Q2 2023 Perfect Corp Earnings Call

Okay.

Good morning, and good evening, ladies and gentlemen, thank you for standing by and welcome to.

Screening conference call at this time, all participants are in listen only mode, you won't be hosting a question and answer session. After management's prepared remarks.

This event is being recorded I will now turn the conference over to your first speaker for today, Mr. Li VP of IR Company. Please go ahead.

Alright, Thank you, Andy and Hello, everyone and we'll come to a perfect Corp earnings call.

So today, Miss Alice Chen founder chairwoman and CEO .

Louise Chen or EVP, and CFO and mixed Irish Chen VP of finance and accounting.

You can refer to our second quarter 2023 financial results.

Web site or in the form 6K, we filed with the ACC earlier.

Can later status a replay of this call our website. Shortly after the conclusion of this call today's call management will provide their prepared remarks first and then.

Then we will host a Q&A session.

Before we continue I would like to refer you to our safe Harbor statements in your earnings press release.

But you also have prior to this call.

This call may contain forward looking statements regarding perfect copes format.

The pay plan.

Operational results and objectives.

Forward looking statements are based on management's expectations.

It's subject to a number of risks and uncertainties that could cause actual results could differ materially from those expressed or you can call today.

Perfect.

<unk> no obligation to update any forward looking statement.

Or as required by law after the date I'll just call.

Please note that all numbers stated the following major my prepared remark.

U S dollar terms.

And we would discuss now.

I'll ask managers today.

No further Ado I will now turn the call to our first speaker today.

CEO Eric Chen.

Thank you Lee Hi, everyone will come to a perfect Corp.

Q3 second quarter earnings conference call today, I'm happy to share with you a perfect score of a pioneer in AI in HR solutions for the beauty and fashion.

The innovation in shaping the future for beauty.

And the question Jack.

For the second quarter of 2023, we generated.

And then the Liam dollars in total revenue.

Presenting year over year growth, helping to 11, 9%.

One digit growth has mainly come from our AI our cloud solution.

Mobile beauty App subscription services.

No addition, we managed to improve our net income on an adjusted basis to $1 $1 billion in the second quarter of 2023 from <unk>.

$6 million in the same period also a touchy subject to reflecting our margin.

Improvement of two 7%.

The Corp has been and pioneer since its inception did utilizing AI and machine learning in 2015 for real time makeup virtual trial.

Over 50% R. R.

Our RMB developers specializing in AI, they continuously harness the latest Benson.

Benson to push the boundary of beauty and fashion.

Yes, we have.

<unk> expanded our AI applications, including face detection for foundation medicine real time live hair color, but your trial.

Chelsea skincare diagnosis, using AI deep learning models and the incorporation of AI again technology for various video but.

In the second half of 2022, we introduced.

The AI to beauty tech such as AI Avatar.

Each user to create his or her own digital twins.

Now in 2023, we proudly unveil our range of innovative general deep AI product, including AI fashion AI here in the more to come.

Perfect. We are committed to utilizing the most advanced AI and AI technologies to provide continuous support to our three key growth pillars.

Judy Tad Tad fashion tap iPhone nursing.

<unk> technology, we aim to enhance and to further develop our capabilities in this domain.

Our AI advances are not only leading to more collaborations with brands and also enthusiasm in beauty and fashion, but also positioning us for the future that that then the revenue growth.

This is especially true with degenerative AI.

The combination of human creativity.

Hello, Sir do develop products and experiences that captivate our customers.

So apart from competitors and this first as a driving force for us.

Ken's financial growth in the long run.

So let me turn to our operational results for the second quarter and explain how our refocusing AI has contributed to our growth on.

On the brand side, what do you have observed encouraging signs on people.

The improvement in product demand it is evident through stable renewal to E&P customers and an increased interest in our innovative projects.

Particularly those involving Gen AI.

Simply we participated in the <unk> conference in Paris, and the whole state Rfps <unk>.

Global Beauty fashion Tech Forum in New York. This event serves as a platform for us to own.

And showcased our latest advances in BB pad in cap as intact.

<unk> done that.

Creative usage model of generative AI across the board.

Brand groups have shown high interest to our pilot programs using <unk> and AI for new collaborations.

On the other hand, our mobile beauty.

<unk> yeah.

Impressive growth and momentum.

First quarter.

Due to the introduction of various premium add on features powered by AI.

Avatar.

Hey, My question is our latest innovation, which enables users to explore different fashion styles, all says and hairstyles through AI generated image, which.

But can we just introduced a mobile beauty up with very high engagement rate let's.

Lets technological developments development tranche.

In addition to the new features powered by AI perfect has to also be working on enhancing our virtual try on what you read and watch it.

Especially with a multiple product I can't capability.

So now we can combine rain that's listed the watches virtual trial at the same time.

And together with the makeup virtual try on to create a complete.

Virtual try on Luke in real time.

This would allow consumer to try out different makeup product didn't necessity release together to see how they complement each other.

And then visualize a total Luke this is unique in the market.

Grant.

This powerful tool will allow cross sell and build customer loyalty.

More addition in order to in order to celebrate celebrate the adoption of virtual trial technology for fashion and the jewelry perfect. Now aim to the word first C. D E. T O open format with the release of a comprehensive white paper on our new open standards.

T O file format.

The format is.

Abolition of standardized simplified process for integrating third party three D objects into our virtual trial platform.

In addition, we also launched a two day to three D. <unk> creation tool for jewelry. This tool can convert from 142, the product image into a simplified three D. S ads for virtual trial.

Both in Asia and to expedite the market adoption, what you re virtual trials.

It will greatly reduce the time and cost required for brands to integrate their products into our platform.

That's a breakthrough has the potential to.

Revolutionized the fashion industry by enabling rapid integration of virtual trial experiences and updating both our brands and the consumers.

On the business development wrong, we have made significant progress.

Expanding our presence in the skin care market, our diligent and business development efforts cost, resulting multiple progress.

Specifically during the second quarter.

Acquired over 10 years into your clients across our various business segments, including pharma brands mess.

Mascot and beauty and clinique duty cleaning.

So in different regions.

United States Pen Asia, and the Middle East.

This demonstrates our strategy in penetrating key growth market.

Establish in partnership with skincare vertical.

At the same pace, we have successfully introduced additional premium at all features to our mobile beauty app.

Incorporating our advance in AI technology into our offerings.

Initiate it.

We initiated that.

That's allowed us to attract a greater number of engaged to mobile app users, resulting in incremental subscription revenue.

So that's from the second quarter.

We have worked with several prestige right.

Spent.

<unk> V T O offerings, they need a new tasty.

Jim Holt your recently launched its new online in the remote one two lung cancer patient surveys will complement existing digital beauty footprint. This.

This showcase that are purchased by Alex to your rents.

<unk> channel.

We expect that newer use cases for this job.

Adopting virtual try ons at the T E C O N E digital beauty.

Another good example is testbed.

Which is a prominent union labor there to your brain.

Recently introduced exciting feature our U S website.

An AI first dive virtual trial.

This innovative tool empowered consumer to explore individualized different hairstyles before making a commitment for a here make over.

By leveraging our AI technology.

And to provide a more engaging and personalized experience for its customers.

Interactive and Theyre very user friendly AI tool enable individuals to make more informed decisions about their desire here transformation.

Eliminating any uncertainty that may.

Right when considering a new hairstyle.

In addition, we also help the well known European luxury fashion brand.

She is first ever but the comprehensive virtual trial services.

For somebody got to nail Polish sales speaker Restless watches.

At the same time, the largest luxury group in Europe .

Also rollout, it's jewelry E T O.

In the second quarter.

Lastly, the world's largest E Commerce company has chosen perfect to launch its video features for its nail brand heat.

Shopping app in the U S west.

This.

Innovative collaboration aims to revolutionise.

The way consumers to be a wrench in the shop for now and the jewelry product.

Introduction of our virtual trial services for beauty and fashion jewelry.

Rice of sick enough shift in the industry.

Indicate that virtual trial has now become an essential requirement.

Okay, Oh brand to stay relevant in house numerous digital journey.

All the time hustler increasingly is that the ability to visualize all make us an accessory will look at the states before making any purchase and diversify and fulfill that demand.

Perfect course, as a pioneering for it.

<unk> the market supervisor.

AI driven virtual trial solution across all categories.

Desktop commitment.

The innovation and cutting edge technology.

<unk> has been instrumental in revolutionizing the beauty in the fashion industry to enhance consumer engagement and the consumer purchase purchasing journey.

In summary, we had a good second quarter with double digit revenue growth and as we look forward to the full year 2023, we estimated but year over year, our total revenue growth ranging from 11, 5% to 14, 5% compare.

<unk> to 'twenty 'twenty.

Hello. This journey, our team worked diligently monitor and access key performance indicators.

Sure we stay on track with our objectives.

Perfect is well positioned to benefit from the Mega trends of digital transformation of beauty and fashion.

Together with a new wave of innovation created by generative AI technology, we will continue to propel the growth of both <unk> das business as well as our mobile app consumer subscription business.

Thank you for listening in and now I'm, turning the call over to Louis to go over the financial details with you. Thank you.

Thank you Alex.

Before I go into the detail of our financial results.

Please note that all comparisons are on a year over year basis.

The reporting periods is the second quarter of 2023.

The comparable periods of 2022.

And on top of the Ifr if measures we will also discuss.

These measures to provide greater clarity on the twin actual operation.

Well the same quarter of 2023, while total revenue increased from $11 3 million U S dollars.

<unk> over last year to $12 $7 million, representing a year over year growth of 11, 9%.

Our AI cloud solution in subscription revenue, which now contributes 86, 7% of our total revenue grew by 16, 3% year over year, showing strong growth momentum in our core business.

Meanwhile, I can see licensing revenue for physical store, which is now accounted for 10, 9% of our total revenue.

Creased by six 2%.

This trend not only resonate with our continuous focus on prioritizing alright surfaces.

Also underscore how some inclination to direct resources into our E. R. A cloud solution is subscription.

Regarding customer order expansion and acquisition trends during the second quarter renewal rate for Ccs accretion has remained strong and healthy demonstrating continued customer engagement with our platform.

Similarly at the macroeconomic show signs of recovery effort in acquiring new customers have shown improvement we remain cautiously optimistic about the long term growth potential that they bring to our business.

Among all revenue sources.

Our AI cloud solution and subscription revenue grew by 16, 3% 11 million U S dollars.

Presenting 86, 7% of our total revenue in the second quarter of 2023, mainly due to solid demand online virtual try on solutions will bring customers and robust growth in our mobile beauty app subscriptions.

Our mobile beauty active subscriber surge by 53, 3% year over year, reaching a historical high of over three 770 700000 by the end of the second quarter of 2023.

<unk> growth. So there's strong demand for innovative features probably by generic AI in a suite of mobile beauty.

And highlight the strong momentum we have generated in the market.

I think the revenue, which is mostly generated from our traditional offline services increased by six 2% to $1 $4 million, representing 10, 9% of our total revenue compared to 11, 5% of total revenue in the second quarter of 2022.

Rick Blaine customers continuous elevated interest all my services, rather than traditional physical store deployment.

Well I think the revenue seems to stabilize at the current level. We are a cloud solution and subscription revenue showed strong growth momentum in this quarter.

And not only align we manage been continuous strategy to prioritize new cloud based subscription services, but also demonstrated significant ROE the generics.

Driving business growth.

Generative AI technology to rapidly evolve.

Even more creative and advanced applications to further drive our revenue growth.

Gross profit of $10 2 million U S dollar while.

Gross margin was 86% compared to 85, 8% for the same period of last year.

Change in gross margin was due to an increase in the cost of goods sold which was driven by the growth in the Companys mobile beauty app subscription.

Search and subscription led to higher platform fees paid to third party digital distribution platform, namely Apple and Google.

Compared with 78, 8% gross margin for the first quarter of 2023 for the second quarter was $80 six demonstrating a quarter over quarter improvement.

Total operating expenses increased 12, 5% to $12 3 million U S dollar on $11 million for the same periods of last year.

The breakdown of operating expenses.

You're getting a sense were $6 6 million dollar.

<unk> 51, 7% of our total revenue compared to $6 1 million or <unk>.

Three 6% of total revenue same period last year.

The seven 9% year over year changes was primarily due to increase in promotion and user acquisition expenses.

Research and development expenses were $2 $8 million, representing 21, 8% of total revenue compared to $2 $6 million and 23, 3% of total revenue during the same period last year.

General and administrative expenses were $3 million.

And in 23, 8% of total revenue compared to $2 2 million and 19, 8% of total revenue in the same period last year.

$34 three per thing year over year changes.

Primarily due to an increase in public company.

I recall.

The change in this category reflect a moderate increase in spending by our core business is growing and moving forward, we will carefully monitor and control our expenses to ensure responsible spending practices.

Net loss was <unk> 2 million U S dollar for the second quarter of 2023.

Compared to a net income of $27 $4 million during the same period of 2022.

Mainly due to the $78 4 million adjustment in noncash valuation gain on financial liabilities at fair value through profit or loss in the second quarter of 2022.

Excluding noncash share based compensation foreign exchange impacts and onetime nonrecurring costs associated with our lease back deal. Adjusted net income was $1 1 million U S. Dollar for the second quarter of 2023.

Relative to adjusted net income was <unk> $6 million the same period of 2022.

Turning to our balance sheet as of June 32023, the company held $198 million in cash and cash equivalents and time deposits this month or longer.

Third to $196 $1 million as of March of 31 2023.

<unk>, a $1 9 million U S dollar for the <unk>, 9% quarter over quarter increase.

Company cash position remains healthy.

In total our customer base at.

We had a net increase of 76, new blend Cup brand clients since the end of last quarter, achieving a total of 601 brand customers grew over 655000 SKU for makeup skincare eyewear jewelry product as of June 32023, and this quarter, we grew our key customer to one one.

<unk> 63 from 158 at the end of last quarter.

New acquisition came from the improvement in our sales cycle is larger farnell increased inbound leads grew by the recovery in market conditions.

In the second quarter, our revenue so strong momentum due to the continued demand for online.

AI cloud solution subscriptions as well as the rapid increase in our mobile App subscribers I'm currently we effectively manage our expenditures to ensure profitability, while achieving revenue growth and stable renewal rates of our Ccs accretion diligent cost control measures and our healthy cash position for the report on <unk>.

During conference in revenue in the long term.

<unk> concludes my prepared remarks.

Operator, let's open up call for questions.

Okay.

Yeah.

Just a quick question press the star followed by the number one on the telephone keypad again that star and the number one on your telephone keypad.

We have a question from Jeff <unk> from.

You have a question from Timothy <unk> from Goldman.

Your line is now open.

Sure. Thank you for taking my question.

I think I have a question about.

Your revenue guidance I think the guidance is quite helpful and which implies a revenue growth in the second half could be.

By my calculation close to 90% year on year compared to single digit growth in the first half.

Wondering if management could further elaborate the drivers behind the revenue acceleration into the second half.

A related question is that I have noticed when customers actually increased quite a lot in the second quarter or six.

600 in June .

But it seems that the revenue growth and contract value growth next behind a little bit wondering.

Wondering if you could help us understand what it is.

Customer pay.

Payment behavior of those newly acquired customers and when we can see more revenue contribution from these new customers. Thank you.

Thank you Timothy.

So we have seen certainly more demand for the brand customers of all sizes.

And as we have seen typically when the customers started to join our platform. Initially they will start with a more reasonable orders and over time <unk> growth will be more upsell and cross sell so we do see some healthy sign more clients or the need for the beauty solutions for beauty tag fashion packaged in tech come into their solution that how are you.

So the increase of total bring customer to over 600 now for the first time and I certainly thought it would be encouraging signs for us to continue to work with those customers. So they understand our solution and grow to be a bigger standard over the time.

Our internal of the business outlook guidance.

Certainly the company as we go.

And again more maturity in our business and more robust business model.

Also a few important to share that visibility and transparency with the market. So we certainly have seen.

Indicators from above the online solutions I'd say at this point, but also the mobile app subscription that is growing very very fast.

<unk> is showing a strong confidence to the company got it second half of the year will be performing much.

Better than the first half of the year, therefore generating the guidance that we are putting forward at this time.

Okay.

Okay.

Thanks Louis.

We have our second question from Clarke Jeffries from Piper Sandler Your line is now open.

Okay.

Hello, Thank you for taking the question.

I just wanted to.

Maybe dig into the sub components.

AI cloud solutions.

Louis could I confirm with you.

AI cloud solutions are growing at right now and.

Maybe as a follow up to the prior question.

It seems like the subscription business is growing quite well in terms of active users may be growing in excess of 30% maybe by my math and so just could you just remind us what are the dynamics of AR and AI cloud solutions.

Seems to be.

Accelerating in the second part of the year I would assume.

Based off of that that guidance.

Okay.

Yes, Scott.

They are a cloud solution includes all our beauty tax in tech solutions that are online or mostly are helping brands on E Commerce journey.

American virtual try on or in the northeast or other type of solution.

But also include a mobile app subscription for the premium subscriptions, where the consumers are downloading our family of <unk> and.

<unk> opt into unlock premium features.

Some of these new Genuity AI features.

Both are certainly it continues to grow as we see this pattern.

In this last quarter, the mobile App accretion.

Suddenly it was coming from a lower base is growing very rapidly.

We have seen quarter after quarter hitting record high number of active subscribers in these times, we over 60% actually Susquehanna increase, though that certainly eating and instrument confidence that they're twins.

Very strong demand for the remaining of the year. So I think because of these two primary driver.

We are.

Driving our model for the whole year revenue projections.

Certainly maybe a follow up is.

Yes.

The SKU the SKU count and the brand count are both growing quite well do you anticipate.

Some of those Skus and brand counts to see.

The inflection in monetization that you would expect.

The AAR in AI cloud solutions to accelerate off of business you've already won.

And we will start to build in terms of revenue contribution.

Over the coming year.

That makes sense.

Right.

Explained earlier I think the brand customer business typically it takes a few years to grow into our scale and maturity.

We have seen already from last year and early this year that the lead funnel that we are developing is actually much larger than a wider although he was taking longer to two it was a very prolonged sales cycle and I think we are certainly are passing through this process. If the northeast nine months working on this deal that started to see some more.

Advising on these results.

Certainly these are the baseline of where we want to grow our future business waste by once a customer with us and they have their initial skus on the platform and we opened our opportunity to do more omnipresent Omnichannel cross sales to them by once they have the SKU digitize, the northeast and be able to take that into different E Commerce and E. Tailers.

Or their own dot com.

Our presence to ensure each of these will represent an opportunity to monetize by increase of subscription revenue.

Towards the brands so.

So yes, you are right I think we see a good recovery from a number of new brands and the number of Skus that are joining in this platform and also we also see more categories are being added here, we had been working on the beyond beauty category for a 12 to 18 months now and we are starting to see as a reporting.

Last quarter data, we now have over a dozen.

Jewelry or watches brand already on the system at each quarter as the past they are more apt to use that also been injected <unk>.

Through these new partnerships and new client categories.

Thank you very much.

Okay.

If you'd like to ask a question. Please press star followed by the number one.

Yes.

There are no further questions at this time I would like to hand, the conference back to the management for the closing.

Mike.

<unk>.

Alright. Thank you. Thank you Eddie.

Thank you everyone again for joining our call today.

Have a good one thank you.

Yeah.

Yeah.

Okay.

Yeah.

Thanks.