A&W Profits Royalties Earnings Fund ( OTC: AWRRF) Q1 2023 Revenues Teleconference May 3, 2023 4:00 PM ET
Business Individuals
Susan Senecal – President and President
Kelly Blankstein – Chief Financial Officer
Agatha Tymke – Director of Financing
Teleconference Individuals
Ed Sollbach – Spartan Fund Management
Operator
Great afternoon. My name is Jenny, and I will be your conference operator today. At this time, I wish to invite everybody to the A&W Profits Royalties Earnings Fund Q1 2023 Financial Outcomes Teleconference. All lines have actually been put on mute to avoid any background sound. After the speaker’s remarks, there will be a question-and-answer session. [Operator Instructions]
Ms. Susan Senecal, you might start your conference.
Susan Senecal
Great. Thank you, Jenny, and excellent afternoon, everybody. Thanks for making the effort to attend our call today. I’m Susan Senecal, President and CEO of A&W Food Providers of Canada, and CEO of the A&W Profits Royalties Earnings Fund. With me on the call today is Kelly Blankstein, who is the Chief Financial Officer of A&W Food Providers and the Fund; and Agatha Tymke who’s the Director of Financing.
Today, we exist the Fund’s outcomes for the very first quarter ended March 26, 2023. I’m happy to report that A&W has actually begun the year off strong with the Fund attaining royalty swimming pool same-store sales development of 6.1% in the very first quarter. The commitment of our visitors and our objective to end up being primary with millennial hamburger fans picked and relied on for genuinely excellent food and the benefit they yearn for will assist us continue to grow effectively.
Now, I’ll turn things over to Kelly, who will discuss the Fund’s structure and go through the monetary outcomes for the quarter.
Kelly Blankstein
Thank you, Susan, and excellent afternoon, everybody. Naturally, prior to we can inform you more about our outcomes, I do require to check out the following talk about positive details.
Particular declarations in this discussion might be positive in nature and these consist of declarations with regard to the healing of the food service market and the capability of foodservices to rebound from the effects of COVID-19, the foodservice market resuming development, timing for launching the yearly audited monetary declarations and MD&A of the Fund, along with the quarterly outcomes, constructing commitment and improving efficiency over the long term. Actual might vary from those revealed or indicated in these positive declarations. The positive declarations included in this discussion undergo a variety of threat aspects consisting of threats associated with COVID-19, the capability of A&W Food Providers to execute its methods as prepared, basic financial and company conditions, monetary and political instability, worldwide dispute and other aspects divulged formerly and from time to time in the Fund’s public filings. Any positive declarations in this discussion ought to be examined due to these crucial aspects, and is accepted as needed by relevant securities laws will not be upgraded if management beliefs, quotes or viewpoints, or other aspects ought to alter.
Now, I wish to simply rapidly speak with the Fund’s structure and after that go through the monetary outcomes. And after that, Susan will supply an upgrade on A&W dining establishments and a few of A&W’s crucial business advancement. We’ll be naturally pleased to address any of your concerns at the end of our call.
So, the Earnings Fund is a leading line fund, implying the distributable money readily available to make circulations to system holders is based upon the sales of the dining establishments in the royalty swimming pool with only very little business expenses related to running the Funds. For a more detailed description of the Fund’s structure, please do describe the About the Fund area on our Fund Website.
Next, I will go through our monetary outcomes for the very first quarter of 2023 as compared to the very first quarter of 2022. The press release provided earlier today sums up the choose monetary outcomes of the fund and the interim unaudited monetary declarations and MD&A will be launched in the coming days. So, the 6.1% royalty swimming pool same-store sales development in the quarter was mostly driven by there being no public health limitations associated with COVID-19 in location throughout Canada throughout the very first quarter of 2023, as compared to the very first quarter of 2022. There were no short-term closures of A&W dining establishments due to COVID-19 limitations in Q1 ’22 of nevertheless. Much of those dining establishments were still needed to run with minimized operating hours and capability limitations on dining visitors for all or a part of the quarter in the exact same duration in 2015.
Royalty earnings for the very first quarter of 2023 was $11.4 million based upon gross sales reported by dining establishments in the royalty swimming pool of $381.3 million compared to royalty earnings of $10.6 million and gross sales reported by A&W dining establishments in the royalty swimming pool of $352.6 million for the very first quarter of 2022. The 8.1% boost in royalty earnings for the quarter is attributable to the 6.1% royalty swimming pool same-store sales development and the gross sales from the 22 net brand-new dining establishments that were contributed to the royalty swimming pool on January 5th of this year, January 5, 2023.
The boost in royalty earnings for the quarter was partly balanced out by there being one last day in the very first quarter of 2023 as compared to the very first quarter of 2022. Royalty swimming pool same-store sales development is based upon an equivalent variety of days in the quarter and year. So, its considerable interest to system holders is the quantity of distributable money that the Fund has actually created to pay circulations along with the involved payment ratio. Distributable money created in the very first quarter of 2023 was $8.1 million compared to $6 million in the very first quarter of 2022. This is a $2.1 million boost in distributable money which is created and attributable to the $0.9 million boost in royalty earnings and $0.9 million decline in present tax expenditure. The decline in the present tax expenditure in 2023 is mainly driven by a timing distinction associated to when earnings from the collaboration is recorded in hallmarks gross income.
So, 2 month-to-month circulations amounting to $0.32 per system were stated in the very first quarter of 2023 compared to 2 month-to-month circulations amounting to $0.31 per system in the very first quarter of 2022. The present month-to-month circulation rate of $0.16 per system equates to an annualized circulation rate of $1.92 per system, which’s a brand-new high watermark for the Fund.
I wish to now rely on going over the payment ratio, which is an essential metric. The Fund’s long-lasting goal is to preserve a yearly payment ratio at or listed below 100%, nevertheless, the Fund aims to supply system holders with routine month-to-month circulations and as an outcome of seasonality of sales in A&W dining establishments and the timing of present earnings taxes, the quarterly payment ratio does vary. The payment ratio for the very first quarter of 2023 was 112.9%. Which compares to 145% for the very first quarter of 2022, which was greater due to the timing effect of present earnings taxes.
Now, I’m going to pass things back over to Susan.
Susan Senecal
Thank you, Kelly. Food Providers thinks that its objective to end up being primary with millennial hamburger fans picked and relied on for genuinely excellent food and the benefit they yearn for will assist it continue to grow. Strategic efforts consisting of rearranging and separating the A&W brand names through making use of natural components, continued brand-new dining establishment development and providing a market leading visitor experience have all added to A&W strong appeal and the trust that has actually constructed with Canadian customers over several years. These strengths will be crucial to providing strong outcomes as a fast service dining establishment market and the QSR hamburger market continue resumed development post pandemic however in the face of more difficult basic financial conditions.
A&W’s brand name positioning stays strong, development of brand-new places, market leading development, a safe and steady supply chain and continued efforts to regularly provide fantastic tasting food and a much better visitor experience are all anticipated to add to constructing commitment and improving efficiency over the long-lasting. Food Providers is devoted to the long-lasting health and success of its franchise network and the Fund. 3 brand-new A&W dining establishments opened in the very first quarter of 2023 and an extra 10 dining establishments were under building since March 26, 2023.
In 2022, Food Providers signed an arrangement to present the prep brand name within A&W dining establishments and choose markets in Canada for a two-year pilot job. As at March 26, 2023, 8 A&W places, 3 in Vancouver and 5 in Toronto were using prep items in their dining establishments. The royalty payable to the Fund uses to prep items offered within A&W dining establishments to the degree that such dining establishments remain in the royalty swimming pool.
Thank you for your attention, and we would now enjoy to address your concerns.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] Your very first concern is from Ed Sollbach from Spartan. Please ask your concern.
Ed Sollbach
Great day. Good to see the same-store sales development once again, as a long-lasting system holder, I can’t assist, however notification there appears to be less marketing activity and less marketing, less brand-new item intros than pre-pandemic, and it does appear to impact the outcomes if you take a look at– we’re hardly back to where we remained in 2019, and clearly there’s been a great deal of inflation in regards to food and costs. So, what are your ideas around marketing activity, and brand-new items, and what do you have in the pipeline, and what can you do there to get the same-store sales development going once again like it was pre-pandemic?
Susan Senecal
Yes, thanks for the concern, Ed. There is definitely great deals of development in our pipeline and in our dining establishments. Our greatest effort today is the launch of the Brew Bar, which is a prolonged drink program that we now have in over 500 of our places throughout Canada, and we see that as a fantastic method to attract more visitors and provide various choices. Especially, we’re eagerly anticipating the summertime and the heat with the frozen root beer readily available and frozen beverages; great deals of various methods to take pleasure in A&W. So, that is among the huge examples of a development that’s presently presenting underway. And we have actually introduced a variety of various marketing and marketing projects throughout that exact same period. So, we’re quite pleased with the relationship that we have actually established with heaven Jays, and I see great deals of us in a marketing method, however definitely, we continue to be concentrated on reaching the visitors where they are, and try out various methods of structure A&W’s appeal and awareness in every market that we run in.
Ed Sollbach
Therefore, what’s the feedback on the Brew Bar that you have actually– I have actually seen that in some shops. How’s that going?
Susan Senecal
It’s been actually excellent. A great deal of visitors have actually currently discovered that they have a brand-new preferred drink. And in reality, as we were presenting, you can’t turn a switch and have it in each and every single dining establishment on the exact same day. So, we were speaking with our operators like rush and get me my Brew Bar, since visitors are can be found in and stating I had one at various A&W place and I ‘d enjoy to have it readily available here. So, I believe that’s going actually well and we’re getting a favorable reaction on both the taste and taste and enjoyment of the drinks. However likewise, from our franchisees who have actually been the huge fans of the program from the first day.
Ed Sollbach
Well, the franchisees– that’s excellent recommendation since they most likely understand the very best on how things are going.
Susan Senecal
I like that individuals.
Ed Sollbach
Yes. And after that, on like promos, like where are you in regards to an app? I understand you utilized to do e-mails, like I get your e-mails periodically, however that appears to have silenced down, like where are you in regards to those promos?
Susan Senecal
Yes, we are doing work also on a mobile app, so we have actually had a mobile app naturally for a long time however we believe that there’s a chance here to revamp the manner ins which we reach visitors that they have the ability to engage with us. So, we have actually seen great deals of interest in digital through the pandemic was actually speeding up and we have actually utilized that chance to take an action back and find out how we wish to step forward as A&W. So, that’s something that’s definitely in the cards.
Ed Sollbach
And what’s the timeline for that?
Susan Senecal
Do not stop taking a look at your phone, it might be soon.
Ed Sollbach
Okay. Well, thanks for the upgrade, and eagerly anticipate some brand-new efforts.
Susan Senecal
Yes. Well, thanks for your commitment and for your concern.
Ed Sollbach
Welcome.
Operator
Thank you. [Operator Instructions] There are no additional concerns at this time. Please continue.
Susan Senecal
Thank you, and thanks to everybody for attending our call today. We eagerly anticipate upgrading you on our outcomes after the 2nd quarter of 2023. And in the meantime, if anybody does have concerns that weren’t responded to on our call today, please do not hesitate to call either Kelly Blankstein or myself at location code 604-988-2141. Have a great remainder of the day. Thank you.
Operator
Thank you. Ladies and gentlemen, that includes our conference for today. You might all detach.