Tuya Inc.

Q4 2021 Earnings Conference Call

3/15/2022

spk02: Good morning and good evening, ladies and gentlemen. Thank you for standing by and welcome to Tuya Inc's fourth quarter 2021 earnings conference call. At this time, all participants are in listen-only mode. We'll be hosting question and answer session after management prepared remarks. I will now turn the call over to the first speaker today, Mr. Reg Chai, Investor Relationship Associate Director of Tuya. Please go ahead, sir.
spk05: Okay, thank you. Hello, everyone. Welcome to our fourth quarter 2021 earnings call. Joining us today are founder and CEO of Tuya, Ms. Jerry Wang, and our staffer, Ms. Jessie Liu. The fourth quarter 2021 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 statement in our early 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 a strongly English translation.
spk06: 2021 is a special and important year in the new business process. We entered the second stage of the market in March last year. We completed our first annual income of more than $300 million, with a growth of about 68%. We continue to use our leading technology and products to support brand customers' constant growth. Yijia is a well-known international brand that has worked with us for more than 50 years since 2018, and has become our first brand customer that broke through 10 million sales in the first year. They have achieved a very outstanding sales performance on 52 part-by-two-yard IOT SKUs. Our SaaS and ARGIS business partners have achieved a total growth of more than 170% in four consecutive seasons. Our total number of customers has increased from 5,000 in 2020 to about 8,400. In particular, the revenue contribution of more than 100,000 US dollars of IOT PaaS user customers The number of customers has increased to 311. The number of customers has increased to 50. The number of customers has increased to 99. The number of customers has increased to 99. The number of customers has increased to 99.
spk04: Hello, everyone. 2021 was a remarkable and critical year for Tuya. In March, we completed our IPO and our shares started trading on the New York Stock Exchange. We achieved over $300 million in annual revenue for the first time, representing an increase of approximately $0.68 YOY. Notably, we continue to leverage our leading technology and service offerings to support the business growth of our customers. For example, a well-known international brand with 50 years of operating histories, one of our customers since 2018 became our first brand customers whose annual deployments of Tuya IoT paths exceeded over 10 million units. They achieved this impressive sales performance with 52 IoT SKUs powered by Tuya. Our SaaS and other business segments achieved year-over-year growth of more than 170% for four consecutive quarters. Our total number of customers increased from approximately 5,000 in 2020 to approximately 8,400 in 2021. In particular, IoT PaaS premium customer with revenue contribution of more than $100,000 increased from 188 to 311, around 50 of customers with revenue contribution, around 50 of which are Fortune 500 companies. The annual retention rate of premium customers remained higher than 99%, and the annual retention rate of our top 100 IOT past rent customers reached 99% as well. In 2021, we experienced a lot of supply chain difficulties.
spk06: International logistics chaos, global high production, but we still achieve stable growth rate from 34% to 42%. The net profit growth is 106%. Global top-level technology research institution Gartner in 2021 issued 12 IOT research reports recommending Tuya as a global IOT demonstration technology company. In 2021, we held the Lanya Development Conference. Thank you.
spk04: In 2021, for the first time, we experienced challenges in supply chain, international logistics disruptions, and high global inflation, not staying in decades. However, we still further expanded our gross profit margin from 34% in 2020 to 42% in 2021, while our gross profits increased 106% year-over-year. The world's top technology research organization, Gartner, cited Tuya as an example of a successful global IoT technology company in 12 IoT research reports published in 2021. In 2021, we organized the flagship events such as the Bluetooth Develop Conference and the Cellular Communication Develop Conference, which also served as a press conference for our outdoor travel IoT products. We also continue to partner with global leaders such as Google, Microsoft, Amazon, and the Matter Project Organization to promote the rapid development of the IoT industry. Looking back on 2021, I would like to take this opportunity to thank our investors, employees, customers, partners, and everyone who has supported us. Let me share with you some of our business projects. Now let's talk about business developments in the first quarter. For the full year of 2021, our IoT PaaS business had an NBD NER of 153%, a leading level in the cloud PaaS and SaaS industry. Our IoT PaaS business acquired nearly 1,000 new customers in the fourth quarter, and the total number of customers served increased by 41% year-over-year.
spk06: We continue to attract well-known companies to become our new IoT PaaS customers. For example, in Europe, the headquarters is located in the Netherlands. It has a 40-year history as the leading brand of products for consumer electronics for all European families and office products. In addition to its top three home appliances brands, European-famous home appliances companies Schneider, Consumer Group, etc. In Asia, there is a global smart home brand, Commax, founded in Korea. Through the print, we can achieve a customizable doorbell and iOS products. ASE, the leading mobile phone and flagship brand in South Korea, has a history of more than 75 years. It is a well-known commerce partner in India. It has a history of 80 years. It has about 1,200 physical stores. USAT International. It is a multi-purpose consumer electronics company under the leadership of India's three major companies. Thank you. Aliexpress, Aliexpress, Aliexpress, Aliexpress, Aliexpress,
spk04: We continue to attract the well-known and high-quality companies around the world and turn them into IoT path customers. One of these new customers, for example, is Trust, headquartered in the Netherlands. With a history of 40 years of operation, Trust is the leading brand of consumer electronics salaries in Europe. Other new customers include Sunny, a top-three Turkish home appliance brand, and the Schneider Consumer Group, a well-known European home appliance company. In Asia, we helped our new customer Comax, a global smart home brand founded in South Korea, develop visual door valves and LTE sensing products. Other Asian customers we acquired during 2021 include ASAE, a leading robot vacuum cleaner brand in Korea. Prompton Greaves, a leading manufacturer of consumer electronics with 75 years of history in India. Usha International, with 80 years of history that's managed over 1,200 stores in India. And the Bajaj Electricals, the diversified consumer electronics arm of the India leading business conglomerates, Bajaj Group. In South America, we helped our new customer, Gopal, one of the largest department store chain in Mexico, build their own smart home ecosystem with more home appliances, safety, and wearable devices. We also worked with Service Intel SA, the largest telecom operator in Chile. In the UAS, our service offerings enabled Powerology, the leading consumer electronics distributor and brand in the region, to develop a series of IoT products such as smart cameras, robot cleaners, car refrigerators, body glass scales, and ambient lights. In North America, we acquired several new customers during the first quarter, such as the top outdoor show brand, the largest vacuum cleaner brand, and the leading kitchen appliance brand, and the Fortune 500 air conditioner brand.
spk06: In China, we have also gained a lot of trust from new customers. For example, we cooperated with small and medium-sized automobiles to create a smart car sharing product for small and medium-sized automobiles, and the smartization of self-driving car products under the GDC. China's well-known brand, Suixin, has gained the ability to obtain IOT from its own water-based products. And in 2022, it will continue to develop deeper cooperation in the field of intelligent sleep. This product includes sleeping pads, sleeping bags, and blinds. Zerli Group, a Chinese stationery office and farm enterprise, has been supporting its upgrade of many consumer products. We are also working with the free brand of the Chinese headquartered enterprise, Kaiji,
spk04: In China, we have also continued to win new customers. For example, we partnered with Xiaopeng Models to create in-vehicle intelligent consumer electronics products for them. We also helped to change our model cycle, a subsidiary of Jellybroke, to make their independently designed models and product smarts. We worked with Mercury Home Textile, a well-known Chinese brand, to upgrade its plumbing blanket products with IoT capabilities. In 2022, we will expand our partnership with Mercury in batting products such as tools, sleep valves, aromatherapy machines, and others. Another example is Deli Group, a leading stationery and office supplies company in China that's utilized our service to upgrade a variety of its best-selling consumer products. We also partnered with China's leading door-to-door company, Cadiz, and China's famous commercial lighting brand, Sanshong Aurora, for IoT implementation.
spk06: In 2021, our IoT part-time businesses around the world will show signs of healthy growth. At the same time, we are very happy to see that these product-based IoTs are growing in developed countries such as China and other Asian countries such as South America and Central America. This is in line with our strategy to build a more balanced global business, which shows that the trend of IoT is irreversible. After consumers in developed countries like to buy IoT products, consumers in developed countries are also quickly accepting and enjoying IoT products. We continue to expand the range of IoT that can be used. And in each new range, we are striving to gain global leading market share. According to EuromultiNet, and other professional statistics research institutions that have been influenced by the industry, we estimate that since 2015, we have gained more than 25% of the global market share. Since 2017, we have gained more than 15% of the global market share. In 2018, the size of the power generation was about 10% of the capacity. In the early days, there were about 20% of the capacity. In 2020, we started to introduce digital, entertainment, and household energy-related products. This year, we will launch outdoor travel and other new products. When we enter each new product, our goal is to achieve an objective capacity.
spk04: In 2021, our IoT path segment has maintained a solid growth trajectory in all regions around the world. We're excited to see that the growth rate of IoT business powered by emerging markets such as China and other Asian regions, South America and Central America has significantly exceeded that of developed markets. This trend is aligned with our strategy of building a more balanced global business The accelerating IoT penetration has further demonstrated the inevitability of IoT technology. As consumers develop the markets falling in love with IoT products, more emerging markets are quickly following suit. Additionally, we further expanded our categories and empowered new IoT products while striving to gain substantial worldwide market share in each new category. According to IoT industry data from influential professional statistic research institutions such as Euromonitor, we estimate that we have achieved more than 25% of global market shares in IoT lighting and electrical things entering in 2015. In 2017, we began to focus on home safety-related products like sensors, locks, if that's wrong, and we now have a market share of about 15%. In 2018, we expanded into home appliances and now have a market share of about 10%. In the robot vacuum cleaner vertical, in particular, we have a market share of about 20%. Since 2020, we have expanded into digital entertainment and consumer energy-related products. For 2022, we will focus on outdoor categories growth. For every new category we enter, our goal is to achieve a considerable market.
spk06: Next, I would like to share some updates on our SaaS and other segments, which delivered robust performance in the fourth quarter, with revenue increasing 205% year-over-year, about $19 million in 2021. For value added service, monthly subscription revenue of the end customer more than tripled in 2021.
spk04: Demand was strong for services such as cloud storage for IoT devices and a message pushing services that provides real value to end customers. We believe that there is still a lot of headroom for value-added services to grow in the long term.
spk06: In terms of SaaS, one of the five most developed companies in China is also one of the world's 500 most developed companies, mainly through the combination of smart residential and smart office SaaS. In terms of SaaS in Hong Kong, Morawi Group provides smart hotel SaaS and smart condo SaaS. Through Malaysia's well-known hotel system system 3 core system, the first powered by the main Malaysian smart hotel process, in the second quarter, it helped Changzhou Fengyou International Airport maintenance base to transform and achieve nearly 55% of the energy efficiency. Li Qianxie of Suzhou Guilinwee is in the industrial lighting field. In the fourth quarter, the development of the industrial lighting system has been upgraded. The lighting energy and carbon emissions after the renovation have dropped by about 65% and the carbon emissions have been reduced by about 270 tons per year.
spk04: We further expanded our customer base for sub-solution during the quarter. For example, we provided smart sub-solution for its industrial park and offices through hybrid cloud to one of China's top five power generator, which is also a Fortune 500 company. In addition, Zhongliang Holdings Group A large-scale real estate developer listed in Hong Kong integrated our IoT platform as well as our smart sub-solution for community and industrial park into its newly updated product concepts to build up their smart theme offerings, which will be regarded as the core system for its next-generation residential products. Moreover, we provided smart hotel SaaS and smart apartment SaaS solution to Grupo Morabo, a well-known real estate developer in Spain operating office buildings, hotels, and student apartments. We also partnered with CoreSystem, a well-known hotel system integrator in Malaysia, to provide solutions for the first smart hotel powered by Tuya in the country. Through our smart commercial lighting sub-solution, we enabled Suzhou Building with intelligent technology and industrial lighting leader who helped to renovate the maintenance hangar of Changzhou Bengyou International Airport and successfully achieved an almost 55% power saving in the second quarter, upgraded the factory lighting system of Fuxing New Materials which will reduce its lighting power consumption by about 65% and its carbon emission by about 270 tons in each year.
spk06: There are many similar customer cases. We believe that IoT SaaS business can improve the hardware and infrastructure of the cloud-based IoT, and realize the smartization of the industry for huge companies. And based on the scientific management of data, improved efficiency, given energy, and deep insight into business, there is a long-term growth gap.
spk04: There are many similar customers that leverage our solution to strengthen their business. We believe that our IoT SaaS business has immense growth potential. In combination with the massive power of the IoT hardware ecosystem, our SaaS solution can enable a huge number of enterprise customers with smart capabilities, improve their efficiency, reduce power consumption, and gain in-depth business insights through database system management.
spk06: Overall, we are happy with the performance of the first year since 2030, especially with the global economy being affected by the pandemic, inflation, and the supply chain crisis and logistics chaos in the entire industry. From active customers to registered developers, all of our business indicators have achieved significant growth. Our customer relationship is also closer.
spk04: In summary, we are proud of our performance in our first year as a public company, especially considering the significant economic disruptions caused by the COVID pandemic, global inflation, client-chain constraints and logistic disruptions. Our key operating metrics, such as the number of active customers and the number of registered developers on our platform, grew substantially. We also deepened our collaboration with customers. As the revenue contribution from our domestic business continues to grow, our global business is more balanced than ever before.
spk06: In 2022, due to the uncertainty of the outbreak of the war, the global high inflation continues to suppress the purchase power of C-Zone. It will still be a year of challenges for the IoT consumer electronics industry. But at the same time, we have also seen a clear improvement in the commercial supply chain and logistics. Part of the e-commerce customers affected by the third quarter are also recovering. We will use the high cost ratio of CUB10, to address the challenges of the red light environment. At the same time, we will also focus on improving the efficiency of internal organizations and realizing the balance of profit and loss as an important goal for growth.
spk04: As we look ahead in 2022, the uncertainty of geopolitical conflicts and the high global inflation will likely continue to suppress consumer purchasing power, while we expect 2022 to be a challenging year for the IoT consumer electronics industry. We have also seen significant improvements in upstream supply chain and logistics Additionally, certain e-commerce customers affected by store closures in the third quarter are also showing signs of recovery. Our plans to navigate the challenges in the macro environment through the three growth drivers, the private cloud solution, cost-effective smart light IoT solution, and our industry SaaS At the same time, we will focus on the optimization of our organizational structure and operating efficiency as we aim to better balance our business growth and the timeline to profitability. 虽然已经经历了七年的高增长,涂鸦仁就只触及了一点点巨大的市场机遇。 根据各类行业的研究,全球每年销售的消费电子产品有数百亿台,而IoT的渗透率目前仅3%至5%左右。
spk06: But all kinds of products will be connected to each other. In the next few decades, we will not see the ceiling board. With the current volume of TEM and our competitive advantage, we will invest in R&D in the foreseeable future. The Internet is currently at the stage of running around the world. We hope TEM can become a leading industry and realize the intelligentization of global equipment.
spk04: Even after seven years of rapid growth, we believe our time remains significantly under-penetrated. There are thousands of product categories that can be made smart with connectivity. According to Verizon Industrial Research, while there are tens of billions of consumer electronic products sold in the world every year, the penetration rate of the IoT solution remains low at 3% to 5%, where we can see the dramatic and existing future growth potential of the IoT market. To capitalize on the opportunities presented by the massive TAM, we intend to continue to invest in research and development for the foreseeable future. We believe the global IoT sector is at a land and expense stage, and we aspire to become an industry giant who sets the standards for the industry and connects devices globally. That concludes my remarks. I will now turn the call over to Jessie, our CFO, to review the financial details.
spk03: I will provide a closer look into our financial results. 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 mentioned earlier, we face a number of industry-wide challenges in both quarters. Nonetheless, we have achieved a total revenue of $75 million in the quarter, around three points of our previous guidance range. Our IoT PaaS revenue for the quarter grew by 13.9% year-over-year to $62.1 million. For the full year of 2021, total revenue was $302.1 million, up 67.9% year-over-year. And IoT PaaS revenue was $261.4 million, up 72.3% year-over-year. We had 311 premium IoT PaaS customers for the trillion 12 months ended December 31, 2021, up 65.4% from 188 a year ago. During the quarter, premium customers accounted for approximately 87.3% of our IoT PaaS Our dollar-based net expansion rate for IoT PaaS segment was 153% for the trillion 12 months ended December 31, 2021. This is a testament to our ability to expand our platform usage over time and grow revenue from existing customers. During 2021, among all the categories supported by our IoT PaaS solutions, home safety and sensor products home appliances products, and entertainment energy saving products grow at a significantly faster pace than electrical and the lighting products. In 2021, the electrical and the lighting category products contributed to about half of IoT PaaS revenue. And the contribution of other categories continue to increase in the past few years, reflecting the success of our category expansion strategy. As for our customer base, we classify our top 200 brand customers into four groups. First, well-known multinational brands. Second, regional brands with local influence in all continents and countries. Third one, self-owned brands of large regional retail channels and telecom operators. And the last one, China's cross-border e-commerce brands. In 2021, China's cross-border e-commerce brands accounted for about 30% of the sales of products powered by Tuya. During 2021, brands and business operators are increasingly recognizing the value of prepackaged industry-specific solutions, which enables them to focus on their own key points of differentiation while not wasting resources reinventing IoT industry standards. As a result, our revenue generated from SAS and others more than tripled to $7.3 million in the fourth quarter and $18.6 million in the full year. At the end of 2021, our smart hotel and apartment SAS cumulatively supported IoT upgrade of more than 40,000 hotel rooms in China, nine times at the end of 2020. and the customer repurchase rate exceeded 85%. Our smart commercial lighting staff supported nearly 300 commercial lighting projects in 12 countries and regions, including China, Singapore, Germany, and the Netherlands, United Kingdom, Canada, etc., in office buildings, sports clubs, gas stations, shopping malls, and a lot of other use cases. This project also includes more than 100 schools providing students with lighting for improved eye protection. Our community and real estate staff was adopted by more than 100 real estate community projects in 2021 to help real estate developers and the property managers to manage their properties more efficiently. Our gross profit in the quarter increased by 34.1% to $32.4 million, while growth margin improved to 43.2% from 38.3%. IoT PaaS growth margin continued its increase to 42.5% from 40.1% a year ago, primarily due to our increased economics of scale, improved efficiency for IoT PaaS deployment achieved through effective R&D and expansion into higher margin IoT PaaS product lines. We believe our increased IoT PaaS growth margin is a testament to the strong value that we deliver to the industry chain. Now turning to our operating expenses, please note that we are presenting our operating expenses on a non-GAAP basis by excluding share-based compensation expense from our non-GAAP members to provide greater clarity on the trend of our actual operating base expense so that you can review performance in the same way as our management. During the quarter, our non-GAAP total operating expenses was $6.3 million. Specifically, non-GAAP R&D expenses grew to $42.1 million. Non-GAAP sales and marketing expenses increased to $16.8 million. Non-GAAP CNA expenses increased to $9.1 million. And other operating income net was $1.7 million compared to $0.7 million a year ago. The increase in the non-GAAP total operating expenses was mainly due to the increase in employee-related costs. Our research and development employee headcount, for example, increased by 56% year-over-year by the end of 2021. We are committed to building a sufficient reserve of talent, which we believe is an integral part of our efforts to navigate external challenges and to sustain the long-term growth. We are also executing a series of initiatives to optimize our organizational structure and streamline our operating procedures in order to ensure our operating efficiency. As such, we are constantly evaluating our personnel structure to maintain a workforce size that is appropriate to our business scale and the long-term growth strategy. Our non-GAAP loss from operation was $33.9 million in the fourth quarter and $117.5 million in the four years. Our non-GAAP net loss was $31.2 million in the fourth quarter and $109.3 million in the four years. Net cash used in operating activities in the fourth quarter of 2021 was $53.2 million, or 71% of total revenue, compared to $9 million net cash used, or 14.3% of revenue, in the same period of last year. The increase was mainly a result of higher employee-related expenses and the changes in our working capital. Moving on to the balance sheet, as of December 31st, 2021, our cash, cash equivalents, and short-term investment increased to $1.07 billion. We believe this balance is sufficient to meet our current liquidity and working capital needs. Finally, turning to the share repurchase, during the fourth quarter, we repurchased approximately 4.3 million ADS from the open market for total consideration of approximately US dollar $25.1 million to the share repurchase program, representing around 12.5% of 200 million authorized announced pursuant to the share repurchase program. This shows our strong confidence in the company's long-term growth prospects. Now turning to outlook for the first quarter of 2022, we expect total revenue to be in the range of $50 million to $57 million. As you can see, this is a rather large range considering that we are two weeks from the end of the quarter. and certainly wider than the ranges we have given in previous earning reports. So let me explain. Historically, majority of our revenue for the first quarter of the year was recognized in March due to the Chinese New Year holidays. As of today, we have a good visibility on demand, and there's a substantial volume of our products to be delivered in coming two weeks end of March. But the sudden severe COVID outbreak in China is causing uncertainty on to revenue recognition because we can't recognize revenue until our products are delivered and are confirmed receipt by our customers. This is currently a challenge as a number of cities including Shenzhen, Shanghai and Hangzhou are implementing preventive measures while people remain staying at home or pause business activities. we may experience practical logistics difficulties. Depending how things unfold in the next couple of weeks, We could have substantial delivery in some stage of delay. Having said that, we fully expect orders placed and paid, which will eventually make it to our customer and be recognized either in Q1 or Q2. Nonetheless, we are very cautious at this moment. That's why we have provided our outlook in a relatively wider range. We plan to provide an updated guidance for our total revenue for the first quarter of 2022 around the end of March, when we have more clarity regarding the severity of the above-mentioned logistics challenges. So this concludes our prepared remarks for today. Operator, we are now ready to take questions. Thank you.
spk02: Thank you. To ask a question, you'll need to press star 1 on your telephone. And to withdraw a question, press the pound key. As a reminder, when asking the question, please state your question in Chinese first, then immediately repeat your question in English for the convenience of everyone in the call. Please stand by while we compile the Q&A roster. Your first question comes from the line of of Morgan Stanley. Your line is open.
spk00: Thank you very much for the opportunity to ask questions. I have three questions. I will first speak in Chinese and then translate it into English. The first question is about our IOTPath overseas and global customers. Have they changed in the context of the Ukraine war in terms of their year-round demand for 2022? The second question is about SaaS and VAT. We saw a very fast increase in 2021. In 2022, what will be the growth strategy? And will the driving industry at the core still be like hotels or shopping malls, or will there be some new areas that can come out? Let me translate my questions. The first question is about the IoT path growth outlook from multinational customers. or the global brands after the Ukraine war, whether there's any meaningful change for the full year outlook. The second one is the south and VAT part. We saw very strong revenue growth last year. And going into 2022, what should be the growth strategy here? And which vertical we expect to see a very good growth potential in addition to hotel and commercial lighting? And the third question is the growth margin outlook in current improving environment of supply chain. Thank you.
spk03: Thank you, Liu Yang. So for the first question, we are keeping a close eye on inflation in economic conditions since they directly impact consumer demand. And that's indirectly impact us. Inflation has been accelerating since the third quarter of the last year. We have all seen the numbers. I'm not going to repeat. In Europe, the market is increasingly optimistic about the economic growth expectation. And also same in the US. So we think inflation is suppressing consumption and the non-essential consumer goods will be affected the most. We can see that retail channel and the brand owners have become cautiously pessimistic since the third quarter of last year. This sentiment is gradually increasing and we haven't seen signs of recovery yet. The recent geopolitical conflict, the Russia and Ukraine war, further intensified inflation, especially in Europe, which escalated the situation. Recently, we collected feedback from our downstream brand customers in Europe and the United States. So, for example, in Europe, the sales of IoT lighting products was worse than that of traditional lighting products. against the backlog against the backdrop of high inflation this is a common trend when consumers are under financial constraints cheaper traditional products are more attractive another obstacle is that some brands are struggling to make a profit due to the the high inflation of upstream costs since last year so the shop increase And also the sharp increase of the transportation costs since summer of last year also pressures their margins. And they can't really, when they can't raise their selling prices in the retail channel, because retail channel was facing the pressure of consumer not buying more products. In that case, even when shops and the inventories are close to empty, all empty, brands are reluctant to sell produce their products. They'd rather wait for the upstream cost to drop significantly before placing other orders. So as a result, we believe the consumption will improve after inflation has moderated. And the cost for the upstream supply chain and the logistics decreased significantly close to back to a normal level. And we also noticed the sales channels of some IoT products powered by Tuya, for example, including Best Buy, have already given 2022 revenue guidance as a negative growth. As such, we remain cautious toward 2022 of the challenging macro environment. We will prioritize categories where IoT products are not too expensive than the traditional IoT products, such as home sensor products, home appliance products, entertainment products, outdoor transportation products. We also will help some IoT products to reduce the cost by adopting Bluetooth smart solution that are more cost effective. Our SaaS business is conducted in China and is expanding very rapidly, which we aim to sustain this high growth in 2022. We will also focus on the optimization of our operational efficiency in 2022 to accelerate our breakeven timeline. For the question two, about SaaS. So we are mainly focused on developing our SaaS business in China. The focus has yielded encouraging results in 2021. So we will continue this focus, although we do receive revenue outside of China for SaaS products as well, but our focus will remain in China in 2022. We tailored the strategy for each SaaS segment It's quite different. As well as our extensive hardware ecosystem and software experiences, we expect all our SaaS segments to continue to post robust growth in 2022. The first one, the hotel SaaS. So for this segment, we already covered over 2,000 hotels. After two years development, we already proven the market success of our SaaS products. The development strategy in 2022 is to focus on three initiatives. First, expand our coverage to build our competitive mode to enhance our industry influence and profit margins, solidifying the foundation of recurring revenue. Specifically, we plan to build standard-set solutions and increase our penetration into mid- to long-tail markets by expanding our sales channels in the hotel and apartment verticals. Second, we also plan to focus on acquiring the big clients, the famous hotel chain and key accounts customers. And also giving the big customers access to our IoT core, Tuya Cube, and Industry Start Service. We will build out our industry path and prioritize products. The third one, we aim to increase our software subscription revenue by developing a hotel solution. As we continue to power more hotel rooms, we will be able to generate additional subscription revenue on top of the hotel staff. The second one is the real estate and the community staff. This business line achieved solid progress in 2021 and actually with the largest revenue and growth among three businesses. As we further strengthen our community and residential SaaS products, we have become the preferred IoT platform in China for top real estate and property management firms. Last year, over 150 real estate and community projects were built on our real estate community SaaS. And also, our real estate SaaS covered more than 70,000 households last year. Currently, we have thousands of large-scale community projects in hand, including a number of projects with a value over 1 million RMB. The strategy focuses on real estate and SaaS community business. In 2022, we'll be developing the major large Chinese customers deep in the collaboration with city partners. and expanding into industry-packed categories. We will realign our products with IoT Foundation, the PaaS, and the real estate community staff, as we support several collaboration models, such as out-of-the-box solution, integrated solution, developer capability tools, to separate applications from hardware and software. This will allow large-scale customers to pick and choose a flexible product based on their needs and quickly achieve their business goals. In addition, we also want to continuously expansion the applications in new users' case. The development of online capabilities such as online ordering and open framework that supports third-party applications will enable our real-time community SaaS products to interface with third-party hardware as an ecosystem. This will be our core competitive strength and a key factor to improve a customer's purchase decision. And for the commercial lighting segment, we completed the business goal of our commercial lighting stock segment in 2021 in terms of product iteration, customer acquisition, landmark projects and scaling up our use case. In 2021, we served approximately more than 180 commercial lighting SaaS customers. In the fourth quarter, we also launched our first smart building SaaS project based on the newly developed smart building SaaS on the foundation of our smart commercial lighting solution. In 2023, we have three major growth strategies for our commercial lighting SaaS segment. First, we focus on penetrating large customers as well as building and commercial lighting brand owners by forging partnership with system integrators and independent software vendors with resources. We will launch more landmark projects. Second, we will develop value-added services such as human-centric lighting, energy-saving solutions, provide a cloud edge, services to certain customers with a private cloud need. Lastly, we plan to improve our integrated hardware and software solutions for each user's case to accelerate their deployment at a large scale. So we believe that IoT SaaS has solid market demand and long-term growth prospects. So in 2022, we will continue to invest in this area. For the third question regarding the growth margin, so Regarding the pricing of IoT parts, our committee always focus on a few standards. It's the industry, the environment, the upstream, downstream operating conditions. Second one is our cost. And thirdly, we also consider the end product sales price. Our pricing strategy always focus on a mutual benefit along the value chain and also our own health growth. The expansion of our gross margin in the last few years come from three perspectives. First is the IND efforts helped us optimize controlled cost. Secondly, it's revenue generated from segments with higher margins, such as home appliance, home safety and fences, entertainment, energy saving. Those have rapidly rolled to almost 50% of revenue. Thirdly, we're benefiting from the increasing economic skills. So looking forward to 2022, supply chain costs, we believe, is stabilized, although it hasn't dropped. However, high inflation could create significant sales pressure downstream. So as such, we plan to keep the price of IoT PaaS stable. We will continue to improve our cost structure through IMD efforts. and also continue to increase the revenue contribution from the complex products, as we mentioned earlier, which have a higher margin. Also, for the company as a whole, the revenue contribution of the SaaS segment will further increase this year. So all this will help us to expand our growth profit margin. However, to cope with the high inflation this year, we will also promote the cost-effective Bluetooth speaker products, For those products, the IoT products cost has a higher price or obviously higher price percentage than the traditional products. So that could, those Bluetooth beacon products have a lower growth margin versus other IoT parts like Wi-Fi or ZigBee, et cetera. So as such, as a mixed result, we expect our overall growth margin to be flat or slightly higher than last year. But of course, our goal is to try our best to increase our growth profit margin. So let's move on to the next question.
spk00: Thank you.
spk02: Your next question comes from the line of Li Pingchao of CICC. Your line is open.
spk01: Thank you, Jerry, and Jesse for accepting my question. I have two main questions. The first question is about Meta. I want to ask how the management team sees the impact of Meta. Is it because it is mainly used in the domain network, so the overall impact of the company will not be too big? Then the second question is about the adjustment of the business. Because as I mentioned earlier, in 2022, the demand and supply chain may still be affected by the fluctuation of the red light environment. I don't know if the company has any step-by-step adjustments in the internal business development to alleviate this risk. I will translate it myself. Thanks, Jerry and Sophie, for taking my questions. I have two questions here. First is related to matter. Can management share your view of matter and impacts on your overall business? And second is about the business adjustment. Because looking ahead in 2022, customer demand and supply chain are still under pressure due to the medical economic environment. Do you have any adjustment of business operation to mitigate these risks? Thanks.
spk06: Meta is focused on the technology characteristics of HomeKit, OpenStread, and CWB 3.0. It is focused on the smart home area and faces the local Internet of Things. It is also advantageous for many influential companies, especially global giants, to participate in the development in an open way. It will accelerate the standard of popularization and promotion. It will have a very good impact on the improvement of the low penetration rate of a family-specific IoT. The current limitations of META are many. First, META's protocol does not cover the cloud standard. Second, META only supports data transmission. Third, META may face a problem with the standardization of this B protocol. Fourth, META will be challenged by other main protocol, especially BLE Mesh. Fifth, the cost of the main chip required by META will be higher. So what Tuya does is to provide a whole set of cross-system, cross-chip platform, cross-communication protocol, cross-modal, a complete solution from the end to the cloud. It is very good at solving the problem of levelization through platformization. Tuya's development of Meta will also accelerate the construction of cross-brand levelization. At the same time, Tuya will also solve the problem of levelization of Meta protocol, which leads to the failure of levelization. So we provide a mutual communication capability between Meta and other companies, and provide a standardized IoT product capability for the market. Chuya will also integrate Meta, just like Chuya integrates a variety of communication agreements. On February 22nd this year, the Wall Street Journal published a article about Meta, which showed that AppDemo is Chuya's. This also shows that Chuya has a wide influence in the IoT path field, and Chuya has a good relationship with Meta.
spk04: Let me address the question by first clarifying what MATE is. It is an IoT protocol formed by integrating the technical characteristics of HomeKit, OpenThread, and ZigBee 3.0. The integrated protocol focuses on the field of smart homes and the local interconnections. Having multiple influential enterprises developing the protocol together in an open source format will accelerate its adoption, which in turn will help improve the low penetration rate of IoT in home appliances. There are five key limitations that Matter is facing currently. First, Matter does not cover cloud connection protocols. Second, it only supports narrow band data transmission. Third, Matter may experience problems with Big B's fragmented protocols. Fourth, Matter will be challenged by other network protocols, such as BLE Mesh. And finally, chips that can meet Matter's requirements are more expensive. So our full suite of solutions excels at solving fragmentation problems at all levels through a platform-oriented approach We unified our solution across different systems, chips, network protocols, and IoT models to provide connections from terminals to the cloud and apps. Our joint development with Matter will definitely accelerate the connection across different brands. Meanwhile, we will also adjust the inability to connect due to the Matter's fragmented protocols, as well as building connections between Matter and other protocols. These initiatives will improve the differentiation and the overall capabilities of IoT products on the market. Tuya will be compatible with the Matter protocol, just like we are compatible with multiple other network protocols. In an article about the progress of Matter published by the Wall Street Journal on February 22nd, the only app demo displayed was Tuya's which not only showcased that our extensive influence in the IoT path field, but also highlighted the synergies between Tuya and MATA. Okay.
spk03: So second question, before I dive into specific strategies for 2022, I want to reiterate, Tuya always focused on fundamentals of the business. His first, forming overwhelming competitive advantage. Second, gaining unrivaled market share. With a challenging microenvironment, our focus is to strengthen the core value position of products, improving customer satisfaction, and enhancing our operational efficiency. During a period of consolidation, the weak will be eliminated, and the industry leader will gain more market share. So with $1 billion cash on hand, we are well-positioned to weather the temporary storms and to capitalize on strategic opportunities that are set to emerge. So come to 2022. So first, let me talk about our key strategies, our supply chain. So in 2021, we have accumulated extensive experiences in managing the supply chain crisis. We forged a close partnership with core upstream suppliers and earned their trust. This enabled us to secure the necessary production capacity ahead of time. Now in 2022, the supply chain crisis is easing. Although there are still partial shortages, we have solutions in place as we already expanded and refined our list of suppliers in the second half of last year. Coming to the revenue strategy in 2022, we have three main strategies to cope with a difficult environment. First, China. we are increasing the revenue contribution of China. Although China has also micro challenges, our IoT path business in China is still in its early stage and has a big headroom for growth. So take last year for example, our domestic IoT path business grow at a much faster pace than Europe and the US. and also more than 90% of our SaaS revenue is from China. So we will continue to invest in China's past and SaaS business in 2022. Second is the Tuya Cube, the private cloud product. We launched our private cloud product Tuya Cube last November. This product is designed for brands and enterprises that only adopt private clouds to leverage our IoT capabilities. Tuya Cube is capable of fulfilling customers' need for local IoT deployment as it enables enterprise to quickly build their own private IoT platforms with differentiated services, high efficiency and stability while keeping their data completely private. Through the hardware interconnected standard built by Tuya, Cube can seamlessly access Tuya's extensive hardware products ecosystem. So 2i2 will mainly serve customers that have already developed their own in-house IoT platform or are planning to do so. We can also provide hybrid cloud and edge computing products. We have completed almost 10 private cloud edge computing hybrid cloud projects so far. We have more contract projects waiting for delivery from telecom giants in China and also telecom giants in Southeast Asia, as well as well-known domestic and overseas brands. In the IoT sectors, 30% of customers use third-party platform like Tuya, while actually 70% of them develop their platform in-house. So we believe that Tuya Cube will enable Tuya to penetrate that 70% in-house market. The third one is on the product lines of the past products. We have gained market share over 10% in every major product category we have operated in. Jerry just talked in his script. The dominance of our products have formed a solid foundation for us to further expand our market share in every major category to a point that no one can challenge to yet. This year, we'll focus more on household appliances, outdoor appliances, home safety and essential products. Since the start of inflation last Q3, we have observed these categories have shown a much faster growth rate than lighting and electrical products. Even the current level of inflation, we will implement cost-effective life smart solutions to produce products that are more price sensitive. This improvement should enable us to deliver superior customer experiences at a lower cost to boost our sales. So our unique ability to integrate software and hardware since our inception can help brand customers equip their products with IoT capabilities at lower cost. Facing an inflation crisis, we believe this will be a core value for enterprise customers. We are both in awe and wonder of 2022. We might be at the dawn of a global economy recession, but winter will eventually pass and spring is sure to come. So we will be ready for the eventual opportunities. Thank you for the question.
spk01: Thank you.
spk02: There are no further questions at this time. I'd like to hand the conference back to our management for closing remarks.
spk03: OK, thank you again for our course. 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 course. Thank you.
spk02: this concludes today's conference call thank you for participating you may now
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