Pizza Pizza Royalty Corp.

Ladies and gentlemen, thank you for standing by and welcome to the Pizza Pizza Royalty Corps earnings call for the fourth quarter of 2022. 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 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 Tuesday, the 7th of March, 2023. I will now turn the conference over to Alexander Saratin, Director of Finance.

Thank you, and welcome to the call. Today, we'll be discussing the 2022 fourth quarter results for Pizza Pizza Royalty Corp. For complete details on the financial results, please see our fourth quarter materials filed earlier today on CDAR or visit the investor relations section of Pizza Pizza's website. 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 a monthly royalty to the partnership, calculated as a percentage of royalty pool sales. For a complete description of the fund and its business, please see the annual information form dated March 7, 2023, which was filed on CDAR.com. Before I turn the call over to Paul Goddard, President and CEO of Pizza Pizza Limited, I would 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 Corps' management discussion and analysis 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 Paul.

Thank you, Alex, and welcome everyone to Pizza Pizza Realty Corp's fourth quarter investor conference call. Today, I'll be discussing our Q4 initiatives and results, and we'll share a brief outlook for what's ahead in 2023. And Christine, our CFO, will then summarize our key financial highlights. And as usual, we will save time for analyst questions at the end of today's call. We finished the year on a strong note and are pleased to report double-digit sales growth for the quarter and year, which led to record royalty pool sales and three dividend increases in 2022. We also opened a record 45 new restaurants. We are most proud that these successes were achieved during a year that started with restaurants operating under COVID-19 restrictions and was marred with labor and supply chain challenges, inflationary pressures, and general market uncertainty. It goes without saying, our corporate teams worked hand-in-hand with our restaurant operators, who have all shown extreme resilience, resourcefulness, and commitment. Briefly touching on our sales results, for the quarter, our same-store sales, the key driver of yield growth for shareholders, increased 13.0%. By brand, Pizza Pizza increased 15.1%, and Pizza 73 increased 1.3%. Overall, our growth for the quarter was due to increases in both guest traffic and the average customer check. This speaks to our brand's strength and value propositions resonating well with customers. Our strategy to drive higher guest traffic includes attracting a range of customers into our restaurants by offering a variety of products at compelling value while increases in average ticket are achieved through strategic retail price increases and new product offerings. At both brands, the average customer check increased as customers accepted retail price increases, which were necessary in a climate of unusually high commodity and labor increases. The good news is that we centrally manage our retail prices and use our own distribution centers organically, so we can nimbly adjust prices as we see costs rising. The increase in retail prices helped to successfully maintain our restaurant's gross profit levels. Speaking to traffic, at Pizza Pizza, the increase in sales growth was driven by consumers significantly increasing in-restaurant visits, partially due to the lifting of COVID-19-related public health restrictions. Sales also benefited from food innovation, value messages, and promotional brand activities, plus the reopening of non-traditional locations, as well as students returning to in-person classes. At Pizza 73, which depends heavily on pizza delivery versus in-store visits, Our same-store sales growth was adversely affected by customers preparing more meals at home, plus strong competition from third-party food delivery apps, resulting in a decline in overall customer orders there. The long-term growth and success of Pizza Pizza Realty Corp is heavily tied to that of Pizza Pizza Limited, so let's discuss the initiatives at the private operating company level. In Q4, our marketing activity concluded the year with continued focus on our strategic pillars, building the brand, innovating our menu, driving organic orders and maintaining profitability for our franchisees. Related to the Pizza Pizza brand, we continue to roll out our new Everyone Deserves Pizza campaign with messaging focused on our unique position to bring Canadians of all walks together and to be part of key social occasions. In addition to ongoing media executions via out-of-home, programmatic web banner placements and social media, we integrated our campaign messaging into key sports partnerships, building more meaningful connections with fans. And during the fall, we continued to leverage consumer trend data to identify menu expansion opportunities that were a logical fit for our restaurants and operations capabilities. Poutine was highlighted as a key opportunity and menu gap. We launched the product nationally in October at Pizza Pizza, following extensive in-market testing throughout the spring and summer. Three recipes were launched, classic, popcorn chicken, and bacon poutine. And we immediately sold an average number of units per restaurant per week that was close to 30% above our forecasted sales for poutine. And that product remains a top seller and a customer favorite. So really happy with that one. Meanwhile, at Pizza 73, we promoted our high quality fresh wings throughout Q4, reinforcing the unique taste of our signature golden crispy wings. Tactical sales promotions continue to be a key traffic driving activity for both Pizza Pizza and Pizza 73. Heading into the holiday season, we partnered with Bell Media and secured free one month Crave streaming subscriptions for our customers. The subscriptions were bundled with popular combo offerings at each brand and promoted over the holiday window. The featured bundle was a top seller, particularly at Pizza Pizza, anchoring a successful holiday sales window. And as we move into 2023, we will continue to leverage our brand assets as we implement new promotions, knowing that the best way to improve the financial health of our franchisees is to drive traffic and top-line sales, while also implementing programs to improve the bottom line and quality offerings. Turning to Restaurant Grove, We remain laser focused on growing our business 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. During the quarter, 10 traditional and eight non-traditional pizza restaurants opened, one traditional and two non-traditional pizza restaurants were closed. At the Pizza 73 brand, we closed one non-traditional restaurant. As I mentioned earlier, for the full year, we opened a record 45 new restaurants across Canada. However, we also reviewed the health of our restaurant system as a whole and decided to close 30 underperforming locations. Of the 30, 20 were smaller volume non-traditional locations and 10 were traditional locations. For most traditional closures, adjacent restaurants benefited by absorbing the closed store territory. And as with any closures, the royalty pool is made whole for any lost sales. And Christine will touch on the details of that in a bit. Pizza Pizza Management expects to continue its restaurant network expansion by 3% traditional restaurant growth in 2023. To date, we are proud to say that 85% 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 such as new and more efficient ovens, digital menu boards, and in-store technology. We've also renovated many Pizza 73 locations, but are not yet as far along with our renovations there relative to Pizza Pizza. And those renovations are actually a lot smaller scale given the smaller layout of Pizza 73s in the front lobby area as well. So not as far along, but we can do them much more easily. And we continue to have a large pipeline of franchisee leads that are eager to join our team. And we also have many of our current franchisees looking to expand too. All good signals to the healthy system. And looking ahead in 2023, you will see us continue our menu innovation, marketing initiatives, restaurant growth, technology, other digital investments, And we will work closely with franchisees and our partners at West as well at Pizza 73 to ensure that they are delivering excellent and consistent products in a clean and safe restaurant environment. I'd like to close by congratulating our entire team, our corporate employees and our owner operators alike on an excellent year, despite difficult and challenging operating environment. I'm also very proud of our team for being recognized recently by Waterstone Human Capital as one of Canada's most admired corporate cultures. The most critical ingredient to our ongoing success is our people, and we've all worked hard together to create a very innovative, ambitious, resilient, and collaborative culture right across the country at both brands. With that, I'd like to turn the call over to Christine for a brief financial update.

Thanks, Paul. Today, I'll briefly cover the financial results for the quarter, a quarter in which we continue to build on our momentum after the lifting of restrictions, and one where we finish the year off strong. As Paul mentioned, same-store sales, the key driver of yield growth for shareholders, increased 13% in the quarter. For the year, same-store sales increased 15.2%, with Pizza Pizza increasing 17.8% and Pizza 73 increasing 1.1%. Royalty pool system sales for the quarter increased 11.2% to $153.2 million, from $137.7 million in the same quarter last year. By brand, sales from the 624 Pizza Pizza restaurants increased 13.2% to $131.1 million for the quarter, and sales from the 103 Pizza 73 restaurants increased 0.4% to $21.1 million. For the year, royalty pool sales increased 15.1% to $568.3 million from $493.6 million in 2021. This is a record amount of sales for our royalty pool. The partnership's royalty income earned as a percentage of royalty pool sales increased 10.5% to $9.8 million for the quarter and increased 14.1% to $36.4 million for the year. The increase in the royalty pool sales and royalty income reflect the increase in same-store sales, which Paul discussed earlier. Additionally, while the number of stores in the royalty pool are fewer than there were in 2019, the financial impact for shareholders was mitigated by Pizza Pizza Limited continuing to pay royalties as part of the deficit, or make-hole carryover amount. This make-hole payment will continue to be added to the royalty pool sales until Pizza Pizza Limited has sufficient sales from new store openings to offset the sales lost when the store is permanently closed. Now turning to our partnership expenses, administrative expenses including listing costs as well as director, legal, and auditor fees were $233,000 for the quarter and $632,000 for the year. In addition to admin expenses, the partnership pays interest expense on its $47 million credit facility. Interest paid in the quarter was $323,000 and $1.3 million for the year. The partnership is currently making interest-only payments on the non-revolving facility. The interest rate is locked through April 2025 using swap agreements that affix the interest rate at a banker's acceptance rate of 1.81% plus our credit spread. The credit spread changes based on the level of debt to EBITDA. In April of 2022, Due to the increase in the partnership earnings, the credit spread decreased by 25 basis points for a combined interest rate now of 2.685% compared to the same period last year when the rate was 2.935. So after the partnership has received its royalty income, pays its administrative and interest expense, the resulting net cash is available for distribution to its two partners. Pizza Pizza Limited and Pizza Pizza Royalty Corp. based on their ownership percentages. Pizza Pizza Royalty Corp. then pays taxes on its share of the earnings and any residual cash is available for distribution as dividends to its shareholders. In 2022, the company increased its dividends three times for an overall increase of 16.7%. The company declared shareholder dividends of $5.1 million in the fourth quarter, or $0.20.75 per share, compared to $4.4 million, or $0.18 per share, in 2021. For the year, the company declared dividends of $19.6 million, or $0.79.75 per share, compared to $16.9 million, or $0.68.5 per share, in 2021. The payout ratio for 2022 is 95%. compared to 94 in 2021. And as Paul announced earlier, today the board of directors increased the monthly dividend 3.6%, bringing the monthly dividend to 7.25 cents per share or 87 cents annualized, surpassing the pre-COVID dividend rate. This new rate will begin with the March 2023 dividend payable in April. The company's working capital reserve, increased $1 million in the year, and we ended the year with $7.5 million of cash. With the three dividend increases in 2022 and today's increase, the company believes that there is sufficient cash flow to service the obligations as they fall due. The company will continue to closely monitor sales and royalty income to determine when additional dividend adjustments may be warranted. That concludes the financial overview. I'd like to turn the call back to our operator to poll for questions.

Thank you. Ladies and gentlemen, we will now conduct a question and answer session. If you have a question, please press star followed by the number one on your touchtone phone. You will hear a one-tone prompt acknowledging your request. Your first question comes from the line of Derek Lessard from TD Securities. Your line is now open.

Good afternoon. This is Cheryl standing for Derek. Thank you so much for taking my questions and congratulations on a very strong year considering the top operating conditions.

Thank you.

Yeah. So in terms of things or sales, I was wondering if you could help us break it down in terms of pricing and volume and how are they trending in Q1 so far?

Yeah, we can talk a little bit about that. I mean, it's nice to see the traffic and sales volume, I guess you're saying, you know, both doing well. I think overall, we've been pretty happy with the balance. We're certainly getting a lift from increased prices as well to mirror inflation, if you like, in a roughly kind of 5% to 10% type of range. But we've still seen traffic hold up very nicely. So we're getting, you know, a lot of our increase is is from that aspect as well. And I think it's just our marketing is resonating very well, even though we're being quite judicious about our price increases when we have to make them to help insulate our operators and also make sure we're not getting out of step with market expectations and consumer affordability. I don't know if Christine has anything to add to that in terms of more specifics.

No, I think you've covered it off well. We've taken prices across all of our offerings to the level of inflation and And we've managed at Pizza Pizza to maintain our traffic and actually grow our traffic as our non-traditional sites have returned, our catering business has also returned, as well as a lot of our walk-in business as restrictions were lifted.

That's nice to hear that. I'm wondering if you could provide a bit more color on the challenging operating conditions in Alberta and the impact of third-party distributors, and how does that compare to the competitive environment that Pizza Pizza is facing in the rest of Canada?

Yeah, that's a good question. We tried to sort of highlight that in remarks. I mean, 73 has lagged behind our big success at Pizza Pizza, for sure. We still have seen order volumes being adversely impacted somewhat. We've seen Non-traditional come back, for instance, though, very nicely in Alberta with the return of hockey and things like that. And we're certainly growing that base as well. But we just do find it overall in Alberta, it's just incredibly competitive there. And I think the presence of third-party aggregators is just extremely aggressive there. It's also strong competition organically in industry. And we face those same people as well in our more native markets in Pizza Pizza as well in Ontario, for instance. But it just seems that Alberta... is particularly challenging in general. It's just a little tougher despite some high commodity prices. I think people are really feeling pinched there a little more, and we noticed that the promotional activity of people in the third-party area seems even more aggressive in Alberta in terms of loyalty or free delivery offers or other BOGO-type offers and things like that through third-party in Alberta, a little more aggressively than somewhere like Ontario. And so we think that, you know, summing all that up, that just makes it a tougher environment. And so we realized we need to really step it up in pizza 73, but we are very encouraged by some of the things that we're working on. We've been working on, I think we alluded to this last quarter, a whole new suite of web and app technology, which is basically now on par. In fact, it's really using the same core engine essentially as pizza pizza, which we've been tremendously successful with, with our digital assets. And so that is just launched the other day. So that's public knowledge. That's out in the market as of February. We haven't even started marketing it yet, but we do think that will really help out the Pizza 73. And we also just launched this week Gourmet Thins, which is a very thin crust gourmet pizza for a slightly different demographic. And when we launched that in Ontario and across Pizza Pizza in Canada nationally, that was a very successful launch for us. So we're trying to mimic some of that success that we have with Pizza Pizza at Pizza 73. And we think that'll win us a lot of orders back at a lot of new customers as well.

That's great. Thank you so much for that. I'm curious if you have seen any market gains given your marketing efforts and are you seeing a higher level of promotion activities in the market?

You mean just in reference to competitors nationally or just so I can understand the question?

Yeah. So like just nationally, are you seeing a higher level of promotional activities overall? And are you seeing any market share gain from your marketing efforts?

I think with Pizza Pizza, our sense is that we are, because we're gaining traffic and check and we just think our, you know, we seem to be very visible. We have an always on strategy. We also do a Pizza 73, but we're really changing it up a lot more there. We've got a lot of more local resources now, marketing assets, people on the ground, use of local media buy in Alberta rather than a national group he used before. But I think we're just being extremely visible. And so we've definitely had a lot of people noticing, for instance, our fixed price kind of tongue in cheek campaign, kind of making fun of the banks a little bit with a fixed price mortgage type approach for the fixed price pizza offering, which is actually mixed extremely well. And that was a TV spot. We don't do that much TV. It's expensive, but we were actually very happy with this one. And then the broader campaign for Pizza Pizza, Everyone Deserves Pizza, has really resonated. And we've had very context-specific promotional activity that makes sense on, say, the side of a bus. It'll have a pie chart talking about something about on your commute home, you know, percentage of people that have gum under their seat versus people that don't have gum on their seat on a pizza pie. So some really fun, cheeky, context-specific marketing and promotional activity that we've done all over the country. And that seems to have really... resonated very well with people. So we think we're shouting the loudest and are most visible. We do see overall more activity. I would say the third party folks are, as I said earlier, really aggressively trying to be discounting and providing hooks to try and get people to return to them as well. But I think in the traditional pizza side, we run into the usual suspects, but I think we're still quite visible in terms of our social media marketing, our billboards, whether it's out of home, programmatic, or digital, I think we're shouting the loudest and we're getting noticed more. So I think we're winning some share there in Pizza Pizza. And 73, I think it's a tougher battle, but we're still definitely one of the absolute key players in that market. And we certainly intend to emulate what we've done at Pizza Pizza over the coming months and years.

That's great. Thank you. I'm curious how you feel about your pricing currently. Are you looking for more increases in 2023? And from your remarks, it sounds like customers are still holding in. How do you see them reacting in Q1 so far?

I don't have too much to myself on Q1, but I would say we're really mirroring inflation. And so we want to make sure we don't get too in the habit of increasing prices. We certainly don't want to get too off pace. with inflation. And so if, you know, depending what your view is of the macro climate, you know, you're seeing the Fed and the States signaling they're going to have to be more aggressive to increase rates. But Bank of Canada has been kind of being a little more cautious and things. So, I mean, my hope is that inflation has maybe peaked. We'll see. But it's still possibly inching a little bit up with some interest rates. But will that translate into inflation or will banks hold the line and sort of keep it at a more acceptable level for consumers? So I'm hopeful that maybe we are, but we'll see. We'll have to sort of be close to the market, but we're not just going to sort of robotically keep increasing prices because we know that that will hurt our traffic. And we have a very, very value-oriented customer for both brands that we want to keep. We want to keep them coming back, provide great value, but we also want to capture some of the other types of customer demographics that perhaps aren't as price sensitive where we can get some price. But we're going to be very judicious about that. Probably more so, my sense would probably be you know, I can't, it was another crystal ball. I can't predict exactly, of course, but I think my sense right now, at least would be that you'd probably see less price increases versus the last two years this year, but we'll have to see how the market evolves.

Great. That makes sense. And I'm curious how your menu innovation pipeline looks like for 2023.

Yeah, I guess we, you know, we have a new culinary chef on board who's a certainly got some great ideas. I think gourmet thins is one example of pizza 73 that I mentioned. I think that's a really interesting one. I think we're always looking at things that operationally make sense for operators that hopefully won't be a massive amount of incremental labor for them. We want it to be very feasible for them to operate, execute, and make money on what they sell. But things like poutine are very, very effective there. And that's an example of what we've done. We've had success with chicken sandwiches. We've had success with different types of wing sauces and things like that. So I think we'll try and still be very creative and stay in touch with consumer trends and what's popular and really offer items that either on an LTO basis or on a permanent basis, if they're successful enough and we see sticky demand, we'll keep doing them. So I don't want to get too ahead of ourselves in terms of what we might have for the rest of the year on either brand, but I think Gourmet Thins is a great example. We also did the Coffee Crisp last year, which I think was really nice for us to experiment with a dessert pizza. And we, to be honest, had sort of mixed reviews on that. It seemed popular in some areas and not as popular in other areas. And that one turned out to be fairly hard to execute for our store. So we've said, you know, we may not keep that one. That was more of an LTO. But we're also looking at what else can we replace that with because we think that's an important piece of your meal or your dinner dessert plans. So we'll keep looking for areas like that. We've also been successful with add-on items such as ice cream and things like that. And we also have many licensed locations selling beer for in-store and for delivery as well. So I think there's a lot of different arrows in our quiver. Some food, you know, clearly food related with pizza or chicken, but some that are a little more, you know, at the margin.

Okay. That's great. And have you now fully loved the COVID impact and do you feel that sales have fully recovered to pre-COVID levels?

I think for the most part, I think Christine would be better with the numbers than me. But I think we certainly surged remarkably back. I think things like our catering demand, schools being back in person, hockey being back on, other sports, that's all helped. But I think in terms of pre-COVID volume, I'm not sure, Christine. I think it depends when you go back. Certainly versus 2021, 2020. If you go back as far as 2019, I think we might still be shy on orders. Christine should probably correct me, but I think sales are definitely above. Is that right?

Okay. That's correct. And in terms of lapping COVID, we're still in lockdown during January and February of 2022 due to the Omicron surge. So Q1 of 2023 will be compared to a COVID period. But once we pass March and April, we would be like for like, no COVID impact on our results.

Yeah, so basically after this quarter, next quarter.

Okay, that sounds great. And so now that COVID is largely behind you, I'm curious if you could talk about some of the initiatives that you look forward to this year to drive organic growth going forward.

So as Paul kind of talked about a piece of 73, we can discuss it. We have a new website that was launched on the February 28th. So that's purely organic transactions promoting our brand and our technology platforms. And as well, this week, launching the Gourmet Thin offering through our organic channels at Pizza 73 is definitely a way that we are trying to bring the brand back into focus on a pure organic platform. At Pizza Pizza, Paul had spoken earlier about our fixed rate pizzas and our Everyone Deserves Pizza platform and our messaging that we're going to be using throughout 2023. in different tongue-in-cheek ways. So as Paul mentioned, we had a commercial that came out in January of this year very much about applying for a fixed-rate mortgage but a fixed-rate pizza. So we're going to be using that platform and just leveraging our brand assets on organic platforms. So offers and specials that you can only get through us, not on third-party apps. So we want people to come back to our stores, order from us organically. much better for our franchisees. It drives traffic and, as Paul mentioned, the best way to help our franchisee profitability is to get top-line sales and traffic back into our stores.

Okay, that's great. Do you have any updates on your Mexico Master franchise? And if so, what are your expectations for that in this year?

Right, that's a good point. We are getting very close on our first three stores there that are almost done construction. Uh, so we'll have more to say in coming quarters, but we anticipate, uh, an opening down there of two, two, three of those stores, two or three. And certainly the next couple of months is what we expect. Um, and I would say almost certainly by May. Um, so we're starting slowly there, but we've been really happy with the relationship so far and, uh, training to a lot of people up here and our team has been down there a lot. And, um, you know, we're pretty excited about that market, although they're starting small. So Guadalajara is going to be our start. Um, we like what we've done so far and, uh, We'll have more to say in future quarters on that one.

Okay. Sounds great. I think one last one for me. How would you characterize the health of your franchisees given the competitive environment and the macro outlook?

I think Christina would be closer to the numbers overall, but I think we're overall very comfortable. When we drive top line sales and order count, that's just obviously translates into more cash flow per store for our franchisees. So I think they've weathered this very well. I mean, COVID was horrendous for everybody, but I think they were able to get some assistance in some cases and see the loans and whatnot. And then once that ended, I mean, I think we've been able to spring back with such a surge of momentum that they've certainly bounced back themselves financially as well. So I think We're overall doing really quite well. I mean, we do feel like we have to have a discipline if we have chronic underperformers, like I mentioned, that we will look to close stores or change franchisee if necessary. But we're also very judicious about it and how we screen people, how we screen real estate and give people the best chance, make sure they're the right fit for us and also make sure they have a great location that will put them in a good market position. So, you know, I think overall, it's still a very competitive business, but I think we are widening the gap between ourselves and, for instance, independent players and those that are really struggling that don't have an organic delivery platform or drivers, for instance, whether they're pizza or burgers or other products. I mean, people are paying huge sticker prices to these third-party delivery companies, and it's the only way they can get their food delivered. And we use those companies a little bit, too, for marginal acquisitions of new customers as well because we realize some people only use those channels. But we have a strategy to win them over to us organically through QR codes on our pizza boxes and other enticements, loyalty, and things like that to get them to come to us in a much cheaper way. So we think financially and efficiency-wise, we've got tremendous economies of scale, and our convenience is phenomenal as well. And for smaller players in QSR, I think it's very hard for them to have a serious delivery channel to afford the commissions that are being charged by those large third-party aggregators. And we've also made our apps more convenient, I should mention, too. We're actually, I think, almost across the country now with our tracking system. order tracking capabilities so that when you do order with us on our app, you can track the driver and see where they are on a map very much like a third-party platform does. So we've also, I think, closed the convenience gap that existed there and making it more convenient and more pleasing to the customer knowing where their pizza is and when it's going to arrive at their doorstep. So there's a convenience aspect of new technology and conveniences and making it faster and easier to order with us no matter how you want to get your order from us.

Okay, that's very helpful. Actually, I'll have another one if I may. So I felt that you have very strong support in the opening and very strong 223 outlook as well. So just curious if you could share some of your thoughts behind your 3% to 4% growth expectation in the traditional network. Thank you.

Okay, I didn't quite hear the very beginning of what you said, Cheryl. I think you're basically speaking about restaurant growth network expansion rate of 3% or so. Is that correct?

Yes, that's correct.

We've been very effective. Even during COVID, we decided to go on offense, and I think it's really paid off. I think our biggest growth areas are certainly BC and Quebec. BC is now even growing faster than Quebec, I would say, but the size of the Quebec market is still bigger. We've actually got restaurants in Quebec City now, but most of the cluster of our restaurants is in the Montreal area. We've been pretty happy with that growth with our strong team on the ground in that region, and so that will continue to offer opportunity for us to grow. As well as BC, we've actually spread into the interior a little bit and even Vancouver Island a little bit, although the lower mainland is our main focus. So we think we can keep up that pace pretty nicely of around 3%.

Okay, that's perfect. Thank you so much for answering our questions.

You're welcome. Thank you, Cheryl.

There are no further questions at this time. Alexander Suratin, please proceed.

Thank you, everyone, for dialing in today. If you have any further questions, you can find our contact information on our earnings press release. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.