Pizza Pizza Royalty Corp.

Good afternoon, ladies and gentlemen, and welcome to the Pizza Pizza Royalty Corp. Third Quarter Earnings Call Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Monday, November 7, 2022. I would now like to turn the conference over to Alex Zerater, Director of Finance. Please go ahead.

Thank you. Good afternoon, everyone, and welcome to the Pizza Pizza Royalty Corp earnings call for the third quarter ended September 30th, 2022. 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 a 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 2022, the royalty pool was adjusted on January 1st 2022 to include 624 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, and welcome everyone to Pizza Pizza's third quarter investor conference call. Today, I will discuss our third quarter results, and then Christine, our CFO, will summarize our key financial highlights before the Q&A at the end. Before I get into our results, I'd be remiss if I didn't start with a big thank you to all of our franchisees, partners, and our corporate teams who have been working tirelessly to support and grow our business by taking care of satisfying our customers each and every time. We're very excited to report another robust quarter with strong sales. Our results were driven by 14% same-store sales growth, a key driver of shareholder value. The positive results for the quarter were due to the increase in guest traffic as well as an increase in the average check. As a result, our board was pleased to announce the third dividend increase in 2022, a 3.7% increase in the shareholder dividend effective November 2022. Our positive momentum has continued in the third quarter and was driven by a few key factors. Building on our previous quarters this year, we have seen further growth in our walk-in and non-traditional channels. As well, our pickup channel continues to excel. And as mentioned on our last call, Our non-traditional sales, which typically account for about 10% of our total sales pre-COVID, it has been great to see universities and colleges reopen, as well as numerous other key venues such as NHL arenas across the country, and also the Raptors, of course, where we have high-profile sponsorships and marketing activations and sell our delicious product. We continue to focus on our core competitive advantages of convenience, innovation, high-quality menu offerings, top of mind brand visibility, and our ongoing restaurant network expansion. Let's talk restaurant operations. Our delivery business is our highest producing sales channel, and we continue to improve the delivery customer experience. During 2022, we have rolled out our new order tracking system to over 50% of our restaurants, providing a new level of convenience and transparency to customers ordering via our app or website. Customers are now able to see their pizza order making its way all the way to their delivery address on a live map right from within our app. And based on the success of our rollout to date, we anticipate full deployment of this helpful new feature to the remaining 50% of our restaurant network in the coming months. In addition, our two customer contact centers provide our customers with another level of convenience in placing their orders. We've also partnered with a Canadian e-bike manufacturer for a pilot in both Toronto and Vancouver. These e-bikes are helping with speed of service in urban areas, and they also support our numerous sustainability efforts. While our in-store operations ensure our customers are receiving quality product, our marketing and product development teams are busy showcasing our brand and building customer loyalty. Our strategic areas of focus for marketing continue to be building the brand, innovating our menu, driving organic orders, and driving sales and profits for our franchisees across Canada. On the brand front, we made significant progress in Q3 with the launch of our new Q3 campaign positioning. Sorry, just our new campaign positioning, not just Q3. This new platform represents a strategic shift from more tactical deal-based messaging of the past to find common ground between the brand and our everyday lives. The marketing team worked with a leading marketing agency partner to uncover the insight that our brand and our food are uniquely credible in bringing Canadians from all corners of the country together and enjoying pizza being common ground for all of us. That insight led us to the idea that everyone deserves pizza. and our new strategic positioning is centered around inclusivity and togetherness. Early creative expressions of the campaign idea were a series of ad placements in key markets across Canada, leveraging local insights related to different groups of people, with pizza being a common ground we can all agree on. These ads were featured on high-impact media such as streetcars, train wraps in major markets, Yonge-Dendon Square in Toronto, paid social media, web display ads, television, billboards, buses, and other highly visible public places right across the country. To further bring this campaign idea to life for Canadians, this July, Pizza Pizza was first to market with a promotion that spoke to the pressures Canadians were beginning to feel related to rising rates and price inflation. With the idea in mind that in this uncertain economic environment, everybody deserves pizza, we developed the concept of a fixed-rate pizza. Canadians were offered the opportunity to lock in a pizza deal at a fixed price so they don't have to worry about getting priced out of pizza. The offer is based on an extra-large four-topping pizza deal, locked in at $16.99 for one year. A fun website was developed with a mock-up sign-up form to get pre-approved. And guess what? Everyone qualifies. The program was very well received. It was also supported with an integrated media plan, billboards, video, paid social, web, etc., and a significant PR push as well. And the idea immediately resonated with Canadians and beyond. We even got some kudos and mention in the Wall Street Journal. And Pizza Pizza received massive exposure, totaling over 85 million impressions through 118 earned media stories published, including Financial Post, Toronto Star, CNN, Bloomberg, and internationally in the Wall Street Journal, as I said, and others as well. So in addition to a media win, the deal itself proved popular with customers in search of becoming a top seller across all our various specials. Moving on to menu innovation, this summer we built upon the success of last year's chicken sandwich product, launch via new flavor and format innovations. We offered customers a new option to double up the chicken filet and created a new line of big sandwiches led by the Big Buffalo Sandwich. Buffalo and spicy flavors in general remain a leading flavor trend. The innovations and supporting marketing campaign reinvigorated and grew the category by 50%. That's 5-0 throughout the campaign period. Moving on to local and regional focus, we continue to see the Pizza Pizza brand come alive in communities across Canada via our best-in-class sponsorship and special events programs. This summer saw the welcome return of critical sponsor events such as the Honda Indy, Boots and Hearts, the CNE, Fan Expo, and more. And this is in addition to record sales at critical entertainment venues such as Budweiser Stage, Canada's Wonderland, and many more. These events generate significant brand equity for Pizza Pizza in communities as well as critical concession sales at the events themselves. So it's sort of a real double win for us. And we also continue to optimize our high-profile, long-standing sports sponsorship programs, and this summer expanded our famous Score a Slice program to the Toronto FC, Toronto Argos, and the Hamilton Tiger Cats. Fans at these events now receive a free slice when the team hits select winning milestones, such as the first goal or touchdown. This program continues to add energy to the games themselves, really gets fans going, and it associates Pizza Pizza with the team and winning moments, and drives app downloads, customer acquisition, and traffic to our restaurants. As we celebrate our success in driving brand equity and sales via food innovations, we continue to push to drive more orders through our owned digital channels, customer contact centers as well, and into our restaurants. While sales via third-party platforms remain a helpful additional sales channel for us, our focus continues to be leveraging our best-in-class technology and our unique, relevant offers and messaging to continually driving customers to use use of our own organic sales channels. In support of our Pizza 73 brand operating largely in Alberta, our marketing team is leveraging a series of proprietary consumer research studies to refocus messaging and spend in key areas of opportunity for the brand. We're also investing in incremental resources to support the brand, now with a strong Alberta-based marketing team. Critical to our success is an enhanced food innovation strategy, growing existing categories and pushing into new ones. And similar to Pizza Pizza, we built upon last year's successful chicken sandwich launch at Pizza 73. And Pizza 73 also benefited greatly from a return to sponsored marquee summer events such as the Calgary Stampede, Country Thunder, Big Valley Jamboree, and more. These events drive grand exposure across demographics as well as contributing significant concession sales revenue. So we look forward to continued sales improvement at Pizza 73 throughout Q4 as we focus messaging on key menu categories, namely pizza and wings, further strategic value offerings, and a new app and website currently in the final stages of development. So at both brands, our strategy remains the same really. And we continue to mitigate the seemingly ever increasing input costs due to record high inflation with modest menu price increases taken more often than prior to the pandemic. Customers are looking for continued value as well as quality. So we have to find the right balance of perceived value for money. So we need to keep those customers happy and willing to purchase and coming back for more, but while simultaneously doing all we can, not just to drive sales growth, but also profitability for our restaurant owner operators and our private operating company, Pizza Pizza Limited. I should mention, though, for those that are newer to the core potentially, I mentioned this in the past, that the realty core investors are, of course, insulated from that operational risk since our key drivers for investors are limited to same-store sales growth, top line, and net restaurant network growth. Turning to restaurant network growth, we continue to have a large pipeline of franchise leads that are eager to join the team, And we also have many of our current franchisees looking to expand, too. And that's always a good barometer for the health of our entire network, by the way. So during the quarter, we continued our national expansion program by opening six traditional and three non-traditional pizza restaurants. Meanwhile, one traditional and nine non-traditional pizza restaurants were closed. At the Pizza 73 brand, we opened one new traditional restaurant and closed one traditional and three non-traditional restaurants. The new restaurants were opened outside of our core markets as we continue to expand our footprint across Canada. This quarter, we opened in Alberta, PEI, and added four more in BC. And we also added some more new ones in the non-traditional sites such as the Winnipeg Airport, by the way, and another one in Manitoba, as I think about it. And overall, Pizza Pizza Limited management expects to continue its restaurant network expansion to hit our 3% traditional restaurant growth target. And despite the slower start to building so far for 2022, And that was mainly due to supply chain issues, really more than anything. We've got a good pipeline of locations on our charts and our growth plans, but we'll continue to see further growth throughout the rest of 2022 and beyond. And really, our cadence really is aggressive, and we're really aiming for that 3%, if not more, in future. So that puts us around about three dozen or so locations a year that we think we can sustain. And today, we're proud to say that 84% of our restaurants feature our hot and fresh new look, and or a refresh on the interior and exterior, and significant upgrades continue to be made in regards to restaurant equipment as well, such as new and more efficient, energy efficient ovens, digital menu boards, and in-store technology. And customers, we can feel that they, and we hear it from them on the surveys that we conduct as well, that they notice that we're reinvesting, they notice that we're making a big effort to renew ourselves continually, and that's paying off in the results, as you can see. So we remain focused on growing our business right across Canada, And it's safe to say we are known and respected as a major homegrown national brand and the leading pizza chain in the country. Lastly, I just wanted to mention we are currently working with our Mexican partners with a view to opening up our first locations late in Q4 or possibly early in Q1 of 2023. We're excited about the long-term potential of this high pizza-consuming market of Mexico, but we are going to be very careful and purposeful in how and when we expand our new footprint there. And that's all we have to say about Mexico right now, but we'll certainly have more to talk about in the future with Mexico. So thank you for listening, and I'll now ask Christine, our CFO, to provide a brief financial update.