TH International (THCH) - 2023 Q2 - Quarterly Report

First Quarter 2023 Highlights Tims China reported strong growth in Q1 2023, with total revenues increasing 49.8% to RMB 336.5 million and achieving positive adjusted store EBITDA of RMB 6.0 million Q1 2023 Key Financial and Operational Metrics | Metric | Q1 2023 | Change (YoY) | | :--- | :--- | :--- | | Total Revenues | RMB 336.5 million | ▲ 49.8% | | Net New Store Openings | 31 | - | | Total System-Wide Stores | 648 | - | | Registered Loyalty Club Members | 12.4 million | ▲ 79.3% | | Adjusted Store EBITDA | RMB 6.0 million | From loss of RMB 25.0 million | | Adjusted Store EBITDA Margin | 1.9% | ▲ 13.8 p.p. | | Same-Store Sales Growth (Company Owned) | 8.0% | - | Company Management Statement Management highlighted record revenue and positive adjusted store EBITDA, driven by post-Chinese New Year recovery and strategic initiatives like 'Coffee Plus' and accelerated franchising - Same-store sales growth for company-owned stores showed strong recovery after January, with 17.1% growth in February and 19.4% in March 2023[3] - The company is accelerating the development of franchised stores, especially the compact 'Tims Express' format with partner Sinopec Easy Joy, and is on track to exceed 1,000 system-wide stores by the end of 2023[4] - The 'Coffee Plus' strategy is proving successful, with the percentage of orders including food increasing from 41.0% in Q1 2022 to 44.2% in Q1 2023[4] - Digital capabilities are being strengthened to capture growing delivery and takeaway demand, which saw a 74.2% increase in orders YoY; dine-in customers also increased by 125.8% from March 2022 to March 2023 following the end of 'zero-COVID' measures[4] Detailed Financial Results (Q1 2023) Tims China's Q1 2023 total revenues grew 49.8% to RMB 336.5 million, driven by network expansion and same-store sales growth, while improving operational efficiency despite an overall net loss Revenues Total revenues increased by 49.8% year-over-year to RMB 336.5 million, driven by strong growth in company-owned stores and a surge in other revenues from franchised store expansion Q1 2023 Revenue Breakdown (vs. Q1 2022) | Revenue Stream | Q1 2023 (RMB) | Q1 2022 (RMB) | Growth (YoY) | | :--- | :--- | :--- | :--- | | Company Owned & Operated Stores | 310.5 million | 211.0 million | ▲ 47.1% | | Other Revenues | 26.0 million | 13.6 million | ▲ 91.2% | | Total Revenues | 336.5 million | 224.7 million | ▲ 49.8% | Costs and Expenses Company operated store costs rose 24.6% to RMB 336.5 million, with significant efficiency gains in payroll and rent as a percentage of revenue, despite higher food and packaging costs Company Owned Store Costs as % of Store Revenue | Cost Category | Q1 2023 (% of Revenue) | Q1 2022 (% of Revenue) | Change (p.p.) | | :--- | :--- | :--- | :--- | | Food and packaging | 35.9% | 33.0% | ▲ 2.9 p.p. | | Rental and property management | 23.0% | 27.7% | ▼ 4.7 p.p. | | Payroll and employee benefits | 23.5% | 34.0% | ▼ 10.5 p.p. | | Other operating expenses | 8.1% | 14.1% | ▼ 6.0 p.p. | - Adjusted general and administrative expenses as a percentage of total revenues decreased by 2.5 percentage points from 22.5% in Q1 2022 to 20.0% in Q1 2023[12] Profitability and Earnings Per Share The company's operating loss slightly narrowed, and adjusted profitability metrics significantly improved, with adjusted net loss per share improving to RMB 0.84 Q1 2023 Profitability Metrics (vs. Q1 2022) | Metric | Q1 2023 (RMB) | Q1 2022 (RMB) | | :--- | :--- | :--- | | Operating Loss | (130.4 million) | (134.9 million) | | Net Loss | (174.5 million) | (151.3 million) | | Adjusted Corporate EBITDA | (74.6 million) | (83.5 million) | | Adjusted Net Loss | (117.1 million) | (116.7 million) | | Adjusted Basic & Diluted EPS | (0.84) | (0.93) | Liquidity The company maintained a stable liquidity position with RMB 613.6 million in cash and short-term investments as of March 31, 2023, supported by bank borrowings - Total cash, cash equivalents, and short-term investments were RMB 613.6 million (USD 89.3 million) as of March 31, 2023[16] Key Operating Data The company significantly expanded its store network to 648, with rapid growth in franchised stores, and achieved positive adjusted store EBITDA and strong loyalty club membership growth Key Operating Data Trends | Metric | Mar 31, 2023 | Mar 31, 2022 | Growth (YoY) | | :--- | :--- | :--- | :--- | | Total stores | 648 | 424 | ▲ 52.8% | | Company owned and operated stores | 551 | 403 | ▲ 36.7% | | Franchised stores | 97 | 21 | ▲ 361.9% | | Same-store sales growth (company owned) | 8.0% | 5.5% | ▲ 2.5 p.p. | | Registered loyalty club members (thousands) | 12,386 thousand | 6,907 thousand | ▲ 79.3% | Supplementary Information This section defines key performance indicators and non-GAAP measures used by management to evaluate performance, alongside a recent warrant exchange offer to simplify capital structure Key Definitions & Non-GAAP Measures The company defines key operating metrics and non-GAAP financial measures to provide investors with a clearer understanding of its performance and for internal decision-making - The report defines key metrics including: Same-store sales growth, Net new store openings, Adjusted store EBITDA, Adjusted corporate EBITDA, and Adjusted net loss[18][19][20][21] - The company uses non-GAAP measures to enhance investors' understanding of financial performance and for internal decision-making, with reconciliations provided to the nearest U.S. GAAP measures[23][24] Recent Business Developments On May 12, 2023, Tims China initiated a warrant exchange offer to simplify its capital structure and mitigate potential dilution, providing greater flexibility for future financing - In May 2023, the company commenced a warrant exchange offer to simplify its capital structure and reduce potential dilution[22] Financial Statements The unaudited condensed consolidated financial statements for Q1 2023 detail the company's financial position, reflecting a net loss on increased revenues and a net increase in cash from financing activities Unaudited Condensed Consolidated Balance Sheets As of March 31, 2023, total assets stood at RMB 2.68 billion, with total liabilities increasing to RMB 2.58 billion, primarily due to higher short-term bank borrowings and derivative financial liabilities Balance Sheet Summary (as of Mar 31, 2023 vs. Dec 31, 2022) | Account | Mar 31, 2023 (RMB) | Dec 31, 2022 (RMB) | | :--- | :--- | :--- | | Total Current Assets | 811.6 million | 796.8 million | | Total Assets | 2,679.4 million | 2,642.0 million | | Total Current Liabilities | 1,260.8 million | 1,318.3 million | | Total Liabilities | 2,577.4 million | 2,531.7 million | | Total Shareholders' Equity | 102.0 million | 110.3 million | Unaudited Condensed Consolidated Statements of Operations For Q1 2023, total revenues increased 49.8% to RMB 336.5 million, but total costs and expenses led to an operating loss of RMB 130.4 million and a net loss of RMB 174.5 million Statement of Operations Summary (Q1 2023 vs. Q1 2022) | Account | Q1 2023 (RMB) | Q1 2022 (RMB) | | :--- | :--- | :--- | | Total Revenues | 336.5 million | 224.7 million | | Total Costs and Expenses, net | (466.9 million) | (359.6 million) | | Operating Loss | (130.4 million) | (134.9 million) | | Net Loss | (174.5 million) | (151.3 million) | | Net Loss attributable to shareholders | (174.9 million) | (150.6 million) | Unaudited Condensed Consolidated Statements of Cash Flows In Q1 2023, net cash used in operating activities improved to RMB 85.4 million, with a significant net cash provided by financing activities of RMB 164.0 million, resulting in a net increase in cash of RMB 125.5 million Cash Flow Summary (Q1 2023 vs. Q1 2022) | Activity | Q1 2023 (RMB) | Q1 2022 (RMB) | | :--- | :--- | :--- | | Net cash used in operating activities | (85.4 million) | (119.1 million) | | Net cash provided by/(used in) investing activities | 50.2 million | (124.3 million) | | Net cash provided by financing activities | 164.0 million | 64.7 million | | Net increase/(decrease) in cash | 125.5 million | (181.0 million) | Reconciliation of Non-GAAP Measures This section provides detailed reconciliations of GAAP measures to the company's non-GAAP metrics, showing adjustments for non-cash and non-recurring items to reflect core operational results Adjusted Store EBITDA Reconciliation Adjusted Store EBITDA for Q1 2023 was RMB 6.0 million, a significant improvement from a loss in Q1 2022, resulting in a positive Adjusted Store EBITDA Margin of 1.9% Reconciliation to Adjusted Store EBITDA (Q1 2023) | Account | Amount (RMB) | | :--- | :--- | | Fully-burdened gross loss - company owned stores | (35,912 thousand) | | Add: Store depreciation and amortization | 32,974 thousand | | Add: Store pre-opening expenses | 8,940 thousand | | Adjusted Store EBITDA | 6,002 thousand | | Adjusted Store EBITDA Margin | 1.9% | Adjusted Corporate EBITDA Reconciliation Adjusted Corporate EBITDA for Q1 2023 was a loss of RMB 74.6 million, an improvement from the prior year, calculated by adjusting operating loss for non-cash and non-recurring items Reconciliation to Adjusted Corporate EBITDA (Q1 2023) | Account | Amount (RMB) | | :--- | :--- | | Operating loss | (130,417 thousand) | | Add: Store pre-opening expenses | 8,940 thousand | | Add: Depreciation and amortization | 38,357 thousand | | Add: Other adjustments (SBC, Impairment, etc.) | 8,475 thousand | | Adjusted Corporate EBITDA | (74,645 thousand) | | Adjusted Corporate EBITDA Margin | -22.2% | Adjusted Net Loss Reconciliation Adjusted Net Loss for Q1 2023 was RMB 117.1 million, nearly flat year-over-year, with the Adjusted Net Loss Margin showing substantial improvement to -34.8% Reconciliation to Adjusted Net Loss (Q1 2023) | Account | Amount (RMB) | | :--- | :--- | | Net loss | (174,451 thousand) | | Add: Adjustments (Pre-opening, SBC, Fair Value Changes, etc.) | 57,348 thousand | | Adjusted Net loss | (117,103 thousand) | | Adjusted Net loss Margin | -34.8% |