PERI Perion Network Ltd

Perion Extends and Enhances Agreement with Microsoft Bing Through 2020; Company Achieves Goal to Reduce $6 Million in Annual Corporate Expenses

Perion Network Ltd. (NASDAQ: PERI), a global technology leader in advertising solutions for brands and publishers, announced today its financial results for the third quarter and nine months ended September 30, 2017.

Financial Highlights*

(In millions, except per share data)

  Three months ended   Nine months ended September 30, September 30, 2016   2017 2016   2017 Search and other revenues $ 42.1 $ 33.3 $ 132.2 $ 105.3 Advertising revenues $ 32.4 $ 31.7 $ 96.1 $ 91.4 Total Revenues $ 74.5 $ 65.0 $ 228.3 $ 196.7 GAAP Net Income (Loss) from continuing operation $ 2.9 $ 2.6 $ 2.5 $ (35.5) Non-GAAP Net Income $ 7.7 $ 4.1 $ 21.2 $ 11.1 Adjusted EBITDA $ 12.4 $ 6.5 $ 31.9 $ 17.0 Impairment of Goodwill and Intangible assets $ 0.0 $ 0.0 $ 0.0 $ 43.8

GAAP Diluted Earnings (Loss) Per Share from continuing operation

$ 0.04 $ 0.03 $ 0.03 $ (0.46) Non-GAAP Diluted Earnings Per Share   $ 0.10   $ 0.05   $ 0.26   $ 0.14

* Reconciliation of GAAP to Non-GAAP measures follows.

Doron Gerstel, Perion’s CEO commented, “During the third quarter we made meaningful progress to advance our turnaround strategy. We are executing on a clearly defined roadmap that we implemented earlier this year and advancing key initiatives ahead of schedule. As a result, I am increasingly confident that the actions we are taking today are necessary to introduce a more scalable and profitable offering that will position Perion for renewed growth.”

“We are revitalizing our long-term growth prospects by shifting significant resources to accelerate the development of innovative technology to enable advertisers to manage their brand awareness campaigns,” continued Gerstel. “At the same time, we are implementing targeted expense reductions and reallocating resources to support the investment in new technology. I am pleased to report that we have already achieved the $6 million reduction in our annual corporate expense run rate that we targeted just three months ago, and we are now pursuing additional initiatives to further streamline our cost structure in the fourth quarter and into 2018.”

“Undertone remains well positioned as an industry leading rich media digital solution provider,” continued Gerstel. “Given the continuous shift of media budgets towards unreserved programmatic, we have accelerated our efforts to introduce high impact ads into the unreserved programmatic world in early 2018. The new formats we are developing will also address the expected impact of new ad blocking features that will be included in the newest version of Chrome that Google recently announced.”

“On the search side of our business, our extension with Microsoft Bing through 2020, will meaningfully extend Perion’s reach within the search ecosystem, in both desktop and mobile,” added Mr. Gerstel. “Today, Bing commands one-third of all desktop searches in the U.S., giving Perion a large and increasingly important partner. The extension of our agreement ensures that Perion will continue to provide its publisher partners, and their consumers, a leading search and monetization solution while at the same time providing the necessary cash flow to drive internal growth initiatives within the organization.”

Financial Comparison for the Third Quarter of 2017:

Revenues: Revenues decreased by 13%, from $74.5 million in the third quarter of 2016 to $65.0 million in the third quarter of 2017.

Customer Acquisition Costs and Media Buy ("CAC"): CAC in the third quarter of 2017 were $32.0 million, or 49% of revenues, as compared to $33.0 million, or 44% of revenues, in the third quarter of 2016.

Net Income: On a GAAP basis, net income from continuing operation in the third quarter of 2017 was $2.6 million as compared to $2.9 million in the third quarter of 2016.

Non-GAAP Net Income: In the third quarter of 2017, non-GAAP net income was $4.1 million, or 6% of revenues, compared to $7.7 million, or 10% of revenues, in the third quarter of 2016.

Adjusted EBITDA: In the third quarter of 2017, Adjusted EBITDA was $6.5 million, or 10% of revenues, compared to $12.4 million, or 17% of revenues, in the third quarter of 2016.

Cash and Cash Flow from Operations: As of September 30, 2017, cash, cash equivalents and short-term deposits were $35.5 million. Cash provided by continuing operations in the third quarter of 2017 was $17.1 million compared to $9.6 million in the third quarter of 2016.

Perion currently satisfies all the financial covenants associated with its public debt.

Conference Call:

Perion will host a conference call to discuss the results today, November 9, 2017, at 10 a.m. ET. Details are as follows:

• Conference ID: 8570941
• Dial-in number from within the United States: 1-888-430-8709
• Dial-in number from Israel: 1-80-925-8243
• Dial-in number (other international): 1-719-325-2456
• Playback available until November 16, 2017 by calling 1-844-512-2921 (United States) or1-412-317-6671 (international). Please use PIN code 8570941 for the replay.
• Link to the live webcast accessible at https://www.perion.com/ir-info/

About Perion Network Ltd.

Perion is a global technology company that delivers advertising solutions to brands and publishers. Perion is committed to providing data-driven execution, from high-impact ad formats to branded search and a unified social and mobile programmatic platform. More information about Perion may be found at www.perion.com, and follow Perion on Twitter @perionnetwork.

Non-GAAP measures

Non-GAAP financial measures consist of GAAP financial measures adjusted to exclude acquisition related expenses, share-based compensation expenses, restructuring costs, loss from discontinued operations, accretion of acquisition related contingent consideration, impairment of goodwill, amortization and impairment of acquired intangible assets and the related taxes thereon, non-recurring tax expenses, as well as certain accounting entries under the business combination accounting rules that require us to recognize a legal performance obligation related to revenue arrangements of an acquired entity based on its fair value at the date of acquisition. Additionally, in September 2014, the Company issued convertible bonds denominated in New Israeli Shekels and at the same time entered into a derivative arrangement (SWAP) that economically exchanges the convertible bonds as if they were denominated in US dollars when the bonds were issued. The Company excludes from its GAAP financial measures the fair value revaluations of both, the convertible bonds and the related derivative instrument, and by doing so, the non-GAAP measures reflect the Company’s results as if the convertible bonds were originally issued and denominated in US dollars, which is the Company’s functional currency. Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA") is defined as operating income excluding stock-based compensation expenses, depreciation, restructuring costs, acquisition related items consisting of amortization of intangible assets and goodwill and intangible asset impairments, acquisition related expenses, gains and losses recognized on changes in the fair value of contingent consideration arrangements and certain accounting entries under the business combination accounting rules that require us to recognize a legal performance obligation related to revenue arrangements of an acquired entity based on its fair value at the date of acquisition.

The purpose of such adjustments is to give an indication of our performance exclusive of non-cash charges and other items that are considered by management to be outside of our core operating results. These non-GAAP measures are among the primary factors management uses in planning for and forecasting future periods. Furthermore, the non-GAAP measures are regularly used internally to understand, manage and evaluate our business and make operating decisions, and we believe that they are useful to investors as a consistent and comparable measure of the ongoing performance of our business. However, our non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures, and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP. Additionally, these non-GAAP financial measures may differ materially from the non-GAAP financial measures used by other companies. A reconciliation between results on a GAAP and non-GAAP basis is provided in the last table of this press release.

Forward Looking Statements

This press release contains historical information and forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995 with respect to the business, financial condition and results of operations of Perion. The words “will”, “believe,” “expect,” “intend,” “plan,” “should” and similar expressions are intended to identify forward-looking statements. Such statements reflect the current views, assumptions and expectations of Perion with respect to future events and are subject to risks and uncertainties. Many factors could cause the actual results, performance or achievements of Perion to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements, or financial information, including, among others, the failure to realize the anticipated benefits of companies and businesses we acquired and may acquire in the future, risks entailed in integrating the companies and businesses we acquire, including employee retention and customer acceptance; the risk that such transactions will divert management and other resources from the ongoing operations of the business or otherwise disrupt the conduct of those businesses, potential litigation associated with such transactions, and general risks associated with the business of Perion including intense and frequent changes in the markets in which the businesses operate and in general economic and business conditions, loss of key customers, unpredictable sales cycles, competitive pressures, market acceptance of new products, inability to meet efficiency and cost reduction objectives, changes in business strategy and various other factors, whether referenced or not referenced in this press release. Various other risks and uncertainties may affect Perion and its results of operations, as described in reports filed by the Company with the Securities and Exchange Commission from time to time, including its annual report on Form 20-F for the year ended December 31, 2016 filed with the SEC on March 7, 2017. Perion does not assume any obligation to update these forward-looking statements.

Source: Perion Network Ltd.

PERION NETWORK LTD. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS: UNAUDITED

In thousands (except share and per share data)

  Three months ended   Nine months ended September 30, September 30, 2016   2017 2016   2017 Unaudited   Unaudited Unaudited Unaudited Revenues:   Search and other $ 42,110 $ 33,287 $ 132,195 $ 105,254 Advertising   32,350   31,755   96,057   91,452 Total Revenues   74,460   65,042   228,252   196,706   Costs and Expenses: Cost of revenues 3,794 3,561 12,008 10,476 Customer acquisition costs and media buy 32,990 31,955 102,065 95,793 Research and development 5,829 4,096 20,361 13,625 Selling and marketing 14,270 14,142 45,906 44,937 General and administrative 6,672 5,353 21,524 16,541 Depreciation and amortization 6,156 3,388 19,803 13,297 Impairment charges - - - 43,847 Restructuring costs   -   -   728   - Total Costs and Expenses   69,711   62,495   222,395   238,516   Income (Loss) from Operations 4,749 2,547 5,857 (41,810) Financial expense, net   950   644   6,406   4,166   Income (Loss) before Taxes on income 3,799 1,903 (549) (45,976) Taxes on income   915   (710)   (3,078)   (10,499)   Net Income (loss) from continuing operations 2,884 2,613 2,529 (35,477) Net Loss from discontinued operations   2,021   -   (2,647)   -   Net Income (Loss) $ 4,905 $ 2,613 $ (118) $ (35,477)   Net Earnings (Loss) per Share - Basic and Diluted: Continuing operations $ 0.04 $ 0.03 $ 0.03 *) $ (0.46) Discontinued operations $ 0.03 $ - $ (0.03) $ -     Weighted average number of shares continuing and discontinued Basic   76,573,397   77,550,069   76,357,173   77,548,867 Diluted   77,739,340   80,381,420   76,381,693   77,548,867   *) less than $0.01  

CONDENSED CONSOLIDATED BALANCE SHEETS: UNAUDITED

In thousands

    December 31,   September 30, 2016 2017 Audited Unaudited ASSETS   Current Assets: Cash and cash equivalents $ 23,962 $ 33,967 Short-term bank deposit 8,414 1,508 Accounts receivable, net 71,346 45,626 Prepaid expenses and other current assets   10,036   14,597 Total Current Assets 113,758 95,698   Property and equipment, net 14,205 16,968 Goodwill and intangible assets, net 234,755 180,600 Deferred taxes 4,117 7,902 Other assets   1,617   1,391   Total Assets $ 368,452 $ 302,559   LIABILITIES AND SHAREHOLDERS' EQUITY   Current Liabilities: Accounts payable $ 38,293 $ 32,692 Accrued expenses and other liabilities 17,466 14,915 Short-term loans and current maturities of long-term and convertible debt 17,944 13,879 Deferred revenues 5,354 4,845 Payment obligation related to acquisitions   7,653   6,163 Total Current Liabilities 86,710 72,494 Long-Term Liabilities: Long-term debt, net of current maturities 37,928 32,431 Convertible debt, net of current maturities 21,862 16,003 Deferred taxes 8,087 66 Other long-term liabilities   5,721   6,538 Total Liabilities   160,308   127,532   Shareholders' equity: Ordinary shares 210 211 Additional paid-in capital 234,831 236,529 Treasury shares at cost (1,002) (1,002) Accumulated other comprehensive gain (loss) (265) 396 Accumulated deficit   (25,630)   (61,107) Total Shareholders' Equity   208,144   175,027   Total Liabilities and Shareholders' Equity $ 368,452 $ 302,559  

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS: UNAUDITED

In thousands

  Nine months ended September 30, 2016   2017 Unaudited   Unaudited Operating activities: Net Loss $ (118) $ (35,477)   Loss from discontinued operations, net   (2,647)   - Net Income (Loss) from continuing operations 2,529 (35,477)   Adjustments required to reconcile net income to net cash provided by operating activities: Depreciation and amortization 19,803 13,297 Impairment of goodwill and intangible assets - 43,847 Stock based compensation expense 4,985 1,667 Foreign currency translation 928 77 Accrued interest, net 306 339 Deferred taxes, net (5,342) (11,915) Change in payment obligation related to acquisition 1,271 61 Fair value revaluation - convertible debt 1,588 2,768 Net changes in operating assets and liabilities   (4,398)   14,188 Net cash provided by continuing operating activities 21,670 28,852 Net cash used in discontinued activities   (3,303)   - Net cash provided by operating activities $ 18,367 $ 28,852 Investing activities: Purchases of property and equipment $ (1,011) $ (1,489) Capitalization of development costs (3,724) (4,437) Change in restricted cash, net (132) - Short-term deposits, net   34,606 6,906 Net cash provided by investing activities $ 29,739 $ 980 Financing activities: Exercise of stock options and restricted share units 1 1 Payment made in connection with acquisition (28,052) (1,551) Proceeds from long-term loans - 5,000 Repayment of convertible debt (7,620) (7,901) Repayment of short-term loans (26,000) (7,000) Repayment of long-term loans   (6,390)   (8,630) Net cash used in financing activities $ (42,061) $ (20,081) Effect of exchange rate changes on cash and cash equivalents   14   254 Net increase in cash and cash equivalents 9,362 10,005 Net cash used in discontinued activities (3,303) - Cash and cash equivalents at beginning of period   17,519   23,962 Cash and cash equivalents at end of period $ 23,578 $ 33,967  

RECONCILIATION OF GAAP TO NON-GAAP RESULTS: UNAUDITED

In thousands (except share and per share data)

    Three months ended   Nine months ended September 30, September 30, 2016   2017 2016   2017 Unaudited   Unaudited Unaudited   Unaudited   GAAP Net Income from continuing operations $ 2,884 $ 2,613 $ 2,529 $ (35,477) Acquisition related expenses - - 179 - Valuation adjustment on acquired deferred revenues - - 359 - Share based compensation 1,457 547 4,985 1,666 Amortization of acquired intangible assets 5,178 2,497 16,801 10,608 Restructuring costs - - 728 - Impairment of goodwill and intangible assets - - - 43,847 Fair value revaluation of convertible debt and related derivative (422) (803) 134 610 Accretion of payment obligation related to acquisition 63 34 1,270 61 Taxes on the above items   (1,490)   (753)   (5,810)   (10,247) Non-GAAP Net Income from continuing operations $ 7,670 $ 4,135 $ 21,175 $ 11,068   Non-GAAP Net Income from continuing operations $ 7,670 $ 4,135 $ 21,175 $ 11,068 Taxes on income 2,405 43 2,732 (252) Financial expense, net 1,309 1,413 5,002 3,495 Depreciation   978   891   3,002   2,689 Adjusted EBITDA $ 12,362 $ 6,482 $ 31,911 $ 17,000   Non-GAAP diluted earnings per share $ 0.10 $ 0.05 $ 0.26 $ 0.14   Shares used in computing non-GAAP diluted earnings per share 78,877,949 77,819,551 79,798,457 78,787,155

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Perion Network Ltd.Investor relationsVicky Batkin+972 (73) 398-1000Perion.Investor.Relations@perion.com