Good morning, and welcome to the Arcos Dorados Third Quarter 2020 Earnings Call. A slide presentation will accompany today's webcast, which will also be available in the Investors section of the company's website, www.arcosdorados.com/ir. Today's conference call is being recorded. At this time, I'd like to turn the conference call over to Dan Schleiniger, Vice President of Investor Relations. Please go ahead.

Thank you, Jamie. Good morning, everyone, and thank you for joining our earnings call. With me on today's call are Marcelo Rabach, our Chief Executive Officer; Mariano Tannenbaum, our Chief Financial Officer; and Luis Raganato, our Chief Operating 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 we will file 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 Rabach.

Thanks, Dan, and good morning, everyone. I hope you and your families are doing well. Today, we will review the topics listed on Slide 3. We will start with an operational update. Then we will take you through the details of our third quarter results and more recent events. We will wrap up with some early thoughts on next year. You have heard me say on each of our calls that without a doubt, we have the best restaurant system in Latin America. The heart and soul is our people, who have worked hard and overcome significant obstacles to ensure that our guests enjoy the safest and most convenient restaurant experience in our region. They make us very proud every single day. The 3 phases of our plan to navigate the pandemic are summarized on Slide 4. Our proactive and aggressive approach to the crisis management phase involves prioritizing our people and guests, supporting our communities, and stabilizing our cash flows to ensure the long-term health of our business. We are now solidly in the recovery phase of our plan, operating at least 1 sales segment in 99% of our restaurants. By focusing on the Three D's of our business—drive-thru, delivery, and digital—while also building consumer confidence with our McProtegidos or McSafe program, we are gaining market share across the board. Sometime next year, we expect to enter the full revival phase of our plan. That is when all or substantially all our restaurants should return to full operations. We will build on the successes and learnings from 2020 to support a further recovery in sales and capitalize on the renewed excitement for the McDonald's brand in our region. Taking a more detailed look at our operations on Slide 5. In addition to reopening 99% of our restaurants, we are already operating all sales segments in about 70% of our locations. We have also reopened around 90% of our research centers. This comes ahead of the summer months in South America when dessert centers usually perform strongly. We are also benefiting from operating the region's largest free-standing restaurant footprint, which returned to positive system-wide comparable sales in the month of September. While we are gaining significant traction, the pace of our recovery will be subject to how government restrictions evolve. We are still facing strict restrictions on both hours of operations and restaurant dining capacity. We have successfully offset some of the reduction in on-premise sales with very strong growth in both drive-thru and delivery. But in the long run, we will still be a favorite destination for Latin American families. I will share more thoughts on that when we provide our early outlook on 2021. Let's turn now to the highlights of the third quarter on Slide 6. Our system-wide comparable sales, which include all restaurants in our system for more than 13 months, whether open or temporarily closed, recovered throughout the quarter. In fact, comparing the last month of each of the last 2 quarters, comparable sales recovered by about 25 percentage points. The Three D's drove the sustained recovery in top line results. Together with efficient cost management, this generated positive consolidated EBITDA starting in July, reaching almost $26 million for the full quarter. In fact, all 4 divisions, and about 80% of our markets, delivered positive EBITDA in the quarter. Notably, Brazil had a solid rebound, and we were particularly pleased with the Caribbean's performance. Adjusted EBITDA in the Caribbean, which is generated mostly in hard currencies, such as the U.S. dollar and the euro, was almost 2.5 times higher versus the prior year period. Also, as we mentioned on our last 2 calls, we proactively implemented aggressive cost, investment, and cash management measures that stabilized our cash flows by the third week of April. This limited the crisis-related increase in our short-term debt, which we have already refinanced through liability management transactions that Mariano will describe in detail today. I will turn the call over to Luis now for a deeper dive into our sales trends and other operational highlights in the quarter.

Thanks, Marcelo, and good morning to all. You have just heard about our consolidated top-line results. So let's take a look at how sales performed on a divisional level on Slide 7. System-wide comparable sales remained highly correlated to the penetration of free-standing restaurants in our divisions. The Caribbean division delivered comparable sales growth of 1% in the quarter. Two-thirds of our restaurants are free-standing, allowing us to leverage the drive-thru and expanded delivery sales segments. Brazil's comparable sales improved by about 20 percentage points versus the second quarter. Free-standing units generated positive comparable sales starting in September, boosted by sustained growth in drive-thru and delivery. The trend continued in October when comparable sales for all of Arcos Dorados were above 90% of last year's levels. NOLAD and SLAD had a slower recovery due to stricter government restrictions on operations. We were only recently able to reopen some mall-based stores in Panama, while operations in Argentina are still limited due to ongoing virus-related restrictions. Although the recovery has been slower, we are still operating from a much stronger competitive position in most of the division's markets and expect to capture significant share moving forward. Let's talk about how the Three D's are performing, on Slide 8. Starting with drive-thru. We generated record sales levels for this segment during the third quarter. On a constant currency basis, drive-thru sales rose 54% versus the prior year period and contributed 46% of the third quarter's system-wide sales. Delivery also had the best sales quarter ever, growing more than 180% in constant currency terms versus last year. In fact, delivery's community sales for the first 9 months of 2020 are already 36% higher versus the full year 2019. The service continues to grow in popularity and is now available in 17 of our 20 markets and more than 1,600 restaurants. In Brazil, we gained significant market share in the delivery segment. Starting with the largest revenue base in our industry, local currency sales grew 22% versus the second quarter of this year and 147% versus the third quarter of last year. In both cases, we are further building our brand strength by exceeding customer expectations with service times that are much faster than the average for the QSR industry. So no matter how we look at it, whether it's proprietary research, third-party sources, or comparative growth rates, there is no doubt we are capturing market share and consolidating our brand leadership in both these sales segments. Finally, we are building on our industry-leading digital platform that, again, generated 40% of system-wide sales in the quarter. We have more than 43 million downloads since launching our mobile app a couple of years ago, and the number of active users continues to grow as well. So far, we have taken the mobile order and pickup option to 3 markets, Argentina, Brazil, and Colombia, with plans to continue rolling out this digital building block across our regional footprint. With each new feature, the mobile app is serving as the backbone of the company's digital transformation. Guests have a growing number of ways to interact with us, leading to higher acquisition numbers, more digital user activations, and increased engagement. We recently launched Mac's App, a WhatsApp bot that interacts with guests through artificial intelligence in Brazil. We're getting to know our guests better, and that is leading us to new opportunities. We started the year with 2 multidisciplinary teams focused on the delivery and digital marketing business models and strategies. Recently, we added a third squad to develop and execute our e-commerce strategy. As you will hear from Marcelo later, we will continue investing in the digital transformation of Arcos Dorados. And I look forward to keeping you up-to-date on the tangible results of these initiatives. Let's turn now to an important part of the on-premise guest experience, on Slide 9. We first told you about the McProtegidos or McSafe program on the March earnings call. We were in the early stages of the pandemic, but we had already rolled out a branded and coordinated program to convey our industry best safety and hygiene standards to employees and guests. The program has helped us gain in brand trust metrics, far more than the nearest 2 competitors in each market. On the screen, you see some of the positive reactions we received over the last few months with words of thanks and appreciation from our system. Looking ahead, with consumer concern about their health and safety for the foreseeable future, we believe the McProtegidos program will support our goal of consolidating the brand's position as the most trusted restaurant chain in Latin America and the Caribbean. Mariano, I will turn it over to you now, so you can take us through the company's profitability, balance sheet's metrics, and capital allocation priorities.

Thanks, Luis. As Marcelo already mentioned, we generated positive adjusted EBITDA in the quarter, both at the consolidated level and in each of our 4 divisions. It is worth repeating how pleased we are to see the performance in our main market, Brazil, and in the Caribbean division, where we generate hard currency cash flows and see significant opportunities moving forward. Taking a look at our EBITDA margin on Slide 10, we had an important sequential improvement of 19.8 percentage points versus the second quarter. Our food and paper costs demonstrated continued resilience, generating 90 basis points of EBITDA margin leverage versus the second quarter and 30 basis points versus the prior year. These improvements came as a result of the success of the Three D's, together with effective revenue and menu management, plus our sophisticated, localized supply chain. Payroll costs also improved significantly, gaining 330 basis points of productivity versus the second quarter due largely to improved sales trends and optimized restaurant staffing. The occupancy and other operating expense line also saw a material rebound from the second quarter when we had nonrecurring expenses related to PPE for our employees and higher commissions to the delivery aggregators, given the increase in sales in that segment. I should also mention the great work by our real estate team which has kept the increase in outside rent expenses to a minimum, while we work to leverage our remaining fixed costs. Strict controls on G&A resulted in an 8.2% decline in constant currency despite a 9.8% weighted inflation rate. We are proud to have achieved this real reduction without implementing layoffs. As our sales continue recovering and growing through the end of the year and into 2021, we expect most of our cost and expenses to normalize further. Before moving to our balance sheet and cash flow, I want to take you through the liability management exercise that we recently completed on Slide 11. As you know, through proactive management actions, we were able to limit our cash burn through the worst part of the crisis. In fact, we stabilized and then began generating positive cash flows at the end of April. Nonetheless, we did increase our short-term borrowings from our partner banks. In order to eliminate the associated refinancing risk and fully repay our short-term debt, we reopened our 2027 bond and issued an additional $150 million at the lowest cost in our history, at a 5.46% yield to maturity. We also offered our 2023 bond holders the chance to exchange their holdings for the '27 bonds in order to further extend the average maturity of our long-term debt. The exchange was very successful with more than $130 million moving from the '23 to the '27 bonds. Following both transactions, our short-term credit lines are fully available, the outstanding principal on the '23's is a very manageable $217 million, and the '27's stands at $555 million. Remember, we have derivative instruments in our favor that partially offset the company's total long-term debt. The average maturity of our debt has gone from 3.8 years at the end of June to 5.3 years currently. We are also about two-thirds of the way through executing the needed derivatives to rebalance the currency exposure of our long-term debt to a 50-50 mix between the U.S. dollar and the Brazilian real. Looking at how we managed our debt and cash flows, on Slide 12. As expected, our net debt to adjusted EBITDA ratio rose to 4.7 times as of September 30 due to the decrease in our trailing 12-month EBITDA. In fact, since we generated positive cash flows in the quarter, we reduced our net debt by $20 million versus the end of the second quarter. Although we expect this leverage ratio to rise to a high single-digit at the end of 2020, which should improve significantly over the course of 2021, primarily because next year's EBITDA should be materially higher versus this year. By the end of 2021, we expect our net debt-to-EBITDA ratio to approach the high end of our comfort range of 2 to 2.5 times. Turning to our capital allocation on Slide 13. We spent $12.3 million on capital expenditures in the third quarter. Through September, we invested almost $65 million in capital expenditures, including a limited number of openings and modernizations compared with our original plan. As you have heard from Luis, we also continued investing in the digital transformation of our company. With better cash flow generation and in order to take advantage of opportunities in the marketplace, we now expect our total capital expenditures to be around $100 million this year versus our previous guidance of $80 million. As we mentioned on our previous call, we expect to close around 60 of our existing restaurants to focus the company's resources on the most profitable markets and restaurant formats. I am optimistic about the future, and we are already working on a well-developed pipeline of new restaurant openings and modernizations for 2021. Back to you, Marcelo.

Thanks, Mariano. Before we talk about expectations for next year, let's turn to our ESG framework on Slide 14. On prior calls, you heard me talk about our Receta del Futuro or Recipe for the Future. I am pleased to report that we just released our sixth annual social impact and sustainable development report, detailing the progress we are making against our 5 pillars of sustainable sourcing, climate change, packaging and recycling, youth opportunity, and commitment to families. Importantly, this year's report was prepared in line with both global reporting initiative and sustainability accounting standards board guidelines. Today, I want to briefly highlight recent developments in 3 of our ESG pillars. In commitment to families, we have constantly enhanced the nutritional value and quality of our products, with the most recent step being the elimination of artificial colors and flavors from some of our most popular products with our clean label initiative. Youth opportunity is important for Arcos Dorados and for the communities in which we operate. Each year, we hold the Gran Dia, or big day, donating the day's Big Mac sales proceeds to our partner NGOs. Last year, we donated more than $5 million, and this year started strongly with the Gran Dia in Chile. Incredibly, despite holding a most virtual event, Chile's Gran Dia raised more money this year than last year. Packaging and recycling is a growing area of opportunity to make a positive impact. In Costa Rica, we recently continued eliminating single-use plastics from our packaging, removing more than 16 million units from our restaurants. As a company, we eliminated 600 tons of single-use plastic in 2018, another 700 tons in 2019, and we expect to eliminate another 300 tons this year. The most powerful part of these initiatives is that 1600 tons of plastic items per year will never return to our restaurants. Do not hesitate to reach out to our IR team or visit our website for more details on our Receta del Futuro. I will conclude with Slide 15 and some very preliminary thoughts on next year. With what we know today, we expect consumers to remain cautious when eating out. They will be concerned about their health and safety, as Luis already mentioned, and we also expect them to be financially constrained as a result of the pandemic's impact on wages and unemployment. This is why our leadership in the digital space will be so important to ensure that we are attracting our guests with compelling and personalized value offerings as we continue the journey from mass marketing to mass personalization. It is too early to provide a specific number for new restaurants, but we have a robust pipeline of locations already under development to support our restaurant opening and modernization plans for next year, which will focus on free-standing locations. We also believe that a reduced competitor set, combined with the best restaurant footprint in the region, will generate significant opportunities for organic growth. We fully expect to consolidate the market share gains we have made this year as well as benefit from the shift to more drive-thru and delivery volumes. Once we conclude our planning process in the next several weeks, we will have more visibility on what to expect next year. Based on that, we plan to provide you with a more formal outlook prior to our next earnings call.

Operator, please open the call to questions.

I have a couple of questions, if I may. To start here, it will be interesting to get a glance on how same-store sales is performing in October and November by region, if possible. Also on sales, how is in dining performing throughout all regions, given the lower restrictions that we're now seeing? And on the margin side, I think it was a pleasant surprise to see margins in Brazil and Caribbean at close to 11%. But when we look at 2021, we see likely higher COGs, less financial aid from the government, and likely lower disposable income. So my questions are, two, what to expect for next year? And what initiatives are you working with to cope with this headwind? And lastly, if I may, also—sorry for the long questions here, how has evolved your talks with McDonald's in regards to your expansion plan? So any update on timing and size?

Okay, Ian. I will try to cover as much of your question as possible, and obviously, Mariano will help me with that. So let's start with the first part, the same-store sales, and let me say that we are very pleased with the improving trends of comparable sales in the recent months, and particularly in the recent weeks. As we mentioned in our opening remarks, October comparable sales rose to more than 90% of the prior year period. So that's a sequential improvement when compared with the last month of the third quarter. And in terms of the different regions, I would say that the Caribbean division continued to lead the way. Particularly in October, we generated in the Caribbean division, double-digit positive comps. So very strong results and a very important contributor to our results, given the fact that, as you know, there, we have many markets that produce results in hard currencies, which are very important for the company. The other divisions also continued generating sequential improvements last month, and we are very excited with November figures. November continues to see improving trends. We are pleased with the performance of each division, each of them in a different context in terms of the operating conditions and government restrictions. But I would say that good news is coming from the sales part of the business. In terms of on-premise dining, I would say that the main challenges remain in the malls. Even though many malls have reopened, we are still facing some restrictions in terms of hours of operations in malls. So obviously, there is a recovery in on-premise sales in all the restaurants that are allowed to operate their dining rooms. But particularly in shopping malls, we are facing some challenges, additional challenges given the fact that, as I mentioned, there are still some restrictions, particularly there are still closed food courts in different shopping malls, and there are restrictions in terms of hours of operations. I will talk a little bit about 2021. And as I mentioned during the call, we do not have all the answers yet, but we are advancing in our 2021 planning process. And as we mentioned, we expect to provide you with some visibility on what we plan ahead before our next earnings call. This is obviously or has been a unique period in history. So we are focused on our plans for 2021, which is also how we are managing the planning process with McDonald's. In other words, for now, we are managing our openings and reinvestments plan on a year-by-year basis. As we look ahead, we have a robust pipeline of openings that will support our future growth in line with market conditions. So I expect in the coming weeks and months to go back to you and the rest of you and give some color in terms of what to expect in 2021. And conversations with McDonald's are constant. And I think that we are pretty aligned in terms of the opportunities that we still have for the brand in the different markets, and we are very enthusiastic, building on the strengths and the market share wins that we already had this year. In terms of margins and challenges for 2021, obviously, there are a lot of challenges. But I think that we are very pleased with the way we are managing the business right now and the way that we are keeping our margins growing month after month, quarter after quarter. Just as an example, maybe the main area of costs in our P&L, food and paper, if you take a look to our food and paper as a percentage of revenue in the third quarter, it improved by 30 basis points and is basically flat for the whole year, for the first 9 months of the year, despite full inflation above CPI in many of our markets, particularly in Brazil. As you know, there are some pressure coming from protein costs—protein cost pressures are a reality that the entire food industry is facing. So not just us, not just QSR or restaurants in general, but also groceries. But in that kind of scenario, given our scale, and our ability and skills of negotiation, I'm convinced that we are in a much better position than anyone else in the markets to deal with these kinds of pressures. We have in place a full strategy team at the corporate level, and we have many management teams at the market levels, but our focus more than ever is in managing the menu—what we sell, how we sell our menu or products, and improving our gross margin. They are working on all the levers related with gross margin. It's not only cost; it's about prices, promotions, leveraging our digital capabilities to offer a segmented offer and different offers for these different customers. So we will work hard to manage this effectively in 2021 through a combination of pricing mix, inventory management, supplier negotiations, etc. So I think we are in a very good position to continue building on the strength we have this year and improving margins in the coming months. I think that I covered most of it. I don't know if there's something missed, but thanks for the question, Ian.

I have a quick one. Just this Monday, McDonald's Corporation hosted its Investor Day, and the overarching theme of the event was accelerated investments to drive growth. So I just would like to hear from you what that so-called accelerating the art strategy from the company could mean for Arcos going forward?

Thanks for the question, Marcella. I would say that, obviously, there are opportunities for the McDonald's brand in different areas of the world in different regions. We are seeing those kinds of opportunities in our region. But as I mentioned before, we still do not have all the details on our plan for next year. I would say that we continue to see opportunities in improving our restaurant portfolio base. We have a very strong competitive advantage in our footprint. It was pretty clear this year how important our base of free-standing units across the region is. And we were, as you may recall, in the process of converting or modernizing many of those restaurants to the EOTF concept. I think that you will continue to see some of those kinds of investments going forward, leveraging, again, all the learnings and all the success that we had during this year. In terms of new units, we will have some additional news, some more details in the coming weeks, but we do see opportunities for the brand in different markets. Part of the announcements that the McDonald's team made this week on Monday was around the different formats—restaurant formats that they were taking a look at. So for example, they talked about McDonald's on-the-go restaurants, which are supposed to be restaurants that will have very small or no dining rooms and will be focused on operating delivery and drive-thru. So we will be monitoring the performance of these new concepts to determine which ones are appropriate for our region. And as always, leverage all the research and development that the McDonald's system does in other areas of the world. So we will take a close look at that in order to see what we can learn and leverage in this area. As always, we are very aligned with McDonald's strategy globally in general.

Marcelo, what are you seeing in terms of mom-and-pop and smaller chain bankruptcy across your major markets? And how big of a market share opportunity do you anticipate?

Okay. Bob, nice to have you on the call. Yes, after the different periods in the different markets of shutdown or closure periods as a consequence of the restrictions imposed by governments, we saw many mom-and-pop and small chain restaurants that didn't reopen. It varies from market to market, from city to city, but definitely, there are some players, fewer players in the market. So that's a reality, and it's across the region. In that scenario, based on our figures for Q2 and Q3, as you know, we measure and track market share using a variety of sources that we try to triangulate to identify trends and areas of opportunity, which includes our own research, third-party sources, and comparative growth rates. All of these sources indicate that we have been gaining market share big time across the region. So we are growing either faster or at the expense of our direct competitors and/or other restaurant formats. Typically, those formats that you mentioned—dine-in, mom-and-pop, or small chain restaurants—are the ones that suffer the most. So we gained a lot of share, and we have a very strong plan basically around our Three D's—digital, delivery, and drive-thru—in order to keep those gains going forward, and we are very optimistic in that sense. So we are in a pretty good position to keep this leadership growing going forward.

And Marcelo, in your earlier comments, you also mentioned safety, right? Food safety has been, I think, a big differentiator for a long time. But now with COVID risk and transmission risk, it's even greater, right? Do you have a sense of how important that safety consideration is and how it ranks versus other factors like price or experience or speed in a market like Brazil?

Yes, Bob. Yes, absolutely. It continues to be the first or between the first 2 variables that customers consider at the moment of deciding where to eat out of home. So it continues to be a huge priority for our customers. And that's why our McProtegidos or McSafe program was so important at the very beginning. But what we saw after all these months of leading with the pandemic in the region is that many of the improvements we did in terms of safety and all the recognition we got from all these efforts translated to other areas of the brand, to other attributes of the brand. I would say that all the attributes we measure in our own research, which is the same that McDonald's does around the world, all the attributes improved quarter-after-quarter, month-after-month, in almost all the markets. I think that how seriously we took the McProtegidos or McSafe program, all the recognition we received from our customers, from our employees—which is very important—and from government authorities—all that kind of feedback we received from these stakeholders translated to the whole community. And that's why the brand trust results that we are having in recent months are at the highest level in many, many years. I think that hygiene and food safety has a lot to do with that. That's why for us, it will continue to be a priority, the execution of this McProtegidos or McSafe program, because it is very important. We understand that it will continue to be very important for the customers in their decision-making about where to have their meals out of home.

And ladies and gentlemen, I'm showing no further questions. I would now like to turn the conference call back over for any closing remarks.

Okay. Thank you. Thank you very much. And thank you, everyone, for joining our call today and for your questions. I wish you all a happy holiday season and look forward to speaking with you again, once we can provide you with more details on our plans for 2021. So please stay safe, and have a great day.

Ladies and gentlemen, with that we'll conclude today's conference call. We do thank you for attending. You may now disconnect your lines.