Perion Network Ltd

Hello, everybody, and welcome to the Parion Network fourth quarter and full year 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 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 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, which has also been filed on form 6K. Hosting the call today are Doron Gerstle, Parian's Chief Executive Officer, and Maz Sigron, Parian's Chief Financial Officer, and Tal Jacobson, General Manager of Cold Fuel, and Parian's Chief Executive Officer, effective August 1st, 2023. I would now like to turn the call over to Doron Gerstle. Please go ahead.

Yeah, greetings. I hope everyone is well. I'm very glad to have the opportunity to be with you all once again. Together with me on the call is Moe Sigron, our CFO, Tal, GM of CodeFuel, and as said, as of August 1st, replacing me, the CEO of Peril. Tal will introduce himself, and we will talk about the transition plan in depth towards the end of our call. And now to business. By now, you've all seen the numbers. I will briefly review them in the context you've seen before. So you have an Apple to Apple comparison. After that, I'll get into the theme of our call today, Perion Execution Model. So for the revenue side, we are showing a 30% year-over-year growth in 2022 that demonstrate once again that we're able to follow the trends in media spending, for example, consumer awareness of privacy, and the increase of viewers that watch live sports events on their smart TVs, leading to huge demand for high-impact live CTV. We also responded to the trends regarding retail media and advertiser preference towards direct response via search-related advertising. These are all reflected in our performance. What's more, these shifts are likely to increase, not decrease in velocity. Therefore, ability to react become mandatory to continue to outperform the industry. You should remember this important factor when we talk about our execution model. From an EBITDA standpoint, our ability to increase our media margin despite the pressure on advertising inventory due to macroeconomic environment reinforce the value of our high-impact ad units, and highlights the effectiveness of our central control system, Intelligent Hub, at optimizing demand and supply. These factors are behind our amazing year-over-year EBITDA growth of 90% in 2022. And finally, I want to bring back our rule of 40 slide. To remind you, this principle says a software company's combined revenue growth rate and profit margin should equal or exceed 40%. Q4 was another quarter following seven consecutive ones where we achieved the rule of 40. Actually, 54% on the rule of 40. Performance which belongs to the most respected and high-value software companies. Now, I would like to share with you our execution model that has guided Perion thinking in my time at the company. It's the Explore and Exploit model. You can also think of it as innovate and improve model. I'm sharing this because I keep getting asked the basic question, how does Perion do it? In fact, how does Perion manage to deliver quarter after quarter, year after year of growth? No matter what the economic conditions, in the midst of pandemic, supply chain disruption, and decades high inflation, the simple answer is our conviction that the ability to successfully execute is the core of our success. It is fundamental. To demonstrate how this works in practice, let's look behind the scenes. Because the more you know about how we approach strategy and execution, the better you'll be able to understand the sustainability and predictability of our business and to assess our growth. The image shows the full concept. It's composed of two parts. The exploit grid contains our mature solution, which constantly needs to be improved in terms of growth and sustainability alongside our innovation engine. which empowers us to explore and invent new growth initiative in the explore grid. Our number are proof of the effectiveness of this model. In 2022, our explore initiative generated $64 million in revenue and $26 million in media margin. While in 2023, our expectation is to double the revenue to $110 million and generate $45 million in margin. For our exploit solution, we visualize our portfolio on two vectors, growth and sustainability. We extend our moat to protect us from any disruption in the marketplace. We build and measure KPI to continually assess the progress we're making to reach higher profitability and greater sustainability. With that as a context, I've chosen a few highly relevant examples to demonstrate our model. First one that I choose is our video solution. Our video platform, it's one of our main growth drivers, increasing in 2022 by 129% compared to 2021. That represent 43% of display advertising revenue. We've also seen an average increase in the three important metrics. Revenue per video platform publisher grew by 106%. We experienced a 69% year-over-year increase in the number of publisher that are using our video platform. 76 up from 45 in Q4 last year. And finally, a 78% year-over-year increase in revenue from retained video platforms. In other words, our publishers are spending more and more on our platforms. Now I'll move to sort, our privacy-first cookie-less solution, which is another very interesting example of our exploit solution. Its growing maturity demonstrates the journey I talked about earlier, how a 2021 explore initiative moved into exploit grid in 2022. The results in Q4 are powerful. Ad campaign using sort represent $26 million, up 82% quarter over quarter, reaching 21% of advertising revenue. The number of sort customer increased by 36%, 76 new sort customer. Overall, 191 customer is using sort. On average deal size, that's the most important factor. Using SORT increased by 33% to $107,500. So when customers are using SORT, they feel comfortable and safe to spend more because that's what consumers like. And last but certainly not least, SORT delivers a 1.33% CTR, almost three times the Google benchmark of 0.46. And let me repeat, this is without cookies. With that success of SORT as an in-house service, we are working extensively, that's an explore effort, to offer SORT as a service to other companies that are interested in offering a privacy-first solution that perform better than other targeting tactics. Last, on the exploit side, is direct response, or what we call the search advertising. Our portfolio and healthy direct response solution via search advertising continues to be one of our most profitable and sustainable exploit solutions. The business is driven by two levers, increasing the number of publisher and aggregate number of monetized number searches. We transfer mainly to Microsoft Bing. That number is robust and impressive. We are reporting today 22 million users. average of daily, I repeat, daily search that is going through us in Q4 2022, an increase of 26% year-over-year. This number is growing every day, and I can tell you that this quarter, actually the first five weeks of the quarter, we're seeing 25 million searches, daily searches, or average daily searches. Let me quickly point out again, the direct response is one of the three pillars of our diversification strategy. As cost-sensitive advertisers move to ad search, we are there. With that, we will move to the explore grid. When it comes to our innovation engine, we will continue to explore many different ideas. We recognize that the profit potential of any one of them will be unclear at the outset. That's how Explore operates. We have assigned a dedicated team and budget to design, test, and scale Explore innovations. They investigate the value proposition, market appeal synergies with our existing product and business models. Only after all these are assessed as positive, then an innovation initiative makes it to the top right-hand corner as tested business idea with substantial profit potential. This enables us to focus on innovation and disruption, ensuring that we stay ahead of the curve and not be blindsided as our industry rapidly changes. The best example that I can take at this point from a CTV is a live CTV. CTV is another broad explore opportunity that excites us. Specifically, we found very sizable sub-segment of live CTV within the sport event. According to Nielsen, sport broadcasting reached the most CTV user, and hear me out, 94 of the 100 most watched telecast on TV in 2022. Commercializing this live sports CTV requires unique technology that is a huge challenge, as ad insertion cannot be planned ahead of time in terms of timing, and more importantly, in terms of format, and needs to be executed on the run. As an example here is how Dr. Pepper used our live CTV platform to reach U.S. viewers watching college football. It's a rare win-win-win. The viewer gets to continue watching their sport content without interruption. The advertiser maximizes attention, which might have been lost during the commercial break. The publisher retains viewer. They don't change the channel or jump to a different app. This means more revenue for everyone. Next example of the explore is retail. The growth of retail media is also dramatic. As huge players from CVS to the Home Depot to Macy's are building retail network. It is another true explore opportunity for Perrin. Retail media has become the fourth largest advertising medium with ad spend forecast to reach $121 billion globally in 2023. That's 10% increase from last year. Growth of retail media is positioned to do for the 2020s what search-powered digital advertising did for 2000 and what social media did for the 2010s. Perion is uniquely positioned to take advantage of this new wave. We are working with the largest retailers such as Albertsons. And during the first year, after establishing our retail division, we generate $22.3 million in revenue and expecting to deliver $30 million in revenue in 2023. Last but not least, an earning call without chat GBT is not a true earning call. So I will refer to it, especially after yesterday meeting at Bing. The advertising industry is one on the cusp of a major transformation as advances in generative AI are set to revolutionize the way brand reach and engage with their target audience. This capability has the potential to dramatically streamline the advertising production process and open up new avenues for creative expressions. With regard to search, our expectation is that ChatGPT will revolutionize Bing search capabilities by providing more advanced and intuitive search experience for its users, better meeting their needs and expectations. We believe that such superior search results will increase advertiser spending, and as a result, we expect to see a very positive impact on our search business. Microsoft Bing currently has only 3% of the global search market. If the new Bing search with a chat GPT sparks even modest share gains, Microsoft can do very well in the business. As their CFO, Amy Hode, said yesterday, every percentage point of share it gains in search equals roughly 1%. to $2 billion in additional advertising revenue. And a strategic partner of Microsoft Bing, I'm sure we will be benefit from this increase. Let me also point out that ChatGPT, which is the number one technology story of the year, fits beautifully in our Explore framework. In parallel, we will develop new exploratory application of what AI can accomplish in our technology stack. Going forward, it's also important to point out that the relationship between exploit and explore is dynamic. As Schumpeter pointed out in his famous theory of creative disruption, new ideas are continually destroying and replacing the old. That's why continued exploration is the lifeblood of any business. And that's why failure is not to be feared. You cannot explore without making mistakes. And we've made our share. This is why, for example, we shut down Privado, a privacy web browser. With that, I would like to pass it to Maoz. Maoz? Thank you, Doron. Just a minute.

Thank you, Doron. Good afternoon and good morning to those of you joining us from the U.S. I'm happy to be here today to present continued strong results for Perion for the fourth quarter and full year of 2022. Perion continues to outperform the tech industry, consistently improving our results during the last two years, despite the global macroeconomic challenges and market volatility. Here on the diversified business model, technology differentiation and innovation-focused approach continue to enable us to navigate our way to a challenging market, resulting in excellent performance. Let's look at the key financial achievements for 2022, reflecting the strengths of our business model and our ability to execute our strategy. Revenue grew by 34% to a record of over $640 million. Adjusted EBITDA of $132.4 million. Another record, 90% year-over-year growth. Non-GAAP net income of nearly $120 million, doubled year-over-year. Non-GAAP diluted earnings per share increased by 57% to 2%. We continue to demonstrate our ability to generate cash with operating cash flow jumping 72% year-over-year to 122.1 million. I would like to share with you one additional and meaningful financial KPI that, in my opinion, reflects the strength of Payone's performance over time. The revenue in EBITDA, LTM, show our ability to consistently execute our business strategy. During the last 10 quarters, the average quarter-over-quarter growth of revenue, LTM, was 9%, and EBITDA, LTM, was 17%. The financial metrics clearly reflect our strong results over time and pure and robust sustainable and predictable business model. Our ability To grow our revenue while continuously improving profitability quarter over quarter is most impressive and show long-term execution in a volatile environment. I would like to take this opportunity to talk a bit about our inorganic efforts and more specifically about the VidaZoo acquisition. The VidaZoo acquisition in October 2021 is a great demonstration of how we approach and execute our M&A strategy. Our M&A strategy includes the following, being profitable and accretive from day one. Second, a solid growth perspective. Third, strong synergy with pure and organic business. Fourth, strong market position. And last but not least, a broad and deal model. One-third cash and two-thirds air notes. In VidaZoo, we found a company that had a product we were missing in our offering. We wanted to enhance our eye impact and video offering, having an end-to-end solution for publishers, eliminating all existing intermediaries, and VidaZoo is the answer. VidaZoo was a creative since day one and had a clear growth trajectory. Their ability to attract new publishers and gain more traffic from existing ones helped them to grow faster than our expectations. But more importantly, we identified clear synergies with our existing businesses. Our ability to expose all period assets to Vidazoo and use Vidazoo as a default video solution and introduce the video platform to period publishers network created significant synergy dollars during 2022 and more to come in the next years. The revenue CAGR between 2020 and 2022 was 101%, and the EBITDA CAGR for the same period was 118%. VidaZoo growing their business dramatically while improving their profitability, which is exactly aligned with pure DNA. Based on VidaZoo 2022 EBITDA and the total consideration of 9% 93.5 million. The video zoom multiple is 4.5 compared with 2022 multiple of 8.5. Now, let's move to the key financial achievements of Q4 2022. Revenue for the fourth quarter was 209.7 million, reflecting 33% year-over-year growth. Adjusted EBITDA of $48.2 million increased by 67% year-over-year. Gap net income was $38.7 million, representing 190% year-over-year growth, the highest quarterly net income ever. Non-gap diluted earnings per share was $0.90, reflecting 45% year-over-year growth. Let's turn to the next slide to discuss our result in more detail. The revenue of the fourth quarter of 2022 was $209.7 million, an increase of 33% year-over-year, reflecting a strong continued three-year CAGR of 33%. The revenue of the full year 2022 was $640.3 million, an increase of 34% year-over-year, reflecting a strong continued three-year CAGR of 40%. Fourth, portal display advertising revenue increased by 24% year-over-year to 123.8 million, 59% of total revenue. This was driven primarily by the continuous market adoption of our holistic video platform solution, the increase in sort revenue, and growth of our CTV business. Video revenue increased by 33% year-over-year, representing 42% of display advertising revenue, compared with 39% in Q4 2021. The number of video platform publishers increased by 79% year-over-year, from 42 to 75. The revenue from retained video platform publishers increased by 78% year-over-year. Our CTV business continued to gain traction, growing by 42% year-over-year, representing 10% of the total display advertising revenue. Our innovative cookie-less targeting source solution is being adopted more and more by the market. In the light of consumer growing awareness and the increasing regulatory pressure on companies to protect consumer privacy. The number of sold customer rose to 191 this quarter, a 36% increase quarter over quarter. Sold customer revenue increased by 82% during that period, now representing 21% of display advertising revenue versus 17% in the previous quarter. Four-quarter search advertising revenue increased by 49% year-over-year to 85.9 million, driven by a growing trend of advertising favoring our high-intent direct response advertising. The year-over-year increase in revenue was driven by a 13% increase in RPM and a 26% increase in the number of average daily searches. The results demonstrate our strategic diversification business model of our two main revenue streams. The fourth quarter display advertising revenue accounted for 59% of total revenue compared with 63% in 2021, with search advertising representing 41% of revenue compared with 37% in 2021. On an annual basis, display advertising revenue accounted for 56% of the total revenue, compared with 55% in 2021. We continue to expand into the fast-growing segments of video, CTV, and retail business. Our search business continues to grow as we benefit from the current shift to direct response search advertising. Our media margin continued to show year-over-year improvement. Revenue, excluding tax, was 87.7 million, or 42% of revenue, compared with 41% of revenue in the fourth quarter of 2021. The intelligent arm that we have developed and several other processes and automation leverage data and buying power to control and improve the overall media buying system. This has resulted in better selling and buying power, translating into a continuous improvement in media margin. We take great pride in our ability to implement efficiency measures and progress in our day-to-day operations. Each and every efficiency measures show a continuous improvement over the last three years. Our OPEX Plus stocks in 2022 accounted for 23% of revenue compared with 28% in 2021 and 33% in 2020. At the same time, EBITDA pair FTE has risen from 78,000 in 2020 to over 300,000 in 2022. This impressive achievement reflects the execution of our business strategy and the disciplined manner we run our operation. Over the past few years, we have invested in innovation and automation, creating the infrastructure that allow incremental top and bottom line growth as a lower cost basis. We have improved our budget control and are consistently looking for new efficiency initiatives. This shows how our efficiency and cost control measures, coupled with focus and growth in high-margin business, translate into impressive bottom-line growth. Fourth quarter adjusted EBITDA was 48.2 million, affecting 67 percent year-over-year growth. Adjusted EBITDA margin was 23 percent, compared with 18 percent last year. while adjusted EBITDA to revenue, excluding TAC, increased from 45% in the fourth quarter of 2021 to 55% in the fourth quarter of 2022. Full-year adjusted EBITDA was 132.4 million, up 90% year-over-year, and with a three-year CAGR of 101%. 2022 EBITDA margin was 21%, compared with 15% last year. 2022 EBITDA, excluding TAC, margin significantly increased to 49%, compared with 37% last year. On a CAGR basis, fourth quarter net income was 38.7 million, or 79 cents per diluted share, an increase of 119 percent compared with 17.7 million, or 44 cents per diluted share, in the fourth quarter of 2021. For the full year, our gap net income was 99.2 million, or 2.5 0.06 cents per diluted share, an increase of 156 compared with 38.7 million, or 1.02 cents per diluted share in 2021. On a non-GAAP basis, fourth quarter net income was 44.7 million, or 19 cents per diluted share, an increase of 77% compared with 25.3 million, or 62 cents per diluted share in the fourth quarter of 2021. For the full year, non-GAAP net income was 119.8 million, or 2.47 cents per diluted share, double the 60 million or 1.57 cents per diluted share in 2021. We continue to demonstrate our solid ability to generate cash. Fourth quarter operating cash flow was $38.2 million, compared with $28.8 million in the fourth quarter of 2021, reflecting 32% year-over-year growth. For the full year, cash from operation amounted to $122.1 million, up 72% year-over-year. As of December 31, 2022, our cash-cash equivalents and short-term bank deposits amounted to nearly $430 million. up 40 million on previous quarter and 108 million since December 31st, 2021. Our strong cash generating ability and the accumulated 430 million in cash provide us with a valuable resource to execute both organic and inorganic growth opportunities. Given our strong performance and our sustainable and predictable business model, we expect the solid business momentum to carry on in 2023. With our visibility into the year, we are today publishing our guidance for 2023, revenue between 720 to 740, and adjusted EBITDA between 149 to 153 million. This concludes my financial and guidance overview. And with that, I will hand over to Doron. Doron, please go ahead.