MTY Food Group Inc

TSX:MTY

Earnings Call Transcript 2018-Q3

[Operator]

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the MTY Food Group Inc.'s Third Quarter 2018 Earnings Conference Call. [Operator Instructions] Before turning over the meeting to management, please be advised that this conference call will contain statements that are forward looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated.I would like to remind everyone that this conference call is being recorded on Wednesday, October 10, 2018.I will now turn the conference over to Eric Lefebvre, Chief Financial Officer. Please go ahead, sir.

[Eric Lefebvre, CFO & Director]

Thank you. So good morning, ladies and gentlemen, [Foreign Language] So thank you for joining me for MTY's first quarterly conference call with the financial community. Over the past few months, there's been an increase in the number of requests for conference calls and consequently, we've made the decision to hold this call going forward. Today, I will discuss the financial and operating results of the company for the third quarter ended August 31, 2018. Our press release reporting the third quarter results was published earlier this morning, can also be found on our website at mtygroup.com or on SEDAR.Now let me remind you that all figures expressed today on today's call are in Canadian dollars unless otherwise stated and that we will refer to certain indicators that are non-IFRS measures, and you can refer to our MD&A for more details.I'll now begin with a brief overview of our network sales for the quarter. So at the end of the quarter, MTY's network had 5,690 locations in operation. During the quarter, we opened 67 locations and closed 111 for net organic reduction of 44 locations. That results from a multitude of factors including landlords redeveloping their properties, competitive pressures, lease expiring and closure of underperforming stores. Our network sales were up 24% to $787.9 million. The increase is primarily attributable to recent acquisitions and to a lesser extent, to a favorable foreign exchange impact. In addition, our same-store sales were up slightly during the quarter. Our Canadian sales grew 1.2%, with most territories showing positive results with the exception of Saskatchewan, which remains under significant pressure following the introduction of the meal tax in the second quarter of 2017.Conversely, our sales in the United States declined slightly by 0.3% during the quarter, primarily affected by some headwinds in the states of California, Arizona and Oregon. Our same-store sales for Imvescor restaurants, which are not included in the numbers I just quoted, were up by 0.7% in the third quarter, led by the strong performances of Ben & Florentine, Mikes and Scores.So now let's turn to MTY's financial results. So before I comment on the results themselves, I'd like to remind you about the effect of the seasonality on our results. Since the addition of Cold Stone Creamery, which is now MTY's largest concept, representing over 20% of our total network sales, and which is extremely seasonal, as you would expect, our first quarter sales are typically the lowest, while the third quarter are at their annual peak.Revenues for the third quarter increased 26% to $91.2 million, mainly driven by the acquisitions of Imvescor Restaurant Group in Canada and The Counter Custom Burgers in the U.S. Our franchising margins in Q3 were very strong, reaching 53% compared to 45% last year. The increase in the margins is mainly driven by higher quality of revenues and by lower lease termination costs. Our margins are at their seasonal high in Q3 given that most of our costs are fixed. As a result, our EBITDA increased 55% to $39.6 million, a historical high for the company, which is compared to $25.6 million last year. These results are very solid and will represent a strong comp for next year, excluding potential acquisitions.Our net income attributable to shareholders increased by 85% to $22.3 million or $0.89 per share or $0.88 per diluted share compared to $12.0 million or $0.56 a share in the same period last year.Turning now to liquidity and capital resources. Our cash flows generated by operating activities were $28.4 million compared to $24.9 million last year. During the quarter, we had higher working cap requirements mainly because of higher inventories and higher disbursements of accounts payable and accrued liabilities. That's mainly due to the construction of some restaurants under Imvescor brands. As a result, excluding the variation in noncash working capital items, income taxes and interest paid, our operations generated $38.1 million in cash flows during the quarter compared to $27.3 million in 2017. In the third quarter, our cash flows were primarily used to repay our debt and pay dividends.At the end of the quarter, we had $49.1 million of cash and a total net debt of $236.1 million compared to net debt of $182.2 million at November 30. The increase is mainly due to some acquisitions we've made this year including the Imvescor acquisition. Our net debt to EBITDA remains relatively low, leaving plenty of room for additional acquisitions in the future.Finally, the Board of Directors has declared a quarterly dividend of $0.15 per share payable on November 15 to shareholders registered in the company's records at the end of business on November 5.Before I conclude the call, I would like to make a brief comment on our next quarterly results. Although we never provide guidance, I would like to remind you that while the fourth quarter results are expected to increase over the same period last year, they're not expected to do so in the same magnitude as they have in the past 2 quarters as the lift from recent acquisitions will subside given that some were closed in fourth quarter last year. In addition, in the fourth quarter last year, we benefited from a nonrecurring gain from early termination of a contract, which will not be repeated this year.I will now be pleased to answer any questions you may have.

[Operator]

[Operator Instructions] Your first question comes from the line of George Doumet from Scotiabank.

[George Doumet, Analyst]

Congrats on having your first conference call on a good quarter. I'd like to focus a little bit on the expenses. There seems to be a pretty sizeable reduction in franchise cost in the U.S. and also in corporate costs in Canada. So can you maybe share some details as to where those are coming from and should we think of them as sustainable, I guess, going forward?

[Eric Lefebvre, CFO & Director]

Yes. Well, I'll start with the U.S. The main driver in the U.S. is the lease termination costs last year in Q3. We had to clean up after a multiple unit franchisee declared bankruptcy. So we had quite a bit of lease termination costs in Q3 of '17. That was not something that we hope to repeat. So I would say in the U.S., for Q3, I would say definitely this is sustainable. We're also buying back some of our underperforming area developers. So we're sharing less of our royalties in the U.S. at the moment than we were at the same time last year and again, that, too, is sustainable. In Canada, I think it's mostly business as usual. We have, if anything, we're probably a little bit understaffed at the moment. We're having, like most companies and especially in the Eastern Canada, some struggles to hire people so we have a few vacancies more than we would like to. But all in all, it's mostly sustainable, normal business for Canada.

[George Doumet, Analyst]

That's helpful. And maybe shifting gears to same-store sales. Could you talk a little bit about pricing? Obviously, there's been some wage pressure in Ontario and Alberta. Maybe some details around some of the initiatives you've taken and if you've seeing at all any volume, maybe even negative volume response from some of the banners on pricing.

[Eric Lefebvre, CFO & Director]

Yes. Well, we did have to take pricing obviously, and especially in Ontario where the increase was a little bit more abrupt. We took some measures internally to try to optimize the way we do business, optimize the labor we have in the stores. And once that is taken care of, unfortunately, we have to increase prices and some brands increase prices more than others. But I would say all of our brands did increase their prices. Our same-store sales at the moment are, in Ontario, are lower than the total price increase we took so we do have a certain reduction in traffic, but it's too early to really say if the reduction in traffic is caused by the price increases or by some external factors and I'll give you an example. Last year, we had the celebrations in Ottawa for Canada's anniversary, which has not repeated this year, so what's the impact of that compared to the price increases is really hard to tell. So we're going to need a little bit more time to really be able to assess the impact of the price increases we took.

[George Doumet, Analyst]

Yes, that's helpful. Can you also give us a little bit of a maybe some color on the integration of IRG to-date and I saw it in the same-store sales for the quarter for IRG, it looked to be well below the 3-year average at that -- I guess, of that company. Just wondering, maybe over time, how you see that same-store sales growth kind of evolving.

[Eric Lefebvre, CFO & Director]

I wish I had a crystal ball for that. Yes, well, there's many questions in that. The first is in terms of integration, we're happy that all of our IRG colleagues moved in yesterday in our offices. So we're all now one big family under the same roof. The integration is going really well. I think in terms of operations and everything, it's more or less status quo for them. We haven't really changed the structure of Imvescor or anything really that would affect the brand. The back office has changed a little bit but in terms of operating each of the concepts themselves, there has been no real change. And you did comment on the same-store sales for the overall business being lowered in the past few quarters and you're right. And we have a few concepts that are performing really good. And fortunately in Q3, Bâton Rouge suffered from the really good weather in Eastern Canada. The barbecue season was very strong and people seem to have cooked at home a little bit more. We have the same trends in Houston and in Madisons this summer where our Friday nights and Saturday nights and even the Sunday nights, to a certain extent, seem to have been weaker than they were in previous years, and we think that it's partly attributable to the really good weather we had.

[Operator]

Your next question comes from the line of Derek Lessard from TD Securities.

[Derek J. Lessard, Research Analyst]

Eric, I just -- maybe if I can come back to the lower operating cost. I was wondering how much of the decline was due to lower -- it seems like there was lower labor or lower labor and wages.

[Eric Lefebvre, CFO & Director]

Well, you're right, as a proportion of royalties, the wages are a little bit lower. And that's mainly a function of being in a casual dining environment. We have higher revenues for each employees that we have in the head office. So for any concepts we acquire in that space, we will have an abnormal labor ratio compared to MTY's traditional business.

[Derek J. Lessard, Research Analyst]

Okay. And maybe just a follow-up on the Imvescor. I was just -- and you did point to some weather impact. I'm just wondering if you were able to split out the difference between what you felt was weather-related versus the lapping of tougher comps.

[Eric Lefebvre, CFO & Director]

Yes. It's really hard. I wish I had a really good measure for that. I think I don't. I wish I had a really good answer for you, and I wish I could give you a little bit more information, but it's really hard to be able to separate the impact of weather versus the impact of competition versus the impact of our promotions, the effectiveness of everything we've done this year compared to last year or the impact of any other factor as consumer spending or anything else. So I don't really have a good answer for you, Derek, I'm sorry about that.

[Derek J. Lessard, Research Analyst]

Okay. Maybe if I ask it another way. Is there a -- like, are you able to provide us sort of with the mixed split between steak and rib concepts versus your other concepts?

[Eric Lefebvre, CFO & Director]

Well, yes, I can tell you that steak and ribs is much weaker than the other concepts. And for Houston and Madisons, it was also much weaker. It was a deep negative for the period. So yes, it does affect the overall performance for sure.

[Derek J. Lessard, Research Analyst]

All right, that's helpful. And then maybe just a follow-up for me. Do you have any comments around the performance of Pizza Delight?

[Eric Lefebvre, CFO & Director]

Yes. Pizza Delight is -- we do have some struggles in certain areas where fishing was just not present this year because of the whale protection regulation. So we do have a few stores that struggled a little bit more because of that, the seasonal workers did not come to some of the cities. But other than that, Pizza Delight is -- it's performing okay. So I wouldn't say it's a spectacular performance, but it's also not underperforming. So we're happy with Pizza Delight at the moment.

[Derek J. Lessard, Research Analyst]

Okay. So was that -- was it flat or better than flat?

[Eric Lefebvre, CFO & Director]

It's slightly better than flat.

[Operator]

Your next question comes from the line of Leon Aghazarian from National Bank Financial.

[Leon Aghazarian, Special Situation Analyst]

Congratulations on hosting your first call. There was a lot of emphasis on cost justifiably on past questions. I mean, you did mention in your prepared remarks that the quality of revenues was also better. Can you talk to us a little bit about that and what you mean by that exactly, please?

[Eric Lefebvre, CFO & Director]

Yes. Well, one of the things I always look at to assess the state of the business is the strength of our recurring streams of revenues. We can have initial franchise fees. We can have a bunch of one-timers. We can have a lot of turnkeys, which will push the margins down, but ultimately, the health of our business going forward is driven by recurring revenues, which are royalties and some other streams that are also recurring. So those are also very high-margin revenues. And in the quarter, you can look at our MD&A, you'll see that the growth of our recurring streams of revenues was very strong even excluding Imvescor. So this is what I refer to when I talk about the quality of revenues. Those are the ones that are the bread and butter of MTY and the ones that will make us successful in the long run. So we need to focus our attention on those instead of the one-timers.

[Leon Aghazarian, Special Situation Analyst]

And was that the same in Canada and in the U.S.? Or is it more pronounced in Canada?

[Eric Lefebvre, CFO & Director]

No, it's the same in both territories.

[Leon Aghazarian, Special Situation Analyst]

Okay. You did mention, obviously, some performances for some of the brands. Can you talk to us a little bit about Cold Stone and how that did, obviously Q3 seasonally with the summer weather, the summertime, it's obviously your biggest brand. Can you talk to us about what the performance was like there, please?

[Eric Lefebvre, CFO & Director]

Yes. Well, the Cold Stone is continuing to perform well. In Q3, it was a slightly positive comp for Cold Stone so we're happy with that obviously being about 23% of our systems sales. It's a really important concept for us and we need to focus the right amount of attention to it. We do open and close a few stores and because of the number of stores, it's normal that there's going to be more volatility. We did open a large number of international stores in Q3 for Cold Stone, which is very promising as future territories develop. So we're happy with Cold Stone in general.

[Leon Aghazarian, Special Situation Analyst]

Okay. You did mention also that for the outlook, obviously not giving any guidance, but for the Q4 '18 performance to be better than Q4 '17 but not with the same order of magnitude. Can you perhaps quantify that a little bit for us?

[Eric Lefebvre, CFO & Director]

No. I'll keep it as my comment.

[Leon Aghazarian, Special Situation Analyst]

Okay, fair enough. And then on the M&A front. I mean, what's the landscape looking like in terms of potential targets that you're seeing and whether it's more Canadian-focused or even U.S.-focused?

[Eric Lefebvre, CFO & Director]

Well, there's going to be a lot of consolidation in the coming years. We're seeing a lot of M&A activity. Obviously, the U.S. market is a lot deeper than the Canadian market. We do have opportunities that we're looking at on both sides of the border. Larger targets will tend to be more in the U.S. but they also tend to be more interesting for private equity firms that have a lot of capital to deploy at the moment. So we're going into some processes and knowing that some private equities might interfere and we did have that for a few of the opportunities we looked at recently, where private equities just drove the multiples to a level where we're no longer following. As you know, Leon, you've been covering MTY for a long time, you know our discipline so we don't let our emotions get in the way and we just -- we're going to wait and see if those larger acquisitions are too expensive at the moment. We'll wait for the next recession and then we'll pick them up for more reasonable prices.

[Leon Aghazarian, Special Situation Analyst]

So do you feel like the price and the multiples are more like the impediment right now in terms of making more acquisitions? Or do you feel like there's a lack of targets or potential sellers out there?

[Eric Lefebvre, CFO & Director]

There's certainly not a lack of targets. There are plenty of targets. I would say that where we're going to struggle to make more acquisitions because of the high prices is anything that has a price tag over $100 million will attract the attention of private equities and this is where we're seeing a little bit more pressure on prices. If we go lower than that price tag, the multiples tend to be a little bit more reasonable and this is probably a space where we're going to be more comfortable doing more M&A in the future.

[Leon Aghazarian, Special Situation Analyst]

Okay, and one final one for me. Just on the leverage, I mean, you did mention that you're quite comfortable with where it is right now. What would be the upper end of the comfort range right now before using other sources of funding for M&A?

[Eric Lefebvre, CFO & Director]

Well, I've always communicated that up to 3x pro forma EBITDA, we're extremely comfortable. We would be prepared to go slightly higher than that for a short period if we have a solid deleverage plan in place. I wouldn't stay over 3x for a long period, but if we have to do it for a shorter period, we would, and then if we ever had to do something, find a sizeable target that would bring us over, let's say 4x EBITDA, we'll probably be a little bit uncomfortable, and we'd look at other options for financing the acquisition.

[Operator]

Your next question comes from the line of Michael Glen from Macquarie.

[Michael W. Glen, Analyst]

So Eric, in about just under a month, you're sort of going to assume the -- officially assume the CEO role at MTY. Can you maybe just speak to some of the initiatives as you assume that role that you'd like to put in place at the company?

[Eric Lefebvre, CFO & Director]

Yes. Well, I'm certainly not waiting for November 2 to start making some adjustments. There's not going to be anything earth shattering. We've built something over the past 39 years that I think has been really successful and I'm not going to change that. But we will adjust a few things. Stanley and I are two different people, two different leaders. So we push the business in slightly different ways. We will try to have a little bit more focus on our existing assets probably, and that's probably one thing we'll try to focus on going forward and that started already. But the main driver for MTY's growth is still going to be acquisitive and we're still looking at M&A very aggressively going forward. So in that sense, I don't think the story about MTY is going to change that much.

[Michael W. Glen, Analyst]

Okay. And just to hone in on that a little bit more, you've talked a bit more about internal growth. Are you able to share some of your own views on where you would like to take internal growth numbers at the company?

[Eric Lefebvre, CFO & Director]

Well, no, I'm not going to provide guidance on that. And any initiative we're going to put forward is going to take a certain amount of time before it starts bearing fruits. So we do have now 3 COOs for the Canadian business that are focused on a certain line of business. So we're probably going to have a little bit more time to drill down and provide more initiatives for the brands that are under their umbrella. And I'm certainly going to have objectives for them and their compensation is going to be highly incentivized to provide growth. But at this point, I'm not prepared to share the targets that I have for the 3 COOs.

[Michael W. Glen, Analyst]

Okay. And then just on the rate of sort of net -- where we are in terms of net closings or gross closings of stores. How do you think that, that -- how would you like to see that play out in coming quarters? I'm not looking for specific guidance, but I mean, do you think it's -- on the gross closings, do you think we sort of hit a peak and we should level out from here? Or can we -- should we -- are we going to see some more elevated numbers in store closings?

[Eric Lefebvre, CFO & Director]

No, store closures are hard to predict, especially in this quarter was a good example. We had a number of closures of Maui Wowi carts and of Country Style nontraditional restaurants, and those tend to be very volatile. We can open a lot in a short period of time, but we can also close a lot. And we don't know when the closures are going to come. So it would be hard for me to tell you if we're going to have more closures or less closures. I would hope to have fewer, obviously. We like to open stores. We don't necessarily like to close them. But it's really hard to predict. So I'm going to try to focus on franchisee profitability to the extent possible and try to keep them in business, and then we'll focus on opening stores, which is the part where it's a little bit more predictable and a little bit easier to control.

[Michael W. Glen, Analyst]

And can you provide a comment there on the franchisee pipeline as it stands today versus where it stood historically, give some context?

[Eric Lefebvre, CFO & Director]

Yes. We have a good pipeline of franchisees, and I think it's pretty much where it's been in the past few years. I would say probably 10 years ago, it was probably easier in franchisees. Now there's more competition. There's a lot of restaurants out there. There's a lot of good franchisors that have good concepts to offer. But we do have a really good pipeline. We're very happy with where we stand. And obviously, we have some brands that are more attractive than others at the moment that have longer pipelines, but all in all, we're satisfied with where the pipeline is sitting. And in many cases, it's a matter of finding the right real estate at the right price and getting the store to open.

[Operator]

Your next question comes from the line of Elizabeth Johnston from Laurentian Bank Securities.

[Elizabeth Johnston, Analyst]

I just wanted to go back to the COO that you mentioned briefly. In terms of the new COOs in Canada, and how that relates to your M&A strategy, do you have a preference when it comes to acquiring, for QSR versus a full service?

[Eric Lefebvre, CFO & Director]

No, no, we're very agnostic when it comes to the type of food that we're offering, the type of restaurant and also very agnostic geographically within North America. So we tend to be a little bit more opportunistic than very highly selective on one type of food or one geography that we're looking for. Obviously, we have to be sensitive to a certain number of factors and there has been a few brands that have been for sale recently that we have decided, for various reasons, that we would not want to be associated with them or with the type of food or the type of restaurant they offer. But other than that, we'll go for good opportunities that are priced right. We have to be careful where we go. In malls, for example, if we're in really good malls, it's one thing. If we're in secondary malls, there's always a question about where the traffic is going in those locations in the future. So we need to assess that, but even if we're all in B malls, if it's priced right and if the concept is relevant in that type of environment, then we'll go for it.

[Elizabeth Johnston, Analyst]

Okay, great. And just changing topics here. I just -- I want to talk a little bit about delivery and your mobile application. Can you just give us an update on where you're at with respect to the development of those 2 items?

[Eric Lefebvre, CFO & Director]

Yes. Well, we're very happy to see the progression of our BonApp and you should all download BonApp and start ordering on it. So it's been a good ride for BonApp. We have more and more restaurants on it. We have more and more orders. We see a really good progression. The graphics are impressive. The average ticket is also really good on BonApp. It's higher than what we'd normally see for the brands for the -- in the restaurants ordering. So that part is growing well and it's probably going to be ready for a stronger push in the near future. For delivery, obviously, it's there. Can't avoid it. It's one of the aspects of the business that we need to address. So we have more and more of our restaurants that are on SkipTheDishes and on Uber Eats. And we did sign an agreement with one of the large providers to have more of our restaurants on their platform. So this is something we're starting to deploy maybe a little bit more aggressively, but it's also a business model that we need to reflect on, and make sure that it's not impacting our franchisees adversely. At the moment, we're seeing mostly incremental sales. So it still works. But when we start eating into our own existing sales, then the business model might not be working anymore. So we'll need to reflect on that in the future and decide where all this is going. But delivery's a necessary service we need to offer to our customers at the moment and it's going to be the same thing in the future so that's definitely something we're pushing on at the moment.

[Elizabeth Johnston, Analyst]

And are you able to give us a sense of what -- how much of your system sales, either in Canada or U.S. overall, is coming from this delivery channel, any kind of range you can give us?

[Eric Lefebvre, CFO & Director]

Right, it's still a very tiny portion of our sales. It's an insignificant portion of our sales.

[Elizabeth Johnston, Analyst]

Okay. And just when it comes to orders to the BonApp, again, would that be a small percentage of orders coming through that channel?

[Eric Lefebvre, CFO & Director]

Well, for certain brands, it's starting to be more meaningful. We have a few brands that are more present on BonApp and that are probably doing a better job at it. And for -- I would think of 2 of our brands at the moment, with Sushi Shop and then Thaïzone, that are seeing the BonApp orders really go through the roof and it's working really well for these 2 brands. So it's becoming a larger proportion of their sales even though it's still not a big proportion. It's becoming more and more important and we need to track that and see the impact on the brands, but so far, it's been a very positive impact.

[Elizabeth Johnston, Analyst]

And just finally on that point then, can you give us a percentage or range of how many of the stores in the network are on that application right now?

[Eric Lefebvre, CFO & Director]

I don't have the exact number. Maybe I can take that one offline and then shoot you a note later today. It's still not a very large proportion, but for example, for Sushi Shop, I believe it's almost all of our stores that are on it. But for some other of our banners, we're still in the testing period, and there's a number of things we need to address before we do a full launch of BonApp for a brand, including whenever a customer orders during peak periods, the sequence of producing the food and making sure that the customer that's on-premise is not suffering from the online ordering. So there's a few things to work on and there's a few test to be run for each brand before we do a full launch. But this is all in the works now and we have a number of brands that are in testing, so we should deploy more aggressively soon.

[Operator]

[Operator Instructions] Your next question comes from the line of Derek Lessard from TD Securities.

[Derek J. Lessard, Research Analyst]

Just a few follow-ups from me. On the same-store sales, it looks like the international segment disproportionately affected the overall or the consolidated same-store sales numbers. I'm just wondering what was going on there.

[Eric Lefebvre, CFO & Director]

Well, international tends to be very volatile. I wish I had a good answer for you. We will have pluses and minuses depending on -- for example, in the Middle East, we have one of our master franchisees that's renovating stores at various times that will trigger some good same-store sales or if not they're renovating, it triggers lower sales. We had a few things happen also in our Asian markets where we had a little bit more weather. If you follow the news, you will have seen the Philippines, for example, being hit quite abruptly by a few typhoons, so we have that. So there's a few things going on, but with the diversity of markets that we're serving, it's hard to really pinpoint exactly one reason for that. But you're right, the international sales, same-store sales have been more negative.

[Derek J. Lessard, Research Analyst]

Okay, and maybe just along the same lines, you pointed to California and Arizona and Oregon. What was the, I guess, the reason behind the weakness there?

[Eric Lefebvre, CFO & Director]

It's a good question and it's something we're evaluating. We can't blame it on the weather. So we need to work with the team to understand why certain territories are working really well for us at the moment and certain others that have the same brands are not working as well. So there's something going on in those specific geographies and the team is addressing the question as we speak to make sure we have a plan to reverse those trends.

[Derek J. Lessard, Research Analyst]

Okay. And could you talk about the swing in operating margin from, I guess, 0 to 15% in the Canadian corporate stores?

[Eric Lefebvre, CFO & Director]

Yes. Well, the corporate stores, again, are an interesting piece. They tend to be more volatile than the normal business simply because of how we repossess certain stores for a given period that might be struggling. We turn them around and resell them to a franchisee. So sometimes, we have a few really good stores in the portfolio, we make a lot of money, and those stores, as you can imagine, are easier to franchise. So we franchise the stores, and then we lose that stream of EBITDA and we gain royalties in the franchising segment, and we have stores that are also underperforming, and those unfortunately, we can't franchise them because it wouldn't be fair for a franchisee to have to assume those losses. So we're more or less stuck with those underperforming restaurants. If anything, I would say that the Q3 number is high, and it's not a normal number and you shouldn't expect that type of profitability in Q4.

[Derek J. Lessard, Research Analyst]

Okay, and maybe just a housekeeping for me. So wondering if you have the system sales split between Canada and the U.S. this quarter?

[Eric Lefebvre, CFO & Director]

I don't have it in my papers, but it's something we can follow-up on. And it's certainly something we can present the exact number in our next MD&A. We do have the split on Page 20 of the MD&A where you have all the various markets. So we're 44% of our sales in the U.S. -- 44% of our locations and 44% of our sales in the U.S. for the quarter, but I'm -- I don't have the exact number.

[Derek J. Lessard, Research Analyst]

Yes, I'm just being lazy.

[Eric Lefebvre, CFO & Director]

Yes. Well, I'll try to help you. In Q4, we'll make the exact number available.

[Operator]

There are no further questions at this time. Mr. Lefebvre, I'll turn the call back over to you.

[Eric Lefebvre, CFO & Director]

Okay. So thank you, everyone, for joining on this call. I look forward to speaking to you again for our next quarterly call. Thank you.

[Operator]

This concludes today's teleconference conference call. You may now disconnect.