Perion Network Ltd

Hello, everybody, and welcome to the Perion Network fourth quarter and full year 2024 earnings conference call. Today's conference is being recorded and an archive of the webcast will be posted on the company 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 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 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, Perrion's Chief Executive Officer, and Elad Zuberi, Perrion's Chief Financial Officer. I would now like to turn the call over to Tal Jacobson. Please go ahead.

Good morning, everyone, and thank you for joining us today at Perion's Q4 2024 earnings call. 2024 was a pivotal year for us at Perion. It was a year of laying the foundation for a transformation that is now coming to life. Over the past year, we have been strategically aligning our technologies, operations, and vision, setting the stage for the launch of the Perion 1 strategy. With Perion One, we are uniting all of our technologies under one platform and all our business units and brands under one roof. While this strategy is expected to attract more customers through our unified platform, it is also transforming our organization to become more efficient than ever before. Under this new strategy, we focus on AI development for both customer-facing products and operational efficiency solution. We believe that Perion One is the perfect platform for a deeply fragmented $700 billion industry. An industry that is forcing advertisers to navigate a complex maze of platforms, formats, and channels. The focus has long been on where ads run. If it's CTV, open web, digital out of home, or social. Rather than what truly matters. reaching the right customers at the right moment with the right message to drive exceptional results. This fragmentation leads to inefficiencies, wasted spending, and missed opportunities. At Perrion, we believe this complexity shouldn't be the advertiser's problem to solve. That's why we're building Perion One to unify, simplify, and amplify the advertiser's journey, ensuring advertisers can focus on impact and results, not execution challenges. The foundations of Perion One are based on advanced AI capabilities that infuse personalized messaging for every brand moment. The role of Perion One is to solve the complexity of omnichannel advertising and provide a unified AI-driven advertising infrastructure that delivers precision, efficiency, and measurable results. In this pivotal moment in Perion's history, I'm happy to reveal a first look at our Perion One platform. This platform will unite all our technologies in one place. It provides our customers with an advanced portal into creative insights and planning of any brand's next great advertising moment. Perion One will bring together CTV, digital out-of-home, retail media, social, and open web capabilities under a single AI-driven platform. It is a fundamental change in how digital advertising should work. Instead of siloed solutions, Perion One will provide advertisers with a seamless, intelligent platform that optimizes campaigns across every major channel. With Perion One, brands will benefit from greater economics, enabling every advertising dollar to be optimized for a maximum impact. The platform will offer increased efficiency to eliminate execution friction and streamline processes. Its advanced AI-driven performance will automate optimization at scale, and a smarter supply path will enrich DSPs and SSPs with premium inventory. The Perion One platform will be gradually rolled out to our customers in the upcoming months. To fully capitalize on our new strategy and accelerate our transformation, we've strengthened our leadership team with some of the best talent in the EdTech industry. I'd like to welcome three exceptional leaders to our management team. Steven Yap, a Google veteran, joined us as our new chief revenue officer to lead our advertising sales worldwide. Kenny Lau, an ex-Credio and ex-PubMedic, steps in as our chief product officer. And Mina Nagib, who was part of the leading team that architected the Samsung ads technologies, takes on the role of our chief technology officer. Mina will lead all our technologies, including our advanced AI solutions and infrastructures. This exceptional management team of T1 leaders in the EdTech industry is instrumental. We believe it will expand our reach, deepen customer relationships, and unlock new growth opportunities. While preparing for this transformation, we continue to deliver strong performance on all of our three core growth engines, digital out-of-home and CTV, alongside our retail media as we continue to see adoption of our technologies with retailers. All our growth engines have consistently outpaced the market and we believe they will continue to be the drivers of our future success. In 2024, our digital out of home grew by 50% year over year, far outpacing the 10% year over year market growth reported by eMarketer. This reflects our programmatic innovation and Perion's ability to drive higher performance than the industry. Our CTV solutions grew by 30% year-over-year, surpassing the 23% year-over-year market growth. Our investments in advanced targeting and cross-deFi solutions continue to drive this momentum. As you recall, we expanded those capabilities with our new partnership with Experian, which we announced during Q4. Retailers continue to adopt our solutions. Our retail media grew by 62% year-over-year, more than tripled the industry 20% year-over-year growth. Each of these areas represent a high-growth, high-value market. Integrating them into Perion One gives us a unique competitive advantage, positioning us to accelerate future growth. Today, we are introducing a new way of looking at our results by breaking them down into channels. We believe this provides greater transparency into the new Perion One structure. It reflects our evolution into a platform that delivers greater efficiency and value. By aligning our reporting with our strategic focus, we enhance visibility and foster a more meaningful conversation with our investors and customers. Now, our CFO, Ella Zuberi, will walk you through our financial results.

Thank you Tal, and thank you all for joining us today. 2024 was a challenging year for Perion. Nevertheless, we ended the year both profitable and with positive operating cash flow. In addition, we met the annual revised guidance that we provided in June 2024 for revenue, adjusted EBITDA and adjusted EBITDA to contribution ex-stack margin. The strength of our balance sheet allows us to execute on our capital allocation priorities and growth plans, both organic and non-organic. As of December 31st, 2024, we repurchased a total of 5.2 million shares for a total of $46.9 million. As we enter 2025 under the Period 1 strategy, we are unifying our technologies and brands into a single cohesive ecosystem. As part of this change, we have started streamlining our operations and optimizing costs through headcount reductions during the first quarter of 2025. This will also allow us to strengthen our ability to attract and serve more customers, run more efficient sales and marketing operations, maximize synergies across our entire organization, and leverage a unified and connected data platform to drive smarter decision-making and higher margins. We expect these efficiency measures to continue to have positive impact on our profit margins through 2025 and going into 2026. Moving to our financial results. For the full year, revenue amounted to $498.3 million, a 33% decrease year over year. This is mainly related to the decrease in search revenue and the weakness in our open web video and standard ad formats. However, the decline in revenue was partially offset by continued strong performance of our growth engines. Adjusted EBITDA was $50.9 million, resulting in a 10% adjusted EBITDA margin and a 24% ex-stock margin. Gap net income for a full year was $12.6 million, while non-gap net income was $64 million. During 2024, we generated cash flow from operating activities of $6.9 million and adjusted free cash flow of $16.6 million. As of December 31, 2024, net cash, including cash equivalents, short-term bank deposits, and marketable securities were $373.3 million. Turning to our fourth quarter performance. Revenue was $129.6 million compared with $234.2 million in the same period last year. Our adjusted EBITDA for the fourth quarter was $15.5 million, resulting in a 12% adjusted EBITDA margin and a 28% ex-stack margin. Gap net income for the fourth quarter was $4.9 million, while non-gap net income was $16.1 million, resulting in a non-gap diluted earning per share of $0.33. Our cash flow from operating activities remained positive, generating $4.3 million. Advertising solutions revenue for the fourth quarter was $104.1 million, down 13% year-over-year, representing 80% of total revenue. This decrease was expected due to the declining open web video and standard ad formats as advertisers are shifting their budgets towards social video and higher-end solutions. This decline was partially offset by the continuous momentum from our core growth engines, CTV and digital out-of-home channels, and our retail vertical. Digital out-of-home increased by 57% year-over-year in the fourth quarter on a pro forma basis, representing 27% of advertising solutions revenue. While for the full year, Digital out of home increased by 50% and represented 21% of advertising solutions revenue. Our CTV business increased by 10% year-over-year in the fourth quarter, representing 15% of advertising solutions revenue versus 12% last year. For the full year, CTV increased by 30%, representing 13% of advertising solutions versus 8% in 2023. Our retail media business, a fast-growing market vertical, posted another strong quarter, primarily boosted by our digital out-of-home business. In the fourth quarter, retail media revenue grew by 34% year-over-year to $27 million. For the full year 2024, retail media revenue delivered an impressive 62% growth in comparison to 2023, reaching $80.6 million. I would like to highlight that all three growth engines outpaced the market growth in 2024. According to a marketer, digital out-of-home ad spending in the U.S. grew by 10% year-over-year compared with Perion's 50% growth. CTV grew by 23% year-over-year compared with Perion's 30% growth. And retail media grew by 20% year-over-year compared with Perion's 62% growth. Turning to our search advertising, revenue for the fourth quarter totaled $25.5 million, accounting for 20% of our total revenue. As we previously discussed, we did not renew our contract with Microsoft Bing that ended on December 31, 2024. Yet, in 2025, there is a tail period in which we expect to generate revenue. Overall, our search advertising is expected to remain stable representing about 20% of our total revenue. In the fourth quarter, the contribution excluding traffic acquisition costs margin was 42% compared with 39% in the fourth quarter of 2023. On an annual basis, contribution ex-stack margin was 43% compared with 42% in 2023. This is primarily due to the changes in our product mix focusing on more profitable solutions. Adjusted EBITDA for the fourth quarter was $15.5 million or 12% of revenue and 28% of contribution ex-stack. This compares to $53.9 million or 23% and 59% respectively in the fourth quarter of 2023. For the full year, adjusted EBITDA totaled $50.9 million or 10% of revenue and 24% of contribution ex-stack. This compares to $169.1 million or 23% and 55% respectively in 2023. During the second half of 2024, we implemented cost reductions and efficiency measures. This helped us moderate the year-over-year decrease in adjusted EBITDA that resulted from the business decline in the first half of the year. On a gap basis, our fourth quarter net income was $4.9 million or $0.11 per diluted share versus $39.4 million in Q4 of 2023 or $0.78 per diluted share. On a non-GAAP basis, net income was $16.1 million or $0.33 per diluted share versus $52.9 million in Q4 of 2023 or $1.04 per diluted share. For the full year, gap net income was $12.6 million or 25 cents per diluted share versus $117.4 million in 2023 or $2.34 per diluted share. Non-gap net income was $64 million or $1.27 per diluted share, versus $167.4 million, or $3.33 per diluted share in 2023. During the fourth quarter of 2024, we generated $4.3 million in both cash flow operations and adjusted free cash flow. On a full year basis, we generated $6.9 million in cash flow operations and $16.6 million in adjusted free cash flow. This gap in 2024 between adjusted EBITDA and adjusted free cash flow is attributed to the year-over-year change in the working capital related to our business with Microsoft Bing and the post-acquisition investment in HiveStack's working capital. For 2025, we expect our cash flow conversion from EBITDA to resemble past performance patterns. We expect to continue our decade-long track record of generating positive cash flow from operations and adjusted free cash flow. In the fourth quarter, we continue with our share buyback program and repurchase another 1.6 million shares for a total of $13.4 million. To date, we spent $46.9 million repurchasing shares against our total authorization of $75 million. As of December 31, 2024, we had on our balance sheet $373.3 million in cash, cash equivalents, short-term bank deposits, and marketable securities. Entering fiscal year 2025 and given our strong financial position, we are confident in our ability to execute our capital allocation strategy, balancing between share repurchases, organic investments, and selective acquisitions that complement our growth strategy. Looking ahead towards 2025, we are providing our full-year financial guidance and we are introducing our core key performance indicators. These indicators provide a more accurate and helpful way to assess the strength of our business. As a result, going forward, we will begin sharing our revenue breakdown by advertising channels, digital out-of-home, CTV, web, and search. 2025 will be a transformative and exciting year for us at Perion, one in which we are focusing on solutions that are more profitable and better aligned with our mission to make digital advertising more effective for our customers and in turn, make our business more efficient. For the full year 2025, we expect to generate revenue of $400 to $420 million, adjusted EBITDA of $40 to $42 million, and adjusted EBITDA to contribution stock margin of 22%. To summarize, we ended 2024 on a positive note and we are excited for what's to come for PayEarn in 2025. With that, I will now pass it back to the operator for the Q&A session. Thank you.