Q2 2024 Perfect Corp Earnings Call

Operator: Good morning and good evening, ladies and gentlemen, thank you for standing by, and welcome to Perfect Corp's second quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise.

Good morning, and good evening, ladies and gentlemen, thank you for standing by and welcome to perfect Corp's second quarter 2024 earnings Conference call.

All lines have been placed on mute to prevent any background noise.

Operator: We will be hosting a question and answer session after management's prepared remarks. Please note that today's event is being recorded. I will now turn the conference over to the first speaker today, Mr. Jimmy Shaw, director, IR director of the company. Please go ahead.

We will be hosting a question and answer session. After management's prepared remarks.

Speaker Change: <unk> note that today's event is being recorded I will now turn the conference over to the first speaker today, Mr. Jimmy Shaw Director IR director of the company. Please go ahead.

Jimmy Shaw: Thank you, and hello everyone. Welcome to Perfect Cork's second quarter 2020 call. With us today are Miss Alice Chang, our founder, chairwoman, and chief executive officer. Mr. Louis Chen, our executive vice president and chief strategy officer, and Miss Iris Chen, our vice president of finance and accounting.

Jimmy Shaw: Thank you and Hello, everyone.

Speaker Change: Welcome to perfect Corp's second quarter 2020.

Jimmy Shaw: Paul.

Speaker Change: US today are Ms, Alice Chen founder chairwoman and Chief Executive Officer.

Alice H. Chang: Hey, Louise Chen.

Speaker Change: Executive Vice President and Chief Strategy Officer, and MS Irish Chen Vice President of Finance and accounting.

Jimmy Shaw: You can refer to our second quarter 2024 financial results on our website or in the form 6K we filed with the SEC earlier. A replay of this call will also be available on our website shortly after its conclusion. For today's call, management will provide prepared remarks, followed by a Q&A. Before we continue, I would like to refer you to our safe harbor statement in our earnings press release. This call may contain forward-looking statements regarding performance, anticipated plans, original results, and our objectives.

You can refer to our second quarter 2020 for financial results on our IR website or in the form 6K, we filed with SEC earlier.

Speaker Change: A replay of this call will also be available on our website shortly after its conclusion.

Speaker Change: Today's call management will provide prepared remarks, followed by a Q&A session. Before we continue I would like to refer you to our safe Harbor statement in our earnings press release. This call may contain forward looking statements regarding performance anticipated client.

Jimmy Shaw: Forward-looking statements are based on management's expectations and are subject to numerous risks and uncertainties that could cause actual results to differ materially from those expressed or implied in our call today. Corp undertakes no obligation to update any forward-looking statements except as required by law after the date of this call.

Speaker Change: As you know results and our objectives.

Speaker Change: We're looking statements are based on management's expectations and are subject to numerous risks and uncertainties that could cause actual results to differ materially from those expressed or implied in our call today.

Speaker Change: Perfect Corp undertakes no obligation to update any forward looking statements.

Speaker Change: As required by law after the date of this call.

Jimmy Shaw: Please note that all numbers stated in management's prepared remarks are in U.S. dollars, and we will discuss non-IFRS measures today. I will now turn the call over to our CEO, Ms. Alice Chang. Thank you, Jimmy.

Speaker Change: Please note that all numbers stated in management's prepared remark are in U S dollars.

Speaker Change: And we will discuss non <unk> measures today.

Speaker Change: I'll now turn the call over to our CEO Ms Alice Chen.

Alice H. Chang: And welcome to Perfect Quartz's 2024 second quarter earnings call. We have some exciting news to share today. Let's get started.

Alice H. Chang: Thank you, Jamie and welcome to the perfect quarter 2024 second quarter earnings call. We have some exciting news to share today, let's get started.

Alice H. Chang: Leveraging our advanced AI capabilities, we started the first half of 2024 with strong growth. We, within our previous provided guidance. Our first half revenue grew by 13.5 percent year over year to 28.2 million. Our net income grew 185 percent year over year to positive 1.4 million, and the adjusted net income increased 26.2 percent to 2.8 million compared to the first half of last year. The double-digit increase in revenue and the positive net income were driven by the strong growth in our AIAR cloud solutions and the subscription services for mobile beauty apps and Enterprise Business School.

Speaker Change: Operator.

Speaker Change: Its AI capability, we started the first half of 2024 with a strong growth within our previously provided guidance.

Speaker Change: First half revenues grew by 13, 5% year over year to $28 2 million.

Speaker Change: Our net income grew 185% year over year to positive one 4 million and the adjusted net income increased 26, 2% to two 8 million compared to first half of last year, the double digit increase in revenue and a positive net.

Speaker Change: Income was driven by the strong growth in our AIA, our cloud solutions in the subscription.

Speaker Change: Good day for mobile P D apps.

Speaker Change: In the enterprise business, both both but that's been a focus from our superior AI a our technology in a contributed to increase in the top line and also to the profitability there.

Alice H. Chang: Both businesses benefited from our superior AIAR technologies and contributed to an increase in the top line and also to profitability. The first half of 2024 saw our operating cash flow generate a net inflow of $5.5 million.

Speaker Change: The first half of 2024, so all of our operating cash flow generated a net inflow of $5 5 million.

Alice H. Chang: In the second quarter, our continuous improvement in the company's bottom line showed a net income of $0.8 million compared to a net loss of $0.2 million during the same period in 2023. Our operational strength lies in efficient cost management initiatives, improvements in operational efficiency while sustaining our competitive edge, investments in AIAR services, and continuous development in our market. Furthermore, we delivered $1.3 million in adjusted net income for the second quarter of 2024 versus $0.9 million in the same period of 2023, an increase of 43.8%.

Speaker Change: Second quarter are a continuous improvement in the company's bottom line shows the net income, although 0.8, Neely N compared to a net loss of <unk> 2 million during the same period 820 23.

Speaker Change: Our operational strength lies in efficient cost management initiatives improvements in operational efficiency, while sustaining our competitive edge investments in AI HR services and the continued development in our market to tweak.

Speaker Change: The more we delivered $1 $3 million and adjusted net income for the second quarter of 'twenty 'twenty four versus <unk> 9 million in the same periods. After 2023, an increase of 43, 8% and.

Alice H. Chang: An essential advantage we possess is leveraging our unified AI engine for both consumer mobile apps and enterprise SaaS solutions, allowing us to maximize innovation across various sectors. Our B2C business, particularly our mobile beauty app, has continued to grow very strong. We witnessed an 18.3% year over year increase in our mobile beauty app active subscribers, reaching a historical high of over 919,000. This sustained growth in active subscribers is a testament to the increasing demand for mobile apps that empower users to edit, enhance, and beautify their photos and videos. It also indicates a more promising future for our Oath in our use of faith.

Speaker Change: And essentially the vantage, we put to us it is to leverage our unified AI aging for both consumer mobile app in the enterprise software solution.

Speaker Change: Wowing us to maximize innovation across the various sectors.

Speaker Change: Our D to C business, particularly our mobile media has continued to grow very strong we witnessed an 18, 3% year over year inquiries.

Beauty active subscribers.

Richard: Richard a historical high of over 919000.

Speaker Change: It's a standstill in active subscribers is a testament to the increasing demand for mobile app that empowers users to add it in hand, and the beautify their photos and videos. It also indicates our most promising future for them.

Speaker Change: Growth in our user base.

Alice H. Chang: Our suite of Ucam apps continues to lead innovative digital solutions, harnessing cutting-edge technologies like Gen AI for photos and videos. Users can now explore and express their unique styles in photos, videos, and artworks, unlocking their creativity through the latest AI capabilities. As mentioned earlier, we have introduced quite a few enhancements driven by Gen AI, including AI avatar, AI fashion, AI hairstyle, AI headshot, AI studio, AI color, and AI enhanced photo and video editing tool.

Speaker Change: Our suite of it you can ask continues to lead the <unk>.

Speaker Change: Innovative digital solutions harness cutting edge technologies like journey II for photos and videos users can now explore.

Speaker Change: Express.

Nick style in photo video and all worked unlocking their creativity to the latest AI capability.

Speaker Change: As I mentioned earlier, we have introduced a quite quite a few enhancements driven by Jenny I, including yeah Yeah.

Speaker Change: Fashion Air Hairstyle, AI has shot a studio AI color and.

Speaker Change: AI enhanced photo video editing tool. This tool also you sort of sophisticated options well be vacation.

Alice H. Chang: This tool offers users sophisticated options for beautification and enhancement, setting new standards in digital creativity and showcasing our commitment to continuous innovation. Turning to our B2B operation, this quarter, we focused on the B2B sector centered on enhancing market penetration across various emerging markets. We made additional inroads in AI-powered skin diagnostics products and the Jewelry Fashion Vegetarian Solution.

Speaker Change: And enhancement that would be new vendors in digital creativity, and you're showing tastes Arctic commitment to continuous innovation.

Speaker Change: Turning to our B to B operation this quarter, we focused in the PCB sector centered on enhancing market penetration across various vertical we made additional inroads in AI powered screens out Norfolk products and the jewelry fashion, which is why our solutions.

Alice H. Chang: Simultaneously, we expanded the adoption of our Omega VTO across all brands in the region. We secured multiple new contracts for our beauty, skincare, and jewelry solutions within the B2B sector, highlighting strong demand for our comprehensive offers in advanced technology across diverse industries. Additionally, we successfully renewed major licenses with key beauty groups and retailers.

Speaker Change: Yes, Lee we spend it.

Speaker Change: The adoption of our makeup eto across all brands in the regions, we secured multiple new contracts for our beauty skincare in the jewelry solutions within the <unk> sector highlights.

Speaker Change: Highlighting strong demand for our comprehensive offer and the other bus technology across diverse industry. Additionally, with that's a fully renewed major licenses with T beauty groups and our retailers.

Alice H. Chang: This renewal shows the growing trust in our solution to meet evolving demands and affirms our leadership in the VTO Virtual Try-On service. Furthermore, we leverage this opportunity to cross sell to affiliated brands and offer expanded services, including broader skill selections and marketing. The strong revenue growth this quarter reflects the continuous recovery in sales cycles and the expansion of our enterprise business pipeline. Another exciting event took place during the second quarter.

Speaker Change: This review all underscore the growing trough in our solution to meet evolving demands and affirm our leadership in V. T O virtual try on services.

Speaker Change: Furthermore, we leverage this opportunity to cross sell to affiliated spread the offer expanded services, including broader SKU selections and market expansion.

Speaker Change: <unk> revenue growth this quarter reflects the continued recovery in sales cycles and the expansion of our enterprise business pipeline.

Speaker Change: Another exciting event took place during the second quarter, we formally announced our generative AI framework for beauty.

Alice H. Chang: We formally announced our Genitive AI framework for, Perfect GP. At our 6th annual Global Beauty and Fashion AI Forum in New York City, this, Perfect GPT is a framework that connects all other Perfect beauty services, aiming at solving customer beauty and fashion pain points through natural language conversation, LLM, large language model, and generative AI visual content. Any brand can use this framework to develop its own personalized AI assistant for beauty, skincare, and fashion and deploy it in conjunction with other digital services for a unified consumer experience.

Speaker Change: GPT.

Speaker Change: That's our sixth annual global beauty and fashion.

Fashion AI full run in New York the deep this June.

Speaker Change: Perfect GPT is a framework that commenced all other perfect beauty services, ending at solving customer beauty and fashion pinpoints through natural language conversation.

Speaker Change: L M launched language model and the generative AI video content.

Speaker Change: The brand can use this framework to develop its own personalised AI assistant for beauty skincare in fashion and deploy it in conjunction with other digital services for a unified come too much period together with the perfect Tahiti framework, we also announced a <unk>.

Alice H. Chang: Together, with the Perfect QPT framework, we also announced a range of new beauty AI solutions, including the brand new services of Beauty QPT, with specialized AI megatransfer, step-by-step tutorials, and a product recommendation. Also, Skincare GVT with AI schema analysis and product recommendation.

Speaker Change: You have a new beauty AI solution, including the brand new services of beauty GTT with specialized AI make a transfer.

Speaker Change: Step two totally OS and the product recommendation.

Speaker Change: Also skin T O T V T with AI scheme of analysis and the product recommendations.

Alice H. Chang: Number 0, we will develop more generative beauty fashion solutions using GPT technology, such as hair GPT, jewelry GPT, fashion GPT, and more, to enrich consumers' journeys. All these services can be integrated into a single touchpoint experience for consumers, all via a simple, intuitive, conversational way of an AI assistant, on-brand website, or in our app. Peace.

Speaker Change: Oh, we want to have a little more Genesis beauty fashion solutions using G. P. T technology, such as here at GBT jewelry beauty fashion, GBT and the more too.

Speaker Change: To reach consumers journey, all visit survey phase can be integrated into a single touch point experience for consumers all the simple.

Speaker Change: Simple intuitive conversational way of AI assistant Grandma's day or in our App.

Speaker Change: Besides E T.

Alice H. Chang: In Q2, we launched the world's first HD skin analysis solution capable of detecting two times higher precision when doing AI skin analysis on users' faces. The improved AI model can now handle more input data from the high-definition smartphone camera.

Speaker Change: In Q2, we launched the world's first H D analysis solution capable of detecting two times higher precision when doing <unk> analysis.

Speaker Change: With the improved AI model can now handle more input data from the high definition smartphone camera and the upgrade enabled sprays and the clinique to perform even more accurate diagnostics, where he was so skin culture.

Alice H. Chang: And the upgrade enables brands and clinics to perform an even more accurate analysis for user skin. Plus, the AI skin solution is upgraded with a batch capability to handle a large number of data images with a new AI skin score validator. Right now, in Brent's lab, he can use this new model to efficiently process a large amount of clinical test data and get results faster. The innovation continues also in the AI mega-dome.

Speaker Change: For us the AI solution skin solution, its upgraded with a batch capability to handle a large amount radar images with a new AI skin score valley daycare.

Speaker Change: Right now in rent laugh, but breaking use this new model to efficiently process large amount of clinical test data and get results faster.

They shouldn't continue also in the AI make us a win we pioneered the launch of the word first AI makeup transfer with full of creation. This leading technology uses AI to B pack and create exactly Leslie cuts of Amy training make a move from social media.

Alice H. Chang: We pioneered the launch of the world's first AI mega transfer with full loop creation. This leading technology uses AI to detect and create exact replicas of any training mega loop from social media or from any photo out of a beauty magazine. Our GenAI model can detect the color, texture, and patterns of a look and transport it seamlessly to the user's personal selfie phone. Counselors can try all kinds of training loops with just one single total in it.

Speaker Change: Or from Amy photo alcohol beauty magazine, or a J I model can detect the color texture and the patterns of Luke and the transport. It similarly to the user's personal cell people come to work and try all kinds of 'twenty loose with just one single total IMU.

Speaker Change: Page the AI model can further come here look Jay and the texture with the artist data based off of makeup product skus and to offer users a recommendation of two six grams products.

Alice H. Chang: The AI model can further compare look shades and textures with our database of makeup product schemes and offer users a recommendation of specific brand products. On the jewelry side, we also launched the world's first real-time multi-category stacking capability virtual try-on. Consumers can now try pairing several items together, such as wearing multiple rings on different fingers or combining them with bracelets and watches at the same time.

Speaker Change: Jewelry side, we also launched the reward first real time multi category backing capability virtual try out consumers can now try peering several items together such as well.

Speaker Change: Wearing multiple rings on different fingers or combining them with breathless and to watch it.

Speaker Change: Same time.

Alice H. Chang: The enhanced capability is thanks to our improved tracking and the rendering performance architecture to process multiple 3D objects all together directly from the smartphone, CPU, and GPU. Our company is fully committed to creating new AI innovations to help solve both the consumers and the brand's pain points with our full line of AI services. In closing, we achieved robust business performance in the second quarter and the first half of 2024, marked by strong revenue growth, enhanced operational efficiency, and a positive financial outcome.

Speaker Change: Enhance the capability is thanks to our improved tracking and the rig drilling performance architecture to process multiple three D objects altogether directly from smartphone CPU GPU.

Speaker Change: Our company is fully committed to create a new AI innovations to help solve both consumers and the brand pinpoint with our full line of AI services.

Speaker Change: In closing, we achieved robust business performance in the second quarter and the first half of 'twenty 'twenty four marked by strong revenue growth enhance the operational efficiency and the positive financial outcome RFP to see second line continued to experience rapid or Jenny.

Speaker Change: It grows well.

Alice H. Chang: Our B2C segment continues to experience rapid organic growth, with the launch of a perfect GPT and all other industry-leading AI technology. We are confident that PerfectCorp is strategically poised to seize the expansion market opportunity for consumers and brands.

Speaker Change: With the launch of a perfect GPT and the all other industry, leading AI technology. We are confident that perfect core is strategically poised to seize expansion market opportunity for a consumer and brand.

Alice H. Chang: NSF-10 Our Business Goals, both in the near term and the longer term. Driven by the good demand for both our app subscriptions and the enterprise SaaS renewal solution, we project our outlook for the full year 2024, projecting total revenue growth recognized under IFRX to range from 12% to 16% compared to the full year 2023 report. With that, I have concluded my remarks and will now pass the call to Louis. We'll discuss our financial details with you. Thank you. Thank you, Alice.

Speaker Change: And the top 10 of our Robinson's growth both in the near term and the longer term.

Speaker Change: Driven by the good demand for both of our App subscription and the enterprise. The SASSA renewable solution. We are either raise our outlook for the full year 2020 for protecting total revenue growth recognized under ifr, Eric to range from 12% to 16%.

Speaker Change: And compared to the full year 2023 rethought.

Speaker Change: With that I have concluded my remarks, and I will now pass the call to Lewis will discuss our financial details with you. Thank you.

Lewis: Thank you Allie.

Louis Chen: Please note that all financial comparisons are on a year-over-year basis, and the reporting period is the second quarter of 2024 versus the comparable period in 2023, and that on top of the international financial reporting standards measures, we will also discuss non-IFRF measures to provide greater clarity on the trends in our operation. In the second quarter of 2024, our total revenue increased to $13.9 million from $12.7 million for the same period in 2023, representing a year-over-year growth rate of 9.6%.

Please note that all financial comparisons are on a year.

Lewis: Over a year basis, and then reporting periods is the second quarter of 2024 versus the comparable period in 2023.

Lewis: And Doug on pulp the international financial reporting standard measures. We will also discuss non <unk> measures to provide greater clarity on the trends in our operations.

Lewis: In the second quarter also using before our total revenue increased to $13 9 million from $12 7 million for the same period in 2023.

Lewis: Presenting year over year growth rate of nine 6%.

Louis Chen: The robot performance is mainly due to the consistent growth momentum of our AI and AI cloud solutions and mobile app persuasion, which is also the main focus of our business model transformation carried out in the past few years to convert legacy contracts from licensing revenue into recurring subscription revenue. Our AI and AR cloud solution and subscription revenue saw a much stronger increase versus the total revenue increase rate, reaching $12.9 million in the second quarter of 2024, a 17.4% rise compared to the same period in 2023. The subscription revenue contribution was 92.8% of total revenue in the second quarter.

Lewis: The robust performance was mainly due to the consistent growth momentum overall.

Lewis: All solution and mobile application business, which is also the main focus of our business model transformation.

Lewis: In the past few years to convert legacy contract for licensing revenue is recurring subscription revenue.

Lewis: AI and cloud solution and subscription revenue.

Lewis: Stronger increase versus a total revenue increase rate, reaching $12 9 million in the second quarter of 254, a 17, 4% compared to the same period in 2023.

Lewis: The subscription revenue contribution was up 92, 8% of the total revenue in the second quarter. This growth can be attributed to the robust expansion of our mobile beauty a prescription.

Louis Chen: This growth can be attributed to the robust expansion of our mobile beauty app subscriptions and the rising demand for our online skincare diagnostics solutions and online virtual product solutions among brands and retailers. Furthermore, this growth was also contributed to by the addition of new categories and the increased popularity of our Gen AI technologies for AI creation and editing features for photos and videos. Notably, our mobile app active subscribers have surged by 18.3% year-over-year, reaching an all-time high of over 919,000 by the end of the second quarter this year.

Lewis: The rising demand of OLED skincare diagnoses solutions and online grocery product solutions.

Brands and retailers.

Lewis: Furthermore, this growth was also contributed by the addition of new categories and the increased popularity of our technologies.

Speaker Change: Asian editing features for quarter was on video.

Speaker Change: Notably our mobile App actually subscribers has surged by 18, 3% year over year, reaching an all time high of over 919000 by the end of the second quarter to be here.

Louis Chen: The strong momentum underscores the continued growth interest in our suite of mobile beauty apps and our capability to retain and convert those app users into paying subscribers. However, licensing revenue, which is mostly generated from our traditional offline services, decreased by 49.8% in the second quarter of 2024 to $0.7 million, compared to $1.4 million during the same period of 2023.

Speaker Change: Strong momentum underscores the continued growth of interest.

Speaker Change: Bob.

Speaker Change: No capability to retain and convert those app users into paying subscribers.

Speaker Change: The licensing revenue, which is mostly generated from our traditional offline services decreased by 49, 8% in the second quarter of 2024 to <unk> 7 million compared to $1 4 million during the same period of 2023.

Louis Chen: This result was well expected as the company is on a mission to convert this type of legacy non-recurring revenue into AIAR sub-subscription revenue from brands and consumers instead. The licensing revenue will gradually become immaterial as it continues to be phased out in place of a new subscription revenue model. Growth profit for the second quarter of 2024 grew by 7.8% to $11 million, with a growth margin of 79.3% compared to $10.2 million and a growth margin of 80.6% for the same period in 2023.

Speaker Change: We felt it was expected as the company is on a mission to convert these type of legacy nonrecurring revenue into.

Speaker Change: Subscription revenue from grants and cause you might use that license revenue will gradually become immaterial as it can.

Speaker Change: To be phased out in place open new subscription revenue model.

Speaker Change: Gross profit for the second quarter of 2024 grew by seven 8% to 11 million with gross margin of 79, 3% compared to $10 2 million and gross margin of 86% for the same period in 2023.

Louis Chen: The decrease in gross margins was primarily due to the increase in third-party payment processing fees paid to digital distribution partners, such as Google and Apple, due to the increase in mobile app subscription revenue. The total operating expenses for the second quarter of 24 increased by 0.7% to $12.4 million, compared to $12.3 million for the same period last year.

Speaker Change: A decrease in gross margin was primarily due to the increase in third party payment processing fee paid to digital distribution partners, such as Google and Apple due to the increasing our mobile application revenue.

Speaker Change: The total operating expenses for the second quarter of 234 increased by <unk>, 7% to $12 4 million compared to $12 3 million for the same period last year. The increase was primarily due to the higher sales and marketing expenses research development expenses.

Louis Chen: The increase was primarily due to higher sales and marketing expenses and research and development expenses, offset by a decline in general and administrative expenses in the second quarter of 2024. To break down operating expenses, sales and marketing expenses for the second quarter of 2024 were $7 million, compared to $6.6 million during the same period of last year, an increase of 7%. This is due to an increase in marketing events, advertising costs for mobile apps, and cloud computing costs.

Speaker Change: Led by a decline in general and administrative expenses in the second quarter of 2024.

Speaker Change: To breakdown of operating expenses.

Speaker Change: Marketing expense for the second quarter of 2004, with 7 million compared to $6 6 million. During the same period of last year, an increase of 7%. This was due to an increase in marketing events advertising cost for our mobile apps and cloud computing Paul.

Louis Chen: Research and development expenses were $3 million for the second quarter of 24 compared to $2.8 million during the same period of 23, an increase of 7.5%. The increases were from additional R&D headcounts and related personnel costs. General and administrative expenses were $2.4 million for the second quarter of 2024 compared to $3 million during the same period of 2023, a decrease of 19.1%. The decrease was mainly due to lower corporate insurance expenses and increased operational efficiency.

Speaker Change: Research and development expenses were $3 million for the second quarter of 2004 compared to $2 8 million. During the same periods of 23, an increase of seven 5% the increases wafer and additional R&D headcount and related personnel costs.

Speaker Change: General and administrative expenses were $2 4 million for the second quarter of like you said before compared to $3 million. During the same period of 2023, a decrease of 19, 1%. The decrease was mainly due to lower corporate <unk> expenses and increase operational efficiency.

Louis Chen: Net income was $0.8 million for the second quarter of 2024 compared to a net loss of $0.2 million during the same period of last year. The positive net income in the second quarter of 2024 was supported by continuous revenue growth and effective cost control. Excluding non-cash share-based compensation, non-cash valuation gain, and losses of financial liability, adjusted net income was $1.3 million for the second quarter of 2024, compared to adjusted net income of $0.9 million in the same period of 2023, an increase of 43.8%.

Speaker Change: Net income was <unk> 8 million for the second quarter of 2024 compared to a net loss of <unk> 2 million during the same period of last year.

Positive net income in the second quarter of 2024, well supported by continued revenue growth and effective cost control.

Speaker Change: Excluding noncash share based compensation non cash revaluation gains and losses on financial liabilities. Adjusted net income was $1 3 million for the second quarter of 2024 compared to adjusted net income of <unk> 9 million in the same period of 2023, an increase of 43, 8%.

Speaker Change: This represents an adjusted net margin of nine 1% in the second quarter of 2024.

Louis Chen: This represents an adjusted net margin of 9.1% in the second quarter of 2024. Looking at our balance sheet, as of June 30, 2024, the company held $158.8 million in cash, cash equivalents, and six-month time deposits, compared to $157.3 million as of March 31, 2024.

Speaker Change: Looking at our balance sheet.

Speaker Change: As of June 32024, the company held $158 8 million in cash cash equivalents and six months paying deposits compared to $157 3 million as of March 31 2024.

Louis Chen: This increase was a result of the positive upgrade in cash flow and the interest income received from the company's bank deposit. We had a positive operating cash flow of $2 million in the second quarter of 2024, compared to $2.6 million during the same period in 2023. The positive cash flow demonstrated the company's continued ability to generate cash flow to support its business operations and growth strategy. In total, our customer base had a net increase of 20 brand clients since the end of last quarter, achieving a total of 686 brand clients with over 774,000 SKUs for makeup, skincare, eyewear, and jewelry products as of the end of June.

Speaker Change: This increase was a result of the positive operating cash flow and the interest income received from the company's bank deposits.

Speaker Change: We had a positive operating cash flow of $2 million in the second quarter of 2024 compared to $2 6 million. During the same period in 2023, the positive cash flow demonstrated a company continue ability to generate cash flow to support the business operations and growth strategy.

Speaker Change: In total our customer base and a net increase of 20 bring coins.

Speaker Change: End of last quarter, achieving a total of 686 clients with over 774000 Skus for makeup skincare eye wear and jewelry product.

Speaker Change: The end of June.

Louis Chen: This is yet another record quarter for these metrics, showing the continuous increase in customer penetration and skewed expansion. Additionally, more brands and products are leveraging on Perfect Console platforms to manage their services subscribed from Perf. In the second quarter, Perfect had 151 key customers compared to 152 in Q1 2024, a net decrease of one, a result of normal fluctuation in the B2B business. Renewal continued to be strong, while average sales were weaker in this quarter.

Speaker Change: This is yet another record quarter for these metrics showing the continued increase in customer penetration as he was essentially more brands and products are leveraging on perfect console platforms to manage his services subscribed from perfect.

Speaker Change: In the second quarter, but they had 151 key customers compared to 152 in Q1 2020 for a net decrease of one a result of normal inflation in the B to B business with new continued to be strong while upward sales were weaker in this quarter.

Operator: In the second quarter of 2024, our total revenue has consistently exhibited expected growth, primarily driven by the continuous momentum in our AI, AR cloud solution, and mobile app subscriptions for our UCAN family of AI-powered apps. Our operational efficiencies and financial prudence show continued profitability in creating value for investors. Given our robust self-business model, we are confident in the growth of our business as we move into the second half of 2024. We are also committed to investing in professional development and talent acquisition, especially in the field of Gen AI technology innovation, to strengthen our core capability.

Speaker Change: In the second quarter of 2024, our total revenue has consistently exhibited expected growth primarily driven by the continued momentum in our AIP, our cloud solution and mobile App substitution of our <unk> family of AI powered App.

Speaker Change: Operational efficiencies and financial Prudence will continue profitability and creating value for investors given our robust business model. We are confident in the growth of our business as we move into second half of 2024.

Speaker Change: We are also committed to investing in professional development and talent acquisition, especially in the field of gene AI technology innovation.

Speaker Change: To strengthen our core capabilities these investments and to further enhance our role as a transfer of Vantiv for reshaping how consumer interact with digital experience both implant offerings any mobile app utilization we.

Operator: This investment aims to further enhance our role as a transformative force, reshaping how consumers interact with digital experiences, both in brand offerings and in mobile app utilization. We are confident that our strategic position through our proprietary technology will keep us at the forefront of revolutionizing how beauty and fashion brands interact with their audience. Finally, we reiterate the Alternative 24 guidance that total revenue year-over-year growth will range from 12 to 16 percent.

Speaker Change: We are confident that our strategic position through our proprietary technology will keep us at the forefront of visual merchandising, how beauty and fashion brands interact with their audience.

Lee we retailed 80 Delta in December for guidance that its all revenue year over year growth will range from 12% to 16%. This forecast is based on the company's current assessment of the market and operational conditions and management will closely monitor business progress and provide updates in order to offer better transparency to the market that <unk>.

Operator: This forecast is based on the company's current assessment of the market and operational conditions, and management will closely monitor business progress and provide updates in order to offer better transparency to the market. That concludes my prepared remarks. Operator, please open the call to questions. Thank you.

Speaker Change: My prepared remarks, operator, please open up the call for questions.

Operator: We will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw that question, again, press star 1. Your first question comes from Brian Schwartz on behalf of Oppenheimer, please go ahead.

Speaker Change: Thank you we will now begin the question and answer session. If you would like to ask a question. Please press star one on your telephone keypad to raise your hand and joined the queue.

Speaker Change: If you would like to withdraw that question again press star one.

Speaker Change: Your first question comes from Brian Schwartz with Oppenheimer. Please go ahead.

Brian Jeffrey Schwartz: Yeah, hi Allison Lewis, and congratulations on the subscription revenue growth of the technology innovation in the quarter. A couple questions I wanted to ask you were maybe about the outlook and your thoughts about the second half. I know there's a lot of concern out here about the macro and Elections, Impact, Demand, and then the Snap. Maybe from a high level, I don't know if it's for Lewis or not, but can you talk about kind of the shape of the pipeline?

Brian Jeffrey Schwartz: Yeah, Hi, Alison Lewis and congratulations on the subscription Robyn the Grubhub with technology and innovation in the quarter.

Brian Jeffrey Schwartz: Couple of questions I wanted to ask you was maybe about the outlook and thinking about the second yeah. I know, there's a lot of concern out here about the macro and the election impact to demand and then maybe.

Speaker Change: Maybe from a high level I don't know if it's for Louis.

Speaker Change: Can you talk about kind of the shape of the pipeline.

Louis Chen: Seeing exiting q2 compared to maybe where it started in the first quarter, how your coverage ratios and just the shape of the pipeline is, as we enter the second half of the year, and then I've. Hi Brian, good to talk to you again. So, I think if we look at our first half of the year, on the top line, we reached 13.5% growth. That's well within the range of the annual guidance that we have given, between 12 to 16%. Certainly, Q2 was slightly slower compared to Q1, but I think that's also part of the seasonality effect.

Speaker Change: Seeing exiting Q2 compared to maybe where it started.

In the first quarter, how your coverage ratios.

Speaker Change: And just the shape of the pipeline is.

Speaker Change: Yeah.

Speaker Change: As we enter the second half of the year.

Speaker Change: Hi, Brian good to talk to you again.

Speaker Change: So I think if we look at our first half of the year topline. We reached 13, 5% grow that's where we'd be in the range of the annual guidance, we have given are between 12% to 16%.

Speaker Change: Certainly the Q2 was slightly slower compared to Q1, but I think that's also part of the seasonality effect.

Louis Chen: As we see in the pipeline, the renewal from the brand customers is performing quite robustly. So, we are able to renew all the major contracts in this first half of the year. That gives us confidence moving into the second half to keep up this performance.

Speaker Change: As we see the pipeline the renewals on the grain customer are performing quite robust. So we are able to renew all the major contracts in the first half of the year.

That give us confidence moving into second half to keep up.

Luke: This performance so with that said I think Luke.

Louis Chen: So, with that said, I think looking at the second half of the year, with the pipeline that we have been developing and the visibility that we see, we reiterate the annual guidance. I think we will still perform within the range that we have given to the market. In the second half, macro improves, interest rates come down, the cost of capital is cheaper, and enterprises are willing to spend more. We certainly can hit a higher range of guidance. If not, I think we will be within that range. Hi Brian. This is Alice.

Looking at the second half of the year with the pipeline that we have been developing and the visibility we see.

Luke: Retailer at the annual guidance. So I think we view outperformed within the range that we have given to the market.

Luke: The second half the macro improve it.

Luke: Say the interest rates come down the cost of capital.

Speaker Change: It's cheaper.

Speaker Change: Enterprises are willing to spend more I would certainly can hit a higher range of our guidance I've known I think it will be within that range.

Alice H. Chang: And so, the BionQ2 is normally, as we expected, not a high-growth seed. And B2C, in this case, the consumer thinks it's not affected by all the conditions, and this is quite global, so we're expanding to a lot of new regions in Q2. For B2B, just like Luis said, renewals are still strong, and the new upsells are not as strong as we expected. However, all the new AI we announced in June in New York and Paris, the Perfect QPT part, all the AI transfer parts, got all the brand groups' high interest. I think all of them are considering AI, how AI, Gen-AI, AI, GPT can have an impact on their internal operation efficiency, but externally, how to say to the consumer using Gen-AI, GPT. We are currently the only solution in the market.

Speaker Change: Ryan This is Alex nice to talk to you and so Q2 is normally.

Speaker Change: As we expand it.

Tycho Peterson: Hi, Tycho Peterson.

Speaker Change: Did you see in this case.

Speaker Change: Consumer I think not effecting by all the competition and this is hyperlocal.

Speaker Change: Pension.

Speaker Change: Two a lot of new regions.

Speaker Change: Q2 for these will be just like Luis that renewal store and the new upsell seats.

Speaker Change: Not as strong as we expected.

Speaker Change: However, the.

Speaker Change: Although new AI, we announced in June in New York and Paris.

Speaker Change: The perfect GPT parts, all the AI transfer parts Scott.

Speaker Change: Frankly, it's a high interest.

Speaker Change: All of them are considering AI.

AI and AI AI G. P. T. He can have impact on their internally operation efficiency, but that's generally how to face to the consumer using a J I G. P. G. L. We are currently the only solution in the market.

Alice H. Chang: Innovation for those brand groups already forms a very high AI community to engage and evaluate it. It takes time, but my assumption, my vision for every beauty group, they need to have AI assistance using GPT and our AI services together. As an external consumer engaging way, a brand new way, it may take time, but we see at the end of this year, there will be some POC to come. That's really helpful. And then Alice, that's a good lead into my second question.

Speaker Change: Innovation for those sub brand groups already from a very high I committed to engage evaluated it.

Speaker Change: It takes time, but my.

Speaker Change: My assumption my feature for every beauty group they need your help.

Speaker Change: AI assistance, you think GBT and our AI services together.

Speaker Change: General consumer engaging in a way a brand new way.

Speaker Change: It does.

Speaker Change: He may take time, but we see end of this year will be somewhat plc to come.

Speaker Change: That's real helpful. And then Alex that's a good lead into my second question just wanted to ask about AI and spending trends.

Alice H. Chang: I just wanted to ask about AI in spending trends. Is there a possibility, as we think about budgets at these brands, that this will allocate more funds specifically to initiatives as the technology and you're introducing new products here in the year? What is your view on what you are hearing from the kind of brand market? Hi, Brian.

Alex: Is there a possibility as we think about budgets at the at these brands is there a possibility that the business will allocate more funds specifically.

Speaker Change: The initiatives as has the technology.

Speaker Change: And you're introducing new products here in the.

Speaker Change: Yeah. What is your what are you hearing from kind of the brand.

Speaker Change: <unk>.

Louis Chen: From the beauty enterprises, as we have been introducing this AI, all of them are very interested, and the majority of them have actually set up an AI committee or even a special AI budget to explore new possibilities of how AI can help beauty and fashion. I think the enterprises are certainly cautious about how to do the AI. So, these budgets are initially for a pool of concepts or pilot projects. So, this is one of the main tasks for the second half of the year to develop these tailor-made solutions, how to use generative AI, GPT, and LLM solutions to help the beauty consumer with discovering products, finding a new look, trying on, and learning tutorials and more.

Brian Jeffrey Schwartz: Hi, Brian.

Speaker Change: From the beauty enterprise as we have been introducing these AI auto has been a very interest in majority of Dan has actually set up committees or even a special a budget to explore new possibilities, how AI can help on beauty and fashion.

Speaker Change: I think the enterprise are fairly cautious.

Speaker Change: How to do the AI so deep.

Speaker Change: The budget initially for proof of concept or pilot projects.

Speaker Change: So this is one of the main task for the second half of the year to develop these tailor made solutions also used innovative AI G. P. T O N solutions to health and beauty consumer where they are discovering products finding the new luxe.

Speaker Change: Trading on our learning tutorials and more so we certainly are I think is a promising area for years to come and especially the easier is the face of initial exploratory and using beat our budget to abuse on pilot projects I believe that is going to be the initial training.

Louis Chen: So, we certainly are, I think it's a promising area for years to come. And especially this year, the phase of initial exploratory and using this AI budget to build some pilot projects. I believe that is going to be the initial trend. Thank you, Lewis.

Speaker Change: Okay.

Louis Chen: And then, you know, with 2Q specifically, with the key customer account, because there's been a little bit of churn there. I think it mentioned that there was some financial distress among those customers churning. Is it fair to assume that those customers that are churning are more smaller brand partners of the business than larger ones? Or maybe the question is, what's the typical average size of these key customers that are churning? Thank you.

Speaker Change: Thank you Louis and then with two Qs specific play with the key customer accounts.

You know because theres been a little bit of upturn there right I think you mentioned that theres, some financial distress among those customers churning.

Speaker Change: Is it fair to assume that those customers that are churning or more smaller brand partners of the business.

Speaker Change: Than larger ones or maybe the question is what's the typical average size.

Speaker Change: These key customers that are churning.

Speaker Change: <unk>.

Louis Chen: So some of these are not necessarily churning; sometimes it can be just a downgrade as we define a key customer as a threshold of $50,000. So typically, as you said, the larger enterprises are very stable, so they have been using multiple services in multiple regions for many, many years already; there's not much impact there. However, some other customers who are just starting, or we hope to upgrade them, or they are just marginally over that threshold, that is what we see as a normal situation.

Speaker Change: Right. So some of these are not necessarily churning, sometimes it can be just a downgrade as we define key customer or other threats or $50000. So typically we do see is that like you said the larger enterprise are very stable. So they are using multiple services in multiple regions and for many many years already.

Speaker Change: No much impacting there are however, some other customers who are just starting or we hope to upgrade then or they are just marginally overdraft threats that they see what we see as a normal fluctuations typically we try to upsell newer module to them to make sure that they're becoming a larger clients. So we can increase the number of Casey.

Louis Chen: Typically, we try to sell newer modules to them to make sure that they're becoming a larger client, so we can increase the number of KCs. In this quarter, too, we see that upgrade sales being a bit smaller, with smaller brands. And across the industry, I think certainly the growth has been a little bit more modest across the industry, affected whether it's China or other regions as well. So we don't see that as too much of an alert at the moment.

Speaker Change: In this quarter to see that upward sales being a bit smaller.

Lola: Lola brand.

<unk> beauty.

Speaker Change: Suddenly the growth has been a little more modest across the industry are effective you know, whether it's China or other regions as well.

Speaker Change: So we don't see too much of alert at the moment of course, the growing momentum.

Louis Chen: Of course, the growing momentum, hopefully, to come back as enterprise spending reopens, and they are willing to commit to a larger amount of contracts or expanding the services to more geographies or injecting more SKUs. Well, that's good. So they haven't fully gone away. And for me, you know, you have a global business to shed some light on what you're seeing in terms of trends and momentum in the different geographies, what you're seeing in Asia Pacific versus what you're seeing in America versus EMEA. And thank you again for taking my questions. You're welcome, Brian.

Speaker Change: Hopefully to come back as the enterprise spending are reopened and they're willing to commit to a larger amount contract or spending the services to more geographies or injecting more skus.

Speaker Change: Well that's good so they haven't fully gone away.

Speaker Change: And for me you know you have a global business shut a little light in terms of what Youre seeing in terms of the trends in mobile and momentum in the different geographies.

Speaker Change: What youre seeing in Asia Pac versus what Youre seeing in the <unk>.

Speaker Change: EMEA and thank you again for taking my questions.

Louis Chen: We do see a few, you know, from a, you know, global perspective, quarter two, Japan; the Japanese yen has been demonstrated much weaker in quarter two. Certainly, the currency seems to be recovering in these past few days. But as far as quarter two is concerned, that affected somewhere between 0.3 to 0.4 percent of our top line against the US dollar. We see good momentum in Latin America and in Brazil, especially for our B2C mobile app business.

Speaker Change: Youre welcome Brian we.

Speaker Change: We do see a few from a global perspective quarter to Japan Japanese yen has been demonstrated much weaker and quota to you certainly the currency seems to be recovering in the past few days.

<unk> reported to you that affected are somewhere between 3% to 4% of our top line of the currency.

Speaker Change: U S dollar I see we see a good momentum in Latin America, and in Brazil, especially for our <unk> mobile App business.

Louis Chen: We did really grow a good momentum going there for mobile consumers willing to pay for annual subscriptions for beauty apps. So, that contribution in Latin America, especially in Brazil, is increasing. Certainly, the challenges, the low-life continue to be, you know, China per se. I think that the condition is, you know, fierce competition in pricing in China. So, that momentum, that seems to be slow.

Speaker Change: Didn't really grow a good momentum going there for me.

Speaker Change: Mobile consumers are willing to pay for an annual subscription for beauty.

Speaker Change: So that contribution in your opinion, especially in Brazil is increasing.

Speaker Change: Third I'll give you the challenge at <unk> continue to be China per se I think that the.

Speaker Change: Conditions ease of use.

Speaker Change: Competition in pricing in China for that.

Speaker Change: Our momentum seems to be slow, we don't sure yet that window will be recovering other a good growth area will be middle East and southeast Asia, Although its revenue contribution relatively to developed countries the skew slightly lower but the momentum I do see promising new brands, new retailers a lot of bands.

Louis Chen: We don't know yet when that will be recovering. Other good growth areas will be the Middle East and Southeast Asia, although its revenue contribution relative to developed countries is still slightly lower.

Louis Chen: But the momentum, I do see promising new brands, new retailers. A lot of them, travel retailers, are coming back as well in various regions. So, these were the high-life and the low-life.

Speaker Change: Travel retail are you coming back as well in various regions. So these were the highlights and lowlights.

Thanks.

Speaker Change: Your next question comes from the line of Lisa Thompson with Zacks. Please go ahead.

Operator: Your next question comes from the line of Lisa Thompson with Zacks. Please go ahead. Hi guys, I have lots of questions, but I'll just ask a few of them. Just to go back to the AI assistant. You said by year end you might see some pilots or something. What kind of company do you think is the first to start rolling this out? Is it going to be retailers or brands? And what might they be using them for, like the first ones we're going to see? Hi Lisa, I'm glad to talk to you.

Lisa Thompson: Hi, guys.

Lisa Thompson: I have lots of questions, but I'll just ask a few of them [laughter].

Lisa Thompson: Just to go back to that the AI assistant you said you'd by year end, you might see some pilots or something.

Speaker Change: What kind of company do you think is the first to start rolling aside is it gonna be retailers or brands and what might they be using them for like the first ones, we're going to see.

Speaker Change: Hi, Lisa asked a glad to talk to you.

Alice H. Chang: So at our forum, we announced the Perfect GPT. It's a natural dialogue with the end user plus all the AI services we have. In my view, just like all the new innovations, it will start from prestige beauty groups. And then, once it's matured, it will go to the mass market. So by saying that, we are talking to potential beauty groups, fashion groups, very on top of the prestige part. Most of them are groups, just like Luis said, because they are forming an AI committee to see how using JNAI GPT for their internal and external services.

Lisa Thompson: In our Florida, and we announce.

GTT: Perfect GTT.

GTT: In our natural <unk> to.

To that end users for us yeah.

Speaker Change: AI services, we have my view just like all the new innovations will start from a prestige beauty group.

Speaker Change: And then.

Speaker Change: It's one thing to mature then it will go to the mass market.

Speaker Change: By saying that what we are talking to those are potential 80 girls fashion groups very on top of the prestige part.

Speaker Change: Most of them or through them, just like we said because.

Speaker Change: They are for me and I can meet you need to see how using our journey I G. P T for their internal and external services.

Alice H. Chang: So, answering your question, we see that this is more from, will be earlier from a top beauty group, fashion group, once at the end of this year, and then expanded to more Mac and the. All right, great. I'm excited to see this.

Speaker Change: So answering your question, we see that there's some more from the earlier from a top beauty group fashion Peru.

Speaker Change: And one towards the end of this year and then expand it to more match and the retailer.

Alice H. Chang: There's so much potential. Let me ask a question just about revenues. The licensing revenues are a mystery to me. Like, are they going to be going up and down quarterly or are they just starting to wane to zero from here? Going forward, is it ever going to be higher than the second-quarter number? Hi Lisa.

Speaker Change: Alright, great I'm excited to see this there's so much potential.

Speaker Change: Well, let me ask a question just about revenues. The licensing revenues are a mystery to me like are they going to be going up and down quarterly or are they just starting to wane to zero from here like.

Speaker Change: Going forward is it ever going to be higher than the second quarter number.

Louis Chen: I think the licensing revenue is going to be expected to be more flat compared to what we see in the trend. Years ago, it used to be a much higher rate, especially pre-COVID. After that, I think the business and technology have moved much more online and also revenue subscription-based recurring basis. So it's really for those more legacy products like in-store, virtual try-on products, this type of demand. I think it's not going to be zero.

Lisa Thompson: Hi, Lisa.

The licensing revenue.

Lisa Thompson: Go into a week with respected to be more flat compared to what we see in the trend but years ago used to be a much higher rate, especially pre coffee.

I think the business and technology has moved much more online and an upward revenue subscription based recurring basis. So it's real.

Lisa Thompson: For those more legacy products like our in store virtual try on product it'll be stable is it.

Speaker Change: Demand I think it's going to be zero.

Alice H. Chang: It's always going to be there because, in some markets, there might be a need to still deploy these products along the side of doing that online. But again, we don't expect that to be another significant effect, as I said in my remarks. It will gradually become more immaterial, somewhere, let's say, between 5% and no more than 10% of the revenue. That seems to be the expected result.

Speaker Change: Or what's going to be there because some markets it might be a need for deploying these products.

Speaker Change: On the side of doing that online.

Speaker Change: Again, we don't expect that to be another significant as I said in my remarks.

Speaker Change: Gradually become more material like somewhere lets say you know between by no more than 10% of their revenue.

Speaker Change: That seems to be the expected results.

Louis Chen: Yeah, Lisa, now we start from in-store after COVID, every brand and the retailer is trying to engage those on the website, and it's more renewal sustainable for our business model. So, internally, we also encourage them to transform to a renewal base, especially online. So, in-store still has its demands for some of the events or in specific stores, but we did not expect it would grow, and we will also encourage them to move the model to our subscription and renewal base. Okay, so do you think it would be logical to keep revenues under a thousand, under a million dollars a quarter going forward? I think that's fair to say.

Speaker Change: Yeah, Lisa the in stores now we started on the in store after Colby every.

Speaker Change: Brian and the retailer is trying to engage them.

Speaker Change: On the website and its more renewal.

Speaker Change: Tenable for our business model. So we internally we also encourage them to transform choose our renewal base, especially online. So enjoy still has its demands for some of the.

Events or in specific stores.

Speaker Change: We expect it will grow and we will also encourage encourage them to move the model to our subscription renewal base.

Speaker Change: Okay. So do you think it would be logical to keep revenues under ourselves under a million dollars a quarter going forward.

Speaker Change: I think that's fair to say.

Louis Chen: Okay, good. That's helpful. Let me go back to my question. So another mystery I have is when I look at the Q2 growth margin versus Q1, it's up, but licensing was down a lot. And I would assume that it's like 100% growth margin, and I thought that mobile was, the apps were going faster than B2B, so that should also take margins down. What am I, like, not understanding about how this works?

Speaker Change: Okay. Good that's helpful.

Speaker Change: Hum.

Speaker Change: Let me go back to my questions.

Speaker Change: So I hear so another mystery I have is when I look at the Q2 gross margin.

Speaker Change: As to Q1, it's up but it see licensing was down.

Speaker Change: A lot and I would assume that's like a 100% gross margin.

Speaker Change: And I thought that mobile was the apps, we are growing faster than b to B does that also take margins down.

Speaker Change: One of my like not understanding about how this works.

Louis Chen: I think it's a little more fluctuation. The Q1-Q2 isn't really too much different in terms of margin profile. You are right in this quarter, too, the B2C app is faster than the B2B. Therefore, the margin we see, you know, on a year-over-year basis, declines all around 1%. So I don't think there's anything wrong in your estimate.

Speaker Change: Oh I see is a more fluctuation to Q1 Q2, you said released too much different internal margin profile you are right in this quarter to the BGC <unk> foster needed to be to be there for the margin.

Speaker Change: We see a year over year basis declined about 1% so.

Speaker Change: So I don't think there's anything wrong you estimate.

Louis Chen: You know, B2B has a slightly higher margin, but depending on the type of product, right? So some are 90%, some are 92%, some are even higher. So I don't think it's a fair comparison quarter-to-quarter because the different mix and the renewal period of each may be different. But again, if we look at the summary and the overall average, I think it's quite in line with quarter 1 and quarter 2.

Speaker Change #100: You know the <unk> has higher margins.

Speaker Change #101: But depending on the type of products right. So some of our 90% about 92% and some are even higher so really I don't think is a fair comparison quarter to quarter, because there's a different mix in the renewal period of each maybe different but again.

Speaker Change #101: Look at the summary, and the overall average I think it's quite in line quarter, one and quarter two.

Speaker Change #102: Okay Alright.

Louis Chen: Okay, all right. Another question I have is, have you given any thought to doing advertising for the mobile apps? I shockingly saw a couple of Facetune ads a few weeks ago, which surprised me. Are you looking at doing any other different marketing than what you've been doing? We spend some of the sales marketing expenses and effort on user acquisition, so we do advertise in select countries, on select channels, and it's really based on the analytics of how much of that advertising can bring real ROI to bring real user conversion and become paying active subscribers.

Another question I have have you given any thought to doing advertising present mobile apps I shockingly saw a couple of phase two and add a.

Speaker Change #103: A few weeks ago, which it would surprise me how are you looking at doing any other different marketing and what you've been doing.

Speaker Change #104: We certainly are.

Speaker Change #105: It's been some of the marketing sales marketing expenses and effort in user acquisition.

Speaker Change #106: We do advertising silicon trees. They select channels is really based on the analytics or how much of those advertising can bring real ROI to bring real user conversion and become paying active subscribers.

Louis Chen: So there are always new channels and new platforms for doing ads, and we continue to pilot them, but again, this is not a very big part of it. I think organic growth, digital, and SEO are where our big investment comes from, but additionally, some users are very hard to target, and advertising comes as an additional help. So, besides in our operation and organic growth, it's the. And, of course, CPI advertising is part of them.

Speaker Change #106: There's always new channels and new platform for doing assay and we continue to pilot test.

Speaker Change #106: Again this is not a very big part of it I think okay.

Speaker Change #106: Organic growth digital E O, that's where our big investment comes.

Speaker Change #106: Additionally.

Speaker Change #106: Users are very hard to be targeted and advertising comes out that additional help.

Speaker Change #106: So besides us in our operation in organic growth.

Speaker Change #106: T and of course, a C T I would ever tightening.

Louis Chen: But organic growth is always the key, key focus of our business app, app business growth. So you can see our advertising out of our total paid subscriber percentage is pretty low, but we're still trying all different kinds of advertisements, old channels to try and get a good ROI for all the investment in the advertisement. Okay, all right.

Speaker Change #106: Part of them, but our organic growth is always a key key focus of ours.

Speaker Change #106:

Speaker Change #106:

Speaker Change #107: Sales growth. So you can see our advertisement all out of our total paid subscriber percentage is pretty low, but we still trying all different kinds of heitman or channel to try and get good ROI for the investment of the advertisement.

Speaker Change #108: Mhm, Okay alright.

Louis Chen: And I guess one last question is kind of a big picture question. Like, I've started to see companies that are talking about AI for e-commerce, where they seem like they're putting together platforms for selling and retailing. How big of an impact is that going to have on you? Or are they just going about it the wrong way?

Speaker Change #109: And I guess one last question is kind of a big picture question like I started to see companies that are talking about AI for E Commerce.

Speaker Change #109: Where they seem like they're putting together.

Speaker Change #110: That forms for selling and retailing, how big of an impact with Xactly and a half on you or are they just going about it the wrong way.

Louis Chen: I don't think it's a direct impact. I think the different AI technologies we develop work in conjunction with different commerce platforms and different types of targeting. What we try to build as our unique solution is more personalized recommendations. So, as part of the AI, we try to find what you need.

Speaker Change #111: I don't think is a direct impact I think we got the different AI technology, we develop E work in conjunction to defend ecommerce platform and different type of targeting what we are trying to be all unique solution is more for personalized recommendation right. So you know as part of the AI I'll try to.

Alice H. Chang: And it's important for beauty categories, specifically, to know the user's style, their face of their shape, the color of their eye, the color of their hair. So, this is where we come very strong with our AI services, being able to understand and analyze and pair that with the right look. And I think that technology, again, it is a supplemental technology to the overall e-commerce platform, where the brand is now not only sending them email marketing or having an AI chatbot, but it is able to actually analyze and give users a very, very personalized recommendation, which we believe is going to increase the conversion rate and the best size. And Lisa, my view for all the conversational AI assistants will be on every vertical website for retailers, no matter And that's the future. You don't need to search and browse.

Speaker Change #114: Finally, what you need and is important.

Speaker Change #111: Two for beauty category specifically.

Speaker Change #112: The user style the face of their shades of the color out there on the Colorado here. So this is why we call them very strongly all air services be able to understand and analyze and peer that we see wide look and I think that technology against T. V's a supplemental technology to the overall e-commerce platform where are the.

Speaker Change #113: Now normally sending them email marketing or have you not yet chatbot be able to actually annualize that you've used it very very personalized recommendation, which we believe is going to increase the conversion rate and the basket size.

Speaker Change #115: My view my view for all the AI conversational AI assistance will be Oh every vertical website for retailer no matter, what kind of vertical and that's the future you don't need to search and browse do you. Just go online you don't need to go to the store to ask.

Alice H. Chang: You just go online. You don't need to go to the store to ask for a BA. No, you just go online.

Speaker Change #115: Could be a now you just go online every vertical upside we'll have our AI assistant to.

Alice H. Chang: Every vertical website will have an AI assistant to talk to you. You can ask any question, reply, and recommend. And so I think that's the future for every website. And Perfect, we are focusing on beauty, skin care, and fashion. That's our vertical, because not only chatty-beauty conversation, but message-text conversation. Besides the dialogue, we can also add the value-add of our AI services that are already developed for beauty, skin care, and fashion. So they provide a real legal recommendation to the users.

Speaker Change #115: Talk to you you can ask any question reply and recommend.

Speaker Change #115: So I think that's the future for every every website and part of it we are focusing.

Speaker Change #115: P skincare fashion, that's our vertical because not only are.

Speaker Change #115: At TVT conversation message past conversation.

Speaker Change #115: Besides that the.

Speaker Change #115: And that's all all week.

Speaker Change #115: We can also add the value add.

Speaker Change #115: Our AI services that <unk> developed for beauty skincare fashion.

Speaker Change #116: Our co by a real recommendation digitally to the users. So perfect Corp, right now ASP the only solution for AI assistant conversational assistant a waste all the like to try recommendation analysis together.

Alice H. Chang: So Perfect Corp right now is the only solution for AI assistant, conversational assistant with all the retro try-on, recommendation, analysis, together as one point of user experience, single point of view for all the AI assistants on any of the brand sites. However, I think this brand-new experience, I believe, will come from top. Brain Group and then, you know, turning to all mass markets one by one in the next three to five years.

Speaker Change #116: So one point of.

Speaker Change #116: He was there point single point of view for all the AI assistant or any of the brands side.

Speaker Change #117: However, I think this.

Speaker Change #117: New brand new.

Speaker Change #118: And I believe will come from a pop.

Speaker Change #118: <unk> and then.

Speaker Change #118: Now turning to our mass market one by one in the next three to five years.

Alice H. Chang: Right, I just can't imagine that those companies that are just getting involved in this would even have the information required to make recommendations other than, like, find me a red lipstick. Like, you know, something very simple, whereas you have years of experience that have to be somewhat of a moat to keep them away. Okay, sounds good. I'm looking forward to seeing it out in the wild. I really am, because it's going to be great to just be able to ask some questions and find a product. [inaudible] GPT.

Speaker Change #118: Right I, just can't imagine that those.

Speaker Change #118: Companies that are just getting involved in this would even have the.

Speaker Change #118: Information required to make recommendations other than like find me a red lipstick like you know something very simple, whereas you have years of experience. It has to be somewhat of a moat to keep them away.

Speaker Change #118: Okay.

Speaker Change #118: Okay.

Speaker Change #119: Okay sounds good I'm I'm looking forward to seeing that out in the wild I really am because it's going to be great.

Speaker Change #120: Could you just be able to ask some questions and find the product so.

Speaker Change #121: So much yeah yeah.

Speaker Change #122: And Oh, Okay, you know because of just like you said because of all of our knowledge about beauty skincare. So is the perfect TPP not only are you know it.

Alice H. Chang: So in the Perfect GPT, not only is it a GPT platform, but we use RIT. We use our own know-how database to integrate it, and specifically for each brand recommendation. I think that's also one of the uniquenesses based on our over 600, almost 700 brand experience, and we know exactly what the user likes and do the recommendation through the conversational. Your next question comes from the line of Christopher Ricuccio with Partners Corp. Please go ahead. Good morning, Alice and Louise. Can you hear me?

Speaker Change #123: G P D platform, but we use our R. A T. We use our own know how database to integrate it and that's basically for each brand recommendation I think that's also one of the uniqueness of it.

Speaker Change #123: Our over 600, almost 700 that are brand new theory, and we know exactly why they use their life and to be a recommendation through the conversation no dialogue with AI assistant.

Christopher <unk>: Your next question comes from the line of Christopher <unk> with Partners Corp. Please go ahead.

Operator: Yes, very clear. Good. Good. Good morning to you both.

Christopher <unk>: Good morning, Alice Luis can you hear me.

Operator: Just a few questions. I wonder if you could walk me through the process of converting your brand clients into key customers. Is there a specific methodology that you guys try to use?

Speaker Change #125: Yes very.

Hi, great.

Good good good morning to you both.

Speaker Change #126: Just a few questions.

Speaker Change #127: I Wonder if you could walk me through that.

Speaker Change #128: The process of converting youre, bringing clients into a key customer is there is there a specific methodology that you guys try to use a zero zero marketing approach is there.

Louis Chen: Is there a marketing approach? Are there top salespeople that you assign to certain brands to try to convert them into a quote-unquote key customer? Is there an overarching methodology, so to speak, to make them this upper-tier customer within your brand client pool? That's my first question, and I guess the second question related would be, is there – and forgive me if it's somewhat of a naive or ignorant question, but is there an overarching profile for your key customers?

Speaker Change #129: Top salespeople mature that you assign to certain brands to try to convert them into a quote unquote key customer.

Speaker Change #129: Is there is there an overarching methodologies so to speak to make them. This upper tier customer within your brand client pool.

That's my first question I guess the second question.

Speaker Change #130: Related would be is there.

Speaker Change #130: And forgive me it's.

Somewhat of a naive question, but is there is there an overarching profile to your key customers are they all retailers are they.

Louis Chen: Are they all retailers? Are they – if you could possibly generalize. As to what your key customers, other than the obvious revenue profile, what do your key customers typically look like, if at all, or do they range throughout the span of your brand client? Hi Chris, this is Luis.

Speaker Change #131: If you could if you could possibly.

Speaker Change #131: Generalize.

Speaker Change #131: What your key customers other than the obvious revenue profile what are the key customers typically look like if at all or do they range throughout the year.

The span of your brand clients.

Louis Chen: Let me answer the second question first. Typically, a typical profile of a key customer is typically multinational, so they're operating in more than one country. So these are typically beauty brands that have been there for a few years already, expanding their business across the continent. And that is where, once they start using the service, they typically have a unified global strategy to align their offering in different countries. Therefore, their consumption of our services is in greater territories, so that will generate more revenue.

Speaker Change #131: Hi, Craig This is Lloyd let me answer the second question first so typically a typical profile of a key customer. They are typically multinationals. So theyre operating in more than one countries. So these are typically beauty brands that are.

Speaker Change #131: Therefore, a few years already so extended their business across the continents, So and that is where we know once they start using the service. They typically have a unified global strategy to align their offering in different countries. Therefore, their consumption of our services and our greater territories right so that would generate.

Speaker Change #132: More revenue.

Louis Chen: The other thing that we have seen as part of that profile of the key customers is the brand or brand group, meaning that they are not only operating one brand. They probably have a sister brand or a number of group brands, so either they have acquired over the years or they have grown organically into some adjacent brands. So that's kind of a typical profile.

The other thing that we have seen as part of that profile.

All of the key customers is the brand or bring groups, meaning that they are not only operating one brand. They probably had a pizza brands or the number of new brands. So either the acquired over the years or they have grown organically into some some adjusting brands. So that's kind of.

Speaker Change #132: Typical profile retailer at the same thing right, though.

Louis Chen: Retailers are the same thing. Retailers like Sephora, for example, are operating in many other countries, so they are certainly part of the key customer life. Your first question. For the process of converting a brain client to a key client, mostly it starts, we always want to make the entry to start working with the brain very easy.

Speaker Change #132: Retailers like Sephora for example, they are operating in many other countries. So they are certainly a part of the key customer life.

Speaker Change #133: Your first question.

Speaker Change #134: For the project to convert and great client to keep fine.

Speaker Change #135: Mostly he start we always want to make the entries.

Speaker Change #136: To start working to bring very easy I said this is new technology to them.

Louis Chen: So this is new technology to them. We are not asking them to commit to a strong multi-million dollar agreement, which might be a very high commitment. So I think we'll typically start, you know, they can do a pilot. They can do it in one country only for a selected product, right? So something easy under $50,000 to start with.

Speaker Change #137: Not asking them to commit upfront multimillion dollar agreement, which it might be.

Speaker Change #138: Hi commitment.

Speaker Change #139: I think typically we start they can do a pilot it can do in one country only for selected products right, So something easy under $50000 to start with and the process there.

Louis Chen: And the process there is to let them see the results. Let them see that the analytics are showing a better conversion, a lower return rate, a bigger basket size, and encourage them to deploy these services to more countries. Therefore, they will have these recurring compounding effects on revenue to increase and hopefully become bigger than $50,000 a year, much more than that, and then become a key customer. So the strategy there has always been an upsell, right?

Speaker Change #140: They didn't see the result, <unk> analytics is showing a better conversion lower return rates be bigger basket size.

Speaker Change #140: And encourage them to deploy new services to more countries. Therefore do have indeed.

Speaker Change #140: Recurring compounding effects on the revenue to increase and hopefully become bigger than $50000 a year.

Speaker Change #140: More than that and then become a key customers. So the strategy. There has been always a upsell so to start using something to get familiar with the platforms and then upsell them more services either to more categories of beauty products or geographies or even if they are operating group I'll start using them in their sister brands.

Louis Chen: So to start using something, to get familiar with the platforms, and then upsell them more services, either to more categories or beauty products or more geographies. Or even if they are a brain group, after using them in their system plan.

Louis Chen: I see. Thank you. Two quick follow-up questions, one actually related to a previous question.

Speaker Change #141: I see.

Speaker Change #141: Thank you.

Speaker Change #142: Two quick follow up questions, one action related to a previous question.

Louis Chen: Very briefly, I see that your R&D traditionally seems to amount to around a 21% cost margin. Is that something that is going to be very stable? In other words, there's not a lot of operating leverage there. As you continue to scale up, we should continue to see you committing around 21% of your top line to R&D, or does that begin as your revenue line continues to grow? Does that flatten out, and we begin to see more and more of your operating leverage being squeezed, so to speak, from that cost blindness?

Very briefly I see that your RMB.

Speaker Change #148: Has traditionally seems to amount to around 21% cost margin.

Speaker Change #142: Is that something that is going to be.

Speaker Change #144: Very stable in other words, there's not a lot of operating leverage there as you as you continue to scale up we should continue.

Speaker Change #142: See you committing around 21% of your topline to R&D or does that begin as your revenue line continues to grow does that flatten out and we begin to see more and more of your operating leverage being squeezed so to speak some that that cost line item.

Speaker Change #143: I think we are really pleased with the R&D cost structure, especially auto hearing Taiwan very efficient team very good cost structure. Thanks.

Louis Chen: I think we are pretty pleased with the R&D call structure, especially out of here in Taiwan. Very efficient team, very good call structure. I think traditionally they've ranging between 20 to 25 percent of the revenue. As the revenue size increases, certainly we're still investing in R&D talent. As I mentioned in my remarks, I think it's an area of AI that needs a lot more talent to develop a lot of new use cases.

Speaker Change #147: Traditionally has reengine between 20% to 25% of the revenue as the revenue side. These increases certainly we're still investing in R&D talent as I mentioned in the remarks I think he is our area of G&A AI that need a little more talent to develop a lot of new use cases.

Speaker Change #145: I think generally we are happy to be able to run these team of about 21%. As you mentioned, we went through one of these in our different countries are different they are all new.

Louis Chen: So I think, generally, we are happy to see or able to run this team around 21 percent, as you mentioned. If we were to run this in different countries or different development cities, Silicon Valley or other places, it would be a lot higher cost. So I think it is fine to run around this.

Speaker Change #145: No the C D Silicon valley or other places that you would be a lot higher cost. So I think if it is it is fine to run around these of course as we grow the category bigger that ratio may go down a little bit off you said you do leverage standpoint, we are also increasing R&D spending in turnover hiring more head count.

Louis Chen: Of course, as we grow the category, that ratio may go down a little bit, as you said, the leverage. But at the same point, we are also increasing R&D spending in terms of hiring more headcount. So net to net, I think it will remain about the same ratio of revenue, at least for the midterms. Your next question. Please limit yourself to one question and one follow-up comes from Aisha Shah with Sidoti. Please go ahead. Hi Alice, I'm Louis.

Speaker Change #145: So net net I think.

Speaker Change #145: They remain about the same ratio of the revenue and lethal disease.

Speaker Change #146: Your turn.

Speaker Change #149: Your next question. Please limit yourself to one question and one follow up comes from Asia Shah with Sidoti. Please go ahead.

Alice: Hi, Alice I'm. Louis Thank you for taking my question and congratulations on a very solid second quarter results.

Operator: Thank you for taking my question and congratulations on a very solid second quarter results. I have one question about the monthly active subscribers. This quarter we saw an increase.

Asia Shah: I have one question about the monthly active subscribers. This.

Speaker Change #152: This quarter, we saw it.

Asia Shah: Got.

Louis Chen: 18% year over year. Can you give us some color on what the subscriber's nature is, what percentage is new to the applications, and what the churn rate looks like? Thank you for taking my question. Hi Ashley.

Speaker Change #153: 18% year over year can you give us some color on what on the subscribers when they show what percentage is new to the applications and what does that look like thank you for taking my question.

Louis Chen: I think the subscriber we see, you know, quarter after quarter increase. Typically, those increases are on an annual subscription basis. So I think that's good, meaning there are those customers who are really high frequency users; they are committed to using it throughout the entire year rather than just taking a short time, one month subscription. So I think that means that they also are more likely, you know, tentatively, to renew year after year after year.

Hi, Ashley.

Speaker Change #154: The subscriber we see quarter to quarter.

Speaker Change #155: Greece are typically there.

Speaker Change #156: Inquiries are on an annual subscription basis. So I think that's good meaning they're those customer they are really high frequency use they're committed to use eat that throughout the entire year, rather than just taking a short time, one month observation, but I think that means that they also are more tentatively.

Tentatively to renew year after year after year, we haven't announced publicly yet or a renewal railroad raising specific firms. So I'll refrain from answering that but you can rest assure we see the momentum the blues.

Louis Chen: We haven't announced publicly yet our renewal rate or churn rate in specific terms, so I'll refrain from answering that, but I think it's safe to say we see the momentum. It's not just coming from one particular country or one particular product. I see what we have seen in more than 10 countries, probably, you know, 15 to 20 countries now that, you know, the consumer, the mobile app consumer, is really much more open to paying a subscription for digital apps, even for tools, you know, tool-like apps, which was, you know, traditionally very, very difficult. But I think now that the mindset has probably changed.

It is not just coming from one particular country or one particular product I see what we have seen is more than 10 countries, probably 15 to 20 countries now.

Speaker Change #157: Did the consumer the mobile App is humor are really much more open to paying a subscription for digital apps even for tool.

Speaker Change #157: To like the App, which is traditionally what's very very difficult, but I think now the myself probably has changed.

Louis Chen: There are so many other apps that all require some sort of subscription base and to unlock the premium features. So our strategy has been, as long as we keep innovating on these innovations and premium features, we're able to retain those active subscribers and then continue to convert more of the free trial users into paying subscribers. Thank you, and I have a follow-up question. If you could rank maybe three or five new categories in terms of growth, what would those categories be, and which ones would you think would most likely contribute to revenue growth in the second half of 2024? Like, what are the catalysts that you're looking at right now in terms of categories or the new categories that you just started working with? Thank you. You're welcome.

Speaker Change #157: So many other appetite or requesting some sort of a solution base.

Speaker Change #157: And to the loss of the premium features.

Speaker Change #158: <unk> has been as long as we keep innovating on these innovations and premium features we're able to retain those.

Speaker Change #158: Subscriber and then continue to convert more of the free trial users into paying subscribers.

Speaker Change #159: Thank you and I have a follow up question if.

Speaker Change #160: If you can drank maybe three or five new categories in terms of growth.

Speaker Change #162: What would those got degrees B, and which ones would you think more would most likely contribute to revenue growth in the second half of 'twenty 'twenty four it like what are the catalysts that you're looking at right now in terms of categories are the new categories that you've just started working with.

Speaker Change #161: Thank you.

Louis Chen: I think the, it doesn't matter which category typically takes time, right? Enterprise customers are really cautious about deploying services. So, you know, services that we have deployed and have already passed the pilot test. Things like, for example, the pilot last year, we started to see more scale this year and even more the following year. Going off historical experience, typically, you know, a client takes about two years until they become more mature and consume these services more.

Speaker Change #163: Youre welcome.

Speaker Change #164: He did it doesn't matter, which category you typically it takes time right enterprise customer they see a really cautious on deploying services.

So services that we have deployed and already past the pilot test.

Speaker Change #165: Things like for example, it was a.

Speaker Change #165: The policy last year, we started to see more scaled each year and even more the following year Golar historical experience typically a client who would take about two years and two do they become a more mature in their consumption of these services.

Speaker Change #166: That said I think the growing momentum on the skincare is very strong because if a area that we invested heavily in the past three years and starting to see now to capitalize on the result of course makeup is very mature and robust. So we see probably a slower growth rate from that perspective, but the size of it.

Louis Chen: So with that said, I think, you know, the growth momentum for skincare is very strong because it's an area that we invested heavily in the past three years and started to see, you know, capitalize on that result. Of course, makeup is very mature and robust.

Louis Chen: So we probably see a slower growth rate from that perspective, but the size of it is bigger, right? Because we've been doing makeup for eight, nine years now. Jewelries and, you know, high-end jewelry watches, we see very, very good momentum going on because we were able to launch about 10 to 12 pilots in the last year. Many of these pilots, you know, have been concluded, and they are converting into full deployment, and then also expanding to more countries.

Speaker Change #167: Each speaker right. So because we've been doing makeup for eight nine years now jewelry and the high.

Speaker Change #167: Jewelry and watch it we see very very good momentum going on because we are able to launch about 10 to 12 pilot in the last year. Many of these pilot.

Speaker Change #167: I have been concluded and they are converting into full deployment and then also expanding to more countries. So in total contribution of few that incur.

Louis Chen: So internal contribution, I feel that skincare, because of the strategy of going, you know, the MedSpa, the Clinique, you know, even addressing the long tail clients, will show more results financially. The B2C consumer app continues to be very strong. So we're spending more on locale; we are, you know, getting more digital marketing efforts around different languages to expand the market there. And then jewelry and watches, I think it's very promising. Our quality is really, really superior to any competitor. So we're winning virtually every deal that is open in the market. Your next question comes from Mike Kupinski with Noble. Please go ahead.

Speaker Change #167: Because of the strategy of growing the.

Speaker Change #168: The med spa, the clinique, even addressing the long tail clients will show small resolve initially.

Speaker Change #168: The BTC cause human Abbvie continues to be very strong. So we are spending more long tail we are.

Getting more digital marketing efforts around different languages to expand the market there and then jewelry and watch it I think is very promising.

Speaker Change #168: Our quality is really really superior to any competitor. So we're winning virtually every deal that is open in the market.

Speaker Change #168: Okay.

Speaker Change #169: Your next question comes from Mike Kaminski with novel. Please go ahead.

Operator: Yeah, first, let me offer my congratulations on a solid quarter as well. Just a couple of questions related to the margins. You mentioned cost efficiency initiatives, and I was wondering if you could just give me the impact that those cost initiatives had in the quarter, in this latest quarter. And then I was just wondering if you could maybe give me a little bit regarding your verticals, where you're expanding beyond skincare into fashion, apparel, and jewelry.

Mike Kaminski: First let me offer my congratulations on a solid quarter as well just a couple of questions related around the margins that you mentioned cost efficiency initiatives and I was wondering if you can just give me.

Speaker Change #171: The impact that that had those cost initiatives in.

Speaker Change #172: In the quarter.

Speaker Change #173: In this latest quarter and then I was just wondering if you can maybe give me a little regarding your verticals, you're expanding beyond skincare and to fashion apparel or jewelry I was just wondering if that is going to more so effect b to b or do you think that those expansions in <unk>.

Articles are going to affect or B to C. And then based on that answer. If you can just kind of give me your thoughts on sustainable margins as you kind of look forward or over the course of the next couple of years, given how you see.

Speaker Change #174: Two different businesses growing given that there's a different margin profile between b to b and B to C.

Operator: I was just wondering if that is going to affect B2B more, or do you think that those expansions and verticals are going to affect B2C more? And then based on that answer, if you can just kind of give me your thoughts on sustainable margins as you kind of look forward over the course of the next couple of years, given how you see the two different businesses growing, given that there is a different margin profile between B2B and B2C. Hi Mike, Let me start with the first, and Alice may add on to the others too.

Mike Kaminski: Hi, Mike.

Let me start with the first and the only thing I may add on.

Speaker Change #175: The others too.

Louis Chen: So in terms of the margin, if we look at B2B, one of the strengths and advantages we have is these clients that we serve; many of them have minor categories, right? So a beauty brand, they have makeup products, color cosmetics, skincare, hair products, and more. Even some of the groups, you know, they also do jewelry and fashions and eyewear, which means our customer acquisition calls for our new category are this efficient there because it's the same sales team, it's the same customer service team, and customer support success team, but we're able to expand our offering and serve more products and services to the same client or client group.

Speaker Change #176: So interrupted margin.

Speaker Change #177: Look at the beat to be Wonder if the 40 and the advantage we have is decline.

Speaker Change #178: Declines are we serve many of his motto category right. So a beauty brand they've had to make a broader color cosmetics and skin care to his hair product the more even some of the group.

Speaker Change #178: They also do jewelry confessions, and eyewear, which means that our customer acquisition costs for our new category is this efficiency there because it's the same sales team is the same public service theme customer support so 15, but we were able to expand our offering and more products and services the same coin.

Speaker Change #178: The client groups.

Louis Chen: So I feel that is a very unique part of our business, how we have been able to move from a single income category to a minor category in these past few years. And we may continue to execute on that strategy as there is certainly more consolidation in the industry. So these beauty groups are also expanding, they are acquiring new brands, they are getting into newer categories, and then we are able to serve them as the current service providers.

Speaker Change #179: A few that is a very unique part of our business. How are you able to move from a single.

Category two amount of category in these past few years and that May continue to execute on that strategy.

Suddenly more consolidation in the industry. So these beauty group that also spending quite a new blend we are.

Speaker Change #179: Getting into newer categories, and then we able to certain adds up the current service providers.

Louis Chen: On the sustainable margin, if we look at the B2B business, the margin is typically much higher, over 90%. We develop technology in-house; we don't pay so many royalties to anybody, so this is really a pure margin business. The B2C part, we pay Apple and Google for their distribution. We know Apple charged 30%, and Google 15%.

Speaker Change #180: On the sustainable margin, if we look at the B to B business. The margin is typically much higher over 90%, we develop technology in house, we don't pay somebody loyalty to anybody. So D. C is really a pure margin basis, it would be to see part of it we pay Apple and Google for their distributions.

Louis Chen: So in that perspective, the Apple consumer margin will be at 70% for us, and then Google will be at 85%. So the overall sustainable margin is really dependent on the mix ratio between the Apple users, the Google users, and our B2B customers. So I think what we see here on the 79% may go down a little bit depending on if B2C continues to grow stronger in the next few quarters, but I don't think it's going to be much lower than what we see now. Maybe one or two percent more steep, but that should be it.

Speaker Change #180: Now Apple check charged 30% who were 15% right.

Speaker Change #180: In the perspective of the Apple consumer Oh, no margin it will be at 70% for US and then they will be at 85% for the overall sustainable margin you'd really depend to make ratio between the Apple users that Google users and our b to b customers. So I think what we see here on that 79%.

Speaker Change #180: May go down a little bit depending on if the BTC continue to grow stronger in the next few quarters, but the only thing you're going to be much lower than what we see now maybe one or 2%.

Speaker Change #180: But that should be it.

Speaker Change #180: I think for new vertical and maybe I'll, let Alex comment on the potential for new verticals, our new loyalty card Uh huh.

Alice H. Chang: I think for new verticals, maybe I'll let Alex comment on the potential for new verticals. For new verticals, it is for B2B, it's very vertical, because when you make a brand, they may not need jewelry. So we talked to makeup brands, skin care brands, jewelry brands, hair brands, but it's only men. So this is, like Louis said, some of the brand groups. They have all the different divisions. So once we know one of the divisions, it's easier for us to talk to the others.

Speaker Change #180: It is a 42 b it's Mary.

Alex: Vertical he has.

Mary: Our makeup brands they may not need to so.

Speaker Change #181: So we talk to our.

Brian Jeffrey Schwartz: Makeup brands skincare brands jewelry brands here Brian.

Speaker Change #181: It's only men.

Speaker Change #183: So this is like really set some of the rank group they have all the different that they check. So once we know one of the division easier for us to talk to the other.

Alice H. Chang: And for purely new brand groups with very specific vertical demands, like hair or even like MedSpa Clinique, that we need to review, build from, not review, build from the digital, build from digital marketing, and then talk to them. So for MedSpa, I would say it is a new market with very, very high demand for our skin analysis and aesthetic simulation, and this is not in the brand group. But within the brand group, they have multiple demands that for us, we don't need to do too much, you know, from ground marketing efforts. Then we can expand easily to different verticals.

Speaker Change #183: For purely new brand group, we thought there was specific vertical demand like here.

Speaker Change #184: Oh, I, even like Med Spa clinique that we need to rebuild steals from not really built from the I think it will be from digital marketing and I talk to them. So for lifestyle I would say, it's a new market with very very high demand for our team.

Speaker Change #185: Analysis and athletic simulation and this is not in the breakthrough, but we didn't grab brand group. They have multiple demand that for us we don't need to do too much.

You know from marketing.

Speaker Change #185: Marketing effort and we can expand easily two different vertical but do we see a very very strong demand from our med spa clinics for the skiing analysis, and that's adding simulation micro plastic surgery request and what their b to C. O R. P.

Alice H. Chang: But do see a very, very strong demand from MedSpa Clinique for the skin analysis and aesthetic simulation microplastic surgery request. And for B2C, all these are for B2B, very vertical. But for B2C, glad that we can leverage all the technology we work with vertically, and we integrate them into our beauty app. For the app user, the end user, they pay $35, $40 per year. They can enjoy everything.

Speaker Change #185: To be very vertical that's what people see.

Speaker Change #185: Got that we can leverage all the technology, where you work with a vertical and we integrate them into our beauty app for the App user and user they pay a $75 $40 per year they can enjoy everything.

Speaker Change #185: That is also one of our debt.

Speaker Change #186: T that although that's the whole economy has some challenge strictly.

Speaker Change #186: We do see beauty app markets still keep on growing very strong.

Louis Chen: So that is also one of the key reasons that although the whole economy has some challenges with the B2C beauty app, markets still keep on growing very strong. Thank you for the color. Just one quick question. If I, if I may, could you just talk a little bit? You touched on the prospect of M&A, I think, and I was wondering if you could just talk a little bit about the M&A environment and, you know, whether or not you would look for some compelling acquisition opportunities.

Speaker Change #187: Thank you for the color just one quick question.

Speaker Change #188: If I may can you just talk a little bit you touched on the prospect of M&A I think and I'm wondering if you could just talk a little bit about M&A environment.

Speaker Change #190: Whether or not you would look for some compelling acquisition opportunities here.

Speaker Change #188: Oh, Hi, Mike thoroughly I remember, it's part of the growth strategy. Besides organic growth, we've certainly been paying attention and looking at opportunities.

Louis Chen: Hi guys, certainly M&A is part of the growth strategy besides organic growth. We've certainly been paying attention to and looking at opportunities. Nothing material has been ready to be announced yet. I think the market is reopening. I think the valuation has come down to a much more reasonable level for a lot of these tech companies.

Speaker Change #189: Nothing material has been ready to be announced yet.

Speaker Change #189: And that market is it is reopening I think devaluation has come down to a much more reasonable rate levels for a lot of these companies. So it is something that I would certainly it could be looking at the synergy that we can be with our global distribution. We all global platform. So again once we have any news, though we'll be sharing.

Louis Chen: So it's something that we're certainly actively looking at the synergy that we can have with our global distribution, with our global platform. So again, once we have any news, we'll be sharing that with the market. And that concludes the question and answer session. I will now turn the conference over to Jimmy Shaw for his closing remarks. Thank you once again for joining the call today. If you have any further questions, please feel free to contact us directly or through our Investor Relations website. We look forward to speaking with everyone on our next call. You may now disconnect. This concludes the conference call. Thank you for your participation. You may now disconnect.

Speaker Change #189: To the market.

Speaker Change #189: And that concludes the question and answer session I will now turn the conference over to Jimmy Shah for closing remarks.

Jimmy Shah: Thank you once again for joining the call today. If you have any further questions. Please feel free to contact us directly or through our IR website. We look forward to speaking with everyone. Next call you may now disconnect.

Jimmy Shah: This concludes the conference call. Thank you for your participation you may now disconnect.

Jimmy Shah: [noise].