Good day, everyone and welcome to the Perion Second Quarter 2016 Earnings Conference Call. Today's call is being recorded. At this time, I would like to turn the conference over to [Sarah Elliston] of Perion. Please go ahead.

Thank you, operator and good morning everyone. Thank you for joining us on our second quarter earnings call. The press release detailing the results is available on the Company’s Web site 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 event. 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 or achievements to be materially different from 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. In addition, and as in prior quarters, the results reported today will be analyzed for the most part on a non-GAAP basis, which management believes better conveys the operational performance of the business. We will be referring to Adjusted EBITDA when mentioning EBITDA in our comments. We have provided a detailed reconciliation of non-GAAP measures to their comparable GAAP measures in our earnings release, which is available on our Web site, and has also been filed on Form 6-K. I would now like to turn the call over to Josef Mandelbaum, Chief Executive Officer of Perion. Josef?

Thank you, Sarah and good morning everyone. Welcome to our second quarter 2016 earnings call. We executed well in the second quarter as we advanced a number of strategic initiatives and took proactive steps to further enhance our business and balance sheet. We delivered our fourth consecutive quarter of sequential revenue growth and we are guiding towards a fifth. This growth is being driven by the addition of a high impact advertising business, and the stability of our search business. It is particularly exciting to note that as we project into the past year and a half profits this quarter increased sequentially. And we are guiding towards continued sequential and year-over-year increasing profits. Revenue for the quarter was $78 million, net income from continuing operations was $1.7 million and EPS from continuing operations was $0.02. EBITDA was $10.8 million, non-GAAP net income was $6.8 million and non-GAAP EPS was $0.08. Revenue and EBITDA both came in above our guidance for the quarter. As I mentioned, our continued top-line growth is a result of the addition of Undertone and other positive indicators in both parts of our business. In the search business RPMs continued to improve and our market share continues to grow as others exit the market. This revenue stream is proving to be a stable business generating very strong cash flow. On top of this solid base, our Undertone business grew sequentially powered primarily by accelerated growth in our proprietary high impact ad format. Together we are guiding towards another quarter of sequential and year-over-year revenue growth. Top-line growth coupled with prudent managements of operating expenses has enabled us to further increase profitability. As a result, EBITDA came in above guidance and as can be seen from our guidance for the third quarter we expect the increase and profitability…

Thank you, Josef. First, allow me to explain our shift in analyzing revenues. We continue to believe that our net revenue approach with regard to some of our revenues is more reflective of how we manage our business. However, the difference between this non-GAAP measurement and the GAAP measurement of revenues is relatively small being less than 5% of our consolidated revenues. Therefore, as regulators are now requiring companies to give more prominence and focus to GAAP measurements over non-GAAP measurements, we decided that with regard to revenues we will focus from here on GAAP revenues. That being said, in order to make this shift seamless and provide full disclosure, we have provided this quarter comparisons for both the GAAP and the non-GAAP change in revenues. GAAP revenues for Perion in Q2 of 2016 were $78 million compared to $48.6 million in the second quarter of last year. Revenue this quarter were made up of $41.7 million of search generated revenues, $32.5 million from advertising revenues and $3.8 million from consumer products. Non-GAAP revenues this were $75.6 million as compared to the same $48.6 million in the second quarter of last year. The difference between GAAP and non-GAAP revenues was in advertising revenues. The increase in revenues both on a non-GAAP and on a GAAP basis was largely due to the contribution of Undertone since was acquired in the fourth quarter last year. However, it is worth noting that search revenues continued to be stable now for its fifth quarter and even grew marginally, sequentially and year-over-year. The difference between GAAP and non-GAAP revenues of $2.7 million was almost perfectly offset by the same difference between GAAP and non-GAAP customer acquisition and media buy cost or CAC. In the second quarter of 2016, CAC on a GAAP basis were $34.8…

[Operator Instructions] Our first question today is from Kerry Rice from Needham & Company.

I wanted to talk about a couple of things or ask a couple of things. First on maybe guidance around revenue, a little bit lighter than what we were expecting and I know in the past you had highlighted that you’d seen some headwinds or maybe some shift in spending towards social and in-app advertising. Can you give us an update on that and is that why we’re seeing a little bit softer revenue in Q3? And then I’d love to get some more insight on the partnership with Facebook, is this with their audience network and is it to provide advertising impressions that can be bought or are you buying advertising impressions that can be delivered. Help us understand exactly what you’re doing with Facebook? Thank you.

Thanks for your joining Kerry. I will answer second question first, before a forget it. So with Facebook basically as you know we are a strategic partner of theirs on the platform side, with our MakeMeReach platform and they’ve really developed a great relationship with them over the past 3 years. Now that we have Undertone and we combine the two businesses together, what we’re doing with Facebook essentially is we are allowing a brand to buy a high impact advertising campaign with us but also run it on Facebook as well with their canvas format. And in addition to that, we can now track with Facebook the user in and outside of Facebook and that helps, our brands actually get a better view for their campaigns across the high impact media buy. So, when someone would buy let's say for us $1 million campaign then ex amount outside of Facebook works at our quality media and our marketplace and then we have managed their spend through our social platform as well on whatever they are buying through Facebook. Again Facebook we just get a small fee from that but what's important is, is we are providing a complete solution to the brand advertiser. So usually the way it works in B&Ds as you know is Facebook gets revenue we get a small fee from that and that what -- we are not changing that that’s the way Facebook operates and we are happy to operate in that environment. The most important thing we are doing is enabling our brand advertisers to get a fuller view and a fuller solution both inside, and outside of Facebook as it relates to high impact ad format. I hope that answers the question.

Yes.

On the first one with regards to the revenue so is a little wider than we were expecting probably a little bit I am not going to say it's not. We mentioned last time I think it is a function of two things, one is a little seasonality turns in the Q3 as you know especially in Europe specifically in U.S. August is just a dead month with everybody. But probably more importantly there is a bigger shift to social and we don’t get as much revenue on the social as -- because we just get a fee, working with Facebook and Instagram and Twitter. And lastly in our search business is doing well, there were a couple little things that we are working through in this quarter that took us down a little bit because of what we have originally thought we were going to be doing in this quarter with regards to our search. Nothing material but enough to probably lowered our additional forecast that we were originally thinking. We hope that it will resolve itself quickly and we still expect it to be stable and enjoy having the affordable year, we were probably just being a little more growth in this third quarter and we hope we will get that fixed but as of now we are trying to be conservative.

And maybe just one follow-up then related to the integration of MakeMeReach and Growmobile I think you have that slated for completion in Q3 can you give us an update on that and if it is on-track?

Sure, yes actually it is on-track probably a little bit ahead of plan with the Facebook canvas launch and the high impact which we launched in Can in June, we kind of have that, going forward we will be in Q3 rolling out primarily U.S. integration of the two platforms where we hopefully we will look to accelerate the adoption of our platform in the U.S. market by leveraging the Undertone infrastructure and leveraging frankly the ability to provide -- hopefully the cost savings and a better targeting solution for brands with regards to MakeMeReach. So we are on track from that standpoint on the mobile side we are also as you know Kerry there has certainly been more of a convergence in the past probably a six to nine months performance advertising and brand advertising and this is one of the things we are working on in Q3 as well to integrate our Growmobile in-app solution with the Undertone business. That was probably be scheduled by the end of Q3 to be fully integrated to they can sell some performance inventory in conjunction with our brand to the brand advertisers and they can get a mix of both and hope we get a better return on their investment.

Moving on we will hear a question from Dan Kurnos from Benchmark Company.

Josef just to clarify I want to go back to Kerry’s first question here -- maybe housekeeping first I guess then on the search outlook, but what were your expectations can you just kind of quantify does that mean still flattish sequentially or if there is kind of an impact in Q3 and then we get back to flattish while slightly up going forward?

No, we expect to be flattish sequentially and we were expecting obviously that we’d see a little bit of a higher uptick but we will still be flattish sequentially, we’re not expecting it to again plus or minus whatever 3% or 4%, but we expect it to be flattish sequentially. As early we had partnerships that we were launching and that we kind of had to kind of revisit and then come back again and just make sure that it’s rolled out in a proper fashion and it’s taking us longer than we were hoping. So we got to had to scale backward from the, what things we were expecting to grow faster.

So that’s helpful because I think really what -- if it was getting at it and first is us as well is really on the Undertone side because we had mostly assumed search flattish sequentially. It seems to be coming in a little bit below where we thought it would be pacing and frankly I kind of want to also give you the opportunity to address this because I am getting some questions, I know some people are going to have if the payout reduction is really just relative to them saying we’ll take something lower because the longer tailed expectations are more in doubt. So I’d like you to maybe just have a chance to address that and in terms of Q3, I think it was asked also last call if you benefit from political and I know the broadcasters have been talking about political being more skewed towards Q4 as a result of late fund raising particularly by the Trump campaigns. I am just wondering if that’s contributing at all and how this generally Undertone is pacing relative to your expectation?

Sure. Thanks for the question Dan. So first of all just on the political side, like everybody else, we certainly are benefitting from the political environment today and the spending is little volatile where we had some Q3 spending which we have really gotten an order for was moved from Q3 to Q4 as some of the lightness we saw in Undertone was -- we had a couple of campaigns that were originally slated to go on Q3 was moved into Q4. But our DC office for example is doing extremely well and well above plans because of the campaign. I think you’ll obviously go into Q4 then it will die down as soon as the elections happen. So still got a month or so in Q4, we do hope and expect to benefit from that especially as we see some movements from Q3 to Q4. With regards to overall connecting and the question, so we said last time and I think we are trying to be as transparent as possible, the performance of Undertone as you saw, it did grow sequentially but it is not performing as well as we would have liked originally and that is a function of the things we mentioned earlier. Programmatic which we got a late start to but we’re really excited if you see the growth we’re seeing today in Programmatic but we did start late. So we got a late jump on that. The convergence of performance and brand advertising, one of the reasons we did the Undertone was a little bit behind and we’re pushing that forward now to get that going, but that left us left us out of RFPs and some budget. And last but not least is video, as we mentioned last time we’re ramping up. So we…

Got it, that’s really helpful Josef, thank you. And then just since you touched on programmatic, it’s interesting because and we have kind of this problem in other sectors, programmatic kind of gets a bad wrap in terms of being a lower CPM product. I am just curious if you can, since Undertone tends to be higher impact, higher CPM I would assume type of format. I am curious if you’re seeing call it above industry standards for programmatic and if you’re seeing any pricing as the industry kind of shifts in that direction?

Sure. So I think there are two levels of programmatic and the answer is different for each one. One is the private marketplaces on that, we’re seeing prices that are above the average because of our format and consistent with the direct sale, the private marketplaces is just the way of transacting and we’re not seeing really significant or if any price erosion there. On the open and non-guarantee part of programmatic, where you open it up, clearly in order to be competitive, you have to have a lower price points but we’re still seeing it probably slightly above the average because of our format. So we are investing in for example making lower price volume impact format, so still high impact and consistent with our strategy but a little more available to the open marketplace so that we can get more scale and volume. Our pricing still is probably higher or more valued than some other players out there on pure open programmatic such as display. But we provide a lot more value in terms of the engagements and the results we get for advertisers. So I think probably the answer to it is two ones, on the first one private marketplace, we’re seeing it consistent with the higher CPMs you usually get and on the open or non-guaranteed portion of programmatic, we’re by strategy where we are lowering our price points still protecting some of the margin but willing to sacrifice the margin to grow the scale and be more competitive there.

Great. And then it’s probably this probably is not relevant but I’m going to ask you it anyway just in terms of Verizon buying Yahoo! and now having both Yahoo! and AOL while Yahoo! has been a big player and really almost a sourcing through Google to some extent just curious to that has any impact on the search landscape?

It remains to be seem Dan I think we can all venture I guess but today AOL has been paying the yield directly and Yahoo! users being as, Yahoo! end users being and Google as behind the scenes, we will see what happens but I think the more important thing about the merger is it is validate so I think we all know about the industry they need scale, everybody needs scale or differentiation and/or differentiation to succeed I think Verizon is making a big play buying AOL and Yahoo! together to being the big leaders of Google and Facebook. I think and we hope to actually see the -- they are a good company and I think it's good to have more players in the space who can spread the amount of revenue that's going to some of the bigger players. We believe though that also signifies and validates the strategy of further consolidation will happen there will be the second tier level player as we mentioned this before Dan to you and others on the phone and the only way to succeed there is you need scale although not the same level as Google, Facebook and AOL Verizon and Yahoo!, but scale but with differentiation we need to own a segment to our niche that is ours we believe high impact and intent based advertising is that niche rust and we intend further grow organically and always look at opportunities that are consistent with that strategy.

And lastly for me Josef just on the cost side and I guess maybe Yacov you could pitch in here too just your thoughts on -- I know you talked about you've solved your headcount issues at Undertone but just whether or not there are more cost savings to be had or if the organization is basically right sized relative to the opportunity at this point?

I think what we've seen over the last few quarters is that actually we continue to increase efficiencies and improve our core structure it's been an ongoing process I believe that to improve that cost structure but close to 20% outside of the CAC and we expect that actually just continue to somewhat into the third quarter but we are close to that optimum structure and therefore so we expect some small improvement but and be able to maintain that improved cost structure going forward.

Perfect, all right. Thanks for all the color guys. I really appreciate it.

[Operator Instructions] And it appears there are no further questions today. Mr. Mandelbaum, I'll turn the conference back to you for additional or closing remarks.

Thank you. As we exit the business transition we had foretold exactly two years ago. I'm proud of how the Company and team has handled the difficult industry changes. We shed cost, increased efficiencies, focused on improving and stabilizing the search business, diversified revenues of acquisitions in mobile, social and high impact and continue to invest in giving back to the community, in all other communities New York, London, Israel and other locations helping make a difference in the world one person at a time. As our focus turns to accelerated profitable growth, our mission remains the same. We believe we can and we will be the leader in providing high impact and intent based advertising solutions to brands and publishers. None of this would be possible ever without the support and hard work of everyone at the Company and to all of them I say thank you and remember baked on is nice.

And that does conclude our conference call today. Thank you all for your participation.