UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 6-K

 

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934

 

For the month of November, 2019

___________________

 

Commission File Number: 001-35129

 

Arcos Dorados Holdings Inc.

(Exact name of registrant as specified in its charter)

 

Dr. Luis Bonavita 1294, Office 501

Montevideo, Uruguay, 11300 WTC Free Zone

(Address of principal executive office)

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

 

Form 20-F

X

  Form 40-F  

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

 

Yes     No

X

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

 

Yes     No

X

 

 

 

 

 

 

ARCOS DORADOS HOLDINGS INC.

 

TABLE OF CONTENTS

 

ITEM  
1. Press Release dated November 13, 2019 titled “Arcos Dorados Reports Third Quarter 2019 Financial Results”
   

 

 

 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

    Arcos Dorados Holdings Inc.
     
     
      By: /s/ Juan David Bastidas
        Name: Juan David Bastidas
        Title: Chief Legal Counsel

 

Date: November 13, 2019

 

 

 

 

Item 1

 

 

 

 

FOR IMMEDIATE RELEASE

 

ARCOS DORADOS REPORTS THIRD QUARTER 2019 FINANCIAL RESULTS

 

·Consolidated revenue growth of 3.8% in US dollars, despite depreciation of some local currencies, and 14.1% in constant currency1

 

·Double-digit growth in systemwide comparable sales, above the Company’s blended inflation rate1

 

·10.8% comparable sales expansion in Brazil

 

·Consolidated Adjusted EBITDA margin expansion of 120 basis points, excluding the impact of last year’s one-time tax credit1

 

Montevideo, Uruguay, November 13, 2019 – Arcos Dorados Holdings, Inc. (NYSE: ARCO) (“Arcos Dorados” or the “Company”), Latin America’s largest restaurant chain and the world’s largest independent McDonald’s franchisee, today reported unaudited results for the third quarter ended September 30, 2019.

 

Third Quarter 2019 Highlights – Excluding Venezuela

 

Consolidated revenues totaled $747.6 million, a 3.8% increase in US dollars versus the third quarter of 2018 and despite the depreciation of some local currencies. On a constant currency basis2, consolidated revenues grew 14.1%.

 

Systemwide comparable sales2 rose 12.7% year-over-year and were above blended inflation.

 

Consolidated Adjusted EBITDA2 in US dollars decreased 13.7% year-over-year to $76.1 million, mainly as a result of a one-time tax credit of $23.2 million recorded in the same period of last year. On a constant currency basis, Adjusted EBITDA decreased 8.1%. When excluding the tax credit, Adjusted EBITDA increased 17.1% and 24.8% in US dollars and constant currency terms, respectively.

 

Consolidated Adjusted EBITDA margin contracted 210 basis points year-over-year to 10.2%. Excluding last year’s tax credit, the Adjusted EBITDA margin expanded 120 basis points.

 

General and Administrative (G&A) expenses increased 2.6% in US dollars versus the year-ago quarter and were down 10 basis points as a percentage of revenue.

 

Net income in US dollars decreased 39.6% to $25.8 million, from $42.7 million, mainly due to last year’s one-time tax credit.

________________

 

1 Excluding Venezuela

 

2 For definitions please refer to page 13 of this document

 

 

 

 

“In light of the largely weak economic conditions in many of our markets, our strong revenue and margin performance validate once again the investments we continue making under our three-pillar strategy to drive profitable growth and extend our leadership position in Brazil and other markets. A combination of guest, volume and check growth accelerated comparable sales again and at a rate still above blended inflation.

 

In Brazil, our largest market, we captured additional market share and continued outperforming our sector achieving 11% comparable sales growth, while in Mexico we delivered our tenth consecutive quarter of revenue growth, also above inflation. Given the operating leverage we have achieved with a leaner cost structure, the quarter’s robust top line growth drove our consolidated margin 120 basis points higher, excluding the tax benefit.

 

With the significant sales lift that our EOTF restaurants continue generating, we are extending this format to six new markets, ending the year in 10 countries. Downloads of our mobile app nearly doubled last year’s level. Our popular app is a direct customer channel for marketing communications and promotions, many of which helped drive traffic in the quarter and now represents an increasingly valuable strategic asset for the company.

 

Operating as the most sustainable and socially responsible restaurant company in Latin America and the Caribbean is another way that our market-leading brand stands apart. Whether it’s offering more balanced and nutritious Happy Meals, serving cage-free eggs or eliminating plastic waste, we are making our brand more relevant to consumers who increasingly chose products and services offered by companies that respect the environment and benefit the communities where they operate,” said Marcelo Rabach, Chief Executive Officer of Arcos Dorados.

 

2 

 

 

Third Quarter 2019 Results

 

Consolidated

 

Figure 1. AD Holdings Inc Consolidated: Key Financial Results

(In millions of U.S. dollars, except as noted)

 

  3Q18
(a)
Currency Translation - Excl. Venezuela
(b)
Constant
Currency
Growth - Excl. Venezuela
(c)
Venezuela
(d)
3Q19
(a+b+c+d)
% As Reported
Total Restaurants (Units) 2,195       2,239  
             
Sales by Company-operated Restaurants 691.3 (72.4) 95.8 (1.5) 713.2 3.2%
Revenues from franchised restaurants 33.1 (1.9) 5.7 (0.1) 36.8 11.1%
Total Revenues 724.4 (74.3) 101.5 (1.6) 750.0 3.5%
             
Adjusted EBITDA 87.9 (5.0) (7.1) (0.8) 75.0 -14.7%
Adjusted EBITDA Margin 12.1%       10.0%  
Net income (loss) attributable to AD 26.0              (7.9) (9.0) 15.3 24.4 -6.4%
No. of shares outstanding (thousands) 208,628       204,069  
EPS (US$/Share) 0.12       0.12  

 

(3Q19 = 3Q18 + Currency Translation Excl. Venezuela + Constant Currency Growth Excl. Venezuela + Venezuela). Refer to “Definitions” section for further detail.

 

Arcos Dorados’ consolidated results continue to be impacted by Venezuela’s macroeconomic volatility, including the ongoing hyperinflationary environment and the country’s heavily regulated currency. As such, reported results may contain significant non-cash accounting charges to operations in this market. Accordingly, the discussion of the Company’s operating performance is focused on consolidated results that exclude Venezuela.

 

Main variations in other operating income (expenses), net

 

Included in Adjusted EBITDA: In the third quarter of 2018, Arcos Dorados had recorded one-time

 

income of $23.2 million, mostly related to a one-time tax credit in the Brazil division.

 

Excluded from Adjusted EBITDA: In the third quarter of 2018, the Company had recorded an

 

impairment charge of $11.1 million related to its operations in Venezuela.

 

Third quarter net income attributable to the Company totaled $24.4 million, compared to net income of $26.0 million in the same period of 2018. Arcos Dorados’ reported earnings per share of $0.12 in the third quarter of 2019 was equal to that reported in the previous corresponding period. Primarily as a result of share repurchases of 7,993,602, total weighted average shares for the third quarter of 2019 decreased to 204,069,355 from 208,628,186 in the prior-year quarter.

 

3 

 

 

Consolidated – excluding Venezuela

 

Figure 2. AD Holdings Inc Consolidated - Excluding Venezuela: Key Financial Results

(In millions of U.S. dollars, except as noted)

 

  3Q18
(a)
Currency Translation
(b)
Constant
Currency
Growth
(c)
3Q19
(a+b+c)
% US Dollars % Constant Currency
Total Restaurants (Units) 2,067     2,119    
             
Sales by Company-operated Restaurants 687.7 (72.4) 95.8 711.1 3.4% 13.9%
Revenues from franchised restaurants 32.6 (1.9) 5.7 36.5 11.7% 17.5%
Total Revenues 720.3 (74.3) 101.5 747.6 3.8% 14.1%
Systemwide Comparable Sales           12.7%
Adjusted EBITDA 88.2 (5.0) (7.1) 76.1 -13.7% -8.1%
Adjusted EBITDA Margin 12.3%     10.2%    
Net income (loss) attributable to AD 42.7 (7.9) (9.0) 25.8 -39.6% -21.1%
No. of shares outstanding (thousands) 208,628     204,069    
EPS (US$/Share) 0.20     0.13    

 

Excluding Arcos Dorados’ Venezuelan operation, revenues in US dollars increased 3.8% year-over-year, as strong constant currency growth of 14.1% exceeded a negative currency translation impact that mainly resulted from the 36% year-over-year average depreciation of the Argentine peso against the US dollar. Constant currency revenue growth was supported by a 12.7% increase in systemwide comparable sales, with strong sales growth in Brazil, Mexico, Chile, Ecuador, Peru, and the French West Indies. Comparable sales, which were above Arcos Dorados’ blended inflation rate for the quarter, were driven by average check growth as well as the Company’s promotional strategy and appealing menus across the region, which helped boost traffic growth. The delivery business and the ongoing roll-out of EOTF continued to support incremental volume.

 

4 

 

 

Adjusted EBITDA ($ million)

 

Breakdown of main variations contributing to 3Q19 Adjusted EBITDA

 

 

Third quarter consolidated Adjusted EBITDA, excluding Venezuela, decreased 13.7% in US dollars, and 8.1% in constant currency terms, mainly as a result of the one-time tax credit of $23.2 million in Brazil, which was recorded in the third quarter of last year. Excluding this tax credit, Adjusted EBITDA would have increased 17.1% and 24.8% in US dollars and constant currency terms, respectively. The Adjusted EBITDA margin contracted 210 basis points to 10.2%, with margin expansions in SLAD and NOLAD, and margin contractions in Brazil and the Caribbean. However, excluding last year’s tax credit, the consolidated Adjusted EBITDA margin would have expanded 120 basis points. Arcos Dorados’ ongoing focus on top-line growth helped leverage efficiencies in Payroll costs and other cost line items, partially offset by higher F&P costs, as a percentage of sales, which stemmed from the Company’s promotional strategy to drive traffic.

 

Consolidated G&A increased 2.6% year-over-year in US dollars and were down 10 basis points as a percentage of revenues. On a constant currency basis, G&A increased 15.9%.

 

Non-operating Results

 

Arcos Dorados’ non-operating results for the third quarter, excluding Venezuela, contain a $4.9 million non-cash foreign currency exchange gain, versus a non-cash gain of $10.5 million in 2018. Net interest expense was $0.3 million higher year-over-year.

 

Excluding Venezuela, income tax expenses totaled $10.4 million in the third quarter, compared to income tax expenses of $21.4 million in the prior-year period.

 

Third quarter net income attributable to the Company, excluding Venezuela, totaled $25.8 million, compared to net income of $42.7 million in the same period of 2018. Lower income tax expenses were more than offset by a lower foreign currency exchange gain and lower operating income, which in 2018 included the aforementioned tax credit. As a result, the Company reported earnings per share of $0.13 in the third quarter of 2019, excluding Venezuela, compared to earnings per share of $0.20 in the previous corresponding period.

 

5 

 

 

Analysis by Division:

 

Brazil Division

 

Figure 3. Brazil Division: Key Financial Results

(In millions of U.S. dollars, except as noted)

 

  3Q18
(a)
Currency Translation
(b)
Constant
Currency
Growth
(c)
3Q19
(a+b+c)
% As Reported % Constant Currency
Total Restaurants (Units) 939     984    
             
Total Revenues 310.1 (2.1) 38.2 346.2 11.6% 12.3%
Systemwide Comparable Sales           10.8%
Adjusted EBITDA 67.5 (0.2) (9.8) 57.5 -14.9% -14.5%
Adjusted EBITDA Margin 21.8%     16.6% -23.7%  

 

Brazil division as reported revenues increased 11.6%, as strong constant currency growth of 12.3% was only partially offset by a mild negative currency translation impact. Constant currency growth was supported by systemwide comparable sales of 10.8%, well above the country’s inflation and growth in the QSR sector, driven by both average check and traffic growth. The strong performance in comparable sales continued to be driven by the effective execution of a consistent strategy that combines appealing menus, engaging marketing initiatives, EOTF, Cooltura de Servicio and the Delivery business.

 

Marketing initiatives during the second quarter continued to focus on driving top-line growth and delivered strong traffic. These activities included the continuation of the Bacon Smokehouse premium burger in the Signature collection. Boosted by our leading app in the Brazilian food segment, we recently executed the most successful social media ad campaign to date, generating more than 86 million impressions. This is a clear example of how our marketing strategy is capturing the reach offered by digital platforms.

 

The delivery business continues to grow through better offerings, improved operations and by continuing the strategy of working with all the major food aggregators in the country. This allows customers to choose their preferred options for ordering their favorite McDonald’s products. Finally, the McDonald’s app continues driving traffic through compelling offers and promotions. The Company has begun to tailor these to specific customer segments based on their preferences, thus improving efficiency and making the promotion or offer more relevant.

 

As reported Adjusted EBITDA decreased 14.9% year-over-year and 14.5% on a constant currency basis, mainly as a result of the aforementioned tax credit recorded in the third quarter of last year. The Adjusted EBITDA margin contracted from 21.8% to 16.6%. Excluding the one-time tax credit, Brazil’s Adjusted EBITDA margin would have expanded 230 basis points, a combination of sales growth and efficiencies in Payroll costs, Occupancy and Other operating expenses, G&A and other operating income, partially offset by higher F&P costs.

 

6 

 

 

NOLAD

 

Figure 4. NOLAD Division: Key Financial Results

(In millions of U.S. dollars, except as noted)

 

  3Q18
(a)
Currency Translation
(b)
Constant
Currency
Growth
(c)
3Q19
(a+b+c)
% As Reported % Constant Currency
Total Restaurants (Units) 521     525    
             
Total Revenues 106.1 (1.4) 5.3 110.0 3.7% 5.0%
Systemwide Comparable Sales           3.8%
Adjusted EBITDA 8.8 (0.1) 2.0 10.7 22.4% 23.4%
Adjusted EBITDA Margin 8.3%     9.8% 18.0%  

 

NOLAD’s as reported revenues increased 3.7%, as constant currency growth of 5.0% more than offset a negative currency translation impact stemming from the year-over-year average depreciation of the Mexican peso against the US dollar. The division’s systemwide comparable sales increased above blended inflation at 3.8%, driven by traffic and average check growth, with strong performances in Mexico and Panama. In Mexico, the combination of successful marketing initiatives, built around the affordability and core segments, together with superior execution, drove sales growth.

 

In NOLAD, the Company continued executing marketing activities focused on increasing sales and guest counts. The affordability platform and the dessert category continued to perform well in Mexico and were key drivers for traffic growth during the quarter. Also, the Company executed innovative marketing campaigns around core products such as Big Mac and Chicken McNuggets that translated into double digit growth in these products.

 

The Company is continuing to improve guest experience in its restaurants. This now includes the roll out of upgraded high speed WiFi service, which is now one of the fastest in the industry. This upgrade gives customers a better dining experience, increases their visit frequency and gives us the opportunity to interact with them digitally. Lastly, the delivery business was also an important contributor to strong top-line growth during the quarter.

 

As reported Adjusted EBITDA for the division increased 22.4%, or 23.4% on a constant currency basis. The Adjusted EBITDA margin expanded 150 basis points to 9.8%, mainly due to the refranchising of some restaurants in Mexico. Excluding refranchising, the Adjusted EBITDA margin remained flat, with higher Delivery fees and IT services being offset by efficiencies in F&P costs.

 

7 

 

 

SLAD

 

Figure 5. SLAD Division: Key Financial Results

(In millions of U.S. dollars, except as noted)

 

  3Q18
(a)
Currency Translation
(b)
Constant
Currency
Growth
(c)
3Q19
(a+b+c)
% As Reported % Constant Currency
Total Restaurants (Units) 390     395    
             
Total Revenues 201.4 (66.1) 60.0 195.3 -3.0% 29.8%
Systemwide Comparable Sales           28.9%
Adjusted EBITDA 17.3 (8.0) 9.6 18.9 9.0% 55.3%
Adjusted EBITDA Margin 8.6%     9.7% 12.4%  

 

SLAD’s as reported revenues decreased 3.0%, as constant currency growth of 29.8% was more than offset by a negative currency impact resulting from the 36% year-over-year average depreciation of the Argentine peso against the US dollar. The division’s systemwide comparable sales increased 28.9%, driven by average check growth, and by strong performances in Chile, Ecuador, Peru and Uruguay.

 

As part of the Company’s strategy, promotional activity continued, including digital offerings through the McDonald’s app, as well as appealing promotions in the breakfast daypart. Today, the McDonald’s app is the undisputed industry leader in Argentina. The division’s marketing activities also included new product launches in both the affordability and premium platforms. During the quarter, the Company extended the Signature collection into the dessert category in Argentina and Uruguay.

 

Adjusted EBITDA increased 9.0% on an as reported basis and rose 55.3% in constant currency terms. The Adjusted EBITDA margin expanded 110 basis points to 9.7%, mainly due to efficiencies in Payroll costs resulting from average check growth above an increase in the crew hourly rate and from higher productivity.

 

8 

 

 

Caribbean Division

 

Figure 6. Caribbean Division: Key Financial Results

(In millions of U.S. dollars, except as noted)

 

  3Q18
(a)
Currency Translation - Excl. Venezuela
(b)
Constant
Currency
Growth - Excl. Venezuela
(c)
Venezuela
(d)
3Q19
(a+b+c+d)
% As Reported
Total Restaurants (Units) 345       335  
             
Total Revenues 106.7 (4.6) (2.0) (1.6) 98.5 -7.8%
             
Adjusted EBITDA 6.6 (0.2) (1.8) (0.8) 3.8 -42.9%
Adjusted EBITDA Margin 6.2%       3.8% -38.0%

 

The Caribbean division’s results continue to be impacted by Venezuela’s macroeconomic volatility, including the ongoing hyperinflationary environment and the country’s heavily regulated currency. As such, reported results may contain significant non-cash accounting charges to operations in this market. Due to the distortive effects that the Venezuelan operations represent, the discussion of the Caribbean division’s operating performance is focused on results that exclude the Company’s operations in this country.

 

Caribbean Division – excluding Venezuela

 

Figure 7. Caribbean Division - Excluding Venezuela: Key Financial Results

(In millions of U.S. dollars, except as noted)

 

  3Q18
(a)
Currency Translation
(b)
Constant
Currency
Growth
(c)
3Q19
(a+b+c)
% US Dollars % Constant Currency
Total Restaurants (Units) 217     215    
             
Total Revenues 102.7 (4.6) (2.0) 96.1 -6.4% -2.0%
Systemwide Comparable Sales           -1.5%
Adjusted EBITDA 7.0 (0.2) (1.8) 4.9 -29.1% -25.6%
Adjusted EBITDA Margin 6.8%     5.1% -24.2%  

 

Revenues in the Caribbean division, excluding Venezuela, decreased 6.4% in US dollars and 2.0% in constant currency terms. Revenues in US dollars were mainly impacted by the 13% year-over-year average depreciation of the Colombian peso against the US dollar and the tax reform measures in Colombia, effective July 1, 2019. Under this new reform, sales are subject to the VAT regime of 19% instead of the consumption tax regime of 8%.

 

Comparable sales declined 1.5%, with traffic pressure in Colombia and Puerto Rico.

 

9 

 

 

During the quarter, the division’s marketing activities included top tier licensees for the Happy Meal and the launch of the McFlurry & Shakes Selva Negra in the dessert category, among others. The Signature collection performed well with the introduction of the Egg & Bacon premium burger.

 

Adjusted EBITDA totaled $4.9 million, compared to $7.0 million in the same period of 2018. The Adjusted EBITDA margin contracted 170 basis points to 5.1%, mainly due to the impact of the depreciation of the Colombian peso in both sales and dollar linked F&P costs. In addition, in the prior year quarter, we recorded a recovery related to hurricanes in Puerto Rico.

 

New Unit Development

 

Figure 8. Total Restaurants (eop)*          
  September
2019
June
2019
March
2019
December
2018
September
2018
Brazil 984 975 968 968 939
NOLAD 525 525 526 524 521
SLAD 395 393 394 394 390
Caribbean 335 336 337 337 345
TOTAL 2,239 2,229 2,225 2,223 2,195

 

* Considers Company-operated and franchised restaurants at period-end

 

Figure 9. Current Footprint            
  Store Type* Ownership McCafes Dessert Centers
  FS & IS MS & FC Company Operated Franchised    
Brazil 528 456 587 397 79 1,934
NOLAD 323 202 354 171 13 632
SLAD 233 162 346 49 129 379
Caribbean 260 75 250 85 37 323
TOTAL 1,344 895 1,537 702 258 3,268

 

* FS: Free-Standing; IS: In-Store; MS: Mall Store; FC: Food Court.

 

The Company opened 70 new restaurants during the twelve-month period ended September 30, 2019, resulting in a total of 2,239 restaurants. Also during the period, the Company added 384 Dessert Centers, bringing the total to 3,268 units. McCafés totaled 258 units at the end of the third quarter.

 

10 

 

 

Balance Sheet & Cash Flow Highlights

 

Cash and cash equivalents were $126.7 million at September 30, 2019. The Company’s total financial debt (including derivative instruments) was $571.4 million. Net debt (Total Financial Debt minus Cash and cash equivalents) was $444.8 million, while the Net Debt/Adjusted EBITDA ratio was 1.6x at the end of the reporting period.

 

Figure 10. Consolidated Financial Ratios
(In thousands of U.S. dollars, except ratios)
   
  September 30 December 31
  2019 2018
Cash & cash equivalents (i) 126,677 197,282
Total Financial Debt (ii) 571,430 589,760
Net Financial Debt (iii) 444,753 392,478
Total Financial Debt / LTM Adjusted EBITDA ratio 2.1 2.3
Net Financial Debt / LTM Adjusted EBITDA ratio 1.6 1.5

 

(i) Cash & cash equivalents includes Short-term investment

(ii)Total financial debt includes long-term debt and derivative instruments (including the asset portion of derivatives amounting to $66.4 million and $54.7 million as a reduction of financial debt as of September 30, 2019 and December 31, 2018, respectively).

(iii) Total financial debt less cash and cash equivalents.    

 

Net cash provided by operating activities totaled $77.1 million in the third quarter, while cash used in net investing activities totaled $71.0 million, which included capital expenditures of $73.5 million, compared to $55.9 million in the previous year’s quarter. Cash used in financing activities was $7.5 million, which included $6.1 million of dividend payments.

 

Nine Months ended September 30, 2019

 

Excluding the Venezuelan operation and for the nine months ended September 30, 2019, the Company’s revenues, in US dollars, decreased 2.7% to $2.2 billion, as constant currency growth of 13.9% was offset by negative currency translation. Adjusted EBITDA was $194.5 million, a 5.2% decrease compared to the same period of 2018, in US dollars. On a constant currency basis, Adjusted EBITDA increased 4.7%. The Adjusted EBITDA margin contracted 20 basis points to 8.9%, mainly as a result of the aforementioned one-time tax credit recorded in the third quarter of last year.

 

Year-to-date consolidated net income was $46.9 million, compared with net income of $27.6 million in the same period of 2018. The Company reported earnings per share of $0.23, compared to earnings per share of $0.13 in the previous corresponding period. Excluding Venezuela, consolidated net income was $51.3 million, compared with net income of $66.9 million in the same period of 2018, and earnings per share was $0.25, compared to earnings per share of $0.32 in the previous corresponding period. During the nine months ended September 30, 2019, capital expenditures totaled $167.1 million.

 

11 

 

 

Quarter Highlights & Recent Developments

 

Appointment of new Board Member

 

The Board of Directors of Arcos Dorados Holdings, Inc. appointed Cristina Palmaka to the Board as an independent director, effective November 12, 2019. Ms. Palmaka is an Accounting graduate of Fundação Álvares Penteado (Brazil) and received her MBA from Fundação Getúlio Vargas (Brazil). She also holds a master’s degree in International Business & Marketing from the University of Texas (U.S.) and has been the Managing Director & President of SAP Brazil since October 2013. Ms. Palmaka was nominated as one of the best CEOs in Brazil, by Forbes Magazine.

 

Continued Expansion of Scale for Good Initiatives

 

Arcos Dorados continues delivering on its commitment to contribute toward a better planet. Recently, the Company announced important initiatives and milestones that reinforce its Scale for Good program, which is aligned with the McDonald’s system’s 2030 global goals of minimizing the environmental impact of restaurant operations and building a more sustainable supply chain.

 

On October 22, 2019, Arcos Dorados announced that its initiative to reduce plastic straws from 2,200 locations throughout Latin America had eliminated 200 tons of single-use plastic waste. This ongoing sustainability initiative is an integral part of Arcos Dorados’ alignment with the McDonald’s system as well as the United Nations Environment Programme (UNEP), which also seeks to minimize the use of disposable plastic products globally.

 

Arcos Dorados also recently announced that it has begun sourcing eggs from farmers with cage-free hens in Brazil, reinforcing the Company’s commitment to improving animal welfare and bringing it closer to serving 100% cage-free eggs by 2025.

 

 

Investor Relations Contact

Patricio Iñaki Esnaola

Director of Investor Relations

Arcos Dorados

patricio.esnaola@ar.mcd.com

+54 11 4711 2561

www.arcosdorados.com/ir

Media Contact

InspIR Group

Barbara Cano

barbara@inspirgroup.com

+1 646 452 2334

 

 

12 

 

 

Definitions:

 

Systemwide comparable sales growth: refers to the change, measured in constant currency, in our Company-operated and franchised restaurant sales in one period from a comparable period for restaurants that have been open for thirteen months or longer. While sales by our franchisees are not recorded as revenues by us, we believe the information is important in understanding our financial performance because these sales are the basis on which we calculate and record franchised revenues and are indicative of the financial health of our franchisee base.

 

Constant currency basis: refers to amounts calculated using the same exchange rate over the periods under comparison to remove the effects of currency fluctuations from this trend analysis. To better discern underlying business trends, this release uses non-GAAP financial measures that segregate year-over-year growth into two categories: (i) currency translation, (ii) constant currency growth. (i) Currency translation reflects the impact on growth of the appreciation or depreciation of the local currencies in which we conduct our business against the US dollar (the currency in which our financial statements are prepared). (ii) Constant currency growth reflects the underlying growth of the business excluding the effect from currency translation.

 

Excluding Venezuela basis: due to the ongoing political and macroeconomic uncertainty prevailing in Venezuela, and in order to provide greater clarity and visibility on the Company’s financial and operating overall performance, this release focuses on the results on an “Excluding-Venezuela” basis, which is non-GAAP measure.

 

Adjusted EBITDA: In addition to financial measures prepared in accordance with the general accepted accounting principles (GAAP), within this press release and the accompanying tables, we use a non-GAAP financial measure titled ‘Adjusted EBITDA’. We use Adjusted EBITDA to facilitate operating performance comparisons from period to period.

 

Adjusted EBITDA is defined as our operating income plus depreciation and amortization plus/minus the following losses/gains included within other operating income (expenses), net, and within general and administrative expenses in our statement of income: gains from sale or insurance recovery of property and equipment; write-offs of property and equipment; impairment of long-lived assets and goodwill; and incremental compensation related to the modification of our 2008 long-term incentive plan.

 

We believe Adjusted EBITDA facilitates company-to-company operating performance comparisons by backing out potential differences caused by variations such as capital structures (affecting net interest expense and other financial charges), taxation (affecting income tax expense) and the age and book depreciation of facilities and equipment (affecting relative depreciation expense), which may vary for different companies for reasons unrelated to operating performance. Figure 10 of this earnings release include a reconciliation for Adjusted EBITDA. For more information, please see Adjusted EBITDA reconciliation in Note 9 of our quarterly financial statements (6-K Form) filed today with the S.E.C.

 

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About Arcos Dorados

 

Arcos Dorados is the world’s largest independent McDonald’s franchisee in terms of systemwide sales and number of restaurants, operating the largest quick service restaurant chain in Latin America and the Caribbean. It has the exclusive right to own, operate and grant franchises of McDonald’s restaurants in 20 Latin American and Caribbean countries and territories, including Argentina, Aruba, Brazil, Chile, Colombia, Costa Rica, Curaçao, Ecuador, French Guyana, Guadeloupe, Martinique, Mexico, Panama, Peru, Puerto Rico, St. Croix, St. Thomas, Trinidad & Tobago, Uruguay and Venezuela. The Company operates or franchises over 2,200 McDonald’s-branded restaurants with over 90,000 employees and is recognized as one of the best companies to work for in Latin America. Arcos Dorados is traded on the New York Stock Exchange (NYSE: ARCO). To learn more about the Company, please visit the Investors section of our website: www.arcosdorados.com/ir

 

Cautionary Statement on Forward-Looking Statements

 

This press release contains forward-looking statements. The forward-looking statements contained herein include statements about the Company’s business prospects, its ability to attract customers, its affordable platform, its expectation for revenue generation and its outlook and guidance for 2018. These statements are subject to the general risks inherent in Arcos Dorados' business. These expectations may or may not be realized. Some of these expectations may be based upon assumptions or judgments that prove to be incorrect. In addition, Arcos Dorados' business and operations involve numerous risks and uncertainties, many of which are beyond the control of Arcos Dorados, which could result in Arcos Dorados' expectations not being realized or otherwise materially affect the financial condition, results of operations and cash flows of Arcos Dorados. Additional information relating to the uncertainties affecting Arcos Dorados' business is contained in its filings with the Securities and Exchange Commission. The forward-looking statements are made only as of the date hereof, and Arcos Dorados does not undertake any obligation to (and expressly disclaims any obligation to) update any forward-looking statements to reflect events or circumstances after the date such statements were made, or to reflect the occurrence of unanticipated events.

 

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Third Quarter 2019 Consolidated Results

(In thousands of U.S. dollars, except per share data)

 

Figure 11. Third Quarter 2019 Consolidated Results
(In thousands of U.S. dollars, except per share data)
         
    For Three-Months ended     For Nine-Months ended
    September 30,     September 30,
    2019   2018     2019   2018
REVENUES                  
Sales by Company-operated restaurants   713,207   691,270     2,096,987   2,216,785
Revenues from franchised restaurants   36,762   33,102     107,725   111,444
Total Revenues   749,969   724,372     2,204,712   2,328,229
OPERATING COSTS AND EXPENSES                  
Company-operated restaurant expenses:                  
Food and paper   (256,189)   (245,141)     (751,807)   (779,977)
Payroll and employee benefits   (142,474)   (141,439)     (427,289)   (470,703)
Occupancy and other operating expenses   (201,407)   (190,964)     (598,552)   (607,509)
Royalty fees   (38,656)   (37,851)     (116,419)   (118,625)
Franchised restaurants - occupancy expenses   (17,793)   (15,382)     (53,501)   (50,324)
General and administrative expenses   (51,354)   (50,155)     (157,214)   (167,073)
Other operating (expenses) income, net   149   9,959     (619)   (49,415)
Total operating costs and expenses   (707,724)   (670,973)     (2,105,401)   (2,243,626)
Operating income   42,245   53,399     99,311   84,603
Net interest expense   (12,524)   (12,229)     (38,200)   (39,326)
Gain (loss) from derivative instruments   2,219   140     1,789   (191)
Foreign currency exchange results   4,467   10,523     10,115   15,651
Other non-operating expenses, net   (2,216)   53     (2,313)   (9)
Income before income taxes   34,191   51,886     70,702   60,728
Income tax expense   (9,793)   (25,805)     (23,650)   (32,978)
Net income   24,398   26,081     47,052   27,750
Net income attributable to non-controlling interests   (46)   (55)     (115)   (140)
Net income attributable to Arcos Dorados Holdings Inc.   24,352   26,026     46,937   27,610
Earnings per share information ($ per share):                  
Basic net income per common share   0.12   0.12   $ 0.23 $ 0.13
Weighted-average number of common shares outstanding-Basic   204,069,355   208,628,186     203,981,893   210,084,482
Adjusted EBITDA Reconciliation                  
Operating income   42,245   53,399     99,311   84,603
Depreciation and amortization   30,400   25,195     89,670   77,285
Operating charges excluded from EBITDA computation   2,320   9,293     2,420   10,009
Adjusted EBITDA   74,965   87,887     191,400   171,897
Adjusted EBITDA Margin as % of total revenues   10.0%   12.1%     8.7%   7.4%

 

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Third Quarter 2019 Consolidated Results – Excluding Venezuela

(In thousands of U.S. dollars, except per share data)

 

Figure 12. Third Quarter 2019 Consolidated Results - Excluding Venezuela
(In thousands of U.S. dollars, except per share data)

 

  For Three-Months ended   For Nine-Months ended
  September 30,   September 30,
    2019   2018     2019   2018
REVENUES                  
Sales by Company-operated restaurants   711,138   687,679     2,089,841   2,153,929
Revenues from franchised restaurants   36,462   32,628     106,726   103,667
Total Revenues   747,600   720,307     2,196,567   2,257,596
OPERATING COSTS AND EXPENSES                  
Company-operated restaurant expenses:                  
Food and paper   (255,817)   (244,453)     (751,182)   (754,869)
Payroll and employee benefits   (142,269)   (141,262)     (426,516)   (466,599)
Occupancy and other operating expenses   (200,257)   (189,279)     (594,949)   (591,609)
Royalty fees   (38,656)   (37,897)     (116,419)   (120,087)
Franchised restaurants - occupancy expenses   (17,673)   (15,194)     (53,133)   (48,123)
General and administrative expenses   (50,379)   (49,115)     (153,991)   (162,607)
Other operating (expenses) income, net   1,281   22,567     3,304   19,787
Total operating costs and expenses   (703,770)   (654,633)     (2,092,886)   (2,124,107)
Operating income   43,830   65,674     103,681   133,489
Net interest expense   (12,524)   (12,240)     (38,200)   (39,306)
Gain (loss) from derivative instruments   2,219   140     1,789   (191)
Foreign currency exchange results   4,857   10,521     10,640   9,451
Other non-operating expenses, net   (2,217)   53     (2,313)   (11)
Income before income taxes   36,165   64,148     75,597   103,432
Income tax expense   (10,367)   (21,437)     (24,214)   (36,367)
Net income   25,798   42,711     51,383   67,065
Net income attributable to non-controlling interests   (46)   (55)     (115)   (140)
Net income attributable to Arcos Dorados Holdings Inc.   25,752   42,656     51,268   66,925
Earnings per share information ($ per share):                  
Basic net income per common share $ 0.13 $ 0.20   $ 0.25 $ 0.32
Weighted-average number of common shares outstanding-Basic   204,069,355   208,628,186     203,981,893   210,084,482
Adjusted EBITDA Reconciliation                  
Operating income   43,830   65,674     103,681   133,489
Depreciation and amortization   29,977   24,047     88,383   73,370
Operating charges excluded from EBITDA computation   2,319   (1,479)     2,420   (1,770)
Adjusted EBITDA   76,126   88,242     194,484   205,089
Adjusted EBITDA Margin as % of total revenues   10.2%   12.3%     8.9%   9.1%

 

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Third Quarter 2019 Results by Division

(In thousands of U.S. dollars)

 

Figure 13. Third Quarter 2019 Consolidated Results by Division
(In thousands of U.S. dollars)
  3Q   YTD
  Three-Months ended % Incr. Constant   Nine-Months ended % Incr. Constant
  September 30, / Currency   September 30, / Currency
  2019 2018 (Decr) Incr/(Decr)%   2019 2018 (Decr) Incr/(Decr)%
Revenues                  
Brazil 346,201 310,129 11.6% 12.3%   1,016,263 991,785 2.5% 11.2%
Caribbean 98,463 106,747       297,923 375,190    
Caribbean - Excl. Venezuela 96,094 102,682 -6.4% -2.0%   289,778 304,557 -4.9% 0.0%
NOLAD 110,027 106,122 3.7% 5.0%   316,828 302,282 4.8% 6.6%
SLAD 195,278 201,374 -3.0% 29.8%   573,698 658,972 -12.9% 27.7%
TOTAL 749,969 724,372       2,204,712 2,328,229    
TOTAL - Excl. Venezuela 747,600 720,307 3.8% 14.1%   2,196,567 2,257,596 -2.7% 13.9%
                   
                   
Operating Income (loss)                  
Brazil 41,631 54,740 -24.0% -23.7%   102,210 111,726 -8.5% -1.5%
Caribbean (767) (8,804)       (2,105) (43,693)    
Caribbean - Excl. Venezuela 816 3,471 -76.6% -75.5%   2,265 5,193 -56.4% -51.5%
NOLAD 5,514 3,762 46.7% 47.7%   10,610 7,715 37.6% 40.7%
SLAD 11,410 13,793 -17.3% 54.2%   32,310 43,800 -26.2% 30.4%
Corporate and Other (15,543) (10,092) -54.0% -93.9%   (43,714) (34,945) -25.2% -80.5%
TOTAL 42,245 53,399       99,311 84,603    
TOTAL - Excl. Venezuela 43,828 65,674 -33.3% -24.1%   103,681 133,489 -22.3% -12.0%
                   
                   
Adjusted EBITDA                  
Brazil 57,480 67,508 -14.9% -14.5%   148,582 150,736 -1.4% 6.3%
Caribbean 3,771 6,599       11,911 (15,508)    
Caribbean - Excl. Venezuela 4,932 6,954 -29.1% -25.6%   14,995 17,684 -15.2% -10.1%
NOLAD 10,731 8,774 22.3% 23.4%   26,482 23,319 13.6% 15.7%
SLAD 18,887 17,328 9.0% 55.3%   49,152 57,112 -13.9% 28.8%
Corporate and Other (15,904) (12,322) -29.1% -58.2%   (44,727) (43,762) -2.2% -41.6%
TOTAL 74,965 87,887       191,400 171,897    
TOTAL - Excl. Venezuela 76,126 88,242 -13.7% -8.1%   194,484 205,089 -5.2% 4.7%

 

 

Figure 14. Average Exchange Rate per Quarter*
  Brazil Mexico Argentina
3Q19 3.97 19.44 50.40
3Q18 3.95 18.94 32.05

 

* Local $ per 1 US$

 

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Summarized Consolidated Balance Sheets

(In thousands of U.S. dollars)

 

Figure 15. Summarized Consolidated Balance Sheets
(In thousands of U.S. dollars)
  September 30 December 31
  2019 2018
ASSETS  
Current assets    
Cash and cash equivalents 126,677 197,282
Accounts and notes receivable, net 67,033 84,287
Other current assets (1) 166,328 182,993
Total current assets 360,038 464,562
Non-current assets    
Property and equipment, net 884,458 856,192
Net intangible assets and goodwill 38,728 41,021
Deferred income taxes 57,824 58,334
Derivative instruments 66,433 54,735
Leases right of use assets 804,471
Other non-current assets (2) 100,468 103,195
Total non-current assets 1,952,382 1,113,477
Total assets 2,312,420 1,578,039
LIABILITIES AND EQUITY    
Current liabilities    
Accounts payable 217,264 242,455
Taxes payable (3) 94,516 114,849
Accrued payroll and other liabilities 92,151 94,166
Other current liabilities (4) 20,721 24,527
Provision for contingencies 2,118 2,436
Financial debt (5) 12,099 14,879
Leases operating liabilities 56,354
Total current liabilities 495,223 493,312
Non-current liabilities    
Accrued payroll and other liabilities   20,195 35,322
Provision for contingencies 30,174 26,073
Financial debt (6) 625,764 629,616
Deferred income taxes 2,004 957
Leases operating liabilities 765,407
Total non-current liabilities 1,443,544 691,968
Total liabilities 1,938,767 1,185,280
Equity    
Class A shares of common stock 383,198 379,845
Class B shares of common stock 132,915 132,915
Additional paid-in capital 12,793 14,850
Retained earnings 437,438 413,074
Accumulated other comprehensive losses (533,026)  (502,266) 
Common stock in treasury (60,000)  (46,035) 
Total Arcos Dorados Holdings Inc shareholders’ equity 373,318 392,383
Non-controlling interest in subsidiaries 335 376
Total equity 373,653 392,759
Total liabilities and equity 2,312,420 1,578,039

 

(1) Includes "Other receivables", "Inventories", "Prepaid expenses and other current assets", and "McDonald's Corporation's indemnification for contingencies".

(2) Includes "Miscellaneous", "Collateral deposits", and "McDonald´s Corporation indemnification for contingencies".

(3) Includes "Income taxes payable" and "Other taxes payable".

(4) Includes "Royalties payable to McDonald´s Corporation" and "Interest payable".

(5) Includes "Short-term debt", "Current portion of long-term debt" and "Derivative instruments".

(6) Includes "Long-term debt, excluding current portion" and "Derivative instruments".  

 

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