RLX Technology releases Q1 earnings: revenue RMB 189 million, net loss RMB 56.3 million

Today, vaping brand RELX operator RLX Technology Inc. (NYSE: RLX) announced its unaudited financial results for the first quarter ending March 31, 2023.

Financial Summary for Q1 2023

Revenue for Q1 2023 was RMB 189 million (USD 27.5 million), down 89% year-on-year from RMB 17.145 billion in the same period of 2022, and down 44% quarter-on-quarter.

Gross margin for Q1 2023 was 24.2%, compared to 38.3% in the same period of 2022.

For Q1 2023, the GAAP net loss was RMB 56.3 million (USD 8.2 million), compared to a net profit of RMB 687.1 million in the same period of 2022.

Non-GAAP net income for Q1 2023 was RMB 183.6 million (USD 26.7 million), down from RMB 361.8 million in the same period of 2022.

"In Q1 2023, our focus remains on optimizing our product offerings under the new regulatory framework," said RLX Technology co-founder, chairman, and CEO Wang Ying. "While we strive to develop a diverse range of new, approved products to meet various user needs, the prevalence of illegal products poses a short-term challenge to our sales and disrupts the recovery pace of the entire industry. The increased efforts by regulators to combat illegal products are encouraging, and we hope these measures will effectively support the creation of a fair and orderly market environment, allowing compliant companies like RLX Technology to return to sustainable growth. If illegal products can be driven out of the market, we believe adult users will gradually adapt to products that meet national standards. As a trusted vaping brand for adult smokers, we will continue to provide high-quality products that meet user needs while exploring growth opportunities in the evolving industry."

"We faced incredible challenges in Q1 as illegal flavored products led to a slow shift of users towards compliant products, causing our total revenue to drop to RMB 189 million. Our gross margin declined as we were fully impacted by the new consumption tax policy in Q1," said RLX Technology CFO Chao Lu. "We are pleased to see improvements in market conditions since regulators took stringent measures against illegal products starting in March 2023. Therefore, we are seeing signs of sales recovery. Looking ahead, we will continue to enhance operational efficiency, believing our profitability will gradually recover. Our resilient business model and solid cash position will support us in navigating market dynamics, enabling us to provide sustainable value to our stakeholders as the industry regains momentum."

Q1 2023 Financial Performance

Net revenue for Q1 2023 was RMB 189 million (USD 27.5 million), down from RMB 17.145 billion in the same period of 2022. The primary reasons for the decrease were the discontinuation of old products and the negative impact of illegal flavored products in the market, which led to slower-than-expected adoption of new compliant products.

Gross profit for Q1 2023 was RMB 45.7 million (USD 6.7 million), compared to RMB 657 million in the same period of 2022.

Gross margin for Q1 2023 was 24.2%, compared to 38.3% in the same period of 2022. The decline was primarily due to the 36% consumption tax imposed since November 1, 2022.

Operating expenses for Q1 2023 were RMB 418.9 million (USD 61 million), compared to RMB 33.6 million in the same period of 2022. The increase was mainly due to a change in share-based compensation expenses of RMB 240 million (USD 34.9 million) in Q1 2023, compared to a positive RMB 32.52 million in the same period of 2022. The change in share-based compensation expenses includes (i) RMB 24 million (USD 3.5 million) recognized in selling expenses, (ii) RMB 201.3 million (USD 29.3 million) recognized in general and administrative expenses, and (iii) RMB 14.7 million (USD 2.1 million) recognized in R&D expenses. The fluctuation in share-based compensation expenses was mainly influenced by the company's stock price volatility and the fair value changes of the equity incentives granted to employees.

Sales expenses for Q1 2023 were RMB 85.8 million (USD 12.5 million), compared to RMB 75.9 million in the same period of 2022, primarily driven by fluctuations in share-based compensation expenses.

General and administrative expenses for Q1 2023 were RMB 256.5 million (USD 37.4 million), compared to RMB 66.4 million in the same period of 2022, primarily driven by fluctuations in share-based compensation expenses.

R&D expenses for Q1 2023 were RMB 76.7 million (USD 11.2 million), compared to RMB 24 million in the same period of 2022, primarily driven by fluctuations in share-based compensation expenses.

Operating loss for Q1 2023 was RMB 373.2 million (USD 54.3 million), compared to operating income of RMB 623.4 million in the same period of 2022.

Income tax benefit for Q1 2023 was RMB 17.6 million (USD 2.6 million), compared to income tax expense of RMB 112.6 million in the same period of 2022.

GAAP net loss for Q1 2023 was RMB 56.3 million (USD 8.2 million), compared to GAAP net profit of RMB 687.1 million in the same period of 2022.

Non-GAAP net income for Q1 2023 was RMB 183.6 million (USD 26.7 million), compared to RMB 361.8 million in the same period of 2022.

For Q1 2023, the GAAP net loss per American Depositary Share ("ADS") was RMB 0.043 (USD 0.006), while the GAAP net profit per ADS was RMB 0.528 and RMB 0 for the same period of 2022.

For Q1 2023, the non-GAAP net income per ADS was RMB 0.139 (USD 0.020) and RMB 0.136 (USD 0.020), compared to non-GAAP net income per ADS of RMB 0.284 and RMB 0.281 in the same period of 2022.

Balance Sheet and Cash Flow

As of March 31, 2023, the company's cash and cash equivalents, restricted cash, net short-term bank deposits, short-term investments, long-term bank deposits, and net long-term securities investments totaled RMB 15.369 billion (USD 2.2379 billion), compared to RMB 15.7337 billion as of December 31, 2022. For Q1 2023, net cash used in operating activities was RMB 230.7 million (USD 33.6 million).

Conference Call

The company's management will hold a conference call to discuss the financial results on May 17, 2023, at 8:00 AM Eastern Time (8:00 PM Beijing Time / May 17, 2023, Hong Kong Time).