Q1 2020 Earnings Call

As a reminder a live broadcast of this call may be accessed through the investor relations web page and investor and a recording will be available for replay joining me on the call to Thursday our restaurant Brands International CEO Jose seal Cielo Josh kobza and CFO. Matt dunigan. Today's earnings call contains forward-looking statements, which are subject to vest 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 measures are included in the press release available on our website.

Let's quickly review the agenda for today's call.

Jose will start with some opening remarks on our company's response to the ongoing covid-19 pandemic. He will then discuss our results for the first quarter and provide detail around our performance at 10 a.m. Or tain's Burger King and Popeyes Josh will then provide an update on technology at RBI and to conclude Matt will review our financial results before opening the call up for Q&A now like to turn the call over to Jose.

Thanks, Kristen. Good morning everyone. Thank you for joining us on today's call. I hope you and your families are doing well and staying safe.

I'd like to start today's call by thanking the hundreds of thousands of people that have been working behind the scenes and on the front line to ensure that we're continuing to serve our guests and communities in every way that we can during this time of need our our business partners. Our franchisees. Our team members are employees or suppliers. Everyone has been working together around the clock and it's been doing an extraordinary job.

We're fortunate to have.

Have an exceptionally strong platform in network are talented and dedicated teams the great business model. We've developed around our three iconic Global Brands and are strong and diverse network of Partners around the world have underpinned our strength over the past decade and continue to act as an incredibly strong foundation in the midst of this crisis.

As we move forward we will continue to serve our millions of guests and to support our restaurant owners are drive-thrus, which have for decades been an important source of differentiation have allowed us to add a secure and highly convenient means for our guests to get food. Once we are safely on the other side of this crisis. We're confident. We will pick up right back where we left off growing Our Brands home markets and internationally with over 27,000 restaurants across over a hundred countries and territories and three amazing iconic Brands. We came into this crisis in a position of strength and we're confident we have the tools to emerge even stronger and better.

I'll start my comments today by highlighting the most important things we've done to manage through the covid-19 demek before moving through our results for the quarter.

The health and safety of our guests and team members has been a critical priority from the start of the crisis in early March. We were among the first restaurant companies in North America to close our dining room seating areas before or local governments asked us to

We move quickly to install measures to ensure social distancing in the front and back of house as a crisis unfolded we thoroughly reviewed our restaurant health and safety protocols and expanded or Club in consultation with health experts and medical professionals.

We mandated masks gloves and contactless procedures in our locations across brands.

And using our experience in Asia as a valuable guide we were among the first in North America to introduce temperature checks for our team members early on we committed ourselves to supporting team members walk in our corporate restaurants in their ongoing need to adjust their day-to-day routines.

We also announced we would be paying all restaurant team members at our corporate restaurants $3 extra per hour for the month of April to thank them for their above and beyond service.

I personally watched our team members worked the front lines every day of this crisis with great admiration so much so that two weeks ago. I asked our board of directors to redirect half of my salary over the next six months funds are charitable foundations have set up for covid-19 Relief including supporting restaurant team members that are most in need our Co chairman of the board have joined me and are for going half of compensation for 2020.

Beginning in March we quickly pivoted our marketing and advertising replacing spots that emphasized price points and promotions with messaging around the benefits of our off-premise business model as well as messaging around Thursday. We're now emphasizing features of our service model that we haven't highlighted for quite some time in particular the availability and utility of our drive throughs in this environment. A drive-through window is a great option for so many people who want to limit physical contact and four guests that can't access our drive-through is we're rolling out new curbside pickup options on our mobile apps in North America.

We've also adjusted.

At a recent marketing to highlight the benefits of home delivery and how accessible our products are both through our own app and through third-party delivery partners.

Since the onset of covid-19, we've seen a rapid rollout of Home Delivery across thousands of restaurants.

Tim Hortons, for example we've gone from about 250 restaurants participating to more than a thousand in less than 2 months offering coverage for nearly all of Canada and we're still increasing the number of restaurants on delivery given the rising demand. We're seeing you this channel throughout all of these efforts. We've stayed very close to our restaurant owners. We've established weekly and even daily Communications with our advisory Boards of restaurant owners have been working constructively together on all of the decisions and changes we've needed to implement

In that context we set out to design support programs that would move the needle for a restaurant owners. And we believe the ability of our owners have shown to swiftly adapt their businesses and all the different support programs. Now in place has left our networks and an overall healthy and stable position.

We mobilized quickly to provide support early in the crisis. We announced we were moving to 100% variable rent at about 3,700 locations where we have property control so that these expenses can Flex down with the same impact to those restaurants. We also announced in March that we're deferring April's rent for up to 45 days to give restaurant owners more flexibility in managing their cash flow.

In addition, we looked ahead and identified a number of significant cash payments that would be due to owners and pull those forward representing more than seventy million of advanced liquidity.

For a Burger King restaurant owners in the US or cash advance on rebates made immediately available up to 15,000 for restaurant on top of these cash advance programs. We also temporarily suspended Capital commitments for owners including for renovations and new Development Across Our Brands across our International regions. We've similarly engaged with our restaurant owners to identify sources of immediate liquidity including by working with suppliers to secure extensions to payment terms and by working with lenders to access new lines of credit. We've also put mandatory Capital commitments on hold and have been proactive been working with local government officials first in China and now elsewhere in Asia in Europe to reopen stores as soon as possible.

And despite the many challenges we Face the strength of our business model continues to shine through across all three of Our Brands. We began this first quarter performing in line with the trends we noted for Q4 and maintain a steady performance through January February and the first 12 days of March.

In mid-march, we saw a sharp decline in comparable sales across Brands and regions coinciding with the global proliferation of covid-19. While many of the challenges remained in April and continue as we happen to me, there's optimism and renewed confidence amongst our brand teams and restaurant owners. Have we seen a strong Improvement incomparable sales over the course of the month of April low double-digit improvements for each month and in our home markets from the lowest levels. We saw in late March will provide more detail around this Dynamic at each of Our Brands in just a few minutes.

given the ongoing limitation

Seems to in restaurant dining in most markets are rapid shift to emphasizing off-premise has been a key driver of this improvement in our home markets majority of our sales were for off-premise consumption even before the crisis and the important adjustments we made to our marketing and operations of helped re-establish momentum in our drive throughs technology has emerged as as a critical differentiator and enabling delivery, which has also contributed substantially to the Improvement in sales. We've seen this internationally as well as as in markets like Spain and China where off-premise consumption is a very important part of the business.

We've been focused on understanding shifts and consumption patterns to guide adjustments like those. I just mentioned as covid-19 has spread. Most of our guests have put their ordinary routines on pause and consumption shifted accordingly, whether it's people on their way to work parents taking their kids to school or students on their way to class we've seen normal traffic routines completely suspended While most people are staying at home day Parts like breakfast and snacking that fit into these routines have seen a disproportionate decrease while lunch and dinner have shown more strength.

Also, whereas we would typically see sales pick up on Thursday and continue at a higher click through the weekend. We now see stronger performance on weekdays and while traffic has decreased we've General seen an increase in average check sizes. Do two more frequent group ordering both in the drive through and on delivery.

As we sit here today more than 95% of our us restaurants are open in Canada around 85% of our Tim Hortons restaurants remain open with most of the temporary closures in places, like universities or schools that are currently closed in a pack more than 80% of our restaurants are open which reflects a strong recovery in China after a majority of the restaurants were closed during the peak of the crisis there in February and in the media and lack around 40% and 50% of our restaurants are open respectively.

The proportion of temporary closures in Amiya and lack is particularly pronounced given the higher number of countries that have mandated total lockdown, but in both cases most of our Network song by large well-capitalized partners that are well-positioned to push through the crisis many of them are already working on preparations to reopen as governments have started to communicate potential paths Thursday coming weeks. So on a global basis approximately three-quarters of our restaurants are open today, although again, most still have limited service modes. We know that the full reopening of our all of our restaurants in service mode will take some time yet. But we're encouraged by early signs of improvement in sales Trends across many of our major markets.

With all the decisions we've taken and with the strong working relationship we have with our restaurant owners. We believe we're well-positioned to come out of this crisis even stronger as a system our supply chain operations. And those of our reps hours have continued operating with limited disruptions and we put in place measures to minimize risk across our systems.

Now like to go through a few highlights for each of Our Brands after which I'll ask Josh to share an update on our digital progress and then Matt to take you through the financial details of the quarter.

At Tim Hortons in q1 are system-wide sales decreased negative 10% to nearly 1.4 billion dollars driven by a decrease in global comparable sales of negative 10.3% which was partially offset by net restaurant growth of 1.2%

in Canada comparable sales declined 10.8% for the quarter and were significantly impacted by the spread of covid-19 and March.

During the pre-crisis. In January February our comp sales performance continued on the trajectory. We noted during our February earnings call and was about one point better than what we saw during the fourth quarter of last year in the weeks following the onset of the crisis across Canada in March. However, average daily comparable sales growth decrease the negative mid-forties as I mentioned earlier breakfast snacking and other routine based on a parts have been disproportionately impacted across all of our businesses and this Dynamic is clearly Illustrated in our results at Tim's and those of our coffee oriented competitors in North America.

However over the course of April, we've been encouraged by early signs of momentum returning to our core coffee and breakfast platforms as well as our drive throughs.

Also a rapid expansion of delivery to more than a thousand stores has allowed us to drive strong and consistent sales growth in the channel and the launch of curbside order and pickup has had a positive impact as well on the back of these initiatives. We spurt a positive trend in Daily comfortable sales growth that the end of April had us in the negative High thirties the more than ten point improvement from the lowest level. We saw in late March.

In q1, we also have the pivot our annual Roll Up the Rim promotion and pull 81 million paper roll up cups from the market as the early effects of covid-19 were emerging this resolved in an unplanned shift to an all-digital role of promotion.

All of our teams from digital to marketing to operations and our restaurant owners reacted incredibly quickly to make the necessary adjustments in a matter of days. It's hard to quantify the final impact of the page on sales given it coincided exactly with lockdowns beginning in Canada, but we saw a clear benefit from All Digital promotion, which greatly contributed to the one point five million new app downloads in a significant increase in loyalty registration. We saw during the quarter.

In terms of restaurant owner profitability the decrease in sales we've seen in recent weeks has led to an expected near-term decrease in profitability, but we're confident that a combination of the programs we've made available and those launched by the Canadian government will provide the resources. Our owners need to weather the crisis.

You'll recall that our Baseline you turn economics and Canada are among the strongest and Global Q Sr. Which provides a degree of installation even in the face of the sales declined seem to date and means that on average our restaurants continue to be cash flow positive.

As I mentioned earlier one of the measures we implemented to help our restaurant owners wish to suspend current capital Investments pre covid-19. We installed a fresh bruise and water filtration and thousands of restaurants month and still have about nine hundred restaurants that will undertake these installations. Once we emerge from the current crisis. Similarly. We've slowed down the implementation of our outdoor digital menu boards off. The importance of these projects is not changed. We are focusing our full attention on working with our franchisees to plan for a full reopening of their restaurants and adapt the business to meet all the demands of a post covid-19 world.

turning to

Burger King in q1 are system-wide sales decreased 3% to nearly five billion dollars driven by a decrease in global top sales of 3.7% which was partially offset by net wage growth of nearly 6%

The US are comparable sales growth at Burger King for the quarter was -6.5 per cent during the pre-crisis. In January February and the first two weeks of March, we posted positive comparable sales growth in the in the low single-digits driven by a continued strong contribution from The Impossible Whopper and improved performance in the value layer of our menu.

With the onset of covid-19 across the u.s. In mid-march our daily comparable sales growth decreased for the last two weeks of the quarter two- low thirties.

The largest individual driver of this decline was a closure of our in-store dining areas.

Despite this headwind. We quickly refocused our attention on a drive throughs and delivery as primary sales channels.

At the onset of the crisis our dining business dropped essentially the zero and even our drive-through business went negative year-over-year as customer traffic dropped due to the stay-at-home orders enforced throughout the country off since then or intense focus and modified approach to drive thru has allowed us to improve sales in the channel each week and our drive-thru sales for Burger King us are now up over 15% year-over-year and have been positive since the second week of April.

And on delivery in the final weeks of the quarter. We accelerated the roll out to several hundred restaurants so that we now have over 5,000 restaurants offering the service most via multiple delivery Partners as well as the Burger King mobile app.

We've continued to see tremendous growth in average delivery sales per restaurant through April including on our own app and are confident the market penetration. We've been building in our delivery channels will position us. Well as we emerged from this crisis,

On top of our other marketing initiatives our momentum and drive-thru and delivery sales is underpinned a sequential improvement in our total comparable sales from the negative low thirties and late March to the negative teens in the last few weeks of April.

In terms of restaurant profitability not surprisingly the decrease incomparable sales we've seen since March has negatively impacted store level profitability in the US. However, we've been working with our home owners to adapt their businesses to the current environment and access support programs both. We and the government have made available to drive restaurant level cash flow.

Given current conditions and available support programs. We believe our restaurant owners in the US are well-positioned to whether this crisis as I mentioned before remain over 95% open in our own National markets system-wide sales decreased just over 1% driven by a decrease in comparable sales of 1% which is partially offset by net restaurant growth of 9.5% The decrease system-wide sales was in part driven by a sharp decline in system-wide sales in China during the initial spread of covid-19 in January and February at the peak of the crisis in China a majority of our restaurants were temporarily closed incomparable sales for restaurants still operating. We're down 60%

over the course of five weeks

Between February March restaurants deadly reopened so that today less than 10% of restaurants in China remained closed.

At the same time daily comparable sales have recovered to approximately -15 per cent and maintained a positive trend.

The lower International system-wide sales in q1 also reflected the early impact of covid-19 across the rest of a pack Latin America and Mia were several markets instituted lockdowns in Lubbock, March.

As I noted earlier many markets have remained closed throughout the month of April and will continue into May and perhaps Beyond although governments are starting to release details around their expected timelines for reopening for example has communicated a timeline to reopen restaurants over the coming month while in Spain many of our restaurants are now able to fulfill delivery orders.

And finally at Popeye's our Global system-wide sales increased over 32% to 1.3 billion driven by over 26% growth in global comparable sales and unit growth of nearly 7% off sales growth was particularly strong in the US Rising nearly 30% for the quarter.

Performance at Popeye's varied substantially before and after the onset of covid-19 in the US, but saw the least impact relative to our other brands.

In January February and the first two weeks of March comparable sales grew in the thirties driven primarily by sustained volumes of the chicken sandwich, but also reflecting growth across other parts of the menu, including in the less and Seafood.

Following the onset of covid-19 in the US in mid-march comparable sales declined to Flat levels year over year for the last two weeks of the quarter in April. Like the Tim's & Burger King teams, the Popeyes team moved quickly to emphasize our off-premise business incomparable sales has substantially improved and are returning to the levels. We were seeing through the second week of March before the onset of the crisis Popeyes success last month wasn't like anything any of us have seen in our careers but its resilience in the face of covid-19 with dining rooms close across the country has been equally remarkable.

We've made many important adjustments at Popeye's since the global spread of covid-19 rolling out contactless procedures in the drive-through and putting additional resources behind delivery and mobile order and pick up in these channels. We've wage increase in average order size and ticket especially in the dinner Day part through communication of our family meal bundles comparable delivery sales are up in the triple digits year-over-year and we continue to see them as a huge opportunity to reach new guests and enlarge the trade area of our stores as a brand build on the momentum. It has sustained from last year.

At Popeye's and across all three of Our Brands we've seen the importance of digital sales through apps through curbside pickup at our restaurants and through or delivery Partners. I'd like to turn the call over to Josh who's been instrumental in bringing all of our digital efforts that have prepared us so well to lean into these channels Josh

Thanks, Jose a good morning everyone in many ways. The crisis has accelerated some of the behavior change that we had already seen building social distancing has forced consumer too quickly change their behavior and adopt Solutions with a new threshold for convenience.

This has been a critical moment to leverage the infrastructure. We've been building for years to move quickly to adapt our Platforms in response to our guests rapidly evolving needs and we've seen some pretty remarkable progress in just a short period of time especially in three key areas. The first is delivery from a base of just a couple hundred restaurants in North America on delivery two years ago. We now have well over nine thousand active restaurants took us are three brands with most offering delivery via our own digital platforms as well as multiple aggregators at Tim's in Canada. We brought nearly eight hundred additional restaurants online with them and just two months and have seen overall delivery sales grow by more than six times versus their pre-crisis levels.

And at Burger King and Popeyes. Our delivery sales are up more than three times versus the same time last year as we expand locations and average sales per restaurant.

Much of this is driven by delivery through our own mobile apps which now represent around 20% of our total delivery sales for bruising in Popeyes.

The second area of focus for us is our mobile app guest experience across all three of our mobile apps in the home markets where we've made significant strides to incorporate guests feedback and enhance our user experience.

This is led to improvements in our app store ratings industry-leading download growth during the quarter and has also resulted in very significant Improvement in terms of guests, who visit our website or mobile apps and ultimately make a purchase in some cases. This is improved up to ten times in the past couple of quarters. The third area I'll mention is our efforts around CRM with particular focus on Tim's rewards as Jose mentioned earlier. We've been pleased with the transition to the new points-based structure, which was designed to open up more of the menu to our loyal guests and incomplete registration today. Approximately 45% of guests using Tim's rewards are registered versus about 25% back in February, which is in line with our expectations going in

Progress in each of these areas is critical to achieving our overarching goal which is to drive the digital sales across each of Our Brands as of the third week of April for our home markets digital sales represented about 9% of total sales at Burger King 15% of total sales at Popeye's and more than 30% of total sales at Tim Hortons. We believe that our future growth prospects will be increasingly tap into our digital capabilities and we will continue to build leading teams and capabilities and technology so that we can bring our guests digital experiences that contribute towards our dream of building the most love restaurant brands in a world. We're encouraged by the progress. We've made this quarter and look forward to sharing more developments with you going forward on the other hand things over to Matt to take us through more detail on the business results.

Thanks, Josh my comments today. I'll take you through an overview of our results for the first quarter as well as some important steps. We've taken to further enhance the strength of our balance sheet in light of the uncertainty surrounding covid-19 off in the first quarter system-wide sales performance across each of Our Brands led to Consolidated adjusted ebitda, 444 million dollars down 9.6% Organically year-over-year reflects the impact of covid-19 results throughout the quarter first in Asia, then later in other regions around the world are performances quarter also reflected add fund expenses exceeding revenues by nearly twenty million more than they did in the first quarter of last year resulting in an impact of approximately -4 per cent to our Consolidated organic adjusted ebitda growth rate.

We've mentioned in the past.

Some quarters. There may be a mismatch in the timing of revenues and expenses. But that in the long run we manage these add funds so that total revenues equal expenses in this quarter the sudden decline in sales resulted from the spread of covid-19 led to an especially pronounced mismatch, which we expect should normalize over time.

This is he mentioned earlier. We also suspended base ran for several thousand properties in Canada and the US and realized a one-time expense related to the right off of coffee cups that were intended for use in our Roll Up the Rim program that taken together these two items reduced our adjusted ebitda growth rate by about 2%

Now moving on to segment level performance at Tim Hortons. Our first quarter adjusted ebitda was $189 which represents a decrease of about 19% on an organic basis. This decrease was driven primarily by a 9.9% decrease in system-wide sales which included a 10.3% decrease in global comparable sales that was partially offset by globalnet record growth of 1.2% the year of year decrease in adjusted ebitda also reflected a decrease in supply chain sales, which are primarily driven by restaurant traffic and volumes also offer approximately half of the ad fun related negative impact to consolidate adjusted ebitda was attributable to Tim Hortons, which reduced our Tim Hortons ebitda growth rate by approximately 4%

And finally the base rent adjustment and one-time write-off of cups. I mentioned earlier together reduced our year-over-year growth rate by about 3% at Burger King first quarter adjusted ebitda, $1,000 billion dollars representing a year-over-year organic decrease of approximately 7% driven primarily by a 3% decrease in system-wide sales growth.

The evolution of our system-wide sales reflected a decrease in global comparable sales over 3% which was partially offset by globalnet restaurant growth of nearly 6%

Also about half of the negative ad fun related impact to consolidate adjusted ebitda was attributable to Burger King which reduced our Burger King growth rate by about four and half percent off. Finally a Popeye's this quarter's adjusted ebitda was over $50 which was up nearly 35% organically year-over-year. This increase was driven by strong system a sales growth of over 32% continuing the brands strong momentum from last year including net restaurant growth of nearly 7% and Global comparable sales of over 26% off the upset by higher segment sg&a on a Consolidated basis. Our first quarter adjusted net income was $226. This compares the first quarter 2019 adjusted net income of $255. The year of your decrease was attributable to the decrease in adjusted ebitda and unfavorable exchange rate movements.

Partially offset by lower interest expense resulting from our refinancing activities in Q3 and Q4 of last year as well as slightly lower expenses you every year related to stock-based compensation and DNA our adjusted diluted EPS for the first quarter was $0.48 compared to $0.55 in the prior-year representing a nominal decrease of 11.8% including this decreases a headwind from unfavorable foreign exchange rate movements, which reduced our EPS growth rate by approximately 2%

our first

For 2020 adjusted effective income tax rate of 19.2% was approximately in line with the first quarter of 2019 and on a full year basis, we continue to expect the rate in the low 20% range. However, it's important to remember that the timing and amount of stock option exercises can vary materially overtime and can therefore cause some volatility from quarter-to-quarter.

Now turning to our cash generation and capital allocation for the quarter. It's worth highlighting up front that our liquidity position continues to be very strong and we have reinforced the strength and flexibility of our balance sheet through the actions taken the response to the covid-19 crisis. Our leverage remains one of the lowest in our peer group. We have no near-term maturities and we feel very well positioned from a capital structure perspective.

Despite the impact of covid-19 business around the world. We generated free cash flow of approximately $116 in the first quarter calculator is the sum of cash flows from operating activities less payments for each equipment.

We also paid a total of $230 in common dividends and partnership exchangeable unit distributions at the beginning of the quarter and this morning. We announced that the RBI board of directors declared a dividend a a $0.52 per common share and partnership exchangeable unit of RBI LP payable on June 30th 2020.

In terms of Investments while we continue to make progress on key projects during the first part of the quarter including our remodel programs at Tim Hortons and Burger King the expansion of our Tim Hortons supply-chain Network in Canada and the rollout of outdoor digital menu boards at Tim Hortons across Canada and the US the unprecedented impact of covid-19 has caused us to press pause and many of these initiatives name is suspended all capital expenditure commitments for our restaurant owners to maximize their flexibility as we navigate this crisis together. We remain confident in the rationale behind each of our investment projects and will resume back once we are shared is safe to do. So in the meantime We are continuing to move ahead with our project to expand our distribution footprint in Canada.

As of March 31st 2020 our total debt outstanding was thirteen point four billion dollars our net debt calculated as total debt less cash and cash equivalents of two point five billion dollars was ten point nine billion dollars and our net debt to adjusted ebitda leverage ratio was 4.8 times and one of the lowest in our peer group.

As I mentioned in March we moved quickly and taking several steps to maximize our liquidity as the spread of covid-19 safai died within the first week of covid-19 initial spread in the US we drew down substantially all of our 1 billion dollar revolving line of credit, even though we entered the first quarter with a very healthy cash balance of 1.5 billion dollars we felt it was prudent to maximize our liquidity out of an abundance of caution at the end of the quarter. We saw an opportunity to raise additional funds in the debt markets, which up to that point had been effectively closed for a number of weeks on April 7th. We closed off million dollars of new five-year first lien senior secured notes.

given the considerable uncertainty

Surrounding covid-19. We are pleased to strengthen our balance sheet even further on top of the nearly 2.5 billion of cash we held at the end of the first quarter.

As a result of these actions we are confident. We have the resources and flexibility needed to manage through this crisis and emerge on the other side even stronger. Thank you everyone for joining us on the call this month and for your continued support with that and I'd like to open the call for questions operator.

Thank you, and I'll begin the question-and-answer session to ask a question. You may press star one on your telephone keypad. If you'd like to talk to one question. Today's first question, then it's got her with you. Yes, please. Go ahead.

Morning, guys. Hope all is well. And thanks for the question Jose. Thanks for all the insights on the recent Trends and the franchisee Health. Just wondering if you could talk a bit more about about unit development wage and some of the near-term choppiness across the industry. Maybe kind of the way you're thinking about longer-term store development. If if that long-term Outlook that that you that you folks framed is, you know still applicable. I know you mentioned kind of confidence in getting back to where you left off with with growth in the brands as well. As I think, you know the large well capitalized the international franchise easy partner with so maybe you could just discuss some of the the puts and takes you think about longer-term store development. Thank you.

Hey, Dennis. Thanks for the question. And I hope you're doing well and and staying safe. Yeah, look, I think in the short term we're going to see an impact in in that restaurant growth and I think in terms of future years it's too early to say exactly what the path is going to look like, but we have amazing restaurant Brands as as we've said time and time again and and it's been as it has been evidenced by the the growth over the last couple of years. We have amazing franchise Partners all around the globe Master franchisees as well as smaller operators in in North America all working hard and investing well in in their businesses and and we've seen in in different markets. I think it's going to it's going to be varied by region and it's going to be varied by country as as markets reopen as Witnesses get back to normal as consumers get back to normal behaviors and and and and we think there's an opportunity down the road to to with real estate and with you know are welcome.

Life Partners to be able to to get back on track from a from a development standpoint. I was in Europe with Burger King back in into back in 2010 about ten years ago kind of at the height of the page, crisis and and these were some of the best years we had with in Western Europe with with many of our developing partners because there was a tremendous opportunities to reveal resilience of our business in Our Brands the strength of our investment model and and Returns on Capital as well as opportunities that exist from the real estate standpoint. So we feel very confident long-term in the short-term will continue to manage and work through the the situation very closely with our partners, uh, a market-by-market, but but we're continuing to be very excited long-term about the business.

Thanks for the question.

Let me see please. Go ahead.

Hey, good morning. I actually just wanted to follow up on that question and specifically with regards to the with regards to the Canadian Network at Tim. We noted the the home net restaurant closures in q1 and wonder if you could just give a little bit of color around that.

Yeah, thanks for the question. I think on our in in Canada and and throughout North America or business, you know continues to to kind of whether the the the current situation in q1. We we tend to have closures that that happen from time to time in in mature markets and mature Brands like we have with with Tim's and and Burger King and and Popeyes in South America now, so there was nothing specific to call out for for q1 from a closure standpoint.

No, next question today comes from the whole Miller and Piper Sandler, please go ahead.

Thank you so much. I know there's a lot to cover, but I will just keep the one question. So mine would be this. Well, there's a lot of near-term disruption. There's still a lot of phenomenal Brands out there and I am very curious that perhaps some things become attractive. So as a silver lining potentially what kind of opportunities are you seeing to expand the portfolio, maybe not right now, but maybe on the horizon. Thank you.

Thanks to call as we said in our comments are prepared remarks and we've said time and time again over the last several weeks publicly. We're we're focused right now on I'll take care of our guests taking care of our restaurant teams in the in in all of our restaurants. We've got tens of thousands of restaurants open at 75% of our restaurants are open in a in a very complicated situation. So we're focused on safety well-being taking care of our guests. We're working with our franchise owners to make sure that they have the proper liquidity the weather the current situation we're working with our team is as well giving back and making sure that that that we have that are brands are present in the communities that that need us and and we're continuing to work on the reopening plans off across the globe. We're we off we have a an attractive model and long-term will be exercising that you know, flexibility around what we do with with our balance sheet that our Focus right now is dead.

I don't listen to the teacher. It's

On today and the the near-term and making sure we we get out of this and in a stronger position then then we entered thanks so much for the question.

Oh next question today comes from John glass and Morgan Stanley, please go ahead. Thanks and good morning. My question is on the Tim's business model. Can you help us better understand them in both the distribution business and then also the sub rent business for Tim's the fixed and variable costs how much in the distribution business deal of hers? When you see sales decline like this and given that you're off the franchisees variable rents What proportion of the rents or other costs of that line item or fixed from your perspectives? We can understand how that acts through this crisis.

Yeah, John. Thanks for the question.

I think as it relates to the distribution business, you know that that is generally driven by level of activity and and traffic and volume and the country and is you know, we're off vertically integrated pretty much throughout Canada. So we continue to operate really a full steam across across their supply chain capabilities and as volumes go down, you know, we we do see a a little bit of a of an impact on the fixed cost leverage but you know in general we you know, so far have not seen a lot of material impact to to the margins in that business in the first quarter and then as it relates to the property business, you're right. We we as part of our our our commitment to working with our partners and uh and trying to create some flexibility and support on the liquidity side as we work through the situation in Canada. We temporarily suspended our our faith.

And and we switched our our rent over to fully variable. So that rent expense would Flex down with sales for our owners just like royalties have in this environment and then on the on the expense side of that for us where we do have had leases across the number of properties in Canada. We generally have fixed contractual rents that Monday through the head lease. And so, you know, we pointed out as part of that adjustment in the quarter we did see, you know, an impact to our ebitda related to that that rent money, you know variable rent adjustment which was about a point or two of the epidemic growth impact.

Thanks for the question. I don't know question today comes from David Palmer, please. Go ahead.

Thanks and good morning question on Tim Hortons. I think coming into this year. There was a lot TWP, you know, you had change and loyalty coffee improvements been a marketing and I think the concern is that the brand was trying to bend the trend and of course things are short-circuited by the the crisis. So I'm wondering how you're thinking about what Tim's can do to drive from here. How much does the game plan change and then and then in addition I would imagine there's going to be an overlay of economic factors that you're considering. It's an oil market up there. How are you thinking about driving improvement Beyond just the social distancing effect that the economic one. Thanks.

Hey, thanks David. Appreciate the question. The first thing we we obviously had a a clear plan that we were excited about the work. We were doing coming into into march with faith with Tim Hortons in Canada. We had alignment with our restaurant owners on on bringing the business Back to Basics focusing on coffee on breakfast focusing on loyalty and and then making improvements in in our off-premise experience drive-thru in particular, but but also going all into digital which has been a big part of our of our plan for for the last couple of years as we had it in to the crisis in in mid-march as I mentioned in response in the cold question. The real Focus was safety and of our teams and guests first ability of our franchise base, uh, cellphone and then connecting with our communities and making sure that you know what Tim's does best which is really act as a local kind of home for most of its guests all around the country club.

So that we did that really well and that we committed.

That we were there for for Canadians during the most difficult of times and what we've seen over as I mentioned in my comments what we've seen over the last several weeks through the crisis is that obviously had a a big impact at the beginning. We we see that as we look at other competitors in our space, um in the coffee the morning daypart kind of routine based businesses like Tim's is we've seen a lot more closures than than what we've seen so our our business is 85% open we've seen that that everyone's been impacted heavily in in that in that breakfast business, but we've made really strong pushes over the last several weeks to expand our off-premise business. We've expanded delivery. We've expanded to curb side in many cases in addition to age really good progress on loyalty and really good progress on on mobile order and and other aspects of our digital platforms, which we're really excited about as we look forward and and we go into the next month.

Days, you know obviously there's a big component of reopening communities reopening the economy re-opening our dining rooms in conjunction with that and doing the safely. I think we're going to be working closely with in each of our markets around, you know connecting with folks as they if they get back to their routines going back to the office has this may take a little bit longer to to to open up completely but we we're going to be there may be step of the way and and and, you know, trying to drive that behavior back to where where it was pretty covid-19 and we're going to reactivate many of the growth drivers that that I mentioned coming out of our our queue for calling February around coffee. So continued Improvement on coffee continue driving the next phase of loyalty which which has a big component of of one-on-one marketing as we get registrations up and get more information from from our get our loyal guests in in Canada and continued investment digital continued investment in in breakfast food, and we're we're we had wage

I mentioned we put every all of our capex initiatives on pause but we're re-evaluating that as it relates to to the key quality and off-premise initiatives that we talked about for a long drive through and also looking at things like curbside being a an additional element of of off-premise which uh was not a priority coming into it, but we see as a big opportunity and and another way to serve Canadians in in Canada the other piece that's exciting and encouraging more so than exciting for us is is this idea of bringing the the brand back to to its roots to its Community Connection to the local strength of the brand and and we've seen some encouraging feedback through different measures that we have that Canadians are are connecting better with the brand that we've some of the initiatives that we've done around coffee trucks to to serve wage.

Medical providers free coffee free donuts for ten minutes. Um

That that's resonated really well and and and some of the other initiatives that we've done that have been completely and and totally focused locally and driven in many cases by our our amazing restaurants in Canada. So we're we're optimistic and in confident that long-term, we've got a great plan for Canada and we're going to work like crazy in the short-term to uh to work through the the courage to get to get back to what we think we should be and and will be long-term with Sprint. Thanks for the question.

All right question today comes from Brian Beckner with Oppenheimer & Company, please.

Good morning. Thanks for taking the question again on Tim's another question here. Can you just clarify what percentage of tens Assets in Canada have have drive-thrus off and just secondly when you said you expect Tim's units on average to remain cash flow positive. Can you just clarify what you mean by that do you mean under the current sales Trends? You expect him to be cash flow positive and does that include the help from the government just additional color there would be helpful. Thank you.

Yes, Brian. Thanks for the question. We have about sixty just under 65% of our restaurants in Canada have have drive-thrus. So about 2,500 out of the 4005 and I'll pass on to to Matt the question on on franchisee liquidity and cash flow the that you asked the second question. Yeah. Hey Brian. Thanks for the questions Matt here. You know, I think you know as we took this franchisee profitability has decreased as expected with the sales decline, you know, but I think through a combination of both wage jobs that we've implemented as well as the government programs being made available in both Canada and the US, you know, we're pretty confident that a vast majority of of our franchisees have run way to manage through the crisis and and on average remain cash flow positive. Yeah, when our side we as we mentioned we flexed rents to become more variable. We also found ways to Thursday.

And some additional cash into our systems including the Burger King liquidity program we talked about on the tin side some advancement of retail profit sharing and then on top of that, as I mentioned we have, you know, some really thoughtful government programs in place that you know, we think are you know, very helpful in supporting our franchisees through the situation and well, I'll set some of the profitability and cash flow impact from the sales decline. So I think through you know through a combination of all all the things that we've implemented plus these programs, you know, God continue to allow the systems in the US and Canada to deal with the situation and and remain in a a reasonably healthy, uh position.

Thanks for the question.

next question

Cinco sir senatorial with Bernstein, please. Thanks. I know obviously your focus right now is on the pandemic and and recovery, but I did want to ask about Trends in US prior to the the outbreak in the US which is basically the us, but I think you said was low single-digits. But what we heard from other large limited-service restaurants were more in the meat or even high single-digit range in in the sense that the whole industry seem to have really accelerated. So I guess I'm trying to understand why Burger King didn't fully participate in that, you know, if you have a sense of where you might have lost share versus some of the other big competitors cuz I don't think it's a question of tougher Compares, you know Compares. We're pretty easy. So just trying to understand sort of the long-term the prospects for Burger King in the US just considering what we've seen the last couple of quarters. Thanks.

Yeah. Hi Sarah. Thanks for the question coming into the crisis as I mentioned in my prepared remarks. We were kind of low single-digits with with Burger King a slightly better but not in line with what we saw in Q4 as as I mentioned in my remarks in in February. We were really confident with the long-term plan for Burger King with with some of the Investments walk around Burger King Of Tomorrow. Some of the Investments were were making on on food and food quality and communicating that to our Our Guest of the work we're doing on digital which has accelerated tremendously. I'm Josh mentioned a few minutes ago is accelerated tremendously both in terms of delivery as well as in terms of the mobile app and and downloads of of jump tremendously. So we're able to connect directly with our with our guests and and have one-on-one marketing. We've also made investments in and and continue to look at Investments for the long-term on on drive-through and Thursday.

Saying that capability we've started to to test and roll out in many markets, um curbside which we think is an additional opportunity from from an off-premise standpoint. So there's uh, I think the plan for for the long term as I mentioned, I guess ninety days ago is a strong one that has long-term growth potential breakfast continues to be an area where we think you'll have a lot of room to it to grow and we've got a really strong base of of consumers that already know the brand and and love the brand for breakfast and so our Focus as I mentioned in the context of of this scenario is to make sure that our business and our franchisees and our teams are are safe and well prepared to to weather the storm we've seen good friends is coming out coming out of the lows of of the end of March in terms of the the n d k u s as I mentioned in my comments, so all all of the uh, the signals are yep.

Us confidence that that we have the right.

Plans, we have great partners and we have the the right long-term potential for this business. Thanks so much for the question.

Our next question comes from Peter sklar would be in the market. Thanks. Just with what's you know, everyone sees what's going on in the in the protein processing complex, um, you know, as a result of covid-19 and with processing plants going down, you know, particularly, I guess it's poultry beef and pork up going down. Have you seen any issues yet in terms of Supply to your banners and what are your contingency plans? Cuz obviously there is going to be interruptions.

Yes, Peter. Thanks for the question. Yeah, this is something we're very very acutely aware of and monitoring on an hourly daily basis. I've got updates with my team regularly on this topic. We we haven't seen any interruptions or disruptions to our supply chain in North America either on the beef pork or poultry side. What what gives we're obviously working closely with the suppliers and a distribution Partners as well to make sure we we have all of our contingency plans in place. Some of that has to do with safety stock. Some of it has to do with the diversity of raw material suppliers as well as processors that we have which gives us confidence that that we can manage through any situation that's out. There we have as I said, we haven't seen any issues in in the near-term despite some of the the headlines you've seen from others are ours are supply chain is intact and and working well, but we're monitoring closely wage.

And will keep everyone posted if anything changes. Thanks so much for the question.

And ladies and gentlemen, this concludes the question answer session. I'd like to turn the conference back over to Jose still pretty fun.

Thanks everyone and and thanks for your time today. The covid-19 pandemic has obviously introduced a wide variety of challenges, but we feel we're well positioned and have the resources we need to come through this together with our faith is across all three of our amazing and iconic Brands over time. We've demonstrated our ability to grow in a wide variety of macroeconomic conditions, and we believe the resilience of our business model will serve as well as we confront and ultimately emerge from the covid-19 pandemic once we're safely on the other side of this crisis. We're confident we'll pick right back up.