Earnings Labs

Tuya Inc. (TUYA)

Q1 2024 Earnings Call· Mon, May 20, 2024

$2.27

-0.66%

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Transcript

Operator

Operator

Good morning and good evening, ladies and gentlemen. Thank you for standing by and welcome to Tuya Inc.'s First Quarter 2024 Earnings Conference Call. My name is Fayde and I will be coordinating your call today. [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.

Reg Chai

Analyst

Okay. Thank you. Hello, everyone. Welcome to our first quarter 2024 earnings call. Joining us today are Founder and CEO of Tuya, Mr. Jerry Wang, and our CFO, Ms. Jessie Liu. The first quarter 2024 financial results and the 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.

Xueji Wang

Analyst

[Interpreted] Hello, everyone. Thank you for joining our first quarter 2024 earnings conference call. During 2024, which marks the 10th anniversary of Tuya's founding, we are proud to have achieved significant milestones in the first quarter. Our total revenue grew by approximately 30% year-over-year and our blended gross margin reached about 47.8%, setting a new historical high. Most notably, for the first time ever, we achieved non-GAAP profitability in the first quarter, which is traditionally a revenue-light period due to the Chinese New Year. Since we went public in March 2021, we have navigated numerous unprecedented macroeconomic events. Through proactive and ambitious strategic adjustments, we have driven significant quantitative transformations in our business. While achieving non-GAAP profitability, we continue to build long-term competitive moats and extend total addressable market. From the perspective of the customers and scenarios supported and served by Tuya, we have evolved significantly over the past 4 years. Initially, our focus was on helping customers more efficiently and competitively achieve device intelligence through our IoT PaaS business. Today, we have expanded into spatial intelligence solutions in industrials such as apartments, hotels, community parks, mobility and energy. Furthermore, we have advanced to offering comprehensive smart solutions through a cloud platform that includes PaaS, SaaS and smart devices, including our smart Cube Cloud. This enables us to build enterprise-level intelligence platforms for global giants using Cube Cloud. As a result, our TAM is now far larger. In the first quarter, we witnessed a comprehensive recovery in our largest revenue segment, the PaaS business, maintaining a strong year-over-year growth trend. This growth is attributed to 2 main factors. First is the recovery in overseas demand for consumer electronics and the steady increase in the global demand for smart solutions. Secondly, our market share is expanding as major competitors exited the…

Yao Liu

Analyst

That concludes the remarks by Jerry. As I discuss our financial results that provide more detail on the numbers that Jerry didn't cover, please note that all figures are in U.S. dollars and all comparisons are on a year-over-year basis unless otherwise stated. In the first quarter of 2024, our total revenue reached $61.7 million, up 29.9% year-over-year. We're surpassing the market consensus of around 15% year-over-year growth. This marked an encouraging start to the year. Excluding the adverse impact of exchange rates between the U.S. dollar and RMB, the year-over-year growth would be an even more impressive 35%. Our IoT PaaS revenue in the first quarter was $45.6 million, representing a year-over-year growth of 35.7%. This was driven by the normalization of downstream inventory compared to the same period last year and our commitment to delivering high-value products to our customers. Regarding product categories, we saw robust demand growth across all categories, with home appliances experiencing the highest year-over-year growth of over 75%. From a regional revenue demand perspective, Europe continues to be the largest market, accounting for a little bit over 1/3 of the total revenue demand. The Asia-Pacific region and Latin America have seen accelerated demand growth, clearly rising compared to last year. Consequently, the Asia-Pacific region [ rounded ] for around 1/3 of the total revenue demand, while Latin America's demand contribution increased to more than 10%, a little bit shy away from 15% in the first quarter. On the customer front, we served approximately 3,000 customers in the first quarter of 2024, a slight increase from the same period last year with the number of IoT PaaS customers remaining stable year-over-year. The trends in the customer number reflect our focused customer acquisition strategy. We continue to be prudent in our customer service and acquisition efforts,…

Operator

Operator

[Operator Instructions] Our first question comes from the line of Yang Liu from Morgan Stanley.

Yang Liu

Analyst

[Foreign Language] Let me translate my questions. I have 2 questions. The first one is regarding the first quarter top line growth, almost 30% pretty strong, and combining that with very solid export trend in China recently, I would like to ask management whether it's possible to raise the full-year revenue guidance or turn more optimistic about future growth. The second question is, after seeing the very strong operational performance and financial numbers, whether management can do more in term of the shareholder return and what is the current plan?

Yao Liu

Analyst

Thanks, Liu Yang. It seems that everyone has noticed excellent export performance in the first quarter. We've observed that Chinese concept stocks with large overseas segments have in general performed well. Indeed, Tuya's growth in the first quarter, particularly in our core PaaS business, has been quite robust. Over 80% of our revenue comes from overseas, making us a prime example of cutting-edge technology company with a globalized business. Based on the data and disclosures, we see some common characteristics among strong macro factors driving exports in the first quarter. Firstly, in general, we have seen almost cross border overseas region demand pretty strong in Q1 especially the most dazzling growth from Asia-Pacific, that including like Southeast Asia, Australia, Japan, Korea, those regions. This trend aligns closely with our business development and opportunities we have observed. For example, our revenue from Southeast Asia increased by approximately 70% year-over-year in the first quarter. This growth is partly due to Tuya's Cube smart private cloud products, which has established strong replicable benchmark projects in countries like Thailand through collaborations with leading telecom operators, real estate groups and conglomerates, and then expand to other countries in Southeast Asia. And on the other hand, the products empowered by Tuya's technology are also highly favored by end users in Southeast Asia. So our ongoing projects which combine in private cloud and smart solutions in Vietnam with multiple Vietnam telecom operators are excellent examples. Secondly, export of home appliances and other electromechanical products such as lawnmowers and robotic vacuum cleaners performed very well. Consumer electronics, our main battleground, saw outstanding performance in our home appliance product line in the first quarter with a year-over-year growth of around 75%. This has been mentioned previously. Additionally, the outdoor and cleaning robot sectors also performed excellent in the first…

Operator

Operator

Our next question comes from the line of Eunice Liu from Goldman Sachs.

Eunice Liu

Analyst

[Foreign Language] This is Eunice from GS asking questions on behalf of our analyst Timothy Zhao. My question is on the 2024 outlook. How will the company balance the revenue growth and profitability in this year?

Yang Liu

Analyst

Okay, thanks for Goldman Sachs analyst question. So currently and also in the past year, for the future few years, to well balance growth and profitability is our key principle and we also feel this is being a responsible company with long-term trajectory growth, this is the right principle. So, given our product's ability to maintain the respective value proposition, we expect the PaaS smart solutions and SaaS and other segments to continue their overall chance of growth and profitability. Consequently, our overall gross margin will exhibit some structural fluctuations within a certain range, a small range basically depending on the revenue proportion changed among the 3 segments over time. After a year of adjustment in 2023, we believe our team operations and R&D are all well aligned. This has been validated by the per capita productivity and the customer efficiency data over the past 3 to 4 quarters. We are confident in maintaining this operational leverage, achieving customer acquisition and growth while staying efficient. For financial figures, our non-GAAP operating loss was approximately $600,000 in the seasonally low first quarter. Excluding stock-based compensation and some non-operational expenditures, our operating expenses will remain stable and controlled as revenue expense. Therefore, from the perspective of the structure of the income statement, our non-GAAP operating loss will be positively impacted by increasing revenue and the gross profit in the coming quarter. We expect to achieve quarterly non-GAAP operating breakeven soon in this year. So, overall, we believe the IoT business still have a long way to grow. Especially Gen AI will fundamentally change the -- or increase the value of smart products, smart space and smart business for the end users and the customers. Given the IoT penetration rate is still relatively low and also given the competition position of Tuya are very strong, basically, majority of the competitors already closed down their business in the past 2.5 years. So we believe we will see a long-term growth for our business and we are confident to maintain profitability while we continue to deliver the long-term growth. That's my answer to the first question from Goldman Sachs and we can go to next question.

Operator

Operator

Our next question is from Kai [ Qian ] from CICC.

Kai Qian

Analyst

[Foreign Language]This is Qian from CICC Research. I have 2 questions. So, my first question is regarding your IoT PaaS. In terms of the sectors, which sector do you think will achieve stronger growth or have more potential in the first half of 2024? And my second question regarding AI. So, in order to achieve your ambition in artificial intelligence, where there is OpEx pressure in the short term, how can we think of [indiscernible] in the AI investment?

Yao Liu

Analyst

Thanks for Kai's question. Regarding your first question about a more detailed kind of forward-looking about different products growth, different categories growth in 2024, we observed that demand trends across major regions and also major categories all experienced a pretty decent growth. For example, consumer safety and sensor products continue to be essential needs for end users in like Europe, North America and also in developing regions like Latin America, Southeast Asia. Additionally, home appliance including both small appliances and the large appliances, like -- small appliances like pet appliance, kitchen appliances are in high demand. The rebounds of especially like home appliances are pretty strong also across different regions. Also we see that very strong demand for products like robotic vacuum cleaners and also the energy-related like temperature control devices which is policy-driven in Europe that like French government are giving out significant subsidy for all the families in French if they install temperature control valves to control the heating energy consumption. And also like electrical products including switches have shown stable performance in many different regions. The last one, the lighting products which contribute in terms of quantity, the largest one in home consumer electronics by categories, after 2 years' pressure that the lighting products have shown a rebound due to the restocking efforts by the downstream. And we believe downstream has seen that the selling to the end users will start to recover in the second half year. And in terms of different regions in 2024 for their growth, they have some slight different demand for different products. For example, Europe remain our largest revenue source. In the primary offline retail and brand-focused European market, we have gained traction by offering high-cost performance and a wide range of Tuya ecosystem products such as energy-saving kits composed of…

Operator

Operator

Thank you. There are no additional questions at this time. I will now hand back to the management team for any closing remarks.

Yao Liu

Analyst

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 in our next earning call. Have a good day.

Operator

Operator

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