Arcos Dorados Holdings Inc.

Good morning, everyone. Thank you for joining our second quarter 2021 earnings webcast. With us today are Marcelo Rabach, our chief executive officer, Luis Reganato, 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 investor 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 6K. 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 will provide an overview of our second quarter 2021 consolidated results. Luis and Mariana will take you through sales and profitability at the divisional level, as well as providing an update on the main elements of our 3Ds strategy of drive-through delivery and digital, along with our growth investments and capital structure. Marcelo will wrap up by sharing some news about our Recipe for the Future ESG platform. Marcelo, over to you.

Thank you, Dan. And thanks to all of you for joining us on today's webcast. Since the beginning of the pandemic, we have prioritized the safety of our people and guests, while also focusing on ensuring the long-term health of the Arcos Dorado business. We have done this by leveraging the competitive advantages of the 3Ds, an unmatched freestanding restaurant portfolio, strong balance sheet, and superior cash flow generation. We began the year expecting to face a challenging first semester, followed by a much stronger second semester, as operating conditions normalized in the region. So far, we are trending in line with or even better than we initially expected, but there is still a long way to go. Given the impact of the pandemic on last year's results, For the remainder of this year, we will be comparing 2021 quarterly results not just with the prior year or prior quarter, but also with the same period of 2019. We are very pleased with the progress we have made in returning to 2019 local currency sales levels while also approaching pre-pandemic profitability. Although conditions are normalizing, government restrictions continue to hamper our ability to operate normally at night and on weekends, or benefit from entertainment activities, such as movie theaters, that usually help generate guest traffic. Despite this, for the full quarter, two-year system-wide comparable sales were essentially flat on a consolidated basis, including positive growth in May and June. In fact, three of the four divisions delivered positive comparable sales for the entire quarter versus the same period in 2019. Looking ahead, we are excited and preparing for the return of the on-premise business in both freestanding and mall-based restaurants as the year progresses. Let's take a closer look at our second quarter 2021 results. The strong system-wide comparable sales trend I just mentioned continues into July, with momentum building in all divisions on a two-year comparable basis. Adjusted EBITDA grew sequentially, from $24.7 million last quarter to more than $48 million this quarter, including a tax credit of almost $12 million in Brazil, which largely offset the impact of government restrictions in that market. Importantly, all divisions were able to generate significant operating leverage, with the strongest growth coming in the Caribbean and SLAD. As a result, we generated a 12.6% increase in constant currency adjusted EBITDA on a two-year basis. The three Ds are driving this recovery. drive-through sales remain strong despite a modest recovery in on-premise sales while delivery sales have not stopped growing sequentially setting new records in each passing month according to appani we have the industry's highest rated mobile app and we are expanding the digital capabilities that will allow our guests to move seamlessly across our on-premise takeaway and delivery sales channels, enhancing convenience and improving personalization. Notably, these competitive advantages have supported strong market share gains in our main markets, including Brazil. I will now turn it over to Luis for a closer look at our divisional sales performance.

Thanks, Marcelo. The geographic diversity and single brand focus of the Arcos Dorados operation served to smooth out the crisis management and recovery periods of the last 18 months without disruptions. As a result, comparable sales were within 1% of the second quarter of 2019, with positive two-year comparable sales in three of the four divisions. As we mentioned on our last call, Brazil began April down 40% compared with 2019, but sales performance improved with the relaxation of government restrictions over the course of the quarter. More importantly, we continued gaining market share. According to Crest, the McDonald's brand gained 2.3 percentage points of market share versus 2020 and 4.1 percentage points versus 2019, far more than any other competitor in that market. Brazil is capitalizing on the unique emotional bond the McDonald's brand has with its guests. Marketing activities in the second quarter focused on our strengths, core menu favorites and the 3Ds. In addition to participating in the global famous orders platform with the launch of the BTS meal, we introduced our drive-through based loyalty program in the quarter. In just three months, the MECI VIP Drive Club has surpassed one million registered members and has already become an important frequency driver. NOLAC's growth sequentially year over year and on a two year basis was driven by Mexico, which more than offset tough conditions in both Costa Rica and Panama. Mexico is capitalizing on the brand's reputation for food safety and hygiene, while leveraging one of the largest freestanding restaurant portfolios in the country. Drive-through sales have been particularly strong in Mexico, and we are making upgrades to the operations IT infrastructure as we prepare to introduce significant digital capabilities to guests in that market. Marketing activities in NOLA continued to focus on our core products and brand building activities. All three markets boosted the Chicken McNuggets platform with the introduction of the BTS meal on June 1st, selling out within just a few days. Delivery accelerated sales supported by co-branding campaigns with the delivery aggregators and product bundles to celebrate various occasions and special dates. These mobility campaigns helped generate double digit sales growth on a two year basis in Mexico, where we also opened the country's first EOTF restaurant. SLAT's top line growth was driven by the strength of the Chilean and Argentine markets, despite persistent government restrictions across the division. The division's two year comparable sales were positive in both May and June. The Copa America is Latin America's most important international soccer tournament, which took place from June 10 to July 11. We were able to capitalize on the building excitement in Argentina through our digital sponsorship of the country's National Soccer Association. This sponsorship, which allowed us to use the image of some of the country's biggest soccer stars, including Lionel Messi, helped boost digital sales and improve guest experience through promotional activities in the restaurants. Finally, the Caribbean delivered another quarter of solid results from its main markets, Puerto Rico, Colombia and the French West Indies. We supported the chicken platform with the launch of the BTS meal in Puerto Rico and Colombia, building on the momentum of the successful introduction of the crispy chicken sandwiches in Puerto Rico in the first quarter. Drive-thru sales have also grown significantly thanks to improved service times, reduced menu complexity, focus on customer experience, and growth in the club VIP automat program. For several quarters now, the Caribbean has been proving the benefit of operating across the broad and diverse geographic footprint. Just a few years ago, this was Arcos Dorado's most challenging division, and today it is among our best performance, contributing strong US dollar and Euro denominated cash flows. The division, which benefits from the highest freestanding restaurant penetration in the company, generated almost double-digit comparable sales growth on a two-year basis. As Marcelo already mentioned, this momentum continued across the business in July with another month of positive comparable sales on a two-year basis, including flat comps in Brazil and sequentially high results in the other three divisions. The three Ds continue driving growth and delivering results, Drive-thru sales rose 29% in constant currency and contributed 39% of system-wide sales. Even with the gradual improvement in the on-premise business in our freestanding restaurants, we have been able to sustain growth in the drive-thru segment through operational improvements, advertising campaigns, promotional activity, and the club VIP automob program. Delivery was up 94% on top of 150% growth last year on a constant currency basis, contributing more than 19% of system-wide sales in the quarter. This included 91% growth in Brazil in local currency on top of 152% growth in the prior year period in that market. We set another quarterly sales record for delivery, even with recovering on-premise sales in both freestanding and mall-based stores. This is strong evidence that delivery has generated an additional consumption occasion for our guests and should bring incremental growth even with normalized sales at the front counter. Our relationships with the delivery aggregators are evolving. and remain strong across the region as we work to improve the business model for the segment. The digital platform generated 39% of total sales in the quarter. This includes delivery, mobile app, and self-order kiosk sales. We have the highest rated mobile app in just about all our main markets. with cumulative downloads nearing 54 million across the region, including 29 million in Brazil, where we have a 2 to 1 advantage in active users against our nearest competitor, according to Abani. We believe in running great restaurants and focusing on great guest experiences, no matter how guests choose to enjoy the McDonald's menu, including giving them more reasons to visit us more often. With that in mind, we introduced the Club VIP automat program in several markets late last year, quickly exceeding 1 million registered members by the end of the first quarter of 2021. In April, we launched a similar program in Brazil, adding another 1 million registered members in that market in just three months. The program provides members with exclusive offers, early access to new product launches, and other personalized experiences. Results so far have been compelling, with registered members already helping to boost frequency. This program leverages the drive-through segment, where we enjoy a significant competitive advantage and can test a number of loyalty program concepts. we are also monitoring other models across the McDonald's system to evaluate which can be good alternatives for our markets in the future. Today, we are feverishly preparing for guests to return to our front counters, dessert centers, and Macafes. We believe it is just a matter of time for the on-premise business to recover, and we know how important it is to provide the service quality, and cleanliness they have always associated with our restaurants. It is important to keep in mind that the on-premise business includes both freestanding and mall-based restaurants. Pre-pandemic, freestanding restaurants generated about 70% of sales on-premise, meaning at the front counter, dessert centers, and McAfee. Mall-based store sales were even more concentrated in the on-premise sales segments. So far, when government restrictions allow and guests feel comfortable, they still see our restaurants as a destination where they can order and enjoy their favorite menu items and desserts. This gives us great confidence and optimism for the second half of this year, as well as for the medium to long-term growth prospects of the McDonald's brand in Latin America and the Caribbean. Mariano, over to you.