Q4 2023 Tuya Inc Earnings Call

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Operator: Good morning and good evening, ladies and gentlemen. Thank you for standing by, and welcome to the Tuya INS fourth quarter 2023 earnings conference call. If you'd like to ask a question during the presentation, please, you may do so by pressing the star followed by one on your telephone keypad. I'll now turn the call over to the first speaker today, Mr. Rek Chai, Investor Relations Director of Tuya. Please go ahead,

Good morning, and good evening, ladies and gentlemen, thank you for saying by and welcome to the two year in fourth quarter 2023 earnings conference call if you'd like to ask a question. During the presentation. You may do so by pressing star fell by one on your telephone keypad I will now turn the call over to first speaker today, Mr Rich High Investor Relations.

Director of two young please go ahead Sir.

Rek Chai: Okay, thank you. Hello, everyone. Welcome to our fourth quarter 2023 earnings call. Joining us today are Mr. Jerry Wang, founder and CEO of Tuya, and our CFO, Mr. Jesse Liu. The fourth quarter 2023 financial results and the webcast of this conference call are available at ir.tuya.com. A replay of this call will also be available on our website in a few hours.

Okay. Thank you.

Hello, everyone welcome to our fourth quarter of 2023 earnings call.

Joining us today are founder and CEO for too long.

<unk> and our CFO Ms Disney Neil the first quarter, the fourth quarter of 2000 clients Reap financial result, and a webcast of this conference call are available at IR.

Throughout the call.

This core.

Also available on our website in a few hours before we continue I refer you to our safe Harbor statement in our earnings press release.

Rek Chai: Before we continue, I refer you to our safe harbor statement in our earliest press release, which applies to this court, as we will make full... With that, I will now turn the call to our founder and CEO, Mr. Jerry Wang. Jerry will deliver his remarks in Chinese, which will be followed by corresponding English translation. , 2023 Hello everyone. Thank you for attending Tuya's 4th Quarter 2023 Earnings Conference Call. 2023 is the year of Q3.,,,, Our total revenue is about US$64.4 million. 12.2%, We have seen a steady increase in the rate of in the last three months, pushing the overall rate of to 17.3%, which shows the great value brought by the products and services of various platforms to customers., 1260 20%,, Q43180 Q4 9.84,, 2023 down.

Hi to this call as we will make forward looking statements with that I will now turn the call to our founder and CEO Ms. Jamie long, Jeremy with Libre Keiths remarks in Chinese which will be followed by a corresponding English translation.

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Jerry Wang (Translated by Rek Chai): From the perspective of the year of the 4th quarter of 2023, we have seen year-on-year growth. In 2023, we made corresponding adjustments and changes and verified a direct business and industrial efficiency improvement by combining the strategies of focusing on strategy and product uptake. The fourth quarter of 2023 marked an exceptional period of progress, building upon the momentum of the third quarter as we executed our strategic plan and thoroughly reviewed our operations. This approach led to significant advances across all business and performance indicators. Specifically, we reported total revenue of approximately $64.4 million for the quarter, representing a robust year-over-year increase of 42.2%, which underscores our positive trajectory. The gross margins of our three billion segments have steadily increased, driving our blended gross margin to a new high of 47.3 percent, which is a testament to the strong value that our platform, products, and services deliver to our customers. From an operational and profitability standpoint, in the fourth quarter, our non-profit climbed to around $12.6 million, a quarter-over-quarter increase of about 25 percent.

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The fourth quarter now Tucson, 23 marked an exceptional period of progress building upon momentum third quarter, how do we execute in our strategic plan thoroughly reviewed our operations. This approach led to significant advances across all business and performance indicators.

Specifically, we reported total revenue of approximately $64 $4 million for the quarter, representing a robust year over year increase of 42, 2%, which underscores our positive trajectory.

The gross margins of our three business segments have steadily increased.

Robbing our blended gross margin to a new high of 47, 3%.

She is a testament to the strong value that.

Our platform products and services delivered to our customers.

From an operational and profitability standpoint in the fourth quarter.

Our non-GAAP net profit climbed to two and around 12 point.

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Quarter over quarter increase of about 25%.

Rek Chai: Our financial strength is further evidenced by our net cash from operating activities, which reached approximately $31.8 million in net inflows for the quarter, enabling our net cash flotation to rise to $984 million by the end of the fourth quarter. In summary, the fourth quarter results reinforce our confidence that we are emerging from the climate cold downturn in our industry. Looking back on the year, we returned to year-over-year growth, and it achieved full-year non-gap profit for the first time. Throughout 2023, we implemented strategic adjustments and transformations to validate the operational and commercial benefits of combining our key account focus and a product enrichment strategy. This strategy yielded significantly better results. In 2023, the global influence of B-end and mid-end users will further increase. The market cannot remain stable.

Our financial stress is further evidenced by in our net cash from operating activities, which reached approximately $31 8 million in.

Net inflows for the quarter.

Enabling our non cash per patient to right to now $184 million by the end of the fourth quarter.

In summary.

Fourth quarter results reinforce our confidence that we are emerging from declining coal downturn in our industry.

Looking back on the year, we returned to year over year growth and achieved full year non-GAAP profit for the first time.

Now 2023, we implemented strategic adjustments and transformations further validating the operational and the commercial benefits of combining our key account focus and a product and enrichment strategies. This strategy <unk> significantly better results.

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Rek Chai: As we mentioned earlier, since mid-to-late 2020, many large-scale IoT platforms have been shut down due to their high efficiency. Recently, in November of last year, a well-known cloud platform in China also announced the shutdown of IoT-related services. Many of their customers are also switching to native platforms globally. In 2023, our impact on B2B customers and end-users around the world grew even stronger, solidifying our market share. As we have mentioned before, since the latter half of 2022, a number of large LTE platforms have ceased operations due to challenges in maintaining efficiency.

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As we have mentioned before thanks to the latter half of 2022.

Number enough large algae platforms have ceased operations due to challenges in maintaining efficiency.

Last November a well known cloud computing service provider in China discontinued is out of service.

Rek Chai: Last November, a well-known cloud computing service provider in China discontinued its IoT service, and many of its IoT customers are gradually seeking to switch to the Tuya platform. , Now the smart consumer electronics industry is now embarking on a significant growth phase which will be a period of cultivation and expansion built upon a solid foundation. During this crucial period, our strategy will focus on engaging with high-quality customers, Elevating our product offerings, and enhancing cost efficiency. We are committed to driving revenue growth by optimizing both the volume and the pricing of our products, while also expanding into new smart domains beyond consumer electronics. First of all, our big picture strategy has greatly improved our effectiveness. , or a better service with strategic significance or long-term potential, large-scale and high-quality customers, ca przew ,! Based on the original iOFCOG and development tools, we have created free eco-friendly eco-friendly products.

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Now the smart consumer electronics industry is now embarking on a significant growth space, which will be a period of calibration and expansion built upon on our solid foundation.

During this crucial period, our strategy will focus on engagement with high quality customers.

Elevating our product offerings and enhancing cost efficiency.

We are committed to driving revenue growth by optimizing both the volume and the pricing of our products.

Also expanding into new smart domains beyond consumer electronics.

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A cornerstone of our approach is the key account strategy, which has increased our personnel efficiency and enabled us to dedicate resources to securing and better serving large and strategically significant customers with substantial long term potential.

Rek Chai: Summit's largest chain of supermarkets, C.C.Corpus, and NetZero's energy saving projects are also being promoted. , Cube,, A cornerstone of our approach is the key account strategy, which has increased our personnel efficiency and enabled us to dedicate resources to securing and better serving large and strategically significant customers with substantial long-term potential. This strategy is pivotal in driving the growth of our devices powered by Tuya shipment. For example, our recent collaboration with Vivo, one of Bordeaux's leading telecom operators, aims to develop their brand's smart home ecosystem using the Tuya IoT Core and the development tools. Similarly, we are making strides in the natural energy-saving project with Topis, one of Latin America's largest supermarket chains.

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This strategy is pivotal in driving the growth of our powered by <unk> device shipments.

For example, our reasons collaboration with vivo one off Brookdale <unk>, leading telecom operators aims to develop their brands smart home ecosystem using two of our T core and the development of tubes.

Similarly, we are making strides in the <unk> LNG saving project, which copies one of Latin America's largest supermarket chains maneuver.

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This includes a new partnership with <unk> premium Telecom group.

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Rek Chai: Moreover, our Cube Smart Private Cloud products have also opened doors to significant opportunities, enabling us to engage with large-scale groups in high-quality tasks. This includes a new partnership with Malaysia's premium telecom group, a long-standing German shipbuilding company, and others for aircraft orders. , In addition, we have targeted customers in different regions. Besides, we have a lot of customers that used our Polymete infrastructure in older times. Thank you, you're fine; to build a deeper cooperation with sub-European countries.

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Furthermore, we are fueling expansion by adapting and roughly casing successful customer cases, and our strategies across different regions in Latin America. For example, we have broadened our downstream channel customer base that <unk> powered by <unk> our devices moves.

From initial Rachel channels to include operators and professional installer systems.

This diversification is a new catalyst for revenue growth and enhances the penetration of smart devices in the region.

Rek Chai: Furthermore, we are fueling expansion by adapting and replicating successful customer cases and strategies across different regions. In Latin America, for example, we have broadened our downstream channel customer base that distributes products powered by 2R devices, moving from initial retro channels to include operators and professional installer systems. This diversification is a new catalyst for routing growth and enhances the penetration of smart devices in the region. In Europe, we have established a deeper collaboration with Sharp Europe through our two-wheeled vehicle outdoor solution.

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Rek Chai: Using smart device solutions to create the ultimate smart user experience, we are capturing a significant share in the retail markets of Europe's leading brands. Second, after we continue to increase the number of products, for example, our focus product line, the CCP achieved a record-breaking increase of more than 1.5 times in Q4. ,,,,, The ability of Chinese netizens, the ability of Alex Billing's voice, is mainly in the North American, Latin American, Japanese retail market, and the Asia-Pacific industry.

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Next we are focused on enhancing our products and.

In the fourth quarter alone, our prioritized smart voice central control product line pruning over one five times year over year.

And for the full year sales doubled compared to the previous year.

More than a year and a dedicated product development, we have created the industry's most comprehensive product the matrix.

Rek Chai: In terms of customers, our IoT PaaS customers and SaaS customers are natural and mature customers of our smart equipment solution. We help them to realize a variety of products and seize the opportunity of hot spots from the Next, we are focused on enhancing our products. In the fourth quarter alone, our prioritized smart voice central control product line grew by over 1.5 times year over year. And for the full year, sales doubled compared to the previous year. After more than a year of dedicated product development, we have created the industry's most comprehensive product metric, including a variety of software tailored to different panel sizes and a complete range of multimodal solutions, including handheld models to meet the diverse needs of our brand channel customers, both domestically and internationally.

This includes a variety of software tailored to different panel sizes.

And a complete the branch of multimodal solution.

Including handheld models to meet the diverse needs of our brand channel customers, both domestically and internationally.

Our fab a smart central control screen solution powered by <unk> OS and featuring robust control capabilities.

Altimo gateway functions and built in Alexa voice capability as.

As we come a cornerstone product in the North American Latin American Japanese retail markets.

The Asia Pacific industry source market.

In terms of the customer engagement, our Iot past four customers in the industrial SaaS customers represented mature segments initially inclined towards our smart device solution.

We have a system in diversifying their product lines by tapping into emerging and potential markets. Importantly, this expansion into new customer segments increased minimal additional effort in cost for us in terms of customer acquisition.

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Rek Chai: Our 5H smart central control screen solution, powered by Tuya OS and featuring robust control capability, multi-mode gateway functions, and built-in Alexa voice capability, has become a cornerstone product in the North American, Latin American, Japanese retail market, as well as the Asia-Pacific industry starts marketing. In terms of customer engagement, our IoT Passport customers and the industry SaaS customers will present mature segments initially inclined towards our smart device solution. We assist them in diversifying their product lines by tapping into emerging and potential markets. Importantly, this expansion into new customer segments incurs minimal additional effort and cost for us in terms of customer acquisition. We will continue to improve the solution for the thermocontroller and the smart thermocontroller.

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In the fourth quarter, along with the global push towards the LNG consultation and carbon reduction we further enhanced our energy saving mini program alongside our smart temperature control valve solutions set by integrating energy saving algorithms in heating applications.

Advanced cloud algorithm capabilities and pairing them with more Intel intelligence for SaaS temperature control devices achieved the significant strides in smart Haiti and ventilation temperature control use cases.

The final leg after 2023, three our developer conference in November.

Rek Chai: We will improve the smart thermocontroller and the smart thermometer. At the last SOTU battle of the 2023 Tuya Developers' Conference at the end of November last year, we shared opportunities in the field of energy efficiency with leading companies in the industry, such as Chinese and English., In the fourth quarter, in line with the global push towards energy conservation and carbon reduction, we further enhanced our energy saving mini-program alongside our smart temperature control valve solution set. By integrating energy-saving algorithms in heating applications, we have advanced the cloud algorithm capabilities and paired them with more intelligent, precise temperature control devices.

November the Galloway industrial leaders like an elution and LNG, which showcases our strategy in the energy saving area marketing a confident step beyond the realm of pure consumer electronics.

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Leveraging cloud technology in the mature software hardware capabilities of certain smart device categories in the fourth quarter to our software value added services revenue such as cloud storage services maintain a robust sequential growth of approximately 27% and in.

Very impressive year over year surge of nearly 78%. This growth has significantly contributed to the SaaS and other settlements accelerating our internal structural adjustment towards higher quality revenue returning to a quarter over quarter growth trend off about 11% and year over year growth of about 19%.

Rek Chai: We achieved significant strides in smart heating and ventilation temperature control use cases. At the final leg of the 2023 Tuya Developer Conference in Suzhou in November, together with industrial leaders like Enolution and e-Energy, we showcased our strategy in the energy-saving area, marking a confident step beyond the realm of pure consumer electronics. You can try it.

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Rek Chai: 27%, 70%, R20 11% 19% Leveraging cloud technology and the mature software hardware capabilities of certain smart device categories in the fourth quarter, cloud software value-added services revenue, such as cloud storage services, maintained a robust sequential growth of approximately 27 percent and an impressive year-over-year surge of nearly 78 percent. This growth has significantly contributed to the SaaS and other stack, accelerating our internal structural adjustment towards higher quality revenue, returning to a quarter-over-quarter growth trend of about 11% and a year-over-year growth of about 19%. Over the past year, we have seen many globally influential companies join the smart sector due to competition, opportunities for counter-competition, and the need to drive their own business. In all regions of the world, especially in Latin America and the Pacific, there has been a significant increase in the awareness and acceptance of the smart sector. As a result, the growth rate of the smart sector has increased, and the development opportunities for the smart sector will continue to grow. Over the past year, we have witnessed a global trend; an increasing number of influential companies worldwide are entering the smart technology area, driven by competitive forces, industrial opportunities, and their own strategic needs.

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Over the past year, we have witnessed a booked logo churn.

The increase in number of influential companies worldwide are entering the smart technology area dropping by competitive forces industrial opportunities and they are all strategic needs. This trend is especially pronounced in emerging markets, such as Latin America, and the Asia Pacific region, where the awareness and adoption of <unk>.

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In terms of our efforts to new nurture this app ecosystem, our developer community building initiatives are advancing steadily.

As of the fourth quarter, our resist the developer base has grown to approximately 993000 and we now collaborate with 12 pilots developed a service providers for example, a leading Korean developer service provider has been instrumental in serving several enough careers top door lock.

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Rek Chai: This trend is especially pronounced in emerging markets such as Latin America and the Asia-Pacific region, where awareness and the adoption of smart technology are on a noticeable rise. Looking ahead, as market penetration deepens, the developer community will become the backbone of the future IoT ecosystem.

Our two I'll ask local development framework now supports over 280 types and compassion, all protocols and categories with data through our platform.

We have also complied nearly 1000 development documents and our developer Forum has accumulated over 8500 posts of technical content.

We went over our development to have involved to support more self service operations further.

Rek Chai: For example, a Korean new-level developer service provider is continuously providing services, including the first-generation door-to-door manufacturing equipment in Korea's top three companies. In 2023, the QC team contributed more than 22 years to Tuya's acquisition of Linzhou. Our Tuya OS 3.0 development framework already has more than 280 full-screen and full-screen applications that cover Tuya platforms.

Driving introducing and laying the groundwork for the expansion of the developer community.

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Rek Chai: There are more than 1,000 articles on the development of the project. More than 8,500 technical support articles have been collected in the forum. At the same time, our development tools support a more automated development process.

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Rek Chai: In terms of our effort to nurture this ecosystem, our developer community building initiatives are advancing steadily. As of the fourth quarter, our registered developer base has grown to approximately 993,000, and we now collaborate with 12-pallet developer service providers. For example, a leading Korean developer service provider has been instrumental in serving several of Korea's top door lock manufacturers, including the top three, contributing more to 2S revenue in the fourth quarter of 2023 than in the entire year after 2022. Our TuyaOS local development framework now supports over 280 types, encompassing all protocols and categories within the Tuya platform.

Before I conclude I'd like to offer a summary of the year 2023 was a pure enough gradual recovery global inflation quoted rapidly in the first half of the year and fell to a lower slightly stable level in the second half, but we feel that the global smart consumer electronics device.

Spending is nationally building of new equipment in this environment at.

At the same time manufacturers brands and channels have essentially returned to normal purchase pattern will not normalized inventory level.

Coming the toughest valley in business turnover and the beginning to show a more optimistic attitude and business planning and the product development with many new year's joint promotions product plans and other collaborations already underway.

With that I will now hand over to our CFO Jessie.

Additional financial details with you.

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Rek Chai: We have also compiled nearly 1,000 development documents, and our developer forum has accumulated over 8,500 posts of technical content. Moreover, our development team has been involved in supporting more self-service operations for popularizing, introducing, and laying the groundwork for the expansion of the developed communities., 2023,, , In this environment, it's natural to build a new level of security.

That concludes our remarks by Jerry.

As I discuss our financial results and provide more colors on the numbers. Please note that all figures are in U S dollars all comparisons are year over year basis, unless otherwise stated.

In the fourth quarter of 2023, our total revenue reached $64 4 million up 42, 2% year over year, a higher growth rate compared to that after third quarter of 2000.

'twenty, three and led to a sequential improvement with a fifth consecutive quarter.

Ill pass revenue in the fourth quarter was $47 2 million, representing a year over year increase of $44, 6%.

This was driven by the normalization of Boston inventory and our commitment to delivering high value products to our customers.

The smart devices sector income purposes.

Our broad and diverse range of products with concentrated.

Rek Chai: Chinese, In terms of business planning and product deployment, we have started to show a more optimistic attitude. Many years of joint promotion, product planning, and cooperation are already in progress, would? I would like to introduce CFO Jesse to you about the financial aspect and other data. Before I conclude, I'd like to offer a summary of the year. 2023 was a period of gradual recovery. Global inflation cooled rapidly in the first half of the year and fell to a lower but slightly stubborn level in the second half.

R&D as well as sales and marketing efforts towards fostering stable balanced and efficient growth for the company.

I will offer a breakdown by product categories.

So the smart lighting and electrical products.

Comprised of nearly half of our total revenue.

Meanwhile, March 15th and the garden ship and home appliances products known for their potential to drive higher revenue efficiency and increase our influence in the industry contributed nearly 20 and 15% respectively.

Now in 2023, our strategic emphasis on product focused enhancements has equalized this product.

Rek Chai: But we feel that the global smart consumer electronics, device, and spending is naturally building a new equilibrium in this environment. At the same time, manufacturers, brands, and channels have essentially returned to normal purchase patterns with normalized inventory levels, overcoming the toughest valley in business turnover and beginning to show a more optimistic attitude in business planning and product development, with many New Year's joint promotions, product plans, and other collaborations already underway. With that, I will now hand over to our CFO, Jesse, who will share additional financial details with you. That concludes Jerry's remarks.

Categories revenue contribution to roughly 75% to 30%.

From each segment, achieving a more balanced category structure.

So obviously our business has also evolved as desired in 2023, attaining more balanced distribution.

We are channeling our efforts primarily into the mature European market and the Sultan.

Southeast Asia region that a fuller professional channel opportunities in Latin America, where both retail and operator channels, how would a substantial potential.

Same time, we have tailored strategies to further boost our business in China, including helping high quality Cross border E Commerce brands in the international interest.

Jesse Liu: As I discuss our financial results and provide more color on the numbers, please note that all figures are in U.S. dollars and all comparisons are on a year-over-year basis, unless otherwise stated. In the fourth quarter of 2023, our total revenue reached $64.4 million, up 42.2% year-over-year, a higher growth rate compared to that of the third quarter of 2013, 23 and led to a sequential improvement for the fifth consecutive quarter

In terms of customers. We served a total of approximately 3200 customers in the fourth quarter of 2023.

Decrease of about 200 from the same period last year. However, both our revenue and gross profit per head count have surged from tier three type.

Underscoring the success of our strategic emphasis on high quality customers.

Jeremy highlighted our refined focus earlier, which not only attracted valuable new clients, but also enhanced service for existing ones on our platform.

Jesse Liu: Our IOT past revenue in the fourth quarter was $47.2 million, representing a year-over-year increase of 44.6%. This was driven by the normalization of downstream inventory and our commitment to delivering high-value products to our customers. As the smart devices sector encompasses a broad and diverse range of products, we concentrated our R&D as well as sales and marketing efforts towards fostering stable, balanced, and efficient growth for the company. I will offer a breakdown by product category.

Our 12 month, giving any early.

Two over 100% by years and a rebound from earlier clients starting in the first half of 2023.

Unless device distribution business segments generated revenue of approximately $7 8 million in the fourth quarter of 2023.

Achieving year over year growth of $64, 6%, largely driven by our smart solutions.

Shifting toward our smart solution model and the decrease in our legacy must devise proprietary services for some clients led to a gross margin increase in the segment to nearly 30%.

Jesse Liu: Two years ago, Smart Lighting and Electrical Products Company comprised nearly half of our total revenue. Meanwhile, smart safety and guardship and home appliances products, known for their potential to drive higher revenue efficiency and increase our influence in the industry, contributed nearly 20 and 15 percent, respectively. Now in 2023, our strategic emphasis on product focus and enhancement has equalized this product category's revenue contribution to roughly 25% to 30% from each segment achieving a more balanced category structure. Geographically, our business has also evolved as desired in 2023, attaining more balanced distribution. We are channeling our efforts primarily into the mature European market and Southern Europe, the Southeast Asian region that is full of professional channel opportunities, and Latin America, where both retail and operator channels hold substantial potential.

Further validating our product enhancement strategy in 2023.

Our smart solution model flourish across several major categories, we've been focusing on leading to.

Further diversification of the.

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On the variable in outdoor devices such as tax.

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Mark gateways and smart controls screen, featuring two specialized solutions also made meaningful contributions.

Our staff and other sectors recorded a revenue of $9 5 million in the fourth quarter of 2023, reflecting a 19, 3% year over year increase.

This growth reflects our strategic adjustments in business planning for software products and technical services alongside a positive trend in high quality revenue, including a growing share of recurring income.

Now moving onto gross margin, our fourth quarter blended gross margin remained at.

All lines, all time high of 47, 3%.

Jesse Liu: At the same time, we have tailored strategies to further boost our business in China, including helping high-quality cross-border e-commerce brands in their international ventures. In terms of customers, we served a total of approximately 3,200 customers in the fourth quarter of 2023, a decrease of about 200 from the same period last year. However, both our revenue and gross profit per headcount have surged from Q3's high, underscoring the success of our strategic emphasis on high-quality customers. Jerry highlighted our refined focus earlier, which not only attracted valuable new clients but also enhanced service for existing ones on our platform, boosting our 12-month DV and ER to over 100% by year's end, a rebound from earlier declines, starting in the first half of 2023.

Essentially the previous quarter as each business segment demonstrated robust margin profiles.

Craig This is Matt.

Smart device distribution segment.

Our gross margin of 29, 7% in Q4.

Sustaining a level above 20% throughout 2023. This performance reflects the effective results of our product focus and enrichment strategy.

So operating activities and expenses I will provide a detailed review.

non-GAAP basis, which excludes certain items for a clearer picture of our operational efficiency.

In Q4, we undertook a conservative reassessment of some early preferred stock equity and lessons.

Nothing of onetime.

You saw a $7 4 million impairment loss.

Lifting our gap.

G&A expenses. This impairment however, it doesn't materially affect our current operations on cash flow and we continue to present, our operating expenses, primarily on a non-GAAP basis.

Jesse Liu: Our smart device distribution business segment generated revenue of approximately $7.8 million in the fourth quarter of 2023, achieving a year-over-year growth of 64.6%, largely driven by our smart solutions. This shift towards our smart solution model and the decrease in our legacy smart device supply chain services for some clients led to a gross margin increase in this segment to nearly 30%.

Share based compensation expenses and the credit related impairment loss from our GAAP figures.

Now having completed our internal restructuring for optimal organization structure and a team collaborations.

Leasing expenses have generally stabilized in Q4 2023, our non-GAAP total operating expenses decreased by 13, 5% to $30 7 million.

Jesse Liu: Further validating our product enhancement strategy in 2023, our SMART solution model flourished across several major categories we've been focusing on, leading to a further diversification of the SKUs we covered, beyond wearable and outdoor devices such as techs and smartwatches.

$35 5 million a year ago, largely due to reduced employee related costs as we continue to streamline our team.

By the close of December 2023, our workforce.

Number just over 14 15 in line with our anticipated stable head count.

Regarding sales and marketing.

Jesse Liu: Smart gateways and smart control screens featuring Tuya's specialized solutions also made meaningful contributions. Our SAS and other sectors recorded revenue of $9.5 million in the fourth quarter of 2023, reflecting a 19.3% year-over-year increase. This growth reflects our strategic adjustments in business planning for software products and technical services, alongside a positive trend in high-quality revenue, including a growing share of recurring income. Now moving on to growth margin, our fourth-quarter blended growth margin remained at an all-time high of 47.3%, consistent with the previous quarter, as each business segment demonstrated robust margin profiles.

Our market and promotional investments as the industry normalized in the latter half of 2023 and.

Our revenue returned to a solid growth trajectory.

This contrast, it with our strategy during the peak periods of downstream, England and industry inflation pressure in late 2022 through early 2023, when we consciously curtail expanding to avoid in effective marketing investments.

In a similar fashion, we have also stabilized our G&A expenses in the quarter.

The past year has fully reflected the cost savings from streamlining our team.

As we navigate new operational developments such as ESG investments.

Adherence to stringent compliance standards.

<unk> primary listed company in the U S and Hong Kong we.

Jesse Liu: Specifically, the smart device distribution segment recorded a growth margin of 29.7% in Q4, and it is expected to sustain a level above 20% throughout 2023. This performance reflects the effective results of our product focus and enrichment strategy. For operating activities and expenses, I will provide a detailed view on a non-GAAP basis, which excludes certain items for a clearer picture of our operational efficiency. In Q4, we undertook a conservative reassessment of some early preferred stock equity investments, resulting in a one-time, You saw a $7.4 million impairment loss within our gap. This impairment, however, doesn't materially affect our current operations in terms of cash flow, and we continue to present our operating expenses primarily on a non-GAAP basis, omitting share-based compensation expenses and credit-related impairment losses from our GAAP figures.

We anticipate a potential increase in professional service expense.

<unk> expenses, which we will manage effectively.

Finally regarding interest income and the cash we earn approximately $13 1 million in interest income in Q4, such as the supplement capital to our daily businesses.

A testament to our adapt cash management, we have always prioritized security of our principle as we do not view earnings and.

And interest income as our business target by the end of 2023, our net cash position, which includes cash and cash equivalents.

Time deposits in the U S treasuries totaled about $984 3 million.

In addition, we generated approximately $31 8 million in operating cash flow in Q4.

Despite some cash flow fluctuations due to accounting practices and seasonal variations such as the timing of annual bonuses.

The <unk> 10 for the year was clear as we recorded strong.

And positive cash flow in 2023.

Jesse Liu: Now having completed our internal restructuring for optimal organization structure and team collaboration, our operating expenses have generally stabilized. In Q4 2023, our non-GAAP total operating expenses decreased by 13.5% to $30.7 million from $35.5 million a year ago, largely due to reduced employee-related costs as we continue to streamline our team. By the close of December 2023, our workforce will number just over 1450, in line with our anticipated stable headcount. Regarding sales and marketing, we increased our market and promotional investments as the industry normalized in the latter half of 2023, and our revenue returned to a solid growth trajectory. This contrasts with our strategy during the peak periods of downstream inventory and industry inflation pressure in late 2022 through early 2023, when we consciously curtailed spending to avoid ineffective marketing investments. In a similar fashion, we have also stabilized our DNA expenses in the quarter. The past year has fully reflected the cost savings from streamlining our team.

Looking ahead, we are committed.

Two driving topline growth sustaining strong gross margins.

Optimizing operation operating expenses.

We're confident in our ability to deliver strong financial performance in 2024.

With that operator, we are now ready to take questions. Thank you.

Thank you.

Ladies and gentlemen, if you would like to ask a question. Please press star followed by one on your telephone keypad. If you change your mind. Please press star followed by two when preparing to ask a question. Please make sure. Your phone is a mutual locally. Additionally, when asking a question. Please state your questions in Chinese first then immediately translate them into English, Florida of everyone on the call.

Yes.

We now have our first question from John <unk> of Morgan Stanley. Please go ahead.

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Jesse Liu: Meanwhile, as we navigate new operational developments such as ESG investments and adherence to stringent compliance standards as a dual primary listed company in the U.S. and Hong Kong, we anticipate a potential increase in professional services expenses, which we will manage effectively. Finally, regarding interest income and cash, we earn approximately $13.1 million in interest income in Q4 as extra supplement capital to our daily business, a testament to our adept cash management. We have always prioritized the security of our principal as we do not view earnings and interest income as our business targets.

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Jesse Liu: By the end of 2023, our net cash precision, which includes cash and cash equivalents... bank time deposits and U.S. treasuries totaled about $984.3 million. In addition, we generated approximately $31.8 million in operating cash flow in Q4. Despite some cash flow fluctuations due to accounting practices and seasonal variations, such as the timing of annual bonuses, the overaction trend for the year was clear, as we recorded strong and positive cash flow in 2023. Looking ahead, we are committed to driving top-line growth, sustaining strong growth margins, and optimizing operating expenses. We're confident in our ability to deliver strong financial performance in 2024. With that operator, we are now ready to take questions. Thank you. Thank you. Ladies and gentlemen, if you'd like to ask a question, please press the star followed by 1 on your telephone keypad. If you change your mind, please press the star followed by 2.

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Thanks.

I will translate my question into English. The first one is about 2020 for revenue growth outlook I would like to ask.

So the measurement expectation based on our communication with key customers.

And the second question is about the gross margin.

Fourth quarter 2000.

Gross margin margin sequentially increased to 47.

3% due to the mix change in smart solutions.

Is that due to seasonality or that represent a new norm for future and the third question is regarding the impairment loss.

Operator: When preparing to ask a question, please ensure your phone is unmuted locally. Additionally, when asking a question, please state your questions in Chinese first, then immediately translate them into English for the convenience of everyone on the call. Thank you. We now have our first question from Yang Liu of Morgan Stanley. Please go ahead.

Because that's also happened in second quarter last year.

I would now like to weather.

The related item on our balance sheet is clean or not what is the future outlook for that impairment.

Impairment item. Thank you.

Okay. Thanks.

Okay. So let's.

Come to the first question about the two.

2024.

Yang Liu: First of all, congratulations to the company for its excellent performance. I have three questions to ask the management team. The first one is about the company's income outlook for 2024. Based on the current communication with some customers, can the management team help us to look forward to the growth of the income outlook in 2024? We would like to know more about distribution in the region.

Forward looking.

So.

From the downstream and the usage perspective.

Based on our <unk>.

Constant discussion and communication with our customers.

Our perception of 2020 for a similar.

<unk> two <unk>.

Last quarter.

Expectation, which is the global discretionary smart device spending maintained a moderate.

From Q4 to the beginning of this year among this regions such as Southeast Asia, and Latin America have shown stronger growth momentum in Europe and America in terms of categories. Since January the end consumer spending of smart lighting categories.

Yang Liu: Which customers will have a stronger potential for growth? This is the first question. The second question is about the because the in the fourth quarter is significantly higher than before. This is due to the mixed changes in the Smart Solution.

Has been relatively weak due to lack the effect of inflationary pressures and it's highly discretionary nature, however, electrical products because of it.

Yang Liu: We would like to ask more. Is this mixed change a seasonal factor in the fourth quarter? Or is the fourth quarter level a new trend for the future? This is the second question. The third question is to ask more about...

Usage.

Has related to energy saving.

In many cases have recovered better than that.

The lighting products.

And as such as much breakers switches those products.

Yang Liu: I have two questions. The first is about 2024 revenue growth outlook. I would like to know the measurement expectation based on communication with key customers. And the second question is about the growth margin. In the fourth quarter of 2023, the growth margin sequentially increased to 47.3% due to some mixed changes in smart solutions. Is that due to seasonality, or does that represent a new norm for the future?

And then appliances segment remains the main focus of growth among which typical categories like robotic vacuum cleaners.

Which are focused our growth strategy for anthracite and expansion.

I'm not part of appliances.

New categories in lots of few years that meet strong emotional needs of global consumers and have a relatively.

Hi resistance to inflation pressure.

Their product line.

Temperature control heater.

Applying segment, which also involve energy usage and the saving can bring cost benefit to use it.

Yang Liu: And the third question is regarding the impairment loss, because that also happened in the second quarter last year. And I would like to ask whether the related item on the balance sheet is clean or not, and what is the future outlook for that impairment item? Thank you.

With the addition of smart capabilities and so on and at the end of demand for.

Most product segments remained robust due to those characteristics.

Jesse Liu: Okay, thanks Liu Yang. Okay, so let's come to the first question about 2024. So, um... From a downstream end-user perspective, based on our constant discussion and communication with our customers, our perception of 2024 is similar to last quarter's expectation, which is that global discretionary smart device spending maintained a moderate growth from Q4 to the beginning of this year. Amanda.

<unk> sensing product.

Because such sizing global consumers fundamental need for protection in SMA <unk> have continued to show.

Steady growth momentum through the turbulent down cycles.

Currently in a recovery period. It also shows a good growth.

Trajectory, so above all of our product focus and investment strategies.

Just on the assessment of the major demand logic for the.

Jesse Liu: Regions such as Southeast Asia and Latin America have shown stronger growth momentum than Europe and America. In terms of categories, since January, end consumer spending on smart lighting categories has been relatively weak due to the laxity effect of inflationary pressures and its highly discretionary nature. However, electrical products, because of their usage, have been related to energy saving in many cases, have recovered better than lighting products, such as breakers, switches, and those products. And the appliances segment remains the main focus of growth, among which typical categories like robotic vacuum cleaners, which is our growth strategy for enterprise and expansion, and smart pet appliances. It is a new category in the last few years that meets strong emotional needs of global consumers and has a relatively high resistance to inflation pressure. Other products like temperature controls, heaters in the appliance segment, which also involve energy usage and saving, can bring cost benefits to users with the addition of smarter capabilities, and so on.

Above all I just discussed.

Adding downstream customers.

Inventory normalization.

Begin in Q3 last year, so we have seen pretty good.

Restocking activities.

In the retail channels and the brand and also Oems.

We currently we expect the inventory level.

Maine at a total of four to five months.

All the downstream channels, adding together by the end of Q4.

So quite healthy level.

Downstream enterprises have normalized.

<unk> what categories.

We feel the destocking.

Destocking is completed.

And coupled with our joint efforts with customers in planning the categories promotions in the market strategies, our revenue in Q3, and Q4 achieved both more than 40%.

<unk> growth so it's a major of the benefitted from downstream.

Restocking so currently.

The Oems brand and retail channels are generally optimistic about the outlook for their smart business in 2024, and they're operating and business turnover is no longer a severe as before as such everyone's starting to be more positive.

Jesse Liu: And at the end of the month, most product segments remained robust due to those characteristics. Safety and sensing products, because they satisfy global consumers' fundamental needs for protection and family safety, have continued to show steady growth momentum through the turbulent down cycles. And currently, in the recovery period, it also shows a good growth trajectory. So, above all, our product focus and investment strategies are based on the assessment of the major demand logic for the product in the layout I just discussed. Regarding downstream customers, inventory normalization began in Q3 last year, so we have seen pretty good restocking activities in the retail channels, the brand, and also OEMs. Currently, we expect the inventory level to remain at a total of four to five months for all the downstream channels added together by the end of Q4, which is a quite healthy level. So the downstream enterprises have normalized replacements for categories, and we feel the de-stocking is completed, coupled with our joint efforts with customers in planning the categories, promotions, and market strategies.

In addition, we have also found that in 2023, many new professional channel opportunities.

Such as operational the professional telecom operators in various regions.

That's.

Like the middle is the.

Latin America, Brazil.

Et cetera have significantly increased your attention and your participation in the smartphone business.

But we want to bring to the attention to Audi and Lexus because the Q3 Q4.

It has greatly benefited from the restocking efforts of downstream and the restocking efforts.

Coming to an end.

In Q1, it just normalized so we are optimistic about the growth of 2024.

But but it may not be.

As strong as Q3, Q4, which has the temporary restocking effect.

And for the second question.

The.

Gross margin.

So in 2024, we have.

Jesse Liu: Our revenue in Q2 and Q4 achieved both more than 40% year-over-year growth, so it majorly benefited from downstream restocking. The OEMs, brands, and retail channels are generally optimistic about the outlook for their smart business in 2024. And their operating and business turnover is no longer as severe as before. As such, everyone's starting to be more positive.

<unk> delivered continuous.

Both of our gross margin it has come to feel effects first Iot path.

This man has steadily growth of the gross margin and Thats reflect the continuous change in our product strategy and structure in the beneficial direction.

As a company that substantially has built up broad Iot ecosystem, the revenue and the gross margin of Iot pass this.

Jesse Liu: In addition, we have also found that in 2023, many new professional channel opportunities, such as professional telecom operators in various regions, like the Middle East, Latin America, Brazil, etc., have significantly increased their attention and participation in smart business. But we want to bring attention to all the investors because Q3, Q4, it has greatly benefited from the restocking efforts of downstream, and the restocking efforts are probably coming to an end in Q1. It's just normalized. So we are optimistic about the growth in 2024. But it may not be as strong as Q3, Q4, which has the temporary restocking effect.

<unk> results from a mixed up categories and our solutions for different categories, such as so much vacuum cleaners switches Bluetooth headsets.

Bob product, the depth and complexity of their basis basic Iot and cloud capabilities.

Deferred does have different prices and the gross margins similarly for different.

Protocol solutions, such as Wi Fi Bluetooth Zigbee.

<unk>.

And the Iot their pricing on the gross margin solutions also very however, considering consumers' price sensitivity towards smart products, we have always been committed to reducing the cost of.

Modification, allowing consumers to enjoy good value with affordable price. Therefore, we continue to manage the gross margin of Iot path from both.

Jesse Liu: And for the second question about the growth margin, So in 2024, we have observed a continuous, sustainable growth of our growth margin, and it has come to a few effects. First, our IoT PaaS business has steadily growing growth margin, and that reflects the continuous change in our product strategy and structure in a beneficial direction. As a company that has substantially built a broad IoT ecosystem, the revenue and the growth margin of IoT PaaS. This slide shows the different categories and solutions for different categories, such as smart vacuum cleaners, switches, Bluetooth, headsets, or bulb products. The depth and complexity of their basic IoT and cloud capabilities differ, thus having different prices and growth margins. A protocol solution such as Wi-Fi, Bluetooth, ZigBee, However, considering consumers' price sensitivity towards smart products, we have always been committed to reducing the cost of smartification, allowing consumers to enjoy good value at an affordable price.

We look forward to maintaining a stable gross margin of Iot purposes.

And also we delivered a higher.

Percentage in terms of revenue contribution of these fast and.

Now you added service segment, which enjoys a 75% of gross margin.

We expect the.

Yes.

Service business.

Contribute a similar percentage of business as Q4 in 2024, and the first smart device distribution business.

Which now majorly contributing.

The smart solution business, basically TUI or deliver a.

Integrated software and hardware as one product finished product.

To the.

Onstream customers.

That business now achieved 30% gross margin in Q4.

We expect this gross margin remain relatively stable in 2024 and a portion of this business.

After the segment will increase there.

<unk> revenue contribution in 2024, and it will grow at a higher speed than the other two segments. So overall.

Jesse Liu: Therefore, we continue to manage the growth margin of IoT PaaS from both aspects. We look forward to maintaining a stable growth margin for the IoT PaaS business. And also, we delivered a higher... percentage in terms of revenue contribution from the SAS and value-added service segment, which enjoys a 75% growth margin. We expect the SAS and value-added service business to contribute a similar percentage of business as Q4 in 2024. And for the smart device distribution business, which is now majorly contributing to the smart solution business, basically, Tuya delivers integrated software and hardware as one product, finishing the product to the downstream customers. That business now achieved a 30% growth margin in Q4. We expect this growth margin to remain relatively stable in 2024.

We look forward to maintain a stable overall gross margin in 2024 versus 2023.

So the third question.

Regarding the credit loss.

So between 2028.

Early 2022.

We made a modest amount of strategic investments approximately around $30 million in total.

Normally in some of our downstream and upstream strategic.

Partners, it could be our suppliers or potential suppliers customers or potential customers.

It's about.

Around 10 companies in total so several of them Didnt performed well in 2022 and 2023 in this too severe downstream of the entire consumer electronics industry.

Jesse Liu: And the portion of this business, of this segment, will increase its revenue contribution in 2024 as it will grow at a higher speed than the other two segments. So overall, we look forward to maintaining a stable overall growth margin in 2024 versus 2023. The third question is regarding credit loss.

So leading to a investment impairments due.

Due to strict accounting practices.

So according to the latest expected.

The credit loss I'm sorry the.

A L Reuss.

Accounting policy.

Issued in 2020.

We have.

We have.

<unk> made it.

Jesse Liu: So between 2028 and early 2022, we made a modest amount of strategic investments, approximately $30 million in total, primarily in some of our downstream and upstream strategic investments, partners. They could be our suppliers or potential suppliers, customers or potential customers. It's about around 10 companies in total, so several of them didn't perform well in 2022 and 2023 in these two severe downstream of the entire consumer electronics industry, leading to an investment impairment due to strict accounting practices. So according to the latest expected, the EACL rules of the accounting policy were issued in 2020. We have made the credit loss based on accounting policies. In total, in 2023, the total credit loss was around... $15.5 million US dollars. So, it was named a credit loss based on the accounting rule, but in principle, it's actually an equity investment loss.

Credit loss on our <unk>.

Our accounting policy based on accounting policies. So.

In total in <unk>.

2023.

The total credit loss was around.

The $15 5 million U S dollar.

So.

It was named as credit loss based on the accounting rules, but in principle, it's actually the equity investment loss. So.

We believe currently that.

We still remain.

Around $11 million.

Dollar value of our balance sheet based on our.

Strategic investments in the it from 2018 to 2021 and we believe.

<unk>.

The.

Credit loss impairment has pretty much down so if in the future. If they have any credit loss impairment will be much less than what happened in 2023, So again.

Majorly due to the.

The industry down cycle and.

All of those company actually austere operating although they have.

Largely.

Made the impairment almost all of the investment on this two or three companies that experienced the difficulties, but this this year and the operating an estate their operation.

Operator: So we believe currently that we still remain around 11 million U.S. dollars on our balance sheet based on our strategic investment from 2018 to 2021. And we believe the credit loss impairment has pretty much gone. So in the future, if they have any credit loss impairment, it will be much less than what happened in 2023. So again, this is mainly due to the industry down cycle. And all those companies are actually still operating, although we have largely made the end of the last four years. Operator, you can go to the next question. Thank you. The next question comes from Timothy Tso of Goldman Sachs. Please go ahead.

Improved in the next few years.

We may add it back.

The credit loss so that's.

The answer to <unk> question for the day.

Three questions.

And operator, you can go to the next question.

Thank you. Our next question comes from Timothy <unk>.

Goldman Sachs. Please go ahead.

So I just saw that human.

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David I'll Hush Hush.

We've laid out to the audience.

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Are you to go SaaS Vivian.

Due to cost.

Hi, guys.

Timothy Tso: Okay, thank you Guan Yu for accepting my question. I have two questions for you. The first one is still about this,,... of God.

Sure Matt.

Sure.

Thank you Cedric lit backhaul elements with Tom and then it'll go down so low that you could see adults with it yet.

Dr. Greg Glenn.

You want me to.

Now I'll open it Alexander you took our women's active.

Timothy Tso: I, The second one is about... Bayonet. Now, I don't know, compared to the whole 23 years... Oh, on that. What? Don't even try night.

I'll pass on yet based on the commentary on our financials at the top that wound up.

With you on that.

New hires come.

Come yet.

Now.

Thank you Sir.

Thank you management for taking my question and congrats on the strong fourth quarter results.

Timothy Tso: Thank you. Thank you, man. I have two questions here. One is regarding the 2024 revenue outlook. You already mentioned quite a lot about the past revenue outlook. I think on the SaaS part, I was wondering what is, I'll look here at, specifically, the key customers, what their revenue looks like. And secondly, I think given 2023 is a year of very good OPEX control, I'm just wondering what your OPEX plan and HACCP plan for 2024 are and how that will impact your OP margin or net margin? Thanks for Timothy's question.

I have two questions here.

One is regarding does for revenue outlook.

I think you already mentioned quite a lot about this the past revenue outlook.

On the SaaS part just wondering what is your outlook here.

The key customers progress.

Their revenue ramp up.

Looked like you point out.

Paul.

Secondly.

I think given our history.

Oh very good Opex control I was just wondering what ACR OPEC.

Tom plan for and how that will impact your op margin or net margin if any thank you.

Okay. Thanks for this question so first about <unk>.

Jesse Liu: So first, about the asset value-added services segment. Our software services and other revenue sectors are still reflecting the adjustments in revenue structure within which high-quality revenue maintains good momentum. So for example, first, our cloud software services, such as Cloud Storage, which is a recurring, SAS revenue in principle with a pretty high growth margin, have achieved year-over-year revenue growth for five consecutive quarters. Meanwhile, while consumer payments have increased, the number of enterprise customers using our cloud storage technology has also steadily increased to nearly 80 of them globally. Secondly, our cube's not- private cloud products have also already helped us secure over a dozen strategic large clients, such as several industry or telecom giants in Southeast Asia, well-known major channels in Australia, or better serving the expansion needs of existing large clients like Philips New Asia Pacific Project.

Managed services segment, so our software services and other revenue sectors are still reflecting the adjustments in revenue structure.

Within which high quality revenue maintained good momentum.

For example, first our cloud software services, such as cloud storage, which is a.

Recurring.

SaaS revenue in principal with a pretty high gross margin type of CIT achieved year over year revenue growth for five consecutive quarters while.

While consumer payments have increased number of enterprise customers using our cloud storage technology has also steadily increased to nearly 80 of them globally.

Secondly, our cube smart.

Private cloud products is also already helped us secure over a dozen strategic large clients.

Such as several industry or telecom Giants in Southeast Asia will no major channels in Australia.

While better serving the expansion needs of existing large clients like Philips New Asia Pacific projects, we have several.

Jesse Liu: We have several clients whose projects are steadily progressing, and we will share more with everyone when we have the client's consent for PR or as we approach project completion and deployment. Thirdly, in terms of industry-style products, the domestic real estate and community industry in China faced significant challenges in 2023, posing pressures on our community SaaS solutions. We still achieved nearly 30% annual year-over-year growth in other sectors, such as smart hotels.

Whose project steadily progressing and we will share more with everyone. When we have declined.

Content for PR honestly approach project completion and deployment.

Certainly in terms of industry first products, although the domestic real estate and the community industry in China faces significant.

Challenges in 2023.

<unk>.

Decreased putting the pressures to our community of SaaS solutions.

<unk> achieved nearly 30%.

Year over year growth in other sectors such as.

Smart hotels. Additionally, our cube products and industry SaaS products have general generated a good synergy with several typical <unk> customer acquisitions in regions such as southeast Asia.

Jesse Liu: Additionally, our Kube products and industry SaaS products have generated good synergy with several typical Kube customers' acquisitions in regions such as Southeast Asia, like some leading real estate group clients in Thailand, serving as benchmark cases of win-win projects for us and for our customers. On the other hand, in the SAS and value-added service segment, our customized development technology services and some other one-time value-added services like OEM apps are still undergoing structural adjustment. So we have successfully kept the number of related clients and projects at a limited and non-expanding level while trying to increase the average order value to enhance the benefits of this client project. In the future, this segment will be retained at a level for specific strategies and customer service rather than as the main source of revenue for the company. So in summary, since SAS and others comprise a diverse mix of services and software technical products, it may still face overall revenue fluctuations in the upcoming few quarters. However, the proportion of our high-quality recurring income is continuously and steadily increasing. Thank you.

Like some leading real estate group clients.

In Thailand, Sterling benchmark cases.

If we win a project for us and for the customers.

On the other hand in SAS and value added service segment, our customized development technology services and some other onetime value added services like OEM at austere undergoing structure.

Adjustments. So we have successfully kept a number of related clients and projects and limited and now expanding level, we're trying to increase the.

The average order value to enhance the benefits of this client projects in the future of this segment will be retained at a level.

Lever for specific strategies and customer service rather than the main source of revenue for the company. So in summary.

Thus and others comprises.

Worse mix of services and software technical products. It may still faced overall revenue fluctuations in the upcoming few quarters. However, the proportion of our core high quality recurring income is continuously in sterling and steadily increasing.

Jesse Liu: For the second question about our big customers, so the key customers, the high-quality key accounts, have been an important strategic direction for our development in the last two years. The opportunities of key accounts can bring multi-dimensional revenue for us, including revenue from Kube, private cloud software, ongoing operation, and iteration fees. And also, they can bring subsequent revenue for us in the IoT PaaS business, revenue for the smart solution business, and also the opportunity of recurring revenue from recurring SAS and value-added services revenue in the coming years. Additionally, key accounts have advantages of large scale, high market share, and also high resistance to economic down cycles. So we have already shared some cases that customers have allowed us to disclose, covering Southeast Asia, Latin America, and also in Europe. We also have some promising key account cases in emerging markets like the Middle East, but we are currently unable to disclose their names yet. Of course, acquiring key accounts is a tough battle.

For the second question about our.

Big customers so.

The key customers.

The high quality key accounts.

Important strategic direction for our development in the last two years.

Opportunities.

Of key accounts can bring multiple multi dimensional revenue for us including revenue from <unk> private cloud software are going up.

<unk> and iterations fees and also they can bring subsequent revenue for us.

Iot pass business also.

Revenue for Smash solution business.

And also the opportunity of recurring.

<unk> value added services revenue.

In the coming years. Additionally, key accounts have the advantages of large scale high market share.

Sure and also high resistance to economic down cycles. So we have already shared some cases that customer have allowed us to discuss <unk>.

Southeast Asia, Latin America, and also in Europe.

We also have some <unk>.

Pharmacy key account cases in.

Emerging markets like the middle East.

But we are currently unable to defer named yet of course occurring key accounts.

A tough battle securing tunnel fewer.

Jesse Liu: Securing 10 or fewer key or high-quality customers each quarter is already a significant challenge, and our efforts will continue; the entire company will continue this strategy to focus our best efforts, technology resources, and sales marketing efforts on the key accounts. Regarding the third question about the expenses... and the profits. So our expenses have a relatively clear structure. On a non-GAAP basis, about 70% of our net operating expenses are related to salaries and the benefit cost of employees, as we are a light asset business model. Therefore, the future trend of this part of expenses is basically based on the size of the total number of employees. Essentially, we have already completed adjustments to our team size, so we expect to maintain the current team size in 2024.

T a high quality customers each quarter is.

Already a significant.

Results of our efforts and we will continue the entire company. We will continue this strategy too.

Folks are best.

Technology resources and sales marketing efforts on the key accounts.

Regarding the third question about the expenses and the profits so our expenses.

Relatively clear structure on a non-GAAP basis about 70% of our net operating expenses related to salaries and benefit costs of employees.

We are a light asset business model.

<unk>.

Therefore the.

The future trend of this part of expenses.

Especially based on the size of the total.

Number of employees.

Essentially we have already completed adjustments to our team size. So we expect to maintain the current 10 sites in 2024.

Jesse Liu: The remaining 30% of the expenses cover daily activities, including cloud costs accounted for as expenses, professional promotional marketing activities, travel activities, and rents, etc. So, aside from... technical and marketing expenses, which will be moderately invested in accordance with the growth of the revenue. The rest of the expenses are also mainly linked to the number of headcounts. Overall, considering the factors leading to expense reduction and preserving some space for basic expense increases, we expect this year's total operating expenses to remain relatively stable. So our

The remaining 30% of the expenses cover daily activities, including cloud accounted as.

<unk> expenses professional promotional.

Operating activities channel activities.

And the rents et cetera. So.

Right from.

Technical and marketing expenses, which will be moderately invested in accordance with the.

Growth of the revenue the rest of the expenses.

Also mainly linked to the number of head counts.

Overall, considering factors, leading to our expense reduction and preserving some space for basic expense increases we expect to see as total operating expenses.

Jesse Liu: Our profit margins also link to revenue scale, so we will continue to focus on growing revenue based on the current team size. Operator, you can move to the next question. Thank you. Our last question comes from Linglan Li of CICC. You may now go ahead.

Remain.

Relatively.

Stable.

So our.

Our profit margins.

Also linked to our revenue scale. So we will continue to focus on growing revenue based on the current team size.

Operator: Okay, thank you for accepting my question. First of all, I want to congratulate the company for achieving a strong performance. Because we have already discussed a lot about the demand and revenue outlook for the next 24 years. From the perspective of the macroeconomic environment, the recovery period has been delayed.

So operator, you can move to next question.

Thank you our last question comes from Nathan Lee of SEC.

You May now go ahead.

Sure.

Steve Herbert Thank you Glenn and thank you all.

Yeah.

Okay.

Thank you you May proceed.

Linglan Li: From the perspective of the company's own contact with downstream customers, does this change have any impact on demand for the next 24 years? The second question is actually about our PaaS, and SaaS, and the strategy of investing in smart devices and third-party businesses in the next two to three years. Let me quickly translate my question. Thank you, management, for taking my question. First of all, congratulations on your robust performance. As previous discussions have already covered a lot about the outlook for demand in 2024, I have one quick follow-up. Will we have to wait longer for the Federal Reserve rate cut?

Hi, Simeon this is George.

Go ahead please.

David Johnson.

Oh gosh, that's homegrown position that you guys next quarter.

And you like to get a feel for it.

Hold on.

Hey, Dan.

I'm going to finish.

Gentlemen, there Jacob.

With that we're not done.

Jonathan.

Hello, gentlemen.

Clinical data with <unk>.

Thank you management for taking my question.

Hum.

Congratulations.

That performance.

For this discussion.

Randy.

About the outlook for demand.

Paul.

I have one quick follow up frankly have to wait longer for the February 3rd part. So how does this change in expectations included.

Linglan Li: So, how does this change of expectations influence demand based on your recent observations? That's the first question. And for future development, could you elaborate more on the strategic plans and investment priorities for PaaS, SaaS, and smart device distribution over the next two to three years? Thank you.

The demand based on your.

<unk>.

That's the first question.

And for future development.

Great.

On the strategic plans and investment priorities for.

And the smart device distribution over the next two to three years. Thank.

Thank you.

Jesse Liu: Thanks for CX's question. So first, so let's first come to the first question. So interest rate cuts themselves are beneficial for releasing capital to promote consumer spending. However, considering that inflation is still present, the market currently feels that the pace of interest rate cuts is lower than originally expected. Furthermore, if inflation rebounds quickly after a re-cut, consumption, such as food and gasoline prices, will rise, which could suppress discretionary electronic consumer device spending to a certain extent. So we think the extent of the problem still comes back to inflation itself.

Thanks for the question so first.

Oh.

So let's first have to come to the first question. So interest rate cut themselves are beneficial for releasing capital to promote consumer spending.

However, considering that inflation still present the market currently feels that the pace of interest rate cut is slower than originally expected.

Furthermore, if inflation rebounds quickly after a recut.

Consumptions such as.

<unk>.

Food and the gasoline prices will rise, which could suppress discretionary electronic consumer.

Divisor spending to certain extent, so we think the expense of the problems there comes back to inflation itself. So.

Jesse Liu: So we feel that our customers, like the brands on the retail channels, are less sensitive to interest rates but more reactive to inflation itself. So, as we mentioned before, players in the market are spontaneously reaching a new equilibrium point for discretionary consumption. And if inflation and prices maintain at their current levels, then we estimate the downstream demand is likely to continue at current performance.

<unk>.

Will that our customers like the.

Brands on our retail channels.

Less sensitive to the interest rate by more react quickly to inflation itself. So as we mentioned before our place in the market are spontaneously, reaching a new equilibrium point where discretionary.

Consumption and if inflation and prices to maintain its current level then we estimate.

The downstream demand is likely to continue.

At current outperformance.

For the second question.

Jesse Liu: If we divide the company's development into early, middle, and long-term stages, Tuya, with its unique IoT cloud software technology and products, scalable business strategy, and neutral cloud agnostic positioning, has captured a significant market share and influence by seizing the tremendous opportunity for rapid growth in the IoT penetration rate in the market from nearly 0 to 1 during the first stage from 2014 to 2021. Now, as the industry enters the second phase from 1 to 10, and after experiencing downturn cycles over the past two years, the enormous potential for IoT smart devices requires an increase in further penetration rates to be unlocked. Therefore, following our CEO Jerry's earlier remarks, our current main direction is to drive efficient revenue growth from both the quantity and price aspects of our product offering.

If we divide the Companys development into early middle and long term stages <unk> with its unique Iot cloud software technology and the products.

Scalable business strategy and neutral cloud.

Agnostic positioning has captured a significant market share and influenced by ceasing the.

Tremendous opportunity for rapid growth in Iot penetration rate.

And the market from nearly zero to one during the first stage from 2014 to 2021 now as the industry enters the second phase from one to zero I want to have one to 10 and that's the experience a bounce downturn cyclists over past two years the enormous T M for Iot smart.

Devices requires an increase in.

Further penetration rates to be unlocked.

Therefore following.

Our seal Jerry's earlier remarks, our current main direction is to drive efficient revenue growth from both quantity and price.

<unk>.

Our product offering therefore enhancing companies.

Jesse Liu: Therefore, enhancing companies' revenue while further assisting customers in promoting smart penetration and usage. In the long term, as the penetration rate of smart devices continues to increase, and with developers tackling the issue of fragmentation, the widespread adoption of smart applications is anticipated to further expand. And we are looking forward to... this with great expectation. So returning to the present, our focus for development in the next two, three years will revolve around centering on key accounts, creating efficient and higher potential revenue through comprehensive solutions to meet the needs of various types of major clients. For example, for local retail brand groups overseas, enhanced smart solutions, which are supported by IoT PaaS technology, will together serve as the key to acquiring such customers.

Revenue.

While further assisting customers in promoting MX penetration and usage in the long term as the penetration rate of smart devices continue to increase and with developers who are tackling the issue of fragmentation.

The widespread adoption of smart applications is anticipated to further extend and we're looking forward.

Two.

This with great expectation.

So returning to the present.

Our focus for development in the next two three years will revolve around.

Centering on key accounts, creating.

<unk>.

Efficient.

Higher potential revenue through comprehensive.

Solutions are composed of high value products under this approach.

<unk> Iot pass smarter solutions and fast off of where it will complement each other.

Collaborative manner to meet various type of major clients.

Example for local retail.

Brand growth overseas.

It enhanced mask solutions.

Which is supported by Iot Pos.

Technology will together serve as the key to acquiring such customers and for oversea.

Jesse Liu: And for overseas telecom operator groups from Asia-Pacific to Latin America, Qube and our smart solution will join forces to serve their customized needs. And once they have adopted our smart solution and the Cube to deliver the IoT services to their own customers, like millions of families in their region, we will use our SaaS offering to help them to generate further recurring revenue, of which we can usually split a good chunk of it. For industry clients or multinational corporations with industry needs, a lot of times, they can mix and match all three types of products as needed.

Telecom operator groups.

From Asia Pacific to Latin America Cube, and the smart solution will join force to serve their customized to meet.

And once they adopt it.

Our smart solution undertook to deliver.

Iot services to their own customers like millions of families in the region.

We will use fast offering to help them to generate.

Further recurring revenue on which we can usually split.

A good chunk of it for industry clients multinational corporations with industry needs.

A lot of times they can mixed match all three types of products as needed.

Operator: So, that concludes our call today. Thank you for joining us on our call. If you have any further questions, please feel free to contact us or request through our IR website. We look forward to speaking with everyone on our next earnings call. Have a good day. This concludes today's conference. Thank you for joining. You may now disconnect your line.

So that concludes the call today.

Thank you for it.

Joining our call. If you have any further questions. Please feel free to contact us I'll request.

Website, we look forward to speaking with everyone on our next earnings call have a good day.

Okay.

This concludes today's conference. Thank you for joining you may now disconnect your lines.

Yeah.

[music].