Restaurant Brands International Inc (QSR) 2015 Q2 法說會逐字稿

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

(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.

Thank you, operator.

Good morning, everyone, and welcome to Restaurant Brands International's earnings call for the second quarter ended June 30, 2015.

A live broadcast of this call may be accessed through the Investor Relations page on our website at 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.

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.

Reconciliations of non-GAAP financial measures are included in the earnings presentation and press release, both of which are available on our website.

Let's begin on slide 3 with today's agenda.

Daniel will lead off the call, walking us through second-quarter highlights at Restaurant Brands International.

Next, he will cover business strategy and performance at Tim Hortons and Burger King.

Josh will then discuss financial results for the quarter.

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

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

Thanks, Andrea, and thanks to everyone joining us on today's call.

I'm pleased to share our results for the second quarter and update you all on the progress that we've made at our two iconic brands.

As we've stated in the past, our two most important priorities at RBI are great guest experience and franchisee profitability, and our teams are all aligned to deliver on our brand-specific strategies to that end.

We have some of the best franchise owners and employees in the world.

And before getting into the results, I just want to take a brief moment to thank them for all of their hard work and for helping us to continue to grow our great brands.

It's their hard work that enabled us to have yet another solid quarter of comparable sales growth and net restaurant growth across both the brands.

As you saw in our press release, we reported second-quarter adjusted EBITDA of $427 million and adjusted EPS of $0.30 per share.

Starting on slide 5, we recorded our best quarterly comparable-store sales performance at Tim Hortons since 2011, with comparable-sales growth of 5.5%.

At Burger King, same-store sales grew by 6.7% in the second quarter, our best quarterly performance in this metric in nearly a decade.

Tim's Canada and Burger King's US comparable-store sales growth were 5.4% and 8%, respectively, driven by consistent execution of key strategic initiatives which I'll discuss at length.

We accelerated the pace of development, both on a quarter-on-quarter and year-on-year basis, achieving net unit growth of 193 restaurants.

This represents 5.2% growth on a trailing 12-month basis.

We continue to build our restaurant pipeline for the remainder of the year at both of the brands.

The combination of strong same-store sales and unit growth resulted in constant-currency system-wide sales growth of 8.4% and 11.6% at Tim Hortons and Burger King, respectively.

With this top-line momentum, we saw meaningful improvement in franchisee profitability this quarter as well.

Compared to the 2014 pro forma second-quarter and first-half results, RBI's organic adjusted EBITDA grew by 19%.

Now let's shift to brand-specific highlights starting with Tim's on slide 7. Our launch of the Creamy Chocolate Chill and Nutella products, as well as continued success of the Dark Roast coffee, contributed to strong same-store sales performance during the quarter.

We've been pleased to see the momentum we generated in the first quarter carry over to the second quarter, as strength in net restaurant growth combined with favorable same-store sales resulted in system-wide sales growth of 8.4%.

On slides 8 through 11, we lay out our business strategy across the three geographic markets at Tim Hortons -- Canada, the US, and International.

We continue to be the category leader in Canada and are committed to growing our presence in our home market, as well as in the US and around the world.

Let's start on slide 9 with our strategy for growth in Canada.

Consistent with what we've said before, our priorities in Canada center around menu innovation across day parts and restaurant growth in our core markets.

We've continued to execute on both of those fronts during the quarter.

Despite our restaurant penetration, we saw an acceleration of net restaurant growth on a year-on-year basis, and we're committed to continuing to grow the Tim Hortons brand in Canada for the long run.

Turning to slide 10, we lay out our US strategy for Tim's.

We're focused on growing our scale and improving the unit economics of our restaurants while increasing unit density in the core and priority markets.

Most notably, we opened our first freestanding drive-through restaurant in St.

Louis, under the development agreement that we signed last year.

Many members of the community were present for the grand opening and received our new restaurant and owners with great fanfare.

We continue to be very optimistic about the ability to grow our Tim Hortons presence in the US.

Moving to slide 11, we show our global restaurant footprint.

Core to our international strategy is growing our presence outside of Canada and the US.

At Burger King, we meaningfully increased the pace of growth internationally over the past five years, and we're working hard with our new and existing partners to expand our presence of Tim Hortons globally.

On slide 12, we highlight KPIs at Tim Hortons by a geographic market.

Q2 comparable-sales growth in Canada was 5.4% and was 7% in the US.

As we mentioned before, our successful product innovation this quarter across food and cold beverages, along with strength in Dark Roast coffee, drove the quarter's outperformance.

On the development front, quarterly net restaurant growth at Tim's was 52.

We're pleased with the pace of development year to date, particularly in Canada, and have a solid pipeline of openings in place for the second half of the year.

Shifting to the second quarter results at Burger King, on the next slide, our balance strategy drove year-over-year gains across comparable-sales growth, net restaurant growth, and system-wide sales growth.

We achieved positive same-store sales growth for the ninth consecutive quarter, with particular strength in the US and Canada, and LAC markets.

That, along with our global net restaurant growth of 141 resulted in system-wide sales growth of 11.6%.

Improving over previous years, we finished the first half of 2015 with strong net restaurant growth as we continue to make progress on our international expansion efforts, particularly in China, Turkey, and India.

This quarter, we also opened our first restaurants under our Burger King southern and eastern Europe joint venture, a deal we had announced last December.

We established restaurants in Italy and Poland, and we look to build on their successes as we scale our existing presence in southern and eastern Europe.

We are focused on consistently pursuing our strategic initiatives in all of our Burger King markets and are committed to insuring our guests have great experiences to build on our brand loyalty and ultimately improve the profitability of our franchisees.

Turning to slide 15, we outline our four-pillar strategy.

You've heard us speak to this each quarter since its implementation in 2011.

It emphasizes our efforts in menu, image, marketing, and operations in the US and Canada, as well as our scalable development initiatives all around the world.

Let's discuss some more of our achievements this quarter.

Slide 16 highlights our menu and marketing efforts.

We continued to launch fewer menu items, with limited operational complexity, as we believe this translates to better experience for our guests and more profitability for our franchisees.

We were again pleased with the performance of our chicken fries sales.

Our 2-for-$5 platform continued to perform well, driven by the Extra Long Pulled Pork Sandwich that launched this quarter.

And another key component to our sales growth this quarter was our premium line of burgers, namely the A1 Hearty Mozzarella Bacon Cheeseburger, which only added one new component to our kitchens.

And, lastly, our 2-for-$4 breakfast platform, anchored by our guest favorite Croissan'wich breakfast sandwich, continued to drive sales during the breakfast day part.

Shifting to our marketing efforts, we're very excited to report the appearance of the Burger King in the second quarter.

His appearance this quarter in pop-cultural moments that transcended sports generated over a billion media impressions, and we continued to engage our guests through multiple media channels.

Turning to slide 17, we want our restaurants to have an inviting atmosphere that keeps our guests coming back.

This ultimately drives better margins for our franchisees, creating a favorable return in their investment.

We're encouraged by the significant progress that we've made over the past several years and are focused on bringing even more restaurants under the modern image.

Moving to slide 18, we highlight Burger King's global footprint.

At the end of the second quarter, we operated more than 14,000 restaurants in approximately 100 countries and territories.

We created thousands of jobs globally this quarter and are committed to the communities in which we operate.

Last month, I had the opportunity to visit India, a country we view as a key growth market for Burger King.

Since entering the market just last December, we've opened 20 restaurants.

Our guests enjoy a unique menu tailored to local Indian tastes which include the delicious Veg Whopper and Paneer King Melt.

We still have a long, long way to go on the development front in India and we're encouraged by the progress we've made thus far.

In total, we opened 156 net restaurants in the first half of the year.

As you know, our development tends to be back-end weighted and our strong master franchise joint venture partners have a robust global pipeline of restaurants that we plan to open in the second half of the year.

On slide 19, we highlight second-quarter performance at Burger King.

Net restaurant growth for the quarter was driven by our EMEA and APAC markets, with notable openings in Turkey, Spain, and China.

Same-store sales was strong across all markets and global comparable-sales growth was at its highest level since 2005.

Same-store sales growth of 7.9% in the US and Canada was our best quarterly comp figure in more than nine years, while favorability in EMEA was attributable to strength in the UK, Spain, Turkey, and Russia, as well as Germany lapping last year's second-quarter underperformance.

At 2.3% in comparable-sales growth, APAC benefited from continued strength in China, which was offset by some softness in Australia.

LAC reported yet another strong quarter of results, with same-store sales up 8.5% year on year.

We continue to see improvements in Mexico, while Brazil and Puerto Rico outperformed as well.

I'll now turn it over to Josh to review RBI's financial results.

Thanks, Daniel.

Let's start on slide 21.

Compared to the pro forma second quarter of 2014, RBI adjusted EBITDA grew 19.1% organically, to $427 million this quarter.

Second-quarter adjusted EBITDA was comprised of Tim's adjusted EBITDA of $234 million and Burger King adjusted EBITDA of $193 million.

Excluding the impact of FX movements, and compared to the pro forma second quarter of 2014, Tim Hortons' adjusted EBITDA grew approximately 23% organically while Burger King's adjusted EBITDA was up approximately 15% organically.

Strength was driven by the notable same-store sales growth and net restaurant growth as Daniel spoke to earlier, as well as continued cost discipline at both Tim Hortons and Burger King.

The implementation of zero-based budgeting at Tim's and our general ownership approach to costs enabled us to more efficiently manage our overhead expenses year over year while accelerating the pace of top-line growth.

Depreciation and amortization was $51 million for the quarter, down $4 million compared to the pro forma second quarter of last year.

Adjusted net interest expense for the quarter was $111 million, down $5 million versus the first quarter of 2015.

Adjusted net interest expense savings were primarily due to our debt refinancing in May, where we issued $1.25 billion of 4.625% first-lien notes and used the proceeds, along with $300 million of cash, to pay down $1.55 billion of our term loan.

We repriced our remaining term loan facility 75 basis points tighter, to LIBOR plus 2.75% with a 1% floor.

As a result of this debt refinancing, we estimate average annualized interest expense savings of more than $70 million.

These actions reflect our commitment to deleveraging and improving our cost of capital, providing us with enhanced financial flexibility as we grow our iconic brands around the world.

Adjusted net income in the quarter was $143 million.

With an as-converted diluted share count of 476 million shares, we achieved adjusted diluted EPS of $0.30 per share.

On slide 22, we review our cash balance bridge for the six months ended June 30, 2015.

We achieved $405 million of free cash flow June year to date, which reflects adjusted EBITDA growth and year-on-year CapEx reductions.

Pursuant to the debt refinancing, we paid down $300 million of debt on a net basis and paid associated refinancing related fees, which included a soft-call payment on our term loan.

In the second quarter, we returned $125 million to our preferred shareholders, our common shareholders, and our partnership exchangeable unitholders via dividends.

In addition to our May debt refinancing, we paid down $77 million of our term loan and $10 million related to Tim Hortons and Burger King capital leases.

We ended the second quarter with a cash balance of $689 million.

Turning to slide 23, we show our capital structure at the end of the second quarter, which reflects May's debt refinancing.

Our all-in rate on our credit facility is now 3.75%, versus 4.5% last quarter, and our total net debt stands at $8.2 billion.

On a pro forma LTM EBITDA basis, our net leverage of 5.2 times is down 0.3 turns year to date.

As shown on the next slide, the RBI Board of Directors declared a dividend of $0.12 per share and per partnership exchangeable unit of RBI limited partnership today, payable on October 2 to shareholders of record at the close of business on August 28.

This is the third consecutive quarter of a dividend increase and represents a $0.02 increase in dividends per share and per unit versus the prior quarter.

I'll now turn the call back over to Daniel for a summary of the quarter before opening the call to questions.

Thanks, Josh.

In summary, Q2 marked another quarter of improved year-on-year performance across both of our brands.

Our strong same-store sales growth and net restaurant growth drove meaningful value for all of our key stakeholders this quarter.

We're committed to growing the Tim Hortons and Burger King brands for the long run and are excited about the opportunities that this growth will create for our franchisees, our team members, and our employees.

Thank you all for joining us this morning, and we're happy to now open up the call for Q&A.

Operator?

(Operator Instructions)

Our first question is from Nicole Miller of Piper Jaffray.

Thank you, good morning.

First, on Burger King.

When you look at the strong same store sales performance, is there anything -- where are you seeing the strength whether it's by day part, drive-through versus dine in?

Where is it mostly coming from?

Thank you.

Hi, Nicole it's Daniel.

Thanks for the question.

We're seeing on the Burger King, I'm assuming you meant the Burger King US side, we're seeing strength really across multiple day parts.

Which as you know, we really attribute this to the four pillars plan that we put in place about four years ago and just driving consistent execution on that plan.

And do the US BK results yet reflect the speed of service initiatives that you're working on and can you please outline those initiatives?

Sure.

I'd say if you take a step back and you look at the US results, the US sales results, they reflect the benefits that we're seeing from all four of the pillars.

That reimaging, where we've gone from less than 10% of the system on the modern image to over 40%.

Operations, where we've moved to launch fewer more impactful products that add as little complexity to the kitchen as possible.

More inclusive, broader marketing message, and great tasting profitable menu items.

To the extent that we've improved on the number of products that we're offering, having operationally simple, high selling profitable products, that obviously translates to better speed and better service in the restaurant.

We still believe that there is a big opportunity to improve the speed and give guests an even better drive-through experience.

So I'd say, it's still early days on that front and I think there's going to be a whole lot more to come for many years on the Burger King side there.

Thank you.

Thanks, Nicole.

Our next question is from Brian Bittner of Oppenheimer.

Hi, thanks.

This is Mike Tamis on for Brian.

I just wanted to ask about G&A at both brands actually.

Obviously, you've done a great job at Burger King but it looks like some of those cost savings initiatives are getting more and more difficult to execute.

So any thoughts there around what's left to do at Burger King?

And then at Tim Hortons, can you just give us an update on what exactly you've implemented from your initiative so far?

Maybe what's left to start and maybe what you're learning to this point as well?

Thank you.

Yes, good morning, Mike.

It's Josh.

Thanks for the questions.

As you saw at BK, we were very pleased about that the team continued to show our philosophy of ownership over cost and continued to have really strong discipline around G&A in the quarter.

And then at Tim's, we've been successful in implementing very quickly our culture of ownership and that's allowed us to have pretty significant savings.

And I think more importantly, we've been able to implement our mindset of ownership that's going to allow us to become a very lean and aggressive organization that's going to allow us to grow much more quickly all around the world.

So we've been very pleased with the speed at which we've been able to implement that mindset and we look forward to using that to grow the brands all around the world very quickly in the near future.

Great, thank you.

Our next question is from Joseph Buckley of Bank of America Merrill Lynch.

Thank you.

Just a couple of quick factual ones and then a third if I can.

What was the FX impact on EPS?

And the other factual one is the Burger King Company store sales number, I know it's not a big part of the income statement, was actually up pretty significantly.

Can you explain that number and what drove that?

Yes, hi, Joe.

It's Josh.

We haven't quantified the FX impact on EPS.

So if you look at page 15 of the press release, you can get the impact down to EBITDA on revenue.

But we can followup with you to go through that calculation in more detail and try to help you to walk it further down to EPS.

And on the Burger King Company stores, the sales are up a bit because we consolidated some additional stores in Taiwan that are going through a transition that we're transitioning from one franchisee to another.

Okay and then just on the Tim Hortons' USA pipeline.

I guess there was no net unit growth in the quarter which seemed a little bit surprising.

And do your pipeline comments include Tim Hortons USA?

Should we expect to see that pick up in the second half?

Yes.

So I think if you look at the Tim Hortons USA performance what's really exciting there is that the sales performance is really positive.

And what's coming out of that is a really big improvement in the unit economics.

That's really changing the equation of what investing in new restaurants looks like in the USA and I think it's going to change how much interest there is in building new units in the USA.

We do expect the pipeline to be backend weighted and are excited about the prospects for growth in NRG and Tim's, not just in the back half of this year but really in years beyond 2015.

Joe, it's Dan.

Just to add one or two more points there.

You remember nearly five years ago, Burger King was only growing a couple hundred units a year.

And it took us some time, it took us the first year to learn the business, to set up the right master franchise joint venture partnership structures, to start seeing the benefits of that restaurant growth in years two, three, four.

We would envision it also taking some time on the Tim Hortons' business as well, both in the US and internationally.

As we're meeting with perspective partners and in discussions setting up new master franchise, joint venture agreements, development agreements, so it will take some time.

It doesn't happen overnight.

The key for us as long-term owners of these brands, the key for us is to make sure we have the best partners who have the right mindset, who are going to run great restaurants and build many restaurants to bring that great Tim Hortons' guest experience to people all around the world just like we did on the Burger King side.

Thank you.

Our next question is from Karen Holthouse of Goldman Sachs.

Hi.

Congrats on a great quarter and thank you for taking the question.

A question actually about Burger King International.

Australia was one of the markets that was called out as a little bit weaker.

It's also the one that McDonald's has been calling out as one of their stronger markets internationally recently.

How should we think about that result as reflective of the competitive environment versus macro issues versus something in terms of timing of promotions or marketing activity?

Thanks.

Thanks, Karen.

We're proud of the great partners we have in Australia, in Hungry Jacks and it's actually a country that's done quite well for us for several years and I wouldn't really look into one given quarter or not.

We had some great quarters.

This quarter was a little softer when we look out at the product pipeline and all of the great things going on in that important country for us.

We are encouraged by what's to come there.

So I wouldn't read into anything too specific.

I'd say elsewhere, in Asia, we were quite pleased with the performance.

In particular, we saw sales growth and unit profitability growth accelerate.

In China, we saw development.

A lot of development in India, I'd mentioned, I spent some time there this quarter.

It's really incredible in just six months what our team was able to accomplish on the ground there.

Developing a whole new menu from scratch, now going from 0 to 20 restaurants in a short period of time.

So we had a lot of exciting things going on in our Asia-Pac region now and look forward to continuing to report on those results.

Great, thank you.

Our next question is from John Glass of Morgan Stanley.

Thanks and good morning.

Daniel, a couple times you mentioned the profitability of the US franchisees for Burger King and how it's improving.

So can you put numbers around that?

A lot of franchise systems talk either about margins the franchisees have or their cash flow per unit in what it was a year ago or last year for example.

Hi, John.

Thanks for the question.

We don't disclose the specific amounts but you could imagine with the same store sales that our franchisees have had year-to-date.

This has been the strongest franchise unit cash flow or EBITDA growth that we've seen in -- well certainly, ever since we've owned the brand and many, many years prior to that as well.

The franchisees are making stronger returns, better cash flow than really than ever before and we think it's a function of the collaborative work that we're doing with our franchisees; launching good products, keeping things simple in the restaurants, growing our sales.

And you know how the cycle works.

The more profitability that these restaurants are generating, the more they can reinvest, the more our franchisees can reimage and just continuing this positive momentum of delivering great guest experiences.

That's helpful.

And then Josh, can we talk about just CapEx?

I think in your 2014 10-K you gave some guidance.

So $180 million.

I don't know if that's still valid or not in your mind.

But can you talk about how you're thinking about financing development in the future, what the opportunity is to lower your capital spending as a Company, alternatives for example, for funding development in Canada and how you're going to approach the US?

I'm thinking of Tim's now, not Burger King.

Yes, John.

Thanks for the question.

I think it's still very early in the year and CapEx has tended to be backend weighted so we don't have any update to the CapEx numbers.

We don't intend to provide any update on that.

But what I would say is that we do intend to shift to more of a capital light model with respect to Tim's.

I think that it's somewhat natural with the direction that we're going in terms of development.

I think more of our development in the future is expected to come in the US and outside of the US in Canada as we try to ramp up the pace of growth of the Tim Hortons' brand around the world.

And I expect that the Real Estate strategy, much like with Burger King, will be more franchisee lead in those countries.

So while actually in the year-to-date, we've been growing even more in Canada than we had historically.

I think as you look out over the long-term, as we really ramp up the Tim Hortons' development, that non-US and Canada development will be less capital intensive from our perspective.

I was just thinking, to be clear about the Canadian portions since that's the majority of your CapEx.

Has that changed at all?

It hasn't so much.

But I think there is some extent to which as the formats in Canada change, some of those opportunities are more non-traditional in nature.

And so, there may be some extent to which the format makes changes and that may have some impact on the capital outlays going forward in the future.

Thank you.

Our next question is from Perry Caicco of CIBC World Markets.

Yes, thanks very much.

Specific to the Tim Hortons' business, how much of the same store sales growth in Canada and the US was price increase or ticket increase versus traffic increase?

Hi, Perry.

It's Daniel.

We are quite pleased with the pace of same-store sales growth for the Tim Hortons' brand in Canada and in the US.

And it's a function of running great restaurants, some great new products across both of the countries.

I don't know if you had a chance to try for instance this quarter in Tim's we launched the Creamy Chocolate Shell products, we launched the Nutella products, all of which really did a great job contributing to the strong same store sales.

Our goal over time across all of our brands is to bring more guests in and to improve the mix and to have them buying more and more profitable items for our franchisees and giving them great experiences.

We don't obviously disclose on a quarterly or annual basis the breakdown of check and traffic.

But I will say, our strategy is to obviously strive to increase both of those factors.

And in terms of the cost base of Tim Hortons at this point, do you feel there's a big horizon for more cost reductions in Canada?

And I'm -- just related to that, wondering how close you are to a decision on the distribution system?

Hi, Perry.

It's Josh.

What I would say on cost is with both of our brands, what we seek to do is we try to bring an ownership mentality to cost and have everyone treat every decision that we take with the Company, whether it's around cost or any decision that we take around development of the brands around the world, as if they own the whole Company.

And that's what we are trying to instill in the culture of the Company around the world and that's what we are doing.

And we don't have any plans with respect to any changes in distribution.

Okay, thanks.

Our next question is from Will Slabaugh of Stephens Inc.

Thanks, guys.

Just on the marketing of the BK brand here in the US, you fairly dramatically widened that target audience a few years back through the menu and the marketing.

So I'm just curious if you could give us an update on your read on where you stand today in terms of bringing in that wider audience on a more consistent basis?

And then secondarily, how we should read into bringing back the King for more particular events, et cetera.

Hi, Will.

It's Daniel.

As you said, a few years back we decided that we were going to really broaden the marketing message to the Burger King US and C audience.

And really, that broadening was a reflection of who our guest base was.

At Burger King, we welcome everyone.

If you look at who our guest base is, it's everyone across all demographics, ages, et cetera.

But if you go back in time, the marketing message had been narrowed a bit despite the fact that if you look at our guest base, it really was everyone.

Really what we've done is we've just messaged, we've broadened the message so it's much more inclusive and it's reflective of who our guest base actually is.

And obviously, we've seen good results from that.

But there's no silver bullet to driving sales growth and it's really a function of all of the four pillars, everything we've been striving for on the Burger King side for many years; building restaurants, reimaging restaurants, running better restaurants, launching fewer, more impactful products, having this more inclusive marketing message.

And as far as the King goes, you saw the King make a few appearances this quarter.

We were pleased with the amount of attention that he was able to command from the world and his few appearances.

And stay tuned.

I think, just to Daniel's point, I think what's been really exciting over the last couple of quarters is how we've been able to reengage with some of our younger consumers as well, through digital and social media.

And I think some of our, some of the things that we've been doing through things like Instagram and Twitter have allowed us to reengage with a new generation of customers.

And the King has allowed us to do that as well, which has been very exciting.

That is a good point, Josh.

And one point on Twitter, we actually, I'm not sure if you noticed, we listen to our guests.

The reason we brought back these Chicken Fries is because our guests were telling us on Twitter how much they liked them.

So we're really engaged with our guests, listening to them and they told us they wanted something and we delivered.

Great, thanks.

And just one quick followup, if I could Josh, on the expense side?

Franchise and property expenses were down pretty meaningfully this quarter which has been flat last quarter year over year.

So just wondering how much of this was pure sales leverage versus any other cost savings measures that might go forward from here?

There's a couple of things going on.

Part of it is going to be the FX impact but we can followup offline and give you a bit more detail on it.

Got it.

Thank you.

Our next question is from David Palmer of RBC Capital Markets.

Thanks, good morning.

As you look back in this last quarter, how would you rank the biggest contributors to sales for Burger King and Tim Hortons, just looking at the menu mix, day part mix, for the quarter?

Thanks.

Hi, Dave.

It's Daniel.

On the Burger King side, we saw a strength across multiple day parts.

Our breakfast business through the Croissant promotion that we were running and our lunch business both did quite well as did our snacking business.

We really saw strength across multiple day parts on the Burger King side.

I'm really pleased with the performance there.

On Tim's, again, same thing.

Breakfast, lunch and supper all doing quite well.

If you look at some of the products that we launched, we're still continuing to benefit from the new Dark Roast blend which is something that obviously our guests consume throughout the day in particular, at breakfast.

The Creamy Chocolate Shell was a great new product launch that really helped us in that afternoon day part.

And the Nutella products all day.

Bacon and Cheese Panini, really during bolstering the lunch offering.

So it was quite a good quarter for both brands across multiple day parts.

And just following up on that for Burger King, you didn't really mention the value tiers.

Can you just comment on that directly?

How much was your value mix, if you will, and what impact do you think that's having to your food costs or are you successfully trading people up to check and through other things and other add-ons?

Thanks.

You know, we look at it across the spectrum.

When we look at the mix of products, it's important to have great offerings across entry value, core value, premium.

And when you look at the products that we launched and some of the successful products ranging from; Chicken Fries to the Pulled Pork Sandwich and the 2 for $5 to the Croissan'wich and the 2 for $4 to the A1 Hearty Mozzarella Bacon Cheeseburger at a premium side.

We're seeing strength across all of these platforms and that's nothing that's going to go away.

You're going to see us having good value, good premium products for our guests every quarter, every year.

That's what our industry is all about.

We haven't seen a major mix shift really in that mix of value core premium directionally either way.

Thank you.

Sure.

Our next question is from Andrew Charles of Cowen and Company.

Great, thanks.

Two questions for me.

Digging into the strength in Burger King China, can you talk about the sail drivers in place that drove positive comps in Q2?

I know it was a difficult market for your competitors during the quarter.

And how many stores are you up to in that market on the road to grow 1,000 you set for 2017 to 2019?

China, again, as with the US, there's no real silver bullet.

As the number of restaurant count is ramping up and we're doing a better job training our team members and delivering great guest experiences, gaining scale, becoming more convenient and all those things contribute to better same store sales and better unit economics.

This quarter, just to name a couple of the products, I actually spent some time in China this quarter tasting our Smoked Chicken Sandwich there that we launched, the Beast Whopper, we had a Spicy limited time offering chicken product as well.

So some good new products, but really it's a function of having a great partner and running great restaurants.

We went from just a handful of restaurants to over 300 restaurants, around 350 restaurants, in just the past few years.

And we're encouraged by the great progress that the team on the ground has been making and we think China is a place where we're going to continue developing for many, many years.

Do you still feel comfortable with the 1,000 stores by 2017 to 2019?

Are you still ramping pretty successfully there?

We don't like to put out firm targets for firm years and we don't give specific guidance but our goal is to build great profitable restaurants every year.

We've seen the pace of that growth accelerate and we don't expect to see any changes in pace either.

Great, thank you.

Thanks.

Our next question is from David Hartley of Credit Suisse.

Yes, thanks.

Good morning.

I don't believe you called out anywhere in the release, in the slides, savings you achieved in the quarter.

I think you got 19 last quarter which included some FX.

Can you maybe speak to that?

Is there a number that you're using?

Yes, hi.

Thanks, David.

It's Josh.

If you look at the SG&A at Tim's on its own, it was down in the quarter from about $42 million to about $23 million.

There's some element of FX in there, but there was a meaningful amount of G&A savings as well.

Okay, so it seems to be trending kind of similar to the first quarter.

Should we expect that for the rest of the year?

We don't give guidance on forward-looking savings.

Okay, fair enough.

Just on your international markets with Tim Hortons, six new stores, I assume that's in the GCC.

Is the plan still on track there for the number of stores that Tim's wants to open in that geography?

Yes, it's Daniel.

Both Josh and I spent some time in the Middle East with our great partner The Apparel Group there this quarter, working with them.

Our team's on the ground to learn more about our business, improve our business, and we came away even more excited about the opportunity for Tim Hortons in the Middle East than we were before we made the trip.

The brand is doing well.

It's resonating really well with our guests.

We have a great partner and we think there's a big, big opportunity to continue growing the pace of the Tim Hortons brand in the Middle East.

And actually, spending some time there helped us kind of gain even further perspective on how big the opportunity is going to be for taking Tim Hortons restaurants around the world to other international markets.

It's a major priority for all of us here at Restaurant Brands International.

But as I said earlier, I think when we spoke with Joe Buckley, it takes time.

There's been a lot of interest from new partners, existing partners and ramping up the Tim Hortons brand in markets all around the world.

It's our job to make sure we have the right partnership, right structure, the right partners with the right market entry strategies to ensure that we've built success for the long term, we've built great restaurants and we do it right.

So it took a bit of time, around a year, before we set up the first international agreement on the Burger King side which was really the catalyst that massively accelerated Burger King growth.

And we're working hard now and hope to report some good news for you in years to come on Tim Hortons' side.

Okay, and just finally, when you have those discussions and set up those partnerships, are any economic situations in any of these countries you're looking to potentially invest in creating some difficulty in moving forward or is that just simply not an issue at all?

No, the world is big and it's different times.

Some countries are going to be doing better, other countries aren't going to be doing as well economically.

Those strategies that we embark on, on the Burger King side is really to make sure we have great partners who are well capitalized who have a lot of experience with doing this and its worked out quite well.

So we're going to take that same strategy and apply it to the Tim Hortons' brand.

Again, there's no shortage of interest and excitement around bringing Tim's internationally and the work, it's on us to do the work and make sure we have the right agreements, the right partners, the right structure.

But it's just about making sure we do it right.

We can jump in and sign a bunch of agreements but we would rather take our time, sign the right ones that are going to be long lasting that are going to enable us to grow and bring that great Tim Hortons' guest experience to folks all around the world.

Thank you very much.

Our next question is from Jeffrey Bernstein of Barclays.

Great, thank you very much.

Just two questions.

Maybe one on Tim Hortons.

Just looking at the US business which is obviously a big future growth opportunity, seven comp lapping as close to a six last year, so obviously very strong.

Just wondering if you could provide maybe a range of comps by geography?

I know in the past you guys had spoken about, a former manager had spoken about, some really very strong markets, some weaker markets.

So I'm wondering how wide that range still is or maybe not or whether there's any common themes of the better or the worse markets when you consider future growth whether it's competition or consumer or kind of what the trends are there?

And then I had one followup.

Sure, Jeff.

It's Daniel.

We don't see a very wide range there.

We're encouraged by the strength of the same store sales in the Tim's US market especially as the brand is ramping up.

Obviously, as you know, we do see a range of the average sales per unit in some of the markets where we're more penetrated than versus some of the markets where we're less penetrated.

But we're encouraged by the results we're seeing; breakfast, lunch, snacking.

I don't know if you saw we had opened up quite a big successful restaurant, a big drive-through restaurant, this quarter in St.

Louis as part of one of our newly signed development agreements and we're excited about the prospects for the Tim Hortons brand in that market.

And now, we're just working with different prospective partners around the country to accelerate the pace of the Tim Hortons' growth.

Got it.

There's no markets where you just see it as stronger or weaker for whatever reason it might be?

Seems like at this point you're comfortable where you've gone --

No more than you'd see anywhere else in any country where you have a lot of restaurants.

My followup was just on that front in terms of, I think you mentioned, accelerate the growth in the near future.

I'm just wondering how much of the commitments to grow Tim Hortons, whether it's in the US or even outside of North America, how much of the commitment comes, or do you foresee coming, from existing Burger King franchisees and leveraging that business that you have versus perhaps demand or what not from totally unique new franchisees around the US and the world?

In the US, we're engaged in discussions with many new prospective partners and what we've said is we're not going to do any co-branding and mixing of franchisees there in the US.

And then internationally, it's likely going to be a mix of some new and some existing partners.

Great, thank you.

We have one more question from Keith Siegner of UBS.

Thank you very much.

To circle back to the Burger King, the third pillar, the marketing communications one, just to get a quick update here.

Burger King had been one of the first of the major sandwich chains to really push on the mobile app compared to the others.

And look, the others are taking somewhat relaxed pace to this type of adoption even though the rest of the industry seems to be running full bore.

Is this an envelope that Burger King can keep pushing?

Like how is that performing and what's the update on that?

Thanks.

Hi Keith.

It's Daniel.

Thanks for the question.

No, we view this as a quite an important way to engage with our guests.

We actually view it as something that's still quite early for us and we are spending more time on how we connect with our guests digitally both over some of the social channels, which Josh referred to earlier, and directly through our mobile application.

And we're excited when we look at some of the other industries or the other spaces within quick service.

Some of the progress that some of the other restaurant companies have made, we're encouraged of what that could imply for our business and it's something that we're spending a lot of research and development time, money, and effort on and look forward to updating you and hopefully showing you some progress in the years to come.

Maybe just one last question for me.

Congratulations on hitting your targets for 40% of the system current and achieving it early.

How do we think about that pace from here?

Is there a specific target?

Are there incentives out for franchisees?

Does it slowdown from here?

How do we think about that pace of reimage going forward?

Thanks.

Hi Keith, it's Josh.

Thanks for the question.

We decided after hitting the target ahead of time last year, not to issue a new public target.

But we do view remodeling as an ongoing priority, not just in the US for Burger King, but for both of the brands all around the world.

And you can trust that it continues to be a top priority for us here in the US and globally at both brands.

I think what's really encouraging for us is, as Dan mentioned, with the sales momentum we have and with the operational simplicity that we're putting into the restaurant, we're seeing a very, very important increase in franchisee profitability in the US.

And that's what's going to enable us to continue with the momentum in remodeling and even improve the momentum in remodeling in the US.

I think that's really exciting.

So you're going to see us continue to encourage franchisees to remodel.

I think as we continue to drive same store sales and franchisee profitability, that's going to make the remodeling pace even more and more sustainable and we're very excited about that.

Thanks.

This concludes our question and answer session.

I'd like to turn the conference back over to Mr. Schwartz for any closing remarks.

Thanks a lot.

So thank you very much to everyone for taking the time for joining us today and we look forward to updating you on continued progress on both of these great brands a few months from now.

Thanks so much.

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