Perfect Corp. Q2 FY2023 earnings call

• AI and AR Innovation: Perfect Corp. is a pioneer in AI and AR solutions for beauty and fashion, using AI since 2015. It has expanded AI applications and introduced generative AI to beauty tech, like AI avatars and AI fashion.
• Operational Results: Encouraging signs in brand product demand, with stable renewals, growth in key customers, and innovative projects involving gen AI. Participated in VivaTech and hosted beauty tech forums. Mobile beauty apps sustained growth with premium add-on features powered by gen AI.
• Technological Developments: Enhanced virtual try-ons for jewelry and watches, announced the world-first 3D VTO open format and a 2D-to-3D SKU creation tool for jewelry to accelerate adoption.
• Business Development: Acquired over 10 new skin care clients across various segments and regions. Introduced premium add-on features in mobile beauty apps using gen AI for incremental subscription revenue.
• Client Success: Worked with brands like Dior, TRESemmé, and a European luxury fashion brand to expand virtual try-on offerings, showing virtual try-on is a key digital beauty experience.

For the second quarter of 2023, Perfect Corp. generated $12.7 million in total revenue, representing a year-over-year growth of 11.9%. The AR/AI cloud solution and subscription revenue was $11 million, accounting for 86.7% of total revenue and growing by 16.3% year-over-year. Licensing revenue, which is mainly from traditional off-line services, was $1.4 million, making up 10.9% of total revenue and increasing by 6.2% year-over-year. The mobile beauty app active subscribers surged by 63.3% year-over-year to over 777,000 by the end of the second quarter.

• Perfect Corp. estimates full-year 2023 total revenue growth ranging from 11.5% to 14.5% compared to 2022.
• Second half revenue growth is anticipated to be stronger than the first half, driven by continued demand for online AI cloud solutions, subscriptions, and growth in mobile app subscribers.

None explicitly detailed in the transcript, but the safe harbor statement mentions forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed.

Q: I think the guidance is quite helpful and which implies the revenue growth in the second half to be, I think, by my calculation, close to 20% year-on-year compared to single-digit growth in the first half. I was wondering if management could further elaborate the drivers behind the revenue acceleration into the second half. And then also I think a related question is that I noticed the brand customers actually increased quite a lot in the second quarter, to over 600 in June, but it seems that revenue growth and contract liability growth lagged behind a little bit. Wondering if you could help us understand what is the customer paying behavior of those newly acquired customers and when we can see more revenue contribution from these new customers.

A: Thank you, Timothy, yes. So we have seen certainly more demand for the brand customers [for all sizes]. And as we have seen, typically when the customer started to join our platforms, initially they will start with more reasonable orders. And over time, you grow with more upsell and cross-sells, so we do see the -- some healthy sign that are more clients; or the need for digital beauty solutions, for beauty tech, fashion tech and skin tech, coming to their solution.

Q: Maybe a follow-up is the SKU count and the brand count are both growing quite well. Do you anticipate some of those SKUs and brand counts to see an inflection in monetization that you would expect the AR and AI cloud solutions to accelerate off of business you've already won and will start to build in terms of revenue contribution through -- over the coming year? Does that make sense?

A: Right. So as I explained earlier, I think the brand customer business typically take a few years to grow into scale and maturity. I think we've seen already from end of last year and early this year that, the leads, the funnel that we are developing is actually much larger and wider, although it was taking longer to -- it was a very prolonged sales cycle. I think we are certainly passing through this process after 6, 9 months working on this deal; and are starting to see some more capitalizing on these results.