Perion Network Ltd

Hello everybody and welcome to the Perion Network Q1 2025 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 harbour 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. Whilst 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 today's call is Tal Jacobson, Perrion's Chief Executive Officer, and Elad Zubri, Perrion's Chief Financial Officer. I would now like to turn the call over to Tal Jacobson. Please go ahead.

Good morning, and thank you for joining us on the earnings call for the first quarter of 2025. Every C-suite executive needs a platform that powers the right business outcome. CROs have Salesforce, COOs have Monday.com, CTOs have Jira, and now CMOs have Perion as their go-to platform. Perion One gives marketing leaders a platform that delivers what truly matters, better business outcomes at scale. EdTech is often misunderstood, and sometimes it is viewed by investors as complex, crowded, and fragmented. Yet the past few decades tell us that edtech companies that are growing through technology can change the world. And more importantly, edtech companies have been using advanced technology to boost value for investors. From DoubleClick and Google to Meta, Amazon, Uplovin, and the Trade Desk, companies that are viewed by many investors as tech companies are truly edtech companies at their core. All these businesses mastered how to connect brands with consumers more effectively at scale. They built their foundation in ed technology, generating tremendous value for investors. We believe Perrion is on the same trajectory. Building Perion One as an outcome-driven platform allows us to create a long-term value for CMOs and for our shareholders. Perion One platform is an outcome-driven infrastructure for modern digital advertising. It is aimed to provide measurable outcomes with channel agnostic, supply neutral, and fully flexible to work with any agency tech stack. By integrating creative insights and AI-powered optimization under one roof, Perian One delivers a unified and intelligent brand experience, from planning to result. The first quarter of 2025 was a strong start to the year on all four essential pillars. Our business performance exceeded the result that we initially expected, and we enjoyed an increase in all of our growth engines that continued to outperform the market. This quarter, we advanced our product by creating a new integration partnership with the Trade Desk, adding UID 2.0 to Perion 1 capabilities. These foster interoperability across the industry, enabling more seamless and effective solutions for our clients. Recently, we were happy to announce a double-digit audience engagement with our first-to-market AI-powered chatbot, offering brands a new way to create interactive, high-impact experience that drives real outcomes. As we announced this morning, we advanced our AI capabilities by acquiring RingBits, a cutting-edge AI company that significantly enhanced our technology. This new advanced custom algorithm for leading DSPs and closed gardens allows us to dramatically increase our total addressable market. And finally, industry recognition. Our innovation and culture continue to be recognized, from campaign finalists at the drum to winning ad age best places to work. All our growth engines continue to show positive momentum. Digital out of home, CTV, and retail media, all outpacing the market growth. We are encouraged by the increase in all of our growth engines, especially the digital out-of-home, which grew by 80%. The consistent growth in our digital out-of-home activity proves that our methodology of buying and integrating companies, in this case, HiveStack, is working. With that, I'm happy to announce the acquisition of GrimBits. This is one of the most exciting moments in this quarter, a bold step that advances our platform in a meaningful way. GrimBids allows us to embed a custom AI-based algorithm into Perian 1, extending our optimization capabilities across walled gardens. This includes YouTube, Facebook, and Instagram, alongside leading DSPs platforms such as the Trade Desk and Google DV360. GreenBid's custom algorithm is focused on reducing waste in advertising budgets and increasing business outcomes. The GreenBid's algorithm targets and bypasses inefficiencies in the advertising ecosystem. This is how we win and grow profitability for advertisers. For us, GreenBid is more than a strategic feat. It's a significant leap forward. We're thrilled to welcome the world-class team of GreenBids to join us at Perion. They share our vision and bring elite AI and edtech talent to our company. GreenBids is a trusted platform used by over 80 top global brands. And by applying our scale, we can accelerate its reach even further. We didn't just acquire tech. We gained talent and momentum from day one. Together, we are poised to unlock the next phase of intelligent advertising. Historically, our strength has been in top and mid-funnel environments on the open web, helping brands reach broader audience and drive consideration. With GreenBits, we are expanding into the lower funnel where purchase decisions are made, and we are gaining deeper access to performance budgets across social and video world garden platforms. This significantly increase our addressable market and creates more ways to deliver value to advertisers. It's always rewarding when strong execution translate into strong numbers. And that's exactly why we're raising our guidance today. It is essential to state that even without the green bids acquisition, we would have raised our guidance as our Q1 results were very encouraging. With GreenBids, we expect this growth to be even stronger. Based on our Q1 performance, the financial contribution we expect from the GreenBids acquisition, and our continued confidence in execution, we are raising our full year 2025 guidance. This reflects our strengthened position at the growing market opportunities ahead. As we grow, we remain committed to what drives long-term value, continued investment in our customers, our people, and our technology. Before I hand it over to our CFO, Elad Zuberi, I'd like to personally invite you to meet us at one of those upcoming events. Today, we'll be at the Luma and Needham events. Next week, at the Oppenheimer event. And of course, at the Cannes Lions next month. Ready to connect, share more, and show you how Perrion is shaping the future of outcomes-driven intelligent advertising. Elad, over to you.

Thank you, Tal, and thank you all for joining us on the call today. Four main factors allowed us to exceed our expectations for the first quarter of 2025. Our performance was hallmarked by solid execution, the market's positive response to our new Perion One platform and strategy, our continued operational discipline, and our continued focus on growth on both top and bottom lines. All these factors give us the conviction to increase our 2025 full-year financial guidance. In the first quarter, our core growth channels, digital out-of-home and CTV, continued to outperform the market, growing 80% and 31% year-over-year, respectively. These channels now represent 31% of our total revenue. In addition, our retail media vertical grew by 33% year-over-year, also outperforming the broader market. This reflects the growing alignment between our strategy and the evolving advertisers' demand. Moving to our financial results for the quarter. Total revenue for the first quarter was $89.3 million. This is higher than our initial expectations as a result of outperforming in CTV and digital out-of-home channels and continued growth of our retail media business. Adjusted EBITDA was $1.8 million, also higher than our expectations, reflecting a continuous operational control and margin discipline. Our cash position remains strong, with nearly $360 million in net cash. We remain focused on profitable growth, operational leverage, and strategic reinvestment where we see long-term return. Perion's revenue mix reflects where the market is headed. We remain focused on our core growth channels, including digital out-of-home and CTV, which outperformed the first quarter. Digital out-of-home increased by 80% year-over-year, reaching 19% of the total revenue, up from 6% last year. CTV increased by 31% year-over-year, representing 12% of revenue compared to 5% last year. Web revenue declined by 28% year-over-year, representing 46% of the total revenue, compared to 37% in the same quarter of last year. We expect web revenue to stabilize on a year-over-year comparison starting next quarter. In the past three quarters, we have been seeing the search revenue stabilizing at approximately $20 million per quarter. For the first quarter of 2025, search revenue represented 22% of the total revenue compared to 52% in the same quarter of last year. In the first quarter, the contribution excluding traffic acquisition costs margin was 44% compared with 38% in the first quarter of 2024. This is primarily due to the changes in our product mix that is now centered around more profitable solutions. Adjusted EBITDA for the first quarter was $1.8 million, representing 5% of contribution ex-stack. During the first quarter of 2025, and as part of the ongoing implementation of our Parent 1 strategy, we continue to take structural steps to optimize our cost base that align with our unified operations. These actions include a reduction in headcount, tighter expense control, and improvements in sales and marketing efficiency. These efforts are directly tied to our broader transformation, creating a more agile and scalable organization designed to drive long-term growth and profitability. On a gap basis, our first quarter net loss was $8.3 million, or 19 cents per diluted share, versus net income of $11.8 million in the first quarter of 2024, or 24 cents per diluted share. On a non-gap basis, net income was $5.4 million, or 11 cents per diluted share, versus $22.6 million in the first quarter of 2024, or 44 cents per diluted share. Our ability to remain profitable on a non-GAAP basis despite the loss of search revenue is a testament to the operational efficiency of our business. In the first quarter of 2025, cash used in operating activities was $7.1 million. Adjusted free cash flow was a negative $7.4 million. The first quarter cash flow operation was temporarily impacted by $8 million of collections that shifted from March to April. We remain confident in our ability to return to a high cash flow conversion rate. We expect full-year adjusted free cash flow to be closely in line with our adjusted EBITDA guidance. As of March 31st, we had on our balance sheet $358.5 million in cash, cash equivalents, short-term bank deposits, and marketable securities. We continue to maintain a very strong financial position. Our cash balance provides us the flexibility to execute our inorganic growth strategy, invest in innovation, and return capital to our shareholders. We continue to execute on our capital allocation plan with discipline. On March 10, our board approved an expansion of the share repurchase program to $125 million, reinforcing our long-term confidence in Perium's value. Since the beginning of the buyback program, until the end of the first quarter of 2025, we've repurchased almost 6 million shares at a total amount of $53.3 million. In March this year, Perrin adopted an accelerated share repurchase plan, and to date, in the second quarter, we already repurchased additional 3 million shares at a total amount of over $26 million. Earlier today, we announced the acquisition of Greenbeats, a cutting-edge AI platform focused on custom bidding algorithms across walled garden platforms, including YouTube, Facebook, and Instagram. This strategic acquisition allows Perion to expand our total addressable market into new lower funnel performance opportunities. It introduces us to brand-specific, KPI-driven optimization capabilities that enhance client retention. It also enriches our Period 1 platform with incremental data and intelligence, improving our automation and measurement capabilities over time. The transaction terms include $27.5 million in cash paid at closing, a $22.5 million cash earnout over two years tied to performance milestones, and a $15 million retention package in cash and equity structured over three years. the transaction is expected to be accretive to adjusted EBITDA already starting this year, with early synergies contributing to profitability. Looking ahead, the contribution to both adjusted EBITDA and revenue is expected to significantly accelerate from 2026 onwards, driven by incremental synergies across technology integration, go-to-market expansion, and platform scalability. This is fully aligned with our M&A strategy, minimizing upfront risk while maximizing strategic value, and synergetic with our core business, ensuring seamless integration. Turning to our 2025 guidance. Based on our strong performance in the first quarter, our organic growth expectation, along with the onboarding of GreenBits, we are revising our full year 2025 guidance upwards to reflect our improved outlook and stronger market position. we are increasing our revenue guidance for the year from a range of $400 to $420 million to a new range of $430 to $450 million, reflecting an increase of 7% at the midpoint. In addition, we are increasing our adjusted EBITDA guidance from a range of $40 to $42 million to a new range of $44 to $46 million, reflecting an increase of 10% at the midpoint. This updated guidance demonstrates our ability to grow efficiently, unlock synergies, and continue to deliver meaningful value to our shareholders. To summarize, we started a year strong and we positioned ourselves to maintain this momentum going forward. We remain disciplined in execution, prioritizing value for our customers, employees, and shareholders. With that, I will now turn it back to the operator for the Q&A session. Thank you.