RELX Earns US$65.9 Million with 43.8% Gross Margin in 2022Q2 Reports in Financial Results

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RLX Technology Inc. (“RLX Technology” or the “Company”) ( NYSE: RLX), a leading branded e-vapor company in China, today announced its unaudited financial results for the second quarter ended June 30, 2022.

Second Quarter 2022 Financial Highlights

Net revenues were RMB2,233.9 million (US$333.5 million), compared with RMB2,541.4 million in the same period of 2021.
Gross margin was 43.8%, compared with 45.1% in the same period of 2021.
U.S. GAAP net income was RMB441.6 million (US$65.9 million), compared with RMB824.3 million in the same period of 2021.
Non-GAAP net income^[1] was RMB634.7million (US$94.8 million), compared with RMB651.8 million in the same period of 2021.

“Over the past several months, we have made meaningful strides in adapting our business and product development to the new regulatory framework. Specifically, we have obtained the License for Manufacturing Enterprise and received regulatory approvals for some of our new products, demonstrating our operational excellence and industry-leading R&D capabilities,” said Ms. Ying (Kate) Wang, Co-founder, Chairperson of the Board of Directors, and CEO of RLX Technology. “Aligned with our efforts to comply with the new requirements, we remained dedicated to our core strategy, continuously investing in research and development. Since 2018, we have partnered with leading research institutions on scientific research and product development, laying a solid foundation for our sustainable future growth. Furthermore, amid the evolving e-vapor market and volatile macro conditions, we continued to streamline our business structure and optimize our operational processes, comprehensively enhancing our agility and efficiency. As always, we remain committed to fulfilling our users’ demands for safe, high-quality products in strict compliance with regulatory requirements.”

“We are pleased that we recorded net revenues of RMB2.2 billion in the second quarter. We believe this elevated level of revenue in the second quarter was primarily due to frontloading of sales in the downstream value chain in anticipation of the discontinuation of our older products as the industry transition period nears its end in the third quarter. Meanwhile, our ongoing efforts to optimize cost structure and maximize operational efficiency paid off in the second quarter. Non-GAAP expense ratio was down quarter over quarter, leading to improved profitability,” said Mr. Chao Lu, Chief Financial Officer of RLX Technology. “In light of the regulatory changes, we are off to a slow start of the sales of our new products that are compliant with the National Standards in the new transaction system mandated by the regulators. Despite the macro headwinds, we will continue to steadily focus on cost optimization while reinforce our product competitiveness under the new regulatory regime to create sustainable, long-term growth for our shareholders.”

RELX Earns US$65.9 Million with 43.8% Gross Margin in 2022Q2 Reports in Financial Results

Second Quarter 2022 Financial Results

Net revenues were RMB2,233.9 million (US$333.5 million) in the second quarter of 2022, compared with RMB2,541.4 million in the same period of 2021. The decrease was primarily due to the suspension of store expansions and new product launches during the transition period to comply with regulatory requirements.

Gross profit was RMB977.9 million (US$146.0 million) in the second quarter of 2022, compared with RMB1,146.5 million in the same period of 2021.

Gross margin was 43.8% in the second quarter of 2022, compared with 45.1% in the same period of 2021. The decrease was primarily due to (i) an unfavorable product mix shift, (ii) an increase in inventory provision, and (iii) an impairment loss recognized for property, plant and equipment to comply with recent regulatory developments.

Operating expenses were RMB530.9 million (US$79.3 million) in the second quarter of 2022, representing an increase of 217.6% from RMB167.2 million in the same period of 2021. The increase in operating expenses was primarily due to the change in share-based compensation expenses, which was RMB193.2 million (US$28.8 million) in the second quarter of 2022 compared with a positive RMB172.5 million in the same period of 2021, consisting of (i) share-based compensation expenses of RMB17.9 million (US$2.7 million) recognized in selling expenses, (ii) share-based compensation expenses of RMB151.1 million (US$22.5 million) recognized in general and administrative expenses, and (iii) share-based compensation expenses of RMB24.2 million (US$3.6 million) recognized in research and development expenses. The increase in share-based compensation expenses was primarily due to the changes in the fair value of the share incentive awards that the Company granted to its employees as affected by the fluctuations of the Company’s share price.

Selling expenses decreased by 2.7% to RMB122.6 million (US$18.3 million) in the second quarter of 2022 from RMB126.0 million in the same period of 2021. The decrease was mainly driven by (i) a decrease in salaries and welfare benefits and (ii) a decrease in branding material expenses, partially offset by an increase in share-based compensation expenses.

General and administrative expenses increased by 531.3% to RMB290.7 million (US$43.4 million) in the second quarter of 2022, from RMB46.1 million in the same period of 2021. The increase was mainly driven by (i) an increase in share-based compensation expenses and (ii) an increase in salaries and welfare benefits.

Research and development expenses were RMB117.6 million (US$17.6 million) in the second quarter of 2022, compared with a positive RMB4.9 million in the same period of 2021. The increase was mainly driven by (i) an increase in share-based compensation expenses, (ii) an increase in salaries and welfare benefits, and (iii) an increase in consulting expenses.

Income from operations was RMB446.9million (US$66.7 million) in the second quarter of 2022, compared with RMB979.3 million in the same period of 2021.

Income tax expense was RMB204.3 million (US$30.5 million) in the second quarter of 2022, compared with RMB204.2 million in the same period of 2021.

U.S. GAAP net income was RMB441.6 million (US$65.9 million) in the second quarter of 2022, compared with RMB824.3 million in the same period of 2021.

Non-GAAP net income was RMB634.7 million (US$94.8 million) in the second quarter of 2022, compared with RMB651.8 million in the same period of 2021.

U.S. GAAP basic and diluted net income per American depositary share (“ADS”) were RMB0.348 (US$0.052) and RMB0.347 (US$0.052), respectively, in the second quarter of 2022, compared with U.S. GAAP basic and diluted net income per ADS of RMB0.595 and RMB0.591, respectively, in the same period of 2021.

Non-GAAP basic and diluted net income per ADS^[2] were RMB0.494 (US$0.074) and RMB0.492 (US$0.073), respectively, in the second quarter of 2022, compared with non-GAAP basic and diluted net income per ADS of RMB0.470 and RMB0.467, respectively, in the same period of 2021.

Balance Sheet and Cash Flow

As of June 30, 2022, the Company had cash and cash equivalents, restricted cash, short-term bank deposits, net, short-term investments, and long-term bank deposits, net of RMB16,831.1 million (US$2,512.8 million), compared with RMB14,880.8 million as of June 30, 2021. For the second quarter ended June 30, 2022, net cash generated from operating activities was RMB1,444.4 million (US$215.6 million).

Regulatory Developments and Updates on Regulatory Approvals

Since the first quarter of 2022, the relevant government authorities in China have issued a series of implementing rules and guiding opinions to strengthen oversight of e-cigarette products and regulate the e-cigarette industry. These rules and opinions set forth that, among others, all e-cigarette manufacturing enterprises must apply with the department of tobacco monopoly administration under the State Council of the People’s Republic of China (the “State Tobacco Monopoly Administration”) and obtain a License for Manufacturing Enterprise, while e-cigarette products must satisfy various standards and technical requirements prescribed therein, and pass the technical review conducted by professional institutions organized by the State Tobacco Monopoly Administration before being launched for sale. Discussion of the relevant regulatory developments and the corresponding risks, uncertainties and/or factors in a more comprehensive and detailed manner is and will be included in the Company’s filings with the U.S. Securities and Exchange Commission, including, but not limited to, the Company’s annual report on Form 20-F filed on April 29, 2022.

On June 10, 2022, one of the subsidiaries of the Company obtained a License for Manufacturing Enterprise from the State Tobacco Monopoly Administration to manufacture e-liquid in compliance with China’s Administrative Measures for E-Cigarettes.

On July 22, 2022, another subsidiary of the Company obtained a License for Manufacturing Enterprise from the State Tobacco Monopoly Administration to own the RELX brand and manufacture RELX branded e-vapor rechargeable devices, cartridge products, and products sold in combination with e-vapor rechargeable devices and cartridge products in compliance with China’s Administrative Measures for E-Cigarettes. The approved manufacturing capacity is 15,050,000 units of e-vapor rechargeable devices per year, 328,700,000 units of cartridge products per year, and 6,100,000 units of disposable e-vapor products per year. The valid term for the License for Manufacturing Enterprise obtained is from July 18, 2022, to July 31, 2023.

[1] Non-GAAP net income is a non-GAAP financial measure. For more information on the Company’s non-GAAP financial measures, please see the section “Non-GAAP Financial Measures” and the table captioned “Unaudited Reconciliation of GAAP and Non-GAAP Results” set forth at the end of this press release.

[2] Non-GAAP basic and diluted net income per ADS is a non-GAAP financial measure. For more information on the Company’s non-GAAP financial measures, please see the section “Non-GAAP Financial Measures” and the table captioned “Unaudited Reconciliation of GAAP and Non-GAAP Results” set forth at the end of this press release.

Participants should dial in 10 minutes before the scheduled start time and ask to be connected to the call for “RLX Technology Inc.” with the Participant Code as set forth above.

Additionally, a live and archived webcast of the conference call will be available on the Company’s investor relations website at https://ir.relxtech.com.

About RLX Technology Inc.

RLX Technology Inc. ( NYSE: RLX) is a leading branded e-vapor company in China. The Company leverages its strong in-house technology, product development capabilities, and in-depth insights into adult smokers’ needs to develop superior e-vapor products. RLX Technology Inc. sells its products through an integrated offline distribution and retail model tailored to China’s e-vapor market.

For more information, please visit: http://ir.relxtech.com.