Tuya - Q3 2023

Transcript

Operator (participant)

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'll now turn the call over to the first speaker today, Mr. Reggie, Investor Relations Director of Tuya. Please go ahead, sir.

Reg Chai (Director of Investor Relations)

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, Mr. Jessie Liu. The third 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 (Founder and CEO)

大家好，感谢大家参加 Tuya 2023 年 Q3 的业绩电话会议。

Reg Chai (Director of Investor Relations)

Hello, everyone. Thank you for joining the Tuya 2023 Q3 earnings conference call.

Jerry Wang (Founder and CEO)

[Foreign language]

Reg Chai (Director of Investor Relations)

First of all, I'm very pleased to report that in the third quarter of 2023 just passed, our total revenue was approximately $61.1 million, which is the first time we have returned to growth since entering the industry and economic downturn cycle at the end of 2021, with a year-over-year increase of 35.7%. Excluding the impact of exchange rates, it was a year-over-year increase of about 13%. The overall gross margin for Q3 remained very healthy at 46.7%, marking the second quarter maintaining historical highs. Under the strategy of firmly implementing cost reduction, efficiency improvement, and business focus, our Non-GAAP overall operating expenses and expenditures continued to decline. In Q3, they continued to decrease significantly by 26.2% year-over-year.

At the same time, our Non-GAAP net profit showed further significant growth, reaching $10.1 million, an increase of nearly 5.7 times quarter-over-quarter. The quarterly net profit margin was 16.5%. In addition, our operating net cash flow increased significantly both year-over-year and quarter-over-quarter, with a net inflow of approximately $16.1 million. Our cash on hand and net cash at the end of Q3 was $961 million, continuing to strongly support the company's industrial development. Overall, the third quarter was a quarter in which all important financial indicators improved comprehensively, mainly emerging from the industry cycle trough.

Although exchange rates and discretionary consumption still face pressure, but with the gradual end of the destocking cycle, the company has returned to the growth cycle. We will continue to focus on three priorities. Under the premise of maintaining efficient operations, first, focus on and expand high-quality customer groups. Second, continue to enhance product capabilities. Third, enter industries outside the consumer electronics sector to prepare for the full recovery of the IoT industry.

Total revenue for the third quarter of 2023 reached $61.1 million, marking a return to year-over-year growth since the industry and economic downturn at the end of 2021. Revenue grew 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 firm 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 5.7x 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 a 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.

Jerry Wang (Founder and CEO)

下面来具体分析一下公司在第三季度以来的发展情况。

Reg Chai (Director of Investor Relations)

Let me now share more detail about developments since the start of the third quarter.

Jerry Wang (Founder and CEO)

在客户和竞争方面，众所周知，我们的IoT PaaS也经历了近2年的行业下行周期，期间很多竞争对手出清，尤其是行业的一些巨头...

巨头的IoT的业务部门，由于行业竞争力有限，获利能力不佳，无法坚定投入等投入产出方面的因素而关停。而更多的头部品牌的客户，为了追求更好的、更高效率、更多的利润和性价比，更愿意选择第三方的IoT平台。这是一个契机，我们感到现在相比于两年前，具有更好的全球的影响力与竞争力，也获得了更多的头部客户的全新的合作，例如美的的家电珠海业务，还有公牛的新能源产品，IoT平台，还有博世品牌的门锁业务。

Reg Chai (Director of Investor Relations)

...In terms of our customer base and competitive positioning, our IoT PaaS business has weathered nearly two years of industry downturn. During this challenging period, several competitors, particularly IoT divisions of large enterprises, exited the market due to limited competitiveness of their products and uncertain investment returns. This shift has opened opportunities for Tuya, as we feel that we now have better global influence and competitiveness compared to two years ago, to attract the 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 Bull for new energy product IoT platform, and Bosch for smart door lock solutions.

Jerry Wang (Founder and CEO)

同样，我们也致力于通过不同的策略和产品来获取服务全球的客户，以及巩固我们在全球市场的竞争地位。我们在年初确定的软硬解决方案等产品策略，正在助力涂鸦获得战略级的客户和市场，并成功取得规模化的收入，持续覆盖及获得欧美、日韩各大知名零售渠道的订单。我们积极参与Matter董事会，并以技术产品为抓手，走在全球Matter应用和商业化的最前沿，形成对主要生态的补充，扩大IoT To B服务赛道的全球的头部品牌的的影响力。

Reg Chai (Director of Investor Relations)

Meanwhile, we won and served customers worldwide through differential strategies and innovative products. This approach solidified 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 scalable revenue growth. For example, like, like Europe, America, and Japan, we actively participate in the board of Matter, and with technology and products as our focus, are at the forefront of the global application and innovation Matter, implementing our IoT ecosystem, expanding our global influence in the IoT To B service race.

Jerry Wang (Founder and CEO)

在IoT新兴市场区域，如沙特，我们通过搭建高性价比，符合当地特性的定制化套路，方案发展稳步推进，接入两大云商。在非洲，我们以Net Zero的软硬方案，适配非洲独特的电价计费需求，成功获取一家在南非具有超过200家门店的非洲知名连锁超市的POC订单，并对成功的复制充满信心。在南美，涂鸦的开发者平台在中国国产成功模式同样适用于巴西的本土，且巴西头部的温度控制器、净水器工厂均进一步提出了设备管理系统的软件的需求等等。

Reg Chai (Director of Investor Relations)

In emerging markets like Saudi Arabia, our ability to provide cost-effective, customized solutions led to breakthroughs with two major operators. In Africa, our Net Zero 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 developer platform successfully replicated our Chinese OEM model to support local manufacturing in Brazil, with leading thermostat and water purifier factories seeking our software solution for device management systems.

Jerry Wang (Founder and CEO)

另外，我们始终看好电商渠道作为电工、传感、户外等小型使用类的消费电子设备的巨大市场，自然地帮助这些千量级的品牌和品类快速地实现出口，推广、分发和终端用户的聚拢。因此，在这两年，我们坚持长期的陪伴，助力有潜力的中国出海的电商企业新品牌在电商平台上成长起来，成为头部。例如，在亚马逊的智能插座、户外插座、蓝牙小型门锁等板块的前十中，已有数家涂鸦客户的身影。

Reg Chai (Director of Investor Relations)

We are optimistic about the e-commerce channel as a huge market for practical consumer electronics devices like smart electricals, sensors, and outdoor products, helping these lightweight categories achieve market promotion, distribution, and end-user aggregation. Over the past two years, we have consistently supported potential Chinese e-commerce trends in growing into leading brands. For instance, several Tuya customers are now prominent in Amazon's top 10 in smart sockets, outdoor sockets, and Bluetooth mini locks.

Jerry Wang (Founder and CEO)

我们矢志不渝地聚焦产品力、聚焦创新和提升。

Reg Chai (Director of Investor Relations)

We are unwavering in our commitment to product focus, innovation, and improvement.

Jerry Wang (Founder and CEO)

第三季度，我们的激光扫地机方案经历一年半的打磨，达到了真正的可量产状态。我们对标行业的流行的智能门锁的低功耗音视频解决方案实现量产，以及家用门锁Pro产品在Q3出货量同比增长超过100%。中控产品线的海外产品，如美规产品矩阵进一步的完善。国内则增添了前装、市场工程安装的行业的能力，以及通过融合了智能家居、本地楼宇以及对讲，云对讲的能力的智慧中控屏与楼宇可视化对讲一体化方案，率先地实现了由屋内到屋外的智能的突破。

Reg Chai (Director of Investor Relations)

In the third quarter, after 18 months of development, our laser 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 products, Q3 deployment volume increasing by over 100% year-over-year. We have also enhanced our core essential control product line, such as the U.S. spec product matrix, and added industry capabilities for pre-install market engineering installations in China. Our smart central control large screen, integrating local building intercom and the cloud intercom capabilities, innovatively bridges indoor and outdoor intelligence.

Jerry Wang (Founder and CEO)

我们同样不忘加强传统强项品类的能力建设，例如智慧电工品类，真正会在IoT消费电子再到产品发展中贡献可观的销量规模。我们看到这些新型应用。IoT设备下游需求正在进一步复苏，并致力于帮助客户抓住机遇。例如，我们发布的双屏路由的智能插座方案，解决终端用户较常见的混屏路由器的问题，大幅提升了配网成功率和配网体验。Eightree便是该方案的客户，该品牌的销量在亚马逊平台已经冲进前四。

Reg Chai (Director of Investor Relations)

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 are seeing downstream demand recover for these smart life practical IoT devices. We are committed to helping customers seize opportunities. For example, we released the dual-band router smart socket solution to address the common issue of multi-band routers, significantly improving the network pairing success rate and experience. Eightree, a customer of this solution, has seen its brand sales explode, now ranking in top 10 on Amazon's platform.

Jerry Wang (Founder and CEO)

我们力争突破消费电子领域，将除了成熟的IoT能力，在更多的更专业领域。在Q3，我们的新能源和出行产品更加完善。新能源方面，支持光储充用一体的整合App已经发布，完善了家庭能源管理产品中的从能源监控到能源负载联动调度的环节。艾旭、恒电东磁等全球领先的光储品牌企业，都在新的储能业务上选择了Tuya IoT PaaS。暖通冷衣一体产品中，Tuya打造的行业子系统，已基本实现行业主流需求的全功能，且即将进一步地实现自有体系的硬件闭环。出行产品线方面，4G蜂窝VCU中控产品已经在eBike产品上落地。

Reg Chai (Director of Investor Relations)

We're actively working to expand beyond the field of consumer electronics, bringing Tuya's mature IoT 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 loading scheduling. Global leading photovoltaic brands like Aiko Solar and the DMEGC Magnetoelectric Group have chosen Tuya's IoT PaaS for their new energy storage business. In HVAC integrated products, Tuya's industrial subsystems have basically achieved the full functionality for mainstream industrial demands, and will soon form its closed-loop solution with the system hardware. As for outdoor products, our 4G Cellular VCU central control product has landed on e-bike products.

Jerry Wang (Founder and CEO)

所以，以优质、创新、高价值的产品为核心竞争力，我们也在持续通过优质闭环成型的Cube，这为私有云产品的综合解决方案，来满足大型集团有限的 对私有云的需求。例如，在东南亚的地产领域，我们取得了不错的进展。

Reg Chai (Director of Investor Relations)

Besides focusing on high-quality, innovative, and valuable products as our core competitiveness, we are 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 estate views.

Jerry Wang (Founder and CEO)

最后谈一下图雅最根基的开发平台的体系的持续建设。

Reg Chai (Director of Investor Relations)

Lastly, let's talk about the continuous growth of Tuya's foundational development platform and ecosystem.

Jerry Wang (Founder and CEO)

第三季度，我们围绕 PaaS 2.0 的核心价值，包括全品类互联互通、安全合规、开发自主可控、差异化等方面，从易用性、效率性等开发的体验为出发点，进行开发者相关的建设工作，将他们从需要借助 Tuya 官方支持中解脱出来。我们对官网开发者平台、IoT.tuya.com、开发者网站 developer.tuya.com、开发者文档中心等开发产品进行了一体化的整合和梳理。此外，新建设开发者论坛社区，TuyaOS.com 将为开发者提供更多公共资源和讨论空间，让他们可以通过社区解决在开发过程中遇到的问题，并激发创造力。截止第三季度末，我们注册开发者数量已达 90.9 万个左右，同比增长约 45%。

Reg Chai (Director of Investor Relations)

In the third quarter, we focused intensely on the foundational pillars of PaaS 2.0. These pillars encompass full category interconnectivities, seamless interoperability, 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 the vibrant new developer forum at www.tuyaos.com. This platform acts as a dynamic hub, offering extensive resources and a 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 44.5%. We also emphasize the application and empowerment of the developer platform in the commercial sector. This approach is designed to empower our brand clients, enabling them to craft and refine bespoke to-be solutions. A prime example of this strategy in action was at our developer conference this September, hosted at Zhongshan, China. During this event, we signed a cooperation agreement with OSRAM. We see 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 assets, hotels, rentals, commercial lighting, and building management, among others.

In conclusion, I have shared with you today the concrete outcomes of our strategic initiatives in business and product development. These accomplishments are a testament to Tuya's dynamic response and the strategic recalibration in response to the challenges we have faced over the past two years. As we approach the final stage of inventory normalization and win this IoT consumer electronic strategy, finding its footing, we are confident that our persistent efforts will yield positive results. These strategies are set to guide Tuya by ensuring their position. 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, Jessie, to introduce our financial data.

Jessie Liu (CFO)

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 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 hits our total revenue by 7.3 percentage 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 two 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%-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 the product 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 maybe 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, this 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 the 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 a continuous month-over-month growth. The acceptance and the delivery of the Cube private cloud project generated over CNY 5 million in revenue. Customer development and some other new customer number-based one-time value-added services decreased by about 15%-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 other business segments 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 three 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 growth margin is the most direct reflection of the value of our smart device solution. Moving on to our operating activities and the 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 structure 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 a noteworthy rebounding 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're ready to make investments in the business as needed to further pursue business opportunities. 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 from cash, bank demand deposits, as well as time deposits, recorded as short-term and long-term investments totaling $961 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 the land use rights, with 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 dollar in the next 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 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 (participant)

Thank you. 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. Thank you. We have our first questions from Li Mingyuan from CICC. Please go ahead.

Mingyuan Li (Analyst)

Thank you, management, for taking my questions. First off, congrats on your strong performance. 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 past. In past, 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 trends and growth outlook across different global regions? Thank you.

Jessie Liu (CFO)

Okay, thank you. 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 the robotic vacuum, other categories are relatively weak, but the trend is upward since Q4. The US region shows overall-...

Relatively weak performance, but electrical and security categories are showing good signs of recovery. Overall, each region, according to its economy and environment characteristics, has different trends 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, such that the year-over-year performance of end sales in some categories does not completely align with our shipment downstream. For example, the lighting category showed relatively weak end sales in Q3, basically from our brands 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 repositioning their lighting inventory. As lighting products, due to the large price difference between smart and non-smart versions, were the most affected categories in terms of inventory destocking, 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 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 about 4-5 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 including 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's smart private cloud, serving those large conglomerates, allow it to reach revenue levels in millions of U.S. dollars, when it's implemented to those large corporates.

Additionally, Cube's strategic position is not only limited to just one-time private cloud deployment, but in the long term, Cube is a tool and a bridge for establishing a long-term cooperation relationships with large key accounts for Tuya. And, once those large corporates installed the Cube cloud for themselves, they would start to connect the IoT devices, which are all powered by Tuya, to their own Cube. So we're 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, commercial lighting SaaS, and smart real estate full house SaaS products.

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, contactless check-in, and home management, are significant competitive advantages. Commercial lighting, given its specific lighting needs and the potential for expansion beyond lighting to include energy savings, 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 influence outside 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.

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 (participant)

Thank you. As a reminder, ladies and gentlemen, if you would like to ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two to withdraw your question. If you are streaming via web browser, kindly press the Q&A button and type in your question. When preparing to ask your question, please ensure your phone is unmuted locally. Additionally, when asking a question, please state your question in Chinese first, then immediately translate them into English for the convenience of everyone on the call. Thank you. We have our next question from Liu Yang, from Morgan Stanley. Please go ahead.

Yang Liu (Equity Research Analyst of China Technology)

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 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 have come to an end or there are still some ongoing impact in fourth quarter. Thank you.

Jessie Liu (CFO)

Okay. Thank you, Yang. Yes, I'm happy to answer about the 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 to the 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, we will consider it 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 it will be a revenue from a China OEM customer, but ultimately 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 reflect the trend. So based on our calculation analysis, in Q3, Europe has becoming the largest revenue contribution region. It's around 30%. And 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.

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 the contribution, and we will continue to use our technology to serve the clients from all the regions and to have the corporates and the consumers enjoy the value from the IoT technology. In terms of the second questions, the major transition in the SaaS businesses in the past, we have certain revenue; it's 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's a customized, software, revenue, from, brand customers. So in the last two years, we have been focusing on to, first is to focus on, high-quality customer rather than a huge numbers of new customers. So this one time, new customer-related, OEM app revenue, decreased, and this will maybe continue, one or two 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 our conglomerate 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, this is pretty much stabilized by now. And going forward we believe when the the transition of SaaS and other business stabilized it will still continue a healthy growth. So that's my answer to Yang's question. Thank you.

Operator (participant)

Thank you. We have our next question from Timothy Zhao from Goldman Sachs. Please go ahead.

Timothy Zhao (Equity Research Analyst)

Management, hello. I am Timothy Zhao, an analyst from Goldman Sachs, representing internet sector. I have two questions. Could management explain to us the recent observations on the IoT industry, competitive environment and Tuya's competitive advantage? The second question is, what is the company's plan in using of capital? 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? Thank you.

Jessie Liu (CFO)

Okay. Thank you. We believe IoT market is vast 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. Our advantages in the developer and open ecosystem are 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 zero 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 interoperation user experiences.

This comprehensiveness and the compatibilities allowed 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 prioritize its platform ecosystem and a customer service strategy over rigid constraints of revenue model, amounts, or performance metrics. This allow us to cover a broad 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 values in terms of our accumulation in this industry for almost 9 years. 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 the budgets strictly and striving to preserve cash through safe, highly liquid fixed deposits or other money, monetary fund instruments, meeting the needs of daily operations and the 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 (participant)

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

Jessie Liu (CFO)

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 earnings calls. Have a good day.