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 due 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 Wong. Jerry will give his remarks in Chinese and English translation photos. Jerry, please.

Thank you, everyone.

Hi everyone, and thank you for joining TIA's Earnings Conference Call for the first quarter of 2026.

and to continue to improve the growth of the future. The cost of the market is still healthy, and the cost of the market is still increasing.

The market is still building a lot of different factors in the external environment and the industry from certain regional factors. The company delivers solid growth momentum and strong execution capabilities. 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 remained at a healthy level, reflecting the continued enhancement of our the value proposition and platform competitiveness. In terms of 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.

At the same time, we also have to improve the AI ability to use the technology and the platform to improve the development of the technology. We have now in several real events. The companies continue to expand the technology and the technology to use the technology and technology to improve the technology and the technology. The technology and technology have also led to the development of the advanced technology.

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 and higher efficiency. The sustained growth in AI-related revenue also reflects steady progress across our commercialization efforts.

In this year, we launched the including AI life management, and AI safety and safety. The main goal of these researches is the only product of the product and is to test the AI agent from the data department to conduct the artificial environment and the equipment together. We see that AI has the ability to cross the digital world and the world of digital world. This is the key part of the physical AI in the real environment.

In the quarter, we introduced a range of applications aligned with this direction, including the AI-powered Smart Life Assist Pay2Yah and AI Security Guardian. The significance of this initiative lies not only in single products, but in validating the capabilities of AI agents to move beyond handling digital tasks into physical world execution and device coordination. We are seeing AI gradually develop the ability to operate across both digital and physical world, 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 围绕智能潮碗 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 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 smart toys, 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 the 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 commercialization of AI technologies.

Next, we will give our CFO to give you more information and progress.

Turn the call over to our co-founder and CFO, Alex Young, for a closer look at our financial performance and business program.

Hello, everyone. This is Alex. I will provide the brief overview of our first quarter results. Please note that, unless otherwise stated, all figures are in U.S. dollars and all comparisons are on year-over-year basis. In the first quarter of 2006, we generated total revenue of approximately U.S. 80.9 million dollars, representing a year-over-year increase of around 8.3%. 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 percent representing a significant year-over-year increase while non-gap operating margin was 10 percent 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 disciplined expense management has driven sustained profitability gains. Before going into segment details, we would like to note that we have adjusted the length 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 enabled software services to and more applications accurately capturing the transition from traditional cloud services to ai application services meanwhile the formal smart solution segments has been renamed to smart home and robot products, highlighting our increased focus on AI-powered home products, household robotics, and scenario-driven AI initial devices on hardware design. 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 business generates 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 business the ai application and others segments generated revenue of 11.6 million u.s dollars in this quarter representing a year-over-year increase of approximately 16.9 percent continuing to outpace overall company growth this this growth was primarily driven by increased revenue from the cloud software services and the 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 more software products completed, their AI-driven upgrade instruments is gradually become a more growth-oriented and software-service-centric 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 segments, we expect the long-term profitability and scalabilities to gradually improve within a higher mix of a higher value production. From an operational perspective, several vertical discorders have 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, video intercoms, as well as the 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 logs increased substantially 500% year-over-year. This demonstrates that AI and multimodeling capabilities are driven the traditional smart log vertical to evolve from a standalone hardware model into a higher-valued 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 are emerging on new growth drivers. We are also continuing to advance in the higher-value solutions, such as AI-enabled display, gateway, and voice capabilities, providing a strong foundation for our customers' products upgrades and the future growth. 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 key milestones achieved in the commercialization of energy storage and ecosystem accessories. Our customers received very positive feedback and secured multiple channel partnerships and orders at the exhibition such as Light Plus Building in Frankfurt and Solar Solutions in the Netherlands. In the Singapore's HTV project, new capabilities and the delivery 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 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 certain upstream costs. The gross margin for PaaS was 46.1%. The gross margin for AI applications and others was 71.7%. It remained stable and reflected in the structural advantage of software and AI-driven business. The gross margin for smartphones and robot products was 23%. maintaining a level of about 20% 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 of packs of approximately 30.4 million U.S. dollars. We are continually investing in core AI development and platform capability. Improvements driven by AI and digitalization and digitalizing public operations enable further operating average. In terms of profitability, we recorded profit from operations of about 7.5 million U.S. 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 cash equipment time deposits and the Treasury securities amount to about approximately 1 billion dollars the strong cash positions provide solid support for our continuing investment in non-term AI capability in 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 continued to deliver revenue growth and improved profitability in a complex environment if development of AI application business is driven 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 launched our new offerings including the Archive Lightweight Agent Kit and the Vype Coding based on the PowerBacteria hardware applications. So the Vype 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 AI-native hardware products in a more flexible and agile manner. We remain 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 the first quarter of 2026 the number of registered AI developers of our platform exceeded 1.96 million maintaining steady growth at the same time engagement within the to open community continue to increase based on our current acquisition data the two-year open documentation platform has been accumulated over 340 views with more than 16,000 community members it has accumulated the abundant open source projects resources and announced a standardized demo cases library covering mainstream applications and errors and development needs to open is gradually evolving 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 N-devices formats. Whether in AI-enabled door locks, energy management solutions, sensors, AI companion toys, or AI robots, they all reflect 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 censoring, decision-making, and execution in real life. In summary, our first quarter performance further validated the commercial viability of our AI strategy. Our core past business continued to provide a 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 technology 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 our name to

be announced.

To cancel your request, please press star one and one again. One moment for the first question. Your first question comes from the line of Yang Liu of Morgan Stanley. Please go ahead.

Yang Liu Thank you for the opportunity to ask questions, and congratulations on the solid result. I would like to ask about the value chain because of a lot of the chipset shortage globally. Could management update us in terms of Tuya's situation in value chain, especially the cheap set 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, 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, 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 majorly 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 we try to use a larger inventory to buying more times to working through the fluctuations. The second one is that you already noticed that, 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 growth margin on the past as well. We'll continue to keep focus on that and to working along with my customers and 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 remove banish coming through with the time. So that would 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 questions will come from the line of 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 robotic products? Just wondering if you can share more color on your plan regarding these two specific stuff segments. Thank you.

Okay, yeah. Thank you for that. So, first of all, on the market environment, we already noticed that as we share the coverage when we released our Q4 results, we found that while the international trading environment becomes stable after the November of last year, so the momentum is starting to recover and the customers are starting to return to a growing and on the business side. So it's not that starting from December, where you see that it's starting to recover. It's not overnight, so they're 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 the matter is that we found a more solid in mind of pinpoints on the user side and all is those 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 evaluating stage on the lighting side. And some sectors, those chipset cost variations, not from our side, but from their own side, the cameras so all like the some control panels with a screen so the memory chip cost variations will bring a more significant cost difference for the finished for the device side and 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 of the retail price will be like retail price will be like the 20 US dollars and FOB will be below 10 but doing those kind of memory chip and then the non-chip increase we notice that the FOB price might be able to hit $15 so which means that the ratio price have to increased around to 35. So that's a significant increase on the ratio price that might influence the consumer's buying decision. So we've noticed some sectors might be more sensitive, will be impacted more on the cost increase, will be more resilient. 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 I can say energy become more and more crucial 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 Latin America, they are more price sensitive. So like I mentioned, some sectors like the cameras, for this market, consider that they lower buying based on the macroeconomy in that region. So for them, some sectors will meet some challenges out there. So for us, it's still that we're trying to use our very comprehensive category mixed and combined with multi-region mix to going against different type 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 robot products. So both sides that we're looking forward to give the market the signal is that we're doing so hard to re-addict 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 we're really upgrade our entire platform architectures into large language model of stakes which mean 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 launch 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. In April, 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 cloud services, they can do that all through Vibe coding. So all the things we're doing is to show that we are kind of an initial AI user and AI enabler. And so for that thing, we're starting to upgrade our offering in those two segments. So take the AI application, for example. We're really starting to provide 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 only 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 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 the door that you get R-NOM. And it's time 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, a notice. If someone showed up every day and seemed like very suspicious, give me a notice. So people start 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 seamless upgrade on those kind of offerings, it's 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 multiple users trying to subscribe that services because of the AI offering. And then we're doing the other AI applications. And that's the scale, it's an agent, or it's purely services on the recovery model. And for the products and robotics, so some scenarios is including like the companion, that's when we're offering the AI toy, For some customers, that's a very good toy design and channel distribution, 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 started offering an entire solution. And so 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 canceling and microphone array design engine, and they need the string projection and technologies to reflect the different type of reactions from the toy site. So for that part, that's how we allocated the resources since last year. And so right now, for this segment, 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, which is how driving force to 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 will be the typical use cases.

Thank you very much. Thank you for the question. Very detailed explanation.

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 on competition. So, following the emergence of agents, on-device agent deployment has become an industry change. So, can you share how has the competitive landscape evolved in Q1, and how do you view 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's the potential impact on margin and profitability? Thank you.

Yeah. So the first one already covers 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 ushers. 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 healthy, 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're sourcing 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 second half of last year, that our penetration among my ecosystem to integrate the AI capabilities we offer to their new products design and become significant and improved. So that will help us to capture the trend. So that's for this part. So what we see that will always be kind of an early adapter and to notice the trend for the industry maybe two or three quarters ahead is that because I can see that what type of technology my customer is trying to pre-study, is trying to try, and when they start to implement that into the new product roadmap. So what we see is that EMACI will consider as the early education of 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, 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 this year, bring that into market, going through a long procedure into to the development, manufacturing, logistics, and to the indoor design. 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 design the UI user interface and the UX user experience using M most of our R&D site overall. And so at the end of last year, around 40% of the codes we designed for UI site 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, that 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 for the hardware designers and the agent kit a significant part of that is doing by AI and while we offer that kit we also combine with the Vibe coding tool for that kit as well and so which means that another art design the kit for AI the customer will be do that through the AI coding more freely as well and very quickly to turn that into a hard-reporter stack. 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, we're using heavy-store AI. So no matter if it's improving our efficiencies on some office processing, office work processing, but also including the data analytics, the BI, and decision makings, 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 noticed that while more and more AI initial developers come in, that trend is a very good one, is that in this year we noticed more and more new developers did 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 the Renault will see including some of the what do you call the youth market like they do the batch is animation batch is the folks on the cartoon and those batch players they don't have that business before so that Another type of industry breakthrough or crash-over players, they rely more on the AI capability usage themselves and also they are more come with the AI initial ideas or native ideas. 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 happened, especially like the crash over happened, that we're not hesitant to increase the investment to capture those demands. So I think that's what 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 for the questions. Our last questions will now come from the line of Matt Ma of Jefferies. Please go ahead. Hey, 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 quarters? And my second question is on the AI application segment. 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. Thank you.

Yeah, so the first one is for the Bayhome and the Robux products that we're looking for to have the recovery in the coming quarter or in the coming two quarters. And because is a structural change so we have to make the hard decisions you know you can see that even to maintain the revenue and 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 starting to to complete this and in q2 and looking for to capture on orders and to deliver that to make it up so either it's end of the q2 or it's q3 we're looking for together recovery so that's the first one for the home and the robot production. And for the AI applications, yes, 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 based 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 the usage is kind of low, so the service basis revenue is becoming lower for us. Maybe one of the reasons is that the Q1, many of the users are kind of the new users and will have the new devices for the Christmas, for the holiday season promotions. And while they start to try the products, usually combined with some of the vacations, the use is starting to drop. So we're looking forward to see that the natural recurring and on the usage side, we're starting to take place on Q2. So that will be the stuff. So it's kind of very interesting. Got it. Thank you. Thank you for the questions.

I'll 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 quarter.

Let us conclude today's conference call. Thank you for your parties, patients. You may now disconnect your lines.