Perion(PERI) - 2023 Q3 - Quarterly Report

Q2 2023 Earnings Release Overview Perion reported robust Q2 2023 results with significant revenue and Adjusted EBITDA growth, driven by strategic diversification and leading to an upward revision of annual guidance Q2 2023 Performance Summary Perion reported strong second-quarter 2023 results, demonstrating consistent outperformance with significant year-over-year growth in revenue and Adjusted EBITDA, driven by a strategic focus on profitability, efficiency, innovation, and diversification in digital advertising - Perion delivered strong results with a 22% year-over-year increase in revenue and 45% growth in Adjusted EBITDA[1][2] - The company's performance is attributed to focusing on profitability, margin expansion, efficiency, innovation, and a diversification strategy powered by technology investment[2] Q2 2023 Business Highlights Key business segments experienced substantial year-over-year growth in Q2 2023, with CTV revenue more than doubling, Retail Media and SORT® showing strong double-digit increases, and Search Advertising expanding its reach through increased daily searches and publisher numbers Q2 2023 Business Segment Growth | Metric | Q2 2023 Growth (YoY) | % of Display Ad Revenue (Q2 2023) | % of Display Ad Revenue (Q2 2022) | | :-------------------------- | :------------------- | :-------------------------------- | :-------------------------------- | | CTV revenue | +104% | 7% | 4% | | Retail Media revenue | +63% | 10% | 8% | | Video revenue | +14% | 41% | 44% | | Average Daily Searches | +68% | N/A | N/A | | Search Advertising publishers | +28% | N/A | N/A | | SORT® revenue | +84% | 21% | 14% | - The methodology for measuring CTV activity changed from campaigns to channels, with the growth trend remaining consistent under both approaches[4] Q2 2023 Financial Highlights (Summary Table) Perion's Q2 2023 financial performance demonstrated robust growth across key metrics, including total revenue, Contribution Ex-TAC, Non-GAAP Net Income, and Adjusted EBITDA, both for the quarter and the six months ended June 30, 2023 Q2 2023 and Six-Month Financial Performance Summary | Metric (in millions, except per share data) | Three months ended June 30, 2023 | Three months ended June 30, 2022 | % Change (YoY) | Six months ended June 30, 2023 | Six months ended June 30, 2022 | % Change (YoY) | | :---------------------------------------- | :------------------------------- | :------------------------------- | :------------- | :----------------------------- | :----------------------------- | :------------- | | Display Advertising Revenue | $99.4 | $81.6 | +22% | $179.3 | $150.2 | +19% | | Search Advertising Revenue | $79.1 | $65.1 | +21% | $144.4 | $121.8 | +19% | | Total Revenue | $178.5 | $146.7 | +22% | $323.6 | $272.0 | +19% | | Contribution Ex-TAC | $77.0 | $60.7 | +27% | $142.3 | $115.0 | +24% | | GAAP Net Income | $21.4 | $19.5 | +10% | $45.2 | $35.0 | +29% | | Non-GAAP Net Income | $42.1 | $24.5 | +72% | $72.0 | $45.2 | +59% | | Adjusted EBITDA | $41.2 | $28.5 | +45% | $72.5 | $51.1 | +42% | | Adjusted EBITDA to Contribution Ex-TAC | 54% | 47% | +7pp | 51% | 44% | +7pp | | Net Cash Provided by Operating Activities | $47.4 | $25.7 | +84% | $65.2 | $49.3 | +32% | | GAAP Diluted EPS | $0.43 | $0.41 | +5% | $0.91 | $0.74 | +23% | | Non-GAAP Diluted EPS | $0.84 | $0.51 | +65% | $1.45 | $0.95 | +53% | 2023 Annual Guidance Update Perion raised its annual revenue and Adjusted EBITDA guidance for 2023, reflecting increased profitability and margin expansion, building on the strong performance achieved in the first half of the year 2023 Annual Guidance Comparison | Metric (in millions) | 2022 Actual | Prior 2023 Guidance | Current 2023 Guidance | YoY Growth % (Current Guidance Midpoint) | | :------------------- | :---------- | :------------------ | :-------------------- | :------------------------------------- | | Revenue | $640.3 | $725-$745 | $730-$750 | 16% | | Adjusted EBITDA | $132.4 | $155+ | $167+ | 26% | | Adjusted EBITDA to Revenue | 21% | 21% | 23% | N/A | | Adjusted EBITDA to Contribution Ex-TAC | 49% | 50% | 54% | N/A | - The company does not provide an outlook for GAAP Income from operations or a reconciliation of Adjusted EBITDA guidance to GAAP Income from operations due to the variability and complexity of certain reconciling items, such as stock-based compensation and amortization from future acquisitions[9] Detailed Financial Performance (Q2 2023) This section provides an in-depth analysis of Perion's Q2 2023 financial results, detailing revenue growth drivers, margin expansion, profitability metrics, and cash flow performance Revenue Breakdown and Growth Drivers Total revenue increased by 22% year-over-year, driven by strong growth in both Display Advertising (22% increase, primarily from CTV and video) and Search Advertising (21% increase, fueled by higher average daily searches and publisher expansion) - Total Revenue increased by 22% to $178.5 million in Q2 2023 from $146.7 million in Q2 2022[10] - Display Advertising revenue increased 22% YoY, accounting for 56% of total revenue, primarily due to a 14% YoY increase in video revenue ($40.9 million) and a 104% YoY increase in CTV revenue ($7.2 million)[10] - Search Advertising revenue increased 21% YoY, accounting for 44% of total revenue, driven by a 68% increase in Average Daily Searches and a 28% increase in the number of publishers, with RPM also gradually increasing QoQ[10] Traffic Acquisition Costs and Margin Expansion Traffic Acquisition Costs (TAC) as a percentage of revenue decreased, indicating margin expansion, primarily due to an optimized product mix and enhanced media buying strategies leveraging data and buying power Traffic Acquisition Costs (TAC) Overview | Metric | Q2 2023 (in millions) | Q2 2022 (in millions) | | :----- | :-------------------- | :-------------------- | | TAC | $101.5 | $86.0 | | TAC as % of Revenue | 57% | 59% | - The margin expansion was primarily due to an improved product mix and media buying optimization, enabled by leveraging data and buying power[11] GAAP and Non-GAAP Profitability GAAP Net Income increased by 10% year-over-year, influenced by a significant fair-value adjustment, while Non-GAAP Net Income and Adjusted EBITDA saw substantial increases of 72% and 45% respectively, highlighting strong operational performance Q2 2023 Profitability Metrics | Metric (in millions) | Q2 2023 | Q2 2022 | YoY Change | | :------------------- | :------ | :------ | :--------- | | GAAP Net Income | $21.4 | $19.5 | +10% | | Non-GAAP Net Income | $42.1 | $24.5 | +72% | | Adjusted EBITDA | $41.2 | $28.5 | +45% | | Adjusted EBITDA as % of Revenue | 23% | 19% | - GAAP net income in Q2 2023 includes a $14.6 million fair-value adjustment of contingent consideration payable for the Vidazoo acquisition due to overachievement and an amendment to the share purchase agreement[12] Cash Flow and Net Cash Position Net cash provided by operating activities significantly increased by 84% year-over-year in Q2 2023, with the company's overall net cash position growing to $483.3 million by quarter-end Net Cash Provided by Operating Activities | Metric (in millions) | Q2 2023 | Q2 2022 | YoY Change | | :------------------- | :------ | :------ | :--------- | | Net Cash Provided by Operating Activities | $47.4 | $25.7 | +84% | Cash and Equivalents Position | Metric (in millions) | June 30, 2023 | December 31, 2022 | | :------------------- | :------------ | :---------------- | | Cash and cash equivalents, short-term bank deposits and marketable securities | $483.3 | $429.6 | Company Overview and Financial Disclosures This section provides an overview of Perion's business, defines its non-GAAP financial measures, and includes important disclaimers regarding forward-looking statements Company Profile Perion Network Ltd. is a global multi-channel advertising technology company providing synergistic solutions across search, social, display, video, and CTV, integrated through its intelligent HUB (iHUB) for brands and publishers - Perion is a global multi-channel advertising technology company delivering synergistic solutions across search advertising, social media, display, video, and CTV advertising[18] - These channels converge at Perion's intelligent HUB (iHUB), which connects demand and supply assets, providing significant benefits to brands and publishers[18] Explanation of Non-GAAP Financial Measures This section defines Perion's non-GAAP financial measures, including Contribution Ex-TAC, Adjusted EBITDA, Non-GAAP net income, and Non-GAAP earnings per share, explaining adjustments and their utility for assessing ongoing business performance - Non-GAAP financial measures include Contribution Ex-TAC, Adjusted EBITDA, Non-GAAP net income, and Non-GAAP earning per share, which are GAAP measures adjusted to exclude certain items[19] - Contribution Ex-TAC is revenue reduced by traffic acquisition costs and media buy, reflecting core business performance without direct pass-through costs[20] - Adjusted EBITDA, Non-GAAP net income, and Non-GAAP EPS exclude various non-cash and non-core items such as stock-based compensation, amortization of acquired intangibles, and changes in fair value of contingent consideration, to provide a clearer view of operational results[21][22][23] Forward-Looking Statements Disclaimer This section provides a standard disclaimer regarding forward-looking statements, emphasizing that actual results may differ materially from projections due to various risks and uncertainties, including those related to acquisitions, market dynamics, competition, and regulatory changes - The press release contains forward-looking statements subject to risks and uncertainties, and actual results, performance, or achievements may differ materially[25] - Factors that could cause differences include the failure to realize anticipated benefits of acquisitions, integration risks, diversion of resources, potential litigation, intense market changes, loss of key customers, competitive pressures, and changes in laws and regulations[25] Investor Relations Contact Contact information for Perion Network Ltd.'s Investor Relations department is provided for inquiries - Investor Relations contact: Dudi Musler, VP of Investor Relations, dudim@perion.com, +972 (54) 7876785[26] Consolidated Financial Statements This section presents Perion's official consolidated statements, including operations, balance sheets, and cash flows, for the reported periods Consolidated Statements of Operations The consolidated statements of operations detail Perion's revenues, costs, and expenses, leading to net income for the three and six months ended June 30, 2023 and 2022, showing overall growth in total revenue and net income Consolidated Statements of Operations (in thousands) | Metric (in thousands) | Three months ended June 30, 2023 | Three months ended June 30, 2022 | Six months ended June 30, 2023 | Six months ended June 30, 2022 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total Revenue | $178,470 | $146,656 | $323,620 | $271,971 | | Income from Operations | $19,886 | $21,872 | $44,390 | $38,378 | | Net Income | $21,406 | $19,500 | $45,191 | $34,966 | | Diluted EPS | $0.43 | $0.41 | $0.91 | $0.74 | Condensed Consolidated Balance Sheets The condensed consolidated balance sheets present Perion's financial position, including assets, liabilities, and shareholders' equity, as of June 30, 2023, and December 31, 2022, indicating an increase in total assets and shareholders' equity Condensed Consolidated Balance Sheets (in thousands) | Metric (in thousands) | June 30, 2023 | December 31, 2022 | | :-------------------- | :------------ | :---------------- | | Total Current Assets | $644,314 | $603,458 | | Total Assets | $903,514 | $870,218 | | Total Current Liabilities | $250,731 | $234,608 | | Total Liabilities | $267,022 | $287,084 | | Total Shareholders' Equity | $636,492 | $583,134 | Condensed Consolidated Statements of Cash Flows The condensed consolidated statements of cash flows illustrate cash generated from operating, investing, and financing activities for the three and six months ended June 30, 2023 and 2022, highlighting strong operating cash flow and a net increase in cash and equivalents Condensed Consolidated Statements of Cash Flows (in thousands) | Metric (in thousands) | Three months ended June 30, 2023 | Three months ended June 30, 2022 | Six months ended June 30, 2023 | Six months ended June 30, 2022 | | :---------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $47,372 | $25,721 | $65,151 | $49,275 | | Net cash provided by (used in) investing activities | $4,994 | $(7,347) | $(44,446) | $(43,399) | | Net cash provided by (used in) financing activities | $125 | $(8,745) | $(11,068) | $(7,797) | | Net increase (decrease) in cash and cash equivalents and restricted cash | $52,499 | $9,482 | $9,722 | $(2,098) | Reconciliation of GAAP to Non-GAAP Results This section provides detailed reconciliations of GAAP financial measures to their corresponding non-GAAP counterparts, including Contribution Ex-TAC, Adjusted EBITDA, and Non-GAAP Net Income Contribution Ex-TAC Reconciliation This section reconciles total revenue to Contribution Ex-TAC by deducting traffic acquisition costs and media buy, providing a clearer view of revenue generated before direct pass-through costs Contribution Ex-TAC Reconciliation (in thousands) | Metric (in thousands) | Three months ended June 30, 2023 | Three months ended June 30, 2022 | Six months ended June 30, 2023 | Six months ended June 30, 2022 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total Revenue | $178,470 | $146,656 | $323,620 | $271,971 | | Traffic acquisition costs and media buy | $101,482 | $85,956 | $181,357 | $156,930 | | Contribution Ex-TAC | $76,988 | $60,700 | $142,263 | $115,041 | Adjusted EBITDA Reconciliation This section reconciles GAAP Income from Operations to Adjusted EBITDA by adding back non-cash and non-core expenses, including stock-based compensation, acquisition-related expenses, fair value changes, amortization, and depreciation Adjusted EBITDA Reconciliation (in thousands) | Metric (in thousands) | Three months ended June 30, 2023 | Three months ended June 30, 2022 | Six months ended June 30, 2023 | Six months ended June 30, 2022 | | :---------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | GAAP Income from Operations | $19,886 | $21,872 | $44,390 | $38,378 | | Stock-based compensation expenses | $3,100 | $2,701 | $6,502 | $5,129 | | Retention and other acquisition-related expenses | $250 | $679 | $257 | $1,230 | | Changes in fair value of contingent consideration | $14,602 | $- | $14,602 | $- | | Amortization of acquired intangible assets | $2,992 | $2,812 | $5,955 | $5,601 | | Depreciation | $413 | $396 | $811 | $792 | | Adjusted EBITDA | $41,243 | $28,460 | $72,517 | $51,130 | Non-GAAP Net Income and EPS Reconciliation This section reconciles GAAP Net Income to Non-GAAP Net Income and Diluted EPS by adjusting for various non-cash and non-recurring items, including stock-based compensation, amortization, acquisition expenses, fair value changes, and related tax effects Non-GAAP Net Income and EPS Reconciliation (in thousands, except per share data) | Metric (in thousands, except per share data) | Three months ended June 30, 2023 | Three months ended June 30, 2022 | Six months ended June 30, 2023 | Six months ended June 30, 2022 | | :----------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | GAAP Net Income | $21,406 | $19,500 | $45,191 | $34,966 | | Stock-based compensation expenses | $3,100 | $2,701 | $6,502 | $5,129 | | Amortization of acquired intangible assets | $2,992 | $2,812 | $5,955 | $5,601 | | Retention and other acquisition-related expenses | $250 | $679 | $257 | $1,230 | | Changes in fair value of contingent consideration | $14,602 | $- | $14,602 | $- | | Foreign exchange losses (gains) associated with ASC-842 | $(81) | $(548) | $(198) | $(745) | | Revaluation of acquisition-related contingent consideration | $147 | $129 | $292 | $261 | | Taxes on the above items | $(289) | $(771) | $(574) | $(1,212) | | Non-GAAP Net Income | $42,127 | $24,502 | $72,027 | $45,230 | | Non-GAAP diluted earnings per share | $0.84 | $0.51 | $1.45 | $0.95 |