Pizza Pizza Royalty Corp.

Good afternoon, everyone. And welcome to Pizza Pizza Royalty Corp.’

s earnings call for the third quarter ended September 30, 2020. Our discussion today will contain forward-looking statements that may involve risks relating to future events.

Actual events may differ materially from the projections discussed today. All forward-looking statements should be considered in conjunction with the cautionary language in our earnings press release and the risk factors included in our annual information form.

Please refer to our earnings press release and the MD&A in the Investor Relations section of our website for a reconciliation and other disclosures relating to non-IFRS financial measures mentioned on this call. Joining me on the call today are Pizza Pizza Limited’s Chief Executive Officer, Paul Goddard; and Chief Financial Officer, Curt Feltner.

Before we begin our discussion of the third quarter results, we wanted to highlight the structure for those new to our call. Pizza Pizza Royalty Corp.

indirectly owns the Pizza Pizza and Pizza 73 brands and trademarks through its subsidiary Pizza Pizza Royalty Limited partnership. This partnership has two partners, Pizza Pizza Royalty Corp., which owns 76%.

[Audio Gap] The Royalty Corp. is a topline restaurant Royalty Corp.

That earns a monthly royalty through a lease agreement with Pizza Pizza Limited for the use of the Pizza Pizza and Pizza 73 trademarks in its restaurant operations. The partnerships monthly royalty is calculated as a percentage of Royalty Pool System Sales reported by the restaurants in the Royalty Corp.

Increases in royalty income are derived from both increases in same-store sales growth and the opening of new restaurants. The success of the Royalty Corp.

depends primarily on the ability of Pizza Pizza Limited to maintain and increase restaurant system sales and to meet its royalty obligations. Before I turn the call over to Paul Goddard to provide the business update, we wanted to share a note on the company’s reporting.

As you are probably aware, when the pandemic first triggered shutdowns in March, creating extraordinary conditions for the country and our business. Pizza Pizza began to provide monthly updates on comparable sales in addition to our normal quarterly reporting.

Though there remains uncertainty and volatility around the impact of the pandemic going forward, on a relative basis, the sudden increase in uncertainty and volatility that initially led us to institute monthly sales reporting has passed. For that reason, we will return to our normal quarterly reporting going forward, which is in line with our industry peers.

Now, I would like to turn the call over to Paul Goddard.

Thanks, Christine. Good afternoon -- evening, and thanks everyone for joining our call today.

Our Pizza Pizza and Pizza 73 traditional restaurants are fortunate to operate in the Pizza segments of quick service industry, especially considering the widespread devastation that has occurred in the entire foodservice and hospitality industry since the pandemic began affecting Canada back in mid-March. As winter months arrived, there’s real concern about the survival of dining restaurants across Canada and I think you’ve probably seen that in the media as well.

It is honestly a very real cause for concern. For Pizza Pizza, colder weather signals the arrival of increased delivery business as Q4 has historically been our strongest quarter in sales.

From a high level, the company’s Royalty Pool sales mix includes sales generated by our traditional restaurants from three main ordering types, which are number one, pizza deliveries, number two, from customers who order ahead for pickup, and three, for -- from pure walk-in sales. And in addition to these main ordering types, we also have non-traditional locations, as well as sales at various special events, both indoor and outdoor.

So, three main sales channels, the deliveries, the pickup and walk-in. So if we look at these more closely break them down.

Our traditional restaurants accounting for 90% of Royalty Pool sales have remained open for delivery and takeout since the pandemic began. At times certain health authorities have allowed limited customer dine-in only through -- then only to restore restrictions, especially as we’ve seen cases increasing across Canada.

And certainly even the last few days you can see the case surging and the government’s public health reactions. The other 10% of sales is generated by our non-traditional locations, as special events, special community events.

The majority of which are being closed due to these government mandates during the pandemic. Our non-traditional business including sporting arenas, colleges, universities and major outdoor entertainment venues are largely responsible for the reported decrease in our third quarter sales.

While being allowed to remain open Pizza Pizza and Pizza 73 System Sales have still been impacted in material ways as restaurant operators took significant and necessary measures in their restaurants to protect the health of their employees and customers. Our teams were very proactive and agile in complying with all social distancing recommendations and requirements of the applicable health authorities, including the closure of restaurants’ seating areas, which the dining restrictions, we saw being temporarily relaxed for a portion of the quarter.

That also put on in places like Ontario back in October. So what this has meant for our stores is that walk-in sales especially for those in our urban locations, which typically represents 40% of our total sales, these walk-in sales, has decreased significantly.

And as I alluded to earlier, fortunately, delivery and pickup sales that key 60% portion of our sales continue to offset a large portion of those lost walk-in sales. So turning to Q3 results, same-store sales growth, the key driver of yield growth for shareholders of the company decreased 9.5% in Q3, which was a significant improvement from the 16.3% decrease in Q2.

And with the loss of the vast majority, frankly, nearly all of our non-traditional sales, same-store sales growth is expected to continue facing headwinds in the near future, as the pandemic and its harsh effects continue to impact us all. Since the pandemic began, Pizza Pizza Royalty Corp.

and Pizza Pizza Limited, the private offering company adapted and innovated even faster than we normally do to boost both company’s financial strength. Stronger order volumes, particularly in delivery, pickup, digital ordering, have enabled the company to increase the shareholder dividend by 10% as the company generated $1.3 million in surplus cash during the third quarter.

And so, overall, we feel our restaurants have performed quite well compared to the wider restaurant industry, both in Canada and the U.S. and we’ve really shored up our financial strength with the corporate and franchisee level, and reduced costs wherever possible controllables, while driving sales and channels we are still allowed to have open, such as delivery and pickup.

If you’ll recall that back in April of 2020, we chose to temporarily decrease the dividend by 30%. So we are making good progress here for this 10% dividend increase.

Royalty Pool sales from the 749 restaurants in the Royalty Pool decreased 9.4% to 125.4 million from $138.5 million in the same quarter last year, when there are 772 restaurants in the Royalty Pool, with the majority of the decrease due to the closure of most of our non-traditional locations, as I said. During the third quarter at both brands, we continued executing our long-term strategy of promoting our value based menu offerings supported by product innovation, food quality, on trend product introductions and operational excellence in our restaurants.

And we’ve kept the majority of our marketing efforts focused on delivery as part of our ongoing promise to provide our customers with that delivery done better. And lots of examples of that we talked about I think last time some of them but the tamper proof box, best-in-class contactless delivery from uniform drivers you can trust, our time guarantee, of course, our laser fast award winning apps, et cetera, et cetera.

So we’re pleased with our significantly improved results of both brands especially with Pizza 73 operating in a very challenged economic environment in the Paris [ph] and in Alberta, obviously, particularly, but the prolonged negative effects on employments and the overall economy is certainly of concern to us. Our strong and growing delivery focus at both brands together with our successful re-launch of our digital ordering apps have been major sales driving advantages during the pandemic.

Customers are finding our digital channels faster. Our apps, our websites, even our AI-enhanced call center cue and other channels, more convenient than ever before.

We’ll turn now briefly to restaurant operations. As I mentioned, Pizza Pizza and Pizza 73 delivery and pickup business has -- have grown significantly and we continued to take nimble and targeted actions via our marketing, our operations and technology teams to further drive our delivery business.

And I would like to say to you, it’s probably hard to understand just listening to the call, but one of the things that has been really helpful is the fact that, we are just operating very holistically, I would say, more than we ever have actually despite the fact that our workforce is predominantly remote and it’s been nice to see that agility, which I think is also a key advantage. And we have implemented rigorous additional health and safety measures, of course, including face shields and masks and tighten sanitation on all work and touch surfaces.

And we’re also one of the first in Canada to provide our customer safe 100% contactless transactions, not only for delivery, but also for in-store pickup as well, which has been encouraging to see that the pickup channel grow as well. So it is important to note that as a part of contactless delivery, some of you may be aware, if you’ve ordered, customers are now able to also easily reach up their driver, much as third-party aggregators are provided on their functional apps and that’s proven to be extremely popular with most of our customers pre-tipping.

Meaning really there’s no need for physical contact at all. The driver can leave the order on the doorstep if you like or whatever instructions you give them, and this, of course, speeds up the entire delivery, makes it safer for both the customer and the drivers, and so it’s really truly a win-win and customers can opt out of contactless delivery too, but if they want to check the box, it defaults to contactless right now and so we can easily switch that off if you ever wanted to.

But it’s a nice feature and people really love it. At both brands, our marketing strategies are structured to support restaurant profitability, while also increasing customer orders and order frequency by placing orders for delivery or pickup through our wide array of digital ordering platforms, or by visiting one of our many locations across the country.

So really more than ever before, Pizza Pizza is focused squarely on future growth and innovation. Innovation is always been a big part of our story.

But I think you’ll see going forward, it’s going to be an even bigger part, which just is pretty exciting and I think it’s essential. And consumers are moving to online purchasing, of course, in large numbers, of course, that’s accelerated in 2020, in large part due to the pandemic and we’re in a good position because of that.

We’ve got the infrastructure, all of the investments we’ve made. We’re very fortunate to benefit from that, despite the pandemic and its awful effects.

So we feel that, people aren’t going to move back offline after the pandemic receives. This is sort of a transformation of society and that’s just all good for us.

And of course, for many, many years, Pizza Pizza Limited has invested heavily in technology platforms from our business intelligence dashboard software to our now state-of-the-art, accounting, distribution, ERP software. That’s gone very well.

Enable us to make things more efficient, sharing of data, a lot more automation, a lot less manual labor and so there’s lots of internal efficiencies as well at the operating company. And really, we’re building the best platforms for -- to run our business and also for our customers.

And we’re building other platforms, but also the company for the future. And that includes the organizational structure as well and how we reconfigure ourselves to just be ready for the future and we’re going to continue to be investing in our business every quarter as well.

The largest single investment, of course, has been in our digital ordering platforms. No other pizza player in Canada has more digital channels for hungry customers to choose from.

We’ve got the whole laundry list of web, mobile web, iPhone, app, Android app, et cetera, and we’ll continue to invest in those areas. We’ve got an Apple Watch App and AI enhanced automated filtering queue or IVR and all these things add up.

They really do and give us an advantage over others. In customer delivery and pickup orders transacted through this various array of platforms accounted for over 60% of all orders.

And we see this percentage going up and we’re certainly ambitious about increasing it more and more and I think more rapidly over time as well than the already rapid rate we’ve had converted people to more digital, not really helps our customers who want it and it helps the company obviously and it helps our franchisees and our JV partners at a Pizza 73. Innovation also key to our growth for Pizza Pizza, not only in technology, but in menu offerings and really every facet of our business, it’s not just tech division, it’s all aspects of our business.

We can look to see where can we innovate the best and get the biggest bang for our buck. So Q3, we continued baseline menu, promotional activity, we did a complete overhaul of our menu and looked at things that were working and things that maybe weren’t working, but we perhaps left on there for a while and we really optimized it.

And so, one example of something that really worked nicely was our very popular $7.99 unlimited medium two toppings pizza, Pizza Pizza and out in Alberta and in the Paris we had the $9.73 special a Pizza 73 also works well. We also promoted our alternative crusts, particularly the new -- they’re fairly new Cauliflower Crust, paired with a side of our new cauliflower bites which are lightly battered and fried cauliflower florets serve as your choice of depth.

So that’s been nice to see. And additionally, we leveraged our Toronto Raptors and hockey team partnerships during the return of sports to TV, which I think people liked in the summer.

And of course, although, we didn’t see the Raptors in any paid NHL teams lasts as long as we would have liked in the playoffs, we certainly didn’t see that people continue to love ordering and eating pizza at home on game nights. At our diverse high quality menu, really we re-launched web and apps, plus our improved customer service and market share, position the company well to weather this pandemic and haven’t forbid any similar future pandemics or a continuation of this pandemic.

So I think we’re just assuming conservatively that if things continue to be really tough out there for not only Canada, but the world that we need to control what we can and be well positioned. And I think we are despite these headwinds that we see in general.

And touching on franchisee financial health, I know that’s of interest to folks out there. Pizza Pizza Limited has also worked really closely with our restaurant owners through these unprecedented market conditions to come up with financial solutions where required, such as obtaining sufficient financial support from governments, for restaurant operators, whether it’s a CEBA loan, CEWS or SECRA, and obviously, the wage subsidy was extended, which is helpful.

The government’s tried to do something that’s a little more fitting, I guess, on the rent relief side, although even that they, frankly, didn’t get right. And I think now they’re rapidly shifting to try and accommodate to getting more rent relief to direct to tenants, without them hopefully having to pay back rent first, which was kind of ridiculous if they even thought that could happen.

But anyway, I think, that we will see some more rent release, where possible. My real estate team, by the way, is in a tremendous job negotiating with some tough landlords and some more sympathetic landlords as well.

But regardless, we pride ourselves on being a great tenant and a reliable and reputable one. And in fact, all of our teams have worked very hard to maximize any and all opportunities to bolster our network financially from all angles and I’m very proud, as I said earlier, the collaboration and commitment everyone has shown, and particularly, with almost everyone working remotely, as well rather than critical people that have to be in the office, like our distribution people and our go-plan and things like that, that’s really a manufacturing distribution operation.

But we really embrace the mindset of, what we call, team -- teammate self, where everyone has everyone else’s back. And it’s really an amazing culture of trust and collaboration we’ve developed up and down and across the entire Pizza Pizza and Pizza 73 network.

And especially during tough times, that’s actually a real achievement in my view and it speaks to our culture, because you can get, of course, a lot of emotion and a lot of real stress, obviously, in the system, and yet, it does actually I want to pull people together. So I -- we feel good about that.

And these various actions and continuous iterative improvements have been tremendously helpful and essential, and in my view, put us on extremely solid footing as an operating company now and for the future. Now, turning to restaurant development for a moment.

During the quarter, we opened two traditional restaurants, and one non-traditional Pizza Pizza location. Five traditional and three non-traditional Pizza Pizza restaurants were permanently closed.

So for the first nine months, we’ve opened five traditional restaurants and two non-traditional Pizza Pizza locations, 14 traditional and 15 non-traditional Pizza Pizza restaurants were closed. Additionally, one traditional Pizza 73 restaurant opened and one closed.

And during the third quarter substantially all traditional Pizza Pizza and Pizza 73 restaurants remained open across Canada. However, the majority of non-traditional Pizza Pizza, Pizza 73 restaurants have remained closed, as I said, with the exception of a few typically smaller locations and hospitals and gas stations and the like.

And we do have in, for instance, some interesting new takes on non-traditional or quasi traditional, which is some Walmart locations, I believe we have two in Ontario and there’s a couple of Alberta as well. So those are locations that are sort of more of a non-traditional experience, if you go to Walmart, but they actually have the capability of delivery, which is really nice in some of the smaller accounts.

So we think that’s kind of an interesting model that we may do more of, we’ll see how that goes. So I would also like to mention just quickly that we also carried on with our renovation and site refresh program.

And this was -- this last quarter, we saw number of sites renovated as well, we try to keep the pace up there. But we feel it’s very important to demonstrate to the market that we always will reinvent ourselves and keep refreshing our brand and I think the franchisees like it and so to our customers.

They see us refreshing the entire environment. But at the same time, we are being very careful right now not to burden our operators or franchisees with too much expenditure with renovations as well or any other non-essential spending that they don’t have to do right now.

So we’re -- think we’re striking the balance there. We’re doing things, frankly, more affordably than we were before.

Many rentals in some cases, as it makes sense. Just make sure we are doing something.

But we are very careful with that and as we weather this pandemic storm, we’re making sure we’re helping versus hurting unit cash flow for our operators wherever we can. And we do have a strong pipeline of stores to ramp up for later in 2020 here, the remainder of the year and into 2021, especially, and barring any massive resurgence or adverse long-term effects of the pandemic, we currently do expect 2021 to be much stronger than 2020 in terms of network growth and our pace of renovations as well.

I hope that will pick up as well. We’ve been okay, but I’d like to see that faster.

So I think we’re poised to do that. And certainly that’s given the unique challenges that 2020 has thrown at all of us delaying us in some respects with construction and rentals.

But in closing, I just want to personally thank all of our employees and our restaurant owners across the country and their team members are incredible delivery drivers who’ve just been absolutely just phenomenal their dedication and especially all healthcare workers and other frontline workers, including emergency responders you’re putting others first daily and continue to do so, especially through this worrying surge we’re seeing. They’ve all shown tremendous courage and leadership and that it’s real inspiration to everybody.

So during the pandemic, our team has been performing extremely well under extremely unprecedented circumstances and it’s truly inspiring to see that happens. The people helping each other, donating food to the front lines, as well as charities, hospitals, especially sick kids hospitals, which is always a big component for us, for our main charity.

It’s licensed for smiles, right across the country and just keeping the faith and staying on offense, controlling what we can control. So that’s really it for me, I’d say, thanks again for joining the call this evening.

And I’ll now ask Curt Feltner, our CFO to provide a brief financial update.

Great. Thank you, Paul.

That was a really great update. Our financial statements for the quarter continued to be impacted by the pandemic.

Of course, our same-store sales decreased 9.5% for the quarter and decreased 10.8% for the first nine months. And as Paul mentioned, the partial loss of walk-in sales and non-traditional sales are largely responsible for either reduction in our system sales.

However, the increase in our delivery and pickup sales at both brands are working to partially offset this reduction. Although, same-store sales growth is expected to continue facing near-term headwinds.

The company’s royalty income is earned as a percentage of Royalty Pool System Sales, which for the quarter decreased 9.4% to $125.4 million from $138.5 million in the same quarter last year. By brand sales from a 645 Pizza Pizza restaurants and the Royalty Pool decreased 10.2%, and sales from 104 Pizza 73 restaurants decreased 5.6% for the quarter, compared to the same quarter last year.

So sales for the nine months decreased 10.3% to $364.6 million, decreased to $364.6 million from $406.6 million in the prior year comparative period. So, total Royalty Pool sales for the quarter and year-to-date decreased over the comparative periods largely as a result of the negative impact of the pandemic and the change in the number of restaurants in the Royalty Pool on January 1, 2020.

So, a note on the restaurant closures and the effect on Royalty Pool, Royalty Pool sales and royalty income, Pizza Pizza Limited, as Paul mentioned, has permanently closed 15 traditional and 15 non-traditional restaurants during the first nine months in 2020. So how does this affect shareholders, so the partnership and it’s Pizza Pizza license and royalty agreements provide that, if a restaurant is closed during a reporting period, Pizza Pizza Limited will continue paying royalties to the partnership for the closed restaurant and for the balance of the reporting year, as if the restaurant did not close.

At the next January 1st adjustment date, a make-whole payment carry over calculation is performed to determine if the make-whole payment will continue to the next reporting period. So therefore shareholders are made whole for the effect of any closed restaurant.

So turning to company statement of operations, the partnership’s royalty income earned as a percentage of Royalty Pool sales decreased 9.2% to $8.1 million for the quarter and decreased 10% to $23.8 million for the first nine months. Turning to partnership expenses, administrative expenses for the quarter increased to $157,000, compared to $108,000 in Q3 2019.

This increase is a matter of timing in that the administrative expenses reflect that the annual shareholder meeting was normally held in Q2 last year was held in Q3, so the admin expenses were slightly higher in Q3. Relating to admin expenses, the partnership pays interest expense on its $47 million credit facility, interest paid for the first nine months of the year, decreased to $904,000 from $942,000, compared to the same period in 2019, due to the company renewing its credit facilities.

So the partnership’s new interest rate swap agreements came into effect on in April of 2020. The new interest rate swap agreements, fix interest rate at the banker’s acceptance rate of 1.81% plus a credit spread currently at a 0.875% for a combined rate of 2.685%, which is slightly lower than the previous rate of 2.75%.

So now -- so the credit facility bares interest rate at -- as I said at the Canada banker’s acceptance rate plus a credit spread between 0.875% to 1.375%. And so it depends on the level of debt to earnings before interest taxes, depreciation and amortization or EBITDA.

So the credit facility includes affirmative and negative covenant customary for arrangements of this nature. And as of September 30, 2020, all of our covenants have been met and the company expects to meet all covenants in 2020.

The partnership is required to maintain a funded debt-to-EBITDA ratio, not to exceed 2.5 to 1 on a four-quarter rolling average basis and so the debt-to-EBITDA ratio for the last four quarter rolling average is 1.44. So which is below the 1.5 to 1.

So -- and this is the threshold to retain our current credit spread. So if you want to see our full credit spread schedule, you can reference our company’s MD&A.

And just a note on the interest expense on our statement of earnings, it differs slightly from our interest actually paid, and that’s due to hedge accounting, and you can also see in our MD&A the reconciliation from the statement of earnings to actual interest. So after the partnership receives royalty income and pays admin and interest expense, the resulting net cash is available for distribution to its two partners based up on their ownership percentage.

So Pizza Pizza Limited ownership is held through its Class B and Class D exchangeable shares, so that ownership increased by 0.5% to 23.5% after the January 1, 2020 adjustment to the Royalty Pool and the true up of the January 1, 2019 Royalty Pool adjustment. So therefore a Pizza Pizza Limited is the largest shareholder of the company on a fully diluted base.

So turning to shareholder dividends and working capital. So the company declared shareholder dividends of $3.7 million for the quarter or $0.15 per share, compared to $5.3 million or $21.39 per for the prior year comparable quarters.

So the decrease is to -- due to the previously announced April dividend decrease. So the payout ratio for our current quarter was 74% and in the prior year comparable quarter it was 103%.

For the first nine months, the company declared shareholder dividends at $51.39 per share, compared to $64.17 per share for the same period last year. Payout ratio for the first nine months is 92%, compared to 106% of prior year comparable period.

So when the pandemic first impacted system sales in March, the company reduced its monthly dividend from $7.13 per share to $0.05 per share beginning with the April 2020 dividend. And since April, system sales have partially recovered resulting in the 74% payout ratio for the quarter, the company’s working capital reserve increased $1.3 million in Q3 to $4.6 million and for the nine months, the reserve is increased $1.1 million.

And as Paul mentioned, as we mentioned also in the press release today, as a result of the $1.3 million excess cash generated and the 74% payout ratio earlier today, our Board of Directors announced a 10% increase in the monthly dividend, and that monthly dividend would now be $5.50 per share from $0.05. Beginning in November annualize, the dividend will increase $0.06 per share from $0.60 to $0.66 on an annualized basis.

So dividends are funded entirely by cash flow from operations and the working capital reserve, no debt was incurred during the year to fund dividends and it’s expected that future dividends will continue to be funded entirely this way so. The company will continue to monitor sales and royalty income, and we’ll consider further changes to the monthly dividend taking into account the duration and the impact of the pandemic on restaurant operations and the timing and the pace of any economic recovery in the markets that Pizza Pizza and Pizza 73 restaurants service.

So that concludes the financial overview. I’ll now turn the call back to Sarah, our operator for questions.

Yeah. Thanks and good evening everybody.

And thanks for the very thorough update you guys provided and hope you guys are all safe and healthy.

Thanks.

So the first question on, I mean, last we spoke the same-store sales trends were definitely showing improvement monthly and I know you’re not providing that and that’s in line with the industry. But maybe could you just talk about the dynamic you saw through the quarter specifically for Pizza Pizza, which it seems like did struggle a little bit later in the quarter?

Yeah. I can shoot a bit of light on that and then perhaps, Curt, could chip in if he has other thoughts.

But I think, first of all, we’re encouraged overall, that we’ve got the machine working well. But we’ve lost those big chunks of our non-traditional in our walk-in.

I mean, with the rules changing as they need to and in different jurisdictions, that’s definitely impacting us. And I think things, like, well, the catering business, for instance, although, in the summer, there is not as much, that’s a real impact, right?

I mean, corporate catering, normally people are -- a lot of people might take vacation in the summer, but they’re still at their offices in urban environments. It’s downtown Montreal or Calgary or Toronto.

And that’s one aspect, where we just don’t have that, whereas last year we did have that. So that’s one thing I’d really highlight is something like the loss of catering that we haven’t really talked about before.

I don’t think in detail. So that’s one of the big differences there, not a total surprise and obviously, we’re thinking about how can we best address that, because it’s hard to replace that obviously right now.

But I would say that catering aspect is a big one. And I’d also say that, if you look at the impact of the third-party aggregators.

I mean, they continue to lose money every quarter, let’s say, but they continue to market heavily and spend a lot in the giveaway fantastic delivery offers and 75% off or free delivery and things like that to help customers on it. It’s an interesting marketing strategy and all that just to say it’s extremely competitive out there.

So we’re competing with all their usual people and you see, I would say, almost more heightened marketing activity for most folks, as well as losing our catering.

Okay. And that’s Paul…

Yeah. So…

Go ahead. Sorry, Curt.

Yeah. So, Derek, I will just add to that.

So we definitely did show improvement in the Q3 versus Q2, especially in our traditional restaurants and with our loss in our non-traditional business, which is the 10% that we’ve mentioned, right, especially at Pizza Pizza. So that’s where our weakness lies.

We did see good progression during, especially compared to Q2 versus Q3 at Pizza Pizza traditional restaurant.

Yeah. Absolutely.

I guess, if -- is this the right way to look at it? I mean, you did have a 10% so -- 10% of your non-traditionals are closed.

Does that imply that same-store sales are roughly flat in your traditional restaurants? Is that the right way to look at it?

4Q, yeah, we just don’t break those down, but I mean -- from my system sales, you can say that, right?

Okay. Okay.

Yeah. It’s -- with the closure of stores, it impacts same-store sales so.

Yeah. That’s right, Derek.

I think -- I don’t think you -- if I -- I mean, I heard you incorrectly, but I think you said, 10% of non-traditionals closed and that’s not the case, right? I mean, almost all the non-traditionals are closed.

It’s just an aggregate. They represent about 10% of our total sales typically in the past, right?

Yeah.

Okay.

That’s what I meant. Yeah.

Yeah.

Yeah.

Yeah. Okay.

Sorry.

Yeah. I meant…

Most have -- most of them are, yes, right? Since their out of sales, but almost -- virtually all are vast, vast, vast majority and then some of our non-traditionals are just not up -- able to offer right now.

Yeah. Got that.

Okay.

Yeah. Yeah.

And Derek, sorry, just to add to that then. So our mixture of our sales channels that Paul went into, so he gave a good summary of really the various channels and all the different levers that we push and pull to create total sales, right?

And in a normal recovered period we really spread out our risks as far as, we don’t just depend on delivery or walk-in or so we do spread out to non-traditionals over our 50 plus years, right? We managed to spread the risk around.

But right now our walk-in sales really are suffering, especially as we open and close dine-in.

Yeah.

And in urban areas as well, we tend to suffer because there is lack of schools, there is lack of businesses, lack of people made out at night. So we do find that walk-in business, which historically can be 40% of our business at Pizza Pizza, really is what we’re trying to make up in our delivery and our pickup.

And you seem to be decently successful at picking up some of that anyways?

Right.

Yeah.

Okay. And just help me I understand better.

I mean it’s a bit of a better performance that Pizza 73, can you just help me understand the dynamic there?

Yeah. I think, I mean, obviously, the backdrop is a really struggling economy.

Looking at unemployment and underlying conditions, of course, and that’s still that remains the same. But I think things, as I highlighted on the call, like the $9.73 offer that we’ve had really resonated well, I mean, just our -- we’re 90% delivery out there, right?

And we are a real powerhouse there. So I think that where we get -- we are able to offer that value, that’s really continued to resonate especially with people that are more challenged than ever.

So the everyday deal does well. It always has been a great thing for us to rely on and then $9.73.

And I’m not sure if there is anything else Curt would add to that, but I would just say the value focus and the delivery focus has been similarly helpful that there.

Yeah. Just overall the results there are the fact that the difference in sort of the true pure walk-in is at 10% to 12% versus a 40% at Pizza Pizza.

Okay.

So there’s less to make it.

Okay.

Yeah.

Makes sense.

Likewise out there. Yeah.

But likewise out there, we also do lose the school -- the school effect hurts, right? Not having the catering and things like that.

So we’re conscious of that and we’re saying, okay, what can we control and what can we do to offset that as we go through the year.

Okay. That makes perfect sense.

Maybe just talk about the big drivers behind the increase in check. And I didn’t quite catch up with the both banners?

Yeah. So -- sorry to Paul, you can just delve, just give like the overall.

So, again, our delivery business has increased significantly and the delivery in general has a much higher average check than our walk-in business.

Okay.

So slice versus a meal for a family. So our ticket is up with our traffic down significantly…

Yeah.

…right, so.

Okay.

Is that the question?

Yeah. That’s exactly.

Exactly.

Yeah.

I was also wondering if we should be reading anything into the dividend hike and in terms of signaling your confidence in the business. And Curt, maybe you could just explain the jump in the cash despite the jump in same-store sales?

Yeah. So the Q3 and Q4, Paul mentioned, that our -- these are our stronger sales quarters compared to Q1 and Q2, right?

So whenever we adjusted and whenever the pandemic hit, we -- our company and the Board decreased our dividend by an estimated 30%, because at the time, no one knew what was ahead. And what we’re seeing now is even though the same-store sales growth is down, we’re seeing us moved back to a more normal level of 74% payout ratio is just not something that we would target.

We’re always targeting 100% payout ratio. So we’ve been fortunate to have strong delivery and thank God for that.

So it’s been a lifesaver. So now we’re giving back and resetting the dividend and we’ll continue monitoring that very closely.

Our Board, as you know, over the years, our Board has always been very conservative. So we do like to see a consistent dividend.

We do feel strongly in our 10% and we’ll keep a close eye on it and try to recover the rest of that walk-in sales.

That’s fair. And maybe just one actual final one for me is, maybe just talk about some of the successes you’re seeing from, you mentioned some of them on the call -- in your prepared remarks, Paul, but some of the success you’re seeing from the digital initiatives, and more specifically, I’m curious about the AI aspect of everything?

Right. Okay.

Well, I think, that -- we just continue to invest heavily in the digital initiatives. And I think -- we’re really big last year, right, with the new websites and new apps and I think they’ve been very well received and we’re seeing -- it’s just so much faster and slicker experience.

So that’s done. But we continue to look for ways to enhance things.

So we put in the contactless, for instance, we are bolstering our loyalty as well and thinking about how we can actually get more royalty. We -- for some time we have had the ability to have people sign-up on any channel as well, which is pretty unique in industry as well.

So we’re doing that. I think there is still more for us to do there.

So we’d look to innovate even more. We are also using, I would say, more tools that are readily available, such as just automated, intelligent email blasts that are more intelligently distributed and more relevant messaging to people that are targeted based on what they actually like to buy and what they have bought in the past and things.

So there is just a lot more intelligence behind the scenes based on our data analytics and our business intelligence that we do internally. And so there’s that piece there, a lot of which is using digital tools, but it’s more to do the analysis and come up with sort of better more targeted approaches, I guess, you could say.

Also a lot more use of social media. We do have -- what we do everything in-house, we do partner with some sort of smaller boutique digital strategists type agencies that are very, very good at specific social media strategies, whether it’s Twitter or increasingly something like TikTok, Snapchat, even some of those channels that -- and Instagram, where I think, you’ll see us have a greater presence over time based on some of the recommendations and input we got some folks like that.

So there is a lot going on there. And on the AI side, I mean, we still think that we’ve really only scratched the surface there and we’ve done quite a bit of testing with our inbound queue or people have kind of an automated robot answering.

They can walk you through the order and it’s got some intelligence in it, in AI. But I think there is still more work to be done there and we do -- expect to do more next year on that front that I think will assist the business overall.

Perfect. So that’s all for me.

Good luck everybody and navigating it’s a tough environment for sure and stay safe.

Thank you. You too, Derek.

Really appreciate it Derek.

Thanks, Derek.

Yeah. Just on that same topic, like, I find the app is a little difficult to use and I know I was signed up and I was getting emails and now I’m not getting the emails and I just find the whole marketing is kind of like, I don’t know, it doesn’t really grab me.

It’s not simple. It’s like the app is difficult to use.

Is there initiatives to -- I don’t know why I’m not getting the emails now, like I was getting them, I ordered a bunch of times. But if you don’t get the emails, you don’t -- it’s not top of mind, you don’t tend to order, like, what are you guys doing in that area?

Okay. Ed, I can speak to that a little bit.

And I think that, certainly, if you’re having trouble, I apologize, because that should not be happening. If you are a registered customer and you did authenticate with…

I just saying, it’s not as simple as that…

Yeah.

But you put an order in and then it’s not what you want, then you have to -- I don’t know. It just -- I find it not like the cleanest app.

That’s all.

Okay. No.

I appreciate the feedback. I mean, we are continuously iterating and the app quite a bit.

I mean, obviously, we have major releases and minor ones, and we were -- you wouldn’t believe the amount of customer feedback we get versus -- on digital channels and otherwise on all of our, whether it’s the call lines or the app. But I mean…

Yeah.

… keep in mind, if you’re having that trouble, we’ve got to -- in our view, we have to be the best of the best. So, our view is the fewest clicks, the fastest experience, the most easy and we won awards for this stuff, right, I mean, recently.

And so, I do think that most customers aren’t having that experience relative to some others are low budget pizza apps that aren’t secure, where there people can’t rely on their credit card to be securely stored for instance. We really have a leadership position.

I think the market in general and customers see us as a very safe, fast app relative to most of our competitors that we see of any QSR. So, I mean, I look to some of the third-party apps that I think have, obviously, massive magnitudes of dollars of orders of magnitude of higher budgets.

And to me, I mean, they have their shortcomings, but those are slick fast apps. And I think you’ll start to see, I apologize if you haven’t seen that gap narrow yet, but you will.

Already with contactless delivery and pay in advance, and tip in advance, and contactless. I mean, we are already very much emulating that effect and customers are voting with their feed.

You can see people that have converted to our iPad app or our iPhone app or our website. And they are adding on more now, because the food is very visible, it’s quicker and we’ve got a lot more intelligence and personalization built into those channels.

So, I guess, that most people are finding it very, very fast and quick, and our overall marketing strategy. What we’re seeing despite the pandemic is that we’re outpacing most of our competitors, right?

I mean, we’re talking value probably number one, but we’re also talking quality innovation, alternative crusts, Cheeto, et cetera. So I think we’re actually a real leader and really shaking up QSR in Canada with the approach that we’re taking.

Yeah. I guess to be specific, one of the issues I find, say, if I take one of the specials and it puts you in a box, like you get two toppings and then if you want to add a third, it’s not really flexible.

Like I would be like, okay, I’ll give me extra topping. I’ll pay the $0.50 or whatever and then it kind of locks you in and just, I don’t know, maybe I -- maybe just for me, but…

Ed, I have to walk you through that. But actually it’s designed to actually provide total flexibility.

So I’m surprised because we want to run…

Okay.

…as many toppings as you want. So, obviously, we could help you through that, because -- and it shouldn’t be frustrated.

I think that’d be put a lot of time and effort to make it, so that you can customize your own. You can remember it.

Remember your last five orders…

Yeah. I know it, I have seen that.

Like remembers your orders and that’s cool, but…

Yeah.

I am member too…

So it should -- yeah.

I remember like…

So it should be…

… what are you going to pick it up or whatever. That’s cool.

So, it’s -- well, maybe we can handle it offline. Like I’d like to know more about how that works.

Sure.

And like I said…

Listen, happy to talk you on that.

And so -- like I go to my junk mail, I just -- unlike I’m wondering like how come I am not getting -- I don’t want to blast every day, but how come I am not getting marketing blast anymore. Like it just -- it’s kind of a mystery to me, but always…

Those issues you should have dropped me…

I am…

Yeah. Since we have …

… nowadays all that stuff, right, but, yeah.

No. Absolutely.

We’d want you to get them and believe me, if you’re a -- if you opted in, we will certainly make sure that you do get those and they should continue.

Okay.

There’s no reason why they should have stopped.

Okay.

We haven’t heard that happen with other people, so.

Okay.

But thanks for letting us know. Appreciate that input very much.

Okay. Thank you everyone for joining us on the call.

If you have any questions after this call, please feel free to contact us. Our information is on our website and on the earnings press release.

Thank you very much. Have a good evening and stay safe and healthy.