Pizza Pizza Royalty Corp.

Ladies and gentlemen, thank you for standing by and welcome to the Pizza Pizza Royalty Corp's earning call for the third quarter of 2021. During the presentation, all participants will be in a listen-only mode, but after the speaker's remarks, there will be a question and answer session. If you would 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, November 10th, 2021. I will now turn the call over to Alexander Suratin, Director of Finance. Please go ahead, sir.

Thank you. Good afternoon, everyone, and welcome to Pizza Pizza Royalty Corps' earnings call for the third quarter ended September 30th, 2021. Joining me on the call today are Pizza Pizza Limited's Chief Executive Officer, Paul Goddard, and Chief Financial Officer, Christine DaSilva. 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. 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 corp 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 a 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 1, 2021, 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.

Thanks, Alex. Good afternoon, everyone, and thanks for taking the time today to join our call. Today we will highlight the results of our third quarter ended September 30th, 2021. We are pleased with our positive same store sales growth of 2.8% in the third quarter. Growth at the Pizza Pizza brand was supported by strong marketing campaigns, effective product innovation during the quarter, and by high vaccination rates and the lifting of COVID related restrictions, especially in Ontario. During the quarter, consumers became more comfortable with social interactions, which positively impacted our walk-in sales as well. Additionally, key non-traditional locations reopened, including universities, schools, and large sporting and entertainment venues. While we continue to experience lingering effects of the pandemic in certain provinces, we remain optimistic that the fourth quarter, which has historically been our strongest, will continue this positive momentum. As mentioned, same-store sales growth on a combined basis increased 2.8% for the third quarter. Pizza-to-pizza restaurants, which account for 85% of our business, reported solid same-store sales growth of 5.7%, while Pizza 73 reported a same-store sales decrease of 11.4%, again, reflecting lingering pandemic effects. As everyone knows, hospitalizations were up and a lot of openings and closings, COVID-related in Alberta as well. 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%. So, since the pandemic began in March 2020, provinces across Canada have been in varying levels of operational restrictions, and those restrictions have changed, of course, as COVID-19 cases fluctuated. During the third quarter of 2021, the pandemic continued to impact all regions in which PPL operates. provinces across Canada continue to face public health restrictions, including restrictions on dine-in desk counts, reduced operating hours, and or the temporary closures of stores. However, as the third quarter of 2021 progressed and vaccination rates increased, provinces across Canada began to lift these restrictions, including the return of in-person dining and easing up on the size of gatherings and the reopening of entertainment venues. As these restrictions lifted and customers emerged from stay-at-home orders, we began to see the return of our normally very robust walk-in sales, especially with the warmer summer weather. We still, however, have restaurants who continue to be impacted by the loss of walk-in sales, specifically those located in urban markets, where many of the walk-in sales are tied to corporate offices that have adopted work-from-home policies, whether temporary or longer term. It remains to be seen. The second revenue stream, 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 the various government mandates, but we are happy to report that many of these sites have reopened as the province has lifted COVID-19 restrictions. The reopening of our non-traditional locations started off slowly as capacity restrictions were in place, but towards the end of the quarter, many were opened at full capacity. Our large, non-traditional partnerships with entertainment venues and sports arenas are key sales channels, especially in the second half of the year. And that's, as many of you know if you're listening, hockey, basketball, and other channels as well. And in the summer, they're significant for us as well. While the lifting of restrictions has added wind to our sales, meaning sales and sales, we still face sales challenges as the delivery landscape continues to feel pressure via rising input costs and continued competition from third-party delivery services. To meet these challenges, we continue to focus on our core value offerings, new product innovations, and our national expansion plan. Now, I'd like to briefly touch on operations at PPL, the private operating company behind our underlying business. Pizza Pizza Limited's success stems from its long history of menu and technology innovation, along with its convenient restaurant locations and high-quality menu offerings. Building on the success of our new gourmet thin pizzas from Q2, this quarter we continue to expand our product offerings. Beyond our wide array of pizza offerings, we are well known for our chicken selection, so the natural complement to that category was a fried chicken sandwich. This quarter, Pizza Pizza introduced three new fried chicken sandwiches, and we felt that the most exciting part of this sandwich launch was actually the introduction of our plant-based chicken sandwich. Plant-based consumers are growing in number, and our chicken sandwich is the first in Canada's quick service restaurant sector. Reception of this product exceeded our expectations, attracted new customers, and has highlighted the variety of plant-based products we offer. So we're very proud to be a first mover and a leading innovator in this space. The province of Alberta opened rapidly in early summer, packing restaurants and patios through the summer months. Despite concerning increases in COVID cases, province did its best to stay the course. However, the province has struggled through recession in the oil sector time and time again, and it's been doubly hit this time, now dealing with the pandemic's effects. The vacancy rates in the urban centers of Calgary, which I think has over 30% vacancy, and Edmonton are higher than those in Toronto and Montreal by a wide margin. Knowing the historical landscape and tough environment, we started netted the quarter with a deep value proposition, our plenty for 20 deal, We also introduced our one-topping pickup special to meet the demand for a single pizza offered at a lower price point. Additionally, we have seen third-party delivery services continue to proliferate and, in fact, scale up in Alberta. So we have, for instance, layered on a free delivery message to drive customers to our own organic order channels. But to be candid, some of the things we've tried haven't worked out well. Our summer innovations like pretzel crust and mac and cheese bites, although innovative, did not resonate as we'd hoped to the volume levels that we'd hoped for, despite our strong brand and our reputation for innovation. So while we're not happy with our results in Alberta, we do know our food quality and our customer service and our execution of our partners out there is second to none. And as we wait for the oil and gas recovery to trickle down to other sectors of the broader Alberta economy, as well as to the everyday consumer. We are proactively amplifying and adapting our marketing messages and our marketing mix, better leverage all of our sales channels, and increase our share of mouth in Alberta, especially working even harder to better drive our key volume movers. And other levers we can pull include a number of different things. I won't go into too much detail here, but obviously we can spend more from our ad fund, new creative product mix adjustments, more tech innovation we're always doing, And that's always a key to better advantage for us. And this is an example. We haven't just released it yet, but there's a new feature on our app coming out shortly that we think will help drive repeat orders. So we're always innovating, and we're going to keep doing that. So like many companies across Canada, we continue to face inflationary headwinds as well, and we have to balance increasing retail prices to guard our restaurants' bottom-line profits without impacting overall transactions. Over the last few months, we've been strategic in taking modest price increases across our menu. We'll continue to monitor the supply chain landscape and pass along price increases where possible, but we will be very persistent about doing so. Our diverse, high-quality menu, continually enhanced websites and apps, impressive customer service staffs, high-quality ratings, all these things together position the company very well to whether this pandemic can come out stronger. I think we've demonstrated our very, very robust resilience. We are confident that we'll be able to increasingly leverage our leading brands in new and existing markets, and increase our restaurants' bottom-line profits along with their top-line sales. We're encouraged by the overall latest GDP forecast for the country and most provinces, and there is a little ray of light there for Alberta. I think that was the most optimistic growth we're seeing coming out of some of the economists just the last few days as well. So we are optimistic that things are getting closer to normal than they have been in quite some time, although we all know it's going to be somewhat different. So in closing, I just want to say how pleased I am with our momentum. recently, and I acknowledge that this period has presented us with many challenges as well, but I think we've gotten used to adapting even faster than we have before, being even more agile. So we're pleased with our strong progress and resurgence at Pizza, and we know we have some work to do to get Pizza 73 resurging in a similar way soon as well. So I want to personally thank our team of employees, partners, and all of our operators for their outstanding work and tireless passion for our brands. We're excited about Q4 as well, and our strong store growth, which has been a really good highlight this year, as we look through our busiest quarter. And we're looking forward to an even better 2022. So thank you for listening, and I'll now ask Christine, our CFO, to provide a brief financial update.