Annual Report for Fiscal Year Ending December 31, 2024 (Form 20-F)

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

You should read the following discussion together with our consolidated financial statements and the related notes included elsewhere in this annual report. This discussion contains forward-looking statements about our business and operations. Our actual results may differ materially from those we currently anticipate as a result of many factors, including those we describe under "Item 3. Key Information-3.D. Risk Factors" and elsewhere in this annual report.

5.A.Operating Results

KEY FACTORS AFFECTING OUR RESULTS OF OPERATIONS

Our results of operations and financial condition are affected by the general factors driving the global IoT industry, including, among others, economic growth of major economies, the increase in per capita disposable income, consumer demand for smart devices, stability of the global supply chain, any global epidemics, new and innovative technologies, competition, and government regulations. Unfavorable changes in any of these general industry conditions could negatively affect demand for our products and services and materially and adversely affect our results of operations. In addition, we believe our results of operations are primarily and more directly affected by the following specific factors.

Market Adoption of AI Cloud Platform

Our future success depends in large part on the market adoption of AI cloud platforms which, in turn, is driven by the proliferation of smart devices. As technologies advance, businesses and end users increasingly demand superior AI and software experience, driving AIoT adoption to an inflection point. However, brands and developers still face certain challenges, such as cost and complexity associated with developing an integrated AI cloud platform. We see growing demand for our platform because we are in a unique position to deliver a one-stop, developer-first, all-agnostic AI cloud platform with broad use cases that allows our customers to digitalize their businesses and transform the experience of their end users. We believe that the benefits offered by our platform put us in a strong position to capture significant market opportunities ahead.

Since 2022, the global IoT platform market has also been facing a headwind. Certain players in the IoT field who are engaged in business similar to our IoT PaaS business announced the termination of their IoT platform services, creating additional business opportunities for us. In 2023, we further enhance our impact on B2B customers and end users around the world, solidifying our market share. In 2024, with a more stable macroeconomic environment and normalized downstream inventory levels, and rising demand for consumer electronics, the industry is experiencing a positive growth trajectory. Throughout the year, we observed sustained growth in end-market demand, stable customer relationships and their increased investment in smart product lines. Meanwhile, the rapid iteration and adoption of AI and LLMs further drove the consumer electronics industry's transition toward intelligence-driven solutions. We believe this momentum has continued to drive greater engagement, reinforcing its value proposition across global markets.

Expanding Usage by Existing Customers

We have amassed a large and diversified customer base covering a wide spectrum of verticals. We believe that there are significant growth opportunities within our existing customers. As our platform is built to be product- and brand-agnostic, many customers using our AI cloud platform for one product category expand to more brands, categories and use cases in order to maximize the benefits of our platform and ensure consistent, high quality AIoT experience for their end users. Through the increase in usage, we grow more brands and OEMs on our platform into larger customers, such as premium customers who contribute more than US$100,000 of revenue during the immediately preceding 12-month period. As this trend continues, our brand awareness also increases, generating word-of-mouth referrals that not only attract more brands, developers and partners, but also lead to growing end user demand, better user insights and a more vibrant IoT ecosystem. We expect to expand into additional product categories and use cases to expand cross- and up-selling opportunities and continue to invest in sales and marketing and customer success activities to achieve additional revenue growth from existing customers. We believe that these efforts will have a long-term, positive impact on our business and results of operations.

New Customer Acquisition

Our operating results and growth prospects will also depend on our ability to attract new customers. We are intensely focused on growing our customer base. We continue to invest in our sales and marketing efforts and developer community outreach, which are critical to driving customer acquisition. We have built a developer and partner network through effective marketing efforts which continuously raise awareness of our AI cloud platform. For example, through our self-service developer portal, a developer can use our platform to develop a smart device within minutes. This has allowed us to acquire customers rapidly and cost-effectively. Furthermore, we seek to improve the breadth and quality of our platform and products, and to enhance our brand recognition, which will allow us to capture additional market share, better optimize the pricing of our products and services, and reach customers in a broader range of verticals and use cases. Additionally, a cornerstone of our approach is the key customer focus strategy, which has increased our personnel efficiency and enabled us to dedicate sufficient resources to securing and better serving large and strategically important customers with significant long - term potential.

We are committed to delivering industry-leading products to continue building and maintaining credibility with the global IoT community. We believe that the comprehensive product offerings and our continued efforts to introduce new features and capabilities, particularly AI capabilities, on our platform provide us with a significant competitive advantage.

We consistently focus on software and hardware product enhancement and offer the dual option of IoT PaaS model or the Smart Solutions model, giving our customers a broad spectrum of choices. For example, key account customers can leverage the IoT PaaS model, which incorporates the operating system, cloud, and app SDK, in accordance with their business needs, facilitating a more autonomous business development environment. Cross-sector multinational corporations, SaaS service providers, and integrators may choose the smart solutions model to achieve a streamlined and expedited market entry. Through our integrated hardware-software Smart Solutions, we are committed to helping customers expedite product launches and establish differentiated competitive advantages, directly increasing end-market penetration and delivering greater and more substantial value.

We are committed to leveraging AI to significantly enhance smart product experience, driving product competitiveness and delivering greater value to end users. We will continue innovating across high-potential markets such as smart lighting, smart companionship, smart outdoor, smart energy, and smart spaces, complementing and accelerating smart device penetration by AI applications.

We also steadfastly adhere to the developer model to address the challenges of fragmentation within the IoT industry, aiming to establish a robust foundation for the broad adoption of smart devices and the growth of the IoT ecosystem. As market penetration deepens, we expect that the developer community will become the backbone of the future IoT ecosystem. We will continuously iterate and refine Tuya's AI Agent development platform, empowering developers worldwide to create customized AI devices and scenario-based applications. Additionally, we will leverage AI tools to improve development efficiency.

We will continue to enhance our platform by expanding functions of existing products, developing new products, and delving into more verticals and use cases to support the growth of our business, and to invest heavily in our technological capabilities and marketing activities to maintain our strong position in the developer community.

Seasonality and macroeconomic environment

We have in the past experienced, and expect in the future to continue to experience, seasonal fluctuations in our revenue from time to time, with the fourth quarter historically being our strongest quarter for sales to new and existing customers, as a result of the holiday season, customers' buying patterns, and changes in the business and economic environment that are outside our and our customers' control. For example, we have experienced lower growth in revenue in the first quarter as a result the reduced output of OEM customers located in China due to the Lunar New Year holidays. We expect the historical seasonality trends to continue to impact our results of operations and financial condition. However, certain unique events may cause the historical seasonal trends and patterns to temporarily no longer apply, such as high global inflation weakening consumption sentiment and dampening enterprises' confidence in doing business, downstream inventory backlog disrupting enterprises' business and operating plans, supply chain disruption interfering with the delivery of goods, and the imposition of new tariffs or adjustments in existing tariffs or trade barriers.

Revenue Mix

Our products and services primarily consist of IoT PaaS, Smart Solution for smart devices, and SaaS including industry SaaS and cloud-based software value-added services, etc. Our results of operations are affected by our product mix, as different products have a range of different margins and profitability profiles. For example, an increase in the revenue contribution from SaaS, which typically has a higher margin than IoT PaaS or Smart Solution, generally leads to an increase in our overall profit margin. Our product mix may shift over time due to a variety of factors, including customer demands and preferences, competition, our ability to maintain and expand customer relationships, our ability to forecast market and technology trends, and our sales and marketing efforts. We continuously monitor our revenue mix and seek to increase revenue contribution from products and use cases with attractive margin profiles.

Effective Cost and Expense Control

Our results of operations are affected by our ability to control our costs and operating expenses. Since a significant portion of our costs relates to the modules and cloud infrastructure services from third parties, our cost control depends significantly on our ability to estimate customer demand properly in order to inform our procurement decisions. With respect of product development, we have strategically streamlined our research and development team and operations. We intend to optimize our costs and operating expenses by achieving increasing economies of scale and improved cost-efficiency as we continue to invest in R&D. With respect to sales and marketing expenses, we have proactively adjusted our market spending and undergone strategic refinement of the sales and marketing team. We expect to continue to improve our sales and marketing efficiency and benefit increasingly from the network effect of our enhanced brand awareness. We also intend to optimize our administrative expenses by enhancing our level of management, strengthening efforts in controlling professional expenditure, streamlining our internal workflows, and leveraging technology to drive convenience, cost-efficiency and productivity. Through the successful implementation of efficiency improvement initiatives, we reduced our non-GAAP operating expenses by 9.9% to US$118.7 million in 2024 from US$131.7 million in 2023. As a result, our operating loss narrowed significantly from US$105.8 million in 2023 to US$47.6 million in 2024 and we achieved non-GAAP operating profit of US$22.7 million for the first time compared to a non-GAAP operating loss of US$25.1 million in 2023. Additionally, we achieved our first-ever net profit of US$5.0 million on GAAP basis, marking a historic milestone in the Company's financial performance.

Effect of Currency Translation

We currently derive the majority of our revenue from IoT PaaS generated primarily through our contracts with OEMs located in the PRC. Such revenue is predominantly denominated in RMB. We operate internationally with local offices in Europe, Singapore, India, Japan and Colombia, among other locations, and expect that our international activities will continue to grow over the foreseeable future as we pursue opportunities in existing and new markets. Our reporting and functional currency is the U.S. dollar. The financial statements of our subsidiaries and the VIE using functional currencies other than the U.S. dollar, such as RMB, are translated to the U.S. dollar. As a result, as RMB or other currencies in which we generate revenue depreciate or appreciate against the U.S. dollar, our revenue presented in U.S. dollars will be negatively or positively affected. See "Item 11. Quantitative and Qualitative Disclosure about Market Risk-Foreign exchange risk."

KEY OPERATING METRICS

We manage our business using the following key operating metrics. We use these metrics to assess the progress of our business, make decisions on how to allocate capital, time and technology investments.

Number of IoT PaaS Customers

Our ability to grow the number of IoT PaaS customers is a key indicator of our business and future growth opportunities. We define an IoT PaaS customer for a given period as a customer who has directly placed at least one order for IoT PaaS with us during that period. While we serve both brands and OEMs, it is typically the OEMs, instead of brands, who directly place orders with us for IoT PaaS.

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Number of Premium IoT PaaS Customers

While we continue to improve our IoT PaaS customer base over time, we focus on growing the number of our premium customers to scale our business. We define a premium IoT PaaS customer as a customer as of a given date that contributed more than US$100,000 of revenues during the immediately preceding 12-month period.

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Dollar-based Net Expansion Rate for IoT PaaS

Our ability to maintain long-term revenue growth depends on our ability to increase customers' usage of our platform over time and grow revenues generated from existing customers. An important way for us to track our performance in this area is by measuring dollar-based net expansion rate for our IoT PaaS.

To calculate the dollar-based net expansion rate for IoT PaaS for the current period, we first specify a measurement period consisting of the trailing two years from the current period end. Next, we define as our "cohort" the population of IoT PaaS customers for the first year of the measurement period (i.e., those who have placed at least one order for IoT PaaS during that year). We then calculate the dollar-based net expansion rate as the quotient obtained by dividing the IoT PaaS revenues from this cohort in the second year of the measurement period by the IoT PaaS revenues from the same cohort in the first year of such measurement period.

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The dollar-based net expansion rate for our IoT PaaS is affected by customers' purchase cycles, which could fluctuate from time to time within a year, as well as a number of other factors, including new product introductions, customer mix, promotional activities, and the variable timing and amount of customer purchases. As a result, the dollar-based net expansion rate for our IoT PaaS for the trailing 12-month period ended the last day of each quarter is an inherently volatile metric.

Maintaining a high dollar-based net expansion rate demonstrates our strong ability to continue to expand customer usage of our platform over time and grow revenue from existing customers. For the trailing 12-month period ended December 31, 2022, the dollar-based net expansion rate for IoT PaaS was 51% due to significant events that had adversely affected the global economy, including shipping disruptions, persistent inflation and supply-demand mismatch.

The dollar-based expansion rate for IoT PaaS experienced a decline in 2022 and early 2023 due to significant events that had adversely affected the global economy, including (i) shipping disruptions in late 2021 that delayed product deliveries and affected holiday sales; (ii) persistent inflation that dampened consumer sentiment; and (iii) supply-demand mismatch that led to an excess of inventory for downstream enterprises. As a result, our revenue declined for the first time in 2022 despite our stable relationship with our core customers, and the dollar-based net expansion rate of IoT PaaS declined in 2022 and early 2023. In the second half of 2023, with the easing of the downstream inventory backlog and the gradual recovery of the global economy, coupled with the effective customer-focus and product enhancement strategies we adopted to navigate through the macroeconomic headwinds, the dollar-based net expansion rate for IoT PaaS rebounded and improved. Driven by increasing demand amid the global economic recovery and supply chain normalization in 2024, and our strategic focus on customer needs and product enhancements, the dollar-based net expansion rate for IoT PaaS improved to 116% as of March 31, 2024, 127% as of June 30, 2024, 124% as of September 30, 2024, and 122% as of December 31, 2024, compared to the same period in 2023.

KEY COMPONENTS OF CONSOLIDATED STATEMENTS OF LOSS

Revenue

We generate revenue from three sources, namely (i) IoT PaaS; (ii) Smart Solution; and (iii) SaaS and others. The following table sets forth a breakdown of our revenue, in absolute amounts and as percentages of total revenue, for the years indicated.

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IoT PaaS. We generate IoT PaaS revenue mainly from the fees charged to customers based on the number of IoT PaaS products we deploy.

Smart Solution. Since the first quarter of 2024, we officially rebranded our smart device distribution segment as Smart Solution, following more than a year of business transformation. We generate Smart Solution revenue mainly from providing finished devices that integrate more extensive and comprehensive software capabilities, such as AI, embedded operating systems and cloud software capabilities, enabling these customers to efficiently build their smart business product portfolios.

SaaS and others. We generate our SaaS and others revenue mainly from (i) the subscription fees charged to customers of SaaS, including industry SaaS we offer to enterprises and cloud-based software value-added services we offer enterprises or end users of Tuya-powered smart devices, and (ii) the fees that we receive for other value-added services we offer to brands and OEMs, such as APP customization, and for projects such as the deployment of the Cube and other technical developments.

Cost of Revenue

Our cost of revenue consists of the costs directly related to providing our products to our customers. These costs and expenses primarily include (i) material costs, primarily including the costs relating to the modules where the edge capabilities of IoT PaaS are embedded; (ii) third-party cloud infrastructure expenses; (iii) employee-related costs, including payroll of production support personnel; and (iv) others, including estimated warranty costs and inventory write-downs, among other things.

The following table sets forth a breakdown of our costs of revenue, in absolute amounts and as percentages of revenue, for the years indicated.

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Our cost of revenue has been and will continue to be affected by a number of factors, including economies of scale, improved efficiency achieved through effective R&D, and product mix, among other things.

Gross Profit and Gross margin

The following table sets forth a breakdown of our gross profit and gross margin for the years indicated.

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Our gross margin has been and will continue to be affected by a number of factors, including economies of scale, improved efficiency achieved through effective R&D, product mix, and the success of higher-value products and services that we provide to our customer, among others.

Research and Development Expenses

Research and development expenses consist primarily of (i) employee-related costs, including salaries, benefits and bonuses, for our research and development personnel; (ii) share-based compensation; (iii) cloud infrastructure cost; (iv) rental and utilities; and (v) other expenses associated with our research and development activities.

Sales and Marketing Expenses

Sales and marketing expenses consist primarily of (i) employee-related costs, including salaries, bonuses and benefits, for our employees responsible for business development, branding and marketing; (ii) share-based compensation; (iii) marketing costs related to our developer conferences and events; and (iv) other sales and marketing expenses, including those spent on content and social media marketing.

General and Administrative Expenses

Our general and administrative expenses consist of (i) employee-related costs, including salaries, bonuses, and benefits paid to general and administrative personnel, (ii) share-based compensation, and (iii) other expenses associated with our general and administrative activities.

Other Operating (Expenses)/Incomes, Net

Other operating (expenses)/incomes, net primarily consist of software VAT tax refund and various general subsidies for enterprises.

Other Income/(Loss)

Other income/(loss) primarily consists of other non-operating incomes, net, financial income, net and foreign exchange loss, net.

TAXATION

Cayman Islands

We are incorporated in the Cayman Islands. The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to us levied by the government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or after execution, brought within the jurisdiction of the Cayman Islands. In addition, the Cayman Islands does not impose withholding tax on dividend payments.

Hong Kong

Our subsidiaries in Hong Kong, including Tuya (HK) Limited, our wholly owned subsidiary, are subject to Hong Kong profits tax on their activities conducted in Hong Kong at a uniform tax rate of 16.5%. Under Hong Kong tax law, our subsidiaries in Hong Kong are exempted from income tax on their qualified foreign-derived income and there is no withholding tax in Hong Kong on remittance of dividends. During 2022, 2023 and 2024, no provision for Hong Kong profits tax was made as we had no estimated taxable income that was subject to the Hong Kong profits tax.

PRC

Our subsidiaries and consolidated VIE in China are companies incorporated under PRC law and, as such, are subject to PRC enterprise income tax on their taxable income in accordance with the relevant PRC income tax laws. Pursuant to the Enterprise Income Tax Law of the People's Republic of China, or the PRC EIT Law, which was amended on December 29, 2018 and became effective on the same date and the Regulation on the Implementation of the Enterprise Income Tax Law of the People's Republic of China, which was amended on April 23, 2019 and became effective on the same date, a uniform 25% enterprise income tax rate is generally applicable to both foreign-invested enterprises and domestic enterprises, except where a special preferential rate applies. Tuya Information, our wholly owned PRC subsidiary, is eligible to enjoy a preferential tax rate of 15% in 2022, 2023 and 2024, to the extent it has taxable income under the EIT Law. Tuya Information qualifies as a high and new technology enterprise (the "HNTE") and was entitled to the 15% beneficial tax rate for the year ended December 31, 2024. Tuya Information completed its renewal application for the HNTE qualification on December 6, 2024, and it will continue to qualify as an HNTE, which entitles it to enjoy the 15% beneficial tax rate for the years ending December 31, 2025, 2026 and 2027. The enterprise income tax is calculated based on the entity's global income as determined under PRC tax laws and accounting standards.

We are subject to VAT on the products sold and services provided. We are also subject to surcharges on VAT payments in accordance with PRC law. The PRC Provisional Regulations on Value-Added Tax were promulgated by the State Council on December 13, 1993, which became effective on January 1, 1994 and were subsequently amended from time to time. The Detailed Rules for the Implementation of the PRC Provisional Regulations on Value-Added Tax (2011 Revision) were promulgated by the MOF on December 25, 1993 and subsequently amended on December 15, 2008 and October 28, 2011. On November 19, 2017, the State Council promulgated the Decisions on Abolishing the PRC Provisional Regulations on Business Tax and Amending the PRC Provisional Regulations on Value-Added Tax. Pursuant to these regulations, rules and decisions, all enterprises and individuals engaged in sale of goods, provision of processing, repair, and replacement services, sales of services, intangible assets, real property, and the importation of goods within the PRC territory are VAT taxpayers. On March 20, 2019, the MOF, the SAT, and the General Administration of Customs jointly issued the Announcement on Relevant Policies on Deepening the Reform of Value-Added Tax. Pursuant to this announcement, the generally applicable VAT rates are simplified as 13%, 9%, 6%, and 0%, which became effective on April 1, 2019, and the VAT rate applicable to the small-scale taxpayers is 3%.

As a Cayman Islands holding company, Tuya Inc. may receive dividends from our PRC subsidiaries through Tuya (HK) Limited. The PRC EIT Law and its implementing rules provide that dividends paid by a PRC entity to a nonresident enterprise for income tax purposes is subject to PRC withholding tax at a rate of 10%, and may be subject to reduction by an applicable tax treaty with China. Pursuant to the Arrangement between Mainland China and the Hong Kong Special Administrative Region on the Avoidance of Double Taxation and the Prevention of Fiscal Evasion, which was signed on August 21, 2006, the withholding tax rate in respect to the payment of dividends by a PRC enterprise to a Hong Kong enterprise may be reduced to 5% from a standard rate of 10% if the Hong Kong enterprise (i) directly holds at least 25% of the PRC enterprise, (ii) is a tax resident in Hong Kong and (iii) could be recognized as a Beneficial Owner of the dividend from a PRC tax perspective. Pursuant to the Notice of the State Administration of Taxation on the Issues concerning the Application of the Dividend Clauses of Tax Agreements, or the SAT Notice, a Hong Kong resident enterprise must meet the following conditions, among others, in order to apply the reduced withholding tax rate: (i) it must be a company; (ii) it must directly own the required percentage of equity interests and voting rights in the PRC resident enterprise; and (iii) it must have directly owned such required percentage in the PRC resident enterprise throughout the 12 months prior to receiving the dividends. In October 2019, the State Administration of Taxation issued the Announcement of the State Taxation Administration on Issuing the Measures for Non-resident Taxpayers' Enjoyment of Treaty Benefits, or the SAT Circular 35, which became effective on January 1, 2020. SAT Circular 35 provides that nonresident enterprises are not required to obtain pre-approval from the relevant tax authority in order to enjoy the reduced withholding tax. Instead, nonresident enterprises and their withholding agents may, by self-assessment and on confirmation that the prescribed criteria to enjoy the tax treaty benefits are met, directly apply the reduced withholding tax rate, and file necessary forms and supporting documents when performing tax filings, which will be subject to post-tax filing examinations by the relevant tax authorities. Accordingly, Tuya (HK) Limited may be able to benefit from the 5% withholding tax rate for the dividends it receives from its PRC subsidiaries, if it satisfies the conditions prescribed under the SAT Notice and other relevant tax rules and regulations. However, according to the SAT Notice and SAT Circular 35, if the relevant tax authorities consider the transactions or arrangements we have to be for the primary purpose of enjoying a favorable tax treatment, the relevant tax authorities may adjust the favorable withholding tax in the future.

If our holding company in the Cayman Islands or any of our subsidiaries outside China were deemed to be a "resident enterprise" under the PRC EIT Law, it would be subject to enterprise income tax on its worldwide income at a rate of 25%.

In addition, our PRC subsidiaries are also required to withhold a 10% (or 7% if paid to a Hong Kong resident who qualifies for the benefits of the tax treaty between China and Hong Kong) tax on interest paid under any cross-border shareholder loan. Prior to the payment of any interest and principal on any such shareholder loan, our PRC subsidiaries must present evidence of registration with SAFE regarding any such shareholder loan and may be required to provide evidence of payment of withholding tax on the interest payable on that shareholder loan.

DISCUSSION OF RESULTS OF OPERATIONS

Year Ended December 31, 2024 Compared with Year Ended December 31, 2023

Revenue

Our revenue increased by 29.8% from US$230.0 million in 2023 to US$298.6 million in 2024, primarily due to the increase in IoT PaaS and Smart Solution revenue.

Cost of revenue

Our cost of revenue increased by 27.4% from US$123.3 million for 2023 to US$157.2 million for 2024, in line with the increase in our revenue.

Gross profit and gross margin

As a result of the foregoing, our gross profit increased by 32.6% from US$106.7 million for 2023 to US$141.4 million for 2024. Our gross margin increased from 46.4% for 2023 to 47.4% for 2024.

Gross margin of each revenue steam increased or fluctuated primarily due to changes in products and solutions mix. As a developer platform with rich ecosystem of smart devices and applications, we are committed to focusing on software products with compelling value propositions while maintaining cost efficiency.

Research and development expenses

Our research and development expenses decreased by 7.1% from US$102.3 million for 2023 to US$95.0 million for 2024. The decrease was mainly attributable to (i) our strategic streamlining of research and development team and operations, and (ii) lower share-based compensation expenses as equity incentive awards granted at higher valuations in previous years have been gradually amortized, which was partially offset by a one-time increase in share-based compensation expenses resulting from the repricing of stock options.

Sales and marketing expenses

Our sales and marketing expenses decreased by 8.3% from US$40.4 million for 2023 to US$37.1 million for 2024. The decrease was mainly attributable to (i) our strategic streamlining of sales and marketing team, (ii) lower share-based compensation expenses as equity incentive awards granted at higher valuations in previous years have been largely amortized, which was partially offset by a one-time increase resulted from the repricing of stock options, and (iii) our efforts to control expenditures and improve sales and marketing efficiency.

General and administrative expenses

Our general and administrative expenses decreased by 15.4% from US$80.7 million for 2023 to US$68.3 million for 2024, primarily because of (i) the decline in credit-related impairment of long-term investments, and (ii) our strategic streamlining of general and administrative team. The decrease was partially offset by a one-time increase in share-based compensation expenses resulting from the repricing of stock options.

Other operating incomes, net

Our other operating incomes, net, increased by 4.0% from US$10.9 million for 2023 to US$11.3 million for 2024, which was mainly attributable to receipts of software value-added tax refund and various general subsidies for enterprises .

Other income

We generated other income of US$48.8 million and US$54.8 million, respectively, for 2023 and 2024. The increase in other income was mainly because of (i) an increase in financial income, net, of US$5.7 million, primarily due to well implemented treasury strategies on our cash, time deposits and treasury securities recorded as short-term and long-term investments, (ii) an increase in other non-operating incomes, net, of US$1.1 million, primarily due to payment from depository bank according to depository revenue sharing program, and (iii) a decrease of US$0.8 million of net foreign exchange gain due to the fluctuation in foreign exchange rates in 2024.

Income tax expenses

Our income tax expense decreased from US$3.2 million for 2023 to US$2.1 million for 2024, primarily attributable to the decrease in tax expenses related to financial income due to switching of treasury management strategy and lower withholding tax rate.

Net loss for the year

As a result of the foregoing, we recorded net loss of US$60.3 million for 2023, and recorded a net profit of US$5.0 million for 2024, marking the first fiscal year of net profitability on a GAAP basis.

Year Ended December 31, 2023 Compared with Year Ended December 31, 2022

For a detailed description of the comparison of our operating results for the year ended December 31, 2023 to the year ended December 31, 2022, see "Item 5. Operating and Financial Review and Prospects-5.A. Operating Results-Discussion of Results of Operations-Year Ended December 31, 2023 Compared with Year Ended December 31, 2022" beginning on page 112 of our annual report on Form 20-F for the fiscal year ended December 31, 2023 filed with the SEC on April 24, 2024 (File No. 001-40210).

NON-GAAP FINANCIAL MEASURE

In evaluating the business, we consider and use non-GAAP measures, such as non-GAAP operating expenses, non-GAAP loss from operations (including non-GAAP operating margin), non-GAAP net (loss)/profit (including non-GAAP net margin), and non-GAAP basic and diluted net (loss)/profit per ADS, as supplemental measures to review and assess our operating performance. The presentation of non-GAAP financial measures is not intended to be considered in isolation or as a substitute for U.S. GAAP measures. We define non-GAAP measures by excluding the impact of share-based compensation expenses, credit-related impairment of long-term investments and litigation costs from the respective GAAP measures. We present the non-GAAP financial measures because they are used by the management to evaluate its operating performance and formulate business plans. We also believe that the use of the non-GAAP measures facilitates investors' assessment of its operating performance.

Non-GAAP financial measures are not defined under U.S. GAAP and are not presented in accordance with U.S. GAAP. Non-GAAP financial measures have limitations as analytical tools. One of the key limitations of using the aforementioned non-GAAP financial measures is that they do not reflect all items of expenses that affect our operations. Share-based compensation expenses, credit-related impairment of long-term investments and litigation costs have been and may continue to be incurred in the business and are not reflected in the presentation of non-GAAP financial measures. Further, the non-GAAP financial measures may differ from the non-GAAP information used by other companies, including peer companies, and therefore their comparability may be limited. We compensate for these limitations by reconciling the non-GAAP financial measures to the nearest U.S. GAAP performance measures, all of which should be considered when evaluating our performance. We encourage you to review our financial information in its entirety and not rely on a single financial measure.

Non-GAAP adjusted (loss)/profit for the year represents net (loss)/profit for the year excluding share-based compensation expenses, credit-related impairment of long-term investments and litigation costs. The table below sets forth a reconciliation of our net (loss)/profit for the year to non-GAAP adjusted (loss)/profit for the year indicated. Share-based compensation expenses relate to the share-based awards that we grant to employees and directors. We exclude share-based compensation expenses, credit-related impairment of long-term investments and litigation costs. The credit-related impairment of long-term investments arose from our equity investments in private companies, for which we have recognized as credit losses on a prudent basis. Our management believes that these exclusions facilitate the ability of investors to compare our operating results with those of other companies in the industry in which we operate, many of which also exclude share-based compensation expenses, credit-related impairment of long-term investments and litigation costs in determining their non-GAAP financial measures.

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We recorded non-GAAP adjusted loss of US$77.2 million in 2022 and adjusted profit of US$20.4 million 2023. In 2024, we recorded non-GAAP adjusted profit of US$75.3 million. We have been more focused enhancing our AI cloud platform and products to provide a higher value proposition, growing our customer base with key accounts, fostering our developer community, and prioritizing our business and operating efficiency, in order to lay a solid foundation for our long-term growth.

5.B.Liquidity and Capital Resources

CASH FLOWS AND WORKING CAPITAL

Our principal sources of liquidity have been cash generated from private sales and public offerings of equity securities, as well as cash from our business operations. As of December 31, 2024, we had US$847.9 million in cash and cash equivalents and short-term investments. Of our cash and cash equivalents, US$113.2 million were held by our subsidiaries in the PRC; US$537.7 million, mainly denominated in U.S. dollars, were held by our subsidiaries in Hong Kong; and US$2.5 million, mainly denominated in U.S. dollars, EUR, and Japanese Yen, were held by Tuya Inc. and our other overseas subsidiaries. Our cash and cash equivalents and short-term investments primarily include cash in bank, time deposits placed with banks or other financial institutions, treasury securities and wealth management products issued by banks. We believe that our current cash and cash equivalents, balance of short-term investments and anticipated cash flows from operations will be sufficient to meet our anticipated cash needs, including cash needs for working capital and capital expenditures, for at least the next 12 months.

We intend to finance our future working capital requirements and capital expenditures with anticipated cash generated from operating activities and funds raised from financing activities. However, we may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support our business growth, scale our infrastructure, develop product enhancements and to respond to business challenges could be significantly impaired, and our business, operating results and financial condition may be adversely affected. See "Item 3. Key Information-3.D. Risk Factors-Risk Related to Our Business and Industry-We may require additional capital to support our business and response to business opportunities, and this capital might not be available on favorable terms, if at all."

Historically, prior to 2024, we had not been profitable on a GAAP basis, and until 2023, we had not generated positive operating cash flows. We incurred a net loss of US$60.3 million in 2023 but achieved a net profit of US$5.0 million in 2024, marking our first fiscal year of GAAP profitability. We had net cash generated from operation activities of US$36.4 million in 2023 and US$80.4 million in 2024. However, if we are unable to sustain profitability or maintain positive operating cash flow, our business, liquidity, financial condition and results of operations may be materially and adversely affected. See "Item 3. Key Information-3.D. Risk Factors-Risks Related to Our Business and Our Industry-We have a history of net loss and net cash operating outflow and may not be able to achieve or sustain profitability in the future."

The following table presents our consolidated cash flow data for the years presented.

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Note:

Net Cash (Used in)/Generated from Operating Activities

Net cash generated from operating activities was US$80.4 million in 2024. The difference between our net profit of US$5.0 million and the net cash generated from operating activities was mainly due to (i) share-based compensation of US$67.8 million, (ii) a decrease in inventories of US$7.0 million and (iii) an increase in accounts payables of US$5.9 million; partially offset by (i) an increase in prepayments and other current assets of US$3.9 million, (ii) a decrease in lease liabilities of US$3.5 million and (iii) a decrease in other non-current liabilities of US$3.1 million.

Net cash generated from operating activities was US$36.4 million in 2023. The difference between our net loss of US$60.3 million and the net cash generated from operating activities was mainly due to (i) share-based compensation of US$65.2 million and (ii) an increase in credit loss of US$15.5 million of long-term investments.

Net cash used in operating activities was US$70.7 million in 2022. The difference between our net loss of US$146.2 million and the net cash used in operating activities was mainly due to (i) share-based compensation of US$69.0 million, (ii) a decrease in accounts receivable of US$20.2 million, and (iii) a decrease in inventories of US$13.1 million, caused by utilizing our previously stocked materials, partially offset by a decrease in accruals and other payables of US$24.3 million, due to our improved working capital and inventory management.

Net Cash (Used in)/Generated from Investing Activities

Net cash generated from investing activities was US$107.4 million in 2024, which was primarily attributable to (i) proceeds from disposal of short-term investments of US$354.5 million and (ii) proceeds from disposal of long-term investments of US$43.2 million and partially offset by payment for short-term investments of US$264.7 million. Our short-term investments mainly include time deposits and treasury securities.

Net cash generated from investing activities was US$332.5 million in 2023, which was primarily attributable to (i) proceeds from disposal of short-term investments of US$853.7 million, and partially offset by (ii) payment for short-term investments of US$327.2 million and (iii) payment for long-term investments of US$193.0 million. Our short-term investments mainly include time deposits and wealth management products offered by banks or other financial institutions in the PRC.

Net cash used in investing activities was US$714.2 million in 2022, which was primarily attributable to (i) payment for short-term investments of US$1,257.7 million, and (ii) payment for long-term investments of US$1.6 million, partially offset by proceeds from disposal of short-term investments of US$543.8 million. Our short-term investments mainly include time deposits and wealth management products offered by banks or other financial institutions in the PRC.

Net Cash Used in Financing Activities

Net cash used in financing activities in 2024 was US$33.2 million, which was due to the payment for dividend of US$33.0 million.

Net cash used in financing activities in 2023 was US$2.2 million, which was due to payment for repurchase and cancellation of ordinary shares of US$3.3 million, partially offset by proceeds from exercise of share options of US$1.2 million.

Net cash used in financing activities in 2022 was US$38.6 million, which was due to payment for repurchase of ordinary shares of US$48.7 million, partially offset by (i) net proceeds from issuance of Class A ordinary shares upon the Hong Kong Listing of US$9.1 million, and (ii) proceeds from exercise of share options of US$1.0 million.

MATERIAL CASH REQUIREMENTS

Our material cash requirements as of December 31, 2024 and any subsequent interim period include primarily our working capital and operating expenditure needs, capital expenditures, services purchase commitments and operating lease commitments.

Other than the capital expenditures, services purchase commitments and operating lease commitments, as discussed below, we did not have any significant capital and other commitments, long-term obligations or guarantees as of December 31, 2024. We did not have future minimum capital commitments as of December 31, 2024.

Capital Expenditures

Our capital expenditures are incurred primarily in connection with purchase of property, equipment, software and land use rights. Our capital expenditures were US$0.7 million, US$1.5 million and US$13.1 million in 2022, 2023 and 2024, respectively. We intend to fund our future capital expenditures with our existing cash balance and proceeds from our public offering of equity securities.

Services Purchase Commitments

As of December 31, 2024, our services purchase commitments were as follows:

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Note: Purchase obligations represent US$6,705 thousand of remaining non-cancellable contractual commitments as of December 31, 2024, related to one of our third-party cloud infrastructure agreements, under which we committed to spend an aggregate of at least US$37,500 thousand between June 1, 2021 and May 31, 2026 with minimum purchase commitment. We had made payments of US$36,735 thousand in total under this agreement as of December 31, 2024.

Operating lease commitments

We had outstanding commitments on several non-cancellable operating lease agreements. Operating lease commitment within one year or less lease term as of December 31, 2024 was US$26.0 thousand. We have elected not to recognize these operating lease commitment any lease liability or right-of-use asset, therefore they are not yet reflected in the consolidated financial statements.

HOLDING COMPANY STRUCTURE

Tuya Inc. is a holding company with no material operations of its own. We conduct our operations mainly through our PRC and other overseas subsidiaries. As a result, our ability to pay dividends depends upon dividends paid by our subsidiaries. If our subsidiaries incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us.

In addition, our subsidiaries in China are permitted to pay dividends to us only out of their retained earnings, if any, as determined in accordance with the Accounting Standards for Business Enterprise as promulgated by the Ministry of Finance of the PRC, or PRC GAAP. Pursuant to the law applicable to China's foreign-invested enterprises, our subsidiaries that are foreign-invested enterprises in the PRC have to make appropriation from their after-tax profit, as determined under PRC GAAP, to reserve funds including (i) the general reserve fund, (ii) the enterprise expansion fund and (iii) the staff bonus and welfare fund. The appropriation to the general reserve fund must be at least 10% of the after-tax profits calculated in accordance with PRC GAAP. Appropriation is not required if the reserve fund has reached 50% of the registered capital of our subsidiary. Appropriation to the other two reserve funds are at our subsidiary's discretion. In accordance with the Company Law, the VIE in China must make appropriations from its after-tax profit to non-distributable reserve funds, including (i) the statutory surplus fund and (ii) the discretionary surplus fund. The appropriation to the statutory surplus fund must be at least 10% of the after-tax profits calculated in accordance with PRC GAAP. Appropriation is not required if the statutory surplus fund has reached 50% of the registered capital of the VIE. Appropriation to discretionary surplus fund is made at the discretion of the VIE.

We are permitted under PRC laws and regulations to provide funding to our PRC subsidiaries through capital contributions or loans, subject to the approval of government authorities and limits on the amount of capital contributions and loans. In addition, our subsidiaries in China may provide RMB funding to the VIE only through entrusted loans.

5.C.Research and Development, Patents and Licenses, etc.

Our AI cloud platform and proprietary cutting-edge IoT technologies have been primarily developed in-house. See "Item 4. Information on the Company-4.B. Business Overview-Research & Development."

5.D.Trend Information

Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the year ended December 31, 2024 that are reasonably likely to have a material and adverse effect on our net revenues, income, profitability, liquidity or capital resources, or that would cause the disclosed financial information to be not necessarily indicative of future results of operations or financial condition.

5.E.Critical Accounting Estimate

Our consolidated financial statements have been prepared in accordance with U.S. GAAP, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent liabilities in the consolidated financial statements and accompanying notes.

Our estimates are based on historical experience and various assumptions that we believe to be reasonable under the circumstances. Given that changes in circumstances, facts and experience may cause us to revise our estimates, actual results could differ materially from those estimates. Our critical accounting estimates are described below.

Lower of cost or net realizable value provision for inventories

Inventories comprised finished goods, work in process, raw materials and low value consumables and spare parts. Inventories are stated at the lower of cost and net realizable value. In determining excess or obsolescence reserves for inventories, we consider assumptions such as aging profile, historical consumption projection, estimated future selling prices and selling expenses of the respective inventories. If in any period we anticipate a change in assumptions such as future demand or market conditions to be less favorable than our previous estimates, additional inventory write-downs may be required and would be reflected in cost of sales, resulting in a negative impact to our gross margin in that period. If in any period we are able to sell inventories that had been written down to a level below the ultimate realized selling price in a previous period, related revenue would be recorded with a lower or no offsetting charge to cost of sales resulting in a net benefit to our gross margin in that period.

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

6.A.Directors and Senior Management

The following table sets forth the name, age and position of each of our directors and executive officers as of the date of this annual report.

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Xueji (Jerry) Wang founded Tuya in 2014 and currently serves as the co-chairman of our board of directors and our chief executive officer. Mr. Wang is responsible for the overall strategies, management, corporate culture, and commercial suitability and sustainability of products of Tuya. Mr. Wang has over 10 years of experience in IoT industry and about 21 years of experience focusing on software technology, including over 14 years of experience in elastic cloud computing technologies. Prior to founding Tuya, Mr. Wang founded PHPWind, one of the most popular open source forums software in China, in 2003. In 2006, Mr. Wang established Hangzhou Detian Information Technology Co., Ltd. to officially commercialize PHPWind business from 2006 to May 2008. In May 2008, PHPWind was acquired by Hangzhou Ali Technology Co., Ltd., a subsidiary or consolidated affiliated entity of Alibaba Group Holdings Limited (a company listed on the NYSE, symbol: BABA, and secondarily listed on the Stock Exchange, stock code: 9988) (together with its subsidiaries and its consolidated affiliated entities, "Alibaba Group"). From May 2008 to February 2014, Mr. Wang worked at Alibaba Group, where he served as a senior director and he was responsible for leading and launching a number of major technology and product innovations for Alibaba Cloud and Alipay, including Alibaba's Quick Reference code ("QR Code") payment system. Mr. Wang received a bachelor's degree in information and computing science from Zhejiang Sci-Tech University in the PRC in June 2005. Mr. Wang was recognized by Forbes as a member of China's Thirty Entrepreneurs under 30 in February 2012, and was named by Fortune China as one of China's Forty Business Elites under 40 in April 2021.

Liaohan (Leo) Chen co- founded Tuya in 2014 and currently serves as the co-chairman of our board of directors and our president. Mr. Chen is responsible for the overall strategies, management, business development and overall customer relationship of Tuya. Prior to co-founding Tuya, Mr. Chen co-founded PHPWind. Mr. Chen served as the management at Hangzhou Detian Information Technology Co., Ltd. from 2006 to May 2008. Mr. Chen served as an operations director at Alibaba Group, where he worked on Alibaba Cloud and Alibaba's O2O business, leading the application of technology and business operation, from May 2008 to May 2014. Mr. Chen received a bachelor's degree in information and computing science from Zhejiang Sci-Tech University in the PRC in June 2005, and received a master's degree in computer applied technology from Zhejiang Sci-Tech University in the PRC in July 2010.

Yi (Alex) Yang co- founded Tuya in 2014 and currently serves a director, chief financial officer and chief operation officer. Mr. Yang is responsible for capital market, investment, finance, legal and internal controls, human resources, government relations and daily operations of Tuya. Prior to co-founding Tuya, Mr. Yang worked as a business development senior expert at Alibaba Group from April 2011 to May 2015, where he was responsible for developing business opportunities for multiple projects, including mobile payment at Alibaba's O2O business and Alibaba Cloud. Mr. Yang received a bachelor's degree in international business and economics from Guangdong University of Foreign Studies in the PRC in July 2004.

Yan Zhang has served as our director since November 2024. Ms. Zhang has been serving as the vice president of finance of the Company and several major subsidiaries since January 2021. Ms. Zhang is responsible for the finance of the Group. Prior to joining the Company, Ms. Zhang worked at Ernst & Young Hua Ming LLP from December 2009 to January 2021, where her last position was senior audit manager. Ms. Zhang received a bachelor's degree in management from Shanxi University of Finance and Economics in the PRC in July 2006, and a master's degree in management from Dongbei University of Finance and Economics in the PRC in January 2009.

Sidney Xuande Huang has served as our director since July 2022. Mr. Huang is responsible for providing independent professional opinion and judgment to our board of directors. Mr. Huang has over 20 years of experience in the technology and internet industry. He is currently a senior advisor of JD.com, Inc. (a company listed on the Nasdaq, symbol: JD, and secondarily listed on the Stock Exchange, stock code: 9618) and was its chief financial officer from September 2013 until his retirement in September 2020, including the last three months as an executive coach to his successor. He has been an independent non-executive director of Kuaishou Technology (a company listed on the Stock Exchange, stock code: 1024) since February 2021, an independent director of Yatsen Holding Limited (a company listed on the NYSE, symbol: YSG) since November 2020, and an independent non-executive director of MIXUE Group (a company listed on the Stock Exchange, stock code: 2097). Prior to joining JD.com, Inc. in September 2013, Mr. Huang had served multiple top management roles for VanceInfo Technologies Inc., including its co-president, chief operating officer and chief financial officer as well as the chief financial officer of its successor company, Pactera Technology International Ltd., after the merger. He was an investment banker at Citigroup Global Markets Inc. in New York from August 2002 to July 2004. He held various positions, including audit manager at KPMG LLP from January 1997 to August 2000 and qualified as a Certified Public Accountant in the State of New York in October 1999. Mr. Huang is currently a Foundation Fellow at St Anthony's College of the University of Oxford where he was an Academic Visitor focusing on geo-economics from October 2021 to September 2022. He received an MBA degree from the J.L. Kellogg School of Management at Northwestern University in the United States in June 2002 and a bachelor's degree in accounting from Bernard M. Baruch College of The City University of New York in the United States in February 1997.

Changheng Qiu has served as our director since July 2022. Mr. Qiu is responsible for providing independent professional opinion and judgment to our board of directors. Mr. Qiu is a founder of Kunteng (Hainan) Equity Investment Fund Management Co., Ltd. since July 2017. Prior to that, he served at Taobao (China) Software Co., Ltd. from December 2004 to May 2016, where his last position was vice president. Mr. Qiu received a bachelor's degree in physics from Zhejiang University in the PRC in June 1997 and a MBA degree from Peking University in the PRC in June 2004.

Meng Xiong Kuok (alias GUO Mengxiong) has served as our director since July 2022. Mr. Kuok is responsible for providing independent professional opinion and judgment to our board of directors. Mr. Kuok has been the Chief Executive Officer of K3 Venture Partners Pte. Ltd. since January 2020. He worked as Vice President (Projects) at Shangri-La International Hotel Management Ltd from October 2012 to February 2017. Mr. Kuok served as an independent non-executive director of TVS Motor Company Limited (a company listed on the National Stock Exchange of India Ltd., symbol: TVSMOTOR) from March 2021 to August 2024. Mr. Kuok received his bachelor's degree in science from Cornell University in the United States in January 2007.

Pak Tung Jason Yip has served as our director since July 2022. Mr. Yip is responsible for providing independent professional opinion and judgment to our board of directors. Mr. Yip worked in the audit division of PricewaterhouseCoopers in Canada from May 2003 to May 2007. He was a manager at PricewaterhouseCoopers in Hong Kong from June 2007 to June 2010. Mr. Yip worked in Alibaba Group Holding Limited (a company listed on the NYSE, symbol: BABA, and secondarily listed on the Stock Exchange, stock code: 9988) from June 2010 to May 2022, where he served as a senior director of finance, primarily responsible for the group's financial reporting and technical accounting and share-based compensation administration and management. Mr. Yip received a bachelor's degree of commerce from the University of British Columbia in Canada in May 2005. Mr. Yip qualified as a Chartered Accountant in Canada in January 2007 and has been a member of the Hong Kong Institute of Certified Public Accountants since September 2016.

6.B.Compensation

For the fiscal year ended December 31, 2024, the aggregate cash compensation paid or payable to our directors and executive officers was approximately US$1.2 million. We have not set aside or accrued any amount to provide pension, retirement or other similar benefits to our directors and executive officers, except to the extent required by applicable laws and regulations. Our PRC subsidiaries and the VIE are required by law to make contributions equal to certain percentages of each employee's salary for his or her pension insurance, medical insurance, unemployment insurance and other statutory benefits and a housing provident fund.

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Employment Agreements and Indemnification Agreements

We have entered into employment agreements with each of our executive officers. Under these agreements, each of our executive officers is employed for a specified time period. We may terminate employment for cause, at any time, without advance notice or remuneration, for certain acts of the executive officer, such as conviction or plea of guilty to a felony or any crime involving moral turpitude, negligent or dishonest acts to our detriment, or misconduct or a failure to perform agreed duties. We may also terminate an executive officer's employment without cause upon three-month advance written notice. In such case of termination by us, we will provide severance payments to the executive officer as may be agreed between the executive officer and us. The executive officer may resign at any time with a three-month advance written notice.

Each executive officer has agreed to hold, both during and after the termination or expiry of his or her employment agreement, in strict confidence and not to use, except as required in the performance of his or her duties in connection with the employment or pursuant to applicable law, any of our confidential information or trade secrets, any confidential information or trade secrets of our customers or prospective customers, or the confidential or proprietary information of any third party received by us and for which we have confidential obligations. The executive officers have also agreed to disclose in confidence to us all inventions, designs and trade secrets which they conceive, develop or reduce to practice during the executive officer's employment with us and to assign all right, title and interest in them to us, and assist us in obtaining and enforcing patents, copyrights and other legal rights for these inventions, designs and trade secrets.

In addition, each executive officer has agreed to be bound by non-competition and non-solicitation restrictions during the term of his or her employment and typically for one year following the last date of employment. Specifically, each executive officer has agreed not to (i) approach our suppliers, clients, direct or end customers or contacts or other persons or entities introduced to the executive officer in his or her capacity as a representative of us for the purpose of doing business with such persons or entities that will harm our business relationships with these persons or entities; (ii) assume employment with or provide services to any of our competitors, or engage, whether as principal, partner, licensor or otherwise, any of our competitors, without our express consent; (iii) seek directly or indirectly, to solicit the employment or services of, or hire or engage, any person who is known to be employed or engaged by us; or (iv) otherwise interfere with our business or accounts.

We have also entered into indemnification agreements with each of our directors and executive officers. Under these agreements, we agree to indemnify our directors and executive officers against certain liabilities and expenses incurred by such persons in connection with claims made by reason of their being a director or officer of our company.

Share Incentive Plan

2015 Equity Incentive Plan

We adopted an employee equity incentive plan, or the 2015 Plan, on December 23, 2014, which was amended in July 2020, February 2021 and June 2022 and was terminated in June 2024. The purpose of the 2015 Plan is to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentives to selected employees, directors, and consultants and to promote the success of our business.

The following paragraphs summarize the terms of the 2015 Plan.

Types of Awards. The 2015 Plan permits the awards of options, restricted shares and restricted share units as the plan administrator may determine.

Maximum Number of Class A Ordinary Shares. The overall limit on the number of the Class A ordinary shares underlying the awards pursuant to the 2015 Plan is 64,889,052, of which the total number of Class A ordinary shares which may be issued and/or transferred upon vesting or exercise of all options that may be granted pursuant to the 2015 Plan and any other share award schemes of our company in aggregate shall not exceed 10% of the total number of Class A ordinary shares in issue immediately upon the Hong Kong Listing, or the Plan Limit, being 49,914,656 Class A ordinary shares. Any equity awards in the form of options that were granted prior to the Hong Kong Listing under the 2015 Plan (including those outstanding, cancelled, lapsed in accordance with the 2015 Plan or exercised options) will not be counted for the purpose of the Plan Limit. The total number of Class A ordinary shares to be issued upon exercise of all outstanding options under the 2015 Plan and all other schemes of our company granted and yet to be exercised shall not exceed 30% of all the Class A ordinary shares in issue from time to time.

Plan Administration. The 2015 Plan shall be administrated by our board of directors or any committee designated by our board of directors.

Eligibility. Any employee, director or consultant of our company who is engaged by us to render consulting or advisory services to us shall be eligible to participate in the 2015 Plan.

Award Agreement. Each grant of an award under the 2015 Plan shall be evidenced by an award agreement between the participant and our company. Each award shall be subject to all applicable terms and conditions of the 2015 Plan and may be subject to any other terms and conditions that are not inconsistent with the 2015 Plan and that the plan administrator deems appropriate for inclusion in an award agreement. The provisions of the various award agreements entered into under the 2015 Plan need not be identical.

Terms and Conditions of Award. The award agreement shall set forth the provisions, terms, and conditions of each award including, but not limited to, the types of awards, award vesting schedule, number of awards to be granted and the number of shares to be covered by the awards, exercise price, any restrictions or limitations on the award and term of each award.

Exercise Price. The plan administrator determines the exercise price for each award, which shall not be lower than the fair market value per share on the date of grant, which shall not be less than the highest of (i) the closing sales price of the Class A ordinary shares as quoted on the principal exchange or system on which the Class A ordinary shares are listed (as determined by plan administrator) on the date of grant, (ii) the average closing sales price as quoted on the principal exchange or system on which the Class A ordinary shares are listed for the five business days immediately preceding the date of grant. The maximum exercisable term is 10 years from the date of grant. In the case of an option granted to a participant who, immediately prior to the grant, owns more than 10% of the total combined voting power of all classes of outstanding securities of our company or parent company or subsidiary of our company, the term of option shall not be exercisable after the expiration of five years from the date of grant. There is no additional amount payable on application or acceptance of the share option.

Vesting Schedule. In general, the plan administrator determines the vesting schedule, which is specified in the relevant award agreement.

Maximum Entitlement of a Grantee. Unless approved by the shareholders in a general meeting, the total number of Class A ordinary shares issued and to be issued and/or transferred and to be transferred upon the vesting or exercise of the options granted to each participant in any 12-month period shall not (when aggregated with any Class A ordinary shares underlying the awards granted during such period under any other share award schemes of our company) exceed 1% of the Class A ordinary shares in issue for the time being.

Amendment, Suspension or Termination of the 2015 Plan. Unless terminated earlier, the 2015 Plan has a term of 10 years. With the approval of the board of directors of any plan amendment to the extent necessary or desirable to comply with applicable law, the plan administrator may at any time amend, alter, suspend, or terminate the 2015 Plan; no amendment, alteration, suspension, or termination of the 2015 Plan shall materially and adversely affect any award previously granted pursuant to the 2015 Plan unless mutually agreed between the participant and the administrator, which agreement must be in writing and signed by the participant and the company.

As of the termination of the 2015 Plan in June 2024, (i) the number of underlying Shares pursuant to the outstanding options (including both vested and unvested) granted under the 2015 Plan amounted to 51,304,005 Class A Ordinary Shares, and (ii) the number of underlying Shares pursuant to the outstanding awards granted under the 2015 Plan amounted to 7,532,250 Class A Ordinary Shares.

As of April 15, 2025, (i) remaining options granted based on 2015 Plan to purchase a total of 5,885,967 ordinary shares were outstanding; and (ii) remaining restricted share units granted based on 2015 Plan to receive a total of 4,224,750 ordinary shares were outstanding.

2024 Share Scheme

We adopted a share scheme, or the 2024 Share Scheme, on June 20, 2024. The purpose of the 2024 Share Scheme is to align the interests of our employees and service providers with us and to encourage and retain them to make contributions to the long-term development of our business.

The following paragraphs summarize the terms of the 2024 Share Scheme.

Eligibility.The eligible persons who may be selected to become a participant of the 2024 Share Scheme are any individuals, or corporate entities (as the case may be), being any of (i) an Employee Participant, being any person who is an employee or a director of any member of the Group and (ii) a Service Provider, who the board of directors or the scheme administrator considers, in its sole discretion, to have contributed or will contribute to the Group. A Service Provider is any person or corporate entity (other than an employee or a director of any member of the Group) who provides services to the Group on a continuing or recurring basis in its ordinary and usual course of business which are in the interests of the long-term development of the Group.

Duration.The 2024 Share Scheme shall be valid and effective for the period of ten years from June 20, 2024 (the "Adoption Date"), and thereafter for so long as there are any unvested award granted under the 2024 Share Scheme prior to the expiration of the 2024 Share Scheme, in order to give effect to the vesting of such award or otherwise as may be required in accordance with the provisions of the Scheme Rules.

Scheme Limit.The maximum number of Class A ordinary shares and/or ADSs which may be issued pursuant to the awards granted and to be granted under the 2024 Share Scheme, when aggregated with the number of Class A ordinary shares and/or ADSs which may be issued pursuant to other awards schemes of the Company, shall not exceed 10% of the total number of ordinary shares in issue as at the Adoption Date unless shareholders approve a further refreshment of the Scheme Limit or shareholders'approval is obtained in compliance with the Hong Kong Listing Rules, being 57,459,259 Class A Ordinary Shares.

Service Providers Limit.The total number of Class A ordinary shares and/or ADSs which may be issued pursuant to the awards granted and to be granted to Service Providers under the 2024 Share Scheme shall not exceed 1.0% of the total number of shares in issue as at the Adoption Date unless shareholders approve a further refreshment of the scheme Limit or shareholders'approval is obtained in compliance with the Hong Kong Listing Rules, being 5,745,925 Class A ordinary shares.

Individual Limit.The total number of Class A ordinary shares and/or ADSs issued and to be issued upon the vesting or exercise of awards granted and to be granted under the 2024 Share Scheme and other awards schemes of the Company to each individual (excluding Awards lapsed in accordance with the 2024 Share Scheme) in any 12-month period up to (and including) the date of the latest grant shall not exceed 1.0% of the total number of shares in issue as at the Adoption Date, being 5,745,925 Class A Ordinary Shares.

Plan Administration.The 2024 Share Scheme shall be administrated by our board or person(s) to which our board of directors has delegated its authority (as applicable) to administer the 2024 Share Scheme.

Vesting Period.The scheme administrator may from time to time while the 2024 Share Scheme is in force and subject to all applicable laws, rules and regulations, determine the applicable vesting dates and any other criteria and conditions for vesting of the awards in its sole and absolute discretion. The vesting period in respect of any award shall not be less than 12 months from the grant date, except that with respect to an Employee Participant, a shorter vesting period may be permitted in certain circumstances.

Termination. The 2024 Share Scheme shall terminate on the earlier of (i) the end of the period of ten years after the Adoption Date, except otherwise as may be required in accordance with the provisions of the 2024 Share Scheme; and (ii) such date of early termination as determined by the board of directors.

As of April 15, 2025, (i) options to purchase a total of nil ordinary shares were outstanding under the 2024 Share Scheme, and nil of such options had vested and become exercisable; and (ii) restricted share units to receive a total of 160,000 ordinary shares were outstanding under the 2024 Share Scheme.

The following table summarizes, as of April 15, 2025, the number of ordinary shares underlying outstanding options or restricted share units that we granted to each of our directors and executive officers and to other individuals as a group.

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6.C.Board Practices

Board of Directors

Our board of directors consists of eight directors, including four independent directors within the meaning of Section 303A of the NYSE Listed Company Manual, namely Sidney Xuande Huang, Changheng Qiu, Meng Xiong Kuok and Pak Tung Jason Yip. Each of Xueji (Jerry) Wang and Liaohan (Leo) Chen serves as the co-chairman of our board of directors. A director is not required to hold any shares in our company to qualify to serve as a director.

A director who to his or her knowledge is in any way, whether directly or indirectly, interested in a contract or proposed contract with our company is required to declare the nature of his or her interest at a meeting of our directors. A general notice given to the directors by any director to the effect that he or she is to be regarded as interested in any contract or transaction shall be deemed a sufficient declaration of interest for the purposes of voting on a resolution in respect to a contract or transaction in which he/she has an interest, and after such general notice it shall not be necessary to give special notice relating to any particular transaction. Subject to any separate requirement for audit committee approval under applicable law, the Corporate Governance Rules of the NYSE, or the Hong Kong Listing Rules, a director may vote in respect of any contract or proposed contract or arrangement in which he or she is interested and may be counted in the quorum at such meeting, provided that (i) such director, if his or her interest in such contract or arrangement is material, has declared the nature of his or her interest at the earliest meeting of the board at which it is practicable for him or her to do so, either specifically or by way of a general notice and (ii) if such contract or arrangement is a transaction with a related party, such transaction has been approved by the audit committee. Unless permitted under the Hong Kong Listing Rules, a director shall not be entitled to vote on (nor shall the director be counted in the quorum in relation to) any resolution of the directors in respect of any contract or arrangement or any other proposal whatsoever in which he or any of his close associates (or, if required by the Hong Kong Listing Rules, his other associates) has any material interest, and if he shall do so his vote shall not be counted (nor is he to be counted in the quorum for the resolution).

Our board of directors may exercise all of the powers of our company to borrow money, to mortgage or charge its undertaking, property and uncalled capital, or any part thereof, and to issue debentures, debenture stock or other securities whenever money is borrowed or as security for any debt, liability or obligation of our company or of any third party. None of our directors has a service contract with us that provides for benefits upon termination of service as a director.

Committees of the Board of Directors

We have established an audit committee, a compensation committee, a nomination committee and a corporate governance committee under our board of directors and have adopted a charter for each of the four committees. Each committee's members and functions are described below.

Audit Committee.Our audit committee consists of Sidney Xuande Huang, Meng Xiong Kuok and Pak Tung Jason Yip and is chaired by Sidney Xuande Huang. We have determined that each of Sidney Xuande Huang, Meng Xiong Kuok and Pak Tung Jason Yip satisfies the requirements of an "independent director" within the meaning of Section 303A of the NYSE Listed Company Manual and meets the criteria for independence set forth in Rule 10A-3 of Exchange Act. In addition, we have determined that Sidney Xuande Huang satisfies the criteria of an "audit committee financial expert" as set forth under the applicable rules of the SEC and is appropriately qualified as required under Rules 3.10(2) and 3.12 of the Hong Kong Listing Rules. The audit committee is also in compliance with Rule 3.21 of the Hong Kong Listing Rules and the Corporate Governance Code set out in Appendix 14 to the Hong Kong Listing Rules, or the Corporate Governance Code.

The audit committee oversees our accounting and financial reporting processes and the audits of our financial statements. Our audit committee is primarily responsible for, among other things:

Compensation Committee. Our compensation committee consists of Changheng Qiu, Pak Tung Jason Yip and Xueji (Jerry) Wang and is chaired by Changheng Qiu. We have determined that each of Changheng Qiu and Pak Tung Jason Yip satisfies the requirements for an "independent director" within the meaning of Section 303A of the NYSE Listed Company Manual. The compensation committee is also in compliance with Rule 3.25 of the Hong Kong Listing Rules and the Corporate Governance Code.

The compensation committee assists the board in reviewing and approving the compensation structure, including all forms of compensation, relating to our directors and executive officers. Our chief executive officer may not be present at any committee meeting during which their compensation is deliberated upon. The compensation committee is primarily responsible for, among other things:

Nomination Committee. Our nomination committee consists of Changheng Qiu, Meng Xiong Kuok and Liaohan (Leo) Chen, and is chaired by Changheng Qiu. We have determined that each of Changheng Qiu and Meng Xiong Kuok satisfies the requirements for an "independent director" within the meaning of Section 303A of the NYSE Listed Company Manual. The nomination committee is also in compliance with the requirements in respect of the nomination committee in Chapter 8A of the Hong Kong Listing Rules and the Corporate Governance Code.

Our nomination committee is primarily responsible for, among other things,

Corporate Governance Committee.Our corporate governance committee consists of Changheng Qiu and Pak Tung Jason Yip, and is chaired by Changheng Qiu. We have determined that each of Changheng Qiu and Pak Tung Jason Yip satisfies the requirements for an "independent director" within the meaning of Section 303A of the NYSE Listed Company Manual. The corporate governance committee is also in compliance with the requirements regarding the corporate governance committee under Chapter 8A of the Hong Kong Listing Rules and the Corporate Governance Code.

Our corporate governance committee is primarily responsible for, among other things:

Duties and Functions of Directors

Under Cayman Islands law, our directors owe fiduciary duties to our company, including a duty of loyalty, a duty to act honestly and a duty to act in what they consider in good faith to be in our best interests. Our directors must also exercise their powers only for a proper purpose. Our directors also owe to our company a duty to act with skill and care. It was previously considered that a director need not exhibit in the performance of his duties a greater degree of skill than may reasonably be expected from a person of his knowledge and experience. However, English courts have moved towards an objective standard with regard to the required skill and care and these authorities are likely to be followed in the Cayman Islands. In fulfilling their duty of care to us, our directors must ensure compliance with our memorandum and articles of association, as amended and restated from time to time. Our company has the right to seek damages if a duty owed by our directors is breached. In limited exceptional circumstances, a shareholder may have the right to seek damages in our name if a duty owed by our directors is breached. In accordance with our MAA, the functions and powers of our board of directors include, among others, (i) convening shareholders' annual general meetings and reporting its work to shareholders at such meetings, (ii) declaring dividends, (iii) appointing officers and determining their terms of office and responsibilities, and (iv) approving the transfer of shares of our company, including the registering of such shares in our share register. In addition, in the event of a tie vote, the chairman of our board of directors has, in addition to his personal vote, the right to cast a tie-breaking vote.

Terms of Directors and Officers

Our officers are elected by and serve at the discretion of the board. Our directors may be elected by an ordinary resolution of our shareholders. Each Class A ordinary share and each Class B ordinary share shall entitle its holder to one vote on a poll at a general meeting in respect of a resolution approving the appointment, election or removal of any Independent Non-executive Director (as defined in our MAA). Alternatively, our board of directors may, by the affirmative vote of a simple majority of the directors present and voting at a board meeting appoint any person as a director to fill a casual vacancy on our board or as an addition to the existing board. Any director so appointed shall hold office only until the first annual general meeting of our company after his or her appointment, and shall then be eligible for re-election at that meeting.

A director shall hold office until the expiration of his or her term or his or her successor shall have been elected and qualified, or until his or her office is otherwise vacated. A director may be removed from office at any time by ordinary resolution of shareholders before the expiration of his or her term of office, or the affirmative vote of a simple majority of the other directors present and voting at a board meeting. At every annual general meeting of our company, the Independent Non-executive Directors for the time being shall retire from office by rotation provided that every Independent Non-executive Director (including those appointed for a specific term) shall be subject to retirement by rotation at least once every three years. A retiring Independent Non-executive Director shall retain office until the close of the meeting at which he retires and shall be eligible for re-election thereat. In addition, a director will be removed from office automatically if, among other things, the director (i) resigns by notice in writing to our company; (ii) dies, becomes bankrupt or makes any arrangement or composition with his or her creditors generally; (iii) is prohibited by any applicable law or stock exchange rules from being a director; (iv) is found to be or becomes of unsound mind; or (v) is removed from office pursuant to any other provision of our Articles.

6.D.Employees

We had 1,835, 1,465 and 1,435 salaried full-time employees as of December 31, 2022, 2023 and 2024, respectively. As of December 31, 2024, a substantial majority of our full-time employees were based in China, while the remaining of them were based in the United States, Europe, Singapore, India, Japan and Colombia, among other locations.

We primarily recruit our employees through on-campus job fairs, recruitment agencies and online channels, including our corporate website and third-party employment websites. As required by PRC laws and regulations, we participate in housing fund and various employee social security plans that are organized by applicable local municipal and provincial governments, including housing fund, pension, medical, work injury, unemployment and maternity insurance. We or agents engaged by us are required under PRC laws and regulations to contribute to employee social security plans at specified percentages of the salaries, bonuses and certain allowances of our employees.

The following table sets forth the breakdowns of our employees by function as of December 31, 2024:

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We are subject to, and comply with, applicable labor law requirements, which may automatically make our employees subject to industry-wide collective bargaining agreements. We believe that we maintain a good working relationship with our employees, and we have not experienced any material labor disputes in the past. Our employees are represented by labor unions with respect to his or her employment.

6.E.Share Ownership

The following table sets forth information concerning the beneficial ownership of our ordinary shares as of April 15, 2025 by:

We have adopted a dual class voting structure. The calculations in the table below are based on 609,721,949 ordinary shares outstanding as of April 15, 2025, consisting of 539,516,649 Class A ordinary shares (including 2,085,143 Class A ordinary shares issued to the depositary bank for bulk issuance of ADSs reserved for future issuances upon the exercise or vesting of awards granted under our 2024 Share Scheme and 223,773 Class A ordinary shares represented by ADSs that have been repurchased by us from the open market) and 70,205,300 Class B ordinary shares.

Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, we have included shares that the person has the right to acquire within 60 days, including through the exercise of any option, warrant, or other right or the conversion of any other security. These shares, however, are not included in the computation of the percentage ownership of any other person.

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Notes:

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To our knowledge, as of April 15, 2025, a total of 63,776,857 Class A ordinary shares outstanding were held by two record holders in the United States, representing 10.5% of our total issued and outstanding ordinary shares on an as-converted basis as of such date. The number of beneficial owners of the ADSs in the United States is likely to be much larger than the number of record holders of our ordinary shares in the United States.

We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company.

6.F.Disclosure of a Registrant's Action to Recover Erroneously Awarded Compensation

Not applicable.

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