Q3 2024 Tuya Inc Earnings Call
Thank you. Thank you.
Speaker Change: Good morning and good evening ladies and gentlemen. Thank you for standing by and welcome to Tuya Inc's 3rd Quarter 2024 Earnings Conference Call.
Speaker Change: At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question-and-answer session.
Speaker Change: To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded.
Speaker Change: I'll now turn the call over to your first speaker today, Mr. Reg Chai, Investor Relations Director of Tuya. Please go ahead, Reg.
Okay, thank you, Emma.
Speaker Change: Joining us today are founder and CEO of Tuya, Mr. Jerry Wang, and our CFO...
Speaker Change: Ms. Alex Jiang, the third quarter 2024 financial results and 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.
Speaker Change: Before we continue, I refer you to our Safe Harbor Statement in our earnest press release, which applies to this call as we will make forward-looking statements.
Speaker Change: 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. Now, Jerry, please.
Jerry Wang: Hello everyone. Thank you for joining TUYA's CERT Quarter 2020 for Earnings Core.
Jerry Wang: The third quarter of 2024 was a foggy quarter. At the income level, we continued to generate and gained about 34% of the total income growth. At the operating level, we continued to maintain a high efficiency and gained about 9% of the non-GAAP operating profit rate and 25% of the non-GAAP net profit rate.
Jia Cheng, Guan Lin, Mu Biao
Jerry Wang: Next, we will talk about the business situation of this technology.
Jerry Wang: In the third quarter, we achieved our performance goals by prioritizing practical strategies and focusing on execution revenue growth accelerated to 34% year-over-year increase. We maintained high operating efficiency, thus achieving a gap operating margin of around 9%.
Jerry Wang: These results were underpinned by the effective execution of our business strategies, coupled with ongoing efficiency initiatives that tightly controlled budgets and expenses, sustaining operating leverage as we did in last quarter. Next, I will delve into some details on our business performance in the quarter.
Jerry Wang: In the third quarter, our three business income performance files Among them, the equipment smart park business income has increased by 26% Continued the momentum of the file since the revival The income of the Smart Solution board has increased by 100%
Jerry Wang: We focus on the objective income of energy-saving products and project output. On the other hand, we cooperate closely with core customers, and help customers in product planning and distribution.
Mi Li, San Chu, Tao Bai, Niu Zhi.
Jerry Wang: The smart solution segment achieved over 100% year-over-year revenue growth. These were driven by strong market demand.
Jerry Wang: Particularly in the home appliance category, where we have consistently observed a robust global demand throughout the year, aligning well with our product planning and market expectations.
Jerry Wang: Our focus on energy-efficient products and solutions has significantly contributed to this remedy growth.
Jerry Wang: Lastly, revenue from the SaaS and other segments grew by approximately 17% year-over-year, with our core cloud software value-added services increasing by over 50% year-over-year.
At Xiaopei Economic Environment Corp.
Jerry Wang: Companies must fully understand and grasp the core needs of the mid-range market. We have always been committed to constantly launching innovative products with market competitiveness, understanding customers' business needs, and establishing a closer partnership with our customers.
In the past 2024, the Berlin Consumer Electronics Exhibition, IFA,
Jerry Wang: We have released a lot of new product solutions, such as smart products that enhance the ability of AI, such as cloud-based dynamic algorithms, in the efficiency of interaction.
Jerry Wang: and the value of functional use. We are committed to the concept of the industry, understanding the industry, and bringing in new solutions and products such as home-based and commercial products.
Speaker Change: Aside from living together, having a comfortable situation is not a deprivation of life.
運動健康,娛樂教育,便利出行等領域
Speaker Change: By leveraging cloud-based dynamic algorithms and generated AI, we aim to significantly enhance the user experience and value of smart products in terms of interaction, efficiency, and functionality.
Speaker Change: Additionally, in line with our philosophy of cultivating and understanding the industry, we have integrated and expanded a wide range of solutions and product portfolios across various homes and commercial use cases.
Speaker Change: This encompasses home energy efficiency, comfortable living spaces, pet care, security and protection, sports and health care, entertainment and education, convenient mobility, and more.
Speaker Change: In the past three quarters, we have promoted global customer cooperation and expansion. We have lowered the GDP per capita growth index of elderly customers to 124%, maintaining a healthy and stable level.
Speaker Change: Europe, as the main market demand, is stable, and new and old clients are cooperating well. In other regions of the world, some of the new clients we have acquired include China's leading free brand channels.
We believe that the above customer level progress and perception
Yao Liu, Reg Chai, Yao Liu, Yi Yang
Speaker Change: Our global customer collaborations and expansion efforts progressed steadily in the third quarter.
Speaker Change: Our dollar-based net expansion rate, which measures growth among existing customers, stood at 124%, a healthy and stable level. Our largest market, Europe, exhibited stable demand with smooth progress in partnerships with both new and existing clients.
Speaker Change: In other regions, we secured several key regional customers, including a leading private label brand in Canada, covering categories such as seasonal lighting and pad products.
Speaker Change: a top home appliance group in emerging markets like Brazil and the well-known consumer safety brands in Chile. All of these are leveraging the Tuya platform for their strategic initiatives.
Speaker Change: We believe this customer-level development amplifies the value and capability of the Tuya platform and reflects the favorable competitive landscape in which we operate.
Speaker Change: Thank you. In the third quarter, we held two large-scale developers' meetings. During the AFA event, we hosted the first-ever developers' meeting in Berlin, Germany.
The theme of this conference is Smart by Nature.
is pouring the signage.
of AI and Disability.
Speaker Change: and other partners to share and discuss the innovative applications of Synthesis AI and some land-based events that can continue to develop.
Thank you for your attention.
West Coast, 12 o'clock Maximum power until 3G
Speaker Change: This is also the successful experience we shared at the conference.
Speaker Change: We are also committed to building our developed community by striving to ensure that every developer interested in smart technology has access to the latest cutting-edge information.
Speaker Change: In the third quarter, we hosted two major developer conferences. The first was the inaugural European edition of the Tuya Global Developer Conference, held at the Berlin Exhibition Center during the IFA event, themed Smart by Nature, Exploring the Synergy of AI and Sustainability.
Speaker Change: Partners such as AWS and Think, which is a well-known European e-commerce platform for comprehensive smart home solutions, discussed innovative applications of generative AI and the practical implementation of sustainability. These discussions garnered significant attention from developers.
Speaker Change: Vasto, as one of Turkey's largest home appliance manufacturers, also shared its success case studies.
Speaker Change: At a commemorative service event held at the start of the world around September
Speaker Change: Ximenzi and Zijia are leading companies around the world. They have shared the future of green, digitalized, and digitalized family life experience for users through the development platform of ChuYaYun.
Speaker Change: In the third quarter, the number of developers on the main platform has increased to about 1.26 million.
to bring more products that satisfy consumers' expectations.
Speaker Change: At the end of September, during our Global Development Conference in Suzhou, industrial leaders such as Siemens and Haier Smart Home shared their visions of the future.
Speaker Change: bringing brain digital and a smart home living experience to users.
Speaker Change: By the end of the third quarter, the number of registered developers on the Tuya platform further increased, reaching approximately 1.26 million. Moving forward, we will continue to gain insights into market demands, consistently empower developers and deliver more smart products that meet consumer expectations.
Speaker Change: We have made some progress. For example, this year, we plan to cut-and-run cooperation with CUBE, which is targeted at the business of operators. In addition, the models of smart equipment acquisition in core products are in line with expectations and are beginning to enter a steady landing.
Speaker Change: We have been steadily advancing the deployment of Operation 3.0. We have signed contracts with some of the top clients in Thailand and Vietnam. And we have received a stable return on investment from smart devices in the old clients we have deployed and delivered.
Zai Wangmen.
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Speaker Change: In the industrial and specialized channel markets, we continue to make progress as planned by developing and replicating benchmark projects.
Speaker Change: For example, our business model for telecom operators this year involves leveraging our Qube intelligent private cloud solution to initiate collaborations combined with the delivery of core smart device categories. This approach is aligning with our expectations and has begun to see continuous implementations.
Speaker Change: The development among our telecom operator customers base is advancing steadily.
Speaker Change: smart devices from existing customers who have already deployed our solutions.
Speaker Change: Additionally, our home energy management system business has achieved substantial progress. We successfully secured a benchmark project with the Singapore Health and Development Board, and over the next few quarters, we will officially enter the product implementation and delivery phase for this project.
Bring feedback at the shareholder level. I believe everyone also saw yesterday's news. Over the weekend, Temasek's independently operated equity investment platform, 65.
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Speaker Change: The Asia-Pacific region, especially Southeast Asia, is a fast-growing and emerging market. For us, this is a great opportunity. We will continue to...
Speaker Change: We strive to seize the opportunity to grow in the international market, promote the development of global AIoT smart devices and commercial and industrial applications, and work hard to bring returns to all shareholders who have long supported Tuya.
Speaker Change: We are very happy to welcome 65E1P from Damascus, Syria to become an important shareholder of Tuya Intelligence.
Speaker Change: Overall, third quarter 2024 was a period of steady progress for Tuya as we executed our established growth strategies to deliver robust financial results.
Speaker Change: You may have seen yesterday's announcement, over the weekend, 65 equity partners at an independently managed wholly-owned investment platform of Demontic entered into an agreement with New Enterprise Associates, one of Tuya's key shareholders, thanked our funding in 2014.
to purchase approximately 13% of Toyota's total issued shares.
Speaker Change: This investment reflects their strong confidence in Toyota's vision and aligns closely with our international expansion strategy. The Asia-Pacific region, particularly Southeast Asia, is a rapidly growing emerging market, presenting enormous opportunities for us.
Speaker Change: We remain committed to seizing growth opportunities in international markets, developing global AIoT, smart devices, and commercial and industrial applications, and delivering value to all our long-term shareholders.
Speaker Change: We're thrilled to welcome 65 equity partners the investment platform of Demontik as a significant shareholder of Tuya.
Speaker Change: Finally, we would like to welcome Ms. Claire Zhang Yan, the current financial VP of the company, to join the Board of Directors and become our Executive Director. I believe that Claire's extensive experience in the four major accounting firms, AnYong, and corporate finance management will bring the Board more professional support. It is also in line with the Board's goal to advance in a diversified manner.
Speaker Change: Lastly, we welcome our current Vice President of Financial, Claire Ian Zhang, to the Board of Directors as an Executive Director. With her extensive experience in financial management and a Big Four accounting firm, Ernst & Young, Claire will bring valuable expertise to the Board, aligning with Tuya's commitment to diversity.
Next, Alex will introduce you to some other financial data.
Speaker Change: Now, I will hand over to Alex to provide further financial details.
Thank you, Jerry. And hello everyone, this is Alex.
Speaker Change: Now I will discuss our financial results and provide more details on the numbers not covered by Jerry.
Speaker Change: Please note that all the figures are in U.S. dollars and all the comparisons are year over year unless the state are as well.
Speaker Change: 3.6% year-over-year. Most importantly, our P&L continues with the trends established in Q2. Each business segment maintains a solid growth margin reflecting the value of our products.
Speaker Change: At the same time, we executed our business operations and product strategies with streamlined and limited operation costs and expenses. As a result, we achieved a solid non-gap operation margin, expanding from the break-even level of Q2.
Speaker Change: And our IOT pass revenue in the third quarter was $57.9 million.
representing a year-over-year growth of 26.4 percent.
Speaker Change: Looking at the product categories, our focus on home appliances enables impressive year-over-year growth of around 30%.
while other categories remain stable.
Speaker Change: Geographically, our global revenue structure was well balanced. However, driven by increased energy-saving orders, Europe's revenue contribution saw a slight uptick this quarter.
Speaker Change: compared to the same period last year. Aligning with our focus strategy on customer expansion and service.
Speaker Change: As the end of the Q3 2024, our dollar-based net expansion rate stood at a healthy 124%.
Speaker Change: We believe this demonstrates strong demand from our existing customer base for 2S production, providing a solid foundation for revenue growth and allowing us to confidently pursue new customers.
Speaker Change: Q3 gross margin was 46%, remaining at a stable and healthy level compared to the same period of 2023.
Speaker Change: Since overall gross margin reflects the structural mix of margins across our business segments,
It is influenced by the revenue composition of each segment.
Speaker Change: Looking at the components, the gross margin for all three of our revenue segments remained constant with the previous level.
Speaker Change: The slight increase in past gross margin and slight decline in smart solution gross margin were prevalently due to the product mix changes.
will consider that as a
Speaker Change: and regular one. So regarding operation activity and expenses, I will provide a detailed view on a non-gap basis which excludes certain non-business related items to give a clear picture of our operation efficiency.
Speaker Change: We continue to present our operating expenses primarily on non-gap basis.
Speaker Change: Before discussing non-GAAP operation expenses, I'd like to mention that in early September, following our Q2 operational profitability milestone, we adjusted the
Speaker Change: exercise prices of our options held by all the employees to the current value of our shares. We did this to thank our colleagues for their unwavering support as we navigated through cycles and reached new milestones.
with a remainder to be amortized over the coming quarters.
Speaker Change: Our non-GAAP total operating expenses decreased by 5.9% to 30.1 million U.S. dollars from 32 million a year ago.
Speaker Change: Following the near comparison of team structure adjustments in the second half of 2023, our non-GAAP expenses have been stabilized year over year.
Speaker Change: sequentially our operation expenses in this Q3 increased by approximately 2.3 million compared to Q2
primarily due to typical fluctuation
Speaker Change: in items on the expenses side and income side, such as tax refunds.
Speaker Change: As revenue growth year-over-year will adjust the budget according to as needed.
Other non-personnel operation experiences such as marketing and travel
has remained at a relatively balanced level.
Speaker Change: Overall, Rubinman committed to the efficient and focused business expansion to maximize and stabilize 2S profitability at this stage.
Speaker Change: This quarter, we achieved a non-gap operation margin of 9.1% and non-gap net margin of 24.7%.
Speaker Change: Net margin exceeded operation margin due to the contribution of interest income, which is substantial due to our large net cash balance.
Speaker Change: While fluctuations in operation expenses may cause slight profit margin variations, we are pleased with our current profit level and optimistic about future improving operating average in the future.
Speaker Change: In terms of cash, Q3's operating cash flow was a net inflow of $23.9 million, reflecting our strong cash leverage.
Speaker Change: Our net cash balance increased to 1,023.9 million dollars, further strengthening Tuya's financial reserves.
and preparing us for future shareholder returns.
Speaker Change: This concludes my presentation on the company's financial performance. So with that, and operator Emma, we're now ready to take questions. Thank you.
Speaker Change: Thank you. We will now begin the question and answer session.
Speaker Change: As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced.
To withdraw your question, please press star 11 again.
Speaker Change: We will now take our first question from the line of Tom Tang from Morgan Stanley. Please ask your question, Tom.
Tom Tang: Thank you, Wang Yichen, for giving me this opportunity. First of all, thank you very much. Congratulations on your 3Q performance.
Tom Tang: I have two questions. The first question is about the outlook of 4Q. I hope we can give more color, especially now that there is a possibility that VR will increase viewing in the future. I don't know if we have seen...
different kinds of...
Tom Tang: The second point is the prospect about Mao's interest rate Because Smart solution's booth is high, which will change with the stability of our exchange
Speaker Change: so thanks for my interesting questions and congratulations on a very strong result for the quarter.
Speaker Change: So I have two questions. First one is on the outlook for the fourth quarter, so if we can share some more color on it, and if we have seen any changes in the customer behaviors after potential tariff increases in the US. And the second question is on the GPM. So our smart solution is.
Speaker Change: a quite sizable amount in terms of our total revenue now. So do we expect the GPM to stay stable over the next few quarters or if there's going to be some further changes due to the product exchanges? Thank you.
Yes, sure. Thank you for that.
Speaker Change: So for the question one, firstly we will mention that Q3 for us will be a steady season.
Speaker Change: steady growing seasons which prove that our strategy on the business side and also the efficiency of our operations. So we continue to do that. And for Q4 right now we see that positive season.
Speaker Change: But it's only like the 40 days, you know, and since 40 days passed for Q4 And also we have a long vacation in China. So that influenced
Speaker Change: It's also a stable and steady and regular season for us, we continue to chasing on that.
Speaker Change: So we are optimistic about what we can have in Q4, even without precise visibility.
Speaker Change: And speaking of the tariff issues for the United States, what we see here is that it's not the first time about the tariff. So that thing's already been going on for a couple of years.
Speaker Change: and so maybe two things the first one is that what we see that in the past a few years so
Speaker Change: Even the geopolitical situation, what we see here is that the customers...
Speaker Change: are already starting to relocate the supply chain, so we're already supplying that.
Speaker Change: which means that we're not impacted directly, but the customers always need to trade, always need to source in and buy in the products from wherever they need it in the world. We are just fulfilling that. That would be one thing. And the second thing, what you see is that...
Speaker Change: Even with the relocation of the supply chains, still the world needs China so much. So no matter what, a significant amount of the Chinese components are still shipping to the global supply chain.
Speaker Change: So that would be something. We just follow the flow. We just keep serving our customers either locally or remotely to their suppliers in whichever countries they're located. So I think that would be one thing.
Speaker Change: demand is still steady because end-users continue to use that so they'll purchase wherever they can to find the best cost point to locate their own supply chain. And I think that's for question one.
Speaker Change: And for question two, yes, you see that our three business segments are actually in two different verticals.
with hardware.
Speaker Change: and so which means that I can never compare with a...
Speaker Change: and with a gross margin versus the software. It's a totally different model.
Speaker Change: and but we have we think that the smart solution is so valuable because we help the customer to provide differentiation and provide very competitive new cutting edge and products and experience to the market to continue to enable them become the leader.
Speaker Change: So we'll enlarge the portion of the smart solution for sure, and we'll really see the potential. So through that, the overall gross margin of the company...
will
Speaker Change: decrease gradually but we consider it as a very healthy way because each of the segment is competitive. So we are more concerned about the segment, not overall gross margin.
Speaker Change: and in the same time that the growth of the each of the segments doesn't require a significant increase on our expenses and costs which mean that we still maintain a very good leverage
Speaker Change: to grow our overall business. So even though the gross margin rate has declined a little bit in the long run, but at the same time the total amount of the gross margins will be able to provide enough beneficial and profitability for the company.
That's it.
Thank you.
Speaker Change: Our next question comes from the line of Timothy Chow from Goldman Sachs. Please ask your question, Timothy.
Timothy Chow: Okay, thank you Wang Yichang for accepting my questions and congratulations to all of you.
Timothy Chow: After some extreme performance, I have two questions here I need to ask you.
Speaker Change: The first one is about our LTE cards business. We want to share with our audience our thoughts on the whole
Speaker Change: In the next five years, how should we consider the expansion of downstream demand, including the demand for various types? Secondly, we can clearly see that there is a new shareholder joining us.
Speaker Change: WTAC has been relatively stable and our capitalismrivages are pretty good too. Please go to our last announcement.
What considerations do you have to consider?
Speaker Change: Thank you very much for taking my question. I have two questions here. The first one is regarding the IoT PaaS business. Just wondering if you can give us any color on your outlook on the downstream demand for the IoT PaaS business and any demand difference across different vertical segments.
Speaker Change: And secondly, I'm pretty glad to see that we have a reactor at Massachusetts.
Speaker Change: coming in this quarter. And given that your margin is really quite stable and the company also has ample cash resources, I was wondering if you can share some idea about the future shareholder return policy. That would be great. Thank you.
Speaker Change: Yeah, thank you for that. So for the IoT PaaS, for us...
Speaker Change: Momentum, what we see here is that this year will be a rebounding year because the majority of the consumer electronics
Speaker Change: players, companies in the world, starting to work out from the cycle of inventory issues.
and starting from 2021-2022.
Speaker Change: So it's a rebounding year and what we see the momentum among our customers is that they're really starting to reinvest and the re-kick-off the multiple projects. I mean among every customers for the for the IOT fields, so ready for future competitions and expansion. That'd be one thing. So while you have more investment
Speaker Change: and the resources coming in in this verticals pretty sure that they'll continue to grow for the customer side.
Speaker Change: And for Tuya site, we continue to provide two drivers for the business. So first one is the product.
Speaker Change: And on the path side, we continue to expand to any type of new use cases and scenarios.
and across our categories.
Speaker Change: But most importantly, that we're starting to deploy and we're starting to provide.
Speaker Change: some of the AI-based services for the customers to help them to build some AI-empowered devices or AI-empowered use cases for the end-users. So that can be kind of the killer app or key differentiations.
Speaker Change: new feature set that you can see in the market. So that'll be one thing. So we use the product to be the driver with a new innovation, new technology.
Speaker Change: And the second driver for 2L is the customer expansion, especially on the enterprise level.
Speaker Change: So for that part, as you can see that we're starting to incubate in our SaaS business around three years.
Speaker Change: So that type of the solution is more focused on the enterprise level.
Speaker Change: So, other than the consumer companies, consumer-related companies, so the enterprise type of company or industrial solution providers are different type of players in the market.
Speaker Change: So we continue to expand more and to come in deeper.
[inaudible]
Speaker Change: So that will be the the past growth so we can we we maintain the
Optimization
Speaker Change: on this field because we have a very steady customer base. As you can see, our DBNER and premium customer amounts. In the same time, we continue to cover wider with new fields on the enterprise solution level.
Speaker Change: and in this Q2 will be the first time we issue the dividend it's a special dividend for the shareholders like I mentioned in last quarter you know it's it's not a regular one because we don't hit the annual profitability yet
Speaker Change: But we don't want the shareholder to wait another two quarters, so we issued a special dividend. It means a special one.
Speaker Change: So we can we will consider the dividend as a regular basis. So every year that more based on the non-gap
Profitabilities, we use as a benchmark to evaluate the whole.
and how much and we can...
and return to the shareholders of the dividend.
That's it. Thank you.
Speaker Change: Thank you. Our next question comes from the line of Kai Hsiao from CICC. Please ask your question, Kai.
Speaker Change: Hello, thank you. I'm Xiao Kai, a researcher from ZTE. I have two questions. The first one is about the SaaS business. I see that the growth rate of our 3Q SaaS business is very obvious. I would like to ask you to help us distinguish the driving factors of this growth, the sustainability of the future, and how we should look at the specific growth rate of this business in the future. This is the first question. The second question I want to ask is about AI. Because real AI has always been the focus of Tuya's strategy. I would like to know if there are any new advances in AI in 3Q. And if there is any income guidance on AI, that would be the best. Thank you, management team. I will also translate it.
Ben: So this is Ben from Data Research, and I have two questions.
Speaker Change: And the first question is about the SAT sector, whose red nucleus accelerates in Q3. So could you give us some color on the drivers and future outlook for the SAT sector?
Speaker Change: Another question is regarding the Artificial Intelligence. Could you give us some updates on the GMAI monetization and future plans? And if there are some revenue contribution guidance, that will be great. Thank you.
Thank you for that.
Speaker Change: So for the SAS, the key part is that we continue to identify the potential verticals that AIoT can help, can provide values to get in a pain point with a reasonable cost level. So I think that'd be the key part. So we consider that as the PSF stage, so which means that we should be evaluating the market and to identify and figure out the right solution that fits it.
Speaker Change: So, for the south side, right now we already see several...
Speaker Change: put very potential and scalable market direction there including the hospitality. As I mentioned that like the recent project that we signed contract with HDB in Singapore, it's a hospitality solution we provided and combined with energy management.
Speaker Change: and the energy will be another one so in other sectors and outdoor will be another one including logistics so that will be the verticals we we we find a potential to and so we really have some standardized solution proven
the seedings will come to the top.
Speaker Change: whether we're looking forward to duplicate the use cases with a similar type of strategy to customers in new fields. So that'd be one thing. That will be the key drivers for SAS. And speaking of the AI, what we see is that right now we're
Speaker Change: So one is that we will integrate the AI capability along with the hardware.
It's a bird house.
Speaker Change: and come along with a camera and come along with a food container. So he put it in the backyard on the tree.
Speaker Change: and then whenever one bird comes in, and then you get a picture or you get a selfie of the bird. And combine that with AI algorithms that we copied with AWS called Recognition.
Speaker Change: It's an algorithm provided by AWS, where we integrate that into the application.
Speaker Change: So the feeder not only take photos about the bird, but also telling you what species.
Speaker Change: what's the behavior of this bird and then you'll be able to, you know, easily either to educate your children, right? Okay.
Speaker Change: Let's try to learn the birds. Or you can show off any rare species coming to your house rather than your neighbors.
Speaker Change: So that would be one thing. So become a native AI device. Another direction is that we're trying to provide some AI services on top of the device as software-based.
Speaker Change: level. So one thing is that when we combine GMAI with PET
Speaker Change: devices. So like the pet feeder in home, so the feeders can
Speaker Change: visual your behaviors, the behaviors of your pet, maybe your cat or your dog, and then and automatically generate different type of video footage and come along with the line, come along with the background music, and then you will understand, okay, my pet and cat, my cat and dog in home right now, they're playing game of thrones.
Speaker Change: They began with Paul. So that type of interesting footage is totally generated by AI. So we will start trying to provide that type of services on the software levels. And so with the existing...
Speaker Change: what we call version one smart devices will be able to have some AI based experience. So that'll be the two directions we're trying to pitch. And right now it's still in the pilot stage, so we still run some POC, still run some
Speaker Change: and Tidal customers but not provide to everywhere and also we consider very carefully about how we can business monetize that coming on naturally with a business model
Speaker Change: So, by the end of this year, or at the beginning of 2025, we will be able to show more use cases how we can turn AI into applications.
Speaker Change: And we believe that that will become one of the catalysts for two-year and for overall IoT. And one of the key things, uniqueness for two-year is that right now, one of the largest challenges for AI is that
What type of applications? What type of features?
and commercial.
and all have the space to commercialize.
because right now it's more like the trial tools.
Speaker Change: better to have, not much to be. But the tangible for Tuya is that we have the device. We help the customer to build the device. So naturally, the device itself, when it's sold, you know that the end-users buy that for the feature.
Speaker Change: and especially when the AI device comes with a totally different pricing point than the
That's it. Thank you.
Thank you.
Speaker Change: Our next question comes from the line of John Roy from Watertower Research. Please go ahead, John.
John Roy: Thank you for taking my question and congratulations on a very strong quarter.
Speaker Change: And we believe that no matter it's IoT or AI, in the future, I mean in the long run, maybe after 10 years, it will become a fundamental technology. Like the internet right now, everything is the internet, connected.
Speaker Change: So when we're reviewing that, the penetration of IoT with AI is extremely low. So right now, these low single-digit numbers.
Speaker Change: So if you have to ask me about the weather and how the business is going to move forward to, I will say that in the next 10 years, maybe after 10 years, after 20 years, everything defaultly needs to be connected, needs to be smart.
and we can't imagine that.
So, what we're doing is that we continue to enable.
Speaker Change: to turn them into IoT ready, or into AIoT ready. I think that will be the key driver for us.
Speaker Change: So that's why all the investment we're doing is how we can find the right use cases.
Speaker Change: that makes sense is for their vertical. And we provide a standardized, easy-to-use toolkit for the developers and scale that. So I think that will be the key part.
Right, and as a follow-on to that...
Speaker Change: The investments you're making, do you feel like they're at a good level right now or do you feel like there's going to be a possible need to accelerate R&D in the coming years?
Speaker Change: Yeah, so in the past two years, because we were facing a cycle back then, so we really adjusted our strategies into a more aggressively invested and expansion strategy into a more reasonable and what we call micro-management.
Speaker Change: And so for this one, what we've seen is that we've really stabilized our expenses and investment.
Speaker Change: Inside the company, we continue to invest in some new use cases, but it's still in a very reasonable level.
Speaker Change: and so we're looking forward to stabilize our profitability and our experiencing rate.
Great, thank you so much.
Thank you.
Speaker Change: There are no additional questions at this time. I'll now hand back to the management team for any closing remarks.
Speaker Change: Thank you again for joining our call today. 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 in our next earnings call, so have a good day today. Thank you.