Perion Network Ltd.
Q2 2021 Earnings Call Transcript

Published: 3 Aug 2021

[Operator:]

Welcome to the Perion Network Second Quarter of 2021 Earnings Conference Call. Today’s call 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 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 20-F 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.

[Doron Gerstel:]

Thank you and good morning. Today Perion reported its second strongest quarter since I joined the company with notable improvement across all metrics. To put this in perspective with today's results, Perion has generated $400 million of revenue and more than $47 million in adjusted EBITDA in the last 12 months. In the second quarter, we drove a 419% increase in GAAP net income and 479% increase in adjusted EBITDA. These results in the growth trajectory they represent giving us improved visibility and strong confidence in the future, thus enabling us to improve 2021 financial guidance and to introduce preliminary guidance for 2022. Now allow me to add one more milestone to today's exciting news. We are positioned to achieve our three-year’s growth plan a year earlier than expected. I'm particularly proud that our accelerated performance has come in the midst of continued economic uncertainty and start gain stop again pandemic related circumstances in many categories. Current success results can be summarized in one unifying strength, a powerful diversified technology platform that reflects our innovation and growing relevance to marketers and publishers. Perion is now operating in a clear strategic direction, leveraging our strong financial position to increase investment in technology and to accelerate growth. To demonstrate the effectiveness of our strategic framework 18 months ago, we announced the goal of enhancing our advertising capability dramatically while focusing on technology and AI risk, resulting in 127% revenue growth in the first half of 2021. This demonstrates the market fit of our platform made possible by relentless innovation and strategic acquisitions. As you know, digital media is defined by supply side, the availability of different ad units utilized by publisher and the demand generate by brands and agencies, we have developed a unique hub and spoke platform that empowers our clients to efficiently engage and convince consumer via the channel, the best meet the real time marketing needs.

[Maoz Sigron:]

Thank you, Doron. Our financial results in the second quarter of 2021 reflect the strength of our Hub and Spoke business model, which cater for both DSP and SSP and the strong momentum starting from the fourth quarter of 2020. We can see the report of our turnaround strategy in an imposed balance sheet, P&L and substantial growth in both sales and advertising revenue. During the second quarter of 2021, revenue for Perion totaled $109.7 million, an increase of 82% from $60.3 million in the second quarter last year. This increase was primarily due to the growth achieved across the board. Our display and social advertising revenue increased by 211%, primarily due to the contribution of video and CTV advertising contracts, as well as the successful implementation of our Hub and Spoke model within the Perion. Video, including CTV, generated $9.1 million in revenue reflecting for 435% growth year-over-year. On a pro forma basis, assuming we own Pub Ocean in both period, display and social advertising increased by 134%. Sales advertising and other revenue increased by 24% resulting from a higher number of daily monetizable search queries we delivered to Microsoft Bing and others. Our daily number of searches was $16.9 million compared with $13 million last year. In addition, we added 18 new publishers to our network during the quarter. Display and social advertising revenue of $58 million represented 53% of the second quarter of 2021 with sales advertising and other revenue representing $51.6 million or 47% of total revenue. This is exactly the kind of diversification we are looking for. Traffic acquisition position cost in the second quarter of 2021, were $66.2 million or 60.4% of revenue compared with $36.8 million or 61% of revenue in the second quarter of 2020. Our media margin remained stable at around 39%. In fact, this margin has remained around 40% for each of the last five quarters. The media buying margin stability, as a percentage of revenue is a result of course synergy we achieved through implementation of our Hub and Spoke strategy.

[Doron Gerstel:]

Thank you, Maoz. There is no doubt that Perion has come a long way in a relatively short period of time, a period where we had to grapple with the once in a century pandemic. We have eliminated all debt and now have a pristine balance sheet with more than $141 billion in cash and liquidity that is strategic asset for our company. We have built a powerful differentiated Hub and Spoke platform based on proprietary technology they provide a diversification solution for advertising clients. Our business model is highly scalable and we have proven that enabling us to grow our bottom line faster than the top line with robust, sustainable cash generation.

[Operator:]

Thank you, sir. And the first question comes from Jason Helfstein of Oppenheimer. Please go ahead.

[Jason Helfstein:]

Thanks. A few questions. So first, the business obviously is operating really well better than expected. Some of that is obviously due to just the macro strength and advertising, but Doron can you just talk more about how the assets are creating revenue synergies within the company, meaning because you have so many different types of businesses, and how they're leveraging-off each other, perhaps are you seeing certain clients synergies that's something that you've talked about in the past to be able to kind of cross or up-sell? Are you starting to see that? Then M&A question, without being specific about what companies you might want to buy, maybe, are you more focused on the demand side or the supply side from an acquisition standpoint? And then lastly, a modeling question. If we kind of back into, obviously, you've given us a full year guidance. And then we looked at the seasonality of this quarter versus historically, the seasonality of the second quarter, let's say in 2019, it would still suggest that the full year guidance is quite conservative based on seasonality. So maybe just talk about that a little more? Thank you.

[Doron Gerstel:]

Thank you very much. So let's start with the synergy question. So with all the assets that we have both on the demand side and the supply side. First of all, the real challenge was put them on one framework, and the framework that we're using is developing a Hub, a Hub and Spoke are the different assets. And there have been we are described that we call it the iHub, the I for intelligent is very much able to see like an air tower control, able to see all the movement that is happening between the demand side and the supply side. And first and foremost, for efficiency that is translated to internally and externally. And this has to do with first of all, what is the optimized routing, and this optimized routing of demand to supply that going through the intelligent Hub will be translated into our efficiency internally, and of course, to a better return on ad spend for our customer.

[Operator:]

Thank you. We'll now move to our next question from Laura Martin from Needham. Please go ahead.

[Laura Martin:]

Doron, can you hear me okay?

[Doron Gerstel:]

We can hear you. Hi, Laura.

[Laura Martin:]

Hi, there. So, I wanted to drill down on search a little bit. So your search revenue, year-over-year grew 24% in the quarter and 23% for the first six months. I was struck by that because the Google numbers were 68% growth in the second quarter after the first quarter only grew 30% because the prior year comp we weren't in COVID yet. So I guess I'm wondering two things about, could you explain how your search different business is different from Google's and why it's so much lower of a growth rate in the current quarter that second quarter the 68% or for Google that's their search business alone, compared to your search business is 24%. And then why is your so not seasonal year-over-year compared to how Google's like double from 30% versus 68% growth. I'm just trying to understand the difference between the Bing search engine and the Google search engine, please.

[Doron Gerstel:]

So first and foremost, the Bing, the main difference between the Bing search engine and the Google search engine has to do with mobile presence. And that's one of the main that we put it this way, main deficiency of the Bing search engine, we are very happy with the sustained growth of our search advertising business. And it's something that we shared and we shared a lot that we're putting way-way more weight in terms of technology investment on our display and social advertising business. And that’s reflect it was a strategic decision that the company take back then I think it was more than more than a year ago. And I think that’s reflect on the numbers, I can tell you that there is a lot of synergy potential between the two that we are working on it as we speak. And we are able to generate some advertising business that is coming as the results from the search or the search intent or insight that we're getting from the side of the house. So all in all, we are very optimistic as far as this business and more importantly about the ability to develop a synergy business between the two.

[Laura Martin:]

Super helpful, thank you. My second question is e-commerce. Almost every company that's ad driven that's reported in sort of ad tech is talking about e-commerce. And I'm wondering how you think about like integrating e-commerce deliverables into your product roadmap going forward for your ad tech?

[Doron Gerstel:]

Thanks for the question. And it has to do with two things. First of all, I think, in the second quarter announce its retail as a vertical that has to do with I think it has to do with like a $4 million this quarter, I need to look at the number, but it's in this range of business that we're doing with retail. That's one and we're continuing in invest in this vertical, and because we truly believe that that represent a huge potential advertising business following the whole vision of retail as the publisher and we're very much looking into this type of business. The other thing that has to do with e-commerce, and I think that’s earch advertising is old performance advertising. And we definitely looking about the keywords and we trying to develop here all kinds of modeling around it, which is very much this all growth of search advertising is driven by more and more advertiser that look at it as a great channel to spend when it comes to e-commerce, when it comes to performance advertising. Because of one very, you I think basic factor this represent the highest possible intent for consumer, and the best place for advertiser to meet those consumers that representing the highest possible intent. So we are very, very much riding this wave of e-commerce.

[Laura Martin:]

Thank you very much.

[Doron Gerstel:]

Thank you.

[Operator:]

Your next question comes from Eric Martinuzzi from Lake Street. Please go ahead.

[Eric Martinuzzi:]

You called out the significantly more spend per campaign. And then as you also called out healthy increase in new clients. I'm just going to get here, but I'm assuming the ad performance you saw both in Q2, and in the raise down for FY ‘21 was tied to significantly more spend per campaign from the install base. Is that correct?

[Doron Gerstel:]

Absolutely.

[Eric Martinuzzi:]

And then if I think about the raise 90 days ago, we are talking in May about a year at the midpoint that would be about $400 million. And now we're looking at $422.5 million at the midpoint. So that's almost a 6% increase in your outlook for the year. As you see people spend more per campaign. Is it flowing in particular, is this more in an extension of the length of the campaign or the intensity over the same period of time?

[Doron Gerstel:]

I think that’s both. There are two things that we definitely see that brands are shifting more dollars into digital advertising campaign. I know that few brands that were in touch with shifting dollars from exhibitions that were part of their budget into digital campaigns. This by itself, is a huge amount of incremental dollars that going into it. And one thing we need to definitely point out. During the campaign, we are reporting to our branding agency, how we are performing, that's a very important thing, because we are encouraging our brands and agency to double down where the performance that we are demonstrating is even more than what they anticipated, it has to do a few additional dollars and it has to do with additional length on time, because most of the fixed expensive already being utilized. And for those customer of ours, this is pure really the return on this incremental is way-way higher than for the original plan of the campaign. We develop more of this online type of reporting. We develop more on this performance, which is always one very much bottom line to incent our clients to invest more and extend more because for us operationally, is a great thing because the campaign is running, the work has been done. Everything is already in place and operate and extending it or in time or putting more budgets is very, very profitable for both sides.

[Eric Martinuzzi:]

That's good to see. I assume that's a return on those R&D investments of the prior 12 months. Is that correct?

[Doron Gerstel:]

Absolutely.

[Eric Martinuzzi:]

And then lastly, maybe this is Maoz, the earn-out payments, you had a couple of very successful acquisitions. I think the CIQ was January 2020. And the probation was maybe July of 2020. But they did have significant earn-out to do. What do we have kind of over the next six months kind of between year and year-end as far as cash payouts tied to the earn-out of those acquisitions?

[Maoz Sigron:]

Thank you, Eric. We actually are not expecting to have much more payment this year with a small amount in July around $1 million. But this is it. All the other payments that we have on the balance sheet, if everything real going according to plan will pay around Q1,2022.

[Eric Martinuzzi:]

I mean can you say that dollar exposure?

[Maoz Sigron:]

About $30 million.

[Eric Martinuzzi:]

$30 million?

[Maoz Sigron:]

$30 million. It’s 30.

[Eric Martinuzzi:]

Thanks. And congratulations on the quarter and the robust outlook.

[Doron Gerstel:]

Thanks.

[Operator:]

Jeff Martin, Roth Capital Partners. Please go ahead.

[Jeff Martin:]

Thanks. Good afternoon, guys. Wanted to drill down a little more --

[Doron Gerstel:]

Hi, Jeff.

[Jeff Martin:]

Thanks for taking my questions. Wanted to drill down a little more on the client count increase 67% in the advertising segment in the quarter. Are those clients that you've worked with in the past? Are they new clients help us understand the composition of which parts of the business that 67% increases is focused on and then I have a follow-up question on content monetization when you're done with that?

[Doron Gerstel:]

So first of all, the efforts on the advertising has definitely increased the client base that we have, we are definitely looking on two parameters here. One is very much the retention revenue. And we definitely can report that we are very close to 100% of retention revenue this quarter. And the other key KPI for us is expanding and adding more clients that has to do with new products and that we are launching to the market. We are really encouraging by our latest release, which is has to do with the CTV suite of products that we launched that allow us to get more clients that are looking on our CTV offering more specifically on the interactive the ICTV solution, and the fact that we are able to combine cross streaming in this campaign that generate quite traction in the market that allows us to add a substantial new clients.

[Jeff Martin:]

And then my understanding is content monetization is roughly a quarter of the business was hoping you could give us some performance metrics around that and some of the key trends that have developed over the course of this year within content monetization?

[Doron Gerstel:]

So content monetization is definitely a key part for growth. I must tell you that we already shared as we had it in Analyst Day back on March, where the CEO of Newsweek was on the call, that's one very good example of how content monetization is in play, we're working with top tier publisher, where we are externalizing our solution technology in order to drive audience and in order to keep their audience as long as possible on their assets on the content and that's one of the things that we are focusing at. The two main parameters in this business or the main parameter in this business has to do with RPS that stands for revenue per session. This is the main measured for the publisher. And the ability to generate as much revenue for a given audience and on the session time, session it's from the time -- in the time this audience leaves the sites on the notion that it is endless scrolling or anything like this it can be a mobile or it can be on desktop or whatever. It's very much performance-based business, which you have to demonstrate the technology because it's a rapture type of business between us and the publisher. And at this point, it's become a significant portion of our overall business. As you mentioned, it's in the last 12 months of the $400 million it’s good 25% of the business with a healthy margin.

[Jeff Martin:]

Thank you.

[Doron Gerstel:]

You're welcome.

[Operator:]

The next question comes from Paul Sayer from Private Investor. Please go ahead.

[Paul Sayer:]

Hello, Doron. How are you?

[Doron Gerstel:]

Very good.

[Paul Sayer:]

I just wanted to know, the first one question about 2024, excuse me, do you think we should reach $1 billion without any acquisitions? This is possible.

[Doron Gerstel:]

What we look then developing a model for 2022, which is --

[Paul Sayer:]

Maybe I am jumping that a little bit, I was just curious if you could see that at all.

[Doron Gerstel:]

So the only the only thing that I can comment on this one is the company is working on a three-year Strategic Plan. And this is very much our guidance; this is something that we did for -- till 2023. Now, we're able to achieve this number a year earlier, then and we are definitely extending our strategic view beyond the 2022. And I think that getting into this mark that you mentioned, it's not that it's required, an acquisition, but acquisition is definitely part of our Strategic Plan. We see opportunity in the market and we see it’s an area which would like to accelerate in our offering. And so you could expect that by the 2024, the company will do and definitely will acquire opportunities given of course the frame that I described. So it's too early to guesstimate 2024.

[Paul Sayer:]

I didn't mean to put you on the spot. I just have one more question with the two acquisitions that we made. And you gave them a certain stipulations that they have to do so much business in a year and a year and a half. And then also, they had to show some good decent profit. Do you remember that guideline I think you gave the two acquisitions?

[Doron Gerstel:]

The guidelines that we gave is very much demonstrated on the earn out objective that we shared with the market. But I must say that, we've seen that they exceed our expectation and they doing extremely well, especially on the ability to developing a synergy with other parts of the business and we're very happy with that.

[Paul Sayer:]

Thank you, my friend.

[Doron Gerstel:]

Thank you. Thank you. Thanks for joining.

[Operator:]

And we have a follow up question from Laura Martin from Needham. Please go ahead.

[Laura Martin:]

I'm just building on the answers that you say. Since I asked my question. Could you tell us now in the interactive CTV suite with -- how big that business has gotten that interactive CTV product?

[Maoz Sigron:]

So interactive CTV product is growing, from a percentage standpoint is growing rapidly. We've seen more and more brands, the revenue itself, I think as I mentioned before, we're looking about what is the impact to the overall insertion order by having this line of ICTV. So the way we'd like to the -- our KPI is it generating greater deal? Is it generating a deal that we didn't have before and not necessarily the line of the ICTV itself that currently, it's relatively small, but its impact on the overall revenue is way-way greater than it's standalone contribution. Hope it's clear.

[Laura Martin:]

Super helpful. And then our content monetization, that was a really interesting answer you gave. I’m curious as to how you would compare that business to Outbrain and Taboola. Is that a direct competitor to those two recommendation engine businesses?

[Maoz Sigron:]

Right. No, it's not we're using Outbrain and Taboola. Basically, our content recommendation. So the fact that we are helping publisher in this case is Newsweek to get new audience into the assets, into their assets, which working on our content management system, because their whole engine of optimizing or increase the revenue per session is our own engine, which is based on our own proprietary content management system. This is our core technology. One of the way here to increase it because at the end of the day, it’s a Rev share base and the idea is how are we able to get the most of this technology is by driving new audience, part of the audiences. The majority is coming from social media and the other which is like 25% is coming from content recommendation in this regard. Taboola and Outbrain are great partners and definitely drive audience into this publisher and Newsweekis one of them.

[Laura Martin:]

That's super helpful. Thank you very much. Great number congratulations.

[Maoz Sigron:]

You’re welcome.

[Doron Gerstel:]

Thanks again.

[Operator:]

Thank you. And there's there are no further questions in the queue. I'd like to hand the call back over to Mr. Doron Gerstel for any additional or closing remarks. Over to you sir.

[Doron Gerstel:]

Thank you very much for your participation. See you in the next quarter. Bye-bye.

[Operator:]

Thank you. This concludes today's conference call. Thank you for your participation, ladies and gentlemen, you may now disconnect.