RLX Technology Inc - ADR Aktie

Hello, ladies and gentlemen. Thank you for standing by for RLX Technology Inc.'s Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Today's conference call is being recorded and is expected to last for about 40 minutes.

I will now turn the call over to your host, Mr. Sam Tsang, Head of Capital Markets for the company. Please go ahead, Sam.

Thank you very much. Hello, everyone, and welcome to RLX Technology's Second Quarter 2026 Earnings Conference Call. The company's financial and operational results were released through PR Newswire services earlier today and have been made available online. You can also view the earnings press release by visiting our IR website at ir.relxtech.com. Participants on today's call include our Chief Executive Officer, Ms. Kate Wang; our Chief Financial Officer, Mr. Chao Lu; and me, Sam Tsang, Head of Capital Markets.

Before we continue, please note that today's discussions will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements typically contain words such as may, will, expect, anticipate, aim, estimate, intend, plan, believe, potential, continue or other similar expressions.

Forward-looking statements involve inherent risks and uncertainties. The accuracy of these statements may be impacted by a number of business risks and uncertainties that could cause actual results to differ materially from those projected or anticipated, many of which are factors that are beyond our control.

The company's, its affiliates, advisers and representatives do not undertake any obligation to update these forward-looking information, except as required under the applicable law.

Please note that RXL Technology's earnings press release and this conference call include discussions of unaudited GAAP financial measures as well as unaudited non-GAAP financial measures. RLX's press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited GAAP measures.

For today's call, management will use English as the main language. We will also provide simultaneous interpretation on the Chinese line. Please note that the Chinese line is in listen-only mode and Chinese interpretation is for convenience purposes only. In case of any discrepancy, management statements in the original language will prevail.

I will now turn the call over to Ms. Kate Wang. Please go ahead.

Thank you, Sam, and thank you all for joining today's call. We delivered solid second quarter financial and operational results, supported by our commitment to quality-driven resilience and compliant global growth.

Our top line grew 14.8% year-over-year in the second quarter, mainly driven by our expanding international footprint. Gross profit increased 47.8% year-over-year to RMB 367.8 million. As expected, revenue and gross profit moderated sequentially, not due to any softening in demand, but rather reflecting a trade inventory normalization following the first quarter's shipment pull forward driven by regulatory export adjustments. Because our distribution partners manage multi-brand portfolios, first quarter pre-stocking temporarily secured visibility into sell-out rates, leading to the shipment adjustments we saw this quarter.

Underlying demand across our key international markets remains healthy and resilient. Against this backdrop, we focused on two strategic priorities: sharpening retail execution and optimizing our global operational infrastructure. These deliberate refinements are designed to lay the foundation for our next era of sustainable, profitable growth. Rather than chasing low-margin volume, we are directing our capital towards building an agile, compliant global platform that can absorb regulatory shifts and quickly adapt to evolving demand.

Regulatory oversight across our international market is becoming more detailed and more restrictive enforced, from customs enforcement priorities to refined frameworks. The United Kingdom is a case in point. Proposed regulations cover plain packaging, standardized device authentic retail display bans, restricted flavor descriptions, and limits on dark store operations.

As an industry leader, we welcome these regulatory shifts. It poses the operational agility required to address them proactively. Engaging these stakeholders to foster high standard sustainable compliance frameworks.

Over the long term, clear and consistently enforced boundaries push out non-compliant, low-quality competition and raise barrier to entry. Our robust compliance infrastructure, R&D, and supply chain enables us to meet those standards early, enhancing our platform's operational predictability and long-term sustainability.

Our hands-on operational experience across international markets has taught us valuable lessons. In mature environments, traditional wholesaling model are no longer sufficient to sustain high-quality margin growth. As hardware technology and product standards stabilize, competition is shifting from pure product development to route-to-market execution.

Direct retail, promise proximity, and channel agility. As such, we are aggressively upgrading our distribution architecture through a targeted mix of direct channel investments, strategic distribution alliance, operational support, and channel innovation, and moving away from reliance on a single rigid distribution model.

In Asia, where our brand equity and consumer trust remains exceptionally strong, we are selectively broadening our footprint through localized commercial entities and proprietary channel models.

In Europe, where barriers to entry are higher, we are expanding through capital-efficient strategic partnerships and equity investments. By combining our world-class supply chain with local distribution leaders, we empower existing trading ecosystems while securing direct sell-out visibility and dedicated retail shelf space, establishing a durable competitive moat.

Europe is the cornerstone of our global growth strategy, where we are methodologically expanding our presence on the dual engine model with balanced targeted M&A with organic growth across channels.

In May 2025, we acquired a long-established European e-vapor company with an integrated local retail and online footprint and have been supporting its expansion as a collaborative partner ever since. Over the past year, this integration has brought us deep localized market insights and demonstrated the immense commercial value of aligning our global supply chain with trusted local operators.

Building on that acquisition, in July 2026, we made a strategic controlling investment in a leading B2B and FMCG physical distribution leaders in Western Europe. This entity has a robust offline footprint, directly serving retail end points across the market.

In B2B digital commerce, its proprietary ordering app connects with over 50% of independent retail points of sales in the country. Our integration philosophy centers on empowerment, not operational disruption. We do not intend to restructure their core operations or convert the platform into an exclusive outlet for our own products. They will remain an open multi-brand marketplace serving the broader retail ecosystem.

By applying our global supply chain scale and portfolio of brand relationships, we are confident that we can reduce these platforms' distribution costs and optimize sourcing terms.

While expanding our distribution reach, we are also accelerating our transformation into a multi-category, next-generation smoke-free product platform, extending beyond our leadership in e-vapor into a broader smoke-free portfolio. We have commercialized our modern oral nicotine pouch line and are steadily ramping up manufacturing capacity and the channel distribution.

In the heat-not-burn category, we hold extensive proprietary technology and patent reserves, as well as the pipeline of market-ready products awaiting optimal market and regulatory conditions for commercial launch.

To support these multi-category expansion and reduce our exposure to trade friction in the macroeconomic and geopolitical uncertainties, we are currently constructing a state-of-the-art manufacturing hub in Southeast Asia. The facility will cover multi-product categories, improve our tariff positions, and streamline logistics, supporting long-term sales resilience across our international markets.

Our mandate is clear: leverage our R&D capabilities, regulatory infrastructure, and newly strengthened route-to-market networks to capture market share and establish leading position across the global smoke-free ecosystem.

To sum up, we made meaningful progress this quarter, executing from a position of balance sheet strength. Our solid capital position gives us flexibility and the patience to say no to suboptimal, marginal, dilutive projects.

We remain financially disciplined, ensuring capital is deployed exclusively towards high-quality, value-accretive assets. By pairing direct channel control with multi-category product innovation, we are building a more resilient, diversified global platform structured to deliver sustainable long-term growth as the industry matures.

Now I will hand the call over to Chao to review our financial results in detail.

Thank you, Kate, and hello, everyone. We delivered solid second quarter top line results with net revenues reaching RMB 1.01 billion, representing a 14.8% year-over-year increase from RMB 880 million in the prior year period.

Our top line growth was primarily driven by organic volume expansion in international markets, alongside incremental contributions from our acquisition completed in May 2025. For the quarter, international revenues remained our principal growth engine, accounting for approximately 70% of total net revenues.

As anticipated, second quarter net revenues moderated sequentially from first quarter 2026, which benefited from a one-time policy adjustment boost.

Turning to profitability. Gross profit rose 47.8% year-over-year to RMB 357.8 million in the second quarter. Gross margin expanded sequentially to 35.4%, up 790 basis points year-over-year and up 360 basis points sequentially, mainly due to supply chain optimization, manufacturing yield improvement, and favorable geographic and product mix shift.

We delivered our 11th consecutive quarter of positive non-GAAP operating profit, driven by top line expansion, favorable product mix and disciplined operating cost control. Non-GAAP income from operations reached RMB 149.6 million, up 28.8% year-over-year. Non-GAAP net income for the quarter stood at RMB 238.8 million.

Now let me provide additional financial and strategic context regarding the Western European transaction Kate highlighted earlier. In July 2026, we made a controlling investment in one of Western Europe's leading distributors of next-generation smoke-free products and FMCG goods. This entity brings two strategic assets to us, an extensive offline network directly serving over 30,000 retail endpoints across key national accounts and specialized retail, and a proprietary B2B digital commerce platform, connecting over 20,000 independent merchants. We expect to unlock significant operational and supply chain synergies from this transaction.

Furthermore, we are confident we can enhance this platform's margin profile over time by integrating RLX's global supply chain scale and brand portfolio. The entity's financial and operational results will be fully consolidated into RLX Technology's financial statements starting in the third quarter of 2026.

Behind our financial and operational progress is a deep commitment to corporate sustainability and long-term value creation. We published our 2025 ESG report this quarter, highlighting our advancements across corporate governance, product quality and safety, youth access prevention protocols, supply chain labor ethics, and environmental stewardship. From expanding employee welfare initiatives to enforcing ESG compliance across our supplier base, we continue to elevate our standards.

Furthermore, by embedding eco-friendly materials and adhering to responsible marketing practices, we ensure our expansion in both ethical and sustainable. Integrating these ESG principles into our core operations strengthens trust amongst adult consumers, regulators, employees and commercial partners, creating enduring value for all stakeholders.

Our robust balance sheet continues to serve as the bedrock of our global expansion strategy. As of June 30, 2026, our total capital resources, comprising cash, cash equivalent, restricted cash, short-term bank deposits and liquid investment securities stood at RMB 13.9 billion.

In closing, our second quarter performance underscores our operational and financial strength. Supported by this quarter's structural gross margin expansion, disciplined capital allocation and a healthy balance sheet, we are well positioned to strengthen our market leadership and deliver long-term value to our shareholders.

Thank you. Operator, we are now ready to take questions.

[Operator Instructions] The first question today comes from Christine Peng with UBS.

Thank you, management, for the results summary as well as the strategy outlook. So I have two questions for the management. So the first question is about the capital allocation strategy. Obviously, Mr. Lu just mentioned there is abundant cash resources on the balance sheet. So I was just wondering what's going to be the capital allocation strategy going forward by leveraging on this very strong cash balance.

The second question is about the acquisition strategy, which has become a very important driver of the company's development going forward. So I was wondering what is the criteria in terms of valuation multiple as well as the revenue and profit contribution from the acquisition going forward?

Thank you, Christine, for your two questions. So the first question is on the capital allocation strategy. Our capital allocation strategy is financially disciplined and designed to drive sustainable long-term total shareholder returns. We allocate capital across three core priorities. The first one is organic growth and high ROI core business initiatives. This includes funding multi-category R&D, supply chain localization, specifically our manufacturing hubs currently under construction in Southeast Asia and strategic product launches. When regulations and tariff shifts in a given market, we take an ROI-gated approach. Sustainable organic growth remains our primary engine.

Second, we selectively deploy capital into highly accretive M&A. We target assets that boost strategic capabilities across R&D, local manufacturing, proprietary brands, and route-to-market distribution, while meeting clear financial standards.

Third, we remain committed to direct shareholder returns. Our strong cash generation and liquid capital reserves allow us to consistently reserve excess capital for systematic share repurchases and dividend distributions, subject to Board approvals and prevailing market conditions.

Regarding your second question about our M&A criteria, we do not have a specific valuation cap or top line contribution threshold, but we do adhere to strict financial and operational standards.

On valuation, we benchmark targets directly against transaction comparables and our own public trading multiple. Every potential transaction must have a clear time line for a cash payback, be structurally non-dilutive and generate EPS accretion.

In terms of execution, we actively empower our investing company by providing capital support, supply chain integration, procurement optimization, and operational capabilities to unlock structural value. While we prioritize strategic fit and synergy potential across arbitrary size stores, our fitness operational bandwidth means we intentionally focus on larger-scale opportunities that can move the financial needle and meaningfully enhance our global infrastructure.

In summary, we deploy capital only where discipline -- where valuation discipline and clear strategic synergies full align. Thank you very much for your questions.

The next question comes from Lydia Ling with Citi.

Management, this is Lydia from Citi. I also have two questions. So first one is on what's your expectation on the overseas growth in the second half of the year and especially considering the -- both from the acquisition as well as the organic growth in the overseas market?

And my second question is on the margin side and what's your outlook for the second half, especially like considering the acquisition impact on your operation or profitability?

Thank you very much, Lydia, for your questions regarding our growth outlook and margin expectations. So regarding our growth outlook for the second half of the year, we are taking a quality focused pragmatic approach to driving international growth.

On organic performance, we are prioritizing retail sell-through velocity and channel inventory health rather than pushing volume into channels at any cost. This prudent recalibration established a solid, sustainable baseline for our ongoing operations.

In addition to our organic baseline, the financial consolidation of our newly acquired Western Europe distribution platform starting in the third quarter will deliver a step change increase in reported international revenue growth for the second half.

Beyond the immediate top line expansion, we anticipate compounding commercial synergies across medium to long term. While our organic growth rates reflects disciplined inventory management, the consolidation of our European platform, combined with operational synergies, gives us full confidence in delivering strong overall overseas performance in the second half.

Regarding our margin trajectory, the gross margin expansion observed in the second quarter was primarily driven by temporary product and revenue mix shift. As our product mix and shipment flows normalize in the second quarter, we expect gross margin to settle back a healthy balanced range.

While non-operating factors such as macroeconomic interest rate movements and foreign exchange dynamics from reporting in renminbi, while generating revenue in U.S. dollars and sterling may create minor headline fluctuations, we maintain strict operational cost controls.

Regarding our European acquisition, as we mentioned earlier, starting in the third quarter, we will consolidate the Western Europe downstream distribution platform. Distribution businesses naturally operates on a lower percentage gross margin profile than proprietary brand operations. Consequently, while percentage margins will reflect this structural mix shift on an absolute dollar basis, this transaction will meaningfully expand our operating profit and net profit scale. Thank you for your questions.

The next question comes from Yun Guo with Citic.

Management, I also have two questions. And the first question is about the U.S. market. British American Tobacco is preparing to sell flavored e-cigarettes in the U.S. starting in the fourth quarter. What is our forward strategy for the U.S. market?

And the second question is about the domestic market. With the regulations on the illegal e-cigarettes becoming increasingly strict in China, what is the impact on the company?

Thank you for all your questions. One is on the U.S. market and the other one is on the China market. So for the U.S. market, we closely monitor U.S. regulatory developments and peers' action regarding PMTA enforcement. While adult smoker demand for diverse alternative proceeds, regulatory compliance and visibility remain the critical determinants for long-term commercial commitments in the U.S.

Our strategic stance towards the U.S. market is disciplined, agile, and strictly ROI-driven. Notably, our non-listed affiliates previously submitted PMTA applications, which are currently in advanced stages, awaiting regulatory approvals.

However, we will not commit large-scale capital growth to aggressively commercial rollouts until regulatory pathway and enforcement standards provide long-term credibility. In the interim, we are directing our capital and management bandwidth towards regulatory transparent markets across Europe and Asia, alongside scalable reduced risk categories such as modern oral nicotine pouches.

Regarding your question on the Mainland China markets, we view the tightening domestic regulatory environment and crack down on illegal non-compliant products as an overwhelming positive long-term development for the industry and for our company as well.

Eliminating illicit trade restores order to retail channels, removes bad actors and redirect consumer demand back to legal tax-paying brands like us. In the near term, as regulatory bodies intensify enforcement and refine administrative oversight, procedural time line for government approval has become more conservative.

Accordingly, we have adopted a prudent baseline in our internal forecasting and expect Mainland China sales for the full year to be broadly flat year-over-year. We remain in full compliance and continue to work closely with the regulators to support a transparent, legally compliant industry ecosystem. Thank you for your questions.

The next question comes from Zoe Zou with CICC.

Management, this is Zoe from CICC. I have two questions. First, with Philip Morris' growth rapidly in Europe, how do you see competition evolving ahead?

Secondly, could you walk us through the strategic plan for new categories like oral pouch?

Sure. Thanks Zoe, for your questions. So one is on the European market competition and the second one is on the oral nicotine pouches.

So for the first one, while we do not directly comment on our peers, multi-category execution across vaping, modern oral, and heat-not-burn tobacco products has clearly become mandatory for all major industry participants. While legacy tobacco companies have the capital to pay for key account listing fees, RLX holds distinct competitive advantages.

First, we are a pure-play non-cigarette business, meaning we are fully committed to harm reduction and replace combustible cigarettes without any internal channel conflict.

Second, we possess strong supply chain efficiency and product innovation capabilities, which combined with our deep relationships in specialty vape retail, position us to expand further into large chain channels.

Furthermore, through our strategic investments, we are actively strengthening our route-to-market and shelf space control. Combining our agile supply chain with direct control of local distribution gives us strong confidence in capturing market share across Europe.

So regarding our plans of the nicotine pouches, we think that modern oral nicotine pouches represents a principal growth driver in our business expansion. We have embedded specialized pouch production lines into our manufacturing hub currently under construction in Southeast Asia.

Once construction is complete and production ramp-ups, this facility will ensure supply chain resilience, scale and cost efficiency. Upon scaling, we will plug our oral pouch line directly into our strengthened European distribution architect, giving immediate access to retail point of sales and B2B platforms across Western and Northern Europe. Supported by a dedicated internal team, we are leveraging our proprietary R&D capabilities to continuously optimize product attributes. We are confident that our modern oral pouches will become a meaningful contributor to revenue and profits in the future. Thank you very much for your questions.

Due to time constraints, now I would like to turn the call back over to the company for closing remarks.

Thank you once again for joining us today. If you have further questions, please feel free to contact RLX Technology's Investor Relations team through the contact information provided on our website or Piacente Financial Communications.

This concludes this conference call. You may now disconnect your lines. Thank you.

Hello, ladies and gentlemen. Thank you for standing by for RLX Technology Inc.'s First Quarter 2026 Earnings Conference Call. [Operator Instructions] Today's conference call is being recorded and is expected to last for about 40 minutes. I will now turn the call over to your host, Mr. Sam Tsang, Head of Capital Markets for the company. Please go ahead, Sam.

Thank you very much. Hello, everyone, and welcome to RLX Technologies First Quarter 2026 Earnings Conference Call. The company's financial and operational results were released through PR Newswire services earlier today and have been made available online. You can also view the earnings press release by visiting our IR website at ir.relxtech.com. Participants on today's call will include our Chief Executive Officer; Ms. Kate Wang; our Chief Financial Officer, Mr. Chao Lu; and Sam Tsang, Head of Capital Markets.

Before we continue, please note that today's discussions will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements typically contain words such as may, will, expect, anticipate, aim, estimate, intend, plan, believe, potential, continue or other similar expressions.

Forward-looking statements involve inherent risks and uncertainties. The accuracy of these statements may be impacted by a number of business risks and uncertainties that could cause actual results to differ materially from those projected or anticipated. Many of which factors are beyond our control. The company, its affiliate, advisers and representatives do not undertake any obligation to update this forward-looking information except as required under the applicable law.

Please note that RLX Technology's earnings press release and this conference call include discussions of unaudited GAAP financial measures as well as unaudited non-GAAP financial measures. RLX' press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited GAAP measures.

For today's call, management will use English as the main language. We will provide simultaneous interpretation on the Chinese line. Please note that the Chinese line is in listen-only mode, and Chinese interpretation is for convenience only. In case of any discrepancy, management statements in the original language will prevail.

I will now turn the call over to Ms. Kate Wang. Please go ahead.

Thank you, Sam, and thank you all for joining today's call. We are off to a robust start in 2023, supported by a highly scalable global ecosystem and our ability to capture rising market opportunities. We achieved strong revenue growth, increasing by 96.2% year-over-year and 38.9% quarter-over-quarter as we continue to accelerate our international expansion and deepen our global presence. Our international business sustained its rapid organic growth, while our Mainland China business demonstrated resilience and stability.

We further refined our user-first approach through highly localized strategies and engagement with trusted regional business partners across the value chain to ensure superior product market. We also integrated our R&D manufacturing and commercial operation into our cutting-edge hub, which we call Nexus, further enhancing our core capabilities and competitive edge. These initiatives, along with our growing operational agility enable us to quickly align with evolving market dynamics and seamlessly meet global demand, further strengthening our presence across key international markets. Let me now walk you through our recent business update in more detail.

The global regulatory landscape around tobacco and smokeless alternatives continues to evolve. The United Kingdom's Landmark Tobacco and Race Act, which officially became law in April 2026 is a notable example reflecting a growing global trend towards phasing out combustibles while maintaining regulated pathways for harm reduction alternatives. Under this rule, anyone born up to 2009 will never be legally committed to purchase combustible cigarettes. Importantly, the ban applies only to cigarettes and exams regulated harm reduction alternatives such as V.

In effect, the U.K. is gradually eliminating the future consumer base for cigarettes while preserving the existing regulatory framework for our category. We believe that this will now be an isolated development. Public health improvements are increasingly being pursued worldwide by restricting tobacco while regulating harm reduction products. For companies like IX Technology with strong compliance capabilities, best-in-class product quality and a proactive regulatory approach, this represents a welcome structural tailwind rather than a headwind.

A well-regulated market rewards scale, compliance and innovation, areas where we already lead. As regulatory uncertainty diminish, the competitive landscape is expected to become more defined and our differentiated position may become even more valuable.

Moving on to our international expansion. Europe maintains a cornerstone of our global strategy, given its increasingly mature regulatory environment and strong demand for high-quality alternatives. Our May 2025 strategic investment in a European company has delivered value that extends well beyond the financial strengthening our capability in navigating local market dynamics. Our successful integration and operational experience have given us the confidence to evaluate further expansion across the continent.

Our expansion in Europe is driven by a dual engine strategy that place equal importance on strategic M&A and organic growth. While we are optimistic about the European potential, we maintain a highly selective approach to strategic investments, prioritizing long-term synergy rather than an immediate scale. We are focused on building a strong foundation through product and operational excellence, developing products tailored to European consumer preference and regulatory standards while deepening our distribution partnerships and expanding our presence across key retail channels.

At the same time, we are crafting our reputation as a premium reliable brand that resonates with local lifestyle and offers innovation that user can trust, ensuring that our presence is both impactful and long-lasting. Overall, we believe Europe is a high-value, high-barrier market. We are not seeking rapid entry, but rather building a durable presence with care and discipline. On the operational side, I'm pleased to announce that our integrated smart manufacturing facility in Nexus is now fully operational.

This is more than manufacturing upgrade. Expanding our self-manufacturing capability and capacity and bringing R&D, manufacturing and commercial operations under one roof allows us to pursue complex, high precision quality standards and long-term strategic directions. Our self-manufacturing capability also serves as a closed loop intellectual property fortress. Our proprietary technologies will maintain fully within our control and advantage that is difficult for competitors to replicate. In addition, this integrated hub has materially improved our operational efficiency, enabling faster decision-making and a more agile response to global market shifts.

To sum up, we continue to integrate regulatory expertise and international market intelligence to build more resilient, more scalable global platform. Against this backdrop, we remain focused on driving innovation and user-centric product development while further enhancing our distribution and retail capabilities and accelerating our expansion in Europe and spontaneously defending and elevating our leading market share in Asia.

Looking ahead, with a quality-led growth strategy and a strong commitment to innovation and compliance, we will continue to deliver sustainable long-term value for our global stakeholders. Now I will hand the call over to Chao to review our financial results in detail.

Thank you, Kate, and hello, everyone. In the first quarter of 2026, we delivered strong top line results with net revenues reaching RMB 1.59 billion, up 96.2% year-over-year and 38.9% quarter-over-quarter. This significant growth was primarily driven by momentum across our international operations, accretion from our acquired European entity, steady progress in our Mainland China business as well as the onetime impact of changes in China's export policy.

Our international business remained our key growth driver, accounting for over 70% of total net revenues for several consecutive quarters. We structurally improved our margin profile through disciplined cost management and scale efficiency across our comprehensive product portfolio. Gross margin expanded to 31.8% in the first quarter, up from 28.6% in the same period last year, mainly driven by more favorable product mix and ongoing supply chain optimization. The operating leverage from the revenue growth also translated into significant profitability.

Our non-GAAP operating margin expanded to 19.6% this quarter compared to 13.3% in the same period last year. Non-GAAP income from operations jumped by 187.9% year-over-year to RMB 310.3 million. Non-GAAP net income for the quarter reached RMB 357.3 million, a 41.4% increase compared to RMB 252.7 million in the same period last year. This underscores our ability to translate top line momentum into sustained high-quality earnings growth.

We maintain a highly resilient financial position. As of March 31, 2026, our total financial assets, including cash, cash equivalents and various deposits and investments reached RMB 14.53 billion, approximately USD 2.1 billion. While this represents a sequential decrease from RMB 15.73 billion as of December 31, 2025, the change primarily reflects our commitment to delivering shareholder value through dividend payments made during the quarter.

Our operational efficiency also remains strong, supported by efficient working capital management and a well-controlled cash conversion cycle. In the first quarter, accounts and notes receivable turnover days were 15 days. Inventory turnover days were 32 days and payable turnover days were 49 days. We entered the remainder of the year with a strong balance sheet, which provides us the financial flexibility to execute our next phase of growth, accelerate our market penetration in Asia and Europe and generate sustainable long-term value for our shareholders.

Thank you, operator. We're now ready to take the questions. Our first question today will come from Ling Zhao with UBS.

Congratulations, management, for the great quarter. I have 2 questions. So the first question is, can management provide an update on the integration of the European invested company and your operations in the U.K. market, please? And then the second question would be on the recent FDA decisions on flavored vapes approval in the U.S. So does management see any implications for Relax global strategy, especially on the potential of operating in the U.S.? On the other hand, does management -- how does management assess the easing of e-cigarette policies in China?

Thank you very much, Tony, regarding your 2 questions. So the first question is about our European strategy and also our operations in the U.K. market. So our approach to the integration is centered on strategic alignment rather than day-to-day operational interference. It is a synergetic relationship. We highly value the deep local expertise and market insights that our team from the acquired European companies brings to the table. We believe their understanding of the local landscape is instrumental in refining our broader European strategy. And at this stage, their insights are actively informing our strategic decisions.

In return, we are empowering them by providing the necessary capital resources and global platform support to scale their businesses. For instance, we have recently invested a new local warehouse facility to resolve previous capital constraints that hindered their growth. This infrastructure allows them to significantly scale up operations and improve distribution efficiency. Looking ahead, we intend to leverage our cash position to help them secure more downstream resources.

By blending our global innovation capabilities with their localized institution, we can capture market share more efficiently. Regarding your second question about the FDA recent decisions, we currently do not have operations in the United States. We are considering these developments from a broader industry perspective. The recent FDA guidance suggests a potential shift toward a more defined enforcement strategy that may favor credible PMT applications from legitimate industry players. While this could make product launch more predictable for industry, we cannot speculate on future regulatory outcomes in that market.

As for the China market, we support regulators in combating illegal products and welcome measures that foster a healthier and more sustainable industry. We remain fully prepared in terms of product innovation and brand equity to respond to any regulatory changes. At this point, our immediate strategic focus remains on deepening our presence in Asia and Europe and other established international regions, where we have clear operational levers. -- we focus on resources on markets where we can drive tangible growth today. Thank you very much for your questions.

Our next question today will come from Lydia Ling of Citi.

Congratulations on the results. So my question would be on your European business. So actually, we noticed that in U.K., we actually put a smoking ban for people born after 2008. So what would be the implication to your business? And how do you think about like the -- if that would benefit the development of the vape industry? And what will be your outlook for the European business? I think you also mentioned that there will be a strategic focus. So what would be your outlook for the kind of growth in European this year?

Thank you very much, Lydia, for your question. We view the U.K.'s generational smoking ban as a significant milestone in the government's long-term commitment to a smoke-free future. It's crucial to note that while the ban targets combustible cigarettes, the purchase age for e-vapor remains at 18. This effectively positioned e-vapor as the only legal nicotine consumption channel for future generations who were born after 2008 as they reach adulthood, reinforcing its role as the primary harm reduction tool.

The combination of this ban with the upcoming vaping product duty in October 2026 and the HMRC licensing scheme will significantly raise the barriers to entry. We believe this effectively clear the market of noncompliant market brands, allowing established compliance leaders like Rx to reclaim and expand our market share in the U.K. market. Thank you very much for your question.

Our next question today will come from Zoe Zhao of CICC.

Can you give us some updates on your investment plan in Europe and market strategy for new categories like oral pouch and HMB?

Thank you, , for your question. So our European strategy continues to follow a dual engine approach. Our management team has significantly shifted the focus towards European operations, successfully entering into new regions and channel this quarter. We are leveraging and growing understanding of the European consumer to enhance our competitive batch. Regarding M&A, we are actively evaluating opportunities that offer clear long-term strategies. However, we remain highly disciplined and cautious in our valuations. While we see many potential opportunities, these projects involve inherent uncertainties. Therefore, we do not include unannounced projects in our recent guidance, and we will share updates only when they are materialized.

Regarding the new categories that you mentioned, for the modern oral products, we are steadily scaling up our production capacity and actively identifying new distribution channels. We have high confidence in the competitiveness of our oral products and is highly differentiated. Once our overseas manufacturing infrastructure is fully established, we expect to see a significant uplift in sales volume. For HMV heated tobacco, while we possess the necessary technical results for this category, our current market dynamic assessment suggests that the timing is not optimal for large-scale investment.

Therefore, we do not have any immediate launch plan for this category. Our primary focus remains on capturing more market share within the e-vapor sector where we see the most immediate and substantial opportunities for growth. Thank you for your question.

And our next question today will come from Yan Gao of CDI.

My question is that will the cancellation of the Chinese export tax rebate affect the company's production cost?

Thank you, for your question. In the short term, the anticipated policy shift partially contributed to our significant revenue increase in the first quarter as the cancellation took effect in April 2026, we saw downstream partners engage in strategic inventory positioning during the first quarter to mitigate potential price adjustments. This front-loading effect is now largely behind us, and we observed that the total volume of such push forward is relatively moderate.

It is important to clarify that this policy change has little impact on organic end user demand. It only caused a temporary shift in the timing of channel orders -- because the e-vapor value chain involves multiple layers, the actual impact of this tax change on final retail prices is expected to be manageable. We will implement appropriate cost pass-through mechanisms when necessary, and we believe the long-term impact on our overall cost structure and margins will be minimal. Thank you for your question.

And our next question today will come from Charlie Chen of CCDI.

I just would like to management to give us more color on the current status of your overseas expansion. And also, do you have entered any new markets in the first quarter?

Thank you very much, Charlie, for your question. So in the first quarter of this year, we successfully entered into 2 markets located in Southeast Asia and Europe. Our global expansion strategy is progressing well in line with our segmented approach based on our varying degrees of market maturity. In Asia, where we have established ourselves as the #1 brand, our focus is on leveraging our significant brand equity and scale as a competitive moat. Our top-of-mind brand awareness among adult users in these regions allow us to enter new neighboring markets with a high degree of efficiency and consumer trust.

We are essentially replicating our proven SaaS models while further deepening our distribution network. In Europe, we are in an active phase of strategic exploration and adoption. While the landscape is diverse, we are increasingly confident as we refine our understanding of local consumer preferences and the evolving regulatory framework. Our approach here is more nuanced, focusing on delivering tailored, high-quality products and building deep rooted partnership with local stakeholders to ensure long-term and compliance growth. Thank you for your question.

This will conclude our question-and-answer session. At this time, I'd like to turn the conference back over to Sam Tang for any closing remarks.

Thank you once again for joining us today. If you have further questions, please feel free to contact RH Technologies Investor Relations team through the contact information provided on our website or via Piacente Financial Communications.

The conference has now concluded, and we do thank you for attending today's presentation. You may now disconnect your lines.

Hello, ladies and gentlemen, Thank you for standing by for RLX Technology, Inc.'s Fourth Quarter and Fiscal Year 2025 Earnings Conference Call. [Operator Instructions] Today's conference call is being recorded and is expected to last for about 40 minutes.

I will now turn the call over to your host, Mr. Sam Tsang, Head of Capital Markets of the company. Please go ahead, Sam.

Thank you very much. Hello, everyone, and welcome to RLX Technologies Fourth Quarter and Full Year 2025 Earnings Conference Call. The company's financial and operational results were released through PR Newswire services earlier today and have been made available online. You can also view the earnings press release by visiting our IR website at ir.relxtech.com. Participants on today's call will include our Chief Executive Officer; Ms. Kate Wang, our Chief Financial Officer, Mr. Chao Lu; and me Sam Tsang, Head of Capital Markets.

Before we continue, please note that today's discussions will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements typically contain words such as may, will, expect, anticipate, aim, estimate, intend, plan, believe, potential, continue or other similar expressions. Forward-looking statements involve inherent risks and uncertainties. The accuracy of these statements may be impacted by a number of business risks and uncertainties that could cause actual results to differ materially from those projected or anticipated. Many of which factors are beyond our control. The company, it's affiliate, advisers and representatives do not undertake any obligation to update this forward-looking information except as required under the applicable law. Please note that RLX Technologies' earnings press release and this conference call include discussions of unaudited GAAP financial measures as well as unaudited non-GAAP financial measures.

RLX press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited GAAP measures. For today's call, management will use English as the main language. We will provide simultaneous interpretation on the Chinese line. Please note that the Chinese line is in listen-only mode, and Chinese interpretation is for convenience purposes only. In case of any discrepancy, management statement in the original language will prevail.

I will now turn the call over to Ms. Kate Wang. Please go ahead.

Thank you, Sam, and thank you all for joining today's call. 2025 was a landmark year for RLX Technology. We finished with a very strong fourth quarter, rounding out a highly successful year despite a complex global economy. Our consumer-first strategy and effective execution are keeping us at the absolute forefront of the global smokeless transition. We are building a lasting global next-generation smokeless tobacco business and entering 2026 with significant momentum on every front.

Well, we are a top-tier global player. Our true strength is in our position as an industry trendsetter. We do not just react to the market. We are shaping the future of tobacco alternatives. This past year, we captured significant market share by listening closely to our consumers and deeply supporting our distribution and retail partners. Furthermore, we have built a highly scalable system through smart investments in core operations, allowing us to set the pace for the entire industry.

Multidimensional global expansion. The standout story of 2025 is our global growth. International sales made up 76.5% of our fourth quarter revenue. This is a massive milestone. We are no longer just a single market company. We are truly global enterprise, driven by multidimensional growth across many diverse regions. In the Asia Pacific region, we are taking a dominant position in multi-countries. While our market growth in these areas is strong, our own growth is significantly higher than the market average. This means we are rapidly winning market share as our products and distribution strategies resonant better with local consumers.

Here is an example for East Asia. We start from absolute 0 at the beginning of 2025 in these key markets, specialty store channel. Our team executed flawlessly over the year. We launched 2 successful product series tailored for the local market. We also opened 425 franchise stores, captured over 20% of the specialty store channel and increased our channel revenue by over 200%. And we have now distilled this incredible speed and precision into a replicable global blueprint. We plan to further perfect the single store economic model in this approach in 2026, which will provide us with a solid foundation to explore potential franchise expansion opportunities in other Asian markets when conditions are favorable.

At the same time, we are building a deep competitive moat in Europe. Europe is a high-value market with very strict standards. We see this as a massive opportunity. In May 2025, we invested in a leading European firm to secure local distribution. In early 2026, we made European expansion our top strategic priority. We have moved key top-level dealers to focus entirely on Western Europe. We are building major strategic partnerships with local distribution and retail giants and leveraging our world-class supply chain to supply premium products made specifically for European taste. We are also ensuring absolute compliance with strict local regulations. This holistic strategy is creating high barriers to enter. We are making it very difficult for others to compete with us in this region.

Mainland China stability and compliance. Turning to our Mainland China operations. This business remains strong, steady and highly resilient. In 2025, our domestic revenue grew by over 20% compared to last year. This growth was boosted by stricter customers' enforcement, which significantly reduced the illegal market. We capitalized on market improvements by enhancing our product options, optimizing our distribution networks and upgrading our retail operations. As a leader in China's e-vapor industry, it is our duty to support a healthy compliant market. We do not compromise on quality or safety, and we continue to support regulatory reinforcement efforts that protect consumers and level the playing field. But enforcement alone is not enough. We're using our proprietary tech and consumer data to create compliant products that are clearly superior in performance, in satisfaction and in value.

We firmly believe that giving them higher quality, high-value alternatives is the best way to move adult users away from the illicit market. We expect this highly responsible approach to drive steady, healthy growth in our Mainland China operation throughout 2026. The AI-empowered FMCG ecosystem -- to manage a global business of this size and complexity, they are going all in AI. This means much more than just upgrading our standard software. We are integrating artificial intelligence directly into our company's core DNA, turning our massive global data into a sharp competitive advantage. Speed and accuracy are everything for fast-moving consumer goods companies like RLX. AI is helping us rapidly improve everything from product design to complex supply chain management. It allows us to predict consumers' preference and what they will want next, launch new products significantly faster than our peers and accelerate global delivery.

AI also make us our entire team much more efficient. As our sales grow, we are letting AI handle the routine repetitive work rather than adding headcount, freeing our talented team to focus on solving complex problems and driving strategy. This generates massive operational leverage and keeps our company lean fast and highly efficient as we scale globally. Architecturing the future. Looking ahead, RLX is evolving into a true local global company. We are connecting our highly efficient AI-empowered global supply chain directly to deep local retail networks and tailoring our approach to every single market. This creates a highly profitable business model that is almost impossible for our rivals to copy. We entered 2026 with incredible momentum, diverse rapidly growing global revenue engines, a fortress-like balance sheet with a very healthy USD 2.2 billion in cash and strong capital management discipline. We're not just taking part in the global smokeless transition. Through our matchless innovation and strategic execution, we are the ones defining the future.

Now I will hand the call over to Chao to review our financial results in detail.

Thank you, Kate, and hello, everyone. We delivered a very strong fourth quarter to close out 2025. We accelerated our revenue growth and significantly improved our revenue mix. Fourth quarter net revenues reached RMB 1.14 billion, up 40.3% year-over-year. For the full year, total net revenues grew 44% to RMB 3.96 billion. This performance was driven by 3 engines: rapid international expansion, the successful integration of our European investment and steady growth in Mainland China. Together, these engines have created an expanded global footprint and a highly resilient balanced revenue structure.

Turning to profitability. Our bottom line reflects our strict operational discipline. Gross margin expanded to 31.4% in the fourth quarter, up from 27% a year ago. For the full year, gross margin increased to 29.9%. This margin expansion was driven by a favorable product mix and highly optimized supply chain operations. We just recorded our ninth consecutive quarter of positive non-GAAP operating profit, reaching RMB 158 million in the fourth quarter. For the full year, non-GAAP operating income doubled to RMB 570 million. Full year non-GAAP net income surged to RMB 1.16 billion. As we scale globally, we are maintaining a very lean organization. This discipline gives us incredible operating leverage.

Looking at cash and working capital, we are managing our capital with extreme efficiency. In the fourth quarter, our cash conversion cycle was negative 15 days, remaining at a healthy level. Because of this high operating efficiency, we generated RMB 1.1 billion in the operating cash flow for the full year. We ended 2025 with total financial assets of RMB 15.73 billion or about USD 2.2 billion. This rock-solid balance sheet gives us the financial flexibility to fund strategic partnerships and bold innovation without taking on financial risk.

We are deeply committed to disciplined capital allocation and shareholder returns. Thanks to our strong cash generation, we have returned over USD 500 million to our investors. This includes USD 330 million in share repurchases and USD 171 million in cash dividends. Going forward, our capital structure remains clear. We will fund our strategic growth, maintain our fortress-like balance sheet and return excess cash to our shareholders.

In closing, our 2025 results prove the strength of our global business model. We remain focused on executing our strategy, maintaining operational discipline and delivering sustainable long-term value.

Thank you. Operator, we are now ready to take questions.

[Operator Instructions] The first question today comes from Lydia Ling with Citi.

This is Lydia from Citi. Congratulations on the results. I have 2 questions. And the first is on the overseas business. So you made further progress on the overseas market in the last year. So what would be your expectation for the growth outlook for overseas markets this year? And what would be your strategies? And any new markets that you plan to further enter or on the consideration to further grow your market share?

And my second question is on the shareholder returns. So given your strong cash position, so do you plan to further increase the overall shareholder return or dividend payout.

Thank very much, Lydia, for your questions. So regarding our overseas business, looking ahead to 2026, we see a much more stable and predictable environment for our international business. In 2025, the industry faced pressure on average selling price per millimeter due to the shift from regular disposable products towards the pod products and close pod system. However, this trend fully stabilized by the second half of 2025. For 2026, we expect volume growth and revenue growth to align closely, we project the broader industry will grow at double digits, but our internal manage remains the same, consistently capture market share. We expect to grow significantly faster than industry average. Geographic expansion remains a core strategy. We have a strong pipeline of international markets for 2026. We expect to see real results from these expansions in the first half of the year. For competitive reasons, we cannot share specific names yet, but we are highly confident in the progress we are making behind the scenes.

Regarding your second question about our shareholder return policy. Our capital allocation strategy remains resourcely focused on maximizing long-term shareholder value subject to board approval and based on our operational results, we intend to distribute our non-GAAP net profit as dividends. To date, we have returned over USD 500 million to our shareholders through dividends and share repurchases. Moving forward, we will continue to elevate opportunities to optimize our capital structure and further enhance direct shareholder return. We build our strong cash position as a key strategic assets that provide us with significant optionality. We are selectively deploying capital towards disciplined M&A and strategic investments to accelerate our geographic expansion and product diversification.

By identifying the right targets and maintaining strong execution, we aim to convert our liquidity into sustainable recurring profits, a path to growth through consolidation similar to that historically taken by global tobacco companies. Crucially, this investment strategy complements our commitment to shareholder returns supported by our robust balance sheet. Thank you for your questions.

The next question comes from Guo Yun with Citic.

This is Guo Yun from Citic, and I have 2 questions. The first 1 is that could the management provide an update of the operational performance of the European company invested? And what is the business outlook and guidance for the company in 2026.

And the second question is about the domestic market and looking ahead to 2026, how do management view the recovery for the compliant making products in the Mainland China market?

Thanks, Guo Yun, for questions. So the first 1 is about our investment performance of the European companies invested. And the second question is about the Mainland China recovery. So regarding our European investment company, so our European platform successfully navigated the U.K. regulatory changes in 2025 by actively shifting our portfolio to compliant pod and open systems, we ensured a smooth transition for our customers. While the broader U.K. market experienced a contraction in total retail value, with the track e-vapor category within the FMCG channel, down approximately year-over-year in -- for 2025, the market has been stabilized. It is crucial to note that this decline does not reflect a softening of consumer demand. Rather, it is a direct result of the ongoing product mix shift, refillable and pod systems offer a significantly lower cost per use for consumer compared to single-use disposables leading to a mathematically adjustments in total category value.

Despite the low value environment, our business has grown, demonstrating remarkable resilience. We have steadily increased our revenue by acquiring new customers and expanding our shelf space in wholesale channel. Simply put, we are effectively taking market share. For 2026, our outlook is very positive. We expect the industry to consolidate around established compliance brand. This trend will accelerate with the new excise tax in the U.K. coming in October 2026. Higher taxes will push out on regulated players, which strongly favor scaled compliance operator like us.

Regarding your second question on the Mainland China market. In Mainland China, we are seeing positive momentum. In 2025, thanks to stricter enforcement against illegal products, our domestic business grew by over 20%. For 2026, we expect growth to continue, but at a more normalized pace given 2025 high base. The regulatory environment is maturing, but challenges remain, specifically illegal products from unverified workshops. As an industry leader, we will continue to work with regulators to bring users back to high-quality regulated products. Overall, our Mainland China operations provide a solid compliance foundation. Our primary engine for future growth will continue to be our international markets. Thank you for your question.

The next question comes from Zhuonan Xu with CICC.

This is Zou from CICC. I have 2 questions about our overseas markets. First, can you share some information about our investment plan in Europe.

And second, in Asia, it seems like the gray market is seeing a trend towards higher tax lately, and Southeast Asia is going through some process to legalize and regulate the industry. And how is your next plan to respond to the specific market conditions?

Thank you, Zou, for your questions. The first 1 is about our investment plan in Europe. And the second question is more on the regulatory developments in the Asian countries. So regarding your first question, we are very encouraged by our progress in Europe. The integration of the European company we invested in 2025 has been very smooth. Europe is a mature market with high barriers to entry. Therefore, our strategy relies on 2 pillars running side by side, strategic investments and organic growth. For investments, we are targeting 2 specific profiles. First, distributors, especially those with their own retail network; second, complementary brands that fit well with our current products. We are actively looking for targets now, and our goal is to close more transactions this year.

However, M&A always carries some uncertainty. For that reason, we do not include these potential deals in our budget. We will keep our budgets conservative while we pursue these new opportunities.

Regarding your second question on the Asia regulatory development, in South Korea, there is a very clear trend towards higher taxes, but we must look at details. The recent tax hikes mostly target synthetic nicotine, which previously had a tax advantage. Our core strength in Korea is natural nicotine. Because natural nicotine is already taxed, this new policy does not materially affect us. We anticipate that the industry will simply pass the synthetic nicotine taxes on to consumers, so our competitive position remains very stable.

In Southeast Asia, regulatory landscape is shifting towards legalization often entailing the introduction of new excise taxes. Our strategy remains consistent. We utilize dynamic pricing to manage these cost adjustments. Even under new tax regimes, e-vapor products maintains a significant price advantage compared to the majority of tobacco products in the market. Consequently, we believe consumer demand will remain resilient.

To summarize, we welcome these regulations. They show the industry is maturing. As the gray areas disappear, the market becomes more transparent. This gives us much better business predictability. A regulated market plays exactly to our strengths and support our leadership position in the long run. Thank you for your questions.

Next question comes from Ling Zhou with UBS.

Congratulations on the strong quarter and full year results. I have 2 questions. So the first question is, in light of the current macro uncertainty and geopolitical landscape, how does management view this sensitivity of consumer demand across different international markets. Can management provide some sensitivity analysis regarding their impact on the production costs and the logistics.

And the second question is what would be the current progress of nicotine pouch products in terms of launch in select markets and channels?

Thank you, Ling, for your questions. The first 1 is on the macro headwind globally. So in terms of the consumer demand, our products as like consumer staples because they are deeply embedded in our users' daily routines, demand is highly resilient. Even with current macro and geopolitical headwinds, consumer purchasing intent in our key markets remain very strong. Our vapor and model oral platforms offer a reduced risk alternative to traditional cigarettes at a much better price point. This structural price advantage protects our revenue regardless of the broader economy.

Regarding costs, we are highly insulated from energy and freight volatility. Our products have a very high value-to-waste ratio, so shipping is a tiny fraction of our total cost. This means higher fuel prices or shipping surcharges have minimal impact on our margins.

Finally, we are developing our AI-empowered ERP system to dynamically optimize our supply chain system. Combined with our strong balance sheet, we are exceptionally well positioned to protect our margins and sustain our growth trajectory.

And regarding our nicotine pouch products, we began started rollout of our modern oral products in Europe in the second half of 2025. We are using a multi-brand strategy, which allows us to adapt to local market dynamics. In the U.K., we are in the early stages. We are currently ramping up our production at our new facility in Southeast Asia. So we are intentionally controlling our marketing efforts for now. However, feedback from both consumers and distributors has been overwhelming positive. The demand is clearly there. We just need to give our supply chain time to reach full commercial share. Looking ahead through 2026, our main goal is channel expansion. The retail channels for oral products are different from our traditional vapor channels. So we are actively building new partnerships to expand our footprint. As our supply chain stabilizes and our marketing initiatives expand, we anticipate potential revenue growth in this category as the year progresses. Thank you for your questions.

Due to time constraints. Now I would like to turn the call back over to the company for closing remarks.

Thank you once again for joining us today. If you have further questions, please feel free to contact RLX Technology's Investor Relations team through the contact information provided on our website of Piacente Financial Communications.

This concludes this conference call. You may now disconnect your lines. Thank you.

Hello, ladies and gentlemen. Thank you for standing by for RLX Technology, Inc.'s Third Quarter 2025 Earnings Conference Call.

[Operator Instructions]

Today's conference call is being recorded and is expected to last for about 40 minutes. I will now turn the call over to your host, Mr. Sam Tsang, Head of Capital Markets for the company. Please go ahead, Sam.

Thank you very much. Hello, everyone, and welcome to RLX Technologies Fourth Quarter 2025 Earnings Conference Call. The company's financial and operational results were released throughPR News Wire services earlier today and have been made available online. You can also view the earnings press release by visiting our IR website at ir.relxtech.com. Participants on today's Chief Executive Officer; Ms. Kate Wang, our Chief Financial Officer, Mr. Chao Lu; and me Sam Tsang, Head of Capital Markets.

Before we continue, please note that today's discussion will contain forward-looking information made under the safe harbor provisions of the U.S. Private Securities Litigation Reform of 1995. These statements difficultly contain words such as may, will, expect, anticipate, aim, estimate, intend, plan, believe, potential, continue or other similar expressions. Forward-looking statements involve inherent risks and uncertainties. The accuracy of these statements may be impacted by a number of business risks and uncertainties that could can actual results to differ materially from those projected are anticipated, many of which are creators beyond our control.

The company, it's affiliate, advisers and representatives do not undertake any obligation to update its forward-looking information except as required under the applicable law. Please note that RLX Technologies' earnings press release and this conference call will include discussions of unaudited GAAP financial measures as well as unaudited non-GAAP financial measures. RLX press release contains a reconciliation of the unaudited non-GAAP financial measures to the unaudited GAAP financial measures. For today's call, management will use English as the main language. We will also provide simultaneous interpretation on the Chinese line. Please note that the Chinese line is in listen-only mode and Chinese interpretation is for convenience purposes only. In case of any discrepancy, management statement in the original language will prevail. I will now turn the call over to Ms. Kate Wang. Please go ahead.

Thank you, Sam, and thank you all for joining today's call. This quarter, we once again delivered robust results in a challenging global environment. Our net revenue surged 49% year-over-year to RMB 1,129 million, with non-GAAP operating profit reaching RMB 188 million. This performance underscores the strength of our industry-leading portfolio and our excellent execution across international markets bolstered by a gradual recovery in Mainland China. It also validates the scalability of our globalization strategy and the outstanding technological innovation that secures our leadership in the e-vapor sector.

Turning to Mainland China. Regulatory enforcement strengthened markedly, yield positive shifts in market dynamics. For intent, enhanced customers inspections have curtailed illegal returns of exported products, channeling customers back to legitimate brands from noncompliant alternatives during this quarter's modest Mainland China revenue recovery. That said, the persistence of an unregulated listed e-vapor market remains a significant headwind distorting competition and restraining volume recovery. Our revenue from Mainland China stands at RMB 320 million this quarter or approximately 13% of Q2 2021 level, illustrating the scale of ongoing challenges.

True market order can only be achieved through consistent enforcement action particularly against illegal online sales. As a leading compliant player, we continue to advocate for strict enforcement and remain committed to providing adult smokers in China with a superior, diversified portfolio of quality tobacco alternatives. We are also advocating for regulatory adjustments around tobacco flavor formulation. This could align public policy with consumer preferences, helping to foster a more transparent orderly market. Internationally, our strategy continues to gain momentum with 70% to 80% of our revenues now derived from international markets. Amid various headwinds, including the big puff effect, disciplined execution, quality products and vape legal insights continue to drive success. Our new Asia Pacific franchise retail model exemplifies the strategic and execution excellence. By uniting independent vape stores under a cohesive brand to enhance retail execution, amplify visibility, and elevate user experience, we generated meaningful same-store sales growth.

Furthermore, our robust R&D capabilities remain a core differentiators in international markets, enabling rapid innovation and local market adoption. Notably, our recent East Asia product launch that industry benchmarks of disposable e-vapor products for design excellence, spurring category growth and exceptional demand. Our expansion into adjacent categories with the [indiscernible] of our modern oral product further strengthen our portfolio and pipeline, unleashing growth potential as we capture demand from previously untapped user segment. Beyond APAC, Europe remains a critical growth market distinguished by regulatory maturity and involve user base. Our strategic equity investment in a leading European EV firm enhances our market intelligence and positions us to capitalize on future opportunities effectively.

In the United Kingdom, where the government implemented a ban on this portable e-vapor product in June 2025, we demonstrated strong business adaptability. Through our proactive strategy to make migrate consumers to reusable and sustainable product format reinforced by robust retail execution and strategic category management. We not only safeguarded our market position but also sustain top line strength amid a sharp industry contraction. In summary, this quarter's results reflect our borrowing strength, resilience and leading innovation made a complex macro environment. We are building more than financial value. We are cultivating a global brand with quality and sustainable leadership. Looking forward, we remain confident in our ability to shape the smokeless industry and deliver lasting value to our stakeholders. Now I will hand it over to Chao for a detailed review of our financial performance.

Thank you, Kate, and hello, everyone. Before we dive into the financial details, please note that all figures I present today are denominated in RMB, unless otherwise stated. We are pleased to report another strong quarter marked by robust revenue growth and improved profitability. In quarter 3 of 2025, our strategic emphasis on international markets continue to drive exceptional results. Net revenues reached RMB 1.1 billion, reflecting impressive increases of 49% year-over-year and 28% quarter-over-quarter. Importantly, we reinforced our market leadership in core regions while proactively capturing organic growth and strategic investment opportunities. Selected Asian markets delivered strong organic growth fueled by successful product innovation and introductions, and effective local execution.

Additionally, our investment in a premier European e-vapor industry, e-vapor company contributed significantly this quarter. Having consolidated this entity's financials since June, a full 3-month performance is now reflected in our results. Meanwhile, a mild recovery in Mainland China market provided a positive backdrop during this period. Let's turn to profitability. We further strengthened our profitability this quarter, a testament to our disciplined execution and operational excellence. Our gross profit margin expanded by 4 percentage points year-over-year and 3.7 percentage points quarter-over-quarter. This improvement was driven by the consolidation of our equity investment in the European market, favorable shift in geographic revenue mix and margin enhancements in all key international regions.

Additionally, we achieved our eighth consecutive quarter of positive non-GAAP operating profit, reaching RMB 188 million. Our non-GAAP operating profit margin expanded by 6 percentage points year-over-year, reflecting both enhanced operating leverage and rigorous cost management. Looking ahead, we remain committed to driving further profitability improvements as we scale globally by relentlessly prioritizing operating efficiency and maintaining a lean organizational structure. Moving on to financial flexibility. We maintained our strong cash position supported by solid financial fundamentals and disciplined capital allocation. Our cash flow generated from operating activities surged in quarter 3, rising to RMB 358 million from RMB 157 million in the same period last year. This performance reflects our efficient working capital management, characterized by a healthy negative cash conversion cycle with inventory turnover days at 25, receivable turnover days at 11, and payable turnover days at 53.

As of September 30, 2025, our total financial assets, including cash and cash equivalents, restricted cash, short-term bank deposits net, short-term investments net, long-term bank deposits net, and long-term investment securities net, stood at RMB 15.4 billion, approximately USD 2.2 billion. This strong liquidity position provides ample flexibility to pursue strategic investments that accelerate our global expansion and fuel innovation while also enabling us to enhance shareholder value through disciplined capital deployment and a sustainable return. That brings me to shareholder returns, which I believe is something that you are focused on. With a consistent disciplined capital allocation approach, we have returned nearly all of our non-GAAP net profit to shareholders through strategic share repurchases and dividends over the past 4 years.

As of September 30, 2025, we have repurchased approximately USD 330 million in ordinary shares represented by ADS. For this quarter, we are declaring a cash dividend of $0.1 per ordinary share or ADS. Furthermore, since our IPO, including the cash dividend announced today, we have returned over USD 500 million to shareholders through repurchases and dividends. Our capital framework is purpose-built to support durable profit growth while maximizing long-term returns for shareholders, balancing reinvestment in strategic growth with responsible financial stewardship. In closing, this quarter's results are a clear testament to our outstanding execution and distinctive competitive advantages across global markets.

We are not just navigating challenges, we are transforming them into opportunities through innovation and tailored local strategy. As we unlock new growth avenues, we remain focused on delivering sustainable value that benefits all stakeholders today and into the future. Thank you for your attention. We now welcome your questions. Operator, please proceed.

[Operator Instructions]

For the benefit of all participants on the call, if you will ask your question to management in Chinese, please immediately repeat your question in English.

The first question today comes from Lydia Ping with Citi.

Congratulations on the results. So I have 2 questions. And the first one is like as we now enter close to the year-end. So based on current progression in your international expansion. So could you actually share revenue outlook for 2026 for the company and also the industry? And also, could you also give us some breakdown for the international business, like how is organic growth in the third quarter? And for your invested European e-vapor business, so how did it perform in the third quarter? So this is my first question.

And the second question is given that the e-vapor industry has matured, so what areas are prioritized in the R&D to sustain your growth and differentiation?

Thank you, Lydia, for your questions. For the first question, let me address in 3 parts. Regarding 2026 revenue outlook, we are committed to expanding our brand footprint selectively across international markets, contingent on regulatory clarity and market readiness. Although the time remains fluid, we will maintain our disciplined strategic approach. We will share detailed plans as we finalize them in coming quarters.

Regarding our third quarter 2025 international growth, our international revenue grew steadily and outpaced industry averages, driven by robust organic growth in the Asia Pacific region. This reflects the strength of our tailored product innovation and route-to-market strategy, enabling us to deepen market penetration and consumer loyalty. And finally, regarding our European investment performance, our invested e-vapor company in Europe has maintained operational stability despite recent regulatory challenges, including the U.K. disposable product ban. We are optimistic about our synergies and anticipate scaling this company as we advance market integration.

Regarding your second question about product innovation and differentiation, amid a maturing industry landscape, we have sharpened our focus on meaningful product evolution that delivers value. Our R&D initiatives emphasize enhancing core user experiences, particularly in flavor of authenticy, device ergonomics and aesthetic design. We have optimized product performance through technological refinements and strengthen regional market responsiveness via localized flavor portfolio. This strategy culminated in a breakthrough product launched in East Asia this quarter, distinguished by innovative design and user appeal. We believe this R&D approach is foundational for sustained differentiation and long-term success. Thank you for your questions.

The next question comes from Guo Yun with CITIC.

Thanks management. This is Yun Go from CITIC and congratulations to the results. My question is about the channel innovation in the select Asian market. Can the management elaborate more?

Sure, definitely. Our channel innovation centers on transforming vape store experiences. Independent vape store dominates category sales but face branding inefficiencies. Through a franchise model, we provide renovation subsidies that upgrade store enhancement under unified branding. These initiatives have engaged over 450 partners in an East Asian country this year, driving significant revenue growth while enhancing our brand presence and operational control. Thank you for your question.

The next question comes from Zhuonan Xu with CICC.

This is Zhuo from CICC. My question is about our Europe business. First, could you give us some update on the U.K. with company integration? And what is the strategy for Europe further expansion?

Thanks very much. Following the June consolidation, we are in the early stages of integration, currently prioritizing preservation of brand equity and operational strength. Our strategy is to transform the U.K. operations into a multi-rand retail distribution platform, leveraging supply chain and capital advantages to enhance efficiency. We are actively leveraging local expertise to expand channel development and product localization across Europe, while remaining open to strategic investments that we accelerate geographic and portfolio diversification. Thank you for your question.

The next question comes from Ling Zhour with UBS.

Congratulations management for the strong results in Q3. So my question is, what is the current expansion status of the modern oral business? And what are the subsequent promotional strategies of RLX?

Sure. Thank you very much, for your question. Modern oral is the smokeless industry's fastest-growing segments, reflecting a clear market opportunity. Our ultra-thin fast absorbent products launch in INTERTEC Germany, garnered strong industry validation. We plan to roll out this category in phases starting this quarter. At this stage, our near-term revenue expectations remain prudent as we build market data and consumer adoption. Thank you very much for the question.

Due to time constraints, now I would like to turn the call back over to the company for closing remarks.

Thank you once again for joining us today. If you have further questions, please feel free to contact RLX Technologies Investor Relations team through the contact information provided on the website or Piacente Financial Communications.

The call has now concluded. Thank you for attending today's presentation. You may now disconnect.