Q3 2022 Restaurant Brands International Inc Earnings Call

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Good morning, and welcome to the restaurant brands International third quarter 2022 earnings Conference call.

<unk> expense will be in listen only mode should you need assistance assistance. Please signal a conference specialist by pressing the star key followed by state right. After today's presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad.

You will hear tend to confirm that you were in the queue to ask the questions queue. You May Press Star then two <unk> will be limited to one question. Please note. This event is being recorded I would now like to turn the conference over to Kevin Malaysia, Rbi's head of Investor Relations. Please go ahead.

Thank you operator, good morning, everyone and welcome to restaurant brands Internationals earnings call for the third quarter ended September 32022, as a reminder, a live broadcast of this call may be accessed through the Investor Relations webpage at RBI Dot com slash investors and a recording will be available for replay.

Joining me on the call today are restaurant brands International's CEO Jose fill COO, Josh Kobza and CFO , Matt Dunnigan.

Today's earning 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.

Conciliations of non-GAAP financial measures are included in the press release available on our website.

During portions of the call today, we will be referencing three 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.

Three year comparisons are calculated on a geometric.

Stack spaces by using the 2000 22021, and 2022 disclosed growth metrics. In addition, the consolidated growth metrics discussed during the prepared remarks, including consolidated system wide sales growth net restaurant growth in organic adjusted EBITDA growth exclude results for firehouse subs, which we acquired on December 15th 2021.

Reflect comparable year over year growth figures and now I will turn the call over to Jose.

Thanks, Kevin and good morning, everyone. Thank you for joining us on today's call to discuss our results for the third quarter of 2022.

This quarter, we saw the key pieces of our plan continue to come together and foster meaningful growth across our brands and regions with year over year comparable sales up 9% system wide sales growth of 14% and 8% organic adjusted EBITDA growth or 10%, excluding an estimated impact on adjusted EBITDA related to Russia.

These results were primarily driven by strong performance across our Tim Hortons, Canada, and Burger King International businesses.

<unk> in the U S at Burger King Popeye and firehouse subs continued growth in digital sales globally and development progress.

Turning to a few highlights from the quarter.

During the third quarter, we grew consolidated year over year comparable sales by 9% driven by 11% comparable sales at Tim Hortons, Canada, 15% comparable sales in our Burger King International business.

And sequential improvements at Burger, King Popeye's, and firehouse subs home markets.

At Burger King U S. We saw 4% comparable sales and continued to narrow the sales gap to peers.

Our digital channels also continued to contribute to our sales growth this quarter with global digital sales up 26% year over year to nearly $3 4 billion.

Capturing a third of consolidated system wide sales. We also made solid development progress during the third quarter with popeye's once again, a standout and well positioned for another strong year.

As we look ahead, we're confident in our long term pipeline and expect to see our development mixed strengthen bringing Tim hortons and popeye's to more and more markets around the world. While also ramping Burger king back to historical levels over time.

The combination of comparable sales and net restaurant growth helped drive Q3 system wide sales to $10 1 billion up 14% year over year, excluding firehouse subs and organic adjusted EBITDA growth of 8% or 10%, excluding the estimated impact on adjusted EBITDA related to Russia.

Our strong free cash flow generation this quarter provided us with flexibility to reinvest in our business, while returning capital to shareholders.

During the quarter, we continued our commitment to shareholder returns delivering over $240 million, representing the 14th consecutive quarter of year over year dividend growth.

Our industry, leading dividend remains a key component of our capital allocation strategy and as such we're committed to maintaining our dividend and we'll look to continue growing it on a dollar per share basis with our business over time.

Before diving into brand results for the quarter I want to highlight another important milestone from the quarter.

As many of you know in September we unveiled a reclaimed the flame plan designed to engage our Burger king fans and create new ones and accelerate traffic and sales growth and drive franchisee profitability at Burger King U S.

It was critical that we work together with our franchisees to create a thoughtful well sequenced plan aimed at improving our guest experience at Burger King a plan that franchisees and their team members will be proud of stand behind and be energized to execute against.

It was also important to demonstrate our confidence in the plan, which is why we committed to making a $400 million corporate investment over the next two years. This investment will help us increase our advertising firepower drive higher quality restaurant improvements and Remodels.

And support incremental technology and digital investments.

While still early days I'm incredibly proud of the work done by the Burger King U S team together with our franchisees to develop this plan and I will share a bit more detail with you later in the call I'd also like to acknowledge something we're all fully aware of the continued macroeconomic pressures impacting our industry and our franchisees. These.

These include ongoing commodity and wage inflation and rising interest rates.

We continue to work closely with our franchisees directly and through owner advisory boards and franchise council to identify opportunities to address pressures within our control to leverage our scale and buying power and to use pricing strategically when and where appropriate and always being guest led.

While these pressures are certainly also impacting consumers. We've been pleased to see continued engagement with our brand a testament to the resilience of our business model and the strength of our value proposition.

2019 level.

These results were driven by continued strength from our core offerings and strong calendar initiatives to extend Tim Hortons into high growth day parts and products aided by strategic price increases the.

The success across multiple pillars of our strategic plan demonstrates our confidence in achieving sustainable profitable top line growth over the long term.

Even as we continued to see an uneven return to the workplace and many of the big urban centres in Canada.

During the quarter, we saw improved performance versus 2019 levels across all day parts formats or vanities and regions.

Including Super urban locations, which have narrowed the gap to 2019 sales from down 40% in the third quarter of 2021 to down 5% this past quarter.

And although sales from hot beverage remains the low 2019 levels. The trend continued to improve sequentially. While the positive sales expansion, we've seen in key growth categories like food cold beverage and specialty beveridge more than offset this gap.

Our core breakfast and baked goods platforms maintain strength with the introduction of our new Maple Bacon breakfast sandwiches and a relaunch of last spring successful candidates favorite donuts offering the Apple fritter, and Boston cream paired with our freshly brewed coffee.

As a result, we're pleased to see that our core food offerings breakfast in bed. Good helped drive a year over year comparable sales uplift during the quarter with added benefit from a cold beverage and PM food initiatives.

Or cold beverage lineup feature to reheat of our fan favorite cold brew and the introduction of pumpkin Spice cold beverages.

During the quarter these initiatives helped or cold beverage platform grow by 14% versus 2019 and drive cold beverages to over 40 per cent of total beverage sales from 34% in the third quarter of 2019.

As we continue expanding our cold beverage platforms across cold grooves specialty and non caffeinated, we expect to drive more visits and sail through cold beverages and Dr platforms as important compliments to the work we're doing to expand the PM day part.

This quarter, we continued to benefit from the June rollout of our loaded bowls, which together with loaded wraps proved to be incremental to Maine foods and PM day, part sales year over year and versus 2019.

In fact are loaded platform helped drive sales from Maine foods, 40% above 2019 level driving our lunch date park up to plus 15% versus 2019.

To take our load a platform to the next level and add a fall twist, we launched loaded chilly and elevated version to the classic Tim Hortons Chilly, we all know and love.

With the addition of our loaded chili or extension into PM food continues to garner excitement from existing and new guests through various service modes, including drive thru dine in in various digital channels.

Are strong digital capabilities, including the number one food and beverage happened, Canada have enabled Tim hortons to better catered towards guests deliver a great experience increased brand loyalty and drive over a third of sales through digital channels, while growing digital sales.

This quarter, we're enhancing our digital experience by rolling out our scan and pay feature that allows guests to leverage one QR code and their tim's apt to scan for loyalty and pay at the same time.

We expect this integration to not only make ordering and paying even more convenient for guests, but to also improved speed of service, especially in the drive through looking.

Looking ahead, we see opportunities to leverage our digital platforms to offer new engaging features for guests, while improving our existing offerings to provide the best user experience possible.

In addition to being a leader in digital in Canada, Tim Hortons prides itself in being a community led brand. This.

This quarter, we celebrated two of our most important and exciting fundraising initiatives of the year camp day and smiled cookie.

Through Camp day, Tim Hortons restaurant owners team members and volunteers raised over 12 million Canadian dollars across Canada, and the U S for the Tim Hortons Foundation camps.

Following camp a restaurant owners, then raised a record breaking 50 million Canadian dollars for more than 600, local charities and community groups through a loved smell cookie campaign.

The Tims, Canada team and restaurant owners capped off the quarter raising over 1 million Canadian dollars with the Orange sprinkled Donut campaign on September 30th an amazing accomplishment in one day with proceeds going to support indigenous organizations in Canada.

I'm incredibly grateful to a restaurant owners, who work hard day in and day out for their communities going above and beyond each year to support these important program and make meaningful connections in their neighborhood and their communities all across Canada Finally I'd.

I'd like to touch on the opportunities we see for the Tim Hortons brand around the world since acquiring the brand in 2014, we've established our presence in seven new countries and grown our store count outside of Canada to over 1500 locations.

We're still ramping up our global footprint through a robust pipeline of long term deals this quarter international team had some exciting restaurant openings, including our first four locations in India and saw continued growth in the middle East in Philippines, as well as Mexico, where we just opened our 50th restaurant in Monterey.

We've also seen the brand embraced all over the UK with London's first location opening in early July we now have more than 60, Tim Hortons in the UK and growing.

This is on top of the incredible growth and market potential we've seen at Tim Hortons, China, which opens door number 500 in mid October and is well positioned to continue its strong pace of broke.

Meanwhile, in the U S. We opened our first restaurant in Houston, Texas, featuring a smaller and more optimized footprint with a streamline menu.

We've seen positive results from this restaurant with our cold beverage platform, performing especially well in the market. It's.

It's been exciting to see guest around the world embrace of Tim's brand and we're excited to continue introducing more guest to the Tim's experience.

Turning now to Burger King U S. We.

We made continued foundational improvements this quarter across menu innovation digital an operation and officially launched a reclaimed the plane plan to enhance all aspects of the guest experience and advanced sales in the U S.

As I mentioned earlier, we develop this plan in partnership with a diverse representative group of BK franchisees from across the country, who all had one thing in common.

They have the respect of their peers and a dedication to address the needs of guests franchisees team members and the brand.

The Burger King U S team in this group of franchisees met for months to collaborate on building a plan to address guests needs accelerate sales growth and strengthens longterm franchisee profitability.

It starts with reclaiming our rightful share voice and media and guest consideration shoring up our brand equity and delivering on our brand purpose the relentless pursuit of better for our guests.

We take this off in October , bringing our brand purpose of life with a new campaign that repossessions, the brand and elevates our core brand equity have it your way.

Through the introduction of a modernized you rule tagline.

We've been very pleased with the response from franchisees team members and consumers to this new relevant positioning that embraces individuality.

It's been amazing to see so many guests wearing their crowds, saying your rule in breathing life into this campaign.

The launch of your rule also marked the start of our historic fuel the flames advertising Coinvestment as a reminder, this corporate investment will total of $120 million over nine quarters, starting in Q4.

And should certain profitability thresholds, we met at the end of 2024, and 2026 will be matched by a 50 basis point increase in advertising fund contributions from participating franchisees through 2028.

This call investment plan has been endorsed and agreed to in near unanimous fashion about 95 per cent of franchisees have signed up for this go investment plan.

And is designed to increase our media firepower grow traffic and amplify the fundamental improvements, we're making to the guests experience around menu operation and digital another important element of the plan is our $250 million Royal reset investments that includes too important components first a royal reset refresh capital investment of 50 million.

In a restaurant technology kitchen equipment and building enhancement refresh program and.

And second the Royal reset remodel program that provides access to $200 million of funding for high quality high return remodel.

Together, we expect the royal reset refresh and remodel programs to touch roughly half of the restaurants across our system over the next few years.

We're encouraged with the level of enthusiasm and commitment from franchisees to participate in the $50 million refresh which includes a one dollar for dollar matching investment from franchisees.

We opened a two week application process in mid October and were oversubscribed before closing at the first week.

Field teams are now going through the diligence process of approving each investment requests for kitchen equipment building enhancements and restaurant technology prioritizing those that we believe will drive the greatest returns for each restaurant.

Through this program will help ensure a restaurants are in great shape as we continue to drive traffic back to the system.

Or $200 million Royal reset remodel program has also been met with strong interest that gives us confidence in our ability to execute on this program.

A very encouraging sign, especially given the current macroeconomic pressures facing many across our industry. We attribute this enthusiasm in large part to the quality plan to the BK team developed together with our franchisees and to the unique and compelling incentives, we're offering franchisees in the form of upfront capital upon completion of the remodel project rather than royalty rats.

Credits over time as we have historically done.

By providing incentives upfront, we're reducing our franchisees need to draw from other sources of capital to facilitate their investments.

That being said, we recognize that many will need to tap other sources and we're working with franchisees those with and without strong financial footing today and their lenders to position them well for the future.

With this program. We've also shifted our approach away from prioritizing restaurants with expiring franchise agreements to focusing on those with the greatest potential to improve guest perception and traffic and drive the highest returns within each franchisees portfolio.

I can't emphasize enough that our top priority with this program is quality over quantity.

Our goal is to not only bolstered the health system overall, but also create positive momentum for franchisees to further invest in their portfolios over the long term.

In addition to the more thoughtful approach to the project selection the.

The program was also purposely designed to incentivize franchisees to improve operations by providing more funding for those with stronger up as measured by a robust data driven franchise success system.

This incentive places a spotlight on the importance of operational excellence, which Josh will highlight later and is open the door for productive discussions with franchisees.

Our field teams are working diligently with those focused on improving <unk>.

Developing detailed business and execution plans and helping franchisees monitor their performance and troubleshoot along the way.

For those without the level of engagement and capital necessary to improve their operation image and overall business.

This royal reset program in our franchise success system has also facilitated important conversations on path.

To reposition portfolios with more engaged in well capitalised operators, including a strong lineup of franchisees and investors interested in driving a reclaimed the flame plan forward for the benefit of their business as well as the long term benefit of our great brand across the U S.

Through Royal reset remodel in.

And our broader reclaimed the plane plan, we're laying the groundwork to transition and support a sustainable longterm remodel program at Burger King U S with normalized incentive structures once our corporate investments Roelof in 2025.

Now to briefly touch on our results for the third quarter we.

We saw a 4% increase in comparable sales in the quarter driven by the continued benefit from our emphasis on a whopper are compelling valley platforms. The launch of the Burger King Royal Crispy chicken strategic pricing initiatives and positive contribution from digital channels with digital sales up 28% year over year.

These benefits were partially offset by the lapping of two for six in the third quarter of last year.

The launch of the decay Royal Crispy Chicken is a good example of us implementing important tenants of the reclaimed the plane plan when developing new menu item first.

Focus on high quality menu innovation and core platforms second ensure consistent operational execution with minimal disruption in third develop more impactful advertising to breakthrough the noise and clutter.

The decay Royal Crispy chicken platform strengthens our core and a product category chicken that's been a growth engine for the industry with a strong and well tested product and a variety of great tasting bills. We've been very encouraged by the results to date, including driving strong volumes with both first time and repeat guests and we're excited to innovate on this delicious premium sandwich in the future.

Sure.

I was pleased to see our efforts this quarter contribute to a further narrowing of the sales gap versus industry performance for the fourth quarter in a row.

Now, it's time to diligently execute against our reclaimed the plane plant in a collaborative and thoughtful manner alongside our franchisees.

I'm confident that the powerful combination of brand repositioning menu innovation foundational operations improvements are fueled the flame investment and the Royal reset program will help drive the business into a sustainable healthy position to support longterm growth for years to come.

Now turning to the Burger King International business, which continues to be a powerful driver for the brand's global growth contributing 60% of the brand's global system wide sale and approximately 55% of adjusted EBITDA during the quarter.

The international business saw another strong quarter with comparable sales of 15% and consolidated system wide sales growth of 22% comprised of over 25% growth in EMEA nearly 30% in Latin America and over 11% growth from Asia Pacific.

We continue to outperform our peers and key international markets with ongoing strength driven by a differentiated set of operating partners attractive in modern positioning across markets as well as being a leader in advancing our digital capabilities and cultivating a seamless experience for our guests across service mode.

Four of our largest markets, France, Spain, Australia, and the UK generate a double digit comparable sales versus 2019, offsetting lingering macro pressures in China.

As a result of lockdowns in highlighting the benefits of having a geographically diverse business model during.

During the quarter digital sales comprised over 50 per cent of system wide sales and grew 31% year over year, driven by strong contribution from kiosks and delivery.

Markets, such as France, Spain, Italy, and South Korea generated over 50 per cent of sales through digital channels, while fast growing markets, including Japan, Brazil, Great Britain, and Saudi Arabia, So over 25 per cent of sales derived through digital channels.

A variety of service modes, we provide gas across our international markets creates an omnichannel experienced that drives efficiency brand affinity and a higher digital sales mix and we've been pleased to see our digital channels remain sticky and many of our markets even as dining returns.

Our guest centric approach also extends to many innovation, where we've focused on developing exceptional and innovative plant based offerings, which have proven to be a significant growth driver.

Sales from plant based items improvement to be over 80% incremental to the European business and during the third quarter grew nearly 50% year over year.

Since the introduction of our plant based products in 2019 Burger King is introduced plant based burgers and 70 countries and added more delicious items for guests to choose from including the Cajun Veggie King vegan.

Vegan Nuggets and long chicken.

The hard work of our teams have helped Burger can become a leader in the plant based market and we're excited to see the momentum continue and our European markets and expand around the world.

Turning now to popeye's, whose remarkable journey since our 2017 acquisition has helped fuel interest from new and existing franchisees to continue expanding the reach of the brands authentic, Louisiana flavors and both the U S and abroad.

Since 2017, we've added over 650, net new units to our existing home market footprint, while leveraging our development expertise and master franchise model to bring nearly 400, new restaurants to international markets.

The development team continues to take a proactive approach to franchisee format and site selection to capture the best opportunities and make pop is more convenient for guests.

To this end in North America, most openings in 2022 have been freestanding single or double drive through location that not only offer more convenience for guests, but also typically deliver results ahead of the system average.

A number of these openings had been in Canada, where we're adding convenience for Canadians by bringing popeye's to new parts of the country with more accessible freestanding directors location.

Since mid 2021, we've seen more than 50% of the new restaurants in Canada open with a drive through and this quarter, we crossed the 300 store mark in the market.

After another quarter of strong unit growth Popeye's remains on track for record restaurant openings in 2022 building on recent development momentum in North America, while adding to its international presence in markets like Turkey, Spain, India, the UK in Brazil. Meanwhile.

Meanwhile, the team is also preparing to bring popeye's to major chicken to us our markets like Indonesia, South Korea and friends in the months ahead.

Our development momentum resulted in net restaurant growth of 9% and coupled with comparable sales of 3%, including 1% comparable sales in the US led to system wide sales growth of 12% for the third quarter.

You've heard me stress before that making pop is more convenient to guests goes beyond development opportunities. We also need to ensure we are providing guests with a consistent experience across a diversified set of ordering modes and platform. We've already seen the positive impact of enhancing of brands digital presence on brand affinity in sales at Tim Horton and they've been making progress.

Against these efforts at popeye's.

This quarter, our efforts helped drive a 33% year over year increase in home market digital sales, representing 18% of system wide sales.

As we look forward will continue to drive long term growth popeye's through restaurant development Ah well rounded digital guest experience and consistent guest service improvements, which Josh will discuss in a moment.

While remaining true to the brands, Louisiana Heritage and delivering delicious high quality menu offerings to guest all around the world.

And finally firehouse subs are differentiated brand strategically positioned to accelerate growth.

Firehouse subs maintained home market average unit volumes north of $920000 on a trailing 12 month basis, demonstrating the strength of the system and potential for future growth opportunities.

During the third quarter firehouse sub saw net unit growth of 2.5% and relatively flat comparable sales, while lapping incredibly strong prior year comparable sales performance of 15%.

Leading to a 3.8% year over year increase in system wide sales.

The brand continuing to generate roughly a third of its sales two digital channels. This quarter aided by successful initiatives such as rewards week, which included seven days of exclusive offers and points for firehouse rewards members.

This was just one of the creative initiatives during the quarter to increase digital engagement, while delivering the high quality and flavorful products are guests know and love.

I'd also like to highlight that the firehouse subs public safety Foundation remained busy this quarter and surpassed $71 million of grants awarded since inception.

Now I will turn it over to Josh to walk you through some of the important work we've been doing to enhance operations across our brands Josh.

Thank you Jose.

Today I'd like to share some of the investments we've been making in the operations and technology and how they are positively impacting our restaurants, particularly here in the United States.

Restaurants that provide a better guest experience will almost always outperform in sales and profitability over time and we see this pattern consistently both in our field visits and system wide data.

Jose and Matt have mentioned this in the past, but we've made a big investment to increase our field presence at popeye's and Burger King and the U S and it is clearly having an impact.

With more franchise business partners and operations partners on our teams, we can more effectively support our franchisees by helping them identify restaurants that need focus and spending time in market with the restaurant general managers above restaurant leaders and team members to make a difference.

I've seen this in a number of places recently from Indianapolis to Lafayette in Boston.

With a recent investments we have highly energized inexperience field teams, who are fully dedicated to improving operations at the bottom performing restaurants they support.

They are equipped with a clear scoring system aligned with our franchisees that we refer to as our franchise success system.

These metrics enable us to identify which restaurants need help and we have provided consistent data to everyone involved in order to identify areas of focus to improve.

Now restaurant general managers have near real time insight into guest feedback and can see where issues are rising.

For example, they might see that the majority of guess complaints at the restaurant arise on Saturday during late night, and a related to speed of service order accuracy or product availability.

And they are now able to address this in a more targeted way.

I visited a fantastic popeye's last month in Leominster, Massachusetts, which was one of the focus restaurants popeye's to improve and it was remarkable how quickly the manager Eddie had been able to turn things around.

With the support of our field teams. He has drastically improved get satisfaction and seen an improvement in comparable sales.

There's no magic here, just bringing focus tools support and positive energy to running the restaurant as well as possible every day.

The outcome of these investments in our field teams has been sustained improvements in our guest satisfaction scores at Burger King and popeye's.

We started first with Burger King and have seen consistent improvement in operational metrics alongside the narrowing of our sales gapped competitors that Tom and Jose have discussed at length.

At Popeye's, we know that top operators can drive average restaurant sales 20 per cent above bottom operators with an even wider gap from a profitability perspective.

While we're earlier on our journey at Popeye's to bring more and more franchisees into this top operator bucket, we're already seeing improvement in obstetrics of roughly 20% since the beginning of this year and I expect sales momentum will follow.

The other topic I'd like to cover today is improving restaurant and technology a burger King.

We spend a lot of time in our Miami company restaurants, and decided earlier this year to do a comprehensive overhaul of all of the physical hardware and the restaurants in parallel with the rollout of our new proprietary pass system or pause.

Those restaurants in many cases had very old Pos hardware that was prone to freezing their crashing.

David Cabling that can lead to downtime for things like pin pads to process payments and many other frustrations for our team members and restaurant general managers today, all of our Burger King company restaurants in Miami have updated Pos terminals running our paws.

New kitchen display monitors bump bars indoor and outdoor menu board screens upgraded internet and cabling throughout the restaurant and more.

The restaurant teams are thrilled and can shift their time from solving technology problems to improving the guest experience, which is showing up and improved technology uptime to nearly 100 per cent and roughly 30 per cent higher guest satisfaction since 2021, driving the same store sales momentum.

This positive experience in our company restaurants is the basis for some of the near term initiatives and Burger Kings Royal reset plan, where we are partnering with our franchisees to bring the most important technology upgrades from 50 restaurants in Miami to thousands across the country as soon as possible.

I'm really excited about this and our technology teams are thrilled to bring new equipment and better support to Ah restaurants.

I'll wrap up here for today and while this is not an exhaustive list I hope. These examples can give some more granular insight into where investments are going and how they can impact the business at a single restaurant and at scale.

Now I'll turn it over to Matt who will discuss our financial results for the quarter.

Thanks, Josh and good morning, everyone for the third quarter, excluding firehouse or global system I'd sales grew 14% to over $10 billion in our adjusted EBITDA increased approximately 10% organically, excluding an estimated negative 2% impact from Russia.

Adjusting for differences in year over year add fun timing or organic growth rate would have been plus 11% the largest driver of our gap between system might sales growth in organic adjusted EBITDA growth for the quarter was there continued investment in key areas of our business that are important to support the execution of our initiatives deliver a better guest experience and drives.

Stable profitable growth.

This includes operations is Josh outlined as well as franchising in digital and these investments led to a year over year in sequential increase in segment G&A to $92 million, excluding firehouse for the third quarter, which reduced our adjusted EBITDA growth rate by 2.4% as.

As I mentioned on our last call as we continue to Prioritise investments in our people and teams we expect to see another modest sequential ramp and core segment G&A in the fourth quarter.

Shifting to EPS, our third quarter adjusted earnings per share was 96 cents, which included a 10 cent benefit related to discrete non-cash tax benefits such as reserve releases for certain historical years.

Excluding this benefit are adjusted earnings per share was 86 cents compared to 76 cents last year, representing an increase of approximately 19% organically, excluding and FX headwind of negative 5% or three per share.

During the quarter or equity based compensation increase year over year to $34 million.

As I mentioned last quarter in 2021 would change our incentive compensation framework to shift from five year to market standard three and four year vesting.

This change has contributed to the year over year increases in our equity based compensation over the past few quarters, and we would directionally expect a similar year over year trend in the fourth quarter.

It's also worth noting that since the start of the third quarter, we've seen U S benchmark interest rates rise considerably which flows through to the cost of our floating rate that.

When comparing current market forward rates for Q4 versus our actual rates in Q3. This would represent an increase of roughly 165 basis points.

That said over the past few years, we've been proactively refinancing hedging and extending our capital structure to create flexibility and lock and fixed rates on approximately 80% of our debt for the next six years.

As a result, the expected blended cost of interest on our total debt outstanding for Q4 has only risen by about 33 basis points versus Q3.

Turning to our cash flow and capital allocation priorities.

During the quarter, we generated $374 million in free cash flow, allowing us to execute on key aspects of our capital allocation policy, including making important investments in our business and returning $243 million of capital to shareholders through our industry, leading dividend, which we declared again for Q4 at 54 per calm.

And Sharon unit <unk>.

Consistent with our previously announced target of $2.16 for the full year 2022.

We also ended the quarter with the liquidity position of over $1.9 billion, including nearly $950 million of cash and.

<unk> net leverage sequentially declined to five two times.

Going forward are capital allocation priorities will be focused on the successful execution of our strategic brand investments, including our 400 million dollar reclaim the flame program and is Jose mentioned, our commitment to maintaining our existing dividend and looking to grow it on a one dollar per share basis over time as we grow our business.

Given our focus on these priorities and a backdrop of rising interest rates. We also recognize the importance of being prudent and balancing returns of capital with delevering to enhance our financial flexibility.

While will continue to evaluate share repurchase opportunities going forward in the near term, we intend to prioritize delevering toward a target net leverage ratio in the mid xxxx area over the next two to three years.

Ah level that provides for flexibility should compelling strategic opportunities arise, while also reducing our cost of capital over time.

We are fortunate to operate a very resilient and geographically diverse business with multiple bright spots of strong growth as well as clear opportunities to drive significant improvements in Burger King U S. Over the next few years.

The quality of our core business and the strong cash flow profile generates provides us with plenty of flexibility to execute against their priorities and drive long term sustainable growth.

As we looked at close up here, we remain confident in our ability to execute on our key initiatives, which are building sales momentum in our home markets and around the world accelerating our global unit growth.

Leveraging recent investments in our field teams technology and equipment to improve operations you.

Utilizing technology to enhance the guest experience and making strides against our restaurant brands for good plan.

With that I'd like to thank everyone again for your support and for joining US. This morning, and will now open the line for questions operator.

Thank you we will now start today's Q&A session. If you would like to ask a question. Please play style followed by one on your telephone keypad now if you change your mind <unk>, followed by K O privilege will be legislature. One question to ask you a question, please and chest I need I need.

Like today.

First question today comes from Dennis <unk> E. B S. Your line is not <unk>.

Great. Good morning, and thanks for the question wondering if you could speak a little bit more to the global.

Given given the current macro pressures as well as the strength of the brands around the world. If you could touch on sort of B K International kind of Jose you mentioned at the beginning kind of getting back to historical levels there.

Just kind of anything more on on that business.

The unit growth would be would be helpful. Thank you.

Hey, Dennis good morning, and thanks, so much for the questions.

On our global outlook from a development standpoint, we have.

Diversified and well Capitalised group of.

Partner is domestically and especially internationally.

With a really strong growth mindset over the years internationally I think I've mentioned this in the past I've sat on the boards of many of our master franchisees that are also joint ventures in and now we are talented international folks.

Are doing this and we have visibility into their teams there sales growth and profitability their paybacks their capital structures.

And what kind of drives our our confidence in the pipeline long term and our growth.

Outlooks for the long term is that there is strong returns on Uninvested capital.

And our businesses our franchisees in our teams are excited they are committed to growth because it because of the strong returns they.

Moving forward and they're excited about growth and they've got good pipelines because of that not because of some contract that they've signed obviously the macro environment commodities construction cost high interest rates. These.

These are a part of the conversation and what I think is positive here is that the the franchisees that we work with closely on development. They they look at this not not as victims, but Moreover, or more like owners, they're trying to figure out how do we tackle it and how do we address these challenges in and continue on our growth journey. So when we looked.

Back.

And pass these these near term pressures, we focus on the long term and we're excited about the growth was we.

See strong paybacks and many of our international markets VK in Tim's UK as an example.

Seeing about three year payback, some new store development Tim's Mexico is another example is about four years Burger King Korea about three years Burger King Germany.

About three years as well.

And we will see some some volatility from quarter to quarter that happens and I've said it before that's part of the process of.

Building, new restaurants that we've got to find sites. There is getting property control designing plans permitting licensing construction.

Most of this recording local municipal approvals and all of it or most of it through third party contractors were confident.

And the pipelines that our franchisees are building confident that we have a pipeline to deliver.

Exciting unit growth. This year ahead of where we were in 2021 and and to continue to accelerate and twenty-three.

One more comment to you the second part of your question.

Is that the mix of growth is shifting 22017 to 2021 <unk>.

<unk> drove about 70% or just over 70% of our net restaurant growth.

Currently in LTM, it's approximately 45%, so so popeye's and tim's have doubled.

Their contribution to net restaurant growth on an LPN basis versus.

Five years ago.

Popeye's, we've seen acceleration domestically, we've seen acceleration internationally, we're going to have that record.

Year of openings in North America here in 2022, and popeye's rest of world.

<unk> of three times work versus where it was in the 2017 and we're developing in Spain, Philippines, UK, India, Mexico sign new deals and South Korea, France, Indonesia that will start contributing in the coming quarters and Tim Hortons, We've seen success in Middle East, Mexico, India, UK, China and <unk>.

<unk> International is ramping up to pre pandemic levels the biggest gaps.

Those levels of growth or in China, and Russia, and we all know why those of slowed or stopped.

And one final note that we're just getting started with firehouse, which we believe will be an exciting long term contributor to two net restaurant growth and overall system wide sales growth here domestically as well as internationally.

We're confident about the long term lots of work to do.

Working closely with our franchisees and look forward to keeping you updated on our progress and Matt you might Wanna. Yeah that is just maybe that a little bit more color I think as I mentioned.

We have really great growth that we're seeing very exciting and the international business and it has become more meaningful over time.

Is why we called out the headwind that we saw in Q3.

From Sx with Usd's strengthening basically across the board.

But just as quickly out a little bit more color on that.

Q3, we saw an impacted about 26 million and EBITDA, that's what I called out as the impact that flow through to EPS.

And the prepared remarks.

And just for some perspective on that.

Based on our business mix.

A 1% change in in Euro is about a $1 million EBITDA impact to us for a quarter.

And a 1% change in the Canadian dollar in terms of.

Depreciation versus USD, that's about a $3 million quarterly EBITDA impact so.

FX rates have been moving around and have been quite volatile base, where we are based on where we are quarter to date, yeah, we'd directionally expect to see some sequential increase in those headwinds based on current FX FX rates.

Next question today is from David Tom from ethical. Please go ahead.

Yeah. Thanks, you you made a comment in the prepared remarks about the <unk>.

Macro pressures impacting franchisees, including the higher interest rates and commodities wage inflation or the or the regents are brands were pressure to cash flow is particularly acute.

And where what steps can you take and are you taking in these instances and.

What implications are there for restaurant brands of earnings at free cash flow and shareholders. Thanks.

Hey, Dave Thanks for the question.

Look I think.

It's clear that it's been challenging that last several quarters and relevant to 18 months or so.

The I think the silver lining of the positive news here is that we're seeing pockets of moderation in commodities in labor.

All that said tough year across the industry for sure. Our franchisees are feeling the pressure or guest are also feeling the pressure in every conversation I've had.

With franchisees here in the U S and Canada and also in Europe , and other international markets quickly turns to the volatility in a tremendous pressure that the day and we all are feeling in a restaurant level margins and then what are the steps we are taking to address it and it's a huge area of focus for our team and we are working together.

Our franchisees on this.

And some of the measures to offset these cost increases include.

Include continuing to use our scale.

And buying power to smooth out the choppiness commodity increases that we're seeing in domestic markets as well as internationally pricing, but it's been doing this strategically understanding obviously, the the elasticity of demand and making sure that pricing flows through at the highest possible levels looking.

Looking at menu architecture, and managing mix to ease pressures on margins and we we have examples of that including what we did with the Burger King earlier in the year on removing the wander from from the two for six platform.

And having seeing increases in margins while still.

Communicating that important value platform.

We're managing efficiencies through through the simplification that help our owners operate more more effectively and efficiently.

And in some cases.

We are looking at ways to help restaurant owners with with working capital during seasonally low cash flow periods.

These are things that we are working on to help the team and the franchisees in the near term and despite these challenges we believe.

Based on our outlooks that profitability in cash flows are moving in the right direction.

Tim Hortons owners are certainly facing in Canada near term pressures, but improving and the outlook for for the first quarter of 2003 and beyond is positive and significantly improving versus where we were in 2002.

Tim's remains one of the most profitable <unk> concepts, even despite these near term pressures and I keep telling the.

Tim's owners to to keep working together with our team and keep working hard the restaurants. They are doing an awesome job and that the plan is working in cash flows will continue to improve Burger king.

Making progress stabilizing profitability in cash flows as well and reclaim the flame plan is starting to address the key driver to a healthy and profitable business, which is top line sales growth and we're proud of the work that's V. K U S system is doing along with our team and master franchisees internationally are generally healthy.

And well Capitalised and are availing themselves of.

Many of the tools I mentioned previously.

Keith area of focus will continue to beat a drive top line profitable sales by.

By giving the guess what they want and then providing these tools that I've shared and.

Keep working closely with our franchisees to make sure we address and deal with the near term pressures. Thanks, a lot for the question.

We now have a question from Brian My line from Deutsche Bank. Please go ahead.

[noise]. Thank you just a question of <unk> U S.

Specific to the Royal reset remodel program can you just speak to the speed or the cadence with which you can maybe start to deploy that capital Jose from the prayer marched it sounds like you were oversubscribed from a franchise. The application perspective, I guess could you speak to how quickly you are able to approve them or speak to a roadmap.

When there might be critical mass of projects underway and when you could realistically expect to see some some sort of sales lift from all this thank you.

Hey, Brian Thanks for the question.

Yes, we have.

Call that we have two components to the to.

To the Royal reset one is kind of the near term.

Refresh.

Which is 50.

Allocated and it's a match of up to $50 million.

And then we've got the more midterm full remodel program, where we're contributing capital.

As we've laid out in detail in our in our previous communications.

What was exciting and what I shared in my prepared remarks is that we've got a lot of enthusiasm and excitement in the system behind both of those programs and we've got the near term. We had we had a two week window of applications for the Royal reset the 50 million dollar program and that was oversubscribed very quickly and now the teams are working through.

The specific plans for each of the restaurants, each of the franchisees and where it will match and our plan there is to deploy as quickly as possible.

And we should expect to see.

That those investments in restaurants, they are going to be equipment investments are gonna be exterior drive through and.

Kind of physical plant investments as well as technology investments all of which we expect to see to start making impacts and the business in the near term.

And then over time, we will continue to work through the pipeline of Remodels full remodel scrapes and rebuilds.

Et cetera, as we've laid out.

Detailed plans.

That will take a bit more time is.

Require permitting.

And in many cases will will require.

Approvals, obviously locally and municipalities and that takes a bit more time. So that's just to highlight the.

The details of the plan and the excitement we have behind it the other point I'd make is that on the fuel this land plan on the marketing front.

We made.

Announced it was about 95% of franchisees.

On board with the programs setting up for the co investment assuming the hurdles that we've laid out have been met and we continued with just started that program now.

October and we look forward to continuing to update all of you on the progress we're making their thanks a lot for the question.

Our next question comes from John Glass can Morgan Stanley . Please go ahead.

Thanks, and good morning, if I could also just fall, but on the Burger King U S system.

At times, when you haven't modernization efforts like you're going through you start to see some closure. Some franchisees maybe don't want to do that for example, do you see that as a potential I recognized your closed stores a few years ago. So one on that and could you also just remind us on the franchisee based on the U S. How many franchisees there are with the average store per franchisee therefore.

There is and.

You talked about maybe shape changing their switching over the franchisee ownership for those hours you maybe don't want to invest to those who do what percentage of the system do you think will change over a change hands over the next few years based on this or do you have a goal for that thanks.

Hey, John Thanks for the question.

I think on the on the franchise question in the U S for BK broadly speaking, what's exciting as I mentioned earlier in response to.

Brian question is that there's a lot of there's appetite to invest in there is excitement behind the plan, we have got a lot of <unk>.

Support behind the feel of flame components of the plan, we've got support behind the Royal reset with Oversubscription and we have traction behind the remodel program. The financial health is factored into it was factored into how we developed a program in which is why we put we leaned into these greater incentives for remodeled and providing upfront cash.

Dash.

In addition to this this dollar for dollar match on the Royal near term reset program.

We haven't deep venture franchisees in the U S that are well capitalised that run.

Really good restaurants.

It happens.

Not unique to this moment.

It happens from time to time, the franchisees have financial and operational difficulties.

And we work with them closely.

Alongside and in some cases their lenders to identify the best solutions and for some franchisees Sir.

Selling is the best option.

We have a team dedicated to that process, we have a pipeline of new operators in trenches use that are that are quite interested and excited about the long term prospects of the Burger King brand in the U S and.

Are prepared to step in and acquire restaurants were appropriate closures and turnover are part of the portfolio.

Optimization process and we.

As we've said before we don't expect any.

Kind of outsized <unk>.

Closure program, we have.

We saw some additional.

Additional closures outside of the norm in 2020.

We will continue to work with our franchisees on making sure that we've got really good plans focused on guests improvements in guest experiences and driving top line sales and improving their profitability.

And one other thing that I think is important is we've.

We have highlighted as calm as mentioned in the past the importance of operations improving.

Is a key part of our plan and we've added a lot of transparency and data to.

To our operations.

Process improvement process, we've got a franchise success system and we've added field teams to improve unhelpful monitoring and developing plans with franchisees. We're now in the midst of.

Ramping up and getting ready for the general manager restaurant General manager rallies and team member training as we head into 2023.

So all in.

We're excited about the long term plans and we will continue to work with our franchisees I think the base of franchisees is around 500 in the U S.

And we've got it's hard to give.

Give you there is an average per franchisee in terms of restaurant count, but we've got we've got some large franchisees and we have.

A large number of smaller operators as well.

And our our view is to work with each one of them and address each of their opportunities and challenges to make sure that they can deliver on the plans that we've.

Work together on and that they drive profitable growth in their in their business as well. Thanks, so much for the question.

[noise] next question kind of shrimp <unk>. Your line is now right then.

Hi, good morning, and thanks for the question. So just following up and Joshua his prepared remarks, how far along do you think you are in your efforts to improve ops across the BK and pop is U S systems and are you expecting any further investment behind field teams and overhead support to continue to drive those efforts.

I know, Matt you had mentioned a modest sequential rampant core <unk> just wanted to confirm if that's related to these investments that Joshua discussed thanks.

Hey, Chris Josh Thanks, so much for the question.

As you mentioned, we have made big investments in the field teams and and the processes and measurement systems.

That backs up all of the work that they do every day and I think we're really pleased with the initial progress there.

I think I would characterize it as a very long journey, when you're trying to make big operational changes in these very large systems. It's something that you have to do very consistently over a long number of years and that's the time horizon that we have for it but I would say that we and all of our teams are really pleased with the initial performance we've already seen was.

Bolt across both Burger King and <unk>.

And I think we have a lot of items across our teams and the franchisees teams about the way that we're measuring in the way that we're managing and supporting the systems.

Vast majority of the investments.

Already been made so we have a lot of the field teams in place we may make it a couple of small tweaks as we go into next year, but they are relatively minor. So I think really green initial progress really thankful to the teams in the franchisees who are working together, so well on that front, but something that I think we need to be persistent about over a long period of time to really move both of.

Those systems in the right direction.

Yes.

At least I think just on your point around G&A I think you're spot on there that the.

The comments that we shared we do expect some modest sequential ramp and G&A and that that does related to these continued investments and operations in franchise development.

And in technology.

As we look to move into next year.

Our next question comes from Nikola <unk>. Please go ahead.

Thank you good morning, Uhm I wanted to ask about 10, Canada in Burger King you asked the question is any momentum you stop hosts labor day, essentially returned to office and any anything you could share again in Kansas I mean any.

Any of the brands frankly, but most importantly, 10th Canada and Burger King you asked thank you.

Hey, Nicole Thanks, so much for the for the question on Tim's, Canada, we were.

And remained very excited about the progress we're making on the back to the X explaining to kind of the second phase of that which is all about driving PM food as well as cold beverages, we saw.

A 300 basis point sequential improvement this quarter same store sales of 5% versus where we were.

The last few quarters versus 19.

A lot of that came from core offerings and some of the initiatives pm foods.

Being a key driver that we had the the loaded platform, which was incremental to to our business.

We saw 2% contribution roughly two per cent contribution to our year over year sales seems ourselves increase of 11% coming from the loaded platform.

And in September comparable sales from Maine Foods.

It was up.

50% versus 2019 sequentially improving throughout the quarter.

Main foods is now over 13% of sales it was less than 10% back in the same quarter 2019 and now.

Just north of 10% of our tickets include PM food versus about 7% of those tickets before the launch of the leather platform, which all of which is to say that it's a good start not a victory lap, but the confirmation that when we get food quality right.

Develop craveable food and our owners execute well, we can grow rpms food business in our PM.

PM day parts and it's confirmation that we have a big runway in front of us on the on the beverage side.

Total cold beverages, or 14% versus 2019 levels, but back then we had a very strong ice can we still do a very strong icecap business.

For many years.

And that contributed to nearly half of cold beverages sales back in 2019 at we exclude X ice cap cold beverage grew nearly 80% versus Q3 2019.

All driven by by the new Cold drew in our <unk>.

And the total shift and cold beverages, a percentage of total beverage sales is up 600 basis points versus.

We were back in 2019, all of which to say that the core plan is working that we did see.

Some improvements in mobility in the quarter.

Are super urban locations, which of those locations in the city centres like Toronto, and and other Big City centers improved to to minus 5% versus 2019 up from the low point versus 19 was minus 40%. So we continue to see those urban suburban locations.

Improve but to be clear we're not.

Mobility remains a challenge and we're not waiting for mobility to come back.

It's not the kind of the crux of our plan the plan to grow and drive profitable share gains his plan that we want to implement in any environment.

And we have multiple service mode, which is why our investments and digital are so important and continue to pay huge dividends for our business, especially at Tim's in Canada and with Burger King in the U S.

There is some.

Mobility.

Kind of.

Seasonality that happens from time to time, but but art progress in the quarter. We believe was a function of of better plans better execution in operations from our franchisees.

And a better media mix.

Marketing team is in the media team are working on combined with improvements in digital as well all of which are kind of the core elements of that reclaim the plane plan that we've shared in the past. Thanks, so much for the question.

Our final question comes from Brian <unk> case got ahead.

Thanks, Good morning, Thanks for squeezing me in here.

Shipped to the Burger King rest of the World business, where you continue to showcase very strong underlying same store sales trends I believe this quarter you were still 20% above pre pandemic levels on the same store sales. That's that's really best in class amongst your international Qf's our peers do.

Do you believe that the Burger King brand outside the U S is well positioned in an environment, where maybe international consumers navigate tougher economic waters could burger King actually benefit from a tray down internationally or how do you frame your outlook for that Burger King Bram rest of the world.

The international macro continues to become more challenged.

Thanks for the question, we're very excited with the progress we've we're making in our international business with Burger King we're seeing the brand.

And the business outperform peers internationally.

On average for the last five quarters in a row.

Leading brand.

In many markets in terms of preference.

And in some cases as well in terms of restaurant count or both.

And Ah, France, and Spain are examples.

We've seen our business grow to north of $1 billion in the system wide sales and places like France, and Spain, and France, It's gotten we had $0.

System wide sales back in 2013 and today, we have a business is nearly $2 billion in system wide sales.

I think the business has gotten stronger.

Post COVID-19 six quarters of double digit same store sales and system wide sales growth.

And the top five markets and for us internationally.

Have grown over $900 million in the system wide sales.

Versus 2019, so we've gone from basically 5 billion in system wide sales in those markets to $6 billion in a lot of it has come from the progress and improvements we've made in the off premise business are digital is getting stronger we're building more drive throughs.

And we've actually adopted our service mode to adjust to the customer behaviors.

Remained sticky and dining is coming back as well and I think we've got.

Really strong quality cues and many of our markets. A whopper is strong have it your way of strong and the preference to the brand for all these reasons.

Including more modern image digital being at the center of the.

The business model internationally we've.

<unk> leaned into.

Plant based quite a bit.

I mentioned, some some comments on that.

Parroting remarks.

All of which is is showing really good progress and I think we're well positioned in any environment.

And especially in the current environment to be able to utilize the foundation of a modern system strong digital great brand perception strong value offerings, and really strong core and premium offerings and continued menu innovation, including plant based.

The final note on that as we have awesome master franchisees and great teams and they they are super excited about the progress, they're making an and you gain momentum when you see that type of progress and we look forward to continuing to update everyone on on the progress of our international business.

As well as the rest of our amazing brands domestically and internationally.

And with that I'd like to thank everyone for your questions and for participating on today's call. We're incredibly proud of.

The progress that we continue to make at Tim Hortons in Canada are outsize performance of BK International as I, just mentioned in our ongoing development progress and the work the great work we're doing.

Continuing to make steady improvements that Burger King U S.

And the excitement that exists with the franchise community to reclaim the flame plan alongside our franchisees.

Popeye's firehouses well internationally domestically.

Or in a really good place to continue the growth trajectory.

And I'd like to close by thanking our team our franchisees and owners and their team members for their contributions and continued dedication as we work towards our big Dream of building. The most love restaurant brands in the world. Thanks, again for joining us and have a great day.

This concludes restaurant brands International Inc. <unk> 2022, <unk> you may now disconnect.

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