RLX Technology(RLX) - 2023 Q2 - Quarterly Report

RLX Technology Announces Unaudited First Quarter 2023 Financial Results First Quarter 2023 Financial Highlights RLX Technology faced significant challenges in Q1 2023, with substantial year-over-year declines in net revenues and gross margin, transitioning from net income to net loss, primarily due to new regulatory frameworks and illicit products Key Financial Data Comparison for Q1 2023 (YoY) | Metric | Q1 2023 (RMB) | Q1 2022 (RMB) | Change (%) | | :--------------------------- | :------------------- | :------------------- | :--------- | | Net Revenues | 188.9 million | 1,714.5 million | -89.0% | | Gross Margin | 24.2% | 38.3% | -14.1 pp | | U.S. GAAP Net Income/(Loss) | Net Loss 56.3 million | Net Income 687.1 million | N/A | | Non-GAAP Net Income | 183.6 million | 361.8 million | -49.2% | Management Commentary Management noted that Q1 2023 focused on product optimization under new regulations, but prevalent illicit products and new consumption taxes challenged sales and gross margin, while expressing encouragement for regulatory efforts and anticipating market improvement and sales recovery - The company focused on optimizing products under the new regulatory framework in Q1 2023, striving to develop diversified, compliant products to meet user demand[3] - The widespread presence of illicit products posed a near-term challenge to the company's sales and disrupted the overall industry recovery pace[3] - The new consumption tax, effective November 1, 2022, led to a decline in the company's gross margin[3] - Management was encouraged by the strict actions taken by regulatory authorities against illicit products since March 2023, anticipating improved market conditions and signs of sales recovery[3] - The company will continue to enhance operational efficiency, believing profitability will gradually recover, supported by its resilient business model and robust cash position to navigate market dynamics[3] Detailed First Quarter 2023 Financial Performance Net Revenues and Gross Profit Q1 2023 net revenues significantly decreased by 89.0% year-over-year, primarily due to the discontinuation of old products and the negative impact of illicit flavored products on the adoption of new national standard products, leading to a substantial reduction in gross profit and a lower gross margin due to the 36% consumption tax Net Revenues and Gross Profit Comparison (YoY) | Metric | Q1 2023 (RMB) | Q1 2022 (RMB) | Change (%) | | :----------- | :-------------- | :---------------- | :--------- | | Net Revenues | 188.9 million | 1,714.5 million | -89.0% | | Gross Profit | 45.7 million | 657.0 million | -93.0% | | Gross Margin | 24.2% | 38.3% | -14.1 pp | - The decline in net revenues was primarily due to the discontinuation of old products and the negative impact of illicit flavored products in the market, resulting in slower-than-expected user adoption of new national standard compliant products[4] - The decrease in gross margin was mainly attributable to the imposition of a 36% consumption tax effective November 1, 2022[5] Operating Expenses Analysis Q1 2023 operating expenses significantly increased year-over-year, primarily due to a substantial change in share-based compensation expenses influenced by the company's stock price fluctuations, reflected across selling, general and administrative, and research and development expenses Operating Expenses Comparison (YoY) | Metric | Q1 2023 (RMB) | Q1 2022 (RMB) | Change (RMB) | | :---------------------------- | :----------------- | :----------------- | :--------------- | | Total Operating Expenses | 418.9 million | 33.6 million | +385.3 million | | Selling Expenses | 85.8 million | 75.9 million | +9.9 million | | General and Administrative Expenses | 256.5 million | 66.4 million | +190.1 million | | Research and Development Expenses | 76.7 million | 24.0 million | +52.7 million | | Operating Loss | 373.2 million | Operating Income 623.4 million | N/A | - The increase in operating expenses was primarily due to a RMB 240 million (US$34.9 million) change in share-based compensation expenses, compared to a positive RMB 325.2 million in the prior year period[6] - The change in share-based compensation expenses was mainly influenced by the fair value of equity incentive awards granted to employees, which is affected by the company's stock price fluctuations[6] Net Income/Loss and Earnings Per Share (EPS) In Q1 2023, the company transitioned from U.S. GAAP net income in the prior year to a net loss, with non-GAAP net income also decreasing year-over-year, and both GAAP and non-GAAP basic and diluted net income/(loss) per ADS reflecting this significant change Net Income/(Loss) and Net Income/(Loss) per ADS Comparison (YoY) | Metric | Q1 2023 (RMB) | Q1 2022 (RMB) | Change (%) | | :-------------------------------------- | :------------------- | :------------------- | :------------ | | U.S. GAAP Net Income/(Loss) | Net Loss 56.3 million | Net Income 687.1 million | N/A | | Non-GAAP Net Income | 183.6 million | 361.8 million | -49.2% | | U.S. GAAP Basic and Diluted Net Income/(Loss) per ADS | Net Loss 0.043 | Net Income 0.528/0.521 | N/A | | Non-GAAP Basic and Diluted Net Income per ADS | 0.139/0.136 | 0.284/0.281 | -51.1%/-51.6% | Financial Position and Cash Flow Balance Sheet Overview As of March 31, 2023, the company's total cash and cash equivalents, restricted cash, short-term bank deposits, short-term investments, long-term bank deposits, and long-term investment securities amounted to RMB 15,369.2 million, a slight decrease from December 31, 2022 Cash and Equivalents and Total Assets Comparison | Metric | As of Mar 31, 2023 (RMB) | As of Dec 31, 2022 (RMB) | | :----------------------------------------------------------------------------------------------- | :----------------------- | :----------------------- | | Total Cash and Cash Equivalents, Restricted Cash, Short-term Bank Deposits, Short-term Investments, Long-term Bank Deposits, Long-term Investment Securities | 15,369.2 million | 15,733.7 million | Cash Flow Activities In Q1 2023, the company reported net cash used in operating activities of RMB 230.7 million Cash Flow from Operating Activities | Metric | Q1 2023 (RMB) | | :------------------------------- | :-------------- | | Net Cash Used in Operating Activities | 230.7 million | Additional Information About RLX Technology Inc. RLX Technology Inc. is a leading branded e-vapor company in China, developing premium e-vapor products through strong in-house technology, product development capabilities, and deep insights into adult smokers' needs - RLX Technology Inc. is a leading branded e-vapor company in China[14] - The company leverages its strong in-house technology, product development capabilities, and deep insights into adult smokers' needs to develop premium e-vapor products[14] Non-GAAP Financial Measures The company uses non-GAAP net income and non-GAAP basic and diluted net income per ADS to evaluate operating performance and make financial operational decisions, excluding share-based compensation expenses to identify underlying business trends and facilitate investor assessment of operating results, while acknowledging these metrics are not U.S. GAAP defined and have limitations - Non-GAAP net income and non-GAAP basic and diluted net income per ADS are non-GAAP financial measures used by the company to evaluate operating performance and make financial operational decisions[15] - Non-GAAP net income represents net income excluding share-based compensation expenses[15] - The company believes these non-GAAP measures help identify underlying business trends and facilitate investors' assessment of its operating performance[16] - Non-GAAP financial measures are not defined under U.S. GAAP, should not be considered as substitutes for net income, and may not be comparable to similar measures used by other companies[17] Conference Call Information The company's management held a Q1 2023 earnings conference call on May 17, providing detailed dial-in information and participant codes, along with webcast and replay services - The company's management held an earnings conference call on May 17, 2023, at 8:00 AM U.S. Eastern Time (8:00 PM Beijing/Hong Kong Time on May 17, 2023)[11] Conference Call Dial-in Details | Geographic Region | Dial-in Number | | :-------------------------- | :-------------- | | United States (Toll-Free) | +1-888-317-6003 | | International | +1-412-317-6061 | | Hong Kong, China (Toll-Free) | +800-963-976 | | Hong Kong, China | +852-5808-1995 | | Mainland China | 400-120-6115 | | Participant Passcode | 7017217 | - A live and archived webcast of the conference call is available on the company's investor relations website at https://ir.relxtech.com[11](index=11&type=chunk) Exchange Rate Information RMB amounts in this announcement are translated into US dollars at an exchange rate of RMB 6.8676 to US$1.00, based on the H.10 statistical release of the Federal Reserve Board on March 31, 2023, provided solely for convenience - The exchange rate for RMB to US dollar is RMB 6.8676 to US$1.00, based on the H.10 statistical release of the Federal Reserve Board on March 31, 2023[19] - All exchange rate conversions are for the convenience of the reader only, and the company does not represent that RMB or US dollar amounts could have been, or could be, converted at any particular rate or at all[19] Safe Harbor Statement This announcement contains forward-looking statements protected by the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995, which involve inherent risks and uncertainties that could cause actual results to differ materially, and the company undertakes no obligation to update such information unless required by applicable law - This announcement contains forward-looking statements protected by the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995[20] - Forward-looking statements involve inherent risks and uncertainties that could cause actual results to differ materially from the statements, including the company's growth strategies, future business development, financial condition, trends in the China e-vapor market, government policies, and macroeconomic conditions[20] - The company undertakes no obligation to update such information unless required by applicable law[20] Contact Information Provides investor relations contact details for RLX Technology Inc.'s capital markets and Piacente Group in both China and the United States Investor Relations Contact Details | Region | Contact/Company | Phone | Email | | :------------ | :------------------------ | :--------------- | :--------------- | | China | RLX Technology Inc. | N/A | ir@relxtech.com | | | The Piacente Group, Inc. | +86-10-6508-0677 | RLX@tpg-ir.com | | United States | The Piacente Group, Inc. | +1-212-481-2050 | RLX@tpg-ir.com | Unaudited Condensed Consolidated Financial Statements Unaudited Condensed Consolidated Balance Sheets This section presents RLX Technology Inc.'s unaudited condensed consolidated balance sheets as of December 31, 2022, and March 31, 2023, detailing the company's assets, liabilities, and shareholders' equity at the end of the reporting periods Condensed Consolidated Balance Sheets (Excerpt) | Metric | As of Dec 31, 2022 (RMB) | As of Mar 31, 2023 (RMB) | As of Mar 31, 2023 (US$) | | :----------------------------------------------------------------------------------------------- | :----------------------- | :----------------------- | :---------------------- | | ASSETS | | | | | Cash and Cash Equivalents | 1,268,512 | 1,448,820 | 210,965 | | Short-term Bank Deposits, net | 7,084,879 | 5,709,492 | 831,366 | | Short-term Investments | 2,434,864 | 2,083,215 | 303,340 | | Inventories | 130,901 | 101,981 | 14,850 | | Total Current Assets | 11,198,155 | 9,743,957 | 1,418,832 | | Long-term Bank Deposits, net | 1,515,428 | 2,060,476 | 300,029 | | Long-term Investment Securities, net | 3,409,458 | 4,060,942 | 591,319 | | Total Non-current Assets | 5,180,669 | 6,361,497 | 926,306 | | TOTAL ASSETS | 16,378,824 | 16,105,454 | 2,345,138 | | LIABILITIES | | | | | Accounts and Notes Payable | 269,346 | 47,350 | 6,895 | | Total Current Liabilities | 789,830 | 484,020 | 70,480 | | Total Non-current Liabilities | 48,621 | 40,709 | 5,928 | | TOTAL LIABILITIES | 838,451 | 524,729 | 76,408 | | SHAREHOLDERS' EQUITY | | | | | Total Shareholders' Equity of RLX Technology Inc. | 15,569,060 | 15,608,751 | 2,272,811 | | TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | 16,378,824 | 16,105,454 | 2,345,138 | Unaudited Condensed Consolidated Statements of Comprehensive Income/(Loss) This section presents RLX Technology Inc.'s unaudited condensed consolidated statements of comprehensive income/(loss) for the three months ended March 31, 2022, December 31, 2022, and March 31, 2023, detailing key financial data such as net revenues, cost of revenues, operating expenses, operating income/(loss), net income/(loss), and net income/(loss) per ADS Condensed Consolidated Statements of Comprehensive Income/(Loss) (Excerpt) | Metric | For the Three Months Ended Mar 31, 2022 (RMB) | For the Three Months Ended Dec 31, 2022 (RMB) | For the Three Months Ended Mar 31, 2023 (RMB) | For the Three Months Ended Mar 31, 2023 (US$) | | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net Revenues | 1,714,450 | 340,012 | 188,877 | 27,503 | | Cost of Revenues | (1,057,447) | (139,073) | (78,693) | (11,459) | | Consumption Tax on Products | - | (52,668) | (64,458) | (9,386) | | Gross Profit | 657,003 | 148,271 | 45,726 | 6,658 | | Total Operating Expenses | (33,559) | (620,438) | (418,947) | (61,004) | | Operating Income/(Loss) | 623,444 | (472,167) | (373,221) | (54,346) | | Net Income/(Loss) | 687,055 | (225,125) | (56,305) | (8,199) | | Net Income/(Loss) Attributable to RLX Technology Inc. | 705,281 | (228,480) | (56,966) | (8,295) | | Basic Net Income/(Loss) per ADS | 0.528 | (0.174) | (0.043) | (0.006) | | Diluted Net Income/(Loss) per ADS | 0.521 | (0.174) | (0.043) | (0.006) | Unaudited Reconciliation of GAAP and Non-GAAP Results This section provides RLX Technology Inc.'s unaudited reconciliation of GAAP and non-GAAP results for the three months ended March 31, 2022, December 31, 2022, and March 31, 2023, adjusting GAAP net income/(loss) to non-GAAP net income by excluding share-based compensation expenses, and presenting corresponding per ADS data GAAP to Non-GAAP Reconciliation (Excerpt) | Metric | For the Three Months Ended Mar 31, 2022 (RMB) | For the Three Months Ended Dec 31, 2022 (RMB) | For the Three Months Ended Mar 31, 2023 (RMB) | For the Three Months Ended Mar 31, 2023 (US$) | | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net Income/(Loss) | 687,055 | (225,125) | (56,305) | (8,199) | | Add: Share-based Compensation Expenses | | | | | | Selling Expenses | (41,939) | 41,239 | 23,955 | 3,488 | | General and Administrative Expenses | (230,087) | 369,447 | 201,343 | 29,318 | | Research and Development Expenses | (53,211) | 64,165 | 14,654 | 2,134 | | Non-GAAP Net Income | 361,818 | 249,726 | 183,647 | 26,741 | | Net Income/(Loss) Attributable to RLX Technology Inc. | 705,281 | (228,480) | (56,966) | (8,295) | | Add: Share-based Compensation Expenses | (325,237) | 474,851 | 239,952 | 34,940 | | Non-GAAP Net Income Attributable to RLX Technology Inc. | 380,044 | 246,371 | 182,986 | 26,645 | | Non-GAAP Basic Net Income per ADS | 0.284 | 0.188 | 0.139 | 0.020 | | Non-GAAP Diluted Net Income per ADS | 0.281 | 0.186 | 0.136 | 0.020 | Unaudited Condensed Consolidated Statements of Cash Flows This section presents RLX Technology Inc.'s unaudited condensed consolidated statements of cash flows for the three months ended March 31, 2022, December 31, 2022, and March 31, 2023, detailing net cash flows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (Excerpt) | Metric | For the Three Months Ended Mar 31, 2022 (RMB) | For the Three Months Ended Dec 31, 2022 (RMB) | For the Three Months Ended Mar 31, 2023 (RMB) | For the Three Months Ended Mar 31, 2023 (US$) | | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net Cash Provided by/(Used in) Operating Activities | 308,169 | (248,866) | (230,686) | (33,590) | | Net Cash (Used in)/Provided by Investing Activities | (950,764) | 752,545 | 381,954 | 55,617 | | Net Cash (Used in)/Provided by Financing Activities | (161,612) | (150,647) | 4,346 | 633 | | Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash | (20,556) | 29,287 | 10,409 | 1,516 | | Net (Decrease)/Increase in Cash, Cash Equivalents and Restricted Cash | (824,763) | 382,319 | 166,023 | 24,176 | | Cash, Cash Equivalents and Restricted Cash at Beginning of Period | 5,209,467 | 906,767 | 1,289,086 | 187,705 | | Cash, Cash Equivalents and Restricted Cash at End of Period | 4,384,704 | 1,289,086 | 1,455,109 | 211,881 |