Good morning, and welcome to the Restaurant Brands International Third Quarter 2022 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’d now like to turn the conference over to Kevin [indiscernible], RBI'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 third quarter ended September 30, 2022. As a reminder, a live broadcast of this call may be accessed through the Investor Relations web page at rbi.com/investors, 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. During portions of the call today we'll be referencing three year comparisons for system-wide sales, growth and comparable sales to provide a cleaner indication of how the business is trending versus a more normalized period. The three-year comparisons are calculated on a geometric stacked basis by using the 2020, 2021 and 2022 disclosed growth metrics. In addition, the consolidated growth metrics discussed during the prepared remarks including consolidated system-wide sales growth, net restaurant growth and organic adjusted EBITDA growth, exclude results from Firehouse Subs, which we acquired on December 15, 2021, to reflect comparable year-over-year growth figures. And now, I'll turn the call over to José. José Cil: Thanks, Kevin, and good morning, everyone. Thank you for joining us on today's call to discuss our results for the third quarter of 2022. This quarter, we saw the key pieces of our plan continue to come together and foster meaningful growth across our brands and regions. With year-over-year comparable sales up 9%, system-wide sales growth of 14% and 8% organic adjusted EBITDA growth, or 10% excluding an estimated impact on adjusted…

Thank you, José. Today, I'd like to share some of the investments we've been making in operations and technology, and how they're positively impacting our restaurants, particularly here in the United States. Restaurants that provide a better guest experience will almost always outperform in sales and profitability over time. And we see this pattern consistently, both in our field visits and system-wide data. José and Matt have mentioned this in the past, but we've made a big investment to increase our field presence at Popeyes and Burger King in the U.S., and it is clearly having an impact. With more franchise business partners and operations partners on our teams, we can more effectively support our franchisees by helping them identify restaurants that need focus, and spending time in market with the restaurant general managers above restaurant leaders and team members to make a difference. I've seen this in a number of places recently from Indianapolis to Lafayette and Boston. With our recent investments, we have highly energized and experienced field teams who are fully dedicated to improving operations at the bottom performing restaurants they support. They're equipped with a clear scoring system aligned with our franchisees that we refer to as our Franchise Success System. These metrics enable us to identify which restaurants need help, and we have provided consistent data to everyone involved in order to identify areas of focus to improve. Now, restaurant general managers have near real time insight into guest feedback and can see where issues are arising. For example, they might see that the majority of guest complaints at the restaurant arrives on Saturday during late night and are related to speed of service, order accuracy or product availability. And they're now able to address this in a more targeted way. I visited a fantastic…

Thanks, Josh, and good morning, everyone. For the third quarter, excluding Firehouse, our global system-wide sales grew 14% to over $10 billion and our adjusted EBITDA increased approximately 10% organically, excluding an estimated negative 2% impact from Russia. Adjusting for differences in year-over-year ad fund timing, our organic growth rate would have been plus 11%. The largest driver of our gap between system-wide sales growth and organic adjusted EBITDA growth for the quarter was our continued investment in key areas of our business that are important to support the execution of our initiatives, deliver a better guest experience and drive sustainable profitable growth. This includes operations, as Josh outlined, as well as franchising in digital, and these investments led to a year-over-year and sequential increase in segment G&A to $92 million excluding Firehouse for the third quarter, which reduced our adjusted EBITDA growth rate by 2.4%. As I mentioned on our last call, as we continue to prioritize investments in our people and teams, we expect to see another modest sequential ramp in core segment G&A in the fourth quarter. Shifting to EPS. Our third quarter adjusted earnings per share was $0.96, which included a $0.10 benefit related to discrete non-cash tax benefits such as reserve releases for certain historical years. Excluding this benefit, our adjusted earnings per share was $0.86, compared to $0.76 last year, representing an increase of approximately 19% organically, excluding an FX headwind of negative 5% or $0.03 per share. During the quarter, our equity based compensation increased year-over-year to $34 million. As I mentioned last quarter, in 2021, we changed our incentive compensation framework to shift from five-year to market standard three- and four-year vesting. This change has contributed to the year-over-year increases in our equity-based compensation over the past few quarters and we would…

Thank you. [Operator Instructions] Our first question today comes from Dennis Geiger from UBS.

Great. Good morning, and thanks for the question. Wondering if you could speak a little bit more to the global outlook given the current macro pressures as well as the strength of the brands around the world. And if you could touch on sort of BK International, kind of José, you mentioned at the beginning kind of getting back to historical levels there. Just kind of anything more on that business and the unit growth would be would be helpful. Thank you. José Cil: Hey, Dennis, good morning and thanks so much for the question. Yes, on our global outlook from a development standpoint, we have a diversified and well-capitalized group of partners domestically and especially internationally with a really strong growth mindset over the years internationally. They got mentioned this in the past. I've sat on the boards of many of our master franchisees that are also joint ventures and now our talented international folks are doing this. And we have visibility into their teams, their sales, their growth, their profitability, their paybacks, their capital structures. And what kind of drives our confidence in the pipeline long-term and our growth outlook for the long-term is that there's strong returns on invested capital in our businesses. Our franchisees and our teams are excited. They're committed to growth, because of the strong returns. They're moving forward and they're excited about growth and they've got good pipelines because of that, not because of some contract that they've signed. Obviously, the macro environment, commodities, construction costs, high interest rates, these are part of the conversation. And what I think is positive here is that the franchisees that we work with closely on development, they look at this not as victims, but moreover -- more like owners, right, they're trying to figure out how…

Yes. Dennis, just maybe to add a little bit more color, I think as José mentioned, we have really great growth that we're seeing very exciting in the international business and it has become more meaningful over time, which is why we called out the headwind that we saw in Q3 from FX with USD strengthening, basically across the board. But just to quickly add a little bit more color on that. In Q3, we saw an impact of about $26 million in EBITDA that's what I called out is the impact that flowed through to EPS, in the prepared remarks. And just for some perspective on that, based on our business mix, a 1% change in euro has about a $1 million EBITDA impact to us for a quarter. And a 1% change in the Canadian dollar in terms of depreciation versus USD, that's about a $3 million quarterly EBITDA impact. So, FX rates have been moving around and have been quite volatile. But based on where we are quarter-to-date, we directionally expect to see some sequential increase in those headwinds based on current FX rates.

Our next question today is from David Palmer from Evercore. Please go ahead.

Yes. Thanks. You made a comment in the prepared remarks about macro pressures impacting franchisees, including the higher interest rates and commodities, wage inflation. Are there regions or brands where pressure to cash flow is particularly acute? And where -- what steps can you take, and are you taking in these instances? And what implications are there for Restaurant Brands earnings and free cash flow and shareholders? Thanks. José Cil: Hey, Dave. Thanks for the question. Look, I think it's clear that it's been challenging the last several quarters and probably last 18 months or so. I think the silver lining or the positive news here is that we are seeing pockets of moderation in commodities and labor. All that said, tough year across the industry for sure. Our franchisees are feeling the pressure. Our guests are also feeling the pressure. And every conversation I've had with franchisees here in the U.S. and Canada and also in Europe and other international markets, quickly turns to the volatility and a tremendous pressure that they and we all are feeling in our restaurant level margins and then, what are the steps we are taking to address it. And it's a huge area of focus for our team. We are working together with our franchisees on this. And some of the measures to offset these cost increases include continuing to use our scale and buying power to smooth out the choppiness of commodity increases that we are seeing in domestic markets as well as internationally pricing, but doing it strategically and understanding obviously the elasticity of demand and making sure that pricing flows through at the highest possible levels, looking at many architecture and managing mix to ease pressures on margins and we have examples of that including what we did with Burger…

We now have a question from Brian Mullan from Deutsche Bank. Please go ahead.

Just question on Burger King U.S. Specific to the Royal Reset Remodel program, can you just speak to the speed or the cadence with which you can maybe start to deploy that capital? José from the prepared remarks, it sounds like you were oversubscribed from a franchisee application perspective. I guess, could you speak to how quickly you're able to approve them or speak to a roadmap of when there might be critical mass of projects underway, and when you could realistically expect to see some sort of sales lift from all this? Thank you. José Cil: Hey Brian, thanks for the question. Yes, we have -- recall that we have two components to the Royal Reset, one is kind of the near-term refresh, which is 50 million -- but we allocated and it's a match of up to $50 million. And then, we've got the kind of more midterm full remodel program where we're contributing capital as we've laid out in detail in our previous communications. What was exciting and what I shared in my prepared remarks is that we've got a lot of enthusiasm and excitement in the system behind both of those programs. And we've got the -- near-term we had a two-week window of applications for the Royal Reset, the $50 million program. And that was oversubscribed very quickly. And now the teams are working through the specific plans for each of the restaurants, each of the franchisees and where we'll match. And our plan there is to deploy as quickly as possible. And we should expect to see that those investments in restaurants, they're going to be equipment investments, they're going to be exterior drive through and kind of physical plant investments, as well as technology investments, all of which we expect to see to start making impacts in the business in the near-term. And then, over time, we'll continue to work through the pipeline of remodels, full remodel scrapes and rebuilds, et cetera, as we've laid out in our detailed plans. That will take a bit more time as those require permitting and in many cases will require approval to obviously locally in municipalities and that takes a bit more time. So, that's just to highlight the details of the plan and the excitement we have behind it. The other point I'd make is that on the Fuel the Flame plan on the marketing front, we made -- we announced the 95% of franchisees on board with the program, signing up for the co-investment, assuming that hurdles that we've laid out have been met. And we continue -- and we just started that program now in October and we look forward to continuing to update all of you on the progress we're making there. Thanks a lot for the question.

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

If I could also just follow up on the Burger King U.S. system. At times when you have modernization efforts, like you're going through, you start to see some closures. Some franchisees maybe don't want to do that, for example. Do you see that as a potential? I recognized you closed stores a few years ago. So, one on that. And can you also just remind us on the franchisee base in the U.S. How many franchisees there are, what the average store per franchisee therefore there is? And you talked about maybe changing or switching over the franchisee ownership for those owners who maybe don't want to invest to those who do. What percent of the system do you think will change over -- change hands over the next few years based on this, or do you have a goal for that? Thanks. José Cil: Look, I think on the franchise question in the U.S. for BK, broadly speaking, I think what's exciting, as I mentioned earlier in response to Brian's question, is that there's a lot of -- there's appetite to invest and there's excitement behind the plan. We've got a lot of support behind the Fuel the Flame component to the plan. We've got support behind the Royal Reset with over subscription. And we have traction behind the Remodel program. Financial health is factored into -- was factored into how we develop the program and which is why we put -- we leaned into these greater incentives for remodels and providing upfront cash in addition to this dollar for dollar match on the royal near-term reset program. We have a deep bench of franchisees in the U.S. that are well capitalized that run really good restaurants. It happens. It's not unique to this moment, but it happens…

Our next question comes from Chris Carril from RBC. Your line is now open.

Hi. Good morning and thanks for the question. So just following up on Josh's prepared remarks, how far along do you think you are in your efforts to improve ops across the BK and Popeyes U.S. systems? And are you expecting any further investment behind field teams and overhead support to continue to drive those efforts? I know, Matt, you had mentioned a modest sequential ramp in core segment G&A in the 4Q. So, just wanted to confirm if that's related to these investments that Josh has discussed. Thanks.

Hey Chris, it's Josh. Thanks so much for the question. As you mentioned, we have made big investments in the field teams and in the processes and kind of measurement systems that backs up all of the work that they do every day. And I think we are really pleased with the initial progress there. I think I would characterize it as a very long journey. When you are trying to make big operational changes in these very large systems, it's something that you have to do very consistently over a long number of years, and that's the time horizon that we have for it. But I would say that we and all of our teams are really pleased with the initial performance. We’ve already seen results across both, Burger King and Popeyes. And I think we have a lot of buy-in, both across our teams and the franchisees teams about the way that we are measuring and the way that we are managing and supporting the systems. I'd say, the vast majority of the investments have already been made. So, we have a lot of the field teams in place. We may make a couple of small tweaks as we go into next year, but they are relatively minor. So, I think really great initial progress, really thankful to the teams and the franchisees, who are working together so well on that front, but something that I think we need to be persistent about over a long period of time to really move both of those systems in the right direction.

Yes. I think just on your point around G&A, I think you are spot on there, the comments that we shared, we do expect some modest sequential ramp in G&A, and that does relate to these continued investments in operations and franchise development and in technology as we look to move into next year.

Our next question comes from Nicole Miller from Piper Sandler. Please go ahead.

Thank you. Good morning. I wanted to ask about Tim's Canada and Burger King U.S. The question is, any momentum you saw post Labor Day essentially return to office? And anything you could share again in terms of any of the brands frankly, but most importantly, Tim's Canada and Burger King U.S? Thank you. José Cil: Hey Nicole, thanks so much for the question. On Tim's Canada, we were and remain very excited about the progress we are making on the back to basics line and kind of the second phase of that, which is all about driving PM food as well as cold beverages. We saw a 300 basis-point sequential improvement this quarter and same-store sales, so 5% versus where we were the last few quarters versus ‘19. And a lot of that came from core offerings and some of the initiatives, PM foods being a key driver of that. We had the loaded platform, which was incremental to our business. We saw 2% contribution, roughly 2% contribution to our year-over-year sales, same-store sales increase of 11% coming from the loaded platform. And in September, comparable sales for main foods was up 50% versus 2019, sequentially improving throughout the quarter. Main foods is now over 13% of sales, it was less than 10% back in the same quarter 2019. And now, just north of 10% of our tickets include PM food, versus about 7% of those tickets before the launch of the loaded platform, which -- all of which is to say that it's a good start, not a victory lap. But the confirmation that when we get food quality right, develop craveable food and our owners execute well, we can grow our PM food business and our PM dayparts. And it's confirmation that we have a big runway…

Our final question comes from Brian Bittner from Oppenheimer. Please go ahead.

Thanks for squeezing me in here. I'll shift to the Burger King rest of world business where you continue to showcase very strong underlying same-store sales trends, I believe. This quarter you were still 20% above pre-pandemic levels on the same-store sales. That's really best-in-class amongst your international QSR peers. Do you believe that the Burger King brand outside the U.S. is well positioned in an environment where maybe international consumers navigate tougher economic waters? Could Burger King actually benefit from a trade down internationally, or how do you frame your outlook for that Burger King brand rest of world, if the international macro continues to become more challenged? José Cil: Yes. We're very excited with the progress we're making in our international business with Burger King. We're seeing the brand and the business outperform peers internationally. On average, for the last five quarters in a row, we're the leading brand in many markets in terms of preference, and in some cases, as well, in terms of restaurant count or both. France and Spain are examples. We've seen our business grow to north of $1 billion in system-wide sales in places like France and Spain. In France, it's gotten -- we had $0 in system-wide sales back in 2013. And today, we have a business that's nearly $2 billion in system-wide sales. I think the business has gotten stronger, post-COVID, six quarters of double-digit, same store sales and system-wide sales growth. In the top five markets for us internationally have grown over $900 million in system-wide sales, versus 2019. So, we've gone from basically $5 billion in system-wide sales in those markets to $6 billion. And a lot of it has come from the progress and improvements we've made in the off-premise business. Our digital is getting stronger. We're building…

This concludes Restaurant Brands International Inc. third quarter 2022 earnings call. You may now disconnect.