Tuya Inc. (“Tuya” or the “Company“) (NYSE: TUYA; HKEX: 2391), a global leading IoT cloud development platform, today announced its unaudited financial results for the second quarter of 2022.

Second Quarter 2022 Financial Highlights

• Total revenue was US$62.5 million, down approximately 26.1% year over year (2Q2021: US$84.7 million).
• IoT PaaS revenue was US$47.6 million, down approximately 38.1% year over year (2Q2021: US$76.9 million).
• SaaS and other revenue was US$7.2 million, up approximately 114.3% year over year (2Q2021: US$3.4 million).
• Overall gross margin for the quarter increased to 42.8%, up 0.6 percentage points year over year (2Q2021: 42.2%). Gross margin of IoT PaaS for the quarter increased to 42.5%, basically flat year over year (2Q2021: 42.4%).
• Operating margin for the quarter was negative 63.1%, down 14.1 percentage points year over year (2Q2021: negative 49.0%). Non-GAAP operating margin for the quarter was negative 35.6%, down 4.3 percentage points year over year (2Q2021: negative 31.3%).
• Total cash, cash equivalents, and short-term investments were US$951.5 million as of June 30, 2022 compared to US$1.07 billion as of December 31, 2021.
• Shares repurchased in the form of ADSs for the quarter were approximately US$30.0 million, representing approximately 15.0% of the US$200 million authorization announced pursuant to the share repurchase program announced on August 30, 2021.

Second Quarter 2022 Operating Highlights

• IoT PaaS Customers^[1] for the second quarter of 2022 were approximately 2,800 (2Q2021: approximately 2,600). Total customers for the second quarter of 2022 were approximately 4,100 (2Q2021: approximately 3,700).
• Premium IoT PaaS customers^[2] for the trailing 12 months ended June 30, 2022 were 267 (2Q2021: 285). In the second quarter of 2022, the Company’s premium IoT PaaS customers contributed approximately 82.4% (2Q2021: 86.6%) of IoT PaaS revenue.
• Dollar-based net expansion rate (“DBNER”)^[3] of IoT PaaS for the trailing 12 months ended June 30, 2022 was 84% (2Q2021: 211%).
• Registered IoT device and software developers, or registered developers, were over 629,000 as of June 30, 2022, up 23.3% from approximately 510,000 developers as of December 31, 2021.

[1] The Company defines an Iot Paas customer for a given period as a customer who has directly placed orders for IoT PaaS with the Company during that period.
[2] The Company defines a premium IoT PaaS customer as a customer as of a given date that contributed more than US$100,000 of IoT PaaS revenue during the immediately preceding 12-month period
[3] The Company calculates DBNER of IoT PaaS for a trailing 12-month period by first identifying all customers in the prior 12-month period (i.e., those have placed at least one order for IoT PaaS during that period), and then calculating the quotient from dividing the IoT PaaS revenue generated from such customers in the current trailing 12-month period by the IoT PaaS revenue generated from the same group of customers in the prior 12-month period. The Company’s DBNER may change from period to period, due to a combination of various factors, including changes in the customers’ purchase cycles and amounts and the Company’s customer mix, among other things. DBNER indicates the Company’s ability to expand customer use of the Tuya platform over time and generate revenue growth from existing customers.

Mr. Xueji (Jerry) Wang, Founder and Chief Executive Officer of Tuya, commented, “During the second quarter, global inflation continued to pressure consumer discretionary spending, further slowing a market recovery. Despite the industry-wide challenges, we continued to implement operational and business optimization, as well as product and technology upgrades. These efforts enabled our SaaS and others business segment to achieve a year-over-year growth momentum of over 110% for ten consecutive quarters despite the turbulent global economy. Notably, our Cube solution is making steady progress with the acquisition of new giant customers. On the operating front, the efficiency-centric initiatives we previously announced are already having a positive impact on our financial results. Going forward, we will prudently focus on improving our operational efficiency as we navigate this challenging environment.”

Ms. Yao (Jessie) Liu, Director and Chief Financial Officer of Tuya, added, “In the second quarter of 2022, we continued to augment our margin profiles as we maintained our gross profit margin at a healthy level and further narrowed our loss. Our non-GAAP operating margin and non-GAAP net margin significantly improved by 32.8 and 37.5 percentage points quarter over quarter, respectively, reversing the trend of sequential decreases since the third quarter of 2021. In line with our narrowed non-GAAP loss, our operating cash flow in the quarter was on an improved trajectory, demonstrating the initial success of our measures to address market headwinds. As of June 30, 2022, we had a strong cash position of approximately US$951.5 million to adequately meet our liquidity and cash needs for the foreseeable future, which we believe is one of the greatest advantages, giving us resilience to navigate adverse macro environments.”

Second Quarter 2022 Unaudited Financial Results

REVENUE

Total revenue in the second quarter of 2022 decreased by 26.1% to US$62.5 million from US$84.7 million in the same period of 2021, mainly due to the decrease in IoT PaaS revenue, partially offset by the increases in smart device distribution revenue and the increases in SaaS and other revenue which continued a year-over-year growth momentum of over 110% for ten consecutive quarters.

• IoT PaaS revenue in the second quarter of 2022 decreased by 38.1% to US$47.6 million from US$76.9 million in the same period of 2021, primarily because the Company’s customers have become more prudent and conservative in their purchases as the increasing inflation globally, especially in North America and Europe, resulted in weakened consumer spending. The continuous high inflation has also aggravated the mismatch in supply and demand in consumer discretionary sector, causing heavy inventory backlog issues in the supply chain. The decrease was also due to the preventive measures taken across multiple regions in China against new waves of COVID-19 in the second quarter of 2022, which has affected the Company’s selling and operating activities and the delivery and acceptance by customers of the Company’s products. As a result of these factors, the Company’s DBNER of IoT PaaS for the trailing 12 months ended June 30, 2022 decreased to 84% compared to previous periods.
• SaaS and others revenue in the second quarter of 2022 increased by 114.3% to US$7.2 million from US$3.4 million in the same period of 2021, sustaining a robust growth momentum. The growth was mainly driven by (i) an increase in revenues from the Industry SaaS business resulting from the acquisition of new customers and expanded usage of Industry SaaS by existing customers, and (ii) an increase in revenues from the value-added services that we offer to customers.
• Smart device distribution revenue in the second quarter of 2022 increased by 77.2% to US$7.8 million from US$4.4 million in the same period of 2021. The Company offers smart device distribution mainly to save customers – primarily brands, system integrators and industry operators who demand and purchase finished smart devices – from dealing with multiple OEMs. Changes in the Company’s smart distribution revenues between periods are primarily due to the varying timing and amounts of customer demands and purchases.

COST OF REVENUE

Cost of revenue in the second quarter of 2022 decreased by 26.9% to US$35.8 million from US$49.0 million in the same period of 2021, in line with the decrease in total revenue.

GROSS PROFIT AND GROSS MARGIN

Total gross profit in the second quarter of 2022 decreased by 25.0% to US$26.8 million from US$35.7 million in the same period of 2021 and gross margin increased to 42.8% in the second quarter of 2022 from 42.2% in the same period of 2021.

• IoT PaaS gross margin in the second quarter of 2022 was 42.5%, basically flat compared to 42.4% in the same period of 2021, and remained relatively stable over past quarters, primarily due to the Company’s effective implementation of its business management and efficiency improvement initiatives.
• SaaS and others gross margin in the second quarter of 2022 was 78.9%, compared to 75.1% in the second quarter of 2021.
• Smart device distribution gross margin in the second quarter of 2022 was 11.4%, compared to 13.1% in the second quarter of 2021.

OPERATING EXPENSES

Operating expenses decreased by 14.2% to US$66.2 million in the second quarter of 2022 from US$77.2 million in the same period of 2021. Non-GAAP operating expenses, defined as operating expenses excluding share-based compensation expenses, decreased by 21.1% to US$49.1 million in the second quarter of 2022 from US$62.2 million in the same period of 2021. Share-based compensation expenses in the second quarter of 2022 were US$17.2 million, compared to US$15.0 million in the same quarter of 2021.

• Research and development expenses in the second quarter of 2022 were US$37.2 million, down 12.7% from US$42.7 million in the same period of 2021, primarily because of a net decrease in employee-related costs (including, among other things, (a) a decrease in basic payroll and benefits, partially offset by (b) an increase in one-off additional headcount optimization costs and in share-based compensation) due to the strategic restructuring and streamlining of the Company’s research and development team to drive operational efficiency and strike a balance between business growth and time-to-profitability. During this quarter, average salaried employee headcount of the Company’s research and development team was down approximately 21.3% year over year, compared to the same quarter in last year.
• Sales and marketing expenses in the second quarter of 2022 were US$15.1 million, down 22.3% from US$19.4 million in the same period of 2021, primarily because of (i) the strategic streamlining of sales and marketing team, and (ii) the decrease in marketing spending due to the recurrence of the COVID-19 outbreak and the Company’s efforts to control expenditure and improve sales and marketing efficiency.
• General and administrative expenses in the second quarter of 2022 were US$17.1 million, up 5.1% from US$16.3 million in the same period of 2021, primarily due to the increase in share-based compensation expenses from US$10.6 million to US$11.9 million.
• Other operating incomes in the second quarter of 2022 were US$3.2 million, primarily due to the receipt of a software VAT refund and various general subsidies for enterprises.

LOSS FROM OPERATIONS AND OPERATING MARGIN

Loss from operations in the second quarter of 2022 narrowed by 5.0% to US$39.5 million from US$41.5 million in the same period of 2021. Non-GAAP loss from operations in the second quarter of 2022 narrowed by 15.9% to US$22.3 million from US$26.5 million in the same period of 2021.

Operating margin in the second quarter of 2022 was negative 63.1%, down 14.1 percentage points from negative 49.0% in the same period of 2021. Non-GAAP operating margin in the second quarter of 2022 was negative 35.6%, down 4.3 percentage points from negative 31.3% in the same period of 2021. The changes in the operating margins were mainly attributed to the greater decline in total revenue despite a significantly narrowed operating loss.

NET LOSS AND NET MARGIN

Net loss was US$35.9 million in the second quarter of 2022, compared to US$38.1 million in the same period of 2021. Non-GAAP net loss was US$18.7 million in the second quarter of 2022, compared to US$23.1 million in the same period of 2021.

Net margin in the second quarter of 2022 was negative 57.3%, down 12.3 percentage points from negative 45.0% in the same period of 2021. Non-GAAP net margin in the second quarter of 2022 was negative 29.9%, down 2.6 percentage points from negative 27.3% in the same period of 2021.

BASIC AND DILUTED NET LOSS PER ADS

Basic and diluted net loss per American Depositary Share (“ADS“) were US$0.07 in the second quarter of 2022, compared to US$0.07 in the same period of 2021. Each ADS represents one Class A ordinary share.

Non-GAAP basic and diluted net loss per ADS were US$0.03 in the second quarter of 2022, compared to US$0.04 in the same period of 2021.

CASH AND CASH EQUIVALENTS, AND SHORT-TERM INVESTMENTS

Cash and cash equivalents, and short-term investments were US$951.5 million as of June 30, 2022, which the Company believes is sufficient to meet its current liquidity and working capital needs.

NET CASH GENERATED IN OPERATING ACTIVITIES

Net cash generated in operating activities for the second quarter of 2022 was US$0.4 million, or 0.6% of total revenue, compared to US$5.8 million of net cash generated in operating activities, or 6.9% of total revenue in the second quarter of 2021. Compared to the first quarter of 2022, the Company’s net operating cash flow in the second quarter of 2022 improved mainly due to the significant decrease in operating expenses, particularly employee-related costs, and working capital changes in the ordinary course of business.

SHARE REPURCHASE

During the quarter ended June 30, 2022, the Company repurchased approximately 11.2 million of ADSs representing the same number of Class A ordinary shares from the open market for a total consideration of approximately US$30.0 million pursuant to the share repurchase program announced on August 30, 2021.

DUAL-PRIMARY LISTING IN HONG KONG

On July 4, 2022, Eastern Time (July 5, 2022, Hong Kong Time), Tuya successfully listed its Class A ordinary shares on the Main Board of The Stock Exchange of Hong Kong Limited (the “Hong Kong Stock Exchange“) under the stock code “2391” and the stock short name is “TUYA-W” (the “Listing“). The Company issued 7,300,000 Class A ordinary shares in the Listing (no Class A ordinary shares issued during the stabilization period in connection with the global offering), and totally 578,546,560 ordinary shares were in issue immediately upon the Listing and after the end of stabilization period.

Business Outlook

The global consumer discretionary industry and consumer spending are expected to continue to face a range of challenges in the second half of 2022, including, among other things, a decline or weakness in general economic conditions, global high inflation, inventory backlog experienced by players such as smart device manufacturers, brands and retail channels in the supply chain, fluctuations in foreign exchange rates, geopolitical tensions and conflicts, and competitions brought by technology iteration to the IoT industry. Despite these challenges, the Company remains confident in its long-term growth prospects and stays committed to iterating its products and services, further enhancing its software and embedded hardware capabilities, expanding its customer base, diversifying revenue streams, and further optimizing operating efficiency.

Conference Call Information

The Company’s management will hold a conference call at 8:00 P.M. U.S. Eastern Time on Monday, August 29, 2022 (8:00 A.M. Beijing/Hong Kong Time on Tuesday, August 30, 2022) to discuss the financial results. In advance of the conference call, all participants must use the following link to complete the online registration process. Upon registering, each participant will receive access details for this conference including a conference access code, a PIN number (personal access code), the dial-in number, and an e-mail with detailed instructions to join the conference call.

Online registration: https://www.netroadshow.com/events/login?show=54a7b9bf&confId=40423

The replay will be accessible through September 6, 2022 by dialing the following numbers:

International: +44-204-525-0658
United States: +1-929-458-6194
Access Code: 545019

A live and archived webcast of the conference call will also be available at the Company’s investor relations website at https://ir.tuya.com.

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