Restaurant Brands International Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. RBI franchises and operates Tim Hortons, Burger King and Popeyes, with 27,173 restaurants in more than 100 countries; approximately 100% of system restaurants were franchised.
Financial and operating performance
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Total revenue | $1.260 billion | $1.225 billion |
| Income from operations | $442 million | $389 million |
| Net income | $271 million | $224 million |
| Net income attributable to common shareholders | $179 million | $144 million |
| Basic / diluted EPS | $0.59 / $0.58 | $0.48 / $0.48 |
| Adjusted EBITDA | $480 million | $444 million |
| Operating cash flow | $266 million | $136 million |
Revenue rose about 3%, net income 21%, and Adjusted EBITDA 8%. Management attributed the net income increase mainly to improved segment income and a more favorable other-operating-expense result. The filing does not provide a clear consolidated margin measure.
- Segment revenue / Adjusted EBITDA: Tim Hortons $710 million / $207 million; Burger King $407 million / $217 million; Popeyes $143 million / $56 million. Adjusted EBITDA increased at all three segments.
- System-wide sales growth: consolidated 1.4%; Tim Hortons (4.9)%, Burger King 1.8%, Popeyes 7.0%. Comparable sales were (2.3)%, 0.7% and 1.5%, respectively.
- Cash flow and distributions: investing activities used $7 million; financing activities used $261 million, including $239 million of dividends and partnership distributions. Cash increased $3 million to $1.563 billion.
- Liquidity and debt: working capital was $739 million; current assets were $2.291 billion and current liabilities $1.552 billion. Debt, net of financing costs, was $12.466 billion, plus finance and operating lease liabilities. The $1.0 billion revolving facility had $998 million available; no revolver borrowings were outstanding. RBI reported compliance with applicable debt covenants.
Changes, outlook and key risks
- Operating cash flow increased from $136 million, mainly on improved working-capital movements, higher segment income and lower interest payments. The prior-year financing inflow included substantial revolving-credit and TH Facility borrowings.
- Other operating income was $42 million, versus $16 million in Q1 2020, primarily reflecting foreign-exchange gains of $43 million versus $8 million. This contributed materially to the year-over-year earnings improvement.
- COVID-19 continued to affect operations, with regional restrictions and reduced dine-in capacity. Approximately 95% of restaurants worldwide were open at March 2021. Management expected pandemic effects to continue during 2021; local restrictions, operating hours and consumer behavior remained uncertain.
- Management announced plans to spend C$80 million in 2021 on Tim Hortons advertising and digital advancements, including supplementing franchisee advertising contributions. No specific earnings or revenue guidance is provided in the filing.
- RBI described itself as highly leveraged and identified debt service as a significant liquidity requirement. It believed operating cash flow and available revolver capacity would cover obligations and capital spending over the next 12 months. Estimated next-12-month debt service included about $266 million interest on senior notes, in addition to term-loan and TH Facility payments and expected swap settlements.
- Quarterly dividend was $0.53 per share; the board declared another $0.53 dividend payable in July 2021. Dividend payments remain subject to debt-agreement restrictions and board decisions.
- Contingencies include Burger King and Tim Hortons franchise no-poach class actions, Canadian mobile-app privacy class actions, and a securities lawsuit relating to 2019 offerings. RBI said it intends to defend the matters; it could not predict outcomes or estimate possible losses. A separate shareholder lawsuit was voluntarily dismissed in April 2021.
- Key risks cited include substantial indebtedness, COVID-19 and economic conditions, franchisee financial health, supply chain and real-estate exposure, competition, foreign-exchange and interest-rate movements, and the effectiveness of marketing and digital initiatives.
Important facts for investors to verify
- Whether sales and comparable-sales momentum improved after Q1, especially at Tim Hortons, and how restrictions affected regional performance.
- How much reported earnings benefited from foreign-exchange gains and whether operating cash flow remains strong after working-capital effects.
- Debt-service demands, interest-rate and currency exposures, covenant headroom, and continued access to the revolving facility.
- Progress and returns from the planned Tim Hortons C$80 million advertising and digital investment.
- Developments in the disclosed litigation and any potential financial impact, which the filing does not quantify.