RLX Technology Announces Unaudited Third Quarter 2021 Financial Results

BEIJING, Dec. 3, 2021/PRNewswire/ -- 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 third quarter ended September 30, 2021.

Third Quarter 2021 Financial Highlights

• Net revenues were RMB1,676.7 million(US$260.2 million), representing a decrease of 34.0% from RMB2,541.4 millionin the second quarter of 2021.
• Gross margin was 39.1%, compared to 45.1% in the second quarter of 2021.
• U.S. GAAPnet income was RMB976.4 million(US$151.5 million), compared with RMB824.3 millionin the second quarter of 2021.
• Non-GAAP net income^[1]was RMB452.7 million(US$70.3 million), compared with RMB651.8 millionin the second quarter of 2021.

"In the third quarter, we continued to develop our business through concerted efforts deepening our scientific research abilities, adding to our differentiated product portfolio, and enhancing our sustainability initiatives. We also strengthened our core capabilities by expanding our talent pool, optimizing our retail network and making digitalization upgrades to our operating infrastructure," said Ms. Ying (Kate) Wang, Co-founder, Chairperson of the Board of Directors and Chief Executive Officer of RLX Technology. "Looking ahead, with the formal confirmation of the amendment to the implementation rules of tobacco monopoly law announced last week bringing innovative tobacco products including e-cigarettes under the regulatory framework, together with the draft administrative measures for electronic cigarettes and the draft national electronic cigarette product standards announced earlier this week, we believe the sector will enter a new era of development, an era marked by enhanced product safety and quality, augmented social responsibilities, and improved intellectual property protection. These developments will pave way for long-term sustainable growth in this sector."

"In the past quarter, we placed even more focus on investments in R&D, organizational upgrades and operational efficiency improvements in existing channels, shifting from the efforts on distribution network expansion in previous quarters," said Mr. Chao Lu, Chief Financial Officer of RLX Technology. "As a result, we have a richer product portfolio in the pipeline and healthier inventory levels across our value chain."

"We believe our quarterly revenue drop was temporary, and the investments we made in products, talents, research, and compliance in the third quarter and beyond will place us in advantageous positions under the new regulatory paradigm. We expect these investments to yield steady and sustainable growth soon," Mr. Lu added.

Third Quarter 2021 Unaudited Financial Results

Net revenues decreased by 34.0% to RMB1,676.7 million(US$260.2 million) in the third quarter of 2021 from RMB2,541.4 millionin the second quarter of 2021. The decrease was as a result of volatile market conditions, including (i) the negative publicity on the e-vapor industry since the latter half of the second quarter, (ii) the fact that the draft new rules announced on March 22, 2021had not been formally confirmed in this quarter, and (iii) evolving COVID-19 restrictions in response to outbreaks in China, which had an adverse impact on our sales and channel inventory management.

Gross profit decreased by 42.8% to RMB656.0 million (US$101.8 million) in the third quarter of 2021 from RMB1,146.5 millionin the second quarter of 2021.

Gross margin was 39.1% in the third quarter of 2021, compared to 45.1% in the second quarter of 2021. The decrease was primarily due to (i) an increase in direct cost related to promotional activities and (ii) an increase in inventory provision.

Operating expenses were positive RMB241.3 million(US$37.5 million) in the third quarter of 2021, representing a decrease of 244.4% from RMB167.2 millionin the second quarter of 2021. The significant decrease in operating expenses was primarily due to the recognition of share-based compensation expenses of positive RMB523.7 million(US$81.3 million), consisting of (i) share-based compensation expenses of positive RMB90.8 million(US$14.1 million) recognized in selling expenses, (ii) share-based compensation expenses of positive RMB320.1 million(US$49.7 million) recognized in general and administrative expenses, and (iii) share-based compensation expenses of positive RMB112.8 million(US$17.5 million) recognized in research and development expenses. The significant fluctuations in share-based compensation expenses were 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 significant fluctuations of the share price of the Company.

Selling expenses decreased by 55.1% to RMB56.5 million (US$8.8 million) in the third quarter of 2021 from RMB126.0 millionin the second quarter of 2021. The decrease was mainly driven by the (i) fluctuation of share-based compensation expenses and (ii) a decrease in salaries and welfare benefits, partially offset by an increase in branding material expenses.

General and administrative expenses decreased by 649.8% to positive RMB253.2 million(US$39.3 million) in the third quarter of 2021 from RMB46.1 millionin the second quarter of 2021. The decrease was mainly driven by the (i) fluctuation of the share-based compensation expenses and (ii) a decrease in salaries and welfare benefits.

Research and development expenses decreased by 808.3% to positive RMB44.6 million(US$6.9 million) in the third quarter of 2021 from positive RMB4.9 millionin the second quarter of 2021. The decrease was mainly driven by the (i) fluctuation of the share-based compensation expenses and (ii) a decrease in salaries and welfare benefits, partially offset by (i) an increase in software and technical expenses and (ii) an increase in consulting expenses.

Income from operations was RMB897.3 million (US$139.3 million) in the third quarter of 2021, compared with RMB979.3 million in the second quarter of 2021.

Income tax expense was RMB121.4 million (US$18.8 million) in the third quarter of 2021, compared with RMB204.2 million in the second quarter of 2021. The decrease was primarily due to a decrease in taxable income.

U.S. GAAPnet income was RMB976.4 million (US$151.5 million) in the third quarter of 2021, compared with RMB824.3 million in the second quarter of 2021.

Non-GAAP net incomewas RMB452.7 million(US$70.3 million) in the third quarter of 2021, representing a decrease of 30.5% from RMB651.8 millionin the second quarter of 2021.

U.S. GAAP basic and diluted net income per American depositary share ("ADS") were RMB0.724(US$0.112) and RMB0.717(US$0.111), respectively, in the third quarter of 2021, compared to U.S. GAAP basic and diluted net income per ADS of RMB0.595and RMB0.591, respectively, in the second quarter of 2021.

Non-GAAP basic and diluted net income per ADS^[2]were RMB0.334(US$0.052) and RMB0.332(US$0.051), respectively, in the third quarter of 2021, compared to non-GAAP basic and diluted net income per ADS of RMB0.470and RMB0.467, respectively, in the second quarter of 2021.

Balance Sheet and Statements of Cash Flows

As of September 30, 2021, the Company had cash and cash equivalents, restricted cash, short-term bank deposits, short-term investments and long-term bank deposits of RMB14,720.3 million (US$2,284.6 million), compared to RMB14,880.8 millionas of June 30, 2021. As of September 30, 2021, approximately US$1,643.1 million(RMB10,586.9 million) was denominated in U.S. dollars.

For the third quarter ended September 30, 2021, net cash used in operating activities was RMB142.9 million(US$22.2 million).

Conference Call

The Company's management will host an earnings conference call at 7:00 A.M.U.S. Eastern Time on December 3, 2021(8:00 P.M.Beijing/Hong Kong Time on December 3, 2021).

Dial-in details for the earnings conference call are as follows:

Participants should dial-in at least 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.

A replay of the conference call will be accessible approximately two hours after the conclusion of the call until December 10, 2021, by dialing the following telephone numbers:

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 and 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 "branded store plus" retail model tailored to China'se-vapor market.

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

Non-GAAP Financial Measures

The Company uses Non-GAAP net income and Non-GAAP basic and diluted net income per ADS, each a non-GAAP financial measure, in evaluating its operating results and for financial and operational decision-making purposes. Non-GAAP net income represents net income excluding share-based compensation expenses. Non-GAAP basic and diluted net income per ADS is computed using Non-GAAP net income attributable to RLX Technology Inc. and the same number of ADSs used in U.S. GAAP basic and diluted net income/(loss) per ADS calculation.

The Company presents these non-GAAP financial measures because they are used by the management to evaluate its operating performance and formulate business plans. The Company believes that they help identify underlying trends in its business that could otherwise be distorted by the effect of certain expenses that are included in net income/(loss). The Company also believes that the use of the non-GAAP measures facilitates investors' assessment of its operating performance, as they could provide useful information about its operating results, enhances the overall understanding of its past performance and future prospects and allows for greater visibility with respect to key metrics used by the management in its financial and operational decision making.

The non-GAAP financial measures are not defined under U.S. GAAP and are not presented in accordance with U.S. GAAP. The non-GAAP financial measures have limitations as analytical tools. They should not be considered in isolation or construed as an alternative to net income/(loss), basic and diluted net income/(loss) per ADS or any other measure of performance or as an indicator of its operating performance. Investors are encouraged to review its historical non-GAAP financial measures to the most directly comparable U.S. GAAP measures. The non-GAAP financial measures here may not be comparable to similarly titled measures presented by other companies. Other companies may calculate similarly titled measures differently, limiting their usefulness as comparative measures to our data. The Company encourages investors and others to review its financial information in its entirety and not rely on any single financial measure.

For more information on the non-GAAP financial measures, please see the table captioned "Unaudited Reconciliation of GAAP and non-GAAP Results" set forth at the end of this press release.

Exchange Rate Information

This announcement contains translations of certain RMB amounts into U.S. dollars at a specified rate solely for the convenience of the reader. Unless otherwise noted, all translations from RMB to U.S. dollars and from U.S. dollars to RMB are made at a rate of RMB6.4434to US$1.00, the exchange rate on September 30, 2021set forth in the H.10 statistical release of the Federal Reserve Board. The Company makes no representation that the RMB or U.S. dollars amounts referred could be converted into U.S. dollars or RMB, as the case may be, at any particular rate or at all.

Safe Harbor Statement

This announcement contains forward-looking statements. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "may," "will," "expect," "anticipate," "aim," "estimate," "intend," "plan," "believe," "is/are likely to," "potential," "continue" and similar statements. Among other things, quotations from management in this announcement, as well as the Company's strategic and operational plans, contain forward-looking statements. The Company may also make written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission, in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Statements that are not historical facts, including but not limited to statements about the Company's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: the Company's growth strategies; its future business development, results of operations and financial condition; trends and competition in China'se-vapor market; changes in its revenues and certain cost or expense items; PRC governmental policies, laws and regulations relating to the Company's industry, and general economic and business conditions globally and in Chinaand assumptions underlying or related to any of the foregoing. Further information regarding these risks, uncertainties or factors is included in the Company's filings with the U.S. Securities and Exchange Commission. All information provided in this press release and in the attachments is current as of the date of this press release, and the Company does not undertake any obligation to update such information, except as required under applicable law.

For more information, please contact:

In China:

RLX Technology Inc.
Head of Investor Relations
Sam Tsang
Email: [email protected]

The Piacente Group, Inc.
Jenny Cai
Tel: +86-10-6508-0677
Email: [email protected]

In the United States:

The Piacente Group, Inc.
Brandi Piacente
Tel: +1-212-481-2050
Email: [email protected]

SOURCE RLX Technology Inc.

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