Earnings Call Transcript - ARCO Q3 2022

Operator, Operator

Good morning, everyone, and thank you for joining our Third Quarter 2022 Earnings Webcast. With us today are Marcelo Rabach, our Chief Executive Officer; Luis Raganato, our Chief Operating Officer; and Mariano Tannenbaum, our Chief Financial Officer. Today’s webcast, which is being recorded, will consist of prepared remarks from our leadership team, which will be accompanied by a slide presentation, also available in the Investors section of our website. Today’s call will contain forward-looking statements, and I refer you to the forward-looking statements section of our earnings release and recent filings with the SEC. We assume no obligation to update or revise any forward-looking statements to reflect new or changed events or circumstances. In addition to reporting financial results in accordance with generally accepted accounting principles, we report certain non-GAAP financial results. Investors are encouraged to review the reconciliation of these non-GAAP financial results as compared with GAAP results, which can be found in the press release and unaudited financial statements filed today with the SEC. Our discussion today excludes the results of the Venezuelan operation, both at the consolidated level as well as for the SLAD division. For your reference, we included a full income statement, excluding Venezuela with today’s earnings release. Marcelo, over to you.

Marcelo Rabach, CEO

Thank you, Dan. Good morning, everyone, and thank you for joining us this morning. Today, Luis, Mariano and I will take you through the highlights of our consolidated and divisional results for the third quarter of 2022. Mariano will also cover our balance sheet and growth metrics, and Luis will provide an update on the 3D strategy of digital, Delivery, and Drive-thru that has been driving the strongest operating and financial results in our history. I’ll wrap up with the Recipe for the Future and some final thoughts on 2022 and beyond. In our discussion of third quarter results, you will see that we were able to maintain the strong trends of the last several quarters and build on what we told you was a better-than-expected month of July. This means business momentum was very strong as we headed into the year’s most important quarter and that's why we finalized our plans for next year as well. Total revenue in the third quarter reached $916 million, comparable sales grew more than 34% versus the prior year, boosted by higher guest volumes and market share gains throughout the Arcos’ footprint. We leveraged our structural competitive advantages, with a continued focus on our winning Three D’s strategy. Digital Sales contributed 42% of the quarter systemwide sales, reaching almost $500 million. This new three-month record included all-time highs in mobile app, Self-order Kiosks and Mobile Order and Pay. Delivery and drive-thru sales grew 34% and 11% in constant currency respectively. These increases came from gains in both guest volume and average check, and far outperformed many other restaurant chains; even on-premise sales continued normalizing. We have been able to sustain growth on these channels, thanks to the structure and competitive advantage offered by our freestanding restaurant portfolio and disciplined operational execution. Although we were facing a comparison with last year's record third quarter result, adjusted EBITDA in US dollars rose another 15% this year. By focusing on sustainable sales growth, we generated operating leverage to help offset some of the headwinds we knew we would face in the quarter. Last year's reported result was helped by a tax credit in Brazil, as well as government payroll support programs in SLAD. This year, food and paper costs remain elevated, and we also have the final step up in our royalty rate. Despite all these factors, EBITDA margin remained solidly in double digits, and net income almost doubled versus last year. Now let's dig into the results by division, starting with Luis who will run us through divisional sales performance.

Luis Raganato, COO

Thanks, Marcelo. Comparable sales growth remained strong in the third quarter, increasing at a rate of about two times blended inflation for the period. This is about execution. Here we say that it's not real unless it's real in the restaurant. We attract guests through marketing and digital initiatives. But guests keep coming back because they have a great experience each time they interact with the McDonald's brand. It doesn't matter if it's a physical visit or a digital interaction, their experience must be great. Brazil's comparable sales rose 21.8% in the quarter, about 2.5 times inflation in the period. Digital Sales penetration rate in Brazil is the highest of all Arcos markets, generating 52% of systemwide sales in the quarter. As Marcelo already mentioned, off-premise sales growth was strong in the quarter, even as on-premise sales normalized. This sustained the recent trend of industry-leading market share gains as QSR took additional share from informal players in the country's restaurant industry. Brazil's marketing activities in the quarter focused on programs and investments designed to reinforce the brand's core strengths. For example, leveraging its cultural relevance by partnering with Thiaguinho, one of Brazil's pop artists for the latest installment of their successful Famous Orders campaign. To drive further digital adoption, we invested in a 360-degree campaign to promote the Mobile Order and Pay feature of the app. This omnichannel approach to the digital strategy is strengthening brand perception related to convenience and generating significant sales growth in this channel. After the quarter ended, we shifted gears in Brazil to leverage the McDonald's global sponsorship of the FIFA World Cup. We introduced a highly anticipated lineup of eight sandwiches. Each day of the week features a specific country-themed sandwich, including Argentina, France, Germany, and Mexico. The Mac Brazil, which was available every day has already sold out. Clearly the campaign has been a resounding success, and we just had our best ever month of October in terms of sales. NOLAD’s top line continued to be driven by Mexico, Costa Rica, and the French West Indies. Comparable sales grew at 2.6 times the division's blended inflation rate in the quarter, leading to additional market share gains in all main markets. Marketing in NOLAD featured many innovations such as the introduction of the Ultra Hyper Mega Tasty campaign that leverages the Signature Beef and McCrispy Chicken platforms in Mexico. Costa Rica became the first market in the Arcos Dorados footprint to launch Best Burger. This ambitious global project provides an enhanced flavor profile and improved quality perception among guests, which is already showing strong results. Digital sales in NOLAD grew around 200% versus the prior year quarter, aided by the continuous improvements in each market’s Mobile App functionality, including Mobile Order and Pay, as well as greater marketing investments to promote the Digital platform. NOLAD also launched localized world up sandwich campaigns in our markets within the last three to four weeks with excellent results so far. SLAD’s comparable sales growth reflected strong top line performance in all its main markets, rising at 1.8 times blended inflation in the period. The sales growth helped McDonald's brand market share expand in the division, driven by higher guest traffic both on and off premise. Digital Sales penetration also rose in the period, with 43% of SLAD’s third quarter sales coming from digital channels, all of which grew sequentially versus the prior quarter. Marketing in SLAD continued building brand love with Generation Z guests thanks to a Famous Orders campaign with the popular Latin artist Sebastián Yatra. During the quarter, we introduced the McCrispy Chicken sandwich to the menu in Colombia and Chile, where it received strong guest response. We also had great news in the dessert business with the launch of the McFlurry Chocoramo in Colombia. This locally relevant product generated guest excitement and drove unit sales to the highest level ever in that country. As in Brazil and NOLAD, fourth quarter marketing SLAD is now focused on the FIFA World Cup. Linking one of the region's most culturally important sporting events with the McDonald's brand provides us with an exclusive opportunity to connect with guests and drive sales leading into the month-long tournament. Over to Mariano for a look at how strong revenue growth drove record profitability.

Mariano Tannenbaum, CFO

Thanks, Luis. As you've already heard, today, we are reporting another quarter of strong adjusted EBITDA growth and performance remains broad-based, with all three divisions generating solid profitability in the quarter. Starting with consolidated EBITDA margin, we improved occupancy and other operating expenses, thanks to well above inflation sales growth. Payroll expenses were only higher versus 2021 because of the government support programs that helped last year's result. Excluding the support from last year's number, payroll expenses were lower this year and are solidly below 20% of company-operated sales. As we told you to expect on our last couple of calls, we experienced gross margin pressure in the third quarter. Brazil's gross margin improved, but this was offset by higher food and paper costs in the other two divisions, especially NOLAD. We continue to expect full year 2022 food and paper costs to be about equal to full year 2021 as a percentage of sales. Finally, G&A expenses remained relatively flat in margin terms. Turning to the divisions and starting with Brazil, EBITDA grew more than 20% in constant currency, even though last year's result included a nonrecurring tax credit. Healthy revenue growth generated an improvement in gross margin and operating leverage in restaurant expenses that more than offset the final step up in the royalty rate. In NOLAD, EBITDA margin remained at nearly double digits as strong revenue growth generated operating leverage to partially offset a tougher cost environment and the final step up in the royalty rate. Results were also negatively impacted by Hurricane Fiona that hit Puerto Rico in September. Importantly, however, EBITDA in US dollars still grew versus last year. SLAD’s revenue growth successfully generated operating leverage in the quarter, offsetting some cost pressures to expand EBITDA margin and deliver strong US dollar EBITDA growth. Our strategic focus remains squarely on long-term profitable growth. We expect to sustain comparable sales growth at or above inflation, which can generate additional operating efficiencies. With this outlook, we expect to accelerate restaurant openings moving forward. Cash generated from operations exceeded $235 million in the first nine months of this year. With a stable numerator and improved denominator, net leverage was just 1x as of September 30, 2022. Additionally, the average maturity of our debt is now at around six years, two more than at the end of the first quarter of 2022. We are using this privileged financial position to our advantage today, and we will use it to support our future growth plans as well. Through the first nine months of 2022, we opened 45 restaurants, including 40 freestanding units. In Brazil, we opened 30 new restaurants, of which 27 are freestanding units. We also continue strengthening the industry's best digital platform by investing in the development of new capabilities, and rolling out existing features to additional markets. I am pleased to tell you that as of today, we have already opened the 55 restaurants we guided to for the full year, and we are on track to open another 10 additional restaurants before the end of the year. Around 90% of all openings continue to be freestanding locations, which are generating above-average returns thanks to high sales per unit and efficient operations. Looking ahead, we expect to accelerate our pace of growth. The development team has increased the size of the already robust pipeline for the next several years. Recent openings are proving that there is still a lot of growth potential for the McDonald's brand in our region. It has become very clear that penetration generates demand, and we are working to ensure that we capture that demand with the best return possible for shareholders. We plan to tell you more about this in early February of 2023 when we expect to hold an in-person Investor Day in Sao Paulo, Brazil. As we have done for the last couple of years, we expect to provide you with a preview of fourth quarter 2022 results as well as our growth outlook for 2023 and beyond. The IR team will be sending out a save-the-date in the coming days. Back to Luis for a closer look at the three D’s, Digital, Delivery, and Drive-thru.

Luis Raganato, COO

Digital now accounts for 42% of total sales. And it's not just delivery driving growth in digital. In the third quarter, we also set new records in Self-order Kiosks sales, which were available in more than 900 ELTF restaurants, Mobile Order and Pay sales supported by enhanced functionality, and it rolled out to a growing number of markets, and sales generated through the Mobile App, which has been downloaded almost 80 million times and is the main digital communication platform with guests. In the third quarter identified sales grew by 67% versus the prior year. As a result, 17% of total sales were identified, including 21% in Brazil. These are sales from guests who have opted in to allow their data to be used in our marketing activities, which enables us to enhance their McDonald's experience and maximize profitability. This is all part of the omnichannel approach we started telling you about in 2019. Guests today have never had so many choices in how they interact with us. Ease of use drives higher frequency, which explains the increasingly higher revenue per guest within the Arcos Dorados digital ecosystem. Among the newest functionalities is a WhatsApp bot that takes delivery orders in Colombia and Mexico. The bot is fully integrated with our kitchens, helping guarantee speed and accuracy. We plan a rollout to more markets in the coming months to capture the potential of a much larger addressable market since WhatsApp is widely used in Latin America. On the logistic side, delivery is operating in almost 600 restaurants in six countries. Solutions include restaurant crew members delivering orders over very short distances, and third-party last-minute operators executing the delivery. This will help us further develop and monetize these new consumption patterns in our markets. The unmatched physical presence of freestanding restaurants in the Arcos Dorados footprint has undoubtedly been the foundation of the last five consecutive record quarters. But it should also be a testament to the significant competitive advantage we have with our digital ecosystem. The junction of these two platforms into a seamless free digital experience is fueling our market share leadership. Using Brazil as a proxy, there has been a permanent shift in guest volume to off-premise channels. Meanwhile, on-premise traffic has improved steadily since 2020, contributing to a moderation in Drive-Thru traffic growth this year. Month delivery volume and total sales are both up this year, driving 29% sales growth in Brazil, despite a relatively flat industry trend. Our strategy to drive revenue through volume growth is clearly reflected in the quarter’s visit share metrics. Total visit share increased by 3.1 percentage points versus the prior year quarter, while delivery visit share rose by four percentage points. Even with the results we are generating, there are still so many opportunities to improve operational performance. That's why I am excited about what is yet to come. Marcelo, back to you.

Marcelo Rabach, CEO

As you know by now, we have a robust ESG platform we call Recipe for the Future. This is such an important part of our overall strategy that 10% of the variable compensation for every bonus-eligible employee is tied to ESG metrics. Our financing strategy is also linked to certain ESG objectives. We are the only QSR operator in the world to publish an annual ESG report that includes audited content. We are on a journey to increase the use of renewable energy sources which jumped from 4% in 2020 to 12% in 2021, and will be at least 50% by 2025. This year, we have signed new renewable energy deals, including with EDP in Brazil and a local provider in Colombia. These agreements are expected to bring millions of dollars in renewable energy infrastructure investments by our partners. In addition to supporting the development of these critical alternatives to fossil fuels, the restaurants they supply will have reduced energy costs. The latest deal involves installing solar panels on the roofs of several restaurants. They are also installing elevated solar panels in the parking lots that will generate energy for the restaurants while also providing shade for guest vehicles. Our commitments are not just about reducing carbon emissions; however, we are also leveraging the nature of our business to support youth opportunity in the region. The 65 restaurants we intend to open this year will generate 3,000 to 3,500 new formal job opportunities for young people. They will receive training and practical experience with everything from food safety, teamwork and process to customer service, leadership skills, and sustainability. Generating jobs is not good enough if the work environment is not attractive. This is why we are proud of how our workplace has been recognized by others throughout 2022. In the last few months, we were honored again with a Great Place to Work, ranking us 8th among 150 large companies in Brazil, and first in Ecuador as a Great Place to Work for women. Among the benefits of our work environment is the training employees receive at Hamburger University in Sao Paulo. Over the last two years, we have developed a series of certificate-level courses that are available for free to anyone who wants to enroll, not just employees. Finally, each year we choose one day to raise donations through the sale of Big Macs in several markets. Proceeds from the sales are then used to support local NGO partners, associated with two important Recipe for the Future pillars: Youth Opportunity and Commitment to Families. Thanks to the generosity of our guests, I am proud to tell you that we ran the most successful campaign in our history this year, raising record donations to support these worthy causes. Before we open the call for Q&A, I will wrap up with a few final thoughts on the third quarter and the record sequence of results we are delivering to create shareholder value. I have no doubt that execution at the restaurant level is the main reason McDonald's brand strength has never been higher in Latin America. The guest experience each and every day is key to driving long-term sustainable revenue growth. That then generates opportunities to capture operational efficiencies and dilute fixed costs to enhance profitability. Effective capital structure management and data-driven investment decisions complete the picture of profitable growth all the way down to the bottom line. Unlike the Big Mac special sauce, this recipe is not a secret, but to do it well requires an incredible amount of work, discipline, and dedication from everyone involved. So I would like to take this moment to congratulate and thank all our employees, suppliers, and franchisees for their contributions to our shared success in Latin America and the Caribbean. When the year began, we told you that we estimated growth potential of about 1,000 additional McDonald's restaurants over the next 10 years in our footprint. With higher sales per unit and above-average ROI in recent openings, I now believe we may have underestimated that potential. The pipeline for the next few years is already clear to us, and we expect to accelerate unit growth moving forward. The development team has increased the size of the already robust pipeline for the next several years. And recent openings are proving that there is still a lot of growth potential for the McDonald's brand in our region. It has become very clear that penetration generates demand, and we are working to ensure that we capture that demand with the best return possible for shareholders. We plan to tell you more about this in early February of 2023 when we expect to hold an in-person Investor Day in Sao Paulo, Brazil. As we have done for the last couple of years, we expect to provide you with a preview of fourth quarter 2022 results as well as our growth outlook for 2023 and beyond. The IR team will be sending out a save-the-date in the coming days. Back to Luis for a closer look at the three D’s, Digital, Delivery and Drive-thru.

Operator, Operator

Our first question comes from Thiago Bartolucci from Goldman Sachs. He says, 'Hi, Marcelo and Arcos team, congrats on the results. And thanks for taking my questions. My first question is on underlying operating performance. How should we think about the net impact from the World Cup to volumes in Brazil? I'll start with you, Marcelo.'

Marcelo Rabach, CEO

Okay, thank you. Good morning, Thiago. We have taken steps to minimize as much as possible any sales dip during World Cup games. Most importantly, we have developed multiple initiatives to maximize sales leading up to the tournament. All of these will give our fourth quarter performance a very strong boost versus last year. In fact, we had the best-ever month of October, both in terms of sales and profitability. Sales in the first half of November have also been very strong. So I've been around for more than 30 years in the business, so I know history demonstrates that our guests enjoy watching the games with family and friends, often at home. In many Latin American countries, all activity almost stops during a national team game. But if you go to the details for this coming World Cup, and we did that country by country, to take the best decision and have specific plans for every day in every country. If you take a look, 75% of the games will happen in the first two weeks, for the group stage part of the tournament. In those two weeks, there are only two markets in Arcos’ markets, which are Argentina and Mexico, that have games on weekends. That's very good news for us because most of the games will be on weekdays. Since the last World Cup, we have made a lot of progress and improvements and developed new capabilities that for sure will enable us to capitalize on our sponsorship of the event. Four years ago, for example, delivery only accounted for 2% of sales; today it accounts for 15% of sales. And we have very strong partnerships with three POS, which will allow us to capture business before, during, and after the games through the delivery segment. Four years ago, on top of that, our digital platform and our digital penetration were much lower, less than 10%. Today it's more than 40%. And this platform will allow us to engage with guests at scale again before, during, and especially after the matches when we expect to see a significant uptick in sales. You have to remember that unlike many other players who are over-indexed to malls, our freestanding restaurant portfolio positions Arcos Dorados and the McDonald's brand to capitalize on post-match activity. Overall, it will be a lot of teamwork between operations, marketing, digital, and all the teams in the company that will be making the difference in a positive way during this global event. I think all these efforts will allow us to have a very strong fourth quarter to close a record year in terms of sales and profitability, building momentum into the beginning of 2023.

Operator, Operator

Great, thanks. Marcelo. Thiago has a follow-up which is, to the extent that we can comment, how are the discussions around the renewal of the MFA agreement with McDonald's evolving?

Marcelo Rabach, CEO

Okay, well, let me begin by reminding you that the MFA is a 20-year contract that started on August 3rd, 2007, and goes through August 2nd, 2027, with a renewal option of another 10 additional years pursuant to the MFA. We have already indicated to McDonald's that we would like to renew the agreement, and McDonald's will determine whether to grant us the option to renew by August 2024. If McDonald's grants us the option, then we will amend the MFA to reflect any changes to the current terms of the agreement. We are already engaged in conversations with McDonald's related to this topic under the jurisdiction of the MFA term and expect to have the process concluded by August of 2024. Any announcements related to this topic will be made as appropriate in the coming months.

Operator, Operator

Okay, so let's move now to Marcela Recchia from Credit Suisse, who says hi team, congratulations on the results. And thank you for taking my questions. She asked what are the main regions in Brazil that management still sees opportunities for new openings? I'll turn it over to you, Luis.

Luis Raganato, COO

Hey, thanks, Dan. And hello, Marcela. Good morning. We still see opportunities for growth in all the Brazilian region. We have opened recently in Sao Paulo with excellent results, but we see great options for openings all across the country.

Operator, Operator

Great. Luis, Marcela has a follow-up or a second question, and she asked if we could elaborate more about the market share gains across all divisions. Is it driven more by market consolidation, or are we gaining market share from any specific player?

Luis Raganato, COO

All right. The QSR is expanding its share of the total restaurant industry, and within QSR, the McDonald's brand is gaining share in all three divisions, not just Brazil. Let me give you some numbers for a better understanding. Our visit share rose across the region in the third quarter, up 3.1 percentage points. In Brazil, according to our research, visit share increased by 1.8 percentage points, with an increase in the gap to the nearest competitor, which rose from 16.8 to 20 percentage points. In SLAD, visit share gains of 4.6 percentage points nearly doubled the gap versus the main competitor from 7 to 14.9 percentage points. In NOLAD, visit share increased 1.6 percentage points, increasing the gap versus the main competitor by five percentage points, from 2.5 to 7.5 percentage points. I would say that it's important to note that revenue growth was driven mostly by higher restaurant volume with modest price increases, and of course, with a restaurant experience that is valued by our guests.

Operator, Operator

Thanks again, Luis. Our next question comes from Bob Ford and Ulies from Bank of America. Bob says congratulations on the quarter. Can you comment on your food and paper costs and expectations going into next year? Similar to that, Ulies, who also says congrats on the amazing results, asked what is the cost outlook on how should we think about the sequential evolution of costs into the last part of the year and early 2023. So let's start with that one Mariano.

Mariano Tannenbaum, CFO

Perfect. Thank you, Dan, and thank you Bob and Ulies for the questions. First, on the gross margin side, what we are seeing and we have been saying this year, we expect that gross margin for food and paper costs will be about the same as last year as a percentage of sales. Keep in mind that in terms of penny profit, our gross margin increased this year by $120 million compared with last year. So that's really relevant for us. In terms of expectations on gross margin for next year, what we are seeing is opportunity there. We are going to continue the proven pricing architecture; we're not going to increase pricing well above inflation. We think that this strategy has yielded incredible results for us so far. We will continue with digital investments and trying to identify a higher portion of our sales. We are convinced that will improve our product mix and thus improve gross margin. Finally, we are expecting a reduction in cost pressures. We are seeing in many of our markets deceleration of inflation pressures, and we also see that we have an opportunity. So that’s so far about gross margin this year and what we are expecting for next year.

Operator, Operator

Perfect. And let's stay with Mariano and also stay with Bob and Ulies who have similar overlapping questions. Bob asks a couple parts here on the increase in the 10-year growth plan, which I think is more of a potential than a plan at this point. Can you comment on CapEx and unit growth for 2023 and 2024, as well as future periods? To whatever extent, what are we thinking about in terms of models, the split between corporate and franchisee and kind of the overall market holding capacity? Ulies had a similar question where he says in the release, we mentioned a 1,000 restaurant opening opportunity, and we describe it at the start of the year, and now it seems conservative. So can we elaborate more on the markets where we're seeing the larger opportunity, and what could this imply for the potential number of additional stores? Yes, a lot of concepts there, but back to you, Mariano.

Mariano Tannenbaum, CFO

Okay, I will try to summarize all the questions in one answer. When we provided the guidance of the current three-year growth cycle, we said we would open at least 200 restaurants in this period, and around 90% of those would be freestanding units. We also mentioned that we will modernize at least 400 restaurants to the EOTF format. We are not planning to change or revise that guidance at this point. We are going to hold this Investor Day that I mentioned at the beginning of next year, and we will give more information at that time. Even though we're not planning to revise this guidance, we said at least for both items, and again, we will give you more information for this three-year period cycle in the investor update that we will hold in 2023. Now, looking forward and to the 1,000 restaurants that we mentioned that we could have the potential to open in the next 10 years; when we reorganized the company to three divisions instead of four, that was in October of last year, we mentioned that we would reallocate our G&A to reinforce the team that will help drive future growth. We have advanced in all the digital capabilities, but also the development team. And that’s what we have been doing so far. This year, at the beginning of the year we gave guidance for 55 restaurants; we are going to end up opening about 65. With the modernizations, we announced 75 modernizations, and this year we will end about 100 EOTF modernizations. We mentioned that the potential openings for McDonald's restaurants would be about 1,000 new locations over the next 10 years. Based on the performance that we have seen on the recent openings, with higher sales per unit, all the segments growing without compensation among them, and higher than average ROIs, we now view that these 1,000 new restaurants are on the low end of that range. We're not going to revise at this point, again, this 1,000, but we think that those 1,000 restaurants are the baseline. Regarding both questions on how many units the market can sustain, for us, it's now at least 1,000 McDonald's units. We believe that the QSR segment is highly penetrated in Latin America. We believe that around 60% of those could be placed or opened in Brazil, with several opportunities in many of our other markets that are also showing very good results such as Chile, Costa Rica, Panama, French West Indies, and several others including Mexico. Being of course 90% freestanding units. I think that covers it.

Marcelo Rabach, CEO

Yes, let me add just some color in terms of the mix between company-operated and sub-franchise restaurants. I do not see that mix changing materially going forward. So we should keep more or less the same mix that we have today. I think that with that we cover all the different parts that the two questions had coming from Ulies and Bob.

Operator, Operator

And actually Ulies had one more which is leverage, a different topic. Leverage is now at 1x. How does this fit into the strategy? And what are our plans going forward? Can we expect, for example, a step up in the dividend? So back to you, Mariano.

Mariano Tannenbaum, CFO

Perfect, thanks. For the second part of the question, at this point, we feel very comfortable with our capital structure. We have high cash balance; we have lower leverage. For us, this is a nice problem to have. Two years ago, we could not have imagined being in this position. The good news is that all options are on the table. I just walked you through the CapEx opportunities that we have. Our priority is always investing in the business, which, of course, as I already mentioned, we have accelerated openings, our 10 additional openings in 2022, and we will have the Investor update for guidance of 2023 and 2024. We will continue with modernizations. We are planning to do all this without issuing new debt for next year. We will fund the investment plan using our own cash plus the operating cash flow that we are planning to generate during next year. Regarding dividends, in 2022, we will resume cash dividend payments with a $0.15 per share dividend. We already paid three of them, and we are going to pay the fourth installment at the end of December. Looking forward, we do not have a dividend policy, but our board of directors makes the decision on dividend distributions at the beginning of each year. We will communicate their decision regarding a 2023 dividend if and when it is approved by the board. So I think that covers that last part of the question.

Operator, Operator

Perfect. A couple of final questions here. One from Antonio Fernandez from Barclays. He says, 'Good morning. Are we seeing any type of deceleration or underperformance in recent weeks in any of our different types of restaurants?' So back to you, Marcelo.

Marcelo Rabach, CEO

Okay, thank you. Good morning, Antonio, and thanks for the question. No, as I mentioned before, the fourth quarter started really very strong. It's important to know that we are the only player that have the exclusive rights to use the FIFA World Cup in our marketing activities. This is thanks to McDonald's global sponsorship of the event. This is the most important sporting event in Latin America by far. Among many marketing activities, we designed related to the World Cup, were the World Cup Sandwiches that we introduced early in October in all our markets. In the past, we executed this initiative only in Brazil, this time we brought this idea and initiative to the whole company with incredible success. So behind October and the first two weeks of November sales results is the positive impact of this initiative. On top of that, we have also signed important local sponsorships, such as with Tite, Brazil's head coach, and with the soccer federations of Argentina and Uruguay. These agreements are creating more activities in the markets related to the World Cup, leveraging this asset in our restaurants. As we mentioned before, it's important to note that all three divisions are performing extremely well, and McDonald's brand preference has strengthened over the last few years, which demonstrates that it remains an aspirational experience for our guests. Our plan is to continue yielding revenue through volume growth to drive profitability by generating operating leverage.

Operator, Operator

Excellent. The last question in the queue here from an analyst. He asked, 'How is the smaller size footprint deployment going? How has it been performing with respect to the three D’s?' and he congratulates us on the very strong results.

Marcelo Rabach, CEO

Thank you for the question. We continue to look for lots and spaces where we can offer the full McDonald's experience. That's why our recent openings are around 90% freestanding units, and that's the preferred format going forward. But in some cases, there are some constraints, especially in big cities like Sao Paulo, for example. Sometimes the size of the plot is below the ideal that we need to build a full restaurant. In those cases, we introduced this optimized layout in order to be able to offer the best possible experience in a reduced space. For example, the restaurant that we opened with the format in a venue in Sao Paulo is doing extremely well in terms of profitability, and it's operating at a very high level. The two off-premise segments, drive-thru and delivery, are contributing greatly to this success. This is, again, an alternative that we can use when we have some constraints in terms of space, but we still are looking for the full restaurant, which is the best experience that we can offer our customers.

Operator, Operator

Great, Marcelo. I know you have some final thoughts for us. But that's the end of the Q&A session. And once again, back to you, Marcelo.

Marcelo Rabach, CEO

Okay. Thank you very much, Dan. And yes, before we end the communication, I would like to thank everyone for joining us in today's call. It is worth putting this quarter’s results into historical context. We have clearly turned the page with respect to the pre-pandemic performance since the industry itself has undergone structural changes in how we build revenue and how we drive profitability. As we have mentioned several times, we came out of the pandemic with some of our strongest ever brand metrics and unstructured competitive advantages, consolidating our leadership in the industry. A testament to this superior position is the results we generated in the third quarter of 2022 when compared with the third quarter of 2019. Revenues and EBITDA in the quarter are up 22% and 35% in US dollars, respectively. Despite the significant devaluation of several local currencies, such as the Brazilian rial, the Colombian peso, the Chilean peso, and even the euro, EBITDA margin is up 100 basis points for the same period, third quarter 2022 compared with third quarter 2019 even with the impact of the final step up of the effective royalty rate. This performance is the result of the disciplined execution of our strategy at the restaurant level. But let me be clear, there is still a lot of potential to unlock moving forward. We look forward to speaking with you in the coming weeks and months. Stay safe and have a great day.