Pizza Pizza Royalty Corp.

Ladies and gentlemen, thank you for standing by and welcome to the Pizza Royalty Corps earnings call for the first quarter of 2023. 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 a star, then the number one on your telephone keypad. As a reminder, this conference is being reported on Tuesday, May 9th, 2023. I will now turn the call over to Alexander Peratin, Director of Finance.

Thank you. Good afternoon, everyone, and welcome to the Pizza Pizza Royalty Corps earnings call for the first quarter ended March 31st, 2023. 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, 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 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. The partnership has two partners, Pizza Pizza Royalty Corp, the public company, which owns 76.1%, and the other partner, Pizza Pizza Limited, the private operating company, which owns the remaining 23.9%. 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 2023, the royalty pool was adjusted on January 1st, 2023 to include 644 Pizza Pizza restaurants and 99 Pizza 73 restaurants. So, with that review, I'll turn the call over to Paul Goddard to provide a business update.

Thanks, Alex. Good evening, everyone. Thank you for joining us on today's call to discuss the results of our first quarter of 2023. After our strong finish to 2022, We're happy to report the continued momentum with our eighth consecutive quarter of positive sales growth. For the quarter, our same-store sales, the key driver of yield growth for shareholders, increased 13.6%. This translated into our dividend increase in the last three years, a working capital reserve of $7.2 million and adjusted EPS growth of 16.2%. So I'm excited about the year ahead for each of our brands, and I'm incredibly proud to see the hard work of our employees our franchisees and our partners and their team members who are responsible for the results for sharing today. As we discussed on our last call, in 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 owner-operators and shareholders is to drive traffic and top-line sales, while also improving the bottom line and continue to provide quality offerings. Now let's get into our details on performance by brand, starting with Pizza Pizza. We kicked off the year with a 15.5% increase in same-store sales in Q1. Growth this quarter was driven by increases in both guest traffic and the average customer check. Customer traffic rebounded from pandemic-related restrictions in the first quarter last year, especially at our non-traditional locations like Scotiabank Arena and others. Additionally, sales benefited from thoughtful calendar initiatives and strengthened core offerings, and results were further aided by enhanced restaurant operations and smart pricing. Highlights during the quarter included a focus on the well-received, value-driven, fixed-rate pizza deal supported by a new TV campaign, new menu innovation focused on our well-loved chicken wings, memorable brand activations around Valentine's Day, and our ownable dipping sauce category, which laddered up to our recently established brand positioning, Everyone Deserves Pizza. Pizza Pizza has always celebrated special occasions and dates, and this year we augmented the already busy Valentine's Day with a new brand action targeting Canadian singles called Singles for Zingles. Select locations in multiple markets changed their name to just one word, pizza, instead of the double, Pizza Pizza, to celebrate single people, and we gave out free slices that evening to each unattached diner who downloaded the app. With over 10 million subscriptions, it was our most successful social media activation to date. And just to give you a rough indication of that, of the free slices that were redeemed, three-quarters of those were from new app downloads. So we're really happy with that. Our customers have a deep love for our brand, clearly, and especially our dips. So this quarter, we developed a brand action rooted in everyone deserves pizza based on varying dip behaviors, such as dipping the whole slice versus just the crust. And as a result, we developed a new tool to make pizza eating that much easier, the Pizza Pizza Dip Roller. It's funny how much this went viral, by the way. It was launched late in the quarter, and the early response was met with excitement and positive responses from tens of thousands of entries to win a limited edition dip roller in the first couple of weeks and our second largest number of impressions on organic social channels ever behind Singles for Singles. So that's been a lot of fun lately. Lots of fun chatter plus millions of impressions in earned media by the end of the quarter. We were really delighted with the positive, fun buzz around this on social media. So it just gives us more ideas for the future as well. Our brand activations and campaigns have not only been well received by our customers, they've also garnered us attention from news outlets, and we won several industry awards and gained several more nominations this quarter. So congrats to the marketing team as well for their great work there. Turning now to Pizza 73, this quarter we focused on innovation in food, restaurants, and technology. And at 3%, same-store sales growth for the quarter. This growth has come from an increase in average customer check and traffic. The company successfully passed along retail price increases, largely related to commodity and labor increases, and the reopening of our non-traditional venues really drove the overall increase in traffic for the Pizza 73 brand. Digital ordering has fundamentally changed the business over the years and will continue to be a major driver of growth for the next several years and beyond. To help accelerate growth in this channel, Pizza 73 launched a brand new suite of digital ordering platforms in Q1. The new website and apps greatly improved the customer experience with easier navigation, new product categorizations, and a smoother and faster interface. And customers can create their own pizza from scratch now, which, believe it or not, we couldn't do previously at Pizza73, so a lot more flexibility for the customer as well. And all of these improvements have translated into an average customer check, an increased customer check on our digital platform. And early signs are that it is also having a positive impact on traffic and our overall percent of digital traffic. versus non-digital transactions. So we're really encouraged there even though it's early days. It's a good sign. And in addition to the new website, this quarter, Pizza 73 introduced a new product category, Gourmet Fence, which many of you will be familiar with. We watched here a while ago. So we've tagged it with an interesting, slightly different approach out there saying, quote, fancy pizza without the schmancy price. So we're trying to maintain that value image, but quality, quality product. But the product is very similar to the Gourmet Fence of Pizza Pizza. and takes more of a true gourmet feel with a thin crust for people. And this new category for Pizza 73 is really designed to provide that sort of higher quality thin crust express image to people, to our existing customers, and also appeal to new customers looking for lighter pizza options. Three new recipes were developed and five top-selling recipes were configured for our gourmet thin category. In 2023, our marketing activity will continue with a focus on our strategic pillars, which as a reminder are building the brand, Number one and number two, constant innovation across all aspects of our business, be it menu, tech, restaurant, or any other aspect of our business. We're always looking to automate internally as well and really leverage technology and AI is a part of that as well, more and more, of course. Number three, driving organic orders, very important for us. And number four, maintaining and growing profitability of our franchisees and partners. So turning now to our network, we ended the first quarter with a total of 749 locations, of which 649 were Pizza Pizzas and 100 were Pizza 73. We opened two traditional and seven non-traditional Pizza Pizzas and closed two traditional and one non-traditional location. Additionally, during the quarter, the company opened one traditional Pizza 73 and we renovated 10 Pizza 73 locations, which we're also very excited about making great progress there. Construction and supply chain issues have largely subsided early in 2023, but we are still experiencing some delays in obtaining permits and getting final inspections in some jurisdictions. And despite these temporary delays, our management team remains confident that we can continue to deliver profitable network growth. We remain focused on growing our business across Canada, and it's safe to say we are known and respected as a major homegrown national brand, coast to coast, and the leading pizza chain in the country. And one exciting piece to note, subsequent to our quarter end, our team traveled to Mexico for the opening of our first two international restaurants. The PZA pizzeria brand as it's known in Mexico, PCA pizzeria has been well received in Mexico. And we were looking forward to updating you further as we continue to open more restaurants down there. And by the way, we will be opening our third restaurant down there, just south of Guadalajara in Lake Chapala region within the next month or so. So that's really exciting. And we'll have more to share in future quarters on that. Looking ahead, In 2023, you will see us pushing hard on menu innovation, marketing initiatives, restaurant growth, technology, and other digital-first investments, and we will work closely with our owner-operators to ensure they're delivering excellent and consistent products in a clean, safe, and attractive restaurant environment with a nice ambiance. I'd like to close by congratulating our entire team. One of the critical keys to our success is absolutely our people, our teamwork, our trust, our work ethic. I think they all combined together and our creativity. I think we've all worked really hard together. We also have a lot of fun together to create a very innovative, ambitious and collaborative culture right across the country and now internationally with our wonderful partners in Mexico at both brands and now we have a third brand, PZA. As we announced last quarter, I'm also very proud of our team for being recognized recently by Waterstone as one of Canada's most admired corporate cultures and this quarter by the Canadian Franchise Association as a leader and the winner of their Diversity and Inclusion Award. So with that, I'd like to now turn the call over to Christine for a brief financial update.