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Edited Transcript of PERI earnings conference call or presentation 10-May-18 2:00pm GMT

Thomson Reuters StreetEvents

Q1 2018 Perion Network Ltd Earnings Call

Tel Aviv May 17, 2018 (Thomson StreetEvents) -- Edited Transcript of Perion Network Ltd earnings conference call or presentation Thursday, May 10, 2018 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Doron Gerstel

Perion Network Ltd. - CEO

* Maoz Sigron

Perion Network Ltd. - CFO

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Presentation

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Operator [1]

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Good day, and welcome to the Perion First Quarter 2018 Earnings Conference Call. Today's conference is being recorded. The press release detailing the financial results is available on the company's website at perion.com.

Before we begin, I'd like to read the following safe harbor statement. Today's discussion will include 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 20-F that may cause actual results, performances or achievements to be materially different from any future results, performances 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. When mentioning EBITDA, we will be referring to adjusted EBITDA. We have provided 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 6-K.

Hosting the call today are Doron Gerstel, Perion's Chief Executive Officer; Maoz Sigron, Perion's Chief Financial Officer; Mike Pallad, President of Undertone; and Mike Glover, GM of Search division.

I would now like to turn the call over to Doron Gerstel. Please go ahead, sir.

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Doron Gerstel, Perion Network Ltd. - CEO [2]

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Thank you, and good morning. Today, our CFO, Maoz Sigron, will discuss the first quarter results, then we'll open the call up for your questions. Mike Pallad, President of Undertone business; and Mike Glover, GM of our Search division, will join us for the Q&A session.

We are here to share our Q1 performance results, but before we get into the details, which are very positive, I'd like to start off by providing an update on our turnaround process.

Our turnaround consisted of 3 initiatives. The first initiative was the imperative to significantly reduce costs. On this matter, we are ahead of schedule, and I would like to congratulate the team for working on the implementation of those measures. It's been a year since we have started this initiative, and the expected cost cutting amount in sales and marketing and G&A for 2018 compared to 2017 is more than $14 million.

Let me note that we achieved this cost reduction without hindering our investment into technology. Technology is essential for our competitive advantage and the moat we are building.

This brings me to the second and third initiatives, which are connected: achieving organic growth and leveraging our technology assets. This effort will further help to differentiate and enhance our offering.

This quarter results demonstrate the strength of both sides of our business. Our search business is healthy and profitable, and our agreement will bring guaranteed revenue for years to come. We are currently evolving our search business from its dependency on a small number of large publishers and extending it to a network of greater number of publishers.

Our efforts on our technology in 2017 to rewrite our platform, clean up technical debt, will allow us to efficiently onboard more publishers in 2018 and beyond. This is a move to diversify the monetization, the user acquisition and to provide users with a product that provide utility.

Consequently, we are focusing our efforts and attention on our advertisement business, Undertone, and MakeMeReach, our social media arm, the most significant driver of Perion growth in both its market potential and distinct and competitive advantages.

I would now like to share my perspective on Undertone before getting into the details for the quarter. It's no secret that Perion's stock is depressed, and I recognize that we have done a less than a stellar job explaining why we strongly believe in Perion's ability to create value for our shareholders. To share with you why we are so excited about Undertone's prospects. I'll now discuss the fundamental of the Undertone business and where it fits into the digital ecosystem.

As many of you know, Undertone is a 16-year-old business. It has gone through many transitions over this 1.5 decades, but its prospect has never been greater. I said it because its fundamental capability, which is a unique fusion of creative, data and technology that helps all the marketing program for the world's most sophisticated brands, which has never been more relevant than at this moment.

At its core, Undertone is an ad tech company, a sector I fully understand is not exactly lighting up the world these days, but its position and value proposition with ad tech is so unique and valuable, serving as a partner to brand-conscious brands, extremely aware and protective of their image, their perception and the customer experience they create.

That's where Undertone proprietary ad tech and our creative capabilities fit in. We combine the technologies that brands need and the relationship they covet. More and more premium brands are hyper focused on forming meaningful relationship with consumer and telling consistent story and quality safe environment. They are seeking ways to take their investment in advertisement and extend them into a digital life of their consumer in a unique and authentic way.

There is no longer a place for generic commoditized ad units. Today, the biggest challenge the ad tech industry faces is the siloed platforms are getting good targeting results with their own universe. But consumer don't live exclusively in one universe. Consumer are multi-verse. They bounce from Facebook to Google to [new depths], and are wise enough to know a misleading brand when they see one. They are looking for brands that connect with them through consistent, relevant and personal messaging across any channel.

Brands today are extremely focused on creating seamless and continuous relationship with their customers, where one message builds on another and the next builds on the preceding one. This synergistic messaging cannot occur within siloed platforms that only target with a degree of coordination. Once a consumer leaves the siloed platform, brand messaging becomes fragmented, unable to weave together a coherent story.

Undertone is a unique ad tech solution that combines insight-driven creative with synchronized holistic platform driven by proprietary technology that connects display and social media. Undertone keeps the highest standards of brand safety environment and healthy publisher sites. Each element is essential and will drive our market penetration and growth.

Delivering on that experience isn't trivial, yet it's the heart of Undertone advantage. We described it as Synchronized Digital Branding, and it's the key to staying relevant and continue winning in the ad tech world. Undertone's Synchronized Digital Branding solves this huge problem.

With the work done by our in-house creative team, PIXL Studios, the brand's advertising asset are transformed into beautiful digital units optimized for performance over our network of premium vested publishers. These units are delivering across screen harmony, perfectly synchronized so that the right message reaches the right person at the right time.

Since launching our synchronized digital platform in Q4 of 2017, we have seen an increased appetite in the market for exactly what Undertone is now providing. As a direct result, our average campaign investment has increased while our client attrition has decreased, 2 important factors led to our 20% year-over-year growth in Q1 of 2018.

I will now turn it over to our CFO, Maoz, who will break down this quarter financial overview

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Maoz Sigron, Perion Network Ltd. - CFO [3]

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Thank you, Doron. In the first quarter of 2018, revenue for Perion totaled $60.9 million, comprised of $29.3 million of advertising revenue and $31.6 million of search and other revenue. Revenue was down 2% from $62 million in the first quarter last year. This decrease was due to search and other revenue declining 16%, offset by 20% increase in advertising revenue.

The decline in search and other revenues is mainly due to proactive network cleanup that took place in 2017 and the expected natural churn of search legacy products. The 20% increase in advertising revenue is mainly due to the higher brand spend by existing customers during the first quarter of 2018. Search and other revenue represent 52% of revenues for the first quarter of 2018 with advertising contributing 48%. This is compared to the first quarter of 2017, in which search contributed 60.6% and advertising contributed 39%.

Customer acquisition costs and media buy in the first quarter of 2018 accounted for $31.9 million or 52% of revenue compared to $30.1 million or 48% of revenue in the first quarter of 2017. In search, the increased percentage of revenue is primarily due to churn of our legacy product. While in advertising, the increase is mainly attributed to product mix and due to the effect of the header bidding and Chrome ad blocker.

We reported a net income of $0.1 million or $0.00 per diluted share for the first quarter of 2018 compared to a net loss of $2.1 million or $0.03 per diluted share in the first quarter of 2018. Perion non-GAAP net income in the first quarter of 2018 was $3 million or $0.04 per share compared to $2.8 million or $0.04 per share in the first quarter of 2017. Adjusted EBITDA in the first quarter of 2018 was $4.3 million compared to $3.5 million in the first quarter of 2017.

Cash flow from operating activities for the first quarter of 2018 was $14.6 million compared to $8.2 million for the first quarter last year. The increase in cash generated was primarily the result of better collection during the quarter as well as improved profitability due to the cost reduction effort. As of March 31, 2018, we have cash, cash equivalents and short-term deposits of $41.7 million compared to $37.5 million as of December 31, 2017.

This concludes my financial overview for the first quarter of 2018. I will now turn the call back to Doron.

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Doron Gerstel, Perion Network Ltd. - CEO [4]

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Thank you, Maoz. In our press release today, we reiterated our full year guidance of adjusted EBITDA of $28 million to $32 million for 2018. Before I open the call for questions, I want to say that while we are pleased by our results and our team performance, we are keeping our foot on the gas pedal. We work in a competitive, fast-changing industry, we stay alert to these changes and are constantly adapting to meet them.

We believe that Undertone offers a brand the optimal fusion of creativity and technology. Our creative drives engagement and our technology enables Synchronized Digital Branding, the Holy Grail for brands that want to connect with their consumer and create meaningful experiences for them.

We believe more and more brands will be seeking our consumer-based solution. In the world of commodified ad tech, we are a welcome alternative. The trends are in our favor and putting us on the path to long-term growth. That's what we are here for. Thank you.

Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) And at this time, we do not have any questions in the queue for today. With that, that does conclude today's conference. We do thank you for your participation, and you may now disconnect.

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Doron Gerstel, Perion Network Ltd. - CEO [2]

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Thank you.