Perion Network Q3 2023 Earnings Call Transcript

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November 1, 2023

There are 9 speakers on the call.

Operator

This conference call. Today's conference is being recorded. 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.

Operator

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, Performance or achievements to materially differ 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. While mentioning EBITDA, we'll be referring to adjusted EBITDA.

Operator

We have provided a detailed reconciliation of non GAAP As usual, there are comparable GAAP measures in our earnings release, which is available on our website and has also been filed on Form 6 ks. Hosting the call today are Tal Jacobson, Perion's Chief Executive Officer and Mao Cegron, Perion's Chief Financial Officer. I would now like to turn the call over to Tal Jacobson. Please go ahead.

Speaker 1

Hello, everyone, and welcome to Perion's Q3 of 2023 earnings. Joining me today is Mao Sigron, our CFO. I would like to begin by extending our most profound Sympathy and support to all our employees and their families and our friends and colleagues in Israel We are facing challenging times. As I recently said in an interview on CNBC, Israelis are the most resilient people on earth. Under extreme situations Of uncertainty, Israelis thrive, come together and overcome any difficulties.

Speaker 1

Hence, Perion's operations and business activities remain strong. Perion is a global company, Predominantly serving the U. S. Market, where the vast majority of our revenue is generated. The huge support we are receiving, including from many of you on this call is so appreciated.

Speaker 1

Perion is built On the hard work and execution abilities of our amazing teams and on the long lasting support and belief of our investors. I want to thank you all for being part of our integral part of our journey. We will continue to serve our country while delivering value to our clients, partners and stakeholders. The headline news of the Q3 of 2023 It's similar to every quarter over the last 3 years. Our financial results reflects Payone's ability to deliver continuous profitable growth even under macroeconomic headwinds.

Speaker 1

Our profitability remains among the highest in the industry. The 3 main factors That enabled another quarter of growth and strong profitability are Perion diversified business This impressive double digit growth represents continuous trend that has been ongoing for the past 3 years. Our ability to execute and deliver constant profitable growth proves Once again, that our business model is effective and strong. Perion is a technology company. 2 of our strongest growth drivers are retail media and CTV, and they are expected to drive significant growth Going forward, our year to date CTV revenue has grown an impressive 48% Over the same period last year, well ahead of the market, our diversified portfolio allows us to be agile and shift our solutions to align with our advertisers' budget allocation trends.

Speaker 1

During the writers' strike, CTV budget shifted to live events versus on demand content. We at Perion were able to capitalize on this and move our CTV solutions Our retail media solutions are also showing tremendous growth With a year to year revenue up 81% over the same period last year And dramatically ahead of the expected U. S. Retail media growth of less than 20% in 2023. At the beginning of 2023, we expected our retail media revenue To reach an aggressive goal of $30,000,000 by the end of the year, I'm happy to share that we've already achieved our initial Annual goal.

Speaker 1

These strong results across both CTV and retail Due to our ability to decipher trends ahead of time and move fast to capture those opportunities. As a technology forward company, we harness technology to effectively penetrate new markets and create high margin growth engines. Our growth is driven by our deep commitment To technological innovation, we offer many unique solutions, both on the supply and the demand sides of the market. We at Perion offer our advertisers a suite of technological multi channel solutions. Our solutions are optimized to achieve highest business results for advertisers, all under one roof.

Speaker 1

Firstly, we generate for advertisers high impact creative formats At every touch point in an easy and efficient manner. Our creatives are based on advanced data In AI capabilities, to personalize the right message to the right audience, using our Sword technology, We target audience segmentation across channels. Our ads and campaigns are distributed across Premium publishers and channels such as CTV, display, video, social, Digital out of home and audio. The final and very important piece of this puzzle It's our ability to measure the impact of each campaign at each channel and optimize based on the results. LiveCTV is one of the fastest growing high impact advertising solutions.

Speaker 1

Here you can see our immersive ad unit Integrated into live CTV sports programming at the peak of the excitement at the highest attention level. Here, we created an ad for AT and T that ran during FIFA Soccer Game. The algorithm identified a low In the action and the exact moment it places the ad alongside the live event. This powerful placement Solves commercial avoidance and also known as bathroom breaks. Another great example of the high impact live CTV is our sponsorship with Home Runs, The most exciting moment in baseball.

Speaker 1

Here you can see the Stay Live experience we created for the New York Yankees For both CTV and OTT, as FanDuel deliver its message at the right moment during the broadcast, Viewers' attention to the thrill of the home run extend to the commercial message itself. Break through the clutter. This ability to command attention has helped Perion to attract world class advertisers From a large range of categories, from AT and T to Mazda, Mercedes, Kroger and many others. I'm happy to announce WAVE, our new advertising solution for dynamic audio ads driven by generative AI. WAVE stands for Waveform Audio Voice Engine.

Speaker 1

WAVE generates 100 of 1000 of audio ads Based on retail data of products and promotions, this groundbreaking solution delivers tailored audio messages To listeners, adopting in real time the various factors, including context, behavioral, demographics, demographics and others. Utilizing sophisticated algorithms of artificial intelligence, Wave generates audio ads that create a personal immersive audio experience, Enhancing engagement and impact. We at Perion are now present with sight, Sound and Motion, we combine technology and creativity The U. S. Digital audio ad market is rapidly expanding.

Speaker 1

Advertising budgets are projected to reach An impressive figure of nearly $6,800,000,000 in 2023. In this growing market, Wave, our new solution, is designed to help advertisers Offer enhanced personalization and engagement at each touch points on the consumer journey. 1 of the first wave adapters is Albertsons, the 2nd largest supermarket chain In the U. S, Albertson has seamlessly integrated Wave into several successful campaigns And is now scaling the Wave solution. Here's an example of a Wave technology in action.

Speaker 2

Get ready to start the new school year strong. Come on into your local Acme to find all the fresh fuel you need for school. Pick up tender Purdue boneless chicken breast for 2.99 a pound,

Speaker 1

Our results are strong. Our operational discipline and innovative technology We are intensely reviewing M and A opportunities that could further accelerate growth and diversification. Those opportunities may include area of technology that complements our existing portfolio. With that, I will hand over the stage to Moaz to discuss the financial results in more detail.

Speaker 3

Thank you, Tal. Good afternoon and good morning to those of you Joining us from the U. S, it is no secret that Israel is experiencing challenging times. Despite the war situation, it is very important And cash equivalents is held in Israel. At the same time, we are monitoring the situation closely And are diversifying our cash allocation to mitigate any risk.

Speaker 3

To be clear, the conflict is not and is not expected To significantly impact our business or financial strength. Turning to the business. In face of the continuous macroeconomic State of affairs. In the Q3, we delivered strong financial results with continued profitable growth. Once again, we demonstrated the power and the resilience of our agile and diversified business model.

Speaker 3

Let's review the financial highlights for the Q3. Revenue increased by 17% year over year to 185,300,000. Contribution excluding TAC increased by 90% year over year to €77,300,000 delivering a 42% margin. Adjusted EBITDA increased by 29% year over year to €42,700,000 GAAP net income Increased by 28% year over year to $32,800,000 and non GAAP diluted earnings per share Increased by 38% year over year to $0.84 per diluted share. Let's review the financial results in more detail.

Speaker 3

The revenue for the 3rd quarter was $185,300,000 an increase of 17% year over year. Our strong and consistent growth resulted in a 2 year CAGR of 24%. These results demonstrate That our ability to execute on our diversification strategy combined with innovation and business agility For the 3rd quarter, increased by 14% year over year to €99,200,000 accounting for 54% of total revenue. Over the last few years, we have diversified our display advertising business, adding new components to our portfolio revenue streams such as CTV and Retail Media to become a one stop shop platform for advertiser. Our retail media revenue more than doubled, increasing by 112% year over year And accounted for 30% of display advertising revenue compared with 7% in the same period last year.

Speaker 3

We are experiencing strong and rapid growth in the retail media. As Tal mentioned, we will exceed our expectation for 2023. Our CTV business continued to expand, growing 39% year over year, representing 8% of display advertising revenue compared with 7% last year. Video revenue decreased by 60% year over year due to our decision to shift part of our inventory From video to display to gain higher profit, our search business continued to be a driver of our sustained performance. Expected to grow by 8.3% in 2023 according to Emarketer.

Speaker 3

During the quarter, average daily searches Our 3rd quarter media margin continued to improve, increasing to 42% compared with 41% in the 3rd quarter last year And 39% in 2021. This continuous improvement is attributable to our focus on improved product mix and media buying optimization Translating to a 29% year over year growth in adjusted EBITDA to $42,700,000 Adjusted EBITDA margin in the 3rd quarter Increased to 23%, up from 21% in the Q3 of 2022 and 15% in the Q3 of 2021. Finally, adjusted EBITDA to contribution excluding TAC increased to 55%, up from 51% in the Q3 2020 2 37 percent in the Q3 of 2021. On a GAAP basis, 3rd quarter net income Increased by 28 percent to 32,800,000 or $0.65 per diluted share compared with 25,600,000 Office 3 Center diluted share in the Q3 of 2022. On a non GAAP basis, net income increased by 42% to 42,400,000 or $0.84 per diluted share for the 3rd quarter compared with 29,900,000 or $0.61 per diluted share last year.

Speaker 3

We delivered an impressive 2 year CAGR Of 76% for GAAP net income and 66% for non GAAP net income despite the global macro instability. This is testimony to the strength of our diversification strategy, our efficient operations and to our strict cost control measures. Over the past 3 years, we have consistently improved our productivity and successfully executed cost efficiencies. Our 3rd quarter non GAAP OpEx and COGS decreased to 19% from revenue compared with 20% in the same period last year. Our productivity measured by adjusted EBITDA per FTE increased to 84,100 from 66,000 in the 3rd quarter of last year.

Speaker 3

Operating cash flow for the 3rd quarter was 40,100,000 compared with €34,700,000 in the same period last year. As of September 30, 2023, our net cash, including cash, cash equivalents, Short term deposits and marketable securities was RMB523.6 million. This is an increase from RMB483.3 million At the end of the Q2 of 2023, the increase in cash and cash equivalents was the result Of the strong operating cash flow generated in the quarter, we are reiterating our full year 2023 guidance

Operator

Our first question is coming from Laura Martin from Needham and Company. Your line is now live.

Speaker 4

Great. Just a couple of things. This retail media network is really fantastic. Could you is that driven by new Customers, higher spending levels, what's going on with pricing. Could you start with retail media strength, please?

Speaker 1

Yes, absolutely. Thanks for joining. So retail is it's also new customers, but it's deepening the relationship with the retail customers that we already have With more and more technologies such as Wave, the new product we just released. So both new customers And existing customer is deep in the relationship.

Speaker 4

Okay, great. And then I'm Curious as to the juxtaposition here, Tal, we had CTV revenues up 39%, but video advertising down 16%. I would have guessed that CTV was inside video, so what's falling off a cliff in video if CTV is doing so well?

Speaker 3

CTV and video are separated also in our historical number. The reason why video as we said decreasing It's related to different priority internally we did. We shifted part of the inventory to the display Just in terms of what is the potential of each one of them and in terms of the bottom lines, what we can get,

Speaker 4

Okay. Thanks guys.

Speaker 3

Thank you.

Speaker 5

Thank you.

Speaker 1

Thank you.

Operator

Thank you. Our next question today is coming from Andrew Maroc. Your line is now live.

Speaker 6

Great. Thanks for taking my questions. I kind

Operator

of wanted to dig in

Speaker 6

on the metrics that you gave around the search business With the really, really strong growth in queries on top of 16% growth in publishers that seems to imply a really, really strong Growth in queries per publisher. Can you give any color as to what's behind that?

Speaker 1

What's behind the more searches per publisher?

Speaker 6

Correct. Is there anything specific that's driving a big uptick in searches per publisher?

Speaker 1

No. I think, first of all, a lot of the Searches are generated from the existing publishers and also from new publishers. Since we don't really control the searches, we can only add more customers. It's It's up to them. Our business is to add more and more publishers, qualified publishers that can attract new customers of their own.

Speaker 6

Okay. And then on the Wave product, I know you have a lot of emerging and earlier stage efforts In front of you, can you just give us a little bit of background as to what advertiser feedback or anything specific that you heard

Speaker 1

So first of all, we're doubling down on generative AI. We think, we believe this is the future of advertising. Everything generative AI is definitely the future and we have a lab here just for that. One of the things we've heard from our advertisers They're looking for more creative and immersive formats to be generated on a huge scale in a personalized manner. So this is why we've used generative.ai to first of all create all those trillions of scripts.

Speaker 1

So it would take The data of the products, the promotions, the location and then through that it actually writes its own scripts For different variations. And then we're using a very smart algorithm that can actually read that. And it actually sounds like a real person. And we spread that around through different channels,

Operator

Right.

Speaker 1

We have podcasts, radios and then we get the attribution to actually see what gains, How do people interact with that? Do people actually skip it or not? So it's a whole thing. We just released that. We have A few customers with that were getting very positive feedbacks and they actually want to add more and more campaigns using that technology.

Operator

Thank you. Next question is coming from Mark Kelley from Stifel. Your line is now live.

Speaker 5

Great. Thanks very much. I had 2 quick ones. Just first on CTV, we've been hearing about CPMs continuing to come down Across the industry, I know you guys have different types of creative units that garner a higher CPM. I'm just curious if you're seeing any pressure on CPMs there?

Speaker 5

That's the first question. And then just on the Wave product, can you expand just a little bit on that? I guess Are all the intense signals coming from the retail media network? And then I guess, will you book that revenue as Part of Retail Media? I guess a little more color there would be great.

Speaker 5

Thanks guys.

Speaker 1

So let me start with the wave things because we already started that and then Maud can So yes, first of all, Wave is basically data driven advertising at scale. That's why we need machine learning in generative AI. And the easiest and more natural place for that is going to be retail. Now we're starting with retail, which is obviously part of the retail media effort we have. But we're going Add it to more and more vectors and verticals such as travel, automotive and others, But retail, since we get through our relationship with the retail, we get so much data.

Speaker 1

It's just it makes so much sense to start with that. Now it's for the CTV. So CTV, as you know, our CTV is

Speaker 3

not the standard CTV. We're talking about the iimpact CTV with different So much we are using. We are charging the same CPM. We are not seeing any drop or any change in the trends. We're able to keep The store count CPM, this is what we're also expecting for this quarter.

Speaker 3

We don't see any weakness on our CPM around CTV.

Speaker 5

Okay, great. Thank you, both.

Operator

Thank you. Thank you. Next question today is coming from Jason Helfstein from Oppenheimer. Your line is now live.

Speaker 7

Hi, everybody. So first, I want to offer my sympathies and support for all the Israeli Purion employees. A few questions. So on the mix away from video, how much of this is media quality reasons? Or is this just solely kind of profitability and efficiency on your side?

Speaker 7

That's question 1. And then question 2, Miles, can you elaborate on the Q3 macro headwinds you cited? Were Were there any specific verticals that you want to call out as weak and kind of maybe like areas you thought were strong? Was that Just like a broad comment. And then just on the weaker, I mean, I think we all know CTV CPMs have been coming down Given the explosion of inventory, isn't that a positive for you because it drives higher ROI and then if you could show higher ROI, You can get advertisers to put more budget there.

Speaker 7

Thanks.

Speaker 3

Thank you. First, thank you, Jason. So about the Vida, this Just pure economic consideration. Historically, it was better with the video, but in the last, let's say, Quarter it was more, but it's something that when started few quarters ago that we're starting that we can get more profit With the display, so we did this shift. This is for the first.

Speaker 3

About the macro, again, we ended the quarter more or less In line with the original plan, the diversification is part of the reason why we're able to end the quarter. But definitely there is a change between what we planned originally to what how we end the quarter. There was some area that are, Let's say less and show lower numbers versus our plan, but some others that Offset the weaker area. But generally speaking, if I'm talking about Search as a whole and this As you can see, the numbers, this is very much aligned with the plan. The drivers for the quarter that offset More than everything, the negative trend is retail and CTV.

Speaker 3

This is the main two areas that help us to offset The negative trends. And the last is about the CTV. You're right that We believe that part of the reason we're able to show better results on with the CTV is related to the weakness We have on the standout CTV. The ROI, the ROAS that we are showing is better than the standout and we believe that this is part of the reason we are And this is part of the reason why the growth, the year over year trend is very much positive.

Operator

Thank you. Our next question today is coming from Jeff Martin from Roth. Your line is now live.

Speaker 8

Great. Thank you. Good evening and also expressing my support and sympathies. Wanted to Get a sense, Maus and Tal, next year, how should we start thinking about growth in search and display? Do you believe that retail media can continue to support growth in the double digits on revenue overall?

Speaker 8

And any insight into whether you think there'll be some M and A activity next year? Thanks.

Speaker 1

Yes. So Let's start by saying our organic business is growing, right? And we expect it to continue to grow next year, Currently, we have great signals from all parts of the business. Having said that, we are also evaluating a few Candidates for M and A, we feel strongly that we need to have Another arm, more technology, maybe a new vertical. So we are working on that very actively.

Speaker 8

Great. And then just to follow-up, There wasn't much discussion about sort and sort related metrics and growth, maybe give an update there.

Speaker 1

Yes, absolutely. Absolutely. So I'm actually glad So few things about sort. First of all, sort is doing great. It stays very strong and it keeps driving more and more campaigns to us.

Speaker 1

As we said in the past, Sort is not a standalone product. Sort drives its AI driven targeting capabilities that do not require any cookies or any privacy, formats of any sort. We're extremely happy about Sort even now, especially when Google just announced that they're going to restrict the ability of advertisers to look at IPs through Chrome and Sort doesn't use that. So it's a home run for us. If cookies are going to go away, if IPs are going to shrink, Sort doesn't use both of them.

Speaker 1

So we're extremely happy about that. We feel very strongly about us having Sort We hope so predict anything about our growth, but it is our secret sauce and we keep investing in that when we're adding more and more feature to it And it's very much alive.

Operator

Thank you. Next question today is coming from Max Michalis from Lake Street Capital. Your line is now live. Hey, guys. Just one for me.

Operator

Looking at the quarter, it seems like advertising came in a little bit softer than expected, Still 14% growth, which is solid, but SURGE outperformed. Is that the way we should be thinking about Q4 in terms of modeling? Thank you.

Speaker 3

Thank you. So yes, more or less the trends of the 3rd quarter reflect very much also in our high level, I was just thinking about Q4, so very much what you see here is what we're expecting to see in Q4 with This is the 90 of Q4, which is, of course, the most important quarter we have for the year.

Operator

Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over for any further or closing comments.

Speaker 1

Thank you, everyone, for joining. We had a great quarter. We're looking forward to seeing you again at the next quarter. Thank

Speaker 3

you. Bye bye.

Operator

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day.

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Earnings Conference Call
Perion Network Q3 2023
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