A&W REVENUE ROYALTIES INCOME FUND ANNOUNCES STRONG FIRST QUARTER 2023 RESULTS

TRADING SYMBOL:  TSX: AW.UN   

VANCOUVER, BC, May 2, 2023 /CNW/ - 

• Royalty income increased by 8.1% in Q1 2023 as compared to Q1 2022.
• Royalty Pool Same Store Sales Growth⁽ⁱ⁾ was +6.1% for Q1 2023 as compared to Q1 2022.

FIRST QUARTER 2023 RESULTS
A&W Revenue Royalties Income Fund (the "Fund") and A&W Food Services of Canada Inc. ("A&W Food Services") today reported the Fund's results for the first quarter ended March 26, 2023 which will be filed on SEDAR at www.sedar.com on May 5, 2023. The Fund will hold a conference call to discuss the results on Wednesday, May 3, 2023 at 1:00 p.m. Pacific Time (4:00 p.m. Eastern Time).

The call will be webcast live and may be accessed at https://events.q4inc.com/attendee/645967986. Participants who wish to ask questions or are unable to join via webcast may dial-in by calling toll-free 1-888-886-7786 or 1-416-764-8658 and by using the conference ID 97827278 or quoting "A&W Revenue Royalties" when prompted by the operator. For those unable to participate in the live call, a replay will be made available for one year at https://events.q4inc.com/attendee/645967986.

"A&W is pleased to report strong results for the first quarter of 2023, with our Royalty Pool Same Store Sales Growth⁽ⁱ⁾ coming in at +6.1%", said Susan Senecal, President and CEO of A&W Food Services. "We believe our mission "To become #1 with millennial burger lovers, chosen and trusted for truly good food and the convenience they crave" will help us continue to grow successfully and win the loyalty of our guests".

Royalty income for the first quarter of 2023 was $11,439,000 based on Gross sales reported by restaurants in the Royalty Pool⁽ⁱ⁾ of $381,298,000, compared to royalty income of $10,578,000 and Gross sales reported by A&W restaurants in the Royalty Pool⁽ⁱ⁾ of $352,614,000 for the first quarter of 2022.  

The increase in royalty income for the quarter is driven by Royalty Pool Same Store Sales Growth⁽ⁱ⁾, which was +6.1% for the quarter, and the gross sales from the 22 net new restaurants added to the Royalty Pool on January 5, 2023. The increase was partially offset by there being one less day in the first quarter of 2023 as compared to the first quarter of 2022. Royalty Pool Same Store Sales Growth is based on an equal number of days in the quarter and year.

Royalty Pool Same Store Sales Growth⁽ⁱ⁾ for the first quarter of 2023 was +6.1% as compared to the same quarter of 2022. The Royalty Pool Same Store Sales Growth was primarily driven by there being no public health restrictions related to COVID-19 in place across Canada during the first quarter of 2023 as compared to the first quarter of 2022. There were no temporary closures of A&W restaurants due to COVID-19 restrictions in Q1 2022 however, many A&W restaurants were still required to operate with reduced operating hours and capacity limits on dine in guests for all, or a portion, of the quarter.

FINANCIAL RESULTS

(dollars in thousands except per unit amounts)	Period from Jan 1, 2023 to Mar 26, 2023	Period from Jan 1, 2022 to  Mar 27, 2022
Royalty Pool Same Store Sales Growth^(i)	6.1 %	11.5 %
Number of restaurants in the Royalty Pool	1,037	1,015
Gross sales reported by A&W restaurants in the Royalty Pool(i)	$381,298	$352,614
Royalty income	$11,439	$10,578
General and administrative expenses	$249	$266
Term loan and other interest (net)	$305	$574
Current income tax provision	$2,813	$3,755
Distributable cash generated^(ii)	$8,072	$5,983
Number of equivalent units^(iii)	20,368,874	19,813,593
Distributable cash per equivalent unit^(iv)	$0.396	$0.302
Distributions and dividends declared per equivalent unit(iv)	$0.320	$0.310
Payout ratio^(iv)	112.9 %	145.0 %
Net cash generated from operating activities	$2,298	$7,942
Net income^(v)	$7,573	$9,688

⁽ⁱ⁾ "Royalty Pool Same Store Sales Growth" and "Gross sales reported by A&W restaurants in the Royalty Pool" are non-IFRS supplementary financial measures. See the "Non-IFRS Measures" section of this news release.

^{(ii) "}Distributable cash generated" is a non-IFRS financial measure. Refer to the table below for a reconciliation of this measure to the most comparable IFRS measure and the "Non-IFRS Measures" section of this news release.

⁽ⁱⁱⁱ⁾  Equivalent units include Units and Limited Voting Units of the Fund ("Limited Voting Units" and together with the Units, the "Trust Units") and common shares of A&W Trade Marks Inc. ("Trade Marks") that are exchangeable for Trust Units. The number of equivalent units in 2023 is calculated on a fully-diluted basis and includes the 95,092 limited partnership units (the "LP units") that are exchangeable for 190,184 common shares of Trade Marks representing the remaining 20% of the initial consideration for the January 5, 2023 adjustment to the Royalty Pool, which LP units are held back until the number of LP units is determined in December 2023 based on the actual annual sales reported by the new restaurants. The number of equivalent units in 2022 is calculated on a fully-diluted basis and includes 111,082 LP units, exchangeable for 222,164 common shares of Trade Marks representing the remaining 20% of the initial consideration for the January 5, 2022 adjustment to the Royalty Pool but does not include the adjustment to increase the final consideration by 79,821 LP units, equivalent to 159,642 common shares of Trade Marks, made in December 2022 based on the actual system sales for the A&W Restaurants added to the Royalty Pool as part of the January 5, 2022 adjustment to the Royalty Pool.  

^(iv) "Distributable cash per equivalent unit", "Distributions and dividends declared per equivalent unit" and "Payout ratio" are non-IFRS ratios. See the "Non-IFRS Measures" section of this news release.

^(v) Net income includes unrealized gains and losses on interest rate swaps, amortization of financing fees and deferred income taxes.  These non-cash items have no impact on the Fund's ability to pay distributions to unitholders. 

The following table provides a reconciliation of "Distributable cash generated" to "Net cash generated from operating activities", the most comparable IFRS measure, for the periods indicated. 

(dollars in thousands)	Period from Jan 1, 2023 to Mar 26, 2023	Period from Jan 1, 2022 to Mar 27, 2022
Net cash generated from operating activities	$2,298	$7,942
Interest expense	(305)	(574)
Current income tax provision	(2,813)	(3,755)
Net changes in items of non-cash working capital	330	346
Interest paid	374	684
Income tax paid	8,188	1,340
Distributable cash generated	$8,072	$5,983

Two monthly distributions totaling 32.0¢ per Unit were declared in the first quarter of 2023 compared to two monthly distributions totaling 31.0¢ per Unit in the first quarter of 2021.

The quarterly Payout ratio reported by the Fund is impacted by seasonality of sales of the A&W restaurants and the timing of current income taxes, which can vary by quarter, and the distribution rate in effect at the time.  The Payout ratio^(iv) for the first quarter of 2023 was 112.9%, which is higher than the trailing four quarter Payout ratio of 92.0%, due primarily to the timing impact of current income taxes.

NON-IFRS MEASURES
This news release makes references to the following non-IFRS measures: "Gross sales reported by A&W restaurants in the Royalty Pool", "Royalty Pool Same Store Sales Growth", "Distributable cash generated", "Distributable cash per equivalent unit", "Distributions and dividends declared per equivalent unit" and "Payout ratio". The Fund believes that disclosing these non-IFRS measures provides readers of this news release with important information regarding the Fund's financial performance and its ability to pay distributions to unitholders.  By considering these measures in combination with IFRS measures, the Fund believes that readers are provided with additional and more useful information about the Fund than readers would have if they simply considered IFRS measures alone. The non-IFRS measures reported by the Fund do not have a standardized meaning prescribed by IFRS and the Fund's method of calculating these measures may differ from those of other issuers or companies and may not be comparable to similar measures used by other issuers or companies. 

Refer to the "Financial Results" section of this news release for a reconciliation of Distributable cash generated to Net cash generated from operating activities, the most comparable IFRS measure and the "Non-IFRS Measures" section of the Fund's MD&A for the first quarter ended March 26, 2023, for further details on how these measures are calculated and used to assess the Fund's performance which will be filed on SEDAR at www.sedar.com on May 5, 2023.

ABOUT THE FUND
The Fund is a limited purpose trust established to invest in Trade Marks, which through its interest in the A&W Trade Marks Limited Partnership (the "Partnership"), owns the A&W trade-marks used in the A&W quick service restaurant business in Canada.  The A&W trade-marks comprise some of the best-known brand names in the Canadian foodservice industry.  In return for licensing A&W Food Services to use its trade-marks, Trade Marks (through the Partnership) is entitled to royalties equal to 3% of the gross sales reported by A&W restaurants in the Royalty Pool. 

The Royalty Pool is adjusted annually to reflect gross sales from new A&W restaurants, net of the gross sales of any A&W restaurants that have permanently closed.  Additional LP units are issued to A&W Food Services to reflect the annual adjustment.  A&W Food Services' additional LP units are exchanged for additional common shares of Trade Marks which are exchangeable for Trust Units.  The 21^st annual adjustment to the Royalty Pool took place on January 5, 2023 at which time the number of restaurants in the Royalty Pool increased from 1,015 to 1,037.  

Trade Marks' dividends to A&W Food Services and the Fund, and the Fund's distributions to unitholders are based on top-line revenues of the A&W restaurants in the Royalty Pool, less interest, general and administrative expenses and current income taxes of Trade Marks.

ABOUT A&W FOOD SERVICES
A&W is the second largest quick-service hamburger restaurant chain in Canada. Operating coast-to-coast, A&W restaurants feature famous trade-marked menu items such as The Burger Family^®, Chubby Chicken^® and A&W Root Beer^®.

Follow A&W on Facebook (www.facebook.com/AWCanada) and Twitter @AWCanada or visit www.awincomefund.ca.

FORWARD-LOOKING INFORMATION

Certain statements in this press release may contain forward-looking information within the meaning of applicable securities laws in Canada (forward-looking information). The words "anticipates", "believes", "budgets", "could", "estimates", "expects", "forecasts", "intends", "may", "might", "plans", "projects", "schedule", "should", "will", "would" and similar expressions are often intended to identify forward-looking information, although not all forward-looking information contains these identifying words.   The forward-looking information is based on assumptions that management considered reasonable at the time it was prepared, which assumptions include: restaurant performance will continue to improve; the Fund will receive sufficient revenue in the future (in the form of royalty payments from A&W Food Services) to maintain monthly distributions; the projections for the A&W business and the Fund provided by A&W Food Services are accurate; no material changes will occur in the quick service restaurant burger market including as a result of changes in consumer taste, changes in economic conditions or unemployment, or a disease outbreak. The forward-looking information is subject to risks, uncertainties and other factors that could cause actual results to differ materially from the results anticipated by the forward-looking information.  Those risks and uncertainties include, among other things, risks related to: A&W Food Services may become liable for the lease obligations of certain of its franchisees, if such franchisees default on their leases, and such obligations may be significant and A&W Food Services may be unsuccessful in seeking recovery from such franchisees, all of which may adversely affect A&W Food Services' investments, results of operations and financial condition; A&W Food Services' projections may be inaccurate, and do not represent a financial forecast and actual results may differ materially from those anticipated by the projections; monthly distributions are not guaranteed and may be reduced, suspended or terminated at any time; the current sales improvement trends of the A&W restaurants in the Royalty Pool may not continue and may slow or regress; supply interruptions or staff shortages; and changes in economic conditions, including economic recession or changes in the rate of inflation or deflation, employment rates and household debt, seasonality of sales, political uncertainty, interest rates, currency exchange rates or derivative and commodity prices. Additional factors which could cause results to differ from current expectations are described in the Fund's most recent Management Discussion and Analysis under the heading "Risks and Uncertainties" and the Fund's Annual Information Form under the heading "Risk Factors", available on SEDAR at www.sedar.com. The forward-looking information contained in this news release represents the Fund's expectations as of the date of this news release, and are subject to change after this date. The Fund assumes no obligation to update or revise any forward-looking information, except as required by applicable law. 

SOURCE A&W Revenue Royalties Income Fund

For the Fund and A&W Food Services: Kelly Blankstein, Chief Financial Officer: [phone] or [email protected].