Earnings Call Transcript - TUYA Q4 2023

Reg Chai, Investor Relations Director

Thank you. Hello, everyone. Welcome to our fourth quarter 2023 earnings call. Joining us today, are Founder and CEO of Tuya, Mr. Jerry Wang and our CFO Mr. Jessie Liu. The fourth quarter 2023 financial results and webcast of this conference call are available at ir.tuya.com. A replay of this call will also be available on our website in a few hours. Before we continue, I 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 to our Founder and CEO Mr. Jerry Wang. Jerry will deliver his remarks in Chinese which will be followed by corresponding English translation. Thank you.

Jerry Wang, CEO

Hello everyone. Thank you for joining Tuya's fourth quarter 2023 earnings conference call. The fourth quarter of 2023 marked an exceptional period of progress, building upon the momentum of the third quarter, as we executed our strategic plan and thoroughly reviewed our operations. This approach led to significant advances across all business and performance indicators. Specifically, we reported total revenue of approximately $64.4 million for the quarter, representing a robust year-over-year increase of 42.2%, which underscores our positive trajectory. The gross margins of our three business segments have steadily increased, driving our blended gross margin to a new high of 47.3%, which is a testament to the strong value that our platform, products, and services deliver to our customers. From an operational and profitability standpoint in the fourth quarter, our non-GAAP net profit climbed to around $12.6 million, a quarter-over-quarter increase of about 25%. Our financial strength is further evidenced by our net cash from operating activities, which reached approximately $31.8 million in net inflows for the quarter, enabling our net cash participation to rise to $984 million by the end of the fourth quarter. In summary, the fourth quarter results reinforced our confidence that we are emerging from the clinical downturn in our industry. Looking back on the year, we returned to year-over-year growth and achieved full-year non-GAAP profit for the first time. Throughout 2023, we implemented strategic adjustments and transformations for validating the operational and commercial benefits of combining our key account focus and product enrichment strategies. This strategy yielded significantly better results. In 2023, our impact on B2B customers and end-users around the world grew even stronger, solidifying our market share. As we have mentioned before, since the latter half of 2022, a number of large IoT platforms have ceased operations due to challenges in maintaining efficiency. Last November, a well-known cloud computing service provider in China discontinued its IoT service. Many of their IoT customers are gradually seeking to switch to the Tuya platform. Now, the smart consumer electronics industry is now embarking on a significant growth phase which will be a period of cultivation and expansion built upon a solid foundation. During this crucial period, our strategy will focus on engaging with high-quality customers, elevating our product offerings, and enhancing cost efficiency. We are committed to driving revenue growth by optimizing both the volume and the pricing of our products while also expanding into new smart domains beyond consumer electronics. A cornerstone of our approach is the key account strategy, which has increased our personnel efficiency and enabled us to dedicate resources to securing and better serving large and strategically significant customers with substantial long-term potential. This strategy is pivotal in driving the growth of our powered by Tuya device shipments. For example, our recent collaboration with Vivo, one of Brazil's leading telecom operators, aims to develop their brand's smart home ecosystem using the Tuya IoT Core and the development tools. Similarly, we are making strides in the Net Zero energy saving project, with Tropez, one of Latin America's largest supermarket chains. Moreover, our Cube smart private cloud products have also opened the doors to significant opportunities, enabling us to engage with large-scale groups and high-quality customers. This includes a new partnership with Malaysia's premium telecom group, a long-standing German shipbuilding company, and others for edge cloud orders. Furthermore, we are fueling expansion by adapting and replicating successful customer cases and strategies across different regions. In Latin America, for example, we have broadened our downstream channel customer base that distributes powered by Tuya devices, moving from initial retail channels to include operators and professional installer systems. This diversification is a new catalyst for routing growth and enhancing the penetration of smart devices in the region. In Europe, we have established deeper collaboration with Sharp Europe to build our two-wheeled vehicle outdoor solution. Using smart device solutions to create the ultimate smart user experience, we are capturing significant share in the retail markets of Europe's leading brands. Next, we are focused on enhancing our products. In the fourth quarter alone, our prioritized smart voice central control product line grew by 1.5 times year-over-year. And for the fourth year, sales doubled compared to the previous year. After more than a year of dedicated product development, we have created the industry's most comprehensive product metrics. This includes a variety of software tailored to different panel sizes and a complete range of multi-modal solutions, including handheld models to meet the diverse needs of our brand channel customers, both domestically and internationally. Our 5-inch smart central control screen solution powered by Tuya OS and featuring robust control capabilities, multi-mode gateway functions, and built-in Alexa voice capability has become a cornerstone product in the North American, Latin American, Japanese retail markets, and the Asia-Pacific industry SaaS market. In terms of customer engagement, our IoT PaaS core customers and the industry SaaS customers represent mature segments initially inclined towards our smart device solution. We assist them in diversifying their product lines by tapping into emerging and potential markets. Importantly, this expansion into new customer segments incurs minimal additional effort and cost for us in terms of customer acquisition. In the fourth quarter, in line with the global push towards energy conservation and carbon reduction, we further enhanced our energy-saving mini program alongside our smart temperature control valve solution set by integrating energy-saving algorithms in heating applications with Tuya's advanced cloud algorithm capabilities and pairing them with more intelligent, precise temperature control devices. We achieved significant strides in smart heating and ventilation temperature control use cases. At the final leg of the 2023 Tuya Developers Conference in Suzhou in November, together with industrial leaders like Evolution and e-Energy, we showcased our strategy in the energy-saving area, marking a confident step beyond the realm of pure consumer electronics. Leveraging cloud technology and the mature software hardware capabilities of certain smart device categories in the fourth quarter, cloud software value added services revenue, such as cloud storage services, maintained a robust sequential growth of approximately 27%, and an impressive year-over-year surge of nearly 78%. This growth has significantly contributed to the sales and other segments, accelerating our internal structural adjustment towards higher-quality revenue, returning to a quarter-over-quarter growth trend of about 11%, and a year-over-year growth of about 19%. Over the past year, we have witnessed a global trend. An increasing number of influential companies worldwide are entering the smart technology area, driven by competitive forces, industrial opportunities, and their own strategic needs. This trend is especially pronounced in emerging markets, such as Latin America and the Asia-Pacific region, where the awareness and adoption of smart technology are on a noticeable rise. Looking ahead, as market penetration deepens, the developer community will become the backbone of the future IoT ecosystem. For example, a Korean local developer service provider is continuously providing services to several leading entrepreneurial companies. In 2023, the Q4 record has already exceeded the full year of 2022. Our Tuya OS low-code development framework already has more than 280 types of fully developed products. The relevant development documents have more than 1,000 articles and more than 8,500 technical support related content. At the same time, our development tools support more automated use in order to promote the further spread of developers and the integration of developer communities into infrastructure. In terms of our efforts to nurture this ecosystem, our developer community building initiatives are advancing steadily. As of the fourth quarter, our registered developer base has grown to approximately 993,000 and we now collaborate with 12 pilot developer service providers. For example, a leading Korean developer service provider has been instrumental in serving several of Korea's top door lock manufacturers, including the top three, contributing more to Tuya's revenue in the fourth quarter of 2023 than in the entire year after 2022. Our Tuya OS local development framework now supports over 280 types encompassing all protocols and categories within the Tuya platform. We have also compiled nearly 1,000 development documents and our developer forum has accumulated over 8,500 posts of technical support content. Moreover, our development tools have evolved to support more self-service operations further popularizing, introducing, and laying the groundwork for the expansion of the developer community. Before I conclude, I would like to sum up the year. 2023 was a year of gradual recovery, global inflation grew rapidly in the first half of the year and a slightly stubborn level in the second half. But we can feel that the global smart consumer electronics device and expanding this naturally building a new equipment in this environment. At the same time, manufacturers, brand channels have essentially returned to normal purchasing patterns with normalized inventory levels. Overcoming difficulties in business and beginning to show a more optimistic attitude in business planning and product development. As many years of joint promotion, product plans, and other collaborations are already underway. With that, I will now hand over to our CFO, Jessie, who will share additional financial details with you.

Jessie Liu, CFO

That concludes the remarks by Jerry. As I discuss our financial results and provide more details on the numbers, please note that all figures are in US dollars and all comparisons are on a year-over-year basis, unless otherwise stated. In the fourth quarter of 2023, our total revenue reached $64.4 million up 42.2% year-over-year. A higher growth rate compared to that of the third quarter of 2023 and led to a sequential improvement for the fifth consecutive quarter. Our IoT path revenue in the fourth quarter was $47.2 million representing a year-over-year increase of 44.6%. This was driven by the normalization of downstream inventory and our commitment to delivering high-value products to our customers. As the smart devices sector encompasses a broad and diverse range of products, we concentrated our R&D as well as sales and marketing efforts towards fostering stable, balanced, and efficient growth for the company. I will offer a breakdown by product categories. Two years ago, smart lighting and electrical products comprised nearly half of our total revenue. Meanwhile, smart safety and guardship, and home appliances products known for their potential to drive higher revenue efficiency, and increase our influence in the industry, contributed nearly 20% and 15% respectively. Now in 2023, our strategic emphasis on product focus and enhancement has equalized this category's revenue contribution to roughly 25% to 30% from each segment achieving a more balanced category structure. Geographically, our business has also evolved as desired in 2023, attaining more balanced distribution. We are channeling our efforts primarily into the mature European market and Southeast Asia region that are full of professional channel opportunities. In Latin America, where both retail and operator channels hold substantial potential, at the same time, we have tailored strategies to further boost our business in China including helping high-quality cross-border e-commerce brands in their international ventures. In terms of customers, we served a total of approximately 3,200 customers in the fourth quarter of 2023 a decrease of about 200 from the same period last year. However, both our revenue and gross profit per headcount have surged from Q3's high underscoring the success of our strategic emphasis on high-quality customers. Jerry highlighted our refined focus earlier, which not only attracted valuable new clients but also enhanced service for existing ones on our platform. Boosting our 12-month DBNER to over 100% by year's end a rebound from earlier declines starting in the first half of 2023. Our smart device distribution business segment generated revenue of approximately $7.8 million in the fourth quarter of 2023 achieving a year-over-year growth of 64.6% largely driven by our smart solutions. This shift towards our smart solution model and the decrease in our legacy smart device supply chain services for some clients led to a gross margin increase in this segment to nearly 30%, further validating our product enhancement strategy. In 2023, our smart solution model flourished across several major categories, we've been focusing on leading to a further diversification of the SKUs we cover. Beyond wearable and outdoor devices such as tech and smart watches, smart gateways and smart control screens featuring Tuya's specialized solutions also made meaningful contributions. Our SaaS and other sectors recorded a revenue of $9.5 million in the fourth quarter of 2023, reflecting a 19.3% year-over-year increase. This growth reflects our strategic adjustments in business planning for software products and technical services alongside a positive trend in high-quality revenue including a growing share of recurring income. Now moving on to gross margin our fourth quarter blended gross margin remained at an all-time high of 47.3% consistent with the previous quarter as each business segment demonstrated robust margin profiles. Specifically, the smart device distribution segment recorded a gross margin of 29.7% in Q4, sustaining a level above 20% throughout 2023. This performance reflects the effective results of our product focus and enrichment strategy. For operating activities and expenses, I will provide a detailed view on a non-GAAP basis which excludes certain items for a clearer picture of our operational efficiency. In Q4, we undertook a conservative reassessment of some early preferred stock equity investments resulting in a one-time $7.4 million impairment loss within our GAAP. G&A expenses, this impairment, however, doesn't materially affect our current operations on cash flow and we continue to present our operating expenses primarily on a non-GAAP basis, excluding share-based compensation expenses and credit-related impairment loss from our GAAP figures. Now, having completed our internal restructuring for optimal organization structure and team collaboration, our operating expenses have generally stabilized. In Q4 2023, our non-GAAP total operating expenses decreased by 13.5% to $30.7 million from $35.5 million a year ago. Largely due to reduced employee-related costs as we continue to streamline our team. By the close of December 2023, our workforce number was just over 1450 in line with our anticipated stable headcount. Regarding sales and marketing, we increased our market and promotional investments as the industry normalized in the latter half of 2023 and our revenue returned to a solid growth trajectory. This contrasted with our strategy during the peak periods of downstream inventory and industry inflation pressure in late 2022 through early 2023, when we consciously curtailed spending to avoid ineffective marketing investments. In a similar fashion, we have also stabilized our G&A expenses in the quarter. The past year has fully reflected the cost savings from streamlining our team. Meanwhile, as we navigate new operational developments such as ESG investments and adherence to stringent compliance standards as a dual primary listed company in the U.S. and Hong Kong, we anticipate a potential increase in professional service expenses which we will manage effectively. Finally, regarding interest income and cash. We earned approximately $13.1 million in interest income in Q4, supplementing capital to our daily businesses. A testament to our adept cash management, we have always prioritized the security of our principal, as we do not view earnings and interest income as our business target. By the end of 2023, our net cash position, which includes cash and cash equivalents, bank time deposits, and U.S. treasuries, totaled about $984.3 million. In addition, we generated approximately $31.8 million in operating cash flow in Q4. Despite some cash flow fluctuations due to accounting practices and seasonal variations such as the timing of annual bonuses, the overarching trend for the year was clear as we recorded strong and positive cash flow in 2023. Looking ahead, we are committed to driving top-line growth, sustaining strong gross margins, and optimizing operating expenses. We are confident in our ability to deliver strong financial performance in 2024. With that, operator, we are now ready to take questions. Thank you.

Operator, Operator

We now have our first question from Yang Liu of Morgan Stanley. Please go ahead.

Yang Liu, Analyst

I will translate my question into English. The first one is about the 2024 revenue growth outlook. I would like to ask the management expectation based on the communication with key customers? And the second question is about the growth margin, because the fourth quarter 2023 growth margin sequentially increased to 47.3% due to some mix change in the smart solution. Is that due to seasonality or does that represent a new norm for the future? And the third question is regarding the impairment loss, because that also happened in the second quarter of last year and I would like to ask whether the related item on the balance sheet is clean or not. What is the future outlook for that impairment item? Thank you.

Jessie Liu, CFO

Okay. Thanks, Liu. Let's come to the first question about the 2024 forward-looking. So from the downstream end users perspective based on our constant discussion and communication with our customers, our perception of 2024 is similar to last quarter's expectation, which is the global discretionary smart device spending maintained moderate growth from Q4 to the beginning of this year. Among these regions, Southeast Asia and Latin America have shown stronger growth momentum than Europe and America. In terms of categories since January, the end consumer spending of smart lighting categories has been relatively weak due to the effect of inflationary pressures and its highly discretionary nature. However, electrical products because of their usage related to energy saving in many cases have recovered better than the lighting products, and such as smart breakers, switches, those products. In the appliances segment remains the main focus of growth among which typical categories like robotic vacuum cleaners are a focus of our growth strategy for enterprise and expansion. Our smart pet appliances, it is a new category in the last few years that meets strong emotional needs of global consumers and have a relatively high resistance to inflation pressure. Other products like temperature controls, heaters in the appliance segment, which also involve energy usage and saving can bring cost benefits to users with the addition of smarter capabilities and so on. And at the end of the month, most product segments remained robust due to those characteristics. Safety and sensing products because they satisfy global consumers' fundamental needs for protection and family safety have continued to show steady growth momentum through the turbulent down cycles. And currently in the recovery period, it also shows a good growth trajectory. So above all, our product focus and investment strategies are based on the assessment of the major demand logic for the above layout I just discussed. Regarding downstream customers, inventory normalization began in Q3 last year, so we have seen pretty good restocking activities in the retail channels and the brand and also OEMs. Currently, we expect the inventory level to remain at a total of four to five months for all the downstream channels adding together by the end of Q4, which is a quite healthy level. So the downstream enterprises have normalized replacement for categories and we feel the restocking is completed. Coupled with our joint efforts with customers in planning the categories promotions and market strategies, our revenue in Q3 and Q4 achieved both more than 40% year-over-year growth, so it majorly benefited from downstream restocking. Currently, the OEMs, brands and retail channels are generally optimistic about the outlook for their smart business in 2024 and their operating and business turnover is no longer as severe as before. As such, everyone is starting to be more positive. Additionally, we have also found that in 2023 many new professional channel opportunities, such as the professional telecom operators in various regions like the Middle East, Latin America, Brazil, etc., have significantly increased their attention and participation in the smart business. But we want to bring attention to all the investors, because Q3 and Q4 have greatly benefited from the restocking efforts of downstream and the restocking efforts are probably coming to an end in Q1, it's just normalized. So we are optimistic about the growth of 2024. But it may not be as strong as Q3 and Q4, which had the temporary restocking effect. For the second question about the growth margin. In 2024, we have observed and delivered continuous growth of our gross margin. It has several effects; first, our IoT PaaS business has steady gross margin growth. That reflects the continuous change in our product strategy and structure in the beneficial direction. As a company that has substantially built a broad IoT ecosystem, the revenue and gross margin of IoT PaaS business result from a mix of categories and solutions. For different categories, such as smart vacuum cleaners, switches, Bluetooth headsets, or bulb products, the depth and complexity of their basic IoT and cloud capabilities differ, and they do have different prices and gross margins. Similarly, for different protocol solutions, such as Wi-Fi, Bluetooth, ZigBee, or NB-IoT, their pricing and gross margin solutions also vary. However, considering consumers' price sensitivity towards smart products, we have always been committed to reducing the cost of smartification, allowing consumers to enjoy good value at an affordable price. Therefore, we continue to manage the gross margin of IoT PaaS from both aspects. We look forward to maintaining a stable gross margin of IoT PaaS business. And also, we delivered a higher percentage in terms of revenue contribution of the SaaS and value-added service segment, which enjoys a 75% gross margin. We expect the SaaS and value-added service business to contribute a similar percentage of business as Q4 in 2024. For the smart device distribution business, which now mainly contributes from the smart solution business, basically, Tuya delivers integrated software and hardware as one product, finishing the product to the downstream customers. That business now achieved a 30% gross margin in Q4. We expect this gross margin to remain relatively stable in 2024 and the portion of this segment will increase their revenue contribution in 2024, as it will grow at a higher speed than the other two segments. Overall, we look forward to maintaining a stable overall gross margin in 2024 versus 2023. The third question pertains to credit loss. Between 2020 and early 2022, we made strategic investments totaling around $30 million, primarily in some of our downstream and upstream partners, including suppliers and customers. We invested in about 10 companies, and several of them underperformed during the severe downturns of the consumer electronics industry in 2022 and 2023. This resulted in an investment impairment due to strict accounting practices. According to the accounting policy established in 2020, we calculated the credit loss based on these policies, leading to a total credit loss of approximately $15.5 million in 2023. While classified as a credit loss per the accounting rule, it essentially represents an equity investment loss. Currently, we believe there is still about $11 million in value related to our strategic investments from 2018 to 2021 on our balance sheet, and we feel the credit loss impairment has mostly plateaued. We expect that any future credit loss impairments will be significantly lower than what occurred in 2023, primarily due to the industry down cycle. All the companies are still in operation, although we have recorded substantial impairments for those that faced challenges. If their operations improve in the coming years, there's potential to reverse some of the credit loss.

Operator, Operator

Thank you. Our next question comes from Timothy Zhao of Goldman Sachs. Please go ahead.

Timothy Zhao, Analyst

Thank you, management, for taking my question and congratulations on the strong fourth quarter results. I have two questions here, one is regarding the 2024 revenue outlook. I think you already mentioned quite a lot about the past revenue outlook. I think on the SaaS part, just wondering what is your outlook here and specifically on the key customers' progress, what does their revenue look like in 2024? And secondly, I think given 2023 is a year of very good OpEx control, I'm just wondering what is your OpEx plan and headcount plan for 2024 and how that will impact your OP margin or net margin, if any? Thank you.

Jessie Liu, CFO

Okay, thanks for Timothy for questions. So first about the SaaS and value-added services segment. Our software services and other revenue sectors are still reflecting the adjustments in revenue structure within which high-quality revenue maintains good momentum. For example, first, our cloud software services such as cloud storage, which is a recurring SaaS revenue in principle with a pretty high gross margin have achieved year-over-year revenue growth for five consecutive quarters. While consumer payments have increased, the number of enterprise customers using our cloud storage technology has also steadily increased to nearly 80 of them globally. Secondly, our Cube Smart private cloud products have already helped us secure over a dozen strategic large clients, such as several industry or telecom giants in Southeast Asia and well-known major channels in Australia are better serving the expansion needs of existing large clients, like Philips' new Asia-Pacific project. We have several clients whose projects are steadily progressing, and we will share more with everyone when we have the clients' consent or PR as we approach project completion and deployment. Thirdly, in terms of industry SaaS products, although the domestic real estate and community industry in China faced significant challenges in 2023, posing pressures to our community SaaS solutions, we still achieved nearly 30% annual year-over-year growth in other sectors such as smart hotels. Additionally, our Cube products and industry SaaS products have generated good synergy with several typical Cube customers' acquisitions in regions such as Southeast Asia, like some leading real estate group clients in Thailand serving as benchmark cases of win-win projects for us and for the customers. On the other hand, in the SaaS and value-added services segment, our customized development technology services and some other one-time value-added services, like OEM app are still undergoing structural adjustments. So we have successfully kept the number of related clients and projects at a limited and non-expanding level, while trying to increase the average order value to enhance the benefits of this client project. In the future, this segment will be retained at a level for specific strategies and customer service, rather than the main source of revenue for the company. In summary, since SaaS and others comprises a diverse mix of services and software technical products, it may still face overall revenue fluctuations in the upcoming few quarters. However, the proportion of our high-quality recurring income is continuously and steadily increasing. For the second question regarding our key customers, these high-quality key accounts have become a vital strategic focus for our development over the past two years. Key accounts provide us with various revenue opportunities, including income from Cube, ongoing operations and iteration fees for private cloud software, as well as subsequent revenue from our IoT business. They also contribute to our smart solutions business and the potential for recurring SaaS and value-added services revenue in the upcoming years. Furthermore, our key accounts benefit from large scale, significant market share, and strong resistance to economic downturns. We have shared some cases from Southeast Asia, Latin America, and Europe that customers have permitted us to disclose. Additionally, we have promising key account cases in emerging markets, such as the Middle East, although we can't disclose names at this time. Acquiring key accounts is challenging; securing 10 or fewer key or high-quality customers each quarter is already a notable achievement, and we will maintain our strategy of focusing our best technology resources and sales efforts on these key accounts. Regarding the third question about the expenses and the profits. So our expenses have a relatively clear structure. On a non-gap basis, about 70% of our net operating expenses are related to salaries and benefits costs of employees as we are a light asset business model. Therefore, the future trend of this part of expenses especially based on the size of the total number of employees, we have already completed adjustments to our team size, so we expect to maintain the current team size in 2024. The remaining 30% of the expenses cover daily activities including cloud costs accounted as expenses, professional promotional marketing activities, travel activities, and rent, etc. So aside from technical and marketing expenses, which will be moderately invested in accordance with the growth of the revenue, the rest of the expenses are also mainly linked to the number of headcounts. Overall, considering factors leading to expense reduction and preserving some space for basic expense increases, we expect this year's total operating expenses to remain relatively stable. So our profit margins are also linked to revenue scale. We will continue to focus on growing revenue based on the current team size.

Operator, Operator

Thank you. Our last question comes from Mingran Li of CICC. You may now go ahead.

Mingran Li, Analyst

Thank you, management, for taking my questions. First, congratulations on your robust performance. As previous discussions have already covered much about the outlook for demand in 2024. I have one quick follow-up, because we have to wait longer for the Federal Reserve's rate cut. So how does this change of expectations influence the demand based on your recent observations? That's the first question. And for future development, could you elaborate more on the strategic plans and investment priorities for PaaS, SaaS, and smart device distribution over the next two to three years? Thank you.

Jessie Liu, CFO

Thank you for the question. To address the first part, interest rate cuts can help release capital to encourage consumer spending. However, with inflation still a factor, the market perceives that the pace of these cuts is slower than anticipated. If inflation rebounds quickly post-rate cut, it could lead to increased prices for essentials like food and gasoline, which might dampen discretionary spending on electronic devices. We believe that the main issue revolves around inflation itself. Our customers, particularly those in retail channels, are less affected by interest rates and more by inflation. As we mentioned earlier, market participants are finding a new balance in discretionary spending. If inflation and prices hold steady, we anticipate that demand will likely remain consistent. Regarding the second question, when we look at the company’s development stages—early, middle, and long-term—Tuya has successfully leveraged its IoT cloud technology and scalable strategy to capture significant market share during the initial phase of IoT growth between 2014 and 2021. Now, as the industry transitions to the second phase and faces downturns, expanding the total addressable market for IoT smart devices necessitates further penetration. Following our CEO Jerry's earlier comments, our primary focus is to enhance revenue growth through our product offerings both in terms of quantity and pricing, which will also support our customers in increasing smart device usage. In the long run, as smart device adoption rises and developers address fragmentation, we expect broader acceptance of smart applications. We're looking forward to this outcome. In the short term, our development efforts over the next two to three years will center on key accounts, creating efficient, high-potential revenue with comprehensive solutions that include high-value products. This approach will ensure that our IoT PaaS smart solutions and SaaS software work together effectively to meet the diverse needs of major clients. For example, for local retail brand groups overseas, enhanced smart solutions, which are supported by IoT PaaS technology. Will together serve as the key to acquiring such customers. And for overseas, telecom operator groups from Asia-Pacific to Latin America, Cube and smart solutions will join forces to serve their customized needs. Once they adopt our smart solutions and Cube to deliver IoT services to their own customers, like millions of families in their region. We will use SaaS offerings to help them generate further recurring revenue, which we can usually split a good chunk of it. For industry clients or multinational corporations with industry needs, a lot of times they can mix and match all three types of products as needed. So that concludes the call today. Thank you for joining our call. If you have any further questions, please feel free to contact us or request through our IR website. We look forward to speaking with everyone in our next earnings call. Have a good day.

Operator, Operator

This concludes today's conference. Thank you for joining. You may now disconnect your line.