RLX Technology Inc. — FY2021 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone 2021 Q4 report; the filing does not provide clear Q4-only financial results. Financial statements are prepared under U.S. GAAP. The company sells e-vapor products primarily in China and reports through a Cayman Islands holding company and a PRC variable interest entity (VIE); the VIE generated all consolidated revenue in 2019–2021.
Key financial metrics
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | RMB 8.521 billion (US$1.337 billion) | RMB 3.820 billion |
| Gross profit / margin | RMB 3.672 billion / 43.1% | RMB 1.528 billion / 40.0% |
| Operating income / margin | RMB 2.299 billion / 27.0% | RMB 13.1 million / 0.4% |
| Net income (loss) | RMB 2.028 billion (US$318.3 million) | RMB (128.1) million |
| Adjusted net income (non-GAAP) | RMB 2.251 billion | RMB 801.0 million |
| Cash from operating activities | RMB 1.800 billion | RMB 2.589 billion |
| Cash used in investing activities | RMB (7.871) billion | RMB (1.813) billion |
| Cash from financing activities | RMB 9.904 billion | RMB 174.9 million |
FY2021 adjusted net income excludes RMB 223.3 million of share-based compensation. The company cautions that this non-GAAP measure is not a substitute for GAAP results.
Liquidity and obligations: At December 31, 2021, cash and cash equivalents were RMB 5.209 billion; restricted cash was RMB 0.5 million. The company also held RMB 4.022 billion of short-term bank deposits, RMB 2.005 billion of long-term bank deposits and RMB 3.622 billion of short-term investments. Total current assets were RMB 13.951 billion versus current liabilities of RMB 2.738 billion. Total liabilities were RMB 2.846 billion, including lease liabilities of RMB 184.8 million; the filing reports no material borrowings or other significant long-term obligations. Management said available resources and expected operating cash flow should cover anticipated working capital and capital expenditures for the next 12 months.
Changes versus prior periods
- Revenue rose 123.1% year over year, driven mainly by offline distributor sales, which increased 123.4% to RMB 8.361 billion and represented 98.1% of revenue.
- Device shipments increased to 19.5 million from 10.2 million, while cartridge shipments rose to 505.5 million from 212.6 million. Authorized distributors grew to more than 200 from more than 130.
- Gross margin improved 3.1 percentage points, which management attributed to lower unit costs and improved supplier bargaining power as scale increased.
- Operating expenses declined to RMB 1.373 billion from RMB 1.514 billion, principally reflecting lower share-based compensation. Reported share-based compensation was RMB 223.3 million in 2021 versus RMB 929.1 million in 2020.
- Operating cash flow decreased year over year, partly reflecting working-capital investment, including increases in inventory and prepayments and a decline in accounts payable.
- Investing cash outflow expanded substantially, mainly from purchases of short-term investments and bank deposits. Financing inflow was largely the IPO proceeds.
Outlook, risks, contingencies and unusual items
- Regulatory transition: The report describes PRC e-cigarette rules issued in 2022, after the fiscal year. The new licensing regime took effect May 1, 2022, and national product standards were scheduled to take effect October 1, 2022. A transition period for existing operators ran through September 30, 2022. As of the report date, RLX said it was preparing its application for a Tobacco Monopoly License for Manufacturing Enterprise and could not assure approval.
- Products and channels: The new rules restrict flavors to tobacco, require licensing and transactions through a national platform, and change wholesale and retail requirements. RLX said substantially all current products and related raw materials did not meet the new national standards, creating potential inventory and raw-material write-downs, equipment impairment, product redesign costs and sales disruption. Its more than 24,000 branded partner stores and existing distribution model could require substantial changes.
- Inventory: Inventory was RMB 589.1 million at year-end, after an RMB 89.1 million inventory provision in 2021. The filing warns that further regulatory changes could make products or materials unsalable or unusable and could lead to claims from suppliers, distributors or retailers.
- Concentration: One distributor generated 22.7% of 2021 revenue. One contract manufacturer accounted for 75% of purchases and 89% of accounts and notes payable at year-end, creating significant counterparty and supply-chain exposure.
- Legal and listing risks: A U.S. securities class action alleging omissions in IPO offering documents remained pending; the company could not estimate potential loss. The auditor was not then subject to PCAOB inspection, exposing ADSs to HFCAA-related trading and delisting risk. The report also highlights uncertainty around PRC oversight, data and cybersecurity rules, overseas listing approvals, and VIE contractual enforceability.
- VIE and cash mobility: Investors own shares in the Cayman Islands holding company, not equity in the VIE. VIE control depends on contracts whose enforceability may be uncertain. PRC rules restrict dividends, currency conversion and transfers of funds abroad; the company had not paid dividends.
- Other items: The company repurchased approximately 5.1 million shares for about US$20 million in 2021 under a US$500 million repurchase authorization. It reported RMB 197.3 million of government subsidy income in 2021. Management reported that a material weakness in 2020 internal controls was remediated and controls were effective at December 31, 2021; the auditor gave unqualified opinions on the financial statements and internal control.
The filing provides no numerical FY2022 guidance. Management’s outlook is materially dependent on regulatory licensing, product compliance, the ability to maintain distribution and manufacturing, and market acceptance of redesigned products.
Important facts for investors to verify
- Progress and outcome of the manufacturing license application, product technical reviews, and compliance with the national standards and transition requirements.
- Subsequent inventory write-downs, supplier or retailer claims, deposit refunds, and the financial effect of product and channel restructuring.
- Whether sales, margins and operating cash generation remain resilient after the regulatory and distribution changes; separately track distributor shipments versus end-user demand.
- Exposure to the largest distributor and manufacturer, including payment terms, production alternatives, and any change in supplier concentration.
- Availability and transferability of cash held in PRC entities, and the liquidity, maturity and restrictions of bank deposits and structured investments.
- Status and potential financial exposure of the securities class action, and developments in PCAOB inspection and HFCAA requirements.
- VIE contractual-control risks and the degree of voting control: the filing states that the founder held 89.9% of aggregate voting power as of March 31, 2022.