Hello, ladies and gentlemen. Thank you for standing by for RLX Technology Inc.'s first quarter 2026 earnings conference call. At this time, all participants are in listen-only mode. After management's remarks, there will be a question and answer session. 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 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 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 Act of 1995. These statements usually 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 beyond our control. The company's affiliates, advisors, 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 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 only.
In case of any discrepancy, management statements in the original language 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 2026, 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 sustains 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 fit. 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 Vapes 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 after 2009 will never be legally permitted to purchase combustible cigarettes. Importantly, the ban applies only to cigarettes and exempts regulated harm reduction alternatives, such as vapes.
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 RLX Technology, with strong compliance capabilities that ensure 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 an European company has delivered value that extends out well beyond the financial, strengthening our capability in navigating local market dynamics. Our successful integration and operational adherence have given us the confidence to evaluate further expansion across the continent. Our expansion in Europe is driven by a dual-engine strategy that places equal importance on strategic M&A and organic growth. While we are optimistic about Europe's potential, we maintain a highly selective approach to strategic investments, prioritizing long-term synergy rather than any 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. We believe Europe is a high-value, high-barrier market. We're 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, Nexus, is now fully operational. This is more than a 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 advantages 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. 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 one-time 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 profiles 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 pro-profitability. Our Non-GAAP operating margin extended 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 31st, 2026, our total financial assets, including cash equivalents, and various deposits and investments, reached RMB 14.53 billion, approximately $2.11 billion. While this represents a sequential decrease from RMB 15.73 billion as of December 31st, 2025, the change primarily reflects our commitment to delivering shareholder value through dividend payments made during the 1st quarter. Our operational efficiency also remains strong, supported by efficient working capital management and a well-controlled cash conversion cycle. In the 1st quarter, accounts and notes receivable turnover days were 15 days. Inventory turnover days were 32 days, and payable turnover days were 49 days.
We enter 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.
Thank you. We will now begin the question-and-answer session. To ask a question, you may press star and then one on a touch tone phone. To withdraw your question, please press star, then two. For the benefit of all participants on today's call, if you wish to ask your question to management in Chinese, please immediately repeat your question in English. Again, it is star and then one to ask a question. Our first question today will come from Ling Zhao with UBS. Please go ahead.
Thank you. Congratulations, management, for the great quarter. I have two questions. 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? The second question would be on the recent FDA decisions on flavored vapes approval in the U.S. Does management see any implications for RELX global strategy, especially on the potential of operating in the U.S.? On the other hand, does management assess the easing of e-cigarette policies in China? Thank you.
Thanks very much, Ling Zhao, regarding your two questions. The first question is about our European strategy and also our operations in the U.K. markets. Our approach to the integration is centered on strategic alignments 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.
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 hinder 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 execution, we can capture market share more efficiently. Regarding your second question about the FDA recent decisions, we currently do not have operations in the U.S. 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 PMTA 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 markets, 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. Please go ahead.
Hi, management. Congratulations on the results. My question would be on your European ex-business. Actually, we noticed that in U.K., which actually proved a smoking ban for people born after 2008. What would be the implication to your business? How do you think about like the benefiting the development of the vape industry? What would be your outlook for the European business, as you also mentioned that there will be your strategic focus. What would be your outlook for the like the kind of growth in European this year? Thank you.
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 commitments 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 positions e-vapor as the only legal nicotine consumption channel for future generations who are 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 Products Duty in October 2026 and the HMRC licensing scheme will significantly raise the barriers to entry. We believe this will effectively clear the market of non-compliant black market brands, allowing established compliance leaders like RELX 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. Please go ahead.
Thanks, management. Can you give us some updates on your investment plan in Europe and market strategy for new categories like oral pouch and HNB? Thank you.
Thank you, Zoe, for your question. Our European strategies 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 edge. Regarding M&A, we are actively evaluating opportunities that offer clear long-term strategies. We remain highly disciplined and cautious in our evaluations. While we see many potential opportunities, these projects involve inherent uncertainties. We do not include unannounced projects in our recent guidance, and we'll 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 it's highly differentiated.
Once our overseas manufacturing infrastructure is fully established, we expect to see a significant uplift in sales volume. For HNB heated tobacco, while we possess the necessary technical reserves for this category, our current market dynamics assessment suggests that the timing is not optimal for a 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.
Our next question today will come from Guo Yun of Citi. Please go ahead.
Thanks, management. My question is, will the cancellation of the Chinese export tax rebate affect the company's production costs? Thank you.
Thank you, Guo Yun, for your question. In the short term, the anticipated policy shifts 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 observe 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 involve 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 would be minimal. Thank you for your question.
Again, it is star and then one to ask a question. Our next question today will come from Charlie Chen of CCBI. Please go ahead.
[Foreign language] Thanks, management, to take my questions. I just would like to, management to give us more color on the current status of your overseas expansion. Do you have entered any new market in the first quarter? Thank you very much.
Thank you very much, Charlie, for your question. In the first quarter of this year, we successfully entered into two 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 number one 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 success models while further deepening our distribution network. In Europe, we are in an active phase of strategic exploration and adaptation.
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 Tsang for any closing remarks.
Thank you once again for joining us today. If you have further questions, please feel free to contact RLX Technology investor relations team through the contact information provided on our websites or via Shante Financial Communications.
The conference has now concluded. We do thank you for attending today's presentation. You may now disconnect your lines.