Restaurant Brands International Inc. (NYSE:QSR) Q3 2018 Earnings Conference Call Transcript

Oct 24, 2018 • 08:30 am ET

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Restaurant Brands International Inc. (NYSE:QSR) Q3 2018 Earnings Conference Call Transcript

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Presentation
Executive
Daniel Schwartz

it relates to restaurant development, we grew our Popeyes restaurant count by nearly 8% this quarter, primarily reflecting accelerated growth in the U.S. We also celebrated the opening of our 3,000th Popeyes restaurant. But what excites us even more than the size of our existing footprint is the several thousands of additional restaurants that we have yet to build. In that pursuit of growth, we have signed even more development agreements for Popeyes in the US this quarter, which will support further acceleration in net restaurant growth in the coming quarters. We also announced a master franchise development agreement in the Philippines, marking our first major development agreement for the Popeyes brand in ia. With a population of over 100 million people and a strong and growing QSR in chicken market, we believe that the Philippines represents an exciting opportunity for development for our Popeyes brand.

We also recently opened our first Popeyes restaurant in Brazil. And though still very early, we are encouraged by the positive reception that the restaurant has received from guests. We continue to work closely with our partner in Brazil to support additional openings in the coming months. We have strong conviction that the development agreements that we have already signed, combined with additional agreements that we are actively pursuing in other geographies, will set Popeyes up to be one of the fastest-growing global QSR brands in the world.

I'd now like to turn the call over to Matt.

Executive
Matthew Dunnigan

Thanks, Daniel. This quarter, adjusted EBITDA was $571 million or $576 million under prior accounting standards, up approximately 6% organically year-over-year.

Our third quarter adjusted net income was approximately $298 million or $302 million under prior accounting standards. This compares to prior year results of $276 million, and the year-over-year increase is attributable to adjusted EBITDA growth and the accretive redemption of our preferred shares in December of 2017, partially offset by a higher tax rate in 2018. This led to adjusted diluted EPS for the quarter of $0.63, up from $0.58 in the prior year period.

As it relates to the impact of the new revenue recognition accounting standard, we wanted to point out some factors influencing our results this quarter. As a reminder, under the new revenue recognition standard, upfront franchise-related fees are recognized as deferred revenues, which then amortize into revenues over the life of the underlying contract. As mentioned in prior quarters, the new revenue recognition standards pertaining to franchise fees have a larger impact on periods in which more openings occur. Accordingly, we saw a larger impact from the new standard on franchise fees at BURGER KING in the third quarter than we have in prior periods. And we anticipate that the impact will be even larger in the fourth quarter across each of our brands. It is also important to keep in mind that the franchise fee component of this new accounting standard is non-cash in nature.

Regarding the impact of advertising funds, our results at Tim Hortons in the