Restaurant Brands International Inc (QSR) 2019 Q1 法說會逐字稿

Good day, and welcome to the Restaurant Brands International First Quarter 2019 Earnings Call and Webcast.

(Operator Instructions) Please also note, this event is being recorded.

I would now like to turn the conference over to Chris Brigleb, RBI Head of Investor Relations.

Please go ahead.

Thank you, operator.

Good morning, everyone, and welcome to Restaurant Brands International's earnings call for the first quarter ended March 31, 2019.

As a reminder, a live broadcast of this call may be accessed through the Investor Relations web page at investor.rbi.com, and a recording will be available for replay.

Joining me on the call today are Restaurant Brands International's CEO, José Cil; and CFO, Matt Dunnigan.

José and Matt will also be joined by our COO Josh Kobza for the Q&A portion of today's call.

Today's earnings call contains forward-looking statements, which are subject to various risks set forth in the press release issued this morning and in our SEC filings.

In addition, this earnings call includes non-GAAP financial measures.

Reconciliations of non-GAAP financial measures are included in the press release available on our website.

Let's quickly review the agenda for today's call.

José will start with some opening remarks and highlights for the first quarter and then discuss our performance at Tim Hortons, BURGER KING and Popeyes.

Matt will then review financial results before opening the call up for Q&A.

I'd now like to turn the call over to José.

Thanks, Chris, and good morning, everyone.

I'll start with a quick summary of Q1 results but then I'll spend the majority of my time sharing my views on the key drivers of our performance and the confidence we have in our teams and plans across each of our brands to continue driving strong system-wide sales growth around the world.

Overall, we had another good quarter with 6.4% consolidated system-wide sales growth reaching nearly 26,000 restaurants worldwide.

Our system-wide sales growth was led by BURGER KING at more than 8%, Tim Hortons at about 0.5% and Popeyes at nearly 7%.

Our results in the quarter were highlighted by solid global same-store sales results at BURGER KING, continued strength in restaurant expansion and pipeline development at both BURGER KING and Popeyes and positive results across the Winning Together initiatives we've implemented at Tim Hortons over the past year, including the exciting launch of our new Tims rewards programs at the end of the quarter.

As this was my first quarter as CEO, I spent a considerable amount of time traveling around the world, meeting with many of our franchise partners and restaurant owners and our teams across each of our brands to discuss all the growth opportunities we see and our plans to achieve them.

This was a great experience filled with a lot of valuable insights that left me incredibly excited about our long-term prospects to continue growing all 3 of our iconic brands, both in our home markets and all around the world.

Incidentally, this is nothing new.

I did this every quarter at BURGER KING the last many years and plan to do the same thing in this role going forward.

It's the only way to get close to our guests, our franchise partners and restaurant owners and our teams, and it's the only way I know how to run a restaurant business.

Now let's dive in with Tim Hortons where I want to spend some time on our performance.

In Q1, our Tims comparable sales were negative 0.6% and negative 0.4% in Canada.

We're now 5 quarters into the revamp of our strategy at Tims with a strong leadership team executing on the Winning Together plan that we've built alongside our restaurant owners early last year.

Throughout 2018, we introduced a number of building blocks designed to drive long-term sustainable sales growth.

In particular, these included a modernized Welcome Image, new hot and cold beverage innovation, Breakfast Anytime, beautiful new packaging design and a return to brand marketing that celebrates the best of our Tim Hortons brand.

As a result, we saw a shift in direction and momentum of our sales performance in Canada demonstrated by our sales growth building throughout the year to our Q4 results in which we saw comparable sales increase by just over 2%.

In the first quarter of this year, we saw the same underlying building blocks of our plan continue to perform well.

However, there were 2 distinct factors that offset this performance and resulted in our sales growth being slightly negative for the quarter.

The first factor was severe weather across Canada throughout the quarter, which resulted in a drag on comparable sales growth of approximately 1% in Q1.

I hate using weather as an excuse.

But given the nature of our high traffic and frequency business in Canada and the severity of the weather impact we experienced in the first quarter, we felt it was necessary to disclose in order to provide a more accurate picture of our underlying sales performance.

The second factor was a weak Roll Up The Rim campaign.

You'll recall that we started to see a decline in the effectiveness of this program last year and, as a result, we decided to expand the number of giveaways this year to increase excitement in the promotion.

Unfortunately, this additional investment did not drive the incremental engagement we expected, and the increased amount of giveaways resulted in a drag on our comparable sales growth of approximately 0.5 point in the quarter.

In addition, this underperformance surfaced at the same time we saw enhanced competitive activity in the market weigh on our business.

We still believe the 33-year-old Roll Up The Rim program is a valuable and iconic platform for Tims, it has very high awareness.

However, it's become clear to us that it needs a modern and fresh approach to engage our guests in a stronger way going forward.

The Tims team is working on new plans to drive a successful reboot of the program next year, including seamless digital integration.

Notwithstanding these factors, we saw continued strength in the core initiatives I mentioned earlier that are tied to the Winning Together plan.

For example, our Breakfast Anytime platform has been a success in all of our dayparts, including our lunch business where we've seen increased sales and traffic tied to this powerful sales platform.

Given all of this, we do not believe our Q1 comparable sales accurately reflect the underlying strength of the Tims business in Canada.

And while this should not be interpreted as guidance, as we've moved past the Q1 issues I highlighted, our April to date comparable sales performance at Tim Hortons Canada is back on track with our expectations at approximately positive 1.5%.

Looking ahead, we remain excited about our 2019 plans and continued pipeline of initiatives, including the successful launch of our Tims rewards program, which has exceeded our expectations in its first few weeks.

While it's still early, after just the first 5 weeks, approximately 20% of Canada's population has used the loyalty program with almost half of our daily transactions now scanning the loyalty card.

For context, we believe this level of participation by Tims' guests in the first few weeks of the program has more than doubled the participation rate in some of the best-in-class loyalty programs of competitors even several years after their launch.

We believe, longer term, this represents a tremendous opportunity to utilize the insights provided by this guest-centric data to better understand our guests' behaviors, their needs and wants, to better market to our guests directly and to better inform our business decisions.

We look forward to building our base of guests on the loyalty program over the balance of this year and believe this platform will be a valuable asset that allows us to evolve the brand and drive even more innovation over the coming years.

We've also seen a quantifiable improvement in the quality and effectiveness of our brand and product advertising versus the beginning of last year based on internal metrics such as short-term sales likelihood and awareness.

We introduced several more of our iconic true stories, which have resonated with our guests all over Canada.

As a result of the team's hard work, Tim Hortons returned to the top 10 brands in Canada, a list published by Ipsos Reid and The Globe and Mail where it was the only Canadian brand in the top 10.

In addition, the partnership with our franchisees continues to get stronger.

The Tims team just concluded 2 weeks on the road meeting with our restaurant owners to share updates on our progress, and the exit surveys from our owners showed trust in the plan and trust in the team at significantly higher levels compared to the same meetings held last spring.

Finally, on Tims, we continued to make progress growing in new markets around the world.

I had the opportunity to visit our first restaurant in Shanghai in March and the team has opened 2 more since I was there.

The brand is resonating with our Chinese guests, creating a good foundation to support our goal of significantly expanding Tims with our partner over the coming years.

We're early in the journey with the amazing Tims brand and overall, I'm confident in the momentum we're continuing to drive in the Tims business in Canada and around the world.

Turning to BURGER KING.

Our first quarter comparable sales of 2.2% were driven by strong international sales of 3.8%.

We saw particular strength in markets like Brazil, Spain and Russia as well as India and China.

Our U.S. comparable sales for the quarter were 0.4% positive, slightly below our performance in Q4.

During the quarter, the introduction of spicy nuggets was effective at maintaining our value platform despite the increase in price from $1 to $1.49 for the 10-piece offer.

And the BIG KING XL performed well in the premium layer.

However, we were lapping several impactful offerings last year such as the Double Quarter Pound KING and the launch of the Spicy Crispy Chicken Sandwich, and we're unable to build further on these in Q1 of this year with the launch of our Grilled Chicken Sandwich, which did not perform to our expectations.

Our breakfast daypart was also slightly down in the quarter, which we started to address at the end of the quarter with the launch of our BK Café platform in March.

We're committed to growing our breakfast daypart long term, and we believe our new BK Café platform will provide a solid foundation to help drive guest count and sales growth in this important daypart going forward.

Looking ahead, we're confident in our plan for the remainder of the year in the U.S. through a good balance of premium, core, value and breakfast, including the continued growth of BK Café, the reintroduction of the Angry WHOPPER and innovations around our King's Collection platform.

We plan to discuss more exciting innovations in detail at our upcoming Investor Day but you may have already seen that we're testing a plant-based burger in St.

Louis called the Impossible Whopper.

We launched the test on April Fools' Day with a social media campaign based on fooling our guests into thinking it was an original 100% all-beef whopper sandwich and this generated more than 6 billion media impressions.

This is another example of the impactful edgy marketing campaigns that have built the brand over the recent years and draw attention to relevant and impactful menu innovation at BURGER KING.

We've been encouraged by the test market feedback so far and plan to expand to a few more select test markets around the country this summer as we prepare for a national launch later this year.

On the technology side, we continue to make good progress on initiatives like delivery, kiosks, our mobile app and outdoor digital menu boards.

We believe delivery is an important, growing and incremental part of the business, and we're now approaching nearly half the U.S. restaurants offering delivery.

Our BK mobile app usage continues to grow with more than 8 million downloads and approximately 3 million monthly active users.

Finally, we're excited about outdoor digital menu boards, which provide an inviting, modern and dynamic experience in our drive-throughs, which account for the majority of sales in the U.S.

You'll recall, in 2018, we introduced the BK of Tomorrow restaurant image, which is a leap forward in integrating technology as well as an enhanced drive-through experience into a modern evolution of our restaurant image.

Franchisee and guest feedback has been very positive.

Like us, our franchisees believe that this modern, technology-forward image will help in driving enhanced guest satisfaction, resulting in more visits and long-term comparable sales growth.

We already have hundreds of U.S. restaurants in the pipeline to be remodeled to this standard in 2019 and are excited about the continued reinvestment and evolution of our BURGER KING brand in the U.S.

Our net unit growth slowed slightly in Q1 versus last year to 5.7% primarily as a result of planned closures in our home market.

This is a healthy part of continuing to build franchise profitability in the U.S. system as we close lower-volume restaurants and replace them with new, beautiful Burger King of Tomorrow restaurants.

Last year, we opened well over 200 restaurants in the U.S., most of which were significantly higher volume than the ones we closed.

The pace of BK openings in our home market meaningfully accelerating the last 4 years is a testament to the improved franchisee profitability and to the meaningful prospects for further growth of the business for many years to come.

Another example is the merger announced by one of our largest partners, Carrols, with Cambridge Franchise Holdings.

As part of this deal, Carrols is committed to opening 200 new BURGER KING restaurants on a net basis over the next 6 years.

In addition, they will also remodel a substantial portion of their portfolio to the BK of Tomorrow image in the coming years and expand into the development of new Popeyes locations as part of the multi-brand strategy.

Around the world, we feel very good about the development plans we've built with our master franchise partners.

While the timing of unit growth can vary across quarters, we have a strong full year pipeline and are excited about our continued growth prospects in markets all over the world, including in fast-growing key markets like China, France, Russia and Brazil.

Now let's review our results for Popeyes.

I think you all know that we've been working to put in place the foundational platforms to drive long-term comparable sales growth of Popeyes here in our home market of the U.S. In Q1, we grew comparable sales 0.6% positive globally and 0.4% positive in the U.S. We were pleased to see sequential improvement in home market comparable sales growth each month in the quarter reflecting a balanced offering across the menu bolstered by good-performing limited time offers, like our $5 tackle box, our $5 shrimp offer and 2 Can Dine.

As we looked over the rest of 2019, we feel good about our pipeline of initiatives built together with our franchisees including product innovation and improvements that we believe will help drive sales and franchise profitability over the long run.

Technology at Popeyes remains the key focus for us, and we're really excited about the opportunity both near term and long term.

On delivery, we've grown the number of participating restaurants to nearly 1,300 locations within the U.S., up from almost none at the beginning of last year.

Our data continues to show that delivery is driving incremental tickets by making our great products more accessible to a wider range of guests, and we see that orders through this channel tend to have a significantly higher average check.

We believe there's still an immense runway to grow delivery, both in restaurants that already offer it and by expanding the number of restaurants participating.

For delivery to work best, it not only needs to drive incremental sales but also needs to work seamlessly in the restaurant.

We are currently working with our franchisees to ensure delivery capabilities are fully integrated with our new POS systems, which will simplify the processing of orders from third-party delivery aggregators.

Staying on our new POS rollout, nearly 1/3 of the U.S. system has completed the upgrade, and we expect almost the entire system to be on one of the 2 new POS systems within the coming months.

The enhanced reporting capabilities are already improving our analytical insight while unlocking digital integrations that were not possible on the old systems.

In restaurant growth, we grew our Popeyes restaurant count by more than 6.5% in the first quarter of 2019, in line with our unit growth in the first quarter of 2018.

While the majority of our growth was generated in the U.S., we've begun to accelerate our international growth, which we're really excited about.

Within the U.S., as I mentioned, we were pleased to have one of our biggest partners, Carrols, add the Popeyes brand to its portfolio through its merger with Cambridge and commit to opening approximately 70 Popeyes restaurants over the next 6 years.

Our global network of proven, well-capitalized operating partners combined with the strength of the brand and product offering give us conviction that Popeyes can be one of the fastest-growing QSR brands in the world.

So to wrap things up, we believe the fundamentals across the business remain strong.

Despite the comp sales results in certain segments, the breadth and diversity of our global business combined with the continued strength of our restaurant expansion model enabled us to continue driving solid top line growth of 6.4% in system-wide sales.

Finally, before I turn it over to Matt, I wanted to share with everyone how excited we are about our first ever Investor Day coming up in just a few weeks in New York City.

Whether you plan on attending in person or will join us via webcast, we're looking forward to taking you through far more detail than ever before about our team, our business, our amazing partners around the world and our unique approach to driving sustainable, long-term top line growth, all of which will serve as a foundation for our optimism and the long-term outlook for all of our 3 amazing iconic brands.

You'll have an opportunity to hear from a broad range of our senior leaders who're running our business around the world, and we'll share important insights and the key drivers of comparable sales growth, opportunity for sustained and new unit growth globally and the unique competitive differentiators for us including our master franchise relationships around the world.

Ultimately, our goal is for you to understand the key building blocks that give us such strong conviction in our growth model and ability to continue driving significant value-creation over the long term.

And with that, I'd like to hand it over to Matt to take us through the financial results.

Thanks, José.

And good morning, everyone.

This quarter, system-wide sales across each of our brands led to adjusted EBITDA of $500 million, up over 5% organically year-over-year.

It's also important to highlight that, as we discussed previously, there can be temporary mismatches between ad fund revenues and expenses.

This quarter, ad fund expenses exceeded revenues by $4 million more than they did in the first quarter of last year and impacted our consolidated organic adjusted EBITDA growth rate by approximately 1%.

Excluding this impact, our growth rate would have been over 6%.

At the segment level, Tim Hortons' first quarter adjusted EBITDA was $237 million, which represents a 1.1% organic increase year-over-year.

This increase was driven by continued system-wide sales growth primarily as a result of 1.9% unit growth offset by lower comparable sales of negative 0.6%.

Substantially, all of the negative $4 million year-over-year impact to consolidated adjusted EBITDA related to the mismatch in timing of ad fund revenues and expenses was attributable to Tim Hortons.

Excluding this impact, our organic adjusted EBITDA growth at Tim Hortons would have been approximately 3%.

At BURGER KING, we grew system-wide sales by more than 8%, driven by continued momentum in net restaurant growth of nearly 6% and comparable sales of over 2%.

Growth in our top line resulted in Q1 BURGER KING adjusted EBITDA of $222 million, representing a year-over-year organic increase of nearly 10%.

Finally, at Popeyes, system-wide sales growth for the first quarter was just under 7%, driven by net restaurant growth of approximately 6.5% and comparable sales of 0.6%.

Growth in our top line resulted in adjusted EBITDA of $41 million, which was up over 6% organically year-over-year.

Our first quarter adjusted net income was $255 million.

This compares to the first quarter of 2018 adjusted net income of $314 million.

The year-over-year decrease was primarily driven by a higher effective tax rate of about 19% versus 0% last year, which is the result of a significant concentration of stock option exercises in the first quarter of last year and their associated tax expense benefits as well as the impact of unfavorable foreign exchange rate movements.

These impacts were partially offset by the positive year-over-year growth in our organic adjusted EBITDA.

As a reminder, the timing and amount of stock option exercises can vary materially quarter-to-quarter and can thus have a much more material impact on a particular quarter's tax rate as compared to the full year rate.

Investors can expect meaningful quarter-to-quarter volatility in our tax rate related to the unpredictability of stock option exercises.

However, as discussed last quarter, we expect our full year 2019 adjusted effective tax rate to be in the low 20% range.

Our adjusted diluted EPS for the first quarter was $0.55 per share as compared to $0.66 in the prior year.

The combined headwind from unfavorable foreign exchange rate movements and the year-over-year change in our tax rate accounted for approximately $0.17 of this change.

Before discussing capital allocation, we thought it would be helpful to point out 3 relevant considerations impacting our financial results this year, which are unrelated to underlying business and operational performance.

First, we implemented new lease accounting standards in the first quarter of 2019.

As a reminder, we have property portfolios primarily in our Tim Hortons and BURGER KING brands in Canada and the U.S. in which we own properties and also sit on the head leases of properties, which we then sublease to our restaurant operating partners.

Adoption of the new lease accounting standards resulted in a material increase in our total assets and total liabilities on our consolidated balance sheet as we are required to recognize our existing head lease contracts as lease liabilities with corresponding operating lease assets.

Additionally, franchise and property revenues and expenses will now include gross receipts and payments of property tax, maintenance costs and related items that were previously excluded from our consolidated statement of operations.

These payments and receipts are structured as pass-through in our lease contracts and on a net basis, there is no impact of this change to our financial results.

In the first quarter, this resulted in $34 million of both additional revenues and expenses associated with our lease portfolio with no net impact to our results.

For the full year, we expect this amount to be approximately $135 million and generally consistent from quarter-to-quarter.

The last notable impact of the new lease accounting standard is the reduction of the amortization period for a small portion of our lease portfolio resulting in a higher amortization expense.

It is important to note this expense is noncash and not included in adjusted EBITDA but will impact our adjusted net income.

The impact was approximately $2 million in additional amortization expense for the first quarter, and we expect an impact of approximately $10 million for the full year.

As we move beyond 2019, we expect this expense to decline over the coming years as leases tied to the increased amortization are renewed or expire.

The second consideration relates to our stock-based compensation expense, which increased by $10 million year-over-year in the first quarter.

As a result of the organizational changes we announced in Q1, there was an increase in our stock-based compensation, which primarily reflects the issuance of new grants designed to strongly align management with shareholder interest based on long-term growth targets.

It is also worth noting that the $10 million year-over-year increase includes approximately $4 million of discrete expense specific to the first quarter related to the modification of existing grants.

And finally, as we've previously discussed, we have historically managed interest rate risk through the use of floating to fixed interest rates swaps.

The future schedule of interest rates on these swaps is structured to follow the interest rate curve at the time of the transaction, which leads to the fixed rate stepping up each year at the beginning of the second quarter.

This year, there was a step-up increase of approximately 50 basis points in the fixed rate of our $3.5 billion in outstanding interest rate swaps.

Going forward, this will result in a quarterly increase to interest expense of approximately $4.3 million through the end of Q1 next year.

Now let's discuss our cash generation and capital allocation for the quarter.

We generated free cash flow of approximately $150 million, calculated as the sum of cash flows from operating activities less payments for property and equipment.

This quarter's free cash flow includes seasonal timing of working capital outflows such as gift card redemptions driven by the holiday season in the fourth quarter.

Including the results of the first quarter, our free cash flow generation over the last 12 months totaled nearly $1.4 billion.

During the first quarter and prior 12-month period, we also paid a total of $207 million and $838 million, respectively, in common dividends and partnership exchangeable unit distributions.

We also continue to make progress on our capital project to expand our supply chain distribution centers in Canada, which is on track to be completed in 2020.

We expect the bulk of the previously announced $100 million CAD investment to take place this year as we complete a majority of our construction work.

As of March 31, 2019, our total debt outstanding was $12.3 billion.

Our net debt, calculated as total debt less cash and cash equivalents of $902 million, was $11.4 billion.

And our net debt-to-adjusted EBITDA leverage ratio was 5.1.

Relative to the first quarter of 2018, we continue to delever while also returning approximately $1.4 billion to shareholders over the past 12 months through dividends and share repurchases.

As a result of the continued strength and consistency of our operating performance and cash flow generation, in March, S&P announced an upgrade to our credit rating from B+ to BB- with a positive outlook.

This upgrade will support our ability to continue delivering best-in-class execution across our capital markets activities in the years to come and is a positive reflection on the strength of our credit profile.

This morning, we also announced that the RBI Board of Directors declared a dividend of $0.50 per common share and partnership exchangeable unit of RBI LP payable on July 3, 2019, which is consistent with our previously announced target of $2 in total dividends per share to be declared in 2019.

This, combined with the previously announced investments in our Tim Hortons and BURGER KING remodel programs, supply chain distribution expansion project and our continued delevering, illustrate our balanced approach to capital allocation as we look to continue creating value for all of our stakeholders for many years to come.

Thank you, everyone, for joining us on the call this morning and for your continued support.

I'd now like to open the call for questions.

Operator?

(Operator Instructions) Today's first question comes from Nicole Miller of Piper Jaffray.

I actually just have one question on delivery this morning with a couple of parts, if that's okay, please.

And first, could you just have big picture about technology?

And the first part is, how do you leverage at the RBI level the platform, thinking kind of when you're talking about the POS upgrades at Popeyes?

The second part is, what data are you getting?

You were explicit in saying you know it's a higher average check but what else can you tell us about the delivery customer?

And then the third part is, in terms of delivery, what delivery sales at each brand, if possible, are going through the third-party marketplace apps and which ones are going through your brand apps?

Or what is your intention to drive business that way?

Nicole, I'm going to have -- thanks for the question, I'm going to have Josh answer that.

Nicole, and thanks for the question.

I think, like you, we're very excited about the future of technology and the relevance of it for all of our brands around the world for -- on many fronts but particularly for delivery.

I think we've seen in our business, starting in international markets but increasingly in the U.S., the growth of this new sales channel.

And I think we've kind of just gotten started with it 12 to 18 months ago, and we've seen it growing in penetration, particularly across our U.S. business with BURGER KING and Popeyes.

I think as José has mentioned, we've grown pretty rapidly with the coverage of our restaurants with BURGER KING now to almost 1/2 the system in the U.S. and with Popeyes to about 1,300 restaurants now across the U.S. And I think our outlook for that is to continue to grow coverage over the coming quarters and years.

And probably also to expand the sources from which we take orders over time.

We see these channels to be highly incremental and to be profitable to our restaurants.

So I think we'll look to expand those.

At the same time, we've also spent a lot of time, especially with some of the centralized resources that you mentioned, trying to improve how we operationalize some of these new channels, particularly through technology and through integrations with U.S. and how we integrate with some of the third-party channels.

So especially over the last couple of quarters, we've worked on making sure that we have direct integrations and that helps us to make sure that we can have more seamless ordering, and we've also seen a pretty big improvement in some of our ops metrics and how we can deliver to our guests in these channels as we roll them out and especially as we take orders from more order-taking channels with delivery as well.

So we're pretty excited about it.

The last one I would say is just broadly on data and understanding our guests better, this is something that we have been able to leverage particularly essentially across all of our digital channels, and we'll talk about a bit more I think in a couple of weeks at Investor Day, where as we move to a more digital environment, we're really being able to understand our guests in a way that we never have before, and I think it's really exciting for us to be able to look at the business in a new way, understand how people interact with our brands better.

I think it's going to make us much smarter about the business and enable us to provide a better experience to our guests.

So I think it's all very exciting, and we look forward to sharing much more about it with the rest of our investors and analysts in a couple of weeks here.

And our next question today comes from John Glass of Morgan Stanley.

José, can you talk a little bit more about unit growth and how you would like to frame this year?

I guess specific question is, what did the closures in the U.S. -- how did that -- how much did that impact the total BURGER KING units?

And how you think about that in the years?

Just a year where you think you can open in total about the same number of units on a system-wide basis globally as you did last year, is it going to be lower for various reasons?

Maybe help us just frame 2019, please.

John, thanks for the question.

As we mentioned, the unit growth -- the net unit growth in quarter 1 slowed slightly but that was the result of the planned closures in the U.S. This is actually quite healthy for the business.

It helps continue to build franchise profitability in the U.S. system as we close these lower-volume restaurants and we're replacing them with new BK of Tomorrow restaurants.

So all in all, the planned closures for the first quarter were positive.

We don't give guidance or direction in terms of the performance or what we expect to deliver from a net restaurant growth at a company level for the full year.

But we're super excited about the pipeline, we remain very optimistic about our long-term prospects for growth, and we have a solid pipeline for each of the brands in our home markets.

We have very solid pipelines globally.

We tend to see fluctuations in performance quarter-over-quarter but we look at the pipelines in our development plans over the long haul, and we're excited about the prospects for the year and beyond.

Thanks for the question.

And our next question today comes from Dennis Geiger of UBS.

Wondering if you could talk a bit more about the benefit from the Tims loyalty program and maybe sort of the strong adoption rates or beyond the strong adoption rates that you've seen.

Anything else that you can highlight at this early stage as it relates to driving visits, to driving sales?

I guess related to that, Josh, you kind of just touched on some of the data but just -- how quickly can you start to collect this data from the loyalty program at Tims and then ultimately utilize it to impact customer behavior and drive traffic?

Is that something we could see in 2019?

Just some commentary there.

Yes, Dennis, it's Josh.

Thanks for the question.

Indeed, we are really pleased with the results so far on loyalty.

As I think José mentioned a little bit ago, the engagement from our guests so far has been really impressive.

We have something like 1/2 of our transactions already every day going through this new loyalty program in a very short period of time and I think that's really exciting.

To your point, I think the -- really the most exciting piece about that maybe -- or probably 2 things.

One, it's allowing us to give something back to our most loyal guests and kind of reward their loyalty to our brand.

I think that's something that's really special.

And two, going back to the point that I made to Nicole's question earlier, it's helping us already in just such a very short period of time to be able to understand our business much better.

I would tell you, it's already changing the way that we look at the business, that we're able to understand the business to be able to look at things on a guest-by-guest perspective.

And so I think that we're already figuring out how it's going to change, how we look at products and promotions and I think it's going to change the way that we manage the business here already this year in 2019.

And our next question today comes from Jeffrey Bernstein of Barclays.

Great.

Two unrelated questions.

The first one, just on the Tim Hortons Canadian business.

You mentioned some enhanced competitive activity above and beyond kind of the weather and other unusuals.

I'm just wondering if you can provide any color on that and how management thinks about responding to something like that in terms of better battling back from a influx of competition.

And the other question was just on the BURGER KING and possible launch, I mean it seems like it was just sort of a test but now it seems fairly certain that that's going to be rolled out nationally later this year.

So I'm just wondering if you could provide some color in terms of your expectations.

I mean it would seem like that's not necessarily in line with your core customer.

But just wondering if you can provide some color in terms of what your outlook is for that platform.

Thanks, Jeff.

We appreciate the question.

On the competitive activity, we obviously are in a very highly competitive market in Canada and that's not anything new.

The intensity and nature of the competition and the competitor tends to vary from time to time, and we usually don't call out at any particular competitor activity as it's hard to pinpoint exactly -- to quantify exactly what the impact is.

That's why we were able to share with you more information around the impact that we were able to quantify with Roll Up The Rim and whether we felt those were -- we had much more concrete data to be able to share with you on that.

And I think what's encouraging as we look at the long-term plans and prospects for the business in Canada for Tims is that with the key fundamentals of the Winning Together plan, the building blocks that I've discussed, that we've discussed quite a bit, Breakfast Anytime, beverage innovation, breakfast and lunch innovation, our brand communications plan, reimaging, all these building blocks continue to work well in the quarter and they continue to work well today.

Also, as we mentioned, the loyalty program being launched saw quite a bit of success.

It's very much in line with what we saw in the results and the test, and the impact on same-store sales was modestly positive initially, and we think there's huge guest uptick and we feel we're just at the beginning of loyalty and what it could do for the business long term.

So we're excited about the plans we have.

We're working closely together with our franchise partners and restaurant owners in Canada and we're -- everyone's excited about the direction of business and the prospects long term.

As it relates to Impossible that -- we had very positive guest reaction in St.

Louis, as I mentioned earlier, exceeding our expectations.

We generated more than 6 billion media impressions, and we saw -- and we're seeing a solid sales opportunity for the business.

We think it's very much in line with our brand position.

BURGER KING is all about delivering flame grilling excellence to our guests, and this product fits that right in the sweet spot.

And we think there's incremental growth to our core business here, and we're not seeing guest swap the original Whopper for the Impossible Whopper.

We're seeing that it's attracting new guests.

I've tasted the product many times, in fact I've sometimes overused my executive privilege to have the BK chefs bring me the product into the office on occasion.

It's really difficult to distinguish between the Impossible Whopper and the original Whopper.

And based on guest reaction, we decided to advance our plans to expand the Impossible Whopper to select new markets this summer, and we're going to target a national rollout towards the end of the year if guest reaction continues to remain as strong as we've seen in St.

Louis.

Thanks for the question.

And our next question today comes from John Zamparo of CIBC.

I appreciate the color on the Tims business.

José, what's the longer-term vision for Roll Up The Rim?

And if the enhanced giveaways didn't generate the incremental traffic you've been hoping for, how do you evolve it to match that heightened level of competition that you've seen?

Yes, we made some changes.

Thanks for the question, John.

We made some changes to the program.

We increased the length of it, we increased the coffee awards, and we didn't see a corresponding uplift in traffic.

We look at check-in traffic pre- and post-promotion, and we monitor the changes after the launch.

And we didn't see the impact that we expected from those changes.

That said, Roll Up The Rim is a 33-year-old brand.

It has tremendous awareness in Canada.

Our guests in Canada love the program.

It connects well with them.

And so we think there's an opportunity to integrate this with digital and continue to evolve the program to meet the expectations of our guests and of our franchise and restaurant owners in the business.

So we're excited about continuing to evolve the platform.

We weren't pleased with the results in Q1 but long term, we view this as a brand that's important for the Tim Hortons business in Canada.

And our next question today comes from Gregory Francfort of Bank of America.

Amid cost pressures in the U.S. the last few quarters, it sounds like QSR players have been a little bit more willing to take their average checks up.

And -- have you guys noticed or seen this dynamic?

And has that changed how you're approaching pricing and check recently in your BK U.S. business?

Thanks for the question, Greg.

We continue to see franchise profitability in the business in the U.S. and it fluctuates from month-to-month and quarter-to-quarter but over the long haul, we've seen good progress in -- on that front -- on that side of the business.

Our franchise partners remain very excited about the business or are continuing to invest in reimaging as well as new stores.

Our focus has always been and will continue to be on driving guest counts and traffic -- more traffic into our restaurants.

And so we're going to approach the business as we have in the past with a long-term view of having a balanced approach with good core offerings, premium offerings that really drive excitement around -- amongst those that want to indulge and then we have value offerings that are going to be for the everyday use.

We also believe there's a long-term opportunity for our breakfast business, which we started to invest in an overhaul towards the end of Q1 with the launch of the BK Café.

So long term, our focus continues to be on driving more guests into the restaurants and having a balanced everyday good offer for the guest to come in and enjoy the BURGER KING brand as well as the same approach that we apply for the other brands.

Thanks for the question.

And our next question today comes from Sara Senatore of Bernstein.

One question and then a follow-up, please.

First on the question, I just wanted to get your thoughts on what we're seeing in terms of delivery traffic as potentially just shifting some of the business between daypart, such as to say, breakfast seems broadly weak in the industry and yet dinner is getting better, I think, because it benefits from delivery.

So are you seeing any evidence that perhaps you're just seeing some of your traffic shift among dayparts either breakfast and lunch and into dinner or something along those lines?

And then my follow-up was just on Tims in China.

I know it's really small and its early days but it's such a big piece of the unit growth story for that brand going forward.

If you could just give us any color on maybe what you're seeing there with respect to economics or demand or brand perception.

Thanks, Sara.

I'm going to have Josh answer the question on delivery and then I'll take the one for Tims China.

Sara, thanks for the question on delivery.

Well, I would say that we have seen that the delivery -- kind of our delivery orders will over index a little bit towards later in the day or kind of a dinner daypart.

We haven't -- I wouldn't say that we've seen our -- kind of our baseline or x delivery business shifting in a discernible way.

So I'll give it back to José for the Tims China question.

Thanks, Sara.

So on Tims China, I think its early days.

We have -- we had 2 restaurants open as of the end of Q1, and we're very pleased with the initial performance.

I was there in March as I mentioned in my comments earlier.

And I saw the first restaurant that we opened.

I actually met some longtime Tim Hortons fans.

There were 2 gentlemen from British Columbia there that were just sitting and watching and observing the restaurant, the menu, the guest interaction and it was a really neat experience.

The good news is they approved of the image, they approved of the product, the approved of the overall experience.

And we're seeing that the Chinese consumer and guest is also approving.

Our early reads on the business are very positive.

We've had very positive social media reactions from local guests.

The guests are interacting with the brand the way we expected on beverage and also on the food side.

I think this is our ace new country entry and we have quite a lot of the learnings from the earlier launches.

So I think we were much smarter about looking at -- and took our time to look at the menu, ensure we have the right beverage offering, including an expansion of the tea offering.

We also took a close look at what food offerings we should be delivering to our guests there in order to make it relevant for the Chinese consumer while at the same time maintaining kind of the principles and the fundamentals of the Tim Hortons brand.

We've seen a very good start.

It's been a smooth beginning in China.

And -- but it's early days and we have a long-term view on the business in China and continue to be excited about the prospects there.

We also have a great team on the ground, which is super motivated and excited.

So we're very bullish on China for the long haul.

And our next question today comes from Alton Stump of Longbow Research.

Just wanted to ask, José mentioned, the competitive environment in Canada getting a bit more intent.

Is there any color as far as is that coming other costly QSR players or kind of the overall QSR space or just, like, in core at all?

If you can give us that where do you think that competition is coming from?

Yes, thanks for the question.

I think as I mentioned earlier in response to the earlier question, it's a highly competitive market.

You see some shifts in the level of competition and the nature of the -- and the competitor shift from time to time.

We don't -- it's hard to call out any particular competitor activity and we don't do it given the difficulty of pinpointing and quantifying it.

But we -- as I mentioned earlier, I think we remain very encouraged about the business.

We have a very strong brand obviously in Canada, serving 7 out of 10 cups of coffee in the country.

We continue to have very strong and healthy traffic counts, and we continue to have a very strong and healthy restaurant level P&L.

So we continue to focus on the fundamentals of the Winning Together plan, and we think, over the long haul, those fundamentals will allow us to continue to grow the business in any environment.

And our next question today comes from Will Slabaugh of Stephens.

I had a question on BURGER KING.

You seem to have pulled back decently on the level of discounting in the business in the U.S., in particular.

Curious if we should expect this level and type of promotion to continue or maybe return to being somewhat more intense.

And at the same time, given the strong results internationally rather, how would you characterize your promotional activity in some of those stronger markets that you mentioned?

And how that compare to prior quarters?

Thanks for the question.

As we've said many times in the past, I think our business grows here in the U.S. and internationally when we have a balanced offering, good core offerings with -- featuring the Whopper and our amazing chicken sandwiches and other core offerings with a focus also on premium and value to address everyday guest as well.

We're building our breakfast business in the U.S., and we think that's an opportunity for growth over the long haul.

And I think what's also positive here is that these plans that we're building for the U.S. and internationally are plans that we build together with our U.S. franchise partners as well as our international partners.

We'll see some shifts and movements in terms of where the focus is by quarter.

We don't share that in advance for obvious reasons given the competitive nature of the business.

But we do believe firmly the importance of a balanced offering and continue to deliver on a calendar that meets that demand.

Thanks for the question.

And our next question today comes from Jeremy Scott of Mizuho.

So you mentioned BK U.S. comps didn't come in as expected.

Breakfast was soft.

Promotions didn't go as planned.

I know you had a difficult lap.

But wondering if you could speak to the underlying traffic trends.

I think there was a sense earlier this year that the promotional activity was reaching this apex and it seems like we've seen that deceleration, to Greg's and Will's question, but what has that done to your price-motivated traffic?

Are you comfortable with your marketing balance right now?

And I think you talked about Tim Hortons comps Q to date but can you provide any color on BURGER KING U.S. as well?

Jeremy, thanks for the question.

I'm never comfortable but I'm super excited long term about the business in the U.S. And as we mentioned in Q1, we had good performance in BURGER KING in the U.S. across the menu but we were lapping some strong promotions and product launches, including the Double Quarter Pound KING and the launch of the spicy crispy chicken.

What we saw that worked well in the quarter were the $6 King Box, which has been in place for a bit of time, the launch of the Big King XL, which is a premium offering, and we transitioned from $1 price point on nuggets to $1.49 price point and also introduced or reintroduced the spicy nuggets and that did well.

Where we didn't do so well, as I mentioned earlier, is we didn't have a great launch to the Grilled Chicken Sandwich.

It's a great product but it didn't have the connection to the guest as we were expecting.

And we had a soft start to the quarter in breakfast but we addressed that throughout the quarter towards the end of March with the kickoff of BK Café, which is a long-term investment for us to build our breakfast business.

As I said earlier to the -- in response to the previous questions, our focus will always be on having a balanced approach, and we think that having good value is a must in our business.

But at the same time, if we deliver great quality products through our core offerings and premium offerings as well as the expansion of our breakfast business, we think there's a long-term opportunity for us to grow traffic and top line sales in our U.S. business for the long haul.

Thank you for the question.

And our next question today comes from David Tarantino of Baird.

My question is on the BURGER KING unit growth and I know you mentioned that there were some closings in the U.S. this quarter.

I wanted to clarify, is that a issue that you think was isolated to the first quarter or something you think will continue?

And if it's going to continue, could you just give us a sense for how many units are out there that you think are at that marginal profitability level that need to be closed?

Thanks for the question, David.

We don't give direction or guidance in terms of openings or closures.

But we did call out the planned closures for Q1 because it was a higher number than normal.

We expect -- as I've mentioned already, we expect the long-term pipeline for the U.S. and international for BURGER KING to continue to be strong.

We have -- we feel good about our openings plan.

Last year, we opened more restaurants in BURGER KING in the U.S. than we have in decades.

And we continue to see strong uptake by our franchise partners in terms of investing in new stores.

The new stores that we're building are freestanding drive-throughs featuring the BK of Tomorrow image.

Many of them with double drive-throughs with outdoor digital menu boards with the full suite of digital offerings, including kiosks in many cases, with open kitchens and really attractive-looking restaurants.

So the mix of openings and closures that we saw in Q1 in the U.S., I think, overall is positive for the business because it helps address franchise profitability, which is one of the things we're obsessed with.

We're obsessed with having happy guests and happy franchise partners and that -- those are the 2 key fundamentals that will help us drive the business from a growth standpoint for the long haul.

Thanks for the question.

And our next question today comes from Jon Tower of Wells Fargo.

Great.

Just on the BK U.S. app, I know it's still relatively early in the relaunch but can you discuss what you're seeing from the monthly active users with respect to frequency or uptake of deals relative to, say, your average customer?

And then kind of going back to the earlier topic around discounting kind of slowing sequentially versus the fourth quarter, it appears that you have quite a bit of discounting or deals through the app.

Is this -- should we think about this as being the better channel for you guys to offer some of these deep value offers versus, say, traditional media in the future?

Jon, it's Josh.

Thanks for the question.

I think to your point, I do believe we're early in our experience with the mobile app, but we're really excited with the success that we've had so far.

We've had a lot of traction in getting downloads, and we're really pleased with the engagement that we've had on the app.

I think the BURGER KING U.S. team has done some really exciting things, whether it's things like the Whopper Detour or the 3 cents STACKER promotion.

And I think to your point on frequency, what we've seen so far at least is that it seems like a lot of our bigger fans tend to want to engage with us on the mobile app.

So we do see a bit higher frequency from some of those guests.

But I think there's a lot more for us to learn.

I think this is a really powerful tool for us to engage with all of our guests and it will continue to evolve in how we use that tool and how we -- we're able to provide a greater experience to our guests through this and many other new digital interfaces over the coming quarter and years.

And our next question from Andrew Charles of Cowen and Company.

Great.

Two separate question, if I may.

José, I appreciate the color on 1Q Tims Canada comps with a reacceleration in April.

However, 2-year trends to start 2Q are still a little below the level you experienced in 4Q '18 despite an impressive 20% of Canadian population signing in for the loyalty program in a very short period of time.

What do you think the biggest roadblock is to returning to 2-year trends you saw in Tims Canada in 4Q?

And then, Matt, separate question for you.

In the quarter, there was no tenant inducement recorded within the operating cash flow, which would suggest no remodel activity at Tims Canada.

Why was just the case following through until remodel was completed in 4Q?

Great.

Thanks for the question.

I think the -- as I mentioned earlier, all of the underlying fundamentals that drove our Q3 and Q4 performance are still driving our performance today, including roughly 1.5% comps so far in April.

And what's encouraging is that these building blocks from our Winning Together plan have been resonating well with our guest and continue to drive the underlying business.

We're not satisfied with being positive approximately 1.5% in -- so far in April, but it does give us confidence that we're back on track with Q4 with good momentum and from here, we can build even more traction with our solid plans for the balance of the year.

Andrew, it's Matt here.

Just on your question around TI.

I think a couple of important things to call out.

One is seasonal timing.

So the first quarter tends to be a lighter quarter for us.

We do continue to complete the welcome image remodels and continue to role that program out.

We remodeled about 50-or-so restaurants in the quarter.

The other thing to take into account here is that we also have a joint venture with our TIMWEN partnership, which is a little bit of a unique mechanic where we essentially prefund renovation costs for the restaurants in that JV and then subsequently rebuild our franchisees for their portion of the investment.

And so we funded a few million dollars of that in Q4 of last year and then in Q1 of this year, we saw a TI credit coming back that offset the TI that we invested into the welcome remodels in the quarter.

We're still on track and if you recall last year, I think we remodeled approximately 380 restaurants.

We have a really strong pipeline, and we continue to move forward with that program this year and are excited for the outlook of reimaging the system across Canada.

This concludes our question-and-answer session.

I'd like to turn the conference back over to José Cil, CEO of Restaurant Brands International.

Please go ahead, sir.

Thanks, everyone, for participating on this morning's call.

As I mentioned earlier, the fundamentals of our business remain strong.

The diversity of our global business combined with continued strength of our restaurant expansion model enabled us to continue driving solid top line growth in Q1 of nearly 6.5% system-wide sales.

We're not in this for the short term.

We're all here for the long term.

We have great brands, great team, great partners and restaurant owners and a great business model, and we're super excited about the long-term growth prospects at RBI.

Thanks again.

We look forward to updating you soon, and we'll see you all on May 15 at our Investor Day.

Thank you, sir.

The conference has now concluded, and we thank you all for attending today's presentation.

You may now disconnect your lines, and have a wonderful day.