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Edited Transcript of AW.UN.TO earnings conference call or presentation 24-Jul-19 8:00pm GMT

Q2 2019 A and W Revenue Royalties Income Fund Earnings Call

North Vancouver Jul 31, 2019 (Thomson StreetEvents) -- Edited Transcript of A and W Revenue Royalties Income Fund earnings conference call or presentation Wednesday, July 24, 2019 at 8:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Donald T. Leslie

A&W Revenue Royalties Income Fund - CFO

* Susan D. Senecal

A&W Revenue Royalties Income Fund - President & CEO

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Conference Call Participants

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* Elizabeth Johnston

Laurentian Bank Securities, Inc., Research Division - Analyst

* Tom Burke

Canaccord Genuity Group Inc. - Senior Investment Advisor of Montreal Retail Sales Team

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Presentation

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Operator [1]

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Good day and welcome to the A&W Revenue Royalties Income Fund Second Quarter 2019 Results Conference Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Ms. Susan Senecal. Please go ahead, ma'am.

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Susan D. Senecal, A&W Revenue Royalties Income Fund - President & CEO [2]

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Thanks, Eduardo, and good afternoon, everyone. Thank you for taking the time to attend our phone call today. I am Susan Senecal. I'm President and CEO of A&W Food Services of Canada, Inc. and CEO of the A&W Royalty -- Revenue Royalties Income Fund. With me on the call today is Don Leslie, who's Chief Financial Officer of A&W; along with [Jenna Judith,] who's Controller; and Lisa Marzocco, our Director of Finance. The results that we're presenting today are for the A&W Revenue Royalties Income Fund for the second quarter, which ended on June 16, 2019.

We're pleased to report that A&W Restaurants posted another quarter of solid sales with same-store sales growth of 10.3%. This brings our year-to-date same-store sales growth to 10.2%. I'm also pleased to report that the fund is increasing distribution. The new monthly distribution rate will be $0.159 per unit per month, starting with the July distribution, which will be paid at the end of August. The new rate of $0.159 per month translates to an annualized distribution rate per unit of one $1.90 -- $1.908. I'll review our sales performance and our strategic initiatives in more detail at the end of the call.

But for now, I'll turn things over to Don, who will review the fund structure and go through financial results for the quarter.

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Donald T. Leslie, A&W Revenue Royalties Income Fund - CFO [3]

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Well, that's great. Well, thank you, Susan. So before we can tell you much more about our results, I just need to read the following comment on our forward-looking information. So certain statements in this presentation may be forward-looking in nature. These include references to liquidity, earnings and anticipated earnings from growth in same-store sales and new restaurant openings.

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 the ability of A&W Food Services of Canada to implement its strategies regarding the marketing of the A&W system and the opening of new A&W restaurants, general economic and business conditions, financial and political instability, 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.

So with that, I'll just spend a few moments reviewing the fund structure and then we can go through the financial results for the quarter and year-to-date. After that, Susan will review our sales performance, strategies and outlook. We'll be happy to answer your questions at the end of our call.

So for those of you who might not be familiar with the fund structure, I'll just quickly review the highlights. The fund currently owns 80.4% of A&W Trade Marks, Inc., which through its interest in A&W Trade Marks Limited Partnership owns the A&W Trade Marks used in Canada. These Trade Marks include some of the best-known names in the Canadian foodservice industry, including A&W Root Beer, The Burger Family and Chubby Chicken. The fund earns income through its ownership interest in A&W Trade Marks, who, through the partnership, licenses the A&W Trade Marks to A&W Food Services. In return for the use of the Trade Marks, Food Services pays A&W Trade Marks a royalty of 3% on the sales of the A&W restaurants that are in the Royalty Pool.

Royalties lost due to the permanent closure of restaurants are replaced with royalties from new restaurants at the time of the next expansion of the Royalty Pool. Until then, Food Services continues to pay the royalty as if the restaurant had not closed. I do want to emphasize that the distributable cash available to make distributions to unitholders is based on the sales of the restaurants in the Royalty Pool, with only minimal operating expenses associated with operating the fund. This is a top line fund, meaning that it's not subject to variability of earnings or expenses associated with an operating business.

An important aspect of the fund is that Food Services owns the equivalent of 19.6% of the units of the fund through its ownership of common shares of A&W Trade Marks. As a result, interest of Food Services are, therefore, closely aligned with the interest of unitholders.

Growth in the fund is achieved in 2 ways: First, and most importantly, by increasing the same-store sales of the restaurants in the Royalty Pool; and secondly, by adding new restaurants to the pool each year. On the second point, the Royalty Pool is expanded at the beginning of each year by adding new A&W restaurants opened in the past year, less any restaurants which have permanently closed. On January 5, 2019, the Royalty Pool was increased from 896 to 934 restaurants.

So with that, I'll just go through our financial results for the second quarter of 2019 as compared to the second quarter of 2018. The news release issued earlier today outlines most of the financial results of the fund, while the interim financial statements and MD&A will be released early next week.

Sales reported by restaurants in the Royalty Pool increased by 15.3% to $351.8 million in the second quarter of 2019 and by 15.3% year-to-date to $660.7 million. Royalty income for the quarter was $10,555,000, which is an increase of $1,401,000 from the same quarter of 2018. Year-to-date royalty income was $19,820,000, this is an increase of $2,635,000 from 2018 year-to-date.

The increase in sales and corresponding increase in royalty income was driven by the 10.2% year-to-date same-store sales growth and the additional sales from the net 38 restaurants, which were added to the Royalty Pool on January 5, 2019.

As always, of significant interest to unitholders is the amount of distributable cash being generated and the payout ratio. Total distributable cash generated in the quarter increased to $7.9 million or $0.445 per equivalent unit from $7 million or $0.416 per unit in the same quarter of 2018.

The $895,000 increase in distributable cash was due to a $1,401,000 increase in royalty income plus a $12,000 increase in G&A expenses and interest expense and $494,000 increase in the current income tax expense.

At the end of the quarter, the cumulative surplus of distributable cash on hand was $7.2 million. This compared to $7.7 million at the beginning of the year. Surplus distributable cash historically decreases in the first half of the year due to the seasonality of sales in A&W restaurants and the fund maintaining a consistent payout rate throughout the year.

On a trailing-4-quarter basis, the payout ratio now stands at 90.4%. This compared to 96.0% at the end of Q2 last year. The payout ratio for the quarter is 94.4%. And this compared to 92.1% for Q2 last year. The quarterly payout ratio historically increases in the first half of the year due to the seasonality of sales in A&W restaurants.

Monthly distributions declared payable to unitholders in the quarter totaled $0.455 per unit. This compares to $0.412 per unit last year. Dividends to Food Services were declared at the same rate as distributions to unitholders.

As mentioned earlier, the trustees of the fund have announced that the monthly distributions will be increased by 3.3%, from $0.154 per unit to $0.159 per unit, starting with the July distribution, which will be paid on August 30. The new distribution rate translates into an annualized rate of $1.908 per unit. The fund will continue to periodically review distribution levels and distribute available cash in order to maximize returns to unitholders but also to maintain uniformity of distributions.

So with that, I'll just turn things back over to Susan, and she can discuss our progress on a strategic initiatives.

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Susan D. Senecal, A&W Revenue Royalties Income Fund - President & CEO [4]

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Thank you, Don. We're very pleased by the positive sales performance in the second quarter. The 10.3% is compared to the same quarter of 2018. Same-store sales growth was achieved in all concepts and in all provinces, with the exception of Saskatchewan, which continues to be affected by a weaker economy.

Strategic initiatives including repositioning and differentiating the A&W brand through innovation with high-quality ingredients continued rapid new restaurant growth and delivering an industry-leading guest experience are all key to delivering strong results and improved market share in the quick service restaurant burger market.

As we've discussed in previous calls, one of the drivers behind our sales growth is our innovation with high-quality ingredients that guests can feel good about. A&W continues to redefine what Canadians can expect from a quick service restaurant by giving them great-tasting food, made with care from quality ingredients.

We have led the QSR industry in sourcing better ingredients since 2013, when Food Services became the first national QSR in Canada to use only beef raised without the use of hormones and steroids, free of additives, fillers or preservatives.

In 2014, we began to serve only chicken raised without the use of antibiotics and fed a green-based vegetarian diet and eggs from hens fed a fully vegetarian diet without animal byproducts. Then in 2015, organic and fair trade coffee was introduced, which was another first for national QSR in Canada.

In 2016, Food Services became the first National QSR in Canada to use bacon from pork that is raised without the use of antibiotics and announced that A&W restaurants have switched to French's ketchup and mustard made with 100% Canadian tomatoes and 100% Canadian mustard seeds.

In 2017, we launched all-day breakfast, which was a menu innovation, very enthusiastically received by our guests. And then we reached another important milestone with the launch of our new Root Beer Guarantee. A&W Root Beer served in the restaurants is now made from natural cane sugar and all natural flavors, another first for the QSR industry.

We continued this journey in 2018, further strengthening our position as a leader in food and innovation with the introduction of the Beyond Meat Burger. Food Services was very excited to be the first national burger chain in Canada to offer burger lovers across the country, this Burger Patty made with 100% plant-based protein. The Beyond Meat Burger is great for anyone who wants more plant-based options in their diet.

And in Q4 of 2018, A&W took another big step with the move to using real cheese on all burgers and breakfast sandwiches. A&W's real cheeses include cheddar, mozzarella, jalapeno jack and cheddar cheese curds all made in Canada. All processed cheese has been removed from our menu. The strategy also includes the ongoing reimaging and modernizing of our existing restaurants and innovation and technology. Our new Good Food Makes Good Food design is being introduced in restaurants to communicate Food Services' ingredients guarantees to its guests. Costs of reimaging A&W restaurants are borne by the franchisees. And there is no cost to the fund. We've also been focused on our commitment to be an industry leader in guest experience. As discussed previously, Food Services introduced changes in its satisfaction measurement and feedback systems, system level processes, staffing, climate and restaurant equipment. Our new guest experience systems are popular with our franchisees and are rolling out rapidly, getting good traction in delivering a better guest experience.

A&W is also expanding upon its strategy to reach more consumers by joining forces with Uber Eats, SkipTheDishes and Foodora to make ordering and enjoying A&W's menu options more convenient and accessible in more parts of the country. For those who are looking for the convenience of delivery and don't have a chance to visit one of our restaurants, it's a new way to enjoy their A&W favorites from the comfort of their homes or wherever they may be.

And to update you on our progress in opening new restaurants, 6 new restaurants were opened across the country in the second quarter of 2019, bringing the total number of A&Ws in the first half of the year to 15 new restaurants. 12 of the 15 new restaurants were opened in key Ontario and Québec markets. And our pipeline of new restaurants under development remains strong. We currently have 24 new restaurants under construction that are expected to open in the coming months, with many more in varying stages of permitting.

I'd also like to take a moment to mention our upcoming Burgers to Beat MS event, which is the real highlight of our year. On August 22, we'll hold our 11th annual Burgers to Beat MS Day to raise funds for and support the work of the Multiple Sclerosis Society of Canada. Over the past 10 years, we've raised a cumulative total of over $13 million to support research and treatments for MS and to provide services for people living with MS.

I'd like to encourage all of you to visit your nearest A&W on August 22, when $2 from every Teen Burger sold will go to MS research and support programs. Looking ahead to the second half of 2019, A&W plans to continue to focus on key strategies that accelerate trial and drive sales, which, in combination with the work to improve guest experience, aim to fuel additional visits and build loyalty. These initiatives are expected to build the competitiveness of the A&W brand and to enhance performance over the long term, which in turn, will grow royalty income for the fund.

We're very pleased to see the impact of our commitment to strategy has had. We continue to deliver strong results, despite a highly competitive marketplace and foodservice industry. Rapid growth of new locations and industry-leading innovation, in addition to the continued efforts to consistently deliver great food and a better guest experience, in combination with reimage progress is winning guest visits and building loyalty, enhancing performance over the long term. We look forward to continued success. Thanks for your attention.

And we would now be happy to answer your questions.

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Donald T. Leslie, A&W Revenue Royalties Income Fund - CFO [5]

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Eduardo, over to you for moderating our questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And we'll take our first question from Elizabeth Johnston.

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Elizabeth Johnston, Laurentian Bank Securities, Inc., Research Division - Analyst [2]

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Just I'll start with a couple of questions regarding Beyond Meat. I remember when you first launched it last year and I guess, it was Q3, there were at one point, I believe, some challenges with respect to supply. So just the first question is, have there been changes either on your end or theirs? And how secure do you consider to be the supply of the product at this point?

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Susan D. Senecal, A&W Revenue Royalties Income Fund - President & CEO [3]

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Great question. Everyone's interested, I think, in making sure that we always Beyond Meat available Burgers in our restaurants, and we've had -- after those initial, sort of, surge of demand and interest, we've not experienced any kind of disruption to our supply. And we're very confident in being able to always have Beyond Meat Burgers and Beyond Meat sausage and eggers available for our guests.

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Elizabeth Johnston, Laurentian Bank Securities, Inc., Research Division - Analyst [4]

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I guess what I am getting at is has the company given you any guarantees with respect to product delivery? And I'm thinking particularly now about this, as we see their products available in more and more, both restaurants and elsewhere? So is there any kind of guarantee in your contract with them?

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Susan D. Senecal, A&W Revenue Royalties Income Fund - President & CEO [5]

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I mean with all of our suppliers we have -- continuity of suppliers is really important to us, and that's the kind of agreement and work we've done together with Beyond Meat. And they've been a terrific partner, and I'm very confident in our ability to continue to work together really well. And in our case, our burger recipe and so on is really developed in conjunction with Beyond Meat for A&W. So we're very happy with the supply chain so far and with the partnership that we experience with Beyond Meat. I'm not concerned about any kind of product shortages.

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Elizabeth Johnston, Laurentian Bank Securities, Inc., Research Division - Analyst [6]

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And now that it's been just about a year, have you ever been to parse through any of the data from your customers to try to determine the behavior behind some of these purchases, the plant-based products. So in other words, are -- do you have data now to show whether or not customers are switching? Are they new customers or anything else that can help understand the strong growth here?

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Susan D. Senecal, A&W Revenue Royalties Income Fund - President & CEO [7]

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I'm not sure. This way I can put it, Elizabeth, is that it's new visits. So a lot of those new visits come from people who sometimes have a Teen Burger and they sometimes have a Beyond Meat Burger. So it certainly is new visits. In terms of different people, we certainly hear anecdotally that there's people that haven't been to our -- one of our restaurants for a while, and they came out of their excitement and interest in trying Beyond Meat. But we don't have any additional data to say that there is X percent or Y percent, but what we've noticed is really increased visits among our guests. And many of those visits are to either bring someone along to try Beyond Meat or they themselves to have another opportunity to try a different variety of A&W Burger.

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Elizabeth Johnston, Laurentian Bank Securities, Inc., Research Division - Analyst [8]

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And is it possible -- I mean you would -- you launched the additional -- the breakfast offering of Beyond Meat in March, and you've had a full quarter for that. Is it possible to give a sense of how much do you think that contributed to your same-store sales growth?

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Susan D. Senecal, A&W Revenue Royalties Income Fund - President & CEO [9]

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I think that breakfast, overall, really growing day-part in the industry, and so we're capturing some of that, piece of that. Obviously, it's -- anything new and innovative, I think attracts attention and attracts visits. But I think that, that's in conjunction with breakfast sales more so than with our overall sales trend.

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Elizabeth Johnston, Laurentian Bank Securities, Inc., Research Division - Analyst [10]

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Okay. Great. And you mentioned in your prepared remarks a commentary about different provinces. Maybe if you could just call out, I know you mentioned Saskatchewan being under pressure, if I recall correctly. Other than that, would you say that now versus, let's say, a year ago, the provinces that have been generally the stronger performers continue to be or have you seen a shift in that?

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Susan D. Senecal, A&W Revenue Royalties Income Fund - President & CEO [11]

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Well, we've always had strong growth rate across the country. But yes, they're stronger, staying strong, I think. There seems to be some good momentum there.

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Elizabeth Johnston, Laurentian Bank Securities, Inc., Research Division - Analyst [12]

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Can you be any more specific in that with that matter of BC or Ontario or Québec, which are some of the key growth regions for you?

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Susan D. Senecal, A&W Revenue Royalties Income Fund - President & CEO [13]

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Yes, well, all 3 of them have been among our strongest markets, and they continue to be, even though they're cycling strong number. So that's good to see.

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Elizabeth Johnston, Laurentian Bank Securities, Inc., Research Division - Analyst [14]

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Okay. And just going back to menu innovation maybe more broadly. In terms of your openness for them to add additional plant-based products, how far do you see the strategy going? Do you think that there's an opportunity to offer an alternative for more items on your menu? As an example, I would draw out cheese is still dairy, which is not plant-based? Any thoughts on your longer-term perspective on that?

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Susan D. Senecal, A&W Revenue Royalties Income Fund - President & CEO [15]

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I think one of the things that we do quite well is to continue to look at what's happening in the marketplace, the kinds of things that are available where we might invest with someone to bring something new and interesting to the market place. But our primary consideration is obviously taste. And so as we look at the options that are out there, we're always interested in things that taste really great. And as product development and different recipes and so on kind of progress, yes, I'd say, we're interested in anything that tastes great and that meets our guests' needs and our guests' preferences. So we're looking all the time.

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Elizabeth Johnston, Laurentian Bank Securities, Inc., Research Division - Analyst [16]

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And do you think another...

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Susan D. Senecal, A&W Revenue Royalties Income Fund - President & CEO [17]

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But we wouldn't switch -- I was going to say, we wouldn't switch just to say we're switching to this or we're switching to that. We really want to make sure it tastes great in our burgers.

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Elizabeth Johnston, Laurentian Bank Securities, Inc., Research Division - Analyst [18]

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Right. Okay. And do you think that you would partner with other brands or co-brand for the lack of better term the way you did with Beyond Meat, which is another brand but as part of your offering? Or do you think that there's an opportunity to develop within yourselves an either A&W Branded specific products? Just want to know like where you see that fitting in?

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Susan D. Senecal, A&W Revenue Royalties Income Fund - President & CEO [19]

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Yes, we've done now both. So I think I could describe most of our relationships with them -- our suppliers as partnerships. And sometimes we use the partners' brand names, so coffee is a good example with Van Houtte and Beyond Meat has been a good example of that. But in other cases, we're really are working on developing something -- especially, when it's specific to A&W and is part of our recipe

,and we don't necessarily use the trade name of the partner, but we're open to both.

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Elizabeth Johnston, Laurentian Bank Securities, Inc., Research Division - Analyst [20]

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Okay. And when it comes to growth and competition, obviously, it's a very competitive market and a competitor of yours recently announced a similar lunch offering that's also plant-based. When it comes to competition, maybe you can just tell me a bit about your strategy? And what I'm getting at is do you react to those kinds of competitor changes either with marketing spend or additional spend on specific items in different markets? Or do you take more of a proactive approach to it? So either offensive or defensively, just how is your perspective on that?

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Susan D. Senecal, A&W Revenue Royalties Income Fund - President & CEO [21]

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Yes, we -- I would say describe it with proactive, I think is may be one way to put it. Because we're strategy driven. We design and development and invest very heavily to creative strategies, and then we devote all of our time and effort to implementing those strategies as well as we can and to keep improving the implementation of our strategy. So that means that while we're certainly conscious of the changes in the marketplace around us and what's happening, we continue with our own strategies, and we aren't really looking to see whether a marketplace or a competitor activities is going to make us change what we're doing.

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Elizabeth Johnston, Laurentian Bank Securities, Inc., Research Division - Analyst [22]

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And when it comes to the -- your growing market share, I mean given your organic growth -- I mean as you clearly gaining share, do you have any sense of where the share is coming from? Is it just generally within the lunch day-part or breakfast day-part? Or do you think it's coming at the expense of other primarily burger brands?

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Susan D. Senecal, A&W Revenue Royalties Income Fund - President & CEO [23]

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Well burgers continues to be a rapidly growing part of the industry, part of category that some certainly are experiencing some good success. So I think part of it is just as people have growing interest and when they want to try new things, that kind of expands that category itself. So I think it's a little of each, little bit of that we're gaining maybe from other competitors, but also new visits that are entering into the marketplace because of the customers' interest and the appeal of what we have been able to bring to market. See you on August 22.

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Operator [24]

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(Operator Instructions) We'll now take our next question from Tom Burke from Canaccord Genuity.

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Tom Burke, Canaccord Genuity Group Inc. - Senior Investment Advisor of Montreal Retail Sales Team [25]

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Just maybe -- obviously, maybe not everybody know is about or is dialed-in to the nuances of the A&W Royalty structure, and from time to time that the operating company behind A&W has to or does liquidate shares and cash into a certain degree before you take on over the ensuing years, more shares as you roll in more restaurants back into the Royalty Pool. Could you talk about what use of proceeds? When there is a big cashing-in event at the operating company level? And how that recycles into store development, product development and just the growth of the whole A&W ecosystem at large?

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Donald T. Leslie, A&W Revenue Royalties Income Fund - CFO [26]

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Well, I think as we described in the news release when we did -- when the units were sold is the dividends were paid up through Food Services to some of its long-standing shareholders. If you go back in 1995, the company actually used to be owned by Unilever, and management at the time bought out the -- bought the company from Unilever. So that was 24 years ago. Most of those managers have now retired and still have a fairly significant stake in the business. And as you touched on, Tom, every year the Income Fund grows and the ownership by A&W Food Services grows.

And so there is no specific agenda or anything else, it's just times where the shareholder of the operating company sees time to maybe reduce the -- their exposure to A&W or the ownership in A&W. I think for this tenure, there wasn't any change at all, and it grew from 25% to 45% ownership. It's been as low as 10. We're now at about 20. We're obviously building a lot of new restaurants today, so we're going to grow that ownership again, through the January 5, 2020, adjustment to the Royalty Pool. So no specific agenda and certainly, the cash flow, I mean, we despite the payment of the royalty to the Income Fund, the operating company does produce a very healthy cash flow itself with only a few corporate restaurants. So that cash flow is available, and you've probably seen that we've actually grown the overhead at the operating company quite significantly over the years as we've expanded our strategy. When I started 16 years ago, we were total in about 120 people, now we're over 200 in all areas of the business to support that growth and to support the success of the business. So that's really where the investment is.

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Tom Burke, Canaccord Genuity Group Inc. - Senior Investment Advisor of Montreal Retail Sales Team [27]

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Yes, no, great. So I think sometimes in other past iterations of some restaurant royalty trust, the biggest problem was, say, an unhealthy operating company behind it, but obviously, that is far, far, far from the case. And in terms of A&W and its healthy operating companies, what is kind of the reinforcing investment taste for royalty trust investors? So I just wanted to kind of get that out there because we don't usually have those discussions.

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Donald T. Leslie, A&W Revenue Royalties Income Fund - CFO [28]

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Our operating company is very successful and in great shape, financially.

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Tom Burke, Canaccord Genuity Group Inc. - Senior Investment Advisor of Montreal Retail Sales Team [29]

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Yes, no. That's great. Just wanted to touch on anything, obviously, people talk about food, plantation, all that stuff, and I think you guys have shown that you've been quick out of the gate to be very dynamic and agile at new product introductions and almost getting ahead of everybody when everybody else is sort of diving in to know what's hot. So you've already been there. You're well established. What are the other categories, just generally, obviously, you can't tip your -- you can't put your cards on the table, strategically speaking, but when you think about other categories of innovation just sitting back, looking from a far -- are there others categories that you think have just lagged in terms of innovation that could use some -- a little spark in terms of some other categories besides the traditional food groups in the QSR area?

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Susan D. Senecal, A&W Revenue Royalties Income Fund - President & CEO [30]

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Well, it's kind of tough question to answer because I think if you'd asked us a couple of years ago, we probably wouldn't have been able to identify Beyond Meat, is our -- what it turned out to be. But I think if you think about our strategy, we're going to be focused on millennials, and that's been the source of most of our inspiration. As we look at different trends that are happening out in the marketplace, different interests in eating and so on. And I think that I wouldn't really describe quick service restaurants is necessarily limited in terms of the breadth of the menu that we can offer. I think if we really follow the same trends, and in some cases, like with the Beyond Meat, set the trends for grocery store and fine dining and so on.

So we find our inspiration from consumers and what they are starting to be more and more interested in, and we can see those trends and identify them and then figure out do they match and do they fit well with what we're trying to do. So I'd say that, we look at the consumers versus looking to the different categories of food.

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Tom Burke, Canaccord Genuity Group Inc. - Senior Investment Advisor of Montreal Retail Sales Team [31]

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Yes, yes. Okay. Great. And you kind of bring up another point, obviously, getting inspiration from the millennials, and new store growth really catering to millennials, product introduction catering to the millennials, but we know there's an anchor traditional A&W as well. And it's kind of almost bifurcated to a certain degree. Is there a strategy where you kind of -- you are letting go a bit of the older demographic or the traditional A&W? Or do you feel that you can still kind of be all things to all people in terms of your -- the new A&W, if you will, and sort of the more traditional? Any comments in that regard?

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Susan D. Senecal, A&W Revenue Royalties Income Fund - President & CEO [32]

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Sure. Well, I think I mean our longstanding, long-term mentally close relationship with baby boomers, being born in 1956, we're baby boomer company itself. We were born along with baby boomers and have that solid relationship and focused our efforts for many years on developing that connection, understanding and being able to meet the needs. So I think the lucky thing for us is that there really isn't a fork in the road when it comes to interests. So what we've noticed is that, while millennial considerations are broader, so they've look at more things in general in making a purchasing decision, mostly driven by availability of information, frankly. Really those are not very different. So the core, if you kind of picture the -- a long line, you'd say here is in the middle is all of the things that are really interesting to, say, baby boomers and gen x. And we would extend the line a little bit to include those things that go a bit further when it comes to millennial considerations and interests and so on. So luckily, there's lot of overlap and I think lots of room for our guests who have been loyal to us for so many decades as well as our newer guests just discovering A&W and building their loyalty.

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Operator [33]

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It appears, there are no further questions at this time. I'd like to turn the conference back to the presenters.

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Susan D. Senecal, A&W Revenue Royalties Income Fund - President & CEO [34]

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Thank you. Thanks, Eduardo, and thanks to all of you for attending our call today. We do look forward to updating you on our results after the third quarter. And in the meantime, if anyone has questions that weren't answered on our call today or come up, please feel free to call either Don or myself at (604) 988-2141. Thank you.

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Operator [35]

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This concludes today's call. Thank you for your participation. You may now disconnect.