Good morning and good evening, ladies and gentlemen. Thank you for standing by, and welcome to Tuya Incorporated First Quarter 2022 Earnings Conference Call. [Operator Instructions] I'll now turn the call over to the first speaker today, Mr. Reg Chai, Capital Market Associate Director of Tuya. Please go ahead, sir.

Thank you. Hello, everyone. Welcome to our first quarter 2022 earnings call. Joining us today are Founder and CEO of Tuya, Mr. Jerry Wang; and our CFO, Mr. Jessie Liu. This first quarter 2022 financial results and the webcast of the 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 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 be followed by corresponding English transition.

Hello, everyone. First, I would like to report our first quarter performance in 2022. Our revenue reached $55.3 million in the first quarter, exceeding the high end of our previous guidance range. Revenue represented a year-over-year decrease of 2.7% compared to the quarter of 2021, where we saw rapid growth across the industry. Our IoT PaaS business revenue decreased year-over-year to $41.8 million in the first quarter. Consumer discretionary spending was adversely impacted by high inflation and the Russian, Ukrainian conflict that started in the first quarter further exacerbated global inflation. In this environment, we observed that IoT brands have become more conservative. On the other hand, our 2B-based SaaS and other segments maintained a strong growth momentum for the fifth consecutive quarter with revenue reaching $5.8 million, representing a year-over-year increase of 146.7%. This performance was driven by our consistent effort to offer target solutions to address the critical issues of our enterprise customers by leveraging our strong product functions and the Tuya device ecosystem. In addition, since our smart private cloud product, Cube Solution was launched in the last November and officially released in early this year. It has achieved important breakthroughs with new customers in the first half of this year. On the customer front, as we continued to iterate our products and services, our total number of customers increased by 29% from the same period last year to approximately 3,900 in the first quarter. IoT PaaS premium customers with revenue contributions of more than $100,000 during the past 12 months increased from 216 as of March 2021 to 303 as of March 2022. Our ability to maintain a large-scale customer base enabled us to leverage our platforms, economies of scale and improve the network effects between our business as well as our customers. In addition, the…

That concludes the remarks by Jerry. 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 Jerry just mentioned, we are facing a series of unprecedented challenges. Nonetheless, our total revenue in the first quarter exceeded our previous expected guidance range. Now I will provide a good look into our financial results. For the first quarter of 2022, our total revenue were $55.3 million, down 2.5% year-over-year. The decline was driven by a 16.1% year-over-year decrease in our IoT PaaS revenue, which reduced to $41.8 million for the quarter, impacted by factors Jerry mentioned earlier. If we look into the ultimate demand contributions to our revenue across the globe, which represents our estimate based on various businesses information from and regarding our customers, we did experience a slowdown in the U.S. and Europe, but we were able to deliver growth in China, Latin America, Southeast Asia and other Asian regions. Moving along to our customer base, we had 303 premium IoT PaaS customers for the trailing 12 months ended March 31, 2022, up 40.3% from 216 a year ago. During the quarter, premium customers accounted for approximately 85.6% of our IoT PaaS revenue, forming a solid customer foundation for our business. Our dollar-based net expansion rate for IoT PaaS segment maintained at a healthy level of 122% for the trailing 12 months ended March 31, 2022. Our DBNER demonstrated our ability to continue to expand our customers' usage of the Tuya platform over time and generate revenue growth from existing customers. On the other hand, as Jerry mentioned, we delivered a satisfactory performance in acquiring new customers with exciting business potentials. This is a direct result of the target customer acquisition strategies we have adopted. For…

[Operator Instructions] Our first question comes from Goldman Sachs.

My question is that while we face challenging environments in the EU and U.S. market, can management share some colors on the progress of our China business? And what type of demands are emerging in China market? What type of clients are we focusing on? Can we have more meaningful progress in the next couple of quarters? Are we expecting a higher or lower margin in the China market in the near to medium term?

Let me take this question. China market is vast and the scale of each of our businesses is still small. Therefore, we're expanding a few of our business to grow quickly and to grow the revenue contribution from China, including PaaS, SaaS and Tuya Cube, our new strategic private cloud product. Regarding PaaS, we're aggressively developing clients in the electronic device brands, just as Jerry has discussed. And for the SaaS business, since the end of 2019, we have started SaaS business in hotel, property, community and the commercial lighting in China. Each of them has gained top 3 market positions by now in China and still gaining shares. For example, we formed a strategic partnership with Alipay in hotel SaaS business in the first half of this year to build up hotel-centric digital commercial ecosystems for thousands of hotels covered by Tuya SaaS network. This PaaS partnership will enable us to quickly integrate business resources to provide 7 days, 24 hours customized quality and diversified digital services nearby for the guests in the hotel room that stayed there, which will be converted into revenues. Commercial lighting SaaS has launched many energy-saving use cases in China this year and are widely recognized very positively, including implemented in gas station factories, communities, group lights in city centers, large-scale parking lots, et cetera. And our community SaaS supported quite a few cities in China to transit to smart residential community for the future generation this year. We are also very excited that we have seen breakthrough of our Tuya private cloud -- Tuya Cube product in China. We announced it last November. We have signed up contracts with a number of industry-leading players in China for this new strategic product, including leading telecom operators, leading utility companies and auto group, and with a few other large enterprises are in the process of signing contracts such as leading energy companies. And this private cloud clients told us the reasons they selected us for majorly 4 reasons. First, Tuya's IoT cloud connected hundreds of millions of devices on a global basis with 8 years' track record for safety and reliability; second, our technology system is most comprehensive that can provide a full service coverage, IoT cloud, IoT OS, app and SaaS; and thirdly, our hardware ecosystem is unparalleled; and number four, our deep focus in IoT. So we have a strong belief in China market, and we believe China market has huge potential for IoT. And for the new strategic Tuya Cube product, the revenue contribution will start to reflect in Q3. In Q1 and Q2, we mainly signed up new customers and start the deployment of the private cloud and the recognition of the revenue will start in Q3. So that's the answer for your question. Thank you.

Our next question comes from Morgan Stanley.

I have two questions here. The first one is could management update us in terms of the negative impact from the lockdown in China, whether Tuya and the Tuya's customer, especially the OEM locating Yangtze River Delta has fully recovered after the reopening? Or if not, what is the current status and the forward recovery trajectory going into the next few months. The second question is, could management update in terms of the overseas consumer electronic device-related demand outlook going into the second half assuming the -- I think management mentioned the CPI will continue to be high. But what about the volume and shipment growth or early color from your customers in terms of second half demand from overseas side.

Thank you, Liu. We saw the -- for the first question, we saw the most impact on our business activities in China happened in end of March, April and May, including customer acquisition efforts has been significantly slowed down and especially delivery of our SaaS solution, which requires the customer to be satisfied with the result give us a paper confirmation that was delayed as well. And also some of the customer acquisition of PaaS business and the private cloud business was also affected. And the sales performance of end -- of our brand customer in China was also slowed down in that 2 months. However, we do see a recovery in June. So it looks like right now all cities restarting their normal business, economy, the consumption is recovering soon. So we saw the overall trend in China is improving and to be positive. And at the same time, the -- because Europe and the U.S. had inflation challenges, too. So to address that, this year, we have been very focused on the cost control. We have realigned our business to focus resources on key business segments and PaaS, the segment which require long-term investment. All the specific market sizes are not too big; and second, we refined our team structure and focus on improved organization efficiency; and thirdly, to improve our PaaS long tail business model to more focus on large customers and the large contracts. We tiered our customers based on the revenue contribution and the potential. We also tiered our orders to adjust expenses for small orders, which led customers to combine into large orders to significantly improve our efficiency. For the second question regarding the overseas demands for the customers. From geographically, inflation has been moved higher by Russian-Ukraine war, and that impacted Europe and…

Our next question comes from CICC.

As we newly launched the private cloud different services, how should we expect in the mid to long run the revenue proportion as [Indiscernible] revenue? And -- do we see more from existing public cloud customers switching to private cloud solution? Or we could expand to a new customer profile. What is the marginal change to the gross margin and expenses?

Most of our private cloud services customers are new customers, almost all of them. So we are promoting the Tuya Cube product, not to our existing customer base, but to new industry -- new customers. And our acquisition efforts are progressing smoothly in China and outside of China right now. We have signed the legal contract with dozens of customers. All of them are very well-known large-scale industry leaders in China and also outside of China. These customers included the largest telecom operators in like Indonesia and in China. The -- one of the largest utility group in China and also a couple more similar utility groups in discussions for signing contracts. And the leading top 3 automobile groups in China and in Southeast Asia. So we are currently also have a very healthy pipeline for large-scale companies, including leading energy companies in the stage of negotiating contracts and also a very large European retail groups. They have thousand large-scale retail stores in -- across many countries in Europe. So this kind has all demonstrated our private cloud technologies can be implemented in many different industries, which we feel very excited that the Tuya Cube product can enable Tuya grow outside of consumer electronics industry. In the past 7 years, we have been very focused on consumer electronic industry. And we all have seen consumer electronics industry can be impacted significantly by high inflation, by the economy cycle, the consumer down cycle in China. However, many other different industries, for example, utility industry, the auto industry and the telecom industry, they are less vulnerable and more sustainable to this kind of economy cycle. So we believe our focus on the Tuya Cube Solution, which will not only provide a lot new growth field for us, but make our business in…

I will now hand over to Reg for closing remarks.

Okay. Thank you again for joining our call. 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 on our next earnings call. Have a good day. Thank you.

Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect your lines. Thank you.