Arcos Dorados Reports Third Quarter 2017 Financial Results

Achieved strong comparable sales and Adjusted EBITDA growth. Positive volume trends continued across key markets. Improved operating result drove Adjusted EBITDA margin expansion and positive net income in the quarter.

MONTEVIDEO, Uruguay--()--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, 2017.

Third Quarter 2017 Key Results

  • As reported consolidated revenues increased 8.6% to $842.5 million versus the third quarter of 2016. On a constant currency basis1, consolidated revenues grew 17.5%, or 9.7% excluding Venezuela.
  • Systemwide comparable sales1 rose 20.3% year-over-year, or 10.4% excluding Venezuela.
  • Adjusted EBITDA1 increased 17.5% to $74.2 million compared with the prior-year quarter.
  • Consolidated Adjusted EBITDA margin expanded 70 basis points to 8.8%.
  • As reported General and Administrative (G&A) expenses decreased 10 basis points as a percentage of revenues.
  • As reported net income was $23.4 million, compared to net loss of $1.8 million in the year-ago period.

“We had a strong third quarter as successful marketing and promotional activities drove positive guest traffic in most markets, supporting improved topline and strong consolidated Adjusted EBITDA growth. During the period, comparable sales grew in real terms and we saw broad-based strength in our business, as consumer behavior in Brazil and Argentina continues to improve. Strong topline performance benefited cash generation in the quarter and, combined with operating leverage we built into our business, drove improved operating performance. We delivered 70 basis points of Adjusted EBITDA margin expansion and positive net income of $23.4 million in the quarter. Our plan to expand our footprint and modernize our base to keep guests coming back to our restaurants more often remains on track and will see us capture the potential of the McDonald’s brand in the region,” said Sergio Alonso, Chief Executive Officer of Arcos Dorados.

Third Quarter 2017 Results

Consolidated

   
Figure 1. AD Holdings Inc Consolidated: Key Financial Results

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

        3Q16

(a)

 

Currency
Translation

(b)

 

Constant
Currency
Growth
(c)

 

3Q17
(a+b+c)

 

% As
Reported

 

% Constant
Currency

Total Restaurants (Units)       2,140       2,160   0.9 %  
 
Sales by Company-operated Restaurants 742.8 (63.2 ) 123.8 803.4 8.2 % 16.7 %
Revenues from franchised restaurants 32.9 (5.6 ) 11.9 39.1 18.9 % 36.1 %
Total Revenues 775.7 (68.9 ) 135.7 842.5 8.6 % 17.5 %
Systemwide Comparable Sales 20.3 %
Adjusted EBITDA 63.2 -20.5 31.5 74.2 17.5 % 49.9 %
Adjusted EBITDA Margin 8.1 % 8.8 %
Net income (loss) attributable to AD (1.8 ) (20.5 ) 45.7 23.4 1376.2 % 2494.2 %
No. of shares outstanding (thousands) 210,711 211,072
EPS (US$/Share)       (0.01 )           0.11          

(3Q17 = 3Q16 + Currency Translation + Constant Currency Growth). Refer to “Definitions” section for further detail.

 

Arcos Dorados’ third quarter as reported revenues increased 8.6%, driven by constant currency revenue growth of 17.5%, which was partially offset by the negative impact of currency translation. The currency translation impact mainly reflected the year-over-year average depreciation of the Venezuelan bolivar and the Argentine peso, which was partially offset by the appreciation of the Brazilian real. Constant currency revenue growth reflected a 20.3% expansion in systemwide comparable sales, driven by average check growth combined with positive traffic in most markets.

Third quarter consolidated as reported Adjusted EBITDA increased 17.5%, supported by revenue growth and margin expansion. Brazil was the key contributor to Adjusted EBITDA during the quarter, followed by SLAD. The results were partially offset by a decline in NOLAD and the Caribbean divisions.

The Adjusted EBITDA margin expanded by 70 basis points to 8.8%, with margin improvements in Brazil and SLAD, partially offset by margin declines in NOLAD and the Caribbean divisions. Continued leverage in Food and Paper (F&P) drove the consolidated margin expansion. As part of the Company plan, refranchising activity was lower in 3Q17 than in 3Q16. Excluding the refranchising inflows, consolidated Adjusted EBITDA margin increased by about 120 basis points.

As a percentage of revenues, G&A decreased 10 basis points. As reported, consolidated G&A increased by 7.9% year-over-year.

Consolidated – excluding Venezuela

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

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

       

3Q16
(a)

 

Currency
Translation

(b)

 

Constant
Currency
Growth
(c)

 

3Q17
(a+b+c)

 

% As
Reported

 

% Constant
Currency

Total Restaurants (Units)       2,007       2,030   1.1 %  
 
Sales by Company-operated Restaurants 734.1 (12.7 ) 68.4 789.8 7.6 % 9.3 %
Revenues from franchised restaurants 31.9 0.0 5.7 37.6 17.9 % 17.8 %
Total Revenues 766.0 (12.6 ) 74.1 827.4 8.0 % 9.7 %
Systemwide Comparable Sales 10.4 %
Adjusted EBITDA 62.6 (0.3 ) 11.4 73.7 17.7 % 18.2 %
Adjusted EBITDA Margin 8.2 % 8.9 %
Net income (loss) attributable to AD 1.5 0.2 23.8 25.6 1557.7 % 1545.4 %
No. of shares outstanding (thousands) 210,711 211,072
EPS (US$/Share)       0.01             0.12          
 

Excluding the Company’s Venezuelan operation, as reported revenues increased 8.0% year-over-year. The result primarily reflects constant currency revenue growth of 9.7%, partially offset by a negative impact from currency translation, as the depreciation of the Argentine peso more than offset the appreciation of the Brazilian real, and other currencies in the Company’s territories. Constant currency revenue growth was supported by a 10.4% increase in systemwide comparable sales, driven by average check growth and positive traffic in most markets.

Adjusted EBITDA increased 17.7% on an as reported basis, or 18.2% in constant currency terms. The Adjusted EBITDA margin expanded 70 basis points to 8.9%, mainly driven by efficiencies in F&P as a percentage of revenues.

Non-operating Results

Non-operating results for the third quarter reflected a non-cash $5.6 million foreign currency exchange gain, versus a non-cash loss of $3.3 million last year. The appreciation of the Brazilian real from the previous quarter-end, compared to a depreciation last year, generated a non-cash net gain related to intercompany balances. This was partially offset by a non-cash year-over-year lower foreign currency exchange gain on intercompany balances, generated by the depreciation of the Mexican peso from the previous quarter-end, compared to a higher depreciation in the same period of last year. Net interest expense decreased $3.2 million year-over-year to $15.0 million in the quarter, given the lower financing cost of the Company’s restructured long-term debt.

The Company reported an income tax expense of $15.5 million in the quarter, compared to an income tax expense of $18.0 million in the prior year period.

Third quarter net income attributable to the Company totaled $23.4 million, compared to net loss of $1.8 million in the same period of 2016. The result reflects higher year-over-year operating results, combined with the positive variance in non-cash foreign exchange results, lower net interest expenses, as well as the lower income tax expense.

The Company reported earnings per share of $0.11 in the third quarter of 2017, compared to a loss per share of $0.01 in the previous corresponding period. Total weighted average shares for the third quarter of 2017 were 211,072,340, as compared to 210,710,861 in the prior year quarter.

Analysis by Division:

Brazil Division

                             
Figure 3. Brazil Division: Key Financial Results

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

       

3Q16
(a)

 

Currency
Translation

(b)

 

Constant
Currency
Growth
(c)

 

3Q17
(a+b+c)

 

% As
Reported

 

% Constant
Currency

Total Restaurants (Units)       890       910   2.2 %  
 
Total Revenues 357.0 9.7 11.7 378.4 6.0 % 3.3 %
Systemwide Comparable Sales 6.3 %
Adjusted EBITDA 39.2 1.3 8.8 49.3 25.7 % 22.5 %
Adjusted EBITDA Margin       11.0 %           13.0 %        
 

Brazil’s as reported revenues increased by 6.0%, supported by the 2.7% year-over-year average appreciation of the Brazilian real. Excluding the impact of currency translation, constant currency revenues grew 3.3% year-over-year and were negatively impacted by the refranchising of certain company-operated restaurants during the last twelve months. An increased number of franchised restaurants negatively impacts the Company’s total revenue comparisons, as company-operated restaurant sales are replaced by rental income received from the Company’s sub-franchisees. In the quarter, total systemwide sales grew 8.0% in constant currency, while systemwide comparable sales rose 6.3%, driven by average check growth and positive traffic against an improving consumer backdrop.

Marketing activities in the quarter included the continuation of the premium Signature Line and the introduction of core extensions such as the “Duplo Quarterão,” the “Grand Cheddar McMelt,” and the “McFritas Cheddar Bacon.” Also in the quarter, the Company launched the McFlurry and McShake “Prestígio” in the Dessert category and included “Despicable Me 3” and “Emoji” in the Happy Meal.

As reported Adjusted EBITDA increased 25.7% year-over-year and 22.5% on a constant currency basis. The Adjusted EBITDA margin expanded 200 basis points to 13.0%, mainly driven by lower F&P costs, Occupancy and other operating expenses and Royalty Fees as a percentage of revenues. Royalty Fees benefited from growth support which McDonald’s Corporation began providing during the quarter. This growth support is expected to be primarily directed toward the Brazil and SLAD divisions, where the majority of the Company’s investment is planned to occur over the next few years.

NOLAD

                             
Figure 4. NOLAD Division: Key Financial Results

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

       

3Q16
(a)

 

Currency
Translation

(b)

 

Constant
Currency
Growth
(c)

 

3Q17
(a+b+c)

 

% As
Reported

 

% Constant
Currency

Total Restaurants (Units)       515       514   -0.2%  
 
Total Revenues 94.7 0.9 6.6 102.3 8.0% 7.0%
Systemwide Comparable Sales 5.9%
Adjusted EBITDA 10.5 (0.2) (0.4) 9.9 -6.1% -4.2%
Adjusted EBITDA Margin       11.1%           9.7%        
 

NOLAD’s as reported revenues increased 8.0% year-over-year, supported by constant currency growth of 7.0% and a slightly positive currency translation impact. Systemwide comparable sales increased 5.9%, driven by average check growth combined with an increase in traffic across all of the division’s markets.

Marketing activities in the quarter included the continuation of the affordability platform “McTrío 3x3” in Mexico and the launch of the premium Guacamole and BBQ Crispy Onion burgers in the Signature Line. The dessert category performed well with the continuation of the McFlurry Hershey’s Cookies and Crème Bites, and the launch of the McFlurry Hershey’s Mini Kisses. Also in the quarter, the Company included “Despicable Me 3” in the Happy Meal.

As reported Adjusted EBITDA decreased by 6.1%, or 4.2% on a constant currency basis. The Adjusted EBITDA margin contraction of 140 basis points to 9.7% in the third quarter was primarily the result of higher Occupancy and other operating expenses, largely due to higher utility costs, Royalty Fees, and Payroll costs as a percentage of revenues. This was partially offset by refranchising inflows. The increase in Royalty Fees paid to McDonald’s Corporation became effective August 3, 2017, as per the Master Franchise Agreement.

SLAD

 
Figure 5. SLAD Division: Key Financial Results

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

       

3Q16
(a)

 

Currency
Translation
(b)

 

Constant
Currency
Growth
(c)

 

3Q17
(a+b+c)

 

% As
Reported

 

% Constant
Currency

Total Restaurants (Units)       383       386   0.8 %  
 
Total Revenues 222.1 (24.1 ) 54.4 252.3 13.6 % 24.5 %
Systemwide Comparable Sales 24.9 %
Adjusted EBITDA 22.8 (2.7 ) 6.2 26.3 15.3 % 27.2 %
Adjusted EBITDA Margin       10.3 %           10.4 %        
 

SLAD’s as reported revenues increased 13.6% as constant currency growth of 24.5% more than offset negative currency translation impacts resulting from the 16% year-over-year average depreciation of the Argentine peso. Systemwide comparable sales increased 24.9%, driven by the combination of average check growth and an increase in traffic.

Marketing activities in the quarter included the continuation of the affordability platform “Combo del Día.” Also in the quarter, the Company launched the Guacamole burger in the Signature Line and the McFlurry Abuela Goye in the dessert category. The Happy Meal performed well with “Despicable Me 3” and “Emoji” during the quarter.

Adjusted EBITDA increased 15.3% on an as reported basis and rose 27.2% in constant currency terms. The Adjusted EBITDA margin expanded 10 basis points to 10.4%, mainly driven by efficiencies in F&P costs, partially offset by higher Payroll expenses. Royalty Fees increased as a percentage of revenues effective August 3, 2017, which was partially offset by the growth support that McDonald’s Corporation began providing during the quarter.

Caribbean Division

                             
Figure 6. Caribbean Division: Key Financial Results

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

       

3Q16
(a)

 

Currency
Translation
(b)

 

Constant
Currency
Growth
(c)

 

3Q17
(a+b+c)

 

% As
Reported

 

% Constant
Currency

Total Restaurants (Units)       352       350   -0.6 %  
 
Total Revenues 101.8 (55.4 ) 63.0 109.4 7.5 % 61.9 %
Systemwide Comparable Sales 87.2 %
Adjusted EBITDA 6.2 (20.0 ) 19.5 5.6 -8.7 % 316.6 %
Adjusted EBITDA Margin       6.0 %           5.1 %        
 

The Caribbean division’s as reported revenues increased 7.5%, as constant currency growth of 61.9% exceeded currency translation impacts derived from the remeasurement of the results of the Venezuelan operation at a weaker year-over-year average exchange rate. Systemwide comparable sales increased 87.2%, with inflation-driven average check growth more than offsetting a slight decrease in total traffic in the division.

Marketing activities in the quarter included the launch of the affordability platform “McCombo del Día” in Colombia and the continuation of the BBQ Crispy Onion premium burger in the Signature Line. Also in the quarter, the Company introduced the McFlurry Jet Cookies and Cream in the dessert category and included “Despicable Me 3” and “Emoji” in the Happy Meal.

As reported Adjusted EBITDA totaled $5.6 million in the third quarter, compared with $6.2 million in the prior year quarter. The Adjusted EBITDA margin contracted 90 basis points to 5.1%, mainly driven by higher F&P costs and Occupancy and Other Operating expenses, partially offset by efficiencies in Payroll and G&A expenses as a percentage of revenues.

The Caribbean division’s third quarter results were impacted by the effects of hurricanes Irma and Maria in Puerto Rico and the US Virgin Islands. The Company is working to restore full operations in these markets as soon as possible and does not expect its medium to long-term consolidated results to suffer materially given that it has sufficient insurance coverage for both the property loss and the interruption to its business that resulted from these disasters.

Caribbean Division – excluding Venezuela

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

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

       

3Q16
(a)

 

Currency
Translation
(b)

 

Constant
Currency
Growth
(c)

 

3Q17
(a+b+c)

 

% As
Reported

 

% Constant
Currency

Total Restaurants (Units)       219       220   0.5 %  
 
Total Revenues 92.1 0.8 1.5 94.4 2.5 % 1.6 %
Systemwide Comparable Sales 0.0 %
Adjusted EBITDA 5.6 0.2 (0.7 ) 5.1 -9.1 % -12.2 %
Adjusted EBITDA Margin       6.1 %           5.4 %        
 

As reported revenues in the Caribbean division, excluding Venezuela, increased 2.5%, driven by constant currency growth of 1.6% and a positive currency translation impact. Comparable sales remained flat as average check growth was offset by a decline in traffic, primarily in Puerto Rico and the US Virgin Islands.

Adjusted EBITDA totaled $5.1 million, compared to $5.6 million in the same period of 2016. The Adjusted EBITDA margin contracted 70 basis points to 5.4%, mainly driven by higher Occupancy and Other Operating expenses, F&P costs and Royalty Fees, partially offset by efficiencies in Payroll and G&A expenses as a percentage of revenues.

The Caribbean division’s third quarter results, excluding Venezuela, were impacted by the effects of hurricanes Irma and Maria in Puerto Rico and the US Virgin Islands. The Company is working to restore full operations in these markets as soon as possible and does not expect its medium to long-term consolidated results to suffer materially given that it has sufficient insurance coverage for both the property loss and the interruption to its business that resulted from these disasters.

New Unit Development

                         
Figure 8. Total Restaurants (eop)*                        
        September

2017

  June

2017

  March

2017

  December

2016

  September

2016

Brazil       910   910   904   902   890
NOLAD 514 515 517 517 515
SLAD 386 386 385 384 383
Caribbean 350 349 350 353 352
TOTAL 2,160 2,160 2,156 2,156 2,140
LTM Net Openings       20   25   20   15   18
*   Considers Company-operated and franchised restaurants at period-end
 

The Company opened 39 new restaurants during the twelve-month period ended September 30, 2017, resulting in a total of 2,160 restaurants. Also during the period, the Company added 189 Dessert Centers, bringing the total to 2,791. McCafés totaled 317 as of September 30, 2017.

Balance Sheet & Cash Flow Highlights

Cash and cash equivalents were $269.8 million at September 30, 2017. The Company’s total financial debt (including derivative instruments) was $645.0 million. Net debt (Total Financial Debt minus Cash and cash equivalents) was $375.2 million and the Net Debt/Adjusted EBITDA ratio was 1.3x at September 30, 2017.

Net cash provided by operating activities totaled $67.0 million for the quarter, and cash used in financing activities amounted to $1.7 million. Cash used in net investing activities totaled $33.3 million, which included $11.3 million from asset monetization proceeds less total capital expenditures of $43.4 million.

 
Figure 9. Consolidated Financial Ratios

(In thousands of U.S. dollars, except ratios)

      September 30   December 31
        2017   2016
Cash & cash equivalents 269,764 194,803
Total Financial Debt (i) 644,967 610,170
Net Financial Debt (ii) 375,203 415,367
Total Financial Debt / LTM Adjusted EBITDA ratio 2.3 2.6
Net Financial Debt / LTM Adjusted EBITDA ratio       1.3   1.7

(i)

 

Total financial debt includes short-term debt, long-term debt and derivative instruments.

(ii)

Total financial debt less cash and cash equivalents.

 

Financial Results for the First Nine Months of 2017

For the nine months ended September 30, 2017, the Company’s as reported revenues increased by 14.2% to $2,422.6 million, largely driven by constant currency growth of 17.6%. As reported Adjusted EBITDA was $193.5 million, a 27.2% increase compared to the first nine months of 2016. On a constant currency basis, Adjusted EBITDA increased by 46.1%. The reported Adjusted EBITDA margin expanded by 80 basis points to 8.0%, driven by lower F&P costs, Occupancy and Other Operating expenses, and G&A as a percentage of revenues, partially offset by higher Payroll expenses.

Consolidated net income amounted to $59.9 million, compared with net income of $57.7 million in the first nine months of 2016. The result reflects higher operating results in the first nine months of 2017, which were offset by a negative variance in non-cash foreign currency exchange results and net interest expenses. The Company reported an income tax expense of $31.9 million in the first nine months of 2017, compared to an income tax expense of $40.7 million in the comparable prior year period.

Excluding the Venezuelan operation, the Company’s as reported revenues increased by 13.4%, and 10.6% on a constant currency basis. As reported Adjusted EBITDA rose by 25.3%, and by 17.9%, on a constant currency basis. The reported Adjusted EBITDA margin expanded by 80 basis points to 8.2%, mainly driven by efficiencies in F&P costs as a percentage of revenues.

During the first nine months of 2017, capital expenditures totaled $108.6 million.

Quarter Highlights & Recent Developments

Re-Development Initiative

Since the Company announced its re-development initiative in March 2015 and through September 30, 2017, it has received cumulative cash proceeds of approximately $150 million, from the re-development of certain properties primarily in Mexico. The Company used $80 million of these funds for debt reduction.

The Company expects the total proceeds from this initiative to reach approximately $170 million with the final amounts to be collected by the end of 2017.

Impact from hurricanes in Puerto Rico and the US Virgin Islands

During the month of September, Puerto Rico and the US Virgin Islands were impacted by hurricanes Irma and Maria. The Company does not expect a material impact on its financial results given that it has sufficient insurance coverage for both the property loss and the interruption to its business that resulted from these disasters. In the short-term, the Company is working with its insurance providers to assess and fully cover the impact of the damages in these two markets, and expects to have the majority of its restaurants back in operation by the end of the year.

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.

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 and related contingencies of property and equipment; impairment of long-lived assets and goodwill; reorganization and optimization plan expenses; 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.

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 2,100 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 2017. 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.

Third Quarter 2017 Consolidated Results
(In thousands of U.S. dollars, except per share data)

 
Figure 10. Third Quarter & First Nine Months of 2017 Consolidated Results

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

      For Three-Months ended   For Nine-Months ended
September 30, September 30,
        2017   2016 2017   2016
REVENUES    
Sales by Company-operated restaurants 803,351 742,767 2,310,980 2,032,856
Revenues from franchised restaurants         39,115       32,889     111,664       88,615  
Total Revenues         842,466       775,656     2,422,644       2,121,471  
OPERATING COSTS AND EXPENSES
Company-operated restaurant expenses:
Food and paper (283,892 ) (269,737 ) (820,097 ) (740,453 )
Payroll and employee benefits (174,023 ) (160,671 ) (508,914 ) (444,682 )
Occupancy and other operating expenses (213,467 ) (198,449 ) (623,215 ) (557,546 )
Royalty fees (40,092 ) (37,689 ) (117,450 ) (103,388 )
Franchised restaurants - occupancy expenses (17,000 ) (14,233 ) (49,651 ) (40,023 )
General and administrative expenses (60,203 ) (55,818 ) (175,950 ) (157,817 )
Other operating income, net         (6,021 )     (502 )   45,314       46,921  
Total operating costs and expenses         (794,698 )     (737,099 )   (2,249,963 )     (1,996,988 )
Operating income         47,768       38,557     172,681       124,483  
Net interest expense (15,045 ) (18,196 ) (54,503 ) (53,233 )
Gain (Loss) from derivative instruments 195 (22 ) (7,036 ) (52 )
Foreign currency exchange results 5,635 (3,306 ) (18,476 ) 28,900
Other non-operating expense, net         517       (796 )   (607 )     (1,562 )
Income (loss) before income taxes         39,070       16,237     92,059       98,536  
Income tax (expense) benefit         (15,537 )     (18,003 )   (31,888 )     (40,732 )
Net income (loss)         23,533       (1,766 )   60,171       57,804  
Less: Net income attributable to non-controlling interests         (128 )     (68 )   (277 )     (145 )
Net income (loss) attributable to Arcos Dorados Holdings Inc.         23,405       (1,834 )   59,894       57,659  
Earnings (loss) per share information ($ per share):
Basic net income per common share $ 0.11 $ (0.01 ) $ 0.28 $ 0.27
Weighted-average number of common shares outstanding-Basic         211,072,340       210,710,861     210,889,576       210,625,380  
Adjusted EBITDA Reconciliation                  
Operating income 47,768 38,557 172,681 124,483
Depreciation and amortization 25,298 24,736 73,190 74,326
Operating charges excluded from EBITDA computation         1,170       (135 )   (52,354 )     (46,640 )
Adjusted EBITDA         74,236       63,158     193,517       152,169  
Adjusted EBITDA Margin as % of total revenues         8.8 %     8.1 %   8.0 %     7.2 %
 

Third Quarter 2017 Results by Division
(In thousands of U.S. dollars)

                                     
Figure 11. Third Quarter & First Nine Months of 2017 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
        2017   2016   (Decr)   Incr/(Decr)% 2017   2016   (Decr)   Incr/(Decr)%

Revenues

   
Brazil 378,404 357,034 6.0 % 3.3 % 1,093,338 955,062 14.5 % 3.1 %
Caribbean 109,426 101,759 7.5 % 61.9 % 331,941 298,045 11.4 % 54.3 %
NOLAD 102,301 94,743 8.0 % 7.0 % 282,770 268,203 5.4 % 8.1 %
SLAD 252,335 222,120 13.6 % 24.5 % 714,595 600,161 19.1 % 26.6 %
TOTAL 842,466 775,656 8.6 % 17.5 % 2,422,644 2,121,471 14.2 % 17.6 %
 
 

Operating Income (loss)

Brazil 35,073 27,602 27.1 % 23.7 % 99,032 71,962 37.6 % 24.1 %
Caribbean (448 ) (2,594 ) 82.7 % 916.0 % (4,754 ) (16,959 ) 72.0 % 334.7 %
NOLAD 4,396 5,441 -19.2 % -13.9 % 62,606 55,800 12.2 % 21.4 %
SLAD 22,684 19,543 16.1 % 29.0 % 53,625 44,496 20.5 % 29.2 %
Corporate and Other (13,937 ) (11,435 ) -21.9 % -33.7 % (37,828 ) (30,816 ) -22.8 % -31.2 %
TOTAL 47,768 38,557 23.9 % 81.4 % 172,681 124,483 38.7 % 71.9 %
 
 

Adjusted EBITDA

Brazil 49,258 39,172 25.7 % 22.5 % 139,912 104,967 33.3 % 20.2 %
Caribbean 5,615 6,150 -8.7 % 316.6 % 13,372 10,067 32.8 % 432.0 %
NOLAD 9,879 10,518 -6.1 % -4.2 % 23,456 25,983 -9.7 % -8.1 %
SLAD 26,290 22,796 15.3 % 27.2 % 64,790 54,880 18.1 % 25.6 %
Corporate and Other (16,806 ) (15,478 ) -8.6 % -16.1 % (48,013 ) (43,728 ) -9.8 % -14.8 %
TOTAL       74,236     63,158     17.5 %   49.9 %   193,517     152,169     27.2 %   46.1 %
 
                     
Figure 12. Average Exchange Rate per Quarter*
        Brazil   Mexico   Argentina   Venezuela
3Q17       3.16   17.81   17.27   3,035.00
3Q16       3.25   18.76   14.95   646.01

*

 

Local $ per 1 US$

 

Summarized Consolidated Balance Sheets
(In thousands of U.S. dollars)

             
Figure 13. Summarized Consolidated Balance Sheets

(In thousands of U.S. dollars)

      September 30   December 31
        2017   2016
ASSETS
Current assets
Cash and cash equivalents 269,764 194,803
Accounts and notes receivable, net 82,675 83,239
Other current assets (1)       154,848     167,148  
Total current assets       507,287     445,190  
Non-current assets
Property and equipment, net 897,169 847,966
Net intangible assets and goodwill 42,553 43,044
Deferred income taxes 66,360 70,446
Other non-current assets (2)       131,923     98,407  
Total non-current assets       1,138,005     1,059,863  
Total assets       1,645,292     1,505,053  
LIABILITIES AND EQUITY
Current liabilities
Accounts payable 218,293 217,914
Taxes payable (3) 105,842 112,593
Accrued payroll and other liabilities 147,579 144,442
Other current liabilities (4) 19,972 24,620
Provision for contingencies 756 764
Financial debt (5) 18,179 47,975
Deferred income taxes       0     0  
Total current liabilities       510,621     548,308  
Non-current liabilities
Accrued payroll and other liabilities 27,731 23,760
Provision for contingencies 25,032 17,348
Financial debt (6) 644,705 562,195
Deferred income taxes       2,213     1,866  
Total non-current liabilities       699,681     605,169  
Total liabilities       1,210,302     1,153,477  
Equity
Class A shares of common stock 376,732 373,969
Class B shares of common stock 132,915 132,915
Additional paid-in capital 13,293 13,788
Retained earnings 331,862 271,968
Accumulated other comprehensive losses       (420,462 )   (441,649 )
Total Arcos Dorados Holdings Inc shareholders’ equity       434,340     350,991  
Non-controlling interest in subsidiaries       650     585  
Total equity       434,990     351,576  
Total liabilities and equity       1,645,292     1,505,053  

(1)

 

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

(2)

Includes "Miscellaneous", "Collateral deposits", "Derivative Instrument", 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".

 

____________________________

1   For definitions please refer to page 14 of this document.

Contacts

Investor Relations
Arcos Dorados
Daniel Schleiniger, +54 11 4711 2675
Vice President of Corporate Communications & Investor Relations
daniel.schleiniger@ar.mcd.com
www.arcosdorados.com/ir
or
Media
InspIR Group
Monique Skruzny, +1 212-661-2243
monique@inspirgroup.com

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