in the same period last year.

Net income in the first quarter was negatively affected by a few factors, including higher interest on long-term debt caused by our increased borrowings as well as higher borrowing rates, increases in the depreciation of property, plant and equipment and right-of-use assets due to the higher number of corporate stores in our portfolio, additional unrealized foreign exchange losses and acquisition-related transaction expenses linked to the Wetzel's Pretzels and Sauce Pizza and Wine deals in the amount of $1.1 million.

Although we know that some of these items are nonrecurring in nature, we expect some of these increases, such as the increase in our interest expense and amortization of tangible assets to remain for the foreseeable future.

Looking at our revenues, the company saw a growth of 104% year-over-year to $286 million in the first quarter of 2023. Revenues more than doubled driven by the BBQ Holdings, Wetzel's Pretzels and Sauce Pizza and Wine transactions that raised revenues for franchise operations and corporate store restaurants in the U.S. and International segment by $14.1 million and $110 million, respectively.

In Canada, franchise operations, corporate restaurants as well as food processing, distribution and retail revenue improved 33%, 31% and 5%, respectively, as the overall business recovered from government-imposed restrictions related to the pandemic in the first quarter of 2022.

Turning to liquidity and capital resources. Cash flow from operations totaled $36.7 million in the first quarter of 2023 compared to $38.8 million in the first quarter of 2022 while free cash flows amounted to $29.2 million or $1.19 per diluted share in the first quarter of 2023 compared to $36.1 million or $1.47 per diluted share in the first quarter of 2022.

Both our cash flows from operations and free cash flows were impacted by higher interest rates as well as two onetime nonrecurring payments totaling $10.4 million during the first quarter of this year. Excluding the impact of those nonrecurring payments, the conversion of EBITDA into cash flow is in line with the potential of MTY to turn EBITDA into cash flows in this higher interest environment.

Excluding variations in noncash working capital items, income taxes, interest paid and other, operations generated $63.3 million in cash flows in the first quarter of 2023 compared to $36 million in the same period last year. In the first quarter of 2023, we also reimbursed $29.6 million of long-term debt and paid $6.1 million in dividends to our shareholders.

At the end of the first quarter, MTY had a healthy cash on hand balance of $58.7 million and long-term debt of $839.7 million mainly in the form of bank facilities and promissory notes on acquisition. Our net debt to normalized adjusted EBITDA ratio stood at 3.6x at quarter end, which is at the higher end of our comfort level.

The company has a revolving credit facility of $900 million of which $609 million or CAD 827.1 has been drawn. A hedging strategy where interest swaps have been implemented to provide additional financial flexibility as well as minimize interest payments during a time when market rates are extremely high and volatile.

And with that, I thank you for your time, and we will now open the line for questions. Operator?

[Operator]

[Operator Instructions] Your first question comes from John Zamparo from CIBC. Please go ahead.

[John Zamparo, CIBC]

Thank you very much. Good morning. I wonder if we could start on your latest deals. And I wonder if you could provide some color on the same-store sales, but also unit growth at Wetzel's and BBQ in the quarter?

[Eric Lefebvre, CEO]

Yes, sure. So I'll start with the more recent with Wetzel's. Sales are going strong. We had a really good month of December, which is an important month for Wetzel's given the mall presence. So all things are trending well for Wetzel's. In terms of unit growth, I think it's a little bit premature for us to comment on unit growth. It's only three months of business. So we're working on a very healthy pipeline that was there when we acquired the business.

So we are opening stores, and we will be opening stores in the future. So it's not -- it's not a business that we acquired with no pipeline and where we had to build it. It's a business that already had some really good momentum. It was doing a lot of good things. And starting off with a healthy pipeline is always good. So we should expect some unit growth in the next few months.

For BBQ, yes, it's a little bit of more of a struggle in terms of sales in December. We had the -- we had some really bad weather event in the two weeks leading to New Year's, that helped -- that didn't help with our sales performance. And January and February, were fine, but those two weeks really hurt us. And that's not -- that's not the only brand that was hurt by these weather events that were a little bit unusual.

But other than that, BBQ is doing really well. We're happy with the performance of the brands. We acquired some really good brands there and a good group of also franchisees. So we're doing the right things and the sales are going to come. In terms of pipeline for BBQ, the pipeline was empty when we acquired. So this is something we're building. It takes a few months for us to build the pipeline and then another few months for us to build the stores. So we're going to have to be a little bit more patient there, but that was something that we expected. So no surprise there.

[John Zamparo, CIBC]

Okay. That's helpful. Thanks for that. On the outlook, you continue to call out the labor environment. And I wonder if you can frame that versus prior quarters. Is it improving? Is it worsening? And are there specific regions or formats that are disproportionately impacted?

[Eric Lefebvre, CEO]

Yes. It's improving. There's no question about that. But it still remains a challenge. There are areas that are more difficult than others, and sometimes they can vary. But yes, the labor is still a challenge for us and for our suppliers as well. So sometimes we if we do have the labor, sometimes our suppliers are running short.

So I mean this is an environment we're going to have to get used to. I don't see that getting dramatically better in the future. We already had some labor issues before the pandemic and the pandemic didn't help. So I mean, this is something we're going to have to live with probably for the next decade. So it's up to us to be more attractive and make sure that we solve our labor problems and help our suppliers and business partners to solve their labor problems so that we have a pretty seamless operation.

[John Zamparo, CIBC]

Okay. Understood. And then a couple of housekeeping questions. The commentary on malls and office towers, I think you said that was up 49% year-over-year, correct me if I'm wrong. But are those at pre-pandemic levels yet? Or can you quantify the gap to pre-pandemic for that format?

[Eric Lefebvre, CEO]

Yes. Well, office towers are -- we have very few restaurants in office towers. So there being this is -- this is hit and miss. We have some that are up, but we have for the vast majority of them, they're down dramatically still, but it's a very minute portion of our restaurants.

As far as malls are concerned, the good malls are up in traffic versus pre-pandemic. So the good malls are doing really well. I would say that B and C malls are struggling a little more to attract traffic now. And the good news is we don't have that many stores in those B and C malls, but we do have some. And sales are not coming back the way they are for the really good malls, which are firing on all cylinders now.

[John Zamparo, CIBC]

Right. Okay. And then lastly, CapEx. I mean this is kind of new to MTY, which has historically been a really low level of CapEx intensity, but because of the corporate presence at BBQ, you've got a more meaningful number there. The $8 million or so in the quarter, is that a reasonable run rate? Is there anything kind of onetime in there?

[Eric Lefebvre, CEO]

No, it's on the high side. We have -- when we acquired both Wetzel's and BBQ, we had some pre-deal commitments that we have to honor. So we are building some stores. We are building our first street stores, we called Twisted by Pretzels that -- by Wetzel's. For Wetzel's Pretzels, we're building a new [barrier queen] enterprise for the BBQ division. We have some renovations going on the village in. We also have some stores that are being built now that will probably be sold as they get closer to opening in various brands.

So I would say the $8 million is on the high side, not a lot of that is maintenance CapEx. A lot of that is related to pre-deal transactions that we have to honor. And that will probably continue for Q2, but I expect that after Q2, it should go down to a more normal level.

[John Zamparo, CIBC]

Okay. Appreciate the color. I'll pass it on. Thank you.

[Operator]

Thank you. Your next question comes from Vishal Shreedhar from National Bank. Please go ahead.

[Vishal Shreedhar, National Bank]

Thanks for taking my questions. Just on the acquisition backdrop, I wanted to get [bit of] sense on how willing it is to closed on acquisitions? Are we thinking about smaller ones? How should we think about that balance sheet? And where would leverage top out or management, we feel that it's a level that they don't want to exceed, how should we think about all that?

[Eric Lefebvre, CEO]

Yes. Well, at the moment, if -- I mean there's always ways if we find a real great transaction to find capital and do what we need to do, if it's right for the business. I'd say if we wanted to look at acquisitions today, realistically, it would probably be smaller or medium-sized acquisitions. I don't see MTY extending the leverage much fast where it is now. So if we wanted to do acquisitions, I mean we are producing good cash flows, and we will be paying down our debt and creating some wiggle room for future acquisitions, but we don't know what the market is going to throw at us. If we have small acquisitions, we'll make small acquisitions.

But if the market has very large acquisitions that we consider or can -- can't miss. We're going to go forward, we'll be creative and we'll find a way to raise the required capital. But realistically, we should expect smaller and medium-sized acquisitions for now as our leverage is on the high side now.

[Vishal Shreedhar, National Bank]

And how about the acquisition backdrop? Is there anything that you're noticing changing? Is it -- are there still attractive deals out there?

[Eric Lefebvre, CEO]

Well, you know what, it's -- the market is a little bit volatile now. So we're seeing some deal flow. It's not a super active market. I think a lot of the sellers are seeing that the multiples are depressed and there's not that many buyers out there. We've seen what happened with Subway. They're trying to get high value for their assets. And if a brand like Subway can't do it, then maybe other people are going to think about it. But it's up to us to maintain our relationships and -- this is what we do. And when we're not acquiring, we're nurturing relationships, and we're making sure that we stay top of the list for attractive companies to call us when they want to sell their business.

But right now, the deal flow is there. It's certainly not -- seller's market now. So what we're seeing is multiples becoming a little bit more reasonable, but people being a little bit more cautious about maybe waiting for a few months or a few years to see how the market evolves before to sell their companies.

[Vishal Shreedhar, National Bank]

Okay. And how would you characterize the backdrop right now? Obviously, results were strong in the quarter, and management gave us that color about its initiatives, flashing green. So it seems fairly constructive from what we're seeing, but just wondering if you could add any perspective to that.

[Eric Lefebvre, CEO]

Yes. Well, now what we're really happy with the performance of the company in general. We -- our brands are doing a lot of good things. Our teams are amazing, and we have a lot of initiatives going for each of our brands and some brands are doing fantastic. Some brands are turning around. And as you know, it takes a few months for anything to really gain traction. But in general, it's all flashing green on the dashboard. We're really happy. But we don't -- we don't want to stop because we know once you lose momentum, it's harder to regain it. So we're pushing hard to keep our momentum and accelerate.

So the teams are all hands on deck and everybody is pretty happy with the performance. It's really encouraging. So the vibe is very positive in the company, and everybody is happy with where we're going.

[Vishal Shreedhar, National Bank]

Thank you.

[Operator]

Thank you. Your next question comes from George Doumet from Scotiabank. Please go ahead.

[George Doumet, Scotiabank]

Yes. Good morning, Eric. I just want to get your prognosis on the consumer in general. Maybe how that can relate to restaurant sales, I guess, given the higher inflation and recessionary concerns, it feels that everything internally is going really well, but maybe from a macro perspective, just kind of your view there?

[Eric Lefebvre, CEO]

Yes. I don't know if it's fair to ask me for a view on the macro environment. I can talk about our restaurants. I mean people are coming to our restaurants. People are happy to gather socially and enjoy our food, and we're trying to do the right things to make sure that we're top of the list when people want to consume food in restaurants.

As far as the customer is concerned, all I know is the MTY customer is still showing up to our restaurants. I can't necessarily talk for the others. But for the moment, people talk about inflation, people talk about a lot of different things. I don't know if it's a fad. I don't know if it's a flavor of the week until we talk about something else. But for the moment, it's affecting us for sure. But customers are there. So we're happy with the situation.

[George Doumet, Scotiabank]

Okay. That's helpful. And on your earlier comments on the 40% AUV growth versus pre-pandemic. How much of that is pricing? And if you exclude Papa Murphy from that, like can you maybe call out some banners that you think saw the most -- more impressive growth?

[Eric Lefebvre, CEO]

Yes. Well, there's some pricing in every brand for sure. It's not a very large portion of the increase, though, our pricing is not up by anything close to that proportion. Some brands have -- some brands have increased prices by 15%. Some brands have increased prices by 6% or 7%, but no brands have increased their prices by 40%. So I mean, it's hard for me to give you an exact answer given the number of brands we have. But as far as brands performing really well, I mean, most of our brands are performing really well. And for most of our brands, the AUV is up significantly. So I don't necessarily want to pinpoint one brand and forget about all the others. So yes, I would say, in general, it's going really well and AUV is increasing for most of our brands.

[George Doumet, Scotiabank]

Okay. And the corporate restaurant saw EBITDA margins in the mid-9s this quarter. I'm just wondering, is there a room for continued improvement there? Maybe how should we see that margin evolving for the rest of the year?

[Eric Lefebvre, CEO]

Yes. That number is a pretty strong number. So I think in terms of margins, we're always working to improve the margins. But we need to be realistic also. It's a pretty strong number when you consider that there are some stores also that are underperforming in that portfolio. So pretty strong numbers.

So our primary focus is to work on top line and increase sales. There are opportunities in a lot of our restaurants to jack up the top line. And if we can maintain those margins with higher top line, it's going to be better for our shareholders. So I don't see much margin expansion there. There's going to be variations up and down depending on seasonality, but where we're focusing the most is on top line.

[George Doumet, Scotiabank]

Okay. One last one for me, Eric, I do -- I always ask you this question, but Papa Murphy, how did they do in the quarter? And are you seeing at all maybe a pronounced slowdown at all or a slowdown in the takeout delivery part of that business?

[Eric Lefebvre, CEO]

I'm happy you asked the question because it's doing fantastic. Yes, we're finally gaining tractions with a lot of the initiatives we had put in place. And last year, you asked me that question, and I was like, yes, we have a lot of initiatives on the go, but it takes time to get traction. And now we're seeing -- we're getting traction. Our sales are up. System sales, comp sales are up, traffic is up also. Check average is up. A lot of our metrics are pointing up. Also online ordering is up.

So we have a lot proportion of our sales going up. And the good news is after the quarter ended, we continue to see that momentum continue to pick up. So December was good. January was slightly better. February was slightly better and then March was even better than those previous months. So we're on to something with Papa Murphy's. We're not -- it's a small sample. It's been doing much better in the past five, six months. And hopefully, we'll be able to keep that momentum going and keep picking up the pace.

[George Doumet, Scotiabank]

Great. Thanks for answers. We'll get back in queue.

[Operator]

Thank you. Your next question comes from Michael Glen from Raymond James. Please go ahead.

[Michael Glen, Raymond James]

You highlighted the $10 million on the free cash number. You indicated the $10 million of payments there. What -- I didn't see those -- where do I see those in the cash flow or in the financial statements?

[Eric Lefebvre, CEO]

Yes, there are disbursements that are out of accounts payable. So if you look at the working capital, this is one of the large items that affected working capital. They're both related to transactions. One is related to the payable we had following the Kahala transaction in 2016. So it was a relatively old one and one is related to the Wetzel's Pretzels payments that were done after the transaction.

[Michael Glen, Raymond James]

So were those earn-outs, then?

[Eric Lefebvre, CEO]

No, they're not earn-outs. There are amounts that are payable at the transaction -- at the time of transaction, and that are paid after the transaction.

[Michael Glen, Raymond James]

Okay. And then the other item on the cash flow, the lease payments line, it was about $10.5 million. Is that -- does that include everything that for Q1? Should that be at that level through the balance of the year, all else equal?

[Eric Lefebvre, CEO]

Yes, this is what we expect.

[Michael Glen, Raymond James]

Okay. And just going back to the corporate stores, the CapEx moderation in the back half of the year? Like can you describe like what does the renovation cycle look like on those corporate stores?

[Eric Lefebvre, CEO]

Yes. We're renovating our villages at the moment. So the refresh is we're going to do have to refresh this year. After refresh next year, we're showing some really good ROIs on those refreshes. So it's a good investment of our money. And then there's always a few stores that need to be refreshed. Sometimes it's just a fresh coat of paint. So it's relatively inexpensive and not necessarily a CapEx item. But sometimes, it needs to be a little bit more. So you should expect renovations between 7 and 10 years, where every store depending on traffic and depending on the type of store. But for most of the stores, it's relatively inexpensive to renovate.

[Michael Glen, Raymond James]

And Eric, as you work through this higher level of corporate stores, I know that you've -- I think you've said on prior conference calls, your -- you would keep these stores. But is there any evolving thought process there as to whether there could be a divestment of these corporate stores at some point down the road?

[Eric Lefebvre, CEO]

No, we're happy with our corporate stores. We have -- as long as we're -- we have a group now that's wired to do corporate store performance. This is something we did not have before. And with the critical mass we have, it's worth it to have these people and they're doing a fantastic job. So -- it's a large part of profitability. So for me to go out and sell our corporate stores for maybe 4x or 5x EBITDA. It doesn't necessarily bring value to the company or to the shareholders. So I'd rather keep them and maximize their performance and work on them.

We're not necessarily looking to build more corporate stores, and we might divest the store here and there, if it makes sense geographically because it's out of the way or something. But other than that, we intend on keeping the stores for now.

[Michael Glen, Raymond James]

Okay. And I think you said leverage was 3.6x. Do you have like a pro forma figure? Is that the LTM EBITDA? Or is that a pro forma number?

[Eric Lefebvre, CEO]

No, that's based on LTM.

[Michael Glen, Raymond James]

LTM do you have a pro forma number handy?

[Eric Lefebvre, CEO]

No. Well, we do, but we don't share guidance, as you know.

[Michael Glen, Raymond James]

Okay. Okay, thanks.

[Operator]

Thank you. [Operator Instructions] Your next question comes from Derek Lessard from TD Cowen. Please go ahead.

[Derek Lessard, TD Cowen]

Yes. Thanks. Good morning, everybody. Congratulations on the results. A couple of questions for me. Eric, I just wanted to kind of come back to the -- to what you're seeing in terms of pricing and volume? I think you mentioned some brands were pushing through prices. And if I'm looking at the industry data, it would suggest that menu inflation is up high, high single digits. Does that imply that your volumes would be down, particularly if we're looking at the U.S. with 4% organic growth?

[Eric Lefebvre, CEO]

No. Our pricing is certainly not up in around 10% for the last 12 months. Maybe there's some food -- some elements that are up 10%, but we're nowhere close to that for most of our brands. So no, traffic is -- traffic is good for most of the brands. I'm not saying 100% of the brands have traffic going up, but for most of our brands, the traffic is up, and there is some food inflation, but nowhere close to the number you mentioned.

[Derek Lessard, TD Cowen]

Okay. And maybe could you just talk about what you're seeing on the competitive front and sort of promotional activity as you would expect some consumers may be pulling back on the first strings?

[Eric Lefebvre, CEO]

Yes, you know what, it's not bad at the moment. We don't -- there's always some value proposition. There's always some discounting. But we're not seeing some of the crazy stuff that we see in other times. We have seen some competitors go very aggressively to try to get traffic up. But, in general, I would say the environment is a good one to operate in for restaurant operators.

So yes, it's -- everybody wants to get their traffic up, but everybody is also realizing more than ever that we're working on [indiscernible] margins. And if you discount something too much, you might run into trouble. So we'd rather keep our prices where they are at the normal level and make sure our franchisees realize the right margins for their businesses and make money and get a return on their investment.

[Derek Lessard, TD Cowen]

Okay. A slow start to spring here in Quebec. Just wondering if that's impacted you at all early on? And was the slower Quebec spring here representative of what you're seeing in other regions? And maybe just on the -- if you expected any impact on the, I guess, the electricity outage in Quebec last week?

[Eric Lefebvre, CEO]

Yes. We're looking forward for patio season to start, to be honest with you, not only in Quebec, but you look at Ontario, you look at our stores that we have in Minnesota, for example, it's still -- I mean I think it was minus 25 early this week, still. So I mean we need patio season to start for our sales to go up in some of our concepts. So you're right, it's a slow start of the spring so far. We're not seeing any dramatic impact because there's ups and downs at this time of the year, but we'll need a good patio season like we always do.

Hopefully, this week is going to cure that and we're going to be able to open patios and customers are going to be happy to be outside. As far as the power outage in Quebec is concerned, a lot of our restaurants were affected, some very positively, some very negatively. We had some restaurants that were closed for four or five days. And we also had restaurants that didn't lose power that crushed it during the weekend and ran out of food, which is a good problem to have. So we had a little bit of both extremes. All in all, we lost a little bit, but it shouldn't be anything material. And it's not something that should show in our sales results for Q2.

[Derek Lessard, TD Cowen]

Okay. That's helpful. And then maybe just one housekeeping for me. You did fix interest rates on about US$230 million or so. Do you -- could you give us an indication of what you fixed those interest rates at?

[Eric Lefebvre, CEO]

Yes. It's not necessarily something we want to discuss in exact figures, but we got a pretty favorable deal. Yes, we got a pretty favorable deal from our banks. We disclosed it in subsequent events note. So if you want to refer to it to get a little bit more specific, but we believe that the time is right, the curve is inverted. We don't necessarily want to speculate about rates, but it's also a favorable environment for us to lock a certain portion of our borrowings.

[Derek Lessard, TD Cowen]

Okay. Thanks Eric. Thanks everybody.

[Operator]

Thank you. There are no further questions at this time. Ladies and gentlemen, this concludes the conference call for today. We thank you for participating and ask participants to please disconnect your lines.