Good morning, everyone, and welcome to the Arcos Dorados Third Quarter 2019 Earnings Call. A slide presentation will accompany today's webcast, which will be available on the Investors section of the company's website, www.arcosdorados.com/ir. [Operator Instructions]. And today's conference call is being recorded. At this time, I'd like to turn the conference call over to Patricio Esnaola, Director of Investor Relations. Please go ahead.

Thank you. Good morning, everyone, and thank you for joining our earnings call. With me on today's call are Marcelo Rabach, Arcos Dorados' Chief Executive Officer; and Mariano Tannenbaum, Chief Financial Officer.Please turn to Slide 2. 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 the reconciliation of these non-GAAP financial results as compared with GAAP results, which can be found in the press release and audited financial statements filed today with the SEC on Form 6-K.Our discussion today excludes the results of the Venezuelan operation, both at the consolidated level as well as for the Caribbean division due to the country's ongoing macroeconomic volatility. For your reference, we include a full income statement, excluding Venezuela, with our earnings release. I would now like to turn the call over to our CEO, Marcelo Rabach, who will begin his remarks with Slide 3.

Thank you, Iñaki, and good day, everyone. We delivered another quarter of strong volume and sales growth. Our nearly 13% increase in comparable sales was stronger than it was in the second quarter, well above blended inflation. In a scenario where GDP growth has been revised downward in many key markets, we drove traffic levels higher and saw average check growth across most of our countries. Even in dollar terms, consolidated sales increased nearly 4% despite significant FX pressure during the quarter. Our performance was particularly strong in Brazil, where we delivered 10.8% comparable sales growth, which was more than 3x local inflation. Again, we gained additional market share and outpaced the food service sector. Importantly, we are maintaining this momentum into the fourth quarter.Our NOLAD division also performed well. We are very pleased that Mexico produced its tenth consecutive quarter of sales growth and its third year above inflation, a result of a combination of initiatives that have gained traction in that country.As we noted during the previous earnings call, our performance is more about sharp and disciplined execution of our 3-pillar strategy and leveraging our market-leading brand than about market conditions. Our investments in EOTF restaurants continue paying off with sales lift in the high single digits. As of the end of the third quarter, we had 510 EOTF restaurants. By the end of the year, we will bring EOTF to a total of 10 countries.Delivery on digital to other key components of our omni-channel gets experience also contributed to our top line growth in the quarter, and we continue expanding our already dominant footprint with the addition of 70 new restaurants over the last 12 months.With regards to profitability, our adjusted EBITDA margin expanded further. Excluding the onetime tax benefit that we recorded in last year's quarter, our margin increased 120 basis points at the consolidated level. In addition to operating leverage generated through top line growth, our margin benefited from continued efficiency gains in payroll and many other cost lines.Before turning the call over to Mariano to discuss our performance in more detail, a brief word about our operations in Chile. Unfortunately, a number of our restaurants were affected by the recent protests across the country. While we are working to normalize operations again at the damaged restaurants, our main priority right now is the safety of our colleagues and customers.In the quarter, in Peru, our operations were also affected by last month's protest, although only for a brief period, and operations resumed back to normal.Mariano, please go ahead.

Thanks, Marcelo. Please turn to Slide 4. As Marcelo mentioned, we are very encouraged by the solid performance we, again, delivered in this quarter. These strong results are a testament to the effort of our entire team, our operational excellence and the successful execution of our strategic plan. Despite continued macro headwinds, we were able to outperform the industry in a number of our key markets, and strong top line growth is driving efficiencies across our core operating cost lines.I would like to reinforce that we delivered our third consecutive quarter of double-digit system-wide comparable sales growth, reaching 12.7% in this quarter. This was above blended inflation for the company, with strong contribution from our Brazilian division, where we saw both average check and traffic growth. Importantly, we grew revenues almost 4% in dollar terms. These results more than offset the translation impact from the depreciation of the Argentine and Colombian peso. Revenues also benefited from the acceleration of restaurant openings throughout the year, in accordance with our plans to pick up the pace of the rollout of EOTF.Please turn to Slide 5 for more details on our divisional top line. In Brazil, we achieved comparable sales growth of 10.8%, well above inflation. Again, this quarter outperformed the food service sector by 3x according to data from the Brazilian Food Service Institute. Moreover, revenues in dollar terms increased 11.6% as we saw a more stable Brazilian real.Total traffic growth continued to be driven by the successful execution of our marketing campaigns, the rollout of EOTF, the expansion of our Dessert Centers and the sustained growth of our delivery channel.Moving to SLAD. Comparable sales increased 28.9% below the division's blended inflation. Traffic continued to be impacted by the weak consumer environment in Argentina. However, it was partially offset by the good…

Thank you, Mariano. Please turn to Slide 6. Given our strong performance across all metrics in Brazil, we are accelerating new store openings across all of our formats. In October, we opened a new flagship store on one of São Paulo's most important streets, Avenida Paulista. Housed in an iconic building in a prized location, it has been an enormous success. For the last 4 weeks, people have been waiting in long lines to enter the restaurant. This new opening helped the making campaign became the most successful ad campaign that the company executed year-to-date, garnering over 86 million social media impressions. This is giving our brand tremendous visibility, while also supporting its aspirational position in this market.Our new flagship store in Brazil up to the 13 restaurants that we opened during the third quarter across the company, and we will exceed the commitment to operate at least 650 EOTF restaurants by the end of this year. We also expect to reach our goal of 200 new restaurant openings over the last 3 years. Also, our app downloads exceeded the 30 million mark. That's nearly double the level of downloads that we have reached at the end of last year's quarter. The app is a key component of our digital ecosystem, one that serves as a direct channel to our customers and represents an increasingly valuable strategic asset. Almost 2 million people access it every day in the region to interact with us through specific promotions and news on menu items and campaigns. It remains one of the most downloaded apps in the food category across the 20 countries where we operate.During the quarter, we continued leveraging more of our best restaurant footprint through delivery. Sales from this channel are growing at a faster pace than originally forecasted across the 11 markets where this service is currently available to our customers. With the aim of extended it to more restaurants in more markets, our discussions with current and potential new delivery partners continue.Earlier, I referenced lower payroll costs. This is partly due to less crew turnover and greater overall employee satisfaction, another best benefit of Cooltura de Servicio. During our year-end call in March, we will give you some insight into the progress we have been making with employees as well as customer satisfaction.Please turn to Slide 7. At the end of the quarter, we operated 2,239 restaurants. In addition to the 70 stores that we have opened over the last 12 months, we opened 384 Dessert Centers and 6 McCafés, both of which continue to serve as powerful brand extensions. We now have 3,268 Dessert Centers and 258 McCafés. We remain the leading dessert in Latin America and still sell more ice cream than any other company with the food segment in our region.Back to Mariano, again, to review our performance in terms of cost and profitability.

Thanks, Marcelo. Now let's move to Slide 8. As we continue with our strategy of delivering sustained revenue growth above inflation, while continuing to improve profitability, we were able to post margin improvements on a comparable basis. If we exclude the one-time income of $23.2 million related to a tax credit in Brazil, recorded last year, our adjusted EBITDA margin expanded 120 basis points. Also, excluding this noncore item and despite currency impact, adjusted EBITDA would have increased 17.1% in dollar terms and 24.8% in constant currency. Expanding on our cost structure, we continue to achieve efficiencies in payroll due to higher productivity, particularly in Brazil, Mexico and Argentina, having achieved, on a consolidated basis, the lowest labor cost as a percentage of sales since 2010. These efficiencies are being delivered while we are -- we were also posting gains in customer and team member satisfaction scores. Therefore, we were able to more than offset the impact in gross margin, resulting from our change in product mix, reflecting our more promotional strategy to drive traffic in a still challenging economic environment. Notably, we have also been able to keep our food and paper cost growth in line or below blended inflation.Finally, our G&A expense remained relatively stable in dollar terms and declined as a percentage of revenues.Please turn to Slide 9 for more details on our divisional results. In this quarter, we achieved adjusted EBITDA margin expansion in our 3 largest divisions; NOLAD, SLAD and Brazil, when excluding the tax credit recorded last year. I want to highlight that all the countries in the SLAD division, including Argentina, expanded EBITDA margins.Moving to the bottom line on Slide 10. We generated $26 million of net income during the quarter compared to $43 million in the same period last year. We reported lower operating income resulting from the tough comparison against last year, which included the $23.2 million tax credit and lower noncash foreign currency exchange gains. This was partially offset by lower income tax expense versus last year.Please turn to Slide 11. On the back of our strong balance sheet, we continued to accelerate our CapEx program to $73.5 million compared to $55.9 million in the previous year's quarter. We ended this quarter with a net leverage of 1.6x adjusted EBITDA, which is well below our target range of 2 to 2.5x. As a reminder, our leverage ratios are calculated using consolidated as reported results.Finally, we delivered a third consecutive quarter of strong results, providing us with strong momentum going into the end of the year. We have been performing extremely well even in markets that are not taking off as quickly as expected. So we believe that once the economies pick up, we will be very well positioned to capture the long-term opportunity of our business. Grow our top line even more to drive additional margin expansion. That concludes the review of our financial and operating results. Marcelo has some additional remarks before the Q&A portion of this call.

Please turn to Slide 12. Another quarter of strong results demonstrate, once again, that our strategy has solid traction despite less than favorable conditions in many of our markets. In addition to driving operational excellence, we have been executing each of our growth initiatives with focus and discipline to enhance the guest experience and clearly differentiate our brand.Speaking of enhancing the guest experience, and in particular, the family experience, I am very pleased to announce that we have closed a partnership with the board business company, Latin America, the leading entertainment brand in the world. We are making family meal time more fun through combining the most beloved characters of business movies with more nutritional and delicious food through the Happy Meal in Latin America. The first closed promotional collection of this alliance will be launched in December, along with one of the most anticipated movie releases of recent times, Star Wars, the Rise of Skywalker. We are very excited about this partnership and its potential impact on our family business moving forward.Last month, we announced the results of our latest initiative around our commitment to scale forward through dramatically reducing the use of plastic straws from our restaurants, we eliminated 200 tons of plastic waste in 12 months.I also wanted to comment on a program that we are very proud of, which reinforces our commitment to improving animal welfare. We have begun sourcing eggs from farmers in Brazil with Cage Free Hands. This will bring us significantly closer to our goal of serving 100% cage-free eggs by 2025. Being the most socially impactful and sustainable restaurant company in Latin America is among the core values behind our company and family-friendly brand.To conclude, we expect to maintain our strong volume and safe momentum for the remainder of the year, particularly in Brazil. Longer term, we have the right strategy, brand, scale and cost structure to continue effectively capturing market opportunities that exist despite economic headwinds in the region. This clear strength combined with our agile approach to capital allocation, give us confidence that we will deliver higher shareholder returns going forward. Operator, please open the call to questions.

[Operator Instructions]. Our first question today comes from Robert Ford from Bank of America Merrill Lynch.

Congrats on the quarter. And so can you talk a little bit about the current functionality of the app? And how you expect that to evolve over the near to immediate term, please?

Okay. Bob. Well as you may recall, we launched the app at the end of 2016, and we were focused at the very end in expanding the reach of the app. And finally, at these days, we have more than 30 million downloads of the app, which is obviously one of the most downloaded apps in the food category, in the food sector in the region. And what we are doing is, it's an evolution in the functionalities of the app. So for example, at the very beginning, we were putting in the app basically offers and coupons for everyone, for everybody in order to redeem those at our restaurants. Nowadays, we are in the second step of this process where we can use the communication through the app, segmenting our offers to different groups of customers. And by doing this, we are able to improve both the redemption rate, and at the same time, we are increasing our check and the gross margin related with those offers and those coupons. This is just an example of how we are leveraging customer data to create value, obviously, through better quality transactions and generating higher returns. This is, I think, since the beginning of a journey that has a lot of potential. I think that having more than 30 million people in the region with our app in their smartphones, it's a huge and strategic asset for us and we will leverage that, for sure, in the near future. So as of today, that's what I can say to you, but we are working on bringing more news around the app.

And Marcelo, just a follow-up on that. When you think about things like in-app purchases or delivery. When do you anticipate that sort of functionality to be added to the app?

Yes. For example, in the case of delivery, we already launched a couple of pilots. We are not already there. We didn't cut the code, but that's one of the functionalities that we want to add to the app in order to have the opportunity to offer delivery to our app. I think that maybe we will have some news around that in the coming months.

[Operator Instructions]. Our next question comes from Robert Schweich.

Could you tell us what kind of arrangements you've made with McDonald's for the fees to be paid them in the future compared to this year?

Okay. Bob. We are not ready to tell you all the details on what we are facing for the next 3-year cycle. I would say that the general framework of the agreement with McDonald's is already settled. We are working on the details on how this agreement will be applied in each of the years of the next cycle. And we expect to communicate some details on this. No later on the March last -- next year, which is typically the moment when we communicate, which are the agreement with McDonald's in terms of both investments and if there is some growth support, which will be the impact on that side, too. So we need a couple of months more in order to communicate that.

You would expect that the fee that will be paid will be higher than it has been. And I'm concerned about the effect that it might have on your business next year. Could you discuss that in general?

Part of the discussions with McDonald's are including some growth support coming from them. So I do not have the details to share with you today, that will happen on March -- no later than March.

Okay. I'm sorry that you can't talk more about it yet. If I may, we've seen quite a bit of fluctuation in the Brazilian currency in the last few weeks, partly related to the oil situation, the oil contracts. And I'm curious how you see the economic environment in Brazil, looking out in the future at this point? And any comments you have on the currency.

Okay, okay. Well, I will let Mariano to answer this one.

Perfect. Bob. Well, first of all, about the macro environment, we are optimistic with Brazil. If you see the numbers that we are showing this quarter on comp sales, and the performance that we have been showing during 2019, are extremely good and we are extremely pleased with them. With a GDP growing in Brazil, less than 1%. Consensus, market consensus for next year is much better. It's almost double in this sense. So we are optimistic with the macro in Brazil. Having said that, in terms of FX, you're right. We have seen a lot of volatility recently due to different things. What's going on worldwide with a trade war between U.S. and China. Then we have the Chilean situation that recently added a lot of noise as well. The depreciation of the Argentine currency as well during August put some noise in the valuation of the Brazilian real.So all that together, of course, brings some uncertainty on the level of the FX. But also, keep in mind that as -- I think we've already discussed in previous calls, in terms of our P&L in Brazil, specifically, we have our hedging policies in place, and we already started hedging for 2020. We are already hedging on the third Q of 2020 in many of the markets where we operate. And that covers around 25% of the Food and Paper costs that we have in our P&L. Also, keep in mind that in terms of our balance sheet, we have our debt swapped to BRL as well, 50% of total debt. So we have coverage on the balance sheet as well. In terms of translation, that's right. It's tough when the Brazilian real depreciate because that affects directly our results. But we offset that with the results that we show and how we are growing the business. And I think if you look at the comps for this quarter of more than 10% in Brazil, almost 11%. That's the way we have to offset that impact.

Our next question comes from Ian Luketic from JPMorgan.

So my question is regarding the African swine fever and margin expectations for next year. So I'm curious to get your views on the potential impact of the ASF into 2020? And what are your margin expectations given this scenario?

Okay. Well. First, let's talk about this issue is already in the agenda and we haven't seen any impact this year in 2019. And in fact, this has been some pressure in terms of raw material. So for example, in the case of beef in Brazil, beef protein prices increased more than 6%, while our cost went up approximately half of that. And obviously, our supply chain is making a tremendous job in order to keep costs in line or even below inflation in most of the markets, and particularly in Brazil. So looking at next year, the market in general is expecting some pressure on protein prices in 2020, and as a consequence of the ASF. However, we have many actions and different initiatives that we are working on in order to mitigate this pressure. And I'd love if -- should there be any pricing pressure, we think that, that will be for the whole industry, not just for us. And in that kind of scenario, given our scale, which, for example, in the case of Brazil, is more than 2.5x our closest competitor. We will be in a better position than anybody else in the marketplace in order to deal with that kind of pressure. So we are keeping a close eye on this issue. But based on their history, we are very confident that we will be in a very good way.

Our next question comes from Thor Solanes from HSBC.

Congratulations on the results. My question is regarding the EOTF stores. If you can please share with us what was the contribution of EOTF performance within the Brazil same-store sales?

Okay. Well, since the very beginning with the introduction of the EOTF, we are seeing a sales lift in those restaurants that are converted to EOTF. At the very beginning, both safe lift were about mid-single digit. Nowadays, we are in the high single digits. And the beauty of those sales lift is that in the second year, those restaurants continue to perform better than the other, than the control group or the restaurants that didn't receive EOTF yet. And that happened not only in Brazil, but in the 9 countries that we already implemented EOTF. We are just waiting for the tenth country that we will implement in the next couple of weeks. So in the case of Brazil, we are already in more than 400 restaurants with this new format. And obviously, the positive impact of EOTF is not only in those restaurants but it's on the whole brand.The coolness of the brand, given the kind of environment we are offering to our customers, all the digital features that they have the opportunity to interact with in their visits, that's generating a high-low halo -- sorry, the whole brand. And I think that part of the results that you are seeing on Brazil -- -- coming from Brazil are related with this. So there is a positive impact for sure. And we are still working on continue to roll out. So for example, in the whole company, we announced that at the end of the third quarter, we had 510 restaurants in the whole company. We have a target for this year of 650 restaurants. We are planning to exceed that number, and we are accelerating because the impact is very positive. And obviously, Brazil has the big portion of those restaurants. So that's more or less, what I can share with you about EOTF. We are very, very pleased with the impact EOTF is having in the business. And obviously, the kind of results you are seeing coming from Brazil are not only related to EOTF. There's a bunch of initiatives that are contributing to those kind of results.

Okay. That's very helpful. And I have a quick follow-up. Can you please give us an update on the penetration of the delivery sales in each region?

Well, delivery. We are right now offering delivery in 11 markets. In each one of those, we are working with at least three of the leading food aggregators. And obviously, the pace of growth of delivery is very high, and in fact, higher than initially forecasted. Still is a low proportion of the system, why change because the base of sales is very big. It's between 4.5% and 5%. But we are very confident that delivery will be a driver of incremental sales going forward. And that's why we established strategic relationships with these full aggregators in order to leverage our scale. We are the only player in the region for them to sit down and negotiate for a deal. A quantity of markets and -- that give us the opportunity to leverage our scale and our brand in those kinds of negotiations. So delivering us, again, I think, in the future, will have a big role in terms of the increase in sales. And I can let Mariano to share some information about margins coming from delivery. It is an accretive segment for us. So, Mariano?

Yes. And we are very pleased as well with the results given that delivery at this time is a small proportion of company sales. A lot we can dilute a lot of fixed costs than we currently have at restaurant level and that makes that delivery is contributing not only sales-wise, but also, at the bottom line. And as well, the average check usually for delivery duplicates the average check that we have at front counter as well. So we are very confident that the delivery segment will continue to grow not only this year, but in the coming years. In terms of margins, we're looking at that very carefully, but we are very pleased with the results we are having so far. So I think this is another of the accelerators that we have in order to grow this business in the coming years, together with -- as Marcelo just explained very well, the EOTF segment, which is also performing extremely well.

[Operator Instructions]. Our next question is a follow-up from Robert Ford from Bank of America Merrill Lynch.

And Marcelo, just to pursue the EOTF a little bit further. Can you expand on your plans to accelerate your EOTF for reimaging in terms of the number of units, countries, the CapEx allocation? And -- or do you look at it a couple of different ways, right? The full reimaging versus just going system-wide with the most important elements of the model with respect to digital menu boards or other features.

Yes. Yes, Bob. Yes -- as I told previously, obviously, we are working on the details for the next years or the next coming years in terms of investments and openings and bring investments in the business. But what I can assure you that is that based on the great results that are coming out of EOTF in all the countries that we already implemented will be one -- EOTF will be one of our priorities in terms of investment. We are progressing in terms of make all the enablers of EOTF ready for receive this new format in different markets. That's why we started the year, which are 3 markets operating in EOTF, and we are finalizing 2019 with 10 markets. And in most of the markets where EOTF is not already operating, we are introducing some of its elements like digital menu boards and the other features. I would say that the only feature that we can introduce, still, we have all the software in place, are the kiosks.The next-generation kiosks to make the orders. But again, we are progressing in a very fast pace. And EOTF will be, for sure, our priority in terms of investments because it's not only the sales lift in the restaurants that are converted to EOTF, but it is putting our brand in a complete different level when compared with any of our competitors in each market. The whole experience around EOTF make us, I think, a priority for our customers. It's a very aspirational proportion -- proposition for the customers in the different markets. So I think that you should get more information on this when we talk about investment plans in March or no later than March. But what I can say you in advance is this.

And let me add, Marcelo, that in the same case as in delivery with EOTF, we're also seeing an expansion and increasing our average check. And we can say that by the end of this year, we are going to have already 10 markets with EOTF implemented. Not fully implemented, of course, but with EOTF restaurants in place. And that, for sure, that's part of our strategy, and we will continue that for the coming years.

That's helpful, Mariano. And with respect to returns on your EOTF for modelings or reimagings. How do those compare with these store openings.

Well, it depends a lot on the store type. Usually, our higher returns are related to the openings, but the returns that we are seeing in the modernizations of EOTF are much higher than the returns of normal reimaging than we had in the past because of all the aspects that Marcelo already mentioned. There's a sales lift that is higher than with a normal reimaging. There is an increase in over check as well. And also, if you mean that with the first question that you asked about the app and how we can link all the aspects of the digital strategy between our and the EOTF resources and Kiosks and digital menu boards, then all that combination, we are very confident that in the future, this ecosystem will bring returns even higher.

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

Okay. Thank you, again, for joining us, and thank you for your questions. As always, my team and I look forward to speaking with you again in the future. And let me wish you a very good day. We will talk soon. Thank you very much.

Ladies and gentlemen, that does conclude today's conference call. We do thank you for joining today's presentation. You may now disconnect your lines.