Boston Pizza Royalties Income Fund (OTC:BPZZF) Q4 2023 Earnings Call Transcript
February 14, 2024
11:30 AM ET
Company Participants:
– Michael Harbinson (CFO)
– Jordan Holm (CEO)
Conference Call Participants:
– Nick Corcoran (Acumen Capital)
Operator:
Hello. This is the Chorus Call conference operator. Thank you for standing by. Welcome to Boston Pizza’s Fourth Quarter Conference. At this time, all participants are in a listen-only mode. The conference is being recorded on February 14, 2024. [Operator Instructions]
Participants on the call may also post their questions via e-mail to Boston Pizza’s Investor Relations department at investorrelations@bostonpizza.com. [Operator Instructions]
At this time, I would like to turn the conference over to Michael Harbinson, Chief Financial Officer. Please go ahead.
Michael Harbinson:
Thank you, and welcome to the call. Today, we’ll be discussing the 2023 fourth quarter results for 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 fourth quarter materials filed earlier today on SEDAR plus 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 BPI in 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 13, 2024, which was filed on sedarplus.ca.
Before I turn the call over to Jordan Holm, President of BPI, I’d 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 turn the call over to Jordan.
Jordan Holm:
Thank you, Michael, and welcome, everyone, to Boston Pizza’s fourth quarter investor conference call. Today, I’ll be discussing our fourth quarter results and share a brief outlook. Michael will then summarize our key financial highlights. As usual, we’ll leave time for your questions at the end of today’s call.
We are pleased that our positive sales continued in the fourth quarter of 2023. Turning to our financial results. The Fund posted franchise sales from restaurants in the Royalty Pool of $227.7 million for the quarter and $925.7 million for the year, representing increases of 0.2% and 8.3%, respectively, versus the same periods 1 year ago. Same restaurant sales was up 0.6% for the quarter and 8.7% for the year. SRS for the quarter was principally due to an increase in average guest cheque due to menu pricing. SRS for the year was principally due to increases in restaurant guest traffic compared to 2022 and average guest cheque due to a combination of menu pricing and larger per guest ordering levels.
COVID-19 restrictions existed in most of the country during 2021, and the first quarter of 2022 and a part of the second quarter of 2022 that negatively impacted in-restaurant guest traffic. Those restrictions were largely eliminated during the second quarter of 2022.
From a marketing standpoint, we began the fourth quarter of 2023 with our Hockey Night in Canada partnership, which 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, we launched our 2023 holiday menu, which featured a selection of innovative items along with a promotion bonus card offer. Guests also received a free Ferrero Rocher 3-pack of chocolate with the purchase of any qualifying holiday menu item. We had the highest gift card sales in 2023 than we’ve had in any previous year, helped by a successful year-end holiday gift card promotion.
Turning to restaurant development. One restaurant opened, 4 restaurants were closed and 9 restaurants were renovated during the quarter. During the year, 1 restaurant opened, 6 restaurants were closed and 20 restaurants were renovated. The quarter saw the first opening of a new Boston Pizza restaurant since 2020. We have some exciting initiatives planned to drive sales in the first quarter of 2024, which I’ll speak about in a moment.
But first, I’ll turn the call back to Michael for a review of the Fund’s financial performance.
Michael Harbinson:
Thank you, Jordan. The Fund posted royalty income of $9.1 million for the quarter and $37 million for the year compared to $9.1 million and $34.2 million, respectively, for the same periods 1 year ago. The Fund posted distribution income of $3 million for the quarter and $12.2 million for the year compared to $3 million and $11.3 million for the same periods 1 year ago.
Royalty and distribution income for the quarter and the year were based on 377 Boston Pizza restaurants in the Royalty Pool that reported franchise sales of $227.7 million for the quarter and $925.7 million for the year. For the same periods in 2022, royalty and distribution income were based on the Royalty Pool of 383 Boston Pizza restaurants, reporting franchise sales of $227.2 million for the fourth quarter and $855 million in 2022.
The Fund’s net and comprehensive income was $5.2 million for the quarter and $29.6 million for the year compared to $6.2 million and $30.6 million for the same periods in 2022. The $1.2 million decrease in the Fund’s net and comprehensive income for the quarter compared to the fourth quarter of 2022 was primarily due to a $1.2 million increase in fair value loss and a $0.2 million increase in income tax expense for the quarter, partially offset by a $0.2 million decrease in interest expense on Class B unit liability. The $1 million decrease in the net and comprehensive income for the year compared to the same period in 2022 was primarily due to a $3.5 million increase in fair value loss and $1.3 million increase in income tax expense for the period, partially offset by a $3.7 million increase in royalty and distribution income.
The Fund’s cash flows generated from operating activities were $9.3 million for the quarter and $37.9 million for the year compared to $8.9 million and $34.4 million for the same periods in 2022. The increase of $0.4 million for the quarter was primarily due to an increase in changes in working capital of $0.2 million and a decrease in income and taxes paid of $0.2 million. The increase of $3.5 million for the year was primarily due to an increase in royalty and distribution income of $3.7 million and an increase in changes in working capital of $0.8 million, all partially offset by an increase in income taxes paid of $1.1 million.
While net and comprehensive income or loss and cash flows from operating activities or both measures under IFRS Accounting Standards, or IFRS, the Fund is of the view that net income or loss and cash flows from operating activities, both 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, is not indicative of cash available for distribution to unitholders. Noncash 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 the Fund’s opinion, more meaningful information regarding the Fund’s ability to pay distributions to unitholders. The Fund generated distributable cash of $7.4 million for the quarter and $30.7 million for the year compared to $7.2 million and $25.6 million, respectively, for the same periods in 2022. The increase in distributable cash of $0.2 million or 1.8% in the quarter was primarily due to increased cash flows generated…
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