Tuya Inc. Price & Performance (TUYA)

A replay of this call will also be available on our IR website. In a few hours Before we continue, I refer you to our safe harbor statement in our earnings announcement which applies to this call as we will make 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. [indiscernible] Hello, everyone. Thank you for joining Tuya fourth quarter twenty twenty four and full year 2024 earnings call. In 2024, we achieved nearly 30% year over year revenue growth and reached two significant financial milestones. First, our inaugural quarterly and annual non GAAP operating profitability. Second, our first ever annual GAAP net profit The former validates Tuya us unique business model while the latter provides us with greater flexibility at the stage three shareholders equity level, enabling us to take further strategic actions These achievements strengthened our confidence in the company's future growth. 2024 was a year of unwavering commitment to AI research and development. In the second quarter of twenty twenty four, we launched two years proprietary AI large model, spatial large language model while continuing to advance on device AI.

Our goal is to leverage Gen AI to significantly enhance smart products experience, providing our customers with superior product competitiveness and end users with more valuable smart features functionalities. We firmly believe that AI IoT and cloud technologies will drive a new year of user experience and substantially increase the penetration of smart devices. Over the past year, we have almost made significant strides in upgrading Toya's unique software and hardware integrated business model. Extending beyond pass into a hardware solution model. Whether in our core streams smart home or in commercial verticals such as Bataility, real estate, mobility and renewable energy We're dedicated to providing developers with increasingly competitive hardware solutions. This allows our customers to expand their competitiveness beyond powered by 2R software capabilities into supply chain and hardware advantages. As a result, we have gained further customer recognition driving an approximately 58% ELV growth in our Smart Solution revenue stream. [indiscernible] Looking ahead to 2025, we will be fully committed to building a global AIoT developer ecosystem. This includes ongoing iterations of our AI and to our OS developer products as well as AIoT open source software solutions such as Twilio Open to build long term competitive volleys Meanwhile, we remain committed to capitalizing on growth opportunities in international markets, accelerating the development of AIoT and AI applications worldwide, and delivering long term value to our shareholders.

Allow more time for discussion and Q and A, our Co Founder and CFO, Alex will now provide more details on our business and financial performance.

Hello, everyone.

I'm Alex.

Today, I'd like to share an overview of our 2024 performance and our thoughts for the future. Before that, let me summarize the recent financial results. We wrapped up Q4 twenty twenty four on a strong note. Delivering about $82,000,000 in revenue representing a solid 27.4% year over year growth. Given the higher base for the prior year, this growth demonstrates strong momentum Our Q4 pass revenue reached about RMB59.3 million dollars up 25.7% year over year. Driven by our strong foundational market position a valuable position. Enabling rapid transmission of customer expansion and end market demand into SaaS and others revenue was about $11,500,000 up 21.1% year over year. Benefiting from the stable growth of SaaS value added services across our extensive devices base. Smart solution revenue reached about $11,300,000 growth by 45.5% year over year. Supported by robust data demand across categories such as gateways, central controls and energy efficiency solutions. So for the entire year, our total revenue reached about $298,600,000 making nearly 30% year over year growth. Our overall gross margin remains stable at around 47%. While annual operating expenses declined by approximately 10% year over year to the continuing cost [indiscernible] of the company. As a result, revenue and gross profit growth efficiency translated into efficient profit.

Leading to 7.4% non GAAP operating margin and a 25.2% non GAAP net profit margin. With GAAP profitability achieved for the first time as well. [indiscernible] the cash flow side, we generated around $80,400,000 in positive operating cash flow for the 2024. Following the dividend declared in August and paid in October, we ended Q4 with a net cash balance of over $1,000,000,000 maintaining a strong liquidity position Throughout 2024, we observed sustained growth in end market demand stable customer relationships and their increased investment in a smart product line. And the rapid agitation and adoption of GNAI and LAMs. So this drives a positive response from the consumer electronics industries towards intelligence trend. For TUYA, Our unwavering commitment to the developer platform model combined with our unique software and hardware integrated approach and customer centric product expansion strategy. So that has amplified those industry tailwinds. Helping both of us and our customers achieve solid business results. In 2024, the number of IoT PaaS premium customers growth by 11% to two ninety eight Our revenue dollar expansion rate, so DBNER, exceeded 122% at the end of the Q4. March consecutive quarters above 100%. And three consecutive quarters above 120%. Our products and services offering provide customers with all necessary technology and software to efficiently efficiently grade competitive smart devices and bring them to market the DBNER metrics reflects our continued ability to enhance our customers' competitiveness through 2U's technology leadership.

As a B2B company, our top 10% revenue contributing customers maintained retention rate of about 97%. Underscoring a strong thickness of our neutral [indiscernible] And scalable technology platform So our strategy strategically focus on key accounts has driven efficiency improvements too. Evidently by about 3740% year over year increase in average revenue per customers and average gross profit per customers. Along with about 47% increase in company wide revenue per employee. So at the same time, the scalability of 2Ying's ecosystem, our strong market positions has freed us from rigid marketing and sales experience. Allowing us to dynamically allocate resources strategically promote new products, capabilities, feature set and precisely target key markets. And expand our influence Consequently, our sales and marketing efficiency improved at about by about 40%. Year over year. In the past business, 2024 witnessed a more diverse and dynamic developer base. Contributing to solid every year growth across all categories. Our product categories structures has become increasingly balanced diversified. Align well with the trend of customer expansion, their product lines In a highly fragmented and disparate global consumer electronic market. Those widespread adoption of technology continues to drive innovation across diverse product categories this increasing variety of smart devices is fostering a more comprehensive approach to spatial intelligence.

Enhancing user convenience and comfort ultimately progressing towards the vision of a interconnected interoperable intelligence We're also pleased to see that solution business model efficiently align with the need of top tier customers. Achieving about 58% year over year growth in 2024. For instance, in response to the French government's energy, subtype, [indiscernible] were ceased and helped our French customers in becoming a among the first to meet the country's energy efficiency subsidy standard. So this incentive programs, is set up to helping millions of French households to achieve green energy saving. At this stage of smart technology development, whether in consumer electronics or in industry, specific applications, a rich ecosystem of smart devices is essential for top tier customers. This regard, [indiscernible] a significant advantage over other players throughout its expensive developer ecosystem. SMART Solutions further enhanced our ability to support customers strengthen engagement, and boost their market competitiveness. And in the same time, we remain committed to building a robust developer ecosystem At the end of twenty twenty four, the number of registered developers on our platform reached around 1,320,000 with over one point one point zero seven million SKUs of smart devices developed onto our platform. Spanning more than 3,000 product categories.

We continue to foster extensive ecosystem buying, for example, integrating with Google Home APIs to create seamless smart home experience and collaborating with Cherry to establish a new [indiscernible] [indiscernible] At the same time, we are dedicated to expanding to a global influence positioning ourselves as a reliable partner for the the customers and developers worldwide. Our hands, the home energy management system solutions has recognized in the United Nation Global Compact. [indiscernible] 20 best coffee sustainability practices in twenty years highlighting TUI's commitment to Additionally, we achieved MSCI ESG rating of A [indiscernible] ESG rating of A2. And we were included in the S and P Sustainability Yearbook China edition. And so next, I'd like to discuss two years opportunity in device and edge [indiscernible] As a technology driven company to a fully integrated in brain, embraced the GMAI and the LAMs in early twenty twenty three. In Q4 of twenty twenty four, we launched the Tuya AI agent development platform integrating all major large language models including ChatTivity, [indiscernible] [indiscernible] Amazonova and cloud, etcetera. So two years LMM agnostic approach eliminates the complexity of developing smart devices and applications from the ground up. Providing developers with a crucial middleware layer that bridges AYAM's capabilities with real world [indiscernible] developers, they can flexibly choose the most suitable AI models based on their business and marketing needs [indiscernible] Templates [indiscernible] or customer solutions solutions develop AI devices and applications.

This philosophy, in line with the 2UYA's cloud agnostic strategy, ensuring customers do not have to worry about compatibility and sustainability of cloud services, IS device types or hardware architectures. Those agnostic capability provide two year developers with unparalleled Flexibility and adaptability distinguishing us from single category solutions. Moving forward, we'll continue to prioritize AI devices and spatial intelligence applications. Focusing on areas such as audio video interactions, efficiency optimization, and decision making automations. Audio Video AI enhanced the user devices interaction by enabling advanced content input and output mechanisms well efficiency and decision making AI helping end users to optimize their smart devices and usage strategy to meet personalized and differentiated needs. Also continue to explore the application of TUI's spatial LLAMs in energy management and other spatial intelligence scenarios as to 2025 marks the breakthrough year of device and AI. We plan to integrate AI capability across all categories within the 2AI developer platform, ensuring that every powered by 2A devices is AI enabled by default in the future. Together with a global developer partner, we'll explore various innovations and scalable applications for AI device. Continuously shipping a variable global AI IoT developer ecosystem. Looking ahead, intelligence will evolve through the integration of software and hardware.

Construction differentiated scenarios throughout interoperable smart devices and meet their customized needs of individuals, households and spaces. [indiscernible] in penetration driven phase. With a vast and promising total addressable market, to achieve sustained growth will focus on the following key areas. The first, we continue to expand the global market penetration. We leverage a combination of PaaS, SaaS and Smart Solutions to deepen our growth reach particularly in Europe, Latin America, [indiscernible] Asia Pacific region, while increasing customer use cases For the large enterprise customers, we offer CUBE our smart a private cloud solutions to help them to build secure and scalable enterprise level smart platforms. Second, advancing the AI device and applications we're committed to leverage GMAI and OEMs to significantly enhance smart product experience. Driven product competitiveness [indiscernible] the end users. We're continuing to innovating across high potential markets such as smart companionship, smart outdoors, smart energy and smart spaces. Complementing and accelerating smart devices penetration by AI applications. Third, throughout our integrated hardware software SPARC solutions, we are helping top tier customers to speed up their product launches and establish differentiated competitive advantages across different category and regions directly increased end market penetration and delivering a greater and more sustained value.

Fourth, maintaining a customer centric approach. We aim to serve high quality core customers efficiently supporting their business growth increasing customer stickiness and repeated purchases and ultimately enhancing our operation leverage and efficiency. Last, to continue to build our global developer ecosystem, we continue to integrate and refine to use AI agent platform empowering developers worldwide to create customized AI devices and scenario basis applications easily Additionally, we'll leverage GMAIL tools to improve developer to improve the development phases efficiency as well. So finally, let's address some frequently asked topics from the capital market regarding to the internal operational efficiency. The share based compensation expenses and dividends. Throughout the 2024, our total headcount has remained at about fourteen fifty employees. Reflecting about 12% reduction from 2023. And by Q4 of twenty twenty four, our average revenue per employee has exceeded thirty twenty twenty two levels by more than three times.

Over 70% of our team consistently consists of R and D technology, development and production so who drive rapidly product integration across TSYS business lines and prepare for the next generation of opportunities. Notably, 2EI's revenue growth is not dependent on heavy investment in sales and marketing. [indiscernible] which has been key factors in a stable and continuous improving [indiscernible] We are committed to further improving the operation average while our net profit structures and the quantity will become even more sustainable and organic. Regarding share based compensation expenses, the current quarterly accounting expenses primarily is turned from the legacy granted issued And our [indiscernible] in a higher evaluation years ago. Which has become amortized in [indiscernible] according to the best in schedules. Those expenses are unrelated to any recent equity grants. As those legacy awards are gradually [indiscernible] SBC expenses will substantial decline starting in 2025. Leading to a visible reduction in the accounting impact in our income statement. An improvement that's already evident in Q4. Of 2024. So earlier this day, ahead of this earnings call, our Board of Directors approved the second dividend 2024. Totaling about US37 million dollars Given our robust non GAAP margin Normally, non GAAP metrics reflect the direct results of operational decision making.

Excluding external facts related to our business model. [indiscernible] those non GAAP margin and strong financial positions is what we the base we offer for the dividend. With over $1,000,000,000 in net cash and seven, consecutive quarters of positive operating cash flow from Q2 of twenty twenty three. We believe that 2Yuan is well positioned in sustained and long term growth throughout its competitiveness mode and while all also rewarding our shareholders. Who has demonstrated [indiscernible] we remain committed two driven forces in both our global business and capital markets.

Overall, 2024 has been a profitable year for TUYA. Marking our first year of operational [indiscernible] the execution of our AS strategy and the breakthrough in our shareholder structure. During this strategic update, we have been fortunate expenses multiple dimensions of progress and transformations whether in achieving operational profitability, [indiscernible] our global footprint optimizing our international shareholder base. Notably, our partner with 65 VP our subsidiary of Tematic, the strategic investors has positioned them as Tuiya's largest institution shareholder Tuya. Furthermore, our achievements has been strongly recognized by the market in early twenty twenty five.

I believe this success is rooted into our global presence. Its unique hardware and software integrated business model and its strategic focus on the global developer platform. Thank you, everyone. Operator, now begin with the Q and A. Thank you. We will now begin the question and answer session. As a reminder, will now take our first question from the line of Timothy Zhao from Goldman Sachs. Please go ahead, Timothy. Thank you. Thank you management for taking my question and congrats on the very strong, we ended the year of 2024. And I think your presentation is very helpful. I have two questions here. One is that I think on AI in patent and your Smart Solution business, could management further elaborate on what kind of usage scenario that you are seeing Thank you for the question. So for the AI, what we see here is that this will be a really good year for the AI and we'll consider it as a first year. That we can really turn the AI devices into reality. What we see the priority of the AI opportunities on the device side, so we'll start with all the audio and video interaction devices which means that to bring a new way to have the people interact through the audio and video.

To the device. So that will be one thing. So no matter is some use cases where it showed that in in the last quarters like the pet feeders, like the bird feeders, and the pet related [indiscernible] and and some control panels on the wall. With a screen as well. So that will be one thing And the second thing is that all those type of [indiscernible] type of devices that need complex decision. So one significant use case is energy solution. Because for dozens of variables from different type of devices and from the outside factors like the weather, like the utility data, etcetera. And then make some adjustment and automatically all very And [indiscernible] making new decisions to operate the device in different ways. So the AI definitely will help in that part. So that will be something. And also what we see, it's a very interesting new type of staff will be the all type of that so we found that the kids will be the perfect adapter for AI because they don't have any stereotype of about any existing technology, so they grab anything as a fashion news. So they can they just easily tap in.

And so since then January after the CES work really got plenty of customers reach out to us, bringing different ideas that how they can integrate AI. Into toys. That will be some of the when I see incubating categories, we stand to catch up. But I believe there will be more booming stars throughout the entire year or even in the next couple of years. And while the AI starting from the very fundamental stuff like the LAM, someone can bring an easier approach to the to the market to activate all the new ideas And so while the back the battery become low, and you have thousands of thousands of companies [indiscernible] So that will become a robust market of what we're looking for to do. So there might be a thousands of different type of things That's it.

Timothy, do you have any follow-up questions?

Sure. Can you hear me well?

Yes, we can. Please proceed.

Great, Grace. Sorry about that. Yes, I missed my second question is regarding your margins. Just wondering, I think with the AI enhancing the demand for IoT, what is the unit price like trend over time and how that will impact your margin? I think it's more on the gross margin level. And can you also talk about your OpEx given I think you have been investing on AI and operating efficiency on the OpEx level has been quite high. Just wondering how do you think about your operating leverage into 2025?

Yes. So the first one is that the AI will be still in a very early stage.

So we're not making a final decision or the didn't make up the final call. About how we're going to commercialize the AI. So we tried different type of commercial use cases [indiscernible] In one word is that we're starting to deploy the AI into all three business models we have, including the PaaS, the SaaS and Solutions So we offer the AI in different way based on what type of [indiscernible] So that would be one thing. [indiscernible] sometimes it will be a new offering that we provide to the market. So we're re pricing that as a new product for that part, The margin will depend on not only the cost, but also depends on the demand This depends on what type of reasonable pricing we'd like to put into the market to scale it. And another part is that some of the AI, if we think that will be very, very we want to put that as the default features, [indiscernible] old customers to improve their competitiveness So we'll integrate that into our existing Pass solution two. So the margin impact, I think that in the short term, I don't have visibility for that because the scale may not be growing that significantly to influence our overall margin. [indiscernible] will be smaller pie at this moment.

And in the long run, I believe that AI will bring more values but we will not we will not committed to rent because for sure that the focus for us, I mean the priority for us is always scalability. Yes, that'd be one thing. And second thing about the old packs, so Like I mentioned earlier, we're starting to we're starting to invest in the AI once the GMAI occurs back to early of twenty twenty three. So it's not a new investment for us. Throughout the past two years. We're ready relocate our resources internally and buy improve our talent structures, in some rows, to be capable of building AI. And already, So right now, there are a lot, lot of departments in my company The whole AI ready.

Now, so which means that I don't have to recur the team to rebuild things all over again. It's already been there. And so for this year, we will slightly increase some of specific application [indiscernible] by the demand of the market, [indiscernible] And also in the same time, we're looking forward to see will be the right opportunity or right type of way that we can market in a better efficiency. Since that it comes with a new concept, So better make some noise. But that type of impact we'll say that it's very controllable. So I'll say that improve the OpEx significantly. It will be in a very management level.

Thank you. That's very helpful.

Thank you.

We will now take our next question from the line of John Roy from WTR. Please ask your question, John.

Can you hear me okay? Yes, I can hear you, John. Great, great. Excellent year last year, very well done. So I was wondering about SaaS and its growth prospects Do you see that as something that could really change the landscape or is that just more of an add on Yes, that's a good question. Thank you for that. So the first one is that SaaS is based on our deployment of the I mean, on the base of the total deployment of our devices, So that will be Later, business models versus the first whether it's in the past, which means that we need to enlarge and scale the past and on top of that, we can do more SaaS. That would be one thing. And second thing is that We're facing Structure improvement in a SaaS model which means that we are we try to increase the portion of the recurring models in the SaaS type not only the software base, but also the recurring software base.

That will be the second thing.

And so for that part, so I'm not worried about the growth. [indiscernible] pay more attention On the thickness of the customers, whether they can use that type of film, as long as they can use that. So the payments, the continually annually [indiscernible] Will be our very strong base bus.

That will be the second thing.

The third thing is that within the past, so there will be some one portion of that is for the commercial software. So it's not the it's not the consumer facing one. So for the commercial one, in the past three years, the major market we're trying to do this business line is in Asia and China. So because that's within COVID period, so which means that it brings us difficulty to be able to incubate new business across the global basis. And starting from late last year, we're starting to duplicate that use cases in different countries We try to bring that into global market. We really have some really positive progress there no matter in Latin America. Southeast Asia and Europe too.

So for that part, right now, we are approaching to a bigger total addressable market on the regional basis And we've already found the duplicative applications or products that proven to work out and we already have a customer base that's applying with recurring models. So for the SaaS, I believe there will be our non time growing business line We're not looking forward to any short term surprising or short term significant improvement. But for the non run, if after five years, that will be a very, very joyous thing for us.

Great. Thank you for that. So, obviously, the dividend is very nice and you have a pretty significant cash position. What is your view on the acquisition front? Is that something you're actively watching? How are the prices in that market?

I think that I'm thinking of you mentioned about MMA, right, MMA. Right. [indiscernible] Yes. So MMA is always an open option for us. So we keep screaming and what type of extension what type of companies or partners can be our extension either to extend our scope of coverage of different type of scenarios or to be a [indiscernible] A more vertical solution provider for specific industries. So we keep screaming on that. [indiscernible] yes, so I think that's an option for us. I think the key part is that the first one is that No matter with or without acquisition two, And those guys should be our developers. [indiscernible] the first priority is to have a very strong global developer ecosystem. I think that will be our major [indiscernible] In the same time, anyone maybe within the ecosystem that can show a better potential no matter like I mentioned, it's horizonally extend our scope or vertically that improve our vertical industry insights So for that part, we can easily identify that. And we'll keep for anyone to help us to fund some interesting target too. Anyone introduced me, Will do. Thank you so much. And again, congratulations. Thank you.

We will now take question from the line of Kai Sheo from CICC. [indiscernible] So this is Ben from SDC's research and congratulation for the strong quarter. So my first question is regarding the IoT parts. So what's the current downstream demand for IoT parts and which countries and categories you think have more potential and how can we gross margin? And the sixth question is regarding the high quality customers. So we see the customer the number of customers have very strong growth.

So what do you think the further potential for the company to further expand the high quality pass customers in the future? And VeoGen AI help in the acquisition of more high quality customers. Thank you for the questions. So the first one for the past, we can found in our our business, it's very it's very strong showing that We have a very balanced structure on the business. So no matter is on the regional side, or on the category side. So right now the business comes from over 3,000 categories on the Twilio platform.

So we didn't rely on any single category. So which means that we're quite diversified. In the category side. So that's what I mean. That's whenever or whatever type of new booming stars in the smart devices market occurs [indiscernible] there are someone making that into your platform. Into your ecosystem. Not from somewhere else. So for sure that we will cover any new opportunities And on the regional side, right now, we're very dense too. So the largest regional market, Europe, only covers slightly over one third of our 35 of our business. And on the end user demand. And for all other countries, North America, Latin America, Asia and Australia including China domestic. So they are quite balanced. So we didn't rely on any single region market too. And which bring us a very good barrier or very good protections for any type of change happening on the right now the the geographic scenarios. So that would be one thing for the past. And For the second question, For the second question, I think the major customer here is that right now, for the first ten years of the establishment of this company, [indiscernible] larger portion of the ecosystem come from the consumer field.

So what we found here is that two extensions on the customer side.

The first one is that for the past three years, we have more and more customers and use cases come from non consumer fields. No matter commercial one, industrial one, and that type of things.

And also in the company, we have new business lines just focused on that part. So that would be one thing. Will be total extension and some new type of customers from that part. Including the telecom carriers. So we've got And we'll continue to have new telecom carrier partners coming in. So that would be one thing. And the second thing is that [indiscernible] Exceeding from the device based stuff, in the near futures, we believe there will be more and more spatial solutions being needed. And the spatial solution providers usually be a different type of company too. And for that, no matter is for the like the property manager, warehouse manager, logistic, So those guys manages some type of space and the house the building the warehousing, some asset too. So those type of solutions before AI technology happens, they don't have a comprehensive write off solution to carry the pain point. And while the spatial models and spatial solutions we designed [indiscernible] That it can help us to open another So that will be two what we call the new Grassman plus. [indiscernible] Thank you. Kai, do you have any follow-up questions?

That's all. Thank you.

Thank you. Our next question comes from the line of Yang Liu from Morgan Stanley. Please ask your question, Yang. Thank you for the opportunity to ask questions. Two questions here.

The first one is on the outlook of the revenue structure. Because we observed in the past few quarters that LG SaaS and other growth recovered meaningfully. And while the smart device distribution growth has been largely volatile, So this kind of change makes change is very critical to the overall gross margin. So I would like to hear your view in terms of the three business lines revenue growth rate going forward and whether it will have meaningful impact on your blended gross margin? That is my first question. And my second question is regarding the [indiscernible] computation in the AI for the IoT solution provider. Do you see more hyperscalers who would like to develop IoT hardware themselves or think it is still or is it a booming market with a lot of smaller product development companies in the market as we are kind of continue to add a lot of value to those customers. Thank you. [indiscernible] our three business models because they come in with a two, three different approach to the customers. So I mean overall, the margin level of each of the business models will be kind of [indiscernible] So for the past, we think we believe that So the overall margin for PAS will remain at around 45%.

We think that will be reasonable.

Or slightly over 45 And for the SaaS because it's software based, think that over 70% will be remained. And on the solution side, because we'll follow the hardware Bruce So while you have scale the volumes while the customer scale the volume too. And sometimes you have to subsidize some of the profit to the customer. So we believe that on the solution side, maybe by we scale it into [indiscernible] We double that or we scale that in a bigger base. That's maybe the margin of solutions will slightly decline a little bit, but not that much. We think that we'll continue to maintain the solutions margins over 20 or 21.

So that will be overall the margin or the nature of the margins underneath each of the business models. And putting that together, and what we find is that so the past will continue to provide a stable growing base. For the entire TWIA business. Because that will be essentially everything that the customer need to procure. [indiscernible] and SaaS like I mentioned earlier to [indiscernible] we think that the SaaS will be more long term [indiscernible] curve for that. So we're not incurring So it continues to enlarge the device base and the customer base and we deploy those services on top of that. And convert more of them to pay the recurring revenue. That will be a long term journey. But remaining similar growth with the past, maybe that will be that we are expected to And solution, because solution comes from my past customers, they're calling out for a solution rather than the development toolkit from the past nine.

So solution is that we convert to more and more customers' demands directly from [indiscernible] So for that part, the solution might go faster And while solution become a larger pie of my total revenue, [indiscernible] general gross margin rate gross margin At GPM, we believe that in the long term, we'll slightly [indiscernible] a little bit further, I think that would be reasonable.

Mean the margin Because I have a bigger part of the solution side, it will come with a lower margin compared with the other two business models. So for that part, We think that will be good. But that's not a problem for us. I believe that's the key to evaluate the gross margin is that you need to break down each of the business model. And tell the value of that. Whether [indiscernible] reflect to the right margins as that business models and I need to compare that business model to the industry level. So the SaaS is compared to other SaaS company or other SaaS [indiscernible] and the pass is further past due. So [indiscernible] So it's a very stable business model. And structure will change slightly.

Thank you. How about the second question? Which is the outlook for the competitive landscape in AIU for the IoT?

Yes, I think that I think I really covered part of the question, right? I think that right now, the good part for AI is that right now is in a very positive and active Momentum the market, not for capital market, but I mean it's for the hardware industry.

And so we have a lot of movers as either designers or manufacturers or solution providers.

And so right now, we process three. Right, like I mentioned, it's either the video, audio interactive, and or the decision making analytic one. And the toy. But we believe that will be thousands of at least thousands of more vertical use cases we're coming from. It's very early stage and this year is that we got so many players on the field. Try different type of ideas. So what we need to do is that we offer it in a tool kit to easily turn their ideas into I think that will be the unique value that Twilio provide. And also that's why we have a such a successful developer ecosystem. So so let them get away from do everything in house, We offer them a shortcut to testify their ideas. I believe that this year will be kind of very starting line for the AI device. Can find millions of new devices out there A lot of people try in and some will prove to work it out and starting to scale that. Maybe some not, they redesigned that. So yes, I think that will be the momentum we're looking forward to see. And so what we do is that suggest like I mentioned, we continue to lower the barrier for anyone trying to get in.

Thank you.

Thank you.

There are no additional questions at this time. I'll hand back to the management team for any closing remarks. Okay. So you again for joining our call tonight and this morning. If you have any 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 call. So have a good day. Thank you.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.