Pizza Pizza Royalty Corp.

Ladies and gentlemen, thank you for standing by and welcome to the Pizza Pizza Royalty Corps earnings call for the second quarter of 2020. During the presentation, all participants will be in a listen-only mode. After the speaker's remarks, we will conduct a question and answer session. At that time, if you have a question, you will need to press star and the number one on your touchtone phone. As a reminder, this conference is being recorded on Wednesday, August 12th, 2020. I will now turn the call over to Christine Da Silva, Vice President of Finance and Investor Relations. Please go ahead.

Thank you. Good afternoon, everyone, and welcome to Pizza Pizza Royalty Corp's earnings call for the second quarter ended June 30th, 2020. Joining me on the call today are Pizza Pizza Limited's Chief Executive Officer, Paul Goddard, and Chief Financial Officer, Kurt Feltner. Our discussion today will contain forward-looking statements that may involve risks relating to future events. Actual events may differ materially from the projections discussed today. All forward-looking statements should be considered in conjunction with the cautionary language in our earnings press release and the risk factors included in our annual information form. Please refer to our earnings release and the MD&A in the investor relations section of our website for a full reconciliation and other disclosures related to non-IFRS financial measures mentioned on our call. As a reminder, analysts are welcome to ask questions after the prepared remarks. Portfolio managers and media can contact us after the call. With that, I'd like to turn the call over to Paul Goddard for a business update.

Thanks, Christine. Good afternoon, and thanks, everyone, for joining our call today. The food service industry has been particularly a hard hit since the pandemic began affecting Canada in mid-March. Fortunately, our Pizza Pizza and Pizza 73 traditional restaurants were allowed to remain open for delivery and takeout sales and have exceeded the sales projections we made at the beginning of the pandemic. While being allowed to remain open, Pizza Pizza and Pizza 73 system sales have still been impacted as restaurant operators took significant and necessary measures in their restaurants to protect the health of employees and customers. Our teams were very proactive and complying with social distancing recommendations and requirements of applicable health authorities, including the closure of restaurant seating areas. Same-store sales growth, the key driver of yield growth for shareholders of the company, decreased 16.3% for the quarter, with April's decrease weighing heavily on the quarter. However, the real story I will focus on during this call is how our core business model has outperformed month-over-month from April to July, despite losing the vast majority of our walk-in sales in nearly all of our non-traditional sales. From a high level, the company's royalty pool sales mix includes sales from pizza deliveries, customer pickup, and walk-in, and also non-traditional locations and special events. And just to clarify, in terms of the terminology here, we refer to pickup as premeditated orders placed remotely in advance by phone or digitally by app or web or what have you for pickup, at the restaurant, whereas when we say walk-in, we're referring to unpremeditated walk-ins that also include dine-in orders. You can also just simply think of all delivery and pickup as off-premise, left together as well. So, royalty sales from the 749 restaurants in the royalty pool decreased 15.5% to 113.5 million from 134.3 million in the same quarter last year, when there were 772 restaurants in the royalty pool. The majority of the decrease is due to the closure of most of our non-traditional locations. Looking back from today to the beginning of the pandemic, July comparable sales have rebounded quickly, up 20 percentage points from April sales. Our traditional restaurants posted solid results in the latter part of the quarter and end of July, and account for approximately 90% of royalty pool system sales. Our delivery and pickup sales, the off-premise, particularly through our digital channels, grew significantly through the second quarter, nearly offsetting a major decrease in our dine-in and walk-in sales that was unavoidable due to government-mandated legislation. So that's a key point that I think everyone should recognize there. So it's sort of masked with a decrease, but we were really pleased to see our delivery and pickup really growing well. During the early part of the quarter, we quickly introduced innovative customer-centric safety measures such as contract-listed digital transactions, and another of our industry firsts, tamper-free pizza boxes, providing customers additional assurances when ordering. Most of our non-traditional restaurants, which account for about 10% of our sales, remain closed due to government legislation, although we are encouraged to see provinces beginning to ease restrictions on some of these captive market locations. But we think it will be a slow process there coming back. As well, many key municipalities recently began allowing restaurant dine-in to resume, which we expect to provide a helpful tail-end to our overall business, given walk-in, dine-in historically represents 40% of total sales at Pizza Pizza. And we're also optimistic that the return of televised professional sports events should add additional momentum for our delivery business at both brands. What better way to enjoy your favorite team back in action than to order in a pizza? Sushi, subs, noodles, they just aren't the same. During the second quarter at both brands, we continued executing our long-term strategy of promoting our value-based menu offerings, supported by product innovation, food quality, on-trend product introductions, and operational excellence at our restaurants, with the majority of our marketing efforts focused on delivery as part of our ongoing promise to provide our customers with delivery done better. We're pleased with our significantly improved results at both brands, particularly our Pizza 73 performance, and especially with Pizza 73 operating in a very challenged economic environment in the prairies, even prior to the pandemic's adverse effects. Our total sales continue recovering from the minus 26% same store sales low watermark in April, as we reported July's minus 7.8% comparable store sales. Progressively, we are seeing our traditional restaurant sales improving. Our strong and growing delivery focus at both brands, together with our recent successful relaunch of our digital ordering apps, have been major sales driving advantages during the pandemic. Customers are finding our digital channels faster and more convenient than ever before. I'd also like to note that Pizza 73 has actually been less affected during the pandemic than has Pizza Pizza as a result of the brand sales mix, with 90% of sales from delivery and pickup are off-premise at Pizza 73. At Pizza Pizza locations, as I said, approximately 60% of traditional restaurant sales are from delivery and pickup transactions, while the remaining 40% sales are from walk-in sales, which decreased significantly once the government-mandated social distancing kicked in. And as I also mentioned, nearly 10% of system sales are from those non-traditional captive markets, small locations, which decreased almost entirely to zero due to the mandated closures of schools, sporting arenas, entertainment venues, you name it. So not surprisingly, with the decrease in system sales, the company's royalty income also decreased, and as a result, the company reduced its monthly dividend by 30% in April from 0.0713, just over 7 cents a share, down to 5 cents a share. However, good news for shareholders. During Q2, we were pleased that the company generated $760,000 in excess cash, which added to our working capital reserve, now at $3.4 million. Our payout ratio was 83% for Q2. The excess cash and payout ratio was much better than our internal projections in early April when the lockdown first began. I'll now turn briefly to restaurant operations. Since mid-March, what actions have we taken at both brands to drive sales? Well, first, we are fortunate to operate in the quick service retail pizza industry. We have a large portion of our sales obviously derived from off-premise delivery and pickup. At both brands, our marketing strategies are structured to support restaurant profitability while also increasing customer orders and order frequency by placing orders for delivery or pickup through our wide array of digital ordering platforms or, of course, visiting one of our approximately 750 locations across the country. And as I mentioned, Pizza and Pizza's 17-day delivery and pickup business has grown significantly, and we continue to take nimble and targeted actions via our marketing, operations, and technology teams to further drive our delivery business. While every restaurant you can think of is now scrambling to get into delivery or use third parties since they can't do it themselves, delivery is our mastercraft, and we've been doing it for over 52 years now, and we're improving and innovating the customer delivery experience all the time, constantly over the years, and especially during COVID-19. Guided by the needs of our restaurant employees and the communities we serve, we've implemented rigorous additional health and safety measures, including face shields and masks, heightened sanitation on all work and touch services. We also provide our customers contactless transactions, as I said, for in-store pickup as well, not just delivery. And it's important to note that as part of contactless delivery as well, customers are now able to easily pre-tip their driver if they'd like to, have no physical contact, and this speeds up the entire delivery for both the customer and our driver. So it's truly a win-win situation there. Also in July, we readied our restaurants for in-store dining, which began late July, and should slowly start to build that up as restrictions ease. And of course, as customers start to feel more comfortable walking into our restaurants for a quick slice and beverage or dining in if they prefer. So more than ever before, Pizza Pizza has focused squarely on future growth and innovation. Pandemic is a global crisis, the likes of which our generation has never seen. But at the same time, the opportunities arising from it are also unprecedented if you look at it a different way. Consumers are moving to online purchasing in large numbers, which has accelerated in the first half of 2020, large part due to the pandemic, of course. And they are going to move back offline after the pandemic recedes. And just to provide some of you some context, you may have seen some of the comments made this past week by the CEO of Microsoft, Sergio Nadella, saying they've seen two years' worth of digital transformation in two months. You know, maybe a little more accentuated in their case versus some other businesses, but it's just an example of what's going on in the world now. And, of course, for many, many years, Pizza Limited has invested heavily in technology platforms, from business intelligence to accounting and distribution, supply chain software, et cetera. We are building the platforms and building our company for the future. And we're not just building, we're continuing to reinvest in our business continuously as well. The largest single investment has been in our digital ordering platforms. No other pizza player in Canada has more digital channels for hungry customers to choose from. Customer delivery and pickup orders transacted to our array of digital ordering platforms account for about 60% of all orders now, and this percentage will continue to increase. We see it trending, and it's benefiting our customers, our company, and our franchisees and JV partners at Pizza73. Our successes in late 2019 continued into 2020, especially during the pandemic, as customers looked for variety as the lockdown continued far longer than originally thought. New on-trend product offerings such as our gourmet thins, plant-based toppings, and keto pizza offerings continue to resonate with consumers' ever-evolving preferences while always delivering excellent value for money. In Q2, we introduced a new dessert, strawberry cheesecake truffles, and we also introduced our new cauliflower bites. Lightly battered and fried cauliflower florets serve as your choice to dip on the side, really appealing. And this new side item pairs well with our popular cauliflower pizza crust, of course. cauliflower crust pizza, and we were the first major national chain in Canada to offer cauliflower crust pizza, and not to mention keto crust pizzas, which we launched more recently at the beginning of this year. Our diverse, high-quality menu, our newly relaunched web and apps, plus our improved customer service and market share have positioned the company well to weather these difficult pandemic challenges. And additionally, our delivery done better promise, designed to increase our delivery traffic, is proving to be a major competitive advantage for our brands and is clearly delighting our customers. I'd like to briefly talk about Pizza Pizza Limited, the private operating company. The success of Pizza Pizza Realty Corp depends primarily on the ability of Pizza Pizza Limited, or PPL, to maintain and increase system sales of the royalty pool and to meet its royalty obligations. Therefore, the health of the underlying operational company is critical. At Pizza Pizza Limited, PPL, the following actions have been taken to maintain the financial health of the operating company. First, G&A expenses decreased significantly in Q2. Second, we work with all our partners, especially our supply chain, to operate our business in a smooth, uninterrupted fashion. And I want to thank our accounting, procurement, and logistics teams for their amazing efforts behind the scenes to keep things running so smoothly during this storm. These are the types of roles where you don't hear about anything until there's a problem, but there's an incredible amount of work just to keep things running smoothly, and they did a great job. Third, from a financial and managerial standpoint, PPL has also minimized, delayed, in some cases eliminated, some significant capital expenditures and anything non-essential at this time, just for prudent reasons. But we certainly look to resume capital allocation expenditures as soon as it makes sense to do so. But obviously, we're being very careful just to maintain our cash flow, keep our costs down, and until we get our volumes more fully back. And lastly, I'd just say PPL is also working very closely with our franchisees and our JV partners out at PINZE 73 through these unprecedented market conditions and to come up with financial solutions where required, and there's certainly a number of cases where they are, and examples of that are obtaining sufficient financial support from the governments, for us, corporately, and for the operators, whether it's CEBA loans, or the wage subsidy, or CCRA, et cetera, getting additional support from lenders, obtaining rent relief from landlords where possible, so our real estate team has worked very hard on that front as well, and had some good success with landlords. So all of these actions combined have been In our view, it's a battle, but overall, they've been tremendously helpful and essential, in my view, to keep us on solid footing as an operating company now and for the future. Now, turning to restaurant development for a moment. During the second quarter, new restaurant construction was permitted during the pandemic in BC and Alberta, but Ontario and Quebec governments mandated restrictions on commercial construction for several weeks there, which slowed us down. During the quarter, PPL opened one traditional restaurant and one non-traditional pizza pizza location. Five traditional and eight non-traditional pizza pizza restaurants were permanently closed. Additionally, one traditional pizza 73 restaurant opened. And during the period, PPL opened three traditional restaurants and one non-traditional pizza pizza location. Nine traditional and 12 non-traditional pizza pizza restaurants were closed. Additionally, one traditional pizza 73 restaurant opened and one non-traditional pizza 73 restaurant closed. As mentioned earlier, during the first quarter, substantially all traditional Pizza Pizza and Pizza 73 restaurants remained open across Canada, but 15 locations have temporarily closed after the quarter due to the pandemic. However, almost all of our non-traditional Pizza Pizza and Pizza 73 restaurants were required to close, with the exception of just a few locations in hospitals and gas stations and the like. So we do have a strong pipeline of stores to ramp up for later in 2020, and especially for 2021. Barring any massive resurgence or adverse long-term effects to the pandemic, we currently do expect 2021 to be stronger than 2020 in terms of network growth, given the unique challenges 2020 has thrown at all of us. All right, so what's ahead? Well, we are cautiously optimistic. However, the medium and long-term impacts to the company from COVID-19 will, of course, depend very much on consumer behavior after the economy fully reopens, the financial solutions achieved with governments, lenders, franchisees, and landlords, and the macro impact on the overall economy, of course, in particular household debt and levels of disposable income. We are encouraged when looking forward to the latter half of the year, which has historically been stronger for pizza sales than the first half as well. And I will say that the resilience of the pizza delivery business should not be underestimated and should help us grow and thrive relative to other QSR and FSR players in what will no doubt continue to be a challenging post-COVID environment for quite some time. My personal view is that because so much of our core business and core competency has always been around delivery, and also digital, the high level of professional service itself, the design of the food and packaging, the IT systems, the business processes, our continued innovation, our marketing machine, all that kind of jumbles together to keep us well-positioned to continue growing and should help us corporately and help our restaurant operators and PZA investors alike prosper well into the future. And going forward, we will continue to place the needs and health of our restaurant operators first and our employees and the communities we serve as well as we build same-store sales back to consistent positive growth territory. And I want to personally thank our employees, restaurant owners, and their team members, our incredible delivery drivers, and especially all healthcare workers and other frontline workers, including emergency responders who are putting others first daily. They've shown tremendous courage and leadership during this pandemic. Our team has been performing extremely well under extremely unprecedented circumstances, and it's truly inspiring to see people helping each other, donating food to the frontlines across the country, and keeping the faith. So thanks again for joining our call this afternoon. I'll now ask Kirk Feltner, our Chief Financial Officer, to provide a brief financial update.

Thank you, Paul, and good afternoon, everyone. For those new to our call, just a little bit of housekeeping. Pizza Pizza Royalty Corp. indirectly owns Pizza Pizza and Pizza 73 brands and trademarks, subsidiary of Pizza Pizza Royalty Limited Partnership. The partnership has two partners, Pizza Pizza Royalty Corp, which owns 76.5%, and the other partner, Pizza Pizza Limited, our private operating company, owns the remaining 23.5%. The Royalty Corp is a top-line restaurant royalty corp that earns a monthly royalty through a lease agreement with Pizza Pizza Limited, which uses the Pizza Pizza and Pizza 73 trademarks in its restaurant operations. The partnership's monthly royalty is calculated as a percentage of system sales reported by the restaurants that are in the royalty pool. So let's turn to second quarter financial results, just a quick summary. Of course, our financial results for the quarter continue to be impacted by COVID-19, just like the latter part of Q1. In April, the company's board announced a temporary reduction to the monthly dividend of 30%. As a Royalty Corp with no employees or capital expenditure requirements, the company pre-COVID targeted a payout ratio that was close to 100%. So for Q2, our top-line restaurant sales exceeded companies' internal projections made at the time of the pandemic when it started. What actually happened is our Q2 actual sales, as Paul mentioned, resulted in a payout ratio of only 83%. And we added 761,000 excess cash to our working capital reserve, which was good news. So just briefly with same store sales, recapping, which is the same store sales is the key driver of yield growth for our shareholders. It decreased 16.3% in Q2, and this was compared to Q2 of 2019 when same store sales growth was 1.6% positive. For the first six months, same store sales growth decreased 11.4% compared to the same period in 2019 when same store sales growth was flat. The company typically provides only quarterly comparative same-store sales growth for Pizza Pizza and Pizza 73 restaurants. However, due to the timing of the COVID-19 impact on system sales, the company is temporarily providing period-level detail, which indicates how Pizza Pizza and Pizza 73 restaurant sales have trended monthly since the pandemic. The monthly details can be found in our press release and on our investor webpage. However, in the near future, the company will revert to reporting quarterly comparable sales growth. So as Paul mentioned, the partial loss of walk-in sales and almost fully loss of non-traditional sales are largely responsible for the reduction in our system sales for the quarter. And we were fortunate, however, to have good increases in our delivery and pickup sales at both brands, which worked to partially offset the reduction in the walk-in and non-traditional. So sales for Q2 decreased 15.5% to 113.5 million. from 134.3 million in the same quarter last year and by brand sales from the 645 pizza pizza restaurants in the royalty pool decreased 17.9 percent to 92.1 million and sales from the 104 pizza 73 restaurants decreased 3.1 percent to 21.3 million for the quarter pizza 73 is performing better as Paul mentioned, and this relates to the sales mix consisting of 90% delivery and pickup. So for the six months ended June 30, system sales decreased 10.8% to 239.2 million from 268.2 million in the same period last year. So the partnership's royalty income, which is earned as a percentage of the royalty pool sales that I've just covered, decreased 14.5% to $7.5 million for the quarter, and decreased 10.5% to $15.6 million for the six months. So now turning to partnership expenses, administrative expenses for the quarter were $181,000 and $296,000 for the six-month period. For the prior year comparable periods, administrative expenses were $140,000 and $244,000 respectively. The increase is largely due to professional fees. In addition to administrative expenses, the partnership pays interest expense on its $47 million credit facility. Interest paid in Q2 decreased to $271,000 from $305,000 in Q2 last year. And the decrease was a result of the partnership's new lower interest rate which is currently at 2.685%, a slight decrease from the previous 2.75%. Last year in June of 2019, the partnership amended and extended its 47 million credit facility, extending the facility from April 2020 to April 2025. Also in 2019, the partnership entered into a five-year forward swap arrangement which commenced April 2020 at the effective interest rate of 2.65. So the credit facility bears interest at the Canadian bankers' acceptance rate plus a credit spread between 0.875% to 1.375%, depending on the level of debt to earnings before interest taxes depreciation and amortization, or better known as EBITDA. Credit facility includes affirmative and negative covenants, customary for agreements of this nature, and as of June 30, 2020, all our covenants have been met, and the company expects to meet all covenants in 2020. Partnership is required to maintain a funded debt to EBITDA ratio not to exceed 2.5 to 1 on a four-quarter rolling average. The debt to EBITDA ratio for the last four quarter rolling average is 1.4 to one. December 31st, 2019, it was 1.33 to one. So the partnership is making interest only payments on its credit facility. The debt to EBITDA ratio for the last four quarter rolling average continues to be below 1.5 to one. Therefore, this credit spread is 0.875%. As Christine mentioned in her opening remarks, you can refer to the company's MD&A for a full credit spread schedule. One note on interest expense on the statement of earnings, the interest expense differs from interest actually paid due to hedge accounting. A full interest expense reconciliation can also be found in the company's MD&A. So after the partnership receives a royalty income and pays admin an interest expense, The resulting cash is available for distribution to its two partners based upon the ownership. Pizza Pizza limited ownership held through its Class B and Class B exchangeable shares increased by one half of 1% to 23.5% after the June 1st, 2020 adjustment to the royalty pool and the true up of the January 1st, 2019 royalty pool. Therefore, Pizza Pizza Limited is the large shareholder of the company on a fully diluted basis. Turning to dividends and working capital, company declared shareholder dividends of 3.7 million or 15 cents per share for the current quarter compared to 5.3 million or 21.39 cents per share for the prior year comparable quarter. Payout ratio was 83% for the quarter and was 107% the prior year comparable quarter. For the first six months, the payout ratio was 103%. As I mentioned earlier, with the decrease in system sales resulting from COVID-19, the company's royalty income has also decreased. As a result, the company reduced its monthly dividend from 7.13 cents per share to 5 cents per share And that began in April 2020, and this is a temporary reduction. In today's press release, the company also announced the monthly cash dividend of $0.05 per share for August 2020, payable September 15, 2020. The company's working capital reserve is $3.4 million at June 30, which is an increase of $761,000 for the quarter. And this is largely due to the adjustment to the dividend. For the six months, the reserves have decreased $225,000, attributable largely to the first quarter's payout ratio of 123%, which was a direct result of the financial impact of COVID-19. It is expected that future dividends will continue to be funded entirely by cash flow from operations and the cash reserve. Just one note on dividends going forward. The company will continue to monitor system sales and royalty income and will consider further changes to the monthly dividend, taking into account the duration and the impact of the pandemic on restaurant operations and the timing and pace of any economic recovery in the market that Pizza Pizza and Pizza 73 serve. So that concludes my financial overview. Now it's time to call back to our operator for questions. Rob?

As a reminder, to ask a question, you'll need to press star 1 in your telephone. To withdraw your question, press the pound key. And we have a question from the line of Derek Lessard from TD Securities. Your line is open.

Yeah, good afternoon, everybody, and hopefully everybody's staying safe. Starting to see the strong improvement since April through July, just wondering if you continue to see the improvement. I know it's the early days of August, but maybe just talk about how your walk-in sales have begun to trend in the right direction.

So you're talking about from July forward or just in general?

Yeah, I guess within the last 12 days, Kurt.

in the last 12 weeks? 12 days.

Oh, 12 days.

Oh, yeah. So, yeah, so it's a story that starts back in April, though, when there's not so much. We have had gradual improvement, and since July 31st, there's been slight continued increase, not dramatic. People are still a little wary, I believe, of coming to insights restaurants to dine in general, but we are seeing continued delivery and pickup at both brands, especially at Pizza 73, but Pizza Pizza as well.

Okay. Are the restaurants where you have dine-in capabilities, are most of those open now?

Yes. In fact, I tried to make the comment in the prepared remarks that we've pretty much been open. You know, it's just that our walk-in, I mean, it hasn't been super appealing because there hasn't been a lot of foot traffic. There's so many restrictions, right? There's no ability to sit down until recently. But we have had some walk-in, and most of our restaurants, I mean, almost all of our traditional ones are open or have been open. It's just that it's, you know, been predominantly the off-premise, the delivery and pickup orders. that have been really surging, right? I think there's just that fear factor, like Kurt said, and not a lot of confidence, even though you could walk into one of our restaurants, you know, almost everywhere, not the non-traditional, but the traditionals. It's just that really dropped off. I mean, the walk-in, the sort of ad hoc walk-in for a slice business was just not what it usually is, right, just because of the fear. But they weren't open. And we did, you know, as we said, we did temporarily close some. We permanently closed some as well. But by and large, we've been open this whole time for traditionals.

Just to add to that with regards to the walk-in business, if you consider a lot of, say, in just the downtown central business district of Toronto, with office towers not really reopening, and sort of you cascade that through the office hours throughout the GTA, people aren't out at lunch. So we're not expecting full return to walk-in sales, but we will see continued improvement. More and more things are reopening. So more and more traffic will be at one of our critical day parts, which is late night.

Yeah, and just to Kurt's comments too, if it helps Derek, my view at least is that the sort of return of walk-in, I think it will be slow for the reasons Kurt mentioned, especially in some of these urban centres where there's just not a lot of people still, and confidence is still a little, I guess, questionable. That still, I think, will come back faster, personally, than the non-traditional piece. The non-traditional piece, you know, the colleges, universities, etc., possibly movie theatres. I mean, there's a lot there that can kind of switch on quickly if needed, but, you know, we look at some of the universities, the food service companies are saying they hope to reopen, but a lot of the universities are saying our students are going to be remote and online only this fall. So that's a lot of our non-traditional locations, right? And until really the schools, for instance, say, you know, we're back online, those food service-run campus locations and things won't come back. So It could switch quickly when it does switch, but I guess we just don't know. And so we're sort of assuming that that's not going to come back as quickly as we'd like.

Yeah, and I guess that makes sense, and thanks for answering. That was my follow-up question. So in those non-traditional restaurants, how many of them have reopened? And I know, I mean, you mentioned movie theatres, but I don't know what's open in terms of, like, the amusement parks or... You mentioned the universities. How much of that network itself has been reopened?

Yeah, a very small number. I'm not sure if we have a specific percentage. It's low. It's very small.

Yeah, we don't release the granular between traditional and non-traditional, so we wouldn't be able to release that. But you can imagine the Bell Center – Wonderland, MLSC, any outdoor event, Canada's C&E here, everything's, nothing's opening, right?

Right, okay. Okay, no, that's fair. Okay.

Normally we're doing a lot of special events in the summers with mobile trailers and things. We actually do a fair bit on that front too, and that's essentially not really an option for us, but But as we did say, the other upside might be with televised sports. There might be more occasions now where people order for delivery at home. So there's a little bit of good news in there too that offsets some of the non-physical presence of customers.

I think people's habits are just changing, and we're fortunate to be in the delivery business and the takeout business and the pizza business.

No, absolutely. It's probably one of the better environments and one of the better QSR verticals to be in. One thing that did stick out to me was the strong May result in Pizza 73. And then there was some, I guess, some modest, very, very modest weakness in the following month. And I think you alluded to it, Paul, in your opening remarks. It was pretty good considering the slowdown in Alberta and But maybe if you could just talk about what happened or the anomaly in May.

Well, yeah, I think I just started, you know, our marketing programs, I think we had a fair bit of marketing going out at that time. You know, it was encouraging to see the strength there. And obviously it kind of came down a little bit more recently, but just generally we see the general trend going our way. I think just generally we've got that delivery reputation out there. As we're doing here, I think we're just trying to make sure that we have sort of an always-on approach a little more. I would say that we've done that at both brands, but it seems like at least in May that approach did pay more dividends, so to speak, out there. That's something that we're trying to do more at both brands, is more of an always-on, more multi-channel, and allocating your spending appropriately. We did do a lot of shifting because of, We realize, for instance, people aren't downtown as much. We might have pulled back from billboards, for instance, or digital billboards for a while. But we allocated that spending over more to digital and things. So I think just the mix we have there, the marketing mix, seems to really work for May. And specific deals, I think there's some good traction with our solo special. Our everyday deal continues to do well out there. We continue to do a lot of menu innovation there. We haven't really talked about it at this call, but I think all of those things help. And I think just in general, I think that the delivery reputation we have out there is very strong. So third parties are also very strong out there too. But, you know, we're very affordable, right? And in a value market, especially in a very tough backdrop, I think it's resonated with people in May. I think it was maybe just that fatigue factor. People were, my theory is partly that just people were tired of home cooking a little bit and started to really reach out and deliver a little more. And at that, we saw a pop in our business there. And I guess, you know, it sort of seem to tone down a little bit, but we're hoping to keep that momentum going there.

Derek, I will add that on a month-by-month basis, we're disclosing this year. Last year, there's always a story with comping over last year. As May was good, when June fell off, June was going against a really strong month last year at PISA 73, which was significant because of maybe the Raptors playoff at that time. So dollar wise, it was a good month in June as well as the percentage was in May, if that makes sense.

Yeah, no, thanks for the colored curtain. Yeah, that makes sense.

It's just that you're missing the benefit of the monthly last year, so it's kind of tough to watch.

Okay, thanks. I guess I'm wondering, too, like obviously strong rebound, just wondering about the competitive environment. Have any of your peers – or competitors even outside of the pizza segment gotten more aggressive as they try to boost volumes in this environment. And given that some of them don't have that delivery capability that you have, have you seen any more aggressive behavior?

Do you mean on pricing specifically or just marketing activity?

Yeah, I'd say all of that pricing. You know, you guys are typically pretty good in terms of the value message. But pricing is one. And just maybe, you know, just in terms of promo or marketing that you're seeing out of your peers.

I mean, I think – We haven't seen a dramatic change, I think. I mean, we obviously keep a close eye on competitors, large and small. I don't think I've really noticed a distinct change. I mean, I just noticed I think we've been more active on overall marketing activity of late more than others. You know, just generally in QSR, I mean, there's, I think, just a general pause. I mean, for a lot of reasons, for a lot of people, I think, for budgetary reasons, maybe held back and things. We've tried to be responsible as well, but also made sure that we're still always on in some way in these different channels. So, I think the usual people that are pushing value and things are there still, and so are we. We've been very successful with things like our unlimited $7.99 offering of late at Pizza Pizza. Likewise, our value-oriented deals at Pizza 73 continue to do well. And I think just the product innovation side has been something that we've continued to, I think, show a little more in terms of offering new introductions a little more than the competition. I think a lot of other people seem to be relying a little more on their current basket of menu items. But I haven't really noticed. I mean, I think it's kind of the same. People are, I think, going to get more aggressive would be my anticipation because of what's going on.

Okay. And maybe one final one for me. I just... I wanted to find out about wondering how you view, I guess, the health of the network and your franchisees in particular. And, you know, wondering if there's been any issues at large, I guess, with their ability to keep their lights on. Specifically, I'm talking, I guess, about rent payments in this environment.

Yeah. I can maybe let Chris speak to that a little more. But, I mean, just in general, you know, I don't think there's anyone in the restaurant business in Canada that's not definitely, you know, adversely impacted by this, including our folks. But I do think that some of the measures in place that we've taken just as a, you know, in trying to really support our network well have helped. You know, we have a lot of centralized services we provide to our franchisees. You know, we definitely try and help them with their cash flow. Things like the wage subsidy, the SEBA loans, the rent relief where we can get it, all those things. I mean, we've been very much administering that and helping our franchisees wherever possible. And certainly that's really made a big difference for a lot of us, especially when we were really down, you know, in April and things. I mean, people really needed it. And I think, you know, thankfully, I think we're, you know, people are coming back, which is good, so they don't need it as much. But it definitely was very important for us, like other restaurants out there and retailers out there in general that really needed that assistance. And I do think that, especially on the rent front, That's probably the most important area, right? And we've been successful in a lot of cases with our landlords, but there are some that haven't been that cooperative, and we try our best there to help those franchisees. But it is a battle. It's not easy. But I think overall, because our sales have come back and we've got that strong delivery and pickup, at least it helps our stores when we keep their costs down so that their cash flow is okay for the most part.

Okay, and I guess maybe just to follow up to that, the 17 net closures in the quarter, would you say that that's part of the attrition that you would typically get, or did COVID accelerate those closures?

I think a little specific one, because I think deferred occurred on the mix, but I believe that it's a bit of a mix. I think some of them would get accelerated and say, look, some of these ones are kind of marginal. They may be coming up at the end of their lease. And we said, look, if it's a store that's been subsidized or been having a lot of trouble or it's cannibalizing in an area where you've got two other stores in close proximity, I can think of a couple instances in Toronto where that occurred and some that were end of lease. We had some downtown ones I'm aware of that we actually just said we're not renewing, we're out. So it's a little bit of a mixed bag there, but I think we also said, look, we've got to be extremely disciplined right now, and if something's marginal, and even though part of us might want to renew that lease, in some cases we've said, no, we're out, or this store's just at the bottom end of the portfolio, and we're going to close it. And so I think maybe it would have been a little more, I don't currently know what you saw on that, the mix of the 17, but my sense is it was a bit mixed.

Right. So, Derek, late, towards the latter part of Q2 in 2019, we started really looking and taking some action in our underperforming traditional stores. So we closed some stores in Q3 and Q4 last year, and that program continues, especially in light of the pandemic. So we closed nine traditional pizza pieces and 12 non-traditional, and the non-traditional, you know that it's short-term contracts and volatile, so we've just actually closed more of the non-traditional. So sometimes that distorts the overall numbers of the net 17, but we do, and we are continuing to look at Some traditional restaurants, especially at Pizza Pizza, Pizza 73 is strong almost throughout. So we'll continue working with landlords. We'll continue working very, very strongly with landlords. We are getting good cooperation, but there are instances where we are concerned about certain stores For instance, being close to a university and the university isn't opening and we've already gone through three or four months of that. So we're very in the weeds with each restaurant and the scenario. We look at them all very closely. We were just out visiting stores recently and Me, personally, our ops teams are out there every day, but we all went out recently just looking and talking, and we're getting good feedback. But we will continue looking at certain stores that it's just not viable to continue.

Okay. That all makes perfect sense. That's it for me, everybody. Thanks for taking my questions, and stay safe. Thank you, Derek. Stay safe. Enjoy summer.

And there are no further questions at this time. Christine Da Silva, I turn the call back over to you for some closing remarks.

Thank you, Rob. And thank you, everyone, for joining us on the call today. If you have any questions after the call, please contact us. Our information is on the earnings release. Have a good evening.

This concludes today's conference call. Thank you for participating. You may now disconnect.