Jeremy Stein - Company Representative Josef Mandelbaum - CEO Yacov Kaufman – CFO.

Kerry Rice - Needham Daniel Kurnos - Benchmark Company.

Good day and welcome to the Perion First Quarter 2016 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jeremy Stein Investor Relations. You may begin..

Thank you, operator and good morning everyone. Thank you for joining us on our first quarter earnings call. The press release detailing the results is available on the Company’s Web site 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, performance 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. In addition, and as in prior quarters, the results reported today will be analyzed for the most part on a non-GAAP basis, which management believes better conveys the operational performance of the business.

We will be referring to Adjusted EBITDA when mentioning EBITDA in our comments. We have provided a 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.

I would now like to turn the call over to Josef Mandelbaum, Chief Executive Officer of Perion. Josef….

Thank you, Jeremy and good morning everyone. Welcome to our first quarter 2016 earnings call. This was a strong start to the year for Perion, as we exceeded our revenue and EBITDA guidance.

Non-GAAP Revenue for the quarter was $73.1 million, EBITDA was $8.8 million, Non-GAAP net income from continuing operations was $6.7 million with diluted earnings per share of $0.09, all better than our expectations. This is the third quarter in a row whereby our revenues increased.

This is attributable to the Undertone acquisition and the relative stabilization of search revenue. To be clear, search revenue declined by 6% from the fourth quarter, due to the declining remnant user base and seasonally lower RPMs.

Because most of the remnant user base has already churned, we expect quarterly search revenue to remain relatively stable, at the same level as the first quarter, generating strong cash flow and EBITDA throughout 2016.

Our quarterly EBITDA significantly exceeded guidance, predominantly due to our proactive decision to discontinue certain Growmobile activities and focus on becoming the high-impact leader for brands and publishers. As part of our focus, we decided to shut down the mobile self-serve side of our business and put up for sale our mobile engage business.

As a result, both of these businesses have been classified as discontinued operations, were netted out of our EBITDA, and will cease being a drag on cash flow already in the second quarter.

We expect the cash savings of this strategic decision to yield roughly $9 million, partially offset by an approximate $6 million reduction in revenue, formerly expected in the mobile self-serve and engage business units.

The social and fully managed mobile piece of our business continues to grow, and we have combined these business with Undertone as we see value in a broader solution to advertisers.

We are already executing on some revenue synergy opportunities, including further strengthening Undertone's programmatic and mobile in-app offering, as well as adding a social solution to the mix. We believe that this provides the opportunity to bring high-impact advertising to new budget categories, particularly social and in-app.

As agencies and brands look to consolidate vendors, having a cross-platform differentiated offering like we now have will be key. For example, we have a client who is a large, global software company. This customer currently purchases our high-impact cross screen formats but has wanted to include social as part of their high-impact campaign.

With our Facebook and Twitter strategic partner status, we will now be able to extend our high impact formats to these platforms. We can also leverage our data and targeting capabilities to enhance a standard social campaign, managed through our platform, in conjunction with a client’s high-impact campaign.

These capabilities allow us to compete for social ad budgets, which as we know, are significant, expanding our addressable market and better serving clients.

While Undertone has grown on a year over year basis, in particular high-impact formats, the growth will be slightly lower than anticipated in the second quarter, due to a more pronounced shift of advertising budgets to social and in-app.

We believe the strategic combination of capabilities mentioned above will help solve these issues and get us back on track with accelerated growth in the second half of the year. We continue to have a solid balance sheet, with total cash of $49 million and a net financial debt position of roughly $44 million.

This quarter we paid down over $8 million in principal of our public debt. As our results demonstrate, we are focused on execution, and believe that our continuous improvement through the coming quarters will translate to increased shareholder value.

As an example, this past quarter we completed our Smilebox cost reduction project by successfully moving the operations from Seattle to Israel and India, while maintaining the same level of revenues.

We expect these types of activities to continue to provide strong profits while at the same time diversifying our revenues, thus improving the company’s risk profile.

As search revenues are expected to remain relatively stable, and advertising revenues grow throughout the year, predominantly in the last quarter, Advertising & Product revenues will contribute an increasing share of our business, accounting for approximately 50% of Perion’s revenue for the year.

In summary we remain highly profitable with strong cash flow. Given our execution on the items mentioned above, we now expect our EBITDA percentage to be at the high end of our original directional guidance of 10-12% of revenue for the year and continue to expect year over year revenue growth in excess of 50%.

Now, let me turn over the call to Yacov who will walk you through our financials. Yacov……..

$4.4 million amortization of acquired intangible assets, net of taxes, $1.9 million in non-cash equity compensation, $1.4 million in other non-cash expenses, and $0.9 million non-recurring cash expenses. EBITDA excluding discontinued operations better reflects how our business will look in the future.

From a cash flow and net profit perspective, these operations are not expected to cause substantial losses beyond the second quarter. GAAP cash flow from continuing operations in the first quarter of 2016 was $6.2 million. As of March 31, 2016 we had cash, cash equivalents and short-term deposits of $48.8 million, and working capital was $34 million.

We have net financial debt of roughly $43.7 million, having paid off approximately $8 million in debt principal this past quarter, and are in compliance with all of our debt covenants. This concludes my financial overview for the first quarter of 2016. Let me now share with you our financial outlook for the second quarter of 2016.

In the second quarter of 2016, we expect non-GAAP revenues to be in the range of $73 to $75 million, and EBITDA in the range of $8 to $9 million.

As Josef mentioned earlier, despite the loss of revenues from the discontinued operations, we continue to expect in excess of 50% year over year revenue growth with EBITDA margins now coming in at the upper part of the 10 - 12% range previously shared. With that, we will now open the call to questions. Operator…...

Thank you. [Operator Instructions]. We’ll take our first question from Kerry Rice with Needham..

Thanks a lot. A couple of questions mostly related to Undertone. It seems like Undertone was really strong in the Q1, was it better than you were expecting. And if so, what would you attribute that strength to, I don’t know if you starting to see any political spending or not.

And the second question is you have previously talked about integrating MakeMeReach in Undertone, and I think that certainly will give you more of the social aspect that you want. But does MakeMeReach also provide you that ability to do in app advertising or is that something you are developing in-house or looking for an acquisition? Thank you..

Thanks Kerry, thanks for joining us. Should I answer both questions? First, we have not benefited in Q1 from political spending, but we do already see the benefits below the spending, usually it's more in Q3, but obviously the conventions are going to be mostly. Little bit Q2 and mostly Q3 when we see it. So it's happening all over.

With regard to the performance in Q1, I think Undertone performed as expected. I don’t think it was better than we expected, we had expected, it was pretty much as expected. And I think Yacov mentioned in Q2, and I mentioned the script in Q2, we’re still excited about where it's going.

But because actually some social and mobile in-app inventory issues, Facebook is doing extremely well in the industry. We were not growing excessively, we originally expected in Q2 which is why and answering your second question, we did make the move to combine Growmobile efforts. The Growmobile consisted of social and mobile in-app.

So we’re not looking for acquiring the mobile in-app. It is the social piece of the MakeMeReach piece which we mentioned. We’re in the process of doing integrations now. With Undertones it's really on the sales side to figure out how to pitch it through to clients and put that through together.

And on the mobile in-app side, we already have this vision for Growmobile acquisition. As Yacov mentioned, we shut down the self-service side of the business. We still have over fully managed, we have clients working with today and inventory and we’re looking to work together with Undertone in combined ad campaigns for the benefit of our clients..

Do you have a sense on maybe the completion of those integrations into Undertone is it ahead of Q4 is that largely the positive impact from now it won't be until 2017..

I think we’ll start seeing some hopefully benefits in Q4. On the technical integration side, there is a whole lot that we’re doing at this point. It's mostly frankly putting campaign together putting the sales material the market materials together and then actually managing the campaign.

That was starting to start probably in early Q3 start seeing some of that hit the market with the sales team both in making reach and Growmobile as well as Undertone. And I think you will see more integration probably into Q4 when we start seeing some results. And obviously we are excited to [indiscernible] 2017.

What we did is we basically took the self-serve piece which was a drag on the cash and on earnings as well as engaged piece which were actually like we are selling it because it's a great product and we think as far as demand in terms of our strategy..

That’s very helpful, thank you..

Thanks, Kerry..

We will now take our next question from Dan Kurnos from Benchmark Capital..

Benchmark Company it would be. A little bit more interesting Josef, if I were from Benchmark Capital, but in any event - good afternoon guys. Just a few questions here, just first on search obviously, I am not going to believe the point on this one.

But as we think about, we know we heard from IAC on the Google side the removal of right rail and some of the RPQ weakness. You did call out RPM softness in your impact here and it sounds like the user base is so much stabilized.

So Josef, you could give us a sense if any of that is flowing through to Bing as we all know your index more to Bing or some of those changes might be coming down the pipe that could impact the search business on a go forward, thanks..

Well, first of all thanks for joining, Dan. With regards to RPM and stuff like that reality is again obviously as we look at Bing for more specific, let's say business but as the Google impact Bing actually, we are pretty happy Bing steadily increased over the past couple of years.

With regards to other changes in the industry as we look at the search, I think most of it as you know we took it on the chin, a year and half ago, we have been paying for ever since and with the start price.

We think most of those changes are behind us and we are looking forward to really stable as the Yacov said, the old base is basically turning out and the new base we build up with premium publishers and is relatively stable again plus or minus single-digits and we expect that to continue for the year.

So we see that in terms of our - Perion's in general as you know Q4 for being Google and AOL, they are always the higher for the shopping season, Q1 as it goes down over a bit from Q4. We saw in Q1 a little higher than we were expected in Q1, but it's still lower in Q4.

But that's not related to a Google's change and obviously changing the actual number of ad units on the page, which has impacted ISC, as I mentioned, it is a much more impacting because you mentioned we are more indexed to Microsoft and Bing..

Okay, that’s helpful Josef. And then just turning over to Undertone, just a few questions, if you could talk about either some new logo wins give us more specific color around our partner ads and size of partner ads on the go forward I know you gave, you told out one in your initial remarks in terms of expanded business.

And then you talked about the shift to mobile and growth. Obviously we are seeing a lot of commentary right now around automation and mobile part particularly mobile programmatic becoming sort of the way of the future.

So just how your services particularly address that and how you guys are positioning yourself to participate more fully in that market place?.

Yeah, so I’ll answer the second question first, it's probably the - I mean first of all the question part has been answered, the first question, [indiscernible] at least at this point of time I cannot double check what are these names.

But frankly on the average size of the campaign it is too robust, it is pretty nicely have been changed materially and we signed up a lot of new customers 100 plus customer this quarter new clients that I can say.

With regards to programmatic I think it is a great question, I don’t say the high impact business is less acceptable but still acceptable to programmatic. Let's acceptable than display into a video.

We are seeing now is that the agency is now trading us are moving more of all the inventory no matter what it is through the trading desks and therefore connected in different DSP's. Whether it's these are from Google or whether it's BNS or the trade desk to whatever adjacent it would be.

We have our own DSP on the high impact quarter of which also very connect to some of training desks and what we do is we are pretty much diagnostic.

So where we can connect directly to agency desk with our own platform we are doing that, we have added some headcounts there in Israel specifically to brief up actually our programmatic efforts and working the DSP's and the trading desks. So that's one thing we've done deliberately.

Frankly there from the GrowMobile piece of business which we shut down it was the people that actually are the engineers. We're doing that already so we the mobile to something new. With regards to private marketplaces, pretty much reserved being as what where we participating in, unreserved building we probably won't be.

So now there was open RCB, it took as a work. Because we cadence for example just to make sure how we got edge of it, has to be done before and it's not a standard manner as you can use it bit on. So because of that, we're working with the trained as then most of these reserve bidding. So all private marketplaces.

And we're integrating our own platform as well as we're integrating our formats our high impact formats with the DSPs I mentioned as well as the trading desk directly. So we expect we're probably a quarter or two away from full coverage of all the DSPs and trading desk like that.

But we're well on our way and we have some pretty good penetration already. So we think there will be ultimate pickup from once we fully integrated. And that with the DSPs already trading desks..

Got it, that's really helpful color. And then just the couple more, on GrowMobile in the press release you've mentioned that you might look to sell some of those assets as you've discontinued. I assume it will be for de minimis amount, but just if you can put any color around size of asset sales that you're anticipating there.

And then lastly for me obviously Josef I mean look you brought it out the stock has been kind of languishing here. I don't think that there is a lot of faith in the long-term outlook. So what's your thought here at this point? I know you've stepped in a while back and purchase stock yourself.

I know that you guys have not believed in buyback historically. But this might be an opportune time to do so if you believe in the long-term strategy here. Just any color you can give to investors on that front I think would be helpful. Thank you..

Sure. Thank you, Dan. I was ready for that question. So I guess thanks with getting there early. So first of all with regards to the GrowMobile engaged business units. So what we saw on the self-service side is we just didn't see enough demand in the marketplace. That's not purely engaged. But it's a CRM marketing automation.

We actually see a lot of demand and we actually have a really good product. We've just done it strategically. Di minimis amounts, since you brought it up as well it was up depends on the relative evaluation. As your $1 billion value and di minimis amount. We're hoping... I don't know the answer, I'll be able to sale it.

I can't guarantee you that obviously, we are in a process today working with internal and bankers. We have some good initial interest and we'll keep you guys posted on that as we go forward. Next with regards to the stock price and everything else. Obviously, it's a nice we all know and we shared in channel sequestration.

As you said now we have been buying stock at $7. So I'm suffering as others are. I actually have obviously options everything else that like all other shareholders are hurting.

And I think as we look at where things are going, we believe with the Undertone acquisition we've addressed some of the core concerned the investors had in the business which was over dependent on search and a declining business in search. We think that the declining business search again we look with that.

The dependency on search clearly will now hopefully by the end in overall and total basis in the year will be at 50%. And it's still producing a lot of cash and still good business and we're not going to shut it down like the search business.

But we aren't focusing on how impact as our future which is why we can emerge the GrowMobile business into that unit change giving it for further slack [ph]. And we believe that's a good future, it's a differentiated position in the marketplace.

I think the only way to win in the space Dan you know it's probably than others is with scale and differentiation. Now, none of us are going to competing with Facebook and Google less than what least. But there are verticals in the advertising ecosystem that we believe high impact is one of them.

And we can be a leader and provide the really good business opportunity and long-term shareholder value. With regards to buyback and everything else.

It's a great question, in general you're right, they have not been - I would say at these prices we certainly would consider buybacks and we actually will once we'll allow to, for those who don't know we actually have these really well that when we cover our stock price decline it's kind of [indiscernible], I think.

But because the stock price declined if you remember in Q3 we took a right down on the reverse merger acquisition with Conduit where they kind of what Perion or Perion. And when the stock price went below at a certain level obviously you have to take.... we took an attempt, that attempt is of course our return earnings to be negative.

When you have negative return earnings according to Israeli court of law we're not allowed to do buybacks until you have positive return on earnings. Now the similar one in United States but less restricted but we're an Israeli corporation candidate.

We will strongly consider and these places I would say we probably would actually do the buyback once we’re allowed to do that, if the stock prices is still this low then I would agree even by sales will been close would agree this is a good investment to make at these places..

All right, thank you for all of that color Josef. Very much appreciate it..

No problem. Thanks, Ben..

[Operator Instructions] We’ll take our next question from Arun [indiscernible] from Capital..

Yes, it’s [Indiscernible]. First question for Yacov, Yacov can you tell us how long will these discontinued apps continue, now that you said GrowMobile is constant in Undertone. Is it all coming from the user engagement part that’s being product for sale? Please give us some specifics..

So as we mentioned in our prepared comments it’s coming from two parts of the GrowMobile business. It’s the sales through platform which we have discontinued and engaged platform which has been put up for sales. Both of those were discontinued towards the end of the first quarter.

They will have diminishing effect on our results, cash flow and net profit in the second quarter as well because it was the decision was taken at the end of the first quarter. But we expect that post second quarter will no longer be affecting our cash flow or net profit..

Okay and Josef, the Undertone and GrowMobile sales forces basically one now and are they selling the entire product combine product suite right now?.

No, not yet. I mean combining it’s really more of a portfolio approach in that, I mean in terms of reporting we’re putting them according into the Undertone business unit but we’re still selling to social platform and the fully managed platform as a platform sales.

Undertone sales campaigns and they sell solutions to advertisers and ADCs and brands and we make the social and the mobile platform are selling a platform for advertisers to use, to put their money on through Facebook, Twitter and exchange the mobile exchanges and networks.

What we’re doing, so those belong to separate because they’re two separate actual sales forces.

What we’re doing is we’re looking to leverage the social and mobile technology for the benefit of Undertone and the sales people and the example is one of the high impact ad unit we can now look to potentially sell it as a campaign which Undertone is doing today and doing a great job as to now reach and potentially sell that and extended to the social through our platform which Undertone do not have it really before end and now we do.

Mobile in app is a very good example where Undertone had mobile app in that inventory. We’re now increasing that and allows them to use the platform through values our performance needs with rented piece of the brands.

So we’re kind of taking a multi-planned approach to sales with Undertone sales people, still focused on high impact and high impact solutions to the brand and the agencies and the sales force of the platform will continue by the both point up into the Undertone business unit..

Okay. So the intent is not to just combine and run it as one business.

Just they’re two related businesses reporting in to Undertone basically?.

Yeah, in long-term that could change. Right now for this year we decided to focus on that because both businesses are looking full stream in the middle of the year. We think those revenue synergies and opportunities.

But the full integration we have not decided yet but what that would look like or what it would be, so at this point in time we’re leaving it where it is, just with more collaboration putting it under the Undertone business..

Okay and then regarding the buyback. Just trying to get some more details.

What are the hurdles you have to go through in this really quite system for you to get approved all to do buyback?.

Well basically it goes, its start all with dividends. Basically if you do not have positive trade earnings or any distribution dividends is just as limited by they essentially have positive retained earnings. But of course and other regulators being buybacks as being dividends and that's what we restricts about.

In order for you to have do it through dividends or do buy back shares to have positive retained earnings. There is a limited possibility to try to distribute dividends and even if you do not retain earnings. But as you mentioned you have to go through a core process and it is usually limited to companies that are not leveraged.

Perion is leveraged and therefore the probability of our scaling such consents through the core system once we've approached all the orders is far-fetched to say the least..

Okay. So you're going to go through this process and ask for court approval despite the fact that your negative retained earnings and your leverage. But you're hoping to get approval..

No, being that as I said it's very far fresh we're not going to go through the process. It's a very, very detailed and extensive process. And we don't believe it will be successful. And therefore we're not going to really begin it.

However, as Josef mentioned earlier, to the extent and when we have positive retained earnings we will recommend to the board as soon as the stock level hasn't changed from where it is today. So in fact institute a buyback..

Got it, that's it..

And we do expect that positive retained earnings at some point in time. Not a far as such..

Okay.

So that's the key variable that you're going to wait for?.

That is correct..

Okay great thanks a lot..

Thanks, Arun..

[Operator Instructions]. And at this time, there are no further questions. I will now turn the call back over to Josef Mandelbaum for closing remarks..

Okay well thanks everybody for joining. As always, I am thankful for the professional support and hard work of our dedicated employees. Thank you to everyone at Perion, and thank you all for joining us today. Have a nice day..

Thank you, and that will conclude today's conference. We thank everyone for their participation..