Arcos Dorados Holdings Inc.

Good morning and thank you for joining Arcos Dorado's second quarter 2026 earnings webcast. With us today are Luis Raganato, 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 cloud 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 poll contains forward-looking statements and I refer you to the forward-looking statements section of our earnings released and recent findings with the SEC. Thank you for your time. 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.

Thank you, Dan, and good morning. Before getting into the second quarter results, I would like to start with a few words about Venezuela. The earthquake at the end of June impacted the entire country in one way or another, including our hotels. But I am very proud of the local team's effort to support our people, suppliers, suffragettes, and the communities they serve. Working with local authorities and medical professionals in the hardest hit part of the country, they quickly converted one restaurant into a medical center and another into a shelter for people who lost their homes. When recovery efforts continue, we are beginning to see signs of progress. People are gradually returning to their daily routines. And other than the two locations I just mentioned, all other McDonald's restaurants are open in Venezuela. As always, we stand with our team and we provide them with the support they need until the situation on the ground normalizes. Just this past Monday, Colombia also experienced a significant earthquake. Our first priority has been the safety and well-being of our people. We are still working closely with the local management team as they assess the full impact of the earthquake on our people and restaurant operations. We now turn to the second quarter. The total revenue, adjusted EBITDA, and the income all rule strongly in U.S. dollars, despite challenging consumer dynamics and year-over-year comparisons in certain markets. This demonstrates that we have taken important steps to improve the resilience of the business model and monetize the market share advantage. Total revenue reached $1.3 billion, the highest ever quarterly revenue, and up more than 14% Thank you very much. The exclusive sponsorship of the FIFA World Cup allowed us to take full advantage of this important fashion point for guests across the region. We executed unique marketing campaigns and activations across all sales channels. These helped drive digital sales penetration and identify sales to their highest ever levels, and we measured continued market share gains throughout the region. In terms of inorganic growth, we opened 16 restaurants in the quarter, bringing the first half total to 35 restaurant openings. The organic growth drivers in the business continue to perform well in the second quarter, including the solid market share, digital sales, and US dollar revenue growth I just mentioned. Starting with market share, based on guest traffic, McDonald's restaurants in the ARCO Dorados footprint gained about half a point versus second quarter last year, and remained more than two times as much as our main competitors. Market share gains in the main markets are a testament to the quality of the local leadership teams who have implemented successful strategies in a wide range of consumer environments. Digital sales grew by more than 25% year-over-year and generated about 66% of total sales. This included very strong growth from Sephora kiosks, demonstrating the continued relevance of the on-premise experience, and delivery, especially in Brazil, where new aggregators are pushing industrial growth. Identified sales surpassed 28% of total sales in the period. with growing loyalty program membership helping us achieve the highest guest identification rate in our history. Active loyalty program members who within points tend to visit us five times as frequently as non-loyalty members. We expect this to turn into an important long-term value driver for the business still of those risks. The FIFA World Cup was a big success for the McDonald's brand in all of our markets. We took learnings from previous tournaments and began running regional campaigns about three months before the World Cup began. We used this period, which included the World Cup themed Mundialista sandwiches and Panini sticker books, to generate excitement in anticipation of the tournament. The anticipation turned into euphoria once the tournament began, as we remained engaged with guests through conversations and special offers on the digital platform. Regional campaigns combined with global FIFA World Cup campaigns drove significant traffic and premium sandwich sales growth, especially in Argentina, Brazil, Colombia and Mexico. Brand favorability metrics also reached all-time highs directly back to the market share gains we delivered. At an additional level, Brazil's com sales continued the strong rebound that began at the end of the first quarter. On our last call, we mentioned the proactive and assertive steps the Brazilian team took to reverse negative guest value trends after the end of Carnival. By quickly reconnecting with guests, they set the stage for a successful second quarter, which included an integrated FIFA World Cup campaign, strong delivered sales growth, a compelling value platform, and targeted digital campaigns such as Megifest. According to third-party research, the good news is that the key USA segment of the country's restaurant industry resumed volume growth in the first half of 2026, and we began to see that reflected in our nails, new restaurants, and an appreciated currency combined to drive U.S. dollar sales up more than 25%. Knowledge comparable sales performance in the quarter reflects a particularly demanding comparison base, even though we were able to generate modest case value growth. Three factors explain the year-over-year dynamic. First, last year's second quarter included a full holiday week period, compared with this year that included only part of the holiday in the second quarter. Second, the prior year quarter benefited from the Minecraft promotion, which generated exceptional results across several markets. And third, consumer spending remained under pressure across most markets. Slab sales growth was solid in the quarter, reflecting gas traffic growth in most markets and inflation-driven income sales growth in Argentina and Venezuela. Marketing campaigns focused mainly on the FIFA World Cup, driving important market share gains.

Over to you, Mariano. Thank you, Luis, and good morning, everyone. Similar to revenue, profitability in U.S. dollars, as well as profitability in margins, were resilient in the second quarter of 2026. Adjusted EBITDA totaled $126.8 million. This was more than 20% higher than last year in the second quarter, including a 70 basis point margin expansion when we exclude the transaction with the Mexican sub-franchisee from last year's result. In addition to benefiting from a stronger currency environment, we were very pleased to see continued improvement in both food and paper as well as G&E expenses. which more than offset modest pressure in payroll. Favorable food and paper costs in Brazil and NOLA drove a 70 basis the positive result we generated in the first quarter. Payroll expenses were higher as a percentage of revenue in all three divisions but mostly in NOLA due to hourly wages growing more than the average check. Pressure in Brazil and SLAT was much more modest. Occupancy and other operating expenses were almost flat, while G&A was lower as a percentage of revenue as a result of the restructuring we implemented late last year, and we expect this to continue through year end. We were also very pleased to deliver strong net income results this quarter. Earnings per share in the quarter doubled versus last year, supported by solid operating performance, better non-operating results and a lower effective tax rate. The net interest expense was lower compared to last year thanks to the continued optimization of our capital structure, as well as to income related to last year's tax credit. Over-effective tax rate reflects the early impact of initiatives designed to lower the company's consolidated effective tax rate over time to be more in line with the region's statutory rates. Brazil was the standout in terms of profitability in the quarter. Margin improved by 180 basis points, reflecting disciplined cost management, especially in food and paper and G&A. This, combined with solid revenue growth and stronger currencies, drove adjusted EBITDA up more than 40% in US dollar terms. Nola's margin pressure, excluding the income from last year's restaurant transaction, was 110 basis points. This was mainly due to reduced operating leverage, which more than offset better food and paper costs compared to the same period last year. In SLAD, adjusted EBITDA grew in line with revenue. Improvements in G&A were offset by slightly higher food and paper costs, as well as occupancy and other operating expenses versus the prior year end. We are working hard to generate value for our shareholders, and the major part of that is maintaining a healthy balance sheet and driving sustainable cash flow generation. In July, we completed the second liability management transaction of the year. As a result, this year we have completely repaid the 2029 senior notes. We are very proud to have issued the first sustainability link bond in the QSRI industry, which included ambitious targets associated with 1, 2 and 3. As we announced earlier this year, we are even prouder to have exceeded these commitments by the 2025 measurement date. Our balance sheet remains strong with healthy liquidity and sufficient cash generation to fund long-term growth while maintaining disciplined leverage. As adjusted EBITDA continued to grow over the trading 12 months, net leverage improved modestly to a very healthy 1.1 times at quarter end. Finally, the adjusted free cash flow generation of the last 12 months improved sequentially with strong net cash provided by operating activities combined with lower capital expenditures in the period. Of course, this is directly tied to our efforts to create more shareholder value. During the second quarter, we deployed $49.1 million in capital expenditures and helped bring the modernized restaurant experience to more than 77% of the portfolio. As the numbers show, freestanding units continue to account for the bulk of openings. So far this year, we have opened 35 restaurants and invested almost $86 million in capital expenditures, including openings, modernizations, maintenance, and non-development capex. We believe we can continue to raise the bar for expected returns on investment by developing and implementing initiatives to improve efficiency in all facets of our capital deployment. I will close by repeating some of the highlights from the second quarter. We delivered total revenue growth of more than 14% year over year. We generated the highest ever adjusted EBITDA, net income, and earnings per share for a second quarter. We have a QSR industry in Brazil that looks like it's starting to turn around. We improved our gross margin after a tough 2025, and we benefited from a streamlined GNA structure that is contributing to underlying margin expansion. Despite a mixed consumer environment across the region, we delivered solid results during the first half of the year. Looking ahead, we expect conditions to But we are confident in the strength of our plans, the agility of our operating model, and our continued financial discipline as we work to maximize fully our results and strengthen the foundation for future growth.