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RLX Technology Inc. (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% fromRMB2,541.4 million in the second quarter of 2021.
· Gross margin was 39.1%, compared to 45.1% in the second quarter of 2021.
· U.S. GAAP net income was RMB976.4 million (US$151.5 million), compared with RMB824.3 million inthe second quarter of 2021.
· Non-GAAP net income1was RMB452.7 million (US$70.3 million), compared with RMB651.8 million in the second quarter of 2021.
“Inthe 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 capabilitiesby 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. “Lookingahead, with the formal confirmation of the amendment to the implementation rules of tobacco monopoly law announced last week bringinginnovative tobacco products including e-cigarettes under the regulatory framework, together with the draft administrative measures forelectronic cigarettes and the draft national electronic cigarette product standards announced earlier this week, we believe the sectorwill enter a new era of development, an era marked by enhanced product safety and quality, augmented social responsibilities, and improvedintellectual property protection. These developments will pave way for long-term sustainable growth in this sector.”
“In the past quarter, we placed even morefocus on investments in R&D, organizational upgrades and operational efficiency improvements in existing channels, shifting from theefforts 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 wastemporary, and the investments we made in products, talents, research, and compliance in the third quarter and beyond will place us inadvantageous 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
Netrevenues decreased by 34.0% to RMB1,676.7 million (US$260.2 million) in the third quarter of 2021 from RMB2,541.4 million inthe second quarter of 2021. The decrease was as a result of volatile market conditions, including (i) the negative publicity on thee-vapor industry since the latter half of the second quarter, (ii) the fact that the draft new rules announced on March 22,2021 had 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.
Non-GAAP net income is a non-GAAP financial measure. For more information on the Company's non-GAAP financial measures, pleasesee 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.
Grossprofit decreased by 42.8% to RMB656.0 million (US$101.8 million) in the third quarter of 2021 from RMB1,146.5 million in thesecond quarter of 2021.
Grossmargin was 39.1% in the third quarter of 2021, compared to 45.1% in the second quarter of 2021. The decrease was primarilydue to (i) an increase in direct cost related to promotional activities and (ii) an increase in inventory provision.
Operatingexpenses were positive RMB241.3 million (US$37.5 million) in the third quarter of 2021, representing a decrease of 244.4% fromRMB167.2 million in the second quarter of 2021. The significant decrease in operating expenses was primarily due to the recognition ofshare-based compensation expenses of positive RMB523.7 million (US$81.3 million), consisting of (i) share-based compensation expensesof positive RMB90.8 million (US$14.1 million) recognized in selling expenses, (ii) share-based compensation expenses of positiveRMB320.1 million (US$49.7 million) recognized in general and administrative expenses, and (iii) share-based compensation expensesof positive RMB112.8 million (US$17.5 million) recognized in research and development expenses. The significant fluctuations in share-basedcompensation expenses were primarily due to the changes in the fair value of the share incentive awards that the Company granted to itsemployees as affected by the significant fluctuations of the share price of the Company.
Sellingexpenses decreased by 55.1% to RMB56.5 million (US$8.8 million) in the third quarter of 2021 from RMB126.0 million in the secondquarter of 2021. The decrease was mainly driven by the (i) fluctuation of share-based compensation expenses and (ii) a decreasein salaries and welfare benefits, partially offset by an increase in branding material expenses.
Generaland administrative expenses decreased by 649.8% to positive RMB253.2 million (US$39.3 million) in the third quarter of 2021from RMB46.1 million in the second quarter of 2021. The decrease was mainly driven by the (i) fluctuation of the share-based compensationexpenses and (ii) a decrease in salaries and welfare benefits.
Researchand development expenses decreased by 808.3% to positive RMB44.6 million (US$6.9 million) in the third quarter of 2021 frompositive RMB4.9 million in the second quarter of 2021. The decrease was mainly driven by the (i) fluctuation of the share-based compensationexpenses and (ii) a decrease in salaries and welfare benefits, partially offset by (i) an increase in software and technicalexpenses and (ii) an increase in consulting expenses.
Incomefrom operations was RMB897.3 million (US$139.3 million) in the third quarter of 2021, compared with RMB979.3 million in thesecond quarter of 2021.
Incometax expense was RMB121.4 million (US$18.8 million) in the third quarter of 2021, compared with RMB204.2 million in the secondquarter of 2021. The decrease was primarily due to a decrease in taxable income.
U.S.GAAP net income was RMB976.4 million (US$151.5 million) in the third quarter of 2021, compared with RMB824.3 millionin the second quarter of 2021.
Non-GAAPnet income was 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.