Tuya, Inc. Q3 FY2024 earnings call

Jerry Wang's remarks - All 3 business segments delivered solid revenue performance; IoT PaaS had steady recovery momentum, Smart Solutions saw over 100% Y/Y growth driven by market demand in home appliances and focus on energy-efficient products, SaaS and other segments grew by ~17% Y/Y with core cloud software value-added services up over 50% Y/Y. - Unveiled new product capabilities at 2024 EFA in Berlin leveraging cloud-based dynamic algorithms and generative AI. - Global customer collaborations and expansion progressed steadily, dollar-based net expansion rate was 124%, secured key regional customers in various regions. - Hosted two major developer conferences, registered developers on Tuya platform reached ~1.26 million. - Industrial and specialized channel markets made progress, signed new agreements with telecom operators in Thailand and Vietnam, achieved substantial progress in home energy management system with Singapore Housing and Development Board project. - Welcomed 65 Equity Partners, the investment platform of Temasek as a significant shareholder, and current Vice President of Financial Claire Yan Zhang joined the Board of Directors. ### Alex Yang's remarks - Total revenue in Q3 was USD 81.6 million, up 33.6% Y/Y. Each business segment maintained solid gross margin. - Non-GAAP total operating expenses in Q3 decreased by 5.9% to USD 30.1 million from $32 million a year ago. - Adjusted exercise prices of options held by employees, resulting in additional onetime equity incentive expenses. - Achieved non-GAAP operating margin of 9.1% and non-GAAP net margin of 24.7%.

In the third quarter of 2024, Tuya's total revenue reached USD 81.6 million, up 33.6% year-over-year. IoT PaaS revenue was $57.9 million, increasing by over 26% year-over-year. The Smart Solutions segment achieved over 100% year-over-year revenue growth. Revenue from the SaaS and other segments grew by approximately 17% year-over-year, with core cloud software value-added services increasing by over 50% year-over-year. IoT PaaS contributed a significant portion to total revenue, Smart Solutions showed strong growth, and SaaS and other segments also saw healthy growth.

Q4 outlook - Q4 is a stable and steady season, but with only 40 days past and influenced by Chinese long vacation, clear visibility of entire Q4 is not available, but optimistic about Q4. ### IoT PaaS - 2024 is a rebounding year for IoT PaaS as customers start reinvesting and kicking off multiple projects in IoT fields. ### SaaS - Continue to identify potential verticals where AIoT can provide value, with potential verticals including hospitality, energy, outdoor, logistics, and have standardized solutions proven with strategic customers. ### AI - Working on integrating AI capability along with hardware to make smart devices into AI devices (e.g., bird feeder with AI recognition) and providing AI services on software level (e.g., generating interesting footage for pet devices). Still in pilot stage, testing different use cases for monetization.

Q: Please share some color on the outlook for the fourth quarter and the tariff issues in the United States.

A: Q3 was a steady growing season, Q4 is a stable and steady season but with limited visibility due to early days and Chinese long vacation. Regarding tariff issues in the US, customers have already started relocating supply chains and still need to source products, demand is still steady as end users continue to purchase.

Q: Could you share some idea about the future shareholder return policies?

A: Since the beginning, shareholders' return has been a high priority. Q2 issued a special dividend, and will consider dividend as a regular basis based on non-GAAP profitabilities.

Q: Could you give us some color on the growth drivers and future outlook for the SaaS sector and updates on the Gen AI monetization and future plan?

A: For SaaS, key is to identify potential verticals where AIoT can provide value, with potential verticals like hospitality, energy, etc., and have standardized solutions. For AI, working on integrating AI with hardware and providing software-level AI services, still in pilot stage testing use cases.

Q: How long do you think the revenue growth can continue and how much runway do you see given the current markets?

A: IoT and AI will become fundamental technologies in the long run with extremely low penetration currently, so there is long runway as they are enabling first movers in vertical fields to become IoT or AIoT ready.

Q: Do you feel like the investments you're making are at a good level right now or if there's a possible need to accelerate R&D in the coming years?

A: In the past two years, strategies have been adjusted to a reasonable level, and currently looking forward to stabilizing profitability and expenses, but will continue to invest in new use cases at a reasonable level.