Q1 2024 Perfect Corp Earnings Call

Participants

Jennifer Wu; IR Manager; Perfect Corp

Alice Chang; Chairman of the Board, Chief Executive Officer; Perfect Corp

Pin-jen Chen; Executive Vice President, Chief Strategy Officer; Perfect Corp

Hsiao-Chuan Chen; Vice President, Head - Finance and Accounting; Perfect Corp

Brian Schwartz; Analyst; Oppenheimer & Co. Inc.

Presentation

Operator

Good morning and good evening, ladies and gentlemen. Thank you for standing by and welcome to perfect Corp's Earnings Conference Call. (Operator Instructions) Please note that today's event is being recorded.
I will now turn the conference over to the first speaker today, Ms. Jennifer Wu, IR Manager of the company. Please go ahead.

Jennifer Wu

Thank you, and hello, everyone. Welcome to Perfect Corp's earnings call. With us today, Ms. Alice Chang; co-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 first-quarter 2024 financial results on our IR website, following the Form 6-K we filed with ABC earlier. You can access a replay of this call on our website shortly after the conclusion of this call. For today's call, management will provide prepared remarks first, and then we will hold a question and answer session.
Before we continue, I would like to refer you to our safe harbor statement in our earnings press release, which also applies to this call that this call may contain forward-looking statements regarding protocols, performance, anticipated plans, operational results and objectives. Forward-looking statements are based on management's expectations and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed or implied on our call today. Bancorp 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 the following management's prepared remarks for a US dollar terms, and we will discuss non-IFRS measures today. Without further ado, I will now turn the call to our first speaker today of the old miss. Alejandra.

Alice Chang

Thank you, Jennifer, and welcome to Q1 2024 first quarter earnings conference call. We have some exciting news to share today, so let's get started leveraging our advanced AI capability. We started 2024 with a robust first quarter. Our first quarter revenue grew by 17.7% year over year to $14.3 million in our net revenue was positive $0.6 million, so double digit increase in revenue and a positive net income. It was driven by the strong growth of our AIA., our cloud solutions and subscription services of all so far, our mobile app business and our enterprise business, both business clusters of benefit from our superior I technologies and have contributed to our top line inflation and a profitability improvement. Plus our operating cash flow had a net net inflow of $3.5 million due to our sound business model in this quarter, we continued to invest in our beauty I strategy, including new DAISKAI. fashion AI. and the G&A across both of our consumer and enterprise businesses for our consumer business, we leverage of SG&A. I technology to launch more innovative features. You can see that mobile app in Q1, attracting more users to our app in the converting more users into subscribers for our enterprise business, we have a renewed contract. We saw many big clients and then brought in several new brands for makeup, virtual try-on services we also saw ongoing strong momentum in our new AIC. tier down of that product, and we expected this trend. We have extended growth. Furthermore, new clients from luxury jewelry and watch industry for integrating our jewelry and fashion BPO offerings into their digital offerings to new developments, showed our sustained effort to extend our coverage into different verticals and address some larger markets. They also reflected the various avenues we have got to increase visits potential. As we are committed to keep investing resources in AI advancements, we are able to deliver products and services that continuously strengthen our unique position in Beauty AITRAI. in the fashion.
A I thought let's shift to shift our focus to operational outcomes and to discuss our most recent news events. We saw another robust quarter for our B2C mobile studio business, Amazon and the 30% year over year increase. Our overall Beauty app active subscribers.
Our historical high over 912 at the continuous growth in the active subscribers reflected in the rising demand for mobile app that enable users to added in H1 and beautify their photos and videos at the sales, the expression and the creativity become increasingly important. Consumers expect more personalized and a diverse experiences from mobile app. Our family office, you can ask, is able to offer unique and high quality digital outputs, subregion of events, technology like generative. AI hope all wholesale deals, this new set of G&A I features, including it easy and beautiful cUTI indication for photos and videos, empower our users to freely and creatively express themselves on social media to create a high quality, Oswald personalized photos and videos generated or added by.
You can see data as a key appeal of the U-Can family app of events, AI. and AR. technology to help users to solve real-life challenges and ask for more creative ideas. His offerings allowed users to beautify added and enhanced photos and videos as well as virtually twice on makeup and hair styles. Users can also experience and create a unique and diverse styles in a photo of the deals in our work to release their creativity by leveraging the latest AI technology as the users become satisfied with the quality of our products, our app. We continue to use that use our app, making UKMOM. only as an integral part of their daily life for over we offer a complete line of online AI editing tool on our website and to our you can see it our mobile app at the leverage of events. I have abilities to enhance photos, videos and generate generate our work suggests a I intend for photo and video, say I polarization a I call it correction, highlighting I figures in the anime factors. Our product strategy centers on integrating AI across our entire offering through added beauty by an enhanced photo and video in second and easily Thanks for music irritants itself, uses real-time problems and meet evolving needs from a broader user base, while at the same time maximize the return from our R&D investments for key strength of ours is to try to see to leverage the same AI engine for our both our our consumer mobile business and our enterprise business. This allows us to fully monetize innovation across different sectors in our B2C and B2B sectors. Our unique AI driven approach, combined with our commitment, our ongoing innovation, positioned us to significantly expand market penetration by unlocking a transformative potential.
Now let's shift focus to our B2B business this quarter. In our B2B sector, we focused on deepening the penetration in new vertical and provide a I hear data analysis product and Curian no fashion to drive our business while at the same time, expanding the adoption of our makeup CTO to more brands in the region. Specifically, we've got several new wins for our beauty here, durable solution within our B2B sector has demonstrated the growth demands from our comprehensive solutions and superior technology from clients in different industries and sectors.
Moreover, we also definitely see toward all major license renewal with key beauty, skin care and the jewelry brands and the retailers surgery. New will underscore the increasing truck brands placed enough our solutions to address their evolving requirements in the highlight of our leadership in VTO. solution offerings. We also capitalized on this opportunity at cross-selling to their sister brands and offering additional services, including extending skew selections and expanding brand presence into new geographies with strong momentum in revenue growth in this quarter. Reflected recovery in the sales cycle in a pipeline is essential of our enterprise business.
Firstly, for our IBTAI. We remained a leader in the industry and we continue to innovate. Cuda has always been the core of our business in this quarter. We have renewed contracts with all major existing clients. And I brought in several new brands for makeup, our DTO. Virtual Trial Services.
Furthermore, we continue to innovate and expand the capability of our makeup offering. We are we have added metallics textures to eye shadow BTO initiative, more gesture to eyeball the deal. This new textures will make up not only allows brands to provide more choice on options to be our clients, but also further strengthen our market leadership in makeup YTO. sector.
Secondly, for our ICAI. tech in this first quarter, we saw strong momentum for our diagnostics products from both existing and new customers as people become increasingly cautious about their skin health. We aim to capitalize on this trend by providing a solution relatively weak and they can never contractions in new market segments such as my boss, that the clinics in the dermatology practices, this professional institutions leverage our AI technology to deliver real time in a demo. Large Sumo Logic is verified as being down analysis resort in the scores from their clients and patients, key differentiators for our team members. It's our cutting-edge any unique, high definition, a home office that offers a comprehensive approach to understand individual pain conditions in super high procedure, allowing users to easily change their scheme.
Just in Finland, we've got very ECCAR. overlay precisely position on the location of the U.S. in actual skin concern and with a measurable skin scores facing a solvency, I are asking down losses and ocean can detect and evaluate up to 14 key income sales, providing patients with a detailed data-driven assessment of their unique skin health profile.
Third, key driver of our game business, but that this quarter, in from our self-service offering some new product in here Pro, which can robust momentum, particularly amount of statically, nice tandem medical costs. This is an IP-based genome analysis solution process of consultation tool for cleanly engage with their clients.
And then with the newly added CRM. cell or module, can you improve customer retention we keep track of each individual customers' progress during treatment. Skincare Pro enabled this business to deliver personalized data-driven skin cancer patients to their clients and patients in a very cost efficient and easy way. Furthermore, we recently developed an integrated comprehensive customer relationship management, our end system with our skin care Pro, allowing skin care professionals to better manage customer profiles. Our in-house to report in cloud-based, a counsel and I compare before and after results.
And the integration represents a significant shift and how personalized skin care is delivered, ensures a more personalized and efficient patient experience item was integrating and upgrading our AI-powered skin analysis analysis and simulation tools as well as providing finance fees. Again, here is clear, and that's, of course, data informed decision in the drive unparalleled patient engagement and satisfaction. Since AI. and AR. adoption among skin care industries. It's at its very early stage. We believe here is us a lot our path to market for us to serve and grow steadily for our CI. fashion and jewelry VGO.
Another highlight of the quarter was a celebrated market adoption of our video solution for Julie, we saw several new wins in the renewal of three H. in the luxury brands, making good progress of our BTO offerings in this category. We first began expanding into our jewelry and watch video at the start of 2023. And we are thrilled to see our efforts paying off as more deals have been confirmed and will use cases for products that have been launched in the market. In particular, we saw renewals and upsells from unlucky to rebrand this quarter. We believe the superior technology and professional service, the brand clients experience working with that, made them willing to renew the contract and the purchase more services in this quarter, we have partnered with in European luxury jewelry grew and watch crude do provide jewelry and the watch PGO. for three luxury brands within the group, leveraging our cutting-edge AI technology. So particularly good pasture in the Radiant reflections of the jury can be based fully portrayed our screen providing users and immersive two BRL2 to two live shopping fewer.
So the case is deal at each stage of a POC. We believe that this new win not only perform the trust in our AIRG. by this high end brands. But I also I the chances to get more new logos onto our SaaS platform, but jewelry, accessories and watches. The increasing numbers of jewelry and the watch brands using our VGONIAI. technology indicates that the demand for this interactive shopping experience is on the rise. You need the leading function of our products, allow brand clients to increase user engagement time and reduce our return rate giving given the robust demand for jewelry and the watch video, we will continue to deepen our penetration in this sector and to further grow our business effort in new categories in the region, how far we have made good progress in our AI-powered hair solution to we in the first quarter in this quarter, we added a new, a I hear type analysis technology that can be quickly identify here, texture, sickness and accrual patterns.
Similarly, taking a picture of users here that the AI technology accurately classify here into nine distinct sitting tight across 10 categories, substrate Wavy, so extremely colleague can deliver precise and personalized recommendations tailored to each unique here type. This new innovation on a I hear compliments our full range of air here solutions, which includes our hair color, VTOAI. Fairstar generation, AI. leak CRM lead generation and the hair extension. This industry-leading solution for here enable hair care brands and retailers to provide customers with a more customized shopping experience.
To sum up, we delivered strong business performance in the first quarter of 2024 with double digit revenue growth and a positive bottom line. Not only the momentum in our mobile app business remain robust. Our enterprise business also gained success in expanding services into new verticals such as positive indicators suggest to suggest we are well positioned to capitalize on growing market opportunity for us, I believe seeing flash and generative AI, we'll continue growing our AIAR. powered business, driven by the good demand for both our mobile app subscription, our enterprise SaaS solution. We reiterate our outlook for the full year 2020 for projecting total revenue growth recognized under IFRS. to range from 12% to 16% compare to the full year 2023 we saw.
With that, I have now concluded my remarks and I will be handling the call over to Louis for discuss our financial details with you. Thank you.
Thank you.

Pin-jen Chen

And please note that all financial comparisons are on a year-over-year basis in the reporting period, the first quarter of 2024 for the comparable period in 2023 and on top of the International Financial Reporting Standards or IFRS measures we will also discuss non-IFRS measures to provide greater clarity on the trends in our actual operations.
As Alec mentioned, for the first quarter of 2024, our total revenue increased to USD14.3 million from 12.1 million for the same period in 2023, representing a robust year-over-year growth of 17.7%, a strong performance was mainly due to the strong growth momentum of our AINA., our cloud solution and subscription business among our revenue sources, CINA., our cloud solution revenue was 12.4 million in the fourth quarter of 2024, an increase of 19.6% compared to the same period in 2023.
The continue expansion can be attributed to the robust growth in mobile Beauty app subscriptions and the strong demand for our online virtual trials solution among brand customers, especially with the addition of new categories are now served of diagnosis, jewelry, fashion market and the growing popularity of our DNA technology and editing features for photo and video.
Notably, our mobile app active subscriber has surged by 30% year over year, reaching an all-time high of 920 by the end of the first quarter of 2020 for strong momentum underscores the growing interest in our suite of mobile Beauty app from both users and subscribers. And I think the revenue, which is mostly generated from our traditional offline services, increased by 7.1% in the fourth quarter of 2024 to 1.6 million compared to 1.5 million during the same period of 2023.
Gross profit for the first quarter of 2024 grew by 16.9% to $11.2 million from gross margin of 78.3% compared to gross profit of $9.6 million and gross profit margin of 78.8% for the same period in 2023. The decrease in gross margin was primarily a result of the increase in third party payment processing fee paid to digital subscription distribution partners such as Google and Apple. Due to the increase in our mobile app subscription revenue, the total operating expenses for the first quarter of 2024 increased by 11.8% from 12.4 million compared to 11.1 million for the same period last year. The increase was primarily due to the higher sales and marketing expense that occurred in the first quarter of 2024.
To break down operating expenses, sales marketing expense for the first quarter 2024 were $7.2 million compared to 6 million during the same period of 23, an increase of 19%, and this was due to an increase in marketing and user acquisition costs.
Research and development expenses were EUR3 million for the first quarter of 2024 compared to 2.6 million during the same period of 2023, an increase of 15.4% increase when fund additional R&D headcount and related personnel costs.
General and administrative expenses were $2.2 million for the first quarter of 2024 compared to 2.4 million during the same period of 2023, a decrease of 9.9%. The decrease mainly came from the lower director and officer insurance premium fee net income was 0.6 million for the fourth quarter of 24 compared to a net income of 0.7 million during the same period of 2023, a decrease of 9.4%.
Positive net income in this first quarter was supported by continued revenue growth and effective cost control. Excluding the non-cash share-based compensation, the non-cash valuation gain and loss for financial liability and one-time nonrecurring costs associated to our D-Stat Radial adjusted net income was 1.5 million for the first quarter of 2024 compared to adjusted net income of 1.3 million in the same period of 2023, an increase of 14.5% represent a sound margin rate of 10.6% in the first quarter of 2020.
For looking at other balance sheet as of March 31st, 2020, for our Company held $157.3 million in cash. That's equivalent of six month time deposits compared to 154.2 million as of December 31st, 2023, the increase in cash and cash equivalents decreased six months time deposits has resulted in a positive operating cash flow. The interest income received from the company's bank deposits. We had positive operating cash flow of 3.5 million in the fourth quarter of 2024 compared to 3.8 million during the same period of 2023. The positive cash flow demonstrated the company's ability to generate sufficient cash flow to support its business operation and the growth in total customer base had a net increase of 21 brand clients since the end of last quarter, achieving a total of 666 clients. We already have 145,000 SKUs for makeup, skincare, eyewear and jewelry products as of March 31, 2024.
This is yet another record quarter for this metric during the continuous increasing customer penetration and skew expansion, more brands and product deleveraging on perfect console to operate the various different SAP module subscribed from perfect in the first quarter of 2020 for our total revenue has consistently exhibited strong growth, primarily driven by the continued momentum in our AI. and A., our cloud solutions and mobile app have sufficient earnings from premium features and a power app.
Despite a very mild rise in expenses, our net income remain positive. We continue our investment in talent, acquisition, technology innovation, sustain our core competencies and acting as a transformative to the reinvent our product showcase and consume. We firmly believe that our position we've been describing industry with us to remain at the forefront of revolutionizing how beauty and fashion brands engage with the audience.

Hsiao-Chuan Chen

Finally, we reiterate our 2024 guidance for total revenue year over year growth to range from 12% to 16% under IFIS. This forecast is based on company's current assessment of the market and operational conditions, and management will closely monitor the business progress each quarter and update our guidance periodically for a better transparency to the market.
With that concludes my prepared remarks. Our operator, please open up for questions.

Question and Answer Session

Operator

(Operator instructions) Brian Schwartz, Oppenheimer.

Brian Schwartz

Yes, hi. Thanks for taking my questions this afternoon or evening where you're out ahead. A couple on. First one was around the skew growth in the quarter because it looked very strong and I was just wondering if the expansion in skews Is that coming all from the core beauty segment or the expansion being spread evenly across some of those new are like fashion and the skin segments too?

Alice Chang

Yes, Brian, this is the outlook for the questions. Yes, we do sell. We expanded to new verticals for jewelry as fee analysis. So the the is correct but out of a fleet between our three different verticals, but make us feel the biggest one, they have more skews the number of jewelry, especially luxury jewelry. They don't have too many skews to like a makeup skin care. Also all they do have a meals using our account sales, but steel maker has the biggest part. And the rest of the lead between skin care and the jewelry.

Brian Schwartz

And then on my next question, I wanted to ask that now that the recovery is happening in the enterprise business, how are you thinking about expanding your sales capacity, did you add sales reps in Q. one? And what are your plans for hiring more sales reps this fiscal year?

Alice Chang

Yes, for our B2B sectors, especially our SaaS business model and the lead time to acquire new customers. This is not immediately like B2C. So it takes time. We keep our sales sales talent in each of the business units not go into March from now on things, we see the growing in skin care channels in the fashion jewelry channels right now. So we'll look to fully increase the total view sales capability in the business unit. And so ROE will keep increased, but not too much and still the same group and the growth of the B2B growth.

Brian Schwartz

Okay. And then Alice, can you talk about or Louis the decline that's happening in the key customer accounts? Um, you know, I think the commentary in the press release is there some financial distress from those customers. I guess the question is just kind of looking forward, is it your sense that that has bottomed that some of the more distress and customers that you had those are, you know, kind of has been churned out and there's more financial stability among that, that customer cohort moving forward.

Pin-jen Chen

Hi, Brian, digitally. Yes, I think the macro thing has impacted some of those smaller customer. We look into the, you know, majority of our enterprise clients. They are on annual base contracts. So upon the expiration of the contract, typically they'll renew on a year to year basis. What we noted in this quarter is many of those will not be clients that they didn't have their following year budget approved by their management, partly mainly because of the overall financial pressure that they are getting fast.
So we saw some of those are customer non-renewing does agreement at the end of the period. We certainly the management are very vigilant about the trend. I don't think it is something significant or it doesn't contribute on the material part of the revenue, but it is selling something else that you see some of these customer non-renewing does pass or the companies do it do in our effort to acquire more customers. So we can kind of net impact out Okay.
And my last year, most of the day decrease from what I observe are not new customers, but in our setup, more on medium-sized customers and they face financial difficulties to see fee to drop out, not because they don't like this engagement of users figure today just to have a very difficult financial situation and the sizes are just a little bit more than the threshold, 50 k. of those kind of a medium sized, the offering can be solved in first quarter.

Brian Schwartz

Thank you. And my final question, Louis, I just wanted to ask you about the G&A expense because it came in a lot lower than I had forecasted that. And Dan, as I think about my model moving forward, is this the right level for ROM for the G&A expense as we think about our models here moving forward. Thanks again for taking the questions.

Pin-jen Chen

You're welcome. I think we always run a very agile and lean team of our back office and G&A in the past few quarter telling you with a more cost as a newly listed company, not just for governance, compliance and related difference in our auditor or external counsel services as a company mature are getting more mature as a public company. Some of these costs will be reduced, as I mentioned in my remarks, the D&O insurance premium has been reduced. Company has been performing pretty well in the market and so forth.
So I think we tried to always to maintain in our upstream and in a lower cost G&A. So I think what you see in this quarter certainly is not a one off situation, but the market can change quickly about the at the core, we focus more of our investment into R&D development spending. We are spending spending in sales, marketing outreach. We've tried to be really nimble and effective in the G&A.

Operator

(Operator instructions) As there are no further questions time, I'd like to hand the conference back to management for closing remarks.

Jennifer Wu

Thank you again, for joining our call today and have a good one and look forward to seeing you again next time.

Alice Chang

Thank you.

Operator

This conference has now concluded, and thank you for attending today's presentation. You may now disconnect.