Perion(PERI) - 2023 Q1 - Quarterly Report

Executive Summary & Highlights Overall Performance (Q4 & FY 2022) Perion Network Ltd. reported record financial results for Q4 and full-year 2022, demonstrating significant year-over-year growth in revenue, net income, diluted EPS, and Adjusted EBITDA, driven by its diversified and profitability-biased strategy in the dynamic digital advertising market - Perion achieved a 3-year EBITDA CAGR of 101% and revenue CAGR of 40%, indicating high predictability and sustainability of its business model[2] Key Financial Highlights (Q4 & FY 2022) | Metric | Q4 2022 (Millions) | Q4 2021 (Millions) | YoY Change | FY 2022 (Millions) | FY 2021 (Millions) | YoY Change | | :----------------------- | :----------------- | :----------------- | :--------- | :----------------- | :----------------- | :--------- | | Total Revenue | $209.7 | $158.0 | +33% | $640.3 | $478.5 | +34% | | GAAP Net Income | $38.7 | $17.7 | +119% | $99.2 | $38.7 | +156% | | Adjusted EBITDA | $48.2 | $28.9 | +67% | $132.4 | $69.6 | +90% | | GAAP Diluted EPS | $0.79 | $0.44 | +80% | $2.06 | $1.02 | +102% | Key Business Achievements (FY 2022 & Q4 2022) Perion achieved strong operational growth in both full-year and Q4 2022, particularly in video and CTV revenue, increased adoption of its SORT™ solution, and improved media margins, reflecting effective strategy execution and market adaptation - Full-Year 2022 Business Highlights - Video revenue increased by 129%, representing 43% of Display Advertising revenue[5] - CTV revenue increased by 108% year-over-year[5] - 59% of agencies and brand customers adopted SORT™ solution, generating $59.4 million[5] - Customer retention rate of 115%[5] - Media margin increased to 42% compared with 40% in 2021[5] - Number of publishers increased by 27% year-over-year to 265[5] - Average daily searches increased by 11% and average RPM increased by 21% year-over-year[5] - Fourth Quarter 2022 Business Highlights - Video revenue increased by 33% year-over-year, representing 42% of Display Advertising revenue[5] - CTV revenue increased by 42% year-over-year[5] - Increased adoption of the holistic Video Platform solution, with a 72% year-over-year increase in publishers and a 78% year-over-year increase in revenue from existing publishers[5] - Media margin increased to 42% compared with 41% in the fourth quarter of 2021[5] - Average daily searches increased by 26% and average RPM increased by 13% year-over-year[5] CEO Commentary & Strategic Focus CEO Doron Gerstel highlighted Perion's ability to adapt to market shifts, attributing consistent strong performance to its diversified, profitability-biased strategy and the intelligent central hub (iHUB) that connects data assets across media channels for rapid analysis and optimized ad spending - Perion's strong financial performance is a clear indication of its unique capability to identify shifts in ad spending and deliver the right solutions at the right time[2] - The business model is underpinned by diversification and a profitability-biased strategy[2] - The intelligent central hub (iHUB) connects all data assets across media channels, enabling rapid analysis of consumer behavior changes and shifting business to trending media budgets, while delivering superior return on advertising spend and increasing profit margins[2] CEO Transition Announcement Perion announced that Tal Jacobson will succeed Doron Gerstel as Chief Executive Officer, effective August 1, 2023 - Tal Jacobson named Chief Executive Officer, effective August 1, 2023[1][17] - Tal Jacobson will succeed Doron Gerstel as CEO[1][17] Financial Performance Analysis Full-Year 2022 Financial Results Perion delivered robust full-year 2022 financial results, with significant revenue growth driven by both Display and Search Advertising, substantial increases in net income and Adjusted EBITDA, and strong cash flow generation, reflecting improved operational efficiency and a favorable product mix Revenue Breakdown Full-year 2022 revenue grew 34% to $640.3 million, with Display Advertising contributing 56% of total revenue, driven by strong video and CTV growth, and Search Advertising accounting for 44%, boosted by increased RPM and daily searches Full-Year 2022 Revenue Breakdown | Revenue Type | Amount (Millions) | YoY Change | | :-------------------- | :---------------- | :--------- | | Total Revenue | $640.3 | +34% | | Display Advertising | $360.7 | +36% | | Search Advertising | $279.6 | +31% | - Display Advertising revenue accounted for 56% of total revenue, mainly driven by 129% growth in video revenue and 108% growth in CTV revenue[8] - Search Advertising revenue accounted for 44% of total revenue, primarily due to a 21% increase in RPM and an 11% increase in average daily searches[8] Profitability & Efficiency Perion significantly improved its profitability in FY2022, with GAAP net income increasing by 156% and Adjusted EBITDA by 90%, supported by a favorable product mix and efficiencies in traffic acquisition costs, leading to higher margins Full-Year 2022 Profitability Metrics | Metric | Amount (Millions) | YoY Change | | :-------------------- | :---------------- | :--------- | | GAAP Net Income | $99.2 | +156% | | Non-GAAP Net Income | $119.8 | +100% | | Adjusted EBITDA | $132.4 | +90% | - Non-GAAP net income was 19% of revenue in 2022, up from 13% in 2021[10] - Adjusted EBITDA was 21% of revenue (49% of revenue ex-TAC) in 2022, compared to 15% of revenue (37% of revenue ex-TAC) in 2021, driven by improved media margin due to a favorable product mix and marketplace efficiencies[9][11] Cash Flow and Liquidity As of December 31, 2022, Perion maintained a strong liquidity position with $429.6 million in cash and equivalents, and generated substantial net cash from operations, increasing by 72% year-over-year - Cash and cash equivalents and short-term bank deposits amounted to $429.6 million as of December 31, 2022[12] Full-Year 2022 Cash Flow from Operations | Metric | Amount (Millions) | YoY Change | | :-------------------- | :---------------- | :--------- | | Net Cash from Operations | $122.1 | +72% | Fourth Quarter 2022 Financial Results Perion's Q4 2022 performance continued its strong momentum, with total revenue increasing by 33%, and significant growth in both GAAP net income and Adjusted EBITDA, reflecting robust demand in Display and Search Advertising and improved operational leverage Revenue Breakdown Q4 2022 revenue increased 33% to $209.7 million, with Display Advertising growing 24% and comprising 59% of total revenue, driven by video and CTV, while Search Advertising surged 49% and accounted for 41% of revenue due to higher RPM and daily searches Fourth Quarter 2022 Revenue Breakdown | Revenue Type | Amount (Millions) | YoY Change | | :-------------------- | :---------------- | :--------- | | Total Revenue | $209.7 | +33% | | Display Advertising | $123.8 | +24% | | Search Advertising | $85.9 | +49% | - Display Advertising revenue accounted for 59% of total revenue, mainly driven by 33% growth in video revenue and 42% growth in CTV revenue[13] - Search Advertising revenue accounted for 41% of total revenue, primarily due to a 13% increase in RPM and a 26% increase in average daily searches[13] Profitability & Efficiency In Q4 2022, Perion achieved a 119% increase in GAAP net income and a 67% rise in Adjusted EBITDA, with improved media margins, demonstrating enhanced profitability and efficient management of traffic acquisition costs Fourth Quarter 2022 Profitability Metrics | Metric | Amount (Millions) | YoY Change | | :-------------------- | :---------------- | :--------- | | GAAP Net Income | $38.7 | +119% | | Non-GAAP Net Income | $44.7 | +77% | | Adjusted EBITDA | $48.2 | +67% | - Non-GAAP net income was 21% of revenue in Q4 2022, up from 16% in Q4 2021[15] - Adjusted EBITDA was 23% of revenue (55% of revenue ex-TAC) in Q4 2022, compared to 18% of revenue (45% of revenue ex-TAC) in Q4 2021, driven by improved media margin due to a favorable product mix and marketplace efficiencies[14][16] Cash Flow Net cash provided by operating activities in Q4 2022 increased by 32% year-over-year to $38.2 million, reflecting strong operational cash generation Fourth Quarter 2022 Cash Flow from Operations | Metric | Amount (Millions) | YoY Change | | :-------------------- | :---------------- | :--------- | | Net Cash from Operations | $38.2 | +32% | 2023 Financial Outlook Perion anticipates continued strong business momentum into 2023, projecting revenue between $720-$740 million and Adjusted EBITDA between $149-$153 million, both representing approximately 14% year-over-year growth at the midpoint, with an expected Adjusted EBITDA to Revenue ex-TAC margin of 50% - Perion expects strong business momentum to continue in 2023, driven by innovative capabilities and efficiency measures[7] 2023 Financial Guidance (at midpoint) | Metric | 2022 Actual (Millions) | 2023 Guidance (Millions) | YoY Growth % | | :----------------------- | :--------------------- | :----------------------- | :----------- | | Revenue | $640.3 | $720-$740 | 14% | | Adjusted EBITDA | $132.4 | $149-$153 | 14% | | Adjusted EBITDA to Revenue | 21% | 21% | - | | Adjusted EBITDA to Revenue ex-TAC | 49% | 50% | - | Company Information & Events About Perion Network Ltd. Perion Network Ltd. is a global advertising technology company that provides synergistic solutions across ad search, social media, and display/video/CTV advertising channels, integrated through its intelligent Hub (iHUB) to benefit brands and publishers - Perion is a global advertising technology company[18] - Solutions are delivered across three primary channels of digital advertising: ad search, social media, and display/video/CTV advertising[18] - The company's intelligent Hub (iHUB) integrates business assets from both sides of the open Web, providing significant benefits to brands and publisher customers[18] Conference Call Details Perion hosted a conference call on February 8, 2023, at 8:30 a.m. ET to discuss the results, with a replay and transcript available on its website - A conference call was hosted on February 8, 2023, at 8:30 a.m. ET[17] - A replay and transcript will be available within approximately 24 hours of the live event on Perion's website[17] - Registration link and call details were provided for participants[20] Non-GAAP Measures & Legal Disclosures Non-GAAP Measures Explanation Perion uses non-GAAP financial measures, such as Non-GAAP Net Income, Adjusted EBITDA, and Revenue ex-TAC, to provide insights into core operating performance by excluding non-cash charges and other items management considers outside core results, emphasizing that these should be read in conjunction with GAAP statements - Non-GAAP financial measures adjust GAAP measures to exclude stock-based compensation, acquisition-related expenses, revaluation of contingent consideration, amortization of acquired intangible assets, non-recurring expenses, foreign exchange gains/losses associated with ASC-842, and changes in fair value of earnout contingent consideration[21] - Adjusted EBITDA is defined as operating income excluding stock-based compensation expenses, depreciation, and acquisition-related items[21] - Revenue excluding Traffic Acquisition Costs ('Revenue ex-TAC') presents revenue reduced by traffic acquisition costs, reflecting the portion of revenue directly passed to publishers or advertisers[21] Forward-Looking Statements The press release contains forward-looking statements subject to various risks and uncertainties, including those related to acquisitions, market changes, competition, and regulatory factors, and Perion disclaims any obligation to update these statements - The press release contains forward-looking statements identified by words such as 'will,' 'believe,' 'expect,' 'intend,' 'plan,' 'should,' 'estimate' and similar expressions[23] - Such statements are subject to risks and uncertainties, including failure to realize anticipated benefits of acquisitions, integration risks, market changes, competitive pressures, regulatory changes, data breaches, and inability to meet efficiency objectives[23] - Perion does not assume any obligation to update these forward-looking statements[23] Contact Information Investor relations contact information for Perion Network Ltd. is provided for inquiries - Contact for investor relations: Dudi Musler, VP of Investor Relations[24] - Email: dudim@perion.com, Phone: +972 (54) 7876785[24] Consolidated Financial Statements Consolidated Statements of Operations The Consolidated Statements of Operations detail Perion's revenues, costs, and expenses, leading to net income for Q4 and full-year 2022 and 2021, showing significant growth in both Display and Search Advertising revenue and a substantial increase in net income Consolidated Statements of Operations (in thousands) | Metric | Q4 2022 (Thousands) | Q4 2021 (Thousands) | FY 2022 (Thousands) | FY 2021 (Thousands) | | :-------------------- | :------------------ | :------------------ | :------------------ | :------------------ | | Display Advertising Revenue | $123,757 | $100,177 | $360,690 | $265,323 | | Search Advertising Revenue | $85,913 | $57,798 | $279,566 | $213,175 | | Total Revenue | $209,670 | $157,975 | $640,256 | $478,498 | | Total Costs and Expenses | $168,482 | $137,180 | $531,094 | $432,602 | | Income from Operations | $41,188 | $20,795 | $109,162 | $45,896 | | Net Income | $38,677 | $17,695 | $99,225 | $38,706 | | Diluted EPS | $0.79 | $0.44 | $2.06 | $1.02 | Condensed Consolidated Balance Sheets The Condensed Consolidated Balance Sheets as of December 31, 2022, and 2021, show an increase in total assets, primarily driven by higher cash and cash equivalents, short-term bank deposits, and accounts receivable, alongside an increase in total liabilities and shareholders' equity Condensed Consolidated Balance Sheets (in thousands) | Metric | Dec 31, 2022 (Thousands) | Dec 31, 2021 (Thousands) | | :-------------------- | :----------------------- | :----------------------- | | Total Current Assets | $603,458 | $446,171 | | Total Long-Term Assets | $266,760 | $267,061 | | Total Assets | $870,218 | $713,232 | | Total Current Liabilities | $234,608 | $193,707 | | Total Long-Term Liabilities | $52,476 | $52,565 | | Total Liabilities | $287,084 | $246,272 | | Total Shareholders' Equity | $583,134 | $466,960 | Condensed Consolidated Statements of Cash Flows The Condensed Consolidated Statements of Cash Flows highlight a substantial increase in net cash provided by operating activities for both Q4 and full-year 2022, while investing activities show a net cash outflow, and financing activities resulted in a net cash outflow for the full year 2022 Condensed Consolidated Statements of Cash Flows (in thousands) | Metric | Q4 2022 (Thousands) | Q4 2021 (Thousands) | FY 2022 (Thousands) | FY 2021 (Thousands) | | :-------------------- | :------------------ | :------------------ | :------------------ | :------------------ | | Net cash provided by operating activities | $38,171 | $28,836 | $122,119 | $71,106 | | Net cash used in investing activities | $(34,667) | $(192,237) | $(46,816) | $(243,470) | | Net cash provided by (used in) financing activities | $1,392 | $171,487 | $(3,258) | $229,054 | | Net increase in cash and cash equivalents and restricted cash | $5,124 | $8,102 | $71,986 | $56,657 | Reconciliation of GAAP to Non-GAAP Results This section provides a detailed reconciliation of GAAP Net Income to Non-GAAP Net Income and Adjusted EBITDA for Q4 and full-year 2022 and 2021, outlining specific adjustments for stock-based compensation, amortization of acquired intangibles, M&A related expenses, and other non-recurring items Reconciliation of GAAP to Non-GAAP Results (in thousands) | Metric | Q4 2022 (Thousands) | Q4 2021 (Thousands) | FY 2022 (Thousands) | FY 2021 (Thousands) | | :-------------------- | :------------------ | :------------------ | :------------------ | :------------------ | | GAAP Net Income | $38,677 | $17,695 | $99,225 | $38,706 | | Stock-based compensation | $3,205 | $3,252 | $11,570 | $6,985 | | Amortization of acquired intangible assets | $2,988 | $2,807 | $11,884 | $6,875 | | Non-GAAP Net Income | $44,651 | $25,288 | $119,795 | $59,987 | | Adjusted EBITDA | $48,234 | $28,946 | $132,372 | $69,606 | | Non-GAAP diluted earnings per share | $0.90 | $0.62 | $2.47 | $1.57 |