Arcos Dorados Holdings Inc. Q1 FY2026 earnings call

- Overall Financial & Strategic Progress * 6-year growth through 2025 delivered ~60% total revenue growth, nearly doubled EBITDA, and increased net income more than 2.5x in U.S. dollars, building a strong foundation for 2026 and beyond * Q1 2026 delivered the highest first-quarter adjusted EBITDA in company history at $119 million, driven by strong top-line growth and margin expansion, with improving cash flow generation * Starting with this quarter, the company will publish 12-month trailing adjusted free cash flow to better demonstrate ability to service debt and fund capital plans, reaching almost $110 million for the 12 months ended March 31, up from negative $3 million in the prior period

- Marketing & Menu Innovation * Regional strategies align with local economic conditions, focusing on value platforms for lower-income consumers, core menu items to drive brand affinity, and licensed partnerships to maintain cultural relevance * Brazil ran campaigns focused on core menu, affordability, and partnerships including the new Best Burger, EconoMeki value offers, early FIFA World Cup promotions, and a presence at Lollapalooza Brazil * NOLAD markets (Mexico, Panama, Costa Rica) leveraged affordability platforms and localized offerings, with family-focused initiatives and licensed activations reinforcing brand affinity * SLAD delivered targeted menu innovation: Tasty B.F.T. Cuarto in Chile, limited-time Grand Beef Clubhouse in Argentina with local Formula 1 driver Franco Colapinto, and new chicken offerings in Colombia that received strong guest response

- Digital & Loyalty * Digital channels (mobile app, delivery, self-order kiosks) grew 21% year-over-year and contributed 64% of system-wide sales, with 55% of total sales still generated inside restaurants * Delivery sales growth remained strong, boosted by new third-party partner promotions in Brazil, while self-order kiosk sales accelerated * The loyalty program topped 30 million registered members at quarter-end, with rollout nearly complete across 10 markets covering 94% of company stores. Loyalty members deliver a 20-25% increase in visit frequency, with higher margin dream products supporting margin expansion

- Restaurant Expansion & Capital Allocation * 19 new restaurants were added in Q1, including 13 freestanding units, with more disciplined and efficient capital deployment * Net debt to adjusted EBITDA remained unchanged from year-end 2025 after completing a planned liability management transaction, with a healthy cash balance to support growth and modernization * Total Q1 CapEx was $36.8 million, with $16.7 million allocated to new restaurants. The company maintains a disciplined investment approach, prioritizing high-return projects and markets

- ESG & Workplace Recognition * The company earned top Great Place to Work rankings: #1 in Argentina and Uruguay, #4 in Brazil (the highest ranking in company history), and #1 on Mexico's Super Empresas ranking for organizational culture * The 2025 social impact and sustainable development report will be published soon, including details on meeting targets for the 2022 sustainability-linked bond

Arcos Dorados operates three geographic divisions: Brazil, NOLAD (North Latin America Division), and SLAD (South Latin America Division). Total company revenue grew ~13% year-over-year to surpass $1.2 billion, with system-wide comparable sales up 16% driven primarily by average check growth alongside traffic improvements in multiple markets. Consolidated adjusted EBITDA reached $118 million, up almost 30% year-over-year, with consolidated margin expanding 120-basis-points. Brazil: Adjusted EBITDA grew more than 20% year-over-year in U.S. dollars, with 30-basis-points of margin expansion driven primarily by improved Food and Paper costs. Revenue growth was led by new restaurant contributions, higher average checks, and Brazilian real appreciation. The segment saw volume slowdown post-Carnival in Q1, but reversed negative guest value trends by quarter-end. NOLAD: Excluding income from sub-franchise restaurant transactions, EBITDA margin was down ~40-basis-points year-over-year, pressured by minimum wage increases and sales growth running below labor and cost inflation. The segment saw positive comparable sales momentum, with currency appreciation from the Mexican peso and Costa Rican colon supporting U.S. dollar revenue growth. Including the transaction gain, NOLAD margins were 50-basis-points above prior year, with G&A leverage delivering offsetting improvement. SLAD: Even excluding sub-franchise transaction income, SLAD's EBITDA margin expanded ~120-basis-points year-over-year, with sustained strong U.S. dollar revenue growth. The segment maintained or expanded visit and value share across all its markets, with mixed currency performance (appreciation across most markets offset by devaluation in Argentina and Venezuela, partially countered by elevated inflation that supported U.S. dollar revenue growth). The $5.8 million total in sub-franchise transaction income across NOLAD and SLAD added 50-basis-points of consolidated margin expansion in the quarter.

- Overall 2026 plan is focused on optimizing sales growth drivers, capturing operational efficiencies to improve profitability, and generate positive adjusted free cash flow for shareholder value creation - Management is cautiously optimistic that beef and overall Food and Paper costs will remain supportive of margins in Brazil for the remainder of 2026, with no additional broad beef cost pressures expected across other operating markets - The company expects to maintain the current 70% corporate-operated / 30% sub-franchised restaurant mix, with no large changes planned - G&A operating leverage achieved in Q1 is expected to be maintained through the full year 2026, following 2025 restructuring that delivered a leaner cost structure - Effective tax rate for full year 2026 is expected to be in line with the 2025 effective tax rate - NOLAD is expected to return to margin expansion in coming quarters as sales growth improves and cost initiatives take hold - The company targets reaching 90% of restaurants converted to the Experience of the Future (EOTF) modernized format within the next few years, with 75% converted as of Q1 2026 - After reaching 90% EOTF penetration, the company expects to modernize approximately 10% of the restaurant base annually, in line with QSR industry standards - Q2 2026 is off to a very strong start, with positive guest traffic and solid average check growth in April and the first half of May, including April guest volume and comparable sales in Brazil reaching the best growth levels in 20 months - An Investor Day is scheduled for October 1, 2026 in New York, where management will share detailed updates on strategic priorities, including the impact of AI on operational efficiency

- Challenging macroeconomic conditions with soft consumer consumption and constrained disposable income across multiple Latin American markets, leading to industry-wide guest volume corrections in Brazil and other regions - Currency volatility across SLAD, with ongoing devaluation in Argentina and Venezuela that creates pressure on U.S. dollar reported results - Persistent global food inflation that creates ongoing input cost pressure, even as beef costs have moderated in key markets - Margin pressure in NOLAD from minimum wage increases that have outpaced current sales growth, creating temporary operating leverage headwinds - Payroll and occupancy cost inflation across multiple divisions that creates modest margin pressure, partially offset by G&A efficiencies and top-line growth - Beef prices remain dynamic, shaped by ongoing global demand shifts that create uncertainty for future margin trends in Brazil

Q: How should investors think about beef cost trends, margin contributions from lower beef prices in Brazil, and the outlook for the remainder of 2026? / A: Beef cost reductions were the primary driver of Q1 margin improvement in Brazil, marking the second consecutive quarter of falling beef costs. No additional beef cost pressures are expected across other Arcos Dorados markets this year. Management is cautiously optimistic that supportive beef cost trends will continue for the rest of 2026, with other key food categories remaining stable in Brazil.

Q: What is the current status of the loyalty program, its impact on key customer metrics, and remaining rollout plans? / A: The loyalty program now has more than 30 million registered members, up 62% from year-end 2025, and accounts for 25% of total sales. It is live in 10 markets covering 94% of stores, with Panama added in Q1. The program increases visit frequency by 20-25% for members, has minimal impact on average check that is offset by higher frequency, and improves customer lifetime value tracking.

Q: What is the strategy behind recent sub-franchise transactions, and what is the target long-term mix of corporate versus sub-franchised restaurants? / A: Recent transactions are standard business as usual, with regular acquisitions from and sales to sub-franchisees across the region. The company plans to maintain the current long-term mix of ~70% corporate-operated restaurants and ~30% sub-franchised restaurants with no large changes expected.

Q: How has traffic evolved in Brazil since mid-2025, what is the current competitive position, and what are the expectations for a sales recovery? / A: Industry-wide guest volume remained under pressure in Q1 2026 after a challenging 2025, with a sharp post-Carnival volume decline in March driven by constrained disposable income. Arcos Dorados focused on monetizing its large market share while protecting margins, and delivered EBITDA expansion while gaining visit share, reaching its highest visit share level since 2022. Proactive initiatives to boost traffic reversed negative trends by quarter-end, with April 2026 delivering the best guest volume and comparable sales growth in 20 months, and May trending similarly.