[FORM 6-K Filing Information](index=1&type=section&id=FORM%206-K) This section identifies Arcos Dorados Holdings Inc. as a foreign private issuer filing under Form 6-K for August 2025 - The registrant is **Arcos Dorados Holdings Inc.**, a foreign private issuer, filing under Form 20-F[2](index=2&type=chunk) - The report is for the month of **August 2025**[2](index=2&type=chunk) [Unaudited Condensed Consolidated Financial Statements](index=4&type=section&id=Unaudited%20Condensed%20Consolidated%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, including income, comprehensive income, balance sheet, cash flows, and changes in equity [Consolidated Statements of Income](index=5&type=section&id=Consolidated%20Statements%20of%20Income) Arcos Dorados Holdings Inc. reported a decrease in net income attributable to the company for the six-month period ended June 30, 2025, falling to $36,517 thousand from $55,141 thousand in the prior year, primarily due to lower operating income and higher income tax expense | Metric | 2025 (Thousands of US dollars) | 2024 (Thousands of US dollars) | | :----------------------------------- | :----------------------------- | :----------------------------- | | Total revenues | 2,218,888 | 2,192,257 | | Total operating costs and expenses | (2,111,281) | (2,050,487) | | Operating income | 107,607 | 141,770 | | Income before income taxes | 67,756 | 92,673 | | Income tax expense, net | (30,991) | (37,106) | | Net income | 36,765 | 55,567 | | Net income attributable to Arcos Dorados Holdings Inc. | 36,517 | 55,141 | | Basic and Diluted EPS | 0.17 | 0.26 | - Net income attributable to Arcos Dorados Holdings Inc. decreased by **33.78%** year-over-year[11](index=11&type=chunk) - Basic and Diluted net income per common share decreased by **34.62%** year-over-year[11](index=11&type=chunk) [Consolidated Statements of Comprehensive Income](index=6&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) The company experienced a significant increase in comprehensive income attributable to Arcos Dorados Holdings Inc. for the six-month period ended June 30, 2025, reaching $122,718 thousand, a substantial improvement from $4,625 thousand in the prior year, largely driven by positive foreign currency translation | Metric | 2025 (Thousands of US dollars) | 2024 (Thousands of US dollars) | | :------------------------------------------------ | :----------------------------- | :----------------------------- | | Net income | 36,765 | 55,567 | | Foreign currency translation | 87,806 | (55,105) | | Cash flow hedges (net of deferred income taxes) | (1,083) | 3,458 | | Securities available for sale (net of deferred income taxes) | (484) | 1,075 | | Total other comprehensive income (loss) | 86,239 | (50,572) | | Comprehensive income | 123,004 | 4,995 | | Comprehensive income attributable to Arcos Dorados Holdings Inc. | 122,718 | 4,625 | - Foreign currency translation shifted from a loss of **$(55,105) thousand** in 2024 to a gain of **$87,806 thousand** in 2025, significantly impacting comprehensive income[14](index=14&type=chunk) [Consolidated Balance Sheet](index=7&type=section&id=Consolidated%20Balance%20Sheet) As of June 30, 2025, Arcos Dorados Holdings Inc. reported an increase in total assets to $3,372,420 thousand from $2,892,654 thousand at December 31, 2024, primarily driven by growth in current assets and property and equipment. Total liabilities also increased, leading to a higher total equity | Metric | June 30, 2025 (Thousands of US dollars) | December 31, 2024 (Thousands of US dollars) | | :----------------------------------- | :------------------------------------ | :------------------------------------ | | Total current assets | 623,679 | 468,403 | | Total non-current assets | 2,748,741 | 2,424,251 | | Total assets | 3,372,420 | 2,892,654 | | Total current liabilities | 778,581 | 765,924 | | Total non-current liabilities | 2,012,197 | 1,617,301 | | Total liabilities | 2,790,778 | 2,383,225 | | Total equity | 581,642 | 509,429 | - Total assets increased by **16.59%** from December 31, 2024, to June 30, 2025[17](index=17&type=chunk) - Total liabilities increased by **17.10%** over the same period[17](index=17&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the six-month period ended June 30, 2025, net cash provided by operating activities decreased to $57,706 thousand from $63,707 thousand in 2024. Investing activities saw a higher net cash outflow, while financing activities shifted from a net outflow in 2024 to a significant net inflow in 2025, largely due to debt refinancing | Metric | 2025 (Thousands of US dollars) | 2024 (Thousands of US dollars) | | :----------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | 57,706 | 63,707 | | Net cash used in investing activities | (202,250) | (134,031) | | Net cash provided by (used in) financing activities | 159,062 | (17,566) | | Increase (decrease) in cash and cash equivalents | 11,988 | (92,445) | | Cash and cash equivalents at the end of the period | 147,052 | 104,216 | - Net cash provided by operating activities decreased by **9.39%** year-over-year[19](index=19&type=chunk) - Net cash from financing activities swung from an outflow of **$(17,566) thousand** in 2024 to an inflow of **$159,062 thousand** in 2025, primarily due to the issuance of 2032 Senior Notes and the tender of 2027 Senior Notes[19](index=19&type=chunk) [Consolidated Statement of Changes in Equity](index=9&type=section&id=Consolidated%20Statement%20of%20Changes%20in%20Equity) Arcos Dorados Holdings Inc.'s total equity increased from $509,429 thousand at the beginning of the fiscal year to $581,642 thousand by June 30, 2025, primarily driven by net income and other comprehensive income, despite dividend payments | Metric | Balance at Dec 31, 2024 (Thousands of US dollars) | Net income for the period (Thousands of US dollars) | Other comprehensive income (Thousands of US dollars) | Cash Dividends (Thousands of US dollars) | Balance at June 30, 2025 (Thousands of US dollars) | | :------------------------------------------------ | :------------------------------------------------ | :---------------------------------- | :----------------------------------- | :--------------------------------------- | :------------------------------------------------ | | Total Arcos Dorados Holdings Inc. shareholders' equity | 508,080 | 36,517 | 86,201 | (50,560) | 580,238 | | Non-controlling interests in subsidiaries | 1,349 | 248 | 38 | (231) | 1,404 | | Total equity | 509,429 | 36,765 | 86,239 | (50,791) | 581,642 | - Total equity increased by **14.18%** from December 31, 2024, to June 30, 2025[17](index=17&type=chunk)[21](index=21&type=chunk) - Net income attributable to Arcos Dorados Holdings Inc. for the six-month period ended June 30, 2025, was **$36,517 thousand**[21](index=21&type=chunk) [Notes to the Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed notes explaining the accounting policies, debt structures, derivative instruments, equity changes, and other significant financial disclosures [1. Organization and nature of business](index=11&type=section&id=1.%20Organization%20and%20nature%20of%20business) Arcos Dorados Holdings Inc. operates and franchises McDonald's restaurants across twenty territories in Latin America and the Caribbean. The company recently renewed its Master Franchise Agreements (MFAs) with McDonald's Corporation, extending the term for most territories to 20 years, effective January 1, 2025 - The Company operates and franchises McDonald's restaurants in **twenty territories** across Latin America and the Caribbean[27](index=27&type=chunk) - New Master Franchise Agreements (MFAs) with McDonald's Corporation became effective **January 1, 2025**, extending the term to **20 years** for most territories[28](index=28&type=chunk) [2. Basis of presentation and principles of consolidation](index=11&type=section&id=2.%20Basis%20of%20presentation%20and%20principles%20of%20consolidation) The condensed consolidated financial statements are prepared in accordance with US GAAP for interim financial information, are unaudited, and include all necessary normal recurring adjustments for fair presentation. They should be read in conjunction with the consolidated annual financial statements as of December 31, 2024 - The financial statements are prepared in accordance with **US GAAP** for interim financial information and include the accounts of the Company and its subsidiaries[29](index=29&type=chunk) - The condensed consolidated financial statements are **unaudited** and include all adjustments considered necessary for fair presentation[31](index=31&type=chunk) [3. Summary of significant accounting policies](index=12&type=section&id=3.%20Summary%20of%20significant%20accounting%20policies) This section outlines key accounting policies, including the use of estimates, foreign currency translation for highly inflationary economies like Venezuela and Argentina, and the capitalization and amortization of intangible assets such as computer software and initial franchise fees. It also details the company's accounts payable outsourcing arrangement and discusses recent accounting pronouncements related to income tax and expense disaggregation disclosures - Venezuela (since 2010) and Argentina (since 2018) are considered **highly inflationary economies**, requiring financial statements to be remeasured in US dollars with remeasurement gains and losses recognized in earnings[36](index=36&type=chunk) - Intangible assets include computer software costs (amortized over **three years**) and initial franchise fees, with **$67,592 thousand** related to initial franchise fees for franchised restaurants as of June 30, 2025, payable from August 2027[39](index=39&type=chunk)[40](index=40&type=chunk) - The Company utilizes an accounts payable services arrangement, with amounts under this arrangement totaling **$15,878 thousand** as of June 30, 2025, and **$14,849 thousand** as of December 31, 2024[42](index=42&type=chunk)[43](index=43&type=chunk) - Recent accounting pronouncements include ASU 2023-09 (Income Taxes) effective for fiscal years beginning after **December 15, 2024**, and ASU 2024-03 (Expense Disaggregation) effective for fiscal years beginning after **December 15, 2026**[44](index=44&type=chunk)[45](index=45&type=chunk) [4. Short-term debt](index=14&type=section&id=4.%20Short-term%20debt) Short-term debt significantly decreased to $27,836 thousand as of June 30, 2025, from $60,251 thousand at December 31, 2024, primarily due to payments of short-term bank loans in various territories. The company maintains revolving credit facilities totaling $75,000 thousand and was in compliance with all associated financial covenants as of June 30, 2025 | Short-term Debt Component | June 30, 2025 (Thousands of US dollars) | December 31, 2024 (Thousands of US dollars) | | :------------------------ | :------------------------------------ | :------------------------------------ | | Bank overdrafts | — | 686 | | Short-term bank loans | 27,836 | 55,065 | | Revolving Credit Facility | — | 4,500 | | Total | 27,836 | 60,251 | - Short-term bank loans decreased by **49.45%** from **$55,065 thousand** at December 31, 2024, to **$27,836 thousand** at June 30, 2025[48](index=48&type=chunk) - The Company maintains three revolving credit facilities totaling **$75,000 thousand**, with maturities in April 2026, February 2026, and October 2026[51](index=51&type=chunk) - As of June 30, 2025, the Company was in compliance with all consolidated net indebtedness to EBITDA ratios required by its revolving credit facilities (e.g., **1.44** against a maximum of **3.00** for J.P. Morgan and Banco Santander)[52](index=52&type=chunk)[53](index=53&type=chunk) [5. Long-term debt](index=16&type=section&id=5.%20Long-term%20debt) Long-term debt, excluding the current portion, increased to $944,456 thousand as of June 30, 2025, from $715,974 thousand at December 31, 2024. This increase is primarily due to the issuance of $600,000 thousand in 2032 Senior Notes, the proceeds of which were used to tender and redeem all outstanding 2027 Notes | Long-term Debt Component | June 30, 2025 (Thousands of US dollars) | December 31, 2024 (Thousands of US dollars) | | :----------------------- | :------------------------------------ | :------------------------------------ | | 2032 Notes | 600,000 | — | | 2029 Notes | 334,200 | 334,200 | | 2027 Notes | — | 379,265 | | Finance lease obligations | 11,668 | 9,087 | | Long-term bank loans | 10,000 | — | | Other long-term borrowings | 6,804 | 2,791 | | Subtotal | 962,672 | 725,343 | | Long-term debt, excluding current portion | 944,456 | 715,974 | - On January 29, 2025, the Company's subsidiary ADBV issued **$600,000 thousand** in 2032 Senior Notes with an interest rate of **6.375%** per annum[58](index=58&type=chunk)[61](index=61&type=chunk) - Proceeds from the 2032 Notes were used to fund a cash tender offer and redeem all outstanding 2027 Notes, totaling **$379,265 thousand**[59](index=59&type=chunk)[61](index=61&type=chunk) | Note Type | 2025 Interest Expense (Thousands of US dollars) | 2024 Interest Expense (Thousands of US dollars) | | :-------- | :-------------------------------------------- | :-------------------------------------------- | | 2032 Notes | 16,150 | — | | 2029 Notes | 10,235 | 10,235 | | 2027 Notes | 4,193 | 11,141 | [6. Derivative instruments](index=17&type=section&id=6.%20Derivative%20instruments) The company uses various derivative instruments, both designated for hedge accounting (cash flow hedges) and not designated for hedge accounting, to manage foreign exchange risk and variability in future cash flows. The fair value of derivative assets decreased to $67,962 thousand as of June 30, 2025, from $82,383 thousand at December 31, 2024, while derivative liabilities increased to $7,323 thousand from $1,292 thousand over the same period | Derivative Type | Balance Sheets Location | June 30, 2025 (Thousands of US dollars) | December 31, 2024 (Thousands of US dollars) | | :---------------------- | :---------------------- | :------------------------------------ | :------------------------------------ | | **Assets** | | | | | Cash Flow hedge | Derivative instruments | 66,542 | 82,335 | | Non-hedging derivatives | Derivative instruments | 1,420 | 48 | | Total derivative assets | | 67,962 | 82,383 | | **Liabilities** | | | | | Cash Flow hedge | Derivative instruments | (7,323) | (1,006) | | Non-hedging derivatives | Derivative instruments | — | (286) | | Total derivative liabilities | | (7,323) | (1,292) | - Derivative assets decreased by **17.51%** from **$82,383 thousand** at December 31, 2024, to **$67,962 thousand** at June 30, 2025[69](index=69&type=chunk) - Derivative liabilities increased by **466.79%** from **$1,292 thousand** at December 31, 2024, to **$7,323 thousand** at June 30, 2025[69](index=69&type=chunk) - The Company uses various cash flow hedges, including forward contracts, principal only swaps, call spreads, coupon-only swaps, cross-currency interest rate swaps, and sustainability-linked ESG principal only swaps, to reduce exposure to foreign exchange risk and variability in future cash flows[70](index=70&type=chunk)[71](index=71&type=chunk) [7. Share-based compensation](index=21&type=section&id=7.%20Share-based%20compensation) The company operates a Phantom RSU Award plan to reward employees, with compensation expense recognized on a straight-line basis over the vesting period. Total compensation expense for the six-month period ended June 30, 2025, was $2,992 thousand, a significant increase from $241 thousand in the prior year - Total compensation expense for the six-month period ended June 30, 2025, was **$2,992 thousand**, a substantial increase from **$241 thousand** in the prior year[81](index=81&type=chunk) | Phantom RSU Plan Metric | June 30, 2025 (Thousands of US dollars) | | :---------------------- | :------------------------------------ | | Number of units outstanding | 2,036,707 | | Share price | 7.89 | | Total fair value of the plan | 16,070 | | Accrued liability | 5,605 | | Compensation expense not yet recognized | 10,465 | [8. Commitments and contingencies](index=22&type=section&id=8.%20Commitments%20and%20contingencies) The company has commitments under its Master Franchise Agreements (MFAs), including restaurant opening plans, initial and monthly royalty fees, and marketing expenditures. It also maintains standby letters of credit totaling $80,000 thousand and was in compliance with all related financial covenants as of June 30, 2025. The provision for contingencies increased to $33,240 thousand as of June 30, 2025, from $30,356 thousand at December 31, 2024, primarily due to tax and labor contingencies in Brazil - MFAs require the Company to open **90-100 restaurants** in 2025 and reimage at least **10%** of eligible restaurants[86](index=86&type=chunk) - Monthly royalties to McDonald's Corporation commence at **6%** of gross sales for the first 10 years, increasing to **6.25%** and **6.5%** for subsequent five-year periods[86](index=86&type=chunk) - The Company maintains standby letters of credit totaling **$80,000 thousand** in favor of McDonald's Corporation[87](index=87&type=chunk) | Ratio | Required Maximum Ratio | June 30, 2025 (Unaudited) | | :---------------------- | :--------------------- | :------------------------ | | Fixed Charge Coverage Ratio | 1.50 | 2.05 | | Leverage Ratio | 4.25 | 3.53 | - The provision for contingencies increased by **9.50%** to **$33,240 thousand** as of June 30, 2025, from **$30,356 thousand** at December 31, 2024, with tax contingencies in Brazil being the largest component at **$28,430 thousand**[89](index=89&type=chunk) [9. Segment and geographic information](index=24&type=section&id=9.%20Segment%20and%20geographic%20information) The company manages its business across three geographic segments: Brazil, NOLAD (North Latin American division), and SLAD (South Latin American division). For the six-month period ended June 30, 2025, total revenues increased to $2,218,888 thousand, but Adjusted EBITDA decreased to $201,390 thousand from $227,717 thousand in 2024, primarily due to a significant decline in Brazil's Adjusted EBITDA - The Company's operations are divided into three geographic segments: **Brazil**, **NOLAD** (North Latin American division), and **SLAD** (South Latin American division)[92](index=92&type=chunk) | Segment | Revenues 2025 (Thousands of US dollars) | Revenues 2024 (Thousands of US dollars) | Adjusted EBITDA 2025 (Thousands of US dollars) | Adjusted EBITDA 2024 (Thousands of US dollars) | | :------ | :------------------------------------ | :------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | | Brazil | 815,689 | 890,927 | 102,523 | 161,614 | | NOLAD | 599,529 | 612,926 | 67,478 | 54,763 | | SLAD | 803,670 | 688,404 | 79,593 | 55,312 | | Total | 2,218,888 | 2,192,257 | 249,594 | 271,689 | - Brazil's Adjusted EBITDA decreased by **36.57%** year-over-year, while NOLAD's increased by **23.22%** and SLAD's increased by **43.89%**[94](index=94&type=chunk) - Total Adjusted EBITDA decreased by **11.56%** year-over-year to **$201,390 thousand**[94](index=94&type=chunk) [10. Shareholders' equity](index=28&type=section&id=10.%20Shareholders'%20equity) As of June 30, 2025, Arcos Dorados Holdings Inc. had 210,663,057 shares outstanding, consisting of Class A and Class B shares, with Class B shares carrying five votes per share. The company approved a cash dividend distribution of $0.24 per share for 2025, payable in four installments, with $25,280 thousand paid by June 30, 2025. Accumulated other comprehensive loss improved significantly, reducing from $(668,484) thousand at December 31, 2024, to $(582,283) thousand at June 30, 2025, primarily due to positive foreign currency translation - As of June 30, 2025, the Company had **210,663,057 shares outstanding**, comprising **130,663,057 Class A shares** and **80,000,000 Class B shares**[102](index=102&type=chunk) - Class A shares are entitled to **one vote per share**, while Class B shares are entitled to **five votes per share**[103](index=103&type=chunk) - A cash dividend distribution of **$0.24 per share** was approved for 2025, with **$25,280 thousand** paid by June 30, 2025[105](index=105&type=chunk) - Accumulated other comprehensive loss decreased by **12.90%** from **$(668,484) thousand** at December 31, 2024, to **$(582,283) thousand** at June 30, 2025, driven by an **$87,768 thousand** gain from foreign currency translation[107](index=107&type=chunk) [11. Earnings per share](index=30&type=section&id=11.%20Earnings%20per%20share) Basic and diluted net income attributable to Arcos Dorados Holdings Inc. per common share decreased to $0.17 for the six-month period ended June 30, 2025, from $0.26 in the prior year, reflecting a decline in net income | Metric | June 30, 2025 (Unaudited) | June 30, 2024 (Unaudited) | | :------------------------------------------------ | :------------------------ | :------------------------ | | Net income attributable to Arcos Dorados Holdings Inc. available to common shareholders | $36,517 | $55,141 | | Weighted-average number of common shares outstanding - Basic and Diluted | 210,663,057 | 210,658,096 | | Basic and Diluted net income attributable to Arcos Dorados Holdings Inc. per common share | $0.17 | $0.26 | - Basic and Diluted net income per common share decreased by **34.62%** year-over-year[108](index=108&type=chunk) [12. Related party transactions](index=30&type=section&id=12.%20Related%20party%20transactions) The company engages in arm's length transactions with Axionlog, a company under common control, for distribution, inventory, storage, and transportation services across several countries. For the six-month period ended June 30, 2025, food and paper expenses related to Axionlog increased to $172,108 thousand from $168,216 thousand in 2024 - The Company has a master commercial agreement with **Axionlog**, a company under common control, for distribution, inventory, storage, and transportation services in **15 territories**[109](index=109&type=chunk) | Transaction Type | June 30, 2025 (Thousands of US dollars) | June 30, 2024 (Thousands of US dollars) | | :--------------- | :------------------------------------ | :------------------------------------ | | Food and paper | (172,108) | (168,216) | | Occupancy and other operating expenses | (5,805) | (5,366) | - Food and paper expenses related to Axionlog increased by **2.31%** year-over-year for the six-month period ended June 30, 2025[110](index=110&type=chunk) [13. Disclosures about fair value of financial instruments](index=31&type=section&id=13.%20Disclosures%20about%20fair%20value%20of%20financial%20instruments) The company categorizes its financial instruments measured at fair value into Level 1, Level 2, and Level 3 inputs. As of June 30, 2025, total assets measured at fair value were $203,506 thousand, and total liabilities were $7,323 thousand. The fair value of short-term and long-term debt was estimated at $969,573 thousand, compared to a carrying amount of $996,671 thousand | Fair Value Category | June 30, 2025 (Thousands of US dollars) | December 31, 2024 (Thousands of US dollars) | | :------------------ | :------------------------------------ | :------------------------------------ | | Total Assets | 203,506 | 147,491 | | Total Liabilities | 7,323 | 1,292 | - Total assets measured at fair value increased by **37.98%** from December 31, 2024, to June 30, 2025[118](index=118&type=chunk) - The fair value of the Company's short-term and long-term debt was estimated at **$969,573 thousand** as of June 30, 2025, compared to a carrying amount of **$996,671 thousand**[119](index=119&type=chunk) [14. Subsequent events](index=32&type=section&id=14.%20Subsequent%20events) In July 2025, the company acquired three restaurants and exclusive operating rights in Saint Martin, expanding its NOLAD segment. Additionally, it completed short-term debt payments and renewals, and signed new long-term bank loans totaling $15,000 thousand, maturing in January 2027 - In July 2025, the Company acquired **three restaurants** and exclusive rights to operate or sub-franchise McDonald's restaurants in **Saint Martin**, which will be part of the NOLAD operating segment[121](index=121&type=chunk) - During July 2025, the Company paid outstanding short-term bank loans with Banco de Chile and Banco Itau Chile, and renewed **$9.7 million** of a loan with Banco Itau Chile, maturing in January 2027[122](index=122&type=chunk) - The Company signed two new long-term bank loans totaling **$15,000 thousand** with Banco Itau Uruguay S.A. and Banco Bilbao Vizcaya Argentaria Uruguay S.A., both maturing in January 2027[123](index=123&type=chunk) [Signatures](index=3&type=section&id=SIGNATURE) This section confirms the official signing of the report by the Chief Legal Counsel of Arcos Dorados Holdings Inc. on August 13, 2025 - The report was signed by **Juan David Bastidas**, Chief Legal Counsel of Arcos Dorados Holdings Inc., on **August 13, 2025**[7](index=7&type=chunk)

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].

Financial Performance - Total revenue reached $1.1 billion[13] - Systemwide comparable sales grew by 11.1%[13, 17] - Adjusted EBITDA was $91.3 million with a margin of 8.5%[13, 16] - Net income was $13.9 million, or $0.07 per share[13] Digital Sales & Off-Premise Channels - Digital sales contributed 59% to total sales[13] - Off-premise channels accounted for approximately 43% of total systemwide sales[17] - Loyalty program had 18.8 million registered members[16] Divisional Performance - Brazil division systemwide comparable sales grew by 2.9%[24] - North Latin American Division (NOLAD) systemwide comparable sales decreased by 0.4%[27] - South Latin American Division (SLAD) systemwide comparable sales grew by 39.1%[33] Development & Capital Allocation - Opened 12 new restaurants, with 10 being free-standing locations[13, 75] - Capital expenditures totaled $48.8 million, including $21.4 million for growth[75]

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]

Financial Performance - Total revenues for Q1 2025 were $1,076,592, a slight decrease of 0.3% from $1,081,356 in Q1 2024[10] - Net income attributable to Arcos Dorados Holdings Inc. for Q1 2025 was $13,930, down 51.1% from $28,509 in Q1 2024[10] - Basic and diluted net income per share decreased to $0.07 in Q1 2025 from $0.14 in Q1 2024[10] - Comprehensive income attributable to Arcos Dorados Holdings Inc. for Q1 2025 was $57,727, compared to $20,036 in Q1 2024, representing a significant increase[13] - For the three-month period ended March 31, 2024, Arcos Dorados Holdings Inc. reported a net income of $28,509 thousand, compared to a net income of $13,930 thousand for the same period in the previous year, representing a year-over-year increase of approximately 104%[23] - Adjusted EBITDA for the same period was $91,279, down from $108,935 year-over-year, reflecting a decrease of approximately 16.3%[94] - Net income attributable to Arcos Dorados Holdings Inc. for the three-month period was $13,930, down from $28,509 in the prior year, a decrease of approximately 51.1%[94] Assets and Liabilities - Total current assets increased significantly to $860,809 in Q1 2025 from $468,403 at the end of 2024, representing an increase of 83.5%[16] - Total assets increased to $3,467,020 in Q1 2025 from $2,892,654 at the end of 2024, reflecting a growth of 20%[16] - Total liabilities also increased to $2,950,257 in Q1 2025 from $2,383,225 at the end of 2024, an increase of 23.7%[16] - The total shareholders' equity at the end of the reporting period was $486,525 thousand, reflecting a decrease from the previous period due to comprehensive losses[23] - The retained earnings at the end of the period were $544,140 thousand, down from $566,188 thousand at the beginning of the fiscal year[23] - As of March 31, 2025, the total short-term debt amounted to $38,366, a decrease of 36.3% from $60,251 as of December 31, 2024[47] - Long-term debt increased to $1,175,408 as of March 31, 2025, compared to $718,598 as of December 31, 2024, reflecting a significant rise of 63.5%[57] - The fair value of the company's short-term and long-term debt was estimated at $1,195,979,000, compared to a carrying amount of $1,235,647,000 as of March 31, 2025[120] Cash Flow and Financing Activities - Net cash used in operating activities was $13,436 in Q1 2025, compared to $9,388 in Q1 2024, indicating a decline in cash flow from operations[18] - Net cash provided by financing activities was $418,675 in Q1 2025, a substantial increase compared to a net cash used of $8,045 in Q1 2024[18] - The Company issued Senior Notes for an aggregate principal amount of $600 million maturing in 2032, with an interest rate of 6.375% per annum[58] - The proceeds from the 2032 Notes were used to redeem 35.27% of the outstanding principal of the 2027 Notes for $136,145 plus accrued interest[59] - The Company maintained revolving credit facilities totaling $75 million, with interest rates ranging from 2.65% to 4.85%[50] Operational Highlights - The company operates and franchises McDonald's restaurants across 20 territories in Latin America and the Caribbean, with rights granted by McDonald's Corporation through Master Franchise Agreements[27] - Effective January 1, 2025, the company entered into new Master Franchise Agreements with McDonald's Corporation, extending the operational terms for most territories to 20 years[28] - The Company expects to open 90-100 new restaurants in 2025, with a commitment to reimage at least 10% of its eligible restaurants[79] Derivatives and Risk Management - The Company has entered into various derivatives, including sustainability-linked ESG principal only swaps, to hedge against foreign exchange risks[63] - The Company reported a net derivative loss of $(14,835) recognized in accumulated other comprehensive income for the three-month period ended March 31, 2025[68] - The total fair value of derivative instruments as of March 31, 2025, was $75,539, down from $82,383 as of December 31, 2024, indicating a decrease of about 8.8%[64] - The notional amount of forward contracts designated as cash flow hedges increased to $58,414 as of March 31, 2025, from $48,799 as of December 31, 2024[67] Shareholder Information - The Company declared cash dividends of $0.24 per share, totaling $50,557 thousand distributed to shareholders during the period[23] - The Company approved a cash dividend distribution of $0.24 per share, to be paid in four installments of $0.06 each on March 27, June 27, September 26, and December 26, 2025[103] - The Company’s cash dividends paid as of March 31, 2025, totaled $12,640,000[103] - As of March 31, 2025, the Company had 210,663,057 shares outstanding, including 130,663,057 Class A shares and 80,000,000 Class B shares[100] Accounting and Compliance - The Company is currently assessing the impact of new accounting standards on its consolidated financial statement disclosures[44] - The company’s total assets and liabilities are reported in accordance with US GAAP, with significant intercompany balances eliminated in consolidation[29] - The Company’s total liabilities must not exceed its assets for dividend distributions to be made[102] - No material fair value adjustments were required for non-financial assets or liabilities as of March 31, 2025[121] - The company’s derivative contracts were valued using pricing models that incorporate observable market parameters, indicating a robust valuation approach[119]

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)