Q1 2021 Tuya Inc Earnings Call
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Good morning, and good evening, ladies and gentlemen, Thank you force funding by and welcome to Korea, Inc's first quarter 'twenty 'twenty earnings Conference call. At this time all participants are in listen only mode. We will be hosting a question and answer session. After management's prepared remarks, I will now turn the call over to.
The first speaker today, Mr. Ed <unk> Investor Relations Associate director of <unk>. Please go ahead Sir.
Yes.
Thank you.
Hello, everyone welcome to our first quarter 2000, and so on who want earnings call joining us today off on there.
Oh, Julia this is Gerry Wang and our CFO, Mr. Jesse Lynn you cant remember that's on our first quarter of 2021 National results on our content Investor Relations website at IR told to you on Dot Com you can also access a replay of this call when it becomes available in a few hours on.
On our website.
Before we start please note on this call may contain forward looking statements made on presenting to the safe Harbor provision for the private Securities Litigation Reform Act of 1995.
Forward looking statements are based on management's current expectations and observation.
Well known and unknown risks uncertainties and other factors not another confidence control, which may cause actual results performance or achievements of the company to be materially different from the results performance or expectations implied by these forward looking statements all looking for.
For statements.
Prosody qualified in their entirety by the cautionary statements risk factors and details.
Finding with SCB.
The company undertakes no duty to revise.
Anymore.
Events or circumstances.
The data on this conference call I will now turn the call.
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And the CEO of <unk>, Mr. Jerry law.
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Hello, everyone I am the founder and CEO of QE on my name is one J D. On thank you for joining us on our earnings call as a public company. We're very pleased to report a 200 and 200000 year over year growth in Alexander revenues, achieving <unk> dollars 59.
<unk> 9 million.
First quarter of 2021 revenues for all time low he Iot pass this isn't all SaaS businesses, both achieved over 220% year over year growth.
Very able we're very happy that we were able to accomplish all of this while continuing to improve our gross margin, which increased by 10 eight percentage points year over year to 41, 1% such robust results were driven by three main factors first we capitalized on strong global demand for Iot product.
Second we cultivated sustainable growth in demand from our partners by empowering them with our innovative and scalable cloud platform to become leading Iot companies in their respective industries.
We attracted a large number of new customers from various industries and broadened the range of industry verticals, we said by leveraging a reputable brand equity and then that would affect about two yacht ecosystem.
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First I'll go into greater detail about the demand recovery.
During the quarter more than 39 million smart devices were deployed with our Iot Paas services, showing a strong growth of demand for Iot product.
During the quarter the global economy rebounded as COVID-19 vaccine coverage improved in major economic regions around the world.
Over the last year force closures and Cowen teams have instill new habits of using smart devices at home. This Matthew rapid increase in the number of smart device developers on our platform from approximately 260000 at the end of last year to more than 320000 at the end of the first quarter.
Furthermore, contactless services, all becoming the new standard for many transactions in the post COVID-19 economy.
For example, the demand for contactless check in on hotels has grown rapidly.
This shift in user habit is becoming increasingly prominent in the postponed on the DRAM and changing the way people work study and to change themselves.
According to CIC the worldwide total addressable market is forecasted to grow at a kicker on 18, 9% to 171.
$171 7 billion U S dollars by 2024.
In addition, based on Idc's forecast data the worldwide Iot software total addressable market is forecasted to grow at a CAGR of 12, 9% to $237 billion by 2024.
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Channel. Thank you Cynthia young Belgian agenda in the Iot design yet.
Next I'll discuss the sustainable growth and demand we have cultivated from existing customers.
Delivering the best value possible to our end of day does highly scalable cloud platform, we enable customers to grow into Iot leaders in their respective industries as a result their demand for our services grow as they expand the number of products the day develop on our platform.
Our dollar based net expense you may for Iot past with 210 per cent for the trailing 12 months ended March 31st 2021.
We have now surpassed the industry average for the sixth consecutive quarter since we began tracking the metric.
We were also able to achieve is primarily we were able to achieve this primarily because of the quality and scope of all stop Iot pass products, which deliver tremendous value to our customers on the cloud platform.
Okay can develop competitive and cost effective products with very little R&D investment.
He also enable customers to expand into new product categories and geographic regions on a platform which supports Huntington.
Thousands of product Skus in over 200 countries and regions around the world.
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Customers to operate their business models from a traditional sales oriented business to a service oriented Iot business.
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A large number of customers on the <unk> platform has developed into Iot leaders in their respective industries as of March 31, 2021, the number of premium customers, who contributed over 100000 U S dollars in revenue during the trailing 12 month period grew.
Q2 hundred 16 from 188 as of December 31st 2020.
During the first quarter of 2021 any sign of a brand customers place more than five times the number of orders from the same period last year.
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Next I'll give more color on how we languished in the wake effects of all true ecosystem and brand reputation to acquire new customers from different industries.
It is John Ruelle consensus from Iot brands that end users need to have the ability to control multiple smart devices with one single application, therefore being able to connect with thousands of other brands on the true cloud platform brings tremendous value to our customers.
This network effects develops synergy between our partners and also creates significant barriers to entry from all competitors.
More brands, we have with our platform the more new brands want to join on platform.
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In the first quarter of this year, we acquired over 600, new Iot past customers, increasing the number of Iot paas customers by nearly 160% year over year.
Meanwhile, we have grown the number of brands on our platform to over 3000 from 2700 brands at the end of 2020.
More and more brands from various industries are recognizing the value on a plus one and are developing new products on our platform.
These customers include Danfoss, Danish multinational air conditioning and energy solutions provider.
More than half, a well known German pioneer in heating and ventilation technology.
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One of the largest white goods producers in Europe with over 50% of market share in Turkey, and its footprint bekele being the second largest brand in Europe.
And Mark a world, we announce household kitchenware brand in South Korea.
I had a health care and beauty and the tronic from manufacturers with products in tens of millions of homes and millions of hotel rooms in North America.
Ian Smith, and American water heating and water treatment solutions provider with a multibillion dollar market cap and 180 <unk>.
147 years of history.
Tesco and American home electronic company with 3000 flights on two products sold in 85000 stores across North and South America.
Snack on leading electronic brands in Brazil, offering over 50 types of electronics industrial commercial and residential use cases.
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Meanwhile, we're seeing more regional retailers from the leaders, including telecom operators choose to yes, Iot Paas services to empower their private brand smart devices. This includes companies such as <unk>, the largest Indonesia retail chain store telecom the largest telecommunication operator in Indonesia.
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Little the largest food retail company in Europe is one such company.
During the quarter several top video companies in North America have also chosen to be powered by two young for its private label Smart products deployments of these products are expected to.
I expected in the fourth quarter of this year.
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In addition to acquiring new customers. We also expanded our services to include entirely new product categories.
Leveraging the scalability of our platform. We grew the number of rescue use supported by all Iot past segment Q2 interest in 10000 by the end of the first quarter from 250000 net the end of last year.
During the first quarter, we expanded into many new P. B T product lines.
Many international brands and Oems have enter into trial on mass production of products, such as personal transport devices, including you know cycles and scooters and your shipments in the tens of millions did.
Digital appliances, including SaaS charging devices and gaming like strips with annual shipments and hundreds of millions.
Variables, including watch bracelets, and we'll work with annual shipments into billions.
Sports and health products, including jump rope dumbbells, Babington, racket really machines, and treadmills et cetera et cetera.
Industrial and commercial gateways, and finally lighting products, such as high day lights and landscape Tonight.
In the first quarter. We also developed a series of low power security product such as low powered doorbell cameras Lux and why.
This is also a category with very strong and consistent demand.
We are also developing Iot pass products for new energy industrial and agricultural vehicles.
We'll share more details with everyone regarding these new verticals in coming quarters.
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The three primary factors.
Main growth drivers for our Iot per segment next I will share some updates on our Salt segment, we started to launch soft services at the end of 2019 and the current summit.
So on several segments, including smart communities other real estate, a lot of hotels and apartments, not consumer security and smart commercial lighting, our stock price as it sits in the early stages of development and we continue to make great strides to improve at lunch more SaaS products. In this segment our biggest competitive advantage is the fact that out.
We are called platform has hundreds of thousands of global Iot developers on.
Neutral on the open platform that can provide Iot socs customers with a varied selection of multi branded hardware choices.
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During the first quarter.
Sorry during the first quarter, we were actively working on version one point out of SaaS upgrade for our smart community and real estate services two inch multi terminal interactive entrances.
Just a little bit over a year, we have joined the upper echelon of China's smart energy and real estate SaaS service providers. We have now so many of Chinas, leading real estate groups, including Banca Group Center Ocean Group channel overseas launch and investments Kaiser group, Sichuan non quantum development billion into.
National Holdings and Sundays. So this group.
With China overseas, London investment in case of Prosper both began in the first quarter of this year.
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We also released a premium version of our Smart hotel and apartment SaaS solutions in the first quarter of this year. The premium version expands all services from simple hotel room management to income past hotel lobby and specialty traffic management.
Version also supports energy management are key focal points for most hotel managers.
We ask smart hotel and apartment SaaS solution already powers.
5000 items in China.
Now with the pandemic situation improving around the world we have begun to enter these markets.
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We also announced version 2.0 for our smart consumer security SaaS in the first quarter upgrading the backend into smart security service platform.
Customers can manage multiple households, or commercial devices through a unified unified portal.
By creating a closely data connection between home devices and commercially managed security services, we're able to realize a standardized business interface with third party security operators globally.
Our smart consumer security SaaS has already received orders from a number on security operators in China and overseas, including Goldilocks safety, the largest store security operator in China.
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Smart commercial lighting SaaS was launched in the second quarter of last year and the first quarter of 2021, we launched version one point out of our smart commercial lighting, SaaS, which is functions in smart construction remote monitoring consumption monitoring operating and maintenance and more.
Small commercial lighting SaaS will promote the attachment of commercial lodging business models, creating an unforgettable customer experience and in true energy savings.
For example, ex types groups, a three storey flagship store in Shenzhen use our commercial lighting SaaS to create a uniquely to six shopping experience from.
Gas stations have saved more than 40 percentage of energy usage with our smart commercial lighting shops.
As China's leading mounting companies, including MPC lighting, skywest lighting and strong on the old customers of two young smart commercial lighting sauce.
This segment also has many customers such as system operators in Europe, Hong Kong and more.
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Our SaaS business is also showing early signs of high repurchase rate.
Among its launch in 2019, our hotels asbestos welcome its first group of contract renewals, what do we know rate of over 90 per cent.
<unk> group, our first real estate SaaS customers and one of the largest real estate groups in China signed a second phase SaaS contract with us at the beginning of this year.
Sunday Service group, our first smart communities customers and the top 100 real estate gripping China has like eight that states on service contract with US in February this year.
This contract follows their first phase contract in August 2020, and second phase contract in October 2020.
Going forward, we will continue to Polish all SaaS products and events a graduate entry of <unk>.
Various acceptances into global market.
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Last but not least let me talk about the development of true cloud platform system.
To treat our cloud platform is at the core of our pursuit to provide the ultimate user experience.
In the first quarter continue to invest R&D resources in the construction of infrastructure for our cloud platform to ensure that we can maintain efficient product iteration in the Iot industry.
Meanwhile, we have proposed a number of innovative industry solutions provide basic capabilities for customers to quickly enter the market.
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For example in the first quarter of 2021, we launched energy saving style products, when analyzing and predicting the energy consumption data of users on devices, we're able to provide customers with energy consumption monitoring alerts when energy management operations and maintenance.
Empowered customers are past consume cash.
Commercial and industrial sectors by enabling them to quickly build a complete set of energy application products system.
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Moreover, we provide a health care service flow product system for smart device manufacturers and the health care industry.
Hence of cloud security, we have obtained force certifications, including the cloud Security Alliance Star certification issued by the British standards institution and organization instrumental to the formation of the ISO and IEC.
<unk> is the world's first Iot cloud platform to whole day for certification at the same time.
We also successfully completed the service organization control to type two certification personal by E on what in the first quarter.
Our R&D capabilities and data security have always been essential to our growth strategies.
As of March 31, 2021 on number of employees has increased to.
Almost 2900 from 20 to 158 at the end of 2020.
70% of which R&D head counts.
Allows us to latest on taken from sustainable development going forward.
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That concludes my prepared remarks from the first quarter now I'll turn the call over to Jessie all CFO to review the financial details.
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Okay.
Thank you all for joining US let me start by reviewing our financial results for the first quarter of 2021, and then I will discuss our outlook for the second quarter.
Before I begin. Please note that all amounts are in U S dollars and all comparisons on a year over year basis, unless otherwise stated first of all I'd like to highlight that our total revenue for the first quarter has beaten the street consensus estimates by approximately 14%, we achieved robust operational and financial growth in.
The first quarter. Our total revenue grew 200 per cent to $56 9 million dollar such strong growth was mainly driven by the solid growth of all Iot pass revenue, which increased 227% to $49 $8 million several categories of our Iot past powder product achieved notable year over year growth.
In particular on the revenue of Iot past empowering security on the sensor products grew more than 300 per cent our revenue on Iot past empowering sports wellness product grew approximately 700 per cent and our revenue of Iot pass empowering education Entertainment and network portal products grew more than two.
On people.
I also like to remind everyone that every year there are seasonal fluctuation in other revenues and sales typically we experience lower revenues in the first quarter, while the fourth quarter is historically, our strongest quarter of the year. This is due to the operations patents of our customers' global consumer electronics brands and OEM.
Besides us all revenue from SAS and others increased by 224 per cent to sleep on sleep.
$2 million to $3 million.
All brand agnostic starts offerings continue to attract customers interested in increasing the efficiency and the productivity and managing their business and the smart device product.
Customer count for the segment has increased by about 183%. Meanwhile, our non core business. My distribution revenue grew by 58 per cent to $4.8 million driven by increases in customer purchases and demands.
Our gross profit increased by $307 four per cent to $23 $4 million, while gross margin improved to 41, one per cent from 33 per cent or Iot parts gross margin increased to 41 seven per cent from 35 per cent a year ago, primarily due to three <unk>.
First our increased economies of scale.
Our improved efficiency for Iot Pos deployment achieved through effective R&D and its third expansion into higher margin Iot past product lines. All Iot pass gross margin has improved from.
Nine consecutive quarters, our Premia Iot Paas customers were 216 for the trailing 12 months ended March 31, 2021 up 73 per cent from 125 for the same period ended March 31st 2020.
During the first quarter of 2021, they accounted for approximately 86 per cent of Iot Pos revenue.
Dollar based on net expansion rate well other Iot parts segment improved to 210 per cent for the trailing 12 months ended March 31st 2021 from 173% for the same period ended March 31st 2020, the improvement reflects our strong ability to extend our platform usage.
Over time and to grow revenues from existing customers.
On a dollar based on net expansion rate has been higher than 160 per cent for six consecutive quarters. Since we began tracking it for the trailing 12 month period ended December 31st 2019.
Now turning to our operating expenses. Please note that we are excluding share based compensation from our non-GAAP.
Number two provide the greater clarity on the trend of our actual operating basis expenses. So that you can reveal our performance in the same way as other management.
During the quarter non-GAAP R&D expenses increased by 100 per cent to $39 million, primarily as a result of increased on the put them now.
As of March 31st 2021, the company had about 2018 research and development employees.
Approximately 93 per cent year over year as a percentage of total revenue non-GAAP R&D expenses decreased to 54 per cent from 81 per cent a year ago continued investment in R&D talent is critical for our growth strategy and allow us to.
And our product coverage and enhance our service offerings and widen our lead in the Iot industry.
Non-GAAP sales on the marketing expenses increased by 74 per cent to $14 $3 million, mainly due to increased employee related costs and the marketing spending the marketing spend includes costs related to hold events like the Trulia Iot online Expo and Expo debt connect friends Oems and other developers.
Developers to explore business opportunities within the twin pass them on the ecosystem. It also includes cost for developer conference led by.
Two we are each developer conference attracts thousands of developers from different backgrounds to share their views on the latest Iot trends and.
Practices.
As a percentage of total revenue.
Non-GAAP sales and marketing expenses decreased to 25 per cent from 43 per cent a year ago.
Non-GAAP G&A expenses increased by 124% to $5 $3 million, mostly due to team expansion IPO related expenses and increased public company costs, we have hired and will continue to hire more professional and experienced its employees to further improve our internal management as a percentage of revenue.
Non-GAAP G&A expenses decreased to $9 three per cent from $12 four per cent a year ago in the first quarter, our non-GAAP loss from operations was $24 $5 million, while our non-GAAP net loss was 20 threep on the 20.
20, threep on the $8 million on non-GAAP operating margin was 243 per cent narrowing six two percentage points from net to 105 per cent in the same period of 2020.
And then non-GAAP net margin was negative 41 eight per cent narrowing 57, six percentage points from negative 19, nine 4% from the same period of 2020 the.
The narrowing of operating on the net margin is mainly due to the increase in our operating leverage.
We achieved very strong growth, while maintaining healthy margins.
Net cash using operating activities for the first quarter I'll put out from 'twenty, one with 32 $7 million or 57, 4% on revenue compared to $31 million or $163 8 million on percentage on the whole revenue in the first quarter of 2020 the decrease in net.
Cash used in operating activities as a percentage of revenue was due to our rapid business growth and the continued improvement in operating efficiencies.
Moving onto the balance sheet as of March 31st 2021, other cash cash equivalents in short from investments in quick too.
One point to $2 billion from 117 $9.8 million as of December 31st 2020, primarily due to the net proceeds obtained from our successful listing. We believe this balance is sufficient to meet our current liquidity and the working capital needs to support our strong growth.
Now turning to outlook, but assistant for the second quarter of 2021, we expect total revenue to be in the range of $78 million to $81 million, which has been raised by approximately 19% to 23 per cent compared with street consensus estimates.
This forecast reflects our current and preliminary views on the market and our operating conditions, which are subject to change. This concludes our prepared remarks for today operator, we're now ready to take questions. Thank you.
Thank you. So I'll ask a question you will need to press star one on your telephone until we drive question first the pound key as a reminder, when asking the question.
Your question in Chinese first then immediately repeat your question in English for the convenience of everyone either call based on by while we compile the Q&A roster.
Your first question comes from the lineup Chi Tung would see ICC. Your line is open.
Yeah sure and in Shanghai.
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So I'm going to you I know what you're in Switzerland.
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I'm seeing on Science Hill, so firstly, congratulations on the strong quarter one results for the Magnum Q.
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From the more color on trucks.
So on plan for this year.
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R&D right.
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Domestic appliance business, so oh, what's the synergy between the cynics on net rigs.
Regarding to the to your house.
The investment in the future. Thank you.
Okay.
First let me take the first question about nine industry solutions. So to young had been always developing a opened on a neutral platform for all the other industries developers and we encourage developers.
Developers are more than the told me electronics to join the platform.
On to help growth. This is I would say this is beyond them.
Consumer electronics like commercial electronics on converge.
On the Iot business industry, Agriculture Energy Health Entertainment. So that's why this year, we are published on.
The nine month free solution to other developers and we will continue unless I'm on the to provide a better solution.
Oh for broader industries and this is young all sucks all the talk with their focus on the full jewelry has mentioned that.
Real estate and the commitment and the community hotel and apartment commercial lighting and the consumer security on so for the fastest is we expect it will also benefit from benign industry solutions and the way you would expect our stock business will have a.
Very strong growth continued in Q1 on momentum and therefore, the on long term future.
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So let me take the second question in terms of the R&D investment that is planning for the share we are going to focus on simple things, but before that let me just reiterate the importance of R&D for our company at least since the inception of our company with all these power as high as the development of technology because it is in our journey to.
Innovating to technology in our company is a R&D rather than or a technology driven company and that is why we are able to construct a high entry barrier or a competitive moat in the past seven years.
That is because we've been deeply rooted in technology and R&D and so going forward. We will continue to spend a lot on investment in technology and product innovation now for this year, we are going to invest in three main aspects. The first one is our developer R&D platform, which will continue to enable the R&D.
Hardware and support D. Iot apps development of other T cloud our cloud platform development. The second investment and we'll continue we'll be in the business expansion, especially in the auto and mobility scenario now in the past and as a result on the pandemic. We were mainly focusing on are we mainly focused on smart homes.
And it has allowed us to actually grow our business in a very solid growth. However in the post pandemic era people are beginning to actually go outdoors and people want to get make beginning to travel and we saw strong demand for this month. So that is why we are building a new.
With a team of 500 people in Shanghai. This year that are going to focus on six expansion and we're going to invest in a lot of D that can empower this kind of business expansion and as such area to help investment will be in actually what we call. The ultimate experience for the final users and we call it actually does.
Six plus and experience. So basically this is about solving Richard demands of the market in terms of all of the needs that we observed from the market, including energy sales efficiency.
And to keep them on the fitness et cetera et cetera.
We are solving the six plus and demand and we hope that through this investment we are able to continue to drive the profitability of our company that also expand on.
Yes.
So for the third question Hillhouse with our primary shareholder prior to going public and one of our.
I still am I, feeling left or they have been very supportive of two young and have introduced many customers in their portfolio to us and we also help them hillhouse portfolio companies to accelerate their business.
Telegent send to generate greater value through Iot.
So.
What was already our customer before and Hillhouse Ah Indeed, they've introduced a broader team of Philips to us and we believe the cooperation with Philips or will accelerate through the help of hillhouse.
And we should be able to support a fillip to develop.
On a wider range of Iot product in the future.
Uh Huh you too Jerry.
Yeah.
Alright. Your next question comes from the line of young you with Morgan Stanley. Your line is open.
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Oh I will translate the question briefly the first was a measurement of share of other.
Rough split.
Or for revenue or volume or a different categories like a lightning or electrical wearables home appliance et cetera on the what is a mixed outlook in future.
The second question is the Iot Puss pricing strategy, especially in an environment of a chipset shortage or a rising price.
On.
Especially after the especially given the very strong revenue guidance for what should be the gross margin outlook for the second quarter.
The third question is that Oh.
Could management share about the investment focus Australia, Chief Officer, a newly established on Iot and first on the phone together with a huge thank you.
Okay. Thank you yeah. So let me take the Oh three questions on this.
So in the past seven years to y'all has been helping the developers on the global customers to quickly expand their product on.
As almost all of them all but he left us no back to when.
When we started back to 2015, plus 16, we started from lighting and and electrical.
Segment of products and however, we have expanded into other product lines are very quickly as jewelry also mentioned in Q1, we expanded to more a very interesting high demand Iot products to support those new Iot product and so back to 2019.
For example, the Iot pass revenue contribution from.
Lighting and.
The electrical segment, well close to 90 per cent, but today for example in Q1 2020, the revenue contribution from lighting and electrical.
Now less than 60 per cent.
The home appliance, including larger pie on small times on the kitchen opines contribute more than 10 per cent of Iot Pos revenue the security under center segment on the aggregate pass revenue contribute also more than 10 per cent, the remaining which were quite fragmented including.
For example, on the health and sports M D.
Education on gateways.
Culture energy on all those Hum a lot new segments help deal I only get products all I don't see a path empowered. They also contribute more than 10%. So we believe in the long term future and we will be more diversified we'd like to make the Iot platform.
On a very flexible on to support or the Iot devices that customers, including the individual customers and on the corporate customers a strong demand.
Second question about the pricing so what happened indeed.
On the chip industry, let's.
Let's see in terms of the pricing and the shortage.
Has been.
Once a time in the last 30 years. So it is a tough time for the entire industry Hum for Audi.
On the downstream industrial has been impacted so we have been working very closely and carefully with our partners, including our supplier partners and our customers are so in terms of pricing.
We will pass on the.
The increase from the chips are.
To the downstream, but meanwhile to work hard on in terms of the R&D in terms of the operating efficiency to help too.
Two two to drop the cost as much as possible to help our customers are.
To maintain a a reasonable price for the end users. Although we expect our margin will remain stable in the in the in the next quarter.
And then also in terms of the supply we will work very closely continuously in the morning total situation too.
To ensure that our growth can be supported.
On the last question it's about.
The.
On the phone. So we expect in Q2, we will finish the setup of the I'll keep on going and also building up the team.
Cause I hope you found the purpose of the Iot.
It's true.
Folks on the on both upstream downstream of the Iot industry and also other broad develop her industry to.
To help.
Entrepreneurs in this industry to grow their business and also strike takes really a growth the Iot industry to be a bigger pie for all of us. Although we will also build up.
Experienced investment team to carefully select the project on the the entrepreneur team with high potential.
So which how power ponder.
Our customer suppliers developers and also help to you to grow faster.
Yeah.
Thank you so just on the.
Three questions here.
Okay. Thank you. This is the end of the Q&A session I'd like to hand, the conference back to our management for closing remarks.
So thank you again for joining our call you should have further questions. Please feel free to contact us I'll request from our IR website, we look forward to speaking with everyone. In our next earnings call have a good day.
Okay.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
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