Restaurant Brands International Inc.

Good morning and welcome to the Restaurant Brands International first quarter 2020 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. You will hear a tone to confirm that you are in the queue. To exit the question queue, you may press star then two. All callers will be limited to one question. Please note, this event is being recorded. I would now like to turn the conference over to Chris Brigla, RBI's Head of Investor Relations.

Please go ahead. Thank you, Operator. Good morning, everyone, and welcome to Restaurant Brands International's earnings call for the first quarter ended March 31, 2020. As a reminder, a live broadcast of this call may be accessed through the Investor Relations webpage at investor.rbi.com. and a recording will be available for replay. Joining me on the call today are Restaurant Brands International's CEO, Jose Sill, COO, Josh Kobza and CFO, Matt Dunnigan. Today's earnings call contains forward-looking statements which are subject to various risks set forth in the press release issued this morning and in our SEC filings. In addition, this earnings call includes non-GAAP financial measures. Reconciliations of non-GAAP financial measures are included in the press release available on our website. Let's quickly review the agenda for today's call. Jose will start with some opening remarks on our company's response to the ongoing COVID-19 pandemic. He will then discuss our results for the first quarter and provide detail around our performance at Tim Hortons, Burger King, and Popeyes. Josh will then provide an update on technology at RBI. And to conclude, Matt will review our financial results before opening the call up for Q&A. I'd now like to turn the call over to Jose.

Thanks, Chris, and good morning, everyone. Thank you for joining us on today's call. I hope you and your families are doing well and staying safe. I'd like to start today's call by thanking the hundreds of thousands of people that have been working behind the scenes and on the frontline to ensure that we're continuing to serve our guests and communities in every way that we can during this time of need. Our business partners, our franchisees, our team members, our employees, our suppliers, everyone has been working together around the clock and has been doing an extraordinary job. We're fortunate to have an exceptionally strong platform and network. Our talented and dedicated teams, the great business model we've developed around our three iconic global brands, and our strong and diverse network of partners around the world have underpinned our strength over the past decade and continue to act as an incredibly strong foundation in the midst of this crisis. As we move forward, we will continue to serve our millions of guests and to support our restaurant owners. Our drive-thrus, which have for decades been an important source of differentiation, have allowed us to act as a secure and highly convenient means for our guests to get food. Once we are safely on the other side of this crisis, we're confident we will pick Up right back where we left off growing our brands in our home markets and internationally. With over 27,000 restaurants across over 100 countries and territories and three amazing iconic brands, we came into this crisis in a position of strength and we're confident we have the tools to emerge even stronger and better. I'll start my comments today by highlighting the most important things we've done to manage through the COVID-19 pandemic before moving through our results for the quarter. The health and safety of our guests and team members has been a critical priority from the start of the crisis. In early March, we were among the first restaurant companies in North America to close our dining room seating areas before local governments asked us to. We moved quickly to install measures to ensure social distancing in the front and back of house. As the crisis unfolded, we thoroughly reviewed our restaurant health and safety protocols and expanded our cleaning procedures in consultation with health experts and medical professionals. We mandated masks, gloves, and contactless procedures in our locations across brands. And using our experience in Asia as a valuable guide, we were among the first in North America to introduce temperature checks for our team members. Early on, we committed ourselves to supporting team members in our corporate restaurants in their ongoing need to adjust their day-to-day routines. We also announced we would be paying all restaurant team members at our corporate restaurants Thank you for joining us today. have joined me and are foregoing half of their board compensation for 2020. Beginning in March, we quickly pivoted our marketing and advertising, replacing spots that emphasize price points and promotions with messaging around the benefits of our off-premise business model as well as messaging around purpose. We're now emphasizing features of our service model that we haven't highlighted for quite some time, in particular the availability and utility of our drive-thrus. In this environment, a drive-through window is a great option for so many people who want to limit physical contact. And for guests that can't access our drive-throughs, we're rolling out new curbside pickup options on our mobile apps in North America. We've also adjusted our recent marketing to highlight the benefits of home delivery and how accessible our products are, both through our own app and through third-party delivery partners. Since the onset of COVID-19, we've seen a rapid rollout of home delivery across thousands of restaurants. Tim Hortons, for example, we've gone from about 250 restaurants participating to more than 1,000 in less than two months, offering coverage for nearly all of Canada, and we're still increasing the number of restaurants on delivery given the rising demand we're seeing in this channel. Throughout all of these efforts, we've stayed very close to our restaurant owners. We've established weekly and even daily communications with our advisory boards of restaurant owners and have been working constructively together on all of the decisions and changes we've needed to implement. In that context, we set out to design support programs that would move the needle for our restaurant owners. And we believe the ability of our owners have shown to swiftly adapt their businesses and leverage the different support programs now in place has left our networks in an overall healthy and stable position. We mobilized quickly to provide support. Early in the crisis, we announced we were moving to 100% variable rent at about 3,700 locations where we have property control So that these expenses could flex down with the sales impact to those restaurants. We also announced in March that we're deferring April's rent for up to 45 days to give restaurant owners more flexibility in managing their cash flow. In addition, we looked ahead and identified a number of significant cash payments that would be due to owners and pulled those forward, representing more than $70 million of advanced liquidity. For our Burger King restaurant owners in the U.S., our cash advance on rebates made immediately available up to $15,000 per restaurant. On top of these cash advance programs, we also temporarily suspended capital investment commitments for owners, including for renovations and new development across our brands. Across our international regions, we've similarly engaged with our restaurant owners to identify sources of immediate liquidity, including by working with suppliers to secure extensions to payment terms and by working with lenders to access new lines of credit. We've also put mandatory capital commitments on hold and have been proactive in working with local government officials first in China and now elsewhere in Asia and Europe to reopen stores as soon as possible. And despite the many challenges we face, the strength of our business model continues to shine through. Across all three of our brands, we began this first quarter performing in line with the trends we noted for Q4 and maintained steady performance through January, February, and the first 12 days of March. In mid-March, we saw a sharp decline in comparable sales across brands and regions, coinciding with the global proliferation of COVID-19. While many of the challenges remained in April and continue as we head into May, there is optimism and renewed confidence amongst our brand teams and restaurant owners as we've seen a Strong improvement in comparable sales over the course of the month of April. Low double-digit improvements for each brand in our home markets from the lowest levels we saw in late March. We'll provide more detail around this dynamic at each of our brands in just a few minutes. Given the ongoing limitations to in-restaurant dining in most markets, our rapid shift to emphasizing off-premise has been a key driver of this improvement. In our home markets, the majority of our sales were for off-premise consumption even before the crisis, and the important adjustments we made to our marketing and operations have helped reestablish momentum in our drive-thrus. Technology has emerged as a critical differentiator in enabling delivery, which has also contributed substantially to the improvement in sales. We've seen this internationally as well as in markets like Spain and China, where off-premise consumption is a very important part of the business. We've been focused on understanding shifts in consumption patterns to guide adjustments like those I just mentioned. As COVID-19 has spread, most of our guests have put their ordinary routines on pause and consumption has shifted accordingly. Whether it's people on their way to work, parents taking their kids to school, or students on their way to class, we've seen normal traffic routines completely suspended while most people are staying at home. Day parts like breakfast and snacking that fit into these routines have seen a disproportionate decrease, while lunch and dinner have shown more strength. Whereas we would typically see sales pick up on Thursday and continue at a higher clip through the weekend, we now see stronger performance on weekdays. And while traffic has decreased, we've generally seen an increase in average check sizes due to more frequent group ordering both in the drive-through and on delivery. As we sit here today, more than 95% of our U.S. restaurants are open. In Canada, around 85% of our Tim Hortons restaurants remain open with most of the temporary closures in places like universities or malls that are currently closed. In APAC, more than 80% of our restaurants are open, which reflects a strong recovery in China after a majority of the restaurants were closed during the peak of the crisis there in February. And in EMEA and LAC, around 40% and 50% of our restaurants are open respectively. The proportion of temporary closures in EMEA and LAC is particularly pronounced given the higher number of countries that have mandated total lockdown. But in both cases, most of our networks are managed by large, well-capitalized partners that are well-positioned to push through the crisis. Many of them are already working on preparations to reopen as governments have started to communicate potential paths over the coming weeks. So on a global basis, approximately three-quarters of our restaurants are open today, although again, most still have limited service modes. We know that the full reopening of all of our restaurants and service modes will take some time yet, but we're encouraged by early signs of improvement in sales trends across many of our major markets. With all the decisions we've taken and with the strong working relationship we have with our restaurant owners, we believe we're well positioned to come out of this crisis even stronger as a system. Our supply chain operations and those of our restaurant owners have continued operating with limited disruptions, and we've put in place measures to minimize risk across our systems. I'd now like to go through a few highlights for each of our brands, after which I'll ask Josh to share an update on our digital progress and then Matt to take you through the financial details of the quarter. At Tim Hortons in Q1, our system-wide sales decreased negative 10% to nearly $1.4 billion, driven by a decrease in global comparable sales of negative 10.3%, which was partially offset by net restaurant growth of 1.2%. In Canada, comparable sales declined Thank you for joining us today. Breakfast, snacking, and other routine-based day parts have been disproportionately impacted across all of our businesses, and this dynamic is clearly illustrated in our results at Tim's and those of our coffee-oriented competitors in North America. However, over the course of April, we've been encouraged by early signs of momentum returning to our core coffee and breakfast platforms, as well as our drive-throughs. Also, our rapid expansion of delivery to more than 1,000 stores has allowed us to drive strong and consistent sales growth in the channel. And the launch of curbside order and pickup has had a positive impact as well. On the back of these initiatives, we've spurred a positive trend in daily comparable sales growth that at the end of April had us in the negative high 30s, a more than 10-point improvement from the lowest level we saw in late March. In Q1, we also had to pivot our annual roll-up-the-rim promotion and pull 81 million paper All of our teams from digital to marketing to operations and our restaurant owners reacted incredibly quickly to make the necessary adjustments in a matter of days. It's hard to quantify the final impact of the program on sales given it coincided exactly with lockdowns beginning in Canada. But we saw a clear benefit from all digital promotion, which greatly contributed to the 1.5 million new app downloads and the significant increase in loyalty registration we saw during the quarter. In terms of restaurant owner profitability, the decrease in sales we've seen in recent weeks has led to an expected near-term decrease in profitability. But we're confident that a combination of the programs we've made available and those launched by the Canadian government will provide the resources our owners need to weather the crisis. You'll recall that our baseline unit of economics in Canada are among the strongest in global QSR, which provides a degree of insulation even in the face of the sales declines seen to date, and means that on average, our restaurants continue to be cash flow positive. As I mentioned earlier, one of the measures we implemented to help our restaurant owners was to suspend current capital investments. Pre-COVID-19, we installed fresh brewers and water filtration in thousands of restaurants and still have about 900 restaurants that will undertake these installations once we emerge from the current crisis. Similarly, we've slowed down the implementation of our outdoor digital menu boards. The importance of these projects has not changed. We are focusing our full attention on working with our franchisees to plan for a full reopening of their restaurants and adapt the business to meet all the demands of a post-COVID-19 world. Turning to Burger King, in Q1, our system-wide sales decreased 3%, to nearly $5 billion, driven by a decrease in global comp sales of 3.7%, which was partially offset by net restaurant growth of nearly 6%. In the U.S., our comparable sales growth at Burger King for the quarter was negative 6.5%. During the pre-crisis period in January, February, and the first two weeks of March, we posted positive comparable sales growth in the U.S. in the low single digits, driven by a continued strong contribution from the Impossible Whopper and improve performance in the value layer of our menu. With the onset of COVID-19 across the U.S. in mid-March, our daily comparable sales growth decreased for the last two weeks of the quarter to negative low 30s. The largest individual driver of this decline was a closure of our in-store dining areas. Despite this headwind, we quickly refocused our attention on our drive-throughs and delivery as primary sales channels. At the onset of the crisis, our dine-in business dropped essentially to zero, and even our drive-thru business went negative year over year as customer traffic dropped due to the stay-at-home orders in force throughout the country. Since then, our intense focus and modified approach to drive-thru has allowed us to improve sales in the channel each week, and our drive-thru sales for Burger King U.S. are now up over 15% year over year and have been positive since the second week of April. And on delivery, in the final weeks of the quarter, we accelerated the rollout to several hundred restaurants so that we now have over 5,000 restaurants offering the service, most via multiple delivery partners as well as the Burger King mobile app. We've continued to see tremendous growth in average delivery sales per restaurant through April, including on our own app, and are confident the market penetration we've been building in our delivery channels will position us well as we emerge from this crisis. On top of our other marketing initiatives, our momentum in drive-through and delivery sales has underpinned a sequential improvement in our total comparable sales from the negative low 30s in late March to the negative teens in the last few weeks of April. In terms of restaurant profitability, not surprisingly, the decrease in comparable sales we've seen since March has negatively impacted store-level profitability in the U.S. However, we've been working with our restaurant owners to adapt their businesses to the current environment and access support programs both we and the government have made available to drive restaurant-level cash flow. Given current conditions and available support programs, we believe our restaurant owners in the U.S. are well-positioned to weather this crisis, and as I mentioned before, remain over 95% open. In our international markets, system-wide sales decreased just over 1%, driven by a decrease in comparable sales of 1%, which is partially offset by net restaurant growth of 9.5%. The decrease in system-wide sales was in part driven by a sharp decline in system-wide sales in China during the initial spread of COVID-19 in January and February. At the peak of the crisis in China, a majority of our restaurants were temporarily closed and comparable sales for restaurants still operating were down 60%. Over the course of five weeks between February and March, restaurants steadily reopened so that today less than 10% of restaurants in China remain closed. At the same time, Daily comparable sales have recovered to approximately negative 15% and maintained a positive trend. The lower international system-wide sales in Q1 also reflected the early impact of COVID-19 across the rest of APAC, Latin America, and EMEA, where several markets instituted lockdowns in late March. As I noted earlier, many markets have remained closed throughout the month of April and will continue into May and perhaps beyond. Although governments are starting to release details around their expected timelines for reopening. For example, Italy has communicated a timeline to reopen restaurants over the coming month, while in Spain, many of our restaurants are now able to fulfill delivery orders. And finally, at Popeyes, our global system-wide sales increased over 32% to 1.3 billion, driven by over 26% growth in global comparable sales and unit growth of nearly 7%. Comparable sales growth was particularly strong in the U.S., Rising nearly 30% for the quarter. Performance at Popeyes varied substantially before and after the onset of COVID-19 in the U.S., but saw the least impact relative to our other brands. In January, February, and the first two weeks of March, comparable sales grew in the 30s, driven primarily by sustained volumes of the chicken sandwich, but also reflecting growth across other parts of the menu, including bone-in, bone-less, and seafood. Following the onset of COVID-19 in the U.S. in mid-March, comparable sales declined to flat levels year over year for the last two weeks of the quarter. In April, like the Tim's and Burger King teams, the Popeyes team has moved quickly to emphasize our off-premise business, and comparable sales have substantially improved and are returning to the levels we were seeing through the second week of March before the onset of the crisis. Popeyes' success last year was unlike anything any of us have seen in our careers, but its resilience in the face of COVID-19 with dining rooms closed across the country has been equally remarkable. We've made many important adjustments at Popeyes since the global spread of COVID-19, rolling out contactless procedures in the drive-through and putting additional resources behind delivery and mobile order and pickup. In these channels, we've seen an increase in average order size and ticket, especially in the dinner day part through communication of our family meal bundles. Comparable delivery sales are up in the triple digits year over year, and we continue to see delivery as a huge opportunity to reach new guests and enlarge the trade area of our stores as the brand builds on the momentum it has sustained from last year. At Popeyes and across all three of our brands, we've seen the importance of digital sales through apps, through curbside pickup at our restaurants and through our delivery partners. I'd like to turn the call over to Josh who's been instrumental in leading all of our digital efforts that have prepared us so well to lean into these channels. Josh?