Tuya Inc.

Good morning and good evening ladies and gentlemen. Thank you for standing by and welcome to TUNYA Inc. second quarter 2025 earnings conference call. Currently all participants are in a listen only mode. Later we will conduct a question and answer session and instructions will follow at that time. As a reminder we are recording today's call. If you have any objections you may disconnect at any time. I will now like to turn the call over to Ms. Regina Wong Investor Relations Senior Manager of Tuya. Regina, please go ahead.

Thank you, operator. Hello, everyone. Welcome to our second quarter 2025 earnings call. Joining us today, our founder and the CEO of Tuya, Mr. Jerry Wang, our co-founder and CFO, Mr. Alex Yang. The second quarter 2025 financial results and webcasts of the conference call are available at ir.tuya.com. A replay of this call will also be available on our IR website in a few hours. Before we continue, I refer you to our Steve Hubbard 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 a corresponding English translation. Jerry, please.

大家好,感谢大家参加Triad智能2025年第二季度及三万年的业绩电话会。 Hello everyone, thank you for joining Triad's earnings call for the second quarter of 2025. 首先,我简要总结一下整体的表现。 今年三万年,公司实现了约1.55亿美金的收入。 In the second quarter, the global trade environment is uncertain to rise significantly in the second quarter, and the US tariffs policy has caused significant interference in the global market. There are sales channels, brand 3, import 3, and export companies' order rhythm and planning, which should be postponed or re-adjusted. But overall, Let me start with a brief overview of our performance.

In the first half of 2025, we had generated revenues of approximately $155 million, representing about 15% year-over-year growth. Revenue in the second quarter reached around $80.1 million, an increase of 9.3% year-over-year. During the quarter, global trade uncertainties intensified, with U.S. tariffs policies significantly disrupting global descriptionary consumer electronics industry. As a result, downstream retail channels, brands, importers and exporters delayed or adjusted their order repeats and planning. Nevertheless, Tuya remains resilient, delivering positive outcomes across multiple fundamentals, including revenue growth, growth margin and profitability, as well as AI products and ecosystem development.

從盈利人力上,資料季度及三百年的 綜合毛利率中均保持著48%左右, 其中三個業務板塊毛利率在 環比、同比維度的持續穩健。 經營綠色的綠色,雖然三百年包含了 傳統代理及全球外部挑戰等情形, In terms of profitability, we maintained a blended growth margin of around 48% for both the second quarter and the first half.

with all three business segments achieving stable gross margins both sequentially and year-over-year. On the operating profit side, despite the seasonal softness in the first half and global external challenges, we still achieved a 10% non-GAAP operating margin and 25% net margin. Notably, non-GAAP operating profits grew approximately 127% year-over-year, highlighting the operating leverage embedded in Chouya's business model, which remains sustainable even in a complex environment.

The challenges of the AI climate and the global trade environment are pushing for a higher market penetration rate, and pushing for developers to develop higher-value and new AI experience products. At the end of the second quarter, The number of global developers on our platform has reached more than 1.51 million. We will also continue to insist on long-term attention. We will use the products of Tuya Open and AI Agents to push the AI developer platform to a wider development level to create a business environment that can support Tuya and the industry's long-term development.

Opportunities and challenges from both AI adoption and the global trade environments are driving higher market penetration. We are also engaging our developer platform to deliver high-value and next-generation AI experiences. At the end of the second quarter, the number of global developers on our platform has reached over 1.51 million. We will remain committed to long-termism, leveraging initiatives such as 2YA Open and our AI agent development platform to broaden access to AI developer tools, and build a business existence that supports 2S and the industry's long-term growth. Now let me turn the call over to our co-founder and CFO Alex Yang, who will share more details about our financial performance and business progress.

Hello everyone, this is Alex. I will now provide more details on our second quarter results. Please note that all figures are in U.S. dollars and all the comparisons are year-over-year based. Let's start with the financial performance. In the second quarter of 2025, Toyota delivered revenue of about U.S. dollars, 80 million U.S. dollars, representing 9.3% year-over-year growth. PaaS leveraged its diversified products ecosystem to capture essential consumption demand in home appliances delivering year-over-year growth of self-concept. Smart solutions supported by focused hardware offering and differentiated solutions tailored to various customer segments with student macro pressures and achieved year-over-year of 16.7%. SAS and others' revenue was about 11 million US dollars, up 15.6% year-over-year, driven by the continuing increase in recurring revenue, which exceeded 6% in Q2. From a regional perspective, leading long-term customers in Europe achieved a double-digit growth in niche categories such as ambient lighting and home appliances, including air conditioners and air fires. New customers including top Turkish soda storage companies and leading HVAC manufacturers in Austria and other regions too, who began corporations on energy saving production lines. In Asia Pacific, various rollouts progressed as expected. Several Southeast Asian telecom customers, starting with the Kube platform deployment, entered the larger-scale delivery space, while smart home and realistic products in Singapore advanced into implementations, contributing meaningful revenue across both hardware and software in the now quarter and the future. In North America, a flexible AI solution, the smart bird feeder, saw strong momentum and demand, reflecting consumers' sustained willingness to pay for emotional-driven experience by AI. In China, AI toy solutions gained positive feedback in Q2, with plans to expand IP collaborations and target diversified audiences. Admittedly, even since shifting tariff policies introducing global trend uncertainty, stakeholders across the discretionary consumer electronics value chain and had become active in their own interests, schematically pursuing offline retail systems overseas. The effectiveness of 2EOS diversified product ecosystem and software technology capability enabled us to take targeted approaches to withstand their pressures, demonstrating our structural resilience. On margins, Q2 blended gross margin was 48.4%. Past gross margin reached a historical height of 48.7%, while Smart Solutions and SAS and others deliver gross margin of 22.5% and 72%. Considering that 2S gross margin reflect the outcome of a platform-based business model combined with a rich hardware ecosystem, Q2 margins was aligned with our management expectation, maintaining stable, robust margins in a foundation for achieving strong operating average. On the expensive side, we maintained disciplined execution. Since early 2024, after wide-sizing our team, we have managed to meet operational including upgrading AI capability, increasing investment in R&D cloud and AI technology, building our AI developer community, and hosting creative events, while keeping non-GAAP net operating expenses stable. So we have remained across 30 million US dollars per quarter for six consecutive quarters. Additionally, in May, we achieved a decently victory in the first class actions lawsuit initiated in 2022, successfully defending the rights of two-year stakeholders. This also marked as a conclusion for the related expenses and imminent future risk for potential losses. As a result, our operating average improved significantly, and we delivered nearly an 11% non-GAAP operating margin in Q2. On net profit, we achieved a 25.1% non-GAAP net margin and a 15.7% GAAP net margin in Q2, with GAAP margin expanding over 11% points. While intrinsic rates cut an absorted part of the net margin increase, this was offset by a decline of over 50% in our accounting share-based compensation expenses. further unleashing accounting profitability. In terms of cash flow, we generated strong operating cash flow of over $18 million in Q2 and paid out our second cash dividend of about $37 million. Net cash balance stood at just above $1 billion at the quarter end. Looking ahead, we'll continue to explore ways to deploy access capitals to support our business. Next, let me share the quarter's updates on our AI developer ecosystem. So Tuya has always been at the forefront of the AI hardware and application deployment. And we remain fully committed to advance the AIoT ecosystem. So our goal is to continually lower the development threshold of AI devices products and promote their border AI innovations and adaptions. So first of that, let me highlight two data points. As of June 13, 2025, 93% of 2ER shipped products categories were equipped with AI capabilities. Meanwhile, to AI developer platform delivered AI agent services that supported 150 million AI interactions per day globally across scenarios such as AI nodes, AI translate, AI health, AI energy, AI pet care, AI training play, AI deeming, AI safety guard, and robotics. So in light of this, We've also seen strong and rapid expansion across our developer ecosystem infrastructures. Over the past quarter, many AI developers activated to their open cloud services and commercial AI. Developers collectively created 9,372 AI agents across categories, including toys, pets, appliances, electronic devices, and securities. These numbers reflect the growing penetration of AI into households and industrial smart devices. The Tuya Open open source community also gains strong traction across Discord, Reddit, WeChat groups, and other platforms. Our global developer base suppresses 27,000 for the AI stuff. With documentations reaching 55 countries and regions, open source code contributions exceeded 2.3 million lines, and core contributors steadily emerging at the ecosystem scale. While driving developer engagement, we also emphasized co-creations within the ecosystem. Since Q2, we have partners with ecosystem collaborators to host multiple hack and throw event across online and offline channels, generating hundreds of markers, AI devices, prototypes, and with the commercial potentials. Those events span universities, embedded engineering communities, maker spaces, incubators, cloud developer communities, and cultural IP developers groups. Continuous way to bring AI into millions of households worldwide. For example, in late June 9, we co-host a mega hackathon, AdventureX 2025, and attracting over 800 young developers and makers globally over five days. Participants create a range of original projects through our team works and collaborations with the feedbacks from developers and broad media coverage reaching over 10 million of people watch this episode. More importantly, we are exploring pathways for makers projects to commercialization. For example, the community initiative OTAP robot projects has entered commercializations with distribution partners fueling its marketing and promotion. It is also driven adoptions of Tuya T5 developer board across the developer ecosystem. Another category of AI-impaired products, which won awards in hackathon competition, attract interest from the celebrity agency and the consumer market, drawing incubation attention from multiple commercial partners. In addition, our collaborations with the open dev community is bringing AI hardware development into university and inventing developer software. enable developers to practice AIoT applications during their study. So looking ahead, we'll continue our effort in two directions. The first one, future lower the threshold of AI developers, leveraging the two years AI developer platform, AI agent platform, AI coding tools, and scenario-based teaching to help more developers to get started quickly with AI hardware development. Accelerating the commercialization of more AI hardware innovations through collaborations within the developer community, co-creation mechanism, and ecosystem partners to bring excellent products to market and create commercial opportunities. So to conclude, while faced macro challenge in Q2, the company maintains strong profitability in the first half of this year and made solid progress in smart solutions, AI devices, and developer ecosystem. Looking ahead, we'll remain focused on the long term, executing two major growth strategy, three major growth strategy to offset near-term macro challenges while strengthening our foundation for sustainable growth. So the three major direction will be the first will continue Deepening relationship with core customers will meet the different needs of both new and non-standing customers with differentiated approaches, providing tailored products solutions and the technology support to help them to maintain competitiveness in their respective market. Second, we'll boldly seize regional opportunities in Europe. will focus on high-demand categories, such as AI-driven energy saving and air conditioners. In Asia-Pacific, we'll promote smartification of residents, buildings, and compacts through its integrated AIoT platform, combining hardware and software. In North America, we'll focus on the consumer scenarios, expending strong willingness to pay, such as pets, for ambient entertainment. And in China, we'll deepen partnership with major companies, gradually building consumer awareness through e-commerce, and pursue industry penetration via realistic world channels. Third, we'll accelerate AI innovation among developers, covering new AI-driven hardware applications, as well as agents, intelligence building on hardwares. driving the industry-wide shift of the smart products towards the AI agent-enabled hardware. And finally, based on our current financial performance, our board has approved a cash dividend totaling about US, 33 million US dollars. Regularly deviant payment reflects Tuya's commitment to returning value to the capital market and our shareholders. They also underscored our enduring confidence in the company's industry perspective, products portfolio, competitive positions, and long-term growth potential, regardless of the market conditions on the market side. So thank you all, graders. I think that that's all we have to present today. We can begin with the Q&A session.

Thank you. To ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. One moment while we compile our Q&A roster. Our first question is going to come from the line of Yang Lu with Morgan Stanley. Your line is open. Please go ahead.

Thanks for the opportunity to ask a question. Two questions from my side. The first one is regarding the growth outlook. given the changing global trading environment in the second quarter and the third quarter, what is the management expectation of the business growth going into the third quarter or the rest of the year? Should we see some acceleration in top line or the path shipment growth? The second question is regarding the FX impact, could management update us what is constant currency growth for top line in second quarter and to help us to understand what is the FX impact to the P&L. Thank you.

Yeah, so I want to share the first one. So yeah, for Q3 and the rest of this year, we'll see that the uncertainty on the tariff situations continues because till now we still don't have the conclusion or we don't have the agreement between countries. So the rest of this year we'll see that the consumer electronic categories we're covering right now are still under pressure and also the first shipment for the Q2 for those products that have been tariffed and we will have to meet the The products start to sell, but retail products start to impact it. So we will have to close the eye to witness what's going to be the end demand reflects looks like. And as far as we know that right now for the major retailers for the North America and the brands and the importers and the manufacturers, so they all have the concern that the demand was trying to have the risk of the decline after the retail price raising. And for this year, we already see that for the promotion seasons, like Christmas, Black Friday, back to school, and so all the new product planning and the promotion forecast, so those buyers, they have the, they would already show this kind of conservative mindset, so instead of too optimistic. And like, so some of the orders, shift from the higher value of the smart one into some lower value and with entry-level one. And even including Europe, they have the same type of uncertainty as well. So those kind of buyers, they're not too optimistic. So they have very conscious to review all the reflects on the end users in a very short term, dramatically. And also, we are facing a very long supply chain, so from the core components into the manufacturing, into the logistics internationally, and into the retail. So we have more growth on the supply chains, we have more noises for uncertainty. Typical stuff is that while the retail price are facing pressure to raise. And then, so from the retailer side into the importer side, into the brands, into the manufacturers, every people are renegotiating how to absorb those kind of raise cost. And that kind of negotiation cross multiple roles, multiple entities, takes longer. So what we see that in the past couple of months, those kind of negotiations trying to taking places and didn't end. A typical example what we see is that on the offline retailers and e-commerce, those price impact and central effect very directly. Like some of the robotic vacuum we can see here is that some of the fast-growing robotic vacuum brands from China, their gross margin and profit declined so much. That's kind of because of the tariffs and bargain impact. For two years, what we see is that the tariff impact exists, and also in the same time that last year we did quite good for the energy saving incentive program for France, and that incentive policy is trying to reduce a little bit. And so what we see is that for Q3, yeah, there's still pressure, but it should be getting better in Q4. So that's for the first question. And for the second question is that, yes, there's some pressures on currency as well. But right now, what we see is kind of stable. So there's pressure, but it's under control. That's all.

Thank you.

Thank you. And one moment for our next question. Our next question will be from the line of Timothy Zau with Goldman Sachs. Your line is open. Please go ahead.

Great. Thank you, Magdalene, for taking my question and congrats on the very solid results. Also, two questions from my side. One is really on the competitive landscape in the IoT path segment. Just wondering how measurements see the competitive advantage when I think the whole industry moving from the traditional say IoT path to IoT and what are our ways to maintain such kind of competitive advantage globally? Secondly, it's on your shareholder return policy. I think it's very pleased to see the dividend declaration announcement from this quarter. Just wondering if management can provide us more structural way in terms of understanding the shareholder return policy for the years ahead. Thank you.

Thank you, Ximena. For the first one, what we see that we are doing a lot of things to push the, not push, to motivate those developers from the existing, from the historical IoT applications into the AI applications. So like I described that we're doing a lot of different webinars, trainings, and events that to grab all those kind of ideas, innovative plans from the developer side that they have anything that they can think that how it can bring AI into the new user experience together. And data I already shared is that so for the first half of this year, over 93% of the products that the building with the TR platform for the first half of this year already come with AI capability. So we're really doing a penetration of the combine the new AI feature set into the existing Tuya developer ecosystem and customer base as well. So that's the first one. But we'll continue to do more because a very exciting opportunity we'll see is that come along through the AI stuff, we have more categories that this technology will be able to cover. And so like the toy, like this kind of emotional-driven entertainment, So without the large language models, those type of categories doesn't exist or doesn't seem the opportunity how you can turn that into a smart thing. But right now, it is. So we'll continue to do that. So have more of my existing developers to start to try out the AI feature set and understand those kind of AI technology and also to exchanging the ideas of creativity. So that be one thing. Another thing is that once we find out those kind of great ideas or great prototypes, so we're using our networks, using our marketing resources to incubate and helping our developer to commercialize. So that's what we continue to do. And so we're looking forward to have more, I would say, AI essential applications be built out in the future for the long run. So that's one, and the second part for the dividend or for the shareholder return, so like we said for the two quarters before, so we will consider the dividend as a regular policy or two or solutions that we offer for the shareholder's return besides any other things, and the dividend is based on the stable profitability of the company, a stable business model and growth, and also a very healthy network operating cash flow. So our dividend will be based on that, and we're offering as a regular solution for the shareholders. That's all.

Great. Thank you.

Thank you. And as a reminder, if you would like to ask a question, please press star 1-1. Our next question comes from the line of Kaizhou with CICC. Your line is open. Please go ahead.

Okay. Thank you, Benjamin. And I have two questions as well. My first question is on your growth margin. So with this quarter, your growth margin has steadily expanded. With mass margin in particular is rising fast. So my question is, what are the key drivers for the growth margin going forward? And in particular, how would the AI-related revenue affect your overall growth margin mix? So that's for the growth margin question. And my sixth question is on the SaaS and smart device solutions. So could you share the primary growth engines for the two sectors? And what's your outlook going forward? Thank you.

Okay so the first one I think that the gross margins represent the competitiveness of the technology to our provider and also the value propositions for us in the entire industry. So right now all the customers will really see my gross margin. I think that will be as a public company. They continue to satisfy with what we're offering, no matter it's on the technology, it's on the services, it's on what we can offer to help them to transit from a legacy device maker into a smart device maker, from a device reselling business model into more like the software services, AI services based recurring model. So I think that will, the gross margins represents that. And for us, we manage the three business model separately. So for the past, we're offering. So we're satisfied with the gross margin range so far. And for the SaaS, the key part is that it's a regular software-based. So the gross margin above 70% will be a regular-based. So we're not looking forward to push that up into 80% or 90% because that's not realistic. But we're looking to scale that faster. As you can see here, starting from Q2, we really see the SaaS starting to grow faster than the past. And because we're starting to acquire or transit more end users to those kind of SaaS offerings as a premium feature, as a recurring model, and we have more stickiness on the recurring side. So that's for the SaaS. And for the solutions, what we're looking for for the long run is that because it's software and hardware combined, and essentially we have more and more portion come from the hardware side. So for that part is that above 20% of the gross margin for the solutions already represent that we're taking a higher value proposition for that part. And so I think that's what we're looking for to see, that to maintain above 20%. About 20% gross margin for the solutions is what we're looking forward to do, come along with our scalability. And I think that's a key part. So we feel comfortable about the current position so far because we're ready to take the higher values on the existing growth we have in the industry. So we'll continue to push more scalability. I think that's for that part. And the second part is about the solution, right? And so I think that for the solutions, for the solutions on the strategy side is that the solutions are not open for everyone, kind of really. So the solution will more focus on the key customers or the top tier customer in their own perspective market, either in their own region or in their own vertical industry. So the solution are providing differentiated offerings for those customers to help them to provide a higher value products to the market. So those key customers, either they have a better position that they can offering higher pricing products, or they have the better position to provide a differentiated products. So we were not facing very brutal competitions on the commodities. So we don't offer the commodities. So I think that's the first one. And then, so through that part, we're kind of working along with those key customers to making a product roadmap six to 12 months ahead. And then we kind of become their key suppliers for all their most advanced products or flagship products for the non-owner. So I think that's what we are driving forces for the long term. So the more we start delivering for those customers, the more opportunity we have to work with those customers for the long run, and the more opportunity we can take in more portion of their business for any type of smart devices for the long run. So I think that's a key part. And what do we see? And trend here is that starting with Q2, finally we're starting to offer the AI solutions. So not only the smart bird feeders, that's what we try out for last year, but also for this Q2, we're starting to deliver the AI toy, and with two significant leaders for the toy industry in China. So one is Heizi Wang, another one is IP from NetEase. And so those feedbacks from the customer side and from the end user side, become very positive. And then we start to scale that kind of totally new vertical categories that we don't have before. So while we have more and more AI essential, AI empowered solutions offering, we really see that, yeah, we're starting to open more doors. And for the second half of this year, and our shipment for AI based energy solution, and we're starting to complete this. And we're looking to have that and grab that opportunity as fast as we can as well. So I think that's for the solution part.

Thank you, Alex.

Thank you. And one moment for our next question. Our next question comes from the line of . Your line is open. Please go ahead.

Hello, good morning, management. Thank you for taking my question. I have two questions. So the first one is also related to the U.S. tariffs. Are we observing a shift of China-based supply chain to overseas for our brand customers? If so, what are the impacts on Tuya? And should we expect to see incremental costs, for example, in module logistics? And the second question is related to margins. We are seeing that for smart solutions, its gross margin is 22.5% in the second quarter, which is relatively lower than previous quarters. Just wondering what is the reason behind that? And also, given our business model can enjoy very strong operating leverage, over the next three to five years, what kind of margin profile do we expect to see the company to achieve? Thank you.

Okay, yeah, so the first one is that, yes, after the tariff situations, every people talking about the shifting supply chains globally, but that kind of topic is not being discussed this year because the first tariff raise is taking place in 2018. So what we see here is that just for those products, manufactured and sold to the United States. Different categories react in different ways. So for those categories require a less component and less rely on a very diversified supply chain. So some simple stuff like the plugs, maybe LED bulbs. So those type of categories Not only this year, I think that is four or five years ago that many manufacturers trying to relocate it in other countries like Mexico, like Vietnam, Thailand, including India. So those manufacturers already relocated somehow. But some categories super rely on their key components applying, like the air conditioner. So they have way more complicated supply chain. It's not easy to move that out entirely. So the major air conditioner manufacturers still they have to produce in China. So different categories and right now be impacting in different level. But those shifting supply chain already took place for years. So for us is that we just follow the flow is that wherever the customer want to produce their finished products, we just deliver our modules to their location. So I think that's the first one. But the pressure come from that, especially in Q2, as we can see that those tariff policy, I mean, challenge is that the United States, I mean, United States or President Trump tried to raise the tariff for almost every other country, including Mexico, including Japan, including Vietnam, China. So for the short term that the importers don't know where is the safest place to produce or where is the stable place to do that. So I think that's where the shape comes from. But what we see for the long term is that anyhow this is a negotiation across multiple entity, across multiple nations. The negotiation gonna work out with a deal. So once there is a deal, there's a price that how people have to pay that and then there will come a conclusion so all the merchants they know that how they can re-price that and trying to sell that on a steady level even with a higher price so that's what we're looking forward to to wait and find out so those negotiations seems to progress somehow and seems to have a conclusions maybe in the next couple of month right where we see we extend it twice but we're looking there should be a conclusion so we're looking for have that so that's a that's a first one so for the short term there's no easy option for the manufacturing for the manufacturers because almost everyone be tasked at a different price But for the long run, that's as long as there is a price. And then people will figure out how to continue to do the business, because we're not cutting up. Yeah, I think that's about tariffs. And second one about the gross margin, I already shared part of the parts on the previous questions. So we'll review the gross margin, split it into three sections, because either the PaaS or the SaaS or the solutions, they come in two different value proposition and facing different type of competitions. So we'll more review those gross margins to see whether we take the higher value proposition. For the solutions, maybe we take a higher value proposition versus their in-house design team versus any other solution providers. And for the PaaS, we review whether we can really offer them as a PaaS company or as a platform company. And for the SaaS, it's whether we are really running a SaaS-based business. So for that part, the value propositions to show the competitiveness for us as a different role. So as I shared before, in the past, the range so far between 47% to 48% was satisfied with that. For the SaaS, about 70% as a regular SaaS company were good with that. And for the solutions, A higher proposition is about 20%, I think that is good. I think that's a key part, we managed it. One of the reasons for the solutions, as you can see that solution margin declined, slightly declined in Q2, reason being that solution is more supply chain business, more supply chain related. In Q2, we started offering some new solutions like the AI toys, like AI expand. So at the starting point of some new products or the new solutions, we have the space to come along with the scalability. So we're offering at the lower margin, we think it's fine. But to come along with our scaled business, so we have more space that we can free the cost. So I think that's a key part. So the most important thing for us is that's proven those solutions really worked out, come along with the right end user demand, and to come with the competitiveness that we can help the customer to facing any falls. In the same time that come along with the scalability, we'll be able to, you know, increase the operating average and the margin performance for the non-run. I think that's how we run it. Thank you.

Thank you, Alex. That's very helpful.

Thank you. Seeing no more questions in the queue, let me turn the conference back over to Regina Wong for closing remarks.

Thank you, operator, and thank you all once again for joining us today. If you have any further questions, please feel free to contact IR team of Tuya. Goodbye and see you next quarter.

This concludes today's conference call. Thank you for participating. You may now disconnect.