Hello, ladies and gentlemen. Thank you for standing by for RLX Technology Inc.'s second quarter 2026 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 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 RX Technology's second quarter 2026 Earnings Conference call. The company's financial and operational results were released through PR on its wire services earlier today and have been made available online. You can also view the earnings press release by visiting our IR websites at ir.relected.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 Licitation 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 companies, its affiliates, advisors, and representatives do not undertake any obligation to update this forward-looking information, except as required under the equitable law. Please note that RX Technologies' earnings press release and this conference call include discussions of unaudited gap financial measures, as well as unaudited non-gap financial measures. RX'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, resilient, 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 357.8 million RMB. As expected, revenue and gross profit moderated sequentially, not due to any softening in demand. by rather reflecting a trade inventory normalization following the first quarter's shipment, full 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 of the jasmine we saw this quarter. Underlying demand across our key international markets remains healthy and resilient. Against this backdrop, we focus on two strategic priorities, strengthening retail execution and optimizing our global operational infrastructure. These deliberate requirements are designed to lay the foundation for our next era of sustainable, profitable growth. Rather than chasing low margin volumes, we are directing our capital towards building an agile, compliant global platform that can absorb regulatory shifts and quickly adapt to evolving demands. Regulatory oversight across our international market is becoming more detailed and more restrict-enforced, from customers' enforcement priorities to refined frameworks. The United Kingdom is a case in point. Proposed regulations cover plain packaging, standardized device, authentic retail display bands. 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 risk barrier to entry. For robust compliance infrastructure, R&D and the 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 the international markets has taught us valuable lessons. In mature environments, traditional wholesaling models 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 real-to-market execution. Direct Ratio, 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 capitalization 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 mode. Europe is the cornerstone of our global growth strategy, where we are methodologically expanding our presence on the dual-engine model that balanced targeted MMA with organic growth across channels. In May 2025, we acquired a long-established European eVapor company with an integrated local retail and online footprint and have been supporting its expansion as a collaboratively partner, everything. 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, who 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 endpoints across the market. In B2B digital commerce, its proprietary ordering app connect 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 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 eVapor into a broader smoke-free portfolio. We have commercialized our modern oral nicotine pouch line, and steadily wrapping 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 terrorist 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 mutual market networks to capture market share and establish leading position across the global Thank you. Thank you. Thank you. exclusively towards high-quality value of creative 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, growth profit rose 47.8% year-over-year to RMB 357.8 million in the second quarter. Growth 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 shifts. We delivered our 11th consecutive quarter of positive non-gap 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 our access 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, use 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 Price in 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.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. 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. The first question today comes from Christine Peng with UBS. Please go ahead.

Thank you, management, for the result 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. Liu 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 criteria 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 tariffs shift in a given market, we take an ROI-gated approach. Sustainable organic growth remains our primary engine. Thank you. Thank you. 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 straight 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 timeline for cash payback, be structurally non-dilutive, and generate EPS acquisition. In terms of execution, we actively empower our investing company by providing capital support, supply chain integration, Procurement optimization and operational capabilities to a non-structural value. While we prioritize strategic fit and synergy potential across arbitrary size flaws, 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 valuation discipline and clear strategic synergies fully align.

Thank you very much for your questions.

Thank you. The next question comes from Lydia Ling with Citi.

Please go ahead.

Hi, management. This is Lydia from Citi. I also have two questions. The first one is on what's your expectation on the overseas growth in the second half of the year, and especially considering both fund acquisition as well as your 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 considering the acquisition impact on your operation profitability? Thank you.

Thank you very much, Lydia, for 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 focus, pragmatic approach to driving international growth. On organic performance, we are prioritizing retail cell food velocity and channel infantry health rather than pushing volume into channels at any cost. This prudence 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 staff 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 reflect disciplined infantry 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 products and revenue mix shifts. As our product mix and shipment flows normalized 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 Realm B, While generating revenue in U.S. dollars and sterling may create minor headline fluctuations, we maintain straight 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 operate on a lower percentage gross margin profile, Thank you for your questions. The next question comes from Yun Guo with CINIC.

Please go ahead.

Hi, 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 third 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

Thank you for all your questions. One is on the U.S. market and the other one is on the China markets. So for the U.S. markets, we closely monitor U.S. regulatory developments and peers' action regarding PMTA enforcement. While adult smokers demand for diverse alternative processes, Regulatory compliance and visibility remain the critical determinants for long-term commercial commitments in the U.S. Our strategic stance toward the U.S. market is disciplined, agile, and strictly ROI-driven. Notably, our non-listed affiliates previously submitted PMP 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 pathways and enforcement standards provide long-term credibility. In the interim, we are directing our capital and management bandwidth towards regulatory transparency markets across Europe and Asia, alongside scalable reduced-risk categories, such as modern oil and cotton pouches. Regarding your question on the Mainland China markets, we will be tightening domestic regulatory environments 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 redirects consumer demand back to legal, taxpaying brands like us. In the near term, as regulatory bodies intensify enforcement and refine administrative oversight, procedural timeline for government's approval has become more consultative. 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 regulators to support a transparent, legally compliant industry ecosystem.

Thank you for your questions.

The next question comes from Zoe Zhu with CICC.

Please go ahead.

Hi, management. This is Zoe from CICC. I have two questions. First, with Philip Morris' growth rapidly in Europe, how do you see competition in modern hats? Secondly, could you walk us through the strategic plan for new categories like oral pouches? Thank you.

Sure. Thanks, Sui, for your question. 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 PS, multi-category execution across vaping, modern oral and heat-not-burned 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, ours 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 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 represent a pivotal 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 wrap-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, gaining 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 approaches 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 LX Technology's investor relations team through the contact information provided on our website or P.S. Shante Financial Communications.

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