Perion Network Ltd

Welcome to the Perrion Network third quarter 2020 earnings conference call. Today's conference is being recorded. The press release detailing the financial results is available on the company's website at perrion.com. Before we begin, I'd like to read the following safe harbor statement. Today's discussion includes forward-looking statements. These statements reflect the company's current views with respect to future events. These forward-looking statements involve known and unknown risks, uncertainties, and other factors, including those discussed under the heading Risk Factors and elsewhere in the company's annual report on Form 20F. That may cause actual results, performance, or achievements to be materially different and any future results, performance or achievements anticipated or implied by these forward-looking statements. The company does not undertake to update any forward-looking statements to reflect future events or circumstances. As in prior quarters, the results reported today will be analyzed both on a gap and non-gap basis. While mentioning EBITDA We will be referring to adjusted EBITDA. We will have provided a detailed reconciliation of non-GAAP measures to their comparable GAAP measures in our earnings release, which is available on our website and has also been filled on Form K. Hosting the call today are Doron Garstel, Parian's Chief Executive Officer, and Mayal Sigron, Parian's Chief Financial Officer. I would now like to turn the call over to Doron Gertel. Please go ahead.

Thank you and good morning. I hope everyone is healthy and that your families are doing well. Our team has performed brilliantly during these strange, difficult times, and the results of their efforts speak for themselves. I want to take this moment to recognize and thank them for their dedication and effectiveness as they supported our business across the three pillars of digital advertising. During the third quarter, Perrin increased total revenues by 27% year-over-year, driven by 200% year-over-year revenue growth in CTV, along with the acquisition of Content IQ and PubOcean. These inevitably demonstrate our ability to outperform the digital advertising industry even as it recovers. Our growth was led by a 76% increase in our advertising division as a result of increased spending mainly towards CTV. In today's data-rich world, consumers are increasingly demanding brands deliver more focus relevant messaging. This was the main trigger for the growing demand for CTV, which is defined as any app or website that streams content over the Internet capable to serve one ad to one household as opposed to broadcasting an ad to all households. As a result, advertisers shift away from simple competing for eyeballs to creating meaningful, engaging experience that first capture and truly convince audience. We are focusing on leveraging our creative capability and enhanced CTV offering by providing CTV interactive ads to better align awareness and performance-driven content for the right persona at the right time at the right stage of the funnel. Our search business grew by 3% due to the increased volume of monetized queries we deliver to Microsoft Bing. I have a strong confidence on our ability to extend current agreement by the end of the year with Microsoft Bing in a better term than what we currently have. Our results are also triggered by the fact that we are becoming an even more efficient company as we grow, thanks to the scalability of our operating model, tight management of expense, and our synergistic acquisitions. The sourcing factor of the pandemic has amplified the economic value of our $10 million cost-saving plan, which was implemented in the first half of the year. Our increased efficiency resulting from ongoing investment in automation has helped driving a 15% year-over-year growth in adjusted EBITDA to $8.7 million. To be honest, I'm sure many of you didn't expect to see results like this. Our accomplishments are all the more impressive because we've done this during a 100-year pandemic that has upended the digital media marketplace and has left many previous successful advertising companies and advertising agencies wounded and bleeding. Our success top line and top Top line and bottom line during this time demonstrate that our focused and relentlessly implemented plan of diversification across the three main pillars of digital advertising was, is, and will be the roadmap for our growth. Perion is, without doubt, turning its strategic plan of diversification into a successful action. We have a clear task. to sustainable and consistent double-digit growth going forward. Let me repeat, we have a clear path to sustainable and consistent double-digit growth going forward. I've articulated our ability to benefit from the invariable and continuing spending shift between the three periods, search, social, and display and video. Since July 2017, three months after I joined Parian. The technologies we have developed, the acquisition we have made, and successfully integrated, and the team we have built, all these moves have positioned us to capitalize on having strong solutions wherever the dollars flow. Our social platform and offering create opportunities within the enormous social advertising universe. From Facebook to Twitter, Snap and TikTok. As they grow, we grow. As brands seek to grow their DTC business, we grow. I am sure you saw Snap's results last week. Our corporate business allows us to benefit from the simple fact that more consumers are searching and shopping online and are also looking for important information about the pandemic and its impact on their lives. Our display video and our focus on CTV business are able to capitalize on the inherent growth of this digital format as brands are investing, seeking a full funnel solution. When all these categories grow, we benefit. And when dollars shift from one to other, we are hedged and benefit as well. Our diversification strategy also allows us to capitalize on the mega-trend in the industry, the demise of third-party cookies, the acceleration of in-housing by brands, and the need to turn awareness dollars into action. As we look to the future, as defined by macro-industry trends, we will be strengthening our technology mode by accelerating the integration of Perion's business units. Our strategic roadmap is led by development of a full funnel experience to accommodate current trend of marketers who are looking for holistic, one-stop shopping vendor who can maximize, reach, and build their brand across the three pillars with even stronger solutions. This is an exciting business model evolution for us. we know that rents face a massive challenge of attracting and retaining user engagement in their franchise, and generating first-party data and social media is increasingly limited in its ability to meet those goals. We're calling this synergistic solution Capture and Convince. It leverages our unique and proprietary buying technology, AI-driven decision engine, an ability to deliver personalized, real-time advertising, layout, and content. All in all, to create a level of marketing funnel optimization that is exactly what Rand needs. We are showing that we can keep new users in our capture and convince advertising group for more than six minutes, a truly revolutionary approach in an epic world where the attention of consumer is measured in seconds. The combination of well-diverse financial strategy and our capture and convince business offering will work hand-in-hand to drive growth and revenue beyond the current performance metric. With that, I'd like to turn the call over to Maoritz to review the financial results for the third quarter. Maoritz? Thank you, Dolan. The strong financial results during the third quarter, despite the pandemic, affect strong business execution and the successful implementation of the efficiency measures and cost-saving efforts we took at the beginning of the second quarter. These achievements result in higher revenue while keeping the level of our operational expenses, which improve our profitability and cash flow. Such improved results reflected also at the second hour increased guidance we provided earlier this month. Underscore that Perion is the earning power and financial strength that is the key to execute on the strategy that Doron articulated just a moment ago. Turning to the results. In the third quarter of 2020, revenue increased by 27% to $83.4 million, composed of $37.9 million, from advertising and $45.5 million from search and other revenues. Advertising represented 45% of third quarter revenues with search and other contributing 55%. In the third quarter of 2020, advertising revenue grew by 76% year-over-year, driven by a 200 revenue growth in CTV along with the acquisition of Content IQ and PubOcean from earlier this year. Search revenues increased by 3% due to a larger number of monetized search queries we delivered to Microsoft Inc. Customer acquisition cost and media buy in the third quarter of 2020 was $49.9 million or 60% of revenues compared to $34.2 million or 52% of revenue in the third quarter of 2019. The increase in the percentage of revenue is primarily due to the acquisitions of CIQ and PubOcean. Operational expenses in the third quarter of 2020 were $29.7 million or 36% of revenues compared to $27.6 million or 42% of revenues in the third quarter of 2019. The efficiency measures we took together with the synergetic acquisition of CHU and PubOcean are bearing fruits and translated to higher profitability. Net income for the third quarter of 2020 was $2.1 million or $0.08 per diluted share compared to net income of $2.9 million, or $0.11 per diluted share in the third quarter of 2019. Clearance non-GAAP net income in the third quarter of 2020 was $5.9 million, or $0.21 per diluted share compared to $5 million, or $0.18 per diluted share in the third quarter of 2019. Adjusted EBITDA in the third quarter of 2020 was $8.7 million, or 8% of revenues, compared to $7.6 million, or 12% of revenue, in the third quarter of 2019. Cash flow from operating activities in the third quarter was $6.6 million, inclusive of approximately $4 million negative impact due to working capital needs in connection with the acquisitions of CIQ and TabOcean. compared to $11.1 million in the third quarter of 2019. As of September 30, we had cash equivalents and short-term bank deposits of $50 million compared to $61.6 million as of December 31, 2019. As of September 30, 2020, total debt comprised of a $10.4 million credit facilities and $12.5 million It ran from the secured credit line and used as a short-term precaution measure related to COVID-19, compared to $16.7 million as of December 31, 2019. During the third quarter of 2020, the credit facilities decreased by $2.1 million due to the scheduled paydown. This concludes my financial overview for the third quarter of 2020. I will now turn the call back to Doron for closing statements. Thank you, Mo. Parents' diversification strategy and our steady course of managing profitability were a key success factor, beginning before the pandemic and continuing thereafter. That discipline has been extraordinarily beneficial, especially during these challenging times. The combination of our ability to react fast, fine-tune our business, and successfully execute the prudent cost-saving plan and acquisition strategy, together with encouraging market trend and improved visibility, has allowed us to announce earlier in October that we are raising our expectation for the second half of 2020 to revenue of $164 to $174 million and adjusted EBITDA of $16 to $18 million. Looking further out, we are confident that we are on the path to achieve sustainable and highly profitable double-digit annual revenue growth. Operator, now you can open the call for questions.

Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. That's star 1 to ask a question. We can now take our first question. From Jason, HealthEsteem from Oppenheimer. Please go ahead.