Arcos Dorados Reports Strong Fourth Quarter and Full Year 2023 Financial Results
- Total revenues reached $1.2 billion in the fourth quarter and $4.3 billion for the full year 2023, the Company’s strongest US dollar results for both periods
- Systemwide comparable sales1 grew 32.4% in the fourth quarter and 34.6% in the full year 2023, up 1.1x and 1.3x blended inflation, respectively
- Digital channel sales (Mobile App, Delivery and Self-order Kiosks) contributed 53% of the fourth quarter’s systemwide sales, including 21% identified sales
- Consolidated Adjusted EBITDA1 in the fourth quarter and full year were $132.6 million and $472.3 million, respectively, also the Company’s strongest US dollar results for each period
- Net Income in the fourth quarter was $55.8 million, or $0.26 per share, and $181.3 million for the full year, or $0.86 per share, the Company’s highest earnings per share for a full year
- Net Debt to Adjusted EBITDA ratio remained at a healthy 1.0x at year-end 2023
- The Board of Directors declared a cash dividend of $0.24 per share for 2024
MONTEVIDEO, Uruguay–(BUSINESS WIRE)–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 months, and audited results for the twelve months, ended December 31, 2023.
Fourth Quarter 2023 Highlights
- Consolidated revenues totaled $1.2 billion, rising 15.4% in US dollars versus the prior year period.
- Systemwide comparable sales1 increased 32.4%, with higher guest traffic and average check driving at or above-inflation growth in all divisions.
- Consolidated Adjusted EBITDA1 reached $132.6 million, the Company’s highest quarterly result, rising 16.3% in US dollars.
- Consolidated Adjusted EBITDA margin was 11.3%, rising 10 basis points versus the fourth quarter of 2022.
- Net income was $ 55.8 million in the quarter, or $0.26 per share.
- The Company opened 36 restaurants in the quarter, including 31 free-standings locations and 18 new restaurants in Brazil.
Full Year 2023 Highlights
- Consolidated revenues totaled $4.3 billion, rising 19.7% in US dollars versus 2022.
- Systemwide comparable sales1 increased 34.6%, with above-inflation growth throughout the year and across all divisions, rising 1.3x the period’s blended inflation rate.
- Consolidated Adjusted EBITDA reached $472.3 million in 2023, up 22.2% in US dollars versus the prior year, establishing a new high for a full year.
- Consolidated Adjusted EBITDA margin rose to 10.9% for the year, improving 20 basis points versus the prior year, or 60 basis points, excluding the increase in the effective royalty rate.
- Net income of $181.3 million, or $0.86 per share, was the highest earnings per share in the Company’s history and compared with $0.67 per share for the full year 2022.
- Restaurant openings reached 81 new units in 2023, including 72 free-standing locations and 50 openings in Brazil.
Message from Marcelo Rabach, Chief Executive Officer
We are very pleased to report that we had a solid finish to a very strong year in 2023. Our Three D’s Strategy of Digital, Delivery and Drive-thru continues to evolve while leveraging the industry’s largest free-standing restaurant portfolio.
The penetration of Digital channels is expanding throughout our footprint thanks to (i) a mobile app that works as an e-commerce platform to offer incentives and convenience to increase guest loyalty and visit frequency, (ii) a Delivery sales channel that continues to grow strongly in a segment where we are clearly the industry leaders, and (iii) self-order kiosks capturing an increasing share of on-premise orders, with about 60% of Arcos Dorados’ restaurants already modernized to the Experience of the Future (EOTF) format.
We have adapted to changes in consumer preferences over the last several years to provide the most compelling value, experience and convenience proposition in the region’s quick service restaurant (QSR) industry. Results in 2023 reflect how this led to increased visit frequency and market share gains across our markets. And we feel like we are just getting started with the Three D’s strategy driving sustainable sales growth, supported by restaurant volume and average check. Our objective is to deliver above inflation growth in systemwide comparable sales to then drive operating leverage and profitability growth over time.
Our balance sheet is very strong, and we are accelerating the pace of restaurant openings, which will allow us to capture significant growth opportunities for years to come, all while operating responsibly and supporting the communities we serve. I am certain we have the best Brand in the industry, along with the right strategy and team to generate even more shareholder value in 2024. Thank you for your continued support of Arcos Dorados.
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1 For definitions, please refer to pages 16 and 17 of this document |
1 Consolidated Results
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Consolidated Results |
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Figure 1. AD Holdings Inc Consolidated: Key Financial Results (In millions of U.S. dollars, except as noted) |
||||||
| 4Q22 (a) |
Currency Translation (b) |
Constant Currency Growth (c) |
4Q23 (a+b+c) |
% As Reported |
% Constant Currency |
|
| Total Restaurants (Units) |
2,312 |
2,361 |
||||
| Sales by Company-operated Restaurants |
972.3 |
(236.2) |
385.4 |
1,121.5 |
15.3% |
39.6% |
| Revenues from franchised restaurants |
46.4 |
(5.9) |
13.5 |
54.0 |
16.5% |
29.1% |
| Total Revenues |
1,018.6 |
(242.0) |
398.9 |
1,175.5 |
15.4% |
39.2% |
| Systemwide Comparable Sales |
32.4% |
|||||
| Adjusted EBITDA |
114.1 |
(19.4) |
38.0 |
132.6 |
16.3% |
33.3% |
| Adjusted EBITDA Margin |
11.2% |
11.3% |
0.1 p.p. | |||
| Net income attributable to AD |
54.5 |
(40.6) |
41.9 |
55.8 |
2.4% |
78.5% |
| No. of shares outstanding (thousands) |
210,595 |
210,655 |
||||
| EPS (US$/Share) |
0.26 |
0.26 |
||||
Arcos Dorados’ total revenues reached $1.2 billion, up 15.4% in US dollars versus the prior year quarter. Systemwide comparable sales grew 32.4% in the fourth quarter, on top of very strong sales growth in the prior year period.
The Company’s structural competitive advantages and consistent execution of the Three-D’s strategy, together with the strength of the McDonald’s Brand, continued driving sales growth and market share gains. By the end of 2023, Arcos Dorados consolidated its leadership in the region with at least double the visit share of its main competitors across all main markets.
On-premise sales (front counter, dessert centers and McCafé) grew 14% in US dollars versus the prior year, generating 58% of systemwide sales in the fourth quarter. Off-premise channels (Delivery and Drive-thru) grew 16% in US dollar sales versus the prior year, benefitting from continued popularity among guests.
Digital channels also contributed to the strong topline performance. Digital sales surpassed $800 million, growing about 39% versus the prior year, and accounted for 53% of systemwide sales. As of the end of December, the Company’s Mobile App had almost 115 million accumulated downloads, with about 18.5 million average monthly active users in the fourth quarter. Identified sales, where guests have shared their data with the Company and allowed it to use the data for commercial purposes, represented 21% of consolidated sales in the fourth quarter of 2023.
Adjusted EBITDA
4Q23 Adjusted EBITDA Bridge
Fourth quarter consolidated Adjusted EBITDA reached $132.6 million, up 16.3% in US dollars over the prior year quarter, with continued strong US dollar growth contribution from all divisions. Consolidated Adjusted EBITDA margin reached 11.3% for the quarter, expanding 10 basis points versus the prior year period.
Margin performance reflects better Food and Paper (F&P) costs and general and administrative expenses (G&A), partially offset by moderately higher Occupancy & Other Operating expenses as a percentage of revenue compared with the prior year. Payroll expenses were flat as a percentage of revenue compared with the prior year quarter.
Notable items in the Adjusted EBITDA reconciliation
Included in Adjusted EBITDA: There were no notable items included in Adjusted EBITDA in either the fourth quarter of 2023 or the fourth quarter of 2022.
Excluded from Adjusted EBITDA: In the fourth quarter of 2023, other operating income/(expense) included a total of $7.4 million in non-cash expenses, primarily related to higher impairments and write-offs of long-lived assets versus the prior year.
Non-operating Results
Arcos Dorados’ non-operating results for the fourth quarter included a net interest expense of $5.3 million and a non-cash foreign exchange loss of $11.5 million. The Company recorded an income tax expense of $7.8 million in the quarter, compared to an income tax expense of $20.1 million in the prior-year period.
Fourth quarter net income attributable to the Company totaled $55.8 million, compared to net income of $54.5 million in the same period of 2022. Arcos Dorados recorded earnings of $0.26 per share in the fourth quarter of 2023, in line with the prior-year quarter.
Total weighted average shares for the fourth quarter of 2023 amounted to 210,654,969 compared to 210,594,545 in the prior year’s quarter.
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For reference: |
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| Figure 2. AD Holdings Inc Consolidated – Excluding Venezuela: Key Financial Results (In millions of U.S. dollars, except as noted) |
||||||
| 4Q22 (a) |
Currency Translation (b) |
Constant Currency Growth (c) |
4Q23 (a+b+c) |
% As Reported | % Constant Currency | |
| Total Restaurants (Units) |
2,214 |
2,278 |
||||
| Sales by Company-operated Restaurants |
967.0 |
(212.5) |
357.0 |
1,111.4 |
14.9% |
36.9% |
| Revenues from franchised restaurants |
45.8 |
(3.8) |
11.1 |
53.1 |
16.0% |
24.3% |
| Total Revenues |
1,012.8 |
(216.3) |
368.1 |
1,164.5 |
15.0% |
36.3% |
| Systemwide Comparable Sales |
29.2% |
|||||
| Adjusted EBITDA |
115.1 |
(20.3) |
38.8 |
133.6 |
16.1% |
33.7% |
| Adjusted EBITDA Margin |
11.4% |
11.5% |
0.1 p.p. | |||
| Net income attributable to AD |
55.7 |
(41.0) |
42.8 |
57.4 |
3.2% |
78.4% |
| No. of shares outstanding (thousands) |
210,595 |
210,655 |
||||
| EPS (US$/Share) |
0.26 |
0.27 |
||||
2 Divisional Results
Brazil Division
| Figure 3. Brazil Division: Key Financial Results (In millions of U.S. dollars, except as noted) |
||||||
| 4Q22 (a) |
Currency Translation (b) |
Constant Currency Growth (c) |
4Q23 (a+b+c) |
% As Reported |
% Constant Currency |
|
| Total Restaurants (Units) |
1,084 |
1,130 |
||||
| Total Revenues |
406.3 |
28.8 |
47.8 |
482.9 |
18.9% |
11.8% |
| Systemwide Comparable Sales |
6.2% |
|||||
| Adjusted EBITDA |
81.2 |
5.7 |
6.8 |
93.7 |
15.4% |
8.3% |
| Adjusted EBITDA Margin |
20.0% |
19.4% |
-0.6 p.p. | |||
Brazil’s revenues reached $482.9 million, increasing 18.9% year-over-year, and systemwide comparable sales rose 6.2% year-over-year, or 1.3x the country’s inflation in the period.
Sales and traffic growth in Brazil benefited from the strong performance of Digital channels, which were up 40% in US dollar sales versus the prior year. Digital channels accounted for 63% of systemwide sales in the country, including 26% identified sales. Off-premise channel sales grew 22% in US dollars versus the prior year, representing 40% of systemwide sales in the period.
Sales through the Mobile App reached a new quarterly record after the nationwide launch of the Loyalty Program “Meu Méqui” in Brazil, at the end of October of 2023. The program boosts the power of the Company’s Mobile App, leveraging guest data to increase engagement, frequency and lifetime value through a more personalized and rewarding experience. In November of 2023, the division’s traditional Méqui Friday campaign helped generate record Mobile App downloads and active users. The Loyalty program continues to grow. At the end of February 2024, the program had over 5.0 million registered members and strong initial results related to guest frequency and redemption rates.
Marketing initiatives in the quarter included the introduction of the “McCrispy Chicken Elite” in October to continue building the chicken category. The sandwich is a new approach to one of the Company’s best-selling sandwiches, combining its crispy and juicy breaded chicken with the new Honey & Fire sauce. In November of 2023, the Company reinforced its beef platform by bringing back the famous Big Mac jingle to launch two limited timed offers: the “Double Big Mac” and the “Big Mac Bacon”.
As reported Adjusted EBITDA in the division reached $93.7 million in the quarter, rising 15.4% versus the prior year in US dollars. Adjusted EBITDA margin declined by 60 basis points versus the prior year period. Lower F&P costs and G&A were offset by higher Payroll and Occupancy & Other Operating expenses as a percentage of revenue compared with the prior year period.
North Latin American Division (NOLAD)
| Figure 4. NOLAD Division: Key Financial Results (In millions of U.S. dollars, except as noted) |
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| 4Q22 (a) |
Currency Translation (b) |
Constant Currency Growth (c) |
4Q23 (a+b+c) |
% As Reported |
% Constant Currency |
|
| Total Restaurants (Units) |
638 |
647 |
||||
| Total Revenues |
260.8 |
20.1 |
19.5 |
300.4 |
15.2% |
7.5% |
| Systemwide Comparable Sales |
5.4% |
|||||
| Adjusted EBITDA |
27.9 |
2.3 |
1.0 |
31.1 |
11.7% |
3.6% |
| Adjusted EBITDA Margin |
10.7% |
10.4% |
-0.3 p.p. | |||
As reported revenues were $300.4 million, up 15.2% in US dollars versus the prior year quarter, and systemwide comparable sales rose 5.4% year-over-year, or 2.1x the division’s blended inflation in the period, with notably strong contributions from Mexico and the French West Indies.
Digital sales penetration expanded significantly in the fourth quarter, reaching 34% of systemwide sales, compared with just 22% in the prior year quarter. The Company continued investing in the modernization of its restaurants and in the development of its digital capabilities in the division.
NOLAD reinforced its market leadership in the fourth quarter, achieving its highest level of visit share while growing key brand attributes such as “Top of Mind”, “Favorite Brand” and “High-Quality Food”.
Marketing activities were key to support the division’s strong sales momentum. In Mexico the Company launched the “Grand Tasty” and the “Grand McBacon”, two new “GRANDS” sandwiches, a platform focused on large and indulgent burgers to engage guests. In Puerto Rico, the “Saca Tu Encanto” campaign focused on brand affinity, helping the Company continue to gain market share to lead the island’s highly competitive QSR industry.
As reported Adjusted EBITDA in the division reached $31.1 million in the quarter, rising 11.7% versus the prior year in US dollars. Adjusted EBITDA margin declined by 30 basis points versus the prior year period. Better F&P costs were offset primarily by higher Payroll and Occupancy & Other Operating expenses as a percentage of revenue versus the prior year quarter.
South Latin American Division (SLAD)
| Figure 5. SLAD Division: Key Financial Results (In millions of U.S. dollars, except as noted) |
||||||
| 4Q22 (a) |
Currency Translation (b) |
Constant Currency Growth (c) |
4Q23 (a+b+c) |
% As Reported |
% Constant Currency |
|
| Total Restaurants (Units) |
590 |
584 |
||||
| Total Revenues |
351.6 |
(291.0) |
331.5 |
392.1 |
11.5% |
94.3% |
| Systemwide Comparable Sales |
94.7% |
|||||
| Adjusted EBITDA |
31.3 |
(47.0) |
56.6 |
41.0 |
31.0% |
180.9% |
| Adjusted EBITDA Margin |
8.9% |
10.5% |
1.6 p.p. | |||
As reported revenues in SLAD reached $392.1 million. Revenue was driven by an increase in systemwide comparable sales versus the prior year, which was in line with the division’s blended inflation in the period. Chile, Uruguay and Ecuador delivered the strongest growth in the quarter. Systemwide comparable sales growth includes the impact of Argentina and Venezuela’s high inflation rates.
Digital sales, which accounted for 51% of systemwide sales in SLAD, benefited from strong Delivery sales growth, with consistent increases in Own Delivery sales helping to drive identified sales growth across the division. According to Company research, SLAD’s markets captured additional market share in the quarter, reflecting the Brand’s strength in the region.
Marketing initiatives included the launch of brand affinity campaigns, such as “Pasan Cosas Lindas” in Argentina and “Me Gustas Así” in Chile, driving sequential improvements in key brand attributes in both markets. The quarter also included menu innovations such as the “Grand Tasty Spicy” in Argentina and the “Bacon Cheddar McMelt” in Argentina, Chile, and Colombia, to support the beef category. The launch of McFlurry products with locally relevant brands in Argentina, Chile and Colombia, also contributed to reinforce the Brand’s emotional connection with guests.
As reported Adjusted EBITDA reached $41.0 million in the quarter, rising 31.0% versus the prior year. Adjusted EBITDA margin was 10.5%, or 160 basis points higher than the prior year quarter. Margin performance reflects significant operating leverage in Payroll and Occupancy & Other Operating expenses due mainly to strong sales growth in the division.
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For reference: |
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| Figure 6. SLAD Division – Excluding Venezuela: Key Financial Results (In millions of U.S. dollars, except as noted) |
||||||
| 4Q22 (a) |
Currency Translation (b) |
Constant Currency Growth (c) |
4Q23 (a+b+c) |
% As Reported |
% Constant Currency |
|
| Total Restaurants (Units) |
492 |
501 |
||||
| Total Revenues |
345.8 |
(265.3) |
300.7 |
381.2 |
10.2% |
87.0% |
| Systemwide Comparable Sales |
85.3% |
|||||
| Adjusted EBITDA |
32.3 |
(47.8) |
57.5 |
42.0 |
29.9% |
177.7% |
| Adjusted EBITDA Margin |
9.3% |
11.0% |
1.7 p.p. | |||
New Unit Development
| Figure 7. Total Restaurants (eop)* | |||||
| December 2023 |
September 2023 |
June 2023 |
March 2023 |
December 2022 |
|
| Brazil |
1,130 |
1,113 |
1,098 |
1,091 |
1,084 |
| NOLAD |
647 |
638 |
639 |
639 |
638 |
| SLAD |
584 |
588 |
580 |
582 |
590 |
| TOTAL |
2,361 |
2,339 |
2,317 |
2,312 |
2,312 |
| * Considers Company-operated and franchised restaurants at period-end | |||||
| Figure 8. Footprint as of December 31, 2023 | ||||||||
| Store Type* | Total Restaurants |
Ownership | McCafes | Dessert Centers |
||||
| FS | IS | MS & FC | Company Operated | Franchised | ||||
| Brazil |
579 |
91 |
460 |
1,130 |
689 |
441 |
97 |
2,002 |
| NOLAD |
404 |
50 |
193 |
647 |
494 |
153 |
19 |
520 |
| SLAD |
240 |
125 |
219 |
584 |
495 |
89 |
192 |
707 |
| TOTAL |
1,223 |
266 |
872 |
2,361 |
1,678 |
683 |
308 |
3,229 |
| * FS: Free-Standing; IS: In-Store; MS: Mall Store; FC: Food Court. | ||||||||
During the fourth quarter of 2023, Arcos Dorados opened 36 EOTF restaurants, including 31 free-standing units. For the full year, the Company opened 81 restaurants, 72 of which were free-standing restaurants. In Brazil, the Company opened 18 EOTF locations in the quarter and 50 restaurants in the full year 2023.
The Company has the region’s largest free-standing restaurant portfolio by a wide margin, with more than half its footprint made up of free-standing units. This provides a structural competitive advantage in nearly all main markets given the versatility of this restaurant format and the incrementality of Drive-thru and Delivery sales.
As of the end of December 2023, there were 1,390 Experience of the Future locations, offering guests the most modern and complete restaurant experience in the region’s QSR industry and making up almost 60% of Arcos Dorados’ total restaurant footprint.
Balance Sheet & Cash Flow Highlights
| Figure 9. Consolidated Debt and Financial Ratios (In thousands of U.S. dollars, except ratios) |
||
| December 31, | December 31, | |
|
2023 |
2022 |
|
| Total Cash & Cash equivalents (i) |
246,767 |
304,396 |
| Total Financial Debt (ii) |
728,093 |
674,401 |
| Net Financial Debt (iii) |
481,326 |
370,005 |
| LTM Adjusted EBITDA |
472,304 |
386,564 |
| Total Financial Debt / LTM Adjusted EBITDA ratio |
1.5 |
1.7 |
| Net Financial Debt / LTM Adjusted EBITDA ratio |
1.0 |
1.0 |
| (i) Total cash & cash equivalents includes short-term investment | ||
| (ii)Total Financial Debt includes short-term debt, long-term debt, accrued interest payable and derivative instruments (including the asset portion of derivatives amounting to $46.5 million and $92.9 million as a reduction of financial debt as of December 31, 2023 and December 2022, respectively). | ||
| (iii) Net financial debt equals total financial debt less total cash & cash equivalents. | ||
As of December 31, 2023, total cash and cash equivalents were $246.8 million and total financial debt (including the net derivative instrument position) was $728.1 million.
Net debt (total financial debt minus total cash and cash equivalents) was $481.3 million, up from $370.0 million at the end of 2022 due to the lower cash balance and lower fair value of the Company’s derivative instruments. The net debt to Adjusted EBITDA leverage ratio remained at a healthy 1.0x, unchanged from year-end 2022.
Net cash generated from operating activities for the full year 2023, totaled $382.0 million, up 11% from the prior year’s $345.4 million. Cash used in net investing activities totaled $380.3 million, including capital expenditures of $360.1 million. Net cash used in financing activities was $11.8 million in the period.
3 Recent Developments
2024 Guidance
As announced in the press release issued by the Company on January 29, 2024, Arcos Dorados plans to open 80 to 90 restaurants in 2024, comprised of about 90% free-standing units. The Company projects total capital expenditures of $300 million to $350 million for the full year 2024, which it expects to fund with cash on hand and cash generated from operations.
2024 Dividend
On March 12, 2024, the Board of Directors of Arcos Dorados Holdings Inc. approved a cash dividend for 2024. As such, the Company will pay $0.24 per share to all Class A and Class B shareholders of the Company in four installments, as follows: $0.06 per share on March 28, 2024, $0.06 per share on June 28, 2024, $0.06 per share on September 27, 2024, and $0.06 per share on December 27, 2024. The payments will be made to shareholders of record as of March 25, 2024, June 25, 2024, September 24, 2024, and December 23, 2024, respectively.
2024 Annual General Shareholders Meeting (AGM)
On March 7, 2024, the Company’s Board of Directors set the date for its AGM, which will be held on April 26, 2024, in Cartagena, Colombia, at 3:00 p.m. (local time), for all shareholders of record as of March 28, 2024.
Fourth Quarter 2023 Earnings Webcast
A webcast to discuss the information contained in this press release will be held today, March 13, 2024, at 10:00 a.m. ET. In order to access the webcast, members of the investment community should follow this link: Arcos Dorados Fourth Quarter 2023 Results Webcast.
A replay of the webcast will be available later today in the investor section of the Company’s website: www.arcosdorados.com/ir.
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Definitions
In analyzing business trends, management considers a variety of performance and financial measures which are considered to be non-GAAP including: Adjusted EBITDA, Constant Currency basis, Systemwide sales, and Systemwide comparable sales growth.
Adjusted EBITDA: In addition to financial measures prepared in accordance with the general accepted accounting principles (GAAP), this press release and the accompanying tables use a non-GAAP financial measure titled ‘Adjusted EBITDA’. Management uses Adjusted EBITDA to facilitate operating performance comparisons from period to period.
Adjusted EBITDA is defined as the Company’s 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 on the statement of income: gains from sale, or insurance recovery of property and equipment, write-offs of long-lived assets, and impairment of long-lived assets.
Management believes 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 financing results), 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 includes a reconciliation for Adjusted EBITDA. For more information, please see Adjusted EBITDA reconciliation in Note 21 – Segment and geographic information – of our financial statements (6-K Form) filed today with the S.
Contacts
Investor Relations Contact
Dan Schleiniger
VP of Investor Relations
Arcos Dorados
daniel.schleiniger@mcd.com.uy
Media Contact
David Grinberg
VP of Corporate Communications
Arcos Dorados
david.grinberg@mcd.com.uy