Arcos Dorados Holdings Inc. — FY2022 Form 20-F
Reporting period: Fiscal year ended December 31, 2022. This is an annual report, not a standalone fourth-quarter filing; standalone Q4 results are not provided in the supplied filing text. Financial statements are audited and prepared under U.S. GAAP in U.S. dollars.
Business context and financial performance
Arcos Dorados is the largest independent McDonald’s franchisee by systemwide sales and restaurant count, operating in 20 Latin American and Caribbean countries and territories. At year-end it had 2,312 restaurants: 1,633 company-operated and 679 franchised.
| Metric (US$ millions unless stated) | 2022 | 2021 | Change |
|---|---|---|---|
| Total revenue | 3,618.9 | 2,659.9 | +36.1% |
| Operating income | 264.4 | 139.5 | +89.5% |
| Operating margin | 7.3% | 5.2% | +2.1 percentage points |
| Adjusted EBITDA | 386.6 | 271.8 | +42.2% |
| Adjusted EBITDA margin | 10.7% | 10.2% | +0.5 percentage points |
| Net income attributable to Arcos Dorados | 140.3 | 45.5 | +208.5% |
| Basic and diluted EPS | $0.67 | $0.22 | — |
| Cash from operating activities | 345.4 | 258.0 | +87.4 |
| Capital expenditures | 221.9 | 115.1 | +106.8 |
Sales recovery reflected higher traffic as mobility increased and COVID-related restrictions eased, alongside higher average checks. Systemwide comparable sales grew 40.7%; reported systemwide sales rose 35.8%, with currency depreciation—particularly in Argentina and Chile—offsetting some growth. Digital channels accounted for nearly 41% of systemwide sales, or about $1.9 billion.
Food and paper costs were 35.5% of company-operated restaurant sales, up 0.2 percentage points year over year. Payroll costs were 19.3% of such sales, up 0.4 points. Occupancy and other operating expenses declined to 28.0% of sales from 30.4%, benefiting from improved fixed-cost absorption as sales recovered.
Liquidity, debt and capital allocation
- Year-end cash and cash equivalents were $266.9 million; short-term investments were $37.5 million. Together these totaled about $304.4 million.
- Working capital was negative $75.0 million, compared with negative $77.7 million in 2021.
- Cash used in investing activities was $259.6 million, mainly reflecting $217.1 million of property and equipment spending and $41.1 million of short-term investment purchases. Cash used in financing was $60.0 million, including $31.6 million of dividends and debt transactions.
- Year-end financial debt was reported as $674.4 million including interest payable and net of the fair value of derivatives. Separately, the balance sheet reported $19.0 million of current long-term debt and $711.7 million of long-term debt. These measures use different presentations; investors should consult the debt note for reconciliation.
- The company issued $350 million of 6.125% sustainability-linked notes due 2029, then repurchased some notes. At year-end, principal outstanding was $18.2 million of 2023 notes, $381.3 million of 2027 notes and $337.2 million of 2029 notes. The $25 million revolving facility was undrawn and extended to February 2024; the company reported compliance with its financial covenants.
Changes, outlook and material risks
Compared with 2021, revenue, operating income, net income and operating cash flow improved substantially as restaurant activity recovered. Foreign currency movements remained material: the Argentine peso depreciated 72.4% against the U.S. dollar in 2022, while the Brazilian real appreciated 5.3%. The company reported a $16.5 million foreign-exchange gain in 2022, versus a $9.2 million loss in 2021; derivative instruments produced a $10.5 million loss.
Under a 2022–2024 plan agreed with McDonald’s, the company expects to open at least 200 restaurants and modernize at least 400, with approximately $650 million in capital expenditures over the period. McDonald’s growth support resulted in an effective royalty rate of 5.6% in 2022; management expects approximately 6.0% in 2023 and 2024, subject to plan terms. The company opened 66 restaurants and reimaged 114 in 2022. The board also announced a $0.19-per-share dividend for 2023, payable in installments, subject to applicable conditions.
- Franchise dependence: Master Franchise Agreements provide the exclusive McDonald’s rights and run through August 2, 2027. Renewal is not assured; McDonald’s has specified call and termination rights, including in certain breach circumstances.
- Macroeconomic and currency risks: Inflation, devaluation, price controls, exchange restrictions and limits on cross-border transfers—especially in Argentina—may affect costs, reported results and cash mobility.
- Commitments and contingencies: The company recorded a $44.8 million net provision for contingencies. It disclosed $211 million of income-tax matters that could be challenged and a $430–$469 million range of reasonably possible losses involving other tax, customs, labor and civil matters; these are not equivalent to recorded liabilities.
- Other exposures: Risks include commodity and labor-cost inflation, supply disruptions, social unrest, food safety, cybersecurity, regulation and reliance on sub-franchisees and approved suppliers. Management reported effective disclosure controls and internal control over financial reporting; the auditor issued unqualified opinions on the financial statements and internal controls.
Key facts investors should verify
- Reconcile the company’s reported net financial debt measure to balance-sheet debt, derivative fair values and note principal balances.
- Assess whether cash and operating cash flow can fund the 2022–2024 investment plan, lease obligations and debt maturities while maintaining liquidity.
- Track the 2023 note repayment/refinancing and the February 2024 revolving-facility maturity, as well as compliance with debt and MFA covenants.
- Monitor McDonald’s renewal decision and terms for the master franchise agreements ahead of their 2027 expiration.
- Review developments in the disclosed tax, customs, labor and civil matters, and the company’s exposure to Argentine currency controls and other regional FX restrictions.