Tuya Inc. Q1 FY2026 earnings call

• Overall Financial Performance: Total Q1 2026 revenue reached $80.9 million, growing 8.3% year-over-year, with accelerating sequential growth and multiple consecutive quarters of positive expansion. GAAP operating margin hit 9.2%, non-GAAP operating margin reached 10%, and net margin improved to 19.5%, driven by revenue mix optimization and disciplined cost management. The company holds over $1 billion in total cash and liquid securities, supporting long-term AI investment and shareholder returns.
• AI Strategic Progress: The company continues to advance its AI-driven development strategy, with AI shifting from simple feature stacking to deep integration with hardware and vertical industry scenarios, evolving from conversational tools to physical-world intelligent agents. The company launched new AI applications including AI Life Assistant and AI Security Guardian to validate AI agent capabilities across digital and physical domains, marking a key milestone for real-world physical AI deployment.
• Vertical Industry and Regional Deployment:
  • In smart security, Wi-Fi-enabled smart door lock revenue grew 75% year-over-year, and AI video-enabled lock revenue grew 500% year-over-year, shifting the vertical from a standalone hardware model to a higher-value hardware+software+AI model.
  • In energy, EV chargers, metering products, and AI home energy management solutions have emerged as new growth drivers, with solid commercialization progress in energy storage achieved in Q1. Europe remains a key growth market for energy and green technology solutions, with strong demand from consumers for energy efficiency upgrades.
  • In China, AI-enabled smart toys and AI companion home products attract strong customer interest, with multiple projects already underway.
• Developer Ecosystem Expansion: The company launched new developer tools including the Ultra Lightweight Agent Kit for hardware developers and Vibe Coding for Tuya-based applications, lowering barriers for AI-native hardware development. Registered AI developers on the platform exceeded 1.96 million at quarter-end, with the Tuya Open community accumulating over 16,000 members and 340,000 documentation views, evolving into a comprehensive open ecosystem infrastructure for AI hardware innovation.

The company updated its segment naming convention for clearer reflection of its AI-focused strategic transition, with no changes to underlying revenue composition or comparability:

1. PaaS (core platform business): Generated revenue of $59 million, an increase of 9.8% year-over-year, accounting for 72.9% of total company revenue. Gross margin for the segment was 46.1%. Premium customer count reached 306 at quarter-end, demonstrating a stable core customer base.
2. AI Application and Others (formerly SaaS and other segments): Generated revenue of $11.6 million, an increase of 16.9% year-over-year, accounting for 14.3% of total company revenue. Gross margin for the segment remained stable at 71.7%, outpacing overall company growth. Growth is driven by AI cloud storage, energy management services, and other AI-enabled value-added services, reflecting progressing AI commercialization.
3. Smart Home and Robotics Products (formerly Smart Solutions segment): Generated revenue of $10.2 million, a decrease of 6.9% year-over-year, accounting for 12.6% of total company revenue. Gross margin for the segment maintained above 20% at 23%. The revenue decline reflects proactive strategic pruning of low-value hardware products to reallocate resources to higher-value AI-native hardware, with long-term profitability expected to improve as the segment restructures.

Total company blended gross margin for Q1 2026 was 46.9%, with minor year-over-year fluctuation driven by product mix changes and upstream cost variations.

• The company expects the smart home and robotics product segment to return to growth within the next one to two quarters, as new high-value AI-native product offerings replace the phased-out low-value hardware products, with revenue recovery expected by the end of Q2 or Q3 2026.
• The 2.7% year-over-year gross margin decline in the AI application segment is attributed to seasonal Q1 lower end-user usage following holiday device purchases, and management expects natural usage and margin recovery in Q2.
• Downstream demand is recovering gradually overall, with more solid positive growth momentum in high-value verticals including appliances, energy, and smart security, while other verticals like lighting have not yet seen significant recovery.
• Regionally, strong demand for energy management solutions is expected to continue in Europe, Southeast Asia, and Australia, while more price-sensitive regions like Latin America face greater demand challenges from macroeconomic conditions. The company will leverage its diversified product and regional mix to offset volatility.

• Global chipset shortages and upward cost pressure have intensified in early Q2 2026, which may impact gross margins and downstream demand especially for price-sensitive product categories like entry-level cameras.
• Geopolitical and macroeconomic uncertainty persists globally, with uneven demand recovery across verticals and regions: price-sensitive sectors and lower-income regions face greater demand pressure from retail price increases driven by component cost hikes.
• Structural adjustments in the smart home and robotics product segment have resulted in near-term year-over-year revenue decline, with a recovery dependent on the successful scaling of new high-value AI-native product offerings.

Q: Global chipset shortages are impacting many sectors. How is Tuya managing chipset sourcing and cost pass-through to downstream customers? / A: Management anticipated this trend in late 2025, and has mitigated most volatility via the company's large-scale buying power. The company completed strategic chip purchases before cost increases in Q1, leading to a minor inventory increase to buffer volatility. Inevitable cost increases are fully passed through to downstream without extra margin, leading to a small temporary reduction in PaaS gross margin, and the company will work closely with customers to navigate ongoing Q2 shortage intensity.

Q: What is the demand outlook for the rest of 2026, and what is the rationale for the segment name changes? / A: Downstream demand has been recovering gradually since December 2025, with strong momentum in high-value verticals (appliances, energy, security) but no significant recovery in lighting. Price-sensitive product categories face greater demand pressure from component cost increases, and Europe and Southeast Asia see particularly strong energy solution demand, while Latin America faces macro-driven challenges. The segment name changes signal the company's full strategic transition from traditional connected devices to AI-native offerings: AI Application and Others represents the upgrade of legacy SaaS to AI-enabled recurring cloud services, while Smart Home and Robotics Products reflects the new focus on AI-native hardware rather than general connected devices.

Q: How is the on-device agent competitive landscape evolving, and what is Tuya's advantage? How does internal AI tool use impact profitability? / A: End-user interest in AI-enabled smart devices is growing rapidly, and AI features will soon become a key purchase decision factor for consumers. Tuya identifies industry trends 2-3 quarters ahead via customer development pipeline signals, and has already achieved significant growth in AI capability penetration in customer new product designs, putting the company ahead of the curve. Internally, over 40% of UI code is now generated by AI, with AI increasingly used across firmware development and all back-office functions. AI improves operational efficiency by reallocating labor to higher-value work, expands development capacity to serve the fast-growing base of non-traditional new developers entering the AI smart device space, and supports long-term margin expansion via operating leverage.

Q: When will the smart home and robotics segment return to growth, and what caused the AI application segment gross margin decline? / A: The near-term revenue decline is a result of intentional structural change: the company proactively cut low-margin legacy product orders even when available, to reallocate resources. New AI-native product offerings will launch in Q2, and management expects revenue recovery by end-Q2 or Q3 2026. The 270 bps year-over-year gross margin drop is purely seasonal: Q1 typically sees lower end-user usage of cloud services after holiday device purchases, and management expects natural usage and margin recovery in Q2.