Restaurant Brands International Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Unaudited interim results; amounts are U.S. dollars in millions except per-share data, percentages, and restaurant counts. RBI operates Tim Hortons (TH), Burger King (BK), and Popeyes (PLK); it reported 27,667 restaurants in more than 100 countries, approximately 100% franchised.
Financial results and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $1,495 | $1,337 | $4,193 | $3,610 |
| Operating income | $533 | $417 | $1,463 | $1,049 |
| Net income | $329 | $223 | $991 | $611 |
| Net income attributable to common shareholders | $221 | $145 | $659 | $395 |
| Diluted EPS | $0.70 | $0.47 | $2.12 | $1.30 |
| Adjusted EBITDA (non-GAAP) | $607 | $561 | $1,664 | $1,363 |
- Q3 revenue increased 12%; nine-month revenue increased 16%. Operating margins were approximately 35.7% and 31.2% in Q3 2021 and Q3 2020, respectively. Nine-month operating margins were approximately 34.9% and 29.1%. These ratios are calculated from reported revenue and operating income.
- Q3 system-wide sales growth was 10.8%; comparable sales were TH 8.9%, BK 7.9%, and PLK (2.4)%. Nine-month system-wide sales growth was 13.8%; comparable sales were TH 10.7%, BK 8.5%, and PLK (0.5)%. Growth measures are constant-currency and system-wide.
- Segment Adjusted EBITDA for Q3: TH $278, BK $272, PLK $57. For nine months: TH $738, BK $755, PLK $171. Adjusted EBITDA is a non-GAAP measure.
- Nine-month cash from operations was $1,255, versus $608 in 2020; investing cash outflow was $69, and financing cash outflow was $970. Cash and equivalents were $1,773 at quarter-end, up from $1,560 at year-end 2020.
- Debt was $12,460 net of financing costs ($12,379 long-term, plus $81 current maturities). Working capital was $832. Revolving-credit availability was $998, with no revolver borrowings; the company described itself as highly leveraged.
- Nine-month dividends and Partnership distributions totaled $730; share repurchases were $182. A $1.0 billion repurchase authorization runs through August 10, 2023, with $818 remaining at September 30.
Changes versus prior comparable periods
- Revenue and earnings rose substantially from 2020, when COVID-19 had a greater operational impact. Management attributed improved results mainly to higher TH and BK segment income, stronger system-wide sales, and a favorable change in other operating expenses, including foreign-exchange gains.
- Restaurant access improved: an average 97% of restaurants were open worldwide in Q3 2021 versus 94% in Q3 2020. Management noted that pandemic effects were less pronounced overall, but varied by brand and region.
- PLK comparable sales declined in Q3 despite positive system-wide sales growth; BK U.S. comparable sales were (1.6)%, while TH comparable sales in Canada were 9.5%.
- Operating cash flow more than doubled, helped by working capital moving to a source of cash from a use of cash and higher segment income. Financing cash outflow increased, including due to common-share repurchases.
Outlook, commentary, risks, and unusual items
- No specific full-year revenue, earnings, or comparable-sales guidance is provided in the filing. Management expected COVID-19 to continue affecting 2021 results; local restrictions, labor challenges, reduced hours at some restaurants, and supply-chain pressures remained risks.
- Management said operating cash flow and available revolver capacity should be sufficient for current obligations, debt service, and capital spending over the next 12 months. This is a forward-looking assessment, not a guarantee.
- RBI issued $800 of 3.875% first-lien notes in July and used proceeds to redeem the remaining $775 of 4.25% notes due 2024. The redemption resulted in an $11 loss on early extinguishment of debt.
- The nine-month effective tax rate was 7.7%, including an $87 net reduction in tax reserves that lowered the rate by 8.1 percentage points. The rate may vary with jurisdictional income mix and other factors.
- COVID-19, inflation and consumer spending, franchisee financial health, supply chains, leverage and interest rates, currency movements, execution of digital and growth initiatives, and climate-related effects are among the stated risks. The filing added climate change and sustainability practices as a risk factor.
- RBI is targeting a 50% reduction in greenhouse-gas emissions by 2030 and net-zero emissions by 2050. It said achieving these goals will require supplier and franchisee participation and resources.
- Legal matters include franchise no-hire/no-solicitation cases and Canadian mobile-app privacy class actions. The company said it could not predict outcomes or estimate possible losses. A securities lawsuit relating to 2019 offerings was also pending, with a dismissal motion scheduled to be heard in December 2021.
Most important facts for investors to verify
- Whether reported sales and earnings growth persists beyond the comparison with pandemic-affected 2020 periods, particularly for PLK and BK in the U.S.
- How much cash flow is recurring versus attributable to working-capital movements, and the effect of ongoing dividends and share repurchases on liquidity.
- Debt-service capacity, interest-rate exposure, hedge settlements, and continued compliance with debt covenants.
- The sustainability of the unusually low nine-month effective tax rate, given the $87 tax-reserve benefit.
- Subsequent developments in COVID-related operating constraints, labor and supply pressures, and the disclosed litigation matters.