Tuya Inc. (TUYA) Q4 FY2025 Earnings Call Transcript & Summary

Good morning, and good evening, ladies and gentlemen. Thank you for standing by, and welcome to Tuya Inc.'s Fourth Quarter and Fiscal Year 2025 Earnings Conference Call. [Operator Instructions] 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 Associate Director of Tuya. Please go ahead.

Thank you, operator. Hello, everyone. Welcome to our fourth quarter and fiscal year 2025 year earnings call. Joining us today are our Founder and CEO, Mr. Jerry Wang; and our Co-Founder and CFO, Mr. Alex Yang, the fourth quarter and fiscal year 2021 financial results and webcast of the conference call are available at ir.tuar.com. A replay of this call will be 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 over 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 fourth quarter 2025. In 2025, against the complex and evolving external environment, we maintain stability across our platform business, delivered study full year revenue growth and achieved a notable improvement in GAAP profitability. At the same time, we made solid progress in building a more systematic AI capability framework. For full year 2025, we generated total revenue of USD 320 million representing a year-over-year increase of approximately 7.8%. Profitability and cash flow quality continues to improve. This result reflects the resilience and stability of our core platform business as well as our ongoing process in prioritizing resource allocation and execution discipline. On the strategic fronts, we continue to incubate new AI plus IoT application scenarios and accelerated the systematic integration of AI capabilities across our platform and the device ecosystem. AI is moving from a mere overlay of these great features into fully deployable appraisal applications. As part of our AI strategy, we introduced the AI-powered smart case assistant Hey Tuya CES through a more curative and tangible entry point integrating AI agents with hardware devices, we aim to help users entry a more comfortable and able home experiences, accelerating the real-world adoption of AI capabilities across a broader range of are scenarios. Our understanding of the integration pathway between AI and smart products is becoming increasingly clear. AI is progressing beyond the stage of capability overlay and enduring a face of deep integration with device form factors and industrial specific scenarios. Its value is increasingly reflected in application maturities, improved revenue structures and enhanced operational efficiency. We believe that as AI evolved from a conversational tour into intelligent agents capable of engaging in rural operations, industry expectations for underlying system stability real-time responsiveness and scalability are increasing significantly. The impact of AI extends beyond enhancing product experiences, it is also reshaping application architecture and transforming modes of ecosystem collaboration as AI applications continue to mature, their value will increasingly be reflected in their replay capability and capacity to scale effectively across real world deployments. Looking ahead, we will continue to advance our strategy across 3 key priorities First, we will further strengthen our AI native platform capabilities enable them to more effectively support millions of developers in creating a diverse range of next-generation AI devices and applications. Second, we will accelerate the deployment and scalable expansion of AI application service across key scenarios. Third, we will deepen our investment in developer ecosystem growth and enhance our support for developers fostering rebrand unit granted in innovation and commercial success. 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 the business progress.

Hello, everyone. This is Alex. I will now provide more details on our fourth quarter and full year results. Please note that all the figures are in U.S. dollars and all the comparisons are year-over-year as stated otherwise. So in the fourth quarter of 2025, we generated total revenue of approximately USD 48.5 million, representing a year-over-year increase of 3%, against the backdrop of the continuous conscious industry demand and a more conservative customer procurement cycles. We achieved our tenth consecutive quarter of year-over-year growth. In the fourth quarter, our blended gross margin was 47.6%, while non-GAAP operating margin improved to 11.1% compared with 10.3% in the same period last year. Non-GAAP net margin reached 24.4%. Net operating cash flow totaled USD 23.5 million, making the 11th consecutive quarters of positive operating cash flow. Gross margin remained stable underscoring the company's pricing power driven by the product value and technology capabilities as well as the strong competitive positioning of our platform-based business model in a dynamic market environment. From a full year perspective, our stable growth in 2025 became even more pronounced. Our full year revenue reached over USD 322 million, representing a year-over-year increase of 7.8%. Blended gross margin of the full year improved to 48.2%, and up 0.8 percentage points from 2024. Non-GAAP operating margin reached to 10.5%, an increase of 2.9 percentage points year-over-year, while non-GAAP net margin rose to 24.9%. Full year non-GAAP net income reached to a record high of USD 80.1 million, up approximately USD 4.7 million compared with 2024. Among our segments, so the past business delivered stable performance, generating revenue of over USD 230 million, representing a year-over-year increase of 6.5%, against the backdrop of extended customer margin cycles. We maintained stable growth in our core business by optimizing our customer mix and enhancing our product capabilities, but empower my customers to provide a more competitive applications. At the end of 2025, the number of past premium customers reached to 291, continuing to contribute a structurally stable revenue to the past business. such a diversified structures without reliance on any single customer group has further strengthened our resilience in a vital operating environment. The certain others business generated a full year revenue of USD 44.8 million, representing a year-over-year increase of 13.4%. And -- of this total, recurring services revenues rose by 37% year-over-year, emerging as a key growth driver of the SaaS. So we're looking forward to enlarge this segment. faster by this recurring model. On a full year basis, the revenue growth from the SaaS and other business outpaced the company's overall revenue growth. This strong performance highlights the continued expansion of cloud software revenues, especially those AI-enabled software and reflects the gradual realization of the life cycle value from the platform software capabilities as the installation base of the device expense. Our Smart Solutions business generates full year revenue of USD 45.7 million, making an 8.9% year-over-year increase. In this segment, we observed that [indiscernible] are stimulating demand in certain new product categories while also enhancing the overall pricing power of our product offerings. At the end of 2025, our total cash and cash equivalent amounted to 1 -- over USD 1 billion, process will be USD 1,017 million, together with the term deposit and the treasury securities record as a short-term and onto investment. This net cash providing ample flexibility to support capability development, ecosystem expansion and potential capital allocation initiatives. So full year profitability was primarily driven by 3 factors. First, the continued stability of our core platform business. Second, the initial revenue contribution from AI-related products and applications; third, disciplined experience management and the realization of operating leverage. So on the AI ecosystem side for the developers. So within our developer ecosystem, we continue to advance the open source capabilities of Tuya open and further development of our AI agent platform. So by end of 2025, the number of registered AI plus IoT developers exceeded to $1.8 million, representing a 37% year-over-year increase. The cumulative number of AI agents on the 2-year platform reached about 16,000, spanning a wide range of smart product categories. So as the application deployment level, AI capabilities are being integrated across a variety of end-user products gradually establishing standardized pathway for AI applications. Recently, we host our overseas development events centered on hands-on AI hardware applications. So including the first actions held in [indiscernible], this event attracts over 300 developers and which about 90% of them are from overseas. All participating projects were built and demonstrated on the real hard growth using Tuya T5 AI development board. Completing the journeys from concept to a functional prototype within only 48 hours. This enabled Silit to be able to operate directly on physical devices. So those products span multiple scenarios, including AI, companion, wearables and desktop AI terminals as well as applications in education and security. So some of those products have already enter subsequent incubation stage and attractive commercial interest. Beyond customer-facing products and ecosystem development, we have rapidly applied internally to enhance the development efficiency. So for instance, like in short-term front-end development process, nearly 40% of the code is generated with AI systems. This has significantly shortened our R&D integration cycles and reduce the cost of the repetitive development. So those efficiency gains enable us to maintain the pace of the product and solution integrations while controlling the headcount growth. So building on this foundation, we plan to launch the AI development tools for the developers within this year and through the AI holding services, web coating we aim to further lower the barriers for AI hardware development and a boost to our developer efficiencies but enabling more low-code and no-code developers to participate in the AI hardware. And industry and application ecosystem. So this initiative will help expand the developer base while accelerating the commercialization of AI applications. Finally, so with the maturation of the physical AI technology. So the opportunity for deep integration between AI and physical world has arrived. Our launch of Hey Tuya is to build on this site without waiting for the large scale of deployment of likable, embodied robots, Hey Tuya leveraged hundreds of millions of the existing Parbati smart devices worldwide to enable AI to perceive and proactively interact with the real world today. So it draws on understanding and reasoning large models while seamlessly interacting with the smart devices that helps manage daily tasks. So this represents a new form of integrated situational AI that's making the benefits of AI tangible and immediately accessible rather than distant other products. In summary, the 2025 showcases the company's continuous progress across its business structures, profitability models and competitively frameworks on the technical side. So throughout 2025, Tuya's fiscal AI technology was validated for visibility in smart devices, giving rise to a word range of hardware forms, leveraging our accumulated strength across our developer communities, hardware acquisition and global delivery capabilities. So we are well positioned to a continuous advance in AI deployment and transforming it into a sustainable, long-term competitive advantage. Looking ahead, we'll continue to focus our efforts in this direction. First, we will further categorize the platform level capabilities to enable more efficient applications of AI across diverse device and industry sees, but lower the technology barriers, we aim to help new players breach the technology gap and accelerate this adoption of AI innovations in the hardware industry. Meanwhile, so our Hey Tuya, our next-generation AI assistant, we will establish a new standard for interactive experience in smart devices through accelerating a mass market penetration of smart products. Finally, we'll maintain cost displace, consistently improving our profitability quantity and long-term competitiveness. Thank you, all, operator. Right now, we can begin the Q&A section.

[Operator Instructions]. We will now take our first question from the line of Yang Liu from Morgan Stanley.

Congratulations on the solid results. I have 2 questions. The first one is regarding the recent tax rate change at the U.S. side, whether that will have any impact to our business outlook going forward. And my second question is regarding the recent upstream memory and other chipset supply constrained and whether it will impact Tuya business? this year.

Yes. Thank you, Mr. Liu. So the first question is, yes, that consider are the positive indicators that about the tariff reductions. -- and recently. But the demand didn't didn't react immediately yet. But we really see that the customers' confidence levels about the a better environment to do the business, especially global manufacturing trading, so should improve. So people have a more positive and more confidence that macro economy will become more stable and better this year. But the demand and order didn't show up immediately. Two reasons. The first one is that still, people will consider the the global situation will be more dynamic. So -- and those type of reason to reductions maybe will not be a sustainable level. in the near future, maybe in March that maybe new executive order will come up. So we'll just like reset the tumor of the tax level, maybe into the 15% or a little bit higher. So that's the first one dynamic. So people rather not overrated. And the second one is that this kind of new is happening during the Chinese New Year. So until now, most of the manufacturers, they started back to work today. I mean, today that we did today. So many of the manufacturers didn't starting to offer new price and try to make it new orders. So we'll see. But anyhow, we'll be very positive and directions looking forward to. And while overall costs eventually will bring down it somehow. And so the customers will be able to have more confidence to march the demand. That's the first one. And the second one is, yes, since last Q4, we're really starting to notice that the shortage of the production capacity of the semiconductor side. And the first one is that the strategy will not impact us because considered as significant buyers in these sectors. So many of our -- I mean all our suppliers will ensure that we will get we will get a fulfillment of our orders, no matter what. That's the first one. At the same time, since last Q4, we really starting to prepare how can I say, quite good inventory levels to going against those kind of dynamics in the supplying cycles. So that's the first one. So shortage is not a problem for us. And about the cost rate, we continue to keep closing on that. Right now, we -- we didn't meet that immediately increase, like I mentioned that because of the buying process. But if this kind of intensity is starting to increase without limit. We're not sure. So we'll keep closing on that. But anyhow, because of the special value position that the company will be doing so far, so that kind of increase on the supply side will not impact on our demand or significantly on our gross margin side. But we'll keep closing on that. seems that it will be less for another 1 or 2 quarters. Thank you.

We will now take our next question from the line of Timothy Zhao from Goldman Sachs.

Great. congrats on the very solid results. I also have 2 questions here. One is, I think, a more broader question about the company's position in the Agentic AI world. Given we have seen continued progress in the Agentic AI, how should we think about as value proposition to the customers in your path and SaaS business? And will the technology advances actually enhance the self-development abilities of your customers. And how should we think about the long-term rentership between Tuya and your customers? And it's actually, I think you mentioned that -- in the SaaS business, the recurring revenue actually increased quite dramatically last year. Just wondering if you can further elaborate on that. And second question is that also in your remarks, you talked about going forward, you want to accelerate the AI deployment of the application scenarios. Just wondering if you can also further elaborate on this as well. For example, what scenarios that you see more promising. And just wondering if you can share more details.

Thank you, Timothy. So yes, it's a question. So first one is that about the macro side, we are happy to see that more customers starting to thinking on how they can create their own differentiation, how they can build their own capabilities in their own R&D side because we're happy to see that. Otherwise, we have to offer that. So I think that AI makes no difference for past 10 years' experience is that we're starting to enable the manufacturing players to embrace the and the smart technology is starting with IoT. It's the same stuff. If they cannot do that, they want it, we have to offer it. So for all the time, of the company's history, we continue to offer 2 things. The first thing is that if they don't have the capacity right now, we'll offer them the off-the-shelf solution turnkey. And if they will have some capability, we continue to educate them to do that and then we offer them infrastructure to allow them to do that some extra values, they want to create more freely. So I think that's the what we call ecosystem were to create, so it's not like just keep selling stuff. They don't have to do that now. So we're happy to see that we already have a significant amount of the customers who already have their own kind of in-house capability to create their own depreciation and make their own innovations. We're happy to see that. So the same as that we continue to enable our customers to build their own like the device level, innovations and application network. So I think AI makes no difference. We also continue to do the same thing including 2025, the showcase is that for some new players, they don't know nothing about that, but they only have some ideas how they want to bring AI into their business. we increase some term solution for them, they can grab and go. At the same time, we'll continue to have the very deep and active conversations with their engineering team. Okay, what they can take for now. and what they can be in the future and what -- how to able to enable them to do that more efficiently than faster without the overwhelming boarding. So we'll continue to do that the same way. So -- but what we think that make us very excited about is that several years ago, you still need to convince tell people how the smart devices are promising business. You still need to tell them that this will be in the future. But right now, you don't have to tell people that AI future. Every people are buying that. So the key part is that they really have the concept in their mind and how you'll be able to help them to make that faster and more efficiency. And more competitively, I mean, on the user experience side. I think that's the first one. And so the second one is -- on the SaaS recurring staff.I think the key driver for that is that remember our past, we continue to deploy a significant amount and scale of the devices overall with or without any type of recurring services out there. So which means that we will have a large base. And at the same time, coming along with AI. So some what we call existing categories only come with IoT before, and we really see that combined with AI capability, we will be able to offer some extra experience and values on the same type of the depiction and which already deployed on the household. So in 2025, we continue to offer some new services on the same type of the hardware. And then we see that it should work out. And even on the existing recurring services, like some storage services by offering extra AI capability, we make the services more valuable or more feasible for the end user side. So we either continue to enlarge our recurring consumer base at the same time, we're trying to offer more recurring services out there. And we believe that will be a long term, especially for some initial products, which will mean that the new type of applications since they won those kind of new recurring models, we started to took in place from the beginning. So I think that's for the sash recurring. We continue to grow that. I think that will be one of the fastest growing segment in our middle term. for the recurring. And the third 1 is for the AI applications, I think that we already shared some of overviews and in late last year. So for the -- those segments that I will be able to provide more significant values, we believe will be -- right now -- the first one is that all the multi modeling applications, including the video and audio interactions and interactions and analysis. So including the companion toy securities. So those type of products will really have a significant base, and we have new players coming in. But come along with AI, so either you make those device interactions more smoothly and also combined with the perceptions of the video and audio, the devices will be able to provide more sense the security side that you will be able to protect the people's home more precisely without to bring any fortune. And like for the companion side, so you -- or choice you really could be able to provide some educational level of the interactions by providing the language, providing the right understanding drive emotion, providing the right feedback and provide the right type of knowledge to the targets to the target customers. So that will be the first one. Martin modeling applications, especially on audience video interactions. And the second one is data analytics and decision-making. So our typical use cases is for energy management. So coming on with a full cycle device deployment for the energy web cycle, including the generation of energy storage, consumptions and metering, you'll be able to understand how the electricity will be moving, I mean, translate from the grid into each of the devices, how people want to manage the flow. And through all the data you'll be able to know and then the AI will be able to jump 1 step ahead is not only providing you the data analytics and suggestions, but they will be able to make the decisions that how you'll be able to control your dishwasher or a different way, how you'll be able to manage your battery bank different way, how we'd be able to manage the AC and heating system in a different way, combined with variable pricing in different timing combined with the generation of your solar panel combined with what kind of battery we have in home rent. So -- and either to reduce the total cost directly, so that will be a typical showcase is that AI is not providing a 2. AI will be able to provide the outcome. So people will really see directly that what will be the TCO, what be the the total values they can get for the life cycle of the usage of these type of devices and they pay for the services as well. So the data and analytics and decision-making will be another part. -- beyond energy, we're looking for more scenarios in that segment as well. So that's estimate.

We will now take our next question from Mingran Li from CICC.

Congrats on the results. My first question concerns the milestone. Given the recent geopolitical risk, how to meet assess the potential impact on Tuya's international operation. Looking at the current environment in this year, how do you perceive the recovery in demand across the overseas markets? And my second question, I would like to ask about the shareholder returns. Data very healthy cash position and your profitability continues to improve could management share if there are any more specific plans or cancelations for shareholder returns has been moved to 2026.

Yes. So thank you for the questions. The first one is that really part of that from MS, that's the tariff questions. So the first one is that, yes, the global situation will become more dynamic, correct? We're trying to get used to that come along with our customers as well. So right now, we see that we get to be able to see more positive indicators in that direction, either reductions of the tariff on the global side anyhow to any type of pathways, but we really see that people require -- the commerce require a better environment to do the business, and people cannot cut each other off. So we really see that. So the end demand continued to increase because the technology really provides value for the end users and they want it and they use that more and more often. So that's what we see. And this is inevitable. I mean you can ever return on that. So coming out with the end demand increase. And so all the commerce level that people just figure out a way how they'll be able to fulfill the demand. and go through -- navigate through all the dynamic factors, including the tariffs, including the reallocation of the supply chain globally, et cetera. So for us, we just follow the flow is that we come along with the customers to focus on. First one is to provide our offering technique offering to help them to build whatever application that makes sense for their end users and be able to scale it. That's the first one, to make them be able to provide the right thing. In the same time that we continue closely to manage the cost to come on with a different allocation of our services on the global side. right now, the -- we can deploy the services on whatever countries my customers are, we really did -- and right now, my customers are really starting to build a different type of production, and they really have different type of production centers across 11 countries all over the world. So we just follow the flow and help them to achieve that more identity. So I think that that overall what we see for the global situation side. And so this year, we really see that people looking forward to have the rebound versus 2025 because 2025 will be kind of the over conscious situations. And people don't know what will happen and things happening like every week. And so people don't people are not willing to do even a long term across a portal like the decisions. So they keep the decision very, I mean, frequently and precisely what macro decisions. But this year, people will already see that the sustainability on the situation, we're starting to build some better. So they try to rebound from the over conscious companies level. Yes. So that's for the macro side. And so for second side, for the return of the shareholders, as our -- as what we've been doing for for the past 2 years, we continue as a shareholders' return as one of the prioritized target for the company as well. So we continue to provide a very sustainable and strong foundations on the operations side, including the net cash flow, including the profitability, including the growth of the revenue, including the health of the revenue structures and the margin. So the return of the shareholders will become a long-term strategy as well. So we just announced, we have a new round of the dividend for the shareholders be -- so coming on is continue as a practice for us is that the 1 or 2x dividend a year. So that will be what we're doing for the shareholders' returns. And also, in the same time, the dividend will be more reflected on our level of net operating cash flow and profitability. So that's where we feel.

Our next question comes from Matt Ma from Jefferies.

Congrats on solid results. My question is regarding on the Smart Solutions segment. We noticed that the company showcased multiple AIoT products at CES last year. And which product categories does the company have higher confidence in sales growth in this year? And when we are thinking about product category expansion with our thought process and could we expect a relatively strong growth in the Smart Solutions segment in 2026.

Yes. So thanks for the question, Matt. So the first 1 is that I think combined with the previous questions and answers. So for the more promising, that's promising. Maybe I mean we will have more confidence level categories that can achieve a higher growth enabled by, so those categories will be those devices that can use more capabilities naturally. So including those kind of video and audio interactions and safety stuff. And toy, what we call entertainment stuff and appliances. So those energy and those will be those segments will find that AI can use more. they can use more capabilities than ever. And some of the capability will directly deliver as a value that becomes visible for the end users. And so that's the one. And so we have a more confidence level in that segment. At the same time, it continues to reach other segments and what will be the new innovative ideas that combined the AI deeply integrated with the existing device capabilities. We continue to sort boat as well. And but which we -- what we're looking for, we think that we're going to see in 2026 is that gradually, you fund more and more new type of advice that didn't exist before, we're trying to occur because of the AI. So that will be 2, 3 new stuff. [indiscernible], nobody thinks that a companion type of toy will become resisting before 2025. So this type of new concept of applications. We're looking for have more because we have more talent coming into the industry. We have more players coming into the industry. The new ideas come across different world will create a very, very interesting chemistries out there. So new categories, which I don't name that, even we don't know how should we call that, but we'll find more issue. That's the first one. That's the first question. And second one is [indiscernible] Smart Solutions. So let me describe the better proposition of Smart Solutions is that is those type of hardware type that help our customers to attrition themselves and those differentiators, the customers prefer yet to do that because that either there will be more efficiency or that will be a must be. So a significant -- I mean, typical use cases for that is like the bird feeders, I mentioned a couple of times out there. is that that's just a concept of ideas. That's my work. So the customers come from the -- can I say the pet products work, they know that some some of those -- their customers are looking for to interact with white life like that. So that's customer and consumer or user insight and concept ideas. So if they want to do that, they have to cover all the technology gap. And will be kind of overwhelming for them and not only because of the lack of capabilities of the engine maintain, but also that investment can be huge. I mean for them, if they do that individually. And also, in the same time, that type of innovations need a deep intuition on the software and hardware development directly. So instead of waiting for Tuya to offer the past maybe that doesn't show up in our past road map ever. So this is that how they can work closer with Tuya if we can make that happen. So through that, we think that we buy in this concept and then we make it as we'll offer it as a solution because we can directly make that happen and then they can try out the concept. So that will be the typical situation for the smart solution is actually we're looking for those differentiated type of offering to the market that can help my customer outstand themselves in their own segment. In different regions, in different categories, in different vertical channels, et cetera. So we only focus on this. So that you can see that for the smart solutions, even on the hardware business, we maintain as plus margin. Reason being is that we only choose those higher value products with the differentiation and with the special technical offering and touched as a very precise targeted consumers that they're willing to pay high -- so that will be how we do. So consider smart solution will be kind of the higher value segment type of the devices among all my past orders. So this will continue to do. So really, much our solutions will become the flagship model for my past customers, specific customers in the new year. So we do -- we continue to work on with our product road map year-over-year and the flagship types they ask us to offer as a solution.

Thank you. There are no further questions at this time. I will now hand back to the management team 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 to IR team. Good bye and see you next quarter.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect your lines. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]