Perion(PERI) - 2023 Q4 - Annual Report

Introduction Terms This section defines key terms, specifies currency references, and provides the NIS to USD exchange rate - The terms 'Perion,' 'Company,' 'we,' 'us,' or 'ours' refer to Perion Network Ltd. and its subsidiaries[18] - References to 'dollar' and '$' are to U.S. dollars, and 'NIS' are to New Israeli Shekels[18] Exchange Rate (December 31, 2023) | Currency | Rate | | :------- | :--- | | NIS to USD | 3.627 to 1.00 | Changes in Share Capital The company executed a 3-to-1 reverse share split in 2018, with all share data retroactively adjusted - A 3-to-1 reverse share split was executed on August 26, 2018, consolidating ordinary shares from NIS 0.01 to NIS 0.03 par value[20] - All share and option numbers in this Form 20-F have been retroactively adjusted to reflect the reverse share split[20] Cautionary Statement Regarding Forward-Looking Statements General Forward-Looking Statement Disclosure The report contains forward-looking statements subject to risks that may cause actual results to differ - The report contains forward-looking statements that involve known and unknown risks, uncertainties, and other factors[21] - Actual events or results may differ materially from current expectations, and the Company operates in a very competitive and rapidly changing environment[22][24] - The Company undertakes no obligation to update or revise any forward-looking statements, except as required by applicable law[22] Factors Influencing Estimates and Forward-Looking Statements This section details factors that could cause results to differ from projections, including reliance on Microsoft and industry risks - Heavy dependence on the Microsoft agreement for search advertising revenue, with any adverse change potentially affecting business, financial condition, and results of operations[26] - Competition in the search advertising market and reliance on third-party publishers for distribution pose risks to revenue[26] - Large internet and technology companies (Google, Meta, Apple, Amazon) significantly influence the digital advertising market, and their policy changes (e.g., phasing out third-party cookies) could harm the Company's operations[26] - The business model is evolving in a rapidly changing industry, making future performance difficult to predict and increasing revenue or profitability challenging[26] - Dependence on supply sources for advertising inventory and service providers for critical products/services, with potential for termination or unfavorable terms[26] - Risks related to data collection, use, and processing, including personal data, due to evolving data protection, privacy, and cybersecurity regulations, which could diminish solution value and lead to loss of customers, revenue, and profit[27][30] - Failure to innovate and provide high-quality advertising solutions, especially with AI advancements, could lead to loss of competitiveness[27] - Global economic and market conditions, including geopolitical risks and inflation, may materially adversely impact the Company[27] - Political, economic, and military instability in the Middle East, particularly in Israel, may impede operations and harm financial results[30] PART I Item 1. Identity of Directors, Senior Management and Advisers This item states that the information regarding the identity of directors, senior management, and advisers is not applicable - This item is marked as 'Not applicable'[37] Item 2. Offer Statistics and Expected Timetable This item states that the information regarding offer statistics and expected timetable is not applicable - This item is marked as 'Not applicable'[38] Item 3. Key Information This section outlines key company information, including financial data, capitalization, and comprehensive risk factors A. Selected Financial Data This sub-item is reserved and does not contain any selected financial data - This sub-item is marked as 'Reserved'[39] B. Capitalization and Indebtedness This sub-item states that information regarding capitalization and indebtedness is not applicable - This sub-item is marked as 'Not applicable'[40] C. Reasons for the Offer and Use of Proceeds This sub-item states that information regarding the reasons for the offer and use of proceeds is not applicable - This sub-item is marked as 'Not applicable'[41] D. Risk Factors This section details risks that could adversely affect Perion's business, categorized by business, financial, and operational areas - The Company is subject to various risks and uncertainties that could have a material adverse effect on its business, financial condition, cash flows, and results of operations[42] Risks Related to our Search Business The search business is highly dependent on Microsoft, facing risks from policy changes, competition, and platform restrictions - Perion's search advertising solution heavily relies on its agreement with Microsoft, which accounted for a significant portion of revenue[43] Microsoft Agreement Revenue Contribution | Year | % of Revenue | | :--- | :----------- | | 2021 | 37% | | 2022 | 35% | | 2023 | 34% | - Changes in Microsoft's advertising pricing and mechanisms led to a decline in search advertising activity and Revenue Per Thousand Impressions (RPM) in Q1 2024, with expected future adverse impacts[44][48] - The generation of search advertising revenue through publishers is subject to intense competition, and the loss of key publisher relationships could materially decline revenue[45][47] - Internet browser providers (Google, Microsoft, Apple, Mozilla) can restrict or limit the ability to offer or change search properties, significantly reducing revenue from search activity[51][52] - The shift from desktop to mobile internet usage (desktop share declined from 54.09% in 2016 to 43.72% in 2023, while mobile rose from 45.91% to 56.28%) poses a risk as a substantial part of search revenue is desktop-based[53] Risks Related to our Business and Industry Perion faces risks from customer relationships, tech giant dominance, industry evolution, and regulatory changes - Advertising customers (brands, agencies, DSPs, SSPs) can reduce or terminate business relationships at any time due to non-exclusive contracts, leading to potential revenue and profit decline[56][57] - Large internet and technology companies (Google, Meta, Apple, Amazon) dominate the digital advertising market, and their unilateral changes (e.g., phasing out third-party cookies in Chrome by Q3 2024) can significantly harm Perion's ability to operate[59][61][63] - The digital advertising industry's evolution and consolidation increase competition and may limit Perion's access to advertising inventory or force customers to use competitors' systems[64][65] - Perion's business depends on the continued growth of digital advertising demand and customer adoption of its solutions; a decrease could materially affect business and results of operation[67] - Reliance on diverse supply sources for advertising inventory and third-party service providers for critical products/services, with risks of termination, reduced access, or increased costs[70][71][72] - The advertising industry is highly competitive and dynamic, requiring continuous innovation and adaptation to new technologies, products, and solutions to remain competitive[77][78] - Increased availability of advertisement-blocking technologies could limit or block ad delivery, undermining business viability[81] - The business depends on collecting, using, and processing data, including personal data, and any limitations due to regulations could diminish solution value and cause loss of customers, revenue, and profit[82][83] - Evolving legal and regulatory frameworks around AI, including potential flaws, biases, ethical issues, and new laws (e.g., EU AI Act), could adversely affect Perion's business and increase competition[86][87][88][89][90][92] - Global economic and market conditions, including inflation, interest rates, geopolitical risks (e.g., Russia-Ukraine conflict), and natural disasters, may materially adversely impact the Company[100][101][102][104] Risks related to our Financial and Corporate Structure The company faces risks from personnel loss, acquisition integration, share price volatility, and regulatory compliance - Loss of senior management and other key personnel could adversely affect the execution of business strategy[106][107] - Intense competition for highly skilled technical and other personnel in Israel, the United States, and Canada may lead to failure in attracting, recruiting, retaining, and developing qualified employees, impacting business and financial results[108][109][110][111] - Acquisitions (e.g., Content IQ, Pub Ocean, Vidazoo, Hivestack) divert resources, management attention, and expose the company to unforeseen liabilities, integration challenges, and potential impairment charges for goodwill and intangible assets[112][113][114] - The market price for ordinary shares has fluctuated significantly (low of $21.58 to high of $41.85 between Jan 1, 2023, and March 27, 2024) and could continue to do so due to various factors, including operating results, management changes, and geopolitical events[116][119] - Future sales of ordinary shares by existing holders (e.g., from vested options/RSUs) could reduce the stock price[120][121] - The Company's share repurchase program (up to $75 million approved in Feb 2024) may not enhance long-term shareholder value and could diminish cash reserves[122][123] - Exchange rate fluctuations, particularly between USD, NIS, and CAD, can harm earnings and asset base; a 1% revaluation of NIS could impact income before taxes by approximately $0.4 million, and CAD by $0.1 million[124] - The Company does not intend to pay cash dividends in the foreseeable future, retaining earnings for growth and share repurchases, meaning long-term holders rely on share price appreciation for returns[125][126] - Compliance with extensive corporate governance and disclosure requirements (Sarbanes-Oxley, Nasdaq, Israeli laws) incurs significant legal, accounting, and management costs[127] - There is no assurance that the Company will not be a Passive Foreign Investment Company (PFIC) for U.S. federal income tax purposes in any taxable year, which could lead to adverse tax consequences for U.S. investors[129][130] - Provisions of Israeli law and the Company's articles of association (e.g., staggered board) may delay, prevent, or make an acquisition difficult, potentially depressing share price[135][136] - Failure to meet Nasdaq Global Select Market's continued listing requirements could result in delisting, negatively affecting share price and liquidity[137] - Dual listing on Nasdaq and TASE can result in price variations due to different currencies, trading times, and geopolitical events[138] - Increasing scrutiny on Environmental, Social, and Governance (ESG) policies could negatively affect share price or impose additional costs[139] - Cash, cash equivalents, marketable securities, and short-term deposits are subject to credit, liquidity, market, and interest rate risks, with potential losses from banking industry crises[140] Risks Related to Our Technological Environment The business is vulnerable to IT issues, cyber-attacks, fraudulent traffic, and reliance on third-party infrastructure - Information technology issues, data breaches, cyber-attacks, and insufficient cybersecurity pose significant risks, potentially leading to system downtimes, data compromise, legal claims, and reputational damage[141][143][144][145][146][147][148][150] - Failure to detect or prevent fraudulent, suspicious, or invalid traffic/engagement with ads, or malware intrusions, could lead to loss of advertiser confidence, reputational damage, and refund demands[151][152] - Inability to enhance platforms and solutions to keep pace with rapid technological and market developments could lead to loss of competitiveness and business growth[153] - Products may contain undetected errors, failures, or defects, especially upon introduction or new releases, resulting in product failures, lost revenue, and loss of market share[155][156] - Dependence on third-party service providers (internet, telecommunication, data center, cloud computing, hosting) means temporary failures or catastrophic interruptions would materially reduce revenue and damage reputation[157][158] - The introduction of new browsers and popular software products may materially adversely affect user engagement with search services, as users often replace existing search services with pre-installed or vendor-provided options[159] Risks Related to Data Protection Regulations The business is impacted by evolving data privacy laws, the deprecation of third-party cookies, and potential digital taxes - Perion's ability to collect, use, maintain, and process data (including personal data) is crucial but restricted by existing and new data protection, privacy, and cybersecurity laws globally (e.g., GDPR, U.K. GDPR, CCPA, Israeli Privacy Law, Canadian Privacy Law, ePD)[160][161][162] - Non-compliance with GDPR and U.K. GDPR can result in significant fines (up to EUR 20 million or 4% of annual global revenue)[163] - Quebec's Law 25 imposes strict controller requirements, enhanced consent, risk assessments, and data breach notifications, with potential for administrative fines and litigation[164] - U.S. state laws (e.g., CCPA, Virginia, Colorado, Connecticut, Utah) are expanding data privacy rights and obligations, increasing compliance costs and litigation risk[165] - The deprecation of third-party cookies by Google Chrome (phasing out by Q3 2024) necessitates a shift to alternative cookieless solutions, which may not provide the same targeting capabilities[172][173] - Cross-border data transfer restrictions (e.g., GDPR, U.K. GDPR, Quebec's Law 25) increase complexity and costs, potentially leading to enforcement actions[170][171] - Potential for states or countries to impose sales, use, or other taxes on digital advertising services, leading to substantial tax liabilities and decreased future sales revenue[177][178][179] - Inability to enforce non-competition and non-solicitation covenants in Israel, U.S., U.K., and Ukraine may allow competitors to benefit from former employees' expertise[180] Risks Related to our Intellectual Property Success depends on protecting proprietary technology, but protections may be inadequate and third-party IP claims pose a threat - Proprietary information, technology, and intellectual property may not be adequately protected and could be unlawfully copied, disclosed, or challenged by third parties[182][183][184] - Claims of misappropriation, infringement, or other violations of third-party intellectual property rights could require product redesigns, costly licenses, or engagement in expensive litigation[185][186][187] - Potential claims for remuneration or royalties for assigned 'service invention' rights by employees under Israeli and Canadian law could lead to litigation and adversely affect the business[188] - Use of open-source software tools may lead to intellectual property infringement claims, unintended obligations to disclose proprietary source code, or security risks, impairing product development and increasing costs[189][190][191][192][193] Risks Related to the Geographical Location of our Operations The business is reliant on the U.S. market and exposed to geopolitical instability in Israel, where its headquarters are located - The business relies significantly on the U.S. market, which accounted for approximately 86% of revenue in 2023; any adverse change in this market could materially affect results of operations[194] - Changes to fiscal and tax policies, including international tax guidelines like BEPS 2.0 (Pillar Two's 15% minimum tax), could materially affect tax expenses and results of operations[195][196][197] - International operations involve special risks, including potential loss of IP, foreign exchange fluctuations, compliance costs, trade restrictions, and geopolitical events[198][199] - Political, economic, and military instability in the Middle East, specifically in Israel (where headquarters and significant R&D are located), may impede operations and harm financial results, including disruptions from the war against Hamas[199][200][201][202][203][204][205] - Natural disasters, political events, war, terrorism, and pandemics could disrupt business and adversely affect results of operations[206][207] - Investors may face difficulties enforcing U.S. judgments against the Company, its executive officers, or directors in Israel, or asserting U.S. securities laws claims in Israeli courts[208][209][210][211] - Tax benefits available for activities in Israel require meeting several conditions and may be terminated or reduced, increasing costs and taxes[212][213][216] Item 4. Information on the Company This section provides an overview of Perion's history, business operations, organizational structure, and properties A. History and Development of the Company Perion was incorporated in 1999 in Israel and has grown through strategic acquisitions, including Hivestack in 2023 - Perion Network Ltd. was incorporated in Israel in November 1999 as Verticon Ltd., later changing its name to IncrediMail Ltd. (2000) and Perion Network Ltd. (2011)[214] - The company completed its U.S. IPO on February 3, 2006, and its ordinary shares began trading on the TASE on November 20, 2007[215] - Recent acquisitions include Content IQ (January 2020), Pub Ocean (July 2020), Vidazoo (October 2021), and Hivestack (December 2023)[217] B. Business Overview Perion is a global digital advertising technology leader with a diversified strategy focused on innovation and expansion - Perion is a global technology leader in connecting advertisers to consumers across all major digital advertising channels[219] Digital Advertising Market Size | Year | Total Addressable Market (Global) | | :--- | :-------------------------------- | | 2023 | $611 billion | | 2027 | $920 billion (projected) | - Key industry trends include the shift to CTV ad spending (projected to grow 72.4% to $42.4 billion in U.S. by 2027), growth in retail media networks (projected to reach $110 billion in U.S. by 2027), and advancements in AI for targeting and optimization[223][225][234][253] - Perion's strengths include business diversification across channels (search, display, video, CTV, DOOH, digital audio), a strong focus on technology and innovation (R&D in Israel, Europe, Canada), market agility to adapt to spending shifts, and efficient operations leveraging its proprietary iHUB[238][239][241][242][243][245][246][247] - Growth strategy involves channel diversification (CTV, high-impact display, video, search, DOOH, digital audio), investments in commerce solutions and retail media, technological innovation (SORT®, WAVE), and inorganic growth through acquisitions (Vidazoo, Hivestack)[249][250][251][252][253][254][255][257][258][259][260][261] - Perion's search advertising revenue increased by 23% year-over-year to $345 million in 2023, driven by a 57% increase in average daily searches (29.1 million in 2023)[266] - Retail Media revenue grew by 114% year-over-year to nearly $50 million in 2023, making it a top growth driver[282] - CTV business grew by 56% year-over-year in 2023, representing 8% of total display advertising revenue[276] - Introduced WAVE, a generative AI-powered dynamic audio solution, and SORT®, a proprietary cookieless targeting technology that uses AI to identify user intent without personal data, outperforming third-party cookies in tests[288][290][291][292][300][305][306] - Acquisition of Hivestack in December 2023 extended programmatic DOOH advertising capabilities into over 32 countries[283][284][285][286] - Perion faces intense competition from large digital media companies (Google, Meta, Amazon, Microsoft) and niche players, with risks of new AI platforms increasing competition and lowering barriers to entry[308][309][310][311][312] - The company's proprietary technology, including platforms and algorithms, is protected by contractual restrictions, trade secrets, trademarks, copyrights, and patents[314] - Perion is subject to evolving global data privacy laws (GDPR, CCPA, Israeli Privacy Law, Canadian Privacy Law, ePD) and industry self-regulation, requiring continuous adaptation of privacy policies and practices[318][321][322][323][324] - Recent acquisitions include Hivestack (Dec 2023 for $100M cash + up to $25M earn-out) and Vidazoo (Oct 2021 for $35M cash + up to $58.5M earn-out, with an additional $10.55M overachievement earnout in 2023)[325][327][328][329][330] C. Organizational Structure Perion Network Ltd is an Israeli company with several wholly-owned subsidiaries in Israel, the U.S., and Canada - Perion Network Ltd. is incorporated under the laws of the State of Israel[330] Wholly-Owned Subsidiaries | Name of Subsidiary | Place of Incorporation | | :---------------------- | :--------------------- | | Codefuel Ltd. | Israel | | IncrediMail, Inc. | Delaware | | Intercept Interactive, Inc. | New York | | Vidazoo Ltd. | Israel | | Content IQ LLC | New York | | Hivestack Technologies Inc. | Canada | D. Property, Plants and Equipment The company leases its main offices in Israel, New York, and Canada, with all leases expiring in 2025 - Headquarters are in Holon, Israel, with a lease expiring in January 2025 (approx. 36,113 sq ft)[332] - Undertone's offices are in New York (approx. 9,500 sq ft, lease expires 2025)[333] - Hivestack's offices are in Montreal, Canada (approx. 4,000 sq ft, lease expires 2025)[333] Item 4A. Unresolved Staff Comments This item indicates that there are no unresolved staff comments - This item is marked as 'None'[336] Item 5. Operating and Financial Review and Prospects This section discusses Perion's financial condition, results of operations, liquidity, and critical accounting estimates A. Operating Results Total revenue grew 16% to $743.2 million in 2023, driven by strong performance in both Display and Search Advertising - Perion is a global multi-channel advertising technology company operating in one segment: High Impact Advertising solutions[339][640][793] - Revenue is generated primarily from Display Advertising (high-impact ad formats across various channels) and Search Advertising (service agreements with search partners, revenue share basis)[340][341][342][671][672] Revenue Breakdown (2022 vs. 2023) | Category | 2022 Amount ($K) | 2022 % of Revenue | 2023 Amount ($K) | 2023 % of Revenue | Change (%) | | :----------------- | :--------------- | :---------------- | :--------------- | :---------------- | :--------- | | Display Advertising | 360,690 | 56% | 398,244 | 54% | +10% | | Search Advertising | 279,566 | 44% | 344,911 | 46% | +23% | | Total Revenue | 640,256 | 100% | 743,155 | 100% | +16% | - Display Advertising growth was driven by a 114% increase in Retail Media revenue to $49.7 million and a 56% increase in CTV to $33.5 million, partially offset by a 7% decrease in Video revenue[356] - Search Advertising growth was primarily due to a 57% increase in Average Daily Searches and an 18% increase in the average annual number of publishers[357] Key Financial Performance (2022 vs. 2023) | Metric | 2022 Amount ($K) | 2023 Amount ($K) | Change (%) | | :-------------------------------------- | :--------------- | :--------------- | :--------- | | Cost of revenue | 30,404 | 37,830 | +24% | | Traffic acquisition costs and media buy | 372,601 | 432,943 | +16% | | Research and development | 34,424 | 33,066 | -4% | | Selling and marketing | 56,014 | 57,991 | +4% | | General and administrative | 27,629 | 31,799 | +15% | | Change in fair value of contingent consideration | (3,816) | 18,694 | N/A | | Depreciation and amortization | 13,838 | 14,092 | +2% | | Income from Operations | 109,162 | 116,740 | +7% | | Financial income, net | 4,502 | 20,951 | +365% | | Income before Taxes on income | 113,664 | 137,691 | +21% | | Taxes on income | 14,439 | 20,278 | +40% | | Net Income | 99,225 | 117,413 | +18% | | Net Earnings per Share - Basic | $2.21 | $2.49 | +12.7% | | Net Earnings per Share - Diluted | $2.06 | $2.34 | +13.6% | - Financial income, net, increased significantly by $16.5 million, primarily due to higher interest income from increased cash balances invested in bank deposits and marketable securities[365] - Taxes on income increased due to higher pretax income and a one-time recognition of non-deductible earnout contingent expenses[366] B. Liquidity And Capital Resources Liquid assets grew to $472.7 million, supported by strong operating cash flow, despite acquisition-related outflows Cash and Liquid Assets (2022 vs. 2023) | Asset Category | December 31, 2022 ($K) | December 31, 2023 ($K) | Change ($K) | | :---------------------------------------------- | :--------------------- | :--------------------- | :---------- | | Cash, cash equivalents, short-term deposits, and marketable securities | 429,600 | 472,700 | +43,100 | - The increase in liquid assets was primarily due to $155.5 million net cash provided by operating activities, offset by $101.9 million cash paid for the Hivestack acquisition and $13.3 million for Vidazoo's contingent consideration[368] - In February 2024, the board approved a share repurchase plan of up to $75 million[368] - Management believes current working capital and cash flow from operations are sufficient for at least the next twelve months[369] Net Cash Flows (2022 vs. 2023) | Activity | 2022 ($K) | 2023 ($K) | | :--------------------------------- | :-------- | :-------- | | Net cash provided by operating activities | 122,119 | 155,463 | | Net cash used in investing activities | (46,816) | (133,354) | | Net cash used in financing activities | (3,258) | (10,823) | | Effect of exchange rate changes | (59) | 141 | | Net increase in cash and cash equivalents and restricted cash | 71,986 | 11,427 | - Net cash provided by operating activities in 2023 was $155.5 million, driven by net income and non-cash expenses[371] - Net cash used in investing activities in 2023 was $133.4 million, primarily for the Hivestack acquisition and marketable securities purchases[373] - Net cash used in financing activities in 2023 was $10.8 million, mainly due to contingent consideration payments[375] - The Company does not have off-balance sheet arrangements that are material to its financial condition[376] C. Research, Development, Patents and Licenses, Etc. R&D is conducted primarily in Israel, Europe, and Canada, focusing on innovation and platform automation - R&D activities are primarily conducted in Israel, Europe, and Canada[377] R&D Expenses and Headcount | Year | R&D Expenses ($K) | R&D Employees | | :--- | :---------------- | :------------ | | 2022 | 34,400 | 121 | | 2023 | 33,100 | 157 | - Focus in 2023 was on adapting, extending, and maintaining compatibility with evolving business landscapes and platform automation[378] D. Trend Information Perion is adapting to trends like the shift to CTV, growth in retail media, and the rise of cookieless solutions and generative AI - Perion focuses on unique, high-impact ad formats to increase effectiveness and value to advertisers, combating consumer ad blindness[379] - Macroeconomic environment in 2023 caused advertisers to shift budgets from standard ad units to direct response platforms like search advertising and high-impact ad units (video, display, CTV, retail)[380] - Retail media is a fast-growing market segment, expected to increase from $46.7 billion in 2023 to $110.4 billion by 2027 in the U.S., with Perion offering unique 'Ads-as-a-platform' solutions[381] - Increased consumer awareness of online privacy is driving adoption of Perion's cookieless SORT® solution, with over 80% of eligible campaigns adopting it in Q4 2023[382] - A shift from linear TV to digital Connected TV (CTV) is observed, with CTV ad spending projected to increase from $24.6 billion in 2023 to $42.4 billion in 2027, and Perion's CTV business growing 56% YoY in 2023[383] - The digital advertising environment's complexity drives advertisers to seek comprehensive, holistic, clean, safe, and transparent solutions, which Perion aims to provide[384] - Search monetization focus is shifting from downloadable desktop software to other search assets due to the trend of consumer consumption moving to mobile platforms[385] - Generative AI (e.g., ChatGPT, Gemini) is shaking up the internet and search advertising, potentially increasing competition in the ad tech industry[386][387] - Browser companies continue to institute policy changes and technologies that make it difficult to change browser settings, including default search, impacting Perion's monetization model[388] E. Critical Accounting Estimates This section outlines key accounting estimates requiring significant judgment, including revenue recognition and business combinations - Critical accounting estimates include revenue recognition (gross vs. net presentation), stock-based compensation, income taxes, business combinations, and impairment of long-lived assets[390][392] - Revenue recognition involves significant judgment in determining whether to present on a gross or net basis, based on control over the promised good or service[392][675][676] - Stock-based compensation expense is measured based on estimated fair values of awards, with total expense of $15.6 million in 2023[393][395] - Income taxes require significant judgment in evaluating uncertain tax positions and determining the provision for income taxes, including valuation allowances for deferred tax assets[397][398][399] - Business combinations are accounted for using the acquisition method, requiring significant estimates and assumptions for fair value allocation of acquired tangible and intangible assets and liabilities[400][401] - Goodwill and other intangible assets are tested for impairment annually or more frequently if indicators arise; no impairment losses were recorded in 2022 or 2023[402][403][404][665][666][741] - Impairment of long-lived assets (property, equipment, ROU assets, amortizable intangibles) is assessed periodically; no impairment charges were recorded in 2022 or 2023[405][407][662][664] - The Company adopted ASU 2021-08 (Business Combinations - Contract Assets/Liabilities) on January 1, 2023, with an immaterial impact[712] - The Company is evaluating the impact of ASU 2023-09 (Income Tax Disclosures) and ASU 2023-07 (Segment Reporting Disclosures), effective for fiscal years beginning after December 15, 2024 and 2023 respectively[713][714] Item 6. Directors, Senior Management and Employees This section details Perion's leadership, compensation, board practices, and employee information A. Directors and Senior Management The board consists of seven members, with Tal Jacobson promoted to CEO in August 2023 Directors and Senior Management (as of March 27, 2024) | Name | Age | Position | | :------------ | :-- | :------------------------------------- | | Eyal Kaplan | 64 | Chairman of the Board of Directors | | Tal Jacobson | 49 | Chief Executive Officer; Director | | Maoz Sigron | 46 | Chief Financial Officer | | Michal Drayman | 51 | Director | | Amir Guy | 54 | Director | | Rami Schwartz | 66 | Director | | Michael Vorhaus | 66 | Director | | Joy Marcus | 62 | Director | | Daniel E. Aks | 64 | President, Undertone | - Tal Jacobson was promoted to Chief Executive Officer on August 1, 2023, replacing Doron Gerstel[106][412] - The board of directors consists of seven directors, elected in three staggered classes for three-year terms[444] - The board has determined that at least one director requires financial and accounting expertise, with Ms. Michal Drayman identified as having such expertise[449] B. Compensation Aggregate direct compensation for directors and officers was $12.8 million in 2023, including salary, bonuses, and equity grants Aggregate Direct Compensation for Directors and Officers (2023) | Category | Amount ($M) | | :------------------------------------- | :---------- | | Total Direct Compensation (13 persons) | 12.8 | | Pension/Retirement Benefits | 0.5 | - Officers were granted 170,463 RSUs (vesting over three years) and 160,000 PSUs (linked to financial KPIs) in 2023[425] - Non-executive directors received annual RSU grants with values ranging from $97,500 to $110,000 based on committee roles[426][428] - Chairman Eyal Kaplan's 2023 compensation was $125,000, plus RSU grants with a value of up to $200,000[427][429] Compensation of Five Most Highly Compensated Office Holders (2023, $K) | Name and Principal Position | Salary Cost | Bonus | Equity-Based Compensation | Total | | :--------------------------------- | :---------- | :---- | :------------------------ | :---- | | Tal Jacobson, Chief Executive Officer | 651 | 853 | 1,916 | 3,420 | | Doron Gerstel, Former Chief Executive Officer | 166 | 822 | 1,577 | 2,565 | | Maoz Sigron, Chief Financial Officer | 416 | 616 | 691 | 1,723 | | Daniel E. Aks, President, Undertone Business Unit | 585 | 228 | 546 | 1,359 | | Gal Dagan, Co-Founder and Former VP R&D, Vidazoo Business Unit | 303 | - | 675 | 978 | - CEO Tal Jacobson's annual base salary is NIS 1,440,000 (approx. $397,022), with a target annual cash bonus of up to 100% of salary and grants of 90,000 RSUs and 90,000 PSUs[436][437] C. Board Practices Perion follows a hybrid corporate governance model, complying with both Israeli law and Nasdaq independence standards - Perion follows a hybrid corporate governance model, adhering to both Israeli Companies Law and Nasdaq Listing Rules[441] - The board of directors consists of seven members, elected in three staggered classes for three-year terms, and is responsible for establishing policies, overseeing the CEO, and approving financial statements[443][444] - Perion has 'opted out' of Israeli Companies Law requirements for external directors, instead complying with Nasdaq's independence requirements for its audit, compensation, and nominating and governance committees[452][453] - The audit committee (Michal Drayman, Joy Marcus, Rami Schwartz) oversees accounting, auditing, financial reporting, and auditor independence[455][456][457] - The compensation committee (Joy Marcus, Michael Vorhaus, Amir Guy) reviews and approves executive and director compensation, including a compensation policy requiring shareholder approval[458][459] - An investment committee (Eyal Kaplan, Michal Drayman, Amir Guy) is responsible for formulating and monitoring the Company's overall investment policies[460] - A nominating and governance committee (Michael Vorhaus, Eyal Kaplan, Joy Marcus) recommends director candidates and oversees corporate governance[461] - An internal auditor (Ms. Linur Dloomy, CPA) is appointed to ensure compliance with law and proper business procedures[462] D. Employees As of December 31, 2023, Perion had 561 employees globally, with a significant presence in Israel, the U.S., and Canada Employee Breakdown by Department (2021-2023) | Department | 2021 | 2022 | 2023 | | :------------------------ | :--- | :--- | :--- | | Cost of sales | 83 | 91 | 129 | | Research and development | 115 | 121 | 158 | | Selling and marketing | 154 | 150 | 170 | | General and administration | 68 | 78 | 104 | | Total | 420 | 440 | 561 | - As of December 31, 2023, Perion had 561 employees globally, with significant presence in Israel (235), the U.S. (173), and Canada (99), plus 112 contractors[463] - Israeli employees are subject to labor statutes, national labor court rulings, and collective bargaining agreements covering minimum wage, severance, and benefits[464][465][466] - U.S. subsidiaries offer a 401(k) Plan with employer matching contributions and healthcare/life insurance[467] - Canadian subsidiary offers a Registered Retirement Savings Plan with employer matching and group insurance[468] E. Share Ownership Directors and officers as a group beneficially owned 0.76% of shares, with three institutional shareholders each holding over 5% Beneficial Ownership of Directors and Executive Officers (as of March 27, 2024) | Name | Number of Ordinary Shares Beneficially Owned | Percentage of Ordinary Shares Outstanding | | :--------------------------------- | :------------------------------------------- | :---------------------------------------- | | All directors and officers as a group (10 persons) | 368,279 | 0.76% | Major Shareholders (5% or more, as of March 27, 2024) | Name of Beneficial Owner | Shares Beneficially Owned | Percentage | | :--------------------------------------- | :------------------------ | :--------- | | Harel Insurance Investments & Financial Services Ltd. | 4,267,312 | 8.81% | | The Phoenix Holdings Ltd. | 2,888,735 | 5.97% | | Clal Insurance Enterprises Holdings Ltd. | 2,597,939 | 5.37% | - The 2003 Equity Incentive Plan was extended until December 9, 2024, allowing grants of options, restricted shares, and RSUs[473] - As of March 27, 2024, 2,804,227 RSUs and options were outstanding under the Incentive Plan[474] - Israeli employees and directors may receive beneficial tax treatment under Section 102 of the Israeli Income Tax Ordinance, with the company electing the 'Capital Gains Route' for awards[475] F. Disclosure of a Registrant's Action to Recover Erroneously Awarded Compensation This item states that there are no disclosures regarding actions to recover erroneously awarded compensation - This item is marked as 'None'[478] Item 7. Major Shareholders and Related Party Transactions This section details major shareholders and the company's policy for transactions with related parties A. Major Shareholders Three institutional investors each beneficially owned over 5% of Perion's outstanding shares as of March 27, 2024 Major Shareholders (5% or more, as of March 27, 2024) | Name of Beneficial Owner | Shares Beneficially Owned | Percentage | | :--------------------------------------- | :------------------------ | :--------- | | Harel Insurance Investments & Financial Services Ltd. | 4,267,312 | 8.81% | | The Phoenix Holdings Ltd. | 2,888,735 | 5.97% | | Clal Insurance Enterprises Holdings Ltd. | 2,597,939 | 5.37% | - Percentage ownership is based on 48,422,123 ordinary shares outstanding as of March 27, 2024, excluding 115,339 treasury shares[482] - Significant changes in major shareholder ownership percentages occurred over the past three years, including increases by Harel, Phoenix, and Clal, and decreases by Renaissance Technologies LLC and Private Capital Management, LLC[487] B. Related Party Transactions The company's policy requires related party transactions to be on fair terms and adhere to Israeli law for approvals - Policy dictates that transactions with office holders or those with a personal interest must be on terms no less favorable than with independent parties[489] - Indemnification agreements are in place with all current officers and directors, exculpating and indemnifying them to the fullest extent permitted by law[492][493] - Employment and consulting agreements with senior management typically include non-solicitation, confidentiality, and intellectual property assignment provisions[494] C. Interests of Experts and Counsel This sub-item states that information regarding the interests of experts and counsel is not applicable - This sub-item is marked as 'Not applicable'[494] Item 8. Financial Information This section includes consolidated financial statements, legal proceedings, and dividend policy information A. Consolidated Statements and Other Financial Information Financial statements are included in Item 18, with no material legal proceedings and no current dividend distribution policy - Consolidated financial statements are included in Item 18 of this annual report[495] - The Company is not currently involved in any material legal proceedings or claims[496] - Current policy is not to distribute dividends, retaining future earnings for funding growth and share repurchases[497] B. Significant Changes This sub-item states that there have been no significant changes - This sub-item is marked as 'None'[498] Item 9. The Offer and Listing This section provides details on Perion's stock listings on the Nasdaq Stock Market and the Tel Aviv Stock Exchange A. Offer and Listing Details Perion's ordinary shares are listed on the Nasdaq Stock Market (PERI) and the Tel Aviv Stock Exchange (PERION) - Ordinary shares are listed on the Nasdaq Stock Market (symbol 'PERI') since January 2006[499] - Ordinary shares commenced trading on the TASE (symbol 'PERION') on December 4, 2007[499] B. Plan of Distribution This sub-item states that information regarding the plan of distribution is not applicable - This sub-item is marked as 'Not applicable'[499] C. Markets This sub-item refers to the 'Offer and Listing Details' for market information - Refers to 'Offer and Listing Details' for market information[500] D. Selling Shareholders This sub-item states that information regarding selling shareholders is not applicable - This sub-item is marked as 'Not applicable'[501] E. Dilution This sub-item states that information regarding dilution is not applicable - This sub-item is marked as 'Not applicable'[502] F. Expenses of the Issue This sub-item states that information regarding expenses of the issue is not applicable - This sub-item is marked as 'Not applicable'[503] Item 10. Additional Information This section provides details on share capital, governing documents, material contracts, and taxation A. Share Capital This sub-item states that information regarding share capital is not applicable - This sub-item is marked as 'Not applicable'[504] B. Memorandum and Articles of Association The company's amended and restated articles of association are attached as an exhibit to this annual report - Amended and restated articles of association are attached as Exhibit 1.1[504] - Additional information is incorporated by reference from Exhibit 2.1[504] C. Material Contracts Perion has not entered into any material contracts outside the ordinary course of business in the past three years - No material contracts entered into within the past three years, other than those in the ordinary course of business or as described in other specified items[505] D. Exchange Controls Non-residents of Israel can freely repatriate dividends and liquidation amounts, subject to Israeli income tax - Non-residents of Israel can freely repatriate dividends and liquidation amounts in non-Israeli currency, subject to Israeli income tax[506] - The statutory framework for exchange controls has not been eliminated and may be restored by administrative action[506] E. Taxation This section summarizes Israeli and U.S. federal income tax considerations for the company and its shareholders - Israeli companies are generally subject to a corporate tax rate of 23% (2018 and subsequent years)[511] - Perion and certain Israeli subsidiaries qualify as a 'Preferred Technology Enterprise' in 2023, benefiting from a reduced corporate tax rate of 12% on 'Preferred Technology Income'[516][523][526] - Dividends distributed from 'Preferred Technology Income' are generally subject to 20% withholding tax for Israeli-resident individuals and non-Israeli residents (or 4% for certain foreign parent companies)[525] - Non-Israeli residents are generally exempt from Israeli capital gains tax on the sale of shares in an Israeli resident company traded on a regulated market (like Nasdaq), with certain exceptions[531] - Under the United States-Israel Tax Treaty, U.S. residents holding shares as capital assets are generally exempt from Israeli capital gains tax, subject to specific conditions[532] - For U.S. federal income tax purposes, distributions are treated as dividends, and Israeli taxes withheld may be creditable against U.S. federal income tax liability[549][551] - The Company believes it was not a Passive Foreign Investment Company (PFIC) for its 2023 taxable year, but future status is uncertain and could lead to adverse U.S. federal income tax consequences for U.S. Holders[555][557][560] F. Dividends and Paying Agents This sub-item states that information regarding dividends and paying agents is not applicable - This sub-item is marked as 'Not applicable'[562] G. Statement by Experts This sub-item states that information regarding statements by experts is not applicable - This sub-item is marked as 'Not applicable'[563] H. Documents on Display As a foreign private issuer, Perion files reports with the SEC that are publicly available on the SEC's website - Perion is subject to informational requirements of the Exchange Act as a foreign private issuer and files reports with the SEC[565] - SEC filings are available on the SEC's website (http://www.sec.gov)[566](index=566&type=chunk) - Exempt from certain proxy statement rules and Section 16 reporting requirements applicable to U.S. domestic issuers[565] - Files annual reports on Form 20-F and submits quarterly financial information on Form 6-K[565] I. Subsidiary Information This sub-item states that information regarding subsidiary information is not applicable - This sub-item is marked as 'Not applicable'[567] J. Annual Report to Security Holders This sub-item states that information regarding the annual report to security holders is not applicable - This sub-item is marked as 'Not applicable'[568] Item 11. Quantitative and Qualitative Disclosures about Market Risk Perion is exposed to exchange rate risk from foreign currency transactions, primarily in NIS and Canadian Dollars - Perion is exposed to exchange rate risk due to a portion of its revenue and expenses being denominated in foreign currencies, mainly NIS and Canadian Dollars[569][572] Foreign Currency Related Fluctuations (Net Losses) | Year | Net Losses ($M) | | :--- | :-------------- | | 2021 | 0.5 | | 2022 | 0.3 | | 2023 | 0.6 | - A 1% revaluation of the New Israeli Shekel (NIS) could affect income before tax by approximately $0.4 million[572] - A 1% revaluation of other foreign currencies (excluding U.S. dollar) could reduce income before taxes by $0.5 million[570] USD to NIS Exchange Rate (Year-End and Average) | Year | Average Rate for Period | Rate at Year-End | | :--- | :---------------------- | :--------------- | | 2021 | 3.231 | 3.110 | | 2022 | 3.359 | 3.519 | | 2023 | 3.688 | 3.627 | - Inflation in Israel may increase the U.S. dollar cost of operations in Israel[572] Item 12. Description of Securities Other than Equity Securities This item states that information regarding the description of securities other than equity securities is not applicable - This item is marked as 'Not applicable'[573] PART II Item 13. Defaults, Dividend Arrearages and Delinquencies This item states that there are no defaults, dividend arrearages, or delinquencies to report - This item is marked as 'None'[575] Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds This item states that there are no material modifications to the rights of security holders or use of proceeds to report - This item is marked as 'None'[576] Item 15. Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of year-end 2023 - CEO and CFO concluded that disclosure controls and procedures were effective as of December 31, 2023[580] - Management assessed internal control over financial reporting as effective as of December 31, 2023, based on COSO criteria[580] - The evaluation of internal control over financial reporting excluded Hivestack, acquired in December 2023, which constituted approximately 7.7% of consolidated total assets (excluding goodwill and acquired intangibles)[578][622] - Kost Forer Gabbay & Kasierer, the independent registered public accounting firm, issued an unqualified opinion on the effectiveness of internal control over financial reporting[579][611][621] - No material changes in internal control over financial reporting occurred during the period covered by the report[581] Item 16. RESERVED This item is reserved and contains no information - This item is marked as 'RESERVED'[582] Item 16A. Audit Committee Financial Expert The board has determined that Ms. Michal Drayman qualifies as an 'audit committee financial expert' - Ms. Michal Drayman, an independent director and chairperson of the audit committee, qualifies as an 'audit committee financial expert'[582] Item 16B. Code of Ethics Perion has adopted a code of business conduct and ethics applicable to all directors, officers, and employees - A code of business conduct and ethics, amended in February 2017, is applicable to all directors, officers, and employees[583] - The code complies with Nasdaq Listing Rules and Section 406(c) of the Sarbanes-Oxley Act[583] - No waivers were granted under the code of business conduct and ethics in 2023[5