Boston Pizza Royalties Income Fund (BPFUN) Earnings Call Transcript

Hello. This is the Chorus Call conference operator. Thank you for standing by. Welcome to Boston Pizza's Third Quarter Conference Call. The conference is being recorded on November 9, Boston Investor Relations -- at this time, I would like to turn the conference over to Michael Harvison, Chief Financial Officer. Please go ahead.

Thank you, and welcome to the call. Today, we'll discuss the 2026 third 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 third 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 out to our Investor Relations e-mail address at investorrelations@bostonpizza.com. The Fund is a limited purpose open-ended trust established under the laws of British Columbia. Its purpose is to acquire indirectly certain trademarks and trade names used by BPI in its Boston Pizza Restaurants in Canada. BPI pays royalty income 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 12, 2026, which was filed on sedarplus.ca. 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'll now turn the call over to Jordan. Jordan?

Thank you, Michael, and welcome, everyone, to Boston Pizza's Third Quarter Investor Conference Call. Today, I'll discuss our third quarter results and provide a brief outlook. Michael will summarize our key financial highlights. And as usual, we'll leave time for your questions at the end of today's call. This quarter marks Boston Pizza's eighth consecutive quarter of positive same-restaurant sales. These strong results demonstrate Boston Pizza's ability to maintain sustained momentum throughout the year by investing in promotions to amplify guest segment, guest engagement and through its continued involvement with the takeout delivery business. The Fund posted franchise sales from restaurants in the Royalty Pool of $257.5 million for the quarter and $752.4 million year-to-date, representing increases of 3.4% and 2.8%, respectively, versus the same periods 1 year ago. We're pleased to announce that these results set a record high for both quarterly and year-to-date franchise sales. Same-restaurant sales was 3.9% for the quarter and 3.1% year-to-date. Same-restaurant sales for the quarter and year-to-date was principally driven by continued momentum in the takeout and delivery business, promotional initiatives and increased restaurant traffic associated with the FIFA World Cup. From a marketing standpoint, in the third quarter of 2026, Boston Pizza kicked off the summer with the live and local initiative, during which restaurants hosted local artists to showcase their musical talents through live performances. We also welcomed the start of the football season with the launch of a feature menu containing new menu innovations ideal for game day gatherings and watch parties. Our popular Kids Cards promotion made its return in the third quarter as well with families receiving a card for 5 free kids meals in exchange for a $5 donation to the Boston Pizza Foundation. This promotion raises over $900,000 in total for local charities. Near the end of the quarter, the Kids Eat Free promotion further offered free kids meal per child with each qualifying purchase throughout the month of September, providing additional value for family diners. Turning to restaurant development. During the quarter, 1 new Boston Pizza restaurant opened, none permanently closed and 13 restaurants were renovated. Year-to-date, 1 new restaurant has opened, 4 restaurants are permanently closed and 34 restaurants have completed full renovations. We have more exciting initiatives in store for the fourth quarter designed to maintain our strong sales momentum through to the end of 2026. Before I discuss those, however, I'll turn the call back to Michael for a review of the Fund's financial performance. Michael?

Thank you, Jordan. The Fund posted royalty income of $10.3 million for the quarter and $30.1 million year-to-date compared to $10 million and $29.3 million, respectively, for the same periods 1 year ago. The Fund posted distribution income of $3.4 million for the quarter and $9.9 million year-to-date compared to $3.3 million and $9.6 million, respectively, for the same periods 1 year ago. The royalty income and distribution income for the quarter and year-to-date were based on 372 Boston Pizza Restaurants in the Royalty Pool that reported franchise sales of $257.5 million for the quarter and $752.4 million year-to-date. For the same periods in 2025, royalty income and distribution income were based on the Royalty Pool of 372 Boston Pizza Restaurants reporting franchise sales of $248.9 million and $731.9 million, respectively. The Fund's net and comprehensive income was $0.7 million for the quarter compared to $10.4 million for the third quarter of 2025. The $9.7 million decrease in the Fund's net and comprehensive income for the quarter compared to the third quarter of 2025 was primarily due to a $13 million increase in fair value loss and a $0.2 million increase in net interest expense, partially offset by a $3.1 million decrease in income tax expense and a $0.5 million increase in royalty income and distribution income. The Fund's net and comprehensive income was $18.8 million year-to-date compared to $31.1 million year-to-date in 2025. The $12.3 million decrease in the Fund's net and comprehensive income year-to-date compared to the same period in 2025 was primarily due to a $16.7 million increase in fair value loss and a $0.7 million increase in net interest expense, partially offset by a $3.9 million decrease in income tax expense and a $1.1 million increase in royalty income and distribution income. The fair value losses for the quarter and year-to-date primarily reflected the decline in the trading price of the Fund's units, which was consistent with broader declines in interest rate-sensitive securities. The Fund's cash flows generated from operating activities for the quarter was $10.7 million compared to $10.6 million in the third quarter of 2025. The increase of $0.1 million was primarily due to an increase in royalty income and distribution income of $0.5 million, partially offset by a decrease in changes in working capital of $0.3 million and nominally higher income taxes paid. Cash flows generated from operating activities year-to-date was $30.7 million compared to $29.8 million in the same period in 2025. The increase of $0.9 million was primarily due to an increase in royalty income and distribution income of $1.1 million, partially offset by an increase in income taxes paid of $0.2 million. While net and comprehensive income or loss and cash flows from operating activities are 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 do not provide the most meaningful measurement of ability to pay distributions. Net income contains noncash items that do not affect the Fund's cash flow, whereas cash flows from operating activities is not inclusive of all of the Fund's required cash outflows and therefore, is not indicative of the cash available for distribution to unitholders. Noncash items include the 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 distribution to unitholders. The Fund generated distributable cash of $8.4 million for the quarter compared to $8.5 million for the same period in 2025. The decrease in distributable cash of $0.1 million or 0.9% was primarily due to higher interest paid on debt of $0.2 million, partially offset by an increase in cash flows generated from operating activities of $0.1 million. The Fund generated distributable cash of $24.2 million year-to-date compared to $23.8 million for the same period in 2025. The increase in distributable cash of $0.4 million or 1.7% was primarily due to an increase in cash flows generating from operating activities of $0.9 million, partially offset by higher interest paid on debt of $0.4 million and higher Class B unit entitlement of $0.1 million. The Fund generated distributable cash per unit of $0.396 for the quarter and $1.137 year-to-date compared to $0.40 and $1.118, respectively, for the same periods in 2025. The decrease in distributable cash per unit of $0.04 or 0.9% for the quarter, an increase of $0.019 or 1.7% year-to-date was primarily due to the respective decrease and increase in distributable cash as outlined above. The Fund's payout ratio for the quarter was 93.8% compared to 88.8% in the third quarter of 2025. The increase in the Fund's payout ratio for the quarter was due to distributions paid increasing by $0.4 million or 4.8% and distributable cash decreasing by $0.1 million or 0.9%. Year-to-date, the Fund's payout ratio was 97.1% compared to 93.5% year-to-date in 2025. The increase in the Fund's payout ratio year-to-date was due to distributions paid increasing by $1.3 million or 5.6%, partially offset by distributable cash increasing by $0.4 million or 1.7%. On a trailing 12-month basis, the Fund's payout ratio was 104.5% as at September 30, 2026. This trailing 12-month payout ratio is greater than 100% because it includes a $0.11 per unit special distribution paid in December 2025, which was funded by cash generated throughout the full year of 2025. Excluding the special distribution, the trailing 12-month payout ratio would have been 97.2% -- on November 6, 2026, the trustees of the fund increased the monthly distribution rate to $0.126 per unit, starting with the distribution for the period of October 1, 2026, to October 31, 2026. The new monthly distribution rate represents an increase of $0.02 per unit or 1.6% from the previous monthly distribution rate of $0.124 per unit. On an annualized basis, the new distribution rate is equal to $1.512 per unit compared to $1.488 per unit for the previous rate. The October 2026 distribution will be paid on November 30, 2026, to unitholders of record on November 21, 2026. The trustees' objective in setting a monthly distribution amount is that it be sustainable. The trustees will continue to closely monitor the Fund's available cash balances given the fluctuating economic outlook. And with that, I'll turn the call back over to Jordan for more on the outlook. Jordan?