Arcos Dorados Holdings Inc (ARCO) 2015 Q2 法說會逐字稿

Good morning, and welcome to the Arcos Dorados second quarter 2015 earnings call.

A slide presentation accompanying today's webcast which will also be available in the "Investor" section of the Company's website, www.arcosdorados.com/ir.

(Operator Instructions)

Today's conference call is being recorded.

At this time, I would like to turn the call over to Daniel Schleiniger, Director of Investor Relations. Please go ahead, sir.

Thank you and good morning, everyone. Thank you for joining us today.

With me on today's call are Woods Staton, our Chairman and Chief Executive Officer; Sergio Alonso, our Chief Operating Officer; and Jose Carlos Alcantara, our Chief Financial Officer.

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 on the press release filed with the SEC on Form 6-K.

I would now like to turn the call over to Chairman Woods Staton.

Thank you, Dan. Hello, everyone, and thank you for joining us today.

Before I turn to our second quarter results, let me say a few words about another topic. As many of you know, I've spoken for a long time in the past about passing my CEO duties to a younger person once I turn 65, which means that I'm eight months late in making this announcement.

This morning, we announce the appointment of Sergio Alonso, my friend and long-term colleague, as the next CEO of Arcos Dorados. Sergio has a proven track record of success, and I am confident that he is the right person to lead our Company in the future.

We have worked side by side for almost 30 years in the McDonald's system, and he participated in every step of the development of our long-term strategic plan that we announced earlier this year. As such, this leadership change is really the evolution of our business strategy, and I expect a seamless handover of the day-to-day management of the Company to Sergio.

I will remain as Executive Chairman to help guide the long-term success of the business and support Sergio in any way he may find useful.

This morning, we also announce that Marcelo Rabach will replace Sergio as COO of Arcos Dorados. Marcelo joined the McDonald's system 25 years ago and quickly rose from the ranks of crew member to senior leadership positions spanning all four geographies within our Company.

Marcelo is currently the president of North Latin America division, but in each of his positions he has built a reputation for instilling and driving operational excellence and results. I am confident that his knowledge of McDonald's system and proven leadership skills will serve him and our Company very well.

These changes in our management team will become effective October 1.

Turning to our second quarter results, on slide 3, we continued making headway on our long-term strategic plan which aims to enhance shareholder value through increased profitability, improved cash flow generation, and the prudent allocation of capital.

Our three-year road map begins with steps to increase restaurant-level margins and reduce our G&A expenses in US dollar terms. I am pleased to report continued progress on these goals during the second quarter.

In addition, we are making strides on our asset monetization plans that will unlock the value of certain of our real estate assets and will serve to reduce our debt.

We are facing political uncertainty, slowing economic growth, softer consumer spending, and elevated currency devaluations in all of our important markets. In this context, we achieved organic revenue growth of 10%, backed by an 8.5% expansion in system-wide comparable sales.

We were able to leverage the strength of the McDonald's brand in our marketing initiatives, building on the family experience at our restaurants as well as McDonald's iconic menu items. We also continue to support customer traffic levels through a period of weaker economic growth, with more affordable dining options in our value platform.

Although top line growth will likely remain challenging, we are on our way to delivering the store-level and consolidated margin expansions that we have promised. During the second quarter, each of our divisions achieved margin expansion, and our consolidated EBITDA margin reflected these improvements.

In Brazil, we are about halfway through the implementation process of our new forecasting and scheduling system. I can tell you that in the stores that are already using the new system, we are seeing significant increases in restaurant-level margins.

The rollout in Brazil is proceeding ahead of schedule, and we expect it to be fully implemented by the end of October. By the middle of next year we should also be fully implemented with the technology in Argentina, our second biggest market. Thereafter, we plan to implement the system in all of our countries by the end of 2017.

So far this year, we have reduced our G&A by 7.9% in US dollar terms, and we are continuing to scrutinize all aspects of our cost structure to further streamline our business. We remain committed to cutting G&A by at least 10% in US dollar terms over the next three years.

Another part of our strategy is the monetization of some of our operating and non-core real estate assets. We recently updated the appraisal of some of these assets in a number of our key markets. Because some of the restaurants are defined as iconic locations, we requested and have been granted consent from McDonald's Corporation to proceed with redeveloping these sites included in our plan.

But let me be clear. We are not pursuing a large number of sale-leaseback transactions or significant sale of core real estate assets. Instead, our plan is based on monetizing the value of some of our restaurant properties by working with developers who will build a commercial building that optimizes the real estate footprint. Although this will likely require temporary closings of some of our restaurants, most will be reopened once the new building is complete.

Importantly, we will retain ownership of the restaurant space, and in many cases we believe that the new location will benefit from increased traffic from the redeveloped commercial building. A handful of these restaurants will be relocated to more appropriate sites.

We also expect to generate a portion of the proceeds via a sale or lease or sale-leaseback of some of our non-core real estate assets, such as office buildings and distribution centers.

We have advanced our conversations with developers and are now in discussions with bankers to aid us in the redevelopment and sale process.

In addition, we are moving forward with the disposition of some non-core assets, and I am confident that these will generate significant proceeds. Based on the projects that are currently under evaluation, we believe we are on track to achieve our target of raising at least $200 million by the end of 2017, without materially impacting EBITDA.

In terms of our refranchising plan, we have commenced negotiations with some of our sub-franchisees in Brazil, which is where we see the greatest opportunity. We are currently on course to raise $50 million by the end of 2017.

Consistent with our long-term strategy to improve the profitability of the existing restaurant base and given the challenging operating environment in many of our markets, we have reviewed our short-term capital expenditure plan. Accordingly, we are revising our 2015 full-year guidance for restaurant openings to approximately 30 restaurants.

We continue to expect capital expenditures to be in a range of $90 million to $120 million. However, we are shifting some of these investments to re-imaging and systems upgrades at the restaurant level to further improve operating efficiencies and provide a modern and progressive restaurant experience to our guests.

In keeping with our revised near-term growth expectations and in accordance to the political and economic environment we are in, we have reached an agreement with McDonald's to reduce the number of restaurants to be opened in the 2014 to 2016 period. We will now open a minimum of 150 new restaurants over the three-year period, down from the 250 new restaurants previously announced.

However, as we are focused on continued investment in our existing restaurant base, our reinvestment plan for the three-year period remains unchanged, at $180 million. In the process of rolling out our forecasting and scheduling technology and investing in indirect procurement, we have identified opportunities to make investments that will further improve operating efficiencies at the restaurant level.

Despite current market conditions, I remain confident that the measures we are taking to improve our performance and financial position will result in higher shareholder value and an acceleration in this momentum with a macroeconomic environment recovery.

With that, I will now turn the call over to Sergio for a more detailed look at our second quarter performance.

Thank you, Woods, and hello, everyone.

First, let me say that I'm honored and excited to have been appointed CEO of Arcos Dorados. I am committed to delivering on our three-year plan, and I'm confident in the power of the McDonald's brand in Latin America.

Now, let me turn to our results for the second quarter. On a consolidated basis, organic revenues excluding Venezuela increased 7.7% in the second quarter, while as-reported revenues declined 12.8%, mainly due to the depreciation of the Brazilian real. System-wide comparable sales expanded 4.9% due to average check growth, partially offset by a decline in comparable traffic of less than 1%.

Turning to slide 4, Brazil's revenues were once again impacted by the significant depreciation of the Brazilian currency, which more than offset a low-single-digit increase in comparable sales and the contribution of the new restaurant openings.

Reported revenues decreased by 23.6%, due to the 37.7% year-over-year average depreciation of the real. Excluding the currency impact, organic revenues rose 5.3%.

System-wide comparable sales increased by 1.9%, supported by average check growth and slightly positive traffic.

While the consumption environment in Brazil remains weak, traffic levels benefited from a favorable year-over-year comparison in the second half of June, due to the FIFA World Cup last year.

And promotional activities with a strong track record such as the Monopoly promotion and the Super, Mega, and Grand Big Mac campaign also supported traffic trends. Finally, the launch of the successful Minions campaign in the Happy Meal, which reaffirms our focus on the family business, helped mitigate the soft consumer environment in the country.

One thing that I would like to note is that over 40% of our restaurant base in Brazil comprises freestanding restaurants. This concentration of freestanding units in our portfolio is a key point of strength to Arcos Dorados, given the economic downturn has led to high vacancy rates, low foot traffic, and declining sales at many shopping malls.

During the last-12-months period, we continued to prioritize the construction of freestanding units, with over 60% of the net 47 new restaurants added taking this format. These restaurants contributed $18.8 million to revenue on a constant currency basis.

As Woods mentioned, we're seeing positive early results from the rollout of the new forecasting and scheduling system in Brazil. More than 300 restaurants in the country are now using this technology, and we are starting to capture some of the expected margin gains in these same restaurants.

On slide 5, you can see that NOLAD's revenue increased 2.2% year over year on an organic basis.

System-wide comparable sales were broadly flat, as average check growth was offset by a decline in traffic.

Reported revenues decreased by 5.6%, mainly due to the 18% year-over-year average depreciation of the Mexican peso.

The net addition of two restaurants during the last 12 months contributed $2.2 million to revenue in constant currency.

We have almost finished the rollout of our new menu platform in Mexico, called McMio, or McMine in English, which enables customers to create their own personalized menu combinations within three pricing tiers.

Now, please turn to slide 6. SLAD's revenues increased by 8.6%, or 20.7% in organic terms, versus the prior-year quarter.

System-wide comparable sales increased 21%, mainly driven by average check growth.

Similar to the successful Monopoly promotion in Brazil, the Billetazos promotion helped to keep the traffic level relative stable in the division, despite an increasingly challenging economic environment.

And the net addition of five restaurants during the last 12 months contributed $1.4 million to revenues in constant currency.

Now, turning to Caribbean division results on slide 7, revenues excluding Venezuela decreased by 13.8% versus the prior-year period, mainly due to the depreciation of the Colombian peso and the euro, which is used in several Caribbean markets. Organic revenues declined 2.1% due to the ongoing tough macroeconomic and political environment in Puerto Rico.

And comparable sales decreased by 4.3%, largely due to traffic declines also in Puerto Rican market.

We are focused on long-term profitable growth and offering well-located and inviting restaurants to our guests. And as part of this strategy, we closed 10 underperforming restaurants, against one opening in the Caribbean division over the last 12 months, including Venezuela. The combined contribution to constant currencies revenues of the restaurants that were closed and opened was [nearly] $600,000.

Turning to slide 8, on a consolidated basis 72 new restaurant openings were completed in the 12 months to June 30, resulting in a total of 2,120 restaurants. Just under half of this portfolio comprises freestanding units. And also in the period, we added almost 230 Dessert Centers and around 10 new McCafes, bringing the totals to over 2,500 and 330, respectively.

We believe that we have the appropriate marketing strategy in place to leverage our dominant market position. We also expect to improve our operating margins at a time when consumer spending is expected to come under additional pressure.

And as Woods mentioned, our strategy is to put families first, and I'm pleased to see we are gaining traction in our Happy Meal sales, not only due to strong campaigns of Minions but also because of a greater variety of side options such as the Danino yoghurt. And because a Happy Meal purchasing typically brings both adults and children into our stores, traction here benefits purchases across the entire menu.

I will now hand the call over to Jose Carlos for a discussion of our adjusted EBITDA and key balance sheet metrics.

Thank you, Sergio. As Woods mentioned in his opening remarks, we made solid progress in the quarter on the two key operating elements of our strategic plan to improve profitability: namely, margin expansion at both the divisional and the consolidated level, as well as an absolute reduction in our total G&A expenses.

We are committed to streamlining our business through targeted cost reductions and are pleased to be showing concrete results for these efforts six months into our three-year plan.

Before I speak to those achievements in more detail, let me first run you through our EBITDA performance. If you'll turn to slide 9, you can see that reported adjusted EBITDA for the second quarter decreased 2.2%, due to currency impacts primarily in Brazil, Venezuela, and Argentina which more than offset organic growth achieved in each of the operating divisions.

Excluding Venezuela, as-reported adjusted EBITDA contracted 24.5%, but increased 9.8% in organic terms.

For the quarter, labor-related and food and paper costs all declined slightly year over year as a percentage of sales. These cost reductions more than offset an increase in G&A as a percentage of sales, resulting in over 80 basis points of adjusted EBITDA margin expansion, to 5.4%.

This improvement was also supported by margin expansion at the operating division level, as well as the non-recurrence of inventory write-downs recorded in the second quarter of 2014 related to the revaluation of the currency in Venezuela.

Importantly, the pickup in the underlying profitability of the Company was achieved despite the deterioration in the operating environment and some margin pressure from a shift to a less favorable product mix.

As-reported G&A expenses declined 12.6%, or $9.7 million, year over year. Looking ahead, we expect to achieve further incremental reductions in G&A in the second half of the year as we continue to scrutinize all areas across the organization.

Turning to our divisional results, in slide 10, we achieved adjusted EBITDA margin expansion in each of our divisions in this quarter. In Brazil, the adjusted EBITDA margin gained over 60 basis points, to 12.7%. NOLAD's adjusted EBITDA margin rose almost 270 basis points, to 8.8%. SLAD's adjusted EBITDA margin expanded 90 basis points, to 10.1%. And excluding Venezuela, the Caribbean division's adjusted EBITDA margin increased by 120 basis points, to 4.8%.

The significant margin expansion in each of the divisions is a reflection of improvements at the operating level and speaks to the focus of our management team on our restaurant operation.

Turning to slide 11, second quarter non-operating results reflected a non-cash $3.7 million foreign currency exchange gain, primarily due to the modest depreciation of the Brazilian real versus the prior quarter-end rate. This compares with a $35.5 million loss in the second quarter of 2014, which included the impacts of the adoption of a weaker exchange rate for reporting purposes in Venezuela.

Net interest expense declined $2 million, to $16.9 million, in the quarter.

Second quarter net income was $7 million, compared to a loss of $99 million in the same period of 2014, which was primarily due to the transition to a weaker foreign exchange rate in Venezuela during the second quarter of 2014.

Slide 12 contains our debt indicators. As of June 30, our net debt to adjusted EBITDA ratio was 2.8-times, which is in line with the prior quarter. While the ratio will likely fluctuate in line with intra-year seasonalities in our cash flows, by the end of 2016 we expect to bring the ratio back within our target range of 2- to 2.5-times.

As you know, the terms of the MFA established that we must comply with fixed charge coverage ratio as well as a lease-adjusted leverage ratio. As of June 30, 2015, we were not in compliance with these ratios. However, McDonald's has waived our obligation to complying with these ratios through and including December 31, 2015.

Primarily by improving our operating cash flows, temporarily reducing capital expenditures versus prior-year levels, and monetizing some of our real estate assets, we expect to bring all of our leverage indicators back within our target ranges, while maintaining a balance in the currency exposure of our long-term debt.

Moving to slide 13, as Woods mentioned, we are revising our openings guidance to around 30 new restaurants this year, while maintaining our CapEx guidance in the $90 million to $120 million range. We will be shifting a greater portion of our investments to our existing restaurant base. This will include continued re-imaging of our older restaurants and the implementation of additional restaurant-level system upgrades.

In summary, we are prioritizing investments that are upgrade our existing restaurants on both sides of the counter, and we are taking targeted steps to reduce our total G&A. I believe that these initiatives, combined with a systematic approach to monetizing some of our real estate assets and the important task of reducing our total debt, will return our Company to a better financial position.

I will now hand the call back to Woods.

Thank you, Jose Carlos. As we said before, the short-term outlook of our region and our Company is challenging and we do not foresee an acceleration in consumer activity in the short term. However,

our unique business model -- which comprises talented employees, outstanding suppliers, and dedicated operators -- is a reason McDonald's remains a preferred QSR restaurant in Latin America, with the highest top-of-mind brand recognition across our markets.

I am very proud of the efforts of our more than 95,000 employees to strengthen the long-term fundamentals of our business and win the loyalty of over 4 million guests that pass through our doors every day.

The margin improvements that you are seeing in each of our divisions are the first steps toward delivering on our three-year road map. I want to assure you that we are working every day to achieving these goals because, like all of our shareholders, I am anxious to see the positive results of this plan.

We are implementing the necessary systems and processes that will build on margin improvements, and we'll continue reviewing our structure to identify and capitalize on additional G&A savings opportunities. Finally, soon we also expect to have some news on real estate asset monetization plans now that much of our homework is done.

With our dominant position as a leading QSR player in the region and our three-year plan well underway, we will weather the current economic downturn while preparing our Company to capitalize on the next cycle of economic growth in the region.

Thank you for your attention. I will now open the call up to questions.

(Operator Instructions) In order to allow all listeners to participate, please limit yourself to one question and one follow-up question.

Robert Ford, Merrill Lynch.

Congratulations on the progress. You made some very impressive strides in G&A, payroll occupancy, and other expenses. And I was hoping you could give us some examples in terms of how you're achieving that and what you're doing to maintain service levels in the stores? One thing Jose also made mention of opportunities you see to further trim the cost structure, and I was hoping you could provide some examples of the opportunities you see, going forward, please?

Let me first start with it, and I'll pass you to Sergio for more color.

But for instance, in the case of what we're doing in Brazil, and which is the base for the rest of our Company, the new scheduling system we are using is really great because it puts the right people, the right amount of people, in the right positions at the right time. And it works on 15-minute increments. So, that's very good for the store. It uses mathematics that are very, very precise.

So, what we're getting is we're getting huge increases in productivity, but also not at the expense -- and that's the most important part -- not at the expense of consumers. So, our consumer satisfaction opportunity scores are maintaining themselves or even getting better.

And then, also, one of the things that that does is because it is such a great projection system, our working capital needs are being monitored on a much more careful basis.

Let me just pass you to Sergio then, so he can follow up on this.

Sure, Woods. Maybe a couple of comments that would add some color to your answer, Woods. I would say that, to begin with, all the efforts that we're doing at the restaurant level to get additional margin leverage, they actually started last year. These are not new actions that we're taking for this quarter, not even last quarter.

You know we have a large employee base, large restaurant base. So, any action plan that we put in place takes time to start showing the benefits, and that is the case that we're seeing these days. And we obviously expect these improvements to continue.

We obviously focus on the structures at both crew and management level at the restaurants. We also focus on the [outsourced] services that we have in every single market. And we're starting to win the results.

We also, in spite of having to emphasize all the affordability categories in our markets in order to protect traffic and try to weather this situation, it's also real that through menu simplification and through the optimization, as I said, of the affordability platforms that we have, we are gaining also ground in the gross margin and food and paper area as well.

So, I believe -- my personal opinion is that the good news is we are not getting the benefits just on one single line. It's a combination of decisions, a combination of results that we're getting all through the different lines in our P&L. And as I said before, this will continue down the road.

Good for you. And just one follow-up, and that is with respect to the hedges. You've done a phenomenal job in terms of the currency hedges, and I would expect there's some long-term supply contracts that are also beneficial. Can you give us a sense of when those are due to roll over and what kind of terms you expect to roll those into

and the pricing power that you may have to maybe offset some of those additional pressures?

Let me pass you to Jose Carlos, Bob, for that answer.

As you alluded to, I think we've done a good job hedging our exposure this year. We fully hedge in Brazil, as we mentioned before. I think we recently expanded our coverage in Colombia, which is also seeing some depreciation of the currency.

Moving forward, for 2016, we're obviously monitoring the currency situation. It's very volatile right now. We're evaluating the cost and the benefit of hedging for 2016, and we'll probably have some news in the next call or the following call, as we prepare for the plan next year.

But again, it's still a very volatile market, difficult to assess the cost and the benefits that we can obtain from hedging next year, 2016.

Jeronimo De Guzman, Morgan Stanley.

Congratulations on the new role, Sergio and everyone else. I wanted to ask a follow-up on the margin side, because it seems like again this quarter you had very strong margins in the restaurant operations based on what you just discussed, but the corporate expenses continue to be under pressure. If I convert them to pesos to try to get kind of the local currency growth, I'm still getting some pretty big increases: 38% year on year in pesos, 27% quarter on quarter.

So, I just wanted to understand what is driving this increase in the corporate expenses? And is there anything that's being allocated to the corporate that wasn't maybe? And also, where do you think you can get efficiencies in these expenses so that you don't lose all the efficiency gains at the divisional level?

Let me pass you to Jose Carlos.

As we mentioned I think in last quarter call, a couple of impacts that are going through our corporate expense. We're seeing the inflation/devaluation differential impact in Argentina, as you alluded to.

We're also, as we mentioned, investing in more system-wide upgrades. This is a little bit of an update that we're giving. Aside from the scheduling and forecasting model that we've alluded to, we're also looking at indirect procurement and we're looking at other system upgrades at the restaurant level. So, that's also pressuring a little bit of our corporate costs, as we have consulting fees that we're using to support us in these evaluation and the definition of this project.

And additionally, also we've seen some IT expenses that were one-offs, that were timing more than anything, that we shouldn't be seeing going forward, that were renewal of licenses.

So, that's basically what we're doing. As we said, we continue to scrutinize G&A, and we're looking at corporate level G&A and we're going to be doing that in the next foreseeable future.

And do you think --? That's helpful. And in the second half, do you think you can already start having some of these consulting or non-recurring expenses rolling off? Or, do you think the pressure can continue in the next couple of quarters?

This will continue in the next couple of quarters, Jeronimo. This is going to be -- we're going to be embarking on a medium- to long-term project, again, of upgrading our systems, aside from the scheduling and laboring system.

Martha Shelton, Itau.

I have a question regarding the management changes that were just announced. I guess the question is to Woods. How are you seeing your role as the Chairman? I've always understood that you've been very involved in the day-to-day operations of the restaurants and having a big-picture strategic overview of how restaurants are operating and in different markets. So, how should we expect to see your role evolve, not that you're moving up to the Chairman of the Board position?

Well, basically, I will not be involved in the day-to-day management of the Company. My job will be to support Sergio in any way that he might deem and the Board might deem. But I'm not leaving Arcos Dorados. I am a major shareholder of the Company, and I will continue as Chairman of the Board.

So, I think we have a lot of long-term strategic issues that we're looking at in the Company. I'll be working on that, with government relations, for instance, and with external communications.

But as you said, the day-to-day managing of this business and the operational leaps forward and these margin improvements will be basically in the hands of Sergio and his team.

Great.

John Ivankoe, J.P. Morgan.

I was wondering if we could talk about maybe what, Woods -- and it's a perfect segue to what you just said -- the long-term view on Venezuela? And if there's anything from a government relations or public relations point of view that Arcos feels that it can do to stabilize profits in the market? And if my calculation was right, it's 134, or so, stores which has negative EBITDA. So, it's a type of question is, does it make sense to close them? Or, given the size of that revenue base, could that EBITDA materially turn around in the near term?

Your question is a very good question. The Venezuelan operators that we have are facing very, very challenging economic and a very challenging consumer environment. None of our assets have been expropriated. And importantly, at the SIMADI FX rate, our Venezuelan operations today account for a very small portion of the consolidated numbers. So, that's good.

And also, don't forget that Venezuela is essentially [internally a] sustainable market, and we do not and have not been injecting any material amounts of cash into the country.

So, right now, our local team is focused on maintaining consumer satisfaction. We are maintaining, to your point, relations that are good with government officials, and we work with them all the time.

We're a big employer of young people. We're not a strategic company. I think consumers in Venezuela like us. Some of the best metrics of the McDonald's system as far as the brand is concerned in Latin America have to do with that country.

So, I think we're overall liked. We're doing all we can to maintain good relations with everybody. We have an extremely good base of franchisees that work every day, day-in and day-out, on helping us through all this.

So, it's a difficult situation to ascertain, and I think it's very difficult for most companies. And we are just on a day-to-day basis monitoring that situation and doing as best we can. As you know, we don't have any more French fries. We don't have arepa. And it seems to be doing well.

So, people still like us and we continue to be there. So, that's that.

Okay. Understood. And then, secondly and a separate question, regarding the labor scheduling in Brazil, my perception has been that many stores even after some of the traffic declines are still very much capacity constrained right around the lunch hour. But, I guess, say whether that's true or not?

And then, secondly, whether labor scheduling as you have defined it means you take labor hours out of certain productive hours throughout the day and you actually add more hours in periods like lunch, so that it actually may allow you to serve more customers where there is that obvious demand, given the lines that I've seen in many of your Brazilian operation stores?

Another very good question. What the programming does, this Kronos does, is that it puts people where we have customers and guests. So, what we're finding is that we in the past were not doing as great a job scheduling as we could have. Now, we're doing a much better job. We're putting more people when we have guests, taking away crew when we don't have the guests.

The overall result is better customer satisfaction at a higher productivity rate. So, in some of our stores, to your point, we are capacity constrained, which is -- that's a good problem. We have to figure our way around that.

But this system is really, really good, and it's helping our managers to manage the stores much better.

And Sergio, why don't you --?

I believe you said it well. Keep in mind that it forecasts sales every 15-minute period. So, that gives us a lot of accuracy in terms of how many crew do we need in each one of the shifts to capture the biggest opportunities.

You said it well, John. In some cases, we need less people than the one we were scheduling. Some other cases, we need more. And that is where the system is helping us big time.

(Operator Instructions) Robert -- I'm so sorry; I can't pronounce your name -- from Burnham.

I want to commend you on your press release. It has some additional detail that you hadn't provided in the past, and I noticed a lot of little things, and I think it's good stuff.

I have two questions. I feel that your conversion of assets to cash may be moving a little slower than you expected, and I'm looking -- I'm just wondering when we're going to get a lot more information on these various restaurant conversions? Or, is that just something that takes time?

This is -- you're talking about multimillion-dollar things, pieces of real estate. And as I mentioned in the call, we're going to continue to own those restaurants, and we're going to continue to operate McDonald's stores there.

So, it's complicated in the sense that when you talk to the developer, you have to make sure that his needs or their needs are satisfied, as well as your needs. So, in many cases, we have to have certain signage. We have to have certain design things for the store. And so, that's a process which is a little bit complicated.

So, I think obviously we always want it to work faster than we are, but I wouldn't say that we're all that far behind. And I think -- I would hope that by the time next six months, maybe, we can have some more, better news on this subject.

Thank you. My second question, you mention this continuing challenging environment. We continue to read adverse news about what's going on in Brazil. And I wonder if you would comment on the overall environment in Brazil?

Bob, I'll start and then I'll pass it off to Sergio and to Jose so they can add. They've both worked in Brazil.

I think the short term for Brazil is a bit daunting. I think that what's going on in Brazil, however, is very good for the medium and long term of that country. It's a huge country, a huge middle class. It's made a lot of progress.

But I think the political environment today is a bit rarified, and we just have to live with that.

As people worry about their jobs, they go out less. We're not a destination, as a product. We have to pick and -- we get people when they go to the movies or they go out shopping. So, when they reduce that, that obviously hurts us. And I think people in Brazil today are worried.

However, for the medium and long term, I'm very, very bullish on Brazil. I always have been. And I don't think you're going back to the situation in the past where everybody said always that Brazil had a great future, and they were around for 50 years still saying Brazil has a great future.

Brazil IS a great future, and we just have to weather this period right now.

I don't know, Sergio, if you'd like to add? And Jose Carlos?

Maybe to borrow your words, which I believe that Brazil is a great [presence], actually, because we've got a very, very good business there. And obviously, we have plenty of opportunities to capture business opportunities. It's a matter of weathering the actual situation. We know that we may face some additional pressure in the near future.

But the reality is we have a very healthy business there. We have a very strong brand position there. We're fully committed to sustain and protect what we represent in Brazil. We have gone through situations like this in the past, and every time that this happens we emerge stronger than before.

Jose Carlos?

No additional comments.

(Operator Instructions) This concludes our question-and-answer session. I'd now like to turn the conference back over to Mr. Woods Staton for any closing remarks.

Thank you. And thank you, all, for your questions and your attention today. And we look forward to speaking with you again next quarter. In the interim, the team remains available to meet with you and answer any questions that you might have.

And thanks for being with us and enjoy the rest of your day.

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