Good afternoon, ladies and gentlemen, and welcome to the A&W Revenue Royalties Income Fund Q3 2023 financial results conference call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Wednesday, October 18th, 2023. I would now like to turn over the call to Susan Senecal. Please go ahead. Thanks, Lester, and good afternoon, everyone. Thank you for taking the time to attend our call today. I'm Susan Senecal, I'm President and CEO of A&W Food Services of Canada and CEO of the A&W Revenue Royalties Income Fund. With me on the call today is Kelly Blankstein, who's the Chief Financial Officer of A&W Food Services and the fund, as well as Agatha Timkiw, who's the Director of Finance. Today, we're presenting the fund's results for the third quarter, which ended on September 10, 2023. While the quarterly royalties pool same-store sales growth of 1.1% was softer than previous quarters, we are pleased with the year-to-date royalty pool same-store sales growth of 3%, which is against strong comparable sales in 2022. Now I'll turn things over to Kelly, who will touch on the fund's structure and go through the financial results for the Q3. Thank you, Susan, and good afternoon, everyone. Before we can tell you more about our results, I do need to read the following comment on forward-looking information. Certain statements in this presentation may be forward-looking in nature. These include statements with respect to the recovery of the food service industry and the ability of food services to rebound from the impacts of COVID-19, the food service industry resuming growth, timing for releasing the interim unaudited financial statements and MD&A of the Fund, building loyalty and enhancing performance over the long term, and actual results may differ from those expressed or implied in these forward-looking statements. The forward-looking statements contained in this presentation are subject to a number of risk factors, including risks related to COVID-19, the ability of A&W Food Services to implement its strategies as planned, general economic and business conditions, financial and political instability, international conflict and other factors disclosed previously and from time to time in the Fund's public filings. Any forward-looking statements in this presentation should be evaluated in light of these important factors and as, except as required by applicable securities laws, will not be updated if management's beliefs, estimates, or opinions or other factors should change. Now, I want to speak a little bit to the Fund's structure, and then we'll go through the financial results. After that, Susan will provide an update on A&W Restaurants and some of A&W's key corporate developments. We'll be happy to answer questions at the end of our call. The Fund is a top-line fund, meaning the distributable cash available to make distributions to unitholders is based on the sales of restaurants in the royalty pool, with only minimal operating expenses associated with operating the Fund. For a more comprehensive description of the Fund's structure, please refer to the About the Fund section on our website. Next, I'll go through our financial results for the Q3 of 2023 as compared to the third quarter of 2022. The interim unaudited financial statements and MD&A were released on SEDAR this morning, SEDAR+ this morning, and the news release issued today summarizes the selected financial results of the Fund. The royalty pool same-store sales growth in both the quarter and year-to-date period was primarily driven by growth in average check size, which was mainly attributable to modest increases in response to industry-wide inflation on goods, services, and labor. Royalty income for the Q3 of 2023 was CAD 13.7 million, based on gross sales reported by restaurants in the royalty pool of CAD 456.8 million, compared to royalty income of CAD 13.2 million and gross sales reported by A&W Restaurants in the royalty pool of CAD 440 million for the Q3 of 2022. The 3.8% increase in royalty income for the quarter and 5.4% year to date is attributable to the royalty pool same-store sales growth and the gross sales from the 22 net new restaurants added to the royalty pool on January 5th, 2023, pardon me, earlier this year. The increase in royalty income for the year-to-date period was partially offset by there being one less day in 2023 as compared to 2022. Royalty pool same-store sales growth is based on an equal number of days in the quarter and the year. Of significant interest to unitholders is the amount of distributable cash that the Fund has generated to pay distributions, as well as the payout ratio. Distributable cash generated in the Q3 of 2023 was CAD 11.1 million, compared to CAD 10.6 million in the Q3 of 2022. Distributable cash generated in the year-to-date period was CAD 29.3 million, compared to CAD 26.1 million in the comparable period in 2022. This CAD 3.2 million year-to-date increase in distributable cash generated was attributable to this CAD 2 million increase in royalty income, a CAD 700 thousand decrease in long-term interest loans, and CAD 565 thousand decrease in current tax expense. The decrease in the current tax expense in 2023 is largely driven by a timing difference related to when income from the partnership is captured in Trade Marks' taxable income. Three monthly distributions totaling CAD 0.48 per unit were declared in the Q3 of 2023, compared to three monthly distributions totaling CAD 0.465 per unit in the Q3 of 2022. The current monthly distribution rate of CAD 0.16 per unit translates to an annualized distribution rate of CAD 1.92 per unit.... We'll now turn to discussing the payout ratio, which is a key metric for unit holders. The fund's long-term objective is to maintain an annual payout ratio at or below 100%. However, the fund does strive to provide unit holders with regular monthly distributions, and as a result of seasonality of sales in A&W Restaurants and the timing of current income taxes, this quarterly payout ratio does fluctuate. The year-to-date payout ratio for 2023 was 92.6%, compared to 98.4% for the comparable period in 2022. The year-to-date payout ratio of 92.6% is higher than the trailing Q4 payout ratio of 91.9%, due to both the seasonality of sales and the timing impact of current income taxes. So with that, I'll turn it back over to Susan for additional comments. Thanks, Kelly. I'm pleased to say that, A&W's brand positioning remains very strong. Growth of new locations, industry-leading innovation, a safe and stable supply chain, and continued efforts to consistently deliver great-tasting food and a better guest experience, are all expected to continue to contribute to building loyalty and enhancing performance over the long term. Food Services has continued to grow new A&W restaurants. As at September 10, 2023, 10 new A&W restaurants had opened in the year, two of which were opened during the Q3 of 2023, bringing the total number of A&W restaurants in Canada to 1,048, and an additional 13 restaurants were under construction. In 2022, Food Services signed an agreement to introduce the Pret brand within A&W restaurants in select markets in Canada for a two year pilot period. As of September 10, 2023, eight A&W locations, three of which were in Vancouver and five in Toronto, were offering Pret products in their restaurants. The royalty payable to the fund applies to Pret products sold within A&W restaurants to the extent that such restaurants are in the royalty pool. During the Q3, on August 17, A&W celebrated its 15th annual Burgers to Beat MS Day and raised more than CAD 1.6 million for MS Canada, a result we're all very proud of. Thank you very much for your attention, and we would now be happy to answer any questions. Thank you, ladies and gentlemen. We will now begin the question and answer session. Should you have any question, please press star followed by the number 1 on your touchtone phone. You will hear a three-tone prompt acknowledging your request. If you wish to decline your question, please press star followed by the number two. If you're using a speakerphone, please lift your handset before pressing any keys. One moment for your first question. Your first question comes from Tom Burke from Canaccord. Your line is now open. Hey, guys. Hello. Thanks for taking my question, and congrats on navigating what is still a pretty challenging environment out there. Thank you. Thank you. Can you try and give us a sense of where the strong geographic regions are in the country and ones that are lagging a little bit? Obviously, you know, I would imagine that things are you know a little bit different, depending on where you are in the country. I was wondering if you could give us a little bit of color on that. Sure. I mean, it's, it's kind of hard to do, to be honest, because some of the regions that are performing really well, but they also might have had impacts from things like fires and different weather patterns and so on. So I'd say that there hasn't really been a region in Canada that's been untouched by some sort of disruption during the year. It's a little bit hard to get a read on, you know, exactly what's happening, but we're pleased with the results throughout the country. Basically, we think that, you know, we've always had a strong Western Canadian presence and performance, but we're seeing lots of good things coming out of Eastern Canada as well. So it's a little bit hard to tell. In fact, you know, you sort of see the ebbs and flows of things. We'll be anxious to see how it all evens out by the end of the year, so hopefully on a positive note for the franchisees in those regions who have had to put up with quite a lot. Right. And, you know, I sometimes we forget about that, with everything that's going on in the world, and we, you know, we're so, so short-term oriented. You bring up a good point that, might have been lost on us. Obviously, fires, I know here in Quebec, you know, we were dealing with, you know, some serious smoky days, too, due to fires, you know, and more in northern Quebec as well. So, any way to sort of characterize to what sense you think there was an impact on sales because of, these unfortunate events? It's really hard to tell. You know, the thing is that, sometimes there's evacuations that create sort of pockets of population where there weren't any before. You know, it's one of these ones where we try and wait for time to smooth things out, and then we're able to look backwards and see where the real settling in is. We're looking forward to the end of the year and the ability to kind of look at the whole of 2023, and certainly looking forward to 2024, when most of the post-pandemic impacts will be, will have settled themselves as well. 'Cause all of that is just causing us to have a bit of a cloudy crystal ball, for sure. And can you talk about this new beta test? I don't even know the name of it. It's called Pret, P-R-E-T, or can you give us some more? Yeah. Yeah. So Pret A Manger is a brand out of the U.K. They are a grab-and-go brand that specializes in freshly made food. They share a lot of the same ingredient values and the same ingredient quality as A&W does, and so especially during the, you know, advent of our urban restaurants experiencing different declines in traffic during the heat of the pandemic, and with, you know, office towers and so on being empty, we thought it was a good time to look at other options and have that two-year trial period to look at, you know, what happens when you put Pret A Manger into an A&W restaurant. And so we were happy to be able to open eight locations and within fairly short order, and then we've been quite pleased with the results. You know, you learn something, and we're still in that phase of learning, but certainly we can see that the products are very popular. People do enjoy them, and we've seen, you know, people becoming a bit of, it's becoming a bit of their favorite, so reasons that they come, so maybe, presumably more often or at different times than they might have come for their favorite A&W burger. Oh, that's great. And so does that sort of hit on a different time of the day? We talk a little bit more about how you, you sort of slot that in for sort of, course of the day strategy. It's interesting, Tom. I, I'll share... I mean, what I'm sharing is anecdotal, not so much- Okay, sure. We don't have, but for example, you know, one of the things that we see is that a lot of people are buying both at the same time. And so sometimes we'll see people come in for breakfast at A&W and pick up a sandwich to eat later at the office or at school. Other times we'll see people come in, and they'll maybe have, you know, a sandwich along with some onion rings, and so they'll combine things in that way. I'd say that the day parts are roughly the same as A&W, probably ending a little bit earlier than our, you know, late-night business, but certainly very well developed in all three day parts, particularly breakfast and lunch. Right. Well, now that you've mentioned it, it is a very well-known brand name, obviously, in U.K. and I believe in Europe as well. So yeah, there's, you know, to a certain extent, no introduction needed. So, what type of... In order to sort of get either, A, a fully a validated beta test or, B, a more serious commercialization, what type of rollout plan gets scheduled, say, over the next 18 months? Well, our test period was two years, and we're sort of about, I guess, probably almost 18 months into the test period. It ends in June of 2024. So what we're doing now is sort of gathering all the learnings that we've had, comparing the results in different locations, extending the test in some cases. We are also looking at opening a standalone Pret that will be another way to learn about a wider range of products. And so, yeah, we're just, you know, experimenting with all of the potential options, but we do see an opportunity for Pret inside A&W restaurants. We just haven't figured out exactly what the right way to do that is. So at this point, we're not making any sort of firm plans or commitments, but we do see opportunity for sure. Okay, great. And, just one last, and then I'll check and see if other questions. So, the rollout of new innovations, etc., is it more like in this day and age, or what's the thinking? More of the sort of new age, healthy items, depending on the market that you're reaching out to, or doubling back on sort of some creative stuff that would energize the traditional portfolio? Any comments in that regard? Well, right now, our main focus of innovation is on two innovations that are sort of in their early days with A&W. So our Brew Bar that we really launched in terms of a marketing push over the summer, and we're very pleased with the results, but continuing to have people try out our delicious drinks and so on is one focus, so the Brew Bar. And the second one is our mobile app that launched sort of toward the end of June of this year, and we're really focused on making that sort of a household name in terms of people's convenience. And so we're really focused on those two pieces of innovation. But we've always got stuff sort of on the back shelf that's working. We call it explorations, and those explorations often lead to new launches and new innovation. But we always wanna keep our fingers into the things that are happening, changes in the world, changes in opportunities as we go. So we'll be sure that in addition to those two innovations, there'll be other things coming along. Fantastic. Okay, I'll step back in the queue. Thanks very much. All right, thanks. Nice chatting with you. Your next question comes from Ed Sollbach. Sir, your line is now open. Hello, I'm wondering if you have any data about the volume year-over-year? Our sales for Q3 were up 1.1%, and for the year to date are up 3% over 2022, which was also a solid sales year. Okay, but that's, that's dollar value, right? Correct, yeah. Yeah, like, I'm talking after inflation. Like, I know prices have gone up, so I would think that the store sales - same-store sales are actually down after inflation. I'd say it's a bit of a mixed bag. We have, like, shopping center restaurants that are sort of still rebounding from the post-pandemic period in terms of people's shopping habits and so on. We have urban restaurants where things are growing as people come back in. And of course, things like delivery and mobile ordering has become more of a factor. So it's a little bit hard to tell what the underlying trends are because what we measure in our business is transactions. So I would say that that's still settling in, settling down, and You know, what we see going forward would be growing our number of visits and continuing to find those opportunities, like either day parts, as Tom was mentioning, or products, and seeing how all of those do. So right now, it's a little bit hard to kind of pin a number that says with or without inflation, because the restaurants are t he business has changed quite a bit. But what would the transaction number be? Well, that's what I'm saying. It, it depends which concepts you're looking at, what regions you're looking at, sort of how deep the impact was of the pandemic. So we don't look at- Well, just, just- You know, break it out exactly like that. Are you gonna share that data with shareholders, like, what the transactions are overall? Yeah, I'd say that in some regions and some concepts, we're seeing growth, in others, we're seeing sort of a setback, depending on how strong they were. You know, some drive-through restaurants, for example, during the pandemic, they really were maybe unique in their marketplace, and they had huge growth. They've given some of that back. So it's a little bit hard to tell what the actual trend is, Ed, and will be, but certainly of interest to us, and we just don't think that at this moment, that the transaction number is very relevant in terms of how the business is growing. So we're gonna see how we settle out in 2023, but we've certainly got goals to see that continue to grow over time. Okay. 'Cause 'cause with 5%-6% inflation, I would think transactions are down materially year-over-year. Yeah. No, I, I'd say that, you know, we've really been able to keep pricing in a, in a range that, that, that, and we're not looking at inflation numbers and saying that our prices, or that our prices will change by that much. In fact, we've sort of done the opposite and really, you know, with our Brew Bar items, for example, have lower average checks, more affordable options, things for guests. And again, it's, it's quite, it's quite sporadic in terms of, it depends where you look and what you look at, so we're still trying to get a read on what that number, what that number is and should be, and, we think that 2023 will be a good, baseline year for, for growth in 2024. Okay. And how are you gonna drive that growth in 2024? We've got lots of promotional and marketing plans up our sleeve, and as I say, our focus will be as well on the Brew Bar as well as on the mobile app transactions. Okay. Yeah, I mean, just overall, like, like, 'cause, you know, the A&W, like, I think four or five years ago, it was seeing double digit same-store sales growth, right? And now it's slowed down a bit. So, is there any thought to, slowing down the expansion? Like maybe there's... You're getting saturation. I see A&W restaurants all over the place now. Like, is... At some point, there's the, you know, like, how wide do you think you can-- how many more restaurants do you think you can put in Canada or, it seems like in a lot of areas you're getting pretty saturated, and it's kind of- Yeah, plenty are, Yeah. Yeah, sorry, sorry to interrupt you. Yeah. Yeah, no, I'm saying it's kind of showing the numbers because the Same-Store Sales is, I think, slowing down quite a bit over what it was five, six years ago. You know, interestingly, our experience is that our markets that have the most A&Ws per capita are also the markets that are performing the best in terms of average volumes and in terms of growth this year. I don't think that that's necessarily cause and effect, but we're seeing, you know, very strong growth, and certainly our experience is that as the number of restaurants and the convenience grows, so do our top-line sales in all of the restaurants in that region. So we're experiencing positive and positive: positive in terms of volumes, positive in terms of number of restaurants that we see able to open successfully. Okay. I guess, so you mentioned the app that was launched. Like, what is the take-up on the app, and how's... Do you have metrics on that you can share with us? Like, how many times is it downloaded, how many, what percentage of transactions go through the app? Like, I know at McDonald's, it's pretty high now, but how is the app doing? Yeah, it's, it's doing well. We launched at the end of June, so it's just been a couple of months. So what's interesting right now is one of the big, I think one of the big metrics that people look at is, you know, how often do people use it, how, you know, how many, how many recent transactions? And really, that's the measure of success, is, you know, are people coming back and using it again and again? But today, all of our transactions are fairly recent. Given when we launched the app, we had a break between the shift between our old and our new app, so really, these are brand-new transactions. We're seeing sort of a very high growth against a small base. I think the real answer will be, how do we use the mobile app, and how do we promote it in order to keep that growth going and make it a really big part of how guests might choose to order? And as you say, it's very common today to have mobile apps, and I think a lot of people, that's their preferred way of ordering and buying food. Right. Yeah. No, I think I have to use it for a while. But it's, it's quite convenient. So okay, well, well, thanks very much, and best of luck. Yeah. Thanks so, so much. Thanks for your questions. Your next question comes from Harry Levin, from IncomeResearch.ca. Thank you. Your line is now open. Yeah. Yep. Thank you. Good morning or good afternoon. I mean, I was just wondering about sort of the profitability structure with Pret versus, say, your existing A&W brands, as you've kind of got another party involved, whom I presume will want something in return for their brand. Can you make this up on margins, or can you provide any sort of color on that for me? Sure. I think one of the ways that we've structured this test is to, you know, it comes into existing A&W restaurants, and so the incremental costs are really just about, you know, the cost of the goods and so on and so forth. But when you think about that location, it's sort of piggybacking on some of the fixed costs that the A&W restaurant is already incurring. So for us, as to the degree that they're incremental sales, which they've proven to be, the profitability ratio, I think, is quite promising. Okay, thank you. That's, that's my only question, and best of luck on that front. All right, thank you. Ladies and gentlemen, as a reminder, should you have any questions, please press star followed by the number one on your keypad. Your next question comes from Tom Burke from Canaccord. Your line is now open. Yeah, just on the Pret A Manger, just on the history. So what was the sort of genesis of that agreement, and what did everybody sort of, kind of agree on at the beginning of what their game plan was? Obviously, this beta test, etc. What was the thinking? Is there any sort of telegraphing of what their ambitions are when it comes to, say, a North American rollout? You know, Pret has I guess a smaller or a decent presence in the U.S. They launched in New York City many years ago and have quite a big presence there. So they've got a foothold, certainly in the U.S. I think from a Canadian perspective, I think Pret is good at looking for great partners that can help with things like the supply chain and so on. So I think the two things that would probably set us into motion were, number one, their expertise in urban markets, and especially highly developed urban markets. The sort of positive correlation between our ingredient guarantees and Pret, and our access to a very stable supply chain in Canada and the relationships we have with the different parties. So I think all those things together made it very viable for us to do a test on this scale and to understand if there's opportunity ahead. So that was, the genesis, I guess, as you called it, or the idea. Right. And to what degree do they... Are they product innovators? Are they? Do they sort of bring new products at the same type of tempo as what we're kinda used to in the A&W network? Yes. Okay. So it gives us a look at and a way to have, you know, tested successful recipes and so on. And so, yeah, there's a lot of innovation in that category. Right. And do you guys brainstorm back and forth to sort of maybe cross-pollinate some ideas? Well, basically, we look at what they do, mostly in the U.K., also in the U.S., and see what their best sellers are that we can bring into the Canadian marketplace. But at the same time, we also are, you know, thinking about our supply chain and local partnerships and so on. So we can sort of make the recipes more Canadian. We're interested in making sure that we are able to source Canadian whenever we can. So we look at those things as well in terms of the recipe, and in some cases, use exactly the recipe, in other cases, we adapt it for A&W and for Canadians. Okay, great. And is there a localized core, type of, agility to, to product offerings, either... Probably not necessarily in A&W, obviously, such a big machine and, you know, trying to, you know, resonate with, things that would, I guess, be pretty homogeneous across the country. But in a, a concept like Pret, does that lend itself to some regional specification, depending on the, you know, the cultural makeup of the local population, all that kind of stuff? I think it's not impossible, but just like A&W, you know, I think consistency and people sort of developing a love for certain products and expecting them in all locations. I think a certain degree of customization, just like for A&W, we do have some markets that have some very specific regional preferences that we're able to include in our offering. But for the vast majority of products, I think consistency, you know, in terms of the training tools and all those things are important. We are looking with when we do the Brew Bar, it's another opportunity for us to just kinda learn about local preferences and see there could absolutely be some opportunity there for us to think about personalization or customization for the marketplace. Great. Okay, super. All right, thanks again, guys. Yeah, thanks, Tom. There are no further questions at this time. Susan, please go ahead. Thank you. Well, thanks everyone for attending the call today. We do look forward to updating you on our results after our Q4 of 2023. In the meantime, if you do have questions that weren't answered or you'd like further details, please do feel free to call Kelly Blankstein or myself at 604-988-2141. Thanks very much again. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.