TH International Limited

Ladies and gentlemen, welcome to the Teams China's second quarter 2024 earnings conference call. All participants will be in listen-only mode during management's prepared remarks, and then will be a question-and-answer session to follow. Today's conference is being recorded. At this time, I would like to turn the call over to Gemma Bucks, who heads Teams China's investor relations efforts, for prepared remarks and instructions. Please go ahead, Gemma.

Thank you very much, Nadia. Good morning and good evening, everyone, and thank you for joining us on today's call. My name is Gemma Box, Head of Investor Relations at Tim's China, and we're announcing second quarter results earlier. We announced it earlier today. The press release as well as an accompanying presentation which contains operational and financial highlights are now available on the company's IR website at ir.timschina.com. Today, you will hear from Yongchen Liu, our CEO and director, and Albert Lee, our CFO. After the company's prepared remarks, the management team will conduct a question and answer session. You can find the webcast of today's earnings call on our IR site. Now, before we get started, I'd like to remind you that our earnings presentation and investor materials contain forward-looking statements, and they're subject to future events and uncertainties. Statements that are not historical facts, including but not limited to statements about the company's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties, and our actual results may differ materially from these forward-looking statements. All forward-looking statements should be considered in conjunction with the cautionary statements in our earnings release with risk factors included in our filings with the SEC. This presentation also includes certain non-GAAP financial measures which we believe can be helpful in evaluating our performance. However, those measures should not be considered substitutes for the comparable GAAP measures. The accompanying reconciliation information related to those non-GAAP and GAAP measures can be found in our earnings press release issued earlier today. With all that said, I'd like now to turn it over to Yongchen Lu, our CEO and director. Please go ahead, Yongchen.

Thank you, Gemma. Good morning and good evening, everyone. I'm Yongchen Lu, CEO and director of Kim's China. The second quarter of 2024 represents a significant milestone for our company as we achieve a just corporate EBITDA profitable for the first time in our corporate history. This result was driven by an intense focus on our core strength of delivering gas, great value for money products, and our differentiated fresh food offering, coupled with continuous improvements in operational efficiency. This important milestone comes as we deliver our highest ever store EBITDA margin of 10.3%. Our focus on sustainable profitable growth has included greater emphasis on building our franchise network, collaborating closely with our sub-franchises to deliver them compelling unit economics while providing our guests with a consistent experience and driving our bottom-line profits. Despite a 6.6% reduction in revenue from company-owned stores due to our strategic decision to prune underperforming stores since the fourth quarter of 2020, we have sustained to achieve 1.6% growth in system sales. Our efforts are paying off not just in our improving profitability, but in the strength of our sub-franchise's pipeline, which stands at over 3,000 600 applications as of the end of June. As of the June 30th, 2024, our registered Lottie Club members reached 21.4 million, reflecting remarkable 45.4% year-over-year growth. The average number of members per store has now surpassed 23,000, serving as a strong catalyst for our growth. and clearly demonstrated our customers' enthusiastic support for Teams China loyalty programs. The ongoing support from our customers inspires our team to continue delivering the best value for quality products. During the second quarter, we launched several impactful marketing campaigns, including collaborations with the Suzhou Museum and at the mainline, ZifoZifo IP which collectively garnered a combined total exposure of over 45 million across WeChat and the Little Red Book social platform. Continuous product innovation is central to our strategic vision. In Q2 2024, we introduced 25 new beverages and 9 new food products, which contribute approximately 14% of our top-line sales. Then offerings such as the Floral Latte , Buffalo Milk Latte , and the low-fat Real Juice Fruit Americano Series have resonated strongly with customers. We are committed to delivering healthy food options for our guests, with our customers' preference for healthy products in mind, we have also advanced our distinct coffee plus strategy, launching new bagel products like the strawberry yogurt smile bagel, Weixiao Bagel, and the thick yogurt smile bagel, Weixiao Bagel. The total number of bagels sold increased from 4.8 million in Q2 last year to 6 million in Q2 2024. with a percentage of orders that include food rising to 51.9%. To further enhance our strength and leadership in differentiated food products offerings and healthy food options, we completed make-to-order renovations for nearly 300 stores today. With very limited capital expenditure investment, we have witnessed strong incremental food revenue growth already. We are on track to roll out our renovations model to more stores by the end of the year to demonstrate to our customers that at Teams China, our food is freshly prepared on site. Additionally, we secured up to US$50 million in financing in Q2 2024 from our founding shareholders, Cartesian Capital Group and RBI, which underscores the commitment of our founding shareholders to our dynamic business. This year is a pivotal one for us, and fortifying our balance sheet is an important step forward towards ensuring our long-term success in a highly competitive market. This transaction enables us to drive growth in and intensify our focus on our core Tim Hortons brand. Strengthening our core brand remains a key element of our strategy, and in order to provide an even sharper focus on developing the Tim's brand, we agreed with RBI to transfer the Popeyes China business back to them at the end of the second quarter. This transaction allowed us to streamline our operations and focus on our core business areas, while providing us with US dollars 15 million in capital, which will be instrumental in driving further business expansion and optimizing our balance sheet. At this time, I would like to turn over to our CFO, Albert Li, to discuss our second quarter 2024 financial performance in more detail.