Boston Pizza Royalties Income Fund

Hello, this is the Coors Call conference operator. Thank you for standing by. Welcome to Boston Pizza's second quarter 2025 conference call. As a reminder, all participants are in listen-only mode and the conference is being recorded on August 14th, 2025. After the presentation, there will be a question and answer session. Participants on the call may also post their questions via email to Boston Pizza's Investor Relations Department at InvestorRelations.com. at bostonpizza.com. Should you need assistance during the conference, you may reach an operator by pressing star then zero on your phone. At this time, I would like to turn the conference over to Michael Harbinson, Chief Financial Officer. Please go ahead.

Very good. Thank you and welcome to the call. Today, we'll be discussing the 2025 second quarter results for Boston Pizza Royalties Income Fund or the fund and for Boston Pizza International or BPI. For complete details on our financial results, please see our second quarter materials filed earlier today on CDAR Plus, or visit the fund's website at thebpincomefund.com. Should you require additional information after the call, you can reach us via the investor relations phone number that's listed in our press release. The fund is a limited-purpose, open-ended trust established under the laws of British Columbia to acquire, indirectly, certain trademarks and trade names used by BPI and its Boston Pizza restaurants in Canada. BPI pays royalty income and distribution income to the fund based on franchise revenues of royalty pool restaurants. For a complete description of the fund and its business, please see the annual information form dated March 28, 2025, which was filed on cdrplus.ca. Before I turn the call over to Jordan Holm, President of BPI, I'd like to note that certain information in the following discussion may constitute forward-looking information. For a more complete definition of forward-looking information and the associated risks, please refer to the funds management discussion and analysis that was issued earlier today. Forward-looking information is provided as of the date of this call and, except as required by law, we assume no obligation to update or revise forward-looking information to reflect new events or circumstances. And with that, I will now turn the call over to Jordan. Jordan?

Thank you, Michael, and welcome, everyone, to Boston Peets' second quarter investor conference call. Today, I'll be discussing our second quarter results and share a brief outlook. Michael will summarize our key financial highlights. And as usual, we'll leave time for your questions at the end of today's call. In the second quarter, Boston Pizza achieved the strongest same restaurant sales growth since the first quarter of 2012, excluding COVID recovery quarters. These results show that the continuing effectiveness of our ongoing promotions and sustained momentum in our takeout delivery business have made a significant impact on our guests. The fund posted franchise sales from restaurants in the royalty pool of $251.8 million for the quarter and $483.0 million year to date, representing an increase of 6.3% and 5.3%, respectively, versus the same periods one year ago. Same restaurant sales or SRS was 6.4% for the second quarter, and 5.5% year to date. SRS for the second quarter and year to date was principally due to effective promotional initiatives, continued momentum and takeout delivery, and favorable comparisons to a softer performance in the same period in the prior year. Strong SRS enabled the trustees of the fund to increase the monthly distribution rate on the units by 4.3% from the previous rate of 11.5 cents per unit to 12 cents per unit, commencing with the July distribution, which is payable on August 29th, 2025, to unit holders of record on August 21st, 2025, as Michael will describe in more detail later. From a marketing perspective, we began the second quarter of 2025 with a dynamic promotion during the hockey playoffs. This initiative featured a variety of innovative menu items supported by extensive media advertising on digital video, television, social media, and other channels centered on Boston Pizza's Manifest a Win campaign. Our efforts enhanced every aspect of the Boston Pizza Sports Bar experience, ensuring maximum enjoyment for our guests, and the presence of a Canadian team in contention into the finals of the hockey playoffs boosted sales during the second quarter. Additionally, June was marked by a historic update of the Boston Pizza brand, including only the second rondelle design in our 61-year history. The updated Boston Pizza brand launched on June 25th, 2025, alongside a rejuvenated main national menu, and both have been positively received by guests. Synergizing with these initiatives, we announced an exciting new partnership with Live Nation to increase brand engagement with our younger guest demographic. Turning to restaurant development, during the second quarter, nine restaurants were renovated and 15 restaurants have been renovated year to date. We have an array of exciting initiatives lined up to drive sales and maintain the strong guest engagement in the third quarter of 2025, which I'll discuss shortly. But first, I'll hand the call back to Michael for a review of the fund's financial performance.

Michael? Thank you, Jordan. The fund posted royalty income of $10.1 million for the quarter and $19.3 million year to date, compared to $9.5 million and $18.4 million, respectively, for the same periods one year ago. The fund posted distribution income of $3.3 million for the quarter and $6.3 million year to date compared to $3.1 million and $6 million respectively for the periods one year ago. Royalty income and distribution income for the quarter and year to date were based on 372 Boston Pizza restaurants in the royalty pool that reported franchise sales of $251.8 million for the quarter, and $483.0 million year-to-date. For the same periods in 2024, royalty and distribution income were based on the royalty pool of 372 Boston pizza restaurants reporting franchise sales of $236.8 million and $458.8 million, respectively. The fund's net and comprehensive income was $14.3 million for the quarter, compared to $7.5 million for the second quarter of 2024. The $6.8 million increase in the fund's net and comprehensive income for the quarter compared to the second quarter of the previous year was primarily due to a $7.9 million increase in fair value gain, a $.8 million increase in royalty income and distribution income, and a $.1 million decrease in interest expense on debt and financing fees, all partially offset by an increase in current and deferred income tax expense of $.2 million. The fund's net and comprehensive income was $20.7 million year to date compared to $15.9 million year to date in 2024. The $4.8 million increase in the fund's net and comprehensive income year to date compared to the same period in 2024 was primarily due to a $4.8 million increase in fair value gain, a $1.3 million increase in royalty income and distribution income, a $.1 million decrease in administrative expenses, and a $0.1 million decrease in interest expense on debt and financing fees, partially offset by an increase in current and deferred income tax expense of $1.5 million. The fund's cash flows generated from operating activities for the quarter were $9.9 million compared to $9.6 million in the second quarter of 2024. The increase of $0.3 million was primarily due to an increase in royalty and distribution income, of $0.8 million, partially offset by an increase in income taxes paid of $0.4 million, and a decrease in changes in working capital of just $0.1 million. Cash flows generated from operating activities year to date was $19.2 million, compared to $18.7 million in the same period and prior year. The increase of $0.5 million was primarily due to an increase in royalty income and distribution income of $1.3 million, partially offset by an increase in income taxes paid at $.4 million and the decrease in changes in working capital of $.4 million. While net and comprehensive income or loss and cash flows from operating activities are both measures under IFRS accounting standards or IFRS, the fund is of the view that net income or loss and cash flows from operating activities do not provide the most meaningful measurement of the fund's ability to pay distributions. Net income contains non-cash items that do not affect the fund's cash flow, whereas cash flows from operating activities, as a measure, is not inclusive of all of the fund's required cash outflows and is therefore not indicative of cash available for distribution to unit holders. Non-cash items include fair value adjustments on the investment in Boston Pizza Canada Limited Partnership, the Class B unit liability, interest rate swaps, and changes in deferred income taxes. As a consequence, the fund reports the non-IFRS metrics of distributable cash and payout ratio to provide investors with, in the fund's opinion, more meaningful information regarding the fund's ability to pay distribution to unit holders. The fund generated distributable cash of $8 million for the quarter, compared to $7.5 million for the same period in 2024. The increase in distributable cash of $.5 million, or 6.1%, was primarily due to increased cash flows generated from operating activities of $.3 million, fixed tax on units adjustment of $.2 million, and a decrease in interest paid on debt of $.1 million, partially offset by an increase in Class B unit entitlement of $.1 million. The fund generated distributable cash of $15.3 million on a year-to-date basis, compared to $14.8 million for the same period in 2024. The increase in distributable cash of $.5 million or 3.1% was primarily due to increased cash flows generated from operating activities of $.5 million. The fund generated distributable cash per unit of 37.4 cents for the quarter and 71.8 cents year-to-date compared to 35.2 cents and 69.6 cents respectively for the same periods in 2024. The increase in the distributable cash per unit of 2.2 cents or 6.3% for the quarter and 2.2 cents or 3.2% year to date was primarily attributable to the increase in distributable cash outlined above. The funds payout ratio for the quarter was 92.3% compared to 96.2% in the second quarter of 2024. The decrease in the funds payout ratio for the quarter was due to distributable cash increasing by $.5 million or 6.1%, partially offset by distributions paid increasing by $.1 million or 1.8% year-to-date. Year-to-date, the funds payout ratio was 96.1% compared to 96.5% year-to-date in 2024. The decrease in the funds payout ratio year-to-date was due to distributable cash increasing by $0.5 million, or 3.1%, partially offset by distributions paid increasing by $0.4 million, or 2.7%. On a trailing 12-month basis, the funds payout ratio was 99.6%, as at June 30, 2025. On August the 13th, 2025, the trustees of the fund approved a cash distribution for the period of July 1st, 2025 to July 31st, 2025 at an increased rate of $0.12 per unit, which will be paid on August 29th, 2025 to yield orders of record at the close of business on August 21st, 2025. This is an increase of 0.5 cents per unit or 4.3% from the previous monthly distribution rate of 11.5 cents per unit, equaling an annualized distribution rate of $1.44 per unit. The trustees' objective in setting a monthly distribution amount is that it be sustainable. The trustees will continue to closely monitor the fund's available cash balances given the fluctuating economic outlook. And with that, I shall turn the call back over to Jordan for more on the outlook. Jordan.

Thank you, Michael. As we transition into the fall, we'll continue to market our rejuvenated Boston pizza brand image to younger guests through our partnership with Live Nation, including through a national contest in which we will give away over 400 tickets to amazing concert experiences all over Canada throughout the third quarter. We'll also refresh our promotional campaign on various digital media channels to bolster continued guest engagement with our $15 lunch menu. Additionally, our popular Boston Pizza Kids Card promotion will return in the third quarter, which includes a $5 donation to the Boston Pizza Foundation for which families will receive a Boston Pizza Kids Card that includes five free kids meals, making that a perennial favorite on the Boston Pizza calendar. Our second quarter franchise sales were robust, reflecting the enduring strength of our business model. At the same time, we are proactively assessing shifts in the trade environment and their potential effects on Boston pizza restaurants across Canada, ensuring we remain agile and responsive. Our priorities continue to center on enriching the guest experience, empowering our franchisee partners, and fostering long-term sustainable growth through forward-thinking strategies and operational excellence. With that, I'd like to turn it back to the operator to begin the question and answer session. Operator?

Thank you. Anyone who wishes to ask a question may press star then one on their touch-down phone or send the question via email to InvestorRelations at BostonPizza.com. Please note, those questions that we do not get to during the call will be answered via email immediately following the end of the investor conference call. The first question comes from Nick Cochran with Acumen Capital. Please go ahead.

Hey, guys. Congrats on the strong quarter.

Thanks, Nick.

Thanks, Nick. Just one question on the same restaurant growth in the second quarter and indication how sales are tracked into the third quarter and maybe more specifically in July.

Yeah, so it's always – you know, interesting to report in the middle of August on a quarter that ends six weeks ago. But, you know, we, so we'll stay away from that because our practice is not to to kind of give forward-looking guidance. That said, I think you can look at the last three quarters, the fourth quarter of 2024 and the first two quarters of 2025, having just reported kind of the second quarter and year-to-date results this morning, and see that the momentum in terms of top-line sales and obviously the effects that has on distributable cash and the distribution increases both earlier this year and the one announced today. Feeling like the momentum is strong, and that certainly sets us up to continue that into the third quarter.

Let's start maybe asking a question about the quarter more specifically. Were sales relatively flat through the quarter, or did you see a build through the quarter?

On a month-by-month basis, you mean? Michael, maybe you could get into sort of the more granular breakdown of monthly sales or sort of the trend line for Q2.

Yeah, for sure. So the sales for the quarter were positive in all periods of the quarter, so I think that's something to note. They did taper off a little bit towards the end of the quarter, but I think one thing I'd call out is where we were getting the growth was very widespread, and what I mean by that is the growth was positive in all channels of the business, channel meaning kind of dine-in, you know, sports bar, kind of family dining section, the patio, as well as take it on delivery. So we're seeing growth across the business, as well as every province for the quarter saw positive growth. So I encourage that there was kind of widespread growth throughout all aspects of the business. And as Jordan said, if you look quarter to quarter, for the last three quarters, it's been kind of a generally positive trend.

Great. Then switching to the number of locations, are there any new stores on the pipeline right now?

Yeah, we have two locations that are under construction currently and a number of, I'll call it irons in the fire, locations that we're working with franchise partners on future development of new restaurants. Obviously, our focus over the last several years has been really stabilizing the core, the 372 restaurants that we have in operation today, making sure that you know, the after effects of COVID, which were quite pronounced in certain markets where restrictions were extended and the financial pressures and elements did not go away quickly. And so that's been our focus is building back up the sales on a per location basis. That's why we're very much encouraged by the, you know, the best practices quarterly same restaurant sales results for Q2 of 2025, but the strongest quarter from that measurement that we've had since the first quarter of 2012, excluding, of course, the few quarters that were anomalous in the after effects of the pandemic. So, you know, very encouraged by the top-line sales, and that helps us then to turn our are focused back to new restaurant opportunities, whether they be with existing franchisees looking to expand their portfolio of BP restaurants or new investors coming into the system and opening up new markets for us or underserviced markets across Canada. We still believe there's dozens and dozens of places across the country. We expect to have at least a couple more this year. and then focus on the 2026 development plan from there.

And with relatively strong performance from the network, have you seen an increase in the pipeline for potential new locations?

Yeah, it's always a, you know, it's always a math exercise at each location. location each market that we look at for future development you know over the last several years we've been focusing on some non-traditional development for us meaning locations that are inside recreation centers inside airports inside hotels universities different than our traditional standalone model that, you know, represents the majority of the restaurants that we have, certainly across the country. In addition to the non-traditional locations, we've also done some restaurant conversions. So, some existing locations that are one-offs or different brands, and they can be converted into a Boston pizza. And both of those channels for us in new development are quite compelling. meaning that the unit economics look really strong and help us get out of the gate with new partners and new markets in a way that's long-term and sustainable for our franchise partners. But they're also traditional. The two that we have in construction for this year are more traditional developments for us, meaning they are new builds, either ground up or from an existing shell, They're both brand-new restaurants and new markets that we haven't operated in before that we're excited to see later this year.

Great. Thanks for taking my questions. I'll pass along. Thank you, Nick.

Thanks, Nick. There are no more questions. This concludes the question-and-answer session. I would like to turn the conference back over to Jordan Holmes for any closing remarks. Please go ahead.

Thank you, Operator. Since there are no further questions, Michael and I would like to thank you all for joining us today. As a proud Canadian restaurant, we appreciate your continued interest and your support. We look forward to reconnecting with you during our third quarter conference call in November 2025. Thank you, everyone, and enjoy the rest of your day. Thank you.

This brings to an end today's conference call. Thank you for participating and have a pleasant day.