Boston Pizza Royalties Income Fund ($BPFUN)

Hello. This is the Chorus Call conference operator. Thank you for standing by. Welcome to Boston Pizza's First Quarter Conference Call. [Operator Instructions] The conference is being recorded on May 13, 2026. [Operator Instructions] Participants on the call may also post their questions via e-mail to Boston Pizza's Investor Relations department at [email protected]. [Operator Instructions] At this time, I would like to turn the conference over to Michael Harbinson, Chief Financial Officer. Please go ahead.

Very good, and thank you. Welcome to the call. Today, we'll be discussing the 2026 first quarter results for both Boston Pizza Royalties Income Fund, or The Fund, as well as Boston Pizza International, or BPI. For complete details on our financial results, please see our first 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 at the address of [email protected]. 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 revenue 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 will now turn the call over to Jordan. Jordan?

Thank you, Michael, and welcome, everyone, to Boston Pizza's first quarter investor conference call. Today, I'll be discussing our first quarter results for 2026, and I'll also share 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. Boston Pizza delivered strong franchise sales and same-restaurant sales results for the first quarter. Our promotional initiatives continue to captivate guests in 2026, driving guest enthusiasm and positive feedback across our restaurants nationwide. Our continued performance in spite of continued trade tensions and increasingly uncertain global backdrop demonstrates the resilience and strength of our business and the Boston Pizza brand. The Fund posted franchise sales from restaurants in the Royalty Pool of $238.4 million for the first quarter, representing an increase of 3.1% versus the same period 1 year ago. Same-restaurant sales was 3.1% for the first quarter and was principally due to increased guest traffic from sustained momentum in the takeout and delivery business and promotional initiatives. From a marketing perspective, we kicked off the first quarter with Boston Pizza's popular Pasta Tuesday all-month-long promotion throughout the month of January, where guests enjoyed pastas every day of the week starting at just $11.99 with gourmet pastas available for $15.99. To boost guest engagement even further, we partnered with Pepsi to give guests the chance to win exciting NFL prizes, which included a trip to a regular season football game. On Valentine's Day 2026, we celebrated one of Boston Pizza's most long-standing and beloved traditions through our heart-shaped pizzas. For every pizza sold on February 14, $1 was donated to support local charities across our communities. And with the support of our guests, this meaningful campaign raised approximately $650,000 for the Boston Pizza Foundation and local charities. In terms of restaurant development, no new restaurants opened during the first quarter and 2 restaurants closed, and 11 have undergone restaurant renovations during the first quarter. We have a collection of upcoming initiatives lined up for the second quarter of 2026 designed to boost sales and drive guest engagement. I'll continue -- I'll share the details with you shortly after we first hear from Michael about the Fund's financial performance. Michael?

Thank you, Jordan. The Fund posted royalty income of $9.5 million for the first quarter compared to $9.2 million for the same period 1 year ago. The Fund posted distribution income of $3.1 million for the first quarter compared to $3 million for the same period 1 year ago. Royalty income and distribution income for the first quarter were based on 372 Boston Pizza restaurants in the Royalty Pool that reported franchise sales of $238.4 million. For the same period in 2025, royalty income and distribution income were based on the Royalty Pool of, again, 372 Boston Pizza restaurants, reporting franchise sales of $231.1 million. The Fund's net and comprehensive income was $12.2 million for the first quarter compared to $6.3 million for the first quarter of 2025. The increase in the Fund's net and comprehensive income for the first quarter compared to the first quarter of 2025 was primarily due to a $7.4 million increase in fair value gain and a $0.4 million increase in royalty income and distribution income, partially offset by a $1.7 million increase in deferred income tax expense, a $0.2 million increase in net interest expense and a $0.1 million increase in current income tax expense. The Fund's cash flows generated from operating activities for the first quarter was $9.6 million compared to $9.3 million in the first quarter of 2025. The increase of $0.3 million was primarily due to an increase in royalty income and distribution income of $0.4 million, partially offset by an increase in income taxes paid of $0.1 million. While net and comprehensive income or loss and cash flows from operating activities are both measurements 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 the Fund's ability to pay cash 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 distributions 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 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 distributions to unitholders. The Fund generated distributable cash of $7.5 million for the first quarter compared to $7.3 million for the same period in the previous year. The increase in distributable cash of $0.2 million or 2.9% was primarily due to an increase in cash flows generated from operating activities of $0.3 million, partially offset by higher interest paid on debt of $0.1 million. The Fund generated distributable cash per unit of $0.354 for the first quarter compared to $0.344 for the same period in 2025. The increase in distributable cash per unit of $0.01 or 2.9% was primarily due to the increase in distributable cash discussed earlier. The Fund's payout ratio for the first quarter was 101.6% compared to 100.2% in the first quarter of 2025. The increase in the Fund's payout ratio was due to distributions paid increasing by $0.3 million or 4.3%, partially offset by distributable cash increasing by $0.2 million or 2.9%. The Fund's payout ratio fluctuates quarter-to-quarter depending on the amount of distributions paid during the quarter and the amount of distributable cash generated during that quarter. On a trailing 12-month basis, the Fund's payout ratio was 102.2% as at March 31, 2026. On April 2, 2026, the trustees of the Fund increased the monthly distribution rate to $0.124 per unit, starting with the distribution for the period of March 1, 2026 to March 31, 2026. The new monthly distribution rate represents an increase of $0.004 per unit or 3.3% from the previous monthly distribution rate of $0.12 per unit. On an annualized basis, the new distribution rate is equal to $1.488 per unit compared to $1.44 per unit for the previous rate. The March 2026 distribution was paid on April 30, 2026, to unitholders of record on April 21, 2026. On May 12, 2026, the trustees of the Fund approved a cash distribution for the period of April 1, 2026 to April 30, 2026, of $0.124 per unit, which will be paid on May 29, 2026, to unitholders of record at the close of business on May 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 uncertain economic outlook. And with that, I will turn the call back over to Jordan for more on the outlook. Jordan?

Thank you, Michael. Boston Pizza started the second quarter of 2026 with the launch of a playoff promotion to align with the start of the hockey and basketball playoffs. This campaign features several exciting new menu items, including the Philly Cheesesteak Pizza, the Most Valuable Platter and the Smokeshow Whiskey Caesar, supported by extensive national advertising as part of our Feast Like a Hockey God campaign. This promotion is designed to elevate Boston Pizza and the sports bar experience in particular, and allow guests to enjoy greater participation by calling upon the Hockey Gods, further maximizing guest enjoyment by summoning some playoff magic during the postseason. In June, we'll launch a series of promotional campaigns aligned with the upcoming World Cup of soccer, supporting franchisees in engaging their local communities and cheering on home athletes and those coming from international teams. We'll also be kicking off a summer promotion with a refreshing feature menu alongside another partnership with Live Nation Canada to offer guests a chance to win exciting concert prizes and to have more live music at Boston Pizza Restaurants across the country this summer. While our strong franchise sales in the first quarter highlight the underlying strength and resilience of our business, we will closely monitor the evolving trade landscape and broader geopolitical developments, including those that may impact our operations, such as the ongoing conflict in the Middle East. While the conflict has not yet resulted in material increases to input costs for our restaurants, any prolonged disruptions to global supply chains may result in increased costs in the future and dampen consumer discretionary spending. We'll remain focused on adapting our business as needed. Our priorities continue to be delivering exceptional guest experiences, supporting our franchisees and driving sustainable long-term growth through innovation and operational discipline. With that, I'd like to turn it back to the operator to begin the question-and-answer session. Operator?

[Operator Instructions] The first question comes from Nick Corcoran with Acumen Capital.

Just first question on the 2 stores that closed in the quarter. Any details on where those were?

They were both in Western Canada. We had one in the BC Lower Mainland and one in the Edmonton area.

And was that related to leases ending or any color on why those stores closed?

Yes. The one in Edmonton was anticipated for quite some time. It is a redevelopment site. And so we were waiting to hear from the landlord about their development plans. And so that led to the timing of the closure in Q1. The one in BC had a mix of issues in terms of the location. And it's not uncommon, as you know, for a restaurant group of our size to have locations that need to close permanently, either to relocate or to develop other territories. So we're confident that we can capture a good portion of the sales from those 2 closures in other areas, other Boston Pizza locations that are nearby. And we never like to see a Boston Pizza close, but it is part of the life cycle at times to let long-standing restaurants close the doors and look for new growth elsewhere.

Great. And then maybe can you talk about the pipeline for new stores and any stores that might be under construction now?

Yes, absolutely. We're excited to see a number of projects moving forward as the frost comes off in certain regions across the country. We've been talking about Revelstoke for a little while. It's a really growing four-season recreational community in British Columbia, has obviously great ski history up there, but increasingly four-seasons golf, mountain biking, great tourism and a growing local population as well. So we have started construction on a new location that we hope to open later this year in Revelstoke, BC. And we have another one in Western Ontario and Dryden. The Pas, Manitoba is another one that we have got the permits on and are starting construction now as the weather permits. And we've got a few more projects that will either open later this year or into 2027 and a wall full of pins in provincial maps across the country of sites that have been identified as underserviced, full-service market opportunities for new Boston Pizza locations to move in. So our franchising and development teams are actively building out those opportunities for the future.

That's good to hear. And how is the pipeline for renovations looking?

Really good. We love to see renovations, 11 in the first quarter of this year. Last year, as you know, we did 40 full restaurant renovations across the country in the calendar year 2025. And we really see just a profound impact to the guest experience before and after. It's not just the guest experience. I think the staff are really excited to see these things happen as well. There's a big investment in interior and exterior design and new fabrics. The AV package tends to get a lot of the attention because with the evolution of big screen TVs and sound systems and just the bells and whistles in that area, it tends to be a really profound part of the before and after in those 40 renovations that we did last year. We'll have a similar number, possibly even just a few more, just depending again on permitting and timelines and then the opportunity to close the restaurant for, call it, 7 to 10 days to complete a full renovation and then reopen.

Great. And maybe one last question for me. Any comment on how guest traffic has been in the second quarter, maybe focusing on April?

Yes. So we continue to be really encouraged by guest visitation. It is the major driver of our year-over-year sales growth and has been for the last 6 quarters. There is a little bit of menu pricing contributing as well, but we are very cautious in that area. We want to continue to be an affordable luxury for Canadians. We know it's a luxury to go out and eat in a restaurant, to be served and have someone else do the shopping and cooking and cleaning. It feels great when you get to do it. And if you can keep it at a compelling price point for people these days, they're out and active and want to come in or order in takeout and delivery from us. So we do feel good about visitation and the momentum in the first quarter. It was definitely the lion's share of the growth year-over-year, and we saw that continue into the start of the second quarter. And that's really our focus, whether it's the playoffs right now and really bringing people in to see the Montreal Canadiens or whether it's FIFA coming up around the corner. And then increasingly towards the summer, our patios, bringing more live music, local artists playing, just giving people reasons to make an event out of it and come out to Boston Pizza or order in. And so that's definitely our focus for the second half of the year, to really bring more people in, whether it's lunch or late night or, again, takeout and delivery as part of that. So feeling good about the momentum there.

There are no further questions. This concludes the question-and-answer session. I would like to turn the conference back over to Jordan Holm for any closing remarks. Please go ahead.

All right. Thank you, operator. And since there are no further questions, I want to thank everyone for joining us today. As a proud Canadian restaurant, we appreciate your continued interest and your support. We look forward to reconnecting with you during our second quarter conference call in August 2026. So thank you, everyone, and enjoy the rest of your day.

This brings to an end today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.