Perion Network Ltd. Price & Performance (PERI)

Which is available on our website and has also been filed on Form six k. Hosting the call today are Tal Jacobsen, Perion's Chief Executive Officer and Elad Zubairi, Perion's Chief Financial Officer. I would now like to turn the call over to Tal Jacobsen. Please go ahead.

Good morning, everyone, and thank you for joining us today at Perion's Q4 twenty twenty four earnings call. 2024 was a pivotal year for us at Perion. It was a year of laying the foundation for a transformation that is now coming to life. Over the past year, have been strategically aligning our technologies, operations and Perion. Setting the stage for the launch of the Perion One strategy. With Perion One, we are uniting all of our technologies under one platform. In all our business units and brands under one roof. While this strategy is expected to attract more customers, through our unified platform is also transforming our organization to become more efficient than ever before. Under this new strategy, we focus on AI development for both customer facing products an operational efficiency solution. We believe that Perion one is the perfect platform for a deeply fragmented $700,000,000,000 industry. An industry that is forcing advertisers to navigate a complex maze of platforms, formats and channels. The focus has long been on where ads run. If it's CTV, open web digital out of home, or social. Rather than what truly matters. Reaching the right customers at the right moment the right message, to drive exceptional results.

This fragmentation leads to inefficiencies wasted spending and missed opportunities. At Perion, we believe this complexity shouldn't be the advertiser's problem to solve. That's why we're building Perion one Perion, to unify, simplify and amplify the advertiser's journey. Ensuring advertisers can focus on impact and results. Not execution challenges. The foundations of Perion one are based on advanced AI capabilities that infuse personalized messaging for every brand moment. The role of Perion One is to solve the complexity of omnichannel and provide a unified AI driven advertising infrastructure that deliver precision, efficiency and measurable results. In this pivotal moment in Perion's history, I'm happy to reveal a first look Perion our PerionOne platform. This platform will unite all our technologies in one place, It provides our customers with an advanced portal into creative, insights and planning of any brand's next great advertising moment. BILLION1 will bring together CTV, digital out of home, retail media, social and open web capabilities under a single AI driven platform. It is a fundamental change in how digital advertising should work. Instead of siloed solutions, PerionOne will provide advertisers with a seamless, intelligent platform that optimize campaigns across every major channel. With Bellyon One, brands will benefit from greater economics, enabling every advertising dollar to be optimized for a maximum impact.

The platform will offer increased efficiency eliminate execution friction and streamline processes. Its advanced AI driven performance will automate optimization at scale, and a smarter supply path when reached DSPs and SSPs, premium inventory. The Perion platform will be gradually rolled out to our customers in the upcoming months To fully capitalize on our new strategy, and accelerate our transformation, We've strengthened our leadership team with some of the best talent in the EdTech industry. I'd like to welcome three exceptional leaders to our management team. Stephen Yap, a Google veteran, joined us as our new Chief Revenue Officer. To lead our advertising sales worldwide. Kenny Lau, an ex Credo and Expomedic, steps in as our Chief Product Officer. And Mina Nagib who was part of the leading team that architected Samsung Ads technologies takes on the role of our Chief Technology Officer. Mina will lead all our technologies including our advanced AI solutions and infrastructures. This exceptional management team of Tier one leaders in the EdTech industry is instrumental [indiscernible] We believe it will expand our reach [indiscernible] and unlock new growth opportunities. While preparing for this transformation, continue to deliver strong performance on all of our three core growth engines.

Digital out of home and CTV. Alongside our retail media, as we continue to see adoption of our technologies with retailers. All our growth engines have consistently outpaced the market and we believe they will continue to be the drivers of our future success. In 2024, our digital out of home grew by 50%. [indiscernible] outpacing the 10% year over year market growth reported by eMarketer. This reflects our programmatic innovation and Perion's ability to drive higher performance than the industry. Our CTV solutions grew by 30% year over year. Surpassing the 23% year over year market growth. Our investments in advanced targeting and cross device solutions continue to drive this momentum. As you recall, we expanded those capabilities with our new partnership with the Experian, which we announced during Q4. Retailers continue to adopt our solutions. Our retail media grew by 62% year over year. More than tripled the industry 20% year over year growth. Each of these areas represent a high growth, high value market. Integrating them into Perion One gives us a unique competitive advantage [indiscernible] positioning us to accelerate future growth. Today, we're introducing a new way of looking at our results. By breaking them down into channels.

We believe this provides greater transparency into the new Perion one structure. It reflects our evolution into a platform that delivers greater efficiency and value. [indiscernible] By aligning our reporting with our strategic focus, we enhance visibility and foster a more meaningful conversation with our investors and customers. Now our CFO, [indiscernible] will walk you through our financial results. Thank you, Tal. And thank you all for joining us today. 2024 was a challenging year for Perion Perion. Nevertheless, we ended the year both profitable and with positive operating cash flow. [indiscernible] In addition, we met the annual revised guidance that we provided in June 2024 For revenue, adjusted EBITDA and adjusted EBITDA to contribution ex stock margin. The strength of our balance sheet allows us to on our capital allocation priorities and growth plans, which both organic and nonorganic.

As of 12/31/2024, we repurchased a total of 5,200,000.0 shares for a total of $46,900,000 As we enter 2025 under the Perion One strategy, we are unifying our technologies and brands into a single cohesive ecosystem. As part of this change, we have started streamlining our operations and optimizing costs through headcount reductions during the first quarter of twenty twenty five. This will also allow us to strengthen our ability to attract and serve more customers run more efficient sales and marketing operations, maximize synergies across our entire organization, and leverage a unified and connected data platform to drive smarter decision making and higher margins. We expect these efficiency measures to continue to have positive impact on our profit margins through 2025 and going into 2026. Moving to our financial results. For the full year, revenue amounted to $498,300,000 a 33% decrease year over year. This is mainly related to the decrease in search revenue and the weakness in our open web video and standard ad formats. However, the decline in revenue was partially offset by continued strong performance of our growth engines. Adjusted EBITDA was $50,900,000 resulting in a 10% adjusted EBITDA margin and a 24% ex stock margin.

GAAP net income for the full year was $12,600,000 while non GAAP net income was $64,000,000 During 2024, we generated cash flow from operating activities of $6,900,000 and adjusted free cash flow of $16,600,000 As of 12/31/2024, net cash, including cash equivalents, short term bank deposit and marketable securities were $373,300,000 Turning to our fourth quarter performance. Revenue was $129,600,000 compared with $234,200,000 in the same period last year. Our adjusted EBITDA for the fourth quarter was $15,500,000 resulting in a 12% adjusted EBITDA margin and a 28% ex stock margin. GAAP net income for the fourth quarter was $4,900,000 while non GAAP net income was $16,100,000 resulting in a non GAAP diluted earnings per share of $0.33 Our cash flow from operating activities remained positive in generating $4,300,000 Advertising Solutions revenue for the fourth quarter was $104,100,000 down 13% year over year representing 80% of total revenue. This decrease was expected due to the declining open web video and [indiscernible] and higher end solutions. This decline was partially offset by the continuous momentum from our core growth engines, CTV and digital out of home channels, and our retail vertical. Digital out of home increased by 57% year over year in the fourth quarter on a pro form a basis, representing 27% of Advertising Solutions revenue.

While for the full year, digital out of home increased by 50% represented 21% of advertising solutions revenue. Our CTV business increased by 10% year over year in the fourth quarter representing 15% of Advertising Solutions revenue versus 12% last year. For the full year, CTV increased by 30% representing 13% of advertising solutions versus 8% in 2023. Our retail media business a fast growing market vertical, posted another strong quarter, primarily boosted by our digital out of home business. In the fourth quarter, Retail Media revenue grew by 34% year over year to $27,000,000 For the full year 2024, retail media revenue delivered an impressive 62% growth in comparison to 2023, reaching $80,600,000 I would like to highlight that all three growth engines outpaced the market growth in 2024. According to eMarketer, digital out of home ad spending in The US grew by 10% year over year compared with Perion's 50% Perion. CTV grew by 23% year over year compared with Peron's 30% growth and Retail Media grew by 20% year over year compared with Perion's 62% growth. Turning to our search advertising. Revenue for the fourth quarter totaled $25,500,000 accounting for 20% of our total revenue. As we previously discussed, we did not renew our contract with Microsoft Bing that ended on 12/31/2024.

Yet in 2025, there is a tail period in which we expect to generate revenue. Overall, our search advertising is expected to remain stable representing about 20% of our total revenue. The fourth quarter, the contribution excluding traffic acquisition costs margin was 42% compared with 39% in the fourth quarter of twenty twenty three. On an annual basis, contribution ex stock margin was 43% compared with 42% in 2023. Is primarily due to the changes in our product mix focusing on more profitable solutions. Adjusted EBITDA for the fourth quarter was $15,500,000 or 12% of revenue and 28% of contribution ex TAC. This compares to $53,900,000 or 2359%, respectively, in the fourth quarter of twenty twenty three. For the full year, adjusted EBITDA totaled $50,900,000 or 10% of revenue and 24% of contribution ex TAC. This compares to $169,100,000 or 2355% respectively 2023. During the second half of twenty twenty four, we implemented cost reductions and efficiency measures. This helped us more decline in the first half of the year. On a GAAP basis, our fourth quarter net income was $4,900,000 or $0.11 per diluted share versus $39,400,000 in Q4 of twenty twenty three or $0.78 per diluted share. On a non GAAP basis, net income was $16,100,000 or $0.33 per diluted share versus $52,900,000 in Q4 of twenty twenty three or $1.04 per diluted share.

For the full year, GAAP net income was $12,600,000 or $0.25 per diluted share versus $117,400,000 in 2023, or $2.34 per diluted share. Non GAAP net income was $64,000,000 or $1.27 per diluted share versus $167,400,000 or $3.33 diluted share in 2023. During the fourth quarter of twenty twenty four, we generated $4,300,000 in both cash from operations and adjusted free cash flow. On a full year basis, we generated $6,900,000 in cash from operations and $16,600,000 in adjusted free cash flow. This gap in 2024 between adjusted EBITDA and adjusted free cash flow is attributed to the year over year change in the working capital and the post acquisition investment in Hyvex's working capital. For 2025, we expect our cash flow conversion from EBITDA to resemble past performance patterns. We expect to continue our decade long track record of generating positive cash flow from operations and adjusted free cash flow. In the fourth quarter, we continued with our share buyback program and repurchased another 1,600,000.0 shares for a total of $13,400,000 To date, we spent $46,900,000 repurchasing shares against our total authorization of $75,000,000 As of 12/31/2024, we had on our balance sheet $373,300,000 in cash cash equivalents, short term bank deposits and marketable securities.

Entering fiscal year twenty twenty five and giving our strong financial position, balancing between share repurchases organic investments and selective acquisitions that complement our growth strategy. Looking ahead towards 2025, we are providing our full year financial guidance and we are introducing our core key performance indicators. These indicators provide a more accurate and helpful way to assess the strength of our business. As a result, going forward, we will begin sharing our revenue breakdown by advertising channels: digital out of home, CTV, [indiscernible] [indiscernible] 2025 will be a transformative and exciting year for us at Perio. One in which and better aligned with our mission. To make digital advertising more effective for our customers and in turn, make our business more efficient. For the full year 2025, we expect to generate revenue of $400,000,000 to $420,000,000 adjusted EBITDA of $40,000,000 to $42,000,000 and adjusted EBITDA to contribution ex stock margin of 22%. To summarize, we ended 2024 on a positive note and we are excited for what's to come for Perion in 2025. With that, I will now pass it back to the operator for the Q and A session. 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 9. Our first question comes from Andrew Morak with Raymond James. Andrew, please unmute your line. And ask your question.

Great. Thank you for taking my questions.

Appreciate the new disclosure format and wanted to talk quickly about the Open Web business. So things pretty tough there right now and looking like it continue into 2025 based on some of the shifts that Yolav talked about. But in your estimation, how much of that is addressable via the Perion one reorg that you're working on And how much is down to just tough conditions in the space overall? Thank you for the question, Andrew.

You're absolutely right. Open web as an industry is a channel is not a growing part. But we do believe that for us, within Perion platform, you know, we're onboarding new advertisers to use our platform for old channels. We do think that WeTime are open with will start to strengthen again. So we are domestic on that, but we're also putting a lot of focus on CTV and Of course, yes, the growth Perion Appreciate that. And then really quickly, if you could maybe give a little sense of the PerionOne Perion effect on the 2025 outlook. I guess what kind of has to still be done behind the scenes? And how much is figured into the guide in terms of incremental costs for any remaining work to be done or potential top line disruption as clients get moved over?

Sure.

So thank you for the question.

So first of all, I said regarding the parent one strategy, First of all, as part of this change, we already took some measure in the first quarter of twenty twenty five And going through some headcount reductions, and I believe that going into this future, the ability of unified everything together will actually will help us to to run much more efficient, sales and marketing Perion. By having the platform within the agencies, they only have access to all of our offering. And it will it will be much more efficient in our sales in our sales pitch and they will have, already everything in place. To be able to increase the budget and and by that, to allow us to be much more efficient in our [indiscernible] In addition to that, we already took into consideration 25 the guidance some of those some of those initiatives inside mostly around the operation efficiency, and, of course, the ability to leverage our leverage all of the data and to enjoy from improved margins into the into the 2025. Having said that, we do expect that the full impact of this change will actually be reflected in 2026 But some of this is already of course, reflected in 2025, mostly in the around second of the year.

Our next question comes from Jason Helfstein with Oppenheimer.

Please unmute your line and ask your question. Jason, please use star six to unmute your line.

Okay. Can you hear me now?

Yes.

Guys, Okay, great. Hey, so two questions, like two Perion or on Curvyon one.

So one, I guess, it's when you think about making a shift how does it allow you once you're done to kind of talk about how you're planning to use automation to actually improve the gross margins of kind of the dollars that will move through Perion one?

And then I guess it's like you just talked about in your last answer, you think there's going to be an efficiency on the sales and marketing. So is it you think both there's a long term benefit to gross margin on a efficiency of executing the campaign using automation. On top of that, it improves the go to market because the tools will be with your customers so you won't have to spend as much on sales and marketing And then maybe tie that back to how much of the slowdown in Open Web was you proactively slowing down because the cost of running these campaigns wasn't productive as opposed to the market caused the slowdown in that spend? Thank you. Yes.

So kind of three questions there. Thank you.

Absolutely. So let let's start with automation. So we're absolutely focusing on a lot of automation, everything AI driven. [indiscernible] automation to reduce the level of manual work that we do today So as we scale, we do see better efficiency. So that's a core factor of this reorganization. How do we get more work with less manual work. This and it goes hand in hand with our sales and marketing So currently, when we're getting, new campaigns, it's a lot of manual work. And we're shifting that towards automation. This is an ongoing work. We've started that six or seven months ago and we're just in the middle of the process, but we do expect to become more and more efficient.

As to marketing, Perion had five different brands up until now. Now we only have one.

So the marketing dollars are now focused on only one brand which should give us for the same money, should give us five times more efficiency on our marketing dollars towards our own brand. As for the web, you know, so you've asked and I think you're absolutely right. We've when we look at this new organization, we realized a lot of things we have are still apparent exist since 1999. A lot of things are still kind of legacy with old technology, So some of the things we we needed to figure out, are we going to continue to do those with old technology that are not is not really relevant or the future, or rebuild that or just let it go. And we've decided to on some things that are with lower margins and that needed refactoring to the technology, to just let them go and this is why you actually see a lowered guidance than what we previously thought of giving because we want to focus on the high growth parts and we didn't want to reinvest in old technology that wasn't and we only want to focus on high margin products. And this is why everything is very aligned within Teradata One platform, the new super talented executive that we brought on board, and even the guidance, which is super focused on the strategic parts and the high margin parts.

I hope that answered the question.

Yes, that's good color. Thank you.

Thank you.

Our next question comes from Eric Martinuzzi from Lake Street. Please unmute your line and ask your question.

The CTV growth for the year was up 30%, but it did slow to a 10% growth rate in Q4. Just wondering what sort of growth rates you baked in for 2025 So [indiscernible] CTD Q4 was 10%. But we actually saw in Q4 some value also to the out of home.

Under the anywhere TV So some of those dollars in Q4 were actually shifted to out of home. So, and I think that as you mentioned, the overall year yearly performance of our CTV is actually outperformed the market. And if we are looking at 2025, we believe that also in 2025 will be We'll be beating at least beating the market growth for [indiscernible] Okay.

On an annual base, we do expect to continue to meet the market on CTV.

Okay.

And then your I missed it, but you commented on the translation of adjusted EBITDA So at the midpoint, we've got $41,000,000 of adjusted EBITDA EBITDA does that translate into for free cash flow For the year, So even though our EBITDA this year is lower than 2024, When our cash flow we do expect it to be much higher than 2024. And if you can give us full color.

Yes. 2024, so one time gap that happens mostly is a result of the year over year change in the working capital that related to our search activity. And of course, building the working capital for Highsec following the acquisition. In 2025, we are expected that our cash flow conversion from the EBITDA will be back to the normal rates as we used to see before 2024, meaning that the adjusted free cash flow and the EBITDA will be very close to each other.

Okay. Thank you for taking my questions.

Thank you. So cash flow wise, should be better year than 2024.

Our next question comes from Laura Martin with Needham and Co. Please unmute your line and ask your question. Hey there, Tal. Love the new disclosures. Agreed with Andrew on that. So I wanted to start with retail media vertical.

So up 34%. When I think of retail media, I think of CTV only. Can you confirm what the mix of the retail media vertical is? And then secondly, a lot of people, your competitors are saying that opens up new total addressable markets because you can attract SMBs to retail media. Can you talk about whether you're getting new clients in retail media? And then third, specifically related to retail media, are there other verticals like this one that you've we should be thinking about, a lot that are becoming as large as retail media vertical, which you break out now.

Yeah, absolutely. It's great to hear from you. And thanks for the question. [indiscernible] retail media is really our way of measuring how much retailers are adopting our technologies. And you ask [indiscernible] It turns out a lot of our retailers, we were able to shift them in more and more solutions among them, you know, WAV, which is our audio, still small, but it's getting there. [indiscernible] So our retail media, play plays a lot into physical stores. So I don't know if you guys know this, but Physical stores are still representing roughly, I think, 85% Acquisitions, versus online, at least for grocery. So our platform and our activity going to be focusing a lot on how do we drive people back to grocery stores physical grocery stores, through all our solutions, and that might be you know, ARPON, CTV, web, audio entire thing. You're absolutely right. SMBs are absolutely on the table. Now that we have a platform, we're working on creating that as a second phase to also SMBs We're going to start with since we have Stephen Yap, which comes with twenty five years of experience with big agencies, retailers and Tier one brands, We're going to start with that.

But SMBs are definitely on our roadmap. Maybe not for 2025, but for going forward, absolutely, this is something on our radar. Does that answer your question?

It's fantastic. My other question is, on the generative AI large language model. Sounds like you're integrating you're not only automating, but also using the large language models for You used to be using OpenAI because of your close relationship with Microsoft. But given the given the breakup, given the divorce, my question is, are you using different large language models as the back bone for Perion. Are you using multiple ones? Are you still using the OpenAI back bone, large language model? Can you talk about what's happening on the back end of [indiscernible] Yeah. Yeah, absolutely. That's an excellent question. So even though Microsoft we're we're in good terms, so no no beef Perion, and we didn't, ditch OpenAI, but we do experiment more and more with the Google capabilities. And now our lab are actually looking at the deep seek algorithms just to see their capabilities Obviously, they're way cheaper, so a lot more efficient.

But, it's a bit of early days for that, new algorithm. But, yeah, we're working with we're testing all the all the infrastructures out there. Make sure that we have the right one with the right structuring, right cost structuring. Obviously, those things are expensive.

Okay. And just my understanding is, let's say you move to DeepSeq, which is much less expensive. Is it would you stay on more than one or once you build on DeepSeq, does the or is it the barriers to exit pretty high? Do you have to sort of stay with whichever one you build your No. So everything we do stays on we might take so DeepSig is an open source so we might take, it's pieces of that. But everything stays on our environment.

Since it's an open source, it stays on our environment. Maybe we won't use their different versions or their updates, but we won't build anything that has a high cost of switching.

Okay. That's super helpful. Okay.

Great. Thanks very much. And I love the new disclosure.

Thank you. Our last question comes from Jeff Martin with Roth Capital. Please unmute your line and ask your question.

Thanks. Good evening, guys. Wanted to drill down a little more on Open Web. It's still 46% of Advertising Solutions revenue in the fourth quarter.

With you expecting that to kind of level off and grow at some point, what what sort of things internally are you doing to facilitate that inflection? And could you pinpoint when in 2025 you anticipate that inflection?

So on the web part of the open web channel, we don't you don't see we don't anticipate a big change in 2025.

I think the major wins that we're aiming for is out of home and CTV, and that's but also if we can increase web then we would absolutely love that. But the major focus is on more advanced solutions. Open web is pretty crowded. So we're focusing on more advanced solutions for CTV for Adafone and all across the board for retail media. So that's really the focus. But again, since we're a diagnostic platform, whatever the client wants, that's what we're going to deliver. We're not pushing for a specific channel. But that's how we modeled 2025.

Great. And then one more if I could. On the capital allocation as we [indiscernible] into further into 2025 and thinking beyond that at the same time. How are you thinking about your acquisition strategy relative to the company's focus on Perion one getting that in place, starting to see the benefit from that, maybe help us understand how your thinking about Potential acquisitions relative to the PerionOne Perion?

Yes, I'm sorry, that's a good question. So within period one Perion, we obviously, we took a lot of effort to consolidate everything all the business unit, all the brands and all the technologies. We do not intend to break that again. So whatever, we're going to buy it has to be, has to fit within this platform. As additional features to those customers. Right? So it's built in as an extremely synergistic solution.

We will never Again, by companies that are going to be standalone So that's that's how we were thinking about it. But to be honest, we're now mainly focusing on our organic growth making sure this transition works well. We just added, three amazing executives to make sure that this transition goes well, the unification transition. We have a lot of work on our plate, but we still look at some great companies and as I said, whenever we're going to find something, it has to be part of this one platform. We're not going to deviate from that. Thank you. Thank you.

This concludes the Q and A session. I will now hand it back to Tal Jacob and Elad Zubri for closing remarks.

Thank you for joining us today. And we're excited about the future.

And hope to see you again next time. Thank you. Thank you.