Perion Network Ltd

everybody and welcome to the Perion Network third quarter 2024 earnings conference call. Today's conference is being recorded and an archive of the webcast will be posted on the company's website. 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 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 the 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 analysed both on a gap and a non-gap 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 6K. Hosting the call today are Tal Jacobson, Perion's Chief Executive Officer, and Elad Soubry, Perion's Chief Financial Officer. I would now like to turn the call over to Tal Jacobson. Please go ahead.

Good morning, good afternoon, and welcome to Perion's third quarter 2024 earnings goal. Today, I'm pleased to share the results and the highlight of the progress we're making in the digital advertising innovations. Technology and profitability are two core essential elements of Perion culture. For over a decade, we've been successfully building advanced, cutting-edge technologies at the forefront of edtech industry. And since 2014, Perion has been delivering positive annual adjusted EBITDA and operating cash flow, an accomplishment we're proud of and committed to continue to drive. At Perion, we aim to help CMOs, the same people who control almost $700 billion of digital advertising budgets. This number is projected to reach almost a trillion dollars within three years. Today, CMOs face an almost impossible mission. They are required to provide continuous ROI on advertising budgets. They are expected to do this while working in a fragmented ecosystem of channels, data points, screen sizes, audience segmentations, and many different media buying systems. All this while respecting the privacy of the consumer and ensuring a minimal budget waste. In all our conversation with brands and agencies, we hear the same thing. They are all looking for an holistic solution that can run across the omnichannel universe and provide the best results while reducing waste. This landscape demands advanced, efficient, data-driven solution. That's exactly where Perion stands out, with an AI-driven technologies. Perion is taking a unique approach to what people used to call the linear consumer journey. We understand that human behavior has changed so much in the past few years, and each person interacts differently with technology throughout the day. Perion's technology is deeply rooted in each channel to ensure we can deliver marketing messages at the right time to the right consumer. We connect the dots. We do this across the digital advertising space between data, creative, and media to ensure that brands achieve better returns in meaningful outcomes. Our advanced technologies keep us ahead of the curve, anticipating shifts in digital advertising. As CTV, retail media, digital out-of-home, and audio ads lead today's industry trends, we're continuously introducing new innovative technological solutions. Our solutions position Perion at the forefront of those high growth areas. Less than a year ago, we launched our advanced generative AI solution for audio ads, forecasting the movements in the digital advertising industry. Indeed, we are now seeing the largest industry players investing in audio, with a new deal between the Tradesk and Spotify coming to life. As Jeff Green commented, digital audio might be the most on-sell corner of the internet. The time spent to ad spend ratio is the highest disparity of any channel. We will continue to look at the changes and build advanced technologies for it to capture the revenues and stay ahead of the curve. Our advanced technologies are built to solve the advertisers' toughest challenges, leveraging AI to optimize campaigns and better efficiencies in reach. In our AI lab, we continue to produce amazing products. You're all familiar with SORT and WAVE. SORT is our advanced AI audience segmentation technology for CTV and web, designed perfectly for cookie-less environments. And WAVE is our advanced generative AI audio ad solution. Perion's Creative Studio is our AI-driven DCO, dynamic content optimization. that builds and delivers the most effective creative in real time across multiple channels. And our recently launched product, a unique advertising experience powered by chat AI capabilities, connects brands with their consumers through AI conversations and boosts engagements by enabling in-ad interactions tailored to each person. Everything we do is focused on one thing, providing great results for our brands. Great results come when combining advanced technology and premium inventory. This is why when it comes to inventory, Perion works with the best. In the past year, we've made many advancements connecting our technology to the leading platforms within our ecosystem. This is our way to ensure that our clients get the best of all worlds when working with us. Having advanced technology with a high level of flexibility that meets our client needs is our first priority. It is our unparalleled capabilities that make Perion a trusted partner. We work with some of the industry's most recognized brands and agencies, setting new standards and creating impactful results. I'm pleased to report that our growth engines continue to perform strongly. Digital out-of-home, retail media, and CTV delivered strong growth of 63%, 62%, and 19% year-over-year, respectively. As we look into the future, I invite you to be part of what's next for Perion. Here's what set us apart as an investment opportunity. Innovation is in our DNA. We're constantly pushing boundaries, staying ahead of the industry trend. We have a decade-long track record of generating positive adjusted EBITDA and operating cash flow. Our commitment to high growth areas, such as digital home, retail media, and CTV, positions us at the forefront of the market. Our leadership team brings deep industry expertise and visionary approach to every decision. And with our global footprint, we can serve clients and partners in high growth markets, positioning us to accelerate growth. Now, I'll turn it over to our CFO, Elad Zuberi, who will discuss our quarterly financial results.

Thank you, Tal. Good afternoon and good morning to those of you joining us from the U.S. After completing my first quarter experience as Chief Financial Officer, I am glad to share that our third quarter results were in line with our expectations. In the third quarter, we continued to experience strong contributions from our growth engines, retail media, CTV, and digital out of home. As we previously disclosed, we continued to see a decline during the quarter in our search business, in open web video, and in standard display formats. Within Search, we experienced the full impact of the actions taken by Microsoft Bing earlier this year, and are now generating what we believe is a normalized revenue run rate for the fourth quarter of 2024. In the third quarter, we were profitable, repurchased additional shares, and continued to maintain a strong net cash position. Our favorable financial position will allow us to continue investing in technology, organic growth, and executing our M&A strategy. For the third quarter that ended on September 30, 2024, revenue was $102.2 million, a 45% year-over-year decrease. This was primarily due to a 76% decrease in search revenue and the continuous weakness in our open web video and standard ad formats. These results were partially offset by an increase in revenue attributable to our growth engines. Adjusted EBITDA was $7.4 million, representing an 83% year-over-year decrease and resulting in a 7% adjusted EBITDA margin and 16% XTAC margin. Gap net income was $2.1 million, while non-gap net income was $11.9 million. As of September 30, 2024, net cash, including cash equivalents, short-term deposits, and marketable securities, was $383.9 million. During the third quarter, we continued our buyback plan and repurchased 1.6 million shares for a total of $13.5 million. Revenue from advertising solutions was $81.3 million, down 18% year-over-year. yet up 9% sequentially, representing 80% of total revenue. The year-over-year decrease was a result of continuous and anticipated decline in open web video and in standard display revenue. These declines were partially offset by a significant year-over-year increase of our growth engines, including digital out-of-home, retail media, and CTV. Our digital out-of-home business grew by 63% year-over-year on a pro forma basis to $19.1 million, representing 23% of our advertising solutions revenue, compared with 11% in the same period last year on a pro forma basis. Our CTV business grew by 90% year-over-year to $9.5 million, representing 12% of our advertising solutions revenue compared with 8% last year. Boosted by our digital out-of-home and CTV solutions, our retail media business, which is a hyper-growth market vertical, delivered another strong quarter. Retail media increased 62% year-over-year to $21 million, representing 26% of our advertising solutions revenue, compared with 13% in the same period last year. Search advertising was $20.9 million for the third quarter, down 76% year over year, representing 20% of our total revenue. As mentioned, this decrease was a result of the changes implemented by Microsoft Bing earlier this year. Our contract with Microsoft Bing, which both currently and going forward represents less than 5% of our overall revenue run rate, will not be renewed at its conclusion at the end of 2024. As per the terms of the contract, there is a tail period that is expected to generate revenue also in 2025. Contribution excluding tax margin was 47% compared with 42% in the third quarter last year, which is primarily due to changes in the product mix following the reduction in the search business. Adjusted EBITDA was $7.4 million, 7% of revenue and 16% of contribution ex-stack, compared with 23% and 55% respectively in the third quarter of 2023. The cost reduction and efficiency measures that we implemented last quarter allowed us to moderate the year-over-year decrease in EBITDA. On a gap basis, third quarter net profit was $2.1 million, or $0.04 per diluted share, compared with a net income of $32.8 million, or $0.65 per diluted share in the third quarter of 2023. On a non-GAAP basis, net income decreased by 72% to $11.9 million or $0.23 per diluted share compared with $42.4 million or $0.84 per diluted share last year. In the third quarter, our cash flow from operating activities generated $16.2 million, compared with $40.1 million in the same period last year. Perrin has a decade-long track record of generating a positive cash flow from operation, and we expect to continue in this direction in 2024 and going forward. As of September 30, 2024, net cash, including cash equivalents, short-term deposits, and marketable securities, was $383.9 million, down from $407.1 million at the end of the second quarter of 2024. The quarter-over-quarter decline in cash was primarily the result of an earn-out settlement of approximately $24 million related to previous acquisitions. Going forward, we do not expect contingent consideration payments related to past acquisitions other than those of HiveStack. In addition, during this quarter, we repurchased 1.6 million shares for a total of $13.5 million. As of the end of the third quarter, we repurchased a total of 3.6 million shares, bringing the total spent against our share buyback program to $33.5 million. Based on our third quarter results and our expectation for the fourth quarter, we are reiterating the full year 2024 guidance that we provided on our second quarter earnings conference call. This concludes my financial overview. I will now pass it back to the operator for the Q&A. Thank you.