Tuya Inc. (TUYA) Q4 2022 Earnings Call

Tuya Inc. (NYSE:TUYA) Q4 2022 Earnings Conference Call March 1, 2023 7:00 PM ET

Company Participants

Reg Chai - Investor Relations

Jerry Wang - Founder and Chief Executive Officer

Jessie Liu - Chief Financial Officer

Conference Call Participants

Yang Liu - Morgan Stanley

Timothy Zhao - Goldman Sachs

Li Mingran - CICC

Operator

Good morning and good evening, ladies and gentlemen. Thank you for standing by and welcome to Tuya Inc. Fourth Quarter and Full Year 2022 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to the first speaker today, Mr. Reg Chai, Investor Relations Director of Tuya. Please go ahead, sir.

Reg Chai

Thank you. Hello, everyone. Welcome to our fourth quarter 2022 earnings call. Joining us today are Founder and CEO of Tuya, Mr. Jerry Wang; and our CFO, Ms. Jessie Liu. The first quarter 2022 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.

Jerry Wang

Hello, everyone. Thank you for joining our fourth quarter and full year 2022 earnings call.

In 2022, we experienced our first year of revenue decline due to inventory destocking as consumer product end market turned down after 7 years of hyper growth since inception. Our 2022 full year revenue decreased by just over 30% to $210 million. In the fourth quarter, end market consumption was sluggish, totaling revenue to decrease by about 40% year-over-year to $45 million. Notably, industry healing are placing greater demand in our business execution, operational efficiency, management and team development. We responded to macroeconomic adversity with a series of cost control and efficiency improvement measures. These measures span from product offerings to operating procedures to efficiency improvements, enabling us to sustain the 43% gross margin, while narrowing the non-GAAP net loss by 29% year-over-year from $109 million in 2021 to $77 million in 2022.

Additionally, our Q4 non-GAAP net loss narrowed by 83% year-over-year to $5 million from $31 million, net cash used in operating activities was about $140,000 in Q4 and the $70 million in full year 2022, which was down 44% compared to the $126 million in 2021. These improvements reflect our determination and confidence in the long-term growth prospects of the industry. We have also repurchased a total of over $53 million shares in 2021 and then repurchased a total of over $59 million shares in 2022.

In 2022, we sustained our commitment to a customer-centric approach and implemented a strategy to better focus on large customers. Notably, we formed our sales triangle system back-to-back customer acquisition and customer service system that combines our efforts in sales, solution architects and customer deliveries, enabling us to provide targeted services to customers with diverse needs and allocate customers more support resources more efficiently. As China started lifting COVID control measures, our management team and major department leaders quickly began visiting customers and participating exhibitions worldwide.

During the year, we acquired more than 1,100 new brand customers around the global, including notable customers such as Honeywell, Smartwares from the Netherlands, Kakao from South Korea, Ohad from India, Polytron, a home appliance brand on the Indonesia Tier 1 foundation and many more. Compared to the acquisition of over 2,000 brand customers in 2021, the 2022 customer wins reflected recalibrated focus on the qualify of new customers in our customer acquisition efforts. Our penetration rate is relatively good among limited number of large-scale global brand customers. We intend to partner even more with brands that are either large today or have high long-term growth potential. We will leverage our technology leadership and our unique integrated upstream and downstream ecosystem to develop win-win relationships with customers based on their scale and influence.

We made tremendous efforts to reduce costs and carry out efficiency management across many functions such as refining R&D projects, controlling cloud costs, managing market expenses and lease acquisitions, travel and entertainment expenses, inventory and fixed assets to improve our operating efficiency. Additionally, in early July 2022, we completed our listing in Hong Kong, which further complemented our international business strategy. This move has strengthened our position in the international capital market and has also helped to provide better protection for our shareholders.

To better understand our business model, competitive advantages and competitive landscape, it is essential to have a comprehensive understanding of the events and chance shaping our sector since the COVID outbreak in 2020. Therefore, I will briefly review the past few years and then share our outlook.

During 2019 to 2021 by leveraging our strong software capability and robust platform-based delivery experience, we became the largest IoT development platform in the industry and have benefited from the strong industry tailwinds. Our total revenue achieved a robust growth during these 3 years tripling from $100 million in 2019 to $300 million in 2021. In the second half of 2021, a supply demand mismatch emerged in the consumer electronics sector due to the COVID-induced global inflation, rising shipping costs and supply chain disruptions. This mismatch had a significant impact on business plans across the value chain and was further magnified by global events such as the Russian, Ukraine conflict and energy shortages in 2022. Downstream inventory piled up throughout the industry, causing a high cycle of destocking under high inflation.

According to industry consultants, CIC, global shipments of consumer electronics LT products, such as smartphone products is expected to have decreased by 7% in 2022 versus 2021. Looking at upstream maintenance to downstream brands and retail channels, everyone is struggling and adjusting. Our customers are increasingly conservative resulting in low visibility in near-term demand trends. In the Q4 holiday sales season, MasterCard data showed that United States holiday sales of electronics products declined by 5.3% year-over-year, a significant weakening versus the 16.2% gain in the previous year.

After the end of 2022, we had discussions with many of our co-brand customers and channel partners who told us that the radio market in Q4 remained very weak. Many brands adopted cautious sales strategies in the fourth quarter instead of aggressive promotions during the holiday sales season as they may need to offer more discounts to stimulate consumer demand, but this may only be limited incremental purchases. At the same time, average discount represents a tangible loss to them. In this context, we need to provide customers with more valuable and cost effective products and services.

Based on our product augmentation strategy, which involves the development cost-effective products and services based on our product augmentation strategies the development and beliefs of more valuable, enhanced and integrated software and hardware product solutions, our overall average selling price of [indiscernible] has increased by about 11% year-over-year in 2022.

These challenges are leading other IoT players to rethink their positioning and transform their strategies. Technology giants such as Google, SAP and IBM are reported to be shutting down their IoT services in 2023, while Ericson may sell its IoT business in 2023. Furthermore, we have noticed that some private IoT intelligent service providers are thinking to sell their companies due to the financial constraints. In contrast, we had a net cash balance of over $950 million at the end of 2022. As an R&D-driven asset-light technology company, we have no interest bearing debt, bank loans or any long-term asset capital commitments reflecting our strong capital position.

Taking a long-term perspective and looking at the industrial landscape, we are confident about the future growth prospects for IoT. According to the comprehensive analysis of the data from Euromonitor, CIC, BCG and other well-known research institutions, the current penetration rate of IoT is only about $0.04 to $0.05, a very low level, perhaps slightly higher in home and commercial uses. On average due to its daily attributes, although not as frequent or necessary at crossing of food, it will certainly continue to iterate and further penetrate people’s daily lives as economies recover and society growth. History shows that people always strive to create a better light through continuous competition and innovation. Once the penetration reaches a certain stage, it usually takes a period of time to reach the next brief-through point for qualitative change. It is our typical example. In addition, the IoT consumer electronics industry is also extremely fragmented, which is both a challenge and an opportunity to build competitive barriers.

Against a backdrop of emerging industry opportunities and a more favorable competitive landscape for us, we are primarily focused on three areas to navigate the industry cycle in 2023. First, we are committed to our IoT developed platform model. We will refine our business model to drive the digitalization of the consumer sector, the commercial sector and then the industrial sector. The essence of the enterprise services is our ROI and the fragmentation of IoT sector can measly end prices to foray into a cycle of analyst investment. Therefore, we will leverage the developed products and platform services to address the energy efficiency challenges in the long-term product categories. And as penetration rates improve, our capabilities to cover multiple categories, used cases and interconnections will become increasingly competitive.

Secondly, we will boost the growth and penetration rate of our key product categories through collaborations with upstream and downstream partners and ecosystem partners, continuous improvements in the organization and performance of our sales triangle system and our outgoing technology iterations of these key product categories. For example, in 2022, we assisted a leading North American electrical and license customers in reducing the development threshold of matter. This allowed them to obtain matter certification faster and solved all of their customer technology issues and high R&D investment challenges in a single stop. With synchronized latest solution and the technological iterations from Tuya and CSA to our customers and assist them in planning their product roadmap at an early stage. As a member of the CSA’s Board of Directors, we are well positioned to collaborate effectively with our upstream and downstream partners to promote and streamline the implementation process of media products. Such capabilities enable us to help our customers cease opportunities, which will be attachment to the strength of our Tuya ecosystem.

The third one is technology innovation centered on our CubeSmart private cloud which complements our existing IoT PaaS product system. Cube enables us to address the need for independent control of our IoT platforms for large-scale conglomerates, such as our Fortune 500 customers. In addition, Cube also allows customers to access the full range of capabilities of our IoT development platform to build out their IoT business faster with improved sustainabilities and value creation. In the past year, we won a number of top clients from different regions and industries and completed several major benchmark projects with Indonesia Telecom and China Gas Corporation. This year, Cube will continue to generate long-term collaboration opportunities with large key account global customers.

Finally, despite implemented many difficult measures this year, our longstanding core traditional product lines still demonstrates strong resilience. Currently, structural and expense optimizations have not substantially affected customers path service delivery, product developments or technology innovation capabilities in each product line. While highly motivated by these encouraging results and our relatively lean operations, we are confident in continuing to pursue our goal of achieving breakeven as soon as possible as one of our top priorities, while carefully nurturing and investing in new potential product lines with strong value propositions, such as gateways, voice control products, outdoor travel products, consumer level expenses and non-consumer products with a balanced approach.

With that, I will now turn the call over to CFO, Jessie to provide everyone a closer look at our operating and financial performance.

Jessie Liu

That concludes the remarks by Jerry. As I review our results, please note that all amounts are in U.S. dollars and all comparisons are on a year-on-year basis unless otherwise stated. For the full year and fourth quarter of 2022, our total revenue was $208.2 million and $45.2 million, down 31.1% and 39.6% respectively. Within that, our IoT PaaS revenue was $150.2 million – $152.9 million and $32.6 million, decreasing 41.5% and 47.4% respectively. Please note that Chinese renminbi experienced significant fluctuations in 2022 and weakened against the U.S. dollar.

At the start of the year, the exchange rate was RMB6.38 to $1 as by the end of the year, it has decreased to RMB6.96 to $1. As a result, the revenue earned in renminbi converted to approximately $8.5 million less than it would have if the 2021 average exchange rate has been used. SaaS and others revenue in the full year of 2022 increased by 6.6% to $29.8 million from $18.6 million in 2021, sustaining a strong growth momentum. The growth was mainly driven by our continuous efforts in offering value-added services and the various software products with strong value propositions for our customers. However, it is worth pointing out that we have implemented our customer focused and key account strategy in 2022. As a result, we will be investing more resources proactively on high-value customers. Due to this strategy, certain services, including specific value-added services such as OEM App and the customization services may experience a slower momentum compared to past quarters.

Our overall gross margin slightly increased to 43% in 2022 from 42.3% in 2021, demonstrating the resilience of our value proposition despite facing headwinds. Our IoT PaaS gross margin slightly decreased from 42.4% in 2021 to 41.1% in 2022, including an active 2.4 percent points impact caused by a $3.7 million accrued inventory allowance for certain slow-moving IoT chips and the raw materials during the year.

Now, let’s move on to activities and the related expenses. Please note that we are presenting our operating expenses on a non-GAAP basis by excluding share-based compensation expenses from our GAAP numbers to provide better clarity on the change of our actual operating base expenses, so that you can review performance in the same way as our management team.

In the full year of 2022, non-GAAP total operating expenses decreased by 23.1% to $188.6 million from $245.3 million in 2021. For the fourth quarter of 2022, non-GAAP total operating expenses were $33.5 million, down 46.4% year-over-year from $66.3 million in the same period of 2021. At the end of 2022, as a result of our internal cost control measures and the resource realignment initiatives, we reduced our team size by approximately 47% to 1,835 compared to the end of 2021. This would result in an effect of direct financial savings of more than $18 million a year. With our team restructuring optimization, we paid a total of over RMB68 million in one-time additional severance payments and office lease termination and the restoration cost in 2022. Excluding the impact of these one-time non-recurring expenses, we reduced our non-GAAP operating expenses in 2022 by approximately 27% compared to 2021. Additionally, the fourth quarter of 2022 also marked our 5fth consecutive quarter with a substantial decrease in our non-GAAP operating expenses.

Q4 non-GAAP operating expenses were nearly 50% lower than the highest point in the third quarter of 2021. I will name a few examples of our initiatives here. In 2022, we streamlined our R&D, improved our efficient evaluation procedures, and implemented and upgraded value management initiatives. Since then, around 100 major projects have been submitted and reviewed covering areas such as core program upgrades, new program development, high-value revenue generation and capability expansion projects from our core product lines such as gateway, central controls and new energy will also undergo strict efficiency evaluation and review.

We successfully kept our cloud infrastructure costs within the expected range during 2022, and will implement a series of follow-up measures to encourage our R&D team to carry our technology iterations and structural upgrades for more efficient uses of cloud services. On the marketing front, our finance team worked closely with our business divisions to include multiple rounds of expense analysis. Together, we faced challenges and executed optimization and improvement plans for several exhibitions where we built boots, our internal professional design team provided substantial support among, which the maximum reduction of budget cost of boot construction in a single event reached about 35%. We are also targeting companies in 2B software, enterprise services and technology sectors as benchmarks. To set up our marketing budget at an industry average level and to make every dollar we spend worthwhile.

In addition, we have raised the bar on our employees’ business travel requirements. They are now required to provide clear explanation of the purpose duration expected outcomes of the chips and undergo a review of afterwards, to ensure that travel costs are creating value and not furring out of control. Additionally, every team leader is responsible for these outcomes. One more case for asset management we successfully disposed about 1,400 idle laptop safe from headcount optimization at price 2x their amortized book value. Recovering millions of cash in RMB. With that, our non-GAAP loss from operations narrowed by 15.6% to $99.2 million in 2022 from $117.5 million in 2021.

Our non-GAAP net loss significantly narrowed by 29.4% to $77.2 million in 2022 from $109.3 million in 2021. Our non-GAAP net loss improved more than our non-GAAP loss from operations in the full year of 2022 mainly due to our interest income. In 2022, due to work executed treasury management, we generated over $22 million in interest income during the year with nearly $10 million in the fourth quarter alone. We are fully committed to reducing costs and enhancing efficiency, which has significantly contributed to our ability to minimize losses, especially during periods of revenue decline, such as the fourth quarter of 2022. As a result of these initiatives, we were able to achieve our lowest quarterly non-GAAP net loss of $5.2 million since the start of 2019.

Moving on to balance sheet and cash. Inventory and accounts receivables, which are our main assets other than cash sub sequentially declined quarter-over-quarter in 2022. These decreases resulted from our active efforts to minimize operational risks such as inventory depreciation and credit losses as well as improved operating capital efficiency while ensuring business delivery as well as upstream and downstream corporation. Our net cash used in operating activities for the year 2022 decreased by 44% to $70.7 million from $126.1 million in 2021 and by about 99.7% to $138,000 for the fourth quarter of 2022 from $53.2 million in the same period a year ago, thanks to significant reductions in operating expenses.

Admittedly, the improvement in cash flow was affected by seasonal fluctuations in operating capital. Nonetheless, our cash flow significantly improved since Q2 2022, and is not at a much more controllable level. As of December 31, 2022, cash, cash equivalents and short-term investments that were mainly in time deposits totaled $954.3 million, up $8.4 million quarter-over-quarter and down $111.8 million compared to the end of 2021. primarily due to operating cash outflows and $48.7 million in payments for share repurchase during the year.

As we look ahead, there are a few important factors to keep in mind. But inflation remains high and the consumer sentiment continues to be weak and fragile. Additionally, we recognize that downstream players we need to make efforts to reduce their inventories. This is our anticipation that the industry outlook for the depend primarily on downstream destocking. If the downstream channels can be stock smoothly and considering that 2022 with a low basis yet, we may see a possible rebound in the second half of the year, assuming no other unprecedented events occur. Nonetheless, there are various factors that may lead to uncertainties. And accordingly, we remain committed to executing our determined strategies while continuously monitoring the market environment.

With that, operator, we are now ready to take questions. Thank you.

Question-and-Answer Session

Operator

[Operator Instructions] The first question is from the line of Yang Liu with Morgan Stanley. You may proceed.

Yang Liu

Thanks for the opportunity to ask questions. Just you mentioned, the downstream demand will be a key in towards for a potential rebound this year. I would like to follow up on this to – could you please share based on your observation, what is the overall inventory level at your core customer side. And based on the current best guess, why should we see the demand result this year?

Jessie Liu

Okay. Thank you, Yang. As an upstream company, we won’t be able to accurately predict the downstream inventory levels, including OEMs, brands and retail channels across the globe. However, as far as we know, we can share some information from both the market consumption and the inventory aspects. Starting with a bit more information on the consumer industry regarding U.S. consumers. Jerry has mentioned, the fourth quarter credit card consumption data that was not very optimistic. As for retailers, Best Buy, which mainly sells consumer electronics products talked about the trend of a 15% decline in sales in November compared to October when it announced its Q3 performance at the end of November. For brand, well-known vertical leading brands such as iRobot and Arlo in United States and a lot of others, either experienced a decline in Q4 revenue all reported weak sales performance, even with increased discount efforts in retail channels. In other typical consumer product verticals such as smartphones, according to a report by media, global smartphone shipments in Q4 2022 fell by 15.4% compared to the same period of last year. The top 5 global brands, including Apple, Samsung and Xiaomi all experienced different degrees of decline in shipments, ranging from 13% to 29%. In China, COVID cases picked between late November 2022 to early January 2023. This, coupled with spring festival holiday significantly slowed down economic activities in the country and had a substantial impact on electronic product consumption and overseas supply.

That news that offers no relief is that the warm weather observed across very parts of Europe this winter has partially elevated the energy crisis. However, natural gas prices are still at a historically high level, and the current expectations in the consumption market remains subdued. We were seeing similar regional trends from activations of smart devices on the end market. Since November last year, the U.S. segment has been slightly down year-over-year. The China segment has continued to decline. The European segment has delivered a year-over-year growth rate of over 20%, and the remaining regions have a combined double-digit year-over-year growth rate.

In terms of consumer behavior, each consumer is weighing their options, especially considering the significant impact of inflation on necessities such as food, fuel and accommodation. People may be interested in new technologies and a chance such as VR and AI, but inflation and a weak economic environment have a significant inhibitory effect on discretionary spending. Therefore, purchasing products that have immediate practical value or higher cost effectiveness is particularly important for everyone. As such, consumers’ brand owners and the retailers continue to adjust under high inflation to find a new balance point. In the first 2 months of 2023, we continue to see flat performance in the lighting category in terms of end market consumption and activation. While there has been a rebound in electrical products related to electricity and energy savings, sensors, security and home appliance products have performed relatively stable year-over-year.

In terms of downstream inventory, the pace of destocking is mainly dictated by the retail channels. According to Morgan Stanley’s research report at the end of last year, Inventory destocking in the first quarter of 2023 will move from the retail stores to the retail distributors. Brands are expected to return to a relatively normal inventory level around late Q2, followed by the OEMs in the second half of 2023. This is basically consistent with our estimation that we shared with everyone during last quarter’s earnings call. After nearly two quarters of industry-wide destocking efforts in the second half of 2022, our brand customers currently have reliance in their perceptions. Some brands in certain verticals, such as more home appliances, I believe that the inventory pressure has somewhat elevated.

And the supply chain sentiment is improving, resulting in a rebound in regional sales. However, we have a group of general brand customers who indicated that inventory pressure remains high and that they need to continue monitoring the situation. The downstream consumption environment still isn’t strong enough for everyone in the value chain to start placing their orders aggressively yet. As for OEMs, the inventory of some core OEM customers is still high. In fact, one of the customers with higher inventory level is still maintaining an inventory close to 40% of the annual procurement volume from us in 2021, when the upstream and the downstream players were aggressively stocking up. However, customers currently are starting to perceived that the downstream is entering a more orderly destocking phase.

So in summary, market consumption varies widely by region, with Europe performing relatively better, while the U.S. has yet to see a rebound from our perspective. The pace of overall inventory destocking will be relatively slow in the first and second quarters. Additionally, due to the relatively higher comparison base in the first half of 2022, we expect industry performance in the first half of 2023 to remain muted. In the second half of 2023, if inventory destocking progresses smoothly as we all hope, the energy crisis improves and the inflation stabilizes and slowly declines, the overall industry may reach a turning point for recovery when compared to the relatively lower base in the second half of 2022 sales across the value chain. So at that point, consumers and the business may begin rebuilding their confidence.

So this is my answer to the first question. Operator, please go over your second question.

Operator

Certainly. The next question is from the line of Timothy Zhao with Goldman Sachs. You may proceed.

Timothy Zhao

Great. Thank you, management for taking my question. My question is on the cost and expense side. As you mentioned, you’ve already done some drops in cost control or expense control. Just wondering could management could help for the quantified impact on this year’s financials and especially how you look at the profitability path for this year and into next year? Thank you.

Jessie Liu

Thank you, Timothy. In 2022, we implemented various measures to reduce cost, increase operational efficiency and improve internal operations. The execution of these measures was undoubtedly difficult, but for – from an external perspective, the downsizing of our head counts each quarter may seem like frequent adjustments in response to dynamic changes in market conditions. Here, we can provide some additional insights. Due to the unique model of IoT development platform, we saw the inflation trend starting late Q3 2021 ahead of other software in the internet technology peers in the market. We then stopped our team expansion efforts then and begin to develop an extensive organizational restructuring plan. In 2022, we completed our strategic reorientation around our sales Triangle as well as the production and research upgrade centered on our private cloud, this strategic adjustments included shifting the focus of our product lines and R&D efforts as well as changes in employee arrangements to fill each position with suitable candidates. We also restructured our value management and evaluation system for R&D projects to ensure the value of our R&D efforts. This process was reflected in our phased team adjustments with significant reductions in team size every quarter. However, our product R&D and the service support functions remained stable throughout.

Currently, our expenses have reached a relatively reasonable level in the current business environment. Despite the increase in labor costs due to factors such as annual adjustments in salaries and social securities will offset some of the savings we made from downsizing our headquarter headcount. In addition, except for specific necessary professional service expenses such as certification, compliance and legal fees. We will continue to adopt a more strict and cautious approach towards non-labor expenses, such as marketing and travel expenses to ensure that expenses remain in line with our targets. There is still much we can do to increase efficiency in terms of expenses, and we will continue this in 2023 and 2024 going forward.

On the other front, it should be emphasized that considering the seasonal fluctuations in revenue, the situation will vary from quarter-to-quarter. Operating losses and the net loss will fluctuate with changes in revenue and the gross profit and the net loss in quarters within lower revenues will be relatively larger. Overall, we expect a substantial reduction in expense in 2023 compared to 2022. We also expect a better operating cash flow in 2023 compared to 2022. We aim to achieve the goal of breakeven on a non-GAAP basis. as soon as possible as we have communicated previously.

So this is my answer to the second question. And operator, please move to the third question.

Operator

Certainly. The last question is from the line of Li Mingran with CICC. You may proceed.

Li Mingran

Thanks for taking my questions. Given your strong capital position with high level of cash and short-term investments in several consecutive quarters what is your future strategy for cash? And have you considered using it for exploring new application scenarios? And what’s your investment plan. Thanks.

Jessie Liu

Thank you. Now we are committed to our conservative and cautious capital strategy. In order to maintain cash reserves for any unexpected risks. As of December 31, 2022, our net cash balance exceeded $950 million, of which $820 million is in fixed bank deposits with maturities ranging from 6 months to 1 year. And some of fixed deposit interest rates go as high as 6.5% annually. We collaborate with several large very reputable commercial banks to manage our funds and strive to obtain the best deposit rates while ensuring the safety of our principles. In 2022, we achieved an interest income of more than $22 million which provided solid support to our overall cash flow.

Our strong cash position has made it easier for us to implement adjustment in our operations, support new business and investment incubate new products and safeguard our operational activities. We also used our cash to fund share repurchases within regulatory limits as a way to reward our shareholders and demonstrates our long-term confidence in the company. And from August 2021 to the end of 2022, we have repurchased more than $110 million stocks. In addition, although the headwinds in the consumer sector and the stock market led us to reassess our investment strategy for the ecosystem chain in 2022. We continue to track and monitor promising IoT companies solution providers and emerging industries. We are prepared for opportunities where we can leverage our capital or other means to partner, integrate or consolidate these prospects at the right time.

In terms of exploring and investing in new applications, use cases. In 2023, we will continue to focus on two areas. First is acquiring and serving major high-value customers. Secondly, we will focus product lines with potential and strategic value. For the former, we will continue to refine our private cloud products. We have already completed two benchmark projects for China Gas and Indonesia Telecom in 2022, and we will replicate the successful cases to serve other large groups across the globe. In addition, our value-added services such as cloud storage also have generated solid revenue in 2020. Growth more than tenfold compared to the previous year. We will continue to penetrate the top telecom groups in each region with our private cloud offer and our software capabilities in cloud storage service helping them build cost-effective IoT platforms and a sustainable revenue-generating customer operation.

In terms of product lines, in categories such as gateways central controls and others, they are both consumer-grade and commercial-grade specifications. We also see future market potential of products with increased integration with software at its core. Our revenue from Gateway and central control products also grew by more than 80% in 2022. Aside from consumer products, some commercial and non-consumer devices that can need professional needs have more technical barriers and higher unit prices. For example, our community industry edge gateway products with increased integration applied more than RMB10,000 per unit with a gross profit margin around 70%, while simpler hotel commercial gateways can achieve unit price ranging from less than RMB100 to a few hundred RMB. Of course, we will also continue to strengthen the capabilities of other consumer-grade product lines. Overall, we will maintain a consistent investment pace to align with both our product management and the market demand plans while also ensuring it is in line with our existing organizational structure. Our priority is to achieve profitability as soon as possible.

So this is my answer to the third question.

Operator

Thank you. There are no additional questions waiting at this time. So I will hand the call over to the management team for any further remarks.

Jessie Liu

So thank you again for joining our call. 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. Have a good day.

Operator

That concludes today’s call. Thank you for your participation. You may now disconnect your lines.