Core Insights - The article emphasizes the investment philosophy focused on small cap companies, highlighting the importance of identifying mispriced securities through understanding financial drivers and utilizing DCF model valuation [1]. Group 1: Investment Philosophy - The investment approach is not confined to traditional categories such as value, dividend, or growth investing, but rather considers all prospects of a stock to assess risk-to-reward [1]. Group 2: Market Focus - The investment strategy encompasses markets in the US, Canada, and Europe, indicating a broad geographical focus for potential investment opportunities [1].

Core Viewpoint - Arcos Dorados Holdings Inc. (ARCO) reported mixed results for Q1 2025, with earnings missing estimates while revenues exceeded expectations. Year-over-year, the bottom line improved, but the top line declined [1][4]. Financial Performance - Adjusted earnings per share (EPS) for Q1 2025 were 7 cents, falling short of the Zacks Consensus Estimate of 13 cents by 46.2%. This compares to an adjusted EPS of 14 cents in the same quarter last year [4]. - Quarterly revenues reached $1.08 billion, surpassing the consensus mark of $1.07 billion by 0.9%, but declined 0.4% year over year. On a constant currency basis, revenues grew 14.1% compared to the previous year [4]. Operational Highlights - Systemwide comparable sales increased by 11.1% year over year, a decrease from the 21.5% growth reported in the prior-year quarter. Digital sales rose by 6.3% year over year [5]. - Food and paper costs amounted to $366.6 million, up from $360.9 million in the prior-year quarter. General and administrative expenses increased by 6.8% year over year to $73.3 million. Operating income was $45.1 million, down from $67.6 million in the previous year [6]. - Adjusted EBITDA for the quarter was $91.3 million, compared to $108.9 million in the prior-year quarter, with the adjusted EBITDA margin contracting by 160 basis points to 8.5% [7]. Balance Sheet - As of March 31, 2025, Arcos Dorados had total cash and cash equivalents of $404.6 million, a significant increase from $135.1 million at the end of 2024. Total financial debt rose to $1.16 billion from $707.6 million at the end of 2024 [8]. Store Development - In Q1 2025, Arcos Dorados added 12 new Experience of the Future (EOTF) restaurants, including 10 free-standing units, bringing the total to 1,669 EOTF restaurants, which represent 68% of its overall portfolio. The company aims to open 90 to 100 new locations throughout the year [9].

2 Agenda First Quarter 2025 Results Arcos Dorados May 14, 2025 Disclaimer This presentation contains forward-looking statements that represent our beliefs, projections and predictions about future events or our future performance. Forward-looking statements can be identified by terminology such as "may," "will," "would," "could," "should," "expect," "intend," "plan," "anticipate," "believe," "estimate," "predict," "potential," "continue" or the negative of these terms or other similar expressions or phrases ...

Financial Data and Key Metrics Changes - Total revenue for the first quarter of 2025 reached $1.1 billion, approximately equal to the previous year [5] - Consolidated adjusted EBITDA was $91.3 million, down from the previous year primarily due to weaker local currencies and margin pressure in Brazil [6][17] - Constant currency revenue remained solid, supported by a 11.1% increase in system-wide comparable sales, aligning with blended inflation for the period [6] Business Line Data and Key Metrics Changes - Brazil's total revenue in constant currency grew by 5.5% in the first quarter, despite a challenging operating environment [10] - NOLAD's total revenue was flat in constant currency but declined in US dollars due to the depreciation of the Mexican peso [11] - SLAD's comparable sales rose by 38.7% in the first quarter, with Argentina showing strong recovery [13] Market Data and Key Metrics Changes - Digital sales accounted for nearly 60% of system-wide sales in the first quarter, with significant growth in loyalty and mobile order channels [8][21] - In Brazil, digital channels generated almost 70% of system-wide sales, supported by marketing activities [10] - The loyalty program had 18.8 million registered members across five markets by the end of the first quarter [8] Company Strategy and Development Direction - The company aims to provide an omnichannel experience for guests, allowing flexibility in how they enjoy McDonald's menu items [7] - Focus on digitalization to enhance guest experience and operational efficiency, with plans to expand the loyalty program across all main markets by the end of 2025 [23][29] - The company is committed to sustainability and will publish its annual social impact and sustainable development report [30] Management's Comments on Operating Environment and Future Outlook - Management views the first quarter of 2025 as the low point of the year, with expectations for improved operating conditions in subsequent quarters [4][16] - The company remains cautiously optimistic about sales performance improving as the year progresses, driven by a robust marketing plan [28] - Management acknowledges the challenges posed by weaker currencies and reduced consumer purchasing power but believes in the brand's strong market position [31] Other Important Information - The company added 12 new restaurants during the quarter and plans to accelerate openings to meet annual guidance [27] - The capital structure remains strong, with an investment-grade rating from Fitch and no material debt maturities until 2029 [26] Q&A Session Summary Question: Sales trends in early second quarter 2025, especially in Brazil and NOLAD - Management noted reduced traffic in the QSR industry, particularly in Mexico, with calendar effects significantly impacting sales [34][36] - April showed strong recovery in Mexico, indicating positive trends moving forward [38] Question: Impact of beef prices on Brazil's margins and recovery expectations - Management confirmed that beef prices negatively impacted margins in Brazil, but they expect stabilization through pricing adjustments and supplier negotiations [42][45] Question: Recent consumption trends in Argentina and SLAD's outlook - Management reported strong sales growth in Argentina, with expectations for continued positive performance throughout the year [56] Question: Royalty expense expectations and midterm EBITDA margin outlook - Management explained that royalty rates have changed, leading to a small positive impact on EBITDA margins, with expectations for similar margins to 2024 [59][60]

Financial Data and Key Metrics Changes - Total revenue for Q1 2025 reached $1.1 billion, approximately equal to the previous year [5] - Consolidated adjusted EBITDA was $91.3 million, down from last year primarily due to weaker local currencies and margin pressure in Brazil [6][16] - Constant currency revenue remained solid, supported by an 11.1% increase in system-wide comparable sales, aligning with blended inflation for the period [6] Business Line Data and Key Metrics Changes - Brazil's total revenue in constant currency grew by 5.5% in Q1 2025, despite a challenging operating environment [10] - NOLAD's total revenue was flat in constant currency but declined in USD due to the depreciation of the Mexican peso [11] - SLAD's comparable sales rose by 38.7% in Q1 2025, with Argentina rebounding strongly [13] Market Data and Key Metrics Changes - Digital sales accounted for nearly 60% of system-wide sales in Q1 2025, with significant growth in loyalty and mobile order channels [8][21] - In Brazil, digital channels generated almost 70% of system-wide sales, supported by marketing activities [10] - The loyalty program had 18.8 million registered members across five markets by the end of Q1 2025 [23] Company Strategy and Development Direction - The company aims to provide an omnichannel experience for guests, allowing flexibility in how they enjoy McDonald's menu items [7] - Focus on digitalization to enhance guest experience and operational efficiency, with plans to expand the loyalty program across all main markets by the end of 2025 [29][30] - The company is committed to maintaining a strong balance sheet while investing in growth opportunities [27][29] Management's Comments on Operating Environment and Future Outlook - Management views Q1 2025 as the low point of the year, with expectations for improved operating conditions in Q2 [4][16] - The company remains cautiously optimistic about sales performance improving as the year progresses, driven by a robust marketing plan [28] - Management acknowledges the challenges posed by currency depreciation and inflation but believes in the long-term growth potential of the McDonald's brand in Latin America [31][32] Other Important Information - The company added 12 new restaurants during the quarter, with plans to accelerate openings to meet annual guidance [27] - The company expects to maintain a net debt to adjusted EBITDA ratio of about 1.4 times throughout the year [26] Q&A Session Summary Question: Comments on sales trends in early Q2 2025, especially in Brazil and NOLAD - Management noted reduced traffic in the QSR industry, particularly in Mexico, with calendar effects significantly impacting sales [34][36] - April showed strong recovery in Mexico, indicating positive trends moving forward [38] Question: Impact of beef prices on Brazil's margins and recovery expectations - Management confirmed that beef prices negatively impacted margins in Q1 but expects stabilization through pricing adjustments and revenue management initiatives [42][46] - The company plans to increase prices in line with inflation while protecting traffic to create shareholder value [52] Question: Recent consumption trends in Argentina and SLAD - Management reported strong sales growth in Argentina, with expectations for continued positive performance throughout the year [56][58] Question: Clarification on royalty expenses and their impact on EBITDA margin - Management explained that the new royalty structure would lead to a slight reduction in consolidated royalty fees, positively impacting EBITDA margins [60][62]

Core Viewpoint - Arcos Dorados reported quarterly earnings of $0.07 per share, missing the Zacks Consensus Estimate of $0.13 per share, representing a 46.15% earnings surprise [1] - The company posted revenues of $1.08 billion for the quarter, matching year-ago revenues and surpassing the Zacks Consensus Estimate by 0.86% [2] Financial Performance - The earnings of $0.07 per share compare to $0.14 per share a year ago, indicating a decline in profitability [1] - Over the last four quarters, Arcos Dorados has surpassed consensus EPS estimates two times and topped revenue estimates four times [2] Stock Performance - Arcos Dorados shares have increased approximately 12.1% since the beginning of the year, outperforming the S&P 500's gain of 0.1% [3] - The current Zacks Rank for the stock is 3 (Hold), indicating expected performance in line with the market in the near future [6] Future Outlook - The consensus EPS estimate for the coming quarter is $0.22 on revenues of $1.12 billion, and for the current fiscal year, it is $0.71 on revenues of $4.69 billion [7] - The outlook for the Retail - Restaurants industry is currently in the bottom 20% of Zacks industries, which may impact stock performance [8]

Core Viewpoint - Arcos Dorados Holdings Inc. (ARCO) is expected to report first-quarter 2025 results on May 14, 2025, with earnings anticipated to be below the previous year's performance due to various macroeconomic challenges and increased operational costs [1][3][5]. Group 1: Earnings Estimates - The Zacks Consensus Estimate for ARCO's earnings is set at 13 cents per share, reflecting a 7.1% decline year over year [2]. - Revenue estimates for the quarter are pegged at $1.07 billion, indicating a 1.3% decrease compared to the previous year [2]. Group 2: Factors Impacting Performance - The expected softness in comparable sales growth is attributed to macroeconomic headwinds and shifts in consumer sentiment, particularly affecting consumer-facing businesses in Latin America [3]. - A tougher year-over-year benchmark due to a leap year and weaker currency levels in core markets are anticipated to negatively impact performance [4]. - High operational costs, driven by investments in digital and IT infrastructure, are likely to have further pressured the bottom line [5]. Group 3: Earnings Prediction Model - The current model does not predict an earnings beat for ARCO, as it has an Earnings ESP of 0.00% and a Zacks Rank of 3 (Hold) [6][7].

PART I [Key Information](index=11&type=section&id=ITEM%203.%20KEY%20INFORMATION) This section presents selected financial data, discusses currency risks in key markets, and outlines principal business risk factors [Selected Financial Data](index=11&type=section&id=A.%20Selected%20Financial%20Data) This subsection provides selected financial data, operational metrics, and details on currency exchange rate movements Selected Income Statement Data (2022-2024) | | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | | (in thousands of U.S. dollars) | | | | **Total revenues** | $4,470,162 | $4,331,878 | $3,618,902 | | **Operating income** | $324,515 | $314,039 | $264,422 | | **Net income attributable to Arcos Dorados Holdings Inc.** | $148,759 | $181,274 | $140,343 | | **Basic net income per common share** | $0.71 | $0.86 | $0.67 | | **Diluted net income per common share** | $0.71 | $0.86 | $0.67 | Selected Balance Sheet Data (As of Dec 31, 2022-2024) | | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | | (in thousands of U.S. dollars) | | | | **Total assets** | $2,892,654 | $3,019,238 | $2,636,630 | | **Total liabilities** | $2,383,225 | $2,502,399 | $2,312,203 | | **Total equity** | $509,429 | $516,839 | $324,427 | Adjusted EBITDA (2022-2024) | | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | | (in thousands of U.S. dollars) | | | | **Total Adjusted EBITDA** | $500,100 | $472,304 | $386,564 | Systemwide Restaurant Count (As of Dec 31, 2022-2024) | | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | **Brazil** | 1,173 | 1,130 | 1,084 | | **NOLAD** | 654 | 647 | 638 | | **SLAD** | 601 | 584 | 590 | | **Total** | **2,428** | **2,361** | **2,312** | - The Argentine peso experienced **significant depreciation** against the U.S. dollar, with rates of **72.4% in 2022**, **357.4% in 2023**, and **27.5% in 2024**, while currency controls limit capital flows[60](index=60&type=chunk)[61](index=61&type=chunk) [Risk Factors](index=21&type=section&id=D.%20Risk%20Factors) This subsection details various risks affecting the company's business, financial condition, and operations - The company's rights to operate are entirely dependent on the **Master Franchise Agreements (MFAs) with McDonald's**, which expire in 2044[97](index=97&type=chunk) - McDonald's has the right to acquire the company's non-public shares at **80% of fair market value** in the event of a material breach of the MFAs[107](index=107&type=chunk)[109](index=109&type=chunk) - Digital channels accounted for **57.0% of systemwide sales in 2024**, representing **$3.3 billion**, making growth dependent on these initiatives[115](index=115&type=chunk)[294](index=294&type=chunk) - **Inflation and exchange rate fluctuations** in Latin America pose significant risks to costs, consumer spending, and reported results[147](index=147&type=chunk)[150](index=150&type=chunk) - The company faces **intense competition** from international and local QSR chains like Burger King, KFC, and Subway[178](index=178&type=chunk) - The Executive Chairman, Mr. Woods Staton, controls **75.38% of the company's voting interests**, enabling control over shareholder votes[217](index=217&type=chunk) [Information on the Company](index=45&type=section&id=ITEM%204.%20INFORMATION%20ON%20THE%20COMPANY) This section provides an overview of the company's history, business model, operational structure, and property portfolio [History and Development of the Company](index=45&type=section&id=A.%20History%20and%20Development%20of%20the%20Company) This subsection outlines the company's corporate history, key acquisitions, and capital expenditure plans - The company commenced operations on August 3, 2007, after **acquiring McDonald's Latin American business**[232](index=232&type=chunk) - In March 2011, the company completed a **split-off of its logistics and distribution operations**, Axionlog, to its existing shareholders[234](index=234&type=chunk) - The company plans to open **90-100 new restaurants in 2025**, with expected capital expenditures between **$300 million and $350 million**[236](index=236&type=chunk) Recent Restaurant Openings and Reimaging | Year | Restaurants Opened | Restaurants Reimagined | Dessert Centers Opened | | :--- | :--- | :--- | :--- | | 2024 | 85 | 160 | 164 | | 2023 | 81 | 241 | 117 | | 2022 | 66 | 114 | 107 | [Business Overview](index=46&type=section&id=B.%20Business%20Overview) This subsection details the company's market position, operational divisions, growth drivers, and ESG initiatives - Arcos Dorados is the **world's largest independent McDonald's franchisee**, with 2,428 restaurants representing 4.4% of McDonald's global sales in 2024[238](index=238&type=chunk) Restaurant Portfolio by Division (as of Dec 31, 2024) | Division | Company-Operated | Franchised | Total | % of Total | | :--- | :--- | :--- | :--- | :--- | | Brazil | 723 | 450 | 1,173 | 48.3% | | NOLAD | 497 | 157 | 654 | 26.9% | | SLAD | 505 | 96 | 601 | 24.8% | | **Total** | **1,725** | **703** | **2,428** | **100.0%** | - Digital channels comprised **57.0% of systemwide sales in 2024**, totaling **$3.3 billion**, with the mobile app exceeding 147 million downloads[294](index=294&type=chunk) - As of year-end 2024, there were **377 McCafé locations and 3,268 Dessert Centers**, which are significant transaction generators[263](index=263&type=chunk)[270](index=270&type=chunk) - The company is committed to ESG initiatives through its **'Recipe for the Future' platform**, focusing on key sustainability pillars[349](index=349&type=chunk)[356](index=356&type=chunk)[365](index=365&type=chunk)[376](index=376&type=chunk)[386](index=386&type=chunk) - By the end of 2024, **99% of primary fiber-based guest packaging** was sourced from certified or recycled sources[373](index=373&type=chunk) [Organizational Structure](index=70&type=section&id=C.%20Organizational%20Structure) This subsection describes the company's corporate structure and controlling shareholder arrangement - The company conducts substantially all business through its **wholly-owned Dutch subsidiary, Arcos Dorados B.V.**[401](index=401&type=chunk) - The controlling shareholder, Los Laureles Ltd., is beneficially owned by Executive Chairman Mr. Woods Staton and holds **75.38% of the voting interest**[401](index=401&type=chunk)[699](index=699&type=chunk) [Property, Plants and Equipment](index=71&type=section&id=D.%20Property,%20Plants%20and%20Equipment) This subsection details the company's real estate portfolio of owned and leased properties - As of December 31, 2024, the company **owned the land for 472 of its 2,428 restaurants**[406](index=406&type=chunk) - The company owns a total of **528 properties**, including restaurants, corporate offices, and training centers[408](index=408&type=chunk) [Operating and Financial Review and Prospects](index=71&type=section&id=ITEM%205.%20OPERATING%20AND%20FINANCIAL%20REVIEW%20AND%20PROSPECTS) This section provides management's discussion and analysis of financial results, liquidity, and business trends [Operating Results](index=71&type=section&id=A.%20Operating%20Results) This subsection presents a detailed analysis of operating results by geographic division for 2024 versus 2023 Consolidated Results of Operations (2024 vs. 2023) | | 2024 | 2023 | % Change | | :--- | :--- | :--- | :--- | | | (in thousands of U.S. dollars) | | | | **Total revenues** | $4,470,162 | $4,331,878 | 3.2% | | **Operating income** | $324,515 | $314,039 | 3.3% | | **Net income attributable to Arcos Dorados** | $148,759 | $181,274 | (17.9)% | - In 2024, total revenues increased by **3.2% to $4.47 billion**, driven by **32.8% systemwide comparable sales growth**, offset by currency depreciation[460](index=460&type=chunk)[464](index=464&type=chunk)[468](index=468&type=chunk) - **Food and paper costs as a percentage of sales decreased to 35.1%** in 2024 due to pricing and waste management efficiencies[476](index=476&type=chunk) - **Payroll costs as a percentage of sales decreased to 18.7%** in 2024, driven by a social security recovery in Brazil and crew efficiencies[480](index=480&type=chunk) - **Net income for 2024 decreased by 17.9% to $148.8 million**, primarily due to negative foreign currency exchange results and higher income tax[506](index=506&type=chunk)[508](index=508&type=chunk)[511](index=511&type=chunk) Systemwide Comparable Sales Growth (2023-2024) | Division | 2024 | 2023 | | :--- | :--- | :--- | | Brazil | 7.9% | 9.9% | | NOLAD | 6.5% | 10.6% | | SLAD | 91.6% | 90.9% | | **Total** | **32.8%** | **34.6%** | [Liquidity and Capital Resources](index=94&type=section&id=B.%20Liquidity%20and%20Capital%20Resources) This subsection details the company's financial strategy, cash position, debt profile, and contractual obligations - As of December 31, 2024, the company had a cash and short-term investments position of **$138.6 million** and **$75 million in committed credit lines**[565](index=565&type=chunk)[566](index=566&type=chunk) Consolidated Cash Flows (2022-2024) | | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | | (in thousands of U.S. dollars) | | | | **Net cash provided by operating activities** | $266,847 | $381,965 | $345,437 | | **Net cash used in investing activities** | ($280,331) | ($380,349) | ($259,649) | | **Net cash used in financing activities** | ($37,162) | ($11,823) | ($59,978) | - In January 2025, the company issued **$600 million in notes due 2032** and redeemed its 2027 notes, extending its debt maturity profile[568](index=568&type=chunk)[608](index=608&type=chunk)[625](index=625&type=chunk) - The company's **$350 million 2029 notes are sustainability-linked**, with interest rates tied to greenhouse gas emission reduction targets[611](index=611&type=chunk)[614](index=614&type=chunk) Contractual Obligations as of Dec 31, 2024 | Obligation Type | Total | Due in 2025 | Due in 2026-2027 | Due Thereafter | | :--- | :--- | :--- | :--- | :--- | | | (in thousands of U.S. dollars) | | | | | **Operating lease obligations** | $1,874,969 | $149,581 | $280,446 | $1,444,942 | | **2027 and 2029 notes** | $861,283 | $42,750 | $453,628 | $364,905 | | **Contractual purchase obligations** | $222,148 | $122,915 | $59,831 | $39,402 | | **Total (selected)** | **$2,958,400** | **$315,246** | **$793,905** | **$1,849,249** | [Trend Information](index=104&type=section&id=D.%20Trend%20Information) This subsection identifies key positive, challenging, and emerging trends affecting the company's business - Key positive trends include **social upward mobility in Latin America**, demand for healthier products, and the popularity of value menus[635](index=635&type=chunk) - Significant challenges include **increased competition, persistent inflation, foreign exchange volatility**, and social unrest in key markets[635](index=635&type=chunk) - Emerging trends shaping the business are a growing consumer focus on **sustainability and diversity**, and the adoption of **Artificial Intelligence**[635](index=635&type=chunk)[638](index=638&type=chunk) [Directors, Senior Management and Employees](index=105&type=section&id=ITEM%206.%20DIRECTORS,%20SENIOR%20MANAGEMENT%20AND%20EMPLOYEES) This section provides information on the company's leadership, compensation structure, and workforce composition [Directors and Senior Management](index=105&type=section&id=A.%20Directors%20and%20Senior%20Management) This subsection introduces the Board of Directors and senior management team, highlighting their experience - The Board of Directors consists of **eleven members, seven of whom are independent**, serving staggered three-year terms[636](index=636&type=chunk)[637](index=637&type=chunk) - The leadership team is led by founder and Executive Chairman **Woods Staton** and CEO **Marcelo Rabach**, both with long careers in the McDonald's system[642](index=642&type=chunk)[643](index=643&type=chunk) [Compensation](index=112&type=section&id=B.%20Compensation) This subsection details the compensation structure and long-term incentive plans for directors and officers - In 2024, the aggregate annual total cash compensation was **$13.4 million for executive officers** and **$1.1 million for directors**[680](index=680&type=chunk) - The company uses a **Phantom RSU Plan** for long-term incentives, which provides cash payments based on share price upon vesting[676](index=676&type=chunk)[680](index=680&type=chunk) Phantom RSU Compensation Expense (2022-2024) | Year | Compensation Expense (in millions) | | :--- | :--- | | 2024 | $1.0 | | 2023 | $15.6 | | 2022 | $7.4 | [Employees](index=114&type=section&id=D.%20Employees) This subsection provides an overview of the company's workforce distribution and composition Employee Distribution by Division (as of Dec 31, 2024) | Division | Crew | Restaurant Managers | Professional Staff | Total | | :--- | :--- | :--- | :--- | :--- | | Brazil | 32,942 | 6,923 | 992 | 40,857 | | NOLAD | 17,394 | 3,165 | 674 | 21,233 | | SLAD | 31,084 | 4,027 | 963 | 36,074 | | Corporate and other | 0 | 0 | 451 | 451 | | **Total** | **81,420** | **14,115** | **3,080** | **98,615** | - Approximately **41% of the company's total employees are located in Brazil**, with the workforce composed of **83% crew**[685](index=685&type=chunk) [Share Ownership](index=116&type=section&id=E.%20Share%20Ownership) This subsection details the beneficial ownership of the company's shares by directors and senior management - Executive Chairman Woods Staton, through Los Laureles Ltd., beneficially owns 100% of the Class B shares, granting him **75.38% of the total voting power**[695](index=695&type=chunk)[696](index=696&type=chunk) [Major Shareholders and Related Party Transactions](index=117&type=section&id=ITEM%207.%20MAJOR%20SHAREHOLDERS%20AND%20RELATED%20PARTY%20TRANSACTIONS) This section details the company's ownership structure and significant transactions with related parties [Major Shareholders](index=117&type=section&id=A.%20Major%20Shareholders) This subsection provides a breakdown of the company's major institutional and controlling shareholders Major Shareholders' Ownership | Shareholder | % of Outstanding Class A Shares | % of Outstanding Class B Shares | Total Economic Interest | Total Voting Interest | | :--- | :--- | :--- | :--- | :--- | | Los Laureles Ltd. (Woods Staton) | — | 100.0% | 37.98% | 75.38% | | TIAA Board of Overseers | 10.50% | — | 6.52% | 2.59% | | T. Rowe Price Associates, Inc. | 10.46% | — | 6.49% | 2.58% | [Related Party Transactions](index=118&type=section&id=B.%20Related%20Party%20Transactions) This subsection describes the company's transactions with related parties, primarily its logistics provider Axionlog - In 2011, the company split off its logistics business, **Axionlog**, which is now controlled by the company's controlling shareholder, Mr. Woods Staton[705](index=705&type=chunk) - In 2024, Arcos Dorados incurred **$67.3 million in distribution fees** payable to Axionlog, representing 4.5% of total food and paper costs[708](index=708&type=chunk) - The company is a minority stakeholder in a **joint venture with a Mexican sub-franchisee** formed in November 2021[711](index=711&type=chunk) [Financial Information](index=119&type=section&id=ITEM%208.%20FINANCIAL%20INFORMATION) This section addresses key financial disclosures, including legal proceedings, contingency provisions, and dividend policy [Consolidated Statements and Other Financial Information](index=119&type=section&id=A.%20Consolidated%20Statements%20and%20Other%20Financial%20Information) This subsection covers significant legal proceedings and the company's dividend policy and declarations - The company is facing a lawsuit from a coalition of **labor unions in Brazil** alleging inadequate working conditions, with appeals pending[715](index=715&type=chunk)[717](index=717&type=chunk) - An administrative investigation by the **Labor Prosecutor's Office in Brazil** regarding harassment allegations was archived in January 2025[721](index=721&type=chunk)[722](index=722&type=chunk) - As of December 31, 2024, the company had a **provision for contingencies of $36.7 million** for various legal proceedings[725](index=725&type=chunk) - The Board of Directors declared a cash dividend of **$0.24 per share for 2024** and approved the same amount for 2025[732](index=732&type=chunk) [Additional Information](index=123&type=section&id=ITEM%2010.%20ADDITIONAL%20INFORMATION) This section provides supplementary corporate information on governing documents, material contracts, and taxation [Memorandum and Articles of Association](index=123&type=section&id=B.%20Memorandum%20and%20Articles%20of%20Association) This subsection details the company's governing documents, share structure, and key differences in corporate law - The company is authorized to issue 420,000,000 Class A shares (**one vote per share**) and 80,000,000 Class B shares (**five votes per share**)[742](index=742&type=chunk) - **Class B shares are convertible into Class A shares** and will automatically convert if aggregate ownership falls below 20%[746](index=746&type=chunk) - Unlike Delaware law, **British Virgin Islands law** allows for the removal of directors with or without cause by shareholder resolution[760](index=760&type=chunk)[766](index=766&type=chunk) [Material Contracts](index=132&type=section&id=C.%20Material%20Contracts) This subsection summarizes the company's material contracts, focusing on the Master Franchise Agreements with McDonald's - The **Master Franchise Agreements (MFAs) grant exclusive rights through 2044**, with a new 20-year term starting January 1, 2025[791](index=791&type=chunk)[793](index=793&type=chunk) - **Royalty fees payable to McDonald's are set at 6.0% of gross sales** for the first ten years of the new MFA, escalating thereafter[799](index=799&type=chunk) - The company is required to spend at least **5% of its gross sales on advertising** and has committed to opening 90-100 new restaurants in 2025[813](index=813&type=chunk)[814](index=814&type=chunk) - McDonald's holds a **call option to acquire non-public shares at 80% of fair market value** in the event of a material breach[816](index=816&type=chunk)[819](index=819&type=chunk) [Taxation](index=138&type=section&id=E.%20Taxation) This subsection outlines the tax considerations for the company and its U.S. shareholders - As a British Virgin Islands (BVI) company, Arcos Dorados is **not liable for corporate taxation in the BVI**[835](index=835&type=chunk) - For U.S. Holders, distributions on Class A shares are generally treated as **foreign-source dividend income**[851](index=851&type=chunk) - The company believes it was **not a Passive Foreign Investment Company (PFIC)** for the 2024 taxable year[853](index=853&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=141&type=section&id=ITEM%2011.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This section details the company's exposure to foreign currency, commodity price, and interest rate risks - The company is exposed to **foreign currency risk** as revenues are in local currencies while debt is largely U.S. dollar-denominated[868](index=868&type=chunk)[869](index=869&type=chunk) - To mitigate foreign exchange risk, the company uses **derivative instruments**, including forward contracts and cross-currency swaps[868](index=868&type=chunk)[869](index=869&type=chunk)[870](index=870&type=chunk) - A sensitivity analysis shows a 10% appreciation of the Euro against the USD would result in an **$8.4 million foreign exchange loss**[871](index=871&type=chunk) - A 10% depreciation of the Brazilian real against the USD would result in a net **foreign exchange loss of $1.7 million**[874](index=874&type=chunk) - **Commodity price risk** for key supplies is managed through supplier hedging programs and pricing agreements[887](index=887&type=chunk) PART II [Controls and Procedures](index=145&type=section&id=ITEM%2015.%20CONTROLS%20AND%20PROCEDURES) This section addresses the effectiveness of the company's internal controls over financial reporting and disclosure - Management concluded that the company's **disclosure controls and procedures were effective** as of December 31, 2024[900](index=900&type=chunk)[901](index=901&type=chunk) - Management's annual report concluded that the company's **internal control over financial reporting was effective** as of December 31, 2024[905](index=905&type=chunk)[906](index=906&type=chunk) - The independent registered public accounting firm issued an **unqualified opinion on the effectiveness of internal controls**[907](index=907&type=chunk)[908](index=908&type=chunk) [Corporate Governance and Other Disclosures](index=148&type=section&id=ITEM%2016.%20Corporate%20Governance%20and%20Other%20Disclosures) This section covers corporate governance practices, accountant fees, and cybersecurity risk management Principal Accountant Fees (2023-2024) | Fee Type | 2024 | 2023 | | :--- | :--- | :--- | | | (in thousands of U.S. dollars) | | | Audit fees | $3,272 | $2,574 | | Audit-related fees | $4 | $10 | | Tax fees | $507 | $440 | | All other fees | $29 | $48 | | **Total** | **$3,812** | **$3,072** | - As a foreign private issuer, the company **follows home country practices** in lieu of certain NYSE governance standards[931](index=931&type=chunk)[932](index=932&type=chunk) - The company has a **cybersecurity risk management program** aligned with the NIST framework, with no material threats identified in 2024[941](index=941&type=chunk)[942](index=942&type=chunk)[943](index=943&type=chunk) PART III [Financial Statements](index=152&type=section&id=ITEM%2018.%20FINANCIAL%20STATEMENTS) This section contains the company's audited consolidated financial statements and accompanying notes for fiscal years 2022-2024 [Notes to the Consolidated Financial Statements](index=167&type=section&id=Notes%20to%20the%20Consolidated%20Financial%20Statements) This subsection provides detailed notes on accounting policies, segment performance, debt, and contingencies - The company applies **hyperinflationary accounting** for its Venezuelan and Argentine subsidiaries, remeasuring financials to the U.S. dollar[992](index=992&type=chunk) - In 2024, the company recorded an **impairment charge of $1.1 million** on long-lived assets in several smaller markets[1013](index=1013&type=chunk) Long-Term Debt Composition (as of Dec 31, 2024) | Debt Instrument | Principal Amount (in thousands) | | :--- | :--- | | 2029 Notes | $334,200 | | 2027 Notes | $379,265 | | Finance lease obligations | $9,087 | | Other long-term borrowings | $2,791 | | **Total (before discounts/premiums)** | **$725,343** | - The company uses various **derivative instruments** to hedge foreign exchange risk, with a net fair value asset of **$81.1 million** as of Dec 31, 2024[1078](index=1078&type=chunk)[1079](index=1079&type=chunk)[1080](index=1080&type=chunk) - As of December 31, 2024, the company had a **provision for contingencies of $36.7 million**, primarily for tax and labor claims in Brazil[1135](index=1135&type=chunk)[1136](index=1136&type=chunk) - Subsequent to year-end, the company **issued $600 million in new notes due 2032** to redeem its 2027 notes and approved a dividend[1181](index=1181&type=chunk)[1183](index=1183&type=chunk)[1187](index=1187&type=chunk)

Company Overview - Arcos Dorados (ARCO) shares increased by 6.4% to close at $7.46, following a notable trading volume, contrasting with a 17.3% loss over the past four weeks [1] - The company is benefiting from digital transformation, loyalty program expansion, and the Experience of the Future (EOTF) restaurant modernization [1] Earnings Expectations - Arcos Dorados is expected to report quarterly earnings of $0.13 per share, reflecting a year-over-year decline of 7.1%, with revenues projected at $1.08 billion, a slight increase of 0.3% from the previous year [2] - The consensus EPS estimate for Arcos Dorados has remained unchanged over the last 30 days, indicating a lack of upward momentum in earnings estimate revisions [3] Industry Context - Arcos Dorados operates within the Zacks Retail - Restaurants industry, where another company, GEN Restaurant Group, Inc. (GENK), saw a 4.7% increase in its stock price, closing at $4.25, despite a significant decline of 35.6% over the past month [3] - GEN Restaurant Group's consensus EPS estimate has also remained unchanged at $0, representing a 100% decline from the previous year, and it currently holds a Zacks Rank of 4 (Sell) [4]

Core Insights - Arcos Dorados Holdings Inc. (ARCO) is positioned to benefit from digital transformation, loyalty program expansion, and restaurant modernization initiatives, despite facing challenging macroeconomic conditions [1] Growth Catalysts for ARCO Stock - The strategic "Four D's" — Digital, Delivery, Drive-thru, and Development — are key growth drivers, with digital sales increasing by 18% year-over-year in 2024 [2] - In 2024, ARCO opened 85 Experience of the Future (EOTF) restaurants and upgraded over 150 existing ones, achieving a 67% penetration of EOTF in its portfolio, with plans to open 90-100 new EOTF restaurants in 2025 [3] - Digital channels in Brazil accounted for nearly 70% of sales in Q4 2024, driven by app-based ordering and loyalty rewards, alongside successful marketing campaigns [4] Loyalty Program Expansion - The loyalty program added 12.6 million new members in 2024, totaling 15.8 million registered users, contributing 18% of Q4 sales in Brazil, Costa Rica, and Uruguay [5] - The program is set to expand into Argentina and Colombia in early 2025, with plans for broader rollout across all markets by late 2025 or early 2026 [5] Concerns for Arcos Dorados Stock - ARCO's shares have declined by 24.9% over the past six months, compared to a 4.6% decline in the industry, attributed to macroeconomic headwinds and shifts in consumer sentiment [7] - Anticipated softness in comparable sales growth for Q1 is linked to challenging year-over-year comparisons and weaker currency levels in core markets [8][9]