Q4 2024 Boston Pizza Royalties Income Fund Earnings Call
Hello. This is the chorus call conference operator, Thank you for standing by and welcome to Boston Pizza Hut's quarter Conference call. As a reminder, all participants are in listen only mode and the conference is being recorded on February 14 2025.
After the presentation, there will be a question and answer session.
On the call May also post questions via email to Boston Pizza Investor Relations Department at Investor Relations at Boston Pizza Dotcom.
Should anyone need assistance during the conference call. They may signal, an operator by pressing Star then zero on the telephone.
Speaker Change: At this time I would like to turn the conference over to Michael Harbinson, Chief Financial Officer. Please go ahead.
Speaker Change: Thank you and welcome to the call today, we'll be discussing the 2020 for fourth quarter results for Boston Pizza royalties in the fund or the fund and promotes pizza international or BPI.
Speaker Change: For a complete details on our results. Please see our fourth quarter materials filed earlier today on SEDAR plus.
Speaker Change: Or visit the firm's website at.
Speaker Change: B P income fund called.
Speaker Change: Could you repeat that information after the call you can reach us via the Investor Relations phone number that's listed.
Speaker Change: In our press release.
Speaker Change: The fund has a limited purpose open ended trust established under the laws of British Columbia to acquire indirectly certain trademarks and trade names used by BPI and its Boston Pizza restaurants in Canada.
Speaker Change: It pays royalty and distribution income to the fund based on franchise revenues of royalty cool restaurants.
Speaker Change: For a complete description of the fund in this business. Please see the annual information form dated February 13, 2025, which was filed on SEDAR.
Speaker Change: Plus stops yet.
Speaker Change: Before I turn the call over to Jordan, one person or a P. P. 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 firm's management discussion and analysis issued earlier today.
Speaker Change: We're looking information is provided as of the date of this call and except as required by law, we assume no obligation.
Speaker Change: Our revised forward looking information to reflect new events or circumstances.
Speaker Change: With that I will now turn the call over to Jordan Jordan.
Jordan Jordan: Thank you Michael and welcome everyone to Boston Pizza is fourth quarter Investor Conference call today, I'll be discussing our fourth quarter and full year 2024 results and I'll share a brief outlook.
Jordan Jordan: Michael will summarize our key financial highlights and as usual, we'll lead time at the end for your questions.
Jordan Jordan: In the fourth quarter, Boston Pizza delivered its strongest performance of the year in terms of year over year growth capping off the highest year for total franchise sales and the highest fourth quarter sales.
Jordan Jordan: Our record there as well.
Jordan Jordan: Promotions were instrumental in Boston Pizza overcoming the macroeconomic challenges that we faced earlier in the earlier quarters of the year.
Jordan Jordan: The fund posted franchise sales from restaurants, and the royalty pool of $234 $2 million for the fourth quarter and $931 $7 million for the year, representing increases of two 9% for the fourth quarter and 0.6% for the year versus the same periods one year ago.
Jordan Jordan: Restaurant sales was three 4% for the fourth quarter and 0.9% for the year.
Jordan Jordan: Srs for the fourth quarter was principally due to menu price increases and for the year Srs was principally due to menu price increases partially offset by macroeconomic challenges faced by our full service restaurant industry.
Jordan Jordan: From a marketing perspective, we kicked off the fourth quarter with the introduction of our $15 lunch menu.
Jordan Jordan: I guess, a main dish aside and a drink of their choice for just $15.
Jordan Jordan: Additionally, we launched our hockey night in Canada partnership backed by extensive T V digital and social media coverage as well as in restaurant promotion at participating Boston Pizza locations nationwide.
Jordan Jordan: This partnership blends to the NHL regular season, providing guests with a unique hockey viewing experience and the opportunity to win fantastic prices to a predictive trivia game with every Molson beverage purchase. We also continued to delight guests with our football themed menu on game days offering exciting prizes to enhance their experience.
Jordan Jordan: To cap off the year, we unveiled our 2020 for holiday campaign, featuring a celebration of new favorites and innovative pasta dishes.
Jordan Jordan: Complementing the holiday menu and hockey night in Canada partnership was our annual gift card incentive program, where guests who purchased $50 or more in gift cards received a $10 promotional card redeemable at Boston Pizza between January and March 2025.
Jordan Jordan: The restaurant development to new restaurants opened and another nine were renovated during the fourth quarter.
Jordan Jordan: For the year for restaurants were opened four closed and 27 have undergone renovations.
Jordan Jordan: We have an array of exciting initiatives lined up for the first quarter of 2025 designed to drive sales and attract more guests I will share the details with you. Shortly after we hear from Michael about the Fund's financial performance Michael.
Michael Harbinson: Thanks, Jordan the fund posted that royalty income excuse me of $9 $4 million for the fourth quarter and $37 $3 million for the year compared to $9 $1 million and $37 million, respectively for the same periods one year ago.
Michael Harbinson: <unk> posted distribution income of $3 $1 million for the fourth quarter and $12 $2 million for the year compared to $3 million and $12 $2 million, respectively for the same periods one year ago.
Michael Harbinson: Royalty and distribution income for the fourth quarter and year were based on 372, Boston Pizza restaurants in the royalty pool that reported franchise sales of $234 $2 million for the fourth quarter and $931 $7 million for the year.
For the same periods in 2023.
Michael Harbinson: Royalty and distribution income where based on the royalty pool of 377, Boston Pizza restaurants reporting franchise sales of $227 $7 million and $925 $7 million respectively.
Michael Harbinson: The fund's net and comprehensive income was $6 $6 million for the fourth quarter compared to $5 $2 million for the fourth quarter of 2023, the $1 $4 million increase in the funds net and comprehensive income for the fourth quarter compared to the same period in 2023 was primarily due to a $1 3 million dollar decrease in fair value.
Michael Harbinson: You lost a point $3 million increase in royalty and distribution income and a $2 million decrease in deferred income tax expense, partially offset by a $4 million increase in net interest expense and $8 $1 million increase in current income tax expense.
Michael Harbinson: Net and comprehensive income was $31 $9 million for the year compared to $29 $6 million in 2023 and.
Michael Harbinson: $2 $3 million increase in the net and comprehensive income for the year compared to 2023 was primarily due to a $4 6 million increase in fair value gain in it.
Michael Harbinson: Point $3 million increase in royalty and distribution income, partially offset by a $1 $7 million increase in deferred income tax expense and $8 $6 million increase in net interest expense and $2 million increase in administrative expenses.
Michael Harbinson: Cash flows generated from operating activities for the fourth quarter was $9 $4 million compared to $9 $3 million in the fourth quarter of 2023.
Michael Harbinson: The increase of $1 million is primarily due to an increase in royalty and distribution income of $3 million, partially offset by a decrease in changes in working capital of $1 million and an increase in income tax paid of $1 million.
Michael Harbinson: Cash flows generated from operating activities for the year was $38 $1 million compared to $37 $9 million in 2023.
Michael Harbinson: The increase.
Michael Harbinson: $2 million was primarily due to an increase in royalty and distribution income of <unk> 3 million and an increase in changes in working capital of $2 million, partially offset by an increase in administrative expenses of $2 million and an increase in income taxes paid of $1 million.
Michael Harbinson: Net and comprehensive income or loss and cash flows from operating activities are both measures under ifr S accounting standards or for us the abundance of the view that net net income or loss and cash flows from operating activities do not provide the most meaningful measurement of the fund's ability to pay cash distributions net income contains.
Michael Harbinson: Noncash items that do not affect the fund's cash flow, whereas cash flow from operating activities is not inclusive of all of the funds required cash inflows and therefore, it is not indicative of cash available for distribution to unit holders.
Michael Harbinson: Noncash items include fair value adjustments on the investment in Boston Pizza, Canada Limited partnership.
Michael Harbinson: <unk> B unit liability interest rate swaps and changes in deferred income taxes.
Michael Harbinson: Consequently, the Sun reports dawn I FRS metrics of distributable cash and the payout ratio to provide investors with the funds opinion more meaningful information regarding the fund's ability to pay distributions to unit holders.
Michael Harbinson: The fund generated distributable cash of $7 $5 million for the fourth quarter compared to $7 4 million for the same period in 2023.
Michael Harbinson: The increase in distributable cash of $1 $1 million or one 5%.
Michael Harbinson: Primarily due to an increase in cash flows generated from operating activities of $1 million.
Michael Harbinson: The fund generated distributable cash of $34 million for the year compared to $37 million in 2023, the decrease in distributable cash of $3 million or 9% was primarily due to higher cost per unit entitlement of $6 million, partially offset by an increase in cash flows generated from operating.
Michael Harbinson: <unk> dollars two.
Michael Harbinson: $2 million and lower interest paid on debt of $1 1 million.
Michael Harbinson: The fund generated distributable cash per unit of 35.1 cents for the fourth quarter and $1 $42 nine for the year compared to $34 6000.
Michael Harbinson: And $1 43, two cents, respectively for the same periods in 2023.
Michael Harbinson: The decrease in distributed distributable cash per unit to 1.5 cents or one 4% for the fourth quarter was primarily due to the increase in distributable cash does discussed earlier for.
Michael Harbinson: For the year the decrease in distributable cash of three cents or <unk>, 2% was primarily due to the decrease in distributable cash discussed earlier, partially offset by fewer units outstanding compared to the same period in 2023 due to due to the funds from our normal course issuer bid that was in effect from June.
Michael Harbinson: 20th 2023 to June 19th 2024.
Michael Harbinson: The funds payout ratio for the fourth quarter was 118, 4% compared to 92, 7% in the fourth quarter of 2023.
Michael Harbinson: The increase in the funds payout ratio for the fourth quarter was due to distributions paid increasing by $2 $1 million or 29, 6% as a result of two distribution increases in 2024, and a special distribution increase paid in 2024, partially offset by a distributable cash increasing by $1 1 million.
Michael Harbinson: Or one 5%.
Michael Harbinson: For the year the funds payout ratio was 99, 9% compared to 88, 6% in 2023 the increase in the funds payout ratio for the year was due to distributions paid increasing by $3 $2 million or 11, 8% as a result of the two distribution increases in 2020 for the special cash distribution paid on.
Michael Harbinson: 2024.
Michael Harbinson: <unk> distributable cash decreasing by <unk> $3 million or 9%.
Michael Harbinson: The funds.
Michael Harbinson: The funds payout ratios.
Michael Harbinson: Excuse me the funds payout ratio fluctuates quarter to quarter, depending upon the amount of distributions paid during the quarter and the amount of distributable cash generated during that quarter.
Michael Harbinson: Jordan highlighted earlier, the fourth quarter, Boston Pizza International achieved its strongest performance in the year in terms of year over year growth, resulting in the highest year for total franchise sales.
Michael Harbinson: Willing to fund to increase its monthly distribution rate to 11, and a half cents per unit.
Michael Harbinson: And issue a special distribution of seven and a half cents.
Michael Harbinson: Both payments were made on December 31st 2020 for the new monthly distribution rate represents eight two cent increase per unit or one 8% compared to the previous rate of 11.3 cents per unit.
Michael Harbinson: On an annualized basis. This equates to $1 38 per unit up from a dollar and $35 six per unit under the prior period.
Michael Harbinson: This marks the second distribution increase in 2024 following the adjustment from 11 from $10.07 per unit to 11, three <unk> per unit that took effect with the January 2020 for distribution.
On February 11, 2025, the trustees of the fund approved a cash distribution for the period of January one 2025 to January 31, 2025 of 11, and a half cents per unit, which will be paid on February 28, 2025 to unit holders of record at the club.
Michael Harbinson: Those of business on February 21, 2025.
Michael Harbinson: The trustees objective and studying monthly distribution the mountains is that they'd be sustainable.
Michael Harbinson: Trustees will continue to closely monitor the funds available cash balances given the fluctuating economic outlook.
Michael Harbinson: And with that I will turn the call back over to Jordan for more on the outlook Jordan.
Jordan Jordan: Thank you Michael.
Jordan Jordan: We're excited to start 2025 with a lineup of guest favorite campaigns.
Jordan Jordan: Pizza launched its first quarter with the past the Tuesday, all month long promotion in January giving guests the chance to enjoy passes every day of the week starting at just $11.99 with gourmet past is available for $15.99. This promotion was a perfect pairing with the winter lineup of sporting events as we continue our partnerships with hockey game.
Jordan Jordan: In Canada through a full regular season.
Jordan Jordan: Celebrate the NFL playoffs season, we've introduced an exciting NFL Pepsi promotion offering guest special pricing on six packs and the chance to win exclusive NFL prizes, including a trip to the Super Bowl.
Jordan Jordan: And today of course, it's a big day for Boston Pizza as we celebrate one of our favorite traditions Valentine's day with heart shaped pieces for sale at every Boston Pizza location and for every Heartbeat Pizza sold one dollar will be donated to support local charities in your communities as.
Jordan Jordan: As we enter 2025, we remain vigilant in monitoring the evolving trade landscape its potential impact on Boston Pizza restaurants in Canada and adapting the business. Accordingly, we're encouraged by the momentum in our business and we remain focused on enhancing.
Jordan Jordan: Guest experiences supporting our franchisees and driving sustainable long term growth through innovation and operational excellence.
Jordan Jordan: With that I'd like to begin the question and answer period operator.
Jordan Jordan: Thank you.
Jordan Jordan: Now begin the question and answer session anyone who wishes to ask a question May Press Star then one on the Touchtone phone I send a question via email Investor Relations Boston Pizza Dotcom fleets millet those questions that we did not get to during the call will be answered by email immediately following the U N.
Jordan Jordan: At the Investor Conference call.
Nick Corcoran: The first question comes from Nick Corcoran with acumen capital. Please go ahead.
Nick Corcoran: Hey, guys congrats on the strong quarter and full year.
Nick Corcoran: Thanks, Nick.
Speaker Change: Thanks, Mike a few questions for me. The first you said in your prepared remarks that the Srs in the quarter was largely driven by menu price increases can you give any indication of chassis compared to last year, both for the quarter and for the year.
Speaker Change: Thanks, Nik so we don't publish a guest traffic numbers as part of our public financial release. It obviously is a major focus but it does rely on.
Speaker Change: Individual entry at the restaurant level and so it's difficult for internal controls reasons to track visitation of individual guests an individual Boston pizza restaurants that said you know internally, we do have a metric based on the number of transactions per restaurant, which is a proxy for <unk>.
Speaker Change: Visitation and.
Speaker Change: And we were pleased to see that.
Speaker Change: The tick up in the fourth quarter.
Speaker Change: The reason that pricing is predominantly responsible for.
Speaker Change: The Srs both in the quarter and the year is simply that we're coming to through a period, where we hopefully finish the period of the hyperinflation.
Speaker Change: Followed the Covid period.
Speaker Change: And like so many restaurants retailers and all kinds of businesses, we had to pass on some of that input inflation.
Speaker Change: Cost inflation for our restaurants on our menu to guests and.
Speaker Change: We're pleased to see that tapering back down to I'll call it historical levels or common levels on a year over year inflation, which means our menu price should return to.
Speaker Change: Average growth rates in line with CPI.
CPI or input cost inflation year over year. So we will we'll be able to have.
Speaker Change: You know less reliance on menu price increases and more focus on driving.
Speaker Change: Guest counts and serving more guests across the country.
Speaker Change: That's helpful and with the GST holiday.
Speaker Change: Have you seen any uptick in traffic from us.
Michael Harbinson: We have and maybe I'll, let Michael kind of get into this but.
Speaker Change:
Speaker Change: It's been in place since the.
Speaker Change: Middle of December and it will end tomorrow.
Speaker Change: We are thankful as a business and as an industry to have government recognized the.
Speaker Change: The difficult challenges that are small businesses and restaurants in particular have been through again through the Covid period, and then the following two years of economic headwinds and hyperinflation.
Speaker Change: And that was.
Speaker Change: You are welcome recognition.
Speaker Change: Hi, alleviating consumers of the taxes on our restaurant meals and a number of items on in our restaurants for a period of two months, we did see it.
Speaker Change: It's hard to you know as you can imagine to determine why.
People have been coming in since December 14th and over this two month period, but we certainly do credit to some of the.
Speaker Change: Visitation and spend to the fact that.
Michael Harbinson: People are saving the tax at this point Michael did you want to add anything in that respect.
Michael Harbinson: Yes, Thanks, Jordan, just Oh I would do is just reinforce the point that you made so we can't say anything obviously too forward looking but the last two weeks in December the GST impact certainly was positive and it was measurable and so we were encouraged by that and I guess, what I'd add as well is it some.
Michael Harbinson: The non reoccurring events, so as nice as it is to see.
Michael Harbinson: A positive impact from that.
Michael Harbinson: G S T not getting charged them that will come to an end at some point.
Michael Harbinson: That's helpful and you mentioned there were 27 stores renovated in 2024 do you have a target for 2025.
Michael Harbinson: We do our construction and design teams work with franchisees across the country as you know Nick based on your background at our Boston Pizza franchise agreement includes a renovation clause, which requires franchisees to fully renovate their locations every seven years.
Michael Harbinson: At 372 locations today we.
Michael Harbinson: We have a number that have been renovated 27 as you mentioned in 2020.
Michael Harbinson: Four and I believe the number for 2023 was 18.
Michael Harbinson: And that increasing trend of renovations being completed is expected to continue next year I mean, this year rather 2025.
Michael Harbinson: So we want to be higher than than 'twenty.
Michael Harbinson: And then 27 renovations that were completed in 2024.
Michael Harbinson: Again, we don't provide forward looking guidance on renovations, but just enough to say that one seventh of the chain.
Michael Harbinson: Should be undergoing a renovation every year, we've got a little bit of catch up work to do still from the delays of Covid.
Michael Harbinson: But nonetheless were excited to see renovations.
Michael Harbinson: Increasing its a really good sign for.
Michael Harbinson: The confidence of the franchisees, making that investment.
Michael Harbinson: Upgrading their locations.
Michael Harbinson: And certainly the before and after experience for the guests is quite powerful and we've had a number of renovations that were.
Michael Harbinson: Overdue and then substantially change the look and feel the exterior of the signage all the interior decor fabric.
Michael Harbinson: Fabrics paint and then the Avi packages are becoming a larger and larger part of that upgrade. So yeah. I would just say, we'll be north of 30 renovations would be my early estimate for renovations. This year of course, it is always subject to availability of materials that are used in those construction projects.
Michael Harbinson: Permitting.
Michael Harbinson: And then the just the project time that it takes to complete those but again, where we're on an upward trend with renovations and and we do see that as a positive sign not just for that the business, but for the guests as well.
Michael Harbinson: That's helpful.
Michael Harbinson: Last question for me.
The Trump administration and talk of tariffs from the U S.
Michael Harbinson: How much of your products do you source from the U S.
Michael Harbinson: So obviously this has been a huge question for us over the last several weeks and even months going back to the early comments about the potential of tariffs both with product coming from the United States and then.
Michael Harbinson: Potentially counter tariffs.
Michael Harbinson: Hum.
Michael Harbinson: Product going into Canada.
Michael Harbinson: Vice versa, so it would be.
Michael Harbinson: The short answer is that Boston Pizza is obviously, a Canadian company started in Edmonton 1961, we've always been 100% Canadian owned we have local franchisees across the country all but one of our 372 locations are owned by local franchisees across the country are sourcing mirrors that cannot Canadian route. So we saw.
Michael Harbinson: For our inputs.
Michael Harbinson: And beverage items.
Michael Harbinson: Overwhelmingly from Canadian partner's Canadian suppliers from within Canada. There are a few categories, which we are unable to source from within Canada, and those would be things like fresh produce and the winter it's difficult to grow.
Michael Harbinson: Tomatoes in avocados in Canada as you can imagine.
Michael Harbinson: And also some liquor skus, so some things like California wines are Kentucky Bourbon. So we've heard a lot about this in the media recently about how those could be affected our foodservice team is working extremely closely with our supplier partners across the country too.
Michael Harbinson: Understand what our exposure is there.
Michael Harbinson: And to take.
Michael Harbinson: <unk> actions in the event that the tariffs do come into effect.
Michael Harbinson: The much larger concern not just for Boston pizza, but for for all of the Canadian economy is really that the macroeconomic impacts and what that does to consumer spending and employment.
Michael Harbinson: When you hear about big industries in Canada, like automotive energy agriculture.
Michael Harbinson: Being hit substantially by these.
Michael Harbinson: We've obviously been through the last five years with the pandemic again, followed by the hyperinflation period, where we saw substantial macroeconomic.
Michael Harbinson: Disruption that affects consumer spending consumer confidence.
Michael Harbinson: And we know that.
Michael Harbinson: Discretionary spending.
Michael Harbinson: If tax restaurants full service restaurants, like Boston Pizza. So that's the bigger concern for us not necessarily the sourcing piece, although that is something we're spending time on because we source almost entirely from within Canada for our food and beverage.
Michael Harbinson: Items in that fuel, the Boston pizza supply chain and system.
Michael Harbinson: That's not the immediate or the law.
Michael Harbinson: Largest rather impact that we foresee with the tariffs.
Michael Harbinson: But we are hoping that cooler heads prevail, we're pleased that the.
Michael Harbinson: Government is taking action to raise awareness of how damaging is can be on both sides of the border and we're hoping that cooler heads prevail and we can avoid all these damaging effects to our economy and to our businesses.
Michael Harbinson: Thanks, That's all from me I'll pass a lot.
Nick Corcoran: Thanks, Nick.
Michael Harbinson: Thanks, Doug.
Jordan Jordan: This concludes the question and answer session I would like to turn the conference back over to Jordan for any closing remarks. Please go ahead.
Jordan Jordan: Alright, Thank you very much operator since there are no further questions.
Jordan Jordan: I want to.
Jordan Jordan: Thank all of you for joining us today, and as we closeout 2024, and and kick off 2025 on behalf of everyone at Boston Pizza internationally, we want to express our deepest gratitude to our loyal guests. Thank you for your unwavering support to our dedicated staff and franchisees. We appreciate your hard work and passion.
Jordan Jordan: And to our business partners, we value your collaboration.
Jordan Jordan: And to the incredible communities. We are honored to serve thank you for welcoming us into your lives you were in a central part of the Boston Pizza family.
Jordan Jordan: We wish you all a.
Jordan Jordan: Great Happy Valentine's day, and invite you to celebrate with a heart shaped pizza at your local Boston Pizza or a dollar from every pizza sold today, we'll go to a charity that supports causes in your community. So we look forward to reconnecting with all of you during our first quarter conference call in May 2025. Thank you all and have a wonderful day.
Jordan Jordan: This brings to an end today's conference call. You may disconnect. Your lines. Thank you for participating and have a pleasant day.
Jordan Jordan: Uh huh.
[music].
Jordan Jordan: Yeah.
Jordan Jordan: [music].
Jordan Jordan: Okay.