Pizza Pizza Royalty Corp.

Ladies and gentlemen, thank you for standing by and welcome to the Pixa Pixa Royalty Corps earnings call for the second quarter of 2023. 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. I would now like to turn the call over to Alexander Suretan, Director of Finance. Please go ahead.

Thank you. Good afternoon, everyone, and welcome to the Pizza Pizza Royalty Corps earnings call for the second quarter ended June 30th, 2023. 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 on 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, 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 and Limited Partnership. 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 restaurant 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 and good afternoon everyone. Thank you for joining us today on our call to discuss our Q2 2023 results. We are delighted to report continued strong results as we reported another positive quarter with same store sales growth of 9.4%. We are extremely proud that both brands reported positive sales this quarter, and this is actually the first quarter in which we had no impact from the pandemic when compared to the prior year. This strong same store sales growth translated into a 10.9% increase in royalty income and drove our second dividend increase this year back in June 2023. and yielded an adjusted EPS growth of 11.8%. During the quarter, the Pizza Pizza brand reported a 9.8% in same-store sales, and the Pizza 73 brand reported a 7% increase. Growth at both brands was driven by increases in both guest traffic and average check. Now let's get into more detail on our performance for the quarter. Pizza Pizza's limited success stems from its long history of menu and technology innovation, along with its convenient restaurant locations and high-quality menu offerings. This quarter, we continued our focus on building brand engagement through innovative promotions and products, delivering great value and celebrating key moments. When we launched our poutine offerings at Pizza Pizza in 2022, we experienced a nice lift in our appetizer and sides category, and when we launched our buffalo chicken sandwiches in 2021, it was also well-received. So we decided to combine them, and this quarter we added a new offering at Pizza Pizza, the Buffalo Chicken Poutine. This new item has highlighted the poutine category and provides customers with a compelling value offering at less than $10. Additionally, with the success of poutine at Pizza Pizza, we took our learnings and ported them over to Pizza 73, but this time with a twist. The well-known and well-loved curly fries at Pizza 73 were essentially reintroduced as poutine. This new item has done extremely well and has become an important part of that brand's lunch offering. So we're extremely happy with how this product is doing and look at this as a great example of how cross-pollination of innovation can drive incremental new sales growth. Our pipeline for product development is strong and we look forward to introducing more items to our customers as we progress through the year and beyond. And as discussed on our last call, Pizza Pizza has always celebrated special occasions and this quarter was no different. We ran our annual 420 promotion and created a new buzz-off pizza to keep mosquitoes away for the May long weekend and Canada Day. Additionally, our teams were out in the community during the Pride events across Canada. And for every special moment, we are there celebrating with our customers in their communities. We are focused on building our brand engagement and our promotions for the first six months have proven successful as we experienced a continued increase in traffic. Like all businesses, our stores are faced with continued inflationary cost increases across the supply chain and some tight labor markets. Our goal is to take modest, selective price increases across our menu when needed to help with input cost increases, while not adversely impacting customer traffic. We know customers are looking for value, so we have to find the right balance of perceived value for money. It is a fine balance, but one that we have been able to achieve. As we move into the second half of the year, we will continue to leverage our brand assets with innovative marketing campaigns focused on driving traffic to our restaurants while also increasing brand awareness. Additionally, we will continue to support enhancements of our digital capabilities to stay focused on our core competitive advantages of convenience, innovation, high-quality menu offerings, and network expansion. And turning to that restaurant network expansion, We ended the second quarter with a total of 752 locations, of which 652 were Pizza Pizzas and 100 were Pizza 73s. We opened five traditional and two non-traditional Pizza Pizzas and closed three traditional locations and one non-traditional location. Additionally, during the quarter, the company opened one non-traditional Pizza 73 and closed one traditional Pizza 73. Our Pizza Pizza restaurant openings this quarter were across many provinces, including British Columbia, Ontario, Quebec, and Manitoba. So while we continue our expansion plans, we have not taken our sites off our renovation programs. Over 85% of our traditional Pizza Pizza stores have our new look, and 25% of the Pizza 73 traditional stores have also been renovated this year. And those renovations, by the way, are a little quicker and easier just given the smaller footprint at Pizza 73 and our reception area there. A little quicker. And our new, refreshed look overall creates a warm, modern, and inviting space for our customers to come pick up or sit and enjoy our hot and fresh offerings. And we remain focused on growing our business right across Canada. We are well known as Canada's very own homegrown, leading national pizza brand, something we are very proud of. One exciting piece to note during the quarter, our Mexican partners opened the first three PZA Pizzerias. The PZA Pizzeria brand has been well received in Mexico, And while it is not material at this early stage, we are excited by our early success there and for the potential it provides for us to further scale our business down there in Mexico with three times the population in Canada and a fast-growing pizza-loving market. And of course, we also see potential for other international markets as well. Looking ahead, in 2023, you will see us continue pushing hard for menu innovation, marketing initiatives, restaurant growth, technology, and other digital-first investments. And we will work closely with our owner-operators to ensure they are delivering excellent and consistent products and service in a clean, safe and attractive restaurant ambiance. I'd like to close by congratulating our entire team, our operators and our employees. We're all one team. We've worked all very hard together to create a very innovative, ambitious and collaborative culture right across the country and now internationally at both brands. So with that, I'd like to turn the call over to Christine for a brief financial update.