Perion Network Ltd

Hello, everybody, and welcome to the Parion Network third quarter of 2022 earnings conference call. Today's conference is being recorded. 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 and uncertainties and other factors, including those discussed under the heading Risk Factors and Elsewhere in the company's annual report on Form 20F, and may cause actual results, performance, or achievements to be materially different in 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 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 been filed on form 6K. Hosting the call today are Duran Gerstel, Parian's Chief Executive Officer, and Maoz Sigron, Parian's Chief Financial Officer. I would now like to turn the call over to Duran Gerstel. Please go ahead.

Thank you very much. Good morning. Good afternoon, everyone. Thanks for joining our third quarter earnings call. Together with me on the call, Maoz Sigron, our CFO. Before I'll dive into the quarter results, Let's start by looking back to the last eight quarters, taking the Rule of 40 model and applying it to our business. So Rule of 40 is used by investors to see the long-term health and sustainability of a business. It can also be used by management to make long-term prediction and decisions. In my opinion, it's the best way to assess performance through the convergent lens of revenue growth and EBITDA margin. The fact that Perion passes the hurdle of the rule of 40 is remarkable for an editor company and has done so in the last eight quarters, as you can see from the slide. Perion needs to be viewed through this valuation lens, even though it's applied to a high growth, scalable software companies and not, in my knowledge, to our industry. Now, I want to deal with the elephant in the room, a big elephant which can be summarized in one question, given our quarterly results. How can we keep outperforming our peers? I keep asking this question, and I think it's more relevant today than ever before. Perion is uniquely able to react and size opportunities based on current trends that might change. But what will not change is our DNA to continue identifying trends and turn them into business opportunities. Looking at the last eight quarters, our ability to exceed the rule of 40 is not a series of anomalies or a one-off success. Quite the opposite. We are outperforming the industry because we are built on the fundamental recognition that EdTech must be able to respond, underline respond, to the trends with ability and agility. Let's look at the current four trends that we see, and more importantly, are we able to react to those trends? Advertisers are looking for ways to increase customer engagement, to enhance their brand equity, especially these days, moving away from standard ad units. And those that are not investing on brand equity in these difficult economic times, it's proven that they will pay the price. What we will show later on with few use cases is to what extent our high impact suite for display and CTV not just keep the customer engagement really high, but allows us to keep our margin really high. The next one, advertising shifting direct response budget from social channel to search and advertising. Our intent to action solution known for search advertising is doing exceptionally well and will bring some figures how this is changing in terms of advertising allocation budget. Third, advertisers recognize that consumers are voting for brands that protect their privacy. Our reaction, SORT is gaining huge momentum, and we will talk about SORT and the huge momentum that we experienced in the third quarter. Last but not least, advertisers are undergoing margin pressure due to rapid rises in cost of goods. Our IHOP enabled us to absorb pressure and maintain our high margin. And the fact of the matter, we increased our margin this quarter. Diving in into our revenue. So our revenue growth demonstrate our ability to continue shifting our business where media budget are trending. For example, the growth of privacy trend, the growing demand for high impact CTV, the need for retailers to transform their media business, and the fact that advertisers are targeting Z generation in console game, solution that I demonstrated in our last earning call. These are all reflected in this performance. These shifts are likely to increase, not decrease, in velocity. Therefore, ability to react becomes mandatory to continue outperforming the industry. From an EBITDA standpoint, our iHub, Intelligent Hub, is a great example of technology innovation that serve our clients and our own financial results. Balancing supply and demand yields better efficiency, both for our clients and for Perio. We also benefit from operational efficiency, utilizing shared resources for all advertising solutions. We believe that the pressure on advertising inventory due to macroeconomic environment will reinforce our central control system. I have optimizing demand and supply. Media margin increased to 41% compared to 39% in the third quarter last year. From an advertising revenue standpoint, as I point out, the trend shows the multiple ways in which advertisers are seeking to build brand recognition, make an impact while respecting privacy. The growth of video driven by our video acquisition that happened last year demonstrate our ability to identify the right acquisition target and empower entrepreneurs to continue to grow their business. There are moments when consumer wants to lean in to a small screen and others when they want to lean back and take it in the immersive experience of a large screen. Therefore, our ability to provide cross synchronization is a key factor to capture attention and provide higher return on ad spend to our clients. I showed you this slide when we made the Videozoo acquisition. The model has served us well by attracting publishers to have an end-to-end video platform that eliminates the friction of multiple vendors. As you can see, we have nearly doubled the number of new publishers using Videozoo platform and achieved robust growth in a new span at the same time. We believe Videozoo will continue to grow. I want to take a moment And to dig into example, which I think you will find very compelling. It demonstrates the power of two of our core competencies working together. On one hand, the high impact ad unit, and in the other hand, targeted CTV. We ran a test and this test, we measure effectiveness of conventional standard CTV ad unit versus our high impact CTV suite, as you can see it on the screen. We did it by tracking the user that landed on client's website in both cases. As you can see, the high impact unit achieved a 400% increase in site visit and 400% higher conversion rate. Results like this are why advertiser will pay a premium for a high impact unit. impact units. Premium means $32 CPM compared to higher, lower teams when it comes to standard ads. That's by itself drive another very important KPI for us, which is average deal size, which increased by 10% to $117,000. High price CPM help us maintain and grow our margins. The need for high impact will grow since advertisers are constantly looking to increase consumer attention. Okay. We're continually innovating new ways to measure the effectiveness of our high-impact units, so today I'm pleased to unveil our new attention-trace measurement. It's a revolutionary way to measure consumer engagement, as you can see it on the slide, with our high-impact units in real time. Let me put this technology innovation in perspective. You may know that for decades, the traditional way to measure consumer engagement with an ad unit has been eye track. That works by following consumer eyes as they interact with an ad unit to measure effectiveness. But our researchers and data scientists were not satisfied with the one-dimensional model of measuring attention. So working with our partner, System One, we develop a model that includes sound along with sight. We measure that through real-time analysis that literally traces attention and is displayed as consumer react. This will provide our advertiser with a future validation of the efficacy of our high-impact units and will keep justifying our pricing model and hence our margins. We have a number of initiative insight parallel which provide us with a pipeline of scalable revenue opportunity. One of them is our retail media solution. You probably know that many retailers are building their own media platform as a way to generate value from their first party data, build and activate loyalty and compete against the giant like Amazon and Walmart. The breakthrough for us is that this solution enable us to shift our transactional business to an always on, always on spend, which provide the predictability and sustainability we're always looking for. And the excitement of this business is that we're not waiting for the IO. We're not waiting for the campaign. This is a constant month by month spend over a course of a year. As you can see by the prestigious logos on the slide, this is being rapidly adopted by some of the America's most successful retailers. While the revenue contributions are still modest, the growth potential, even the calm, is huge. SORT is a powerful technology for protecting privacy without storing any personal data. Our SORT business has been rapidly growing as a result of privacy trend I mentioned before. In fact, as you may know, the FTC recently requested commentary on their proposed privacy regulation and Perion submitted a detailed perspective. I'll be happy to share with you what with our submission. A side of our vision that the future of digital advertising must acknowledge consumer privacy, sort function as effective flywheel that gets even more valuable and more effective as more data flows into it. No matter which metrics you looked at versus cookies, versus Google benchmark, versus Ross, Sort comes out on top. Lastly, take a look at the quote from Mercedes. They believe privacy is so important that they want to be associated with it. And guess what? Without compromising on the result. So you're able to see the Mercedes campaign here with 58% CTR lifting sort versus contextual. and 53% CTR lift source versus third party. Going back to the trend I've mentioned earlier today and our ability to react to them, having a central hub is pivotal to increase our profitability and future growth. We cannot predict what will happen on either side of the open web. demand, or supply. Those are market forces, but we can be confident that by being in the center and having a two-way visibility, we can optimize the benefits for us and for our clients. In its first year, HiHub contributed 40% of our year-over-year EBITDA growth And more importantly, our ability to capture signal from all channels to a central hub as you can see it on your screen and analyze them is the main factor behind sort superior performance over other conventional targeting methods. The trend where advertisers shift budget towards direct response continues. Pay attention to what Philip Schindler, chief business officer at Google, said recently. I will read it for all of us. In challenging times like this, advertisers are carefully evaluating the effectiveness of their budget. Search advertising tend to do relatively well in such environment, given its strong measurability and focus on delivering ROI. It also well suited to quickly adjust to changes in consumer behavior. And us being a strategic partner of Microsoft Bing definitely enjoy this trend. On top of this, the latest change of Apple privacy and Facebook reduced attribution window are causing advertisers to shift budget to search advertising. We are evaluating this shift on both ends. Advertisers looking to pay more on their ads reflecting in 42% increase in RPM. And higher intent of searchers increased their CTR ratio by 27%. With that, I will turn the call to Maoz. Maoz?

Thank you, Doron. Doron, please let me share my screen. Thank you. Go ahead, please. Thank you, Doron.