Hello and welcome to McDonald’s Fourth Quarter 2019 Investor Conference Call. At the request of McDonald’s Corporation, this conference is being recorded. Following today’s presentation, there will be a question-and-answer session for investors. [Operator Instructions] I would now like to turn the conference over to Mr. Mike Cieplak, Investor Relations Officer for McDonald’s Corporation. Mr. Cieplak, you may begin.

Good morning, everyone and thank you for joining us a little earlier this quarter. With me on the call this morning are President and Chief Executive Officer, Chris Kempczinski and Chief Financial Officer, Kevin Ozan. I want to remind everyone that the forward-looking statements in our earnings release and 8-K filing also apply to our comments on the call today. Both of those documents are available on our website as are reconciliations of any non-GAAP financial measures mentioned on today’s call with their corresponding GAAP measures. Following prepared remarks this morning, we will open the queue for your questions. I ask that you please limit yourself to one question and if you have more than one please ask your most pressing first and then reenter the queue. Today’s conference call is being webcast and is also being recorded for replay via our website. And now, I will turn it over to Chris.

Thanks, Mike and good morning. Thanks everybody for joining us. It’s great to be with you on my first earnings call as CEO of McDonald’s. Before I go into our highlights for the quarter and full year, I want to talk briefly about some of my observations from my first few months in this role. For the past 3 months, I have been meeting with employees, conducting town halls, reviewing plans with senior functional and market leaders, sharing ideas with franchisees and suppliers, and visiting restaurants and customers. This invaluable time spent with our people, partners and customers reinforced to me the vitality and global alignment we are seeing behind our velocity growth plan. Our people are energized. They are proud of our culture, committed to the promise of our brand and share my confidence in the business and our direction. This time has also reinforced things that make me deeply proud of our system. We create opportunity for our colleagues across the system. At every McDonald’s gathering, there is a story to tell of the crew person, who is also a grandparent and excited to begin a new chapter in life working for McDonald’s or the company employee who started in the system with a first job in their teens, went to college with the system support and is now in a leadership role. For those who work hard and live our values, McDonald’s can change lives. We provide a community space for our customers. When you enter McDonald’s whether in Brisbane, Berlin or Boston, you are entering more than just a restaurant, you are walking into a vibrant community, a place where people congregate, share stories, enjoy simple, but powerful and delicious moments of happiness with family, friends and loved ones. That commitment to communities is the spirit that inspired the creation of Ronald McDonald House Charities and has held friends and neighbors through hurricanes, tornadoes and countless other times of stress. Being integrated into communities worldwide, we know the very real challenges our customers face and we show up with solutions. As we have grown, we have recognized our responsibility as one of the world’s leading companies to use our scale to gain traction on some of the globe’s most pressing challenges. It’s the strength of our business over the past 65 years that enables McDonald’s to play this role and a humbling responsibility to lead an organization with the ability to make an impact on the world. Kevin will drill down on our quarterly results. Before that, I would like to share with you some headlines for the year. In 2019, our system marked a historic milestone, $100 billion in system-wide sales. For the year, we grew global comp sales 5.9%, the highest increase we have seen in over a decade. 2019 was our third consecutive year of global comp guest count growth. To put that in perspective, McDonald’s and our franchise partners now serve nearly 70 million people in over 100 countries every 24 hours and owner/operator cash flow is at or near all-time highs in most of our largest markets and in the U.S. it’s at an all-time high. Turning to segment highlights, our International Operated Markets segment, or IOM generated comp sales growth of 6.1% for the year. This was underscored by every market in the segment delivering both comp sales and comp guest count growth. At the same time, our International Developed Licensee segment, or IDL, generated comp sales of 7.2%. Importantly, our three largest IDL markets, China, Japan and Brazil, all posted positive comp sales leading a list that includes nearly all of our IDL markets. We also have strong momentum in the U.S. In fact, we are now seeing the results of our most ambitious turnaround of the U.S. history. For the full year, comp sales growth grew 5.0%, our best comp since 2006 or 13 years ago. Across the country, we are seeing clear evidence of the power of Bigger, Bolder Vision 2020, which our U.S. adaptation of the Velocity Growth Plan developed in combination with our franchisees. The initiatives we and our franchise partners deployed in 2017 and 2018 putting a new value platform, fresh beef, delivery, EOTF modernization and more, were met with strong approval by our customers. This led to continued strong top line growth over the past 3 years. As one of the architects of our Velocity Growth Plan gives me a great sense of pride to watch 2 million restaurant crew around the world, execute our strategies with such care and conviction. I continue to have great confidence in our ability to grow and shape our industry and I am equally confident that we have the right leadership in place to meet our customers’ evolving needs with increasing ambition and speed. Joe Erlinger, an 18-year veteran of our company is now Head of our U.S business, where he is responsible for the operations of nearly 14,000 restaurants across the country. Joe returned to the U.S. after several years of increasing responsibility around the world. Most recently, he served as President of our International Operated Markets, where we had oversight for McDonald’s wholly owned markets outside the U.S. With Joe’s transition, Ian Borden has expanded his role to oversee both our IOM and IDL segments. Ian began his McDonald’s career 25 years ago in our finance department in Canada and has spent 23 of these 25 years in markets outside of North America. In his most recent role as President of our IDL segment, Ian worked with our developmental licensee partners across more than 80 markets. Under his leadership, we will drive greater collaboration across all markets and accelerate our pace of best practice and innovation sharing, building on our rich heritage of learning from each other. It’s an important role for McDonald’s as we maximize the full potential of our three-legged stool of company, franchisee and supplier resources. Both Ian and Joe have deep track records of delivering profitable growth, while building high-performing teams and strengthening collaboration with our franchisee community. Importantly, Ian, Joe and I have also worked closely together as segment presidents over the past few years embodying the trust, respect and unity of mission that are the hallmarks of our partnership culture. I am thrilled to be working with both of them in their new roles. Now, I will turn it to Kevin to talk about our fourth quarter results. Kevin?

Chris talked about our impressive full year results. So let me spend a few minutes talking about the quarter. Our strong top line momentum continued in the fourth quarter with global comp sales increasing 5.9%. And as we have seen consistently throughout the year, each of the operating segments contributed meaningfully to our growth. This marks over 4 years of consecutive quarterly global comp sales growth. Our comp sales performance is a significant achievement given a soft global IEO market and on top of strong prior year results. Our International Operated Segment, which represents over 50% of total revenues and operating income generated comp sales of 6.2% for the quarter with strong performance across the segment. France and the UK drove the segment’s growth, along with positive comp sales in every market and positive guest counts in nearly all markets. France delivered its 11th consecutive quarter of comp sales growth with continued all-time high market share. The quarter benefited from delivery expansion, digital engagement and continued deployment of EOTF. The market has also been successful with the balance of premium and core burger offerings. The UK reported a remarkable 55th consecutive quarter of comp sales growth and continued to gain market share across nearly all dayparts. The quarter benefited from extended breakfast hours, compelling digital offers, successful national LTOs and delivery which has grown to about 10% of sales in the restaurants that offer it. Turning to the U.S., comp sales increased 5.1% for the quarter with balanced growth across all dayparts. While traffic was negative, the U.S. continues to drive significant average check growth with contributions from both product mix and strategic pricing. Similar to prior quarters in 2019, Experience of the Future contributed to positive comp sales in the fourth quarter. Another 500 EOTF projects were completed during the quarter for a total of about 2,000 projects for the full year. The U.S. now has nearly 10,000 restaurants that have been converted to EOTF or about 70% of the estate. In addition, core favorites, including our fresh beef quarter pounders and world famous French fries continue to resonate with customers and fueled growth for the quarter. Delivery was also a contributor for the quarter as the addition of new delivery partners like DoorDash and GrubHub drove incremental orders and the deployment of Dynamic Yield’s suggestive sell technology in over 11,000 drive-thrus also contributed to the growth in average check. That said, returning to guest count growth in the U.S. remains our top priority. Sluggish industry traffic growth and unit expansion continue to fuel an aggressive battle for market share. In particular, the U.S. is centered on stemming traffic losses at the breakfast daypart by focusing on running better operations, introducing new menu items and offering delicious food at a compelling price point. Finally, in the International Developmental Licensed markets, comp sales were up 6.6% for the quarter with growth across each geographic region. The largest contributors to segment performance were Brazil, China and Japan. Turning to the bottom line, adjusted earnings per share was $1.97 for the quarter, a 1% increase in constant currencies, when excluding impairment charges in the prior year and tax law change benefits in both the current and prior year. Results reflect strong global comp sales and operating growth mostly offset by a higher tax rate versus the prior year. Consolidated franchise margin dollars increased 7% in constant currencies reflecting strong sales performance across all segments as well as expansion in the impact of refranchising. Franchise margin percent declined 60 basis points as franchise revenue growth was more than offset by higher depreciation related to EOTF modernization in the U.S. and the impact of the new lease standard. Consolidated company-operated margins improved 40 basis points to 17.9% for the quarter, primarily due to strong comp sales growth. IOM segment company-operated margins increased 30 basis points to a healthy 20.1% and U.S. company-operated margins increased 150 basis points to 16.4% as solid sales performance more than offset continued commodity and wage pressures and EOTF related depreciation. Overall, our restaurant margins increased nearly $180 million in constant currencies for the quarter and over $600 million for the full year. And finally, excluding current and prior year special items, operating margin increased 30 basis points to 43.4% for the full year. We also achieved our 3-year target of returning $25 billion to shareholders. This is a significant accomplishment given our substantial investments in Experience of the Future and technology to drive sustainable, profitable growth. As a perspective, over the last 3 years, we invested about $7 billion in the business to drive growth. We increased our dividends per share by over 30% and paid out $10 billion in dividends and we reduced our shares outstanding about 10% by purchasing $15 billion of treasury stock. This also speaks to the progress we have made in enhancing our free cash flow profile. As a result of refranchising efforts and rightsizing our cost structure over the past several years, we have evolved to a more stable and predictable business model. In 2019, our free cash flow $5.7 billion, up over 35% from the prior year. And free cash flow conversion which measures our ability to convert bottom line earnings to free cash flow was 95%, a significant uptick from the prior year. Going forward, our capital allocation priorities remain unchanged: first, to reinvest in existing restaurants and opportunities to grow the business; second, to continue growing our dividend; and third, to buyback shares. We expect our free cash flow to continue to grow and we expect to continue to return all free cash flow to shareholders through a combination of dividends and share repurchases. Now, I will turn it back to Chris to talk more about our Velocity Growth Plan and where we are headed in 2020.

Thanks, Kevin. No word is the power of the Velocity Growth Plan and franchise model come more to life than in our restaurants. In my recent travels to our European markets, I saw this firsthand everywhere I went. I was struck in particular during a visit to a restaurant in France, a society that famously values good food and beverages and inviting atmosphere in the spirit of community. There I saw an engaged owner/operator who knew her customers by name and had made our modernized restaurant a vibrant gathering place for the community. Kids were everywhere. Much like their counterparts around the world, young adults were busy multitasking between bites of burgers and fries. Parents appear to be appreciating a moment of rest and other adults were seated in singles and pairs, some having a full meal, others just having coffee. With the scene that reinforced the fundamentals of the Velocity Growth Plan by simultaneously pulling the levers of great tasting food with good value convenience and a pleasing customer experience, this owner/operator and many others across France and other international markets are growing visits. A similar dynamic is playing out in the UK, where our system is doing a great job meeting customer’s expectations for convenience and speed, while providing differentiated experiences for guests dining in, visiting the drive-thru or ordering through McDelivery. This dynamic is playing out in Italy where customer satisfaction scores are up at drive-thru and dine-in and across all three peak dayparts of breakfast, lunch and dinner. The excitement and energy behind our Velocity Growth Plan is widespread. It’s a result of this commitment that our business is growing and our strategy continues to deliver. At the same time, there is a realization that we can and will do more to deliver better taste, greater value and enhanced convenience for our customers. This is the guiding philosophy behind our three accelerators: Experience of the Future, Digital and Delivery. With Experience of the Future, our strategy is focused on enhancing the customer experience by improving convenience, hospitality and personalization. As Kevin said in the U.S., we completed about 2,000 projects in 2019 and are on track for just about all restaurants to be modernized by the end of 2020. Customers are recognizing the changes we have made for their benefit. Customer satisfaction scores in the U.S. are at an all-time high. In our IOM markets, where the vast majority of our restaurants are now modernized, we have a strong foundation for long-term success by creating greater convenience, comfort and hospitality for our guests. Meanwhile, our digital journey, another critical accelerator is focused on giving customers simpler, smoother and more personal engagement with McDonald’s by leveraging the most relevant technology. To that end, we have significantly strengthened our digital capabilities in 2020. In markets around the world, for example, a growing community of registered users is redeeming digital-only offers giving our teams more opportunity to understand customer needs and create engaging digital customer experiences. Throughout the year, we made target investments to accelerate our capabilities. A suggestive sell capability of Dynamic Yield is now deployed in nearly all outdoor digital menu boards across the U.S. and Australia. In both markets, we are using the technology to make smarter recommendations to customers of menu items they are likely to want. There is no question that digital is transforming global retail. Across the system, there is great excitement about the role it will play in transforming McDonald’s by strengthening and deepening relationships with our customers. So, we know there is great potential with digital, but there is also a lot of hard work to do to realize our ambitions. I recently announced the creation of a new digital customer engagement team to accelerate customer-focused digital initiatives, including ordering, personalization, payments, loyalty and delivery platforms. Lucy Brady is leading this team. Lucy has been a driving force behind the evolution of the Velocity Growth Plan and rapid expansion of our McDelivery platform in her most recent role leading corporate strategy and business development. Lucy and her team will be responsible for developing new industry leading digital experiences for our customers and they will partner with our global technology team to build new product roadmaps and technology solutions to fuel growth. With our third accelerator, we are bringing more customers the McDonald’s they love with the convenience of delivery, today, about two-thirds of our restaurants worldwide nearly 25,000 offer McDelivery. In just 3 years, McDelivery has gone from generating $1 billion in sales for McDonald’s Company and franchise restaurants to over $4 billion in sales this past year. We now have multiple 3PL partners in most major markets including the U.S for the rapid scaling of DoorDash is showing consistent growth and the UK, where we recently announced an agreement to partner with Just Eat. We continue to see great runway ahead of us to drive awareness and trial and we are doubling down on our efforts to encourage frequency and retention. As we inject speed, agility and flexibility into our system through the accelerators of Experience of the Future, Digital and Delivery, we continue to focus on the fundamentals of running great restaurants and customers are noticing. Across our largest markets, we have reduced the time it takes a customer to receive their order by an average of 20 seconds. For this change, most markets saw overall customer satisfaction improve in 2019. Our Velocity Growth Plan provides a solid and sustainable foundation to grow our business in 2020 and beyond. Yet, we know that we must stay in tune with evolving customer needs and adapt to changing market conditions. The uncertainties before us are no surprise to anyone on this call whether due to geopolitical challenges, slow IEO growth, intensifying competition, growing labor costs or continuous technological disruption. The topics we have shared before continue to impact the industry and will need to be overcome. And that means continuing to align around a plan that always puts our customers first, with great tasting food, convenience and value means collaborating with our franchisee community for successful local execution. That means building flexibility into our system for initiatives that accelerate and sustain growth and provide new opportunities for McDonald’s. To build on that, let me turn it back over to Kevin.

We head into 2020 from a position of strength. The Velocity Growth Plan has resulted in strong operating performance over the past several years reinforcing confidence in our ability to deliver long-term sustainable results. I want to take a minute to walk through some of our financial expectations for 2020. We anticipate that we will host an Investor Day this year to provide an update on the business and longer term expectations. With our efficient business model in 2020, we expect to continue achieving an operating margin in the mid 40s range which includes the following: higher depreciation expense of about $80 million versus 2019 related to EOTF in the U.S., with the vast majority in franchise margins. With most of our major refranchising effects complete, we expect gains on restaurant sales in 2020 to be roughly half of the amount in 2019 with most of the gains in the second half of the year. And as we have become more efficient with G&A required to run the business over the last few years, we have invested in areas that are already contributing to business performance and that we believe will continue to accelerate growth, including technology and research and development. As a result, we expect full year 2020 G&A to increase 5% to 7% in constant currencies due to these investments. This includes full year operating costs associated with the 2019 acquisitions of Dynamic Yield and Apprente, R&D spend and costs related to our Biennial Worldwide Convention. We expect G&A percentage increases will be significantly higher in the first half of the year than the second half of the year. We also expect our annual tax rate will be 23% to 25%. Finally, based on current exchange rates, we anticipate currency translation will negatively impact EPS by $0.01 to $0.03 in the first quarter and a similar amount for the full year. As usual, this is directional guidance only as rates will change as we move through the year. Moving on to capital, we ended 2019 with capital expenditures of $2.4 billion in line with our expectations. As we have previously indicated, in 2020, we expect to spend a similar amount. About half of the total capital will be dedicated to the U.S., including the completion of roughly 1,800 EOTF projects. Restaurant development also continues to be an important driver of our growth equation. We plan to open about 1,400 new restaurants this year substantially all in markets outside the U.S. We will spend approximately $800 million of our capital to open about 400 restaurants in our wholly owned markets and our developmental licensees and affiliates will spend their capital for the remaining openings, of which over 450 are planned in China. So, while we expect total capital this year will be similar to 2019, we have shifted about $200 million from reinvestment to new restaurants, which are higher returning investments. As we enter 2020, I am confident that we are well positioned to deliver sustained, long-term profitable growth for the system and our shareholders. Now I will turn back to Chris to close.

We have been on an ambitious journey the last few years from turnaround to transformation. And through it all, we have made a path forward even as the landscape changes. With these changes, customer expectations evolve, placing new demands on the world’s leading brands. We are ready for that challenge, embracing it across our business with the enduring strength and values that make McDonald’s a force for positive social and economic development in every community we serve. As we enter 2020, we do so from a position of strength of strength and with an unwavering commitment to our Velocity Growth Plan, the accelerators driving it and the incredible people and partners who keep us nimble, agile and open in new innovations and new possibilities. We have some exciting milestones ahead of us in 2020, including Worldwide Convention in April. On a final note, I would like to offer heartfelt thank you to everyone across the McDonald’s system who helped us achieve this milestone of $100 billion in system-wide sales this past year. It’s the sum of many things done right, everyday by every employee, supplier, franchisee and crew member around the world. I am proved of our collective success and grateful for their commitment as we began a new year. With that, let’s begin Q&A.

[Operator Instructions]

Our first question is from Andrew Charles with Cowen.

Chris, I know you and Joe are prioritizing U.S. traffic growth in 2020, but can you help outline your confidence this can be achieved? On the one hand, there’s better alignment with operators at the start of this year versus a year ago, which is aided by the simplification efforts that you guys have put in place. But on the other hand, breakfast competition is set to intensify shortly here, will the same-store sales benefit from Experience of the Future likely to be lower in 2020 versus what you saw in 2019?

Yes. Good morning. Thank you, Andrew. So as Kevin talked about, and as you alluded to, getting the U.S. to positive guest count growth for us is the number 1 priority. I think the things that certainly give me confidence or make me feel better about our ability to do that is, as you mentioned, we have really strong alignment with franchisees at this point, that this needs to be a priority. One of the things that’s, I think, sometimes not fully appreciated about the U.S. owner operator basis, it’s largely a franchise – or it’s largely a family business in the U.S. Over half of our franchisees are second and third-generation franchisees. And so for them, they completely recognize that no family business survives or thrives by passing on fewer customers from one generation to the next. So that’s an important part of this. And then the second is we have a really good understanding of what it’s going to take for us to drive guest counts to positive in the U.S. It starts with breakfast. Breakfast is the only daypart in the industry that’s seeing traffic growth. We have to win at breakfast. There’s obviously a lot of focus and attention that we’re going to be putting on that in 2020. And then the second is a recognition that on rest-of-day deal or rest-of-day value, that we need to be competitive on that. So I think between alignment with the franchisees, between really, I think, a pretty keen understanding of where we need to focus, I feel good about that, we did see, in Q4, modest sequential improvement on it. But for us, there is certainly not – it’s too early to call a trend on this. We’ve got to see this happen over four or five quarters. And so it’s going to be something we’re going to be paying attention to and I’m sure you guys will be asking us about it as well. So more to come on that.

Our next question is from Eric Gonzalez with KeyBanc.

It seems like the industry has become a bit more promotional since the start of the year. Would you agree with that or is that typical for this time of the year? And then has your view changed at all in response to the current competitive environment in recent weeks as your competitor gets closer to rolling out breakfast?

Yes. Thanks, Eric. January is always a highly competitive time of the year. So I think the activity that we’re seeing right now, I wouldn’t characterize it as being unusually pronounced. I think, again, this is always something that happened at the beginning of the year. But I think what you’re talking about and what you mentioned is really a recognition that growth in this industry at this point is going to have to come through stealing share. Traffic in the industry is pretty muted. There’s very little traffic growth. In fact, if you’re not growing units, you’ve got a headwind there. So I think that’s one recognition and certainly, you are seeing, I think, just a lot of people really wanting to make sure that they can get the growth that they need to be able to offset some of the cost headwinds. So I think between those two things, it has been a competitive environment, it’s going to continue to be a competitive environment, but I wouldn’t say I’m seeing an uptick right now.

Our next question is from David Tarantino with Baird.

My question is on some of the investments you made on the technology side. You made some pretty big bets across the last year or so, and it looks like you’re sort of staffing up to support that technology investment with your G&A spending. So just wondering, one, are there more big investments on the horizon that you see as needed? And then two, have you considered recouping some of those investments or sharing some of the cost of your franchisees through a technology fee or something similar that others have put in place?

Yes. Well, as you noted, we did do two acquisitions last year, we bought Dynamic Yield, which was going to help us with our suggestive sell capability; and we bought Apprente, which is for voice recognition through the drive-thru of that capability. I would say our typical approach is partner not buy. And so both of those, for somewhat different reasons were, I think, unique situations. I don’t foresee that buying tech companies is going to be our approach going forward. But we do want to be nimble enough where there are situations that come up that we will make an acquisition. I think in the case of Dynamic Yield, what we saw there was really an opportunity for us to accelerate our rollout of suggestive sell across most of our major markets there with what we believe to be kind of the leading technology in the industry. And so with the idea of really wanting to drive an acceleration and do it with a leading partner, we made that acquisition of Dynamic Yield. Fast forward, even less than a year later, we’ve got Dynamic Yield in all 10,000-plus U.S. restaurants with a drive-thru. It’s fully rolled out in Australia. And we’re seeing a comp lift, very consistent with what we had modeled when the acquisition was done. Similarly, with Apprente, we’ve got Apprente in test in a handful of U.S. restaurants, and we remain optimistic about that. So I think what you’re seeing really is, for us, just an emphasis on – we believe digital has the opportunity to really be a huge growth driver for us. When we can partner with people and do it kind of under our traditional model, that’s always our preference. But if there are times that we need to do an acquisition, we’re certainly not going to take that off the table. I think your question about is there a model in terms of how that gets shared with franchisees, I think one benefit is when you get the lift that we are getting with something like Dynamic Yield, we obviously participate through rent and service on that. So I’d say the first part is all of these are meant to drive top line growth, and when we see that, we certainly participate from rent and service. On the ongoing costs, the ongoing costs do get passed through to franchisees as part of our normal tech fee, we kind of separate tech costs between development costs and sort of the ongoing operating costs. We will typically pay for the development costs on our own, and then the ongoing costs are what gets shared through a tech fee arrangement with our franchisees. So that’s been kind of our model for a long period of time. I don’t see that model changing.

Our next question is from John Glass with Morgan Stanley.

Just following up on that, in the U.S., Chris, how comfortable are you with the check growth that you’ve experienced in 2019? It’s more than 100% of the comp. Is it possible we would see the same kind of check growth in 2020? Or are you less comfortable given that it may hurt the value proposition for the brand? And if you are willing to share, what is the comp lift that you modeled for Dynamic Yield that you’re experiencing currently?

Thanks, John. One of the things that I do feel good about with the U.S. is when you look at the check growth that we’ve gotten, it’s really come through a number of different things. There has not been sort of a one-trick pony on that. We’re seeing the majority of that growth is coming through mix as opposed to just kind of straight menu price. But then as you decompose mix, you’ve got a number of factors that are worked there. You’ve got delivery, which is delivering 2x the average check of a regular order. You have Dynamic Yield, which is typically leading to add-ons to an order. You have our self-order kiosk, where we know that people tend to have larger orders when they do self-order kiosk. You’ve seen some of our promotional items like donut sticks, D $1 $2 $3 as a value, which are really driving add-on activity. So I think, for me, I do feel better about how we went after check growth in 2019 because it was heavily mix-driven from that. But there is a pricing element to this. The inflation that we’re seeing out there, particularly on the labor side that does get priced through and so I think as we head into 2020, the conversation we’ve been having with franchisees, which gets back to the opening question, is we’ve just got to make sure that we have balance. We need to have a balance between check growth and we need to get to transaction growth, and that’s what everybody in the U.S. is working toward right now.

And then regarding kind of quantifying the Dynamic Yield lift, we generally don’t quantify specific components of our comp. What I would say is it will be potentially different in different countries. So right now, we’re certainly getting a bigger lift from Dynamic Yield in the U.S. than in Australia. In Australia, they had a rudimentary suggestive sell already in the drive-thru. So as we put a Dynamic Yield, there wasn’t as larger a lift as we’re certainly experiencing in the U.S. But the big positive about Dynamic Yield is our plans would be to take that similar decisioning engine-type logic and be able to use that further in kiosk and global mobile app ultimately, so that we need – can continue getting further sales lifts in other digital mechanisms also.

Our next question is from Brian Bittner with Oppenheimer.

Can you just talk a little bit more about the CapEx strategy moving forward? When we met in December in New York, it sounded like there was somewhat of a pivot happening in how you were thinking about the CapEx strategy even past 2020. I believe you were really starting to see areas you could invest in moving forward that would maybe keep CapEx elevated. Can you just talk about this? And ultimately, what does your steady-state CapEx look like? And what year do you expect that to occur?

Yes. Thanks, Brian. So as we talked about, we always said ‘19 and ‘20 would be similar. So we had $2.4 billion in 2019, we’ll have a relatively similar amount in 2020. And as we’ve indicated, we expect CapEx to come down some in 2021. The one area that we’re currently reviewing and evaluating is our international business and potential unit expansion there. As you know, our international business is very strong, we see very high returns on investments in new restaurants in those markets, and we believe there’s further potential for unit growth in many of those markets. So we’re currently evaluating the opportunity to invest in some of those new units outside the U.S. You’ll see that we have gone up a little bit in our openings in 2020, growing about 1,400 new units that should, between those and the ones we opened in 2019, contribute roughly 1.5 to our sales growth. So that’s the one area we’re currently evaluating. I think as far as longer term, we want to get through this evaluation, then we’ll talk further about that when we have our Investor Day later this year.

Our next question is from Chris O’Cull with Stifel. Chris O’Cull: My question is about value. It sounds like everyday value will be necessary to improve the systems’ relative market share this year. And I believe franchisees are only required to feature a few items on the D $1 $2 $3 value menu. So how does the company convince franchisees to be more aggressive with everyday value given the cost pressures they’re facing?

Yes. I think it’s not just everyday value that are – is part of the equation, there’s also what we would call deal value, which is sort of the post on and off type of value. And so I think from our vantage point, it’s probably going to be more of the latter in terms of how do we smartly and in a disciplined way, pulse deal value throughout the year on this, and where are there opportunities for us to do it that, in a way, can drive both traffic and can protect margins. So we’ve been having a lot of conversations on that. As you would imagine, I’m not going to telegraph on this call in terms of how we actually plan to go about it. But I think back to a couple of the earlier points that we’ve talked about here, there is strong alignment with the owner/operators the U.S. that we need to be in a situation where we’re getting both transaction growth as well as check growth. And so it’s up to us now to deliver on it, but I do think there’s good alignment to it. And it’s probably going to come more through deal than it is necessarily everyday value. I think we’ve got a good everyday value platform embedded already.

Our next question is from Matt DiFrisco with Guggenheim.

There has been some reports about you guys closing some stores in China. I wonder – I know you guys don’t give specific guidance for the year, but can you sort of at least help us understand how much exposure the MCD shareholders have to that market, whether that’s in a worldwide revenue or your operating income?

Sure, yes. Well obviously, the situation in China is fluid and it’s concerning. Right now, as you would expect, our priority is really on our employees, on our customers, doing everything we can to make sure that they are safe and taken care of. And so in that vein, we’ve been working a lot with the local authorities, particularly in the Hubei province. We have closed all restaurants in the Hubei province, which is several hundred restaurants that have been closed. But importantly, we do still have about 3,000 restaurants in the country that are still open. So several hundred closed, but 3,000 that are still open. We’ve also, with the China team, we’ve put in place an epidemic prevention and control task force, which is something we’re doing again in combination with the local authorities there. And it’s everything from using our kitchens to help provide meals to health care workers in hospitals. We’re doing things in terms of giving medical screening for customers who come to some of our restaurants. So it’s really an "all hands on deck" effort from that vantage point. China for us is a critical strategic market, but I think it’s probably more because of the potential that we see in that market as opposed to its materiality to the business today. Just to put it in perspective, when you think about China, it does represent about 9% of our global restaurant count, but it’s about 4% to 5% of system-wide sales and it’s only about 3% of op income. And so while, again, China is a critical market for us and we’re very concerned about the situation over there, its actual impact on our business is going to be fairly small, assuming, again, that it stays contained to China.

Our next question is from Sara Senatore with Bernstein.

A question and also a follow-up please. So just on the outlook for G&A, I think at the investor event last month, and certainly you reiterated just now, the sort of very case-specific reason to make acquisitions. But I mean, how should we think about tech spend going forward? I think the guidance for G&A this year was a little bit higher than I would have expected. I know some of that is the owner/operator convention. Maybe you could quantify that? But just from the perspective of should we be thinking about technology as a line item that grows faster going forward, sort of in that mid-single-digit range, more similar to labor than to other investments just trying to anticipate that? And then the clarifying question was you talked about franchisees having record owner/operator cash flow this year in the U.S. Does that give you any more flexibility in terms of the value that you can address or are franchisees more looking to kind of protect that after having had a couple of years of declining cash flows?

Alright. I’ll talk about the G&A first, and then I’ll let Chris come back and talk about value and the franchisees. Related to G&A, a couple of points, we have talked about how we’ve gotten more efficient with our day-to-day G&A, and we’re investing in technology and R&D, so things like Dynamic Yield and Apprente. And the things we’re investing in are either top line drivers or cost saving potentials. So that’s how we think about kind of some of these specific investments. We have decreased our overall G&A as a percent of sales from around 2.8% in 2016 to 2.2% in 2019. And roughly – today, roughly more than 10% of that G&A spend is actually depreciation and amortization related to technology spend, so a chunk of that G&A is non-cash as it relates to prior year spend. We do – as you indicate, we expect full year G&A in 2020 to be up 5% to 7% in constant currency due to those investments. But that’s – because I’m lapping partial year on some of the acquisitions, we now will have full year in 2020. So that level of increase, we certainly do not expect going forward. But as we’ve talked about for 2020 or as I mentioned in my script, first half of 2020 will be significantly higher growth rates than the second half of 2020. And then I guess, the only other thing I’d say is we’re in the midst of updating all of our analysis and long-term models also with the G&A. But so far, we haven’t seen anything that significantly changes any of our thinking on G&A long term. So we don’t think about it any differently today than I did a couple of years ago. But I do have – obviously, to your point, we had an increase in ‘19, we have a little larger increase in ‘20. But certainly, we don’t expect that increase to be a run rate increase going forward.

On the point about or question about franchisee cash flow, it’s exciting when you see the system set a record for franchisee cash flow. And in 2019, in the U.S., they did so in kind of a resounding way. I mean, they blew through the prior cash flow record and surpassed that by probably another $50,000 or something like that. So it’s a really good thing when you have wealthy franchisees who are making a lot of money because it means that their mentality is to be aggressive to invest in the business. Now that can take a number of different forms. That could take investments in the restaurant and some of the capital investments that we’ve been doing, it can take the form of putting more labor in the restaurants and it can take the form of value as you talking about. So to me, it’s more about the point that our U.S. owner/operators are in a really healthy spot right now. I think that’s also reflected in their sentiment, and they want to keep it going. And so that’s going to require staying aggressive on the business, and I’m confident they’re going to do that.

Sorry, Sara. The one other thing you asked about was convention, and I forgot about that, but convention – our operator convention that we have every other year is roughly $25 million to $30 million.

Our next question is from Jeff Bernstein with Barclays.

So the question as we think about the 2020 financial performance, Chris, I know you mentioned you’re starting the year strong from a top line perspective. On the flip side, I guess, you’re talking about maybe some elevated G&A in the short term. So I’m just wondering how you think about that in relation to your thoughts on achieving your long-term algorithm, which is for high single-digit EPS growth, I know you don’t necessarily guide specifically to any one year, but just wondering how you see that potentially playing out, whether this is a year where we could expect some more normalized comparison to long-term growth. And within that, that return of cash that you mentioned, I know you finished your three-year target. I’m just wondering whether, going forward, we should now just think of it as you’re going to return all free cash in any one year versus perhaps giving a target for one or multiple years?

Yes. Thanks, Jeff. Let me hit – it’s a couple of different things. Let me first talk about 2020. If you do the math, basically, with all of the guidance we’ve given, hopefully you get to similar places where we are, which is we do expect EPS growth for 2020 to meet the high-single-digit target. Certainly, a lower tax rate is helping that growth rate. And as you mentioned, it may not be even growth rates quarter-by-quarter through the year because of some of the individual quarter pressures. But as we look at the full year, we do have an expectation of being within that high-single-digit EPS growth rate target for 2020. Regarding cash return, we’re fortunate to generate a substantial amount of cash flow and be able to fund both the investments that we want to make in the business and still return a significant amount to shareholders. As I mentioned in my remarks, our free cash flow was $5.7 billion in 2019, which was up over 35%. Free cash flow conversion was around 95%. As we had internal discussions and discussed with several of our large shareholders, we decided not to give a specific dollar target over a three-year period for cash return, but there is – but I do want to reiterate our capital allocation philosophy because there is no change to that. As I mentioned, the priorities remain the same: first, to reinvest in existing restaurants and opportunities to grow the business; second, to continue growing our dividend; and third, to buy back shares. We do expect to continue to return all free cash flow to shareholders. And in our modeling, we anticipate net incremental debt of roughly $1 billion each year for the next few years. So that should give you an idea of kind of where the cash return comes out to that. Thanks.

Our next question is from Chris Carril with RBC.

So with so much attention focused on the morning daypart given the rollout of breakfast by a large competitor, how do you assess the opportunity to strengthen your competitive position in the other dayparts as breakfast becomes more of a focus for the industry?

Yes. I think as you look at our business and you think about our 2020 plan, when I look at it, there is a good balance. I mean, we certainly have, I think, a pretty strong breakfast plan. We have a combination of menu news at breakfast. We have some service, things that we’re really looking at driving at breakfast. And then certainly, we plan on remaining competitive from a value standpoint in breakfast. But there is a lot of other things that we still have on the calendar. And so if you think about a couple of years ago, we talked about really focusing on food and it was going to be a focus on burger, chicken and coffee. And I think you’re going to see for us, in 2020, that there’s going to be burger news, there’s going to be things that we’re doing there that continue to keep driving our QPC business, which really has been a standout performer for us the last couple of years. Obviously, a lot of discussion about chicken, don’t want to get specifically into timing and what we would do there, but we’re committed to really updating it and competing in an aggressive way in the chicken segment, so you should expect something there. And then we do see opportunities as well around beverages, desserts. So as the year unfolds, I think you’ll see us staying strong on breakfast, but it’s not going to be at the expense of rest of day.

Our next question is from Dennis Geiger with UBS.

Just wondering if you could touch a bit more on operations and throughput and the opportunities there specific to drive-thru times, I think you touched on globally, perhaps how that’s been progressing. So specifically in the U.S., maybe how much of an opportunity that is in 2020, and perhaps what part technology plays in improving the operations and those throughput times.

Sure. Well, I think in the U.S., I’m really pleased with the performance that the team put up in 2019. As we talked about in our comments, we’re at record customer satisfaction scores in the U.S. driven by operations, and we’re seeing it broad-based across a number of ops metrics that we’re looking at. The team did a really nice job in 2019 speeding up our drive-thrus. We saw good performance there. But I think what we’re also excited about is we think there’s more that we can do there. We think that there’s certainly 20, 30 additional seconds that we want to go try to get in 2020. And it’s a combination of activities. It’s a combination of menu simplification moves. It’s a combination of training and really making sure we have the right focus. We are doing things to bring fun into the restaurant to create kind of that competitive rivalry there. And then technology is a component to that. I’d say right now, in 2020, I don’t see technology necessarily being a huge part of what’s going to be driving cash flow or driving speed of service, rather. We have ZOOM timers, which is an internal thing that we use, that really gives the team a very detailed breakdown of each kind of part of the customer journey as they go through the drive-thrus. We can be very pinpointed on how to drive speed of service. But that’s now deployed in most of our restaurants. So I think in 2020, it’s going to be a lot of blocking and tackling. Longer term, we’re obviously very excited about what technology can do to help with speed of service, which is why we’ve done acquisitions like we did with Apprente. If we’re able to get that commercialized and deployed, that’s certainly going to be something that helps us with the speed of service in the future.

We have time for one more question from Greg Francfort of Bank of America Merrill Lynch.

This is kind of a two-parter. But just in terms of the check, I know I might be beating a dead horse here, but just can you quantify how much of that is spend per customer versus customers per ticket, as we try to think about maybe framing up like 7% check is not actually that much on a per customer basis? And then the other question, I know you just touched on it on chicken and you don’t want to get into timing of new launches, but can you maybe talk about what your competitors are doing that McDonald – I guess, I would think that there’s nothing that McDonald’s couldn’t replicate that your customers are doing. Is it a space constraint of getting new equipment? Is it getting the right flavors? Or is there something else that you’re focused on in trying to improve the chicken quality.

So I’ll cover the check real quick and then Chris can talk about chicken. A couple of things on check, so roughly right now, 60% of check is mix and 40% is pricing. And that’s been relatively consistent, I’ll say, throughout – I think we probably said roughly two-third, but it’s in that range really throughout the year for 2019. We are seeing – in general, we’re seeing a little bit higher customers per ticket. If you think about the way the business is evolving between things like delivery and the kiosks, we generally now have a little bit higher number of customers per ticket. So that is a piece of it. But even knowing that, we have been able to grow guest counts in many of our international markets, so I don’t want to imply that, that would say that we should be able to grow guest counts in the U.S., the dynamics are changing, but we believe we can still grow guest counts even with those change in dynamics.

And on your chicken question, you’re right, we have a very detailed and intimate understanding of what our competitors are doing there. I think, for us, it’s really all about finding a product that works in our restaurants. And so that has an operations component. Our menu, as you know, is much more broad than some of our competitors. So that’s something we need to be mindful of in terms of how – what we might do in chicken, what knock-on effect that might have on the rest of menu from a speed of service. And then there are some equipment differences in terms of the equipment that we have in our restaurants versus what some of our competitors would have. What we have been out testing – we are in a test right now, as you probably know. But we’re testing a number of different approaches in terms of not just what you might do from a product standpoint, but are there things that we might want to do differently from an operations standpoint or are there things we might want to think about differently from an equipment standpoint. So like anything with menu in McDonald’s, it’s a little bit of a Rubik’s cube of what’s the customer looking for, what works operationally and then the business fundamentals under that. But I think I feel good about where we’re going to net add on chicken. I think we’re getting close to having something that we’re excited to bring to customers.

Thank you, Chris and Kevin and thank you everyone in joining the call today. Have a good day.

This concludes McDonald’s Corporation investor conference call.