© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good day, and welcome to the Perion Second Quarter 2019 Earnings Conference Call. Today's conference is being recorded. The press release detailing the financial results is available on the Company's website at perion.com.
Before we begin, I’d like to read the following Safe Harbor statement. Today's discussion 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 and achievements to be materially different in 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.
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 the 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 Doron Gerstel, Perion's Chief Executive Officer; and Maoz Sigron, Perion's Chief Financial Officer.
I would now like to turn the call over to Doron Gerstel. Please go ahead.
Thank you and good morning. Earlier today, Perion reported its financial results for the second quarter of 2019. These results showcase the continued progress we’re making to strengthen Perion as a public company from the combined perspective of financial leader, technology innovation and business strategy. We are efficiently executing against our three-phased strategic turnaround plan that we’ve been sharing with you since I joined, innovating with the digital advertising market and building credibility in the major digital media channels we serve.
We are accomplishing all this while strengthening our balance sheet to enable continued investment and growth. During the second quarter, we continued to drive strong cash generation. During the first half of 2019, we generated $22.4 million in cash from operations which represent a 28% year-over-year increase. As a result, Perion’s net cash was $21.3 million as of June 30th, the highest level it’s been in 3.5 years.
Our priority is to reduce our debt. During the last three years, we’ve reduced our debt from $74 million to $21 million. We paid all follow bonds ahead of time as we announced in May 2019 and we plan to have no debt by the end of 2021. This was also the first quarter in three year that we grew total revenues on a year-over-year basis. And for our Search business Q2 represented the fourth consecutive quarter of sequential growth and our third consecutive quarter of year-over-year growth.
Under dynamic new leadership our Search business has solidified its relationship with Bing. Microsoft is extremely happy. And in fact, we’re pursuing some exciting new product collaborations. We’re demonstrating our capability to bend the revenue curve which is driven by a combination of ever improving technology and enhanced sales outreach.
Operationally, Perion’s media-spanning suite enable us to benefit from evolving trend in the digital advertising sector. Brands and agencies are in a dynamic and fluid mode moving digital dollars between search, social and display. This is based on a combination of shifting objective and strategies and larger factors involving regulatory pressures and other policies.
Given this reality, which is only going to intensify as our clients become increasingly able to measure deeply and move quickly, it is important for me to point out to you that we are effectively positioned in what the market has determined as the main three pillars of digital advertising.
We cannot predict the future, no one can, but we can be strategically prepared to benefit from whatever it take us, the planning and the groundwork, and that is reflected in our quarterly consolidated revenue growth and our continuing ability to increase the bottom end of our EBITDA guidance range.
Simultaneously, our ongoing investment in Undertone continue to resonate, as agencies and brands are increasingly recognizing the value of our Synchronized Digital Branding solution. The market behind our Synchronized Digital Branding offering is real and growing. I hear it all the time and it was a big subject and one of the world’s leading CMOs at the conference we held at Cannes led by the former CMO of Procter & Gamble, Jim Stengel.
Ad fragmentation is facing difficult time as consumers are getting overwhelmed by disconnected messaging. This is why our ability to ensure sequential consumer experience through multiple touchpoints across the funnel, platform and channels is so essential. Adding linear TV audience into our advertising journey was an essential factor to enhance our audience targeting capability. I will speak more about it in a few minutes.
Our AI-driven ad journey delivers a truly personalized customer experience, which is what everyone talks about and promise but what Undertone is actually delivering.
We are intensely focused on generating awareness for an exposure of this new narrative. In order to cement and grow Undertone’s brand recognition as the quality-driven brand safe ad network that partner closely with its Fortune 500 customers to provide highest possible returns in a trusted publisher environment.
Transformative new ideas often take longer than expected to gain full traction but we are gaining traction with our new initiatives and beginning to see some early signs of progress. In fact, based on our current visibility, we expect to decline year-over-year trend of advertising revenue, subside by the second half of the year, and we project that our advertising revenue in the second half of 2019 will exceed $57 million.
We remain focused on expanding margin and delivering predictable quality in our digital advertising business, an initiative that has resulted in an 8% increase in margins. I continue to be encouraged by the prospect of Undertone given our flexibility to follow the direction of advertising dollars including CTV.
In terms of linear TV, for those of you who didn't catch the news, we've recently announced a partnership with Alphonso, where we’ve put together the largest data base of TV viewers that is currently available. The combination of our vast digital reach with rightful ads created and their TV platform open synchronization opportunities that have never been available before. In just a month we have already generated 28 Requests for Proposal incorporating digital TV reach into our Synchronized Digital Branding advertising solution, growing our pipeline by $5 million.
With that, I would like to turn the call over to Maoz to review the financial results of the [first] quarter. Maoz?
Thank you, Doron. We're happy with our strong results for the second quarter evidenced by year-over-year consolidated revenue growth, 194% increase in GAAP net income, 267% increase in GAAP EPS and 194% in cash from operation. In the second quarter of 2019 revenue for Perion totaled $63.6 million composed of $21.3 million from Advertising and $42.3 million from Search and other revenue.
Total revenues increased slightly from $62.8 million in the second quarter last year representing the first quarter of year-over-year growth in the last three years. This increase was primarily a result of a 43% increase in Search and other revenue as a result of additional new publisher, higher RPMs and an increased number of searches.
Advertising revenue decreased by 36% as a result of the transition from selling formats to an integrated solution. However, despite the decline in revenue, Perion gross margin in the Advertising business increased by 8% year-over-year as we continue to prioritize margin over short-term sales. Search and other revenue represented 66% of the second quarter 2019. Revenue with Advertising contributing 34%, this mix is similar to what we saw in the first quarter.
Customer acquisition costs and media buy in the second quarter of 2019 was $33.2 million or 52% of revenues compared to $31.1 million or 50% of revenues in the second quarter of 2018. Net income for the second quarter of 2019 was $2.9 million or $0.11 per diluted share compared to $1 million or $0.03 per diluted share in the second quarter of 2018. This increase was primarily a result of our 2018 restructuring efforts and a decrease in our financial expenses due to the reduction of our overall debt.
Perion’s non GAAP net income in the second quarter of 2019 was $4.5 million or $0.17 per diluted share compared to $4.7 million or $0.17 per diluted share in the second quarter of 2018. Adjusted EBITDA in the second quarter of 2019 was $7.4 million compared to $7.1 million in the second quarter of 2018. As of June 30, 2019, we had cash, cash equivalent and short-term bank deposit of $42.1 million compared to $43.1 million as of December 31, 2018.
During the second quarter, we redeemed our Series L Convertible Bond as a result of our improved cash flow and strong cash balance. This action reduced our outstanding debt by $8.3 million. As of June 30, 2019, total debt was $20.8 million compared to $40.5 million as of December 31, 2018.
I will now turn the call back to Doron. Doron?
Thank you, Maoz. As I’ve done in the past several earnings calls, I would now like to summarize where we are in our journey and importantly where we are headed. Current fundamental financial health has been restored. Today, we have stronger balance sheet with positive net cash and lower debt than when I assumed this position and we are taking step to further reduce our debt.
Our cost optimization is completed and we are strategically managing our business for earnings. Current business covers the three main pillars of digital advertising and will not be affected by advertiser moving their budget between search, social and display.
We are operating with discipline and we are prepared to see this transition fully through as we leverage our strong cash generation to strengthen our product offering, diversify our advertising business, structure important partnership like our Alphonso deal and position Undertone for new growth opportunities.
Looking forward, we still expect the 2019 to be a year of continued transformation as we continue to prioritize margin, profitability and long-term client relationships over a short-term rate for lower margin sales.
At the same time, we will continue to introduce new capabilities as part of our offerings that will ultimately be the catalyst for future growth. We expect to formally launch a new offering early next year with a platform innovation that will further advance our Synchronized Digital Branding capabilities, breaking the silos of ad search, social media and displaying video, advertising in a scalable [SaaS] suite.
I'm confident that Undertone and our advertising business are very much at the same point in our three-phased turnaround strategy that our search business was just a few quarters ago. We demonstrated our capability to bend the revenue curve with new leadership and a massive technology investment. We determine to replicate the same approach in our advertising business unit.
Based on our current visibility and expected level of R&D investments, we are revising and raising for the second time this year our guidance for EBITDA to be between $25 million to $27 million.
With that said, operator, will you please open the call for questions?
Thank you. [Operator Instructions] We will now take our first question from Eric Martinuzzi from Lake Street. Please go ahead.
Congratulations on a very strong second quarter. It’s good to see that Search business performing so well. I wanted to start by diving into the two segments. Let’s lead off with the advertising side, obviously I over -- I guess I had too much revenue in my mind for the performance at the advertising but I was happy to see the margin expansion. And as far as the advertising decline, how much of that was based on your customers potentially shipping budgets between display -- away from display branded and more towards search and how much of it was you walking away from less productive, less profitable revenue?
Thank you, Eric. So first of all it’s a combination -- it's definitely a combination of the two. First and foremost, we’re looking to serve our existing customer with value. We don’t want to degrade the level of service and the level of creativity, and we would be very much running away from deals. It has a lower margin but they represent very much standard advertising and us as being on a high impact advertising, we are looking for -- and looking to do business with those advertisers that see the value and the benefits of adopting our Synchronized Digital Branding solution which is more costly, but it provides higher value. And yes, it generates for us greater margin. That’s the majority of what -- of very much the impact.
I must mention that we are in a transition and this transition continue from selling the format to selling a full solution. It takes a while for the market to adopt it. But we are determined, as I very much mentioned in our call that we definitely see a decline here but we’re able to say that in the second half of 2019 we can ensure that the total number -- the total revenue for advertising solution will be above $57 million and by that it’s representing really slight -- I think it’s like $2 million to $3 million decline of what was on the H2 2018. So that’s one.
The second thing for those customers shifting budget, I’m really glad to see that we are positioning to mitigate the risk and we’re positioning very well in this regards by covering the three main pillars. So, some of the dollars goes into ad search, others goes to investing on social media and we are well covered in both, and that give us the overall ability to grow the top-line of the overall businesses.
The recovery that you talked about in the second half, is that just kind of getting to a base level of business where you -- your -- it’s pretty much focused on Synchronized Digital Branding, the high impact advertising and we’re no longer doing any -- some of the -- the [tentative] business that we were doing before, is that where we’re headed to?
So, first I think that we’re very much encouraged by adding a very important factor into our solution, into our Synchronize Digital Branding solution, which has to do with targeting a linear TV audience. And that’s a very, very important step and we are encouraging by the fact that the first month since launch, we able to have $5 million in bookings 20 something RSP, which we already incorporate, the solution is, this part is part of our solution. That's a very, very, that's a very important factor on our confident on the H2 numbers.
Okay. And your customers are not there, they're not having to change their behavior to work with you on the platform because that's what I would think would be the most difficult part, not necessarily that they don't have the dollars to spend, but they have to change their internal process to work with you.
It's nothing to do with the internal process. What it has to do is very much looking at the solution and looking at a solution from my point of what we call the sequential advertising in a way, how are we able to synchronize between the different channels. That's quite unique in the market and that's requires some learning curve from our customer as well as some training on our side and ability to sell transition and to sell the value. And I'm really encouraged by the market acceptance of these narratives, which at the end of the day, provides way, way better ROI, then looking at advertising in advertisements in a single unit in a single dimension.
I'm encouraged by it as well. One last question for me is on the search side. Just terrific numbers in search with that business, up 43% year-on-year, help me understand that. Is this greater reach that you're getting with CodeFuel? Is this higher revenue per click? Is it a volume gain, seasonality gain? What's the biggest driver behind that 43% growth?
So, I think first of all, it's a mix, and one thing from a macro perspective, ad searching story and definitely some limitation that you can see on the display advertisement has to do with GDPR and has to do with some other constraints is shifting advertiser budget from Display to Ad Search. As such, our partner in this case being is enjoying high, high demands on their Ad Search and they're looking for more searches underlying quality searches.
And in this way where the demand decided rate is being increased. At the same time, we launched some new initiatives with our partners in all together, I think that with us technology investments on our aside, mainly on the AI front, we were able to drive more searches and more quality searchers and more searches that are using a search term that we can -- we are getting higher RPM for those Ad Search. So, it's definitely a combination of the fleet.
We will now take our next question from Chris McGinnis from Sidoti and Company. Please go ahead.
Good morning. Thanks for taking my questions and nice quarter. Just a kind of follow-up a little bit on the on the ad business, I mean, thinking a little about on the new solution maybe that rate of growth or maybe some dynamics of how much of a portion of sales the digital synchronized branding solution is at this point and obviously a very good improvement in the back half of the year, but maybe just thinking to those trends much as we can? Thanks.
Yes, so basically, every RSP, every engagement that we have from existing customer to new customer, we are very much introducing the concept. The concept has to do with the fact that we are proving through this solution into what extent, we’re able to align the advertisement journey with the consumer journey in a synchronized way through the different that’s very much of the concept. And for our client is definitely a new concept because we are proving that while you are match, the right advertisement, the right format, at the right time, at the right position of the consumer in the consumer funnel, that’s being high results.
Some of them like any other customer, they’re very much faced the new concept, is much would like to start and test about in a smaller scale. And once they are convinced, they’re moving to higher scale, but I'm glad of the adoption. So to your question, we introduce it to all, all of our customer existing new and we're -- and they are different on their adoption. Some would like to take it in a small bytes and other already very much convinced and taking it to all of their spent.
Appreciate that color. And then just also in the back half, I guess that rate of -- also each of your comparisons at that point or we starting to lab maybe exiting of low margin business but then you also have the new partnerships kicking in combination of the two?
You are referring to the synchronization lending.
Well, [Multiple Speakers] yes.
So, the point here of when you are selling solution, first and foremost, we’re looking to take greater share of valet from existing customer because and that’s very much, that’s the very much the essence of the solution because we are covering more aspect of their spend, and when installing a synchronized matter, it’s all translated into a one campaign that has multiple dimension, multiple ways. And that’s definitely, what we see. I can tell you that we are increasing our average size mainly for those who are adapted or adopting the solution, and that’s what we expect to see. Greater, larger spend from our large customer.
And then just quickly on the search, on your significant jump up on revenue. What’s the expectation for the remainder of the year? And can that kind of revenue trend or cadence going forward? Thanks.
Yes, so we are not -- let me put it this way. We're not providing revenue projection. The only thing that we did is an exception is very much providing a revenue projection for the second half for the advertising business because we very much would like to share our confident on the H2. But I can tell you that we are very much encouraged by our partnership with Microsoft Inc., and we are expecting that, that will progress at the same level, and it's being very much reflected in the fact that we improved our EBITDA guidance second time in this year to range of $25 million to $27 million for 2019 EBITDA figures.
[Operator Instructions] We will now take our next question from Juan Noble with Taglich Brothers. Please go ahead.
A lot of my questions were already addressed, but going into the fall I wanted to get an idea of the significance of your partnership with Alphonso, thank you. I read the press release I could see you are making good traction in that regard 28 RFPs and the pipeline grew by $5 million that was solely due to the Alphonso relationship here the $5 million increase in pipeline. Is that correct?
It's very much due to the product of the partnership.
Okay. So, it just brings me to another question about the conversation rate of pipeline. I know all that could be all over the place, but what type of a conversion rate for your pipeline would you say you have typically?
We have more than 50% conversion between RFP and wins.
Okay. That's encouraging. And I also wanted to find out, obviously, you mentioned you are in a transition since you started the Synchronized Digital Branding platform and it's been a little over two quarters since that launch. I think was lead in 2018 and I know it's going to take some time to accretive to your advertising sales. But, I mean Alphonso that relationship looks like it's definitely heading in the right direction, but excluding that I was hoping you could talk a little about any traction that's been made in regard to the adoption of this new platform either qualitatively or qualitatively? And I'm talking ex-Alphonso at this point.
Yes. So, there is no doubt that when you transition organization sales force you know is an even the buyer and their perception of undertone from selling really what we call, high impact, the market defined to reach media format, which is a single format to a full fledge solution and that take a while in all fronts, no about it. But we are -- we glad and we put some very strict KPI in terms of deal size for those who adopted, how long it takes to adopt it after the initial transaction.
And I’m really encouraged by the market acceptance and the pendulum is definitely moving towards high impact created from a standard. But even more than that, I think that advertisers understand that in order to get the real attention and the engagement of the consumer, these days you need to be way, way more sophisticated than having a single ad unit in any given time. You need to look at it from really synchronization way between the different media discipline in all the really to catch.
And I think that while you take the Alphonso out, I think it gives us a great capability, very much to track the same consumer more often. And it's all -- this is very much the whole trick here is how many times and how often, we able to engage with the same customers while he is definitely -- he or she is definitely progressing on the funnel. And at home is definitely a valuable time to get the attention, because through this partnership, we are able to track the user that already retract in his way to work or at work and then at home again.
So, we're very more efficient and it's really dwelling corporate well with the overall concept of synchronization because you can't ignore the time, valuable time, that any audience targeting is spending and watching liner TV. And we able to take this valuable time and attention and get the right message at the right time to the right audience predict very, very important time of the day. So, I’m very happy with this partnership.
Oka, so, the guidance and thank you for that, the advertising guidance of -- you expect to see 57 million in the second half and I'm looking, I mean in the first half, you did less than 40 million. So, we anticipate a very big jump here and there obviously Alphonso is a good part of that, but not all of it. So, this is really a boost because of your new Synchronized Digital Branding platform, it's not necessarily programmatic advertising or anything like that. This is really Synchronized Digital Branding that’s finally coming fruition.
Yes, it's very much to do with effected more customers understand and more customers understand what we're doing, more customers that gains tested out the concept again confident and they spend more with us. And that’s very much reflect on the number is well as, I must say that Q4 traditionally is a good quarter from seasonality standpoint that help. So the combination is very much different.
Thank you for that, that’s what I was trying to get at really see, beside Alfongo how well synchronized digital branding was starting to gain traction because I know transition first half we saw that. But anyway let me just get some final question here. I know on the last call you mentioned that board approved the $5 million additional investment in your advertising budget, I was hoping you could talk a little about how that money was going to be spent and the result will be in regard to the advertising sales and obviously your projection in that kind of that question.
Yes, thanks for the question. That's what quite an investment on our side on our future platform and that we’re going to very much launch at the beginning of next year. We are productizers, we would like to say internally, we are very much satisfied in the context of Synchronized Digital Branding.
And for that, we need initial investment. This investment has to do also with the additional cost of engineering of the Company that we acquired during the year the Company in Ukraine that became our AI center. They are performing very well and I'm very, very happy with the way they are very much integrated with the different business unit.
At this time, they're focusing with their AI modeling on the advertising, but we have a lot of future plan to integrate them and their capability on other parts of our organization.
[Operator Instructions] And we have no other questions at this time. I will now turn the call back over to Doron Gerstel for closing remarks.
Yes, thank you for joining our call today. I wanted to take this opportunity to inform our investors that we’ll be participating in the next week [Best Idea Globe] Conference in New York on September 12th and the Sidoti Fall Conference on September 25th.
In addition in the coming weeks, we’ll be traveling to Boston to meet with investors and we’re regularly accessible to our shareholders. So please don’t hesitate to reach out. I look forward to providing an update on our third quarter earnings call in the fall. Thank you guys for joining.