Arcos Dorados Reports Fourth Quarter & Full Year 2018 Financial Results

Arcos Dorados Holdings, Inc. (NYSE:ARCO) (“Arcos Dorados” or the “Company”), Latin America’s largest restaurant chain and the world’s largest independent McDonald’s franchisee, today reported unaudited results for the fourth quarter and audited results for the full year ended December 31, 2018.

Fourth Quarter 2018 Highlights – Excluding Venezuela

• As reported, consolidated revenues decreased 12.4% to $745.1 million versus the fourth quarter of 2017, primarily on depreciations of the Argentine and Brazilian currencies. On a constant currency basis² consolidated revenues grew 9.1% to $928.2 million
• Systemwide comparable sales² rose 7.5% year-over-year
• As reported, Adjusted EBITDA² decreased 2.2% to $87.1 million compared with the prior-year quarter
• Consolidated Adjusted EBITDA margin expanded 120 basis points year-over-year to 11.7%
• As reported, General and Administrative (G&A) expenses decreased 9.4% versus the prior-year quarter
• As reported, net income decreased 70.4% to $18.9 million, from $63.9 million in the fourth quarter of 2017, which included $35.6 million from the Company’s re-development initiatives

1 Excluding Venezuela

2 For definitions please refer to "Definitions" section below

Full Year 2018 Highlights – Excluding Venezuela

• As reported, consolidated revenues decreased 6.7% to $3.0 billion. On a constant currency basis, consolidated revenues grew 8.8% to $3.5 billion
• Systemwide comparable sales rose 7.6%
• As reported, Adjusted EBITDA increased 3.5% to $292.2 million
• Consolidated Adjusted EBITDA margin expanded 90 basis points to 9.7%, its highest level since 2011
• As reported, G&A expenses decreased 5.9%
• As reported, net income decreased 34.6% to $85.9 million, from $131.3 million last year, which included $91.7 million from the Company’s re-development initiatives

“Our strategy is focused on delivering the best restaurant, food and service experience. This drove sales higher throughout 2018. Combined with significantly improved operating efficiencies, we expanded adjusted EBITDA margin at a faster pace. This demonstrates the scale opportunity of our business model. At 9.7%, full-year Adjusted EBITDA was at its highest level in seven years, while sales grew nearly 9% during the year. The revenue and margin momentum generated by our strategy continues in 2019.

As we roll out Experience of the Future (EOTF) restaurants across markets, continually refresh our menus in innovative ways, and further enhance customer service through the Cooltura de Servicio program, loyalty to the McDonald’s brand is growing and our customer satisfaction scores are increasing. At the end of the year, we had 329 EOTF restaurants and are on track to deliver approximately 650 by the end of 2019. Not only did we accelerate our capex program to support faster EOTF deployment, we also returned $67 million to our shareholders through a combination of dividend payments and share repurchases. With a net debt to Adjusted EBITDA ratio of 1.5x, going into 2019, we have a very healthy balance sheet to support our growth plans.

Among other significant accomplishments in 2018, we substantially improved employee satisfaction, extended McDelivery service to a total of ten countries, and we were recognized as Latin America’s Mobile Marketer of the Year. The progress on these fronts is also strengthening our market leadership and competitive advantages in Latin America and the Caribbean, while effectively positioning us to capture all the opportunities we see in the region,” said Sergio Alonso, Chief Executive Officer of Arcos Dorados.

Fourth Quarter 2018 Results

Consolidated
Figure 1. AD Holdings Inc Consolidated: Key Financial Results (In millions of U.S. dollars, except as noted)
				4Q17 (a)			Currency Translation - Excl. Venezuela (b)			Constant Currency Growth - Excl. Venezuela (c)			Venezuela (d)			4Q18 (a+b+c+d)			% As Reported			% Constant Currency
Total Restaurants (Units)				2,188												2,223
Sales by Company-operated Restaurants				851.3			(175.1)			73.6			(34.0)			715.8			-15.9%			3664,9%
Revenues from franchised restaurants				45.6			(8.0)			3.7			(3.8)			37.5			-17.8%			9618.2%
Total Revenues				896.9			(183.1)			77.3			(37.8)			753.3			-16.0%			3967.6%
Systemwide Comparable Sales																						5,197.2%
Adjusted EBITDA				111.4			(14.2)			12.2			(23.3)			86.1			-22.7%			8442.4%
Adjusted EBITDA Margin				12.4%												11.4%
Net income (loss) attributable to AD				69.3			(0.3)			(44.7)			(15.1)			9.2			-86.7%			30446.2%
No. of shares outstanding (thousands)				211,073												206,325
EPS (US$/Share)				0.33												0.04

(4Q18 = 4Q17 + Currency Translation Excl. Venezuela + Constant Currency Growth Excl. Venezuela + Venezuela). Refer to “Definitions” section for further detail.

Arcos Dorados’ consolidated results continue to be heavily impacted by Venezuela’s macroeconomic volatility, including the ongoing hyperinflationary environment and the country’s heavily regulated currency. As such, reported results may contain significant non-cash accounting charges to operations in this market. Accordingly, the discussion of the Company’s operating performance is focused on consolidated results that exclude Venezuela.

Consolidated – excluding Venezuela
Figure 2. AD Holdings Inc Consolidated - Excluding Venezuela: Key Financial Results (In millions of U.S. dollars, except as noted)
				4Q17 (a)			Currency Translation (b)			Constant Currency Growth (c)			4Q18 (a+b+c)			% As Reported			% Constant Currency
Total Restaurants (Units)				2,058									2,103
Sales by Company-operated Restaurants				810.1			(175.1)			73.6			708.6			-12.5%			9.1%
Revenues from franchised restaurants				40.8			(8.0)			3.7			36.5			-10.4%			9.2%
Total Revenues				850.9			(183.1)			77.3			745.1			-12.4%			9.1%
Systemwide Comparable Sales																			7.5%
Adjusted EBITDA				89.1			(14.2)			12.2			87.1			-2.2%			13.7%
Adjusted EBITDA Margin				10.5%									11.7%
Net income (loss) attributable to AD				63.9			(0.3)			(44.7)			18.9			-70.4%			-69.9%
No. of shares outstanding (thousands)				211,073									206,325
EPS (US$/Share)				0.30									0.09

Excluding the Company’s Venezuelan operation, as reported revenues decreased 12.4% year-over-year, primarily due to the negative impact of the 53% and 15% year-over-year average depreciations against the US dollar of the Argentine peso and the Brazilian real, respectively. This impact was partially offset by constant currency revenue growth of 9.1%. Constant currency revenue growth was supported by a 7.5% increase in systemwide comparable sales, largely driven by average check growth.

Adjusted EBITDA ($ million)
Breakdown of main variations contributing to 4Q18 Adjusted EBITDA

Fourth quarter consolidated as reported Adjusted EBITDA, excluding Venezuela, decreased 2.2%, and increased 13.7% in constant currency terms. The Adjusted EBITDA margin expanded by 120 basis points to 11.7%, mainly driven by efficiencies in Payroll and G&A expenses. Excluding refranchising activity, which was higher in the fourth quarter of 2017, the Adjusted EBITDA margin would have expanded 190 basis points year-over-year.

As reported, consolidated G&A decreased 9.4% year-over-year and increased 13.5% on a constant currency basis, which was below the blended inflation for the Company’s G&A.

Main variations in other operating income (expenses), net

Included in Adjusted EBITDA: In the fourth quarter of 2018, the Company recorded an inventory write-down charge of $3.2 million related to its operations in Venezuela. Proceeds from refranchising were $2.9 million in the fourth quarter of 2018, compared to $9.3 million in the prior-year quarter.

Excluded from Adjusted EBITDA: In the fourth quarter of 2018, the Company recorded an impairment charge of $7.0 million. Additionally, the fourth quarter of 2017 included $35.6 million from the Company’s re-development initiative.

Non-operating Results

Non-operating results for the fourth quarter, excluding Venezuela, contain a $0.4 million non-cash foreign currency exchange gain, versus a non-cash gain of $5.0 million in 2017. The variation is mainly explained by a lower foreign currency exchange gain on intercompany balances, generated by the depreciation of the Mexican peso from the previous quarter-end, compared to a higher depreciation in the same period of last year. Net interest expense was $0.3 million lower year-over-year.

The Company reported income tax expense, excluding Venezuela, of $9.8 million in the quarter, compared to an income tax expense of $16.0 million in the prior-year period.

Fourth quarter net income attributable to the Company totaled $18.9 million ($9.2 million, including Venezuela), compared to net income of $63.9 million ($69.3 million, including Venezuela) in the same period of 2017. The variation was mostly due to lower operating income, which last year included $35.6 million from the Company’s re-development initiative, and to a lower foreign currency exchange gain this year.

The Company reported earnings per share of $0.09 ($0.04, including Venezuela) in the fourth quarter of 2018, compared to earnings per share of $0.30 ($0.33, including Venezuela) in the previous corresponding period. Due mainly to share repurchases of 6,360,826 since the initiation of the share repurchase program on May 22, 2018, total weighted average shares for the fourth quarter of 2018 decreased to 206,324,785 from 211,072,508 in the prior-year quarter.

Analysis by Division:

Brazil Division
Figure 3. Brazil Division: Key Financial Results (In millions of U.S. dollars, except as noted)
				4Q17 (a)			Currency Translation (b)			Constant Currency Growth (c)			4Q18 (a+b+c)			% As Reported			% Constant Currency
Total Restaurants (Units)				929									968
Total Revenues				403.2			(60.7)			11.2			353.7			-12.3%			2.8%
Systemwide Comparable Sales																			1.8%
Adjusted EBITDA				78.3			(11.8)			1.2			67.7			-13.6%			1.6%
Adjusted EBITDA Margin				19.4%									19.1%

Brazil’s as reported revenues decreased 12.3%, impacted by the 15% year-over-year average depreciation of the Brazilian real. Excluding currency translation, constant currency revenues grew 2.8%, supported by systemwide comparable sales growth of 1.8% as the effect of intensified marketing initiatives only began materializing toward the end of the fourth quarter.

Marketing activities during the fourth quarter continued to be focused on elevating the family dining experience with innovative and compelling offerings across Arcos Dorados’ menu board. The Company launched the “McPicanha” and “Duplo Picanha” premium burgers within the Signature Line and extended the “Clássicos do Dia” campaign in the affordability platform, which helped drive traffic to the restaurants. The dessert category performed well with the introduction of new flavors in the iconic McFlurry line-up. The Company also launched the “Black Fryday” campaign and maintained the popular and successful Open Doors program, which invites customers to visit a McDonald’s kitchen and see first-hand the food quality standards of the brand. In 2018, over 2 million Brazilian customers participated in this program.

As reported Adjusted EBITDA decreased 13.6% year-over-year and increased 1.6% on a constant currency basis. The Adjusted EBITDA margin contracted by 30 basis points to 19.1%, due to higher refranchising activity in the fourth quarter of last year. Excluding refranchising, the Adjusted EBITDA margin would have expanded 100 basis points year-over-year, with efficiencies in Payroll, Royalty Fees and G&A.

NOLAD
Figure 4. NOLAD Division: Key Financial Results (In millions of U.S. dollars, except as noted)
				4Q17 (a)			Currency Translation (b)			Constant Currency Growth (c)			4Q18 (a+b+c)			% As Reported			% Constant Currency
Total Restaurants (Units)				519									524
Total Revenues				104.1			(4.1)			4.5			104.6			0.4%			4.3%
Systemwide Comparable Sales																			3.4%
Adjusted EBITDA				10.3			(0.4)			(0.9)			9.0			-12.4%			-8.5%
Adjusted EBITDA Margin				9.9%									8.6%

NOLAD’s as reported revenues remained relatively flat year-over-year, as constant currency growth of 4.3% was almost fully offset by a negative currency translation impact resulting from the 4% year-over-year average depreciation of the Mexican peso against the US dollar. Systemwide comparable sales increased 3.4%, largely driven by average check growth. Mexico’s top-line continues to perform strongly, recording a seventh consecutive quarter of positive comparable sales growth.

As part of the Company’s strategy to increase volumes in the division, marketing initiatives included the launch of the Big Tasty campaign and the continuation of the Chipotle Ranch premium burger in the Signature Line. Other marketing initiatives during the fourth quarter included the launch of McColoso and McFloat in the dessert category and Animal Jam and Spiderman for the Happy Meal, which performed well during this period. This division also launched a Black Friday initiative based on iconic menu items.

As reported Adjusted EBITDA decreased 12.4%, or 8.5% on a constant currency basis. The Adjusted EBITDA margin contracted by 130 basis points to 8.6%, mainly due to higher Occupancy and other operating expenses, and F&P costs.

SLAD
Figure 5. SLAD Division: Key Financial Results (In millions of U.S. dollars, except as noted)
				4Q17 (a)			Currency Translation (b)			Constant Currency Growth (c)			4Q18 (a+b+c)			% As Reported			% Constant Currency
Total Restaurants (Units)				390									394
Total Revenues				246.7			(115.5)			55.4			186.6			-24.4%			22.4%
Systemwide Comparable Sales																			22.4%
Adjusted EBITDA				22.3			(7.6)			1.9			16.6			-25.7%			8.4%
Adjusted EBITDA Margin				9.0%									8.9%

SLAD’s as reported revenues decreased 24.4%, as constant currency growth of 22.4% was more than offset by negative currency translation effects resulting from the 53% year-over-year average depreciation of the Argentine peso against the US dollar. Systemwide comparable sales increased 22.4%, driven by average check growth.

The division’s marketing activities in the fourth quarter included launching the Big Mac Bacon in the core segment and the continuation of the Egg & Bacon premium burger in the Signature Line. As part of the Company’s growth strategy, promotional activity was increased. This activity included the launch of several promotions through the App, which helped mitigate the soft consumer environment in Argentina. The Happy Meal performed well with Nintendo and Animal Jam. Also during the quarter, the Company launched Mozzarella Sticks as well as Share Box in its new Snacks platform.

Adjusted EBITDA decreased 25.7% on an as reported basis and rose 8.4% in constant currency terms. The Adjusted EBITDA margin contracted 10 basis points to 8.9%, as efficiencies in Payroll costs were almost fully offset by higher F&P costs and Occupancy and Other Operating Expenses as a percentage of revenues.

Caribbean Division
Figure 6. Caribbean Division: Key Financial Results (In millions of U.S. dollars, except as noted)
				4Q17 (a)			Currency Translation (b)			Constant Currency Growth (c)			4Q18 (a+b+c)			% As Reported			% Constant Currency
Total Restaurants (Units)				350									337
Total Revenues				142.9			(35,547.4)			35,513.1			108.6			-24.0%			24854.5%
Systemwide Comparable Sales																			34,505.9%
Adjusted EBITDA				27.5			(9,417.6)			9,397.4			7.2			-73.7%			34212.1%
Adjusted EBITDA Margin				19.2%									6.7%

The Caribbean division’s results continue to be heavily impacted by Venezuela’s macroeconomic volatility, including the ongoing hyperinflationary environment and the country’s heavily regulated currency. As such, reported results may contain significant non-cash accounting charges to operations in this market. Due to the distortive effects that Venezuela represents, the discussion of the Caribbean division’s operating performance is focused on results that exclude the Company’s operations in this country.

Caribbean Division – excluding Venezuela
Figure 7. Caribbean Division - Excluding Venezuela: Key Financial Results (In millions of U.S. dollars, except as noted)
				4Q17 (a)			Currency Translation (b)			Constant Currency Growth (c)			4Q18 (a+b+c)			% As Reported			% Constant Currency
Total Restaurants (Units)				220									217
Total Revenues				96.9			(2.8)			6.2			100.3			3.6%			6.4%
Systemwide Comparable Sales																			5.7%
Adjusted EBITDA				5.2			(0.4)			3.4			8.3			59.3%			66.6%
Adjusted EBITDA Margin				5.3%									8.2%

As reported revenues in the Caribbean division, excluding Venezuela, increased 3.6%, or 6.4% in constant currency terms. Comparable sales increased 5.7%, well above the division’s blended inflation, driven by guest traffic. The division’s comparable base positively benefitted from prior year impacts from natural disasters in Puerto Rico and the USVI.

The division’s marketing activities during the quarter included Animal Jam and Spiderman for the Happy Meal and the launch of the Book or Toy campaign, which encourages and supports family reading with children. This division also performed well in the dessert category, with the addition of new flavors to the classic McFlurry icecream. In Colombia, the Company launched the McCombo del Día campaign, which drives traffic at restaurants and is built on a lineup of core products.

Adjusted EBITDA totaled $8.3 million, compared to $5.2 million in the same period of 2017. The Adjusted EBITDA margin expanded 290 basis points to 8.2%, mainly driven by efficiencies in F&P costs and G&A expenses.

New Unit Development
Figure 8. Total Restaurants (eop)*
				December 2018			September 2018			June 2018			March 2018			December 2017
Brazil				968			939			933			929			929
NOLAD				524			521			522			522			519
SLAD				394			390			390			391			390
Caribbean				337			345			346			348			350
TOTAL				2,223			2,195			2,191			2,190			2,188
* Considers Company-operated and franchised restaurants at period-end

The Company opened 70 new restaurants during the twelve-month period ended December 31, 2018, which was at the top end of the guidance range for the year and resulted in a total of 2,223 restaurants. Also during the period, the Company added 375 Dessert Centers, bringing the total to 3,089 units. McCafés totaled 266, as of December 31, 2018.

Balance Sheet & Cash Flow Highlights

Cash and cash equivalents were $197.3 million at December 31, 2018. The Company’s total financial debt (including derivative instruments) was $589.8 million. Net debt (Total Financial Debt minus Cash and cash equivalents) was $392.5 million and the Net Debt/Adjusted EBITDA ratio was 1.5x at December 31, 2018.

Figure 9. Consolidated Financial Ratios (In thousands of U.S. dollars, except ratios)
				December 31			December 31
				2018			2017
Cash & cash equivalents (i)				197,282			328,079
Total Financial Debt (ii)				589,760			621,460
Net Financial Debt (iii)				392,478			293,381
Total Financial Debt / LTM Adjusted EBITDA ratio				2.3			2.0
Net Financial Debt / LTM Adjusted EBITDA ratio				1.5			1.0

(i) Cash & cash equivalents includes Short-term investment

(ii) Total financial debt includes long-term debt and derivative instruments (including the asset portion of derivatives amounting to $54.7 million and $35.1 million as a reduction of financial debt as of December 31, 2018 and 2017, respectively).

(iii) Total financial debt less cash and cash equivalents.

Net cash provided by operating activities totaled $95.3 million in the fourth quarter, while cash used in net investing activities totaled $72.2 million, which included capital expenditures of $78.0 million, compared to $66.2 million in the previous year’s quarter. Cash used in financing activities amounted to $29.8 million, including $17.8 million of treasury stock purchases and $10.4 million of dividend payments.

Full Year 2018

Excluding the Venezuelan operation and for the year ended December 31, 2018, the Company’s as reported revenues decreased 6.7% to $3.0 billion, as constant currency growth of 8.8% was offset by negative currency translation, mainly stemming from the significant year-over-year average depreciation of the Argentine peso and, to a lesser extent, the Brazilian real against the US dollar.

As reported Adjusted EBITDA, excluding Venezuela, was $292.2 million, a 3.5% increase compared to last year. On a constant currency basis, Adjusted EBITDA increased 18.9%. The reported Adjusted EBITDA margin expanded 90 basis points to 9.7%, the highest level since 2011. Excluding refranchising activity, which was higher in 2017, the Adjusted EBITDA margin would have expanded by 120 basis points, mostly a result of efficiencies in Payroll.

Consolidated net income for the full year 2018, excluding Venezuela, amounted to $85.9 million, compared to net income of $131.3 million in 2017. The prior year’s result included $91.7 million from the Company’s re-development initiative, compared to $0.2 million this year. The result also reflects lower net interest expenses, lower losses from derivative instruments, a positive variance in foreign currency exchange results, and lower income tax.

Capital expenditures totaled $197.0 million in 2018 versus $174.8 million last year.

Quarter Highlights & Recent Developments

Share Repurchase Program
On May 22, 2018, the Board of Directors approved the adoption of a share repurchase program, pursuant to which the Company may repurchase from time to time up to $60 million of issued and outstanding Class A shares of no par value of the Company. The repurchase program began on this date and will expire at the close of business on May 22, 2019. As of December 31, 2018, the Company had purchased 6,360,826 shares at a total cost of $46.0 million.

2019 Annual Guidance
For the full year 2019, the Company expects to open between 80 and 85 new restaurants. The Company also expects total capital expenditures to be between $270 and $300 million.

2019 Dividend
On March 22, 2019, the Board of Directors of Arcos Dorados Holdings Inc. approved dividend payments for 2019. As such, the Company will pay a dividend of $0.11 per share to all Class A and Class B shareholders of the Company in three installments, as follows: $0.05 per share on April 12, 2019, $0.03 per share on August 14, 2019, and $0.03 per share on December 12, 2019. The dividend will be paid to shareholders of record as of April 9, 2019, August 9, 2019, and December 9, 2019, respectively.

Definitions:

Systemwide comparable sales growth: refers to the change, measured in constant currency, in our Company-operated and franchised restaurant sales in one period from a comparable period for restaurants that have been open for thirteen months or longer. While sales by our franchisees are not recorded as revenues by us, we believe the information is important in understanding our financial performance because these sales are the basis on which we calculate and record franchised revenues and are indicative of the financial health of our franchisee base.

Constant currency basis: refers to amounts calculated using the same exchange rate over the periods under comparison to remove the effects of currency fluctuations from this trend analysis. To better discern underlying business trends, this release uses non-GAAP financial measures that segregate year-over-year growth into two categories: (i) currency translation, (ii) constant currency growth. (i) Currency translation reflects the impact on growth of the appreciation or depreciation of the local currencies in which we conduct our business against the US dollar (the currency in which our financial statements are prepared). (ii) Constant currency growth reflects the underlying growth of the business excluding the effect from currency translation.

Excluding Venezuela basis: due to the ongoing political and macroeconomic uncertainty prevailing in Venezuela, and in order to provide greater clarity and visibility on the Company’s financial and operating overall performance, this release focuses on the results on an “Excluding-Venezuela” basis, which is non-GAAP measure.

Adjusted EBITDA: In addition to financial measures prepared in accordance with the general accepted accounting principles (GAAP), within this press release and the accompanying tables, we use a non-GAAP financial measure titled ‘Adjusted EBITDA’. We use Adjusted EBITDA to facilitate operating performance comparisons from period to period.

Adjusted EBITDA is defined as our operating income plus depreciation and amortization plus/minus the following losses/gains included within other operating income (expenses), net, and within general and administrative expenses in our statement of income: gains from sale or insurance recovery of property and equipment; write-offs of property and equipment; impairment of long-lived assets and goodwill; and incremental compensation related to the modification of our 2008 long-term incentive plan.

We believe Adjusted EBITDA facilitates company-to-company operating performance comparisons by backing out potential differences caused by variations such as capital structures (affecting net interest expense and other financial charges), taxation (affecting income tax expense) and the age and book depreciation of facilities and equipment (affecting relative depreciation expense), which may vary for different companies for reasons unrelated to operating performance. Figure 10 of this earnings release include a reconciliation for Adjusted EBITDA. For more information, please see Adjusted EBITDA reconciliation in Note 9 of our quarterly financial statements (6-K Form) filed today with the S.E.C.

About Arcos Dorados

Arcos Dorados is the world’s largest independent McDonald’s franchisee in terms of systemwide sales and number of restaurants, operating the largest quick service restaurant chain in Latin America and the Caribbean. It has the exclusive right to own, operate and grant franchises of McDonald’s restaurants in 20 Latin American and Caribbean countries and territories, including Argentina, Aruba, Brazil, Chile, Colombia, Costa Rica, Curaçao, Ecuador, French Guyana, Guadeloupe, Martinique, Mexico, Panama, Peru, Puerto Rico, St. Croix, St. Thomas, Trinidad & Tobago, Uruguay and Venezuela. The Company operates or franchises over 2,200 McDonald’s-branded restaurants with over 90,000 employees and is recognized as one of the best companies to work for in Latin America. Arcos Dorados is traded on the New York Stock Exchange (NYSE:ARCO). To learn more about the Company, please visit the Investors section of our website: www.arcosdorados.com/ir

Cautionary Statement on Forward-Looking Statements

This press release contains forward-looking statements. The forward-looking statements contained herein include statements about the Company’s business prospects, its ability to attract customers, its affordable platform, its expectation for revenue generation and its outlook and guidance for 2018. These statements are subject to the general risks inherent in Arcos Dorados' business. These expectations may or may not be realized. Some of these expectations may be based upon assumptions or judgments that prove to be incorrect. In addition, Arcos Dorados' business and operations involve numerous risks and uncertainties, many of which are beyond the control of Arcos Dorados, which could result in Arcos Dorados' expectations not being realized or otherwise materially affect the financial condition, results of operations and cash flows of Arcos Dorados. Additional information relating to the uncertainties affecting Arcos Dorados' business is contained in its filings with the Securities and Exchange Commission. The forward-looking statements are made only as of the date hereof, and Arcos Dorados does not undertake any obligation to (and expressly disclaims any obligation to) update any forward-looking statements to reflect events or circumstances after the date such statements were made, or to reflect the occurrence of unanticipated events.

Fourth Quarter & Full Year 2018 Consolidated Results
(In thousands of U.S. dollars, except per share data)

Figure 10. Fourth Quarter & Full Year 2018 Consolidated Results (In thousands of U.S. dollars, except per share data)
				For Three-Months ended								For Twelve-Months ended
				December 31,								December 31,
				2018				2017				2018				2017
REVENUES
Sales by Company-operated restaurants					715,823				851,276				2,932,609				3,162,256
Revenues from franchised restaurants					37,519				45,605				148,962				157,269
Total Revenues					753,342				896,881				3,081,571				3,319,525
OPERATING COSTS AND EXPENSES
Company-operated restaurant expenses:
Food and paper					(250,524)				(290,143)				(1,030,499)				(1,110,240)
Payroll and employee benefits					(137,090)				(175,040)				(607,793)				(683,954)
Occupancy and other operating expenses					(196,031)				(219,304)				(803,539)				(842,519)
Royalty fees					(39,259)				(46,504)				(157,886)				(163,954)
Franchised restaurants - occupancy expenses					(17,604)				(20,185)				(67,927)				(69,836)
General and administrative expenses					(62,250)				(68,714)				(229,324)				(244,664)
Other operating (expenses) income, net					(11,730)				23,263				(61,145)				68,577
Total operating costs and expenses					(714,488)				(796,627)				(2,958,113)				(3,046,590)
Operating income					38,854				100,254				123,458				272,935
Net interest expense					(13,542)				(13,854)				(52,868)				(68,357)
Loss from derivative instruments					(374)				(29)				(565)				(7,065)
Foreign currency exchange results					(777)				4,211				14,874				(14,265)
Other non-operating expenses, net					280				172				270				(435)
Income before income taxes					24,441				90,754				85,169				182,813
Income tax expense					(15,158)				(21,426)				(48,136)				(53,314)
Net income					9,283				69,328				37,033				129,499
Net income attributable to non-controlling interests					(47)				(56)				(186)				(333)
Net income attributable to Arcos Dorados Holdings Inc.					9,236				69,272				36,847				129,166
Earnings per share information ($ per share):
Basic net income per common share				$	0.04			$	0.33			$	0.18			$	0.61
Weighted-average number of common shares outstanding-Basic					206,324,785				211,072,508				209,136,832				210,935,685
Adjusted EBITDA Reconciliation
Operating income					38,854				100,254				123,458				272,935
Depreciation and amortization					28,515				26,192				105,800				99,382
Operating charges excluded from EBITDA computation					18,732				(15,026)				28,739				(67,380)
Adjusted EBITDA					86,101				111,420				257,997				304,937
Adjusted EBITDA Margin as % of total revenues					11.4%				12.4%				8.4%				9.2%

Fourth Quarter & Full Year 2018 Consolidated Results – Excluding Venezuela
(In thousands of U.S. dollars, except per share data)

Figure 11. Fourth Quarter & Full Year 2018 Consolidated Results - Excluding Venezuela (In thousands of U.S. dollars, except per share data)
				For Three-Months ended								For Twelve-Months ended
				December 31,								December 31,
				2018				2017				2018				2017
REVENUES
Sales by Company-operated restaurants					708,575				810,092				2,862,505				3,071,199
Revenues from franchised restaurants					36,541				40,771				140,208				146,847
Total Revenues					745,116				850,864				3,002,712				3,218,046
OPERATING COSTS AND EXPENSES
Company-operated restaurant expenses:
Food and paper					(249,354)				(280,746)				(1,004,222)				(1,074,890)
Payroll and employee benefits					(136,616)				(173,568)				(603,215)				(676,814)
Occupancy and other operating expenses					(193,059)				(208,916)				(784,666)				(816,913)
Royalty fees					(39,259)				(46,122)				(159,348)				(162,008)
Franchised restaurants - occupancy expenses					(17,269)				(18,779)				(65,392)				(66,510)
General and administrative expenses					(59,971)				(66,186)				(222,578)				(236,563)
Other operating (expenses) income, net					(7,567)				32,100				12,221				81,779
Total operating costs and expenses					(703,095)				(762,217)				(2,827,201)				(2,951,920)
Operating income					42,021				88,647				175,511				266,126
Net interest expense					(13,541)				(13,857)				(52,848)				(68,393)
Loss from derivative instruments					(374)				(29)				(565)				(7,065)
Foreign currency exchange results					362				5,013				9,813				(9,997)
Other non-operating expenses, net					280				172				269				(415)
Income before income taxes					28,748				79,945				132,180				180,255
Income tax expense					(9,768)				(16,032)				(46,135)				(48,656)
Net income					18,979				63,913				86,045				131,600
Net income attributable to non-controlling interests					(47)				(55)				(187)				(332)
Net income attributable to Arcos Dorados Holdings Inc.					18,932				63,858				85,858				131,267
Earnings per share information ($ per share):
Basic net income per common share				$	0.09			$	0.30			$	0.41			$	0.62
Weighted-average number of common shares outstanding-Basic					206,324,785				211,072,508				209,136,832				210,935,685
Adjusted EBITDA Reconciliation
Operating income					42,021				88,647				175,511				266,126
Depreciation and amortization					27,420				24,029				100,793				92,019
Operating charges excluded from EBITDA computation					17,684				(23,548)				15,909				(75,915)
Adjusted EBITDA					87,125				89,127				292,214				282,230
Adjusted EBITDA Margin as % of total revenues					11.7%				10.5%				9.7%				8.8%

Fourth Quarter & Full Year 2018 Results by Division
(In thousands of U.S. dollars)

Figure 12. Fourth Quarter & Full Year 2018 Consolidated Results by Division (In thousands of U.S. dollars)
				4Q												FY
				Three-Months ended						% Incr.			Constant			Twelve-Months ended				% Incr.			Constant
				December 31,						/			Currency			December 31,				/			Currency
				2018			2017			(Decr)			Incr/(Decr)%			2018	2017			(Decr)			Incr/(Decr)%
Revenues
Brazil				353,667			403,235			-12.3%			2.8%			1,345,453	1,496,573			-10.1%			2.4%
Caribbean				108,553			142,881			-24.0%			24854.5%			483,743	474,822			1.9%			9381.4%
Caribbean - Excl. Venezuela				100,327			96,871			3.6%			6.4%			404,884	373,347			8.4%			7.5%
NOLAD				104,566			104,104			0.4%			4.3%			406,848	386,874			5.2%			6.8%
SLAD				186,556			246,661			-24.4%			22.4%			845,527	961,256			-12.0%			20.0%
TOTAL				753,342			896,881			-16.0%			3967.6%			3,081,571	3,319,525			-7.2%			1349.6%
TOTAL - Excl. Venezuela				745,116			850,864			-12.4%			9.1%			3,002,712	3,218,046			-6.7%			8.8%
Operating Income (loss)
Brazil				47,784			61,576			-22.4%			-8.8%			159,511	160,608			-0.7%			15.8%
Caribbean				(5,877)			6,292			-193.4%			126934.4%			(49,567)	1,538			-3312.4%			870493.9%
Caribbean - Excl. Venezuela				(2,709)			(5,304)			48.9%			51.4%			2,486	(5,263)			147.2%			141.2%
NOLAD				10			36,546			-100.0%			-99.9%			7,726	99,152			-92.2%			-92.1%
SLAD				9,979			18,093			-44.8%			-16.9%			53,777	71,718			-25.0%			5.4%
Corporate and Other				(13,042)			(22,253)			41.4%			10.0%			(47,989)	(60,081)			20.1%			-14.5%
TOTAL				38,854			100,254			-61.2%			7927.1%			123,458	272,935			-54.8%			4895.4%
TOTAL - Excl. Venezuela				42,021			88,647			-52.6%			-45.1%			175,511	266,126			-34.0%			-23.8%
Adjusted EBITDA
Brazil				67,655			78,260			-13.6%			1.6%			218,391	218,172			0.1%			16.2%
Caribbean				7,228			27,472			-73.7%			34212.1%			(8,281)	40,844			-120.3%			36344.4%
Caribbean - Excl. Venezuela				8,252			5,180			59.3%			66.6%			25,937	18,137			43.0%			41.6%
NOLAD				8,994			10,261			-12.4%			-8.5%			32,313	33,717			-4.2%			-2.7%
SLAD				16,558			22,293			-25.7%			8.4%			73,670	87,083			-15.4%			14.5%
Corporate and Other				(14,334)			(26,866)			46.6%			24.2%			(58,096)	(74,879)			22.4%			-1.7%
TOTAL				86,101			111,420			-22.7%			8442.4%			257,997	304,937			-15.4%			4883.1%
TOTAL - Excl. Venezuela				87,125			89,127			-2.2%			13.7%			292,214	282,230			3.5%			18.9%

Figure 13. Average Exchange Rate per Quarter*
				Brazil			Mexico			Argentina
4Q18				3.81			19.83			37.07
4Q17				3.25			18.99			17.56

Summarized Consolidated Balance Sheets
(In thousands of U.S. dollars)

Figure 14. Summarized Consolidated Balance Sheets (In thousands of U.S. dollars)
				December 31			December 31
				2018			2017
ASSETS
Current assets
Cash and cash equivalents				197,282			308,491
Short-term investment				0			19,588
Accounts and notes receivable, net				84,287			111,302
Other current assets (1)				182,993			213,656
Total current assets				464,562			653,037
Non-current assets
Property and equipment, net				856,192			890,736
Net intangible assets and goodwill				41,021			47,729
Deferred income taxes				58,334			74,299
Derivative instruments				54,735			35,069
Other non-current assets (2)				103,195			102,873
Total non-current assets				1,113,477			1,150,706
Total assets				1,578,039			1,803,743
LIABILITIES AND EQUITY
Current liabilities
Accounts payable				242,455			303,452
Taxes payable (3)				114,849			136,918
Accrued payroll and other liabilities				94,166			119,088
Other current liabilities (4)				24,527			23,715
Provision for contingencies				2,436			2,529
Financial debt (5)				14,879			19,881
Total current liabilities				493,312			605,583
Non-current liabilities
Accrued payroll and other liabilities				35,322			29,366
Provision for contingencies				26,073			25,427
Financial debt (6)				629,616			636,648
Deferred income taxes				957			10,577
Total non-current liabilities				691,968			702,018
Total liabilities				1,185,280			1,307,601
Equity
Class A shares of common stock				379,845			376,732
Class B shares of common stock				132,915			132,915
Additional paid-in capital				14,850			14,216
Retained earnings				413,074			401,134
Accumulated other comprehensive losses				(502,266)			(429,347)
Common stock in treasury				(46,035)			0
Total Arcos Dorados Holdings Inc shareholders’ equity				392,383			495,650
Non-controlling interest in subsidiaries				376			492
Total equity				392,759			496,142
Total liabilities and equity				1,578,039			1,803,743

(1) Includes "Other receivables", "Inventories", "Prepaid expenses and other current assets", and "McDonald's Corporation's indemnification for contingencies".

(2) Includes "Miscellaneous", "Collateral deposits", and "McDonald's Corporation indemnification for contingencies".

(3) Includes "Income taxes payable" and "Other taxes payable".

(4) Includes "Royalties payable to McDonald's Corporation" and "Interest payable".

(5) Includes "Short-term debt", "Current portion of long-term debt" and "Derivative instruments".

(6) Includes "Long-term debt, excluding current portion" and "Derivative instruments".

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