Tuya Inc. (TUYA) Earnings Call Transcript & Summary

Good morning, and good evening, ladies and gentlemen. Thank you for standing by, and welcome to Tuya Inc.'s Second Quarter 2026 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 second quarter 2026 earnings conference call. Joining us today is our Founder and CEO, Mr. Jerry Wang; and our Co-Founder and CFO, Mr. Alex Yang. Our 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'd like to refer you to our safe harbor statements 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, please?

Hello, everyone, and thank you for joining Tuya's earnings conference call for the second quarter of 2026. Tuya China maintained a solid growth momentum during the quarter, despite the continued complexity of the global operating environment. Total revenue reached USD 92.9 million, a year-over-year increase of 16%, with growth accelerating from the first quarter. Within this revenue from our coal PAM business increased 16.9% year-over-year. These results resented ongoing rising smart product penetration, including steady-performing increased adoption of differentiated solutions such as smart dollars and growing demand for emerging AI-enabled product category and also underscore the resilience of our platform business across different regions and product categories. In terms of strategic execution, we continue to advance our AI-driven development strategy extending our AI capabilities beyond foundation models and stand-alone features towards platformization, productization and scenario-based deployment. In the second quarter, shipment volumes of AI companion product solutions continues to expand and consumer acceptance of new forms of AI began to be validated. Meanwhile, we launched the Tuya [indiscernible] which applied according to AI [indiscernible] development, enabling developments to cover the quality development process from private content to physical device validation using natural language [indiscernible], AI content development segments. This development further reinforce AI evolution from a mere conversational tool into a technology that operates in real physical environment and participate in understanding and execution. Looking ahead, we will detour focus on the following 3 key areas: first, we will continue to advance AI native application and product innovation, centering on high potential scenarios such as AI energy and AI. We will drive the large scale adoption of AI across a broader range of physical devices. Second, we will continue to enhance AI development tools, such as vibe coding, agent orchestration and cloud-based device collaboration, further shortening the cycle from ideation and development to deployment on physical devices or AI environment. Third, we will advance the global expansion of proven solutions while further strengthening our development ecosystem and industry premises to jointly explore long-term opportunities in the AI application market. Now let me turn the call over to our Co-Founder and CFO, Alex Yang Tang, who will share more details about our financial performance and business progress.

Hello, everyone. This is Alex. I will now provide a full year full review of our second quarter results. Please note that unless otherwise stated all figures are in U.S. dollars and all compressions are on a year-over-year basis. In the second quarter of 2026, we generated total revenue of approximately USD 92.9 million, up 16% year-over-year and accelerated from the 8.3% growth recorded in the first quarter. Our class business maintained strong growth where revenue from the smart home and mobile products segment has also increased by double digits. Of our Q2 revenue, the cash business generated revenue of about USD 67.9 million, a year-over-year increase of 16.9%, serving as the important growth drivers for the port. At the end of the second quarter, the number of test premium customers for the trailing 12 months reached 318, contributing approximately 89.5% of the past revenue with our core customer base remained stable. The AI application and other segments generated revenue of about USD 11.5 million, a year-over-year increase of 3.9%, primarily driven by growth in cloud-based service revenue, such as video call storage. We continue to advance the value-added services, including video and driven energy saving among others. With AI-enabled applications capabilities, while gradually strengthening our renewed and recurring service capability, smart Home worker products revenue was about USD 13.5 million, a year-over-year increase of 23.2%, primarily driven by growing customer demand from smart security, energy and other differentiated smart production. We will continue to increase the contribution of high value-added products and strengthen their integration with the software and basic. Looking at the specific driver of cash growth. home appliances, smart door locks, electronics and energy products and AI companion product solutions performed relatively well during the quarter. Growth in the home of cancer segments was mainly driven by customers' rollout of the mine enabled models, the expansion of their geographic reach a higher contribution from smart enabled production and the migration of short-term overseas brand projects from our customers' legacy solutions into 2s. Growth in smart door locks was primarily driven by increased adoption of audio video and now power WiFi solutions. By comparison, demand recover in categories such as traditional lighting and IT cameras, has been relatively slow, reflecting continued emergency in performance across products and regions. AI and companion product Shipment volumes of the devices powered by our solutions continue to expand. I do mean the June 18 shopping festival in China, [ Pazuzu ], built on 2 solutions ranked first in the AI tie categories on Tmall, where a number of other ecosystem products also delivered strong ramping and sales performance across major e-commerce platforms. This provided early validation of both consumer acceptance and the commercialization potential of the new form of AI device. Beyond basic employee interactions, we have building out capabilities in margin model perception, personnel and many contained services and user engagement, helping customers accelerate the development and mass production of the AI native consumer hardware. In the Energy sector, solution, including EV chargers, smart power distribution mid and home energy management maintain solid growth. We are expanding our AI energy capabilities from electricity, consumption, dynamics, normal alerts and personalized recommendations towards dynamic electricity tariff, management and user authorized automated device coordination. Within the Smart Home ecosystem, customers' adoptions of micro-based solutions continue to increase our cross categories such as electronic products, lighting and climate control. In parallel, we enhanced the local control, multi-protocol into abilities and third-party acquisition competitive history. On margin side, our blended gross margin for this quarter was 46.3%. By segment, gross margin for cash was 46.8%, gross margin for AI adoption and others were 72% and gross margin from Smart Home and robot production was 21.9%. Gross margin fluctuations were mainly driven by the volatilities in upstream semiconductors cost and changes in business mix in line with the expectations. Despite this, gross profit increased by 11.1% year-over-year to approximately USD 43 million. On expenses, we maintained disciplined experience management while continuing to invest on AI and R&D and passability. GAAP operating expenses for this quarter were approximately USD 33.7 million, down 10.4% year-over-year, primarily due to the lower share-based compensation expenses. In term of profitability, we recorded GAAP profit from operating of approximately USD 9.3 million with a GAAP operating margin of 10%. Non-GAAP profit from operating in approximately USD 9.6 million, a year-over-year increase by 11.7%, while non-GAAP operating margin remained in the double digit at 10.3%. While delivering revenue growth, we maintained relatively stable core operating profitability. Net profit for the quarter was approximately $18.6 million while non-GAAP net profit was approximately $18.9 million. The year-over-year decline in non-GAAP net profit was primarily due to the lower financial income and foreign exchange losses while core operating profit continued to grow. On cash flow side, net cash generated from operating activities was $6.2 million during the quarter and remain positive. At the end of the second quarter, the company's total lease, including cash and cash increment, time deposit and treasury securities amounted to approximately USD 976 million, continually to provide ample resources to support the investment of capability, global business expansion and our ability to navigate external uncertainties and a long-term strategy investment. Next, I will briefly walk you through our progress in AI developer ecosystem. At the end of the second quarter of 2026, the number of registers developers on our platform exceeded to 0.09 minute launched during the second quarter, Tuya Cobuilder showed as the AI developer gateway to the Tuya developer platform, applying back holding to AI hardware development. By describing the requirements in natural language, developers can complete product definition at user interface, embedded firmware AI agents and workflow development in 1 place and then proceed directly to the device flashing and debugging. This covers the core development process from product concept to physical devices validation and help shorten the AI hardware development cycle. In just over a month since not Tuya Cobuilders AI power panel generation capabilities has extended to cover 30 product categories with average generation time for a single panel reduced to approximately 190 seconds only. This progress demonstrates that we are advancing our developer tools beyond development assistance towards end-to-end delivery capability, spanning product indignation, software generation and deployment on physical devices. As application mail, we continue to enhance 2 device task execution capabilities, control, reliability and response efficiency, while exploring subscription-based and value-added services across scenarios such as AI-driven energy saving, [indiscernible] and review understanding. Certain scenarios has already begun to generate early payment and renewals. We'll continue to focus on high-frequency use cases and a long-term user value. From a border perspective, AI capabilities are gradually expanding beyond single model integrations and in compact device sensoring. Contextually understanding memory, agent orchestration and device side execution. We'll continue to leverage the strength of our tester device ecosystem and global developer base to translate activity into a scalable commercial value across a broad range of the real working average. In summary, our revenue growth accelerated in the second quarter of 2026, with the past business continuing to serve as a primary growth engine. Meanwhile, our AI capabilities are being commercialized in parallel across multiple pack, including pass, smart products and AI applications. Despite the impact on gross margin from semiconductor supply chain price fluctuation and visions mix change, we've maintained stable operating profitability and ample financial resources. Looking ahead, we'll remain focused on native applications, physical AI scenarios and developer platform capability and continue to advance the transformation of AI technologies from 2-level capabilities into tangible and scalable commercial value. Thank you all. Operators, then now we can begin the Q&A.

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

Congratulations on the solid earnings. My question is about the future demand outlook. Based on your discussion with key customers, in current environment, what is the growth or demand outlook going into the second half of 2026? If you can provide a little bit more breakdown by geographic that will be even better, like what's the demand profile in U.S. or in Europe and ASEAN, et cetera.

Okay. Thank you, Liu. So right now, we see that the end demand and interment is still within our expectation. So as we stick in beginning of this year that the entire customers and the consumer side, they're looking forward to consuming more and transfer more legacy devices and solutions into the new ARR that we provide. So this man continues. So let me say that we have the accelerated type of rebounding on the demand side. So this will be an overall view. So we see that the recovery will not come overnight. So it's gradually timing. What we fund here a moment still continue, and especially based on this kind of positive, very positive sell-through feedback from the end user side. That's the first one. If I go down into the geographic areas, so there are different type of demand drivers. Europe still show very strong on the demand side, especially for all type of energy-related segments. So including the new hands, so home management solutions will provide us a total solution or include different type of energy business improvement single device. No matter is what we provide as the past or we provide as home and word products to the solution together that show very strong demand still. That's the first one. On Southeast Asia and Latin America, the driving portage majorly come from our strong channels in the telecom period. So while trying to [indiscernible] strategic partnership along with them around 1.5 years ago, and we're tying to skip commercialize that part. So through their own channels, to deliver some comprehensive total solutions for their users in the AIoT fields. That's a very strong potential. And we promise 1 because they're running as a B2B cycle. By the end of the time, its but around really strong B2B cycles rather than the retail side. That is in planning on that. That's for Southeast Asia and Latin America. And immediately, is still kind of in a pause right now because of the military conflict going down in the second quarter. So right now, we're still kind of we and see the customer is still there and the customer is still doing a lot of preparations, including the development and the new concept definitions and type of stuff. But right now, that's the -- I think that all the businesses are coming back yet. And we're looking forward to have a better scenario, perhaps maybe end of Q3 or Q4. We believe -- we're looking forward to have some agreement for those contacting countries, and then we'll be able to catch the demand. And so that way overall. And North America is that the sell-through is still there. But some price sensitive, especially low price type of devices, not show kind of fluctuations by the pricing rate coming from the suppression side. And so we are -- we structured that type of product mix along with my customers and to deliver a better sell-through in the second half of this year. And so I think that will be overall. And for China right now, we see some really good promising categories, including part of the home appliances. But we can find that the recently that the major brand right now, the speeding up the transformation from the legacy and the type of devices into the smart plant. And from first-generation AIoT type of smart devices into the AI. So we are catching the transformation trend and helping a lot of China brands to do that. And the second 1 is that in China, so some native categories starting to both AI companion. So our first market we sent breadth for AI companion [indiscernible] is going [indiscernible]. So that's my focus really [indiscernible]. So really see that based on a large target consumer scale in China and what we find the right type of applications and coming on with a very active customer base and we'll try to fund more potentials in the new type of innovations in China.

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

Great. Congrats on the results. My question is on your gross profit margin. I noticed that in the second quarter, the PAT margin declined on a year-on-year basis, although stabilized sequentially, while your smartphone and robotic pole margin actually declined sequentially and year-on-year. Just wondering if you can share more color on what was the margin drivers behind? And what is your margin outlook for this segment for the third quarter and rest of this year?

Okay. Yes. So first of all, that there now that the upstream cause fluctuations starting to eat over 2 quarters, I mean, on a global basis. And we are the last 1 to tax the impact because aren't quite imports. So for the -- in Q2, what we do need that the major of the product we just pass through the cost rate. And so which means that we maintain the gross profit and -- but we don't speak to the gross market. And -- but till now that we're a very good buffering on the in inventory and cost balance between now and future. And in the next 2 quarters or 3 and when we have the confidence that we'll be able to work through a more stable cost level of my major maker-type material which we needed. So we're [indiscernible] stabilize the gross margin and we figure out whatever the facilities that by offering new capabilities, new technologies, we have to improve the gross margins overall. So that's pretty much a debt. So on the customer side, we really show our kindness that get passed through the cost. But in the future, will anything happens. So we don't -- we're looking for the most positive way to help the company to continue to run the business. So it's not stick to the cost but mostly to the value and the competence that we do to the customers to help me do that.

We will now take our next question from Kai Xiao of CICC.

This is Kai. I have 2 questions, 1 is on Tuya Cobuilder in the quarter. I wonder what the current adoption status of Tuya Cobuilder and what's the company's [indiscernible]?