Q1 2023 Perfect Corp Earnings Call
If the deals including one also.
Chris teachers.
Skincare group in Japan.
Another with a U S based health care conglomerate.
Newly launched perfect AI scheme analysis.
This partnership.
Enabled us to deliver our cutting edge technology of screens are Nazis.
To a wider range of users providing.
First of all nice recommendation for a diverse range of enticing in concern.
We continue to innovate we're excited to bring some more AI skincare diagnostics and the recommendation services.
And our retailers around the world.
Fourth we saw Digitization has arrived in the jewelry and watch industry.
Watches and jewelry brands are finally caught up with virtual try on technology.
Notable new wins in this quarter were from Europe based luxury fashion groups.
But you are officially launched.
Our watch and jewelry.
On their web site across multiple countries 50 mile perfect jewelry Eto technology.
As more brands create digital assets.
To see wider Vittorio deployment across all channels, including web site.
And we track.
Thanks.
Our active our advertisements started to become.
Attractive is a very new way for brands to target more consumers.
Our new partnership perfect and cheap.
I'm joined forces to deliver the first native virtual try on AD formats.
<unk> X platform.
<unk> solutions enable brands to offer a state of the art Ptos Prn's across makeup.
And the other one.
All other <unk> categories.
Popular media around the globe.
We have two global luxury fashion brands feature of their watches.
Our media campaign using our App.
And also.
Thank God.
And also we offer a R F T. Several other cosmetic company.
Through this type of collaboration jewelry and beauty brands can reach out to new areas of potential and our consumers through our App, which is a brand new brightening form.
Another good news to share here.
Or a mobile beauty app business has been growing quite strongly with the injection of more AI features we have recently sigma robust surge in growth.
Mobile beauty app active subscribers increased by 15% from the previous quarter.
And the increased 50% from the same period last year.
This strong growth can be attributed to our efforts.
Improving digital marketing developing and monetizing more attractive AI features.
One of the Tambo too sure. We recently introduced a new product feature called Magic aperture.
Hi.
We enhanced our UK mobile beauty app.
We enhanced our UK mobile beauty app.
This powerful AI tool out of home advanced AI generated content Aig's <unk> technology in a costume able diffusion models and produced a phone in the realistic digital advertisers, which app users can use to express themselves and their online social community.
This positive user feedback we have received for this feature to help drive conversion to our mobile app.
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This is just one of our many R&D initiative that leverage the latest AI technologies for product innovation, we will keep on investing in AI development for both beauty brands and the beauty consumers.
And this unique synergy of business model.
Where our core technology is developed.
One kind of economic highs in both our brand business and also consumer beauty app.
It offers perfect very valuable insights and a very unique cost advantage.
The surge in digital commerce pushed transaction far beyond the traditional offline stores.
Those are increasingly happening online in apps and social platforms.
Content services and even in search trends are rolling out their strategy in omnichannel more than ever this larger mix of channels is what makes the perfect. So valuable in any environment in across every sales channel <unk>.
Our strength is our ability to build all the ride through tools for Congress to happening every place.
This is why brand customers.
Strategies with perfect.
To sum up despite uncertainty in the macro.
Believes that our value proposition to beauty brands and the beauty consumers remain intact.
Our education, AI AI innovation and a continued investment in this latest Aig's technologies.
And AI talent and AI skincare technologies will better position perfect in the competitive landscape looking to the rest of 2023 plus brands.
Brands continue to undergo digital transformations.
Our technology is a crucial component of creating immersive personalized omnichannel shopping experience across omni channels.
<unk> provides very good business opportunity for us.
In addition, because of our renewed okay.
Online services, our AIA are closer pollution center mobile App subscription.
We will grow more rapidly versus the previous year.
Their revenue contribution will be more permanent.
Good morning, more brands look to improve sales efficiency operate more sustainably.
Reduced product weight, we remain committed to driving top line growth, while focusing on profitability.
And also it from both.
All signs of growth in each respective area.
Mentioned in a very healthy market demand, we are very confident to deliver strong growth in our 2023.
With that I will now turn the call over to Louise to go over the financial details with you.
Thank you Ali.
Before I get into the details of our financial results. Please note that all comparisons are on year over year basis.
The reporting period, the first quarter of 2023 versus the comparable period in 2022 and.
In nonpublic Aif RF measures will be also discussing non <unk> measures to provide greater clarity on the trends in our actual operations.
During the first quarter of 2023, our rental revenue increased $12 million in the same period of last year to $12 1 billion.
<unk> quarter over quarter growth of nine 7%.
Year over year growth of <unk> nine.
And they are cloud solution in subscription revenue, which is now contribute 85, 4% of our total revenue in quarter. One grew by 18, 7% year over year, showing strong growth momentum in our core business.
Meanwhile, legacy licensing revenue for physical store, which accounted for 12, 3% of our total revenue declined by 47, 1%.
This trend not only show, our new prioritization and investing on our services, but also reflect customer preference.
<unk>.
Cloud solutions as subscription instead of the legacy offline 60, K services, which are the main component of the licensing revenue.
Turning to our customer order expansion and acquisition during the first quarter renewal rate for assistance accretion remain as strong as healthy as in the previous cycle.
We will continue to be active on our platform. Furthermore, our ability to acquire new customers improving yeah larger funnel among lethal prospects.
However, you would take some time for these new customer to grow sizable revenue to us.
Our mono revenue sources.
AI cloud solution and sufficient revenue, which grew by 18, 7% to $10 4 million, mainly due to the strong and stable demand for our online virtual try on solutions to <unk> customers as well as strong growth in our mobile beauty a prescription.
All of our beauty active subscribers grew by 53, 3% year over year, reaching a historical high of 694000 active subscribers at the end of the first quarter of 2023.
The increase demonstrated growth a robust growth momentum of our suite of mobile apps.
Licensing revenue, which is mostly generated from the more traditional offline services plus $1 5 million, representing 12, 3% of our total revenue primarily driven by growing customer.
Demand and interest and more interest in the e-commerce, rather than traditional physical toward deployment.
The strong growth momentum in our cloud solutions and subscription revenue and a decrease in license revenue aligns with management expectation and as a result of our strategy to prioritize innovation and to invest in new cloud based subscription services.
A strategic shift in revenue mix showed that the <unk> cloud solution and subscription business will continue to drive revenue growth and become a primary growth engine in the future as well.
Direct our resources in online business going forward, we encourage investors to closely observe the future growth trajectory of our cloud.
Cloud solution and subscription services.
Gross profit was $9 6 million, while gross margin was 78, 8% compared to 86, 2% for the same period of last year. This.
This was due to a change in our cost of goods sold.
It was driven by the growing mobile beauty app subscription generated higher platform fees paid to third party digital distribution platform, such as Apple and Google.
Total operating expenses decreases by <unk>, 9% to $11 1 million.
$7 2 million for the same period of last year, demonstrating management successful effort to control costs and enhance our productivity.
The breakdown of operating expenses.
Sales and marketing expense remained flat at $6 million, representing 49, 6% of our total revenue on par with the same ratio during the same period of last year. This again shows the effective cost control measure put by the management.
Research and development expenses decreased by three 1% from $2 7 million to $2 6 million, representing 21, 6% of our total revenue compared to 22, 5% in the same period of last year.
The decrease was mainly due to the foreign exchange gain from the strong U S dollar versus.
NT dollars.
The majority of our R&D expenses are incurred in Taiwan.
General and administrative expenses decreased by one 8% for $2 5 million to $2 4 million.
19, 9% of total revenue compared to 24%.
<unk> of last year during that there were no significant changes during the quarter.
Horace Mann category reflect the effective cost control area out by the management team to increase our team productivity under such a challenging macroeconomic and inflationary environment.
Net income from positive to <unk> 7 million from a net loss of <unk> 5 million in the same period of last year, mainly due to $2 2 million interest income during the quarter.
Excluding noncash share based compensation foreign exchange impact and a onetime nonrecurring cost associated to our these type deal adjusted net income of $1 4 million compared to adjusted net income of $1 2 million during the same period of last year.
Turning to our balance sheet as of March 31, 2023, our company held $196 1 million in cash and cash equivalents and time deposits six months and longer compared to $192 6 million as of December 31 2022.
$3 5 million to one 8% quarter over quarter increase.
The company's cash position remains healthy and we do not have any exposure to silicon Valley bank or any other U S regional banks credit Suisse.
In total our customer base had a net increase of 16 brand clients at the end of 2022.
<unk> a total of 525 clients with over 590000 Skus for makeup skincare eyewear jewelry product as of March 31 2023.
This quarter, we grew our key customers to 158 from 152 at the end of 2022 the.
The new acquisition came from the expanded pipeline as we fine tune strategy to counter the impact of a prolonged sales cycle.
While the present business environment is full of uncertainties. We believe the macro situation may improve in the quarters to come. Despite these difficulties our solid customer base effective cost management, especially into new categories and geographies to leave us very well positioned to see the future growth opportunities.
That concludes my prepared remarks, operator, let's open up for questions.
Thank you and we will now begin the question and answer session. If you would like to ask a question. Please press star followed by the number one on your telephone keypad again that is star one on your telephone keypad.
And your first question comes from the line of.
Timothy Zhao from Goldman Sachs. Your line is open.
Yes. Thank you management for taking my question two questions from my side first.
First I noticed that on your balance sheet here.
Over 30% quarter on quarter growth of contract liabilities, which is actually quite strong relative to the revenue growth either on Q or year on year growth basis.
Just wondering if management could share more detail Conor behind this very strong increase in the contract iPad his.
Shall we interpret that.
Going forward, we should be able to see accelerating.
<unk> revenue growth for the rest of this year and that will be my first question and secondly, I think you know from our remarks centralizing the press release.
I think you mentioned that companies are fine tuning the sales marketing strategies in the context of a prolonged sales cycle I know some macro uncertainties.
But I saw I think.
In the fourth quarter to sales and marketing expenses was quite flattish stable year on year, just wondering if management have any guidance for those as marketing expenses for the rest of this year. Thank you.
Okay.
Hi, Timothy you can deploy greater talk to you again.
So the contrary LGBTQ literally either advanced indicators that are the company is gaining more contract with the customers.
We said our prioritizing our subscription business model.
As part of the accounting and the subscription contract it will take time to be fully recognized.
So yes, so you see.
The difficult sizeable growing the country our ability isn't it reflects.
The nature of the business.
On your second question again, we are always running a very efficient team, whether it's sales marketing R&D, but even reaching to new geography.
Dissipating and a lot more trade shows and also spending in digital marketing, we managed to get our cost very well under control are able to enlarge our funnel I think these early results. Our ESP I wanted the measures that the management has put together in the last six months already and it seems to be starting to work out.
<unk>.
Got it thank you guys.
Your next question comes from the line of Clarke Jeffries from Piper Sandler Your line is open.
Yes.
Luiz Thank you for taking the question.
I wanted to dig into the brief mention of generative AI and.
Just more broadly how do you expect similar to recent innovations that have been made available to be applied to the platform.
Encouraging to hear about the magic and the Avatar functionality does that does that offer new revenue opportunities and service charging for consumption.
For some of those sort of creations by users or do you see it as a user or user acquisition and retention tool within the mobile App product and then I have one follow up.
Hi, Carter this is Lloyd.
We introduced the metric our tech feature in our U can perfect App. It is an add on service on top of the transportation consumer can decide.
Two just opt in for these features though I think we charge them $2 99, or 50 avatar or $3 99 for 100 Alba.
Current active subscribers. They can also opt in to do that at a discounted rate. So basically I think the benefit of Daddy, we see increase in the our pool. So allow us to increase the average order value of the customer or lifetime value of the customer.
Well are we seeing these to attract new type of customers, who are not traditionally part of our app. So we certainly.
It's still early we launched this in early March.
Just made it for the first month early we saw shows a prominent.
Potential to both increase the value of existing subscribers, but also to attract new subscribers.
I'd like to add something about ITC, though we did not.
Okay.
Yes.
Like you said.
In the <unk> App mobile App.
As mentioned at the time.
This is only one of the applications we are developing.
<unk> developed and the relief and allow the Moa and this one is for BTC App first.
A lot of more aig's.
I think in how we can apply that not only at the also to Lisa different fashion stylist.
Hi.
So we are excited to see at ITC.
This new AI technology developed it to the to the market and then open up a new.
A new way to engage with consumers and also the brand can leverage engage with their customers.
We have new technology too.
Bad on our App user beauty app to try to market with a new tariff directly.
The feedback is very.
Half of it and.
We were bringing to our brands for them to imagine how they can leverage it.
Age, where theyre beauty consumers.
So yes, we are.
Good morning.
Investing and developing a new application and that's correct.
I believe we will share more about more of our AI TCR features and solutions with you.
Okay perfect. Thank you Allen certainly on the <unk>.
The question is how does the <unk> products change regenerative AI.
Just my follow up in terms of.
The current operating environment.
Curious where do you see the most attractive return on your investment right now is that pursuing opportunities for expansion within the top 20 is that growing outside of the top 20 beauty brands or is it.
Maybe investing in the sort of digital marketing advertising accelerators for the BDC business.
I think we are starting to diversify a lot more out basis.
In our release.
I think <unk> remains very strong core of our business, but we have all of our partners and we continue to help them expand omni channel, which means going to different E. Tailers are retailers' partner to distribute their skus. They are experienced in more geographies and more in our platform. So that continued to be strong.
Of course, we see the long tail part of the beauty business starting to take off at a much faster pace right now virtual try on this becoming a very much the table stake for the E. Commerce solution that segment has continued to grow well for online.
Visit the mobile App accretion seems to be FDIC mentioned, we reached another record high quarter for active subscriber I think there's another positive trends we have.
The business also satisfying upfront advertising business with our newly announced partnership with T cell is a very new buy those either way that we want to go beyond the traditional e-commerce and the brand as well right. The video experience that you're engaging experience that is worth.
To be seen.
Or more consumers and not only does one visiting the e-commerce shopping cart right, though I think this will be a new way to.
Engagement <unk> interactive advertising AD right, though I think consumers are not satisfied with the traditional banners or a video ad.
I do try to be part of that and at the bto with it or watch it.
Make up doesn't make sense.
And fundamentally I think one was noted here the core technology at the same rate we did all of the engine where they are.
And we find these different use cases to apply both for consumer business, but as well for Brent visit today's a very huge savings for us from a development cost perspective.
Mainly to run these engineering team, which only accounted about 20% of our revenue I think that is a very efficient way to run that at.
At the same time once this technology, we can pilot test that almost in a test bed and the consumer.
And as we gain feedback and understand how consumers are reacting to that with packaging. This technology in a different form factors and different use cases and offer that to the beauty brands.
Perfect. Thank you very much.
Before we proceed on to the next question a friendly reminder, if you would like to ask a question today on the phone. Please press star one on your telephone keypad.
Again that is star one on your telephone keypad and your next question comes from the line of Christian from Kendall caught your line is open.
Yes.
Hi, Louise.
To hear you on the call. Thanks for this I had a question on the competitive environment.
What you've.
The last six months given the longer sales cycle, even in the challenging market conditions can you discuss a little bit demand for new homes.
And from a pricing and product differentiation strategy and how you think that that's going to evolve in the coming months. Thank you.
Yeah, Hi, Chris This is Alex.
From the competitive point of view actually we see any company has.
Even stronger than us.
Behind us right now.
Hum.
Depletion.
<unk> any way so far.
Sure.
While we did at least that increase the pipeline.
It will take some time to make.
The revenue or keep that revenue.
Those brands are in our pipeline to grow the revenue and for mobile apps actually there are a lot of our competitors.
Yes.
The real beauty app in there, but we.
<unk>.
Leverage AI more I lost here at more AI teacher Pat.
Turns out to be very attractive to the end user.
Very unique features by AI and the track and make those.
Well Scott. Thank you said new users.
Not only on our App and also various DTE, we increased renewal rates everything.
That's likely reset our core technologies apply to.
Can use their app first and collect feedback that's good.
Approach and also introduced to the brand.
<unk> site.
Peter.
These new features AI features to the BD appetite is so attractive.
Uh huh.
Hopefully that's a relationship that does.
We can leverage that they announced I'll give feedback to the brand and they can also use our technology to attract their own users.
Once you increase.
So essentially I think the competitive landscape that we are they'll remain pretty much the same there our position our value proposition to the brands remain very intact, but as I mentioned the renewal rates are prepaid.
Pretty much the same as previous cycles, but we haven't seen really a significant change in that landscape.
Okay.
Okay. Thank you.
Youre welcome.
As there are no further questions at this time I would like to hand, the conference back to management for closing remarks.
Okay.
Alright, Thank you again for joining our call today.
If you have any further questions. Please feel free to contact us to.
I'll request through our IR website.
We look forward to speaking with everyone in our next call have a good day.
Thank you.
Okay.
This concludes today's conference call you may now disconnect.