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Restaurant Brands International Inc. Reports Second Quarter 2020 Results

By: Restaurant Brands International |  0 Shares     99 Reads

• Drive thru and digital channels drive 30-point recovery in comparable sales across brands from end of March to June
• Reopened over 4,500 restaurants in the quarter, now 93% open globally
• Strong and flexible financial position with $2.5 billion of available liquidity at quarter end
• Building pipeline for return to strong net restaurant growth in 2021

TORONTO, Aug. 6, 2020 // PRNewswire // - Restaurant Brands International Inc. (TSX: QSR) (NYSE: QSR) (TSX: QSP) today reported financial results for the second quarter ended June 30, 2020.

Jose Cil, Chief Executive Officer of Restaurant Brands International Inc. ("RBI") commented, "The COVID-19 pandemic has introduced a host of unprecedented challenges, but our proactive and coordinated response across the globe has helped drive a significant recovery in performance since March. I am so proud of our restaurant owners, our restaurant team members, and our entire team at RBI for their incredible work and dedication in confronting this crisis. By the end of the quarter, we were back to 90% of our prior year system-wide sales with 93% of our restaurants open worldwide, which speaks to the strength and resilience of our three amazing brands and business model."

Cil continued, "During this crisis, the strength of our drive thru, digital and delivery channels has been a particularly important differentiator as guests have looked to us for a combination of safety, convenience, quality and great value that few can match. It was encouraging to see our investments in digital channels drive meaningful incremental sales in the quarter and we're excited that in our home markets, digital sales across brands grew over 120% year-over-year and more than 30% quarter-over-quarter."

"We are a growth company at our core and we are continuing to make progress behind important initiatives to invest in our product quality, service, brand marketing and digital platforms. We are also working closely with our restaurant owners around the world to build strong pipelines and restart our global development engine. We have a very healthy balance sheet and three exceptional brands with well-capitalized systems. This combination positions us very well to navigate through this crisis and continue on our path to deliver industry-leading system-wide sales growth and build the most loved restaurants brands in the world," added Cil.

"And, while we have been laser-focused on the recovery of our business this past quarter, we made sure that important long-term priorities didn't get lost. We launched our Restaurant Brands for Good framework and identified major projects under the pillars of food, planet and people that we believe are foundational to building globally loved restaurant brands," 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 Tim Hortons and Burger King and a decrease in supply chain sales, partially offset by an increase in system-wide sales at Popeyes. FX movements also contributed 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 second quarter was primarily driven by a decrease in Tim Hortons and Burger King segment income, partially offset by an increase in Popeyes segment income, a decrease in interest expense and a decrease in income tax expense.

The year-over year change in Adjusted EBITDA on a GAAP and on an organic basis was primarily driven by the decrease in Tim Hortons and Burger King Adjusted EBITDA, partially offset by an increase in Popeyes Adjusted EBITDA.

Our results this quarter continued to be significantly impacted by the COVID-19 global pandemic, but we saw a substantial improvement in business performance over the course of the quarter relative to the performance we saw during the onset of the crisis globally in March.

In North America and Asia Pacific substantially all of our restaurants were open as of the end of July. In Europe, Middle East and Africa approximately 90% of our restaurants were open as of the end of July, while in Latin America  approximately 80% of our restaurants were open as of the end of July.

Many of our restaurants are operating with limited service modes serving food through channels such as drive-thru, delivery, and take-out. We have started re-opening our dining rooms in numerous countries and regions in line with guidance from local authorities.

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 to see a continued impact from COVID-19 on our full quarter results in the third quarter.

TH Segment Results 

For the second quarter of 2020, the decrease in system-wide sales growth was primarily driven by comparable sales of (29.3)%, including Canada comparable sales of (29.9)%, as well as the temporary closure of certain restaurants related to the COVID-19 pandemic, partially offset by net restaurant growth of 1.3%.

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. This decrease was also driven by FX movements on a GAAP basis.

The year-over-year change in Adjusted EBITDA on a GAAP and on an organic basis was primarily driven by the decrease in system-wide sales. This decrease was also driven by FX movements on a GAAP basis.

Our results at Tim Hortons in Canada improved over the course of the quarter relative to results during the onset of the global pandemic in March. During the last two weeks of March, comparable sales decreased on average by a percentage in the mid-forties. As of the end of July, comparable sales performance had improved to the negative-mid teens on a percentage basis.

BK Segment Results

For the second quarter of 2020, the decrease in system-wide sales growth was driven by a decrease in comparable sales of (13.4)%, including a decrease in US comparable sales of (9.9)%, as well as the temporary closure of certain restaurants related to the COVID-19 pandemic, partially offset by net restaurant growth of 4.2%.

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 April. On a GAAP basis, FX movements resulted in a further decrease.

The year-over-year change in Adjusted EBITDA on a GAAP and on an organic basis was primarily driven by the decrease in system-wide sales. This decrease was also driven by FX movements on a GAAP basis.

Our results at Burger King in the US improved over the course of the quarter relative to results during the onset of the global pandemic in March. During the last two weeks of March, comparable sales decreased on average by a percentage in the low-thirties. As of the end of July, comparable sales performance had improved to flat on a year-over-year basis.

PLK Segment Results

For the second quarter of 2020, system-wide sales growth was driven by comparable sales growth of 24.8%, including US comparable sales growth of 28.5%, as well as net restaurant growth of 6.7%, partially offset by the temporary closure of certain restaurants related to the COVID-19 pandemic. 

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 on a GAAP and on an organic basis was primarily driven by system-wide sales growth.

Our results at Popeyes in the US improved over the course of the quarter relative to results during the onset of the global pandemic in March. During the last two weeks of March, comparable sales were approximately flat on a year-over-year basis. As of the end of July, comparable sales performance had improved to the positive high-twenties on a percentage basis.

Cash and Liquidity

As of June 30, 2020, total debt was $12.9 billion, net debt (total debt less cash and cash equivalents of $1.5 billion) was $11.3 billion, and net leverage was 5.6x. Our cash balance at quarter end reflects our decision to pay down the full amount we had drawn on our $1 billion revolving credit facility, which we had drawn out of an abundance of caution during the onset of the global crisis in mid-March. Our cash balance also reflects $500 million of First Lien Notes, which we issued 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 third quarter of 2020. The dividend will be payable on October 2, 2020 to shareholders and unitholders of record at the close of business on September 18, 2020.

Investor Conference Call

We will host an investor conference call and webcast at 8:30 a.m. Eastern Time on Thursday, August 6, 2020, to review financial results for the second quarter ended June 30, 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. The dial-in number is (877) 317-6711 for U.S. callers, (866) 450-4696 for Canadian callers, and (412) 317-5475 for callers from other countries.

About Restaurant Brands International Inc.

Restaurant Brands International Inc. is one of the world's largest quick service restaurant companies with approximately $32 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, our expectations regarding strategic initiatives and our restaurant pipeline, investment in marketing 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)
(Unaudited)

RESTAURANT BRANDS INTERNATIONAL INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In millions of U.S. dollars, except share data)
(Unaudited)

RESTAURANT BRANDS INTERNATIONAL INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In millions of U.S. dollars)
(Unaudited)

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
(Unaudited)

Selling, General and Administrative Expenses

Other Operating Expenses (Income), net

RESTAURANT BRANDS INTERNATIONAL INC. AND SUBSIDIARIES
Non-GAAP Financial Measures
(Unaudited)

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 (i) the non-cash impact of share-based compensation and non-cash incentive compensation expense, (ii) (income) loss from equity method investments, net of cash distributions received from equity method investments, (iii) other operating expenses (income), net, and (iv) income or expense from non-recurring projects and non-operating activities. For the periods referenced, this included costs incurred in connection with the  centralization and relocation of our Canadian and U.S. restaurant support centers to new offices in Toronto, Ontario, and Miami, Florida, respectively and  corporate restructuring and related tax advisory fees, including those arising as a result of the adoption of the Tax Cuts and Jobs Act (the "Tax Act") and the implementing regulations thereunder. Management believes that these types of expenses are either not related to our underlying profitability drivers or not likely to re-occur in the foreseeable future and the varied timing, size and nature of these projects may cause volatility in our results unrelated to the performance of our core business that does not reflect trends of our core operations. 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 our operating performance. 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 June 30, 2020 is the sum of the Adjusted EBITDA for the quarters ended June 30, 2020, March 31, 2020, December 31, 2019 and September 30, 2019, while LTM Adjusted EBITDA as of June 30, 2019 is the sum of the Adjusted EBITDA for the quarters ended June 30, 2019, March 31, 2019, December 31, 2018 and September 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 May 1, 2020, February 10, 2020, October 28, 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 June 30, 2020
(Unaudited)

The change in Adjusted EBITDA during the three months ended June 30, 2020 compared to the three months ended June 30, 2019 includes a decrease of $12 million related to the temporary mismatch between advertising fund revenues and expenses which had a negative impact of approximately (2.1)% 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
(Unaudited)

RESTAURANT BRANDS INTERNATIONAL INC. AND SUBSIDIARIES
Non-GAAP Financial Measures
Reconciliation of Net Income to Adjusted Net Income and Adjusted Diluted EPS
(Unaudited)

RESTAURANT BRANDS INTERNATIONAL INC. AND SUBSIDIARIES
Non-GAAP Financial Measures
Reconciliation of Net Leverage and Free Cash Flow
(Unaudited)

Non-GAAP Financial Measures
Footnotes to Reconciliation Tables

SOURCE Restaurant Brands International Inc.

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