Arcos Dorados : reports 2Q2021 financial results

FOR IMMEDIATE RELEASE

ARCOS DORADOS REPORTS SECOND QUARTER 2021 FINANCIAL RESULTS

• Systemwide comparable sales1 grew 98.7% versus the prior year and were nearly flat on a 2-year basis, as operating conditions improved throughout the quarter
• Total revenues1 rebounded strongly in constant currency, rising 104.5% versus 2020 and 4.2% on a 2-year basis
• The three D's added strong Drive-thru and record Delivery sales, up 29% and 94% in constant currency, respectively, with Digital generating 39% of total sales1
• Consolidated1 Adjusted EBITDA reached $48.3 million, up 12.6% in constant currency on a 2-year basis
• Net Income of $5.3 million, or $0.03 per share, rebounded strongly from a $(0.42) per share loss in the prior year quarter.
• Net Debt to Adjusted EBITDA declined sharply to 3.5x, benefitting from a consistent sequential recovery in trailing-twelve-month Adjusted EBITDA

Montevideo, Uruguay, August 11, 2021 - 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 three and six months ended June 30, 2021.

Second Quarter 2021 Highlights - Excluding Venezuela

• Consolidated1 revenues totaled $591.3 million, rising 102.4% in US dollars and 104.5% on a constant currency basis versus 2020, and 4.2% in constant currency on a 2-year basis.
• Systemwide comparable sales increased 98.7% versus the prior year quarter and were nearly flat on a 2-year basis.
• Consolidated1 Adjusted EBITDA totaled $48.3 million, benefitting from strong positive results in all four divisions and a tax credit in Brazil.
• Consolidated1 Adjusted EBITDA margin reached 8.2% in the quarter, reflecting operating leverage in all line items versus 2020 and up 40 basis points versus 2019.
• Basic net income per share was $0.03, compared to a basic net loss per share of $(0.42) in the prior year quarter.
• Net Debt to Adjusted EBITDA ratio was 3.5x at the end of the second quarter 2021, versus 7.4x at year-end 2020, remaining on track to meet the Company's full year guidance.
• Substantially all the Company's restaurants were operating at least one sales segment as of the date of this release, with approximately 75% operating all sales segments.

1Excluding the results of the Venezuelan operation.

For definitions, please refer to page 15 of this document.

"A consistent, strategic approach to building a sustainable business model has been the hallmark of Arcos Dorados' growth in local currency for fourteen years. Our performance in this last quarter and, indeed, over the last eighteen months is a reflection of that philosophy. The Latin American QSR industry's largest free-standing restaurant portfolio, a strong balance sheet and superior cash flows are the foundation of the competitive advantages we are now leveraging through our Three D's strategy of Drive-thru, Delivery and Digital, while at the same time contributing to the wellbeing of our people, guests and the communities we serve," said Marcelo Rabach, Chief Executive Officer of Arcos Dorados.

"Second quarter 2021 systemwide comparable sales rebounded strongly versus the prior year and were essentially flat on a 2-year basis despite the fact that the on-premise business in our street- facing and mall-based stores has not yet fully recovered and is still subject to government- imposed operating restrictions. Profitability in the quarter also came very close to pre-pandemic levels, overcoming significant challenges related to the government-imposed operating restrictions and higher input costs. As we transition into the Full Revival Phase of our plan, we will enhance convenience, improve personalization and increase frequency by expanding our Digital capabilities and loyalty programs to allow our guests to move seamlessly across our on-premise,take-away and delivery sales segments."

"With the continued normalization of operating conditions, we now have enough visibility to resume planning for the long-term and are developing a new plan that will go well beyond just the next year. The opportunity for growth in our main markets remains robust, both organically with the emergence of new sales segments such as our record-setting McDelivery and inorganically through new, free-standing unit openings. We will focus on the factors we can control to capture these local growth opportunities while continuing to provide our guests with the best restaurant experience in Latin America and the Caribbean," he concluded.

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Second Quarter 2021 Results

Consolidated

Figure 1. AD Holdings Inc Consolidated: Key Financial Results
(In millions of U.S. dollars, except as noted)
		Currency	Constant
		Translation -	Currency
	2Q20	Excl.	Growth -	Venezuela	2Q21
	(a)	Venezuela	Excl.	(d)	(a+b+c+d)
		(b)	Venezuela			% As
			(c)			Reported
Total Restaurants (Units)	2,291				2,255
Sales by Company-operated Restaurants	279.7	(7.0)	292.4	0.9	566.1	102.4%
Revenues from franchised restaurants	12.8	0.8	12.8	0.2	26.6	107.6%
Total Revenues	292.5	(6.2)	305.3	1.1	592.7	102.6%
Adjusted EBITDA	(42.9)	3.2	86.8	0.1	47.2	NM
Adjusted EBITDA Margin	-14.7%				8.0%
Net income (loss) attributable to AD	(89.5)	3.4	89.3	1.7	4.9	NM
No. of shares outstanding (thousands)	207,278				210,360
EPS (US$/Share)	(0.43)				0.02

(2Q21 = 2Q20 + Currency Translation Excl. Venezuela + Constant Currency Growth Excl. Venezuela + Venezuela). Refer to "Definitions" section for further detail.

Arcos Dorados' consolidated results may continue to be impacted by Venezuela's macroeconomic volatility, including the ongoing hyperinflationary environment, which has historically led the Company to record significant non-cash accounting charges to operations in this market. As such, the discussion of the Company's operating performance continues to be focused on consolidated results that exclude Venezuela.

Main variations in Other Operating Income / (Expenses), net

Included in Adjusted EBITDA: The positive variation in other operating income / (expense) is mainly explained by an $11.9 million net tax credit in Brazil in this year's second quarter, compared with the negative impact of the recognition of food donations related to COVID-19 in the second quarter last year.

Excluded from Adjusted EBITDA: The positive variation is mainly explained by impairment charges of $3.8 million in the prior year quarter's result.

Second quarter net income attributable to the Company totaled $4.9 million, compared to a net loss of $89.5 million in the same period of 2020. Arcos Dorados' recorded earnings of $0.02 per share in the second quarter of 2021 compared to a loss of $(0.43) per share in the corresponding 2020 period. Total weighted average shares for the second quarter of 2021 amounted to 210,359,930 compared to 207,278,249 in the prior year's quarter.

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Consolidated - excluding Venezuela

Figure 2. AD Holdings Inc Consolidated - Excluding Venezuela: Key Financial Results
(In millions of U.S. dollars, except as noted)
		Currency	Constant
	2Q20	Translation	Currency	2Q21
	(a)	(b)	Growth	(a+b+c)		% Constant
			(c)		% US Dollars	Currency
Total Restaurants (Units)	2,173			2,151
Sales by Company-operated Restaurants	279.4	(7.0)	292.4	564.9	102.2%	104.7%
Revenues from franchised restaurants	12.8	0.8	12.8	26.4	106.8%	100.4%
Total Revenues	292.2	(6.2)	305.3	591.3	102.4%	104.5%
Systemwide Comparable Sales						98.7%
Adjusted EBITDA	(41.7)	3.2	86.8	48.3	NM	NM
Adjusted EBITDA Margin	-14.3%			8.2%
Net income (loss) attributable to AD	(87.4)	3.4	89.3	5.3	NM	NM
No. of shares outstanding (thousands)	207,278			210,360
EPS (US$/Share)	(0.42)			0.03

Excluding Arcos Dorados' Venezuelan operation, total revenues in US dollars increased 102.4% year-over-year. The Company's Three D's strategy across Drive-thru, Delivery and Digital, along with reduced government-imposed operating restrictions, drove the rebound from the prior year's pandemic-impacted results. Constant currency revenues grew 104.5% in the quarter, with strong results in all the Company's divisions. In fact, constant currency revenues were in line with or already above the second quarter of 2019 in three of four divisions, despite the still-recovering,on-premise segments and restaurant formats.

As of the date of this press release, substantially all the Company's restaurants are operating at least one sales segment and approximately 75% are operating all sales segments. Operating hours and on-premise sales segments continue to be subject to government-imposed restrictions in most markets.

Systemwide comparable sales for the second quarter increased 98.7% versus the second quarter of 2020 and were down only 0.6% on a 2-year basis, including positive 2-year systemwide comparable sales in both May and June. SLAD and NOLAD contributed the highest levels of growth with both the Caribbean and Brazil also performing strongly. The Drive-thru and Delivery sales segments grew on top of a strong prior year, rising 29% and 94% in constant currency, respectively.

Sustained growth in the Delivery segment demonstrates the Company's success in generating an additional consumption occasion among guests, which is expected to remain after operating conditions are fully normalized. Sales growth and margin performance have been further boosted by expanding Digital capabilities, especially in the segmentation of guests to increase loyalty, thus driving frequency of visit and average check growth in the long term. The Company is also leveraging the significant competitive advantage of its historical commitment to building an unmatched and growing footprint of free-standing restaurants.

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Adjusted EBITDA - Excluding Venezuela ($ million)

Breakdown of main variations contributing to 2Q21 Adjusted EBITDA

Second quarter consolidated Adjusted EBITDA reached $48.3 million, with all four divisions contributing to the strong rebound in profitability. Consolidated Adjusted EBITDA margin was up

22.4 percentage points, or 20.4 percentage points when adjusted for the $11.9 million net tax credit in Brazil. Margin expansion was highlighted by a 50 basis point improvement in Food & Paper (F&P) costs as a percentage of sales and significant operating leverage in both Payroll and Occupancy and Other Operating Expenses due to the rebound in sales performance.

Consolidated General & Administrative (G&A) expenses declined by 380 basis points as a percentage of sales despite rising 32.3% in US dollars and 41.0% in constant currency terms versus the same period in 2020. The prior year's low base of comparison resulted from the extraordinary cost saving measures the Company implemented to stabilize its operating cash flow at the peak of the pandemic.

Non-operating Results

Arcos Dorados' non-operating results for the second quarter included a $15.0 million non-cash foreign currency exchange gain, compared to a non-cash loss of $4.1 million in the same period of 2020. The Company also recorded a $4.2 million loss from derivative instruments in the second quarter of 2021 and a gain of $8.7 million related to transactions with certain securities in the second quarter of 2020. Net interest expense was $1.4 million lower year-over-year. The Company estimated income tax expense of $10.3 million in the second quarter, compared to income tax expense of $2.4 million in the prior-year period.

Second quarter net income attributable to the Company totaled $5.3 million, compared to a net loss of $87.4 million in the prior year period. Earnings per share was $0.03 in the second quarter 2021 compared to loss per share of $(0.42) in the prior year quarter.

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