Good morning and welcome to the Arcos Dorados First Quarter 2019 Earnings Call. A slide presentation will accompany today's webcast, which will also be available in the Investors section of the company's Web site, 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. And today's conference call is being recorded. At this time, I would like to turn the conference call over to Patricio Esnaola, Director of Investor Relations. Please go ahead.

Thank you. Good morning, everyone, and thank you for joining our earnings call. With me on today's call are Sergio Alonso, Chief Executive Officer; Marcelo Rabach, Chief Operating Officer; and Mariano Tannenbaum, our Chief Financial Officer. Please turn to slide two. Before we proceed, I would like to make the following Safe Harbor statement. Today's call will contain forward-looking statements. And I refer you to the Forward-Looking Statements section of our earnings release and recent filings with the SEC. We assume no obligation to update or revise any forward-looking statements to reflect new or changed events or circumstances. In addition to reporting financial results in accordance with Generally Accepted Accounting Principles, we report certain non-GAAP financial results. Investors are encouraged to review the reconciliation of these non-GAAP financial results as compared with GAAP results, which can be found in the press release and audited financial statements filed today with the SEC on Form 6-K. Our discussion today excludes the results of the Venezuelan operation, both at the consolidated level as well as for the Caribbean division due to the differences in the exchange rate 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. Please turn to slide three. Last year, we expanded our margin at a faster pace than we projected delivering 90 basis points of margin expansion. Having built in significant operating leverage in our business, we turn our attention to top line growth particularly in our largest market Brazil. However, we have not lost sight of our commitment to deliver an additional 10 to 110 basis points of EBITDA margins within the next 18 to 24 months. As you may recall, we committed to a 100 to 200 basis points expansion at last year Investor Day for a period. During the remainder of the year, we expect to expand our margin further as we accelerate sales growth. At the end of the fourth quarter, we began executing strong marketing and promotional campaigns which continued through the first quarter. We indicated this will result in stronger comp sales beginning the year. In fact, consolidated comparable sales grew 10% on top of 9.8% in the prior year's first quarter. Excluding Venezuela and Argentina, both had inflationary economies, comp sales would have been 1.6 times blended inflation, a healthy growth rate. Our adjusted EBITDA in constant currency terms increased 6.5% in the first quarter. This growth was consistent throughout the quarter and in many of the market of its division. Furthermore, we are maintaining this momentum in the current quarter and expect it to continue for the rest of 2019. Of particular note, in Brazil comp sales increased 6.8% well above inflation. In SLAD, outside of Argentina, we are seeing significant improvements in each market. These are countries with stable and growing economies, and they're acting as a counterweight to our business in Argentina, which continues to face strong macroeconomic headwinds.…

Thank you, Sergio. Please turn to slide four, with digital tools and delivery now playing an increasingly important role in our business, our omnichannel approach to serving guests is contributing significantly more to growth, and technology enabled approach is no longer set about supporting our business, it is consistently driving incremental sales as well providing seamless customized experiences for our guests. Our mobile app innovative payment system for drive-throughs in Brazil as well as digital menus and kiosks are among the modern service features that create memorable experiences with our brand, our EOTF restaurant environments are driving sustainable growth. Our EOTF restaurants in operation over twelve months average face lift continues to be in the mid single digits contributing to this lifts are self-order kiosks, which now represent around one-third of in-store transactions. The higher level of average check generated by these kiosks is also consistent with increases across the McDonald system. As an investment, EOTF is delivering above our initial expectation. That's why we are rolling out this for but in Chile this year. Chile is the first market in which we have introduced EOTF. And as per the notice, we see strong growth opportunities in this country. At the end of the first quarter, we have 349 EOTF restaurants in operation and will remain on track to reach our target of 650 by the end of this year. Delivery is another additive sales Channel, our dominant footprint, reach on scale, provide us with a substantial competitive advantage in this space. Because of these distinct advantages, delivery has been a highly successful initiative since we launched the service, but delivery is now available in 11 markets with almost a 1000 restaurants serving as a platform. To give you an idea of the size of this business, on a run…

Thanks, Marcelo. Please turn to slide six. We had a strong start to the year, which gives us confidence in our ability to balance growth and profitability. As a result of our successful marketing strategy, in this quarter, we achieved comparable sales growth of 10% in line with our blended inflation, and also on top of a very strong first quarter 2018. It is also important to highlight that if we exclude Argentina, which as you know continues to face significant macro headwinds and high inflation rates, comparable sales would have reached 1.6 times our blended inflation. This was mainly driven by solid performance in Brazil, Chile, Peru, Panama, and Mexico. Well, that's reported revenues continued to be impacted by the sharp depreciation of our key currencies. We expect this trend to eat in the coming quarters, as the significant depreciation of the Argentinean peso and the Brazilian real took place in the second quarter of last year. Additionally, analyst consensus estimates for the current macro effects projections for these countries supports our expectation. We also anticipate easier comps in Brazil, where a tracker strike in 2018 significantly impacted Q2 consumption across the board in that market. Now, let's move to our cost structure and profitability on slide seven. Our marketing strategy, which boosted traffic and sales in our main markets, affected our product mix, during the quarter. However, we work able to mitigate the impact in gross margin, with efficiencies in payroll and other fixed costs. Thus, we saw no impact in our adjusted EBITDA margin, which remain stable at 8.5%. Adjusted EBITDA in dollar terms, decreased 9.2%, as already mentioned, impacted by the depreciation of our main currencies, and increased 65% in constant currency. Expanding on our cost structure, in addition to changes and mix, we faced some…

Thanks, Mariano. As you have heard, we remain on track to deliver the EBITDA margin expansion committed at our Investor Day and we are driving the gap in terms of market share across the region with sustainable top line growth. We have the largest and most comprehensive omnichannel get experience and the leading brand in the QSR segment. Additionally, we have a natural capital allocation strategy that allows us to focus our investments on areas with the highest growth potential. Taken altogether, we have strengthened our competitive position within our region. Equally important to gaining and retaining customer loyalty is our unmatched commitment with the QRS sector to the communities we serve. We are extremely proud of our ability to use our [indiscernible] and believe this philosophy not only resonates with our current customers but would also resonate with future generations to come. So, thank you very much. And operator, please open the call to questions.

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

Thank you. Good morning, everybody, and congratulations on the improvements. Sergio, of the 349 experience [ph] of the future re-modelings or re-imagings, how many of those were in Brazil? And also on Brazil, there was some EBITDA margin expansion despite delivery and heavier promotional activity, can you expand on where are you are finding those opportunities to improve efficiency or lower food and paper cost? And I am particularly curious about the efficiencies that you are generating from the EOTF concept.

Sure. Good morning, Bob. Marcelo, why don't you take the EOTF and let [indiscernible] take the margin?

Yes, good morning both. Out of the 349 restaurants, we already have running with ETOF, 274 are in Brazil. So, we are in a pretty good shape in those markets. We have been rolling out for the last year and a half on the results that we are seeing in terms of sales lead [ph] are pretty solid and are improving and something important is that in those restaurants with more than 12 months of operation, we continue to see mid single digit sales lead, which is there is production and bring forth the idea this is the right strategy for us to be as apsirational as possible in Brazil and in the whole region. Maybe, Mariano, can add something around the margin part of the question.

Yes. Good morning, Bob. How are you? Yes, regarding margins, well, you first mentioned about despite delivery please always keep in mind that delivery is accretive in our EBITDA margin for us even though we have a cost and we always mention that in terms of revenues the line of other expensive increases actually as I mentioned delivery is accretive for us because we have a whole fix cost structure that actually doesn't change with delivery. And at the end of the day, it's a very profitable segment for us. Going to the general margin question, actually we [indiscernible] and as I mentioned before with some pressure in the gross margin, but we were very efficient in keeping our food and paper cost under control and growing in line or even below inflation and also we have some leverage as well in the payroll line. So actually that's where we are seeing this margin expansion and that also allowed us to grow sales in the way we had during the first quarter with some pressure in the mix, but with benefit and leverages on the other lines that I just mentioned.

Fair enough. Thank you.

You are welcome.

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

Hi, good morning, everyone. Just a couple of questions from me, firstly, I just wanted to talk about your expectations for cogs going forward particularly around the food prices as a result of kind of price increases that we're seeing from African swine fever. Just what are your expectations are around not for the second quarter and perhaps more significantly into the second half of the year? Thanks.

Richard, good morning, let me give you a flavor on the first part of the question regarding what do we expect in terms of sales in Q2 and going forward, and then Marcelo you can comment in that and also really strong period as well. Let me give you some more color and going back a little bit. When we released our third quarter 2018 results, we mentioned at that time that they were clearly below our expectations in terms of concepts and cost saves in region primarily in Brazil obviously of only 1%. We said back abroad obviously expecting an economic scenario that didn't happen particularly right after the strike and then after the World Cup and obviously made us getting results that they were clearly below our expectations. So we chose the work and we changed the approach to marketing actions towards the end of last year and entering this year unless anticipated that the impact of the change would be in place at the beginning of community. It is exactly what will happen and then what's going to happen in Q2, well we see this momentum continued in fact accelerating a little bit. Additionally during the easier comps that we know we're going to have this quarter because of the Trucker strike that we haven't seen. So far we are very pleased with the results we're getting and the important thing perhaps I believe also appropriate to mention that it took us totally few weeks more than expected change but the reality is we always see long term sustainable decisions. So in other words we didn't want to just keep it changed margin expansion of sales, volume increase we are doing sustainable way because we still get all results and we need to generate the margin need to support drill. So in summary was very pleased the momentum in Q2 and we expect this to continue towards the end of the year. Marcelo?

Yes, going to Swine Fever on how we are seeing this situation well in fact, we are not seeing many. But so far obviously we are keeping a close eye on this issue. But it's important to mention that the thing is extremely low portion of our spend around 2% of our film paper costs. So this is not a big issue in terms of the participation of this percent in our mix of products. In most of our markets, prices that are mine locally, local currencies based on local supply on demand deep dynamics. So this is not an issue. However, guarantees based on a local supply and demand dynamics. So this is not an issue. However, should international supply tighten due to limited availability in Asia, we could be facing cost increased pressure with this pertain in markets where there are sanitary agreements in place because in many of our markets that the local production can be exported to Asia. So I think that this is not a big issue for us. We're keeping a close eye on this subject, but so far no impacts to mention. I will let Mariano to talk a little bit about the cost type of integration.

Yes, hi Richard. How are you? In terms of costs, as I mentioned in the previous question regarding the food cost, we have been able so far with some exceptions to keep our food and paper costs under control growing nine or below inflation. Another important thing to mention is our hedging strategy is that we had 50% of our food and paper imported costs every year. So far in 2019, we have we're almost done with the hedging program because we hedged two or three quarters in advance. We only have a small portion of the fourth quarter fees to hedge. And as I usually mentioned this is not a speculative strategy we just want to have visibility and predictability in our cost structure. But the good news so far is that the hedging we have in place for this year are at this point fall below the spots that we are seeing in the main market. Just as a reminder, we have hedges in place for Brazil, Colombia, Chile, Argentina and Mexico and these hedges are almost then for 2019 in a successful way, that will give the company predictability in the cost that we will face in at least in 2019.

Okay. Thanks very much for the color. If I may just one very quick follow-up, you talked about the pork prices, so, I kind of take from your comments that you haven't seen any increase in pressure on beef, protein yet. Just as a consequence of kind of tighter supply dynamics feeding through from other proteins into beef et cetera?

Yes, that's right. Obviously, we have pricing protocols in place with our suppliers depending on the market on the supplier that are updated quarterly, semi-annually or annually but for this year based on the current information, we do not foresee any pressure coming from the basket that we are buying. So again we are monitoring the situation but as of today, we are comfortable with the position we have with our suppliers in our main markets.

Okay. Thank you very much.

You're welcome.

And our next question comes from Marcel Moraes from Santander. Please go ahead with your question.

Hi, good morning everyone and congratulations on the results. I'm going to stick to the same subject, the swine fever and the potential impact on COGS, so going forward and more over I think when it comes to Argentina because the government implemented kind of price controls or agreement with key food suppliers and in this, do you have any kind of impact in your Argentinian operations, is it good for you the fact that the government is trying to set up fixed prices for I don't know hamburgers or meat in general. So what do you think about this price control in Argentina and when it comes to the swine fever and I'm sorry, I couldn't hear all of your last answer but do you think it's, it would be -- I mean if you could detail a little bit more that way you have been setting up conflicts with suppliers right, I heard about the hedging strategy but I don't know if you also have a three-month cap contract with the meat packing companies or something like that. If you could detail, it would be more, it would be very helpful. Thank you very much.

Sure. Let me start with the strong [indiscernible] I mean there is no much you can say addition to what Marcelo said, I mean we had obviously plans at the beginning every time, we plan following year we sit down with our main supplier, the beef suppliers obviously would be most relevant in terms of spend their money and obviously these project volumes and we negotiate the conditions for the next cycle. Well, everything that happened so far, we did not foresee any major issues in this matter. But to say apart from the thing that Marcelo said, pork is a protein that is not relevant for us and our product range is different from what it is in the U.S. or in some other markets. So our heavy consumers of pork meat, it is not our case. But we soon were following up with as best as we can, we have our supply chain team monitoring the situation. But as of today, we don't have any particular factor that is concerning us, okay. But from the swine issue and then from Argentina because it did not cause any price controls, they did it in a number of products from several suppliers but those products are on a super market level, not full restaurants or any of our categories and this is new evolving something that just taken back. An idea that was actually launched by the previous government and there's no way to provide some predictability into it. What's going to happen with pricing from some essential products? No, some cuts of beef, beef is very popular in Argentina, so the price generators and bread those things that are not impacting our product or pricing policy at all.

Okay. Thank you, thank you very much.

Yes, welcome Marcel.

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

Good morning. How important do you imagine that delivery will be in your system particularly in Brazil?

Remember I will let Marcelo to take that question.

Yes, good morning. But as you may recall we introduced delivering last year. We began to rolling out the service mainly in the second quarter of 2018. On the company as a whole, we are in the 1000 restaurants range of restaurants which are offering this service delivery. In the case of Brazil, we are around 450 restaurants. So it's a little bit lower than the half of the restaurants we have in the country. Still the proportion of sales of delivery from the total sales is low, it's in the low single digits as a proportion of sales, but obviously we are working with several partners in different markets. In the case of Brazil, we are working with the three main players in the market, iFood, Uber Eats and [indiscernible] and we are very confident that this could be a venue of building healthy taste going forward as Mariano mentioned, it is an accretive segment for our business. We have some plans, some plans to weather the segment in the near future. And this will come both from adding additional restaurants to the service and at the same time low income sales in the segment at a higher base than the rest of the segment. So we are very confident and we are very encouraged by the results we are getting. We would see in the next, in the coming quarters how fast we can grow this business and take advantage of our footprint because at the end of the day, we are present in most of the theories which are key for the service in the field and we have that footprint of a competitive advantage. We have a lot of freestanding unit or units which are key and very important for this kind of service. So that's mainly the situation around delivery in Brazil and in general in the 11 countries we are already operating the segments.

And those will have some benefits I would say in terms of the volume across the day, the delivery tends to be [indiscernible] late afternoon and night and boost volumes times in the day particularly towards lunch. So those helps mostly to better balance the production capacity, we have in our restaurant and also it's something that is just happening in the market and we have to be very careful and Marcelo said, it's mostly incremental, so either you play the game and we have to be in the game and take our share.

Thank you. My follow-up question is on a different subject and that's the macro picture in Brazil, the political situation, is it currency still is not going in the right direction. It's reasonably stable but still at a less favorable rate than for your first quarter. I'm wondering how confident you're in the current administration moving forward and improving the economic environment in Brazil?

So, let me take a bit brief [indiscernible] and then Mariano talk about the effect and indications and the results above where just like anybody else in the country, we are obviously, looking with optimism, what's going to happen basically the reforms that have been going through in the economy and particularly the pension reform that should be released and right after June or beginning of July, we believe just like most people in Brazil that could be a landmark and that will create another momentum positive momentum with the economy. In the meantime, I have to say that we are pleased with the results we are having so far in the market, I mean, we are clearly -- I've been in the market and most of our competitors and [indiscernible] situation that we followed. So it's -- I would say the we didn't [indiscernible] taken considering the current situation and we are open of course we have the second half of the year should be more clear and better in terms of the ambience and the optimism that is an exciting. Apart from that Mariano you could leave the FX.

Yes. Good morning, Bob. Regarding the FX, of course, when you convert or translate our EBITDA results in Brazil into U.S. dollars, it has some pressure on our numbers, just to give you the average [indiscernible] value SD FX rate for the Q1 2018 was till 20 and during this quarter was of this year, of course, created. So I think our results for the first you are more remarkable considering that. Looking forward, now, this topic around four, as I mentioned in a question that both questions come at the beginning, we have hedges in place regarding the full-year in Brazil at rates that are below the current spot; also, remember that our debt, half of our debt is converted into BRL that also reduces pressure on our leverage ratios, because when the Brazilian Real depreciate, then the whole amount of this that we have in place goes down. But on the research, yes, we're looking at the reality, look at all analysts' estimates everybody is forecasting a real or almost all analysts are estimating a real below four today at four. So, we are looking at number very carefully but there's not much that we can do with the FX besides all the policies and the risk management that I already explained, we are looking this number carefully. We think and we expect that that we will not go far beyond the figure it is now that is around four and I think that's in line with almost all analyst expectations, and for that.

Would you convert your debt into dollars, if you felt that the Brazilian currency was well did stabilized?

No, no. The slots that we have in place are already there are for the long-term. That converts the user a bit into Real, but not -- we're not speculating with that. What we want to do is too much. The outflow, the cash outflows with the cash inflows as the majority of our cash is generated in Brazilian reals we want and we prefer to have part of our liability expressed in the same currency. So that's the strategy that we have and it's not going to change according to the movement in the FX rate.

[Operator Instructions] And ladies and gentlemen at this point I'm showing no additional questions. We will conclude today's question and answer session. I like to turn the conference call back over to Sergio Alonso for closing remarks.

Yes, thank you. Before we finish, I would like to point out that we launched today a new corporate Web site, one that we believe is more user-friendly and better conveys the essence of our brand, and our strong company culture. So, thank you again for participating in today's earnings call. We are pleased with the momentum we have built going into 2019, and we certainly look forward to updating you in our monthly second quarter earnings call. So, in the meantime, please contact our Investor Relations team if you have any additional questions, and enjoy the rest of your day.

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