Good morning and good evening, ladies and gentlemen. Thank you for standing by, and welcome to the Perfect Corp. Earnings Conference Call. At this time, all participants are in a listen-only mode. We will be hosting a question-and-answer session after management's prepared remarks. 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.
Thank you, and hello everyone, and welcome to Perfect Corp. 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 Chen, Vice President of Finance and Accounting. You can refer to our fourth quarter and full-year 2023 financial results on our IR website or in the Form 6-K we filed with the SEC earlier. You can later access a replay of this call on our IR website shortly after the conclusion of this call. For today's call, management will provide their prepared remarks first, and then we will host 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, as this call may contain forward-looking statements regarding Perfect Corp. performance, anticipated plans, operational results, and objectives. Forward-looking statements are based on management 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. Perfect Corp. undertakes no obligation to update any forward-looking statement, except as required by law after the date of this call. Please note that all numbers stated in the following management prepared remarks are in U.S. dollar terms, and we will discuss non-GAAP measures today. Without further ado, I will now turn the call to our first speaker today, our CEO, Ms. Alice Chang.
Hi, thank you very much, and welcome to Perfect Corp. 2023 fourth quarter earnings call. We have some very good news to share with you today. Let's get started. We ended 2023 with a strong fourth quarter. Our fourth quarter revenue grew by 27.6% YoY to $14.1 million, and our net income was positive at $1.4 million. Our full-year results were promising too. As our full-year 2023 revenue increased by 13.1% YoY to $53.5 million, and our full-year 2023 net income was positive at $5.4 million. The company operating cash flow had a net inflow positive of $13.6 million as a result of our robust business model. The increases were driven by the strong momentum in our AI/AR Cloud Solutions and Subscription services for enterprise business and our Mobile Beauty App business.
Powered by our advanced AI capabilities, both segments have contributed to our top-line expansion, profitability improvements, and positive operating cash flow. In this quarter, we captured a good demand in our AI skin diagnosis product, as well as accelerated adoptions of jewelry and fashion virtual try-on. This new deployment and use cases further expand our coverage into a larger market. Plus, more innovative features powered by generative AI have been rolled out in our YouCam suite of mobile apps in this past quarter. This new AI feature has not only attracted new mobile app installations but also effectively converted more users into premium subscribers. All of this above achievement was centered on our Beautiful AI strategy, which consists of four major pillars: Beauty AI, Skin AI, Fashion AI, and Gen AI.
Those four key pillars will play a pivotal part of our core business moving forward, and we are committed to keep investing in AI to strengthen our leading position in AI. Now let's shift our focus to operational outcomes of fourth quarter and discuss our most recent advancements. On the B2B side, we secured a major license renewal with beauty, skincare, jewelry brands. These renewals not only reaffirm the growth reliance of this brand on our solutions to meet their evolving needs but also show our leadership in the field of virtual try-on. We also see the opportunities to cross-sell to sister brands and upsell more services, such as enlarging their SKU offering and expand to additional countries to our brand clients.
Our strong revenue growth in the fourth quarter of 2023 signaled a recovery in enterprise new business acquisition from the second half of 2023 compared to the slow and prolonged sales cycle we saw in the first half of 2023. We entered this quarter focused on deepening the penetration in different verticals to provide AI-powered skincare diagnosis products as well as an increase in adoption of virtual try-on solutions for jewelry and the fashion industry. A highlight in fourth quarter was the growing demand for skincare and skin diagnosis products. The demand not only comes from skincare brands but also comes from new channels such as makeup, aesthetic clinic, and dermatologists who utilize our AI-powered technology to provide users with real-time and trusted, accurate AI skin diagnosis results, which is verified by dermatologists.
A key benefit of our AI skin solution: our clients leverage our AI skin diagnosis technology to provide patients with a thorough assessment of the skin concerns, including redness, wrinkles, moisture, pore, all skin types, more than 14 skin concerns and skin types. Those who recommend tailored treatment plans targeting their unique demands. With the help of AI technology, clinics can not only do consultations for patients but also give customized recommendations, thus creating a personalized and science-based experience to boost patient engagement. Furthermore, we have also seen good demand for our new product, Skincare Pro, which was launched in the last quarter. This self-service product on iPad attracted midsize skincare brands, clinics, and makeup for its high-quality skin analysis and diagnosis results. With Skincare Pro, we are able to expand into a larger customer base.
We also see the potential of this product to penetrate into the market of larger brands, clinics, and makeup. The expanded adoption of our skincare and skin diagnosis solution enables us to engage with a larger potential customer base in the skin-related industry and further diversify our revenue stream. As the need for more advanced skin diagnosis continues to grow, we keep on advancing our AI technology and help brands and clinics to streamline their customer engagement process through digital transformation. Another highlight was the accelerated market adoption of our Watch and Jewelry Virtual Try On solutions, marked by several new launches with prestigious and luxury brands. We started to expand into jewelry and watches with virtual try-on in the beginning of 2023, and we are excited to see our efforts starting to pay off as more jewelry and watch use cases were launched in the market.
Specifically, we have partnered with a luxury European jewelry brand to launch virtual try-on for its bracelets and earrings. Through our advanced technology, the texture and the reflection of the jewelry can be shown vividly through the screen and provide users with true-to-life shopping experiences. The increased adoption of our virtual try-on services reflects that the demand for jewelry, watch, and accessory virtual try-on is huge, that our technology is trusted by this high-end brand. Moreover, we have worked with some of our existing luxury brand clients to launch jewelry virtual try-on with our very unique stacking options, meaning that users can try on multiple pieces of earrings and bracelets at the same time.
This unique and leading functionality allows users to mix and match different pieces online and experience the total look in just a few clicks, helping brands to increase the time users spend on brand websites and deepen engagement with users. Another good progress to share here is our AI Hair solution, continuing to drive new innovations. To complement our industry-leading Gen AI-based AI hairstyle generation, we now created the industry-first AI wig virtual try-on for users to try on different types of hair wigs with true-to-life simulation results before they buy. Additionally, we also newly developed AI hair extension, AI hair band. Combined with our AI hair color, we have a complete hair solution now. By leveraging the latest diffusion generative AI model, our technology enables users to try various styles before choosing a new style at a salon.
This total solution for hairstyle, hair wig, hair extension, hair band, and hair color is unique in the market. With our comprehensive offering, brands and users can virtually try on different styles before they do hair styling or a buy wig. Now let's shift focus to our B2C mobile beauty app business. We saw another robust quarter of our mobile beauty app business, evidenced by the 45.7% YoY increase in our mobile beauty app active subscribers to a historically high of over 879,000. This continuous momentum in subscriber growth reflected the increasing demand for editing, enhancing, and beautifying photos and videos using mobile apps. With our suite of YouCam apps, we continue to diversify our product offerings to meet the needs from users and fully capitalize on the app market expansion trend.
The consumer app market represents a very big growth opportunity with rising global demand for subscription-based premium mobile features. We are well positioned to increase the market share in the consumer space, leveraging proprietary AI technology from Gen AI. Our team developed a robust roadmap of premium features for app subscribers. We have already implemented multiple Gen AI-driven enhancements for our apps, including AI avatar, AI fashion, AI hairstyle, AI selfie, AI headshot, and AI studio, etc., which provide users with sophisticated beautification with simple clicks and enhancement tools for photo and video. Moreover, we launched our online AI editing tools on our website to enable users to edit, enhance their photos efficiently on the web with the help of AI. For example, users can change or remove backgrounds within seconds or replace objects in just a few clicks.
Users can also colorize black and white photos or expand pictures easily. We have also offered a series of smart AI photo/video enhancement products that can instantly pick blurry photos, upscale and enhance image resolution, eliminate noises, and brighten loaded images without compromising quality and details. Our product strategy centered on integrating AI across our entire suite of offerings to transform user experience and solve problems for app users. Most importantly, our unique strength is to use the same AI engines to support both enterprise SaaS business and our mobile app business. By doing so, we can make the most use of our R&D capability to monetize in both sectors. With this special strength and our commitment to ongoing innovation, we are poised to defend our market penetration of the industry by unlocking the transformative power of AI.
In summary, our business performance of both the fourth quarter and the full year 2023 were strong, featuring double-digit revenue growth and a positive bottom line. We not only saw recovery in the enterprise business but also gained success in expanding into new verticals. The momentum in our mobile app business was very robust too. These factors suggested that we are well positioned to seize market opportunities and continue to grow our AI business. Based on the strong momentum in both enterprise SaaS solution demands and our mobile beauty app subscription business, we observed a very healthy recovery in 2024 with an increase of over 20% in business pipeline. We expect the growth of our total revenue recognized under IFRS for the full year of 2024 to range from 12%-16% YoY in comparison to the full year of 2023.
With that, I will now conclude my remarks and I will be handing the call over to Louis, who will discuss our financial details with you. Thank you.
Thank you, Alice. And good morning, good evening, everybody. Please note that all financial comparisons are on a year-over-year basis, and the reporting period is the fourth quarter of 2023 versus a comparable period in 2022. And that, on top of the International Financial Reporting Standards measures, we will also discuss some non-IFRS measures to provide greater clarity on the trends in our actual operations. As Alice mentioned, in the fourth quarter of 2023, our total revenue increased to $14.1 million from $11.1 million for the same period in 2022, representing a very robust year-over-year growth of 27.6%. And it was also the best quarter of 2023.
Meanwhile, our full year revenue was $53.5 million for 2023 compared to $47.3 million in 2022, representing a year-over-year increase of 13.1%, which met the guidance we provided to investor analysts. We are very pleased to have achieved this result even under the challenge of macroeconomics in 2023 and a strong encouragement to our entire team for the year-long efforts in growing our business in both enterprises and consumer apps. Among our revenue sources, AR AI Cloud Solution and subscription revenue was $12.0 million in the fourth quarter of 2023, an increase of 25% compared to the same period of 2022. The full year AR/ AI Cloud Solution and subscription revenue was $44.8 million in 2023 compared to $36.9 million in 2022, representing an increase of 21.2%.
The continuous tension can be attributed to the strong demand of our online virtual try-on products among brand customers and the robust growth in our mobile beauty app subscriptions, especially with the addition of new categories that now we serve on skin diagnosis, jewelry, and fashion markets. Notably, our mobile app active subscribers have surged by 45.7% YoY, reaching an all-time high of over 879,000 by the end of the fourth quarter of 2023. The strong momentum underscores the growing interest in our suite of mobile apps, and our generative AI efforts have started to pay off. Licensing revenue, which is mostly generated from our traditional offline services, increased by 77.6% in the fourth quarter of 2023 to $1.8 million compared to $1 million during the same period of 2022. The full year 2023, licensing revenue decreased by 10.5% to $7.5 million compared to $8.4 million in 2022.
This decrease reflects the shift from our traditional offline services and the demand of growing online virtual try-on offerings. Gross profit-wise, for the fourth quarter of 2023, it grew by 26% to $11.5 million, with a gross margin of 81.3% compared to a gross profit of $9.1 million and a gross margin of 82.3% for the same period in 2022. The full year 2023, we saw gross profit increase by 7.3% to $43.1 million, with a gross margin of 80.6% compared to $40.2 million in 2022 and a margin of 84.9%. The decrease in gross margin was primarily a result of the increase in third-party payment processing fees paid to digital distribution partners such as Google and Apple due to the increase in our mobile app subscription revenue. We expect the margin should be stabilized around this figure as the scale of each business segment becomes more mature and robust.
The company has very good control in our operating expenses. The total operating expense for the fourth quarter of 2023 decreased by 83.7% to $12.7 million compared to $77.9 million for the same period last year. Full year 2023, total operating expenses decreased by 56.2% to $48.8 million compared to $111.2 million in 2022. The decrease was primarily due to the high base of non-cash listing expenses that occurred in the fourth quarter of 2022. To break down operating expenses, sales and marketing expenses on the fourth quarter of 2023 were $6.7 million compared to $6.3 million during the same period of 2022, an increase of 6%. This was due to an increase in marketing and user acquisition costs. The full year sales and marketing expenses were $25.7 million for 2023 compared to $24.5 million in 2022, representing an increase of 4.8%.
This was primarily due to the increase in the marketing and user acquisition costs, which was partially offset by the decrease in sales and marketing people-related expenses. Overall, we were able to grow our business without unnecessarily increasing our marketing expenses. This shows the benefit of our strong recurring business model and effective customer acquisition strategy. On the research and development expense side, it was $3 million for the fourth quarter of 2023 compared to $2.6 million during the same period of 2022, an increase of 17.7%. The full year R&D expenses were $11.6 million for 2023 compared to $10.5 million for 2022, an increase of 9.3%. The increase was from the additional R&D headcount and related personnel costs, and it is a relatively mild increase when compared to our top-line revenue growth in the same period.
The general and administrative expenses were $3 million for the fourth quarter of 2023 compared to $69 million during the same period of 2022, a decrease of 95.7%. The full year G&A expenses were $11.6 million in 2023 compared to $76.2 million in 2022, a decrease of 84.8%. The decrease was due to the significant decrease in listing-related expenses after the completion of the SPAC transaction and listing process in 2022. The net income was $1.4 million for the fourth quarter of 2023 compared to a net loss of $190.3 million during the same period of 2022. The full year 2023 net income was $5.4 million compared to a net loss of $161.7 million in 2022.
The increase in our bottom line was due to a significant decrease in listing expenses after the completion of the de-SPAC transaction and the listing process in 2022, and the increase in the fair value of convertible redeemable preferred shares in 2022, which were then converted to Perfect ordinary shares upon recapitalization. Excluding non-cash share-based compensation, foreign exchange impact, and one-time non-recurring costs associated to our de-SPAC deal, the adjusted net income was $1.8 million for the fourth quarter of 2023 compared to adjusted net loss of $0.01 million in the same period of 2022. The full year adjusted net income was $7 million for 2023 compared to $4.1 million for 2022, an increase of 72.1%. This represents a good net margin of around 13% in 2023.
Looking at our balance sheet, as of December 31st, 2023, our company held $154.2 million in cash and cash equivalents and six-month time deposits compared to $201.3 million as of September 30, 2023. The decrease in cash and cash equivalents was a result of the completion of the tender offer to purchase up to approximately 16 million shares for an aggregate purchase price of approximately $50 million. Another important note is our capability to generate positive cash flow from our business. We had a positive operating cash flow of $13.6 million in the full year 2023 compared to the negative $3.3 million in full year 2022. This improvement demonstrated the value of our business model in creating strong capital structure to support the growth of our business operations.
In total, our customer base had a net increase of 18 brand clients since the end of last quarter, achieving a total of 645 brand clients with over 704,000 SKUs for makeup, skincare, eyewear, jewelry, and others as of December 31st, 2023. This is yet another record quarter for these metrics, showing that the continuous increase in customer penetration and SKU expansion. More brands and products are leveraging on Perfect Console to operate the various different SaaS modules that are subscribed from Perfect. In the fourth quarter of 2023, our total revenue has consistently exhibited strong growth, primarily driven by the continued momentum in our AR AI Cloud Solution and in the mobile app subscription, the premium feature and the AI-powered app, including the newly launched YouCam AI Pro and the YouCam Enhance. Despite a very mild rise in expenses, our net income remains strong, robust, delivering double-digit net margins.
We continue our investment in talent acquisition and technology innovations to expand our core competencies in acting as a transformative tool as it reinvents how products are showcased and consumed. We firmly believe that our positioning within this driving AI industry equips us to remain at the forefront of revitalizing how beauty and fashion brands engage with audiences. Finally, for 2024, the company expects total revenue recognized by IFRS to grow year-over-year to a range between 12%-16%. This forecast is based on the 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 to offer better transparency to the market. That concludes my prepared remarks. Now, operator, please open up the call for questions.
We will now begin the question-and-answer session. To ask a question at this time, simply press the star followed by the number one on your telephone keypad. We'll now take a moment to compile our roster. Our first question today comes from the line of Timothy Zhao from Goldman Sachs. Please go ahead.
Great. Thank you, management , for taking my question and congrats on the very solid fourth-quarter results. I have two questions here. One is about your revenue guidance into 2024. I was wondering, could you share some color into the revenue growth breakdown or revenue composition breakdown between your B2B and B2C business, which segment maybe grows faster in 2024? And also, a related question on this topic is, I think you mentioned the AI pillars within the business. I was just wondering, for 2023, what is the rough breakdown between the cosmetics, skincare, fashion, jewelry, different customer base, and what is your outlook for 2024? And the second question is on the margins. I saw, I think, for 2023 full year, you had a pretty strong top line and also solid expansion in terms of gross profit and net profit.
I think in terms of margin, actually, there was slight decline in terms of both gross margin and net margin on a year-over-year basis in 2023. Just wondering, what is your outlook for the profit and the profit margin for 2024? Thank you.
Hi, Timothy. Good morning. Very nice to talk to you again. Yeah, so our guidance, again, as we operate in a recurring business and our business is very contractual, right? So we are recognizing it based on IFRS measured at the previous goal. So our remarks that we have seen a good recovery momentum in the last quarter of 2023 that if we compare that to the earlier first half of 2023, which was very challenging. So I think that the good sign of that recovery is giving us a stronger faith in the 2024 business. But those contracts, it will take time to materialize into IFRS. So I think, as we said, we've seen the business pipeline to become a lot more solid. Certainly, we see over 20% in our business pipeline going forward.
As part of the breakdown, B2C continues to be very strong as we have reported in our last quarter. I think we expect that trend to be continuing. But the B2B part, as I said, the recovering is also coming to help. We see the B2C probably will be still growing a little bit faster than the B2B space, but the B2B is certainly recovering from the early challenge in 2023. In terms of the AI pillars, the beauty AI is certainly still a dominant part of it. It's a part of our core business since many years. But the skin AI part is growing very, very fast. The skin AI part, if we look at the organic demand that comes in, is actually outpacing the other categories.
I think that's mainly due to the AI skin diagnosis product is becoming more robust, covering more skin concerns, and also being able to penetrate into newer channels. So it's not just a traditional brand website. It's now going into spas and clinics and other channels. So I think out of the four pillars, the skin one in terms of the enterprise business is already, let's say, generating a good one-third, if no more, of that demand. In terms of the generative AI, it's very, very promising. This is very young. It just launched about a year ago. So from the end of growth and from the roadmap perspective, we see a lot of innovation will happen in this pillar. So we have a strong faith in that. But not to forget about the fashion AI, which is more to the luxury and prestige jewelry and watches.
This is the area that we invested so much in last year, and it's already to see results. More than a dozen brands have already launched, commercially launched in the market for our jewelries, including the newest addition for stackings. So I think all these four are very important pillars to sustain our growth in 2024. In terms of margin, as I mentioned, as the B2C business increased due to the fee paid to Apple and Google, it is eating up some of our gross profit around 3%-4% company-wide. We have observed this trend in the last four quarters. So it seems to be quite stabilized into 80%-81% gross profit margin. We don't expect a big change of that margin based on our current visibility. So that will be my answer to your question.
Great. That's very helpful. Thank you, guys.
Our next question comes from the line of Clarke Jeffries from PSC. Please go ahead.
Hello. Thank you for taking the question. Louis, interesting to hear about the skin AI segment having maybe a wider aperture of new business interest compared to beauty AI, if I understood that correctly. Also, interesting to hear about the recovery in the enterprise sales cycles and the good growth in new business pipelines to start the year. I was just wanting to ask strategically, are we at the position where you might be increasing your investment going into the new year to take advantage of some of those improvements in the enterprise sales cycles? Where are your top investment priorities from an incremental dollar perspective in terms of investing behind the enterprise sales capacity? And then as a follow-up, I wanted to ask if there was any way to level set expectations on cash flow. A $17 million improvement year-over-year in operating cash flow is fairly substantial.
Any way to think about whether that is the right number for the business on an annual basis at this point or if there were certain working capital items that may have benefited free cash flow and we might see an ebb and flow in 2024? Thank you.
Thank you, Clarke. Good evening. Yes, the skin AI, I think, is an area that we have been investing for more than three years now. It certainly took time to develop to a more mature status. And I think now it's kind of closing the chasm. More and more brands and clinics are starting to see the benefits of these solutions. And I think unlike the consumer beauty by color cosmetics, where they are more dominated by big brands, I think the skin market is very much more long-tail as well. So there's a lot more potential clients to address. And I think this is where the opportunities are and where we are investing also our sales effort, both online digital marketing-wide, some advertising, or joining different trade shows, conferences more targeted to skin markets. I think that remains a priority for 2024.
We have seen this globally happening, not only regionally in one specific country or regions. We've seen that demand equally growing in Japan, in the U.S., and in Europe as well. Skin AI, among other things, is the one that is being developed for a few years. It has been well tested in the market. I think it's now time to gain more scale. From the B2B pipeline cycle perspective, yes, we have seen that the enterprise demand is certainly accelerated compared to the first half of 2023, where people were a little bit more skeptical about the future of the economy. I think now, toward the end of the interest hike at the terminal rate, I think the enterprise spending seems to be coming back more into pre-interest hike periods. We have seen that the entire sales cycle has been shortened significantly.
So customer enterprise budget seems to be a little bit more relaxed in terms of investing in new innovations. And we want to capitalize on that. So our top priorities is, again, to have our solutions ready for web, for online subscriptions, and be able to help all these new demands to integrate and deploy in the market as fast as we can. In terms of the cash flow, the result that you saw now earning, it is not from a one-off cash flow, free cash flow. I think it's a continuous result. And we've seen it quarter after quarter that we're able to bring in around this figure. And I think that is what our expectations are for the operating cash flow to remain positive. So we are managing our financials. As I always said, we have strong discipline.
We have seen that because of the nature of this contractual, we get paid advance, and then we deliver the service across the year, we're able to generate this good operating cash flow.
So, Clarke, I can add some comments for the investment part. We're committed to keep on investing on AI development in the R&D side. And that's because especially after generative AI, the market is very large to grow. And this is a very early stage. So you can hear that not only beauty AI, beauty virtual try-on, we also expand into the beauty side for the hair. So hair is very unique in the market. Hairstyle, virtual try-on, hair wig, hair wig, virtual try-on, all these are developed by our generative AI team. So we deployed it to B2B enterprise for brands adoption and also to our B2C apps. So the commitment for R&D development will keep on increasing. For sales channel, I think it still will not have a big increase. For the new market like skin, med spa, clinic, that one is very new to us.
The organic demand is coming in very strong. We also like to develop in different countries besides major countries like U.S., Japan, Middle East, for the resellers, partners, and affiliate partners to get us more acquainted to the market and refer more brands to our site. The good thing is all this AI, generative AI, and all kinds of AI solutions, we can use it in our B2B enterprise solutions and also to our B2C apps, beauty apps users. It's quite a synergy, complement to each other. Of course, we are opening and still searching in the market for any synergy M&A to come. Very selective. That's always our target to go.
Really appreciate it. Yeah, it makes a lot of sense to invest behind the wave of innovation in Gen AI. Thank you very much for you both.
Thank you.
As there are no further questions at this time, I'd like to hand the conference back to management for closing remarks.
Thank you again for joining our call today. Have a good one, and look forward to seeing you online next time.
This conference is now concluded. Thank you for attending today's presentation. You may now disconnect.