Good morning and good evening, ladies and gentlemen. Thank you for standing by and welcome to Tuya Inc. Fourth Quarter and Full Year 2022 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to the first speaker today, Mr. Reg Chai, Investor Relations Director of Tuya. Please go ahead, sir.

Thank you. Hello, everyone. Welcome to our fourth quarter 2022 earnings call. Joining us today are Founder and CEO of Tuya, Mr. Jerry Wang; and our CFO, Ms. Jessie Liu. The first quarter 2022 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 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 corresponding English translation.

Hello, everyone. Thank you for joining our fourth quarter and full year 2022 earnings call. In 2022, we experienced our first year of revenue decline due to inventory destocking as consumer product end market turned down after 7 years of hyper growth since inception. Our 2022 full year revenue decreased by just over 30% to $210 million. In the fourth quarter, end market consumption was sluggish, totaling revenue to decrease by about 40% year-over-year to $45 million. Notably, industry healing are placing greater demand in our business execution, operational efficiency, management and team development. We responded to macroeconomic adversity with a series of cost control and efficiency improvement measures. These measures span from product offerings to operating procedures to efficiency improvements, enabling us to sustain the 43% gross margin, while narrowing the non-GAAP net loss by 29% year-over-year from $109 million in 2021 to $77 million in 2022. Additionally, our Q4 non-GAAP net loss narrowed by 83% year-over-year to $5 million from $31 million, net cash used in operating activities was about $140,000 in Q4 and the $70 million in full year 2022, which was down 44% compared to the $126 million in 2021. These improvements reflect our determination and confidence in the long-term growth prospects of the industry. We have also repurchased a total of over $53 million shares in 2021 and then repurchased a total of over $59 million shares in 2022. In 2022, we sustained our commitment to a customer-centric approach and implemented a strategy to better focus on large customers. Notably, we formed our sales triangle system back-to-back customer acquisition and customer service system that combines our efforts in sales, solution architects and customer deliveries, enabling us to provide targeted services to customers with diverse needs and allocate customers more support resources more efficiently. As China…

That concludes the remarks by Jerry. As I review our results, please note that all amounts are in U.S. dollars and all comparisons are on a year-on-year basis unless otherwise stated. For the full year and fourth quarter of 2022, our total revenue was $208.2 million and $45.2 million, down 31.1% and 39.6% respectively. Within that, our IoT PaaS revenue was $150.2 million – $152.9 million and $32.6 million, decreasing 41.5% and 47.4% respectively. Please note that Chinese renminbi experienced significant fluctuations in 2022 and weakened against the U.S. dollar. At the start of the year, the exchange rate was RMB6.38 to $1 as by the end of the year, it has decreased to RMB6.96 to $1. As a result, the revenue earned in renminbi converted to approximately $8.5 million less than it would have if the 2021 average exchange rate has been used. SaaS and others revenue in the full year of 2022 increased by 6.6% to $29.8 million from $18.6 million in 2021, sustaining a strong growth momentum. The growth was mainly driven by our continuous efforts in offering value-added services and the various software products with strong value propositions for our customers. However, it is worth pointing out that we have implemented our customer focused and key account strategy in 2022. As a result, we will be investing more resources proactively on high-value customers. Due to this strategy, certain services, including specific value-added services such as OEM App and the customization services may experience a slower momentum compared to past quarters. Our overall gross margin slightly increased to 43% in 2022 from 42.3% in 2021, demonstrating the resilience of our value proposition despite facing headwinds. Our IoT PaaS gross margin slightly decreased from 42.4% in 2021 to 41.1% in 2022, including an active 2.4 percent points impact…

[Operator Instructions] The first question is from the line of Yang Liu with Morgan Stanley. You may proceed.

Thanks for the opportunity to ask questions. Just you mentioned, the downstream demand will be a key in towards for a potential rebound this year. I would like to follow up on this to – could you please share based on your observation, what is the overall inventory level at your core customer side. And based on the current best guess, why should we see the demand result this year?

Okay. Thank you, Yang. As an upstream company, we won’t be able to accurately predict the downstream inventory levels, including OEMs, brands and retail channels across the globe. However, as far as we know, we can share some information from both the market consumption and the inventory aspects. Starting with a bit more information on the consumer industry regarding U.S. consumers. Jerry has mentioned, the fourth quarter credit card consumption data that was not very optimistic. As for retailers, Best Buy, which mainly sells consumer electronics products talked about the trend of a 15% decline in sales in November compared to October when it announced its Q3 performance at the end of November. For brand, well-known vertical leading brands such as iRobot and Arlo in United States and a lot of others, either experienced a decline in Q4 revenue all reported weak sales performance, even with increased discount efforts in retail channels. In other typical consumer product verticals such as smartphones, according to a report by media, global smartphone shipments in Q4 2022 fell by 15.4% compared to the same period of last year. The top 5 global brands, including Apple, Samsung and Xiaomi all experienced different degrees of decline in shipments, ranging from 13% to 29%. In China, COVID cases picked between late November 2022 to early January 2023. This, coupled with spring festival holiday significantly slowed down economic activities in the country and had a substantial impact on electronic product consumption and overseas supply. That news that offers no relief is that the warm weather observed across very parts of Europe this winter has partially elevated the energy crisis. However, natural gas prices are still at a historically high level, and the current expectations in the consumption market remains subdued. We were seeing similar regional trends from activations…

Certainly. The next question is from the line of Timothy Zhao with Goldman Sachs. You may proceed.

Great. Thank you, management for taking my question. My question is on the cost and expense side. As you mentioned, you’ve already done some drops in cost control or expense control. Just wondering could management could help for the quantified impact on this year’s financials and especially how you look at the profitability path for this year and into next year? Thank you.

Thank you, Timothy. In 2022, we implemented various measures to reduce cost, increase operational efficiency and improve internal operations. The execution of these measures was undoubtedly difficult, but for – from an external perspective, the downsizing of our head counts each quarter may seem like frequent adjustments in response to dynamic changes in market conditions. Here, we can provide some additional insights. Due to the unique model of IoT development platform, we saw the inflation trend starting late Q3 2021 ahead of other software in the internet technology peers in the market. We then stopped our team expansion efforts then and begin to develop an extensive organizational restructuring plan. In 2022, we completed our strategic reorientation around our sales Triangle as well as the production and research upgrade centered on our private cloud, this strategic adjustments included shifting the focus of our product lines and R&D efforts as well as changes in employee arrangements to fill each position with suitable candidates. We also restructured our value management and evaluation system for R&D projects to ensure the value of our R&D efforts. This process was reflected in our phased team adjustments with significant reductions in team size every quarter. However, our product R&D and the service support functions remained stable throughout. Currently, our expenses have reached a relatively reasonable level in the current business environment. Despite the increase in labor costs due to factors such as annual adjustments in salaries and social securities will offset some of the savings we made from downsizing our headquarter headcount. In addition, except for specific necessary professional service expenses such as certification, compliance and legal fees. We will continue to adopt a more strict and cautious approach towards non-labor expenses, such as marketing and travel expenses to ensure that expenses remain in line with our targets. There is still much we can do to increase efficiency in terms of expenses, and we will continue this in 2023 and 2024 going forward. On the other front, it should be emphasized that considering the seasonal fluctuations in revenue, the situation will vary from quarter-to-quarter. Operating losses and the net loss will fluctuate with changes in revenue and the gross profit and the net loss in quarters within lower revenues will be relatively larger. Overall, we expect a substantial reduction in expense in 2023 compared to 2022. We also expect a better operating cash flow in 2023 compared to 2022. We aim to achieve the goal of breakeven on a non-GAAP basis. as soon as possible as we have communicated previously. So this is my answer to the second question. And operator, please move to the third question.

Certainly. The last question is from the line of Li Mingran with CICC. You may proceed.

Thanks for taking my questions. Given your strong capital position with high level of cash and short-term investments in several consecutive quarters what is your future strategy for cash? And have you considered using it for exploring new application scenarios? And what’s your investment plan. Thanks.

Thank you. Now we are committed to our conservative and cautious capital strategy. In order to maintain cash reserves for any unexpected risks. As of December 31, 2022, our net cash balance exceeded $950 million, of which $820 million is in fixed bank deposits with maturities ranging from 6 months to 1 year. And some of fixed deposit interest rates go as high as 6.5% annually. We collaborate with several large very reputable commercial banks to manage our funds and strive to obtain the best deposit rates while ensuring the safety of our principles. In 2022, we achieved an interest income of more than $22 million which provided solid support to our overall cash flow. Our strong cash position has made it easier for us to implement adjustment in our operations, support new business and investment incubate new products and safeguard our operational activities. We also used our cash to fund share repurchases within regulatory limits as a way to reward our shareholders and demonstrates our long-term confidence in the company. And from August 2021 to the end of 2022, we have repurchased more than $110 million stocks. In addition, although the headwinds in the consumer sector and the stock market led us to reassess our investment strategy for the ecosystem chain in 2022. We continue to track and monitor promising IoT companies solution providers and emerging industries. We are prepared for opportunities where we can leverage our capital or other means to partner, integrate or consolidate these prospects at the right time. In terms of exploring and investing in new applications, use cases. In 2023, we will continue to focus on two areas. First is acquiring and serving major high-value customers. Secondly, we will focus product lines with potential and strategic value. For the former, we will continue to…

Thank you. There are no additional questions waiting at this time. So I will hand the call over to the management team for any further remarks.

So 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 in our next earnings call. Have a good day.

That concludes today’s call. Thank you for your participation. You may now disconnect your lines.