Boston Pizza Royalties Income Fund (BPZZF) Q1 2023 Earnings Call Transcript


Hello. This is the Chorus Call conference operator. Thank you for standing by. Welcome to Boston Pizza’s First Quarter Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded on May 10, 2023. After the presentation, there will be a question-and-answer session. Participants on the call may also post their questions via email to Boston Pizza’s Investor Relations Department at [email protected]. [Operator Instructions]

At this time, I would like to turn the conference over to Michael Harbinson, Chief Financial Officer. Please go ahead.

Michael Harbinson

Very good. Thank you and welcome to the call. Today, we will be discussing the 2023 first quarter results for both Boston Pizza Royalties Income Fund or The Fund and for Boston Pizza International or BPI.

For complete details on our financial results, please see our first quarter materials filed earlier today on SEDAR or visit The Fund ‘s website at Should you require additional information after the call, you can reach us via the Investor Relations phone number that is listed in our press release.

The Fund is 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.

BPI pays royalty and distribution income to The Fund based on franchise revenues of Royalty Pool Restaurants. For a complete description of The Fund and its business, please see the annual information form dated February 8, 2023, which was filed on

Before I turn the call over to Jordan Holm, President of BPI, 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 Fund’s 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 Jordan. Jordan?

Jordan Holm

Thank you, Michael. And welcome everyone to Boston Pizza’s first quarter investor conference call. Today I will be discussing our first quarter 2023 results, and later will share a brief outlook. Michael will summarize our key financial highlights, and as usual, we will leave time for your questions at the end of today’s call.

COVID-19 impacted the business of Boston Pizza during 2020, 2021 and the first half of 2022. Since then, COVID-19 case counts have improved, government restrictions related to COVID-19 were largely eliminated and sales levels of Boston Pizza Restaurants have returned to more normal levels when compared to times prior to COVID-19.

Turning to our financial results. The Fund posted franchise sales from restaurants in the Royalty Pool of $224.2 million for the quarter, representing an increase of 25.5% versus the same period 1 year ago.

Same-restaurant sales was 25.7% for the quarter and SRS for the period was principally due to increases in restaurant guest traffic compared to the first quarter of 2022, during which pandemic-related restrictions still existed and increased average guest check due to a combination of increased menu pricing and larger per guest ordering levels. We are pleased that our sales results have supported another monthly increase to The Fund’s distribution rate, which Michael will elaborate on later.

From a marketing standpoint, we began the first quarter of 2023 with our Pasta Tuesday all month long promotion, which featured our well-known weekly as Pasta Tuesday promotional pricing throughout the entire month of January for guests signing at Boston Pizza.

This promotion resulted in an increase in guest traffic and an increase in overall sales. The promotion was supported by significant TV, digital and social media channels, along with in-restaurant promotions at participating Boston Pizza Restaurants across the country.

In addition to this, Boston Pizza introduced a pasta focused feature menu in February, which included a new appetizer, three new pastas and was supported by TV and digital advertising to invite Canadians to enjoy these menu items.

Sales and guest traffic remained strong through this promotional period. Boston Pizza also celebrated the 30th anniversary of our Paper Hearts Fundraising Program. To mark the 30th anniversary of this charitable initiative, all program materials were refreshed and the fundraising record for Paper Hearts was broken with over $400,000 raised through the sale of these hearts and an additional $100,000 raised through the sale of Boston Pizza’s Heart Shaped Pizzas on Valentine’s Day.

Turning to restaurant development. No restaurants were open, one restaurant was closed and no restaurants were renovated during the first quarter of 2023. We have some exciting initiatives planned to drive sales through the remainder of the year, which I will speak about in a moment.

First, however, I will turn the call back to Michael for a review of The Fund’s financial performance. Michael?

Michael Harbinson

Thank you, Jordan. The Fund posted royalty income of $9 million for the quarter, compared to $7.1 million for the same period one year ago. The Fund posted distribution income of $2.9 million for the quarter, compared to $2.4 million for the same period one year ago.

Royalty and distribution income for the quarter was based on 377 Boston Pizza Restaurants in the Royalty Pool that reported franchise sales of $224.2 million for the quarter. For the same period in 2022, royalty and distribution income were based on the Royalty Pool of 383 Boston Pizza Restaurants reporting franchise sales of $178.6 million for the first quarter.

The Fund’s net and comprehensive income was $6.7 million for the quarter, compared to $12.9 million for the first quarter of 2022. The $6.2 million decrease in The Fund’s net and comprehensive income for the period compared to the first quarter of 2022 was primarily due to a $9.3 million increase in fair value loss, partially offset by a $2.4 million increase in royalty and distribution income and a decrease in income tax expense of $0.7 million.

The Fund’s cash flows generated from operating activities was $9.2 million for the period, compared to $6.7 million for the first quarter of 2022. The increase of $2.5 million was due to an increase of royalty and distribution income of $2.4 million and an increase in changes in working capital of $0.6 million, all partially offset by an increase in income taxes paid of $0.4 million.

While net and comprehensive income or loss and cash flows from operating activities are both measures under International Financial Reporting Standards or IFRS, The Fund is of the view that net income or loss and cash flows from operating activities do not provide the most meaningful measurement of The Fund’s ability to pay distributions.

Net income contains noncash items that do not affect The Fund’s cash flows, whereas cash flows from operating activities is not inclusive of all of The Fund’s required cash outflows, and therefore, it’s not indicative of cash available for distributions to unitholders.

Non-cash items include fair value adjustments on the investment in Boston Pizza Canada Limited Partnership, the Class B unit liability, interest rate swaps and changes in deferred income taxes.

Consequently, The Fund reports the non-IFRS metrics of distributable cash and payout ratio to provide investors with in The Fund’s opinion, more meaningful information regarding The Fund’s ability to pay distributions to unitholders.

The Fund generated distributable cash of $7.2 million for the period, compared to $4.7 million for the first quarter of 2022. The increase in distributable cash of $2.5 million or 53% was primarily due to an increase of cash flows generated from operating activities of $2.5 million and lower repayments of long-term debt of $0.5 million, partially offset by increased BPI Class B unit entitlement of $0.4 million and SIFT tax on unit’s adjustment of $0.2 million.

The Fund generated distributable cash per unit of $0.334 for the period, compared to $0.218 per unit for the first quarter of 2022. The increase in distributable cash per unit of $0.116 or 53.2% was primarily due to the increase in distributable cash, as previously described.

The Fund’s payout ratio for the period was 91.6%, compared to 116.8% in the first quarter of 2022. The decrease in The Fund’s payout ratio for the period was due to distributable cash increasing by $2.5 million or 53%, partially offset by distributions paid increasing by $1.1 million or 20%.

The Fund’s payout ratio is typically higher in the first quarters and fourth quarters compared to the second quarters and third quarters since Boston Pizza Restaurants generally experience higher franchise sales levels during the summer months when restaurants open their patios and benefit from increased tourist traffic. On a trailing 12-month basis, The Fund’s payout ratio was 94.5% as at March 31, 2023.

As Jordan mentioned earlier, with the recent solid financial performance of Boston Pizza International and The Fund, The Fund increased its monthly distribution rate payable to $0.107 for the March 2023 distribution that was paid on April 28, 2023.

This new monthly distribution rate now exceeds the level it was at immediately before the pandemic. The trustees will continue to closely monitor The Fund’s available cash balances and distribution levels and based on our goal of stable and sustainable distribution flow to unit rates.

On May 9, 2023, the trustees of The Fund approved a cash distribution for the period of April 1, 2023 to April 30, 2023, $0.107 per unit, which will be paid on May 31, 2023, to unitholders of record at the close of business on May 21, 2023.

Trustees objective in setting a monthly distribution amount is that to be sustainable. Trustees will continue to closely monitor The Fund’s available cash balances given the fluctuating economic outlook.

And with that, I will turn the call back over to Jordan for more on the outlook. Jordan?

Jordan Holm

Thank you, Michael. Boston Pizza began its second quarter of 2023 with a new playoff promotion as hockey and basketball playoffs got underway. This promotion introduced several new shareable menu items plus cocktail innovations and includes TV and digital media advertising, focused on Boston Pizza’s new Fanalytics campaign, optimizing every aspect of the Boston Pizza Sports Bar experience to maximize enjoyment for our guests. An updated name menu also launched in May, introducing several recipes in various menu categories, all available every day for guests to enjoy.

We continue to be extremely pleased with the efforts of our team and our franchisees. However, with supply chain challenges, rising interest rates and increased input costs impacting most of the restaurant industry, BPI’s management remains cautious.

We continue to adapt the business to mitigate these challenges and to work diligently to support our franchisees and continue the positive sales momentum that was achieved in 2022 and the start of 2023.

With that, I would like to turn it back to the operator to begin the question-and-answer session.

Question-and-Answer Session


Thank you. [Operator Instructions] The first question comes from Nick Corcoran with Acumen Capital. Please go ahead.

Nick Corcoran

Good morning, guys. A couple of questions from me. The first is, how are guest shop levels compared to pre pandemic?

Jordan Holm

Good morning, Nick, so I will start and then possibly hand it over to Michael. But as we described in the opening comments, we are seeing the same restaurant sales lift primarily driven by average guest check being higher than pre-pandemic levels and that’s driven by — partially by pricing and partially by individual guests purchasing more per order than what we saw pre pandemic.

The traffic continues to lag pre-pandemic levels slightly. So the lift in sales and particularly in restaurant sales is being driven by average guest check. We are focused on promotions that drive visitation traffic and that’s why we spoke about the Pasta Tuesday all month long or the most recent playoff promotion, because those are intended to drive the door and bring traffic up to pre-pandemic levels.

Nick Corcoran

Great. That’s good color. And then I think in a previous call, you said, you are testing a breakfast menu. What is the feedback from franchisees and customers feel on that?

Jordan Holm

Yes. So you are right, June of last year, we introduced a pilot with a limited number of Boston Pizza Restaurants across the country and it truly is a brunch initiative, it’s not breakfast, meaning that normally Boston Pizza Restaurants would open at 11 a.m. local time across the country, some who have introduced and are testing this brunch menu are opening slightly earlier. Some still open right at 11 a.m., but they do offer a limited selection of more breakfast oriented items.

We have a breakfast pizza. We have a breakfast wrap. We have a few other items that are more brunch like and the idea here is simply to look at a daypart that isn’t as busy for us, get our day started a little bit earlier without a lot of complexity at the restaurant level and it’s an area that our guests have sought out in other parts of the foodservice industry like pubs and so forth that often bring people in for the brunch occasion.

So we are seeing limited success there. We are — like I said, it’s testing for us, it’s not a daypart that we are known for. But we are pleased that the restaurants wanted to test it and that we have a good program in place and we will continue to monitor whether that can be a significant daypart added to what we have already, which would be lunch, happy hour, dinner and then late night.

Nick Corcoran

Good. And then I think in your prepared remarks, you said there were no renovations in the quarter, are there any plans for renovations through the year?

Jordan Holm

Yeah. Absolutely. We are doing a bit of a catch-up, because we had restrictions that limited us from keeping pace on our seven-year renovation cycle. So in the Boston Pizza franchise agreement all locations are required to undergo a full renovation every seven years.

Last year, I believe we completed 22 during the year and this year our benchmark would be higher than that, closer to 30 restaurants. They do close for a period of time in order to complete the restaurant renovation that includes new paint and fabrics, decor on the interior, as well as an exterior paint job in most cases.

And we do have a number of them scheduled, I think there’s actually two underway right now that I am aware of and we really feel this is a distinguishing part of the Boston Pizza franchise system that it keeps all of our locations looking fresh and up-to-date, and also provides an opportunity to invest in equipment or other modifications to the restaurant to help it run at full capacity.

Nick Corcoran

Great. Then maybe one last question for me. How is the pipeline for new restaurants?

Jordan Holm

Yeah. So we haven’t opened a new Boston Pizza Restaurant, I believe since August of 2020 and that was simply a result of the COVID restrictions and limited ability to do construction, and of course, people being very conservative around investments with the uncertainty for our economy and for the restaurant industry.

That said, we do feel very positive about the pipeline as you describe it for real estate and for new franchisees to be able to continue to grow the Boston Pizza system in Canada. We have one location under construction in Hope, BC.

And we have a number of others that are in the pipeline and in progress, whether we can get them open during the — this calendar year, we will have to wait to see, but we are looking at both new ground-up builds as well as conversions of other restaurant concepts that allow us to move into a space perform very significant conversion construction project and to open it up as a new Boston Pizza location.

So we are continuing to look at real estate sites that make sense for new Boston Pizzas across the country, particularly in areas that are underserved for full-service restaurants and we will continue to report on progress as we open Hope, British Columbia later this year, as well as other projects that were — we have in the pipeline.

Nick Corcoran

That’s great color. Thanks for taking my questions.

Jordan Holm

Thank you, Nick.


This concludes the question-and-answer session and I would like to turn the call back to Jordan Holm for closing remarks.

Jordan Holm

All right. Thank you, Operator. As there are no further questions, I’d like to thank all the investors for taking the time to listen in. We look forward to speaking with you all at our second quarter conference call in August 2023. Thanks, everyone.


This concludes today’s conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.