Q3 2024 Perion Network Ltd Earnings Call
[inaudible]
Speaker Change: Hello everybody and welcome to the Paris Un Network third quarter 2020 for earnings conference call. Today's conference is seen 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 Comps website at www.perian.com Before we begin I'd like to read the following say par best statement
Today's discussion includes forward-looking statements. These statements reflect the company's current views with respect to future events.
These four different segments involve known and unknown breath.
and Sertundzi and other factors, including those under the heading, with factors and elsewhere in the communities and your report on Form 20F.
Speaker Change: that may cause actual results, performance or achievement to be materially different, and any future results, performance or achievements anticipated or implied by the forward-looking statements.
Speaker Change: The company does not undertake to update any further statements to reflect future events or circumstances. As in prior quarter, the results reported today will be analyzed both on a gap and a non-gap faces.
One mentioning EBITDA, we will be referring to adjusted EBITDA.
Speaker Change: We have provided a detailed reconciliation of non-gaps measures to their comparable gaps measures in our earnings release, which is available on our website and has also been filed on Form 6K.
Speaker Change: Hosting the call today are Tal Jacobson, Perrion's Chief Executive Officer, and Elad Tzubery, Perrion's Chief Financial Officer. I would now like to turn the call over to Tal Jacobson. Please go ahead.
Tal Jacobson: Good morning, good afternoon, and welcome to Perion's 3rd Quarter 2024 Earnings Goal. Today, I am pleased to share the results and the highlights of the progress we are making in the digital advertising innovations.
Tal Jacobson: Technology and profitability are two core essential elements of Peruvian culture. For over a decade, we have been successfully building advanced, cutting-edge technologies at the forefront of ed-tech industry.
Speaker Change: And since 2014, Peren has been delivering positive annual adjusted EBITDA and operating cash flow, an accomplishment we're proud of and committed to continue to drive.
Speaker Change: At Perion, we aim to help CMOs, the same people who control almost 700 billion dollars of digital advertising budgets. This number is projected to reach almost a trillion dollars within three years.
Speaker Change: For more information, visit www.FEMA.gov
Speaker Change: Today, CMOs face an almost impossible mission.
Speaker Change: They are required to provide continuous ROI on advertising budgets. They are expected to do this while working in a fragmented ecosystem of channels, data points, screen sizes, audience segmentations, and many different media buying systems.
Speaker Change: All this while respecting the privacy of the consumer and ensuring minimal budget waste.
Speaker Change: In all our conversations with brands and agencies, we hear the same thing.
Speaker Change: They are all looking for a holistic solution that can run across the army channel universe and provide the best results while reducing waste.
Speaker Change: This landscape demands advanced, efficient, data-driven solutions.
Speaker Change: That's exactly where Payone stands out, with its AI-driven technologies.
Speaker Change: Perrion is taking a unique approach to what people used to call the linear consumer journey.
Speaker Change: We understand that human behavior has changed so much in the past few years and each person interacts differently with technology throughout the day.
Speaker Change: Beryl's technology is deeply rooted in each channel to ensure we can deliver marketing messages at the right time to the right consumer. We connect the dots.
Speaker Change: We do this across the digital advertising space between data, creative and media to ensure that brands achieve better returns and meaningful outcomes.
Speaker Change: Our advanced technologies keep us ahead of the curve, anticipating shifts in digital advertising.
Speaker Change: As CTV, retail media, digital out of home and audio ads lead today's industry trends, we're continuously introducing new innovative technological solutions. Our solutions position Perrion at the forefront of those high growth areas.
Speaker Change: Less than a year ago, we launched our advanced generative AI solution for audio ads, forecasting the movements in the digital advertising industry.
Speaker Change: Indeed, we are now seeing the largest industry players investing in audio, with a new deal between the Tradesk and Spotify coming to life. As Jeff Green commented, digital audio might be the most on-sell corner of the Internet.
Speaker Change: The time spent to ad spend ratio is the highest disparity of any channel. We will continue to look at the changes and build advanced technologies for it, to capture the revenues and stay ahead of the curve.
Speaker Change: Our advanced technologies are built to solve the advertiser's toughest challenges, leveraging AI to optimize campaigns and better efficiencies in reach.
Speaker Change: In our AI lab, we continue to produce amazing products. You are all familiar with SORT and WAVE. SORT is our advanced AI audience segmentation technology for CTV and web, designed perfectly for cookie-less environments.
Speaker Change: and WAVE is our advanced generative AI audio ad solution.
Speaker Change: Beneo's Creative Studio is our AI-driven DCO, Dynamic Content Optimization.
Speaker Change: that builds and delivers the most effective creative in real-time across multiple channels and our recently launched product, a unique advertising experience powered by Chet AI capabilities.
Speaker Change: connects brands with their consumers through AI conversations.
Speaker Change: and boost engagements by enabling in-ad interactions tailored to each person. Everything we do is focused on one thing, providing great results for our brands.
Speaker Change: Great results come when combining advanced technology and premium inventory. This is why, when it comes to inventory, Perion works with the best.
Speaker Change: In the past year, we've made many advancements connecting our technology to the leading platforms within our ecosystem.
Speaker Change: This is our way to ensure that our clients get the best of all worlds when working with us. Having advanced technology with a high level of flexibility that meets our client needs is our first priority.
Speaker Change: It is our unparalleled capabilities that make Perrion a trusted partner. We work with some of the industry's most recognized brands and agencies, setting new standards and creating impactful results.
Speaker Change: I am pleased to report that our growth engines continue to perform strongly. Digital Out of Home, Retail Media and CTV delivered strong growth of 63%, 62% and 19% year-over-year, respectively.
Speaker Change: As we look into the future, I invite you to be part of what's next for Perion. Here's what set us apart as an investment opportunity.
Speaker Change: Innovation is in our DNA. We're constantly pushing boundaries, staying ahead of the industry trend.
Speaker Change: We have a decade-long track record of generating positive adjusted EBITDA and operating cash flow.
Speaker Change: Our commitment to high growth areas such as digital at home, retail media and CTV positions us at the forefront of the market.
Speaker Change: Our leadership team brings deep industry expertise and a visionary approach to every decision.
Speaker Change: And, with our global footprint, we can serve clients and partners in high-growth markets, positioning us to accelerate growth.
Tal Jacobson: Now, I'll turn it over to our CFO, Elad Tzubery, who will discuss our quarterly financial results.
Elad Tzubery: Thank you, Tal. Good afternoon and good morning to those of you joining us from the U.S. After completing my first quarter experience as Chief Financial Officer, I'm glad to share that our third quarter results were in line with our expectations.
Speaker Change: In the third quarter, we continue to experience strong contributions from our growth engines, retail media, CTV, and digital autophones. As we previously disclosed, we continue to see a decline during the quarter in our search business, in open web video, and in standard display formats.
Speaker Change: Within Search, we experienced the full impact of the actions taken by Microsoft Bing earlier this year, and are now generating what we believe is a normalized revenue run rate for the fourth quarter of 2024.
Speaker Change: In the third quarter, we were profitable, repurchased additional shares, and continued to maintain a strong net cash position.
Speaker Change: Our favorable financial position will allow us to continue investing in technology, organic growth, and executing our M&A strategy.
Speaker Change: For the third quarter that ended on September 30, 2024, revenue was $102.2 billion, a 45% year-over-year decrease.
Speaker Change: This was primarily due to a 76% decrease in search revenue and a continuous weakness in our open web video and standard ad formats.
Speaker Change: These results were partially offset by an increase in revenue attributable to our growth engines.
Speaker Change: Adjusted EBITDA was $7.4 million, representing an 83% year-over-year decrease, and resulting in a 7% adjusted EBITDA margin and 16% XTAC margin.
Speaker Change: Gap net income was $2.1 million, while non-gap net income was $11.9 million.
Speaker Change: As of September 30, 2024, net cash, including cash equivalents, short-term deposits and marketable securities, was $383.9 million.
Speaker Change: During the third quarter, we continued our buyback plan and repurchased 1.6 million shares for a total of $13.5 million.
Speaker Change: Revenue from advertising solutions was 81.3 million dollars, down 18% year-over-year, yet up 9% sequentially, representing 80% of total revenue.
Speaker Change: The year-over-year decrease was a result of continuous and anticipated decline in open web video and in standard display revenue.
Speaker Change: These declines were partially offset by a significant year-over-year increase of our growth engines, including digital out-of-home, retail media, and CTV.
Speaker Change: Our digital auto phone business grew by 63% year-over-year on a pro forma basis to $19.1 million, representing 23% of our advertising solutions revenue, compared with 11% in the same period last year on a pro forma basis.
Speaker Change: Our CTV business grew by 90% year-over-year to $9.5 million.
Speaker Change: representing 12% of our advertising solutions revenue compared with 8% last year. Boosted by our digital out-of-home and CTV solutions, our retail media business, which is a hyper-growth market vertical, delivered another strong quarter.
Speaker Change: Retail media increased 62% year-over-year to $21 million, representing 26% of our advertising solutions revenue, compared with 13% in the same period last year.
Speaker Change: Search advertising was $20.9 million for the third quarter.
Speaker Change: down 76% year-over-year, representing 20% of our total revenue.
Speaker Change: As mentioned,
Speaker Change: This decrease was a result of the changes implemented by Microsoft Bing earlier this year. Our contract with Microsoft Bing...
Speaker Change: which both currently and going forward represents less than 5% of our overall revenue run rate will not be renewed at its conclusion at the end of 2024. As per the terms of the contract there is a tail period that is expected to generate revenue also in 2025.
Speaker Change: Contribution excluding tax margin was 47% compared with 42% in the third quarter last year, which is primarily due to changes in the product mix following the reduction in the search business.
Speaker Change: Adjusted EBITDA was $7.4 million, 7% of revenue, and 16% of contribution ex-stack, compared with 23% and 55% respectively in the third quarter of 2023.
Speaker Change: The cost reduction and efficiency measures that we implemented last quarter allowed us to moderate the year-over-year decrease in EBITDA.
Speaker Change: On a gap basis, third quarter net profit was $2.1 million, or $0.04 per diluted share, compared with a net income of $32.8 million, or $0.65 per diluted share, in the third quarter of 2023.
Speaker Change: On a non-GAAP basis, net income decreased by 72% to $11.9 million or $0.23 per diluted share, compared with $42.4 million or $0.84 per diluted share last year.
Speaker Change: In the third quarter...
Speaker Change: Our cash flow from operating activities generated $16.2 million compared with $40.1 million in the same period last year. Perrin has a decade-long track record of generating a positive cash flow from operations, and we expect to continue in this direction in 2024 and going forward.
Speaker Change: As of September 30, 2024, net cash, including cash equivalents, short-term deposits and marketable securities, was $383.9 million, down from $407.1 million at the end of the second quarter of 2024.
Speaker Change: The quarter-over-quarter decline in cash was primarily the result of an Ernot settlement of approximately 24 million dollars related to previous acquisitions.
Speaker Change: Going forward, we do not expect contingent consideration payments related to past acquisitions, other than those of Heistec.
Speaker Change: In addition, during this quarter, we repurchased 1.6 million shares for a total of $13.5 million. As of the end of the third quarter, we repurchased a total of 3.6 million shares, bringing the total spent against our share buyback program to $33.5 million.
Speaker Change: Based on our third quarter results and our expectation for the fourth quarter, we are reiterating the full year 2024 guidance that we provided on our second quarter earnings conference call.
Speaker Change: This concludes my financial overview. I will now pass it back to the operator for the Q&A. Thank you.
Speaker Change: Thank you. If you wish to ask a question we ask that you please use the raise hand function at the bottom of your zoom screen or if you have dialed in please press star 9.
Speaker Change: Our first question comes from Andrew Marrick at Raymond James. Please unmute your line and ask your question.
Andrew Marrick: Hi, thanks for taking my question. Maybe first one on digital out-of-home, seeing good growth there in the format, but I guess could you just talk about the progress in making digital out-of-home just more programmatic industry-wide since it's still kind of lags some of its other formats?
Speaker Change: Yeah, absolutely. Thanks for the question.
Speaker Change: So, as you've seen, the growth is pretty amazing, but, you know, digital out of home continues to grow. Programmatic out of that grows even faster.
Speaker Change: But when we're looking at digital out of home and when we bought Hyde Stack, we actually combined that within our retail solution.
Speaker Change: So, you know, we're powering retailers to also use that, to use that as part of our omnichannel solution, to drive more people into physical stores.
Speaker Change: So the synergetic solution out of that provides even more growth than just the out-of-home part.
Speaker Change: I hope that answers your question.
Speaker Change: Yeah, thank you. Helpful there. And then maybe one quick one, if I could, on CTV. So I guess, can we just talk about some of the dynamics that are happening there, maybe industry-wide, and how they're affecting you? Because saw the growth of 19%, but that's a pretty significant decel from 42% last quarter. And the absolute dollar amount was down year over year, or down Q over Q, excuse me. Just wondering if there's anything to read into that, maybe in terms of like CPMs coming down across the space as industry proliferates. How does pricing kind of impact your CTV business? Thank you.
Speaker Change: Thank you. Yeah, absolutely. So CPMs are a bit down, but since we're not, you know, when CPMs are down, we're basically buying more inventory. The main reason that the growth were a bit lower than last quarter
Speaker Change: And September actually started to pick up again, but live events on CTV is the main drivers, and July-August is just a weaker part of the year.
Speaker Change: and many more. Thank you. Thank you.
Speaker Change: Our next question comes from Jason Hilstein at Oppenheimer. Please unmute your line and ask your question.
Jason Hilstein: Good afternoon, guys. Two questions. One, when do you think advertising revenue returns back to positive growth?
Speaker Change: Presumably sometime next year, but if you just maybe level set base case versus ball case. And then question number two, where do you see long-term Ibezal Martin's X-TAC?
Speaker Change: And how do you get there? Is it a function of, you know, doing things, you know, how much of its revenue versus work you need to do on the cost side? Thank you.
Speaker Change: Hi Jason, thank you for the question.
Speaker Change: So, for the first question, regarding our advertising solutions,
Speaker Change: with a slight increase year-over-year. And in Q2, we'll start to see it expedited a little bit more. And in Q3, we'll see the real growth year-over-year. We're going to see the entire impact follow the changes that we've made this year.
Speaker Change: Thank you for your attention.
Speaker Change: But can I follow up on that second question then? I mean, do you have to change at all like the, I guess, pricing billing model for advertisers to kind of get to the margins that you have to get to?
Speaker Change: No, we don't need to change our pricing model. No, we're scaling with some major...
Speaker Change: while maintaining the growth with the current headcounts.
Speaker Change: and many more. Thank you. Thank you.
Speaker Change: Thank you. Thank you.
Speaker Change: Our next question comes from Eric Martinuzzi at Lake Street. Please unmute your line and ask your question.
Eric Martinuzzi: Yeah, I wanted to focus on the Microsoft contract. Just to clarify, you said that there will not be a renewal of that contract, but that there will be Microsoft-related revenue in 2025?
Speaker Change: Yes.
Speaker Change: What was the question?
Speaker Change: I was just wondering, you know, you size the Microsoft revenue in the back half of 24 as 5%. What would you characterize, you know, how long do we have this sale in 2025? Is it done by Q1? What percent of revenue is Microsoft in Q1, Q2?
Speaker Change: The users, the end users, are using the product with the Microsoft Engine to us.
Speaker Change: can continue to use that.
Speaker Change: with us until the end of 2025. Now, software users tend to churn. They don't keep that product always.
Speaker Change: Although we have a TIL clause within the agreement,
Speaker Change: And we expect to generate revenue in 2025. We do not, and still we do not have that forecast till the end of 2025, but it's going to be part of our revenue in 2025 as we see it now.
Speaker Change: Okay, so de minimis kind of a less than 2% for the full year on revenue, percent of revenue? Yeah, we'll try to be more accurate next quarter when we're going to provide better visibility into next year. But I think that's kind of a reasonable assumption, but we'll need to do a deeper analysis.
Speaker Change: Got it. Thanks for taking my question. Thank you.
Speaker Change: Our next question comes from Laura Martin at Needham. Please unmute your line and ask your question.
Laura Martin: Hey, so let's start with Hivestack.
Laura Martin: You closed it in the fourth quarter of 23. And the idea, the industrial logic was that
Laura Martin: Undertone had excellent relationships without agencies in the U.S. and HydeStack had excellent relationships without agencies offshore and there was synergy there because you could sort of synergy of introducing products across the globe that way. Could you update us on whether that industrial logic is playing out please?
Speaker Change: Yeah, so on the product side, we've implemented the VCO.
Laura Martin: which is an undertone product, which is a dynamic content optimization technology. We've implemented that into the high-stack platform.
Speaker Change: enabling high-stack advertisers to enjoy 40% more
Speaker Change: inventory than they used to. What that means is in out-of-home, you have so many different sizes of screens and resolutions that advertisers don't really bother to create creatives for all those sizes. With that new technology, they can now tap into all the inventory.
Speaker Change: which provides greater growth into our high-spec platform.
Speaker Change: and a portion of retail advertisers in Tupelion.
Speaker Change: So even though we just we've started less than a year ago, we're seeing good synergies between the two sides.
Speaker Change: Okay, helpful. And then my other question is, you know, when you stepped into the CEO role here, Tal, we had Microsoft at 50% of revenue and now it's gonna be less than 5%. My question is, sitting here today,
Speaker Change: You know, should we have, should you have known that this was coming as a head of the Microsoft relationship, or was just everybody blindsided by a strategic pivot that Microsoft made, looking back?
Tal Jacobson: Well, let me just say, if I knew, to be honest, I wouldn't have taken this role.
Speaker Change: I didn't want this under my name.
Tal Jacobson: But unfortunately it happened, and it happened industry-wide for Microsoft. It's a decision they took across the board to their other partners, Dutch Experian.
Speaker Change: And we were all surprised by this change. Again, if I only knew.
Speaker Change: But unfortunately I didn't. I took this role and it's my responsibility now to rebuild the entire thing.
Speaker Change: without the Microsoft agreement.
Speaker Change: I'm sorry. I'm sorry. I'm sorry. I'm sorry. I'm sorry.
Speaker Change: and many more. Thank you for watching. See you next time.
Speaker Change: Just following up on that, we're having weakness in, let me call it the old line business, which is the video business and the display business. Do you think the weakness in the core businesses, the ones that are more than a year old, is actually related to the same reason that Microsoft left? Is it a quality issue, I guess is my question, of Perrion Inventory, or are they unrelated?
Speaker Change: No, no, absolutely not. It's absolutely not.
Speaker Change: Thank you.
Speaker Change: Microsoft Search.
Speaker Change: had nothing to do with the display advertising business. It's not connected in any way.
Speaker Change: now
Speaker Change: Some of our parts in the past, you know.
Speaker Change: that used to have publisher solution and other parts that the industry moved away from is some of the decline that you're seeing now in the advertising parts.
Speaker Change: But our inventory, as you probably saw in our presentation, we're now connected to the premium of the premium inventory of the industry.
Speaker Change: We are not compromising any of our inventory. We're just working with very high-quality inventory.
Speaker Change: But those two parts are unrelated.
Speaker Change: And there's an article, I think a few months ago, that Microsoft are generating a lot of money to what people call MFA sites and Google as well. So...
Speaker Change: Technology companies and advertising companies are working with all types of websites, but those two parts were never connected.
Speaker Change: Thank you very much. Thank you.
Speaker Change: Our next question comes from Jeff Martin at Roth. Please unmute your line and ask your question.
Jeff Martin: Thanks, good afternoon guys. I wanted to ask, you know, more specifically,
Jeff Martin: What are the trends within the traditional display and video advertising that are impacting you most severely here, and do you see that bottoming out, and is there growth potential down the road?
Speaker Change: Yeah, so that the main trends we're seeing is, you know, open, I would go to open web.
Speaker Change: inventory became less and less attractive. You can see that weakness also in the Google reports that YouTube and search are growing while AdSense, which is the open web, is not doing as good.
Speaker Change: And I think that's why we're concentrating mainly on, one, the plenum inventory, and second, on the omni-channel experience so we can continue to shift between higher margins and more attractive channels.
Speaker Change: declining in the past year. We expect next year to be a lot better on that part. We're investing a lot in other channels.
Speaker Change: and we're now pushing some of our advertisers into YouTube and CTV, YouTube both on CTV and web. Those are the growing engines that we're looking forward to grow.
Speaker Change: Great. Then my second question is regarding the search business. My understanding is that the majority of the residual in search is with partner Yahoo. I just want to throw it out there a question, could the same situation that happened with Microsoft Bing happen with Yahoo? Thank you.
Speaker Change: Right, so we do not see any signals that that might be the case.
Speaker Change: Thank you very much.
Speaker Change: But again, you know, the search part of Peleon, as I think we've said that in the past...
Speaker Change: is not a strategic part. As long as we can get revenue and EBITDA out of that, we'll be more than happy to do this for as many years as possible. But that's not the strategy, that's not the path we're going to… that's not even part of the investments we're doing. We're not investing in that part. We're just…
Speaker Change: We're working on that part to continue to generate revenue in EBITDA, but the main growth engines, I think that's what's going to take us to new places and to higher growth.
Speaker Change: and many more. Thank you. Thank you.
Speaker Change: Our last question comes from Mark Healy at Cecil. Please unmute your line and ask your question.
Mark Healy: Thanks very much. Good morning. I wanted to ask you about two different things. One is, you know, you brought up the trade desk in your prepared remarks.
Speaker Change: comes to audio, I guess, is that how you're accessing audio inventory?
Speaker Change: from a DSP perspective, and then second...
Speaker Change: unrelated question. You know, Paul, you talked about kind of rebuilding the company after this, you know, the search business, you know, is essentially, you know, close to going away. I guess, can you expand on the M&A strategy and some of the thoughts that you have today and maybe, you know, if those differ from what we've heard from you in the past? Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you for the questions. So we're now connected on the audio part. We are connected to Spotify directly and iHeart and others.
Speaker Change: If an advertiser wants to buy our audio through the TrayDesk, they are more than willing to do so with our technology or through any other DSP. So that's on the audio part, and I think the fact that TrayDesk are...
Speaker Change: did this deal with Spotify is amazing. I think audio has been unrecognized as a growth engine for so many years but it's still a lot of people are using it.
Speaker Change: and we're going to see a great growth on audio in the future. Still not there, but I think it's a good part to invest in.
Speaker Change: As for...
Speaker Change: The M&A and the future of the company. I think the company is going away.
Speaker Change: in the future. I think we need to rebuild everything we do. We still have a lot of money.
Speaker Change: It's an amazing company. I think it has an amazing future and now in terms of M&A
Speaker Change: We're at the same place. We're looking to find more growth engines. The criteria is EBITDA positive, synergetic,
Speaker Change: fahrenheit.
Speaker Change: And that's basically what we're looking for.
Speaker Change: Did I answer your question?
Speaker Change: Yes, thank you very much.
Speaker Change: Please see the complete disclaimer at https://sites.google.com
Speaker Change: This concludes today's call. I will now hand back to management for closing remarks.
Speaker Change: Thank you everyone for joining us at our Q3 Annual Call. We look forward to having you joining us again next quarter. Thank you.
Speaker Change: and many more. Thank you for watching. I hope you enjoyed the video. If you did, please give it a thumbs up and subscribe to the channel. I'll see you next time.