Tuya Inc.

Good morning and good evening, ladies and gentlemen. Thank you for standing by and welcome to Tuya Inc., the quarter 2024 earnings conference call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press dial 11 again. Please be advised that today's conference is being recorded. I'll now turn the call over to your first speaker today, Mr. Raj Chai, Investor Relations Director of Tuya. Please go ahead, Raj.

Okay. Thank you, Emma. Thank you. Hello, everyone. Welcome to our third quarter 2024 earnings call. Joining us today are founder and CEO of Tuya, Mr. Jerry Wang, and our CFO, Ms. Alex Yang. The third quarter 2024 financial results and webcast of this conference call are available at ir.2r.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. Now, Jerry, please.

Hello, everyone. Thank you for attending Tuya's third quarter of 2024.

Hello, everyone. Thank you for joining Tuya's third quarter of 2024 earnings score.

Tuya's third quarter of 2024 earnings score. which is about 9% of non-GAAP operating profit and 125% of non-GAAP net profit. To achieve the management goal, to achieve these results, we can't leave the business. With the good implementation of the strategy, plus our consistent persistence in promoting efficiency and execution, we can control the budget and cost effectively. The company's documents continue to perform well in the second quarter. Next, we will do some development on the business situation of this quarter.

In the third quarter, we achieved our performance goals by prioritizing practical strategies and focusing on execution revenue growths accelerated to 34% year-over-year increase. We maintained high operating efficiency, thus achieving a non-GAAP operating margin of around 9%. Our substantial interest income added to the bottom line without an in-the-gap net profit margin of around 25%. These results were underpinned by the effective execution of our business strategies, coupled with ongoing efficiency initiatives that tightly controlled budgets and expenses, sustaining operating leverage as we did in last quarter. Next, I will delve into some details on our business performance in the quarter.

has continued to grow since the resumption of the software. The revenue of the Smart Solutions section has increased by more than 100%. On the one hand, it is because of the demand. For example, since this year, we have continued to see the global demand for home appliances, which is consistent with our product planning predictions. Our focus on energy-saving products and software output has brought considerable revenue. On the other hand, we work closely with core customers to help customers in the rhythm of product planning and release, In the third quarter, all three of our business segments delivered solid revenue performance.

IoT PaaS revenue increased by over 26% year-over-year, maintaining steady recovery momentum. The Smart Solutions segment achieved over 100% year-over-year revenue growth. This was driven by strong market demand particularly in the home appliances category, where we have consistently observed robust global demand throughout the year, aligning well with our product planning and market expectation. Our focus on energy efficient products and solutions has significantly contributed to this revenue growth. Additionally, our close collaboration with key customers has enabled them to align their product planning and launches with market trends. Revenue from the SaaS and other segments grew by approximately 17% year-over-year, with our core cloud software value-added services increasing by over 50% year-over-year.

In the past year of 2024, at the Berlin Electronics Exhibition, we released many new product solutions, such as cloud-based dynamic algorithms, AI-based capabilities, and enhanced user experience and value of smart products in terms of interaction efficiency and functionality. We have deepened the concept of industry, understanding the concept of industry, and added some solutions and products that are more similar to family and business scenarios. We covered family energy,

In the consumer market, it is imperative for business to go thoroughly understand and capture the core needs of end users. We dedicated to continuously launching innovative and competitive approach, understanding our customers' business objectives, and building even closer partnerships. After the recently completed 2024 IFA in Berlin, we unveiled numerous new product capabilities by leveraging cloud-based dynamic algorithms and generating the AI. We aim to significantly enhance the user experience and value of smart products in terms of interaction, efficiency, and functionality. Additionally, in line with our philosophy of cultivating and understanding the industry, We have iterated and expanded a wide range of solutions and product portfolios across various homes and commercial use cases. This encompasses home energy efficiency, comfortable living spaces, pet care, security and protection, sports and health care, entertainment and education, convenient mobility, and more.

The growth index of old customers is 124%, maintaining a healthy and stable level. Europe, as the main market demand, is stable, and the cooperation of new and old customers is smooth. In other regions around the world, we have received some head customer cooperation in some areas, including large head channels and free brands, and some products such as sunscreens, pets, and so on. There are also some head chain companies in Latin America, Brazil, and other new markets. consumer safety product brands, and so on. In addition, we continue to look at the more mature market areas. The platform is always a business promotion from the original mode and platform switch to some of the top priority options. We believe that the progress and perception of the above customer levels have proven the value and product capabilities of the platform.

Our global customer collaborations and expansion efforts progressed steadily in the third quarter. Our dollar-based net expansion rate, which measures growth among existing customers, stood at 124%, a healthy and stable level. Our largest market, Europe, exhibited stable demand with smooth progress in partnerships with both new and existing clients. In other regions, we secured several key regional customers, including a leading private label brand in Canada, covering categories such as seasonal lighting and pet products. A top home apply case group in emerging markets like Brazil and the well-known consumer safety brands in Chile. All of these are leveraging the 2L platform for their strategic initiatives. Furthermore, in more mature markets, the 2L platform remains the preferred choice for enterprises aiming to enhance operational efficiency or transitioning from traditional systems to third-party platforms. We believe these customer-level developments amplify the value and capability of the 2R platform and reflect the favorable competitive landscape in which we operate.

We also pay attention to the development of the development community. This is to allow each development community in the area of intelligent transformation to obtain the latest potential. In the third quarter, we held two major events. In fact, during the IFA event, we held the first virtual development conference in Berlin, Germany. The theme of the conference is Smart by Nature, Exploring the Signature of AI and Spatiality. We invited AI and Spatiality to share with us the innovative applications of AI and Spatiality, as well as the sustainable development of sustainable AI and Spatiality.

We are also committed to building our developed community by striving to ensure that every developer interested in smart technology has access to the latest cutting-edge information. In the so-called, we hosted two major developer conferences. The first was the inaugural European edition of the Tuya Global Developer Conference held at the Berlin Exhibition Center during the IFA event, themed Smart by Nature, exploring the synergy of AI and sustainability. Partners such as AWS and Think, which is a well-known European e-commerce platform for comprehensive smart home solutions, discussed innovative application of generative AI and the practical implementation of sustainability. These discussions garnered significant attention from developers. Vasto, as one of Turkey's largest home appliance manufacturers, also shared its success case studies.

At the end of September, on the global stock market of global stock market, the leading companies in the world, such as Ximenzi and Zhijia, have shared the future of the green, digitalized, and autonomous family life experience for users through the development platform of Tuya Yun. As of the end of the third quarter, the number of developers on the Tuya platform has increased to about 1.26 million.

At the end of September, during our Global Development Conference in Suzhou, industrial leaders such as Siemens and Haier Smart Home shared their visions of the future. They showcased how they leveraged Doja Cloud's developed platform to build intelligent ecosystems bringing green digital and smart home living experience to users. By the end of the third quarter, the number of registered developers on the Tuya platform further increased, reaching approximately 1.26 million. Moving forward, we will continue to gain insights into market demands, consistently empower developers, and deliver more smart products that meet consumer expectations.

We have achieved some progress by building a benchmarking project and expanding our customer base. For example, this year, we are planning to use Qube as a catcher for the cloud business model. In addition to the core products, we will use the smart device delivery model to meet the expectations and begin to enter the ongoing landing. We will continue to promote the deployment of the cloud customer group. We will add some contracts with the top two clients in Thailand and Vietnam. In the industry and specialized channel markets, we continue to make progress as planned by developing and replicating benchmark projects

For example, our business model for telecom operators this year involves leveraging our Qube intelligent private cloud solution to initiate collaborations combined with the delivery of core smart device categories. This approach is aligning with our expectations and has begun to see continuous implementations. The development among our telecom operator customers base is advancing steadily. We have signed a new agreement with two leading operators in Thailand and Vietnam and are receiving consistent reorders from smart devices from existing customers who have already deployed our solutions. Additionally, our home energy management system business has achieved substantial progress. We successfully secured a benchmark project with the Singapore Health and Development Board, and over the next few quarters, we will officially enter the product implementation and delivery phase for this project.

We continue to follow the established development strategy and continue to verify financial results. We also gradually bring back to our shareholders. Now everyone also saw yesterday's news. On the weekend, the 65 EP, a full-fledged investment platform independently operated by Damacy, signed an agreement with the main shareholder NEA since the establishment of Tuya in 2014, and bought about 13% of Tuya's total shares. This investment reflects their high recognition of Tuya's vision and harmonizes with Tuya's international expansion strategy. The Asia-Pacific region, especially Southeast Asia, is a fast-growing new market. It is a great opportunity for us to operate. We will continue to strive to seize the opportunity to grow the international market, promote the development of global AIoT intelligent devices and commercial applications, and work hard to bring returns to all shareholders who have supported Tuya for a long time. We are very happy to welcome

Overall, third quarter 2024 was a period of steady progress for Tuya as we executed our established growth strategies to deliver robust financial results. This commitment has also brought us shareholder level recognition. You may have seen yesterday's announcement, over the weekend, 65 equity partners at An independently managed wholly-owned investment platform of Demontic entered into an agreement with New Enterprise Associates, one of Tuya's key shareholders, to end our funding in 2014 to purchase approximately 13% of Tuya's total issued shares. This investment reflects their strong confidence in Tuya's vision and aligns closely with our international expansion strategy. The Asia-Pacific region, particularly Southeast Asia, is a rapidly growing emerging market, presenting enormous opportunities for us. We remain committed to seizing growth opportunities in international markets, developing global AIoT, smart devices, and commercial and industrial applications, and delivering value to all our long-term shareholders. We're thrilled to welcome 65 equity partners, the investment platform of Demontic as a significant shareholder of Tuya.

Lastly, we welcome our current Vice President of Financial, Clear Ian Zhang, to the Board of Directors as an Executive Director.

With her extensive experience in financial management and a big four accounting firm, Ernst and Jiang, Claire will bring valuable expertise to the board, aligning with Tuya's commitment to diversity. Now I will hand over to Alex to provide further financial details.

Thank you, Jerry. And hello, everyone. This is Alex. Now I will discuss our financial results and provide more details on the numbers not covered by Jerry. Please note that all the figures in U.S. dollars and all the comparisons are year-over-year unless the state are as well. In the third quarter of this year, our total revenue reached 81.6 million U.S. dollars up to 33.6% year-over-year. Most importantly, our P&L continued the trends established in Q2. Each business segment maintained a solid growth margin, reflecting the value of our products. This led to attractive gross profit growth alongside revenue growth. At the same time, we executed our business operations and product strategies with streamlined and limited operation costs and expenses. As a result, we achieved a solid non-gap operation margin expanding from the break-even level of Q2. And our IoT PaaS revenue in the third quarter was $57.9 million, representing a year-over-year growth of 26.4%. Looking at the product categories, our focus on home appliances enabled impressive year-over-year growth of around 30%, while other categories remained stable. Geographically, Our global revenue structures was well balanced. However, driven by increased energy saving orders, Europe's revenue contributions saw a slight uptick this quarter. On the customer side, the scale of customers we served increased slightly compared to the same period last year, aligned with our focus strategy on customer expansion and service. As the end of the Q3 2024, our dollar-based net expansion rate stood at a healthy 124%. We believe this demonstrates strong demand from our existing customer base for 2S products, providing a solid foundation for revenue growth and allowing us to confidently pursue new customers. Q3 growth margin was 46%. remaining at a stable and healthy level compared to the same period of 2023. Since overall gross margin reflects the structural mix of margins across our business segments, it is influenced by the revenue composition of each segment. Looking at the components, the gross margin for all three of our revenue segments remained constant with the previous level. The slight increase in past gross margin and the slight decline in smart solution gross margin were prevalent due to the product mix changes. We'll consider that as a regular one. So regarding operation activity and expenses, I will provide a detailed view on a non-GAAP basis, which excludes certain non-business related items to give a clear picture of our operation efficiency. we continue to present our operating expenses primarily on non-GAAP basis. Before discussing non-GAAP operation expenses, I'd like to mention that in early September, following our Q2 operational profitability milestone, we adjusted the exercise prices of our options held by all the employees to the current value of our shares. We did this to thank our colleagues for their unwavering support as we navigated through cycles and reached new milestones. This one-time adjustment resulted in approximately $10 million in additional one-time equity incentive expenses, of which $9.5 million was recognized in this quarter's operating expenses, with the remainder to be amortized over the coming quarters. Turning to operation expenses, in Q3, our non-GAAP total operating expenses decreased by 5.9% to $30.1 million from $32 million a year ago. Following the near compulsion of team structure adjustments in the second half of 2023, our non-GAAP expenses has been stabilized year over year. Sequentially, our operation expenses in this Q3 increased by approximately $2.3 million compared to Q2, primarily due to typical fluctuation in items on the expenses side and income side, such as tax refunds. as revenue growth year-over-year will adjust the budget according to as needed. Other non-personal operation expenses, such as marketing and travel, has remained at a relatively balanced level. Overall, we remain committed to the efficient and focused business expansion to maximize and stabilize 2S profitability at this stage. we achieved a non-GAAP operation margin of 9.1% and non-GAAP net margin of 24.7%. Net margin exceeded operation margin due to the contribution of interest income, which is substantial due to our large net cash balance. While fluctuations in operation expenses may cause slight profit margin variations, We are pleased with our carbon profit level and optimistic about the future improving operating leverage in the future. In terms of cash, Q3's operating cash flow was net inflow of $23.9 million, reflecting our strong cash leverage. Our net cash balance increased to $1,023.9 million further strengthening 2S financial reserves and preparing us for future shareholder returns. This concludes my presentation on the company's financial performance. So with that, I'll bring up Emma. We're now ready to take questions. Thank you.

Thank you. We will now begin the question and answer session. As a reminder, to ask a question, please press star 11 on your telephone. and wait for your name to be announced. To withdraw your question, please press star 11 again. Additionally, when asking a question, please state your questions in Chinese first, then immediately translate them into English for the convenience of everyone on the call. Once again, there's a star 11 for questions. Please stand by while we compile the Q&A roster. We will now take our first question from the line of Tom Tang from Morgan Stanley. Please ask your question, Tom.

Thank you, Yicheng, for giving me the opportunity to ask this question. First of all, I would like to congratulate the 3Q team for being excellent. I may have two questions. The first question is about the future of 4Q. I hope to give some more colors, especially now that Trump is in power, I don't know if we have seen any different behavior of customers in the future. The second is a look at our interest rate. Because now our Smart Solution has a relatively high rate. I don't know if our interest rate will continue to stay at a relatively stable state. There will be some further changes. So thanks, management, for the questions. And congratulations on a very strong result for the quarter. So I have two questions. The first one is on the outlook for the fourth quarter. So if we can share some more color on it and if we have seen any changes in the customer behaviors after potential tariff increases in the US. And the second question is on the GPM. So our smart solution is a quite sizable amount in terms of our total revenue now. So do we expect the GPM to stay stable over the next few quarters, or if there's going to be some further changes due to the product exchanges? Thank you.

Yeah, sure. Thank you for that. So for the question one, firstly, we mentioned that for Q3 for us will be a steady season, a steady growing season. which proved that our strategy on the business side and also the efficiency of our operations. So we continue to do that. And for Q4, right now we see that positive season. But it's only like the 40 days, you know, since 40 days passed for Q4. And also we have a long vacation in China. So that influenced majority of the manufacturers. So I will not have the clear visibility of our entire Q4. But when we see that Q4, it will be a It's also a stable and steady and regular season for us. We continue to chasing on that. We are optimistic about what we can have in Cuba, even without precise visibility. Speaking of the tariff issues for United States, what we see here is that it's not the first time about the tariff. That thing's already been going on for a couple of years. Maybe two things. The first one is that what we see that in the past few years, so even the geopolitical situation, what we see here is that the customers are already starting to relocate the supply chain. So we're already supplying that, which means that we're not impacted directly, but the customers always need to trade, always need to sourcing and buying the products. from wherever they need it in the world. We are just fulfilling that. That would be one thing. And the second thing, what you see is that even with relocation of the supply chains, still the world needs China so much. So no matter what, any significant amount of the Chinese components still shipping to the global supply chain. So that would be something. We just follow the flow. We just keep serving our customers. and either locally or remotely to their suppliers in whichever countries they're located. So I think that would be one thing. So demand is still steady because end users continue to use that. So they'll purchase wherever they can to find the best cost point to locate their own supply chain. And I think that's for question one. And for question two, yes, you see that our three business segments, they are actually in two different verticals. And so we have to follow different business common senses in this industry. So for the smart solutions, it will be so deeply bonded with the hardware, which means that I can never compare with the gross margin versus the software. to a different model. But we think that the smart solution is so valuable because we help the customer to provide differentiation and provide very competitive new cutting edge products and experience to the marketer to continue to enable them to become the leader. So we'll enlarge the portion of the smart solution for sure. And we really see the potential. So through that, the overall gross margin of the company will decrease gradually, but we consider that a very healthy way, because each of the segments is competitive. So we are more concerned about the segments, not the overall gross margin. And in the same time that the growth of each of the segments doesn't require a significant increase on our expenses and costs, which means that we still maintain a very good leverage to grow our overall business. So even though the gross margin rate is declining a little bit in the long run, but at the same time, the total amount of the gross margins will be able to provide enough beneficial and profitability for the company.

That's it. Thank you.

Our next question comes from the line of Timothy Chow from Goldman Sachs. Please ask your question, Timothy.

Okay. Thank you for accepting my question. I also congratulate you for a very strong quarter performance. I have two questions I would like to ask. The first is about our LTE PaaS business. I don't know if you can share with us some of the needs we have for the next 25 years, including the demand for various types of products. How should we consider it? Secondly, we are very happy to see that a new shareholder has joined us. Given the relative stability of our current revenue, the company's new revenue is actually good. What are your thoughts on the future shareholder report? Let's take a look. Thank you very much for taking my question. I have two questions here. The first one is regarding the IOT path BNS. Just wondering if you can give us any color on your outlook on the downstream demand for the IOT path BNS and any demand difference across different vertical segments. And secondly, I'm pretty glad to see that we have investors coming in this quarter and even that your market is already quite stable and the company also has a really ample cash resources. Just wondering if you can share some idea about other future shareholder return policies. That'd be great. Thank you.

Yeah, thank you for that. So for the IOT pass for us, Momentum what we see here is that this year will be a rebounding year because the majority of the consumer electronic players or companies in the world starting to working out from the cycle of the inventory over inventory issues starting from 2021, 2022. So it's a rebounding year. And what we see the momentum among our customers is that they're really starting to reinvest and the re-kick off the multiple projects, I mean, among every customers for the IoT fields. So, ready for future competitions and expansion. That'd be one thing. So, while you have more investment and the resources coming in in this verticals, pretty sure that they'll continue to grow for the customer side. And for Tuya side, we continue to provide two drivers for the business. So, first one is the product. And on the path side, so it continues to expand to any type of new use cases and scenarios across our categories. But most importantly, that we're starting to deploy and we're starting to provide some of the AI-based services for the customers to help them to build some AI-empowered devices or AI-empowered use cases for the end users. So that can be kind of the killer app or key differentiations and new feature set that you can see in the market. So that'll be one thing. So we use the product to be the driver with the new innovation, new technology. And the second driver for Tuya is the customer expansion, especially on the enterprise level. So for that part, as you can see, that we're starting to incubate in our SaaS business around three years. So that type of the solution is more focused on the enterprise level. So other than the consumer companies, consumer-related companies, so the enterprise type of company or industrial solution providers are different type of the players in the market. So through that, we continue to have more and more customers in that field, including the telecom carriers, including the projects we just shared along with the Singapore HDB for the government public apartments around 1.3 apartments in Singapore, et cetera. That kind of industrial players and enterprise level of the players will become a new growing forces and drivers for Triageville. So we continue to expand more and to come in deeper. So that will be the past growth. So we maintain the optimism on this field because we have a very steady customer base. As you can see, our DB and ER are improving customer amounts. In the same time, that will continue to cover wider with new fields on the enterprise solution level. So that'll be one thing, question one. And on question two, so yeah, for sure that for the past 10 years since the beginning of Tuya, we always take the shareholders return as a high priority when we're operating in the company. And in this Q2 will be the first time we issue the dividend. It's a special dividend. for the shareholders. Like I mentioned in last quarter, it's not a regular one because we don't hit the annual profitability yet. But we don't want the shareholder to wait another two quarters. So we issued a special dividend. It means a special one. So we will consider the dividend as a regular basis. So every year, more based on the non-GAAP profitabilities, we use that as a benchmark to evaluate how and how much we can return to the shareholders as a dividend. That's it. Thank you.

Thank you. Our next question comes from the line of Kai Xiao from CICC. Please ask your question, Kai.

Hi, thank you, Bonnie. I'm Kai Xiao from CICC. I also have two questions for you. Thank you. Thank you. Then the second question, I would like to ask about AI, because real AI has always been a key strategy for Tuya. I would like to know if we can share any new developments in AI. And if there are any income guidance about AI, that would be the best. Thank you, manager. Then I will translate it. So, this is Ben from Data Research, and I have two questions. And the first question is about the SAAT sector whose revenue goes accelerated in Q3. So, could you give us some color on the just drivers and future outlook for the SAAT sector? Another question is regarding the artificial intelligence. Could you give us some updates on the GMAI monetization and future plan? And if there are some revenue contribution guidance, that will be great. Thank you.

Thank you for that. So for the SAS, the key part is that we continue to identify the potential verticals. that the AIoT can help, can provide values to killing the pain point with a reasonable cost level. So I think that would be the key part. So we consider that as a PSF stage, which means that we should be valuing the market and to identify and figure out the right solution that fits it. So for the SaaS side, right now we see several very potential and scalable market direction there, including the hospitality. As I mentioned, like the recent project that we signed contract with HDB in Singapore, it's a hospitality solution we provided, and combined with energy management. And energy will be another one, so in other sectors. And outdoor will be another one, including logistics. So that will be the verticals we find potential to. And so we really have some standardized solution proven and worked with the strategic customers as a pilot program. So for that part, I think the space and the ceilings will come back up. Whether we're looking forward to duplicate the use cases with a similar type of the strategic customers in new fields. So that'd be one thing. the key drivers for SAS. And speaking of the AI, what we see is that right now we're working on providing two types of services through AI. So one is that we will integrate the AI capability along with the hardware. And essentially, it becomes not a smart device. It becomes an AI device. So one of the typical use cases is the bird feeder. So it's a bird house and come along with a camera and come along with a food container. So you put that in the backyard on the tree. And then whenever one bird come in, and then you get a picture or you get a selfie of the bird. And come along, combine that with AI algorithms that we copied with AWS called recognition. It's a algorithm provided by AWS while we integrate that into application. And then, so the feeder not only take photos about the bird, but also telling you what species, what's the behavior of this bird. And then you'll be able to, you know, easily either to educate your children, right? Okay, let's try to learn the birds. Or you can show off where any rare species come into your house rather than your neighbors. that'll be one thing so become a nature native AI device another direction is that and we're trying to provide some air services on top of the device as a software based level so one thing is that when we combine GMAI with the pet devices so like the pet feeder in home so the feeders can and visual your behaviors, the behaviors of your pet, maybe your cat or your dog, and then automatically generate different type of video footage and come along with the line, come along with the background music, and then you will understand, okay, my pet and cat, my cat and dog in home right now, they're playing Game of Thrones, maybe Game of Paul. So that type of interesting footage is totally generated by AI. So we're trying to provide that type of services on the software levels. And so with the existing, what we call version one smart devices, we'll be able to have some AI based experience. So that'll be the two directions we're trying to pitch. And the right now is still in the pilot stage. So we still run some POCs, still run some pilot customers, but not provide to everywhere. And also we consider very carefully about how we can business monetize that. coming on naturally with the business model. So by the end of this year or at the beginning of the 2025, we'll be able to show more use cases how we can turn the AI into application. And we believe that that will become one of the catalysts for Tuya and for overall IoT. And one of the key things, uniqueness for Tuya is that right now one of the largest challenge for AI is that what type of applications, what type of features it's commercial and or it have the space to commercialize because it's more like the right now it's more like the trial tools better to have not much to be but technical for Tuya is that we have the device we help the customer to build the device so naturally The device itself, when it's sold, you know that the end users buying that for the feature. Especially when the AI device come with a total different pricing point than the regular smart device, you know that people buying that for the AI. Since the beginning, we commercialized that. I think that was the special one. We tried different type of the use cases and demonstrations. we can easily and testify that among my customers that what type of things I can commercialize and bring that into scale. That's it. Thank you.

Thank you. Our next question comes from the line of John Roy from Water Tower Research. Please go ahead, John.

Thank you for taking my question and congratulations on a very strong quarter. If we could take a step back for a second, obviously the revenue growth has been solid for the last couple of quarters, and a lot of talk about enterprise. I was kind of wondering how long do you think this can continue? In other words, how much runway do you kind of see given the current markets you have?

I think that talking about that, I would like to pull back a little bit about the visions where we started this company. And we believe that no matter it's IoT or AI, in the future, I mean now around maybe after 10 years, it will become a fundamental technology. Like the internet right now, everything is the internet connected. And so when we're reviewing that, the penetration of IoT or with AI, it's extremely low. So right now it will be low single digit numbers. So if you have to ask me about the weather and how the business is going to move forward to. I will say that in the next 10 years, maybe after 10 years, after 20 years, everything defaultly needs to be connected, needs to be smart. And we can imagine that. So what we're doing is that we continue to enable those force movers in their vertical fields to turn them into IoT ready or into AIoT ready. I think that will be the key driver for us. So that's why all the investment we're doing is that how we can find the right use cases that make sense for their vertical, and we provide standardized ease-to-use toolkit for the developers and scale that. So I think that will be the key part.

Right. And as a follow-on to that, the investments you're making, do you feel like they're at a good level right now, or do you feel like there's going to be a possible need to accelerate R&D in the coming years?

Yeah, so in the past two years, because we were facing a cycle back then, so we're ready to adjust our strategies into a more aggressively invested and the expansion strategy into a more reasonable and what we call micromanagement. And so for this one, what we're seeing is that we really stabilized our expenses and investment. And inside the company, we continue to invest in some new use cases, but it's still in a very reasonable level. And so we're looking forward to stabilize our profitability and our expense rate.

Great. Thank you so much.

Thank you. As a reminder, to ask a question, please press star 11 on your telephone. There are no additional questions at this time. I'll now hand back to the management team for any closing remarks.

Okay, thank you again for joining our call today. If you have any further questions, please feel free to contact us or request through our IR website. We look forward to speaking with everyone in our next earnings call, so have a good day today. Thank you.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.