Earnings call transcript: RLX Technology sees strong Q1 2025 growth amid regulatory challenges

RLX Technology Inc. reported a robust financial performance for Q1 2025, with net revenues soaring by 47% year-over-year. The company’s stock experienced a modest aftermarket increase, reflecting investor confidence despite ongoing regulatory challenges in the e-vapor industry. With a market capitalization of $2.7 billion and impressive revenue growth of 69% over the last twelve months, RLX’s strategic innovations and international market expansion are key drivers of its positive outlook. According to InvestingPro analysis, the company maintains a strong financial health rating, holding more cash than debt on its balance sheet.

Key Takeaways

• Net revenues increased by 47% year-over-year to RMB 808 million.
• Gross profit margin improved to 28.6%, up by 2.7 percentage points from last year.
• RLX launched innovative "Big Puff" products to adapt to regulatory changes.
• The company is expanding its international market presence amid global regulatory scrutiny.
• RLX anticipates positive dollar growth despite industry-wide negative trends.

Company Performance

RLX Technology demonstrated significant growth in Q1 2025, maintaining its trajectory of positive non-GAAP operating profit for the sixth consecutive quarter. The company’s strategic focus on product innovation and international expansion has positioned it well against competitors, especially in a challenging regulatory environment. The e-vapor industry is facing increased scrutiny, with bans in several countries, yet RLX’s adaptability and strong product development capabilities have enabled it to outperform.

Financial Highlights

• Revenue: RMB 808 million, a 47% increase year-over-year.
• Gross profit margin: 28.6%, up by 2.7 percentage points from the previous year.
• Non-GAAP operating profit: RMB 106 million.
• Operating cash inflow: RMB 207 million, a significant increase from RMB 4 million last year.

Market Reaction

RLX Technology’s stock saw a slight increase in the aftermarket session, rising by 0.47% to $2.14. This movement reflects positive investor sentiment, supported by the company’s strong financial performance and strategic initiatives. Based on InvestingPro’s Fair Value analysis, the stock appears to be trading below its intrinsic value, presenting a potential opportunity for investors. The stock’s current price remains closer to its 52-week high of $2.69, indicating resilience in a volatile market. InvestingPro’s comprehensive research report offers detailed valuation analysis and growth projections for RLX, available among 1,400+ top stocks covered by the platform.

Outlook & Guidance

Looking forward, RLX is cautiously optimistic, projecting positive dollar growth in a year where the industry may experience negative trends. Analysts tracked by InvestingPro anticipate continued sales growth and profitability for the current year, with the company maintaining its strong market position. The company expects industry dollar value growth to stabilize by 2026. RLX is committed to continuing its international market strategy, focusing on adapting to regulatory changes and leveraging its robust product development capabilities.

Executive Commentary

Cao Lu, CFO of RLX Technology, expressed confidence in achieving positive growth despite industry challenges: "We are confident that we will achieve positive dollar growth while the industry is experiencing negative growth this year." Sam Song, Head of Capital Markets, highlighted the company’s competitive edge: "The increasing regulatory requirements will make it harder for smaller players without robust product development and supply chain capabilities to keep up."

Risks and Challenges

• Regulatory Scrutiny: The e-vapor industry faces bans in several countries, which could impact market access.
• Market Saturation: As the industry matures, growth opportunities may become limited.
• Supply Chain Disruptions: Potential disruptions could affect product availability and cost structures.
• Economic Conditions: Macroeconomic pressures could influence consumer spending and demand.
• Competitive Pressure: Intense competition requires continuous innovation and market adaptation.

RLX Technology’s strategic initiatives and strong financial performance in Q1 2025 position it favorably in a challenging industry landscape. The company’s focus on innovation and international expansion continues to drive its growth and resilience.

Full transcript - RLX Technology Inc (RLX) Q1 2025:

Conference Operator: Hello, ladies and gentlemen. Thank you for standing by for RLX’s Technology Inc. First Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in a 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 forty minutes. I will now turn the call over to your host, Mr. Sam Song, Head of Capital Markets for the company. Please go ahead, Sam.

Sam Song/Sam Zhang, Head of Capital Markets, RLX Technology Inc.: Thank you very much. Hello, everyone, and welcome to Iris Technologies first quarter twenty twenty five earnings conference call. The company’s financial and operational results were released through Peony’s wireless services earlier today and have been made available online. You can also view the earnings press release by visiting our IR website at ir.relaxtech.com. Participants on today’s call include our Chief Financial Officer, Mr.

Chow Liu and myself, Sam Zhang, Head of Capital Markets. Before we continue, please note that today’s discussions will contain forward looking information 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, expects, targets, estimates, intend, 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 affiliates, advisers and representatives do not undertake any obligation to update this forward looking information except as required under the applicable law. Please note that IRX Technologies earnings press release and this conference call include discussions of unaudited GAAP financial measures as well as unaudited non GAAP financial measures. IRX press release contains a reconciliation of the unaudited non GAAP measures to the unaudited GAAP measures.

I will now turn the call over to Mr. Cao Lu. Please go ahead.

Cao Lu/Chow Liu, Chief Financial Officer, RLX Technology Inc.: Thank you, Sam, and thank you everyone for joining our earnings conference call today. I will start with an update on the global regulatory landscape and the market trends, followed by our recent business development and financial overview. We were pleased to deliver impressive results in the first quarter of twenty twenty five amid a challenging macro and regulatory environment, underscored by a 47% year over year increase in net revenues to RMB808 million and a non GAAP operating profit of RMB106 million. Since the beginning of 2025, the e vapor industry has faced growing global scrutiny and increasingly stringent regulatory environment. Industry wide, e vapor exports from China decreased year over year in the first quarter, mainly due to bans on disposable e vapor products or e vapor products in general, excise tax and enhanced regulatory enforcement in certain countries.

Specifically, a ban on disposable e vapor products effective next month, prompting local distributors to adopt a more cautious approach to importing. Additionally, Spain imposed heavier taxes on e vapor products in April, while Mexico, Vietnam and Kazakhstan banned e vapor products completely. Regulatory shifts will continue to impact the whole industry and compel manufacturers to adapt throughout 2025 and beyond. These regulatory changes drive changes in user trends and the e vapor industry. For example, the ban on disposable e vapor products inspired the industry to develop alternatives for disposable users.

Now the big puff trend that started in Europe is spreading to Asia and the rest of the world, spurring innovation and impacting industry wide revenue models. Big puff vapes are rechargeable cartridge based or disposable e vapor products that offer a significantly larger volume of e vapor, e liquid and higher POP count than traditional vape. For example, our previous disposable and classic closed system cartridge based e vapor products contain just two milliliters of e liquid. In comparison, our most recently launched Big Top products can contain up to between fourteen and twenty milliliters of e liquid. Since most manufacturing costs for e vapor come from hardware rather than the e liquid, the marginal cost of adding more e liquid to big puff product is relatively low.

Despite the significant increase in e liquid volume, the per unit selling price of big puff products is not as proportionally higher than that of the traditional products. As a result, Big Puff products have effectively lowered the per milliliter consumption expense of e liquid for users. Furthermore, the larger e liquid capacity of big puff products reduces the frequency of replacement, making them especially appealing to disposable users, many of whom initially switched to disposable to avoid the hassle of cartridge replacement. Due to their enhanced cost effectiveness and convenience, Big Puff products have attracted numerous former disposable users and gained global popularity, a trend few in the industry had anticipated before. A sweeping big puff trend has driven an increase in e liquid consumption by volume, but the lower per milliliter average selling price has stunted revenue growth across all brands, causing a drop in industry dollar value.

This has made 2025 a transitional year for the big box shift, with most industry participants expecting to experience negative growth in industry dollar value this year. Starting next year, anticipate that the industry dollar value growth will align more closely with the increase in e liquid consumption and return to a normal growth trajectory. While evolving regulations and trends can prompt industry sustainability and create opportunities for innovation, they also present significant operational challenges for brands. RLX is addressing these challenges by focusing on factors we can control. As a brand with advanced in house product development capabilities, we are uniquely positioned to quickly create market specific compliant products that align with user trends.

For instance, we have launched several new large capacity big tough products since the second half of last year, including disposable, closed system cartridge based and open system cartridge based devices. Our ability to stay ahead of trends and swiftly meet evolving demand is what keeps us at the forefront of the industry. Our robust inventory management system also helps safeguard against potential unexpected regulatory changes. Furthermore, by operating in multiple global markets, we mitigate the risks associated with over reliance on any single major market. Although we are not immune to industry shifts or the broader macro environment, we remain committed to growing at a pace that outperforms an industry.

We are confident that we will achieve positive dollar growth while the industry is experiencing negative growth this year. Now let’s move on to our financial results for the first quarter In the first quarter of twenty twenty five, our strategic emphasis on international markets drove a 46.5% year over year increase in net revenue to RMB808 million. However, due to seasonal factors and the fact that the fourth quarter is traditionally the peak season for overseas market. Quarter over quarter growth remained subdued with net revenues staying largely consistent with the previous quarter.

Turning to profitability, our gross profit margin improved to 28.6% in the first quarter of twenty twenty five, a 2.7 percentage point increase year over year and 1.6 percentage points quarter over quarter. This improvement was primarily due to a more favorable revenue mix from international markets and cost optimization initiatives. We also achieved our sixth consecutive quarter of positive non GAAP operating profit, profit reaching RMB106 million. Our non GAAP operating profit margin increased by nine percentage points year over year, mainly driven by incremental contribution from our international business and operating leverage. In terms of cash flow, we achieved an operating cash inflow of RMB207 million in the first quarter of twenty twenty five, up from RMB4 million in the same quarter of the previous year.

This reflects our business scale growth and working capital efficiency improvement. As we mentioned on the last call, we are currently experiencing a negative cash conversion cycle with inventory turnover days of twenty five days, receivable turnover days of thirteen days and payable turnover days of eighty one days in the first quarter of twenty twenty five. Our cash position remains solid as of 03/31/2025. Our total financial assets including cash and cash equivalents, restricted cash and various short term and long term deposits and investments stood at RMB 16,200,000,000.0 compared to RMB 16,900,000,000.0 as of 12/31/2024. By conclusion, we started 2025 on a strong note with robust top line growth supported by our international strategy, sustained profitability improvements and a solid cash position.

As we continue to expand globally, we remain confident in our ability to drive sustainable growth and create long term value for our shareholders. This concludes our prepared remarks today. We will now open the call to questions. Operator, please go ahead.

Conference Operator: And the first question will come from Lydia Ling with Citi. Please go ahead.

Lydia Ling, Analyst, Citi: Thanks management team. This is Lydia from Citi. I have two follow-up questions. And first one is, do interested to understand more under the progression of the overseas expansion. So could you share any latest update, particularly any plan to enter or consolidate new markets in the following quarters?

This is my first question. And second one is, as this management system mentioned, they are actually continues to have to involving regulatory changes in the industry. So how would you assess the potential impact on your business and how do you plan to address these challenges? Thank you.

Sam Song/Sam Zhang, Head of Capital Markets, RLX Technology Inc.: Thank you very much Lydia for your questions. Regarding the first question about our international expansion, as we have discussed in the previous quarters, we have been maintaining a prudent approach towards expanding into new markets, especially as the global macro and regulatory environments have evolved substantially over the past two to three quarters. In several countries we have considered regulatory shifts have led us to pause or adjust our entry plan. Given these ongoing changes, we expect to make another one to two quarters to carefully evaluate and decide on any further market expansion. And regarding your second question about the regulatory landscape, it continues to evolve rapidly this year with new policies being introduced across multiple regions.

In Southeast Asia, we are seeing stricter rules and clearer guidelines, which help clarify what’s allowed and what isn’t, leaving less room for ambiguity in the industry. In North Asia, countries are reviewing e vapor regulations or considering the introduction of national standards. Meanwhile, in Europe and Oceania, the focus has shifted to environmental concern with markets such as The UK and New Zealand introducing bans on disposable global products. These changes like The UK and New Zealand upcoming disposable bans set for June are driving innovation and encouraging the developments of alternative products. Thanks to our strong in house product development capabilities, we are well positioned to adapt our offerings to meet the uniqueness of each market as regulations evolve.

We believe the increasing regulatory requirements will make it harder for smaller players without robust product development and supply chain capabilities to keep up. While our long standing commitments to compliance may have created more initial constraints for us compared with our peers with less stringent standards, we are confident that our approach set us up for sustainable long term success as the industry matures. Thank you for your question.

Conference Operator: The next question will come from Bozhia Feng with Citrix Securities. Please go ahead.

Bozhia Feng/Zoe, Analyst, Citrix Securities/CICC: Thank you, management. This is Weng Moo Zhao from Citec Securities. And I have two questions here. So my first question is what’s the progress of Europe’s transition from disposable e cigarettes to big puff products? And how do you see future product trends?

And the second one is what strategies will you adopt to further capture market share and what are your competitive advantages in marketing and channel development? Thank you.

Sam Song/Sam Zhang, Head of Capital Markets, RLX Technology Inc.: Thanks, Bo Zhang for your question. So the first question is about the product transition and the second question is about our strategies to capture incremental market share. So taking The UK, the largest market in the region as an example, we have seen distributors respond proactively since the announcement of the disposal ban, even before its official enforcement. Demand for big puff products have been steadily increasing and we are seeing a gradual shift as users of small pup disposables migrate to these alternatives. Some users have also switched to open system or small pup closed system cartridge products.

That said, until the ban takes effect, small puff disposables still dominate and hold a significant market share. Once the ban is fully enforced in June, we anticipate most small puff disposable users will transition to alternatives, mostly big puff devices. We expect this conversion to be largely completed by the end of this year. Looking ahead, we don’t expect this trend toward even large capacity products to continue indefinitely, as current products are already at the upper limit of what’s convenient for users to carry and use. And regarding your second question about how we can gain our market share, our strategies are highly customized to each market, environment and channel structures.

Broadly, our approach focuses on two main areas. First is product development. We will continue to optimize our product portfolio by closely tracking market trends and sales data. The insights will glean, enable us to launch new products or improve existing ones rapidly. We look at all aspects when considering product grades, including functionality, convenience, cost effectiveness and illiquid solutions.

The second is channel strategy. We’ve adopted a localized approach to distribution and retail. Leveraging our successful experiences in other leading markets, we focus on refining channel structures and carefully selecting local partners. For instance, in select Asian markets, we have introduced a franchise model for exclusive stores, converting certain WAVE stores into our branded orders to gather first hand marketing insights and further enhance our go to market strategy. We are also building local teams to collect detailed retail data, which help us better serve both retailers and consumers.

While these initiatives may lead to higher short term sales expenses, we believe they will make our RTM strategy more effective in the long run by improving product channel fits and benefiting our distribution partners, which ultimately leads to greater value and profits. Thank you for your question.

Conference Operator: Your next question will come from Yuyin Zhao with CICC. Please go ahead.

Bozhia Feng/Zoe, Analyst, Citrix Securities/CICC: This is Zoe from CICC. I have two questions for the management. The first one is about the overseas market. Regarding the category conversion in Europe, how’s the competitive landscape? And what’s our advantage compared to the global leaders like BAT or disposable brands like LF Ba?

And as for the domestic business, are there any potential regular change and how do you foresee the future growth? Thank you.

Sam Song/Sam Zhang, Head of Capital Markets, RLX Technology Inc.: Thanks, Sui for your questions. Regarding the first question about the competition in Europe, we are well prepared to capture incremental market share during this global and categorical shift. Our comprehensive product portfolio combined with a clear pipeline of large volume cartridge base and open system products set to launch in the coming quarters position us strongly. Our agile supply chain and robust distribution and retail channels also gives us a competitive edge during this period of transition. Compared to traditional tobacco companies, our more flexible organization allows us to bring our products to market much faster and respond promptly to changing trends or regulatory updates.

Unlike some peers who operate across multiple categories, we are fully committed to segment, giving us deeper insights and the ability to invest wisely in optimizing our distribution and retail strategies for each market. Furthermore, in contrast to brands that focus mainly on distribution, our long term compliance driven approach and in house R and D capabilities ensure that our product developments always aligns with both regulatory requirements and user needs. Our systematic management of payment terms and inventory also help minimize operational risk, helping us to maintain stability even as the markets and regulatory environment evolve. Regarding your second question about our Mainland China business, in Mainland China, the regulatory framework has remained stable in the last two years, following the rollout of management measures and new national standards back in 2022. We have made some commercial progress under the new rules.

For instance, we launched a line of disposable products that has received positive market feedback. Meanwhile, enforcement against illegal markets has improved, helping us to achieve a modest year over year revenue growth in Mainland China, but is still limited due to the large dominance of illegal products in the markets. Looking ahead, we believe the best way to boost growth in China’s legal leadership markets is to encourage regulatory approval of compliant yet competitive products. For example, those with slightly higher levels of cooling agents within national standards. If there are no significant regulatory changes, we expect the legal markets to remain stable or see only modest growth.

Thank you for your questions.

Conference Operator: Due to time constraints, Now I would like to turn the call back over to the company for closing remarks. Please go ahead.

Sam Song/Sam Zhang, Head of Capital Markets, RLX Technology Inc.: Thank you once again for joining us today. If you have further questions, please feel free to contact IR Synology’s Investor Relations team through the contact information provided on our website of PRXiante Financial Communications.

Conference Operator: This concludes the conference call. You may now disconnect your lines. Thank you.

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