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spk05: Hello, everybody, and welcome to the Perion Network second quarter 2024 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.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 a GAAP and non-GAAP basis. While mentioning EBITDA, we'll 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 6-K. Hosting the call today are Tal Jacobson, Perrion's Chief Executive Officer, and Moaz Sigron, Perion's Chief Financial Officer. I'd now like to turn the call over to Tal Jacobson. Please go ahead.
spk10: Good morning and good afternoon. Thank you for joining us for our second quarter earnings review. As always, Moaz Sigron, our CFO, is with me today. I want to start by reminding all of us what are we trying to solve at Perion. Digital advertising is expected to reach $700 billion this year and grow to over $900 billion within three years. However, managing this vast spending across numerous platforms, channels, screens, data points has become very complex for the advertisers. The chief marketing officer is in charge of spending those digital advertising budgets. An army of experts and vendors are needed to cover all relevant advertising channels. And when they do, it's almost impossible to prove actual ROI across all channels and platforms. This is where Perion comes in, providing the technology that fits the brand goals. As a technology company, we ensure our tech fits the brand strategy, as different brands have different needs. In the early days, an off-the-shelf CRM worked for many brands. Today, we know that if you want to get the best results from your CRM, it's not enough to buy a license for a CRM such as Salesforce. If you want to get the best results, you need to customize the technology to your needs. The same applies to the $700 billion digital advertising industry. And we believe we are on our way to tackle the over-complexity of digital advertising universe through technology. Our mission in the fast-evolving, over-complex, omnichannel advertising universe is clear. To identify, connect, deliver, and measure compelling messages across multiple screens and platforms. while maximizing our clients' advertising budgets. The core of our technology is to empower advertisers to seamlessly and effectively connect with their audience, whether at home, at work, in the supermarket, or on the move. This quarter, we made significant advancements in our technologies, forged key integrations, and secure crucial partnerships to advance our solutions. Here's a reflection of our core growth engines that have continued to demonstrate positive momentum with a strong double digit growth rate. HiStack, our best of breed programmatic digital out of home technology that we acquired at the end of last year is already bearing fruit. We have added a robust growth engine, enhanced our ability to help advertisers deliver omnichannel experiences, and expanded our global footprint. Programmatic digital out of home is expected to play a pivotal role in the future of retail media as consumers continue to see goods at physical stores and retail advertisers compete for their attention. By leveraging our technology, advertisers can synchronize their campaigns to deliver consistent brand messages, effectively to maximize ROI. Our recent omnichannel campaign for Colorado tourism utilized our CTV pause ads, our cutting-edge AI-generated dynamic audio ad technology called Wave, and our mobile interactive ads.
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spk10: By integrating those channels into a single compelling and holistic advertising experience, we ensure that the brand messages resonate deeply with the consumers. This provides consistent engagement across all platforms and devices. Our CTV solutions are showing great momentum and are adopted by more and more brands. We are leveraging our advanced location-based capabilities to drive meaningful results for advertisers. For example, our CTV Golden Coral campaign directs viewers to the nearest restaurant. make it an easy choice for a hungry consumer. Our technology is using the restaurant's locations and integrating them into the brand creative using our advanced dynamic creative technology. Let's take a look.
spk04: You know what's crazy? That this is better than cooking at home? I mean, more affordable than groceries. Of course. Okay. Groceries are expensive. I thought I was in trouble there for a second.
spk10: You are. Our retail and commerce advertisers are also enjoying new developments that enrich retail campaigns to drive meaningful results. One of them being the click-to-cart functionality. Click-to-cart allows advertisers to add direct-to-cart call-to-action within the ad. This creates an accelerated path to purchase. As presented in this ad, one click opens the target website and the item is already in the shopping cart. One of the most exciting developments at Perion is the extension of our advanced CTV technology to now also run on YouTube CTV. Brands can now leverage our appealing, high-impact CTV solutions on YouTube, the second largest CTV ad platform in the U.S. Here's an ad for Direct Energy, one of the first brands to adopt our CTV technology for YouTube.
spk02: Our programmatic digital out-of-home advertising solutions are reshaping how brands engage, interact and connect with audiences across the globe.
spk10: Programmatic digital out-of-home is uniquely positioned at the intersection of art and science. It provides unparalleled opportunities for brands to deliver full funnel advertising campaigns that are customizable to meet their goals. The out-of-home channel is evolving at an incredible pace, growing in popularity with some of the world's leading brands, And we keep adding new and exciting features. Burger King, for example, use our technology for programmatic digital out-of-home to motivate people to visit restaurants across 165 locations in New Zealand. They leverage features such as proximity gale fencing, advanced scheduling, and contextually relevant creatives. Those features are unique to programmatic digital out-of-home and generated impressive results for Burger King.
spk03: Burger King, one of the world's most popular QSR chains, was looking to reach relevant audiences and drive traffic into their restaurants across New Zealand. Leveraging the high-stack platform, they activated a programmatic digital out-of-home campaign on specific outdoor screens located within a two-kilometer radius of Burger King restaurants. day-parting capabilities were used to further optimize the campaign by activating contextual creative based on mealtimes and peak hours. The campaign generated over 2.7 million impressions and a football lift study was used to determine that there was a 62% lift in in-store visitations. Crowning programmatic digital out-of-home as a leader in delivering high-impact results,
spk10: In the world of programmatic digital out-of-home advertising, the variety of screen sizes and formats is vast and diverse. It's almost like navigating a jungle. Digital out-of-home, unlike web advertising with its IAB standard ad sizes, presents unique challenges, as there are many screen sizes and proportions. This is where Pellion's AI-based Dynamic Creative Optimization Technology, DCO, steps in. We transform complexity into opportunity by adjusting out-of-home creatives dynamically. Our AI-based DCO capabilities are already at work in other formats we power. Now we have added this capability to support digital out-of-home and offer our clients more efficiency scalability, and consistency. Advertisers utilizing this technology maintain high-quality visuals and messages across all formats, enhancing brand consistency and the effectiveness of each campaign. Our technologies continue to earn industry recognition and win awards. I'm proud to share several awards our team has won this quarter, including the Drum Awards, and the IAB Tech Lab certification. Before we transition to review our financial results for the second quarter, I'm excited to share important updates within our leadership team. Our incredible CFO, Moe Sigron, will be promoted to become Perio's Chief Operating Officer. I'm extremely excited about Moe's promotion. As a proven leader who has been pivotal to the company's turnaround the past seven years, Maoz is well-positioned to lead the strategic unification of our various operations, ensuring the company is on the right path achieving sustainable growth. I'm also pleased to share that our current Senior Vice President of Finance, Elad Zuberi, will be promoted to become our CFO effective August 1st. I wish Maoz and Elad great success in their new roles With that, I'll pass the stage to Moez to review our second quarter financials.
spk07: Thank you, Tal. Good afternoon and good morning to those of you joining us from the U.S. The second quarter had eight challenges. Microsoft Bank made changes to its search distribution marketplace across all of its distribution partners that significantly impacted our search business. In addition, and as we stated previously, we continued to see a reduction in our open web video and display standard format. However, the strength of our IT growth engines, including retail media, CTV, and digital out-of-home continued to outperform the market. Notably, our recently acquired digital out-of-home business continues to deliver strong results. It grew 41% year over year on a performer basis and it is on track to become one of our fastest growing categories. Our strong balance sheet and cash position allow us to continue our organic investments in technology and to execute our M&A strategy. Those of you who have been following us over the years, have witnessed Perion's ability to successfully meet challenges. We have always exhibited the operational flexibility to adjust our strategy and execution. We do this in a way that enables us to overcome obstacles while continuously leveraging our technological advantages and innovative initiatives. We expect this time is no different and I believe that we will become an even stronger company. Looking ahead, we believe that the combination of our cash position and the opportunities in the near $700 billion global digital advertising market will allow us, I am sure, to capture market share and lead to profitable growth. Turning to our main financial highlights for the quarter. For the second quarter that ended on June 30, 2024, revenue was 108.7 million, a decrease of 39% year-over-year. Adjusted EBITDA amounted to 7.7 million, a decrease of 81% year-over-year, and resulting in a 7% adjusted EBITDA margin and a 15% extract margin. Gap net loss was 6.2 million, while non-gap net income was 13.4 million. Net cash was $407.1 million, in part reflecting the execution of our share buyback program in the amount of $20 million. Revenue for the second quarter was $108.7 million, a decrease of 39% year-over-year, mainly impacted by search and standard open web video and display. Revenue from advertising solutions was 74.4 million, a decrease of 25% year-over-year, and accounted for 68% of total revenue. The year-over-year decrease was a result of the decline in open web video and standard display revenue. These declines were partially offset by a significant year-over-year increase of our growth engines, including retail media, CTV, and digital auto form. Our CTV business grew by 42% year-over-year to $10.2 million. This has more than doubled the 2024 market growth of 19% according to eMarketer estimates. CTV revenue represented 14% of advertising solutions revenue compared with 7% last year. Digital out-of-form grew by 41% year-over-year on a performer basis to $13 million. outpacing the expected 2024 market growth of 11%, according to a marketer estimate. Digital outperform represented 18% of advertising solutions revenue, compared with 9% in the same period last year on a performer basis. Our retail media vertical delivered consistent growth, increasing 75% year-over-year to 17.6 million, while the expected 2024 market growth according to eMarketer is 26%. Our retail media business accounted for 24% of advertising solutions revenue, compared with 10% in the same period last year. Those results were aided by our ability to introduce new technological solutions across multi-channels. Also, our access into premium inventory drove increased spending by existing and new customers. Second quarter search advertising was 34.3 million, a decrease of 57% year over year. This is mainly due to the changes in advertising pricing mechanisms implemented by Microsoft Bing and their decision to exclude a number of publishers from the search distribution marketplace. Going forward, We expect our business from our agreement with Microsoft Bing to represent about 5% of Purell's revenue in the second half of 2024. Contribution excluding TAC to revenue was 46% compared to 43% in the second quarter last year, mostly due to shifts in product mix, giving the reduction in the search business. Adjusted EBITDA amounted to $7.7 million, 7% of revenue and 15% of contribution ex-TAC. This is compared with 23% and 54% respectively in the second quarter of 2023. The decrease in the adjusted EBITDA was mainly a result of the reduction in search advertising activity, the decrease in standard video and display formats, and higher operating expenses due to the integration of iStack. On a gap basis, Second quarter net loss was $6.2 million, or $0.13 per diluted share, compared with a net income of $21.4 million, or $0.43 per diluted share in the second quarter of 2023. Non-GAAP net income was $13.4 million, a year-over-year decrease of 68%, or $0.26 per diluted share compared with $42.1 million, or $0.84 per diluted share last year. Operating cash flow for the second quarter was a negative $20.5 million, compared with $47.4 million in the same period last year. This quarter's operating cash flow was mainly impacted by a delay of $17.6 million in the Microsoft collection to July 1, 2024, and a one-time contingent consideration payment of $9.6 million related to videos, air and out, which according to accounting standards are classified under operating cash flow. As of June 30, 2024, net cash including cash equivalents, short-term deposits, and marketable securities was $407.1 million. down from $479.7 million at the end of the first quarter of 2024. The quarter-over-quarter decline in cash was primarily the result of $31 million payment of contingent consideration and a total of $20 million execution of our buyback program. We are reiterating our full-year 2024 guidance that we provided on June 10. This concludes my financial overview. I would like to take a moment to acknowledge the changes we made in our executive team. I am excited to take on the role of parent chief operating officer. As student COO, I will partner closely with Tal and senior management, aiming to navigate through opportunities and challenges that lie ahead. As part of my new role, I am responsible for the strategic integration of parent's course organization business operations exploring internal and external business opportunities and partnerships, and maximizing efficiency. My prime goal is to drive sustainable, profitable growth in the next years. I would like to thank CTAL and the Board for having confidence in me to lead these strategic functions. I strongly believe Payone has a promising, bright future. Along with the entire management, the board, and our employees, I am determined to seize this opportunity and navigate Perion to its next phase of growth. I am pleased to welcome Elad in his new role as Perion Chief Financial Officer. I have known and worked with Elad for the past decade, out of which six years at Perion. His promotion is very much deserved, and he is my natural successor. I will assist Elad in any way possible, and I look forward to continue working closely with him in our new world. I will now pass it to Elad to say a few words.
spk06: Thank you, Moaz. Good afternoon and good morning to those of you joining us from the US. I have been working closely alongside Moaz at Perion for the past six years. Throughout my years at Perion, I took an active part in most of our important milestones. And as Senior Vice President of Finance, I manage all financial aspects of the company. As Maoz noted, our professional and personal relationship go back over a decade. I want to congratulate Maoz on his well-deserved promotion and thank him for being such a trusted mentor. I would also like to thank Tal and the Board of Directors for their trust and confidence in me. In my new role, As the chief financial officer, I will capitalize on the knowledge and skills I learned over the years. I am eager to join our superb management team. I am ready and fully committed to help lead Perion to new heights. I'll now hand it back to the operator to open the line for questions.
spk05: Thank you. We'll now be conducting a question and answer session. If you'd like to verbally ask your question over the phone, please press star 1 on your telephone keypad. Over the webcast, please click the raise your hand function. One moment, please, while we poll for questions. Our first question is coming from Jason Helstein from Oppenheimer. Your line is now live.
spk01: Good morning, everyone. Two questions. One, do you think take rate is the right pricing model for the business, just given the exposure you ultimately then have to kind of add pricing? Or does it make sense to pivot more to an agency type of professional services or billable hours model and kind of like charge on a basis? And then second, did closing Content IQ have an impact on open web video in the future? Thanks.
spk07: Hi, Jason. We have here some technical issue with the microphone. Sorry, but could you repeat the first question?
spk01: Do you think take rate is the right pricing model, or should you pivot to an agency type of professional services or billable hour model? That way you can get on a campaign basis and aren't as dependent on kind of ad pricing trends.
spk10: Yeah, that's a great question. You know, as we're trying to move away from as possible from being an advertising company into a technology company, focusing on technologies and solutions, we do not look at ourselves as agencies. We want to provide that layer of technology to actual agencies. So we work with direct advertisers, with direct retailers, but also with agencies and holdco's. So we do not look at ourselves as agency, but as a technological layer that connects all the dots. So it makes more sense that, you know, we're making our money out of a cut of what we can actually provide to the client, which is the advertiser. And for the second question.
spk07: And for the second question, Jason. Some changes, part of them include changes in CRQ. We are now not running any on an operating website. We use the technology for other needs for the other part of the business. So we're less impacted from this part of the business of the O&O.
spk05: Thank you. Our next question today is coming from Laura Martin from Needham & Company. Your line is now live.
spk11: Yeah. So, Tal, for you, you've talked about wanting to do acquisitions in the past, but with the stock down 70% and cash flow negative $20 million in the quarter, could you update us on your M&A goals at this point? And then, Moaz... Congratulations on your promotion. My question is, the business is going to be 35% smaller at the revenue line this year than last year. So could you talk about your goals as a chief operating officer? And specifically, I'm interested in your cost-cutting strategies. Thank you.
spk07: Thank you. Thank you, Laura. So first, for the first point about the cash, we had two questions. Thanks during the quarter with the cash flow. One is a delay of one day with Microsoft Bank, just a shift of $17.5 million from Q2 to Q3 to July 1st. And second is a one-time impact from accounting of $9.5 million that related to VitaZoo payments that we did during the quarter. So if you're taking these two items, the cash that we have is more or less $6 million during the quarter, which is very much aligned with the EBITDA we have for the quarter. This is one. Second, about my new role, I'm really excited and happy to take this role. Efficiency, of course, is only one part of what I'm going to do. more realistic. We are trying here to take the opportunity to let Elad take the CFO position and to lead the finance part and that myself and my team will lead the operation side of the business. This is not only efficiency, this is also identifying business opportunities that we have all over and how we can leverage that and to take it as part of our plan for 25 and 26. Efficiency is part of it. During the quarter, as part of the change that happened with Microsoft, we did a significant efficiency and reduced people in some places and also some other changes that we did, and we reduced our cost basis dramatically. We'll see it later because it will impact H2 forward. So I'm really excited from my new role, and I believe this is definitely will give me enough time to focus on growth and the future of Curium.
spk10: Let me just add to that. We're generating positive cash flow. I know this specific quarter with all the technical but it is positive. We're absolutely looking to generate more and more cash. We're using cash buyback and investment and M&A. Now, I think we've shown that the last M&A that we've done has helped us gain meaningful technology that by itself generates a very nice growth rate. So we're going to continue doing that. We're not going to buy any company that doesn't make any money. So we're focusing on companies that are profitable, synergetic to what we do, and are focused on technology. And one of the things, obviously, with the new role of MOLOS, it has many items. But one of the things is, you know, to sell our cross-solution across everything we do, to those customers. So that would reduce operational and customer acquisition costs because we're now unifying those solutions to that specific customer, and that should result in a more efficient company and a faster-growing company.
spk11: Thank you.
spk10: Thank you. Thank you, Lola.
spk05: Thank you. Our next question today is coming from Mark Kelly from Steeple. Your line is now live.
spk08: I agree. Good morning. Good afternoon. Two quick ones. I was hoping maybe you could touch on sort adoption and I guess what your expectations are there now that, you know, Google has decided to keep cookies around, you know, for now, at least. I know there's a lot we don't know about the path forward there, but any thoughts on sort adoption? And then second, just can you dive into retail media a bit more? You know, it's my understanding that you know, the majority or maybe all of your retail media business is the off-site component, so not buying on retailers' websites, retailers' sites. A, is that correct? And B, you know, I guess what would the mix be between on-site and off-site for you? Thank you. Great. Thank you for the questions.
spk10: So, absolutely. Listen, you know, I think we all, none of us was very surprised when Google said, we're going to push this further or even cancel that. But I think the exercise that we went through in the past few years, thinking that cookies are going to go away, really pushed us in developing new technology for segmentation, for audience segmentation. And sort is very much relevant. I mean, our customers are using sort, sort 2.0 with CTV now. is even more robust. And the fact that you can target the same type of segmentation across open web and now CTV with the same technology is very powerful. But having said that, and that goes directly to your second question, our retail media and our solution as a whole is the omni-channel solution. So it's not just off-site or on-site, it's connecting the dots, right? So connecting the dots means we can run We can run it on social. We can run it on CTV. We can run it out of home. We can run it on Spotify. We can run it on open web. Whatever the client needs, we can provide because we build a technology that is flexible enough for that. Now, so that's in retail. Retail is not just out of home. It's also on-site, off-site, from digital advertising on websites and from digital advertising out of home. We're connecting to that. That's the idea. Now, sort is perfect for that because it actually understands the audience sense based on all our algorithms that we've built throughout the years. That doesn't mean that we're not using other third party. If a client wants to say, you know what, I want to use LiveRamp or I want to use the Traders ID or whatever they want, we're already integrated into all of those. And one thing to remember, Because we're working omni-channel and not specific, we're not working specific channel, right? We can work on Meta and Google and open web and whatever. We're connecting the dots because of that and understand that cookies are not relevant to most of them, right? Out of home doesn't have cookies. CTV doesn't have cookies. So not everything has cookies, but the ability to understand all of them is the powerful thing that we do. I hope that answered your questions. It does. Thanks very much. Thank you.
spk05: Thank you. As a reminder, to be placed into question queue over the phone, please press star 1 on your telephone keypad, and over the webcast, please use raise your hand function. Our next question today is coming from Eric Martinucci from Lake Street. Your line is now live.
spk09: Yeah, I wanted to dive into the cash generation expectations for the back half of 2024. You've got, you know, we're kind of halfway through a year here. You've given a midpoint adjusted EBITDA projection of 50 million, and we've got 28 million at the halfway mark. Given that that remainder is about 22 million, is that a fair estimate? of what we think cash generation could be in the back half of the year?
spk07: Yes, thank you, Eric, for the question. So, yes, we are starting to move back to normal. Without the two things that happen in the quarter, we will have a free cash flow that's similar to the EBITDA. This is not going to be an H2. So what you said is very much right. We're expecting H2. be very much aligned with the EBITDA plug number for H2 based on the $50 million EBITDA that we have in the guidance.
spk09: Okay. And then the uses of the cash, I was pleased to see that you were active in the repurchase activity in Q2. Based on that $20 million spend, we're now, I guess, down to a balance of $55 million on the repurchase authorization. What's your expectation for the pace and the size of repurchases going forward?
spk07: So we are, as I said, we started the plan, as we said, during the quarter. As we promised right after the earning call, we are going to complete all the operations and we will start the plan. So we did $20 million in the second quarter. We're expecting, you know, to spread the rest of the plan until the beginning of 2025, so it will split between Q3 and Q4 and a bit 2025. Got it.
spk09: Thanks for taking my questions, and congratulations on your promotion, Moze, and yours as well, Eilat.
spk05: Thank you. Thank you, Eric. Thank you. Next question today is coming from Jeff Martin from Roth Capital Partners. Your line is now live.
spk00: Thank you. Good morning and good afternoon, fellas. I wanted to get a little more detail on the open web revenue decline. How much of that is, do you think, market dynamic versus internal adjustments that you're making at Perion, specifically how much of that was content IQ?
spk07: So the main, as we said, also on the preliminary, the main change, you know, started back then in 2023 related to our priority in terms of margin. And then from 2024, beginning of the year, we started to see something that is different, more related to the market and to less demand on this specific format, on the display, on the video, on the open web. So this is very much most of the reason for the change. I think that, you know, moving forward, we're expecting, let's say, that it will stabilize around the current level. We ended the quarter with 18% for the video. I believe that if I need to, let's say, think about the future, we are around a level that will be stabilized around let's say 15% more or less. This is more or less kind of the new norm of this part of the business.
spk00: Thank you. And then a balance sheet question for you on the short-term payment obligation-related acquisitions. You made a $9 million payment for the VitaZoo acquisition in the quarter, and then you had a small change in the contingent consideration estimate going forward. But when you look at the balance sheet, it That line item declined $46 million from first quarter to second quarter. We're just curious what other factors led to that change on the balance sheet.
spk07: As we said before, part of the accounting rules mean that we need to split the payment we did for VitaZoo to two lines. One is the cash operation and the second is the If the investment and the $9 million is what you see in the balance sheet is actually the change from the payment. There is another small change that's related to other changes that we did for the other acquisition. But the change that you see in the balance sheet, this is the main change.
spk00: Okay. I'll follow up with you on our follow-up call on that one. Thank you. Thank you.
spk05: Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to management for any further closing comments.
spk10: Thank you very much. Thank you, everyone, for joining us today, and thank you for being part of our journey. We're looking forward to seeing you again in person or on our next earning call. Thank you.
spk05: Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.
spk03: Goodbye.
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