Arcos Dorados Holdings Inc.

Hello, and thank you for joining Arcos Dorados Third Quarter 2025 earnings webcast. With us today are Luis Aranata, our Chief Executive 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 that is also available in the investor section of our website, ir.arcosdorados.com. To better follow the presentation, please note that you can set your view to full screen 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 6-K. I'll now turn the call over to our CEO, Luis Aranato.

Thank you, Dan. Good morning, everyone, and thank you for joining us. Today, we will take you through Arcos Dorado's third quarter 2025 results, which included balanced U.S. dollar revenue growth with solid profitability. We successfully navigated challenging consumer dynamics in a couple of our largest markets, as well as persistent input cost pressure, especially in Brazil. As I mentioned in August, we are focused on exceeding guests' expectations in today's business while modernizing and improving our growth processes to support high returns on investment and to ensure Arcos Dorados maintains its leadership position well into the future. In the near term, operating conditions remain challenging, but we believe we are well positioned to resume more normalized top-line and EBITDA growth across the business when the consumer and macroeconomic environments improve. Let's move now to the key highlights of consolidated results for the third quarter. Total revenue reached $1.2 billion, a new high for a single quarter, with balanced U.S. dollar growth across the three divisions. System-wide comparable sales rose 12.7%, in line with blended inflation for the period. Comm sales growth was particularly strong in SLAC, specifically Argentina, and in selected no-land markets such as Mexico and the French West Indies. Average jet growth dropped the result, more than offsetting a long single-digit decline in guest traffic versus the prior year. Marketing and digital have been an important differentiator for the McDonald's brand throughout the Arco Dorado's footprint. This has allowed us to protect or expand market share almost without exception in the markets where we operate, which should help us sustain strong performance over the long run. We generated more than $200 million in adjusted EBITDA in the third quarter. This result included the net impact of a federal tax credit in Brazil. Excluding this impact on the quarter's results and the recovery, of social contributions from the prior year period, U.S. dollar adjusted EBITDA declined by about 3%, mainly due to continued food and paper cost pressure. We opened 22 restaurants with more than half of the quarter's capital expenditures invested in new restaurant growth. With all remaining restaurants under construction, we are on track to deliver this year's 90 to 100 openings guidance. Let's take a look at a few of the initiatives we used to generate sales growth in the quarter. Digital channel sales rose more than 11% versus the prior year and generated 61% of system-wide sales in the quarter, with continued strength in delivery and self-order kiosks. We are encouraged by the positive impact of the self-ordered kiosk since it demonstrates the relevance of the on-premise restaurant experience and the value guests see in our omnichannel offerings, convenient restaurant locations, and industry-leading service, the only we can offer. Digital sales growth was strongest in Brazil and Slack. where Argentina capitalized on a modernized restaurant base and a tech-savvy consumer to drive growth. The loyalty program is now available in seven countries, and we expect it to be offered in about 90% of all restaurants by the end of 2025. The program had 23.6 million members at the end of the third quarter, growing by nearly 50% versus the end of 2024. As the program grows in membership and active users, we expect it to help support more sustainable top-line growth in the long term. Marketing in the Quarter focused on brand strength across all platforms. We deepened the emotional connection with the brand and created memorable experiences for families with the Hello Kitty and Tiny Tan licenses. value platform offered good value for money to guests and remained a strategic priority given the operating environment. Several markets leveraged the McChrystal Chicken platform to introduce new sandwiches and bundles in this key growth category. The dessert category also supported guest traffic with locally relevant McFlurry flavors and the popular Hello Kitty license. Finally, we leveraged the exclusive regional sponsorship agreement with Formula One to drive sales and strengthen brand love in several markets. Over to you, Mariano.

Thanks, Luis. And good morning, everyone. Brazil's total revenue grew 4.9% in the third quarter, including a sequential improvement in com sales performance. We believe This is an early indication that the worst is over in Brazil in terms of sales growth, especially since guest volumes were down slightly less than during the second quarter. Importantly, according to third party measurements, we maintained significant market share leadership in Brazil through the first nine months of 2025, despite the challenging environment for the entire restaurant industry. This is a testament to the dynamic approach we have taken in Brazil, with competitive pricing designed to balance sales growth and profitability. Digital channels in Brazil accounted for almost 72% of system-wide sales, with notable strength in delivery and self-order kiosks. Additionally, 30% of Brazil's system-wide sales involved Meumeque loyalty program members. NOLAD's total revenue rose 6.1% in US dollars, with strength in Mexico, Costa Rica, and the French West Indies. In fact, Mexico's comp sales rose 6.3%, or 1.8 times the country's inflation rate, and two to four times higher than the main competitor's brands. In NOLAD, Costa Rica and Puerto Rico are seeing excellent guest engagement with the loyalty program, which is also being piloted in Mexico. We expect the program to have drive higher digital sales penetration and guest frequency in 2026. SLAT's U.S. dollar revenue rose 4.9%, supported by comparable sales up 1.3 times the division's blended inflation in the period. Argentina's sales growth remained strong in the quarter, and the division's sales also benefited from good performance in markets like Colombia and Uruguay. Digital sales penetration in SLAT was 61.5% during the third quarter, supported by a strong performance from the loyalty program, which was available in Argentina, Colombia, Ecuador, and Uruguay. Third quarter profitability remained solid despite below inflation comparable sales growth in Brazil and Nolet. And as Luis mentioned, the quarter's result included the net impact of a federal tax credit in Brazil. Let me take you through the details. We generated more than $200 million in adjusted EBITDA. which included the net benefit of 85.6 million dollars related to a federal tax credit in Brazil. The credit, which also includes 39.6 million in interest, arose from the treatment of certain government-related tax incentive for the period 2016 to 2023. We expect the 125.2 million net credit to have a positive cash impact since we plan to use it to offset federal tax obligations beginning in 2026. We expect to recover the taxes over the next five years. As a reminder, last year's result included a $5.6 million recovery related to social security contributions in Brazil. Excluding these impacts from both periods results, adjusted EBITDA declined by about 3% in US dollars due to modest margin pressure. The main margin headwind in the third quarter was elevated food and paper costs. The domestic price of beef in Brazil rose significantly at the end of 2024, but we were able to leverage our supplier relationship and significant purchase volume to delay the impact of the price increase until the first quarter of this year. By generating operational efficiencies during the third quarter, we were able to partially offset the food and paper cost pressures with greater labor productivity, as well as leverage in occupancy and other operating expenses. This translated into stable margin performance sequentially, in the third quarter and we expect to capture additional efficiencies moving forward. Nolet's margin included improved payroll and lower royalties, more than offset by margin pressure from food and paper, occupancy and other operating expenses, and G&A. SLAT has been the bright spot all year, generating strong quarterly adjusted EBITDA growth in US dollars and margin expansion in each of the first three quarters of 2025. Adjusted EBITDA grew more than 30% versus the prior year, supported by a 2.2% touchpoint margin expansion. Increased payroll productivity, leveraging occupancy and other operating expenses, and the lower royalty rate more than offset food and paper cost pressure. Our balance sheet is strong. And as I mentioned, in the coming years, our cash flows are expected to benefit from the gradual utilization of the federal tax credit in Brazil. At the end of the third quarter, the net debt to adjusted EBITDA ratio was a comfortable 1.2 times. We believe this, together with the extra flexibility provided by the new syndicated revolving credit facility, gives us plenty of room to support our medium term growth plans. Through the first three quarters of 2025, we opened 54 restaurants, including 34 in Brazil, with more than half the periods CAPEX invested in openings. By the end of the year, there should be more than 2,500 restaurants in the Arcos Dorados footprint. We are revising every element of our development processes with a focus on identifying and implementing initiatives designed to improve operational efficiency and generate more consistent returns on investment from each of these assets. Performance has been strong this year in Argentina and Mexico, Slat and Nolat's largest markets, and we believe this is sustainable going into next year. As Luis mentioned, we believe we are well positioned to return to healthier sales growth in Brazil moving forward With our three largest markets aligned, operational profitability and cash flow generation should also improve. We know this is the best way to create shareholder value, and we have the entire team working toward that goal. Back to you, Luis.