Q1 2024 RLX Technology Inc Earnings Call
Hello, Ladies and gentlemen, thank you for standing by for I O <unk> Technology, Inc. 's first quarter 'twenty 'twenty four earnings conference call.
Operator: Hello, ladies and gentlemen. Thank you for standing by for RLX Technology, Inc.'s first quarter 2024 earnings conference call. At this time, all participants are in the Sonali mode. After management's remarks, there will be a question and answer session. Today's conference call is being recorded and is expected to last for about 40 minutes. I will now turn the call over to your host, Mr. Sam Tsang, Head of Capital Markets for the company. Please go ahead, Sam.
At this time, all participants are in listen only mode.
After management's remarks, there will be a question and answer session.
Today's conference call is being recorded and especially to last for about 40 minutes.
Now I turn the call over to your house, Mr. Sam, saying head of capital markets for the company. Please go ahead Sam.
Sam: Thanks, very much Hello, everyone and welcome to <unk> first quarter 'twenty 'twenty four earnings conference call. The company's financial and operational results were released food PR Newswire services earlier today and have been made available online.
Sam Tsang: Thank you very much. Hello everyone, and welcome to RLX Technology's first quarter 2024 earnings conference call. The company's financial and operational results were released through PR Newswire services earlier today and have been made available online. You can also view the earnings press release by visiting the IR section of our website at ir.rlxtech.com. Participants on today's call will include our Chief Executive Officer, Ms. Kate Wang, our Chief Financial Officer, Mr. Chao Lu, and myself, Sam Tsang, Head of Capital Markets. Before we continue, please note that today's discussion will contain four opening statements made under the safe harbor provisions of the U.S. Private Security Act of 1995.
Sam: You can also be it with the earnings press release by visiting the IR section of our website and I'll toss relaxed tap dot com.
Sam: Participants on today's call will include our Chief Executive Officer, Mr. Casey.
Speaker Change: Case long, our Chief Financial Officer, Mr. Chao, Luc and myself, Samsung kind of kept the Marcus.
Speaker Change: Before we continue please note that today's discussion will contain Florida looking statements made under the safe Harbor provisions of the U S private securities.
Speaker Change: Reform as up 1995.
Sam Tsang: These statements typically contain words such as may, will, expect, target, estimate, intend, believe, potential, continue, or other similar expressions involving hearing risk 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 which are beyond our control. The company, its affiliates, advisors, and representatives do not undertake any obligation to update this forward-looking information, except as required under the applicable law.
These statements typically contain words, such as May will expect targets estimates intend believe potential continue or similar or similar expressions.
Speaker Change: Forward looking statements involve inherent risks and uncertainties.
Speaker Change: 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 protests that are anticipated.
Speaker Change: Many malls, which factors are beyond our control.
Speaker Change: The company is affiliates by source and representatives do not undertake any obligation to update these forward looking information, except as required under the applicable law.
Speaker Change: Please note that our etch technologies earnings press release, and this conference call include discussions off an audited GAAP financial measures as well as unaudited non-GAAP financial measures.
Sam Tsang: Please note that RLX Technology's earnings press release and this conference call include discussions of unaudited GAAP financial measures as well as unaudited non-GAAP financial measures. 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 Ms. Kate Wang.
Speaker Change: Our press release contains a reconciliation of the unaudited non-GAAP measures.
Speaker Change: Unaudited GAAP measures.
Speaker Change: I will now turn the call over to MS. Kate one.
Please go ahead.
Speaker Change: Thank you Sam and thanks, everyone for making time to join our earnings conference call today.
Wang Ying: Thank you, Sam, and thanks everyone for making time to join our earnings conference call today. I will begin with an overview of our international initiatives, followed by a discussion of illicit products' impact on our business, before I hand it over to our CFO for a review of our financials. 2024 is off to a solid start.
Speaker Change: I Havent began with an overview of library international initiatives, followed by a discussion of illicit products seen parts of our business.
Speaker Change: Before I hand, it they'll work to our CFO for a review of our financials.
Speaker Change: Tucson 'twenty four is off to a solid start.
Speaker Change: Our operations in South East and North Asia.
Wang Ying: Our operations in Southeast and North Asia are running smoothly, and our international expansion is progressing well, terminating our non-compete agreement with RLX International in November 2023. Our team has been diligently researching the regulatory environment and Competitive Landscapes of the Markets Worldwide to inform our strategic blueprint. After thoroughly evaluating various markets, we are ready to determine our next steps and develop tailored growth strategies for each region. With our leading product development capabilities and broad portfolio of premium products for adult smokers, we are confident that we can meet each market's unique needs.
Speaker Change: Running smoothly and our international expansion is progressing well.
Speaker Change: Things come in 19, our noncompete agreement with <unk> International It in November 2023.
Speaker Change: Our team has been diligent today researching the regulatory environment.
Speaker Change: And competitive landscape.
Speaker Change: Market worldwide to inform our strategic outlook cranes.
Speaker Change: After thoroughly evaluating various markets there.
Speaker Change: We are ready to determine our next steps and developed tailored growth strategies for each region.
Speaker Change: Is that where leading product development capabilities and broad.
Speaker Change: Portfolio of premium products for adult smokers.
Speaker Change: We are confident that we can meet each market's unique unique needs.
Speaker Change: They tend to extend into additional regions.
Wang Ying: We plan to expand into additional regions, and we'll keep you updated on our progress in future calls. On product diversification, we are broadening our portfolio in response to rising living costs that are impacting users both domestically and overseas. By offering more SKUs across a wider price spectrum, we can cater to diverse consumer needs and capture additional demand in overseas markets. We are expanding our offerings beyond closed systems, starting with e-liquid products, and we plan to introduce new open system devices at a later stage.
Speaker Change: And we'll keep you updated on our progress in future calls.
I'm proud of our diversification.
Speaker Change: Diversification, we are broadening our portfolio in response to rising leaving cost.
Speaker Change: And that are impacting users both domestically and overseas.
Speaker Change: By offering more S K use across a wider price back to trend.
Speaker Change: We can cater to diverse consumer needs and capture additional demand.
Speaker Change: In overseas markets.
Speaker Change: We are expanding our offerings beyond closed systems.
Speaker Change: Starting with your liquid paired up.
Speaker Change: And we plan to introduce new open systems. He was at a later stage.
Speaker Change: Our recent launch of new illiquid products, Yeah, Southeast Asia has been well received showing for Miocene initial results.
Wang Ying: A recent launch of new e-liquid products in Southeast Asia has been well-received, showing promising initial results. Regarding regulatory environments in overseas markets, we are seeing the early impact of bans on disposables. Retailers and adult users are shifting from disposables to other subcategories, such as power systems.
Speaker Change: Regarding regulatory environments in overseas markets, we are seeing the early impact of bans on these proposals.
Speaker Change: Retailers and add all users are shifting from the supposed goes to other stuff.
Speaker Change: Categories, such as Pos system.
Speaker Change: As a leading global players in the Pos system market.
Wang Ying: As the leading global players in the power system market, these regulatory changes present prime opportunities for us to increase our future market share. We are poised to capitalize on this transition with an effective marketing strategy and pipelines of compliant products that meet adult smokers' needs at every price point. Turning to the impact of illicit products domestically, Ulysses products continue to challenge compliant products. However, we are encouraged by Chinese authorities' announcement of another round of special action to crack down on illicit products in March. This year's initiative, which spans four months, a month longer than, one month longer than last year's.
Speaker Change: These regulatory changes.
Speaker Change: Then to prime opportunities for us to increase our future market share.
Speaker Change: Yeah.
Speaker Change: We are poised to capitalize on this transition is there any factor marketing strategy and pipeline of compliance part of that.
Speaker Change: He had all smokers needs at every price price point.
Speaker Change: Turning to the impact of illicit paired up domestically.
Speaker Change: Illicit product continued to challenge combined part outs.
Speaker Change: However, we are encouraged by Chinese authorities announcement, I'll say another round of special actions to crack down on illicit products in March.
Speaker Change: This year's key initiatives.
Speaker Change: Banning for months.
Speaker Change: Mass longer than one month longer than last years.
Wang Ying: We are focused on improving case investigation and handling and building an effective enforcement system for the industry. We are pleased to see China's regulatory authorities tackling these serious issues. Thank you.
Speaker Change: Our focus on improving Casey investigation, and handling and building a factory enforcement system for the industry.
Speaker Change: We are pleased to see China's regulatory authority is tackling these serious issues.
Speaker Change: So there is still a long way to go.
Speaker Change: We are already seeing some positive outcomes.
Wang Ying: We are already seeing some positive outcomes. For instance, authorities in Zhejiang province successfully cracked a case involving the entire supply chain of counterfeit e-cigarettes, from production to sales. They dismantled one illegal manufacturer and two production lines, seized 40 sets of production equipment, over 35,000 disposable e-cigarettes, over 30,000 cartridges, over 2,900 devices, and 1 million integrated accessories. The sea is good, were valued at more than 10 million RMB, and the total amount involved in the investigation exceeds 100mm R&B. Additionally, authorities in Gansu province recently uncovered an illegal e-cigarette manufacturing and sales enterprise operating online.
Speaker Change: For instance authorities.
Speaker Change: I'll start testing Zhejiang province successfully cracked a case involving the entire supply chain of counterfeit E cigarettes from product to sales.
Speaker Change: They dismantled one illegal manufacturer and tool production lives.
Speaker Change: Adding 40 sets of production equipment.
Speaker Change: Or 35000 disposable E cigarettes.
Speaker Change: Our third T cell and cartridges.
Speaker Change: Oh in Tucson that I hungry devices, and a 1 million you said, where it took saturate.
Speaker Change: The CS goods.
Speaker Change: Our valued at more than a 10 mini RMB.
And the total amount involved in the investigation exceed.
Speaker Change: 100 million RMB.
Speaker Change: Additionally, I'll start here in Gansu Province recently uncovered.
Speaker Change: Illegal E cigarette manufacturing enterprise.
Speaker Change: Enterprise operating online.
Speaker Change: Maybe some mental three legal manufacturing sites.
Wang Ying: This is Nantou 3 illegal manufacturing site, three storage sites, and six scale shops seized over 2,800 disposable e-cigarettes and over 290,000 cartridges. The total value of these goods exceeds 8.8 million RMB, with the total amount involved in the investigation surpassing 110 million RMB.
Speaker Change: Chris storage sites and fix scales shops.
Speaker Change: Seizing or Tucson than 800 disposable E cigarettes.
Speaker Change: Over 290000 cartridges.
Speaker Change: The total value of seed could exceed.
Speaker Change: $8 8 million RMB.
Speaker Change: With the total volume walked in the investigation, so parsing 110 million RMB.
Speaker Change: As an industry leader in socially responsible company IX remains committed to advocating for a well regulated E vapor industry.
Wang Ying: As an industry leader and socially responsible company, RLX remains committed to advocating for a well-regulated e-cigarette industry and collaborating with regulators on creating an orderly and healthy market. Internationally, authorities are also increasingly cracking down on illicit products. In the United States, for example, The state of Florida has implemented a registry for disposable waste. Starting March 1st, 2025, manufacturers that sell prohibited products in the state will face a $1,000 U.S. daily fine per product until it is removed from the market.
Speaker Change: And collaborating with regulators on.
Speaker Change: Create and orderly and housing market.
Speaker Change: Internationally I'll start he's also increasingly cracking down on illicit product.
Speaker Change: In the United States for example.
Wang Ying: This regulation also applies to retailers, wholesalers, and distributors that ship products into Florida. Additionally, anyone who sells a nicotine product, including with nicotine, to someone under 21 for the first, fourth, third, or subsequent time will face a third-degree misdemeanor. Follow me, it's hard.
Speaker Change: The state of Florida.
Speaker Change: Has implemented a drag just tree for disposable wipes.
Speaker Change: Starting March 1st 2025.
There are factors that Sal prohibit part of United States.
Speaker Change: We'll face a one star in the U S dollar daily fine her product.
Speaker Change: Until it hits is removed from the market.
Speaker Change: These regulation also applied to behaviors wholesalers and distributors.
Speaker Change: That ship products into Florida.
Speaker Change: Additionally, anyone who sells a nicotine product and clothing with too.
Speaker Change: To have someone under 10 to one floor first for third Oh subsequent time will tell.
Speaker Change: With a certain degree.
Felony charge.
Speaker Change: Punishable by up to five sells in the U S dollar and five.
Wang Ying: Time measurable by up to $5,000 in fines and five years in prison. In the UK, authorities are cracking down on unlicensed imports and services used for vaping. Both border control and local authorities are working to seize unauthorized counterfeit products. The government is expected to announce new rules for the industry, which could include a ban on disposable vapes, a licensing scheme for retailers, and new taxes, among other regulatory measures. As a legitimate player, we view these actions as positive developments that will contribute to a healthy and orderly market, benefiting our future business development.
Speaker Change: In five years in prison.
Speaker Change: In the U K, all star Pizza cracking down on.
Speaker Change: License the imports and serves you used to be.
Speaker Change: Yes.
Speaker Change: Both border control and local authorities are working to seize also archives.
Counterfeit products.
The government takes a backseat to announce news for the industry, which could include a ban on disposable bibs lessening scheme for retailers and new taxes.
Speaker Change: Other regulatory measures.
That's a legitimate player we abuse. These actions are positive developments that will contribute to our house in order to market benefiting all the field trip and the state government.
Speaker Change: In conclusion.
Wang Ying: In conclusion, our strategic expansion initiatives are already yielding positive results, setting the stage for future success. We remain confident that e-vapor products will continue to gain. Traction as a Harm Reduction Tool for Adult Smokers, even as regulations evolve worldwide. With an outstanding product portfolio, agile operations, and deep industry expertise, we are ready to create and seize opportunities on a global stage. With that, I will now turn the call over to our CFO, Chao Lu. He will elaborate further on some of our last quarter's initiatives and go over our operational and financial results in more detail.
Speaker Change: Our strategic expansion initiatives are already yielding positive results setting the stage for future success.
Speaker Change: We remain confident that E vapor products, we will continue to gain.
Traction as a harm reduction tool for adult smokers.
Speaker Change: Even as regulations.
Speaker Change: Evolved right.
Speaker Change: Worldwide.
Is it all standing part of portfolio agile operation and deep industry expertise.
Speaker Change: Oh, we are ready to create and seize opportunities on a global stage.
Speaker Change: With that I'll go now turn the call her to our CFO Carlo.
Carlo: He will elaborate further on some of our last quarter see initiatives and go over our operational and financial results in more detail.
Carlo: Thank you Kay and Hello, everyone.
Before I start the detailed discussion of our financials. Please note unless otherwise stated all the financials I will present today are in RMB terms.
Carlo: First.
Chao Lu: [inaudible] I am pleased to report that our strategic expansion into Southeast and North Asia has continued to deliver positive outcomes this quarter. Total net revenues increased to $552 million, marking our fifth consecutive quarter of revenue growth. The inherent benefits of geographic diversification, along with our reduced reliance on the domestic market, have allowed us to capitalize on opportunities arising from harm reduction initiatives in the international market. We are increasingly capturing organic growth from adult smokers transitioning from combustible cigarettes to reduced risk products like e-cigarette.
Carlo: I am pleased to report that our strategic expansion into South East and North Asia has continued to deliver positive outcomes this quarter.
Carlo: Total net revenues increased to 552 million.
Carlo: Marking our fifth consecutive quarter of revenue growth.
Carlo: The inherent benefits of geographic diversification, along with our reduced reliance on domestic market.
Carlo: <unk> to capitalize on opportunities arising from harm reduction initiatives.
Carlo: In the international markets.
Carlo: We're increasingly capturing organic growth from adult smoker transitioning from combustible cigarettes to reduced risk products like ebay purse.
Carlo: We have a solid foot blueprint for ongoing expansion in place.
Chao Lu: We have a solid blueprint for ongoing expansion in place, and we are optimistic that our initiatives will continue driving progress across our financial metrics. We will provide further details in the coming quarters as we continue to assess various markets' growth potential, the Competitive Landscape, and the Regulatory Environment.
Carlo: We are optimistic that our initiatives will continue driving progress across our financial metrics.
Carlo: We will provide further details in the coming quarters as we continue to assess various market growth potential.
Carlo: Competitive landscapes.
Carlo: Literary environments.
Carlo: Yes.
Carlo: Yeah.
Carlo: Turning to profitability, our overall gross profit margin for the first quarter expanded year over year from $24 two.
Chao Lu: Turning to profitability, our overall gross profit margin for the first quarter expanded year-over-year from 24.2% to 25.9%. Despite the excise taxes on e-cigarette products in China, our ongoing efforts to enhance supply chain efficiency, improve product designs, and increase the utilization of our exclusive manufacturing plants are having a positive impact. Notably, the gross margin, or gross profit margin of our domestic business, has improved quarter over quarter since the second quarter of 2023. We recorded a total operating loss of $52 million for the first quarter, however, excluding the impact of share-based compensation.
Percent to 25, 9%.
Carlo: Despite the excise taxes.
Carlo: E vapor products in China are ongoing efforts.
Carlo: We enhanced supply chain efficiency.
Carlo: Improved product designs and increase the utilization of our exclusive manufacturing plants are having a positive impact.
Carlo: Notably the gross margin gross profit margin of our domestic business.
Carlo: Has improved quarter over quarter since the second quarter of 2023.
Carlo: Yeah.
Carlo: We recorded a total operating loss of 52 million for the first quarter. However, excluding the impact of share based compensation.
Chao Lu: We achieved a positive non-gap operating profit of 23 minutes, marking our second consecutive quarter of non-gap profitability at the operating level. This represents a significant year-over-year turnaround compared to a non-gap operating loss of $133 million in the first quarter of 2023. Our cost reduction efforts and positive profit contributions from outside China were the main drivers of this quarter's success. Driven by our turnaround in operating level profit, our non-GAAP net income for the first quarter of 2024 increased by 13% year-over-year to $208 million. For the same period, our non-GAAP basic net income per ADS was RMB 0.166, and our non-GAAP diluted net income per ADS was RMB 0.159.
Carlo: We achieved a positive non-GAAP operating profit of 23 minute.
Carlo: Marking our first marking our second sorry, mark at all.
Carlo: Second consecutive quarter of non-GAAP profitability at the operating level.
Carlo: This represents a significant year over year turnaround compared to a non-GAAP operating loss of 133 million in the first quarter of 2023.
Carlo: Our cost reduction efforts and positive profit contributions from outside China were the main drivers of this quarter's success.
Carlo: [noise] driven by a lot of turn that around.
Carlo: Operating level profit our non-GAAP net income for the first quarter of 2024 increased by 13% year over year to $208 million.
Carlo: For the same period, our non-GAAP basic net income per ads was RMB 0.166.
Carlo: Our non-GAAP diluted net income per ads was RMB 0.159.
Carlo: Yeah.
Our cash flow and balance sheet remain healthy and strong supported by enhanced working capital and inventory management.
Chao Lu: Our cash flow and balance sheet remain healthy and strong, supported by enhanced working capital and inventory management. We recorded an operating cash flow inflow of $4 million in the first quarter of 2024, a meaningful improvement from an operating cash outflow of $231 million in the same period last year. Additionally, we are currently experiencing a negative cash conversion cycle. Inventory turnover days stood at just 34 days in the first quarter of 2024, significantly reduced from over 100 days in the first quarter of 2023. As of March 31, 2024, our total financial assets, including cash and cash equivalents, restricted cash, and various forms of short-term and long-term deposits and inventories, totaled $14.7 billion.
We recorded an operating cash flow inflow of 4 million in the first quarter of 2024.
Carlo: Meaningful improvement from the operating cash outflow of 231 million in the same period last year.
Carlo: Yeah.
Carlo: Additionally, we are currently experiencing a negative cash conversion cycle.
Carlo: Inventory turnover days stood at just 34 days in the fourth quarter of 2024 significantly reduced from over 100 days in the first quarter of 2023.
Carlo: As of March 31st 2024 hour total financial assets, including cash and cash equivalent restricted cash and the various forms of short term and long term deport composites and the inventories totaled $14 7 billion.
Chao Lu: In summary, we are confident that we are on the right track with our international expansion. Moving forward, we will continue to optimize costs and efficiency as we enter new markets and scale our operations. Our goal remains to deliver premium products to users while creating sustainable, long-term value for our shareholders.
Carlo: In summary, we are confident that we are on the right track with our international expansion.
Carlo: Going forward.
Carlo: We will continue to optimize cost and efficiency as we enter new markets and scale our operations.
Carlo: Our goal remains to deliver premium products to use says, while creating sustainable long term value for our shareholders.
Carlo: This concludes our prepared remarks today.
Speaker Change: I will now open the call to questions.
Chao Lu: Thank you. Operator, please go ahead. Yes, thank you.
Speaker Change: Thank you I'll play doesn't want me to go ahead, yes. Thank you. We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
Operator: 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 it. If at any time your question has been answered and you would like to withdraw it, please press Star then 2. For the benefit of all participants on today's call, if you wish to ask your question to management in Chinese, please immediately repeat your question in English. At this time, we will pause momentarily to assemble the roster. And the first question comes from Charlie Chen on China Renaissance.
Speaker Change: If you are using a speaker phone please pick up your handset before pressing the keys. So anytime you have questions on dress you would like to withdraw it. Please press star then two.
Speaker Change: 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.
This time, we will pause momentarily to assemble the roster.
Speaker Change: And the first question comes from Charlie Chen with China Renaissance.
Speaker Change: Oh sure Yeah, so anytime there's a delay where once you address why the correlation is Honda.
Charlie Chen: Thank you, Guan Licheng, for giving me this opportunity. I have two questions, mainly about the domestic market. The first one is that I want to know if there have been any changes in domestic monthly sales in the first quarter of this year. Can you tell us about the trend in monthly sales? And based on the current trend and the sales targets given by the company before, is there a big change now?
Speaker Change: Sure.
Without getting shot just to take you like did you do you'll meal fashion when they social you Gotta do wheelchair been too that you ship a whole a couple can you go just charge, where you had the giant their shelves with how do you choose yep got.
Speaker Change: Oh Gee, we tried to do what you shouldn't have going to choke off the great that'd be the trend yeah. There you go.
Speaker Change: First one will be all kind of showed that country I got maybe ease up yet.
Charlie Chen: This is the first question. The second question is about the domestic product pipeline. We also want to know if the company has learned that the regulatory department has some recent instructions and movements on the latest flavors, packaging, or technology of electronic products. I will translate that for you.
Speaker Change: I just you go once you know how they are going to you said why are you calling anytime she took a jumping quite shanda, Michelle just without getting shot go see them.
Speaker Change: Just a joke about women do you tend to change I didn't yet having attrition that you ship a cold lay up all drama out what does its usual format.
Speaker Change: And that's Oh, no, it's tricky sharing things up.
Charlie Chen: Thanks, management, for taking my questions. I've got two questions regarding the domestic market. First of all, can you share with us a little bit more on the momentum of monthly sales in the domestic market? Are there any, like, marginal changes month over month that you can see and share with us? And also, based on the current run rate, do you have any new guidance on new sales targets for the full year? So that's the first question.
Speaker Change: Thanks management for taking my questions I've got two questions.
Speaker Change: In the domestic market. So first of all can you just share with us a little more on the momentum of monthly sales in domestic market is there any like marginal changes most over mouth a W. Can you share with us.
Speaker Change: And also based on current run rates do you have any new guidance on your sales target for the full year. So that's the first question and the second one is about our domestic product pipeline can management share with us a little more color U correction. So requirements that have you heard from.
Charlie Chen: And the second one is about the domestic product pipeline. Can management share with us a little bit more color on new directions or requirements that they have heard from the regulators in terms of flavor, packaging, and technology requirements, et cetera? Thank you very much.
Speaker Change: The regulators in terms of our flavor packaging technology requirements etcetera. Thank you very much.
Charlie Chen: Oh, Thanks, very much Charlie for your question. So the first question is about our monthly sales trends as well as all.
Wang Ying: Thank you very much Charlie for your question. So the first question is about our monthly sales trend as well as our targets internally. So the monthly sales of our China business have been relatively stable. So each month's sales could be subject to calendar effects, such as the Chinese New Year and public holidays, but the overall trend has not changed.
Speaker Change: Targets internally certainly monthly sales of our China business has been relatively stable. So each months south could be subject to kind of buy effects for example, Chinese new year and public holidays and the overall change overall trend has not changed.
Wang Ying: So, as you may be aware, there is special action led by the Chinese authorities that has been ongoing, and we hope that positive trends will emerge as this initiative concludes. We are also working on launching new products with new designs and characteristics to compete effectively with illicit products. We are innovating and expanding our offerings to meet our user demands. We will share more details once our new products are available. [inaudible] So overall, our China business remains on track with our annual expectations and targets.
Speaker Change: So as you may aware there is a special action led by the Chinese authorities has been ongoing and we hope that positive trends will emerge as these initiatives concludes.
We are also working on launching new products with new designs and characteristics to compete effectively with illicit products.
Speaker Change: We are innovating and expanding our offerings to meet our usually months, we will share more details once our new products.
Speaker Change: Lunch.
Speaker Change: So overall I'm trying to business remains on track with our annual expectations and targets.
Wang Ying: And we remain optimistic about the market as the regulatory actions take effect and our new products enter the market. So your second question is, is there any regulatory change, especially regarding leg sleepers or other requirements? So in late April, there were a few draft consultation papers being published by the Chinese regulators. So the first change is concerns about product approval. Compared with the previous versions published in early 2022, the new draft did not include certain clauses related to the export of e-cigarette products.
Speaker Change: And we remain optimistic about the market that's directly through actions taking effect.
Speaker Change: And our new products and her day markets.
Speaker Change: So the second question is about is there a regulatory change.
Speaker Change: Especially regarding like sleepers or other requirements.
Wang Ying: Also, it has stated that if an applicant is under investigation for suspected illegal activities, the regulators will not accept such an applicant's technical review application. And the second change concerns marketing campaigns. Therefore, all marketing activities must be registered on the national transaction platform and not violate applicable regulations. Therefore, we believe the draft consultation papers aim to promote a healthier and orderly industry development. Thank you for your questions.
So in late April so there are a few draught consultant consultation papers.
Speaker Change: Being released being published by the Chinese regulators.
Speaker Change: So the first change is concerned about the product approval, so compared with the previous versions published in early 2022. The new draft did not include certain clauses related to the exports of E cigarette products.
Speaker Change: Also you have stated that if an African is under investigation for suspected illegal activities directly to us we will not accept such and applicants turned a corner of your application.
Speaker Change: The second change is mainly concerned the marketing campaigns.
Speaker Change: All marketing activities must be registered on the national transmission platform and not violate applicable regulation.
Speaker Change: So believe totally believe that draft consultation papers aimed to promote a healthier and orderly industry developments. Thank you for your questions.
Speaker Change: Thank you.
Thank you and the next question comes from Lydia Linguists City.
Operator: Thank you. And the next question comes from Lydia Ling with Citi.
Speaker Change: Hi management. This is media room C T I can't hear me.
Wei Ling: Hi, management. This is Lydia from Citi. Oh, can you hear me? Oh yeah, we can hear you.
Speaker Change: Yeah, we can hear you.
Okay, great. Thank you.
Wei Ling: Okay, great. Thank you. Thanks, management. So, Lydia from Citi.
Speaker Change: Management, so our leidy iPhone C D and so he'll also have two questions. The first one is on your overseas markets and we want to know is that if you push year, that's like a year to date growth trended for the market that you already entered and also wondering there was that if you had seen any impact as rhonda weak macro on this category.
Wei Ling: And so, here I have two questions. The first one is about your overseas market. And we want to know if you could share that slide of the year-to-date growth trend for the market that you have already entered. And also, we want to know if you have seen any impact from the weak macro on this K-degree consumption. And we understand that you entered this new market step by step. So, actually, we want to check if there are any new markets you consolidated in the first quarter and what your expansion plan is for the second quarter.
Speaker Change: Consumption and we understand that you enter this new market and step by step so actually once you chat if any new markets you're concentrated in the first quarter and what would be up expansion to that in the second quarter. So this is my first question on the overseas market and then my second question is on the China market as Oh, you just also mentioned.
Wei Ling: So, this is my first question on the overseas market. And then my second question is on the Chinese market. As you just mentioned the ongoing measures against illegal products in the Chinese market, we wanted to know what could be the restraint to the second quarter sales trend in China. So, it's actually like improving trends in the second quarter should be expanded.
Speaker Change: The ongoing matches against it that if you go potash in China market. So wanted to know that what could be the restaurant to the second cornerstone trend in China, So, it's actually like Oh, including trends in the second quarter.
Speaker Change: Got it thank you.
Wang Ying: Thank you very much, Lydia, for your questions. So regarding your first question, it's about international markets. So we have made significant progress in strengthening our presence in Southeast and North Asia and have yet to enter new markets in the first quarter. Meanwhile, our non-China business has maintained steady growth despite the first quarter traditionally being a low season for this category, primarily due to weather-affected store traffic and the holy month of Ramadan in Southeast Asia.
Thanks, very much lidia for our questions.
Wei Ling: Thank you. Thank you very much.
Speaker Change: So regarding your first question is about the international markets. So we have made significant progress in strengthening our presence in south East and North Asia and has yet to enter new markets in the first quarter.
Speaker Change: So our non China business have maintained steady growth.
Speaker Change: The first quarter traditionally being a low season for this category.
Speaker Change: Primarily due to a weather affected store traffic and the honeymoon Ramadan in southeast Asia.
Wang Ying: So we are also aware of the weak macro of the international market. The rising cost of living encourages more adult smokers to consider value-for-money nicotine alternatives like e-cigarette products. The trend of switching from cigarettes to harm reduction and coating products like e-cigarette has been clear, and the rise in living costs could also help accelerate the switch and user penetration.
Speaker Change: So we are also aware of the weak macro of the international markets.
Speaker Change: So rising living costs encourages more adult smokers to consider value for money.
Speaker Change: Nicotine alternatives like E vapor products.
Trend of switching from cigarettes to harm reduction Nicholson products like E cigarettes has been clear.
Speaker Change: And the rise in lifting cost could also help accelerate the street and user penetration.
Wang Ying: Our expansion strategy calls for prudent and calculated entries into new markets in the second quarter. We are working on expanding to certain countries this quarter, starting with Asia. So overall, we are optimistic about the growth potential of our international markets by capturing increasing market share to drive our growth in this quarter and beyond. So regarding your second question about the special action and also the impact on the second quarter.
Our expansion strategy cost for prudent and calculate the entries into new markets in the second quarter.
Speaker Change: We're working on expanding to certain countries in this quarter starting with Asia.
Speaker Change: So overall, we are optimistic or positive growth potential of our international markets by capturing increasing market share to drive our growth in this quarter and beyond.
Speaker Change: So regarding your second question about the special action and also what's the impact of course, the second quarter.
Wang Ying: So, the special action against illegal products in China is positive development for the industry. This year's special action is more comprehensive, with four months of inspection and evaluation, a month longer than that of last year. The extended period allows for a more thorough inspection of the value chain from manufacturing and wholesale to retail. This year's special action focuses on multiple aspects, ensuring all entities fully comply with the regulations and cracking down on unlicensed entities.
So the special action against illegal product in China are positive developments for our industry. This year special actually smartphone.
Speaker Change: Comprehensive reforms of inspection any violation.
Speaker Change: Months longer than that of last year.
Speaker Change: The extended period allows for a more thorough inspection of the bio chain from manufacturing and wholesale to retail.
Speaker Change: This year's special action focuses on multiple aspects, ensuring all entities fully comply with the recreations and cracking down on a license entities.
Wang Ying: For manufacturers like us, this requires complying with production and operational standards and robust product quality assurances. Also, authorities identify unlicensed entities' activities, collaborate with our department to shut down illegal operations, and pursue legal responsibility for such violations. We fully support and are thankful to the Chinese authorities for their efforts to address these issues and promote a well-regulated e-cigarette industry. For the second quarter, we expect these actions can help stabilize the market, and we remain optimistic that these efforts can support our growth and achieve our goals. Although it is still a bit early to predict specific outcomes for the second quarter, thank you for your question.
Speaker Change: Manufacturers like Us this requires complying with production and operational standards.
And robust product quality assurance systems.
Speaker Change: Also our priorities identify on license and PS.
<unk> collaborates with our departments to shutdown illegal operations and pursue legal responsibility for such violation.
Speaker Change: So we fully support and our faithful to the Chinese authorities for their efforts to address these issues and pro mostly well regulated ebay for industry.
Speaker Change: So for the second quarter. We expect these actions can help stabilize the markets and remain optimistic that these efforts can support our growth and achieve our goals.
Speaker Change: Although he's a stupid early to predict specific outcomes towards the second quarter.
Speaker Change: For our questions.
Speaker Change: Okay.
Speaker Change: Thank you and our next question comes from Manhattan, Lu with C. I C C.
Operator: Thank you. And the next question comes from Peihang Lyu with CICC.
Speaker Change: Okay. Thank you management. This is pay home pharmacy ICC I have two questions. Here. My first question is what is the current level of innovation and market share in the domestic market and how does the company perceive your share or anything but just mid market.
Peihang Lyu: Okay, thank you, management. This is Peihang from CICC.
Peihang Lyu: I have two questions here. My first question is, what is the current level of the elixir market share in the domestic market? And how does the company perceive your share in the legitimate market? And the second question is that, given the intensifying competition in the overseas market, we have also noticed increasing pressure on product ASP this year. So how does your company view the price competition in the industry and its impact on your business? Thank you.
Speaker Change: And the second question is that given the anticipated competition in the overseas markets. We have also noticed in placing pressure on product ESP. This year. So how does the company view the price competition of the industry and its impact on your business. Thank you.
Speaker Change: Thank you very much pay home for our questions. So the first question is about the illegal markets in China.
Wang Ying: Thank you very much, Peihang, for your questions. So the first question is about illegal markets in China. So we do see that the illicit market continues to pose great challenges in the Chinese market. Some market estimates suggest that illegal products account for the majority of the token market size. These black market transactions are conducted through social media platforms, which are difficult to monitor and trace.
Speaker Change: So we do see that the illicit market continues to pose great challenges in the China markets. So market estimates suggest that's illegal products accounting for the majority of they took more concise.
Speaker Change: Black market transactions are conducted through social media platforms, which.
Speaker Change: Which is difficult to monitor in place.
Wang Ying: Regulators are tracking down illicit activities in the industry, including the two cases we mentioned in the opening remarks, and special actions are still ongoing. We hope better investments and new product launches will reduce the illicit market share. In terms of our market share in the legal markets, we are a leading brand and have maintained a stable market share over the last 12 months. We have strong brand equity and provide quality and extensive products that can meet our users' needs. So your second question is about international market competition.
Rec, ladies western are tracking down on Elisa activities in the industry, including the two cases, we mentioned in the opening remarks.
Speaker Change: And the special actions are still ongoing.
Speaker Change: We hope better enforcement and new product launches will reduce the illicit market share.
Speaker Change: In terms of our market share in the legal markets. We are we are a leading brand and maintain a stable amount of share over the last 12 months we.
Speaker Change: We have strong brand equity and provide quality inexpensive products that can meet all use on these.
Speaker Change: So second question is about our international markets our accommodations.
Speaker Change: So we think the competition in our industry is primarily related to product innovation, rather than just pricing.
Wang Ying: So we think the competition in our industry is primarily related to product innovation rather than just pricing. Unlike other consumer categories, the growth of the e-cigarette market and market share movements among brands are driven by product innovation that can meet users' evolving demand while complying with regulatory requirements. For instance, the Tobacco Product Directive in the EU region limits the capacity of cartridges to no more than 2 mm. In response to user preferences for more pubs, products like 4-in-1 have emerged. These products provide 4 cartridges, and each cartridge contains no more than 2 ml of e-liquid.
Speaker Change: Unlike other consumer categories the growth of the E vapor markets and market share movements. Among brands are driven by product innovation that could meet users' evolving demand while complying with Frac later.
Speaker Change: Regulatory requirements.
Speaker Change: For instance, the tobacco product directive in the EU region limits the capacity of cartridges to no more than two millimeter.
Speaker Change: In response to user preferences for more puffs products like four in one half emerge.
Speaker Change: <unk> products provide for cartridges and each cartridge campaign no more than two minutes her of illiquid.
Speaker Change: These can cater to user demand for convenience, while complying with yield requirements.
Wang Ying: This can cater to user demand for convenience while complying with EU requirements. Also, we see more new products being offered to provide users who seek value-for-money options. Many brands, including us, have introduced e-liquid products, offering diversified options at various price points. Product diversification can ensure that we can meet different user segments' needs without competing in pricing. Overall, succeeding in the e-cigarette market requires product innovation but not price cuts, as this would harm brand equity. As the market and penetration of the e-cigarette category continue to grow, we believe we can grow with the industry and increase our share by launching products that cater to user needs. Thank you for your questions.
Speaker Change: Also we see more new products are offered to provide users who seek value for money options.
Speaker Change: Many brands, including us have been true bills illiquid products.
Speaker Change: Offering diversified options at various price points.
Speaker Change: Product diversification can ensure we can meet different user segments nice without competing in pricing.
Speaker Change: Overall shipping in the ebay per market requires product innovation, but more price cuts.
Speaker Change: And this would harm brand equity.
Speaker Change: As the market and penetration of the E vapor category continues to grow.
We believe we can grow with the industry and increased our share by launching products that cater to user needs.
Speaker Change: Thank you for your questions.
Thank you and the next question comes from Bose, George Tong with C. I T I C Securities.
Operator: Thank you. The next question comes from Bojia Fang with CITIC Security.
Speaker Change: Thank you management. This is <unk> from Citic Securities I have one question here. We have also have Nevada, UK segue to exports experienced a significant decline in March but could you. Please share a weapon downtime is relating to the rest of them disposable products. Additionally.
Bojia Fang: Thank you, Management. This is Bozha from CITIC Security, and I have one question here.
Bojia Fang: We have observed that UK cigarette exports experienced a significant decline in March. Could you please share whether this downturn is related to the recent ban on disposable products? Additionally, could you provide some insights into which major overseas markets are currently driving sales for the company's disposable product vodka? How has growth been in these markets, and how do you view the future trend? Thank you. Thank you very much for the interview.
Speaker Change: Could you provide some insights into which major overseas markets are currently driving sales for the company as disposable product.
Speaker Change: How his schools being in these markets and how do you view the future. Thank you.
Speaker Change: Yeah.
Wang Ying: Thank you very much, Bojia. The decline in UK e-cigarette exports in March is partially attributed to the anticipated ban on disposable products, which could take effect as early as April 25. We observe trends indicating that players across the value chain are preparing for the change. For instance, some brands with a significant focus on disposables have already launched and promoted their POS system products. Some retailers are also converting existing disposable users to other subcategories such as POS system and open system products.
Speaker Change: Oh, thanks, very much boarder to decline in the U K E cigarette exports in March is partially attributed to the anticipated ban on disposable products, which could take effect as early as April finished Genesis.
Speaker Change: We observed trends in the cases that players across the value chain are preparing for the change.
Speaker Change: For instance, some brands with a significant focus on disposables have already launched and promoted their Pos system products.
Speaker Change: Some retailers are also converting existing disposable users to Artur subcategories, such as Pos system and open system products.
Wang Ying: So regarding our disposable products or WCAG, we primarily sell our disposables in markets where they are allowed. Disposable products have gained popularity due to their convenience and relatively affordable price, and our disposable products have experienced growth as well. So regarding the future trend of disposables, each market situation is different as it largely depends on local regulatory developments. If such disposable products are banned in certain markets, we can convert users to other subcategories, given that we are a leader in cost systems while offering eliquid solutions in certain markets as well.
So regarding our disposable products or what kind of.
Speaker Change: We primarily sell our disposables in markets, where they are allowed.
Speaker Change: Disposable products have gained popularity due to ease convenience and a relatively affordable pricing.
Speaker Change: Our disposable products have experienced growth as well.
Speaker Change: So regarding the future trend of disposables each market situation is different.
Speaker Change: Largely depends on local regulatory developments.
Speaker Change: If such disposable products are banned in certain markets.
Speaker Change: Can convert users to our subcategories.
Speaker Change: Given this we are a leader in car system, while offering illiquid solutions in certain markets as well.
Speaker Change: Thank you for a question.
Speaker Change: Thank you.
Speaker Change: And due to time constraints now I would like to turn the call back over to the company for any closing comments.
Operator: Due to time constraints now, I would like to turn the call back over to the company for any closing comments.
Speaker Change: Well. Thank you once again for joining US today. If you have further questions. Please feel free to contact <unk> Investor relations team through the contact information provided on our website O P. S. Yang <unk> financial communications. Thank you.
Operator: Thank you once again for joining us today. If you have further questions, please feel free to contact RLX Technology's Investor Relations team through the contact information provided on our website or Pierre Chianti Financial Communications.
Operator: Thank you. This concludes this conference call. You may now disconnect your line.
Operator: Thank you. Thank you. This concludes this conference call. You may now disconnect your line. Thank you.
Speaker Change: Thank you. This concludes this conference call you May now disconnect. Your line. Thank you.
Operator: [inaudible]
Speaker Change: [music].