Arcos Dorados Results

Arcos Dorados Reports Fourth Quarter & Full Year 2017 Financial Results

Reported full year double-digit comparable sales growth with the highest consolidated Adjusted EBITDA margin since 2011 and generated strong net income. Achieved consolidated traffic growth in every quarter of 2017.

Arcos Dorados

Arcos Dorados Holdings, Inc. (NYSE: ARCO), Latin America’s largest restaurant chain and the world’s largest independent McDonald’s franchisee, today reported unaudited results for the fourth quarter and audited results for the full year ended December 31, 2017.

Fourth Quarter 2017 Key Results – Excluding Venezuela

  • As reported consolidated revenues increased 7.6% to $850.9 million versus the fourth quarter of 2016. On a constant currency basis1, consolidated revenues grew 9.0%.
  • Systemwide comparable sales1 rose 9.1% year-over-year.
  • As reported Adjusted EBITDA1 increased 6.3% to $89.1 million compared with the prior-year quarter.
  • Consolidated Adjusted EBITDA margin contracted 10 basis points to 10.5%.
  • As reported General and Administrative (G&A) expenses remained flat as a percentage of revenues.
  • As reported net income increased to $62.7 million, from $17.2 million in the fourth quarter of 2016.

Full Year 2017 Key Results – Excluding Venezuela

  • As reported consolidated revenues increased 11.9% to $3.22 billion in 2017. On a constant currency basis, consolidated revenues grew 10.2%.
  • Systemwide comparable sales rose 10.6% year-over-year.
  • As reported Adjusted EBITDA increased 18.6% to $282.2 million year-over-year.
  • Consolidated Adjusted EBITDA margin expanded 50 basis points to 8.8% in 2017.
  • As reported G&A expenses decreased 10 basis points as a percentage of revenues.
  • As reported net income was $131.3 million, up 44.2% from $91.1 million last year.

“We had a very solid end to a strong year with high single digit comparable sales in the fourth quarter and volume increases in every quarter throughout the year. Our success in driving topline growth along with our efforts to reduce costs translated into our highest Adjusted EBITDA margins for the fourth quarter and full year since 2011. We also delivered on our main goals of G&A optimization, Adjusted EBITDA margin expansion and leverage reduction as outlined in our three-year strategic plan. As of the end of 2017, we had rolled-out Experience of the Future (EOTF) to more than 120 restaurants. We also opened 50 new restaurants, which was the top end of our guidance for 2017. We maintained our clear market share leadership position in our main markets by giving our customers more reasons to visit us more often and we will continue to leverage our size and scale to capture the significant opportunity in front of us”, said Sergio Alonso, Chief Executive Officer of Arcos Dorados.

Fourth Quarter 2017 Results

Consolidated

Figure 1. AD Holdings Inc Consolidated: Key Financial Results

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

     

4Q16

(a)

   

Currency

Translation

(b)

   

Constant

Currency

Growth

(c)

   

4Q17

(a+b+c)

   

% As

Reported

   

% Constant

Currency

Total Restaurants (Units)     2,156                 2,188     1.5%      
                                     
Sales by Company-operated Restaurants     770.5     (176.1)     256.9     851.3     10.5%     33.3%
Revenues from franchised restaurants     36.7     (19.4)     28.4     45.6     24.3%     77.3%
Total Revenues     807.2     (195.5)     285.2     896.9     11.1%     35.3%
Systemwide Comparable Sales                                   42.6%
Adjusted EBITDA     86.3     (93.6)     118.8     111.4     29.1%     137.7%
Adjusted EBITDA Margin     10.7%                 12.4%            
Net income (loss) attributable to AD     21.2     (76.8)     124.9     69.3     227.5%     590.7%
No. of shares outstanding (thousands)     210,711                 211,073            
EPS (US$/Share)     0.10                 0.33            

(4Q17 = 4Q16 + Currency Translation + Constant Currency Growth). Refer to “Definitions” section for further detail.

 

Arcos Dorados’ fourth quarter as reported revenues increased 11.1%, driven by constant currency revenue growth of 35.3%, which was partially offset by the negative impact of currency translation. The currency translation impact primarily reflected the significant year-over-year average depreciation of the Venezuelan bolivar and, to a lesser extent, the Argentine peso. Constant currency revenue growth reflected a 42.6% expansion in systemwide comparable sales, largely explained by inflation-driven average check growth in Venezuela, combined with positive traffic in all, but the Caribbean division, where volumes were negatively impacted by the ongoing difficult environment in Venezuela as well as the hurricanes in Puerto Rico and the U.S. Virgin Islands.

Fourth quarter consolidated as reported Adjusted EBITDA increased 29.1%, supported by revenue growth and margin expansion. The Caribbean and Brazil divisions were the key contributors to Adjusted EBITDA growth during the quarter, whereas NOLAD and SLAD remained relatively flat. Venezuela’s high year-over-year inflation rate meaningfully outpaced the country’s currency devaluation, which generated a significant positive impact on the Adjusted EBITDA growth both in the Caribbean division as well as on a consolidated basis. Please refer to the Recent Developments section on page 14 for a further discussion of this topic.

The Adjusted EBITDA margin expanded by 170 basis points to 12.4%, with margin improvements in Brazil and the Caribbean division, partially offset by margin declines in NOLAD and SLAD. Leverage in Food and Paper (F&P) and Payroll primarily drove the consolidated margin expansion. Adjusted EBITDA margin also benefited from the recognition of higher refranchising proceeds in the fourth quarter of 2017 versus the prior-year quarter.

As reported, consolidated G&A increased by 8.6% year-over-year, and declined almost 20 basis points as a percentage of revenues.

Consolidated – excluding Venezuela

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

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

     

4Q16

(a)

   

Currency

Translation

(b)

   

Constant

Currency

Growth

(c)

   

4Q17

(a+b+c)

   

% As

Reported

   

% Constant

Currency

Total Restaurants (Units)     2,023                 2,058     1.7%      
                                     
Sales by Company-operated Restaurants     755.5     (10.5)     65.1     810.1     7.2%     8.6%
Revenues from franchised restaurants     34.9     (0.0)     5.9     40.8     16.8%     16.9%
Total Revenues     790.4     (10.6)     71.0     850.9     7.6%     9.0%
Systemwide Comparable Sales                                   9.1%
Adjusted EBITDA     83.8     0.7     4.6     89.1     6.3%     5.5%
Adjusted EBITDA Margin     10.6%                 10.5%            
Net income (loss) attributable to AD     17.2     2.6     42.9     62.7     264.3%     249.3%
No. of shares outstanding (thousands)     210,711                 211,073            
EPS (US$/Share)     0.08                 0.30            
 

Excluding the Company’s Venezuelan operation, as reported revenues increased 7.6% year-over-year. The result primarily reflects constant currency revenue growth of 9.0%, partially offset by a negative impact from currency translation. The 14% year-over-year average depreciation of the Argentine peso more than offset the appreciation of the Brazilian real, the Mexican peso, and other currencies in the Company’s territories. Constant currency revenue growth was supported by a 9.1% increase in systemwide comparable sales, driven by a favorable shift in mix and positive traffic in all divisions except the Caribbean.

As reported Adjusted EBITDA increased 6.3%, or 5.5% in constant currency terms. The Adjusted EBITDA margin contracted 10 basis points to 10.5%, mainly due to higher Royalty Fees and franchised restaurant occupancy fees, which were mostly offset by efficiencies achieved in F&P costs as a percentage of revenues.

Non-operating Results

Non-operating results for the fourth quarter reflected a non-cash $4.2 million foreign currency exchange gain, versus a non-cash gain of $3.5 million last year. Net interest expense remained relatively flat year-over-year, at $13.9 million.

The Company reported an income tax expense of $21.4 million in the quarter, compared to an income tax expense of $18.9 million in the prior year period.

Fourth quarter net income attributable to the Company totaled $69.3 million, compared to net income of $21.2 million in the same period of 2016. The result largely reflects higher year-over-year operating results, which included $35.6 million from the Company’s re-development initiative compared with $4.6 million in the prior-year quarter.

The Company reported earnings per share of $0.33 in the fourth quarter of 2017, compared to earnings per share of $0.10 in the previous corresponding period. Total weighted average shares for the fourth quarter of 2017 were 211,072,508, as compared to 210,711,212 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)

     

4Q16

(a)

   

Currency

Translation

(b)

   

Constant

Currency

Growth

(c)

   

4Q17

(a+b+c)

   

% As

Reported

   

% Constant

Currency

Total Restaurants (Units)     902                 929     3.0%      
                                     
Total Revenues     378.2     5.7     19.3     403.2     6.6%     5.1%
Systemwide Comparable Sales                                   6.7%
Adjusted EBITDA     63.1     1.2     13.9     78.3     24.0%     22.1%
Adjusted EBITDA Margin     16.7%                 19.4%            
 

Brazil’s as reported revenues increased by 6.6%, supported by constant currency growth and a 1.4% year-over-year average appreciation of the Brazilian real. Excluding currency translation, constant currency revenues grew 5.1% year-over-year, which reflected the impact of the refranchising of certain company-operated restaurants during the last twelve months. An increased number of franchised restaurants reduces the Company’s total revenue comparisons, as company-operated restaurant sales are replaced by rental income received from the Company’s franchisees. In the quarter, total systemwide sales grew 9.2% in constant currency, while systemwide comparable sales rose 6.7%. A favorable shift in mix and the fourth consecutive quarter of positive restaurant traffic drove these results.

Marketing activities in the quarter, which were designed to stimulate top-line growth without sacrificing gross margins, included the launch of the Quattro Formaggi premium burger in the Signature Line and the introduction of co-branded products with Nutella, among others. Also in the quarter, the Company launched the McFlurry “KitKat White & Milk” in the Dessert category and included “Super Mario” and “Pokémon” in the Happy Meal.

As reported Adjusted EBITDA increased 24.0% year-over-year and 22.1% on a constant currency basis. The Adjusted EBITDA margin expanded 270 basis points to 19.4%, mainly by capturing efficiencies in F&P costs and G&A expenses. The division also received Growth Support from McDonald’s Corporation and recorded a positive variance in Other Operating Income from higher re-franchising proceeds and net tax credits in the quarter. These results were partially offset by higher Royalty Fees, Payroll costs and Occupancy and Other expenses as a percentage of revenues.

NOLAD

Figure 4. NOLAD Division: Key Financial Results

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

     

4Q16

(a)

   

Currency

Translation

(b)

   

Constant

Currency

Growth

(c)

   

4Q17

(a+b+c)

   

% As

Reported

   

% Constant

Currency

Total Restaurants (Units)     517                 519     0.4%      
                                     
Total Revenues     95.8     1.1     7.3     104.1     8.7%     7.6%
Systemwide Comparable Sales                                   7.2%
Adjusted EBITDA     10.3     (0.2)     0.1     10.3     -0.4%     1.1%
Adjusted EBITDA Margin     10.8%                 9.9%            
 

NOLAD’s as reported revenues increased 8.7% year-over-year, supported by constant currency growth of 7.6% and a 4% year-over-year average appreciation of the Mexican peso. Systemwide comparable sales increased 7.2%, mainly driven by an increase in traffic across all of the division’s markets, combined with a favorable shift in mix. Notably, Mexico volumes were strong in the quarter, with the Company’s new affordability platform, its innovative marketing and digital initiatives as well as its focus on delivering a better guest experience driving the improved performance.

Marketing activities in the quarter included a new phase of the affordability platform “McTrío 3x3” in Mexico and the launch of the “Para los Polleros” and “Quesolocura” with the double and triple cheeseburger. The dessert category performed well with the continuation of the McFlurry Hershey’s Mini Kisses. Also in the quarter, the Company included “Pokémon” in the Happy Meal.

As reported Adjusted EBITDA decreased by 0.4%, but increased by 1.1% on a constant currency basis. The Adjusted EBITDA margin contraction of 90 basis points to 9.9% in the fourth quarter was primarily the result of higher Royalty Fees.

SLAD

Figure 5. SLAD Division: Key Financial Results

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

     

4Q16

(a)

   

Currency

Translation

(b)

   

Constant

Currency

Growth

(c)

   

4Q17

(a+b+c)

   

% As

Reported

   

% Constant

Currency

Total Restaurants (Units)     384                 390     1.6%      
                                     
Total Revenues     221.6     (19.6)     44.7     246.7     11.3%     20.2%
Systemwide Comparable Sales                                   20.5%
Adjusted EBITDA     21.4     (1.7)     2.6     22.3     3.9%     12.1%
Adjusted EBITDA Margin     9.7%                 9.0%            
 

SLAD’s as reported revenues increased 11.3% as constant currency growth of 20.2% more than offset negative currency translation impacts resulting from the 14% year-over-year average depreciation of the Argentine peso. Systemwide comparable sales increased 20.5%, driven by the combination of a favorable shift in mix and an increase in traffic.

Marketing activities in the quarter included a refresh of the McCombo del Día campaign and the continuation of the Guacamole Burger in the Signature Line. Also in the quarter, the Company launched the “Papas para el Camino” campaign and the McFlurry KitKat in the dessert category. The Happy Meal performed well with “Furby” and “Super Mario” during the quarter.

Adjusted EBITDA increased 3.9% on an as reported basis and rose 12.1% in constant currency terms. The Adjusted EBITDA margin contracted 70 basis points to 9.0%, mainly due to higher Royalty Fees, which were partially offset by the Growth Support received from McDonald’s Corporation.

Caribbean Division

Figure 6. Caribbean Division: Key Financial Results

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

     

4Q16

(a)

   

Currency

Translation

(b)

   

Constant

Currency

Growth

(c)

   

4Q17

(a+b+c)

   

% As

Reported

   

% Constant

Currency

Total Restaurants (Units)     353                 350     -0.8%      
                                     
Total Revenues     111.6     (182.7)     214.0     142.9     28.0%     191.7%
Systemwide Comparable Sales                                   261.4%
Adjusted EBITDA     8.0     (94.2)     113.7     27.5     244.2%     1424.7%
Adjusted EBITDA Margin     7.2%                 19.2%            
 

The Caribbean division’s as reported revenues increased 28.0%, as constant currency growth of 191.7% 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 261.4%, with inflation-driven average check growth more than offsetting a decrease in total traffic in the division.

Fourth quarter reported results in the division were significantly impacted by a much higher year-over-year inflation than devaluation rate in Venezuela. During the quarter, Venezuela accounted for nearly all the division’s negative currency translation and constant currency revenue growth.

Traffic was impacted by the effect of the hurricanes in Puerto Rico and the US Virgin Islands. Importantly, the Company had sufficient insurance to cover the property damage and business interruption losses suffered from these natural disasters.

Marketing activities in the quarter included the launch of the Pico de Gallo Guacamole premium burger in the Signature Line. Also in the quarter, the Company re-launched the “Lunes Pompiao” campaign, which surprises guests by including some of McDonald’s iconic offerings. The Company also introduced the McFlurry Galak and McFlurry Mama-ía in the dessert category, and included “Pokémon” in the Happy Meal.

As reported Adjusted EBITDA totaled $27.5 million in the fourth quarter, compared with $8.0 million in the prior year quarter. The Adjusted EBITDA margin expanded from 7.2% to 19.2% year-over-year, mainly impacted by Venezuela’s reported results.

Caribbean Division – excluding Venezuela

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

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

     

4Q16

(a)

   

Currency

Translation

(b)

   

Constant

Currency

Growth

(c)

   

4Q17

(a+b+c)

   

% As

Reported

   

% Constant

Currency

Total Restaurants (Units)     220                 220     0.0%      
                                     
Total Revenues     94.9     2.2     (0.2)     96.9     2.1%     -0.3%
Systemwide Comparable Sales                                   -3.5%
Adjusted EBITDA     5.5     0.1     (0.5)     5.2     -6.3%     -8.7%
Adjusted EBITDA Margin     5.8%                 5.4%            
 

As reported revenues in the Caribbean division, excluding Venezuela, increased 2.1%, mainly driven by a positive currency translation impact. Constant currency revenue declined slightly versus the prior year quarter. Comparable sales decreased by 3.5% as growth in average check was more than offset by a decline in traffic, primarily in Puerto Rico and the US Virgin Islands due to the effects of hurricanes Irma and Maria. Importantly, the Company had sufficient insurance to cover the property damage and business interruption losses suffered from these natural disasters.

Adjusted EBITDA totaled $5.2 million, compared to $5.5 million in the same period of 2016. The Adjusted EBITDA margin contracted 40 basis points to 5.4%, mainly driven by an increase in F&P costs and Royalty Fees, partially offset by lower Payroll costs, G&A and Occupancy and Other Operating expenses, as a percentage of revenues.

New Unit Development

Figure 8. Total Restaurants (eop)*
       

December

2017

     

September

2017

     

June

2017

     

March

2017

     

December

2016

Brazil       929       910       910       904       902
NOLAD       519       514       515       517       517
SLAD       390       386       386       385       384
Caribbean       350       350       349       350       353
TOTAL       2,188       2,160       2,160       2,156       2,156
* Considers Company-operated and franchised restaurants at period-end
 

The Company opened 50 new restaurants during the twelve-month period ended December 31, 2017, which was at the top end of the Company’s guidance, resulting in a total of 2,188 restaurants. Also during the period, the Company added 223 Dessert Centers, bringing the total to 2,877. McCafés totaled 316 as of December 31, 2017.

Balance Sheet & Cash Flow Highlights

Cash and cash equivalents, including short-term investments, were $328.1 million at December 31, 2017. The Company’s total financial debt (including derivative instruments) was $621.5 million. Net debt (Total Financial Debt minus Cash and cash equivalents) was $293.4 million and the Net Debt/Adjusted EBITDA ratio was 1.0x at December 31, 2017.

 

Figure 9. Consolidated Financial Ratios

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

        December 31       December 31
        2017       2016
Cash & cash equivalents (i)       328,079       194,803
Total Financial Debt (ii)       621,460       610,170
Net Financial Debt (iii)       293,381       415,367
Total Financial Debt / LTM Adjusted EBITDA ratio       2.0       2.6
Net Financial Debt / LTM Adjusted EBITDA ratio       1.0       1.7
(i) Includes short-term investment.

(ii)Total financial debt includes short-term debt, long-term debt and derivative instruments (including

the asset portion of derivatives amounting to $35.1 million and $nil million as a reduction of financial

debt as of December 31, 2017 and 2016, respectively).

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

Net cash provided by operating activities totaled $107.7 million for the quarter, and cash used in financing activities amounted to $2.1 million. Cash used in net investing activities totaled $64.6 million, which included $21.8 million from asset monetization proceeds, less short-term investments of $19.6 million and total capital expenditures of $66.2 million.

Full Year 2017

For the year 2017, the Company’s as reported revenues increased by 13.3% to $3,319.5 million. Constant currency growth of 22.5% was partially offset by negative foreign currency translation mainly from the significant year-over-year average devaluation of the Venezuelan bolivar and, to a lesser extent, depreciation of the Argentine peso.

As reported Adjusted EBITDA was $304.9 million, a 27.9% increase compared to 2016. On a constant currency basis, Adjusted EBITDA increased by 79.3%. The reported Adjusted EBITDA margin expanded by 110 basis points to 9.2%, which is its highest level since 2011.

Net interest expenses and losses from derivative instruments were $1.5 million and $4.0 million higher versus the prior year. The full year result also included a non-cash foreign exchange loss of $14.3 million as compared to a $32.4 million non-cash gain in 2016.

The Company reported an income tax expense of $53.3 million in 2017, down from $59.6 million in 2016.

Consolidated net income amounted to $129.2 million, compared with net income of $78.8 million in 2016. The result reflects higher year-over-year operating results, which included $91.7 million from the Company’s re-development initiative in 2017 versus $52.9 million in 2016. This was partially offset by the mostly non-cash negative variances in its non-operating results.

Net cash provided by operating activities totaled $255.2 million in 2017, and cash used in financing activities amounted to $3.4 million. Cash used in net investing activities totaled $124.5 million, which included $72.4 million from asset monetization proceeds, less short-term investments of $19.6 million and total capital expenditures of $174.8 million.

Excluding Venezuela

Excluding the Venezuelan operation, the Company’s as reported revenues increased by 11.9%, and 10.2% on a constant currency basis. As reported Adjusted EBITDA rose by 18.6%, and by 13.5%, on a constant currency basis. The reported Adjusted EBITDA margin expanded by 50 basis points to 8.8%, mainly driven by efficiencies captured in F&P costs.

Consolidated as reported net income was $131.3 million, up 44.2% from $91.1 million last year.

Quarter Highlights & Recent Developments

Re-Development Initiative

Since the Company announced its re-development initiative in March 2015 and through December 31, 2017, it has received cumulative cash proceeds of $167.2 million, from the re-development of certain properties primarily in Mexico.

Venezuela Devaluation

During February 2018, the Venezuelan government announced the unification of the former exchange rate systems, DIPRO and DICOM II, into a sole foreign exchange mechanism called DICOM. The unified system operates through an auction mechanism similar to the former DICOM II. The first auction was published on February 5, 2018, with an exchange rate of approximately 25,000 VEF per US dollar from 3,345 VEF per US dollar previously.

As of the date of this release, with the most recent auction (on March 19, 2018), the exchange rate was approximately 45,000 VEF per US dollar. These recent devaluations generated a significant non-cash negative accounting impact, which will be reflected in the Company’s first quarter of 2018 consolidated results. For more details on the devaluation of the VEF, please refer to the Company’s Financial Statements (6-K) filed today with the S.E.C.

Given the volatile nature of the situation in Venezuela, the Company’s reported results will likely continue to reflect significant non-cash accounting impacts from operations in that market. Thus, the discussion of the Company’s performance will also continue to focus on consolidated results excluding Venezuela.

Investor Day

The Company will host its Investor Day on Friday, March 23, 2018 in New York, NY. This event, held for analysts and institutional investors, will feature presentations by Woods Staton (Executive Chairman), Sergio Alonso (Chief Executive Officer), Marcelo Rabach (Chief Operating Officer), Mariano Tannenbaum (Chief Financial Officer), Dan Gertsacov (Chief Marketing and Digital Officer), and Sebastian Magnasco (VP of Development). Also in attendance will be Paulo Camargo (President of the Brazil Division) and Francisco Staton (Managing Director in Colombia). The team will provide an overview of the Company’s strategic positioning, and will discuss trends, growth opportunities and its long-term market outlook.

2018 Annual Guidance

For the full year 2018, the Company expects to open between 65 and 70 new restaurants. The Company expects total capital expenditures to be between $200 and $230 million.

2017 to 2019 Cumulative Guidance

At the beginning of 2017, the Company committed for the cumulative three-year period from 2017 to 2019, to open at least 180 new restaurants, reinvest at least $292 million in its existing restaurants and invest at least $500 million in total capital expenditures.

For the same three-year period, the Company now expects to open at least 200 new restaurants, reinvest at least $390 million in its existing restaurants and invest at least $660 million in total capital expenditures.

2018 Dividend

The Company’s Management recommended and, on March 20, 2018, the Board of Directors of Arcos Dorados Holdings Inc. approved the resumption of dividend payments. For 2018, the Company will pay a dividend of $0.10 per share to all Class A and Class B shareholders of the Company in two equal installments of $0.05 per share on April 5, 2018 and October 5, 2018. The dividend will be paid to shareholders of record as of April 2, 2018 and October 2, 2018, respectively.

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 2,180 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).

Fourth Quarter & Full Year 2017 Consolidated Results

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

 

Figure 10. Fourth Quarter & Full Year 2017 Consolidated Results

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

      For Three-Months ended     For Twelve-Months ended
      December 31,     December 31,
      2017     2016     2017     2016
REVENUES                        
Sales by Company-operated restaurants       851,276         770,478         3,162,256         2,803,334  
Revenues from franchised restaurants       45,605         36,681         157,269         125,296  
Total Revenues       896,881         807,159         3,319,525         2,928,630  
OPERATING COSTS AND EXPENSES                        
Company-operated restaurant expenses:                        
Food and paper       (290,143 )       (272,523 )       (1,110,240 )       (1,012,976 )
Payroll and employee benefits       (175,040 )       (162,400 )       (683,954 )       (607,082 )
Occupancy and other operating expenses       (219,304 )       (194,882 )       (842,519 )       (752,428 )
Royalty fees       (46,504 )       (39,389 )       (163,954 )       (142,777 )
Franchised restaurants - occupancy expenses       (20,185 )       (15,075 )       (69,836 )       (55,098 )
General and administrative expenses       (68,714 )       (63,258 )       (244,664 )       (221,075 )
Other operating income (expenses), net       23,263         (5,535 )       68,577         41,386  
Total operating costs and expenses       (796,627 )       (753,062 )       (3,046,590 )       (2,750,050 )
Operating income       100,254         54,097         272,935         178,580  
Net interest expense       (13,854 )       (13,647 )       (68,357 )       (66,880 )
Loss from derivative instruments       (29 )       (3,013 )       (7,065 )       (3,065 )
Foreign currency exchange results       4,211         3,454         (14,265 )       32,354  
Other non-operating expense, net       172         (798 )       (435 )       (2,360 )
Income before income taxes       90,754         40,093         182,813         138,629  
Income tax expense       (21,426 )       (18,909 )       (53,314 )       (59,641 )
Net income       69,328         21,184         129,499         78,988  
Less: Net income attributable to non-controlling interests       (56 )       (33 )       (333 )       (178 )
Net income attributable to Arcos Dorados Holdings Inc.       69,272         21,151         129,166         78,810  
Earnings (loss) per share information ($ per share):                        
Basic net income per common share     $ 0.33       $ 0.10       $ 0.61       $ 0.37  
Weighted-average number of common shares outstanding-Basic       211,072,508         210,711,212         210,935,685         210,646,955  
Adjusted EBITDA Reconciliation                        
Operating income       100,254         54,097         272,935         178,580  
Depreciation and amortization       26,192         18,643         99,382         92,969  
Operating charges excluded from EBITDA computation       (15,026 )       13,536         (67,380 )       (33,104 )
Adjusted EBITDA       111,420         86,276         304,937         238,445  
Adjusted EBITDA Margin as % of total revenues       12.4 %       10.7 %       9.2 %       8.1 %
 
 

Fourth Quarter & Full Year 2017 Results by Division

(In thousands of U.S. dollars)

 

Figure 11. Fourth Quarter & Full Year 2017 Consolidated Results by Division

(In thousands of U.S. dollars)

      4Q     FY
      Three-Months ended     % Incr.     Constant     Twelve-Months ended     % Incr.     Constant
      December 31,     /     Currency     December 31,     /     Currency
      2017     2016     (Decr)     Incr/(Decr)%     2017     2016     (Decr)     Incr/(Decr)%

Revenues

                                               
Brazil     403,235       378,175       6.6 %     5.1 %     1,496,573       1,333,237       12.3 %     3.7 %
Caribbean     142,881       111,626       28.0 %     191.7 %     474,822       409,671       15.9 %     91.8 %
NOLAD     104,104       95,762       8.7 %     7.6 %     386,874       363,965       6.3 %     8.0 %
SLAD     246,661       221,596       11.3 %     20.2 %     961,256       821,757       17.0 %     24.9 %
TOTAL     896,881       807,159       11.1 %     35.3 %     3,319,525       2,928,630       13.3 %     22.5 %
                                                 
                                                 

Operating Income (loss)

                                               
Brazil     61,576       50,674       21.5 %     19.5 %     160,608       122,636       31.0 %     22.2 %
Caribbean     6,292       4,567       37.8 %     2143.2 %     1,538       (12,392 )     112.4 %     1247.9 %
NOLAD     36,546       (10,655 )     443.0 %     425.2 %     99,152       45,145       119.6 %     126.8 %
SLAD     18,093       21,863       -17.2 %     -9.6 %     71,718       66,359       8.1 %     16.4 %
Corporate and Other     (22,253 )     (12,352 )     -80.2 %     -92.0 %     (60,081 )     (43,168 )     -39.2 %     -48.6 %
TOTAL     100,254       54,097       85.3 %     258.1 %     272,935       178,580       52.8 %     128.3 %
                                                 
                                                 

Adjusted EBITDA

                                               
Brazil     78,260       63,109       24.0 %     22.1 %     218,172       168,076       29.8 %     20.9 %
Caribbean     27,472       7,982       244.2 %     1424.7 %     40,844       18,049       126.3 %     871.0 %
NOLAD     10,261       10,305       -0.4 %     1.1 %     33,717       36,288       -7.1 %     -5.5 %
SLAD     22,293       21,447       3.9 %     12.1 %     87,083       76,327       14.1 %     21.8 %
Corporate and Other     (26,866 )     (16,567 )     -62.2 %     -69.9 %     (74,879 )     (60,295 )     -24.2 %     -30.0 %
TOTAL     111,420       86,276       29.1 %     137.7 %     304,937       238,445       27.9 %     79.3 %
 
 
 
Figure 12. Average Exchange Rate per Quarter*
        Brazil       Mexico       Argentina       Venezuela
4Q17       3.25       18.99       17.56       3,345.00
4Q16       3.30       19.87       15.46       663.81
* 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)

        December 31       December 31
        2017       2016
ASSETS                
Current assets                
Cash and cash equivalents       308,491         194,803  
Short-term investment       19,588         0  
Accounts and notes receivable, net       111,302         83,239  
Other current assets (1)       213,656         167,148  
Total current assets       653,037         445,190  
Non-current assets                
Property and equipment, net       890,736         847,966  
Net intangible assets and goodwill       47,729         43,044  
Deferred income taxes       74,299         70,446  
Other non-current assets (2)       137,942         98,407  
Total non-current assets       1,150,706         1,059,863  
Total assets       1,803,743         1,505,053  
LIABILITIES AND EQUITY                
Current liabilities                
Accounts payable       303,452         217,914  
Taxes payable (3)       136,918         112,593  
Accrued payroll and other liabilities       119,088         144,442  
Other current liabilities (4)       23,715         24,620  
Provision for contingencies       2,529         764  
Financial debt (5)       19,881         47,975  
Total current liabilities       605,583         548,308  
Non-current liabilities                
Accrued payroll and other liabilities       29,366         23,760  
Provision for contingencies       25,427         17,348  
Financial debt (6)       636,648         562,195  
Deferred income taxes       10,577         1,866  
Total non-current liabilities       702,018         605,169  
Total liabilities       1,307,601         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       14,216         13,788  
Retained earnings       401,134         271,968  
Accumulated other comprehensive losses       (429,347 )       (441,649 )
Total Arcos Dorados Holdings Inc shareholders’ equity       495,650         350,991  
Non-controlling interest in subsidiaries       492         585  
Total equity       496,142         351,576  
Total liabilities and equity       1,803,743         1,505,053  

(1) Includes "Other receivables", "Inventories", "Prepaid expenses and other current assets", "Deferred income taxes"

and "McDonald's Corporation's indemnification for contingencies".

(2) Includes "Miscellaneous", "Collateral deposits", "Derivative Instruments", 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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