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Arcos Dorados Reports Third Quarter 2018 Financial Results

Share:

Consolidated revenue growth of 8.3%, on a constant currency basis,
supported by a 7.4% increase in comparable sales
1.

Adjusted EBITDA margin expanded 340 basis points to 12.3%1.

Net income increased 68% to $42.7 million1.

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, 2018.

Third Quarter 2018 Highlights – Excluding Venezuela

  • On a constant currency basis2, consolidated revenues grew
    8.3%. As reported, consolidated revenues decreased 12.9% to $720.3
    million versus the third quarter of 2017.
  • Systemwide comparable sales2 rose 7.4% year-over-year.
  • As reported, Adjusted EBITDA2 increased 19.7% to $88.2
    million compared with the prior-year quarter.
  • Consolidated Adjusted EBITDA margin expanded 340 basis points
    year-over-year to 12.3%.
  • As reported, General and Administrative (G&A) expenses decreased 16.2%
    versus the prior-year quarter.
  • As reported, net income increased 68% to $42.7 million, from $25.3
    million in the third quarter of 2017.
 

_______________

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

"Systemwide comparable sales grew 7.4% on top of the 10.4% achieved last
year, with strong contributions from most of our markets throughout
Latin America and the Caribbean. Our operating structure and disciplined
approach to growth was supported by restaurant level, bottom line
profitability and cash flow generation. In Brazil, sales grew over 2% in
constant currency terms as we focused on consistently growing in a
profitable manner. We achieved adjusted EBITDA margin expansion of 130
basis points, excluding other operating income mostly related to a tax
credit, as we effectively managed food and paper as well as labor costs.

Our investments in innovative marketing and digital initiatives and in
enhancing the guest experience also contributed to comparable sales
growth, as guest traffic continued rising in increasingly important
markets, such as Mexico and the Andean markets within the SLAD division.
Comparable sales in our NOLAD division grew 6.7% in the quarter.

With the uncertainty about Mexico's presidential election and the US
trade agreement behind us and the choice of Brazil's president decided,
we are more optimistic about the macro environments of these two
important markets. However, even under improving market conditions, we
will remain vigilant, protecting and expanding our customer base across
our markets while seeking to preserve and enhance our margins.

We are strong in a number of ways that support Arcos Dorados' long-term,
financial sustainability. Through leveraging our scale, vast geographic
footprint, compelling line-up of menu items, and obsession with
elevating our guests' dining experience, we will successfully execute on
our strategic plan," said Sergio Alonso, Chief Executive Officer
of Arcos Dorados.

Third Quarter 2018 Results

 

Consolidated

Figure 1. AD Holdings Inc Consolidated: Key Financial Results
(In
millions of U.S. dollars, except as noted)

   

3Q17
(a)

 

Currency
Translation
- Excl.
Venezuela
(b)

 

Constant
Currency
Growth -
Excl.
Venezuela
(c)

 

Venezuela
(d)

 

3Q18
(a+b+c+d)

 

% As
Reported

 

% Constant
Currency

Total Restaurants (Units)   2,160         2,195   1.6%  
 
Sales by Company-operated Restaurants 803.4 (167.4) 65.2 (9.9) 691.3 -14.0% 684.6%
Revenues from franchised restaurants 39.1 (8.3) 3.4 (1.0) 33.1 -15.4% 1832.1%
Total Revenues 842.5 (175.8) 68.6 (11.0) 724.4 -14.0% 737.9%
Systemwide Comparable Sales 942.2%
Adjusted EBITDA 74.2 (22.5) 37.0 (0.9) 87.9 18.4% 4672.6%
Adjusted EBITDA Margin 8.8% 12.1%
Net income (loss) attributable to AD 23.4 (9.7) 27.0 (14.7) 26.0 11.2% -19580.6%
No. of shares outstanding (thousands) 211,072 208,628
EPS (US$/Share)   0.11               0.12        

(3Q18 = 3Q17 + Currency Translation Excl. Venezuela + Constant
Currency Growth Excl. Venezuela + Venezuela). Refer to "Definitions"
section for further detail.

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 may contain significant non-cash
accounting charges to operations in this market. In this quarter, we
recorded a long-lived asset impairment charge of $11.1 million.
Accordingly, the discussion of the Company's operating performance is
focused on consolidated results that exclude Venezuela.

 

Consolidated – excluding Venezuela

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

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

   

3Q17
(a)

 

Currency
Translation
(b)

 

Constant
Currency
Growth
(c)

 

3Q18
(a+b+c)

 

% As
Reported

 

% Constant
Currency

Total Restaurants (Units) 2,030       2,067   1.8%  
 
Sales by Company-operated Restaurants 789.8 (167.4) 65.2 687.7 -12.9% 8.3%
Revenues from franchised restaurants 37.6 (8.3) 3.4 32.6 -13.2% 9.0%
Total Revenues 827.4 (175.8) 68.6 720.3 -12.9% 8.3%
Systemwide Comparable Sales 7.4%
Adjusted EBITDA 73.7 (22.5) 37.0 88.2 19.7% 50.1%
Adjusted EBITDA Margin 8.9% 12.3%
Net income (loss) attributable to AD 25.3 (9.7) 27.0 42.7 68.4% 106.7%
No. of shares outstanding (thousands) 211,072 208,628
EPS (US$/Share)   0.12           0.20        

Excluding the Company's Venezuelan operation, as reported revenues
decreased 12.9% year-over-year, primarily due to the negative impact of
the 85% and 25% year-over-year average depreciations against the US
dollar of the Argentine peso and the Brazilian real, respectively. This
impact was partially offset by constant currency revenue growth of 8.3%.
Constant currency revenue growth was supported by a 7.4% increase in
systemwide comparable sales, largely driven by average check growth.

Adjusted EBITDA ($ million)

Third quarter consolidated as reported Adjusted EBITDA, excluding
Venezuela, increased 19.7%, or 50.1% in constant currency terms.
Adjusted EBITDA included a one-time amount of $23.2 million in other
operating income, mostly related to a tax credit in the Brazil division.
The Adjusted EBITDA margin expanded by 340 basis points to 12.3%.
Excluding the aforementioned one-time other income amount, the Adjusted
EBITDA margin would have expanded 10 basis points year-over-year, mainly
driven by efficiencies in Payroll and G&A offset by a step up in Royalty
Fees.

As reported, consolidated G&A decreased by 30 basis points as a
percentage of revenues and was 16.2% lower year-over-year. On a constant
currency basis, G&A increased 6.2%, below the blended inflation for the
Company's G&A.

Main variations in other operating income (expenses), net

Included in Adjusted EBITDA: In the third
quarter of 2018, the Company recorded a one-time income of $23.2
million, mostly related to a tax credit in the Brazil division. Proceeds
from refranchising were $2.2 million in the third quarter of 2018,
compared to $1.7 million in the prior-year quarter.

Excluded from Adjusted EBITDA: In the third
quarter of 2018, the Company recorded an impairment charge of $11.1
million related to its operations in Venezuela.

Non-operating Results

Non-operating results for the third quarter, excluding Venezuela,
contain a $10.5 million non-cash foreign currency exchange gain, versus
a non-cash gain of $6.0 million in 2017. Net interest expense was $2.8
million lower year-over-year.

The Company reported an income tax expense, excluding Venezuela, of
$21.4 million in the quarter, compared to an income tax expense of $15.5
million in the prior year period.

Third quarter net income attributable to the Company totaled $42.7
million ($26.0 million, including Venezuela), compared to net income of
$25.3 million ($23.4 million, including Venezuela) in the same period of
2017. This year's higher operating income, which included the $23.2
million one-time income, combined with lower net interest expenses and a
positive variance in foreign exchange results, was partially offset by
higher income tax expenses.

The Company reported earnings per share of $0.20 ($0.12, including
Venezuela) in the third quarter of 2018, compared to earnings per share
of $0.12 ($0.11, including Venezuela) in the previous corresponding
period. Due to share repurchases, total weighted average shares for the
third quarter of 2018 decreased to 208,628,186 from 211,072,340 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)

   

3Q17
(a)

 

Currency
Translation
(b)

 

Constant
Currency
Growth
(c)

 

3Q18
(a+b+c)

 

% As
Reported

 

%
Constant
Currency

Total Restaurants (Units)   910       939   3.2%  
 
Total Revenues 378.4 (76.1) 7.8 310.1 -18.0% 2.1%
Systemwide Comparable Sales 1.0%
Adjusted EBITDA 49.3 (17.7) 36.0 67.5 37.0% 73.0%
Adjusted EBITDA Margin   13.0%           21.8%        
 

Brazil's as reported revenues decreased 18.0%, impacted by the 25%
year-over-year average depreciation of the Brazilian real. Excluding
currency translation, constant currency revenues grew 2.1%, supported by
systemwide comparable sales growth of 1.0%.

Marketing activities in the quarter included the launch of Triplo
Quarterão and Egg Quarterão sandwiches, among others. Other marketing
campaigns in the quarter included the launch of McFlurry Laka & Black
Diamond in the dessert category, and My Little Pony and Transformers in
the Happy Meal. Also, in the quarter, the Company commemorated 50 years
of the Big Mac with a McCoin campaign and hosted McDia, which helps
raise funds for the Ronald McDonald House and the Ayrton Senna Institute.

As reported Adjusted EBITDA increased 37.0% year-over-year and 73.0% on
a constant currency basis. Adjusted EBITDA was positively impacted by a
one-time amount in other operating income of $23.2 million, mostly
related to a tax credit resulting from the exclusion of ICMS from the
Pis/Cofins calculation base. The Adjusted EBITDA margin expanded from
13.0% to 21.8%, positively impacted by this one-time tax credit.
Excluding the tax credit, the Adjusted EBITDA margin would have expanded
130 basis points year-over-year to 14.3%, mainly driven by efficiencies
in Payroll and Food and Paper (F&P) costs.

 

NOLAD

Figure 4. NOLAD Division: Key Financial Results

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

   

3Q17
(a)

 

Currency
Translation
(b)

 

Constant
Currency
Growth
(c)

 

3Q18
(a+b+c)

 

% As
Reported

 

% Constant
Currency

Total Restaurants (Units)   514     521   1.4%  
 
Total Revenues 102.3 (3.0) 6.8 106.1 3.7% 6.7%
Systemwide Comparable Sales 6.7%
Adjusted EBITDA 9.9 (0.0) (1.1) 8.8 -11.2% -10.9%
Adjusted EBITDA Margin   9.7%           8.3%        
 

NOLAD's as reported revenues increased 3.7% year-over-year, supported by
constant currency growth of 6.7%, partially offset by a negative
currency translation impact resulting from the Mexican peso's 6%
year-over-year average depreciation against the US dollar. Systemwide
comparable sales increased 6.7%, driven by growth in guest traffic.
Mexico traffic continues to perform strongly, recording a sixth
consecutive quarter of positive comparable sales growth. The Company's
compelling menu, innovative marketing initiatives, as well as its focus
on delivering an enhanced guest experience, continue to drive this
improved performance.

Third quarter movie tie-in promotions for the Happy Meal included Hotel
Transylvania 3, My Little Pony, Transformers and Super Mario. A new
phase of the affordability platform "McTrío 3x3" continued in Mexico
with Hamburguesa Gourmet. Also during the quarter, the Company launched
Chipotle Ranch in the Signature Line and McFlurry Choco Roles in the
dessert category.

As reported Adjusted EBITDA decreased 11.2%, or 10.9% on a constant
currency basis. The Adjusted EBITDA margin contracted by 140 basis
points to 8.3%, or by 30 basis points when excluding refranchising
inflows recorded in the same quarter of last year. The margin
contraction mainly reflects an increase in Royalty Fees, which accounted
for 40 basis points of the decrease in the quarter's margin.

 

SLAD

Figure 5. SLAD Division: Key Financial Results
(In
millions of U.S. dollars, except as noted)

   

3Q17
(a)

 

Currency
Translation
(b)

 

Constant
Currency
Growth
(c)

 

3Q18
(a+b+c)

 

% As
Reported

 

% Constant
Currency

Total Restaurants (Units)   386       390   1.0%  
 
Total Revenues 252.3 (96.6) 45.6 201.4 -20.2% 18.1%
Systemwide Comparable Sales 18.1%
Adjusted EBITDA 26.3 (10.4) 1.5 17.3 -34.1% 5.6%
Adjusted EBITDA Margin   10.4%           8.6%        
 

SLAD's as reported revenues decreased 20.2%, as constant currency growth
of 18.1% was more than offset by negative currency translation effects
resulting from the 85% year-over-year average depreciation of the
Argentine peso against the US dollar. Systemwide comparable sales
increased 18.1%, driven by average check growth.

Marketing activities in the quarter included the introduction of an Egg
& Bacon premium burger in the Signature Line and the continuation of the
McCombo of the Day in the affordability platform. The Happy Meal
performed well with Hotel Transylvania 3 and Super Mario movie tie-ins.
Also during the quarter, the Company launched Chicken Sticks, the first
product in its new Snacks platform.

Adjusted EBITDA decreased 34.1% on an as reported basis and rose 5.6% in
constant currency terms. The Adjusted EBITDA margin contracted 180 basis
points to 8.6%, as efficiencies in Payroll costs were more than offset
by higher F&P costs, Occupancy and Other Operating Expenses, and Royalty
Fees as a percentage of revenues.

 

Caribbean Division

Figure 6. Caribbean Division: Key Financial Results
(In
millions of U.S. dollars, except as noted)

   

3Q17
(a)

 

Currency
Translation
(b)

 

Constant
Currency
Growth
(c)

 

3Q18
(a+b+c)

 

% As
Reported

 

% Constant
Currency

Total Restaurants (Units)   350       345   -1.4%  
 
Total Revenues 109.4 (6,158.6) 6,155.9 106.7 -2.4% 5625.7%
Systemwide Comparable Sales 8297.0%
Adjusted EBITDA 5.6 (3,432.7) 3,433.7 6.6 17.5% 61151.6%
Adjusted EBITDA Margin   5.1%           6.2%        
 

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 may contain significant non-cash
accounting charges to operations in this market. In this quarter we
recorded a long-lived asset impairment charge of $11.1 million Due to
the distortive effects that Venezuela represents, 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)

   

3Q17
(a)

 

 

Currency
Translation
(b)

 

Constant
Currency
Growth
(c)

 

3Q18
(a+b+c)

 

% As
Reported

 

% Constant
Currency

Total Restaurants (Units)   220       217   -1.4%  
 
Total Revenues 94.4 (0.1) 8.4 102.7 8.8% 8.9%
Systemwide Comparable Sales 12.7%
Adjusted EBITDA 5.1 (0.0) 1.9 7.0 35.8% 36.2%
Adjusted EBITDA Margin   5.4%           6.8%        
 

As reported revenues in the Caribbean division, excluding Venezuela,
increased 8.8%, or 8.9% in constant currency terms. Comparable sales
increased 12.7%, well above the division's blended inflation, driven by
guest traffic and average check growth. The division's comparable base
positively benefitted from prior year impacts from natural disasters in
Puerto Rico and the USVI. Marketing activities in the quarter included
Hotel Transylvania 3 and My Little Pony for the Happy Meal and the
launch of the McFlurry Pirulin Coco in the dessert category, among
others. In addition, the 50th anniversary of the Big Mac was
celebrated in Colombia with a McCoin campaign.

Adjusted EBITDA totaled $7.0 million, compared to $5.1 million in the
same period of 2017. The Adjusted EBITDA margin expanded 140 basis
points to 6.8%, mainly driven by efficiencies in G&A, F&P and Payroll
costs.

 

New Unit Development

Figure 8. Total Restaurants (eop)*                    
   

September
2018

 

June
2018

 

March
2018

 

December
2017

 

September
2017

Brazil   939   933   929   929   910
NOLAD 521 522 522 519 514
SLAD 390 390 391 390 386
Caribbean 345 346 348 350 350
TOTAL   2,195   2,191   2,190   2,188   2,160
* Considers Company-operated and franchised restaurants at period-end
 

The Company opened 54 new restaurants during the twelve-month period
ended September 30, 2018, resulting in a total of 2,195 restaurants.
Also during the period, the Company added 285 Dessert Centers, bringing
the total to 2,951 units. McCafés totaled 285, as of September 30, 2018.

Balance Sheet & Cash Flow Highlights

Cash and cash equivalents were $207.6 million at September 30, 2018. The
Company's total financial debt (including derivative instruments) was
$566.8 million. Net debt (Total Financial Debt minus Cash and
cash equivalents) was $359.2 million and the Net Debt/Adjusted EBITDA
ratio was 1.3x at September 30, 2018.

 

Figure 9. Consolidated Financial Ratios
(In
thousands of U.S. dollars, except ratios)

  September 30   December 31
    2018   2017
Cash & cash equivalents (i) 207,553 328,079
Total Financial Debt (ii) 566,757 621,460
Net Financial Debt (iii) 359,204 293,381
Total Financial Debt / LTM Adjusted EBITDA ratio 2.0 2.0
Net Financial Debt / LTM Adjusted EBITDA ratio   1.3   1.0
(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 $70.7 million and $35.1 million as a reduction of financial
debt as of September 30, 2018 and December 31, 2017, respectively).

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

Net cash provided by operating activities totaled $52.8 million in the
third quarter, while cash used in net investing activities totaled $40.8
million, which included capital expenditures of $55.9 million, compared
to $43.4 million in the previous year's quarter. Cash used in financing
activities amounted to $9.3 million, including $8.3 million of treasury
stock purchases.

First Nine Months of 2018

Excluding the Venezuelan operation and for the nine months ended
September 30, 2018, the Company's as reported revenues decreased 4.6% to
$2,257.6 million, as constant currency growth of 8.6% was offset by
negative currency translation.

As reported Adjusted EBITDA was $205.1 million, a 6.2% increase compared
to the same period of last year. On a constant currency basis, Adjusted
EBITDA increased 21.3%. The reported Adjusted EBITDA margin expanded by
90 basis points to 9.1%, mainly driven by the tax credit. Excluding the
tax credit, the Adjusted EBITDA margin would have declined by 40 basis
points, mostly a result of higher Royalty Fees and Occupancy and other
operating expenses as a percentage of revenues.

Year-to-date consolidated net income amounted to $66.9 million, compared
to net income of $67.4 million in the first nine months of 2017. The
prior year's result included $56.1 million from the Company's
re-development initiative compared to $0.2 million this year. The
nine-month result also reflects lower net interest expenses, lower
losses from derivative instruments, a positive variance in foreign
currency exchange results, and higher income tax.

During the first nine months of 2018, capital expenditures totaled
$119.0 million versus $108.6 million in the comparable period.

Other Third Quarter Highlights & Recent
Developments

Share Repurchase Program

On May 22, 2018, the Board of Directors approved the adoption of a share
repurchase program, pursuant to which the Company may repurchase from
time to time up to $60 million of issued and outstanding Class A shares
of no par value of the Company. The repurchase program began on this
date and will expire at the close of business on May 22, 2019. As of
September 30, 2018, the Company had purchased 3,900,103 shares at a
total cost of $28.3 million.

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.

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.

 

Third Quarter 2018 Consolidated Results
(In thousands
of U.S. dollars, except per share data)

 

Figure 10. Third Quarter & First Nine Months of 2018
Consolidated Results

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

  For Three-Months ended   For Nine-Months ended
September 30, September 30,
    2018   2017 2018   2017
REVENUES    
Sales by Company-operated restaurants 691,270 803,351 2,216,785 2,310,980
Revenues from franchised restaurants     33,102     39,115   111,444     111,664
Total Revenues     724,372     842,466   2,328,229     2,422,644
OPERATING COSTS AND EXPENSES
Company-operated restaurant expenses:
Food and paper (245,141) (283,892) (779,977) (820,097)
Payroll and employee benefits (141,439) (174,023) (470,703) (508,914)
Occupancy and other operating expenses (190,964) (213,467) (607,509) (623,215)
Royalty fees (37,851) (40,092) (118,625) (117,450)
Franchised restaurants - occupancy expenses (15,382) (17,000) (50,324) (49,651)
General and administrative expenses (50,155) (60,203) (167,073) (175,950)
Other operating (expenses) income, net     9,959     (6,021)   (49,415)     45,314
Total operating costs and expenses     (670,973)     (794,698)   (2,243,626)     (2,249,963)
Operating income     53,399     47,768   84,603     172,681
Net interest expense (12,229) (15,045) (39,326) (54,503)
Loss from derivative instruments 140 195 (191) (7,036)
Foreign currency exchange results 10,523 5,635 15,651 (18,476)
Other non-operating expenses, net     53     517   (9)     (607)
Income (expense) before income taxes     51,886     39,070   60,728     92,059
Income tax (expense) benefit     (25,805)     (15,537)   (32,978)     (31,888)
Net income (loss)     26,081     23,533   27,750     60,171
(Less): Net income attributable to non-controlling interests     (55)     (128)   (140)     (277)
Net income (loss) attributable to Arcos Dorados Holdings Inc.     26,026     23,405   27,610     59,894
Earnings per share information ($ per share):
Basic net income per common share $ 0.12 $ 0.11 $ 0.13 $ 0.28
Weighted-average number of common shares outstanding-Basic     208,628,186     211,072,340   210,084,482     210,889,576
Adjusted EBITDA Reconciliation              
Operating income 53,399 47,768 84,603 172,681
Depreciation and amortization 25,195 25,298 77,285 73,190
Operating charges excluded from EBITDA computation     9,293     1,170   10,009     (52,354)
Adjusted EBITDA     87,887     74,236   171,897     193,517
Adjusted EBITDA Margin as % of total revenues     12.1%     8.8%   7.4%     8.0%
 
 

Third Quarter 2018 Consolidated Results – Excluding Venezuela
(In
thousands of U.S. dollars, except per share data)

 

Figure 11. Third Quarter & First Nine Months of 2018
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,
    2018   2017 2018   2017
REVENUES    
Sales by Company-operated restaurants 687,679 789,836 2,153,929 2,261,106
Revenues from franchised restaurants     32,628     37,604   103,667     106,072
Total Revenues     720,307     827,440   2,257,596     2,367,178
OPERATING COSTS AND EXPENSES
Company-operated restaurant expenses:
Food and paper (244,453) (276,184) (754,869) (794,145)
Payroll and employee benefits (141,262) (173,008) (466,599) (503,246)
Occupancy and other operating expenses (189,279) (208,885) (591,609) (607,995)
Royalty fees (37,897) (39,884) (120,087) (115,888)
Franchised restaurants - occupancy expenses (15,194) (16,444) (48,123) (47,728)
General and administrative expenses (49,115) (58,592) (162,607) (170,378)
Other operating (expenses) income, net     22,567     (5,203)   19,787     49,677
Total operating costs and expenses     (654,633)     (778,200)   (2,124,107)     (2,189,703)
Operating income     65,674     49,240   133,489     177,475
Net interest expense (12,240) (15,052) (39,306) (54,537)
Loss from derivative instruments 140 195 (191) (7,036)
Foreign currency exchange results 10,521 6,033 9,451 (15,009)
Other non-operating expenses, net     53     537   (11)     (587)
Income (expense) before income taxes     64,148     40,953   103,432     100,306
Income tax (expense) benefit     (21,437)     (15,491)   (36,367)     (32,625)
Net income     42,711     25,462   67,065     67,681
(Less): Net income attributable to non-controlling interests     (55)     (128)   (140)     (277)
Net income attributable to Arcos Dorados Holdings Inc.     42,656     25,334   66,925     67,404
Earnings per share information ($ per share):
Basic net income per common share $ 0.20 $ 0.12 $ 0.32 $ 0.32
Weighted-average number of common shares outstanding-Basic     208,628,186     211,072,340   210,084,482     210,889,576
Adjusted EBITDA Reconciliation              
Operating income 65,674 49,240 133,489 177,475
Depreciation and amortization 24,047 23,346 73,370 67,988
Operating charges excluded from EBITDA computation     (1,479)     1,154   (1,770)     (52,365)
Adjusted EBITDA     88,242     73,740   205,089     193,098
Adjusted EBITDA Margin as % of total revenues     12.3%     8.9%   9.1%     8.2%
 
 

Third Quarter 2018 Results by Division
(In thousands
of U.S. dollars)

 

Figure 12. Third Quarter & First Nine Months of 2018
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
    2018   2017   (Decr)   Incr/(Decr)% 2018   2017   (Decr)   Incr/(Decr)%

Revenues

   
Brazil 310,129 378,404 -18.0% 2.1% 991,785 1,093,338 -9.3% 2.2%
Caribbean 106,747 109,426 -2.4% 5625.7% 375,190 331,941 13.0% 2721.1%
Caribbean - Excl. Venezuela 102,682 94,400 8.8% 8.9% 304,557 276,475 10.2% 7.9%
NOLAD 106,122 102,301 3.7% 6.7% 302,282 282,770 6.9% 7.6%
SLAD 201,374 252,335 -20.2% 18.1% 658,972 714,595 -7.8% 19.1%
TOTAL 724,372 842,466 -14.0% 737.9% 2,328,229 2,422,644 -3.9% 380.4%
TOTAL - Excl. Venezuela 720,307 827,440 -12.9% 8.3% 2,257,596 2,367,178 -4.6% 8.6%
 
 

Operating Income (loss)

Brazil 54,740 35,073 56.1% 97.6% 111,726 99,032 12.8% 31.1%
Caribbean (8,804) (448) -1865.2% 765096.0% (43,693) (4,754) -819.1% 114482.0%
Caribbean - Excl. Venezuela 3,471 1,024 239.0% 233.6% 5,193 40 12882.5% 11757.5%
NOLAD 3,762 4,396 -14.4% -17.3% 7,715 62,606 -87.7% -87.6%
SLAD 13,793 22,684 -39.2% 5.7% 43,800 53,625 -18.3% 12.9%
Corporate and Other (10,092) (13,937) 27.6% -19.4% (34,945) (37,828) 7.6% -28.8%
TOTAL 53,399 47,768 11.8% 7242.7% 84,603 172,681 -51.0% 3135.5%
TOTAL - Excl. Venezuela 65,674 49,240 33.4% 70.0% 133,489 177,475 -24.8% -13.1%
 
 

Adjusted EBITDA

Brazil 67,508 49,258 37.0% 73.0% 150,736 139,912 7.7% 24.3%
Caribbean 6,599 5,615 17.5% 61151.6% (15,508) 13,372 -216.0% 40738.2%
Caribbean - Excl. Venezuela 6,954 5,119 35.8% 36.2% 17,684 12,953 36.5% 31.8%
NOLAD 8,774 9,879 -11.2% -10.9% 23,319 23,456 -0.6% -0.2%
SLAD 17,328 26,290 -34.1% 5.6% 57,112 64,790 -11.9% 16.6%
Corporate and Other (12,322) (16,806) 26.7% -7.5% (43,762) (48,013) 8.9% -16.3%
TOTAL 87,887 74,236 18.4% 4672.6% 171,897 193,517 -11.2% 2834.1%
TOTAL - Excl. Venezuela   88,242   73,740   19.7%   50.1% 205,089   193,098   6.2%   21.3%
 
 
Figure 13. Average Exchange Rate per Quarter*
          Brazil   Mexico   Argentina   Venezuela
3Q18         3.95   18.94   32.05  
3Q17         3.16   17.81   17.27    
* Local $ per 1 US$
 
 

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

 

Figure 14. Summarized Consolidated Balance Sheets
(In
thousands of U.S. dollars)

    September 30   December 31
      2018   2017
ASSETS
Current assets
Cash and cash equivalents 207,553 308,491
Short-term investment 0 19,588
Accounts and notes receivable, net 72,565 111,302
Other current assets (1)     164,861   213,656
Total current assets     444,979   653,037
Non-current assets
Property and equipment, net 806,061 890,736
Net intangible assets and goodwill 38,208 47,729
Deferred income taxes 61,566 74,299
Other non-current assets (2)     175,015   137,942
Total non-current assets     1,080,850   1,150,706
Total assets     1,525,829   1,803,743
LIABILITIES AND EQUITY
Current liabilities
Accounts payable 189,370 303,452
Taxes payable (3) 92,793 136,918
Accrued payroll and other liabilities 105,285 119,088
Other current liabilities (4) 17,115 23,715
Provision for contingencies 2,028 2,529
Financial debt (5)     13,310   19,881
Total current liabilities     419,901   605,583
Non-current liabilities
Accrued payroll and other liabilities 33,890 29,366
Provision for contingencies 31,284 25,427
Financial debt (6) 624,194 636,648
Deferred income taxes     9,315   10,577
Total non-current liabilities     698,683   702,018
Total liabilities     1,118,584   1,307,601
Equity
Class A shares of common stock 379,697 376,732
Class B shares of common stock 132,915 132,915
Additional paid-in capital 14,190 14,216
Retained earnings 403,837 401,134
Accumulated other comprehensive losses (495,554) (429,347)
Common stock in treasury     (28,255)   0
Total Arcos Dorados Holdings Inc shareholders' equity     406,830   495,650
Non-controlling interest in subsidiaries     415   492
Total equity     407,245   496,142
Total liabilities and equity     1,525,829   1,803,743
(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
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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