RLX Technology Inc. Price & Performance (RLX)

Thank you, Sam. And thank you to everyone for joining our earnings conference call today. I will start with the overview of our 2024 performance and organizational initiatives. Followed by an update on our overseas market outlook for 2025 and the details of our 2024 financial results. 2024 was a pivotal year for RLX. As our first full year operating in international markets following the termination of our non compete agreement with Relax Inc. In November 2023. Throughout the year, we focused on and business models to drive successful overseas initiatives while maintaining stability in the China market. After entering a new regulatory framework in 2022. As a result, we kept off strong 2024 results with our seventh consecutive quarter of sequential revenue growth supported by our continued commitment to global expansion and effective localized strategies catering to each region's unique user base. Our outstanding results demonstrate our businesses' resilience and our ability to deliver growth [indiscernible] industry landscape. Building a solid foundation for international growth was a top priority for 2024. We critically assessed our organizational structure and strength relative to our peers and identified key areas for improvement. Based on this review, we optimized our operational and management framework to support our long term growth objectives.

Moreover, people remain our most valuable asset. Therefore, we have invested heavily in upgrading our team bringing [indiscernible] experts in FMCG, in house product development, and regulatory compliance. Their passion for growing ILX's business and advancing the e vapor industry. Has empowered us to deliver effective sustainable business models. Will propel our long term success and growth. On the operational side, tailoring our product portfolio and business strategies to local markets was essential. We deeply analyzed local market environments consumer behavior Then utilized our insights to develop the right products to cater specifically to the needs of each market's adult smokers. For example, in Southeast Asia, we successfully launched two open system e vapor product series. RLX Prime and Spin Mini, in the second half of twenty twenty four. These new product series have received strong positive feedback in Southeast Asia reinforcing our belief that localized innovation is a critical driver long term growth. We also refined our route to market strategy by optimizing our distribution channels based on the specific characteristics of each market. Each market has its own development path. And we have been focusing on enhancing that efficiency of the distribution structure. Finding the right partners and ensuring the product channel fits.

Turning now to the market environment and the trends that are emerging for 2025. As we expect expanded internationally throughout 2024. We encountered regulatory shifts across multiple markets, While these regulatory changes presented challenges, we view them as opportunities to strengthen our competitive position. Our ability to anticipate and quickly respond to evolving regulations is a key differentiator supporting our success beyond China. We proactively assess and adapt our strategies to ensure compliance while continuing to meet user demand. We also carefully monitor our existing products and channel inventory levels while building a robust product [indiscernible] To remain prepared to react to abrupt unexpected regulatory changes. Looking ahead to 2025, we have observed a slight slowdown in product innovation as the industry enters a more mature stage of development. We believe that going forward, success will be less reliant on blockbuster new products and instead depend on refined and efficient operations channel development, and product optimization. We are confident that we are well positioned to thrive in this environment. With our in house We can whole on key product elements like flavor, taste, quality control. To deliver high quality products that meet user expectations both domestically and overseas. Before I move on to our financial performance, I am pleased to share that our ESG efforts continue to win recognition from leading global ESG rating agencies in 2024.

We received a AA rating from MSCI upgraded from a single A rating This is the highest MSCI ESG rating in the global tobacco industry. Making RLX the highest scoring company in the global e cigarette industry. For three consecutive years. Driven by our dedication to social [indiscernible] and value creation for all stakeholders, We will remain committed to integrating ESG best practices as we broaden our global footprint. Now let's move on to our financial results for the fourth quarter. And full year of 2024. Please note that unless otherwise stated, all the financials we present today are in RMB RMB terms. Starting with our top line. On a full year basis, our revenues were RMB2.7 billion growing by an impressive 73.3% year over year thanks to our international expansion success. For the fourth quarter, [indiscernible] we achieved revenues of RMB800 million a 56.3% year over year increase. The seasonal impact of the Christmas holiday contributed positively to our quarterly results. As Christmas is traditionally a peak period for retail sales of e vapor products. Additionally, some of our overseas distributors increased inventory ahead of the Chinese New Year holiday which further boosted our fourth quarter sales. Turning to profitability, our full year growth profit margin improved to 26.4% in 2024.

Marking a two percent point increase. Notably, in the fourth quarter of twenty twenty four, our gross profit margin increased by 3.3 percentage point year over year to 27.2%. This improvement was primarily due to favorable changes in our revenue RLX, from international markets and cost optimization initiatives. In 2024, we recorded an operating loss of RMB107 million. However, excluding the impact of stock based compensation, our non GAAP operating income for the full year was RMB262.5 million, For the fourth quarter alone, we achieved a non GAAP profit of RMB 100,000,000, a non GAAP operating profit of RMB112.6 million, a non GAAP operating profit of RMB112.6 million. Marking a sequential rise for the fifth consecutive quarter. And a significant milestone in our return [indiscernible] to non GAAP operating profitability for the full year. Our profitability improvements were primarily driven by incremental contributions from our international business as well as the operating leverage gained as we scaled our operations in the new markets. Moving forward, we expect further improvement in our non GAAP operating margin as we scale our business. Additionally, we are carefully managing our headcount in the middle and back office functions as we expand regionally. As a result, we expect our operating expenses to grow more slowly than revenue.

Which will further enhance our profitability. In terms of cash flow, we achieved an operating cash inflow of RMB 4,000,000 in the fourth quarter of twenty twenty four. Up from RMB305 million in the same quarter of previous year. Reflecting our ongoing business growth and improvements in working capital efficiency. As we mentioned on the last call, we are currently experiencing a negative cash conversion cycle. Inventory turnover days stood at twenty five days the fourth quarter of twenty twenty four, increased from sixteen days in the third quarter of twenty twenty four due to the seasonal impact of the Christmas and the Chinese New Year holidays. Our cash position remains solid. As of 12/31/2024, our total financial assets including cash and cash equivalents, restricted cash and various short term and long term deposits and investments. Stand at RMB15.9 billion. In 2024, returned approximately US122.9 million dollars to our shareholders including approximately US109 million dollars through our share repurchase program. And 14,000,000 through cash dividends we announced in November 2024. Supported by our solid fundamentals cash position, we will deepen our commitment to delivering value to our shareholders Our objective is to return substantially all of our non GAAP net profits through share repurchase programs and cash dividends.

In conclusion, our strategic foresight and disciplined execution. Helped us navigate external uncertainties and strengthened our brand image among global adult smokers. While some of these efforts may not yield visible results in the short term, we believe their long term positive impact on our global competitiveness will prove invaluable. As industry concentration continues to increase, our comprehensive industry leading capabilities position us to capture additional market growth. And leverage the categories overall growth to create value for all our stakeholders. This concludes our prepared remarks today. We will now open the call to questions. Operator, please go ahead. 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 comes from Christine Peng with UBS. Please go ahead.

Hi. Thank you, management. For the presentation. So I have two questions for the management. So the first question is about the overseas market extension. So you have shared with us a lot of the initiatives that you have been doing in 2024. So going to 2025, what are the new initiatives you're going to implement to further drive the market share gains in overseas market?

Thank you very much, Christine. Thanks for asking. So we designed our product portfolio and business strategies to align with the unique characteristics of each market. On the product side, we analyze local preferences to develop tailored flavor portfolios and product formats. Our in house Eliquis team specializes in crafting flavors inspired by traditional foods and cultural nuance. Ensuring strong resonance with regional taste. For route to market strategies, we adopt a dynamic approach continuously reassessing plans to reflect market conditions and distribution channel characteristics. [indiscernible] This includes identifying high potential sales channels such as convenience stores and wave stores. [indiscernible] focusing resources on the most promising opportunities. Also collaborate with distribution partners who possess deep local knowledge and resources [indiscernible] enabling us to build efficient and robust networks. Data driven insights play a crucial role in our decision making. [indiscernible] analyzing marketing trends, and consumer behavior, Thank you, management. So I have another question So it's regarding the shareholder return. So any updates regarding the shareholder return? From 2025 and onwards?

Thank you very much. So I mean, we have also explained that in our opening remarks. Return a significant portion of our non GAAP net profits to shareholders through share repurchase and cash dividends. Of December, we have cumulatively returned $3,000,000 to shareholders. Including US305 million full share repurchases and $27,000,000 through dividends. This year, we intend to continue these initiatives reflecting our commitments to shareholder value. Thank you very much.

Thank you.

The next question comes from Lydia Ling with Citi. Please go ahead.

Hi, management. This is Li here from Citi. So I also have two questions. First, I actually want to follow-up on the overseas side. Do you actually could share with us your detail expansion plan for this year and only growth rate target for this year? And secondly, also like do you have aiming like quarter share your insights regarding the industry's product evolution this year? And my second question would be on the regulation side. And [indiscernible] uncertainties in overseas market. So it's possible that you could elaborate your views on potential regular changes? And how would you actually address these challenges Yes, any color would be very helpful. Thank you.

Thanks very much, Lydia. Regarding our first question, which is about our international expansion, we plan to expand to more countries in 2025. Likely in the second half of this year? Several countries in Asia Pacific and Europe are under our consideration, this expansion. However, the macroeconomic environment political stability and regulatory landscapes remain unpredictable. We'll make more informed decisions by mid year based on further developments. [indiscernible] Regarding the global industry product revolution, the typical innovation cycle in e vapor lasts around three years. 2020 and 2022, disposable products reshaped the market driving growth and transitions within product sub categories. [indiscernible] [indiscernible] [indiscernible] focus has shifted to high power innovations such as steel mesh technology which enhance user satisfaction and introduce higher liquid volume products. [indiscernible] This trend has also driven the decline of average sales price [indiscernible] per liquid millimeter particularly as potential bans on disposables in Europe accelerates the transition. We believe 2025 will mark the conclusion of this innovation cycle as the shift to high puff or high volume products stabilize. For our company, sales volume in millimeter has grown faster than revenue due to lower average selling price. We expect this trend to normalize by end of this year or early next year. [indiscernible] We anticipate meaningful market share growth in sales volume revenue growth.

Over the medium term, we are confident that these metrics will grow in parallel supporting sustainable and healthy business growth. [indiscernible] Regarding your second question is about the regulatory changes and challenges in our industry. The regulatory landscape varies by region. Southeast Asia, regulations are becoming more stringent with clearer definitions that reduce ambiguity for industry players. [indiscernible] However, political stability in some countries has created additional uncertainties and delayed approval process. In Europe, environmental concerns have led to bans on disposable products in countries such as U. K. And France, while other regulations aim to minimize the appeal to of e vapor products to underage. Additionally, some European nations are introducing tax on Uwe products. To address these challenges, we proactively devised our product portfolio and adjust our strategies to ensure compliance while meeting user demand. By closely monitoring inventory and collaborating with our business partners, [indiscernible] can swiftly adapt to regulatory changes. This agility, combined with our ability anticipate evolving regulations strengthens our competitive advantages and position us for long term sustainable growth. You for your question.

The next question comes from Yoon Do with Citrix. Please go ahead.

Thanks management. This is Gwen from Citigroup Securities. And my question is about product innovation. The open system in cigarettes benefit from the ban on the disposable e cigarettes in Europe So was our opinion for the open system interface? And how competitive are the company's open system Instagram products?

And recently, the H and B products is quite popular. Do we plan to do this market?

Thank you very much, Guiyuan, for your questions. The first one is on our open season products. So we believe the open system EIA products will experience stable demand growth in price sensitive markets affordability is key. Our product development strategy focuses on five priorities: tough experience, affordability, convenience convenience user satisfaction and harm reduction. Our open system products including Relax Prime and Relax [indiscernible] are designed to address affordability and convenience. Relax Prime features added electric storage button, significantly extending U. S. H. Time and improving efficiency compared to other products on the market. [indiscernible] RLX Bean Mini offers a dual flavors pod system, catering to local user preferences by providing cost effective solutions with superior user experiences. These innovations position us as a strong competitor in the open system markets and allow us to meet evolving consumer needs. Regarding H and B products, we observed that the e vapor industry is growing faster globally the Hino brand products. In Hino brand products tend to succeed in developed markets only, with strong [indiscernible] due to their relatively high cost. Additionally, middle aged and younger adult smokers prefer e vapor products for their convenience and overall experience. [indiscernible] As a result, we currently have no plans to enter the Hinoper market and will continue prioritizing Ibehe products where we hold a stronger competitive advantage.

You 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 RLX Technologies' Investor Relations team for the content information provided on our website RPSheng Tei Financial Communications.

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