Ladies and gentlemen, welcome to the 2026 annual meeting of Pizza Pizza Royalty Corp. Please note that this meeting is being recorded. I would like to introduce Neil Lester, Chair of the Board of Directors of Pizza Pizza Royalty Corp. Mr. Lester, the floor is yours.
Good morning, everyone, and welcome. I'll be acting as Chair of today's meeting. With me on this virtual call are Paul Goddard, the President and CEO of Pizza Pizza Limited, and Christine D'Sylva, CFO of Pizza Pizza Limited. We want to thank you for joining us on this virtual platform. Instructions on how to ask questions and the voting procedure will appear on your screens. Please note, though, only duly appointed proxy holders and shareholders are able to ask questions and vote. As investors, you're aware the company owns and licenses the Pizza Pizza and Pizza 73 rights and marks through two license and royalty agreements with Pizza Pizza Limited. The company receives monthly royalty revenue based on the sales from the restaurants and the royalty pool.
In 2021, the company entered into a third license agreement with Pizza Pizza Limited for the use of the Pizza Pizza rights and marks in Mexico. The first four restaurants have now opened, and although we do not expect any material royalties from this arrangement in the near term, we're excited to see the future growth that awaits us. A key attribute of the company is that its revenue is based on top-line system sales of the royalty pool of restaurants and not on the profitability of either Pizza Pizza Limited or the restaurants in the royalty pool. Increases in system sales are derived from both the development of new Pizza Pizza and Pizza 73 restaurants and same-store sales growth. Same-store sales growth is the key metric for shareholder yield growth.
With the consent of the meeting, I will ask TSX Trust Company, through its representatives, to act as scrutineers of the meeting. The secretary has a confirmation that the notice calling this annual meeting was mailed to shareholders in accordance with the company's bylaws and applicable securities regulations. With the consent of the meeting, the reading of the notice of the meeting will be dispensed with, and I'll ask the secretary to append the confirmation of mailing to the minutes of this meeting as a schedule. The scrutineer has provided a preliminary report on attendance, and I'll now ask the secretary to read the report.
The scrutineer's report reads as follows. Preliminary report on attendance. We are pleased to report that there are 36 shareholders holding 5,354,713 common shares represented in person or by proxy at this meeting. This represents 21.75% of the 24,618,392 issued and outstanding shares. Dated this 9th of June 2026, signed by the TSX Trust Company.
Thank you. I'll adopt the scrutineer's report and declare accordingly that a quorum is present. As there is a quorum present and as adequate notice of this meeting has been given, I now declare that the meeting is regularly called and properly constituted for the transaction of business. We'll first deal with the formal business to fulfill the legal requirements of the meeting. After that, Mr. Goddard will present a business update. If you've logged in as a registered holder or duly appointed proxy holder, you can submit questions at any time during the meeting by clicking the Ask a Question button. If there are any questions, the secretary will take note, and the company will contact you with a response after the meeting. I've been advised that we have guests at the meeting.
I welcome all guests but remind them that they do not have the legal right to vote on any motion and are not entitled to ask questions. However, if you do have questions, please contact us after the meeting. We'll conduct today's votes by a single electronic ballot. If you have already voted in advance by proxy, you do not need to do anything when balloting is open, unless you wish to change your previously submitted vote. Voting can only be done through our virtual meeting platform. We note that the proxies received to date indicate that the company has sufficient votes to pass all matters in accordance with the recommendations of management. The online voting polls are now open and will remain open as we proceed.
The financial statements of the company for the year ended December 31st, 2025, and the report of the auditors thereon were mailed to the shareholders prior to this meeting. I would invite you to raise any questions concerning the financial statements in the questions section of the platform. The next item of business before the meeting relates to the appointment of auditors of the company. I will now ask for someone to move a motion that KPMG LLP Chartered Accountants be appointed as auditors for the company for the ensuing year, and that the directors be authorized to fix the remuneration to be paid to the auditors. Who will move the motion?
moved.
Who will second the motion?
I second the motion.
Is there any discussion on the motion? There is no discussion, I now call for a vote on the motion before the meeting. Would all voting shareholders please enter your votes? It is now in order to proceed with the nomination and election of directors. The number of independent directors of the company has been fixed at five for the coming year. This meeting is now open for nominations for election as a director for the ensuing year. I will now ask the secretary to read the names of the persons nominated as directors as listed in the company's information circular.
The names of the persons nominated as directors of the company for the ensuing year are Neil Lester, George Michel, Edward Nash, Michelle Savoy, and Anne-Marie Thomas.
Since the number of nominees is the same as the number of vacancies to be filled, I now ask for someone to move a motion that the persons nominated for election as directors be elected as directors of the company to hold office until the next annual general meeting. Who will move the motion?
Moved.
Who will second the motion?
I second the motion.
Is there any discussion on this motion? As there's no discussion, I now call for a vote on the motion before the meeting. Would all voting shareholders please enter your votes. Proxies representing the shares were submitted in advance of the meeting. We will report the specific voting results when we receive the scrutineer's formal report, but the preliminary count shows a majority support for each resolution. Voting is now closed. Based on the preliminary report of the scrutineers, proxies were received from a sufficient number of shares relative to the votes cast at the meeting, such that I declare that all the resolutions have been carried as follows. I declare that the motion on the appointment of the corporation's auditors has passed, and I declare each of the five nominees to the board of directors elected.
I hereby direct that a copy of the scrutineer's final voting results be appended to the minutes of the meeting. That concludes our formal business. I wish to thank you for attending, I now declare the formal part of the meeting to be terminated. I would now like to call upon the Chief Executive Officer of Pizza Pizza Limited to review the business of the company and Pizza Pizza Limited. As a cautionary note, the presentation may contain forward-looking statements. Investors should be aware that any forward-looking statements are subject to risks and uncertainties that could cause actual results, performance, or achievements of the company and Pizza Pizza Limited to differ materially from those disclosed here today.
We are also adopting the cautionary language regarding forward-looking statements that is set out in the company's annual information form, to which we refer you for additional details concerning the risks, uncertainties, and assumptions relating to our forward-looking statements. With that, I am pleased to introduce Mr. Paul Goddard, President and CEO of Pizza Pizza.
Thank you, Neil. Good morning, everyone. Welcome to our annual general meeting. To kick things off, I will say that 2025 was not without its challenges, but despite a difficult industry-wide backdrop, we achieved growth in our restaurant network and overall positive sales growth. I'm eager to share our business and financial update with you today. Before I discuss our financial results, I wanted to quickly review the corporate structure and key pieces of shareholder information for any new shareholders or guests here today. Through its ownership of the Pizza Pizza Royalty Limited Partnership, Pizza Pizza Royalty Corp, or PPRC, owns the Pizza Pizza and Pizza 73 trademarks and brand names, along with a number of other trademarks and brand names as well.
Back in 2005, following our initial public offering, the brands were licensed to Pizza Pizza Limited, the private operating company, in exchange for a royalty equal to 6% on the sales of Pizza Pizza restaurants and 9% royalty on the sales of Pizza 73 restaurants. To briefly explain the royalty stream, as you see here, the company, and by that, I specifically mean Pizza Pizza Royalty Corp, or PPRC, receives royalty and interest income and pays administrative expenses, interest on its credit facility, and taxes. As a reminder, the company has no employees nor capital expenditures, so after the basic expenses I just mentioned, all remaining cash is available for distribution to shareholders. The company as a top-line royalty corp is insulated from the operating results of the private company, Pizza Pizza Limited, and its restaurants.
The success of Pizza Pizza Royalty Corp is driven by the operating company's ability, that is Pizza Pizza Limited's ability, to grow sales through same-store sales growth and new store openings. We also want to provide you a brief overview of some key pieces of important shareholder information. As of today, Pizza Pizza Royalty Corp is trading under the TSX ticker PZA.TO, has 24.6 million shares issued and outstanding, or on a fully diluted basis, 33.8 million shares. This fully diluted figure includes Pizza Pizza Limited's 9.2 million equivalent shares. Pizza Pizza Limited's ownership represents 27.2% or over a quarter of the fully diluted shares of PPRC. Of course, this clearly demonstrates year after year that PPL has a lot of skin in the game and has always been closely aligned with the interests of PPRC and its public shareholder base.
The PZA shares of PPRC pay a monthly dividend of CAD 0.0675 per share or CAD 0.81 per year, providing a yield of roughly 6%-7%. As of today, with PZA trading around CAD 12.70 a share, the dividend yield is approximately 6.4%. Let's turn now to PZA and our share performance. As you can see here, it's generally a positive story going way back, but we are seeing pressure in the last three months. As our business built on its history of consistent sales growth, we utilized that momentum and increased our dividend eight times in the last six years. The history of sales growth and dividend increases over the last four years culminated in a five-year high share price, which is more than double where it was in the depths of COVID. Days we all want to forget.
However, due to continuing pressure on consumer discretionary spending, softening demand, a highly competitive promotional environment, sales growth has experienced a decline, and this led to a reduction in the company's royalty income. The use of the company's cash reserves over the past two years was a trend that could not be sustained indefinitely, the board made a decision in May 2026 to adjust the dividend. Specifically, that's down CAD 0.01 from CAD 0.0775 to CAD 0.0675 per month or just under 13%, to better align with the current royalty income levels. The decline in sales growth in the first quarter of 2026 and the subsequent dividend reduction has impacted the PZA share trading price as you'd expect. If we step back for a second, you might ask, what has driven our long-term share performance? The answer is sales growth.
That's the key driver of growth. Our 2025 results reflect the continuing challenging economic environment we operate in. With softer same-store sales, our overall royalty pool sales for 2025 were slightly higher than prior year at CAD 636 million. This resulted in $40.8 million of royalty income, the company paid out annual dividends of $ 0.93 per share, leaving the company with a working capital reserve of $3.7 million. While our sales results were weaker than we hoped for, we did successfully open an additional net 20 new restaurants, which we're happy about. Yet the overall macroeconomic conditions remain challenging through the first quarter of 2026. The year began with the annual adjustment to the royalty pool, an increase of 20 net new restaurants, as I said.
Negative same-store sales growth in a highly competitive and challenging economic environment, we ended the quarter with $ 2.3 million in working capital reserve. As a reminder, the first quarter is generally our softest quarter in terms of system sales and why we often see a greater than 100% payout ratio in Q1. On an annualized basis, we do target a 100% payout ratio. Looking here at our dividend growth, driving our payout ratio is our dividend, you can see our strong track record here going way back all the way up to 2011 there. In the last four years, we have increased the monthly dividend eight times, as I said.
However, in May 2026, due to the continuing pressure on sales growth and use of the company's cash reserves over the past two years, as I mentioned earlier, the board made a decision to proactively adjust that dividend to better align with current royalty income levels. The dividends have been funded by operations and our working capital balance. Our working capital balance is available to support our dividends when there's short to medium-term sales variability. Speaking of working capital, PPRC has a working capital balance of CAD 2.3 million as of March 31, 2026, as displayed on the graph, which charts the movement in same-store sales growth in relation to our working capital. As you can see, for the last two years, the company funded the dividends through its working capital balance.
The use of the working capital and the pressure on same-store sales growth resulted in the decrease in the monthly dividend effective in May. The board always closely monitors sales working capital levels to determine whether any upward or downward dividend adjustments are appropriate. With that overview of PPRC, the royalty corp structure, and the flow of funds, I'd now like to provide a business update for Pizza Pizza Limited, the private operating company. As a reminder, Pizza Pizza Limited is the private operating company, not public, and the success of the royalty corp depends on the operating company's ability to maintain and increase restaurant system sales, both through new restaurant openings and increases in same-store sales.
We are truly proud of our long-standing reputation as a real innovation leader in our industry in terms of our food, our marketing, and our technology, evidenced through our wide array of digital ordering options, new product launches, and many industry-leading marketing awards and recognitions. Additionally, our strong management team has developed a proven franchise business model, which we will continue to leverage and scale as we execute on our national and now international expansion program. In fact, our construction pace over the last three years or so has never been stronger. Very proud of our entire team, and that includes not only our corporate employees, but our owner-operators, that being our franchisees and our joint venture partners out in Alberta, and our restaurants. We really do just think of ourselves as one big team.
As PPL continually reinvests in all aspects of our business, so too do our restaurant operators, who likewise see the benefits of reinvesting in their restaurants on an ongoing basis to ensure they provide our customers with a modernized setting to enjoy our hot and fresh menu offerings. For our newer investors, I wanted to highlight our three key brands. Pizza Pizza, which operates across the entire country, is our main brand, while Pizza 73, our sister brand that was acquired in 2007, operates primarily in Alberta. Lastly, our newest sister brand, PZA Pizzeria, a gourmet-oriented express brand, is our new international expansion brand. Within our primary two Canadian brands, we have both traditional and non-traditional locations. Our traditional restaurants comprise roughly 90% of our business in terms of sales and offer a full menu with customer seating, takeout, and delivery.
These restaurants are usually located in high-traffic areas that are easily accessible. Meanwhile, our non-traditional restaurants comprise the remaining 10% of our business sales-wise and are typically located in sports entertainment venues. In the last few years, we began to roll out more non-traditional locations in colleges, hospitals, as well as other high-traffic sites such as high-traffic gas stations, some chain convenience stores selectively, and especially in cities or towns where we do not have a traditional restaurant presence. Some of these non-traditional restaurants offer both pickup and delivery as well, so they act as a great bridge between a full-size traditional restaurant and a smaller restaurant with limited offerings. Currently in Mexico, we have four traditional restaurants and are soon to open our fifth restaurant there.
It is still early days, but we do plan to continue to scale up PZA Pizzeria based on our success to date in Mexico. We also see opportunities to open more non-traditional sites as time goes on, both internationally and also within Canada. In fact, we already have five PZA Pizzeria non-traditional locations in Canada operating in some colleges and also at Canada's Wonderland, where we also have multiple successful Pizza Pizza restaurants. We remain focused on growing our business right across Canada, and we are known and respected as a major homegrown national brand and the leading pizza chain in the country. We've continued our focus on our national restaurant expansion program, taking us coast to coast with growth in markets from Newfoundland right out to B.C. From a restaurant growth perspective, I'm pleased to share we started the year stronger than the prior five years.
In the first three months of 2026, our new traditional restaurants spanned the country with openings in B.C., Manitoba, Ontario, Quebec, and two in Newfoundland. Having the ability to interact with our customers through our expansive restaurant footprint across Canada, whether it's through our wide delivery network or in-store, ensures that we are able to reach customers in all metropolitan areas across Canada. In fact, our restaurant locations are within a 10-minute drive of 60% of Canadian households. At the end of 2025, we had 815 restaurants in our Canadian network, with 587 being traditional Pizza Pizza and Pizza 73 restaurants, the most in company history. We have almost 50% more sites than we had at the time of our IPO in 2005. During 2025, Pizza Pizza opened 12 traditional restaurants and 20 non-traditional Pizza Pizza locations and opened five traditional Pizza 73 restaurants.
The new restaurants were opened across most provinces Pizza Pizza operates in, including B.C., Quebec, Ontario, Alberta, Manitoba, and Atlantic Canada. During the year, three traditional and 11 non-traditional Pizza Pizza restaurants closed, and five traditional Pizza 73 restaurants closed permanently. Notably, four of the five Pizza 73 closures involved territory transfers to nearby locations, minimizing any impact on overall sales. We are proud of our accelerated unit growth last year and expect to maintain this pace with projected unit growth of 2% or so in our traditional restaurants in 2026, with continued focus in Quebec, British Columbia, and Atlantic Canada, while also further penetrating our largest two markets, Ontario and Alberta. However, we continue to take a very disciplined approach, carefully selecting locations and formats to ensure long-term profitability, particularly in the context of rising costs.
As you may recall, in November 2021, we entered into an international franchise agreement with partners based in Mexico to expand our footprint internationally for the first time. In 2023, we opened our first restaurants. We are happy with the growth of the first four stores they're achieving, and we're excited about the long-term potential of this high-growth, high pizza-consuming market. We will see more sites built in Mexico and are encouraged by our early success there. Mexicans are clearly loving our delicious pizza and other menu items such as chicken and fries. In fact, since the successful launch of our restaurants in Mexico, we've been approached by multiple potential partners regarding further international expansion.
Our customers recognize our strong value proposition and convenience, and our innovative marketing activities and partnerships continue to be recognized as industry best in class and are always well-received by Canadians, driving visibility and incremental sales. I wanted to quickly highlight a few points about our brand strength and activations. In terms of building our brands, Pizza Pizza Limited is unique in that our exceptional in-house marketing team manages a spend that is approaching $30 million annually and funded entirely by our restaurants. In 2025, we continued to own key days, occasions. We also like to be at the forefront of current trending topics. We took it a step further with a timely and actionable reverse tariff promotion, providing Canadians with memorable advertising and true financial savings in the form of a 25% discount.
In addition to ongoing media executions highlighting our brand, value, convenience, and menu innovations through billboards and social media, we integrated our campaign messaging into key sports partnerships. Our well-known and loved Score a Slice and Score a Pie promotions at our partner arenas across the country are well established. In the first quarter of 2026, we leveraged our sponsorships with the Principe Recipe at Pizza 73, product endorsement with the legendary Gene Principe. Our partnership with the Blue Jays superstar Vladimir Guerrero Jr. literally and figuratively hit it out of the park in the fourth quarter of 2025. The campaign featured our double XL 18-inch three-topping pizza at a value price point of CAD 19.99, giving Canadians across the country a large, shareable and affordable pizza to enjoy during the games. This promotion exemplified how we effectively leverage brand partnerships while reinforcing our value propositions.
At Pizza Pizza, our in-house research and development team is always looking to introduce new, high-quality menu additions based on relevant consumer trends. We have always been an early adopter, and we were the first to introduce a Cauliflower Crust and a Keto Crust. Continuously refreshing the pizza category with new crusts, recipes, and toppings brings new life to our pizza menu and represents the investments we continuously make in our food quality. We are also known for our non-pizza food innovations, such as our range of poutines, unique chicken offerings, and famous dipping sauces. In addition, as shown in these few quick examples you see here, we are continuously looking at items that complement our core pizza offerings, such as our 2 for $5 Pre-Rolls, new innovations with our Stuffed Crust offerings, the fun Volcano Dipper Pizza, and our new chicken tender offerings at both brands.
Even with that level of quality and innovation, we maintain our value to customers. We know that customers are very value-conscious, particularly at this time, given food inflation and the challenging macroeconomic environment. We have to find the right balance of perceived value for money. In achieving this, we promote key specials and introduce new products at price points that attract customers. Many of our marketing messages are centered around our always-on value offerings that resonate with consumers, including our double XL pizza, our Plenty for $20 offer, and our $5 slice and drink offer, in addition to our always-on walk-in and pickup specials. Supporting our top-line sales is a robust network of infrastructure. Over the years, we have built and invested in our platforms and our company for the future. The largest single investment we have made has been in our digital ordering platforms.
Going right back to circa 2009, Pizza Pizza clearly saw how critical it would be to develop an industry-leading iPhone app and website and invest in our end-to-end digital platforms. No other pizza player in Canada has more digital channels for hungry customers to choose from, so no one is more convenient or able to capitalize on this digital e-commerce momentum in the pizza quick service sector. Our continuous IT investment and strategy showed their value during the pandemic and post-pandemic periods as our online ordering platforms performed exceedingly well, having been active for years, while others in the industry struggled to develop their own as quickly as possible.
We also developed contactless ordering and pre-tipping features within our app very quickly, our website, within mere days of the pandemic starting, which showed our team's capability and agility as well, and we continue to be extremely fast when it comes to putting in new changes and enhancements to our system. Most recently, we launched a similarly new website and app at Pizza 73, allowing our customers to have an even smoother, faster, more enjoyable ordering experience. In 2026, we are working on a new website and loyalty program, newly enhanced for Pizza Pizza. Stay tuned there. Customer delivery and pickup orders transacted through our array of digital ordering platforms account for approximately two-thirds of all orders, and this percentage will only continue to increase, benefiting our customers, our company, and our franchisees.
Additionally, we invested in AI infrastructure heavily with partners such as Google and others that provide, for instance, in one case, intelligent delivery order tracking within our app with a slick live mapping interface for our customers so they can see where their delivery person is on a map as they approach their location. Of course, we'll meet our famous delivery time guarantee of 40 minutes or free. Our customers right across Canada love how they can so easily track exactly where their delivery driver is, follow them along their route, and have the additional comfort of having a uniformed Pizza Pizza delivery person bringing in their hot and fresh pizza order. Meanwhile, other pizza players rely solely on third-party aggregators to provide this type of functionality and detailed visual tracking.
Over the last three years, we have seen a shift in customer behavior, with customers moving increasingly to pick-up orders. With 800-plus locations across Canada, we are ideally positioned to capture all audiences, especially those looking to save on delivery, tip, and other surcharges that many companies charge. Our in-store pickup channel has grown steadily over the last four years and is at the highest sales level it has ever been at. When customers visit our restaurants, they also see and appreciate our renovated, refreshed new look as well, and we believe that that ambiance and overall experience is a cut above the competition and really speaks to our emphasis on quality and continuous evolution as a brand. We're proud to say that over 95% of our restaurants feature our hot and fresh new look.
As you can see here's a quick look at some of our store interiors, we're committed to ensuring the store experience is one that keeps customers coming back when coupled with our extensive menu, industry-leading apps and website, and our friendly in-store team who are there to deliver on our vision of all the best food made especially for you. We're very proud of our franchise system, and we work as one team right alongside our franchise, as I said earlier. For the past 13 consecutive years, the Canadian Franchise Association has awarded Pizza Pizza the Franchisees' Choice Designation, a huge vote of confidence from our restaurant operators. This franchise relationship is absolutely key to our record of strong growth and also our future growth.
In 2023, we were named the Champion for Diversity and Inclusion by the Canadian Franchise Association and Brand of the Year by Strategy Magazine. In the last three years, we were recognized as one of Canada's most admired corporate cultures and one of Canada's certified great places to work, a true testament to the commitment, impact, and passion of our team. In April 2025, and again in April 2026, we were ranked the number one franchise in Canada by Elite Franchise Awards. That's two consecutive years. Another award we're extremely proud of that speaks for itself. We also have a long track record of community involvement, including all levels of sports sponsorships and our well-known Slices for Smiles foundation, which donates to children's hospitals right across the country, as well as Pride parades right across Canada, and countless live entertainment venues.
We're particularly proud of our pioneering sponsorship with the PWHL in 2024 as part of our strategy to connect with sports fans right across the country. On the sustainability front, as you know, we've always been a leader on the environmental and sustainability front. However, recently we've been challenging ourselves to do even more. For example, our boxes are made with recycled content, and our head office has a rooftop with solar panels. We have wind turbines on site to generate additional clean energy. We also utilize a passive solar gain wall that automatically provides us with about 60% of our heating needs for free in the wintertime, which translates into reduced natural gas usage in a material way. Being active in our communities is an important ingredient of our corporate strategy.
Annually, we have our Slices for Smiles fundraising campaign supporting children's hospitals right across the country, as I mentioned. We also participate in countless fundraising initiatives focusing on our customers and their communities by supporting events and sponsoring local organizations, be it a soccer league or a local fundraiser at a school. We've also partnered with Too Good To Go to help us reduce food waste and feed our communities and continue to be a strong community partner to Second Harvest. With that brief business overview and understanding of our business operations, I'd like to quickly summarize the key advantages of being a PZA shareholder. As a top-line Royalty Corp, the company's royalty structure reduces risk to the bottom line by eliminating exposure to restaurant operations.
The company is also a high-yield dividend Corp., currently yielding between 6%-7% and holds working capital reserve of $2.3 million to support this dividend. With almost 60 years of experience in the quick-service industry since 1967, the operating company has a strong history of increasing sales, and our brands hold market-leading positions with exceptional brand recognition, and we know how to weather storms. We've certainly seen many over the years. Lastly, as the company's largest shareholder, the operating company, Pizza Pizza Limited, has its interests aligned with the public shareholders, ensuring that every pizza created doesn't just add value to the customer but also to the shareholder. We are proud of what we've built and continue to be ambitious about our future growth as one of Canada's leading homegrown brands. Thank you for listening today.
We truly appreciate it. I'd now like to hand things back over to Neil Lester, Chair of PPRC.
Thanks very much, Paul. As previously stated, if you have asked a question, the secretary will be taking note and responding to you directly after the meeting. That concludes the agenda for the meeting. Thank you for your attendance today.
Thank you for attending today's meeting. You may now disconnect.