Mr. Paul Goddard reports

PIZZA PIZZA ROYALTY CORP. ANNOUNCES STRONG FIRST QUARTER 2023 RESULTS

Pizza Pizza Royalty Corp. has released financial results today for the three months ended March 31, 2023.

First quarter highlights:

• Same store sales increased 13.6 per cent;
• royalty pool sales increased 16.1 per cent;
• Adjusted earnings per share increased 16.2 per cent;
• Payout ratio was 104 per cent;
• Seven net new restaurants opened;
• Monthly cash dividend increased 3.6 per cent effective March;
• Royalty pool of restaurants for 2023 increased by 16 restaurants on Jan. 1, 2023.

"We are thrilled with the strong first quarter results, which reflect the hard work and dedication of our team. The 13.6-per-cent increase in same store sales growth and the opening of 10 new restaurants are clear indicators that our strategy continues to work well. We are committed to delivering value to our shareholders, as evidenced by our 3.6-per-cent dividend increase in March. We look forward to continuing this momentum throughout the rest of the year," said Paul Goddard, chief executive officer of Pizza Pizza.

Sales

For the three months ended March 31, 2023, system sales from the 743 restaurants in the royalty pool increased 16.1 per cent to $142.7-million from $122.9-million in the same quarter last year when there were 727 restaurants in the royalty pool. By brand, sales from the 644 Pizza Pizza restaurants in the royalty pool increased 18.0 per cent to $123.7-million for the quarter compared with $104.8-million in the same quarter last year. Sales from the 99 Pizza 73 restaurants increased 5.0 per cent to $19.1-million for the quarter compared with $18.1-million in the same quarter last year.

For the quarter, the increase in royalty pool system sales is primarily driven by the increase in same store sales, and the full reopening of the economy and all non-traditional locations reopening as compared with the prior-year period when many provinces were faced with varying forms of COVID-19-related restrictions. Additionally, while the number of restaurants in the Pizza 73 royalty pool remains less than 2019 when there were 104 restaurants, the negative impact on royalty pool system sales due to prior-year restaurant closures has been mitigated by the make-whole carryover amount.

Same store sales growth (SSSG)

SSSG, the key driver of yield growth for shareholders of the company, increased 13.6 per cent (2022 -- 13.6 per cent) for the quarter.

SSSG is driven by the change in the customer check and customer traffic, both of which are affected by changes in pricing and sales mix. During the quarter, the average customer check increased as the brands successfully passed along retail price increases largely related to commodity and labour increases. Both brands saw an increase in restaurant visits as sales rebounded from pandemic-related restrictions in the first quarter of last year, in which non-traditional venues were largely closed. Additionally, restaurant traffic increased due to strong value messaging and promotional brand activities.

Monthly dividend and working capital reserve

The company declared shareholder dividends of $5.2-million for the quarter, or 21.25 cents per share, compared with $4.7-million, or 19 cents per share, for the prior-year comparable quarter. The payout ratio is 104 per cent for the quarter and was 108 per cent in the prior-year comparable quarter.

As system sales have recovered, the monthly dividend was increased, and since April, 2020, the dividend has increased six times. During the quarter, after careful consideration and taking into account the strong SSSG and working capital reserve, the board of directors announced a 3.6-per-cent increase in the monthly dividend from seven cents to 7.25 cents per share, effective March, 2023. With the most recent dividend increase, the current dividend per share exceeds the pre-COVID rate.

The company's policy is to distribute all available cash in order to maximize returns to shareholders over time, after allowing for reasonable reserves. Despite seasonal variants inherent to the restaurant industry, the company's policy is to make equal dividend payments to shareholders on a monthly basis in order to smooth out income to shareholders.

The company's working capital reserve is $7.3-million at March 31, 2023, which is a decrease of $200,000 in the quarter due to the 104-per-cent payout ratio. System sales for the quarter ended March 31 have generally been the softest and historically result in a payout ratio over 100 per cent.

The reserve is available to stabilize dividends and finance other expenditures in the event of short- to medium-term variability in system sales and, thus, the company's royalty income. The company has historically targeted a payout ratio at or near 100 per cent on an annualized basis.

Credit facility

On June 28, 2019, the partnership amended and extended its $47-million credit facility with a syndicate of chartered banks from April, 2020, to April, 2025. The credit facility bears interest at the Canadian Bankers' Acceptance rate plus a credit spread between 0.875 per cent to 1.375 per cent, depending on the level of debt-to-earnings before interest, taxes, depreciation and amortization (EBITDA), with EBITDA defined as annualized earnings before interest, taxes, depreciation and amortization.

In April, 2020, the facility interest was at an effective interest rate of 2.685 per cent comprising a fixed rate of 1.81 per cent plus a credit spread of 0.875 per cent through to March 31, 2021. In April, 2021, the credit spread increased to 1.125 per cent, raising the combined interest rate to 2.935 per cent. In April, 2022, the credit spread decreased as the impact of COVID-19 lessened and earnings improved, causing the effective interest rate to decrease to 2.685 per cent.

Current income tax expense

Current income tax expense for the quarter increased to $1.6-million from $1.3-million. The increase for the quarter is a result of the increase in the company's earnings before income taxes from the increase in royalty income.

Earnings per share (EPS)

Fully diluted basic EPS increased 18.9 per cent to 22 cents for the quarter compared with the prior-year comparable quarter.

As compared with basic EPS, the company considers adjusted EPS to be a more meaningful indicator of the company's operating performance and, therefore, presents fully diluted, adjusted EPS. Adjusted EPS for the quarter increased 16.2 per cent to 22.3 cents when compared with the same period in 2022.

Restaurant development

As announced earlier this year, the number of restaurants in the company's royalty pool increased by 16 locations to 743 on the Jan. 1, 2023, adjustment date, and consists of 644 Pizza Pizza restaurants and 99 Pizza 73 restaurants. The number of restaurants in the royalty pool will remain unchanged through Dec. 31, 2023.

During the quarter, PPL opened two traditional Pizza Pizza restaurants in British Columbia and New Brunswick, and opened seven non-traditional Pizza Pizza restaurants. PPL closed two traditional and one non-traditional Pizza Pizza restaurant. At the Pizza 73 brand, PPL opened one traditional restaurant.

New restaurant construction continues across Canada as PPL executes on its national expansion plan. PPL management expects to grow its traditional network by 3 to 4 per cent in 2023; its franchisee pipeline remains strong and its renovation program will continues through 2023.

Readers should note that the number of restaurants added to the royalty pool each year may differ from the number of restaurant openings and closings reported by PPL on an annual basis as the periods for which they are reported differ slightly.

Selected financial highlights

The attached tables set out selected financial information and other data of Pizza Pizza Royalty Corp. and should be read in conjunction with the March 31, 2023, unaudited interim condensed consolidated financial statements of the company. Readers should note that the 2023 results are not directly comparable with the 2022 results due to there being 743 restaurants in the 2023 royalty pool compared with 727 restaurants in the 2022 royalty pool.

A copy of the company's unaudited interim condensed consolidated financial statements and related MD&A will be available at SEDAR and the Pizza Pizza website after the market closes on May 9, 2023.

As previously announced, the company will host a conference call to discuss the results. The details of the conference call are as follows:

Date:  Tuesday, May 9, 2023

Time:  5:30 p.m. ET

Call-in number:  416-764-8650/888-664-6383

Recording call-in number:  416-764-8677/888-390-0541, available until midnight, May 16, 2023

Conference ID:  268132

A recording of the call will also be available on the company's website.

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