Perion Network Ltd

Hello, everybody, and welcome to the Parion Network first quarter 2003-2023 earnings conference call. Today's conference is being recorded. The press release, all right, the press release detailing the final results is available on the company's website at 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 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 and has been filed on form 6K. Hosting the call today are Daron Gerstel, Perrion's Chief Executive Officer, and Malaz Sigran, Perrion's Chief Financial Officer, and Tal Jacobson, General Manager of CodeFuel and Perrion's Chief Executive Officer, effective August 1st, 2023. I would now like to turn the call over to Daron Gerstel. Please go ahead.

Hello, everyone, and welcome. Thanks for joining, Per, on first quarter of 2023 Earning Call. Together with me on the call, Maos Sigron, our CFO, and Tal Jacobson, my successor and CEO as of August 1st. It's rare to be excited about being repetitive, but this is one of those times. I say that because today is the 12th time in the last three years I have used the same headline describing our financial, our momentum continues. It's not the first time you have heard me state and restate that our unique diversification strategy is what's behind our ability to deliver business results that are sustainable and predictable. Our continuing agility to grow top line and bottom line, no matter the state of macroeconomic conditions and has been demonstrated over the last three years, as you can see from the slides. even most recently where the industry has been challenged by reduction in digital advertising spending. In fact, our strategy of supporting the three main pillars of digital advertising is especially relevant in these times when advertisers are under pressure and grappling with uncertainty. In fact, just last week, the Federal Reserve described the economy as rocky and bumpy. The unavoidable results of this dynamic environment is that budget are continually in flux, more dramatically than ever before. Advertisers shift between channel, they shift between awareness campaign and performance campaigns, and they shift between omni-channel objectives. In other words, between online sales and driving food traffic. Peron is perfectly poised to capture these sudden moves in advertisers' spend preference, proactively, not reactively. We don't need to scramble as the winds shift. We are prepared whenever and wherever the market moves because we have the platform and the infrastructure in place to support it. The strategic advantage of being ahead of the market is due to our investment in technology. This allows us to compete, win, and gain market share in the most pioneering, cutting-edge edtech sector where innovation matters. I'll go in more detail when we look at the growth drivers. I also want to point out before I get to the specific results that there are three pillars provide us with another competitive advantage that makes our predictability and sustainability possible. Supporting those pillars provide us with a valuable insight about consumer behavior and advertiser preferences. We are then able to react immediately Our R&D and product team analyze these insights and bring innovative solutions to the market. This agility is our primary core competence. Now I'll move on discussion of our specific results and revenue first. We continue to outpace the category. with a year-over-year growth of 16%, which is higher than the digital advertising market. I'll point out that we had robust and healthy growth across all our pillars and sub-pillars. At the same time, our growth has come from both new clients and extended engagement with current ones. For me, This is an essential signal that we are doing the right thing, demonstrating our efficacy with current clients and using it as a lever to break new ones. Also important to note, as I pointed out earlier, that we are going in areas that are the most sophisticated from a technology point of view. That includes video and CTV, sort, our cookie-free innovation, retail media, and search. I say search, yes, which I might not have said a year ago. Because of the transformation being created by OpenAI and ChatGPT4, which is being driven by Microsoft being our long-term strategic partner. You may remember last quarter when I opened the Kimono and talked about how we are using the Exploit and Explore framework to guide our strategy and execution. Well, this is what has happened with Search. More specific, with some of the business opportunities we've seen emerging within Search. Thanks to the disruptive possibilities of integrating AI into search, we have a whole new initiative. Now firmly in the explore quadrant. Next, I'll discuss our EBITDA, which exceeds Q1 of last year by 38%. In other words, almost 50 cents of every dollar of net revenue is profit. We are particularly proud of this accomplishment, given everything I've talked about in terms of macroeconomic and the rocky and bumpy ride we're on. I'm often asked by many of you and at conferences about how we are able to continually generate results which appear to challenge the laws of gravity and physics. This is especially compelling, given that Achilles' heel of many ethics Is there inability to drive the top line and still maintain a high profitability? The answer is that we're able to capture and analyze data signals from all channels and from both sides of the open web into our central hub. We're using advanced AI to develop a bidding system that maximize our unit revenue while reducing our media costs. By doing this, we uniquely combine efficient buying with the ability to meet our customer ROAS, return on ad spend expectations. At the same time, when advertisers are under extreme loss pressure, this is a true competitive advantage for us. I've mentioned this before. It is a paradigm that investors and venture firms have applied to identify the markers of the healthy growth for tech-driven software companies, even though it's not common for evaluating at the company. We at Perion see ourselves at the forefront of incorporating AI technology in our solution and thus need to be benchmarked with most sophisticated high-tech companies. To restate the formula, you should add your trailing 12-month growth rate in percentage terms to your EBITDA margin. If the result is 40 or more, you're doing great. You can see how we measure up right here. It's something we look at all time, a fiscal discipline that drives us. Because I said before, if you over-index to top line and ignore profitability, you put yourself on a slippery slope that is extremely difficult to correct. I'll move to search advertising now. It has been a reliable and significant growth driver for Perion. and it will become even bigger contributor based on recent investment Microsoft has made in chat GPT. With that in mind, I'd like to quote Satya Nadella, CEO of Microsoft, who said on the recent earning call last week when talking about Bing and chat GPT-4, he said, we're making progress in share gains. We continue to innovate with the first of its kind AI power features. We see that when people use their new AI feature, their engagement with Bing goes up. We look forward to future where chat become a new way for people to seek information. This is a generational shift in the largest software category, search. This is a truly profound and it's just the beginning. It means that ad search category that has been mature and faced a slow growth is now one of the most dynamic categories in ethics. Our first quarter reflect that. Search numbers were boosted by a significant increase of 29% in the number of publishers. They sense the potential and want to be part of it. As a result, Average daily traffic increased dramatically by nearly 50% year over year and are now close to a 30 million monetized search a day on an average basis. We believe that the massive media attention to Chet GPT-4 has driven a material portion of this and that will continue to see growth that exceeds our normative trajectory. Microsoft Bing has a real competitive advantage now, and that cascades immediately to our business. Next, I'd like to provide some context and visibility into our retail media commerce business, as I see it as a very important growth driver behind the company. I'm sure you know that just about every major retailer from Albertson to CVS to Target has launched their own media network to compete with threats from Amazon and Walmart. What we've built at Perion is an AI-driven platform that enables these retailers to maximize the value of their inventory with ad units that identify consumer signal and respond with timely and personalized promotion and content. For example, if the weather is lousy and it's good day to cook at home, our intelligent platform deliver ads like that, as you can see it on the screen. We can personalize at scale and can do it in an omni-channel fashion across all streams, as you can see it from the following example, from the moment you wake up until you go to bed. We consolidate multi-dataset, including retailer first-party data, external signal like weather and location, and AI-driven decisioning within our ads as a platform solution. while coupling this with our award-winning creative on an omnichannel basis. In other words, synchronizing our messaging according to the consumer journey across display, video, CTV, and digital out-of-home using a dynamic messaging delivery. We've delivered 14 times return on ad spend to Albertson and others, driving results digitally, replacing old school print circulars, even allowing retailers to shut off promotion if it gets to a negative margin. Our retail platform is changing the business dynamics of our clients shifting from transactional campaigns to always-on, thus improving the sustainability and predictability of our business. Our commerce platform has grown by 60% year-over-year in terms of revenue and by 32% in terms of new customers. You can see some of the logos at the bottom of the screen. With a total addressable market of $46 billion in 2023 and virtually little innovation in retail media, you can see why we are so bullish on this innovation. Retail media is one macro trend we are capitalizing on. Privacy is another. Study of the study reveals that consumers will choose brands which protect their privacy over brands that don't. In fact, more than 80% of consumers care about their privacy. That's the power of the appeal of SORT. SORT is our cookie-less, totally anonymous solution that protects consumer privacy in a unique and honorable way, which is why we're attracting brands who want to be associated with the privacy first principle. Those include brands that range from Mercedes to the United Nations. In fact, 48 new customers adopted SORT in the first quarter of 2023. And in total, there are 157 customers that are using our privacy-first technology. But that's just one reason SORT is exploding. It is also the results and the ROI we deliver. SORT has been verified by third-party researchers to deliver superior results to cookies themselves. That's why Existing sort customer spending are increasing their spend by 93% year over year. That's one more critical point to make here. And that's the connection. There is one more critical point to make here. And that's the connection between privacy and ESG, environmental, social, and governance. To live up to ESG standards means that you have to protect user privacy. We're seeing investor, legislator, and regulators paying unprecedented attention to this essential right. This is why we believe SORT will continue to be a major contributor to revenue and EBITDA. From that growth driver four, as you can see by the numbers right now, 26% year-over-year growth and increase of 63% for the new publisher added to our video platforms. VidaZoo is on fire. Our end-to-end platform is meeting a large and growing need for publishers who are looking for fast results and lack the internal resources to build a complex, high-maintenance internal system. The platform advantage is what's behind our lend-and-expend sales growth engine. As proof of that, revenue from retained video platform publishers increased by 71%, and average revenue per publisher increased by 22%. To unpack that for you, what our sales team are focused on is getting initial traction, a modest yet extendable footprint, which enable us to prove our capabilities and go forward. Display on the slide in our full suite video platform service, each and every one of these components, as you can see it at the bottom half of the slide, is independently valuable and collectively powerful. We aren't asking clients to commit everything at once because we are confident of our power of the holistic platform as they learn more and more about it. To conclude, the more they experience us, the more service they consume. Growth number five, And the one that I think is making the most impact on our business is our iHub. As you know, our iHub is a key to our differentiation. We spend tens of millions of dollars to build a mode which connects all the signal across our platform. This provides efficiencies which have led to unique business advantage on many levels. But before describing the benefit of the iHub, we must reiterate its core importance. Without having all the pieces of the business connected, we would be managing a very costly, inefficient, fragmented business. On a given day, we capture into iHub Data Lake billions of data requests from various media channels. One example of effectively leveraging this amount of data is creating an AI-driven bidding strategy that optimizes the match between supply and demand to maximize our profit. At the same time, it assures the highest performance to our customers. Our iHub open architecture is a foundation that enable us to make acquisitions, which are instantly optimized because they plug in into the center of our ecosystem. As EdTech grows more complex and multidimensional, the value of our iHub will only become way more meaningful. With that, I will turn the call to Maoz

Maude? Yes. Thank you, Doron. Good afternoon and good morning to those of you joining us from the U.S. I am happy to be here today to present a strong result for the first quarter of 2023. The strength of Korean business has been evident for the last three years, building great momentum on both the top and bottom lines. These strong trends have continued in the first quarter of 2023, even as the market has been impacted by a slowdown in advertising activity driven by macroeconomic challenges. Here on the diversified business model, technology differentiation and innovation-focused approach continue to enable us to navigate our way through market changes. Quarter after quarter, we are increasing revenue while media margin and EBITDA margin are improving dramatically. This is the result of our continuous efforts to improve our performance and to improve operational efficiency. Let's look at the main financial achievements for the first quarter. Revenue grew by 16% to a 155.2 million. Gross profit grew by 20% to 65.3 million with 45% margin compared with 43% last year. Adjusted EBITDA grew by 38% to 31.3 million with 22% margin compared with 18% last year. Net income of 23.8 million increased by 54% year-over-year. Non-GAAP diluted earnings per share increased by 36% to $0.60 per share. Now, let's move to the quarterly results in more detail. The revenue of the first quarter of 2023 was $145.2 million, an increase of 16% year-over-year, reflecting a strong continued three-year CAGR of 30%. First quarter display advertising revenue increased by 16% year over year to 79.9 million, 55% of total revenue. This was driven primarily by the continuous market adoption of our holistic video platform, the increase in sort, retail media, and CTV. Video revenue increased by 26% year over year, representing 44% of display advertising revenue compared with 41% in the first quarter of 2022. The number of video platform publishers increased by 63% year-over-year from 46 to 75. The revenue from written video platform publishers increased by 71% year-over-year. Average revenue per video platform publisher increased by 22%. Our innovative cookie-less targeting salt solution is being increasingly adopted by the market in light of consumer growing awareness and increasing regulatory pressure on companies to protect consumer privacy. The number of salt customers was 157, representing an increase of 142% year-over-year. Sold customer spending increased by 93%, representing 17% of display advertising revenue compared with 7% last year. CTV revenue increased by 12% year-over-year, representing 8% of the total display advertising revenue. Retail media revenue increased by 60% year-over-year, representing 8% of display advertising revenue, compared with 6% last year. The number of retail media customers increased by 32% year-over-year. First quarter search advertising revenue increased by 15% year-over-year to 65.3 million, 45% of total revenue. The strength of our search business was driven by a sharp increase in traffic due to consumer interest in JGPT, which continued to rise. Being ecosystem is benefiting from that exciting change. The strong increase of 49% in average daily searches and the 29% increase in publisher more than offset the 22% decline in RPM rates for this quarter. The first quarter display advertising revenue accounted for 55% of total revenue with search advertising accounting for 45% of total revenue. Revenue excluding tax was 65.3 million or 45% of revenue, compared with 43% of revenue in the first quarter of 2022. Our media margin continued to show year-over-year improvement, quarter after quarter. The intelligent app we have developed leveraged data buying power to control and improve the overall media buying results. This was 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 measure shows a continuous improvement over the last three years. OPEX plus Cox counted for 26% of revenue this quarter, compared with 28% in the first quarter of 2022 and 32% in 2021, 6% improvement over the last three years. During the same period, EBITDA per FTE has risen from 18,000 in 2021 to 45,000 in 2022 to over 62,000 in 2023. This impressive achievement is a clear demonstration of our ongoing increasing productivity and reflects the execution of our business strategy and the disciplined manner in which we run our operations. Over the past few years, we have invested in innovation and automation. creating the infrastructure that allows incremental top and bottom line growth on a lower cost basis. We have improved our budget control and are consistently looking for new efficiency initiatives. These show how our efficiency and cost control measures, coupled with focused growth in high margin business, translate into impressive bottom line growth. First quarter adjusted EBITDA was 31.3 million, reflecting 38% year-over-year growth. Adjusted EBITDA margin was 22% compared with 18% last year. Adjusted EBITDA to revenue, excluding tax, increased from 42% in the first quarter of 2022 to 48% in the first quarter of 2023. On a gap basis, first quarter net income was $23.8 million, or $0.48 per diluted share, an increase of 54% compared with $15.5 million, or $0.33 per diluted share, in the first quarter of 2022. Importantly, our net profit includes two additional profit sources worth highlighting. First is our strong cash position and disciplined cash management, which help parents to generate 3.4 million financial income during the first quarter. Second, we also enjoy a low effective tax rate of around 15% due to our disciplined tax planning. This means that more of our pre-tax income converts to earnings. On a non-GAAP basis, first quarter net income was 29.9 million, or 60 cents per diluted share, an increase of 44% compared with 20.7 million, or 44 cents per diluted share in the first quarter of 2022. First quarter operating cash flow was 17.8 million, compared with 23.6 million in the first quarter of 2022. Operating cash flow was affected by about 8 million customer collection shifts from March to April 2023, and the one-time change in working capital needs. As of March 31st, 2023, our cash and cash equivalents short-term deposit and marketable securities amounted to 436 million, up over 6 million since the previous quarter. The 6.7 million increase is primarily a result of 17.8 million in cash from operations, partially offset by 13.3 million cash paid in connection with acquisitions. This concludes my financial overview and now I will end over to Doron. Doron, please go ahead.