PERION-NETWORK Earningcall Transcript Of Q2 of 2024
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. Tal Jacobson -- Investor Relations Good morning, and good afternoon. Thank you for joining us for our second-quarter earnings review. As always, Maoz Sigron, our CFO, is with me today. I want to start by reminding all of us, what are we trying to solve at Perion? Digital advertising is expected to reach $700 billion this year and grow to over $900 billion within three years. However, managing this vast spending across numerous platforms, channels, screens, data points has become very complex for the advertiser. The chief marketing officer is in charge of spending those digital advertising budgets. An army of experts and vendors are needed to cover all relevant advertising channels. And when they do, it's almost impossible to prove actual ROI across all channels and platforms. This is where Perion comes in, providing the technology that fits the brand goals. As a technology company, we ensure our tech fits the brand strategy, as different brands have different needs. In the early days, an off-the-shelf CRM worked for many brands. Today, we know that if you want to get the best results from your CRM it's not enough to buy a license for a CRM such as Salesforce. If you want to get the best results you need to customize the technology to your needs. The same applies to the $700 billion digital advertising industry. And we believe we are on a way to tackle the overcomplexity of digital advertising universe through technology. Our mission in the fast-evolving, overcomplex, omni-channel advertising universe is clear. To identify, connect, deliver, and measure compelling messages across multiple screens and platforms, while maximizing our clients' advertising budgets. The core of our technology is to empower advertisers to seamlessly and effectively connect with their audience, whether at home, at work, in the supermarket, or on the move. This quarter, we made significant advancements in our technologies, forged key integrations, and secure crucial partnerships to advance our solutions. Here's a reflection of our core growth engines that have continued to demonstrate positive momentum with a strong double-digit growth rate. Hivestack, our best-of-breed programmatic digital out-of-home technology that we acquired at the end of last year is already bearing fruit. We have added a robust growth engine, enhanced our ability to help advertisers deliver omni-channel experiences, and expanded our global footprint. Programmatic digital out-of-home is expected to play a pivotal role in the future of retail media. As consumers continue to seek goods at physical stores and retail advertisers compete for their attention. By leveraging our technology, advertisers can synchronize their campaigns to deliver consistent brand messages, effectively to maximize ROI. Our recent omni-channel campaign for Colorado tourism utilized our CTV pause ads, our cutting-edge AI-generated dynamic audio ad technology called Wave, and our mobile interactive ads. [Commercial break] By integrating those channels into a single compelling and holistic advertising experience, we ensure that the brand messages resonate deeply with the consumers. This provides consistent engagement across all platforms and devices. Our CTV solutions are showing great momentum and are adopted by more and more brands. We are leveraging our advanced location-based capabilities to drive meaningful results for advertisers. For example, our CTV Golden Corral Campaign directs viewers to the nearest restaurant. Make it an easy choice for a hungry consumer. Our technology is using the restaurants' locations and integrating them into the brand creative using our advanced dynamic creative technology. Let's take a look. [Commercial break] Our retail and commerce advertisers are also enjoying new developments that enrich retail campaigns to drive meaningful results. One of them being the click-to-cart functionality. Click-to-cart allows advertisers to add a direct-to-cart call to action within the ad. This creates an accelerated path to purchase. As presented in this ad, one click opens the target website, and the item is already in the shopping cart. [Commercial break] One of the most exciting development at Perion is the extension of our advanced CTV technology to now also run on YouTube CTV. Brands can now leverage our appealing high-impact CTV solutions on YouTube. The second largest CTV ad platform in the U.S. Here's an ad for Direct Energy, one of the first brands to adopt our CTV technology for YouTube. [Commercial break] Our programmatic digital out-of-home advertising solutions are reshaping how brands engage, interact, and connect with audiences across the globe. Programmatic digital out-of-home is uniquely positioned at the intersection of art and science. It provides and parallel opportunities for brands to deliver full-funnel advertising campaigns that are customizable to meet their goals. The out-of-home channel is evolving at an incredible pace, growing in popularity with some of the world's leading brands, and we keep adding new and exciting features. Burger King, for example, used our technology for programmatic digital out-of-home to motivate people to visit restaurants across 165 locations in New Zealand. They leverage features such as proximity gale fencing, advanced scheduling, and contextually relevant creative. Those features are unique to programmatic digital out-of-home and generated impressive results for Burger King. [Commercial break] In the world of programmatic out-of-home advertising, the variety of screens sizes and formats is vast and diverse. It's almost like navigating a jungle. Digital out-of-home, unlike web advertising with its IAB standard ad sizes, present unique challenges as there are many screen sizes and proportions. This is where Perion's AI-based dynamic creative optimization technology, DCO, steps in. We transform complexity into opportunity by adjusting out-of-home creatives dynamically. Our AI-based DCO capabilities are already at work in other formats we power. Now, we have added this capability to support digital out-of-home and offer our clients more efficiency, scalability, and consistency. Advertisers utilizing this technology maintain high-quality visuals and messages across all formats, enhancing brand consistency and the effectiveness of each campaign. Our technologies continue to earn industry recognition and win awards. I'm proud to share several awards our team has won this quarter, including the Drum Awards and the IAB Tech Lab certification. Before we transition to review our financial results for the second quarter, I'm excited to share important updates within our leadership team. Our incredible CFO, Maoz Sigron, will be promoted to become Perion's chief operating officer. I'm extremely excited about Maoz's promotion. As a proven leader who has been pivotal to the company's turnaround the past seven years, Maoz is well-positioned to lead the strategic unification of our various operations, ensuring the company is on the right path of achieving sustainable growth. I'm also pleased to share that our current senior vice president of finance, Elad Tzubery, will be promoted to become our CFO effective August 1. I wish Maoz and Elad great success in their new roles. With that, I'll pass the stage to Maoz to review our second-quarter financials. Maoz Sigron -- Chief Financial Officer Thank you, Tal. Good afternoon, and good morning to those of you joining us from the U.S. The second quarter had eight challenges. Microsoft Bank made changes to its search distribution marketplace across all of its distribution partners that significantly impacted our search business. In addition, and as we stated previously, we continued to see a reduction in our OpenWeb video and display standard formats. However, the strengths of our hyper-growth engines including retail media, CTV, and digital out-of-home continued to outperform the market. Notably, our recently acquired digital out-of-home business continues to deliver strong results. It grew 41% year over year on a pro forma basis, and it is on track to become one of our fastest-growing categories. Our strong balance sheet and cash position allow us to continue our organic investments in technology and to execute our M&A strategy. Those of you who have been following us over the years have witnessed Perion's ability to successfully meet challenges. We have always exhibited the operational flexibility to adjust our strategy and execution. We do this in a way that enables us to overcome obstacles, while continuously leveraging our technological advantages and innovative initiatives. We expect this time is no different and I believe that we will become an even stronger company. Looking ahead, we believe that the combination of our cash position and the opportunities in the near $700 billion global digital advertising market will allow us, I am sure, to capture market share and lead to profitable growth. Turning to our main financial highlights for the quarter. For the second quarter that ended on June 30, 2024, revenue was $108.7 million, a decrease of 39% year over year. Adjusted EBITDA amounted to $7.7 million, a decrease of 81% year over year and resulting in a 7% adjusted EBITDA margin and 15% ex-TAC margin. GAAP net loss was $6.2 million, while non-GAAP net income was $13.4 million. Net cash was $407.1 million in part reflecting the execution of our share buyback program in the amount of $20 million. Revenue for the second quarter was $108.7 million, a decrease of 39% year over year, mainly impacted by search and standard OpenWeb video and display. Revenue from advertising solutions was $74.4 million, a decrease of 25% year over year, and accounted for 68% of total revenue. The year-over-year decrease was a result of the decline in OpenWeb video and standard display revenue. These declines were partially offset by a significant year-over-year increase of our growth engines, including retail media, CTV, and digital out-of-home. Our CTV business grew by 42% year over year to $10.2 million. This is more than double the 2024 market growth of 19% according to eMarketer estimates. CTV revenue represented 14% of advertising solutions revenue, compared with 7% last year. Digital out-of-home grew by 41% year over year on a pro forma basis to $13 million outpacing the expected 2024 market growth of 11%, according to eMarketer estimates. Digital out-of-home represented 18% of its advertising solutions revenue, compared with 9% in the same period last year on a pro forma basis. Our retail media vertical delivered consistent growth increasing 75% year over year to $17.6 million, while the expected 2024 market growth according to eMarketer is 26%. Our retail media business accounted for 24% of advertising solutions revenue, compared with 10% in the same period last year. Those results were aided by our ability to introduce new technological solutions across multi channels. Also, our access into premium inventory drove increased spending by existing and new customers. Second quarter search advertising was $34.3 million, a decrease of 57% year over year. This is mainly due to the changes in advertising pricing mechanisms implemented by Microsoft Bank and their decision to exclude a number of publishers from the sales distribution marketplace. Going forward, we expect our business from our agreement with Microsoft Bank to represent about 5% of Perion's revenue in the second half of 2024. Contribution excluding TAC to revenue was 46%, compared with 43% in the second quarter last year, mostly due to shifts in product mix giving the reduction in the search business. Adjusted EBITDA amounted to $7.7 million, 7% of revenue and 15% of contribution ex-TAC. This is compared with 23% and 54%, respectively, in the second quarter of 2023. The decrease in the adjusted EBITDA was mainly a result of the reduction in search advertising activity, the decrease in standard video and display formats, and higher operating expenses due to the integration of Hivestack. On a GAAP basis, second-quarter net loss was $6.2 million or $0.13 per diluted share, compared with a net income of $21.4 million or $0.43 per diluted share in the second quarter of 2023. Non-GAAP net income was $13.4 million, a year-over-year decrease of 68% or $0.26 per diluted share compared with $42.1 million or $0.84 per diluted share last year. Operating cash flow for the second quarter was a negative $20.5 million compared with $47.4 million in the same period last year. This quarter's operating cash flow was mainly impacted by a delay of $17.6 million in the Microsoft collection to July 1, 2024, and a one-time contingent consideration payment of $9.6 million related to Vidazoo earnout, which according to accounting standards are classified under operating cash flow. As of June 30, 2024, net cash including cash equivalents, short-end deposits, and marketable securities was $407.1 million down from $479.7 million at the end of the first quarter of 2024. The quarter-over-quarter decline in cash was primarily the result of $41 million payment of contingent consideration and a total of $20 million execution of our buyback program. We are reiterating our full-year 2024 guidance that we provided on June 10. This concludes my financial overview. I would like to take a moment to acknowledge the changes we made in our executive team. I am excited to take on the role of Perion chief operating officer. As Perion COO, I will partner closely with Tal and senior management aiming to navigate through opportunities and challenges that lie ahead. As part of my new role, I am responsible for the strategic integration of Perion's cross-organization business operations, exploring internal and external business opportunities and partnership, and maximizing efficiency. My prime goal is to drive sustainable profitable growth in the next years. I would like to thank Tal and the board for having confidence in me to lead these strategic functions. I strongly believe Perion has a promising bright future. Along with the entire management, the board, and our employees, I am determined to seize this opportunity and navigate Perion to its next phase of growth. I am pleased to welcome Elad in his new role as Perion's chief financial officer. I have known and worked with Elad for the past decade, out of which six years at Perion. His promotion is very much deserved, and he is my natural successor. I will assist Elad in any way possible, and I look forward to continue working closely with him in our new roles. I will now pass it to Elad to say a few words. Elad Tzubery -- Senior Vice President of Finance Thank you, Moaz. Good afternoon, and good morning to those of you joining us from the U.S. I have been working closely alongside Maoz at Perion for the past six years. Throughout my years at Perion, I took an active part in most of our important milestones. And as Senior vice president of Finance, I manage all financial aspects of the company. As Maoz noted, our professional and personal relationship go back over a decade. I want to congratulate Maoz on his well-deserved promotion and thank him for being such a trusted mentor. I would also like to thank Tal and the board of directors for their trust and confidence in me. In my new role as the chief financial officer, I will capitalize on the knowledge and skills I learned over the years. I am eager to join our superb management team. I am ready and fully committed to help lead Perion to new heights. I'll now hand it back to the operator to open the line for questions. Operator Questions & Answers: |
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