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Mr. Lu added, “Since the grand opening of our first Popeyes restaurant in Shanghai on August 19, we’ve successfully opened another 6 restaurants at premium locations in Shanghai as of today and are on track to have 10 restaurants open and operating by year-end. Our locally-relevant menu, appealing store design and environment, and efficient digital ordering process have proven popular with our customers, as evidenced by over RMB29,000 average daily sales per restaurant year-to-date.”

Mr. Dong (Albert) Li, CFO of Tims China, commented, “As we scale our business, we have demonstrated meaningful expansion in store profitability and leverage in general and administrative expenses. Specifically, in the third quarter, adjusted store EBITDA margin increased by 2.2 percentage points and adjusted general and administrative expenses as a percentage of total revenues decreased by 1.3 percentage points year-over-year. Managing our cost structure effectively is very important to us, we continue to implement various optimization measures, targeting shorter payback periods and further improvements in store-level profitability.”

Mr. Li continued, “Looking forward, one of our top near-term priorities is to drive capital-efficient growth via building density in our existing markets, entry into attractive new cities, and accelerating our use of sub-franchising. We are also squarely focused on profitability, as is demonstrated in our continuously improving margins.”

THIRD QUARTER 2023 FINANCIAL RESULTS

Total revenues reached RMB436.4 million (USD59.8 million) for the three months ended September 30, 2023, representing an increase of 42.7% from RMB305.7 million in the same quarter of 2022. Total revenues comprise:

• Revenues from Company owned and operated store sales were RMB390.8 million (USD53.6 million) for the three months ended September 30, 2023, representing an increase of 34.8% from RMB290.0 million in the same quarter of 2022. The growth was primarily driven by an increase in the number of company owned and operated stores from 454 as of September 30, 2022 to 589 as of September 30, 2023.
  
  

• Other revenues were RMB45.6 million (USD6.3 million) for the three months ended September 30, 2023, representing an increase of 190.3% from RMB15.7 million in the same quarter of 2022. The growth was primarily attributable to the rapid expansion of our e-commerce business and an increase in franchise fees and revenues from other franchise support activities, which was attributable to an increase in the number of franchised stores from 32 as of September 30, 2022 to 174 as of September 30, 2023.
  

Company owned and operated store costs and expenses were RMB400.5 million (USD54.9 million) for the three months ended September 30, 2023, representing an increase of 33.6% from RMB299.9 million in the same quarter of 2022. Company owned and operated store costs and expenses comprise:

• Food and packaging costs were RMB137.5 million (USD18.9 million), representing an increase of 42.4% from RMB96.6 million, in line with our revenue growth and store network expansion. Food and packaging costs as a percentage of revenues from company owned and operated stores increased by 1.9 percentage points from 33.3% in the third quarter of 2022 to 35.2% in the same quarter of 2023 driven by promotional activities to attract more customers.
  
  

• Rental and property management fee was RMB77.4 million (USD10.6 million), representing an increase of 71.3% from RMB45.2 million, mainly due to the increase in the number of company owned and operated stores from 454 as of September 30, 2022 to 589 as of September 30, 2023 and also one-time rent concessions that we received during the third quarter of 2022. As a result, rental and property management fee as a percentage of revenues from company owned and operated stores increased by 4.2 percentage points from 15.6% in the third quarter of 2022 to 19.8% in the same quarter of 2023.
  
  

• Payroll and employee benefits expenses were RMB79.3 million (USD10.9 million), representing an increase of 20.1% from RMB66.0 million. Payroll and employee benefits as a percentage of revenues from company owned and operated stores decreased by 2.5 percentage points from 22.8% in the third quarter of 2022 to 20.3% in the same quarter of 2023, primarily due to the continuous refinement of staffing systems and procedures.
  
  

• Delivery costs were RMB34.2 million (USD4.7 million), representing an increase of 44.8% from RMB23.6 million, due to an increased proportion of home-delivery orders. Delivery costs as a percentage of revenues from company owned and operated stores increased by 0.6 percentage points to 8.7% in the third quarters of 2023 compared to that of the same quarter in 2022.
  
  

• Other operating expenses were RMB35.7 million (USD4.9 million), representing a decrease of 5.8% from RMB37.9 million, driven by cost optimization measures and deployment of systems to improve daily operation efficiency, for example, an automated stocktaking system. Other operating expenses as a percentage of revenues from company owned and operated stores decreased by 4.0 percentage points from 13.1% in the third quarter of 2022 to 9.1% in the same quarter of 2023.
  
  

• Store depreciation and amortization expenses was RMB36.5 million (USD5.0 million), representing an increase of 19.1% from RMB30.6 million, driven by an increase in the number of company owned and operated stores from 454 as of September 30, 2022 to 589 as of September 30, 2023. Store depreciation and amortization as a percentage of revenues from company owned and operated stores decreased by 1.3 percentage points from 10.6% in the third quarter of 2022 to 9.3% in the third quarter of 2023.
  

Costs for other revenues were RMB42.1 million (USD5.8 million) for the three months ended September 30, 2023, representing an increase of 345.6% from RMB9.5 million in the same quarter of 2022, which was primarily driven by an increase in the number of franchised stores from 32 as of September 30, 2022 to 174 as of September 30, 2023 and the incurrence of higher cost of product sales related to our e-commerce business during the third quarter of 2023. Costs for other revenues as a percentage of other revenues increased by 32.1 percentage points from 60.2% in the third quarter of 2022 to 92.3% in the same quarter of 2023 due to higher discounts and more promotional activities offered to consumers of our e-commerce business.

Marketing expenses were RMB34.4 million (USD4.7 million) for the three months ended September 30, 2023, representing an increase of 38.5% from RMB24.9 million in the same quarter of 2022, which was primarily attributable to the increase in the number of our system-wide stores from 486 as of September 30, 2022 to 763 as of September 30, 2023. Marketing expenses as a percentage of total revenues decreased by 0.2 percentage points from 8.1% in the third quarter of 2022 to 7.9% in the same quarter of 2023.

General and administrative expenses were RMB71.1 million (USD9.7 million) for the three months ended September 30, 2023, representing a decrease of 35.1% from RMB109.6 million in the same quarter of 2022, which was primarily due to: (i) a decrease in share-based compensation expenses; and (ii) a decrease in professional fees. Adjusted general and administrative expenses, which excludes share-based compensation expenses of RMB3.0 million (USD0.4 million) and professional fees related to warrant exchange and other financing programs of RMB4.6 million (USD0.6 million), were RMB63.4 million (USD8.7 million). Adjusted general and administrative expenses as a percentage of total revenues decreased by 1.3 percentage points from 15.8% in the third quarter of 2022 to 14.5% in the same quarter of 2023. For more information on the Company’s non-GAAP financial measures, please see the section “Non-GAAP Financial Measures” and the table captioned “Reconciliation of Non-GAAP Measures to the Most Directly Comparable GAAP Measures” set forth at the end of this earnings release.

Franchise and royalty expenses were RMB15.5 million (USD2.1 million) for the three months ended September 30, 2023, representing an increase of 40.8% from RMB11.0 million in the same quarter of 2022, which was in line with our top-line growth and was primarily driven by the increase in the number of our system-wide stores from 486 as of September 30, 2022 to 763 as of September 30, 2023. Franchise and royalty expenses as a percentage of total revenues remained flat at 3.6% in the third quarters of 2022 and 2023.

As a result of the foregoing, operating loss was RMB159.7 million (USD21.9 million) for the three months ended September 30, 2023, compared to RMB150.5 million in the same quarter of 2022.

Adjusted Corporate EBITDA was a loss of RMB70.2 million (USD9.6 million) for the three months ended September 30, 2023, compared to a loss of RMB47.6 million in the same quarter of 2022. Adjusted Corporate EBITDA margin was negative 16.1% in the third quarter of 2023, compared to negative 15.6% in the same quarter of 2022.

Net loss was RMB159.7 million (USD21.9 million) for the three months ended September 30, 2023, compared to RMB195.0 million for the same quarter of 2022. Adjusted net loss was RMB107.9 million (USD14.8 million) for the three months ended September 30, 2023, compared to RMB87.5 million for the same quarter of 2022. Adjusted net loss margin was negative 24.7% in the third quarter of 2023, representing an improvement of 3.9 percentage points from negative 28.6% in the same quarter of 2022.

Basic and diluted net loss per ordinary share was RMB1.01 (USD0.14) in the third quarter of 2023, compared to RMB1.56 in the same quarter of 2022. Adjusted basic and diluted net loss per ordinary share was RMB0.69 (USD0.09) in the third quarter of 2023, compared to RMB0.70 in the same quarter of 2022.

Liquidity

As of September 30, 2023, the Company’s total cash and cash equivalents and short-term investments were RMB461.8 million (USD63.3 million), compared to RMB611.5 million as of December 31, 2022. The change was primarily attributable to the settlements with investors who entered into an Equity Support Agreement dated March 8, 2022, as amended (the “ESA”) with us, and cash disbursements as a result of the rapid expansion of our business and store network nationwide, offset by an increase in bank borrowings.

KEY OPERATING DATA

KEY DEFINITIONS

• Same-store sales growth. The percentage change in the sales of stores that have been operating for 12 months or longer during a certain period compared to the same period from the prior year. The same-store sales growth for any period of more than a month equals to the arithmetic average of the same-store sales growth of each month covered in the period. If a store was closed for seven days or more during any given month, its sales during that month and the same month in the comparison period are excluded for purposes of measuring same-store sales growth.
  
  

• Net new store openings. The gross number of new stores opened during the period minus the number of stores permanently closed during the period.
  
  

• Adjusted store EBITDA. Calculated as fully-burdened gross profit of company owned and operated stores excluding depreciation and amortization, and store pre-opening expenses.
  
  

• Adjusted store EBITDA margin. Calculated as adjusted store EBITDA as a percentage of revenues from company owned and operated stores.
  
  

• Adjusted general and administrative expenses. Calculated as general and administrative expenses excluding share-based compensation expenses, expenses related to the issuance of certain ordinary shares to CF Principal Investments LLC in November 2022 (the “Commitment Shares”), offering costs related to the ESA (the “ESA Offering Costs”), expenses related to 200,000 of our ordinary shares that may be purchased from our controlling shareholder by a holder of our convertible notes at its option pursuant to the terms of an Option Agreement dated September 28, 2022 (the “Option Shares”), and professional fees related to warrant exchange and other financing programs.
  
  

• Adjusted corporate EBITDA. Calculated as operating loss excluding store pre-opening expenses, and certain non-cash expenses consisting of depreciation and amortization, share-based compensation expenses, expenses related to the Commitment Shares, the ESA Offering Costs, expenses related to the Option Shares, professional fees related to warrant exchange and other financing programs, impairment losses of long-lived assets and loss on disposal of property and equipment.
  
  

• Adjusted corporate EBITDA margin. Calculated as adjusted corporate EBITDA as a percentage of total revenues.
  
  

• Adjusted net loss. Calculated as net loss excluding store pre-opening expenses, share-based compensation expenses, expenses related to the Commitment Shares, the ESA Offering Costs, expenses related to the Option Shares, professional fees related to warrant exchange and other financing programs, impairment losses of long-lived assets, loss on disposal of property and equipment, changes in fair value of convertible notes, changes in fair value of warrant liabilities; and changes in fair value of ESA derivative liabilities.
  
  

• Adjusted net loss margin. Calculated as adjusted net loss as a percentage of total revenues.
  
  

• Adjusted basic and diluted net loss per ordinary share. Calculated as adjusted net loss attributable to the Company’s ordinary shareholders divided by weighted-average number of basic and diluted ordinary share.
  

USE OF NON-GAAP FINANCIAL MEASURES

The Company uses non-GAAP financial measures, namely adjusted store EBITDA, adjusted store EBITDA margin, adjusted general and administrative expenses, adjusted corporate EBITDA, adjusted corporate EBITDA margin, adjusted net loss, adjusted net loss margin, and adjusted basic and diluted net loss per ordinary share in evaluating its operating results and for financial and operational decision-making purposes. The Company defines (i) adjusted store EBITDA as fully-burdened gross profit of company owned and operated stores excluding depreciation and amortization, and store pre-opening expenses; (ii) adjusted store EBITDA margin as adjusted store EBITDA as a percentage of revenues from company owned and operated stores; (iii) adjusted general and administrative expenses as general and administrative expenses excluding share-based compensation expenses, expenses related to the Commitment Shares, the ESA Offering Costs, and expenses related to the Option Shares; (iv) adjusted corporate EBITDA as operating loss excluding store pre-opening expenses, and certain non-cash expenses consisting of depreciation and amortization, share-based compensation expenses, expenses related to the Commitment Shares, the ESA Offering Costs, expenses related to the Option Shares, impairment losses of long-lived assets and loss on disposal of property and equipment; (v) adjusted corporate EBITDA margin as adjusted corporate EBITDA as a percentage of total revenues; (vi) adjusted net loss as net loss excluding store pre-opening expenses, share-based compensation expenses, expenses related to the Commitment Shares, the ESA Offering Costs, expenses related to the Option Shares, impairment losses of long-lived assets, loss on disposal of property and equipment, changes in fair value of convertible notes, changes in fair value of warrant liabilities; and changes in fair value of ESA derivative liabilities; (vii) adjusted net loss margin as adjusted net loss as a percentage of total revenues; (viii) adjusted basic and diluted net loss per ordinary share as adjusted net loss attributable to the Company’s ordinary shareholders divided by weighted-average number of basic and diluted ordinary share. The Company believes adjusted store EBITDA, adjusted store EBITDA margin, adjusted general and administrative expenses, adjusted corporate EBITDA, adjusted corporate EBITDA margin, adjusted net loss, adjusted net loss margin, and adjusted basic and diluted net loss per ordinary share enhance investors' overall understanding of its financial performance and allow for greater visibility with respect to key metrics used by its management in its financial and operational decision-making.

These non-GAAP financial measures are not defined under U.S. GAAP and are not presented in accordance with U.S. GAAP. As these non-GAAP financial measures have limitations as analytical tools and may not be calculated in the same manner by all companies, they may not be comparable to other similarly titled measures used by other companies. The Company compensates for these limitations by reconciling the non-GAAP financial measures to the nearest U.S. GAAP performance measures, which should be considered when evaluating the Company’s performance. For reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures, please see the section of the accompanying tables titled, “Reconciliation of GAAP and Non-GAAP Results.” The Company encourages investors and others to review its financial information in its entirety and not rely on any single financial measure.

EXCHANGE RATE INFORMATION

This press release contains translations of certain RMB amounts into U.S. dollars (“USD”) at specified rates solely for the convenience of the reader. Unless otherwise stated, all translations from RMB to USD were made at the rate of RMB7.2960 to USD1.00, the exchange rate in effect on September 29, 2023 set forth in the H.10 statistical release of the Federal Reserve Board. The Company makes no representation that the RMB or USD amounts referred could be converted into USD or RMB, as the case may be, at any particular rate or at all.

PRE-RECORDED PRESENTATION

The Company will host a pre-recorded presentation that will be available beginning at Wednesday, November 15th, 2023, at 8:00 am Eastern Time (or Wednesday, November 15th, 2023, at 9:00 pm Beijing Time) from the Investor Relations website at https://ir.timschina.com under “Events and Presentations”.

FORWARD-LOOKING STATEMENTS

Certain statements in this press release may be considered forward-looking statements within the meaning of the “safe harbor” provisions of the United States Private Securities Litigation Reform Act of 1995, such as the Company’s ability to further grow its business and store network, optimize its cost structure, improve its operational efficiency and achieve profitable growth. Forward-looking statements are statements that are not historical facts and generally relate to future events or the Company’s future financial or other performance metrics. In some cases, you can identify forward-looking statements by terminology such as “believe,” “may,” “will,” “potentially,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “target,” “plan,” “expect,” or the negatives of these terms or variations of them or similar terminology. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from those expressed or implied by such forward looking statements. New risks and uncertainties may emerge from time to time, and it is not possible to predict all risks and uncertainties. These forward-looking statements are based upon estimates and assumptions that, while considered reasonable by the Company and its management, as the case may be, are inherently uncertain and subject to material change. Factors that may cause actual results to differ materially from current expectations include various factors beyond management’s control, including, but not limited to, general economic conditions and other risks, uncertainties and factors set forth in the sections entitled “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements” in the Company’s Annual Report on Form 20-F, and other filings it makes with the Securities and Exchange Commission. Nothing in this communication should be regarded as a representation by any person that the forward-looking statements set forth herein will be achieved or that any of the contemplated results of such forward-looking statements will be achieved. You should not place undue reliance on forward-looking statements in this communication, which speak only as of the date they are made and are qualified in their entirety by reference to the cautionary statements herein. Except as required by law, the Company expressly disclaims any obligations or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company’s expectations with respect thereto or any change in events, conditions or circumstances on which any statement is based.

ABOUT TH INTERNATIONAL LIMITED

TH International Limited (Nasdaq: THCH) (“Tims China”) is the parent company of the exclusive master franchisees of Tim Hortons coffee shops in mainland China, Hong Kong and Macau and Popeyes restaurants in mainland China and Macau. Tims China was founded by Cartesian Capital Group and Tim Hortons Restaurants International, a subsidiary of Restaurant Brands International (TSX: QSR) (NYSE: QSR).

The company’s philosophy is rooted in world-class execution and data-driven decision making and centered on true local relevance, continuous innovation, genuine community, and absolute convenience. For more information, please visit www.timhortons.com.cn.

INVESTOR AND MEDIA CONTACTS

Investor Relations
Tims China Investor Relations:
IR@timschina.com

Public Relations
Tims China Public Relations:
Patty.Yu@timschina.com