Arcos Dorados Holdings Inc.

Good morning and thank you for joining Arcos Dorado's fourth quarter and full year 2025 earnings webcast. With us today are Luis Aranato, 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 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 audited financial statements filed today with the SEC on Form 6-K. I will now turn the call over to Luis.

Thank you, Dan, and good morning, everyone. The fourth quarter of 2025 marked a solid finish to the year with double-digit revenue growth, expanded margins, and strong adjusted EBITDA growth, despite ongoing cost and consumer pressures in certain markets. Importantly, we exited the year with improving trends, particularly in Brazil, as well as continued momentum in Mexico and Slavic. Mariano and I will take you through the highlights of the financial results for the fourth quarter and full year 2025, as well as how we see 2026 developing. As I've mentioned in prior calls, our focus remains centered on three priorities. Optimizing the performance of today's business, maximizing returns on capital investments, especially those related to growth, and preparing the company for tomorrow's business trends. The fourth quarter demonstrated progress across all three areas Our teams executed with discipline on pricing, cost control, and marketing relevance while continuing to invest in high-return restaurant development and digital capabilities. Total revenue reached $1.3 billion, representing 10.7% growth. Revenue growth was supported by 16% higher system-wide comparable sales in line with the blended inflation of the 21 markets in the Arcos Dorados footprint. Comparable sales growth was primarily driven by average check, reflecting disciplined pricing, effective promotional execution, and the continued strength of our digital and loyalty platforms. Gaze traffic trends were generally stable compared with the third quarter. Adjusted EBITDA totaled $172.7 million, up 17.2% year-over-year, representing an 80 basis point expansion of the adjusted EBITDA margin. This included a net taxes benefit in Brazil that Mariano will explain in more detail. For the full year, system-wide comparable sales growth was in line with the company's blended inflation rate, with particularly strong performance in Mexico, Argentina, and several other slag markets. Brazil and a couple of new led markets faced a challenging consumption environment last year, but we began to see some improving trends toward the end of the year. Total revenue in 2025 grew by almost 5% in US dollars. Full year adjusted EBITDA was the highest in the company's history, boosted by the net tax benefits we recognized. Together with strong US dollar growth in both slat and dollar, these tax benefits more than offset the impact of higher food and paper costs and lower consumption in the Brazilian market. The strength of our marketing, digital and loyalty platforms have helped differentiate us from the competition by enhancing the brand experience across all channels. We also expanded the brand's presence in 2025 by opening 102 restaurants and bringing the modernized percentage of the portfolio up to 73% at year-end. Let's take a look at a few of the initiatives we used to generate sales growth in the quarter. Marketing activities strengthened consumer connections with the brand through a series of campaigns and initiatives. The highlight for most markets was a fully integrated menu strategy, leveraging the cultural relevance of the Stranger Things Netflix series, which boosted sales, drove high levels of engagement and meaningful brand conversations among consumers. Several markets also offered compelling value platforms, including Economic in Brazil and Más por Menos in Chile. both of which performed well with price-sensitive consumers. Menu innovation in the quarter included a new chicken sandwich in Colombia and limited-time flavors within the dessert category, such as Ovo Mochini in Brasil. Finally, Happy Meal sales were a bright spot for several markets. During the quarter, we ran engaging campaigns for all ages, built around popular licenses, such as Friends, Zootopia 2, and Deezer's Villains. Digital penetration reached its highest level with 62% of total sales coming from digital channels, mobile app, delivery, and self-ordered kiosks. Digital channel sales grew 18.7% versus the prior year quarter, with self-ordered kiosks, delivery, and loyalty showing particularly strong performance. Sales growth in delivery has been strong for several years, which is why the strong performance in self-ordered kiosks is so important. It demonstrates the continued relevance of the on-premise restaurant experience in the Latin American QSR industry. The loyalty program had 27.2 million registered members at year end and is now available in all main markets. completing the planned 2025 rollout and covering more than 90% of all restaurants in the Arcos Dorados food street. At the divisional level in the fourth quarter, we saw continued strength in slide with sequential improvements in both Brazilian knowledge, contributing to consolidated top-line growth. In Brazil, where restaurant industry traffic was down all year, we saw modest sequential improvement in comparable sales growth. We also maintained a significant market share advantage versus all competitors by leveraging the strength of the digital platform and popularity of the loyalty program. Almost three out of every four transactions were generated through digital channels, and about 30% of total sales came through the loyalty platform. These results were supported strongly by the annual Nike Friday campaign that capitalizes on the popularity of the Black Friday shopping day to drive mobile app downloads and digital engagement. It is worth noting that the relative strength of the Brazilian real versus the prior year quarter also contributed to US dollar revenue growth in the period. In NOLA, comparable sales grew 1.7% versus the prior year quarter, with strong gas traffic growth in several markets. As was the case in the first nine months of the year, Mexico was the main contributor in the fourth quarter, with corn sales growth of 5.6% or 1.5 times the country's inflation. Importantly, we began seeing improved trends in several other novel markets, and also benefited from the stronger Mexican peso and Costa Rican colón versus the prior year quarter. Slash comparable sales increased by 49.5% versus the prior year quarter, or 1.2 times blended inflation, driven by strong execution in Argentina. We also saw continued momentum in other markets, such as Colombia and the Dutch West Indies. Digital channel penetration reached a new high and market share gains were particularly strong in Argentina and Chile, where gains responded well to the quarter's marketing campaigns. Over to you, Mariano.

Thanks, Luis. And good morning, everyone. Consolidated adjustability in the fourth quarter grew by more than 17% versus the prior year quarter, as reported. While both periods benefited from tax-related items, even excluding these items, adjusted EBITDA grew by almost 14% in US dollars, year over year, with a 30 basis point margin expansion. For the first time in 2025, the fourth quarter included lower food and paper costs as a percentage of revenue in Brazil. This is a sign that our marketing strategies and supplier negotiations are working as they were designed. The main impact on consolidated food and paper costs in the quarter related to some mixed shifts in NODEP and higher bid costs in Argentina. Payroll expenses were up as a percentage of revenue due to the comparison with last year's quarterly result. which included a tax benefit in Brazil. Excluding this benefit, payroll expenses improved by about 60 basis points as a percentage of revenue. It is worth noting that over the last few years, certain markets have experienced elevated labor costs, but we have been implementing initiatives and technologies that have successfully offset these pressures. Currently, payable expenses are among the lowest in our history as a percentage of sales. As you have heard on recent calls, we are very focused on capturing efficiencies at every level of the business, not just in the restaurants. With that, we made the difficult decision to reduce our G&A expenses through a reduction in headcount. This process, which was completed during the first quarter of 2026, was designed to focus resources on the projects and investments we believe will generate the most shareholder value. Our adjusted EBITDA definition excludes reorganization and optimization charges, so you will see an $8.7 million add-back associated with this initiative in the IPDAR reconciliation. Finally, the fourth quarter included a net tax benefit in Brazil, arising largely from the same items we recognized during the third quarter. We recorded a benefit of $20.5 million, mainly as other operating income, and below the line, we recorded $13.3 million of interest income. With that, the full P&L impact of this net tax benefit was recognized in 2025. As a reminder, full-year adjusted EBITDA includes $106.1 million and interest income includes $52.9 million from this benefit, for a total impact of $159 million in 2025. Importantly, we have already begun to apply the credit to tax liabilities in 2026. We expect to utilize the tax credit over the course of the next five years with an annual cash benefit of around $30 million. In terms of full-year 2025 results, we are encouraged that even though food and paper costs rose, due mainly to significantly higher beef costs in Brazil, we were able to fully compensate the impact on restaurant margins by capturing efficiencies in payroll and occupancy and other operating expenses. In Brazil, excluding the tax impacts from both the fourth quarters of 2024 and 2025, Adjusted EBITDA grew 3% in US dollars with margin compression of about 160 basis points. The margin decline was primarily related to the higher royalty rate in Brazil in 2025. Remember that royalties were equalized starting in 2025 with a higher royalty rate in Brazil, more than offset by a lower royalty rate in NOLAD and SLAD. The other restaurant-level cost and expense line items in Brazil improved versus the prior year. NOLA generated solid US dollar EBITDA growth in the quarter, despite some margin pressure in food and paper costs as well as GMA. Meanwhile, SLAT delivered another strong quarter to close out a very good year, which included 26.1% US dollar EBITDA growth and almost two percentage points of margin expansion. In addition to rating efficiencies, we are implementing certain projects to improve the efficiency of our capital structure and capital allocation decisions, including the recent liability management transaction completed during the first quarter of 2026. Let me take you through it. In December of last year, our Brazilian subsidiary secured $150 million in new bank debt that matures in 2029. This is why you see the entire total financial debt as well as cash and cash equivalents at the end of 2025, but a stable leverage ratio versus year-end 2024. We entered into certain derivative instruments to hedge the interest rate and maintain the foreign currency expulsion of our long-term debt. As a result of these transactions, the new bond debt has an estimated US dollar cost of 2.53%. The proceeds of the new debt were used to fund a tender offer for about $135 million of our 2029 Sustainability Link Bond, which has a 6.18% interest rate. The tender was completed earlier this month. Among the benefits of the transaction are a reduction of the average US dollar cost of our long-term debt and a more efficient capital structure, both at the consolidated level and in Brazil. Additionally, moving forward, this new local debt increases the deductibility of our interest expenses. In terms of capital allocation, last year we exceeded openings guidance by adding 102 restaurants to our footprint, while deploying less total capital expenditures versus the prior year. Importantly, about half the total CAEX in 2025 was used to fund restaurant openings. For 2026, openings guidance is for 105 to 115 restaurant openings and total capital expenditures between $275 and $325 million, with the goal of improving returns on investments through better cash margins and lower per unit opening capex. Also for 2026, the Board of Directors has declared a cash dividends of 28 cents per share, up from 24 cents last year. payable in equal installments on a quarterly basis this year. Although it is early, we began the year with good momentum by focusing on factors we control. We expect the underlying profitability trends of the fourth quarter to continue. Importantly, we are seeing the potential for a higher gross margin this quarter and throughout 2026. When sales growth normalizes, we believe this focus on cost and expense discipline will generate incremental margin improvement opportunities in other lines of the P&L as well. Back to you Luis.