Restaurant Brands International Inc. — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing, not a standalone fourth-quarter report; the provided filing text does not give a clear set of Q4-only financial results. Amounts are U.S. dollars unless stated otherwise.
Business context
RBI franchises and operates Tim Hortons, Burger King, Popeyes and Firehouse Subs, with 30,722 restaurants in more than 100 countries at year-end. Approximately 100% of system-wide restaurants were franchised. Revenue comes from supply-chain and restaurant sales, franchise royalties and fees, property rentals, and advertising and other services. Firehouse Subs was acquired in December 2021, so 2022 includes a full year of its results versus only a brief post-acquisition period in 2021.
Key financial metrics
| Metric | 2022 | 2021 |
|---|---|---|
| Total revenue | $6.505 billion | $5.739 billion |
| Income from operations | $1.898 billion | $1.879 billion |
| Operating margin | 29.2% | 32.7% |
| Net income | $1.482 billion | $1.253 billion |
| Net income attributable to common shareholders | $1.008 billion | $838 million |
| Diluted earnings per share | $3.25 | $2.69 |
| Adjusted EBITDA (non-GAAP) | $2.378 billion | $2.248 billion |
| Cash provided by operating activities | $1.490 billion | $1.726 billion |
| Capital expenditures | $100 million | $106 million |
| Cash and cash equivalents at year-end | $1.178 billion | $1.087 billion |
| Long-term debt, net of current portion | $12.839 billion | $12.916 billion |
Operating cash flow less capital expenditures was approximately $1.390 billion in 2022, compared with $1.620 billion in 2021. Current assets were $2.048 billion and current liabilities were $2.116 billion at year-end. Outstanding debt principal was $13.045 billion; the revolving facility had $998 million of availability and no borrowings. Required debt interest payments for the next 12 months were estimated at $669 million, before expected net receipts on interest-rate swaps.
System-wide sales were $39.751 billion, up 12.0% on the reported figures; system-wide sales growth was 13.4% excluding foreign-exchange effects. Consolidated comparable sales increased 8.5%, excluding Firehouse Subs under the company’s stated metric. Segment comparable sales were Tim Hortons 10.0%, Burger King 9.7%, Popeyes 1.4% and Firehouse Subs 0.6%.
Material changes versus 2021
- Revenue rose 13.4%; operating income increased only $19 million as costs grew, and reported operating margin narrowed from 32.7% to 29.2%.
- Net income increased $229 million, with the improvement substantially supported by a $117 million income tax benefit in 2022 versus $110 million of tax expense in 2021. The 2022 effective tax rate was negative 8.6%, including a $364 million net reduction in tax reserves, primarily from statutes of limitations expiring.
- Adjusted EBITDA increased $130 million, reflecting higher Tim Hortons and Popeyes segment income and a full year of Firehouse Subs. Burger King segment income fell $14 million to $1.007 billion; Tim Hortons rose $76 million to $1.073 billion, Popeyes rose $14 million to $242 million, and Firehouse Subs contributed $56 million.
- Operating cash flow declined $236 million, primarily due to working-capital movements and higher interest and tax payments. Investing cash use fell to $64 million from $1.103 billion, mainly because the prior year included the Firehouse Subs acquisition.
- Interest expense increased to $533 million from $505 million. The weighted-average interest rate on long-term debt rose to 4.4% from 4.2%.
Outlook, commentary and risks
- No specific 2023 revenue or earnings guidance is provided in the filing. Management said current cash flow and revolving-credit availability were expected to cover obligations, debt service and capital spending over the next 12 months.
- Burger King’s “Reclaim the Flame” plan commits $400 million over two years: $150 million for advertising and digital investment and $250 million for remodels, relocations, technology, equipment and building improvements. By year-end 2022, RBI had funded $13 million and $17 million, respectively.
- RBI targeted $2.20 in declared dividends per common share and Partnership exchangeable unit for 2023, subject to board discretion, debt terms and business conditions. The board declared a first-quarter 2023 dividend of $0.55 per share.
- Management cited inflation and increases in commodity, labor and energy costs, rising interest rates, foreign-exchange movements, COVID-related restrictions in some markets, and the Russia-Ukraine conflict as factors that could pressure RBI and franchisee results. The company warned it may not be possible to raise prices enough to offset costs without weakening demand.
- RBI suspended corporate support for its Russian Burger King market and said it generated no new profits from Russian restaurants in 2022 and did not expect new profits in 2023. Beginning in 2023, it planned to exclude Russia from reported key business metrics for all periods presented.
- RBI paid approximately $100 million in 2022 in connection with disputes involving its Burger King and Popeyes China master-franchise counterparties; the disputes were resolved and a new Popeyes master franchisee was put in place. The filing records $5 million of the settlement-related amount in 2022 and $72 million in 2021.
- Key risks include substantial leverage, dependence on independent franchisees and their profitability, concentrated suppliers and distributors, competition, food safety and brand reputation, cybersecurity and privacy, litigation, tax uncertainty, and evolving labor and environmental regulation. The filing also discloses a Burger King employee no-poach class action proceeding after an appellate reversal of dismissal and other legal matters.
- Goodwill and brand impairment tests as of October 1, 2022 resulted in no impairment. KPMG issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- How much of reported earnings growth is sustainable after the unusually large tax-reserve release; review the effective tax rate and uncertain-tax-position disclosures.
- Whether franchisee sales, profitability and investment capacity can support continued remodels, restaurant growth and royalty growth amid inflation and higher financing costs.
- The effect of floating-rate debt and future refinancing needs, particularly the disclosed principal maturities and estimated interest payments.
- Execution, timing and expected returns of Burger King’s $400 million “Reclaim the Flame” commitments, and the extent of associated cash outlays.
- Progress and remaining exposure related to Russia, China, franchisee disputes, privacy matters, labor regulation and other contingencies.
- Reconcile consolidated system-wide sales and comparable-sales measures to their stated exclusions, including Firehouse Subs and Russia, when comparing periods.