Good morning. And welcome to the Arcos Dorados First Quarter 2018 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. And 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. Please turn to Slide 2. 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 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 unaudited financial statements filed today with the SEC on Form 6-K. As we mentioned in our most recent earnings conference call the differences in exchange rate and inflation in Venezuela generate material accounting distortions, impacting both reported results of our Venezuelan operation as well as our consolidated results. For that reason, and unless otherwise indicated, all results referenced in our comments today and shown on the accompanying presentations, exclude the results of our Venezuelan operation, both at the consolidated level as well as for the Caribbean division. For your reference, we have also added the full income statement, excluding Venezuela to our earnings release beginning with this quarter. We trust this additional detail will provide you with greater visibility into our operating results. With that, 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 3. The positive operating and consumer trends for 2017 carried into the first quarter of 2018. And we expect to continue to see strong operating performance moving forward. All the levers of our business are pointing in the right direction. We have been sustainably increasing comparable restaurant traffic across all of our major markets for six consecutive quarters. Traffic growth, value-driven pricing and an improving product mix are generating comparable sales well above inflation in each of those markets as well. As a result, we're outpacing our main competitor-set and continue to share across the region. The shift in mix is a sign that our customers recognize the value that we offer at every tier of our menu board and across our segments. As we have noted before, our business model generates margin leverage as we gain scale. And all signs are pointing to continued traction on that front. Comparable sales grew 9.8% in the quarter on 300 basis points above blended inflation. This comes on top of a similarly strong performance last year. By driving a positive shift in mix as well as increased restaurant traffic, we delivered another quarter of EBITDA margin expansion in Brazil. And with the strong drivers, we also reversed the prior results in NOLAD and SLAD. Both of these divisions generated solid EBITDA margin expansion in the first quarter of this year after a decline in margins last year. This was not just the result of strong top-line growth, but also of keep cost running at or below inflation. The supply chain team is doing a great job, keeping menu cost below inflation. And we're also seeing the benefit of our efforts aimed at increasing labor productivity. Our…

Thank you, Sergio. Now, please turn to Slide 4. As you will know, we are the number one QSR chain in Latin America, with significant potential for the McDonald's brand to continue to grow in the region. Our strategic plan is based on three main pillars, designed to build on our leadership position for the long-term: our restaurants, our food, and our people. Our strategy is completely aligned with McDonald's Global Velocity Growth Plan, which is aimed at unlocking meaningful growth and increasing guest counts. Specifically, we are focused on: first, running great restaurants, by creating memorable and inviting environments, staffed with the best trained and most welcoming teams; second, retaining existing customers by building and expanding on the core overall brand, which is our highly successful family business, our attractive affordability platforms and our menu innovations that bring appealing local flavors to our guests; third, regaining guests lost to lower-tier IEO competitors during the recent severe economic recession by offering them value at every level of our menu board as well as delivering the unmatched quality, experience and convenience that our guests expect; and finally, fourth, converting casual customers to committed customers, by innovating in underdeveloped categories and occasions, as well as competing more aggressively via our brand extensions. As Sergio noted, EOTF, brings the [new experience] [ph] in the McDonald's system to our guests, introducing new features to enhance their experience in and around our restaurants. At the end of March, we have 144 EOTF restaurants and having developed local suppliers for some EOTF features, we will be accelerating the deployment of this transformation in the coming quarters. We have also made significant progress with McDelivery. We are now operating McDelivery in eight markets across our region, both via the global agreement with Uber Eats and local agreements…

Thanks, Marcelo. Please turn to Slide 6. The first quarter of 2018 was our sixth consecutive quarter of driving positive traffic in our business. Importantly, comp sales growth followed by inflation in each of our divisions during the quarter. This means that the underlying business trends continue to be favorable with all three top line drivers, volume, mix and pricing contributing to growth. And by offering value rather than heavily discounting our menu, we are sustainably building top line for the long run without sacrificing our gross margin. Please turn to Slide 7. Looking at margins, while top line growth exceeded inflation, our key cost items were either in line with or below inflation. During the quarter, we reduced our food and paper costs in almost all our divisions. We posted lower payroll costs mainly due to increased productivity, and we achieved some leverage in other operating expenses as well. Our G&A expenses remained flat as a percentage of revenues, despite some additions to our team needed to support our increased investment plan. Please turn to Slide 8. Our strong top line growth and continued cost leverage generated and adjusted EBITDA increase of 12.5% to $68 million, with solid EBITDA growth in Brazil, SLAD and NOLAD. And our adjusted EBITDA margin expanded by 60 basis points to 8.5%, despite the 40 basis points increased in Royalty Fees versus the prior year quarter. Moving to the bottom line, in this quarter, we generated $13.6 million of net income compared to $41 million in the same period last year. Our previous quarter results included $51.9 million from the company's redevelopment initiative compared with $200,000 this year. As we already announced, we have concluded our redevelopment program as we have achieved our goal of bringing the leverage ratio to be low our target…

Thank you, Mariano. Please turn to Slide 12. At the region's largest restaurant chain, we are in a unique position to leverage our scale to make an important impact on the communities we serve. We are aligned with McDonald's recent global commitments related to packaging and recycling, kid's nutrition and climate change. We're also making a difference with young people. Not just by generating the most first-time formal job opportunity in our region, but also by investing in their futures. We have firm partnerships with NGOs across many of our markets to bring training and educational opportunities that go well beyond our kitchens. I truly believe, this is one of the reasons why we are receiving more and more recognition as a great place to work. Putting it altogether, we're generating consistently strong operating results, which are the consequence of many actions taken across the entire organization of the time. For this region, I am very confident that the business is firmly on track to continue to grow and deliver shareholder value in a long-term sustainable fashion. We're moving in the right direction, and despite any short-term headwinds that we still face, I truly expect that positive longer-term global and regional trends will fortifying our results. 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 comes from Robert Ford of Bank of America Merrill Lynch. Please go ahead.

Thank you. And thanks for the disclosure on Venezuela and congratulations for the underlying improvements. I had a question with respect to NOLAD. You mentioned that Easter had an impact. And I was curious if you comment - or if you could comment on trends in April and May in NOLAD as well please.

Yes, good morning, Bob. How are you? Let me give you a few words on what's going on in the division. Then I'll pass to Marcelo for further detail on sales and all that. Well, a big driver in NOLAD has been Mexico. In reality, in the - as we disclosed in previous calls, in the last five to six quarters Mexico has been consistently outperformed in the market. As we also discussed many times in the past, Mexico is a market where we focus on regaining volume, because we know that that's the way to put the country in the place it can have in our geography. Mexico is a market that, that's - the volumes in absolute terms that we have in other markets like Brazil or Argentina to reach the same margin levels percentage-wise. I mean, we all know that volumes in general in Mexico are turnover. We are very pleased with the results we are getting. I mean, there are some details. And we know that if you compare the performance of the market in Q1, in some cases with multiple times beating the market, the competition. So we know that this is a very strong signal and we know that the market it is in the right path to be where we want Mexico to be. Marcelo, why don't you give some color in the sales performance and the…

Yes, hello, good morning, Bob. First let me address the Easter part of your question. Easter affect our business in different ways depending on the market. But in the case of Mexico, that week and the next one are sometimes holidays in the country. So there is no school. That's why during that period there is a lift in sales that affecting not only us but the retail in general. That's why I think it is so important, what Sergio mentioned, about our comparison with other information from the market, from retailers and some direct competition from the market that we saw that will beat them multiple times. In the case of the numbers of the Q1 2018 of division of NOLAD division, we can say that around 2 percentage points of the comparable sales are related to the shift of the Easter period from April to March, so even excluding those two percentage points, the comp sales for the division would be great, almost 10%. At the same time, as Sergio mentioned we are very pleased with the results coming from Mexico. And the beauty is that we were talking a lot about our affordability platform in Mexico, which continues to be the main contributor to our results. But at the same time, there are other tiers of our menu board, particularly the core part and the premium part, which is doing very well. So the beauty of the results from Mexico finished that they are really consistent all cross the menu board from all the segments of the business and even from all the day part. So I think that we are pretty confident that we are in the right path to put this market where we need it to be.

Yeah, and to finish, I think, the answer, Bob, the trend continues in Q2, right, so we're - that's very clear.

That's fantastic, Sergio. And congratulations, I know you've been working on it for a long time. Is there anything else you could give us with respect to, I don't know, net promoter scores or menu additions or maybe doing a little bit more with breakfast or even the impact of some of the BK store closures. It seems as that you have many things working in your favor right now in Mexico.

So, I mean, we said it many, many times. I will just update regard - obviously it takes time. I mean, you can change the course. You can change the trend. But it takes time. In Mexico, particularly we have some - we faced some market and regional challenges when it comes for [in such media cost] [ph]. So it's much more expensive, it's much more difficult for companies like us, and certainly our competitors as well, to communicate aggressively what you're doing. So that creates an additional factor that takes time. That's a reality. The important thing is that, I believe Marcelo said it somehow. All the levers of the market are moving in the right direction. So we have a very strong affordability platform and we kept in the last few years or so. And it's still performing very well and growing. And then we have Dessert category. In all the different segments of the business are moving in the right direction. And by the way, that's the only way to create an environment where growth is sustainable as we are. I mean, we're not pushing to get volumes out of discounting or creating platforms that are really hard to be sustained in the future. So if it now takes time, it will probably take more time. We believe that at this pace, it will make a few quarters to get where we want to be. But we are very confident, Bob. This is not a silver bullet. It's a result of our, I would say, multiple effort, yes, thank you, Marcelo, back to you.

And particularly, Bob, on customer satisfaction scores that we shared with most of you during our Investor Day. During first quarter, particularly in Mexico, but in most of our countries we saw some additional progress in terms of customer satisfaction. So, again, these reinforce what Sergio mentioned before.

Our next question comes from Ravi Jain of HSBC. Please go ahead.

Hi, good morning. I just want to hear your thoughts on how you're seeing the Argentine consumer, especially maybe you can give us a little bit of April and May, how you're seeing traffic, is it decelerating or is it kind of stable, given inflation is still pretty high and the peso is depreciated? And also on Brazil, your same store sales was slightly slower than last year. It was like 4.6%. Is there anything in the first quarter? Do you expect that to accelerate in the balance part of the year? How should we look at Brazil traffic for the balance part of the year? Thank you so much.

Okay. Well, again, let me give you the headline on both Argentina and Brazil, then, Marcelo, you go ahead with the details. And, Ravi, how are you? Look, of course, we know that the situation in Argentina overall has been sort of volatile and changing, particularly in the last couple of weeks or even in the last couple of days, but having said that, in the market we were able to perform very well. Comp sales were above inflation. We were positive, I mean, we've been positive in traffic. Of course, this time and we've been here, we've been in situation like this many, many times in Argentina. This is the time where we have to sustain our strategy of building the customer base, and which is what we're doing. At some point, our customers feel that their disposable income is reducing. They will have options, that they do actually in our restaurant portfolio, to keep visiting us, to keep going to McDonald's and probably changing what they normally buy from us, signature to core or some - from a core to any of our affordability options. But I mean, the strategies we're putting in place, which is growing the customer base, it is working. It may have some impact in margin percentage-wise, yes. In fact, many people need to trade down what they buy, because of lack of money to be spent, double in the case, as happened in the past. But the most important thing and believe me that we've been discussing this a lot in the last couple of days, with all the recent developments that we have is, we have a product [on plate] [ph] lineup and which is the right thing to do, the right thing to have under this scenario. We do not foresee the need to react with new product launches or new pricing strategies, dramatically changing what we have to cope with this situation. That is what gives us a, I would say, a good view and the focus for what's going to happen with our business in this function [ph]. By the way, while all this is happening, we are gaining share in the market. So Marcelo, you want to give some additional color.

Yes. Hi, Ravi. I think, we're very pleased, because both SLAD and Brazil were positive in traffic in the first quarter, as Sergio mentioned about NOLAD that trend continues in the second quarter. And particularly in both cases, we are with positive traffic on top of positive traffic last year. So I think that the trend of our volume both market is pretty good. That the results are coming, for example, from our affordability platform in these two countries, it's in the same platform, which are priced at very competitive points. And on top of that, we mentioned during the call that, we have more than 30 million people that have our app in their phones right now, most of them in Brazil and Argentina. So we can communicate with all those people through the app with promotions and with some coupons in order to attract them to our restaurants. So I think that, as Sergio mentioned, we have the right strategy in place in the market and have the right labors in order to work on. And the results are coming us we expect, so I think that…

I'll give you more color on the Brazil piece, Ravi, if you look at our comp sales, that clearly above the inflation for the quarter. And the comp sales is coming from as we already discussed from both growth in volume and growth in average check. Average check grew higher than our price adjustment. And the different compliment is also remarkable improvement in the product mix in and of itself. So, all the levers again are moving in the right direction. And by the way, that is we're explained the 100 basis points margin expansion in the quarter. So, I mean, again, we are not obviously ignorant to what's going on, and the challenges we have and the political situation and all that, we are very close to that. But the reality is, that the business is performing very, very well, and again just in the case of Mexico and even Argentina, it's what something that we're harvesting today, because of what we did yesterday. It's a strategy that is bringing us to the place, where we want to be to sustain the business performance looking forward.

Thank you. That's very helpful. And quick follow up, if I may. I mean, we've see that dollar strengthening and you do have imported costs in Brazil a little bit in Argentina and a lot in Mexico? How are you seeing your pricing strategy for the next few quarters? Are you - do you think you want to still focus on traffic and volumes or do you think that you want to try and pass that weaker currency at least through prices? Thank you so much.

Sure. Ravi, why don't we split the question? Mariano, I want you to take the part of impact of FX and hedges and all that. And then we come back, Marcelo and I will come back with the question.

Perfect. Hi, Ravi, how are you? As we know, we have around 25% to 30% of our consolidated food and paper costs are dollar linked. Then we are according to each of our market. To your question, specifically in Mexico and Brazil the - what we do is we have hedging policy on a rolling basis. We hedged around 50% of total food and paper imported goods. So far, this year, we are around that figure. So we feel comfortable, we are about to finish the hedging program for 2018. And in that respect, the recent depreciations of currencies both in Mexico and Brazil are covered with our hedging policy. To give you an idea around the forwards [ph] we closed for Brazil on average of around BRL3.35 to the dollar, which are lower than the current spot. And in Mexico around 19.2, so it's also an efficient. We can do it in an efficient way, well ahead, we were put it that way ahead of depreciation of the currencies. It's important to know, however, that this policy - the intention of this policy is to give certainty and to give predictability on our cost structure and it's not a speculative approach. So in this case, because of the depreciation, we note that they're working well, but we're going to do it anyway, it's not that we're doing it - it's on a speculative way. But the predictability to reduce volatility on our P&L. So having said that…

Yeah, by the way help us in terms of the pricing strategy, because the right thing to have predictability in our cost, in our bago [ph] prices is to give us the chance to be strategical when it comes to pricing, right, so which is what is creating in the momentum for us. And with that, Marcelo?

Yeah, I do not foresee a major change in our strategy and pricing neither in Mexico or Argentina, we are trying to be up inflation or below inflation with our prices. And that's what is helping us to build more volume and to build some shifted in the mix of what we are selling, which are improving our results. So I don't foresee major changes in that strategy, in that approach to your pricing.

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

Good morning. I'd like to follow-up on the currency situation. The Brazilian currency today is about 10% lower than the average of the second quarter last year. I don't know what it will average for the second quarter, but it's going to be significantly lower. So this is going to affect the conversion, when you report the results. I'd like you to discuss that and then I'd like you to also discuss the broader macro factors and the implications of these factors that's causing the Brazilian currency to weaken, as well as get in to the Argentinean situation, which is far less important for you, but far more dramatic in terms of its experience? Thank you.

Okay. Good morning, Bob. How are you? Let me take the first, I mean, let's take the first question and then you go through the translation effects, and all that. Bob, what we have seen in Brazil in the last couple of years, and I'd say 1.5 years. Is that the economy and the political situation kind of decoupled. So there is in the market, much more political instability than economy. I mean, economy it is performing better than what happens in last year. In spite of build that the consumer sentiment, they're not as positive. But the reality is most of the activity indicators in the market are positive, and then growing, so we are. So from a broader context, I would say that, our understanding is - I mean, the main reason why the local currency is depreciating is probably what's on at the world level, global level what's going on, the strengthening of the U.S. dollar. In the case of Brazil honestly it's impacting Brazil. Keep in mind that, regions attributable to Brazil were, I don't know, in 2015 and were much more dramatic than the 10% depreciation that we have Q-over-Q. That's on the Brazil piece. The Argentinean part, well, you said it is more dramatic so we have Argentinean. The reality that - it has a different implication. It is more - I mean, again there is a political situation and there is a market, there are consumption environment that has been impacted by the removal of the subsidies that the previous government used to have on public price and the [indiscernible], transport and other things. Those subsidies have been removed by the current government, and that obviously creates additional pressure on people's disposable income that impacts the overall consumption, and actually potentially would impact our business as well. That happens, we put in place the marketing strategy between product and price, I explained before and it's proven to do very, very well. And we are concerned about the potential development of the Argentinean situation. Yes, we are - I mean, the development is just started talks and negotiations with the IMS, it's not clear yet, while it will be the outcome of those negotiations. But as we said before, I mean, we personally do not see a major disaster in the economy, but we've had in 2001, I believe, this is a short-term. We may pay some additional headwinds, but in the future, the long-term prospects are still very positive for Argentina as well, and our performance, we believe it's a testimonial of that. There are - however, some technical impact in the translation. Mariano, I want you explain on that.

Yeah. Hi, Bob. How are you? We look at the FX impact in our business in three ways. The first one is the one that explain in the previous question to Ravi, regarding the impact on our food and paper imports in each country that are dollar-linked. And for that, we do the rolling hedges every three months, and we cover the possible impact of depreciations or devaluations in different currencies. In that respect for 2018, I repeat, we are in line with our policy and I think we covered quite well that risk. On the second level, we have the FX impact on our debt. We have approximately $650 million in debt. What we have is dollar issued bonds, one maturing in 2023, the other one in 2027. And both are hedged at - 50% of those bonds are hedged to the Brazilian real. That means that the depreciation of the Brazilian reis also reduces our gross debt, which is the purpose in this case - the purpose why you do this cross-currency swap is to have that coverage in case of depreciations of local currencies, mainly the Brazilian reis, where we generate the majority of our cash. So by having that cross-currency swap in place, we can face these movements or these volatility in the FX in a much better way. So those two risks are the risks that we cover proactively. Then we have the third risk, which is the translational risk that means, when the FX depreciates it has a direct impact on our P&L through converging our results in local currency in the U.S. dollar. We cannot cover that risk. Actually, Latin American companies don't cover that risk, because it's too expensive - it's impossible to do it. But if you look it in the short-term, it might have some impact on our result. But on the mid to long-term, what happens in Latin America is that, usually depreciations at the end match local inflation and because we don't have - we operate in an industry that has not - we don't have regulated prices. We have the capacity to translate prices to local inflation in the mid to the long-term that should not affect materially our business. Of course the impact for a specific quarter, can be more significant than in the mid- to long-term but we are specifically worried of this time of that effect. So I think, Bob, that's the explanation to the exposure we have to the effect.

That's a beautiful response. I got that. And I just want to tie one more thing into this. I recall from the seminar that you had that you're looking to improve your profitability over the next two to three years significantly. And might I assume that none of this currency issue is going to interfere with that plan as so long as the underlying economy in Brazil continues to be firm as you have discussed?

Exactly, Bob. I mean, we said that we expect to increase our margins by - between 100 and 200 basis points and we're focused in everything - every aspect of the business that it is under our control. The key for that, if you continue to grow volumes, and the reality is that we have been proving quarter after quarter that as long as you keep our pace in growing volumes and bringing in more customers to existing restaurant base. That is the best way to - shortest way to capitalize and make - and convert all those business into margin expansion. And if I may, let me give you just a few words of - try to rounding things up. Look, we're growing volumes everywhere, we're expanding margins significantly. We're gaining share. We have a very compelling investment plan for the next couple of years. The company is strong. The business is performing well and is strong. We know that we have to face probably some headwinds here and there, particularly here in Argentina, maybe in Brazil, we don't know. But that's not clear yet, it will depend on the elections and all that. But the reality is that we are focused on doing the right things. And my personal sense and we share this with the team is that company is stronger than ever. We are focused on making even stronger and that is the best way to drive shareholder value, we are not concerned about stock price. We are as concerned as some of you are for many reasons. Number one, because we're professional. We have been involved in the business for long. Second, whilst not second to anyone, we get a fair amount of our compensation based on our stock price. So we're professionally in first place concerned and personally also concerned about that. And I want to make this clear. The business is performing very well. All the levers that we have, all that we have in our hands to be driven is being well. And it's our commitment to continue to push in that direction. Okay.

Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Sergio Alonso for any closing remarks.

Yeah, thank you very much for your questions and again for your attention today. So as always, the team remains available to meet with you and answer any questions that you may have. So again thank you very much. And enjoy the rest of the day.

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