Good morning, and welcome to the Arcos Dorados' Third Quarter 2016 Earnings Call. A slide presentation will accompany today's webcast, which will also be available in the Investors section of the company's Web site, www.arcosdorados.com/ir. And as a reminder, all participants will be in a listen-only mode. [Operator Instructions] At this time, I'd like to turn the conference call over to Daniel Schleiniger, Senior Director of Corporate Communications and Investor Relations. Sir, please go ahead.

Thank you. Good morning, everyone, and thank you for joining us again today. With me on today's call are Sergio Alonso, our Chief Executive Officer; Marcelo Rabach, our Chief Operating Officer; and Jose Carlos Alcantara, our Chief Financial Officer. Before we proceed, I would like to make the following Safe Harbor statement. Today's call will contain forward-looking statements and I refer you to the forward-looking statements section of our earnings release and recent filings with the SEC. We assume no obligation to update or revise any forward-looking statements to reflect new or changed events or circumstances. In addition to reporting financial results in accordance with Generally Acceptable Accounting Principles, we report certain non-GAAP financial results. Investors are encouraged to review the reconciliation of these non-GAAP financial results, as compared with GAAP results which can be found in the press release and unaudited financial statements filed today with the SEC on Form 6-K. I would now like to turn the call over to our CEO, Sergio Alonso.

Thank you, Dan. Hello everyone and thank you for joining us today. Since communicating our three year strategic plan in March of last year, we have focused on the business drivers that we can most influence. Our results demonstrate the progress that we're making against our plan. It is a challenging operating environment, we are delivering solid sales performance, capturing efficiencies in our restaurants and maintaining G&A discipline. We have also advanced in our asset monetization program, which has allowed us to significantly reduce our leverage levels. Turning to the third quarter, comparable sales grew 15.6% and constant-currency revenues increased 15.3% year-over-year. Importantly as reported revenues grew 2.9% in the quarter. We also achieved 140 basis points of consolidated EBITDA margin expansion versus the prior year quarter. This result was supported by three of our four divisions and reflects the operating leverage which has built into the business so far. Adjusted EBITDA also benefitted from the recognition of inflows from our refranchising initiatives in the quarter. Technology updates along with other management actions are driving improved restaurant level efficiency and operating margins. Our newly streamlined cost structure resulted in a 10.5% year-over-year decrease in G&A in the third quarter. And we also reached close to 45 refranchising agreements by the end of September, with more than 35 restaurant operations already transferred to our sub-franchises. As competitive and promotional activities picks up in the region, we're making the necessary investments to reinforce loyalty in our existing customer base and attract new guests to our restaurants. Our redesigned affordability platform is performing well in our major markets, where consumers appreciate the wide selection of core products at affordable prices. These operating and strategic initiatives are positioning us to leverage our recovery in economic growth in our region. We are optimistic that economists…

Thank you Sergio. Please turn to Slide 3. Reported revenues grew by 2.9% during the quarter, up 15.3%. Constant currency growth more than offset the impact of currency depreciation in several of our key markets. Excluding Venezuela, reported revenues rose 2.8% with 12.4% constant currency growth offsetting a strong currency deprecations primarily in Argentina and Mexico. Average check growth was pricing below inflation and a positive shift in mix to drive the increasing revenue while traffic was slightly lower versus the prior year quarter. Please turn to Slide 4 for a more detail on our divisional results. In Brazil, reported revenues increased 14.5%, driven by constant currency growth as well as the appreciation of the Brazilian real. Excluding the benefit of currency translation, constant currency revenues and comparable sales were each up mid-single digits. Average check was the main driver of comparable sales growth. Traffic declined modestly against the back drop of continues weak consumer spending. Key marketing activities in the quarter included the Novinhos Cheddar campaign and the McFlurry Kit Kat in the dessert category. We also added McShake Ovomaltine. Which surpassed expectations and is fast becoming the McDonald's customer favorite. During the quarter we featured The Secret Life of Pets. I am talking on properties in the happy meal. Moving to Slide 5, NOLAD’s revenue grew 1.4% in as reported terms or 8.6% on a constant currency basis. Systemwide comparable sales grew 5.6% supported by higher average check and a slight increase in traffic levels across the division. This improvement was driven by the Costa Rica and Panama operations, and the success of over affordability platform in Mexico also contributed to NOLAD's performance in the quarter. NOLAD's marketing initiatives in the quarter included the launch of new affordability platforms both in Mexico and Panama. Talking some property in…

Thank you, Marcello. Please turn to Slide 9, in line with the outlook that we provided on our first quarter call, results have been challenging and uneven so far this year. Third quarter results rebounded with solid top line performance leveraging the efficiencies that we have built so far into our business. During the quarter consolidate G&A declined by over a 100 basis points as a percentage of revenue and was broadly flat year-over-year on a constant-currency currently basis. This was mainly due to ongoing efficiencies from last year's reorganization, which offset the inflation driven growth of the Argentine peso denominated component of our corporate expenses. We're ahead of schedule on achieving our targeted 10% G&A reduction by the end of this year. Our consolidated adjusted EBITDA was 24% higher on an as reported basis or 55.9% higher in constant-currency terms. The adjusted EBITDA margin expanded nearly 140 basis points to 8.1%. Efficiencies in payroll and G&A more than offset higher food and paper costs as a percentage of revenues during the quarter. The result also included a benefit from the refranchising of some company operated restaurants. Excluding these inflows consolidated adjusted EBITDA will have increased by about 60 basis points. Please turn to Slide 10, adjusted EBITDA margin growth was underpinned by expansion in Brazil, the Caribbean and NOLAD divisions with a positive contribution from the corporate segment. This was partially offset by margin contraction in the SLAD division. In Brazil adjusted EBITDA margin grew by about 260 basis points to 11%. The result was helped by our work over the past year to realize efficiencies in payroll, G&A and occupancy and other operating expenses, as well as the refranchising of company operated restaurants. Excluding refranchising inflows of $5.8 million the EBITDA margin expanded by a 100 basis points.…

Thank you Mr. Carlos. The measures we have put in place to strengthen our financial position are taking hold. We achieved positive top line on margin performance in the quarter. Thanks to the disciplined execution of our two year strategic plan. We now have a liner organization in place and our performance has improved despite a challenging economic environment. We are also beginning to capture operational efficiencies in our restaurants with more opportunities seen on the Horizon. In keeping with the balance globally, we are focus on enhancing the customer experience by updating restaurants and integrated technology to provide customer with a modern and progressive experience. All of our efforts should drive revenue growth and lead to higher EBITDA margins as consumer spending improves. We are working side by side with McDonalds to develop our plan for the next three years in terms of openings and reimbursement. By our next earnings call, we expect to share the details of the planning with you including update all loops for sales margins and capital allocation. I would like to end by sharing an important milestone for the McDonalds brand in Latin America. This month marks the 30th anniversary of the opening of the first McDonalds restaurant in one of our key markets, Argentina. And next year Arcos Dorados will celebrate its 10 year anniversary. We are proud of the business we’ve built over the last decade becoming the leading viewers brand in Latin America. With operations in plenty countries and territories. So thank you for your attention. And I will now open the call for questions.

[Operator Instructions] and our first question today comes from Martha Shelton from Itau BBA. Please go ahead with your question.

I just have a question regarding your remaining $125 million worth of monetization initiative. Has this been agreed to and, if so, when? Or if not, when will we get updates on that? And my follow-up question regards Burger King in Mexico. Altea reported a mid-teens same store sales gain in 3Q 2016 in Mexico; is Arcos doing as well in Mexico? Thanks so much.

Martha. Good morning. How are you? I'll take the first question and then Marcelo you could take the Mexico piece. On the re-development object for asset monetization, well as we said more than $90 million we have already received in cash from the re-development initiatives so far and most of those $90 million were applied to reduce our debt levels, mostly to the U.S. dollar 2023 notes. Of course we're expecting additional proceeds that will also be applied to further debt reductions, but being always mindful of debt ratio target range. Of course we're going to be monitoring the currency and credit markets, so we can evaluate our options for each one of the two debt we plan to lower. And finally of course we're still working through our -- the pipeline of properties that we have. On the refranchising piece, which is the second component of the asset monetization. As we have mentioned we already received around $8 million in cash so far, out of the 35 restaurants that have already transferred and we have 45 agreements already signed, so proceeding on these trends, 10 more restaurants will be transferred to our sub-franchisees and in line with the redevelopment effort we're obviously continue working with the pipeline of restaurants that we have to complete this part -- this portion of the initiative. That is from the asset monetization. On the margin at BK and our performance in Mexico, Marcello?

Yes, good morning Martha, as we showed in the third quarter results from NOLAD, we've had a strong quarter in NOLAD, particularly we had positive traffic in the third quarter. As you know we do not disclose numbers market-by-market but what I could say about Mexico, is that we launched a very successful affordability platform which is McTrio 3x3. This new platform beings more choices to our customers, and those choices are at really competitive price points, so we're seeing traction since this launch and we continue to make some improvements in terms of operational execution in the market. So, those both components are gaining traction in Mexico.

Great. Thank you so much for those answers. And, Sergio, just a quick clarification, am I to understand that there is -- I initially understood that the asset monetization efforts would be $200 million related to the monetization of real estate and $50 million to refranchising. Am I to understand that now that your net debt to EBITDA is at 2 times, we're not going to see additional asset monetization efforts? Is that how I should interpret your comments? Thanks so much.

Jose Carlos, do you want to take that?

No, I think that one thing that we have to consider obviously at the end of this year, September 30th, we're at two times net debt. But as I mentioned in the opening remarks we do have a non-recurring one-off benefit in our TTM adjusted EBITDA. So, again what we're monitoring is making sure that we're between the targeted range of 2 and 2.5. We still have pipeline that we're working through that we could potentially get to the $200 million, there's no change in the plan at this point. So, we continue working through the pipeline and you should expect more news in our next call.

Our next question comes from Jeronimo De Guzman from Morgan Stanley. Please go ahead with your question.

I had a question on your restaurant efficiencies. You mentioned that you still see opportunities to capture new restaurant operating efficiencies, and I just wanted to better understand where you see some areas of opportunities still there? And, I guess, related to that, given some of the success that you've had with automated scheduling in Brazil, I wanted to understand what are your plans currently for rolling that out in other markets?

Yes, Jose Carlos why don’t you address the first part and then Marcello can talk about the second.

Good morning, Jeronimo. As we’ve said I think in the past, current implementation in Brazil has been very successful and has generated a lot of efficiencies in payroll and better productivity. We’re also focusing on other items aside from restaurant payroll, but G&A other occupancy and other expenses, so we continue focusing on efficiencies throughout the P&L. We continue to look at the further deployment of technology in our other markets, having said that as we said in the past the biggest opportunity has been in Brazil, but there are still opportunities in the markets and I’ll pass it to Marcello little bit to explain some of the initiatives that we’re doing on the restaurant level productivity.

Yeah, hello good morning. When we get growing, we prioritized Brazil given that it was a country where we know we will most benefit from the new system. A roll-out to other markets will be a function of the expected benefit in that market versus other investment priorities on a move forward basis. We are currently finalizing our investment plan for the next three years which may include implementation of Kronos in additional markets.

Okay, thanks. And maybe just a separate question then on the cost side as well. I wanted to see if you had an update on the FX hedging Brazil for 2017 and whether being at a lower FX level, you see that as an opportunity for margins, or do you see that also as an opportunity to have more competitive pricing, going forward?

Yes, we start hedging our projected 2017 exposure in Brazil. As of today, we’ve hedged 50% of the first semester at an average change rate of BRL3.45 to $1. Again, as we’ve always said, we don’t speculate in terms of hedging, we just try to predict -- provide our countries and markets with predictability with regards to their costs. We’re also -- we’ll continue monitoring the market and we’ll potentially continue hedging as we progress. Now, we’ve also started hedging some exposure in Columbia, 50% of the first quarter at COP3,000 to $1. So it’s something that we continue to monitor and continue to act upon.

Our next question comes from Robert Ford from Bank of America Merrill Lynch. Please go ahead with your question.

I was hoping you could walk me through the tax line. It was much bigger than I would have thought and I wasn't sure if that's the tax on the restaurant sales, or the income from the joint use projects, or if there's some portion which is non-cash.

I understood the question. Jose Carlos?

Good morning Bob. Yes, the variation in the income tax year-to-date versus 2016 versus year-to-date 2015 mainly explained by the better performance of the Brazil division this year versus last year. Obviously we have a complex tax situation in 20 -- we’re operating in 20 countries and most of our economy year-to-date is based on estimate. The actual full year tax expense impact you'll see in the next quarter when we true up all of our tax provisions. Again that something that we continue to monitor and it’s something that I think will be normalize in the next quarter. And also potentially we can take you through an offline discussion in a lot more detail if you want. It’s a little bit more complex than I can handle right now on the call.

That would be very helpful. In the past there has been issues with respect to the deductibility of the royalty fees in Brazil, where they're not fully deductible and I wasn't sure if that's influencing the number this quarter.

No not anymore [multiple speakers].

Okay. And then, one other thing, and that is, if you could touch on the wage outlook. The inflation is near 9% in Brazil, it's running at 40% in Argentina, and I was just wondering what you guys are anticipating in terms of wage adjustments as we go into 2017, please.

Look. The reality is that we are about the end their negotiations in both markets regarding what has to be expected for wage increased -- minimum wage increases. Remember that our salaries are normally tied to minimum wage evolution. Situations in both markets are different, in Brazil there is a mechanism that is linked to decision made by the government and then it ties up -- all salaries tried to minimum wages we increased in the direction. We know that we may guess an increase in minimum wage probably one or two points on top of inflation. That is the assumption we're working on, but as I said before it’s not confirmed yet. In the case of Argentina, process is different, it’s negotiation on a union base that is conducted about this time of the year and it is composed by two different adjustments that are done the following year, considering that Argentina has a much higher inflation rate. It is a situation that we're monitoring because it's important, it has a big impact on our numbers but surely what I can I tell you is that we do not expect a gap between inflation and wages increases, the size we have in the past. That is for sure.

Our next question comes from Paola Mello from Citi. Please go ahead with your question.

I was wondering if you guys could walk us through the same store sales of Brazil. This is a good acceleration, compared to virtually zero growth that you guys reported in 2Q, so if you could walk us through the performance month over month, maybe not exactly the number but at least the big trends, and if that is something that you guys believe that is going to continue over the course of this year and eventually the beginning of next year? Thank you.

Let me take the first part and then Marcelo you can explain what I say. Look we do not provide same store sale information on a month by month basis Paola, but having said that what we can say is that we are seeing a pickup in activity, even though consumer spending as we all know remains soft in market. We have done significant investment in our affordability platform in the market, started at the end of the first quarter. Having said that, a significant portion of what happened in this year, that we're facing that really-really tough comparison basically due to our very successful campaign that we run last year with Happy Meal and the Minions property, that was obviously clearly a significant tough comparison as I said. But again in the context of still soft construction environment, obviously, our initiatives, our bargaining initiatives, are designed, obviously, to stimulate and retain volumes in the market.

I think as you said almost everything Sergio, but as you mentioned in this third quarter, the toughest part of the quarter was a comparison with the Minions campaign that ran in the month of July last year. And we came out of the second quarter where we had a very tough comparison with the Monopoly promotion last year, that's why may be Paola you're seeing a pickup, but as Sergio mentioned we're taking all the measures to improve this indicators in the market.

[Operator Instructions] Our next question comes from Robert Schweich from Burnham. Please go ahead with your question.

You partly answered the question on tax rate, which concerned me, but I'll have to call in later on that. Two other questions. At what point might the Company be in a position to reconsider establishing a dividend? Secondly, could you discuss your market share figures, your recent market share figures, in Brazil?

I'll give you firstly the answer on the dividend piece. As you know dividends are a decision of the Board. And the Board has decided that dividends will not proceed for this year 2016. The Board has declared. For the next year, 2017, obviously that continues to be a decision of the Board, and the Board will make a determination obviously before the end of this year. In terms of market share or current -- I'll talk about perspective on competition and what we're seeing in the region overall, perhaps with a focus on Brazil, look well, we're clear leaders in all of the markets, and we've been able to maintain the leadership position even in this very competitive, very promotional environment with consumer spending declining in most of the markets. It is also appropriate to say that competitive activity within our category I mean the formal QSR industry has increase very significantly. In Brazil -- that’s not only Brazil, I would say most of other markets. So given all that conditions what we’re doing is we’re emphasizing the value, the quality of our menu items, we’re looking for differentiation in what is at the core of our proposal, which is customer experience, which is service quality, which is product offerings and value, real value, not necessarily price, but value, because we know that we are -- we have to be very careful on having run the business in this environment but at the same time prepare our business to capture the future opportunities, once the economy recovers. So we believe it’s only a manner of running the actual times, but also sustain the business for the future when as we believe probably early in the next year or second half of this year, the economies in the bigger markets will begin to show some sign of recovery.

Thank you.

Ladies and gentlemen at this time, we’ve reached the end of the question-and-answer session. I’d like to turn the conference back over to CEO Mr. Sergio Alonso for any closing remarks.

Well, thank you all for your questions and your attention today. Obviously we’re looking forward to speaking with you for the next quarter release and as always in the meantime, our team remains available to meet you and answer any questions that you may have. So thank you very much and enjoy the rest of your day.

Ladies and gentlemen that does conclude today’s conference, we do thank you for attending. You may now disconnect your lines.