All right, everybody, we're about to just get started. Again, welcome to the 17th Annual Ideas Conference. My name is Erke. I'm with 3Part. Today we have Perfect Corp, traded on the New York Stock Exchange under PERF. On behalf of the company, we have Jimmy Xia. Take it away.
Thank you. Good afternoon. Happy to be here and happy this is our last session. Everyone can have a fun time after this.
Who are we? I'm going to give you a few minutes to a quick introduction. In a snapshot, we're a software company focusing on beauty and fashion. As of today, we're about $1.75 per share because we have 101 million shares outstanding. You're looking at $175 million in terms of market cap. We also have $170 million in cash with no debt. We generate cash. That gives you an idea of a snapshot of who we are. It's a little like a unicorn in most of the micro and small cap world. We're founded in 2015, based out of Taiwan in Taipei. We have approximately 410 employees, with roughly half our R&D professionals. Again, R&D professionals are based out of our headquarters. We also have people around the world, like the U.S., EU, Japan, and other locations. Now, why do we have these people?
From a revenue perspective, we have approximately 50% of revenue generated from the US, about a quarter from EU, and about 20% from Japan. The rest are from the rest of the world. What exactly do we do? We have a B2B and B2C business. B2B is actually we provide beauty and fashion software service solutions to major brands around the world, like Estée Lauder, Shiseido, even e-commerce like Ulta, Amazon, Walmart, Snap, even Google. On the B2C side, we have apps that are available on iOS or Android Play. The company was founded in 2015. Over the years, even from day one, we've been doing AI/AR. As AI has expanded since pandemic time, we've re-engaged with further AI.
For example, GenAI technology for photo, video, editing, and creation has been the focus for the recent quarters and will probably be the main growth driver for the stock for the near future. Our management team has been working together for a very long time. You're looking at probably 18 years as the person with the least experience with our CEO because this is technically the second company that the management team have been a part of. We also have a very skilled and experienced advisory board. By the way, all these are our clients to an extent. Again, we have a B2B and B2C business. Just to give you an idea, when we first listed in the following of 2022, at the end of 2022, approximately 75%-80% of revenue stemmed from B2B.
At the end of this year, we look to probably only 30% from B2B. This is partially because of two factors. Number one, on the B2C side, if you think back to 10 years ago, very few of us were paying money on a monthly basis for subscriptions for apps. As times changed, especially during the pandemic, our consumer habits have changed. That is why B2C have actually grown much, much faster over the past few years. On the B2B side, again, we work with, think Estée Lauder, think LVMH, Burberry, and so on and so forth. If you look at what has happened to most of these, especially public companies, over the past many quarters, there has been a slowdown, either because of macro such as inflation, interest rates, China business slowing down, and so on and so forth.
It has actually negatively impacted both top, middle, and bottom line for many of our brand clients. As a result, it directly impacted our growth for the B2B side. We were growing probably like 30% when we were first listed because of the fast pace of growth during the pandemic with our B2B business. Virtual Try-On Software as a Service for B2B clients really exploded at that time. It was a second wave of explosion. Now, this many years later, most people that have the need or the ability to pay for B2B on a fashion virtual try-on have already had it. Unfortunately, because of further financial constraints from our brand clients, we have seen that pace slow down. On the B2C side, we have six apps that's, again, available on iOS and Android.
These apps have their own core functionality, but the very basic of it is GenAI technology. YouCam Makeup and YouCam Perfect, by the way, you can find today if you click Google, YouCam Makeup will be one of the first to show up if you do makeup app. It is really for makeup. It is a virtual try-on makeup on the app side, but the monetization is very different on the B2B side. B2C is a freemium model. You download for free, seven-day free trial, premium access. At the end of seven days, you have three ways to pay for it. Number one is per app per month, anywhere from $5-$7. Or if you want to sign up on an annual basis for the Plus model, it is $39.99 per year, or $70.99 on the premium model per year.
The premium model was recently introduced, actually in the first quarter of this year. We actually saw a significant uptick from ASP from in the mid to high 30s by $20 uptick because of the introduction of the premium model. The apps have generic power technology for photo and video editing. This will be a recurring theme in my presentation where this has been and will likely be over the next few quarters the main growth driver for our apps, as well as on the B2B side, which I'll talk a little more about later. Just to give you an example of how consumers will use this. I have the YouCam Perfect app because makeup makes less sense for me. YouCam Perfect app is a photo editing app.
Now, when my seven-year-old asked me for a makeup kit, of course, the first thing I tell her is no. No, you're too young for it because she sees her mom doing the makeup in the morning. I said, why don't you take a selfie and use my tablet because I put it up both on my phone and my tablet. She can now use the tablet to put makeup on herself, lipstick, eyelash, what have you. Actually looks very, very pretty. Scary, but very, very pretty. That is one way of how consumers use it. I wouldn't say seven-year-olds in general, but teens, for example, or young adults and share these photo editing on the makeup side or the photo editing side with friends, family, or social media in general. This is prevalent.
Most of our subscribers, 940,000 paying subscribers, are from developed countries like the U.S., U.K., Spain, Japan, and so on. The only one from top 10 that is not a developed country is actually Brazil, which is, if you think from a cultural perspective, they're very in tune with beauty and fashion. It kind of makes sense. That is on the B2C side. Now, back to the B2B side. It's a software for, again, the likes of Estée Lauder, Shiseido, Coty, Ulta Beauty, and so on and so forth. We charge typically on an annual basis. It's priced based on three main factors. Number one is geography. If you are a client that's only selling to the U.S. market, that's one cost versus 40 large markets around the world, that's obviously a much higher pricing structure.
Number two are SKUs, as in SKUs, the number of lipsticks that's red. Typically, it's not just a red color. It's different shades of red. It's very unique. It could be 10 shades of red. That's 10 SKUs. The more products that are in there, the more they'll pay. The third is modules. What I mean by that is that this virtual try-on for lipstick, that's one module. Eyeliner, second, blush, hair color, watches, eyeglass frames, so on and so forth. Each one is a separate module. The more functions that you use, the more you pay. Typically, we sign on an annual basis. Retention is actually very, very good. On the software side, you're looking at 90+%.
Unfortunately, again, as our B2B clients have seen pressures financially, we've had a harder time to do up and cross-sell, which kind of stunned our growth on the B2B side over the past few quarters. I won't go into the details, but basically, many of our technology has been developed in-house. We have over 55 patents and certain pending. The technology is self-developed, and we've been doing this for a very long time, since day one, for 10 years. It takes, for example, we have a skincare analysis, tens of thousands of photo and recognition for our AI to recognize certain concerns for your skin condition. As I mentioned before, GenAI technology, this would be the future. Based on that technology, again, we have 10 years of experience. We have over 800 brand clients, 900,000 SKUs, and billions of virtual try-ons, 10+ billion virtual try-ons.
All that generates additional data for us to utilize for both our B2B and B2C. I forgot to mention that we have about half of our headcount in R&D, but we do not separate B2B and B2C. If you look at the functionality available on our apps versus our B2B clients on their apps or on their web page, it looks very, very similar. That is because the heart of the engine remains the same. That is also from a cost perspective. One of the main reasons this is the case is because when we first started in 2015, the company was app, YouCam Makeup. The app itself was the company's only product. When Estée Lauder came to us and said, "Hey, I like what is available on your app.
Can you do something for us?" That is when we realized, "Oh, we can actually capitalize on this and really make money." We were not really making any money at that point. B2B was the growth driver for us in the very, very beginning. Now it is B2C. It is something that is very unique about the company in terms of B2B and B2C, the makeup. Again, beauty, skin, fashion, hair, and GenAI technology. We cover many, many spectrums around the beauty and fashion space. Here is an idea of how we project our B2C to grow. If you look at this presentation right here, there is tremendous growth on the GenAI for photo and video editing. This is based on estimates by third party, and we believe that really is the case. We have seen our subscriber number grow dramatically.
I believe we reached four years ago about 250,000, and it took four years for us to reach a million. That pace was very, very quick from recent AI technologies. Now, with GenAI and photo and video editing and creation, this, in theory, should be an even further growth driver for us. Here is our suite of apps. Again, as I mentioned, the flagship app is actually YouCam Makeup and YouCam Perfect. Those two make up the bulk of our subscriber as well as revenue. Each one has its own functionality, like Video Enhance AI Pro. There might be similarity cross-breeding in terms of functionality, especially for this. For 2026, our goal is to have AI agents embedded in every single one, but again, focus on beauty and fashion.
For example, today, if you use any of the OpenAI type apps, you can ask for the weather, you can ask for fashion, but it might generate something very generic, as in something they saw in an article or a study. Our goal is to, when somebody asks for fashion advice, for example, a wedding in San Francisco in May with the ocean's theme, our AI agent should be able to tell the consumer from hair to makeup to clothing to shoes how you should match based on the themes. That is the ultimate goal for our AI agent, beauty and fashion focus. YouCam Makeup, again, one of our main apps, is for makeup.
At the end of the day, the only difference between this and the B2B side is that on the B2B side, the functionality allows, for example, Estée Lauder to push the product that consumers are looking for to do virtual try-on, add to cart, and pay. Versus the app, it's to just put on different colors or different styles and make yourself more beautiful and share to friends, family, or social media. Beautification. Again, YouCam Perfect is the one I use. Again, if I wanted to put a snapshot of myself for the presentation, a headshot or a passport photo, I can do that on the app. Of course, you can also do for vacation photos. You can edit out people that's in the background and so on and so forth. YouCam Video, again, is very much focused on GenAI video generation and editing.
Again, this is going to be a repeating thing that GenAI video and photo editing is very, very crucial for the B2C element. We actually also have a more powerful YouCam Online Editor. What this is, is actually this is not an app. This is typically people use PC or Mac to be a more powerful version of the app for video and photo editing. This is geared towards typically photographers or small businesses that are more in need of a more powerful tool versus everyday users like you and I. Going forward, YouCam AI Agent, again, as I mentioned in 2026, should be pushed out into all of our apps in order to fully provide the service across the board. In the first quarter of this year, we actually made a small M&A.
If you look on the left side, under the Perfect brand, we have virtual try-on for accessories, for makeup, for skincare analysis, for glass frames or sunglasses, and so on and so forth. We purchased Wannabe, which actually does the exact same thing for luxury brands. What they differ is that they have virtual try-on for shoes, for AR clothing, for scarf, and for handbags. That's the exact token acquisition we're looking for. They've been in the market for many years, and this is actually a perfect timing for us. Because about three years ago, we saw that there's more capabilities we're capable of. We actually started the AI skin diagnostics portion of our business.
Today, if you go on Sephora's app, you can do a skincare analysis, and within two seconds, it'll give you a score of what your face looks like, as well as your strength and weakness. Concerns such as blackheads, redheads, you have a T-zone, which is oily and dry skin, different dark spots on your face. What products should be used under the Sephora brands or whichever brands that are working with Sephora? Push it out to you as a suggestion. You, as a consumer, you can add to cart, pay, and it's a great way of really helping the consumers and the enterprise side engage fully. Another example is Equinox. Equinox has a spa service, not just a gym. We actually have tablets available for them that do very, very similar to push for products and services that Equinox clients will need.
We have a complete AI beauty solution, again, with makeup, with hair, with face, with body. This is something that we've been working since day one over the last decade to really get this type of service that's available for our beauty and fashion brands. Again, this is both for B2B and B2C. Here's an example of different clients like Estée Lauder and MAC, and so on and so forth. The end goal is, number one, you have increased engagement with consumers. The more you try, the more you buy. Imagine going traditional to a department store to try on lipstick or the ladies in the room, not the gentlemen, of course. By the third one, you'll probably be very tired to try on the next color versus virtually, you can try on 40 in 40 seconds.
The more engagement, the more you try, the more you buy from Estée Lauder's point of view. Number two, because what you see is what you get, as in you try it virtually, and when it shows up in your house, it is exactly what it seems. The return rate drops. We see increased engagement, which means increased wallet size, and lower return rate, which is positive, obviously, for our clients. This is also why they come back to us year over year. We're looking at a 90% retention rate. More recently, actually, surprisingly, we had our API business growing. We do have many, many customers across the board, but we do not have dedicated professionals across all 800 brand clients and many small ones that will knock on our door. We have more automated API solutions that are available on our website.
Strangely enough, there are a lot of different companies that are not even in the beauty and fashion space that have literally just downloaded our API, integrated with their software and service, and of course, pay us on a monthly basis based on usage. For example, one Japanese fashion company creates those mirrors. These mirrors have cameras in them, and they will project yourself with a set of clothing at a certain department store. Our API is running the software of the hardware of the virtual mirrors, if you will. You can now go to a department store, certain places in Japan, to do virtual try-on immediately without having to do the whole ensemble. That is very, very exciting. A few financial highlights. This year, the guidance is 13%-14.5% in terms of revenue growth. So far, through the third quarter, we have surpassed that.
At this pace, we're most likely going to surpass that in terms of guidance. You see a slight downtick in terms of margins, gross margins. That's because our B2B business, which traditionally has higher margins on the enterprise side versus B2C, which you have to pay iOS 30% and Google 15%, that immediately drops the margins compared to B2B. We are operating cash flow positive. As I mentioned before, we have just over $170 million in cash, no debt, and right now, $175 million in market cap. Yes, I believe, and our management believes, we're very undervalued. Very interesting, we just released our third quarter earnings, and this is the first time we actually have made a little positive note on the operating income side, about $500,000.
As I mentioned before, about two years ago, we had 320 professionals for the company. Today, we have about 410. Over this past two years, at a time where most companies were, let alone hiring, firing on many, many people, we actually increased our headcount by about a third. Why? It's because we see the up-and-coming new technology, and we needed the people to really help us build our GenAI technology. This is also why you saw that there's a lot of pressure on us on the operating side. Again, I don't think we'll hire another third over the next 24 months. At a certain point, we should see better returns or better margins. We'll talk about that when our fourth quarter comes out and, of course, our 2026 guidance comes out. Net income, about $5 million.
Margins are still about 10% on the net side. I'm not going to go through all the financials on the three quarters for the financials or the nine-month. Another example of what's changed. As I mentioned before, our B2C has been the dominant player recently. There's been a slight change. What I mean by that is we reached just over a million subscribers at the end of last year. This is a slight downtick for the first three quarters, and will probably be for the fourth quarter of this year after we raise our price. We lost about 20,000 paying subscribers each quarter. The counterbalance to this weight is that we actually gained ASP. Our business on the B2C side continues to grow, even though you see on a quarter over quarter or year over year, a slight decrease on the number of paid subscribers.
On the B2B side, conversely, we'll continue to grow our number of enterprise clients as well as the number of SKUs that's running off of our software. Now, to wrap this off, avenues to growth. Of course, it's organic, right? GenAI technology, as I mentioned, will continue to be the main focus, which will continue to push forward with our B2B brands. We'll continue to push into skincare analysis and, of course, virtual try-on for different accessories. Of course, we also have enough cash available for potentially dividend or buyback, but that will be up to the management and the board when they're ready and to continue to look for M&A opportunities. Okay, questions? Yes.
I'm just curious about the virtual try-on aspect. Do you guys have a patent on that technology? If so, do you think a possible course of action here would be a larger player like Pinterest stepping in and saying they're just going to take you out?
The question is virtual try-on and potential being the target of M&A. Number one, it's very interesting because in Series B of financing, Alibaba was thinking about buying us out. At the same time, they're trying to compete with us. They had a team of 80 people back in the day. After testing their own abilities as well as our services, they actually cut that whole team of 80+ professionals. That's why they also came in as Series B investors. This is actually a repeating theme because the next round of financing, we actually had Goldman and Snap come in, Snapchat. I guess anyone can actually do this, but it's not their core.
As a result, the likes of Alibaba and Snap are working with us as a partner. From a virtual try-on perspective, I think it makes more sense for them and for us. Does that answer your question? Okay. Next question, please.
You have half of your staff member base being developers. I'm curious, in terms of the tech stack, are you writing the foundational models or are you writing the wrapper around other people's AI models that you would rather optimize better than, for example, Sephora or any other model out there?
Right. The question is the AI models. Are we doing ourselves organic from ground up? We actually have partnership with OpenAI and DeepSeek. If you look at our apps, if you're using our apps today, it makes it very clear that we're running off of their foundation, but we're building on top of it.
Again, I think the goal is not to replicate what they do, right? Telling you the weather, talking about something philosophical. That is not our bread and butter. Our bread and butter is to really focus on the beauty and fashion side. If it is pertaining to the B2B side, working with our enterprise clients to help them really engage with the end user to sell their products. We will continue to build on top of different models that are available. Hopefully, as things develop more, it will be cheaper and cheaper to work with these different models. Yes.
Do you have agreement with those partners to have an approach on the beauty space or the audience reality space?
I do not think we have agreement for them not to encroach on this space. For example, we know that Google has fashion for GenAI technology, but their goal is not really to do anything similar to what we're doing. Their goal is to really help with ads, sell ads. Our goal is to help our consumers, either B2B or B2C side, to become more beautiful, to buy something that makes sense for them, that is tailor-made for them. Now, can other people do it? Of course, they can. Again, just because they have the ability or the money to does not mean they always should because it is a certain culture and profile that makes more sense for us because we've been doing it since day one. Yes, sir.
For the big players, it might make sense to kind of acquire you. Why is DBM always having to be better? What about some of the smaller players who could be your competitors? What's your differentiator besides the quality you mentioned? I'm seeing in Europe where there might be other players that are capable of basically what you have here.
In terms of competition, we have many, many competitors on the B2C side, right? On the B2B side, we are probably the biggest without many large competitors at all. To give you an idea, back in 2018, L'Oreal came to us and thought about acquiring us. The management shot them down. As a result, they actually bought out our biggest competitor, a Toronto-based company, in 2018. Because L'Oreal was probably 25%-30% of revenue over a three-year period, we lost L'Oreal as the client. The counterbalance to that weight is we gained the rest of the market because L'Oreal now has an in-house that's not available for the rest of the market, right?
On the B2C side, anyone, in theory, can do GenAI technology for photo, video editing. Again, that's true. Our goal is to work with all the information that we have, 900,000 SKUs, 800+ brand clients, and the information we have there to really build something that is targeted towards beauty and fashion specifically. Again, very detailed like, what should I wear to a certain event at a certain time? Does it make sense for me? Not just throw out something very generic, wear a suit, right? Yes.
Can you talk about the demographic of your paid users? I understand they're probably female and they're not modest?
We don't disclose too much, but to give you an idea, the apps itself, you're looking at probably 75-80% female audience, which makes sense, right?
Because again, YouCam Makeup, I probably can use it, but I have less use for it, right? But the age, it's in the teens to the 20s. Yes, sir.
How does the share of your revenues look? Is it mostly from the years or mostly from the years?
Over the years, we've seen a shift. In October of 2022, approximately 75-80% B2B. At the end of this year, we project roughly 30% B2B. B2C has really caught up and surpassed B2B very quickly, as the reason I mentioned before why B2B saw a slowdown. Yes, sir.
What, if any, opportunities are being looked at to cross-sell some of the products from the B2B clients into the B2C app? Is that things that can be tried on and purchased? How much of that opportunity?
We have differentiated significantly the difference between B2B and B2C side in terms of how we capitalize it. For example, we have worked with B2B clients on their apps or their website for software, but we do not incorporate in our own apps under the YouCam brand, Y-O-U-C-A-M, right? Our brand is very much subscription-based. It is not a platform to sell a lot of products. Now, could we? We probably could, but it might devalue the brand or the experience for consumers. Now, because there are tons of different e-commerce players that are available, the subscribers are there not really to purchase things, at least not yet. I am not saying we might not do that in the future. That is a possibility. What has worked so far is that this is a pure subscriber paying for fun entertainment and beautification of themselves on the app side versus, again, B2B.
The consumers know that they're for commerce. Yes, sir.
Do you have a slide showing the cost structure and how that probably might change as your sales ramps up?
We have not. I don't think we have that type of detail, but we can talk about, again, once we have our fourth quarter and guidance for 2026 come out, we can talk more about that. Again, just to give you an idea, if we're at 75% gross margin, roughly as a percentage of revenue, marketing takes half, 50% of revenue. R&D takes about a quarter of revenue. G&A takes about 10% of revenue. If you do this math, what you're looking at, typically on the operating line, it would be flat to negative. We haven't provided guidance for 2026 yet. Again, once it comes out, we can talk more about it.
I do not foresee us to, again, increase R&D spending as fast as we've been for the last few years. As I mentioned before, on the operating line, we had profitability for the first time in the third quarter. Hopefully, that's a good sign for future quarters as well. EBITDA positive for those that focus on it. Yes.
What about customer acquisition costs for the B2B, the B2C side, and how that might be changing over time?
Right. As an example, if you do Google search, makeup app, this probably will be a top three. For me, it shows up as number one for whatever reason on Google. We do pay for that. We also pay for, for example, smaller influencers that have 50,000-70,000 subscribers that are geared towards the area we're looking for. We've tried once with large subscriber base, but it hasn't really paid off. Our goal is should we spend a dollar for the ad, we expect over a 12-month period following that to make a $1.20. That's our goal. Last question. Yes.
How did marketing channels affect them? Over time, how has the funnel changed for sales and marketing?
Wait, can you please repeat that?
For the customer acquisitions, how do you acquire the users? Over time, how has that funnel for the major channels of customer content changed?
Surprisingly, a lot of our customer acquisition has been relatively organic. What I mean by that is that, for example, on an annual basis, when people are updating their next phone to the iPhone 17, for example, they're trying out different functionalities. They're trying out new apps.
It just shows up organically, either because they've used us in the past or they do, again, a quick search through search engine optimization. That has been the bulk of additions to our B2C. Sorry, and we're out of time. Thank you.