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

Oct 24, 2018 • 08:30 am ET


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


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Matthew Dunnigan

third quarter reflect a net benefit from revenue recognition, primarily due to the timing of ad fund related revenues and expenses. In the third quarter, ad fund revenues exceeded expenses at Tim Hortons. Prospectively, we anticipate the quarterly mismatch in the timing of revenues and expenses may continue. However, in the long run, these ad funds are managed such that the total cumulative revenues equal total cumulative expenses.

This quarter, our adjusted effective income tax rate was higher year-over-year and on a sequential basis. This year-over-year increase was primarily due to the impact of certain aspects of US corporate tax reform and a significantly lower benefit from stock option exercises in the third quarter of 2018 versus the comparable period in 2017. The sequential increase in our tax rate this quarter primarily reflects the accrual of year-to-date impact from the realignment of certain intercompany financing arrangements and the non-recurrence of certain benefits in the Q2 2018 tax rate, including audit-related reserve releases.

Now, let's discuss our cash generation and capital allocation for the quarter. In the third quarter, we generated free cash flow of approximately $357 million, calculated as the sum of cash flows from operating activities and investing activities. We also paid a total of approximately $210 million in common dividends and partnership exchangeable unit distributions this quarter. As of September 30, 2018, our ending cash balance was $1.1 billion, our total debt balance was $12.2 billion and our net debt was $11.1 billion.

This morning, we announced that we received an exchange notice for approximately 11 million outstanding partnership exchangeable units. In connection with this exchange, we intend to satisfy 10 million of these exchange requests using cash on hand, which will reduce our fully diluted share count. With the remaining exchange requests, satisfied through the delivery of common shares on a one-for-one basis. Further terms of our limited partnership agreement, the exchange notice can be revoked by the unitholder, in part or in full, until October 30, 2018. And after such time, the exchange notice becomes irrevocable.

We also announced this morning that the RBI Board of Directors has declared a dividend of $0.45 per common share and partnership exchangeable units of RBI LP payable on January 4, 2019, which is consistent with our previously announced target of $1.80 in total dividends to be declared in 2018. Our increased dividends in 2018 are announced intention to exchange a significant number of partnership exchangeable units for cash, our previously announced investments in our Tim Hortons remodel program and supply chain distribution network, and our continued delevering, illustrate our balanced approach to capital allocation as we look to create further value for all of our stakeholders for many years to come.

Thank you, everyone, for joining us on the call this morning and for your ongoing support. I'd now like to open up the call for questions. Operator?