Good morning and good evening, ladies and gentlemen. Thank you for standing by and welcome to 2YA Inc. 3rd Quarter 2024 Earnings Conference Call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised.
To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I'll now turn the call over to your first speaker today, Mr. Reg Chai, Investor Relations Director of Tuya. Please go ahead, Reg. Okay. Thank you, Emma. Thank you. Hello, everyone. Welcome to our third quarter 2024 earnings call. Joining us today are founder and CEO of Tuya, Mr. Jerry Wang, and our CFO, Ms. Alex Jiang.
The third quarter 2024 financial results and webcast of this conference call are available at ir.tulia.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 earnest 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. Now, Jerry, please. Hello, everyone. Thank you for joining Tuya's CERC Quarter 2024 Earnings Core. Hello, everyone. Thank you for joining Tuya's CERC Quarter 2024 Earnings Core. Hello, everyone. Thank you for joining Tuya's CERC Quarter 2024 Earnings Core. Hello, everyone. Thank you for joining Tuya's CERC Quarter 2024 Earnings Core. Hello, everyone. Thank you for joining Tuya's CERC Quarter 2024 Earnings Core. Hello, everyone. Thank you for joining Tuya's CERC Quarter 2024 Earnings Core. Hello, everyone. Thank you for joining Tuya's CERC Quarter 2024 Earnings Core. Hello, everyone. Thank you for joining Tuya's CERC Quarter 2024 Earnings Core. Hello, everyone. Thank you for joining Tuya's CERC Quarter 2024 Earnings Core. Hello, everyone. Thank you for joining Tuya's CERC Quarter 2024 Earnings Core
with a 9% non-GAAP operating profit margin and a 25% non-GAAP net profit margin. Our goal is to achieve management goals and achieve these results without leaving the business. The good implementation of the strategy, plus our constant commitment to implementing the solution, have a strong control of budget and cost. The company documents also show excellent business performance similar to the second quarter. Next, we will do some development on the business situation of this quarter.
In the third quarter, we achieved our performance goals by prioritizing practical strategies and focusing on execution revenue growth accelerated to 34% year-over-year increase. We maintained high operating efficiency, thus achieving a non-gap operating margin of around 9%. Our substantial interest income added to the bottom line without a non-gap net profit margin of around 25%.
These results were underpinned by the effective execution of our business strategies, coupled with ongoing efficiency initiatives that tightly controlled budgets and expenses, sustaining operating leverage as we did in the last quarter. Next, I will dive into some details on our business performance in the quarter. In the third quarter, our three feedback business earnings showed a decline. Among them, the growth of the energy-efficient parts of the equipment increased by 26%.
has continued to grow steadily since the revival. The revenue of the Smart Solution platform has increased by more than 100%. On the one hand, it is because of the demand. For example, this year, we have continued to see the global demand for home appliances. It is in line with our product planning forecast. We focus on energy-saving products and the objective output to bring an objective income. On the other hand, we cooperate closely with core customers to help customers in product planning and publishing to adjust the pace of the market.
In the third quarter, all three of our business segments delivered solid revenue performance. Allocated past revenue increase by over 26% year-over-year, maintaining a steady recovery momentum. The smart solution segment achieved over 100% year-over-year revenue growth. These were driven by strong market demand
particularly in the home appliance category, where we have consistently observed robust global demand throughout the year, aligning well with our product planning and market expectation. Our focus on energy-efficient products and solutions has significantly contributed to this rapid growth. Additionally, our close collaboration with key customers has enabled them to align their product planning and launches with market trends
Lastly, revenue from the SaaS and other segments grew by approximately 17% year-over-year, with our core cloud software value-added services increasing by over 50% year-over-year.
In the past year, in Berlin, Germany, the consumer electronics war broke out. We have released many new product solutions, such as smart products that enhance the ability of AI based on cloud-based dynamics calculation. Smart products use experience and value in terms of interaction efficiency and functionality. We want to upgrade the concept of the industry, the concept of understanding the industry, and adopt some new solutions and products such as home-based and commercial products. Home-based solutions
In the consumer market, it is imperative for business to go thoroughly understand and capture the core needs of end-users. We're dedicated to continuously launching innovative and competitive products, understanding our customers' business objectives, and building even closer partnerships.
After the recently concluded 2024 IFA in Berlin, we unveiled numerous new product capabilities by leveraging cloud-based dynamic algorithms and generated AI. We aim to significantly enhance the user experience and value of smart products in terms of interaction, efficiency, and functionality. Additionally, in line with our philosophy of cultivating and understanding the industry,
We have iterated and expanded a wide range of solutions and product portfolios across various homes and commercial use cases. This encompasses home energy efficiency, comfortable living spaces, pet care, security and protection, sports and health care, entertainment and education, convenient mobility, and more.
The growth index of young and old customers is 124%, maintaining a healthy and stable level. Europe, as the main market demand, is stable, and the cooperation between young and old customers is going well. In other regions of the world, some of our newly acquired customer cooperation in some areas, including large head-to-head channels, free brands, long-term coverage, shoes, lighting, pets, and other categories. There are also some head-to-head chain enterprises in new markets such as Latin America and Brazil. It is well known that
consumer and safety products brands, etc. In addition, we continue to look at some of the more mature market areas, and we believe that the above customer level progress and perception have confirmed the value and product ability of the Tuya platform.
This is also a sign of our good competitive structure. Our global customer collaboration and expansion efforts progressed steadily in the third quarter. Our dollar-based net expansion rate, which measures growth among existing customers, stood at 124%, a healthy and stable level. Our largest market, Europe, exhibited stable demand with smooth progress in partnerships with both new and existing clients.
In other regions, we secured several key regional customers, including a leading private label brand in Canada, covering categories such as seasonal lighting and pet products, a top home appliance group in emerging markets like Brazil, and the well-known consumer safety brands in Chile. All of these are leveraging the Toyota platform for their strategic initiatives. Furthermore, in more mature markets, the Toyota platform remains
the preferred choice for enterprises aiming to enhance operational efficiency, or transitioning from traditional systems to third-party platforms. We believe these customer-level developments amplify the value and capability of the 2R platform and reflect the favorable competitive landscape in which we operate.
In fact, during the EFA event, we hosted a meeting in Berlin, Germany. The theme of the meeting was Smart by Nature, Exploring the Signature of AI and Spatiality. We invited partners such as Amazon Cloud Technology, Autosum, Smart Home Design, Smart E-Commerce Platform, Think, etc. to share and discuss the innovative applications of real-world AI and some land-based events that can continue to develop.
We are also committed to building our developed community by striving to ensure that every developer interested in smart technology has access to the latest card and NAS information. In the so-called, we hosted two major developer conferences.
The first was the inaugural European edition of the TOUYA Global Developer Conference held at the Berlin Exhibition Center during the IFA event, themed Smart by Nature, exploring the synergy of AI and sustainability. Partners such as AWS and Think, which is a well-known European e-commerce platform for comprehensive smart home solutions, discussed innovative application of generated AI and the practical implementation of sustainabilities.
These discussions garnered significant attention from developers. Vasto, as one of Turkey's largest home appliance manufacturers, also shared its success case studies. At the global conference on digitalization at the end of September, Xinmenzi and Zijia have established global leading companies to share the future life path of digitalized and digitalized family life experience by building real ecosystems through major application development platforms and bringing green digitalization to users. In the third quarter of this year,
At the end of September, during our Global Develop Conference in Suzhou, industrial leaders such as Siemens and Haier Smart Home shared their visions of the future
They showcased how they leveraged Tuya cloud-developed platform to build intelligent ecosystems, bringing green digital and smart home living experience to users. By the end of the third quarter, the number of registered developers on the Tuya platform further increased, reaching approximately 1.26 million. Moving forward, we will continue to gain insights into market demands, consistently empower developers, and deliver more smart products that meet consumer expectations.
In the industry-level digital market, we have made some progress through the creation of benchmarking projects. For example, this year, we are planning to cooperate with Quber, a private cloud platform, in the mode of operation 3 business. In addition, the models of smart equipment acquisition in core products are in line with expectations and are beginning to enter the continuous landing. Our deployment of the operation 3 course continues steadily.
Vietnam's two leading clients signed a contract, and in one of the old clients belonging to Jiaofu, they received a stable smart device shipment refund. In addition, our HEMS business has achieved a substantial drop in progress. The SINGAPORE CONSTRUCTION DEPARTMENT's STB project has successfully hit the target. In the next few quarters, it will officially enter the stage of the landing and Jiaofu.
In the industrial and specialized channel markets, we continue to make progress as planned by developing and replicating benchmark projects. For example, our business model for telecom operators this year involves leveraging our Kube intelligent private cloud solution to initiate collaborations combined with the delivery of core smart device categories. This approach is aligning with our expectations and has begun to see continuous implementations
The development among our telecom operator customers base is advancing steadily. We have signed a new agreement with two leading operators in Thailand and Vietnam and are receiving consistent reorders from smart devices from existing customers who have already deployed our solutions. Additionally, our home energy management system business has achieved substantial progress. We successfully secured a benchmark project with the Singapore Housing and Development Board.
And over the next few quarters, we will officially enter the product implementation and delivery phase for this project. Overall, in the third quarter of 2024, we will continue to observe the basic development strategy and continue to verify the financial results. We will gradually bring back the return on the shareholder level for our shareholders. As you can see from yesterday's news, the full-time investment platform 65
65 EPs have signed an agreement with NEA, the main shareholder since the founding of Tuya in 2014, and have purchased about 3% of Tuya's total shares. This investment reflects their high recognition of Tuya's vision and highly in line with Tuya's international expansion strategy. The Asia-Pacific region, especially Southeast Asia, is a fast-growing and emerging market, which is a huge opportunity for us. We will continue to
We strive to seize the opportunity to grow in the international market, promote the development of global AIoT smart devices, third-party and industrial applications, and work hard to provide feedback to all shareholders who have long-term support for Tuya. We are very happy to welcome 65EP, which started last week, to become an important shareholder of Tuya Smart.
Overall, Q3 2024 was a period of steady progress for Tuya as we executed our established growth strategies to deliver robust financial results. This commitment has also brought us shareholder-level recognition. You may have seen yesterday's announcement. Over the weekend, 65 equity partners
at an independently-managed wholly-owned investment platform of Demontic entered into an agreement with New Enterprise Associates, one of Tuya's key shareholders, and our founding in 2014, to purchase approximately 13% of Tuya's total issued shares. This investment reflects their strong confidence in Tuya's vision and aligns closely with our international expansion strategy.
The Asia-Pacific region, particularly Southeast Asia, is a rapidly growing emerging market, presenting enormous opportunities for us. We remain committed to seizing growth opportunities in international markets, advancing global AIoT, smart devices, and commercial and industrial applications, and delivering value to all our long-term shareholders. We're thrilled to welcome 65 equity partners, the investment platform of Dimorphic as a significant shareholder of Tuya.
Lastly, we welcome our current Vice President of Financial, Claire Ian Zhang, to the Board of Directors as an Executive Director.
With her extensive experience in financial management and a big four accounting firm, Ernst & Young, Claire will bring valuable expertise to the board, aligning with Tuya's commitment to diversity. Now I will hand over to Alex to provide further financial details. Thank you, Jerry. And hello, everyone. This is Alex.
Now I will discuss our financial results and provide more details on the numbers that are covered by Jerry. Please note that all the figures in U.S. dollars and all the comparisons are year-over-year, unless the state is right. In the third quarter of this year, our total revenue reached 81.6 million U.S. dollars, up to 33.6% year-over-year. Most importantly,
our P&L continued with the trends established in Q2. Each business segment maintained a solid growth margin reflecting the value of our products. This led to attractive gross profit growth alongside revenue growth. At the same time, we executed our business operations and product strategies with a streamlined and limited operation costs and expenses. As a result, we achieved a solid non-gap operation margin
expanding from the break-even level of Q2. And our IOT pass revenue in the third quarter was $57.9 million, representing a year-over-year growth of 26.4%. Looking at product categories, our focus on home-appliances enabled impressive year-over-year growth of around 30%, while other categories remained stable. Geographically,
Our global revenue structures was well-balanced. However, driven by increased energy-saving orders, Europe's revenue contributions saw a slight uptick this quarter. On the customer side, the scale of customers we served increased slightly compared to the same period last year, aligned with our focus strategy on customer expansion and service.
At the end of the Q3 2024, our dollar-based net expansion rate stood at a healthy 124%. We believe this demonstrates strong demand for our existing customer base for 2S production, providing a solid foundation for revenue growth and allowing us to confidently pursue new customers. Q3 gross margin was 46%.
remaining at the stable and healthy level compared to the same period of 2023. Since overall gross margin reflects the structural mix of margins across our business segments, it is influenced by the revenue composition of each segment. Looking at the components, the gross margin for all three of our revenue segments remained constant with the previous level,
The slight increase in past gross margin and the slight decline in smart solution gross margin were prevalently due to the product mix changes. We'll consider that as a regular one. So regarding operation activity and expenses, I will provide a detailed view on a non-GAAP basis, which excludes certain non-business-related items to give a clear picture of our operation efficiency.
we continue to present our operating expenses primarily on non-GAAP basis. Before discussing non-GAAP operation expenses, I'd like to mention that in early September, following our Q2 operational profitability milestone, we adjusted the exercise prices of our options held by all the employees to the current value of our shares.
We did this to thank our colleagues for their unwavering support as we navigated through cycles and reached new milestones. This one-time adjustment resulted in approximately $10 million in additional one-time equity incentive expenses, of which $9.5 million was recognized in this quarter's operation expenses, with the remainder to be
amortized over the coming quarters. Turning to operation expenses, in Q3, our non-GAAP total operating expenses decreased by 5.9% to 30.1 million U.S. dollars from 32 million a year ago. Following the near compulsion of team structure adjustments in the second half of 2023,
our non-GAAP expenses have been stabilized year over year. Sequentially, our operation expenses in this Q3 increased by approximately $2.3 million compared to Q2, primarily due to typical fluctuation in items on the expenses side and income side, such as tax refunds.
as revenue growth year-over-year will adjust the budget according to as needed. Other non-personnel operation expenses, such as marketing and travel, has remained at a relatively balanced level. Overall, we remain committed to the efficient and focused business extension to maximize and stabilize 2S profitability at this stage. This quarter,
we achieved a non-gap operation margin of 9.1% and non-gap net margin of 24.7%. Net margin exceeded operation margin due to the contribution of interest income, which is substantial due to our large net cash balance. While fluctuations in operation expenses may cause slight profit margin variations, we are pleased with our current
profit level, and optimistic about future improving operating average in the future. In terms of cash, Q3's operating cash flow was net inflow of $23.9 million, reflecting our strong cash leverage. Our net cash balance increased to $1,023.9 million, further strengthening 2US financial reserves.
and preparing us for future shareholder returns. This concludes my presentation on the company's financial performance. So with that, and operator Emma, we're now ready to take questions. Thank you. Thank you. We will now begin the question and answer session. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced.
To withdraw your question, please press star 11 again. Additionally, when asking a question, please state your questions in Chinese first, then immediately translate them into English for the convenience of everyone on the call. Once again, there's a star 11 for questions. Please stand by while we compile the Q&A roster.
We will now take our first question from the line of Tom Tang from Morgan Stanley. Please ask your question, Tom. First of all, I would like to thank Yichen for giving me the opportunity to ask this question. First of all, I would like to congratulate 3Q for their excellent performance. I may have two questions. The first question is about the outlook of 4Q. I hope we can give more
Especially now that there is a possibility that there will be an increase in tariffs in the future. I don't know if we have seen some of the different behaviors of customers. The second is a view of our毛利率. Because now we have a high standard of smart solutions. I don't know if our毛利率 will be maintained in the future.
I have two questions. First one is on the outlook for the fourth quarter. So if we can share some more color on it and if we have seen any changes in the customer behaviors after potential tariff increases in the U.S. And the second question is on the GPM.
So our smart solution is a quite sizable amount in terms of our total revenue now. So do we expect the GPA to stay stable over the next few quarters or is there going to be some further changes due to the product mix changes? Thank you. Yeah, sure. Thank you for that. And so for the question one, firstly that we will mention that for Q3 for us will be a steady season, a steady growing season.
which proved that our strategy on the business side and also the efficiency of our operations. So we continue to do that. And for Q4, right now we see that the positive season, but it's only like the 40 days, you know, since 40 days passed for Q4. And also we have a long vacation in China, so that influenced the majority of the manufacturers. So I will not have the clear visibility of our entire Q4. But when we see that Q4, it will be
It's also a stable and steady and regular season for us. We continue to chasing on that. So we can, we are optimistic about what we can have in Q4, even without precise visibility. And speaking of the tariff issues for United States, what we see here is that it's not the first time about the tariff. So that thing's already been going on for a couple of years.
And maybe two things. The first one is that what we see that in the past a few years. So even the geopolitical situation, what we see here is that the customers already starting to relocate the supply chain. So we're already supplying that, which means that we're not impacted directly, but the customers always need to trade, always need to source in and buy in the products.
from wherever they need it in the world. We are just fulfilling that. That would be one thing. And the second thing, what I see is that even with relocation of the supply chains, still the world needs China so much. So no matter what, any significant amount of the Chinese components still ship into the global supply chain. So that would be something. We just follow the flow. We just keep serving our customers.
and either locally or remotely to their suppliers in whichever countries they located. So I think that will be one thing. So demand is still steady because end users continue to use that. So they'll purchase wherever they can to find the best cost point to locate their own supply chain. And I think that's for question one.
And for question two, yes, you see that our three business segments, they are actually in two different verticals. And so we have to follow different business and common sense in this industry. So for the smart solutions, it will be so deeply bounded with the hardware, which means that I can never compare with a gross margin versus the software.
totally different model. But we think that the smart solution is so valuable because we help the customer to provide differentiation and provide very competitive, new, cutting-edge products and experience to the market to continue to enable them to become the leader. So we'll enlarge the portion of the smart solution for sure. And we really see the potential. So through that, the overall gross margin of the company
will decrease gradually, but we consider that a very healthy way, because each of the segments is competitive. So we are more concerned about the segments, not the overall gross margin. And in the same time, the growth of each of the segments doesn't require a significant increase on our expenses and costs, which means that we still maintain a very good leverage to grow our overall business.
So even though the gross margin rate is declined a little bit in the long run, but in the same time, the total amount of the gross margins will be able to provide enough beneficial and profitability for the company. That's it. Thank you. Our next question comes from the line of Timothy Chow from Goldman Sachs.
Please ask your question, Timothy.
Secondly, we can clearly see that we have a new shareholder joining us. Our profit margin is relatively stable. The company's C0.6 and C0.6x is actually not bad. What are your considerations for the future of our shareholding?
Thank you, Michael, for taking my question. I have two questions here. The first one is regarding the IoT PaaS business. I was wondering if you can give us any color on your outlook on the downstream demand for the IoT PaaS business and any demand difference across different vertical segments. And secondly, I'm pretty glad to see that we have a reactor adventurous coming in this quarter.
is really quite stable and the company also has a really ample cash resources. Just wondering if you can share an idea about the future shareholder return policies. That would be great. Thank you. Yeah, thank you for that. So for the IoT path for us, what we see here is that this year will be a rebounding year because the majority of the consumer electronic players are companies in the world.
starting to working out from the cycle of the inventory, over inventory issues, starting from 2021, 2022. So it's a rebounding year. And what we see the momentum among our customers is that they're really starting to reinvest and to re-kick off the multiple projects, I mean, among every customer for the IoT fields. So ready for future competitions and expansion.
That'd be one thing. So while you have more investment and resources coming in in these verticals, pretty sure that they'll continue to grow for the customer side. And for 3R side, we continue to provide two drivers for the business. So first one is the product. And on the path side, so we continue to expand to any type of new use cases and scenarios across our categories. But most importantly, that we're starting to deploy and we're starting to provide
some of the AI-based services for the customers to help them to build some AI-empowered devices or AI-empowered use cases for the end users. So that can be kind of the killer app or key differentiations and new features that you can see in the market. So that'll be one thing. So we use the product to be the driver with a new innovation, new technology. And the second driver for 2L is the customer expansion, especially on the enterprise level.
So for that part, as you can see, that we're starting to incubate in our SaaS business around three years. So that type of the solution is more focused on the enterprise level. So other than the consumer companies, consumer-related companies, so the enterprise type of company or industrial solution providers are different type of the players in the market.
So through that, we continue to have more and more customers in that field, including the telecom carriers, including the projects we just shared, along with the Singapore HDB, for the government public apartments, around 1.3 apartments in Singapore. So et cetera. That kind of industrial players and enterprise level of the players will become a new growing forces and drivers to Asheville.
So we continue to expand more and to come in deeper. So that will be the past growth. So we maintain the optimism on this field because we have a very steady customer base. As you can see, our DVER and premium customer amounts. In the same time that we continue to cover wider with a new field on the enterprise solution level. So that'll be one thing. Question one.
And on question two, so yeah, for sure that for the past 10 years, since the beginning of Tuya, we always take the shareholders' return as a high priority when we're operating in the company. And in this Q2 will be the first time we issue the dividend. It's a special dividend for the shareholders. Like I mentioned in last quarter, it's not a regular one because we don't hit the annual profitability yet.
But we don't want the shareholder to wait another two quarters, so we issue the special dividend. It means a special one. So we will consider the dividend as a regular basis. So every year, more based on the non-GAAP profitability, we use that as a benchmark to evaluate how much we can return to the shareholders of the dividend. That's it. Thank you.
Thank you. Our next question comes from the line of Kai Shell from CICC. Please ask your question, Kai.
Thank you, Guan Yucheng. I'm Xiao Kai, a researcher at the Central Bank of China. I have two questions. The first one is about SaaS business. I see that the growth rate of SaaS business is very obvious. I would like to ask Guan Yucheng to help us to distinguish between the driving factors of growth, the sustainability of the future, and the specific growth rate of this business in the future. This is the first question.
The second question I want to ask is about AI. Because AI has always been a key strategy of Tuya. I would like to know if you have any new advances in AI, and if you can share with us. Also, if you have any income guidance,
So this is done from the research and I have two questions. And the first question is about the star sector, whose revenue growth accelerated in Q3.
So could you give us some color on the drivers and future outlook for the sub-vector? And another question is regarding the artificial intelligence. Could you give us some updates on the sharing AI monetization and future plans? And if there are some revenue contribution guidance, that will be great. Thank you.
So for the SAS, the key part is that we continue to identify the potential verticals that AIoT can help, can provide values to get in a pinpoint with a reasonable cost level. So I think that'd be the key part. So we consider that as the PSF stage, which means that we should be evaluating the market and to identify and figure out the right solution that fits it.
So for the South side, right now we already see several very potential and scalable market direction there, including the hospitality. As I mentioned, like the recent project that we signed contract with HDB in Singapore, it's a hospitality solution we provided, and combined with energy management. And energy will be another one, so in other sectors.
Outdoor will be another one, including logistics. So that will be the verticals we find the potential to. And so we really have some standardized solution proven and worked with the strategic customers as the pilot program. So for that part, I think the space and the feelings will come
whether we're looking for it to duplicate the use cases with a similar type of strategic customers in new fields. So that would be one thing. That would be the key drivers for SAS. And speaking of the AI, what we see is that right now we're working on providing two types of services through AI. So one is that we will integrate the AI capability along with the hardware.
And essentially, it becomes not a smart device. It becomes an AI device. So one of the typical use cases is the bird feeder. So it's a bird house. And come along with a camera and come along with a food container. So you put it in the backyard on the tree. And then whenever one bird comes in, then you get a picture or you get a selfie of the bird.
And combine that with AI algorithms that we cooperate with AWS called Recognition. It's an algorithm provided by AWS where we integrate that into application. And then, so the feeder not only take photos about the bird, but also telling you what species, what's the behavior of this bird. And then you'll be able to easily either to
Educate your children, right? OK, let's try to learn the birds. Or you can show off any rare species coming to your house rather than your neighbors. So that would be one thing. So become a native AI device. Another direction is that we're trying to provide some AI services on top of the device as a software-based level. So one thing is that when we combine GMAI with PET devices,
So like the pet feeder in home, so the feeders can visual your behaviors, the behaviors of your pet, maybe your cat or your dog, and then automatically generate different type of video footage and come along with the line, come along with the background music, and then you will understand, okay, my pet and cat, my cat and dog in home right now, they're playing Game of Thrones, maybe Game of Pong. So that type of interesting,
footage is totally generated by AI. So we're trying to provide that type of services on the software levels. And so with the existing, what we call, version 1 smart devices, we'll be able to have some AI-based experience. So that'll be the two directions we're trying to pitch. And right now, it's still in the pilot stage. So we're still around some POCs, still around some pilot customers, but not provided everywhere.
And also, we consider very carefully about how we can business monetize that, coming on naturally with a business model. So by end of this year, or at the beginning of this year, or beginning of 2025, and we'll be able to show more use cases, how we can turn the AI into application. And we believe that that'll become one of the catalysts for 2EI and for overall IoT. And one of the key things
Uniqueness for Tuya is that right now, one of the largest challenge for AI is that what type of applications, what type of features, it's commercial. And always have the space to commercialize. Because it's more like the, right now it's more like the trial tools. Better to have than it must be. But tangible for Tuya is that we have the device. We have the customer to build the device.
So naturally, the device itself, when it's sold, you know that the end users are buying that for the feature. And especially when an AI device comes with a totally different pricing point than the regular smart device, you know that people are buying that for the AI. So since the beginning, we commercialized that. So I think that was a special one.
We try different type of the use cases and demonstrations, and then we can easily testify that among my customers that what type of things I can commercialize and bring that into scale. That's it. Thank you. Thank you. Our next question comes from the line of John Roy from Water Tower Research. Please go ahead, John.
Thank you for taking my question, and congratulations on a very strong quarter. If we could take a step back for a second, obviously, the revenue growth has been solid for the last couple quarters, and a lot of talk about enterprise. I was kind of wondering, how long do you think this can continue? In other words, how much runway do you kind of see, given the current markets you have? I think that that's, so talking about that, I would like to
and, you know, pull back a little bit about the visions where we started this company. And we believe that no matter it's IoT or AI, in the future, I mean now, maybe after 10 years, it will become a fundamental technology, like the Internet right now. Everything is the Internet connected. So, and so when we're reviewing that, the penetration of IoT or with AI is extremely low. So right now, these low single-digit numbers,
So if you have to ask me about the weather and how the business is going to move forward to, I'll say that in the next 10 years, maybe after 10 years, after 20 years, everything defaultly needs to be connected, needs to be smart. And we can imagine that. So what we're doing is that we continue to enable those force movers in their vertical fields to turn them into IoT ready or into AIoT ready.
I think that will be the key driver for us. So that's why all the investment we're doing is that how we can find the right use cases that make sense for their vertical. And we provide standardized ease-to-use toolkit for the developers and scale that. So I think that will be the key part. Right. And as a follow-on to that, the investment you're making, do you feel like
they're at a good level right now, or do you feel like there's going to be a possible need to accelerate R&D in the coming years? Yeah, so in the past two years, because we were facing a cycle back then, so we're ready to adjust our strategies into a more aggressively invested and expansion strategy into a more reasonable and what we call micro-management. And so for this one,
And what we've seen is that we've really stabilized our expenses and investment. So even inside the company, we're continuing to invest in some new use cases, but it's still in a very reasonable level. And so we're looking forward to stabilize our profitability and our expenses. Great. Thank you so much. Thank you.
As a reminder, to ask a question, please press star 11 on your telephone.