TORONTO, May 1, 2020 // PRNewswire // - Restaurant Brands International Inc. (TSX/NYSE: QSR, TSX: QSP) today reported financial results for the first quarter ended March 31, 2020.
Jose Cil, Chief Executive Officer of Restaurant Brands International Inc. ("RBI") commented, "I am very proud of the entire RBI family through these early days of the COVID-19 crisis. Our teams have taken thoughtful and immediate actions to protect and serve our guests and our restaurant owners have shown great resilience in overcoming the challenges we all face. In particular, we have worked very closely with our restaurant owners to help them and their team members weather this global crisis."
"We are fortunate to have drive-thru, take-out, mobile order and payment, curbside and delivery options in many of our restaurants that have allowed us to be a safe, trusted and convenient choice for millions of guests who have had to change their routines or stay at home in these extraordinary times. The groundwork our technology teams have put in place over the last two years allowed us to rapidly accelerate valuable improvements to our loyalty, CRM and mobile app platforms that ultimately improve guest engagement and differentiate our iconic brands," continued Cil.
"We came into 2020 in a position of strength in our industry. All of RBI has rallied in the face of the COVID-19 crisis and through the strength of our brands, commitment of our restaurant owners, dedication of their team members and the resilience of our brand teams, I am confident that we will finish 2020 as a stronger organization than when we started the year," concluded Cil."
Consolidated Financial Highlights
The year-over-year change in Total Revenues on a GAAP basis was primarily driven by a decline in system wide sales at TH and BK and a decrease in supply chain sales, partially offset by an increase in system wide sales at PLK. FX movements added to the year-over-year decrease in Total Revenues on a GAAP basis.
The decrease in Net Income Attributable to Common Shareholders and Noncontrolling Interests for the first quarter was primarily driven by a decrease in TH and BK segment income, partially offset by an increase in PLK segment income, a decrease in interest expense and a decrease in income tax expense.
The year-over year change in Adjusted EBITDA as reported and on an organic basis was primarily driven by the decrease in TH and BK Adjusted EBITDA, partially offset by an increase in PLK Adjusted EBITDA.
As the quarter progressed, the COVID-19 global pandemic began to significantly impact our three brands' operations and sales performance, first in Asia, and then around the world. Our Q1 results were obviously impacted by COVID-19 despite the strength and expertise of our diversified global businesses that quickly responded to the crisis.
In North America, substantially all of our restaurants were open as of the end of the quarter. In Europe, Middle East and Africa as well as Latin America, approximately half of our restaurants were temporarily closed due to COVID-19 as of the end of the quarter. In Asia Pacific approximately 20% of our restaurants were temporarily closed due to COVID-19 as of the end of the quarter, an improvement from February.
Where permitted, many of our restaurants are operating with limited service modes serving food through channels such as drive-thru, delivery, and take-out.
While we do not know the future impact COVID-19 will have on our business, or when our business will return to normal operations, we expect a more significant impact from COVID-19 on our full quarter results in Q2 than it had on our full quarter results in Q1.
TH Segment Results
For the first quarter of 2020, the decrease in system-wide sales growth was primarily driven by comparable sales of (10.3)%, including Canada comparable sales of (10.8)%, partially offset by net restaurant growth of 1.2%. The global spread of COVID-19 in March had a significant impact on sales performance in the quarter. In the last two weeks of March we saw daily comparable sales decrease on average by a percentage in the mid-forties, however daily comparable sales are now down in the negative high thirties on a percentage basis as of the end of April.
The year-over-year change in Total Revenues on a GAAP and on an organic basis was primarily driven by the decrease in system-wide sales, which was concentrated in the month of March. This decrease was also driven by FX movements on a GAAP basis.
The year-over-year change in Adjusted EBITDA as reported and on an organic basis was primarily driven by the decrease in system-wide sales. This decrease was also driven by FX movements on an as reported basis.
BK Segment Results
For the first quarter of 2020, the decrease in system-wide sales growth was driven by a decrease in comparable sales of (3.7)%, including a decrease in US comparable sales of (6.5)%, partially offset by net restaurant growth of 5.8%. The global spread of COVID-19 in March had a particularly strong impact on sales performance in the quarter. In the last two weeks of March we saw daily comparable sales decrease on average by a percentage in the low thirties, however daily comparable sales are now down in the negative teens on a percentage basis as of the end of April.
The year-over-year change in Total Revenues on a GAAP and on an organic basis was primarily driven by the decrease in system-wide sales, which was concentrated in the month of March. On a GAAP basis, FX movements resulted in a further decrease.
The year-over-year change in Adjusted EBITDA as reported and on an organic basis was primarily driven by the decrease in system-wide sales. This decrease was also driven by FX movements on an as reported basis.
PLK Segment Results
For the first quarter of 2020, system-wide sales growth was driven by comparable sales growth of 26.2%, including US comparable sales growth of 29.2%, as well as net restaurant growth of 6.9%. The global spread of COVID-19 in March impacted sales performance in the quarter. In the last two weeks of March we saw daily comparable sales approximately flat on average, however daily comparable sales have returned to pre-COVID-19 levels as of the end of April.
The year-over-year change in Total Revenues on a GAAP and on an organic basis was primarily driven by system-wide sales growth.
The year-over-year change in Adjusted EBITDA as reported and on an organic basis was primarily driven by system-wide sales growth.
Cash and Liquidity
As of March 31, 2020, total debt was $13.4 billion, net debt (total debt less cash and cash equivalents of $2.5 billion) was $10.9 billion, and net leverage was 4.8x. Our cash balance at quarter end reflects our decision to proactively draw down substantially all of our $1 billion revolving credit facility in mid-March out of an abundance of caution. It does not reflect the issuance of and cash proceeds from $500 million of new First Lien Notes, which we completed at the beginning of April 2020.
The RBI Board of Directors has declared a dividend of $0.52 per common share and partnership exchangeable unit of Restaurant Brands International Limited Partnership for the second quarter of 2020. The dividend will be payable on June 30, 2020 to shareholders and unitholders of record at the close of business on June 17, 2020.
Investor Conference Call
We will host an investor conference call and webcast at 8:30 a.m. Eastern Time on Friday, May 1, 2020, to review financial results for the first quarter ended March 31, 2020. The earnings call will be broadcast live via our investor relations website and a replay will be available for 30 days following the release.
Restaurant Brands International Inc. is one of the world's largest quick service restaurant companies with approximately $34 billion in annual system-wide sales and over 27,000 restaurants in more than 100 countries and U.S. territories. RBI owns three of the world's most prominent and iconic quick service restaurant brands - TIM HORTONS®, BURGER KING®, and POPEYES®. These independently operated brands have been serving their respective guests, franchisees and communities for over 45 years.
Forward-Looking Statements
This press release contains certain forward-looking statements and information, which reflect management's current beliefs and expectations regarding future events and operating performance and speak only as of the date hereof. These forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties. These forward-looking statements include statements about our expectations regarding the effects of the COVID-19 pandemic on our results of operations, liquidity and prospects and those of our franchisees, digital engagement, our efforts to assist restaurant owners in maintaining liquidity, our Winning Together Plan and long-term growth prospects. The factors that could cause actual results to differ materially from RBI's expectations are detailed in filings of RBI with the Securities and Exchange Commission and applicable Canadian securities regulatory authorities, such as its annual and quarterly reports and current reports on Form 8-K, and include the following: risks related to unforeseen events such as pandemics; risks related to supply chain; risks related to ownership and leasing of properties; risks related to our franchisees financial stability and their ability to access and maintain the liquidity necessary to operate their business; risks related to RBI's ability to successfully implement its domestic and international growth strategy and risks related to its international operations; risks related to RBI's ability to compete domestically and internationally in an intensely competitive industry; risks related to technology; and changes in applicable tax laws or interpretations thereof. Other than as required under U.S. federal securities laws or Canadian securities laws, we do not assume a duty to update these forward-looking statements, whether as a result of new information, subsequent events or circumstances, change in expectations or otherwise.
RESTAURANT BRANDS INTERNATIONAL INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In millions of U.S. dollars, except per share data)
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RESTAURANT BRANDS INTERNATIONAL INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In millions of U.S. dollars, except share data)
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RESTAURANT BRANDS INTERNATIONAL INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
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RESTAURANT BRANDS INTERNATIONAL INC. AND SUBSIDIARIES
Key Operating Metrics
We evaluate our restaurants and assess our business based on the following operating metrics.
System-wide sales growth refers to the percentage change in sales at all franchise and company-owned restaurants in one period from the same period in the prior year. Comparable sales refers to the percentage change in restaurant sales in one period from the same prior year period for restaurants that have been open for 13 months or longer for TH and BK and 17 months or longer for PLK. Additionally, if a restaurant is closed for a significant portion of a month, the restaurant is excluded from the monthly comparable sales calculation. System-wide sales growth and comparable sales are measured on a constant currency basis, which means that results exclude the effect of foreign currency translation and are calculated by translating prior year results at current year monthly average exchange rates. We analyze key operating metrics on a constant currency basis as this helps identify underlying business trends, without distortion from the effects of currency movements.
System-wide sales represent sales at all franchise restaurants and company-owned restaurants. We do not record franchise sales as revenues; however, our franchise revenues include royalties based on a percentage of franchise sales.
Net restaurant growth refers to the net increase in restaurant count (openings, net of permanent closures) over a trailing twelve month period, divided by the restaurant count at the beginning of the trailing twelve month period.
RESTAURANT BRANDS INTERNATIONAL INC. AND SUBSIDIARIES
Supplemental Disclosure
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Selling, General and Administrative Expenses
Other Operating Expenses (Income), net
RESTAURANT BRANDS INTERNATIONAL INC. AND SUBSIDIARIES
Non-GAAP Financial Measures
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Below, we define the non-GAAP financial measures, provide a reconciliation of each non-GAAP financial measure to the most directly comparable financial measure calculated in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"), and discuss the reasons why we believe this information is useful to management and may be useful to investors. These measures do not have standardized meanings under GAAP and may differ from similarly captioned measures of other companies in our industry.
Non-GAAP Measures
To supplement our condensed consolidated financial statements presented on a GAAP basis, RBI reports the following non-GAAP financial measures: EBITDA, Adjusted EBITDA, LTM Adjusted EBITDA, Adjusted Net Income, Adjusted Diluted Earnings per Share ("Adjusted Diluted EPS"), Organic revenue growth, Organic Adjusted EBITDA growth, Free Cash Flow and Net Leverage. We believe that these non-GAAP measures are useful to investors in assessing our operating performance or liquidity, as it provides them with the same tools that management uses to evaluate our performance or liquidity and is responsive to questions we receive from both investors and analysts. By disclosing these non-GAAP measures, we intend to provide investors with a consistent comparison of our operating results and trends for the periods presented.
EBITDA is defined as earnings (net income or loss) before interest expense, net, (gain) loss on early extinguishment of debt, income tax (benefit) expense, and depreciation and amortization and is used by management to measure operating performance of the business. Adjusted EBITDA is defined as EBITDA excluding the non-cash impact of share-based compensation and non-cash incentive compensation expense and (income) loss from equity method investments, net of cash distributions received from equity method investments, as well as other operating expenses (income), net. Other specifically identified costs associated with non-recurring projects are also excluded from Adjusted EBITDA, including corporate restructuring and tax advisory fees, and office centralization and relocation costs. Adjusted EBITDA is used by management to measure operating performance of the business, excluding these non-cash and other specifically identified items that management believes are not relevant to management's assessment of operating performance or the performance of an acquired business. Adjusted EBITDA, as defined above, also represents our measure of segment income for each of our three operating segments.
LTM Adjusted EBITDA is defined as Adjusted EBITDA for the last twelve month period to the date reported. LTM Adjusted EBITDA as of March 31, 2020 is the sum of the Adjusted EBITDA for the quarters ended March 31, 2020, December 31, 2019, September 30, 2019, and June 30, 2019, while LTM Adjusted EBITDA as of March 31, 2019 is the sum of the Adjusted EBITDA for the quarters ended March 31, 2019, December 31, 2018, September 30, 2018 and June 30, 2018. A reconciliation of Adjusted EBITDA for each of those quarters was included in our press release attached as Exhibit 99 to our Form 8-Ks filed with the SEC on February 10, 2020, October 28, 2019, August 2, 2019.
Adjusted Net Income is defined as net income excluding (i) franchise agreement amortization as a result of acquisition accounting, (ii) amortization of deferred financing costs and debt issuance discount, (iii) loss on early extinguishment of debt and interest expense, which represents non-cash interest expense related to losses reclassified from accumulated comprehensive income (loss) into interest expense in connection with interest rate swaps de-designated in May 2015 and November 2019, (iv) (income) loss from equity method investments, net of cash distributions received from equity method investments, (v) other operating expenses (income), net, and (vi) other specifically identified costs associated with non-recurring projects.
Adjusted Diluted EPS is calculated by dividing Adjusted Net Income by the weighted average diluted shares outstanding of RBI during the reporting period. Adjusted Net Income and Adjusted Diluted EPS are used by management to evaluate the operating performance of the business, excluding certain non-cash and other specifically identified items that management believes are not relevant to management's assessment of operating performance or the performance of an acquired business.
Net Leverage is defined as net debt (total debt less cash and cash equivalents) divided by LTM Adjusted EBITDA. Net Leverage is a performance measure that we believe provides investors a more complete understanding of our leverage position and borrowing capacity after factoring in cash and cash equivalents that eventually could be used to repay outstanding debt.
Revenue growth and Adjusted EBITDA growth, on an organic basis, are non-GAAP measures that exclude the impact of FX movements. Management believes that organic growth is an important metric for measuring the operating performance of our business as it helps identify underlying business trends, without distortion from the effects of FX movements. We calculate the impact of FX movements by translating prior year results at current year monthly average exchange rates.
Free Cash Flow is the total of Net cash provided by (used for) operating activities minus Payments for property and equipment. Free Cash Flow is a liquidity measure used by management as one factor in determining the amount of cash that is available for working capital needs or other uses of cash, however, it does not represent residual cash flows available for discretionary expenditures.
RESTAURANT BRANDS INTERNATIONAL INC. AND SUBSIDIARIES
Non-GAAP Financial Measures
Organic Growth in Revenue and Adjusted EBITDA
Three Months Ended March 31, 2020
(Unaudited)
The change in Adjusted EBITDA during the three months ended March 31, 2020 compared to the three months ended March 31, 2019 includes a decrease of $20 million related to the temporary mismatch between advertising fund revenues and expenses which had a negative impact of approximately (4.0)% on the organic Adjusted EBITDA growth rate.
Note: Percentage changes may not recalculate due to rounding.
RESTAURANT BRANDS INTERNATIONAL INC. AND SUBSIDIARIES
Non-GAAP Financial Measures
Reconciliation of EBITDA and Adjusted EBITDA to Net Income
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RESTAURANT BRANDS INTERNATIONAL INC. AND SUBSIDIARIES
Non-GAAP Financial Measures
Reconciliation of Net Income to Adjusted Net Income and Adjusted Diluted EPS
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RESTAURANT BRANDS INTERNATIONAL INC. AND SUBSIDIARIES
Non-GAAP Financial Measures
Reconciliation of Net Leverage and Free Cash Flow
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Non-GAAP Financial Measures
Footnotes to Reconciliation Tables
SOURCE Restaurant Brands International Inc.
Restaurant Brands International Inc. is one of the world's largest quick service restaurant companies with over 27,000 restaurants in more than 100 countries and U.S. territories.