Q1 2024 Arcos Dorados Holdings Inc Earnings Call Q&A

Marcelo Rabach: Sustainable growth means getting volume, and the McDonald's brand continues to capture the highest volume per restaurant in our region by far. The region's growth potential is huge, and we are still accelerating restaurant openings. In fact, we plan to invest in the McDonald's brand for many years to come, and our investments will foster a virtuous cycle of growth in our communities and local economies. In turn, this will support our long-term expansion plan while insulating the business from short-term volatility.

Is the growth is.

Net volume.

And the Mcdonald's brand continues to capture the highest volume per restaurant in our region by far.

The <unk> growth potential is huge and we are still accelerating restaurant openings.

In fact, we plan to invest in the Mcdonald's brand for many years to come.

And our investments will foster a virtuous cycle of growth in our communities and our local economies.

In turn this will support our long term expansion plans.

While insulating the business from short term volatility.

Marcelo Rabach: Before getting into the specifics of our first quarter results, I want to take a moment to express how saddened we are by the severe flooding in Brazil's southernmost state, Rio Grande do Sul. Fortunately, all our employees in the state survived the flooding. In the short term, we are focused on supporting our employees and their families, including providing basic necessities and by guaranteeing their job security until the situation improves. We have also begun distributing food within the communities we serve, as well as to first responders. Moving forward, we will be working on several initiatives in coordination with local governments and NGOs.

Before getting into the specifics of first quarter results.

Wanted to take a moment to express how southern we are by the severe flooding in Brazil's solve their most state reordered under assorted.

Fortunately all of our employees and the states served by the flooding.

In the short term, we are focused on supporting our employees and their families, including with basic necessities and by guaranteeing their job security until the situation improves.

We have also begun to distribute even food within the communities, we serve as well as to first responders.

Moving forward, we will be working on several other initiatives in coordination with local governments and Ngos to continue supporting our people and to aid in construction.

Marcelo Rabach: to continue supporting our people and to aid in reconstruction.

Marcelo Rabach: Finally, I should also note that our business exposure to the state is relatively limited, and so far, Brazil's second quarter trends have not been materially impacted by this situation. Turning now to the first quarter, performance in Brazil and NOLAB more than offset the impact of the devaluation of the Argentine peso on consolidated results. Total revenue rose 9.1% in the first quarter, supported by the 12th consecutive quarter of positive comparable guest traffic at the consolidated level.

Finally, I should also note that our business exposure to the state is relatively limited so far Brazil's second quarter trends have not been materially impacted by this situation.

Turning now to the first quarter performance in Brazil of NOLA more than offset the impact of the devaluation of the Argentine peso on consolidated results.

Total revenue rose nine 1% in the first quarter.

Posted by the 12th consecutive quarter of positive comparable guest traffic at the consolidated level.

Marcelo Rabach: System-wide comparable sales rose above inflation in nearly all markets as well and were up 2.2 times blended inflation for the entire company, excluding Argentina. McDonough's brand BC and Spencer's remain more than two times our nearest competitor, and the brown attributes we track are at or near all-time highs across the region.

System wide comparable sales rose above inflation in nearly all markets as well.

We're up to two times blended inflation for the entire company excluding Argentina.

Speaker Change: Dennis Brown, BC and Spanish shares remain more than two times, our nearest competitors and their brand attributes we track are at or near all time highs across the region.

Marcelo Rabach: The digitalization of the Arcos Verados business also remains on track in the port, with digital channels generating 55% of system-wide sales. Total digital sales growth of 30% in US dollars was driven by delivery, self-order kiosks, and mobile order and pay sales. Notably, this quarter, we signed an agreement to become a regional sponsor of Formula One in Latin America. Over the years, this global sport has become popular among families within the region, bridging all demographic, gender, and socioeconomic groups.

The digitalization of the article for alloy business also remained on track in the quarter with digital channels generate $18, 55% of systemwide sales.

Speaker Change: Total digital sales to grow off of.

Speaker Change: 30% in U S dollars was driven by delivery self order kiosks and mobile ordering base sales.

Speaker Change: Notably this quarter, we signed an agreement to become a regional sponsor of Formula One in Latin America.

Speaker Change: Over the years this global support has become popular among families within the region.

Speaker Change: Reaching oil demographic gender and social economic groups.

Marcelo Rabach: In addition to providing a significant boost to our brand presence in the region, this sponsorship will focus on further leveraging the successful 3D strategy, including the synergy with the precision, teamwork, and speed of service of our industry-leading drive-thru business. Finally, restaurant openings continue to accelerate. We added 22 EODF restaurants, 19 of them freestanding.

In addition to providing a significant boost to our brand presence in the region. This sponsorship will focus on further leveraging the successful <unk> strategy.

Speaker Change: Including the synergy with the precision team.

Speaker Change: Teamwork and speed of service of our industry, leading drive through business.

Speaker Change: Finally risks are and <unk> continued to accelerate.

Speaker Change: <unk> added 22 restaurants 19 of them freestanding <unk>.

Luis Raganato: Brazil opened 11 restaurants, including 10 new freestanding units. Luis will now take us through an overview of sales performance in each division. Thanks, Marcelo, and good morning, everyone.

Speaker Change: Brazil opened 11 restaurants, including 10, new freestanding units.

Speaker Change: Luis will now take us through an overview of <unk> performance in each division.

Luis: Thanks, Marcel and good morning, everyone.

Luis Raganato: As Marcelo just mentioned, we believe sales growth above inflation is the most sustainable way to increase profitability. Brazil's comparable sales rose 9.4% on top of 13.8% in the first quarter last year. This year's growth was 2.2 times inflation during the period, with higher volume and average checks contributing to the result.

Speaker Change: Marseille just mentioned, we believe sales growth above inflation is the most sustainable way to increase profitability.

Luis: Brazil's comparable sales rose nine 4% on top of 13, 8% in the first quarter last year.

Luis: This year's growth was two two times inflation in the period with higher volume and average check contributing to the result.

Luis Raganato: Digital sales grew 38% and accounted for 65% of total sales in Brazil. Importantly, 26% of sales were identified. As a reminder, these are transactions where we not only have customer data, but where customers have explicitly authorized us to track and use their data.

Luis: Digital sales grew 38% and accounted for 65% of total sales in Brazil.

Luis: Importantly, 26% of sales were identified.

Luis: As a reminder, these are transactions, where we not only have customer data, but where customers have explicitly authorized us to track and Houston data.

Luis Raganato: Additionally, the mail-making loyalty program continued to gain traction in the market during the quarter. Brazil's marketing plans and campaigns became the talk of the town during the first quarter, with the continuation of the successful Making Me Bigger campaign and the launch of Big Tasty Turbo Cheese. We engaged with Gen Z customers by once again sponsoring the Lollapalooza music festival in Sao Paulo, as well as the country's most popular primetime TV show, Big Brother Brazil.

Luis: Additionally, the mill makes a loyalty program.

Luis: <unk> to gain traction in the market in the quarter.

Luis: Brazil's marketing plans and campaigns became did talk of the town during the first quarter.

Luis: With the continuation of the successful, making bigger campaign and the launch of beef tastes terrible piece.

Luis: We engaged with Gen Z customers by once again sponsoring the Lollapalooza music festival in so Paulo as well as the country's most popular primetime television show Big brother in Brazil.

Luis Raganato: We also created brand excitement and customer engagement across all sales channels by bringing back the McFee Sandwich as a limited-time offer, selling out in a very short time. Finally, the dessert category included the introduction of the Mac Flurry Chococanchi with an iconic Brazilian chocolate.

Luis: We also draw brand excitement and customer engagement across all sales channels by bringing back the Mcafee sandwich as a limited time offer selling out in a very short time.

Luis: Finally, the reserve category, including the introduction of the flurry Chaco guaranteed with an iconic Brazilian chocolate.

Speaker Change: Joe Manchin Andrew.

Marcelo Rabach: [inaudible] DOLA's comparable sales grew more than three times blended inflation in the quarter, with gift volumes driving almost the entire result. Every single market in NOLA grew comparable sales above inflation in the quarter, with strong volume growth as the main driver. Performance was particularly impressive in Mexico, with comparable sales up in the teens driven primarily by gas price growth. I should note that the quarter's result also benefited from the extra trading day due to leap year, as well as from Holy Week, particularly in Mexico. Key marketing activities in Mexico included the launch of the new value platform Elije Tu Fab, which allows guests to choose between delicious beef or chicken combos at an attractive price.

Speaker Change: No, let's comparable sales grew more than three times blended inflation in the quarter with good volumes driving almost the entire result.

Speaker Change: Every single marketing Nolette grew comparable sales above inflation in the quarter with strong volume growth as the main driver.

Speaker Change: Performance was particularly impressive in Mexico with comparable sales up in the teens driven primarily by good volume growth.

Speaker Change: I should note that the quarters. We sold also benefited from the extra trading day due to leap year as well as from Hollywood.

Speaker Change: Particularly in Mexico.

Key marketing activities in Mexico included the launch of the new value platform indicate to file we can now guest to choose between delicious beef or chicken combos at an attractive price.

Marcelo Rabach: Notably, digital channel sales in Mexico doubled versus last year, and the McDonald's app is now the most downloaded and used app across the country's QSRMs. Panama implemented a strong value platform, coupled with one of the biggest..., brand equity scores in the region, to accelerate business in that country. In Puerto Rico, we gained significant visit share as the new brand campaign, Sacaton Canto, resonated well with guests. Finally, as Marcelo mentioned, we signed a regional sponsorship of Formula 1 that resonates across our footprint, with special meaning in knowledge, given the popularity of Mexican driver, Checo Pérez.

Speaker Change: Notably digital channel sales in Mexico.

Speaker Change: Versus last year and the Mcdonald's App is now the most downloaded and used app across the countries to use our industry.

Speaker Change: Panama implemented a strong value platform, coupled with one of the biggest.

Speaker Change: Brand equity scores in the region to accelerate the business in that country.

Speaker Change: In Puerto Rico, we gained significant visit chair as a new brand campaign Sacaton Cantor resonated well with guests.

Speaker Change: Finally, as Marcelo mentioned, we signed a regional sponsorship of Formula one that resonates across our footprint with special meaning a NOLA given the popularity of Mexican driver tickled basis.

Marcelo Rabach: Comparable sales grew below the blended inflation slide due to the significant economic slowdown in Argentina in the quarter. However, except for Argentina and Ecuador, the other large markets in the division generated comparable sales growth well above local inflation. This included Chile, Colombia, and Uruguay, where gas volume growth was robust. Comparable sales were up 1.8 times blended inflation in SLAD, excluding Argentina. The silver lining in Argentina was that when consumption was down 20 to 30 percent in the country, Arcos Dorado's volumes declined at about half that rate during the period.

Speaker Change: Comparable sales grew below blended inflation and flat due to the significant economic slowdown in Argentina in the quarter.

Speaker Change: However, except for Argentina and Ecuador.

Speaker Change: Large markets in the division generated comparable sales growth well above local inflation.

Speaker Change: This included the Chile, Colombia, and you'd away where gas volume growth was robust.

Speaker Change: Comparable sales were up one eight times blended inflation and flat excluding Argentina.

Speaker Change: Okay.

Speaker Change: The silver lining in Argentina was that while consumption was down 20% to 30% in the country.

Speaker Change: <unk> volumes declined at about half that rate in the period.

Marcelo Rabach: The local team delivered this impressive result by continuing to offer consumers the best value proposition in the market's QSR industry. This led to significant market share gains against our main competitors and improvements in our brand equity scores, which should position us for a strong rebound once the economy stabilizes. Similar to Brazil, the slab division strengthens brand affinity and excitement among younger consumers by sponsoring the most relevant music festivals in the region, including Lollapalooza in Argentina and Chile, as well as Stereo Picnic in Colombia. We brought menu innovation to sluts markets with the launch of the quarter-pounder western barbecue in Chile and Uruguay. Quarter Pounder Cheesy Jalapeo in Ecuador and the Grand Tasty Spicy in Argentina.

Speaker Change: The local team delivered these impressive results by continuing to offer consumers the best value proposition in the market as kyocera industry.

Speaker Change: These led to significant market share gains against our main competitors and improvements in our brand equity scores, which should position us for a strong rebound once the economy stabilizes.

Speaker Change: Similar to Brazil, the slab division strengthen brand affinity and excitement among younger consumers by sponsoring the most relevant music festivals in the region, including loan evolution, Argentina, Chile, as well as our stereo picnic in Colombia.

Speaker Change: We brought our menu innovation to select markets with the launch of the quarter pounder western barbecue in Chile and Uruguay.

Speaker Change: Quarter pounder Tc kind of opinion, Ecuador, and the Grand tastes despite in Argentina.

Marcelo Rabach: These new product launches were all met with strong guest responses, helping drive restaurant traffic and agri-tech growth. SLAD also continues making inroads in the chicken category with the launch of the McCrispy Chicken platform in Uruguay and the McCrispy Chicken Legend in Colombia, which is quickly becoming a game player's favorite. All the marketing efforts related to menu favorites, music, and sports are generating tangible results; market share performance in the quarter was strong throughout the Arcos Dora Hldg's footprint in both visit and sale share.

Speaker Change: Yeah.

Speaker Change: These new product launches.

Speaker Change: We're all met with strong guest responses, helping drive restaurant traffic and average check growth.

Speaker Change: Slash also continue making inroads in the chicken category with the launch of the Marquis boutique in platforming you'd away and democracy. The chicken legend in Colombia, which is quickly becoming a guest favorite.

Speaker Change: All of the marketing efforts related to menu favorites music and sports are generating tangible results.

Speaker Change: Market share performance in the quarter was strong throughout the arcos <unk> footprint in both.

Speaker Change: And sales share.

Marcelo Rabach: We also measured 2.5 times top of mind and 1.5 times favorite brand scores against our main competitors, on average, across the geography. This was supported by all the markets we track with quarterly data in NOLED and SLAD, which gained significant market share in the period. In Brazil, where we continue to strengthen the branch leadership position, we achieved an all-time high VC share score over the trailing 12 months. According to our research, Brazil reached record high scores in brand equity, including top of mind, while remaining the country's favorite QSR brand by a wide margin.

We also made sure to two five times top of mind and one five times favorite brand scores against our main competitors on average across the geography.

Speaker Change: This was supported by all the markets, we track with quarterly data in noted and flat, which gained important market share in the period.

Speaker Change: In Brazil, where we continued to strengthen the brand's leadership position, we achieved an all time high visit chair score over the trailing 12 months.

Speaker Change: According to our research, Brazil reached record high scores in brand equity, including top nine while remaining the country's favorite <unk> brand by a wide margin.

Marcelo Rabach: Notably, we measure favorable gas against our main competitor in all the brand attributes we track, covering experience, taste, community impact, family environment, and affordability, among others. Now, over to Mariano for a closer look at consolidated and divisional profitability in the quarter. That has to be it.

Speaker Change: Notably we made should favorable gas against our main competitor in all day brand attributes we track car.

Speaker Change: Covering experience.

Speaker Change: Based community impact family environment, and affordability among others.

Mariano: Mariano for a closer look at consolidated and divisional profitability in the quarter.

Speaker Change: Thanks Luis.

Mariano Tannenbaum: Good morning, everyone. First quarter adjusted EBITDA growth was in line with revenue growth in the period, highlighting the diversity of our operations and the resilience of the cost structure, even following the significant devaluation of the Argentine peso. As we mentioned on our last call, we expect to generate EBITDA growth primarily through revenue growth while capturing efficiencies and margin opportunities over the long run. The consolidated Ibiza margin was flat, with lower food and paper and GNA, offset primarily by higher occupancy and other operating expenses as a percentage of revenue.

Speaker Change: Good morning, everyone.

Mariano: First quarter adjusted EBITDA growth was in line with revenue growth in the period.

Mariano: Highlighting the diversity of our operation and the resilience of the cost structure, even following the significant devaluation of the Argentine peso.

Mariano: As we mentioned on our last call, we expect to generate EBITDA growth, primarily through revenue growth, while capturing efficiencies and margin opportunities over the long run.

Mariano: The consolidated EBITDA margin was flat with lower food and paper and G&A.

Offset primarily by higher occupancy and other operating expenses as a percentage of revenue.

Mariano Tannenbaum: A consistent value proposition and a lower cost environment led to the improvement in food and paper and Significant Revenue Growth-Leveraged DNA. Meanwhile, below inflation growth in Argentina was the main cause of lost operating leverage in fixed expenses. For full year 2024, we expect the favorable cost environment to continue and will focus on gaining efficiencies in other line items. Divisional results reflect this dynamic, with Brazil extracting almost 27% higher U.S. dollar EBITDA and 90 basis points of margin expansion from its strong top-line growth.

Mariano: And consistent value proposition and the lower cost environment led to the improvement in food and paper.

Mariano: And significant revenue growth leverage G&A.

Mariano: Meanwhile, below inflation growth in Argentina was the main cause of loss of operating leverage in fixed expenses.

Mariano: For full year 2024, we expect the favorable cost environment to continue and will focus on gaining efficiencies in other line items.

Mariano: Divisional results reflect this dynamic.

Mariano: With Brazil, extracting almost 27% higher U S dollar EBITDA and 90 basis points of margin expansion from its strong topline growth.

Mariano Tannenbaum: Importantly, Brazil's solid margin expansion included lower food and paper, payroll, and G&A expenses. Now, let us also turn its impressive sales growth into almost 21% U.S. dollar profitability growth and 30 basis points of margin expansion, with that decline in the period being driven almost exclusively by reduced consumption in Argentina and the translation impact from the Argentine peso's significant devaluation at the end of 2023. The resulting volume reduction in the division's largest market caused sales and operating leverage to decline, which reduced margins as well. To a lesser degree, SLAC's results were also negatively impacted by the effect of the unrest in Ecuador.

Mariano: Importantly, Brazil solid margin expansion included lower food and paper payroll and G&A expenses.

Mariano: No letter also earn its impressive sales growth into almost 21% U S dollar profitability growth.

Mariano: 30 basis points of margin expansion.

Mariano: So last year's dollar EBITDA decline in the period was driven almost exclusively by the reduced consumption in Argentina.

Mariano: And the translation impact from the Argentine peso's significant devaluation at the end of 2023.

Mariano: The resulting volume reduction in division's largest market cost savings and operating leverage to decline, which reduced margins as well.

Mariano: To a lesser degree slabs results were also negatively impacted by the effect of the unrest in Ecuador.

Marcelo Rabach: Looking ahead, the macroeconomic environment continues to be challenging to predict in the short term, but we remain focused on generating the strongest possible full-year results in each of our markets, leveraging the diversity of our operating footprint to drive consolidated U.S. donor profitability higher than last year. The driving force behind our results for the last three years has been the 3D strategy of digital delivery and driving. The work to digitalize the business is far from over, and the results of the first quarter demonstrate how this strategy still has plenty of room to drive performance across the entire Arcos Dorados footprint.

Mariano: Looking ahead, the macroeconomic environment continues to be challenging to predict in the short term.

Mariano: But we will remain focused on generating the strongest possible full year results in each of our markets.

Mariano: Leveraging the diversity of our operating footprint to drive consolidated U S dollar profitability.

Mariano: Higher than last year.

Mariano: The driving force behind our results for the last three years was the <unk> strategy of digital delivery and drive thru.

Mariano: The work to digitalize the business is far from over and the results of the first quarter demonstrate how this strategy still has plenty of room to drive performance across the entire <unk> footprint.

Marcelo Rabach: Digital, which includes sales from the mobile app, delivery, and self-order kiosks, grew 30% in U.S. dollars versus the prior year quarter. These channels accounted for 55% of system-wide sales and allowed us to identify 22% of sales in the quarter as well. In Brazil, digital channels generated 65 percent of sales, including 26 percent of identified sales with actionable customer data. Delivery and drive-thru sales combined were up 14% year-over-year in U.S. dollars.

Mariano: Digital which include sales from the mobile App delivery and self order kiosks grew 30% in U S dollars versus the prior year quarter.

Mariano: These channels accounted for 55% of system wide sales and allowed us to identify 22% of sales in the quarter as well.

Mariano: In Brazil digital channels generated 65% of sales, including 26% identified sales with actionable.

Mariano: <unk> data.

Mariano: Delivery and drive thru sales combined were up 14% year over year in U S dollars.

Marcelo Rabach: These two channels, which make up off-premise sales and heavily leverage the company's freestanding restaurant footprint, accounted for about 44 percent of system-wide sales in Brazil. Brazil's delivery sales grew by more than 44% in U.S. dollars and were more than four times the nearest competitor's delivery sales in local currency terms, according to publicly available information. NOLA's results also benefited from strong digital sales, particularly in delivery and self-order kiosks, as we continue the digitalization of this market.

Mariano: These two channels that make up off premise sales and heavily leverage the company's freestanding restaurant footprint accounted for about 44% of system wide sales in the quarter.

Mariano: Brazil's delivery sales grew by more than 44% in U S dollars and it was more than four times. The nearest competitors delivery sales in local currency terms.

Mariano: According to publicly available information.

Mariano: No. Let's results also benefited from strong digital sales, particularly in delivery and self order kiosks as we continue the digitalization of this market.

Marcelo Rabach: The loyalty program we launched in Brazil and Uruguay so far has grown to more than 8 million registered members as of the end of April 2024, up from 3.2 million at the end of last year. We should have loyalty in two more markets by the next earnings goal, and we expect it to be fully implemented by the end of 2025. Loyalty boosts the power of the mobile app by taking customer data from identified sales to offer an increasingly personalized guest experience.

Mariano: The loyalty program, we launched in Brazil, and <unk>. So far has grown to more than 8 million Brady to members as of the end of April 2024.

Mariano: Up from $3 2 million at the end of last year.

Mariano: We should have loyalty into more markets by the next earnings call and we expect to be fully implemented by the end of 2025.

Mariano: Loyalty boosts the power of the mobile app by taking customer data from identified sales to offer an increasingly personalized guest experience.

Marcelo Rabach: We have been very encouraged by the accelerating growth in registered members and a very positive trend in 90-day active customers. Together, these drive frequency significantly higher than non-loyalty customers, which also increases the customer's lifetime value. We are already seeing this in both Brazil and Uruguay.

Mariano: We have been very encouraged by the accelerating growth in registered members and a very positive trend in 90 day active customers.

Mariano: Together these drive frequency is significantly higher than non loyalty customers, which also increases the customers lifetime value.

Mariano: We are already seeing this in both Brazil and your way.

Mariano Tannenbaum: And the rollout of loyalty in each new market will benefit from the learnings we are gaining in existing loyalty markets. Mariano, Let's take a look at our capital structure and investment in growth. Our net leverage ratio remained at a very healthy 1.2 times at the end of the first quarter. I'm also pleased to report that a couple of weeks ago, Moody's upgraded Arcos Dorado's corporate and senior debt rating outlook from stable to positive, reaffirming the BA2 rating based on our liquidity condition and latest operating performance.

Mariano: And the rollout of loyalty in each new market will benefit from the learnings we are gaining in existing loyalty market.

Mariano: Mariano.

Speaker Change: Let's take a look at our capital structure and investments in growth.

Mariano: Our net leverage ratio remained at a very healthy one two times at the end of the first quarter.

Mariano: I'm also pleased to report that a couple of weeks ago, Moody's upgraded <unk> corporate and senior debt rating outlook from stable to positive.

Mariano: We are affirming the two rating based on our liquidity condition and latest operating performance.

Mariano Tannenbaum: Over the last 12 months, cash flow operations remained in line with the prior period. We have been deploying excess cash primarily to support restaurant growth and modernizations, as well as expanding digital capabilities. We continue to fund this year's CAPEX plan with cash on hand and cash from operations. In the first quarter, we opened 22 restaurants, which is on pace to meet full year guidance. And we deployed about $61 million for capital expenditures for restaurant openings, modernizations, and maintenance, as well as for digital and IT enhancements. Marcelo, back to you. In the next few days, we expect to publish our 2023 social

Mariano: Over the last 12 months cash from operations remained in line with the prior period.

Mariano: We have been deploying excess cash primarily to support restaurant growth and modernizations as well as expanding digital capabilities.

Mariano: We continue to expect to fund this year's Capex plan with cash on hand and cash from operations.

Mariano: In the first quarter, we opened 22 restaurants, which is on pace to meet full year guidance and.

Mariano: And we deployed about $61 million for capital expenditures for restaurant openings, modernizations and maintenance as well as for digital and it enhancements.

Mariano: Enhancements.

Speaker Change: Back to you.

Marcelo Rabach: Impact and Sustainable Development Report. You will be able to download the...

Speaker Change: In the next few days, we expect to publish our 2023 social impact on sustainable development report.

Speaker Change: You will be able to download the report by BCP and the recipe for the future website.

Marcelo Rabach: by visiting the Recipe for the Future website. Let me give you a preview. This will be our 10th annual ESG report, which is also the industry's only report to include

Marcelo Rabach: to introduce audited content

Speaker Change: Let me give you a preview.

Speaker Change: This will be our 10th annual ESG report, which is also the industry's only report to include oriented content.

Marcelo Rabach: The latest edition will showcase all the progress we made last year across the six pillars of our recipe for the future. Among the highlights are the hundreds of thousands of training and job opportunities we offered to the region's young people. This is one of our most important contributions to the economic development of the communities we serve, given that almost two-thirds of our employees are younger than 24 years old. We are also proud of the diverse and inclusive workplace we offer, having received more than 40 awards and other forms of recognition just last year from a variety of governments and NGOs.

Speaker Change: The latest addition will showcase all the progress we made last year across our six pillars of our recipe for our future.

Speaker Change: Among the highlights were the hundreds of thousands of training and job opportunities we offer to the ratios young people.

Speaker Change: This is one of our most important contributions to the economic development of the communities we serve.

Speaker Change: Given that almost two thirds of our employees are younger than 24 years old.

Speaker Change: We are also proud of the diverse and inclusive workplace we offer.

Speaker Change: <unk> received more than 40 awards on other forms of recognition soft last year.

Speaker Change: A variety of governments and Ngos.

Marcelo Rabach: On the environmental side, more than 30% of the energy Arcos Dora Hldg uses now comes from renewable sources. And this number continues to rise as we sign more agreements for this type of energy, providing an incentive for these energy producers to continue investing in the countries where we operate. These are just a few examples of the important work we are doing.

Speaker Change: On the environmental side more than 30% of the energy article that helps users now comes from renewable sources.

Speaker Change: And this number continues to rise as we signed more agreements for these type of energy, providing an incentive for these energy producers to continue investing in the countries, where we operate.

Speaker Change: These are assessing a few examples of the important work we are doing for the benefit of our communities and the environment.

Marcelo Rabach: are doing for the benefit of our communities and the environment.

Marcelo Rabach: I open today's call by saying that the first-quarter results demonstrate how far we've come over the last decade. Before we move to Q&A, I would like to leave you with some final thoughts.

Speaker Change: I opened todays call by saying that first quarter results demonstrate how far we've come over the last decade.

Speaker Change: Before we move to Q&A I would like to leave you with some final thoughts.

Marcelo Rabach: The strength of the Arcos Dorados business model is evident in the first quarter's results; we operate across a diversified geographic footprint, generating a growing amount of cash flow from stronger and more stable currencies and markets than ever before, says growth remains solidly above inflation, supported by positive care volumes at the consolidated level. This is driving profitability growth in a way we believe is sustainable over time, and we are capturing incremental operating efficiencies as well. Most importantly, all the levers we have pulled to generate these results are far from over.

Speaker Change: The strength of the <unk> business model is evident in the first quarters results.

Speaker Change: We operate across a diversified geographic footprint generating a growing amount of cash flow from stronger and more stable currencies of markets than ever before.

Speaker Change: Sales growth remains solidly above inflation supported by positive guest volumes at the consolidated level.

Speaker Change: This is driving profitability growth in a way that we believe is sustainable overtime.

Speaker Change: And we are capturing incremental operating efficiencies as well.

Speaker Change: Most importantly, all of the levers we have pulled to generate these results are far from over.

Marcelo Rabach: The brand continues to capture significant market share. Our menu is constantly evolving to meet customer preferences. The digitalization of all markets is and will always be an ongoing process. Our pricing tools are increasingly sophisticated, further balancing sales growth and margins. The operation is already the industry standard, and it's getting better, and we still have a huge opportunity to accelerate restaurant growth across the entire region. These are among the many reasons we are confident in our ability to continue generating significant shareholder value in the years to come. Thank you once again for your interest in Arcos Dorados and ongoing support of our business.

Speaker Change: The brand continues to capture significant market share.

Our menu is constantly evolving to meet customer preferences.

Speaker Change: The digitalization of oil markets is and will always be an ongoing process.

Speaker Change: Our pricing tours are increasingly sophisticated further balancing sales growth and margins.

Speaker Change: The operation is already the industry's standard and it's getting better.

Speaker Change: And we still have a huge opportunity to accelerate restaurant growth our growth the entire region.

Speaker Change: These are among the many reasons we are confident in our ability to continue generating significant shareholder value in the years to come.

Speaker Change: Thank you once again for your interest in our cohort and ongoing support of our business.

Operator: Then it's over to you to start the Q&A session. Thanks, Marcelo.

Speaker Change: Then over to you to start the Q&A session.

Operator: Thanks, Marcelo. In order to get started, please minimize the presentation slides so that you can access the chat function on the left-hand side of the webcast platform. Please limit yourself to one or two questions so that I can read, understand, and convey them to our speakers. We will now pause briefly to compile your questions. Great, okay, so we have already several questions in the chat room, lots of multi-part questions, so we'll take them one by one and we'll get started with Chavo Bortolucci at Goldman Sachs, who says, sorry for the long list, good morning Arcos team. Thiago's first question is, in Brazil, if we can provide a breakdown between ticket and traffic that drove the comparable sales growth in the country So that's for you, Marcelo.

Speaker Change: Thanks, Marcelo in order to get started please minimize the presentation slides. So that you can access the chat function on the left hand side of the webcast platform.

Speaker Change: Please limit yourself to one or two questions. So that I can read understand and converted them to our speakers we.

Speaker Change: We will now pause briefly to compile all of your questions.

Speaker Change: Great. Okay. So we have.

Speaker Change: Already several questions and the chat room.

Speaker Change: Lots of multi part question. So we'll take them one by one and we will get started with Travelport Bluetooth at Goldman Sachs.

Speaker Change: Sorry for the long list good morning, Argos team.

Speaker Change: So I was first question is in Brazil, if we can provide a breakdown between.

Speaker Change: And traffic that drove the comparable sales growth in the country. So.

Marcello: That's for you Marcello Okay. Thank you Donna would want <unk>. Thank you for joining us today.

Marcelo Rabach: Okay. Thank you, Dana. And good morning, Thiago. Thank you for joining us today. Luke, we have an excellent first quarter in Brazil.

Speaker Change: We had an excellent first quarter in Brazil.

Marcelo Rabach: And as you know, comparable sales are a function of guest volume, pricing, and product mix. And we have a positive contribution from each of these drivers. In terms of guest volumes, they rose in low single digits in the first quarter of 2024, so they were positive again in Brazil in the first quarter of 2024.

Speaker Change: As you know comparable sales are a function of volume pricing umbrella mix.

Speaker Change: We have a positive contribution of each of these drivers in terms of gas volumes.

Speaker Change: They rose low single digits in the first quarter 2024.

Speaker Change: So they were positive again in Brazil in the first quarter pricing was basically in line with headline inflation.

Marcelo Rabach: was basically in line with headline inflation, and the product mix improved thanks to the higher participation of digital and loyalty sales versus.

Speaker Change: <unk> improved.

Thanks to the higher participation of digital and loyalty sales versus the prior year. So the three components.

Marcelo Rabach: So, the three components of comparable sales have contributed to this.

Speaker Change: The.

Speaker Change: Comparable sales have contributions to the figures we saw in Brazil in the first quarter importantly, according to Chris.

Marcelo Rabach: to the figures we saw in Brazil in the first quarter.

Marcelo Rabach: Importantly, according to CREST, we gained both BC share and sales share in the first quarter and over the trade in 12 months, with some of the smaller players in the industry losing share. In fact, over the last two years, if you take a look at Brazil's numbers, first quarter comparable sales have grown more than 24% in the cumulative two years, and of those increases, 40%, around 40% came from volume, and 60% more or less came from average sales.

Speaker Change: We gain both V C.

Sure on sales share in the first quarter and.

Speaker Change: Over the trailing 12 months with some of the smaller players in the industry losing share.

Speaker Change: In fact over the last two years, if you take a look the overseas numbers first.

Speaker Change: First quarter comparable sales have grown more than 24% in the.

Speaker Change: Related to years.

Speaker Change: Although increased 40% around 40% came from volume months, 60% more or less came from I would say so we are in the strongest position in Brazil to capture additional growth in.

Marcelo Rabach: We are in the strongest position in Brazil to counter this.

Marcelo Rabach: to capture additional growth in the coming years, and this will generate, for sure, significant shareholder value thanks to our very strong position.

Speaker Change: In coming years, and these will generate for sure significant shareholder value.

Speaker Change: Thanks to our very strong position.

Luis Raganato: Great, thanks, Marcelo. Along the same lines of Brazil, Thiago says, with channels, the delivery sales channels, growing at 44% year over year, it seems that this was the main driver of same store sales growth, while on-premise performance was lower in the quarter. Can you share costs by channel in Brazil? And that one, I guess, to you, Luiz.

Speaker Change: Great. Thanks, a lot.

Speaker Change: Along the same lines of Brazil.

Speaker Change: <unk> with channels that delivery sales channels growing at 44% year over year. It seems that this was the main driver of same store sales growth while our on premise performance was lower in the quarter can you share comps by channel in Brazil.

Speaker Change: Don't want to get subscribers.

Luis Raganato: All right, Hello Joe, how are you? Of course, delivery keeps on surpassing our expectations with an impressive growth of 44%. But having said that, we had a very good sales quarter in Brazil, with all channels growing positively in the mid-teens. Specifically, in delivery, we're leveraging our freestanding restaurant portfolio, the strength in operations and in marketing execution, the close relationship that we have with three partners, and the recent launch of our loyalty program.

Joe: Alright, Hello, Joe how are you of course delivery keeps on surpassing our expectations with any <unk> growth of 44%.

Speaker Change: But having said that we had a very good sales quarter in Brazil with all channels growing positively.

Speaker Change: <unk> in the mid teens.

Speaker Change: Specifically in delivery, we're leveraging from our freestanding restaurant portfolio.

Speaker Change: Strength in operations and marketing execution.

Speaker Change: Close relationship that we have with <unk> and the recent launch of our loyalty program.

Speaker Change: Debt.

Luis Raganato: Thanks, Luis. And then in continuation, again, with the Brazil sort of channel dynamics, Thiago then asks, and what was the contribution of the channel mix to our gross and EBITDA margins in the quarter?

Bruce: Thanks Bruce.

Speaker Change: And then in continuation again with the Brazil sort of channel dynamics job within us and what was the contribution of the channel mix to our gross and EBITDA margins in the quarter and I'll turn it over to anybody else.

Mariano Tannenbaum: And I'll turn it over to you, Mariano. Perfect. Thanks.

Mariano Tannenbaum: Perfect. Thanks, Thiago, for the question. Hi, everybody.

Speaker Change: Thanks <unk> for.

Speaker Change: For the question.

Speaker Change: Hi, everybody.

Speaker Change: Of course, the contribution was very positive on the first quarter of.

Mariano Tannenbaum: Of course, the contribution was very positive in the first quarter of this year. EBITDA grew almost 27% from $59.5 million in the first quarter of 2023 to $75.4 million in the first quarter of this year. And margin was up; EBITDA margin was up 90 basis points from 15.9 to 16.8. And it's, or we're extremely happy to see that this increase in margin was reflected in several lines, mainly in food and paper. So we are improving gross margin, payroll, which is improving as well, and GMA, which are the three main cost lines in our income statement.

Speaker Change: This year EBITDA grew almost 27% from 59 five.

Speaker Change: $5 million.

Speaker Change: On the first quarter of 'twenty, three to $75 $4 million in the first quarter of this year and margin or EBITDA.

Speaker Change: EBITDA margin was up 90 basis points from $15 nine 2000 16.8.

Speaker Change: And it's extremely or we are extremely happy to see that this increase in margin.

Speaker Change: It was reflected in several lines, mainly in food and paper, so we're improving gross margin.

<unk>.

Speaker Change: It is improving as well.

Speaker Change: Which are the CMA.

Speaker Change: Cost lines in our in our income statement.

Mariano Tannenbaum: Great. Thanks, Mariano. And let's stick with you, because Chakra's next question relates to food and paper. Can you comment on how beef and potato prices are trending and how this would impact gross margin?

Speaker Change: Great. Thanks, Mariano and let's stick with you because Chuck. This next question relates to food and paper can you comment on how beef and potato are trending and how this would impact gross margin.

Mariano Tannenbaum: Okay, yeah, we see a benign food and cost environment, and we're optimistic with the outlook for 2024. In particular, we see a better outlook on beef with a reduction in cost. We see some pressures on potatoes, but overall, there is a positive trend. And we are expecting, you know, everything else equal, a better gross margin than what we had last year. So that's the outlook that we have for 2024.

Speaker Change: Okay, Yes.

Speaker Change: Yes, we see a benign food cost.

Speaker Change: Environment, and we are optimistic with the outlook for for 2024.

Speaker Change: In particular, we see a better outlook on beef.

Speaker Change: With reduction in costs.

Speaker Change: We see some pressures on potato, but overall there is a positive trend.

Speaker Change: And we are expecting everything else equal or better gross margin than.

Speaker Change: When we had.

Speaker Change: Last year so.

Speaker Change: That's that's the outlook that we have for 2024.

Marcelo Rabach: Okay, I think we're getting almost to the end of Thiago's list of questions. We have one related to Argentina. Any comments on the traffic in the region and how it's been evolving throughout the quarters? And we also received a similar question from Lorena Reich from Lucor asking what our expectations are for the rest of the year in Argentina. And I'll turn that one over to you, Marcelo.

Speaker Change: Okay, I think we're getting almost to the end of the charter was the questions.

Speaker Change: We are one related to Argentina any comments on the traffic in the region and how it's been evolving throughout the quarters and we also received a similar question from around a REIT from Nucor asking what our expectations are for the rest of the year in Argentina, and I'll turn that one over to you Marcello.

Marcello: Thank you.

Marcello: Yes consumption in Argentina declined between 20 and 30% in the first quarter.

Marcelo Rabach: Okay, thank you. Yes, consumption in Argentina declined between 20 and 30% in the first quarter. But, as we mentioned during the opening remarks, arcohera volumes declined at only about half that rate, and these volumes have been evolving modestly in a positive way sequentially since then. I would say that our local team has been doing an excellent job in terms of remaining close to consumers, offering them the best value proposition in the country's QSR industry by far, and as a result of that effort,

Speaker Change: But as we mentioned during the opening remarks article little volumes decline of only about half the rate.

Marcello: These volumes have been evolving modestly.

Marcello: In a positive way sequentially since then.

Marcello: I would say that our local team has been doing an excellent job in terms of remaining close to consumers.

Marcello: We are offering them the best value proposition in the country's <unk> industry by far and as a result of that therefore.

Marcelo Rabach: We have gained a significant market share.

Marcello: We have gained significant market share.

Marcelo Rabach: and further strengthen our brand attributes. And this should put us in a very good position when the Argentine economy begins its expected recovery, still too soon to know how all the macroeconomic factors will evolve during the year. But we are working very hard in order to navigate the current situation as best as possible and always with a long-term mindset. So, challenging context in Argentina, but remember that Arcos Dorados, the beauty of Arcos Dorados is that we operate in 20 different markets.

And further strengthen our brand attributes.

Marcello: This should put us in a very well position.

Marcello: For wind the Argentine economy begins.

Marcello: Expected recovery.

It is still too soon.

Marcello: To know how all the macroeconomic factors will evolve during the year.

Marcello: But we are working very hard in order to navigate the current situation azuela possible and always with a long term months.

Marcello: So challenging.

Marcello: In Argentina, but remember that article roadhouse.

Marcello: <unk> is that we operate in 20 different markets. So we have another 19 markets.

Marcelo Rabach: So, we have another 19 markets, and our business today is very diversified with significant contributions coming from Brazil, from NOLAN, and from other markets of the SLAC division. We are very confident that this diversification will continue driving consolidated profitability growth in full year 2024 and in the coming years.

Marcello: And our business today is very diversified with significant contributions coming from Brazil from NOLA.

Marcello: From other markets of the slot division. So we are very confident that this diversification will continue driving consolidated profitability growth.

In full year 2024 and income needs.

Mariano Tannenbaum: Perfect. And final question, Thiago, a question from Thiago related to expansion. How does the scenario, maybe higher interest rates for longer, impact our near-term plans around expansion? And I'll turn it back to you, Mariano.

Speaker Change: Perfect and final question channel.

Speaker Change: Question from Jairam related to expansion how was the scenario may be higher for longer interest rates.

Speaker Change: Impact our near term plans around expansion.

Speaker Change: And ill turn it back to you Mike.

Mariano Tannenbaum: Perfect. Well, in this case, we have a long-term plan of investments, openings, and mainly freestanding units in many of our markets in LATAM. We have the plan, a long-term plan also, to modernize our existing stores with EODF. We are also deploying investments in under-development, mainly in technology, to continue improving our digital platforms. And this will not change. We are seeing above-average returns in general, mainly in our freestanding units, well above our cost of capital, and this will not change. So we will remain with our investments, and we are very pleased with the results we are seeing so far.

Speaker Change: Perfect.

Mike: In this case, we have a long term plan.

Mike: Of investments.

Speaker Change: Openings, mainly freestanding units in mainly of our marketing in Latam, we have the plan long term plan also to modernize our existing stores.

Speaker Change: We are also deploying investments in non development, mainly in technology to continue improving our digital.

Speaker Change: That forms and this will not change we are seeing above average returns in general.

Speaker Change: Mainly in our freestanding units.

Speaker Change: Well above our cost of capital and this.

Speaker Change: This will not change so we will remain in our investments and we are very pleased with the results we're seeing.

Speaker Change: So far.

Marcelo Rabach: Great. Next set of questions from Felipe Casimiro from Bradesco. His first question: could you shed more light on the evolution of the competitive landscape in Brazil and Mexico with heated competition from other listed players, and how are we adapting to fiercer competition in the QSR segment? Back to you, Marcelo. Okay, thank you.

Speaker Change: Great.

Set of questions from Philip <unk> from Bradesco. His first question could you shed more light on the evolution of the competitive landscape in Brazil, and Mexico with heated competition from other listed players and how are we adapting to fiercer competition in the <unk> segment.

Marcelo Rabach: [inaudible]

Back to you Marcello.

Thank you.

Well.

Marcelo Rabach: We gain more than 1 percentage point, in fact, 1%.

Marcello: We again more than one percentage point.

Marcelo Rabach: In fact, 1.1% of market share across our main markets in the first quarter of 2024, according to our research. And I would say that competition has been mostly rational, although, as you mentioned, we have seen increased promotional activity in some markets, particularly in Brazil. But we are focused on offering a very compelling value proposition with competitive pricing and, most importantly, I think, an unmatched restaurant experience.

Marcello: One one percentage point of market share across our main markets in the first quarter of 2024, According to our research.

Marcello: And I would say that the competition has been mostly irrational.

Although as you mentioned, we have seen increased promotional activity in some markets, particularly in Brazil.

Marcello: But we are focused on offering a very compelling value.

Marcello: Value proposition with competitive pricing on most importantly thing on a munch, Rick Smith restaurant experience. So these.

Marcelo Rabach: So this is driving volume growth in recent quarters, and this helps us to leverage our fixed costs structure. So this year, for example, we have a more favorable cost environment that should help us to continue improving our margins while we respond and react to competitive pressures as needed, given the fact that we are the leaders in all these markets, particularly in Brazil, and we have the ability to react and to put pressure on some competitors if we feel that that's the correct answer that we need to give them. So very well positioned and getting shared in most markets.

Marcello: <unk>.

Marcello: The diabetes volume growth in recent quarters on these help us to leverage our fixed cost structure. So Bcf for example.

Marcello: Having more favorable cost environment.

Marcello: It will help us to continue improving our margins way, we will respond and we react to competitive pressures as needed.

Marcello: Given the fact that we are the leaders in all these markets, particularly in Brazil.

Marcello: We have the ability to react to put pressure and some competitors. If we feel that's the correct answer that we need to give you. So.

Marcello: Very well position on gaining share in most markets.

Mariano Tannenbaum: I could also be sent a multi-parter, so I'm going to take these a little bit out of order, if you allow me. The tax rate was substantially higher than our estimate. Could you elaborate on the main reasons for the effect of a tax rate of around 40%? And how should we think about this over the course of the year?

Marcello: Great.

Speaker Change: 80% is also a multi parter, so I'm going to take us a little bit out of order because if you allow me tax rate was substantially higher than our estimate could you elaborate the main reasons will be effective tax rate of around 40% and how should we think about this over the course of 2024 overseen by them.

Mariano Tannenbaum: Thanks for the question. On a quarterly basis, the effective tax rate can be volatileized. You know, given the various rules governing the calculation of this liability in each of our markets, remember we operate in 20 different markets, that's our holding company, as well as within our, you know, our overall structure. So for the first quarter of 2024, we had an effective tax rate of 39.7. This compares with 35.8 percent in the first quarter of 23. So looking ahead for the full year, even if you are, difficult to predict. We believe that a consolidated GTR between 35% and 40% is a reasonable level to expect for the full year.

Perfect.

Speaker Change: Ben Thanks for the question.

Speaker Change: On a quarterly basis, the effective tax rate can be volatile.

Speaker Change: The various levels of earning the calculation of this liability in each of our markets wherever we operate in 20 different markets.

Speaker Change: That's our own company as well as within our.

Speaker Change: Our overall structure. So for the first quarter of 2024, we had an effective tax rate of $39 7 million. This compares to <unk> 35, 8% in the first quarter of 'twenty three.

Speaker Change: So looking ahead for the full year, even if it is difficult to predict we believe that consolidated ETR between 35, 40% is a reasonable level to expect for affiliate.

Marcelo Rabach: The next question is how should we think about the evolution of the royalty rates in Brazil? And should we still see growth support offsetting this line in 2024? I'll get back to you, Marcelo. Okay. Thank you.

Speaker Change: Okay. Next question is how should we think about the evolution of the royalty rates in Brazil, and should we still see a growth support offsetting this line in 2024.

Marcelo Rabach: Marcelo Rabach, Mariano Tannenbaum, Daniel Schleiniger, Arcos Dora Hldg Marcelo Rabach, Mariano Tannenbaum, Daniel Schleiniger, Arcos Dora Hldg

Speaker Change: Get back to you Marcelo Okay. Thank you Felipe we have in place an agreement with Mcdonalds Fortinet.

Marcelo Rabach: For the global support incentive that goes through the end of this year.

Speaker Change: So we expect that royalty rates.

Marcelo: Consolidated levels to stay in the same range.

Speaker Change: They were in this this first first quarter around six 3% of sites.

Speaker Change: Given the fact that we already agreed with Mcdonald's.

Speaker Change: With the support for the full year, we do not expect this.

Speaker Change: Sure.

Speaker Change: This number changing materially during the year.

Speaker Change: Yes, that's probably fair.

Speaker Change: Fair to say that it's a fixed amount of gross support and sales have been above expectations. So it's a little bit possible giant tiger brokers.

Mariano Tannenbaum: And then a very good last question, and a little bit detailed here, but the supplier days dropped five days to 80 days in the first quarter of 24, which is back in line with 2018 and 19 levels. Could you elaborate on the reasons behind the reduction and how we should think about supplier relationships and potential benefits with lower costs on a moving forward basis? One more time, back to you, Mariano.

Speaker Change: And then last question.

Speaker Change: And.

Speaker Change: Little bit detail here, but the supplier days dropped five days to 80 days in the first quarter of 'twenty, four which is back in line with 2018 and 19 levels could you elaborate on the reasons behind the reduction in how should we think about supplier relationships and potential benefits with lower costs on a move forward basis, one more time back to anybody else.

Perfect.

Speaker Change: Well traditionally the first quarter is the worst quarter in terms of working capital for the company due to seasonality and remember that is in this particular quarter. We also.

Mariano Tannenbaum: Traditionally, the first quarter is the worst quarter in terms of working capital for the company due to seasonality. However, remember that in this particular quarter, we also... accelerated the openings. Remember, this year we had 22 openings compared with only eight openings last year, and this is, you know, what we are trying to do in terms of avoiding having all our CAPEX back-ended. That would have had an impact on our accounts payable because, usually, development suppliers have shorter terms than other suppliers.

Speaker Change: Accelerated the.

Speaker Change: The openings.

Speaker Change: Remember this year, we had 22 openings compared with only eight openings last year and this is.

Speaker Change: What we are trying to do in terms of avoiding having all our capex.

Speaker Change: Backend need that could have had an impact on our accounts payables, because usually development suppliers at shorter terms then.

Speaker Change: Other suppliers.

Mariano Tannenbaum: So, I wouldn't expect a change in our account payable terms, in the short or in the medium term. And if so, it would be for the better and not for the worst. That means, if anything, we will expand payment terms and not reduce them. In some cases, of course, there are opportunities to reduce costs by changing the outstanding days. But those are very specific things and negotiations, and we cannot expand that to the whole market of our suppliers. Great. Thanks, Mariano.

Speaker Change: So I wouldn't expect to change in our accounts payables terms.

Speaker Change: Okay.

Speaker Change: All.

Speaker Change: In the in the in the short or medium term.

Speaker Change: And if so it would be for the better and not for the worst that means.

Speaker Change: If anything we will expand.

Payment terms and not reduced.

In some cases of course, there are opportunities to have reduction in costs.

Speaker Change: By chain.

Speaker Change: Changing.

Speaker Change: <unk>.

Speaker Change: The outstanding days, but those are very specific.

Speaker Change: Things are negotiations.

Speaker Change: And we cannot.

Speaker Change: <unk>.

Speaker Change: Expand that to the.

Speaker Change: The poll.

Speaker Change: Bucket of our suppliers.

Luis Raganato: Great, thanks Mariano. Now we're going to move over to Julia Rizzo from Morgan Stanley. Julia has also got two or three questions here. The first one is, can you give us an update on sales trends in the key markets for the second quarter so far?

Speaker Change: Great. Thanks Mariano.

Speaker Change: Now, we're going to move over to Julia Reserve from Morgan Stanley also two or three questions here from Julien. The first one is can you give us an update on sales trends in the key markets for the second quarter to date.

Marcelo Rabach: About the second quarter.

Speaker Change: Over to you on silver.

Speaker Change: Above the second quarter.

Speaker Change: The key countries.

Marcelo Rabach: OK, I will tell you that.

Speaker Change: Okay.

Marcelo Rabach: I would say that, as I mentioned before talking about Argentina, the figures that we are seeing in the second quarter are in line with what we saw in the first quarter. Remember that the first quarter was very strong. It was, in fact, our 12th consecutive quarter of comparable GESCAN volume growth. So, community safe trends are about in line with these numbers in the second quarter, although we will not benefit this quarter from an extra trading day.

Speaker Change: I would say the upside mention before talking about.

Speaker Change: Argentina.

Speaker Change: The <unk>.

Speaker Change: Figures that we are seeing in the second quarter in line with.

Speaker Change: What we saw in the first quarter remember that.

Speaker Change: First quarter was very strong it was in fact, our 12 consecutive quarter.

Speaker Change: Compatible it gets done.

Speaker Change: Volume growth so cumulative cumulative sales trends are about in line.

Speaker Change: These numbers in the second quarter.

Speaker Change: Although we will not benefit this quarter from an extra trading day.

Marcelo Rabach: And we will compare with Holy Week last year, which was in the second quarter. We remain focused on delivering great value to our guests, all across our menu, and we expect this to help us deliver a comparable sales growth at or above inflation in the full year 2024 in most of our markets with a balanced contribution from pricing, product mix, and guest volume, as has been the case so far this year. So that's what we are seeing today in terms of products.

Speaker Change: We will compare with Holy week.

Speaker Change: Last year was in the second quarter, we remain focused on delivering great value to our guests.

Speaker Change: All across our menu and we expect these to help us deliver.

Speaker Change: Comparable sales grow at or above inflation in the full year 2024 in most of our markets, but with a balanced contribution from pricing product mix and volume.

Speaker Change: Has been the case so far this year so.

Speaker Change: That's what we are seeing today in terms of bookings.

Luis Raganato: Julie's next question relates to, asks us if we can give more color on delivery performance, and how much the delivery representative sells in Brazil. And that question is for you, Luz.

Speaker Change: Julie's next question relates to <unk>.

Asked us if we can give more color on delivery performance, how much to deliver representative sales in Brazil.

Speaker Change: And that question is for you Bruce.

Luis Raganato: In Brazil, delivery represents around 20% of citywide sales. And as for delivery performance, we operate delivery in more than 80% of our restaurants in about 14 different markets. Delivery sales rose 27% in U.S. dollars, represented 18% of system-wide sales, and about the evolution.

Alright, Thank you Julia.

Bruce: In Brazil deliberate represent around 20% of system wide sales.

Speaker Change: And about the delivery performance, we operate delivery in more than 80% of our restaurants in about 14.

Speaker Change: And in about eight in 14 different markets delivery sales rose, 27% in U S dollars represented 18% of system wide sales.

Luis Raganato: Deliveries have surpassed our expectations so far, and we believe that there are still good opportunities to keep on capturing market share. Because even with the best course in speed and accuracy, we still have a lot of room to improve our operations, and we believe that the challenge has not reached maturity yet. And because of this, we believe that our strategies and our operating models will continue to evolve. Our strategy will keep on focusing on strong operational execution.

Speaker Change: And about the evolution delivery has surpassed our expectations. So far we believe that there are still good opportunities to keep on capturing market share.

Speaker Change: Because even with the best course, and speed and accuracy, we still have a big room to improve our operations and we believe that <unk> has reached maturity yet.

Speaker Change: And because of this we believe that our strategies and our operating models.

Speaker Change: Continue to evolve our strategy will keep on focusing on the strong operational execution.

Luis Raganato: We're going to keep on working on innovations in digital capabilities and targeted marketing campaigns specific to the channel, to strengthen and keep on strengthening the strategic partnership with 3POs and on delivery, which represents today about 10% of our total delivery set.

Speaker Change: We're going to keep on working on innovations in digital capabilities and targeted marketing campaigns specific to the channel.

Speaker Change: To strengthen to keep on strengthening the strategic partnership with <unk> and.

Speaker Change: On delivery that represents today about 10% of our total delivery sites.

Mariano Tannenbaum: Dan? Thanks, Mariano, or Mariano. Thanks, Luis. Okay, and then Julia's final question also relates to delivery, which Seth, after growing so much and achieving significant sales representativeness, how is this channel profitability versus consolidated figures in Brazil? So we'll give it to you, Mariano.

Dan: Dan Thanks Marianna.

Bruce: Thanks Bruce.

Bruce: Thanks.

Speaker Change: Okay, and then Julien final question also relates to delivery, which set after growing so much in achieving significant sales representative.

Speaker Change: However, as this channel profitability versus consolidated figures in Brazil.

Speaker Change: So we'll give it to your model.

Mariano Tannenbaum: Yes, well, thanks for the question. In fact, all our channels are accredited to the business, and they are generating good returns and contributions to EBITDA. You can see that delivery has grown a lot over the last several years, representing now a significant part of our business, and the margins continue to increase overall as well. So that means that delivery, even though there's a delivery fee that the company pays to the CTOs, there are many other impacts in our cost lines that benefit the margins overall and are helping to improve the overall margins of the company. Remember last year we had a record EBITDA margin, and in this quarter, you can see that margins are improving as well.

Speaker Change: Yes.

Speaker Change: Thanks, David for.

Speaker Change: For the question.

Speaker Change: In fact, all our channels are accretive to the business.

Speaker Change: They are generating.

Speaker Change: Total returns and contribution to EBITDA.

Speaker Change: You can see that delivery has grown adults.

Speaker Change: Several years, representing now relevant part of our business and so the market the more on the margins continued to increase overall as well so that means that delivery, even though there's a delivery fee that the company base to the slip deals there are many other impacts in our cost lines.

Speaker Change: Benefit.

Margins overall and.

Speaker Change: Are helping to improve the.

Overall margins of the company and remember last year, we had a record EBITDA margin and in this quarter and you can see that margins.

Speaker Change: Improving as well.

Mariano Tannenbaum: Great. I'm going to move back to Lorena Reich, who, from Luke Grove, had asked the question earlier about Argentina. She also asked, said, good morning, congratulations on the strong performance. Can you comment on the cash burn during the quarter, which is still very healthy, but below $200 million versus usually having above that figure. So back to you, Madame.

Speaker Change: Great.

Speaker Change: Moving back to now we are in Iraq from look Robert asked the question earlier about Argentina. She also asked hey, good morning, Congrats on the strong performance and you can't comment on the cash burn during the quarter, which is still very healthy, but below $200 million versus usually having above that figure figure so back to you by them.

Mariano Tannenbaum: Perfect. Thanks, Lorena, for the question. I already answered part of the question about working capital seasonality being the first quarter of the worst of the four quarters we have. And this is due because, you know, in January, we usually pay all invoices related to the end of the previous year, and since December is our highest month in terms of SAFEs and CAPEX development, there's an impact on our working capital in January.

Speaker Change: Perfect. Thanks for the question I already answered a part of that of the question.

Speaker Change: <unk> working capital seasonality being the first quarter of the worse of the four quarters, we have and this is due because.

In January you should and you pay all invoices related to the end of the previous year and being dissimilar our ice months in terms of save some capex.

Speaker Change: <unk> been in generators and impact on our working capital.

Mariano Tannenbaum: on top of that, this year in particular.

On top of that this year in particular.

Mariano Tannenbaum: This year, in particular, the quarter ended on Easter Sunday, which is a four-day holiday weekend in many of our Latin countries. That resulted in a temporary increase in the account receivables that were automatically collected on the next business day, Monday, which is a Monday in the second quarter. So...

Speaker Change: The quarter.

Speaker Change: Indeed on Easter Sunday, which is.

Speaker Change: At four day holiday weekend in many of our Latam countries that resulted in a temporary increase in the accounts receivables.

Speaker Change: I'll ask magically collected on the next business day.

Speaker Change: That's a monday of the second quarter so.

Mariano Tannenbaum: These two effects, of course, have an impact on the cash flow dynamics of the first quarter. On top of that, I already mentioned in a previous question that this year we accelerated capex in the first quarter, having opened 22 new restaurants compared with eight new restaurants in the previous year. So these dynamics are impacting the cash flow generation in the first quarter. But if you look at the frame in 12 months, so then excluding seasonality, the operating cash generation remained in line with the prior period, and we expect a cash conversion similar to last year.

Speaker Change: These two effects of course had an impact on.

Speaker Change: On the cash flow dynamics of the first quarter on top of that I already mentioned as well in a previous question that this year, we accelerated capex from the first quarter, having opened 20 tool will restaurants compared with eight new restaurants.

Speaker Change: The previous year. So these dynamics.

Speaker Change: <unk> dynamics.

Speaker Change: Impacting the cash flow generation in the first quarter, but if you look at the trailing 12 months. So then excluding seasonality operating cash generation remained in line with the prior period that we expect.

Speaker Change: Cash conversion is similar to last year.

Speaker Change: Thanks Mariano.

Luis Raganato: Thanks, Mariano. Now Lucas Vejeda from J.P. Morgan asks, how have restaurant operational KPIs been involved in Brazil, such as turnover, drive-through speed, et cetera? So I'll turn it over to you, Lucas, for an overview.

Speaker Change: So now Lucas the Halo from JP Morgan asks how restaurant operational Kpis.

Speaker Change: Been involving in Brazil, such as turnover drive thru speed speed et cetera, So I will turn it over to Bruce for an overview.

Luis Raganato: Hello, Lucas. Thank you for the question. The evolution of operational KPIs in Brazil specifically has been very positive. We focused for the last two years, for example, on turnover, 90 days turnover. We focused on people.

Bruce: Alright, Hello, Lucas. Thank you for the question.

Bruce: Dave pollution on operational Apis in Brazil, specifically have been very positive.

We focused for the last two years for example, turnover 90 days turnover, we focused on people people is the base of our operations plan.

Luis Raganato: People are the basis of our operations plan. And specifically in that KPI, we have seen a reduction in our turnover by about 20, 20 percent. So that is very positive.

Bruce: And specifically in that <unk>.

We have seen a reduction of.

Bruce: Our turnover in about 20, 20% so that is very positive.

Luis Raganato: You know, our crew, and our managers are the base of our operations, and we rely on that to have excellent execution. And talking about speed and accuracy and in the rest of the channels and talking about right delivery, even from the counter, the improvements have been very significant. But having said that, we still have a huge room to keep on improving. I would say that the main focus is to equalize operations, trying to work, and equalization means that we try to work with low-performance stores and markets, even though we benchmark and leverage the best practices that we have in those that are high-performance stores and markets.

Bruce: Our crew our managers are the base of our operations and we rely on that to happen.

Bruce: And excellent execution and talking about speed and accuracy.

Bruce: And in the rest of the channels that we're talking about drive delivery even from counter the improvements have been very significant.

Bruce: Having said that we still have a huge room to keep on.

Bruce: Improving I would say that the main focus is to equalize operations.

Bruce: We tried to work and equalization means that we tried to work with no performance stores and markets even.

Bruce: We.

Bruce: Benchmark and labor at the best practices that we have in dose that are high performance stores and markets and Thats the beauty of having 2020 markets.

Luis Raganato: And that's the beauty of having 20, 20 markets. The geographic diversity that we have. So in summary, we're pleased with the results, with the evolution of these KPIs, but we are obsessively focused on continuous improvement.

Bruce: Geographic diversity that we have so.

Bruce: In summary, we are pleased with our results with evolution of these kpis, but we are up secondly focused in continuous improvement.

Luis Raganato: Thanks, Luis. Now over to Bob Ford from Bank of America, who says good morning, everyone. Good morning, Bob. Can you discuss some of the system's more successful CRM strategies in terms of activation and transaction sizes and some examples of our early successes? So we'll come back to you, Luz. And I think this is also somewhat related to loyalty.

Speaker Change: Thanks Luis.

Speaker Change: And now over to Bob Ford from Bank of America, which is good to everyone. Good morning, Bob.

Bob Ford: Can you discuss some of the systems more successful CRM strategies in terms of activation in transaction sizes and some examples of our early successes.

Speaker Change: So come back to you was and I think this is also somewhat related to loyalty.

Luis Raganato: Yeah, yeah, of course. I was going to go, thank you, Bob, for the question first.

Yeah.

Speaker Change: Yes of course I.

Speaker Change: I was going to go thank you Bob for the question first.

Luis Raganato: Yes, and I'm going to go a little bit deeper into digital. You know that we are very pleased with the evolution of digital sales and the performance. We have grossed 30% in U.S. dollars, and as we said, for penetration is 55% of total system-wide sales, and this includes 22% of identified sales. So we're very pleased with the performance, and we're very confident that we're going to be able to maintain our growth trend.

Speaker Change: Yes, and I'm going to go a little bit deeper into digital and.

Speaker Change: <unk>.

Speaker Change: <unk>.

Speaker Change: <unk>.

Speaker Change: Pleased with evolution of digital sales.

Speaker Change: Sales.

Speaker Change: About the performance, we have growth 30% in U S dollars.

Speaker Change: <unk> accounted as we said.

Speaker Change: For the penetration as 55% of our total system wide sales and this includes 22% of identified so we're very pleased with the performance with.

Speaker Change: With the performance.

Speaker Change: And we are very confident that we're going to be able to maintain our growth trend digital sales.

Luis Raganato: Digital sales, the growth of the channel was driven by three main factors, the implementation of new functionalities to our app, the expansion of our customer base, and a great trend in active users and loyalty, was a booster for sales. Because we use customer data and identify sales to try to offer a more personalized experience. So we have three main KPIs to evaluate the program.

Speaker Change: The growth of it of the channel was driven by three main factors implementation of new functionalities.

Speaker Change: <unk> the expansion of our customer base and a great trend in active users and loyalty.

Speaker Change: Was a booster of the sales.

Speaker Change: Because I mean, we.

Speaker Change: We use the customer data and identify sales too to alter or try to offer a more personalized XP.

Speaker Change: Fix periods so.

We have three main kpis too.

Speaker Change: Evaluate.

Speaker Change: The program at a specific frequency average check and 90 day.

Luis Raganato: And it's visa frequency, average check, and 90-day active user. And what we are seeing is an acceleration of growth in registered members. Like I said before, we launched the program in Uruguay and Brazil in October 2023.

Speaker Change: <unk>.

Speaker Change: <unk> and what we're seeing is an.

An acceleration growth in registered members like I said before we had I mean, we launched.

Speaker Change: The programming, Uruguay, and Brazil towards 223 by the end of December of last year, We had $3 2 million registered members and by the end of April we had 8 million related to members that is.

Luis Raganato: By the end of December of last year, we had 3.2 million registered members. And by the end of April, we had 8 million registered members. That is significant growth. And we're seeing that today in the last weeks that is still going on.

Speaker Change: Our significant growth we're seeing that.

Speaker Change: In today's in in the last weeks that that is still going on.

Luis Raganato: And so we do not only see that growth in registered members but a positive trend in active customers. And this steady increase reflects the growing engagement and interest that our guests have in it. And talking about redemptions and the margin that we can see in the future of this program, we see a positive impact since we think products have, on average, a higher margin. Because these transactions are incremental.

Speaker Change: And.

Speaker Change: So we not only see that growth in rest of members, but possibly positive trend in active customers and the steady increase reflects the growing engagement and interest that our guests.

Speaker Change: Tab with it and.

Speaker Change: And talking about redemptions and the margin that we can see in the future of this of this program is that if we see a positive impact since we think products have on average a higher margin because these transactions are incremental for example, a dessert.

Luis Raganato: For example, a dessert after lunch or associated with a new sale. So... And you know that another advantage that the program has is that it enables us to analyze customer behavior, average check, and number of visits. When I talk about that, it is the average check and number of visits to manage the customer lifetime value. So we're going to keep on investing in that. We are encouraged about the early results, and we're going to implement two more markets by the next earnings call in August. And we intend to cover the whole region by 2025. Dan?

Speaker Change: After lunch or associated with our new sales so.

And you know that another advantage that the program caps is that enables us to analyze customer behavior us average check and number of visits.

Speaker Change: When I talk about that as.

Speaker Change: The average check a number of initiatives to manage the customer lifetime value. So we're going to keep on investing in that.

Speaker Change: We are.

Speaker Change: Encouraged about the early results and we're going to implement two more markets by.

Speaker Change: The next earnings call by by August and we intend to cover the whole region the whole region by 2025.

Luis Raganato: Thanks, Luis. And Bob's second question, final question is, why will Arcos prove to be more or less digital versus other global markets? So, Marcelo, I guess you can wrap it up for us. Okay, yeah.

Speaker Change: Thanks Bruce.

Speaker Change: And bonds last one second question and final question is.

Speaker Change: While our gross proved to be more or less digital versus other global markets. So myself I guess you can wrap it up for US. Okay. Thanks. Thanks for the question on I think you referred to other Mcdonald's lower markets.

Marcelo Rabach: Okay, yeah, thanks. Thanks, Bob, for the question, and I think that you referred to other McDonald's global markets. I will say that the digitalization of the Arcos Dora Hldg business is strategic for us. It has been that way for many, many years now.

Speaker Change: I will tell you that the digitalization of the Encore Lf business is strategic for us.

Speaker Change: Each has been done.

Speaker Change: The way for many many years now that's why 55%.

Marcelo Rabach: That's why 55% of our sales during the first quarter were digital. And the investments that Luis was mentioning, they have had great returns. All of them have had great returns, a positive impact on our sales, a positive impact in terms of average check, and finally, a positive impact in terms of margin. So we continue to benchmark against the best markets within the McDonald's system. For example, China is one of the leaders in terms of digital within the McDonald's system.

Speaker Change: Lower sales during the first quarter were.

Speaker Change: As you know.

Speaker Change: On the investments.

Speaker Change: Luis was mentioning.

Speaker Change: They have great.

Speaker Change: Great results all of them.

Speaker Change #100: We don't see a positive impact on our series a positive impact in terms of governance chegg.

Speaker Change #100: Finally, and possibly being but in terms of margin. So we continue to benchmarking against the best markets within the Mcdonald's system.

Speaker Change #100: For example, China is one of the leaders in terms of digital within the Mcdonald's system, We continued our benchmarking with them and trying to get at.

Marcelo Rabach: We continue to benchmark with them and try to get the best practices and the newest tools that they are using in order to leverage all the efforts that we already have done in terms of digital within Arcos Dora Hldg. So this will continue to be a focus for us in the coming years. Great. Thanks, Marcelo. And that was actually the last question we received from the investment and analyst community.

Speaker Change #100: <unk>.

Speaker Change #100: Best practices, the newest stores that they are using in order to deleverage.

Speaker Change #100: The exports that we already have done.

Doug: In terms of tissue, Doug within article, but I'll show this.

We will continue to be a focus for us in coming years.

Operator: And that was actually the last question we received from the investment and analyst community. So that's the end of the Q&A session. Thanks again for all your interest in Arcos Dorados and joining us today. We look forward to speaking with you again in the middle of August on our second quarter 2024 greens webcast. And until then, stay safe, and have a great day.

Operator: Great. Thanks, Marcelo.

Speaker Change #102: Great. Thanks, Marcella and that was actually the last question, we received from the investment and analyst community. So that's the end of the Q&A session. Thanks again for all your interest in Arcos brought us and joining us for today's webcast. We look forward to speaking with you again in the middle of August on our second quarter 2024 earnings webcast and until then.

Speaker Change #102: They safe and have a great day.

Speaker Change #102: Okay.

Mariano Tannenbaum: Mariano Tannenbaum, Arcos Dora Hldg Marcelo Rabach, Mariano Tannenbaum, Arcos Dora Hldg Arcos Dora Hldg Bring me the sun, bring me again the blue dimensions Let me feel like a flower in a spring I'll be the one who knows the past Feel my love, your lonely heart Bring me your love by the plain, by the sea Bring forever Tell me, do Can you see that I need to be the sun? Bring it to me; bring me the sun. Bring me again to the blue direction; let me feel like flowers in the spring. I'll be the one who knows part of human love.

Speaker Change #102: Okay.

Speaker Change #102: Okay.

Speaker Change #102: Yes.

Speaker Change #102: Brian.

Okay.

Speaker Change #102: Yes.

Speaker Change #102: Okay.

Speaker Change #102: Okay.

Speaker Change #102: Sure.

Speaker Change #102: Okay.

Speaker Change #102: Right.

Speaker Change #102: Yes.

Speaker Change #102: Yeah.

Speaker Change #102: Yes.

Speaker Change #102: Great.

Speaker Change #102: Alright.

Speaker Change #102: Right.

Okay.

Speaker Change #102: Okay.

Speaker Change #102: Matt.

Speaker Change #102: Yes.

Speaker Change #102: Yes.

Speaker Change #102: Yes.

Speaker Change #102: Okay.

Speaker Change #102: Okay.

Okay.

Speaker Change #102: Thanks Steven.

Speaker Change #102: Right.

Yeah.

Speaker Change #102: <unk>.

Speaker Change #102: Thanks.

Speaker Change #102: Yes.

Speaker Change #102: Yeah.

Speaker Change #102: Yeah.