Good morning and good evening ladies and gentlemen. Thank you for standing by and welcome to Tuya Inc.'s Fourth Quarter 2021 Earnings Conference Call. At this time, all participants are in listen-only mode. We will be hosting a question-and-answer session after management's prepared remarks. 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.

Okay. Thank you. Hello everyone and welcome to our fourth quarter 2021 earnings call. Joining us today are Founder and CEO of Tuya, Mr. Jerry Wang; and our CFO, Ms. Jessie Liu. The fourth quarter 2021 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. Before we continue, I will refer you to our Safe Harbor statement in our earnings press release which applies to this call as we will make forward-looking statements. 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 first only English translation.

[Foreign Language] Hello everyone. 2021 was a remarkable and a critical year for Tuya. In March, we completed our IPO and our shares started trading on the New York Stock Exchange, we achieved over $300 million in annual revenue for the first time representing an increase of approximately $0.68 y-o-y. Notably, we continue to leverage our leading technology and the service offerings to support the business growth of our customers. For example, a well-known international brand with 50 years of operating history, one of our customers thinks 2018 became our first brand customers with annual deployments of Tuya IoT PaaS exceeded over 10 million units. They achieved this impressive sales performance with 52 IoT SKUs, powered by Tuya. Our SaaS and others business segments achieved year-over-year growth of more than 170% for four consecutive quarters. Our total number of customers increased from approximately 5000 in 2020 to approximately 8400 in 2021. In particular, IoT PaaS premium customer with revenue contribution of more than $100,000 increased from 188 to 311 around 50 of customers with revenue contribution, around 50 of which are fortune 500 companies. The annual retention rate of premium customers remained higher than 99%. And the annual retention rates of our top 100 IoT PaaS brand customers reaching 99% as well. [Foreign Language] In 2021, for the first time we experienced challenges in supply chain international logistic disruptions and high global inflation not seen in decades. However, we still further expanded our gross profit margin from 34% in 2020 to 42% in 2021. While our gross profits increased 106% year-over-year, the world's top technology research organization Gartner said Tuya as an example of a successful global IoT technology company in [indiscernible] research report published in 2021. In 2021, we organized the flagship events such as the Bluetooth Development Conference,…

I will provide a closer look into our financial results. 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. As mentioned earlier, we faced a number of industry wide challenges in the fourth quarter nonetheless, we have achieved a total revenue of $75 million in the quarter around 3 point of our previous guidance range. Our IoT PaaS revenue for the quarter grew by 13.9% year-over-year to $62.1 million. For the full year of 2021, total revenue was 302.1 million up 67.9% year-over-year, and IoT PaaS revenue was 261.4 million, up 72.3% year-over-year. We have 311 premium IoT PaaS customers for the trailing 12 months ended December 31, 2021 up 65.4% from 188 a year ago. During the quarter, premium customers accounted for approximately 87.3% of our IoT PaaS revenue, our dollar-based net expansion rate for IoT PaaS segment was 153% for the trailing 12 months ended December 31, 2021. This is a testament to our ability to expand our platform usage over time and grow revenue from existing customers. During 2021 among all the categories supported by our IoT PaaS solutions, home safety and sensor products, home appliances, products, and entertainment energy saving products grow at a significantly faster pace than electrical and lighting products. In 2021, the electrical and the lighting category products contributed to about half of IoT PaaS revenue. And the contribution of other categories continued to increase in the past few years, reflecting the success of our category expansion strategy. As for our customer base, we classify our top 200 brand customer into four groups. First, well-known multinational brands; second, regional brands with local influence in all continents and countries; third one, self-owned brands have large regional retail channels and telecom…

Thank you. [Operator Instructions] Your first question comes from the line of Yang Liu of Morgan Stanley. Your line is open.

[Foreign Language] Let me translate my questions. The first question is on the IoT PaaS also from multinational customers on a global brand after the Ukraine war, whether there's any meaningful change for the full year output. The second one, the SaaS and other key products, were very strong revenue growth last year and going into 2022. What should be the growth strategy here and which vertical we expect to see a good growth potential in addition to hotel and the commercial items. And the third question is, the gross margin outlook in current improving environment supply chain. Thank you.

Thank you, Liu Yang. So for the first question, we are keeping a close eye on inflation in economic conditions, since they directly impact consumer demand. And that indirectly impact us. Inflation has been accelerating since the third quarter of the last year. We have all seen the -- that is numbers I'm not going to repeat. In Europe, the market is increasingly pessimistic about the economic growth expectation and also same in the U.S. So we think inflation is suppressing consumption and the non-essential consumer goods that will be affected the most. We can see that retail channel and the brand owners have become cautiously pessimistic since the third quarter of last year. The sentiment is gradually increasing and we haven't seen signs of recovery yet. The recent geopolitical conflict the Russia and Ukraine war, further intensified inflation especially in Europe, which escalated the situation. Recently we're collecting feedback from our downstream brand customers in Europe and the United States. So for example, in Europe, the sales of IoT lighting products was worse than that of traditional lighting products. Against the backdrop of high inflation this is a common chant. When consumers are under financial constraints, cheaper traditional products are more attractive. Another obstacle is that some brands are struggling to make a profit due to the high inflation of upstream costs since last year. And also the sharp increase of the transportation costs in summer of last year also pressures their margins. And they can't really -- when they can’t raise their selling prices in the retail channel, because retail channel was facing the pressure of consumer not buying more products. In that case, even when shelf and the inventory are close to empty or empty, brands are reluctant to produce their products, they would rather wait for…

Thank you.

Your next question comes from the line of Liping Zhao of CICC. Your line is open.

[Foreign Language] Thanks, Jerry and Jessie for taking my questions. I have two questions here. First is related to a matter that management share a view of measure any impacts on your overall business? And second is about the business adjustments. This is looking ahead in 2022 customer demand and supply chain are still under pressure due to the macro-economic environment. Do you have any adjustment of business operation to mitigate these risks? Thanks.

[Foreign Language] Let me adjust the question by first clarifying what the Matter is. It is an IoT protocol formed by integrating the technical characteristics of Home Kids [ph], Open Threat and Zigbee 3.0. The integrated protocol focuses on the field of smart homes and the local interconnections. Having multiple influential enterprises developing the protocol together in an open source format will accelerate its adoption, which in turn will help improve the low penetration rate of IoT in home appliances. There are five key limitation, the Matter is facing currently. First, Matter does not cover cloud connection protocols. Second, it's only supports narrowband data transmission. Third, Matter will mainly -- may experience problems with Zigbee's fragmented protocols. Fourth, Matter will be challenged by other network protocols such as BOE Mesh. And finally, chips that can meet Matter's requirements are more expensive. So our full suite of solution excels at solving fragmentation problems at all levels. Through a platform-oriented approach, we unified our solution across different systems, chips, network protocols and IoT models to provide connections from terminals to the cloud and apps. Our joint development with Matter will definitely accelerate the connection across different brands. Meanwhile, we will also adjust the inability to conduct due to the Matter's recommended protocols, as well as building connections between Matter and other protocols. These initiatives will improve the differentiation and the overall capabilities of IoT products on the market. Tuya will be compatible with the Matter protocols, just like we are compatible with multiple other network protocols. In an article about the progress of Matter published by the Wall Street Journal on February 22nd, the only app demo displayed was Tuya, which not only showcase that our extensive influence in IoT PaaS build, but also highlighted the synergies between Tuya and the Matter.

Okay. So second question before I dive into specific strategies for 2022, I want to reiterate. Tuya always focus on fundamentals of the business that is first forming overwhelming competitive advantage. Second, gaming unrivaled market share. With a challenging macro-environment, our focus is to strengthening the core value proposition of products, improving customer satisfaction and enhancing our operational efficiency. During a period of consolidation, the weak will be eliminated and the industry leader will gain more market share. So with $1 billion cash on hand, we are well positioned to weather the temporary storms and capitalize on strategic opportunities that are set to emerge. So come to 2022, so first let me talk about our key strategies, our supply chain. So in 2021, we have accumulated extensive experiences in managing the supply chain crisis. We've got a close partnership with core upstream suppliers and earned their trust. This enabled us to secure the necessary production capacity ahead of time. Now in 2022, the supply chain crisis is easing, although they're still partial shortages, we have solutions in place as we already expanded and refined our list of suppliers in the second half of last year. Come to the revenue strategy in 2022, we have three main strategies to cope with the difficult environment. First, China, we are increasing the revenue contribution of China. Although China has also macro challenges, our IoT PaaS business in China is still in its early stage and has a big headroom for growth. So take last year for example, our domestic IoT PaaS business grow at a much faster pace than Europe and the U.S., and also more than 90% of our SaaS revenues from China. So we will continue invest in China's PaaS and SaaS business in 2022. Second is the Tuya Cube, the…

Thank you.

So --

There are no further questions at this time. I'd like to hand the conference back to our management for closing remarks.

Okay, thank you again for our course. 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 earning call. Thank you.

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