Good morning and good evening, ladies and gentlemen. Thank you for standing by and welcome to Tuya Inc.'s Fourth Quarter 2023 Earnings Conference Call. [Operator Instructions]. I'll now 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 2023 earnings call. Joining us today, are Founder and CEO of Tuya, Mr. Jerry Wang and our CFO Mr. Jessie Liu. The fourth 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 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. Thank you.

Hello everyone. Thank you for joining Tuya's fourth quarter 2023 earnings conference call. The fourth quarter of 2023 marked an exceptional period of progress, building upon momentum of third quarter, as we executed our strategic plan and thoroughly reviewed our operations. This approach led to significant advances across all business and performance indicators. Specifically, we reported total revenue of approximately $64.4 million for the quarter, representing a robust year-over-year increase of 42.2%, which underscores our positive trajectory. The gross margins of our three business segments have steadily increased, driving our blended gross margin to a new high of 47.3%, which is a testament to the strong value that our platform, products, and services deliver to our customers. From an operational and profitability standpoint in the fourth Quarter, our non-GAAP net profit climbed to around $12.6 million, a quarter-over-quarter increase of about 25%. Our financial strength is further evidenced by our net cash from operating activities, which reached approximately $31.8 million in net inflows for the quarter. Enabling our net cash participation to rise to $984 million by the end of the fourth quarter. In summary, the fourth quarter results reinforced our confidence that we are emerging from the clinical downturn in our industry. Looking back on the year, we returned to year-over-year growth and achieved full-year non-GAAP profit for the first time. Throughout 2023, we implemented strategic adjustments and transformations for validating the operational and commercial benefits of combining our key account focus and product enrichment strategies. This strategy yielded significantly better results. In 2023, our impact on B2B customers and end-users around the world grew even stronger, solidifying our market share. As we have mentioned before, since the latter half of 2022, a number of large IoT platforms have ceased operations due to challenges in maintaining efficiency. Last November,…

That concludes the remarks by Jerry. As I discuss our financial results and provide more colors on the numbers, please note that all figures are in US dollars and all comparisons are on a year-over-year basis, unless otherwise stated. In the fourth quarter of 2023, our total revenue reached $64.4 million up 42.2% year-over-year. A higher growth rate compared to that of the third quarter of 2023 and led to a sequential improvement for the fifth consecutive quarter. Our IoT path revenue in the fourth quarter was $47.2 million representing a year-over-year increase of 44.6%. This was driven by the normalization of downstream inventory and our commitment to delivering high-value products to our customers. As the smart devices sector encompasses a broad and diverse range of products we concentrated our R&D as well as sales and marketing efforts towards fostering stable, balanced, and efficient growth for the company. I will offer a breakdown by product categories. Two years ago, smart lighting and electrical products comprised nearly half of our total revenue. Meanwhile, smart safety and guardship and home appliances products known for their potential to drive higher revenue efficiency and increase our influence in the industry contributed nearly 20% and 15% respectively. Now in 2023, our strategic emphasis on product focus and enhancement has equalized this category's revenue contribution to roughly 25% to 30% from each segment achieving a more balanced category structure. Geographically, our business has also evolved as desired in 2023, attaining more balanced distribution. We are channeling our efforts primarily into the mature European market and Southeast Asia region that are full of professional channel opportunities. In Latin America, where both retail and operator channels hold substantial potential at the same time, we have tailored strategies to further boost our business in China including helping high-quality cross-border…

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

I will translate my question into English. The first one is about the 2024 revenue growth outlook. I would like to ask the management expectation based on the communication with key customers? And the second question is about the growth margin, because the fourth quarter 2023 growth margin sequentially increased to 47.3% due to some mix change in the smart solution. Is that due to seasonality or does that represent a new norm for the future? And the third question is regarding the impairment loss, because that also happened in the second quarter of last year and I would like to ask whether the related item on the balance sheet is clean or not. What is the future outlook for that impairment item? Thank you

Okay. Thanks, Liu. Let's come to the first question about the 2024 forward looking. So from the downstream end users perspective based on our constant discussion and communication with our customers, our perception of 2024 is similar to last quarter's expectation, which is the global discretionary smart device spending maintained a moderate growth from Q4 to the beginning of this year. Among these regions such as Southeast Asia and Latin America have shown stronger growth momentum than Europe and America. In terms of categories since January, the end consumer spending of smart lighting categories has been relatively weak due to the effect of inflationary pressures and its highly discretionary nature. However, electrical products because of its usage have related to energy saving in many cases, have recovered better than the lighting products, and such as smart breakers switches, those products. In the appliances segment remains the main focus of growth among which typical categories like robotic vacuum cleaners, which are a focus of our growth strategy for enterprise and expansion. Our smart pet appliances, it is a new category in the last few years that meets strong emotional needs of global consumers and have a relatively high resistance to inflation pressure. Other products like temperature controls, heaters in the appliance segment, which also involve energy usage and saving can bring cost benefit to users with addition of smarter capabilities and so on. And at the end of the month most product segments remained robust due to those characteristics. Safety and sensing products because it satisfies global consumers' fundamental needs for protection and family safety have continued to show steady growth momentum through the turbulent down cycles. And currently in the recovery period it also shows a good growth trajectory. So above all, our product focus and investment strategies are based…

Thank you. Our next question comes from Timothy Zhao of Goldman Sachs Please go ahead

Thank you, management for taking my question and congratulations on the strong fourth quarter results. I have two questions here, one is regarding the 2024 revenue outlook. I think you already mentioned quite a lot about the past revenue outlook. I think on the SaaS part, just wondering what is your outlook here and specifically on the key customers' progress, what does their revenue look like in 2024? And secondly, I think given 2023 is a year of very good OpEx control, I'm just wondering what is your OpEx plan and headcount plan for 2024 and how that will impact your OP margin or net margin, if any? Thank you.

Okay, thanks for Timothy for questions. So first about the SaaS and value-added services segment. So our software services and other revenue sectors are still reflecting the adjustments in revenue structure within which high-quality revenue maintains good momentum. So, for example, first, our cloud software services such as cloud storage, which is a recurring SaaS revenue in principle with a pretty high gross margin have achieved year-over-year revenue growth for five consecutive quarters. While consumer payments have increased, number of enterprise customers using our cloud storage technology has also steadily increased to nearly 80 of them globally. Secondly, our Cube Smart private cloud products has also already helped us secure over a dozen strategic large clients, such as several industry or telecom giants in Southeast Asia, well-known major channels in Australia are better serving the expansion needs of existing large clients, like Philips' new Asia-Pacific project. We have several clients whose projects are steadily progressing and we will share more with everyone when we have the clients' content or PR or as we approach project completion and deployment. Thirdly, in terms of industry SaaS products, although the domestic real estate and community industry in China faced significant challenges in 2023, posing the pressures to our community SaaS solutions, we still achieved nearly 30% annual year-over-year growth in other sectors such as smart hotels. Additionally, our Cube products and industry SaaS products have generated a good synergy with several typical Cube customers' acquisitions in regions such as Southeast Asia, like some leading real estate group clients in Thailand serving as benchmark cases of win-win projects for us and for the customers. On the other hand, in SaaS and value-added services segment, our customized development technology services and some other one-time value-added services, like OEM app are still undergoing structural adjustments. So…

Thank you Our last question comes from Mingran Li of CICC. You may now go ahead.

Thank you, management, for taking my questions. First, congratulations on your robust performance. As previous discussions have already covered much about the outlook for demand in 2024. I have one quick follow-up, because we have to wait longer for the Federal Reserve's rate cut. So how does this change of expectations influence the demand based on your recent observations? That's the first question. And for future development, could you elaborate more on the strategic plans and investment priorities for PaaS SaaS and smart device distribution over the next two to three years? Thank you.

Thanks for question. So first -- so let's first come to the first question. So interest rate cuts themselves are beneficial for releasing capital to promote consumer spending. However, considering that inflation is still present, the market currently feels that the pace of interest rate cuts is slower than originally expected. Furthermore, if inflation rebounds quickly after a rate cut. The consumption such as food and the gasoline prices will rise which could suppress discretionary electronic consumer devices spending to a certain extent. So we think the extent of the problem still comes back to inflation itself. So we feel that our customers like the brands on the retail channels are less sensitive to the interest rate but more react quickly to inflation itself. So as we mentioned before players in the market are spontaneously reaching a new equilibrium point for discretionary consumption. And if inflation and prices maintain at current level, then we estimate the downstream demand is likely continue at current performance. For the second question. If we divide the company's development into early, middle and long-term stages, Tuya with its unique IoT cloud software technology and products scalable business strategy and neutral cloud agnostic positioning, has captured a significant market share and influenced by seizing the tremendous opportunity for rapid growth in IoT penetration rate and the market from nearly 0 to 1 during the first stage from 2014 to 2021. Now as the industry enters the second phase from 1 to 10 and also experiencing downturn cycles over the past two years, the enormous TAM for IoT smart devices requires an increase in further penetration rate to be unlocked. Therefore, following our CEO Jerry's earlier remarks. Our current main direction is to drive efficient revenue growth on both quantity and price aspects of our product offering.…

This concludes today's conference. Thank you for joining. You may now disconnect your line.