Tuya Inc. (TUYA) Q1 2026 Earnings Call Transcript

Good morning and good evening, ladies and gentlemen. Thank you for standing by and welcome to Tuya Inc.'s first quarter 2026 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. Briefly inform that today's conference is being recorded.

I'll now turn the call over to the first speaker today, Ms. Regina Wang, Investor Relations Associate Director of Tuya. please go ahead thank you hello everyone to our first quarter 2016 earnings conference call funny yesterday our founder and CEO Mr. Jerry Wong and our co-founder and CEO Mr. Alex Young our results and webcast of the conference call are available at ir.tua.com a replay of this call will also be available on our website in a few hours before we continue i'd like to refer you to our State 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 Wong. Jerry will give his remarks in Chinese and English translation photos. Jerry, please.

Thank you.

The company has delivered solid growth momentum, and the strong execution feasibility, benefiting from a continued recovery in downstream demand. Our business scale has been expanding modestly since the fourth quarter. Total revenue increased by 8.3% year-over-year, with growth momentum improving quarter-on-quarter and posting positive growth for multiple consecutive quarters. Growth margin remain at a healthy level, reflecting the continued enhancement of our product's value proposition and platform competitiveness.

In the strategy level, we have continued to develop the development of AI driving.

We have already mentioned that AI is taking a deep dive from the functional component of the technology and the industry. in terms of the extraction of our key strategies, we continue to advance our AI-driven development strategy. As we have mentioned earlier, AI is shifting from simple feature stacking towards deep integration with hardware devices. and vertical industry scenarios. It gradually involving from a mere conversational tool into an intelligent agent that interacts and operates in the physical world.

This trend has been further validated by a richer portfolio of application offerings and customer scenarios in quarter one, 2026. 同时,我们也在加快AI能力和平台平面,让应用程及产品化的转化,并在多个实际产品中实现落地,公司持续迭代开发者工具与平台能力,使全球开发者能够以更低成本,更高效地接入并应用前沿的一些AI技术,AI相关的业务收入的持续增长,也反映出了三样化进程的稳步推进。 At the same time, we are accelerating the transition of AI capabilities from the platform

layer to application layer and scenario-based products with successful deployment across multiple real-world use cases. We keep upgrading our developer tools and platform capabilities, empowering global developers to access and apply cutting-edge AI technologies at lower cost and higher efficiency. The sustained growth in AI-related revenue also reflects steady progress across our commercialization efforts. and the human world and the human world and the human world.

This is a key part of the physical AI in the real environment.

We introduced a range of applications aligned with this direction, including the AI-powered Smart Life Assist and AI Security Guardian. The significance of these initiatives lies not only in single products, but in validating the capabilities of AI agents to move beyond handling digital tasks into physical work execution and device coordination.

We are seeing AI gradually develop the ability to operate across both digital and physical work, marking a critical step forward in the real-world deployment of physical AI. 但未来 我们将重点围绕以下方向深化布局 第一 持续推进AI原生的应用创新 围绕智能潮网 陪伴机器人等高活跃的品类 加速AI能力在消费场景中的渗透及规模化的应用 推动FITO AI在更多日常场景中的落地 第二 推进已验证的AI解决方案的全球化的拓展

特别是在能源与律师科技领域 We will further deepen our strategic focus on the following key areas. First, we will continue to advance AI native application innovation, centering on high engagement categories, such as marketing and marketing. We will accelerate the penetration and large-scale adoption of AI capabilities in consumer scenarios, extending physical AI into a wider range of everyday use cases. Second, we will scale the global rollout of proven AI solutions, particularly in the energy and green technology sectors. By bringing mature solutions to international markets, we aim to enhance our industry recognition globally. Third, we will continue to strengthen our developer ecosystem. Through open platforms and enhanced tool capabilities, we will lower the barriers to AI application development and work closely with industry partners to drive deeper exploration and the commercialization of AI technologies. Next, let's turn the call over to our co-founder and CFO, Alex Young, for a closer look at our financial performance and business programs.

Hello, everyone. This is Alex. I will provide a brief overview of our first quarter results. Please note that, as otherwise stated, all figures are in U.S. dollars and all comparisons are on a year-over-year basis. In the first quarter of 2006, we generated total revenue of approximately U.S. $80.9 million, representing a year-over-year increase of around $8.3 million. Despite ongoing uncertainties in external environment, the company maintained its steady growth transactionally. Our core platform business remained stable, while AI-related business continued to demonstrate a strong growth of profitability, our operating margin continued to improve. Gap operating margin reached 9.2%, representing a significant year-over-year increase, while non-GAAP operating margin was 10%. Net margin further improved to 19.5%, reflecting continued optimization in operating efficiency and cost structure. Overall, the combination of improvements in revenue mixed and discipline expense management has driven sustained profitability gains. Before going into segment details, we would like to note that we have adjusted the name of certain business segments this quarter. So the formal fast and other segments has been renamed to AI application and others. Reflecting our continued push forward AI enables software services to and more applications accurately capturing the transition from traditional cloud services to AI application services. Meanwhile, the formal smart solution segment has been renamed to smart home and robotic products, highlighting our increased focus on AI-powered home products, household robotics, and scenario-driven AI-initial devices on the hardware side. We would like to emphasize that these changes are purely presentational and did not affect the revenue composition, recognition methods, or historical comparabilities of each segment. Within our segment, the past businesses generate revenue of 59 million U.S. dollars in this quarter, representing a year-over-year increase of approximately 9.8 percent. As customer demand gradually recovered, we continue to drive steady growth in our core business through ongoing optimization of our customer mix and those capabilities. At the end of this first quarter, the number of past premium customers reached 306, reflecting the availability of our core customer base and the structural resilience of the platform The AI application and other segments generated revenue of $11.6 million U.S. dollars in this quarter, representing a year-over-year increase of approximately 16.9%, continuing to outpace overall company growth. This growth was primarily driven by increased revenue from the cloud software services, and the AI application services, including AI cloud storage, energy management and serving, value-added services like SMS and voice services, as well as app OEM and SDK offerings. This reflecting the continuous progress in commercialization of our AI applications as As more software products completed, their AI-driven upgrades is gradually become more growth-oriented and software services-centric, our revenue mix. The smartphone and robot product segment rated revenue of 10.2 million U.S. dollars, representing a year-over-year decrease of approximately 6.9%. The fluctuation in this segment primarily reflects our proactive effort to phase out relatively low and optimize the production mix and reallocate resources towards higher value-added, especially AI initial hardware terminals. As the segment is expected in long-term profitability and scalabilities to gradually improve within a higher mix of a higher batch production. From operational perspective, several vertical this quarter has demonstrated structural opportunities driven by the integration of AI and smart hardware. In the security segment, our smart door lock business achieved 73% year-over-year growth, driven by upgrades in the multi-modeling Wi-Fi solutions, applications, video intercoms, as well as AI voices and vision capabilities. Pass revenue from Wi-Fi enabled smart door locks increased 75% year-over-year growth. At the same time, the AI application revenues from the video enabled locks increased substantially 500% year-over-year. This demonstrates that AI and multimodeling capabilities are driven the traditional smart lock vertical to evolve from a standalone hardware model into a higher value business model of hardware plus software service plus AI capability combined in the energy sector related past products including the EV chargers metering products and professional metering solutions emerging are new growth drivers we are also continuous to advancing the higher value solutions such as AI-enabled display, gateway, and voice capabilities, providing a strong foundation for our customers' products' upgrades and their future goals. In the AI energy, demand in the European market for home energy management, energy storage, and AI-driven energy-saving solutions continue to grow. During this quarter, we made solid progress in advancing AI energy-related initiatives with the key milestones achieved in the commercialization of energy storage and ecosystem accessories our customers received a very positive feedback and secured multiple channel partnerships and orders as at the exhibition such as light plus building in Frankfurt and the solar solutions in the Netherlands in In the Singapore's HTV project, new capabilities and the deliverance are progressing on schedule. AI energy is gradually involved towards a comprehensive solutions model integrated in hardware bundles, software, and AI orchestrator plus channel operations. From a regional and scenario perspective, Europe remains a key deployment market for energy and green technology solutions, with growing demand for AI energy, smart electrical systems, spatial intelligence applications, AI smartphone appliances, and AI safety and security productions. In Asia-Pacific region, the Singapore HDB projects continue to move through implementation and validation, while Southeast Asia and other emerging markets are beginning to generate opportunities in energy management, spatial intelligence, and SME scenarios as well. In China, AI-enabled smart door locks, AI toy, and AI home products, including AI companion, continue to attract a strong customer interest with some customers already advancing project upgrades and solution integration. Our blended growth margin for those quarters was 46.9% with a slightly lower yield fluctuation primarily due to the change in the product mix and a certain upstream cost. Growth margin for pass was forty six point one percent gross margin for AI application and others was seventy one point seven percent remain stable and reflecting the structural advantage of software and AI driven business and the course margin for smart home and a robot robot products was twenty three percent maintaining a level of about twenty percent while advancing AI applications and a high value we continue to focus on the cost efficiency and product value our expenses women can discipline cost management during the quarter with total operation operation operating expenses OPEX of approximately thirty point four million US dollars we are continually investing in core AI development and platform capability improvements driven by AI and digitalization and these like digitalizing public operations enable further operating average in terms of profitability we recorded profit from operations of about 7.5 million US dollars for this quarter non-gap profit from operations was approximately 8.1 million U.S. dollars. Net profit reached 15.8 million dollars. The improvement was primarily driven by positive contribution from gross profit growth, share-based compensation expenses. Operating cash flow remained positive during this quarter. At the end of this quarter, the company's total cash equipment, time deposits, and the Treasury securities amount to approximately $1 billion. The strong cash positions provide solid support for our continued investment in non-trend AI capability development, our ability to navigate external uncertainties and opportunities, and our capacities to enhance shareholders' returns. We will also presently evaluate and pursue higher quality strategic investment offers. Overall, the company continues to deliver revenue growth and improved profitability in a complex environment. The development of AI application business is driving the ongoing evaluation of our revenue mix towards a higher value segment and next I will briefly work you through our progress in that AI development ecosystem within our development ecosystem during the first quarter continue to advance to the open source capabilities of to open and a further development on our AI agents so to better address the diverse needs of AI native developers we also announced our new offerings including the ultra lightweight agent kit and the vibe coding based on the power bacteria hardware applications so the vibe coding will be able to help lower the bar for many new developers as well those tools enable developers to build a wide range of ai native hardware products in a more flexible and agile manner we've been meant committed to lower the bar for AI hardware and application development while enhancing flexibility and openness, allowing developers, brands, solution providers to accelerate the process from ideonation and prototyping to product commercialization. End of the first quarter of 2026, the number of registered AI developers on our platform exceeded 1.96 million, maintaining steady growth. At the same time, engagement within the Tuya Open community continued to increase. Based on our current acquisition data, the Tuya Open documentation platform has accumulated over 340,000 views with more than 16,000 community members it has accumulated the abundant open source projects resources and announced standardized demo cases library covering mainstream applications and errors and development needs to open is gradually involving from an open source framework into our open ecosystem infrastructures for the AI hardware innovation. For our deployment perspective, AI capabilities are increasingly extending from the platform layer into a broader range of end-devices formats. Whether in AI-enabled door locks, energy management solutions, sensors, AI companion toys, or AI robots, they all reflects the same underlying trend. AI is evolving from isolated functions towards deep integration with the devices, scenarios, and user needs. This is fully aligned with our previously actuated vision of physical AI, enabling AI to engage in real-world environments and actively participate in sensory decision-making and execution in real life. In summary, our first quarter performance further validated the commercial visibility of our AI strategy. Our core past business continued to provide our solid growth foundation while the deep integration of AI application services with physical hardware is emerging as a new driver for the value creation. At the same time we have achieved meaningful progress in deploying AI solutions across high value scenarios such as energy, entertainment, and security. Looking ahead, we will remain to focus on two key priorities, physical AI scenarios and higher value added AI products. While maintaining financial discipline, we will accelerate the transition of AI technologies from a two-level capability to products with tangible commercial value, creating sustainable long-term returns to our shareholders. Thank you all operators. We can begin the Q&A webinar.

Thank you. We will now begin the question and answer session. To ask the questions on the phone, please press star 1 and 1 and wait for a name to be announced. To cancel your request, please press star 1 and 1 again. One moment for the first question. Your first question comes from the line of Yang Liu of Morgan Stanley. Please go ahead.

Thank you for the opportunity to ask questions and congratulations on the solid results. I would like to ask about the value chain because of a lot of the coming from the chipset shortage globally. So could management update us in terms of the two-year situation in value chain, especially the cheapest sourcing, and also update us the pricing strategy if there's any shortage or constraint from the value chain, how to pass through the inflationary cost to the downstream. Thank you.

Thank you, Liu. Yes, we already noticed those kind of fluctuations, so that's why we give a heads up of that type of trend around the end of last year. And so the things we're doing is the first one is that considering of a large buyers of some of the major chips that in the industry we are, and so the fluctuations we maintain as limited as we could because of the bugging power. In the same time that for those costs that inevitably we have to increase, so we'll pass those costs to the downstream side. So that would be the basic idea and how we've been doing. And so you can notice that there are several reactions where we've been doing. The first one is that in Q1, we really do some strategic purchasing before any cost change so you can notice that in our balance sheet that our inventory increases slightly so that major is that it's kind of the procurement we do that before the cost increased and so that reflected to my inventory level and including my net cash as well so that's the first one so So we tried to use a larger inventory to buy more times to working through the fluctuations. The second one is that you already noticed, especially on the path side, so the change or those kind of difference of the gross margin of the path reflects that we're really starting to pass through the cost. But we didn't add the margin on the cost change because we didn't want to bring more burden for my downstream side so that reduced slightly on my gross margin on the past as well we'll continue to keep focus on that and to working along with my customers and to through those fluctuations so no matter using our scalabilities to manage the cost difference at the least level as we could, in the same time that we're using our inventories to try to bring more banners coming through with the time. So that will be the basic idea there. But we found that the shortage and the density of the momentum continued to increase in Q2, in the beginning of Q2.

Thank you for the question. Our next question will come from the line of Goldman Sachs, Timothy Chow. Please go ahead.

Thank you, management, for taking my question and congrats on the solid results. I think my question is on the revenue front. I noticed that this quarter you achieved a pretty solid sequential acceleration on the revenue growth. However, given the very dynamic geopolitical and macro environment globally right now, I was wondering, what is your latest thoughts on the demand outlook and revenue growth outlook for the rest of this year? And what measures have you taken to stabilize or further boost the demand? And my second question is, I noticed, as you mentioned, you changed the reporting line or changed the reporting name of the two of the segments that you report. Could you further elaborate on the rationale behind and the specific AI applications and on robotic products. Just wondering if you can share more color on your plan regarding these two specific stuff segments. Thank you.

Yes, thank you for that. So first on the market environment, we already noticed that as we showed the colors when we released our Q4 results, we found that while the international trading environment becomes stable after November of last year, so the momentum is starting to recover and the customers trying to return to a growing and on the business side so it's not that starting from December where you see that the center recover it's not overnight so they doing that gradually and even though in March we'll know that there will be a new fluctuation coming home but overall speaking that the downstream side is recovering but we have to break down into different sectors so what we see here is that like the appliances like the energy, like the innovative devices, including the securities or the locks, we found that the growth momentous are more positive and almost for sure, because no matter is that we found a more solid in mind of pinpoint on the user side, and all is those sectors, sectors, those companies are doing better. But in some other sectors, like the lighting, we don't see significant recovery. So it's kind of still doing what we call is into an evaluating stage on the lighting side. And some sectors that those chipset cost variations, not from our side, but from their own side, like the cameras, or like the sound control panels with the screen. So the memory chip cost variations will bring a more significant cost difference for the finished product, for the device side. And the factories and the brands to change that. So that price increase might be significant for them. Like the camera for business, the entry-level cameras, usually the FOB price or the retail price will be like the $20 US dollars, and FOB will be below $10. But during those kind of memory chip and the non-chip increase, we noticed that the FOB price might be able to hit $15, which means that the retail price has to increased around to $35. So that's a significant increase on the retail price that might influence the consumer's buying decision. So we noticed some sectors might be more sensitive on the will be more will be impactful on the cost increase will be more resilient so that will be on the product sector side and on the region side so combined with that is that still for the energy that the Europe and the Southeast Asia is strong demand for the including Australia is very strong demand for the for the energy management solution especially in this year what people are trying to notice that the energy become more and more energy become more and more crucial and on the on the cost accessibility side so they have to pre-invest they have more willing to pre-invest on any energy efficiency but for some other regions like the Latin America they are more price sensitive so like I mentioned that some sectors like the cameras for this market and consider that they are lower buying based on the macroeconomy in that sector in that region so for them that's a so some sectors will meet some challenge out there so for us is that is still that we're trying to use our very comprehensive or category mixed and and combined with a multi-region mix to going against different types of fluctuations. We're always looking for opportunity in some regions to balance the CISO on the other side. So that's overall for the macro environment. And the second one is for the AI transition, yeah, the MITRE is the AI application or the home and robots products so both sides that we're looking for to give the market that the signal is that we're doing so hard to we allocate our resources since 2023 that to transit our previous we'll call the first version of smart devices offering into the AI initial offering so starting from the end of the 2023 will really upgrade our entire platform architectures into large language model of sticks which means that since end of 2023 and all those decision-making on the platform side for the device and the software applications can be based on the different natural language model or the mainstream one. And in 2024, May of 2024, we already launched our hardware agent platform that enables our customers to design an agent on top of the devices. So make the devices be more smart and run doing something autonomously. But even no customers understand what it is, what is the agent. And in last year we launched our new AI platform as a new AI foundation that's including the multi-modeling offerings, including the open source projects to open some new doors for the new innovative ideas for those customers and then give them a bridge, giving a path that how they can combine technology into innovative ideas and make it come true. And in April, that in our new developer summit, we launched our new offerings, including the agent kit that allow the hardware designers to do things more freely and including our Vibe coding tools that right now they can design any software, including the apps, including the firmware on the hardware side, including the and cloud services they can do that all through bad coding so all the things we're doing is that we to show that we are we are in we are kind of an initial in AI user and AI enabler and so for that things we're trying to operate our offering in those two segments so take the AI application for example we're really starting to provide that for all the cloud storage on the camera side that right now contain with AI capability so customer will be able to customize the event so it's not detect any movement on the picture and give you the alarm and you can find that you've got so many force alarm and then you have to turn down the the notification right because the camera cannot tell whether it's something you should pay attention to or not. Any like the delivery boys come by that anyone come from your the door that you get are not and starting from there that you can build an event that so if it's a package so don't give me notification and if someone stay in the front door like over 10 minutes a day and notice. If someone showed up every day and seemed like a very suspicious, give me a notice. So people are starting to be able to create their own event and then have the camera to watch out for them. So that thing will provide significantly more values and getting more annoying pain points for the end user site. So that kind of the seamless upgrade on those kind of offerings is a natural upgrade for our previous SaaS offering. So we think that right now we're starting to provide more and more AI capabilities seamlessly to the previous SaaS and then we show that the monomer users starting to subscribe that services because of the AI offering and then we're doing the upgrade to other AI applications. And that's a scale, it's an agent, or it's purely services on the recurring model. And for the products and robotics, so some scenarios is including the companion, that's when we're offering a tool that toy, AI toy. For some customers, that's a very good toy design and the channel distributions, but they don't have the capability to design things from scratch, especially if they don't know anything about coding, they don't know anything about the circle boards, about the microphone array design, so for some of that part, we're starting to offer an entire solution. And through that, we'll put more focus not on some what we call is the first generation of smart devices. We're trying to focus more on the AI, what we call AI initial devices. So like the toy, they need the multi-modeling capability, they need the very huge noise cancelling and microphone array design engine, and they need the screen projection and technologies to reflect the different type of reactions from the toy side. So for that part, that's how we allocated the resources since last year. And so right now, for this segment, that the direction is that we guide the entire department to put focus on all those kind of AI enabled and AI initial devices. And usually those devices will come naturally with not only the AI feature, but combined with larger opportunity for the AI application business, how would driving force do that. So not a kind of connected devices segment anymore, it's become a more AI initial offering for those customers helping to do that. So that would be the typical use cases.

Thank you very much for the question. Larry DeKal, it's an agent.

Thank you. Now, next questions will come from the line of Kai Xiao of CICC. Please go ahead.

Thank you, Benjamin. This is Kai, and I have two questions. First one is competition. So following the emergence of agents, on-device agent deployment has become an industry trend. So could you share how has the competitive landscape involved in Q1, and how do you view Tuiya's advantage in the field? And my second question is on R&D. So, could you share how is the company applying AI tools like agent coding tools in internal R&D and what the potential impact on margin and profitability? Thank you.

So, the first one, I already covered some of the parts in the market environment side. So, as we see here is that two things. The first one, I think the customer is trying to kind of escape from over-concernitive momentum in our shares. They're trying to get back into the growth path. So what we're doing is that we just identify the right roadmap along with them and fulfill that and help them to providing a better product, better offering on their shelf, on their own channels. and to catch the customers, catch their own end-users, what I mean. And in the same time, we really see that end-users' thickness on AI are growing very, very healthily. So, which means that more and more users are trying whatever AI features and AI offerings. And I believe that it's not that significant right now, but in the near future, the consumers when they source in the smart devices, AI features or what type of AI features will be kind of the key differentiations or key factors for them to make the decision. And so we are very happy to see that since the second half of last year, that our penetration among my ecosystem to integrate the AI capabilities we offer to their new products design and and become significant and proved, so that will help us capture the trend. So that's for this part, so what do we see that will always be kind of the early adapter and to notice the trend for the industry maybe two or three quarters ahead, is that because I can see what type of technology my customer is trying to pre-study, trying to try, and when they're trying to implement that into the new product roadmap. So what we see is that E-NASI will consider early education for the entire industry or in most of the sectors we cover that to give them type of the right education or coach that AI will be considered as the next generation of key differentiations for any new things they built and to the market. And so they need to try that or need to try to understand or to learn that. Starting from the second half of last year that the customer's majority of the new products or the new projects that they kicked off, if they try that. And so then the new products they start to offer, maybe at the end of the last year or at the second of the issue, bring that into market, going through a long procedure into the development, manufacturing, logistics, and to the energy side. So that will be safe here. And so it will be a very positive trend. And on the second part is for the AI usage, I'd like to share some things. First one is that at the end of last year, the front end, which means that those ones designed the UI user interface and UX user experience, are using most of our R&D site And so at the end of last year, around 40% of the codes we designed for UI side are doing through AI. So that's the first one. And we're improving that as well, considering that in this year, in this year one, the AI coding capability improved a lot. So we found that we can use more AI to do more terminals, including the agent kit I mentioned for the hardware designers. The agent kit, a significant part of that is doing by AI. While we offer that kit, we also combine with the Vibe coding tool for that kit as well, which means that if not us design the kit for AI, the customer will do that through the coding more freely as well, and very quickly to turn that into a hardware But also, at the same time, the AI usage is not only used for the R&D, so all our departments, including the financial, including the human resources, including the legal department, reducing heavily to AI. So no matter if it's improving our efficiencies on some office processing, office work processing, or also including the data analytics, the BI, and decision-making, et cetera. So we consider that AI to improve the efficiency in two parts. The first one is that to release some of my labors to focus more on higher value works. That's the first one. And the second one is that even on the coding side, on the development side, that is to enlarge our capacity to meet the future demand growth. Because we've already noticed that while more and more AI initial developers coming in, that trend is a very good one, is that in this year we noticed more and more new developers. They do not come from the hardware industry, which means that people are starting to identify that the AI capability might be a new opportunity for new team to engage in the new smart devices business sectors that only come in the new idea and something that didn't happen in the hardware world before. So especially one is like the toy companion ones that many of my very fast-rowing customers in the toy sectors, they are not toy players out there. And Reynolds will see including some of the, what do you call, the youth market, like they do the batch, the animation batch is focused on the cartoon, and those batch players, they don't have that business before. So that kind of industry breakthrough of crossover players, they rely more on the AI capability usage themselves, and also they are more come with the AI initial ideas or native ideas. So, not only to reduce the cost, but also use the same level of cost to improve the competitive to capture those demands, and that's where we'll have more priority to check out too. So, like I mentioned, the net cash flow considered as a strategic strategy for the company, not only for the future competition, but also for the future opportunity. I think that's even more important is that while the industry is growing faster and some breakthrough happen, especially like the crash over happened, that we're not hesitant to increase the investment to capture those demands. So I think that will be the overall momentum and to show how we use the AI and we empower customers with AI. We always say that we need to be a very powerful AI user, and until then, we will be able to empower customers.

Thank you. Thank you for the questions. Our last questions will now come from the line of Matt Ma of Jefferies. Please go ahead. Good morning, management. Thank you for taking my question.

I have two questions. So the number one is on the smart home and robot product segment. I would like to know how do we think about the growth trajectory of this segment in 2026? Should we expect a growth recovery in the coming quarter? And my second question is on the AI application segment. We are seeing that the growth margin of this segment has declined by 2.7 percentage point year-on-year in the first quarter. Are there any specific reasons behind that? That's all.

Yeah. So the first one is for the air home and the products that we're looking for to have the recovery in the coming quarter or in the coming two quarters. And because it's a structural change, so we have to make the hard decisions. You can see that even to maintain the revenue and the gross profit growth, but in the same time, we cut off some of the products. even we got the orders we decided we're not to do we're not to do that and anymore because we don't like the model out there for the long term so and so there's a structural hard decisions even we'll meet some not that good numbers and but we're looking to to speed up to catch it up so we have the new offerings trying to to complete this and include two and looking for to catch on orders and deliver that to make it up. So either it's end of the Q2 or it's Q3. We're looking to further get that recovery. So that's the first one for the home and the robot production. And for the AI applications, yes, we found that we found the seasonal difference. It's very interesting. We found that the key part is that the AI applications is to rely on the usage of the end users speed on the devices that are running. And the typical thing that we found that maybe is that in the Q1 the usage is always kind of the lower seasons for the entire year. So that's why that while the usage is kind of low so the service basis revenue is become lower for fast. Maybe one of the reasons is that the Q1 many of the users kind of the new users and will have the new devices for the Christmas for the for the for the holiday season promotions and while they start to try the products usually the combined with the song of the vacations the juice is trying to drop. We're looking forward to see that the natural recovery and on the usage side will start to take places on Q2. So that will be the stuff. So it's kind of very interesting one.

Got it.

Thank you. Thank you for the questions. I will now hand the call back to management team for closing remarks.

There are no more questions from the line. Allow me to send the call back. Thank you.

Thank you, operator, and thank you all once again for joining us today. If you have any further questions, please feel free to contact 3SIR team. Goodbye, and see you next closure.

That does conclude today's conference call. Thank you for your party's patience. You may now disconnect your lines.