Tuya Inc.

Good morning and good evening, ladies and gentlemen. Thank you for standing by and welcome to Tuya Inc.' 's third quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be question and answer session. Please be informed that today's conference is being recorded. I'll now turn the call over to your first speaker today, Ms. Regina Wang, Investor Relations Senior Manager of Tuya. Please go ahead.

Thank you, operator. Hello, everyone, and welcome to Tuya's Third Quarter 2025 Earnings Conference Call. Joining us today are founder and CEO of Tuya, Mr. Jerry Wang, and our co-founder and CFO, Mr. Alex Young. The Third Quarter 2025 Financial Results and website of today's conference call are available on our IR website at ir.tuya.com. And the replay will be posted shortly after our conclude. Before we continue, please notice that our safe harbor statement in the earnings press release applied to today's call. As we may make forward-looking statements, with that, let me now turn the call over to our founder and CEO, Mr. Jerry Wang. Jerry will deliver his remark in Chinese, which will be followed by a corresponding English translation. Jerry, please.

大家好,感谢大家参加涂鸦2025年第三季度业绩电话会。 Hello, everyone.

Thank you for joining us for the third quarter of 2025.

今年三季度,外部环境仍然延续了年初以来的波动特征。 The global consumer electronics industry is in a state of slow recovery, and customer demand is at a more acute stage. At the same time, the technology of the same period is higher, and there is a certain pressure on the price of the same pen. Under such a background, the total income of this quarter reached about $82.5 million. The ninth consecutive quarter maintained the same pen growth, revealing the company's ability to look at the analysis of the business model. The net profit continued to remain at more than 48%.

In the third quarter, the external environment remains volatile, continuing the trend seen since the beginning of the year. The global consumer electronics industry experienced an uneven recovery, with customer demise becoming more cautious in the ongoing macro uncertainties. In addition, the high base from the same period last year created added pressure on year-over-year growth. Against the backdrop, our total revenue per quarter reached approximately US$82.5 million, marking our ninth consecutive quarter of year-over-year growth and underscoring the strength of 2S business model. Growth margin remained above 48%. This result further reflects the resilience of our business structure and the steady improvements we have made in product mix and operating efficiency over recent quarters.

净利润方面,受益于毛利率的结构改善,费用效率提升及规模杠杆的持续示范, Non-GAAP的净利润率为24.4%, GAAP的净利润率为18.2%,其中GAAP的净利润率同比提升超过23.6个百分点。

In terms of profitability, spotted by an improved gross margin profile, greater expense efficiency, and sustained scale leverage, our non-GAAP net margin reached 24.4%, while GAAP's net margin was 18.2%. Notably, GAAP net margin expanded by more than 23.6% year-over-year. Overall, while maintaining key investments in business development, we have continued to optimize our expense structure, enabling incremental revenue and growth profits to translate more effectively in operating profits.

At the same time, in terms of strategic execution, we fully embrace AI and achieve further low-ground effect in the ecosystem. Since the end of the third quarter, AI-supported smart devices have accounted for 93.9% of the total output. The further improvement of the second quarter shows that AI is rapidly becoming the default configuration of smart hardware. In the user side, the size of AI is also rapidly expanding. We can see that AI has been A.I. Voice and other single products gradually expanded to more products. The global number of A.I. Agent services has reached 1.55 billion times a day, covering A.I. Note, A.I. Translate, A.I. Health, A.I. Energy, A.I. Pet, Taobao Bar, Safety and Protection, and A.I. Agent scenarios for robots and others. A.I. is continuously infiltrating more daily equipment and living scenarios, At the same time, on the strategic execution front,

we continue to fully embrace AI and deepen its integrations across our ecosystems. As of the end of Q3, smart devices equipped with AI capabilities accounts for 93.99% of total shipments. And increments from the previous quarter demonstrating that AI is swiftly becoming the default configuration from smart devices. On the user side, AI adoption is also scaling quickly. AI has clear moves beyond single category features, like AI-wise, to a broader speculating of product categories. 2S AI agent service now handle 155 million daily interactions for global users. supporting diverse scenarios such as AI nodes, AI translate, AI health, AI energy, AI pet care, AI training play, AI gaming, AI secure guard, and AI robotics. AI continues to penetrate the broader range of daily devices and life scenarios, laying the foundation for large-scale product innovation and long-term valuation creation. During the culture, we also begin global beta testing of our new AI agent app with two AI ecosystem users. Along with our Smart Living mission, we are currently developing a universal AI life assistance for global users, which is scheduled for official release at the CES show in the United States in just over a month. 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 program.

Hello, everyone. This is Alex. I will now provide more details on my third quarter's results. Please note that all the figures are in U.S. dollar-based, and all the comparisons are year-over-year based. And we delivered a total revenue of approximately 82.5 million U.S. dollars in the third quarter, representing a 1.1% year-over-year increase. Despite a strong comparison base last year and continued caution in external demand, we achieved our ninth consecutive quarter of year-over-year growth. underscoring our resilience and stability in our business. With the total revenue, our PaaS business delivered strong results, generating 59.2 million US dollars, a 2.4% year-over-year increase, driven permanently by our strategic focus on the customer demand and the product optimization. In Q3, the number of PaaS premium customers reached 280, further strengthening our core customer base. In addition, fueled by growth in the cloud software products revenue, the SaaS and others business show consistent expansion, generating $11.5 million US dollar service quarter, a 15.4% increase year over year. This momentum was driven by continued rise in installed devices and a high proportion of recurring revenues. Revenue from smart solutions reached $11.8 million during this quarter, which strategically scaled back lower efficiency projects and prioritized scalable high-value solutions, such as AI energy management solution and spatial AI solution. to further improve overall growth margin and cash recovery efficiency. For a regional perspective, in China market, AITOY continued to show healthy growth in the third quarter. More than 50 customers, including brands, channel partners, and solution providers, they launched the products powered by Tuya. And key products capabilities also continued to advance. such as multi-modal interactions, long-term memory, and emotional expressions, with several connectivity versions coming soon as well. These improvements further strengthen the foundation of expanding into new product categories and regional markets. In the European market, demand from AI-powered solutions such as AI cloud storage and AI energy saving solutions continue to rise. At the same time, we added several new industrial clients in the energy and HVAC sectors during this quarter. In Asia Pacific, deployment of a cube, the privatized platforms for several Southeast Asian telecom operators are scaling rapidly, with additional cities entering the delivery phase. The Singapore HDB Housing Deployment Board of Singapore projects also progressed into implementation, with the first bench of the hardware and software solutions delivered and in stores in this quarter. In North America, AI-enabled products such as smart bird feeders continue to record healthy growth. The strong adaptions validate the commercial potential of niche scenarios that integrate emotional values, frequent content interactions, and non-transcription model. and underscores the structural growth opportunities for AI products in mature consumer markets. In summary, despite pressure in the global consumer environment, 2ER leveraged its diversified product portfolios and strong software capabilities to achieve a structural growth. Those trends further strengthen our resilience against external micro volatilities and uncertainties. Moving to gross margin, our blended gross margins for Q3 in 2025 was 48.3%. Total gross profit reached approximately 39.8 million US dollars, representing a 6.1% year-over-year increase. This growth was primarily driven by concurrent improvements in both our revenue mix and cost restructure. By segment, the past growth margin rose to 48.8%, continued to upward strength from the second quarter of 2025. SAS and others maintain a strong growth margin of 70.8%, remaining above 70% level. Smart Solutions poses a gross margin of 23.8%, slightly higher than last year's 23.5%. Overall, our Q3 performance aligned with our expectations and continue to reinforce the profitability foundation at this stage. On the expense side, we continue to maintain prudent and disciplined financial management. Even as both our scale and profitability expanded, Total operating expenses declined to $36 million, down 34.1% year-over-year. GAAP operating margins improved significantly to 4.6%, and GAAP net margins increased 23.6 percentage points year-over-year to 18.2%. While ensuring that R&D investment in key AI initiatives and platform development remain intact, we continue to exercise strategic cost control to balance growth quantity and profitability. On the cash flow front, operating net cash flow continue to grow steadily this quarter, reaching $30 million, a 25.7% increase year-over-year. Our cash collection cycles remain stable, and cash flow quantity materially improved. At the end of the Q3, our net cash balance stayed above 1 billion US dollars, giving us ample flexibility to balance the shareholders' returns, manage external uncertainties, and support non-term strategic investment. I'd like to briefly highlight some recent progress in our AI capabilities and developer ecosystem, which serves as a crucial foundation for 2ES long-term growth. At the end of the Q3, 2ES platform had 1.62 million registered developers, representing a 23% year-over-year increase. AI adaptions across the smart devices also continue to accelerate. Commercial AI developers have collectively created more than 12,000 AI agents on the Tuya platform, covering a broad range of smart products categories, including toys, pet products, electronics, home appliances, IP cameras, and wearables. Meanwhile, we continue to deepen and strengthen our AI developer ecosystem, anchored by Tuya Tuya Open and the T-Series AI Developer Board. On the open source front, Tuya Open has seen steady growth in both documentation and code engagement. Since the beginning of this year, the GitHub repository star count has increased by about 80% to date. over 2.3 million lines of codes have been contributed to open source projects. Beyond the rise of the Intuia developer participation, the overall quantity of the ecosystem is also improving significantly. In summary, despite the prevailing external uncertainties, we still demonstrate strong resilience and operational agility. achieving solid financial growth and impressive profitability, which is steadily advancing the AI plus IoT developer ecosystem across our core business segments. Thank you all, operator. We can begin Q&A session right now.

Thank you. We will now begin the question and answer session. To ask a question now, please press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, Please press star 1 and 1 again. One moment for office question. Our first question comes from the line of Yang Liu from Morgan Stanley. Please ask your question, Yang.

Thanks for the opportunity. I have one question regarding the business outlook. With more and more trade deals settling down in the international trade markets, What is the business outlook going into fourth quarter this year, which is a peak season? And also, what is your early look for customers' demand going into 2026? Thanks a lot.

Thanks, Liu. I'd like to share three points. So the first one is that this year we still see that will be the kind of the softened demand on the growth side. And because of the uncertainties on the global market economy situations at this year. And so this year the Q4 will see that the regular promotion season will be kind of the soft-turn versus the last year. So we will keep closing on to review that while we already have the stable, kind of the stable turns across multiple countries, that whether the demand will be coming to return steadily on December. So that will be the short-turn. And for 2026, what we see here is that because like Jerry shared earlier before, that all those kind of AI features and smart home portfolios become more and more inevitable trend for the entire sector. So which means that more and more consumers are really starting to familiar with this type of products. They really become the beginning users of this type of things. And all the major brands and the players, manufacturers in industries, are really starting to enter these sectors and bring that into their growth, the growth factors. So those type of trend will never stop. So for in 2026, we'll have a very positive outlook about the growth, keep growing the entire business sectors. And the third one I'd like to share is that by reviewing all the technology improvements in the past decade, and we'll review AI will be one of the booster that bring the IoT experience into next level. Because in the past, the smart home experience, it's majorly focused on the connectivities, some automation and control. But while coming on with the AI capabilities, the user experience will come into a next level to more friendly more easy to use and more smart. And so that's why we decided to provide a new AI assistant for life which connecting all the home scenarios and to ordinary people and have more people be able to enjoy the smart devices experience. So that will lower another bar for the entry user. so combine that three together the short times we'll see that 2025 there's still some uncertainty and pressure on that but uh it's become more and more inevitable and become a default and options for major brands and players are there and we're trying to bring the bar lowers for more users who are not become the smart devices user as well so i think that will be the overall is very um positive in the long term and conscientious in the short term. Thank you.

Thank you.

Thank you.

Our next question comes from the line of Timothy Zhao from Goldman Sachs. Please go ahead, Timothy.

Good morning, management. Thank you for taking that question and congrats on the solid results. I have two questions here. One is regarding the AI home agent that you just mentioned. Just wondering if you can share more color on the detailed specs and the use case of these AI agents that you are going to officially release at CES next month. And how do you think about the impact on the overall business of Tuya with this new product? Secondly, it's about the AI overall impact on your path and fast solution business. Just wondering, for example, for the salmon growth this quarter, would you please break down in terms of by volume and by pricing, has AI brought any positive impact on the overall pricing of your product and services, and also on the impact on the growth of the market? Thank you.

Okay, thank you, Timothy. So the first one is that, so we'll define this as an AI assistant, so it's bigger than an agent, and because we think that if we review the live scenarios, even only for home, you find that you have multiple things you want someone to help you with. So this is an AI assistant come with multiple agents that can help you to do almost everything you need in a home. So that's the first one. That's how we designed this new assistant. And the key value for that part would be two things. The first one is that while coming on with the adaptions of the GMAI, an app, including the GPT, including the chain one, et cetera, that you found that AI can help you to do a lot of things, a lot of tasks on the software side. But there is no assistant focused on home. That's what you need for your home and how you want to take care of the home. So for us is that we design the different type of agents and capabilities focused on those scenarios people want to interact and people want to have a better life quantity or easier life experience in home. That's the first one. And the second one is that the key differentiation of this assistance, among any generic assistance, is that this assistance will naturally be able to interact with the physical scenarios through the hundreds of millions of the Powered by 2L devices. So which means that we're trying to bring kind of science fiction to come true. Like the javas in Ironman's house, every people appreciate that. Every people, I mean, admire that. But there is no that type of javas yet. So we want to create that type of experience for the global people. So that's how we define the key features and value for the user side. And I think what it means for the ordinary users I think the key part is that right now we found the smart devices is still kind of complicated. It's become way more easier than 10 years before, but still kind of complicated to, I mean, to learn to use, to interact with by many non-users. I mean, for those beginners. So those parts are still there. But coming out through the assistance, so you don't have to learn to use the app anymore, and you don't even need, you just need to know how to speak, right? Like how you can tell your housekeeper to do something, how to tell a servant to do something. It's similar like the assistant will be able to take the orders and to do all those kind of complicated operation for you. So we believe that will lower the bar significantly for the new users for home. And right now we see that while the penetration of even smart home is still in a low, no digits and by the word of the entry bar will be able to open more doors for those new users while they found that the smart devices will be accessible for them to use. So that's for the AI system parts. And the second part, second question is for the AI. So first one is that, This year we consider as the beginning year of the AI device, so we're very happy to see that finally our education to the market, to the developers, to the customers, are already starting to offer some feedback. So like the numbers we shared before, by end of the Q3, over 93% of the products we shipped this year already been turned on some AI capability. So which means that my customers, my developers, are ready very actively to try whatever AI features or capabilities they can provide through their devices, even their existing devices. So that's the first one. So we really have a lot of innovative developers trying to try the ideas and try to educate end users and test end users' feedback. And that will be a very, very typical starting point for any new technology adoption. And so we really have that kind of scale test field taking places. And the second one is that we still provided the AI seamlessly through our three business model. So including the PaaS, including the solution, including the SaaS, right now we have different type of AI offering in different business models as well. So which means that for my customer side, on the procurement perspective, so they don't have to learn how they will be able to purchase something from Tuya differently. It's similar like an offering, but it comes with different features. And maybe it comes with a different pricing, maybe not. So for that part, we try to have almost all my customers defaultly be able to try AI, try to bring AI into their existing production and solutions. And through that seamless integrations into my existing business models, we believe that that will help in two things. The first one is that to come along with a new feature set, any new feature set will bring new demand. So that will be able to speed up the penetration and adaption of the entire market. And we're looking forward to have the AI hub coming as a booster. And the second one is that with some really new feature set that will reprice that and that will improve our GPM as well. But we're looking forward to have the GPM impact coming very soon because it's history in the beginning. So we try to promote the market. We try to incubate in the market in the beginning, but not running very aggressively on the profitability side on that type of niche sector. So that's the overall outlook. Timothy?

Thank you.

That's very clear. Thank you, Amanda.

Thank you. Our next question comes from the line of Ming-Ren Lee from CICC. Please go ahead, Ming-Ren.

Thanks, management, for taking my question. Congrats on your solid layout. And two questions from my side. First is, following adjustments of breaking global tariffs, policy, could management share more color on the downstream or the recovery progress in the overseas markets, especially North America? My second point is that could management share the latest progress on the AI technology, particularly in terms of commercialization? Thanks.

Yeah, so the first one is that a couple of weeks ago that we get a temporary one year terms between China and US, right? And so which means that all the merchants, importers, right now they have stable cost levels at a specific timing. And so that will be good things. At least we get some certainty. But the promotion for this will be pretty locked in. So those kind of new terms will be able to impact for next year's demand. So we're looking forward to have that to be a positive impact. And right now, the customers and employer size, they still kind of review, okay, what will be the tune for next year's, and they like to review what will be the turn-out, sell-throughs for this promotion season, starting from this week, right? We'll have the Black Friday this week. So we're looking forward to have more feedbacks on December. as I described, and while people already know what cost they're going to get for next year, over a year, and what will be the demand looks like, and then how they have to set the teams for the new projects and the new sell-in reordering. So that's the first one. So still under review. And the second one is for the AI. I think that I already answered part of that to Timothy earlier for the earlier questions. So the first one is that right now we're offering AI across almost all my categories. We have some generic AI capabilities, can work on anything. And we also have some differentiated vertical AI capability for specific type of the products. But all those kind of offering are seamlessly integrated into my existing three services, the PaaS, the solution, and the SaaS. That's the first one. And in this year, on the new device side, including the path and solutions, we're really happy to see some breakthroughs into some new sectors, like the toys. And we shared that earlier last quarter as well. So this will be a totally new vertical categories come up with a large total addressable market scale size that we don't touch before. And the IoT never be able to enter that sectors. but coming on with AI, so right now we'll open the door. And in this year only, we're running three quarters only, that's many of the key players in the industry, starting from China, in the toy industry, and already starting to cooperate with us. And in Q3, we're ready to help the customer to launch a lot of use cases to test the demand. And it turns out that the end users love it, and so I'll say that TriSales for many of the customers works out. So we're looking forward to continue to improve the experience and also the customers start to be ordering and running a new type of promotion process or sales channels to scale it. So that's what we see that the AI open new doors. So that's the second one. And the third one is that Not only upgrades, kind of upgrades on my existing categories and open new categories. So the third one we try to open is the 2C experience. So we're looking forward to using the new AI Assistant to open all the new home users doors. Especially for those ones who still don't have any smart devices, they still consider that type of devices will be kind of complicated for them. So we're using our system to help them out. That's it.

Okay. Thank you. Very clear. Thank you. Our next question comes from the line of Matt Ma from Jefferies. Please go ahead, Matt.

Hello. Good morning, management. Thank you for taking my question. So I just have one question regarding smart solutions. So the smart solution revenue declined by around 14% in third quarter. Just wondering what is the reason behind it? And then could management provide any growth outlooks for the segment in 2026? And also, any thoughts on product category expansion going forward? Thank you.

Yeah. I think the first one is that in 2026, we're looking to have a better year versus 2025 because we should have less turbulence for the market economy side on a global basis. Like I described, the customers right now in many vertical sectors, the customers already think that the AI features or AIoT features will become more and more default for them. So like some categories that every single new projects they've been doing, they have to come along with AIoT. So we become to take a larger portions in their pie. So that's the first one. So we will see that the penetration will grow. I mean for the overall industries, we continue to grow steadily no matter what. It's only a matter of of speed, which year will be the tipping point. So that's the first one. For 2026, we keep closing on, we think that we can share more colors around the second half of December, while the customers have more feedback on the end demand side, and while they're starting to set the tunes for 2026, because they don't like to run in a very conservative operation and base for a long time. They're really running for 2025. So I think that's for the first one. And the second one.

Yeah, so the second one is also regarding Yeah, it's also regarding smart solutions. So just want to understand what is our thoughts on product category expansion for smart solutions going forward. Thank you.

Sorry, I missed one part. And so I think that for smart solutions, and we're very carefully looking for the expansion to new categories because we're really learning that business model for over two years. So I think that for smart solutions, we still kind of focus on some strategically highly valued categories. And for those ones that the AI can bring a total difference, like it brings some innovative idea to come true. Without AI, it never exists. And also to some categories that we really helping customers to do a differentiation. to help them out. So usually the solutions is the one we design for the customers for their flagship model. So that's what we put out. So right now the solutions, the major categories will be the video-related multi-modeling capabilities, the control panels that's super comprehensive interactions on the test panel side, and including the gateways focused on specific scenarios. So I think that for the middle turn that we continue to put focus and scale those kind of verticals, unless we see some opportunities with scalability in some new vertical categories.

Okay, thank you, Alex.

Thank you. There are no further questions at this time. I'll now hand the conference back to the management team for closing remarks.

Thank you, operator, and thank you all for participating on today's call and for your support. If you have any further questions, please feel free to reach out to our IR team. We look forward to speaking with you at our upcoming investor events. Thank you, everyone, and have a great day.

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