Good morning and welcome to the Restaurant Brands International Fourth Quarter 2018 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Chris Brigleb, 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 fourth quarter and full-year ended December 31, 2018. I'm pleased to join you today as RBI's new Head of Investor Relations, taking over from Markus. I've been working closely with Markus over the last few months and I'm looking for to working closely with all of you. As a reminder, a live broadcast of this call may be accessed through the Investor Relations webpage at investor.rbi.com and a recording will be available for replay. Joining me on the call today are Restaurant Brands International's Co-Chair of the Board, Daniel Schwartz; CEO, José Cil and CFO, Matt Dunnigan. Daniel, José and Matt will also be joined by our COO, Josh Kobza for the Q&A portion of today's call. Today's earnings call contains forward-looking statements, which are subject to various risks set forth in the press release issued this morning and in our SEC filings. In addition, this earnings call includes non-GAAP financial measures. Reconciliations of non-GAAP financial measures are included in the press release available on our website. Let's quickly review the agenda for today's call. Daniel will start some opening remarks and highlights for the fourth quarter and full-year on a consolidated basis and at Tim Hortons and Popeyes. José will then discuss our results at Burger King and Matt review consolidated financial results before opening the call up for Q&A. I'd now like to turn the call over to Daniel.

Thanks, Chris, and good morning, everyone. Thanks for joining us on today's call. As you probably saw a few weeks ago, we recently announced some exciting leadership changes at RBI. Given how recent these organizational changes are for this quarter's conference call, I will discuss our key results for the consolidated business at Tim Hortons and Popeyes while José will walk through our results at Burger King. Going forward, José will be taking the lead in discussing our business results across all three of our brands on investor and earnings calls. In 2018, we continued to deliver strong growth in our top and bottom lines. On a consolidated basis, we grew our system-wide sales by nearly 7.5%, driven by comparable sales of roughly 1% to 2% at each of our three brands and consolidated net restaurant growth of 5.5%. This strong top-line growth allowed us to achieve 2018 consolidated adjusted EBITDA of $2,212 million, representing an organic year-on-year increase of over 4%. We also grew our adjusted diluted EPS by over 25% to $2.63 per share, up from $2.10 per share in the prior year. At Tim Hortons, system-wide sales grew by nearly 2.5% in 2018, driven by net restaurant growth of 2% and comparable sales of 0.6%. In the fourth quarter, Tim Hortons’ comparable sales continued to accelerate to 1.9%, reflecting sequential improvements in Canada comparable sales to 2.2%, as well as continued improvement in the Tim's U.S. comparable sales. At Burger King, we achieved 2018 system-wide sales growth of nearly 9%, reflecting net restaurant growth of 6% and comparable sales of 2%. Our fourth quarter global comparable sales of 1.7% reflected sequential improvements in U.S. comparable sales of nearly 1%. At Popeyes, we grew our system-wide sales in 2018 by nearly 9%, driven by net restaurant growth of…

Thanks, José. In 2018, growth in our top-line resulted in adjusted EBITDA of $2,212 million or $2,247 million under prior accounting standards, up over 4% organically year-over-year. As a reminder, for comparability purposes, we are presenting the 2018 organic growth figures, both on a constant currency basis, as well as under previous accounting standards in both periods. Our full-year adjusted net income was approximately $1,242 million or $1,267 million under prior accounting standards. This compares to prior year results of roughly $1 billion. And the year-over-year increase was driven by adjusted EBITDA growth and the accretive redemption of our preferred shares in December of 2017, partially offset by higher effective tax rate and unfavorable foreign exchange rate movements as compared to last year. Our 2018 adjusted diluted EPS was $2.63, up over 25% from $2.10 in the prior year. In the fourth quarter of 2018, our growth in organic adjusted EBITDA under previous accounting standards was somewhat lower than the third quarter, including at Burger King despite the fact that we sequentially improved our Burger King system-wide sales growth. We wanted to highlight a few key reasons for this. Each of which pertains to impacts from prior year events or to items that we believe are less likely to be as impactful prospectively. First, under previous accounting standards, we recorded roughly $11 million of lower fees and other income in Q4 of 2018, as compared to Q4 of 2017. Of that $11 million, roughly $6 million was attributable to Tim Hortons and $5 million was attributable to Burger King. Our lower fees and other income at Tim Hortons includes, among other items, fewer restaurant openings in the fourth quarter of 2018 relative to the prior year period. Our lower fees and other income at Burger King includes, among other items,…

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from John Glass of Morgan Stanley. Please go ahead.

Thanks and good morning. Daniel, José, in the past, you’ve spoken a little bit about franchisee profitability in your major markets. And maybe if you could just comment on where you think 2018 ended, up, down, flat for franchisee profitability? And I did want to just clarify the question on the Burger King profit growth in 2019. Do you think that it’s closer to what you think system sales growth is, or do you think there are still some headwinds in the BK EBITDA, adjusted EBITDA growth in ‘19 as well? José Cil: Hey, John. It José. Thanks for the question. Average -- on franchise profitability, we saw average profitability go up at Burger King; and at Tim's, we saw it flat; and at Popeyes, we saw it flat to slightly negative year-over-year. But we continue to see really healthy returns in the business, especially at Popeyes and in the U.S. Tim's and Canada and BK at the U.S. Our focus continues to be on driving top line sales. We know that when we have balanced menu offerings and calendar promotions that we drive top-line and that has a big impact on the bottom line. That's the focus that we continue to strive for in our business.

Yes, John. It's Matt here as well. Just to your question on profitability, I think, we wanted to provide some color in the prepared remarks and call out some items that affected the year-over-year comparability. We talked about some significant franchisee renewals that occurred in 2017 that affected the compatibility that we would not expect to recur going forward. However, we're not providing any guidance on profitability targets.

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

Great. Thanks for the question. I just wanted to circle up on unit growth. I think, on the recent preannounced call a few weeks ago, you mentioned acceleration at the Burger King and Popeyes brand going forward. I just wanted to clarify, are we talking about net units growth as a percentage accelerating going forward. And I guess, specifically the question is for Burger King there, just given the kind of growth you're already seeing in absolute units, and just specifically, what the key drivers are? Is it coming from a lot of those countries, José, that you just mentioned? Is there still opportunity for new development agreements in different countries to be signed? Just any commentary on the unit growth beyond what you mentioned already? Thanks. José Cil: Hey. Thanks for the question, Dennis. We continue to open great restaurants in markets all around the world, including as we mentioned earlier, 100 net openings in the U.S., which is the best performance in a long time. Our results included acceleration in some markets, partially offset by slower growth in other markets versus the prior year. Now, I don't like to look back too often, but I think it's helpful in this case, to better understand how net restaurant growth has evolved through BK over the last several years. And you’ll recall, not too long ago, we were growing at a very modest pace of 1% to 2%, and we stepped up the pace of development the last two years and have crossed the 1,000 net openings threshold, which is more than 6% net unit growth each of the last three years. How did we do this? First, we’re still severely underpenetrated and have tons of white space to grow in most markets around the world including right here in the U.S. Second, we have we strong master franchise or development partners with really great teams and in some cases we own a minority stake in these master franchise JVs where we have a seat at the table. I think, third, we're seeing strong new unit economics with compelling returns and tremendous value creation for our franchise partners in many markets. Fourth, we have our BK case teams on the ground continuing to work closely with our franchise partners to drive improved guest experience and franchise profitability. And finally, our franchise partners have solid new restaurant pipelines and are improving in most key markets around the world. So, it's no surprise that we continue to be excited and confident in the long-term prospects for growth for the BK brand all around the world. And I think one final point that it's this experience with BK that gives me confidence in our ability to accelerate growth for Popeyes and Tim’s around the world.

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

Hey, guys. This is Brian on for Andrew, and thanks for taking the question. I appreciate the color on Tim's remodel program. I think, this is the first time we're seeing a breakout for the tenant inducements paid to franchisees. Could you just give us a sense of how much of this went towards Tim's? Thanks.

Yes. Hi, Brian. Thanks for the question. It’s Matt here. Yes. We called out a couple of the -- couple of items that would affect year-over-year comparability, just to provide some color. On fees and other income, we said that total impact was about $11 million. It was roughly split half and half between Tim's and BK in terms of that impact. And we also had some temporary reduction in sales from the Welcome Image renos, which you pointed out. We haven't quantified this. But, we wanted to make note of this for you as we significantly increased our pace of remodeling in 2018 versus prior years and renovated close to 400 restaurants in the Tim’s system. We expect to keep up a strong pace of remodeling going forward. So, as we continue on with this program, which we think is strategically important for the brand, to evolve the brand and guest perception in Canada, we'd expect that pace to continue into 2019.

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

Hey, good morning. I just wanted to ask about Popeyes. I understand that the international growth opportunity is significant, but the U.S. comp has remained challenged. So, I just wanted to focus on that. And you’ve spoken in the past about striking a better balance on sort of menu and promotions. And we've seen some evidence on the value side, and as you said, the family offer. But, I guess first, are you satisfied with that balance in Q4?And then, more broadly speaking, what do you need to do differently in order to accelerate the U.S. comp. José Cil: Thanks for the question, Mark. It's José. As we mentioned, early in Q4, we experienced softness in the family layer of the menu, as we kind of rolled off of our $20 offer with no immediate replacement. And we corrected that in December and the business reacted well. Additionally, in December and in the fourth quarter, we saw less impact from our LTO promotions. And we're working -- as we speak, we're working on maintaining a balanced calendar, highlighting -- as Dan mentioned in the prepared remarks, highlighting our culinary innovation with more impactful LTOs while maintaining strong single guest and family bundle offerings. We think that's the right formula for the business going forward. We're also working on rolling out a unified POS solution for Popeyes in the U.S., which is going to help us have a better understanding of sales and product mix and help us evolve our marketing strategies further. And what's encouraging is that we continue to work well with our Popeyes franchise partners in the U.S. focusing on the guest experience, driving more guests into our restaurants and improving their franchise profitability. Thanks for the question.

The next question comes from David Tarantino of Baird. Please go ahead.

A couple of questions on Tim Hortons comps. First, can you please just clarify whether this impact from the remodeling is embedded in the comps or whether you take those units out of the comp base temporarily? And then, second, just on the question of sort of the improvement you saw throughout 2018, just wondering what your thoughts are on the sustainability of that trend. And then, I think you referenced being excited about some initiatives you have coming up, if you could just elaborate on what you're most excited about for 2019?

Hi, David. It’s Matt. Thanks for the question. As it relates to the impact on Tim Hortons comparable sales, because the restaurants that we’re renovating are closer period of time, they're not included in the comparable sales metrics as they’re non-comparable. José Cil: Thanks Matt. David on your second question, we were really excited to see sequential comps growth in Tim's Canada in the fourth quarter. And as we've mentioned, we're confident that our Winning Together plan is taking hold, it’s resonating with our guests in Canada, and our restaurant owners are engaged and executing well. You’ll recall that the Winning Together plan features three pillars, product excellence; restaurant experience; and brand communications. And in the fourth quarter, we hit on all cylinders. And we saw continued growth in the Breakfast Anytime platform; we saw good growth from beverage innovation, which is at the heart of our Tim's business; we saw some good performance with the Hershey’s Hot Chocolate, Candy Cane Hot Chocolate, and Holiday Lattes. We also had a really strong advertising and communications plan, which connected well with our guests including the True Stories campaign that you'll see more of in 2019, and we had a good hockey card promotion, and we launched Timmies Minis in the quarter as well. I think going forward, we don't give too much -- we don't give guidance on performance going forward, but we do feel confident in the plan that we have. We do feel confident in the pillars of the plan. And there's never a silver bullet in this business. It's about executing the plan consistently and working well with our franchise owners in Canada to deliver great experiences every day through each of the platforms.

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

José, I wanted to ask you about the global rollout of the Tim Hortons brand. I mean, you know that Tim Hortons is one of the strongest brands inside Canada, but outside Canada, maybe with the exception of Buffalo, just the banner is not well-known. It's not going to be like rolling out Burger King, as you know which is an iconic global brand. So, just wondering what your thinking is in terms of brand value outside of Canada, and why you're so confident that the brand is going to be successful, as you rollout through your master partners? José Cil: The coffee segment in QSR is growing tremendously across the globe. And we're encouraged with early signs coming from our Tim's international business. Some markets of course are doing better than others, but we feel good about how consumers are engaging with the brand in all of our new markets. We've done a lot of work over the past year or so, adapting the concept internationally and proving restaurant profitability. We've adapted the brand more to the consumers’ needs and wants in each of our local markets. And we feel that the business is in a better place today to grow sustainably and profitably. Beverages are doing really well. Guests like the quality and the variety, and we made some adjustments on the food side, as you can imagine. And not surprisingly, consumer preferences vary from market to market. What's great is that we have amazing franchise partners in our new markets across the globe, and they and we remain super excited and confident in the long term growth prospects of the Tim’s international business.

The next question comes from Gregory Francfort of Bank of America. Please go ahead.

Hey, guys. I think, McDonald's had disclosed that franchisee cash flow in Canada was down on minimum wage increases in 2018. I guess, the flat number was very impressive to me. Is that the mix of products or labor management tools you've been adding recently? What have you done on the margins that sort of offset some of the minimum wage pressures you've seen? José Cil: Thanks for the question, Greg. As I mentioned earlier, the profitability was solid in Tim’s in Canada year-over-year. I think the top-line growth that we saw sequentially quarter-over-quarter in 2018 had a positive impact on overall franchise profitability and restaurant level profitability. What we focus on, we see movements up and down in cost in our business on a regular basis. It's part of QSR and it's been part of QSR for a long time. Our focus is on driving top-line, bringing more guests into the restaurants driving profitable growth. When that happens, the P&L reacts quite well. And we're excited about the prospects going forward.

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

Hi. Thank you for taking questions. On the Burger King remodel, how long do you think it will be to go from sort of prototype of restaurant in the future to really launching that out to the system? And what sort of metrics are you targeting, what are investments relative to annual cash flows, sales [ph] to investment ratio, that sort of thing? José Cil: Hey, Karen. Thanks for the question. This is José. We've made good progress in 2018 since announcing the BK of Tomorrow restaurant image, and we have a strong pipeline for renovations in 2019. And we've been reimaging our restaurants in the U.S. and across the globe for years now. This is a big part of the business. It’s the right thing to do for our guests and the business case is strong. Franchise feedback continues to be positive and our franchisees are particularly excited with the technology elements of the remodels and the focus on the exterior and the drive-thru. Keep in mind that many of the elements of the BK of Tomorrow program, especially the double drive-thru, the outdoor digital menu boards, these were born from initiatives led by our franchise partners. As the vast majority of our sales in the U.S. are through the drive-thru, everyone agrees that it makes a lot of sense to focus our efforts on improving guest experience through these elements, especially with double drive-thrus and outdoor digital menu boards. We're just getting started in the process and we look forward to sharing more with you on our progress with BK of Tomorrow in the coming quarters and at our investor conference in May.

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

Yes. Thanks, guys. I had a question on Burger King and franchisee profitability. You had more deals going on this quarter than normal; I think 2 to $6 [ph] price point and $1 nuggets. So, I was curious how that impacted franchisee profitability in the fourth quarter versus the rest of the year. And maybe, if you could speak to this year versus prior year’s just from a percentage standpoint. And then how sustainable you feel like the current deal environment or deal structure that you have is? And lastly, if you could talk about sort of your discount mix today versus where it's been? Thank you. José Cil: Well, thanks for the question. As I mentioned, average price probability was at Burger King in the U.S. was up versus the prior year versus 2017. And what's important is to drive comparable sales growth. And we saw improvements of comp sales sequentially in Q4 through, as I mentioned earlier, a focus on a balanced menu and more compelling promotional activity. The results continue to be strong. There's always going to be pressures on our restaurant profitability. You'll see it go up and down on commodities; you see it go up in down in labor cost. Our focus continues to be and the work that we do with our franchise partners in the U.S. continues to be focused on driving the top-line through a balanced approach with value offerings, core especially focused on our Whopper and crispy, whole muscle crispy chicken sandwiches and compelling premium offers and an ever growing digital presence, which we think will drive more guests into the restaurants, drive the top line and help us improve bottom line performance. Thanks for the question.

The next question comes from Jon Tower of Wells Fargo. Please go ahead.

Great. Thanks for taking the question. I was just going to go back to Tim Hortons loyalty. I know it's in test now, and you mentioned some data points during the prepared remarks. So, I'm just curious, I think roughly 8 out of 10 cups in Canada are drink -- that are drink are Tim Hortons branded. So, I'm curious to get your thoughts on how you manage the program as to incent greater frequency to the stores versus potentially giving away the product given the high usage today? José Cil: Thanks, Jon. You're well informed. You're right. As the coffee leader in Canada, we sell nearly 8 out of 10 cups of coffee in Canada. And we're constantly looking for new ways to interact with our guests and reward those loyal guests that come many times, more than once or twice a day. We're currently in the middle of the testing of the loyalty program. We've actually implemented various different tests with different programs structures, some analog, some digital. We've seen very high loyalty adoption rates in many of these test markets and adoption rates, as high as 20% to 30% of transactions in some of the markets. We are still finalizing the test results and making decisions on which are going to be the final mechanics that we roll out to the system. And we'll be doing so in the coming months on a national rollout. So, we look forward to sharing more with you on that in the future.

The next question comes from Jake Bartlett of SunTrust. Please go ahead.

Great. Thanks for taking the question. My questions were about Tim Hortons’ unit growth. and just wondering, in the U.S., you’ve slowed here. Is the plan to wait until as you’re really kind of focusing on same store sales for next few years, or is it a matter of seeing the same-store sales momentum build? And then, kind of more quickly, reaccelerate unit growth to the prior pace in Canada? And then, internationally, if you could help by desegregating how many -- whether they were net units opened in the U.S. or maybe net closures, just to get a better sense as to the momentum in international markets. José Cil: Thanks, Jake. In Canada, as we mentioned, we moderated net restaurant growth in 2018, and we chose to be more selective in our development approach and site selection. I think, in the U.S., it's been a bit slower in 2018, relatively flat year-over-year. But, we're committed to growing the brand with our partners for the long haul. We've seen good progress in building the top line and franchise profitability. We saw good performance in Q4 from a sales standpoint, and that's encouraging to us with the business model getting stronger. And we look forward to making progress on the development front in ‘19 and beyond. And internationally, as I mentioned earlier, we're excited about the -- how we started with Tim Hortons in the new markets that we've launched the brand and we've done well with beverages. We're adapting the food offering and we have great franchise partners that believe in the brand, believe in the offer -- the product offering and are excited about investing long-term in Tim Hortons internationally.

The next question comes from Jeremy Scott of Mizuho. Please go ahead.

First of all, really appreciate the initial disclosures. I think that definitely helps a lot. And then, a three-part question on Popeyes and the international development. It looks like the pacing of development picked up this year. First, as you're signing these new master franchisees, are you allotting some flexibility in the first couple of years for your partners to develop a nucleus of the branch or should we expect a steady march upward? And then second, the partners that you're seeking, I think when you made the acquisition, the thought was that you're going to be able to plug in the Popeyes brand as your established BK partners. Wonder, if you can share an update there? And then, thirdly, can you share how you're addressing the awareness gap in the early stages as you go against some of the more established players? You mentioned a strong opening in Brazil. So, maybe some insight on your marketing strategies? Thanks. José Cil: I think, a couple of comments here. It's hard to build restaurants internationally. The focus for us is to have great partners, well capitalized with great teams and exciting business plans to grow the Popeyes brand around the globe. And so, we've got -- we've started well with Burger King Brazil, opening eight restaurants in the fourth quarter in 2018, and we're excited about the prospects there. We think we have really long-term opportunities for growth with Popeyes in many markets internationally. I think, the challenge which is an exciting challenge from an awareness standpoint, it's just to open restaurants. That's how we drive awareness with the brand initially. It happened to Burger King years ago, it's happening with Tim Hortons in several markets, it's happening with Popeyes in the U.S. And so, the focus for us is to have great partners, well-capitalize with good teams focused on developing the brands in each of the markets in which we open. And we look forward to sharing more with you on in upcoming calls and our investor conference in May.

This concludes our question-and-answer session. I would like to turn the conference back over to José Cil for any closing remarks. José Cil: Thanks everyone for joining us on the call this morning. And we look forward to updating you further on our next earnings call in April, as well as at our upcoming Investor Day on May 15th in New York City. As a reminder, attendance will be by invitation only, and we will broadcast live via our Investor Relations website. If you have any additional questions, feel free to reach out at investorday@rbi.com. Thank you all, and have a good day.

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