Business context and reporting period
RLX Technology Inc. filed this Form 20-F for the fiscal year ended December 31, 2022. Although the request refers to 2022 Q4, this filing reports annual results and does not provide a clear standalone fourth-quarter income statement or cash-flow figure. RLX sells e-vapor products primarily in China; its Cayman Islands parent relies on PRC subsidiaries and a contractual variable interest entity (VIE) for substantially all operations and revenue. Financial statements are prepared under U.S. GAAP.
Key financial metrics
Amounts below are in RMB unless otherwise stated; U.S. dollar amounts are the filing’s convenience translations.
| Metric | FY 2022 | FY 2021 | Change / context |
|---|---|---|---|
| Revenue | RMB 5,332.8 million (US$773.2 million) | RMB 8,521.0 million | Down 37.4% |
| Gross profit / margin | RMB 2,305.1 million / 43.2% | RMB 3,672.1 million / 43.1% | Profit fell; margin was broadly stable |
| Operating income / margin | RMB 1,063.4 million / 19.9% | RMB 2,298.7 million / 27.0% | Down 53.7% |
| Net income | RMB 1,408.7 million (US$204.2 million) | RMB 2,028.1 million | Down 30.5%; 2022 net income attributable to RLX shareholders was RMB 1,441.2 million |
| Adjusted net income (non-GAAP) | RMB 1,574.9 million (US$228.3 million) | RMB 2,251.5 million | Excludes share-based compensation; not a GAAP measure |
| Operating cash flow | RMB 486.8 million (US$70.6 million) | RMB 1,799.9 million | Down 72.9% |
| Cash, cash equivalents and restricted cash | RMB 1,289.1 million (US$186.9 million) | RMB 5,209.5 million | Year-end balance declined |
| Total assets / equity | RMB 16,378.8 million / RMB 15,540.4 million | RMB 16,365.1 million / RMB 13,518.8 million | Assets were nearly unchanged; equity increased |
Margins, liquidity and debt: Cost of revenues was RMB 2,975.0 million; the newly reported product excise tax was RMB 52.7 million. Year-end current assets were RMB 11,198.2 million against current liabilities of RMB 789.8 million. In addition to cash, RLX held RMB 7,084.9 million in short-term bank deposits, RMB 2,434.9 million in short-term investments, RMB 1,515.4 million in long-term bank deposits and RMB 3,409.5 million in long-term investment securities. The filing shows no bank borrowing balance at year-end; it reports RMB 198.6 million of bank-loan proceeds and RMB 200.0 million of repayments during 2022. Recognized lease liabilities totaled RMB 85.9 million.
Investing cash outflow was RMB 4,133.0 million, largely reflecting purchases and maturities of bank deposits and investments. Financing cash outflow was RMB 477.3 million, primarily including RMB 500.4 million of share repurchases. Cash, cash equivalents and restricted cash decreased by RMB 3,920.4 million over the year.
Material changes versus the prior comparable period
- Revenue from offline distributors fell 38.2% to RMB 5,168.6 million. Management attributed the decline mainly to suspended store expansion, discontinuation of products during the transition to national standards, and COVID-19 disruption.
- Shipments fell from 19.5 million to 4.9 million rechargeable devices and from 505.5 million to 329.8 million cartridges.
- Operating expenses decreased 9.6% to RMB 1,241.7 million, but research and development expense rose to RMB 317.1 million from RMB 179.9 million. Lower selling and general and administrative expenses partly offset the revenue decline.
- Inventory fell to RMB 130.9 million from RMB 589.1 million, while inventory write-downs rose to RMB 179.7 million from RMB 89.1 million, chiefly associated with regulatory-driven product and raw-material changes.
- “Others, net” income increased to RMB 399.6 million from RMB 194.2 million; the filing attributes the increase primarily to higher local-government subsidies. Interest income also rose to RMB 180.7 million from RMB 72.4 million, and investment income to RMB 136.5 million from RMB 94.2 million.
Outlook, management commentary, risks and unusual items
- Management stated that available cash, deposits, investments and expected operating cash flows should be sufficient for working capital and capital expenditures for the next 12 months. This is not quantified earnings guidance; the filing provides no revenue or profit forecast.
- China’s regulatory changes reshaped product offerings and distribution. The flavor ban generally limits products to tobacco flavor; sales moved to licensed distributors through the National Transaction Platform from October 1, 2022. A 36% excise tax on manufacturing or import and an 11% tax on wholesale distribution took effect November 1, 2022. The reported 2022 product excise tax was RMB 52.7 million.
- RLX disclosed manufacturing licenses with specified annual capacity and one manufacturing license valid through July 31, 2023. Renewals, capacity allocations, product approvals and compliance remain material uncertainties. The company also noted that it may lose preferential tax treatment or subsidies under the evolving regulatory framework.
- Cash and assets are concentrated in China: 91.6% of cash, cash equivalents and restricted cash was held in mainland China, and 75.8% was held by the VIE and its subsidiaries. Transfers to the offshore parent are subject to PRC dividend, reserve and foreign-exchange restrictions. Investors own shares in the Cayman Islands holding company, not equity in the VIE; the contractual VIE arrangements have not been tested in court.
- Other significant risks include reliance on a limited supplier base (one manufacturer represented 80% of 2022 purchases and 86% of year-end accounts and notes payable), distributor concentration (one distributor represented 16.9% of 2022 revenue), product liability, health-related uncertainty, inventory and supply constraints, and changing PRC oversight. The filing says the main production facilities had improved but were not in strict compliance with certain environmental requirements, based on the company’s knowledge.
- A securities class action was dismissed in September 2022; plaintiffs appealed, and the appeal remained pending at the filing date. The company said it could not estimate any potential loss. The auditor issued an unqualified opinion and identified revenue recognition for distributor sales as a critical audit matter. Management and the auditor concluded internal control over financial reporting was effective as of year-end.
- The PCAOB’s December 2022 decision removed mainland China and Hong Kong from its then-current list of jurisdictions it could not inspect fully; RLX nevertheless disclosed future HFCAA delisting risk if inspection access again becomes unavailable for two consecutive years. PRC overseas-listing filing measures took effect March 31, 2023, with interpretation and application still uncertain.
Important facts for investors to verify
- Obtain standalone Q4 2022 results from the relevant quarterly release; this annual filing does not clearly state quarterly revenue, profit or cash flow.
- Check the renewal and permitted capacity of manufacturing licenses, product approvals, and the effects of the flavor restrictions, transaction-platform distribution and excise taxes on future sales and margins.
- Assess the quality and accessibility of reported liquidity, including the terms and counterparties of bank deposits and investment products, and the extent to which funds are held by the VIE or restricted in China.
- Review subsequent operating cash flow, inventory write-downs and receivables collection, especially given the decline in operating cash flow and higher 2022 write-downs.
- Monitor supplier and distributor concentration, production-plant environmental compliance, the pending securities-litigation appeal, and applicable PRC filing and U.S. audit-inspection requirements.