Tuya Inc. (NYSE:TUYA) Q3 2022 Results Conference Call November 9, 2022 7:30 PM ET Company Participants Reg Chai - Capital Market Associate Director Jerry Wang - Founder, CEO and Director Jessie Liu - Senior VP, CFO and Director Conference Call Participants Yang Liu - Morgan Stanley John Wang - Goldman Sachs Mingran Li - CICC Operator Good morning and good evening, ladies and gentlemen. Thank you for standing by and welcome to Tuya's Inc. Third Quarter 2022 Earnings Conference Call. At this time, all partici ...

Financial Performance - Total revenue for the six months ended June 30, 2022 was US$117.9 million, down approximately 16.7% year over year from US$141.5 million[7]. - IoT platform-as-a-service (PaaS) revenue decreased by 29.5% to US$89.4 million from US$126.7 million in the same period of 2021[13]. - SaaS and other revenue increased by 127.6% to US$12.9 million from US$5.7 million in the same period of 2021[14]. - Overall gross margin increased to 42.1%, up 0.4 percentage points year over year[7]. - Operating margin for the six months ended June 30, 2022 was negative 80.5%, down 22.0 percentage points year over year[7]. - Net loss for the six months ended June 30, 2022, was US$90.8 million, compared to US$78.7 million in the same period of 2021, with a non-GAAP net loss of US$56.0 million[22]. - Loss from operations was US$94.9 million for the six months ended June 30, 2022, compared to US$82.8 million in the same period of 2021, with a non-GAAP loss from operations of US$60.1 million[21]. - Non-GAAP loss from operations narrowed by 15.9% to US$22.3 million in the second quarter of 2022 from US$26.5 million in the same period of 2021[47]. - Non-GAAP operating margin improved to negative 35.6% in the second quarter of 2022, indicating early success of efficiency-centric initiatives[47]. Cash and Investments - Total cash, cash equivalents, and short-term investments were US$951.5 million as of June 30, 2022, down from US$1.07 billion as of December 31, 2021[7]. - Cash and cash equivalents at the end of the period were $599,213 thousand, down from $964,576 thousand at the beginning of the period[133]. - Cash flows from investing activities resulted in a net cash outflow of $254,789 thousand in 2022, compared to $152,734 thousand in 2021, highlighting increased investment activity[131]. - The Group's cash and cash equivalents, along with short-term investments, are deemed sufficient to meet anticipated working capital requirements for at least the next 12 months[138]. - As of June 30, 2022, total short-term investments amounted to US$352,300, a significant increase from US$102,134 as of December 31, 2021, representing a growth of approximately 245%[149]. Customer and Market Metrics - IoT PaaS customers increased to approximately 3,800 from 3,300 year over year[8]. - Dollar-based net expansion rate (DBNER) of IoT PaaS decreased to 84% from 211% year over year[8]. - Registered IoT device and software developers increased by 23.3% to over 629,000 as of June 30, 2022[9]. - Smart device distribution revenue increased by 70.3% to US$15.6 million from US$9.1 million in the same period of 2021[15]. - Total revenue from the To-Business ("2B") SaaS and others business reached US$12.9 million in the first half of 2022, up 127.6% year-over-year[41]. Expenses and Losses - Research and development expenses for the six months ended June 30, 2022, were US$84.8 million, up 9.6% from US$77.4 million in the same period of 2021[19]. - Sales and marketing expenses decreased by 15.3% to US$30.3 million for the six months ended June 30, 2022, compared to US$35.8 million in the same period of 2021[19]. - Non-GAAP loss from operations for the six months ended June 30, 2022 was $60,116 thousand, compared to $51,002 thousand for the same period in 2021, indicating an increase in losses of approximately 17.8%[112]. - Non-GAAP net loss for the six months ended June 30, 2022 was $55,996 thousand, compared to $46,870 thousand in 2021, reflecting an increase of about 19.5%[112]. Governance and Shareholder Information - The weighted voting rights structure allows certain beneficiaries to control the company despite not holding a majority economic interest, with Mr. Wang and Mr. Chen controlling approximately 74.19% of effective voting rights[55]. - The company has established four committees: Audit, Compensation, Nomination, and Corporate Governance, to oversee various aspects of its affairs[63]. - The company has complied with the Corporate Governance Code since its listing on July 5, 2022, with specific deviations noted regarding the roles of chairman and CEO[59]. - As of June 30, 2022, the total number of Class A Ordinary Shares issued was 499,146,560 and Class B Ordinary Shares was 79,400,000[76]. - Mr. Wang holds 68,100,000 Class A Ordinary Shares, representing approximately 13.64% of the total Class A shares[76]. Equity Incentive Plan - The 2015 Equity Incentive Plan was amended on June 15, 2022, to comply with the Listing Rules, aiming to attract and retain key personnel[88]. - The plan allows for the issuance of options, restricted shares, and RSUs, with the possibility of distributing ADSs instead of Class A Ordinary Shares[89]. - The remaining life of the 2015 Equity Incentive Plan is approximately 2 years and 3 months[93]. - The maximum exercisable term for options granted is ten years from the date of grant[92]. - The number of outstanding options under the 2015 Equity Incentive Plan is 59,063,975 Class A Ordinary Shares, which is about 10.21% of the issued Shares, with 29,976,225 options vested and 29,087,750 unvested[94]. Operational Challenges - The company anticipates challenges in the consumer discretionary industry in H2 2022, including economic decline, high inflation, and supply chain issues, but remains confident in long-term growth prospects[49]. - The COVID-19 pandemic has impacted selling and operating activities in key cities in China during H1 2022, but operations have resumed as of August 29, 2022[50]. Other Financial Metrics - Total current assets decreased from $1,191,268 thousand as of December 31, 2021 to $1,054,329 thousand as of June 30, 2022, representing a decline of approximately 11.5%[120]. - Total liabilities decreased from $134,489 thousand as of December 31, 2021 to $108,084 thousand as of June 30, 2022, a decrease of approximately 19.6%[120]. - Shareholders' equity decreased from $1,113,661 thousand as of December 31, 2021 to $993,538 thousand as of June 30, 2022, representing a decline of about 10.8%[123]. - The Group's total property, equipment, and software, net, decreased to US$5,301 as of June 30, 2022, from US$6,805 as of December 31, 2021, reflecting a decline of about 22%[156]. - The Group recorded inventory write-downs of US$1,695 for the six months ended June 30, 2022, compared to US$603 for the same period in 2021, showing an increase of about 181%[152].

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