Earnings Call Transcript - TUYA Q1 2026

Operator, Operator

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. Please be informed that today's conference is being recorded. I'll now turn the call over to our first speaker today, Ms. Regina Wang, Associate Director of Investor Relations at Tuya. Please go ahead.

Xuechen Wang (Regina Wang), Investor Relations Associate Director

Thank you, operator. Hello, everyone, welcome to our First Quarter 2026 Earnings Conference Call. Joining us today are 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 statement in our earnings press release, which applies to this call as we will make forward-looking statements. With that, I will now turn the call over to our Founder and CEO, Mr. Jerry Wang. Jerry will give his remarks in Chinese and English translation follows. Jerry, please.

Jerry Wang, Founder and CEO

Hello, everyone, and thank you for joining Tuya's earnings conference call for the first quarter of 2026. During the quarter, despite ongoing uncertainties in the external environment and disturbances from certain regional factors, the company delivered 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. Gross margin remained at a healthy level, reflecting the continued enhancement of our product value proposition and platform competitiveness. In terms of execution 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 is gradually evolving 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 1 2026. At the same time, we are accelerating the transition of AI capabilities from the platform layer to the application layer and scenario-based products with successful deployments 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. During the quarter, we introduced a range of applications aligned with this direction, including the AI-powered Smart Life assistant Hey Tuya 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 world execution and device coordination. We are seeing AI gradually develop the ability to operate across both digital and physical worlds, marking a critical step forward in the real-world deployment of physical AI. Looking ahead, 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, expanding 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 commercialization of AI technologies. Now let me turn the call over to our Co-Founder and CFO, Alex Yang, for a closer look at our financial performance and business progress.

Alex Yang, Co-Founder and CFO

Hello, everyone. This is Alex. I will provide a 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 a year-over-year basis. In the first quarter of 2026, we generated total revenue of approximately USD 80.9 million, representing a year-over-year increase of around 8.3%. Despite ongoing uncertainties in the external environment, the company maintained its steady growth trajectory. Our core platform business remained stable, while AI-related business continued to demonstrate strong growth momentum. Our profitability and operating margin continued to improve. GAAP operating margin reached 9.2%, representing a significant year-over-year increase, while non-GAAP operating margin was 10%. Net margins further improved to 19.5%, reflecting continued optimization in operating efficiency and cost structure. Overall, the combination of improvements in revenue mix and disciplined 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 former SaaS and Others segment has been renamed to AI Application & Others, reflecting our continued push forward of AI-enabled software services and more applications, accurately capturing the transition from traditional cloud services to AI application services. Meanwhile, the former Smart Solutions segment has been renamed to Smart Home & Robot 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 do not affect the revenue composition, recognition methods or historical comparabilities of each segment. Within our segments, the PaaS business generated revenue of USD 59 million in this quarter, representing a year-over-year increase of approximately 9.8%. As customer demand gradually recovered, we continue to drive steady growth in our core business through ongoing optimization of our customer mix and PaaS capabilities. At the end of this first quarter, the number of PaaS premium customers reached 306, reflecting the variability of our core customer base and the structural resilience of the platform business. The AI Application & Others segment generated revenue of USD 11.6 million 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 cloud software services and AI application services, including AI cloud storage, energy management and energy-saving solutions, value-added services like SMS and voice services as well as app OEM and SDK offerings. This reflects the continuous progress in commercialization of our AI applications as more software products completed their AI-driven upgrades. This segment has gradually become a more growth-oriented and software services-centric component of our revenue mix. The Smart Home & Robot Products segment generated revenue of USD 10.2 million, representing a year-over-year decrease of approximately 6.9%. The fluctuation in this segment primarily reflects our proactive efforts to phase out relatively low-value hardware products and optimize the product mix and reallocate resources towards higher value-added, especially AI-initial hardware terminals. As the segment undergoes structural adjustments, we expect the long-term profitability and scalability to gradually improve with a higher mix of higher value products. From an operational perspective, several verticals this quarter 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 Wi‑Fi multi-mode solutions, video intercoms as well as AI voice and vision capabilities. PaaS revenue from Wi‑Fi-enabled smart door locks increased 65% year-over-year. At the same time, AI revenues from the video-enabled locks increased substantially, about 500% year-over-year. This demonstrates that AI and multi-modal capabilities are driving the traditional smart lock vertical to evolve from a stand-alone hardware model into a higher-value business model of hardware plus software service plus AI capability combined. In the energy sector, related PaaS products, including EV chargers, metering products and professional metering solutions are emerging as 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' product upgrades and future growth. In AI energy, demand in the European market for home energy management, energy storage and AI-driven energy-saving solutions continues 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 exhibitions such as Light + Building in Frankfurt and Solar Solutions in the Netherlands. In Singapore's HDB project, new capabilities, app panels and deliveries are progressing on schedule. AI Energy is gradually evolving towards a comprehensive solutions model, integrating hardware bundles, software and AI orchestration 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 smart home appliances and AI safety and security protections. In the Asia Pacific region, the Singapore HDB project continues 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 toys and AI home products, including AI companions, continue to attract strong customer interest with some customers already advancing project upgrades and solution integration. On margins, our blended gross margin for this quarter was 46.9%, with slight year-over-year fluctuation primarily due to the change in the product mix and certain upstream cost variations. By segment, gross margin for PaaS was 46.1%. Gross margin for AI Application & Others was 71.7%, remaining stable and reflecting the structural advantage of software and AI-driven business. The gross margin for Smart Home & Robot Products was 23%, maintaining a level above 20%. While advancing AI applications and higher-value products, we continue to focus on cost efficiency and product value. On expenses, we maintained disciplined cost management during the quarter with total operating expenses, OpEx, of approximately USD 30.4 million, while continually investing in core AI development and platform capability improvements driven by AI and digitization. Digitalizing operations enabled further operating leverage. In terms of profitability, we recorded profit from operations of about USD 7.5 million for this quarter. Non-GAAP profit from operations was approximately USD 8.1 million. Net profit reached USD 15.8 million. The improvement was primarily driven by positive contribution from gross profit growth as well as lower share-based compensation expenses. Our cash flow: net operating cash flow remained positive during this quarter. At the end of this quarter, the company's total cash, cash equivalents, time deposits and treasury securities amounted to approximately USD 1 billion plus. The strong cash position provides solid support for our continued investment in long-term AI capability development, our ability to navigate external uncertainties and opportunities, and our competitiveness to enhance shareholders' returns. We will also prudently evaluate and pursue higher quality strategic investment opportunities. Overall, the company continued to deliver revenue growth and improved profitability in a complex environment while the accelerated development of AI application business is driving the ongoing evolution of our revenue mix towards higher-value segments. Next, I will briefly walk you through our progress in the AI development ecosystem. Within our development ecosystem, during the first quarter, we continued to advance the open-source capabilities of TuyaOpen and further development on our AI agents. To better address the diverse needs of AI-native developers, we also launched new offerings, including the ultra-lightweight agent kit for hardware developers and vibe coding based on Tuya hardware applications. Vibe coding will help lower the bar for many new developers. Those tools enable developers to build a wide range of AI-native hardware products in a more flexible and agile manner. We remain committed to lowering the bar for AI hardware and application development while enhancing flexibility and openness, allowing developers, brands and solution providers to accelerate the process from ideation and prototyping to product commercialization. At the 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 TuyaOpen community continued to increase. Based on our current ecosystem data, the TuyaOpen documentation platform has accumulated over 340,000 views with more than 16,000 community members. It has accumulated abundant open-source project resources and launched a standardized demo cases library, covering mainstream application scenarios and development needs. TuyaOpen is gradually evolving from an open-source framework into an open ecosystem infrastructure for AI hardware innovation. From our deployment perspective, AI capabilities are increasingly extending from the platform layer into a broader range of end device 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 devices, scenarios and user needs. This is fully aligned with our previously articulated vision of physical AI, enabling AI to engage in real-world environments and actively participate in centered decision-making and execution in real life. In summary, our first quarter performance further validates the commercial viability of our AI strategy. Our core PaaS 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 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 focused on two key priorities: physical AI scenarios and high 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 for our shareholders. Thank you. Operator, we can begin the Q&A right now.

Operator, Operator

First question, we have Yang Liu from Morgan Stanley.

Yang Liu, Analyst, Morgan Stanley

Congratulations on the solid results. I would like to ask about the value chain because a lot of the sectors are suffering from the chipset shortage globally. So could management update us on Tuya's situation in the value chain, especially chipset sourcing, and also update us on the pricing strategy, if there's any shortage or constraint from the value chain and how you pass through the inflationary cost to the downstream?

Alex Yang, Co-Founder and CFO

Yes. Thank you, Liu. We really noticed those kinds of fluctuations about one and a half quarters ago. That's why we gave a heads-up on that trend around the end of last year. The things we're doing: first, we consider large buys of some of the major chips in the industry. With our buying power, we try to limit the impact of fluctuations. At the same time, for costs that inevitably increase, we'll pass through those costs to the downstream side. That is the basic idea and how we've been doing it. You can see several actions we have already taken. First, in Q1, we did some strategic purchasing before cost changes. You can notice that in our balance sheet our inventory increased slightly; that is mainly due to procurement done before costs increased. That also affected our net cash position. We try to use larger inventories to smooth fluctuations. Second, you already noticed that, especially on the PaaS side, changes in gross margin reflect that we're trying to pass through costs. We didn't add extra margin on top of the cost changes because we don't want to bring more burden to our downstream customers. So that slightly reduced our gross margin on PaaS as well. We'll continue to focus on working with customers through these fluctuations and use our scale to manage cost differences as much as possible. We expect the shortage intensity to continue into the beginning of Q2.

Operator, Operator

Our next question will come from the line of Goldman Sachs, Mr. Timothy Zhao.

Timothy Zhao, Analyst, Goldman Sachs

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 revenue growth. However, given the very dynamic geopolitical and macro environment globally right now, I was just wondering what are 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 about the reporting changes: you changed the reporting names of two segments. Could you further elaborate on the rationale behind those changes, and specifically on AI applications and robotic products? Could you share more color on your plan regarding these two specific subsegments?

Alex Yang, Co-Founder and CFO

Thank you for that. First, on the market environment: as we shared when we released our Q4 results, we found that the international trading environment became more stable after November of last year, and momentum started to recover as customers returned to a growing trend. This recovery began in December and has been gradual. Even though in March we saw new fluctuations, overall the downstream side is recovering. We need to break it down by sector. Appliances, energy, and innovative devices including security and locks show more positive growth momentum. In those sectors, there are clearer pain points for users, so companies are doing better. In other sectors like lighting, we don't see significant recovery yet; it's still in an evaluation stage. Some sectors are more affected by chipset cost variations, such as cameras and control panels with screens, where memory chip costs can significantly impact finished device prices. For example, an entry-level camera that typically retails at about USD 20 with FOB below USD 10 might see FOB rise above USD 15, which could push retail to around USD 35. That large retail increase could affect consumer buying decisions. So some sectors and regions will be more sensitive to price increases and face challenges, while others are more resilient. Regionally, Europe and Southeast Asia, including Australia, show strong demand for energy management solutions. People are more willing to pre-invest in energy efficiency as energy becomes increasingly important for cost control. In Latin America and other price-sensitive regions, buying power is lower, making those markets more sensitive to price increases. For us, we use our comprehensive hardware category mix and multi-region presence to balance fluctuations and look for opportunities in different regions to offset headwinds in others. On the AI transition and the two renamed segments: both AI applications and home robot products represent areas where we reallocated resources since 2023 to transition from the first generation of smart devices to AI-initial offerings. Since the end of 2023, we upgraded our platform architecture to support large language models, enabling decision-making on the platform side for devices and applications to be based on mainstream large language models. In May 2024, we launched our hardware agent platform to enable customers to design agents on top of devices, allowing devices to behave more autonomously. Initially, customers were unfamiliar with agents, but last year we launched our new AI foundation with multi-modal offerings and open-source projects to open new doors for innovation. In April at our developer summit, we launched the agent kit for hardware designers and the vibe coding tool so developers can design software, firmware, apps and cloud services faster. These improvements show we are both an AI user and AI enabler. For example, our cloud storage for cameras now comes with AI capabilities that allow customers to customize events rather than just detect motion and trigger alerts. Users can set rules so packages don't trigger notifications, but if someone stays at the door over a threshold time, or if suspicious patterns are detected, give a notice. This creates significantly more user value and addresses real pain points. As these AI capabilities are seamlessly integrated into our SaaS offerings, more users subscribe for AI features and we are upgrading other AI applications. These offerings scale as recurring services or agent-based services. For home products and robotics, examples include AI companion toys. Some customers have strong toy design and channel capabilities but lack expertise in coding, circuit design, microphone arrays, and other AI hardware specifics. We offer full solutions so they don't have to design from scratch. We are shifting focus from first-generation connected devices to AI-initial devices—products that require multimodal capabilities, improved noise cancellation, microphone array design, and advanced interaction technologies. These devices naturally come with opportunities for AI application business on a recurring basis. That is how we are allocating resources and guiding the organization to focus on AI-enabled and AI-initial devices.

Operator, Operator

Our next question will come from the line of Kai Xiao of CICC.

Kai Xiao, Analyst, CICC

This is Kai, and I have two questions. First is on competition: following the emergence of agents, on-device agent deployment has become an industry trend. Could you share how the competitive landscape evolved in Q1 and how you view Tuya's advantage in this field? Second, on R&D: could you share how the company is applying AI tools like agent coding tools in internal R&D, and what's the potential impact on margins and profitability?

Alex Yang, Co-Founder and CFO

For competition and the emergence of agents, we see two things. First, customers are moving away from over-conservative stances and returning to growth paths; we identify the right roadmaps with them and help them provide better products and offerings to capture end users. End-user stickiness on AI is growing healthily—more users are trying AI features, and AI capabilities will become key differentiators for new devices in the near future. Since the second half of last year, penetration of our AI capabilities into new product designs has increased significantly. As customers implement AI into roadmaps, those products come to market after the full development cycle, and that's what we are seeing now. We often act as early educators for the industry, anticipating trends two to three quarters ahead and helping customers adopt AI. On AI usage internally: by the end of last year, many front-end UI and UX tasks were using AI—around 40% of UI code/design work was assisted by AI. We've improved this in Q1 as AI coding capabilities improved, enabling us to use more AI to support terminal development and the agent kit. The agent kit itself has significant AI-driven components and is integrated with vibe coding, so customers can quickly turn ideas into prototypes. AI is used across departments—not only R&D but also finance, HR and legal—to increase efficiency in office processing, data analytics, BI and decision-making. AI helps us release labor to focus on higher-value work and enlarges capacity to meet future demand growth. We are seeing more developers entering the smart devices space who are not from traditional hardware backgrounds—crossover players driven by AI-initial ideas, such as some toy and entertainment players that are not traditional toy manufacturers. This crossover requires more AI capabilities and benefits from AI-enabled tools to quickly prototype and scale. Our strong net cash position is a strategic strength, enabling us to invest to capture opportunities as the industry grows. We must be powerful AI users ourselves to empower customers effectively.

Operator, Operator

Our last question will now come from the line of Matt Ma of Jefferies.

Matt Ma, Analyst, Jefferies

I have two questions. First, on the Smart Home & Robot Products segment: how do you think about the growth trajectory of this segment in 2026? Should we expect a growth recovery in the coming quarters? Second, on the AI Application segment: we are seeing that the gross margin of this segment declined by 2.7 percentage points year-on-year in the first quarter. Are there any specific reasons behind that?

Alex Yang, Co-Founder and CFO

On Smart Home & Robot Products, we expect recovery in the coming quarter or the next two quarters. These are structural changes and require hard decisions. We have proactively cut off some low-value products—even turning down orders—because we don't like the long-term model. Those decisions affected short-term numbers, but we are accelerating the rollout of new offerings starting in Q2 to capture orders and deliveries and make up for that. We expect recovery either by the end of Q2 or in Q3. On AI applications and the gross margin decline: seasonality is a key factor. AI application revenue relies on end-user usage of devices that are running. Q1 is typically a lower-usage season for the year, and that reduces usage-based service revenue. Another reason is that many devices acquired during the holiday season experience lower usage during Q1 because of vacations and other factors, so service-based revenue dips. We expect natural recovery in usage in subsequent quarters.

Operator, Operator

I will now hand the call back to management team for closing remarks. There are no more questions from the line. Allow me to turn the call back.

Xuechen Wang (Regina Wang), Investor Relations Associate Director

All right. Thank you, operator, and thank you all once again for joining us today. If you have any further questions, please feel free to contact Tuya's IR team. Goodbye, and see you next quarter.

Operator, Operator

That does conclude today's conference call. Thank you for your participation. You may now disconnect your lines. Portions of this transcript that were interpreted were spoken by an interpreter present on the live call.