Perfect(PERF) - 2024 Q2 - Quarterly Report

Executive Summary & Highlights Perfect Corp. reported strong Q2 2024 financial and operational growth, achieving net income and robust top-line expansion driven by AI/AR solutions and subscription revenue Highlights for Q2 2024 Perfect Corp. reported strong financial and operational growth for Q2 2024, with increased revenue, gross profit, and a shift from net loss to net income, alongside significant mobile app subscriber growth despite a slight decrease in Key Customers Financial Highlights for Q2 2024 (YoY Comparison) | Metric | Q2 2024 (USD) | Q2 2023 (USD) | Change (%) | | :----------------- | :------------ | :------------ | :--------- | | Total Revenue | $13.9 million | $12.7 million | 9.6% | | Gross Profit | $11.0 million | $10.2 million | 7.8% | | Net Income (Loss) | $0.8 million | ($0.2 million)| N/A | | Adjusted Net Income| $1.3 million | $0.9 million | 43.8% | | Operating Cash Flow| $2.0 million | $2.6 million | -24.6% | - Key Customers decreased slightly to 151 as of June 30, 2024, from 152 as of March 31, 2024, primarily due to non-renewal of contracts by certain brand clients facing financial pressure[3] - Cumulative customer base grew to 686 brand clients (from 666) with over 774,000 digital SKUs (from 745,000) as of June 30, 2024[3] - YouCam mobile beauty app active subscribers reached a record high of over 919,000, an 18.3% year-over-year growth[3] CEO Commentary Ms. Alice H. Chang, CEO, highlighted robust top-line growth in H1 2024, driven by AI- and AR-powered cloud solutions and subscription revenue, emphasizing improved efficiencies and ongoing AI innovations for sustained growth - Achieved robust top-line growth in the first half of 2024, aligning with annual targets, driven by AI- and AR-powered cloud solutions, subscription revenue, and rapid advancements in AI technologies[4] - Improved efficiencies across key financial metrics including net income, net margins, operating income, and positive cash flow, strengthening the balance sheet[4] - Strategic process improvements and leveraging advanced technologies streamlined workflows, reduced operational costs, and boosted productivity[4] - Well-positioned to sustain business growth and deliver value to customers and shareholders throughout the latter half of 2024 and beyond, supported by a proven track record and ongoing AI innovations[4] Financial Performance Analysis (Three Months Ended June 30, 2024) The company demonstrated strong financial performance in Q2 2024, marked by significant revenue growth, improved net income, and strategic cost management across operating expenses Revenue Total revenue for Q2 2024 increased by 9.6% year-over-year, primarily driven by strong growth in AI- and AR- cloud solutions and mobile app subscriptions, while licensing revenue saw a significant decline Total Revenue (Q2 2024 vs. Q2 2023) | Metric | Q2 2024 (USD) | Q2 2023 (USD) | Change (%) | | :------------ | :------------ | :------------ | :--------- | | Total Revenue | $13.9 million | $12.7 million | 9.6% | AI- and AR- Cloud Solutions and Subscription Revenue This segment experienced double-digit growth, fueled by strong demand for virtual try-on solutions, YouCam app subscriptions, and the increasing popularity of Gen AI technologies AI- and AR- Cloud Solutions and Subscription Revenue (Q2 2024 vs. Q2 2023) | Metric | Q2 2024 (USD) | Q2 2023 (USD) | Change (%) | | :----------------------------------------- | :------------ | :------------ | :--------- | | AI- and AR- cloud solutions and subscription revenue | $12.9 million | $11.0 million | 17.4% | - Double-digit growth was driven by robust demand for online virtual product try-on solutions from brand customers, strong momentum in YouCam mobile beauty app subscriptions, and growing popularity of Gen AI technologies and AI editing features[6] - YouCam mobile beauty app active subscribers grew by 18.3% year-over-year, reaching over 919,000 active subscribers[6] Licensing Revenue Licensing revenue significantly declined, with the company anticipating its decreasing importance as it shifts focus to AI- and AR- SaaS subscription solutions Licensing Revenue (Q2 2024 vs. Q2 2023) | Metric | Q2 2024 (USD) | Q2 2023 (USD) | Change (%) | | :--------------- | :------------ | :------------ | :--------- | | Licensing Revenue| $0.7 million | $1.4 million | -49.8% | - The Company expects this legacy non-recurring revenue to become increasingly insignificant as it focuses on AI- and AR- SaaS subscription solutions[7] Gross Profit Gross profit increased by 7.8% year-over-year, reaching $11.0 million, though gross margin slightly decreased to 79.3% due to higher third-party payment processing fees associated with mobile app subscription growth Gross Profit and Margin (Q2 2024 vs. Q2 2023) | Metric | Q2 2024 (USD) | Q2 2023 (USD) | Change (%) | | :----------- | :------------ | :------------ | :--------- | | Gross Profit | $11.0 million | $10.2 million | 7.8% | | Gross Margin | 79.3% | 80.6% | -1.3 pp | - Gross margin slightly decreased primarily due to an increase in third-party payment processing fees paid to digital distribution partners (Google and Apple) related to the growth in mobile app subscription revenue[8] Operating Expenses Total operating expenses saw a marginal increase of 0.7% year-over-year, driven by higher sales and marketing and R&D expenses, partially offset by a decline in general and administrative expenses Total Operating Expenses (Q2 2024 vs. Q2 2023) | Metric | Q2 2024 (USD) | Q2 2023 (USD) | Change (%) | | :--------------------- | :------------ | :------------ | :--------- | | Total Operating Expenses | $12.4 million | $12.3 million | 0.7% | - The increase was primarily due to higher sales and marketing expenses and research and development expenses, partially offset by a decline in general and administrative expenses[9] Sales and Marketing Expenses Sales and marketing expenses increased, primarily driven by higher costs for marketing events, mobile app advertising, and cloud computing Sales and Marketing Expenses (Q2 2024 vs. Q2 2023) | Metric | Q2 2024 (USD) | Q2 2023 (USD) | Change (%) | | :------------------------- | :------------ | :------------ | :--------- | | Sales and Marketing Expenses | $7.0 million | $6.6 million | 7.0% | - Increase largely due to higher marketing events, advertising costs for mobile apps, and cloud computing costs[9] Research and Development Expenses Research and development expenses rose, mainly attributed to an increase in R&D headcount Research and Development Expenses (Q2 2024 vs. Q2 2023) | Metric | Q2 2024 (USD) | Q2 2023 (USD) | Change (%) | | :----------------------------- | :------------ | :------------ | :--------- | | Research and Development Expenses | $3.0 million | $2.8 million | 7.5% | - Increase primarily resulted from an increase in R&D headcount[9] General and Administrative Expenses General and administrative expenses decreased, primarily due to lower corporate insurance costs and enhanced operational efficiencies General and Administrative Expenses (Q2 2024 vs. Q2 2023) | Metric | Q2 2024 (USD) | Q2 2023 (USD) | Change (%) | | :--------------------------------- | :------------ | :------------ | :--------- | | General and Administrative Expenses | $2.4 million | $3.0 million | -19.1% | - Decrease primarily due to lower corporate insurance expenses and enhanced operational efficiencies[10] Net Income Perfect Corp. achieved a net income of $0.8 million in Q2 2024, a significant improvement from a net loss of $0.2 million in the prior year, attributed to continued revenue growth and effective cost control Net Income (Q2 2024 vs. Q2 2023) | Metric | Q2 2024 (USD) | Q2 2023 (USD) | | :--------- | :------------ | :------------ | | Net Income | $0.8 million | ($0.2 million)| - The positive net income was supported by continued revenue growth and effective cost control[11] Adjusted Net Income (Non-IFRS) Adjusted net income (non-IFRS) increased by 43.8% year-over-year, reaching $1.3 million in Q2 2024, demonstrating strong underlying profitability Adjusted Net Income (Non-IFRS) (Q2 2024 vs. Q2 2023) | Metric | Q2 2024 (USD) | Q2 2023 (USD) | Change (%) | | :----------------- | :------------ | :------------ | :--------- | | Adjusted Net Income| $1.3 million | $0.9 million | 43.8% | Liquidity and Financial Position The company maintains a robust financial position with substantial cash reserves and positive operating cash flow, reflecting healthy liquidity and a growing equity base Liquidity Overview Perfect Corp. maintained a healthy cash reserve with $120.8 million in cash and cash equivalents as of June 30, 2024, and generated positive operating cash flow, indicating operational health and sustainability Cash and Cash Equivalents (Q2 2024 vs. Q1 2024) | Metric | June 30, 2024 (USD) | March 31, 2024 (USD) | | :----------------------------------- | :------------------ | :------------------- | | Cash and cash equivalents | $120.8 million | $122.0 million | | Total cash (incl. 6-month time deposits) | $158.8 million | $157.3 million | Operating Cash Flow (Q2 2024 vs. Q2 2023) | Metric | Q2 2024 (USD) | Q2 2023 (USD) | Change (%) | | :----------------- | :------------ | :------------ | :--------- | | Operating Cash Flow| $2.0 million | $2.6 million | -24.6% | - The total increase in cash, cash equivalents, and 6-month time deposits resulted from positive operating cash flow and interest income from bank deposits[13] Balance Sheet Summary The company's balance sheet shows a slight increase in total assets and total liabilities from December 31, 2023, to June 30, 2024, with total equity also growing Key Balance Sheet Figures (as of June 30, 2024 vs. Dec 31, 2023) | Metric | June 30, 2024 (USD) | Dec 31, 2023 (USD) | | :----------------- | :------------------ | :----------------- | | Total Assets | $173,830 thousand | $170,363 thousand | | Total Liabilities | $31,844 thousand | $30,957 thousand | | Total Equity | $141,986 thousand | $139,406 thousand | Business Outlook Perfect Corp. reiterates its full-year 2024 revenue growth guidance, expecting a 12% to 16% year-over-year increase, based on strong momentum in enterprise SaaS solutions and YouCam mobile app subscriptions - Reiterates expectation for year-over-year total revenue growth rate in 2024 to range from 12% to 16% compared to 2023[14] - Forecast is based on growth momentum in both enterprise SaaS solution demands and YouCam mobile apps subscriptions during the first half of 2024[14] Company Information & Disclosures This section provides an overview of Perfect Corp.'s business, outlines disclaimers for forward-looking statements, and clarifies the use and limitations of non-IFRS financial measures About Perfect Corp. Perfect Corp. is a global leader in AI and AR SaaS solutions for the beauty and fashion industries, empowering brands with omnichannel shopping experiences and operating consumer apps like YouCam, while committing to sustainability - Founded in 2015, Perfect Corp. is a global leader in enterprise SaaS solutions, leveraging AI to transform beauty and fashion industries[16] - Empowers major beauty, skincare, fashion, and jewelry brands with omnichannel shopping experiences through AR product try-ons and AI-powered skin diagnostics[16] - Operates YouCam consumer apps for photo, video, and camera users, focused on AI-driven features for creativity, beautification, and enhancement[16] Forward-Looking Statements This section contains a standard disclaimer regarding forward-looking statements, highlighting inherent risks and uncertainties that may cause actual results to differ materially from projections, and states that the company does not intend to update these statements - Statements are based on beliefs and assumptions, involving risks, uncertainties, and other factors that may cause actual results to differ materially[17][18] - New uncertainties and risks arise continually, and the company does not have any duty to, and does not intend to, update or revise forward-looking statements after the communication date[18] Use of Non-IFRS Financial Measures This section defines non-IFRS financial measures, specifically adjusted net income, and explains their use as supplemental metrics for assessing operating performance and strategic planning, while acknowledging their limitations compared to IFRS measures - Adjusted net income (loss) is defined as net income (loss) excluding one-off transaction costs, non-cash equity-based compensation, and non-cash valuation (gain)/loss of financial liabilities[19] - Non-IFRS measures are not defined under IFRS and have limitations as analytical tools, but provide useful information for understanding operations, evaluating performance, and internal management decisions[20] - Starting from Q1 2024, foreign exchange gain (loss) is no longer excluded from adjusted net income (loss) due to its immateriality since the transition to USD as functional currency for certain subsidiaries[19] Unaudited Consolidated Financial Statements This section presents the unaudited consolidated financial statements, including balance sheets, statements of comprehensive income, cash flows, and reconciliation of non-IFRS measures Consolidated Balance Sheets The unaudited consolidated balance sheets present the financial position of Perfect Corp. and its subsidiaries as of December 31, 2023, and June 30, 2024, detailing assets, liabilities, and equity PERFECT CORP. AND SUBSIDIARIES UNAUDITED CONSOLIDATED BALANCE SHEETS (Expressed in thousands of United States dollars) | Assets | December 31, 2023 Amount | June 30, 2024 Amount | | :------------------------------------------- | :----------------------- | :------------------- | | Cash and cash equivalents | $123,871 | $120,796 |\ | Current financial assets at amortized cost | 30,300 | 37,970 |\ | Current contract assets | 2,770 | 1,543 |\ | Accounts receivable | 6,992 | 7,102 |\ | Other receivables | 343 | 737 |\ | Current income tax assets | 311 | 281 |\ | Inventories | 33 | 21 |\ | Other current assets | 4,042 | 2,832 |\ | Total current assets | 168,662 | 171,282 |\ | Property, plant and equipment | 380 | 545 |\ | Right-of-use assets | 847 | 679 |\ | Intangible assets | 77 | 57 |\ | Deferred income tax assets | 257 | 1,120 |\ | Guarantee deposits paid | 140 | 147 |\ | Total non-current assets | 1,701 | 2,548 |\ | Total assets | $170,363 | $173,830 |\ \ | Liabilities and Equity | December 31, 2023 Amount | June 30, 2024 Amount | | :------------------------------------------- | :----------------------- | :------------------- | | Current contract liabilities | $15,346 | $16,858 |\ | Other payables | 10,331 | 10,239 |\ | Other payables – related parties | 50 | 50 |\ | Current tax liabilities | 21 | 390 |\ | Current provisions | 2,394 | 1,775 |\ | Current lease liabilities | 481 | 524 |\ | Other current liabilities | 277 | 195 |\ | Total current liabilities | 28,900 | 30,031 |\ | Non-current financial liabilities at fair value through profit or loss | 1,566 | 1,520 |\ | Non-current lease liabilities | 387 | 187 |\ | Net defined benefit liability, non-current | 79 | 81 |\ | Guarantee deposits received | 25 | 25 |\ | Total non-current liabilities | 2,057 | 1,813 |\ | Total liabilities | 30,957 | 31,844 |\ | Capital stock | | |\ | Perfect Class A Ordinary Shares, $0.1 par value | 8,513 | 8,506 |\ | Perfect Class B Ordinary Shares, $0.1 par value | 1,679 | 1,679 |\ | Capital surplus | 510,399 | 511,653 |\ | Accumulated deficit | (380,472) | (379,078) |\ | Other equity interest | (523) | (774) |\ | Treasury shares | (190) | — |\ | Total equity | 139,406 | 141,986 |\ | Total liabilities and equity | $170,363 | $173,830 | Consolidated Statements of Comprehensive Income The unaudited consolidated statements of comprehensive income detail the revenues, expenses, and net income (loss) for the three and six months ended June 30, 2023, and 2024, showing a shift to positive net income in 2024 PERFECT CORP. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Expressed in thousands of United States dollars) | Items | Three months ended June 30
2023 Amount | 2024 Amount | Six months ended June 30
2023 Amount | 2024 Amount | | :----------------------------------------------------------------- | :--------------------------------------- | :---------- | :--------------------------------------- | :---------- | | Revenue | $12,687 | $13,905 | $24,832 | $28,194 |\ | Cost of sales and services | (2,455) | (2,876) | (5,024) | (5,971) |\ | Gross profit | 10,232 | 11,029 | 19,808 | 22,223 |\ | Operating expenses | | | | |\ | Sales and marketing expenses | (6,558) | (7,014) | (12,585) | (14,184) |\ | General and administrative expenses | (3,014) | (2,439) | (5,427) | (4,614) |\ | Research and development expenses | (2,767) | (2,975) | (5,396) | (6,010) |\ | Total operating expenses | (12,339) | (12,428)| (23,408) | (24,808)|\ | Operating loss | (2,107) | (1,399) | (3,600) | (2,585) |\ | Non-operating income and expenses | | | | |\ | Interest income | 2,411 | 1,983 | 4,609 | 3,952 |\ | Other income | 5 | 12 | 7 | 14 |\ | Other gains and losses | (474) | 25 | (459) | (291) |\ | Finance costs | (3) | (5) | (5) | (10) |\ | Total non-operating income and expenses | 1,939 | 2,015 | 4,152 | 3,665 |\ | Income (loss) before income tax | (168) | 616 | 552 | 1,080 |\ | Income tax benefit (expense) | (38) | 148 | (63) | 314 |\ | Net income (loss) | $(206) | $764 | $489 | $1,394 |\ | Other comprehensive income (loss) | | | | |\ | Exchange differences arising on translation of foreign operations | $(170)$ | $(111)$ | $(168)$ | $(251)$ |\ | Other comprehensive loss, net | $(170) | $(111) | $(168) | $(251) |\ | Total comprehensive income (loss) | $(376) | $653 | $321 | $1,143 |\ | Net income (loss), attributable to: | | | | |\ | Shareholders of the parent | $(206)$ | $764 | $489 | $1,394 |\ | Total comprehensive income (loss) attributable to: | | | | |\ | Shareholders of the parent | $(376)$ | $653 | $321 | $1,143 |\ | Earnings (loss) per share (in dollars) | | | | |\ | Basic earnings (loss) per share of Class A and Class B Ordinary Shares | $(0.002)$ | $0.008 | $0.004 | $0.014 |\ | Diluted earnings (loss) per share of Class A and Class B Ordinary Shares | $(0.002)$ | $0.008 | $0.004 | $0.014 | Consolidated Statements of Cash Flows The unaudited consolidated statements of cash flows provide a breakdown of cash generated from operating, investing, and financing activities for the three and six months ended June 30, 2023, and 2024 PERFECT CORP. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (Expressed in thousands of United States dollars) | Items | Three months
2023 Amount | ended June 30
2024 Amount | Six months
2023 Amount | ended June 30
2024 Amount | | :--------------------------------------------------------------------- | :------------------------- | :-------------------------- | :------------------------- | :-------------------------- | | CASH FLOWS FROM OPERATING ACTIVITIES | | | | |\ | Profit (loss) before tax | $(168)$ | $616 | $552 | $1,080 |\ | Adjustments to reconcile profit (loss) | | | | |\ | Depreciation expense | 157 | 178 | 326 | 344 |\ | Amortization expense | 19 | 13 | 37 | 26 |\ | Interest income | (2,411) | (1,983) | (4,609) | (3,952) |\ | Interest expense | 3 | 5 | 5 | 10 |\ | Net (gains) losses on financial liabilities at fair value through profit or loss | 296 | (150) | 244 | (46) |\ | Share-based payment transactions | 791 | 653 | 1,441 | 1,437 |\ | Changes in operating assets and liabilities | | | | |\ | Accounts receivable | 1,716 | 589 | 87 | (134) |\ | Current contract assets | 601 | 699 | 2,130 | 1,214 |\ | Other receivables | — | — | 3 | — |\ | Inventories | 4 | 7 | 11 | 12 |\ | Other current assets | (152) | 661 | 47 | 1,210 |\ | Current contract liabilities | (1,143) | (1,314) | 3,035 | 1,622 |\ | Other payables | 669 | 536 | (1,183) | (51) |\ | Other payables – related parties | (36) | 2 | (12) | 3 |\ | Current provisions | 143 | (379) | 320 | (563) |\ | Other current liabilities | (20) | (23) | (107) | (67) |\ | Net defined benefit liability, non-current | — | — | 1 | 1 |\ | Cash inflow generated from operations | 469 | 110 | 2,328 | 2,146 |\ | Interest received | 2,208 | 1,953 | 4,331 | 3,558 |\ | Interest paid | (3) | (5) | (5) | (10) |\ | Income tax paid | (26) | (62) | (205) | (176) |\ | Net cash flows from operating activities | 2,648 | 1,996 | 6,449 | 5,518 |\ | CASH FLOWS FROM INVESTING ACTIVITIES | | | | |\ | Acquisition of financial assets at amortized cost | (89,800) | (33,470) | (160,800) | (44,470) |\ | Proceeds from disposal of financial assets at amortized cost | 30,000 | 30,800 | 30,000 | 36,800 |\ | Acquisition of property, plant and equipment | (15) | (174) | (170) | (259) |\ | Acquisition of intangible assets | — | (6) | (33) | (6) |\ | Increase in guarantee deposits paid | — | (8) | — | (8) |\ | Net cash flows used in investing activities | (59,815) | (2,858) | (131,003) | (7,943) |\ | CASH FLOWS FROM FINANCING ACTIVITIES | | | | |\ | Repayment of principal portion of lease liabilities | (100) | (123) | (203) | (239) |\ | Payments to acquire treasury shares | (429) | — | (429) | — |\ | Net cash flows used in financing activities | (529) | (123) | (632) | (239) |\ | Effects of exchange rates changes on cash and cash equivalents | (253) | (179) | (262) | (411) |\ | Net decrease in cash and cash equivalents | (57,949) | (1,164) | (125,448) | (3,075) |\ | Cash and cash equivalents at beginning of period | 95,117 | 121,960 | 162,616 | 123,871 |\ | Cash and cash equivalents at end of period | $37,168 | $120,796 | $37,168 | $120,796 | Reconciliation of Non-IFRS Financial Measures This section provides a detailed reconciliation of net income (loss) to adjusted net income (loss) for the three and six months ended June 30, 2023, and 2024, outlining the specific adjustments made PERFECT CORP. AND SUBSIDIARIES UNAUDITED RECONCILIATION OF NON-IFRS FINANCIAL MEASURES – ADJUSTED NET INCOME CALCULATION (Expressed in thousands of United States dollars) | Items | Three months ended June 30
2023 Amount | 2024 Amount | Six months ended June 30
2023 Amount | 2024 Amount | | :------------------------------------------------ | :------------------------- | :---------- | :------------------------- | :---------- | | Net Income (Loss) | $(206)$ | $764 | $489 | $1,394 |\ | One-off Transaction Costs | — | — | 33 | — |\ | Non-Cash Equity-Based Compensation | 791 | 653 | 1,441 | 1,437 |\ | Non-Cash Valuation (Gain)/Loss of financial liabilities | 296 | (150) | 244 | (46) |\ | Adjusted Net Income (Loss) | $881 | $1,267 | $2,207 | $2,785 | - A retrospective adjustment was made to adjusted net income for the six months ended June 30, 2023, to no longer exclude foreign exchange gain (loss), in accordance with the changed definition of 'adjusted net income (loss)'[34]