Good morning, and good evening, ladies and gentlemen. Thank you for standing by, and welcome to Tuya Inc.'s First Quarter 2021 Earnings Conference Call. [Operator Instructions] I will now turn the call over to the first speaker today, Mr. Reg Chai, Investor Relations, Associate Director of Tuya. Please go ahead, sir.

Thank you. Hello, everyone. Welcome to our first quarter 2021 earnings call. Joining us today are Founder and CEO of Tuya, Mr. Jerry Wang; and our CFO, Ms. Jessie Liu. You can refer to our first quarter of 2021 financial results on our company's Investor Relations website at ir.tuya.com. You can also access a replay of this call when it becomes available in a few hours on our IR Web site. Before we start, please note that this call may contain forward-looking statements made pursuant to the safe harbor provisions per the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and observations that involve known and unknown risks, uncertainties and other factors not under the company's control, which may cause actual results, performance or achievements of the company to be materially different from the results, performance or expectations implied by these forward-looking statements. Forward-looking statements are expressly qualified in their entirety by the cautionary statement, risk factors and details of the company's filing with the SEC. The company undertakes no duty to revise or update any forward-looking statements to reflect events or circumstances after the date of this conference call. I will now turn the call to our first speaker today, Founder and CEO of Tuya, Mr. Jerry Wang.

Hello, everyone. I am the Founder and CEO of Tuya. May name is Wang Xueji, and thank you for joining us on our first earnings call as a public company. We're very pleased to report a 200% year-over-year growth in our total revenues, achieving [$60.9 million] for the first quarter of 2021. Revenues for our primary IoT PaaS business and our SaaS business both achieved over 220% year-over-year growth. We are very happy that we were able to accomplish all of these while continuing to improve our gross margin, which increased by 10.8 percentage points year-over-year to 41.1%. Such robust results were driven by three main factors: first, we capitalized on strong global demand for IoT products and services; second, we cultivated sustainable growth in demand from our partners by empowering them with our innovative and scalable cloud platform to become leading IoT companies in their respective industries; third, we attracted a large number of new customers from various industries and broadened the range of industry verticals by leveraging our reputable brand equity and the network effect of our Tuya ecosystem. First, I'll go into greater detail about the demand recovery. During the quarter, more than 39 million smart devices were deployed with our IoT PaaS services, showing a strong growth of demand for IoT products. During the quarter, the global economy rebounded as COVID vaccine coverage improved in major economic regions around the world. Over the last year, forced closures and quarantines have instilled new habits of using smart devices at home. This led to a rapid increase in the number of registered smart device developers on our platform from approximately 260,000 at the end of last year to more than 320,000 at the end of the first quarter. Furthermore, contactless services are becoming the new standards for many…

Thank you all for joining us. Let me start by reviewing our financial results for the first quarter of 2021, and then I will discuss our outlook for the second quarter. Before I begin, please note that all amounts are in U.S. dollars and all comparisons are on a year-over-year basis, unless otherwise stated. First of all, I'd like to highlight that our total revenue for the first quarter has beaten Street consensus estimate by approximately 14%. We achieved robust operational and financial growth in the first quarter. Our total revenue grew 200% to $56.9 million. Such strong growth was mainly driven by the solid growth of our IoT PaaS revenue, which increased 227% to $49.8 million. Several categories of our IoT PaaS-powered products achieved notable year-over-year growth, in particular, our revenue of IoT PaaS empowering security and sensor products grew more than 300%. Our revenue of IoT PaaS empowering sports and wellness products grew approximately 700%. And and our revenue of IoT PaaS empowering education, entertainment and network portal products grew more than twentyfold. I also would like to remind everyone that every year, there are seasonal fluctuations in our revenues and sales. Typically, we experience lower revenues in the first quarter, while the fourth quarter is historically our strongest quarter of the year. This is due to the operation patterns of our customers' global consumer electronics brands and OEMs. Besides PaaS, our revenue from SaaS and others increased by 224% to $2.3 million. Our brand-agnostic SaaS offerings continued to attract customers interested in increasing their efficiency and the productivity in managing their business and smart device products. Our customer count for this segment has increased by about 183%. Meanwhile, our noncore business, smart [device] distribution revenue grew by 58% to $4.8 million, driven by increases in customer purchases…

[Operator Instructions] Your first question comes from the line of Kai Qian with CICC.

So firstly, congratulations on the strong quarter 1 results for the management team. I have three questions. The first one is about the SaaS solutions. So we know like Tuya newly launched [Indiscernible] SaaS solutions in April. So could you please give us some more color on SaaS business expansion plan for this year? The second one regarding the R&D investment. So what's the Tuya's focus on this year and beyond [Indiscernible] across the different segments, including SaaS and PaaS. The third one, regarding to the Hillhouse acquired Philips' domestic appliance business. So what's the synergy between the Philips and Tuya regarding to the Hillhouse investment in the future?

So first, let me take the first question about [non-industrial] solutions. So Tuya has been always developing an open and neutral platform for all the industry developers. And we encourage developers more than the home electronics to join the platform to help grow the IoT business beyond the consumer electronics, like commercial electronics, commercial IoT business, industry, agriculture, energy, health, entertainment. So that's why this year, we published the [non-industrial] solutions to all the developers, and we will continue to invest in R&D to provide better solutions for broader industries. And this is beyond our SaaS. So our SaaS will still focus on the four business Jerry has mentioned, that's real estate and community, hotel and apartment, commercial lighting and the consumer security. So for the SaaS business, we expect it will also benefit from the non-industry solutions. And we still expect our SaaS business will have a very strong growth, continue the Q1 momentum and for the long-term future.

So let me take the second question. In terms of the R&D investment and its planning for this year, we are going to focus on several things. But let me just reiterate the importance of R&D for our company. Actually, since the inception of our company, we've always prioritized the development of technology because it is in our DNA to innovating the technology. And our company is an R&D-driven or technology-driven company. And that is why we are able to construct a high entry banker or a competitive moat in the past seven years. That is because we've been deeply rooted in technology and R&D. And so going forward, we will continue to lock in our investment in technology and product innovation. Now for this year, we are going to invest in three main aspects. The first one is our developer R&D platform, which will continue to enable the R&D hardware and support the IoT apps development and IoT cloud platform development. The second investment will be in the business expansion, especially in the auto and mobility scenario. Now in the past, and as a result of the pandemic, we are mainly focused on smart home scenario. And it has allowed us we actually grow our business in a very solid ground. However, in the post-pandemic era, people are beginning to actually go outdoors, and people are beginning to travel. And we saw a strong demand for this segment. So that is why we are building a new office with a team of 500 people in Shanghai this year that are going to focus on this expansion, and we are going to invest in a lot of R&D that can empower this kind of business expansion. And the third area of investment will be in, actually, what we call, the ultimate user experience for the final users. And we call it, actually, the [six plus end] experience. So basically, this is about solving richer demands of the market in terms of all of the needs that we observed from the market, including energy saving, efficiency improvement and [Indiscernible] et cetera, et cetera. We are serving the [six plus end] demand, and we hope that through this investment, we are able to continue to drive the profitability of our company and also expand our business.

So for the third question, Hillhouse was our primary shareholder prior to going public and one of our cornerstone IPO investor. They have been very supportive of Tuya and have introduced many customers in their portfolio to us. And we also helped Hillhouse's portfolio companies to accelerate their business intelligence and generate greater value through IoT. So Philips was already our customer before. And Hillhouse indeed did introduce a broader team of Philips to us. And we believe the cooperation with Philips will accelerate through the help of Hillhouse, and we should be able to support Philips to develop a wider range of IoT products in the future.

Your next question comes from the line of Yang Liu with Morgan Stanley.

The first one, could management share about the rough split for revenue or volume among different categories like lighting or electric or wearables and home appliances, et cetera? And what is the mixed outlook in the future? The second question is IoT PaaS pricing strategy, especially in an environment of chips shortage or rising price. Especially given the 2Q very strong revenue guidance, what should be the gross margin outlook for the second quarter? The third question is, could management share about the investment focus or strategy of the newly established IoT investment fund together with Hillhouse?

So let me take all three questions. So first, in the past seven years, Tuya has been helping the developers and global customers to quickly expand their products. As all of our investors know, when we started back to 2015, 2016, we started from lighting and electrical segment of products. However, we have expanded into other product lines very quickly. As Jerry also mentioned, in Q1, we expanded into more very interesting high-demand IoT products to support those new IoT products. So back to 2018, for example, the IoT PaaS revenue contribution from lighting and the electrical segments were close to 90%. But today, for example, in Q1 2020, the revenue contribution from lighting and electrical is now less than 60%. The home appliance, including larger appliance, small appliance and the kitchen appliance, contribute more than 10% of IoT PaaS revenue. The security and sensor segment's IoT PaaS revenue contributes also more than 10%. The remaining, which were quite fragmented, including, for example, the health and sports, the education gateways, agriculture, energy, a lot of new segments of the IoT products or IoT PaaS-empowered, they also contribute more than 10%. So we believe in the long-term future, we will be more diversified. We'd like to make the IoT platform very flexible to support all the IoT devices that customers, including the individual customers and the corporate customers' strong demand. For second question about the pricing. So what happened in the chip industry this year in terms of the pricing and shortage has been quite tough time in the last 30 years. So it is a tough time for the entire industry. So all the downstream industry has been impacted. So we have been working very closely and carefully with our partners, including our supplier partners and our customers. So in…

This is the end of the Q&A session. I'd like to hand the conference back to our management for closing remarks.

So thank you again for joining our call. If you have 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. Have a good day.

This concludes today's conference call. Thank you for participating. You may now disconnect.