Q2 2026 Localiza Rent a Car SA Earnings Call

Speaker #2: Good morning. Before we begin, I would like to remind you that this conference will be conducted in English. For those who require translation into Portuguese, please click on the translation button with the globe icon and select your preferred language.

Nora Lanari: Good morning. Before we begin, I would like to remind you that this conference will be conducted in English. For those who require translation into Portuguese, please click on the translation button with the globe icon and select your preferred language. You may mute or unmute the original audio by clicking the mute original audio button. Good morning and welcome to Localiza & Co.'s webinar to discuss the results for the Q2 2026. Joining us today are Rodrigo Tavares, Chief Financial Officer, and Nora Lanari, Head of Investor Relations. Please note that this webinar is being recorded and will be available at ri.localiza.com, where the full earnings release materials can also be found. The presentation is also available for download on the investor relations website.

Speaker #2: You may mute or unmute the original audio by clicking the 'Mute Original Audio' button. Good morning, and welcome to Localiza Rent a Car's Q2 webinar to discuss the results for the second quarter of 2026.

Speaker #2: Joining us today are Rodrigo Tavares, Chief Financial Officer, and Nora Lanari, Head of Investor Relations. Please note that this webinar is being recorded and will be available at ri.localiza.com.

Speaker #2: While the full earnings release materials can also be found. The presentation is also available for download on the Investor Relations website. For the Q&A session for analysts and investors, we kindly ask you that you sign up your interest in participating through the Q&A icon at the bottom of your screen, entering your name, institution, and language.

Nora Lanari: For the Q&A session for analysts and investors, we kindly ask you that you signal your interest in participating through the Q&A icon at the bottom of your screen, entering your name, institution, and language. When called upon, a prompt will appear on your screen asking you to activate your microphone. Questions may be asked in either Portuguese or English. To submit written questions, please use the Q&A icon at the bottom of your screen and fill in your name and institution before submitting your question. Please note that all figures presented are in BRL million and prepared in accordance with IFRS. We also emphasize that the information contained in this presentation, as well as any statements that may be made during the conference regarding business outlooks, projections, and Localiza's operational and financial targets, reflects management's beliefs and assumptions, as well as information currently available.

Speaker #2: When called upon, a prompt will appear on your screen asking you to activate your microphone. Questions may be asked in either Portuguese or English.

Speaker #2: To submit writing questions, please use the Q&A icon at the bottom of your screen, and if you fill in your name and institution before submitting your question.

Speaker #2: Please note that all figures presented are in millions of reais and prepared in accordance with IFRS. We also emphasize that the information contained in this presentation, as well as any statements that may be made during the conference regarding business outlooks, projections, and Localiza's operational and financial targets, reflect management's beliefs and assumptions, as well as information currently available.

Speaker #2: Forward-looking statements are not guarantees of performance and involve risks, uncertainties, and assumptions, as they relate to future events and therefore depend on circumstances that may or may not occur.

Nora Lanari: Forward-looking statements are not guarantees of performance and involve risks, uncertainties, and assumptions as they relate to future events, and therefore depend on circumstances that may or may not occur.

Speaker #2: I will now turn the call over to Rodrigo Tavares, the company Chief Financial Officer, to begin the presentation.

Nora Lanari: I will now turn the call over to Rodrigo Tavares, the company's Chief Financial Officer, to begin the presentation.

Speaker #3: Good morning, and welcome to Localiza webinar. The strong performance achieved at the beginning of the year was sustained in the second quarter of 2026, with accelerating year-over-year revenue growth across all business lines, supported by consistent execution discipline capital allocation and continued progress in the restoration of returns reinforcing value creation of the company's shareholders.

Rodrigo Tavares Gonçalves de Sousa: Good morning, and welcome to Localiza webinar. The strong performance achieved at the beginning of the year was sustained in the Q2 2026, with accelerating year-over-year revenue growth across all business lines, supported by consistent execution, disciplined capital allocation, and continued progress in the restoration of returns, reinforcing value creation of the company's shareholders. In Car Rental, we delivered double-digit net revenue growth, with revenue increasing 11.2% compared to the Q2 2025, reflecting the combination of volume growth and price expansion. In Fleet Rental, we returned to year-over-year growth in rental days, supported by positive origination in light fleet and car subscription contracts, along with a lower impact from the portfolio reduction of severe use contracts, a process that has been underway since 2024.

Speaker #3: In car rental, we delivered double-digit net revenue growth, with revenue increasing 11.2% compared to the second quarter of 2025, reflecting the combination of volume growth and price expansion.

Speaker #3: In fleet rental, we returned to year-over-year growth in rental days, supported by positive origination in light fleet and car subscription contracts, along with a lower impact from the portfolio reduction of severe-use contracts, a process that has been underway since 2024.

Speaker #3: In semi-novos, we sold 92,000 vehicles during the quarter, compared to 68,000 vehicles sold in 2025, driving a 38.9% increase in net revenue. As we maintain the pace required to optimize the car rental fleet lifecycle, we directed investments toward expanding retail capacity through the growth of sales team, the strengthening of marketing activities, in addition, during the quarter, we completed the rebranding of our semi-novos stores.

Rodrigo Tavares Gonçalves de Sousa: In Seminovos, we sold 92,000 vehicles during the quarter, compared to 68,000 vehicles sold in 2025, driving a 38.9% increase in net revenue. As we maintain the pace required to optimize the Car Rental fleet life cycle, we directed investments toward expanding retail capacity through the growth of sales team, the strengthening of marketing activities. In addition, during the quarter, we completed the rebranding of our Seminovos stores. Although these investments impacted the quarter's margin, they are expected to support the increase of retail share in the sales mix towards the H2 2026. The strong progress in fleet rejuvenation process contributed to a 24.1% reduction in the average age of the Car Rental operating fleet, which ended at the period at 28.2 months, compared to 10.8 months in the same quarter of last year.

Speaker #3: Although these investments impacted the quarter's margin, they are expected to support the increase of retail share in the sales mix toward the second half of 2026.

Speaker #3: The strong progress in the fleet rejuvenation process contributed to a 24.1% reduction in the average age of the car rental operating fleet, which ended the period at 28.2 months, compared to 10.8 months in the same quarter last year.

Speaker #3: Throughout the second quarter of 2026, we observed new and used price vehicles performing in line with our expectation. Nevertheless, as highlighted in our first quarter 2026 earning release, we continue to adjust fleet depreciation rates to reflect the dynamics of the automotive industry, characterized by the entry of new competitors and the launch of increasing technological and competitive vehicle models.

Rodrigo Tavares Gonçalves de Sousa: Throughout the Q2 2026, we observed new and used price vehicles performing in line with our expectation. Nevertheless, as highlighted in our Q1 2026 earnings release, we continue to adjust fleet depreciation rates to reflect the dynamics of the automotive industry, characterized by the entry of new competitors and the launch of increasing technological and competitive vehicle models. In anticipation of this trend, the company has been adjusting rental prices and fleet depreciation rates to reflect residual value estimates aligned with the automotive industry outlook. As a result, in the Q2 2026, we delivered a net revenue of BRL 12.3 billion, representing a 24.5% year-over-year increase. EBIT total BRL 2.3 billion, up 15.1% compared to the same quarter of last year. Net income reached BRL 1 billion in the quarter, an increase of 30.6% year over year.

Speaker #3: In anticipation of this trend, the company has been adjusting rental prices and fleet depreciation rates to reflect residual value estimated align with the automotive industry outlook.

Speaker #3: As a result, in the second quarter of 2026, we delivered net revenue of $12.3 billion, representing a 24.5% year-over-year increase. EBIT totaled $2.3 billion, up 15.1% compared to the same quarter last year.

Speaker #3: And net income reached a billion reais in the quarter, an increase of 30.6% year-over-year. The net income of 1 billion and a rights spread of 6.1 percentage points, within the company's target range, even under more conservative depreciation assumptions, reinforced the effectiveness and the adopted strategy of the continual progress of the restoration of returns.

Rodrigo Tavares Gonçalves de Sousa: The net income of BRL 1 billion and a right spread of 6.1 percentage points within the company's target range, even under more conservative depreciation assumptions, reinforced the effectiveness and the adopted strategy of the continued progress of the restoration of returns. For H2 2026, we will pursue net revenue growth in both Rent-a-Car and Fleet Rental while sustaining the pace of Seminovos sales through an expansion of retail sales mix. In addition, we will remain relentless in our pursuit of operational efficiency across all business lines and expanding the use of technology to enhance our customers' experience. Encouraged by the progress achieved and the results delivered in H1 2026, we remain attentive to the macroeconomic environment and the dynamics of the automotive industry. We will continue to pursue disciplined capital allocation strategy focused on sustainable growth and long-term value creation.

Speaker #3: For the second half of 2026, we will pursue net revenue growth in both rent-a-car and fleet rental, while sustaining the pace of semi-novos sales through an expansion of retail sales mix.

Speaker #3: In addition, we will remain relentless in our pursuit of operational efficiency across all business lines and expand the use of technology to enhance our customers' experience.

Speaker #3: Encouraged by the progress achieved and the results delivered in the first half of 2026, we remain attentive to the macroeconomic environment and the dynamics of the automotive industry.

Speaker #3: We will continue to pursue discipline capital allocation strategy focused on sustainable growth and long-term value creation. We would like to thank our customers, shareholders, partners, and employees for their continued trust and confidence.

Rodrigo Tavares Gonçalves de Sousa: We would like to thank our customers, shareholders, partners, and employees for their continued trust and confidence. To present the details of the results, I will now turn the call over to the Head of Investor Relations, Nora.

Speaker #3: To present the details of the results, I will now turn the call over to the Head of Investor Relations, Nora.

Speaker #1: Thank you, Rodrigo, and good morning, everyone. On page three, we begin with car rental division in Brazil. In the second quarter 2026, net revenue in the car rental division reached 2.8 billion reais, representing an 11.2% increase compared to the second quarter 2025.

Nora Lanari: Thank you, Rodrigo, and good morning, everyone. On page three, we begin with car rental division in Brazil. In Q2 2026, net revenue in the car rental division reached BRL 2.8 billion, representing an 11.2% increase compared to Q2 2025. This performance was driven by accelerating rental days growth, which increased 6.8% year over year, and by higher average daily rates, which continue to reflect the repricing processes. On page four, we present a 3.7% increase in the average daily rate for the quarter, along with a 3.3 percentage points increase in the utilization rate, which reached 81.9% in Q2 2026, with a healthy combination of volume, pricing, and productivity. Moving on to page five, we present the performance of the Fleet Rental division.

Speaker #1: This performance was driven by accelerating rental days growth, which increased 6.8% year-over-year, and by higher average daily rates, which continued to reflect the repricing process.

Speaker #1: On page four, we present a 3.7% increase in the average daily rate for the quarter, along with a 3.3 percentage points increase in the utilization rate, which reached 81.9% in the second quarter 2026, with a healthy combination of volume, pricing, and productivity.

Speaker #1: Moving on to page five, we present the performance of the fleet rental division. In the second quarter 2026, fleet rental reported net revenue of 2.4 billion reais, representing a 5.8% increase compared to the same period of 2025.

Nora Lanari: In Q2 2026, Fleet Rental reported net revenue of BRL 2.4 billion, representing a 5.8% increase compared to the same period of 2025. Following the slight decline in volumes throughout 2025, driven by the reduction in exposure to severe usage contracts, the Fleet Rental division returned to year-over-year growth in rental days, supported by the expansion of its targeted segments, including light fleet rental and car subscription solutions, which delivered approximately 13% revenue growth in Q2 2026 compared to Q2 2025. On page six, we present the average daily rate, which increased 5.6% year over year, as well as the utilization rate of this division, which reached 96.7% in the quarter, evidencing greater operational efficiency and productivity. Turning to page seven, we bring the evolution of Seminovos revenue.

Speaker #1: Following the slight decline in volumes throughout 2025, driven by the reduction in exposure to severe usage contracts, the fleet rental division returned to year-over-year growth in rental days.

Speaker #1: Supported by the expansion of its targeted segments, including light fleet rental and car subscription solutions, which delivered approximately 13% revenue growth in the second quarter 2026 compared to the second quarter 2025.

Speaker #1: On page six, we present the average daily rate, which increased 5.6% year-over-year, as well as the utilization rate of this division, which reached 96.7% in the quarter, evidencing greater operational efficiency and productivity.

Speaker #1: Turning to page seven, we bring the evolution of semi-novos revenue. In the second quarter of 2026, we sold 89,043 vehicles in Brazil, sustaining a sales pace above 90,000 vehicles per quarter, which will allow the reduction of the car rental division cycles to approximately 15 months over the coming quarters.

Nora Lanari: In Q2 2026, we sold 89,043 vehicles in Brazil, sustaining a sales pace above 90,000 vehicles per quarter, which will allow the reduction of the Car Rental division cycles to approximately 50 months over the coming quarters. The average selling price also increased, reflecting a higher share of SUV in the sales mix, contributing to the net sales revenue in Brazil of BRL 7.1 billion, representing a strong increase of 39% compared to the same period of the previous year. The strong performance of Localiza Seminovos reflects the maturation of initiatives focused on commercial excellence, network expansion, and productivity gains. As the pace of sales required to optimize the fleet cycle is maintained, the company's focus shifts towards increasing the share of retail sales within the sales mix. Moving on to page eight, we present the car purchase and sales balances.

Speaker #1: The average selling price also increased, reflecting a higher share of SUVs in the sales mix, contributing to net sales revenue in Brazil of R$7.1 billion, representing a strong increase of 39% compared to the same period of the previous year.

Speaker #1: The strong performance of localized semi-novos reflects the maturation of initiatives focused on commercial excellence, network expansion, and productivity gains. As the pace of sales required to optimize the fleet cycle is maintained, the company's focus shifted toward increasing the share of retail sales within the sales mix.

Speaker #1: Moving on to page eight, we present the car purchase and sales balances. The strong pace of vehicle sales was accompanied by a higher level of purchases.

Nora Lanari: The strong pace of vehicle sales was accompanied by a higher level of purchases. During the quarter, 92,043 vehicles were sold and 120,626 vehicles were purchased, contributing to the progress of the Car Rental fleet rejuvenation process, reflected in the reduction of the average age of the fleet sold to 19.4 months compared to 22.2 months in Q2 2025. The average age of the operating fleet also showed significant improvement, ending the period at 8.2 months compared to 10.8 months in Q2 2025, a year-over-year reduction of 24.1% and contributing to efficiency gains, as well as lower maintenance and preparation cost per vehicle. We invested BRL 11.6 billion in vehicle purchases and generated BRL 7.1 billion from vehicle sales, resulting in a net investment of BRL 4.5 billion in the Brazilian operations.

Speaker #1: During the quarter, 92,043 vehicles were sold and 120,626 vehicles were purchased, contributing to the progress of the car rental fleet rejuvenation process, as reflected in the reduction of the average age of the fleet sold to 19.4 months, compared to 22.2 months in the second quarter of 2025.

Speaker #1: The average age of the operating fleet also showed significant improvement, ending the period at 8.2 months compared to 10.8 months in the second quarter 2025, a year-over-year reduction of 24.1%, and contributing to efficiency gains, as well as lower maintenance and preparation costs per vehicle.

Speaker #1: We invested R$11.6 billion in vehicle purchases and generated R$7.1 billion from vehicle sales, resulting in a net investment of R$4.5 billion in the Brazilian operations.

Speaker #1: On page nine, we present the evolution of the average purchase and sales prices of vehicles. In the rent-a-car division, the last 12 months average purchase price was 86.1 thousand reais, while the last 12 months average selling price reached 74,000 reais, mainly reflecting fleet rejuvenation and the lower average age of cars sold, as a result, fleet renewal capex totaled 12.1 thousand reais per car.

Nora Lanari: On page nine, we present the evolution of the average purchase and sales prices of vehicles. In the Rent-a-Car division, the last 12 months average purchase price was BRL 86.1 thousand, while the last 12 months average selling price reached BRL 74,000, mainly reflecting fleet rejuvenation and the lower average age of cars sold. As a result, fleet renewal CapEx totaled BRL 12.1 thousand per car. In the Fleet Rental, the last 12 months average purchase price reached BRL 99.7 thousand per car, while the last 12 months average selling price was BRL 79.8 thousand, resulting in a replacement investment of BRL 19.9 thousand per car. On page 10, we present the end of period fleet. The company ended the quarter with a fleet of 670,446 vehicles, representing a 6.3% increase compared to Q2 2025 in anticipation of the July holiday season demand.

Speaker #1: In the fleet rental, the last 12 months average purchase price reached 99.7 thousand reais per car, while the last 12 months average selling price was 79.8 thousand, resulting in a replacement investment of 19.9 thousand reais per car.

Speaker #1: On page ten, we present the end-of-period fleet. The company ended the quarter with a fleet of 670,446 vehicles, representing a 6.3% increase compared to the second quarter of 2025, in anticipation of the July holiday season demand.

Speaker #1: On page 11, we present the consolidated net revenue for the quarter, which continues to grow at a double-digit pace. On an year-over-year basis, net revenue increased by 24.5%, totaling 12.3 billion reais.

Nora Lanari: On page 11, we present the consolidated net revenue for the quarter, which continues to grow at a double-digit pace. On a year-over-year basis, net revenue increased by 24.5%, totaling BRL 12.3 billion. Rental revenues grew 8.8%, totaling BRL 5.2 billion, while Seminovos revenue reached BRL 7.2 billion, up 38.9% compared to the same period of the previous year. On page 12, we present the strong EBITDA growth, which reached BRL 3.8 billion in Q2 2026, representing a 14.1% increase compared to the same period last year. We deliver year-over-year margin expansion across Rent-a-Car, Fleet Rental, and Seminovos, reflecting the combination of higher rental rates and volumes, a younger fleet, and lower exposure to severe usage contracts, as well as the continued discipline in cost management and productivity initiatives.

Speaker #1: Rental revenues grew 8.8%, totaling 5.2 billion, while semi-novos revenue reached 7.2 billion reais, up 38.9% compared to the same period of the previous year.

Speaker #1: On page 12, we present the strong EBITDA growth, which reached 3.8 billion in the second quarter 2026, representing a 14.1% increase compared to the same period last year.

Speaker #1: We delivered year-over-year margin expansion across rent-a-car, fleet rental, and semi-novos, reflecting the combination of ride-rent, higher rental rates, and volumes, a younger fleet, and lower exposure to severe usage contracts, as well as the continued discipline in cost management and productivity initiatives.

Speaker #1: In car rental EBITDA margin, reached 67.6%, an increase of 1.1 percentage point compared to second quarter 2025, reflecting the combined effects of the higher average daily rates and rental days, lower maintenance, and vehicle preparation costs per car, partially offset by a higher volume of vehicles prepared for sales, as well as higher level of tax credits.

Nora Lanari: In Car Rental, EBITDA margin reached 67.6%, an increase of 1.1 percentage point compared to Q2 2025, reflecting the combined effects of the higher average daily rates and rental days, lower maintenance and vehicle preparation cost per car, partially offset by a higher volume of vehicles prepared for sales, as well as higher level of tax credits. In Fleet Rental, EBITDA margin reached 75.6%, representing a 4.6 percentage points increase compared to Q2 2025, driven by higher average daily rates, greater efficiency in vehicle preparation costs, higher fleet utilization rates, and a greater level of tax credits. In addition to lower allowance for doubtful accounts, reflecting the improvement in the quality of the customer portfolio compared to Q2 2025.

Speaker #1: In fleet rental, EBITDA margin reached 75.6%, representing a 4.6 percentage point increase compared to second quarter 2025, driven by higher average daily rates, greater efficiency in vehicle preparation costs, higher fleet utilization rates, and a greater level of tax credits, in addition to lower allowance for doubtful accounts, reflecting the improvement in the quality of the customer portfolio compared to second quarter 2025.

Speaker #1: Semi-novos reported an EBITDA margin of 1.9% in Brazil, slightly above the level reported in the same period last year, reflecting a stable gross margin and greater dilution of SG&A relative to revenues.

Nora Lanari: Seminovos reported an EBITDA margin of 1.9% in Brazil, slightly above the level reported in the same period of last year, reflecting stable growth margin and greater dilution of the SG&A relative to revenues. Compared to Q1 2026, the 1.2 percentage point decline in Seminovos margin was driven by a higher mix of SUV in the Q2 sales, which carries a lower gross margin, combined with increased expenses related to store opening, rebranding, personnel, and marketing initiatives. We are further strengthening Seminovos commercial infrastructure, and while these investments pressure margins in the short term, they enhance our ability to capture value in retail sales and sustain a healthy inventory turnover pace. On page 13, we present the evolution of the annualized average depreciation per car. Throughout the quarter, new and used vehicles prices evolved in line with the company's expectations.

Speaker #1: But compared to first quarter 2026, the 1.2 percentage point decline in semi-novos margin was driven by a higher mix of SUV in the second quarter sales which carried a lower gross margin, combined with increased expenses related to store opening, rebranding, personnel, and marketing initiatives.

Speaker #1: We are further strengthening the semi-novos commercial infrastructure. While these investments pressure margins in the short term, they enhance our ability to capture value in retail sales and sustain a healthy inventory turnover pace.

Speaker #1: On page 13, we present the evolution of the annualized average depreciation per car. Throughout the quarter, new and used vehicles prices evolved in line with the company's expectations.

Speaker #1: We will continue to closely monitor the dynamics of the Brazilian automotive industry, including the entry of new automakers and new models' launches, adjusting depreciation pricing and capital allocation whenever necessary.

Nora Lanari: We will continue to closely monitor the dynamics of the Brazilian automotive industry, including the entry of new automakers and new models launches, adjusting the depreciation, pricing, and capital allocation whenever necessary. In the Car Rental, annualized depreciation per vehicle reached BRL 8,243 in the Q2 2026, maintaining the sequential increase observed over the past quarters. Considering the current dynamics of the Brazilian automotive industry and their impact on vehicles' residual value expectations, we expect this trend to continue. In Fleet Rental, annualized depreciation per vehicle reached BRL 9,198 in the Q2. The more pronounced sequential increase in the RAC depreciation reflects its shorter fleet aging cycle relative to Fleet Rental, 15 months versus around 33 months.

Speaker #1: In the car rental annualized depreciation per vehicle reached 8,243 reais in the second quarter 2026, maintaining the sequential increase observed over the past quarters.

Speaker #1: Considering the current dynamics of the Brazilian automotive industry and their impact on vehicle residual value expectations, we expect this trend to continue. In fleet rental, annualized depreciation per vehicle reached R$9,198 in the second quarter.

Speaker #1: The more pronounced sequential increase in the rack depreciation reflects its shorter fleet aging cycle relative to fleet rental, 15 months versus around 33 months.

Speaker #1: As the difference between acquisition cost and the estimated net selling price is recognized over the depreciable life of the asset, any downward revision in residual values is spread over a short period in rack, resulting in a greater impact on the depreciation expense.

Nora Lanari: As the difference between acquisition cost and the estimated net selling price is recognized over the depreciable life of the asset, any downward revision in residual values is spread over a shorter period in RAC, resulting in a greater impact on the depreciation expense. Moving to page 14, we present consolidated EBIT of BRL 2.3 billion in the Q2, representing a 15.1% increase compared to the Q2 2025, supported by margin expansion both in Car Rental and Fleet Rental. In the Car Rental, EBIT margin reached 44.5%, an increase of 2.5 percentage points, while Fleet Rental reported an EBIT margin of 49.2% in the quarter, up 3.4 percentage points year-over-year. Turning to page 15.

Speaker #1: Moving to page 14, we present consolidated EBIT of 2.3 billion in the second quarter, representing a 15.1% increase compared to the second quarter 2025, supported by margin expansion both in car rental and fleet rental.

Speaker #1: In the car rental, EBIT margin reached 44.5%, an increase of 2.5 percentage points while fleet rental reported an EBIT margin of 49.2% in the quarter, up 3.4 percentage points year over year.

Speaker #1: Turning to page 15, as a result of the acceleration in year-over-year revenue growth and continued discipline in efficient cost management and productivity, even in the context of higher depreciation, we once again surpassed the 1 billion reais net income mark, delivering a strong 30.6% increase compared to the second quarter 2025.

Nora Lanari: As a result of the acceleration in year-over-year revenue growth and continued discipline in efficient cost management and productivity, even in the context of higher depreciation, we once again surpassed the BRL 1 billion net income mark, delivering a strong 30.6% increase compared to Q2 2025. To present cash flow, debt ratios, and ROIC spread, I will turn the floor back to Rodrigo.

Speaker #1: To present cash flow debt ratios and rights spread, I will turn the floor back to Rodrigo.

Speaker #2: Thank you, Nora. On page 16, we present free cash flow before interest. The first half of 2026 cash generation from rental activities totals 5.2 billion and was consumed by net car capex of 5.2 billion as well, as investments in other fixed assets and intangible totalling 161 million.

Rodrigo Tavares Gonçalves de Sousa: Thank you, Nora. On page 16, we present free cash flow before interest. H1 2026, cash generation from rental activities totals BRL 5.2 billion and was consumed by net car CapEx of BRL 5.2 billion, as well as investments in other fixed assets and intangibles totaling BRL 161 million. These outflows were partially offset by BRL 2 billion increase in accounts payables to vehicle suppliers. As a result, free cash flow before interest and other items total BRL 1.8 billion. On page 17, we present the movement of net debt, which ended the quarter at BRL 32.4 billion, representing an increase of 4.2% compared at the year-end of 2025. In July, we completed the largest exchange offer transaction ever executed in the Brazilian market, refinancing approximately BRL 7 billion in debt.

Speaker #2: This outflows were partially offset by 2 billion increase in accounts payables to vehicle suppliers, as a result, free cash flow before interest and other items total 1.8 billion.

Speaker #2: On page 17, we present the movement of net debt, which ended the quarter at 32.4 billion, representing an increase of 4.2% compared at the year-end of 2025.

Speaker #2: In July, we completed the last largest exchange offer transaction ever executed in the Brazilian market, refinancing approximately 7 billion in debt. The transaction also represented the largest debt issuance by aggregate volume in the company's history and reinforces the consistent liability management strategy adopted by the company over the past several years.

Rodrigo Tavares Gonçalves de Sousa: The transaction also represented the largest debt issuance by aggregate volume in the company's history and reinforces the consistent liability management strategy adopted by the company over the past several years. In addition, proactively addressing the future debt maturities, the transaction contributed to extending the average debt maturity profile and reducing the average cost of debt, further strengthening Localiza's financial profile, as shown on page 18. We ended the quarter with BRL 11.4 billion in cash, an amount sufficient to cover debt maturities over this year and the following two years. On page 19, we present the debt ratios at comfortable levels, showing improvement compared to the same period of last year. The net-to-fleet value ratio declined from 59% to 55% year-over-year, while the net debt to EBITDA ratio ended the period at 2.16 times.

Speaker #2: In addition, the proactively addressing the future debt maturities, the transaction contributed to extending the average debt maturity profile and reducing the average cost of debt, further strengthening Localiza's financial profile as shown in page 18.

Speaker #2: We ended the quarter with $11.4 billion in cash, an amount sufficient to cover debt maturities over this year and the following two years. On page 19, we present the debt ratios and comfortable levels, showing improvement compared to the same period last year.

Speaker #2: The net-to-fleet value ratio declined from 59 to 55 percent year over year, while the net debt-to-EBITDA ratio ended at the period at 2.16 times.

Speaker #2: Finally, on page 20, we present the annualized ROIC for the first half of the year, which reached 16.1%, with a spread of 6.1 percentage points over the after-tax cost of debt, in line with the company's expectations and evidencing the solid trajectory of spread recovery even in a higher depreciation and interest rates environment.

Rodrigo Tavares Gonçalves de Sousa: Finally, on page 20, we present the annualized ROIC for H1, which reached 16.1% with a spread of 6.1 percentage points over the after-tax cost of debt. In line with the company's expectations and evidencing the solid trajectory of spread recovery, even in a higher depreciation and interest rates environment. We are now available to take your questions.

Speaker #2: We are now available to take your questions.

Speaker #3: Thank you. As a reminder, for the Q&A session, please sign your interested in participating via the Q&A icon at the bottom of your screen, indicating your name, institution, and language.

Nora Lanari: Thank you. As a reminder for the Q&A session, please sign if you are interested in participating via the Q&A icon at the bottom of your screen, indicating your name, institution, and language. When called upon, a prompt to activate your microphone will appear on your screen. To submit written questions, use the Q&A icon at the bottom of your screen and enter your name and institution before your question. Our first live question comes from Lucas Marquiori. We will open the audio so you can ask your question. Please Lucas, go ahead.

Speaker #3: When called upon, a prompt to activate your microphone will appear on your screen. To submit writing questions, use the Q&A icon at the bottom of your screen and enter your name and institution before your question.

Speaker #3: Our first live question comes from Lucas Macchiori. We will open the audio so you can ask your question. Please, Lucas, go ahead.

Speaker #4: Thank you very much. Hey, guys. Morning. Yeah, I have two questions here. First one on depreciation and getting to the topic, right? Just going to just wanted to understand and clarify some things, right?

Nora Lanari: Thank you very much. Hey, guys. Morning. Two questions here. First one on depreciation and getting to that topic. Just wanted to understand and clarify some things.

Speaker #4: Because when we look at nominal depreciation, it was up, right, quarter over quarter. But when we look at depreciation as a percentage of the asset, it actually decreased quarter over quarter, right?

Lucas Marquiori: When we look at nominal depreciation, it was up quarter-over-quarter. When we look at depreciation as a percentage of the asset, it actually decreased quarter-over-quarter. I know, according to the speech, there's still some kind of a conservatism embedded in the forward-looking statements on the macro and automotive market dynamics. Just wanted to understand what's actually the plan and the trend there. I know you guys are not guiding for an inflection there, but at least looking at, in percentage terms, it was actually an inflection there. Just wanted to kind of clarify that trend. Number two, on the Seminovos EBITDA margin. Just also clarifying, at least, what's the implicit typical seasonal trending mix that we have in Q3, Q4? Is it as concentrated in SUVs as it was in, for instance, Q2?

Speaker #4: And I know I mean, according to this pitch, there's still some kind of a conservatism embedded in the forward-looking statements on the macro and automotive market dynamics, right?

Speaker #4: So just wanted to understand what's actually the plan and the trend there, right? Because I know you guys are not guiding for an inflection there, but at least looking at in percentage terms, it was actually an inflection there.

Speaker #4: So just wanted to kind of clarify that trend. And number two, on the semi-novel's EBITDA margin, right? Just also clarifying at least, I mean, what's the implicit typical seasonal trending mix that we have in Q3, Q4?

Speaker #4: Is it as concentrated in SUVs as it was in, for instance, Q2? And for how long should we continue to expect these investments and expectation capacity at least to last throughout the year?

Lucas Marquiori: For how long should we continue to expect these investments in expansion capacity at least to last throughout the year? Just so we can understand at least the trend for Seminovos margins in H2. Those two questions, guys. Thank you very much.

Speaker #4: Just so we can understand at least the trend for semi-novel's margins in the second half, right? Those two questions, guys. Thank you very much.

Speaker #2: Thank you very much, Lucas. First, the depreciation did indeed increase in nominal terms, but when you look at it as a percentage, there was a large volume of cost that had been purchased at the end of the period for us to prepare for the high season of July.

Rodrigo Tavares Gonçalves de Sousa: Thank you very much, Lucas. First, the depreciation, indeed, it increased in nominal terms. When you look at the percentage, there was a large volume of cars that had been purchased at the end of the period for us to prepare for the high season of July. For that fact, when they are activating the cars, you don't depreciate them in that period. In percentage terms, you may have some short-term effects because of that activation period. When we look at the trend of the depreciation, the trend is continuing as it was. We expect depreciation to continue mildly trending up, especially in Rent-a-Car. This is what we expect.

Speaker #2: For that fact, when they are activating the cost, you don't depreciate them in that period, right? So, in percentage terms, you may have some short-term effects because of the activation period.

Speaker #2: But when we look at the trend of the depreciation, the trend is continuing as it was. So we expect depreciation to continue mildly trending up, especially in rent-a-car, okay?

Speaker #2: So this is what we expect. But it's important to highlight that, despite the fact that we are increasing depreciation, we're able to do that at the same time that we're increasing profit and return, which shows that we are embedding all these assumptions correctly in our prices.

Rodrigo Tavares Gonçalves de Sousa: It's important to highlight that despite the fact that we are increasing depreciation, we are able to do that at the same time that we're increasing profit and return, which shows that we are embedding all these assumptions correctly in our prices. The depreciation is forward-looking. When we estimated the residual values, we have to anticipate what's going to be one or two years from now, then we have to factor things as the new market dynamics as well. Once again, these are all embedded in our pricing assumptions, and that's why despite the fact that we are increasing depreciation, you see returns up and you also see profits at record levels. In terms of Seminovos margin, let me take a step back. The first mission was to reach the pace to renew the fleet and to get to the optimal life cycle.

Speaker #2: So, in depreciation, it's forward-looking. So, when we estimate the residual values, we have to anticipate what's going to happen one or two years from now, and then we have to factor in things such as the new market dynamics as well.

Speaker #2: But once again, these are all embedded in our pricing assumptions, and that's why despite the fact that we are increasing depreciation, you see returns up, and you also see profits at record levels, okay?

Speaker #2: In terms of semi-novel's margin, let me take a step back. The first mission was to reach the pace to renew the fleet and to get to the optimal life cycle.

Speaker #2: We did that in the first quarter. So we reached 90 to 95,000 cars per quarter. The second mission was to get to the same level in SUVs.

Rodrigo Tavares Gonçalves de Sousa: We did that in Q1. We reached 90,000 to 95,000 cars per quarter. The second mission was to get to the same level in SUVs. We were able to get to the optimal life cycle in the entry-level vehicles, and now we have to do that for the other categories. In Q2, we were able to prove that we are indeed capable of selling SUVs, and optimize the life cycles of SUVs as well. This will probably continue in the following quarters. When we look what is the next step for Seminovos, we have to increase our sales mix of retail. To do that, we need to invest in advance, basically in people, opening stores, in marketing, and this quarter particularly, we had a rebranding of our stores as well.

Speaker #2: So, we were able to achieve the optimal life cycle in the entry-level vehicles, and now we need to do that for the other categories.

Speaker #2: In the second quarter, we were able to prove that we're indeed capable of selling SUVs and optimize the life cycles of SUVs as well.

Speaker #2: So this will probably continue in the following quarters. When we look what is the next step for semi-novels, we have to increase our sales mix of retail.

Speaker #2: To do that, we need to invest in advance. Basically, in people, opening stores, in marketing, and this quarter in particularly, we had a rebranding of our stores as well.

Speaker #2: So in the next quarters, this investments will likely continue as the mix of SUVs as well.

Rodrigo Tavares Gonçalves de Sousa: In the next quarters, these investments will likely continue as the mix of SUVs as well.

Speaker #4: Perfect. Thank you, Rodrigo.

Lucas Marquiori: Perfect. Thank you, Rodrigo.

Speaker #2: My pleasure, Lucas.

Rodrigo Tavares Gonçalves de Sousa: My pleasure, Lucas.

Speaker #3: The next question comes from Andrea Ferreira. We will open your audio so you can ask your question. Please, Andrea, go ahead.

Nora Lanari: The next question comes from Andre Ferreira. We will open your audio so you can ask your question. Please, Andre, go ahead.

Speaker #5: Yeah, good morning. Thanks for taking my question. I have two topics here. So first, I wanted to get your expectations for used car sales per quarter going forward.

Andre Ferreira: Yeah. Good morning. Thanks for taking my question. I have two topics here. First, I wanted to get your expectations for used car sales per quarter going forward. What are the key drivers of demand, and what do you see as the biggest risk to volumes? Also, quick comments on how July fared in Seminovos volumes, if you could. The second point was, net car purchase was high, higher than the past many quarters. It would suggest optimism with demand. Is that a good assumption, or was there an opportunistic window to buy cars? Also, where are those cars being allocated the most? Thank you.

Speaker #5: What are the key drivers of demand and what do you see as the biggest risk volumes? Also, quick comments on how July fared in semi-novel's volumes, if you could.

Speaker #5: And the second point was, I mean, net car purchase was high, like higher than the past many quarters. So it would suggest optimism with demand.

Speaker #5: Is that a good assumption, or was there, like, an opportunistic window to buy cars? And also, where are those cars being allocated the most?

Speaker #5: Thank you.

Speaker #2: Thank you very much, Andrea. First, we expected the sales level of semi-novels to remain at this current level, right? So, around 90,000, which is the optimal level for us to reach the life cycle that we expect.

Rodrigo Tavares Gonçalves de Sousa: Thank you very much, Andre. First, we expected the sales level of Seminovos to remain at this current level. Around the 90,000, which is the optimal level for us to reach the life cycle that we expect. In July, it followed the same trend. The same type of pace that we saw in Q1, in Q2, we are expecting to continue in Q3 as well here. In terms of the risks, we saw a slight reduction in approval of financing, that was offset by our commercial efficiency. We saw that banks had a lower appetite for issuing new finance, we did not suffer that effect because we were able to more than compensate that with internal efficiencies here. Looking forward, I think that it will depend more on the macro than anything else.

Speaker #2: And in July, it followed the same trend. So, the same type of pace that we saw in the first quarter and in the second quarter, we're expecting to continue in the third quarter as well here.

Speaker #2: In terms of the risks, we saw a slight reduction in approval of financing, but that was offset by our commercial efficiency. So we saw that banks had a lower appetite for issuing new finance, but we did not suffer that effect because we were able to more than compensate that with internal efficiencies here.

Speaker #2: But looking forward, I think that it will depend more on the macro than anything else. And of course, we're keeping proving our operations and we are confident that we can reach the current sales level in the third quarter as well, okay?

Rodrigo Tavares Gonçalves de Sousa: Of course, we keep improving our operations, and we are confident that we can reach the current sales level in Q3 as well. In terms of net car purchase, indeed, we purchased almost 125,000 cars in Q2, which is a higher level than typically we do. This was a combination of a higher demand. As you could see, we resumed growth in Rent-a-Car. In this quarter, we grew revenues by 11.2% year-over-year. This trend in July was a very strong high season as well. On top of that, of course, that we have some particular procurement opportunities that we thought it would make sense for us to take advantage in the end of the quarter.

Speaker #2: In terms of net car purchase, indeed, we purchase almost 125,000 cars in the second quarter, which is a higher level than typically we do.

Speaker #2: This was a combination of a higher demand as we could you could see, we resumed growth in rent-a-car. In this quarter, we grew revenues by 11.2% year over year.

Speaker #2: So this trend in July was a very strong high season as well. But on top of that, of course, that we have some particular procurement opportunities that we thought it would make sense for us to take advantage in the end of the quarter.

Speaker #1: Just to add to that, Andrea, after July, of course, we'll adjust a bit the fleet. We are still leaving an environment of higher interest rate and higher depreciation.

Nora Lanari: Just to add to that, Andre, after July, of course, we will adjust a bit of fleet. We are still living in an environment of higher interest rate and higher depreciation, we therefore will prioritize price over volumes to maintain the consistent trajectory of ROIC spread restoration.

Speaker #1: Therefore, we will prioritize price over volumes to maintain a consistent trajectory of ROIC spread restoration.

Speaker #5: Perfect. Thank you.

Rodrigo Tavares Gonçalves de Sousa: Perfect. Thank you.

Speaker #3: Our next question comes from Guilherme Mendes. We will open the audio so you can ask your question. Please, Guilherme, go ahead.

Nora Lanari: Our next question comes from Guilherme Mendes. We will open the audio so you can ask your question. Please, Guilherme, go ahead.

Speaker #5: Yes, thank you so much. Good morning, Rodrigo and Nora. Thanks for taking my questions. I have a follow-up on depreciation, if I may. A few quarters ago, we were discussing that if semi-novel's margins remain at healthy levels, we could see an inflection on depreciation.

Guilherme Mendes: Yes. Thank you so much. Good morning, Rodrigo and Nora. Thanks for taking my questions. I have a follow-up on depreciation, if I may. A few quarters ago, we were discussing that if Seminovos margins remain at healthy levels, we could see an inflection on depreciation. We have been seeing Seminovos at a pretty strong performance in terms of sales and also in terms of margins. Still you are still discussing increasing depreciation going forward and arguably at a faster pace. My two-part question is, first is, what has changed on what we are seeing today versus your expectations a year ago? Looking forward on these comments about depreciation continue to increase. What other variables are you monitoring to give you some comfort on the level of depreciation that you are including on the contracts going forward? Thank you so much.

Speaker #5: And we have been seeing semi-novels at a pretty strong performance, in terms of sales and also in terms of margins. And still, we are discussing increasing depreciation going forward, and arguably at a faster pace.

Speaker #5: So my two-part question is, first is, what has changed on what we are seeing today versus your expectations a year ago? And looking forward on these comments about depreciation continue to increase, so what other variables are you monitoring to give you some comfort on the level of depreciation that you are including on the contracts going forward?

Speaker #5: Thank you so much.

Speaker #2: Look, thank you for your question. I would not say that changed our expectations. In the last quarter, despite the questions, we never pointed that there will be an inflection in depreciation.

Rodrigo Tavares Gonçalves de Sousa: Look, thank you for your question. I would not say that changed our expectations. In the last quarter, despite the questions, we never pointed that there will be an inflection in depreciation. It was exactly the opposite. We signaling that the depreciation trend was up and that what happens in this quarter here as well. We are in the phase here of a new automotive market dynamics. As I said, this is forward-looking. We have to anticipate that by taking into consideration what may happen, and we are going to embed those assumptions in the residual prices. When you are thinking about allocating your capital, you have to be even more conservative, and that's what we have been proving here because our pricing is able to cope with this higher depreciation environment and increase the return.

Speaker #2: It was exactly the opposite. We signaling that the depreciation trend was up, and that what happens in this quarter here as well. And we are in the phase here of a new automotive market dynamics.

Speaker #2: And as I said, this is forward-looking. We have to anticipate that by taking into consideration what may happen and we are going to embed those assumptions in the residual prices.

Speaker #2: When you are thinking about allocating your capital, you have to be even more conservative. And that's what we have been proving here. Because our pricing is able to cope with this higher depreciation environment and increase the return.

Speaker #2: When we look, there are forces that may help car prices as well. For example, the tax for import cars went up from 28 to 35%.

Rodrigo Tavares Gonçalves de Sousa: When we look, there are forces that may help car prices as well. For example, the tax for import cars went up from 28% to 35%. That may create some upward pressure in prices. On top of that, the kits, in terms of the imports of the kits, will cease the quotas and the taxes on the end of this year. This all can contribute to improving prices. Having said that, we're talking about a lot of new entrants, a lot of new models and companies there are competing to gain market share. That can lead to greater competitiveness pressures. Having said that, it is important to remind that this is a positive in the midterm because as you have more supply locally, as you have more competition locally, that can lead to better deals, to better opportunities for the largest buyer as Localiza.

Speaker #2: That may create some upward pressure in prices. On top of that, the kits in terms of the imports of the kits will cease the quotas and the taxes on the end of this year.

Speaker #2: So this all can contribute to improving prices. Having said that, we're talking about a lot of new entrants, a lot of new models, and companies that are competing to gain market share that can lead to greater competitiveness pressures.

Speaker #2: Having said that, it is important to remind that this is a positive in the mid-term. Because as you have more supply locally, as you have more competition locally, that can lead to better deals, to better opportunities for the largest buyer as Localiza.

Speaker #2: But looking forward, especially in the short term here, the depreciation trend will continues as it was from the first quarter to the second quarter.

Rodrigo Tavares Gonçalves de Sousa: Looking forward, especially in the short term here, the depreciation trend will continue as it was from Q1 to Q2.

Speaker #5: Very clear. Thanks, Rodrigo. And if I may also follow up on Andrea's questions on the fleet expansion, also a few quarters ago, we were discussing about 27 potentially being a year in which Localiza would resume the pace of growth.

Guilherme Mendes: Very clear. Thanks, Rodrigo. If I may also follow up on Andre's questions on the fleet expansion. Also, a few quarters ago, we were discussing about 2027 potentially being a year in which Localiza would resume the pace of growth. Given the higher rates and the increase in depreciation, is this something that we should still expect or not likely at this point? Thank you again.

Speaker #5: Given the higher rates and the increase in depreciation, is this something that we should still expect, or not likely at this point? Thank you again.

Speaker #2: Thank you. I think we were able to prove in the second quarter that despite the fact that depreciation is up, that pricing is up, growth went up as well.

Rodrigo Tavares Gonçalves de Sousa: Thank you. I think we were able to prove in Q2 that despite the fact that depreciation is up, that pricing is up, growth went up as well. Okay. Having said that, our goal is to keep increasing our ROIC spreads. Our main target here is to get the ROIC spreads to the upper level of our band here. Okay. The demand has been proven very resilient and robust. The best proof of that was Q2 and the very strong July that we had here. Once again, because of the high depreciation and high interest expenses, we were going to need to keep increasing tariffs. That may have some effect on the demand, but so far, we've seen the demand quite resilient. So in 2027, if that persists, we can continue to grow.

Speaker #2: Okay. Having said that, our goal is to keep increasing our ROIC spread. Our main target here is to get to the ROIC spreads to the upper level of our band here.

Speaker #2: Okay. But the demand has been proven very resilient and robust. The best proof of that was the second quarter and the very strong July that we had here.

Speaker #2: But once again, because of the high depreciation and high interest expenses, the high we were going to need to keep increasing tariffs. That may have some effect on the demand, but so far, we've seen the demand quite resilient.

Speaker #2: So, in 2027, if that persists, we can continue to grow. But once again, our focus is to return to profitability as it was.

Rodrigo Tavares Gonçalves de Sousa: Once again, our focus is return the profitability as it was.

Speaker #5: Very clear. Thank you, Rodrigo.

Guilherme Mendes: Very clear. Thank you, Rodrigo.

Speaker #3: The next question comes from Felipe Nielsen. We will open the audio so you can ask your question. Please, Felipe, go ahead.

Nora Lanari: The next question comes from Filipe Nielsen. We will open the audio so you can ask a clear question. Please, Filipe, go ahead.

Filipe Ferreira Nielsen: Hey. Hello, everyone. Thanks for taking my question. I also have two here. The first one is related to demand and pricing and just curious to hear about You expanded the fleet significantly in the quarter. We were discussing this in previous questions, but I wanted to understand a little bit more about how you're expecting pricing elasticity and what are the factors that drive you to be confident that you will keep increasing prices even with this level of purchases and an increase in the fleet? This is my first one. The second one, I just wanted to follow up on the depreciation. We discussed a lot about the car market conditions and et cetera, and your conservatism. Just wanted to understand how you factor in the reduction in the fleet age and in the sale age.

Speaker #6: Hey. Hello, everyone. Thanks for taking my question. I also have two here. The first one is related to demand and pricing and just curious to hear about you expanded the fleet significantly in the quarter.

Speaker #6: We were discussing this in previous questions, but I wanted to understand a little bit more about how your expecting pricing elasticity and what are the factors that drive you to be confident that you will keep increasing prices even with this level of purchases and increase in the fleet?

Speaker #6: This is my first one. And the second one, I just wanted to follow up on the depreciation we discussed a lot about the car market conditions and et cetera, and your conservatism.

Speaker #6: Just wanted to understand how you factor in the reduction in the fleet age and in the sale age? How should we expect when should we expect this to positively impact the depreciation trend and how your balancing this factor with all other ones?

Filipe Ferreira Nielsen: How should we expect, when should we expect this to positively impact the depreciation trend, and how you're balancing this factor with all other ones. Thank you.

Speaker #6: Thank you.

Speaker #2: Okay. Thank you, Felipe. First, there is a seasonality here. So third quarter in terms of demand is usually stronger than second quarter. So that's why usually you rent more.

Rodrigo Tavares Gonçalves de Sousa: Okay. Thank you, Filipe. First, there is a seasonality here. Third quarter in terms of demand is usually stronger than second quarter. That's why usually you rent more. You have the elections as well. That creates an additional demand for at least in the months of September and October, and we expect that. You have to realize that the elasticity, you have to look at that, not just at the nominal elasticity, but the cross elasticity. Our main competitor is ownership. When you see, for example, Fleet Rental activity, we see a very strong generation of new contracts, commercial activities. We are living in a very high interest rate environment, and that actually leads most companies to outsource their fleet.

Speaker #2: You had the elections as well that creates an additional demand for at least in the months of September and October. And we expect that.

Speaker #2: But you have to realize that with elasticity, you have to look not just at the nominal elasticity but also at the cross elasticity. Our main competitor is ownership.

Speaker #2: So when you see, for example, fleet rental activity, we see a very, very strong generation of new contracts, commercial activities. We are living in a very high interest rate environment.

Speaker #2: And that actually leads most companies to outsource their fleet. So you're experiencing a demand despite the fact that we're increasing prices. Because the alternative which is financing at a very high cost, your own fleet is increasing even faster than renting a car with Localiza.

Rodrigo Tavares Gonçalves de Sousa: You're experiencing a demand, despite the fact that we're increasing prices because the alternative, which is financing at a very high cost your own fleet, is increasing even faster than renting a car with Localiza. Okay. That's why we saw in the second quarter there's a strong demand. We saw a strong demand in July, and we think that this trend, at least in the short mid-term, is likely to continue. Okay. In terms of the reduction of the fleet age, we are already reaping the benefits. You mentioned about the residual value, the benefits are far beyond that. If you look at our variable costs, this is already happening. Our variable costs are much lower than it was last year. Actually, in some senses, we are back to the 2019 levels in nominal terms. This shows you how is the impact of renewing the fleet.

Speaker #2: Okay. So that's why we saw in the second quarter there's a strong demand. We saw a strong demand in July, and we think that this trend at least in the short mid-term is likely to continue.

Speaker #2: Okay. In terms of the reduction of the fleet age, we already reaping the benefits. You mentioned about the residual value, but it's far the benefits are far beyond that.

Speaker #2: If you look at our variable costs, this is already happening. Our variable costs are much lower than it was last year. Actually, in some senses, we are back to the 2019 levels in nominal terms.

Speaker #2: So this shows you how is the impact of renewing the fleet. And we are feeling the effects first on the rent-a-car rather than in the semi-novels.

Rodrigo Tavares Gonçalves de Sousa: We are feeling the effects first on the Rent-a-Car rather than in the Seminovos, because we're decommissioning the cars with the high mileage. What happens is that you renew the fleet much more in kilometers in Rent-a-Car than in age in Seminovos. We pick up the pace in Seminovos in the first quarter, it still takes some time for us to get to the optimal level in Seminovos. We expect that to happen in the H1 of next year, that we're probably going to reach the equilibrium in the life cycle here. Another benefit that we're already seeing is the utilization. Because the cars are newer, you don't spend much time fixing the cars, and that's why you have more fleet available in Rent-a-Car as well.

Speaker #2: Because we're decommissioning the cars with the high mileage. So what happens is that you renew the fleet much more in kilometers in rent-a-car than in age in semi-novels.

Speaker #2: We pick up the pace in semi-novels in the first quarter. So it is still takes some times for us to get to the optimal level in semi-novels.

Speaker #2: We expect that to happen in the first half of next year, that we'll probably reach equilibrium in the life cycle here.

Speaker #2: But another benefit that we already see is the utilization. So, because the cars are newer, you don't spend much time fixing the cars. And that's why you have more fleet available in rent-a-car as well.

Speaker #2: So I would like to narrow the benefits to just the residual value despite the fact that depreciation is the topic. But it's a combination of operational utilization and the depreciation itself.

Rodrigo Tavares Gonçalves de Sousa: I would not like to narrow the benefit to just the residual value, despite the fact that depreciation is the topic, it's a combination of operational utilization and the depreciation itself.

Speaker #6: This is very clear. Thank you.

Filipe Ferreira Nielsen: This is very clear. Thank you.

Speaker #2: My pleasure, Felipe.

Rodrigo Tavares Gonçalves de Sousa: My pleasure, Filipe.

Speaker #3: Our next question comes from Daniel Gasparez. We will open the audio so you can ask your question. Please, Daniel, go ahead.

Nora Lanari: Our next question comes from Daniel Gasparete. We will open the audio so you can ask your question. Please, Daniel, go ahead.

Speaker #7: Good morning. Thank you very much for the opportunity. I apologize, but I would like to emphasize some of the questions that have already been answered here.

Daniel Gasparete: Good morning, thank you very much for the opportunity. I apologize, I would like to stress some of the questions that were already answered here. The first of all would be regarding the growth. Just to better understand if you are seeing the position that you guys are having pretty much as a response to the demand that is coming, or if you guys are actively seeing growth opportunities and placing cars there. For example, these 28,000 cars that you net added in this quarter, do you see it as we are seeing additional growth in the future and we would like to pursue it, or we are seeing seasonal demand here and we are addressing that? Just to better understand if you are actively or passively responding to that. That would be the question number 1.

Speaker #7: First of all would be regarding the growth. Just to better understand, if you are seeing the position that you guys are having pretty much as a response to the demand that is coming, or if you guys are actively seeing growth opportunities and placing cars there.

Speaker #7: For example, this 28,000 cars that you net added in this quarter, do you see it as we are seeing additional growth in the future and we would like to pursue it, or we are seeing seasonal demand here and we are addressing that?

Speaker #7: Just to see, just to better understand if you are actively or passively responding to that—that would be question number one. And also, if you could touch on which segments you are seeing most of that demand?

Daniel Gasparete: Also if you could touch on which segments are you seeing most of the demand. Is it leisure, mid-lease replacement? Just to better understand where it comes from. Secondly, I would like just to stress a little bit more about the Seminovos margin. You mentioned, if I understood correctly, please apologize me if I'm wrong, that we should continue seeing this level of mix in the next two quarters and perhaps in the same level of efforts for improving the retail sales in the short term. Just to better understand if the underlying conclusion on that would be that perhaps we are likely to see Seminovos likely to be on this 2% level before rebounding back to 3%. Again, I apologize for stressing those questions again.

Speaker #7: Is it leisure, mini-lease, replacement? Just to better understand where it comes from. And secondly, I would like just to stress a little bit more about the semi-novels margin.

Speaker #7: You mentioned if I understood correctly, please apologize to me if I'm wrong. That we should continue seeing this level of mix in the next few quarters.

Speaker #7: And perhaps the same level of efforts for the FO improving the retail sales in the short term. Just to better understand, if the underlying conclusion on that would be that perhaps we are likely to see semi-novels at this 2% level before rebounding back to 3%.

Speaker #7: So again, I apologize for stressing those questions again.

Speaker #1: Thank you, Daniel. I'll start here and Rodrigo may compliment if necessary. But on the growth front, I would say the following. We had a very strong sales pace and we maintained that in the second quarter.

Nora Lanari: Thank you, Daniel. I'll start here and Rodrigo may complement if necessary. On the growth front, I would say the following. We had a very strong sales pace and we maintained that in Q2. Considering that we will maintain those pace, this level of pace, we will have to accelerate purchase. Also we were preparing the company for July peak season. We have holidays, school vacation, and we have some selective opportunistic purchases and discounts. It resulted in a strong addition of 28,000 cars. Part of this will adjust in Q3 after the peak season of July. Rodrigo mentioned in the previous question that we also have the elections coming in.

Speaker #1: So considering that we will maintain those pace this level of pace, we'll have to accelerate purchase. But also, we were preparing the company for July peak season.

Speaker #1: We have holidays school vacation. And we have some selective opportunistic purchases and discounts. So it resulted in a strong addition of 28,000 cars. Part of this will adjust in the third quarter after the peak season of July.

Speaker #1: But Rodrigo mentioned in the previous question that we also have the elections coming up. So we are seeing a good level of demand and resilient demand.

Nora Lanari: We are seeing a good level of demand, a resilient demand, both in daily rentals to individual, but also corporate segments grew, app driver segments grew on a quarter-over-quarter basis, and replacement segment also grew. In spite of that, as Rodrigo said, in an environment of higher interest rates and higher depreciation rates, the focus is going to be less on the volumes and more on the pricing to maintain the trajectory of recovery of ROIC spread. On the Seminovos side, I think margin was impacted twofold here. The first one was the mix of SUVs. SUVs generate more Brazilian real per car when we sell, so we usually operate them with slightly lower gross margins. You saw on a quarter-over-quarter reduction of around half percentage point in terms of gross margin there.

Speaker #1: Both in daily rentals to individual, but also corporate segments grew app driver segments grew on a quarter over quarter basis. And replacement segment also grew.

Speaker #1: Okay. In spite of that, as Rodrigo said and in an environment of higher interest rates and higher depreciation, rates, the focus is going to be less on the volumes and more on the pricing to maintain the trajectory of recovery of rights spread.

Speaker #1: On the semi-novels side, I think margin was impacted to fall here. The first one was the mix of SUVs. SUVs generate more real per car when we sell.

Speaker #1: So we usually operate them with slightly lower gross margins. So you saw on a quarter over quarter reduction of around half percentage point in terms of gross margin there.

Speaker #1: But also, the fact that we invested more on expanding capacity, six new stores plus personnel plus marketing. Okay. We don't anticipate a big reduction on those expenses on the contrary.

Nora Lanari: Also, the fact that we invested more on expanding capacity, six new stores plus personnel, plus marketing. We don't anticipate a big reduction on those expenses. On the contrary, the goal of those expenses is to increase the mix of retail sales that will gradually increase over the course of the next quarter towards next year. We are not, as of now, anticipating a major difference in the trend of the EBITDA margin.

Speaker #1: The goal of those expenses is to increase the mix of retail sales that will gradually increase over the course of the next quarter towards next year.

Speaker #1: So we are not as of now anticipating a major different in the trend of the EBITDA margin.

Speaker #7: Okay. That's very clear. Thank you very much, Nora.

Daniel Gasparete: Okay. That's very clear. Thank you very much, Nora.

Speaker #2: Thank you.

Rodrigo Tavares Gonçalves de Sousa: Thank you.

Speaker #3: Our next question comes from Rogério o Araújo. We will open the audio so you can ask your question. Please, Rogério, go.

Nora Lanari: Our next question comes from Rogério Araújo. We will open the audio so you can ask your question. Please, Rogério, go ahead.

Rogério Araújo: Yeah. Hey, good morning, Rodrigo, Nora. Thanks for the opportunity. I have a couple here. First one on a higher PIS/Cofins credit this quarter. We understand that now with Brazil's tax reform, there is predictability of usage of those credits above the 9.25% rate. Does it make sense? In this case, what's Localiza's expectations for PIS/Cofins credit in upcoming quarters? A similar level versus Q2 make sense, at least by year-end? My second question regarding cost expansion. We noticed, especially salaries and profit sharing were the highlight this quarter. Is it tied somehow to the early share delivery to management under the company's long-term retention program that took place this quarter? If not, what drove the increase besides Seminovos that you already mentioned, and the run rate going forward? Thank you.

Speaker #8: Yeah. Hey, good morning, Rodrigo, Nora. Thanks for the opportunity. I have a one on a higher fiscal fines credit this quarter. We understand that now with Brazil's tax reform, there is predictability of usage of those credits above the 9.25% rate.

Speaker #8: Does it make sense? And in this case, what's Localiza's expectations for fiscal fines credit in upcoming quarters a similar level versus second Q make sense?

Speaker #8: At least by year end? And my second question regarding cost expansion. We notice especially salaries and profit sharing were the highlights this quarter. Is it tied somehow to the early share delivery to management under the company's long-term retention program?

Speaker #8: That took place this quarter. And if not, what drove the increase besides semi-novels that you already mentioned? And the run rate going forward? Thank you.

Speaker #1: No. Thank you, Rogério. Thank you for both questions. Yeah. When we think about the tax credits, fiscal fines related credit, we have few variables here that I would like to mention.

Nora Lanari: No, thank you, Rogério. Thank you for both questions. When we think about the tax credits, PIS/Cofins related credit, we have a few variables here that I would like to mention. The first one is the number of cars in our fleet and the value of the fleet. If you look, Q1 this year, we have a BRL 54 billion fleet value. Now we have a BRL 58 billion fleet value. We bought 120,000 cars. Of course, this impacts on the credit levels. Also, the appraisal reports had a shorter useful life, so each accelerates the pace of credits that we take. If you look on a quarter-over-quarter base, the PIS/Cofins credit increased by around BRL 80 million.

Speaker #1: The first one is the number of cars in our fleet and the value of the fleet. If you look first quarter this year, we have a 54 billion fleet value.

Speaker #1: Now we have a fleet value of $58 billion. We bought 120,000 cars. So, of course, this impacts the credit levels. Also, the appraisal reports had a shorter useful life.

Speaker #1: So each accelerates the pace of credits that we take. But if you look on a quarter over quarter base, the peak fiscal fines credit increased by around 80 million reais.

Speaker #1: Okay. When we look to the cost expansion, it's mostly impacted by the anticipation of the long-term incentive plans. But those were payroll refer exclusively to payroll taxes and the anticipation of those taxes.

Nora Lanari: When we look to the cost expansion, it is mostly impacted by the anticipation of the long-term incentive plans, refer exclusively to payroll taxes and the anticipation of those taxes. The level of around BRL 80 million as well. More or less one is offsetting the other here. As I said, it is related to the long-term incentive plan, but refer exclusively to the payroll taxes and social contribution here anticipation.

Speaker #1: Okay, the level is around 80 million reais as well, so more or less one is offsetting the other here. But, as I said, it is related to the long-term incentive plan.

Speaker #1: But refer exclusively to the payroll taxes and social contribution here, anticipation. Okay.

Speaker #8: Very clear, Nora. Thank you very much.

Rogério Araújo: Very clear, Nora. Thank you very much.

Speaker #3: Our next question comes from Bruno Marin. We will open the audio so you can ask your question. Please, Bruno, go ahead.

Nora Lanari: Our next question comes from Bruno Amorim. We will open the audio so you can ask your question. Please, Bruno, go ahead.

Speaker #8: Thank you. Thank you very much for taking my question. I also have a follow-up on the car price trends and the depreciation trends. I'd like to ask for your help to understand what's priced in to your depreciation.

Bruno Amorim: Thank you. Thank you very much for taking my question. I also have a follow-up on the car price trends and the depreciation trends. I'd like to ask for your help to understand what's priced in into your depreciation. As you guys argued, depreciation is forward-looking. What type of environment are you embedding into depreciation? We saw in H1 a significant growth in the market share of the Chinese OEMs. At the same time, the market grew significantly, which means the incumbents, they have not seen any meaningful contraction in their volumes, which argues for a healthier environment vis-a-vis the scenario where we would just be considering the market share dynamics.

Speaker #8: As you guys argued, depreciation is forward-looking. So, what type of environment are you embedding into depreciation? We saw, in the first half, a significant growth in the market share of the Chinese OEMs.

Speaker #8: But at the same time, the market grew significantly, which means the incumbents have not seen any meaningful contraction in their volumes. This argues for a healthier environment, compared to a scenario in which we would just be considering the market share dynamics.

Speaker #8: But in July, we saw a nominal contraction in the number of sales from the incumbents, which could eventually trigger some deterioration in the pricing environment.

Bruno Amorim: In July, we saw a nominal contraction in the number of sales from the incumbents, which could eventually trigger some deterioration in the pricing environment, and that's something that pertains more to July and Q3 than what happened in H1. I'd like to ask for your help to understand what type of dynamic are you accounting for. Are you accounting for an additional deterioration in the market, or are you accounting for what happened primarily in H1? Just a second question, a very quick one. Can you help us understand at what moment do you determine the depreciation for each quarter? Is it at the beginning of the quarter? Is it each month? The depreciation for Q3, is it already set, or is it something you're going to establish until you report the quarter? Thank you so much.

Speaker #8: And that's something that pertains more to July and the third quarter than what happened in the first half. So, I'd like to ask for your help to understand what type of dynamic you are accounting for?

Speaker #8: Are you accounting for an additional deterioration in the market or are you accounting for what happens primarily in the first half? And just a second question, very quick one.

Speaker #8: Can you help us understand at what moment you determine the depreciation for each quarter? Is it at the beginning of the quarter, or is it each month?

Speaker #8: So the depreciation for the third quarter, is it already set or is it something you're going to establish until you report the quarter? Thank you so much.

Speaker #2: Thank you, Bruno. Let me start with the second question because it's just technical and easier. Now, the depreciation is month by month. Okay. So there is no quarter depreciation here.

Rodrigo Tavares Gonçalves de Sousa: Thank you, Bruno. Let me start with the second question because it's just technical and easier. No, the depreciation is month by month. Okay? There is no quarter depreciation here. At the end of each month, you mark to market every single car in our fleet, and that results in that month particular depreciation. Okay? It is not something that you contract in advance for a quarter. In terms of the pricing trends, it is of course, hard to tell. You saw H1. It is, as you said, the whole demand was quite strong, so the Chinese and the new entrants gained market share, but in terms of volumes, it was very healthy. When we look ahead, what we're embedding here in our depreciation and in our pricing is some kind of deflation.

Speaker #2: At the end of each month, you mark to market every single car in our fleet. And that results in that month particular depreciation. Okay.

Speaker #2: So it is not something that you contract in advance for a quarter. In terms of the pricing trends, it is of course hard to tell.

Speaker #2: You saw the first half, it is, as you said, the whole demand was quite strong. So the Chinese and the new entrants gain market share.

Speaker #2: But in terms of volumes, it was very healthy. But when we look ahead, what we're embedding here in our depreciation and in our pricing is some kind of deflation.

Speaker #2: There are some arguments that you could say—actually, that's not going to happen because, as I said, taxes are going to increase. The import taxes will increase.

Rodrigo Tavares Gonçalves de Sousa: There are some arguments that you could say that actually that's not going to happen because, as I said, taxes will increase, the import taxes will increase. You're not going to have the kits imported anymore. Since you're going to have more entrants, you're going to have more competition. What we're factoring here in advance, there will be some kind of price inflation, and we're already putting that in our assumptions. In the pricing, we take a step back and become even more conservative in that sense because we want to be sure that we allocate the next dollar in a very consistent way here.

Speaker #2: You're not going to have the kits imported anymore. But since you're going to have more entrants, you're going to have more competition. What we're factoring here in advance is that there will be some kind of price inflation.

Speaker #2: And when we're already putting that in our assumptions, in the pricing we take a step back and become even more conservative in that sense because we want to be sure that we allocate the next dollar in a very consistent way here.

Speaker #8: Thank you, Jody. Is it possible to give us a ballpark idea of what type of...

Bruno Amorim: Thank you, Rodrigo. Is it possible to give us an idea, ballpark of what type of-

Rodrigo Tavares Gonçalves de Sousa: I don't know if it was clear, I said deflation. It's not inflation, deflation.

Speaker #2: I don't know if you see, but I said deflation. Yes, not inflation. Deflation.

Speaker #8: Yeah. Understood. So is it possible to help us quantify? Are we talking about assuming one, two, three percent, half a percentage points fall? Is it possible to help us quantify what's embedded into your depreciation assumptions?

Bruno Amorim: Yeah. Understood. Is it possible to help us quantify? Are we talking about assuming 1%, 2%, 3%, half a percentage point fall? Is it possible to help us quantify what's embedded into your depreciation assumptions?

Rodrigo Tavares Gonçalves de Sousa: We don't give specific details of our depreciation assumptions. We just give the general trend here. That's why we expect that this trend will continue. The other effect is that, as you saw in Q2, the mixes get a little bit more premium, right? The value of the car is increasing. Even as a percentage point, if you increase depreciation in nominal terms, if you keep the same percentage depreciation will rise in nominal terms as well. Today-

Speaker #2: We don't give specific details of our depreciation assumptions; we just give the general trend here. That's why we expect this trend will continue.

Speaker #2: The other effect is that, as you saw in the second quarter, the mixes get a little bit more premium, so the value of the car is increasing.

Speaker #2: So even as a percentage point, if you increase depreciation in nominal terms, if you keep the same percentage depreciation, depreciation will rise in nominal terms as well.

Speaker #2: But today.

Speaker #8: Of course.

Bruno Amorim: Of course

Speaker #2: We are expecting some kind of a deflation in our both pricing and depreciation assumptions.

Rodrigo Tavares Gonçalves de Sousa: We are expecting some kind of a deflation in our both pricing and depreciation assumptions.

Speaker #8: Thank you. And just one very last follow-up. So in July, we saw to the point that I've made before, some deterioration in the environment.

Bruno Amorim: Thank you. Just one very last follow-up. In July, we saw, to the point that I've made before, some deterioration in the environment. Have you perceived any step down in prices since June until now, or are you seeing the same trends that you were seeing before in terms of the evolution of prices in the market?

Speaker #8: Have you perceived any step-down in prices since June until now, or are you seeing kind of the same trends that you were seeing before in terms of the evolution of prices in the markets?

Speaker #2: No. In July, we didn't see any different trend in semi-novel prices than we were experiencing in the first half of the year. So, so far.

Rodrigo Tavares Gonçalves de Sousa: No. In July, we didn't see any different trend in Seminovos prices that we were experiencing the H1.

Bruno Amorim: Thank you

Speaker #2: We haven't seen any change in direction of the price dynamics in semi-novels.

Rodrigo Tavares Gonçalves de Sousa: We haven't seen any change in direction of the price dynamics in Seminovos.

Speaker #8: That's very helpful.

Nora Lanari: That's very helpful.

Nora Lanari: Bruno, one evidence of that is on the FIPE tables, right? I think they have some caveats here, but the July FIPE chart show a stronger decline in car prices, whereas August FIPE price that reflects July reduced the pace of declining prices. As of now, pretty much the average remains well behaved. Okay? We are anticipating the potential deflationary cycle on our depreciation.

Speaker #1: Bruno, one evidence of that is on the CP tables, right? I think they have some caveats here. But the July CP charts show stronger decline in car prices.

Speaker #1: Whereas August CP price, that reflects July, reduced the pace of decline in prices. So as of now, pretty much the average remains well-behaved. Okay.

Speaker #1: But we are anticipating a potential deflationary cycle in our depreciation.

Speaker #8: Thank you. That's very helpful.

Bruno Amorim: Thank you. That's very helpful.

Speaker #3: Our next question comes from Jen's piece. We will open the audio so you can ask your question. Please, Jen, go ahead.

Nora Lanari: Our next question comes from Jens Spiess. We will open the audio so you can ask your question. Please, Jens, go ahead.

Speaker #5: Yes. Hello, and thank

Jens Spiess: Yes. Hello, and thank you for taking my question, Rodrigo and Nora. I might be a bit repetitive to previous questions and your comments. Obviously, it seems that being conservative was definitely the right strategy and that at the end of the day, high depreciation doesn't matter as long as you price it correctly. Well done in that regard. My question is on going forward, and right, addressing the question you just answered. Do you think there's more risk to the downside or to the upside for your Seminovos margin going forward? I know there's a lot of moving parts, right? Things are behaving well, and you're being conservative. With that backdrop, what is your sense of how things might evolve? Thank you.

Speaker #8: Thank you for taking my question, Jody, Eleonora. I might be a bit repetitive to previous questions and your comments. I mean, obviously, it seems that being conservative was definitely the right strategy.

Speaker #8: And that, at the end of the day, high depreciation doesn't matter as long as you price it correctly. So, well done in that regard.

Speaker #8: So my question is about going forward, and directly addressing the question you just answered: Do you think there's more risk to the downside or to the upside for your semi-novel margin going forward?

Speaker #8: I know there's a lot of moving parts, right? And things are behaving well. And you're being conservative. So with that backdrop, what is your sense of how things might evolve?

Speaker #8: Thank you.

Speaker #2: Hi, Jen. Yes. First of all, thank you. Yeah. Indeed. I think more important than the level of depreciation itself, right, it is the fact that we're pricing that and that every next car that we're going to allocate our capital we have this assumption.

Rodrigo Tavares Gonçalves de Sousa: Hi, Jens. Yes. First of all, thank you. Indeed. I think more important than the level of depreciation itself, right? It is the fact that we are pricing that and that every next car that we're going to allocate our capital, we have this assumption so to make sure if there is a scenario, we are prepared for that. Thank you for highlighting that. Your question is a bit tricky, right? About the upside and downside risk. I can argue both ways. We're renewing our fleet so you could see retail mix improving. We still have some efficiencies that's going to happen. There are some positives. I could also claim that taxes will go up. The new cars that will be imported will go up in prices. There are these arguments.

Speaker #2: So, to make sure, if there is a scenario, we are prepared for that. So, thank you for highlighting that. Your question is a bit tricky, right, about the upside and downside risk.

Speaker #2: I can argue both ways. So, we're renewing our fleet, so you could see the retail mix improving. We still have some efficiencies—that's going to happen.

Speaker #2: So there are some positives. I could also claim that taxes will go up, so the prices of the new cars that will be imported will increase.

Speaker #2: So there are these arguments. On the other hand, it is very uncertain what's going to happen with the competitive dynamics when you have 20 brands coming here in Brazil and they want to gain some kind of market share.

Rodrigo Tavares Gonçalves de Sousa: On the other hand, it is very uncertain what's going to happen with the competitive dynamics when you have 20 brands coming here in Brazil and they want to gain some kind of market share. You have a price competition, or you have a market competition here, but it's hard to quantify that. It is difficult to answer your question exactly here because I see factors for both an upside and a downside, and we're taking a more conservative approach as we always did.

Speaker #2: So you have price competition, or you have market competition here. It's hard to quantify that. So, it is difficult to answer your question exactly here because I see factors for both an upside and a downside.

Speaker #2: And we're taking a more conservative approach, as we always did.

Speaker #1: And Jen, just to reinforce here—we always mention the margin is in a low single digit, where it still is, right? Between 1% and 3% is a reasonable margin for us.

Nora Lanari: Jens, just to reinforce here, we always mention the margin in the low single digits where it still is, between 1% and 3% is a reasonable margin for us, of course, with the margin of error here.

Speaker #1: Of course, with the margin of error here.

Speaker #8: All right, makes sense. Cheers, guys.

Jens Spiess: All right. Makes sense. Cheers, guys.

Speaker #3: Our next question comes from Lucas Marchiotti. We will open the audio so you can ask your question. Please, Lucas, go ahead.

Nora Lanari: Our next question comes from Lucas Marquiori. We will open the audio so you can ask your question. Please Lucas, go ahead.

Speaker #7: Thanks, guys, for the follow-up. Yeah, I mean, just to change the subject here quite briefly, we are now kind of ahead with the migration of the systems for the new tax reform.

Lucas Marquiori: Thanks, guys, for the follow-up. Yeah, just change the subject here quite briefly. We are now kind of heading for the migration of the systems for the new tax reform. I know you touched on that topic slightly before, but just wanted to touch base on that again. I know we have been questioning you guys for a long time about that, and I know that you guys have been studying that for a long time as well. Maybe just provoking and trying to hear from you what's the final decision. If not, what's the latest reading on tax reforms and necessity to raise prices and maybe end impacts throughout the whole business as a whole. It would be nice to hear about that. Thanks very much.

Speaker #7: I know you touched on that topic slightly before, but I just wanted to kind of touch base on that again, right? I know we have been kind of questioning you guys for a long time about that.

Speaker #7: And I know that you guys have been studying that for a long time as well. So maybe just kind of provoking and trying to hear from you: what's the final decision? If not, what's the latest reading on tax reforms and the necessity to raise prices and maybe end impacts throughout the whole business as a whole, right?

Speaker #7: It would be nice to hear about that. Thanks very much.

Speaker #2: Thank you, Lucas. First of all, there is the operational side of the tax reform, right? You have to issue the invoices and everything, update the systems, and prepare.

Rodrigo Tavares Gonçalves de Sousa: Thank you, Lucas. First of all, there is the operational side of the tax reform. They have to issue the invoices and everything, the systems, and prepare. There is a side here that is basically operations, that we're putting a lot of effort to comply with everything that we require here. In terms of the competitiveness level, I'll be a little bit more conceptual here, but what's happening is that we see that with the tax reform, we most likely are going to gain for a B2B, both in terms of affordability and relative competitiveness against the ownership. Okay? When you look at B2B, which is closely 70% of our business, the impact of the tax reform is somewhat positive in both the affordability and in also the relative competitiveness.

Speaker #2: So there is a side here that is basically operations, and we're putting a lot of effort to comply with everything that we require here.

Speaker #2: In terms of the competitiveness level, I'll be a little bit more conceptual here. But what's happening is that we see that with the tax reform, we most likely are going to gain for B2B, both in terms of affordability and relative competitiveness against ownership.

Speaker #2: Okay. So when you look at B2B, which is close to 70% of our business, the impact of the tax reform is somewhat positive in both affordability and also in relative competitiveness.

Speaker #2: When you see B2C, then we see that we're going to lose some competitiveness against ownership here. But we still are able to offer here a good deal for our customer.

Rodrigo Tavares Gonçalves de Sousa: When you see B2C, we see that we're going to lose some competitiveness against ownership here, but we still are able to offer here a good deal for our customer. To put that in a summary, in 70% of our business, we see some positive impacts, and in 30% of our business, some negative impacts here. It's important to highlight that that will be a slow transition. What I'm saying, I'm pointing there to 2033 when the tax reform is fully implemented. We're going to have a very long transition phase. Specifically for Seminovos, we have a mechanism that allows us to cope with that, and those impacts are just gradual year over year. For the very short term, we don't expect a major change in that.

Speaker #2: So to put that in a summary, in 70% of our business, we see some positive impacts. And in 30% of our business, some negative impacts here.

Speaker #2: But it's important to highlight that this will be as low a transition, right? What I'm saying is, I'm pointing there to 2033, when the tax reform is fully implemented.

Speaker #2: We're going to have a very long transition phase, and it's specifically for semi-novels. We have a mechanism that allows us to cope with that, and those impacts are just gradual year over year.

Speaker #2: So, for the very short term, we don't expect a major change in that. There will be some changes in how you present your balance sheet, in the credits of fiscal fees, and how you allocate that.

Rodrigo Tavares Gonçalves de Sousa: There will be some changes in how you present your balance sheet, in the credits of PIS/Cofins, how you allocate that. In general, we don't expect a lot of changes. There is a positive, though, that we expect a positive impact on cash generation as well because of the life cycle of the credits of the PIS/Cofins. In the short term here, you may have a positive impact on cash generation. I'm a bit conceptual here, but just want to highlight the main points that we anticipate.

Speaker #2: But in general, we don't expect a lot of changes. There is a positive, though—we expect a positive impact on cash generation as well.

Speaker #2: Because of the life cycle of the credits of the fiscal fees, in the short term here, you may have a positive impact on cash generation.

Speaker #2: So, I'm being a bit conceptual here, but I just want to highlight the main points that we anticipate.

Speaker #7: It does help. Thanks a lot.

Lucas Marquiori: It does help. Thanks a lot.

Speaker #2: Thank you.

Rodrigo Tavares Gonçalves de Sousa: Thank you.

Speaker #3: Our next question comes from Alberto Valerio. We will open the audio so you can ask your question. Please, Alberto, go ahead. Our next question comes from Pedro Bruno.

Nora Lanari: Our next question comes from Alberto Valerio. We will open the audio so you can ask your question. Please Alberto, go ahead. Our next question comes from Pedro Bruno. We will open your audio so you can ask your question. Please, Pedro, go ahead.

Speaker #3: You will open your audio so you can ask your question. Please, Pedro, go ahead.

Speaker #2: Hi. Good morning, everyone. Thanks

Pedro Bruno: Hi, good morning, everyone. Thanks for the space. Two questions on my side. The first one, Rodrigo, you mentioned a lot throughout all the answers, the competitive environment, in the OEM space. My question is on how do you guys separate the competitiveness that we have seen so far to the one that we may see in the future, in the sense that we've seen a clear movement towards the SUVs, which I understand have a lower potential impact to the car rental company's fleet. Whereas now we've been seeing more news towards the more entry-level cars. I know we've discussed you've been recently to China and of course, have been doing lots of studies in the subject. If you can help us understand a little bit how you are looking at the subject. That's the first one. I can make the second one in a second.

Speaker #7: for the space. Two questions on my side. The first one, Rodrigo, you mentioned a lot throughout all the answers the competitive environment in the OEM space.

Speaker #7: My question is, how do you separate the competitiveness that we have seen so far from the competitiveness that we may see in the future? In the sense that we've seen a clear movement towards SUVs.

Speaker #7: Which, I understand, have a lower potential impact on the current company's fleet. Whereas now, we've been seeing more news regarding the more entry-level cars.

Speaker #7: I know we discussed that you've recently been to China and, of course, have been doing lots of studies on the subject. Just if you can help us understand a little bit how you are looking at the subject.

Speaker #7: That's the first one. I can make the second one in a second.

Speaker #2: Okay, thank you, Pedro. Even though they're talking about launching entry-level cars, the difference in price is significant, right? When you look at a very entry-level car in Brazil, we're talking about cars of $60,000, $70,000.

Rodrigo Tavares Gonçalves de Sousa: Okay. Thank you, Pedro. Even though they're talking about launching entry-level cars, the difference in price is significant. When you look at a very entry-level car in Brazil, you're talking about cars of BRL 60,000, BRL 70,000. Even those entry-level cars that they're claiming is more than BRL 100,000. It's not 100% a direct competition. Of course, the segment that we see really this competition intensifying is probably in the small SUVs, that here we start to see some action, but in the very entry level, they still do not have a product to challenge those cars here.

Speaker #2: And even those entry-level cars that they're claiming are more than $100,000, so it's not 100% a direct competition. Of course, the segment where we see this competition really intensifying is probably in the small SUVs.

Speaker #2: Here we start to see some action. But at the very entry level, they still do not have a product to challenge those cars here.

Speaker #2: Okay.

Pedro Bruno: Okay. Perfect. Thank you very much. The other question is on the Fleet Rental side, changing subjects. Question is how comfortable you are now with the current portfolio of Fleet Rental having passed, I guess, the

Speaker #7: Perfect. Thank you very much. And the other question is on the fleet rental side—changing subjects. My question is: how comfortable are you now with the current portfolio?

Speaker #7: Of fleet rental having passed, I guess, let's say, the UNIDAS fleet that you had acquired, and also some exiting—some more, let's say, heavy vehicles exposure and etc.

Pedro Bruno: Let's say the needless fleet that you had acquired and also exiting some more heavy vehicles exposure and et cetera. Also if you can put into the context the segments with the Localiza Meoo, the long term rental for individuals, how you've been incentivizing or not this product most recently. Overall, the question is more on how comfortable and how you would describe the portfolio to date, which is something we have less visibility on given the more longer term, I guess, profile of it.

Speaker #7: And also, if you can put into context the segments with Localiza Mail, the long-term rental for individuals, how you've been incentivizing or not, let's say, this product most recently.

Speaker #7: But overall, the question is more about how comfortable you are and how you would describe the portfolio to date, which is something we have less visibility on given the longer term.

Speaker #7: I guess profile of it.

Speaker #2: Pedro, I really like the quality of the vintages that we're investing in here, right? Since the end of 2024, we started to be more conservative in the way that we allocate our capital.

Rodrigo Tavares Gonçalves de Sousa: Pedro, I like very much the quality of the vintages that we're investing here. Right? Since the end of 2024, we started to be more conservative in the way that we allocate our capital, and we started to change the portfolio. At the time, we had close to 50,000 severe used vehicles, and today we have less than 14,000. When I see the quality of the portfolio, I see the return going up every single month. The assumptions that we embedded when investing that money are proving to be correct, and the quality and the return that we expect for this portfolio are very robust. Okay? In terms of the profitability, today, it doesn't have a large difference between Localiza Meoo and corporate fleet. Both here we have a very strong discipline in the way that we price and the way that we allocate.

Speaker #2: And we started to change the portfolio. At the time, we had close to 50,000 severely used vehicles. And today, we have more than—or less than—14,000.

Speaker #2: But when I look at the quality of the portfolio, I see the return going up every single month. So, the assumptions that we embedded when investing that money are proving to be correct, and the quality and the return that we expect for this portfolio are very robust.

Speaker #2: Okay? In terms of profitability, today, there isn't a large difference between the mail and corporate fleet. So, in both areas, we have very strong discipline in the way that we price and the way that we allocate.

Speaker #2: But if there is one area where we are very comfortable and really like the quality of the investments we have been making for the last two years, it’s the fleet rental.

Rodrigo Tavares Gonçalves de Sousa: If it is one area that we are very comfortable and really like the quality of the investments that we have been making for the last two years, it's the Fleet Rental.

Speaker #7: Perfect. Thank you very much.

Pedro Bruno: Perfect. Thank you very much.

Nora Lanari: To close, I will now hand the floor to Rodrigo Tavares.

Speaker #3: To close, I will now hand the floor to Rodrigo Tavares.

Speaker #2: Thank you all for joining us. Our investor relation team remains available for any further questions. Thank you very much.

Rodrigo Tavares Gonçalves de Sousa: Thank you all for joining us. Our investor relations team remains available for any further questions. Thank you very much.

Nora Lanari: Goodbye

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