Good morning and good evening, ladies and gentlemen. Thank you for standing by, and welcome to the Perfect Corp.'s Earnings Conference Call. Please note that today's event is being recorded. I will now turn the conference over to the first speaker today, Ms. Jennifer Wu, IR Manager of the company. Please go ahead.

Thank you, and hello, everyone, and welcome to Perfect Corp.'s earnings call. With us today are Ms. Alice Chang, our Founder and Chairwoman and Chief Executive Officer; Mr. Louis Chen, Executive Vice President and Chief Strategy Officer; and Ms. Iris Chen, Vice President of Finance and Accounting. You can refer to our fourth quarter and full year 2023 financial results on our IR website or in the Form 6-K we filed with SEC earlier. You can later access a replay of this call on our IR website shortly after the conclusion of this call. For today's call, management will provide their prepared remarks first, and then we will host a question-and-answer session. Before we continue, I would like to refer you to our safe harbor statement in our earnings press release, which also applies to this call, as this call may contain forward-looking statements regarding Perfect Corp.'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's prepared remarks are in U.S. dollar terms, and we will discuss non-IFRS measures today. Without further ado, I will now turn the call to our first speaker today, our CEO, Ms. Alice Chang.

Hi. Thank you very much, and welcome to Perfect Corp.'s 2023 fourth quarter earnings call. We have some very good news to share with you today. Let's get started. We ended 2023 with a strong fourth quarter. Our fourth quarter revenue grew by 27.6% year-over-year to $14.1 million, and our net income was positive at $1.4 million. Our full year results were promising too, as our full year 2023 revenue increased by 13.1% year-over-year to $53.5 million, and our full year 2023 net income was positive at $5.4 million. The company operating cash flow had a net inflow of positive $13.6 million, as a result of our robust business model. The increases were driven by the strong momentum in our AI/AR cloud solutions and subscription services. For enterprise business and our mobile beauty app business powered by our advanced AI capabilities, both segments have contributed to our top line expansion, profitability improvement, and positive operating cash flow. In this quarter, we captured good demand in our AI skincare diagnosis product, as well as accelerated adoption of jewelry and fashion virtual try-on. This new deployment and use cases further expand our coverage into a larger market. For us, more innovative features powered by generative AI helped our rollout in our YouCam suite of mobile apps in this past quarter. These new AI features have not only attracted new mobile app installations but also effectively converted more users into premium subscribers. All of these achievements were centered on our beautiful AI strategy, which consists of four major pillars: beauty AI, skin AI, fashion AI, and gen AI. Those four key pillars will play a pivotal part of our core business moving forward, and we are committed to continuing investing in AI to strengthen our leading position in AI. Now, let's shift our focus to operational outcomes of the fourth quarter and discuss our most recent advancements. On the B2B side, we secured a major license renewal with beauty, skincare, and jewelry brands. These renewals not only reaffirm the growth and reliance of this brand on our solutions to meet their evolving needs, but also show our leadership in the field of virtual try-on. We also see the opportunities to cross-sell to sister brands and upsell more services such as enlarging their SKU offerings and expanding to additional countries for our brand clients. Our strong revenue growth in the fourth quarter of 2023 signaled a recovery in enterprise new business acquisition from the second half of 2023 compared to the slow and prolonged sales cycle we saw in the first half of 2023. We entered this quarter focused on seasoning the penetration in different verticals to provide AI-powered skincare diagnosis products as well as an increase in adoption of virtual try-on solutions for jewelry and the fashion industry. A highlight in the fourth quarter was the growing demand for skin and skincare and skin diagnosis products. The demand comes not only from skincare brands but also from new channels such as medspas, aesthetics, clinics, and dermatologists who utilize our AI-powered technology to provide users with real-time and accurate AI skin diagnosis results verified by dermatologists. The key benefit of our AI skin solutions is that our clients leverage our AI skin diagnosis technology to provide patients with a thorough assessment of skin concerns, including redness, wrinkles, moisture, skin types, and more than 14 skin concerns, allowing them to recommend tailored treatment plans targeting their unique needs. With the help of AI technology, clinics can not only do consultations for patients but also give customized recommendations, creating a personalized and science-based experience to boost patient engagement. Furthermore, we have seen good demand for our new product, Skincare Pro, launched in the last quarter. This self-service product on iPad attracted mid-sized skincare brands, clinics, and medspas for its high-quality skin analysis and diagnosis results. With Skincare Pro, we are able to expand into a larger customer base. We also see the potential of this product to penetrate the market of larger brand clinics and medspas. The expanded adoption of our skincare and skin diagnosis solution enables us to engage with a larger potential customer base in the skin-related industry and further diversify our revenue stream as the need for more advanced skin diagnosis continues to grow to help keep on advancing our AI technology and help brands in the clinics streamline their customer engagement process through digital transformation. Another highlight was the accelerated market adoption of our watch and jewelry virtual try-on solution, marked by several new launches with procedures in luxury brands. We started to expand into jewelry and watches virtual try-on in the beginning of 2023, and we are excited to see our efforts starting to pay off, as more jewelry and watch use cases were launched in the market. Basically, we have partnered with a luxury European jewelry brand to launch virtual try-on for its bracelet and earrings. Through our advanced technology, the texture and reflection of the jewelry can be shown visibly through the screen and provide users with true-to-life shopping experiences. The increased adoption of our virtual try-on services reflects that the demand for jewelry, watch, and accessory virtual try-on is huge, and our technology is processed by these high-end brands. Moreover, we have worked with some of our existing luxury brand clients to launch jewelry virtual try-on with our very unique stacking options, meaning that users can try on multiple pieces of earrings and bracelets at the same time. This unique and leading functionality allows users to mix and match different pieces online and experience the total look in just a few clicks, helping brands increase the time users spend on the brand website and deepen the engagement with users. Another good progress to share here is that our AI care solution continues to drive new innovation. To complement our industry-leading Gen AI-based hairstyle generation, we now created an industry-first AI wig virtual try-on for users to try on different types of hair wigs with true-to-real simulation results before they buy. Additionally, we also developed the AI hair extension and AI hair band combined with our AI hair color; we now have a complete hair solution. By leveraging the latest diffusion generative AI model, our technology enables users to try various styles before choosing a new style at a salon. This total solution for hairstyle, hair wig, hair extension, hair band, and hair color is unique in the market. With our comprehensive offering, friends and users can virtually try on different styles before they do hairstyling or buy wigs. Now, let's shift focus to our B2C mobile beauty app business. We saw another robust quarter of our mobile beauty app business, evidenced by a 45.7% year-over-year increase in our mobile beauty app active subscribers to a historically high of over 879,000. This continuous momentum in subscriber growth reflected the increase in demand for editing, enhancing, and beautifying photos and videos through the mobile app. With our suite of YouCam apps, we continue to diversify our product offerings to meet the needs of users and fully capitalize on the app market expansion frame. The consumer end market represents a big growth opportunity with rising global demand for subscription-based premium mobile features. We are well-positioned to increase market share in the consumer space, leveraging proprietary AI technology from Gen AI; our team has developed a robust roadmap of premium features for app subscribers. We have already implemented multiple Gen AI-driven enhancements for our app, including AI Avatar, AI Fashion, AI Hairstyle, AI Selfie, AI Headshot, and AI Studio, which provide users with sophisticated beautification and enhancement tools for photo and video with a single click. Moreover, we launched our online AI editing tools on our website to enable users to edit and enhance their photos efficiently on the web with the help of AI. For example, users can change or remove backgrounds within seconds or replace objects in just a few clicks. Users can also colorize black and white photos or expand pictures easily. We have offered a series of smart AI photo and video enhancement products that can instantly pick blurry photos, upscale and enhance image resolution, eliminate noises, and brighten low images without compromising quality and details. Our product strategy is centered on integrating AI across our entire suite of offerings to transform user experience and solve problems for app users. Most importantly, our unique strength is to use the same AI engine to support the growth of our enterprise SaaS business and our mobile app business. By doing so, we can make the most use of our R&D capability to monetize in both sectors. With this special strength and our commitment to ongoing innovation, we are poised to expand our market penetration in the industry by unlocking the transformative power of AI. In summary, our business performance for both the fourth quarter and the full year 2023 was strong, featuring double-digit revenue growth and a positive bottom line. We not only saw a recovery in the enterprise business but also gained success in expanding into new verticals. The momentum in our mobile app business was very robust too. These factors suggest that we are well-positioned to seize market opportunities and continue to grow our AI business. Based on the strong momentum in both enterprise SaaS solutions demand and our mobile beauty app subscription business, we observed a very healthy recovery in 2024 with an increase of over 20% in our business pipeline, and we expect the growth of our total revenue recognized under IFRS for the full year of 2024 to range from 12% to 16% year-over-year in comparison to the full year of 2023. With that, I will now conclude my remarks and will be handing the call over to Louis, who will discuss our financial details with you. Thank you.

Thank you, Alice, and good morning, good evening, everybody. Please note that all financial comparisons are on a year-over-year basis, and the reporting period is the fourth quarter of 2023 versus the comparable period in 2022. And now, on top of the international financial reporting standard measures, we will also discuss some non-IFRS measures to provide greater clarity on the trends in our actual operations. As Alice mentioned, in the fourth quarter of 2023, our total revenue increased to $14.1 million from $11.1 million for the same period in 2022, representing a robust year-over-year growth of 27.6%, and it was also the best quarter of 2023. Meanwhile, our full-year revenue was $53.5 million for 2023 compared to $47.3 million in 2022, representing a year-over-year increase of 13.1%, which we met the guidance we provided to investors and analysts. We are very pleased to have achieved these results even under the challenge of macroeconomics in 2023, and it is a strong encouragement to our entire team for the year-long effort in growing our business in both enterprises and consumer apps. Among our revenue sources, AR/AI cloud solution and subscription revenue was $12.0 million in the fourth quarter of 2023, an increase of 25% compared to the same period of 2022. The full-year AR/AI cloud solutions and subscription revenue was USD 44.8 million in 2023 compared to $36.9 million in 2022, representing an increase of 21.2%. The continued expansion can be attributed to the strong demand for our online virtual try-on products among brand customers and the robust growth in mobile beauty app subscriptions, especially with the addition of new categories that we now serve in skin diagnosis, jewelry, and fashion markets. Notably, our mobile app active subscribers have surged by 45.7% year-over-year, reaching an all-time high of over 879,000 by the end of the fourth quarter of 2023. This strong momentum underscores the growing interest in our suite of mobile apps, and our generative AI efforts have started to pay off. Licensing revenue, which is mostly generated from our traditional offline services, increased by 77.6% in the fourth quarter of 2023 to $1.8 million compared to $1 million during the same period of 2022. The full-year 2023 licensing revenue decreased by 10.5% to $7.5 million compared to $8.4 million in 2022. The decrease reflects the shift from our traditional offline services to the demand for our growing online virtual try-on offerings. Gross profit wise, for the fourth quarter of 2023, grew by 26% to $11.5 million with a gross margin of 81.3%, compared to gross profit of $9.1 million and a gross margin of 82.3% for the same period in 2022. For the full year 2023, we saw gross profit increase by 7.3% to $43.1 million with a gross margin of 80.6% compared to $40.2 million in 2022, a margin of 84.9%. The decrease in gross margin was primarily a result of the increase in third-party payment processing fees paid to digital distribution partners such as Google and Apple due to the increase in our mobile app subscription revenue. We expect the margin to stabilize around this figure as the sale of each business segment matures and becomes more robust. The company has good control of operating expenses. The total operating expenses for the fourth quarter of '23 decreased by 83.7% to $12.7 million compared to $77.9 million for the same period last year. For the full year 2023, total operating expenses decreased by 56.2% to $48.8 million compared to $111.2 million in 2022. The decreases were primarily due to the high base of non-cash listing expenses that occurred in the fourth quarter of 2022. To break down operating expenses, sales and marketing expenses for the fourth quarter of '23 were $6.7 million compared to $6.3 million during the same period of 2022, an increase of 6%. This was due to an increase in marketing and user acquisition costs. The full-year sales and marketing expenses were $25.7 million for 2023 compared to $24.5 million in 2022, representing an increase of 4.8%. This was primarily due to an increase in marketing and user acquisition costs, which was partially offset by the decrease in sales and marketing people-related expenses. Overall, we were able to grow our business without an unnecessary increase in our marketing expenses, showing the benefit of our strong recurring business model and effective customer acquisition strategy. On the research and development expense side, we were at $3 million for the fourth quarter of '23 compared to $2.6 million during the same period of 2022, an increase of 17.7%. The full-year R&D expenses were $11.6 million for 2023 compared to $10.5 million for 2022, an increase of 9.3%. The increases were from the additional R&D headcount and related personnel costs, and it is a relatively mild increase when compared to our top line revenue growth in the same period. The general and administrative expenses were $3 million for the fourth quarter of 2023 compared to $69 million during the same period in 2022, a decrease of 95.7%. Full-year G&A expenses were $11.6 million in '23 compared to $76.2 million in '22, a decrease of 84.8%. The decreases were due to the significant drop in listing-related expenses after the completion of the de-SPAC transaction and listing process in 2022. The net income was $1.4 million for the fourth quarter of '23 compared to a net loss of $190.3 million during the same period in 2022. The full year '23 net income was $5.4 million compared to a net loss of $161.7 million in 2022. The increase in our bottom line is due to a significant decrease in listing expenses after the completion of the de-SPAC transaction and the listing process in 2022 and the increase in the fair value of convertible redeemable preferred shares in 2022, which were then converted to Perfect Ordinary Shares upon recapitalization. Excluding non-cash share-based compensation, foreign exchange impact, and one-time non-recurring costs associated with our de-SPAC deal, the adjusted net income was $1.8 million for the fourth quarter of '23 compared to an adjusted net loss of $0.01 million in the same period of 2022. The full-year adjusted net income was $7 million for 2023 compared to $4.1 million for 2022, an increase of 72.1%. This represents a good net margin of around 13% in 2023. Looking at our balance sheet, as of December 31st, 2023, our company held $154.2 million in cash and cash equivalents and 6-month time deposits compared to $201.3 million as of September 30, 2023. The decrease in cash and cash equivalents was a result of the completion of the tender offer to purchase up to approximately 16 million shares for an aggregate purchase price of approximately $50 million. Another important note is our capability to generate positive cash flow from our business. We had a positive operating cash flow of $13.6 million in the full year 2023 compared to the negative $3.3 million in the full year 2022. This improvement demonstrates the value of our business model in creating a strong capital structure to support the growth of our business operations. In total, our customer base had a net increase of 18 brand clients since the end of last quarter, achieving a total of 645 brand clients with over 704,000 SKUs for makeup, skincare, eyewear, jewelry, and others as of December 31st, 2023. This is yet another record quarter for these metrics, showing the continuous increase in customer penetration and SKU expansion. More brands and products are leveraging Perfect console to operate the various modules they subscribe from Perfect. In the fourth quarter of 2023, our total revenue has consistently exhibited strong growth, primarily driven by the continued momentum in our AR/AI cloud solution and in the mobile app subscription. The premium features and the AI-powered app, including the newly launched YouCam AI Pro and the YouCam Enhance. Despite a mild rise in expenses, our net income remained strong and robust, delivering double digits and margins. We continue our investment in talent acquisition and technology innovations to expand our core competencies, acting as a transformative tool as we reinvest how products are showcased and consumed. We firmly believe that our positioning within the thriving AI industry equips us to remain at the forefront of revolutionizing how beauty and fashion brands engage with audiences. Finally, for 2024, the company expects total revenue recognized by IFRS to grow year-over-year to a range between 12% to 16%. This forecast is based on the company's current assessment of the market and operational conditions, and management will closely monitor the business progress each quarter and update our guidance periodically to offer better transparency to the market. That concludes my prepared remarks. Now, operator, please open up the call for questions.

Our first question today comes from the line of Timothy Zhao from Goldman Sachs.

Great. Congrats on the very solid fourth quarter results. I have two questions here. One is about your revenue guidance for 2024. Just wondering if you can share some color on the revenue growth breakdown or revenue compensation breakdown between your B2B and B2C business, which segment might grow faster in 2024? And also, a related question on this topic is, I think you mentioned AI pillars within the business. I was just wondering for '23, what is the rough breakdown between cosmetics, skincare, fashion, jewelry, and your different customer bases? And what is your outlook for '24? And the second question is on the margins. I noticed that for the 2023 full year, you had a pretty strong top line and also solid expansion in terms of gross profit and net profit. But I think in terms of margin, there was actually a slight decline in both gross margin and net margins on a year-on-year basis in terms of Q3. Just wondering what your outlook is for profit and profit margins for '24?

Timothy, very nice to talk to you again. Yes, so our guidance, again, as we operate in a recurring business and our businesses are very contractual, right? So we recognize that based on IFRS measures as the period. So, our remarks there: we have seen a good recovery momentum in the last quarter of '23. When we compare that to the earlier first half of '23, which was very challenging, I think that's a good sign that the recovery is giving us a stronger base in the 2024 business. Those contracts will take time to materialize into IFRS figures, though. As we said, we've seen the business pipeline becoming a lot more solid. Certainly, over 20% in our business pipeline going forward. As far as the breakdown, B2C continues to be very strong, as we reported in our last quarter. We expect that trend to continue. But the B2B part, as I said, the recovery is also coming to help. We see the B2C probably will still grow a little bit faster than the B2B space, but the B2B is certainly recovering from the early challenges in 2023. In terms of the AI pillars, beauty AI is certainly still a dominant part of our core business since many years. But the skin AI part is growing very, very fast. If we look at the organic demand that comes in, it's actually outpacing the other categories. I think that's mainly due to the AI skin diagnosis product becoming more robust, covering more skin concerns and able to penetrate into newer channels. It's not just the traditional brand; the website is now going into medspas, clinics, and other channels. So I think out of the four pillars, the skin one in terms of the enterprise business is generating a good third, if not more, of that demand. The generative AI is also very promising; this is very young, just launched about a year ago. From a technical and roadmap perspective, we see a lot of innovation happening in this pillar. We have strong faith in that, but not to forget the fashion AI, which is more towards luxury and prestige jewelry and watches. This is the area that we invested heavily in last year, and we are already seeing results: more than a dozen brands have commercially launched in the market for our jewelry, including the newest addition for stacking. I think all these four are very important pillars to sustain our growth in 2024. In terms of margin, as I mentioned, as the B2C business increased due to the fees paid to Apple and Google, it is impacting some of our gross profit, around 3% to 4% company-wide. We have observed this trend in the last four quarters, and it seems to be stabilizing into 80%-81% gross profit margin. We don't expect a big change in that margin based on our current visibility. So, that would be my answer to your question.

Our next question comes from the line of Clarke Jeffries from PSC.

Louis, thanks for taking the question. Louis, interesting to hear about the Skin AI segment having maybe a wider aperture of new business interest compared to beauty AI, if I understood that correctly. Also interesting to hear about the recovery in the enterprise sales cycles and good growth in the new business pipeline to start the year. I was just wanting to ask strategically if we are at the position where you might be increasing your investment going into the new year to take advantage of some of those improvements in the enterprise sales cycles; what are your top investment priorities from an incremental dollar perspective in terms of investing behind the enterprise sales capacity? And then as a follow-up, is there any way to level-set expectations on cash flow? A $17 million improvement year-over-year in operating cash flow is fairly substantial. Is there any way to think about whether that is the right number for the business on an annual basis at this point, or if there were certain working capital items that may have benefited free cash flow, and we might see an ebb and flow in 2024?

Thank you, Clarke. Yes, the skin AI is an area we have invested in for more than three years now, and it certainly took time to develop to a more mature status. I think now you're kind of closing the case, and more and more brands and clinics are starting to see the benefit of these solutions. Unlike the consumer beauty cycle that is more dominated by big brands, the skin market is much more long-tail, with a lot more potential clients to address. I think this is where the opportunities are, and where we are investing our sales efforts, both in online digital marketing, some advertising, or joining different tradeshows and conferences that are more targeted to the skin market. I think that remains a priority for 2024. We have seen this globally happening, not only regionally but also in specific countries; we've seen that demand growing in Japan, the U.S., and Europe as well. So, Skin AI, among other things, has been well-tested in the market, and I think it's now time to gain more scale. From the B2B pipeline cycle perspective, yes, we have seen that enterprise demand is certainly accelerated compared to the first half of 2023. At the end of the interest hike, the terminal rate in enterprise spending seems to be coming back more into a pre-interest hike period. The entire sales cycle has been shortened significantly. Customer enterprise budgets seem to be a little more relaxed regarding investing in new innovations, and we want to capitalize on that. Our top priorities are again to have our solutions ready for web, for online subscriptions, and be able to help all these new demands to integrate and deploy in the market as fast as we can. Regarding cash flow, the results you saw in our earnings are not from a one-off benefit. I think it is a continuous result, and we've seen quarter-after-quarter that we're able to maintain around this figure. I expect our operating cash flow to remain positive; we are managing our financials strictly. As I always say, we have strong discipline; because of the nature of these contracts, we can pay in advance, and then we deliver the service throughout the year, allowing us to generate this good operating cash flow.

Clarke, I can add some comments on the investment part. We're committed to continuing investing in AI development and R&D because the market is vast and growing, especially after generative AI. This stage is very early. You can hear, not only beauty AI, beauty virtual try-on; we are also expanding into the beauty side for hair. Hairstyle virtual try-on, hair wig virtual try-on; all of these are developed by our generative AI team. We deploy that to B2B enterprise for brand adoption and also to our B2C app users. Our commitment to R&D development will keep increasing. For sales channels, I think it will not have a big increase. For new markets like skin, medspas, and clinics, that one is very new to us, and organic demand is very strong. We are also looking to develop in different countries, in addition to major countries like the U.S., Japan, and others, for resellers and affiliate partners to become more acquainted with the market, thus perfecting our offerings to more brands. The good thing is both these AI, generative AI, and all kinds of AI solutions can be used in our B2B enterprise solutions and also for our B2C app users, creating a synergy that complements each other. We are still exploring the market for any synergistic M&A opportunities; that's always a target for us.

Really appreciate it. Yes, it makes a lot of sense to invest in innovation in Gen AI.

As there are no further questions at this time, I'd like to hand the conference back to management for closing remarks.

Thank you again for joining our call today, and have a good one. We look forward to seeing you online next time.

This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.