Thank you,

Hello, everyone. Welcome to our first quarter 2026 earnings conference call.

Joining us today are our Founder and CEO, Mr. Jerry Wang, and our Co-Founder and CFO, Mr.

Alex Yang. Our results and the webcast for the conference call are available at ir.tuya.com.

A replay of this call will also be available on our IR website in a few hours. Before we continue, I'd like to 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 over to our Founder and CEO, Mr. Jerry Wang.

Jerry will give his remarks in Chinese and English translation follows. Jerry, please.

感谢大家参加涂鸦智能2026年第一季度的电话会。

Hello everyone, and thank you for joining Tuya's earnings conference call for the first quarter of 2026. 本季度，尽管外部环境持续存在不确定性，并受到区域性的因素的扰动，公司依然展现出了稳健的增长动能和执行力。自第四季度以来，受益于下游需求的持续回暖，公司业务规模延续扩大的态势，总收入同比增长8.3%，增速较上一季度进一步的改善，并保持连续多个季度的正向增长。毛利率维持在健康的水平，体现了产品价值的主张以及平台竞争力的持续提升。

During the quarter, despite ongoing uncertainties in the external environment and disturbances from certain regional factors, the company delivered solid growth momentum and strong execution capabilities. Benefiting from a continued recovery in downstream demand, our business scale has been expanding moderately since the fourth quarter.

Total revenue increased by 8.3% year-over-year, with growth momentum improving quarter-on-quarter and posting positive growth for multiple consecutive quarters. Gross margin remained at a healthy level, reflecting the continued enhancement of our product value proposition and platform's competitiveness.

在战略的执行层面，我们持续推进了以AI驱动的发展路径。我们此前提出AI正在从功能叠加走向与设备形态和行业场景的深入融合，并逐步从对话工具演进为参与真实世界运行的智能体。进入2026年第一季度，这一判断正在通过更多的应用形态和客户场景得到进一步的验证。 In terms of execution of our key strategies, we continued to advance our AI-driven development strategy.

As we have mentioned earlier, AI is shifting from simple feature stacking towards deep integration with hardware devices and vertical industry scenarios, gradually evolving from a mere conversational tool into an intelligent agent that interacts and operates in the physical world. This trend has been further validated by a richer portfolio of application offerings and customer scenarios in Quarter 1 2026.

与此同时，我们也在加快AI能力从平台层面向量层及场景化产品的转化，并在多个实际场景中实现落地。公司持续迭代开发者工具与平台能力，使全球开发者能够以更低成本、更高效的接入并应用前沿的一些AI技术。AI相关的业务收入的持续增长也反映出了商业化进程的稳步推进。 At the same time, we are accelerating the transition of AI capabilities from the platform layer to application layer and scenario-based products, with successful deployment across multiple real-world use cases.

We keep upgrading our developer tools and platform capabilities, empowering global developers to access and apply cutting-edge AI technologies at lower cost and higher efficiency. The sustained growth in AI-related revenue also reflects steady progress across our commercialization efforts.

本季度，我们围绕这一方向推出了包括AI生活助手Hey Tuya以及AI安全守护等应用形态。这些探索的核心意义并不在于单一产品本身，而在于验证AI Agent从数字任务走向物理场景执行与设备协同的能力。我们看到AI正在逐步具备跨数字世界与物理世界协同的运行的能力，这也标志着Physical AI在实际场景中的落地迈出了关键一步。 During the quarter, we introduced a range of applications aligned with this direction, including the AI-powered smart life assistant Hey Tuya and AI Security Guardian.

The significance of these initiatives lies not only in single products, but in validating the capabilities of AI agents to move beyond handling digital tasks into physical world execution and device coordination. We are seeing AI gradually develop the ability to operate across both digital and physical worlds, marking a critical step forward in the real-world deployment of physical AI.

展望未来，我们将重点围绕以下方向深化布局：第一，持续推进AI原生的应用创新，围绕智能潮玩、陪伴机器人等高活跃的品类，加速AI能力在消费场景中的渗透及规模化的应用，推动Physical AI在更多日常场景中的落地；第二，推进已验证的AI解决方案的全球化的拓展，特别是在能源与绿色科技领域；第三，我们持续强化开发者生态建设，通过开放平台与工具的能力，降低AI应用的开发门槛，与行业伙伴共同推进AI技术的深度探索和商业化落地。 Looking ahead, we will further deepen our strategic focus on the following key areas: First, we will continue to advance AI-native application innovation, centering on high engagement categories, such as smart toys.

We will accelerate the penetration and large-scale adoption of AI capabilities in consumer scenarios, expanding physical AI into a wider range of everyday use cases. Second, we will scale the global rollout of proven AI solutions, particularly in the energy and green technology sectors.

By bringing mature solutions to international markets, we aim to enhance our industry recognition globally. Third, we will continue to strengthen our developer ecosystem.

Through open platforms and enhanced tool capabilities, we will lower the barriers to AI application development and work closely with industry partners to drive deeper exploration and commercialization of AI technologies. 接下来，我们请我们的CFO为大家带来更多的财务表现和经营进展的介绍。

Now let me turn the call over to our Co-Founder and CFO, Alex Yang, for a closer look at our financial performance and business progress.

Hello everyone. This is Alex.

I will provide a brief overview of our first quarter results. Please note that unless otherwise stated, all figures are in US dollars, and all comparisons are on year-over-year basis.

In the first quarter of 2026, we generated total revenue of approximately US$80.9 million, representing a year-over-year increase of around 8.3%. Despite ongoing uncertainties in external environment, the company maintained its steady growth trajectory.

Our core platform business remained stable, while AI-related business continued to demonstrate a strong growth momentum. On profitability, our operating margin continued to improve.

GAAP operating margin reached 9.2%, representing a significant year-over-year increase, while non-GAAP operating margin was 10%. Net margin further improved to 19.5%, reflecting continued optimization in operating efficiency and cost structure.

Overall, the combination of improvements in revenue mix and disciplined expense management has driven sustained profitability gains. Before going to segment details, we would like to note that we have adjusted the names of certain business segments this quarter.

The former SaaS and other segments has been renamed to AI application and others, reflecting our continued push forward AI-enabled software services to and more applications, accurately capturing the transition from traditional cloud services to AI application services. Meanwhile, the former smart solution segments has been renamed to smart home and robotic products, highlighting our increased focus on AI-powered home products, household robotics, and scenario-driven AI initial devices on hardware side.

We would like to emphasize that these changes are purely presentational and do not affect the revenue composition, recognition methods, or historical comparability of each segment. Within our segments, the PaaS business generates revenue of $59 million in this quarter, representing a year-over-year increase of approximately 9.8%.

As customer demand gradually recovered, we continue to drive steady growth in our core business through ongoing optimization of our customer mix and product capabilities. At the end of this first quarter, the number of PaaS premium customers reached 306, reflecting the stability of our core customer base and the structural resilience of the platform business.

The AI application and others segment generated revenue of $11.6 million in this quarter, representing a year-over-year increase of approximately 16.9%, continuing to outpace overall company growth. This growth was primarily driven by increased revenue from cloud software services and AI application services, including AI cloud storage, energy management software, value-added services like SMS and voice services, as well as App, OEM, and SDK offerings.

This reflecting the continuous progress in commercialization of our AI applications, as more software products completed their AI-driven upgrades. This segment is gradually becoming a more growth-oriented and software service-centric component of our revenue mix.

The smart home and robot product segment generated revenue of $10.2 million, representing a year-over-year decrease of approximately 6.9%. The fluctuation in this segment primarily reflects our proactive effort to phase out relatively low-value hardware products and optimize the product mix and reallocate resources towards higher value-added, especially AI initial hardware terminals.

As this segment undergoes structural adjustments, we expect its long-term profitability and scalability to gradually improve within a higher mix of higher-value products. From an operational perspective, several verticals this quarter has demonstrated structural opportunities driven by the integration of AI and smart hardwares.

Like in the security segment, our smart door lock business achieved 73% year-over-year growth, driven by upgrades in multimodel and Wi-Fi solutions, video intercoms, as well as AI voice and vision capabilities. PaaS revenue from Wi-Fi-enabled smart door locks increased 75% year-over-year growth.

At the same time, the AI application revenues from video-enabled locks increased substantially 500% year-over-year. This demonstrated that AI and multimodel capabilities are driving the traditional smart lock vertical to evolve from a stand-alone hardware model into a higher-value business model of hardware plus software service plus AI capability combined.

In the energy sector, related PaaS products, including EV chargers, metering plugs, and professional metering solutions are emerging as new growth drivers. We are also continuously to advancing higher-value solutions, such as AI-enabled display, gateway, and voice capabilities, providing a strong foundation for our customers' product upgrades and future growth.

In the AI energy, demand in the European market for home energy management, energy storage, and AI-driven energy-saving solutions continued to grow. During this quarter, we made solid progress in advancing AI energy-related initiatives with key milestones achieved in the commercialization of energy storage and ecosystem accessories.

Our customers received very positive feedback and secured multiple channel partnerships and orders at the exhibition, such as Light + Building in Frankfurt and Solar Solutions in the Netherlands. In the Singapore's HDB project, new capabilities, app panels, and deliveries are progressing on schedule.

AI energy is gradually evolved towards a comprehensive solutions model integrating hardware bundles, software, and AI orchestrator, plus channel operations. From a regional and scenario perspective, Europe remained a key deployment market for energy and green technology solutions, with growing demand for AI energy, smart electrical systems, spatial intelligence applications, AI smart home appliances, and AI safety and security products.

In Asia-Pacific region, the Singapore HDB projects continue to moving through implementation and validation, while Southeast Asia and other emerging markets are beginning to generate opportunities in energy management, spatial intelligence, and SME scenarios as well. In China, AI-enabled smart door locks, AI toy, and AI home products, including AI companion, continue to attract strong customer interest, with some customers already advancing project upgrades and solution integrations.

On margins, our blended gross margin for this quarter was 46.9%, with slightly year-over-year fluctuation primarily due to the change in the product mix and certain upstream cost variations. By segment, gross margin for PaaS was 46.1%.

Gross margin for AI application and others was 71.7%, remained stable and reflecting the structural advantage of software and AI-driven business. The gross margin for smart home and robot products was 23%, maintaining a level of above 20%.

While advancing AI applications and high-value products, we continue to focus on cost efficiency and product value. Our expenses, we maintained disciplined cost management during the quarter, with total operating expenses, OPEX, of approximately $30.4 million, while continuing investing in core AI development and platform capability, improvements driven by AI and digitization, and digitizing operations enable further operating leverage.

In terms of profitability, we recorded profit from operations of about $7.5 million for this quarter. Non-GAAP profit from operations was approximately $8.1 million.

Net profit reached $15.8 million. The improvements was primarily driven by positive contribution from gross profit growth, as well as lower share-based compensation expenses.

Our cash flow, net operating cash flow remained positive during this quarter. At the end of this quarter, the company's total cash, cash equivalents, time deposits, and treasury securities amount to approximately $1 billion plus.

The strong cash positions provide solid support for our continued investment in long-term AI capability development, our ability to navigate external uncertainties and opportunities, and our capabilities to enhance shareholders' returns. We will also prudently evaluate and pursue higher-quality strategic investment opportunities.

Overall, the company continued to deliver revenue growth and improved profitability amid a complex environment, while the accelerated development of AI application business is driving the ongoing evolution of our revenue mix towards higher-value segments. Next, I will briefly walk you through our progress in AI development ecosystem.

Within our development ecosystem, during the first quarter, we continue to advance through the open source capabilities of TuyaOpen and further development on our AI agents. To better address the diversified needs of AI-native developers, we also launched a new offerings, including the ultra-lightweight AgentKit for the hardware developers and the vibe coding based on the powered by Tuya hardware applications.

The vibe coding will be able to help lower the bar for many new developers as well. Those tools enable developers to build a wide range of AI-native hardware products in a more flexible and agile manner.

We remained committed to lower the bar for AI hardware and application developments while enhancing flexibility and openness, allowing developers, brands, solution providers to accelerate the process from ideation and prototyping to products commercializations. At the end of the first quarter of 2026, the number of registered AI developers on our platform exceeded 1.96 million, maintaining steady growth.

At the same time, engagement within the TuyaOpen community continued to increase. Based on our current ecosystem data, the TuyaOpen documentation platform has been accumulated over 340,000 views, with more than 16,000 community members.

It has accumulated abundant open source projects, resources, and launched a standardized demo cases library, covering mainstream application scenarios and development needs. TuyaOpen is gradually evolving from an open source framework into an open ecosystem infrastructures for the AI hardware innovation.

For deployment perspective, AI capabilities are increasingly extending from the platform layer into a broader range of end-devices formats. Whether in AI-enabled door locks, energy management solutions, sensors, AI companion toys, or AI robots, they all reflect the same underlying trend: AI is evolving from isolated functions towards deep integration with devices, scenarios, and user needs.

This is fully aligned with our previously articulated vision of physical AI, enabling AI to engage in real-world environments and actively participate in sensing, decision-making, and execution in real life. In summary, our first quarter performance further validate the commercial viability of our AI strategy.

Our core PaaS business continued to provide a solid growth foundation, while the deep integration of AI application services with physical hardware is emerging as a new driver for the value creation. At the same time, we have achieved meaningful progress in deploying AI solutions across high-value scenarios, such as energy, entertainment, and security.

Looking ahead, we will remain focused on two key priorities: physical AI scenarios and higher value-added AI products. While maintaining financial discipline, we will accelerate the transition of AI technologies from a tool-level capability to products with tangible commercial value, creating sustainable long-term returns to our shareholders.

Thank you all. Operators, we can begin the Q&A winner.

Thank you for the opportunity to ask questions, and congratulations on the solid result. I would like to ask about the value chain, because a lot of the sectors are suffering from the chipsets shortage globally.

Could management update us in terms of the Tuya's situation in value chain, especially the chipsets sourcing? Also update us the pricing strategy if there's any shortage or constraint from the value chain, how to pass through the inflationary cost to the downstream?

Thank you.

Thank you, Liu. Yes, we're already noticed those kind of fluctuations around one and a half quarters ago, so that's why we give a heads-up of that type of trends around end of last year.

With the things we're doing is that first one is that considering of a large buyers of some of the major chips that in the industry, we are. The fluctuations with maintain as limited as we could because of the bargaining power.

In the same time, that for those costs that inevitably we have to increase, we'll pass through those cost to the downstream side. That will be the basic idea and how we've been doing.

You can notice that there are several reactions we already been doing. The first one is that in Q1, we already do some strategically purchasing before any cost change.

You can notice that in our balance sheet that our inventory increased slightly. That majorly is that it's kind of the procurement we do that before the cost increased.

That reflected to my inventory level and including my net cash as well. That's the first one.

We try to use a larger inventories to buying more times to walking through the fluctuations. The second one is that you already noticed that especially on the PaaS side, the change or those kind of difference of the gross margin of PaaS reflects that we already starting to pass through the cost.

We didn't add the margin on the cost change, because we don't want to bring more burden for my downstream side. That reduced slightly on my gross margin on the PaaS as well.

We'll continue to keep focus on that and to working along with my customers and through those fluctuations. No matter using our scalability to manage the cost difference as the least level as we could, in the same time that we'll using our inventories to try to bring more balance coming through with the time.

That will be the basic ideas there. We've found that the shortage and the density of the momentum continue to increase in Q2, in the beginning of Q2.

Thank you.

Thank you, management, for taking my question, and congrats on the solid results. I think my question is on the revenue front.

I noticed that this quarter you achieved a pretty solid sequential acceleration on the revenue growth. However, given the very dynamic geopolitical and macro environment globally right now, I was just wondering what is your latest thoughts on the demand outlook and revenue growth outlook for the rest of this year?

What measures have you taken to stabilize or further boost the demand? My second question is that I noticed, as you mentioned, you changed the reporting name of the two of the segments that you report.

Just could you further elaborate on the rationale behind and specifically on AI applications and on robotics products? Just wondering if you can share more color on your plans regarding these two specific subsegments.

Thank you.

Okay. Thank you for that.

The first one on the macro environment, we already noticed that so as we share the colors when we release our Q4 results, we found that while the the trading the international trading environment become stable after the November of last year, the momentum starting to recover, and the customers starting to return to a growing growing plan on the business side. It's not that conservative.

Starting from December, we already see that starting to recover. It's not overnight, they're doing that gradually.

Even though in March, we know that there will be a new fluctuations coming forward. Overall speaking, that the downstream side is recovering.

We have to break down into different sectors. What we see here is that like the appliances, like the energy, like the innovative devices, including the securities or the locks, we found that the the growth momentums and are more positive and are more for sure.

Because no matter is that we found a more solid demand or pain point on the user side, and all is those sectors, those companies are doing a better. In some other sectors, like the lightings, we don't see significant recovery.

It's kind of still doing in what we call into a evaluating stage on the lighting side. Some sectors that those chipset cost variations not from our side, but from their own side, like the cameras, or like the some control panels with the screen, the memory chip cost variations will bring a more significant cost difference for the finished product, for the for device side.

The factories and the brands, they can do less to to change that directions. That price increase might be significant for them, like the camera for business, the entry-level cameras.

Usually the FOB price or the or the retail price will be like retail price will be like the $20, and FOB will be below 10. During those kind of memory chip and the main chip increase, we noticed that the FOB price might be able to hit above $15, which means that the retail price have to increased around $30 to $35.

That significant increase on the retail price that might bring the might influence the consumer's buying decision. We already noticed some sectors might be more sensitive on the or be more will be impacted more on the cost increased.

Some will be more resilient. That will be on the product sector side.

On the region side, combined with that is that still for the energy that Europe and Southeast Asia, including Australia, is very strong demand for the for the energy management solutions. Especially in this year, while people starting to notice that energy become more and more, how can I say, energy become more and more crucial, and on the on the on the cost stability side.

They have to pre-invest, they have more willing to pre-invest on any energy efficiency. For that part.

For some other regions like the Latin America, they are more price sensitive. Like I mentioned, that some sectors like the cameras, for this market considered that they have a lower buying power for the based on the macro economy in that sector in that region.

For for them that so some sectors will meet some challenges out there. For us is that still that we're trying to use our very comprehensive and hardware category mixed and combined with a multi-region mix to going against different types of fluctuations.

We're always looking for opportunity in some regions that to to balance the seesaw on other side. That's overall for the macro environment.

The second one is for the for the AI transition. Yeah.

No matter is the AI application or the home robot products, both sides that we're looking forward to give the market a signal is that we're doing so hard to reallocate our resources since 2023 that to transit our previous what called the first version of smart devices offering into the AI initial offering. Starting from the end of the 2023, we really upgrade our entire platform architecture into large language model agnostic, which means that since end of 2023, and all those decision-making on the platform side for the device and the software applications can be based on the different large language model or the mainstream one.

In 2024, May of 2024, we already launched our hardware Agent platform that enable our customer to design a Agent on top of the devices to make the devices be more smart and run doing some things autonomously. Even no no customers understand what it is, what is a Agent.

In last year, we launched our new AI platform as a new AI foundation that including the multimodel offerings, including the open source projects to open some new doors for the new innovation innovative ideas for those customers, and then give them a bridge, giving a path that how they can combine technology into innovative ideas and make it come true. In in April that in our new developer summit, we launched our new offerings, including the AgentKit that allow the hardware designers to do things more freely, and including our vibe coding tools, that right now they can design any softwares, including the apps, including the firmware on the on the hardware side, including the cloud services, they can do that all through vibe coding.

All the things we're doing is that we to show that we are we are in we are kind of initial in AI user and AI enabler. For that things, we're starting to upgrade our offering in those two segments.

Take the AI application, for examples, we're really starting to provide that for all the cloud storage on the camera side that right now combined with AI capabilities, customer will be able to customize the event. It's not a just a dummy detect any movement on the picture and give you the alarm, and you can find that you've got so many false alarm, and then you have to turn down the the notification, right?

Because the camera cannot tell whether it's something you should pay attention to or not. Any like the delivery boys come by, that anyone come from your the door that you get alarm.

Starting from there that you can build the event that so if it's a package, don't give me notification. If someone staying at my at my at my front door like over 10 minutes a day, notice.

If someone showed up every day and seems like very suspicious, give me a notice. People starting to be able to create their own event and then have the camera to watch out for them.

That things will be provide a significant more values and killing more annoying pain point for the end-user side. That kind of seamless upgrade on those kind of offerings is a is a is a is a natural upgrade for our previous SaaS offering.

We think that right now we're starting to provide more and more AI capabilities seamlessly to the previous SaaS, and then we show that more and more users starting to subscribe that services because of AI offering, and then we're doing the upgrade at AI applications. That that's no matter it's a skill, it's a it's a Agent, or it's a pure services on the recurring model.

For for the home products and robotics, some scenarios is including like the companion, that when we're offering the Tuya Toy, AI Toy, for some customers that some customers, they have their own brands, they have their own very good toy design capabilities and channel distributions, but they don't have the capability to design things from scratch. Especially they don't know anything about coding, they don't know anything about about the the circuit boards, about the microphone array design.

For some of that part, we're starting to offering the turnkey solution. Through that, we put more focus not on some what we call is the first generation of smart devices.

We're starting to focus more on the AI, what we call AI initial devices. Like the the toy, they need the the multimodel capability, they need the very good noise canceling and the microphone array design machine, and they need the the string projection technologies to reflect the different type of reactions from the toy side.

For that part, that's how we reallocated the resources since last year. Right now, for the for this segment, that the the directions is that we guide the entire departments to put focus on all those kind of AI-enabled and AI initial devices.

Usually those devices will come naturally with not only the AI feature, but combined with larger opportunity for the AI application business. That's how we driving force to do that.

Not a kind of connected devices segment anymore, it's become a more AI initial offering for those customers happening through that. That'll be the typical use cases.

Thank you very much.

That's

very detailed explanation.

Thank you, management. This is Kai, and I have two questions.

First one is on competition. Following the emergence of agents, on-device agent deployment has become an industry trend.

Could you share how has the competitive landscape evolved in Q1? How do you view Tuya's advantage in this field?

My second question is on R&D. Could you share how is the company applying AI tool like agent coding tools in internal R&D?

What's the potential impact on margin and profitability? Thank you.

Yeah.

The first one already covered some of the parts in the macro environment side. As we see here is that two things: The first one that sees the customer trying to kind of escape from over-conservative momentum in last year, they're trying to get back into the growth path.

What we're doing is that we just identify the right road map along with them, and to fulfill that, and help them to providing a better products, better offerings on their shelf, on their own channels, and to catch the customers, catch their own end-users, what I mean. In the same time, we already see that end-user stickiness on AI are growing very, very healthily, which mean that more and more users are trying whatever AI features and AI offerings.

I believe that it's not the significant right now, but in the near futures, and the consumers, when they're sourcing that smart devices, AI features or what type of AI features will be kind of the key differentiations or key factors for them to make the decisions. We are very happy to see that since second half of last years that our penetration among my ecosystem to integrate the AI capabilities we offer to their new product design and become significant and proved.

That will help us to capture the trend. That's for this part.

What we see that we'll always be kind of the early adapter and to notice the trend for the industry maybe two or three quarters ahead is that because I can see that how what type of technology my customers trying to pre-study, trying to try, and when they're trying to implement that into their new product roadmap and produce that. What we see is that in last year considered as early education for the entire industry or in most of the sectors we covered that to give them type of the right education or coach that AI will be considered as the next generation of key differentiations for any new things they build and to the market.

They need to try that or need to try to understand or to learn that. Starting from the second half of last year, that the customers, majority of the new products or the new projects that they kicked off if they try that.

Then the new products they start to offer maybe at the end of the last year or at the second [half?] of this year, bring that into market, going through a long procedure into the development, manufacturing, logistics, and to the end-user side.

That would be what we see here. It will be a very positive trend.

On the second part is for the AI usage, I like to share some things. First one is that at the end of last year, the front end, which means that those one designed the UI, user interface, and UX, user experience, are using and mostly for R&D set overall.

At the end of last year, around 40% of the codes design for UI side are doing through AI. That's the first one.

We're improving that as well. Considering that in this year, in this Q1, that AI coding capability improved a lot, we found that we can use more AI to do more terminals, including the AgentKit I mentioned for the hardware designers.

The AgentKit, a significant part of that is doing by AI. While we offering that kit, we also combine with the vibe coding tool for that kit as well, and so which means that not us design the kit for AI, the customer will be doing that through the AI coding more freely as well, and very quickly to turn that into a hardware product.

Also in the same time, the AI usage is not only used for the R&D. All our departments, including the financial, including the human resources, including the legal department, were using heavily through AI.

No matter it's improving our efficiencies on some office processing, office work processing, or also including the data analytics, the BI, and decision-makings, etc. We consider that AI to improve the efficiency in two parts: The first one is that to release some of my labors to focus more on higher value works, that's the first one.

The second one is that for the even on the coding side, on the development side, that is to enlarge our capacity that to meet the future demand growth. Because we're already noticed that while more and more AI initial developer coming in, that trend is very good one, is that in this year, we notice more and more new developers, they're not come from the hardware industry.

Which means that people starting to identify that the AI capability might be a new opportunity for new team to engage in the new smart devices business sectors that only come with a new idea and something that didn't happen in the hardware world before. Especially one is like the toy companion ones, that many of my very fast-growing customers in the toy sectors, they are not toy players earlier.

Right now we'll see including some of the, what you call, the youth market, like the Dudu the Bear is a animation batch, is a focus on the cartoon. Those batch players, they don't have that business before.

That type of industry breakthrough, a crossover players, they rely more on the AI capability usage themselves, and also they're more come with the AI initial ideas or native ideas. Not only to reduce the cost, but also use the same level of cost to improve the capacities to capture those demands.

That's what we have more priority to check out too. Like I mentioned that, the net cash flow considered as a strategic strength for the company, not only for the future competition, but also for the future opportunity.

I think that's even more important is that while the industry are going faster and some breakthrough happen, especially like the crash over happened, that we'll not hesitate to increase the investment to capture those demands. I think that will be the overall momentum, and so how we use the AI and we empower customer with AI.

What we see that we need to be a very powerful AI user, and until then, we will be able to empower customers.

Thank you.

That's all. Thank you.

Hey, good morning, management. Thank you for taking my question.

I have two questions. The number one is on the Smart Home and Robot Products segment.

I would like to know how do we think about the growth trajectory of this segment in 2026? Should we expect a gross recovery in the coming quarters?

My second question is on the AI Application segment. We are seeing that the gross margin of this segment has declined by 2.7 percentage point year-on-year in the first quarter.

Are there any specific reasons behind that? That's all.

Thank you. Yeah.

The first one is for the smart home and robot products, that's looking forward to have the recovery in the coming quarter or in the coming two quarters. Because it's a structural change, we have to make the hard decisions.

You can see that even to maintain the revenue and the gross profit growth, but in the same time we cut off some of the products. Even we got the orders, we decided we not to do that anymore because we don't like the model out there for the long term.

There is a structural hard decisions. Even we'll miss some not that good numbers, but looking to speed up to catch it up.

We have the new offering starting to taking places in Q2, and working for to catch on orders and deliver that to make it up. Either it's end of the Q2 or it's Q3, we're looking forward to get that recovery.

That's the first one for the home and robot products. For the AI applications, yes, we found a seasonal difference.

It's very interesting. That's we found that the key part is that the AI applications is relying on the usage of the end users based on the devices they're running.

The typical things that we found that maybe is that in the Q1, the unit usage is always kind of the lower seasons for the entire year. That's why that while the usage is kind of low, the service basis revenue is become a lower for PaaS.

Maybe one of the reasons is that the Q1, many of the users kind of the new users, and we'll have the new devices for the holiday season promotions. While they're starting to try the products, usually combined with some of the vacations, the usage starting to drop.

We're looking forward to see that the natural recurring on the usage side will starting to taking places on Q2. That will be the stuff.

It's kind of very interesting one.

Got it. Thank you.

All right. Thank you, operator, and thank you all once again for joining us today.

If you have any further questions, please feel free to contact Tuya's IR team. Goodbye and see you next quarter.