Summary of Perfect Corp (PERF) FY Conference Call - August 26, 2025 Company Overview - Perfect Corp is a Taiwan-based company with approximately 400 employees, primarily focused on R&D in the beauty and fashion app space [2][3] - The company was founded a decade ago and initially operated as an app maker before transitioning to B2B software solutions for beauty brands [4][5] Revenue Breakdown - Revenue sources: Approximately 50% from the US, 30% from the EU, and 20% from Japan [4][5] - Initial revenue breakdown at listing (2022): 75% B2B and 25% B2C; as of 2023, it has shifted to roughly 50% B2B and 50% B2C, with projections for 2024 indicating 60% B2C and 40% B2B [7][8] - B2C apps operate on a freemium model, with subscription prices increasing from $5-$7 to $79 per year [8][9] Product Offerings - B2C apps include "You Can Makeup" and "You Can Perfect," focusing on photo editing and virtual try-ons [6][9] - B2B services include virtual try-ons for makeup and skin analysis, with clients such as Estee Lauder, LVMH, and Chanel [7][19] - The company has over 800 brand clients and 914,000 SKUs running on its software, showing a growth of over 20% in brand clients since 2021 [19][20] Financial Performance - 2024 growth rate: 12.5%; guidance for 2025 is 13% to 14.5% [25][26] - Gross margin decreased from 79% to 75% year-over-year due to lower margins in B2C compared to B2B [26][27] - Positive operating cash flow with $167 million in cash and cash equivalents [28] Strategic Initiatives - Recent acquisition of Wana for $6 million to enhance offerings in AIAR technology for luxury brands [24] - Focus on reinvesting in R&D for premium Gen AI features and expanding B2B client base [29][30] Market Challenges - The company faces macroeconomic pressures affecting clients like Estee Lauder and LVMH, leading to tighter budgets [42] - Currency exchange issues due to the appreciation of the Taiwanese dollar impacting operational costs [28][29] Competitive Landscape - The company maintains a 90% retention rate in B2B, indicating strong client loyalty [47] - Differentiation from competitors lies in continuous R&D investment and user-friendly app design [44][45] Technology and Innovation - The company is exploring advancements in 3D virtual try-ons for clothing, although current technology is not yet ready for full implementation [37][38] - Color calibration challenges exist across different devices, particularly on Android, requiring significant investment in accuracy [50][51] Conclusion - Perfect Corp is positioned for growth with a strong focus on B2C expansion and innovative technology solutions, despite facing market challenges and competitive pressures [30][42]

Market Trends - Chinese consumers are shifting from Western luxury brands to domestic brands [1] Competitive Landscape - Homegrown brands are challenging established players like Cartier and Yves Saint Laurent [1]

Market Trends - Chinese consumers are shifting from Western luxury brands to domestic brands [1] Competitive Landscape - Homegrown brands are challenging established players like Cartier and Yves Saint Laurent [1]

Data Breach Incidents - Louis Vuitton (LVHK) experienced a data breach affecting approximately 420 thousand Hong Kong customers [1] - The leaked data includes customer names, passport numbers, dates of birth, addresses, email addresses, phone numbers, shopping records, and product preferences [1] - Cartier also experienced a data breach affecting a portion of its global customer base [1] Regulatory Scrutiny - Hong Kong's Privacy Commissioner for Personal Data has initiated an investigation into LVHK regarding the data breach, including potential delays in reporting [1] Data Leaked Details - Cartier data breach included customer names and dates of birth, but reportedly did not involve passwords, credit card, or banking information [1]

Core Insights - The definition of "luxury" has evolved beyond material possessions, encompassing a narrative system involving history, identity, art, and culture, with Western luxury brands dominating this space [1][2] - Chinese craft and art brands face challenges in establishing a strong narrative to compete in the global high-end market, despite having a rich historical background [3][4] Group 1: Western Luxury Brand Strategies - Western luxury brands like LVMH and Chanel leverage their historical craftsmanship and cultural narratives to build brand credibility and identity [2] - These brands often emphasize their long-standing traditions and artistic connections, which enhance their cultural capital and consumer appeal [2] Group 2: Challenges for Chinese Craft Brands - Chinese craft brands possess a long history but struggle with narrative construction, leading to a perception of their products as mere collectibles rather than luxury items [4][7] - The lack of a compelling story and brand identity hinders the ability of Chinese craft brands to penetrate the high-end market [4][7] Group 3: Building a New Luxury Narrative - To succeed, Chinese craft brands must draw inspiration from their cultural heritage while adopting contemporary design and global expressions to create a new luxury narrative [7][9] - Successful examples include Qeelin, which integrates traditional Chinese symbols with modern aesthetics, and brands like "观夏" that create a blend of traditional and modern experiences [8][9] Group 4: Globalization and Cultural Mission - The globalization of Chinese craft brands is not only a commercial endeavor but also a cultural mission, emphasizing the importance of storytelling in the luxury context [10] - Brands should utilize global communication mechanisms to transform local culture into an internationally understood luxury experience [9][10]

Group 1 - Tmall 618 event officially starts at 8 PM, featuring a simplified "85% off" discount rule, allowing consumers to stack multiple discounts for better deals [1] - A total of 13,577 official subsidy coupons across various categories such as beauty, apparel, and electronics, with lower thresholds and greater discounts compared to previous years [1] - Notable brands like DJI, Nintendo, and Cartier will launch 1.09 million new products during the event, with significant discounts on high-demand items [1] Group 2 - iPhone 16 Pro enters the national subsidy program, with a promotional price of 5,499 yuan after discounts, representing a 31% reduction from the original price of 7,999 yuan [2] - Each 88VIP member can receive up to 820 yuan in large consumption coupons, enhancing the overall value for consumers [2] - The 618 "Early Purchase" event started on May 13 and will run until May 26, indicating a longer promotional period for consumers [4]

Core Viewpoint - The luxury goods industry is experiencing a temporary cooling period, but this is seen as a market adjustment rather than a long-term trend. The demand for luxury goods is deeply rooted in human nature and transcends economic conditions [1][2][15]. Group 1: Market Resilience - Historical data shows that the luxury goods market has consistently demonstrated strong recovery after crises, such as the 2009 financial crisis and the 2020 pandemic, with a compound annual growth rate of over 5% since 2000 [3][15]. - The luxury goods sector is characterized by a unique ability to rebound, as evidenced by brands like Hermès and Bottega Veneta, which have thrived even during downturns by maintaining exclusivity and quality [3][12][13]. Group 2: Consumer Demographics - The primary consumers of luxury goods include ultra-high-net-worth individuals, stable high-net-worth individuals, and culturally aware middle-class consumers, who are less affected by economic downturns [6][8]. - Emerging markets, particularly in Asia, are seeing a rise in affluent consumers, while the "Henry" group in the U.S. represents a significant target demographic for luxury brands [8][21]. Group 3: Brand Dynamics - Luxury brands possess a strong competitive advantage through their historical narratives and cultural significance, which create a protective moat against market fluctuations [9][12]. - The luxury sector benefits from absolute pricing power and supply control, allowing brands to maintain exclusivity and resist deflationary pressures [12][13]. Group 4: Current Market Trends - The current downturn in the luxury market is viewed as a necessary cleansing process, eliminating unsustainable growth patterns and allowing for a focus on high-quality brands [15][16]. - The luxury industry is entering an era dominated by "super brands," which are outperforming the market average due to their scale, brand equity, and emotional connection with consumers [20]. Group 5: Future Opportunities - New growth drivers are emerging in the luxury market, particularly in regions like China, Southeast Asia, and the Middle East, as well as among younger generations who prioritize sustainability and personalization [21]. - The luxury goods sector is adapting its value system and growth logic to align with evolving consumer demands, indicating a robust long-term outlook despite short-term fluctuations [21].

Group 1 - Wahaha responded to recent media concerns regarding factory shutdowns and employee complaints, stating that adjustments in product structure were necessary due to rapid market demand growth, leading to capacity constraints [1] - The company has initiated measures such as outsourcing production, upgrading equipment, and investing in new factories to alleviate capacity issues and enhance market responsiveness [1] - Wahaha's internal compliance reforms, while causing short-term challenges, are expected to contribute to building a modern industrial system and improving competitiveness in the long run [1] Group 2 - Meizu issued a statement clarifying that it has never planned to eliminate its mobile phone business, countering false claims circulating on social media that could harm its brand reputation [2] - The company's prompt clarification reflects its confidence in maintaining brand integrity and business development amidst the rapid spread of misinformation [2] - This action not only curbs the spread of rumors but also sends a positive signal to the market, helping to stabilize consumer and partner confidence [2] Group 3 - Over 100 luxury brands, including BV, Cartier, and Valentino, are set to launch new products during the upcoming Tmall "618" shopping festival, coinciding with the "520" Chinese Valentine's Day [3] - The exclusive online debut of over a thousand products on Tmall highlights the increasing importance of e-commerce channels in luxury goods sales and the brands' focus on the Chinese market [3] - This trend indicates a deepening integration between luxury brands and Chinese e-commerce platforms, enhancing brand exposure and market influence [3] Group 4 - Shanghai Lego Land has implemented a real-name ticketing system in response to illegal resale attempts of trial operation tickets, emphasizing that these tickets are not for public sale [4] - The proactive management of ticket sales aims to curb scalping practices and protect the rights of legitimate consumers, setting a standard for ticket management in the industry [4] - By restricting trial operation tickets to specific users, the park safeguards the exclusive rights of annual pass holders and hotel package guests, while also protecting its brand image from market price distortions [4]

Financial Data and Key Metrics Changes - Revenue in Q1 was approximately $286 million, reflecting a 32% year-over-year increase, primarily driven by the acquisition of Teads [19][20] - X TAC gross profit for the quarter was $103.1 million, an increase of 98% year-over-year, indicating that profit growth is outpacing revenue growth [21][22] - Adjusted EBITDA for Q1 was $10.7 million, representing a greater than 7x increase year-over-year [23] Business Line Data and Key Metrics Changes - The company closed Q1 with over 50 Joint Business Partnerships (JBPs), including new commitments with major brands like Ferrero and Philip Morris International [11] - CTV revenue grew over 100% year-over-year, now representing approximately 5% of total ad spend [14] Market Data and Key Metrics Changes - The U.S. business, which represents around 30% of total revenue, showed improvement in trends during Q1 [20] - The company has access to over 300 million TV screens globally, with significant partnerships enhancing its CTV offerings [14] Company Strategy and Development Direction - The vision for the new Teads is to create an open Internet advertising platform that connects fragmented channels to drive measurable business outcomes [6][9] - The company is focused on integration, efficiency, and execution post-merger, aiming for $60 million in annualized cost savings by 2026 [15][23] Management's Comments on Operating Environment and Future Outlook - Management noted improvements in demand levels and positive trends in the legacy Teads business since the merger [29][44] - The company expects to see continued growth in the second half of the year, driven by cross-selling opportunities and improved performance metrics [70][73] Other Important Information - The company recognized $16 million in acquisition-related costs and $7 million in restructuring charges during the quarter [22] - Free cash flow was a use of cash of approximately $7 million, impacted by acquisition-related costs [24] Q&A Session Summary Question: Can you expand on the macro environment and advertiser focus between brand and performance? - Management observed improvements in demand levels and noted that advertisers are scrutinizing their budgets more closely, which is seen as a positive for the company [29][31] Question: How much of the JVP wins are a result of the new combination versus existing pipeline? - Management indicated that the growth in JVPs is a combination of the merger's value proposition and existing relationships, with significant excitement around the combined capabilities [36][38] Question: Can you discuss the trends in the legacy Teads business? - Management highlighted that the legacy Teads business has shown month-over-month improvement since the merger, with a focus on execution and restructuring contributing to this growth [44] Question: What is the strategy for expanding the Moments vertical video product? - The company views vertical video as a significant growth opportunity and plans to invest in expanding this product across new publishers [64] Question: How does the Google lawsuit ruling impact the company? - Management believes the ruling could provide a headwind to SSPs, potentially benefiting the company due to its exclusive supply relationships [62] Question: What are the near-term opportunities for the CTV business? - The company sees significant potential in performance CTV, leveraging its unique capabilities and partnerships to capture market share [76]

Financial Data and Key Metrics Changes - Revenue in Q1 was approximately $286 million, reflecting a 32% year-over-year increase, primarily driven by the acquisition of Teads [16] - X TAC gross profit for the quarter was $103.1 million, an increase of 98% year-over-year, indicating that profit growth is outpacing revenue growth [18] - Adjusted EBITDA for Q1 was $10.7 million, representing a greater than 7x increase year-over-year [20] Business Line Data and Key Metrics Changes - The company closed Q1 with more than 50 Joint Business Partnerships (JBTs), including commitments from major brands like Ferrero and Philip Morris International [9] - CTV revenue grew over 100% year-over-year, now representing approximately 5% of total ad spend [12] - The marketing campaign objectives are balanced, with approximately two-thirds of spend on performance campaigns and one-third on branding campaigns [8] Market Data and Key Metrics Changes - The U.S. business, which represents around 30% of total revenue, showed improvement in trends during Q1 [17] - The company has access to over 300 million TV screens globally, with significant partnerships enhancing its CTV offerings [12] Company Strategy and Development Direction - The vision for the new Teads is to create an open Internet advertising platform that connects fragmented channels to drive real business outcomes [5] - The company is focused on integration, efficiency, and execution post-merger, aiming for $60 million in annualized cost savings by 2026 [13] - The strategy includes leveraging proprietary data and AI to optimize advertising outcomes across various platforms [6][14] Management's Comments on Operating Environment and Future Outlook - Management noted that while there is a shortening of planning and buying cycles, they have not seen a meaningful impact on results due to macroeconomic conditions [27] - The company expects to achieve adjusted EBITDA of at least $180 million for the full year 2025, despite uncertainties in the market [24] - Management expressed confidence in capturing market share as advertisers scrutinize their ad spend, aligning with the company's mission [22] Other Important Information - The company recognized $16 million in acquisition-related costs and $7 million in restructuring charges during the quarter [19] - Free cash flow was a use of cash of approximately $7 million, impacted by acquisition-related costs [21] Q&A Session Summary Question: Can you expand on the macro environment and how advertisers are focusing on brand versus performance? - Management observed improvements in demand levels and a positive trend in the legacy Teads business, with performance holding up better than branding [27][28] Question: How much of the JBT wins are a result of the new combination versus existing pipeline? - The growth in JBTs is attributed to the combined value proposition of performance and branding, with significant excitement from clients [35][36] Question: Can you discuss the trends in the legacy Teads business and the opportunity with larger clients? - Management noted month-over-month improvements in the legacy Teads business since the merger, with a focus on gaining more share of wallet from both large and small clients [42][44] Question: What is the path from meetings to revenue generation? - Management indicated that sales are expected to ramp up exponentially in the second half of the year, with some sales already occurring [49] Question: How does the Google lawsuit ruling impact Teads? - The ruling is seen as a positive for the overall ecosystem, with Teads benefiting from its exclusive supply relationships [60] Question: What is the strategy for expanding the Moments vertical video product? - The strategy includes leveraging vertical video as a significant growth driver, with plans to invest in various vertical video opportunities [63]