THCH

Ladies and gentlemen, welcome to Tims China fourth quarter and full year 2025 earnings conference call. All participants will be in listen-only mode during management's prepared remarks, and there will be question and answer session to follow. Today's conference is being recorded. At this time, I'd like to turn the call over to Patty Yu, Tims China's Public and Media Relations Manager, for prepared remarks and introductions. Please go ahead, Patty.

Hello, everyone, thank you for joining us on today's call. TH International Limited announced its fourth quarter and full year 2025 financial results earlier today. A 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 Lu, our CEO, Director, and Dong Li, our CFO. After the company's prepared remarks, the management team will conduct a question-and-answer session. You will find the webcast of today's earnings call on our IR website. Before we get started, I'd like to remind you that our earnings presentation and investor materials contain forward-looking statements, which are 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 those forward-looking statements. All forward-looking statements should be considered in conjunction with the cautionary statements in our earnings release and 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 as 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 that said, I would now like to turn it over to Yongchen Lu, our CEO Director. Please go ahead, Yongchen.

Thank you, Patty. Good morning and good evening, everyone. Thank you for joining us today. As we just celebrate the 62nd anniversary of the globally renowned Tim Hortons brand and the seventh anniversary of Tims China, we're excited to continue serving our innovative and local relevant offerings to our fast-growing loyal guests. As of December 31st, 2025, China stood as the largest international market in Tim Hortons' global system by number of stores. We continue our growth trajectory, generating total system sales of RMB 1.57 billion in 2025, a 7.6% increase compared with 2024, fueled by mainly 25 net new store openings and expanding our store network to 1,047 across 92 cities in China. Food sales as a percentage of the total revenues account for 33.4% in Q4 2025, increased from 24% in Q1 2023.

Orders with food items account for 51% of total orders in Q4 2025, increased from 45.2% in Q1 2023. 2025 marked a critical transition year for the company. We further solidified our differentiated strategic positioning in Coffee Plus fresh prepared foods, completing made-to-order renovations of over 74% system-wide stores, while strategically pruning certain underperforming stores, especially those non-MTO express stores. On same-store sales growth, we managed to achieve overall comparable transactions growth of 2.7% in 2025. We had to apply higher discounts on delivery business to mitigate intensified competition due to aggregator platform dynamics, which led to a 2.4% decline in the same-store sales growth for system-wide stores in 2025. Despite the headwinds of fierce competitions, especially from low-price local brands, our team demonstrated strong resilience and maintained our margins well at both store and corporate levels.

2025 full-year company-owned and operated store contribution margin was 7%, compared with 7.4% in 2024, which was primarily attributable to the temporarily increased delivery-related cost due to aggregator platform dynamics. 2025 full-year adjusted corporate EBITDA margin actually improved by one percentage point. With further optimized store capital expenditures and enhanced store unit economics, our 2024 vintage year company-owned and operated stores generated store contribution margin of nearly 15% in 2025, and are expected to achieve a payback period within three years. Our 2025 vintage year stores are still new, but are ramping up right now. We believe they will have similar unit economics too.

In the meantime, our company-owned and operated stores in Tier 1 cities including Beijing, Shanghai, Guangzhou, and Shenzhen, and in those cities with 10+ stores, generated over 10% and 7% store contribution margin in 2025 respectively, outperforming other tier cities with lower store density. We will continue adding more company-owned and operated stores in existing stores to achieve a high economy of scale. In 2025, we strategically expanded our store footprint while maintaining capital efficiency, delivering absolute convenience for our customers. Leveraging the franchisee partnerships, we accelerated market penetration, entering 92 cities by year-end, including the debut of our first stores in Mianyang, Sichuan Province, Datong, Shanxi Province, and Xinxiang, Henan Province during the fourth quarter of 2025. This growth strategy not only further strengthened our brand presence but also ensured sustainable scalability through optimized resource allocation.

Since we launched our individual franchising business in December 2023, we have received over 10,000 applications and successfully opened over 300 stores by the year-end of 2025, showcasing continued market confidence in our franchise model. We have witnessed reasonable returns for our franchising stores. For instance, our franchising stores at special channels including railway stations, hospitals, and highway rest areas, generated store contribution margin of high teens in 2025 and are expected to achieve a payback period of approximately two years. We will accelerate opening franchise stores on these special channels. In the meantime, our sub-franchisee business contributes steady cash flows and profitability. Profits from other revenues achieved a year-over-year growth of 55.7% in 2025. Product innovation has always been an important strategic focus for us. In 2025, Tims China accelerated product innovation across both beverages and food, launching a total of 178 new products.

96 new beverages and 82 new food items, which contributed over 25% of our top-line sales. Standout offerings have resonated strongly with customers. Seasonal beverage highlights during the first quarter include the pomegranate, Rose Cheese, and Oat Latte series, offering a diverse and differentiated flavor portfolio. We also focused on adding non-coffee beverage offers complementary to existing product portfolio during the afternoon tea daypart. Total number of non-coffee beverage cups accounted for approximately 18.3% of total beverage cups sold in 2025 compared to 14% in 2024. On the food side, we continued to strengthen breakfast dayparts and launched several campaigns to promote lunch daypart in 2025. For instance, we introduced a breakfast combo with expansion of our croissants lineup with new offerings such as cheese, chicken, and roasted coconut cheese croissants, which suits the morning routines offering greater value.

Building on our classic bagel breakfast sets, the croissant combo includes protein-rich options like meat, catering to higher energy needs in colder months. Meanwhile, the croissant itself is light yet satisfying, perfect for those wanting a hearty but not overly filling breakfast. In addition, Tims China continued to broaden its bagel sandwich range, introducing new products including the black truffle mushroom bagel and the spicy pickled cabbage beef bagel, further enriching its savory menu. We continue to strengthen our leadership in the bagel platform, selling a total of over 80 million bagels and bagel sandwich products cumulatively as of the end of 2025. The fourth quarter, being the holiday season, saw us rolling out a series of marketing campaigns designed for these special occasions. From Halloween to Thanksgiving and Christmas, we enjoyed the festive spirit with creative promotions and themed activities to grab consumer attention.

During the first quarter, Tims China continued to enhance brand relevance and consumer engagement through a series of marketing and product innovation initiatives. The company strengthened its cultural positioning through high-profile collaborations, including a limited-edition partnership with the hit TV series of "The Vendetta of An," "[Non-English content]," as well as a co-branded campaign with People's Daily, "[Non-English content]," to celebrate China's National Day and honor everyday heroes across the country. These initiatives leverage culturally relevant storytelling to deepen consumer connections and drive social engagement. In parallel, Tims China advances sustainability initiatives by expanding its Bring Your Own Cup program and increasing the incentive to RMB 8 per cup. As of now, the program had attracted over 200,000 participants, reducing carbon emissions by approximately 8 tons, equivalent to planting around 368 trees.

The company also introduced eco-friendly straws in collaboration with Tencent's CarbonXmade program, using carbon capture technology to convert industrial carbon dioxide into sustainable materials. SGS certification confirms that every 100 straws store 3.185 grams of carbon dioxide, reinforcing Tims China commitment to sustainable product innovation. As of December 31st, 2025, our registered loyalty club members exceeded 31 million, reflecting a remarkable 29% year-over-year growth. The average number of members per store has now surpassed 29,600, serving as a strong catalyst for our growth and clearly demonstrating our consumers' ongoing support for Tims China's loyalty programs. At this time, I would like to turn over to our CFO, Dong Li, to discuss our fourth quarter and full year 2025 financial performance in more detail.

Thank you, Yongchen. We continue to strive for excellence in delivering high value for quality housing products and sought-for services to our ever-growing customers. In the fourth quarter, we achieved positive net new store openings and continued our strong momentum in system sales, achieving a 4.0% year-over-year growth. Our overall monthly average transacting customers reached RMB 3.43 million during the fourth quarter of 2025, a 14.3% increase from RMB 3.01 million in the same quarter of 2024. Additionally, digital orders as a percentage of total orders rose from 86.1% in Q4 2024 to 89.3% in Q4 2025. We continue to enhance our digital capabilities to meet the growing demand for delivery and takeaway services. Total number of delivery orders increased by 33.7% year-over-year during the fourth quarter of 2025.

Amidst microeconomic volatility and intensive market competition, our team demonstrated strong resilience and achieved profitability improvement through enhanced operational efficiencies, supply chain optimizations, and rigorous cost controls. In Q4 2025, our adjusted corporate EBITDA margin improved by 3.3 percentage points year-over-year. During the fourth quarter of 2025, our total revenues dropped by 7.3% year-over-year, which was mainly due to the closure of certain underperforming stores. Benefiting from the expansion of our franchised store network, with the number of our franchised stores increased from 446 as of December 31st, 2024 to 485 as of December 31st, 2025, our system sales increased by 4.0% year-over-year to RMB 359.4 million during the fourth quarter of 2025. We are committed to improving our financial performance by refining store unit economics and boosting operational efficiencies at both store and our corporate levels, setting the stage for our long-term sustainable growth.

Specifically, through refinements in our supply chain capabilities and economy of scale, we reduced the 2025 full year food and packaging costs as a percentage of revenues from company-owned and operated stores by 1.4 percentage points year-over-year. We continued to streamline our operations by pruning underperforming stores, optimizing unit economics, refining staffing arrangements, and optimizing store managerial efficiency. These actions led to a reduction in 2025 full year store labor costs and other operating expenses as a percentage of revenues from company-owned and operated stores by 0.8 percentage points and 0.1 percentage points year-over-year, respectively. We expanded our branding initiatives and promotional offers to drive traffic. Our marketing expenses as a percentage of total revenues increased by 1.2 percentage points year-over-year.

Our adjusted general and administrative expenses as a percentage of total revenues decreased by 7.4 percentage points year-over-year, which was mainly attributable to a RMB 9.7 million, $1.4 million decrease in credit loss of accounts receivables. Turning to liquidity, as of December 31st of 2025, our total cash and cash equivalents, time deposits, and restricted cash were RMB 129.7 million, $18.5 million, compared to RMB 184.2 million as of December 31st, 2024. The change was primarily attributable to cash disbursements on the back of the expansion of our business, partially offset by the drawdown of additional bank facilities. In the meantime, with the issuance of the $89.9 million 2025 Senior Secured Convertible Notes and the amendment to our existing 2024 unsecured convertible notes in December 2025, we have successfully repurchased the entire outstanding amount due under our variable rate convertible senior notes due 2026.

Looking ahead to 2026, with profitability being front and center of everything we do, we will continue to enhance our supply chain capabilities and efficiencies, roll out our differentiating made-to-order fresh and healthy food preparation model to drive traffic, optimize overall store unit economics, and accelerate the expansion of our successful sub-franchising. I will now turn it over to Yongchen for concluding remarks, followed by Q&A.

Thank you, Dong. Before we turn to Q&A, I would like to take this opportunity to once again express my heartfelt gratitude to our customers, employees, business partners, and investors for your continuous support and dedication and trust. Together, we have created an overwhelming community of over 31 million loyalty club members, a unique Coffee Plus freshly prepared healthy food business model, offering the best value for quality products as an international coffee brand. Differentiated and comprehensive store formats with over 1,000 stores in 92 cities, most of which are made-to-order stores with expected payback period between 2 years-3 years, and a unique advantage of offering franchising opportunities as an international coffee brand. With these milestones behind us, we are steadfast in our commitment to sustainable growth and to generating long-term value for our shareholders. I will now turn the call over to Patty for today's Q&A session. Patty?

Thank you, Yongchen. We will turn it over to Q&A session and open it up for our registered questions. Let's begin with our first question. Amber, please go ahead.

Thank you. To ask a question via the telephone, please press star one and one on your telephone keypad and wait for your name to be announced. To withdraw your question, please press star one and one again. To ask your question via the webcast, please use the Q&A box available on the webcast link. Once again, that's star one and one for questions. We will now take our first question from the phone line of Steve Silver of Argus Research Corporation. Please ask your question, Steve. Your line is now open.

Thanks, Operator, and thanks for taking my questions. Over the past few quarters now, you've highlighted franchise stores in special channels such as the railway stations, hospitals, and highway rest areas, and you've cited their strong contribution margins, and the two-year payback periods. While you've mentioned in your prepared remarks that you see openings under this model accelerating, can you quantify at all how much of a part of the future store mix you expect these channels to comprise, and really what impact you expect this to have on future operating results?

Yeah, sure. Thank you, Steve, for your question. The beauty of the stores on special channels, especially on railway stations and highway rest areas, it's purely dine-in business. They don't rely on delivery. Also, we don't need to give discounts on those stores in those special channels. Those stores have very high gross margin and no delivery costs. Despite the rent might be higher, but still, those stores are generating high-teens store contribution margin. The payback is very attractive, around two years, even lower than two years. I mean, in China, there are a lot such areas. There are tens of thousands of stations.

Airports, rest areas in the highways, and hospitals, we have generated the momentum in those channels. As we mentioned, essentially, we are the only international coffee brand that open to individual franchise. We are attracting lots of interest from those franchisee partners. This year we'll accelerate our openings on those channels.

Great. Company-owned and operated store contribution margins have now been negatively impacted by the higher delivery costs over the past few quarters. Is the company doing anything specifically to mitigate these risks in 2026, to improve same-store sales growth as well as the store contribution margins?

Okay. Steve, thank you for the question. I think I will take this one. Right. As you have mentioned, due to those aggregator platform dynamics in 2025, which led to very aggressive subsidies that we have been seeing, that, I think on one hand, drives higher delivery orders and also higher percentage of our delivery revenue mix. In the meantime, we have also suffered from actually increased delivery costs because of this. I think overall it's within our expectations because we want to manage our top-line growth, our same-store sales, our margins, and also our pricing well. Actually, we are taking every step to maintain or even expand our store contribution margins. As you can see, even though I think the whole year 2025 store contribution margin for company-owned stores was slightly decreased from 7.4%-7%.

I think, overall, we have, in the meantime, actually increased our gross margin. The food and packaging cost as a percentage of revenue actually has decreased by 1.4 percentage points. In the meantime, we are still in the process of pruning some of the underperforming stores and achieving better economy of scale labor costs. As you can see, the full year 2025 labor cost has also improved, as well as store other operating expenses. We will do everything we can to actually mitigate potential delivery costs. I think in the meantime, we are also negotiating with those delivery aggregator platforms actually to strike a better delivery cost. In terms of the delivery cost per order, we want to improve the cost structures to streamline the delivery cost per order as well.

I think lastly, we are also actually increasing some of the pricing on the deliverable products. That is to mitigate the potential headwinds from higher delivery costs. Overall, I think our goal is to at least maintain, and even achieve certain margin improvement on our store contribution margin, despite in terms of the aggressive subsidies from those delivery aggregator platforms might still continue in 2026. We expect that trend might be mitigated or might be slowed down this year. Thank you, Steve.

Yeah, that's helpful. Thank you. One more, if I may. In 2025, net store growth, it was positive, but it was a little more modest than maybe what previous thoughts might have been around store expansion. Yet, at the same time, the franchise applications sounds like it continued to be very strong, and the loyalty membership continues to expand significantly, almost 30% in 2025. Just, I'd love to hear your thoughts in terms of the underlying demand, in terms of what we might think about for system sales growth in 2026.

Yeah, we are in the process of pruning the underperforming stores for the past two years, and we'll do so this year as well. As you know, we opened a lot of high-rent stores during 2019-2022 and even 2023. High-rent, larger store format for the brand-new building, and also the rent back then was very high, much higher than the current situation. We are in the process of continuing pruning those underperforming stores. That's why you see the revenue for company-owned and operated stores has dropped last year and this year for the last two years. In this year, we will continue to prune some underperforming stores. As we mentioned, the newer vintage of our stores have higher store contribution margins for the stores we opened in 2024 and in 2025, have store margin around 15%.

Now this newer vintage of store format has been proven. We'll continue to open such format for both company-owned and the franchisee stores. We are targeting to achieve net store openings this year of at least 100, and by even more when we see the capital secure. That's the process. We'll continue to expand the network and that's the plan for now.

Great. Thanks for taking the questions, and best of luck throughout the year.

Thank you, Steve.

Thank you. Our next question comes from the phone line of Fu Li He from TF Securities. Please ask your question. Fu Li, your line is open.

Hello. Thanks for taking my question. I have three questions. The first one is about gross margins. Your gross margin improved by 1.4 percentage points in full year 2025. This is quite impressive. Can you explain more on the factors behind this, and how would you expect your gross margin in 2026?

Thank you, Fu Li. I think I will take this question related to gross margin. As you have mentioned, our food and packaging cost as a percentage of revenue from company-owned and operated stores actually decreased from 31.5% in 2024 to 30.1% in 2025, representing an improvement of 1.4 percentage points. In the meantime, I also want to highlight that if you take a look on the fourth quarter 2025, the cost percentage was 29.4%. Actually, it represents a two-percentage points margin improvement from the first quarter of 2024. I think the overall improvement was mostly because of the following factors. The first one is better economy of scale, as our overall GMV has increased and our overall store network has expanded. Two, we have tried actually many ways in terms of on the supply chain optimization projects.

Especially on existing food and packaging materials, we have almost renegotiated the unit cost and in terms of the overall pricing with each of the supply chain vendors. I think thirdly, we have optimized our discounts program. Actually, so that basically we have improved the average pricing a little bit. Especially we have increased the pricing on delivery products, which definitely would help on the margins. Fourthly, we have also seen higher margin on our new product launch. As we have mentioned, we have actually launched nearly 180 new LTO products in 2025. Most of these new LTO products had higher margins. I think lastly, we have also optimized the recipe of existing core products and some other material costs there, and also in terms of the transportation and the freight costs. This has also contributed to our overall margin expansion in 2025.

Going forward, I think we will continue to implement the above measures and plans, and we're targeted to further reduce our food and packaging costs as a percentage of revenues by at least one-two percentage points in 2026. That would be our target for this year. Thank you, Fu Li, for your question.

Very clear. The second one is about margin profile. You mentioned company-owned and operated stores in Tier 1 cities and in those cities with 10+ stores generated over 10% and 7% store contribution margin in 2025, respectively, outperforming other tier cities with lower store density. Can you explain more details about the differences on margin profile of these stores? Thank you.

Okay. I'll take this one. Thank you for your question. It's a great question. The density really matters.

I mean, the more stores we have in the city, the more brand awareness we have in the city, and the more efficiency on the marketing campaign, and the lower cost on delivery and supply chain, and more efficiency on the management. I mean, the density really matters. I mean, the data clearly shows that we have the highest margin on Tier 1 cities. As we mentioned earlier, for the 2024 and 2025 vintage stores, our store margin is above 15%, and most of the stores are open in the Tier 1 and high-tier cities. We'll continue to add more company-owned and even franchisee stores in existing cities to add density. The density really helps on everything. Thank you.

Okay. The last one is about store count targets. What's the store opening and closure target for 2026, and expected mix between company-owned and operated stores and franchise stores? That's all.

Yeah, we would just answer the similar question from Steve. We target to achieve net store openings of at least 100, including both company-owned and franchise stores. We are very happy to see our new openings just have very high margins, so we'll continue to open. Although we'll continue to improve some underperforming stores, but we should be able to achieve net store openings, again, at least 100 this year.

Thank you, Fu Li. Thank you. I'll now hand back to Patty to read any questions coming through via the webcast.

It seems that we have no questions online. Is that right, Emily?

That's correct. At this time, there are no further questions. With that, we conclude today's question-and-answer session. I'd like to hand the call back to Yongchen for his closing comments.

Yeah. Thank you all for your time. I know it's been a challenging year, but we have been able to improve our margins, and achieve net store openings, and we expect to even improve our margins further this year and achieve accelerated openings this year. Stay tuned. We'll see you soon. Thank you.

Thank you. That does conclude today's conference call. Thank you for your participation. You may now disconnect your line.

Ladies and gentlemen, welcome to Tims China's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Today's conference is being recorded. At this time, I would like to turn the call over to Gemma Bakx, who heads Tims China Investor Relations efforts for prepared remarks and introductions. Please go ahead, Gemma.

Thank you, Desmond, and hello, everyone. Thank you for joining us on today's call. My name is Gemma Bakx, Head of Investor Relations for Tims China, and Tims announced its third quarter 2025 financial results 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 Lu, our CEO and Director; and Albert Li, our CFO. After the company's prepared remarks, the management team will conduct a question-and-answer session. You can find the slide presentation and the webcast of today's earnings call on our IR website. Before we get started, I'd like to remind you that our earnings presentation and investor materials contain forward-looking statements, which are 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 and 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 that said, I would now like to turn it over to Yongchen Lu, our CEO and Director. Please go ahead, Yongchen.

Thank you, Gemma. Good morning and good evening, everyone. In Q3, we returned to positive net new store openings and continued our strong momentum in system sales, achieving a 12.8% year-over-year growth. With our successful Light & Fit Lunch Box platform products launched in Q2, we further enhanced our differentiated Coffee Plus Freshly Prepared Food strategy, driving a positive 3.3% same-store sales growth for company-owned and operated stores. As a result, food revenues increased by 24.2% year-over-year and food revenue contribution as a percentage of sales reached our historical high of 36.5%, an increase of [ 5 ] percentage points from 31.5% in the third quarter last year. We are also benefiting from the promotional offers from those delivery aggregators to take more market share, delivery revenues increased by 23.1% year-over-year. At the same time, our sub-franchisee and retail business maintained their steadily growing contributions to cash flow and profitability. Profits from other revenues achieved a year-over-year increase of 58.2% during the quarter. For the first 9 months of 2025, our adjusted company-owned and operated store contribution margin was 8.1%, same as that for the first 9 months of last year. Our adjusted corporate EBITDA and adjusted net loss, we continue to cut loss by 10.4% and 11.5%, respectively. These results underscore our team's resilience and discipline in execution. On store development, leveraging sub-franchisee partnerships, we expand our store footprint into 91 cities, including the city of Yanji in Jilin Province, Yangzhou in Jiangsu Province and Wuhu in Anhui Province that we entered in Q3, while maintaining capital efficiency and delivering value -- absolute convenience for our guests. Since we launched our individual franchise program in December 2023, we have received over 8,400 applications and successfully converted over [ 300 ] stores by the end of September, showcasing market confidence in our franchise model. We have attractive and desirable store unit economics for our subfranchisees with reasonable 2 to 3 years payback period on average. We are also focused on strategic channel development with 64 stores in locations such as high-speed train stations, airports, highway rest areas, hospitals, universities and schools at the end of September. As of the end of September 2025, our Registered Loyalty club members reached 27.9 million, reflecting a remarkable 22.3% year-over-year growth. The average number of members per store is now over 27,000, serving a strong catalyst for our future growth. Q3 represents the peak season for China's beverage market. This summer experienced record high temperatures, driving robust consumer demand for fresh prepared beverages, albeit a heightened price sensitivity. Compounding this dynamic, the coffee sector faced intensified competitive pressure from the rapidly expanding tea beverage categories, not only due to strong demand for non-coffee alternatives, but also because leading tea brands have begun entering the coffee space, further intensifying market competition. Our strategic initiatives, including a celebrity partnership during the Bagel Festival and enhanced summer beverage portfolio and target seasonal lunchtime operations enabled Tims China to return to positive same-store sales growth in Q3. We partnered with Lars Huang [indiscernible], a highly influential Gen Z celebrity to elevate brand awareness and drive engagement. The collaboration was integrated with compelling product angles to convert interest into purchases, supported by targeted promotions to encourage repeat visits. This holistic marketing approach delivered strong results. July marked our highest sales month of the year and the September Bagel Festival drove double-digit same-store sales growth, significantly outperforming the broader market. Building on the [ Cold Blue ] platform launched in Q2, we execute a series of monthly innovations throughout Q3 centered around refreshing some appropriate leverages. This was an intentional offensive strategy, leveraging a balanced portfolio of trended SKUs spanning coffee and non-coffee categories to capture incremental share in the summer beverage market, particularly among younger consumers whose preferences align closely with our endorsed audience. We anticipate competitive encroachment from key brands and responded decisively, reinforcing our coffee leadership through premium offerings like Cold Blue and Water Buffalo Milk [ lactase ] while deploying non-coffee SKUs to directly compete for tea drinkers wallet share. Notably, this dual check approach resonated strongly with our target demographic, contributing meaningfully to beverage sales growth. Following 6 months of focused launch time development, we proactively adapted our food strategy in Q3 to counter seasonal softness by introducing 6 new SKUs featuring chilled and [indiscernible] options to stimulate consumer interest and maintain meal relevance. In order to sustain momentum from our ongoing launch time expansion strategy, we also introduced seasonal cold food offerings tailored to evolving consumer preferences during hot weather. Additionally, we expanded our afternoon tea offerings with chilled variant of cakes and Smile Bagel of SKUs. The launch of the Smile Bagel series further reinforces our leadership in the bagel category and enhances our competitive differentiation. These initiatives have firmly helped cement Tims reputation as the go-to lunch destination in consumers' mindset. Thanks to our efforts over the past 3 quarters, more than half of all orders now include food and food sales make up over 1/3 of total revenues. At this time, I would like to turn it over to our CFO, Albert Li, to discuss our third quarter financial performance in more detail.

Thank you, Yongchen. We remain focused on delivering high value for quality healthy products and thoughtful services to our ever-growing customer base. Our overall monthly average transacting customers reached 3.85 million in Q3 2025, a 16.7% increase from 3.3 million in the same quarter of 2024. Additionally, digital orders as a percentage of total orders rose from 86.6% in Q3 2024 to an all-time high of 91.0% in Q3 2025. We continue to enhance our digital capabilities to meet the growing demand from delivery and takeaway services. In Q3, our company-owned and operated store revenues dropped by 5.5% year-over-year, which was primarily due to the planned closure of certain underperforming stores, partially offset by a 3.3% increase in same-store sales growth for company-owned and operated stores. We have also achieved positive transaction growth in Q3, driven by strong momentum from food orders and delivery orders. In the meantime, revenues from our franchised business and retail business increased by 25.0% year-over-year. The number of our franchised stores increased from 382 as of September 30, 2024, to 479 as of September 30, 2025. Accordingly, our system sales increased by 12.8% year-over-year. Moving to cost and expenses for company-owned and operated stores since we offered higher discounts during the quarter, especially to others through those delivery platforms, food and packaging costs as a percentage of revenues from company-owned and operated stores increased by 1.6 percentage points year-over-year. Food and packaging costs accounted for 30.6% of our company-owned and operated store revenues during the quarter, and we maintained relatively stable labor cost, rental and property management fees and other store operating expenses as a percentage of revenues from company-owned and operated stores in Q3. Delivery costs as a percentage of revenues from company-owned and operated stores increased by 2.9 percentage points to 13.2% in the third quarter of 2025 compared to 10.3% in the same quarter of 2024, which was primarily due to the higher delivery revenue mix as a percentage of total revenues from company-owned and operated stores. The number of delivery orders from company-owned and operated stores increased by 20.9% year-over-year. Benefiting from our improved brand influence, marketing expenses as a percentage of total revenues accounted for approximately 4.4% during the quarter, representing a 0.7 percentage point decrease from 5.1% in the same quarter of 2024. Adjusted general and administrative expenses increased by 23.2% year-over-year, which was primarily due to an increase in outside service fees related to audit, IT and business travel, an increase in credit loss of accounts receivable, partially offset by a decrease in headquarter staff compensation costs and a decrease in depreciation and amortization. Adjusted general and administrative expenses as a percentage of total revenues increased from 10.7% in the third quarter of 2024 to 13.2% in the same quarter of 2025. As a result of the foregoing, adjusted corporate EBITDA margin was negative 4.2% in the third quarter of 2025 compared to positive 0.6% in the same quarter of 2024. Turning to liquidity. As of September 30, 2025, our total cash and cash equivalents, time deposits and restricted cash were RMB 159.3 million compared to RMB 184.2 million as of December 31, 2024. The change was primarily attributable to cash disbursements on the back of the expansion of our business, partially offset by the drawdown of additional bank borrowings. Looking ahead, with profitable growth always being front and center of everything we do, we are posed to further enhance our operational efficiencies such as supply chain capabilities and optimizations and rigorous cost controls to roll over our differentiating make-to-order fresh and healthy food preparation model to drive traffic, to optimize the overall store unit economics and to accelerate the expansion of our successful sub-franchising. I will now turn it over to Yongchen for concluding remarks followed by Q&A.

Yes. Thank you, Albert. Our third quarter performance reflects continuous improvement and the resiliency in our business and execution as well as both challenges and opportunities in this industry. We extend our heartfelt gratitude to our guests, team members, business partners, shareholders and everyone supporting our endeavors and journey. Together, we have built over 1,000 stores in 91 cities, a robust community of nearly 28 million loyalty club members, a unique coffee plus freshly prepared food business model offering the best value for quality products, a unique advantage of offering franchise opportunity as an international coffee brand in China and refined store unit economics with attractive payback period within 2 to 3 years on average. With these milestones, we are steadfast in our commitment to sustainable profit growth and to generating long-term value for our shareholders. We're excited to announce the successful issuance of approximately USD 89.9 million senior secured convertible notes due September 2029. The restructuring of our unsecured convertible notes due 2027 and the repurchase of all outstanding amount due under our variable rate convertible senior notes due 2026. These strategic transactions enable us to focus on the development of our overall store network and the core Tim Hortons brand nationwide. I will now turn to the call over to Gemma for today's Q&A session. Gemma?

Thank you very much, Yongchen. We will turn it over to Q&A and open it up for registered questions. Let's begin with the first question. Go ahead, operator.

[Operator Instructions] Our first question comes from the phone line of Steve Silver from Argus Research Corporation.

Congratulations on the system and same-store sales growth. With the closing of the new convertible notes transaction in Q3, I was hoping you could provide just the company's latest thinking on its liquidity status and its long-term financing plan.

Okay. Sure. Thanks, Steve, for asking this question. I will take this one. Okay. So we -- with the successful issuance of the USD 89.9 million 2025 senior secured convertible notes, I think the company -- we have used the part of the proceeds to fully repurchase the entire remaining amount of our 2021 variable notes actually due 2026. And actually, in the meantime, we have also extended the due date of our 2024 unsecured convertible notes from 2027 to the same time line of September 2029. So actually, after the closing of the transactions, the company does not have any near-term offshore liabilities so that actually we can focus more on our daily operations. And we believe these financing would also help reduce our onshore leverage ratio actually quite significantly. So I think we will also benefit greatly to actually get more in terms of the onshore bank facilities in terms of the expansion and the renewal from the PRC commercial banks. And I think as we have also mentioned, so in order to take the advantage of the lower rent level at the current market environment, and also to roll out our attractive mid- to outer store model. So I think we are also working very hard in terms of securing additional alternative debt or equity financing in order to support the development of our company-owned and operated store network. And so lastly, I also want to mention with the further improvement of our store and corporate level margin. So we are expecting to generate positive operating cash inflows. So we will become more and more self-sustainable in terms of to support the long-term sustainable growth of our business. So hopefully, I have addressed your question, Steve.

Yes, that was helpful. So in Q3 specifically, it looks like there was some pressure on the store contribution margins. It sounds like gross margin and delivery costs were impacted a bit. Do you expect that trend to continue over the near term? And maybe what the company's thoughts about the margin profile moving forward?

Okay. Yes, Steve, I will take this one. Thank you for your question. Yes, the lower store contribution margin in Q3 was mostly because of higher delivery revenue mix led by the delivery war in China. Those platforms gave aggressive subsidies trying to taking market share from the competitors. We would think this would be temporary play in our view. So in the first 9 months of 2024 and 2025, our company-owned store contribution margins was consistent at 8.1%. And we aim to further expand that to mid- to high teens by enhancing gross margins and driving same-store sales and also the network optimization. Essentially, we continue to close some high rent loss-making stores and we open high-quality new stores. So we plan to further improve our gross margins through supply chain optimization, increased pricing on delivery platforms, high-margin new product launch and optimize the recipe of existing core products. So by doing so, we expect, okay, we'll achieve double-digit store level margin next year.

Great. And one last one, if I may. The company has discussed focusing on strategic special channel stores under the franchise model. Curious if there's any information about the performance of some of these stores.

Yes, sure. So I mean, as of the end of September, of 2025, we have over 60 stores in those special channels, including high-speed road stations, airports, highway rest areas, hospitals, et cetera. Those stores at the special channels performed very, very well, generating store contribution margin of mid and even high teens EBITDA margin and the payback is around 2 years. So I mean, we have gained a lot of interest from the [indiscernible] franchise, which have access to those special channels. In China, there are thousands -- tens of thousands such a special channel locations. So we have seen a great momentum in these channels, and we're expecting to open much more next year.

[Operator Instructions] At this time, there are no further questions. So with that, that concludes today's question-and-answer session. I would like to hand the call back to Yongchen for closing remarks.

Yes. Thank you so much for your time. And we are very glad we returned the growth on system sales and also more important on the same-store sales. So we're expecting another progress towards the end of the year and much even better next year. Thank you.

Thank you.

Thank you all very much.

That does conclude today's conference call. Thank you for your participation. You may now disconnect your lines.