Perion Network Ltd

Welcome to the Perion Network second quarter 2021 earnings conference call. Today's call is being recorded. The press release detailing the financial results is available on the company's website at perion.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 GAAP and non-GAAP basis. While mentioning EBITDA, we will be referring to adjusted EBITDA. We 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 also has been filed to Form 6K. Hosting the call today are Doron Gerstel, Perion's Chief Executive Officer, and Maus Sigrun. Perion's Chief Financial Officer. I would now like to turn the call over to Doron Kerstel. Please go ahead.

Thank you and good morning. Today, Perion reported its second strongest quarter since I joined the company, with notable improvement across all metrics. To put this in perspective, with today's results, Perion has generated $400 million of revenue and more than $47 million in adjusted EBITDA in the last 12 months. In the second quarter, we drove a 419% increase in GAAP net income and 479% increase in adjusted EBITDA. These results and the growth trajectory they represent have given us improved visibility and strong confidence in the future, thus enabling us to improve 2021 financial guidance and to introduce preliminary guidance for 2022. Now allow me to add one more milestone to today's exciting news. We are positioned to achieve our three-year growth plan a year earlier than expected. I am particularly proud that our accelerated performance has come in the midst of continued economic uncertainty and start again, stop again, pandemic-related circumstances in many categories. Perion's success results can be summarized in one unifying strength, a powerful diversified technology platform that reflects our innovation and growing relevance to marketers and publishers. Perion is now operating in a clear strategic direction, leveraging our strong financial position to increase investment in technology and to accelerate its growth. To demonstrate the effectiveness of our strategic framework, 18 months ago, we announced the goal of enhancing our advertising capability dramatically while focusing on technology and AI, resulting in 127% revenue growth in the first half of 2021. This demonstrates the market fit of our platform made possible by relentless innovation and strategic acquisitions. As you know, digital media is defined by supply side, the availability of different ad units utilized by publisher, and the demand generated by brands and agencies. We have developed a unique hub and spoke platform that empowers our clients to efficiently engage and convince consumers via the channel that best meets the real-time marketing needs. Perion's Intelligent Hub sits at the center of this platform, and its value goes beyond our ability to generate revenue from both sides of the open web. Perion's Intelligent Hub is an optimization engine successfully routing demand to make the most of supply-demand forces and bring better economics for a dual set of clients on both sides. Our intelligent hub is working, and I couldn't be more excited. We're achieving significant growth, and we are leveraging this by driving higher cost efficiencies to the bottom line. Our advertising business is clearly differentiated, leveraging broad-based adoption of video and CTV, as well as digital advertising and social media. Our search advertising business is demonstrating its ability to capture intent and turn it into a revenue by using AI to serve relevant news, shopping, and information-driven content. Its searches are up more than 30% year-over-year. Examples help, so I'd like to share a recent case of relationship with Lexus, which is one of many of our high-growth CTV operations. We have a long and successful history with the local dealer association. They used our high impact units and loved the results. So it was only natural that they were one of the first to step into our interactive CTV initiative. The results were remarkable. Their campaign drove five times the industry norm for awareness and doubled the norm for purchase intent, a key metric. Finally, The interaction rate was nine times the benchmark, and I'll underscore the interactivity is the core benefit. Based on those results, the campaign has extended to other creative units and other geographies. This case is extremely encouraging, as Lexos is a sophisticated advertiser, and their support demonstrates the potential of our CTV and ICCV business. With $400 million in annual revenue, over the last 12 months, we are poised to reach half a billion dollars in revenues by the end of 2022, more than a year earlier than our original plan. Para now has sustainable multi-year track record of double-digit growth of a 25% CAGR between 2020 and 2022, expanding profitability, and most importantly, consistent delivery on our promises. And this is only the beginning. To summarize the highlights, the $110 million in revenue for the quarter sets record level results for second quarters. Year over year, this represents growth of 82% and sequentially it represents growth of 22%. Our advertising revenue grew 211% year over year and our search and other revenue increased 24%. From a capital position, we have $141 million in cash with zero debt. We generated $14.6 million in cash in the second quarter, further boosting our balance sheet. It is worth noting that we accomplished all this with well-recognized headwinds, a global pandemic, which has significantly reduced advertising spend by travel brands, a meaningful portion of our advertising revenue. We are now seeing travel advertising beginning to rebound, but it does not reach historical levels. We have room to further improve performance, but given our prudent and realistic financial management, we are not taking anything for granted. Those of you who have been following Perio know that we are an active strategic acquirer. With the two accretive acquisitions we did in 2020, we've demonstrated that our deal structure with significant earn-out components minimizes the natural risk of any acquisition and, most importantly, keeps the acquirer team active and incentivized for the long run. We have the capital, the ability to identify the right targets, and the financial model to pursue the right opportunities. With that, I'd like to turn the call over to Mahod to review the financial results for the second quarter.

Mahod? Thank you, Doron. Our financial results in the second quarter of 2021 reflect the strength of our hub-and-spoke business model, which catered for both DSP and SSP, and the strong momentum starting from the fourth quarter of 2020. We can see the fruit of our turnaround strategy in an improved balance sheet, P&L, and substantial growth in both search and advertising revenue. During the second quarter of 2021, revenue for Perion totaled $109.7 million, an increase of 82% from $60.3 million in the second quarter last year. This increase was primarily due to the growth achieved across the board. Our display and social advertising revenue increased by 211%, primarily due to the contribution of video and CTV advertising contracts, as well as the successful implementation of our hub and spoke model within the Perion walled garden. Video, including CTV, generated $9.1 million in revenue, reflecting 435% growth year over year. On a performer basis, assuming we own PubOcean in both periods, display and social advertising increased by 134%. Search advertising and other revenue increased by 24% resulting from a higher number of daily monetizable search queries we delivered to Microsoft Bing and others. Our daily number of searches was 16.9 million compared with 13 million last year. In addition, we added 18 new publishers to our network during the quarter. Display and social advertising revenue of 58 million represented 53% of the second quarter of 2021, with search advertising and other revenue representing 51.6 million, or 47% of total revenue. This is exactly the kind of diversification we are looking for. Graphic acquisition costs in the second quarter of 2021 were 66.2 million, or 60.4% of revenue, compared with 36.8 million, or 61% of revenue, in the second quarter of 2020. Our media margin remained stable at around 39%. In fact, this margin has remained around 40% for each of the last five quarters. The media buying margin stability as a percentage of revenue is a result of cost synergy we achieved through implementation of our urban stock strategy. Operating expenses for the second quarter of 2021 were 32.6 million or 29.7% of revenues compared with 23.8 million or 39.4% of revenues in the same quarter last year. With a 10% drop of operating expenses as a percentage of revenues, the revenue has continued to grow and reflect the scalability of the period business model. Cost of revenues for the second quarter of 2021 were $6.2 million, or 5.6% of revenues, compared with $4.9 million, or 8.1% of revenues, in the same quarter last year. SG&A for the second quarter of 2021 was 17.5 million, or 16% of revenue, compared with 11.8 million, or 19.6% in the same quarter last year. R&D for the second quarter of 2021 was 8.9 million, or 8.1% compared with 7.1 million, or 11.8% in the same quarter last year. This increase in R&D investment reflects reflects our long-term planning and supports Perion's growth strategy. Perion's net income for the second quarter of 2021 was $7.1 million, or $0.19 per diluted share, compared with a net loss of $2.2 million, or a loss of $0.08 per diluted share in the second quarter of 2020. Non-GAAP net income in the second quarter of 2021 was $12.3 million, or 33 cents per diluter chair compared with 1.9 million or 7 cents per diluter chair in the second quarter of 2020. Improved operating efficiency resulted in adjusted EBITDA going to 14.3 million for the second quarter of 2021 from 2.5 million in the second quarter of 2020. This represented margin of 13% or 33%, excluding traffic acquisition costs. We generated 14.6 million cash flow from operating activities for the second quarter of 2021, compared with 151,000 last year. As of June 30, 2021, we had unrestricted cash, cash equivalents, and short-term bank deposits of 141.2 million, compared with $60.3 million as of December 31, 2020. This concludes my financial overview. I will now turn the call back to Doron for a closing statement.