Q4 2023 RLX Technology Inc Earnings Call
Operator: Hello, ladies and gentlemen. Thank you for standing by for RLX Technology's 4th Quarter and Full Year 2023 Earnings Conference Call. At this time, all participants are in listen-only mode.
Hello, Ladies and gentlemen, thank you for standing by for our L X Technology, Inc, fourth quarter and full year 'twenty two 'twenty three earnings conference call. At this time all participants are in listen only mode. After management's remarks, there will be a question and.
Operator: 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.
Answer session.
Today's conference call is being recorded and it is expected to last for about 40 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 Tsang: Thank you very much. Hello everyone, and welcome to RLX Technology Incorporation's fourth quarter and full year 2023 earnings conference call. The company's financial and operational results were released through PL Newswire earlier today and have been made available online. You can also view the earnings press release by visiting the Investor Relations section of our website at ir.relaxtech.com.
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Sam Tsang: Participants on today's call include our CFO, Mr. Chao Lu, and myself. Before we continue, please note that today's discussion still contains forward-looking statements made under the safe harbor position of the U.S. private security certification reform act of 1995. These statements typically contain words such as may, will, expect, target, estimate, intend, believe, potential, continue, or other similar expressions.
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Sam Tsang: Floor Docking Statements, Involved in Hailing Lease, and Uncertainty. 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 these factors are beyond our control.
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Sam Tsang: The company, its affiliates, advisors, and representatives do not undertake any obligation to update this report of information. The staff actually partnered with EpicoVR. Please note that RLX Technology's earnings press release and this conference call include discussion of and audited GAAP financial measures as well as an audited non-GAAP financial measure. RLX Technology's press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited GAAP measures. I will now turn the call over to our CFO, Mr. Chao Lu. Please go ahead.
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non-GAAP financial measures.
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To the GAAP measures.
I will now turn the call open clubs.
Please go ahead.
Chao Lu: Thank you, Sam, and thanks, everyone, for making time to join our earnings conference call today. 2023 was a transformative year for RLX, despite external challenges. Our outstanding product portfolio and strong strategic execution propelled an impressive recovery throughout the year, setting the stage for new ventures. I will begin with an update on our domestic operations before delving into our international endeavors, followed by a review of our financial performance. For our domestic business, 2023 was the first full year under the e-cigarette industry's new regulatory framework in mainland China. The regulations necessitate prior approval for e-cigarette products, with chip flavor for tobacco only, and impose a 36% excise tax on sales to distributors.
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And thanks, everyone for making time to join our earnings call today.
T pylon plenty of fleet was a transformative year for us.
Yeah.
Despite external challenges.
Our outstanding product portfolio.
A strong strategic execution.
An impressive recovery throughout the year.
And then the stage or new venture.
I will begin with an update.
Domestic appraisal report evolving into.
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Although by a review of our financial performance.
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Congratulations.
Prior approval for E vapor products.
Good flavour to tobacco.
And impose a 46 five cap on south to distribute it.
Chao Lu: As a compliant player, we have strictly adhered to the new rules since day one, continuously innovating to offer premium, compliant products amid competition from unauthorized flavored products, leveraging our strong R&D capabilities and deep industry insights. We more than doubled our selection of approved cartridges this year, from 15, in January 2022 by December.
All the while we have quickly adapted to the new rule since day one.
Continuously innovating to offer premium compliant products.
Competition.
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No.
Leveraging our strong R&D capability and deep industry insights.
We more than doubled our selection.
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15.
In January 242.
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Chao Lu: Additionally, we broadened our cartridge range to 4 compared with 3 one year ago, enhancing our offerings to meet the diverse needs of adult smokers with more value-driven offerings. With a growing product portfolio, we believe we are well-positioned to see opportunities in China's legal e-cigarette market, especially once enforcement against illicit products becomes more effective. While we have made meaningful progress in 2023, the adverse impact of illegal products is still lingering. Given the broad availability of popular flavors through unauthorized products, their sales still account for a significant portion of domestic sales and volumes, weighing heavily on compliant product sales. Unauthorized products are also often cheaper than compliant products, as their manufacturers typically do not pay excise tax on them. Furthermore, they are manufactured without oversight and marketed irresponsibly, resulting in quality control issues that could potentially harm users.
Additionally, we broadened our coffers theory to core.
With three one year ago.
Well hopefully our offerings to meet the diverse group of adult smokers.
That being said the options.
With a growing product portfolio. We believe we are well positioned to seize opportunities in China legal E vapor market.
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Product will become more impactful.
While we have made meaningful progress in 2023.
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Also often cheaper than compliant product.
As their manufacturer typically do not pay tax and duty.
More than quantity.
Our manufacturing without oversight and marketing.
Possibly.
With regard to quality control issue that could constantly carbon neutral.
Chao Lu: This damages the reputation of the entire e-cigarette industry. E-cigarette products are meant to reduce harm, not cause or increase it, as our industry offers one of the few, smoking Harm Reduction options available. Effective regulation enforcement is critical in ensuring users' safety and essential to the e-vehicle industry's development.
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Chao Lu: We will continue actively working with regulatory authorities, advocating for a responsible and well-regulated e-cigarette industry. Meanwhile, we will remain focused on what we can control, that is, meeting users' harm reduction needs with a diverse and growing portfolio of high quality, compliant products. That leads me to our OC system.
We will continue actively working with the regulatory authority advocating for a possible on the wild regulated.
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So they need to do to harm reduction.
A diverse and growing portfolio of high quality.
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Chao Lu: We believe that adult smokers, you can smokeless alternative, is a global challenge. As such, we terminated our non-compete agreement with RLX Inc. in November 2023, enabling our company to explore prospects outside China, where the demand for e-cigarette as a convenient and healthier. The marketing Alternatives is growing. With mounting evidence from reputable sources, like the United States, like the UK National Health Service, highlighting vapors' lower health risks compared to traditional smoking, more countries are recognizing e-cigarettes' role in tobacco harm reduction. According to the NHS, burning cigarettes releases thousands of different chemicals, of which many are poisonous and carcinogenic. However, most harmful chemicals, including tar and carbon monoxide, are not contained in these aerosols.
We believe that adult smokers, who can most of them are permitted.
It's a global trend.
As such we terminated our noncompete agreement.
Well Oh.
In November 2023.
The local in our company.
La prospects outside China.
Wherever demand for E vapor.
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Smoking alternative as well.
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According to IHS.
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Chao Lu: Switching completely from smoking to vaping significantly reduces exposure to toxins associated with risk of cancer, lung disease, heart disease, and stroke. RLX, without a track record of regulatory compliance and product excellence, is ideally positioned to leverage the global shift. That's another reason we believe it's the right time for us to expand outside China. Strategically, our first step is to increase our product accessibility in international markets. They are working with partners around the globe to bring our harm reduction products to more users worldwide responsibly. Increased access to our quality products will build brand recognition among global adult smokers, driving progress in our expansion of Second, leveraging our extensive resources and expertise, we will target key markets and product categories with high growth potential. This, in turn, will boost profitability as margins will expand with scale.
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That in turn will boost profitability model.
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Chao Lu: Our recent expansion into Southeast and North Asia has shown promising progress, validating our approach of combining our industry expertise with local insights to refine our market strategy. As we do for our domestic business, we will respond quickly to changing consumer preferences, tailor our product portfolio to fit local needs, and help local teams improve operating efficiency. Going forward, we will continue to expand our business across new markets based on careful evaluation while developing innovative premium products to meet global users' evolving needs. Before I move on to our financial performance, I'm pleased to share that our ESG efforts continue to win recognition from leading global ESG rating agencies. We received an A rating from NMFCI for the second consecutive year for our outstanding performance in responsible marketing, commercial ethics, and product security. In addition, our company's score in the 2023 S&P Global Corporate Sustainability Assessment improved by 13 percent. Our commitment to integrating ESG best practices remains unwavering, reflecting our dedication to social responsibility and value creation for all stakeholders.
Our recent expansion into South East and North Asia have shown promising program.
That if anything our quote approach of combining our luxury.
But T with local without can refine our marketing strategies.
Like we do for our domestic business, we will respond quickly to changing consumer preferences.
All of our product portfolio to local news and help the local team who upgrade and efficiencies.
I'm going to call what they love.
To expand our business across new market based on careful evaluation, while developing innovative cooler.
Product can meet global yourself evolving.
Before I move on to our financial performance I'm pleased to share that our E. S. T assets continuing to win recognition from leading global ESG rating agencies.
We received an a rating from MSCI for the second quarter.
Second of the year.
Our outstanding performance and responsible marketing muscle ethics and product security.
In addition, our company's core and the 2023 S&P global corporate sustainability assessment.
It didn't grow by 13%.
Our commitment to integrate those two best practices with known unwavering, reflecting our dedication to social responsibility and value creation for all stakeholders.
Chao Lu: Now, an overview of our operational and financial results for the fourth quarter and full year of 2023. Please note that, unless otherwise stated, all the financials we present today are in R&D terms. In 2023, we strategically adjusted our business model to align with China's new regulatory requirements, focusing on efficiency and profitability. These adjustments have resulted in steady financial improvement throughout the year. On a full-year basis, our net revenues were $15.9 billion, a significant year-over-year decrease as 2023 was the first full year of the new regulatory era.
Now an overview of our operational and financial results for the fourth quarter and full year of 2023.
Please note that unless otherwise stated all the financial it would present today.
In RMB terms.
In 2023, we strategically adjusted our business model to align with China, new regulatory requirement.
Our efficiency and profitability.
These adjustments have you laid out at the February financial improvement throughout the year.
Plus the popcorn.
On a full year basis, our net revenue well have.
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The significant year over year decrease at 2003 was our first full year of the new regulatory era.
Chao Lu: Our domestic businesses' recovery pace was unbeatable, and we released a product we searched for quickly after the regulator's special action ended in April 2023, impacting our sales. We quickly adjusted our strategy and operations in response to the changing market dynamics, further diversified our product portfolio to meet more adult smokers' needs. For example, we launched Leili, a line of cost-effective products that target price-sensitive use. I'm pleased to report that these efforts paid off. The year-over-year decline in our quarterly net revenue narrowed from 89% for the first quarter, in the second quarter, to just 52% for the third quarter.
Our domestic business the recovery codes, where I need him.
Released the product researched quickly after the regulatory.
After the regulator has special action ended in April 2023 impacting all of us out.
We quickly adjusted our strategy of all Crazy in response to the changing market dynamics and further diversified our product portfolio to meet more adult smokers.
For example, we launched a line of cost effective product to target quite hesitant to use it.
I'm pleased to report that.
These efforts paid off.
The year over year decline in our quarterly net revenue narrowed her age.
9% for the fourth quarter.
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Chao Lu: For the fourth quarter of 2023, net revenues were up 63.1% year-over-year to $520 million, marking our first quarter of positive year-over-year growth after seven consecutive quarters of decline. The increase was mainly due to our international expansion, which began... with Southeast and North Asia. Such encouraging results in a short time framework validated our decision to diversify our revenue geographically. As I mentioned earlier, we believe Adult Smokers Seeking Smokestack Alternatives is a long-term global trend. With our deep industry know-how and outstanding leadership team, we are confident that RLX will quickly win the trust and loyalty of adult smokers worldwide. Our gross profit margin fell 18.8% to 24.4%, primarily due to the 36% excise tax implemented in mainland China in November 2022.
Third quarter.
For the fourth quarter of 2000 and penalty on that.
Revenues were up.
$3, one co founded year over year to 520 million, marking our first quarter.
Positive year over year growth.
Seven consecutive quarters of the class.
The increase was mainly driven by our international expansion, which began.
South and North Asia.
Such encouraging results in the short time framework.
Validated our decision to diversify our revenues geographically.
As I mentioned earlier, we believe adult smokers, who can look like a barnacle like the long term global trends.
With our deep industry Knowhow and outstanding leadership team, we are confident that I will quickly when the truck and loyalty.
Smokers worldwide.
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Yep.
Our gross profit margin.
Our full year gross margin fell 18 eight points to 24, 4% primarily due to the 46 per pound excise taxes in Colombia.
China in November 2022.
Chao Lu: However, thanks to our efforts to optimize supply chain efficiency, improve product design, and increase utilization of our exclusive manufacturing plant, Growth Profit Margin for our core domestic business improved quarter over quarter throughout the year. Our 4.25% growth margin remained stable QOQ at 23.75% as an unfavorable change in the revenue net offset the market improvement we achieved for our domestic business in 2023. We recorded and operated a lot for 497 minutes, including the impact of stock-based compensation. Our non-gap operating time lock was 134 minutes.
However, thanks to our efforts to optimize supply chain efficiency.
Cool product design.
And increased utilization.
Who is the manufacturing requirements.
Gross profit model for our core domestic business improved quarter over quarter throughout the year.
Our fourth quarter gross margin to remain stable quarter over quarter at 23, 7%.
The unfavorable change in the revenue offset the margin improvement.
We achieved all of our domestic business.
In 2023.
We recorded I'm not crazy law.
497 minutes.
Excluding the impact of.
Stock based compensation, our non-GAAP operating loss was 134 million.
Chao Lu: Since the introduction of the new regulatory framework, we have been actively adjusting and streamlining our business for greater agility. These efforts are paying off, with stringent cost control driving a 49% decrease in four-year total salaries and welfare benefits and a 48% decrease in non-salary and welfare benefits year-over-year. For the fourth quarter, we recorded our first positive non-gap operation profit of $76 million after three consecutive quarters of operation loss. Thanks to our Cost Reduction Initiative and positive profit contribution from outside China. This significant turnaround from an operating loss of $133 million in the first quarter to a not-plaguing profit of $76 million in this quarter reflects our robust rebound and growth trajectory. Moving forward, we will remain focused on optimizing operating efficiency and profitability as we pursue high-quality growth domestically and abroad. Our balance sheet remains solid, as of December 31st, 2023. The company has cash and cash equivalents, with 50 cash short-term bank deposits left, short-term investment, long-term bank deposits net, and long-term investment security net of 15 billion.
Since the introduction of the new regulatory framework, we have been actively adjusting kind of streamlining our business for greater agility.
These efforts.
Every food.
What I'm.
Stringent cost control driving a 49% decrease in full.
Full year total salaries and welfare benefits.
Of the 48% decrease in normal salaries and welfare benefits year over year.
For the fourth quarter, we recorded our first positive non-GAAP operating profit.
$76 million after three consecutive quarters of operating loss.
Thanks to our cost reduction initiatives and positive profit contribution from outside of travel.
This significant turnaround from the operating loss of 133 million in the third quarter.
If you have not played in profit.
76 million in the quarter.
Our robust rebound in growth trajectory.
Moving forward, we will remain focused on optimizing optimizing operating efficiency and profitability as we pursue high quality growth domestically on the block.
Our balance sheet remained solid.
As of December 31st 2023.
Sweet.
The company had cash cash equivalents.
It took the cash short term bank deposits.
Sure Tim.
Investments.
Long term bank deposits.
And long term the leftmost Kirby north of 14 billion.
Chao Lu: Also, we recorded an upgrade in cash inflow of $305. minimum wage in the Fourth Quarter of 2023, primarily due to improved working capital and inventory management. Supported by our financial strength and solid balance sheet, we extended our commitment to enhancing shareholder returns. In 2023, we returned value to our shareholders through a total of approximately US$112 million in share purchases and cash dividends, pricing at US dollars 98.5. As of December 31st, 2023, the company has repurchased about US dollar 195.5 million of its ordinary shares represented by ADF.
Also we recorded an operating cash inflow of 305.
Many of them in the fourth quarter of 2022.
Primarily due to the improved working capital and inventory management.
Supported by our solid.
Solid balance sheet, we extended our commitment to health and shareholder return in 2000, and Conversely, we return value to our shareholders through a total of approximately.
A thorough well hunger and Paul Linton and share repurchase.
The cash dividend.
And price in U S dollar 98 five.
You know from our share repurchase program.
With all of that $13 million from cash dividend payout.
As of December 31st 2023, the company had.
We purchased about.
You have thought about $195 5 million ordinary shares represented by.
Yes.
Chao Lu: Our Board of Directors has authorized the extension of this existing share repurchase program established in December 2021 for an additional 24-month period through December 31st, 2025. The extended program demonstrates our confidence in the company's long-term prospects.
Our board of directors has authorized the expansion of the share repurchase program established in the cell.
But 2021 for an additional 24 month period through December 31st 2025.
The extended program demonstrates our confidence in the company's long term prospects.
In conclusion.
Chao Lu: We are proud of our pivotal progress during the past year's challenges. Thanks to our excellent execution and effective strategies, as well as our team's dedication and our partners' deep trust and support, our business remains resilient and strong.
We are proud of our clinical progress during the past their challenges.
Thanks to our excellent execution and effective strategy as well as our team's dedication and our partner support.
Support.
Ramon.
Hum.
Operator: Our commitment to meeting adult smokers' needs with premium harm reduction products and advocating for a responsible and well-regulated e-cigarette industry will never waver. Heading into 2024, we will continue to propel recovery in our domestic business through product innovation while tapping into new markets abroad to end the EU crisis. We believe our strong financial foundation and solid balance sheet will empower us to see development opportunities that create value for all of our stakeholders. This concludes our prepared remarks today. We will now open the call to questions. Operator, please go ahead. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the key.
Our commitment to meeting adult smokers, who with premium harm reduction product and advertising.
Boy responsible oh, well regulated E vapor industries, well never wake up.
Heading into 2020 core we will continue to propel recovery in our domestic business group.
Through product innovation, while tapping into new markets abroad to earnings growth potential.
We believe our strong financial foundation.
All of the balance sheet.
Follow up to the bathroom and opportunity.
Create value for all of our stakeholders.
This concludes our prepared remarks today, we will now open the call to questions.
Operator.
Go ahead.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad, if youre 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 two.
Operator: If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Peihang Lyu from CICC. Please go ahead. Thank you, management. This is Peihang from CICC.
At this time, we will pause momentarily to assemble our roster.
The first question comes from pay hang loop would see ICC. Please go ahead.
Thank you management. This is Pei hung from CRT D. C. I have two questions here. The first one is regarding your oversea disposable products.
Peihang Lyu: I have two questions here. The first one is regarding your overseas disposable products, WCAG, which have sold very well. And how do you view the growth trend of disposable products overseas, given the anticipated competition and changing regulations in some countries? And my second question is that in the domestic market, has there been an enhancement in enforcement, and has the approval process for new products accelerated compared to the past? Those are my questions,
Which have sold very well and how do you view the gross change of disposable products overseas I'm, gaining be intensifying competition and changing regulation in some countries and my second question is that in the domestic market.
And yes, that's 90 enforcement and has the approval process for new products and accelerated compared to the past.
Chao Lu: Thank you. Thank you very much, Peihang. So in the last 10 years, the subcategory of e-cigarettes has evolved from time to time, from open system to closed system, from part system to disposable. One thing that hasn't changed is that the overall penetration of e-cigarettes has been growing among other smokers. The evolving regulatory landscape and intensified competition present challenges and opportunities in specific markets, such as proposed bans on disposable waiting products in countries like the UK and France. For markets that may have banned disposable products, this won't affect the overall demand for the e-waste category over a longer time frame. Users can move from one product subcategory to another, and we are a global leader in the POS system and have a significant presence in disposable products. We support the ban on disposable products if it is effective in some markets. In that case, we will encourage users using disposable products to use our product as we can provide a similar or even better user experience.
All my questions. Thank you.
Thanks very much.
And the last 10 years.
Typically E vapor has evolved from time to time from open systems to close system from Pakistan disposable.
One thing that hasn't changed is the overall penetration of E vapor has been growing in my other smokers.
But you've often we're grateful you don't stay on in pounds of pipe competition tends to challenges and opportunities in specific markets.
The proposed ban on disposable E beam products in countries like the UK and France.
But Martha my Hot band disposable products.
Won't affect the overall demand of ebay post topical we hope our longer timeframe.
Users can move from one product category to another.
We are a global leader in Pakistan and halfway significant problems.
Notable products.
Suppose the ban on disposable product.
In some markets.
In that case to encourage users using disposable.
Could you all talk product as we can.
Oh about a similar or even public this is good.
Chao Lu: For countries that have yet to announce regulatory changes, we will continue to offer and launch various products in various forms, including disposables, pop systems, and illiquid solutions that may fit different user groups to capture the growth of the overall category. And regarding your second question about domestic market enforcement, as well as product approval. Regulators have continuously questioned the balance on illegal sales of safe goods and evasive products, and we have long attested to and supported their involvement. Recently, multiple enforcement actions have been carried out nationwide among manufacturers and distributors. One example is Kiewtown province, where regulators have been working with the police force. They have arrested 23 suspects, closed 7 warehouses and 1 production facility, and seized illegal evasive products valued at RMB 15 million.
For countries that have yet to announce regulatory changes.
They continue to offer and launch various products in various forms.
It's both both Pos system.
With solutions that meet different user groups to capture the growth of the.
Overall publicly.
And regarding the question about people Messing My Kid Forsman authority product Cooper.
With have been continuously questions bound on Eaton goes out off of Clifford you vapor products.
And we have relative to answer part of that in Boston.
Multiple enforcement actions have been recently carried out nationwide amount of money petrol and difficult times.
One example is kicked down puffins, where regulators have been working with the police force.
They have arrested publicly.
Quote fathom warehouses, and one put us in a therapy and see illegal E vapor products better at RMB 15 million.
Chao Lu: We continue to assist regulators in cracking down on illicit sales of e-cigarette products. We have continuously applied for new approvals for cartridges and devices. However, as new products must undergo several rounds of rebuilding to ensure they meet the national standard requirements, including the packaging inspection and technical review of quality and ingredients, obtaining an approval takes time, especially since the Chinese New Year holiday just passed a few years ago.
We continue to teach correctly.
It is the sell off E vapor products.
We have continuously apply for new approved both what type of data and devices.
A new product.
Those tougher rounds off Brazil to ensure they meet the methanol standards requirements.
Including the public and whose passion and clinical quality ingredients.
I'll point out a proposed took time, especially since the Chinese new year holiday just pop up it could go.
Chao Lu: We can bring you more exciting new products soon once they are approved. Thank you for your attention. That's very comprehensive. Thank you.
We can bring you more exciting new product Hum once I put it.
Two part question.
That's very comprehensive thank you.
Yeah.
Operator: And once again, just in case, 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 next question comes from Lydia Ling with Citi. Please go ahead. Hi, manager.
And once again.
Just in case for the benefit of all participants on today's call. If you wish to ask a question to management in Chinese. Please immediately repeat your question in English.
Next question comes from Lydia <unk> with Citi. Please go ahead.
Uh-huh management attention at the presentation. So I have two questions are related to the overseas expansion and which one is doing what we're supposed to mention Nike constant with last year and if you look into this year and also it beyond so how can you actually beach or the lineup.
Wei Ling: Thanks for the presentation. So I have two questions related to the overseas expansion. And the first one is like the overseas expansion like kicked off the first quarter last year.
Wei Ling: And so looking into this year and also beyond, can you actually detail the more your more of your overseas expansion plan, such as which countries and also regions that you plan to extend for this year and also any other acquisition plan looking forward? And the second question is about the profitability of your overseas business. And so could you share like a little bit more color on like how the profitability of your existing overseas business you entered is and also how to further drive the profitability looking forward. And so what kind of the normalized margins that you were targeting looking forward for the overseas business versus like the domestic business? Thank you. Thank you very much, Lydia.
More you're small you don't like overseas expansion plan and there's always the chance, which country then oh so regions. How do you plan to expand this year and also any other acquisition plans looking forward and the second question is on the possibility of your overseas business and if so could you share like I made a little bit more color on like the holidays.
Profitability of your existing business you entered and also how to further drive the profitability looking forward and if so what kind of normalized margins that you would target you're looking for what's the overseas fitness memberships Tonight that don't make it.
Oh, thanks, very much I'll email.
Chao Lu: So regarding international expansion, our two strategic priorities are to increase our product accessibility and enhance our profitability in international markets. So we periodically examine different markets and decide whether to expand to that market. We expanded to North and Southeast Asia in late 2023 and plan to expand to more Asian markets in 2024. They are confident in many Asian markets and have built a strong presence.
Regarding international expansion, our <unk> strategy policy.
Increased our product capabilities and enhance our profitability and have no market.
So we periodically examine different market and the pipeline as it stands with that market.
We expand it to north and South East Asia.
Some of the fleet and plan to expand to more Asian market anytime we can report.
We are confident in many Asian markets.
It's grown possible.
Chao Lu: We have been, and we are expanding to more markets, and we hope Asian markets can contribute some efficacy to our company in 2024. For European markets, we are still evaluating the regulatory changes in certain markets, and it will take some time for us to expand and decide. Regarding acquisition plans, we do have discussions with potential partners occasionally.
We have been and will expand to more markets and we hope each of my kids can contribute significantly to our company and Ken can report.
Or are you opening a market we are still evaluating the regulatory changes you're talking about.
Yes.
And it will take some time for us to expand and decide.
Regarding our acquisition plans are we do have discussions with potential partners occasionally we will share more detail. Once we have an integral part of that.
Chao Lu: We will share more details once we have made any meaningful progress. Regarding the profitability of our overseas business, it is still in the early stages of development, and we have been expanding to certain markets. And because the profitability of each market depends on the volume, the competitive landscape, taxation, and pricing across the value chain, expanding to a new market could change our overall profitability. Given that we are in the process of expanding, the profitability varies across different time periods. Our strategic focus is to optimize product portfolios and expand international sales channels, which could contribute to our top and bottom lines. Looking at our non-GAAP operating profit this quarter, our efforts to optimize domestic operations, operation efficiency, and generate additional earnings from our international franchise have benefited us. As we are still expanding to many international markets, it is premature to share specific marketing targets. However, a wide sales volume, which could have economies of scale, is the most crucial factor for profitability.
And regarding the profitability of our overseas business. It is still in the early stages of development and we have been spending to start the market.
And he put the debt and the profitability of each market depends on the volume the competitive landscape quotation and pricing across the value chain.
Expanding to a new market could change our overall profitability.
Given that you are in the process of expanding the profitability varies across different time period.
Our strategic focus is to optimize part of portfolio and its been international stuffed channel, which could contribute to our top and bottom lines.
Looking at our non-GAAP operating profit this quarter.
To optimize the method operation operating efficiencies and generate additional earnings from Arlington National franchise health benefit to us.
But we are still expanding to many international market. It is premature to share a specific margin target.
That was in the White house volume, which will have economies of scale is the most critical part.
Chao Lu: Thank you for your questions. The next question comes from Eileen Lin with China Renaissance. Please go ahead.
Couple of therapy.
Final question.
Yeah.
Thank you.
The next question comes from Eileen Deng with China Renaissance. Please go ahead.
Eileen Lin: Thank you for taking my call. I have two questions. The first one is on the Mavic Mark. Can management share some comments on the momentum of domestic sales by month? Are there any changes in the trend? In particular, I also want to get a sense of where non-JV products are now and what's the latest stance on these products from the regulators' perspective. My second question is on the overseas market.
Thanks management for taking my question I have two questions. The first one they sound domestic market.
Can management share some common M b a momentum.
Domestics I'll sign off.
Any changes in good shape.
I also once you get the chance and we are now in GB products now and what's the latest there arent Chi this panic deregulators perspective.
Well My second question is on the overseas market.
Eileen Lin: UK governments recently made some changes to policies on e-cigarettes, including restrictions on some disposable and flavored products. And there is a new potential tax on e-cigarettes starting in 2020. Have you seen any changes in the market after this announcement? And how do you think it might impact RLX? Thank you. Thank you very much, Eileen. So regarding our domestic business, self-trends in the domestic market are influenced by seasonality, with stable monthly averages observed over longer periods. For instance, in February this year, the Chinese New Year holiday lasts for 8 days, with minimal sales a few days before and after the holiday.
Okay governments recently made some changes in the policies on the E cigarettes.
Routing restrictions on some of these talks about libre product.
And here's a new potential tax E cigarettes, starting on 2010, we think.
Have you seen any changes in the market actually because now things and how do you think it's nice impact relax.
Thank you.
Hmm, how much Eileen somebody guarding our domestic business the south pole in the domestic market are influenced by seasonality.
Stable monthly average I've observed over a longer period.
For instance in February this year, the Chinese new year holiday.
Eight days with minimal a few days before and after the holidays.
Chao Lu: We also had relatively strong sales in January before the CNY. We remain vigilant in monitoring the illicit markets and assist regulators in combating these challenges. Our commitment to compliance and market integrity supports regulatory efforts to secure consumer tech and can position us as leaders in promoting responsible market practices. Our proactive stance on compliance and collaboration with authorities will foster a healthier market environment and support sustainable growth. So regarding your second question about recent policy proposals in the U.K., I think the U.K. regulatory changes could present a nuanced landscape, opportunities to adapt, and capture new consumer standards. We can share our views on the three topics that we mentioned. First, the proposed disposable ban. As we have mentioned earlier, the prohibition of disposables will not change overall demand in the long run.
Our rapidly growing south in January before the few unwise.
We remain vigilant in monitoring the market and.
Please record your puzzle combat these challenges.
Our commitment to compliance and marketing type of cheap of course like later.
To secure consumption pet and.
One can position as leaders in promoting responsible market practices.
Our proactive stance on companion and collaboration with authorities, we will foster a healthier market environment and fulfillment.
Container Brokaw.
Somebody calling your second question about recently proposed policy in the UK.
I think the UK regulatory changes quickly.
Could present and nuanced landscape.
Opportunities to adapt and capture new consumers.
He can share our view on the repurposing that emotion.
With the proposed disposable pen.
You have mentioned the publication of disposable.
Well that's been mentioned earlier, the prohibition of disposables will not change the overall demand in the long run if.
Chao Lu: As most users, new migrate from disposables to other forms, like the POP system. There are early signs that some distributors and retailers have started encouraging users to convert from disposables to pockets, which will allow us to expand into the market and acquire new users in the medium term. The ban may create short-term chaos in the market, just like what happened in the U.S. and China, but we are well prepared for the changes.
Most people thought.
<unk> disposable to other pumps, but the Pos system.
We have seen early signs that some distributor and retailer has started on correcting do but to convert from disposable to Pakistan.
Which allow us to take them.
For the market.
Maybe there's something in the medium term.
The band May create short term chaos in the market just like what happened in China.
We are well prepared to put a hunger.
Chao Lu: Second, regarding proposed paper restrictions. Business regulators have been encouraging people to switch from cigarettes to reduce these products like e-cigarette. Regulators are concerned about appealing packaging with appealing flavor and advertising. But at the same time, they also understand flavor's role in atom smokers' consumption. In other words, products with plain flavors and packaging that are not marketed and appealing to minors should not be restricted. We are confident that such restrictions should be reasonable and might have a minimal impact on adults in the classroom.
Second regarding proposed a paper restriction.
Correct lately have been encouraging adult smokers, who switch from cigarettes to reduced with products like the bakers.
Luckily for us are concerned about appealing packaging.
Appealing playful on advertising, but.
At the same time, they also understand a player coach growth in adult smokers competition.
In other words product with claims papers and packaging.
Not marketed an appealing for mindless shall not be restricted.
We are confident that such restriction should position the boat and might have minimal impact on my question.
Chao Lu: Finally, exercise tasks could level the playing field. We have seen this introduced in many countries and regions, including the countries where we are currently operating. The current suggested tax rate is moderate compared to other countries globally.
Finally, our class type.
Lateral to pay them to do it.
Introduced in many countries and regions, including the countries, where we are currently country operating.
The adjusted tax rate is moderate compared to other countries globally.
Chao Lu: This will foster a healthier industry ecosystem and provide incremental incentives for regulators to combat illegal products. Thank you for your questions. Very clear, thank you. At this time, there are no further questions. 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 RLX Technology Investor Relations team through the contact information provided on our website or PNCM Pay, Financial Communications. Thank you. This concludes the conference call. You may now disconnect your line. Thank you, in in in in in in in in in
This was for a healthier industry ecosystem, and providing incremental incentives correct Lakewood combat illegal quiet.
First question.
Okay.
Very clear thank you.
At this time there are no further questions 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 Alex technologies Investor Relations team.
The contact information provided on our website, our Piceance Champagne financial communications. Thank you.
This concludes the conference call you May now disconnect. Your line. Thank you.
Okay.
Okay.
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