Restaurant Brands International Inc.

Good morning and welcome to the Restaurant Brands International fourth quarter 2021 earnings conference call. All participants will be on listen only mode. Should you need assistance please signal a conference specialist by pressing the star followed by zero. After today's presentation there will be the 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 call over to Stephen Lichner, 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 fourth quarter and year-ended December 31st, 2021. 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. 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. During portions of the call today, we will be referencing two-year comparisons for system-wide sales growth and comparable sales to provide a cleaner indication of how the business is trending versus a more normalized period. These two-year comparisons are calculated on a geometric, stacked basis by using the 2020 and 2021 disclosed growth metrics. In addition, consolidated system-wide sales, digital sales, net restaurant growth, and organic adjusted EBITDA growth do not include the results of Firehouse Subs, which we acquired on December 15, 2021. And now, I'll turn the call over to Jose. Good morning, everyone.

I hope you're all doing well. Joining me on the call this morning, as usual, are Josh Kobza, our COO, and Matt Dunnigan, our CFO. I'm also excited to have Tom Curtis, the president of Burger King in the US and Canada, as a special guest this quarter to share what he and his team have been up to since he took the helm in August. We made significant progress over the course of 2021 on key near-term initiatives, including opening over 1,200 net new restaurants, seeing early progress at Burger King US, and good momentum exiting the year at Tim Hortons in Canada. As we look to 2022, we have a number of clear objectives for the year ahead and remain focused on, first, continuing to build sales momentum in our home markets and around the world while driving franchisee profitability and unit economics. Second, accelerating global unit growth through our best-in-class franchise network. Third, leveraging recent investments in our field teams, training, and equipment to improve restaurant operations. Fourth, utilizing technology initiatives, including our growing loyalty and e-commerce platforms, to enhance the guest experience. And finally, making meaningful strides in our Restaurant Brands for Good plan, including executing against our climate strategy and furthering what sustainability means for our brands. I'm confident we're well positioned to execute on these priorities as we work towards our big dream of building the most loved restaurant brands in the world. I want to thank our restaurant team members, franchisees, and employees for their continued dedication. Our people are the lifeblood of our business, and for that reason, I was incredibly proud to see us earn the Great Place to Work certification with our strongest scores ever. reflecting our commitment to our team and culture. Turning to a few highlights from the quarter and the year. During the fourth quarter, year-over-year comparable sales accelerated sequentially from the third quarter, driven by all of our brands and across the world. This includes Tim Horton's Canada, which saw year-over-year comparable sales improve to 11.3% positive from 9.5% positive in Q3, and Burger King's international business, which grew comparable sales positive 19.4%, a 320 basis point sequential acceleration. In addition, Burger King US started to narrow the gap to industry performance and saw comparable sales improve to plus 1.8% from a decline of 1.6% in Q3. On the development front, we opened nearly 600 net restaurants in the fourth quarter, returning to over 1,200 net new restaurants for the full year. And what excites us even more is the excellent work our teams delivered in 2021 entering into new high-quality master franchise development agreements for Burger King, Tim Hortons, and Popeyes, and building pipelines that position us well to accelerate unit growth in 2022 and beyond across all brands. The combination of comparable sales and unit growth helps drive year-over-year system-wide sales growth of 14%, with organic adjusted EBITDA growth of 15%. This contributed to strong free cash flow generation that enabled us to capitalize on an exciting strategic opportunity with the acquisition of Firehouse Subs. As the year came to a close and as we look forward to 2022 and beyond, I could not be more excited to have welcomed the Firehouse Subs brand and its seasoned team to our family of iconic and loved restaurant brands. We also returned over $610 million to shareholders during the quarter and over $1.5 billion for the year through a combination of dividends and open market share repurchases. Our capital allocation this year was consistent with our overall philosophy that allows us to dynamically allocate capital between reinvesting in our business, returning capital to shareholders, executing on strategic M&A, or all three. In addition, our continued commitment to our Restaurant Brands for Good framework helped drive a notable improvement in our ratings this year from leading ESG rating agencies. For example, we improved our S&P score by 37 points year over year and achieved a strong inaugural score of B minus on our first public CDP disclosure, which was anchored by our strong governance and ambitious climate targets. Before we dive into brand results, I want to address a few industry headlines relating to staffing and inflation that I'm sure are top of mind for everyone listening in. Our brands have not been immune to these challenges and we're hyper-focused on alleviating near-term pressures by driving sales and traffic in conjunction with recommending staffing initiatives and pricing strategies. On labor, we're taking a proactive approach to improve the situation, including providing toolkits for hiring and retention, expanding the support from our field and training teams, and working on simplifying back-of-house processes to make it easier and more rewarding for our franchisees restaurant staff to work in their restaurants. On pricing, we took price in 2021 at each of our brands, and given the level of commodity cost and labor inflation we're seeing, We expect additional price increases in 2022 and are working closely with franchisees to make the best decision for guests and our franchisees P&Ls. Turning now to our brand performance, let's start with Tim Hortons Canada. We are two years into our back to basics plan and continue to see encouraging proof points that our focus on elevating core quality, innovating for growth, and modernizing the brand is positioning Tim's well for long-term growth in Canada. For the fourth quarter, as I mentioned, we saw an 11.3% year-over-year increase in comparable sales, a 180 basis point acceleration relative to the third quarter. As compared to 2019 levels, we saw a 2% decrease in comparable sales, which is a 360 basis point improvement versus Q3. These results were driven by broad-based momentum, including in the underlying core business, the impact of our digital initiatives, and well-executed promotions. During the quarter, we continued our journey of core quality enhancements in both breakfast and coffee. In breakfast, we built on our fresh cracked eggs platform with the introduction of the steak and egg breakfast sandwich, which helped drive overall morning day part sales ahead of 2019 levels for the first time since the start of the pandemic. We also made progress enhancing our hot beverage offerings, extending our prior work on brewed coffee into a successful platform relaunch of handcrafted espresso beverages, including lattes, in November. We saw the benefits of our richer and bolder recipes, dairy alternatives, and equipment tune-ups, with these great-tasting espresso-based beverages contributing to positive sales growth and helping drive a sequential improvement in hot beverage sales. In October, we took the next step in innovating for growth around our food-led occasions with freshly grilled wraps. This successful launch built off our established credibility in Craveables, and help drive mid-single-digit growth in our lunch and afternoon snack day parts versus 2019 levels. It's encouraging to see our focus on enhancing food quality and taste translate into strong sales growth, with breakfast foods and main foods up a combined 14% versus 2019. Building new, ownable platforms across food-led day parts remains an ongoing focus for the team, and you can expect to hear more from us on our initiatives throughout the year. We're also making important strides modernizing the brand through restaurant technology enhancements and continued growth in our Tim's Rewards loyalty program. For example, our Roll Up to Win 2.0 helped propel digital sales to over one-third of system-wide sales. In addition, Tim's Rewards maintained its position as the number one food and beverage app in Canada with 4.5 million monthly active users during the quarter, over 50% growth year-over-year. On top of these underlying improvements, we also drove special visits and sales during the quarter through impactful promotions such as our NHL trading cards and our collaboration with Justin Bieber. Tim Biebs, which included exclusive merchandise and three delicious Timbits created together with Justin Bieber, was one of the more successful traffic driving initiatives in recent memory and outperformed our internal expectations. We've seen early signs of brand love benefits from this partnership through unprecedented social engagement and increased appeal with younger guests. I'm a Belieber. and you can expect to see more from this exciting partnership in the year ahead. We were pleased to see the positive impacts of our initiatives translate to growth in our brand health metrics as well across nearly all metrics and ahead of competitors with notable call-outs in both food and coffee quality and taste and all brand connection attributes. I should point out that our efforts in the quarter, alongside the tremendous work of our owners, drove sequential improvements in comparable sales each month, culminating in the month of December with positive low single-digit comparable sales versus 2019. We also saw sequential improvements on a two-year basis across all product categories, all day parts, all formats, all urbanities, and all regions during the quarter. While temporary restrictions and lockdowns in January naturally had some impact on mobility and hence performance, we were pleased to see that the impact of this latest surge and resulting restrictions has proven to be less severe than prior impacts. a reflection of the strength of our underlying business and brand connection, and the fact that Canadians, like people everywhere, are keen to safely return to their normal, mobile lives. In Tim's, we have a beloved brand, dedicated restaurant owners, and a strong multi-year plan in place to build on the momentum we're establishing in the attractive categories of food, specialty beverage, and cold beverage. And we're confident that thoughtful and steady category innovation combined with improved core execution and unmatched digital reach will unlock a better experience for our guests and more opportunities to grow sales and owner profitability across Canada. What's more, there's also a very attractive path to expand the TIMMS brand around the world. We already have an established presence in 13 countries and are actively adding to this footprint through our robust development pipeline. The team achieved the highest level of unit growth since we acquired the brand, delivering 342 net new restaurants in 2021, with notable strength in China, where we exited the year with 390 stores and opened our 400th restaurant in January, less than three years after opening our first. In the US, we achieved our best year of restaurant growth since 2016 and signed development agreements to expand to new markets, including Houston, which will open its first store this summer. Our new U.S. openings leverage a smaller footprint, faster build times, and an optimized menu offering focused on beverages, baked goods, and hot breakfast sandwiches, all leading to more compelling unit economics. We're seeing encouraging results from these formats and are excited to see the overall business get back to growth. We look forward to sharing additional progress of the Tim's U.S. business later in the year. Now, before I walk you through the rest of our results, I'd like to pass it over to Tom to give you an update on the encouraging progress we're seeing at Burger King U.S.