Arcos Dorados Holdings Inc. (ARCO) on Q3 2021 Results - Earnings Call Transcript
Operator: Good morning, everyone. Thank you for joining our third quarter 2021 earnings webcast. With us today are Marcelo Rabach, our Chief Executive Officer; Luis Raganato, our Chief Operating Officer; and Mariano Tannenbaum, our Chief Financial Officer. Today's webcast, which is being recorded, will consist of prepared remarks from our leadership team, which will be accompanied by a slide presentation, also available in the Investors section of our website, www.arcosdorados.com/ir. As a reminder, to better view the presentation on the webcast platform, we suggest you scroll over the upper left-hand side of the screen and click on the arrows to maximize the slides. After our speakers conclude their opening remarks, we will answer your questions, which you can submit using the chat function on the left-hand side of the screen. You will need to minimize the slides to access the chat function. Before turning the call over to Marcelo, 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 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. As part of today's presentation, Marcelo, Luis and Mariano will take you through the main highlights of our consolidated and divisional results as well as our investments in capital structure for the third quarter of 2021. They will also update you on the achievements and recent commitments we've made related to our recipe for the future of the ESG platform. Marcelo, over to you.
Marcelo Rabach: Thank you, Dan, and thanks to all of you for joining us on today's webcast. The results we are reporting today are among the best ever for the third quarter and demonstrate what is possible with the full revival of . We are very pleased with the trends in the business and believe we are the best positioned restaurant company to capture the opportunity ahead of us, no matter what short-term challenges we may face in the region. But before we get into the specifics of the quarter's results, I want to talk to you about the structural competitive appendages that are now bearing fruit. This starts with the McDonald's brand. Thanks to our long-term strategic approach, brand metrics across Latin America and the Caribbean indicate we are the region's favorite restaurant. We have worked hard to revive and reposition the brand, implementing a variety of strategies to establish this important competitive pillar. One of the most important is the operational excellence that makes Arcos Dorados the strongest restaurant operator in the region. Quality, service and cleanliness are the mantra of our restaurant teams and indeed the entire organization. This was put to the test in March of last year. And our teams stepped up to the challenge. We quickly developed and deployed the Dorados or safe hygiene and food safety protocols to all restaurants, reinforcing our industry benchmark procedures and strengthening trust with our people and guests. We also reinforced the loyalty that our teams already felt to the company by doing everything we could to protect them and their families throughout the period. ESG is part of the DNA of our coveralls, which is why we booked ahead with the recipe for the future ESG platform, continuing to establish a mid tangible commitments to benefit the planet, our people and guests. I will tell you more about these later in today's presentation. Brand operational excellence, and the recipe for the future platform have translated into trust, but we cannot talk about competitive advantages without mentioning Arcos Dorados restaurant portfolio. Yearly capital reached our freestanding units. In fact, we have the most freestanding locations by a wide margin over the nearest competitors in most markets. We see another other structural competitive advantage that cannot be easily replicated and was one of the feast to our ability to adapt, to changing guests preferences over the last six quarters. By leveraging these foundational aspects of the business, we have accelerated both topline performance and profitability by remaining focused on the Three D’s strategy of drive through, delivery and digital. We also operated our supply chain with no material interactions, keeping costs under control with highly localized sourcing and a simplified menu of guest favorites. We are now harvesting the benefits of these competitive advantages as well as the efficiencies we built into the business over the last 18 months. Let's turn now to the third quarter results. Total revenue surpassed $723 million shot 3.2% below the total from the third quarter of 2019, despite the significant currency depreciations of the last two years and the very different sales channel needs. This was backed up by a 16.5% in Greece in two year system wide comparable sales including positive results in all divisions and above the previous blended inflation in three divisions. Importantly, this momentum has continued into the fourth quarter with consolidated two-year compatible safe growth in the high 20s in October. Adjusted EBITDA reached almost $90 million with a margin of 12.4%. This was more than three times the year ago EBITDA in US dollars and up 17.7% versus the third quarter of 2019. The result included a past credit of $6.5 million in Brazil. Excluding the tax credit, the consolidated margin was 11.5% up 130 basis points versus the third quarter of 2019. Almost 40% of the quarter's EBITDA before corporate expenses was generated in countries that operate in hard or relatively stable currencies. Another 48% came from Brazil. Way less than 8% of the quarter's EBITDA was generated in Argentina. Off-premise sales through the drive-through and delivery sales segments remain sticky. US also love choosing their favorite McDonald's menu items through the mobile app, and are now coming back to the modernized experience of the future restaurants that will support future digital innovation. I will now turn it over to Luis for a closer look at our divisional sales performance.
Luis Raganato: Thanks Marcelo. All divisions generated positive two-year comparable sales growth in the third quarter and the three exceeded the blended inflation for the period. This is a testament to the structural competitive advantages that Marcelo just described. We surpassed three pending sales in local currency by liberating the flexibility of the restaurant portfolio to offset the temporary decline in mall stores and the on-premise sales channels. Importantly, we delivered another quarter of increased market share across all divisions building on the gains from 2020. Brazil's two year comparable sales growth turned positive at the end of the quarter, growing mid-single digits in September. Digital sales channels of delivery, mobile app and self-ordering kiosks are very strong in Brazil where they generated 45% of system-wide sales. On premise channels are recovering gradually as mobility improves in the country, leading both mall-based locations and restaurant from counters to see improved traffic. In fact, October two-year comparable sales growth was already very close to double digits in Brazil, marketing activities in Brazil included a new line of chicken sandwiches, take home bottles of the popular tasty sauce, getting imitation of all artificial colors and flavors from the kids' menu and the first ever a 100% plastic free happy meal toy collection as has been the case in each of the last five quarters. No that delivered a sequential improvement in top line growth. Total revenue in us daughters grew by 3.7% versus the third quarter of 2019 backed by the 5.1% growth in comparable sales on a two-year basis. And it relatively stable currency environment. Mexico is the main story here benefiting from the strength of the brand and the restaurant portfolio and the receiving consumption environment find among Costa Rica are also returning to normal after experiencing a more prolonged period of government post operating restrictions. Despite high vaccination rates in Mexico, we executed a quarter pound of numbers, campaign driving 70% unit growth through continued to perform well when both delivery and the family business achieved sales records in the quarter top line growth has been very strong in that and was higher than the DVCS blended inflation rate. Over the last two years, total revenue in us daughters was 3.8% higher than the third quarter of 2019, despite the 48% evaluation of the Argentine over the last two years, until it gets, have adapted quickly to digital sales channels, they vary volume per restaurant has three polls. Since the beginning of the pandemic, we also operate Telus largest street facing restaurant footprint, supporting strong drive through sales growth. Even as the on-premise sales segments begin to recover. Argentina has also performed well this year compare with the softer results we saw in the country in recent years, marketing activities in slack included the launch of the premium brand tasty sandwiches in Argentina and Tila, which already took that will be the chair of total meals sold in both countries. We started category sales, grew double digits boosted by a new flavor in TV. We solved in the 3d is what also promising is right through VIP loyalty program, which is executed exclusively through the mobile app drop increased frequency among the one on 3 million registered users in slack and more than 3.2 million registered users across all markets. As we have mentioned in the past, the Caribbean today operates at a different level of revenue and profitability. Two years system wide sales growth was almost 28% versus with the third quarter of 2019, significantly higher than the blended inflation for the period or Puerto Rico. And their friend was in this one. They stand out once again, we are benefiting from structural competitive advantages in Colombia with a market leading number of street facing restaurants. And they grow in popularity of both the drive-through and delivery channels. What I thought Rico maintain the moment. And we have been building since the beginning of last year marketing activities in the Caribbean included the launch of the signature chicken sandwich, spicy data in Colombia two months after the launch sales remain above expectations. As we continue on the journey to grow the chicken of all the nations benefited from our exclusive access to decent licenses for the family business, helping to dry dropping wine, strengthen the brands bond with families fight night, they call UVM already enjoys the company's highest penetration of trade restaurants. And we accelerate the delivery sales with special promotions to support on delivery channel in Columbia, the off-premise channels continue to grow in the water despite the gradual recovery in mall stores and on-premise sales. In fact, this fleet between on premise was still nearly 50 50 in the third quarter. Drive-Thru sales rose about 12% in constant currency versus the third quarter of 2020 on top of 54% last year drive the volumes per restaurant proved to be resilient, even a strong counter and the sort of center volumes continued recovering month after month during the quarter delivery was at 43% on top of 180% growth last year on a constant currency basis, boosted by very strong growth in volume per restaurant. This included 52% growth in breasts, even local currency on top of 147% growth in the prior year period in that market, we believe the structure, a competitive advantage of our restaurant portfolio together with the 3d strategy, we've continued to support total sales growth in both drive-through and delivery moving forward. We also expect a contribution to total sales from these two channels to be deluded rather than candy by that by growth in on premise sales, digital sales have been boosted by the strength of the McDonald's mobile app, which offers the most comprehensive functionality in the QSR industry. In fact, total digital sales group, 54% in us dollars during the third quarter of 2021 versus the prior year period, the digital platform generated 36% of total sales in the quarter and the industry's highest rated app. Great cumulative downloads of 56 million with strong customer engagement evident in the active user numbers. These momentum continued into the fourth quarter with October capturing the highest number of active users for the year. And there is still much more to come. They of the performance of the three DS gives us great confidence and optimism for the medium to term prospects of the McDonald's run in our region. Mariano, over to you.
Mariano Tannenbaum: Thanks Luis. We are very pleased with adjusted with that generation. In the third quarter, this result was underscored by improved profitability with all divisions generating restaurant level, with the margins equal to or higher than the pre pandemic period. Although we thought we would have a better second semester, these recovery in profitability came sooner and stronger than we expected. Three commissions generated higher adjusted EBITDA results in US dollars compared with the third quarter of 2019 boosted by the fact that almost 40% of the quarter's EBITDA came from markets that operate in hard or more stable currencies. Keep in mind that in addition to Argentina's relatively small contribution to consolidated EBITDA, having our corporate back-office based in provides a natural hedge against currency risk. In other words, when the Argentina based, so is devalued corporate expenses declined more or less in line with the declining Argentina's EBITDA in us dollars. Once again, both for the paper costs and payroll expenses were lower as a percentage of revenue versus two years ago for paper improved by 30 basis points versus the prior year and was 50 basis points better versus the third quarter of 2019. Payroll expenses were also lower versus the third quarter of 2019, improving by 180 basis points as a percentage of revenue, partly due to the higher contribution from the more efficient of premise sales segments. This margin improvement more than offset the margin impact of higher aggregator payments as associated with the growth in delivery sales. Brazil's adjusted EBITDA margin reached 19% in the second quarter or 16.6% excluding the tax credit, which matched its third quarter 2019 margin. The paper costs remain in line with 2020 levels despite commodity price and the input cost increases. NOLAD's EBITDA margin improved by 50 basis points versus 2019 with strong performances in both Mexico and Panama where drive-through and delivery sales continue to grow. Keep in mind that no let's 2019 EBITDA margin included a 150 basis point boost from the refranchising of some restaurants in Mexico, excluding refranchising from the 2019 result, the division CB the margin expanded by about 200 points in the last two years, slab exceeded third quarter 2019 adjusted EBITDA margin by 80 basis points. As Ms mentioned momentum in the cilium business remains robust and Argentina has been relatively strong after challenging results. In recent years, finally, the Caribbean division built on the sequential improvements. It has been delivering since last year adjusted EBITDA was 38% versus the prior year. And excluding one-offs the 12.4% margin was the highest for the divisions since at least 2010 Puerto Rico, Columbia, where the main drivers of the result comfort with two years ago, restaurant margins improved by 130 basis points increased occupancy and other operating expenses. As a percentage of sales were more than offset by efficiencies in food and paper and payroll, as well as slightly lower royalties, reflecting higher growth support this year, total gas GNA expenses declined by 60 basis points as a percentage of revenue with a recovery in top line and still lower travel and other expenses. The third quarters total G&A includes expenses related to the reorganization of alcoves. Dorados into three divisions. This reorganization, which became effective as of October 1 will make for a more agile company, able to adapt even more quickly to local consumer trends and guest preferences. Excluding these non-recurring expenses don't in G&A declined by almost 10% in US dollars versus the third quarter of 2019, putting it all together, consolidated adjusted EBITDA margin expanded by 220 basis points compared with the third quarter of 2019. And our bottom line also rebounded to $25.2 million or $0.12 per share. Cash flow from operations has been strong this year as a result, net debt was at its lowest level since the end of 2018, despite the modest increase in total debt last year, these combined with the strong EBITDA performance of the last few quarters brought the net debt to adjust the DB plan, leverage ratio to the low end of our to 2.5 times comfort range. This is well ahead of the guidance we provided for this year. If you remember, we originally expected to be closer to the higher end of the comfort range, and only by year end capital expenditures were $25.6 million. In the third quarter, we opened 12 new restaurants of which 11 are freestanding units, including all 10 openings in Brazil for the year today through September, we opened 41 year restaurants in drooling 34 in Brazil. We should remain within the guidance range of 40 to 50 openings. More than 90% of these will be in Brazil with 90% freestanding units. In other words, this year we are ready returned to 2019 levels of freestanding restaurant openings. And when increase total new restaurant openings in 2022 and beyond that expenditures for the year should be within the guidance range of 110 million to $130 million. Finally look for a safe date in the next several weeks for an investor update event early next year, if possible, in person in Brazil, no later than the end of February, 2022, we expect to be able to provide you with openings and CapEx guidance for 2022. And with that, Marcelo back to you.
Marcelo Rabach: Thanks Mariano. As I mentioned, barrier, ESC is part of DNA. The recipe for the future ESG platform focuses on the area. So youth opportunity, packaging and recycling, sustainable sourcing, climate change, commitment to families and diversity and inclusion starting with youth opportunity. On our last call, we announced a new program offered through our, our wean hamburger university that may free online certificate courses available to all young people in Latin America and the Caribbean. These introductory level courses cover five areas of instruction designed to help young people enter the workforce and build successful careers. We are very pleased to report that more than 20,000 young people enrolled in the courses in the last three months, we also launched a very interesting pilot program in Colombia, within the packaging and recycling pillar of our ESG platform. We have partnered with Amazon echo and NGO dedicated to promote the recycling and the guns, and we die our exclusive delivery aggregator in Columbia. The program provides customers with a kit to call it, and we don't recycle the waste from their delivery orders by returning it to ICL drivers, supporting a more tubular economy, you know, Dina, we took another step to support our climate change commitments by signing an agreement with Pumbaa and up here to start using sustainable energy sources, to power our restaurants in the country, within commitment to families together with McDonald's last month, we announced that happy meal toys will be made from 100% sustainable materials by 2025. As you heard today from Lewis, we introduced the first 100% sustainable toy collection this year, working toward the 20 twenty-five commitment. Finally in Brazil, we were ranked in the top 10 among the country's largest companies by great place to work. We are the only restaurant company run by this respected organization in Brazil and shaft. Last week, we were recognized by the city of San Pablo receiving the municipals seeds of human rights and diversity for the work we do to generate job opportunities for differently abled people. We are very proud of the work we do to promote diversity and inclusion in the workplace. You can now learn more about the main elements of our recipe for the future in English and download the audited social impact and sustainable development report for 2020. By following the link at the bottom of the slide, the long-term strategic investments we made over the last several years as well at the efficiencies we built into the business in the last 18 months, made it possible for us to generate one of the best third quarter’s results in the company's history. Guests are coming back to McDonald's because they trust us to deliver the region's best and safest restaurant experience heading into 2022, we are closely monitoring and adjusting to headwinds in operation. None the less, we are pleased with the current trends of the business, and we believe we have built significant it's structural competitive advantages that cannot be easy replicate. We operate the region's largest freestanding restaurant portfolio, which we built over the course of decades to ensure our ability to adapt, to changes in needs and preferences. We also feel confident that the 3D strategy delivery on digital will continue to accelerate sales and profitability performance for many years to come. Dan, I will now turn the call back to you to start the Q&A session.
Q - Daniel Schleiniger: Our first question comes from Marcella Rekia of Credit Suisse, who says, thanks and congrats on the results and asks that with our net debt to EBITDA ratio already below the targeted 2.5 times, what can we expect in terms of expansion plans for 2022? I think that's over for you, Marcelo.
Marcelo Rabach: Yeah. Thank you. Good morning, everyone. And especially Marcella, thank you for the question. Yeah. As you mentioned, we are already within our conference range in terms of be ratio, which is two to 2.5 times in the low end or that ratio you and the excellent results we have during the year as you know, under the MFA every three years, we are going to in a restaurant opening plan and a reinvestment plan with McDonald's, particularly for 2020 and 2020, the one we suspended the three year agreement mechanism, you would do the uncertainty, the region related with the important impact of the COVID issue. So today we feel comfortable enough and we, the trends of the business and the visibility we have of the markets where we operate in order to resume the three-year planning in this case, the cycle will be for 20, 22 and 2024. And we are in the final stages of the discussions of the process with Matana sun. I think that we are going to have a very strong plan for this three year cycle. We expect to announce the new plan early next year, as we always did in the past. And the idea this time is to do that during our investor updates, but hopefully we will have we will have in-person in Brazil during the first couple of months of 2022. What I can tell you is that what we are seeing is that we will be able to accelerate both openings and reinvestments on the deployment of your DF restaurants given the fact that we are seeing a high potential for both investments, if you recall our pre-pandemic plan for the period of 2020 to 2022 included something around the one candidate restaurant openings per year it's important to mention that the more based restaurant pipeline embed in that plan has been drafting a reduced based on our current view of the market over unity. On the other hand the pipeline of freestanding units remains, remains a strong we are working to capture additional growth opportunities over the next several years. We also expect to accelerate the modernization of our restaurant base even the excellent results. We are seeing, you know, our experience of the future restaurants particularly the ones we did this year. And of course we will continue to invest, our industry-leading digital platform in regarding that in order to expand capabilities and enhanced the customer experience both on and off friends. We still see, and we still think that the long-term unit growth potential remains very robust in all of our main markets. You earn the under-representation of the McDonald's brand. So both spend, will be correlated over cash generation. Remember that we typically sell fund our growth investments and we are in an excellent position, even the fact that we have the best development team in the industry and in the region. And we know the power of the McDonald's brand that was two year than ever during the funding. And when it comes to winning your restaurants site contracts, we have a very good power to negotiate. So that's our view around topics, topics going forward again, during our investor update, you will have much more detail and more or around these for the next three years.
Daniel Schleiniger: Great, thanks Marcello. The next question comes from my Matthias of Black Brick Investment. He says that as our balance sheet and cash flow continues to improve where we and the board considered buying back shares. If the price doesn't reflect the value of Arcos and does management or the board regularly compare the IRR of buying back shares versus opening new restaurants, I think we'll turn it over to you Mariano.
Mariano Tannenbaum: Thank you. Dan and thank you Matthias for the question and hi to everybody. We continuously evaluate the rate of returns to make our capital allocation decisions and as you know, but he has seen in recent years, we have implemented abide by shares program and for going forward and looking forward, we will continue to do exactly the same. We will continue to evaluate all different options that we have available, including of course, restaurant openings, weatherization of existing stores, digital investments, and folding investments. We have been doing so far on top of other alternatives, like buying back shares. And we will define that of course looking at best rate of returns of each of them.
Daniel Schleiniger: Great. Thanks Mariano. The next question comes from from Morgan. He asks if coupons or discounts are included in the mobile app sales or is it only the takeaway functionality in other words, mobile order and pay in Brazil? I think that's for you Luis.
Luis Raganato: Yeah. All right. Thank you for the question. The answer is yes. The digital offers are included in the mobile app sales and wider concept would be that everything is continuing to digital sales. This is mop digital offers that he really through POS own delivery and serve order and kiosks. And one thing that I wanted to highlight is that easy to offer are very important for us. We deliver them by segmenting our customer base and personalization,
Daniel Schleiniger: And just a quick heads up. I think the operator may have heard that as well. We had some background noise if you guys could clean that up, that'd be great. Thank you. The next question is from Jaguar of Goldman Sachs. He says, hi, Marcello, Dan and team. Good morning, everyone. Congrats on the results. And thanks for taking our questions. Gross margin has positively contributed to overall profitability printing higher than 2019, despite the persistently high cost inflation, given the macro backdrop in the region, shouldn't get improved anytime soon. How are you framing that equation between growth has through mix and profitability going forward and on a relative basis? What are the markets in which you believe pricing and profitability could be more challenging over the next 12 months? That's the first part of Charlotte's question. And then I guess we'll start with Marianna and then we'll take the second part.
Marcelo Rabach: Perfect. Thank you. You have a four for the question. And in fact, all of the work that we did during the pandemic with, with cost management initiatives are paying off during this full recovery phase. A sales are returning to pre pandemic levels and we are gaining market share. So we think that the best way to contribute to our, to our margins is by increasing sales and by increasing traffic, having more customers visiting our stores. And from there, we have built in all the costs management reductions initiatives that are showing in this third quarter, and we are doing everything possible to maintain and to have all these profitability gains going forward. What I, can tell you is I said, I already mentioned a bit about this state's recovery, and this is what is allowing us to leverage on all our costs lines, all segments from the service centers drive from delivery are showing very good results. And from there is that where we are building up, for example, in the paper, in the gross margin, which as you know, is the most important cost line in our P&L the food and paper costs, and we are effectively improving our gross margin, despite the food cost pressures that we are facing in many of our markets by managing pricing, through revenue management dynamic pricing, and as well by working on the product mix with segmentation, with all the effort we are doing in digital, in the, in the digital, in here area where we are investing. And we are doing a lot of things like with the district lab. And I'll just mark marketing segmentation, which are giving us the results that we are, we are we are seeing in our unit. And on top of that, of course, all the cost negotiations with our main suppliers that we can do given our size and the long-term relationship that we have with, with our main suppliers. So I think that what you are asking about that mix between focusing on, on, on growth market share safe. I think we are doing a bit of all of them. We are improving sales, we are improving traffic. We are working our costs. We are working on the product mix we are working on dynamic pricing. And all of them are the ones that are showing in our final results for the quarter. And maybe we can go to the second part.
Daniel Schleiniger: Great, thanks. Mariana was the second part of question, relates to market share and he asked, is it also, is it possible to share more details around market share evolution specifically in result? So turn it over to you with and LTL.
Luis Raganato: Thank you for that question. In Brazil, according to crest, I remind, use a syndicated customer study that is conducted by the research agency, the NP group, and it's used in major patent police around the world. According to them, the QSR segment grew about 1.5 percentage points of market share. We got 32 thirds of that share is comparing to 20, 20, 21 versus numbers and know whether they are getting more and 20 basis points of sharing that theory. And when I went to the set, we experienced market share gains in all divisions and in every quarter these gains are seen in both traffic share and value share. It's also important to know that not only we are gaining share, but we're doing faster than any of our closest competitors. And we take these same from our customers. And this is nothing we solved unless you've rebooted. These market gains are a product of our unique restaurant footprint. The strong focus on operational excellence, this allows us to operate to drive through delivery. These are centers not cafes from counters, and that we have the industry leading digital strategy. And we have two, a set of market has that have comes to the, any of the brands, either region.
Daniel Schleiniger: Thanks, Louis. The next question is from Joaquin . He congratulates us on the results qualities for having been disconnected for a period, but a ask what was the rationale of the operations reorganization and what kind of G&A savings kind of generate. And by the way both Joaquin asked this, and then we're going to have another question from from JPMorgan who asks a similar question. So rather than repeat it I'll turn it over to Mike, to you, Marcel, to answer the question that both walking in Luis's have asked.
Marcelo Rabach: Okay. Thank you. Thank you. Both of them for the question. We have been always leaders in the QSR industry in our region in Latin America and the Caribbean thanks to the way the strategic and long term vision that we have in order to take important decisions for the company. So we, we have been given careful that issue thought to how the organization should be managed going forward. And we believe we predominately believe that our teams are ready for this, these new organization and these new, these next step. It's important for me to for, for you to know that this is not a cost cutting decision. Instead this reorganization is intended to leave us more and more a giant company giving our local teams more ownership. And at the same time, more resources to support the daily decision making, you know, the markets at the same time we are allocating additional resources to maximize the initiatives that are providing th the greatest contribution and have the greatest potential for genetic future growth and increased profit. We feel, we believe that this is the right organization as structural to take advantage of face. You know, what am I it's in the years to come overtime? And in recent years, we started do a decentralized decision-making, eh, even markets, more freedom to operate within our strategic framework. During the pandemic. For example, local management teams were crucial for a successful response to the rapidly changing conditions in each market. Each market was very different to the other. So our people in the markets needed a tremendous job on the kind of results we are reporting to date. I can assure you that those are a consequence of all the great people, our collateral class across the region, taking the right decision every day. So we think that these newest structure will allow us to apply the learnings from the pandemic, and we will build on the Excel excellent results we deliver in the third quarter of 2021 efficient teams. We continue to provide guidance and share best practices. And these will ensure that each market works within the studies triangle and corporate teams will develop and deploy new capabilities, and we manage the company's strategic direction established by our board. So that's the rationale behind the changes we made on, for sure. We will talk a little bit more around this, on our investor updates in the first quarter of next year.
Daniel Schleiniger: Great, thanks Marcello. The next question is from when we started going through, who had, you've already answered the second part of his question where he says from JP Morgan first says, lo everyone hope all is well and congrats on the results. And his first question is related to EBITDA margin outlook. As we mentioned on the call margins across the regions are trending in line with, or about 2019 levels. So he wanted to get our thoughts on the sustainability of these trends and the main drivers for further margin expansion. I think that is for you my now.
Marcelo Rabach: Perfect, thanks. So what he says for, for the question, and I will answer the question or keeping in mind that part of that I already answered when, when asked about sakes and, and gross margin how we are seeing the business on the, on the EBITDA margin outlook. Well, there was lot said in this third quarter EBITDA margin improved by 220 basis points compared with 2019 130 basis points. If we exclude the tax credit. As I mentioned in the previous question the main driver is that states are recovering and that we are in this full recovery phase now, and customers are returning to our stores. I already mentioned we are improving the gross margin, working on pricing, working on product mix and working on costs. And we believe that with the new divert or how the business is evolving with the new segments, with the growth in we are seeing in, in, in drive-through and delivery and how the front counter and be certain centers are recovering. We still have we have the possibility to maintain and to improve our gross margin in that respect regarding payroll, which is our second coastline. We are seeing improvements compared to 2019. Those improvements are coming mainly from productivity gains. Remember that while we sell off premises, our productivity increases and also we have received some government support in the last month, but that probably will not replicate going forward regarding rent. We are keeping rents under, under control, and this has been the result of all the work regarding rent and all the other fixed costs that we have in the occupancy and other costs line, all the work that we have been doing since the pandemic started, but that we are very confident that these gains in, in, in margins and negotiations we will keep them and maintaining, maintain them going forward. So regarding food and paper regarding payroll and regarding to the occupancy and other costs line, we see that the, the new games and the margins that we are seeing in this third order could be replicated going forward. Then of course we have delivery fees. Delivery is a segment that is growing month after month. And as you know, we pay a fee to the two, the three bills that also you can see on the occupancy and other cost coastline, but all the benefits. And of course, I, you always mentioned this, but it's worth mentioning this again, the delivery is highly aggressive at segment to our business and all the gains that we see seen delivery, you see, of course in the top line, but in other cost lines where we see other gains. So I also with, with, with the EBITDA margin outlook, we are also leveraging in the GNA with when we have faster, when we are seeing faster sales growth, and this new normal that also allows us to get some leverage on the G&A. So, as I reset with these trials, we believe that our story that is of 2019, you remember it was 10% of the base off of which we can continue expanding margins in the, in the years to come.
Daniel Schleiniger: Our next question is from Joan follow-up on the day of school, you congratulate us on our results and thanks for taking this question. And he asked what was the penetration of delivering the quarter, if we could share I guess that, that question is for you is
Marcelo Rabach: Hello, Joel, thank you for the question. Yeah. the, the so far is here. We have generated around 17% of sales year to today and around 15.5% in Q3. Despite the gradual recovery in, in the on-premise segments sales were up 83% a year delayed in 43% in figure in the third queue of 2021. This is versus 2020. And like we said before, this growth of 43% is on top of 180% growth of last year in our operation. Our focus today, we still have opportunities is to improve accuracy service time and the customer satisfaction. And we are benefiting from a sustained customer demand because even though we are seeing a strong record variation of the on-premise channels, I remind you that on premise channels are, is the centers from counters or mode stores. Even though they're, these channels are recuperating delivery at a slower pace, keeps on growing, and we're being able to, to sustain the big base gain during the pandemic. We strongly believe that on premise sales, we dilute rather than cannibalize the sales of the second.
Daniel Schleiniger: Perfect. Thanks Louis. And actually, I should have mentioned Joan Paulo had a second part to his question, which I think we've already addressed. It just his question has to do with our remarkable ability to having maintain food and paper costs flat, despite inflationary pressure in Brazil. And he also asked, how should we expect that line to perform moving forward, given protein export embargo to China and so on. I think you've already addressed that. So that being the case, it's actually the last question that we received one or two thank everyone for joining us today and for your interest in the company at DC and I are more than happy to get on the phone with any of you following up today's call and next few days to go through our results in more detail. Until then we look forward to speaking with you again on our next earnings call, which will be sometime in March of 2022, actually before that we'll have our investor events in, no later than February of next year. And until then have a safe day and we'll talk to you soon. Thanks so much.
