Hello, everybody, and welcome to the Perion Network First Quarter 2024 Earnings 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 would 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 on any future results, performance or achievements anticipated or implied by these forward-looking statements..

The company does not only take 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 a non-GAAP basis. While mentioning EBITDA, we will be referring to adjusted EBITDA.

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..

Hosting the call today are Tal Jacobson, Perion's Chief Executive Officer; and Maoz Sigron, Perion's Chief Financial Officer..

I would now like to turn the call over to Tal Jacobson. Please go ahead. .

Good morning, and good afternoon, everyone. Thank you for joining us today. With me today at our New York office, our HiveStack General Manager, Andreas Soupliotis, who leads our out-of-home advertising technologies. And our Chief Product Officer, Kenny Lau, who leads our advertising solutions.

Our CFO, Maoz Sigron, he's joining us from our Israeli office. .

Today, we face our challenges heads on with a determined spirit to navigate forward. As we previously announced, the first quarter of 2024 presented specific challenges, notably, a decline in our search advertising activity that began during the first quarter and will be mostly reflected from our second quarter..

This is largely due to recent changes in advertising pricing and mechanisms by Microsoft Bing. These changes led to a reduction in revenue per 1,000 searches for both Perion and other Microsoft Bing distribution partners. Let's take a deeper look into what this means for us..

Perion has been working with Microsoft on a revenue share model. This model did not change, yet both Microsoft and Perion earn their revenue based on how much Microsoft charges their advertisers. This is where the changes were made..

It is common for major tech companies such as Microsoft to periodically adjust their pricing strategies. Microsoft's advertising pricing and mechanism changes do not affect our contract..

You'll notice that despite our announcement about the changes that Microsoft made, our search activity actually grew 26% year-over-year in Q1. Again, we expect the changes to mostly affect us from Q2 forward, and our new guidance reflects that..

We believe that our relationship with Microsoft remains strong with ongoing collaboration between our teams. This event didn't change Perion execution abilities and future possibilities..

Now let's move to talk about the future. I'm excited to present the next phase of Perion's evolution, an advertiser-centric universe with technologies that power brand presents across the entire consumer journey..

The Perion universe is built to connect advertisers with their target audience throughout the entire day, online and in the physical world, such as in-store advertising. We harness the power of dynamic creative optimization to generate demand.

We use our technologies in web and search supply, in digital out-of-home, in social, Connected TV and in audio ads..

All our technologies are leveraged to create an harmonious blend of consumer engagement. This new chapter of Perion is wrapped in a fresh brand identity. Our new brand reflects our evolution as a company..

At Perion, we architect AI powered technology solutions to anticipate consumer behavior and adjust to it. Our AI solutions are designed to help brands and advertisers elevate their strategies and seize every advertising moment. Our new slogan, "Elevate with Perion," embodies our commitment to advertisers to stay ahead of the curve.

Our objective is to ensure that wherever the audiences are in their journey, Perion is there to elevate their brand and outcome..

As Perion keeps evolving, we add more technologies and solutions to our universe, either by acquisitions or through our in-house talented R&D teams. Later, you will hear from our Chief Product Officer for advertising solutions, about the new innovations we have lined up..

While we at Perion have many growth engines, we are highlighting for you the fastest-growing drivers in each quarter. We've seen significant growth across the key areas. Retail media solution grew by 134%. Our CTV advertising surged 108%, and our programmatic digital out-of-home advertising increased by 25% on a pro forma basis.

These engines are pivotal in our growth path..

Within retail, we replicate the success that we had with large retailers and grocers in the food and beverage industry. In the first quarter, for example, our technology significantly enhanced the top U.S. beer brand with a cross-channel campaign.

We use advanced AI-driven dynamic mapping and high-impact advertising units to achieve a 14% sales lift, and we generated nearly $0.5 million in incremental in-store sales..

This approach leverage real-time data such as sporting events to optimize ad delivery that creates more foot traffic to multiple retail locations. It's important to highlight the strength that HiveStack brought to our retail media solutions..

As you can see, the impressive 134% year-over-year growth of our retail media solutions was fueled by both our organic and our new digital out-of-home advertising solutions. We believe that digital out-of-home will increasingly support the growth of our retail media solutions going forward..

Within CTV advertising that enjoyed a remarkable 108% growth, this quarter the most popular features among our customers were live and dynamic CTV, branded CTV and Pause Ads. Here's an example of a live CTV ad that we ran for Estee Lauder that was part of an international cross-screen campaign..

[Presentation].

This specific campaign shows that the consumer's journey constantly changes. With the current trend of cosmetic companies advertising during football events. Within digital out-of-home advertising, we achieved a remarkable 25% year-over-year growth. This success demonstrates the strategic value of our recent acquisition of HiveStack..

This acquisition unlocks revenue potential, especially retail media revenue, from retailers that leverage programmatic digital out-of-home advertising technology to attract consumers to their stores, to elaborate on our digital out-of-home advertising activity and success..

I'll hand it over to Andreas, the Founder and General Manager of HiveStack, who is leading our out-of-home advertising activities. .

Thank you, Tal. Out-of-home advertising is the oldest traditional media channel undergoing a massive renaissance that is being helped by advanced technology. As digital screens replace printed signs and programmatic technology eventually complements direct sales, the stage is set for a massive upside for the rise of programmatic digital out-of-home..

A recent e-marketer study in the United States suggests that 30% of all digital out-of-home advertising transactions will be programmatic by 2025, while 70% will be non-programmatic. That's an awesome growth story for programmatic digital out-of-home when we observe that it represented only 3% in 2019.

This represents a whopping 969% growth over 6 years, and it's not stopping..

Extrapolating this trade line could suggest that programmatic digital out-of-home is on track to represent about 50% of all digital out-of-home transactions in 5 years.

From a marketer's perspective, this growth is driven by technological advances afforded by programmatic digital out-of-home on how to reach precise audiences at scale through compelling digital experiences..

Perion's HiveStack advanced technology sits at the epicenter of this massive growth story and is used by marketers globally to drive business outcomes at all stages in the consumer sales funnel..

Retailers, in particular, are taking advantage of programmatic digital out-of-home technology to drive consumers into their retail stores, which is now part of Perion's retail media solution universe.

Let's look at our real-life case study of how an awesome Canadian brand, lululemon use Perion's HiveStack platform and their agency Zenith to drive in-store visitation to their retail stores..

[Presentation].

As you can see, we have become a key part of lululemon's toolbox to drive in-store visitation and the measurement data proves that digital out-of-home drives results. .

I want to thank Tal and Perion for adding HiveStack's advanced technology and our amazing team to the Perion universe. The best is yet to come for programmatic digital out-of-home. And Perion's HiveStack is a global leader in this space and sits at the epicenter of it all. .

Thank you, Andreas. Exciting time indeed. And now our Chief Product Officer of our advertising solutions, Kenny Lau will present 2 of our new and exciting innovations. .

Good morning and good afternoon, everyone. Today, I'd like to share some of the exciting things we are developing internally to equip our customers with the most comprehensive set of products and solution in the ever-evolving digital advertising space..

As we prepare for a cookieless future, we seek to prioritize user privacy while enhancing accuracy in targeting, and we were doing so with SORT our AI-based audience segmentation technology for high-impact and video advertising campaigns..

Now this award-winning technology is getting a major upgrade SORT 2.0, which has more capabilities for web, but even more exciting, it is now also for CTV, one of the fastest-growing areas in digital advertising.

What does that mean for advertisers and brands?.

So 2.0 technology offers privacy-focused targeting, ensuring that your brand connects with the most receptive audiences for your message regardless of their browser or device preferences.

SORT analyzes non-personal identifiable information signals at the moment someone lands in our network and then immediately classifies them into the most likely intent group. This allows us to serve the most relevant ad, maximizing engagement and return on investment..

It is not just about reaching more viewers. It's about reaching the right audiences with precision while respecting their privacy. Alongside our proprietary solution, SORT, we have developed WAVE, our AI-based dynamic audio technology to bring unparalleled precision to audio ads.

We are proud of the progress our WAVE audio ads technology has made, delivering personalized order experiences that drive engagement and sales..

This quarter, we expanded WAVE's reach into new verticals, including CPG, quick service restaurant and travel. Moreover, we are thrilled to announce the launch of WAVE's multi-language capabilities signed with Spanish. Let's listen to a sample for Super Shoes.

And remember, this is not a real person, it's all generative AI, and you wouldn't know the difference..

[Presentation].

Thank you, Kenny. It's always a pleasure to see our AI team producing groundbreaking products for our customers. Now I'm proud to share our recent industry recognition and certifications..

Perion has been granted 2 TAG certification for 2024, symbolizing our unwavering commitment to integrity and quality in the digital advertising space. These awards and industry recognitions reflect our team's hard work and our commitment to excellence. There are proof of what Perion is capable of achieving..

Thank you once again for joining us today. We're excited about the future and invite all of you to continue with us on this promising journey..

And now our CFO, Maoz Sigron will present the financial results for Q1. .

Thank you, Tal. Good afternoon, and good morning to those of you joining us from the U.S. As Tal mentioned, the first quarter was a challenging one. We experienced a decline in search advertising activity that is attributed to changes in advertising prices and new mechanism that Microsoft Bing implemented in its search distribution marketplace.

These changes in pricing strategies affected all Microsoft distribution partners. Our relationship with Microsoft remains strong..

As a result of Microsoft changes and to a limited extent, a reduction in video activity will reduce the 2024 full year guidance in our announcement on April 8..

We, at Perion, have a history of meeting challenges. We are resilient and agile. We continuously focus on enhancing our growth engines, which include retail media, CTV and digital out-of-home..

Thanks to Perion's assets, technology, know-how and expertise, along with our core growth engines, I am confident that our team will take Perion to the next successful growth chapter..

Moving to the first quarter main financial highlights. Revenue increased by 9% year-over-year to $157.8 million. Adjusted EBITDA decreased by 35% year-over-year to $20.3 million, resulting in a 13% adjusted EBITDA margin and 34% ex-TAC margin..

GAAP net income decreased by 51% to $11.8 million. Cash flow from operations decreased by 61% to $6.9 million. Net cash slightly increased over the previous quarter to $479.7 million. Revenue for the first quarter was $157.8 million, an increase of 9% year-over-year..

This growth was achieved despite a 52% decrease in video and is the result of our ability to execute our diversification strategy. While search advertising grew by 26% year-over-year, we expect revenue to decline next quarter due to the changes to Microsoft Bing pricing strategies as we discussed earlier..

Revenue from advertising solutions decreased by 5% year-over-year to $75.8 million and accounted for 48% of total revenue. The year-over-year decrease in revenue was a result of a continuous decline in video revenue and was partially offset by significant year-over-year increase of our growth engines..

Our CTV business grew by 108% year-over-year to $8.2 million, representing 11% of advertising solutions revenue compared with 5% last year and was driven by strong customer adoption of our high-impact TV solutions..

Digital out-of-home grew by 25% year-over-year on a pro forma basis to $9.7 million. We are also happy with the consistent growth delivered by our retail media vertical, which grew by 134% year-over-year to $14.9 million, accounted for 20% of advertising solutions revenue compared with 8% in the same period last year..

These results were driven by new customers and increased spending of existing customers, aided by the positive progress we are making to introduce new products and new technology. Revenue from search advertising increased by 26% year-over-year in the first quarter to $82 million..

During the quarter, average daily search has increased by 20% over the same period last year, and the number of publishers grew by 8% year-over-year.

While having a relatively minor impact on revenue in the first quarter, we expect the changes recently instituted by Microsoft Bing to significantly impact search advertising revenue in the second quarter and throughout 2024..

Contribution excluding TAC to revenue, was 38% compared with 45% in the first quarter last year, mostly due to shifts in product mix and higher revenue share for some of our search publishers in the first quarter of 2024.

Adjusted EBITDA decreased by 35% year-over-year to $20.3 million or 13% of revenue from 22% in the first quarter of 2023 and 80% in the first quarter of 2022..

The decrease in adjusted EBITDA was mainly a result of the reduction in search advertising activity during the quarter and higher operation expenses following the integration of HiveStack..

Adjusted EBITDA to contribution ex-TAC decreased to 34% compared with 84% in the first quarter of 2023 and 42% in the first quarter of 2022. On a GAAP basis, first quarter net income decreased by 51% to $11.8 million or $0.24 per diluted share compared with $23.8 million or $0.48 per diluted share in the first quarter of 2023..

On a non-GAAP basis, net income decreased by 25% to $22.6 million or $0.44 per diluted share for the first quarter compared with $29.9 million or $0.60 per diluted share last year. Operating cash flow for the first quarter was $6.9 million compared with $17.8 million in the same period last year.

The decrease in operating cash flow was mainly attributed to the reduction in search advertising activity and onetime working capital needs for the HiveStack operations..

We are proud of our consistent ability to generate positive cash flow and to increase our net cash position despite the challenges we are facing. As of March 31, 2024, net cash, including cash, cash equivalents, short-term deposits and marketable securities was $479.7 million, up from $472.7 million at the end of the fourth quarter of 2023..

The increase in cash and cash equivalents was the result of the positive operating cash flow generated in the quarter. Consistent with our previous announcement, we are confident that Perion's diversified and holistic solutions will expand our opportunities to better serve our customers.

We are reiterating our full year 2024 guidance that we provided on April 8, adding guidance to the second quarter of 2024 as well..

This concludes my financial overview, and now we'll open the line for questions. .

[Operator Instructions] Our first question today is coming from Maxwell Michaelis from Lake Street Capital. .

First one for me. If you look at video revenue, I think it was down 33% last quarter and then down 52% here in Q1. Internally where had you guys expected that to end up? And then I guess, going forward, what is your expectations for the year just for video revenue? And then I guess, you can tie in a macro question with that as well.

Have you seen any improvement in the macro here maybe in the second quarter. .

Yes.

Maoz, maybe you want to take this?.

Yes, of course. Thank you for the question. As we said, the headwinds of the video is expected to end in the second quarter this year. So we're expecting to move to a normal like growth from Q3. So we have another quarter of a negative comparison between '24 to '23, and we're expecting H2 to move to be a positive one..

We are moving with the market. As we said, historically, there is a reason why the video is moving down. The idea here is optimization. And we believe that this impact will end at the end of this quarter or the second quarter. .

And then my last question here. I know you guys increased the buyback authorization last quarter.

Are you guys active at all in Q1? Or have you been since the announcement?.

So the buyback is yet in process. We -- as we said, first, the 20-F filed, so now we don't have any problem, and we can move on with the plan. But as we need to file the plan when we are open and we are not in the blackout period, which is going to be this weekend.

So next week, we are going to file a plan, which will execute 2 weeks later, so we're expecting this plan to start at the end of May. And we are going immediately to start the buyback plan in the quarter already, I believe that when we will get to the end of the quarter.

And we will share the result, you will see already the buyback take place in our balance sheet. .

Your next question today is coming from Jason Helfstein from Oppenheimer. .

This is Steven Hromin on for Jason. So just first on SORT 2, we're just wondering if you've broadly launched that to all of your CTV advertisers or whatever percentage.

And then wondering if you can give any metrics in terms of who -- how many advertisers are using it, et cetera?.

And then secondly, on HiveStack growth, you guys posted 25% pro forma.

I'm just wondering if this is in line or exceeding your expectations? And what do you think on the full year in terms of digital out-of-home?.

Right. So let's start on the SORT 2.0. We are just launching it now. So this is getting shipped out today. So obviously, we don't have the results yet. But the big news here is it got a major upgrade with all the new technologies for the new formats of cookieless and obviously, the audience segmentation for CTV, which is huge.

Once it's out, then we're going to have more metrics, we'll be happy to share that.

What was the other one?.

The second question was Tal, I can take it. It was about HiveStack. So yes, this is really an exciting quarter. This is the first time we have HiveStack in full, and this is definitely aligned with our expectation. As we shared with the KPIs, they ended quarter with 25% year-over-year growth, which is very much in line with our expectation.

We're expecting to end the year with more or less our original model. No dramatic change. This is Q1, and we're expecting more to come in the next quarters. .

Your next question today is coming from Mark Kelley from Stifel. .

First question, just on with cookie deprecation getting pushed out again to '25 on Chrome, does that provide, I guess, a little bit of cushion in the back half of this year or especially for the non-search business? Or is that not the right way to think about it?.

And second one, just going back to HiveStack. A few weeks ago, we saw that Lamar chose Vistar to power their digital billboards. I'm just curious, how does your tech stack up relative to Vistar, maybe they were looking for something that the HiveStack suite of products didn't offer.

I guess, what's the right way to think about that? And were you a part of that RFP process?.

Yes. Well, thank you very much for the question. So cookieless, yes, I think the fact that Google keeps pushing this back. For me, it's not a surprise. But we were ready for the cookieless era 2 years ago. And now as time goes by, more and more technologies are coming out to address that.

So we want to make sure that we're ready for that whenever may Google finally decide to do that. So we're going to be perfectly ready and we are perfectly ready now..

Now in terms of Vistar, from everything we've been hearing from our clients, HiveStack is the most advanced solutions out there. This is what we're hearing. This is what we believe. And obviously, Vistar, those guys are great. We know them very well. They're a competitor. So they're getting some deals. We're getting some deals.

This is just the nature of the business, but our technology is -- from everything we know, it's the most advanced technology out there. .

[Operator Instructions] Our next question is coming from Laura Martin from Needham & Company. .

Just thinking about the overall context of the demand from a vertical point of view.

Are you -- can you talk about what you're seeing in the marketplace right now, please?.

From the vertical point of view?.

Yes, strong verticals. .

Yes.

Maoz, do you have that vertical?.

Of course, yes, I can take that. Thank you, Laura. So the same trend, as you said, I can see from their financials, from the press release, the retail is, let's say, very strong. Consumer goods as well. Travel is a strong. Healthcare and auto is strong. These are the areas that are more dominant in Q1. .

Okay. That's interesting because that's exactly the opposite of what DoubleVerify said yesterday. So that's super interesting. Okay. .

I agree. .

And when you think about -- sorry, go ahead. .

No, I agree, it's interesting that this is different from what others are reporting, but this is the nature of this business. .

Yes. And then in terms of your expense growth, G&A was sort of much higher than we thought, but sales and marketing was much lower than what we thought.

So could you talk about that sort of reallocation of resources between the cost lines, why money is moving towards G&A and away from sales and marketing, please?.

This is Maoz. Related to the GAAP numbers and less to the non-GAAP. There are some stock-based compensation adjustment that we did in the quarter that are part of the GAAP. The non-GAAP is very normal and in line with our trends. This is more accounting changes that we did in the SBC during the quarter and not more than that. .

Your next question today is coming from Jeff Martin from ROTH MKM. .

Wanted to touch on search a little bit more.

What specifically is the mechanism that changed at Bing? And how has that affected your published account in Q2?.

Right. So Microsoft changed the mechanism of pricing for the distribution channels, right? And the way -- the reason it affected our publishers is at the end of the day, it all needs to make economic sense for them. I mean, they have other options, right? They can switch between vendors, they can do whatever they want.

And this is exactly what happened.

Does that give you the answer?.

Publisher count -- yes, sure.

What's the publisher count change so far in Q2?.

So we cannot disclose Q2 numbers yet. But we did disclose that -- although the average was high, we actually saw growth. We -- towards the end of the quarter, we actually saw a decline. So again, numbers of Q2 are going to be reported in 3 months from now. .

Fair enough. And then in terms….

Let me just add one more thing, but it's important to say that the guidance that we gave already took that into consideration, right? So, this is already what you see in front of you in terms of guidance. .

Okay. And then in terms of capital allocation, you got the $75 million authorized for repurchase. Has there been activity in the past month or so since you made the pre-release announcement.

And then what's the potential to up that materially over time? Do you plan to be aggressive in buying back shares?.

So as we said, the buyback plan has not yet started. We're expecting to start in more or less 2 weeks from now. This is part of regulations and other requirements that we have. First is the filing of the 20-F and second is a period that we need to wait after we're filing the plan, but we're expecting to execute the plan this quarter..

And we are running with a $75 million plan, and this is very much aligned with what we said a few weeks ago. On the preliminary from M&A, we have the same plan, same structure. We know what we are looking for. And once we get the right opportunity, we will do that. This is very much aligned with our high-level view on the cash that we have so far.

One is the buyback, which already announced. And second, of course, is the M&A effort, which is, of course, relevant to what we're expecting to do next with the cash. .

I just get an answer from my team about the previous question. Why Vistar got the deal with Lamar. So it turns out that Lamar actually owns part of Vistar. So there was no RFP there. That was just part of the ownership. .

We reach the end of our question-and-answer session. I'd like to turn the floor back over to management for any further or closing comments. .

Yes. Thank you. Thank you, everyone, for joining us today, and thank you for being part of our journey. Even though we saw a big change lately, we are confident in our future. We're investing in technology. We're investing in our clients, and we have all the resources needed to succeed.

So thank you again, and I hope to see you again in our next earnings call. Thank you. .

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