Perfect Corp. Price & Performance (PERF)

Good morning and good evening, ladies and gentlemen.

Thank you for standing by, and welcome to Perfect Corp. Fourth Quarter twenty twenty four and Full Year twenty twenty four Earnings Conference Call. Please note that today's event is being recorded. I will now turn the conference over to the first speaker today, IR Director of the Company.

Hello, everyone. Welcome to Perfect Corp's Fourth Quarter twenty twenty four and Full Year twenty twenty four With us today are Ms. Alice Chang, our Founder Chairwoman and Chief Executive Officer, Mr. Louis Chen, our Executive Vice President and Chief Strategy Officer and Ms. Iris Chen, Vice President of Finance and Accounting.

You can refer to our fourth quarter twenty twenty four and full year twenty twenty four financial results on our IR website or in the link or in the form six ks we filed with 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 our prepared remarks followed by a question and answer 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 plans, original results and our objectives. 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 [indiscernible] Perfect Corp. Undertakes no obligation to update any forward looking statements except as required by law after the date of this call. Please note that all numbers stated in management's prepared remarks are in U. S. Dollar. And we will also discuss non IFRS measures today. I will now turn the call over to our CEO, Ms. Alice Chen. Thank you, Jimmy. Welcome to Perfect Corp twenty twenty four fourth quarter earnings call.

Let me start by giving you some updates on our financials and our progress in product business development around the world in This year our view for the year of twenty twenty five. First of all, we completed the full year 2024 with double digit growth in revenue as anticipated by our guidance. The total revenue grew by 12.5% year over year to $60,200,000 The bottom line net income for the same period was $5,000,000 and the adjusted net income increased 18.6% to $8,300,000 compared to 2023. This continuous increase in revenue and the positive net income is mainly due to strong growth within our mobile app subscription business under Full year 2024, our operating cash cash flow generated a net inflow of $13,000,000 and our balance sheet remains very strong with over $165,900,000 in cash and the cash equivalents. Our B2C mobile app business has maintained very strong growth with the number of active paying subscribers continuing to breach on time records, with over 1,000,000 to end 2024. It is a 14.3% increase compared to 887,000 subscribers at the end of twenty twenty three. This sustained growth in paying subscribers highlighting the ongoing global demand of AI powered photo and video editing, creation, enhancing and beautification features.

Appealing to all age groups and the regions. As we mentioned, we have seen positive momentum from our North American and Western Europe markets as well as developing markets in Brazil.

Our U. K. Mobile app suite continue to evolve with frequent up updates and the feature enhancements. Powered by Coffee Match Genitive AI for image and video creation. Among the most popular innovations, our Gen AI hair experiences have become a major hit within our user community. These features, including AI hairstyle, hair lengthening, hair weighty, hair volume, hair color, and more. Provide ultra realistic stimulus previews transforming how consumers and retailers make style decisions. Beyond hair transformation, our AI technology extends to other exciting innovations, such as the AI face swap, AI face expression, AI Total Enhanced, video enhanced and more. Delivering next level creativity and personalization to our growing user community.

Beyond our mobile apps, we are also expanding our web based generative AI solution with [indiscernible] Consumer now can enjoy the latest AI innovation not only through their mobile app, but also via web browser on their laptop, ensuring a seamless and accessible experience across the platform. We are focused on harnessing the power of Gen AI to deliver engaging new features from text, image, audio and video. That is becoming an integral part of the premium subscription offering for our B2C users.

On app and on web, By integrating state of the art models and algorithms, we aim to create immersive personalized experience that go beyond traditional functionality driving deeper user engagement and the loyalty. Our strategy in B2C app and the web evolves involves a continuous R and D to refine generative AI component model and enabling features such as AI enhancement in photo and video as well as AI creation, personalized image and the video. Through this relentless innovation, coupled with the robust user feedback and the deep data analytics which drives to deliver subscription based service that offer clear, tangible value positioning us as a leading provider for cutting edge image and video and AI solutions in consumer market. Before I go to Laura's B2B performance, I want to go over the recent acquisition of Wana from Farfetch and its impact on Perfect Core. The transaction was completed in early January. And we anticipate spending the next six to twelve months similarly integrating Lana into our team. Wanna's core competence gives us [indiscernible] to new markets in the customers [indiscernible] where it offers virtual try on services for handbags, garves and the closets.

This acquisition perfectly aligns with our AI service offerings to brand partners. And will expand our total addressable market beyond our career reach. Together with Perfect Corp, we will strengthen our competitive position in the beauty and fashion space leveraging our synergistic solution [indiscernible] and experienced team members. In our B2B business in 2024, we have prioritized deepening market penetration in Skin Care [indiscernible] We reached over seven thirty two brand clients with over eight twenty two thousand SKUs, onboarded in our platform. We continue to make significant steps in expanding our portfolio with AI powered skin diagnostics Beyond core beauty and skincare brands, we have actively expanded into new markets and the region aesthetic cleanings 15 major concerns in HD providing personalized treatment and product recommendation, tailored to each user's unique skin profile. The technology has enabled precise treatment measure tracking progress, with before and after comparison. To showcase improvements by combining advanced diagnostics with data driven insights. Our solution enhances client engagement trust, the long term loyalty in the evolving world [indiscernible] Our Makeup virtual trial solution remains as a global leader delivering strong results for brand customers. We have secured key licenses renewal with top beauty conglomerates and retailers.

Proving our impact on boosting online engagement in e commerce conversion rate. While the B2B sales cycle has its challenges, our pipeline remains strong and we remain focused on healthy enterprise [indiscernible] adopt AI driven solutions to elevate consumer engagement and the digital experience. On the fashion fashion tech side, of our business We continue to make strong progress in luxury fashion tech with luxury brands. Particularly in watches and the jewelry's VTO. In January 2025, we acquired Walnut from Farfetch to accelerate our B2B growth with fashion brands in the retailers. This strategic move expands our three d DTO solution to shoes, bath, clothes and scarves enhancing digital shopping experience and reshaping how brands engage with customers in the era of AI powered fashion retail. Additionally, our new web based AI service [indiscernible] integrates Gen AI technology for advanced image and video editing. While initially we designed for beauty and fashion professionals, it has gained traction across diverse industries. Technomic is winning our total addressable market The SaaS API is simplified web and mobile app development. And knowing complex processing without requiring server maintenance from the clients. Its flexibility makes it suitable for business of all sizes. With new clients spanning like convenience store chains, telecom carrier and the mobile phone companies.

In conclusion, we achieved a solid business growth throughout 2024. Highlighted by increased revenue, enhanced operational efficiency and strong financial performance.

We are confident that Net Property Corp is is a position strategically to capitalize on its [indiscernible] market opportunities and sustained long term growth by continuously developing new technologies, and leveraging our leadership position in beauty and fashion space, for our consumer from our app web as well as our B2B enterprise brand [indiscernible] Our strategy for long term growth in 2025 and beyond focuses on deepening our presence in the beauty, fashion and the skin segments and expanding into new segments.

Exploring cross sell opportunities broadening our product service offering [indiscernible] Strengthening of leadership, accelerating revenue growth, and maximizing long term shareholder value. Driven by the positive demand for both our [indiscernible] Our outlook for the full year 2020 Project's total revenue growth recognized under IFRS to range from 13% to 14.5% compared to the full year 2024 results.

With that, I have concluded my remarks and we'll now pass the call over to Luis who will discuss our financial details with you. Thank you. Thank you, Alex.

Please note that all financial comparisons are on a year over year basis, and the reporting period is the fourth quarter of twenty twenty four versus the comparable and that on top of the international financial reporting standard measures, We will also discuss non IFRS measures to provide greater clarity on the trends in our operations. In the fourth quarter of twenty twenty four, our total revenue increased to $15,900,000 from $14,100,000 for the same period in 2023. Representing a year over year increase of 12.4% Perfect. Full year revenue increased 12.5% to $60,200,000 in 2024 from $53,500,000 in 2023 Perfect. The growth came from the continuous growth of our AI and AR cloud solutions and mobile app subscription business. The AIAR cloud solution and subscription revenue grew 25.4% to $15,100,000 compared to $12,000,000 from the year ago period. Which represent 95% of total revenue in this quarter.

The growth is attributed to the continued expansion of our mobile beauty app and the positive momentum from our online skin diagnosis solution. As well as our virtual try on business. Licensing revenue decreased by 72.2% in the fourth quarter of twenty twenty four to 500,000.0 compared to $1,800,000 during the same period of 2023. The licensing revenue will gradually become immaterial as it continued to be phased out and replaced by the better business model of recurring subscription revenue model. The gross profit for the fourth quarter of twenty twenty four grew by 2.5% to $11,800,000 with gross margin of 74.1% compared to $11,500,000 and gross margin of 81.3% for the same period in 2023. Full year gross profit was $46,900,000 in 2024, and gross margin of 78% compared to $43,100,000 in '23, with gross margin of 80.6% Perfect, The decrease is 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, are due to the increase in our mobile app subscription revenue. The total operating expense for the fourth quarter of twenty four decreased by 3.6% to $12,200,000 compared to $12,700,000 for the same period last year.

The decrease was primarily due to the lower R and D expenses and G and A expenses, in the fourth quarter of twenty twenty four full year operating expense increased 2.7% to fifty point one million twenty twenty four, compared to $48,800,000 in 2023. This increase was mainly due to the increase in sales and marketing expenses R and D expenses, and also offset by a decrease of G and A expenses. Going into more detail for an operating expenses, The sales and marketing expense for the fourth quarter of twenty twenty four were $6,900,000 compared to $6,700,000 during the same period of 2020 an increase of 3.6% Perfect.

The full year sales and marketing expense increased 9.7% to $28,200,000 in 2024 Perfect, compared to $25,700,000 in 2023. These increase were largely due to increase in marketing events advertising costs, related to our mobile apps and cloud computing costs. Research and development expenses were $2,800,000 for the fourth quarter of twenty twenty four, compared to $3,000,000 during the same period of 2023. A decrease of 8.3% The decrease were from the streamlining certain R and D process and benefiting from expense savings, Full year R and D expense increased 4.7% to $12,000,000 for 2024 compared to $11,500,000 in 2023 This increase resulted from an increase in R and D headcount and related personnel costs. General and administrative expenses decreased by 41% to $1,800,000 for the fourth quarter of twenty twenty four compared to $3,000,000 during the same period of 2023. Full year G and A expenses decreased by 26.6% to $8,500,000 compared to 11.6% in 2023.

The decrease were mainly due to the increased operational efficiency, as we march into the third year mark of the listing on NYSE. Net income was $1,100,000 for the fourth quarter of twenty twenty four, compared to the net income of $1,400,000 during the same period of 2023. Full year net income was $5,000,000 for 2024 compared to $5,400,000 in 2023.

The positive net income supported by continued revenue growth and effective cost control. These results represent an end margin net income margin of 8.3% for the full year 2024. Excluding non cash share based compensation, non cash valuation gain and loss of financial liabilities The adjusted net income was $2,300,000 for the fourth quarter of twenty twenty four, compared to the net adjusted net income of $2,100,000 in the same period in 2023. An increase of 8.2% Full year adjusted net income was $8,300,000 in 2024, compared to $7,000,000 in 2017 an increase of 18.6% Perfect. This represents an adjusted net margin of 13.8 As of 12/31/2024, the company held $165,900,000 in cash and cash equivalents and this month's deposit. Compared to 163,200,000.0 as of 12/30/2024. We had a positive operating cash flow of $3,300,000 in the fourth quarter of twenty twenty four, compared to $3,100,000 during the same period of 2023, For the full year, operating cash flow was $13,000,000 in 2024 compared to $13,600,000 in 2023. The positive cash flow demonstrate the company's continuing ability to generate continuous cash flow to support its business operation and growth strategy. On the mobile app side and business metrics, the mobile app subscription business was growing the active subscriber increased to 14.3% year over year.

Reaching an all time high of over $1,000,000 by end of twenty twenty four. Our UCAM suite of beauty app has demonstrated its ability to provide both enjoyment and value to users successfully converting them into paying subscribers. Our enterprise customer base had a net increase of 24 brand clients since the end of last quarter, achieving a total of seven thirty two great clients with over 822,000 SKUs for makeup, skincare, eyewear, watches and jewelry products, as of the end of last year. The further expansion of these metrics highlights the ongoing growth in the customer penetration SKU expansion. In the fourth quarter, Perfect stayed at the 151 key customers the same at the end of the previous quarter, demonstrating the stability of our enterprise business this quarter, In summary, the fourth quarter of twenty twenty four, our AI and AI cloud solution and mobile app subscription business continue to drive our growth Throughout the year, we remain focused on operational efficiencies and financial discipline, resulting in a 18.6% year over year in full year adjusted net income and adjusted net margin rate of 13.8% Perfect. As mentioned by Alex, we will continue to invest in the growth of our business through the development of AI technologies, both organically and through MMA opportunities.

To strengthen our core competencies our commitment to advancing GN AI position position us as the industry leader empowering our consumers and enterprise clients with tools that outperform current solutions and redefine what's possible in user engagement and personalized services. Our purchase of Wanna from Farfetch significantly enhanced Perfect core market reach allowing us to tap into new customer segments and geographies that were previously out of scope. By integrating OneF's established customer base, product offerings and distribution channels, we can rapidly expand our footprint and drive growth across untapped markets. Additionally, these transactions strengthen our competitive positioning by broadening our product portfolio increased brand visibility, and position us to better serve a wider range of industries. We are excited about the opportunity that are ahead of our B2C and B2B business lines by continuing to invest in AI innovation, expanding our market presence and building on our strong foundation, we are confident that we will sustain growth well into the future. Finally, our 2025 guidance for total revenue year over year growth will range from 13% to 14.5% This forecast is based on company current assessment of the market and operational conditions and management will closely monitor business progress and provide updates in order to better offer transparency to the market.

With that, concludes my prepared remarks. Operator, please open up the call for questions.

Thank you. We will now begin the question and answer session. Your first question comes from the line of Patna Kann with Noble. Please go ahead.

Hey, thanks for taking my question.

I was wondering, I noticed you certainly you highlighted the the growth in the brand clients. And my question had to do with the B2B side of the house. I'm wondering what the situation is with your enterprise clients as far as their ability to potentially start to spend more money on services such as yours? What's the situation with the B2B, especially given that it has the higher margins? And will that would you anticipate a return to growth there in 2025? What should we look for there? And then I guess sort of the follow-up to that would be how does the B2B revenue play into your 13.5% to 14.5% growth guidance for 2025?

Thank you, Pat. So the B2B market, I would say, is still remain challenging, right? Last year, generally on the previous year, we had challenges from inflation and cost. Most recently, we start hearing clients certainly worry about potential tariffs that may come later in the year. So they are certainly cautious to understand what exactly will be the impact to their financials that may turn their spending plans. So the pipeline remains very solid. The interest from the B2B brands are still there. They are investing. They want to be more digital. This is where we play the role. However, we understand that they are not yet ready to write a big check.

So we see that the renewal rate for the business continues to be healthy. So they will continue to use what they are already using, but the expansion to be have more accelerated growth I think it still remains to be proven. And we've been vigilant about the market and how the world economy will play. And this certainly may affect the cost structure from that perspective. But the good news is we are spending our TAM right into newer markets. So our total addressable, whether it's client groups or its market, your overseas spending, again, partially because of the one acquisition we are sending to newer categories, that we were not previously present or only started to get into the market and that potentially could contribute in the growth The guidance that we have provided certainly is based on current visibility We didn't want to just have a big talk and have it overly optimistic without seeing the market is moving. So we are cautiously optimistic about that since there is no really real competition in the segment that we are. We remain a solid leader in this space. So I believe that once the back market opens and probably bounce stronger consumption, it may drive more revenue in there.

The total guidance for 2025 we expect that the B2C revenue is growing faster than the B2B continuously for the last year or two. So we expect that the B2B revenue may be somewhere between 30% to 40% of the total revenue in this year pursuant to our guidance model.

Great. Thank you. And your next question comes from the line of Lisa Thompson with Zacks Investment Research.

Lisa, please go ahead.

Hi. Let me just follow-up on your answer. If you thinking that next year B2B is going to be 30% to 40%, what was it last year?

So last year, I see it was 40% ish. Ish percent. We are finishing our auditing with the audit service. So the B2C part has become the bigger part of the total business in 2024.

And in looking at what your kind of earnings plan is for the year, do you think that you're going to be able to reduce operating expenses to keep in line with the because of that and then come out kind of the same as you did last year?

I think we are still investing and I think we're still [indiscernible] to stop investing, right. So I think the opportunity is quite big there. The expenses in the net income is positive. The operating income is virtually almost breakeven. So that's not really our key concerns, especially with the capital that we have to invest in the growth. I think now we've expansion into newer categories, coming out with new products, especially in AI innovation. We will continue to invest. Nothing that we increase any significant differences between what our expense model has been in the previous [indiscernible] So in a nutshell, I think we will try to run the model with financial discipline, to make sure that it's not creating financial pressures.

But at the same time, continue to invest in AI development, research and growing the R and D team.

Ken, I just have one question on Wana.

Can you talk about that landscape as far as competition? I know you dominate beauty. What does it look like in the fashion landscape?

Yes. So Wana is certainly been the leader in the fashion space. They have more than two dozen big globals, big names such as Valentino, Balenciaga, Louis Vuitton, Gucci, and more. So I think there's not really much So after the integration, we really become the AIAR powerhouse for fashion and beauty virtual trial market. There may be a few other smaller start ups that are in the shoes market or only doing certain watches market, but not in the scale and reach that can compete with us. So I think the strategic merger really created opportunity to become the one shop for the luxury brands especially for the top luxury brands, they rely on global team, they rely on bigger more established organization to provide services to them.

And I think one of was part of the Farfetch, which is again, it's a great company, great group. And now part of Perfect Corp, a more established global leader in technology. We are confident that we can give extra runway for this business to grow and really become a dominant player across both beauty and fashion.

Great. Thank you for those answers.

And your next question comes from the line of Ashish Shah Ashish, Great. Thank you so much for taking my question.

I have one of the questions regarding gross margin. Gross margin declined six percentage quarter over quarter. I understand the year over year decline because the B2C part is higher, but like the B2C business is more But why did we see a 6% decline quarter over quarter and like if you can just give us what key drivers behind this compression So I think the fourth quarter the good news is the B2C was growing at a faster pace than we expected. So the overall revenue contribution from B2C versus B2B in the fourth quarter was much higher than we expected. And that's how the overall gross margin has a bigger dip I think it's not expected, it was not expected. But I think it's really more maybe a one time thing the fourth quarter, the shopping season [indiscernible] people getting new smartphones or they are downloading new apps or they are subscribing new apps. And we have seen this pattern typically in our [indiscernible] The quarter four will have that impact because the B2C is bigger. Just this year, it was a lot more bigger and growing faster than we expected. On the other hand, B2B continues to be challenging in quarter four.

Right? So the revenue contribution from B2B was slightly lower than we expected that also contributed to the drop in the gross margin. For the 2025 full year, I think we expect that that may gradually come up slightly.

Okay.

But it does not go back to 2023 levels?

Correct. Correct. Yes. I think 2023, we are business was about half of the total business. I think for this year, as I said earlier, we expect the B2B business to be more challenging. And if the B2C continue to grow really quick, fast and the B2B contribution may drop to let's say 30% or only be over 30% Perfect.

Right.

Okay.

And just another question relating to the acquisition like if you can give us the timeline for the full integration. And also regarding the revenue split like, You said that revenue growth, like the revenue guidance for is 13% to 14.5%. If you can just break down how much of that growth is expected to come from the acquisition and how much is the organic growth?

So the deal just closed like forty, forty five days ago. So team is going through extensive integration work across all different departments. So we expect that will continue to happen in the first half of the year. Meaning that the go to market together as one team, as one platform can happen later in the year. And now with that, again, we try to do as soon as we can sales marketing perspective, from product development, from customer service, customer So if we are able to move very quickly on this, the revenue may be the contribution of that new acquisition might come in earlier or in more meaningful way in this year. The guidance that we have given then we started with a quite conservative look into what the business are as is and how that contribute Again, Wana is a smaller startup, right? They are about 30 employees.

They have good client like twenty, twenty plus In countries, we have like 700, right? So that gives you a perspective about the size of the acquisition. So it's not going to have a tremendous change overnight. But it's much more the new value that we can unlock after the integration is done. And then gradually as this process March toward and we may adjust our guidance depending on the market.

Great. And just one more if we have the time. Like strategically, where do you see increasing your investment going into the New Year like to take advantage of the adoption of AI? Like where do you where are you on where are your top investment AI is especially generated by AI is all our focus right now from R and D side. So you can see the evolving of a new AI model every month is excited. [indiscernible] the open model to the world So I think this is a great opportunity for the application services on top of this big model. So by saying that R and D, no matter is [indiscernible] some of the server training GPU, all these things are the main focus. Of course, digital marketing is still important, especially for B2C. If not buying app, then all the effort we put is in digital marketing. To attract all the worldwide app users to come to us. So AI is the whole focus of R and D this year and I think it's for the next five to ten years But the speed of investment I can see it's fast and because the whole ecosystem evolves so fast.

We're paying very high attention to the market and reason recent development of the market, I think it's a very, very pro to service providers like us.

Thank you. And our next question again from Lisa Thompson with Zacks Investment Research. Please go ahead.

Hi.

I just wanted to ask again about whatever happened to AI assistant and if you think that's going to be a big Driver for your mobile apps talk about where you are with that? Thank you.

Yes, AI assistant is the one we are developing. Since last half of I mean last second half of last year, we try to bridge them into B2B for the brand to use and B2C. For B2C, there's AI assistant, agent, copilot. We will launch that in our app before before second quarter of this year.

To try the market. I think that's the future. Everybody needs it. And it's a pay by service kind of business model. And for B2B brands, we have we have a Perfect GPT and already for POC. We did have brands doing POC trying to doing POC with us. And again, brands their movement to this new AI especially generative AI. Speed is not as fast So without POC, it may take start before end of this year. When testing doing validation B2C part will be faster. We will make the same agent beauty agents, editing agents to our apps before second half of this year.

Great.

I look forward to that. Thank you so much.

Thank you.

As there are no further questions at this time, like to hand the conference back over to Mr. Jimmy Shea. Jimmy? 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. Site. Look forward to speaking to everyone again in our next call.

This concludes today's conference call. Thank you all for joining. May now