Good morning, and welcome to the Arcos Dorados Fourth Quarter 2018 Earnings Call. A slide presentation will accompany today's webcast, which will be available in the Investor Section of the company's website at www.arcosdorados.com/ir. [ Operator Instructions] Today's conference is being recorded. At this time, I would now like to turn the 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 Sergio Alonso, Chief Executive Officer; Marcelo Rabach, Chief Operating 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 unaudited 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 differences in the exchange rates and inflation in the country. 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, Sergio Alonso.

Thank you, Iñaki. Good day, everyone, and thank you for joining us today. On this call, we want to update you on the significant progress we have been making in executing our plan, in addition to updating you on Arcos Dorados' financial performance. Please turn to Slide 3. Around this time last year, we hosted an Investor Day in New York and shared with you our plan to strengthen Arcos Dorados dominant leadership position in Latin America. This strategy is focused on our restaurants, our food and our people. We are the region's largest restaurant chain and can leverage our leading share in a segment of the informal eating out category that is growing faster than any other dining out segment. Our growth plan is attracting more customers more often to our restaurants. This strategy is aligned with McDonald's Global Velocity growth plan and involves opening new restaurants as well as physically upgrading and adding digital capabilities to existing ones. We'll focus on being better not just bigger. These restaurants conforms with the Experience of the Future design and offer modern service features, such as self-order kiosks and other convenience elements. We are emphasizing an enhanced dining experience and growing operating efficiencies and by simply expanding our footprint. EOTF is working. Like our existing restaurants, EOTF restaurants also feature innovative menus of high-quality meals and desserts for great value. It is giving us a competitive edge and increasing revenues as we intended. We have consistently made investments to bring our guests the most modern environment and the best food and hospitality in the QSR segment. I'm happy to report that we have already delivered 90 basis points of margin expansion resulting from back-to-back margin improvements, with 120 basis point increase in the fourth quarter. Last year, this time, we projected…

Thank you, Sergio. Please turn to Slide 4. Our 3-pillar approach is focused on: first, creating inviting and memorable restaurants with modern service features; second, offering the best and most appealing menu you can find in the QSR industry in Latin America and the Caribbean; and finally, training employees to deliver the highest quality of service. Across several touch points, these qualities are the essence of our brand and are helping us not only to retain existing customers, but to convert special ones into committed customers. What does this mean? They are visiting our restaurants over and over again. And by offering value across our menu board, we are regaining customers we have lost to lower peer competitors. As part of our update on this front, we will naturally start with the first pillar, our restaurants. Under the accelerated EOTF deployment plan that we presented in April last year, we set a target of approximately 650 EOTF restaurants by the end of 2019. During the year, every opening in Brazil, Argentina and Uruguay, in addition to restaurants that were modernized, brought the total EOTF restaurants to 329 at December 31, so we remain on track to reach our target. And most important, we are seeing the mid-single digit sales lift that we planned for. Let me highlight that we are funding all these investments with available cash and cash that we generate. Turning to our food pillar. In Brazil, we continue to expand on our successful Signature Line with the launch of McPicanha and Duplo Picanha premium burgers. We also added to our McFlurry line-up in the dessert category new flavors with great partners. The third important initiative that brings our customers closer to the brand, food quality standards is Puertas Abiertas or Open Doors. It brings them behind the…

Thanks, Marcelo. During our Investor Day last April, we had the opportunity to share with you the results of our turnaround plan as well as our goals and expectations for the coming years. I'm very pleased with the progress we made thus far. We closed the year with an adjusted EBITDA of $292 million and a margin of 9.7%, the highest since we became a public company in 2011. Our focus on bringing more guests to our restaurants more often, coupled with our efforts to streamline our cost structure, drove an adjusted EBITDA margin expansion of 90 basis points year-over-year. Although 2018 turned out to be more challenging on the macroeconomic front than we and the rest of the market had anticipated back then, we achieved almost half of our margin expansion goal in less than a year. We continue to gain additional G&A leverage and most importantly, without compromising on quality or limiting our future growth potential. Now moving to our fourth quarter results on Slide 6. Starting with our top line, total revenues increased 9.1% in constant currency terms, supported by a 7.5% growth in comparable sales, mainly driven by average check growth as reported revenues continued to be impacted by the sharp depreciation of the Brazilian real and the Argentine peso. Please turn to Slide 7. Moving on to our cost structure. Through the implementation of several cost optimization initiatives, we continued to improve productivity at our restaurants. These resulted in significant savings in payroll costs as a percentage of revenues in all our divisions. Despite our increased level of investments, our G&A expenses decreased by $6.2 million in absolute terms or 9.4% year-over-year, mainly due to higher efficiencies. We also benefited from the depreciation of the Argentine peso and the Brazilian real. Please turn to Slide…

Thanks, Mariano. So growing share and growing our business in Latin America, through a combination of a focused strategy with many initiatives, we believe that this is the right approach to delivering long-term shareholder value. And in the short term, I'm pleased to announce that our Board approved a dividend for 2019 of $0.11 per share. I always like to finish our quarterly earnings calls with an update on our commitment to scale for good as this is part of our DNA. Today, I'd like to focus on youth employment and literacy which are among the United Nations sustainable development goals to reduce inequality in the world. As we announced early this year, Arcos Dorados expects to employee more than 55,000 team members in Latin America and the Caribbean, an 8% increase compared to 2018. Most important, these jobs provide professional development for the many young people who make up the vast majority of our workforce. This includes the training they received through our Cooltura de Servicio program and career advancement at Arcos Dorados. Over the last 3 years, approximately 150,000 of the jobs that we generated in Latin America and the Caribbean were for people between the ages of 17 and 25, including those who belong to vulnerable parts of society. For many of these young people, it's their first formal job. Arcos Dorados remains a catalyst for change in this front. We are expanding our interest to public-private partnerships with various foundations, dedicated to significantly reducing youth employment (sic) [ unemployment ]. These include Institute of Ayrton Senna in Brazil; Cimientos in Argentina, Colombia and Uruguay; Forge in Chile and Peru; NEO in Colombia and the International Youth Foundation, which operates globally. We are also extremely proud to be recognized by the United Nations for our best practices in employing and providing opportunities for people with disability. This is the highest honor we could win in this area as the company has been investing more and more in social inclusion and development. Arcos Dorados has also been leveraging our scale to encourage reading among children and foster family bonding. Since 2013, we have distributed 14 million books to families in Latin America and the Caribbean as part of the Happy Meal readers book program. So with that, thank you very much for your continued support, and let's open the call up for questions. So operator, please proceed.

[Operator Instructions] And our first question today comes from Melissa Byun with Bank of America Merrill Lynch.

Can you discuss some of the promotional or marketing efforts in Brazil that -- and going into the first quarter and the level of traction that you're seeing in sales? And then should we be prepared for some margin pressure as a result? Or are there efficiencies or other sources of savings that you think can offset investment?

Okay. Melissa, this is Sergio. Thank you for your clear question. If you recall when we released the third quarter results in November last year, we anticipated that -- what happened to us back then was that market didn't recover at the pace we expected and we were sort of reacting slowly to the new set of conditions. So we actually changed the profile of our marketing calendar towards the end of the year. And we mentioned back then that you should expect effectively well around a significant increase in our comp sales performance, which is happening as we speak in Q1. Of course, we will not disclose Q1 numbers, but we'll say it in Q1 release. As a consequence of that, obviously, there are 2 forces working at the same time. One side, we're trying to mitigate the impact of increasing the promotional component because, yes, as you said, that creates margin pressures, but we have several levers to offset that pressure and that is what we're doing today and results so far are quite very good also.

Yes. Let me add some color on the answer, Sergio. Melissa, as Sergio mentioned, we're very pleased with the trend that we were seeing in the first couple of months of this year, and comp sales looks like will be well above inflation for this quarter. And as you know when we are able to do that, typically, we see leverage in several cost lines in the P&L. So that's happening and that will help us to support some of the investment we're making through Food and Paper. And at the same time, we are very confident that our marketing plans for the rest of the year will continue to support restaurant traffic because the increasing sales is coming both from average check, but from additional traffic. So I think that we are in the right path, in the right direction in Brazil. I'm very pleased with the signs that we got in the first couple of months.

And our next question comes from Robert Schweich with RBM (sic )[ RMB ] Capital.

The big problem in your reported results has to do with currency. And I don't think there is very much you can do about that, but there is something you can consider that might be somewhat offsetting for stockholders. The effect of the share repurchase program in terms of 6 million shares on a 200 million share base is de minimis. The $0.11 cash dividend possibly is too small considering the earning power of the business. And I would suggest that you put more emphasis on a higher cash dividend policy and less on the share repurchase program. I think that could be a partial offset to the disappointment in reported earnings because of the currency. That's a comment I wanted to make to the entire organization. With regard to the looking forward, I would like to hear much more discussion on Brazil and the impact of the new political party and how you see this unfolding because the latest information that I'm reading is its popularity has diminished somewhat. But I don't know that, that is very significant and I'd like to hear a lot more comment on that. And any comments you want to make on the financial comment I made also would be welcome.

Yes, Bob. And by the way, thank you for your comment. And my remark on Brazil situation would be, look, there is a heightened level of expectation in the market about the reform that would be approved by the Congress by mid-year. It's expected the reform will go through the Congress by June 1. That will bring much more certainty to the current market conditions. And that will help us, obviously, to releasing the marketing calendar we have. Since the economy resumes growth on a higher pace, we may shift back to a more previous direction that we used to have in our actions that means less promotional activities. Having said all that, the reality is that, as Marcelo said in Melissa's question, what we have seen so far, it's a very nice recovery in our sales levels. And that is adding to our optimism because we believe that if having a degree of uncertainty that we still have in the market, we're being capable to get these kind of results in terms of sales growth that we see it a sign of what lies ahead once the reform is approved, and that piece of uncertainty is sort of banished, if you will. So things that we cannot control surely are FX, but the reality is that, even beyond the FX factor, we were able to manage our EBITDA last year and it did grow 3.5% in spite of all the headwinds that we had, by the way not only in Brazil but also in Argentina.

Yes. Sergio, let me add one thing. Bob, this is Mariano. Regarding the FX, of course, the depreciation of the real and the Argentine peso has an effect on our results. Regarding Argentina, always keep in mind that in Argentina, we have a natural hedge because we have our corporate structure based here. So actually, the depreciation of the Argentine peso has an effect on our business, but at the same time, it helps us to reduce, as I mentioned during my speech that has a positive effect on our G&A. And if you look at our bottom line results, I think we did a wonderful -- a very good job regarding how we managed the business and you can see that in our EBITDA margin, but taking into account that Venezuela is impacting in our results by $50 million in our net income and that has a noncash nature. So actually, it doesn't affect the cash generation of the business. So without those $50 million on the net income coming from Venezuela, I think the results of the business was not that bad and we were able to overcome the depreciation of the real because the Argentine peso has an effect but limited as I mentioned before.

[Operator Instructions] Seeing that there are no further questions, I would now like to turn the conference back over to Mr. Alonso.

Yes, thank you. Actually, before we close, let's say, Mariano, as you said a minute ago, the reality is that the results that we're releasing today are heavily impacted by a couple of factors that are clearly beyond our control. Currency depreciation being the most relevant and Venezuela was a result of actually a function of the currency volatility that the market suffered in 2018. But I believe that the real performance of the business is very different from what our EPS is showing. There's a lot going on today in the company. There's a lot going on in the system. We are speeding up the investment process. We are investing in our restaurant base. We are modernizing at -- we believe at a very good pace our restaurant base and that is paying off. We've seen the reaction of our customers to those investments and that is creating, I would say, a very realistic deal of optimism in the short-term future of Arcos Dorados. We are managing the business for the long run. That's what we always have done. That is what we always do. We have very talent management team. We have a very robust succession plan as well. And believe me, you will see great results in our business in short term. And I believe we have one additional question, is that right?

And that last question comes from Thor Solanes with HSBC.

I wanted to ask if you can please share some more details on the McDelivery performance? Maybe how are same-store sales performing in the main market? And what is the share of sales in these markets from the stores?

Okay. Delivery is a -- it's a space that is growing very fast, I would say, not only in our region, but worldwide. We obviously being the leader in Latin America, we have to be part of that business even though this is not something new for us. In fact, we offered deliveries in some of our countries many, many years. But the reality is what happened is, there was a major change in the business model with the -- in our integration of these companies what we call the CPOs, which are the logistic operators if you will. That -- clearly, that had very -- a positive twist to the P&L of this segment and that is why we are moving real quick in this segment. We have, as we said before 400 restaurants already operating in Brazil and we also have Mexico, Colombia, Costa Rica, Peru, Argentina, Chile, some of the markets and it is growing. It is growing on a high pace, though it is not big in terms of relative terms yet. We believe that delivery has the capacity obviously to grow over time and we see it as an incremental business. We don't see it trading off between customers that actually visit our restaurants and customers that will order delivery in their houses or in their workplaces. So Marcelo, anything...

I think you said almost everything but I want to emphasize that on top of bringing incremental sales, it's a profitable -- it's a very profitable segment for us. So I think that we have the right kind of deals with many partners we are working with in the region and we're very confident that this will be a very important driver of our increasing sales and profits going forward.

As I said, it's small when compared to total volume we do yet, but with a huge capacity to grow. I believe you'll listen about this a lot more in the future, surely.

And then at this time, there are no further questions. Mr. Alonso, is there anymore concluding remarks?

No. No. Thank you. I mean, again, thank you all for your questions, for your attention and have a good day.

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