Good day everyone. Welcome to the Perion second quarter 2017 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Angie Geffen, Investor Relations. Please go ahead, ma'am.

Thank you operator and good morning everyone. Thank you for joining us on our second quarter 2017 earnings call. The press release detailing the financial results is available on the company's website at perion.com. Before we begin, I would 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 events. 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 the 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 both on a GAAP and non-GAAP basis. 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 website and has also been filed on Form 6-K. With me on the call today are Doron Gerstel, Perion's Chief Executive Officer, Ophir Yakovian, Chief Financial Officer, Mike Pallad, President of Undertone and Mike Glover, General Manager of our Search business. I would now like to turn the call over to Doron Gerstel. Doron, the call is yours.

Thank you Angie and good morning everyone. In my first 100 days as CEO, I have confirmed that the core assets and underlining business opportunities that attracted me to accept my position with Perion are firmly in play. Further, we have identified the issues that are impacting our financial results and near-term prospects. On today's call, I would like to present my findings from my first 100 days and details of the action I have taken and will take to address the issues we identify. As I mentioned during our last earnings call, all of the actions we are taking are in support of the three overarching priorities to, one, drive our long-term organic growth, second, maximize our technology assets to differentiate and enhance our solution offering and third, optimize our cost structure. When I arrived at Perion, the company had a holding company structure to support an M&A driven growth strategy. As a result, the organization had heavily invested in corporate functions that would be needed to support and integrate acquisitions on a go forward basis. The company also had siloed technologies as a result of this structure and a business unit with decentralized support functionalities. As one of my first actions, I announced the appointment of Ophir Yakovian as Perion's new CFO. Ophir has significant public company experience and expertise in driving operational enhancement and cost optimization effort. Under his leadership, Perion has began implementing a cost optimization plan that we expect will result in reduction of our corporate expenses over the next 12 months and lower our corporate costs by a minimum of $6 million in 2018. During the second quarter, we unified our engineering function under the leadership of Miki Kolko, Perion's CTO, which will allow us to better allocate resources to strengthen our core technology…

Doron, thank you. I appreciate the kind words and the confidence that you have in me, I am very excited about this opportunity. And during my time here at Undertone, I have seen this company continually adapt to the ever-changing landscape of the adtech industry. Undertone has always been seen as a leader in delivering outstanding and engaging creatives as we have continually advanced our capabilities in providing full service solutions that bring exceptional value to the top brands and agencies that we work with across the globe. I am thrilled to be working even closer with the talented team here at Undertone. I look forward to continuing to innovate and leverage our technology to bring even more value to our customers. With this, again Doron, thank you. I will turn it back over to you.

Thank you Mike and good luck. During the second quarter of 2017, revenues of our advertising business unit were up both sequentially and 9% year-over-year basis. To complement our core agency business, we have begun launching new business initiatives and are working to unify our internal technologies to drive new, incremental advertising revenue streams to help improve our visibility and diversify our business. Our recently announced collaboration with The Associated Press is a great example of a business initiative we are doing to diversify our advertisement business to complement our traditional agency stream of business. Undertone will work with AP to create a first-to-market sponsorship opportunity around the iconic AP Top 25 college football poll. In addition, our social collaboration with Cycle brings premium engaging branded content and impactful social inventory to Undertone clients. An important additional business initiative that enhances Undertone offering and allows us to capture a larger share of our clients' ad budget is the integration of the MakeMeReach social media platform. During the second quarter, MakeMeReach, one of the Facebook's leading marketing partners in Europe, announced their partnership with Snapchat. This new integration will allow our clients to run campaigns on Snapchat and benefit from the expertise of our team on this rapidly growing mobile platform. Being recognized as a Snapchat Partner marks a new milestone for MakeMeReach and for Perion as a whole. Further to our successful partnerships with Facebook, Twitter and Instagram, we can now deliver the ultimate social media ad management platform, creating a stronger synergy among Perion's business divisions in the process. I will now turn the call over to Ophir to discuss our second quarter 2017 financial performance in more detail. Ophir?

Thank you Doron. On a personal note, I am excited to join Perion. This is my first earnings call with the company and I share Doron's optimism on the business. Revenues for Perion in the second quarter of 2017 were $69.7 million comprised of $35.3 million of advertising revenues and $34.4 million of search and other revenues. Revenues were up 12% from $62 million in the previous quarter and down 11% from $78 million in the second quarter last year. This decrease was due to our search and other revenues declining 24% which was partially offset by an increase in advertising revenues of 9% compared to the second quarter of 2016. The decline in search was mainly due to a transition effort to add new publishers to offset the expected decline due to cleanup of our existing network. In addition, legacy search products continued their natural churn as expected. The increase in advertising revenues was primarily related to our programmatic business and increased volume from some of our top brands. Search and other revenue represented 49% of revenues for the second quarter of 2017, with advertising contributing 51% of revenues. This is compared to the second quarter of 2016, where search contributed 58% and advertising contributed 42%. Customer acquisition costs and media buy in the second quarter of 2017 were $33.8 million or 48% of revenues, compared to $34.8 million or 45% of revenues in the second quarter of 2016. The increase is attributed to both of our business lines. In our advertising business, we are carefully evaluating our media buying costs and working to optimize these expenses and improve our margins. In the search business, traffic acquisition costs as percentage of revenue increased as our legacy products continued their churn. During the second quarter of 2017, we determined that…

Thank you Ophir. We see a significant opportunity to organically grow our business over the next several years. The targeted initiatives that we began implementing in the second quarter to reignite growth and optimize expenses are advancing and it will continue in the second half of 2017 and into 2018. I would now like to open the call to questions.

[Operator Instructions]. We will first go to Dan Kurnos with The Benchmark Company.

Great. Thanks. Good morning. Just real quickly on search. Obviously, that's sort of down sequentially again here. Just curious, we saw some pretty decent results actually from IAC, although most of that's coming out of their O&O portfolio. They have done a lot of stuff on the mobile side in search. Obviously, being leveraged to Bing rather than Google and having still mostly or all of entirely affiliate business is going to continue to make that challenging. But can you just talk about a little bit more where the potential areas for upside, what kind of initiatives you have there to at least stabilize it as a cash flow backdrop?

Right. So Mike, are you on the call? Mike Glover?

Yes, I am.

Okay. I would like to address this question to Mike Glover, who is the General Manager of our search business and he was the President of Infospace that was a major player in this domain. Mike?

I know Mike very well. I covered Blucora and Infospace for a long time. So how is it going, Mike?

Going well, Thank you. Going forward, our plans are to begin to invest in the business. We have been harvesting the revenue and maintaining the existing partner base, which is fairly narrow and in terms of the products distributed, it's very narrow as well. So I think we will invest more in custom search. We will invest more in the mobile business. We are limited geographically by being with Bing as our primary partner, but it gives us a good asset base to start to develop those products. Having overlaid over the U.S. and Western Europe does give you, from an RPM/CPC basis, the ability to leverage some pretty good economics as we develop the product. As we take the product around and start to show growth, I think it will give us some opportunity to add additional monetization opportunities into the network as well as to begin to develop some owned and operated property, which will give us more control and more expertise in the search business, similar to some of the activities that we did or that I did previously at Infospace.

Got it. That's helpful. Thanks Mike. And then Doron, back to Undertone and the rest of the business. It was actually a decent quarter for advertising. Interesting that you guys commented, I think Ophir commented, that programmatic was a big driver of that. I am curious, one of the things that we are seeing now in general, from ad agencies is a desire for larger national buys on a programmatic basis and typically those have historically had lower CPMs. And I am just wondering kind of how you guys are balancing new business initiatives and your direct-to-agency push now versus what looks to be more of a greater demand on the programmatic side of the ledger from the agencies themselves?

Al right. So I will hand it over to Mike Pallad, but I want to say just a few words about it. I think that we are bringing on the fact that on the programmatic, we are trying to basically mix two words here: One is very much the push or the desire of the brand, even though it's done through the agency, to push quality. And as we power high-impact ad and very high publisher's network, we definitely provide the quality that the brand is seeking. Now when it comes to get this quality into the programmatic world, we basically combine the two into our favor. Mike, you want to add a few things on us and programmatic?

Sure. That's agreed, Doron. As it pertains to programmatic, we continue to see growth both sequentially quarter-to-quarter as well as significant growth year-over-year with Q2. We want to be a company that's kind of agnostic to how people want to transact with us, whether it's a brand or agency. So if programmatic is the way that they want to transact, we feel, as Doron was speaking to, we have a competitive advantage based off of our quality, our transparency as well as the engaging ads in proprietary ad units. From a direct standpoint and then making sure that we are also offering a portfolio of products and solutions that go beyond programmatic pipes, that's when our premium content alliances come in, such as how we are leveraging the MakeMeReach platform and new recently announced partnerships with the Associated Press and premium content social provider of Cycle.

Got it. Okay. That's helpful color. I appreciate that. And then just high level, maybe either for Ophir or Doron. Just giving the pace of play here in terms of results, I know you didn't give real official guidance, but just can you give us high-level to sort of acceleration? How we should expect things to sort of trend over the next several quarters, both for search and Undertone? And for Doron, just from a capital allocation standpoint, as you right size business, I understand you have some organic investment to make. Just how do you think about either tuck-ins or implementing or augmenting the product portfolio? Thank you.

Right. So first and foremost, three months on the CEO chair, I think that we are definitely trying as much as we can to leverage on previous acquisitions, trying very much to look inside and trying to find those assets, technology assets and get them into a one holistic solution. We start seeing some traction in this direction and I think the Undertone growth is a great result. We are planning to do so even in the search and I hope that in the next call I even can announce that this technology integration would allow us at first time to combine Undertone and search to one service, an integrated service. So that will be a great news that we are working on right now. I think that we all understand, that's why we announced this first initiative. We prioritized everything that we are doing it. We have 100 engineers. We have a solid group of product management. I mean, all is very much tuned in order to increase sales as part of this program. On one hand, I am very optimistic. On the other hand, we need to understand that I am here to turn this ship and showing substantial growth. I think it will come. The question is, how long need to be the runway. We have seen some results even in this quarter and I am hoping to see better results on the next quarter. So we are on the right track.

[Operator Instructions]. We will move on to Kerry Rice with Needham.

Thanks. Three questions, if I may. Back to search and you talked about a network cleanup. Can you talk about the impact there in the sense of a monetary one? If we add that back, how much do you think was taken out of search from that cleanup? The second question is on Undertone. Can you talk a little bit more about the social aspects of MakeMeReach? How big is that contribution today? Where do you think it can get to be as a percentage of advertising? And then, there was some discussion and there has been ongoing discussion about reducing the cost structure. Any thoughts, any more maybe details around that? It seems like overall cost structure, excluding the impairment charge, actually went up in Q2. So how far do we think that can come down in Q3 or maybe second half of 2017? Thank you.

Right. Okay. Thank you. So in terms of Undertone and MakeMeReach and I will talk about the search and the cost optimization later. One of the main key performance indicators that we put in place when it comes to measure the Undertone success and then the progress has to do with the average extension order. In other words, on a given RSP that we are getting from the agency, how are we able to optimize our outcome. And there is no doubt that in today's budget allocation, brands, if it's done through the agency or if it's done direct, social media is a substantial element into it. And the fact that we integrated MMR social media ad placement platform into our offering, that's a great addition to our ability to offer enhanced solution other than what we offer today and that's complimentary. This is definitely needed and that's definitely growing aspect of the overall RSPs or the demands that we are getting from the client. And we see it growing quarter-over-quarter-over-quarter. That's on the social media and MMR. I must say that the integration has to do with the data. It has to do with the format. It has to do with a lot of things that currently we add to this where our customer and agency see as a great added value compared to other platforms that exists there. On the cost structure, we are very, very detailed in our plan. So the plan that we presented is what we able to share with the public, is overall the $6 million. Some of it we already implemented and some of it we definitely going to implement. Overall, I think it's an aggressive target. For good reason, we are not touching anything that has to do with our sales force, our engineering or product. This is all has to do with corporate structure and the cost optimization is very much narrow to this expense. And we are hoping, we are doing everything that we can to expedite it to enjoy the full benefit of this effort beginning of 2018. That's quite a process. As far as the network cleanup, that's equivalent to $25 million compared to last year. That has to do with our relationship with Bing, which is very much based on the fact that we are one major partner that we need to follow their compliance in a rigid way. I can say that that's something that we need to do based on their request and this is something that we are doing.

I am sorry. Could you repeat the impact to revenue on that? I didn't hear it very well, sorry.

So the impact on revenue on an annual basis, this cleanup is equivalent to $25 million to 2017 to 2016.

Okay. I appreciate that. And then maybe one final just to follow up. On the other, do you guys feel comfortable disclosing what other revenue was of search and other?

When it comes to Smilebox, I mean, that's the neighborhood of, on Smilebox, it's $16 million. When it comes to MMR, the number is, we have part of the advertisement number and it's very difficult to distinguish between the MMR platform and the advertising since it's all being a one solution for us.

Thank you.

You are welcome.

[Operator Instructions]. And we did have a question queued up. We will take that from Aram Fuchs with Fertilemind Capital.

Yes. It's Aram Fuchs. I was wondering you have these different assets that have been, the search was organic and then MMR and Undertone were purchased. I was wondering, I thought the goal was to eventually create one platform which you could then market to the clients of those unique assets and build a defensible moat that way. But on this call, it sounds like you have each business moving separately. Is that fair to say? Or have we just not gotten started on seeing if you can combine the assets in a unique way?

That's a good question. Thank you. So first of all, we need to look in what is possible and then we need to integrate it in a way it make sense from our customer perspective. So we are definitely seeing great integration that is happening as we speak between MMR and Undertone. When it comes to the integration between search and Undertone, I think that's a tough call. We are working right now in a way very, very interesting concept where we are trying to combine the asset, not to a story, not to one platform, because that's not the direction. But basically taking core technologies from one and core technologies from the other, then develop a unique product offering in the market. That's the integration. So we don't want to force to something which is not real. We definitely want to take something which is holding water from a business standpoint.

And so this is a product, like this will be a, so take the social media buying from MMR and sort of offer it to Undertone agencies. Is that basically it?

Yes. I mean, as I mentioned before that's an easy story because the point here is that what we are facing is a budget allocation from the brand through the agency. They are trying to maximize this budget and provide maximum business outcome. As a result, what we are doing, we are offering our advertisement network and we basically said that additional component in this and complementary to what Undertone is doing is that we very much would love, we are offering to publish it or the advertisement and part of our offering can do it on social media. The way for us and the platform that we are using in order to deploy those assets into social media, if it's Facebook or Snapchat or Instagram, is by using MMR. That's the vehicle and once it's integrated, it provides a better, higher ROI for our customers that are looking to optimize their budget for a single brand awareness campaign.

Right. Okay. Great. Thank you very much, Doron.

You are welcome.

And it looks like we have no further questions at this time.

Great. I would like to do a closing remark. So first, thanks for joining, I appreciate it. In summary, after completing my first 100 days, I believe that we now have all necessary components to move the company forward. We have identified our strategy. We have established a comprehensive plan. We have completed assembling the right leadership team. And most importantly, we have ensured that all Perioneers are aligned, excited about the direction and executing the plan. Thank you very much, guys, for joining.

That does conclude today's call. We thank everyone again for their participation.