Restaurant Brands International Inc.

Good morning and welcome to the Restaurant Brand International second 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 will be an opportunity to ask a question. To ask a question you may press star someone on your telephone keypad. You will hear a tone to confirm that you are in the queue. To exit the 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 second quarter ended June 30th, 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 second quarter of 2023. Our franchisees and teams helped deliver another solid quarter, with year-over-year consolidated system-wide sales growth of 14%, driven by 9.6% comparable sales and 4.1% net restaurant growth. This top-line growth translated to 10.3% organic-adjusted EBITDA growth and 6.6% organic-adjusted EPS growth. We saw strong comparable sales at Tim Hortons and Burger King, including 12.5% growth at Tim Hortons Canada, 11.6% in our Burger King International businesses, and 8.3% at Burger King U.S. In addition, Popeyes U.S. grew 4.2% and Firehouse U.S. was up 2.6% for the quarter. We were pleased to see these top line results, as well as continued moderation and overall cost inflation, help deliver another quarter of year-over-year growth in franchisee profitability. Improving franchisee profitability remains one of our most important priorities, and I am confident in the plans we have in place to continue driving restaurant-level EBITDA growth this year for each of our brands. As it relates to our own adjusted EBITDA growth this quarter, it was a little bit lower than our system-wide sales growth, which was largely due to previously discussed investments we were making in the Burger King US system. Those investments are already delivering the expected results in top-line growth and franchisee profitability, and Matt will provide more detail later on. We opened 169 net new restaurants in the second quarter, and overall restaurant count grew 4.1%. Development is always more heavily weighted towards the second half of the year, and our teams are very focused on delivering their full year pipelines while also setting in place plans for 2024. Before I turn to our brand level results, I'd also like to highlight that we released our 2022 Restaurant Brands for Good report last week, which discusses the achievements our brands made in becoming more sustainable. I encourage you to read about the progress we are making across our food, planet, and people and communities builders. While I'm very proud of the work our teams are doing, I also know that this space is evolving quickly, and we are continually adapting to make sure we do the same. Now let's turn to performance by brand, starting with Tim Hortons in Canada. We saw a healthy mix of check, traffic, and strong calendar initiatives drive comparable sales of 12.5% and system-wide sales growth of 12.8%. These results were driven by strength in our core offerings, continued expansion into cold beverage and PM food, improved speed of service, and a record year for Smile Cookie, which shifted from Q3 into Q2 this year. Results for the quarter were also aided by improvements in mobility. During the quarter, we sustained our market share leadership across our core categories, including over 70% in hot brewed coffee and over 60% in breakfast. In addition to the growth opportunities in cold coffee and beverages, Our market leadership in hot brewed coffee is higher today than it was in 2019, demonstrating the team's progress across all categories. The team is making good progress with its efforts to become a bigger player in the high growth cold beverage category and saw cold beverage sales grow 16.6% year over year. Cold beverage results this quarter were aided by the expansion of our Quenchers platform and innovation across our specialty cold coffee offerings. Sparkling Quenchers proved to be highly incremental to beverage sales and served as a good contributor to ticket growth this quarter. We also further expanded our PM food offerings with improvements to our anytime snackers and new innovations around our loaded bowl and wraps, including barbecue crispy chicken, which attracted new, younger guests to our restaurants. These offerings contributed to 14.2% year-over-year growth in our PM food sales. Moving to operations, restaurant team members have done a great job balancing the addition of our new food and beverage offerings with strong restaurant-level execution. Our teams improved speed of service by two seconds year over year, reaching just north of 36 seconds for the quarter. Faster speed of service, combined with our new offerings, helped drive increased guest satisfaction and an increase in our QSR traffic share. We're really proud of the digital experience Tim Hortons offers its guests and believe it can continue to drive growth for the brand. With 4.9 million monthly average users this quarter, we have the number one food and beverage app in Canada and have sustained a digital sales mix of roughly 33%. To further engage Canadians and make it even easier to earn rewards, we partnered with two payment service providers to launch a Tim's credit card that is fully integrated within our app. It's still early, but we are excited for this new way to engage and drive further loyalty with our members. At Tim Hortons, we pride ourselves in being a community-led brand. This quarter, our beloved Smile Cookie campaign raised a record-breaking amount of almost 20 million Canadian dollars for more than 600 local charities. Following Smile Cookie, Tim Horton's restaurant owners, team members, and volunteers raised an additional 13 million Canadian dollars during the month of July for Tim Horton's Foundation Camps, our signature charity that turns 50 years old next year after helping more than 300,000 children in Canada and the U.S. over the years. I'm really proud of the results Axel and team continue to deliver in Canada. I also recognize the work the team is doing to sustainably grow the brand is really made possible by our incredible restaurant owners, their team members, and the support of their local communities. So I'd like to thank our restaurant owners and guests for their continued support and dedication. We've got an amazing brand at Tim's in Canada and a long runway for growth ahead. Turning now to Burger King, the international business grew second quarter system-wide sales by 18.4%, adding over $500 million of incremental sales year over year to represent nearly 60% of Burger King's worldwide sales in the quarter. These results were driven by net restaurant growth of 5.3% and continued top line strength with comparable sales of 11.6%, reflecting positive traffic as well as higher check. We saw a good performance in some of our largest markets, like France, Australia, the UK, and Spain, as well as markets where the brand is growing more quickly, such as Japan. We were also encouraged to see Australia join France, Germany, and Spain as the fourth international market to surpass the $1 billion system-wide sales mark on a trailing 12-month basis. Our teams and master franchise partners take a guest-centric approach to everything, from menu innovation to marketing. In general, we have newer restaurants overseas, and as a result, more modern brand positioning with enhanced digital capabilities in both the front and back of house. These capabilities also help unlock operational improvements in the business, enabling the teams to deliver an even better guest experience. Our success internationally gives us confidence to leverage key learnings as we enhance Burger King's brand positioning and its home market as well. So shifting now to Burger King in the US, comparable sales increased 8.3% year over year, and system-wide sales grew 7.9%. Our total net restaurants declined 2.2% year over year as we carry out our commitment to enhance the overall health of the system. We are making good progress on this front and have continued to see meaningful improvements in franchisee profitability. Growth this quarter was driven by thoughtful calendar initiatives focused on our flagship equity, the Whopper, as well as benefits from more effective marketing aided by enhanced marketing analytics and continued operational improvements. Our Ways to Whopper campaign reminded guests that they can have it their way and choose between one of the over 220,000 ways to build the Whopper. We layered this campaign with the Whopper Junior Duo, our core discount initiative, and the Spiderverse Whopper promotion, both of which were targeted towards building the next generation of Whopper lovers. These campaigns drove higher average tickets and attracted younger guests without impacting core Whopper volumes. During Q2, we spent approximately $12 million of our $150 million Fuel to Flame advertising and digital investments. These investments, coupled with our continued focus on enhancing operations, helped drive another quarter of underlying improvement in traffic, although we are still not in positive territory. I'm confident that further improving operations will ultimately support growth in traffic, which is one of the most significant near-term opportunities we see for the brand. When it comes to operations, we saw another quarter of guest satisfaction improvements at BKUS, but still believe we are only in the beginning of our journey here. Thomas stressed, and I fully agree, that the path towards excellent operations is continuous because the goal should always be to execute even better than you did the day before. This is at the center of everything we are doing, as the BK team works with franchisees to raise our brand standards and deliver a better guest experience. Some of the ways we are achieving this are through gold standard service trainings, which have driven encouraging results, including higher WAPR satisfaction scores. Another example is the addition of guest lens visits to our franchise success system, where a restaurant is evaluated through the lens of a customer's experience, capturing some of the nuances a formal restaurant visit may miss. As part of our $250 million Royal Reset program, in Q2 we deployed $9 million towards the $50 million short-term refresh component to equip restaurants with the technology they need to deliver a great experience for both team members and guests. Participating franchisees have matched our spend dollar for dollar with investments in essential kitchen equipment like toasters and broilers, which will largely roll out in the back half of the year. The $200 million remodel program is also underway. And we're pleased to see franchisees prioritizing quality with over 75% of committed projects locked in for full remodels or scrape and rebuilds. Q2 represented another important step towards our greater goal of driving traffic back to the system and delivering a strong value proposition for our franchisees. These early results from Acclaim the Flame and our talented team and dedicated franchisees give us confidence in the trajectory of the brand. And we look forward to continuing to execute against our plan and drive further growth this year. Turning now to Popeyes US, where Sammy and team are in the early stages of the brand's multi-year strategic plan, Easy to Love, which is coming to life through core menu extensions, operational improvements, and the development of easy-to-run kitchens. Popeyes in the US grew comparable sales 4.2% and net restaurants 5.1%, resulting in system-wide sales growth of 9.4%. Top line momentum was driven by the extension of our chicken sandwich platform, ghost pepper wings, innovation across our beverage and dessert categories, and 22% growth in digital sales. This quarter featured the return of our blackened chicken sandwich, a delicious, lighter, unbreaded option that is well-suited for the everyday occasion. We are also now giving guests the option to add bacon and cheese to all of our chicken sandwich offerings, including blackened. Outside of our core, we brought back ghost pepper wings to our menu and built on dessert and beverage offerings with strawberry biscuits and mango lemonade. At our Popeyes U.S. restaurants, Team members prepare, marinate, and hand-bread our bone-in chicken to produce the Louisiana chicken guests know and love. We are in the early stages of rolling out opportunities to make our kitchens easier to run for team members by leveraging the learnings from our international markets to help reduce back-of-house prep times and enable more consistent product execution. While we improve the capabilities of our existing restaurant base, we are also positioning the brand to capture more opportunity across North America with both existing and new top-tier operators. I'm confident that the team and priorities we have in place are pushing Popeyes forward on the right path, and we're excited to continue expanding. Finally, firehouse subs, which grew comparable sales 2.1% and increased system-wide sales by 5.1%. In the U.S., comparable sales of 2.6% included an approximately 1% negative impact from a major outage affecting our main third-party technology provider, NCR. This resulted in several firehouse sales channels being down throughout April and May. We and our franchisees are disappointed by the impact of the business and slow recovery by our vendor partner, but are highly focused on improving system resilience for guests and our restaurant team members. Moving forward, one of our top priorities since adding Firehouse to the RBI family has been to position the brand for higher growth by enhancing its development capabilities. We really leaned into this key focus, outlining an exciting long-term development path for franchisees at our recent Firehouse Subs family reunion in July. It was great to spend time with nearly 300 franchisees and their families over the course of a few days in Orlando. It's clear to me that we have a passionate group of franchisees ready to realize the growth potential of the brand. During the quarter in the US and Canada, Mike and team completed the transition from an area representative structure to a more traditional corporate and franchisee-led development model, which mirrors the framework of the rest of our brands. This quarter also marked the start of the brand's global expansion with the opening of our first overseas firehouse location in Zurich, Switzerland. The restaurant offers guests the firehouse menu we know and love, with a reimagined guest-centric restaurant design, including 100% digital ordering, and serves as a great showcase for future international development opportunities. The team also established the Firehouse Subs Public Safety Foundation of Switzerland, modeled after our existing public safety foundations, which has surpassed $80 million of grants awarded since inception. Lastly, we were pleased to announce a long-term development agreement in Mexico recently, and are working hard to bring this iconic brand to even more countries all around the world. With that, I'll turn it over to Matt to discuss our financial results for the quarter.