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Edited Transcript of RECP.TO earnings conference call or presentation 10-May-19 1:00pm GMT

Q1 2019 Recipe Unlimited Corp Earnings Call

May 24, 2019 (Thomson StreetEvents) -- Edited Transcript of Recipe Unlimited Corp earnings conference call or presentation Friday, May 10, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Frank Hennessey

Recipe Unlimited Corporation - CEO

* Kenneth Joseph Grondin

Recipe Unlimited Corporation - CFO

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Conference Call Participants

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* Elizabeth Johnston

Laurentian Bank Securities, Inc., Research Division - Analyst

* George Doumet

Scotiabank Global Banking and Markets, Research Division - Analyst

* John Zamparo

CIBC Capital Markets, Research Division - Associate

* Peter Sklar

BMO Capital Markets Equity Research - Analyst

* Sabahat Khan

RBC Capital Markets, LLC, Research Division - Analyst

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Presentation

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Operator [1]

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Good morning. My name is Heidi, and I will be your conference operator today. At this time, I would like to welcome everyone to the conference call for Recipe Unlimited's 2019 First Quarter Results. (Operator Instructions) Today's conference is being recorded. If you have any objections, you may disconnect at this time.

Before turning the meeting over to management, please be advised that this call contains certain forward-looking statements that are based on current expectations and are subject to a number of uncertainties, risks and other factors, which may cause the actual results, performance or achievements of Recipe to be materially different.

Further information identifying risks, uncertainties and assumptions and additional information on certain non-IFRS measures referred to in this call can be found in the company's Management's Discussion and Analysis and Annual Information Form available on SEDAR.

I will now turn the meeting over to Frank Hennessey, Chief Executive Officer of Recipe Unlimited Corporation. Mr. Hennessey, you may begin your conference.

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Frank Hennessey, Recipe Unlimited Corporation - CEO [2]

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Thank you, Heidi, and good morning, everyone. Welcome to our 2019 first quarter conference call. Joining me this morning is Ken Grondin, our Chief Financial Officer.

During the first quarter of this year, we saw mixed results across the company. Total System Sales grew $94.8 million or 12.5% as a result of The Keg merger in February 2018 as well as from increases in our retail and catering segment, which grew primarily on strong sales of Swiss Chalet branded products in grocery.

We opened 15 new restaurants and closed 15 restaurants in the quarter. Included in the 15 closures were underperforming locations where the closure benefits the overall system performance and our profitability going forward. We expect to have net positive openings on the year.

Our focus here is on improving the quality of our sales and providing a better experience for our guests, which includes refreshing our current portfolio. In certain cases, this may mean closing a location to move it down the block to a new site where the market has shifted over time.

Same Restaurant Sales decreased 1.6% compared to an increase of 2.1% for the same 13 weeks in 2018. While we are disappointed with these results, we are pleased with our ability to improve our EBITDA contribution in our corporate, franchise and retail and catering segments, which demonstrated year-over-year improvement in those quality of sales and growth in absolutely EBITDA dollars and as a percent of System Sales.

Total operating EBITDA was $50.1 million in the quarter compared to $46.2 million for the same 13 weeks in 2018, representing an improvement of $3.9 million or 8.4% for the quarter. The increase was driven by improved contribution from the corporate, franchise and retail and catering segments as well as from the addition of The Keg in February 2018.

Operating EBITDA margin on System Sales was 6.3% for the quarter compared to 6.3% in 2018 prior to The Keg royalty expense. Operating EBITDA margin on System Sales after The Keg royalty expense was 5.9% for the quarter as compared to 6.1% in 2018. While the corporate, franchise and retail and catering segments achieved year-over-year improvements in their contribution margin rates, The Keg's higher net central overhead cost plus the royalty payments to The Keg Royalty Income Fund reduced Recipe's operating EBITDA margin on System Sales below our long-term 7% to 8% target range.

Solid operating EBITDA results helped generate approximately $35.1 million of free cash flow before growth CapEx, dividends and NCIB in the first quarter compared to $33.2 million in the first quarter of 2018, an increase of $1.9 million or 5.7%.

Free cash flow on a diluted per share basis was $0.55 in the quarter compared to $0.53 for the first quarter of 2018, an increase of $0.02 per share or 3.8%. Recipe's strong free cash flows provide us with the financial flexibility to consider alternatives for capital deployment, including growth investments, strategic acquisitions, enhanced shareholder returns through dividend growth and share buybacks as well as investments in our core business.

At this time, I'm going to turn it over to Ken to review our financial results.

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Kenneth Joseph Grondin, Recipe Unlimited Corporation - CFO [3]

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Thank you, Frank, and good morning, everyone. My overview will refer to our first quarter financial statements and MD&A issued last night, both of which are available on SEDAR.

I'd like to begin by highlighting a significant accounting change that has impacted our first quarter financial statements. On December 31, 2018, the company adopted IFRS 16, the new lease accounting standard, which resulted in the company capitalizing its right-of-use assets and recognizing the corresponding lease liabilities for over 1,000 leases. As a result, our balance sheet was impacted with total assets increasing by approximately $760,000 and total liabilities increasing by a corresponding $760,000 -- correction, versus $760 million.

The increase in total assets relates to corporate restaurant and central office leases being recorded as fixed assets, and for franchise leases, where the company is on the head lease with a corresponding sublease with franchisees, new accounts receivable have been recognized. The corresponding increase in total liabilities relates to all of our finance lease obligations. The net impact of IFRS 16 on our P&L for the 13 weeks ended March 31, 2019, was a net reduction to earnings before income tax of approximately $300,000.

In the first quarter, total gross revenue was $304.6 million for the 13 weeks ended March 31, 2019, compared to $244.1 million in 2018, representing an increase of $60.5 million or 24.8% for the quarter. The increase in gross revenues was primarily related to the addition of The Keg in February 2018 and increases in retail and catering sales, partially offset by a decrease in Same Restaurant Sales.

Operating income for the 13 weeks ended March 31, 2019, was $31.5 million compared to $30.8 million in 2018, an increase of $700,000 or 2.3%. The increase has been driven by the improved contribution in the corporate and franchise segments related to the addition of The Keg in February 2018, increases in the retail and catering segment and as a result of implementing IFRS 16 new lease accounting standard. The implementation of IFRS 16 increased operating income by $2.1 million, consisting of a $12.7 million decrease in rent expense, offset by an increase in depreciation expense of $10.5 million related to the new right-of-use assets. The increase in operating income is reduced by an increase in interest expense of $2.4 million related to finance lease liabilities.

Net interest expense and other financing charges were $4.5 million for the 13 weeks ended March 31, 2019 compared to $3.3 million for the 13 weeks in 2018, an increase of $1.2 million. The increase is mainly driven by the $2.9 million net interest expense related to finance leases from the adoption of IFRS 16. Excluding this $2.9 million amount, interest expense and other financing charges were $1.6 million in the quarter as compared to $2.9 million last year, a decrease of $1.3 million. The decrease is due to a full quarter of interest income from The Keg partnership units, partially offset by a full quarter of The Keg interest on long-term debt.

At Q1 2019, the company's debt-to-EBITDA ratio was 1.7x compared to 2.2x at the end of Q1 2018, illustrating how quickly the company's leverage is reduced from free cash flow being used to reduce debt on the company's revolving credit facility.

On May 1, 2019, Recipe completed the issuance of $250 million of 10-year first lien senior secured notes by way of a private placement. The 10-year notes bear interest from the date of issue at a rate of 4.72% per annum, payable semiannually and maturing on May 1, 2029.

In conjunction with the $250 million private placement, on May 1, Recipe amended and extended the terms of its existing syndicated bank credit facility. The new credit facility is comprised of a revolving credit facility in the amount of $550 million plus an accordion feature of up to $250 million. The $550 million revolving facility includes a $400 million tranche that matures on May 1, 2024, and a $150 million tranche that matures on May 1, 2022. The $250 million accordion feature is applicable to either tranche, and it has been upsized from $50 million under the company's previous credit facility.

Recipe's low debt-to-EBITDA ratio, coupled with this new financing structure and strong free cash flows, positions the company for strategic and opportunistic growth at long-term, favorable borrowing rates and credit terms. Management believes that locking in long-term, fixed-rate capital before interest rate increase is prudent and will enable future accretive growth.

Earnings before income tax has increased from $29.3 million in Q1 2018 to $31.3 million in Q1 2019. The increase was driven by increases in System Sales, increased contribution from the corporate, franchise, retail and catering segments and from the additions of The Keg in February 2018 and Marigolds and Onions in December of 2018.

Adjusted net earnings for the 13 weeks ended March 31, 2019, was $17.7 million compared to $20.6 million in 2018, a decrease of $2.9 million for the quarter. The decrease is primarily related to higher stock-based compensation of $1.4 million, higher income tax expense of $800,000 and the adoption of the new IFRS 16 lease accounting standard, which caused a decrease in net earnings of $300,000. The decrease was partially offset by improved contribution dollars from the corporate, franchise, retail and catering segments.

As compared to 2018, 2019 adjusted earnings will be reduced by higher income taxes as the company has fully utilized its tax loss carry-forwards from legacy Cara Operations. The Keg, however, has sufficient loss carry-forward balances to offset its taxable income in 2019, and we estimate that The Keg will fully utilize its loss carry-forward balances by 2022. Adjusted diluted earnings per share for the 13 weeks ended March 31, 2019, was $0.28 compared to $0.33 in 2018, a decrease of $0.05 per share.

Now turning to segmented results for the quarter. Total contribution from corporate restaurants was $18.5 million for the 13 weeks ended March 31, 2019, compared to $13.1 million in 2018, an improvement of $5.4 million or 41.2% for the quarter. The increase was primarily driven by the increase in the number of corporate restaurants, including the full quarter impact from the addition of The Keg in February 2018.

For the 13 weeks ended March 31, 2019, total contribution from the corporate restaurants as a percentage of corporate sales was 9.6% compared to 9% in 2018. The improvement was primarily related to the addition of The Keg, which operates corporate restaurants within our target range, and improvements at Original Joe's, offset by lower percentage contribution rates from Pickle Barrel restaurants that operate at lower contribution levels.

The total contribution from franchise restaurants was $25.5 million for the 13 weeks ended March 31, 2019, compared to $22.4 million in 2018, an increase of $3.1 million or 13.8% for the quarter. The increase was related to increased royalty income from the addition of The Keg and from new franchise locations added in 2018 and in Q1 2019.

The effective net royalty rate for the 13 weeks ended March 31, 2019, was 4.4% compared to 4.1% in 2018. The increase is primarily from the addition of The Keg and new franchisees added in 2018 and 2019 that paid full royalties. There are brands acquired since 2014 which charge different standard royalty rates, in particular, St-Hubert, which charges 4% as its standard royalty rate, and The Keg, which charges over 5% when considering its total franchise portfolio.

The retail and catering segment consists of sales related to the manufacture and distribution of fresh, frozen and nonperishable food products under the St-Hubert, The Keg and Swiss Chalet-branded names as well as under several private-label brands. Retail sales are impacted by orders from franchise restaurant locations and by the volume of orders generated from retail grocery chains.

Catering sales relate to food and beverage sales from Recipe's catering divisions operating under the names of Pickle Barrel, Rose Reisman, and Marigolds and Onions. Catering sales are impacted by the number of customer orders and the number of contracts obtained by the catering divisions.

Total contribution from the retail and catering for the 13 weeks ended March 31, 2019, was $4.5 million compared to $3.3 million for the 13 weeks ended April 1, 2018, an increase of $1.2 million or 36.4% for the quarter. The increases are primarily driven by sales increases from the Swiss Chalet-branded products at grocery, increases in frozen pot pie sales from the addition of the new pie production line and the additions of The Keg retail business in February 2018 and Marigolds and Onions catering business in December of 2018.

The central operations segment includes revenues from the company's off-premise call center business, representing fees generated from delivery, call-ahead, web and mobile-based meal orders. The call center business receives fees from restaurants to recover administrative costs associated with processing guest orders. The call center revenues are impacted by the volume of guest orders as well as by the mix of fee types charged on the orders received where higher fees are charged on phone orders compared to mobile or web orders.

Central segment contribution before the net royalty expense for the 13 weeks ended March 31, 2019, was $5.4 million compared to $8.9 million for the 13 weeks ended April 1, 2018, representing a decrease of $3.5 million or 39.3% for the quarter. Total central segment contribution before the net royalty expense as a percentage of total System Sales for the 13 weeks ended March 31, 2019, was 0.6% compared to 1.2% in 2018, a decrease of 60 basis points for the quarter. The decreases are primarily related to the addition of The Keg, which operates at higher net overhead costs, which are more than offset by The Keg corporate and franchise contributions.

Total central segment revenues were $2.9 million for the 13 weeks ended March 31, 2019, compared to $3.1 million for the 13 weeks ended April 1, 2018, representing a decrease of approximately $200,000 or 6.5% for the quarter. The decrease is related to the company reducing mobile and web order fees charged to its franchisees and from a shift from phone ordering to web and mobile-based meal orders at lower rates.

During the 13 weeks ended March 31, 2019, the company purchased and canceled 266,197 subordinate voting shares for $7.1 million under the company's NCIB program. Subsequent to March 31, 2019 and up to May 9, 2019, the company has repurchased 120,650 additional Recipe subordinate voting shares for $3.2 million under the NCIB and, in total, has purchased 983,160 subordinate voting shares for $25.5 million since June 22 of 2018.

Lastly, yesterday evening, we announced that for the 13 weeks ended March 31, 2019, the company declared a dividend of $0.1121 per share for subordinate and multiple voting shares -- common shares outstanding. This represents a 5% increase over the quarterly dividend paid in 2018. The dividend will be paid on June 14, 2019, to shareholders of record at the close of business on May 31, 2019.

This concludes the financial commentary of the call. I will now turn the discussion back to Frank.

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Frank Hennessey, Recipe Unlimited Corporation - CEO [4]

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Thanks, Ken. Since 2017, Recipe's System Sales have grown each quarter, year-over-year from $659.1 million in Q1 2017 to $755.9 million in Q1 2018 to $850.7 million in Q1 2019 or 29% on a cumulative basis. During this time, operating EBITDA improved significantly from $41.8 million in Q1 '17 to $46.2 million in Q1 '18 to $50.1 million in Q1 2019.

As we have discussed, going forward, we continue to focus on improving our operations through our 4 Pillar-focus on food, service, value and ambiance. While we are making progress, these are still early days, and we believe that we have tremendous upside ahead of us.

Under our food pillar, during the next 2 quarters, most of our brands will be launching new optimized menus that will help improve overall guest satisfaction while reducing complexity for our operations teams. Reducing menu complexity will improve the quality and speed of service in both our dining room and growing off-premise business. And while menu optimization is important, menu innovation is also a key ingredient to increasing guest visits to our restaurants.

We want to provide our guests with new menu options with a compelling value proposition that they can get excited about. A great example is a concept that we began testing this week within one of our Swiss Chalet corporate restaurants. Chalet market is an unlimited salad bar concept that features 40 fresh ingredients, including salad bar staples, signature Swiss Chalet items and vegetarian options. The Chalet market could be added to any adult entrée or could be enjoyed as an entrée on its own. It is only designed to be available in our dining rooms.

While this concept is currently only in an operational test at our corporate restaurant on Highway 27 and 7 here in the GTA and has only just launched and showing very positive potential, and we are garnering great feedback from both guests and teammates. The purpose of this type of test is to identify items that provide our guests great value, emphasize freshness and variety and differentiate our dining rooms while not complicating our kitchen so that they can still focus on quality and speed of service for our dining, takeout and delivery business.

Another example under the food pillar that will be launched at the end of Q2 is the new plant-based burger at Kelsey's. Kelsey's will be introducing the new bourbon barbecue Lightlife meatless burger to their core menu across 70 locations beginning June 3. The Lightlife burger is made from 100% Canadian plant-based protein and is made in Canada. As many of you know, there has been a lot of hype around some other U.S. plant-based products. Our first filter for any product to get on our menu is that it has to taste good. We believe that our Canadian plant-based bourbon barbecue burger meets that standard. It has superior taste, it's non-GMO and is gluten-free, all in all, a better product.

Turning to our service pillar. We have begun testing and optimizing our locations for delivery channels. Our first virtual kitchen, which was just launched, utilizes the existing resources of one of our catering locations to produce and deliver East Side Mario's menu items through our third-party aggregator partners to service parts of the city where there is currently not a retail East Side Mario's restaurant.

This test may pave the way for us to expand into other virtual kitchens where we may be able to offer multiple banners under one roof for a one-stop home delivery markets that do not have a retail store. This is one example where we can leverage the breadth of our brands to expand our reach to our guests in a highly efficient manner.

In Q1, we launched Harvey's mobile order and pay. Mobile order and pay allows people to get the quality and customization they want in a faster and more convenient way. And it also allows us to do highly effective personalized marketing to our app-based guests, providing them with offers and brand news they want. In Q4, we will be adding kiosks into certain Harvey's for guests to use who do not have the app.

To provide our guests with the experience they expect, we also need to continually ensure that we are properly staffed despite rising labor costs. We can believe -- we believe we can increase our service levels and be efficient at the same time. The better we are able to predict when and where our guests will visit, the better we will be able to match up our service to meet those needs in the most efficient manner possible.

To help us do that, we have just completed the build-out of a big data platform on Google's cloud platform to enable new insights on vast data repositories. We have begun to apply machine learning to use this data for more intelligent labor planning and sales forecasting down to 15-minute increments. This will allow us to more closely match the inflow and outflow of guests with the proper staffing levels. The better we execute on this, the better the experience will be for our guests while we are also managing our costs.

Under our ambiance pillar, we have received enthusiastic support from franchisees for our renovation incentive program. In Q1, we mentioned that we have completed 15 renovations, but we expect to have a record year for renovations primarily in the Swiss Chalet banner. We will continue to open new restaurants during the year. As previously mentioned, we opened 15 in Q1, including 2 beautiful new Keg restaurants in London South and in Barrie. I might point out that those 2 new Kegs were exactly what I talked about earlier. They were locations that simply moved down the street from their original locations to better sites that match the changes that had occurred in the local market node over time.

Turning to the retail and catering segment for a moment. The new pie production line that was added in third quarter of 2018 has increased production capacity that enabled the company to meet increased demand for our St-Hubert, the Swiss Chalet frozen pie products in the first quarter with less reliance on higher-cost third-party producers.

Since the acquisition of St-Hubert in 2017, the company has successfully launched a number of products, including Swiss Chalet ribs and pot pies, across the country and grocery chains. The retail team will be adding a new rib production line in Q4 of 2019 to increase its rib production capacity to meet the increasing demand for existing Swiss Chalet and St-Hubert rib SKUs. Most importantly, this new rib line will also support the launch of our new fresh Montana's barbecue ribs that will be at most grocery stores by Q4 of this year.

Last year, we announced the elimination of plastic straws as the first step in our initiative to reduce single-use items. Q1, we took our second step by being the first restaurant company to commit to the elimination of all plastic bags from our takeout and delivery channel across all brands by the end of this fiscal year. Going forward, we will continue to pursue opportunities to further reduce single-use items while we increase our efforts to source recycled products for our packaging needs.

Q1 SRS results were disappointing. But regardless of external factors, we need to continue to be disciplined in our efforts to improve on our 4 Pillars and deliver the experience our guests expect. We will continue to utilize tools and data where appropriate, but we will also further invest in both training and marketing to ensure that we improve our hospitality and value to all of our guests.

And on that note, I'll turn it back to Heidi to open it up for any questions you may have.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Now your first question comes from the line of George Doumet with Scotiabank.

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George Doumet, Scotiabank Global Banking and Markets, Research Division - Analyst [2]

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I'd like to focus a little bit on the modest decline in -- on the same-store sales. I'm just trying to get a sense of the weather impact. There hasn't been a whole lot of good weeks in the quarter. But maybe can you talk to performance when weather was -- the both weeks where the weather was not much of an impact?

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Frank Hennessey, Recipe Unlimited Corporation - CEO [3]

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Where weather wasn't that much of an impact.

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George Doumet, Scotiabank Global Banking and Markets, Research Division - Analyst [4]

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Yes. Just trying to get a sense of anything you can tell us ex weather. I know it's a tough question.

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Frank Hennessey, Recipe Unlimited Corporation - CEO [5]

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Yes. I mean certainly, weather had its impact to us. We also had some kind of shifting of the holidays, so a bit -- a little bit -- kind of little tougher to get a handle on it. I think regardless of the weather, we'd still be slightly negative on SRS. But for example, we -- one of our top 10 weeks is Valentine's week. We had 2 storms within the week. So it impacted us, but we do think that we need to do a better job overall on -- it's a highly competitive market on there, as you know, and continually driving better value for our guests is something we're more focused on than ever.

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George Doumet, Scotiabank Global Banking and Markets, Research Division - Analyst [6]

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Okay. In the release, you mentioned mixed performance between brands. So maybe which ones are kind of outperformed, you're happy with? And which ones maybe underperformed expectations in the quarter?

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Frank Hennessey, Recipe Unlimited Corporation - CEO [7]

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Well, we talk about mixed performance in the company overall. We had a good retail and catering performance. BC was okay for us. But based on the markets, I mean, it was kind of -- it was sort of across the board, which tends to further enforce to us impacting a little bit on weather. Ontario and Alberta, where we have predominantly most of our restaurants, were certainly impacted. Québec was a little bit better for us. St-Hubert was okay.

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George Doumet, Scotiabank Global Banking and Markets, Research Division - Analyst [8]

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Okay. That's helpful. And just one last one, if I may. You guys just refinanced and upsized your credit facilities, leverage is under 2x. Can you talk a little bit about M&A? I know in your past life for you, Frank, breakfast was an area of interest. Are there any area of interest today? And any willingness to maybe do a large-scale M&A?

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Frank Hennessey, Recipe Unlimited Corporation - CEO [9]

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We're always looking, George. I mean it's -- there's always opportunities that we're open to listen on. I think the private debt placements that were just -- it gives us even more options. I would say that, yes, there are certain segments that we're light on, breakfast, yes, is one of them, also maybe more on the ethnic side of food. But we're being very kind of prudent. We're not going to overpay for something. And again, I'll repeat what I said before is that when we do look at any potential acquisitions, it's important to us about the team that's coming along with it. We're really not looking for fixer-uppers, and we want a management team that's kind of committed to the long-term growth to come along with that business. So we continue to listen, but our main focus is on the businesses that we have.

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Operator [10]

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And your next question comes from the line of Peter Sklar with BMO Capital Markets.

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Peter Sklar, BMO Capital Markets Equity Research - Analyst [11]

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I was surprised to hear that your launch of the plant-based burger at Kelsey's. Obviously, we're wondering if you -- the obvious banner in which to launch that would be Harvey's. And can you just give us some of your thinking about introducing a plant-based burger at the Harvey's banner?

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Frank Hennessey, Recipe Unlimited Corporation - CEO [12]

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Most of it. Certainly, it's something we're very much looking at. We need certain size and formatting to work for within that banner. We're going to get a lot of learnings off of what happens at Kelsey's. We like the product. We like how it tastes, and we'll get a better idea of the performance. But yes, certainly, we're not unaware of the publicity around this, and the fact that these products have gotten much better, taste-wise, over time. So yes, we have a few brands that offer burgers, and Kelsey's is taking the lead on this one. But my guess is you'll see that down the road at Harvey's.

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Peter Sklar, BMO Capital Markets Equity Research - Analyst [13]

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Okay. And the other thing too I'm just wondering if you've done any research on the plant-based burger or in possession of any research and -- or just what your intuitive thinking is, Frank, on the introduction of the plant-based burger. Will there be some cannibalization of the beef burger offering on the menu? Or do you think it draws in a new customer or draws incremental traffic from the same customer who will consume both a beef burger one occasion, potentially a plant-based burger on another occasion?

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Frank Hennessey, Recipe Unlimited Corporation - CEO [14]

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Yes. I think that it's clear to me that's one of the things we're going to find out. I mean I think one misconception is that this is for -- this product is for vegans. Actually, vegans don't particularly like -- from research I've read, that they don't particularly like those burgers because it looks and tastes and feels like meat. So that's not something that they're interested in. So it really is more about, I think, for guests who just want -- maybe they're just kind of watching and want to feel a little bit lighter in their diet. I still don't think it's really going to -- I still think there's people that want a traditional burger, and they're going to still have that traditional burger. But this just gives an option for people to go to if they want. But we'll get a much better handle on consumer interest during this limited time offer that we'll have at Kelsey's, and we'll certainly be doing our own research.

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Peter Sklar, BMO Capital Markets Equity Research - Analyst [15]

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Okay. Switching topics. On the SRS, was there any price in the SRS that you reported?

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Frank Hennessey, Recipe Unlimited Corporation - CEO [16]

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No. We were conservative on pricing going into the year. Again, our focus was on kind of driving traffic. I think when I -- whenever we say that, we're always kind of cautious about what we talk about in this regard. It doesn't mean that we're not going to do things on menu optimization that enhance check average, but we've been conservative on price.

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Peter Sklar, BMO Capital Markets Equity Research - Analyst [17]

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Okay. And one of the things you talked about in your commentary was that many banners are introducing revamps of their menus. And I'm just wondering like how do you coordinate across all the banners so that you're introducing new menus. Is there a menu team at the headquarters? Like I just don't understand how you could do that at all banners at the same time.

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Frank Hennessey, Recipe Unlimited Corporation - CEO [18]

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Well, they're not necessarily all at the same time. So just again, each brand has its own management team. So it has its own leader, it has its own marketing, it has its own operations team. And so they're constantly working with the tests and franchisees. It's kind of why you Kelsey's is up there with the plant-based burger maybe ahead of others. So they're working with those teams.

Now we do on a regular basis, every couple of weeks, meet with marketing and operations folks. And we do look at kind of timing when you're going out to market, how you're doing that. And every branch is a little different on how they test and also working with their franchise advisory board. So again, it may seem like it's a small group of people doing this, but it's -- the brands themselves are -- have their own teams, and they work these things through.

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Peter Sklar, BMO Capital Markets Equity Research - Analyst [19]

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Okay. And then just lastly, Ken, what kind of tax provision rate should we expect through the year?

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Kenneth Joseph Grondin, Recipe Unlimited Corporation - CFO [20]

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Yes, Peter, I think roughly 27% will still be our expense rate.

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Operator [21]

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Your next question comes from the line of Sabahat Khan with RBC Capital Markets.

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Sabahat Khan, RBC Capital Markets, LLC, Research Division - Analyst [22]

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Just on the commentary around the virtual kitchen. I'm assuming that's going to be a corporately operated store. And then just on a related note, kind of how's the take-up of the aggregated platforms across your franchisees? Which brands do you see more pickup in? And where do you see the aggregated pickup may be lagging?

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Frank Hennessey, Recipe Unlimited Corporation - CEO [23]

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Well, first off, yes, it will be the catering is a corporate location. I would see that as being corporate virtual kitchens going forward. But again, we're in early days to see how this actually works. We've seen positive delivery across all our brands that offer delivery. It continues to increase. It's increasing in a lot of our banners off of a smaller base obviously but I think -- we talked a lot about this is that there is -- the consumer clearly wants more convenience, and they want to be able to enjoy their meal wherever and whenever they want it. And our ability across network of brands at different price points and different offerings fulfills that need. So again, we -- it's -- this is an industry that's always kind of risen to complexities and the changes on -- changing behaviors of consumers. And again, this company, in particular, has a lot of experience on the delivery side that we can bring those learnings to our other banners, but I would expect that, that is going to -- that channel is going to continue to grow.

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Sabahat Khan, RBC Capital Markets, LLC, Research Division - Analyst [24]

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Okay. And then just a couple of questions just for clarification on the numbers. I guess last year, there was a bit of back and forth on the Easter shift. Are you able to quantify maybe -- I think Easter would have been a help this quarter, and it might be a drag this quarter or the coming Q2. How should we think about just forecasting the same-store sales impact of Easter?

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Kenneth Joseph Grondin, Recipe Unlimited Corporation - CFO [25]

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Saba, it's Ken. Easter is in -- last year, this year, both in April. So we see it be comparable.

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Sabahat Khan, RBC Capital Markets, LLC, Research Division - Analyst [26]

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Okay. And then just on the reported numbers. Is The Keg now in SRS? I'm just trying to kind of bridge the gap on SRS being a bit of a drag and then the revenue and EBITDA growing year-over-year. Is that just the other acquisitions that are driving the growth? Or is it from The Keg?

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Kenneth Joseph Grondin, Recipe Unlimited Corporation - CFO [27]

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Yes. Saba, it's Ken. All of the bands are in SRS, including The Keg. So nothing's excluded.

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Operator [28]

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Your next question comes from the line of John Zamparo with CIBC.

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John Zamparo, CIBC Capital Markets, Research Division - Associate [29]

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Frank, you mentioned that you saw measurable progress on your 4 Pillars, but SRS moved into negative territory. Should we interpret that as the market being more competitive than in the past few quarters?

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Frank Hennessey, Recipe Unlimited Corporation - CEO [30]

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Well, the market continues to get competitive, and I think you'll probably see that in other results out there. Yes. I mean, we -- all our scorecards and metrics that we use, including our social media aggregator reports that we have, we also -- I talked about this previously. We also kind of have a net promoter question that we ask on almost every transaction. We get 1.4 million responses on that every month. All of those metrics are, since we've been measuring them, are ticking upwards. That doesn't mean we don't have room to go. We have a lot more room to go. So we just need to continue to be competitive. And when we get guests in the door, we need to make sure that we're just driving a great experience so that they come back. But it's a competitive market out there, and everyone's trying to do the same thing. So we just got to continue to be better.

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John Zamparo, CIBC Capital Markets, Research Division - Associate [31]

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Okay. I want to ask about the store closures. I know it's the right decision to exit some of these stores because of suboptimal leases, and there's just the natural life cycle for some of these sites. But how many restaurants in your network currently would you consider to be leases that you wouldn't renew once they expire?

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Frank Hennessey, Recipe Unlimited Corporation - CEO [32]

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Yes. We don't give that number out. We're certainly looking at all those. In some cases, it's kind of -- it may be a -- let's say, it's a site that currently has -- maybe it doesn't have a great lease and if it's coming up for a renewal, it's the time that we sit down and negotiate hard to get the right rate. So it's always kind of a tough one to get out there and predict. There's just -- there's always going to be a natural overturn. And I think when you don't see that, then you got to kind of start questioning, are we really optimizing our portfolio? So there's a very, very rigorous real estate process in this company that Ken, myself and Bill leads, and we review every site and every renewal very, very closely.

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John Zamparo, CIBC Capital Markets, Research Division - Associate [33]

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Okay. Understood. Sticking with the network, I think you repurchased 8 restaurants in the quarter. Was there any 1 banner that those fell into?

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Kenneth Joseph Grondin, Recipe Unlimited Corporation - CFO [34]

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John, it's Ken. We took back 5 Milestones restaurant in Alberta. So that was primarily the biggest part of that transaction. And it was working out a situation with a franchisee that they were no longer wanting to continue operating. And we are operating corporately, and we would look to refranchise at a later date.

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John Zamparo, CIBC Capital Markets, Research Division - Associate [35]

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Okay. That's helpful. I want to ask you about the IP agreement with Fresh. I know that was disclosed in Q4, but I don't know if you ever talked a whole lot about it. So I'm just wondering how does that work. And what's the thinking there? What do you gain from that?

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Kenneth Joseph Grondin, Recipe Unlimited Corporation - CFO [36]

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Yes. So Fresh, we've got a minority position in Fresh with options to take a controlled position at a later date. It's an incubator emerging brand that we see it with opportunity. Maybe, Frank, you could speak more to that.

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Frank Hennessey, Recipe Unlimited Corporation - CEO [37]

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Yes, I think we -- when you look at our brands, I mean, we talk about it in kind of we have 3 buckets. We have our core brands, we have certainly our growth brands and then we have the bucket for emerging brands. And Fresh is certainly one of them. It's a great concept. Certainly, it has a pretty wide and growing appeal. And -- but what we want to do with things like that is allow the entrepreneurs to be the entrepreneurs and allow them to nurture and grow it and see if they can build a base. And when they feel like that's in that spot that it can grow, then it can come into the larger Recipe. We can ply our real estate, all our other shared service leverage that we can to help grow those businesses. And so I think that's just a better way for us to go versus us trying to start from scratch, building restaurant brands. We'd rather let the real entrepreneurs do that. And if we can help them out and give them some maybe some seed capital to get going, then I think that's a good use, and we'll find which ones we can take and which ones we can really take and expand and grow across the country.

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John Zamparo, CIBC Capital Markets, Research Division - Associate [38]

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Okay. That's helpful. And last one from me. Has there been any change in your approach to international operations? I mean you do have a handful of international stores right now. It seems like there's limited unit growth in Canada. So do you think about expanding your existing brands internationally or potentially looking at M&A internationally?

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Frank Hennessey, Recipe Unlimited Corporation - CEO [39]

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Well, we do it, and New York Fries is obviously the one that probably has the greatest reach internationally today. It's in -- we just, last year, signed an agreement for India, open locations, a lot of locations recently in the Middle East. So that's one that just seems to resonate very well. The point though is yes, we're -- I think we're probably taking a little bit more active look at internationally versus being more passive on it. But you have to be very careful of the brands that you're doing that with, and New York Fries just happens to be a -- it's got the right name, it's the right product, it fits into a lot of international markets. And then of course, we do have some locations, which -- not sure I consider these international, but in the U.S., we continue to watch that market.

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Operator [40]

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And your next question comes from the line of Elizabeth Johnston with Laurentian Bank Securities.

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Elizabeth Johnston, Laurentian Bank Securities, Inc., Research Division - Analyst [41]

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Just turning to catering and the retail segment more, are you able to give us a sense on an annualized basis now how much of the segment is considered catering specifically?

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Frank Hennessey, Recipe Unlimited Corporation - CEO [42]

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We don't really break that out, Elizabeth, but it's a very small portion of that segment.

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Elizabeth Johnston, Laurentian Bank Securities, Inc., Research Division - Analyst [43]

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Okay. Understood. And so when it comes to the organic growth underlying the catering and retail because catering is so small, the growth is really coming from the retail looking into their profit. I mean is that fair?

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Frank Hennessey, Recipe Unlimited Corporation - CEO [44]

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Yes, that's fair.

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Elizabeth Johnston, Laurentian Bank Securities, Inc., Research Division - Analyst [45]

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Okay. And when it comes to products in grocery obviously you've added other restaurant brands Q2 to next year. Did you think there'll be an opportunity to develop products for grocery from one of your emerging brands or maybe allow that to be part of the menu in other Recipe restaurant locations? Just wondering how you're thinking about that strategy.

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Frank Hennessey, Recipe Unlimited Corporation - CEO [46]

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So if I understand the question, so are we looking at other menu items at some of our brands to go into grocery, is that your question?

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Elizabeth Johnston, Laurentian Bank Securities, Inc., Research Division - Analyst [47]

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Yes. So for example, we talked about Fresh just in the last question here. Is there an opportunity to have Fresh-branded products in grocery or even in other restaurants?

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Frank Hennessey, Recipe Unlimited Corporation - CEO [48]

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See, I think in some cases, probably more of our established brands, we would look at that. I think as it relates to something like Fresh, that wouldn't be something that I would be anxious to go ahead and say, "We're going to do that in grocery." There are just -- we're just kind of getting started there, and we feel that the best experience for some of our brands is still within our restaurants. And some things just frankly don't translate well. So we're careful with that, to not just stick our name on something and put it in a grocery store. There's certainly costs when you're getting listed in grocery stores, so you've got to make sure you get the ROI on it. And it's -- if not done right, it can be dilutive. So we want to be really, really proud of the products that we put out there and make sure that the products we're putting in grocery are additive to the equity of the brand.

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Elizabeth Johnston, Laurentian Bank Securities, Inc., Research Division - Analyst [49]

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Okay. Great. And just talking a bit about central segment, in particular, the changing mix between phone orders and web-based orders. Can you give us a sense of the magnitude of the rate reduction either from mix alone or in what you're charging franchisees? I'm just trying to understand directionally where that's going to move for the balance of 2019.

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Frank Hennessey, Recipe Unlimited Corporation - CEO [50]

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Yes. So for -- I mean the call center is really primarily it's Swiss Chalet and East Side. It's a little bit of East Sides. So it continues to -- call orders continue to go down, but it's still pretty healthy number inside our overall mix. I mean ideally, we want to translate people to our app. Sometimes you'd see differences in check average to pay as people are going through a call center versus going through an app, tends to be better when you go through our app. But our expectation is that the world is moving to everything being on -- probably an app-based as it relates to food delivery. But I think that's a number of years away before you're going to see that go away completely.

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Elizabeth Johnston, Laurentian Bank Securities, Inc., Research Division - Analyst [51]

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And specifically regarding the fee that was reduced, can you give any magnitude of that reduction to help us understand how that's moving?

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Frank Hennessey, Recipe Unlimited Corporation - CEO [52]

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It was a directional move to reduce the rate. I wouldn't -- I mean overall, I wouldn't classify this as meaningful to our overall results.

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Elizabeth Johnston, Laurentian Bank Securities, Inc., Research Division - Analyst [53]

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Okay. Understood. And just maybe one follow-up from me on the plant-based burger at Kelsey's. Can you just go over -- can you just say the name of it again? And where is it being sourced from? Is it a specific brand and provider? Or is it being produced by one of your existing suppliers? Just any additional color on that front.

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Frank Hennessey, Recipe Unlimited Corporation - CEO [54]

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Yes, the company is Lightlife. It's a division of Maple Leaf. They're a partner of ours in many ways. So there's a -- they're the provider of the product, so it's Canadian, again, Canadian-sourced, Canadian-based. And it's a good product. We think we make it a great product by the ingredients that we've put on it, how we handle it and the bun and everything else that we put with it. So I'm looking forward to your feedback.

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Elizabeth Johnston, Laurentian Bank Securities, Inc., Research Division - Analyst [55]

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And are you planning any specific marketing campaign to support this launch?

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Frank Hennessey, Recipe Unlimited Corporation - CEO [56]

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Yes. Yes. We'll be on TV at Kelsey's with it.

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Operator [57]

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And there are no further questions at this time. I turn the call back over to the presenters.

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Frank Hennessey, Recipe Unlimited Corporation - CEO [58]

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Okay. Well, thank you, everyone, for your participation. It's Mother's Day on Sunday, so happy Mother's Day to everyone, and we'll see you again for our next Q2 call. Thank you.

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Operator [59]

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And this concludes today's conference call. You may now disconnect.