RLX Technology Inc. Q1 2023 Earnings Call
Speaker 3: 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. Go ahead, Sam.
Speaker 4: Thank you very much. Hello everyone and welcome to IREX Technologies first quarter 2023 earnings conference call. The company's financial and operational results were released through PR Newswire services earlier today and have been made available online.
Speaker 5: You can also view the earnings press release by visiting the IELTS section of our website at IELTS.RelaxTech.com
Speaker 6: Participants on today's call will include our CEO , Ms. Kate Huang, our CFO , Mr. Chang Liu, and myself.
Speaker 7: Before we continue, please note that today's discussion will contain four looking statements made under the Safe Harbor provisions of the U.S. Private Security Certification Reform Act of 1995.
Speaker 8: These statements typically contain words such as may, will, expect, target, estimate, intent, belief, potential, continue, or other similar expressions.
Speaker 9: Four location statements involve inherent risks and uncertainties.
Speaker 10: 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.
Speaker 11: many of which factors are beyond our control.
Speaker 12: The companies it affiliates, advisors, and representatives do not undertake any application to update this for looking information.
Speaker 13: except as required under the ethical rule.
Speaker 14: Please note that RX Technologies' earnings press release and this conference call include discussions of unaudited GAAP financial measures as well as unaudited non-GAAP financial measures.
Speaker 15: Our expressed release contains a reconciliation of the unaudited on- GAAP measures to the unaudited GAAP measures .
Speaker 16: I will now turn the call over to Ms. Kate Wang. Please go ahead. Thank you, Sam, and thanks, everyone, for making time to join our conference – earnings conference call today. During the first quarter, we continued optimizing our compliance with GB product offerings.
Speaker 17: under the new regulatory framework and made steady progress thanks to our effective product strategy and constant efforts to enhance our R&D capabilities.
Speaker 18: However, as we strive to develop new approved products to meet our users' diverse demands, the prevalence of illegal products continues to pose near-term challenges to our business and the broader industry.
Speaker 19: First, let me provide some color on recent market conditions that affected by illegal products.
Speaker 20: Then, I will also discuss our first quarter endeavors in greater detail.
Speaker 21: The biggest obstacles we faced in the first quarter of 2023 was competition from illegal products.
Speaker 22: These include flavored products manufactured by companies that haven't yet obtained licenses.
Speaker 23: some flavor products manufactured for export that are illegally sold in the domestic market, and counterfeit products. The existence of these illegal products not only waits on our sales, but also disrupts the recovery pace.
Speaker 24: of those whole industry.
Speaker 25: by slowing consumers' conversation to conversion to products that meet the national standards.
Speaker 26: On the bright side, the garment has increased its effort to crack down on illegal products.
Speaker 27: Recently, contacting special operations to focus on two major offenders, manufacturing companies that continue to produce labor products illegally, and retail participants that use the internet as a distribution channel.
Speaker 28: The results of these government endeavours are encouraging thus far.
Speaker 29: We have noticed more and more licensed manufacturing companies deleting e-wapers products from their business goals.
Speaker 30: in their penance licenses.
Speaker 31: Also, a number of redheller found distributing illegal flavor of the product have been signed.
Speaker 32: Our cells have graduated recovered following the execution of these special actions. Our cells have graduated following the execution of these special actions.
Our CFO will elaborate on this a bit later.
We believe the comments crack down on illegal products. We are ongoing.
And we are hopefully that it will effectively support the creation of fair and audily monkey conditions.
Prompting a return to the September growth by four law-abiding companies such as IELX.
However, we remain vigilant on any potential rebound of these illegal activities.
Among the first quarter's external challenges, we remain focused on strengthening our core competitiveness and pursuing high quality development.
Among the first quarter's external challenges, we remain focused on strengthening our core competitiveness and pursuing high-quality development. Let's take a closer look at the details.
Enhancing our product development and scientific research capabilities.
has always been a key element of our strategy.
We partnered with Shinjun Bay Laboratory in the first quarter.
to establish the new etymization technology research and development platform.
Together we will explore and develop new peptide drugs based on the electronic optimization technology, leveraging our deep experience and industry leading and optimization technology to improve absorption efficiency for the any-hounds user experience.
For the more way, continue to execute our proven product strategy in reaching and optimizing our product's hot-follow to meet the needs of different user groups.
As of now, we have received the proof votes for 20 cartridge SKUs in 22 device SKUs.
Encouragingly, we have received some positive feedback and constructive suggestions from users who have switched to our new products.
We will continue collecting user feedback and developing products for coding may. Seeking, superior performance and quality will help in adult smokers' translation to GB products.
We remain dedicated to showering our social responsibility alongside our efforts to offer high-quality, combined product-wide-of-smokers.
And outstanding exam boys are a part of the board program, one of our key sustainability initiatives to help reduce plastic waste.
The program has grown by leaps and bounds since its inception in 2021. As of the first quarter of 2023, we have cumulatively collected over 3 million carriages from over 80,000 users.
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What's more, users can now use our official VTEP account to find recycling locations near them or book a pick-up appointment online.
Other used parts are recycled into the cement then used to construct rows, trade, breakers, and other row revertization infrastructure projects.
As of today, we have invested 20 million B in the first phase of our role-revitational project, providing better instructions for role villagers while conserving precious resources. To sum up, the foot quarter was a mix of
the government's efforts to protect market order and fairness take effect, legal products will eventually be pushed out of the mainstream market. And the worst seem to have been behind us. As a trusted labor brand for adult smokers, we remain confident in our core competitiveness.
with a deep-in-hour commitment to providing combined premium products the meet-hour users needs as we explore growth subsidies in the sea, evolving industry.
With that, I will now turn over to our CFO , Chao Lu. He will elaborate for the on some of our latest colors initiatives in the goal where our operational and financial results him with details.
Thank you, Kate, and hello everyone.
I will now provide an overview of our operational financial results for the first quarter of 2023. Given the severe impact of illegal flavored products,
We experienced an incredibly challenging first quarter, especially in January and February .
These enticently flavored by unsafe and illegal products.
cost the users to shift more slowly than expected to our GB products.
Driving a significant decrease in our net revenue.
to RMB 189 million in the first quarter. However, our cells have recently shown clear signs of recovery.
Partly thanks to the government's large-scale operations.
to combat illegal products. Specifically, our monthly sales experienced sequential improvement.
especially after the government special actions in March.
government special actions in March. In fact,
Monthly sales almost doubled in March compared with that in January .
However, the negative impact of illegal products is still lingering as it will take some time for the market to digest inventories.
Much like in the fourth quarter of the last year, when it took a couple of months for users to consume our older products.
The near-term challenges from illegal products will gradually ease.
and become more manageable and users will gradually adapt.
will gradually adapt to GB products.
Now turn into gross margin. The first quarter of 2023 was our first full...
quarter, under the new exercise tax policy or EVA products.
which came into effect in November 2022.
As a result, our gross margin fell
to 24.2% in the first quarter of 2023, from 38.3%.
in the same period of last year.
If we exclude the impact of excise tax on an adjusted basis,
using adjusted net revenues, which deduct excise tax we paid from the reported net revenues as denominators.
Our adjusted gross margin fell only by 1.6 percentage points. This result reflects our continued efforts to improve our supply chain efficiency and product design to mitigate the de-leveraging effects of reduced sales. Additionally, fixed costs
including the rent we paid for exclusive manufacturing plants.
and depreciation we booked for PP&E.
Drag on our gross margin by a low single digit percentage.
in the first quarter. Our growth margin will gradually improve along with our top line recovery in the coming quarters as the deleveraging effect I just mentioned will shrink. Alongside with these cost optimization efforts, we continue to focus on improving operation and our top-die decrease in RSEs for all MSUs. In this instance, you can also observe the impact of D09, the smoker furnace strategy, in co-existing orders provided for the sort of efficiency needed for operating the pieces
Our growth margin will gradually improve along with our top line recovery in the coming quarters as the deleveraging effect I just mentioned will shrink. Alongside with these cost optimization efforts, we continue to focus on improving operation efficiency.
As a result, if excluding share-based compensation,
Our non-GAAP operating expenses were down by 50.1% year-over-year in the first quarter of 2023.
However, due to our reduced cells, we recorded a non-gap operating loss of R&B 133 million in the first quarter.
Due to our reduced cells, we recorded a non-gap operating loss of R&B 133 million in the first quarter. Furthermore,
We recorded a net loss of RMB 56.3 million in the first quarter of 2023.
Excluding share-based compensation, our non-GAAP net income was RMB 184 million in the first quarter of 2023.
Non-gap basic and diluted net income per ADS or RMB 0.139 and RMB 0.139.
0.136 respectively in the first quarter of 2023.
Our cash position remains solid. As of March 31, 2023, we had cash and cash equivalents.
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Long short term investments, long term bank deposits, and net long term investment securities, totaling RMB.
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Since the second half of 2022, we have been working to maximize the interest and investment income on our solid RMB 15.4 good and
RMB 170 mln pressed
rate above 4%. As a significant improvement from less than 2% a year ago.
A Board of Directors approved a Share Repertious Plan on December 8, 2021, on a which we may repertious up to.
US dollars 500 million of our shares until December 31st, 2023.
As of December 31, 2022, we have repurchased about a US dollar's 100 million of our shares under this program.
Looking ahead, we will continue investing in our core capabilities and improving overall efficiency.
We believe our sales and profitability will gradually pick up as the industry regains momentum. Our resilient business model and solid cash position will support us as we navigate the market dynamics.
enabling us to deliver a sustainable value to our shareholders and stakeholders in the long term.
We will now open the call to questions. I'll pray that, please go ahead. Thank you. We will now begin the question and answer session. To ask a question, you may press star than one on your touchstone phone. If you're using the speaker phone, please pick up your handset before pressing the keys.
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. At this time, we'll pause momentarily to assemble our roster.
Our first question comes from Lydia Ling from City. Please go ahead.
And thank you high lel mentation in airfrom city or think for the presentation. I have have two questions. First, glad to hear that monthly sales have some sequential recovery, just the meas by CFO . So could you share some more color on the sales recovery trend in the second quarter to date?
like how they'll master sales in April recovered so far. And also based on current recovery trend, how do you see the full-year trend are you turning more positive or negative? Like, and I also want to know some, like the your retailers' probabilities recovered so far. And this is my first question. And the second question is on your new product. And so how many are your new products actually currently on the pipeline and are paying to further low out this year?
and also what's your view on your competitive edge over your peers' intents also new products. And as you just mentioned, the end of the illegal product issues in current in the market, and so how about their currently channel inventory of the regulator's price down? And is the level already significantly declining?
Thank you. Thank you very much, Lydia. So regarding the first question, it's about the term quota trend. As we prepare, you know, openly remarks, we know that there are a sequential improvements, you know, monthly sales. And this trend has actually continued starting from.
last year's November till now, IE April or May, due to the natural conversion of uses from the older generation of products to GB products. Thanks to the regularization action in cracking down on the EDEGO products and the product launches of various SKUs.
So we actually made a price adjustment on the April 17th, and lower our expected price of selected cardage by the teams to provide better margins for retailers, and we do witness a restocking from our distributors since then.
For the four year outlook, we are confident on the overall trends as the numbers have been growing every month.
We are confident on the overall trends as the numbers have been growing every month, but they are also uncertainties.
as the overall user sentiment hasn't fully recovered yet. And retailing with retail license would have to decide whether or not to renew their retail license in the coming months.
So I think overall we are confident on the trend and we maintain our internal operational targets.
and regarding our retailers profitability.
The trend of the sales of GB products has been going up with especially after regulators special action in March-Slash April .
Of course, if some retailers may sell the illegal products, their sales may be affected by the special effects as well. So I think it's difficult to estimate their profitability quantitatively. SDShopDem has difference fixed cost structure. So we're going to the second question is about the product pipeline.
and also our edge towards other brands in the markets.
So we're going to product pipeline. We have already launched 20 cartage SKUs approved in April compared with 15 in February . IE we have five increments in two months only We will gradually launch these new products on a provincial basis.
And we have also a number of products emitted or in the progress of replication in addition to the 20 and we will provide an update once we have obtained the approvals.
And we have very clear and significant ash towards other brands as well.
We have industry leading R&D capabilities to innovate out this thing and great tobacco flavors. For adult smokers and unlike most of our peers, they're solely or happily rely on their suppliers.
We have our own exclusive production plant and eDocre factory, which can guarantee our product quality and undergo as-striped product and product protocol.
And lastly, we have the most diversified product portfolio, and we will continue to diversify the portfolio to meet the needs of various user groups. And I'm requiring the illegal products.
I think it's definitely not easy to estimate their level of inventory, given that it's a black market. As mentioned in our prepared remarks, we think the negative impacts of illegal products is still lingering.
and it could take some time for markets to digest the industries similar to the fourth quarter of last year which took a couple of months for users to consume our old products
Thank you for our questions.
Thank you.
Thank you.
The next question comes from Piang Liu from CICC. Please go ahead. Hi, there, Madron. This is Li Pei, at CICC. Thank you for your time in the presentation. I have three questions for you. My first question is, how is your latest cargygen device sales structure of four product lines, and how is the latest cargygen device ratio?
And my second question is with report to playbass. And what would be differentiated are the directions for each type of GB standard playbass, such as for Cian or Puyen. And the last one I have is some up to the strict supervision and crack down on illegal products. And what is the current sales proportion for GB legit products in the market? And looking forward, what would be the following emphasize for supervision and logging?
product series, especially depend on the pace of new product launches.
So we recognize a revenue upon the delivery to our distributed warehouse. And therefore, if we launch a new SKU, might what we did in March, May, in one particular series in that month, the sales contribution of that series will be higher than usual. And meanwhile, as you may also aware of that,
The users of our old phantom device can still continue to use their device to consume our new red phantom cartridge. And that's why you may aware that red phantom user base is still the majority of our four product series.
And I think we internally do not have a specific target regarding the proportion of each series. And we believe the proportion across each series will depend on the user demand in the medium term.
And regarding our second question is about the R&D. How do we try to differentiate our flippers? So assume we are aware we do have four different series for our cartage with different favorite features. IE the CN, which is a more Chinese style.
with mild tobacco flavor, shanko, a Chinese flavor, a more balanced tobacco flavor.
Yeng Kao, a Chinese flavor with strong tobacco flavor and Paul Yeng, which is very similar to the overseas style with a strong tobacco flavor.
So these four different cartridge series do offer a wide range of options for users. Assisting them to select their designated choice of cartridge.
So for example, if a user has a very long history of smoking, they may consider to use an account as they have a very strong tick.
And for example, for users that prefer a light tobacco or cigarettes, they may prefer to use CM.
And the first question is about afterty compounds of illegal products, how out GB products do, and also the regulations and also the...
activities against the illegal products.
So for the style of illegal products, as we mentioned before, is difficult to estimate the sizing. And that's why I think now it's still difficult to estimate the sizing for, I mean, proportional wise for TV products as well.
But of course we see that after the special action that was launched in March and April , it was very effective and we do also that there is a difficulty for users to seek for illegal products.
that we've flaeth us compared with before, and our monthly sales of duty products has been growing. And in the long run, we do believe that the regulators will continue to monitor markets and crack down illegal products on a daily basis, on a regular basis.
as these products could lead to a significant loss of tax, product safety issues, and also minor protection issues. And versus us, a compliance evapot brand, we have paid a 46% off-excite tax.
with a rigorous quality control mechanism and also a full support for minor protection initiatives. So we do expect that regulators will also closely monitor the unlicensed manufacturers.
who applied but failed to obtain the license and also license manufacturer, which manufacturer, SIFA products for export, but maybe illegally redirected to the domestic market. Thank you.
Okay.
The next question comes from Charlie Chen from China Renaissance. Please go ahead. Good evening, management. Thanks for taking my questions. I've got two questions here. The first one is about Ghost Margin. Initially commented in the presentation that the GP Margin is likely to...
improve with operating leverage companies. But previously you also mentioned that you have some supply chain optimization as well as some product mix change. So can you give us more color on the driving factors of those three factors, like operating leverage?
supply chain optimization as well as product mix change. How do those three factors drive your course margin going forward by what's magnitude if you can? And my second question is about the margins about your new product as well as your newly launched accessories, such as chewing gums and other products.
So how do those contribute to your margins to the company as well as how the margins of selling those products by your retailers? Thank you.
Thank you, Charlie. So as we prepare, you know, opening remarks. So the implementation of the XI-STAC to pressure out GPN.
It was the first quarter of the X-Hize test that came into the effects.
And we also experienced some deliveraging effects from the return through PPNE.
the leveraging effects from the return through PPNE, DNA.
And for future JPM friends, the most important factor would be the recovery pace of ourselves.
So if the cells could recover faster than what we expect, the GPM would recover more quickly. And meanwhile, the second factor would be the cost of products, which is calculated on a weighted basis. So we believe the
benefits of our continued efforts in improving our supply chain efficiency.
Thank you for your questions. Thank you. 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 our technologies in Master Relations team through the contact information provided on our website, our TPG in Master Relations. This concludes our conference. You may now just connect your line. Thank you.
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