Good morning and good evening, ladies and gentlemen. Thank you for standing by, and welcome to Perfect Corp's 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. Jessie Cheng , Investor Relations Director of the company. Please go ahead, ma'am.
Thank you, Rob. Hello, everyone, and welcome to Perfect Corp.'s 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 first nine months of 2022 financial results on our website at ir.perfectcorp.com or in the Form 6-K we furnished to the SEC earlier today. You can also access a replay of this call on our website when it becomes available a few hours after its conclusion. For today's call, management will provide their prepared remarks first, and then we will be hosting 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.'s performance, anticipated plans, operational results, and objectives. Forward-looking statements are based on management's 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 statements 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-IFRS measures today, which are more thoroughly explained and reconciled to the most comparable measures reported in our earnings release in Form 6-K furnished to the SEC. I will now turn the call to our first speaker today, Founder, Chairwoman, and CEO of Perfect Corp., Ms. Chang. Please go ahead.
Hi, everyone. Good morning. Welcome to our first earnings call as a public traded company on the NYSE. It has been quite a journey from our inception seven years ago to our successful listing on the NYSE in October this year. I would like to share a few long-term reflections before diving into short-term performance details. We founded Perfect Corp in 2015 with the mission of transforming the beauty industry through digitalization. Through persistence, dedication, and innovation, we have grown Perfect Corp. Into a leading provider of AR and AI SaaS solutions to beauty and fashion companies around the world. Today, we are the technology engine powering over 10 billion virtual product trials annually for over 450 beauty brands in over 80 countries, covering 17 of the world's top 20 beauty groups.
Building on the solid foundation of our broad client base and diversified geographic coverage, we were able to maintain stable revenue growth and achieve positive adjusted EBITDA during the first nine months of 2022. Despite escalating mIcroeconomic understating uncertainties and certain foreign exchange validities during the period, our total revenue grew to $36.2 million, up 22.1% year-over-year, while our net income turned + $28.5 million from - $3.1 million during comparable periods. On the business development front, our key customers counted as 151 as of September 30, 2022, compared with 137 for the same period last year. We now define key customers as those who contributed revenue of more than $50,000 in the trailing 12 months ended on the measurement date.
Such accomplishment was not trivial considering the macro challenges we face. Under the pressure of growing inflation, a shrinking central bank balance sheet, rising interest rates, and the decline in consumer spending, our prospective corporate clients have become much more cautious with their expenditures. While they are convinced of our products' value proposition, prospective customers, especially those in industries other than beauty, are taking longer to evaluate our proposal and sign the contract. As a result, our planned business expansion into new segments as jewelry, fashion, taken longer to materialize. Furthermore, the recent strength of U.S. dollar against all other currencies has resulted in additional headwinds to our revenue growth. Despite the macro challenges, we maintained our operational stability. Thanks to the resilient nature of our business model. First, we have built our technology solutions in a way to encourage repeat purchase from existing customers.
Once our brand customers adapt our AI, AR solution to power their virtual product try-on experience for consumers, we are able to help them continuously deepen their engagement with customers in omnichannels. As online shopping has become mainstream nowadays, particularly with Gen Z customers, virtual try-on, virtual product try-on is not an option, but a necessity now. As a result, we have enjoyed high contract renewal rates and a low client churn rate among global beauty brands. The second factor contributing to our operational resilience is the counter-cyclical nature of our clients' business. Despite the rising inflation and the declining consumer confidence, many leading global beauty brands continue to deliver solid financial performance in the third quarter. Beauty brands leaders are not reducing their investment in technology. On the contrary, we understand they are increasing their budget allocation towards our SaaS solutions.
The third factors contributing to our operational resilience is our ability to effectiveness cross-selling and upselling additional SaaS solutions to existing clients across product divisions and the geographic regions. Our virtual try-on solution are proven to deliver solid ROIs, including sales increase, higher conversion rates, more time spent on site, and higher median cart size. Once our clients have generated high ROIs from their initial deployment of our SaaS solution, they tend to expand its deployment to more platforms and cover more product categories and increase SKUs and geography coverage. While high client retention rate and ample cross-sell, upsell potentials have validated the sustainability of our business model, we are not resting on our laurels. Instead, we have taken proactive measures to adapt to the changing market dynamics.
Such measures include closer scrutiny of ROI on our sales and marketing and the G&A expenses, more methodical investment in R&D expenses, and channeling more resources towards upselling and cross-selling additional services to our existing clients. We are confident that by taking precautionary steps in expense control in the near term, we are boosting the durability of our business operation for the long term, thus paving the way towards capitalizing on extraordinary opportunity emerging from recent market dislocation. First, we now see the labor market starting to loosen up and software engineering talents become more available than what they were a year ago. In addition, private companies are developing more realistic expectations for valuation, and some of those companies possess very promising technologies but are strapped for cash.
With $119 million of gross proceeds injection from our successful de-SPAC transaction, we are well-positioned to not only boost our in-house R&D capabilities by hiring more engineering talent, but also turbocharge our product offerings through acquisition with synergies. Above all, we have a large and a loyal customer base in the beauty industry that can serve as the launchpad to propel us into adjacent sectors. Our clients are convinced of our unique valuation proposition, including increasing user traffic, improving user-to-customer conversion, enlarging average purchase ticket size, enhancing customer retention, reducing brand's product waste, and lowering operating costs. Their success cases and tangible ROI results will help us to break through the entry barrier in the new business sectors, including fashion, jewelry, accessories, med spa, hair salon, and cosmetic surgery.
Technology-wise, our focus to date is on the human source, human face, which is by far the most complex and technologically demanding, given our naturally born visual sensitivities. Our leading technology on the human face enables us to easily expand from beauty into other verticals and offer a complete solution. For example, we can instantaneously combine facial makeup and fashion, jewelry, apparel for a complete look, which is unique in the market. To conclude, we believe that our technology, client base, business model, and capital reserves have equipped us with resilience and agility to thrive regardless of the market conditions.
Above all, we have a seasoned management team with a track record of successfully steering our company through various macroeconomic cycles. Although our near-term business growth may be affected by prolonged sales cycle, we continue to be optimistic towards our long-term business outlook. We remain committed to our development goal, exploration of new expansion avenues, also creation of long-term value for our shareholders. That concludes my remarks. I will now turn the call over to Louis Chen to go through the financial details with you.
Thank you, Alice. Before I go into the detail of our financial results, please note that all comparison are on a year-over-year basis, that the reporting period is the first nine months of 2022 versus the comparable periods of 2021, and that on top the IFRS measures. We will also be discussing non-IFRS measures to provide greater clarity on the trend in our actual operations. For the first nine months of 2022, we grew our total revenue by 22.1% to $36.2 million from $29.7 million.
Among our revenue, AR/AI cloud solution and subscription revenue grew by 31% to $27.3 million, contributing 75.4% of our total revenue, mostly due to the strong demand of our online product trial solutions from the brand customer and as well as increase in our monthly active subscribers. Licensing revenue grew by 6% to $7.4 million, taking part of 20.4% of our total revenue, mostly driven by higher demand of our software development kit solution. The gross profit for the first nine months of 2022 was $31.1 million, while gross margin stayed relatively flat at 85.7%. Total operating expense increased to $33.3 million from $26.8 million.
The sales and marketing expense increased by 2.2% to $18.2 million, a much slower pace of increase than our revenue growth. As a percentage of total revenue, sales and marketing decreased to 50.3% from 60.1%, demonstrating the improved efficiency in our sales and marketing activities. General and administrative expenses increased to $7.2 million. Excluding the one-time items, the recurring G&A expense remained relatively flat at $2.9 million, thanks to our effective expense control mechanism. Research and development expense increased by 24.7% to $7.9 million as a result of our strategy of investing in product development and expanding our engineering talent pool. The net income turned positive to $28.5 million from a net loss of $3.1 million.
Excluding non-cash share-based compensation, non-cash evaluation gain loss of preferred shares, foreign exchange impact, and one-time non-recurring costs associated with our de-SPAC transaction, the adjusted net income was $4.1 million compared to our adjusted net loss of $0.6 million a year ago. Adjusted EBITDA improved to +$4.2 million for the nine months ended September 30, 2022, from -$0.03 million, primarily due to the strong revenue growth and efficient expense control. Turning to our balance sheet, we ended the September quarter with $84 million in cash and cash equivalents. We raised $119 million in gross proceeds from the completion of our NYSE listing through the de-SPAC transaction on October 31st, 2022.
Overall, we are cognizant to the macroeconomic headwinds, foreign exchange volatilities, and the prolonged sales cycle, and we have taken productive measures to adjust our expense structure and strengthen our cash-generating capabilities. Facing such an uncertain macroeconomic makes it difficult to predict our near-term business performance. Nevertheless, we retain our long-term confidence in our ability to generate revenue growth and positive cash flow through a combination of organic development and synergistic acquisitions. That concludes my remarks. Operator, let's open up for the call.
We will now begin the question-and-answer session. We ask that you please limit yourself to one and two questions. In order to ask a question, please press star and then the number one on your telephone keypad. We have your first question comes from the line of Brian Schwartz from Oppenheimer & Company. Your line is open.
Yeah. Hi, thank you. Congratulations, Louis and Alice on successful de-SPAC and your first public call here. The first area I wanted to touch upon was your commentary that you are seeing the deal cycles, at least on the new deal cycles, taking a little bit longer. Your business is very geographically broad-based. I'm wondering if you're seeing any variation based on geography in terms of those cycles that are taking a little bit longer.
Hi, Brian. Let me answer that. I think, you know, first of all, the corporate buyer are not stopping purchase technology. I think they are just taking a longer time to evaluate, you know, how they adjust their allocation of spending and certainly imposing greater scrutiny on the ROI of their operating expenses. We have seen that many of the clients are shifting their sales marketing budget from advertising to technology, which is actually positive for our business. As we are generating the positive ROI, we are demonstrating strong ROI to our clients. I think we are actually benefiting from this shift.
From the geographic diversification perspective, I think, we haven't seen specific pattern in a specific region. I think it's quite across the world. Of course, with a stronger U.S. dollar in the last two quarters, certainly that has contributed, you know, to on a U.S. dollar basis, you know, a little bit less growth in other regions where the countries are not being used by U.S. dollars. In terms of a prolonged sales cycle, I think it's quite across the board, we are seeing the same pattern.
Thank you. Louis, the follow-up question I had for you talked about how you're exerting more expense control management here for the business. In the A commentary, it sounds like you're continuing to invest on the R&D side. Can you share your plans for investment on the sales side, and the sales reps and your sales and marketing expense? Is that another area that you're looking to moderate your investment? Thanks.
Yes. As we reported the number, right, our sales and marketing expense has reduced in terms of, you know, percentage of revenue, right? That's showing how we are managing, you know, our sales effort here. Again, we are still in a growing phase. I think, you know, continues to grow our sales capability, especially in the newer regions that we want to, you know, study focus to. I think that will remain in our agenda.
Specifically, for example, Southeast Asia, Middle East, some of the newer region that I think we can invest a little bit more in coming years. Again, we remain very solid in our primary market in the U.S. and in Europe. Engineering team is the key value and key focus of the company. That will not stop. We will continue to invest in engineering R&D, whenever there's a great talent to acquire, to expand our product offering and also to really make our edge, you know, versus competition larger.
Last question for me. In your category, you're very much, you know, the market leader here. You're certainly the fastest-growing, pure play in the category. Have you seen any changes in the competitive landscape, over the last nine months? Specifically, is there any more attention on the category coming from either, larger technology providers or maybe any other, vertical specific providers that have been targeting the beauty and fashion industry? Thank you again for taking my questions today.
We are by far the number one in the beauty tech domain and leading our competition, I would say for at least two to three years in terms of technology, right? Our client base and the comprehensiveness of our products and solutions has really positioned us well, well ahead of our competitors, especially, you know, those are mostly much smaller, both in size, but also in the offering scope. You know, there might be a few, you know, in the new different, you know, fashion categories. Again, I think we remain very confident about our technology and be able to win in that new territory that we are now expanding. Given our superior technology, we are quite confident that we're able to replace, you know, replicate our success in the beauty domain to other vertical as well.
Your next question comes from the line of Timothy Zhao from Goldman Sachs. Your line is open.
Thank you, management for taking my question, and congratulations on the de-SPAC and listing on the U.S. market. I have two questions to ask management team. First is about the brand expansion, because I noticed that in your disclosure, you had 151 key customers and 483 brand customers as of September. That would imply around, like, 10-11 new customers during the third quarter. Could management share some color on what kind of the brand expansion rate that we should expect into fourth quarter and next year?
What kind of brands that we are targeting within the key customers? That's the first question. Secondly is, I think, you're already the largest beauty tech player in the industry. How do you think about the potential in the fashion industry, and how many customers do we have within the fashion vertical at this moment, and what is the longer term revenue growth potential in terms of I think revenue contribution from the fashion vertical? That would be helpful.
Hi, Timothy. This is Alice. Thanks for your attending our call.
Hi, Alice.
Let me reply the new segment, fashion and jewelry part for you first, and then I'll have Louis to answer the first one with numbers. For the jewelry fashion, we just, you know, we started to jump into the market a little bit longer than one year. I'm very glad that right now we are by far the leading technology in the market. We have a full set of jewelry already done. With all the complex combinations, setting, PBR, all the technology ready, we started jewelry fashion tech, same as we did six years ago with beauty tech. We started from the luxury brands. Those are the most picky brands. They are so picky to all the product to be perfect. We already won several, quite a few, luxury brands in the POC.
We do see them getting more interested and a lot of those luxury brands, they just started doing VTO like we saw six years ago from the beauty luxury brands. Answer your question, for those luxury brands, we did win quite a few POC. The thing is, the POC is getting longer, and it's more picky to all the material reflections. Gradually we saw a few of them already tell us the POC passed, and they are thinking about how to expand to other regions or more SKUs. I do see the same pattern like we started six years ago. The brand numbers will not be big, but all these are very luxury brands to start with. Yeah. Technology-wise, we are leading in the market right now.
I would say not as far as beauty tech, but definitely leading, and no one can compare. From luxury brands, yes, we did win some of the brands that we targeted beginning of this year, and they are doing POC. POC taking longer because all the, we just mentioned about the whole, the economy situation. I believe to see some of them that next year probably they will expand to more region and more SKUs. That's what we see, what we experience, the fashion, jewelry, technology industry right now, up to now. Louis, do you have the answer for the first one?
Yes. Hi, Timothy. Before I go to your first question, I also want to add more color to that, right? Again, you know, in the fashion domain, we have been making also progress in across various sub-domain in under fashion, right? Whether it's eyewear or watches, accessories and jewelries. And as Alice mentioned, there were already a handful of, you know, very big top global, you know, fashion brands that have launched POC with us in the recent quarters. In terms of the customer growth rate, I think as the nature of the business is a sub-subscription, right? It's a very compounding effect with a recurring business model. Not only looking at the new customer acquisition, but we also pay special attention to renewal, right?
One thing I want you to call out here is, you know, we didn't see any really prolonged cycle to close the renewal. The renewal are happening almost on sales autopilot, right? Almost automatically. I think internal number of customer, you know, to acquire and we mentioned about key customer, I think you always start with a proof of concept and gradually spending. I think this year because of the macro, we feel that, you know, the growth rate of the new customer seems to be taking a little bit longer than previously.
We do expect that this is going to accelerate more as now the newer category has been passed the proof of concept period. More and more the customer who has been considering or evaluating the solution, I think will turn into, you know, larger orders in next year. To quick answer your questions, again, we're not providing a guidance in terms of a specific number here, but we expect that the growth rate in terms of new customers as we expand in our sales team capability across the world, it should generate higher than this year.
Got it. That's helpful. Thank you, Louis, and thank you, Alice.
Again, if you would like to ask a question, please press star, then the number one on your telephone keypad. Your next question comes from the line of Clarke Jeffries from Piper Sandler. Your line is open.
Hello. Thank you for taking the question, I will echo my congratulations on the entry to the public markets. First question is, you know, you mentioned in the release the customers are becoming increasingly cautious, taking longer to evaluate proposals. Just as we right-size thinking about the business, you know, what portion of ACV growth or bookings growth has typically come from new customers versus expansion? If you could comment on whether you're seeing this behavior primarily in the new customer funnel or in the existing customer expansion conversation?
I will answer that. Yeah. Typically our business model, as I mentioned, is recurring base, right? On the historical trend, we're seeing, you know, 70%-80% of revenue are contributed by existing clients, through upsell or renewal of the current service or just expanding to more licenses. Then that means, you know, 20%-30% will come in from the new customer segment that typically takes time, you know, as a new supplier for them. It takes time to evaluate the solution.
There is, you know, time to go through the contractual process, and that is really what we've seen more scrutiny by corporate, even department in the corporate will spend more time to evaluate that until the final sign off. For the existing clients, because the relationship is already there, right? It has been, you know, our client for multiple years. I don't think that has been most of the worries. I think the growth rate and the additional faster growth rate will come from a new segment that we are spending because we are targeting new client segments. This is the part that we are focusing our energy to facilitate and try to make, you know, the evaluation process as easy as it can be, from the customer, perspective.
Perfect. Then, you know, could we dig into a little bit about the results within subscription and AR/AI? You know, there's a brief mention to an increase in monthly active subscribers. You know, just generally as you compare to your expectations, what are you seeing in the brand business compared to the consumer business? Would you say that the consumer business is continuing at trend or even above trend compared to the sort of purchase hesitancy in the brand business?
Right. Both part of our business line are growing quite healthy. I think the consumer business, you know, more and more app users seems to be more accepted to paying a monthly fee or annual fee in most of the case to access premium features of the app. We are very glad to see that, you know, as the core technology, the core product are the same, right? We basically are investing one time in R&D, but we are able to monetize that through both B2B channels and B2C channels.
The brand subscription, you know, for, especially for online virtual product trial solutions continues to be very strong. I think now, it's pretty much becoming a table stake to have virtual trial solution if you try to sell through e-commerce and sell beauty products or soon, you know, jewelries and watches and other products. I think. We're glad to see that both channels are continues to grow in good double digits for this cycle.
All right. Thank you for taking my questions.
Your next question comes from the line of Brian Schwartz from Oppenheimer. Your line is open. Your next question comes from the line of Brian Schwartz from Oppenheimer & Co. Your line is open. Again, if you would like to ask a question, please press star one on your telephone keypad. We will pause for just a moment to compile some further questions. There are no further questions at this time. I'd like to hand the conference back to management for some final closing comments.
Thank you again for joining our call today. If you have any further questions, please feel free to contact us or request through our website. We look forward to speaking with everyone in our next call. Have a good day.
This concludes today's conference call. Thank you for attending. You may now disconnect.