Tuya Inc

NYSE:TUYA

Earnings Call Analysis

Tuya Q3 2023 Sparks Financial Turnaround

Tuya's Q3 2023 earnings call reflects a company rebounding strongly from an industry downturn that came at the close of 2021. Total revenue climbed to $61.1 million, a year-over-year increase of roughly 36%, or 43% accounting for exchange rate fluctuations. The company also notched a record gross margin of 46.7% for the second consecutive quarter. Operational efficiencies led to a 26.2% reduction in non-GAAP operating expenses, while non-GAAP net profit soared by about 570% sequentially to $10.1 million, boasting a 16.5% net profit margin. Tuya's net cash position is robust at $961 million. Despite market challenges such as fluctuating exchange rates and consumer spending, Tuya's diverse product base and international footprint have positioned it effectively for IoT sector recovery. Demand in IoT consumer electronics shows signs of positive momentum in Q4, particularly in Southeast Asia, South America, and Europe.

Robust Revenue Growth and Strategic Segment Breakdown

The company's total revenue reached an impressive $61.1 million, marking a substantial year-over-year increase of 35.7%. This growth trend has been consistent over the past four quarters, despite a 7.3 percentage point depreciation impact from RMB to USD conversion. Notably, the IoT Platform as a Service (PaaS) was a standout performer, boasting a 48.1% surge in revenue to $45.8 million. This was fueled by remarkable growth in smart lighting and electrical products at 140%, and home appliances at 50%, as the market rebounded from the previous year's downturn. Customer order size recovery and enhanced revenue efficiency also contributed to the uptick, with premium customer IoT PaaS revenue per customer jumping by 56%, and ordinary customer revenue growing by 49%. The platform's expansive reach now includes over 3,000 customers, with an average revenue per customer exceeding $20,000, setting a new historical high.

Diversified Product Performances

The IoT Smart Device Solutions segment posted a 32.1% increase in revenue with $6.8 million earned in the quarter. The company's proficiency in the smart device model has paved the way for scalable revenue, exemplified by securing $3 million in smartwatch orders and notable contributions from Smart Tag Locator solutions. Though the SaaS and other business revenue faced a 5% year-over-year decline to $8.5 million, the true picture excluding currency impacts represents a stable performance with slight year-over-year growth. In this segment, cloud storage value-added services delivered about $2.5 million in quarterly revenue, showcasing the company's adaptable and resilient revenue streams.

Maintaining High Gross Margins

The company sustained a robust gross margin of 46.7%, aligning with historical highs. This indicates an efficient cost structure and the ability to maintain profitability while scaling up operations.

Significant Reduction in Operating Expenses

Non-GAAP total operating expenses decreased significantly by 26.2% to $32 million, from $43.4 million in the previous year. This reduction reflects disciplined cost management, with employee-related costs (excluding share-based compensation) falling by 28.9%, and office and property leasing costs dropping by 13.9%. Marketing and promotion expenses have also seen a decline of 23.9%, and travel-related expenses are down by 20.4%. These cost reductions, combined with the rebound in revenue, showcase the company's commitment to operating with efficiency. Furthermore, non-GAAP net income grew by an astounding 567% to $10 million over the same quarter in the previous year, indicating a strong financial turnaround.

Healthy Inventory Levels Signalling a Market Rebalance

The downstream inventory levels, including stock held by OEMs, brands, and retail channels, have decreased significantly from over a year to approximately 4-5 months. This reduction signifies a return to normalcy after the destocking cycle, suggesting that the market is stabilizing and preparing for future growth opportunities.

Strategic Focus on Expanding Cube and SaaS Offerings

The company highlighted significant growth potential in its Cube product, a private cloud IoT software designed for large groups. Cube's deployment could result in multi-million-dollar revenues and foster long-term relationships with key accounts. Tuya is also bullish on its hotel, commercial, and smart real estate SaaS offerings, with strong prospects identified in Southeast Asia and Australia, serving as indicators of the company's robust product innovation and market expansion goals.

Geographical Revenue Distribution

Europe emerged as the largest contributor to the company's revenue at around 30%, while China and the United States each contributed close to 20%. The Asia Pacific region (excluding China), which includes Southeast Asia and Australia, has exhibited substantial growth, accounting for 15% of the revenue, and Latin America contributed slightly more than 10%. This diversified revenue stream reflects a healthy balance across multiple regions and underpins the company's global market resonance.

Prudent Capital Usage and Future Plans

The company plans to closely monitor opportunities for mergers and acquisitions. It will also consider investing in necessary fixed assets required for long-term operations, signifying a strategic approach towards sustainable growth and operational expansion.

Earnings Call Transcript 2023-Q3

[Operator]

Good morning and good evening, ladies and gentlemen. Thank you for standing by and welcome to Tuya Inc.'s Third Quarter 2023 Earnings Conference Call.I will now turn the call over to the first speaker today, Mr. Reg Chai, Investor Relations Director of Tuya. Please go ahead, sir.

[Reg Chai, executive]

Thank you. Hello, everyone. Welcome to our third quarter 2023 earnings call. Joining us today are Founder and CEO of Tuya, Mr. Jerry Wang; and our CFO, Ms. Jessie Liu. The third quarter of 2023 financial results and a 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.

[Xueji Wang, executive]

[Interpreted] Hello, everyone. Thank you for joining the Tuya 2023 Q3 earnings conference call.Total revenue for the third quarter of 2023 reached $61.1 million, marking a return to year-over-year growth, thanks to the industry and economic downturn at the end of 2021. Revenue grew at an impressive 35.7% year-over-year or approximately 43% when adjusting for exchange rate fluctuations. We again achieved a record overall gross margin of 46.7% for the second consecutive quarter.Our firmly focus on cost reduction and operating efficiency improvements resulted in a 26.2% year-over-year decline in our non-GAAP total operating expenses in Q3. More importantly, our non-GAAP net profit soared to $10.1 million, an increase of almost 5.7 times sequentially, representing a net profit margin of 16.5%. Net cash flow from operations improved both year-over-year and sequentially with a net inflow of about $16.1 million. Our net cash position at quarter's end was a strong $961 million, underpinning our long-term strategic development.Overall, the third quarter saw robust improvement across all key financial metrics signaling a positive turning point as we navigate out of the industry's cyclical downturn. Despite persistent challenges like fluctuating exchange rates and subdued consumer spending, our impressive performance in Q3 underscores our readiness for the post-destocking cycle and a broader recovery in the IoT sector. As we look ahead, we are committed to expanding our quality customer base, enhancing product strength, and venturing into new markets beyond consumer electronics.Let me now share more detail about developments since the start of the third quarter. In terms of our customer base and competitive positioning, our IoT PaaS business has weathered nearly 2 years of industry downturn. During this challenging period, several competitors, particularly IoT divisions of large enterprises, exited the market due to the limited competitiveness of their products and uncertain investment returns. This shift opened opportunities for Tuya as we feel that we now have better global influence and competitiveness compared to 2 years ago to attract more leading brands seeking efficiency, improve the margins and cost-effectiveness in third-party IoT platforms. We're forging new collaborations with top-tier customers such as Midea for its overseas home appliance business, Haier and the [indiscernible] for new energy product IoT platform; and Bosch for smart door locks solutions.Meanwhile, we won and served customers worldwide through differential strategies and innovative products. This approach solidifies our competitive standing globally and enabled us to effectively cater to unique market demands. The integrated hardware and software solution product strategies we initiated this year is already yielding strategic new customers and wins scalable revenue growth, for example, like Europe, America and Japan. We actively participate in the broader [ market ] with technology and products as our focus are at the forefront of the global application and commercialization of matter, complementing our IoT ecosystem and expanding our global influence in IoT [ 2B service risk ].In emerging markets like Saudi Arabia, our ability to provide cost-effective customized solutions led to breakthroughs with 2 major operators. In Africa, our natural software and hardware integrated solutions tailored to unique electricity pricing challenges led to a [ POC ] order from a renowned supermarket chain with over 200 stores in South Africa. Importantly, our initial success in Africa can be repeated across the region. Furthermore, in South America the Tuya developed a platform successfully replicating our Chinese OEM model to support local manufacturing in Brazil with leading thermostat and the water purifier factories seeking our software solution for device management systems.We are optimistic about the e-commerce channel has a huge market for practical consumer electronic devices like smart electricals, fences and outdoor products helping these light-weight categories to achieve rapid promotion, distribution, and end-user aggregation. Over the past 2 years, we have consistently supported potential Chinese e-commerce brands in growing into leading brands. For instance, several Tuya customers are now prominent in Amazon top 10 in smart sockets, outdoor sockets, and Bluetooth mini locks.We are unwavering now in our commitment to product, focus, innovation and improvement. In the third quarter, after 18 months of development, our latest sweeping robot vacuum solution reached mass production. Our low-power audio-video solution for smart door locks benchmarked against industrial leaders also achieved the mass production with the pro version of our home door lock product's Q3 deployment volume increasing by over 100% year-over-year.We have also enhanced our overseas central control product lines such as the US-backed product matches and added industry capabilities for pre-installed market engineer installations in China. Our smart central control lock screen, integrating local building intercom and cloud intercom capabilities, innovatively bridges indoor and outdoor intelligence.We continue to strengthen our traditionally strong categories like smart electrical, which will remain a significant contributor to the IoT consumer electronics sector in the long term. We're seeing downstream demand recover for this market like practical IoT devices. We're committed to helping customers seize opportunities. For example, we released the top brand router smart socket solution to address the common issue of mixed band routers, significantly improving the network pairing success rate and experience. [ A3 ] a customer of this solution has seen its brand sales explode, now ranking in the Top 10 on Amazon's platform.We're actively working to extend beyond the field of consumer electronics, bringing Tuya's matured capabilities to more specialized areas. In Q3, we further refined our new energy and outdoor transportation products. For new energy, we released an integrated app supporting the storage charge and use of solar power, completing the energy management use case from energy monitoring to energy-load linked scheduling. Global leading [ quality ] brands like ACOSolar and [indiscernible] have chosen Tuya's IoT PaaS for their new energy storage business. In HVAC integrated products, Tuya's industry subsystems have basically achieved the full functionality for managing industry demands and also forming closed loop solution with the system hardware. As for outdoor products, our 4G cellular [ BCU ] central control product has landed on [ e-buy ] products.Besides focusing on high quality, innovative, and valuable products as our core competitiveness, we're meeting the emerging needs of large group private clouds with our Cube smart private cloud comprehensive solution. For example, we have made good progress in SouthEast Asia [ real active use ].Lastly, let's talk about the continuous growth of Tuya's foundational developer platform and ecosystem. In the third quarter, we focused intently on the foundational pillars of PaaS 2.0. These pillars encompass 4 category interconnectivities: seamless inter operational ability, rigorous security standards, independent and manageable development process, and distinct product differentiation. Our efforts were channeled towards refining the developer experience, significantly enhancing both usability and operational efficiency. This strategic move has further empowered developers, granting them greater independence from the need for direct support from Tuya.In line with this, we have unified and restructured our official website developer platform iot.tuya.com; developer site, developer.tuya.com; and developer documentation center. Additionally, we launched a vibrant new developer forum at www.tuyaos.com. This platform acts as a dynamic hub, offering extensive resources and collaborative spaces where developers can exchange ideas, troubleshoot challenges, and unleash their creative potential. Marking a significant milestone, the number of developers registered with Tuya soared to about 909,000 by quarter end, reflecting an impressive year-over-year growth of approximately 40.5%.We also emphasize the application empowerment of the developed platform in the commercial sector. This approach is designed to empower our brand clients, enabling them to craft and refine bespoke 2B solutions. A prime example of these strategies in action was at our Developer Conference this September, hosted at the [ Zhongshan ] state in China. During this event, we signed a cooperation agreement with Osram with the advanced commercial functionalities of the Tuya IoT Developer Platform at our disposal while collaboratively guiding Osram in developing their own distinctive hardware and software integration. This Osram branded solution encompasses areas such as entire homes and real estate, hotels, rentals, commercial lightings, and building management around others.In conclusion, I have shared with you today the concrete outcomes of our strategic initiatives in business and product development. These accomplishments are attachments to Tuya's dynamic response and the strategic recalibration in response to the challenges we have faced over the past 2 years. As we approach the final stage of inventory normalization and witness the IoT consumer electronics sector steadily finding its footing, we're confident that our persistent efforts will yield sustained positive results. These strategies are set to guide Tuya back to a path of [indiscernible] ensuring we are profitable and efficient. Going forward, we are focused on striking a balance between growth and profitability, thus ensuring we create enduring value for our customers, the wider industry, our shareholders, and our dedicated employees.That concludes my remarks. Next, I will hand over to our CFO, Jesse, to introduce our financial data.

[Yao Liu, executive]

That concludes the remarks by Jerry. As I review our results and provide more colors on the numbers, please note that all amounts are in U.S. dollars and all comparisons are on a year-over-year basis unless otherwise stated.In the third quarter of 2023, our total revenue reached $61.1 million, up 35.7% year-over-year, and continued to show a strong sequential improvement over the past 4 consecutive quarters. Similarly, during the quarter, we were still under depreciation impact of the RMB against the USD which adversely hit our total revenue by 7.3 percent points. Our IoT PaaS revenue in the third quarter was $45.8 million, a year-over-year increase of 48.1%.In terms of categories, in the third quarter, the most impacted discretionary consumer electronics categories over the past 2 years, smart lighting and electrical products constituted the main force of this year-over-year rebound with the segment revenue growth about 140% year-over-year. Small and big home appliance grew by 50% year-over-year. The third quarter of last year was the most severe time for downstream destocking and the growth of this quarter benefited greatly from the end of destocking cycle. Moreover, with the execution of product focus and enhancement strategies, our core product lines such as vacuum robots, breakers, and home locks with technological depth have grown by approximately 100% to 180% year-over-year.Regarding customers, our third quarter revenue primarily driven by the recovery in customer order size and improved customer revenue efficiency. Taking our main IoT PaaS business as an example, our premium customers' IoT PaaS revenue per customer in the third quarter increased by 56% year-over-year and the same metric for ordinary customers also grew by about 49%. Overall, our platform and products served over 3,000 customers in the third quarter, with an average revenue per customer exceeding $20,000, setting a new historical high.Our smart device distribution business now may be more aptly called IoT Smart Device Solutions achieved a revenue of $6.8 million in the third quarter, a year-over-year increase of 32.1%. With the continuous advancement and the implementation of the Smart Device solution strategy, we are now quite proficient in this business model and continue to generate robust scalable revenue. For instance, the Smartwatch solution alone secured about $3 million of orders in the form of finished devices in Japan since this Q3 to be delivered according to customers' demand schedules. The Smart Tag Locator solution also contributed significantly to orders and revenue and so on.Our SaaS and other business had a revenue of $8.5 million in the third quarter, reflecting a 5% year-over-year decline. Excluding the exchange rate impact, the segment's revenue in the third quarter was actually relatively stable, showing a slight increasing trend year-over-year. As a collection of Cube Smart private cloud value-added services and customized software, and also various sub-segment of SaaS, they show different trends according to business strategy and execution. For example, the cloud storage value-added services contributed about $2.5 million in revenue in this quarter, maintaining a very robust and continuous month-over-month growth. The acceptance and delivery of the Cube private cloud project generated over RMB 5 million in revenue.Customer development and some other new customer number-based one-time value-added services decreased by about 15% to 20% year-over-year under the execution of our customer-focused strategy. We're focusing on expanding high-quality customers. Going forward, we anticipate a gradual shift in SaaS and others business segment toward a more core business-centric structure.Regarding the overall revenue recovery in different regions, we have observed healthy growth in Europe, Southeast Asia, and Latin America. Our blended gross margin in the third quarter was 46.7%, sustaining the historical high level for the second quarter. Each of the 3 business segments exhibited strong margin profiles. Notably, the gross margin of the smart device distribution segment in the third quarter reached 26.9%, a substantial increase from 12.9% in the same period last year, setting a new historical high. We believe that gross margin is the most direct reflection of the value of our smart device solution.Moving on to our operating activities and related expenses. We are presenting our operating expenses on a non-GAAP basis by excluding share-based compensation expenses and credit-related impairment loss from our GAAP numbers. We believe this provide a better clarity on the trend of our operating expenses aligning with how our management team reviews our performance.In the second quarter of 2023, our non-GAAP total operating expenses decreased by 26.2% to $32 million from $43.4 million in the same period last year. Our employee-related costs, excluding share-based compensation, declined by 28.9% year-over-year in Q3, and the costs related to offices and property leasing concurrently decreased by 13.9%. Collectively, this cost represented about 74% of the total of our non-GAAP operating expenses in Q3. As of now, our team size has been adjusted to a relatively stable state at just under 1,500 headcounts.Marketing and promotion expenses decreased by 23.9% year-over-year. This disciplined approach to cost control of promotion expenses, coupled with the noteworthy rebound in revenue, served as a testament to the importance of operating with efficiency. Travel-related expenses also decreased 20.4% year-over-year. As revenue returns to growth, we are ready to make investments in the business as needed to further pursue business opportunities, but the overarching premise is always to maintain a balance between business investment and profitability.Additionally, in the third quarter, non-GAAP G&A-related expenses overall increased, mainly due to routine compliance-related professional services projects such as consulting fees, legal advisory fees, et cetera. In the third quarter, we obtained about $13.1 million in financial income, mainly interest income. Our net cash included cash bank demand deposit as well as time deposit recorded as short-term and long-term investments totaling $61 million. We believe these funds can well balance the company's short-term business working capital needs and the long-term development requirements. For example, we are evaluating some feasible plans related to our own office buildings and land use rights with the objective of achieving long-term cost saving and supporting the company's long-term operational needs.Finally, as a result of our consistent efforts over several quarters, the company's non-GAAP net income expanded significantly by 567% to $10 million in the third quarter, a substantial turnaround from the negative $15.3 million in the same period last year. Similarly, our net operating cash flow also showed same trend, increasing by 114% to $16 million in the third quarter, a huge improvement from the spend of $13.5 million in the same period last year. Overall, the comprehensively improved financial results not only means that the major strategic the major strategic direction we set last year and this year has helped us achieve continuous improvement in quarterly financial results, but also indicates the company is on the right track.With that operator, we're now ready to take questions. Thank you.

[Operator]

[Operator Instructions] We have our first questions from Li Mingran from CICC.

[Mingran Li, analyst]

[Foreign Language] Let me translate myself. First off, congrats on your strong performance. And my query primarily concerns the demand side, and my questions are as follows. First is about the outlook for downstream demand in next year and second is about the PaaS. In PaaS, which category shows the most growth potential, and in our SaaS, which downstream scenarios are comparatively more promising? My third question is that what are the strategic plans and growth outlook across different global regions?

[Yao Liu, executive]

Okay. Firstly, overall, we have found that IoT consumer electronics are highly sensitive to inflation. During the year of high inflation from last year to early this year, the growth trend in discretionary electronic consumption, which including IoT devices, slowed down significantly compared to 2021. Afterward, although it reached a relatively stable new balance as inflation slowed, it was suppressed again with a short rebound of inflation in -- like July, August, and September this year. However, at present, we observe the end purchase of consumer electronics is in a moderately positive direction, which is in line with our expectation for long-term growth in IoT penetration.From the perspective of end sales, specifically by region and categories, we observed the following. By categories, since October, end sales in all categories have recovered to some extent with household appliances, especially robotic vacuum cleaners and security sensors performing very well. Electrical products also showed a good recovery trend. However, lighting devices is still in a pretty weak demand situation.In terms of the region, we found out Southeast Asia, South America, and also in Europe, the safety products are doing pretty well, and also other categories are gradually recovering in a pretty healthy direction. In China, apart from home appliance and robotic vacuum, other categories are relatively weak, but the trend is upward since Q4.The U.S. region shows overall relatively weak performance, but electrical and security categories are showing good signs of recovery. Overall, each region, according to its economic and environment characteristics, has different chance in end IoT electronics consumption, and we will continue to maintain communications with downstream customers to actively respond and seek opportunities according to different market situations.However, it should be noted that our IoT PaaS revenue is affected by both the destocking cycle and end sales. We observe that the year-over-year performance of end sales in some categories does not completely align with our shipment downstream. For example, the lighting categories showed relatively weak end sales in Q3, basically from our brand to consumers. But our shipments achieved a significant year-over-year growth in Q3 in terms of IoT PaaS. This is mainly due to the downstream [indiscernible] the light inventory -- lighting products due to the large price difference between smart and non-smart versions were the most affected categories in terms of inventory destock in Q3 last year.In terms of the downstream inventory, the overall situation is in line with our expectations. Combining Tuya's IoT PaaS shipments and end sales in the same way as we previously -- the end sales in the same way as we previously did, we estimate that inventory held by downstream business, which include OEMs, brands and retail channels has decreased from over a year at its peak time to above 4 to 5 months now and will further reduce by the end of this year returning to a level of 2019. Therefore, we feel that inventory destocking cycle is nearing its end and returning to a relatively normal state.And in terms of the SaaS part, as we mentioned the SaaS and others revenue have included several different products. We have seen great growth potential in Cube which we promoted this new product. It's a private cloud IoT software we prepared for large groups globally for those companies to realize their own IoT capabilities. This potential stems partly from Cube smart private cloud serving those large conglomerates allow its reach revenue levels in million of U.S. dollar when implemented to those large cooperates.Additionally Cube's strategic position is not only limited to just onetime private cloud deployment. But in the long term Cube is the tool and the bridge for establishing a long-term cooperation relationship with large key accounts for Tuya.And once those large corporates install the Cube cloud for themselves they would start to connect the IoT devices which are powered by Tuya to their own Cube. So we are confident that after the private IoT platform is built for those large corporates, we can unleash the value of Tuya's IoT capabilities and solutions generating subsequent long-term IoT services-related revenues.In SaaS and others products, we are also optimistic about the hotel SaaS, commercializing SaaS, and smart real estate full house SaaS product. The hotel industry with its massive room demand and the market segmentation offers immense potential for a vast number of non-luxury hotel brands seeking competitive differentiation. Smart hotel experiences, such as intelligent ordering, contact list checking and home management are significant competitive advantages.Commercial lightings, given its specific lighting needs and the potential for expansion beyond lighting to include energy saving, conservation and management, undoubtedly has a huge market space. The real estate industry has been subdued in China in recent years but looking abroad, leveraging our strong influential outside of China we have identified the demand for smart real estate and full home IoT solution needed this year in Southeast Asia and Australia markets and we plan to start serving these regional customers next year with Cube products combined with full house IoT solution and smart real estate solutions. And we have been signing contracts with several large customers in Southeast Asia and Australia, including some very large distributor channel and the real estate conglomerate companies in those regions.So this is my question -- my answers for the first question. Operator, you can move to next question.

[Operator]

[Operator Instructions] We have our next question from Liu Yang from Morgan Stanley.

[Yang Liu, analyst]

[Foreign Language] Let me translate my question to English. The first one is regarding the geographic breakdown. I would like to ask management to provide more color on the contribution -- geographic contribution to Tuya especially like Southeast Asia, China, U.S., Latin America, Europe, these areas.The second question is regarding the IoT SaaS business, because this quarter Tuya strategically gave up some of the non-core SaaS and other business. I would just like to confirm whether the approaches come to -- have come to an end, or there is still some ongoing impact in fourth quarter?

[Yao Liu, executive]

Okay. Yang, yes, I'm happy to answer about regional revenue contribution question. Before that I want to first give a background. When we talk about the regional revenue contribution, we actually -- company do a lot of analysis to go through the fundamental revenue contribution. For example, a European brand using Tuya's IoT PaaS to realize their IoT devices and then sell in Europe region will consider its ultimate revenue from Europe, but from a financial statement the -- because all the brands, they provide orders usually to China OEMs and China OEMs give orders to us. So from a financial statement, it will be a revenue from a China OEM customer but ultimately it's from Europe.So right now when we're talking about the revenue contribution from region, we're talking about the ultimate revenue is from which region. So this is an analysis done by a company, it's not 100% accurate, but it largely reflects the trend. So based on our calculation analysis in Q3, Europe has -- becoming the largest revenue contribution region. It's around 30%. And China and the United States, each contribute to just less than 20% -- close to 20%. And the Southeast Asia and also Australia, we call this region that basically exclude China, the Asia Pacific exclude China region, has grown pretty well in Q3 and has grown to around 15% revenue contribution. And also the entire Latin America has shown a pretty good trend in the last few years. So Latin America now contribute to the revenue just more than 10%.So that's the overall region contribution, and we think this is a relatively balanced contribution. And we will continue to use our technology to serve the clients from all the regions, and to have the corporates and consumers enjoy the value from the IoT technology.In terms of the second question, the major transition in the SaaS businesses, in the past we have certain revenue related to one-time customers' needs. For example, OEM APP. Usually, new brands, a huge percentage of new brands, they would like to pay a one-time fee for OEM APP services. And also there is a customized software revenue from brand customers. So in the last 2 years, we have been focusing on to -- first is to focus on high-quality customers rather than huge numbers of new customers. So this one-time new customer-related OEM APP revenue decrease. And this will maybe continue 1 or 2 more quarters, then will be stable.And in terms of the customization software revenue, and we feel recurring software revenue, for example, like the cloud storage and SaaS revenue, a more high-value software revenue we wanted. And also we want more developers to do the one-time customization work for brands for conglomerates' customers. So we also have -- introducing those one-time revenue opportunities to developers. So that's why one-time revenue customized software income also decreasing. This is pretty much stabilized right now. And going forward we believe when the transition of SaaS and others business stabilized, it will still continue a healthy growth.So that's my answer to Yang's question.

[Operator]

We have our next question from Timothy Zhao from Goldman Sachs.

[Timothy Zhao, analyst]

[Foreign Language] Let me translate myself. How does management see the competitive landscape in IoT industry and Tuya's competitive advantage? And also the second question is what's the company's plan in using of capital?

[Yao Liu, executive]

Okay. We believe IoT market is wrapped with extensive future potentials. So we have been keep -- learning from the environment and improving our business model and we believe Tuya occupy a unique position in the IoT industry. And our advantages in the developer and open ecosystem primarily reflected the following prospects. We broadly and inclusively support various devices types and protocols, cloud access models and OEM APP developments. Offering this to developers, customers and partners with 0 technical barriers for them make it very user friendly, open for our customers and developers. So Tuya position as a neutral technology provider supports customer and the brands in establishing their own IoT business and joining our huge ecosystems for inter-operation user experiences. This comprehensiveness and compatibilities allow Tuya to serve 95% of the global markets of independent commercial and brand customers.We also tailor our own capabilities to customer needs with a variety of products generating long-term revenue, which -- this is our main product strategy. This approach is not confined to the OS-based model of cloud license module in IoT PaaS products or key categories IoT device solutions, nor is it limited to purely cloud development capabilities for SaaS development or private cloud deployments. Tuya prioritized its platform ecosystem and customer service strategy over rigid constraints of revenue model among performance metrics. This allow us to cover a broader range of global customer with more diverse developer products, making the platform more user-friendly and open. So we believe this has been our key positioning and the value in terms of our accumulation in this industry for almost 9 years.And regarding the second question for the use of capital. In terms of capital usage, we maintain a rigorous approach in our operations, managing our funds and budgets strictly, and striving to preserve cash through safe highly liquid fixed deposits or other monetary fund instruments, meeting the needs of daily operations and long-term plans. Regarding capital expenditures, we will cautiously watch for suitable merger acquisition opportunities. Additionally, we might, like other companies, invest in necessary fixed assets for long-term operations. So that's my questions -- that's my answers for Goldman Sachs question.Operator, you can move to next question.

[Operator]

There are no additional questions at this time, and I will now hand back to the management team for any closing remarks.

[Yao Liu, executive]

Okay. Thank you again all for joining our call. If you have further questions, please feel free to contact us or request through our IR website. We look forward to speaking with everyone in our next earning call. Have a good day.[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]