Good morning. And welcome to the Restaurant Brands International Second Quarter 2019 Earnings Conference Call. All participants will be in listen-only mode. [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 second quarter ended June 30, 2019. As a reminder, a live broadcast of this call maybe 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 CEO, José Cil, and CFO, Matt Dunnigan. 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. José will start with some opening remarks and highlights for the second quarter and then discuss our performance at Tim Hortons, Burger King and Popeyes. Matt will then review financial results before opening the call up for Q&A.I'd now like to turn the call over to José. José Cil: Thanks, Chris. And good morning, everyone. I'd like to start with a quick summary of the second quarter results and then spend some time sharing my views on the key drivers of our performance and the confidence we have in our plans for each of our brands to continue driving strong systemwide sales growth around the world.Overall, we had a strong quarter with nearly 8% consolidated systemwide sales growth and surpassed 26,000 restaurants worldwide, including over 18,000 at Burger King.Our systemwide sales growth was led by Burger King at nearly 10%, Tim Hortons at just over 1.5% and Popeyes at nearly 9%. Our results in the quarter were highlighted by strong global…

Thanks, José. And good morning, everyone. In the second quarter, systemwide sales growth across each of our brands led to consolidated adjusted EBITDA of $580 million, up more than 6% organically year-over-year.This quarter, ad fund revenues exceeded expenses by $2 million more than they did in the second quarter of last year and impacted our consolidated organic adjusted EBITDA growth rate by approximately positive 0.3%.As we have mentioned in the past, while in some quarters there may be a mismatch in the timing of revenues and expenses, in the long run, these ad funds are managed such that the total cumulative revenues equal expenses.At the segment level, Tim Hortons second quarter adjusted EBITDA was $287 million, which represents a 3.5% organic increase year-over-year. This increase was driven by systemwide sales growth of 1.6% and the expansion of our retail business, which has grown meaningfully over the last few years.Also, substantially, all of the positive $2 million year-over-year intact to consolidated adjusted EBITDA related to the timing of ad fund revenues and expenses was attributable to Tim Hortons.At Burger King, second quarter adjusted EBITDA was $252 million, representing a year-over-year organic increase of 10%. This increase was driven primarily by systemwide sales growth of just under 10%, driven by continued momentum in global net restaurant growth of nearly 6%, including nearly 10% internationally, and global comparable sales growth of 3.6%.Finally, at Popeyes, this quarter's adjusted EBITDA was $41 million, which is up 4.6% organically year-over-year. This increase was driven by systemwide sales growth of about 9%, including net restaurant growth of over 6% and comparable sales of 3%, partially offset by slightly higher segment G&A, primarily related to the year-over-year timing of certain expenses as well as some costs related to organizational changes.Our second quarter adjusted net income was $331 million.…

[Operator Instructions]. The first question comes from Dennis Geiger of UBS. Please go ahead.

Good morning. Thanks for the question. José, just wondering if you could talk a bit more about plant-based and what you're seeing. I think you noted healthy levels of incrementality in new customers at the brands, but just wondering anything more on incrementality on repeat orders, other relevant feedback and data points?And, I guess, related, you've got a bunch of initiatives that you've put in place especially at Tim's to drive sales and franchisee profitability. Just wondering if you could help frame kind of what you view as having the greatest potential for incrementality. Thank you. José Cil: Hi, Dennis. Thanks for the question. On plant-based, as we've kind of mentioned over the last few quarters since the launch of – or the test of Impossible in St. Louis back in April, we're excited. We've done a lot of research on this and spoken to a lot of guests. And it was an insight that our teams have found in the research that there was an opportunity to kind of address a real, strong and growing demand in our business at Burger King and we saw the same thing with Tim's in Canada because guests are demanding and looking for more options and alternatives. So, it's kind of core to our marketing teams in the way we look at the business that we've tried to understand in as much detail as possible what it is that guests are looking for and we give that to them with a great tasting quality and options that we have in our business at Burger King, at Tim's and Popeyes as well for different products.So, we feel really good about it. We've tested both Impossible at Burger King in the US, we've tested other plant-based products in other markets in Europe and we're seeing…

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

Hey. Good morning. You called out the positive impact of your efforts on digital and delivery in some of your international markets for Burger King. Can you just recap where you're at in the US, the impact it's had on your business so far in 2019 and how you can accelerate that for the rest of the year and then into 2020?

Yeah. Mark, it's Josh. Thanks for the question. So, we're really pleased about how we've done with on both those fronts, particularly at Burger King. Also about the potential for the second part of the year.I would say, on delivery, we've made progress on rolling out delivery through a large part of our system and we're in about 3,500 restaurants today with Burger King. And we've seen pretty significant growth in terms of the sales per restaurant per day as we've continued to grow coverage.And as we go through the rest of the year, I'd expect to see that to continue to grow. We started to work with Uber Eats and we're working on expanding our rollout with Uber Eats quite rapidly over the next few months, such that we'll have really significant coverage with multiple aggregators within just the next few months here.So, we think we've made a lot of progress with delivery and we expect to make a lot more progress over the next quarter and the remainder of the second half.I think even more broadly, I think you've seen us focus a lot on growing the importance of our mobile app and engagement through the mobile app. We did that at the end of last year with Whopper Detour and we've continued to focus a lot on engagement through the app in the beginning of this year. We've continued to grow app downloads and our monthly active user base. We've had some pretty compelling offers in the app. And I would say that engagement in the app and the presence of that in our business has grown very systematically throughout the year. So, we're excited about making digital an even more important part of our everyday business and think we've made some pretty good progress throughout this year so far.

The next question comes from Eric Gonzalez of KeyBanc Capital Markets. Please go ahead.

Hey. Thanks for the question. Good morning. It seems like you had a lot of success on the Tim's mobile app and the loyalty program, drawing customers in right out of the gate. I'm just wondering if you could talk about the user growth and how that's trended since the last update.And then, you mentioned personalized marketing is on deck with that program. Can you talk about maybe when that will launch?And then, related to that, you mentioned that same-store sales was neutral, but it was driving traffic. I was wondering if you could bridge that gap for us. Thanks.

Yeah. Eric, it's Josh again. Thanks for the question. To your point, as we've ramped up the loyalty program, we've seen a significant growth not just in the users of the loyalty program, but also with that engagement on the mobile app. So, we've seen really dramatic growth in terms of our monthly and weekly active user base on the mobile app, which is great.And in terms of the program in using personalized marketing, I think the way that that we think about it is that our goals for the beginning of the program were really to reward our most loyal guests and to drive a very large level of engagement with the program. And I think we've been really successful on both of those fronts. We've moved very quickly to having about half of our daily transactions on the program, which is great. And also all of the consumer research that we've done has shown that our guests are really appreciating the program and it's driving a really big improvement in terms of all of our brand metrics that we've seen. So, really big success on that front.In terms of traffic, as you pointed out, we have seen a big improvement in traffic, which is great. That's another one of the goals that we set for the program. And as José pointed out, it's been roughly neutral on sales the time being.I think what's really exciting about this program – and I think this is consistent with what you've seen of many of our peers' programs, is what we can do with it over time. And this gets a little bit to your point of personalization. It's something that we're already working on. I think this is just the start of our loyalty program and we're working on ways to evolve the program over the next coming quarters and years to figure out how we make it work even better for our guests and for our brand and for our system. We're very excited about the potential for that.

The next question comes from David Palmer of Evercore ISI. Please go ahead.

Thanks. On Tim's Canada, how much do you believe weather held you back on your cold beverage and overall sales for Tim's in the second quarter? And are you already seeing significantly better results thus far in the third quarter, not just driven by weather becoming more normal and driving that cold beverage, but also perhaps the help of Beyond Breakfast sandwich and the new burger? Thanks. José Cil: Hey. Thanks for the question, David. As I mentioned last quarter, I hate to talk about weather as it relates to business performance, but certainly with a high-frequency business and a strong beverage business, hot and cold, it does have an impact. We saw a little bit of that throughout the quarter, but nothing to comment on in terms of what impact, if any, it had. We continue to focus on things that are going to drive guests into our restaurants, whether it's cold or rainy or hot and beautiful out like it is today in Toronto.So, our plan, as I mentioned earlier, is strong. We're focused on capitalizing on the strength of the amazing strength of the Tim's brand here in Canada. Amazing restaurant owners, loyal guests and a really, really strong and awesome business that has super high frequency. And our focus is on things that are going to keep our guests excited, wow them on a regular basis and we think a lot of the innovation that we're doing on the products side, a lot of the work we're doing on the quality side and consistency side, on product as well as coffee, and then some of the work we're doing on image including our innovation cafe here in Toronto, I think those things are going to be the drivers of long-term growth for the business and we're excited about that.We've occasionally shared information around performance within the quarter, but we're excited about the plan long term and look forward to sharing more with you in the coming quarters.

The next question comes from Sara Senatore of Bernstein. Please go ahead.

Thank you. I wanted to ask about Burger King US. I understand the global compass quite strong. But I think you've lagged in the US some of the big competitors. Virtually everybody has said it's really about value as you did. I know you've launched the Taco Burger King, but it's not really a core menu item.And I guess I was trying to understand if the issue is that your franchisees won't let you get more aggressive on value or if you really think that this sort of incremental product offering is going to be the appropriate driver because I feel like we had a little bit of a head-fake at the beginning of this quarter where it looked like things might be getting better and then they kind of settled into the slower pace. So, just trying to understand what leverage you can pull because it doesn't feel like value is going away and most of your competitors are being aggressive across the board on their menu. Thanks. José Cil: Thanks for the question, Sara. We've said it before. I've mentioned it quite a bit in the last few quarters. We do best at Burger King in the US, and really with Burger King across the globe, when we have a good balanced offering that focuses on our core and also highlights some of our strength in how we cook and prepare the food flame-grilled as well as on premium and then having a good value offering every day that drives consistent traffic into the business.I think we do have a strong balanced offer at Burger King in the US. We work closely with our franchise partners in the US and counsels, each quarter going through plans and looking short term and long term at how we drive the business, not just from an advertising and product innovation standpoint, but also in other key initiatives that drive the business forward, technology, image, et cetera.And so, we have a good plan. As I mentioned in my comments, we occasionally have a bit of imbalance on media allocation and maybe some of the promotional activations weren't as strong they could have been. But we feel good about the plans we have long term. We feel good about what we're doing in the US. We are excited about the innovation that we're doing on core, including Impossible Whopper, which starts next week. And we think, over time, we're going to be able to continue to drive traffic and sales and grow the business as we have the last many years. Thanks for the question.

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

Yes. Thanks very much. On the Burger King International conference and you cited certain markets and kind of general causalities in terms of management, et cetera, but can you talk about specifically if digital and delivery is a meaningful component of that acceleration and comp, kind of what some benchmarks are in terms of penetration of either digital or delivery in aggregate or specific market examples if you want compared to the US, if we can get a sense of that.And just as a follow-up, the Tim's Canada business and lunch, you didn't mention the Beyond Meat Burger, but is that – do you view that as a significant lunch driver similar to what you're experiencing or think you experience at Burger King with Impossible Whopper? José Cil: John, thanks for the question. On international Burger King comps, as I mentioned in the prepared remarks, we saw some really good performance and we've seen it consistently over the last many quarters in China, India, Brazil, Spain. We have really good teams in those markets. We shared some of the insights and some of their perspectives at Investor Day. So, you had a chance to see some of the leaders and partners that we have in some of these markets and they're doing a good job in each of these markets focusing on a balanced menu offering.They're doing really good work in terms of image and we're also seeing, in many markets, really strong growth from a digital standpoint. Delivery is a strong driver of growth in many of these markets. We have over 8,700 restaurants today with delivery globally.In China, for example, more than 90% of our restaurants have delivery and it represents a big part of our business in that market, north of 30%. Korea, we have 80 plus…

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

Thank you. Good morning. Just from a capital perspective, you have $1 billion of cash on balance sheet. Your net leverage is trending to below the 5 turn level which is pretty low on a relative basis. So, how do you want us thinking about this opportunity for a capital event moving forward? How do you think about the trade-off between doing a more aggressive share repurchase plan versus M&A?And separate to that, can you just confirm on the US Burger King side, whether the Impossible rollout is an LTO or whether this is a new permanent menu item or a menu platform? Thanks.

Thanks, Brian. It's Matt here. Thanks for the question. Just on capital allocation, I think we're really fortunate to have a business model that's very efficient in terms of delivering strong growth and cash flow and consistent de-levering as we execute on the core business plans and grow our systemwide sales.And to us, the most important thing about our approach to returns, which I think we've been pretty disciplined about over time, is making sure we deploy our capital in a thoughtful and balanced way, which really means providing shareholders, I think, with a good foundation of returns through a strong dividend that we've been able to grow over time as we grow the business, along with some thoughtful investments back into the brands as we've been doing with our remodeling initiatives at both Tim's and Burger King, as well as infrastructure investments we've been making at Tim's in our supply chain business.But also, at the same time, I think it's important for us to preserve flexibility, to execute on attractive investment opportunities over time, which has allowed us to add great brands at some points in the past to our company, but also to invest back in ourselves through meaningful share repurchases.So, I think we believe this is the sort of balanced approach that will allow us to drive the best returns for shareholders over time and we'll continue to maintain this flexibility and balance. José Cil: Thanks. Brian, regarding the question on Impossible, all of our product launches, particularly here in the US, are inherently limited time offers. And being brand led and being guest centric, we let our guests decide which items should earn a permanent place on our menus. And so, we're very excited about the launch. We're very excited about the prospects of building a platform with plant-based burgers and other menu options, but we're starting as we always do and let's see what happens.

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

Great. Thanks. Two questions, if I may. José, can you talk about the health of Tim's Canada franchise system? Comps are encouragingly starting to move in the right direction and relations are better following Duncan's hiring a year ago. But there seems to be several pulls in franchise cash flows around remodels, the new coffee brewers and the loyalty program, which you allude that boosts traffic, but presumably weighs on check, while sales have lagged the two segments.And then, Matt, when we look at Tim's gross margins seasonally from 1Q to 2Q, 2019 showed the lowest seasonal step up since you guys acquired the business. Can you talk about any headwinds we should be aware of that restrained supply chain margin expansion in 2Q beyond the same-store sales? José Cil: Thanks for the question. Duncan is in the room. He is really excited about the call out, so I'll have to deal with that later. We're really pleased and excited about the progress we're making with our partners and restaurant owners here in Canada. We have a really healthy, strong business in Canada. It's one of the most profitable franchise businesses anywhere in North America and probably around the world.We've been working closely with our advisory boards at the Tim's side on many initiatives that are critical to the business long term, franchise and restaurant owner probability being front and center as well as guest experience and satisfaction. And what we're seeing is really strong engagement with our restaurant owners, lots of really good dialogue and a lot of progress working together shoulder to shoulder to drive the business forward.And so, we're excited about it. We continue to work at it. This is not once in a while thing in franchising. It's an all the time thing. We just had our advisory board in town here in Toronto this week. I had a chance to speak to some of the restaurant owners and they continue to be excited and encouraged by a lot of the Winning Together initiatives that we've been putting in place and implementing over the last several quarters, including loyalty, including welcome image, including a lot of the innovation. So, we're really excited about that and positive about the long-term health of business here, and I think our restaurant owners are as well.

Yeah. Andrew, just regarding your question on the margins, I think we've seen margins remain relatively flat year-over-year. And as we look at the margins sequentially here from quarter to quarter, I think they were up a bit, which is typical for us given sales seasonality between the first and second quarter. And nothing really specific to call out. I think the margins have remained relatively consistent over the last few quarters within a reasonable range. And again, I think it was up a bit in the second quarter versus the first.

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

Hey, guys. I have two questions. The first is just going back to plant-based meat with the Impossible launch. Can you just maybe frame up and test sort of how big the lift was to the business? I guess, the incrementality there. I know it got asked earlier in the call.But the other question I had was on China. I think you have 14 stores open now. What are the early learnings with Tim's there and I guess anything you're calling out in terms of performance? That would be helpful. Thanks.

Thanks, Greg. We don't share specific numbers on how tests perform. Obviously, if it didn't perform well, we would have put it in the waste basket and moved on. So, we feel good about the incrementality. We feel good about the guest reaction to it, both existing Burger King guests coming back for another visit to try a new product that's innovative and craveable, and also, as I mentioned earlier, there is new guests coming in, guests that haven't been at Burger King in a while, trying this product and we're seeing some really good attachment as well with ancillaries and beverages and desserts as well.So, we feel good about it. We feel this is a long-term opportunity for the business. We launched it on a limited time basis and we want to see how guests react to it, but we feel really, really encouraged and strong about what we think this can be for the business long term.And as it relates to Tim's in China, we opened – actually, I got an email earlier today that we opened our 15th store in Shanghai. So, we continue to open really good restaurants there. The images is awesome. The team there is doing an amazing job with kind of translating the Canadian heritage of the brand and making it relevant to the Chinese consumer.Beverages are doing really well, as I've mentioned in the past. They continue to do well. We've innovated on teas and other beverages that are more relevant in China. And then, the food offering, baked goods, sandwiches and others have done well. We've kind of made some adjustments to that part of the menu and continue to be encouraged.And as I've mentioned on the BK side for international, in China with Tim's, we're seeing tremendous engagement from our consumers on the digital front as well. And so, we're really excited about the business here. The team is awesome. The team at Tim's China, I know many of them from the past and they've done a good job of getting the brand going in the right direction and we look forward to sharing more with you in coming quarters.

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

Hi. Good morning. Just a couple questions on Tim Hortons. First, one clarification. On the second quarter same-store sales number, did traffic outpace the comp? And just wondering sort of the dynamics around this loyalty program. And if you could talk about whether the sort of offset to the traffic growth you are seeing related to the program is a function of the accruals of the discounting or the actual discounting itself during the quarter?And then, I guess, more broadly, José, a bit interested to hear your perspective on what you think the biggest impediments to growing comps at Tim Hortons have been over the last year. I appreciate the initiatives you have going forward. But it seems like you've thrown a lot at the business over the last year or so and comps have remained relatively shallow. So, just wondering, to put it in the context, what you think the biggest impediments have been over the last several quarters? Thanks. José Cil: Thanks, David, for the question. On Tim's and the performance, we don't break out traffic and check. So, we don't have any insight to share with you on that today. As we mentioned in our remarks – or as I mentioned in the remarks and I think Josh touched on it earlier as well, we're encouraged by the adoption rates of the loyalty program. We're seeing a lot of repeat business coming in and acceleration of guests that already come in on a regular basis because of loyalty. And it's doing exactly what we thought it would do. And it's giving us confidence that we can do much more over the long haul.And so, we always felt when we launched – when we tested the loyalty program and then launched it in March that this would be…

The next question comes from Jeffrey Bernstein of Barclays. Please go ahead.

Thank you very much. Question on Burger King US. The comps were modestly positive, but it does seem like labor inflation is large and commodity inflation presumably on the comps. I'm just wondering if you could talk a little bit about franchisee sentiment conversations you're having with them on profitability, whether you can share anything around what the inflation levels are currently for commodities and/or labor and how they think about menu pricing in response to that.And just as an aside, I know you mentioned kind of thinking that you were lagging a little bit this past quarter on value. I'm just wondering how you could think about Burger King other than value versus premium. Maybe think about it by dayparts? Just wondering where you're seeing the greatest strength or maybe opportunities where you might be lagging some of your peers? Thank you. José Cil: Thanks, Jeffrey. On the BK US probability front, we don't break out our profitability at the restaurant level quarter-over-quarter, but do it more on an annualized basis. And we continue to see the business at healthy levels in terms of sales, as well as restaurant level profitability. Certainly, there has been a lot of reports on inflation whether it's on the wage side or on the commodity side. Our focus – and working closely with our franchise partners in the US, our focus has always been on driving at the top line, driving the top line through a balanced approach with core premium and value offerings and we continue to be focused on that. We have a very good working relationship with our franchise partners in the US, similar to what we do in Tim Hortons in Canada. We have regular routines with our franchise counsels in the US working through marketing initiatives, operations initiatives,…

Thank you. And now, I'd like to turn the conference back over to José Cil for any closing remarks. José Cil: Thanks again to everyone who joined us this morning. As I mentioned before, the fundamentals of our business is strong. We have strong comp sales and continued restaurant expansion this quarter, which enabled us to drive strong top line growth of about 8% in Q2. But, more importantly, we're really excited about the long-term prospects for our business, driven by our great teams, our great brands and great partners around the world and we look forward to updating you on our progress again in a few months. Have a great day.

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