PIZZA PIZZA ROYALTY CORP. ANNOUNCES FIRST QUARTER RESULTS

TORONTO, May 9, 2024 /CNW/ - Pizza Pizza Royalty Corp. (the "Company") (TSX: PZA), which indirectly owns the Pizza Pizza and Pizza 73 Rights and Marks, released financial results today for the three months ("Quarter") ended March 31, 2024.

First Quarter highlights:

• Same store sales⁽²⁾ increased 1.7%
• Royalty Pool sales increased 4.3%
• Adjusted earnings per share⁽⁵⁾ increased 3.1%
• Restaurant network increased by five net locations
• Royalty Pool of restaurants for 2024 increased by 31 restaurants on January 1, 2024

"We are pleased to report our 12^th consecutive quarter of positive same store sales growth", said Paul Goddard, President and CEO of Pizza Pizza Limited ("PPL"). "We continue to focus on operational excellence and enhancing brand image and exposure by investing heavily in relevant value-oriented menu offerings, food and technology innovation, and owning key sales driving occasions. We feel this strategy will continue to improve the customer experience at our restaurants while driving leadership in the marketplace at a time when customers are feeling pressure on their spending."

SALES
Royalty Pool System Sales for the Quarter increased 4.3% to $148.9 million from $142.7 million in the same quarter last year. By brand, sales from the 672 Pizza Pizza restaurants in the Royalty Pool increased 3.7% to $128.3 million for the Quarter compared to $123.7 million in the same quarter last year. Sales from the 102 Pizza 73 restaurants increased 8.2% to $20.6 million for the Quarter compared to $19.1 million in the same quarter last year.

For the Quarter, the increase in Royalty Pool System Sales is primarily driven by the new restaurants added to the Royalty Pool on January 1, 2023 and the increase in same store sales. The Royalty Pool System Sales also benefitted from the extra day of sales in February 2024 due to the leap year. 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 1.7% (2023 – 13.6%) for the Quarter. SSSG is not affected by the additional day during the year, as SSSG is calculated using a 13-week comparative basis.

SSSG	First Quarter (%)
	2024	2023
Pizza Pizza	0.6	15.5
Pizza 73	8.5	3.0
Combined	1.7	13.6

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 passed along retail price increases. At both brands restaurant traffic also increased due to strong value messaging and promotional brand activities.

MONTHLY DIVIDENDS AND WORKING CAPITAL RESERVE
The Company declared shareholder dividends of $5.7 million for the Quarter, or $0.2325 per share, compared to $5.2 million, or $0.2125 per share, for the prior year comparable quarter. The payout ratio is 122% for the Quarter and was 104% in the prior year, comparable quarter.

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 variations 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 $7.2 million at March 31, 2024, which is a decrease of $1.0 million in the Quarter due to the 122% payout ratio. System sales for the quarter ended March 31 have generally been the softest and historically results in a payout ratio over 100%. The reserve is available to stabilize dividends and fund 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% on an annualized basis.

EARNINGS PER SHARE ("EPS")
Fully-diluted basic EPS increased 6.8% to $0.235 for the Quarter compared to the prior year comparable quarter.

As compared to basic EPS, the Company considers adjusted EPS⁽⁵⁾ 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 3.1% to $0.23 when compared to the same period in 2023.

RESTAURANT DEVELOPMENT
As announced earlier this year, the number of restaurants in the Company's Royalty Pool increased by 31 locations to 774 on the January 1, 2024 Adjustment Date, and consists of 672 Pizza Pizza restaurants and 102 Pizza 73 restaurants. The number of restaurants in the Royalty Pool will remain unchanged through 2024.

During the Quarter, PPL opened two traditional and nine non-traditional Pizza Pizza restaurants, and closed two traditional and five non-traditional Pizza Pizza restaurants. The Company also opened one non-traditional Pizza 73 restaurant.

New restaurant construction continues across Canada as government mandated restrictions on commercial construction have been lifted in all provinces. PPL management expects to grow its traditional restaurant network by 3-4% and continue its renovation program through 2024.

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 following tables set out selected financial information and other data of Pizza Pizza Royalty Corp. ("PPRC" or the "Company") and should be read in conjunction with the March 31, 2024 unaudited interim condensed consolidated financial statements of the Company ("Financial Statements"). Readers should note that the 2024 results are not directly comparable to the 2023 results due to there being 776 restaurants in the 2024 Royalty Pool compared to 743 restaurants in the 2023 Royalty Pool.

(in thousands of dollars, except number of restaurants, days in the year, per share amounts, and noted otherwise)				March 31, 2024	March 31, 2023
Restaurants in Royalty Pool^(1)				774	743
Same store sales growth^(2)				1.7 %	13.6 %
Days in the Period				91	90
System Sales reported by Pizza Pizza restaurants in the Royalty Pool^(6)				$           128,284	$        123,685
System Sales reported by Pizza 73 restaurants in the Royalty Pool^(6)				20,611	19,050
Total System Sales				$           148,895	$        142,735
Royalty – 6% on Pizza Pizza System Sales				$               7,697	$            7,421
Royalty – 9% on Pizza 73 System Sales				1,855	1,714
Royalty income				$               9,552	$            9,135
Interest paid on borrowings^(3) (5)				(319)	(316)
Administrative expenses				(126)	(143)
Interest income				120	92
Adjusted earnings available for distribution to the Company and Pizza Pizza Limited^(5)				$               9,227	$            8,768
Distribution on Class B and Class D Exchangeable Shares^(4)				(2,872)	(2,176)
Current income tax expense				(1,646)	(1,568)
Adjusted earnings available for shareholder dividends^(5)				$               4,709	$            5,024
Add back:
Distribution on Class B and Class D Exchangeable Shares^(4)				2,872	2,176
Adjusted earnings from operations^(5)				$               7,581	$            7,200
Adjusted earnings per share^(5)				$               0.230	$            0.223
Basic earnings per share				$               0.235	$            0.220
Dividends declared by the Company				$               5,724	$            5,231
Dividend per share				$             0.2325	$          0.2125
Payout ratio^(5)				122 %	104 %
				March 31, 2024	December 31, 2023
Working capital^(5)				$             7,226	$           8,236
Total assets				$         376,052	$       370,092
Total liabilities				$           75,134	$         76,184

(1)	The number of restaurants for which the Pizza Pizza Royalty Limited Partnership (the "Partnership") earns a royalty ("Royalty Pool"), as defined in the amended and restated Pizza Pizza license and royalty agreement (the "Pizza Pizza License and Royalty Agreement") and the amended and restated Pizza 73 license and royalty agreement (the "Pizza 73 License and Royalty Agreement") (together, the "License and Royalty Agreements"). For the 2023 fiscal year, the Royalty Pool includes 644 Pizza Pizza restaurants and 99 Pizza 73 restaurants. The number of restaurants added to the Royalty Pool each year may differ from the number of restaurant openings and closings reported by Pizza Pizza Limited ("PPL") on an annual basis as the periods for which they are reported differ slightly.
(2)	Same store sales growth ("SSSG") is a supplementary financial measure under NI 52-112 and therefore may not be comparable to similar measures presented by other issuers. SSSG means the change in Period's gross revenue of a particular Pizza Pizza or Pizza 73 restaurant as compared to sales in the previous comparative Period, where the restaurant has been open at least 13 months.  Additionally, for a Pizza 73 restaurant whose restaurant territory was adjusted due to an additional restaurant, the sales used to derive the Step-Out Payment (calculated as the difference between the average monthly Pizza 73 Royalty payment attributable to that Adjusted Restaurant in the 12 months immediately preceding the month in which the territory reduction occurs, less the Pizza 73 Royalty payment attributable to the restaurant in the current month) may be added to sales to arrive at SSSG. SSSG does not have any standardized meaning under International Financial Reporting Standards ("IFRS"). See "Exhibit One: Reconciliation of Non-IFRS Measures".
(3)	The Company, indirectly through the Partnership, incurs interest expense on the $47 million outstanding bank loan. Interest expense also includes amortization of loan fees.
(4)	Represents the distribution to PPL from the Partnership on Class B and Class D Units of the Partnership. The Class B and D Units are exchangeable into common shares of the Company ("Shares") based on the value of the Class B Exchange Multiplier and the Class D Exchange Multiplier at the time of exchange as defined in the License and Royalty Agreements, respectively, and represent 25.2% of the fully diluted Shares at March 31, 2024 (December 31, 2023 – 23.9%). During the quarter ended March 31, 2024, as a result of the final calculation of the equivalent Class B and Class D Share entitlements related to the January 1, 2023 Adjustment to the Royalty Pool, PPL was paid a distribution on additional equivalent Shares as if such Shares were outstanding as of January 1, 2023. Included in the three months ended March 31, 2024, is the payment of $288,000 in distributions to PPL pursuant to the true-up calculation (March 31, 2023 - PPL received $nil).
(5)	"Adjusted earnings available for distribution to the Company and Pizza Pizza Limited", "Adjusted earnings from operations", "Adjusted earnings available for shareholder dividends", "Adjusted earnings per Share", "Interest paid on borrowings", "Payout Ratio", and "Working Capital" are non-GAAP financial measures under NI 52-112. They do not have any standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other issuers. See "Exhibit One: Reconciliation of Non-IFRS Measures".
(6)	System Sales (as defined in the License and Royalty Agreements) reported by Pizza Pizza and Pizza 73 restaurants include the gross sales of Pizza Pizza company-owned, jointly-controlled and franchised restaurants, and the monthly Make-Whole Payment, excluding sales and goods and service tax or similar amounts levied by any governmental or administrative authority. System Sales do not represent the consolidated operating results of the Company but are used to calculate the royalties payable to the Partnership as presented above.

A copy of the Company's unaudited interim condensed consolidated financial statements and related Management's Discussion and Analysis ("MD&A") will be available at www.sedarplus.ca and www.pizzapizza.ca after the market closes on May 9, 2024.

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

Date:	Friday, May 10, 2024
Time:	9:30 a.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 23, 2024
Conference ID:	212340#

A recording of the call will also be available on the Company's website at www.pizzapizza.ca.     

FORWARD-LOOKING STATEMENTS

Certain statements in this report, including information regarding the Company's dividend policy, its ability to meet covenants and other financial obligations, and the potential business and financial impacts of the COVID-19 pandemic on the Company, PPL and its franchisees and restaurant operators and their ability to achieve their business objectives, constitute "forward-looking" statements, which involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. When used in this report, such statements include such words as "may", "will", "expect", "believe", "plan", and other similar terminology in conjunction with a discussion of future events or operating or financial performance. These statements reflect management's current expectations regarding future events and operating and financial performance and speak only as of the date of this MD&A. The Company does not intend to or assume any obligation to update any such forward looking statements, whether as a result of new information, future events or otherwise, except as required by applicable securities laws.  These forward-looking statements involve a number of risks and uncertainties. The following are some factors that could cause actual results to differ materially from those expressed in or underlying such forward-looking statements: changes in national and local business and economic conditions including those resulting from the COVID-19 pandemic (such as customers' ability and willingness to visit restaurants and their perception of health and food safety issues, discretionary spending patterns and supply chain limitations, and the related financial impact on PPL and its franchisees and restaurant operators), impacts of legislation and governmental regulation, accounting policies and practices, competition, changes in demographic trends and changing consumer preferences, and the results of operations and financial condition of PPL. The foregoing list of factors is not exhaustive and should be read in conjunction with the other information included in the foregoing MD&A, the PPL financial statements for the period ended December 31, 2023 and the related MD&A and the Company's Annual Information Form.

Exhibit One: Reconciliation of Non-IFRS Measures

The Company's earnings, as presented under IFRS includes non-cash items, such as deferred tax, that do not affect the Company's business operations or its ability to pay dividends to shareholders. The Company believes its earnings are not the only, or most meaningful, measurement of the Company's ability to pay dividends or measure the rate at which the Company is paying out its earnings. Therefore, the Company reports the following non-IFRS measures:

• Adjusted earnings available for distribution to the Company and PPL;
• Adjusted earnings from operations;
• Adjusted earnings available for shareholder dividends;
• Adjusted earnings per share ("EPS");
• Payout Ratio; and
• Working Capital.

The Company believes that the above noted measures provide investors with more meaningful information regarding the amount of cash that the Company has generated to pay dividends, and, together with Interest Paid on Borrowings and SSSG, help illustrate the Company's operating performance and highlight trends in the Company's business. These measures are also frequently used by analysts, investors, and other interested parties in the evaluation of issuers in the Company's sector, particularly those with a royalty-based model. The adjustments to net earnings as recorded under IFRS relate to non-cash items included in earnings and cash payments accounted for on the statement of financial position. Investors are cautioned, however, that this should not be construed as an alternative to net earnings as a measure of profitability. The method of calculating the Company's NI 52-112 non-IFRS financial measures: Adjusted earnings available for distribution to the Company and Pizza Pizza Limited, Adjusted earnings from operations, Adjusted earnings available for shareholder dividends, Adjusted EPS, Payout Ratio, Working Capital, Interest Paid on Borrowings and SSSG for the purposes of this MD&A may differ from that used by other issuers and, accordingly, these measures may not be comparable to similar measures used by other issuers.

The table below reconciles the following to "Earnings for the period before income taxes" which is the most directly comparable measure calculated in accordance with IFRS:

• Adjusted earnings available for distribution to the Company and Pizza Pizza Limited;
• Adjusted earnings from operations; and
• Adjusted earnings available for shareholder dividends.

(in thousands of dollars, except number of shares)				Q1 2024	Q1 2023
Earnings for the period before income taxes				9,227	8,768
Adjusted earnings available for distribution to the Company and Pizza Pizza Limited				9,227	8,768
Current income tax expense				(1,646)	(1,568)
Adjusted earnings from operations				7,581	7,200
Less: Distribution on Class B and Class D Exchangeable Shares				(2,872)	(2,176)
Adjusted earnings available for shareholder dividends				4,709	5,024
Weighted average Shares – diluted				32,908,631	32,337,580

The Basic EPS and the Adjusted EPS calculations are based on fully diluted weighted average shares, and both include PPL's Class B and Class D Exchangeable Shares since they are exchangeable into and economically equivalent to the Shares.  See "Adjusted EPS".

Adjusted EPS is calculated by dividing Adjusted earnings from operations, as explained above, by the fully diluted weighted average shares.

Basic EPS is adjusted as follows:			Three months ended
			March 31, 2024	March 31, 2023
Basic EPS			$         0.235	$         0.220
Adjustments:
Deferred tax expense (recovery)			(0.005)	0.003
Adjusted EPS			$         0.230	$         0.223

Payout Ratio is a non-IFRS financial measure that does not have a standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other issuers. The Company presents the Payout Ratio to illustrate the earnings being returned to shareholders. The Company's Payout Ratio is calculated by dividing the dividends declared to shareholders by the adjusted earnings from operations, after paying the distribution on Class B and Class D Exchangeable Shares, in that same period.

			Three months ended
(in thousands of dollars, except as noted otherwise)			March 31, 2024	March 31, 2023
Dividends declared to shareholders			5,724	5,231
Adjusted earnings available for shareholder dividends			4,709	5,024
Payout Ratio			122 %	104 %

Working Capital is defined as total current assets less total current liabilities. The Company views working capital as a measure for assessing overall liquidity and its ability to stabilize dividends and fund unusual expenditures in the event of short- to medium-term variability in Royalty Pool System Sales.

(in thousands of dollars)		March 31, 2024	December 31, 2023
Total current assets		10,682	12,549
Less: Total current liabilities		3,456	4,313
Working Capital		7,226	8,236

SSSG is a key indicator used by the Company to measure performance against internal targets and prior period results. SSSG is commonly used by financial analysts and investors to compare PPL to other QSR brands. SSSG is defined as the change in period gross revenue of Pizza Pizza and Pizza 73 restaurants as compared to sales in the previous comparative period, where the restaurant has been open at least 13 months.  Additionally, for a Pizza 73 restaurant whose restaurant territory was adjusted due to an additional restaurant, the sales used to derive the Step-Out Payment may be added to sales to arrive at SSSG. It is a key performance indicator for the Company as this measure excludes sales fluctuations due to store closings, permanent relocations and chain expansion.

The following table calculates SSSG by reconciling Royalty Pool System Sales, based on calendar periods, to PPL's 13-week sales reporting period used in calculating same store sales.

			Three months ended
(in thousands of dollars)			March 31, 2024	March 31, 2023
Total Royalty Pool System Sales			148,895	142,735
Adjustments for stores not in both periods, Make-Whole Carryover Amount, Step-Out payments, and the impact of calendar reporting			(3,622)	180
Same Store Sales			145,273	142,915
SSSG			1.7 %	13.6 %

SOURCE Pizza Pizza Royalty Corp.

Christine D'Sylva, Chief Financial Officer, Pizza Pizza Royalty Corp., [phone] x393 [email protected], www.pizzapizza.ca and www.pizza73.com or www.sedarplus.ca.