Q3 2025 Pizza Pizza Royalty Corp Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to the Pizza Pizza royalty Corp's earnings call for the third quarter of 2025 during the presentation. All participants will be in a listen only mode. After the Speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press Star and then the.

Number one on your telephone keypad as a reminder, this conference is being recorded on November 5th 2025, I will now turn the call over to Christine to fill the CFO.

Thank you good morning, everyone and welcome to Pizza Pizza royalty Corp's earnings call for the third quarter ended September 32025.

Joining me on the call today is pizza Pizza Limited's, Chief operating Officer Phillip Goodreau.

Just a quick note 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 the earnings press release, and the MD&A in the Investor Relations section of our website for a reconciliation and other disclosures related to non I as far as financial measures mentioned on this call.

As a reminder, analysts are welcome to ask questions. After the prepared remarks.

Portfolio managers media and shareholder can contact us after the call.

With that I'd like to turn the call over to sell it to introduce himself and provide updates.

Thank you Christine and good morning, everyone. As Christine mentioned my name is still a good joke I'm the chief operating operating officer Pizza Pizza limited and I'm standing in today for Paul Goddard, Our Chief Executive Officer, who is planning on being on today's call the call as always but due to a delayed endeavor with flight overseas I will still be in the sky during our call.

Today. So he is unable to join Paul sensors regrets for not being here today.

Staying with Pizza Pizza limited for 14 years in various senior roles, including a senior Vice president of operations and development, leaving.

We didn't get to the 72 brand since 2011 and in 2019 I was promoted to the Chief operating officer at Pizza Pizza Limited working closely alongside Paul garnered for many years long Christine just Silva, our Chief financial Officer, and the rest of our elite our senior management team like Paul I'm Christine I'm also in <unk>.

Second of Magic representative its a pizza limited at each of the Pizza Pizza royalty Corp Board meetings.

I'd like to start this call off by stating how proud we are of our network of franchisees, our partners and our entire team and staff of Pizza Pizza further unwavering support resilience working tirelessly in this ultra competitive environment working together, we remain laser focused on improving speed and quality of service.

And delivering craveable new options.

Alright, craveable, new offerings that will different will continue to differentiate our brands and drive growth.

This quarter, our brand reported a compounded same store sales growth of 0.1%.

The pizza restaurants reporting 0.3% growth and Pizza 73, restaurants reported a decline of one 1% for the second consecutive quarter, we're happy to see growth in Pizza Pizza is organic delivery channel, which has helped increase our average check however at both brands. We saw an overall decrease in transactions.

We faced heightened competition and we saw the impact of reduced consumer spending mainly in earlier in the quarter in July.

Trend is impacting much of our Q was there much of the kyocera industry, but since we can't control the macroeconomic environment, we're staying proactive and focused on our fundamentals are sharpening our volume messaging optimizing partnerships and promotions and continuing to invest in digital and loyalty to drive customer frequency and retention.

Third quarter is always a busy quarter, a busy quarter for our nontraditional locations and special events partnerships. As a reminder, our non traditional sales typically account for 10% of our total sales and it's been exciting to see the special events and non traditional locations active again this summer.

We saw pizza Pizza Pizza, Jimmy Choo brands come alive in communities across Canada.

Our best in class sponsorships and marketing program. In addition to record sales of critical events like the CME in Toronto and Calgary Stampede in Calgary.

Innovated our product offerings. Both this year, we introduced a deep fried pizza on a stick.

Punk promotional gross national media attention and help double our sales at the CME versus previous years and pizza.

Pizza sent me three we employed a layered approach to stampede this year to leverage our strong brand position with the key annual cultural event in Calgary. The partnership that was brought to life in restaurants on the thoughtful around and across social media channels, our digital presence partnering with content creators highlighted our food innovation and as a brand new.

Develop something that with a lot of fun the Pony Express, where we had a real cowboy are real horse and deliberate with saddlebags delivering pizzas in Calgary. This media campaign garnered over 1 million social impressions and brought that event to life in our stores through a stampede special combo in partnership with our partners the Coca Cola.

Speaking of brand building promotions and engagement we also.

We also build our brand engagement through exciting menu innovations.

That's interesting and fried chicken items continue to grow we introduced our new chicken tenders at pizza Pizza and new bold flavors at Pizza 73, the chicken tender offering posting an opportunity to deliver more individual stackable options within our existing chicken assortment and it also provided an opportunity to speak to a well know lots of assortment of depth.

Additionally, pizza separately, we leaned into our brands Boston class, 100% fresh wings with two new delicious flavors.

To see success promoting our key value offerings as Canadians look for ways to save on food without compromising quality. This quarter. We continue to promote our differentiating 18 inch XXL to top of Pizza deal. At 1999. This is one of the kind of the best deals on Pizza and has become a cornerstone of our U R from coast to coast, we could.

To support this deal with broadcast out of home and digital have been seen a significant shift in our survey the customers trade up to the higher and larger size too.

To further solidify our value credentials this quarter, while staying relevant and topical we brought back early on in the quarter a reverse tariff discount supported the deal with a new TV and digital video. This offer was once a what's it going ahead and help support not only the volume Sto, our credibility as blue totally Canadian authentically Canadian.

Because we truly are.

All of our promotions Activations will all be successful from the time of placing your order to receiving your pizza if not for a ray of ordering channels from placing an in store order to calling in ordering online or in house developed a website apps in order taking platforms that really support the business 24 hours a day seven days a week for both brands.

And with the rollout of our visual delivery tracking feature.

Similar interface that we would see on third party platforms, we're able to improve our customer experience and the average speed of delivery. This year is significantly better than a year ago.

As we look towards rebuilding our loyalty program and improving our customer experience. We are currently redesigning enhancing our web and app extensions for customers. These enhancements will not just improve the speed and simplicity of ordering they will improve our loyalty functionality and data driven insights will continue to further distance ourselves from the competition with our ongoing.

Packaged vantage with more customer focus capabilities as time goes on and please stay tuned for future updates. So earlier next year.

Before I turn things over to Christine just wanted to discuss our restaurant network growth.

We ended the second quarter with a total of 811 locations in Canada, We're really excited for achieving the 800 800 location milestone a 706 of our pizza pizza sites.

105 are pizza 70 threes.

We opened four traditional and 10 non traditional pizza pizza locations during the quarter. Meanwhile, Pizza rich free we opened up two traditional locations.

We also closed one traditional and three non traditional pizza pizza and one traditional keeps a 73.

While our growth has been a little slower than in the past. We're also being a lot more discerning about where we grow and how we grow that said, we do expect to pick up the pace of growth in the last quarter of this year, unless we still expect to grow our traditional business of traditional network by two to three per cent.

While we continue our restaurant development. We also continue the exciting one of those four programs and refresh programs with our traditional core business, we have over 95% of our traditional pizza pizza stores, having the new look a restaurant features a refresh on the interior and exterior and significant upgrade side made in regards to equipment such.

More efficient ovens digital menu boards and further in store technology.

As I close off fall here, we are now in our busiest quarter of the year and you'll see us continue to leverage our brand assets our strengths as we implement new and telling me promotions backed by our core product propositions.

Menu innovation conveniently located restaurants, and our award winning <unk> platform under a fully staffed and led customer contact et cetera, we look forward to closing off the year and strong fine for them.

Thank you for listening in and now I'll hand things over to Christine to Silva, our Chief Financial Officer, and she'll provide an update on our details on our financials.

Thanks Philip.

As a reminder, pizza Pizza royalty Corp is a topline restaurant royalty corp that earns a monthly royalty through a license agreement with pizza pizza limit in exchange for the use of the pizza Pizza and pizza sneakers trademarks and its restaurant operation Pizza Pizza limited paced partnership a monthly royalty as a percentage of royalty core sales.

Growth in the Corp is derived from increasing same store sales of restaurants, and the royalty cool and by adding new restaurants to the pool the chair.

As previously announced on January 1st 2025 of the royalty pool increased by 20 restaurants. So for fiscal 2025. There are 794 restaurants in the royalty pool comprised of 694 Pizza Pizza and 100 pizzas that'd be great.

That information lets turn to the financial results for the quarter.

As Philip mentioned same store sales the key driver of yield growth for shareholders increased quite 1% for the quarter. The pizza pizza restaurants reporting sales growth of 3% and pizza 73 restaurants, appointing a decline of one point, Mike great right.

The combination of the 20, new restaurants added to the royalty pool at the same store sales resulted in overall increase to royalty call system sale and the corresponding royalty income.

Well control system sales for the quarter increased 2% to $158 8 million from $155 8 million in the same quarter last year.

Hi brand sales in the 694 of Pizza Pizza restaurants in the call. It increased two 3% 238 million for the quarter, while sales in the 100 Pizza 73 restaurants was unchanged at 28 million for the corner.

The partnership's royalty income earned as a percentage of royalty profile increased one 9% to $10 2 million for the quarter.

Beyond royalty income the partnership also earn interest income on its cash and short term investments.

The quarter. The partnership earned 37000 this decrease from the prior year as the overall balance decreased and the rate applicable on that balance decreased now.

Now turning to partnership expenses administrative expenses, including listing costs as long as director legal and audit fees were consistent with the prior year. This quarter. They totaled 181000 compared to 176000 in the prior year.

In addition to administrative expenses the partnership is making interest only payments on its $47 million credit facility.

Interest paid in the quarter with 444000 and.

And as a reminder, in March of 2025, the company renewed the facility for three years with maturity now set for April 2028.

The balance of the facility remains unchanged. However, the credit spread table increased slightly with the lowest tier increasing from 0.87521%.

Additionally.

In April of 2025, the partnership entered into a new three year forward swap.

The new three year swap commenced when the existing one expired.

The lock in rate is now 2.51%.

Which is an increase in the maturing swaps of 1.81.

The overall all in rate for the credit facility for the next three years will be 3.51%.

Compared to the maturing rate of 2.68 times.

And after the partnership received the royalty and interest income is administrative and interest expense, resulting net cash available for distribution to our two partners based on their ownership.

After the 2025 Zenden Pizza Pizza limited ownership increased to 26, 2%.

It's a piece of royalty Corp shares and the remaining 373, 8% of the partnership.

It pays taxes on its share of the partnership bringing.

And any residual cash is then available for dividends to company shareholders.

The company declared shareholder dividends of $5 7 million for the quarter were 23.25 cents per share, which was consistent with the prior year.

The payout ratio for the quarter. It was 111% and resulted in the company's working capital decreased 800000 to end the quarter at $4 million.

The $4 million working capital reserves.

Bailable stabilized dividend and fund other expenditures in the event of short to medium term variability in sales and that's royalty income.

The company historically has targeted a payout ratio at or near 100% on an annualized basis.

And I can tell you it would continue to do so.

That concludes our financial overview.

I turn the call back to our operator to poll for question.

Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press the star key followed by the number one on your Touchtone phone, you'll hear a prompt that your hand, that's been raised should you wish to decline from the polling process. Please press the star key followed by the number two if you were using a speaker phone. Please lift the handset before pressing any keys.

One moment, while we assemble the queue.

Yeah.

The first question comes from Derek Lessard of TD Cowen. Please go ahead.

Yeah. Good morning, everybody. Good morning felt nice to meet you who need to call anyway right.

No I think well.

I. The one question I had was I was curious if you saw a change in I guess consumer behavior from Q2, where you guys reported a nice modest same store positive same store sales print to.

Two the current quarter, where it was kind of flattish.

I think I'm Derik in terms of overall consumer behavior, we are definitely seeing a shift were seeing them.

Customers, reducing their frequency of visits.

And that's now then increasing the competitive landscape because everyone's fighting.

Fighting for those visits we're also seeing them continue to.

Be more discerning and how they're spending their dollars.

They're managing their overall spend so they might not be adding the dips in the Papa to their order you'll still get their pizza from us. So we are seeing that ask what's happening and we're also continuing to see a shift in how theyre getting their pizza I think we've talked about in the past, where we've seen an increase in our pickup channel and we continue to see a pick up.

Increase this year at both brands.

Fact that pizza suddenly agree where we used to be 90% delivery and 10% walk in pick up we're seeing a shift to where the walk in and pick up at that brand is almost 25%. So that is definitely something we are seeing overall right.

I think in terms of this quarter.

We were definitely impacted by weather in the early part in July. Additionally, the fact that time there was the Canada post strike. So we made the decision to not issue Flyers in July definitely did impact the business at that point.

And whether and what way Christine was it remind me.

Yeah. It was poor weather in July so a lot of our outdoor events were definitely impacted and at Alberta until it can speak more to this they were impacted by tourism and the fact that Bam fund those kinds of locations, we're not getting as many tourists from the U S. So that definitely did impact our July one.

We did see though that as the quarter progressed.

Things did pick up in the right direction.

Okay, and maybe just a follow up to that Kristin D. You guys are.

The environment is obviously, it's not necessarily I guess conducive for delivery sales, but it looks like you guys did get some pretty good organic growth, there and you're punching above your weight.

Maybe maybe talk about the drivers behind that.

Oh definitely I can tell them yes.

Go ahead Bob.

Yeah on my end Derek what we've been seeing is just a.

On a year over year, where we have a comfortable tracking system that is really helping our franchisees and our team just control.

Making sure that Oh, we're exceeding our customers' expectations were.

But a minute quicker this year than we were last year on deliveries and we could tell exactly where the delivery driver is at any given point moment and it just helps plan things out. So do you feel that we're seeing less third party business, but internally, we're getting what we're getting deliveries, there's basically been seeing improvements.

Week after week period after period for the last few which were pleased with.

Well, there's a lot more because there are a lot more specials like the double X outwear and you're ordering a bigger item and typically that would be just people having others over so they want it delivered to their house.

And to talk more to the tech that Philip was mentioning.

We're seeing customers buy it from us when their order is being delivered so that they know where to go in and track their order. So we're trying to engage customers and more on our organic platform to keep them, there and want and we want them to stay on that platform. It just more profitable for our old off.

Okay, Okay makes sense and I guess last quarter, you had I, if I recall correctly. Some some timely sports related marketing campaigns curious if any of that carried over into.

Into Q3, and maybe just a comment on any traction from that the long run the long Blue Jays run.

Yeah, So the language, which I will definitely impact our Q4 definitely the October baseball is something we did and I think you would see in the market over the last few weeks, we actually partnered with Vladimir Guerrero a junior.

Alright, that's all pizza, that's so that's a Q4 impact.

I, probably wouldn't be seeing from that one but definitely the love of baseball across Canada, and the fact that we are a Canadian pizza brand and we have locations across the country I'm definitely will be a Q4.

There was definitely a lot of eyeballs right I think there was 10 million Canadians who tuned in to the game seven.

Yeah, and I think I think right away as library at Pittsburgh as Homerun, we had it.

XXL commercial I'm not sure that was great. So timing was perfect. So yes, Q4 is definitely a big sports quarter for US with October baseball and then the start of our partnerships with all of the NHL teams across the country and the router. So we're excited for sports debate.

Driver for us.

Okay Awesome, maybe one last one for me congrats on the 800 stores.

Let me talk about we don't talk about it often but maybe just.

Could you just talk about the progress on the Mexican initiatives.

Yeah. So we currently have four locations in Mexico. It is our first foray into international expansion.

Slower than we would like but we know that the partners down there are very much committed to it and so is our management team here and trial. There are a few more in the hopper.

Towards the end of the year, but it's definitely a market, where we see significant amount of potential the Mexican pizza market is actually greater than the American pizza market. So once we get this region in Guadalajara.

Often up and running it will definitely be gravy for all of our P. P. R theme actor.

Okay Awesome, that's it for me thanks for taking my questions everybody.

Thanks, Derrick thank you.

Ladies and gentlemen, there are no further questions at this time that concludes today's conference call. Thank you for your participation you may now disconnect.

Yes.

[music].