Arcos Dorados (ARCO) - 2025 Q2 - Quarterly Report

FORM 6-K Filing Information 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] - The report is for the month of August 2025[2] Unaudited Condensed Consolidated Financial Statements 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 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] - Basic and Diluted net income per common share decreased by 34.62% year-over-year[11] Consolidated Statements of Comprehensive Income 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] Consolidated Balance Sheet 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] - Total liabilities increased by 17.10% over the same period[17] Condensed Consolidated Statements of Cash Flows 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] - 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] Consolidated Statement of Changes in Equity 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][21] - Net income attributable to Arcos Dorados Holdings Inc. for the six-month period ended June 30, 2025, was $36,517 thousand[21] Notes to the Condensed Consolidated Financial Statements 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 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] - New Master Franchise Agreements (MFAs) with McDonald's Corporation became effective January 1, 2025, extending the term to 20 years for most territories[28] 2. Basis of presentation and principles of consolidation 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] - The condensed consolidated financial statements are unaudited and include all adjustments considered necessary for fair presentation[31] 3. Summary of significant accounting policies 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] - 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][40] - 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][43] - 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][45] 4. Short-term debt 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] - The Company maintains three revolving credit facilities totaling $75,000 thousand, with maturities in April 2026, February 2026, and October 2026[51] - 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][53] 5. Long-term debt 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][61] - Proceeds from the 2032 Notes were used to fund a cash tender offer and redeem all outstanding 2027 Notes, totaling $379,265 thousand[59][61] | 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 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] - Derivative liabilities increased by 466.79% from $1,292 thousand at December 31, 2024, to $7,323 thousand at June 30, 2025[69] - 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][71] 7. Share-based compensation 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] | 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 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] - 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] - The Company maintains standby letters of credit totaling $80,000 thousand in favor of McDonald's Corporation[87] | 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] 9. Segment and geographic information 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] | 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] - Total Adjusted EBITDA decreased by 11.56% year-over-year to $201,390 thousand[94] 10. Shareholders' equity 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] - Class A shares are entitled to one vote per share, while Class B shares are entitled to five votes per share[103] - A cash dividend distribution of $0.24 per share was approved for 2025, with $25,280 thousand paid by June 30, 2025[105] - 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] 11. Earnings per share 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] 12. Related party transactions 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] | 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] 13. Disclosures about fair value of financial instruments 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] - 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] 14. Subsequent events 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] - 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] - 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] Signatures 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]