Restaurant Brands International Inc. quarterly report, Q1 FY2022

Restaurant Brands International Inc. — Q1 2022 Form 10-Q

Reporting period: Three months ended March 31, 2022. Amounts are in U.S. dollars unless noted. RBI franchises and operates Tim Hortons, Burger King, Popeyes and Firehouse Subs; approximately 100% of its 29,576 restaurants were franchised at quarter-end.

Financial and operating performance

Metric	Q1 2022	Q1 2021
Total revenue	$1.451 billion	$1.260 billion
Income from operations	$450 million	$442 million
Net income	$270 million	$271 million
Net income attributable to common shareholders	$183 million	$179 million
Diluted earnings per share	$0.59	$0.58
Adjusted EBITDA (non-GAAP)	$530 million	$480 million
Cash provided by operating activities	$234 million	$266 million

Revenue increased 15.2%; operating income rose 1.8%, while net income was essentially flat. Calculated operating margin was approximately 31.0%, compared with 35.1% a year earlier. Adjusted EBITDA increased 10.4%, reflecting higher Tim Hortons and Burger King segment income and the inclusion of Firehouse Subs.

Quarter-end cash was $895 million, down from $1.087 billion at December 31, 2021. Total current assets were $1.686 billion and current liabilities were $1.828 billion. Net cash used in financing was $426 million, including $241 million of dividends and partnership distributions and $161 million of share repurchases. Capital expenditures were $10 million.

Debt, net of financing costs, was approximately $13.0 billion, excluding finance lease liabilities. RBI had no borrowings under its revolving credit facility and reported $998 million of availability. The weighted-average interest rate on long-term debt was 4.0%. Management said RBI was highly leveraged, but believed cash from operations and revolver availability would cover obligations, debt service and capital spending over the next 12 months. RBI was in compliance with applicable debt covenants.

Business trends and changes from the prior period

• Consolidated system-wide sales growth was 13.7%, excluding Firehouse Subs from both comparable periods. Comparable sales were up 8.4% at Tim Hortons and 10.3% at Burger King, but down 3.0% at Popeyes. Firehouse Subs comparable sales rose 4.2%.
• Tim Hortons revenue rose to $829 million from $710 million; segment income increased to $231 million from $207 million. Burger King revenue rose to $443 million from $407 million; segment income was $229 million versus $217 million. Popeyes revenue was $148 million versus $143 million, while segment income remained $56 million.
• Firehouse Subs, acquired in December 2021 for approximately $1.018 billion, contributed $31 million of revenue and $14 million of segment income in the quarter. The purchase-price allocation remained preliminary.
• Operating cash flow declined by $32 million, primarily due to greater cash used for working capital. Financing outflows increased from $261 million to $426 million, principally because RBI repurchased shares in 2022.
• Other operating income fell to $16 million from $42 million, chiefly reflecting smaller foreign-exchange gains. General and administrative expense rose to $133 million from $104 million, including higher employee costs and Firehouse-related expenses.

Outlook, risks and unusual items

• The filing provides no quantified full-year revenue, earnings or comparable-sales guidance. RBI expects additional Firehouse acquisition and corporate restructuring/tax advisory costs during the remainder of 2022.
• RBI cited continuing COVID-related labor challenges, occasional operating restrictions and supply-chain pressures. It also identified inflation, consumer spending, franchisee financial health, supply-chain execution, competition, interest rates, foreign exchange and substantial indebtedness as risks.
• Following Russia’s invasion of Ukraine, RBI suspended corporate support for Burger King’s Russian market and said it did not expect to recognize profits from Russia in 2022. Russia represented 0.6% of RBI revenue and 1.7% of Adjusted EBITDA in 2021. RBI had announced its intention to dispose of its 15% minority interest in the Russian joint venture.
• RBI paid approximately $100 million in connection with disputes involving Burger King and Popeyes master franchise agreements in China; $72 million had been recorded in 2021. The resolution was intended to allow Popeyes to proceed with a new master franchisee.
• Disclosed legal matters include Burger King employment-related antitrust litigation, Canadian mobile-app location-data privacy class actions, a securities class action, and two April 2022 purported class actions alleging PFAS in packaging. RBI said it could not predict outcomes or estimate possible losses for the cited cases.
• The board declared a $0.54-per-share dividend payable in July 2022. The company also repurchased 2.86 million shares for $161 million during the quarter; $288 million remained under the authorization at March 31.
• Management reported effective disclosure controls. Firehouse Subs was still being integrated into RBI’s internal control processes.

Important facts for investors to verify

• Whether sales momentum and segment profitability persist, particularly Popeyes’ negative comparable sales and Tim Hortons’ exposure to commodity costs.
• How working-capital needs, dividends and repurchases affect cash balances and liquidity alongside approximately $13.0 billion of debt and future debt service.
• The financial effect and timing of RBI’s Russia actions, including the proposed disposal of its minority interest and the stated expectation of no 2022 Russian profits.
• The final Firehouse purchase-price allocation, integration costs and contribution to results as the acquisition is included for a full comparable period.
• Developments in China franchise arrangements and the disclosed litigation, for which potential losses are not quantified in the filing.