Hello, and welcome to McDonald's October 24, 2017, Investor Conference Call. At the request of McDonald's Corporation, this conference is being recorded. Following today's presentation, there will be a question-and-answer session for investors. I would now like to turn the conference over to Mr. Mike Flores, Investor Relations Officer for McDonald's Corporation. Mr. Flores, you may begin.

Hello, everyone. Thank you for joining us. With me on the call are President and Chief Executive Officer, Steve Easterbrook; Chief Financial Officer, Kevin Ozan; and President of McDonald's USA, Chris Kempczinski. Today's conference call is being webcast live and recorded for replay by webcast. Before I turn it over to Steve, I want to remind everyone that the forward-looking statements in our earnings release and the 8-K filing also apply to our comments. Both documents are available on www.investor.McDonalds.com, as are reconciliations of any non-GAAP financial measures mentioned on today's call with their corresponding GAAP measures. And now, I'd like to turn it over to Steve.

Thank you, Mike. Good morning, everyone. Our momentum continued to build across the business in the third quarter. Across all our operating segments, we serve more customers, more often, driving global comparable sales up 6% and comparable guest counts up 2.4%. This marks nine consecutive quarters of global comparable sales growth and our third consecutive quarter of comparable guest count growth. We're building a better McDonald's and winning back customers with great-tasting food, compelling value and an enhanced experience. In each of these areas, our markets have built sustainable platforms, integrated and grounded in deep local insights. They've enabled us to move at greater speed, efficiency and impact to meet the evolving needs of our customers. Whilst we've been building momentum across the McDonald's system, and our performance is globally broad-based, I'm particularly pleased that the U.S. business has regained its stride. As Mike mentioned at the top of the call, we have Chris Kempczinski, President of McDonald's USA, joining us today. Later in the call, Chris will provide insight into the drivers of U.S. performance. But to get us started, Kevin will provide texture on our financial results for the quarter.

Thanks, Steve. As Steve mentioned, our positive comparable sales and guest counts in all segments reflect the momentum that continues to build across our system. I want to provide a little more context on how each segment contributed to our global performance for the third quarter. U.S. comp sales increased 4.1% for the quarter, with a positive comp sales gap versus our QSR sandwich competitors. Chris will provide more details on the drivers of this performance in a few minutes. Comparable sales for the International Lead market segment were up 5.7%, led by continued strong momentum in the UK and Canada and positive performance across the rest of the segment. High Growth segment comp sales increased 6.2%, with China continuing its strong performance as the most significant contributor and the segment's European markets delivering strong comps as well. And comparable sales for the Foundational markets rose 10.2%, led by Japan's double-digit comp performance along with positive results in each of the segment's geographic regions. Our Velocity Growth Plan is not only driving top-line growth, it's also benefiting our operating performance. Earnings per share for the quarter grew more than 50% to $2.32. This included $0.56 of special items, consisting of a gain on the sale of our businesses in China and Hong Kong and unrelated non-cash impairment charges. Excluding these items and prior-year strategic charges, our EPS was $1.76, up 9%, or 7% in constant currencies, over third quarter last year. Moving on to pricing in commodities, our third quarter pricing in the U.S. year-over-year was up 2.2%, which was slightly below food away from home inflation of 2.4%, as we continue to have a disciplined approach to menu pricing and provide our great-tasting food at an affordable price. Commodity costs in the U.S. for the third quarter were up…

Thanks, Kevin. At the top of the call, I talked about the growth platforms each market has built around menu, value and experience that is designed to grow guest counts, by retaining the customers we have, regaining customer visits we've lost and converting casual customers to more committed customers. During the quarter, each market executed with innovative and compelling approaches to menu, value and convenience that drove incremental customer traffic and higher average check. Every major market now offers a range of premium chef-crafted big burgers and chicken sandwiches with artisan ingredients and enticing flavor profiles. In France, the Signature beef and chicken line uses breads, meats, cheeses and sauces that capture the regional gastronomy of the country. The UK is having great success in their modernized restaurants with their version of Signature beef, inspired by the English pub burgers with thick, juicy beef and beechwood-smoked bacon, piled high with freshly-prepared toppings on a brioche-style bun. Canada's launch of the Seriously Chicken platform appeals to Canadians' preference for international flavors with local sourcing. It provides a great complement to the market's popular Mighty Angus beef burgers. Italy took note of the success that France and the U.S. had with Grand Mac, and Italians loved it. We know that customers motivated primarily by value and deals come more often and spend more. During the quarter, our markets offered compelling value across the breadth of the menu. For example, Japan, Italy, France and many other markets executed value programs and promotions that leveraged the strength of our popular Minions Happy Meal to drive incremental family business with value bundles and dessert specials. We are increasingly driving traffic and check growth with digital offers. Retention of mobile offers continues to grow month-on-month, with a meaningful portion of the redemptions representing incremental visits. Importantly,…

Thank you, Steve. I appreciate the opportunity to join the call today and update everyone on the state of our U.S. business. The U.S. continues to demonstrate solid growth, and I'm proud of our system and the progress we're making. As I look ahead to 2018, I'm excited about our pipeline of ideas and the growth potential they offer. For us, the key will be to execute at a really high level across a number of initiatives and we're investing a lot of time and effort right now to get that right. Let me provide more insight into our Q3 performance and then I'll talk about how we're preparing for 2018. During Q3, we grew comp sales 4.1%, resulting in a comp sales gap of 440 basis points versus the QSR sandwich competitors. Importantly, our comp sales growth was supported by positive guest count growth. This is our third consecutive quarter of positive comp sales growth and second consecutive quarter of positive comp guest count growth. For the past three quarters, we have posted a favorable comp gap versus QSR. We're particularly pleased with this performance because we had to overcome the headwinds of a sluggish overall IEO market that currently offers limited traffic growth. Our success can be attributed to several factors. First, we offered compelling consistent value programs across a number of tactics that clearly resonated with our customers. We continued our $1 any size soft drinks program and supplemented it with the return of McPick 2 for $5 that offered some exciting food deals. We're also starting to get real traction with the targeted mobile offers via our app that are tailored to customers' unique buying preferences. Second, we've been able to capitalize on this increased traffic into our restaurants with menu news that drove customers to…

Thanks, Chris. We'll now open the call for analysts and investor questions. Now, the first question is from David Palmer with RBC. David?

Thanks. If I could just do one question for Kevin, you mentioned some facts speaking to this. Obviously, your profit growth, excluding one-times, was very strong in the U.S. and in International Lead, but was held back by other High Growth and foundation (sic) [Foundational] markets. And clearly, you're getting some refranchising and licensing actions dragging on that. I think originally, you thought flat EBIT impact from these effects, these refranchising and licensing actions. Is that still the expectation? How much was the drag, and then should we expect an equal tailwind perhaps starting in the third quarter in 2018? Thank you.

Hey, David. Yes. So let me try and explain. As you mentioned, there's a lot of noise in this quarter and there will be for the next few quarters because of these refranchising transactions. So what we've said is once you kind of lap these franchising transactions, so I'll say beginning in fourth quarter of 2018, that's when we get to what I'll call the new norm. Until then, it's going be a little rough on a comparison basis because you have two things going against you. One is kind of the results of these markets as wholly-owned in 2017 compared to them as developmental license markets in 2018. And on top of that, you have this depreciation benefit that we received in 2017 that we won't have in 2018. Once we get through all of that, what we've said is essentially on a EPS level at the beginning is we'll be relatively neutral because the proceeds we've gotten in, we will use to buy back shares. And so at an EPS level, we'll be effectively relatively neutral once we're able to buy all those shares and have them built into the calculation. Operating income in the near term will be down a little bit because the income we've given up as wholly-owned is more in the near term than the income we'll get on a royalty basis, if you will, as a DL. On a free cash flow basis, it'll be immediately accretive because the capital that we're saving from the DL-ing these markets effectively outweighs the operating income that I'm losing. So it will be immediately accretive to free cash flow. Thanks.

Our next question is from Sara Senatore with Bernstein. Sara? Anna Papp - Sanford C. Bernstein & Co. LLC: Hi. This is actually Anna Papp representing Sara. So in terms of delivery, do you now have a large enough sample to draw some conclusions about the impact on comps? And also, can you talk a little bit about profitability? One of the things we hear from some of the private companies we speak to is that it's difficult to make delivery profitable even when it's outsourced to third parties and, therefore, doesn't require as much in upfront investments. Could you talk a little bit about what kinds of fixed and variable costs your franchisees incur and what kind of profitability you anticipate? Thank you.

Right. I'll have a stab at that one. So I mean, clearly, we're getting enough of an early read to be encouraged by delivery. So we've pursued – delivery have pursued a very aggressive rollout program. And our primary lead partner on this one has been UberEATS. And effectively, we've looked to expand wherever UberEATS has coverage around the world. And they've actually been doubling-down on their expansion to help meet our ambition as well, so it's been working well as a partnership between the two of us. And yes, we're getting good early trading results. What we are finding is, not surprisingly, the number of guest counts per store per day does correlate pretty highly to consumer awareness of this. So the markets that have been able to more effectively promote and raise the customer awareness are getting higher take-up per day. I'm not going get into the actual comp buildup on this one, but it's a meaningful contributor in the restaurants that offer delivery. As I say, I want to just make sure we're guarded about what we're saying. We're in 5,000 restaurants so far out of 37,000. So it's meaningful in those that offer it, but clearly we've got some ways to go to get the further scale across the global system. In terms of profitability, it's important that the vast majority of our business is incremental because the way that we're working with the third party operators is – obviously, there's a commercial relationship between ourselves and a third party operator that would take some of our margin. So we need certainly more than half of this business, if not more than that, to be incremental. And we're certainly finding that we are well up that scale actually. It's really, really encouraging for us. And part of the reason we know that is because we're beginning to collect the consumer data now as well. So we can actually get repeat visit information, daypart information. And the fact that more than 60% of our business comes in evening and overnight, we know is reinforcing the fact this is an incremental business opportunity, revenue stream that we weren't previously tapping into. But we're also getting very strong repeat business from those that use it as well, which again further encourages us. And one of the things we are focusing on internally is what is there that we can do to get the awareness of the fact that we're offering delivery higher up in consumers' minds. So, yes, it's profitable. It's incremental business. And we're looking to continue to go hard at this. And we certainly know our operators are enthusiastic, as are we, as a corporation.

Our next question is from Karen Holthouse with Goldman Sachs. Karen? Karen Holthouse - Goldman Sachs & Co. LLC: Hi. Thanks for taking the question. A question on U.S. margins where you talked about some of those upfront investments that you're making behind new initiatives, is that what we're seeing at store level in the year-over-year margin pressure? And then, if so, when you talk about that by six to nine months and then do you actually see costs go away? Or is it the expectation that you would be able to leverage into kind of covering those costs? Thanks.

Yeah, hi, Karen. It's Chris. So certainly, what you're seeing in the trading results that we just posted, you're seeing primarily labor related to the training that I was talking about. There is some commodity inflation, but the biggest drag that we're facing right now is related to the labor investments that are being made. In terms of going forward, I think one of the pieces that remains to be seen for us is just what does the long-term labor inflation look like in the U.S. And so, we have seen with roughly 5% unemployment that labor inflation has been ticking up nationally. In addition, there's local legislation that's going on as well, where minimum wage laws are increasing. So that long-term could be a headwind, which just would require a faster growth rate than what we've historically seen. But I think right now, it's unclear where that goes. I think for us, certainly the investments that we're make right now on training, those are one-time investments that would abate in the next six to 12 months. And I think the longer term, is we just need to keep our eye on labor inflation across the U.S.

Karen, I'll just hook on the back of those well because Chris is right. I guess the tone of the conversations we have, not just with management teams but with our Owner/Operators, clearly is we have a really solid plan. I mean, Chris and the team here have built an ambitious, very broad-based plan. And having a plan is a great start, but you've got to execute it. And we've been very mindful that it is getting the restaurant level details right is more important than having the perfect plan. And we've seen this, wherever we have an execution gap between a stretch in execution, it kind of catches us out because the customers get impacted. And we've also got some great recent experiences with UK and Canada and Australia, who have all deployed ambitious multi-faceted plans. And we've seen this kind of a trend where you'll invest a little more in the shorter-term on the P&L in order to get the execution right. But the payback then comes over that medium to longer term. So I'm comfortable with where we're at. It doesn't mean we're blasé about it, but this is not unexpected to us. And, as I say, getting the execution right is our primary focus.

Our next question is from Brian Bittner with Oppenheimer. Brian? Brian Bittner - Oppenheimer & Co., Inc.: Thanks. Thanks for taking the question. Can you just talk a little bit more about your national value platform strategy launching in the United States in early 2018? Any details you're going to provide on that strategy would be helpful to us. And in addition to that, if you could just also address how you expect your U.S. franchisees are going to strategize, making incremental investments and value at a time when store-level margins are declining from the labor investments and what-not. Thanks.

Sure. Well, one of the things that we have said to our franchisees in the U.S. is we don't have to win on value, but we can't lose on value. And that means we have to be competitive with our investments against a value program. And I think also it's no surprise that over the last, call it, three or four years since we rolled off Dollar Menu, we weren't as competitive as we needed to be on value. And so what you're going to see from us next year is us being really fully competitive with our near-in competitors with a value program there. It's been written about and I don't think it's any surprise that certainly our value program is going to be focused on $1, $2 and $3 price points for an everyday-value piece of it. And then there will also be deals that will pulse in and out throughout the year as a result of that. When you talk about the investment that is being asked of Owner/Operators, one of the things that we talked about is that this plan has to be looked at holistically. And so while there is an investment that's being made on the value side, there are also some significant efficiencies that are being captured on the other side, around particularly marketing and efficiencies that we're getting there, efficiencies that we're getting at the restaurant level. And so when you look at all of it on a blended basis, we think that this is a balanced plan. And I think, most importantly, the fact that our Owner/Operators were at almost 100% signing up for is probably the best testament that they felt comfortable with the value investments being offset by some of the other things in the P&L.

And I think it's also noteworthy, Chris, that the commitments that's been signed up to is to have the national support, so that the need for some of the local value initiatives is somewhat reduced, because we're putting the national muscles to play here on to support the program, which I think is exciting for us at we enter 2018.

Next question is from Brett Levy with Deutsche Bank. Brett?

Good morning. Thank you. You obviously started to talk more about coffee at your March Investor Day and once again reiterated that it's doing well. What can you share in terms of how much faster it's growing than your overall comp? What are you seeing in terms of daypart breakfast, afternoon, and attachments? And, if I could, how is that doing in terms of traditional in-store purchases versus your mobile order and the loyalty program? Thank you.

Well, I think we're excited about coffee, in part, because it's a huge category. It's a $30 billion business in the U.S. and it's growing mid-to-high-single digits as a category. So we're excited about the category. It's high margin and we're under-penetrated there. So as we built the plan, it was rally about us getting after an opportunity where we think our McCafé brand has a lot of relevance. We're not going get into the specifics of by product line item, how did those compare versus the average comp, but I would just say that, certainly, we saw the benefit in Q3 of really nice growth on our McCafé business. And as we look out over the next few years, we're expecting to use McCafé as really a platform for us to get additional growth. So we're excited about that. We think we have a good opportunity to get after it. It's really been a question of focus for us. We haven't consistently focused on this in the past. And going forward, it's going be a key area for us.

I'd also just say from a global perspective, when you look at the overall velocity plan that we talk about, Brett, coffee and McCafé is at a different stage in different markets. But if you actually look at the key drivers behind the velocity plan, on the retained category, about retaining customers, clearly, a strong compelling coffee plays really well alongside the food-led breakfast advantage that we have. When you look at regain, there, as we build out our digital capabilities and loyalty in CRM, we think coffee, because it's such a habitual purchase, will play well against those customers who we want to encourage back more often. Then finally, when we talk about converting casual customers to committed, we know coffee and snacking plays strongly against some of those more casual consumers. So each of our major countries, as I said, has a different stage of development of their McCafé programs, but the one thing I would say is that coffee plays a part in all those markets as we go forward.

Our next question is from John Glass with Morgan Stanley. John? John Glass - Morgan Stanley & Co. LLC: Thanks very much. Good morning. Two cost-related questions; one is just on the SG&A. So as you've gotten further into technology, it sounds like there was maybe a little heavier spending this quarter. Do you still have the same confidence that you can achieve the overall SG&A goals that you laid out earlier or does this quarter make you think about you need to put more money into that in 2018? Can you reiterate what those goals are and if they've changed at all? The other component of your business that's grown has been the gains on asset sales, excluding the China. It's been still a few hundred million dollars a year. Does that effectively go to nil over the next couple years as refranchising is complete? Or is that still an ongoing piece like it should trade in and out of markets, for example?

Yes, John. Thanks. Let me start with the G&A. What I'd say is right now, we're completely on track with where we expected to be this year. As I said in my remarks, we expected to be down about 7% to 8% in constant currencies. We still expect to be down about 7% for the year. Having said that, it probably is a little more back-loaded this year than we probably thought at the beginning of the year. So the timing of it is a little bit more back-loaded. But what we're seeing is we're achieving significant savings from our refranchising and we're also seeing significant savings in our maintenance, our running the business G&A. That's being partly offset by a significant increase in technology spending. So we're achieving net G&A savings and, at the same time, we're shifting more of our existing spend from maintenance G&A to what I'll call investment G&A, focused on growing the business. So I think overall, we feel a lot better today about where we're spending our G&A, but we're on track with kind of all of our original plans at this point. Regarding the gains, it's a good point. I think you'll probably still see gains in 2018 as we continue to refranchise in some of our conventional license markets, the U.S. and some of the International Lead. After that, that will likely go down a little bit. We won't have as much of the refranchising transactions. We will still have restaurants that exchange hands in kind of normal course of business, so there will always be some restaurants that, just as we always optimize our mix, we'll have some. But it probably won't be to the level that we've seen the last couple years and maybe in 2018. After that, it will likely go down a little bit.

Our next question is from Peter Saleh with BTIG. Peter?

Great. Thank you for taking the question. Just curious if you could comment a little bit on speed of service in the U.S. and how the Experience of the Future restaurants are comparing on speed of service ticket times versus the rest of the system? Are they moving faster or are they moving slower? Any other sort of color would be helpful.

Yes, well, so I'd say what we typically see is as we're deploying, whether it's EOTF, some of the menu news, et cetera, we typically do see a slight uptick in service times, call it, on the order of five seconds or so. And then, certainly as the crew in restaurants get more experience in whatever the initiative is, we expect to claw most, if not all, of that back over time. I think it's, for us, when you look at the Experience of the Future, one of the things that makes it difficult to really do the from-to on that is because as we bring in Experience of the Future with curbside, you start introducing all sorts of new ways for the customer to interact with the brand. And so maybe in the past, they would just go through the drive-thru because, frankly, they didn't see going into the restaurant as a great experience. Now, they want to go into the restaurants because it's an updated modernized experience where you can get table service there. And so it's really, I think, what we're seeing with Experience of the Future is that customers are choosing new ways to interact with the brand that makes it difficult for us to compare. I think the more relevant metric really, for us, is we look at customer satisfaction. We look at customer satisfaction prior to EOTF and after EOTF. And what we're seeing there are significant improvements on the order of three to five points improvements in overall customer satisfaction. So for us, that gives us reassurance that they are enjoying the initiatives that we're deploying with EOTF and they're having a better experience.

I mean, Chris is absolutely right. I think part of our broader philosophy around Experience of the Future is putting that choice and control in the hands of customers, whether it's how they order, what they order, how they choose to pay and how they're served. And we want to be providing faster service for those customers that really want fast service. At the same time, not everyone wants to be rushed, and, therefore, we're providing more alternatives. Chris's example of curbside is absolutely spot-on. Or maybe you're entering the restaurant and you've got a family with you and you just want to dwell a little more on the kiosk and just take some time ordering. So it's just a much more enjoyable experience. So I guess this is allowing the customer to have that range of choices. And then they can, therefore, if you like, self-select the way they experience McDonald's. And, as I say, where we are more advanced in the rollout of Experience of the Future, the customer satisfaction is noticeably higher. And Chris has already begun to see that in the U.S., which is encouraging, but, again, not surprising. We're confident in the plans we have.

Our next question comes from Jeff Farmer with Wells Fargo. Jeff?

Thank you. Just following up on value quickly, so on recent calls, you noted that a few of the 22 U.S. regions have already been more aggressively pursuing, I think, it was the McPick options and combinations of $1 and $2 beverages. So I'm just curious how those three to four regions have performed on a same-store sales basis relative to the rest of the system and if that magnitude of out-performance can tell us anything about, potentially, what we could be seeing from value as we get into 2018.

Yes. I think, as you know, with McPick, certainly this year, there was a heavy local element to it. So we had different regions pursuing different McPick strategies, both the price points that they would hit, but, frankly, also the items that they would be selling for. And so it's difficult to do the comparison that you're talking about because it's not just what item at what price point, but it's also where was the starting price point for that. In general, I think the point that you're making, though, is an accurate one, which is we think that we still had an opportunity to get more competitive on value. Again, we're not trying to win on value, but we can't lose on value. And so I think what you're going be seeing from us going forward is really for us consistently to stay competitive on value. And I think the other thing, as I mentioned earlier in the call, is more of that investment now going forward is going be done and driven at the national level than at the local level, which I think plays to our strength from a marketing communications standpoint where we can really drive that message.

Our next question is from Will Slabaugh with Stephens. Will?

Yes. Thanks, guys. I had a question on the U.S. franchisee base. It seems there's been a fairly aggressive push to both improve, as you referenced earlier, and to naturally consolidate that franchisee base as a result of some meaningful investments required to get to an EOTF format or otherwise. So can you give us an update on how you're thinking about the current domestic franchisee base and how that may change over the coming years as some of this consolidation likely occurs?

Sure. Well, so one, I think being relatively new to McDonald's, I'd say one of the things that has really been a highlight for me is getting to know our U.S. Owner/Operators. And I'd tell you they're – it's a very impressive group in terms of what they're able to drive. And so you're seeing that in the results here. Our point of view, and certainly all my discussions with the Owner/Operators in the U.S. has been I would love for every single one of them who's currently in the system today to remain in the system. And so there is no, from our vantage point, concerted effort to try to change the franchisee base or have it look different. But that said, we do have expectations around performance. And, as you said, as we said earlier, running better restaurants is the foundation. And we were not consistently running the type of restaurants in the U.S. that we were expecting to. And so step one has been we have really level set what the standard is for performance in the U.S. At the same time, we've outlined a pretty, what we think is exciting and ambitious growth plan, but it is one that's going to require investment. And so as you put those two together, as you put together a performance expectation along with an investment expectation, we are seeing some Owner/Operators are deciding now is a good time to exit the system. And I think for us, while we certainly are sorry to see folks go, we would rather have that conversation where we're all operating from just a very transparent set of expectations. So I think over the next couple of years, we're probably going to continue to see some evolution of this, but by and large I think the U.S. franchise system as you see it today is going be the same one that we're going to be talking about in a few years.

The next question is from Alton Stump with Longbow Research. Alton?

Thank you, and good morning. Just go back to delivery, it's actually still very early, of course, with the roll here in the U.S., but can you walk through what you're finding as to if there's any certain categories, whether if it's casual or if it's pizza or otherwise that you guys think you're gaining share from as a result of the rollout of delivery?

Delivery is already a significant market, and I guess the reason we've addressed this with such urgency is, apart from in certain Asian and Middle Eastern markets, we just weren't participating. And given societal trends, given consumer trends, we could only see it growing. So for us, we're a little late to enter, but I think we've entered with more muscle and intent than probably most other competitors could possibly match. I mean, you may have heard me say before but across our top five or six markets around the world, 75% of our customers live within three miles of a McDonald's. So, frankly, there is no other restaurant business on the planet that's closer to more of the global population than we are. And we think that, therefore, that lends itself really well to not just visiting their local McDonald's but also having delivery from their local McDonald's. What are the sort of trends we're seeing? We're certainly seeing it appeal to the younger consumer. We're seeing some great results around college towns. As I say, from a daypart perspective, we see it skew slightly later, so into evenings and overnights. There tends to be more group orders, so we see the average check somewhere between 1.5 to 2 times a typical average check in a restaurant. So I think it really is beginning to clearly demonstrate to us that this is an incremental business for us. It's an incremental revenue stream for us. But we're learning with every day and every week and every market we bring onboard, each market we bring onboard now is just a little wiser than the previous one, because we're building up the experience and the knowledge. And we've also got an opportunity ahead of us that we've yet to be innovating around packaging, innovating around bundling different menu items, and other potential business opportunities further down the line. I think our view was, let's get into the game. Let's show our intent. Let's learn really quickly, and then we'll continue this kind of progress over perfection mentality where we can fine-tune it as time goes on. But it's encouraging to us, and, as I say, you can expect us to move from about 8,500 restaurants today to probably north of 10,000 by the end of this year. And expect to see the trend continue.

Our next question is from Matt DiFrisco with Guggenheim. Matt?

Thank you. I just have a follow-up question with respect to the margin comment in the U.S. I'm just curious as far as if I look at digital and I look at the Experience of the Future, it seems like some International markets and regions have been a little bit faster to roll it out, yet we didn't see that type of margin pressure or labor pressure. Can you talk about the dynamics in the U.S. that are now manifesting sort of this labor pressure? Is it with things that are already introduced into the store? Or is this a market that you have to invest in front of the curve where it's waiting then for the same-store sales leverage to flow-through beyond sort of the six to nine-month period that you said you were going to experience labor deleverage?

Yes, Matt. I'll start, and then Chris can add more texture again back to the U.S., but I guess, one thing that's just fair to call out is when we went to the new segment structure, we did so because we wanted to increase the transparency and accountability of what's driving our business. So when we look, for example, at the International Lead markets, not all five markets rolled out at the same time. So, therefore, if one or two markets were feeling a little more margin pressure because they were at the front end, there was a couple of markets that hadn't really embarked on it, but who still had strong margins. So, as you can see, that kind of impact got blended into a five markets segment result. Here, clearly, with the U.S., it's a segment of its own and, therefore, there's no other market to blend it into. But part of the way we're looking to manage this business, and we've said our geographic spread is one of our, we believe, competitive advantages of us as a business, we can have certain markets do some of the heavy lifting while some are investing through this cycle. And, yes, ultimately, we are running this business for the long-term. And if there's a shorter-term impact, I would like to think we've demonstrated ourselves as being fiscally responsible as leaders of this business, but if that's the investments that are required to get the job done properly, then that's what we're going to keep doing. But, Chris, if there's anything more you want to add.

Yes. And I think just to maybe give a concrete example, I mean, as we laid out 2018, we have a number of initiatives that are going to be hitting the market in 2018. One of the biggest ones, the first one that's going to be coming out is, we call it, hot off the grill. It's sometimes referred to as fresh beef. But right now, we're actually bringing on a number of regions onto this platform as we convert over our supply chain. When we bring on hot off the grill or fresh beef into a market, we actually have a six week training curriculum that the entire restaurant goes through. And it's a very intensive training curriculum that they have to go to, actually starting with the operator. The operator first goes through training, and then we literally take every single one of those crew members with both an offsite and then an in-store training experience. All the time that's spent on training for hot off the grill implementation, all of that counts against your labor and none of it is revenue-producing. But it's the sort of thing that we think is required to really make sure that when we do rollout hot off the grill that we execute it at a really high standard. So that's just one example, but we have a number of other initiatives that have the similar type of training and preparation curriculum that's going with it that obviously puts a short-term burden on what needs to be done at the restaurant.

The next question is from Greg Francfort with Bank of America Merrill Lynch. Greg?

Hey, guys. Can you just talk a little bit more about the European consumer? I know we've heard from some of your suppliers and also just generally in the industry, strength out of Europe. And I'm wondering, what do you think's driving that and maybe how sustainable that is?

Yes. Thanks, Greg. I guess it's a mixed picture, and certain of the metrics that we see are somewhat contradictory to a certain degree. I mean, depending on which country you're talking, there's a little bit of nervousness in terms of consumer confidence. We're seeing consumer confidence in the UK get a little weaker as the uncertainty over Brexit continues. I think one thing we do see more consistently, which is a positive certainly for society and putting money in peoples' pockets, is unemployment is typically declining across all of our major markets. And there's better stability and growing consumer confidence in France, and we're seeing the same in Italy as well. Germany continues to be a somewhat more mixed picture. But overall, we're not seeing any of these metrics as a significant tailwind, nor do we think we're kind of having to cycle-tread into a strong headwind, either. I guess the reality for us, our mental approach in every single one of these markets is, let's assume there's only going to be very modest market growth overall. And, therefore, let's take the attitude this is a market share fight and you're going to either be winning or losing customers and let's make sure we're on the right end of that battle.

Our next question's from Jeff Bernstein with Barclays. Jeff?

Great. Thank you very much. I guess Steve or Chris, in the U.S. QSR burger category, it seems like the largest players have most recently been sustaining or even accelerating momentum. And I know if you look back over the past decade or so, it has been historically very difficult to maintain that for a sustainable period. So I'm just wondering maybe what you think has changed in QSR or maybe the dynamic that's changed meaningfully. Or where do you think maybe the share is coming from that's led to this most recent resurgence across broader QSR? And then, Kevin, could you just clarify what you said earlier? Just from an accounting standpoint, I want to make sure I understood. You said 20% equity pick-up with the China, Hong Kong shift. Just want to make sure, that's going flow through the equity and earnings line and just how much you might think that's going be starting this quarter or what we should think of as a run rate. Thanks.

I think three of us will have a go at that, Jeff, here's a multifaceted – if I give a broader perspective on the way that we're looking to grow our business is I'm not interested in the comp cycle. And you hear people talk about it and next quarter's comp will all depend on what the same comp was a year ago. And I think, ultimately, what we're looking at and we've seen it successful in a couple of our more mature markets, is build the platforms of growth that give you long-term sustaining growth, so you're not in that short-term cycle. You don't get dragged into it. And Chris can talk to the QSR industry in the U.S., but certainly as we build our Experience of the Future, our digital platforms, delivery, convert the consumers to are somewhat more casual to our brand, we think that we're building sustaining platforms that are important for us, but, Chris, maybe the U.S.?

Yes. And so, I think just to build on that, it is a relatively flat market, but I think what we're seeing is that when you're really sharp with your proposition that you're offering the customer, the food that you're offering, the value that you're doing with the experience, when you've really got a compelling proposition to put forth, you can gain significant share. And so, certainly, the comp gap that we've been seeing, our comp gap has been widening over the last three quarters. And I'm very excited about what we've got in the pipeline going forward. I think as I said at the opening of my comments, the absolute key for us is going to be to execute. But I think if we execute and, again, we stay really sharp with the proposition that we're offering customers, I don't see any reason why we couldn't sustain that performance, but it's on us to demonstrate it.

And then, Jeff, regarding your question on kind of China, Hong Kong going forward, it'll be accounted for similar to how we account for Japan today, which is we'll get a royalty up in franchise revenues, and then we'll pick up 20% of their net earnings down in the line called equity and earnings of unconsolidated affiliates within our other operating income. So that's what it'll be beginning – I guess, a little bit beginning this quarter, but really beginning more next quarter. And then, regarding size of it, I guess, what I would remind you of is remember that China and Hong Kong in total were less than 5% of our consolidated operating income.

So we have time for one more question and that will be David Tarantino with Baird. David? David E. Tarantino - Robert W. Baird & Co., Inc.: Hi. Good morning. My question is on your digital strategy. And, Chris, maybe you can comment. I think you mentioned that there's a building database of digital users. I wonder if there's any metrics you can share around that and where you expect that to go over time. And then, lastly, on the mobile order and pay adoption, specifically, I know it's early days, but can you talk about the adoption rates you're seeing in the restaurants you've had it the longest, and what you're planning to do to drive adoption as you move through next year? Thanks.

Yes. Well, so I'd say we are still in the early innings, in honor of the World Series, in the early innings of digital, but we're seeing, I think, a really nice start to it. So we've had almost 30 million downloads. I would say we're roughly 9 million active users, meaning who are in it on a monthly basis that we're seeing there. And we're seeing strong offer momentum, which is really currently the primary benefit that we're delivering through the app. As we're rolling out now mobile order and pay, the power is going be that to then bring together the offer with the ability to do mobile order and pay. Right now, what we're doing mostly in our restaurants with the roll out of mobile order and pay is we're really at this point focused on getting the operations right. So getting, for example, the crew to understand when a curbside order comes up, how do they take that order, how do they go out and bring the food to the customer. So, right now, I'd say we're spending a lot of time on mobile order and pay. Yes, as we're deploying it, but really make sure we've got the operational muscle there, because what will happen then in 2018 is we're going to flip the marketing switch on it and start to drive really much more increased usage. But, certainly, we've learned from some of the other activity out there. We want to make sure that we're ready when we do flip on the marketing switch that we're ready to handle the business with it, but still early innings. We do think that it's a significant opportunity for us and we would expect in the future it becomes a more significant part of the comp.

So we've reached the top of the hour. And now, I'd like to turn it over to Steve, who has a few closing remarks.

Yes. Very briefly, our Velocity Growth strategy is working. And you can see the proof in our performance. Even as we've made a lot of progress, we know we still have a lot more to do. We'll continue focusing our energy on aligning our entire organization around disciplined execution that will allow us to deliver on the full potential of our plans. And with that, thank you for dialing in, and I wish you a good day. Thank you.

This concludes McDonald's Corporation investor conference call. You are now free to disconnect.