Good morning, and welcome to the Restaurant Brands International Second Quarter 2020 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] Please note, this event is being recorded. I would now like to turn the conference over to Chris Brigleb, Restaurant Brands International's Head of Investor Relations. Please go ahead.

Thank you, operator. Good morning, everyone, and welcome to Restaurant Brands International's earnings call for the second quarter ended June 30, 2020. 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; COO, Josh Kobza; and CFO, Matt Dunnigan. Today’s earnings call contains forward-looking statements, which are subject to various risks set forth in the press release issued this morning, and in our SEC filings. In addition, this earnings call includes non-GAAP financial measures. Reconciliations of non-GAAP financial measures are included in the press release available on our website. Let’s quickly review the agenda for today’s call. José will start with some opening remarks on our company’s response to the ongoing recovery from the COVID-19 pandemic. He will then discuss our results for the second quarter, and provide detail around our performance at TIM HORTONS, BURGER KING and POPEYES. Josh will then provide an update on technology at RBI. And to conclude, Matt will review our financial results before opening the call up for Q&A. I’d now like to turn the call over to José. José Cil: Thanks, Chris, and good morning, everyone. Thank you for joining us on today's call. I hope everyone is doing well and staying safe. In the second quarter, our global response to the COVID-19 pandemic remain the focal point. We operate in over 100 countries and territories around the world, and this crisis has impacted everyone. Our response has involved a huge coordinated effort across all regions and by leveraging our platform's key points of differentiation, we've been able to drive a significant recovery in our performance. We've come a long way since…

Thanks, José, and good morning, everyone. Last quarter, we shared with you our observation that the COVID-19 crisis had accelerated trends in consumer behavior that we've seen building for some time. In the second quarter, this process continued to play out, as consumers increasingly look outside their homes for meals in a safe and convenient format. As José outlined earlier, this shift drove a substantial increase in sales in our drive-thrus, and it also helps for greater adoption and usage of our digital platforms. In this context, we've continued to enhance our core tech assets and adapt our digital strategy to best fit our guests' evolving needs. We're excited about the progress we made over the past few months and wanted to share a few highlights from three core areas: First, we continue to see significant growth in delivery across all three of our brands. Our addition of nearly 3,000 new restaurants on to delivery in the U.S. and Canada since February, brings our total to nearly 10,000 restaurants offering the service across our home markets. At Burger King and POPEYES, our delivery sales are up about three times and four times, respectively, versus the same time last year, and we've seen considerable growth in sales via our own mobile apps through Q2. At Tims, delivery sales are now up over nine times versus their pre-crisis level at the beginning of this year. Second, we continue to enhance our mobile app guest experience across all three of our mobile apps in our home markets. We've added new features and continuously incorporated guest feedback, which has allowed us to once again rank near the top of our industry in terms of app downloads and monthly active user growth. This has also led to a sustained improvement in our app store ratings,…

Thanks, Josh. In my comments today, I'll take you through an overview of our results for the second quarter and touch on some of the steps we've taken to support our systems as sales recover and to position our brands for continued long-term growth. In the second quarter, consolidated system-wide sales decreased 21% to about $6.5 billion, reflecting the impact of COVID-19 on our results across regions. However, as José outlined, we saw a significant improvement in performance over the course of the quarter as we increased comparable sales by about 30 points and reopened over 4,500 restaurants around the world. Based on this progress, we now have about 93% of our global restaurants open and exiting the quarter, we were back to approximately 90% of our prior year system-wide sales. We believe this highlights the quality of our business model and value of our global scale and diversification. For the quarter, consolidated adjusted EBITDA decreased 36% organically to $358 million and beyond the decrease in system-wide sales, several factors contributed to the decrease we saw in consolidated adjusted EBITDA. First, the base rent base rent relief we provided to Tim Hortons and Burger King relief we provided to Tim Hortons and Burger King restaurant owners in the U.S. and Canada that José mentioned earlier, impacted our growth rate by about negative 3% this quarter. It is important to note that this relief is tied to sales performance and naturally diminishes as sales improve. So given the recovery in sales we saw over the course of Q2, we have seen the size of this rent relief decline to a relatively marginal level entering Q3. Second, while we have not historically had meaningful bad debt expense, given the level of volatility and uncertainty around the world, we increased our bad debt…

We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Nicole Miller of Piper Sandler. Please go ahead.

Thank you. Good morning. When you look at a franchise level cash flows and take a look back at 2019 or what maybe was kind of planned or thought would be the levels for 2020. As you look across the brands, what percentage of those prior year projected cash flows do you think your franchise partners can capture in this environment? It seems like with some top line PPP and some other probably labor leverage, I would imagine the vast majority. José Cil: Yeah. Hi. Good morning, Nicole. Thanks for the question. I think, in terms of franchisee cash flows, what we've been most excited by is really the return of the business and sales recovery over the past month or two, which we know is the primary driver. I think the other thing to call out here is, we've done a lot of work over the past couple of months with – across all our brands, with our franchisees in terms of making operational improvements and adjustments to respond and adapt to the current environment. And I think, the result has been a pretty good amount of progress in terms of offsetting some of the impact that we saw in the early days. And now as we're on a, I think, a better path with the business and improving our outlook is good for the second half, and we think that, there is a path to generate very significant profitability for the year, even without taking into account the government programs, which were also quite helpful.

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

Thank you, and good morning. José, I wanted to go back and I wanted – maybe if you could clarify, maybe expand on the comments you made about the development plan. As I understood, it would suggest you how low net unit growth this year. Can you maybe just talk about where by brand you expect the most closures that would offset any development? And maybe within that, the region, whether it's the U.S. or home markets? And then, I think you also said, you expected to get back to normalized growth that you would have seen in 2018 and 2019, which would be like a 5% unit, and I want to make sure that's right. And how you get confidence in that at this early stage? I know, some of your peers have sort of said the opposite, which they don't have real visibility in 2021, just given franchisees have been disrupted. So maybe what insights do you have? And into how franchisees are thinking about development that you think that development can resume at that kind of pace? José Cil: Yeah. Thanks for the question, John. I hope you're doing well. Look, our focus the last four months has been on supporting our franchisees here in our home markets as well as internationally and regaining momentum in reopening markets as well as momentum in sales. And we've seen, as we mentioned in the prepared remarks, we've seen a good strong recovery across all markets, 93% of our restaurants are open, and we've regained just north of 90% of our system-wide sales. We have a strong set of franchisees across the globe, strong brands, and our partners are well capitalized as are we. And I think as we’ve continue to drive recovery in sales, we feel confident in our…

Our next question comes from Dennis Geiger of UBS. Please go ahead.

Great. Thanks for the question. Good morning guys. Thanks for the all the updates and the insights here. I wanted to focus on the go-forward strategy for Tim Hortons. A lot of exciting stuff going on with the brand, it seems like the brand is in a good place where, especially where COVID restrictions are less onerous. So just wondering if you could talk a bit more about the continued recovery from here, thinking about the macro and consumer mobility, is that one of the biggest things that gets you a significant recovery from here, and then maybe a lot going on -- a lot of good stuff, if you could just kind of frame, what you see as the most impactful? Is it loyalty, is it some of the stuff with the digital menu boards that you talk about? Now that's kind of on track again, you're rolling that out. Is it other things? Just kind of framing what you're most excited about and how you see this recovery for the brand from here? Thank you.

Thanks, Dennis. I appreciate the question. Yes. Look, we -- from levels of -- in the low 40s – negative 40s in April when the crisis was at its peak in Canada and here in North America, we've seen, as I've mentioned -- over the last several seen, we've seen sequential recovery quarter over -- month-over-month in the business. And we've seen that initial improvement came from a bunch of hard work from our teams. We went from having about 200 restaurants -- just over 200 restaurants with delivery in Canada to now around 1,200 restaurants, which gave us an opportunity to expand our off-premise offering in Canada to meet the needs of Canadians, even if they couldn't come to our restaurants. We saw the drive-thru performance improve. It's now double-digit up versus where it was last year. And as we mentioned, the part of the business that's been impacted the most in the part of the industry that's been impacted the most is breakfast and kind of those high-frequency routine visits. Canada, as I mentioned in my prepared remarks, it's been a bit slower to reopen as confirmed by third-party mobility data and industry traffic data that we look at. We've seen same-store sales steadily improving throughout the last quarter and into July. But we've seen our biggest market, which is Ontario, be a little bit slower in terms of the recovery. It's driven by the high urban and routine traffic exposure that we have in that business. And as I said, we've seen this through pretty clear evidence on third-party mobility data. The good news is, we've -- as I mentioned, Québec is a good example, it gives us confidence around a path to improve sales as reopenings continue and as behaviors resume in the country. That said,…

Our next question comes from John Zamparo of CIBC. Please go ahead.

Thanks. Good morning. I wanted to ask about the breakfast daypart, in particular. You mentioned it's been disproportionately impacted. Just would like to get a sense of how you help rebuild traffic here? And maybe that means increasing drive-thru throughput with dual lanes or emphasizing breakfast anytime. But just would like to get a sense of how you get this to return to the growth level you'd like it up? José Cil: Yes. Thanks for the question, John. I think it's the stuff that I've mentioned already and touched on quite a bit. It's focusing on quality, focusing on service, expanding our off-premise capabilities through drive-thru and as well as our digital capabilities. We've added curbside pickup. We've added pickup at the front door in many locations that are in line. So our focus will be and continues to be on great service, great quality offering, great everyday value for money with our coffee and baked goods in Canada and hot breakfast sandwiches, and continuing to expand and improve on that off-premise capability that we have, and that we're so strong in. Thanks for the question.

Our next question comes from David Palmer of Evercore ISI. Please go ahead.

Thanks. Good morning. I'm going to beat the dead horse a little bit more on Tims here. But this is one of those stories where we have the comps negative going into the crisis. And I guess, we have the external factors, obviously, COVID itself, the competitive environment, the closures maybe that you'll see from competitors, maybe that slow recovery of that Greater Toronto area. But offset from -- offsetting that might be the fact that you're doing a lot of internal stuff. So I'm trying to get a sense from you, any help you could give in sort of squinting through the numbers and give us a sense of your confidence that you can get to positive comps. And then that rate of recovery, do you see that tail of the Greater Toronto dragging on into 2021, pretty -- as the commuting is down, or do you see those being overcome by some of the internal things that you're doing or even the closures you're going to see from competitors? Any commentary on that would be helpful. Thanks. José Cil: Yeah. Thanks for the question, David. Look, I think it goes back to some of the comments I made earlier. I think we're excited and confident in the long-term in Canada. I think the investments we're making in digital is proving to be a big benefit for the business there, as Josh mentioned in his comments and I did as well earlier this morning. We're seeing now that Tims Rewards is becoming a positive for the business, not only in terms of engagement, but also in terms of being able to give our very loyal consumers and guests exactly what they're looking for, and that's allowing us to drive incremental visits and sales for the business, which we think, over time, will be a big driver and a key part of our marketing our marketing initiatives in the business. We're focusing on quality. We're focusing on expanding the capabilities and the experience in the drive-thrus with technology as well as expanded throughput. And we think all of those, in addition to the process that's taking place in the municipalities and in the provinces of reopening, that combination overtime will get us into a really positive momentum for the business. Hard to say when. We're working like crazy to make it now, but it will take time, and we're working closely with our partners and our franchise owners in the market to make sure we do it the right way, safely, taking care of our guests and our team members, which remains the top priority. Thanks so much for the question.

Our next question comes from Sara Senatore with Bernstein. Please go ahead.

Thank you. Just a quick question about the Kansas state. I know you had mentioned that you're seeing an acceleration of trends, including drive-thru. Is it possible to retrofit Tim? I guess I'm trying to think about what – how do you think about the Tims of status is now with Canada only two-thirds drive through versus what it should be on a go forward? I mean one of your big competitors is working on shifting their footprint and shrinking some stores and drive-thrus to others. I guess have you contemplated that? How fast could it happen? And sort of what does the CapEx look like associated with that? Just to the extent that there are any lingering effects from the pandemic, the most per ounce would probably be just, again, shift – greater shift – greater shift to all permits and to drive-thru. Thanks. José Ci: Thanks for the question, Sara. Our – we have an amazing portfolio and real estate offering in Canada. We've got nearly 4,000 locations. We're able to serve all of our guests. I mean the ability that we have with our penetration there is probably as well evidenced with our shift to delivery. We're now one of the strongest delivery businesses in terms of penetration anywhere in the country. So we have a really strong portfolio. We think there is an opportunity to continue to enhance the off-premise abilities that we have, expanding drive-thrus to double drive-thru, expanding the experience in our existing drive-thrus with ODM – Outdoor Digital Menu board investments. We have curbside now in mobile order and prepayment and pickup with our digital offering. So we think off-premise will continue to be an opportunity. We felt that was the case pre-COVID, which is why we made all these investments in technology as well as have outlined a game plan to invest in our delivery and our drive-thru business. So we continue to see that as an opportunity, and to the extent there is some involvement in remodels and other investments in the real estate, we'll continue to do that in order to drive the business forward. Thanks for the question.

Our next question will come from Chris Carril of RBC Capital Markets. Please go ahead.

Thanks. Good morning. And just following up on that last question, I did want to ask about the remodel programs at Tims and Burger King. Where do you currently stand in those programs? And what is your franchisees current thinking of remodels? Particularly in light of the commentary around development as well as the plans around portfolio optimization and closures that you discussed this morning?

Chris, it's Matt here. Thanks for the question. I think as it relates to the remodel programs. We – both at BK and Tims, these continue to be an important piece of our strategy going forward. I think, as we talked about in the past, given the impact of COVID, we temporarily paused capital investments for the time being. But we think of an traction that we're seeing in the business, it makes sense to start reengaging in investments and part of that will be the continued renovation of our restaurants, which we look to restart in the second of the year and get back on track as we move forward. Thanks for the question. Operator: Our last question will come from David Tarantino of Baird. Please go ahead.

Hi. Good morning. Just a clarification question and then another one, but what – I guess, first, what percentage of the global system unit count is expected to close this year? And what percentage of system sales does that represent? So that's kind of first question. And then the second question is, I was wondering if you could give an update on the Burger King international business, and how that business is trending, given it's such a big part of your income stream? And then if there is any call-outs related to markets that might be underperforming during the pandemic. That would be helpful as well. Thanks.

Yeah. Hi, David, it's Matt. Thanks for the question. I'll share some thoughts on the first part there on closures. I think José mentioned in the prepared remarks, we are going through a proactive process of looking through our systems all around the world, and where it makes sense to close restaurants that will help improve the overall health of the system profitability. And then also longer term, makes sense for our partners and for us in terms of the business models and supporting future development, that's something we're going to do, and we're going to be proactive about that in the second half. I think as it relates to the size of that, it will be significant relative to prior year closures. So we have a significant increase. However, in terms of percent of overall restaurants and system-wide sales around the world, it will be relatively small, so a couple of percentage points. José Cil: Thanks, Matt. David, on the second question, as I mentioned, I think we're really excited about the progress we've made in reopening our restaurants internationally and across the globe, including our home markets. We're now about 93% of our restaurants open, and we've seen – substantially, all of the restaurants in APAC are open. North of 90% of them are open in EMEA and just over 80% in Latin America. And North America is roughly in the – above 98%. So we're making good progress on reopening and system-wide sales have gotten back to about 90% of where they were pre-COVID. So, we're working closely with our partners there. We see some different nuances by market in terms of performance, but generally, everyone is making progress on reopening. They're driving significant growth through off-premise capabilities. Delivery is a really big part of our business as well digital in many of our international markets and we have strong growth that's taken place over the last five years or so in our drive-thru business in many of our international markets in Europe, in Western Europe in particular, as well as in Latin America. So, we see continued progress in those markets. We continue to work closely with our franchisees in those markets to ensure that we set them up for success long-term, and I think we can get back to growth as we had seen in 2018 and 2019. Thanks again for the question.

This concludes our question-and-answer session. I would like to turn the conference back over to José Cil for any closing remarks. José Cil: Hi, everyone. The COVID-19 pandemic, as I've mentioned, has introduced a host of challenges, but the improvement in our results speaks to the strength and resilience of our incredible brands and our business model. It also reflects our proactive and coordinated approach to confronting this crisis, which has put us in a strong position going into the back half of this year, both to keep advancing in our reopening around the world and to restart our to restart our engine for system-wide sales growth looking ahead to 2021. Thank you again for your time today. Take care, and stay safe.

The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.