Restaurant Brands International Inc. (QSR) Q3 2016 Earnings Report, Transcript and Summary

Good day and welcome to the Restaurant Brands International Third Quarter 2016 Earnings Conference Call. [Operator Instructions] 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 third quarter ended September 30, 2016. A live broadcast of this call maybe accessed through the Investor Relations page on our website 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, Josh Kobza. The team will be available to answer questions during the Q&A portion of today’s call. Today’s earnings call and presentation contains forward-looking statements, which are subject to various risks set forth in the press release issued this morning. In addition, this earnings call and presentation include non-GAAP financial measures. Reconciliations of non-GAAP financial measures are included in the earnings presentation and press release available on our website. Let’s start on Slide 2 with the agenda for today’s call. Daniel will start by reviewing third quarter highlights at Restaurant Brands International and will then discuss brand-specific performance at Tim Hortons and Burger King. Josh will then review consolidated financial results for the quarter, following which Daniel will share some concluding remarks before opening the call up for Q&A. And now, I would like to turn the call over to Daniel.

Thanks, Markus. Good morning, everyone and thanks for joining us on the call. I am happy to update you on the continued progress we made during the third quarter. Our biggest priorities at RBI are enhancing guest experience and growing profitability for our franchisees. The continued focus on these priorities has resulted in further profitability growth during the quarter. We reported adjusted EBITDA of $489 million and adjusted diluted EPS of $0.43 per share. This quarter, we also reached another milestone, achieving $24 billion in annual system-wide sales on a trailing 12-month basis. Let’s begin on Slide #4. We continued to grow our top line this quarter through same-store sales growth and net restaurant growth. At Tim Hortons, we continued to make good progress expanding the brand in both existing markets and new markets. In our existing markets, same-store sales growth of 2% and a year-on-year 3.4% increase in our restaurant footprint contributed to system-wide sales growth of 4.8% for the quarter. On the new market expansion front, during the quarter, we established a master franchise joint venture for Tims in Great Britain. This marked the second such international partnership for Tim Hortons since the creation of RBI, continuing the momentum from Philippines that we had announced at the end of last quarter. We also achieved continued growth at Burger King this quarter despite a more challenging QSR environment in some of our markets. Overall, system-wide sales grew by 7% in the third quarter driven by same-store sales growth of 1.7% and an increase in our restaurant count of 3.9% year-on-year. The growth in system-wide sales at both brands, combined with continued cost discipline, led to third quarter adjusted EBITDA of $489 million, up 11.3% on an organic basis versus last year. This translated into strong bottom line earnings growth, with third quarter adjusted diluted EPS of $0.43, up nearly 35% versus last year. Moving on to Slide 6. Let’s review the results for Tim Hortons, where we continued to see strong year-on-year EBITDA growth in the third quarter. Overall, adjusted EBITDA reached $287 million, up approximately 17% on an organic basis versus last year. This was driven by a combination of system-wide sales growth, expansion of our retail business where we recently launched our ready-to-drink Iced Capp platform and a continued focus on cost management. Strategic product launches within our core platforms, such as new reps, cold beverages and breakfast sandwiches helped us achieve same-store sales growth of 2% on top of the solid growth we achieved last year. We also accelerated our pace of net restaurant growth, achieving 28 net openings versus 22 in the same quarter of 2015. Further acceleration of restaurant growth over the long-term will be in part driven by our four U.S. development agreements and two international MFJVs signed over the last 12 months. We are pleased with the progress that these partners have been making and are working to add many new partners in additional markets in the future. Turning to Slide 7, we highlight Tims’ results in Canada, where we achieved 1.7% same-store sales growth for the quarter. Much of our growth in Canada is a result of our targeted expansion of in the lunch daypart and is being driven by new product launches in our core platforms. In the third quarter, we further grew our grilled wraps business with the launch of our Greek wrap and also increased our overall lunch combo penetration with the continued success for our potato wedges. The progress we are making in lunch is encouraging and we continue to focus on this daypart as an important opportunity for the brand in Canada. On the development front, we grew our year-on-year restaurant count by 3% in the third quarter through a mix of standard and nonstandard format. The continued opening of well-located restaurants in the brand’s home market, in addition to innovation in our retail business, are serving to improve our overall convenience for our guests, which allow them to experience our brand in new places and new ways everyday. Turning to the U.S. business on Slide #8, we achieved strong comparable sales growth of 4.5% during the quarter. Solid performance in coffee and cold beverages, along with our grilling breakfast daypart, were the main drivers of growth this quarter. We believe that our sustained momentum in driving higher average revenues per store in the U.S. will further solidify the brand’s compelling positioning in the world’s largest fixed service restaurant market. As it relates to restaurant development, we are pleased with the progress our partners in Minneapolis, Columbus, Cincinnati and Indianapolis are making towards delivering a robust pipeline in the United States. Our teams are working diligently with each of these partners to make sure we execute well on the first experience of our guests as we opened new locations and markets. Now, let’s review Tims International on Slide #9. This quarter, we achieved comparable sales growth of 8.4% driven by continued success in our wrap and Iced Capp platforms as well as the benefit from the timing of Ramadan versus the prior year. The Shawarma and Falafel wraps and Oreo Iced Capps we launched this past quarter were good examples of product innovation that stays true to our core platforms which also caters to the local taste of the guests in our diverse markets around the world. On the international development front, this quarter we announced the signing of a master franchise joint venture agreement in Great Britain, marking the second such international partnership for Tim Hortons since the formation of Restaurants Brands International. Great Britain is one of the most attractive quick-service restaurant markets in the world, with strong and growing coffee culture, making it a natural fit for the Tims brand. Our partner has significant local market expertise and experience in the quick-service restaurant industry and we look forward to supporting and then bringing the Tim Hortons restaurants to market. Now, let’s turn to Burger King on Slide 11. We grew our overall system-wide sales by 7% this quarter driven by a combination of same-store sales growth and net restaurant growth. Despite a more challenging quick-service restaurant environment in the U.S., improved performance in our international markets led to overall comp sales growth of 1.7% and net restaurant growth of 143 restaurants. APAC and LAC were notably strong contributors to the same-store sales this quarter, but our performance in these markets was partially offset by softness in the U.S. and Canada. On an aggregate basis, these factors drove our third quarter adjusted EBITDA to $202 million, representing an organic increase year-on-year of 4.2%. On Slide 12, the comparable US&C sales for the third quarter continued to be soft as challenging industry dynamics continued from the second quarter into the third quarter. We continued to make a balanced approach to menu architecture and marketing, with impactful product innovation focused around building at our core platforms finished our Cheetos Chicken Fries. As we move into the fourth quarter, we have refocused on our core with the introduction of the Bacon King as part of our premium platform and are pleased with our team’s execution of this product and our guests’ reaction. We are also making significant progress in speed of service, which is one of the largest drivers of guest satisfaction continue remodel a large number of restaurants in the U.S., all of which we believe will drive same-store sales in the coming quarters and years. On the development front, we are focused on opening well located new stores and renovating existing stores in our new BK restaurant image. Our improving new restaurant pipeline allow us to deliver improved net restaurant growth this quarter of plus 16 versus last year’s negative 20. On Slide #13, we highlight Q3 performance in EMEA. Comparable sales in EMEA grew by 2.6% in the quarter, which was a sequential increase versus the second quarter results for the region and much of this growth originated in Russia and Turkey. Our taco burger, another example of an innovative product which stays true to our core burger platform, but that also adopts local interest and trend helped to drive strong results in Russia. In terms of EMEA development, we are pleased to announce that this quarter our France JV completed the first conversions of quick restaurants to the Burger King in France. Openings in the country have been performing well, further strengthening our position in this great QSR market. We believe that the continued conversion of quick restaurants to Burger King in France, combined with momentum of our other master franchise partners, will enable us to accelerate development in our key EMEA markets. Turning over to Slide 14, we are pleased to announce that the strength in APAC has persisted through this third quarter. Our comparable sales growth of 5.3% for the second year in a row was primarily driven by China, Japan and Korea as we continue to build out those markets and increase our brand awareness. This quarter, we grew our year-on-year restaurant count by 18%, led by the additional of new restaurants in China and Korea. Given the vast population that resided in these countries and our current penetration levels, we are making an optimistic outlook for APAC overall. Our partners in this region are highly motivated to grow at an ambitious pace and we are dedicated to helping them achieve this success. Now let’s turn over to LAC on Slide 15. This quarter, we achieved same-store sales growth of 9.5% in LAC on top of the 11.4% achieved in the same quarter last year. The momentum experienced in the region over the last year has been led by Brazil and Argentina where our focus on the right promotions and great products has driven additional guests into our restaurant. In addition to growing sales in existing stores, we grew our restaurant count by 4% year-on-year, driven primarily by development from our MFJV in Brazil. We believe that there is an opportunity for meaningful growth in this region, which we will continue to pursue. I would now like to turn over to Josh to take us through the financial results for the quarter, following which I will end the call with some closing remarks.

Thanks Daniel. Let’s move to Slide 17, where we review RBI financial results for the quarter. The comparable sales growth and net restaurant growth achieved at both brands, combined with continued cost discipline, allowed us to maintain our double-digit growth rates in organic adjusted EBITDA and adjusted diluted EPS. Adjusted EBITDA for the quarter was $489 million, representing an increase of 11.3% on an organic basis versus the prior year. Adjusted net income increased 32.8% year-over-year to $201 million, primarily as a result of adjusted EBITDA growth. On an adjusted diluted EPS basis, we achieved $0.43 per share in the third quarter, up 34.5% year-over-year. On Slide 18, we highlight our year-to-date cash bridge. We have achieved strong free cash flows of $938 million in 2016, driven by year-to-date adjusted EBITDA of approximately $1.4 billion and lower capital expenditures than last year. During the nine months of the year, we paid a total of $450 million in preferred and common dividends and debt amortization, bringing our third quarter ending cash balance to just under $1.3 billion. On Slide 19, we lay out our current capital structure. As of September 30, 2016, our total debt balance was approximately $8.9 billion and our net leverage, excluding preferred shares was 4.2x LTM adjusted EBITDA, down approximately 0.7 turns year-over-year. Turning to Slide 20, on October 24, 2016, the RBI Board of Directors declared a dividend of $0.17 per common share and partnership exchangeable unit of RBI LP payable on January 4, 2017. RBI has established a history of making balanced capital allocation decision, one element of which is increase dividend for shareholders. And we are pleased to increase the dividend again this quarter as earnings continue to grow. I will now hand it back to Daniel for concluding remarks before moving to the Q&A portion of the presentation.

Thanks Josh. Despite industry softness in certain markets, we continue to make good progress growing both of our brands around the world this quarter through comparable sales growth and the opening new restaurants. We have a good pipeline of new restaurants in place to accelerate net restaurant growth and are excited by the development progress that our partners continue to make. Historically, our development tends to be higher in the last quarter of the year and we remain confident in our ability to convert our strong restaurant pipeline into a successful opening. Our strategy remains focused on delivering a great guest experience and profitability for our franchisees. We believe that our focus on these priorities well positions us to grow our brands around the world and achieve long-term value for all of our stakeholders. Thanks for joining us on the call this morning. And we will now open up the call for Q&A. Operator?

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Joseph Buckley of Bank of America. Please go ahead.

Hi, thank you. Could I sneak two in here? Can you talk a little bit about U.S. and Canada, just the competitive environment, did you see anything changing there. And then a more QSR specific question or some brand specific question, the franchise sales, franchise revenues ratio, actually franchise revenue to franchise sales ratio for the Burger King business was down this quarter and a little bit more than prior quarters, were there any franchise concessions made or any particular drivers of that change?

Hi Joe, it’s Daniel. Why don’t I – I will take the first question and maybe Josh can take the second one. Look, we have read the same reports that you read around deflation, through deflation at home which is potentially related to some softness in the industry. We haven’t seen anything materially different with respect to the competitive landscape. We have said this before. We are here for the long run, all the decisions we make, all the decisions we take are what we believe is going to be the best interest of our brands for the long run. The same strategy in place for Burger King brand since 2010, 2011, same strategy in place for Tims since we acquired the brand in 2014. When you deliver great guest experience, great value, great service and a nice atmosphere for our guests, that hasn’t changed from the beginning, well I would say on a marketing front is that we have always had a balanced approach. As you see as we enter the fourth quarter, we just launched in the Burger King probably just launched the Bacon King, which is actually on the premium side of our kind of our menu architecture. So we have always kind of pivoted kind of balanced approach in value and premium. And our overall strategy hasn’t changed regardless of the macro environment. Josh, do you want to take the second question?

Yes. Good morning Joe. I think, when you look at the – on the Burger King, the franchise revenue, you will always have a little bit of fluctuation quarter-to-quarter. But I think if you step back and you look at the year-to-date Burger King EBITDA growth, it’s pretty much in line with the system wide sales growth for the Burger King brand. And there aren’t any particular new franchise concessions that I would call out there.

The next question comes from Brian Bittner of Oppenheimer. Please go ahead.

Thank you. Thanks guys. I know you guys don’t give any type of guidance metrics on earnings or sales, but when we look at the way the model performed this quarter, is this – you had kind of 11%-ish EBITDA growth on the system wide sales growth that you have which I kind of view as pretty normalized system wide sales growth, is this kind of how you expect the model to perform on these type of system wide sales growth numbers going forward?

Hi Brian, it’s Josh. Thanks for the question. I would say that our – what we talked about consistently over time is that our goal here is to grow our brands around the world, to grow the sales of our existing restaurants and to grow the profitability of those restaurants for our franchisees and then to grow the presence of those brands in existing and new markets around the world. And everything that we do here is really focused on that. And we are really excited about all the projects that we are working on and the prospects of that for many years to come. I think that if we do those things and we continue to have the right culture of being focused on keeping our costs very disciplined and having ownership mindset around costs, then the growth rate and EBITDA will be the outcome. And we don’t have a specific target for that. And I think that if we are able to continue to grow our brands around the world and be focused on costs, we will be able to deliver a lot of value for all of our stakeholders for many, many years.

The next question comes from Will Slabaugh of Stephens Inc. Please go ahead.

Yes, thanks guys. I had a question on the Burger King side you mentioned you were improving around fee to service. I am curious what’s been happening there recently. Is that sort of on a metric standpoint are you improving from where you were? Had that slipped previously? Has that been a steady improvement? And sort of where you see that going in the future versus – and maybe how that’s stacked at versus where you have seen peers recently as well?

Yes, sure. It’s Daniel. Thanks for the question. As we spoke about before, our guests want great food at the right price and the right atmosphere and its quick-service, they want it fast. And we made speed of service a big priority for the Burger King brand last year when we installed drive-thru timers throughout our entire system, so we could accurately measure our performance and improve upon that performance and since we have made that a priority, we are pleased to say that we have made some considerable progress. We still have long ways to go, but we are much better today than we were a year ago. And a year from now and 2 years from now, I think we will be much better than where we are today and it’s a continuous improvement. As we said, we are here for the long run. We want to make sure we are delivering that great guest experience and this is just one of many factors that go into that.

The next question comes from Andrew Charles of Cowen & Company. Please go ahead.

Great, thank you. I am going to sneak in two as well. So, so far in 2016, you are trailing the number of net openings you had in the first three quarters in Burger King at all segments, except for APAC, with same year growth headwinds in Tim Hortons U.S. and the GCC region. So, just wondering this is just a little bit more broad based I think than more people are expecting, so can you speak to what’s driving the slowdown in the growth segments of the business and with development concentrated in 4Q, should we expect this dynamic to reverse? And just on a similar related question, just with the $18 million of year-to-date CapEx, obviously, it’s a big step down we have seen from $83 million last year. And so just hoping you could identify where the big savings have come from, Tims remodels there fewer year-over-year. Obviously, you guys are rolling off some VIE operator agreements. If we should expect 2016 to be a 4Q weighted capital spending year? Thanks.

Yes. Hi, Andrew, it’s Josh. Thanks for the question. So, I think as we look through net restaurant growth for the year so far, as you mentioned, it’s been relatively consistent in the Burger King business. I think we knew going into the year that we had a number of new master franchises in places like Spain, Germany. We had the quick transaction going on that. We are going to be back end weighted in the year. We have been really pleased, as I mentioned on the call, to see that we had the first quick conversions that opened here in the last couple of months and we have many more to come. So, I think we are really confident in the outlook for the full year and really excited to see some of our partners ramping up development there. If I look at the Tims business, in particular in the U.S., we are obviously going through a transition there. We are moving from kind of from a Tims led development model to a franchisee led development model and working on supporting a lot of our new area developers to ramp up their development and to go into a lot of new markets. So, we are really excited about the pipeline that we have and look forward to supporting them to open some great new restaurants in many of the markets in places like Cincinnati and Indianapolis and Minneapolis and many more over the coming quarters and years. So, we are really excited about what’s going to happen there. Obviously, there is a lot of work to do in the fourth quarter, but we are very confident in the outlook for the full year for global energy across both of the brands. With respect to capital expenditures, as you mentioned, capital expenditures have come down. That’s been a pretty consistent theme throughout the year and it’s been something that’s part of a big strategic focus that we have had of moving towards a franchisee-led development model. So, we expect that to continue into the future.

The next question comes from David Palmer of RBC Capital Markets. Please go ahead.

Thanks. Good morning. Two quick questions. In the slide, you mentioned the contribution from p.m. food at Tim Hortons Canada, and at the margin, I wonder if you are seeing a slowdown in the breakfast daypart and just in general in that daypart for the industry, could you give some color as to why and perhaps a game plan as to how you would want to reaccelerate growth there? And then emerging market comp seemed to be slightly better than expected at more than just Burger King, it seems to be a trend this third quarter. Do you see macros picking up in the emerging markets in a meaningful way? Thanks.

Hey, Dave, it’s Daniel. On the Tims’ front, we see – we have seen continued growth at both breakfast and lunch. Particularly in Canada, we see lunch as a big opportunity. We have, obviously, a large share of the lunch market, but we believe that we can have an even larger share and grow the size of our business there. We had launched earlier this year, we had launched potato wedges as a delicious side to complement our lunch sandwiches at Tims. This quarter, we kind of further built on our wraps platform with the launch of the Greek wrap and some other good lunch products. So, we are excited about the opportunity for future growth of the lunch business at Tims. And on the international question that you had asked, yes, look, we are excited about the international businesses that we have across both of the brands. We feel that our restaurant counts around the world are very under penetrated. We have great partners that we put in place in all of these key markets in Burger King and we are obviously working now with the same strategy for Tim Hortons. And as we develop restaurants and work with our partners, we are confident in the outlook for our brands. It takes some time from when you put these first development agreements in place the like Tim Hortons in Great Britain and in Philippines and we are working hard with our partners to find the right locations to build up the right supply chain to make sure when we open those restaurants, we deliver that great guest experience that enables us to sustainably grow our sales per restaurant and our franchise profitability per restaurant for the long run.

The next question comes from Alton Stump of Longbow Research. Please go ahead.

Thank you and good morning, Daniel and Josh.

Good morning.

Just a quick question looking at the U.S. business for Burger King, obviously, comps slowed particularly on to your stack basis versus last quarter. How much of that do you think is just the fact that you have got so many other second and third tier QSR guys that are out there discounting heavily? Is it more of that interview or are there things internally that you guys can do whether from a new product standpoint etcetera to bring some growth back to that brand heading in the 4Q and beyond?

Yes, it’s Daniel. Thanks for the question. It’s hard to comment on the quarter-to-quarter fluctuations, but if you step back a few years ago, the Burger King brand has around 1.1 million in ARS. And over the past 2 years through renovating our restaurants, focusing on operations, delivering great product and great guest experience, we have been able to grow that together with our strong franchise partners to $1.3 million per restaurant and significantly increased the profitability of our franchisees at the same time. It’s hard to comment on kind of the macro trends from quarter-to-quarter. Our strategy has remained the same throughout. We are here for the long run. And in the long run, we are delivering that great guest satisfaction, great products and strong franchise profitability is what’s going to drive our brands. We believe in a balanced approach. Sometimes we offer more value. Other times we offer more premium. As we entered into the fourth quarter, we shifted to launch a delicious bacon double cheeseburger which is more on the premium end. And again, there is no kind of single product or promotion to talk to you and it’s hard to comment on the macro, but the strategy has been the same all along, which is to drive guest satisfaction and drive franchise profitability, which in the long run will be the key drivers for the success of the brand.

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

Thanks. Good morning. Just going back to the sort of this question about the overall margin of the business, but I guess maybe focusing on Tims, where are you in the progression that – at Tims in terms of your improvement in the cost structure in the business and various issues we have had last two quarters have sort of showed sequential margins that are stable. So, is that the right way to think about it ex maybe just the natural leverage you get from any fixed cost leverage? And then on the Tims breakfast business in Canada, I don’t think you answered that question, what’s going on in the dynamic in the breakfast business at Tims in Canada? Thanks.

Yes, John, maybe I will take the breakfast question. I will let Josh take the margin question. We are continuing to grow across all dayparts in Tims Canada. We have grown breakfast and we have grown lunch. What I had addressed earlier was that we see lunch as a huge opportunity for us for many, many years.

And John, on the Tims margin side, I think your point is exactly right, if you look at the margin profile across the different lines of the business, especially if you look sequentially versus the second quarter, you see a decent amount of stability. There is always a little bit of fluctuation, but you are starting to see more stability in the business. And I think that really reflects where we are focused today, which is that we are really focused on growing the brands around the world. And that’s why you hear us talking about and you see us spending a lot of our time fixing on how we are going to grow the Tim Hortons brand in the U.S., how we are going to grow the Tim Hortons brand in international markets in places like the Philippines and Great Britain and many other markets that we are working on and how we can grow the sales of our existing restaurants across all of the dayparts and product categories that we are involved in. I think that’s really where our growth is going to come from in the future. And that’s where we spend our time and that’s what we are really excited about.

The next question comes from Karen Holthouse of Goldman Sachs. Please go ahead.

Hi. Thanks for taking the question. There is a couple of quarters in a row now that you have mentioned retail sales for Tim Hortons as part of the business that’s performing well, so I guess just curious if you could put some guardrails around how big is that business, how meaningful is it. And then to the extent that you are driving growth, how much of that is sort of product innovation versus expanding points of distribution versus marketing the existing product line better? Thanks.

Hi Karen, it’s Josh. Thanks for asking the question. Retail is something to your point is something we have talked about more and more and it’s something that we are quite excited about. It’s a piece of the business that we brought new focus on. We put additional resources into. And I think you really hit on a number of different areas where we have been able to grow the business. We found additional distribution channels that we weren’t involved in before. We have also seen a number of areas where we can drive product innovation. And you have seen a couple of new things there in the recent months as well where we launched ready to drink Iced Capp platform across Canada that we are really pleased with, it’s just getting started. But it’s something that we think has a big future. So I think that the team there has done a really remarkable job of finding new ways to bring this really great brand to our guests across Canada and in the U.S. in a number of different ways and formats. And we are really pleased with that performance and it’s become an important driver of our results lately. So we are quite pleased with it.

The next question comes from David Hartley of Credit Suisse. Please go ahead.

Yes. Thanks. I just want to follow-up on the cost side of things, I have noticed that there has been potentially some variable cost improvements as well with renegotiated contracts with some suppliers, now without getting into the details at that, could you talk a little bit about those kind of opportunities, are we more or less fully through that based on your commentary about solidified cost picture, any color there would be helpful?

Hi David, it’s Josh again. Thanks for the question. As I mentioned in one of my prior responses, I think when you look at the margins kind of sequentially, you will see that they are pretty stable. And I think that that really highlights that most of the cost opportunities are sort of behind us at this point. And what we are really focused on at this point is growing the business, growing our sales and growing our restaurant footprint around the world as we think that’s going to be really what drives our growth, the growth in our profitability and the growth in our franchisees profitability for the future.

The next question comes from Mark Petrie of CIBC. Please go ahead.

Hi, good morning. I am wondered if you could just comment related back to the whole speed of service discussion, if you could just talk about your mobile strategy and maybe the relative status or expectations for Tims versus BK?

Yes. Hi. Thanks for the question, it’s Daniel. We, as you know, we acquired a startup with some great engineers and software developers to develop what we hope to be best-in-class mobile apps with great benefit to our guests across both of the brands. That was late last year. We have been actively working with our teams over the past many months and we are getting closer and closer to being able to roll something out. And we are really excited about – really excited about the idea of giving our guests yet another channel to access our brands and to improve the overall guest experience. And we look forward to updating you on all of that in the coming quarters.

The next question comes from Peter Sklar of BMO Capital Markets. Please go ahead.

Another question about the cash balance that Restaurant Brands is carrying, so with the reduction in CapEx that you have experienced, particularly with the reduction of CapEx at Tim Hortons, you continued to grow your free cash flow and you have a cash balance, I believe, I believe it’s around $1.3 billion, so I am just wondering what’s your attitude is towards carrying that much cash on the balance sheet and is it necessary to have that level of cash?

Hi Peter, it’s Josh. So I think if you look back over the last couple of years, we have had a pretty balanced approach to how we allocate capital across debt pay-downs, dividends to shareholders and share repurchases. And I think that will be our attitude going forward. I think as you look into next year, it’s important to consider that we have – we do have the first call date on our bonds at the end of 2017 and the first potential redemption date on our preferred shares. So I think as we get through the rest of this year and get into the next year, we will continue to look at our cash balance and think about kind of what the best timing and allocation is around those – that cash balance. It’s something that we will continue to evaluate.

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

Thank you and thanks everyone for joining us today. We continue to be very excited about the outlook for both of our great brands for the long run. And we look forward to updating everyone early next year. Thanks a lot.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.