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spk07: Good morning and good evening, ladies and gentlemen. Thank you for standing by, and welcome to 2YA Inc's 3rd Quarter 2023 Earnings Conference Call. I'll now turn the call over to the first speaker today, Mr. Raj Chai, Investor Relations Director of 2YA. Please go ahead, sir.
spk02: Thank you. Hello, everyone. Welcome to our 3rd Quarter 2023 Earnings Call. Joining us today are founder and CEO of 2YA, Mr. Jerry Wang, and our CFO, Mr. Jesse Liu. The third 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. Wang. Jerry will deliver his remarks in Chinese, which will be followed by corresponding English translation. Thank you.
spk01: 大家好,感谢大家参加图亚2023年Q3的业绩电话会议。 Hello everyone, thank you for joining the Tuya 2023 Q3 Earnings Conference Call. 首先,很高兴向大家汇报,在刚过去的2023年的第三季度,我们的总收入约6,110万美金。 Since the end of 2021, Q3 has entered the low-end cycle of the industry and the economy to hold the same growth rate of 35.7%. If the exchange rate is affected, it is about 43% of the same growth rate. Q3's comprehensive trade rate is still very stable at 46.7%, keeping the highest level in history in the second quarter. Under the strategic implementation of price-to-performance effects and business focus, Our NAND GAAP overall operating costs and expenses continue to decline. Q3 continues to compare with a significant decrease of 26.2%. As a result, our NAND GAAP net profit has been reflected as a further significant increase, reaching $10.1 million, which is nearly 5.7 times the increase. The quarter net profit is 16.5%, In addition, our operating cash flow has increased significantly. The net cash flow is about 16.1 million US dollars. Our net cash flow in Q3 is 9.61 billion US dollars. We continue to work hard to protect and support the company's financial development. Overall, the third record is a record of an all-round increase in various important financial indicators. It is a record of the cycle of the industry that is about to leave. Although the exchange rate There is still pressure on selectable consumption. But as the recovery period gradually ends and the company recovers to the growth period, we will continue to focus on three key points. First, focus on and expand the customer base under the premise of efficient operation. Second, continue to improve product power. Third, enter the industry outside the field of consumer electronics. We are well prepared to fully serve the IoT industry.
spk03: Total revenue for the third quarter of 2023 reached $61.1 million, marking a return to year-over-year growth since the industry and economic downturn at the end of 2021. Revenue grew an impressive 35.7% year-over-year, or approximately 43% when adjusting for exchange rate fluctuations. We again achieved a record overall gross margin of 46.7% for the second consecutive quarter. Our firmly focused on cost reduction and operating efficiency improvements resulted in a 26.2% year-over-year decline in our non-GAAP total operating expenses in Q3. More importantly, our non-GAAP net profits soared to $10.1 million an increase of almost 5.7 times sequential, representing a net profit margin of 16.5%. Net cash flow from operations improved both year-over-year and sequentially, with a net inflow of about $16.1 million. Our net cash position at quarter's end was a strong $961 million, underpinning our long-term strategic development. Overall, The third quarter saw robust improvement across all key financial metrics, signaling a positive turning point as we navigate out of the industry's cyclical downturn. Despite persistent challenges like fluctuating exchange rates and subdued consumer spending, our impressive performance in Q3 underscores our readiness for the post-destocking cycle and a broader recovery in the IoT sector. As we look ahead, we are committed to expanding our quality customer base, enhancing product strengths, and venturing into new markets beyond consumer electronics.
spk01: Let me now share more detail about development things to start off the third quarter. especially in the right sector of IOT companies. Due to the limited competitiveness of the industry, the ability to make profits is not good, and the investment can not be firm, etc. are the factors that affect the output of investment. And more top brand customers, in order to pursue better and higher efficiency, more profit and cost-effectiveness, are more willing to try the third-party IOT platform. This is an opportunity. Compared to two years ago, we feel that we have better global influence and competitiveness.
spk03: In terms of our customer base and competitive positioning, our IoT PaaS business has weathered nearly two years of industry downturn. During this challenging period, several competitors, particularly IoT divisions of large enterprises, exceeded the market due to limited competitiveness of their products. and uncertain investment returns. This shifts the open opportunities for Tuya. As we feel that we now have better global influence and competitiveness compared to two years ago, to attract the more leading brands seeking efficiency, improve the margins, and cost effectiveness in third-party IoT platforms. We forge new collaborations with top-tier customers, such as Media, for its overseas home-applied Hyatt and Bull for new energy product IoT platform, and Bosch for smart door lock solutions.
spk01: We are also committed to getting customers from all over the world through different strategies and products, and to promote our competitive position in the global market. Our product strategy, such as solid software, solution solutions, and other products, is to support and support strategic customers and the market, and to successfully achieve scaled income. Meanwhile, we warm and serve customers worldwide through differential strategies and innovative products.
spk03: This approach solidified our competitive standing globally and enabled us to effectively cater to unique market demands. The integrated hardware and software solution product strategies we initiated this year is already yielding strategic new customers and wins scalable revenue growths, for example, like Europe, America, and Japan. We actively participate in the bottom matter and with technology and the products as our focus at the forefront of the global application and commercialization matter, complementing our IoT ecosystem, expanding our global influence in the IoT2P service race.
spk01: In the IoT new market area, such as Shutter, we have built a high-performance, local-specific, standardized set-up to steadily advance. In Africa, we used the software of Net Zero to develop a solution that is suitable for the unique price and demand of Africa. We successfully acquired an order of POC from a famous African-American chain that has more than 200 stores in South Africa, and we are full of confidence in the success of the recovery. The developer platform of South America, Toyota, is in the mode of China's factory success, and it is also suitable for local manufacturing in Brazil, and the temperature controller and water purifier in the head of Brazil
spk03: In emerging markets like Saudi Arabia, our ability to provide cost-effective customized solutions led to breakthroughs with two major operators. In Africa, our natural software and hardware integrated solutions tailored to unique electricity pricing challenges led to a POC order from a renowned supermarket chain with over 200 stores in South Africa. Importantly, our initial success in Africa can be repeated across the region. Furthermore, in South America, the Tuya developer platform successfully replicated our Chinese OEM model to support local manufacturing in Brazil, with leading thermostat and the water purifier factories seeking our software solution for device management systems.
spk01: In addition, we can see that the third channel is as well as the huge market for small electronic devices such as telecommunications, sensors, and outdoor use. This will help these high-end brands to quickly expand, promote, and attract middle-end users. Therefore, in the past two years, we have persisted in the long-term support of the new Chinese e-commerce brand that has the potential to grow on the e-commerce platform. For example, in the previous ten years, such as in Amazon, there has been an increase in the number of digital and digital customers in the field such as indoor and outdoor use,
spk03: We are optimistic about the e-commerce channel as a huge market for practical consumer electronic devices like smart electricals, dancers, and outdoor products, helping these lightweight categories achieve market promotion, distribution, and end-user aggregation. Over the past two years, we have consistently supported potential Chinese e-commerce brands in growing into leading brands. For instance, several Tuya customers are now prominent in Amazon's top 10 in smart sockets, outdoor sockets, and Bluetooth mini locks. We are unwavering in our commitment to product focus, innovation, and improvement.
spk01: low-emission audio-video resolution solutions, and home-use door-to-door products have grown by more than 100% compared to Q3. The overseas products of the CCP product line, such as rose products, have improved further. The domestic industry has improved the ability of the industry to install pre-installed market engineering, and integrated the ability of smart home-based buildings and clouds for cloud-based solutions.
spk03: In the third quarter, after 18 months of development, our laser-sweeping robot vacuum solution reached mass production. Our low-power audio-video solution for smart door locks benchmarked against industrial leaders also achieved the mass production, with the pro version of our home door lock product's Q3 deployment volume increasing by over 100% year-over-year. We have also enhanced our overseas central control product lines such as the US-backed product metrics and added industry capabilities for pre-installed market engineering installations in China. Our smart central control large-screen integrating local building intercom and cloud intercom capabilities innovatively bridges indoor and outdoor intelligence.
spk01: We also want to strengthen the ability to build traditional products, such as will contribute a considerable amount of market size in the long-term development of IoT consumer electronics. We see that the demand for lower-end IoT devices for these new models is further recovering, and we are committed to helping customers to seize opportunities, such as the smart charging solution of our newly released dual-screen router to solve the problem of middle-end users' more common mixed-circuit routers, and greatly improve the success rate and experience of the software. Atria is the customer of the solution, and the sales of the brand has already skyrocketed on the Amazon platform.
spk03: We continue to strengthen our traditionally strong categories like smart electrical, which will remain significant contributor to the IoT consumer electronic sector in the long term. We are seeing downstream demand recover for these smart, light, practical IoT devices. We are committed to helping customers seize opportunities. For example, we released the Dolgram router smart socket solution to address the common issue of mid-band routers. significantly improving the network pairing success rate and experience. A3, a customer of this solution, has seen its brand sales explode, now ranking in the top 10 on Amazon's platform.
spk01: We have made a breakthrough in the field of electronic consumption. We will add more and more professional IoT capabilities. In Q3, our new employees and travel products are even more perfect. New employees are available for full-time use. The first-level等和APP has been released. perfecting the transition from energy monitoring to energy load communication in family energy management scenarios. Global leading state-of-the-art brand companies such as iXU, Hengdian Dongzhi, etc. have selected Tuya Outpass in their new energy storage business. Tuya's industrial system in the warm-air and hot-air unit product has basically fulfilled the full function of the industry's mainstream needs and is about to further realize the hardware avoidance of the free system. In terms of initial product lines,
spk03: We are actively working to expand beyond the field of consumer electronics, bringing 3S material allocation capabilities to more specialized areas. In Q3, we further refined our new energy and outdoor transportation products. For new energy, we released an integrated app supporting the storage, charge, and use of solar power, completing the energy management use case from energy monitoring to energy low-link scheduling. Global leading photovoltaic brands like EcoSolar and the DMEGC Pengdian Dongzi Group have chosen Tuya's IoT Pass for their new energy storage business. In HVAC integrated products, Tuya's industrial subsystems have basically achieved the full functionality for mainstream industrial demand and will soon form its close-to-loop solution with the system hardware. As for outdoor products, our 4G cellular ECU central control product has landed on eBike products. Besides focusing on high-quality, innovative, and valuable products as our core competitiveness, we are meeting the emerging needs of large group private clouds with our CubeSmart Private Cloud comprehensive solution. For example, we have made good progress in Southeast Asia real-estate cubes. Lastly, let's talk about the continuous growth of Tuya's foundational developer platform and ecosystem.
spk01: need to be resolved using the official support of Tuya. We have integrated and sorted out the development platform IoT.tuya.com, the developer website developer.tuya.com, the developer document center, and other developer products. In addition, the new developer forum community TuyaOS.com will provide more public resources and discussion spaces for developers so that they can use the community In the third quarter, we focused intensely on the foundational pillars of PaaS 2.0. These pillars encompass four category interconnectivities, seamless interoperability
spk03: operational ability, rigorous security standards, independent and manageable development process, and distinct product differentiation. Our efforts were channeled towards refining the developer experience, significantly enhancing both usability and operational efficiency. This strategic move has further empowered developers, granting them greater independence from the need for direct support from Tuya. In line with this, we have unified and restricted our official website, developer platform, alt.2ya.com, developer site, developer.2ya.com, and developer documentation center. Additionally, we launched a brand new developer forum at 3w.2yaos.com. This platform acts as a dynamic hub, offering extensive resources and collaborative spaces where developers can change ideas, troubleshoot challenges, and unleash their creative potential. Marking a significant milestone, the number of developers registered with Tuya soared to about 909,000 by quarter-end, reflecting an impressive year-over-year growth of approximately 40.5%.
spk01: In addition, we focus on building a high-performance platform in the 3E field, helping our brand customers better develop their personalized 2B business, We also emphasize the application empowerment of the developed platform in the commercial sector.
spk03: This approach is designed to empower our brand clients, enabling them to craft and refine bespoke 2B solutions. A prime example of this strategy in action was at our developer conference this September, hosted at the Zhongshan Station in China. During this event, we signed a cooperation agreement with Osram. With the advanced commercial functionalities of the 3DLT developer platform at our disposal, while collaboratively guiding Osram in developing their own distinctive hardware and software integration. This Osram branded solution encompasses areas such as entire homes and real estate, hotels, rentals, commercial lighting, and the building management around others.
spk01: Yifan, I shared with you the strategy and product strategy of our business. All of these have been implemented We will continue to balance the growth and profitability to the value of customer, industry, shareholders and employees.
spk03: In conclusion, I have shared with you today the concrete outcomes of our strategic initiatives in business and product development. These accomplishments are a testament to Tuya's dynamic response and the strategic recalibration in response to the challenges we have faced over the past two years. As we approach the final stage of inventory normalization and witness the LG consumer electronics sector steadily finding its footing, We are confident that our persistent efforts will yield sustained positive results. These strategies are set to guide to a path of health growth, ensuring we are profitable and efficient. Going forward, we are focused on striking a balance between growth and profitability, thus ensuring we create enduring value for our customers, the wider industry, our shareholders, and our dedicated employees.
spk01: That concludes my remarks.
spk03: Next, I will hand over to our CFO, Jesse, to introduce our financial data.
spk00: That concludes the remarks by Jerry. As I review our results and provide more colors on the numbers, please note that all amounts are in US dollars, and all comparisons are on a year-over-year basis, unless otherwise stated. In the third quarter of 2023, our total revenue reached 61.1 million, up 35.7% year-over-year, and continued to show a strong sequential improvement over the past four consecutive quarters. Similarly, during the quarter, we were still under depreciation impact of the IMB against the USD, which adversely hits our total revenue by 7.3% points. Our IoT PaaS revenue in the third quarter was 45.8 million, a year-over-year increase of 48.1%. In terms of categories, in the third quarter, the most impacted discretionary consumer electronics categories over the past two years, smart lighting and electrical products constituted the main force of this year-over-year rebound, with the segment revenue growth about 140% year-over-year. Small and big home appliance grew by 50% year-over-year. The third quarter of last year was the most severe time for downstream destocking, and the growth of this quarter benefited greatly from the end of destocking cycle. Moreover, with the execution of product focus and enhancement strategies, our core product lines such as vacuum robots, breakers, and home locks with technological depth have grown by approximately 100% to 180% year-over-year. Regarding customers, our third quarter revenue primarily driven by the recovery in customer order size and improved customer revenue efficiency. Taking our main IoT PaaS business as an example, our premium customers' IoT PaaS revenue per customer in the third quarter increased by 56% year over year. And the same metric for ordinary customers also grew by about 49%. Overall, our platform and the product served over 3,000 customers in the third quarter, with an average revenue per customer exceeding $20,000, setting a new historical high. Our smart device distribution business, now maybe more aptly called IoT Smart Device Solutions, achieved a revenue of $6.8 million in the third quarter, a year-over-year increase of 32.1%. With the continuous advancement and the implementation of the smart device solution strategy, we are now quite proficient in this business model and continue to generate robust, scalable revenue. For instance, the smartwatch solution alone secured about $3 million of orders in the form of finished devices in Japan since this Q3 to be delivered according to customers' demand schedules. The smart tech locator solution also contributed significantly to orders and revenue and so on. Our SaaS and others business had a revenue of 8.5 million in the third quarter, reflecting a 5% year-over-year decline. Excluding the exchange rate impact, this segment's revenue in the third quarter was actually relatively stable, showing a slight increase in trend year-over-year. As a collection of Cube, smart private cloud, value-added services, and the customized software, and also various sub-segment of SaaS, they show different trends according to business strategy and execution. For example, the cloud storage value-added services contributed about $2.5 million in revenue in this quarter, maintaining a very robust and a continuous month-over-month growth. The acceptance and the delivery of the Qube private cloud project generated over 5 million RMB in revenue. Customer development and some other new customer number-based one-time value-added services decreased by about 15% to 20% year-to-year under the execution of our customer focus strategy. We're focusing on expanding high-quality customers. Going forward, we anticipate a gradual shift in South and other business segments toward a more core business-centric structure. Regarding the overall revenue recovery in different regions, we have observed healthy growth in Europe, Southeast Asia, and Latin America. Our blended growth margin in the third quarter was 46.7%, sustaining the historical high level for the second quarter. Each of the three business segments exhibited strong margin profiles. Notably, the gross margin of the smart device distribution segment in the third quarter reached 26.9%, a substantial increase from 12.9% in the same period last year, setting a new historical high. We believe that the gross margin is the most direct reflection of the value of our smart device solution. Moving on to our operating activities and the related expenses, we are presenting our operating expenses on a non-GAAP basis by excluding share-based compensation expenses and credit-related impairment loss from our GAAP numbers. We believe this provides a better clarity on the trend of our operating expenses, aligning with how our management team reviews our performance. In the second quarter of 2023, our non-GAAP total operating expenses decreased by 26.2% to $32 million, from $43.4 million in the same period last year. Our employee-related costs, excluding share-based compensation, declined by $28.9 percent year over year in Q3. And the costs related to offices and the property leasing concurrently decreased by 13.9%. Collectively, this cost represented about 74% of the total of our non-GAAP operating expenses in Q3. As of now, our team size has been adjusted to a relatively stable state at just under 1,500 headcounts. Marketing and promotion expenses decreased by 23.9% year-over-year. This disciplined approach to cost control of promotion expenses coupled with a noteworthy rebounding revenue served as a testament to the importance of operating with efficiency. Travel-related expenses also decreased 20.4% year-over-year. As revenue returned to growth, we are ready to make investments in the business as needed to further pursue business opportunities. But the overarching premise is always to maintain a balance between business investment and the profitability. Additionally, in the third quarter, non-GAAP G&A related expenses overall increased, mainly due to routine compliance related professional services projects, such as consulting fees, legal advisory fees, et cetera. In the third quarter, we obtained about $13.1 million in financial income, mainly interest income. Our net cash included cash bank demand deposit as well as time deposit, recorded as short-term and long-term investments, totaling $961 million. We believe these funds can well balance the company's short-term business working capital needs and the long-term development requirements. For example, we are evaluating some feasible plans related to our own office buildings and the land use rights with objective of achieving long-term cost saving and supporting the company's long-term operational needs. Finally, as a result of our consistent efforts over several quarters, the company's non-GAAP net income expanded significantly by 567% to $10 million in the next third quarter, a substantial turnaround from the negative $15.3 million in the same period last year. Similarly, our net operating cash flow also showed same trend, increasing by 114% to $16 million in the third quarter, a huge improvement from the spend of $13.5 million in the same period last year. Overall, the comprehensively improved financial results not only means that the major strategic direction we set last year and this year has helped us achieve continuous improvement in quarterly financial results, but also indicates the company is on the right track. With that, operator, we're now ready to take questions. Thank you.
spk07: Thank you. Additionally, when asking a question, please state your questions in Chinese first, then immediately translate them into English for the confidence of everyone on the call. Thank you. We have our first questions from the Mingyuan from CICC. Please go ahead.
spk04: Thank you for accepting my question. First of all, congratulations on the company's strong performance. My question is mainly on the demand side. I have three main questions. The first is about the demand for the next 24 years. In the past, we can see that there are some categories. In the future, Let me translate myself. Thank you, management, for taking my questions. First off, congrats on your strong performance. My query primarily concerns the demand size. And my questions are as follows. First is about the outlook for downstream demand in next year. And second is about the path. In path, which category shows the most growth potential? And in our SAS, which downstream scenarios are comparatively more promising? My third question is that what are the strategic change and growth outlook across different global regions? Thank you.
spk00: Okay, thank you. Firstly, overall, we have found that IoT consumer electronics are highly sensitive to inflation. During the year of high inflation from last year to early this year, the growth trend in discretionary electronic consumption, which including IoT devices, slowed down significantly compared to 2021. Afterward, although it reached a relatively stable new balance as inflation slowed, it was suppressed again with a short rebound of inflation in July, August, and September this year. However, at present, we observe the end purchase of consumer electronics is in a moderately positive direction, which is in line with our expectation for long-term growth in IoT penetration. From the perspective of end sales, specifically by region and categories, we observe the following. By categories, since October, end sales in all categories have recovered to some extent, with household appliances, especially robotic vacuum cleaners and security sensors performing very well. Electrical products also showed a good recovery trend. However, lighting devices is still in a pretty weak demand situation. In terms of the region, we found out Southeast Asia, South America, and also in Europe, the safety products are doing pretty well. And also other categories are gradually recovering in a pretty healthy direction. In China, apart from home appliance and the robotic vacuum, other categories are relatively weak. but the trend is upward since Q4. The U.S. region shows overall relatively weak performance, but electrical and security categories are showing good signs of recovery. Overall, each region, according to its economy and the environment characteristics, has different trends in end IoT electronics consumption. And we will continue to maintain communications with downstream customers to actively respond and seek opportunities according to different market situations. However, it should be noted that our IoT path revenue is affected by both the de-stocking cycle and end sales. We observe that the year-over-year performance of end sales in some categories does not completely align with our shipment downstream. For example, the lighting categories showed relatively weak end sales in Q3, basically from our brands to consumers. But our shipments achieved a significant year-over-year growth in Q3 in terms of IoT paths. This is mainly due to the downstream repressioning their lighting inventory. as lighting products due to the large price difference between smart and non-smart versions were the most affected categories in terms of inventory destocking Q3 last year. In terms of the downstream inventory, the overall situation is in line with our expectations. Combining Tuya's IOT path shipments And the end sales in the same way as we previously did, we estimate that inventory held by downstream business, which include OEMs, brands, and retail channels, has decreased from over a year at its peak time to about four to five months now, and will further reduce by the end of this year. returning to a level of 2019. Therefore, we feel that inventory de-stocking cycle is nearing its end and returning to a relatively normal state. And in terms of the SAS part, as we mentioned, the SAS and others revenue have included several different products. We have seen great growth potential in Kube, which we promoted this new product. It's a private cloud IoT software we prepared for large groups globally for those companies to realize their own IoT capabilities. This potential stems partly from Kube's smart private cloud serving those large conglomerates, allowing it to reach revenue levels in millions of US dollars when it's implemented to those large corporates. Additionally, Kube's strategic position is not only limited to just one-time private cloud deployment, but in the long term, Kube is a tour and the bridge for establishing a long-term cooperation relationships with large key accounts for Tuya. And once those large corporates installed the cube cloud for themselves, they would start to connect the IoT devices, which are powered by Tuya, to their own cube. So we're confident that after the private IoT platform is built for those large corporates, we can unleash the value of Tuya's IoT capabilities and solutions, generating subsequent long-term IoT services-related revenues. In SaaS and others products, we are also optimistic about the hotel SaaS, commercial lighting SaaS, and smart real estate, full house SaaS products. The hotel industry with its massive room demand and the market segmentation offers immersed potential for a vast number of non-luxury hotel brands seeking competitive differentiation. Smart hotel experiences such as intelligent ordering, contactless checking, and home management are significant competitive advantages. Commercial lighting, given its specific lighting needs and the potential for expansion beyond lighting to include energy savings, conservation, and management, undoubtedly has a huge market space. The real estate industry has been subdued in China in recent years. But looking abroad, leveraging our strong influential outside of China, We have identified the demands for smart real estate and a full home IoT solution needed this year in Southeast Asia and Australia markets. And we plan to start serving this regional customers next year with cube products combined with full house IoT solution and smart real estate solutions. And we have been signing contract with several large customers in Southeast Asia and Australia, including some very large distributor channel and the real estate conglomerate companies in those regions. So this is my question, my answers for the first question. Operator, you can move to next question.
spk07: Thank you. As a reminder, ladies and gentlemen, if you would like to ask a question, please press star followed by 1 on your telephone keypad now. If you change your mind, please press star followed by two to review your question. If you are streaming via web browser, kindly press the Q&A button and type in your question. When preparing to ask your question, please ensure your phone is submitted locally. And additionally, when asking a question, please state your question in Chinese first, then immediately translate them into English for the convenience of everyone on the call. Thank you. We have our next question from Liu Yang from Morgan Stanley. Please go ahead.
spk06: The second question, I would like to ask more about the company's IOT SaaS and OTHER business. Because of some adjustments in the third quarter, some non-core businesses have also given up. I would like to make sure that this part of the adjustment Let me translate my question to English. The first one is regarding the geographic breakdown. I would like to ask management to provide more color on the geographic contribution to especially Southeast Asia, China, US, Latin America, The second question is regarding the IoT SaaS business because this quarter Tuya strategically gave up some of the non-core SaaS and other business. I would just like to confirm whether the approach has come to an end or there's still some ongoing impact in fourth quarter. Thank you.
spk00: Okay. Thank you, Yang. Yes, I'm happy to answer about regional revenue contribution question. Before that, I want to first give a background. When we talk about the regional revenue contribution, we actually, company do a lot of analysis to go to the fundamental revenue contribution. For example, a European brand using Tuya's IoT path to realize their IoT devices. and then sell in Europe region, we will consider it's an ultimate revenue from Europe. But from a financial statement, because all the brands, they provide orders usually to China OEMs, and China OEMs give orders to us. So from a financial statement, it will be a revenue from a China OEM customer, but ultimately it's from Europe. So right now when we're talking about the revenue contribution from region, we're talking about the ultimate revenue is from which region. So this is an analysis done by a company. It's not 100% accurate, but it largely reflects the trend. So based on our calculation analysis in Q3, Europe has become the largest revenue contribution region. It's around 30%. And China and the United States each contribute to just less than 20%, close to 20%. And the Southeast Asia and also Australia, we call this region that basically excludes China, the Asia Pacific excludes China region, has grown pretty well in Q3 and has grown to around 15% revenue contribution. And also, the entire Latin America has shown a pretty good trend in the last few years. So Latin America now contributes to the revenue just more than 10%. So that's the overall region contribution. And we think this is a relatively balanced contribution. And we will continue to use our technology to serve the clients from all the regions and to have the corporates and the consumers enjoy the value from the IoT technology. In terms of the second questions, the major transition in the SaaS businesses in the past, we have certain revenue. It's related to one-time customers' needs. usually new brands, a huge percentage of new brands, they would like to pay a one-time fee for OEM app services. And also there's a customized software revenue from brand customers. So in the last two years, we have been focusing on to, first is to focus on high quality customer rather than a huge numbers of new customers. So this one time new customer related OEM app revenue decrease. And this will maybe continue one or two more quarters then will be stable. And in terms of the customization software revenue, and we feel recurring software revenue, for example, like the cloud storage and SaaS revenue a more high-value software revenue we wanted. And also, we want more developers to do the one-time customization work for brands, for conglomerate customers. So we also have introducing those one-time revenue opportunities to developers. So that's why one-time revenue customized software income also decreasing. This is pretty much stabilized by now. And going forward, we believe when the transition of SaaS and other business stabilized, it will still continue a healthy growth. So that's my answer to Yang's question.
spk06: Thank you.
spk07: Thank you. We have our next question from Timothy Zhao from Goldman Sachs. Please go ahead.
spk05: Let me translate myself. How does management see the competitive landscape in IoT industry and Tuya's competitive advantage? And also, the second question is, what's the company's plan in using of capital? Thank you.
spk00: OK, thank you. We believe IoT market is wrapped with extensive future potentials. So we have been keep learning from the environment and improving our business model. And we believe Tuya occupy a unique position in the IoT industry. And our advantages in the developer and open ecosystem are primarily reflected the following prospects. We broadly and inclusively support various devices, types, and protocols, cloud access models, and OEM app developments, offering this to developers, customers, and partners with zero technical barriers for them, make it very user-friendly, open for our customers and developers. So Tuya's position as a neutral technology provider supports customers and brands in establishing their own IoT business and joining our huge ecosystems for inter-operation user experiences. This comprehensiveness and the compatibilities allowed Tuya to serve 95% of the global markets of independent commercial and brand customers. We also tailor our own capabilities to customer needs with a variety of products generating long-term revenue, which this is our main product strategy. This approach is not confined to the OS-based model of cloud license module in IoT PaaS products or key categories IoT device solutions, nor is it limited to purely cloud development capabilities for fast development or private cloud deployments. Tuya prioritizes its platform ecosystem and customer service strategy over rigid constraints of revenue model, amounts, or performance matrix. This allows us to cover a broader range of global customers with more diverse developer products, making the have a more user-friendly and open. So we believe this has been our key positioning and the values in terms of our accumulation in this industry for almost nine years. And regarding the second question for the use of capital, in terms of capital usage, we maintain a rigorous approach in our operations, managing our funds and the budgets strictly and striving to preserve cash through safe, highly liquid fixed deposits or other monetary fund instruments, meeting the needs of daily operations and long-term plans. Regarding capital expenditures, we will cautiously watch for suitable merger acquisition opportunities. Additionally, we might, like other companies, invest in necessary fixed assets for long-term operations. So that's my answers for Goldman Sachs' question. Operator, you can move to our next question.
spk07: Thank you. There are no additional questions at this time, and I will now hand back to the management team for any closing remarks.
spk00: OK, thank you again all for joining our call. If you have 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. Have a good day.
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