Good morning, and welcome to the Arcos Dorados' Second Quarter 2017 Earnings Call. A slide presentation will accompany today's webcast, which will also be available in the Investors section of the company's website, www.arcosdorados.com/ir. As a reminder, all participants will be in a listen-only mode. There will be an opportunity for you to ask questions at the end of today's presentation. Today's conference call is being recorded. At this time, I'd like to turn the conference call over to Daniel Schleiniger, Vice President of Corporate Communications and Investor Relations. Sir, please go ahead.

Thank you. Good morning, everyone, and thank you for joining us today. With me on today's call are Sergio Alonso, our Chief Executive Officer; Marcelo Rabach, our Chief Operating Officer; and Mariano Tannenbaum, 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 Accepted Accounting Principles, we report certain non-GAAP financial results. Investors are encouraged to review a 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. Please turn to Slide 2. Our strategic focus on bringing more customers to our restaurants drove positive restaurant volume across our major markets in the second quarter of 2017. This aligned with strong average check growth resulted in improved top-line performance, as well as consolidated margin expansion in the period. Excluding Venezuela, comparable sales increased 13.6%, while constant currency revenues grew 13% in the quarter. Top-line performance in the quarter reflects broad-based strength in our business across all divisions, despite the continued economic uncertainty in the region. And in fact, NOLAD experienced the highest level of comparable sales growth since our IPO in 2011, while Brazil's comparable sales during the quarter were the strongest since the second quarter of 2013. We're still in the early stages of our investment and expansion plan for 2017 to 2019. In the two years prior to 2017, we delivered on the key components of our turnaround plan by capturing efficiencies in our restaurant operations, meaningfully reducing our G&A expenses, as well as our leverage. Our growth strategy over the coming years will be to increase our cash generation by focusing on improving our top-line performance. In the second quarter, our sales growth drove the 38.7% increase in unsupported EBITDA and a 58.2% increase on a constant currency basis. We also achieved 120-basis-point improvement in our consolidated EBITDA margin. Please turn to Slide 3. We're moving forward with plans to modernize our restaurant base, adding digital capabilities and enhancing the use of technology. We're also expanding our regional footprint. Efforts focused on operational excellence, which we collectively call will Cooltura de Servicio or service culture, will also drive continued improvement in customer satisfaction. Nine months ago, we opened our first Experience Of The…

Thank you, Sergio. Please turn to Slide 4. As Sergio mentioned, the increases in guest counts in most of our markets along with higher average check drove strong second quarter top-line growth. Our value platforms are successfully driving more guests to our restaurants by leveraging McDonald's core assets. During the second quarter we also saw good performance in our Dessert and Family businesses in several of our markets. Reported revenues increased 16.2% with constant currency revenue growth of 18.3%. Systemwide comparable sales reached 20.1% tends to average check growth along with positive traffic in most market. Including Venezuela comparable sales kept pace with blended inflation, and we maintained the trend of positive total volume growth. Importantly, each of our four divisions, the reported comparable sales growth were above blended inflation when excluding Venezuela. Please turn to Slide 5 for a more detail loop at our divisional results. In Brazil, reported revenues grew 14.7%, supported by the 8% year-over-year appreciation of the Brazilian real. Excluding the currency tailwind, constant currency revenues grew 5.2%. As in recent quarters, the result was impacted by the refranchising of certain company-operating restaurants, as company operated sales are replaced by the rental income, we did from our sub-franchise. Constant currency, total system wide sales in Brazil grew 10.5% versus the prior year quarter. Comparable sales rose 8.3%, reported by increases in both average check and restaurant traffic during the quarter. While consumption trends are showing signs of improvement in Brazil, the consumer environment remain challenging even continued high unemployment and economic uncertainty. Key marketing activities in the quarter included the combination of the Clássicos do Dia or Daily Classics by new platform. We supported volume growth also in the quarter, we included Smurfs and Transformers in the Happy Meal. And launched the McFlurry and McShake Sonho…

Thanks, Marcelo. Please turn to Slide 10, our strong results continued this quarter, healthy revenue gains demonstrate the effectiveness of our strategy to increase guest traffic in our restaurants. Strong top line performance combined with the operating leverage we've built into our business generated a better operating result versus last year. Consolidated G&A declined by 10 basis points as a percentage of revenues in the quarter. As reported adjusted EBITDA increased 38.7% compared with prior year quarter. The result also reflects strong adjusted EBITDA growth in absolute terms across all four divisions in line with our stated strategy. Please turn to Slide 11, consolidated adjusted EBITDA expanded 38.7% in the quarter with margin expansion of 120 basis points. Consolidated margin expansion was helped by efficiencies in food and paper, and occupancy and other operating expenses, the percentage of revenues. Please keep in mind that our third quarter results will include the impact of the stable [ph] increase of the royalty rate that we pay to McDonald's Corporation, which began last week. Brazil's adjusted EBITDA grew 50.5% in the quarter, including significant margin expansion of 300 basis points to 12.9%. Lower food and paper costs drove the margin expansion, as we benefitted from reduced beef cost as well as the consolidation of the number of our suppliers earlier in the year. Productivity gains offset label-related cost increases. For NOLAD, the adjusted EBITDA grew 7% in the quarter, despite the small margin contraction of 20 basis points. The margin decline reflects higher food and paper costs as well as an increasing occupancy and other operating expenses due to a significant increase in gas prices in Mexico that impacted both utilities and logistic costs. In SLAD, the adjusted EBITDA grew 14.7%, driven by top line growth, which was partially offset by 50 basis…

Thank you, Mariano. Our strong second quarter results show our potential for top line growth and cash generation. Successful marketing initiatives, our focus on operating excellence and an improved customer environment continue to attract more customers to our restaurants. On start of our 2017 to 2019 plan, we're building on the achievements of our long-term strategic outlook, while expanding our footprint on modernizing our base to keep guests coming back to our restaurants. Looking forward, we believe that our marketing and investment plans for the next several years will deliver growth in our business and value to our shareholders. Last quarter, I mentioned that we were about to issue a comprehensive report, outlining our social impact initiatives as part of our commitment to our community, the environment and all our stakeholders. As operators of the largest quick service restaurant chain in Latin America, we are also the largest generator of first employment in the region. Among our recent initiatives to benefit the region's youth are partnerships with the J.P. Morgan Foundation in Brazil and the Ford Foundation in Mexico. Through these partnerships, we provide young people with training and growth opportunities that will serve them for the rest of their professional lives. We continue moving forward with our sustainability commitment. Our paper packaging across the company as well as the coffee and fish served in Brazil, is certified as sustainable. And by the year 2020, our commitment is to have sustainable sourcing for all of our packaging, coffee and fish. We continue to be very active in the communities in which we operate. As we have done for many years, over the next few months, many of our markets will again hold their annual [Grandia or Magnia Felis] [ph]. Arcos Dorados donate 100% of the proceeds from Big Mac sales on these days to charitable causes in each markets. This year, these will include organizations dedicated to use employment as well as our continued support of Ronald McDonald franchises. You can find the full results of our 2016 environmental and social impact report on our corporate website. To summarize, we are committed to delivering value to all stakeholders and look to the future, confident, that we are on a sustainable growth trajectory, as Latin America's consumption environment recovers. So thank you for your attention. And I will now like to open the call to questions.

Yes, thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question today comes from Robert Ford from Bank of America Merrill Lynch. Please go ahead with your question.

Thank you and good day, everybody, and congratulations of the quarter. I had a question on a couple of numbers on the press release. Mariano, you show a net tax asset of $6 million for the quarter. How big was the gross amount? What's the origin of that tax asset and what's the time horizon to monetize it? And then, of the $12.8 million you received from asset monetization efforts in the quarter, how much and on which lines did it flow through in the income statement, if at all? Thank you.

Good morning, Bob. Yeah, Mariano, why don't you go with the first part and then you may clarify the question.

Can you clarify the first part of the question, Bob, please about the…

Sure, The tax asset was shown net, right. So we're looking at maybe deferred tax benefit against an actual tax charge. And I was just wondering what the gross amount was? What the origin was? What country? What caused it to come into existence? Sometimes after devaluation, for example, in Venezuela, you have these large net tax assets. You may have something that I'm unfamiliar with in Brazil. But I was just curious as to the origin of that tax asset. And then, there too, there may be - it may be immediately amortized or monetized? In other situations, you may have a longer-term outlook in terms of how you can actually convert that into cash. And I was just curious as to what the outlook is to monetize that asset.

Okay, perfect, Bob. I'll tell you, we will follow up on that part of the asset, on the tax asset later if you want. We're not providing at this time the gross amount, so we will follow-up with you later. Regarding the redevelopment, actually, as we mentioned in the release, when we started initiating we received around - since we started the initiative we received around $140 million in cash. And which has so far most of it been applied, as we mentioned before, to debt reduction. Approximately $80 million that we bought back from the 2023 notes. For the remaining of the year, we're expecting to receive receipts of at least $10 million more. And that will add of course to our total cash balance that as we mentioned as well in the script, is around $240 million at this time. So - and also, we also mentioned, these proceeds are coming from existing deals. We are not going to proceed with more deals. Regarding your question about where we are accounting these, the redevelopment proceeds are not having any impact on our EBITDA. They are below the line and in other operating results, so with no impact on the EBITDA.

And so there was $12.8 million in other income in the quarter, is that correct?

Exactly.

Thank you.

You're welcome.

Our next question comes from Eduardo Ordóñez from BankInvest. Please go ahead with your question. Eduardo Ordóñez Bueso: Hello, thanks for the call. Could you provide any more color on the trends you're seeing for traffic and tickets in Brazil? Thank you.

Yes, sure. Good morning, Eduardo. As we mentioned during the first part of the call, traffic in Brazil was positive year-over-year, for the second consecutive quarter. We are already that we're very pleased with the results that we're getting from that part of the business. As you remember, that is essential part of our strategy, which is growing volumes, particularly in economic environment that is now so dynamic that it's a proper way to sustain with the value creation for the businesses, if you will. The - actually, the business trend towards the end of last quarter, last year, we have seen this momentum to continue in the first half of the year, and we actually are maintaining that same dynamic as we enter Q3. Marcelo, why don't you provide us…

Yes, I think - hello, good morning. As we mentioned before, we are pretty focused in those variables of the business that we have most control of. And in the case of Brazil, we are providing customers with a very competitive value proposition, which includes, mainly core McDonald's menu items of Big Mac or funnel [ph] and others. We are at the same time running promotions that have a strong track record. And we are focusing on the family experience in the restaurants. As we mentioned in the script, we are working in our service culture in other markets of the company, and obviously it's not the exception, and we are trying to enhance the experience of the customers in our restaurants. And I think that the combination of those - all those factors gave us the advantage when compared with our retailers in the country. I think that we are doing pretty well in the field. As Sergio mentioned, we are very pleased with the results we have saw in the second quarter, and which are in line with what we saw in the previous one. Eduardo Ordóñez Bueso: Thank you.

Our next question comes from Bruce Geller from DGHM. Please go ahead with your question.

Hi, good morning. What is the current all-in interest rate that you're paying and how come you're running with such a high cash balance, as opposed to paying down some of that highest cost debt? It seems like you could bring down your interest expense dramatically, considering what appears to be a high cost? Thank you.

Mariano?

Yes. Actually, we currently have two bonds outstanding, the 23 notes, which we are paying 6.625% Cuban [ph] on a semi-annual basis and the 27 notes from which we're paying 5.875% Cuban [ph]. The latest is for $265 million. The first one is for $345 million. So for this quarter, what we are recording in our - as our interest expense, is $23 million. We are running a large cash balance, that's true. And we already reduced our debt. But keep in mind that our net debt to EBITDA ratio at this time is 1.4 times. So we feel pretty comfortable with that debt level. And on top of that, keep in mind that we just announced on - at the beginning of the year, a very ambitious CapEx program with McDonald's for more than $500 million. And our intention is to find that CapEx with our own generated cash flows. So given that we are in the second quarter of a 12-quarter CapEx program, we are - we think that the balance - the cash balances that we have for the moment are the right ones. And we will follow up, and we will continue to evaluate different alternatives in the future. But for now, we think that we still need to - the cash balances that we have are the correct ones.

And also, Mariano if I may. Keep in mind that in the very short term, most of the bulk of the investments we're going to make both in operating and reimages are really going to be the deployed towards the end of the year, that means the second half, because they're traditionally back ended, if you will.

I am sorry. I am still confused on the interest expense, because it was $23 million in the quarter, which implies about $90 million a year in the interest expense, which implies a dramatically higher interest rate than what you just quoted on your debt. So can you please explain this disconnect?

Okay. Actually, this quarter, remember that we did the liability management transaction, where we recorded expenses for repaying that debt. So the interest expense that we currently have in U.S. dollars is below the $40 million on a year-to-year basis. As I already explained in the script, we convert part of our U.S. dollar debt to Brazilian reals. We currently have 45% of our total debt in Brazilian reals, where we - with that transaction, we increased the cost of our debt by more or less $20 million. So all in all, our interest expense on an annual basis is below $60 million. And you can do the math, just like calculating the U.S. dollar expense of the two bonds, that's the only debt that we have and convert that with half of it to Brazilian reals. Each quarter, we have the expense on the liability management transaction for the repayment of the club deal as well.

Why wouldn't you try to eliminate a big portion of the real denominated debt since that is dramatically higher cost than the U.S. coupon debt?

Yes. Actually, please keep in mind that the majority of the cash flows that we generate are in Brazilian real. So even though the cost in U.S. dollars is lower, the exposure that the company have from a risk management perspective is not the correct one. That's why, and we already explained several times, our target is to have at least 50% of our debt expressed in Brazilian reals. The cost is a bit higher but from a risk management perspective, it's the right thing to do.

It's the natural thing.

Thank you.

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

Thanks for taking my question. I was wondering if you guys had an opportunity to evaluate the impact that the Labor Reform in Brazil could have in your financial statements? Thank you.

Paola, good morning. Marcelo, why don't you take those?

Yes, good morning, Paola. Yes, as you mentioned, late recently labor reforms was passed by the congress and has become law in Brazil. But once the law has been approved, regulations will need to be developed before the law can be implemented. This process may take some time, as both the Federal and the local state governments will be in bulk. I think that at least - at this moment, it is premature to comment on how any of these reforms might impact our business in Brazil, particularly, because we have many agreements in place with local authorities and unions, which we will have to revisit, once the new relations are finalized. And maybe, we will need some negotiations in order to apply the new rules. So, maybe we will have to wait a couple of months in order to understand the details of this regulations and then calculate how these could impact our business in Brazil.

Great. Thank you.

You're welcome.

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

Thank you. Good morning. I wonder if you would discuss your assessment of the economic outlook. You mentioned a soft consumer environment in the second quarter. But I'd like to hear your assessment as you look out in the second half and into next year in Brazil, and also a discussion of the overall effect of the political turmoil that's been going on in Brazil. Do you feel that it's more or less finished at this point, and is the - has there been a lessening impact on your business. There probably hasn't been that much impact, but could you discuss that whole picture?

Sure, Bob. Good morning. How are you? Look, for this year, the real GDP growth expectations, as you know, continue to be weak. It will probably be flat than the latest of the releases that we had active still for this year 2017. So, I mean, in the very, very short time towards the end of the year, we do not expect the situation of the market dynamic will change dramatically. But on top of all that, we know that we have a strong business. As our results in the first half of the year are showing. And we are very confident that we will continue this trend towards the end of the year. And we're actually developing our strategy that is based on bringing in more customer to our restaurant, because that is the right thing to do in this kind of environment, and we're getting good results, as I stated before. If you look at our opinion in terms of what's going to happen in next year, well, next year will be an elections year for Brazil. And we know that, that creates a particular different dynamic in the market. But we're already working on our plans for 2018. We do not expect any major disruption in this term, at this point. Finally, in the political side, well we're not experts in politics' dynamics. All we can say is that, it's okay, number one, again, in spite of the bumpy or uneven consumer environment, we were able to get good results. And two, we are starting to see some positive signals in some particular regions within the country. So we remain cautiously optimistic as we said before that the business will continue to perform well. As I told before, the trends that we got in the first two quarters of this year, we're seeing some continuity towards July and we got so far in August. But at the same time, we got to keep in mind that we will face tougher comps, those are comps, there is nothing to do with the real dynamic of the business that continues to be very positive, we believe.

Thank you.

You're welcome.

And ladies and gentlemen, with that, we'll conclude today's question-and-answer session. I would like to turn the conference call back over to Mr. Sergio Alonso for any closing remarks.

Sure, thank you. Last week, we celebrated the 10-year anniversary of the formation of Arcos Dorados. We're proud of the achievement of the last 10 years. And I'm very confident that we are on the right strategic path to capture the full long-term potential of the McDonald's brand in Latin America. So thank you again for your questions, for your attention today. I would certainly look forward to speaking with you again in the next quarter. As always, in the interim, our team remains available to meet with 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 will conclude today's presentation. We do thank you for joining. You may now disconnect your lines.