Good morning, and welcome to the Arcos Dorados Fourth Quarter and Full Year 2016 Earnings Conference 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. [Operator Instructions] Today's conference call is being recorded. At this time, I would like to turn the conference call over to Daniel Schleiniger, Vice President of Corporate Communications and Investor Relations. Sir, please go ahead.

Thank you, and 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 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. 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. Before I discuss our fourth quarter and full year 2016 performance, I would like to take this opportunity to congratulate Mariano Tannenbaum on his new position as Chief Financial Officer of Arcos Dorados. Mariano originally joined Arcos Dorados more than 8 years ago and during his tenure, he has been an instrumental member of our finance team. He has deep financial expertise from an extensive international career, and I'm confident he will continue to excel in his new role. I would also like to thank his predecessor, José Carlos Alcantara, for his service to the company and wish him the best in his future endeavors. Moving now to our 2016 results. We had a solid end of the year. Comparable sales gained 16.4% in the fourth quarter of 2016, while constant currency revenues grew 14.2%. And so far, top line growth during the first few months of 2017 is surpassing our initial expectations. In terms of adjusted EBITDA, if we exclude the nonrecurring PIS/COFINS recovery from last year's results, the operating efficiencies that we have built into our business so far led to a 240 basis point margin expansion during the quarter. The result was largely supported by more promising volume trends driven by our highly competitive menu and continued G&A discipline. Last year was a challenging year in terms of the Latin America consumer environment. The Brazil division faced a historically deep economic recession which severely impacted consumption and led to uneven quarterly results. The SLAD division results were negatively impacted by the significant depreciation of the Argentine peso at the end of 2015 despite solid results in some of the division's other markets. On the other hand, the NOLAD and Caribbean divisions were able to overcome…

Thank you, Sergio. Please turn to Slide 3. Within a challenging environment, we have been delivering solid sales performance. Our redesigned affordability platform is performing well in our major markets, generating strong momentum. Likewise, we had several successful product launches during the year, including premium sandwiches from the McDonald's Signature line and the McShake Ovomaltine, which supported volume trends and margin expansion. As competitive and promotional activity intensifies in the region, we are also making the necessary investments to build loyalty among existing customers while attracting new guests. Turning to our fourth quarter results, reported revenues increased 5.5%, supported by the appreciation of the Brazilian real. Currency translation continued to pressure results due to the depreciation of other key currencies, including the Argentine peso and the Venezuelan bolivar. However, in keeping with the third quarter results, the impact of currency translation was more than offset by constant currency growth of 14.2%. Comparable sales increased 16.4% year-over-year and was mainly driven by average check growth. Excluding Venezuela, reported revenues rose 5.1% year-over-year. Please turn to Slide 4 for more detail on our divisional results. In Brazil, reported revenues grew 13.4%, driven by the 14% year-over-year appreciation of the Brazilian real. Excluding this FX tailwind, constant currency revenues declined 2.7%, primarily due to the refranchising of certain company-operated restaurants. As a reminder, the shift to a greater percentage of franchise restaurants negatively impacts our consolidated revenues as our company-operated sales are replaced by the rental income that we receive from our sub-franchisees. Brazil's comparable sales were flat, as growth in average check was offset by a modest decline in traffic, within an environment of soft consumer spending. Also keep in mind that we achieved mid-single-digit comparable sales growth in the year-ago quarter, making for a higher basis for comparison. The marketing activities…

Thanks, Marcelo. First, let me just say that I'm very pleased to have the opportunity to lead the finance team in my new role as CFO of Arcos Dorados, and I look forward to meeting many of you in the near future. Please turn to Slide 9. As noted, we had a strong finish to an uneven year in the final quarter of 2016 and made excellent progress on key elements of our 3-year plan in terms of boosting restaurant productivity, overhauling our cost structure and reducing debt levels. Importantly, improved sales in the quarter are creating leverage in our business and driving higher margins. Our G&A expenses also continued to improve and were 200 basis points lower as a percentage of revenue on an as-reported basis. Last year, we had a nonrecurring $32.6 million recovery of PIS/COFINS in Brazil. Excluding this impact, adjusted EBITDA grew 35.4% in the quarter. As-reported adjusted EBITDA fell 10.4% or 5.4% on a constant currency basis. Please turn to Slide 10. The adjusted EBITDA margin rose 240 basis points, excluding one-offs, supported by lower Food and Paper, payroll and G&A expenses. On an as-reported basis, adjusted EBITDA margin contracted by 190 basis points to 10.7%, with margin contraction in Brazil and SLAD, only partially offset by margin growth in the Caribbean and NOLAD. In Brazil, the adjusted EBITDA margin contracted 530 basis points to 16.7% versus the prior year quarter, which benefited from the PIS/COFINS recovery. This more than offset other efficiencies in Food and Paper, payroll and G&A expenses as a percentage of revenues. Excluding this nonrecurring benefit from the 2015 result, the adjusted EBITDA margin grew 440 basis points. For NOLAD, the adjusted EBITDA margin increased 40 basis points to 10.8%, mainly supported by efficiencies in G&A expenses. In SLAD, Argentina's difficult…

Thank you, Mariano. In the space of the last 2 years, we have made solid progress on our strategic plan. We have significantly reduced our debt levels, streamlined our cost structure and captured efficiencies in our restaurant operations. At the same time, we have achieved positive top line performance and expanded our margins. While our economies continue to stabilize, we are focused on the aspects of our business that we can control. This includes implementing technology upgrades to improve operating efficiency and adjusting our main strategies to drive traffic. We remain the clear market share leader in most of our major markets. We have reinforced our foundations so that like the McDonald's system globally, we are transitioning from a turnaround to a growth strategy. Our updated 3-year outlook builds on the achievements of the past 2 years, while expanding our footprint throughout the region and modernizing our restaurant base. As the year progresses, we expect to tell you more about some of the actions we're taking to create a better restaurant experience and make a real difference to our customers. This year marks Arcos Dorados' 10th anniversary. Over the last 10 years, we have retained McDonald's brand leadership in Latin America's QSR industry. We have built and leveraged an unmatched footprint and we have established a reputation for operational excellence within the McDonald's system. We have also taken a leadership role in the industry when it comes to being socially and environmentally responsible. Through a number of programs and partnerships, Arcos Dorados has and will continue to be part of the solution of the serious issue of youth unemployment in Latin America. We'll remain committed to our employees, our customers and our shareholders. And over the next several years, we will continue to work hard to profitably grow our business for the benefit of all. So thank you for your attention, and I would now like to open the call to questions.

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

Sergio, can you touch on operating trends year-to-date? Brazil traffic in the quarter looked a little bit weak and there have been some aggressive calls to boycott the brand in Mexico, and I was wondering how that's filtering into the performance so far this year, please.

Well, [indiscernible] by the way. Let me start with some broader comment on Brazil last year, and then we can sort of extend the comment to what's going on in the first couple of months of 2017. The reality is we, in Brazil, we're very well-positioned, obviously, to sustain and retain and expand our leadership in the market. That's very clear for us, and we are happy with the results that we got in 2016, of course, in spite of everything that happened in the market. Just a couple of points to remind that, well, the GDP of Brazil last year was very weak and below actually our initial expectations. We were sort of led to adapt our marketing strategies to be more aggressive in terms of the pricing, in terms of promotional activities to retain traffic, and we believe that we were, again considering the environment conditions, we were successful, particularly towards the second half of the year and in especially Q4, where we got good results, really good results, again considering the overall condition. What we see, talking about 2017, well, GDP growth expectations have been already revised downwards, from 1% positive that we had as market consensus towards the end of last year, to roughly flat for this year, so that makes us think that results could still be uneven. But we're seeing early signs of improving consumer activity, at least in our business. And the reality is that the long-term fundamentals for the market, we know they will remain strong. There is no doubt about it. So we, as I said, just wrapping up on Brazil, Q4 was a good quarter for us in Brazil. Considering the overall market conditions, but even in spite of that, we had a very good result. And then a word on Mexico before I pass to Marcelo or Mariano, if they have any comment, no, we don't feel any impact about the boycott or what is the situation between Mexico and the actual conditions in the U.S. No, nothing for the business. Now Marcelo, do you want to expand anything on Brazil?

Yes, in terms -- good morning, Bob. In terms of traffic, as Sergio mentioned, it was mostly negative year-over-year in the fourth quarter. But we saw better trends towards the end of the quarter and that trend, that they have continued into the first couple of months of 2017. And in fact, we have a strong marketing calendar for this year. I think that we are providing customers with a very compelling value proposition. We are running promotions that we already did in the past and with a very strong track record. And especially, we are focusing on family and the family experience, and we have pretty strong Happy Meal properties for this year too. So I think that we are leveraging on all the strengths of our brand and of our set of properties, and that's good news in terms of the traffic that we are expecting for Brazil in 2017.

Our next question comes from Richard Butcher from Argonne Capital.

I looked at the -- your capital expenditures for next year, the $500 million in aggregate, that looks like it's about what you guys could produce in cash flow, if all things go well. And we're just wondering, if you just brought leverage to a good spot, are you willing to revise down that CapEx, say, if things were to get rocky over the next few years. I mean, how firm is this CapEx commitment to McDonald's?

Well, good morning, Richard. I'll give you some initial thoughts on this and pass to Mariano to go in details with the numbers. We have, as you may know, we have to agree with McDonald's about openings and the CapEx, overall, every 3-year -- 3 years' time cycle. Towards the end of last year, we agreed with the conditions that I mentioned for the 2017-2019 period, which basically calls for 180 new restaurants and $292 million, which combined led to around $5 million (sic) [ $500 million ] of total investment. The reality is, that is what we believe under the current market consensus for 2017 and what we see for 2018, 2019, it is doable. It is realistic, and it will be funded with our own cash generation. We do not plan to increase debt or take any debt to fund these investments. What could happen in 2018, 2019? Well, it's still to be seen. Obviously, we'll drive our decisions considering the market consensus. Should the economies in the most important markets for us in our region improve, obviously, we're going to do better. If the recovery in the economies, particularly in Brazil and Argentina, take more time, well, obviously, we will revisit and we will work with McDonald's as we did in the past. This is not new. And I'm sure that we will come up with a new action plan that is according or at the level of the economy's reality. Right, Mariano, what am I missing?

No. Maybe just to add to Sergio's point. The $500 million is an estimate. What we agreed with McDonald's is to open 180 restaurants, new restaurants and to reinvest in the business $292 million. With respect to the cash flow that we will generate, we expect our free cash flow to be more than sufficient to fund our capital expenditure plans for the 3 years. We do not expect to materially increase our total debt during the period, and operational cash flow should be enough to fund the CapEx commitment that we have for the period.

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

I have a couple of questions on the effective royalty rate. What was it for 2016?

Well, good morning, Bob. For 2016, all year, it was 5%. As you are aware, the reality is that the master franchise agreement that we have with McDonald's calls for a step-up in royalties starting August 2017 from 5% to 6%. And then -- so having said that, so the effective royalty rate for this year -- or last year, sorry, 2016, was 5%.

Now when -- how do you adjust down that 6% when you go out to 2018? When you say effective, is that reflecting the contribution of McDonald's towards your capital spending?

Exactly, yes. You're absolutely right. That's it. It's a complex formula, but to make the point clear, that is the best way to look at the McDonald's contribution.

And if I understand correctly, the $500 million of capital expenditures including -- includes almost $300 million in existing restaurants. Can you give us a figure, a dollar figure of how much McDonald's is going to contribute to the modernization of your existing restaurants during that 3-year period?

Bob, it is right. I mean, the amount of -- is around $290 million that we're going to invest, obviously, in the existing restaurant base, by the way, as part of our strategy for volume. No, we not cannot share the actual dollar amount that is including the growth support from McDonald's.

[Operator Instructions] And ladies and gentlemen, at this time, I'm showing no additional questions. We'll end the question-and-answer session. I'd like to turn the conference call back over to Mr. Sergio Alonso for any closing remarks.

So before you go, I want to leave you with a few parting thoughts. As you heard today, we have a strategic plan in place that is focused on generating restaurant traffic growth across our region. We will make investments that will update our existing restaurant base and that will deliver a more modern and progressive restaurant experience to each one of our customers. Our pace of growth will also pick up compared with the last 3 years, adding to our top line growth moving forward. We have a strong balance sheet and have built significant efficiencies into our business, so we can now shift from a turnaround mindset to one of growth. And as I said before, I believe Arcos Dorados is uniquely positioned to capture the long-term opportunity of Latin America's quick serving restaurant segment as we move into our second decade as the region's premier QSR brand. So thank you for your questions and your attention today. We certainly look forward to speaking with you next quarter. And in the interim, our team remains available to meet with you and answer any questions that you may have. So thank you again and enjoy the rest of the day.

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