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DATE

Wednesday, May 20, 2026 at 10:00 a.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Luis Raganato
• Chief Financial Officer — Mariano Tannenbaum

TAKEAWAYS

• Total Revenue -- Grew approximately 13% to surpass $1.2 billion, reaching a first-quarter record despite soft consumption in some markets.
• System-wide Comparable Sales -- Increased 16%, driven mainly by higher average check and improvements in guest traffic across multiple regions.
• Adjusted EBITDA -- Reported at $118 million, up almost 30% in U.S. dollars year over year, producing the highest first-quarter result in company history.
• Consolidated EBITDA Margin -- Expanded by 120 basis points, with Food and Paper, and G&A each contributing 60 basis points; expansion remained 70 basis points even excluding sub franchisee restaurant transactions.
• Brazil Division Performance -- Achieved more than 20% adjusted EBITDA growth with a 30-basis-point margin expansion to 12.7%, driven by food and paper cost reduction, less pressure from beef prices, and revenue management strategies.
• SLAD Division -- Delivered strong U.S. dollar revenue growth and margin expansion; EBITDA margin rose by approximately 120 basis points excluding sub franchisee transactions.
• NOLAD Division -- Margin stable in food and paper; temporary margin pressure noted from minimum wage increases, with a 50-basis-point improvement attributable to a restaurant transaction in Mexico.
• Digital Channel Penetration -- Digital channels, including mobile app, delivery, and self-order kiosks, grew 21% and represented 64% of system-wide sales.
• Loyalty Program -- Surpassed 30 million registered members, marking a 62% increase, and accounting for 25% of total sales; “Raganato said, ‘frequency, and redemption rates is above the average of the market.’”
• Restaurant Expansion -- Opened 19 new restaurants, including 13 freestanding units, with capital expenditures totaling $36.8 million ($16.7 million allocated to new restaurants); improved CapEx efficiency versus the prior year period.
• Adjusted Free Cash Flow -- For the 12 months ended March 31, reached almost $110 million, compared with negative $3 million in the prior period.
• Net Debt to Adjusted EBITDA -- Remained unchanged since year-end 2025 despite a completed liability management transaction.
• Payroll and Operating Expenses -- Faced modest pressure, but G&A savings fully offset this after last year’s restructuring; G&A over revenue fell 60 basis points year over year.
• Ownership Mix -- Maintained roughly 70% company-operated restaurants, 30% sub franchisee-operated, with no major changes planned.
• Experience of the Future (EOTF) Rollout -- Achieved 75% EOTF penetration; targeting 90% in the next several years, then expecting to modernize roughly 10% of the base annually.
• Currency Movements -- Brazilian real, Mexican peso, and Costa Rican colon appreciation positively impacted revenue and EBITDA; local inflation in Argentina and Venezuela offset currency devaluations.

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RISKS

• “Payroll expenses were up as a percentage of revenue in Brazil and NOLAD, mainly due to higher hourly crew wages, leverage in SLAD. This was partly offset by payroll expense. Occupancy and other operating expenses included modest pressure in each division.”
• “Comparable sales has been running below the labor and other costs inflation, and that resulted in temporary deverage in the quarter.”
• Raganato said, “the Brazilian QSR industry is undergoing a correction in guest volume…disposable income among consumers continues to be limited.”

SUMMARY

Arcos Dorados (ARCO +11.09%) delivered first-quarter record revenue and adjusted EBITDA, supported by robust digital engagement and expansion in loyalty program metrics. The company launched 19 new restaurants while improving capital allocation discipline and successfully maintained its net debt-to-EBITDA ratio via proactive liability management. Management introduced regular disclosure of adjusted free cash flow, which rebounded sharply to nearly $110 million over the last 12 months. Strategic initiatives and restructuring efforts drove G&A leverage and margin enhancements across most divisions despite inflation and labor headwinds.

• Digital and loyalty platforms expanded their impact, now accounting for a majority of sales, and supporting increased visit frequency as measured by internal KPIs.
• Freestanding restaurants remain central to network growth, reflecting focused capital investment for higher returns.
• Operational discipline and flexibility allow management to adjust investment priorities by market and format based on expected returns rather than ownership structure.
• Management stated that the recent EBITDA margin tailwinds in Brazil resulted mainly from beef cost reductions but cautioned that food and paper costs remain “dynamic.”
• G&A restructuring reduced costs and positioned the company to benefit from future digital and AI-driven efficiency initiatives, a topic slated for deeper discussion at the upcoming investor day.
• Currency appreciation outside Argentina and Venezuela contributed to performance, but isolated inflation and labor cost pressure remains a business headwind in several markets.

INDUSTRY GLOSSARY

• SLAD: Southern Latin America Division, a company reporting segment including markets such as Argentina, Chile, and Colombia.
• NOLAD: Northern Latin America Division, covering Mexico, Panama, Costa Rica, and other Central American and Caribbean markets.
• Experience of the Future (EOTF): An advanced McDonald's restaurant concept featuring digital ordering, self-service kiosks, and modernized in-store environments.
• System-wide Comparable Sales: Sales metric comparing performance of stores open for at least thirteen months, including franchised locations.
• CapEx: Capital expenditures, representing investments in long-term assets such as new restaurant openings and upgrades.
• QSR: Quick Service Restaurant, referring to the fast-food sector.

Full Conference Call Transcript

Luis Raganato: Over the last several years, we consistently added to our dominant market share position, and elevated brand attributes to historical highs, across Arcos Dorados, operating footprint. As a result, for the 6 years ended in 2025, total revenue grew ~60% EBITDA nearly doubled and net income was up more than 2.5x in US dollars. Moving forward, our objective is to build on this incredible foundation and capitalize on the significant competitive advantages we built over the period. With that in mind, 2026 is off to a good start. First quarter 26 highlights included some important milestones within the context of a challenging consumer environment. Total revenue grew ~13% and surpassed $1.2 billion for the first time in the first quarter.

Overcoming relatively soft consumption in certain markets. This included 16% growth in system-wide comparable sales, which was driven mainly by average check. But we also saw improvements in guest traffic in several markets. Similar to total revenue, we generated the highest adjusted EBITDA for the first quarter in U. S. Dollars. The $119 million result was driven mainly by strong top line growth combined with very solid margin expansion. Especially in Brazil and SLAD. We have pursued strategies that capitalize on the brand. To monetize the significant market share advantage we hold in the region. This, together with very strong EBITDA growth is adding to cash flow performance as well.

Along these lines, in a few minutes, Mariano will take you through how we measure adjusted free cash flow to drive shareholder value. Marketing campaigns focus on offering value platforms that appeal to lower income consumers, and core menu items that drive brand love as well as licenses and partnerships that keep McDonald's culturally relevant. The brand experience continued to expand beyond our restaurants, bolstered by the region's most comprehensive digital platform, and loyalty program. As much as digitalization has and will change the business, 55% of sales continue to be generated inside our restaurants. During the quarter, we added 19 new restaurants to the footprint, including 13 freestanding units. with a more efficient capital deployment.

Not all markets are in the same phase of the economic cycle. So our local teams have deployed specific strategies to adapt to their specific operating environment. In Brazil, marketing campaigns during the quarter spanned core menu, affordability and partnerships. For example, the introduction of Best Burger leveraging limited time offers through EconoMeki, the first promotions associated with the FIFA World Cup, and a strong presence at Lollapalooza Brazil. In NOLAD, marketing initiatives drove sales performance across the division. Mexico, Panama, and Costa Rica continued to leverage affordability platforms and localized offerings. Across markets, family focused initiatives, seasonal menu and licensed activations such as the friends menu complemented core and value execution reinforcing brand affinity and readiness.

In SLAD, menu innovation was a key growth driver. For example, in the beef category, we introduced the Tasty B.F.T. Cuarto in Chile and blending the popular tasty sauce with the core favorite Quarter Pounder with Cheese to delight guests. In Argentina, we leverage the successful premium sandwich platform by introducing a limited time only Grand Beef Clubhouse featuring Franco Colapinto. The well known Formula 1 driver and local hero. Within the chicken platform, Colombia introduced twist strips, and the PozoMix shareable option. With an encouraging guest response. Finally, we reinforced the brand's cultural relevance in Argentina Chile, and Colombia through music.

A key consumer passion bond at Lollapalooza and Estereo Picnic Digital channels including mobile app delivery and self order kiosks grew 21% versus the prior year. And contributed about 64% of system-wide sales. Sales growth in delivery remained strong, boosted by promotional activity by new 3P partners in Brazil. Of course, with an increasingly modernized restaurant base, self-order kiosk sales also grew an accelerated rate. The loyalty program topped 30 million registered members at the end of the quarter. And we expect the program to grow quickly with more active members who visit us more often. Now that the rollout phase is nearly complete. U. S. Dollar revenue performance was strong in all 3 divisions.

Brazil delivered the highest growth, thanks mainly to contribution from new restaurants, a higher average check, and the appreciation of the Brazilian real. The first 6 weeks of 2026 were ahead of expectations. But we experienced an important slowdown in restaurant volume in the weeks following Carnival. Our team in Brazil responded with initiatives designed to recapture volume. Without sacrificing profitability. By the end of the first quarter, we saw a promising reverse in guest value trends while also delivering better margins versus the prior year period. In other words, we took a balanced approach to monetize our significant market share advantage in Brazil.

The second quarter is off to a very strong start with positive guest traffic and solid average check growth in April and the first half of May. Noted comparable sales rose due to higher guest traffic in a couple of key markets. The result was supported by disciplined pricing targeted mix optimization, and continued momentum in Mexico. Panama and Costa Rica also achieved early progress toward rebalancing traffic, and average check. The appreciation of the Mexican peso and Costa Rican colon helped contribute to revenue growth in the period as well. SLAD sustained strong momentum with internal research pointing to either maintained or expanded visit and value share in each SLAD market within the respective QSR industries.

This performance underscores our ability to consistently gain market share. The currency environment in SLAD was mixed Most local currencies appreciated versus the prior year, with the exceptions of Argentina and Venezuela. Elevated inflation in these 2 countries partly offset the currency devaluations. And helped to generate US dollar revenue growth in the quarter.

Operator: Over to you, Mariano Tannenbaum.

Mariano Tannenbaum: Thanks, Luis and good morning, everyone. As you just heard, we were able to monetize brand and market share advantages in several key markets during the 2026. Adjusted EBITDA totaled $118 million up almost 30% in U.S. dollars year over year. The consolidated margin expanded by 120-basis-points with a very encouraging 60-basis-point contribution from Food and Paper and 60-basis-points from G&A as well. Modest pressure in payroll and occupancy and other operating expenses, was fully offset by income from certain sub franchisee restaurant transactions in NOLAD, and SLAD. Even without these transactions, consolidated EBITDA margin expanded by 70-basis-points versus the 2025.

Going back to Food and Paper, both Brazil and SLAD were able to generate margin improvements versus last year, while NOLAD was stable as a percentage of revenue. Despite accumulated food inflation globally. Payroll expenses were up as a percentage of revenue in Brazil and NOLAD, mainly due to higher hourly crew wages. leverage in SLAD. This was partly offset by payroll expense. Occupancy and other operating expenses included modest pressure in each division whereas G&A was lower. Partly reflecting the benefits of last year's restructuring process. First quarter adjusted EBITDA included $5.8 million from sub franchisee restaurant transactions in SLAD and NOLAD, which added CHF 2.7 million and $3.1 million respectively.

In Brazil, adjusted EBITDA was up more than 20% in U.S. dollars. Improved Food and Paper, was the main driver of the quarter's 30-basis-point margin expansion. NOLAD has had a more challenging time generating margin improvement in recent quarters. Excluding the income from the restaurant transaction, EBITDA margin was down ~40-basis-points in the quarter. We are working with the leaders in each market to implement strategies that better balance guest volume and profitability. SLAD continued generating strong U. S. Dollar growth and margin expansion in the quarter.

Even without the income from the restaurant transaction with the local sub franchisee, SLAD's EBITDA margin rose by ~120-basis-points in the period, Moving ahead, we remain optimistic that SLAD is on track to deliver another positive performance this year. Navigating the short term while building on the successes of 2025. Starting with today's earnings release, we will be publishing our adjusted free cash flow for the last 12 months. We believe this calculation over a full business cycle provides a clear picture of our ability to service our debt and fund our CapEx plans. Additionally, this is in line with the 3 pillars of focus that Luis introduced last year.

Targeting greater operational efficiency and cash flow generation, to create long term shareholder value. For the 12 months ended March 31, adjusted free cash flow generation reached almost $110 million versus a negative $3 million in the previous period. As a reminder, during the first quarter we also completed the liability management transaction we described on our last call. As of the end of the first quarter, net debt to adjusted EBITDA was unchanged compared with year end 2025. We continue to have a healthy cash balance and are combining improved profitability and cash flow generation with other initiatives to strengthen our balance sheet and support future growth and modernization.

With that in mind, during the first quarter we invested $36.8 million including $16.7 million for new restaurants. Growth continues to be a priority for capital allocation as long as the returns on investment are strong. With all the uncertainty currently influencing local economies and behavior, we continue to focus on the factors we control to drive profitable sales growth and generate value through the investments we make inside and outside our restaurants. I am encouraged by the progress achieved during the first quarter and our objective remains to deliver improved underlying margin performance throughout the year.

Operator: Back to you, Luis Raganato.

Luis Raganato: Thanks, Mariano. I have just a few more things to mention before we open up for Q&A. Arcos Dorados is in a unique position in the Latin American consumer space. We operate in a segment of the economy that will never disappear as we meet a basic need for guests. Within that segment, we developed significant competitive advantages. Spanning the emotional connection we have with consumers, the multiple channels we use to generate sales, the business foundation built on operational efficiency, and the prudent management of the company's capital structure. We also partner with the communities we serve to support economic development and new formal job opportunities for young people.

In fact, over the last several months, we have been recognized by great place to work among large companies as the #1 great place to work in both Argentina and Uruguay, and the #4 great place to work in Brazil, the highest ever ranking in that country's history. In Mexico, the prestigious Expansion Media Group publishes an annual Super Empresas ranking. Which evaluates organizational culture among the country's largest companies. The ranking is based on factors, including leadership, professional growth, company policies and social responsibility. among others. We were honored to have been ranked #1 in the 2026 ranking.

The recognition we received in each of these markets is a reflection of a company wide commitment to running their restaurants while also generating new formal job opportunities that have a positive impact on the communities we serve. Soon, we will publish the Arcos Dorados 25 social impact and sustainable development report. In addition to the impact team's ongoing work on youth opportunity and the other pillars of the Recipe for the Future, you will find the details of how we met the targets of the sustainability link bond we issued back in 2022. Check back on the website recipeforthefuture.com in the next few weeks to download the report. Also, please mark your calendars for Arcos Dorados next Investor Day.

We are working on an agenda for the morning of October 1st in New York. With the participation of several members of the company's executive leadership who will provide an update on how we are addressing the business's 3 pillars of focus. Today, growth, and tomorrow. In the coming weeks, we will provide more details on how you can participate in the event. We hope you will join us. Finally, let me reinforce a couple of key messages from today's presentation. The plan for 2026 was developed to optimize sales growth drivers over the course of the year. And capture efficiencies to drive improved profitability. This should help us generate positive adjusted free cash flow to create additional shareholder value.

The team is focused and the second quarter is off to a good start. Thank you for joining today's call.

Operator: Daniel, back to you. Thanks, Luis. We will now begin the Q and A session. Can submit your questions using the Q and A function on the bottom of the screen. Please limit yourself to 1 or 2 questions so that I can read, understand, convey them to our speakers. We will now pause briefly to compile your questions. Okay, thanks. We actually have quite a few questions already in the queue. We are going to try to go systematically through these. We are going to start with a question related to our beef costs.

We have from both Bob Ford of Bank of America who says, how should we think about beef costs and pricing for the balance of the year across markets? And also for Froylan Mendez of JPMorgan, can you provide more detail on the evolution of beef prices in Brazil during the first quarter? And quantify how much of the margin improvement was attributed to this, tailwind. And also, how do you expect beef prices to trend for the remainder of the year And what implications could this have for your margin performance in full year 2026 in Brazil So with all of that, I will turn it over to you, Mariano.

Mariano Tannenbaum: Thank you. Good morning, everyone, and thank you, Bob and Froylan, for the question. Regarding food and paper, would start with Brazil. Woods and paper and beef in particular the main driver of margin improvement in Brazil during this quarter. As we already or I mentioned during the previous call, this is the second quarter where we are seeing beef cost reduction in Brazil. So we are very pleased with that. Compared to last year, there is a clear moderation on price increases, and that is, of course, helping our margin performance at the restaurant level.

Looking ahead, we expect costs, especially beef, to remain dynamic Global demand, as you know, is still shaping domestic prices Brazil is still with beef costs lower than in many places in the world, We are working on that For the outlook, we are cautiously optimistic about the evolution of food and paper costs in Brazil. You know, beside beef, we are seeing the rest of the main cater categories pretty stable. And going out from Brazil, we have not seen the same pressure that we have seen last year in beef costs in Brazil, in the rest of the countries where we operate, and we are not seeing further pressures during this year.

So in summary, we are very pleased with the performance in the last 2 quarters. We have seen beef cost reductions, and we are cautiously optimistic for the outlook for the remaining of 2026.

Operator: Great. Thanks, Mariano. The next question, we are going to stay with Bob Ford from Bank of America. Can you talk about loyalty penetration rates in your bigger markets and what is what that is doing to frequency and average ticket and where are you rolling out loyalty or have yet to lap? Terms of the markets what is already been rolled out. And that 1 is for you, Luis.

Luis Raganato: Alright. Thank you very much, Bob, for the question. First to start, loyalty boosts the power of the app. Because it brings visit frequency while increasing the percentage of, identified sales. The program continued to grow this first quarter reaching 30 more than 30 million registered members. And this is an increase of 62% versus the end of last year, representing 25% of total sales. In the first quarter, we launched 1 additional market Bob, Panama. So our loyalty program is available in 10 countries now. That account for 90-4 percent of our stores. Regarding the KPIs, analyze analyzing the transactions of the program, we calculated a 20% to 25% increase in visit frequency.

And the performance of 90 day active users. Frequency, and redemption rates is above the average of the market. And regarding margins, we are seeing a positive impact since we deemed products have on average a higher margin. We are seeing a minimal impact on average check and this is compensated greatly by the increase in frequency. And another advantage is that it helps us to analyze the customer's behavior to better manage the customer lifetime value. That, has reached record high figures. So that is the answer then.

Operator: Thanks, Luis. We actually have a couple more from Bob. Both of them will be for you, Mariano. Go 1 at a time here. First is what is behind your sub franchisee acquisitions and sales and NOLAD and SLAD versus SLAD? These days? How do you think about the optimal balance of corporate versus sub franchise locations?

Mariano Tannenbaum: Perfect. Basically, this is business as usual. For us, we currently have more than 2.5 thousand restaurants in the region. And it is normal for us to acquire some restaurants from sub franchisees and to sell some restaurants operated by us to subs some franchisees and that happens you know, on a regular basis. So this quarter, we acquired some restaurants in Mexico and we sold a restaurant in SLAD. So this is normal for us. You are going to see these type of transactions as you have seen them in the past, and you will see them in the future. Regarding the mix between Arcos-operated restaurants and some franchisees, we are not expecting any big changes on the percentage.

You recall more or less we operate 70 percent of total restaurants and the subfranchises operate around 30 percent and we are planning to maintain that percentage quite stable throughout the this year and next years.

Operator: Great. Thanks, Mariano. And then the final 1 from Bob Ford, Bank of America. How should we think about the cuts to the central administrative structure net of the severance? And opportunities for further improvement due to AI or other efficiencies. And that is back to you, Mariano.

Mariano Tannenbaum: Perfect. Well, as you know, maintaining a strong discipline over the G&A expenses it is a core priority for Arcos. As we continue to focus on efficiency and operating leverage while supporting the needs of the business. Following this G&A restructuring that started in November until January, we entered we can say that we entered 2026 with a with a leaner and more agile cost structure. it is better aligned with our strategic priorities and growth agenda. So at a consolidated level, G&A over revenues is down 60-bps versus the prior year, and that is supported, of course, by sales growth and the reductions that we that I just mentioned.

The only thing is, of course, the increase in the US dollar that is helping our-- with the-- sorry, the appreciate the real appreciation of the local currencies. In the last months is helping our results and our EBITDA but at the same time is making our G and A in dollars a bit higher, But throughout the year, we expect to maintain the leverage that we obtained during this first quarter, and we are very pleased with these results.

In terms of AI, we are beginning this journey with, of course, training all our staff adoption of AI tools, and we are convinced that we have the scale to generate value through AI and agents and we will talk about, this, with much more detail during our investor day in September.

Operator: Thanks, Mariano. The next question is going to be a combination of 3 questions. for Luis. And I will start with Eric Huang from Santander. Good morning. 3 questions from his side. I will start with the first. Comm sales in Brazil remained quite pressured, but we saw a sequential improvement in your main competitors' indicator in the quarter. Could you walk us through the competitive environment and current expectations towards a rebound in comp sales in Brazil? Combine that with 1 from Thiago Bortolucci from Goldman Sachs, who asked us, could you comment on how traffic has sequentially evolved since mid last year and how it is into the second quarter.

And I will add to that Julia Rizzo from Morgan Stanley who says she would like to hear management say expectations on the pace of sales recovery in Brazil. And then she has a second part about margins in Brazil. I will come back to you on that 1.

Luis Raganato: But the first piece that has to do with Brazilian sales and competitive environment over to you, Luis. Alright. Thank you, Daniel. Thank you, Eric,, Thiago, and Julia, for the questions. Bear with me while I will try to cover everything. First, although I cannot speak to a specific competitor's performance, I can tell you that we believe that we are managing top line growth in a way that is sustainable over time. It is important to understand that the Brazilian QSR industry is undergoing a correction in guest volume. And since this is an industry wide reality, we have focused our effort on monetizing the significant market share advantage, we do have.

So, while we are doing that, while also improving profitability margins. Is what we did during the first quarter we delivered EBITDA margin expansion while also increasing the brand's visit share versus the prior year quarter, And, finally, as I mentioned, in the first statement, the second quarter is off to a very good start. And this was thanks to the proactive step that the team the Brazilian team took to reverse guest volume trends while maintaining healthy margins. And for the for the rest of the of the of the question is and I will start with 2025 and a little bit of context We did have a challenging 2025.

And volume trends remained under pressure during the first quarter of this year. Which was the main reason for the quarter's comm sales result. The industry experienced volumes down mid to high single digits. And this was especially evident in the postcarnival season. This happened in March, and we experienced an important decline in guest volumes in that period. We are seeing that this poll what we are seeing is that disposable income among consumers continues to be limited. Which is why it was important for us to maintain our focus on offering a compelling value proposition with competitive pricing. that is where EconoMeki, The value national value platform starts to play.

And we try to do this without sacrificing margins. And delivering a great experience through all the channels. The focus of the operations team is to have the right profiles the right quantity, the right level of trained, of training to deliver the best accuracy and speed through all the channels. And having said that, what we saw is that when the industry continue to focus on promotional activities very driven by pricing and transactional very transactional, we focused on a more comprehensive plan. That complements actions targeted to increase traffic and shield market share with actions that aim to build the love for the brand.

As a result of the mix of these initiatives, guest volume trends in the March improved significantly. The contribution to sales more in the first quarter from average check and channel shifts than volume, but we generated important improvements in margins. And in this context, it is worth mentioning that even though we had flattish comparable sales, we achieved our highest visit share level since 2022. And this is according to Crest. We have managed to maintain a multiple of more than 2x the guest traffic of the nearest competitor and we also saw some of the brand equity scores we track, like value quality, top of mind, brand preference. That are at or near their ultimate highs.

Which not only supports current sales performance, but also we believe that puts us in a position of strength for when market conditions improve moving forward. And, the last piece of the answer would be with what we are seeing in the second quarter. We have continued supporting guest volume and sales growth And, again, by making the brand both more affordable and more aspirational And so we have initiatives including doubling down on EconoMeki, the national value platform. You know that today, the attractive price that we have is $19.90 reais. it is with less than $4. You can make your own combo, your own menu. We have 4 items so that the or guests can choose.

And we introduced the World Cup sandwiches. it is a lineup of sandwiches inspired by different countries participating in the FIFA World Cup This has happened for the last 20 years. Of course, the story is Max Brazil and the results so far have been promising. April the April's guest volume and comparable sales reached the best growth levels out of the last 20 months. And so far, the month of May is following a similar trend. So with that, we are convinced that we are in a position of strength to face the current or any situation that could arise. And just to highlight that, our 2026 plan was designed to optimize sales growth drivers and to improve profitability.

We want to generate additional shareholder value. Okay?

Operator: Thank you, Luis. And I think you just answered another question that came in. I will mention it very quickly, but I think you just answered it, which is from Alvaro Garcia of BTG. What do you think is driving the traffic pickup in second quarter in Brazil and considering the pickup in inflation and weaker purchasing power? I think you just addressed that. I am gonna shift back to the second part of Julia's question from Morgan Stanley that I had mentioned. Which was the sustainability of first quarter 26 margin tailwinds Through the year.

Mariano Tannenbaum: And I think she's talking specifically about Brazil, Mariano. Perfect. Thanks, Julia, for the question. I already spoke or talked about food and paper dynamics in Brazil, But in general, your question is more general about margin in Brazil uptake and outlook, So this quarter, we saw an EBITDA margin expansion of 30 bps. Reaching 12.7 EBITDA margin. In the in the in the division, This increase as I already mentioned, was mainly driven by the reduction of food and paper costs, with less pressure from beef prices and very good results from all our revenue management strategies.

In addition, I would mention that leverage of G&A as the same case as in the consolidated level We saw leverage of G&A over revenues. After the restructuring process that I already mentioned. And, we are seeing positive results on that. On the other hand, we experienced small deleveraging in payroll and occupancy and other operating expenses but we expect to reverse that with increasing in sales in the in the coming months.

Of course, the appreciation of the currency of the Brazilian real as many other key currencies where we operate such as the Colombian peso, the Chilean peso, colon in Costa Rica, the Mexican peso, the Argentine peso, But the appreciation of the Brazilian real in particular also was a relevant factor for EBITDA growth. So looking ahead, to 2026, after tough 2025 in Brazil in terms of margins because of beef cost increases. We are cautiously optimistic. In relation to the food and paper expenses. And course, we expect to continue to increase in sales that will allow us to generate additional leverage on fixed cost lines.

Operator: Great. Thanks, Mariano. We are gonna stay with you for a couple more questions. From Eric Huang of Santander. His second question, the tax rate in the quarter showed improvement on a quarter over quarter basis. What can we think about in terms of the effective tax rate going forward?

Mariano Tannenbaum: Yes. We always say, and in this case, even if it plays in our favor that we need to look at the ETR on an annual basis, And in this respect, we expect the ETR to be in line with the ETR we saw last year Of course, we are always looking at different projects and different ways as the 1 that we mentioned in the last call about Brazil to improve our EDR. We are working on several projects, but for now, I would say that the we expect an ETR in line with what we had during 2025.

Operator: Great. And then the final 1 from Eric,. Also for Mariano, this is back to a divisional margin question. NOLED's margins, were somehow pressured year over year? What are the main drivers for the pressure in the quarter? And what could be expected going forward?

Mariano Tannenbaum: Yes. Well, thanks for the question. Margins, know that all in all, we are 50-bps above prior year. But, of course, main explanation here is the gain that we recorded from the restaurant transaction that happened in Mexico. The other good news in terms of margin in NOLAD is also leverage in the G&A line. In terms of food and paper, it remained flat. We saw increases or improvements in slab and in Brazil. In NOLAD, we saw a flattish food and paper. That but having said that, we see a sequential improvement compared to both the previous quarter and the 2025 run rate.

Then in terms of payroll and occupancy and other expenses, those 2 lines remain under some pressure. We have seen minimum wage increases in many of the NOLAD countries, and sales growth at 1.6% comparable sales has been running below the labor and other costs inflation, and that resulted in temporary deverage in the quarter. That said, the underlying performance of the business remains solid Mexico, our largest market in the division, continues to perform very well with positive traffic, robust comparable sales growth, and food and paper costs in Mexico below prior year. So that is supporting the overall profitability profile of the division.

So we are confident that this you know, all the initiatives that we are implementing and the expectation of recovery on sales will support a path to higher profitability in the coming quarters. that is what we are looking for. that is our expectation. And we need to work hard to improve, and we acknowledge that to improve margins in the division.

Operator: Great. Thanks, Mariano. We are gonna move now to Thiago Bortolucci from Goldman Sachs. Who had a couple more questions. The first 1 for you, Luis, is the gap between total sales same store sales, and unit growth suggests there is a better productivity in NOLAD Can you give us a little more color there?

Luis Raganato: Alright. Thanks again, Thiago, for the question, and the answer is yes. We are having a better productivity in the division. Have a very solid expansion plan and we are very pleased in particular in Mexico with the organic and inorganic evolution. Of the business. And as you know, we are focused on improving the return on investments to increase our cash flow generation, not only in NOLAD but in the company as a whole. Back to you, Daniel.

Operator: Thanks, Luis. And then the final 1 from Thiago, is related to capital allocation. You are splitting your store growth into a broader ownership and format mix. That has materially reduced your average cost per store. I assume, per store opening. How should we think about this composition going forward? And how should it move the ROIC curve versus previous cohorts?

Mariano Tannenbaum: Back to you, Mariano. Perfect. Thanks, Thiago. Actually, what how we are seeing this is we are not planning to change the ownership, as I mentioned before. We are pleased with the split between restaurants operated by us, by Arcos, and restaurants operated by sub franchisees. We are also we are still opening the majority of stores as the freestanding units freestanding units. We are convinced is where we should focus the majority of our store openings. Having said that, of course, if there are opportunities in other store formats, we and we see we are seeing good returns We are going for them.

So if I would say the main source of CapEx efficiency is not about format and not about ownership, it is more about the overall approach of maximizing the returns on better execution, looking at supplier localization, more efficient construction, by maintaining the high standards of each restaurant that we open.

We are having a very tough discipline in our investment approach, What we have done is we have been searching for highest returns on new store openings, and moving, you know, investments from countries where we or markets where we were seeing lower returns to markets where we were seeing higher returns and that, I think, that overall strategy is what is giving us currently the, efficiencies that we are seeing in the CapEx. Also, you can see that in the new adjusted free cash flow chart that we are including starting this quarter.

Capital expenditure in this first quarter totaled $36.8 million down from 48.8 in the prior year period, This period, we are opening or we opened 19 and in the previous year, we opened 10 restaurants. So having opened 9 more restaurants, the investment is much lower. And that is all about discipline focus, and a more disciplined approach to investment.

Operator: Great. Thanks, Mariano. The next question is from Froylan Mendez at JPMorgan. This 1 will be for you, Luis. With digital sales reaching very high penetration, how should we think about the impact of total CapEx and CapEx mix in terms of store openings and format mix over the next few years? Also, could this be managed under the restrictions and or commitments of the MFA?

Luis Raganato: Right. Thank you very much, Froylan, and this answer is going to be related with the 1 that Mariano just gave. Just a reminder that our growth plan is aligned with our long term vision, This vision is to unlock McDonald's full potential in the region, It already incorporates market opportunities and funding strategies to support the expansion We keep the same focus on modernization and digitalization. The same focus that we have had in the last couple of years. We are currently at 75% of Experience of the Future restaurants. The objective is to achieve 90% in the next couple of years.

And, of course, if conditions change, we are flexible in adjusting the pace and focus of, investments as, you know, and Mariano just talked about that, in the way that we are already doing. And we have done in the past. We are prioritizing, and we will prioritize the most profitable markets and restaurant formats. As you know, the relationship with the McDonald's corporation team is stronger than ever. So we do have space to adjust anything we think we need. And as you know, we are in fact every day in the process of revisiting elements of our development process, to ensure that every dollar invested brings the best possible return. Then, okay.

Operator: We will stick with you, Luis. Also similar or on the topic of digital sales from BTG. On digital sales penetration, Luis stressed that 55% of sales remained in store and this quarter saw more normalized growth of digital sales. How should we think about digital sales penetration in a weaker purchasing power environment?

Luis Raganato: Alright. Hello, Alvaro, and thank you for the question. The 50-5 percent of on-premise sales that we talked about, it refer to the opportunity that we have still in the sales delivered by our full brand experience. That is great news because it shows us it is a testament of how aspirational the experience in inside our restaurants in the region is, they do not get in conflict with digital sales. That, in fact, are built largely by our self-order kiosks that are inside our restaurants. So we expect to keep on growing in digital sales and on premise sales despite any market, situation. Then, back to you.

Operator: Thanks, Luis. Moving now to a couple of questions from Lan Wang from Loomis Sayles. Both of them are going to be for you but I will start with the first 1. In the company's annual report, the CapEx for new restaurants a blended figure that includes both company operated and franchise restaurants, And what do you expect the opening cost for new restaurant to be going forward Will it be more through owned or leased properties? or leased properties?

Mariano Tannenbaum: Perfect. Thanks, Lan, for the question. Yes. The CapEx is all the CapEx that the company does. Remember that in the case of new restaurants, ARCOS, makes the investment in the building, and then ARCOS also makes the investment in the inside of the store in case it is an Arcos operated restaurant, and the sub franchisee makes the investment inside the store in case this is a sub franchisee restaurant. But all always, Arcos has an investment there as the as a developmental licensee as we are. In this case, what do you expect the opening cost per new restaurant to be going forward?

Well, as I already mentioned in the previous related to this topic, We are working very hard and we have been so far, I think, successful in reducing the average cost per restaurant open and we will continue to look for opportunities to reduce, reduce this cost. This has been a priority for Luis since he started as CEO last year. And the whole team my whole team in finance and development team are working very hard to find efficiencies and to reduce the investment, but it is important to note always maintaining the high quality of the high quality standards of the restaurants opened.

And we are very pleased that we are seeing higher returns by lower investments but keeping sales and margins in the new restaurants. In terms of if we are going to open more own properties or leased the majority of the stores we open, the vast majority of the stores we open are on leased properties and not on owned properties. That does not mean that we do not buy any land. But the majority of the cases is on leased land.

Operator: Great. Thanks, Mariano. The second question from Lan is after reaching a 90 percent EOTF mix by the end of 2027 or so, how many restaurants do you expect to be reimaged or upgraded to EOTF each year thereafter?

Mariano Tannenbaum: Well, in the industry, the standard in the in the QSR industry, the standard is to modernize or remodel approximately 10 percent of the restaurant base each year. So that means, you know, every 10 years, a restaurant, more or less 10 years, is due to modernization or redevelopment. And are expecting to do that. Probably, you know, it could be EOTF, it could be something new, We are working with McDonald's in order to develop the new restaurant that will that will that will come. But we are still planning to keep modernizing our stores that is a key component for being modern, being attractive for our customers, and to continue increasing same store sales in our restaurants.

Operator: Thanks, Mariano. We have another question from Lorena Reich, from Lucror Analytics. Good morning. Wondering why you no longer compare system wide comparable sales blended inflation? And also if you can comment on the expected impact From the World Cup in guest traffic and sales in Q2 and Q3. And that question is for you, Luis.

Luis Raganato: Right. Thank you, Lorena, for the question. I think I already covered the part of the World Cup actions. We have seen, and we are pleased with the performance of, that campaign. In the first weeks. And regarding the question of about the inflation under normal circumstances, Inflations or inflation is a good measuring stick for comparable sales, but it is not a rule. For example, in Brazil, I already said this, that the QSR industry is undergoing a correction in guest traffic And when that occurs, it is important to maintain as much traffic as possible which we believe we have done And the evidence is that we have strong visit share performance.

We believe it is also a time to monetize the market share advantage we built in the market to try to help offset the cost increases that are also impacting the industry. That way, we build top line in a sustainable way without buying traffic while also maintaining healthy margins. So at this moment, you can apply this concept to a couple of other markets. As well in the region. Long term, we expect to maintain and optimize combination of sales growth drivers based on market conditions and the factors that we can control.

Operator: Great. Thanks, Luis. And we have 1 more question from Thomas Jerez from he is an individual investor. he is asking the food and paper cost as a percentage of revenue decrease, is it part of an average price increase or is it a cost efficiency initiative? The case of a cost efficiency initiative, could you elaborate on those initiatives? So I will pass that 1 to you, Mariano.

Mariano Tannenbaum: Okay. I will try to be fast so we can end on time Pricing strategy, it is very important, remains disciplined and closely aligned with inflation. We continue to avoid aggressive pricing actions to protect long term brand health. So we are not increasing prices above inflation. And our affordability platform, as the 1 that Luis mentioned in Brazil, EconoMeki, is performing very well reinforcing value and traffic.

At the consolidated level, the food and paper improved 60-basis-points versus prior year, but that is more a mix between input cost trends very disciplined revenue management where we can we are looking for opportunities in pricing but being disciplined as I mentioned before, currency appreciation over imported items as I already mentioned about real appreciation of main currencies. So I would say there is a mix.

Reduction in costs, initiatives from our supply chain team, revenue management, So with that mix, but always keeping in mind that we are monitoring prices to be in line or below inflation. that is how we obtain this 60-bps improvement versus prior year, and that is why we remain, cautiously optimistic for the rest of 2026.

Operator: With that, Daniel, back to you. Mariano. And before we wrap up, the Q&A session, I think Luis you had a couple of things that you wanted to mention.

Luis Raganato: Yeah. Thank you, Daniel. We will leave you with a couple of thoughts. Even though we continue to see a challenging environment in some markets, with pressure on consumer confidence and private consumption, We remain very confident because we are in a position of strength and have exciting marketing plans that will help us face any situation. And let me mention again that we are targeting sustainable top line growth and improved operational efficiency to drive profitability generate free cash flow, and create shareholder value. Thank you for your time.

Operator: Thanks, Luis. So that does bring us to the end of the Q&A session. Thanks again for your interest in Arcos Dorados and for joining today's webcast. Look forward to speaking with you again in the August on our second quarter 26 earnings webcast. Have a nice rest of your day.