Arcos Dorados Holdings Inc.

Good morning and welcome to the Arcos Torados second quarter 2019 earnings call. A slide presentation will accompany today's webcast, which will also be available in the investor section of the company's website, www.arcostorados.com. As a reminder, all participants will be in a listen-only mode. There will be an opportunity for you to ask questions at the end of today's presentation. Also, today's conference is being recorded. At this time, I would like to turn the call over to Patricio Enzanola, 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 Marcelo Ramos, Arco Morado's Chief Executive Officer, and Mariano Tanemong, Chief Financial Officer. Please try to slide through. Before we proceed, I would like to make the following safe travel statement. Today's call will contain forward-looking statements, and I refer you to the forward-looking statement section of our earnings release and recent findings with the FTC. We assume no obligation to update or revise any forward-looking statements to reflect new or changed events or sequence types. In addition to reporting financial results in accordance with generally accepted accounting principles, we report certain non-GAAP financial results. Inventors 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 country's ongoing macroeconomic volatility. 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, Marcelo Raba. Thank you, Iñaki. Hello, everyone. I am excited to host my first earnings call as Arcos Dorados CEO. I am truly honored to have the opportunity to lead this company as we continue to move forward. I would like to thank our executive chairman, Woods Dayton, and the board for their confidence in me. I spent my entire career within the McDonald's system building solid relationships with my colleagues, suppliers, franchisees, and partners. I am confident that together, we will continue to manage through any challenge while we continue to expand our market leadership across the region. I still remember my first days on the job almost 30 years ago when I started as a crew member in Buenos Aires, Argentina. I am one of many examples of the commitment that Arcos Dorados has always had to providing youth with high-quality job opportunities and professional career development. I have held many senior leadership positions across our four geographic regions before the last job as COO commencing in 2015, including divisional president of NOLAB and divisional president for Brazil. Just as my predecessors, my focus has always been on instilling and driving operational excellence and consistently delivering higher levels of performance. I assure you that this will not change. Luis Raganato, who is stepping into my former role, and I have worked together for many years, and I am looking forward to continuing our partnership. We are committed to leading the company toward the continued successful execution of our three-pillar strategy, comprised of delivering an enhanced customer experience, providing the most relevant and desirable menu offerings, and running the best restaurants. Now, please turn to slide three. Strong momentum continued through the second quarter, reflected not only in our reported results, highlighted by 14.2% comparable sales growth, strong cash flow generation, and an additional 120 basis points of adjusted EBITDA margin expansion, but also across the entire organization through multiple initiatives. Thus, I am confident that we have put in place the right growth strategy and we plan to stay the course. Sharp and disciplined execution of our strategic initiatives will continue to be crucial to near and long-term success. We will sustain our market leading brand and scale and build upon our dominant geographic footprint while delivering the largest and most comprehensive omnichannel guest experience in Latin America. We will continue to meet our customers where and how they want us to meet them. Additionally, we will maintain an agile approach to capital allocation. focusing on those markets that have the most growth potential and investing in the multiple growth initiatives that make up our strategy. These include delivery, EOTF, and digital, which comprise the McDonald's global accelerators of growth, as well as our affordability platform. In fact, we have been so pleased with the performance of our EOTF restaurants that we plan to expand the rollout to six additional countries during this year. The success of our initiatives is a validation of our three-pillar strategy and continues to give us confidence that we can sustain sales growth above blended inflation. We are also committed to remain the most socially impactful as well as the most sustainable restaurant company in Latin America. It's the right thing to do as the leader, and as well it makes good business sense. Our second quarter results demonstrate that our strategy continues to traction well. This is more about what we have been doing as a company than about market conditions. Based on the most recent market data from the Institute of Food Service Brazil, IFB, We are outpacing the growth of the industry in that country, and we think we can do even better. The strong trends from Q1 in Brazil continued in our compatible sales, even when excluding the impact of the tracker strike during the same period last year. We are also encouraged by our discussions with McDonald's regarding our next three-year investment plan. There is still a bit more work to be done on this front, and I'm looking forward to being able to disclose more about this later in the year. I will now turn the call over to Mariano to discuss our top-line performance and some of the underlying elements we are employing to drive growth.

Thanks, Marcelo. Please, go to slide four. The positive momentum continued as we delivered another quarter of strong results. The successful marketing and promotional campaigns that we have been executing since the end of last year, coupled with strong offerings, have proven to be key in achieving significant top-line growth. Given the continued volatility in a number of our key markets, we have focused on offering an appealing affordability platform. making this menu even more relevant to our customers. Following the first quarter trend of double-digit consolidated comparable sales growth, in the second quarter of this year, we achieved comparable sales of 14.2% above blended inflation. We also somewhat benefited from easier comps in Brazil, where a tracker strike in 2018 significantly impacted Q2 consumption across the board in that market. While last reported revenues continued to be impacted by the depreciation of our key currencies, as we anticipated in our previous call, this quarter the currency translation impact was lower. The significant depreciation of the Argentine peso and the Brazilian real took place in the second quarter of last year. Please turn to slide 5 for more details on our divisional top line. We again outperformed the sector in Brazil this quarter and achieved comparable sales growth of 12.1%, well above inflation. On top of the strong marketing campaigns, profit growth was also driven by the rollout of EOTF, the expansion of our research centers, and the continued growth of our delivery channel. Moving to SLAD, comparable sales increased 27.7% below the division's blended inflation. While traffic is still impacted by the weak consumer environment in Argentina, we saw a slight recovery by the end of the quarter, posting better figures than the reports from the Association of Medium-Sized Retailers. However, We remain cautious about Argentina in the short term, as we continue to expect an uncertain operating environment fueled by the electoral calendar. On the other hand, we continue to see good momentum in Chile, Ecuador, and Peru, all posting strong traffic and comparable sales well above inflation, driven by the great performance of our marketing strategies. These are countries with stable and growing economies, and they're acting as counterweights to our business in Argentina. In Peru, we are very pleased to announce the opening of two new restaurants in Lima. These will be located in two of the main shopping malls, one of which will be the first EOTF restaurant we launch in the country. In NOLA, we posted comparable sales growth of 7.3%. well above blended inflation and remain focused on increasing sales and traffic. As a result of this, Mexico continues to consolidate as a key driver of growth within the division. Unlike Q1 2019, in this quarter we benefited from the Easter holiday shift. Panama also contributed to the division's top line growth. remains challenging but is showing signs of improvement. Finally, in the Caribbean, we posted comparable sales growth of 1.9%, driven by strong performances in the French West Indies offset by a soft consumer environment in Puerto Rico. Even though Colombia posted strong comparable sales growth, its revenues in U.S. dollars were impacted by the 14% year-over-year depreciation of the Colombian peso. As noted, the French West Indies, a market that generates hard currency, is performing very well. This is another example of the benefits of having a unique and diversified portfolio. Back to you, Marcelo. Thank you, Mariano.