Restaurant Brands International Inc.

good morning and welcome to the restaurant brands international first quarter 2023 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'll 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 Kendall Peck, 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, 2023. As a reminder, a live broadcast of this call may be accessed on the Investor Relations webpage at rbi.com forward slash investors, and a recording will be available for replay. Joining me on the call today are Restaurant Brands International's Executive Chairman Patrick Doyle, CEO 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. During portions of the call today, we will be referencing franchisee profitability measures that are based on unaudited, self-reported franchisee results. In addition, the consolidated growth metrics discussed during the prepared remarks, including consolidated system-wide sales growth comparable sales, net restaurant growth, and organic adjusted EBITDA growth exclude results from our franchised restaurants in Russia as we did not generate any new profits from restaurants in Russia in 2022 and do not expect to generate any new profits in 2023. And now I'll turn the call over to Josh.

Good morning, everyone, and thank you for joining us on today's call to discuss our first quarter of 2023. I've spent the past few months traveling around the world to connect with franchisees visit restaurants, and engage with guests. I've also spent time internally with our teams to hear their views on the opportunities in the business. I'm excited about the path ahead for each of our brands and I'm incredibly proud to see the hard work of our employees, our franchisees, and their team members who are responsible for the results we're sharing today. We had a good start to the year with first quarter consolidated comparable sales growing 10.3% year over year and net restaurant growth of 4.2%. This translated into global system-wide sales growth of 14.7%, organic-adjusted EBITDA growth of 15.6%, and organic-adjusted EPS growth of 22.1%. We delivered strong comparable sales in our home markets, including 15.5% growth at Tim Hortons Canada and 8.7% at Burger King US, in addition to 12.3% in our Burger King International business. Popeyes U.S. grew 3.4% and Firehouse U.S. was up 6.7% for the quarter. Importantly, our top line results, coupled with moderation and overall cost inflation, helped drive improvements in restaurant-level profitability this quarter. This included particularly good year-over-year improvement in average four-wall EBITDA at Tim Hortons Canada and Burger King U.S. We feel good about the progress we're making tackling this key priority and see clear paths to continue improving franchisee profitability across each of our brand's home markets this year. From a development perspective, we opened 54 net new restaurants in the first quarter, and overall restaurant count grew 4.2%. The first quarter is historically our quietest development quarter, and our results also reflected BKUS closures that I'll discuss in a few minutes. Even after taking into account BKUS closure activity, we feel confident we can accelerate consolidated net restaurant growth in 2023 with progress more back half-weighted. We have plenty of runway to continue growing Burger King International, while Tim Hortons and Popeyes accelerate in key markets like the UK, India, and China. While we're still not where we want to be with Burger King in China, realizing our full potential here is one of our top priorities. I was in China two weeks ago and can tell you that we did fall behind our peers in growth during the past three years of COVID, primarily due to weakening unit economics and financial constraints. but are focused on charting a path to resuming the growth that Burger King in China deserves and the market demands. I also had a chance to spend time with our Tim Hortons team in Shanghai and can tell you that our red maple leaves are now everywhere in Shanghai and our team is rapidly expanding to new cities as a leader in the fast-growing coffee market. Now let's get into our details on performance by brand, starting with Tim Hortons Canada. We kicked off the year with a 15.5% increase in comparable sales, and 16.6% growth in system-wide sales. Growth this quarter was driven by higher traffic, which benefited from improving mobility, thoughtful calendar initiatives, and strengthen our core offerings. These results were further aided by enhanced restaurant operations and pricing. Our new and improved food offerings, including loaded bowls and wraps, also are helping us to strengthen our position for growth in the $10 billion Canadian dollar PM food market. This quarter, we extended our loaded platform to include Chipotle steak bowls and wraps, which attracted younger guests and drove trade up from lower ticket lunch foods, resulting in higher check compared to the system average. We grew first quarters sales in our PM food day parts 23% year over year, including 17% and 13% growth in our lunch and afternoon snack order categories respectively. As a result, our first quarter PM food sales mix grew to 25% versus 23% in Q1 last year. This quarter's cold beverage offerings featured a roasted hazelnut cold brew, which helped cold beverage sales increase 21% and doubled cold brew average volumes versus Q1 2022 levels. Our delicious cold brew offerings have driven our Q1 cold beverage market share to 23%, up from 20% in Q1 last year. And we're working to expand market share further with the launch of our new handcrafted sparkling quenchers this month. We're also pleased to see momentum in our flagship breakfast and baked goods categories. In January, we launched Tim's Selects, a high-quality, value-conscious breakfast option, which contributed to an 11% year-over-year increase in breakfast food sales, reinforced our breakfast market share of 60%, and helped drive us to the number one position in Great Value for Money for the first time since we started tracking it in 2018. We also maintained our leadership position in baked goods, with our Easter dream donut and cookies and savory anytime snackers contributing to 34% year-over-year comparable sales growth in the category this quarter. From an operations perspective, following targeted field initiatives and the launch of a dedicated speed of service app, the restaurant teams drove their best speed of service result in nearly two years, while also improving guest satisfaction 15% year-over-year. We've built a powerful digital platform at Tim Hortons Canada. including the number one food and beverage app and number two e-commerce app in Canada. During the quarter, we saw our 4.8 million monthly active users visit our app an average of eight times per month, helping us to sustain over 33% of sales through digital channels. We know we have a valuable asset and are looking for opportunities to give guests even more reasons to engage with our app, including through new features and offerings like our Roll Up to Win contest, which wrapped up in early April and drove our highest monthly active users ever of 5.8 million. In addition to being a digital leader, we pride ourselves in being the most trusted and loved restaurant brand in Canada. Our monthly brand tracking continues to show impressive gains across all the metrics we carefully watch, even as Canada's market leader, which I think is a testament to the continued focus of the Tim's leadership team to keep brand love at the center of everything they do. Finally, Patrick and I spent time with Axel and many of our franchisees across Ontario and Quebec in the past couple of months, hearing their stories and views on the business while sharing some of our own perspectives on Tim Hortons and our commitment to franchisee success. We have some incredible families that run Tim Hortons in their local communities across Canada and a talented, experienced, and hardworking Tim Hortons corporate team. Together, we are building sustained momentum in the business. Turning now to Burger King, Starting with the international business, which grew first quarter system-wide sales by 19%, adding over $400 million of incremental sales year over year. These results were driven by 5.2% net unit growth and a healthy balance of traffic and check, resulting in comparable sales of 12.3%. This quarter, we saw good performance in some of our largest markets like France, Germany, Spain, and Australia, as well as some sales recovery in China following the easing of COVID restrictions. Digital ordering has fundamentally changed the business over the years and will continue to be a major driver of growth for the next several years. During the quarter, France and Spain generated over 70% of sales through digital channels. In France, kiosks remained the biggest driver. Meanwhile, in Spain, delivery remained a leading service mode for guests. These unique strengths allow us to bring best practices to some of our other large and fast-growing markets, like Australia, where we recently implemented kiosks and have seen strong adoption from guests. I had a chance to see some of the latest digital innovation recently in China, where the front counter POS is becoming less relevant and nearly all orders come via online channels. Some brands are even beginning to sunset their kiosk programs to transition entirely to mobile ordering. Whatever the format in their local markets, what is clear is that quick service restaurants are moving towards automated ordering. And the perspectives that come from our international business also allow our U.S. team to watch carefully and potentially adopt digital capabilities in our home market with confidence given the success we're seeing around the world. The Burger King International business has really transformed over the past 10 years. David and his team have ambitious goals and are excited to keep working with our partners and their dedicated teams. Shifting now to Burger King U.S., where Tom, the BK corporate team, and our franchise partners are generating encouraging early results from the execution of the reclaimed The Flame Plan. For the first quarter, BKUS delivered comparable sales of 8.7% year-over-year, and system-wide sales growth of 8.1%. Our total net restaurants declined 1.7% year-over-year, as we worked to make important progress improving the overall health of the franchisee base. Our top-line performance this quarter was driven by communication of Burger King's most important equity, the Whopper, compelling value initiatives, including the $5 year-away meal, over 30% growth in digital sales, and benefits from strategic pricing. While traffic was modestly negative this quarter, we did see improved year-over-year traffic trends from Q4 into Q1. For Q1, we spent approximately $7 million of our $150 million Fuel the Flame advertising and digital investment. The team has also been applying improvements to creative, messaging, and ad testing that have helped further amplify our share of voice and resonate with guests, which is clearly translating into top-line momentum. We also deployed an additional $7 million of capital towards our $250 million Royal Reset program, which includes the $50 million short-term component of the Royal Reset commitment. As a reminder, the short-term portion of the investment targets restaurant technology, like indoor digital menu boards, point-of-sale systems, and printers, and is matched dollar for dollar by participating franchisees who are investing in upgrading kitchen equipment, such as toasters and fryers, as well as property improvements like parking lot repairs and lighting. We now expect to touch over 4,000 restaurants with this investment and anticipate seeing benefits from the program beginning in the second half of 2023. We're underway executing the more intensive remodel portion of the program, which provides up to $200 million of cash funding for high quality projects. We're prioritizing higher scope opportunities with strong operators to deliver the greatest potential returns and view this program as an important proof of concept to drive sustainable remodels by our franchisees. As a result of our more targeted approach, on average, we aim to deliver year one uplifts ahead of our 12% historical average from remodeled versus non-remodeled restaurants. Moving on to operations, we've been increasingly focused on the importance of operations with franchisees over the past couple of years. The data clearly shows that better operators drive better results. Average four-wall EBITDA of A operators was over 65% higher than the system average in 2022. and this trend of outperformance continued in the first quarter. To further drive this point home, in addition to providing more incentives for better operations with our Royal Reset remodel program, we also recently altered our expansion policy for franchisees. In general, only A and B operators will be allowed to build or acquire existing restaurants, with an emphasis on concentrating portfolios to be fewer than 50 units, contiguous geographically, and with local ownership. The Burger King team is having direct conversations with our franchisees about the transformative business results that are possible through strong operations and delivering a great guest and team member experience. Most of our franchisees are embracing these points and are working closely with us to drive execution in their restaurants. I'm pleased to see that their efforts combined with ours are delivering results. In fact, since the rollout of our franchise success system plus targeted training sessions, we have seen healthy growth into the A and B operator levels. A ton of effort has gone into driving this outcome, and the work does not stop here. We are dedicated to expanding the number of A and B operators in our system, which will set franchisees up for both operational and financial success. And finally, we have had a few recent insolvencies in the U.S., and I know a key question is how many more should we expect, and what are the implications of that for potential gross restaurant closures? Historically, we've closed a couple hundred units at Burger King US each year and had a couple of years in the 300 to 400 range, such as 2020. We currently expect growth in that 300 to 400 range here for the full year, though I would emphasize that there is a fair degree of uncertainty regarding exact numbers, and this will depend to some extent on the pace of recovery in the business, which we've already begun to see. Most of these units will be low volume with some sales recapture. So we believe the impact of system-wide sales will be much lower than the percent reduction in restaurant count. Certainly the team's goal is to improve the overall health of the system, which we're already seeing with improved top line sales and restaurant profitability. One of the most important factors is the willingness of our franchisees who have troubled restaurants to work with us and commit to implementing the changes necessary. If they can't, we have operators ready to step in and do what's required. I do expect a bit more short-term noise as we transition some portfolios into the hands of top local operators, but think we are moving in the right direction to improve our foundation for the long term. Overall, we made good progress in the quarter for the top line as well as the bottom line for our system. Given these results, moderating cost inflation, and our investment behind the brand, coupled with strong operating leverage at the restaurant level, we're feeling increasingly positive about BK's path forward this year and into the future. Turning now to Popeyes, which had a solid start to the year, growing comparable sales 3.4% and net restaurants 5.9%, resulting in system-wide sales growth of 9.1% and year-over-year improvements in restaurant-level profitability. Last week, I joined the Popeyes team and nearly 600 participants from our franchise system in Phoenix for our annual convention, where Sammy and the team unveiled a multi-year strategic plan called Easy to Love. designed to accelerate the brand's growth and increase average four-wall EBITDA to $300,000 by the end of 2025. It starts with making Popeyes easy to run for our franchisees and their team members, which will ultimately drive higher guest satisfaction. This will involve initiatives to make our kitchens easier to run for restaurant managers and team members. We know guests love our food when we get it right, but frankly, it isn't easy to do. Our team members tell us, and I've experienced it firsthand when working back of house. We know restaurants drive much higher sales, traffic, and profitability when they have great operations. So this part of the plan is designed to help more restaurants be in that top tier. The Popeyes team traveled to several international markets over the last six months and have embraced best practices from partners around the world. With several new country entries, we have accumulated a lot of learnings and innovations that will be brought back to the US business. Some of those include variations on kitchen equipment and design, simplified operations procedures, and of course, increasing front and back of house digitization. The good news is that we have a pretty clear and complete blueprint of how Popeyes can be easier to run from international markets such as Spain, France, and the UK. We're now testing these elements in the US and believe many will become core to our operating plan over the next year or two. The next element of the Popeyes plan is easy to crave, building on what we are best known for, bone-in chicken and our chicken sandwich. while leaning into new areas for menu expansion. One great example is the introduction of ghost pepper wings in January. Although this limited time offer sold out in just two weeks, it drove higher average check and traffic, attracted a younger guest, and helped improve gross profit margins for franchisees. Given the product's success, wings are now back on the menu as a permanent item, and you can expect to see more innovation from us in this fast-growing category. The last chapter of the Popeyes plan is making Popeyes easy to access. by developing modern and convenient restaurants and helping top operators grow with high quality locations. In 2022, over 70% of openings had at least one drive-through and were either with top tier existing franchisees or new franchisees. The team aims to maintain development momentum with top operators this year. I know the Popeye system left the Phoenix Convention excited and confident in the direction of the brand for the coming years. We have an unmatched product and brand. And if we can make it a little easier for our team members and guests, I am sure we're going to achieve great things. Finally, Firehouse Subs. Before diving into the brand's highlights, I'd like to thank Don Fox for his years of commitment to Firehouse Subs and his 50 years of service in the QSR industry. Don is taking on a new role as chairman of Firehouse for the balance of this year and will be a valuable resource for the team. He will also stay closely involved with the brand's Public Safety Foundation which has now made $75 million in grants for life-saving equipment since inception. As Don steps into this new role, we're excited to welcome Mike Hancock as president of Firehouse Subs. Mike has 10 years of experience with our brands, most recently as chief operating officer at Firehouse, and also formerly chief operating officer of Tim Hortons. I know Mike is excited to lead Firehouse's next phases of growth. In terms of results for the quarter, Firehouse saw comparable sales of 6.1%, and net unit growth of 2.3%, leading to a 7.5% year-over-year increase in system-wide sales. Digital represented over 35% of system-wide sales and remains a significant opportunity for us. We recently launched our Canada mobile app to include a new look and feel that provides a better user experience and will allow us to provide more personalized offers to guests. We're in the process of applying the same updates to the US app presently. Now I'll turn it over to Patrick for some quick thoughts on the business.