ARCO

Arcos Dorados Holdings Inc. Q1 2025 Financial Summary

Business Context and Reporting Period

This Form 6-K reports the unaudited condensed consolidated financial results for Arcos Dorados Holdings Inc. for the three-month period ended March 31, 2025. The Company operates and franchises McDonald's restaurants across 20 territories in Latin America and the Caribbean. Effective January 1, 2025, the Company entered into new Master Franchise Agreements (MFAs) with McDonald's Corporation, extending terms to 20 years for most territories.

Key Financial Metrics

Note: Total Debt for Q1 2025 includes $38,366 short-term debt and $1,175,408 long-term debt (net of discounts/premiums).

Material Changes vs. Prior Period

• Revenue Decline: Total revenues decreased by 0.4% to $1.077 billion, driven by a 0.4% drop in company-operated restaurant sales and a 1.7% decline in franchised restaurant revenues.
• Profitability Compression: Operating income fell 33.2% to $45.1 million. Net income attributable to shareholders dropped 51.1% to $13.9 million. This was primarily due to increased operating costs and foreign currency exchange results.
• Balance Sheet Strengthening: Cash and cash equivalents surged from $135.1 million to $404.6 million, largely due to the issuance of $600 million in 2032 Senior Notes.
• Debt Restructuring: The Company issued $600 million in 2032 Notes (6.375% interest) in January 2025. Proceeds were used to fund a cash tender offer for 35.27% of 2027 Notes ($136.1 million) and to redeem the remaining 2027 Notes ($243.1 million) in April 2025.
• Segment Performance: Brazil Adjusted EBITDA declined 34.3% to $49.6 million. Conversely, the South Latin American Division (SLAD) saw Adjusted EBITDA increase 57.9% to $39.1 million.

Outlook, Risks, and Contingencies

• Guidance and Commitments: The Company expects to open 90-100 restaurants in 2025 and has committed to reimaging at least 10% of eligible restaurants. It must maintain a Fixed Charge Coverage Ratio of at least 1.50 and a Leverage Ratio of no more than 4.25 under the new MFAs. As of March 31, 2025, the Company reported a Fixed Charge Coverage Ratio of 2.14 and a Leverage Ratio of 3.80.
• Contingencies: The Company maintains a provision for contingencies of $34.2 million, primarily related to tax and labor matters in Brazil. There are unasserted tax matters with a reasonable possibility of loss ranging between $474 million and $517 million, and potential income tax assessments of $182 million for fiscal years 2009-2017.
• Currency Risks: Operations in Argentina and Venezuela are subject to high inflation and currency restrictions. While the Company was able to increase prices in Venezuela during the quarter, access to cash through repatriation remains limited.
• Dividends: A cash dividend of $0.24 per share was approved, payable in four installments throughout 2025. The first installment of $0.06 per share was paid in March 2025.

Investor Verification Checklist

• Debt Maturity Profile: Verify the impact of the new 2032 Notes issuance and the full redemption of 2027 Notes on future interest expense and liquidity.
• Brazil Tax Exposure: Review the details of the $25.5 million tax contingency provision and the potential $182 million unasserted tax assessment in Brazil.
• Argentina/Venezuela Operations: Assess the sustainability of revenue growth in SLAD given the high inflation and currency controls in Argentina and Venezuela.
• Franchise Fee Liability: Note the $67.6 million liability for initial franchise fees for franchised restaurants, payable in installments starting August 2027.
• Segment Mix: Analyze the divergence between Brazil's declining profitability and SLAD's strong performance to understand regional headwinds.