Restaurant Brands International Inc.

Good morning and welcome to the Restaurant Brands International second quarter 2020 earnings conference call. All participants will be in a 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 Briglip, Restaurant Brands International'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 second quarter ended June 30th, 2020. As a reminder, a live broadcast of this call may be accessed 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 an ongoing recovery from the COVID-19 pandemic. He will then discuss our results for the second 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 everyone is doing well and staying safe. In the second quarter, our global response to the COVID-19 pandemic remained the focal point. We operate in over 100 countries and territories around the world and this crisis has impacted everyone. Our response has involved a huge coordinated effort across all regions and by leveraging our platform's key points of differentiation, we've been able to drive a significant recovery in our performance. We've come a long way since March and the rebound we've seen highlights the resilience of our business model, which can perform well both in good times and in more uncertain times. At its core are our three iconic brands, which are among the most recognized and loved restaurant brands in the world. Burger King, Tim Hortons, and Popeyes are all leaders in their respective categories and offer a combination of high quality, craveable food, and convenience that you can match. They also offer familiarity and comfort as well as great value, characteristics we've seen consumers gravitate towards in more trying times like those we face today. During the pandemic, the strength of our off-premise service modes has been another key differentiator with guests that recognize the added safety and convenience of our drive-through and delivery channels. And by moving quickly to adjust our restaurant operations and marketing to underscore the strength of off-premise, we've helped drive a significant recovery in sales since the onset of COVID-19. This has been especially apparent in our home markets where substantially all of our restaurants have remained open throughout the crisis, and comparable sales across all three of our brands have improved by about 30 percentage points versus the lows we saw in late March. In our international markets, approximately 90% of our restaurants are now open versus half during the peak of the lockdowns. And we've seen sales ramp up at a healthy pace. Moving into the second half of the year, we remain focused on the key priorities we outlined last quarter to adapt our strategy to evolving conditions and drive a continued recovery in sales. Our diversified network of strong and well-capitalized master franchisees has been a key pillar of our platform for years, and we're working hard alongside our partners to reopen and return to growth. We're also working closely with our partners around the world to prepare for what we believe will be opportunities for growth, exiting the crisis, and building strong pipelines for development as we move past the pandemic and look ahead to 2021. There's considerable white space for each of our brands around the world, and we believe the dislocation caused by COVID-19 has reinforced the positioning and consumer value of world-class brands like Burger King, Tim Hortons, and Popeyes. Before I continue with my remarks, I'd like to express my sincere gratitude to everyone in the extended RBI family. Our business is naturally well-suited to respond to the challenges posed by this pandemic, but the pace and strength of our recovery has depended on the hard work and dedication of hundreds of thousands of people around the world. To everyone that has contributed to this effort, I want to sincerely thank you for everything you've done to help us navigate through this crisis, gain strong footing and move forward with our plans to build the most loved restaurant brands in the world. I'd now like to take you through our progress against the key priorities we established in response to COVID-19 before reviewing our results for the quarter. Since the beginning of the pandemic, We have had four main priorities. The first is to protect the health and well-being of our guests and restaurant team members. The second is to continue serving our millions of guests every day through all available channels. The third is to support our restaurant owners. And the fourth is to be there for our communities in need. Our first order of business has been to ensure that we are protecting the health and well-being of our guests and restaurant team members. And we move quickly to implement enhanced safety protocols across our networks including the rollout of high frequency sanitation, contactless service procedures, and universal PPE usage. More recently, as we've started to reopen our dining rooms in the U.S. and Canada, we've implemented additional measures to protect the health and safety of every guest that comes to dine with us. Dining rooms are currently open in about one-third of our restaurants across both countries, and in all cases, we're limiting the number of open tables to ensure social distancing and sanitizing tables between each sitting. Our rapid action in rolling out protocols to protect our guests and team members has allowed us to continue serving millions of guests every day. Even during the most severe period of the pandemic in March, we were able to keep substantially all of our restaurants in our home markets open by refocusing our efforts on our off-premise capabilities and recovering much of the sales volume we had lost through growth in our drive-through and delivery business. Given the unique challenges posed by the pandemic, Our over 12,000 drive-thrus across the U.S. and Canada have been one of the safest and most convenient places to get a meal over the past four months. Within the first few weeks of the crisis, we quickly implemented new procedures like contactless pickup at the drive-thru window and shifted our marketing to showcase the safety and accessibility of this channel. By the end of April, comparable drive-thru sales were up over 20% at Burger King and over 100% at Popeyes. By the end of May, comparable drive-thru sales at Tim Hortons were up double digits year over year. In the second quarter, we also continued to serve millions of guests via our rapidly expanding delivery channel, where comparable sales grew well into triple digits across all three brands in our home markets. We've added nearly 3,000 new restaurants onto delivery in the U.S. and Canada since February and now have almost 10,000 restaurants for about two-thirds of our network, Offering the service and over 34,000 unique points of delivery considering the fact that most restaurants offer delivery via multiple aggregators as well as our own mobile apps. The strength of our off-premise business has allowed us to drive a meaningful improvement in overall sales levels across all three brands. And as a result, we believe we're well positioned to navigate the current environment and can be flexible as we reopen our dining rooms in a safe and measured way. Even if that means temporarily slowing down or pulling back in certain areas where local guidelines require. While we're encouraged by the positive trend we've seen in sales, we're prepared to invest additional resources into our advertising and media funds during the second half of this year if needed. In our international markets, we've also made substantial progress behind our priority to continue serving our guests. As of the end of July, over 90% of our restaurants are now open on a global basis, including substantially all of our restaurants in APAC, approximately 90% of our restaurants in EMEA, and approximately 80% of our restaurants in Latin America. Supporting our restaurant owners has been another critical priority for us and our work on this front has set a strong foundation for our ongoing recovery. In April, we temporarily moved to 100% variable rent at about 3,700 locations in the U.S. and Canada where we have property control so that rent expenses could flex down to reflect changes in sales levels. We also deferred April rent collections for up to 45 days and offered significant liquidity advances to our Burger King and Tim Horton systems on an as-needed basis, in total making over $130 million available to our restaurant owners. Across our home and international markets, we also took a proactive approach in postponing CapEx commitments as we prioritized the liquidity and financial strength of our franchise partners. This step, coupled with a dislocation to permitting and construction caused by the pandemic, has naturally slowed our pace of openings for 2020. And recently, we've also worked closely with our partners to identify underperforming, unprofitable restaurants that it makes sense to close. We've shared with you in the past our work around portfolio optimization, both in our home markets and around the world, and believe this process of replacing older parts of our network with new, modern restaurants in strong locations Thank you for joining us today. Thank you for joining us today. We announced our Restaurant Brands for Good framework that addresses our major initiatives to invest in the quality of our food, our planet, and our people and communities. We believe this framework sets out the important long-term investments that are foundational to building the most loved restaurant brands in the world. You'll hear us talk more about our Restaurant Brands for Good framework in future quarters, and I encourage you to go to our website and review our plans in greater detail. And so, though our results in the second quarter were heavily impacted by the COVID-19 pandemic, we're encouraged by the recovery we've seen across all brands and geographies and the way in which all of our teams and partners came together to make this possible. We cannot predict exactly when the dust will settle, but we're confident that we will be well positioned to capitalize on opportunities for growth as we emerge from the crisis and continue towards the 40,000 restaurant goal we talked about last year. We've been hard at work with our partners to make sure we're ready to move forward and restart our engine for growth around the world. I'd now like to go through 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 Q2, our system-wide sales decreased 33% to $1.1 billion, driven by a decrease in global comparable sales of 29%, which was partially offset by net restaurant growth of over 1%. In Canada, comparable sales declined 30% for the quarter and were significantly impacted by the widespread stay at home orders following the onset of the COVID-19 pandemic in March. However, we've seen a significant improvement in comparable sales since March and as of the end of July, comparable sales are now in the negative mid teens versus the negative mid 40s we saw at the peak of the crisis. Since the onset of the pandemic in late March, we've seen a slightly faster pace of recovery at Tim Hortons in the U.S. than we have in Canada, and as of the end of July, comparable sales at Tim's in the U.S. are in the negative low single digits, in line with other coffee-oriented concepts in the U.S., and about 10 points ahead of Tim's in Canada. Historically, our performance at Tim's in the U.S. has closely tracked our performance at Tim's in Canada, and during the onset of the pandemic in late March, our comparable sales were similarly impacted The slower pace of recovery and resulting gap in sales we've seen since then is attributable to three main factors. First, as we noted during our remarks for the first quarter, the pandemic has had an especially pronounced impact on routine-based visits, including on the morning commute and afternoon snack occasions, which each represent a significant part of our business. High-frequency coffee-led tickets are an even greater percentage of our sales in Canada than they are in the U.S., and have seen the most significant impact during the pandemic. Second, markets across Canada have generally followed a measured pace of reopening, which has helped effectively contain the virus, but has led to a slower pickup in activity and reestablishment of routines. By contrast, the US has progressed into later stages of reopening much sooner, which we've seen show up in mobility data as a significant differential in commuting traffic and patterns. And third, as I mentioned earlier, Off-premise sales, especially in our drive-thrus, have been especially important in driving the top-line recovery we've seen thus far. About two-thirds of our Tim's restaurants in Canada have a drive-thru versus approximately 90% of our Tim's restaurants in the U.S. Comparable sales have meaningfully outperformed at these locations as comparable drive-thru sales in both countries increased into double digits during the quarter. These three factors have been particularly apparent in Ontario, where about half of our restaurants are located, and performance has been more impacted by the disruption to routine traffic and a lower penetration of drive-thrus. However, certain parts of Canada have been a bit quicker to reopen, and we're encouraged by the further improvement we've seen in sales. In Quebec, for instance, where we have drive-thru penetration closer to our TIMS U.S. business, and activity has resumed at a slightly faster pace than in other provinces, We've seen comparable sales improve into the negative mid-single digits as of the end of July. In the second quarter, we've also made significant progress in the evolution of our TIMS rewards platform. We continue to incentivize registration by highlighting the additional features available to registered guests, including the ability to choose a preferred reward from our broader menu, and gradually adjusting the base reward for non-registered guests. We also ramped up personalized offers over the course of the quarter and are encouraged by the level of guest engagement and redemption we've seen so far. Considering the natural drag from free rewards offset by the uplift from personalized offers, the impact of the loyalty program to comparable sales was approximately neutral by the end of June. You may recall that loyalty contributed approximately negative 3% to comparable sales in the fourth quarter of last year and we're pleased to have closed that gap within the first six months of 2020. We continue to be really excited about the potential of our loyalty program and Josh will provide a bit more detail on our progress during his remarks. From a product perspective, we move forward with our plan to simplify our menu and heighten focus on the improved quality of the products that made us famous. Coffee, baked goods, and breakfast sandwiches. Our dollar iced coffee promotion and two for five breakfast sandwich deal performed especially well in our core layer. while we saw improvements in the consistency and quality of our brewed coffee from our fresh brewers and water filtration systems. And two weeks ago, we continued to invest behind the quality of our core lineup by rolling out a meaningfully improved English muffin and crispier, naturally smoked bacon across our breakfast sandwich platform. Despite the obvious challenges posed by COVID-19, we have nonetheless made progress on some of the important strategic initiatives we outlined towards the beginning of the year, which form an important part of our growth strategy for the brand. For instance, we continue to add new restaurants onto delivery and now have over 1200 restaurants offering the service versus about 200 at the beginning of this year, making us one of the only restaurant companies with full delivery coverage throughout Canada. We also recently completed installation on several hundred additional fresh brewers and water filtration systems and expect to install the final 700 or so by the end of this year. As conditions have stabilized, we're excited to be restarting our project to install outdoor digital menu boards in our drive-thrus. Matt will provide a bit more color around our important projects later on. You'll recall that the baseline unit economics of Tim's in Canada are among the strongest in QSR anywhere in the world, and the improvement we've seen in performance across Canada and direct support we've provided mean that the vast majority of our restaurants are cash flow positive even before considering the various support programs made available by the government. and finally, we continue to maintain a strong working relationship with our restaurant owners and advisory board. Turning to Burger King, in Q2, our system-wide sales decreased 25% to $4.1 billion, driven by a decrease in global comparable sales of 13% and a significant number of temporary closures in our international markets, which were partially offset by net restaurant growth of over 4%. Given the progress we've made on reopening About 90% of our international restaurants are now open versus half back in April. In the U.S., our comparable sales growth at Burger King in the second quarter was negative 9.9%. By the end of April, we had already seen a significant improvement in results versus the end of March as comparable sales improved from the negative mid-30s to the negative mid-teens. Between May and July, comparable sales continued to improve and as of the end of July, are now flat on a year-over-year basis. As nearly all of our dining rooms were closed during much of the second quarter, the primary driver of this recovery was an increase in off-premise sales, especially in our drive-thrus. Burger King has over 6,500 drive-thrus across the U.S. and has been one of the most accessible options for millions of guests to get a meal during the pandemic and with minimal exposure given the contactless procedures we rolled out at the beginning of the crisis. By leveraging these advantages, we were able to grow comparable sales in the channel in the positive low 20s for the second quarter and saw drive-through sales grow to more than 85% of total sales versus about two-thirds in 2019. We also saw strong growth in delivery in Q2, continuing a trend we noted in the first quarter. We've brought nearly 2,000 new restaurants online since February and now have over 6,100 Burger Kings on delivery in the U.S. From a menu and occasion perspective, breakfast was the day part most negatively impacted by the pandemic, and we underperformed in this category as American consumers put their routines on hold. However, we were able to drive growth in other areas and saw a strong contribution from family and group orders this quarter, which we helped accelerate with the launch of new bundles. We also saw continued strength from the Impossible Whopper, as well as a positive contribution from value-oriented offerings like our five-for-four meal and dollar nuggets. And in June and July, in line with local guidelines, we began reopening our dining rooms at about one-third of our stores and have seen an additional improvement in comparable sales at those locations. Moving into the back half of the year, we'll continue to sharpen our approach to the value for money equation, especially given the uncertainty the consumer is facing. We'll continue to invest in and drive momentum behind our technology assets, and especially delivery. And we'll also continue to invest behind the quality of our food, putting the spotlight on our classic products across day parts that resonate with guests seeking comfort in the midst of the pandemic. As we mentioned last quarter, restaurant-level cash flows have never been more important in our business and for our teams and franchise partners. At Burger King in the U.S., as with our other brands in our home markets, Our work with our restaurant owners to adapt operations to the current environment, as well as the direct financial support provided by RBI and the U.S. government, has combined with the significant recovery in sales to help the vast majority of our Burger King restaurants in the U.S. generate positive cash flow in the quarter. In our international markets, system-wide sales decreased 38%, driven by a decrease in comparable sales of 18% and a significant number of temporary closures, The impact of these temporary closures was particularly concentrated in EMEA and Latin America, where approximately half of our restaurants were temporarily closed at the beginning of the quarter. This impact diminished substantially over the course of the quarter, and as of the end of July, a considerable majority of our restaurants have reopened in both regions. Temporary closures also impacted our performance in APAC and Q2, although the impact was not as pronounced. Substantially, all of our restaurants in APAC have now reopened, and despite the pandemic, markets like Australia, Korea, and Japan registered positive system-wide sales growth for the quarter. As markets have reopened, we've seen countries with more freestanding restaurants, like Australia and the UK, tend to recover lost sales more quickly than markets with more mall locations. In this regard, our international platforms have benefited from an increasing orientation in our development strategy to build drive-thru locations, especially in key markets like Spain, UK, France, Germany, Italy, Brazil, Australia, Mexico, and Puerto Rico. In recent months, we've also seen markets with strong off-premise and delivery platforms like Korea and Spain regain sales at a higher rate. As markets move into more advanced stages of reopening, we expect global sales at Burger King to continue to improve. And finally, at Popeyes, system-wide sales increased 24% to $1.2 billion, driven by nearly 25% growth in global comparable sales and unit growth of nearly 7%, partially offset by temporary closures in our international markets. Comparable sales growth was especially strong in the U.S., where they rose almost 29% for the quarter. As we noted on our call for our first quarter results, US comparable sales performance at Popeyes recovered sharply into the positive 30s in April, then further improved into the positive low 40s in May from a starting point of approximately flat during the peak of the crisis in March. Comparable sales are in the positive high 20s as of the end of July, but nominal monthly sales per restaurant have continued at record highs. The moderation in comparable sales growth we saw in July primarily reflects the impact of several large-scale market tests of the chicken sandwich and a highly successful big box promotion during the same period in 2019. Given the significant top line increase we've seen between 2019 and 2020, on a trailing 12-month basis, Popeyes now generates an average of $1.7 million in sales per restaurant and still growing. A large part of this growth can be clearly attributed to the chicken sandwich. But in Q2, we saw significant growth across every category of our menu. Like our other brands, Popeyes generated a significant majority of its sales via off-premise channels this quarter and saw especially strong traction in new and improved family offers. We see a huge amount of potential for our flavorful offerings in the family occasion, and in July, we launched our Pizza Party Crashers campaign to continue the momentum we saw build during Q2. Positive sales momentum has substantially boosted restaurant owner profitability and made Popeyes Unit Economics in the U.S. some of the best in the business. Combining these strong unit economics with the excitement around the Popeyes brand, not to mention the real estate opportunities we see opening up across regions, reinforces our excitement about the brand's long runway for development in the U.S. While COVID-19 has resulted in some disruption to construction and development timelines this year, We look forward to executing behind a strong pipeline of restaurants for years to come. Looking outside the U.S., in May we opened our first Popeyes restaurant in China and have seen an overwhelmingly positive response. We've made a few tweaks for the Chinese market, but so far our guests have loved Popeyes signature Louisiana-style fried chicken. China represents just one of the many significant opportunities we see to develop the Popeyes brand around the world, and we're excited to be launching into a new chapter of international growth for the brand. As I've mentioned, our digital assets continue to make a significant and growing contribution to our results across brands this quarter. I'd now like to turn the call over to Josh to provide an update on what we've accomplished in technology during Q2. Josh?