Pizza Pizza Royalty Corp.

Ladies and gentlemen, thank you for standing by and welcome to the Pizza Pizza Realty Corp's earnings call for the second quarter of 2021. During the presentation, all participants will be in a listen-only mode. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star, then the number one on your telephone keypad. As a reminder, this conference is being recorded on Wednesday, August 11, 2021. I will now turn the call over to Alexander Suratin, Director of Finance.

Thank you. Good afternoon, everyone, and welcome to Pizza Pizza Royalty Corps' earnings call for the second quarter ended June 30th, 2021. Joining me on the call today are Pizza Pizza Limited's Chief Executive Officer, Paul Goddard, and Chief Financial Officer, Christine Da Silva. 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 press release and MD&A in the investor relations section of our website for reconciliation and other disclosures related to our non-IFRS financial measures mentioned on this call. As a reminder, analysts are welcome to ask questions after the prepared remarks, and portfolio managers and media can contact us after the call. Before turning the call over to Paul for the business update, I wanted to spend a few moments reviewing the structure of the cork for our new investors. Pizza Pizza Royalty Corp., indirectly, owns the Pizza Pizza and Pizza 73 brands and trademarks through its subsidiary, Pizza Pizza Royalty Limited Partnership. This partnership has two partners, Pizza Pizza Royalty Corp., the public company, which owns 76.5%, and the other partner, Pizza Pizza Limited, the private operating company which owns the remaining 23.5%. The Royalty Corp. is a top-line restaurant royalty corp. that earns the monthly royalty through a lease agreement with Pizza Pizza Limited. In exchange for the use of the Pizza Pizza and Pizza 73 trademarks in its restaurant operations, Pizza Pizza pays the partnership a monthly royalty calculated as a percentage of royalty pool sales. Growth in the corp is derived from increasing the same store sales of the restaurants in the royalty pool and by adding new restaurants to the pool each year. The royalty pool is adjusted at the beginning of each year by adding new restaurants opened in the previous year, less any restaurants that have been permanently closed. For the fiscal year 2021, the royalty pool was adjusted on January 1st to include 622 Pizza Pizza restaurants and 103 Pizza 73 restaurants. With that review, I'll turn the call over to Paul Goddard to provide a business update.

Thank you, Alex. Good afternoon and thank you everyone for taking the time to attend our call today. Today we will highlight the results of our second quarter ended June 30th, 2021. From a high level perspective, we find it encouraging to see the strong vaccination rates across Canada leading to gradual reopenings and restrictions being lifted. That being said, The recurring virus waves and lockdowns we experienced last year and through the first half of this year continued affecting some of our important sales channels, particularly walk-in sales and our non-traditional business. Also, despite a particularly challenging economic backdrop in Alberta, we have maintained our market share. Same-store sales growth on a combined basis increased 0.8% for the second quarter. Pizza Pizza reported solid sales growth of 3.1%, while Pizza 73 reported a same-store sales decrease of 9.5%, reflecting a difficult economic backdrop ongoing in Alberta. Year-to-date, same-store sales on a combined basis decreased 6.5%. And when comparing results of 2021 to 2020, it's important, of course, to remember that COVID-19 began impacting operations in mid-March of 2020 and had the greatest adverse impact to us in April of 2020. For the second quarter, system sales from the 725 restaurants in the royalty pool increased 3.9% to 118 million from 113.5 million in the same quarter last year when there were 749 restaurants in the royalty pool. And as mentioned on previous calls, our business is comprised of two revenue streams, our traditional restaurant network, which generates 90% of our royalty pool sales, and our non-traditional and special event locations, which typically generate the remaining 10%. As COVID-19 cases across Canada increased early in the quarter and the threat of new variant strains emerged, restaurant operations continued to be restricted across all provinces serviced by Pizza Pizza and Pizza 73, and our customers were back home in various stages of lockdowns. Fortunately, since the beginning of the pandemic, our traditional restaurants have remained open for delivery and pickup. However, as our restaurants continue to comply with all COVID-19-related restrictions, including the closure of all in-restaurant seating areas for the majority of the quarter, Our normally very robust walk-in sales, especially those in urban locations, were impacted. As we experienced back in 2020, growth in our suburban locations this year has exceeded that in our urban locations. And with a large proportion of our restaurants in those more urban locations, you can quickly see that walk-in sales are very critical as a channel for us, typically generating about 40% of our total store sales. So when we were forced to close all of our seating and dining areas, this was really going to be a significant impact. Yet despite this uncontrollable headwind, the good news here is that our delivery and pickup sales, which combined give us that other 60% of our sales, continue to offset a sizable portion of those lost walk-in sales. Our non-traditional locations, which contribute 10% of our overall sales, have for the most part remained closed since the onset of the pandemic due to these various government mandates. However, we are starting to see that a number of our non-traditional locations, which initially closed, have reopened, such as Canada's Wonderland, that's been in July, Toronto Zoo, centreville center island and others tfc in toronto as well for the tfc football team soccer team and we anticipate many more of these non-trad locations should reopen some perhaps in a limited capacity others fully and especially we'll see a lot more reopenings we anticipate at the colleges and universities in the fall as allowed by each province while the economy reopens in stages barring another major wave of lockdowns or other covid19 related restrictions so Ongoing sales challenges persist as the delivery landscape continues to feel pressure via rising input costs and increased competition from third-party delivery services, among others. I would say that the third-party aggregators continue to be our biggest competition in the delivery market over the last year. To meet these challenges, we continue to focus media investments on core value offerings, new product innovations, and digital innovations. There's lots of examples of that I'll get into. With the lifting of restrictions in Ontario late in the quarter, we immediately experienced an increase in our walk-in sales and saw the reopening of a few key non-traditional locations, as I mentioned. This is positive momentum, no doubt, as we head into the back half of the year, which has historically been our strongest sales quarters, Q3 and Q4. So as a result, our board was pleased to announce a 9% increase in the shareholder dividend effective August 2021. Now I'd just like to touch on restaurant operations at PPL, the private operating company behind our underlying business. Pizza Pizza Limited continues to focus on evolving customer needs and driving long-term sustained growth. When combined with our competitive advantages of convenience, innovation, high-quality menu offerings, and geographic diversification, we feel strongly that our restaurants are poised and ready for all sales channels to return stronger than they were pre-pandemic. Our second quarter continued the momentum from our successful Uno card campaign in the first quarter, with a focus on our delivery promises, new product launches, and value offerings. This quarter, we continue to see the benefits of expanding our product offerings and creating premium differentiated products as well. At Pizza Pizza, the introduction of three new gourmet thin pizzas highlighted our high-quality toppings and new flavor profiles. Charcuterie, prosciutto and arugula, and spicy Siciliana pizzas complement our regular pizza offerings and expand our specialty product menu. These pizzas are sold at a premium price and are great profit drivers for our stores. We were thrilled to see such strong take-up on the gourmet fence. Meanwhile, at Pizza 73, we also introduced the Uno card game promotion in late April and followed it with our festival combo, a delicious pretzel crust pizza accompanied with our new mac and cheese wedgies, which were released in advance of the Calgary Stampede to capitalize on the excitement of this event. Although I would just mention outside food vendors like Pizza 73 and others were not allowed to have on-site locations at the Stampede this year, It was great to see the Stampede open and it's great to see people excited about large summer events like that. As a former Calgarian, I know it's hard to beat the Stampede for excitement too. So nice to see just signs of normalcy happening. And we were also thrilled to announce that this quarter we introduced beer as a new beverage at our restaurants. Our initial launch at 20 locations in Hamilton and Winnipeg have afforded customers the opportunity to purchase beer on site for takeout or for delivery with any food purchases. After this successful initial test, we plan to roll this out to all Pizza Pizza and Pizza 73 locations across Canada, further expanding our product offering and giving customers what they want, beer with their pizza and wings. We are the first major pizza chain in Canada to offer this magical combination of pizza and beer, and we are very proud to once again be a first mover and leading innovator in our sector. We know that value is important for our customers, especially as the economy is not fully reopened and employment continues to be high, really right across Canada. As such, we continued our focus on meaningful value offerings. At Pizza Pizza, our promotions focus around our unlimited $7.99 two-topping medium pizza offering, our ever-popular walk-in specials, and other lightning rod marketing tactics to drive sales on certain days. As well, at Pizza 73, where we continue to face that economic headwind with one of the worst unemployment rates in the country, we reintroduced our plenty for 20 value offering, which is a real perennial favorite. This legacy offer has done well with our customers and is a good reminder of the strong value for money we provide, along with great quality food. Pizza continues to be an affordable and convenient option for our customers and an important tool in retaining customers. So overall, our diverse, high-quality menu, continually enhanced websites and apps, we continue to pour money into those, make them better and better, plus our impressive customer service stats, our high-quality ratings, and other aspects have positioned the company well whether this pandemic can come out stronger, gain market share, and increase our restaurants' bottom-line profits, along with their top-line sales. We are seeing positive economic signs and are more hopeful than we were last quarter that the worst is over. These long-lasting lockdowns have been lifted so we can get the economy safely back on track with a largely fully vaccinated population, even if Delta or other variants continue to throw us curveballs in the future ahead. So finally, I just wanted to provide a quick update on restaurant development as well. which has been an especially exciting area for us this year. During the quarter, Pizza Pizza Limited opened seven traditional pizza pizza restaurants, while one traditional and one non-traditional pizza pizza restaurant was closed. Year-to-date, Pizza Pizza Limited opened 10 traditional and four non-traditional pizza pizza restaurants and closed two traditional and one non-traditional restaurants. Additionally, at the Pizza 73 brand, the company opened two traditional restaurants and closed one non-traditional restaurant. So we're proud of our growth in the last six months as new restaurant construction continues across Canada as part of our longstanding national expansion plan. We've growth primarily in British Columbia and Quebec. We're really pleased to see the growth there and the rapid brand appeal as well. We are taking full advantage of the opportunities the pandemic has provided despite the hardship. It's also a great opportunity to focus on growth in our minds. So rather than go on defense and shut up our stable, we are going on offense with our plans. And I think our results on the, on the, uh, Construction side of things are just one great example of that. And, you know, while many others are retreating or just having to stabilize their businesses, we think it's a great opportunity to build our business and make our network even stronger with our growth. Pizza Pizza Limited management expects to accelerate its restaurant network expansion to 5% traditional restaurant growth and continue its renovation program throughout 2021 and beyond. And to date, we are proud to say that 80% of our restaurants feature our hot and fresh new look. Customers are noticing this, our reinvigorated restaurant ambiance. even higher food quality than we had before. And for those that have not visited their neighborhood Pizza Pizza for a while, we cannot wait to hear their positive feedback as they experience the new Pizza Pizza. So in closing, I just want to mention that obviously this year has been such a monumental challenge for everybody, not just at Pizza Pizza, but everywhere, obviously, around the world. But just speaking about our team and our franchisees and our partners in Alberta, I just want to personally say thank you, all of you, all of our hardworking employees and our operators for their exemplary hard work, relentless efforts this year. It's been a struggle, but it made us stronger and closer as a team as well. And I think that's one of the silver linings of all this. So, you know, the health and safety of our customers and our restaurant teams is always going to be top priority for us. I think our team has done a great job of that. And we've implemented strict protocols in our restaurants and on our deliveries to keep our customers safe. Our customers appreciate that. They know that we're very careful and professional about that with our uniformed drivers and our time guarantee, etc. So we're completely committed to delivering great food and the very best customer service each and every time. That's our mission. And we know that that means we will gain more new and returning loyal customers. And look, we know that as restrictions continue to lift and customers return to the urban city centres and to our non-traditional sites, we will be ready to greet them with our high-quality food, our welcoming staff and our newly renovated restaurants. Thank you for listening, and I'll now ask Christine, our CFO, to provide a brief financial update. Over to you.