Good afternoon, and thank you all for joining us. My name is William Shelmire. I'm an Account Manager at Three Part Advisors. For our next Midwest Ideas Conference presentation, we have Perfect Corp., which trades on the New York Stock Exchange under the ticker symbol PERF. Representing the company today is their Investor Relations Director, Jimmy Xia.
Good afternoon, everyone. Thank you so much for joining. I will take a few minutes to give you a background on Perfect Corp., who we are, what we do, and then I'll leave a Q&A session afterwards. Who are we? Perfect Corp. We are based out of Taiwan. There's about 400 professionals. The vast majority of our headcount is based out of Taiwan, with approximately 50% of headcount R&D professionals, majority, again, based out of Taiwan. Our management team also is mainly out of Taiwan. I am based out of New York. I'm doing the investor relations. The company was founded a decade ago. When it was first founded, it was an app maker, as in what you see on iOS or Android Play. We made apps for the beauty and fashion space, basically photo editing.
There are many functionalities that you see today that were not mature back in the day. With the little that we had, we had great momentum. Except one thing: there was really no monetization from a decade ago. Most apps were either free or $0.99 for the life of the app. When we were spun out of our parent company, Cyberlink, in 2015, we were a full-fledged app company until Estee Lauder came to us and said, "I like your functionality on the apps. Can you do something for us?" That was our first step into software for clients, B2B clients, on the beauty and fashion space. We are located, again, headquartered out of Taiwan. We have many offices around the world, in APEC, in the U.S., and in the EU.
Just to give you a quick breakdown in terms of why we're New York listed, yet we are Taiwan-based. If you look at the geography here, approximately 50% of revenue stems from the U.S., approximately 30% from the EU, and the rest of the world, with the main focus in Japan, about 20% from Japan and the rest of the world. This is also why we're mostly NYC listed, because the majority of our revenue stems from the U.S., where software plays and investors in the U.S. typically have a better understanding of software in general. Who are we? Who do we serve? And what space are we in? We have a B2B and B2C business. We service the AI/AR space in beauty and fashion. More specifically, as a B2C play, we have apps under the YouCam brand, Y-O-U-C-A-M, YouCam. We have six, it'll vary, about six apps right now.
Each app has its own functionality. YouCam Makeup and YouCam Perfect are two, what I call flagship apps. They derive, in terms of revenue, the biggest percentage and the largest in terms of subscriber pay count. On the B2B side, we have beauty brands. It could be LVMH, Dior, Chanel, Shiseido. These are the, you know, many are global in nature, with beauty and fashion as its core function. The space, again, we have Vertigo in the AI/AR space, most notably on the B2B side, Virtual Try-On for lipstick, for makeup, skin analysis, and such. As mentioned, on the B2C and B2B, by the way, in terms of revenue breakdowns, to give you a background on it, when we first listed Halloween of 2022, it was about 75% revenue from B2B versus 25% B2C. At the end of 2023, it was roughly half and half revenue breakdown.
End of 2024, it's about 60% B2C, 40% B2B, and at the current pace, we'll probably be over 60% B2C and about 40% or less on the B2B. Our business has evolved over time, where we were generating the majority of our revenue from the B2B side, working with brand clients. More recently, we have really picked up our game on the B2C side, which resulted in a higher revenue drive from the B2C side, mainly because our apps are very user-friendly. It's on a freemium model. What I mean by that is you download from iOS or Android Play for free. You have a seven-day free trial. Before the first quarter of this year, it was priced roughly $5 to $7 per month per app, or approximately $39 per app per year. Since the first quarter of this year, we pushed out price increases.
At the higher end, it went to $79. Definitely from the, that's more notably on the second quarter of this year, we've seen average sales price increase because of price increase. The apps, each one has its own functionality. Again, YouCam Makeup and YouCam Perfect are the two biggest ones. Their main functionality is photo editing. Imagine someone using it for fun and entertainment, where you're putting yourself in a white wig or a purple wig or putting green lipstick on yourself, taking a selfie with it, and putting it on social media. It's fun and entertainment. Versus on the B2B side, it's more software play, where we sign annual contracts, annual recurring contracts that provide Virtual Try-On or other services to global brands. We charge based on a few factors.
Number one, geography. If you are only selling your service or using Virtual Try-On for the U.S. market, that's one price. If you do it for 40 markets around the world, like Estee Lauder, that's a significantly higher price. The modules, for example, again, Virtual Try-On, which I'll show you an example later on, for lipstick Try-On, that's one module. If you want to do eyeliner, that's a second, and so on and so forth. The third is SKU, the number of SKUs, stock keeping units. The number of products that run on our software, the more you have, the more you pay.
I'm not going to go into the detail on the innovation and the journey for the last decade, but AI, machine learning, generative AI technology have definitely evolved over the years. Especially since the last two or three years, we've seen a quick and fast change in the space, where you see AI being the overarching story versus software in prior years.
To give you an idea on the few apps, here are the apps in front of you. YouCam Makeup, Perfect Video, Enhance, AI Pro, AI Chat. We also have a YouCam Online Editor for PCs for more heavy users in terms of technology need. Each one has its own unique group of subscriber base. Most of the time, you won't have duplicating subscribers, as in if you are a user of YouCam Makeup, most likely you will not be a YouCam Video subscriber, which brings a good potential of up and cross-selling from a B2C perspective. Each one has its own set of target audience. The majority of the audience here for across the app, it will vary, but probably 80%+ are female audience. An example of how YouCam Makeup will be used by our subscribers.
Makeup, which is in the name, you can edit yourself or Photoshop makeup onto yourself. You can clear your skin. You can try on different hairstyle, hair color. You can shape your body, your jawline. You can have different colors in different places. Once you have these photos ready, it is social media-friendly. YouCam Perfect is more for the photo editing, as in you can remove objects. You can add objects. There's also a certain overlapping element of body tuner. There's definitely AI avatar and AI selfie that's been very, very popular, especially with the generative AI proliferation. There's a lot of users that are geared towards the heavy side of generative AI technology within our apps and many of our competitors. YouCam Video is, as it sounds, we can generate videos from photos, AI image to video, face swap, and enhance videos.
I'm not going to go into all of the different things, but to give you an idea on the complete AI solution story, this is mainly on the B2B side. To take a step back, when we first started our company as a B2C company, but we branched out to B2B, we kept something very unique, as in our R&D process is the same. We don't develop something for B2B and B2C separately. The engine, the heart of our solution is the same. Of course, we'll change the UX/UI depending on each brand client on the B2B side, what they need, or the app side on what each target audience is looking for. When I say the AI beauty solutions, technically, certain elements might be geared towards the B2B, certain elements might be to B2C. In actuality, it can be transferred to either side.
AI makeup solutions, Virtual Try-On has been one of our flagship products. At this point in the development, we're probably at a saturation or a mature market, whereas any company brand that wants to do Virtual Try-On, they might have, they should have Virtual Try-On. As an example, LV recently, this week, within a week, recently released a new lipstick priced at $160, which is quite extraordinary compared to most lipstick pricing. That's an example of a new client, a client that has a new product out, and we have Virtual Try-On for that as well, as well as a $40 lipstick from Estee Lauder. AI face solutions. It is very, very unique where we have AI face shade analysis. I think I have an example to show you on how AI scans your face, finds strength and weakness, and gives you a solution to your concerns.
For example, if I have bags under my eyes or I have dark spots, what kind of products from a B2B side that might make sense for me? If you look at the screen right here, you see that over the years, we have gained quite a number of brand clients on the B2B side. Today, we have just over 800 brand clients, 818 to be exact. It stands from smaller players to bigger players. Bigger players, you've probably all heard of like Estee Lauder, Chanel, Tom Ford, Dolce & Gabbana, LV, and so on and so forth. We work with the biggest in the world. By the way, with working with them, we have over 900,000 SKUs that are running off of our software, 914,000 to be more precise. The scale of our B2B business over the years.
If you look at our brand count, we have grown from 300, under 400, to over 800 since the second quarter of 2021. The growth has been 20%+. Similar to SKU count, about 24% from 388,000 SKUs to 914,000. Our newer B2B solution is AI skin diagnosis. Basically, the target audience either could be clinic, med spa, or dermatology office. The practitioner can easily use a tablet to scan your face within three to five seconds, typically three seconds. With the technology, the software will give you a solution of what is the strength and weakness of your face, allowing the practitioner then to give you solutions on how to resolve them, either procedures or whatnot. Typically, it's non-invasive. Here's an example of how, on the B2B side, how clients would use or end users would use the product. As a Walmart app user, I can scan for the product.
Once I find it, I will hit Virtual Try-On, allow front-facing camera access. You see, every time the end user clicks the different color on her lips, her lips will change. It's real-to-life. Now, why do B2B clients use this type of service, the software? Number one, it increases client engagement, as you can see, very quickly. The more you try, the more you buy. The typical mindset, right? Number two, it drops your return rate. From all studies that we've done with our clients, at least 25% decrease in return rates. If you follow the news recently through Amazon and other e-commerce players, returns have become a bigger problem over time. Definitely dropping return rates is a net positive. The third is, on an ESG perspective, if you are doing Virtual Try-On, you're no longer using the plastic waste of Try-On in the stores. Here's, that was an example.
Sorry about the sound. The other example is similar on Sephora's websites. You're able to do skincare analysis. Here is from MAC, Estee Lauder company, of how consumers and consumers can use their software. You start by, again, if you pick a certain style that you want, on the right side, it'll teach you the product to use each step of the way, either the brush, either the concealer, or the blush. Once you see how the process works, you add to cart, add to cart, and increases engagement. Another example from Amazon. This time with the nails. Obviously, here, you're using the back-facing camera. You point to your finger, and every time you change the style, it shows it immediately. By the way, this is not a filter that is applied.
If you think back to the old days of Snapchat, this is real-to-life AI/AR technology that is applied directly to either your face or your wrists or your finger and such. You can see some of the examples of our advertisement from Gucci's product. Same idea, Virtual Try-On, but from the Google Ads. A Cartier Tank Watch, very popular. On the right side, Sally Hansen is the nails. In January of this year, we made our first acquisition, approximately $6 million acquisition of a company called Wannaby or WANNA. They were acquired from Farfetch. Farfetch, to those of you not familiar, is still an e-commerce platform that sells luxury goods. Why do we acquire WANNA? Number one, it is a very niche market, which fits perfectly into our needs. They are a provider of AI/AR technology on Virtual Try-On for makeup, for jewelry, for watch, shoes, bags, scarves, clothing.
The majority of them, we don't do. There are certain overlaps, but it is a very powerful software that is working with many luxury brands around the world. As you can see from this slide, they're working with the likes of Gucci, IWC, and so on and so forth. That has brought in a number of customers as well as solutions. On the right side, you'll see WANNA Solution. On the left side is Perfect Solution. Once we add WANNA's product line services onto our platform, it gives us a more holistic approach to resolving client needs. Some of the key financial highlights. If you look at our growth for the past few years, if you look at 2024, we grew at 12.5%. This year, the guidance is at 13% to 14.5% top-line growth.
The second quarter of this year and the first quarter, first half of the year this year, obviously, we've grown beyond our guidance, and we'll see how things go. If everything goes well, we might be able to raise guidance. You see that gross margin has seen a slight downtick, mainly because our B2B margin is a lot higher than our B2C. B2B is probably 90% gross margin, but B2C, because of the Apple tax and Google tax, 30% and 15% respectively, our gross margin is a lot lower. On a blended basis, we're down from 79% to 75% year- over- year on the second quarter of the year. Perfect has positive operating cash flow and a strong balance sheet. For those of you that do not know, we're about $200 million market cap right now. We have just over $167 million cash and cash equivalents.
We had a positive operating cash flow, obviously, first half of the year. I think last year it was about $13 million. First half of this year, about $8 million. Net income saw a slight decrease year- over- year. It saw a decrease year- over- year mainly because once we acquired WANNA, there were elements that we had to invest more into the company because of additional R&D needs. There was a currency exchange. As I mentioned before, we're based out of Taiwan, and we hold mostly in U.S. dollar. Because the Taiwanese dollar saw an appreciation of about 13% depending on what timeline, we saw a negative hit when we had to exchange for Taiwanese dollar for operating needs. As I mentioned before, our business outlook is 13% to 14.5% year- over- year. How do we grow?
We'll continue to reinvest back in the company, especially on the R&D side for the premium GenA I features that's available both in our apps and on the B2B side in terms of software. We'll continue to push into additional B2B clients and further move into skincare analysis. Of course, fashion and jewelry AI services. Given the cash on hand, we'll continue to look for a target to help us grow. I think our near-term goal in 2025, I think the consensus is anywhere from $68 million to $69 million top line. Our near-term goal is to reach $100 million as soon as possible, either organic or inorganic. Questions. Yes, sir. Yes, 400 employees. We have a mixture. We have about half are R&D professionals. The other half are broken down, obviously, between sales and marketing and G&A.
From a cost perspective, our sales and marketing makes up about 50% of our revenue. It'll fluctuate on a quarter-over-quarter basis, but roughly 50% of revenue on the sales and marketing side. About 25% of revenue is on the R&D side. G&A is roughly 10% of revenue.
You have 200 people developing this stuff?
Yes.
You're going to continue it?
Yes. Moore's Law, anywhere from 12 to 18 months, you see new technology. If you look at what's happening with AI, it's definitely not one year or more, right? Technology is changing much, much faster. If we don't invest in Gen AI technology to service our B2B and, of course, our B2C apps, we will be obsolete very quickly. No problem. Next, please.
The samples you gave on the Amazon and Walmart, is that something that Amazon and Walmart pay for, or is that something that the client?
Okay, so the question is the example on the PPT of Walmart or Amazon, who's paying for it? When we are providing services to, for example, Estee Lauder's website, Estee Lauder is paying us directly. Now, assuming Estee Lauder is also on Walmart and Walmart wants to display the same software, Walmart has to pay for that as well.
With the speed at which AI is, I guess the biggest potential would be if you were able to do something with some tridimensional timing on it. Right now, you can put makeup, but if you could actually, or how far away from you actually had a person with their smartphone being able to try the jeans.
Clothing trial, yes, that question. We are not ready yet. To give you an example, a virtual trial for clothing itself, right? The difference between from a neck above is visible, right? From the neck below, typically, you're not visible. Our technology today is probably 90% accurate on, for example, giving me pants or t-shirts with a picture above my neck. If I tell them my measurements, about 90% accurate. You don't want to be the other 10%, right? That will create huge returns, return rate being too high. The technology is not yet ready. From a Gen AI technology perspective, that is the goal. That is where we're trying to reach, as in the technology should be mature enough to have very accurate measurement of you as an end user on your needs from a clothing perspective. Yes, sir.
I have a question on the business model, because you talked about how the software is paid for by like Estee Lauder or Walmart. It seems like it's a fixed fee that you're going to be where the market's at, w hy is it not priced like based on some gross merchandise volume? Because at the end of the day, if the client ends up purchasing the item, you've created revenues for that retailer that they did not have before. The reason I bring this up, my fiancée likes the uploads of pictures and ChatGPT, and ChatGPT and other AI engines come back with recommendations on products to buy. They're getting directly paid and influenced from what recommendations they're giving on some of the securities. We can explore the side of the business model.
Also, you know, with the AI revolution and that ChatGPT, how are you going to make your customer feel that your technology is the first?
The question is on basically pricing model, like why we price it like a software, basically, instead of per click or virtual trial, what have you. We would love it if it's per click or per transaction, because that would mean significant amounts. Like we've had over 10 billion virtual trials. Imagine we get $0.01 each time. That would be tremendous. Obviously, the clients wouldn't be very happy about that, right? The current pricing model has been set because of all the years we've been communicating with the B2B clients. If we were to change in the future, I don't know, but it might be possible. Right now, at least based on my understanding, we're currently priced on the higher end of the market from a software perspective.
There are situations I've seen that clients came to us after trying out a cheaper option that is cheaper for a reason, right? Then they came to us. They understand they have to pay more, but because we have a more superior product, that's where they would like to use. How are we pricing it? Unfortunately, right now, I don't think we have that type of flexibility to all of a sudden upend the market and say that now it's per whichever click, right? Right now, we're not there yet. In fact, given the headwinds in the B2B space, if you follow Estee Lauder, Coty, Shiseido, and all that LVMH, a lot of these companies are having macro issues. Their China growth slowed down. Their top line, bottom line is seeing a lot of pressure, right? It's causing them to tighten their belt, which negatively impacts us.
Obviously, there's additional tariffs involved, right? That has not been positive for us. If we were to pass that negative momentum, we'd probably see the company growing much faster than our current 13% to 14.5% top line estimate. Does that answer your question?
Yeah, you're answering the part of you, which is like comparing ChatGPT or other AI applications all the way to upload a picture. How are you differentiating yourself at the consumer level from being able to access your?
On the B2B side, how do we differentiate our apps with the competitors, like ChatGPT or any other photo editor? Honestly, we are not a big player. We're not the biggest player on the app side. There's tons of competition. We only have 960,000 paying subscribers at the end of the second quarter. We are a small fish right now. What keeps clients or keeps subscribers coming back? Number one, as I mentioned before on the previous question, we invest in our R&D continuously. We update our software roughly every three weeks. There should be new functionality or improvements on high-usage functionality. Could you make the argument that certain products or certain apps would be better than us? Of course. One thing for sure is, from my perspective, from our perspective, the simplicity of use is very, very crucial from a UX/UI perspective, right?
As a user, you can use a native iPhone or Android app to do photo editing or AI, Gen AI editing, yes. Our apps are made to be ease of use, almost like one click and go, to make it that anyone can use it. Which could be attractive to some people, which more reverse to others. Sorry, go on.
Could you talk about the churn on the B2B side?
Sure. The churn on the B2B side, we have a 90%+ retention rate on the B2B side. It's quite sticky. The cost to switch, number one, if you were using our service, and of course, assuming you're not out of business or running low on cash, most of our clients stay with us. The vast majority of clients that do not stay with us, as I mentioned before, either are going out of business or have really huge financial issues. Most of them stay with us. Does that answer your question?
Typically, are you looking at a price, or is there any sort of functionality, or is it [audio distortion]?
There are companies that want to do it themselves or hire an outsourced small group of individuals to service them. Yes, this is true. I mentioned before, we are priced on the higher end. Again, we typically are not displaced because of our pricing. We're not displaced because somebody charges much lower for the same service, which is almost impossible if you charge significantly lower for the same service. For example, our key customer, anyone that pays us over $50,000, we have a dedicated team to service them. If somebody's paying $10,000, I would most likely not give them the same amount of attention that somebody's paying $100,000 on the same service, right? If you're a small player, and if you can do that to all your clients from small to big, that probably means you're not profitable. Yes, sir.
Do you have issues with color calibration? You'll see that you are dealing with issues like, you know, when you're trying a lipstick or something, and then when the customer gets it, it's not exactly the same shade that it is from the screen.
Yes. Color is actually very, very different on different devices. iOS is a little more simple, right? Both the tablet and different years of iOS phones. We do calibrate each. Since new models are coming out, the screen's different, the color is a little different. What's a little harder is on the Android side, because there are so many providers of Android phones and so many different levels of Android phones, the color saturation is very, very different. We do spend a lot of time to make sure that the biggest players in the Android space have accurate color reflection. As in, again, what you see is what you get. There's nothing worse than getting a maroon color, but once it shows up, it's like a cherry color. We do invest our time, energy, and effort in color accuracy.