Mr. Josh Kobza reports

RESTAURANT BRANDS INTERNATIONAL INC. REPORTS FULL YEAR AND FOURTH QUARTER 2023 RESULTS

Restaurant Brands International Inc. (RBI) has released financial results for the full year and fourth quarter ended Dec. 31, 2023.

Josh Kobza, chief executive officer of RBI, commented: "We are delivering better experiences for our guests, better profitability for our franchisees and are making the right long-term investments behind the growth of our brands. We have started 2024 with a foundation of strong operational performance, and I'm thankful to all our teams, franchisees and their team members who work so hard to make us successful."

2023 highlights:

• Systemwide sales growth of 12.2 per cent;
• Net restaurant growth of 3.9 per cent;
• Income from operations of $2,051-million versus $1,898-million in the prior year;
• Net income of $1,718-million versus $1,482-million in the prior year;
• Diluted EPS (earnings per share) of $3.76 versus $3.25 in the prior year;
• Adjusted operating income of $2.2-billion increased 7.5 per cent organically versus the prior year;
• Adjusted diluted EPS of $3.24 versus $3.14 in prior year;
• Net cash provided by operating activities of $1,323-million and free cash flow of $1,203-million;
• Changes to operating and reportable segments and changes to measure of segment income.

Beginning with the fourth quarter of 2023, the company is reporting results under five operating and reportable segments. This shift in reportable segments reflects how the company's leadership oversees and manages the business. As a result of this change, RBI's five operating and reportable segments consist of the following:

• Tim Hortons brand in Canada and the United States (TH);
• Burger King brand in the United States and Canada (BK);
• Popeyes Louisiana Kitchen brand in the United States and Canada (PLK);
• Firehouse Subs brand in the United States and Canada (FHS);
• International, which includes all operations of each of RBI's brands outside the United States and Canada.

RBI also transitioned its definition of segment income from adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) to adjusted operating income (AOI). TH AOI, BK AOI, PLK AOI, FHS AOI and international AOI are RBI's measures of segment profitability. Unlike adjusted EBITDA, AOI includes depreciation and amortization (excluding franchise agreement amortization) as well as share-based compensation and non-cash incentive compensation expense.

In order to assist investors, RBI has provided certain unaudited historical financial and operational data that are on a basis consistent with the company's revised segment structure and segment income definition. These data can be found on the company's investor relations web page under "Financial Information." These changes only affect segment allocation of results and do not revise or restate RBI's previously reported consolidated financial statements.

The year-over-year increases in total revenues on an as-reported basis and on an organic basis for the full year and fourth quarter were primarily driven by an increase in systemwide sales in all the company's segments. On an as-reported basis, the increase was partially offset by unfavourable FX (foreign exchange) movements, which primarily impacted TH.

The year-over-year increase in income from operations for the full year was primarily driven by increases in segment income of international, TH, PLK and FHS and a favourable change from the impact of equity method investments, partially offset by an unfavourable change from other operating expenses (income), net, a decrease in BK segment income and unfavourable FX movements.

The year-over-year increase in income from operations for the fourth quarter was primarily driven by a favourable change from other operating expenses (income), net, a favourable change from the impact of equity method investments, the non-recurrence of FHS transaction costs and increases in segment income of international, TH and PLK, partially offset by a decrease in BK segment income.

The increase in net income for the full year was primarily driven by the year-over-year increase in income from operations and a greater income tax benefit in the current year than the prior year, partially offset by an increase in interest expense, net, and loss on early extinguishment of debt in the current year.

The increase in net income for the fourth quarter was primarily driven by a greater income tax benefit in the current year than the prior year and the year-over-year increase in income from operations, partially offset by an increase in interest expense.

The year-over-year change in adjusted operating income on an as-reported basis and on an organic basis for the full year was primarily driven by increases in segment income of international, TH, PLK and FHS, partially offset by a decrease in BK segment income. On an as-reported basis, the change was impacted by unfavourable FX movements.

The year-over-year change in adjusted operating income on an as-reported basis and an organic basis for the fourth quarter was primarily driven by increases in segment income of international, TH and PLK, partially offset by a decrease in BK segment income. The year-over-year increase in adjusted net income for the full year was primarily driven by increases in segment income of international, TH, PLK and FHS, partially offset by an increase in adjusted interest expense, a decrease in BK segment income and unfavourable FX movements.

The year-over-year increase in adjusted net income for the fourth quarter was primarily driven by a decrease in adjusted tax expense and increases in segment income of international, TH and PLK, partially offset by a decrease in BK segment income and an increase in adjusted interest expense.

Burger King United States -- Reclaim the Flame

In September, 2022, Burger King shared the details of its Reclaim the Flame plan to accelerate sales growth and drive franchisee profitability. RBI will be investing $400-million over the life of the plan, comprising $150-million in advertising and digital investments (Fuel the Flame) and $250-million in high-quality remodels and relocations, restaurant technology, kitchen equipment, and building enhancements (Royal Reset).

During the quarter ended Dec. 31, 2023, RBI financed approximately $40-million toward the Fuel the Flame investments, including $37-million toward its support behind the Burger King U.S. advertising fund, and $16-million toward its Royal Reset investments, including $8-million toward remodels. As of 2023, RBI has financed a total of $73-million toward the Fuel the Flame investments and $61-million toward its Royal Reset investments.

Macroeconomic environment

During 2022 and 2023, there were increases in commodity, labour and energy costs, which have resulted in inflation, foreign exchange volatility, rising interest rates and general softening in the consumer environment, which have been exacerbated by conflicts in the Middle East.

TH segment results

For the full year and fourth quarter, the increase in systemwide sales was primarily driven by comparable sales of 10.4 per cent and 8.4 per cent, respectively, including Canada comparable sales of 10.9 per cent and 8.7 per cent, respectively.

The year-over-year increase in total revenues for the full year and fourth quarter on an as-reported basis and on an organic basis was primarily driven by the increase in systemwide sales as well as increases in commodity prices passed on to franchisees. The increase in total revenues on an as-reported basis was partially offset by unfavourable FX movements.

The year-over-year increase in adjusted operating income for the full year and fourth quarter on an as-reported basis and on an organic basis was primarily driven by the increase in systemwide sales, partially offset by an increase in segment G&A (general and administrative expenses), advertising expenses and other services exceeding advertising revenues and other services in the current-year periods to a greater extent than in the prior-year periods. Revenues and adjusted operating income for 2023 were impacted by increased promotional activity and trade investments in the company's TH consumer packaged goods business, which largely impacted the fourth quarter. The increase in adjusted operating income on an as-reported basis was partially offset by unfavourable FX movements.

BK segment results

For the full year and fourth quarter, the increase in systemwide sales was driven by comparable sales of 7.4 per cent and 6.3 per cent, respectively, including U.S. comparable sales of 7.5 per cent and 6.4 per cent, respectively, partially offset by net restaurant growth of negative 3.3 per cent.

The year-over-year increase in total revenues for the full year and fourth quarter on an as-reported basis and on an organic basis was primarily driven by the increase in systemwide sales. Sales and cost of sales for the full year were also impacted by the temporary acquisition of 17 company restaurants during the second quarter (of which RBI only continues to operate one restaurant) and the acquisition of 89 company restaurants during the fourth quarter.

The year-over-year decrease in adjusted operating income for the full year and fourth quarter was primarily driven by advertising expenses and other services exceeding advertising revenues and other services in the current-year periods to a greater extent than in the prior-year periods, partially offset by the increase in systemwide sales and improved profitability at company restaurants resulting in income in the current-year periods as compared with net losses in the prior-year periods. In addition, adjusted operating income for the full year was impacted by an increase in segment G&A due to higher compensation-related expenses and adjusted operating income for the fourth quarter was impacted by an increase in bad debt expenses.

PLK segment results

For the full year and fourth quarter, the increase in systemwide sales was driven by net restaurant growth of 4.9 per cent as well as comparable sales of 4.8 per cent and 5.5 per cent, respectively, including U.S. comparable sales of 4.8 per cent and 5.8 per cent, respectively.

The year-over-year increase in total revenues for the full year and fourth quarter was primarily driven by the increase in systemwide sales.

The year-over-year increase in adjusted operating income for the full year and fourth quarter was primarily driven by the increases in systemwide sales, partially offset by higher segment G&A due to higher compensation-related expenses.

FHS segment results

For the full year and fourth quarter, the increase in systemwide sales was driven by net restaurant growth of 3.0 per cent and comparable sales of 3.8 per cent and 3.5 per cent, respectively, including U.S. comparable sales of 4.2 per cent and 3.8 per cent, respectively.

The year-over-year increase in total revenues for the full year was primarily driven by the increase in systemwide sales. In addition, increases in advertising revenues and other services and advertising expenses and other services reflect RBI's modification of the advertising fund arrangements to be more consistent with those of the company's other brands.

The year-over-year increase in adjusted operating income for the full year was primarily driven by the increases in systemwide sales, partially offset by an increase in segment G&A. Adjusted operating income for the fourth quarter was relatively flat, driven by an increase in segment G&A, partially offset by the increase in systemwide sales. The increase in segment G&A was primarily driven by higher compensation-related expenses.

International segment results

For the full year and fourth quarter, the increase in systemwide sales was driven by net restaurant growth of 8.9 per cent and comparable sales of 9.0 per cent and 4.6 per cent, respectively.

The year-over-year increase in total revenues for the full year and fourth quarter on an as-reported basis and on an organic basis was primarily driven by the increase in systemwide sales. The year-over-year increase in total revenues for the fourth quarter on an as-reported basis modestly benefited from favourable FX movements.

The year-over-year increase in adjusted operating income for the full year and fourth quarter on an as-reported basis and on an organic basis was primarily driven by the increases in systemwide sales, partially offset by higher segment G&A primarily due to higher compensation-related expenses. Adjusted operating income for the fourth quarter was also impacted by higher franchise and property expenses associated with bad debt expense.

Cash and liquidity

As of Dec. 31, 2023, total debt was $13.4-billion and net debt (total debt less cash and cash equivalents of $1.1-billion) was $12.3-billion; net income net leverage was 7.1 times and adjusted EBITDA net leverage was 4.8 times.

The RBI board of directors has declared a dividend of 58 cents per common share and partnership exchangeable unit of Restaurant Brands International Limited Partnership for the first quarter of 2024. The dividend will be payable on April 4, 2024, to shareholders and unitholders of record at the close of business on March 21, 2024. In connection with the declared dividend, RBI also announced that it is targeting a total of $2.32 in dividends per common share and partnership exchangeable unit of RBI LP for 2024.

Subsequent events

On Jan. 16, 2024, RBI and Carrols Restaurant Group Inc. announced that they have reached an agreement for RBI to acquire all of Carrols's issued and outstanding shares that are not already held by RBI or its affiliates for $9.55 per share in an all-cash transaction, or an aggregate total enterprise value (EV) of approximately $1-billion.

The transaction is expected to close in the second quarter of 2024 subject to customary closing conditions, including receipt of certain regulatory approvals and approval of the majority of Carrols's common stock, excluding shares held by RBI and its affiliates and officers of Carrols.

As of Feb. 13, 2024, BK had a total company restaurant portfolio of 176 following the acquisition of 38 company restaurants on Jan. 17, 2024.

Investor conference call

RBI will host an investor conference call and webcast at 8:30 a.m. Eastern Time on Tuesday, Feb. 13, 2024, to review financial results for the full year and fourth quarter ended Dec. 31, 2023. The earnings call will be broadcast live through RBI's investor relations website and a replay will be available for 30 days following the release. The dial-in number is 833-470-1428 for U.S. callers, 833-950-0062 for Canadian callers and 929-526-1599 for callers from other countries. For all dial-in numbers, please use the following access code: 189424.

About Restaurant Brands International Inc.

Restaurant Brands is one of the world's largest quick-service restaurant companies with over $40-billion in annual systemwide sales and over 30,000 restaurants in more than 100 countries. RBI owns four of the world's most prominent and iconic quick-service restaurant brands: Tim Hortons, Burger King, Popeyes and Firehouse Subs. These independently operated brands have been serving their respective guests, franchisees and communities for decades. Through its Restaurant Brands for Good framework, RBI is improving sustainable outcomes related to its food, the planet, and people and communities.

We seek Safe Harbor.