Participants

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

Patrick McCann; Analyst; Noble Capital Markets

Lisa Thompson; Analyst; Zachs Investment Research

Aashi Shah; Analyst; Sidoti & Company, LLC

Presentation

Operator

Good morning and good evening, ladies and gentlemen.
Thank you for standing by and welcome to Perfect Corp's fourth quarter 2024 and full year 2024 earnings conference call. (Operator Instructions)
Please note that today's event is being recorded. I will not turn the conference over to first speaker today, Mr. Jimmy Shu, IR Director of the company, please go ahead.

Thank you. Hello, everyone. Welcome to Perfect Corp's fourth quarter 2024 and full year 2024 earnings call. 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 Chan, Vice President of Finance and Accounting.
You can refer to our fourth quarter 2024 and full year 2024 financial results on our IR website or in the link or in the Form 6K 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 call today.
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 US dollar, and we will also discuss non-IFRS measures today. I will now turn the call over to our CEO, Ms. Alice Chang.

Alice Chang

Thank you, Jimmy, and welcome to Perfect Corp 2024 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 2024 and share our view for the year of 2025.
First of all, we completed the full year 2024 with a double-digit growth in revenue as anticipated by our guidance. The total revenue grew by 12.5% year over year to $60.2 million. The bottom-line net income for the same period was $5 million and the adjusted net income increased 18.6% to $8.3 million compared to 2023. This continuous increase in revenue and the positive net income. It's mainly due to strong growth within our mobile app subscription business under AR/AI cloud solutions business.
Full year 2024, our operating cash flow generated a net inflow of $13 million and our balance sheet remains very strong, with over $165.9 million in cash in the cash equivalent. Our B2C mobile app business has maintained very strong growth, with the number of active paying subscribers continuing to breach all-time records with over 1 million to end 2024.
It is a 14.3% increase compared to [79,000] subscribers at the end of 2023. This sustained growth in paying subscribers, highlighting the ongoing global demand of AI powered photo and video editing, creation, enhancing and duplication features, appealing to all age groups and the regions. As we mentioned, we have seen positive momentum from our North American and the Western Europe markets as well as developing markets in Brazil.
Our UK mobile app suite continue to evolve with frequent updates and the future enhancements powered by cutting edge generative AI for image in the video creation. Among the most popular innovations, our GenAI hair experiences have become a major hit within our user community. These features, including AI hairstyle, hair lengthening, hair wavy, hair volume, hair color, and more, provide ultra-realistic stimulus previews, transforming how consumers and the 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 photo enhance, video enhance, 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 YouCam online editor. Consumer now can enjoy the latest AI innovation, not only through their mobile app, but also via a web browser on their laptop and the PC, ensuring a similar and accessible experience across the platform.
We are focused on harnessing the power of GenAI 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 in the algorithms, we aim to create immersive personalized experience that go beyond traditional functionality driving a deeper user engagement and the loyalty.
Our strategy in B2C app and the web involves a continuous R&D to refine generative AI model and enabling features such as AI enhancement in photo and video as well as AI creation, personalize the image and the videos. Through this relentless innovation coupled with the robust user feedback and the data analytics, we strive to deliver subscription-based service that offer clear changeable value, positioning us as a leading provider for cutting edge image and the video GenAI solutions in consumer market.
Before I go to our B2B performance, I want to go over the recent acquisition of Wanna from Farfetch and its impact on Perfect Corp. The transaction was completed in early January, and we anticipate spending the next 6 to 12 months similarly integrating Wanna into our team.
Wanna's core competence gives us access to new markets and the customers within luxury brands where it offers virtual try-on services for shoes, handbags, scarves, and clothes. This acquisition perfectly aligned 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 the fashion space, leveraging our synergistic solution, enhance the capabilities and experienced team members. In our B2B business in 2024, we have prioritized deepening market penetration in skincare and the makeup segment. We reached over 732 brand clients with over 822,000 skills on boarded in our platform. We continue to make significant steps in expanding our portfolio with AI powered skin diagnostics.
Beyond core beauty and the skincare brands, we have actively expanded into new markets and the region aesthetic clinics, dermatology clinics, skincare centers, [meth] and wellness centers, broadening our reach the impact to the industry. We continue to see strong demands in the skin diagnosis sector from brands, retailers, clinics, and [meth].
Our AI power skin analysis detects up to 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 a before and after comparison to showcase improvements by combining advanced diagnostics with data-driven insights.
Our solution enhances client engagement, trust, and the long-term loyalty in the evolving world of AI-driven skincare. Our mega virtual try-on solution remains as a global leader, delivering strong results for brand customers. We have secure key licenses renewal with top beauty conglomerates and the retailers, proving our impact on boosting online engagement in e-commerce conversion rates.
While the B2B sales cycle has its challenges, our pipeline remains strong, and we remain focused on helping enterprise clients adopt AI-driven solutions to elevate consumer engagement and the digital experiences. On the 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 VTO.
In January 2025, we acquired Wanna from Farfetch to accelerate our B2B growth with fashion brands in the retailers. This strategic move expands our 3D VTO solutions to shoes, bags, clothes, and scarves, enhancing digital shopping experience and reshaping how brands engage with customers in the era of AI power fashion retail.
Additionally, our new web-based AI service, YouCam online editor API integrate Gen AI technology for advanced image in the video editing. While initially we design for beauty and the fashion professionals, it has gained traction across diverse industries, significantly expanding our total addressable market.
The API is simplified web in the mobile app development, handling complex processing without requiring server maintenance from the clients. Its flexibility makes it suitable for business of all sizes with new clients spending like a convenience store chain, telecom carrier, and the mobile phone company.
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 Perfect Corp is -- this is a position strategically to capitalize on its spending, market opportunities and sustain long-term growth by continuously developing new technologies and leveraging our leadership position in beauty and the fashion space for our consumer from our app, web, as well as our B2B enterprise brand clients.
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 sale opportunities, broadening our product service offerings, strengthening of leadership, accelerating revenue growth, and the maximizing long term shareholder value.
Driven by the positive demand for both our mobile [VTO] subscriptions and the enterprise SaaS solutions, our outlook for the full year 2025 projects 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 will now have the call over to Louis, who will discuss our financial details with you. Thank you.

Thank you, Alice. Please note that all financial comparisons are on a year over year basis, and the reporting period is the fourth quarter of 2024 versus the comparable period in 2023, 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 2024, our total revenue increased to $15.9 million from $14.1 million for the same period in 2023, representing a year over year increase of 12.4%. Full year revenue increased 12.5% to $60.2 million in 2024, from $53.5 million in 2023.
The growth theme from the continuous growth of our AI and AR cloud solutions and mobile app subscription business. The AI/AR cloud solution and subscription revenue grew 25.4% to $15.1 million compared to $12 million from the year ago period, which represents 95% of total revenue in this quarter.
The growth is attributed to the continuous expansion of our mobile beauty app subscription and the positive momentum from our online [skin diagnosis] solutions, as well as our virtual try-on business. Licensing revenue decreased by 72.2% in the fourth quarter of 2024 to $0.5 million compared to $1.8 million during the same period of 2023.
The licensing revenue will gradually become immaterial as it continues to be phased out and replaced by a better business model of recurring subscription revenue model. The gross profit for the fourth quarter of 2024 grew by 2.5% to $11.8 million with growth margin of 74.1% compared to $11.5 million and growth margin of 81.3% for the same period in 2023.
Full year growth profit was $46.9 million in 2024, and growth margin of 78% compared to $43.1 million in 2023 with growth margin of 80.6%. The decrease in growth margins 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 increase in our mobile app subscription revenue.
The total operating expense for the fourth quarter of '24 decreased by 3.6% to $12.2 million compared to $12.7 million for the same period last year. The decrease was primarily due to the lower R&D expenses and G&A expenses in the fourth quarter of '24. Full year operating expense increased 2.7% to $50.1 million in '24 compared to $48.8 million in 2023.
This increase was mainly due to the increase in sales and marketing expenses, R&D expenses, and also offset by a decrease of G&A expenses. Going into more detail from operating expenses. The sales and marketing expense for the fourth quarter of '24 was $6.9 million compared to $6.7 million during the same period of 2023, an increase of 3.6%.
The full year sales and marketing expense increased 9.7% to $28.2 million in '24 compared to $25.7 million in 2023. This 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 $2.8 million for the fourth quarter of 2024 compared to $3 million during the same period of 2023, a decrease of 8.3%. The decrease from the streamlining certain R&D process and benefiting from expense savings.
A full year R&D expenses increased 4.7% to $12 million for 2024 compared to $11.5 million in 2023. This increase resulted for increase in R&D headcount and related personnel costs. General and administrative expenses decreased by 41% to $1.8 million for the fourth quarter of 2024 compared to $3 million during the same period of 2023.
Full year G&A expenses decreased by 26.6% to $8.5 million 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 $1.1 million for the fourth quarter of 2024 compared to the net income of $1.4 million during the same period of 2023.
Full year net income was $5 million for 2024 compared to $5.4 million in 2023. The positive net income was supported by continued revenue growth and effective cost control. This result represents a net income margin of 8.3% for the full year 2024.
Excluding non-cash share-based compensation, non-cash valuation gains and loss of financial liability, the adjusted net income was $2.3 million for the fourth quarter of 2024 compared to the net adjusted net income of $2.1 million in the same period in 2023, an increase of 8.2%.
Full year adjusted net income was $8.3 million in 2024 compared to $7 million in 2023, an increase of 18.6%. This will present an adjusted net margin of 13.8% for the full year 2024. As of December 31, 2024, the company held $165.9 million in cash and cash equivalent in six-month deposit compared to [$163.2 million] as of December 30, 2024.
We had a positive operating cash flow of $3.3 million in the fourth quarter of 2024 compared to $3.1 million during the same period of 2023. For the full year operating cash flow was $13 million in 2024 compared to $13.6 million in 2023. The positive cash flow demonstrates the company's continuing ability to generate continuous cash flow to support its business operations and growth strategy.
On the mobile app side, in business metrics, the mobile app subscription business was growing and the active subscriber increased to 14.3% year over year, reaching an all-time high of over 1 million by the end of 2024. Our YouCam suite or 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 at the end of last quarter, achieving a total of 732 brand clients with over 822,000 skills 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 and expansion.
In the fourth quarter, Perfect Corp stay at the 151 key customers, the same at the end of the previous quarter, demonstrating the stability of our enterprise business in this quarter.
In summary, in the fourth quarter of 2024, AI and AR 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 18.6% year over year in full year adjusting net income and adjusting net margin rate of 13.8%.
As mentioned by Alice, we will continue to invest in the growth of our business through the development of AI technologies, both organically and through M&A opportunities to strengthen our core competencies. Our commitment to advancing GenAI position as the industry leaders, 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 Corp market reach, allowing us to tap into new customer segments and geographies that were previously out of scope. By integrating one of established customer base, product offerings, and distribution channels, we can rapidly expand our footprint and drive growth across untapped market.
Additionally, these transactions strengthen our competitive positioning by broadening our product portfolio, increase brand visibility, and position up to better serve a wider range of industries. We are excited about the opportunities that are ahead of our B2C and B2B business line but continue to invest in AI innovation, expanding our market presence, and building on a 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 remark, operator, please open up the call for questions.

Question and Answer Session

Operator

(Operator Instructions)
Patrick McCann, Noble.

Patrick McCann

Hey, thanks for taking my question. I was wondering, I noticed, you certainly highlighted 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 still remains challenging, last year, certainly on the previous year, we have challenges from inflation and cost, more recently, we start hearing clients, certainly worry about potential tariffs that may come, later in the year, so they are certainly cautious. And 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're already using, but the expansion to -- have a more a -- growth, I think it still remains to be proven and we will vigilant about the market and how the world economy will play, and this may affect their cost structure from that perspective.
But the good news is we are spending our time into newer markets, so our total addressable client groups or its market geography spending again partially because of the one acquisition as we are sending to newer categories that we were not previously present or only start to -- get into the market and that potentially 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 markets moving. So, we are cautiously optimistic about that since there's no really real competition in the segment that we are, we remain a solid leader in this space. So, I believe that once the market open and probably bounce stronger assumption, 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, a 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.

Patrick McCann

Great, thank you.

Operator

Lisa Thompson, Zachs Investment Research.

Lisa Thompson

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

So last year I see was, 40% we are finishing our auditing with the audit service. So, the B2C part has become the bigger part of the oral business in 2024.

Lisa Thompson

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 reduction in gross margin 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 still, smaller scale to stop investing. So, I think the opportunities is quite big there. The expense in the net income is positive, the operating income is virtually almost break even, so that's not really a key concern, especially with the capital that we have to invest in the growth.
I think now we expansion into newer categories coming up with new products, especially in AI innovation, we will continue to invest, noting that, we increase, any significant differences between what our expense model has been in the previous few years. 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&D team.

Lisa Thompson

Can I just have one question on Wanna. Can you talk about that landscape as far as competition? I know you dominate beauty. What does it look like in the fashion landscape?

Yeah, so Wanna is certainly been the leader in the fashion space. They have more than two dozen big logos, big names such as Valentino, [Valenciaga], Louis Vuitton, Gucci, and more. So, I think there's not really much competition after we acquired Wanna. So, after the integration we really become the AI/AR powerhouse for fashion and beauty virtual trial market.
There may be, a few other smaller startups 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 create this opportunity to become the one shop for the luxury brands, especially for the top luxury brands.
They rely on global teams. They rely on bigger, more established organizations to provide services to them. And I think Wanna 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 you extra runway for this business to grow and really become a dominant player across both beauty and fashion.

Lisa Thompson

Great, thank you for those answers.

Operator

Aashi Shah, Sidoti.

Aashi Shah

Oh great, thank you so much for taking my question and congrats on a very solid fourth quarter results. I have one of the questions regarding gross margin. Gross margin declined 6% 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 the key drivers behind this compression were.

Yes, Hi Aashi. 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 growth margin has a bigger dip.
I think it's not expected, but I think it's really more maybe a one-time thing because for the shopping season was driving in a good sale, where people getting new smartphones or they are downloading new apps, or they are subscribing new apps.
We have seen this pattern typically, in seasonality pattern, 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 growth margin for the 2025 year, I think we expect that that may gradually come up slightly.

Aashi Shah

Okay, but it does not go back to 2023 levels.

Correct, yeah. I think in 2023 we our B2B 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 continues to grow really quick and fast, and the B2B contribution may drop to let's say 30% or a little bit over 30%.

Aashi Shah

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 the 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 40, 45 days ago. So, the 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, they go to market together as one team, as one platform will happen later in the year.
And with that, again, we try to do as soon as we can from sales marketing perspective, from product development, from customer service, customer (technical difficulty) So, if we are able to move very quickly on this, the revenue maybe the contribution of that new acquisition might come in earlier or in more meaningful way in this year.
The guidance that we have given them; we started with a quite conservative look into what the business are as is and you know how that contribute. Again, one is a smaller startup, right? There are about 30 employees. They have good clients like 20, 20 plus. In contrast, 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 forward and we may adjust our guidance depending on the market.

Aashi Shah

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 priorities from an incremental dollar perspective?

Alice Chang

AI is -- especially generates AI. It's all our focus right now from R&D side. So, you can see the evolving of a new AI model every month. It's excited and recently the open model to the world. So, I think this is a great opportunity for the application services on top of this big models. So, by saying that R&D, no matter it's the head count or 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&D this year and I think it's for the next 5 to 10 years, but the speed of investment, I can see it fast and because the whole ecosystem evolved so fast, we pay very high attention to the market and recent development of the market, I think it's a very pro to service providers like us.

Aashi Shah

Thank you.

Operator

Lisa Thompson, Zachs Investment Research.

Lisa Thompson

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.

Alice Chang

Thank you. Yeah, AI assistant is the one we are developing, since second half of last year, we try to branch them into a B2B for the brand to use and the B2C. For B2C there's a, AI assistant, agent, co-pilot, we will launch that in our app, before second quarter of this year to try the market.
I think that's the future everybody needs it, and it's, pay by service kind of a business model and for B2B brands, we have a perfect GPT and now ready for POC, we did have brands that they doing a POC -- trying to doing POC with us and again brands, their movement to this new AI, especially generative AI, the speed is not as fast, so we saw POC may take, may start before end of this year, and when testing, doing validation, B2C part will be faster. We will make the same agents, beauty agents, editing agents to our app before second half of this year.

Lisa Thompson

Great. I look forward to that. Thank you so much.

Alice Chang

Thank you.

Operator

As there are no further questions at this time, I'd like to hand the conference back over to Mr. Jimmy Shu.

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 to everyone again in our next call. Goodbye.

Operator

This includes today's conference call. Thank you all for joining. You may now disconnect.