Restaurant Brands International Inc.

Good morning and welcome to the Restaurant Brands International first quarter 2022 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 will now hand over to the conference host, Stephen Lichtner, 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 31st, 2022. 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 CEO, Jose Sill, COO, Josh Kobza, and CFO, Matt Dunagan. 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. Please note that growth metrics discussed during the prepared remarks, including consolidated system-wide sales growth, net restaurant growth, and organic adjusted EBITDA growth exclude results from firehouse subs, which we acquired on December 15th, 2021, to reflect comparable year-over-year growth figures. And now, I'll turn the call over to Jose.

Good morning, everyone, and thank you for joining us on today's call to discuss our first quarter of 2022. We started the year off strong, with progress in key focus areas including Tim Hortons Canada and Burger King U.S., and continued momentum in our international business. while also seeing digital traction across all brands, with home market digital sales reaching their highest levels ever as a percentage of system-wide sales. During the first quarter, we once again grew year-over-year comparable sales, driven by just over 10% comparable sales at Tim Hortons in Canada, exceeding our own high single-digit expectations that we shared in March, and 20% comparable sales growth in our Burger King international business. We also made further progress chipping away at the gap to our competition in Burger King U.S., but have important work ahead of us and are focused on establishing a strong growth plan in collaboration with our franchisees. Meanwhile, Firehouse Subs continued to drive comparable sales on top of its double-digit growth last year. We also continued to make progress on digital initiatives. We saw a sequential improvement in the contribution of digital sales to overall sales across all brands in their home markets, including Tim Horton's Canada, reaching over 36% of system-wide sales. Our development results in the first quarter kicked off another exciting year and we're still expecting to accelerate overall net restaurant growth despite our decision to cease restaurant development in Russia and a recent surge in COVID cases across China. In fact, we opened a record number of restaurants during the first quarter, led by all of our brands internationally and by Popeyes in the U.S. We also announced another exciting new development partnership with Tim Hortons in India, a priority market for us in our long-term international expansion plans. Additionally, I'm happy to report that we've resolved all disputes with our Popeyes and Burger King franchise partners in China, unlocking long-term growth for both brands in this important market. The combination of comparable sales and net restaurant growth helped drive year-over-year system-wide sales growth of 14 percent, an increase of nearly $1 billion year-over-year, and organic adjusted EBITDA growth of 9 percent, which included a negative 2.6 percent impact on adjusted EBITDA growth related to Russia. And finally, during the quarter, We continued our commitment to shareholder returns, delivering over $400 million through a combination of dividends and open market share repurchases. We remain committed to our overall capital allocation philosophy, which benefits from the free cash flow profile of our business, allowing us to execute across each of our priorities, reinvesting in our business, returning significant returns to shareholders, and remaining flexible to pursue other strategic opportunities over time. Turning to brand performance, we'll start with Tim Hortons Canada. You can expect to hear much more from the Tim Hortons Canada leadership team on the brand's recent progress and long-term growth strategy at our investor day later this morning. So I'll keep my comments brief and focused on our Q1 results. For the first quarter, we were pleased to report a 10% year-over-year increase in comparable sales, an excellent result reflecting the hard work of our restaurant owners and team over the past couple of years. These positive results were driven by strength in our underlying core business, that we've worked so hard to reinforce and improve over the past years, continued traction from our digital initiatives, strong promotional performance, and measured pricing tied to inflation. We also saw accelerating underlying sales trends throughout the quarter as restrictions eased across the country and mobility increased. In fact, comparable sales at our super-urban locations grew nearly 30 percent year over year during the quarter, with each month growing faster than the prior. We were encouraged to see especially strong results in March, with comparable sales improving weekly and exit of the month with momentum. I'm pleased to share that all product categories and day parts contributed to our sales performance and strengthened throughout the quarter, with lunch, foods, and baked goods as notable standouts on the product side, and morning and lunch standing out on the day part side. The team's quality improvement work through Back to Basics on breakfast and coffee offerings is paying dividends, strengthening our competitive positioning and market share in our flagship categories of breakfast food and coffee. In fact, our freshly cracked eggs platform helped drive breakfast food market share to its highest level in over five years. Successful calendar initiatives during the quarter included the launch of Team Canada hockey cards ahead of the Winter Olympics and the relaunch of two of Canada's favorite donuts and one of mine, the improved apple fritter and Boston cream, either paired with our fresh brewed coffee. Our continued commitment to improving the quality of our offerings resulted in a notable boost in product satisfaction and guests coming back for more of our delicious baked goods. We also ran our annual Roll Up to Win contest, our most successful to date, driving even higher incremental sales in last spring's campaign and lifting digital sales to over 36% of system-wide sales for the first quarter, with over 40% digital sales sustained during the month of March. The success of this core foundational work has paved the way for our expansion into high growth food and beverage categories, less penetrated day parts, and doing even more exciting things with the sizable digital business we've created. You'll hear more on our exciting plans for the long term later this morning from Tim Horton's Canada leadership team, which will be webcast live on our website. Turning now to Burger King U.S. 2022 marks the starting point for Burger King's multi-year plan to reclaim the flame. Last quarter, Tom walked us through some of the critical near-term initiatives the team is focused on to enhance the overall guest experience, advance the brand's growth, and drive long-term sustainable sales. Though the benefits of many of these initiatives are targeted to start taking effect in the back half of the year, we're encouraged to see some progress this quarter and want to share some highlights. First, we've made good progress in our efforts to modernize and reposition the brand. Earlier this year, we announced our decision to put our creative account into review, to improve the effectiveness of our messaging strategy, increase the returns on our advertising investments, and modernize the home of the Whopper. We recently announced our decision to join forces with a new creative agency and look forward to accelerating our creativity and innovation in a way that is distinct and relevant for today's guest. This quarter, we demonstrated our balanced approach to menu innovation and value for money while keeping our core equity, the Whopper, top of mind. We kicked off the year with a new $5 Have It Your Way meal featuring a double Whopper Junior. In addition, in order to treat the Whopper as the powerful, multibillion-dollar brand that it is, we removed the legendary burger from our core discount offerings and added some fan-favorite variety, the Big King and Quarter Pound King, to our new two-for-five offer. This shift resulted in a win-win, a more profitable lineup for our franchisees and a more compelling offer for our guests. with a shift from two for six to two for five. In addition, we leveraged guest insights to create an item that offered more portability at a price point between our Whopper Junior and Whopper, the Whopper Melt. We launched with three delicious flavors and added the product to our flame-grilled selection for a limited time. Results demonstrate that the offering had strong messaging with high-quality ads, performed well on our digital platforms, and proved to be incremental to our burger platform at a healthy price point. On operations, we built off our first round of menu simplification and launched a late-night specific menu in early February. The streamlined menu provides an opportunity for our franchisees to stay open later by minimizing complexity while balancing the sales impact. Simplification remains an ongoing process as we investigate the most thoughtful way to create efficiencies in the restaurant, improve guest experience, and drive profitable sales. We're cognizant that our franchisees continue to see profitability pressures due to the significant volatility in the current environment, and we're continuing to research and explore ways to assist franchisees on an ongoing basis. Team member engagement and retention remains an opportunity across the industry and an important initiative for our expanded field team to improve productivity at the restaurant level. This quarter, we shared our employee value proposition framework with franchisees. This framework was the result of countless hours of research and sharing of best practices and has received positive feedback thus far as we work together to create a culture of operational excellence. The good news is our guest satisfaction has sequentially improved over the past three quarters. As we continue to roll out the employee value proposition and our simplification efforts, we're confident we can continue to engage team members and improve guest satisfaction, which is an integral part of our growth strategy. On image, 33% of our system features the latest Burger King of Tomorrow image and technology elements. As Tom shared last quarter, we're working with franchisees across the system on the right investment approach for the balance of the system, and we'll share a more substantial update later in the year. Similar to investments that we've made at Tim Hortons Canada, the team is working closely with franchisees to assess how best to support our image and advertising efforts to drive the highest return for us and for franchisees. Now to touch on results for the quarter. We saw a 0.5% decline in comparable sales driven by the lapping of last year's stimulus benefit, macro headwinds in March, and a modest impact from reduced operating hours. These impacts were partially offset by a net benefit from our focus on core offers this year versus a bigger focus on core discount in 2021, the introduction of the $5 Have It Your Way meal and Whopper melts. I'm pleased to see that our efforts helped narrow the gap to our peers by a few hundred basis points this quarter. This is no victory lap, but we're encouraged by this continued sign of progress, but know we still have a long way to go to recapture market share and set the BK brand up for the future. The team has worked hard to make a difference in a short amount of time, and I look forward to sharing more updates in the back half of this year as we reclaim the flame. Now turning to our Burger King international business, which has been a consistent growth engine for the brand as it contributes nearly 60% of the brand's global system-wide sales and continues to get stronger every year. We achieved an impressive system-wide sales growth of 31%, reflecting an even stronger than expected resurgence in sales, showcased through strong comparable sales growth in key international markets, and continued momentum on net restaurant growth. During the quarter, five of our largest international markets, France, Spain, Germany, Korea, and Brazil, generated double-digit growth that offset softer performance in China related to a recent resurgence in COVID cases and associated restrictions. On top of positive macro tailwinds, brand positioning, calendar work, and digital initiatives we've executed have helped drive incremental sales. We made good progress finding the right way to localize the Burger King experience. In some cases, that could mean developing products that lean on local culture, such as meats and cheeses specific to an area, while in other cases, it could mean highlighting imported food and beverage products, if that's what our guests are asking us for. This formula is something that recently worked well in France and surrounding countries each with small modifications that resonated well with guests. In addition, our largest and fastest growing markets have increasingly strong digital capabilities that help us deliver a modern and convenient guest experience. This has ultimately strengthened our positioning as leaders in the market and enables us to create best practices for future application. We shared a detailed update in March on the growth of our international markets in recent years and touched on many of these key trends and examples by markets that are driving the business forward. Our strong foundation, brand awareness, local expertise, product innovation, and digital capabilities have contributed to a resilient international business that is well-positioned for growth, and we're optimistic of the long-term opportunity to expand this highly scalable business in new and existing markets around the world. Turning now to Popeyes, which is celebrating 50 years this June. We close the quarter with our global Popeyes convention hosted in New Orleans, honoring the brand's rich Louisiana history rooted in delivering home-cooked Cajun flavors and and an authentic Southern experience for our guests alongside our amazing franchisees and team members. The energy was electric with strong attendance from home and abroad, all focused on how we can work together to take the brand to new heights in the coming years. In March, we also celebrated the fifth anniversary of our acquisition of this iconic brand. It's pretty remarkable to see how far Popeyes has come with system-wide sales growing from 3.2 billion in 2016 to just north of 5.5 billion in 2021 and adjusted EBITDA more than doubling from 95 million to over 225 million in the same period. And it's been amazing to see the reception to the Popeyes brand both at home and around the world as we've expanded into new markets while growing in existing markets, adding over 1,000 restaurants globally since Popeyes joined the RBI family. And 2022 has kicked off with continued development momentum after a milestone year in 2021. Popeyes posted record first quarter unit growth with the highest number of first quarter net openings since we acquired the brand. Our existing international markets, notably Spain, Philippines, Turkey, Mexico, and Brazil, grew significantly year over year, reinforcing our excitement around future growth as we expand our offerings to more guests around the world. We expect to continue to see this growth trajectory unfold as the year progresses and are on track to deliver record net unit growth in 2022, including opening over 200 new locations in North America this year while launching in new markets like Romania and France. Importantly, we're opening high-quality restaurants with over half of our locations in North America featuring double drive-thrus, which will increase throughput and foster a better guest experience. Despite strong net restaurant growth of 8%, including 6% in the U.S., softer home market comparable sales resulted in system-wide sales increase of 4.1%. Continued staffing challenges resulting in lower year-over-year store hours, competitive pressures specifically around last year's chicken sandwich launches, and the lapping of 2021 stimulus benefits resulted in a 4.6% year-over-year decline in home market comparable sales. That said, we saw positive contribution from our many initiatives, including the launch of our $6 big box. and we're excited to announce the arrival of our new Buffalo Ranch Chicken Sandwich, which builds on our chicken sandwich platform and adds some fun flavor for guests with our fan-favorite Buffalo Ranch sauce. Improvements in operations and service levels remain key focus areas and represent a real sales growth opportunity. I'm happy to say we've seen early signs of progress from recent efforts with our guest and operations metrics improving year over year. This progress reflects a larger supporting field team and enhanced operations framework that celebrates wins and adds additional transparency into relative performance and areas of opportunity. I'm optimistic that together with our franchisees and their restaurant team members, we will continue to improve operations and foster the warm, positive guest experience the brand was founded on 50 years ago and drive top-line growth for the next 50 years to come. And finally, I'd like to touch on Firehouse Subs. The brand's commitment to community, coupled with its hearty subs and compelling value proposition, drove impressive results this quarter. Firehouse Subs U.S. retained its recent momentum, building average unit volumes to an all-time high of nearly $920,000 on a trailing 12-month basis, growing year-over-year comparable sales 4.5% on top of 24% comparable sales last year, increasing system-wide sales 7%, and generating over 30 percent of sales through digital channels. I'm also pleased to share that Firehouse Subs continues to be recognized as a philanthropic leader in the industry and was named the number one brand in the restaurant industry that supports communities for the fourth consecutive year based on recent Technomic Insight consumer data. The brand's strong community connection is in large part tied to the success of the Firehouse Subs Public Safety Foundation, which, in partnership with the hard work of restaurant owners and team members, has granted over $67 million in contributions since its inception, helping provide first responders with lifesaving equipment to be better prepared to save lives in the communities they serve. As the Firehouse Subs team likes to say, sell more subs, save more lives. I'm also delighted to see the brand integrating smoothly into RBI. In just a short amount of time, we've made good initial progress towards accelerating development in many geographies around the world and have begun to assess where we can help enhance the brand's already strong digital capabilities. We remain confident in this brand's pace of growth and look forward to sharing more updates as the year progresses. With that, I'd like to hand it over to Josh to take you through a quick update on our digital initiatives. Josh?