Perion Network Ltd

Hello everybody and welcome to the Perrion Network third quarter 2025 earnings conference call. Today's conference call 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.perrion.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 reports on form F20. 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 mentoring EBITDA, we'll be referring to adjusted EBITDA. We have provided a detailed reconciliation of the non-GAAP measures to their comparable GAAP measures on 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 Soubry, 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 at the Perion's Earnings Call for the third quarter of 2025. This quarter, we continue to strengthen our foundation and execute our long-term strategy. Our focus remains clear and disciplined, and the results we're sharing today reflects a solid progress across all parts of our business. We're building for sustainable growth for this year and for years ahead. This quarter, we demonstrated progress across all aspects of our business. We delivered strong financial results, announced new products, initiated new partnerships to support our global expansion, and won industry awards. Our key growth engines, CTV, digital out of home, and retail media, continue to expand and present healthy growth. We are also expanding our share repurchase program to $200 million, adding $75 million to the current program. This is pending regulatory approvals. This decision was made after a deep analysis of our future capital needs that will support our growth and it reflects our confidence in Perion's long-term value for investors and our ability to continue to generate cash. On the innovation front, we introduced three strategic products under the Perion One vision. Outmax, which unifies all our performance-driven AI algorithms for media outcomes across CTV, social, and open web. This includes the GreenBits algorithms and our new performance CTV capabilities. By unifying all our AI algorithms for media outcomes under one product, we enable our global sales team to accelerate growth with a simple yet powerful holistic solution. SOTA, our AI for publisher, is our new next generation supply path optimization for smarter monetization that strengthen our supply side technology. And our new digital out of home player, which completes the full stack marketing operation system for digital out of home and retail media. It is designed to drive tremendous value for our digital out of home partners and a high margin and recurring revenue for Perion. We also advanced strategic partnerships across retail media and digital at home, extending our reach throughout the US, Europe, and Asia. We continue to gain recognition in our industry with multiple awards, further validating our technology leadership and impact in performance-driven advertising. These achievements highlight how Perion execute by focusing on today while building a strong foundation for sustainable, profitable growth in the future. All this progress aligns with one clear direction. Our vision of becoming the platform of choice for modern CMOs and their teams. While CROs rely on Salesforce and CTOs on Jira, CMOs still lack a unified platform that connects media, data, and outcomes. Our Perion One strategy is the answer for this gap, a multi-channel, AI-powered platform that brings together creative, data, and media to deliver measurable business outcomes, a marketing operating system for modern marketers. Every product we develop and every partnership we form brings us closer to making Perion One the central system for marketing performance. As we continue our journey towards this vision, we wanted to better understand how do CMOs view the challenges they face today. So, in partnership with Advertiser Perceptions, we surveyed CMOs across North America and the findings were revealing. Research results proved that there is a strong need to solve the fragmentation between marketing and finance, highlighting the growing needs for the unified solution Pellion One provides. This validates why our mission matters, helping marketers connect creativity and data to measurable outcomes and bridging the divide between CMOs and CFOs. You are welcome to view the full research report on Pellion.com website. One of our new strategic partnerships is with Albertsons Media Collective, a leading retail media network in the U.S. According to eMarketer, retail media in the U.S. is a $60 billion opportunity, growing at double-digit annual rates. This partnership gives Perrion a strong foothold with one of the largest grocery retailers in the U.S., By combining Albertson's first-party data with our retail media technology, we deliver commerce-connect measurable campaigns that align perfectly with where the market is moving. A great example is Primo Water, a brand that wanted to drive product sales among Albertson's shoppers on the go. The campaign delivered over 5.5 million impressions and achieved a 5.5% sales lift. This demonstrates how Perion's technology directly connects ad exposure to measurable business outcomes. Let's take a look. Campaigns like Primo Water demonstrate how our creative, data, and technology excellence translate into real business performance. Outmax takes that principle further, unifying all our outcome-driven AI algorithms under one solution. A solution designed to maximize outcomes by connecting creative intelligence with real-time optimization. Outmax is built to power results across every media environment. It represents the next step in Perion's evolution, transforming AI-driven algorithm and insights into measurable, scalable growth. Outmax unifies optimization across CTV, social, and open web. It also includes the GreenBits technology that we acquired earlier this year. What sets Outmax apart from all other solutions? Outmax continuously learns where the performance truly happens. The algorithm analyzes multiple signals, such as device, time, and context, to identify the most effective audience and inventory combination in real time. It then reallocates budgets toward those high-performing segments, driving stronger ROI and more efficient media investment. By connecting insights across CTV, social and open web, Outmax creates one continuous optimization loop, improving results for advertisers while enhancing Payone's scalability and growth potential. We've already seen strong validation through recent case studies. Outmax optimized YouTube campaigns for Ford using carbon-aware bidding, improving viewability by 12 points, lowering CPMs by 22% and cutting carbon intensity by 33%, demonstrating how the Outmax algorithm delivers better results through advanced AI. We're continuing to strengthen our supply-side technology with the launch of SOTA, our AI monetization engine for publishers. SOTA combines Payone's multi-format bidder technology with an AI real-time algorithm that optimizes every impression path. This drives higher yield, reduced waste, and provides better ad delivery, both for the publisher and for advertisers. What's most exciting is that SOTA makes Perion an embedded technology partner within the publisher stack. I'm confident that this will expand our recurring high margin revenue base. It's a clear example of how we're executing and translating innovation directly into growth and operating leverage. Another major milestone is the launch of the Perion digital out-of-home player. This completes the full stack marketing operating system for digital out-of-home and retail media. The digital out-of-home player extends our full stack supply side technology, giving media owners and digital signage partners a single platform to manage both direct and programmatic campaigns. It replaces fragmented legacy systems with a dynamic hardware agnostic solution, improving efficiency, transparency, and control across global signage networks. The new Perion digital at-home player is designed to drive tremendous value for our digital at-home partners, and a high emerging and recurring revenue for Perion. This new product broadens our total addressable market by integrating with the digital out-of-home media owners and retailers. It has the potential to generate high margin and growing software income through embedded deployments over time. It also strengthened our role as a technology partner of choice within the digital out-of-home and retail media ecosystem. Another important step in connecting the supply side and the PayOnOne platform. As we look ahead, it's important to remember that everything we're delivering today is part of a broader, long-term transformation. After laying the foundation in 2024, we've spent this year activating the Perion One vision, unifying our technologies and brands under one platform, and streamlining our operations for improved efficiency and scalable growth. The next phase, beginning in 2026, is about scaling the platform. We are expanding Payone 1 across more channels, deepening adoption with global brands, and increasing recurring high-margin revenue streams, powered by AI, automation, and self-service capabilities. Each step brings us closer to our vision, a single, intelligent platform that delivers better performance faster decisions and long-term value for marketers and shareholders. To conclude, our message to investors is clear. Perion is executing on its strategy and building for long-term value. We operate in high growth areas supported by proven track record of profitability and positive cash flow. We have a global team with deep high growth experience focused on building technology and accelerating our global go-to-market strategy for the AI-first era in advertising. With that, I'll now turn it over to Elad Zuberi, our CFO, who will walk you through the financial results for the third quarter.

Thank you, Tal, and thank you all for joining us on the call today. Our third quarter results mark another strong step forward in Perion's strategic transformation. we are now seeing the tangible impact of the structural, operational, and technological foundation we've built over the past 20 months. During this quarter, we achieved our first year-over-year revenue and contribution xDAG growth since the first quarter of 2024. This is a milestone that reflects our disciplined execution, and it's a direct result of our enhanced organizational structure, our continued adoption of unified Perion 1 platform, and a strong go-to-market strategy. Importantly, our adjusted EBITDA increased 63% year-over-year to $12.1 million. This reflects the early results of our efficiency initiatives that are expected to fully materialize in 2026. Our core growth engines, CTV, retail media, and digital out-of-home, are also among the strongest growing channels and market verticals in ATT&CK. All of them continued their momentum and delivered strong performances with a year-over-year growth of 75%, 40% and 26% respectively. We also continued to execute our capital allocation plan with discipline. During the quarter, we repurchased 800,000 shares for $7.5 million. Due to our confidence in Perion's long-term growth and the strength of our cash generation, we approved in principle an expansion of our share repurchase authorization by an additional $75 million to a total amount of $200 million. It reflects the balance between returning capital to shareholders and continued investment in innovation and in strategic opportunities to strengthen our core businesses and drive sustainable growth. Looking ahead, we are firmly establishing the infrastructure for sustained growth in 2026 and beyond. This is supported by operational efficiency, scalable technology, and disciplined capital allocation. Moving on to our key financial metrics for the third quarter. Revenue accounted for $110.5 million, representing 8% year-over-year growth. Contribution x-stack came in at $51 million, up 7% year-over-year, maintaining a healthy 46% margin. Notably, this marks the first time since the first quarter of 2024 that we've achieved year-over-year growth in both revenue and contribution XTAC. This is a testament to Perion's growing ability to deliver measurable outcomes for our customers, as well as the strong performance of our core growth engines and our disciplined operational execution. We believe our revenue contribution excluding TAC represents a more accurate measure of our top-line performance than the revenue alone. Adjusted EBITDA this quarter was $12.1 million. This represents a 63% year-over-year increase. Our XTAC margin was 24%, signifying an encouraging margin expansion. Non-GAAP net income was $12.5 million, resulting in a non-GAAP diluted earning per share of $0.28. Cash flow from operations was $5.9 million, bringing our year-to-date total to $20.1 million. This further demonstrates the strength of our underlining business model and our consistent ability to generate cash. Our growth engines continue to be the cornerstone of Perion's future growth. Both CTV and digital out-of-home channels are growing at a fast rate. They are continuously outpacing the overall market growth on an annual basis as projected by eMarketer. This positioned Perian as a high growth player in two of the most dynamic segments in digital advertising. CTV continues its strong growth trajectory, with revenue up 75% year over year, driven by sustained demand for our advanced formats. Looking ahead, we expect CTV revenue to continue outpacing the market, supported by the ongoing shift from linear to connected TV and growing customer adoption of our performance CTV solutions. Our digital out-of-home channel remains a highly strategic entry point into new markets. We continue to leverage its differentiated capabilities to position Perion for sustainable, profitable growth through cross-selling and product synergy. We recently launched our Digital Out-of-Home Player, an advanced solution that completes our full-stack marketing operating system for digital out-of-home and retail media. The Digital Out-of-Home Player strengthens our customers' stickiness and recurring revenue streams, making our business model more predictable and scalable across this fast-growing channel. Our retail media market vertical continue to demonstrate strong momentum, with revenue up 40% year-over-year. Retail media remains one of the fastest growing verticals in advertising, projected to expand at a 14.7% CAGR through 2029. As new and existing customers continue to adopt our retail-focused solutions, we are well positioned to capture market share and outpace market growth. Our third quarter channel mix demonstrates the growing portion of CTV and digital out-of-home. These two channels combined represent 37% of revenue versus 28% in the same quarter last year. Digital out-of-home increased by 26% year-over-year, reaching 22% of revenue, up from 19% last year. This reflects the continued global momentum with new partnerships across APAC, the US, and EMEA. CTV increased by 75% year-over-year, representing 15% of revenue compared to 9% last year. This significant growth is a testament of increasing customer adoption of our full funnel solutions offering. Web revenue declined by 11% year-over-year due to a continued trend of lower advertiser appetite for standard display and video formats. It is important to note that the comparison to the third quarter of 2024 is skewed due to the discontinuation of lower margin activities in late 2024 as previously announced this year. Search increased by 9% year-over-year, representing 21% of revenue, and continues the search business stabilization. While in this quarter we enjoyed strong growth across each of our core growth engines, Perion's platform is built to be channel-agnostic. This structure enables us to seamlessly adapt as advertiser spans naturally shift across channels. This flexibility allows us to capture growth wherever demand emerges and helps to increase advertisers' spend and retention. Contribution X-TAC in the third quarter grew by 7% year-over-year to $51 million, representing a stable margin of 46%. As we move forward with our unified platform, we expect to grow our revenue contribution excluding TAC at a faster pace compared to total revenue. This measure better represents our top-line performance than revenue alone. Adjusted EBITDA for the third quarter grew 63% year-over-year to $12.1 million, representing 24% of contribution ex-stack and 11% of total revenue. This significant margin expansion reflects our improved operational leverage. The efficiency initiatives we've implemented this year continue to bear fruit and drive improved profitability. We continue to further optimize our cost structure to align with our unified operating model. We expect to benefit from these improvements throughout the remainder of 2025 and into 2026 as these efforts gain momentum. On a gap basis, our third quarter net loss was $4.1 million or $0.10 per diluted share. On a non-gap basis, net income improved year-over-year to $12.5 million compared to $11.9 million in the third quarter of 2024. This represents a non-gap diluted earning per share of $0.28 this quarter compared to $0.23 per diluted share last year, representing a 22% year-over-year increase. In the third quarter of 2025, cash generated from operating activities was $5.9 million and our adjusted free cash flow was $4.8 million. Looking ahead, we are confident that we will maintain a strong cash flow conversion rate of over 70% in 2025. as of september 30th our balance sheet includes 315 million dollars in cash cash equivalents short-term bank deposits and marketable securities our strong cash position gives us the financial flexibility to support the broader capital allocation framework pursuing our diversified growth strategy while continuing to return capital to shareholders during the quarter we continue to execute our share buyback program Due to regulatory volume restrictions, our repurchase activity was limited, leading to the repurchase of 800,000 shares for a total amount of $7.5 million. As of September 30, 2025, we have repurchased a cumulative total of 10.4 million shares for $94.2 million. This continued buyback commitment underscored our confidence in Perion's long-term value proposition. As of today, during the fourth quarter, we already purchased an additional 1 million shares and we expect to complete the current plan by the end of this year. We are pleased to announce the principal approval of expansion of our previously authorized share repurchase program. Our confidence in Perion's future allows us to expand the program by an additional $75 million. This increased the total program from $125 million to $200 million. The overall program represents an estimated shareholders implied return of nearly 50% since initiation. We believe our current share price is not reflective of the value and opportunities we have at Perion. The share buyback program, alongside disciplined investments in organic growth and in M&A opportunities, is the best use at present for our excess cash. Turning to our financial outlook, we are reiterating our full year 2025 guidance with revenue at $430 to $450 million and adjusted EBITDA at $44 to $46 million. The progress we made in Q3, from returning to year-over-year growth to expanding profitability, underscores the strength of our transformation and the resilience of our model. As we continue consolidating our operations into the ParionOne platform, we are confident that we have established a strong foundation for sustainable growth and profitability heading into 2026. With that, I'll now turn it back to the operator to open the line for questions. Thank you.