Restaurant Brands International Inc. Reports First Quarter 2018 Results

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OAKVILLE, ON, April 24, 2018 /CNW/ - Restaurant Brands International Inc. (TSX/NYSE: QSR, TSX: QSP) today reported financial results for the first quarter ended March 31, 2018.

Daniel Schwartz, Chief Executive Officer of Restaurant Brands International Inc. ("RBI") commented, "During the first quarter, we continued to grow system-wide sales for each of our three iconic brands, and we have developed strong plans with our partners to further accelerate growth for the long term. At TIM HORTONS®, though results were soft, we have high conviction that our 'Winning Together' plan unveiled today will improve guest experience and drive sales and profitability for our restaurant owners. For BURGER KING®, we built upon our recent sales momentum and further accelerated our net restaurant growth. At POPEYES®, we improved comparable sales in the US, and announced our first international development agreement for the brand in Brazil. We continue to see a lot of growth potential for each of our three brands, and through our focus on enhancing guest satisfaction and franchisee profitability, we believe that we will create value for all of our stakeholders for many years to come."

Consolidated Operational Highlights

  Three Months Ended March 31,
  2018   2017  
  (Unaudited)  
System-wide Sales Growth            
  TH   2.1%     3.3%  
  BK                                                      11.3%     6.2%  
  PLK   10.9%     6.1%  
System-wide sales (in US$ millions)            
  TH $ 1,607.7   $ 1,514.0  
  BK $ 5,148.9   $ 4,477.0  
  PLK $ 903.7   $ 835.8  
Comparable Sales            
  TH   (0.3)%     (0.1)%  
  BK   3.8%     (0.1)%  
  PLK   3.2%     (0.2)%  
Net Restaurant Growth            
  TH   2.8%     4.6%  
  BK   6.9%     5.1%  
  PLK   6.7%     5.8%  
System Restaurant Count at Period End            
  TH   4,774     4,644  
  BK   16,859     15,768  
  PLK   2,926     2,743  
 
Note: System-wide sales growth and comparable sales are calculated on a constant currency basis and include sales at franchise restaurants and company-owned restaurants. System-wide sales are driven by sales at franchised restaurants, as approximately 100% of current restaurants are franchised. We do not record franchise sales as revenues; however, our franchise revenues include royalties based on a percentage of franchise sales. For 2017, PLK figures are shown for informational purposes only.

Revenue Recognition Update

Effective January 1, 2018, we adopted the new revenue recognition accounting standard ("New Standard"). Our consolidated financial statements for 2018 reflect the application of the New Standard, while our consolidated financial statements for 2017 were prepared under the guidance of previously applicable accounting standards ("Previous Standards"). Our results presented herein indicate which revenue recognition methodology applies in each respective period.

The most significant changes of this adoption that affect comparability of our results of operations between 2018 and 2017 include a change in the timing of franchise fee revenue recognition and the reflection of advertising fund contributions and expenses. Under Previous Standards, we recognized franchise fees when we performed all material obligations and services, which generally occurred when franchised restaurants opened. Under the New Standard, we defer initial and renewal franchise fees and recognize this revenue over the term of the related franchise agreement. Under Previous Standards, we did not reflect advertising fund contributions or advertising fund expenditures in our Consolidated Statement of Operations, and temporary net differences between contributions and expenses were reflected as prepaid assets or accrued liabilities on our consolidated balance sheet. Under the New Standard, advertising fund contributions and expenditures for funds that we manage are reported on a gross basis in our Consolidated Statement of Operations.

The implementation of the New Standard also impacted our year-over-year results on a consolidated basis and for each segment as follows:

Additionally, for the first quarter, year-over-year results were impacted by the inclusion of Popeyes in our 2018 results.

For year-over-year comparability purposes, we have included a reconciliation of 2018 results under Previous Standards and are calculating organic growth under Previous Standards for both periods presented. Additional details can be found in our Form 10-Q.

Consolidated Financial Highlights

  Three Months Ended March 31,
(in US$ millions, except per share data) 2018   2018   2017    
  New Standard   Previous Standards   Previous Standards    
  (Unaudited)
Total Revenues $ 1,253.8   $ 1,071.8   $ 1,000.6      
Net Income Attributable to Common Shareholders $ 147.8   $ 151.0   $ 50.2      
Net Income Attributable to Common Shareholders and Noncontrolling Interests $ 278.6   $ 284.7   $ 98.7      
Diluted Earnings per Share $ 0.59   $ 0.60   $ 0.21      
           
TH Adjusted EBITDA(1) $ 245.2   $ 250.5   $ 256.2      
BK Adjusted EBITDA(1) $ 214.1   $ 215.0   $ 187.1      
PLK Adjusted EBITDA(1) $ 38.5   $ 40.8   N/A    
Adjusted EBITDA(2) $ 497.8   $ 506.3   $ 443.3      
           
Adjusted Net Income(2) $ 313.3   $ 319.4   $ 170.6      
Adjusted Diluted Earnings per Share(2) $ 0.66   $ 0.67   $ 0.36      
   
(1) TH Adjusted EBITDA, BK Adjusted EBITDA and PLK Adjusted EBITDA are our measures of segment profitability.
(2) Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted Earnings per Share are non-GAAP financial measures. Please refer to "Non-GAAP Financial Measures" for further detail.

Under Previous Standards, Total Revenues for the first quarter grew primarily as a result of the inclusion of our PLK segment and system-wide sales growth at BK, as well as a favorable FX impact, partially offset by a decrease in supply chain related revenues at TH. Net Income Attributable to Common Shareholders for the quarter, under both Previous Standards and the New Standard, was driven by the inclusion of our PLK segment, growth in BK segment income, and the redemption of our preferred shares in 2017.

Under Previous Standards, Adjusted EBITDA for the quarter grew 5.0% on an organic basis versus prior year combined results (including Popeyes), driven primarily by an increase in revenues at BK and PLK, partially offset by a decrease in supply chain related revenues at TH.

TH Segment Results

  Three Months Ended March 31,
(in US$ millions) 2018   2017
  New Standard   Previous Standards
  (Unaudited)
System-wide Sales Growth   2.1%     3.3%
System-wide Sales $ 1,607.7   $ 1,514.0
Comparable Sales   (0.3)%     (0.1)%
           
Net Restaurant Growth   2.8%     4.6%
System Restaurant Count at Period End   4,774     4,644
           
Sales $ 508.3   $ 527.4
Franchise and Property Revenues $ 255.2   $ 206.2
Total Revenues $ 763.5   $ 733.6
           
Cost of Sales $ 395.9   $ 402.5
Franchise and Property Expenses $ 69.5   $ 77.7
Segment SG&A $ 82.3   $ 25.1
Segment Depreciation and Amortization $ 26.3   $ 25.1
Adjusted EBITDA(1)(3) $ 245.2   $ 256.2
   
(3) TH Adjusted EBITDA includes $3.1 million and $2.8 million of cash distributions received from equity method investments for the three months ended March 31, 2018 and 2017, respectively.

For the first quarter of 2018, system-wide sales growth was primarily driven by net restaurant growth of 2.8%. Comparable sales of (0.3)% was primarily driven by relatively flat Canada comparable sales.

Under Previous Standards, Total Revenues for the quarter declined (3.0)% ((6.8)% excluding the impact of FX movements) versus prior year, primarily reflecting a decrease in supply chain related revenues, partially offset by a favorable impact of FX movements.

Under Previous Standards, Adjusted EBITDA for the quarter declined (2.2)% ((6.1)% excluding the impact of FX movements) versus prior year, primarily as a result of a decrease in Total Revenues, partially offset by a favorable impact of FX movements.

BK Segment Results

  Three Months Ended March 31,
(in US$ millions) 2018   2017
  New Standard   Previous Standards
  (Unaudited)
System-wide Sales Growth   11.3%     6.2%
System-wide Sales $ 5,148.9   $ 4,477.0
Comparable Sales   3.8%     (0.1)%
         
Net Restaurant Growth   6.9%     5.1%
System Restaurant Count at Period End   16,859     15,768
           
Sales $ 18.7   $ 23.0
Franchise and Property Revenues $ 371.2   $ 244.0
Total Revenues $ 389.9   $ 267.0
           
Cost of Sales $ 16.4   $ 20.9
Franchise and Property Expenses $ 32.5   $ 33.3
Segment SG&A $ 140.3   $ 38.2
Segment Depreciation and Amortization $ 12.2   $ 12.5
Adjusted EBITDA(1)(4) $ 214.1   $ 187.1
   
(4) BK Adjusted EBITDA includes $1.2 million of cash distributions received from equity method investments for the three months ended March 31, 2018.

For the first quarter of 2018, system-wide sales growth was driven by net restaurant growth of 6.9% and comparable sales of 3.8%, which was primarily driven by US comparable sales of 4.2%.

Under Previous Standards, Total Revenues for the quarter grew 9.7% (6.6% excluding the impact of FX movements) versus prior year, reflecting growth in system-wide sales.

Under Previous Standards, Adjusted EBITDA for the quarter grew 14.9% (11.5% excluding the impact of FX movements) versus prior year, primarily as a result of an increase in Total Revenues.

PLK Segment Results

  Three Months Ended March 31,
(in US$ millions) 2018   2017
  New Standard   Previous Standard
  (Unaudited)
System-wide Sales Growth   10.9%     6.1%
System-wide Sales $ 903.7   $ 835.8
Comparable Sales   3.2%     (0.2)%
           
Net Restaurant Growth   6.7%     5.8%
System Restaurant Count at Period End   2,926     2,743
           
Sales $ 20.8     N/A
Franchise and Property Revenues $ 79.6     N/A
Total Revenues $ 100.4     N/A
         
Cost of Sales $ 16.8     N/A
Franchise and Property Expenses $ 2.4     N/A
Segment SG&A $ 45.4     N/A
Segment Depreciation and Amortization $ 2.7     N/A
Adjusted EBITDA(1) $ 38.5     N/A

For the first quarter of 2018, system-wide sales growth was driven by net restaurant growth of 6.7% and comparable sales of 3.2%, which was primarily driven by US comparable sales of 2.3%.

PLK revenues and segment income from the acquisition date of March 27, 2017 through March 31, 2017 were not material to our consolidated financial statements, and therefore were not included in our consolidated statement of operations for the three months ended March 31, 2017.

Cash and Liquidity

As of March 31, 2018, total debt was $12.3 billion, and net debt (total debt less cash and cash equivalents of $0.9 billion) was $11.4 billion. Effective January 1, 2018, we adopted new guidance related to hedge accounting, which amends hedge accounting recognition and presentation requirements. Most notably, under the new guidance for our net investment hedges, all components not related to spot remeasurements on the notional amount of these instruments are included in interest expense, net, whereas previously they were recorded in other comprehensive income. Additional details about this accounting standard can be found in our Form 10-Q.

On April 24, 2018, the RBI Board of Directors declared a dividend of $0.45 per common share and partnership exchangeable unit of Restaurant Brands International Limited Partnership for the second quarter of 2018. The dividend will be payable on July 3, 2018 to shareholders and unitholders of record at the close of business on May 15, 2018.

Investor Conference Call

We will host an investor conference call and webcast at 8:30 a.m. Eastern Time on Tuesday, April 24, 2018, to review financial results for the first quarter ended March 31, 2018. The earnings call will be broadcast live via our investor relations website at http://investor.rbi.com and a replay will be available for 30 days following the release. The dial-in number is (877) 317-6711 for U.S. callers, (866) 450-4696 for Canadian callers, and (412) 317-5475 for callers from other countries.