Good morning, and good evening, ladies and gentlemen. Thank you for standing by, and welcome to the Tuya Inc.'s First Quarter 2023 Earnings Conference Call. [Operator Instructions]. I will now turn the call over to the first speaker today, Mr. Reg Chai, Investor Relations Director of Tuya. Please go ahead, sir.

Okay. Thank you, everyone. Hello, everyone. Welcome to our first quarter 2023 earnings call. Joining us today are Founder and CEO of Tuya, Mr. Jerry Wang; and our CFO, Mr. Jessie Liu. The first quarter 2023 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 well 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 the Tuya's Q1 2023 Earnings Conference Call. Our revenue in Q1 2023 was approximately $47.5 million, recording a sequential increase of 5% and a 14% decrease compared to the same period last year. This dip can primarily be attributed to 3 main major influences: a persistence lag in overall consumer spending, the continued cycle of inventory correction downstream, and a comparably high base from the previous year. Furthermore, foreign exchange fluctuations accounted for a 6 percentage points year-over-year drop. Yet in spite of these challenges, our Q1 revenue exceeded our initial expectations set at the start of the year. And this is a milestone for us as for the first time since going public that our Q1 revenue, despite incorporating the spring festival holiday period where most business and production activities were suspended, has outpaced that of the traditionally strongest Q4. Moreover, our blended gross margin maintained a steady level of around 44%, the determination of our team, the resilience of our business operations and the strength of our customer base amidst a challenging macroeconomic environment. Taking into account publicly available data, we have observed a consistent decline in inflation in both the United States and Europe. As of the end of March, the U.S. CPI reduced by 5% while Europe experienced a decrease to 6.9%. These figures indicated tempering of the previously severe microeconomic climate and an evolution, which, when coupled with the ongoing inventory reduction, has begun to bolster the confidence of some brands and customers. On the China front, consumer expenditures saw a year-over-year uptick in Q1 2023. However, due to the carryover effects from the COVID-19 peak in Q4 of last year, this spending has been primarily focused on food, clothing and pharmaceutical sectors. Contrarily, sectors such as home electronics…

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-over-year basis unless otherwise stated. In the first quarter of 2023, our total revenue was $47.5 million, down 14.2% compared to the same period of 2022. However, adjusting for the impact of foreign exchange rates, the year-over-year decline in total revenue would be more modest 7.7%. It is important to note that the first half of 2022 set a relatively high revenue base as the adverse impact of the inflation just beginning in the late second half of 2021 and the overstocked inventory on supply chain players have not yet fully materialized at that time. Despite these challenges, our Q1 2023 revenue performance increased about 5% quarter-over-quarter, driven by ongoing inventory corrections, revenue generation from high-value products and the services such as cloud storage and the recognition of revenue from Cube smart private cloud projects. The distribution of revenue by category and the region in Q1 2023 closely mirrors the pattern observed throughout 2022, with slight increases in revenue contributions from both Asia and Europe regions, while the U.S. region experienced a minor decline. Our blended gross margin for the first quarter was 44.3%, aligning with expectations. The gross margin of IoT PaaS experienced a minor decrease of 1.8 percentage points, mainly due to price adjustment on specific products based on market conditions, structural shift in product mix and negligible impact from the accrual of inventory allowance in Q1. The gross margin of the smart device distribution increased significantly from 9.1% in the same period last year to 21%, driven by certain innovative and strategic products such as the smart air tech and smart watch in the first quarter. Our focus on enhancing product…

[Operator Instructions]. We now have our first question from Yang Liu of Morgan Stanley.

Just one question from my side. Based on the current customers inventory and also the order placed to Tuya, when do you expect the demand will recover for overall company, especially the trajectory for the potential demand recovery going forward?

Okay. Thank you, Yang. We'll update everyone on the -- sorry, go ahead.

Sorry, I need to translate. [Foreign Language]

Okay. Thank you. We'll update everyone on the knowledge gained from various public information and the perception from our customers. In the consumer electronics industry, where we continue to check representatives-listed companies throughout the supply chain, most reported year-on-year declines in Q1 revenues, with some companies achieving growth but at a slower pace. The signs of stress among upstream and downstream companies remained widespread and obvious in early 2023. We've observed 12 upstream semiconductor and module companies ranging in market capitalization from tens of billions of RMB to hundreds of billions of USD. The Q1 revenues varied between the year-over-year decrease of about 40% to an increase about 10%, averaging down 10%. Many of these firms believe that Q1, especially for consumer spending, was still under pressure due to a slowdown in demand and the not-so-low inventory levels, suggesting a slow recovery and the bottoming out. Some companies express cautious optimism for the second half of the year, but emphasize that actual conditions still warrant observation. On the brand side, we observed 17 representative-listed companies, except for a charging product company that saw year-over-year revenue growth of about 18% and 3 companies offering necessity products with slightly year-over-year increase. The remaining 13 companies, spanning sectors like lighting, robot vacuum, kitchen appliance, outdoor products and the mobile phones, all reported year-over-year revenue declines in Q1, ranging from negative 45% to negative 6%. They generally perceived some relief in their own and channel inventory pressure, expressing hopes for recovery beginning in second half. From a product perspective, companies with more discretionary offerings faced greater pressure, while those closer to necessity products had a more positive outlook. In downstream retail channels, Best Buy, a specialty consumer electronics retailer, reported a year-over-year revenue decline of 10.3% and guide a further decline of about 6.4%…

Our next question comes from of [indiscernible].

My question is regarding the gross margin trend into second half of this year and full year. I noticed that in the first quarter, the gross margin was impacted by the product mix change as well as inventory provision and also FX. Just wondering if we look into the second half when there is less pressure from FX and potentially lower raw material costs, what is the margin outlook?

Thank you. Continuous improving gross margin is one of the most important goal of the company. We believe we will be able to maintain a stable gross margin around Q1 level for the rest of the year. And if there's opportunity to improve the gross margin, we will do. So there are several factors affecting gross margin. First is the chips cost. The chip shortage is now a thing of the past. The semiconductor industry, aside from products related to AI such as GPUs and industrial scenarios, generally faces the challenges of sluggish demand for chips application and the challenges of excess production capacity. So the financial impact of falling chips prices will be slower to manifest in high inventory and destocking period, but it will indeed create some room for price adjustment in business, which will be transmitted downstream through the industrial chain, thus lowering cost for customers and the users. As for gross margin, we largely ensure that gross margin target for different periods through our pricing committee mechanism, while achieving our own gross margin, we will support our customers as much as possible, jointly face challenges or share price reduction dividends from upstream. In Q1, considering our own cost market conditions and customers' business situation, we adjusted the price of some of the past products to help our customers navigate slowing industry cycles, while we maintained a gross margin above 40%, in line with our own cost control expectations. Additionally, we are always committed to producing product with corresponding value propositions. Therefore, even if there are short-term fluctuations, it's not a major issue. Over an extended period, value will always be reflected in overall gross margin. That's my answer.

My question is about strategy, like for the next 2 years. What's your plan on new products with higher investment priorities? Any color would be good.

Okay. We shared our core strategic themes and thoughts for the foreseeable future at the beginning of the year, among this, on the product line, focus on products that carry high value propositions, high revenue efficiency, strong market demand with long-term potential. We will continue to commit on the strategy to seeking opportunities beyond consumer electronics fields. For example, an outdoors example for our renewable energy-related field. In addition to the frontline perspective, shared just now from our interactions with core brands and customers, we have gained another important insight. For example, in the European region, there are numerous reorders and the promotions for energy saving-related products such as power metering products, thermostatic walls, thermostats. There's an increasing demand for consumer safety products worldwide. IPC demand is becoming more robust, contributing to the continued growth in cloud storage revenue. Sensors products, such as temperature and humidity sensors, are also seeing increased demand. Moreover, our Q1 smart tech products, which is outdoor products, falls under the auto tracker category, has seen very rapid demand growth with the resurgence of the travel and increase in outdoor activities. We can clearly see commonality in value consumption across global markets. Energy saving central control gateways and some outdoor categories will continue to be the newer categories that we persistently invest in. Take energy-saving products, as example, categories including smart circuit breakers, inverters achieved nearly 5x year-over-year growth in Q1, and we see a very strong downstream demand. Of course, the lower base from the same period last year, as being a relatively new category, also contributed to a high growth rate. We will continue to build core hardware and software system around energy saving, create central products and form a product system with a complete solution. We will expand overall revenue scale by rapidly promoting, expanding by leveraging our existing customer base and the global business foundation. In reinvesting in existing categories and incubating new lines, we need to choose the right sectors focused on the products and avoid working in isolation. Thank you.

As a confirmation, there are no additional questions at this time. So I'll hand back to the management team for any closing remarks.

Thank you, again, for joining our call today. 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. Thank you.

This concludes today's call. Thank you for joining. You may now disconnect your lines.