Earnings Call: Q2 2021

Aug 13, 2021

Earnings release

Hello. This is the Chorus Call conference operator. Thank you for standing by. Welcome to Boston Pizza's Second Quarter Conference Call. As a reminder, all participants are in listen only mode and the conference is being recorded on August 13, 2021. After the presentation, there will be a question and answer session. Participants on the call may also post their questions via e mail to Boston Pizza's Investor Relations department at investorrelations@bostonpizza.com. At this time, I would like to turn the conference over to Michael Harbinson, Chief Financial Officer. Please go ahead, sir. Thank you, and welcome to the call, everyone. We For complete details on our financial results, please see our 2nd quarter materials filed earlier today on SEDAR or visit the Fund's website at bpincomefund.com. 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 DPI Boston Pizza Restaurants in Canada. DPI 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 9, 2021, which was filed on sedar.com. Before I turn the call over to Jordan Hallum, 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 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'll now turn the call over to Jordan. Jordan? Thank you, Michael, and welcome everyone to Boston Pizza's 2nd quarter Investor Conference Call. Today, I'll be discussing our results for the quarter ended June 30, 2021, and also share a brief outlook. Michael will summarize our key financial highlights. And as usual, we'll leave time at the end of today's call for your questions. The Q2 continued to present challenges brought on by COVID-nineteen adversely affecting the business of Boston Pizza Restaurants across Canada. As COVID case counts improved toward the end of the quarter, various governmental authorities began easing the restrictions they had placed on restaurants. The easing of those restrictions resulted in improved sales at Boston Pizza Restaurants in the Q2 of 2021 compared to the Q2 of 2020 when the Canadian restaurant industry was in a greater state of lockdown. Throughout the Q2 of 2021, On average, approximately 375 Boston Pizza Restaurants were providing takeout and delivery services. The state of our in restaurant dining, however, By the end of the period, approximately 380 Boston Pizza Restaurants were providing on premise dining services With reduced seating capacity, of which approximately 265 restaurants had their dining rooms and sports bars open and where applicable their patios. And approximately 115 restaurants only had their patios open due to ongoing government restrictions. Turning to our financial results, the Fund posted franchise sales from restaurants in the Royalty Pool of $134,800,000 For the quarter $263,800,000 year to date, representing an increase of 25.8 percent and a decrease of 6.2%, respectively, versus the same periods 1 year ago. Same restaurant sales on a franchise sales basis Positive results for the quarter were principally due to increases in guest traffic from the easing of government restrictions in the period, along with increased takeout and delivery sales. Negative same restaurant sales on results on a year to date basis were principally driven by temporary closures of dining rooms, sports bars and patios, partially offset by increased takeout and delivery sales. COVID-nineteen first began to adversely affect Boston Pizza Restaurants in March of 2020. As a result, the Fund believes it's useful to report additional sales metrics that compare sales in 2021 to sales in 2019. Comparing the 2019 results allows investors to gauge Boston Pizza's current sales levels against levels on a pre pandemic basis. If SRS on a franchise sales basis were calculated by comparing The same period in 2019, SRS would be negative 37.0 percent for the quarter and negative 36.9% Year to date, same restaurant sales for July 2021 was approximately positive 22% when compared to the same period in 2020 Approximately 0% when compared to the same period in 2019. Total franchise sales and the resulting royalty and distribution income for July 2021 were approximately 122% of the level they were at in July 2020 And approximately 99% of the level they were at in July of 2019, while we've been pleased With our ability to mitigate our sales declines throughout the pandemic, our outlook remains cautiously optimistic Due to the uncertainty that remains at this stage in the pandemic, from a marketing standpoint, Boston Pizza began the Q2 of 2021 with our call the shot promotion. Customers who ordered a Pizza Flight or Molson Canadian product were able We're eligible rather to call the shot by predicting hockey outcomes for a chance to win great prizes. In June, we kicked off our Turning to restaurant development. Boston Pizza opened no new Boston Pizza Restaurants during the quarter or year to date. Boston Pizza closed 1 restaurant in the quarter and has now closed 2 restaurants year to date. BPI continues to focus on the safety of our guests and restaurant staff, serving our communities with takeout, delivery and on premise dining as permitted and helping our franchisees to effectively manage through the next phase of this pandemic. I'll now pass it over to Michael for a review of the Fund's financial performance. Michael? Thank you, Jordan. The Fund posted royalty income of $5,400,000 for the quarter $10,600,000 year to date compared to $4,300,000 $11,200,000 respectively for the same period as 1 year ago. The Fund posted distribution income of $1,800,000 for the quarter $3,500,000 year to date compared to $1,400,000 $3,700,000 respectively for the same periods 1 year ago. Royalty and distribution income for the quarter were based on 387 Boston Pizza Restaurants in the Royalty Pool I reported franchise sales of $134,800,000 for the quarter $263,800,000 year to date. The same period in 2020, royalty and distribution income were based on the royalty pool of 395 Boston Pizza Restaurants reporting Franchise sales of $107,100,000 $281,200,000 respectively. The Fund's net and comprehensive income was $7,700,000 for the period compared to $7,600,000 for the Q2 of 2020. The $100,000 increase in the fund's net and comprehensive income for the period compared to the same Q2 of 2020 was primarily due to higher royalty distribution income of $1,500,000 offset by higher interest expense on Class B units of 600,000 Higher interest expense on long term debt of $300,000 higher income tax expense of $300,000 plus a $100,000 decrease in fair value gain. The Fund's net and comprehensive income of $19,300,000 year to date compared to net and comprehensive loss of $9,300,000 year to date in 2020. The $28,700,000 increase in the fund's net and comprehensive income year to date compared to the same period in 2020 It was primarily due to a $30,100,000 increase in fair value gain and lower income tax expense of $200,000 partially offset By lower royalty and distribution income of $900,000 higher interest expense on long term debt of $500,000 and higher interest expense on Class B units of $400,000 While net and comprehensive income or loss is a measurement of the Fund's earnings under International Financial Reporting Standards or IFRS. The Fund is of the view that net income or loss does not provide the most meaningful measurement of the Fund's ability distributions because the calculation of net income contains non cash items that do not affect Assign's cash flow. Non cash items include the fair value adjustments on the investment in Boston Pizza Canada Limited Partnership, also include 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 Fund generated distributable cash of $4,000,000 for the period compared to negative $2,200,000 for the Q2 of 2020. The increase in distributable cash of $6,200,000 or 280.1 percent was primarily due to an increase in cash flow generated from operating $7,200,000 and lower SIF tax on units of $900,000 all partially offset by a contractually required debt repayment of $1,000,000 for which there is no comparable repayment in the Q2 of prior year, as well as increased entitlements For VPI's Class B Units of $500,000 an increase of interest paid on long term debt of $300,000 The Fund generated distributable cash of $7,700,000 year to date compared to $5,500,000 year to date in 2020. The increase in distributable cash of $2,200,000 or 40.9 percent was primarily due to an increase in cash flow generated from operating activities of 3,600,000 And lower SIF tax of units of $1,500,000 partially offset by contractually required debt repayments of $2,100,000 for which there are no comparable repayments in 20, an increase of interest paid on long term debt of $400,000 and an increase in the entitlement for BPI's Class B units of 300,000. The Fund generated distributable cash per unit of $0.187 For the period compared to negative $0.104 per unit for the Q2 of 2020. The increase in distributable cash $0.291 or 279.8 percent was primarily attributable to the increase And distributable cash outlined above. The Fund generated distributable cash per unit of $0.357 year to date compared to $0.253 Per unit year to date in 2020. The increase in distributable cash per unit of $0.104 or 41.1 percent This is primarily attributable to the increase in distributable cash outlined above and fewer units outstanding compared to the same period in 2020 The funds payout ratio for the period was 104.3% compared to 0% for the Q2 of 2020. The increase in the funds payout ratio for the period was due to distributions paid of $4,200,000 with no distributions paid during the Q2 of 2020 and distributable cash increasing by $6,200,000 or 280.1%. The funds payout ratio year to date was 165 1% compared to 126.8 percent year to date in 2020. The increase in the funds payout ratio year to date was due to distributions paid increasing by $5,800,000 or 83.4 percent, partially offset by distributable cash increasing of $2,200,000 or 40.9%. Payout ratio is calculated by dividing the amount of distributions paid during the applicable period by the distributable cash for that period. Accordingly, the payout ratio year to date factors in the $0.20 special distribution that was paid on January 29, 2021, Even though the cash generated to fund the special distribution was generated during 2020. If the special distribution was excluded In the calculation of payout ratio year to date, the payout ratio will be 109.1%. Funds payout ratio is Higher in the 1st and fourth quarters compared to the 2nd and third quarters every year since the Boston Pizza Restaurants generate Generally experience higher franchise sales during the summer months and restaurants open their patios and benefit from increased tourist traffic. On a trailing 12 month basis, the funds payout ratio was 91.2% as at June 30, 2021. The effects of COVID-nineteen may materially affect the Fund's payout ratio in the future. On August 12, 2021, the trustee The Fund approved a cash distribution to unitholders of $0.065 per unit in respect of the period from July 1, 2021 to July 31, 2021. This monthly distribution will be payable on August 31, 2021 to unitholders of record at the close of business on August 21, 2021. The trustees' objective in setting a monthly distribution amount is that it'd be sustainable. The trustees will continue to closely monitor the funds available cash Given the continued volatility and economic uncertainty caused by COVID-nineteen. While COVID-nineteen persists, the trustees expect the franchise sales and same Sales and the resulting royalty distribution income along with distributable cash available for distribution to unitholders With that, I will turn the call back to Jordan for more on the outlook. Jordan? Thank you, Michael. We continue to be pleased with the efforts of our team and our franchisees during these challenging times. In terms of our outlook, And our staff, our goal is to responsibly and safely operate the dining rooms, sports bars and patios of Boston Pizza Restaurants across Canada When permitted by applicable provincial health authorities, maximize the opportunity to grow our takeout and delivery business and adapt our plans to responsibly address the challenges and opportunities presented by COVID-nineteen. Looking forward, We remain cautious as we anticipate that COVID-nineteen will continue to have a negative and volatile impact on the business of Welcome to Boston Pizza Restaurants during the remainder of the year. However, we are encouraged by vaccination rates across Canada, The decline of COVID-nineteen case counts and positive sales momentum going into the latter half of this year. We are optimistic that same restaurant sales levels for the balance of 2021 will be favorable compared to the first half of twenty twenty one. With that, I'd like to begin the question and answer session. Operator? Thank you. Or send a question via e mail to investorrelationsbostonpizza.com. Please note those questions that we do not get to during the call The first question comes from Nick Corcoran from Acumen Capital Partners. Please go ahead. My first question is just due with the disclosure you provided on system sales in July And particularly compared to July 2019. And I guess my question is due, You said the system sales were flat with July 2019. Can you comment on whether the sales in the month were flat or they accelerated through the month? Yes, I can take that one, Nick. So, that's correct. So, just to recap for maybe a broader audience, what we've disclosed is Same restaurant sales for this July were approximately up 22% compared to 2020 and relatively flat Versus 2019 and the reason that we compare to 2019 is we feel that's just a very good pre COVID benchmark for everyone to understand In terms of how our business is tracking back to kind of a pre COVID level. So, yes, we were roughly flat for the month of July, which is the most And then within the month, same restaurant sales were And that's tracking more and more positive. And that really kind of lines up with the easing of the And the government restrictions on our restaurants throughout the month. Great. And then switching gears again. As consumers switch back to more normalized patterns of consumptions, are you still seeing Takeout and delivery is a significant portion of the overall sales? Yes, I can take that one as well. So just again, excuse me, for broader context, For everyone else, pre COVID takeout and delivery would comprise about 18% of our total sales. During the kind of most challenging parts of the pandemic, we doubled our takeout and delivery sales. And so, they Got up into the range of kind of 40% of what would have been kind of pre COVID sales. So, as The dine in operations have started to come back. We're not at that doubling level, but we're also not at That's kind of 18% pre COVID level. We're falling somewhere in between. So, it's nice for us to see that some degree of what we were able to We've established and build throughout COVID in terms of generating takeout and delivery sales. Some of that is continuing to help us going forward. Great. And then there's been a lot of news in the media about higher input costs and labor shortages. Can you maybe comment on what you're seeing within your network? Yes. Jarm, do you want that one? Yes. I can make some comments there. I mean, Certainly, the labor issue is real and I think it's broader than certainly Boston Pizza Restaurants. It's all over In manufacturing and in retail and certainly in the hospitality and restaurant area, we are finding it difficult to source staff. A year of Disruption didn't help, but we went into the pandemic already with a shortage of staff and it was a critical issue that we had been Investing in as an organization and as a network of franchisees for a long period of time to position ourselves as an employer that attracts People vote for the front of house rolls as well as for the heart of house or the kitchen. And we continue to put lots of effort Into that going forward right now to make sure that we have an average Boston Pizza restaurant would have Kind of 55 to 75 staff members depending on the mix of full time and part time. And we continue to make that a really big focus. We've already seen the effects of rising labor in 3 of the main provinces where we operate, Ontario, Alberta and British Columbia. So it's not as much about paying more. It's really about finding people and Making sure they go through the orientation training to be effective in their roles. And so that's definitely been a challenge in ramping back up, But we're putting lots of effort towards it. Other costs, we've certainly seen the COVID costs now for About a year and a half with sanitization and extra staffing for making sure that The restaurants can operate safely, whether that's in takeout delivery only or as we've reopened patios, bars and dining rooms. And then we have seen some effects of supply chain disruption impacting costs of Ingredients for our menu or equipment, and that's something that everyone is experiencing. It appears to be some of it short term as the disrupted manufacturing and agricultural and Shipping all of that is still undergoing a recovery of its own and that impacts associated costs. So we do have the opportunity to manage our pricing biannually. So we'll look Not that, but more than that, we want to continue to serve a broad range of Canadians and stay price competitive. So It is a balancing act, but we have the ability to make adjustments where necessary. So, there's some broad comments anyway, Nick, to talk That's helpful. And just the last question from me. I think you said 380 locations were open At quarter end and 7 were closed. Can you give an indication what's happening for 7 restaurants? Yes. So we have some locations that are in what I'd call kind of closed marketplaces. So a great example would be the Edmonton Airport. That's a location that is inside past security. And with the low number of Travelers and travel being restricted in a lot of cases, we haven't reopened that location yet. It is in the works. We also had a location Or have a location rather inside a very large sportsplex in Whitby, Ontario. And the SportsPlex has been closed and leaks have been suspended and so forth due to COVID protocols. So that's another example of kind of a closed Marketplace location that had remained closed due to the setting that they're in and that makes up the 7 That have remained closed. We have opened one of those, which is Clifton Hill in Ontario. Again, a marketplace that's driven by tourism, didn't make sense To have it open if all the hotels were empty, but now that it has tourism has rebounded We're starting to. Clifton Hill has reopened, so some of the examples of the temporary closures there. Great. That's all for me. Thanks again. Thanks, Dick. Thanks, Dick. Thank you. This concludes the question and answer session. I would like to turn the conference back over to Mr. Jordan Holm for any closing remarks. Great. Thank you, operator. And since there are no further questions, I want to thank everybody for taking the time to listen in. We look forward to safely welcoming back more of our guests into our restaurants. This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.