RLX Technology Inc. (RLX) Q3 2025 Earnings Report, Transcript and Summary

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.