Good morning, everyone and welcome to the Restaurant Brands International, Third Quarter 2021 earnings conference call. All participants will be in a listen-only mode. . After today's presentation, there will be an opportunity to ask questions. . Please note that all callers will be limited to one question. Please also note that this event is being recorded. I'd like to turn the conference call over to Steven Lichtner, 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 Third Quarter ended September 30, 2021. As a reminder, a live broadcast of this call may be accessed through the Investor Relations web page, and investor.rbi.com, and the recording will be available for replay. Joining me on the call today are Restaurant Brands International's CEO, Jose Cil, COO, Josh Kobza, and CFO, Matt Donigan. 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. Throughout the call today, we will be referencing 2-year comparisons for system-wide sales growth and comparable sales to provide a cleaner indication of how the business is trending versus a more normalized period. These 2-year comparisons are calculated on a geometric stacked basis by using the 2020 and 2021 disclosed growth metrics. And now, I will turn the call over to Jose.

Good morning, everyone. Thank you for joining us on today's call to discuss our third quarter of 2021. I hope everyone is doing well. Before I dive into our results for the quarter, I'd like to highlight an important milestone for our Company. In 2020, we launched our Restaurant Brands for Good sustainability framework to address our food, the planet, and the people and communities we serve. During the quarter, we announced our goal to achieve a 50% reduction in greenhouse gases by 2030, which was approved by the science-based targets initiative, and reach net 0 emissions by 2050 or sooner. These targets are good example of the action oriented approach we're taking to do our part to tackle climate change. The moment for action is now and I'm personally extremely proud of the team's efforts so far, getting it started on this important journey. Beyond doing right by the planet, we believe we're doing right by our guests, employees, and shareholders who we know increasingly value brands that takes sustainability seriously. And this progress is really important because our value proposition starts with our brands: Tim Hortons, Burger King, and Popeyes, all of which generate resilient, growing, high-margin revenue streams through comparable sales growth and restaurant development allowing us to reinvest in our business while also returning capital to shareholders. During the third quarter, we once again grew global comparable sales year-over-year, driven by worldwide growth at Tim Hortons and strong results from Burger King and Popeyes international business, which offset softer performance from Burger King and Popeyes home markets. As compared to 2019, our system-wide sales growth accelerated to 5% versus 4% in Q2, driven by positive overall comparable sales growth and continued progress in our development pipeline. With 264 net new restaurants delivered during the quarter, keeping…

Thanks, Jose. And good morning, everyone. As Jose mentioned, we have big aspirations to grow our restaurant base towards our long-term goal of 40,000 locations and we are confident we are well-positioned to execute. We are fortunate to operate 3 iconic brands in some of the most attractive QSR categories. And within this landscape, we view ourselves as uniquely positioned to drive outside growth. When we look at the unit count of our leading peers by category in key international regions, we see notable opportunities with the most compelling in Asia-Pacific, where taken together our leading competitors have nearly 10 times the number of restaurants as we do. In addition, across EMEA leading peers have over 3 times the number of stores as us. And in Latin America and the Caribbean, they have more than double our footprint. And while this international runway is especially compelling, we also see growth opportunities closer to home in U.S. and Canada. Developing new restaurant business around the world is a key foundational strength of our team and we are joined in our efforts by an exceptional network of master franchise partners who have the experience, local expertise, track record, and capital to invest. And while we do not take a one-size-fits-all approach with our partners, working with local entrepreneurs, established restaurant operators, as well as strategic and financial partners, We do look for a few common threads across all of them. We seek out partners who share our vision for building out our brands to their full potential in their markets, have the capital resources to do so, and have talented local management teams to execute on that vision. The success of our global development playbook is readily apparent when looking at Burger King's international growth, which includes a doubling of the Brands…

Thanks, Josh. Turning now to our brand performance. At Tim Hortons, we're encouraged by the progress we've seen in Canada, including generating five points of sequential quarter-over-quarter improvement in 2-year comparable sales as government restrictions ease throughout July and August, and we continued to execute against our back-to-basics plan. This improvement has come from all provinces with Quebec, Western, and Atlantic Canada showing low-to-mid single-digit declines versus 2019 compared to mid and high single-digits in the second quarter, and Ontario improving to high single-digit declines versus low-teens last quarter. When we look at both the restaurant format and our vanity, it's clear where the decline is concentrated. From a vanity perspective, all were vanities outside of super urban, which represents roughly 10% of our footprint, improved to single-digit declines versus 2019 with rolled down, low single-digits, and suburban and urban down mid-single-digits. And while super urban restaurants declined nearly 30%, they did see a 7 point improvement versus the last quarter. And from a format perspective, drive-through restaurants are nearly flat versus 2019, while non drive-troughs are still declining in a 20% zip code. That said non-drive-through locations did see about 10 point improvement this quarter versus the second quarter. Despite this positive momentum across regions, formats, and/or vanities, with reopening plans paused across the vast majority of the country and workplace mobility still significantly behind pre -pandemic levels. We know we're not out of the woods yet, and neither our teams nor our restaurant owners are standing still. We're highly focused on continuing to execute our multiyear back-to-basics plan, which is centered around elevating core quality, innovating for growth, and modernizing the brand. The progress we've seen so far from our work has been encouraging. With the exception of hot beverages, all of our product categories are back to…

Thanks, Jose. And good morning, everyone. This quarter we made solid progress against many of our key priorities, and our results once again demonstrate the benefit of having a diversified and resilient business model. For the third quarter, our global system-wide sales grew 11% to $9.4 billion, and our adjusted EBITDA was up about 5% organically year-over-year to $607 million. While historically our growth in adjusted EBITDA year-over-year has been closer to our system-wide sales growth, there were a couple of factors that contributed to the difference in our consolidated growth rates this quarter. First, as we've highlighted on past calls, our continued proactive investments in people, digital and technology has led to a sizable year-over-year increase in segment G&A. We expect that our core segment G&A will sequentially increase roughly 5 to $10 million in the fourth quarter, with fourth-quarter levels establishing a reasonable baseline as we head into 2022. Additionally, our year-over-year growth this quarter reflects the fact that advertising expenses exceeded revenues by approximately $12 million more than they did in the third quarter of last year, resulting in an impact of negative two points to our EBITDA growth. This mostly reflects spending from our 80 million CAD commitment behind the Tim Hortons Canada ad fund supporting our back-to-basics initiatives. And as of the end of Q3, we have deployed nearly 75% of these funds and expect to spend the remainder during Q4. Before turning to EPS, I'd like to quickly discuss two items that we know are top of mind: first, our supply chain business at Tim in light of the current macroeconomic environment, and second, how to think about the impact of our robust international growth on our business. On supply chain, as you've heard from our peers and others outside our industry, we're seeing…

Good evening, gentlemen. At this time we'll begin the question-and-answer session. And as a reminder, we do ask that you please limit yourselves to a single question. Our first question today comes from Chris Carol from RBC. Please go ahead with your question.

Hi Good morning, and thanks for the question. So on Tims Canada, I appreciate all the commentary around regional and urban trends. Can you talk a little bit more about some of the other factors driving performance in Canada, perhaps any insights on what the competitive environment has been like as mobility has improved? And curious about drive-through trends, I think you noted that drive - throughs were flat in the quarter. If I did hear that correctly, what do you see pushing drive-through trends into positive territory? Thanks.

Hey, Chris, thanks so much for the question. If I may, I'm going to go into a little bit here because you asked a number of different components of Tims Canada performance. So as you probably recall, last time we were together was in late July and as of end of July, reopening was well underway in Canada, and there was a lot of -- there was some momentum in the market in terms of reopening big banks and other large employers in Toronto who are expected to return to offices in Q4. And this was the beginning of when we started to see some impact from the Delta variant, just making some noise. When you fast-forward to the end of the summer cases started to rise pretty significantly throughout August, and reopening was paused, and we saw vaccine mandates implemented and mask mandates reintroduced, which put further pressure on mobility and reopening, which as we all know, has lagged in Canada versus the U.S. And we've seen urban centers continue to take cautionary approaches. Downtown Toronto is an example, still not back to work and our vanity remains the biggest drag in our business in Canada. Many of the large employers have pushed back returns to office to sometime in 2022. In the quarter we saw a nice improvement in July, and maintained that in August and September and we exited September similar to July. And there's been no real material shift in trends to call out in October versus where we were in Q3. Really that's where we stand today. There's a clear, concentrated drag from urban and super urban locations and our business there. And this is where lagging workplace mobility most impacts our business. Where we have high-frequency, relatively low check guests; the guest that buys…

Thank you.

Our next question comes from Dennis Geiger from UBS. Please go ahead with your question.

Great. Thanks for the question. Jose, I wanted to ask a bit about some of the key pressures impacting franchisees, and really the industry in particular in recent months, I guess across brands, be it staffing issues, labor pressures, commodity pressures, etc. What kind of impact or the franchisees and the system, broadly, seeing from these pressures? How's the system managing these pressures and kind of thinking about managing them going forward? I know you spoke to some of this with the Popeyes DC issue and the Tim Hortons supply chain. But even more broadly, curiously the impacts. And then just as it relates to potential implications that you could speak to make the -- from these impacts, be it demand -- new open demand, and in any way, potential franchise or investment support, anything. Just on the go-forward as we think about the environment right now. Thank you.

All right. Thanks, Dennis. I'll I'll take the labor impacts I think broadly speaking and I'll pass it over to Matt to touch a little bit more on broadly speaking inflation impact in the business, and then I'll wrap it up on your 3 Part, 1 question. I'll wrap it up on the development front and what impact we're seeing on that end. As I called -- as I mentioned in the prepared remarks, obviously, labor challenges are impacting the entire industry and not just the restaurant industry, but broadly speaking, through retail and other businesses as well, shipping, etc. We called out the impact specifically at Popeyes because it was where we felt it most acutely. We saw it in the context of reduced operating hours and services modes, especially around late night. And we also saw some impacts in our distribution centers in particular in the Northeast. On operating hours, we saw about an average of 1 hour reduction in operating hours at Popeyes during this quarter relative to pre -pandemic levels, which obviously has an impact and that was disproportionately impacting our late night business, which historically over-indexes and family and which comes along with a pretty high check. Outside of late night, we saw daily sales improving in either flat or improving modestly throughout the quarter. So the real drag and the real impact from a labor standpoint was the late night, the daypart. And on service modes, we're seeing nearly 40% of the system operating with reduced service modes, either either drive-through delivery and take out only or drive-through and delivery-only, which means our dining rooms are generally -- have been closed in many cases because of some of these staffing challenges that we're facing that are near-term challenges for the system. And then on…

And thanks, Jose. Hey, Dennis, good morning. Thanks for the question. Yeah, I think as it relates to inflation, I think we're fortunate to have come out of 2020, generally speaking, across our brands with strong profitability. That said, Jose touched on, I think there's headwinds for us to work through in staffing and wages and general inflation. And so the approach we've taken is to work side-by-side with our franchisees to -- to address as best we can and manage through this -- this tougher cost environment. I'd say pricing is definitely in the conversation. We've taken pricing this year generally in line with inflation in the U.S. and we'll continue to take a really hard look at where we go from here moving forward. On mix, we can and have looked at low margin, low traffic items with franchisees. In addition to that on the commodity front, I think, I would say that procurement is a really big focus for us. We think that scale is an important advantage when you consider sourcing of different products around the world, across the brands and we think our system benefits from that in terms of our scale with each of the three brands. And on the labor front, we're looking at ways we can simplify life in the restaurants, looking at processes, looking at simplifying the menu. And so we think there's a number of things that we're working on here to address the pressure that we're seeing with our franchisees. But overall the number 1 thing we can do we think is to drive traffic and address our guests' needs and drive sales. Maybe the other -- just really quickly, the other point I would touch on is the comments I made about the Tim Hortons supply chain. I'd say that we're encouraged by the progress that we've seen at the Tims Canada business in terms of our sales recovery, in terms of our margin improvements year-over-year versus 2020. Historically, we haven't given guidance on margins. However, given the recent volatility around inflation that we've seen, we thought some directional color would be helpful. So as I mentioned in the prepared remarks, we expect margins to moderate slightly from where we were in Q3. We have some time to go here in Q4, but based on what we see currently, we think the margin impact directionally could look like approximately 50 basis points versus the Q3 levels. And, of course, we will be managing very closely across all fronts over the next few months to navigate through the environment here. So I'll pass it back to Jose on development.

Thanks, Matt. On development, obviously, there's constraints in certain markets related to labor and supply chain, but we've got a really strong network of equipment suppliers. Our teams are working closely with them, our franchisees are as well. And we expect, as we've said several times over the last quarters, we were excited about the pipeline, we're encouraged by the progress we're making. We think we're going to be at or near levels of 2018, 2019 unit growth in 2021. And we're confident we can accelerate in the years to come with the quality of the partners that we have, the amazing white space that exist around the world. And even here in the US and Canada. And look forward to updating you on that progress in the coming quarters. Thanks so much.

Thank you very much.

Our next question comes from John Glass, from Morgan Stanley. Please go ahead with your questions.

Thank you. And good morning. Jose on Burger King U.S. two questions. One specifically, what's the impact of removing the paper coupon? If there's a way to sort of isolate that, so we understand that impact. And then more broadly, you outlined a number of pieces that you want to work on and had to do with menu in the brand and maybe even some equipment. What are the couple of things that we should watch for the next couple of quarters? What are the immediate action steps that might be able to bend the trend or should we think about this as a longer-term project such that none of these probably impact near-term, but are all good longer-term? Thanks.

Thanks, John. On paper coupons, as I mentioned in my prepared remarks, we tend -- historically Burger King in the U.S. over-indexes in paper coupons relative to peers, something in the neighborhood of three times the number of coupons compared to most of our peers. It's been traditionally an important channel, but the effectiveness has eroded a bit over time, especially with the younger consumers. And so we felt, and we do feel it makes sense to transition media occasion and the focus to other consumer-facing channels that we believe over time will generate higher return. Ideally, compensating by finding new long-term sustainable platforms, especially as it relates to digital. This is what Royal Perks is designed to do, shifting our digital media or digital offers with -- to known diners, helping us engage them better and drive guest behavior, and ultimately build a strong base with the younger generation. As it relates to the impact, we haven't kind of communicated the details of that, but we believe we'll be able to shift very quickly with the growing Royal Perks platform that we have, and some of our digital offers that are available. If we believe we'll be able to shift to a much more accretive digital coupon and digital engagement program over time. Now, as it relates to the Burger King plan overall, as I mentioned last quarter and mentioned in my prepared remarks, the key was focused pace and building our team. We saw that we had done some good work with Burger King and in the U.S. on -- from time-to-time, but we haven't haven't been consistent. And so we tapped Tom and I mentioned that in recent communications, we have Tom to lead the BK U.S. business working with franchisees now and building his team and…

Thank you.

Thanks so much.

Our next question comes from John Tower from Wells Fargo. Please go ahead with your question.

Great. And again, answered much of it in the last question, but just in terms of following up on the BK U.S. would you pull up a similar lever potentially as you did with Tim Hortons in Canada and use some of the Restaurant Brands' capital to pour into the marketing programs at BK U.S. assuming the franchisees are aligned with that message?

John, thanks for the question. Look, I think the first level of investment that we've been making is building out a strong leadership team, and we've been doing that now at Burger King, similar to what we did at Tim Hortons. We've added -- obviously Tom has been named to run the business. We've bolstered the team with an industry veteran in data science and analytics. We've brought in a culinary, the lead as well as shop to drive the BK innovation. These are critical role s to ensure we have the interest of our guests front and center, as well as those of our franchisees. And as I mentioned, in response to the earlier question, we've increased presence and coverage in the field, which we think is critical here. On the capital front, we already invest in the business from a remodel standpoint here in the U.S., and we obviously are working in the early days on how we can accelerate that in partnership with the franchise system. And as it relates to the ad fund, we're early days here on building out the BK U.S. plan and the most important thing is to have a solid plan that our franchisees support and can drive traffic and sales, and we'll continue to use the same discipline that we've had from a capital allocation standpoint to drive the most significant impact on the business and ultimately the biggest impact long-term on shareholder returns. Thanks so much for the question.

Our next question comes from Brian Mollen from Deutsche Bank. Please go ahead with your question.

Thank you. Question on Tim, you shared a stat that 10% of Canadians are now fully active users in the loyalty program. That's encouraging to hear. Just big picture, do you think you're now at a place with the program where it's ready to be a meaningful transaction sale driver when the Canadian economy is truly and fully reopen ed? And if yes, is there a scenario where the benefits could prove to be multiyear in nature? Just any thoughts on your degree of optimism here as the country emerges from COVID would be helpful to you.

Yeah, Brian, it's Josh and thanks for the question. As we mentioned a little bit earlier, and I think you mentioned a moment ago, we've been really pleased with the work that Tim's team has done on the mobile app and more broadly on the Tim's Rewards program. We launched it a couple of years ago and it's evolved in a really positive way that I think has lead so many of our guests and so many Canadians to want to engage with it. And we're really excited about how many monthly active users we have, but also about the frequency with which people engage with the app. It's not just that they use at once a month, but they use it, in most cases, many times a week. And I think that level of engagement in a mobile app is something that's really special anywhere in the restaurant world. So we think we have something really great there. I think the team has built that by creating a really seamless experience at the restaurants, but also through creating other exciting avenues for engagement by making the things like contests, such as roll up to win, fully digital, taking really bold steps and executing them really well and making those experiences really positive. So we're really pleased with it. We think it is an exciting avenue to be able to drive greater engagement with the brand, and ultimately drive sales over the medium to long term. And we see it as a big asset for the business. and something that we're very excited about the prospects for -- over the long-term.

Thank you.

Our next question comes from Lauren Silverman from Credit Suisse. Please go ahead with your question.

Thank you for the session. I appreciate all the commentary on development. Tim Hortons International, another nice quarter of unit growth. You've talked about the significant opportunity in China. What have you learned about expanding internationally with Tim Hortons China that you can leverage to expand in other international markets? And then how are you thinking about the development opportunities for Tim Hortons in Canada?

Lauren, thanks for the question. Yeah, we've given some color over the last few quarters on Tim's China, which we're excited about it. I think the most important piece is the great work that the team there has done to build a business and brand and a product offering that really connects and engages with the consumers in China. The digital offering it's it's pretty exciting and has done a great job of engaging consumers in-stores and also from a pre -order and payment standpoint. What gives us confidence in the opportunity in China, and more broadly, globally outside of Canada, is the fact that our beverages connect well and really travel well across many markets. We've seen the expanded beverage offering, including cold beverages and specialty beverages, work really well. And then, we've worked closely with our partners to localize the food offering to make it relevant for consumers there. We've seen some progress. Actually, I'm heading out to Mexico later today to go visit our Tim Hortons' business in Monterrey, Mexico, which is growing and performing well. We've got a great business in for Tims in the UK with a different offering than what we see in China. That's drive - throughs. It's very similar in terms of scale at the restaurant and offering to what we see in our Canadian business. So there's a lot of exciting opportunities there. And we believe that we're just at the beginning of the journey internationally for Tims. Coffee is a fast-growing segment internationally, especially Asia, but also in Europe and other markets around the globe.We've got a great coffee offering. We've got a strong heritage. with the co -- with Tim Hortons, and our price points are really accessible. We're -- and our digital capabilities are growing and really helping engage our consumers there. We're excited about the growth prospects there, as it relates to Tims in Canada. We obviously have a strong presence all around this. There's certain parts of the country where we think we have quite a bit of room for growth. We think continuing to expand our drive-through capabilities in certain areas is good opportunity for development, and we'll continue to infill and optimize the portfolio where we think we can provide better service and better accessibility to our guests using our digital platforms, our drive-through platform, and other off-premise and convenient ways to connect to the brand. Thanks so much for the question. I think, Josh has 1 more comment on this.

Yeah. Lauren, if I can just add one or two things to what Jose said on the international side. I think one of the great things that David and the international team have done with Tim Hortons business across the globe is they've figured out how to adapt the business to each of the markets in a unique way whether that's formats that are a little bit larger format drive-through in places like the U.K. or some smaller format, but very drive-through oriented in Mexico or the format that we have in China. But the thing that's -- or the Middle East for that matter. The thing that's common across those is that we've been able to achieve some really remarkable payback period across all of those geographies. I think that's what has our international team getting more and more excited about Tim Hortons and our ability to adapt it and create a really compelling investment proposition for franchisees all across the globe with the brand. So I think our team has done a really wonderful job with that, and we're all pretty pleased with it.

Great. Thank you, guys.

And ladies and gentlemen, our final question for this morning comes from David Palmer from Evercore ISI. Please go ahead with your questions.

Thanks for squeezing me in and great detail on the call. 2 quick ones, could you touch on the percentage of dining rooms closed or hours of operation reduction that you're seeing for Burger King U.S. and Tim Canada? Any numbers would be helpful. Obviously, those will hopefully get reopened and those hours restored. And then it was good to see the 2-year acceleration for Burger King International, where was the greatest improvement as you look around the world? Thanks.

Thanks, David. On the dining rooms close and hours of operation, it's pretty -- it's been volatile, especially with Popeyes. We've seen a little bit of that happening as well with Burger King and Tim. So the numbers in terms of dining rooms closed fluctuates a bit. And given the circumstances in certain markets, we've seen vaccination requirements take hold and so that's impacted as well our dining room business. But overall, as I mentioned with Popeyes, we've seen some impacts, some significant impacts in late-night, mostly in dinner daypart, from labor shortages in some of the staffing challenges that we faced. And as it relates to that to Burger King International, we're very excited about the progress we've made, especially in this quarter relative to last year and to 2019, where we've seen the progress is pretty widespread. and that's what's exciting about the opportunity in our business there and the work that the team is doing with our master franchisees. Thanks again for the question, David, and for everyone else. And thanks for joining us this morning. We've made quite a bit of progress executing on a number of our key priorities, including accelerating our development pipeline. We also know there's more work to be done to accelerate our growth in driver of brands to their full potential. I'm incredibly grateful to our team and our franchisees for their hard work day in and day out. They remain focused on elevating the guest experience, accelerating our restaurant development, and driving long-term sustainable growth for our business and our shareholders. Thank you again for joining us, and have a great day.

Ladies and gentlemen, with that we'll conclude today's conference call. We do thank you for attending. You may now disconnect your lines.