Good morning. And welcome to the Arcos Dorados Fourth Quarter and Full Year 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 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 also being recorded. At this time, I would like to turn the call over to Daniel Schleiniger, Vice President of Corporate Communications and Investor Relations. 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 read the following Safe Harbor statement. Today’s call will contain forward-looking statements and I refer you to the Forward-Looking Statement 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 reports -- 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. Additionally, we would like to note that unless otherwise indicated, all results referenced today exclude Venezuela. 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 two. We had a very solid end to a strong year. We achieved high single-digit comparable sales in the fourth quarter and volume increases in every quarter of the year. Our successful strategy to drive topline growth combined with the work we have done to optimize our cost structure, generated adjusted EBITDA margins for the fourth quarter and the full year that were our highest since 2011. We achieved our primary goal for 2017 which was to serve more customers more often. Notably, we more than tripled as reported net income in the quarter. We have reported net income for the full year more than doubling as compared to 2016. Comparable sales gained 9.1% in the fourth quarter of 2017, on the top of the particularly strong growth we experienced in the previous year quarter. Our constant currency revenues grew 9% supported by our compelling menu offerings. Our customer satisfaction scores also continue to improve across the region. Strong topline growth, as well as healthy margins in the Brazil and SLAD divisions drove operating profitability at the divisional, as well as consolidated level during the quarter. And finally, the improved operating results and our successful redevelopment plan have increased net income in the quarter to $62.7 million. On a full year basis, we achieved comparable sales growth of 10.6% and total revenue growth of 11.9%. Consolidated adjusted EBITDA expanded by 18.6%, which led to a 50 basis point margin expansion in 2017. The improvement in our results is a testament to the strategic plan we initiated three years ago to drive topline growth, capture efficiencies in our restaurant operations, streamline our cost structure and reduce our debt levels. Although, I am very pleased with…

Thank you, Sergio. Let's turn to slide three. As Dan mentioned, all of my comments on our consolidated and Caribbean division results exclude Venezuela. The momentum we saw earlier in the year continued into the fourth quarter, resulting in strong sales performance even on top of the particularly solid final quarter in 2016. Throughout 2017, our guests responded to compelling value that we offer at every tier of our menu board. We have also worked hard to revolutionize our service culture to enhance our second-to-none restaurant experience. As a result of these efforts, we generated restaurant volume growth in each quarter of the year. Please turn to slide four for more detail on our divisional results. The Brazilian consumption environment in 2017 improved over prior years. GDP growth rate fell short of analyst forecasts, but retail consumption grew quarter-over-quarter for the final nine months of the year. With this improved backdrop, our advances in elevating the customer experience and strong marketing activities, we were able to drive solid revenue growth. Reported revenues grew 6.6%, supported by constant currency growth of 5.1% and a 1.4% year-over-year average appreciation of the Brazilian real. As was the case throughout 2017, our constant currency revenue growth was reduced by refranchising, as our company operated sales are replaced by the rental income that we will receive from our franchisees. For the quarter, total system-wide sales grew 9.2% in constant currency. The Brazil division’s comparable sales grew faster than the average for the members of the Brazilian Food Service Institute in both the fourth quarter and full year 2017, expanding our leading market share position. Our balanced approach to growth led to 6.7% higher comparable sales versus the prior year quarter. Comparable sales benefited from a favorable shift in mix, as well as our fourth consecutive…

Thanks Marcelo. Please turn to slide nine. As Sergio mentioned, we delivered strong results in 2017. Our adjusted EBITDA margins for the fourth quarter and the full year were our highest since 2011, despite the increase in our Royalty Fees. We also achieved the main targets of our three-year plan in terms of margin expansion, G&A reduction and balance sheet optimization. Please turn to slide 10. As you can see, our adjusted EBITDA increased 6.3% or $5.3 million versus the prior year quarter. Brazil and SLAD profitability expanded. NOLAD was essentially flat and the Caribbean division was lower in the quarter. Our adjusted EBITDA margin was essentially flat in the quarter. Operating and G&A leverage were offset by the higher royalty fee, as well as higher franchise fee or coupon fee expenses as a percentage of revenues. Moving to Brazil. The adjusted EBITDA grew a robust 24% and margin expanded by 270 basis points to 19.4%. We achieved this result by taking a balanced approach to grow in topline without sacrificing gross margins. Notably, we reduced our Food and Paper costs as a percentage of sales. In addition, we achieved both G&A and other operating income leverage in the quarter. These efficiencies more than offset higher labor costs, occupancy and other expenses. During the quarter, we also received growth support from McDonald’s Corporation, which partially reduced the royalty fee, increasing revenue. For NOLAD, adjusted EBITDA margin contracted 90 basis points to 9.9%, primarily due to higher Royalty Fees. In SLAD, adjusted EBITDA expanded by 3.9% versus the prior year quarter. The 70 basis points margin contraction came mainly from the higher Royalty Fees. The SLAD division also received growth support from McDonald's Corporation in the quarter. The Caribbean division saw its adjusted EBITDA margin contract 40 basis points to 5.4%,…

Thank you, Mariano. Please turn to slide 13. Looking back over the next few years, we have to contend with a deeper than anticipated recession in our key markets, as well as the more recent natural disasters. Despite these challenges, we substantially met the goals we have set for ourselves to a focused execution of our strategic plans. And our most important achievements has been attracting more customers, more often to our restaurants. By continue to offer compelling value and great food, learning out the experience of the future, and changing our service culture, we are looking to build on 2017’s four consecutive quarters of restaurant traffic growth and strong comparable sales performance. As a clear market leader in most of the major markets, we are also taking a leadership role in the industry when it comes to being socially and environmentally responsible. We are aligned with the announcement you have seen recently from advanced operation with respect to packaging the recycling, kid's nutrition, as well as restaurants groundbreaking announcement on climate change. Arcos analysis also lead in the airport to be part of the solution to youth and employment in our region. In 2017, many of our markets partnered with local NGOs to raise funds giving our grandeur. This successful campaign drove strong results, allowing us to continue battling run on the benefit of charities, as well as support young people through our new NGO partnerships. So, thank you for your attention, and I will now like to open the call to questions.

[Operator Instructions] The first question comes from Robert Ford with Bank of America Merrill Lynch. Please go ahead.

Congratulations for the traffic and the mix improvements across the markets. I was hoping you could focus a little bit or provide some detail on the other income line. Because it’s a big number, it's $22.3 million in the fourth quarter. And in the press release, you referenced refranchising revenues, tax credits, growth support. The language suggests that there could also be a tax charge in there in the period, so I was curious if there are other charges. And then from a cash flow perspective, there's a reference to $21.8 million in asset monetization, but I am not sure if any of that is in the other income line. And then further on that theme, if you could just give us a sense for what your expectations are in terms of other income over the foreseeable future? Thank you.

I think I pass to Mariano for the answer.

Yes. Bob as we mentioned in previous calls, the redevelopment process actually we are not proceeding with that process during 2018. We have seen results in the fourth quarter 2017 of - in the income statement of $35.6 million, and actually $17.3 million of them were cash. And regarding the tax credit, as we also have mentioned, the redevelopment process is efficient from a tax perspective for us. So, if going to the part of your question of looking forward, we are not expecting to see more redevelopment proceeds in the near future. With re-franchising, we are taking that as a normal part of our business. So, you will see also refranchising proceeds as we see the opportunity during 2018 and basically I think that, that will answer your question.

What I am trying to do Mariano is to understand how you get to the $22.3 million - $23.3 million in other income? You mentioned that there $35.6 million in redevelopment income in the fourth quarter, of that $17.3 million was cash, but then how do we get to $23.3 million there? And then there's also a tax credits and growth support in that line item, so here must be charges as well?

Yes. The growth support, Bob is not in that line. The growth support is in the - it’s expressed in the service fee line. So, it's not part of that. So, in the operating income, yes, we have - we operate in 20 different markets. So, we have different charges in that line. We can reconcile that for you if you want, but the majority, the positive number will be the redevelopment. And of course, we have impairment in the financial statements as well for operations in some market. So, we can give you a full reconciliation of that line.

The next question comes from Ravi Jain with HSBC. Please go ahead.

Good morning. I had a question on the EOTF. It's now in 120 restaurants. Could you give us some color on the initial impact that you're are seeing on the same-store sales line from this initiative? And on that team, could you give us an update of your plan how you expect to roll out the EOTF in all your restaurants? Should we take the increase in CapEx in your existing restaurants as a sign that you're going to accelerate the EOTF or could you just give us some guidance and color on that please?

We started EOTF last year, and as we mentioned back then, the idea was first to develop different decode packages with the need of - these decode packages to be developed locally. That is to keep the cost within our control and minimizing the exposure to effects of other external factors, one. Second, so we opened the first one in Argentina, actually at the end of 2016, and then Brazil then we started. We had 120 at the end of 2017 of course, but continue to have over 150 as of today, and this process obviously will continue. As we referred previously, we are focusing our efforts in Brazil mostly. We are around 70% of the restaurants that we will deploy in this period. This cycle through 2017 to 2019 will be in Brazil, Argentina and Norway are following. The average cost that we are expecting is not significantly higher than the one we used to incur when we were doing the traditional -- the previous [inaudible] restaurant, keep in mind that keep in mind that this is pretty much a standard process that is going through all McDonald's system something that we are creating for ourselves. We are bringing in all the digital package to the very much - and the change in decoding the restaurants. The results we are getting so far are also in line with what is found in McDonald’s system that is to say in the mid-single-digit safely. So with all that said, we have to say that only one year ago we have - we had just a handful of restaurants. So, it's really very early to say what is going to be the full impact of the roll-out as yield - in all the company, but the reality is as I said before we are focused on bringing it out in Argentina-Brazil, then Argentina-Norway for this 2017-2018. And second, of course, we are doing some other things basically in the ATPs at the restaurant level to get the company ready to continue the deployment of the UBF 2020 and beyond.

Yes. Ravi, I would like, here is Marcelo. I would like to add a couple of points to Sergio’s answer. First of all, the one of the key elements in order to keep the costs pretty much at the same level that we had for the core product is at the previous pretty much is process is that we are taking advantage of our scale, since we are rolling out these in a very aggressive manner in countries like Brazil or Argentina. We are leveraging our scale and at the same time we are leveraging all these investments with our Coolture Service program, where we are trying to make a big differentiation between us and the rest of the QSR players in our addition through our people. So, I think that the kind of results we are seeing in volumes are validating that we are in the right path in order to differentiate us and obtain a sustainable growth in terms of volumes, sales and obviously profitability.

Just to clarify, did you mention that it was 70% of all restaurants will be EOTF or will it be 70% of the Brazilian and Argentine restaurants will be EOTF by 2019?

Yes. I’d say, it’s 70% of Brazilian restaurants will be EOTF already by the end of 2019.

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

I am very pleased to see that you’ve established a dividend. I have several questions. What do you think other operating income might run in 2018 since it was a total of $68 million in 2017 and a very small number actually in 2015 before you began the redevelopment? That’s the first question. The second question, could you please tell us the effective Royalty Fees for 2017, 2018 and 2019, the Royalty Fees you pay McDonald’s? And finally, what do you think your store closings will be in 2018?

I will pass to Mariano for the first question and then I will take the royalty one.

Actually, if you follow our net income, of course, during 2017 was impacted by two main reasons. First, our EBITDA 2017 compared to 2016 grew considerably. So there’s an operating part of that EBITDA but of course translates into a much better net income. And then we have the redevelopment piece that also is contributing to our net income results. So that we don't give guidance on our EBITDA but we already mentioned that we are not going to have the redevelopment proceeds that we had in the past couple of years. So, next year we should expect a net income more related to our growth in EBITDA than to one off developments like the one I mentioned before.

For the Royalty Fees, the reality is, on a consolidated basis and for the fourth quarter Royalty Fees as a percentage of company sales increased by 40 basis points. On a consolidated basis for the full year Royalty Fees as a percentage of company operating sales increased by 10 basis points and that is because the step-up as you know was effective on August the 3rd, 2017 and we will have three plus months of the step-up in royalties. Maybe call your attention that we have different percentages in SLAD and Brazil compared to NOLAD that is because the growth support we - McDonald’s is providing us is redirected to both Brazil division and SLAD division. But as we mentioned before and we explained this will support, it's a fixed amount that is linked to investment but will be reflected in the royalty fee line in that divisions where we’d actually deploying the resources that as I said were Brazil and SLAD.

The next question comes from Richard Cathcart with Bradesco. Please go ahead.

Hi, everyone. Good morning. I just wanted to ask a question about one of the comments you made on Brazil during your opening remarks. You mentioned, you were trying to strike a decent balance between driving the topline same-store sales growing kind of mid single-digit, but also managing to preserve gross margin and there was also a very big expansion to EBITDA margin as well. So I was just wanting to ask kind of what we can expect for 2018, are you still looking to kind of play this balance between the two or do you think your margins have now got back to a decent enough level for you to perhaps begin focusing a little bit more on same-store sales growth? Thanks.

Okay. Sure. Good morning, Richard. Look, the momentum we had actually in the last quarters since the end of, I’d say, the end of 2016 continued all the way in 2017, it continues the first months of 2018. So our strategy continues to be the same, which is bringing in additional traffic, but in a sustainable way that will ensure that our profitability will continue to grow as we move forward, right. We are focused and concentrated, as I said before, increase the number of customers that we serve in our restaurants, but without compromising margins and particularly Food and Paper cost. Because we want to drive the business in a positive way, but also have to be sustainable. So, with that said, we expect our volumes to continue to grow in the market this year and then we may get some additional gains in margins with the consequence of the increase in total volumes as we need by the way in 2017.

Okay. Thanks. And maybe just one follow-up if I may just about pricing in 2018, will you be looking at kind of puffing through inflation broadly in line with kind of the overall index inflation of around 3% to 4% in Brazil in 2018?

I am not sure I get the question, but, well, it’s about pricing?

Yeah. I think that – it is about pricing.

Okay. Look, Richard, we always manage, I mean, average check rather than pricing on product mix separately. We believe that managing average check is the best way. It’s the safer way to drive sales up on top of volumes. As we mentioned before, we were able to grow comp sales in Brazil last year as a combination of positive traffic and also positive average check in spite of our prices that are going slightly below inflation. That is because, the marketing strategy that we have led us to increase average check on top of our increases, which we believe is the right place to be anywhere.

Okay. Thanks very much.

You're welcome.

The next question comes from Robert Ford with Bank of America Merrill Lynch.

Hey. Thank you very much. I just want to ask one follow-up and in the press release you mentioned that your occupancy costs and some of the other operating expenses rose in terms of sales in Brazil, and given the low inflation, it came as a bit of a surprise. Could you tell us what's behind some of the expense pressures that you're seeing in Brazil?

Yes. Mariano?

Yes. Actually in terms of occupancy expenses, we have some franchisee operating costs, sorry franchise occupancy costs that went up and that's related to the higher franchisee, the refranchising process that we are following in Brazil. So, that's line -- that's in line with that process of refranchising rather than that our occupancy in the stores we are operating is coming up.

So we have more franchisee restaurants…

Exactly.

… are coming through the previous experience that explains the increase in that line.

Exactly.

It's not an absolute -- an increase in absolute terms, it's a consequence of the refranchising costs, okay.

Okay. And but that just pass through the franchisee, correct?

Yes.

Yes.

Or is there a delay in that and that's what causes the expense in the period?

Exactly. Exactly. You have two lines, yes.

I am sorry, I don't want to talk over you.

Sorry, you have the income in one line and the cost in other line.

Okay. So, I guess, what I would, I just want to make sure that the cost is exceeding the income, is that fair that the cost is?

Oh! No. No. No.

Okay.

No. That’s not happening.

Great. Thank you very much.

You’re welcome.

You’re welcome.

The next question comes from Robert Schweich with RMB Capital. Please go ahead.

I didn't hear an answer to my question about the effective royalty fee that you -- the increase that's going to occur in 2018, nor did I hear an answer as to your expected number of store closings for 2018?

No. No. I mean, I am not sure I’ll get the question clearly. But the reality is absolutely for…

Royalty fee to McDonald’s, how much…

Yeah. Because totally…

What percentage increase will it be over 2017?

Yeah. Let me start, on August 3, 2017, the royalty fee to McDonald’s was step-up from 5% to 6%. The effective impact in 2017 was only 10 basis points, because we only have September -- I mean the remaining part of ours, plus September, October, November and December, okay. The consolidated effective royalty rate was 5.2% for 2017, is expected to be 5.7% in 2018 and 5.9% in 2019, respectively, just because we are recording the gross report that we get from McDonald’s in this same line, that is partially offsets the 6% royalty that we have expected for 2018 and 2019. Do I make myself clear.

And store closing for 2018?

Oh! Look, but we don't have a number to provide you today, but the reality is that, closing some restaurants is part of the normal way of running a business like ours. We have some places where the leases expire and we have a chance to renew it or we have – in one case, in one of the markets where there's a huge road work or bridge is being built, so it won’t make any sense to have a restaurant below the bridge. So, but I would -- what I can say you, is that, you should not expect any number that is out of norm compare… [Audio Gap] (45:57-46:12)

… was traffic and are you pricing in line or below inflation in those countries please. Thank you.

Yes. Those comparable sales were above the blended inflation in that division and that was a result of pricing going a little bit behind inflation. But in SLAD, we had the same type or the same kind of shift in mix a favor one to more premium products that we had in our country. So that's why the combination of additional traffic and a better mix brought the comp sales above inflation and that happened not only in Argentina, which is obviously the main country in that division, but in most of the countries of SLAD and most of the countries of the company.

Sure. Thanks. Would the blended inflation be mid-teens we would say?

No. The blended inflation is around 20% -- 22%, 23%.

Even in the fourth quarter?

In Argentina.

In Argentina.

We are talking about Argentina, right.

Oh!. No. No. I was mentioning about the South LatAm division. What would be the blended inflation?

19%.

Thank you so much.

For the division is 19%.

[Operator Instructions] And this concludes our question-and-answer session. I would like to turn the conference back over to Sergio Alonso for any closing remarks.

Sure. Thank you. Thank you for your questions and thank you for your attention today. I have one additional announcement to make. There is unfortunately due to the weather conditions in the Northeast of the United States, we recently learned that our flight from Buenos Aires to New York tonight has been canceled. So we are now in a process of rescheduling our Investor Day that will happen in the first half of April and we will be announcing the new date very shortly. So we really apologize for any inconvenience that this change could generate, but it was honestly beyond our control. So, in the meantime, the team always remain available to meet with you and to answer any questions that you may have. So, thank you very much and enjoy the rest of your day.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.