Perion Network Ltd

Hello, everybody, and welcome to the Parion Network's second quarter of 2022 earnings conference call. Today's conference is being recorded. The press release detailing the financial results is available on the company's website at www.parion.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 20-F 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 GAAP and a 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 has also been filed on Form 6-K. Hosting the call today are Duran Gerstel, Perrion's Chief Executive Officer, and Mao Sigrun. Perrion's Chief Financial Officer. I would now like to turn the call over to Doron Gerstel. Please go ahead.

Thank you very much. Good morning, everyone, and thanks for joining our second quarter 2022 earning call. Together with me on this call is Maoz Sigron, our CFO, and myself, Doron Gerstel, CEO. Before diving into our exciting second quarter financial results, I'd like sharing with you what you're probably aware of. The macro environment is filled with talks about ad spending being reduced. What I want to stress is that not all ad tech is impacted in the same way. We heard the same very statement at the start of the pandemic two years ago, and we had a positive comp then as we have had for the last eight consecutive quarters. We are built for volatility instead of trying to evade it. We embrace volatility. In fact, in EdTech, volatility is highly predictable. For example, trends are now favoring search, as direct response campaigns are where anxious advertising are investing first. With that, I would like, before diving in into the numbers, is share with you the five things to remember when volatility is now a new norm. We are diversified to capitalize on shifting spending across the three main channel of digital advertising. Search advertising, social advertising, and display, CTV advertising. We are continuously expanding our margin, demonstrating the effectiveness of our intelligent hub that's known as iHub. We are meeting the demand for higher user engagement with our high-impact edge suite. And fourth, we're bringing innovation in response to advertiser recognition that privacy matters with sort. Last but not least, we execute and acquire with strategic operational discipline. With that, I feel comfortable diving into the numbers. So from a revenue standpoint, the company is reporting 34% year-over-year growth. and $147 million. The macro environment... Okay, we see where spending is going in real time and adjust. We have the diverse platform and signal intelligence to do that from the supply and demand side. We don't look at the rear view mirror and make decision based on that. Our results very much speak by themselves. From a macro perspective, I definitely can say based on a 39% CAGR between the years 20 to 22 is that our seasoned team who knows how to make the most tailwinds and cope with the headwinds so that we continue to outperform the category and win new business. Combination of entrepreneurial energy and strong R&D as well as our diversified models. Now to the EBITDA, which we're so proud of, 99% year-over-year growth, $28 million in the second quarter of EBITDA. But the most important part is this part, the 47%. The 47%, as you can see at the green bar, is getting to 47% of EBITDA to revenue X stack, putting us as best of class It's very much thanks to our investment to further develop our AI engine, which is behind the iHub, resulting in efficiencies that benefits our clients and our bottom line. Efficiencies in terms of optimizing media margin and reducing cost of operation. The best innovation is what which help you and your clients. Our margin demonstrate the continuing value we bring to our advertisers. From a HAARP perspective, our IHAB sits in the center of the supply and the demand side of the market. This is an innovative model that no one else in the industry has. Aggregate data signals from all channels and from both sides of the open web to create the model that eliminates waste and rewards clients. The data goes into Perion's privacy-first cookie-less solution known as SORT. So the iHub is both a source of data and operational platform. Mentioning sort, very important to talk again about our flywheel. But before that, I would like to relate to Google's recent announcement that very much delaying their cookie-less solution till 2024. That gives us the time to cement our leadership and clearly draws the bright line between companies that are on the right side versus those that are not. And the right side, we believe, are those that, since the future of edtech, must address consumer privacy. Many of you know that US Congress is looking to stricter regulations. Europe is already farther ahead. We are at the forefront of the privacy trend with SORT. In fact, delivering privacy without sacrificing performance, more and more advertisers are now recognizing that the importance of privacy for their business, and we are ready to serve them with a world-class innovation. Sort flywheel effectiveness is being measured by two KPI, number of new advertisers and how existing advertisers expand their spend. So from the Flywheel perspective, I would like to mention that we are continuing and adding more clicks that drives better performance. As you can see, three times what Google reporting. And that's our benchmark. That's increased the ROS, the return on ad spend, which drive. And that's the two major KPI. 126. which is 61 more new customer in the second quarter. But more importantly, existing sort customer that experience sort, we found out that these customer are spending 50% more quarter over quarter. So that's a true effective flywheel. I will end and said that while we're talking with these customer more and more, we find out that advertiser recognize that consumer increasingly favor brands that protect their privacy. Very, very important to acknowledge that. Next, our revenue line is split it into two advertising advertising revenue. Hold on. Yeah. Our revenue line is split into two, advertising revenue and search revenue. From an advertising revenue standpoint, I must say that even though we are reporting 41% year-over-year growth, which is $82 million of revenue of advertising, it's getting harder every day to capture and hold attention. But it is more and more vital. It takes only a fraction of a second to make a first impression. Our high impact ad units are the breakthrough creative formats that are essential in today's environment. These units are effective across all vertical, travel, entertainment, retail, CPG. I will show you three example just in a second. In fact, we have decade of data which shows that our units outperform conventional ones by up to three times. This is always important, but especially so during a slowing economy. We're taking our proven high-impact suites to cross-channel, especially on CTV. We're very excited with our advertiser reaction to our high-impact CTV suite. Revenue grew by 90% year-over-year, representing 6% of display advertising revenue. Main factor. Behind such growth is the step up in the average deal size by 5% to $105,000. Video revenue grew by 273% year over year, representing 44 of the display advertising revenue. Video Zoo, our latest acquisition, which we call the Shopify of video because of its ability to empower long-time publisher, is booming. Okay. The main objective of this campaign, which we did with Beyond Burger, and that's Beyond Meat, the public company, the main objective was to drive net new consumer to taste their product and be aware of their new product, which is the hamburger. And we describe this concept as awareness to performance campaign. So it's not just shortened the sale cycle. Most importantly, it's added significant amount of new consumer that experienced this product in the first time. You can see the results here, 124,000 product added to the cart. In this case, you can see it on the right. That's Walmart cart. $1 million plus product value and 2X in terms of the recall lift. So that's definitely a very interesting concept of a full funnel awareness to performance. The second thing which I would like to show you is a new innovation. And this new innovation has to do with high impact suites on gaming. And in this case, We are using gaming that is on PC console and mobile. And the whole idea is to target this very unique 19 million engaged gamers across all ages and gender, mainly Gen Z audience. And as you can see here for the example of Nike ads, the most important is that this ad unit says 100% viewable. They are non-intrusive in non-intrusive placement with an average time spent of five plus seconds. Very, very useful. The performance is very high and our customers are very pleased with this format. Last but not least, I would like to share with you our innovation in retail. As retailers face increasing pressure from Amazon, who has a massive amount of personal data, they need new solutions to deliver personalized recommendation in real time. We're having a very positive early success in this emerging vertical. Our ability to personalize and target at scale fits nicely with retailers' need to be more relevant to their customer and support their overall effort shifting budget from linear TV to CTV. What you can see in the left is that we identified five different personas. And with 904 store in 17 states, in a second, we are able to produce 4,520 different type of video units that you can see that is running on the right. That's all runs and it's very much support, as I mentioned before, the huge trend of retailer that shifting budget from what known as linear TV and get the full advantage of the personalization of CTV. This is an area where we are going to invest more and more with our customer and providing them the personalization that they're looking for. When it comes to video, special attention from our business has to do with the adoption of the video platform. I will not go to each one of the products, this video platform, but the essence of it that our publisher, first and second tier publisher, are very much focusing solely and get all the tools from this holistic platform. We are very happy to share that 54 publisher already is using our video platform from 18 in 2020. 54 publishers are already using our platform from 22 in the second quarter of 2021. As you can see, the video platform is a comprehensive ecosystem. It's what abstracts us to VideoZoo, and it is a perfect example when it makes sense to buy and not to build. We will deploy such a strategic and disciplined M&A in the future, as I mentioned in my five reasons slides. From that, I would like to move into the search advertising. And we are gaining search market share and becoming a stronger player in the search ecosystem. So in search advertising, we're reporting 26% year over year growth. to a $65 million of revenue in the second quarter. What is more important for our KPI is the following. While we see that the number of searches are in a way flat between the quarters, we are reporting 17 and it was around 17.1 a year ago. But what is more important is the fact that advertisers are willing to pay more for their ad in search advertising. In other words, our RPM, the rate per 1,000 clicks on search advertising is being increased by 43% quarter over quarter. It was 52% in the last queue. But what you're able to see here, and that's a COVID quarter, that the rate was dropped. The rate was dropped, but look how it's bounced back. And we are very much thinking that this is thanks to change in advertiser preference towards direct response. And there is nothing better than direct response than search advertising, where searchers definitely demonstrate the highest possible intent, which gives advertisers a great opportunity to go after them. So DR is definitely showing its results here. The other thing that I want to mention are actually two things. One is that we increased the number of publishers to 124 from 93 in last year. And the other thing, based on the intent or the searches that we analyzed, we definitely can say that travel is back and it's back in a big way where more and more consumer is looking for travel deals and this gives advertisers a great way to spend more on search advertising, spend more means, they increase the RPM, in order to be higher in the place where consumers are searching for travel deals. With that, I would like to turn the call to Maoz for a financial overview. Maoz? Thank you, Doron. Let me just stop share.

Thank you, Doron. Good day, everybody. I'm happy to present to you another strong quarter with record financial results. Here we continue to demonstrate the ability to execute our diversification strategy, leading to strong performance despite the macroeconomic situation and uncertainty. With the current macroeconomics environment being more challenging, we are constantly monitoring external and internal signals. And based on what we see and hear from our customers and partners, we are confident that this momentum will continue in the second half of 2022. Let me share with you four of our key financial achievements during the second quarter. Revenue of 146.7 million, reflecting 34% year-over-year growth, the highest second quarter revenue since 2014. Adjusted EBITDA of 28.5 million, 19% from revenue compared to 13% last year, 99% year-over-year growth, the highest second quarter adjusted EBITDA ever. Gap net income of 19.5 million, a new record with 175% year-over-year growth, the highest gap net income ever. Non-GAAP diluted earnings per share of 51 cents, a new record for the second quarter with 55% year-over-year growth. Perion's unique technology and solutions lead to a great diversity in our business. The scalability of Perion business model translates into strong, predictable, and sustainable performance. we are able to improve our margin and our efficiency during the second quarter of 2022 as a result of our continuous efforts to improve European financial power. Turning now to the quarterly result in more details. As I just noted, revenue for the second quarter was 146.7 million, an increase of 34% year-over-year. Since the second quarter of 2020, we have consistently delivered strong double digit revenue growth, reflecting a CAGR of 56%. Display advertising revenue was 81.6 million during the second quarter of 2022, an increase of 41% year over year. Video revenue grew by 273% year over year, representing 44% of display advertising revenue. The number of video platform publishers increased by 145% year over year, from 22 to 54. And the revenue from the retained video platform publishers increased by 52% year over year. CTV revenue grew by 90% year-over-year, representing 6% of display advertising revenue. Sold customer nearly doubled quarter-over-quarter from 65 to 126. Sold customer spending increased by 62%. Sold revenue represents 14% of display advertising revenue. Second quarter, search advertising revenue was 65.1 million, an increase of 26% year-over-year. growth was driven by a 42% increase in average RPM and the addition of 31 new publishers to our network. The 17 million daily searches on average remain consistent with the number of searches in the second quarter of last year. In terms of revenue mix, display advertising revenue represents 56% of the second quarter revenue compared to 53% in 2021. With search advertising representing 44% of revenue compared to 47% in 2021. This change in revenue mix is in line with our diversification strategy as we continue to expand into the video, CTV and retail. Revenue excluding TAC was $60.7 million, or 41% of revenue, compared to $43.5 million in the second quarter of 2021, or 40% of revenue. The median margin improvement was primarily due to improved commercial terms, a favorable product mix of eight formats, and the high app control system. OPEX and Cox were 35.6 million in the second quarter, reflecting 24% of revenue compared to 30% last year. We are constantly achieving higher operating leverage, mainly due to operational excellence and automation, the scalability embedded in our business model, as well as the continued successful implementation of AYA. Second quarter net income was an all-time record of 19.5 million or 41 cents per diluted share, an increase of 175% compared to 7.1 million or 19 cents per diluted share in the second quarter of 2021. On a non-GAAP basis, net income was 24.5 million or 51 cents per diluted share, an increase of 99% compared to 12.3 million or 23 cents per diluted share in the second quarter of 2021. Adjusted EBITDA of 28.5 million and margin of 19% compared to adjusted EBITDA of 14.3 million and the margin of 13% last year. Adjusted EBITDA to revenue-extruding tax increased from 33% in the second quarter of 2021 to 47% during the second quarter of 2022. Our efforts to keep the median margin level stable and to generate incremental revenue with lower variable costs continue to improve efficiency and profitability. Net cash provided by operating activities was 25.7 million compared to 14.6 million in the second quarter of 2021, reflecting 76% year-over-year growth. As of June 30, 2022, we had cash equivalents and short-term bank deposit of 353 million compared to 322 million as of December 31, 2021, We continue to conduct a responsible and disciplined capital allocation approach, and we expect to continue generating positive cash flow. This will allow us to execute on both organic and inorganic growth opportunities. This concludes my financial overview for the second quarter of 2022. I will now turn the call back to Doron. Doron? Now it's good on. Yes, no, but not you need to present.