Tuya Inc. (TUYA) Q2 2025 Earnings Report, Transcript and Summary

Good morning and good evening, ladies and gentlemen. Thank you for standing by, and welcome to Tuya Inc.'s Second Quarter 2025 Earnings Conference Call. [Operator Instructions] 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 are 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 webcast 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 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 a corresponding English translation. Jerry, please.

[Interpreted] Hello, everyone. Thank you for joining Tuya's earnings call for the second quarter of 2025. Let me start with a brief overview of our performance. In the first half of 2025, Tuya generated revenues of approximately USD 155 million, representing about 15% year-over-year growth. Revenue in the second quarter reached around USD 80.1 million, an increase of 9.3% year-over- year. During the quarter, global trade uncertainties intensified with U.S. tariff policy significantly disrupting the global discretionary of consumer electronics industry. As a result, downstream retail channel brands, importers and exporters delayed or adjusted their operations and planning. Nevertheless, Tuya remains resilient, delivering positive outcomes across multiple fundamentals, including revenue growth, gross margin and profitability, as well as AI products and ecosystem development. In terms of profitability, we maintained a blended gross margin of around 48% for both the second quarter and the first half, with all 3 business segments achieving stable gross margin, 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 profit grew approximately 127% year-over-year, highlighting the operating leverage embedded in Tuya's business model, which remains sustainable even in a complex environment. Opportunities and challenges from both AI adoption and the global trading environment 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-term strategy initiatives such as Tuya Open and our AI agent development platform to broaden effect to AI developer tours and build a business ecosystem that supports Tuya 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, Tuya delivered revenue of about USD 80 million, representing 9.3% year-over-year growth. By segment, PaaS leveraged its diversified product ecosystem to capture essential consumption demand in home appliances, delivering year-over-year growth of 7%. Smart solutions supported by focused hardware offering and a differentiated solutions tailored to various customer segments withstood macro pressures and achieved year-over-year of 16.7%. SaaS and others revenue was about USD 11 million, up 15.6% year-over-year, driven by the continued 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 the ambient lighting and home appliances, including air conditioners and air fryers. New customers, including a top Turkish solar storage companies and medium 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 Cube platform deployment entered the large-scale delivery space, while smart home and real estate products in Singapore advanced into implementations, contributing meaningful revenue across both hardware and software in the now quarter and the future. In North America, our flagship AI solutions, 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 gamed positive feedback in Q2 with plans to expand IP collaborations and target diversified audience. Admittedly, even since shifting tariff policies introducing global trend uncertainty. Stakeholder across the discretional consumers electronics value chain and had become acting in their own interest, significantly pursuing off-line retail system overseas. Nevertheless, Tuya's diversified products 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%. PaaS gross margin reached a historical height of 48.7%, while Smart Solutions and SAS and others delivered gross margin of 22.5% and 72%. Considering that Tuya's gross margin reflects the outcome of a platform-based business model combined with a rich hardware ecosystem, Q2 margins was aligned with our management expectation, maintaining stably, robust margins is the foundation for achieving strong operating leverage. On the expenses side, we maintained disciplined execution. Since early 2024, after rightsizing our team, we have managed to meet operational needs, including upgrading AI capability, increasing investment in R&D, cloud and AI technology, building our developer community and hosting creative events while keeping non-GAAP net operating expenses stable. So we have remained across USD 30 million per quarter for 6 consecutive quarters. Additionally, in May, we achieved a decent victory in the first class action lawsuit initiated in 2022, successfully defending the rights of Tuya's stakeholders. This also marked as a conclusion for the related expenses and eliminate future risk for potential losses. As a result, our operating leverage 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, with GAAP margin expanding over 11 percentage points. While interest rates cut a solid 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 USD 18 million in Q2 and paid out our second cash dividend of about USD 37 million. Net cash balance stood at just above USD 1 billion at the quarter end. Looking ahead, we will continue to explore ways to deploy excess capital 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 AI ecosystem. So our goal is to continually lower the development threshold of AI devices products and promote their border AI innovations and adoptions. So first of that, let me highlight 2 data points. As of June 13, 2025, 93% of Tuya's shipped products categories were equipped with AI capabilities. Meanwhile, Tuya AI developer platform deliver AI agent services that supported 150 million interactions per day globally across scenarios such as AI notes, AI translate, AI health, AI energy, AI pet care, AI trendy play, AI gaming, AI safety guard and robotics. So in light of this, we've also seen strong enthusiasm and rapid expansion across our developer ecosystem infrastructures. Over the past quarter, many AI developers activated Tuya 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 source community also gained 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 the core contributors steadily emerging as the ecosystem scales. While driving developer engagement, we also emphasize co-creations within the ecosystem. Since Q2, we have partners with ecosystem collaborators to host multiple hackathon events across online and offline channels, generating hundreds of macros, AI devices, prototypes, and with commercial potential. Those events span universities, embedded engineering communities, macro spaces, incubators, cloud developer communities and cultural or IP developer groups, continuing to pave the way to bring AI into millions of households worldwide. For example, in late July, we cohost a mega hackathon, AdventureX 2025, attracting over 800 young developers and makers globally over 5 days. Participants create a range of original projects through our teamworks and collaborations with dual-method feedback from developers and broad media coverage, reaching over 10 million of people watch this hackathon. More importantly, we are exploring pathways for maker projects to commercialization. For example, the community initiative OTA Robot project has entered commercialization, with distribution partners fueling its marketing and promotion. It is also driven adoption of Tuya T5 developer board across the developer ecosystem. Another category of AI patent products, which won award in hackathon competition attract interest from the celebrity agency and the consumer market, drawing incubation attentions from multiple commercial partners. In additional, our collaborations with the open dev community is bringing AI hardware development into university and inventing developer circle, enable developers to practice IoT applications during the study. So looking ahead, we'll continue our effort in 2 directions. The first one, future lower the threshold of AI developers, leveraging the Tuya's AI developer platform, AI agent platform, AI coding tools and scenario-based strategic to help more developers to get started quickly with AI hardware development. Secondly, accelerating the commercialization of more AI hardware innovations through collaborations within the developer community. Co-creation mechanism and ecosystem partners bring excellent products to market and create commercial opportunities. So to conclude, while phased macro challenge in Q2, the company maintains a strong profitability in the first half of this year and made solid progress in smart solutions, AI devices and developer ecosystem. Looking ahead, we remain focused on the long term, executing 2 major growth strategy -- 3 major growth strategy to offset near-term macro challenges while strengthening our foundation for sustainable growth. So the 3 major direction will be, the first, we'll continue deepening relationship with the core customers. We'll meet the different needs of both new and standing customers with differentiated approaches, providing tailored product solutions and the technology to support and help them to maintain competitiveness in their respective market. Second, we'll boldly seize regional opportunities. In Europe, we'll focus high demand -- fix on high-demand categories such as AI- driven energy saving and air conditioners. In Asia Pacific, will promote smart fixation of residents, building and compacts through its integrated AIoT platform, combining hardware and software. In North America, we'll focus on the consumer scenarios experience strong willingness to pay such as pet or ambient entertainment. And in China, we're deep in partnership with major companies, gradually building consumer awareness through e-commerce and pursue industry penetration very realistic group channels. Third, we will accelerate AI innovation among developers, covering new AI-driven hardware applications as well as agents intelligence building on hardware, 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 USD 33 million. Regular dividend payments reflects Tuya's commitment to returning value to the capital market and our shareholders. They also underscore 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 macro side. So thank you all. Operator, I think that's all we'd like to present today. We can begin with the Q&A session.

[Operator Instructions] Our first question is going to come from the line of Yang Liu with Morgan Stanley.

Two questions from my side. The first one is regarding the growth outlook given the changing global trade environment in 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 past shipment growth? The second question is regarding the FX impact. Could the management update us what is constant currency growth for top line in the second quarter and to help us to understand what is the FX impact to the P&L?

Yes. So I'll answer the first one first. So yes, for Q3 and the rest of this year, we'll see that the uncertainty on the tariff situation continues because till now, we still don't have a conclusion. We don't have the agreement between countries. So the rest of this year, we'll see that and consumer electronic categories recovering right now is still under pressure. And also, the first shipment for the Q2 for those products that's been tariffs, and we will have to meet the product tend to sell, but the retail product tend to impact it. So we will have to close the eye to witness what's going to be the end demand reflect 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 manufacturers, so they all have the concern that the demand we're starting to have the risk of the decline after the retail price raising. So 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 and forecast. So those buyers, they have the -- they already show this kind of concerned mindset. So instead of too optimistic.and like -- so some of the orders that would shift from the higher value of the smart one into some lower value and with entry-level one. And even including Europe, that they have the same type of uncertainty as we have. So those kind of virus, they're not too optimistic. So they will have very -- they are very conscious to review all the reflects on the end users in the 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 retails. So we have more growth on the supply chains. We have more noises from the -- for the uncertainty. Typical stuff is that while the retail prices are facing pressure to risk. And then so from the retailer side into the importer side, into the brands, into the manufacturers, every people are renegotiating how to observe those kind of risk cost. And that kind of negotiation across multiple roles, multiple entities, takes longer. So what we see is that in the past couple of months, those kind of negotiations took in places and demand. A typical example, what we see is that on the off-line retailers and e-commerce, those price impact and centre very directly. Like some of the robotic vacuum, we can see here is that some of the fast-growing robotic vacuum branch from China, their gross margin and profit declined so much. That's kind of because of the tariff and bargain impact. So for Tuya, that what we see is that the tariff impact is exist and also in the same time 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, yes, there is 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 is 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.

Our next question will be from the line of Timothy Zhao with Goldman Sachs.

Great. Congrats on the very solid results. Also 2 questions from my side. One is really on the competitive landscape in the AIoT PaaSsegment. Just wondering how much you can see the competitive advantage when I think the whole industry is moving from the traditional say, IoT path to AIoT? And what are our ways to maintain that kind of competitive advantage globally. Secondly is 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.

Yes. Thank you, Timothy. So for the first one, what we see is that we are doing a lot of things to push -- not push it, 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 out of different webinars, trainings and events to grab all those kind of ideas, innovative plans from the developer side that they have anything that we can think on how it can bring AI into the new user experience together. And the data I already shared is that so for the first half of this year, over 93% of the products that's building with the Tuya platform for the first half of this year already come with AI capability. So we're already doing quite good penetration of the combined the new AI feature set into the existing Tuya developer ecosystem and a customer base as well. So that's the first one. But we'll continue to do more because the -- a very exciting opportunity we see is that coming on 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 types of categories doesn't exist or doesn't seem the opportunity how we can turn that into smarting. But right now, it is. So we'll continue to do that to have more of my existing developers to start to try out of the AI feature set and understand those kind of air technology and also to exchanging the ideas of creativity. So that's the one thing. And also, another thing is that whilst 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 for to have more, I would say, AI essential and applications be built out in the future for the long run. And so that's one. And the second part for the dividend or for the shareholder return. So like we said for the 2 quarters before, so we will consider the dividend as a regular policy or to or solutions that we offer for the shareholders' return, besides any other things. And the dividend is based on the stable profitability of the company, the stable business model and growth and also a very healthy net operating cash flow. So our dividend will be based on that, and we're offering as a regular solution for the shareholders. That all, Timothy.

[Operator Instructions] Our next question comes from the line of Kai Xiao with CICC.

Okay. And I have 2 questions as well. My first question is on your gross margin. So with this quarter, your gross margin has steadily expanded with margin, in particular, is rising fast. So my question, what are the key drivers for the gross margin going forward? And in particular, how would the AI-related revenue affect your overall gross margin mix? So that's for the gross margin question. And my second question is on the SaaS and smart device solutions. So could you share the primary growth engines for the 2 sectors? And what's your outlook going forward?

Okay. So the first one, I think that the gross margins represents -- okay. The gross margin represents I think the competitiveness of the technology we provide and also the value proposition 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. But they continue to satisfy with what we're offering, no matter is on the technology is on the services is 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 will print that. And for us, is that we manage the 3 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 gross margin above 70% will be regular based. So we're not looking forward to push that up like the into 80% or 90% because that's not realistic. But we're looking for to scale that faster. As you can see here is that starting from Q2, we really see the SaaS trend growing faster than PaaS past and because we're starting to acquire or transit more end users to those kind of SaaS orphan 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 we're looking for the long run is that because it's software and hardware combined and essentially have more and more portion come from the hardware side. So for that part is at above 20% of the gross margin for the solutions already represent that taking a higher value proposition for that part. And so that's -- I think that's what we're looking for to see that to maintain above 20% gross margin for the solutions is what looking forward to come around with scalability. And I think that's the key part. So we feel comfortable about the current position so far because we really take the higher values on the existing work we have in the industry. So we 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's further solutions. For the solutions on the strategy side, is that the solutions are not open for everyone, canter. So the solution will more focus on the key customers or the top tier customer in the phone perspective market, either in their own region or in their own vertical industry. So the solutions are providing differentiated and the offerings for those customers to help them to provide a higher value products to the market. So those key customers, I thought they have a better position that they can offer in a higher pricing products or they have a better position to provide a differentiated production. So we don't -- we were not facing very brutal competitions on the commodities. So we don't offer the communities. So I think that's the first one. And then through that part, we are kind of working along with those key customers. to making a product road map 6 to 12 months ahead. And then we kind of become the key suppliers for all their most advanced products. or flagship products for the none. So I think that's what we our running proceeds for the long term. So the more we start to deliver for those customers, the more opportunity we have working along with those customers for the -- and the more opportunity we can take more portion of their business and for any type of smart devices for the long run. So I think that's a key part. And what do we see a very good 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 2 significant leaders for the toy industry in China. So one is [Foreign Language] another is [Foreign Language]. And so those feedback from the customer side and from end users that become very positive. And then we're trying 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 we're starting to open more doors. And for the second half of this year, and our shipment for AI-based energy solution, we're starting to places, and we're looking to have that -- grab that opportunity as fast as we can as well. So I think that's for the solution part.

Our next question comes from the line of Matt Ma with Jefferies.

I have 2 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 other 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 is 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 3 to 5 years, what kind of margin profile do you expect to see the company to achieve.

Okay. Yes. So the first one is that, yes, after the tariff situation, every people talking about the shift in supply chains globally. And -- but that kind of topic has not been talking -- it's not been discussed this year because the first tariff rating took in place in 2018. So what we see here is that just for those products manufactured and so to United States, different categories react in different ways. So for those categories, we acquire a less component and less rely on very diversified supply chain. So some simple stuff like the plugs, maybe LED box. So those type of categories, not only this year, I think that 4 or 5 years ago that many manufacturers trying to relocate it in other countries like Mexico, like Vietnam, Thailand, including India. So those manufacturers are already relocated somehow. But some categories, super rely on the key components supplying 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 conditional manufacturers still they have to produce in China. So different categories right now impacting in different levels. But those shifting supply chain already took in place for years. So for us, is that we just follow the flow is that wherever the customers want to produce their finished products. we just deliver on modules to their location. So I think that's the first one. But the pressure comes from that especially in Q2, as we can see that those tariff policy, I mean, challenge is that United States or President Trump tried to raise the tariff almost every other country, including Mexico, including Japan, including Vietnam and Thailand. 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 ship comes from. But -- what we see for the long term is that anyhow, this is a negotiation across multiple entities, across multiple nations. The negotiation is going to work out with a deal. So once there is a deal, there's a price that how people have to pay that. And then they will become a conclusion. So all the merchants, they know that how they can reprice that and is trying to sell that on a steady level, even with a higher price. So that's what we're looking forward to wait and find out. So those negotiations seems to progress somehow and seems to have a conclusion maybe in the next couple of months, right, where we see extended twice, but there should be a conclusion. So we're looking for have that. So that's the first one. So for the short term, there's no easy option for the manufacturing, for the manufacturers because almost everyone will be tariffed at a different price. But for the long run, that 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. Yes, I think that's about tariffs. And second one is about the gross margin. I really share part of the parts on the previous questions, so we'll review the gross margin related split into 3 sections because either the PaaS or the SaaS or the solutions, they come to different value proposition and facing different type of competitions. So we'll more review those gross margins to see that whether we take the higher value proposition. For the solutions, maybe we'll take a hard of propositions versus their in-house design team or versus any other solution providers. And for the past, we review as whether we can really offer as a past 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 that in the past, the range was so far between 47% to 48%, we're satisfied with that. For the SaaS above 70% of the regular SaaS company, we're good with that. And for the solutions, a higher propositions is about 20%, I think that is good. So I think that's the key part we managed it. And one of the reasons for the solutions, as you can see, the solution margin declined slightly declined in Q2. Reason being is that solution is more our supply chain business, more supply chain related. And in Q2, we started to offer some new solutions like the AI toys, expand. So at starting point of some new products or the new solutions, and we have the space to cost coming on with the scalability. So we're offering at the lower margin, we think it's fine. But to come along with our scale of the business, so we have more space that can free the cost. So I think that's a key part. So the most important thing for us is that to prove those solutions really worked out coming on with a wide end user demand and come with the competitiveness that we can help the customer to face in any fold. In the same time, that's come along with the scalability, we'll be able to increased operating average and the margin performance for the number. I think that's how we run that.

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. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]