Restaurant Brands International(QSR) - 2024 Q3 - Quarterly Results

Executive Summary & Q3 2024 Highlights CEO Commentary RBI CEO Josh Kobza highlighted business resilience, team dedication, and a focus on customer value, franchisee profitability, and long-term brand investment, noting improved October comparable sales and confidence in achieving over 8% adjusted operating income growth - CEO emphasized business resilience, team and franchisee dedication, focusing on customer value, franchisee profitability, and long-term brand investment[1] - Consolidated comparable sales improved in October[1] - The company is on track to achieve over 8% adjusted operating income growth from 2024 onwards[1] Third Quarter 2024 Highlights In Q3 2024, RBI reported 0.3% consolidated comparable sales growth and 3.8% net restaurant growth, with adjusted operating income organically increasing by 6.1% and adjusted diluted EPS by 4.6% Consolidated Highlights for Q3 2024 | Metric | Value (Q3 2024) | YoY Change | | :-------------------------- | :-------------- | :--------- | | Consolidated comparable sales | 0.3% | - | | Net restaurants growth | 3.8% | - | | System-wide sales | 3.2% | +3.2% | | Income from Operations | $577 million | vs $582 million (prior year) | | Adjusted Operating Income | $652 million | +6.1% organically | | Diluted EPS | $0.79 | Consistent with prior year | | Adjusted Diluted EPS | $0.93 | +4.6% organically | Business Context & Segment Information Acquisitions and New Segment (Restaurant Holdings - RH) RBI completed acquisitions of Carrols Restaurant Group Inc. and Popeyes China in Q2 2024, establishing the new Restaurant Holdings (RH) segment, with plans to refranchise most Carrols Burger King restaurants and seek new partners for PLK China - RBI completed the acquisitions of Carrols Restaurant Group Inc. on May 16, 2024, and Popeyes China on June 28, 2024[3] - RBI established a new operating and reporting segment, Restaurant Holdings (RH), which includes the performance of Carrols Burger King and PLK China restaurants[4] - RBI plans to refranchise most Carrols Burger King restaurants and seek new partners for PLK China[5] - As of September 30, 2024, BK owned and operated 165 company restaurants, up from 50 on September 30, 2023, primarily due to the acquisition of non-Carrols franchised restaurants[6] Segment Overview RBI reports performance across six operating segments: Tim Hortons (TH), Burger King (BK), Popeyes Louisiana Kitchen (PLK), Firehouse Subs (FHS), International (INTL), and the new Restaurant Holdings (RH), with RH segment results integrated into BK and INTL KPIs - RBI reports performance across six operating and reporting segments: Tim Hortons (TH), Burger King (BK), Popeyes Louisiana Kitchen (PLK), Firehouse Subs (FHS), International (INTL), and Restaurant Holdings (RH)[4] - The performance of Carrols BK and PLK China restaurants within the RH segment is included in the key performance indicators for the BK and INTL segments, respectively[7] Consolidated Performance Overview Consolidated Operational Highlights In Q3 2024, RBI's consolidated system sales grew 3.2% and comparable sales were 0.3%, while net restaurant count increased 3.8%, with the International segment showing strong 7.6% growth Consolidated Operational Highlights (Q3 2024 vs Q3 2023) | Metric | Q3 2024 | Q3 2023 | | :-------------------------- | :------ | :------ | | System-wide Sales Growth | | | | TH | 2.8% | 8.1% | | BK | (1.5)% | 6.4% | | PLK | (0.6)% | 11.2% | | FHS | (1.3)% | 7.0% | | INTL | 8.0% | 15.6% | | Consolidated | 3.2%| 10.9%| | Comparable Sales | | | | TH | 2.3% | 7.6% | | BK | (0.7)% | 6.6% | | PLK | (4.0)% | 5.6% | | FHS | (4.8)% | 3.6% | | INTL | 1.8% | 7.7% | | Consolidated | 0.3%| 7.0%| | Net Restaurant Growth | | | | TH | 0.0% | (0.4)% | | BK | (1.5)% | (2.4)% | | PLK | 4.1% | 5.3% | | FHS | 3.9% | 2.5% | | INTL | 7.6% | 9.5% | | Consolidated | 3.8%| 4.2%| | System Restaurant Count | | | | TH | 4,504 | 4,502 | | BK | 7,119 | 7,224 | | PLK | 3,465 | 3,329 | | FHS | 1,300 | 1,251 | | INTL | 15,137 | 14,069 | | Consolidated | 31,525| 30,375| Consolidated Financial Highlights In Q3 2024, total revenues increased to $2.291 billion, driven by the RH segment's inclusion; operating income slightly decreased, but adjusted operating income and adjusted EBITDA both grew, with net debt at $12.950 billion and adjusted EBITDA net leverage at 4.8x as of September 30 Consolidated Financial Highlights (Q3 2024 vs Q3 2023) | Metric (in US$ millions, except per share) | Q3 2024 | Q3 2023 | | :----------------------------------------- | :------ | :------ | | Total Revenues | $2,291 | $1,837 | | Income from Operations | $577 | $582 | | Net Income | $357 | $364 | | Diluted Earnings per Share | $0.79 | $0.79 | | Adjusted Operating Income | $652 | $609 | | Adjusted EBITDA | $748 | $698 | | Adjusted Net Income | $423 | $413 | | Adjusted Diluted Earnings per Share | $0.93 | $0.90 | Cash Flow and Net Debt (As of September 30) | Metric (in US$ millions) | 2024 | 2023 | | :----------------------- | :------ | :------ | | Net cash provided by operating activities | $1,022 | $920 | | Net cash (used for) provided by investing activities | $(616) | $(11) |\ | Net cash (used for) provided by financing activities | $(365) | $(774) |\ | Free Cash Flow | $898 | $847 |\ | Net Debt (as of Sep 30) | $12,950 | $12,072 |\n| Net Income Net Leverage (as of Sep 30) | 7.2x | 9.1x |\ | Adjusted EBITDA Net Leverage (as of Sep 30) | 4.8x | 4.8x | Discussion of Consolidated Financial Results Total revenue growth was primarily driven by the RH segment's inclusion and organic growth from BK and PLK acquisitions, while operating and net income declined due to increased expenses and unfavorable foreign exchange, partially offset by segment revenue growth - Total revenue growth was primarily driven by the inclusion of the RH segment and organic growth from non-Carrols BK and PLK Carrols acquisitions[13][14] - Operating income decreased year-over-year, mainly due to unfavorable changes in other operating expenses (income), increased amortization of franchise agreements and reacquired franchise rights, and adverse foreign exchange impacts[15] - Net income decreased year-over-year, primarily due to lower operating income, increased income tax expense, and higher net interest expense, partially offset by a favorable decrease in loss on early extinguishment of debt[16] - Adjusted operating income and adjusted net income growth were primarily driven by increased segment income from the five franchised segments and the inclusion of RH segment income[17] Brand-Specific Initiatives Burger King US 'Reclaim the Flame' Program Burger King's $400 million 'Reclaim the Flame' program, launched in September 2022, aims to accelerate sales and franchisee profitability through advertising, digital investments, and renovations, with an additional $300 million 'Royal Reset 2.0' planned to modernize 85-90% of restaurants by 2028 - Burger King's 'Reclaim the Flame' program has a total investment of $400 million, including $150 million for 'Fuel the Flame' (advertising and digital investments) and $250 million for 'Royal Reset' (renovations, technology, and equipment upgrades)[18] 'Reclaim the Flame' Program Investment Funding (As of September 30, 2024) | Investment Category | Q3 2024 Funding | Total Funded (as of Sep 30, 2024) | | :------------------ | :-------------- | :-------------------------------- | | Fuel the Flame | $8 million | $93 million | | Royal Reset | $16 million | $107 million | - Burger King announced the 'Royal Reset 2.0' program, with an additional $300 million investment for renovations between 2025 and 2028, targeting 85% to 90% modernized image by 2028[20] Segment Results Tim Hortons (TH) Segment Performance In Q3 2024, Tim Hortons system-wide sales grew 2.8%, driven by 2.3% comparable sales (Canada 2.7%), with adjusted operating income increasing due to reduced G&A and lower supply chain costs Tim Hortons (TH) Segment Performance (Q3 2024 vs Q3 2023) | Metric (in US$ millions) | Q3 2024 | Q3 2023 | YoY Change | | :----------------------- | :------ | :------ | :--------- | | System-wide Sales Growth | 2.8% | 8.1% | -5.3 pp | | System-wide Sales | $1,952 | $1,929 | +1.2% | | Comparable Sales | 2.3% | 7.6% | -5.3 pp | | Net Restaurant Growth | 0.0% | (0.4)% | +0.4 pp | | Total Revenues | $1,044 | $1,052 | -0.8% | | Adjusted Operating Income| $284 | $269 | +5.6% | | Adjusted EBITDA | $321 | $307 | +4.6% | - Organic total revenue growth was primarily driven by increased equipment sales related to restaurant renovations, partially offset by a decrease in CPG net sales[23] - Adjusted operating income growth was primarily due to reduced segment general and administrative (G&A) expenses (mainly from lower employee-related compensation) and decreased supply chain cost of sales (due to lower average cost of supply chain and CPG inventory)[24] Burger King (BK) Segment Performance In Q3 2024, Burger King system-wide sales decreased 1.5% and comparable sales fell 0.7% (US -0.4%), while total revenue increased due to non-Carrols BK acquisitions, and adjusted operating income remained flat Burger King (BK) Segment Performance (Q3 2024 vs Q3 2023) | Metric (in US$ millions) | Q3 2024 | Q3 2023 | YoY Change | | :----------------------- | :------ | :------ | :--------- | | System-wide Sales Growth | (1.5)% | 6.4% | -7.9 pp | | System-wide Sales | $2,891 | $2,891 | -1.6% | | Comparable Sales | (0.7)% | 6.6% | -7.3 pp | | Net Restaurant Growth | (1.5)% | (2.4)% | +0.9 pp | | Total Revenues | $362 | $329 | +10.0% | | Adjusted Operating Income| $112 | $111 | +0.9% | | Adjusted EBITDA | $131 | $131 | 0.0% | - Total revenue growth was primarily driven by the net impact of non-Carrols acquired BK restaurants[27] - Adjusted operating income remained largely consistent with the prior year, benefiting from reduced segment G&A and the net impact of non-Carrols acquired BK restaurants, but offset by lower system-wide sales and increased 'Fuel the Flame' program expenditures[28] Popeyes Louisiana Kitchen (PLK) Segment Performance In Q3 2024, Popeyes system-wide sales decreased 0.6% due to 4.0% comparable sales decline (US -3.8%), partially offset by 4.1% net restaurant growth, with total and adjusted operating income increasing from Carrols acquisitions and existing company restaurant improvements Popeyes Louisiana Kitchen (PLK) Segment Performance (Q3 2024 vs Q3 2023) | Metric (in US$ millions) | Q3 2024 | Q3 2023 | YoY Change | | :----------------------- | :------ | :------ | :--------- | | System-wide Sales Growth | (0.6)% | 11.2% | -11.8 pp | | System-wide Sales | $1,509 | $1,520 | -0.7% | | Comparable Sales | (4.0)% | 5.6% | -9.6 pp | | Net Restaurant Growth | 4.1% | 5.3% | -1.2 pp | | Total Revenues | $195 | $177 | +10.2% | | Adjusted Operating Income| $62 | $58 | +6.9% | | Adjusted EBITDA | $68 | $67 | +1.5% | - Total revenue and adjusted operating income growth were primarily driven by the 60 company restaurants acquired in the Carrols acquisition and improvements in PLK's existing company restaurant portfolio[31] Firehouse Subs (FHS) Segment Performance In Q3 2024, Firehouse Subs system-wide sales decreased 1.3% due to a 4.8% comparable sales decline, partially offset by 3.9% net restaurant growth, with adjusted operating income increasing from reduced G&A, primarily due to lower employee-related compensation Firehouse Subs (FHS) Segment Performance (Q3 2024 vs Q3 2023) | Metric (in US$ millions) | Q3 2024 | Q3 2023 | YoY Change | | :----------------------- | :------ | :------ | :--------- | | System-wide Sales Growth | (1.3)% | 7.0% | -8.3 pp | | System-wide Sales | $301 | $305 | -1.3% | | Comparable Sales | (4.8)% | 3.6% | -8.4 pp | | Net Restaurant Growth | 3.9% | 2.5% | +1.4 pp | | Total Revenues | $53 | $51 | +3.9% | | Adjusted Operating Income| $12 | $10 | +20.0% | | Adjusted EBITDA | $15 | $15 | 0.0% | - Adjusted operating income growth was primarily due to reduced segment general and administrative (G&A) expenses, mainly attributable to lower employee-related compensation[33] International (INTL) Segment Performance In Q3 2024, the International segment's system-wide sales grew 8.0%, driven by 7.6% net restaurant growth and 1.8% comparable sales, with total revenue increasing from higher BK royalties, partially offset by unfavorable foreign exchange International (INTL) Segment Performance (Q3 2024 vs Q3 2023) | Metric (in US$ millions) | Q3 2024 | Q3 2023 | YoY Change | | :----------------------- | :------ | :------ | :--------- | | System-wide Sales Growth | 8.0% | 15.6% | -7.6 pp | | System-wide Sales | $4,780 | $4,532 | +5.5% | | Comparable Sales | 1.8% | 7.7% | -5.9 pp | | Net Restaurant Growth | 7.6% | 9.5% | -1.9 pp | | Total Revenues | $243 | $228 | +6.6% | | Adjusted Operating Income| $166 | $161 | +3.1% | | Adjusted EBITDA | $181 | $178 | +1.7% | - Total revenue growth was primarily driven by increased BK royalties resulting from higher system-wide sales[36] - Adjusted operating income growth was partially offset by bad debt expense in the current period (compared to bad debt recovery in the prior year) and increased advertising expenses[37] Restaurant Holdings (RH) Segment Performance The new RH segment, including Carrols BK and PLK China restaurants, reported $441 million in total revenue and $16 million in adjusted operating income for Q3 2024, with BK RH comparable sales at (2.2)% and a 12.4% restaurant-level margin Restaurant Holdings (RH) Segment Performance (Q3 2024) | Metric (in US$ millions) | Q3 2024 | | :----------------------- | :------ | | BK System-wide Sales Growth | (3.0)% | | BK System-wide Sales | $444 | | BK Comparable Sales | (2.2)% | | BK Net Restaurant Growth | 0.2% | | BK System Restaurant Count | 1,021 | | BK Restaurant-Level Margin | 12.4% | | INTL System-wide Sales | $2 | | INTL System Restaurant Count | 14 | | Total Revenues | $441 | | Adjusted Operating Income| $16 | | Adjusted EBITDA | $32 | Financial Position & Outlook Cash and Liquidity As of September 30, 2024, RBI's total debt was $14.1 billion and net debt was $13.0 billion, with a net income net leverage of 7.2x and adjusted EBITDA net leverage of 4.8x Debt and Leverage (As of September 30, 2024) | Metric (in US$ billions) | Value | | :----------------------- | :---- | | Total debt | $14.1 | | Net debt | $13.0 | | Net Income Net Leverage | 7.2x | | Adjusted EBITDA Net Leverage | 4.8x | Dividends RBI's Board declared a $0.58 per share dividend for Q4 2024 common shares and partnership exchangeable units, payable on January 3, 2025 - RBI's Board declared a $0.58 per share dividend for Q4 2024 common shares and partnership exchangeable units, payable on January 3, 2025[40] Debt Management RBI issued $500 million of 5.625% First Lien Senior Secured Notes due 2029 to redeem 5.750% notes due 2025, ensuring no significant debt maturities until 2028 - RBI issued $500 million of 5.625% First Lien Senior Secured Notes due 2029 to redeem 5.750% First Lien Senior Secured Notes due 2025[41] - Following this transaction, RBI has no significant debt maturities until 2028[41] Financial Guidance RBI provided 2024 and 2024-2028 financial guidance, including adjusted net interest expense, capital expenditures, segment G&A, and long-term targets for comparable sales, net restaurant growth, system-wide sales, and adjusted operating income growth 2024 Financial Guidance RBI projects 2024 adjusted net interest expense between $565 million and $575 million, consolidated capital expenditures (excl. RH) around $300 million, and segment G&A (excl. RH) between $640 million and $650 million 2024 Financial Guidance | Metric | Guidance (2024) | | :------------------------------------ | :-------------------------------- | | Adjusted Interest Expense, net | $565 million - $575 million | | Consolidated capital expenditures (excl. RH) | Approximately $300 million | | Segment G&A (excl. RH) | $640 million - $650 million | | (incl. share-based compensation) | ($170 million - $175 million) | Long-Term Guidance (2024-2028) RBI reaffirmed its long-term consolidated performance targets for 2024-2028, expecting average annual comparable sales growth over 3%, net restaurant growth over 5%, system-wide sales growth over 8%, and adjusted operating income growth at least as fast as system-wide sales Long-Term Consolidated Performance Guidance (2024-2028, Annual Average) | Metric | Guidance | | :------------------------------------ | :--------- | | Comparable Sales | 3%+ | | Net Restaurant Growth | 5%+ | | System-wide Sales growth | 8%+ | | Adjusted Operating Income growth | At least as fast as system-wide sales growth | Company Information & Forward-Looking Statements Investor Conference Call RBI held an investor conference call and webcast on November 5, 2024, to review Q3 2024 financial results, with a replay available on the investor relations website - RBI held an investor conference call and webcast on November 5, 2024, to review Q3 2024 financial results as of September 30, 2024[44] About Restaurant Brands International Inc. Restaurant Brands International Inc. (RBI) is a global quick service restaurant company with over $40 billion in annual system-wide sales and 30,000+ restaurants in 120+ countries, owning TIM HORTONS®, BURGER KING®, POPEYES®, and FIREHOUSE SUBS® brands, committed to sustainability through 'Restaurant Brands for Good' - RBI is one of the world's largest quick service restaurant companies, with over $40 billion in annual system-wide sales and more than 30,000 restaurants in over 120 countries and territories[45] - RBI owns four iconic quick service restaurant brands: TIM HORTONS®, BURGER KING®, POPEYES®, and FIREHOUSE SUBS®[45] - Through its 'Restaurant Brands for Good' framework, RBI is committed to improving sustainability outcomes for food, the planet, people, and communities[45] Forward-Looking Statements This press release contains forward-looking statements regarding future performance, including expectations for digital, marketing, renovation, and technology enhancement programs, growth strategies, 2024 and long-term financial guidance, and net leverage - Forward-looking statements cover expectations for the 'Reclaim the Flame' program, modernization targets, growth strategies, 2024 and long-term financial guidance (comparable sales, net restaurant growth, system-wide sales, adjusted operating income), and net leverage[47] - Factors that could cause actual results to differ materially from RBI's expectations include substantial indebtedness, global economic conditions (inflationary pressures, consumer confidence), franchisee relationships, supply chain operations, interest rate fluctuations, risks of international growth strategies, unforeseen events (such as pandemics), and conflicts in Russia-Ukraine and the Middle East[48] Condensed Consolidated Financial Statements Condensed Consolidated Statements of Operations In Q3 2024, total revenues increased to $2.291 billion, operating income slightly decreased to $577 million, net income was $357 million, and diluted EPS remained at $0.79 Condensed Consolidated Statements of Operations (Q3 2024 vs Q3 2023) | Metric (in US$ millions, except per share) | Q3 2024 | Q3 2023 | | :----------------------------------------- | :------ | :------ | | Total revenues | $2,291 | $1,837 | | Income from operations | $577 | $582 | | Net income | $357 | $364 | | Diluted Earnings per common share | $0.79 | $0.79 | Condensed Consolidated Balance Sheets As of September 30, 2024, total assets increased to $25.071 billion, total liabilities to $20.032 billion (long-term debt net of current portion to $13.571 billion), and total shareholders' equity to $5.039 billion Condensed Consolidated Balance Sheets (As of September 30, 2024 vs December 31, 2023) | Metric (in US$ millions) | Sep 30, 2024 | Dec 31, 2023 | | :----------------------- | :----------- | :----------- | | Total assets | $25,071 | $23,391 | | Total liabilities | $20,032 | $18,661 | | Long-term debt, net of current portion | $13,571 | $12,854 | | Total shareholders' equity | $5,039 | $4,730 | Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2024, net cash provided by operating activities increased to $1.022 billion, net cash used for investing activities significantly rose to $616 million due to the Carrols acquisition, and net cash used for financing activities decreased to $365 million Condensed Consolidated Statements of Cash Flows (Nine Months Ended September 30, 2024 vs 2023) | Metric (in US$ millions) | 2024 | 2023 | | :----------------------- | :------ | :------ | | Net cash provided by operating activities | $1,022 | $920 | | Net cash used for investing activities | $(616) | $(11) |\ | Net cash used for financing activities | $(365) | $(774) |\ | Cash and cash equivalents at end of period | $1,176 | $1,310 | - Net cash used for investing activities significantly increased, primarily due to $508 million paid for the acquisition of Carrols Restaurant Group[52] Key Operating Metrics & Supplemental Disclosures Key Operating Metrics Definitions This section defines RBI's key operating metrics, including system-wide sales growth, comparable sales, and net restaurant growth (NRG), all calculated at constant currency to identify underlying business trends and assess brand performance - System-wide sales growth refers to the percentage change in sales for all franchised and company-owned restaurants in the reporting period compared to the prior year[54] - Comparable sales refer to the percentage change in sales for restaurants open for 13 months or longer (Tim Hortons, Burger King, and Firehouse) or 17 months or longer (Popeyes) in the reporting period compared to the prior year[54] - All key operating metrics are calculated at constant currency to exclude the impact of foreign exchange fluctuations, thereby identifying underlying business trends[55] - Net Restaurant Growth (NRG) refers to the net change in restaurant count (openings less permanent closures) over the trailing twelve-month period, divided by the restaurant count at the beginning of that period[57] KPIs by Market This section provides detailed Q3 2024 and Q3 2023 key performance indicators by market (Canada, US, International) and brand (TH, BK, PLK, FHS), covering system-wide sales growth, comparable sales, net restaurant growth, and restaurant count System-wide Sales Growth by Market (Q3 2024 vs Q3 2023) | Market/Brand | Q3 2024 | Q3 2023 | | :----------- | :------ | :------ | | TH - Canada | 2.9% | 8.5% | | BK - US | (1.5)% | 6.0% | | PLK - US | (0.8)% | 11.0% | | FHS - US | (3.7)% | 6.8% | | INTL - TH | (1.5)% | 34.1% | | INTL - BK | 6.3% | 13.2% | | INTL - PLK | 46.1% | 60.2% | | INTL - FHS | (1.1)% | 14.4% | Comparable Sales by Market (Q3 2024 vs Q3 2023) | Market/Brand | Q3 2024 | Q3 2023 | | :----------- | :------ | :------ | | TH - Canada | 2.7% | 8.1% | | BK - US | (0.4)% | 6.6% | | PLK - US | (3.8)% | 5.6% | | FHS - US | (5.2)% | 4.0% | | INTL - TH | (14.6)% | (4.5)% | | INTL - BK | 1.9% | 7.6% | | INTL - PLK | 11.9% | 21.0% | | INTL - FHS | (12.6)% | (2.0)% | Net Restaurant Growth by Market (As of September 30, 2024 vs 2023) | Market/Brand | Sep 30, 2024 | Sep 30, 2023 | | :----------- | :----------- | :----------- | | TH - Canada | (0.3)% | (0.6)% | | BK - US | (1.6)% | (2.8)% | | PLK - US | 3.6% | 5.0% | | FHS - US | 1.9% | 1.8% | | INTL - TH | 14.6% | 35.6% | | INTL - BK | 4.9% | 5.6% | | INTL - PLK | 29.5% | 36.3% | | INTL - FHS | 40.0% | 15.4% | Supplemental Disclosure - General and Administrative Expenses In Q3 2024, consolidated general and administrative (G&A) expenses increased to $176 million, primarily due to the inclusion of RH segment G&A and transaction costs, while G&A for TH, BK, PLK, and FHS segments decreased General and Administrative Expenses (Q3 2024 vs Q3 2023, in US$ millions) | Segment/Item | Q3 2024 | Q3 2023 | | :----------- | :------ | :------ | | TH | $36 | $43 | | BK | $32 | $37 | | PLK | $19 | $21 | | FHS | $11 | $14 | | INTL | $48 | $49 | | RH | $23 | — | | RH Transaction costs | $4 | — | | Corporate restructuring and advisory fees | $3 | $5 | | General and administrative expenses | $176 | $169 | Supplemental Disclosure - Other Operating Expenses (Income), net In Q3 2024, other operating expenses (income), net, increased to $42 million (vs. $10 million in Q3 2023), driven by net foreign exchange losses of $44 million (vs. $18 million net gain in Q3 2023) and a shift from net gains to net losses on asset disposals and restaurant closures Other Operating Expenses (Income), net (Q3 2024 vs Q3 2023, in US$ millions) | Metric | Q3 2024 | Q3 2023 | | :---------------------------------------------------- | :------ | :------ | | Net losses (gains) on disposal of assets, restaurant closures, and refranchisings | $(4)$ | $30 | | Net losses (gains) on foreign exchange | $44 | $(18)$ | | Other operating expenses (income), net | $42 | $10 | Non-GAAP Financial Measures Non-GAAP Measures Definitions This section defines RBI's non-GAAP financial measures, including Adjusted Operating Income (AOI), EBITDA, Adjusted EBITDA, Adjusted Net Income, Adjusted Diluted EPS, organic growth metrics, restaurant-level margin, free cash flow, net debt, and Adjusted EBITDA net leverage - Non-GAAP metrics such as Adjusted Operating Income (AOI), Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted EPS are used to assess operating performance by excluding specific non-recurring or non-operating items[66][67][68][70][72] - Organic growth metrics (revenue, AOI, EBITDA, net income, adjusted net income, adjusted diluted EPS) exclude foreign exchange fluctuations and the performance of the RH segment for the first four full fiscal quarters following acquisition, to identify underlying business trends[75] - Liquidity metrics include free cash flow (net cash provided by operating activities less property and equipment expenditures), net debt (total debt less cash and cash equivalents), and Adjusted EBITDA net leverage (net debt divided by Adjusted EBITDA)[73][74][77] Reconciliation of Income from Operations to Adjusted Operating Income In Q3 2024, income from operations was $577 million; after adjustments for franchise agreement amortization, RH transaction costs, corporate restructuring, and other operating expenses, adjusted operating income reached $652 million, up from $609 million in Q3 2023 Reconciliation of Income from Operations to Adjusted Operating Income (Q3 2024 vs Q3 2023, in US$ millions) | Metric | Q3 2024 | Q3 2023 | | :------------------------------------------------- | :------ | :------ | | Income from operations | $577 | $582 | | Franchise agreement and reacquired franchise rights amortization | $19 | $7 | | RH Transaction costs | $4 | — | | Corporate restructuring and advisory fees | $3 | $5 | | Impact of equity method investments | $7 | $5 | | Other operating expenses (income), net | $42 | $10 | | Adjusted Operating Income | $652| $609| Reconciliation of Net Income to EBITDA and Adjusted EBITDA In Q3 2024, net income was $357 million; after adding back income tax, early debt extinguishment loss, interest, and D&A, EBITDA was $655 million, with Adjusted EBITDA reaching $748 million after further adjustments, up from $698 million in Q3 2023 Reconciliation of Net Income to EBITDA and Adjusted EBITDA (Q3 2024 vs Q3 2023, in US$ millions) | Metric | Q3 2024 | Q3 2023 | | :------------------------------------------------- | :------ | :------ | | Net Income | $357 | $364 | | Income tax expense | $72 | $59 | | Loss on early extinguishment of debt | $1 | $16 | | Interest expense, net | $147 | $143 | | Depreciation and amortization | $78 | $47 | | EBITDA | $655| $629| | Share-based compensation and non-cash incentive compensation expense | $37 | $49 | | RH Transaction costs | $4 | — | | Corporate restructuring and advisory fees | $3 | $5 | | Impact of equity method investments | $7 | $5 | | Other operating expenses (income), net | $42 | $10 | | Adjusted EBITDA | $748| $698| Reconciliation of Net Income to Adjusted Net Income and Adjusted Diluted EPS In Q3 2024, net income was $357 million; after various adjustments, adjusted net income was $423 million, up from $413 million in Q3 2023, and adjusted diluted EPS increased from $0.90 to $0.93 Reconciliation of Net Income to Adjusted Net Income and Adjusted Diluted EPS (Q3 2024 vs Q3 2023, in US$ millions, except per share data) | Metric | Q3 2024 | Q3 2023 | | :------------------------------------------------- | :------ | :------ | | Net income | $357 | $364 | | Total adjustments | $81 | $62 | | Adjusted income before income taxes | $510 | $485 | | Adjusted income tax expense | $87 | $72 | | Adjusted net income | $423| $413| | Adjusted diluted earnings per share | $0.93| $0.90| Net Leverage, Reconciliation of Free Cash Flow and Net Interest Paid For the nine months ended September 30, 2024, free cash flow was $898 million; as of September 30, 2024, net debt was $12.950 billion, with adjusted EBITDA net leverage at 4.8x, and net interest paid was $403 million Free Cash Flow (Nine Months Ended September 30) | Metric (in US$ millions) | 2024 | 2023 | | :----------------------- | :--- | :--- | | Net cash provided by operating activities | $1,022 | $920 | | Payments for property and equipment | $(124) | $(73) | | Free Cash flow | $898 | $847 | Net Debt and Leverage (As of September 30) | Metric (in US$ millions, except ratio) | Sep 30, 2024 | Sep 30, 2023 | | :------------------------------------- | :----------- | :----------- | | Total debt | $14,126 | $13,382 | | Cash and cash equivalents | $1,176 | $1,310 | | Net debt | $12,950 | $12,072 | | Net Income Net leverage | 7.2x | 9.1x | | Adjusted EBITDA Net leverage | 4.8x | 4.8x | Net Interest Paid (Nine Months Ended September 30) | Metric (in US$ millions) | 2024 | 2023 | | :----------------------- | :--- | :--- | | Interest Paid | $569 | $544 | | Proceeds from derivatives, net within investing activities | $54 | $35 | | Proceeds from derivatives, net within financing activities | $85 | $100 | | Interest income | $29 | $29 | | Net Interest Paid | $403 | $380 | Footnotes to Reconciliation Tables This section provides detailed explanations for adjustments in non-GAAP reconciliation tables, covering share-based compensation, RH transaction costs, corporate restructuring fees, equity method investment impacts, and tax/interest-related adjustments - Footnotes clarify specific items such as share-based compensation, non-recurring transaction costs (RH, FHS), corporate restructuring fees, equity method investment impacts, and tax/interest expense adjustments[92][93][94][95][96][97][98] - RH transaction costs are non-recurring fees and expenses related to the Carrols and PLK China acquisitions, expected to continue through 2025[93]