Q3 2024 RLX Technology Inc Earnings Call
Hello, ladies and gentlemen.
Operator: Hello ladies and gentlemen.
Operator: Thank you for standing by for RLX Technology Inc's third quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. After management's remarks, there will be a question and answer session.
Thank you for standing by her are.
Oh X Technology, Inc, third quarter 'twenty 'twenty four earnings conference call.
At this time all participants are in a listen only mode.
After management's remarks, there'll be a question and answer session.
Operator: Today's conference call is being recorded and is expected to last for about 40 minutes.
Today's conference call is being recorded and is expected to last for about 40 minutes.
Mr. Samsung: I will now turn the call over to your host Mr. Samsung.
Sam Tsang: I will now turn the call over to your host, Mr. Sam Tsang, Head of Capital Markets for the company. Please go ahead, Sam.
Mr. Samsung: Our capital markets for the company. Please go ahead Sir.
Speaker Change: Thanks, very much Hello, everyone and welcome to ours technologies first quarter Hirschmann, and therefore earnings conference call. The company's financial and operational results were released for PR Newswire services earlier today and has been made available online.
Sam Tsang: Thank you very much.
Sam Tsang: Hello everyone and welcome to RLX Technology's third quarter 2024 earnings conference call. The company's financial and operational results were released through PL 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.
Speaker Change: You can also be able with the earnings press release by visiting the IR section of a site, that's what I hope, what where that type of comp.
Sam Tsang: 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 forward-looking information made under the Safe Harbor Provisions of the U.S. Department of Security's Resercation Reform Act of 1995. These statements typically contain words such as may, will, expect, target, estimate, intend, believe, potential, continue, or other similar expressions.
Speaker Change: Participants on today's call will include our Chief Executive Officer is case, Wang our Chief Financial Officer, Mr. Chow and.
And myself Samsung head of capital markets.
Speaker Change: Before we continue please note that today's discussions will contain forward looking information made on Earth. The safe Harbor provisions of the U S. Private Securities Litigation Reform Act of 90 95.
Speaker Change: These base metals typically contain words, such as May will expect targets estimates to return at least potential continue our artist similar expressions.
Forward looking statements.
Sam Tsang: Four Looking Stamens in Mock, Inheritance, and Uncharted. The accuracy of these statements may be impacted by a number of business rates and uncertainties that could cause actual results to differ materially from those projected or anticipated. many of which factors are beyond our control.
Speaker Change: Herein risk and uncertainties. The accuracy of these statements may be impacted by a number of business risks and uncertainties that could cause actual results to differ materially from those projected or anticipated.
Speaker Change: Many of these factors are beyond our control.
Speaker Change: The company is affiliate Pfizer's Henrik with some of these do not undertake any obligation to update its forward looking information, except as required under applicable law.
Sam Tsang: The company, its affiliates, advisors, and representatives do not undertake any obligation to update this board of information except as required under the Act of the Law. 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. Our press release contains a reconciliation of the unaudited non-GAP measures to the unaudited GAP measures.
Speaker Change: Please note that our technologies earnings press release, and this conference call include discussions of unaudited GAAP financial measures.
Speaker Change: Audited non-GAAP financial measures.
However, <unk> press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited GAAP measures.
Speaker Change: I will now turn the call over to MS <unk> Wang.
Kate Wang: I will now turn the call over to Ms. Kate Wang, please go ahead. Thank you, Sam, and thank you to everyone for joining our earnings conference call today.
Speaker Change: Please go ahead.
Speaker Change: Thank you Sam and thank you to everyone for joining our earnings conference call today.
Speaker Change: I would like to begin with an overview of our strategy, what's driving in markets outside of China.
Kate Wang: I would like to begin with an overview of our strategy for thriving in markets outside of China. Followed by an update on our current and the recent developments in the China market and the review of our intellectual property achievement.
Speaker Change: Followed by an update on our current.
Speaker Change: And the recent developments in the China market.
Speaker Change: The the robbery intellectual property achievement.
Speaker Change: Finally, I will hand over to our CFO for a detailed financial review.
Kate Wang: Finally, I will hand over to our CFO for a detailed financial review. We delivered a robust performance in the third quarter of 2024. demonstrating our ability to consistently excel in diverse markets despite rapidly evolving demands in the regulatory landscape. This positions us as a leading brand beyond China. Following the termination of our non-competition agreement last year, we have successfully expanded into multiple international markets. During this period, Two key trends have merged within the overseas e-vapor industry. First, we have observed an increase in regulatory activity across various markets. Governments are implementing new regulations, including bans on disposable products, new tax policies, and stricter enforcement against illegal goods.
Speaker Change: Yeah.
We delivered a robust performance in the third quarter of 2024.
Speaker Change: Demonstrating our ability to consistently excel in diverse markets.
Speaker Change: But that really evolving demands and the regulatory landscape.
This positions us at the leading brand beyond China.
Speaker Change: Following the termination of our non competition agreements last year, we have successfully expanded into multiple international markets.
Speaker Change: During this period.
Speaker Change: Two key trends have merged with things overseas ebay pretty industry first.
Speaker Change: We have all preserved and increased regulatory activity across various markets.
Speaker Change: Governments are implementing new regulations, including bans on disposable products.
Speaker Change: New tax policies and the stricter enforcement of gas illegal.
Speaker Change: While these developments can foster.
Kate Wang: While these developments can foster sustainable growth within this industry. They also complicated operations for compliant brands like IOX. This makes it essential for us to develop dedicated local strategies. create multi-category product lines to facilitate user transition. Enhanced Inventory Management Across Value Chains and optimize costs to align with and adapt to regulatory change. The second trend is a growing demand from consumers for enhanced product functionality and cost-effective daily evaporated products. Certain segments for adult smokers are seeking more advanced features in e-vapor products akin to the rising expectations in the consumer electronics sector. where personalization and technological innovation are paramount.
Speaker Change: Sustainable growth within the industry.
Speaker Change: They also complicated.
Speaker Change: Patients for compliant brands like <unk>.
Speaker Change: This made this makes it essential for us to develop dedicated local strategies.
Speaker Change: Great multi category product lines to facilitate user transitions.
Speaker Change: He has inventory management across the value chain.
Speaker Change: Optimize costs to align blaze and adapt to regulatory changes.
Speaker Change: The second trend is the growing demand from consumers for your <unk> product functionality and cost effective.
Speaker Change: Daily ebay prepared.
Speaker Change: Certain segments for adult smokers.
Speaker Change: Seeking more dwarf features E vapor products came to the rising expectation in the consumer electronics sector there.
Speaker Change: Personalization and technology co innovation Paramount.
Speaker Change: The MAU tenuously.
Kate Wang: Simultaneously, and as the inflation persists in several countries. Some other user groups are demanding tele-eVapor products that offer good value for money. To meet these diverse needs, brand manufacturers must possess strong user insights capabilities and in-house expertise. a product development expertise to create tailored solutions for different local markets and different user segments. To address these trends comprehensively, we have developed an integrated business model supported by our talented workforce. which empowers our success in various local markets and product categories. This model includes targeted due-to-market strategies. Comprehensive Product Portfolio, Refined Supply Chain Management, and Focused User Engagement Strategy.
Speaker Change: And as the inflation in several countries. Some other user groups are demanding daily E vapor products.
Speaker Change: That offer good value for money.
Speaker Change: To meet these diverse needs brand manufacturers mask pulses strong user insights capabilities and a half.
Speaker Change: Product development expertise to create tailored solutions for a different local markets and different user segments.
Speaker Change: To address these trends comprehensively we.
Speaker Change: We have developed an integrated business model supported by our talented workforce.
Speaker Change: That empowers our success in their local markets and product categories.
Speaker Change: This model includes targeted go to market strategies.
Speaker Change: Our comprehensive product portfolio.
Speaker Change: Let's find the supply chain management and focused user engagement strategies.
Speaker Change: We have refined this model in China and are now successfully replicating it in international markets.
Kate Wang: We have refined this model in China and are now successfully replicating it in international markets. making necessary adjustments based on local conditions.
Speaker Change: Making necessary adjustments based on local conditions.
Speaker Change: Looking ahead, we anticipate that the international EBIT per industry.
Kate Wang: Looking ahead, we anticipate that the international e-vapor industry will experience an annual growth rate in the 10th over the next few years. as more adult smokers transition from cigarettes to e-vapor products. Additionally, we expect a growing number of e-vapor users to shift from due user of cigarettes and e-vapor products to exclusive e-vapor use. Given the increased regulatory activities and rising user demand We believe that only leading players with an integrated model will succeed. We are confident in our ability to capture incremental market share in international e-vapor markets over the coming years.
<unk> experienced an annual growth rate in the past over the next few years.
Speaker Change: Small adult smokers transition from cigarettes to EBIT per paired up.
Speaker Change: Additionally, we expect a growing number with you they per users to ship from do user.
Of cigarettes, and EBIT prepared ups to exclusive E vapor use.
Yeah.
Speaker Change: Even the increased regulatory activities and the rising user demands.
Speaker Change: We believe that only leading players with our integrated model will succeed.
Speaker Change: We are confident in our ability to capture incremental market share in international E vapor markets over the coming years.
Speaker Change: Turning to the latest developments in China, we note that illegal E. They prepared ups continue to dominate the market.
Kate Wang: Turning to the latest developments in China, we note that illegal e-vapor products continue to dominate the market. Our internal estimates indicate that these products account for 80% to 90% of the total e-vapor market in China. Generally, illegal products of subpar quality and fail to meet national product standards. often being non-tobacco flavors. Furthermore, they do not contribute to consumption tax revenue. As a compliant and responsible brand, we are actively combating these illicit sales through various initiatives. including targeting illegal sales on social media, delisting illegal zero-need coating products from e-commerce platforms. and collaborating with authorities to shut down counterfeit production facilities.
Speaker Change: Our internal estimates indicate that.
Speaker Change: These products account for 88% to 90% of the total E vapor market in China.
Speaker Change: Generally illegal products of sub pop quality and failed to meet national product standards.
Speaker Change: Often be non tobacco flavored for.
Speaker Change: So the more they do not contribute to consumption tax revenues.
Speaker Change: That's a compliant and responsible brand actively combating these elisa as it sells through various initiatives.
Speaker Change: Holding targeting illegal sales all social media de listing illegal zero need coating product from E Commerce platform.
Speaker Change: And collaborating with all start to shut down condensate production facilities.
Speaker Change: We remain committed to cooperating with regulators these effort and appreciate their support.
Kate Wang: We remain committed to cooperating with regulators in this effort and appreciate their support. While addressing illicit sales, we have also launched a new product series to enhance our competitiveness. This quarter, we introduced the Fay Liu series, our first compliant disposable product line since the implementation of national standards. We offer two disposable products with e-liquid volumes of 6ml and 10ml. designed for adult smokers seeking convenience at a lower entry cost compared to cartridge-based products. Feedback from retailers and users have been overwhelmingly positive and we plan to expand this launch nationwide.
Speaker Change: While addressing illicit sales we have also launched a new product serious to enhance our competitiveness.
This quarter, we introduced the failure was serious.
Speaker Change: First compliance disposable product line since the implementation of National standards.
Speaker Change: We offered to a disposable products with your liquid volumes of six ml to 10 ml. These.
Speaker Change: Designed for smokers seeking convenience at a lower entry cost compared to cartridge based products.
Speaker Change: Feedback from readers and users have been overwhelmingly positive and we plan to expand this launch national wide.
Speaker Change: Finally, I'm pleased to announce that all of our team has successfully passed the certification exam for the enterprise intellectual property compliance management system requirements.
Kate Wang: Finally, I am pleased to announce that our team has successfully passed the certification exam for the Enterprise Intellectual Property Compliance Management System requirements. This sophistication which encompasses research and development, production and sales of e-vapor and electronic components. signifies that IRX has established a comprehensive intellectual property management system. This includes trademarks, patents, original designs, and software copyrights, forming a robust framework for technology and brand protection on a global scale.
Speaker Change: Yeah.
Speaker Change: This simplification, which he can campuses research and development.
Speaker Change: Duction and sales of EBIT her in the electronic components.
Speaker Change: <unk> that <unk> has established a comprehensive intellectual property management system.
This includes trademarks patents orange designs and software copyrights, forming a robust framework for technology and brand protection.
Speaker Change: Global scale.
Speaker Change: In conclusion, <unk> technology is well positioned to lead both domestically and internationally.
Kate Wang: In conclusion, IoTeX Technology is well positioned to lead both domestically and internationally in an evolving eVapor landscape. As regulatory shifts reshape this industry, we are leveraging our integrated model to remain agile, proactive, and focused on developing value to adult smokers worldwide. Moving forward, we will continue to prioritize regulatory compliance, in-house product innovation, and strategic adaptability to navigate compliance environments while meeting rising user expectations and driving sustainable growth for the company.
Warming E vapor landscape.
Speaker Change: S regulatory shifts reshaped. This industry, we are leveraging our integrated model to remain agile proactive and focused on developing value to adult smokers worldwide.
Speaker Change: Going forward, we will continue to prioritize regulatory compliance.
Speaker Change: <unk> product.
Speaker Change: <unk>.
And strategic.
Adaptability to navigate comprise environments, well maintained rising user expectations.
Speaker Change: And driving sustainable growth for the company.
And now I'll turn the call over to our CFO Tao Liu for a detailed financial review.
Chao Lu: I will now turn the call over to our CFO, Chao Lu, for a detailed financial review. Thank you, Kate. And hello, everyone.
Tao Liu: Thank you Kay.
Chao Lu: 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. Since terminating our non-competition agreement with RLX Inc. in November 2023, we have substantially expanded our international presence. driving top-line growth. Our net revenues grew to RMB 756 million in the third quarter of 2024, up 52% year-over-year from RMB 499 million. and 21% quarter over quarter from RMB 627 million. Both our China and non-China businesses experienced sequential growth this quarter. We anticipate continued revenue growth as we expand into more international markets. capturing incremental market share and benefiting from anticipated category growth.
Tao Liu: Hello, everyone.
Tao Liu: 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.
Tao Liu: Thanks, terminating our non competition agreements with relaxed Inc. In November 2023.
We have substantially expanded our international presence.
Tao Liu: Driving topline growth.
Tao Liu: Our net revenues grew to RMB 756 million in the third quarter of 2024.
Tao Liu: Up 52% year over year from RMB 499 million.
Tao Liu: And 21% quarter over quarter from RMB 627 minutes.
Tao Liu: Both our China, and non China businesses experienced sequential growth this quarter.
Tao Liu: We anticipate.
Tao Liu: Japan continued revenue growth as we expand into more international market cap.
Tao Liu: Capturing incremental market share and benefiting from anticipated category growth.
Tao Liu: Turning to profitability.
Chao Lu: Turning to profitability, our overall gross profit margin improved to 27.2% in the third quarter of 2024, marking a 3.2 percentage point increase year over year. This improvement is primarily due to favorable changes in our revenue mix. including both channel and product diversification. On a like-for-like basis, gross profit margins across various revenue streams have also improved year over year. We recorded a total operating loss of RMB 11 million this quarter. However, excluding the impact of share-based compensation, we achieved our fourth quarter sequential consecutive quarter of positive non-GAAP operating profit at RMB82m. driven by incremental contributions from our international business and effective cost reduction strategies.
Tao Liu: Our overall gross profit margin improved to 27, 2% in the third quarter of 2000 2024.
Tao Liu: Marking a three two percentage point increase year over year.
Tao Liu: This improvement is primarily due to favorable changes in our revenue mix.
Tao Liu: In both channel and product diversification.
Tao Liu: On a like for like basis gross profit margins across various revenue streams have also improved year over year.
Tao Liu: We recorded a total operating loss.
Tao Liu: RMB 11 million this quarter.
However, excluding the impact of share based compensation, we achieved our fourth quarter sequential consecutive quarter of positive non-GAAP operating profit at RMB 82 minutes.
Tao Liu: Driven by incremental contributions from our international business and effective cost reduction strategy.
Tao Liu: While our gross profit margin may fluctuate quarterly due to variations.
Chao Lu: while our gross profit margin may fluctuate quarterly due to variations. In revenue contributions and cost optimization efforts, we expect our overall non-GAAP operating profit margin to improve as we scale our business while maintaining consistent middle and back office support during our regional expansion. Consequently, operating expenses are expected to grow at a slower pace than our top-line growth. As a result, our non-GAAP net income for the third quarter of 2024 increased by 30% year-over-year to RMB 262 million. For the same period, our non-GAAP basic net income per ADS was RMB0.211. And non-GAAP diluted net income per ADF was RMB 0.200.
Tao Liu: And revenue contribution and cost optimization efforts.
We expect our overall non-GAAP operating profit margin to improve as we scale our business, while maintaining consistent middle and back office support doing our regional expansion.
Tao Liu: Consequently, operating expenses are expected to grow at a slower pace than our topline growth.
Tao Liu: As a result, our non-GAAP net income for the third quarter of 2024 increased by 30% year over year to RMB 262 million.
Tao Liu: For the same period.
Tao Liu: non-GAAP basic net income per ads was RMB <unk> 211.
Tao Liu: And non-GAAP diluted net income per ads was RMB <unk> 200.
Tao Liu: In terms of cash flow, we achieved operating cash inflow of RMB 157 million in the third quarter of 2024.
Chao Lu: In terms of cash flow, we achieved an operating cash inflow of RMB157 million in the third quarter of 2024, up from RMB83 million in the same quarter of the previous year. driven by enhanced working capital. and Inventory Management. Additionally, we are currently experiencing a negative cash conversion cycle exceeding one month. Our inventory turnover days stood at just 16 days in the third quarter of 2024. a sharp decrease from over 100 days in the first quarter of 2023. and 30 days in the first quarter of 2024. as we continuously optimize slow-moving SKUs while growing our scale.
Tao Liu: Up from RMB 83 million in the same quarter of the previous year.
Tao Liu: Driven by enhanced working capital.
Tao Liu: And inventory management.
Additionally, we are currently experiencing a negative cash conversion cycle exceeding one month.
Tao Liu: Our inventory turnover days stood at just 16 days.
Tao Liu: Third quarter of 2024.
Tao Liu: A sharp decrease from over 100 days in the fourth quarter of 2023.
Tao Liu: And 30 days in the first quarter of 2024.
Tao Liu: As we continuously optimize slow moving skus, while growing our scale.
Tao Liu: As of September 32024 hour total financial assets, including cash and equivalents.
Chao Lu: As of September 30th, 2024, our total financial assets, including cash and equivalents, Restricted cash and various short-term and long-term deposits and investments stand at RMB 15.4 billion.
Tao Liu: Restricted cash and in various short term and long term deposits and investments standard at RMB 15 4 billion.
Tao Liu: Finally, we are pleased and we are pleased to announce our <unk>.
Chao Lu: Finally, we are pleased to announce our second cash dividend since our IPO, reaffirming our commitment to delivering value to our shareholders. Our objective is to return substantially all of our non-GAAP net profits at minimum through share repurchase programs and cash dividends. continuing the practice we have upheld over the past two years. We remain dedicated to generating sustainable, growing profits and enhancing returns for our shareholders.
Tao Liu: Second cash dividend since our IPO reaffirming our commitment to delivering value to our shareholders.
Tao Liu: Our objective is to return substantially all of our non-GAAP net profit at minimal.
Tao Liu: Through share repurchase programs and cash dividends.
Continuing the practice, we have upheld over the past two years.
Tao Liu: We remain dedicated.
Tao Liu: Two generating sustainable growing profits and enhancing returns.
Tao Liu: Our shareholders.
Speaker Change: This concludes our prepared remarks today, we will now open the call to questions.
Chao Lu: This concludes our prepared remarks today.
Operator: 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 touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the key. If at any time your question has been addressed and you would like to withdraw your question, 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.
Operator, Please go ahead.
We will now begin the question and answer session.
Speaker Change: To ask a question you May Press Star then one on your Touchtone phone.
Speaker Change: If youre using a speakerphone please pick up your handset before pressing the keys.
Speaker Change: If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
Speaker Change: For the benefit of all participants on today's call. If you wish to ask your question can management in Chinese. Please immediately repeat your question in English.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Operator: At this time, we will pause momentarily to assemble our roster.
Speaker Change: The first question today comes from Lydia <unk> with Citi. Please go ahead.
Lydia Ling: The first question today comes from Lydia Ling with Citi. Please go ahead. Hi, management. This is Lydia from Citi. So, here I have two questions regarding your overseas business. So, firstly, actually, we see some progress for overseas business this year. And so, congratulations on some progress. And so, we are keen to actually understand what's your plan for the next year as we are actually year-end. And so, very keen to understand what will be your overseas expansion plan for 2025. And then my second question would be, what's those countries or regions that you already entered this year?
Hi management is <unk> from Citi. So yeah, I have two questions regarding your overseas business. So firstly, we always see some progress of our overseas business. This year and so congratulations awesome progress.
Speaker Change: So we're working to actually understand what's your plan for the next year as we actually year end and it's still very keen to understand what would be your overseas expansion plans for the for 2025 and then my second question would be all fourth dose a lighter.
Speaker Change: <unk> are regions that you already entered this year. So very interesting to understand is that how we further drive your organic growth and also S. K just imagine that you would target you are gaining market share in following years. So what are your strategies to for that game are your market share and what's our target market share looking ahead and Oh.
Lydia Ling: So, very interesting to understand that, how will you further drive your organic growth? And also, as Kay just mentioned, your target to gain your market share in following years. So, what will be your strategies to further gain your market share? And what's your target market share looking ahead? And if any, like, your product or marketing strategies and any kind of that will be very helpful. Thank you.
Speaker Change: Any like they are proud of our marketing strategies and any color around that it would be very helpful. Thank you.
Speaker Change: Thank you very much for Etfs. So there are two questions. One is a follow up our future expansion and the other one is about the organic growth.
Kate Wang: Thank you very much, Lydia. So there are two questions. One is about our future expansion, and the other one is about the organic growth. Since the termination of our non-competition agreement last year, we have entered into multiple international markets. So this quarter marks the first anniversary of our company's entry into the global markets outside of China. As of the third quarter of 2024, we operate directly in five countries in East Asia, Southeast Asia, and Oceania. Based on our internal estimates, we are currently the number one brand in three out of five countries in terms of revenue from the closed system e-paper category.
So since the termination of our non competition agreements last year, we have entered into multiple international markets.
So this quarter marks the first laboratory of our company entry into global markets outside of China.
Speaker Change: As of the FERC quarter Altria, if any floor, we operate directly in the five countries in East Asia Southeast Asia and Oceana.
Speaker Change: Based on our internal estimates.
Speaker Change: Currently the number one brand in free our top five countries in terms of revenue from the closed system E vapor category.
Kate Wang: We are also one of the leading brands in the remaining two countries. We also sell products to affiliates that sell to their overseas distributors. In the third quarter of 2024, non-China business revenue accounted for more than half of our net revenue.
Speaker Change: We are also one of the leading brands in the remaining two countries.
Speaker Change: We also sell products to a police that sell to their overseas distributors.
Speaker Change: In the third quarter, Australia, any for non China business revenue accounted for more than half of our net revenues.
Speaker Change: Looking ahead to 275, we are considering and for a couple of countries, which could be in EMEA region in Central America.
Kate Wang: Looking ahead to 2035, we are considering entering a couple of countries, which could be in the EMEA region and Central America. As we mentioned last quarter, we only can enter a country when its regulatory development is stable. Our business model is built, and we have the right team in place to operate there. We currently think of a couple of candidates who may be ready for entry next year, but this will depend on internal and external factors.
Speaker Change: As we mentioned last quarter.
Speaker Change: Only kind of enter a country when these regulatory developments is stable.
Speaker Change: Our business model is built and we have the right team in place to operate there.
Speaker Change: We currently think of a couple of candidates maybe ready for entry next year, but this will depend on internal and external factors.
Speaker Change: So regarding the organic growth of the countries that we are currently operating in.
Kate Wang: So regarding the organic growth of the countries that we are currently operating in... We mainly focus on two aspects to gain incremental market share. and Optimal Product Development Portfolio and the Right Root Market Strategy. Together this creates the right product market fit. We deeply analyzed the local market environments and user behavior, including new regulatory changes and user preferences in each market. For example, we have the leading market share in one of our markets, but we are currently only strong in small-volume cartridge-based evapoproducts. And the disposable ban will become effective soon there. and user preferences are trending towards large-volume disposable products.
Speaker Change: We mainly focus on two aspects to gain incremental market share.
Speaker Change: Optimal product development portfolio and the right go to market strategies.
Speaker Change: Together this creates the right product market fit.
Speaker Change: We deeply analyze the local market environments and user behavior, including new regulatory changes and user preferences in niche markets.
Speaker Change: For example, we have a leading market share in one of our markets, but we are currency only strong in small volume cartridge based E vapor products.
Speaker Change: And the disposable ban will become effective soon there.
Speaker Change: User preferences.
Speaker Change: Trending towards larger volume disposable products.
Therefore, we have launched large volume cartridge based products.
Kate Wang: Therefore, we have launched large-volume cartridge-based products and advocate for users to convert in new channels. Regarding rules of market strategies, we usually have one to two retail channels in which we excel. such as CVS, WaveStar Channels, or RLX Branded Star Channels. Each country has its specific development path and reason behind it. In the past couple of quarters, we have been focusing on developing and enhancing retail channels by reaching out to new distributors and retailers. With user preferences and market landscape in mind, we may launch a designated product series for this channel. This also shows we have a great potential to further increase our market share.
Speaker Change: And advocates for users Congress in new channels.
Speaker Change: Regarding go to market strategies, we usually have one or two retail channels in which we excel.
Speaker Change: Such as Cvs, we have star channels or relax Brenda store channels.
Each country has its specific developments pump and reason behind it.
Speaker Change: In the past couple of quarters, we have been focusing on developing and enhancing retail channels by reaching out to new distributors and retailers.
Speaker Change: With user preferences and market landscape in mind.
Speaker Change: <unk> launched a decimated prana serious for these channels.
Speaker Change: This also shows we have a great potential to further increase our market share.
Speaker Change: The E vapor category is expected to grow by double digits each year in the next couple of years and.
Kate Wang: The e-vapor category is expected to grow by double digits each year in the next couple of years, and we believe you're on the right track to gain further market share and show growth as the category expands. Thank you for your question.
Speaker Change: And we believe you on write checks to gain further market share and show growth as the category expense. Thank you for your questions.
Speaker Change: Thank you.
Speaker Change: The next question comes from Pei hung Lib with TICC. Please go ahead.
Peihang Lyu: The next question comes from Peihang Lyu with TICC. Please go ahead. Thank you, management. This is Lyu Peihang at CICC. My questions are about domestic regulation because we have recently noticed several e-cigarette companies being penalized for adding illegal ingredients. So does the management see there has been a change in the domestic regulation or law enforcement? And as Mrs. Wang mentioned in the beginning, the illegal products still count as the dominant part in China. And how do you perceive the future of the illegal market? Thank you.
Speaker Change: Thank you management this has to be paid.
Speaker Change: ICC my questions are about domestic regulation.
Speaker Change: We have recently noticed several E cigarette companies being penalized for heavy legal ingredients. So does the management fee. There has been a change in the domestic regulation or law enforcement and.
Maybe just one mentioned in the beginning.
Speaker Change: Legal products still count as the dominant part in China, and how do you perceive the future of the illegal market. Thank you.
Speaker Change: Oh, thanks, very much Pei hung up for a question. So according to the news release on the staple diet Cola Ministry.
Kate Wang: Thank you very much, Peihang, for your question. So, according to the news release on the State Tobacco Administration's official website last week, three brand manufacturers illegally produced e-vapor products that were inconsistent with the solution or product formula previously approved by the regulators. These brand manufacturers have been fined a total of RMB 5 million and one must stop operating for two months. Some industry participants suspect that this brand's motivation for producing a non-compliant e-liquid solution is that by increasing components like coolants, they can better attract users and increase their product competitiveness. As a compliance brand, we strongly support the regulatory crackdown on non-compliance e-liquid solutions and regulatory actions against illegal e-liquid products in China.
Speaker Change: Official website last week free brand manufacturers illegally for E vapor products that were inconsistent with the solution form part of Formula previously approved by the regulators.
Speaker Change: This brand manufacturers have been fined a total of RMB 5 million and one must stop operating for two months.
Speaker Change: Some industry participants suspect that these brands motivation for producing a noncompliant illiquid solution expense by increasing components like kudos.
Matter of fact users and increase their product competitiveness.
That's a compliance Graham we strongly support the regulatory crackdown on noncompliance illiquid solutions and regulatory actions against illegal E vapor products in China.
Speaker Change: And the overall regulatory frameworks and actions have been consistent over the past two years and we have consistently collaborated with regulators in combating illegal products.
Kate Wang: And the overall regulatory framework and action have been consistent over the past two years. And we have consistently collaborated with regulators in combating illegal products now and also in the future. Thank you for your questions.
Now and also in the future. Thank you for your questions.
Speaker Change: Thank you.
Speaker Change: The next question comes from Charlie Chen with China Renaissance. Please go ahead.
Charlie Chen: The next question comes from Charlie Chen with China Renaissance. Please go ahead. Thanks management for taking my questions.
Speaker Change: Yeah.
Thanks management for taking my questions. This is Charlie Chan from China Renaissance.
Charlie Chen: This is Charlie Chang from China Renaissance. I have two questions here. The first one is regarding the overall consumer market in China. So with this softening consumer sentiment in China, we noticed that Chinese consumers' purchasing behavior has been rather conservative this year. So have you noticed any changes in consumer behavior or competitive landscape in China's e-vaping market this year?
Two questions here.
Speaker Change: First one is regarding the overall consumer market in China. So was this softening consumer sentiment in China, we we noticed that.
Speaker Change: Chinese consumers purchasing behavior has been rather conservative this year.
Speaker Change: You noticed any changes in consumer behavior or.
Speaker Change: Positive landscape in Chinas E vapor market. This year and my second question is interest income has been a substantial part of your earnings in the past couple of years. So it was U S. Federal reserve started to take your rate card.
Charlie Chen: And my second question is interest income has been a substantial part of your earnings in the past couple of years. So with U.S. Federal Reserve started to take a rate cut and possibly taking more cuts going forward, how do you see your interest income going forward? Thank you.
And possibly you're taking more costs going forward, how do you see your interest income going forward. Thank you.
Kate Wang: Thank you Charlie for your questions.
Thank you Charlie for your questions. So the first one is about the.
Kate Wang: So the first one is about the confidence of Chinese consumers, especially the e-vapor markets. And the second one is about the U.S. Fed rate cuts. So for the first question, in the last two years, China's evaporator industry has been deeply affected by illegal products. The number of industry-level retail stores have declined from about 50,000 in the pre-regulatory era to about 10,000 stores. And we estimate the compliant e-vapor category has fallen by 80% to 90% from the pre-regulatory era. However, since the start of this year, our sales, number of point of sales, and market share have been relatively stable, with some uptake in certain markets.
Speaker Change: Confidence of Chinese consumers, especially the E vapor markets and the second one is about the U S fed rate cuts.
Speaker Change: So for the first question in the last in the last two years China's E vapor industry has been deeply affected by illegal products.
Speaker Change: Number of industry level retail stores have declined from about 50000 in the prerequisite to era to above 10000 stores.
Speaker Change: And we estimate the compliance EBIT E vapor category has fallen by 80% to 90% from the pre regulatory era.
Speaker Change: However, since the start of this year ourselves Lamar off point of sales and market share has been relatively stable with some uptick in certain months.
Speaker Change: Furthermore, the sales proportion among our three quartered base policy areas senior Phantom.
Kate Wang: Furthermore, the sales proportion among our three card-based product series Qingyu, Phantom, and Phantom Plus has been stable. This series spans the categories low to high price points. This demonstrates that the e-vapor category has not been affected by the economic headwind in the Chinese consumer market. In the last two quarters, we have launched the DaQian series, a cartridge-based evaporated product series with a higher illiquid volume, and the Feidiao series, a high-volume disposable evaporated product. User-seeking products with good value for money can consider these two new series.
Speaker Change: <unk> plus has been stable.
Speaker Change: This serious span the categories low to high price points.
Speaker Change: This demonstrates that the E vapor category has not been affected by the economic headwinds in the Chinese consumer markets.
In the last two quarters, we have launched the <unk> series the cargo space EBIT product series with a higher liquid volume and the failure of serious a high volume disposable E vapor products.
Use our switching products with good value for money can consider these two new series.
Speaker Change: And regarding your second question as of September <unk> hundred anymore, our company's total financial assets of <unk>.
Chao Lu: And regarding your second question, as of September 30, 2024, our companies have total financial access of RMB 14.8 billion, or approximately 2.1 billion U.S. dollars. Approximately 70% of this total is USD denominated and the remaining 30% is Chinese Yuan or other currency. Although the Fed cut rates in mid-September and early November, Short and medium treasury yields began falling in late April and have been going up since mid-September due to the key events in the U.S. Like other market participants, we have been actively monitoring the money market and are aware of interest rate movements. Given that we have been expecting interest rates to come down since the second quarter, and we have about 50% of our financial assets in long-term vehicles as of the third quarter of 2024, We do not expect any drag on our 2024 interest and investment income due to Fed's recent interest rate cut.
Speaker Change: RMB 14, 8 billion or approximately $2 1 billion in U S dollars.
Speaker Change: Approximately 70% of this total is USD denominated.
Speaker Change: And the remaining 30% is Chinese or other currencies.
Speaker Change: Although the fed cut rates in mid September.
Speaker Change: Early November.
Speaker Change: Short and medium Treasury yields became fallen in late April.
Speaker Change: Have been going up since mid September due to the key events in the U S.
Speaker Change: Like auto market participants, we have been actively monitoring the money markets.
Speaker Change: We're aware of interest rate movements.
Given this we have been expecting interest rates to come down since the second quarter and.
And we have about 50% of our financial assets long term vehicles as of the FERC quarter I was wondering before.
Speaker Change: We do not expect any correct on alternative for interest and he was on income due to fed reasons interest rate cut.
Speaker Change: Based on current yield curve, we expect a slight decline in <unk> interest and he was on income, but we believe the impact will be relatively minor.
Chao Lu: Based on current yield curve, we expect a slight decline in 2025 interest and emission income, but we believe the impact will be relatively minor.
Speaker Change: Thank you for your question.
Chao Lu: Thank you for your questions. Thank you, Sam.
Sam: Thank you Sam.
Sam: The next question comes from Ian go with.
Yun Guo: The next question comes from Yun Guo with and Statistics. Please go ahead. Thanks, management, for taking my question.
Speaker Change: Please go ahead.
Speaker Change: Thanks management for taking my question could the scoring from Citic Securities. My question about RV products I want to know what the new product program me and what's what are the future. Thank.
Yun Guo: This is going from City Securities. My question is about our new products. I want to know how the new product performing and where are the future product plans? Thank you.
Speaker Change: Thank you.
Kate Wang: Thanks Huo Yun for your questions. So in China markets, we have launched the Daqian and Fido series in the second quarter and third quarter, and we will advocate for adult smokers to use these new series instead of illicit e-vapor products or cigarettes. We hope Da Qian will become a key player in the Chinese market in the short to medium term.
Speaker Change: Thanks <unk> for your questions.
Speaker Change: So in China markets, we have launched <unk> in federal serious in the second quarter and the per quarter.
Advocates for smokers to use this new series instead of Elisa E vapor products or is it all cigarettes.
Speaker Change: We hope that churn will become a key player in the Chinese market in the short to medium term.
Speaker Change: We may also launched special products, all serious four different locations subject to regulatory approval unexplored products with artist in Shanghai appears more advanced materials and better core components.
Kate Wang: We may also launch special products or series for different occasions subject to regulatory approval and explore products with other functionalities, more advanced materials, and better core components. Regarding international markets, we will continue to enhance our comprehensive product portfolio, which will help us craft the right product lineup for various local markets. For instance, we have launched RLX Prime, open system products with 1 kit and 16 flavors. They have received positive feedback from users for their minimal illiquid leakage issues, longer usage time, and affordable prices. Another new product is RLX Bean, which allows users to enjoy two flavors in one device and switch the mouthpiece to change the flavor.
Speaker Change: Regarding international markets, we will continue to enhance our comprehensive product portfolio, which will help us craft the right product lineup for various local markets.
Speaker Change: For instance, we have launched <unk> Prime open system products with one Kid and 16 flavors.
Speaker Change: They have received positive feedback from users for their minimal eloquently cash issues longer usage time and affordable prices.
Speaker Change: And our new product is where that's been.
Which allows users to enjoy two papers in one device and switched the most peers to change to flavors.
Speaker Change: We will continuously innovate new products to cater to a different user segments. He bought enemies. Thank you for your questions.
Kate Wang: We will continue to innovate new products to cater to different user segments' evolving needs.
Kate Wang: Thank you for your questions.
Speaker Change: Thank you.
Operator: Thank you.
Speaker Change: Due to time constraints now I would like to turn the call back over to the company for closing remarks.
Operator: Due to time constraints, now I would like to turn the call back over to the company for closing remarks. Thank you once again for joining us today. If you have further questions, please feel free to contact RLX Technology's Investor Relations Team through the contact information provided on our website or PSJ&T Financial Communications. Thank you.
Thank you once again for joining US today. If you have further questions. Please feel free to contact <unk> Investor Relations team for the contact information provided on our website <unk> financial communications. Thank you.
Speaker Change: This concludes the conference call you May now disconnect. Your line. Thank you for attending.
Operator: This concludes the conference call. You may now disconnect your line. Thank you for attending.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: [music].