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 first quarter ended March 31, 2018.

First Quarter 2018 Key Results – Excluding Venezuela

• As reported consolidated revenues increased 5.5% to $802.8 million versus the first quarter of 2017. On a constant currency basis1, consolidated revenues grew 10.7%.
• Systemwide comparable sales1 rose 9.8% year-over-year.
• As reported Adjusted EBITDA1 increased 12.5% to $68.0 million compared with the prior-year quarter.
• Consolidated Adjusted EBITDA margin expanded 60 basis points to 8.5%.
• As reported General and Administrative (G&A) expenses remained flat as a percentage of revenues.
• As reported net income decreased to $13.6 million, from $41.0 million in the first quarter of 2017, primarily due to re-development proceeds of $51.9 million in the year ago period.

“The positive momentum continued in the first quarter of 2018 as Arcos Dorados posted strong operating results. An improved macroeconomic environment, favorable consumer trends, and compelling product offerings across our menu contributed to an important shift in mix and increased traffic, driving top line growth, profitability and gains in market share throughout Latin America.

We are leveraging our leading market share, streamlined cost structure and unmatched scale to capture the opportunity in front of us. We are deriving additional margin and cash generation by maintaining our focus on bringing more guests to our restaurants more often. I am confident that our strong restaurant portfolio, popular menu items and outstanding team will continue to deliver sustainable growth and significant shareholder value creation," said Sergio Alonso, Chief Executive Officer of Arcos Dorados.

First Quarter 2018 Results

Arcos Dorados’ consolidated results continue to be heavily impacted by Venezuela’s macroeconomic volatility, including the ongoing hyperinflationary environment and the country’s heavily regulated currency. As such, reported results in the quarter reflect significant non-cash accounting impacts from operations in that market. Thus, the discussion of the Company’s operating performance is focused on consolidated results, excluding Venezuela.

Excluding the Company’s Venezuelan operation, as reported revenues increased 5.5% year-over-year. The result primarily reflects constant currency revenue growth of 10.7%, partially offset by a negative impact from currency translation, which mainly resulted from the 25.7% and 3.3% year-over-year average depreciation of the Argentine peso and the Brazilian real, respectively. Constant currency revenue growth was supported by a 9.8% increase in systemwide comparable sales, supported by a favorable shift in mix and positive traffic in all divisions.

First quarter consolidated as reported Adjusted EBITDA, excluding Venezuela, increased 12.5% or 15.9% in constant currency terms, with revenue growth and margin expansion in all divisions, except for the Caribbean. The Adjusted EBITDA margin expanded by 60 basis points to 8.5%, driven by efficiencies in Food and Paper (F&P), Payroll, and Occupancy and Other Operating Expenses, partially offset by higher Royalty Fees.

As reported, consolidated G&A increased by 5.1% year-over-year, and remained flat as a percentage of revenues.

Main variations in other operating income (expenses), net

Included in Adjusted EBITDA: In the first quarter of 2018, the Company recorded an inventory write down of $41.3 million, related to the devaluation in Venezuela, compared to an inventory write down of $0.1 million in the first quarter of 2017. Proceeds from refranchising were less than $0.9 million in the first quarter of 2018 as well as in the prior year comparable quarter.

Excluded from Adjusted EBITDA: In the first quarter of 2018, the Company recorded $0.2 million from its re-development initiative, compared with $51.9 million in the first quarter of 2017.

Non-operating Results

Non-operating results for the first quarter reflected a non-cash $1.8 million foreign currency exchange loss, versus a non-cash loss of $8.4 million last year. Net interest expense was $1.8 million lower year-over-year.

The Company reported an income tax expense of $12.9 million in the quarter, compared to an income tax expense of $21.4 million in the prior year period.

First quarter net income attributable to the Company totaled $13.6 million ($0.5 million, including Venezuela), compared to net income of $41.0 million ($40.6 million, including Venezuela) in the same period of 2017. The prior year result included $51.9 million from the Company’s re-development initiative compared with $0.2 million this year. The Company concluded the redevelopment program in 2017.

The Company reported earnings per share of $0.06 ($0.00, including Venezuela) in the first quarter of 2018, compared to earnings per share of $0.19 (also $0.19, including Venezuela) in the previous corresponding period. Total weighted average shares for the first quarter of 2018 were 211,072,508, as compared to 210,711,224 in the prior year quarter.

Analysis by Division:

Brazil’s as reported revenues increased by 1.3%, supported by constant currency growth outpacing a negative currency translation impact from the 3.3% average depreciation of the Brazilian real. Excluding currency translation, constant currency revenues grew 4.5% year-over-year, while total systemwide sales grew 7.4% in constant currency. This reflects the impact of the refranchising of certain company-operated restaurants during the last twelve months. An increase in the 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, systemwide comparable sales rose 4.6%, driven by a higher average check and continued restaurant traffic growth.

Marketing activities in the quarter, which were designed to sustainably stimulate top-line growth without negatively impacting gross margins, included the launch of the Batata Rústica campaign and the introduction of the Big Tasty Duplo & Chicken Bacon sandwiches, among others. Also in the quarter, the Company launched the McFlurry “Alpino” and “Triplo Chocolate Kopenhagen” in the Dessert category and included “Snoopy” in the Happy Meal.

As reported Adjusted EBITDA increased 8.9% year-over-year and 12.1% on a constant currency basis. The Adjusted EBITDA margin expanded 100 basis points to 13.4%, mainly through capturing efficiencies in F&P costs. Brazil Royalty Fee was partially offset by Growth Support received from McDonald’s Corporation during the quarter.

NOLAD’s as reported revenues increased 15.2% year-over-year, supported by constant currency growth of 11.9% and an 8% year-over-year average appreciation of the Mexican peso. Systemwide comparable sales increased 11.4%, mainly driven by an increase in traffic across all the division’s markets, combined with a favorable shift in mix. Notably, Mexico guest traffic continues to perform strongly, having recorded the highest comparable growth rate since the formation of Arcos Dorados in 2007. In addition to the positive Easter calendar shift, the Company’s innovative marketing and digital initiatives as well as its focus on delivering a better guest experience are driving the improved performance.

Marketing activities in the quarter included a new phase of the affordability platform “McTrío 3x3” in Mexico and the introduction of the “Caprese” premium burger in the Signature Line. The dessert category performed well with the launch of the McFlurry Crunch Rocks. Also in the quarter, the Company included “Ty Beanie Boos” and “Snoopy” in the Happy Meal.

As reported Adjusted EBITDA increased by 40.1%, or by 41.9% on a constant currency basis. The Adjusted EBITDA margin expansion of 130 basis points to 7.5% in the first quarter reflects efficiencies in all cost line items, except Royalty Fees.

SLAD’s as reported revenues increased 4.9% as constant currency growth of 19.7% more than offset negative currency translation impacts resulting from the 25.7% year-over-year average depreciation of the Argentine peso. Systemwide comparable sales increased 19.7%, driven by the combination of a favorable shift in mix and an increase in traffic.

Marketing activities in the quarter included the introduction of the Blue Cheese & Bacon premium burger in the Signature Line. Also in the quarter, the Company launched the “Papas Blue Cheese” and “Papas Cheddar Bacon” campaigns. The dessert category performed well with the introduction of the McFlurry Hershey’s and the launch of the McColoso. The Happy Meal featured “Ty Beanie Boos” and “Snoopy” during the quarter.

Adjusted EBITDA increased 11.5% on an as reported basis and rose 26.1% in constant currency terms. The Adjusted EBITDA margin expanded 50 basis points to 9.5%, due to efficiencies in all cost line items, except Royalty Fees. SLAD’s Royalty Fee increase was partially offset by Growth Support received from McDonald’s Corporation during the quarter.

The Caribbean division’s results continue to be heavily impacted by Venezuela’s macroeconomic volatility, including the ongoing hyperinflationary environment and the country’s heavily regulated currency. As such, reported results in the quarter reflect significant non-cash accounting impacts from operations in that market. Thus, the discussion of the Caribbean division’s operating performance is focused on results, excluding Venezuela.

As reported revenues in the Caribbean division, excluding Venezuela, increased 15.1%, driven by constant currency growth of 10.8% and a positive currency translation impact. Comparable sales increased by 10.3%, driven by average check growth and positive traffic, including another quarter of solid results in Colombia. Marketing activities in the quarter included the continuation of the MyCombo campaign and the launch of the Mozzarella Melt burger. Also in the quarter, the Company introduced the Chokis Chocobase Cone in the dessert category, and included “Snoopy” in the Happy Meal.

Adjusted EBITDA totaled $3.8 million, compared to $3.4 million in the same period of 2017. The Adjusted EBITDA margin contracted 10 basis points to 3.8%. Lower Payroll costs, Occupancy and Other Operating expenses as well as G&A largely offset higher F&P expenses and Royalty Fees as a percentage of revenues.

The Company opened 51 new restaurants during the twelve-month period ended March 31, 2018, resulting in a total of 2,190 restaurants. Also during the period, the Company added 232 Dessert Centers, bringing the total to 2,920. McCafés totaled 316 as of March 31, 2018.

Balance Sheet & Cash Flow Highlights

Cash and cash equivalents, including short-term investments, were $256.8 million at March 31, 2018. The Company’s total financial debt (including derivative instruments) was $638.6 million. Net debt (Total Financial Debt minus Cash and cash equivalents) was $381.8 million and the Net Debt/Adjusted EBITDA ratio was 1.4x at March 31, 2018.

Net cash used in operating activities totaled $25.9 million for the quarter, and cash used in net investing activities totaled $21.5 million, which included capital expenditures of $23.8 million. Cash used in financing activities amounted to $1.7 million.

Quarter Highlights & Recent Developments

Recent accounting pronouncements – Revenue recognition

Effective January 1, 2018, the Company adopted the guidance issued in Accounting Standards Codification 606, "Revenue Recognition - Revenue from Contracts with Customers." This standard changed the way initial fees from franchisees for new restaurant openings and new franchise terms are recognized. Under the new guidance, initial franchise fees are being recognized evenly over the franchise term rather than immediately upon receipt. For further information, please refer to Note #3 of our quarterly financial statements (Form 6-K), filed today with the SEC.

Annual General Shareholders Meeting

The Company held its Annual Shareholders’ Meeting on April 24, 2018. All proposals were approved.

Election of Class I Directors

Mr. Woods Staton, Mr. Ricardo Gutiérrez, Mr. Sergio Alonso and Mr. Francisco Staton have been duly elected as Class I Directors of the Board of Directors of the Company, to hold office until the conclusion of the Annual General Shareholders’ Meeting held in the calendar year 2021. Mr. Francisco Staton was elected to the Board of Directors for the first time. Mr. Staton graduated with a Bachelor’s Degree from Princeton University and an MBA from Columbia University, and is currently the Managing Director of Arcos Dorados’ Colombia, Aruba, Curaçao, and Trinidad markets.

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 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.

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 2,190 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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20180509005238/en/