Hello, everybody and welcome to the Perion Network Second Quarter 2024 Earnings Conference Call. Today’s conference is being recorded. The press release detailing the financial results is available on the company's website at www.perion.com. Before we begin, I'd like to read the following Safe Harbor statement. Today's discussion includes 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 Form 20-F that may cause actual results, performance, or achievements to be materially different on any future results, performance, 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. As in prior quarters, the results reported today will be analyzed both on a GAAP and a non-GAAP basis. While mentioning EBITDA, we will be referring to adjusted EBITDA. 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. Hosting the call today are Tal Jacobson, Perion’s Chief Executive Officer, and Maoz Sigron, Perion's Chief Financial Officer. I would now like to turn the call over to Tal Jacobson. Please go ahead.

Good morning and good afternoon. Thank you for joining us for our second quarter earnings review. As always, Maoz Sigron, our CFO, is with me today. I want to start by reminding all of us what are we trying to solve at Perion. Digital advertising is expected to reach $700 billion this year and grow to over $900 billion within three years. However, managing this vast spending across numerous platforms, channels, screens, data points has become very complex for the advertiser. The Chief Marketing Officer is in charge of spending those digital advertising budgets, and army of experts and vendors are needed to cover all relevant advertising channels. And when they do, it's almost impossible to prove actual ROI across all channels and platforms. This is where Perion comes in, providing the technology that fits the brand goals. As a technology company, we ensure our tech fits the brand strategy, as different brands have different needs. In the early days, an off-the-shelf CRM worked for many brands. Today, we know that if you want to get the best results from your CRM it's not enough to buy a license for a CRM such as salesforce. If you want to get the best results you need to customize the technology to your needs. The same applies to the $700 billion digital advertising industry. And we believe we are on a way to tackle the over complexity of digital advertising universe through technology. Our mission in the fast evolving, overcomplex, omni-channel advertising universe is clear. To identify, connect, deliver, and measure compelling messages across multiple screens and platforms, while maximizing our clients’ advertising budgets. The core of our technology is to empower advertisers to seamlessly and effectively connect with their audience, whether at home, at work, in the supermarket, or on the…

Thank you, Tal. Good afternoon and good morning to those of you joining us from the U.S. The second quarter had eight challenges. Microsoft Bank made changes to its search distribution marketplace across all of its distribution partners, that significantly impacted our search business. In addition, and as we stated previously, we continued to see a reduction in our open web video and display standard formats. However, the strengths of our hyper growth engines including retail media, CTV and digital out-of-home continued to outperform the market. Notably, our recently acquired digital out-of-home business continues to deliver strong results. It grew 41% year-over-year on a pro forma basis and it is on track to become one of our fastest growing categories. Our strong balance sheet and cash position allow us to continue our organic investments in technology and to execute our M&A strategy. Those of you who have been following us over the years have witnessed Perion’s ability to successfully meet challenges. We have always exhibited the operational flexibility to adjust our strategy and execution. We do this in a way that enable us to overcome obstacles, while continuously leveraging our technological advantages and innovative initiatives. We expect this time is no different and I believe that we will become an even stronger company. Looking ahead, we believe that the combination of our cash position and the opportunities in the near $700 billion global digital advertising market will allow us, I am sure, to capture market share and lead to profitable growth. Turning to our main financial highlights for the quarter. For the second quarter that ended on June 30, 2024, revenue was $108.7 million, a decrease of 39% year-over-year. Adjusted EBITDA amounted to $7.7 million, a decrease of 81% year-over-year and resulting in a 7% adjusted EBITDA margin and 15%…

Thank you, Moaz. Good afternoon and good morning to those of you joining us from the U.S. I have been working closely alongside my [Indiscernible] at Perion for the past six years. Throughout my years at Perion, I took an active part in most of our important milestones. And as Senior Vice President of Finance, I manage all financial aspects of the company. As Maoz noted, how a professional and personal relationship go back over a decade. I want to congratulate Maoz on his well-deserved promotion and thank him for being such a trusted mentor. I would also like to thank Tal and the board of directors for their trust and confidence in me. In my new role as the Chief Financial Officer, I will capitalize on the knowledge and skills I learned over the years. I am eager to join our superb management team. I am ready and fully committed to help lead Perion to new heights. I'll now hand it back to the operator to open the line for questions.

Thank you. We'll now be conducting a question-and-answer session. [Operator Instructions] Our first question is coming from Jason Helfstein from Oppenheimer. Your line is now live.

Hey, good morning, everyone. Two questions. One, do you think take rate is the right pricing model for the business just given the exposure you ultimately then have to kind of add pricing? Or does it make sense to pivot more to an agency type of professional services or billable hours model and kind of like charge on a [Technical Difficulty] basis? And then second, did closing ContentIQ have an impact on open web video in the [Technical Difficulty] thanks.

Hi Jason, we have hear some technical issue with the microphone. Sorry, but could you repeat the first question?

Do you think take rate is the right pricing model or should you pivot to an agency type of professional services or billable hour model? That way you can get on a campaign basis and aren't as dependent on kind of ad pricing trends?

Yes, that's a great question. You know, as we're trying to move away as possible from being an advertising company into a technology company focusing on technologies and solutions, we do not look at ourselves as agencies. We want to provide that layer of technology to actual agencies. So we work with direct advertisers, with direct retailers, but also with agencies and Holdco. So we do not look at ourselves as agency, but as a technological layer that connects all the dots. So it makes more sense that we're making our money out of a cut of what we can actually provide to the client, which is the advertising.

And for the second question, Jason, so during the quarter we did some changes. Part of them include changes in CAQ. We are now not running any on and off-operated website. We use the technology for other needs for the other part of the business. So we're less impacted from this part of the business of the [Technical Difficulty].

Thank you. Our next question today is coming from Laura Martin from Needham & Company. Your line is now live.

Yes. So, Tal you talked about wanting to do acquisitions in the past, but with the stock down 70% and cash flow negative $20 million in the quarter. Could you update us on your M&A goals at this point? And then Moaz, congratulations on your promotion. My question is, the business is going to be 35% smaller at the revenue line this year than last year. So could you talk about your goals as a Chief Operating Officer, and specifically I'm interested in your cost-cutting strategies? Thank you.

Thank you. Thank you, Laura. So first for the first point about the cash, we had two things during the quarter with the cash flow. One is a delay of one day with Microsoft Bank, just a shift of $17.5 million from Q2 to Q3 to July 1. And second is a one-time impact from accounting of $9.5 million that related to contingent, that related to Vidazoo payments that we did during the quarter. So if you're taking these two items, the cash that we have is more or less $6 million during the quarter, which is very much aligned with the EBITDA we have for the quarter. This is one. Second about my new role, I'm really excited and happy to take this role. Efficiency, of course, is only one part of what I'm going to do. More realistic, we are trying here to take the opportunity to let Elad take the CFO position and to lead the finance part and that myself and my team will lead the operation side of the business. This is not only efficiency, this is also identifying business opportunities that we have all over and how we can leverage that and to take it as part of our plan for ‘25 and ’26. Efficiency is part of it. During the quarter, as part of the change that happened with Microsoft, we did a significant efficiency. We reduced people in some places and also some other changes that we did and we reduced our cost basis dramatically. We'll see later because it will impact H2 forward. So I'm really excited for my new role and I believe this will definitely give me enough time to focus on growth and the future of Perion.

Let me just add to that. We're generating positive cash flow. I know this specific word with all the technical item, but it is positive. We're absolutely looking to generate more and more cash. We're using cash buyback and investments and M&A. Now I think we've shown that the last M&A that we've done has helped us gain meaningful technology that is by itself generates a very nice growth rate. So we're going to continue doing that. We're not going to buy any company that doesn't make any money. So we're focusing on companies that are profitable, synergetic to what we do, and are focused on technology. And one of the things, obviously with the new role of Maoz, he has many items. But one thing is to sell our cross solution across anything we do to those customers. So that would reduce operational and customer acquisition costs, because we're now unifying those solutions to that specific customer and that should result in a more efficient company and a faster growing company.

Thank you.

Thank you.

Thank you, Laura.

Thank you. Our next question today is coming from Mark Kelly from Stifel. Your line is now live.

Hi, great. Good morning. Good afternoon. Two quick ones, I was hoping maybe you could touch on SORT adoption and I guess what your expectations are there now that Google has decided to keep cookies around for now at least? I know there's a lot we don't know about the path forward there, but any thoughts on SORT adoption? And then second, can you dive into retail media a bit more? It's my understanding that the majority or maybe all of your retail media business is the off-site component, so not buying on retailers websites, retailers sites? A, is that correct? And B, you know, I guess what would the mix be between on-site and off-site for you? Thank you.

Right. All right. Thank you for the questions. So absolutely. Listen, you know, I think we all, none of us was very surprised when Google said, we're going to push this further or even cancel that. But I think the exercise that we went through in the past few years thinking that cookies are going to go away really pushed us in developing new technology for segmentation, for audience segmentation. And SORT is very much relevant. I mean, our customers are using SORT source 2.0 with CTV now is even more robust. And the fact that you can target the same type of segmentation across open web and now CTV with the same technology is really powerful. But having said that, and that goes directly to your second question, our retail media and our solution as a whole is the omni-channel solution. So it's not just offsite or on-site, it's connecting the dots, right? So connecting the dots means we can run it on social, we can run it on CTV, we can run it on out-of-home, we can run it on Spotify, we can run on open web. Whatever the client needs, we can provide because we build a technology that is flexible enough for that. Now, so that's a retail. Retail is not just out-of-home, it's also on-site, off-site from digital advertising on websites, and from digital advertising out-of-home, we're connecting the dot, that's the idea. Now, SORT is perfect for that because it actually understands the audience sense based on all our algorithms that we've built throughout the years. That doesn't mean that we're not using other third-party. If a client wants to say, you know, what I want to use LiveRamp, or I want to use the Traders ID, or whatever they want, we already integrated into all of those. And one thing to remember, because we're working omni-channel and that specific, we're not working specific channel, right? We can work on meta and Google and open web and whatever, we're connecting the dots, because of that and understand that cookies are not relevant to most of them, right? Out-of-home doesn't have cookies, CTV doesn't have cookies. So not everything has cookies, but the ability to understand all of them is the powerful thing that we do. I hope that answered your questions.

It does, thanks very much.

Thank you.

Thank you. [Operator Instructions] Our next question today is coming from Eric Martinuzzi from Lake Street. Your line is now live.

Yes, I wanted to dive into the cash generation expectations for the back half of 2024. We're kind of halfway through a year here. You've given a midpoint adjusted EBITDA projection of $50 million and we've got $28 million at the halfway mark? Given that, that remainder is about $22 million is that a fair estimate of what we think cash generation could be in the back half of the year?

Yes, thank you Eric for the question. So yes, we are starting to move back to normal without the two things that happened in the quarter. We will have free cash flow the [Technical Difficulty] allowed to the EBITDA. This is not going to be in H2. So what you said is very much right. We expect H2 to be very much aligned with the EBITDA plug-down there for H2 based on the $50 million EBITDA that we have in the guidance.

Okay, and then the uses of the cash, I was pleased to see that you were active in the repurchase activity in Q2? Based on that $20 million spend, we're now -- I guess down to a balance of $55 million on the repurchase authorization? What's your expectation for the pace and the size of repurchases going forward?

So we are -- as we said, we started the plan, as we said, during the quarter, as we promised, right after the earnings call, we are going to complete all the operations and we will start the plan. So we did the $20 million in the second quarter. We're expecting to spread the rest of the plan till the beginning of 2025. So it will split between Q3 and Q4 and a bit to 2025.

Got it. Thanks for taking my questions and congratulations on your promotion, Maoz and yours as well, Elad.

Thank you. Thank you, Eric.

Thank you. Next question today is coming from Jeff Martin from Roth Capital Partners. Your line is now live.

Thank you. Good morning and good afternoon, fellows. I wanted to get a little more detail on the open web revenue decline? How much of that is, do you think, market dynamic versus internal adjustments that you're making at Perion? Specifically, how much of that was ContentIQ?

So the main, as we said, also on the preliminary, the main change started back then in 2023 related to our priority in terms of margin. And then from 2024, beginning of the year, we started to see something that is different more related to the market and to less demand on this specific format on the display, on the video, on the open web. So this is very much most of the reason for the change. And I think that you know moving forward we're expecting let's say to that it will stabilize around the current level. We ended the quarter with 18% for the video. I believe that if I need to, let's say, think about the future, we are around a level that will be stabilized around, let's say, 15% more or less. This is more or less kind of the new norm of this part of the business.

That's all. Thank you. And then balance sheet question for you on the short-term payment obligation related to acquisitions. You made a $9 million payment for the Vidazoo acquisition in the quarter and you had a small change in the contingent consideration estimate going forward? But when you look at the balance sheet. that line item declined $46 million from first quarter to second quarter. I was just curious what other factors led to that change on the balance sheet?

As we said before, part of the accounting rules mean that we need to split the payment we did for Vidazoo to 2 lines. One is the cash operation and the second is the investment and the $9 million is what you see in the balance sheet is actually the change from the payment. There is another small change that's related to other changes that we did for the other acquisition. But the change that you see in the balance sheet, this is the main change.

Okay, I'll follow up with you. [Indiscernible] a follow-up call on that one. Thank you.

Thank you.

Thank you.

Thank you. We've reached the end of our question-and-answer session. I'd like to turn the floor back over to management for any further closing comments.

Thank you very much. Thank you everyone for joining us today, and thank you for being part of our journey. We're looking forward to seeing you again in person or on our next earning call. Thank you.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.

Good-bye.