Hello, ladies and gentlemen. Thank you for standing by for the RLX Technology Inc. Fourth Quarter and Full Year 2024 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 forty minutes. I will now turn the call over to your host, Mr. Sam Tsang, head of capital markets for the company. Please go ahead, Sam.

Thank you very much. Hello, everyone, and welcome to RLX Technology Inc.'s Fourth Quarter and Full Year 2024 Earnings Conference Call. The company's financial and operational results were released through PIA Auto Swire Services earlier today and have been made available online. You can also view the earnings press release by visiting our IR website at ir.relxtech.com. Participants on today's call will include our Chief Financial Officer, Mr. Chao Lu, and myself, Sam Tsang, head of Capital Markets. Before we continue, please note that today's discussions will contain forward-looking information made under the Safe Harbor provisions of The US Private Securities Litigation Reform Act of 1995. These statements typically contain words such as may, will, expect, targets, estimates, intend, potential to continue, or other similar expressions. Forward-looking information involves inherent risks and uncertainties, which could cause actual results to differ materially from those projected or anticipated, many of which are beyond our control. The company, its affiliates, advisors, and representatives do not undertake any obligation to update this forward-looking information, except as required under applicable law. Please note that RLX Technology Inc.'s earnings press release and this conference call include discussions of unaudited GAAP financial measures as well as unaudited non-GAAP financial measures. Our earnings press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited GAAP measures. I will now turn the call over to Mr. Chao Lu. Please go ahead.

Thank you, Sam, and thank you to everyone for joining our earnings conference call today. I will start with the overview of our 2024 performance and organizational initiatives, followed by an update on our overseas market outlook for 2025, and the details of our 2024 financial results. 2024 was a pivotal year for RLX Technology Inc. as our first full year operating in international markets following the termination of our non-compete agreement with RLX Inc. in November 2023. Throughout the year, we focused on enhancing our organizational structure and business models to drive successful overseas initiatives while maintaining stability in the China market after entering a new regulatory framework in 2022. As a result, we capped off strong 2024 results with our seventh consecutive quarter of sequential revenue growth supported by our continued commitment to global expansion and effective localized strategies catering to each region's unique user base. Our outstanding results demonstrate our business's resilience and our ability to deliver growth amid a novel industry landscape. Building a solid foundation for international growth was a top priority for 2024. We critically assessed our organizational structure and strength relative to our peers and identified key areas for improvement. Based on this review, we optimized our operational and management framework to support our long-term growth objectives. Moreover, people remain our most valuable asset. Therefore, we have invested heavily in upgrading our team, bringing in experts in FMCG, in-house product development, and regulatory compliance. Their passion for growing RLX Technology Inc.'s business and advancing the e-vapor industry has empowered us to deliver effective, sustainable business models that will propel our long-term success and growth. On the operational side, tailoring our product portfolio and business strategies to local markets was essential. We deeply analyzed local market environments and consumer behavior, then utilized our insights…

We will now begin the question and answer session. Please pick up your handset before pressing the keys. If you wish to ask your question to management in Chinese, please immediately repeat your question in English. At this time, we will pause momentarily to assemble our roster. The first question comes from Christine Pang with UBS. Please go ahead.

Thank you, management, for the presentation. So I have two questions for the management. So the first question is about the overseas market extension. So you have shared with us a lot of the initiatives that you have been doing in 2024. So going to 2025, what are the new initiatives you are going to implement to further drive the market share gains in the overseas market?

Thanks very much, Christine. Thanks for asking. So we designed our product portfolio and business strategies to align with the unique characteristics of each market. On the product side, we analyze local preferences to develop tailored flavor portfolios and product formats. Our in-house e-liquid team specializes in crafting flavors inspired by traditional foods and cultural nuances, ensuring strong resonance with regional tastes. For route-to-market strategies, we adopt a dynamic approach, continuously reassessing plans to reflect market conditions and distribution channel characteristics. This includes identifying high-potential sales channels such as convenience stores and vape stores, focusing resources on the most promising opportunities. We also collaborate with distribution partners who possess deep local knowledge and resources, enabling us to build efficient and robust networks. Data-driven insights play a crucial role in our decision-making. By analyzing marketing trends and consumer behavior, we ensure our products align with local preferences, affordability, and purchasing habits, creating an optimal fit between products and channels.

Thank you, management. So I have another question. So it's regarding the shareholder return. So any updates regarding the shareholder return from 2025 onwards?

Thank you very much. So, I mean, we have also explained that in our opening remarks. To return a significant portion of our non-GAAP net profits to shareholders through share repurchase and cash dividends. As of December, we have cumulatively returned $332 million to shareholders, including $305 million for share repurchases and $27 million for dividends. This year, we intend to continue these initiatives, reflecting our commitment to shareholder value. Thank you very much.

Thank you.

The next question comes from Lydia Ling with Citi. Please go ahead.

Hi, management. This is Lydia from Citi. So I also have two questions. First, I actually want to follow up on the overseas side. Could you share with us your detailed expansion plan for this year and any growth targets for this year? And secondly, do you have any insights regarding the industry's product evolution this year? And then my second question would be on the regulation side. There are regulatory uncertainties in overseas markets. Could you elaborate on your views on potential regulatory changes and how you would address these challenges? Any color would be very helpful. Thank you.

Thanks very much, Lydia. Regarding your first question, which is about our international expansion, we plan to expand to more countries in 2025, likely in the second half of this year. Several countries in Asia Pacific and Europe are under our consideration for this expansion. However, the macroeconomic environment, political stability, and regulatory landscapes remain unpredictable. We will make more informed decisions by midyear based on further developments. Regarding the global industry product evolution, the typical innovation cycle in e-vapor lasts around three years. Between 2020 and 2022, disposable products reshaped the market, driving growth and transitions within product categories. From 2023 to 2025, the focus has shifted to high-power innovations such as steel mesh technology, which enhances user satisfaction and introduces higher liquid volume products. This trend has also driven the decline of average sales prices per e-liquid milliliter, particularly as potential bans on disposables in Europe accelerate the transition. We believe 2025 will mark the conclusion of this innovation cycle as the shift to high-power, high-volume products stabilizes. For our company, sales volume in milliliters has grown faster than revenue due to lower average selling prices. We expect this trend to normalize by the end of this year or early next year. We anticipate meaningful market share growth in sales volume and moderate revenue growth. Over the medium term, we are confident that these metrics will grow in parallel, supporting sustainable and healthy business growth. Regarding your second question about regulatory changes and challenges in our industry, the regulatory landscape varies by region. In Southeast Asia, regulations are becoming more stringent, with clearer definitions that reduce ambiguity for industry players. However, political stability in some countries has created additional uncertainties and delayed approval processes. In Europe, environmental concerns have led to bans on disposable products in countries such as the UK and France, while other regulations aim to minimize the appeal of e-vapor products to underage users. Additionally, some European nations are introducing taxes on e-vapor products. To address these challenges, we proactively evaluate our product portfolio and adjust our strategies to ensure compliance while meeting user demand. By closely monitoring inventory and collaborating with distribution partners, we can swiftly adapt to regulatory changes. This agility, combined with our ability to anticipate evolving regulations, strengthens our competitive advantages and positions us for long-term sustainable growth. Thank you for your question.

The next question comes from Yan Guo with Citrix. Please go ahead.

Thanks, management. This is Yan from Citrix Securities. My question is about product innovation. Will the open system e-cigarettes benefit from the ban on disposable e-cigarettes in Europe? What is your opinion on the open system interface? And how competitive are the company's open systems in the graphics product? Recently, the HNB products are quite popular. Do you plan to enter this market?

Thank you very much, Yan, for your questions. The first one is on our open system products. We believe the open system e-vapor products will experience stable demand growth in price-sensitive markets where affordability is key. Our product development strategy focuses on five priorities: user experience, affordability, convenience, user satisfaction, and harm reduction. Our open system products, including RLX Prime and RLX Spin Mini, are designed to address affordability and convenience. RLX Prime features added e-liquid storage capacity, significantly expanding usage time and improving efficiency compared to other products on the market. RLX Spin Mini offers a dual-flavor pod system catering to local user preferences by providing cost-effective solutions with superior user experiences. These innovations position us as a strong competitor in the open system market and allow us to meet evolving consumer needs. Regarding HNB products, we observed that the e-vapor industry is growing faster globally than the HNB products. HNB products tend to succeed in developed markets only with strong purchasing power due to their relatively high cost. Additionally, middle-aged and younger adult smokers prefer e-vapor products for their convenience and overall experience. As a result, we currently have no plans to enter the HNB market and will continue prioritizing e-vapor products where we hold a stronger competitive advantage. Thank you for your questions.

Thank you.

Due to time constraints, I would now like to turn the call back over to the company for closing remarks.

Thank you once again for joining us today. If you have further questions, please feel free to contact RLX Technology Inc.'s Investor Relations team using the contact information provided on our website and through our financial communications.

This concludes this conference call. You may now disconnect your line. Thank you.