Restaurant Brands International Inc (QSR) 2015 Q1 法說會逐字稿

Good morning and welcome to the Restaurant Brands International first-quarter 2015 earnings conference call.

(Operator Instructions)

Slides are available and may be accessed and are downloadable on the Webcast portal.

(Operator Instructions)

Please note this event is being recorded.

I would now like to turn the conference over to Andrea John, Director of Investor Relations.

Please go ahead.

Thanks, operator.

And good morning, everyone.

Welcome to Restaurant Brands International's earnings call for the first quarter ended March 31, 2015.

A live broadcast of this call may be accessed through the Investor Relations page on our website at www.investor.rbi.com, and a recording will be available for replay.

Joining me on the call today are Restaurant Brands International CEO Daniel Schwartz and CFO Joshua Kobza.

The team will be available to answer questions during the Q&A portion of today's call.

Before we begin I'd like to remind everyone that this earnings call and presentation include forward-looking statements which are subject to various risks set forth in the press release that we issued this morning.

In addition, this earnings call and presentation include non-GAAP financial measures, the reconciliations of which are included in the presentation and in this morning's press release, both of which are available on our website.

Let's start on slide 3 with the agenda for today's call.

First, Daniel will discuss first-quarter highlights at Restaurant Brands International.

He will then highlight Tim Horton's and Burger King brand-specific initiatives, business strategy and performance updates.

Then he will turn it over to Josh to discuss financial results.

Daniel will close the call with some concluding remarks before opening it up for Q&A.

And with that, I'll turn the call over to Daniel.

Thanks, Andrea.

And good morning, everyone.

Thanks for joining us today for our first full quarter of results as Restaurant Brands International.

We are excited to have two independently managed iconic brands under the same umbrella.

In the first quarter, we achieved strong comparable sales growth and positive net restaurant growth across both the Tim Hortons and Burger King brands.

We continued to execute on our brand-specific strategies in order to deliver value to all of our stakeholders, our guests, franchisees, employees, shareholders, and the communities in which our restaurants operate.

We have made strong progress on a number of initiatives that will serve as a sturdy platform upon which to build over the course of 2015.

Starting on slide 5, we are very pleased with the results in the first quarter.

Tim Hortons and Burger King increased global same-store sales by 5.3% and 4.6%, respectively.

This marked our best quarterly comparable store sales performance for Tim's in three years and for Burger King in nearly seven years.

At Tim's, Canada same-store sales grew by 4.9%, while US same-store sales at Burger King were up 6.8%.

We attribute these favorable results to our consistent execution of key strategic initiatives, with macroeconomic tail winds also playing a role.

And we also saw some benefit from better weather year on year in the US.

On the development front, we achieved net restaurant growth of 68.

This represents 5% growth on a trailing 12-month basis.

Consistent with historical development trends, we started to build our restaurant pipeline in the first quarter and expect to see acceleration of NRG into the back half of the year.

The continuation of strong same-store sales and development resulted in system-wide sales growth of 8.1% at Tim's and 9.6% at BK in constant currency.

We believe these favorable top-line results contributed to improved unit economics for our franchisees and contributed to RBI organic adjusted EBITDA growth of 18% compared to pro forma first-quarter results from the prior year.

We also continued to transition to a franchise-led development model at the Tim Hortons brand, which led to growth in RBI EBITDA less CapEx versus pro forma Q1 of last year.

Let's spend some time now reviewing the highlights of each of our brands.

Starting with Tim Hortons on slide 7, global comparable sales were up by 5.3% in the quarter.

Recently launched innovative products, such as our dark roast coffee and crispy chicken sandwich, continued to drive sales in both of our Canada and US restaurants.

Strong unit growth combined with positive same-store sales drove system-wide sales growth of 8.1%.

Our Q1 performance was a direct result of the hard work and dedication of our Tim Hortons team.

The next slide highlights our business strategy for Tim's across our three geographic markets -- Canada, the US and international.

We have a fantastic restaurant base in Canada and will look to build on our key learnings as we bring Tim's to additional markets in the US and the rest of the world.

Starting with Canada on slide 9, our lead, defend and grow strategy is critical to the brand's overall success.

As we've stated in the past, we are determined to build on our strong position to defend our core business and grow in new formats.

The first part of our strategy to grow in Canada centers around menu innovation with a real emphasis on introducing new products and continuing to expand our lunch day part presence via increased combo penetration.

We had a very successful product launch this quarter with our delicious new Philly steak and cheese panini.

The Philly steak and cheese panini gave our guests yet another compelling lunch option alongside our crispy chicken sandwich line and many other compelling offerings.

In breakfast our guests continued to really enjoy our dark roast blend.

The second part of our strategy to grow Canada and extend brand reach entails growing our presence in core urban areas through non-traditional formats.

We made tangible progress on our domestic expansion this quarter with an increase in year-on-year openings.

Now let's turn to our strategy in the US market on slide 10.

We've had three main objectives in the US -- build a scalable and profitable business, expand our presence in core and priority markets, and continue to improve unit economics.

The first part of our US strategy looks to increase average unit volumes through enhanced top-line growth.

The second part of our strategy focuses on expansion with strong local operating partners.

It's all about selecting the right partners to develop the brand and run excellent restaurants.

The last component of the strategy entails improving unit profitability to create an increasingly compelling franchise opportunity.

We're excited to increase Tim Hortons US presence and bring such a great concept to more communities across America.

On slide 11, we outline our international strategy.

We like to show this in graphic display to emphasize our under-penetration outside of our core Canada and US markets.

We believe the Tim Hortons brand has tremendous potential for international growth and system-wide job creation and we're truly excited to have the opportunity to share one of Canada's most iconic brands with the rest of the world in the coming years.

Moving on to slide 12, we can see same-store sales and net restaurant growth for Tim Horton by geographic market.

Strong sales growth in Canada was mainly driven by the continued success of dark roast and product launches and promotions in our lunch day part.

In the US we achieved same-store sales growth of just under 9% for the quarter, mainly driven by dark roast coffee sales as well as strength in breakfast and cold beverages.

Let's now turn to slide 14 for first-quarter highlights at Burger King.

We continued the strong momentum from 2014, which has led to favorable financial results to start the year.

The execution of our key strategic initiatives has been vital in growing profitability for our franchisees and delivering a great guest experience.

Global same-store sales growth of 4.6% represented our eighth consecutive quarter of positive same-store sales growth and helped to drive system-wide sales growth of 9.6% in constant currency.

As can be seen with the three charts on this slide, our first-quarter results across these three metrics compare favorably to first-quarter 2014 results.

On slide 15 we lay out our four-pillar strategy in the US and Canada as well as our international expansion strategy.

We established this four-pillar strategy back in 2011 and have executed on it every single year since then.

Internationally, we continue to accelerate on our year-on-year pace of development.

Having a presence in approximately 100 countries and US territories around the world, we have a strong foundation from which to open more restaurants and continue to see opportunities to expand in new and existing markets.

Looking at our menu and marketing strategy on slide 16, new products and promotions helped to drive our strong first-quarter sales results in the US and Canada.

To that end, I'd like to point out three successful products that drove positive sales and were well received by our guests.

The first was a spicy BLT Whopper.

It's worth noting that this product did not increase behind-the-counter complexity and contributed to incremental franchisee profitable.

The second was a bacon cheddar tender crisp, another example of an operationally simple, yet very impactful product that complements our burger offerings.

And, third, I'd like to highlight our fan favorite, Croissandwich breakfast sandwich, which was promoted in our two for $4 breakfast line up without introducing a single incremental SKU into the kitchen.

The promotion helped us drive the very important breakfast sales day part for us.

On the marketing initiatives during the quarter we were the official burger of the NCAA in the Final Four for the second year in a row.

And as many of you know we also brought back another guest favorite our chicken fries at the end of March.

Turning to slide 17 we would like to highlight the reimaging component of four-pillar strategy that has been instrumental in helping us create top-line growth at the restaurant level and transform the image of our brand in the US.

After a significant effort by our franchise partners over the past three years, we've made huge strides towards remodeling our store base.

Having already hit our 40% target of restaurants on the modern image in the US and Canada at the end of last year, we've continued to push forward restaurant image updates in the first quarter, not just in the US but all around the world.

Favorable sales trends of reimaged restaurants offer our franchisees a very compelling return on their investment.

On slide 18, we show some of our restaurants in key international markets for Burger King.

Our efforts internationally this quarter focused on building our development pipelines for the quarters to come.

Our joint ventures in India and Russia and France and South Africa continue to perform well and we remain very excited about growth turns in these important markets.

We look forward to updating you more on the progress of our international development as we convert our restaurant pipelines in these countries into openings over the course of the year.

Turning to slide 19 we can see that all of the Burger King markets achieved positive same-store sales growth for the quarter.

The US and Canada reported comparable sales growth of 6.9% driven by our continued commitment to the four-pillar strategy.

In EMEA we achieved same-store sales growth of 0.7%.

Despite some notable macroeconomic headwinds in Russia, we continue to grow our same-store sales there.

Performance in the UK and Spain were also strong but were partially offset by some softness in Germany.

For the first quarter, APAC was Burger King's largest driver of net restaurant growth, driven by Korea and China.

Overall APAC same-store sales were up by 1.7% year over year.

And, lastly, moving on to our LAC market we reported same-store sales growth of just under 5% for the quarter due to strength in Brazil and improved performance in Mexico and Puerto Rico.

I'll now turn the call over to Josh who will discuss RBI's financial results for the quarter.

Thanks, Daniel.

I would like to start today by mentioning that we have published preliminary pro forma figures in our earnings release and in a separate 8-K to be filed today in order to facilitate prior-year comparisons and help investors to better understand the underlying trends in our Business.

These figures reflect the financial performance of RBI as if the merger between Tim Hortons and Burger King had occurred at the beginning of 2014 and are based on a number of additional assumptions that are highlighted in the 8-K.

The release also includes non-GAAP financial figures, the reconciliations of which are contained therein.

Let's start on slide 21.

For the first quarter of 2015, RBI-adjusted EBITDA for the quarter grew 18% organically compared to the pro forma first quarter of 2014.

Our strong performance this quarter was primarily driven by favorable comparable sales growth and net unit growth across both brands, as Daniel discussed earlier.

We were also able to achieve cost savings in G&A across both brands this year, leading to an approximately $19 million reduction in management G&A versus the pro forma 2014.

While we continue to manage the brands separately, our common culture of ownership and implementation of zero-based budgeting were a meaningful contributor to bottom-line results.

D&A for Q1 was $51 million.

The higher depreciation at Tim Hortons is the result of a more capital-intensive business model historically.

And we expect that in the future growth will be based on a more capital-light model particularly in the United States and international markets.

Our adjusted effective tax rate for the quarter was just below 23%, which was slightly lower than our prior-year rate due to the mix of taxable income in various jurisdictions around the world.

Adjusted net income of $84 million led to adjusted earnings per share of $0.18 per share based on an as converted diluted share count of 476 million.

Moving to slide 22, we generated $215 million of free cash flow during the quarter.

This reflects the strong growth in adjusted EBITDA as well as a decline in capital expenditures for the pro forma company as we continue the transition to a more capital-light model.

During the quarter, we completed a tender offer for the majority of Tim Hortons legacy bonds, resulting in the repurchase of CAD1.158 billion in debt, using cash balances that were raised in connection with the transaction.

Our change in cash balance during the quarter as reported in US dollars reflects approximately $60 million of translation impact of a weaker Canadian dollar on the Canadian dollar balances that we had reserved for this purpose.

Finally, in addition to normal course amortization of our term loan B facility we prepaid an additional $43 million of our term loans in accordance with our loan agreements to offset the $43 million of legacy Tim Hortons bonds that were not tendered and remain outstanding.

On slide 23, we show our capital structure as of quarter end.

On a net debt to pro forma LTM EBITDA basis RBI was levered 5.2 times.

We ended the quarter with total net debt of $8.2 billion, down roughly $200 million from the previous quarter due to our cash flow generation for the quarter.

Turning now to slide 24, on April 27, the RBI Board of Directors declared a dividend of $0.10 per share and for partnership exchangeable units of RBI limited partnership for the second quarter of 2015.

This represents a $0.01 increase in dividends per share compared to the previous quarter.

The dividend will be payable on July 3 to shareholders of record at the close of business on May 29.

I'll now hand it back over to Daniel for some concluding remarks.

Thanks, Josh.

Wrapping up on slide 25, we were able to deliver positive comparable sales and net restaurant growth across both of our independently managed brands, creating value for our franchisees and plenty of opportunities for our employees.

We're encouraged by our first-quarter results but recognize that we still have tremendous opportunities to create value for all of our stakeholders for both brands for many years to come.

Thank you so much for joining us today.

And, with that, we will now open up the call for Q&A.

Operator?

(Operator Instructions)

The first question comes from Nicole Miller with Piper Jaffray.

Thanks, good morning.

Two quick ones.

On Burger King first, you talked about some of the items that drove comp.

Can you talk about how that changed sales by day part?

And where do you stand today in terms of breakfast, lunch, dinner, or however you look at it in terms of sales by daypart?

Hi, Nicole, it's Daniel.

Yes, thanks.

Overall we had quite a strong quarter on the Burger King front and we're pleased to report it was actually across multiple dayparts.

We mentioned the lunch daypart, we had another successful quarter with our 2-for-$5 promotion, some new products, including the spicy fish, that did quite well.

We had some good Whopper limited time offers, like the spicy BLT Whopper.

On the breakfast side it was also another good quarter, led by the, as you know, fan favorite Croissandwich.

And breakfast still stands around 13%, 14% of our sales and was one of our strongest growing day parts in the quarter.

Thanks.

And then just quickly on Tim Hortons, when you talk about the capital-light structure, or relative capital-light structure, going forward, can you give us a little bit more information what that means?

And on the international or rest of world development, do you plan that initially to be in the five existing markets today or also at the same time entering new markets?

Yes, thanks, Nicole.

It's Josh.

As we mentioned previously, Tim Hortons has historically had a more capital-intensive business model.

We continue to be fully committed to remodeling restaurants in Canada and committed to participating with our franchisees in investing and remodeling the restaurants, as we think that's a key strategic pillar for both Burger King and Tim Hortons.

But when we look forward at the development model, we see more of the growth in the future coming from markets like the US, and some of the other markets that we would like to grow in around the world.

And we expect that business model will probably be more franchisee-led from a development perspective, which should lead over time to a transition to a more capital-light development model.

I don't know, Dan, if you want to touch on the markets?

Yes, Nicole, on the international side we've spoken before and you know our international goals are quite ambitious for Tim Hortons.

But I would remind you that it was about a year after owning Burger King before we signed up our first international partnership in the master franchise joint venture structure.

And we're excited about the prospects of taking Tim's globally.

We had envisioned using the same master franchise joint venture model.

There's no shortage of interest or partners around the world in taking Tim's, expanding Tim's around the world.

I would say, as you know, it's all about having the right structure or the right partnership.

So give us some time and stay tuned and we look forward to reporting back on the Tim's international front.

Thank you.

The next question comes from Andrew Charles with Cowen and Company.

Great, thank you.

Daniel, when we think about Tim Hortons US development should we think of it as skewing into existing markets like upstate New York, Ohio and Michigan, or more so under new area development agreements?

And then, Josh, FX is about a 10% to 11% headwind to adjusted EBITDA.

I know you previously guided to about 8% for the year so I just wanted to see if there's any updated thinking around that.

It's Daniel.

I'll take the development question and pass it over to Josh for FX.

We're encouraged by the strong result that we've seen in the Tim Hortons US business.

You saw the same-store sales were just under 10% for the quarter.

As the business is growing and unit profitability is getting increasingly stronger, and the return on investment of building new Tim Hortons is getting increasingly more compelling, naturally we're seeing a lot more interest in expanding the Tim Hortons brand in the US.

And, yes, I'd say the brand does quite well in some of the markets in which it operates today.

And I'd think that some of the biggest opportunities are to just further expand around those areas today.

Josh, if you want to handle the FX?

Yes, Andrew, thanks for the question.

To your point, the FX impact for the quarter was a little bit higher than what we thought when we announced the fourth-quarter earnings.

If you look at some of the key currencies that our business operates in both the Canadian dollar, the euro, and some of the other emerging market currencies, we did see a little bit of further deterioration in those exchange rates versus the US dollar through the rest of the quarter, which is what drove a slightly larger impact in the quarter than what we've previously thought for the full year.

The Canadian dollar has come back a little bit in the last week or so.

But I expect that the FX rates will continue to be volatile.

And we will continue to give you visibility each quarter into the underlying organic performance of the business and the FX impact.

Thank you.

The next question comes from Brian Bittner with Oppenheimer & Co.

Thanks very much, good morning.

Just two questions.

First, a disclosure question and then a question on the business.

First, obviously there's a lot of moving pieces here with the reporting of your new entity.

And I think you said you're going to file another 8-K later today.

Are we going to be able to see the detailed breakdown of the P&Ls between the regions?

Or is this now how you're going to report, with just two segments, just the Burger King and Tim Hortons segment on their own?

Yes, Brian, it's Josh.

Thank you for the question.

When we went through the course of the last quarter, we reevaluated our business in the context of the merger.

And given the way that our organization is now set up, the key decision makers are the two brand Presidents who report to the CEO and we felt that it makes the most sense.

It's how we look at the business as we look at the financial performance of the two brands.

And we felt that was the appropriate way to present the business going forward.

The way we will present the financials is that we'll give you the financial performance by reportable segment, which will be Burger King and Tim Hortons, and we will also give you additional detail on some of our geographical markets where you'll get key KPIs, things like same-store sales and NRG, so you get a sense of what's driving the results in some of those key geographies.

But the financial reporting segments will just be at the brand levels going forward.

Okay, thanks.

And then just a question on Tim Hortons and the numbers.

Clearly great results.

When you adjusted EBITDA ex the FX, it grew at about 20%, which really doubled your revenue.

And this leverage of higher profit growth against the revenue I think really reflects the zero-based budgeting approach you guys are quickly putting through the business.

I think G&A was down over 30% on a core basis.

Can you talk a little bit about what drove this and maybe your thoughts on this dynamic going forward?

Yes, Brian, it's Josh again.

We were really pleased with the performance at Tim's this quarter.

I think the real highlights are the same-store sales where we continue to see improvement across both the Canadian and the US market.

That's great for us.

It's really encouraging to see our strategic initiatives working and in driving better results for our franchisees, as well.

The same-store sales were a big driver across all pieces of our business -- franchise, property and the supply chain business.

On top of that, we've seen strong net restaurant growth.

Both over the past year and in the first quarter we had a really strong start to the year.

So, as we grow the restaurant base further that's also going to be a driver of our results.

And as I mentioned in the prepared remarks, we were also able to achieve some savings on zero-based budgeting and on G&A.

And that was across both brands, both at Burger King and at Tim Hortons.

As we've mentioned repeatedly, we managed the brands separately.

We think that's really important, as two really fantastic, high-quality, independently managed brands.

But we are going to share our common culture of ownership and accountability and that means that we share things like zero-based budgeting.

So, we've put that in place at Tim Hortons, as well.

And that's allowed us to achieve savings and refocus the organization and our resources on the real key priorities, which, as we've talked about, are growing the store base in the US, around the world, and continuing to grow sales and profitability in Canada.

Great, thank you.

Thank you.

The next question comes from Joseph Buckley with Bank of America.

Thanks.

Could you share some insights maybe into the Burger King US-Canadian number and then the Tim Hortons Canadian number, how the same-store sales broke down between transaction and check?

Joe, it's Daniel.

As a practice, we don't disclose the breakdown but we can give some color into what drove the strong results across both brands.

At Burger King, as you know, we put in place our four-pillar strategy about 4.5 years ago and have been consistently executing on it every quarter since.

Menu, marketing, image, operations -- there's no silver bullet.

We went from 10% of our restaurants being remodeled to just over 40%.

Our franchisees are running better and better restaurants.

It's our goal to drive higher sales, higher franchise profitability, so our franchisees can continue to reinvest in the restaurants and deliver better and better guest experiences.

And that's what we are seeing on the Burger King side.

On the Tim's side, it's all about consistent execution and great operations.

Our franchisees in Canada are running incredibly strong restaurants.

So, we're doing really well on the operational side.

And we've also had a couple of great new products like the dark roast coffee blend that we launched late last year that guests really love.

We've done a really good job expanding the lunch daypart.

We had some good product wins across the Philly steak and cheese panini, the crispy chicken club combo.

As we're selling more and more at lunch and increasing our combo penetration, couple that with continued strength in coffee and breakfast, we're seeing real positive momentum on the Tim Hortons side.

So, we're pleased with the results across both the brands this quarter.

I think just to add to that, Joe, a couple of exciting highlights in each of those markets.

We brought back the chicken fries again later in the quarter.

And I think one of the exciting things about that is that we're promoting chicken fries pretty extensively across social and digital media.

And I think we're appealing to a younger demographic, some of the more Millennial customers, and bringing more of those customers and getting them excited about coming back to Burger King restaurants again.

And on the Tim's side, with the new dark roast coffee blend, we've really been able to drive improved momentum across coffee and make sure that we're selling more coffee in our restaurants.

So, I think those two things have been really powerful in bringing new customers and additional customers into our restaurants.

And then just one more on Tim's US brands, pre-merger I think Tim's was moving more capital light.

Are you guys moving even more capital light?

And will there be any change with the existing Tim's system?

And then, Daniel, when you talk about waiting a year, or the BK experience being that it took a year to get management franchise agreements in place, should we expect the Tim's US pick up to happen faster than that?

I think you've highlighted that as the initial focus in a prior call.

Joe, we're following the same path that Tim's was following, that Tim's brand management had been following in the US, in that we do think it makes sense to more of a franchisee-led development model.

We're already in discussions with prospective partners in important markets where the brand does very well about accelerating the pace of Tim Hortons growth.

It's all about having the right structure with the right operator who could run great restaurants and deliver that same incredible Tim Hortons experience that has made the brand what it is in Canada.

We're excited about the prospects of accelerating the pace of Tim Hortons growth in the US, creating a lot of opportunities for employees, for franchisees.

But it's all about having the right partnership structure with the right operators.

And just similarly on the international side, same idea.

Rather than rushing into setting everything up, we're taking our time, making sure we develop the right structures, the right partnerships.

And, as you know, we have big goals for Tim Hortons both here, in the US and internationally, and we look forward to talking more about it in the coming quarters.

Thank you.

The next question comes from John Glass with Morgan Stanley.

Thanks, good morning.

I'm wondering if you have thoughts on the distribution business in Tim's as you've gotten involved in managing it.

Is this a business that you think has an opportunity to be more profitable as you look at the sibling companies that 3G owns and using best practices there?

Are there parts of it that are maybe less essential or less value add?

How do you look at in totality that business and how it grows going forward and what where the opportunities are?

Hi, John it's Daniel.

In Canada, the distribution of products for the restaurants, it's done in part by third-party distributors and in part by corporately owned distributors.

In the US it's all third party.

And, really, the way we look at it, our goal is to maximize franchisee profitability and in order to do that we need to have the best service and the best distribution delivery system to our restaurants.

We're constantly evaluating what that method is.

And at the end of the day, whatever decisions we make will really just be around what's going to result in the optimal distribution delivery system to our restaurants.

That's something we look at from time to time.

No plans, nothing really to report there but that's going to be what's going to be the driver of our goal -- the optimal distribution in order to maximize franchisee profitability.

Got you.

Then just two more, if you can.

One is just on the overall integration of the two businesses.

And you've done a lot of work in Canada integrating, bringing the zero-based budgeting in.

Is this the right run rate then, to think about in Canada for the expenses?

Or did you exit the quarter at a much lower rate and you expect continued progress in, say, the coming quarter?

John, it's Josh.

We were very pleased with the savings we saw in the first quarter, really across both of the brands.

And, as I said, our goal with our ownership mentality and zero-based budgeting is to always look for ways to be more efficient in the way we operate and focus our resources on growth and supporting the franchisees.

We don't have any guidance for the outlook on Tim's.

Obviously, there was a reorganization that happened during the first quarter so there was some benefit there that I would expect to continue.

But we're also going to be reinvesting as we try to grow faster, both in the US and around the world.

So, no guidance on exactly where we go but I think there are a couple of factors that go each way in the spending.

Okay, thank you.

The next question comes from David Palmer with RBC Capital Markets.

Good morning.

On BK in the US, I'm curious how much value you think that the value of promotions, like 2-for $5, 10 nuggets for $1.49, how much do you think those were important to your sales as the mix of your sales?

And perhaps if you have some consumer perceptions over the last year, how much has the consumer increasingly viewed you as a good value due to these levers?

Dave, it's Daniel.

We're pleased to see and to report to you that we saw actually balanced growth across multiple day parts and across multiple offerings.

We saw strength in the breakfast daypart, we saw strength in value with our 2-for $5 offering, we also had some very successful Whopper limited time offerings in the quarter.

On the premium side, the A-1 ultimate bacon cheeseburger continued to perform well.

There was no single product or single layer that overly contributed to sales.

I think more than anything, what's most important is that with the sales increase that you saw we had one of the strongest quarters in a long time with respect to franchise profitability growth.

We think that the balanced approach that we're taking to menu innovation, launching high-impact, high-volume, operationally simple products has really enabled us both to grow our sales but to grow our sales profitably, to enable our franchisees to earn more and more money, to reinvest back into the business, to continue to drive that great guest experience which, as you know, creates this virtuous cycle.

Just a quick follow-up on your tax rate, it was a little over 22% this quarter.

How should we think about the corporate tax rate going forward?

Thanks.

Hi, Dave.

This is Josh.

You're right, we came in just below 23% for the quarter.

It's a little bit lower than it was last year for BK.

And, really, it's just a function of the mix of where the profits are earned around the world.

We don't have any guidance or outlook for that but the rate that we put in for the quarter was our best estimate for now as to what the rate would be given our current mix of business.

Thank you.

The next question comes from Brian Hunt with Wells Fargo.

Taking another shot at sales, you expanded into delivery in multiple markets in the United States.

And some of your other competitors are looking to get on the same path.

I was wondering if you could comment on the success of delivering, what kind of mix it may be having as a percent of sales.

And then I've got a follow-up.

Hi, it's Daniel.

Delivery is still quite small for us on the Burger King side.

In certain markets it has worked out pretty well but it's not a meaningful contributor to the overall same-store sales.

We're always looking for new and innovative ways of delivering great guest experience and that's one that we are working with.

But, again, nothing meaningful today.

All right.

And then my next question, Josh, when I look at CapEx for the year, the combined businesses, I was wondering if you could give us some type of guidance considering that you're moving more to a capital-light initiative at THI.

Thanks.

Yes, Brian, thanks for the question.

If you noticed in our 10-K that we published, we said at the time we thought CapEx could be up there around $180 million for the full year.

It's still really early in the year.

And generally for us capital expenditures have been pretty back-end weighted so I don't really have an update on that number at this point.

Very good.

Thank you for your time.

Thank you.

The next question comes from Karen Holthouse with Goldman Sachs.

Hi, thank you for taking the question.

We continue to hear more from other QSRs about investments in mobile technologies, mobile payment, mobile ordering.

I'm just curious for any updated thoughts on what your road map is for the development and continued capabilities of your app?

Hi, Karen, it's Daniel.

We have good mobile apps across both of our brands, still with lots of work to do.

We established a team just to be focused on this very important area of our business.

We agree with you that this is an area that is changing quickly and is something we need to be focused on, and we are focused on.

And we look forward to updating you more on some of the initiatives that we have planned in the digital space in the coming quarters.

We're pretty excited, just give us some time to report back on that one.

All right, thank you.

Thank you.

The next question comes from Keith Steiner with UBS.

Thanks.

Just one simple one for me.

You seem like folks that really wouldn't be that interested in the inefficiency of $1 billion of cash on the balance sheet.

When we think through our models for this year and into next year, Josh, what should we think about modeling in terms of that cash balance and allocation of it to maybe more efficient, say, return opportunities, whether that's paying down debt, et cetera?

Hi, Keith, it's Josh.

It's a great question.

You're right, we ended the quarter with about $1 billion in cash.

And when I think about the use of that cash and the cash we'll generate going forward, obviously we do have pretty meaningful interest payments on debt.

We'll have our preferred dividends.

We've been paying a common dividend that's been growing pretty consistently over the last couple of years.

To the extent that there's excess cash beyond what we feel we need to operate, when we generate excess cash, we may consider paying down some of our prepayable debt to reduce our interest expense.

That's something that we're constantly looking at our capital structure and ways to be more efficient and that's definitely something that we'll look at over the next couple of quarters.

Is there a base level?

You mentioned having some base level of cash in order to properly maintain the business plus cushion.

Any willingness to tell us where you would be comfortable in terms of maintaining that cash balance?

I don't have a fixed number yet today, Keith, but I would say I do believe it's lower than $1 billion.

Thanks, guys.

The next question comes from David Hartley with Credit Suisse.

Thank you very much.

Just thinking about new store, growth and Tim Hortons was double what we saw in Canada last year, is there a plan to accelerate growth relative to what we've seen in previous years?

David, it's Josh.

Thanks for the question.

We were really pleased with net restaurant growth in Canada for the quarter.

And I think another great detail is it came across a number of different formats.

So, we saw growth in traditional restaurants, non-traditional, and some of our smaller kiosks and self-serve.

The team in Canada did a really fantastic job on net restaurant growth in the quarter.

And I think we do have a very positive outlook for the year.

Despite the fact that we already have a large store base, we're finding innovative new ways to bring the Tim Hortons experience to customers across Canada where the brand is so well loved.

We are excited about the prospects for the year for NRG in Canada.

It just continues to show our commitment to the country and investing in the country and creating job growth in the country.

I think previous management had a store count loose target of maybe 4,000 stores or so.

Is there a plan here just to accelerate the pace to that number or do you think a number like that could easily be surpassed?

Yes, it's Daniel.

We don't have a specific target but we do feel comfortable and excited about the prospects of continuing to grow the brand and grow restaurants in existing and new formats in Canada for many years to come.

Okay.

And just two more.

Dinner daypart opportunity in Canada, is that an opportunity for you?

And does the current restaurant configuration, if you will, support expansion into that daypart?

Yes to both questions.

It is an opportunity for us to continue expanding upon, and the existing restaurants do support it.

We're actually, if you look at the focus today and the real opportunity, it's further expansion of the lunch pay part where we've launched some great new products and we're continuing to increase the combo meal penetration there, which has been one of the drivers of the recently strong sales performance.

We're excited about continuing on building the momentum we have at lunch and further expanding at supper.

Okay, I'll leave it at that, thank you.

Thank you.

The next question comes from Will Slabaugh with Stephens Inc.

Thanks, guys.

Just two quick ones.

First, you mentioned the favorable weather year over year.

Can you provide us with an approximate impact for both brands?

And then the second piece, more anecdotally just on the Tim's side, since the merger, as we look at the net new unit numbers begin to pick up year over year with, I'm assuming, expectations for that to continue, whether you're seeing franchisees that are growing more aggressively or if you're attracting a new base of interested groups at this point.

Yes, the comment on the weather was really limited toward the Burger King US business.

It's tough to quantify but we just did want to highlight that the weather this year in the US was a little better than it was last year.

There are plenty of puts and takes but we did think it was noteworthy given the tough winter we had in 2014 in the US.

With respect to the Tim Hortons restaurant growth, we're seeing strength across multiple formats -- traditional, non-traditional.

And we have some of the best franchisees who are excited about growing with the brand.

We don't need to look outside of the system.

We have great franchisees who run great restaurants and are excited about running more great restaurants.

I would say, though, as you look at net restaurant growth around the world for Tim Hortons, and as we enter into new markets in the US, we definitely will be looking for some new high-quality partners who are well capitalized and who are going to be excellent operators of restaurants to help us to grow into new markets, and bring the brand to new communities across the country and across the world.

I think we'll see a balance in some of existing markets of growing with our existing franchisees and finding some new partners in some new markets.

Thank you.

Thank you.

Today's last question comes from Jeffrey Bernstein with Barclays.

Great.

Thank you very much.

Couple of questions.

One, maybe just to follow-up on that, Josh, in terms of the Tim Hortons brand outside of obviously Canada and the key core markets in the US.

When you look at the rest of the markets in the US or maybe when you look at outside of North America, I thought there was a comment that the franchise demand is still strong.

I'm just wondering if you could just talk a little bit about the familiarity with the brand that you're finding as you go to some of these new US Markets or outside of North America.

And then when you acquired Burger King, that was a big positive was just the brand had such strong recognition around the world, and it was just putting it in the right people's hands.

Just wondering how that compares to Tim Hortons recognition.

And then I had one follow-up.

Yes, Jeff, thanks for the question.

It's Josh.

What we've seen in the US is that the real key to success for the brand is creating convenience and creating density in markets.

What we see is that in the markets where we've been able to build a really strong presence and build a high degree of convenience in those markets, our average revenues per restaurant go up and our franchisees make a lot of money.

I think when you look at our strategy as we try to grow into new markets and try to further penetrate existing markets it will be to drive density and convenience in those markets so that we can make sure our franchisees are just as profitable in the US as they are in Canada.

And when you look around the world, I would say what we saw with Burger King is that, while the brand did have a meaningful international presence back in 2010, there were a lot of markets where the brand awareness was very low, especially in emerging markets where we didn't have that many restaurants.

What we see as the real key to growing the brand around the world is carefully choosing the right markets, finding the right partners.

That's the most critical thing -- the right well-capitalized partners who are going to be good operators of restaurants and are committed to developing the brand in an aggressive way.

And that's what's going to allow us to build a brand, build brand recognition, and build really great and profitable restaurants.

That's going to be our focus as we go around the world.

And we think there's huge opportunity for this brand, for the Tim Hortons brand, to be successful in a lot of markets.

As Dan said, it will take time and we're going to take the time to find those right partners, but we do see tremendous long-term potential and are really excited to bring this iconic Canadian brand to the rest of the world.

Got it.

And then the other question was the clarification.

I know in the slide deck you talk about, from a capital structure standpoint, I think you said net debt to adjusted EBITDA of just over 5 times.

I'm just wondering, as you talk ability your plans for cash balance and what not, how should we think about that range?

Is that a reasonable run rate in the low 5 or is there a broad range you could say this is where we ultimately settle out?

Yes, Jeff, it's Josh again.

It's a great question.

We've never had a leverage target.

I would say that historically we've been willing to take on some amount of leverage when we see an opportunity to do a transaction where we think we can create a lot of value for shareholders.

And once we do that, our first priority is going to be to grow our earnings and generate cash flow so that we can reduce leverage.

So, what you'll see us do going forward is, we had great progress this quarter on growing our EBITDA by 18% on an organic basis, and we're looking to generate a lot of cash flow.

And, as I said a little bit earlier, we may use some of that cash flow, to the extent we have excess cash flow, to bring down the level of debt.

But certainly our priority will be to deleverage as quickly as possible over time.

But fixed long-term target on it.

Thanks.

Thank you.

As there are no more questions at the present time I would like to turn the call back over to management for any closing comments.

Thank you, everyone, for taking the time.

We're very encouraged by this first quarters performance.

But we still have so much to do for very many years to create significant value for all of our stakeholders, our franchisees, our employees, our guests, our shareholders, our communities.

And we look forward to working very hard to drive this value and we look forward to reporting to you in the coming quarters.

So thank you very much and I appreciate your continued support.

Thank you.

The conference has now concluded.

Thank you for attending today's presentation.

You may now disconnect.

Have a nice day.