Good morning and welcome to the Restaurant Brands International First Quarter 2018 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] All callers will be limited to one question. Please note, this event is being recorded. I would now like to turn the conference over to Markus Sturm, 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, 2018. A live broadcast of this call may be accessed through the Investor Relations webpage at investor.rbi.com and a recording will be available for replay. Joining me on the call today are Restaurant Brands International’s CEO, Daniel Schwartz; and CFO, Matt Dunnigan. The team will be available to answer questions during 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. Before outlining the agenda for today’s call, we wanted to briefly highlight the recent implementation of two new accounting standards since both of them impacted our first quarter 2018 results, specifically the two new standards are revenue recognition and hedge accounting. As previously indicated on our fourth quarter 2017 earnings call, we followed a transition method for the new revenue recognition accounting standards under which our retained earnings adjusted was recorded at the beginning of 2018 to reflect the cumulative impact of transitioning to the new standards as if the standard had always been in place. Under this transition method, we will not be restating results prior to 2018 to reflect the new accounting standards. The most significant changes of this adoption that effects comparability of our results of operations between 2018 and 2017 included change in the timing of franchise fee revenue recognition and the reflection of advertising fund contributions and expenses on a gross basis. To allow for comparability with 2017 results, we have provided in the earnings release a…

Thanks, Markus, and good morning everyone. Thanks for joining us on today's call. I'm pleased to provide an update today on our first quarter 2018 results. This quarter we were pleased with the double digit systemwide sales and adjusted EBITDA growth that we achieved for our Burger King and Popeyes brands. However, we are not happy with our sales growth and overall financial results at Tim Hortons. On a consolidated basis, this quarter we grew our adjusted EBITDA to $498 million or $506 million under prior revenue recognition standards, which represents 5% organic growth versus the prior year's combined results of RBI, including Popeyes. As Marcus highlighted, for year-on-year comparability purposes we are presenting organic growth both on a constant currency basis, as well as under previous accounting standards in both periods. Continued growth in our topline, combined with the redemption of our preferred shares in 2017, and a favorable tax rate due to stock option exercises in the quarter led to adjusted diluted EPS of $0.66 per share for the quarter, up from $0.36 per share in the prior year period. Continued momentum at Burger King in the first quarter led to systemwide sales growth of 11%, which was a result of net restaurant growth of nearly 7% and comparable sales of 3.8%. Our BK comparable sales results this quarter were driven by notable strength in the U.S. and continued growth in many of our larger international markets. At Popeyes, systemwide sales grew by 11%, driven by net restaurant growth of nearly 7%, and comparable sales of 3.2%. Comparable sales this quarter were driven by improved results in the U.S. and continued sales momentum internationally. At Tim Hortons, systemwide sales grew by 2%, driven by net restaurant growth of 2.8% and flat comparable sales. Our Tim's comparable sales this…

Thanks, Daniel. Systemwide sales growth across each of our brands combined with the inclusion of Popeyes in our results, partially offset by declines in Tim Horton supply chain related revenues and expenses led to adjusted EBITDA of $498 million or $506 million under prior accounting standards, up 5% organically versus the prior year combined results of RBI, including Popeyes. Our first quarter adjusted net income increased to approximately $313 million or $319 million under prior accounting standards. This compares to prior year results of $171 million and the year-over-year increase is attributable to adjusted EBITDA growth, the redemption of our preferred shares in 2017 and a favorable tax rate due to stock option exercises in the quarter. This led to adjusted diluted EPS for the quarter of $0.66, up over 80% from $0.36 in the prior year period. As a reminder, neither adjusted net income nor adjusted diluted EPS include Popeyes for the prior year results, since we acquired the business in March 2017. Before discussing capital allocation, we thought it might be helpful to point out three relevant considerations for investors looking to update their forecast based on first quarter results. First, as Marcus highlighted at the beginning of the call, starting in the first quarter of 2018, we implemented new revenue recognition accounting standards. It is important to note that the impact of the new standards on our first quarter results is not necessarily an indication of the expected impact to the remaining quarters in 2018 for two main reasons, shifting from previous accounting standards where franchise fees where fully recognized at the time of opening to instead amortizing them over the life of the contract, means that the impact of revenue recognition for franchise fees will implicitly have a larger impact on periods in which more openings…

Thanks Matt. We continue to grow systemwide sales all around the world for each of our three iconic brands. Tim Hortons, Burger King, and Popeyes Louisiana Kitchen, which drove adjusted EBITDA growth for the quarter. We have established our primary priorities for 2018 and developed strong plans with our partners all around the world to deliver on those priorities. At Tim's, we have absolute confidence that our three-pillar winning together plan will allow us to overcome the challenges that we face and to improve sales growth in Canada. For Burger King, we have plans in place to build on our comparable sales momentum in the U.S. and internationally and to also further our net restaurant growth. At Popeyes, we are highly focused on continuing to sign impactful development agreements both in the U.S. and internationally to fuel significant acceleration of net restaurant growth and long-term systemwide sales growth. Our great franchisees and employees all around the world are working hard to deliver against these priorities in 2018 and we look forward to providing you another update in the second quarter. Let me close by reiterating that our top priority, systemwide is to deliver the absolute best experience for our guests and to drive profitability for our franchise partners. I want to thank everyone for joining us this morning and for your ongoing support. We’ll now open up the call for Q&A. Operator?

Thank you. [Operator Instructions] The first question comes from Nicole Miller with Piper Jaffray. Please go ahead.

Thank you. Good morning. And thanks for the comments on the call today. My question is in regards to Tim Horton, in conjunction with the remodels, would it be possible that they might be extending the terms, the lease terms that they have? So, just wondering on average may be where does the systems fit in the term with the extent that and then what the impact or contribution would that have to revenue or cash? And then just a second part to Tim’s, in the U.S. specifically their peer group is suffering in terms of PM business, so AM comps are up and PM comps are down, are they seeing the same types of trends or something different going on? Thanks.

Thanks Nicole. It’s Daniel. We’re excited about the restaurant experience of the three-pillar plan and we're really excited to roll-out the welcome image in Canada. As you know, and as is typical at the time of renovation, we would look to extend property control and we would look to enter into a new or extended franchise agreement. So that’s typical across our brands and that’s generally how our Tim's brand works and with respect to the business in the U.S., I think we saw they have a softer result, it was a little bit more competitive and I think it’s on us to make sure that we bring back the right balance between value, premium, and limited time offers, which I think we have done a better job with in prior quarters.

Our next question comes from John Glass of Morgan Stanley. Please go ahead.

Thanks very much. Daniel, and just in the spirit of talking about sort of investments in the business, when you talked about the Canadian Tim's business being some remodel CapEx, how do you see the overall need for investment though at the business, and I'm talking about it I guess on a global basis across all three brands, you’ve talked about technology in delivery and that sort of something newer to you, your competitive brands have been investing longer-term in some of those initiatives, do you see a need to step-up investment across the brands to compete more in technology, do you see other brands needing to – for example go through some of the reimaging that you are seeing at Tim's, can you talk about that holistically as you think about the business over the next year or two?

Yes, sure John. Thanks for the question. I mean, you know the way our business operates is a little different than some of our peers and that we are structured with – we are largely a fully franchise system with master franchise operators in our largest markets around the world and while we might have not been talking about it all that much, we have been renovating and our franchise owners have been renovating their restaurants every year for the past many years both in the U.S. and all around the world. And the fact that we are building a whole lot of restaurants relative to the base of restaurants that we have that put us in a position where we have a pretty good image globally with our brands. With respect to technology, we have made this a bigger priority and I think the first thing that you saw us do earlier this year is when we appointed Josh Kobza, who was our previous CFO to oversee in addition to his role of overseeing development to oversee all of technology and we are building out a team and we are more actively working with renders all around the world to help accelerate our use of technology to enhance our guest experience. We don't see this as something that’s going to require a meaningful amount of capital and I think we see opportunities to better leverage technology like we’re already doing around the world so in places like China and Spain were delivery is a really big portion of our business. We talk about testing delivery across the Burger King system in the U.S. which we’re already doing, we’re testing delivery in the Popeyes system, and we’re looking at a whole different variety of things, and we are already investing in the most important element, which is having the best people working on the project internally.

The next question will be from Dennis Geiger of UBS. Please go ahead.

Great, thanks and thanks for all the details on the winning together plan, very helpful. Can you talk a little more though about how much of the plan perhaps is currently in place and rolled out, and then how much perhaps is coming just so we can think about maybe the timing of some of the benefits from the initiatives if that’s possible? And then kind of following up on John's question, is it fair to think then that this plan beyond what you have already kind of announced with remodels that it doesn't really require any kind of significant step-up in CapEx G&A spend et cetera. And then if I could just relate to that, sneak one more in, anything that this does for you from a development perspective within Canada or maybe it’s too early, but you know just how you're thinking about that as this becomes a success? Thanks.

Yes, thanks. Thanks for the question. I think with respect to the - kind of what’s in place and the benefits and we just announced this quarter, I mean just within recent weeks we crafted this plan together with our restaurant owners, the Tim's winning together plan that centers around restaurant experience, product excellence and brand communication. And a restaurant experience, we talked about the fact that we really want to work with our owners to accelerate the pace and the quality of the pace of renovation, and the quality of the restaurant image in Canada. We're really encouraged by the initial results that we have had both quantitative and qualitative testing with our guests. We’re also encouraged by the support and the feedback that we’ve already gotten from our restaurant owners just a few weeks into having announced the welcome image we have. Several hundred restaurants who have already indicated to us that they plan to renovate their restaurants. Ad as Matt had mentioned in his prepared remarks, we were already renovating our restaurants and while the cost of the welcome image is slightly more expensive than the previous image, we were already contributing to renovations in Canada. So, the incremental component in the scheme of things won't be material for us, but we do believe it will materially – it will positively impact the guest experience. With respect to product excellence this means analyzing every single one of our products to make sure that they are absolute best in their categories and that is our commitment. And we’ve already started doing this by elevating the quality of the lunch platform with some of the new products that we have launched including turkey bacon club, artisan grilled cheese, the new signature melts, and lastly on brand communications, which is launching impactful marketing campaigns we just started doing this with the neighbor’s campaign that we launched. The musical campaign that we launched that highlights the quality of the cup of coffee that we offer at Tim Hortons all the way from bean to cup. And lastly, as I mentioned, it means being way more proactive with the media going forward, and telling our own story, our own positive story, and it’s early, it’s still very early and there is no, like, we have said this before and you probably have heard me saying this before five years ago at Burger King, there is no silver bullet, but we think that the focus on restaurant experience, product excellence, brand communications, together with our restaurant owners if we do this, we execute on this and we will, we are confident that this is going to drive the brand in the right direction.

The next question comes from John Zamparo of CIBC.

Thanks, good morning. I appreciate the color at the top of the call. I wanted to ask about the Tim's mobile app, you have got a few quarters with it under your belt now, what can you share with us about the pace of customer signups or frequency of use and potentially higher checks and you mentioned the goal of furthering your copy leadership in Canada, do you view the app as being a meaningful part of that? Thanks.

Yes, we’re still excited about the, or we are still excited about the potential for the Tim's mobile app and how our guests are interacting with us digitally. We’ve now included this as kind of more broadly part of our overall restaurant experience pillar of the winning together plan. We’re learning more about how our guests are interacting with us on the app, we're making changes and we’re evolving the app to kind of be better tailored to what our guests are – or how our guests are using it. We see this longer term as a tool that will enable us to see all sorts of things, including direct marketing and a variety of other ways to ultimately just improve our guests access to the brand and it’s still early for us, but we’re excited about the long-term potential for this, especially for the Tim's brand.

Our next question comes from Brian Bittner of Oppenheimer & Company. Please go ahead.

Thanks, very much. Just sticking with the Tim Hortons, with the sales trend in Canada, how do you guys parse out what you believe is coming from the effects of the negative media coverage? Is it a deterioration in the [indiscernible] or some other measure and how are you convinced that the weakness there may not be more attributable to some other headwinds going on in the Tim’s business?

Yes, it’s Daniel and thanks for the question. Look, it is both. The environment is competitive and the fact that there is a ton of negative media created by this group of franchisees, it is also hurting the guest perception and they are both contributing to the performance, which is why we had to take a step back and work with our advisory board and work with our restaurant owners to craft kind of bigger bolder plan in our winning together plan to move the business and move the brand forward. And that’s our agenda now and that is the top priority we are encouraged by the fact that we have a bunch of support very early on from a meaningful number of restaurants and owners and I think we have the right team, the right plan and the right support from the owners to drive the business forward.

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

Great, thanks. Two questions from me. So, for Tim’s, can you talk about the decision to just remodel the interiors of restaurants just given the heavy use of drive-through and off-premise for the brand and then I appreciate the detail on the winning together plan, you guys previously talked about how the remodels will be recording incremental TI associated with the [indiscernible] plan, are you expecting incremental cost or CapEx associated with any of the new Tim's initiatives that you guys outlined today?

I will comment, thanks for the question. I am going to comment on the image and I will let Matt, if you want to comment on the – how it is going to be accounted for and all that. Sorry if this wasn't clear. The welcome image, the restaurant exterior and interior will both be redesigned. And so, I think from the exterior it is going to have more of a natural-looking lighter, more inviting materials. Inside, we're going to have things like artwork that reflected Tim Hortons values and history’s, commissioned portrait Tim Horton, Mosaic, iconic brand images, walls that feature our unique coffee sourcing, so there is a whole variety of components to the new welcome image and including upgrading the quality of seating that fosters a sense of community inside the restaurant. So, it is so full scope inside and outside. Matt, if you have any follow-ups on this financial side?

Yes. Just to touch on the investment question, as Daniel mentioned, a really important piece of the winning together strategy here is the welcome image, which we rolled out and this is a very important initiative for us, and we think that it will help us drive significant re-imaging of our system in Canada and as part of our historically balanced approach to capital allocation, we’ve been maintaining a very healthy pace of remodels over time, and so as it relates to overall cash flows, the remodel initiative represents a relatively immaterial incremental impacts to cash flows over the next four years in capital investment. And as it relates to the broader winning together plan there is no material investment to otherwise speak off.

Thank you. Our next question comes from Peter Sklar of BMO Capital. Please go ahead.

In your commentary, when you were talking about the coffee performance in Canada, I believe you said, in addition to competitive issues, there were some issues related to the execution of the roll up to win to rim, which has been a long-standing promotion on the calendar of Tim Hortons. Could you just explain a little bit what happened there?

Yes, thanks for the question Peter. With respect to roll-up during the quarter, we did miss an opportunity there, partly due to an unfortunate error with one of our suppliers who we had been using for decades. So that coupled with the increasing competition led to some softness in coffee during the quarter.

The next question comes from Gregory Francfort of Bank of America.

Hi guys. I've got two questions, Matt, one for you. Just can you help maybe gross out the revenue impact of the accounting changes, I think the $182 million in revenue and 191 on SG&A, is that 191 also what the impact was in advertising fund revenue, so it was like a $9 million drag from the fees? And then Daniel, a bigger picture question on delivery for Burger King in the U.S, how do you envision quick service delivery playing out? I think the economics to make it work probably is, maybe high teens in terms of total checks and are you going to shift your marketing to maybe address bundle of orders or bundle, bundle, I'm just sort of curious how you plan to address delivery and how you think the market evolves?

Hi, thanks for the question. It’s Matt here. I will touch on the accounting and then I will pass it over to Daniel. So, on the revenue recognition accounting, again, two main impacts to our financials, the first being to franchise fees, where we are – previously we were recognizing upfront the franchise fees when the restaurants are opened or the agreement was renewed. Starting in 2018, these will be amortized over the life of the agreement. And the second, as you pointed out, it was related to ad fund. Under the previous standards of the advertising fund that positions were recorded on the balance sheet and had no P&L impact. Beginning this year, we are consolidating the full growth P&L impact of the advertising funds that we managed both revenue and expense, and this resulted in the year-over-year increase in revenues. And then additionally, I would say, on a net basis, the close to $9 million impact was approximately half related to the amortization of franchise fees and the other half related to the consolidation of advertising funds in the quarter.

Thanks, and then with respect to the delivery question, we have seen delivery be quite impactful in some of our international markets, I think we had mentioned on the prepared remarks places like China and Spain, and also Turkey has been a long user of delivery in terms of impactful sales. With respect to the U.S., it’s early, I mean our initial results are encouraging. We have rolled it out – delivery out to several hundred restaurants with the Burger King brand and several hundred with the Popeyes brand, and I think we’re still in the phase where we're seeing good results so we want to continue monitoring it and adjust accordingly before we could kind of come back to you and have definitive plans on how we want to adjust or how we want to reprioritize marketing, but I would say it is too early for that, but I think, look this is just one good example of us being able to kind of quickly move fast to use technology to enhance our guest experience and really just to provide more channels for the guest to access the brands.

The next question will be from Will Slabaugh of Stephens Inc.

Thanks guys. I had another question on Tim's. In just sort of getting our gauge in terms of where you feel like you are from a product innovation standpoint and then sort where you need to be, so if you could just talk about the espresso platform, I guess it is number one and then some of the other lunch items in coffee that you mentioned earlier, in terms of how impactful you feel they have been in the past as you’ve launched and as you’ve initiated some changes? And then what needs to be changed either from a product or from a marketing standpoint, just from a high-level standpoint? And then also, if I could also ask about the supply chain, you mentioned that revenue at Tim’s were down, I think it was 6.8% on a like-for-like basis due mainly to the supply chain. I know you mentioned espresso and lapping over that in terms of inventory just part of that, I wonder if there is anything else going on there or if that was the big reason? Thank you.

Yes. I will take the first one and I will pass it on to Matt to talk about the supply chain, but I would say, as it relates to the winning together plan and the two pillars that you mentioned and frankly the third pillar as well, I would say early on all of them with respect to product excellence we have made some progress elevating the quality of our lunch sandwiches including the turkey bacon club, the artisan grilled cheese, and we’ve gotten good feedback and seen some good results with that. We are encouraged by the success we have had in the rollout of our espresso-based beverages in giving us another way to innovate around coffee and we did some of that this quarter, but as I said earlier, we’re going to analyse every one of our products and making sure that absolute best in each of their category, that is a firm commitment that we are making. So, I think that is a whole lot more to come there. And on brand communications, I think it is about elevating the quality of our communications and constantly being more open to kind of proactively speak with the media and more proactively telling our own story. And I think you're going to see us doing a lot more both of them, but as it relates to the winning together plan, your impact of product excellence, impact of brand communications I think it’s still very early. And Matt do you want to follow up.

Yes, just to follow-up on your question related to the supply chain performance. The organic year-over-year decline in EBITDA and revenues for Tim’s this quarter, primarily reflected two impacts on the supply chain business. First, as you mentioned, in the quarter we lapped the rollout of our espresso program that was completed in the first half of 2017. Secondly, as highlighted over the past few quarters we passed on some supply chain savings to our franchisees through a reduction in pricing in the second half of last year. We continue to maintain this pricing for franchisees. So, margins in the supply chain business in the first quarter of 2018 are relatively consistent sequentially with the margins in the second half of last year. And looking ahead, as we no longer lap these two impacts, we expect the organic growth profile at Tim’s to improve throughout the year. Overall, a variety of moving pieces. We highlighted here some of the largest. Had it not been for these issues, the business would be roughly flat in overall organic EBITDA growth in Q1.

The next question will be from Karen Holthouse of Goldman Sachs.

Hi. So, you have mentioned your changes to communication in Canada as part of the strategy, if that’s not ultimately successful and starting to improve brand perception, is there anything you are most focused on for more of an operational, maybe a spending perspective that you think would be most helpful or most effective as – for lack of a better term [indiscernible] branch to maybe Canadian consumers or franchisees?

Yes, thanks for the question Karen. We've made good progress on building a strong and positive agenda with the restaurant owners. The relationships with the owners weren’t where they needed to be, but we have been making improvements. We are very excited about the winning together plan, and as I had mentioned in the prepared remarks, we already have several hundred restaurants were signed up, which indicates the support and the enthusiasm. Just last week, our advisory board openly spoke out to the entire system and this is the advisory board that’s elected by the franchisees, they openly supported our management team, they supported our plan and they spoke out against some of the actions of some of the franchisees who have been creating some negative media coverage, and look we do have a lot to improve, but we have the right team. We have the right plan. We have the right support from our restaurant owners to drive the business forward. And I am confident that with the right brand communications, you know coupled with acceleration and restaurant, image renovation and new product introduction and product renovation that we will drive the brand in the right direction.

The next question will be from Jon Tower of Wells Fargo.

Great, thanks for taking the question. Just one more on Tim Hortons Canada and then another on BK U.S. First on the Canada business, can you give us a little bit of information on where the customers are going, if they are not going to Tim’s? Are they are staying at home or if they are going to the competitors, what’s driving them to the competitors? And then on the BK U.S. business, can you talk about whether or not you are attracting new customers to the brand or you're just seeing increased frequency of existing customers with those strong same store sales? Thanks.

Yes. Thanks. On Tim’s, and you this has been the case in the past. We don't comment on specific competitors, but we can say and we have said, it has been competitive environment and that coupled with some of the negative brand coverage has impacted our sales, which is why we put together the winning together planned, together with our restaurant owners to drive the business in the right direction. And then on the Burger King's side, we had a good quarter, especially in U.S. and we continue to innovate around some of the existing platforms, we saw some success with the double quarter pound king, we saw success with the spicy chicken sandwich platform that we launched which was built, which was built on the crispy chicken sandwich that we had launched last year. And I think the other thing that’s positively contributes to the same store sales growth that we’ve experienced over time at the Burger King brand is the fact that if you go back in time, 5, 6 years ago, we had one out of ten restaurants renovated. And now after working closely with our franchise restaurant owners in the U.S. over the last 6 plus years, we have renovated the vast majority of the system, which has helped. And if I had to jump back to Tim Mortons, one of the things that gives us confidence that renovating restaurants, positively in the long run contributes to one's ability to drive improved sales.

The next question will be from Matt McGinley of Evercore ISI.

Thanks. On that last point, I believe that the typical remodel cycle for Tim Hortons is usually done around the franchise term every 10 years, but it may have gone a little bit longer than that as you finalise that new welcome image, I am curious that if that means if a typical Tim’s Restaurant is just a little older in terms of remodel cycle then we have seen in the past. And then as far as how the franchisees will fund that, I believe you negotiated a preferred lending agreement with some of the banks in Canada for the franchisees that makes it faster to get capital to do a project and I'm curious if those lines are still available to the franchisees?

Hi, it’s Daniel. So, yes, the that typical renovation cycle with the Tim Hortons restaurants is 10 years, and we’re working with our restaurant owners to accelerate the timing to kind of bring forward the renovation such that we will want to be able to achieve the majority of the restaurants under new image by 2021. That will be our combination of new builds and renovations. And yes, we did range for this preferred lending terms for this system to be able to access that to finance renovations.

Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Daniel Schwartz for any closing remarks.

Thanks everybody for joining us today and we look forward to updating you on our progress next quarter. Thanks a lot.

And thank you sir. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.