Hello, ladies and gentlemen. Thank you for standing by for RLX Technology Inc's. Third Quarter 2021 Earnings Conference Call. At this time, all participants are in listen-only mode. After management's remarks, there will be a question-and-answer session. Today's conference call is being recorded and is expected to last for about 45 minutes. I will now turn the call over to your host. Mr. Sam Tsang, Head of Investor Relations of the Company. Please go ahead, Sam.

Thank you very much. Hello, everyone, and welcome to RLX Technologies Third Quarter 2021 Earnings Conference Call. The Company's financial and operational results were released through PR Newswire services earlier today and have been made available online. You can also view the earnings press release by visiting the IR section of our website at Ir.relxtech.com Participants on today's call will include our Co-Founder, Chairperson of the Board of Directors, and Chief Executive Officer, Ms. Kate Wang, Chief Financial Officer, Mr. Chao Lu, and myself, Sam Tsang, Head of Investor Relations. Before we continue, please note that today's discussions will contain forward-looking statements made under the Safe Harbor Provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements typically contain words such as may, will, expect, target, estimate, intend, belief, potential, continue, or other similar expressions. Forward-looking statements in loss inherent risks and uncertainties. The accuracy of these payments will impact by a number of business risks and uncertainties that could cause actual results to differ materially from those projected or anticipated, many of which factors are beyond our control. The Company, its affiliates, advisors, representatives, and underwriters do not undertake any obligations to update this forward-looking information, except as required under the applicable law. Please note that RLX Technologies earnings press release, and this conference call include discussions of unaudited GAAP financial measures, as well as unaudited non-GAAP financial measures. RLX's press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited GAAP measures. I will now turn the call over to Ms. Kate Wang. Please go ahead.

Thank you, Sam. And thanks everyone for making time to join our conference call today. Since the second half of the third quarter, there have been proactive regulatory developments through the global E-vapor space, including in China. Last Friday, November 26th, 2021, the State Council announced its decision to amend the detailed invitation regulations of the Tobacco Monopoly Law of the People's Republic of China, by adding new 65s, which states that implementation rules for next generation tobacco products, including E-cigarettes, shall refer to as relevant tools with respect to cigarettes on Brazil implementation, regulation of the Tobacco Monopoly Law. On Tuesday, November 30, 2021, the State Tobacco Monopoly Administration released a consultation paper entitled "Electronic Cigarettes: A National Public Service [Indiscernible] For Standards Information " under the state's administration for market regulation, seeking public comment regarding national electronic-cigarette product standards. Yesterday, December 2nd, 2021, that State Tobacco Monopoly Administration released a consultation paper entitled Administrative Measures for Electronic-Cigarettes, seeking public comments regarding administrative measures, electronic cigarettes, covering various aspect, including production, distribution, and the retail sales, import and export, and inspections. We firmly support this amendment to the detail implementation regulations and have begun making any required change to fully compliant with the new regulations and administrative measures. We believe the amendment will pave the way for long -term and sustainable growth in this sector. We are also aware of meaningful worldwide regulatory developments, which reflects similar trends globally. In the U.S., the FDA has made substantial progress, reviewed PMTA applications and granted its first e-vapor product authorization in October, demonstrating its reclamation of certain e-vapor products harm reduction effect. We hopefully follow global regulatory developments and uses regulation of e-vapor products as the global trend. In view grow, as countries worldwide recognized universal products harm reduction benefits for…

Thank you, Kate. And hello, everyone. I will start by sharing some of this quarter's major initiatives and developments and then walk you through our key financial metrics. We believe that offering the right products to the right use of segments through the optimal route-to-market will be the key to our sustainable, high-quality growth. To this end, we continue to expand our product offerings to meet the needs of diverse user segments and optimize our distribution and retail networks to ensure quality growth. With respect to product, we are focused on offering better and more tailored vaping products for various user groups to help engage new users with the right products. This quarter, we introduced E-cigarette, a new brand targeting adult smokers with a long history of smoking. Our goal is to recreate an authentic smoking experience for adult smokers by launching 8 tobacco flavored cartridges in our initial stage. At the same time, we further upgraded [Indiscernible] phone, a more accessible product line catering to price sensitive user’s needs. We also recently re-launched stellar or [Indiscernible] in China, a premium device lines with upscale stack styling, including leather, lace, and other fashionable materials. We will continue to monitor user-experiences very closely and launch innovative targeted products at the right time. We also made several advancements in user-retention and engagements during the quarter. We successfully upgraded our membership system, enabling members to enjoy more benefits as they accumulate reward points. A growing number of users are scanning the QR codes on their cartridges to collect ruble points, which will allow us to empower uses with instant product authentication. Separately, we have established more effective communication channels to provide unbiased, fact-based, scientific e-vapor product information to our users and the community. Finally, we are concentrating on distribution and retail channel optimization.…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And for the benefit of all participants on today's call, if you wish to ask your question to management in Chinese, please immediately repeat your question in English. Today's first question comes from Lydia Ling and Citi. Please go ahead.

Hi everyone. Hi Management. And thanks for the presentation, and this is Lydia Ling from Citi. I have two questions. My first question is, given the recent regulation update developments, would you like to share with us, how are your products portfolio involved going forward, and what changes can we expect to see in your existing product portfolio? And then my second question is, we saw further slowdown in the third quarter. Could you actually share more color on your fourth quarter to date operations trends and also your outlook for next year given the current regulation update and also the COVID situation. Thank you.

Thanks very much, Lydia. So, regarding your first question, regarding our product portfolio. We do have already clear our current development strategy. As mentioned in the opening remarks, we try to offer device products to the rights future settlements, for the optimal route-to-market channel. So, we too are aware of the press conference held by the State Tobacco Monopoly Administration yesterday and also the announced product consultation of the National Electronic Cigarettes [Indiscernible] vendors. So, if in the transition period of our new [Indiscernible] requirement to become effective, [Indiscernible] comply with the regulatory guidelines. So, regarding what would we change to our current product offerings, if and or when the draft National Electronic Cigarettes [Indiscernible] vendors become effective. We anticipate we may need to monetize some of our current offerings. However, we are very confident that such changes once be complex for our Company, technically. And we believe, as of course, we'll still continue to seek out and use our products as harm reduction alternatives. So, regarding your second question about our 4Q outlooks and 2020. We currently do not have any guidance for the quarter together with next year. So, we hope to share more when we have better clarity.

Our next question today comes from Charlie Chen, in China Renaissance. Please go ahead.

Thank you, managements, to take my questions. I have 2 questions [Indiscernible]. The 1st one is could you please share your observations on the current competitive landscape for this industry. Are there any changes compared to the first half of this year? And also, what are your thoughts on the retail pricing for the [Indiscernible] environments? So that's the 1st question. And my 2nd question is regarding single-store sales. So, what are the single-store sales will tax branded partner stores for now, from your perspective, do you consider to be a healthy [Indiscernible] store sales level? Thank you very much.

Thanks very much, Charlie. I mean, there are 2 questions. One is on the competitive landscape and the other one is on our RLX branded stores. So, I mean, on the first one, as mentioned before or during the latter half of the second quarter, we do see that the industry that analysts did not progress as expected. So indeed, these has carried into the third quarter where we do see that there are external factors affecting the entire industries, including our Company and also our peers to varying degrees. But indeed, regarding competitive landscape, we have observed good deals, industry combination as compared to the first half of 2021. So, regarding retail price that you have mentioned, so we do have increase our promotional assets in the third quarter are trying to drive our retail sales and reduce inventory pressure of our value chain. And we have also seen that given the third quarter decline, in general consumer spending in China, many other companies similarly incremental subtleties or other sales incentives. For the overall magnitude of our subsidies are promotional efforts is relatively insignificant compared to other consumer goods Company in China. And we have started already reducing this further. So, going forward, we will continue to monitor our inventory level, together with user demand and adjust our promotional efforts promptly, to maintain reasonable retail price for our end-users. So, regarding your second question about the single-store sales and also how you mentioned healthy as the indicator. So indeed, single store sales together with their profitability and every operating metrics, has been a really core focus in our day-to-day operations. As we also aware of the industry-wide [Indiscernible] in retail sales, starting in the second half of 2021. But however, we also see that's been a recovery for many of our stores in recent months. As our stores are operating in a wide variety of location, some of them is in shopping malls, and some of them is on the streets. And they also place different working environments. We believe each star situation is very unique. So indeed, the entire thing will not have a healthy parameter for single as far south as we look at it one-by-one. So, for a brand at e-vapor Company, we have been devoting resources and tools to update star owners and sales personnel in their data operations, including providing branding materials, POSM, training resources, digital hightation tools, and enhanced star site selection assistance. Indeed, for this quarter, we have also launched several new products and also upgraded our membership system to drive user engagement and retention better. So, with these initiatives, we believe we can, and we will continue to drive single store sales as we [Indiscernible]. Thank you very much.

Thank you. The next question comes from Louise Lee at Bank of America. Please go ahead.

Hi, management. Thank you for taking my questions. So, my question is only for the -- also for the Q4 outlook. I understand that you don't have the guidance, but you just mentioned that you have seen some recovery during the past months. So, could you share with us more color on the recovery in terms of the single store sales? And what is the store count as for now, and what is our target for the year end. And also, what is the [Indiscernible] driver for the return in Q3.

Thank very much, Louise. So, based on our preliminary, a cause this data, we do see sequential improvements in retail sales, and also channel inventory managements. So, we could share more about our strategies in the following aspects. So, for RLX brand-stores, for quarter-to-date, we have been focusing on increasing single-store sales throughout initiatives being mentioned, and up till now is -- we do see that initial success. And for our retail is, we do see strong growth momentum in store counts, in multiple channels. And our retail channel has become more diversified from call-to-dates. But of course, we are also keenly aware of the recent developments in the regulator events, especially yesterday's press release held by the State Tobacco Monopoly Administration. So, it was gratefully followed to any new regulations and administrative measures. Thank you very much.

Thank you. Our next question today comes from Jung with X CICC, please go ahead.

Hi, good management and pay hardly XCICC. I have one question, is what is the outlook for [Indiscernible] development and the nicotine limit of 2%. Thank you very much.

Thanks very much, Jung Hao. So, I believe, you are actually referring to the [Indiscernible] drop in the current cigarettes, product spenders. So indeed, as a U.S. registered China Company, we have been long been aware of product requirements globally, including in the European Union and also the initial draft of National process vendors. Looking at the well-developed markets penetration, we believe lowering nicotine concentration will affect some user [Indiscernible] satisfaction. However, most of the [Indiscernible] could still satisfy with special nicotine content or limits in the long run. Both from the perspective of product developments, our technology developments, we have picked up process rate up to low nicotine concentration, better satisfaction since 2019. And we do have the pinnacle know-how and part of research. So currently, as you may know, most of our cartridge nicotine concentration is 3%. If such national standards become effective, we'll straight fully comply with other requirements listed on the National Product Standards, including on nicotine contents. Thank very much.

Thank you. And ladies and gentlemen, this concludes our question-and-answer session. I'd like to turn the conference back over to the Company for final remarks.

Thank you once again for joining us today. If you have further questions, please feel free to contact RLX Technologies Investor Relations team for the content information provided on our websites Ir. relxtech.com.

Thank you. Ladies and gentlemen, this concludes today's conference call. You may now disconnect your lines. Have a wonderful day.