Perion(PERI) - 2024 Q2 - Quarterly Report

Executive Summary & Business Overview Perion achieved 9% YoY revenue growth in Q1 2024, driven by CTV and Retail Media, expanding AI solutions despite Search challenges First Quarter 2024 Highlights Perion reported 9% YoY revenue growth in Q1 2024, driven by strong CTV and Retail Media performance, while Search Advertising faced declines due to Microsoft Bing changes - Overall revenue growth: 9% YoY[1] - Strategic focus: Expanding technological advertising solutions, capitalizing on organic growth engines (Retail Media, CTV), and strategic acquisition of programmatic DOOH technology[3] - AI Lab innovations: Introduction of SORT® 2.0 (AI-based audience segmentation for CTV) and WAVE technology (dynamic audio ads, now supporting Spanish)[3] - New brand identity and positioning: Focused on building an advertiser-centric universe[3] Q1 2024 Business Highlights - Revenue Growth | Metric | YoY Growth | Q1 2024 Revenue ($M) | % of Advertising Solutions Revenue | | :-------------------- | :--------- | :------------------- | :--------------------------------- | | Retail Media | +134% | 14.9 | 20% (vs. 8% last year) | | CTV | +108% | 8.2 | 11% (vs. 5% last year) | | Video | -52% | N/A | 22% (vs. 44% last year) | Q1 2024 Business Highlights - Search Advertising Metrics | Metric | YoY Change | | :---------------------- | :--------- | | Average Daily Searches | +20% | | Number of Publishers | +8% | - Search Advertising trend: RPM, Average Daily Searches, and the number of Search Advertising publishers started to decline during the quarter, a trend expected to be fully reflected in Q2 and onwards due to Microsoft Bing changes[4] Financial Performance Total revenue increased 9% YoY, but net income, Adjusted EBITDA, and operating cash flow significantly declined First Quarter 2024 Financial Highlights Total revenue grew 9% YoY, but Advertising Solutions revenue decreased, leading to significant declines in GAAP and Non-GAAP net income and Adjusted EBITDA Q1 2024 Financial Summary (vs. Q1 2023) | Metric | Q1 2024 ($M) | Q1 2023 ($M) | YoY Change | | :-------------------------- | :----------- | :----------- | :--------- | | Advertising Solutions Revenue | 75.8 | 79.9 | -5% | | Search Advertising Revenue | 82.0 | 65.3 | +26% | | Total Revenue | 157.8 | 145.2 | +9% | | Contribution ex-TAC | 60.2 | 65.3 | -8% | | GAAP Net Income | 11.8 | 23.8 | -51% | | Non-GAAP Net Income | 22.6 | 29.9 | -25% | | Adjusted EBITDA | 20.3 | 31.3 | -35% | | Net Cash from Operations | 6.9 | 17.8 | -61% | | GAAP Diluted EPS | 0.24 | 0.48 | -50% | | Non-GAAP Diluted EPS | 0.44 | 0.60 | -27% | Detailed Financial Comparison for Q1 2024 This section details Q1 2024 revenue streams, cost structures, and profitability, explaining changes driven by product mix shifts and Microsoft Bing impacts Revenue Analysis Total revenue increased 9% driven by Search Advertising, while Advertising Solutions decreased, with future Search declines expected - Total Revenue: Increased 9% to $157.8 million (Q1 2024) from $145.2 million (Q1 2023)[10] - Advertising Solutions Revenue: Decreased 5%, accounting for 48% of total revenue, primarily due to a 52% decrease in video revenue, partially offset by a $9.7 million increase in Digital Out of Home and a 108% increase in CTV revenue to $8.2 million[10] - Search Advertising Revenue: Increased 26%, accounting for 52% of total revenue, driven by a 20% increase in Average Daily Searches and an 8% increase in the number of publishers[10] - Future Outlook for Search Advertising: RPM, Average Daily Searches, and the number of Search Advertising publishers started to decline during the quarter due to Microsoft Bing changes, a trend expected to be fully reflected in Q2 and throughout 2024[10] Traffic Acquisition Costs (TAC) Traffic Acquisition Costs increased to 62% of revenue in Q1 2024, primarily due to product mix shifts and higher publisher revenue share Traffic Acquisition Costs (TAC) | Metric | Q1 2024 ($M) | Q1 2023 ($M) | % of Revenue Q1 2024 | % of Revenue Q1 2023 | | :----- | :----------- | :----------- | :------------------- | :------------------- | | TAC | 97.6 | 79.9 | 62% | 55% | - Reasons for increase: Primarily due to shifts in product mix and higher revenue share for some Search Advertising publishers[11] Net Income (GAAP & Non-GAAP) GAAP Net Income decreased by 51% and Non-GAAP Net Income by 25% in Q1 2024, reflecting reduced profitability Net Income Comparison | Metric | Q1 2024 ($M) | Q1 2023 ($M) | YoY Change | | :---------------- | :----------- | :----------- | :--------- | | GAAP Net Income | 11.8 | 23.8 | -51% | | Non-GAAP Net Income | 22.6 | 29.9 | -25% | - Non-GAAP Net Income as % of revenue: 14% in Q1 2024 compared to 21% in Q1 2023[12] Adjusted EBITDA Adjusted EBITDA declined by 35% to $20.3 million in Q1 2024, with its margin to revenue decreasing to 13% Adjusted EBITDA Comparison | Metric | Q1 2024 ($M) | Q1 2023 ($M) | YoY Change | | :-------------------------- | :----------- | :----------- | :--------- | | Adjusted EBITDA | 20.3 | 31.3 | -35% | | Adjusted EBITDA to Revenue | 13% | 22% | | | Adjusted EBITDA to Contribution ex-TAC | 34% | 48% | | Cash Flow and Net Cash Net cash from operating activities decreased by 61% to $6.9 million, primarily due to reduced Search Advertising and working capital needs - Net cash provided by operating activities: $6.9 million in Q1 2024, a 61% decrease from $17.8 million in Q1 2023[14] - Reasons for decrease in operating cash flow: Mainly attributed to the reduction in Search Advertising activity and one-time working capital needs for Hivestack operations[14] - Net cash position (Cash, cash equivalents, short-term bank deposits, marketable securities): $479.7 million as of March 31, 2024, compared with $472.7 million as of December 31, 2023[15] Financial Outlook & Capital Allocation Perion anticipates significant declines in Q2 and FY 2024 revenue and Adjusted EBITDA, reflecting a conservative outlook due to Search Advertising impacts Q2 and FY 2024 Guidance Perion forecasts significant sequential declines in Q2 revenue and Adjusted EBITDA, with full-year guidance reflecting a conservative outlook due to Search Advertising impacts Q2 2024 Guidance | Metric | Range ($M) | | :-------------------------- | :--------- | | Revenue | 118 to 122 | | Adjusted EBITDA | 10 to 12 | | Adjusted EBITDA to contribution ex-TAC | 20% (at midpoint) | FY 2024 Guidance | Metric | Range ($M) | | :-------------------------- | :--------- | | Revenue | 590 to 610 | | Adjusted EBITDA | 78 to 82 | | Adjusted EBITDA to contribution ex-TAC | 30% (at midpoint) | - 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