Arcos Dorados Holdings Inc.

Hello, and thank you for joining Arcos Dorado's second quarter 2025 earnings webcast. With us today are Luis Haganata, our Chief Executive Officer, and Mariana 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, ir.arcosdorados.com. To better follow the presentation, please note on the webcast platform additionally you can submit your questions at any time during the presentation using the q a function on the bottom of the screen after we conclude our opening remarks we will answer your questions 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 today's earnings press release and conference call presentation, as well as the unaudited financial statements filed today with the SEC on Form 6K. With that, I'll now turn the call over to our CEO, Luis Argonauta.

Thank you, Dan. Good morning, everyone, and thank you for joining us. Before getting into the quarter's results, let me take a moment to thank our executive chairman, Woods Dayton, and the entire board of directors for their confidence in appointing me CEO of Arcos Dorados. I am honored to continue the work of my predecessors, each of whom took the company to new operational and customer experience heights by working collaboratively with all stakeholders of the Arcos Dorados and McDonald's systems. I would also like to congratulate all members of the team who are taking on new roles as part of this management change. We always said that Arcos Dorados has a deep bench of talented executives This includes Carlos Gonzalez, who is taking on the role of Chief Operating Officer, bringing very significant management experience and a demonstrated ability to bridge cultural and generational gaps to drive strong performance. I look forward to working with him and the entire team to exceed our guest expectations and generate value for all stakeholders. Moving now to the key highlights of the quarter, we generated solid results in very dynamic macroeconomic and operating environments. Total revenue reached $1.1 billion. Constant currency revenue remained solid, built on 12.1% higher system-wide comparable sales, which was above blended inflation for the period. Comm sales growth was particularly strong in knowledge and slide, growing well above blended inflation in each division. The same calendar effect that impacted knowledge results in the first quarter helped boost the division's results in the second quarter. Marketing and digital initiatives focused on value and brand strength across sales channels and product categories. Additionally, the loyalty program continued to drive an increasing percentage of sales by bringing members back to our restaurants more often. These efforts helped support robust market share gains in many markets. More on that later. We generated $110.1 million in adjusted EBITDA in the second quarter. Excluding last year's labor contingency reduction in Brazil, adjusted EBITDA grew by more than 7% and margin expanded by about 40 basis points. The growth plan for 2025 remains on target, and we opened 20 new experience of the future restaurants in the second quarter. This brings total openings for the first half of the year to 32 sites. and the plan remains to deliver 90 to 100 this year. In addition to adding new restaurant through openings, we are excited to announce that last month we added a 21st market to the Arcos Dorados family. We acquired three existing restaurants and the exclusive franchise rights to Saint Martin in the Caribbean. The choice of Arcos Dorados as the new operator in Saint Martin is a testament to our operational excellence and commitment to growth in the region. Marketing and digital campaigns draw up strong comparable sales growth in NOLAD and SLAD during the quarter, while also helping to protect market share within a challenging consumer environment in Brazil. The digital ecosystem that accounted for about 60% of sales in the quarter supported campaigns designed to stay close to guests and adapt to changing consumer preferences. This included the Big Fest, which celebrated car favorites at a compelling value. The results were clear. Brand preference rose to almost twice that of the nearest competitor across the region. Brand attributes related to value, taste, and trust saw significantly higher favorable gaps versus the near competitor as well. And app downloads and loyalty program membership increased strongly during the campaign. The digital loyalty program is now available in six countries, with a seventh market currently in its pre-launch phase. The program already covers two-thirds of the restaurant portfolio, and we expect it to be available in 90% of all restaurants by the end of this year. Loyalty program members visited us at a much higher rate than non-loyalty guests, and they represented almost 23% of total sales in the six available markets during the second quarter. In Brazil, where the consumer environment has been challenging this year, we took steps to remain close to guests. For example, the Mequidogia campaign offered one menu favorite per day at a compelling value. Across the operating footprint, the Minecraft Happy Meal also strengthened ties with our guests. The game has significant crossover appeal to both kids and adults, which we optimized by offering a unique adult happy meal with chicken McNuggets. We also used the original Formula One sponsorship to strengthen ties with families and guests of all ages. Capitalizing on the appeal of Formula One, the movie, we introduced a limited edition sandwich and a collectible race car exclusive to McDonald's restaurants. The campaign was extremely successful, selling out in just a matter of days or weeks, depending on the market. Finally, the dessert category has become increasingly competitive, so we kept the entry-level gun price at an attractive price point. We also innovated by leveraging a favorite McDonald's character with the Grimace Shake and by adding more local flavors to the McFlurry platform. Over to you, Mariano.

Thanks, Luis, and good morning, everyone. Brazil's total revenue in constant currency grew 2% in the second quarter, including positive comp sales despite operating within a context of negative industry volumes. We were able to offset volume pressure with higher average check with a combination of targeted pricing and product mix. Importantly, market share remained steady versus the prior year, and the brand attributes we track are as strong as we have ever seen. This undoubtedly positions us well for when consumer trends improve in the country. More than 70% of system-wide sales were generated by digital channels, and the Meumeke loyalty program surpassed 18 million members who accounted for 26% of the division's total sales. NOLAT's total revenue rose 6.9% in constant currency. US dollar revenue growth was impacted mainly by the year-over-year depreciation of the Mexican peso. Comparable sales rose 1.8 times blended inflation in the period. This included 12.4% comp sales growth in Mexico, much higher than all main competitor brands. Digital sales penetration remained steady in NOLAD, where we offer the loyalty program in Costa Rica, and we are in the test phase in Puerto Rico. We believe digital sales performance will ramp up in the division as we expand the loyalty program to additional markets by the end of this year. Slats revenue rose 37.8% in constant currency, with comparable sales up 1.4 times blended inflation in the period. Market share expanded strongly in several markets, including Argentina, and Chile. Argentina built on last year's market share gains to boost its continued rebound from 2024. Digital sales penetration in SLAD surpassed 60% and loyalty generated 17% of total sales from the four SLAD markets currently offering the program. Let's shift now to profitability and capital allocation during the second quarter. Adjusted for last year's labor contingency reduction in Brazil, second quarter consolidated EBITDA grew very solidly in US dollars, despite currency headwinds. While food and paper remained pressured due to higher beef prices in Brazil, improvements in all other restaurant expense lines supported the solid EBITDA performance. Similar to the first quarter, Brazil's margin contraction was mainly due to higher food and paper costs from rising beef prices in the market. As you already know, the royalty fee this year is higher in Brazil due to the normalization of the royalty rate across the three divisions. Excluding last year's labor contingency reduction, the net result of the remaining expense lines had a positive margin impact in Brazil. NOLA's margin included improved performance in all restaurants' expense lines, except food and paper, which rose modestly versus last year as a percentage of revenue. Royalties were lower due to the normalization of rates across the three divisions and the result also included a gain from a sub-franchisee restaurant transaction in Mexico during the quarter. Margin performance was strong in nearly all the divisions market in the period. SLAD delivered another strong quarter of margin expansion with lower costs and expenses in nearly all line items. Notably, last year's EBITDA included a positive impact from a sub-franchised restaurant transaction. Adjusting for that impact, Slack's margin expanded by about 260 basis points versus the second quarter of 2024. With these results, the company's balance sheet remained strong, and we continued making investments in future cash flow growth. As of the end of the second quarter, our debt was concentrated in two long-term bonds, the 2029 and 2032 NOLs, with an average US dollar cost of 6.28% and an average duration of almost six years. After receiving an upgrade to investment rate from Fitch in January, last month, S&P assigned an initial rating of BBB- to our debt. As a result, Alcos Dorado's debt is now considered to be full investment grade, which should help support future capital market transactions. At the end of the second quarter, net debt to adjusted EBITDA ratio was a comfortable 1.4 times, and we expected to remain near this level for the remainder of the year. Our growth strategy remains intact. And during the second quarter, we added 20 EOTF restaurants to the portfolio. That has been the case for the last five years. Most openings were freestanding units, and the majority were opened in Brazil. We invested $55.3 million in capital expenditures, including more than $26.8 billion in growth capex associated with new restaurant builds. We expect to continue making prudent investments in growth as we remain convinced this is the best way to increase free cash flow generation in the long term. As Luis already mentioned, after the quarter ended, we acquired the three existing restaurants in San Martin and the exclusive franchise rights for that market, which will be subject to the same terms as our existing master franchise agreement with McDonald's. San Martin will be managed by NOLAD and will be included in the division's results beginning in the third quarter of 2025. We do not expect a material change in consolidated results from this acquisition. Back to you, Luis.