Q4 2024 RLX Technology Inc Earnings Call
Thank you, Sam Tsang, Wang Ying, Peihang Lyu, Wei Ling, Yun Guo, RLX
Speaker Change: Hello, ladies and gentlemen. Thank you for standing by for the RLX Technology Inc.'s fourth quarter and full year 2024 earnings conference call. At this time, all participants are in listen-only mode.
Speaker Change: 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. Tsang, head of capital markets for the company. Please go ahead, Sam.
Speaker Change: Thank you very much. Hello everyone and welcome to R's technologies. Fourth quarter and full year 2020 for earnings conference call. The company's financial and operational results were released through Peihang Lyu's wire services earlier today and have been made available online.
Speaker Change: You can also build the earnings fresh release by visiting our iR website at iR.RXTank.com.
Speaker Change: Participants on today's call will include our Chief Financial Officer, Mr. Chao Lu, and myself, Sam Tsang, and head of capital markets.
Speaker Change: Before we continue, please note that today's discussions will contain further information made under the safe harbor provisions of the U.S. Private Security's Dedication Reform
Speaker Change: These statements typically contain words such as may, will, expats, targets, estimates, intent, belief, potential, continue, or are the similar expressions.
or looking at information involved in human race and uncertainties.
Speaker Change: The accuracy of these statements that could cause lateral results to differ materially from those projected or anticipated.
Many of which are beyond a control.
and others. For more information, visit www.fema.gov
Speaker Change: The company is affiliate advisors and representatives do not undertake any obligation to update the sport of information, except as required under the ethical law.
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Speaker Change: Please note that our technologies, earnings, present release, and this conference call include discussions of an audited GAAP financial measures, as well as an audited non-GAAP financial measures.
Speaker Change: Our express release contains a reconciliation of the unordered non-GAAP measures to the unordered GAAP measures .
Speaker Change: I will now turn the call over to Mr Chao Lu. Please go ahead.
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Thank you. Thank you.
Speaker Change: Thank you, Sam, and thank you to everyone for joining our earnings conference call today.
Speaker Change: I will start with the overview of our 2024 performance and organizational initiatives.
followed by an update on our overseas market.
Speaker Change: Outlook for 2025 and the details of our 2024 financial results.
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Speaker Change: 2024 was a pivotal year for RLX as our first full-year operating in international markets, following the termination of our non-complete agreement with Relax Inc in November 2023.
Speaker Change: Throughout the year, we focused on enhancing our organizational structure and business models to drive successful overseas.
Initiatives while maintaining stability in the China market.
After entering a new regulatory framework in 2002.
As a result, we kept off strong 2024 results.
With our seventh consecutive quarter of sequential revenue growth
Speaker Change: Supported by our continued commitment to global expansion and effective localized strategies catering to each region's unique user base.
Thank you. Thank you. Thank you.
industry landscape.
Speaker Change: Building a solid foundation for international growth was a top priority for 2024. We critically
structure
Speaker Change: Based on this review, we optimized our operational and management framework to support our long-term growth objectives.
Moreover, people remain our most valuable asset.
Speaker Change: Therefore, we have invested heavily in upgrading our team, bringing in experts in FMCG, in-house product development and regulatory compliance.
Speaker Change: Their passion for growing iOX's business and advancing the e-vapor industry has empowered us to deliver effective sustainable business models that will propel our long-term success and growth.
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Speaker Change: On the operational side, tailoring our product portfolio and business strategies to local markets was essential.
We deeply analyze local market environments and consumer behavior.
Speaker Change: Then, utilize our insights to develop the right products to cater specifically to the needs of each market's adult smokers.
Speaker Change: For example, in Southeast Asia, we successfully launched two open-system EVA per product series, RLX Prime and SPIM Mini in the second half of 2024.
Speaker Change: These new product series have received strong positive feedback in South East Asia.
Speaker Change: Reinforcing our belief that localized innovation is a critical driver for long-term growth.
Each market has its own development path.
Speaker Change: and we have been focusing on enhancing the efficiency of the distribution structure, finding the right partners and ensuring the product channel fits.
Speaker Change: Turning now to the market environment and the trends that I emerging for 2025.
Speaker Change: As we expect, expanded internationally throughout 2024, we encountered regulatory shifts across
Speaker Change: While these regulatory changes presented challenges, we view them as opportunities to strengthen our competitive position.
Speaker Change: Our ability to anticipate and quickly respond to evolving regulations is a key differentiator supporting our success beyond China.
This is the first time I've ever seen such a big picture of you, Sam Tsang.
We proactively assess and adapt our strategies to ensure compliance.
while continuing to meet you said the man.
Speaker Change: We also carefully monitor our existing products and channel inventory levels while building a robust product pool to remain prepared to react to abrupt unexpected regulatory changes.
Speaker Change: Looking ahead to 2025, we have observed a slight slowdown in product innovation as the industry enters a more mature stage of development.
Speaker Change: We believe they are going forward. Success will be less reliant on blockbuster new products.
and instead, the panel refined and efficient operations.
Channel development and product optimization.
Speaker Change: We are confident that we are well positioned to thrive in this environment.
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with our in-house e-liquid development team and production capabilities.
Speaker Change: We can home in on key product elements like flavor, taste, and quality control to deliver high quality products that meet user expectations both domestically and overseas.
Bye-bye.
Speaker Change: Before I move on to our financial performance, I am pleased.
Speaker Change: To share that, our ESG efforts continue to win recognition from leading global ESG rating agencies in 2024.
Received a AA rating from MXCI.
Upgrade it from my Singapore rating.
This is the first time I've ever seen such a beautiful, beautiful, beautiful, beautiful, beautiful, beautiful, beautiful, beautiful, beautiful, beautiful
Speaker Change: This is the highest MSCI ESD rating in the global tobacco industry.
Speaker Change: Making RLX the highest scoring company in the global e-cigarette industry for three consecutive years.
Speaker Change: Driven by our dedication to social responsibility and value creation for all stakeholders.
Speaker Change: We will remain committed to integrating ESG best practices as we broaden our global footprint.
Speaker Change: Now, let's move on to our financial results for the fourth quarter and four years of 2024.
Speaker Change: Please note that unless otherwise stated, all the financials we present today are in RMB terms.
Thank you.
Starting with our top line.
Speaker Change: On a four-year basis, our revenues were RMB 2.7 billion, growing by an impressive 73.3% year over year thanks to our international expansion success.
This is the first time I've ever seen such a beautiful, beautiful, beautiful, beautiful, beautiful, beautiful, beautiful, beautiful, beautiful, beautiful
Speaker Change: For the fourth quarter, we achieved revenues of RMB 813.5 million.
a 56.3% year-over-year increase.
Speaker Change: The seasonal impact of the Christmas holiday contributed positively to our quoted results.
Speaker Change: As Christmas is traditionally a peak period for retail sales of e-way products.
Speaker Change: Additionally, some of our overseas distributors increased inventory ahead of the Chinese New Year holiday, which further boosted our fourth quarter sales.
Speaker Change: Turning to profitability, our four-year growth profit margin improved to 26.4% in 2024, marking a 2% point increase.
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Speaker Change: Notably, in the fourth quarter of 2024, our growth profit margin increased by a 3.3% year-over-year to 27.2%.
Speaker Change: This improvement was primarily due to favorable changes in our revenue mix from international and cost optimization initiatives.
Xiaoxi, Wang Ying, Peihang Lyu
In 2024, we recorded a not-cratin loss of RMB 107.1 minute.
Speaker Change: However, excluding the impact of stock-based compensation, our non-GAAP operating income for the four-year was RMB 262.5 minutes.
Speaker Change: For the fourth quarter alone, we achieved a non-GAAP operating profit of RMB 112.6 minutes.
marking a sequential ride for the fifth consecutive quarter.
Speaker Change: and the significant milestone in our return to non-GAAP operating profitability for the full year.
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Speaker Change: All profitability improvements were primarily driven by incremental contributions from our international business, as well as the operating leverage gained as we scaled our operations in the new market.
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Speaker Change: Moving forward, we expect further improvement in our non-GAAP operating margin as we scale our business.
Speaker Change: Additionally, we are carefully managing our headcount in the middle and back office function.
as we expand region of it.
Speaker Change: As a result, we expect our operating expenses to grow more slowly than revenue, which will further enhance our profitability.
Speaker Change: In terms of cash flow, we achieved an operating cash inflow of RMB 497m in the fourth quarter of 2024.
Speaker Change: Up from RMB 305mm in the same quarter of the previous year.
Speaker Change: Reflecting our ongoing business growth and improvements in working capital efficiency.
Thank you.
As we mentioned on the last course,
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We are currently experiencing a negative cash conversion cycle.
Speaker Change: Invent return over days stood at 25 days in the fourth quarter of 2024, increased from 16 days in the third quarter of 2024 due to the seasonal impact of the Christmas and the Chinese New Year holidays.
Al-Qa's position remains solid.
As of December 31, 2024, our total financial assets.
Speaker Change: including cash and cash requirements, restricted cash, and various short-term and long-term deposits and investments.
Stand at RMB 15.9 Billion
Thank you, Sam Tsang, for your hard work.
In 2024, we returned approximately US$122.9 million to our shareholders.
Speaker Change: including approximately US$109 million through our shared repurchase program.
Speaker Change: and US dollars 14 minutes through cash dividends will be announced in November 2024.
Thank you for your time, and I'll see you in the next video.
Speaker Change: Supported by our Solid Fundamentals Cash Position, we will deepen our commitment to deliver and value to our shareholders.
Speaker Change: Our objective is to return substantially all of our non-GAAP net profits through shared repulses programs and cash dividends.
Thank you.
Speaker Change: In conclusion, our strategic foresight and disciplined execution helped us navigate external uncertainties and strengthened our brand image among global adult smokers.
Thank you. Thank you. Thank you.
Speaker Change: While some of these efforts may not yield visible results in the short term, we believe their long-term positive impact on our global competitiveness will prove invariable.
as industry concentration continues to increase.
Speaker Change: Our comprehensive industry-leading capabilities position us to capture additional multi-growth.
and Leverage.
Speaker Change: The categories of all growth to create value for all stakeholders.
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Speaker Change: This concludes our prepared remarks today. We will now open the call to questions.
Operator, please go ahead.
Thank you.
Speaker Change: We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two.
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.
Christine Pang: The first question comes from Christine Pang with UBS. Please go ahead.
Speaker Change: Hi, thank you Management for the presentation. So I have two questions for the Management. So the first question is about the overseas market extension. So you have shared with us a lot of the initiatives that you have been doing in 2024. So going to 2025, what other new initiatives you're going to implement to further drive the market share gains in the overseas market?
Speaker Change: Thank you very much for seeing. Thanks for asking. So we designed our product portfolio and business strategies to align with the unique characteristics of each market. On the product side, we analyzed local preferences to develop tailored flavor portfolios and product formats.
Speaker Change: Our e-inforced, ill-equate team specializes in crafting flavors inspired by traditional foods and cultural nuance, ensuring strong resonance with regional taste.
Speaker Change: For a route to market strategies, we adopt a dynamic approach, continuously reassessing plans to reflect market conditions and distribution channel characteristics.
Speaker Change: This includes identifying high potential sales channels, such as convenience stores and wave stores, and focusing resources on the most promising opportunities.
Speaker Change: We also collaborate with distribution partners who possess deep local knowledge and resources, enabling us to build efficient and robust networks.
The data-driven insights play a crucial role in our decision-making.
Speaker Change: By analyze marking trends and consumer behavior, we ensure our product align with local preferences of our ability and purchasing habits, creating an optimal fit between products and channels.
Thank you for your time.
Speaker Change: Thank you, management. So I have another question, so it's regarding the Shea Holder return. So any updates regarding the Shea Holder return from 2025 and our work?
Speaker Change: Thank you very much. So I mean we have also explained that in our open remarks.
Speaker Change: to return a significant portion of our non-GAAP net profits to share holders, free share repartures and cash dividends.
Speaker Change: As of December last year, we have cumulatively returned $342 million U.S. dollars to Chao Lu, including $305 million pro-share repurchases, and $27 million pro-dividends.
Speaker Change: This year, we intend to continue these initiatives, reflecting our commitments to Chao Lu's value. Thank you very much.
Thank you.
Thank you for your time, and I'll see you in the next video.
Lydia Ling: The next question comes from Lydia Ling with City. Please go ahead.
Lydia Ling: Hi, management. This is Li Ye from City, so I also have two questions. First, I'd want to follow up on the Oasis side due to hatchery, which share with us your detailed extension plan for this year and on a growth rate target for this year. And suddenly, I also like to do have any light to share your insights regarding the industry's product evolution in this year. And my third question.
Lydia Ling: will be on the regulation side and actually there are a lot of the regulatory uncertainties in overseas markets. So it's possible that you could elaborate your views on potential regulatory changes and how would you actually address these challenges. Any kind of or be very helpful, thank you.
Speaker Change: Thank you very much, Lydia. Regarding our first question, which is about our international expansion, we plan to expand to more countries in 2025, likely in the second half of this year.
Lydia Ling: Several countries in Asia-Pacific and Europe are under our consideration for this expansion.
Lydia Ling: However, due macroeconomic environment, political stability and regulatory landscapes remain unpredictable. We will make more informed decisions by mid-year based on further developments.
Lydia Ling: Regarding the global industry product refollution, the typical innovation cycle in November you've heard last around three years.
Lydia Ling: Between 2020 and 2022, these possible products reshape the markets, drive-in growth and transitions within products of categories.
Lydia Ling: From 2023 to 25, the focus has shift to high power innovations, such as steel mesh technology which enhance user satisfaction and introduce higher eloquent volume products.
Lydia Ling: This trend has also driven the decline of average sales price per ill-equipped millimeter, particularly as potential bands on disposable's in Europe accelerate the transition.
Lydia Ling: We believe 2025 will mark the conclusion of this innovation cycle as the shift to high path or high one-product stabilized.
Lydia Ling: For our company, sales volume in millimetre has grown faster than revenue due to lower average selling price.
Lydia Ling: We expect this trend to normalize by end of this year or early next year.
Lydia Ling: We anticipate meaningful market share growth in sales volume and moderate revenue growth.
Lydia Ling: Over the medium term, we are confident that these metrics will grow in parallel, supporting sustainable and healthy business growth.
Lydia Ling: Regarding your second question, it's about the regulatory changes and challenges in our industry.
Lydia Ling: The regulatory landscape varies by region. In Southeast Asia, regulations are becoming more strange with clearer definitions that reduce ambiguity for industry players.
Lydia Ling: However, political stability in some countries has created additional uncertainties and delayed approval process.
Lydia Ling: In Europe , environmental concerns have led to bans on disposable products in countries such as UK and France, while other regulations aim to minimize the appeal of e-laper products
Additionally, some European nations are introducing tax on eBay for products.
Lydia Ling: To address these changes, we proactively evaluate our product portfolio and adjust our strategies to ensure compliance while meeting user demand.
Lydia Ling: By closely monitoring inventory and collaborating with our business partners, we can swiftly adapt to regulatory changes.
Lydia Ling: This agility combined with our ability to anticipate evolving regulations strengthens our competitive advantages and position us for long-term sustainable growth.
Thank you for your question
Thank you for your time, and I'll see you next time.
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Thank you for your time.
Lydia Ling: The next question comes from you and Guo with CITICS. Please go ahead.
Yoon Goh: and with Malaysia H&B products it's quite popular. Do we plan to suit this market?
Speaker Change: Thank you very much, Guoyuan, for your questions. The first one is on our Open Season products.
Yoon Goh: So we believe the open system, EWF products will experience stable demand growth in price-sensitive markets where affordability is key.
Our Product Development Strategy focuses on five power teeth.
Path Experience, Affordability, Convenience, User Satisfaction and Harm Reduction
Yoon Goh: Our initiative opens to some products including WX Prime and RLX Technology, our design to address affordability and convenience.
Yoon Goh: RLX Prime features added illegal storage button, significantly expanding USSH time and improving efficiency compared to other products on the market.
I'm sorry. I'm sorry. I'm sorry. I'm sorry. I'm sorry.
Yoon Goh: RLX Binmini offers a deal flavors pass system catering to local user preferences by providing cost effective solutions with superior use experiences.
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Speaker Change: These innovations position us as a strong competitor in the open system market and allow us to miss evolving consumer needs.
Speaker Change: Recording H&B products, we observed that the e-vapor industry is growing faster globally than the H&B products.
Speaker Change: China firm products tend to succeed in developing markets only with strong purchasing power due to their relatively high cost.
Speaker Change: Additionally, Mito-H and Yang Guo-Eto-Smokers prefer evapot products for their convenience and of our experience.
Speaker Change: As a result, we currently have no plans to enter the Hinauber market and we'll continue prioritizing eBay for products where we hold a stronger competitive advantage.
Thank you for your questions
Hi, Kabir, thank you.
Speaker Change: Due to time constraints, now would like to turn the call back over to the company for closing remarks.
Speaker Change: This concludes this conference call. You may now disconnect your line. Thank you.