PERI Perion Network Ltd

Perion accelerates its strategic plan and restructures its search monetization business

Perion Network Ltd. (NASDAQ: PERI) announced today its financial results for the third quarter and nine months ended September 30, 2014.

      Financial Highlights* (U.S. dollars in thousands, except for per share data)                

Three months ended September 30,

Nine months endedSeptember 30,

2013     2014 2013   2014   Non-GAAP Revenues $ 81,568 $ 87,377 $ 242,927 $ 315,548   Non-GAAP Net Income $ 6,111 $ 26,647 $ 43,270 $ 81,639   Adjusted EBITDA $ 12,652 $ 33,945 $ 57,226 $ 101,109   Non-GAAP Diluted earnings per share $ 0.11 $ 0.38 $ 0.78 $ 1.18   GAAP Net Income (loss) $ (9,815 ) $ 16,996 $ 22,222 $ 48,499   GAAP Diluted earnings per share $ 0.06 $ 0.24 $ 0.92 $ 0.69   GAAP Cash Flow from operations $ 68,866 $

47,229

 

* Reconciliation of GAAP to Non-GAAP measures can be found in the last table.

 

Josef Mandelbaum, Perion’s CEO, commented: “I am pleased with our third quarter results, as we delivered revenue and profits in line with our expectations and guidance. As we mentioned last quarter, we took decisive actions ahead of time and lowered our marketing spend to proactively deal with the persistent industry headwinds. In addition, we implemented a reorganization of our search business, which included a head count reduction as well as other cost saving measures. These actions will align costs with the expected lower level of future search revenues.”

Mr. Mandelbaum continued, “We remain confident in our strategy, and will use our strong cash position and continued positive cash flow to focus on being the best in class in two main activities: monetization solutions for developers and mobile marketing solutions for advertisers. In regards to our mobile efforts, we have made considerable progress and are excited to announce the launch of our GrowMobile self-service platform next week in London. GrowMobile Self-Serve is the first cross-network mobile advertising platform, offering a centralized system for buying media across hundreds of traffic sources. In addition, we are developing new monetization products beyond search around activities like PC2Mobile app monetization and targeted advertising for publishers. We believe these investments will enable us to emerge a stronger company, with a unique value proposition to publishers and advertisers.”

In accordance with generally accepted accounting principles (“GAAP”), the acquisition of ClientConnect by Perion, which closed on January 2, 2014, is accounted for as a reverse acquisition. Therefore, Perion is comparing its results to the results of ClientConnect in 2013. The year over year growth described below is attributable to a great extent to the fact that Perion's 2013 results are not included in the results of ClientConnect in 2013.

Non-GAAP Financial Comparison for the third Quarter of 2014:

Revenues: In the third quarter of 2014, revenues were $87.4 million, increasing 7% compared to ClientConnect's revenues of $81.6 million in the third quarter of 2013. Non-GAAP revenues in the third quarter of 2014 include $1.1 million of deferred product revenues, which in accordance with GAAP were recorded at fair value on the acquisition date. In the third quarter of 2013, non-GAAP revenues included $0.6 million of revenues which in the GAAP report were associated with discontinued operations.

Customer Acquisition Costs (“CAC”): In the third quarter of 2014, Perion decreased its investment in CAC to $30.0 million, representing 34% of revenues, compared to $49.8 million, or 61% of revenues in the third quarter of 2013 by ClientConnect.

Costs and Expenses: Excluding CAC, costs and expenses in the third quarter of 2014 were $24.1 million, or 28% of revenues, compared to $21.7 million, or 27% of revenues, at ClientConnect in the third quarter of 2013. Non-GAAP costs and expenses in the third quarter of 2014 excluded $4.8 million amortization of acquired intangible assets, $4.4 million of share based compensation expenses and $1.0 million of acquisition related expenses, all of which were included in the GAAP numbers. In the third quarter of 2013, non-GAAP costs and expenses excluded $4.1 million of share based compensation expenses and included activities of $11.5 million which in the GAAP report were associated with discontinued operations and excluded from costs and expenses.

Adjusted EBITDA: In the third quarter of 2014, adjusted EBITDA was $33.9 million, or 39% of revenues, a 168% increase compared to $12.7 million at ClientConnect in the same quarter last year.

Net Income: In the third quarter of 2014, net income was $26.6 million, or 30% of revenues, compared to $6.1 million, or 7% of revenue at ClientConnect in the third quarter of 2013.

Non-GAAP Financial Comparison for the Nine Months ended September 30, 2014:

Revenues: In the first nine months of 2014 revenues were $315.5 million, increasing 30% compared to ClientConnect's revenues of $242.9 million in the first nine months of 2013. Non-GAAP revenues in the first nine months of 2014 include $4.9 million of deferred product revenues, which in accordance with GAAP were recorded at fair value on the acquisition date. In the first nine months of 2013, non-GAAP revenues included $1.5 million of revenue which in the GAAP report was associated with discontinued operations.

Customer Acquisition Costs (“CAC”): In the first nine months of 2014, Perion increased its investment in CAC to $145.5 million, representing 46% of revenues, compared to ClientConnect's $131.7 million in first the nine months of 2013.

Costs and Expenses: Excluding CAC, costs and expenses in the first nine months of 2014 were $70.8 million, or 22% of revenues, compared to $58.0 million, or 24% of revenues, at ClientConnect in the first nine months of 2013. Non-GAAP costs and expenses in the first nine months of 2014 excluded $13.8 million amortization of acquired intangible assets, $12.7 million of share based compensation expenses and $4.4 million of acquisition related expenses, all of which were included in the GAAP numbers. In the first nine months of 2013, non-GAAP costs and expenses excluded $9.2 million of share based compensation expenses and included activities of $28.7 million which in the GAAP report were associated with discontinued operations.

Adjusted EBITDA: In the first nine months of 2014, adjusted EBITDA increased by 77%, to $101.1 million, or 32% of revenues, compared to $57.2 million, or 24% of revenues at ClientConnect in the same period last year.

Net Income: In the first nine months of 2014, net income was $81.6 million, or 26% of revenues, increasing 89% from $43.3 million at ClientConnect in the first nine months of 2013.

Cash and Cash Flow from Operations:

GAAP Cash Flow: As of September 30, 2014, cash and cash equivalents were $96.9 million. Included in this balance is $37.3 million of net proceeds raised in September 2014 from a public offering in Israel of its 5% Series L Convertible Bonds, due 2020. Perion currently satisfies all of the financial covenants associated with the bonds. Cash flow from operations in the first nine months of 2014 was $47.2 million.

2014 Financial Outlook:

The following forward looking statements reflect management’s expectations as of November 6, 2014:

• Reaffirmed non-GAAP Revenue will be in the range of $380 million to $400 million, as previously announced.
• Raised adjusted EBITDA, now expected to be in the range of $115 million to $120 million.
• Raised non-GAAP Net Income, now expected to be in the range of $90 million to $95 million.

Conference Call

Perion will host a conference call to discuss the results today, November 6, 2014 at 10 a.m. ET. Details are as follows:

• Conference ID: 6100298
• Dial-in number from within the United States: 1-888-539-3612
• Dial-in number from Israel: 1-809-245-906
• Dial-in number (other international): 1-719-325-2393
• Playback available until November 13, 2014 by calling 1-877-870-5176 (in the U.S.) or 1-858-384-5517 (international). Please use pin number 6100298 for the replay.
• A live webcast is accessible at http://www.perion.com/events-presentations.

About Perion Network Ltd.

Perion powers innovation. We are a global performance-based media and Internet company, providing online publishers and app developers advanced technology and a variety of intelligent, data-driven solutions to monetize their applications and content and expand their reach to larger audiences, based on our own experience as an app developer. Our leading software monetization platform, Perion Codefuel, empowers digital businesses to optimize installs, analyze data and maximize revenue. Our app promotion platform, GrowMobile, enables developers to make wise decisions on where to spend advertising budgets to produce the highest yield and the most visibility. The Perion team brings decades of experience, operating and investing in digitally-enabled businesses, and we continue to innovate and create value for the app ecosystem. More information about Perion may be found at www.perion.com. Follow Perion on Twitter @perionnetwork.

Non-GAAP measures

Non-GAAP financial measures, as well as adjusted EBITDA, consist of GAAP financial measures adjusted to include the results of discontinued operations, and to exclude acquisition related expenses, share-based compensation expenses, amortization of acquired intangible assets and non-recurring tax expenses, as well as certain accounting entries that are required under the business combination accounting rules. 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 immediately following the Summary of Non-GAAP Financial Results.

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 the ClientConnect transaction; risks entailed in integrating the ClientConnect business with Perion’s other businesses, including employee retention and customer acceptance; the risk that the transaction will divert management and other resources from the ongoing operations of the two businesses or otherwise disrupt the conduct of those businesses, potential litigation associated with the transaction, and general risks associated with the business of Perion and with the ClientConnect business, including 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, 2013 and the report on Form 6-K filed with the SEC on September 23, 2014. Perion does not assume any obligation to update these forward-looking statements.

Source: Perion Network Ltd.

        PERION NETWORK LTD. GAAP FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) U.S. dollars and number of shares in thousands (except per share data)  

Three months ended September 30,

Nine months ended September 30,

2013     2014   2013     2014   Revenues: Search $ 68,899 $ 73,310 $ 206,162 $ 262,656 Advertising and other 12,030   12,975   35,217   47,987   Total revenues 80,929   86,285   241,379   310,643     Costs and expenses: Cost of revenues 1,464 7,527 4,418 20,490 Customer acquisition costs 49,752 30,006 131,727 145,548 Research and development 5,530 10,873 15,773 34,832 Selling and marketing 2,349 7,617 7,297 18,126 General and administrative 4,920   8,237   10,973   28,192   Total costs and expenses 64,015   64,260   170,188   247,188     Income from operations 16,914 22,025 71,191 63,455   Financial income (expense), net 602   (1,039 ) 2,014   (1,906 ) Income before taxes on income 17,516 20,986 73,205 61,549 Taxes on income 13,920   3,990   22,671   13,050   Net income from continuing operations 3,596 16,996 50,534 48,499 Net loss from discontinued operations (13,411 ) -   (28,312 ) -     Net income (loss) $ (9,815 ) $ 16,996   $ 22,222   $ 48,499     Net income (loss) per share - basic: Continuing operations $ 0.07   $ 0.25   $ 0.94   $ 0.71   Discontinued operations $ (0.25 ) $ -   $ (0.53 ) $ -     Net income (loss) per share - diluted: Continuing operations $ 0.06   $ 0.24   $ 0.92   $ 0.69   Discontinued operations $ (0.25 ) $ -   $ (0.53 ) $ -     Number of shares - basic: Continuing and discontinued operations 53,909   69,002   53,907   67,893     Number of shares - diluted: Continuing operations 55,562   69,449   54,991   69,185   Discontinued operations 53,909   -   53,907   -       PERION NETWORK LTD. GAAP FINANCIAL STATEMENTS CONDENSED CONSOLIDATED BALANCE SHEETS U.S. dollars in thousands         December 31, 2013 September 30, 2014 Audited Unaudited ASSETS:   Current Assets: Cash and cash equivalents $ 949 $ 96,934 Restricted cash - 1,650 Accounts receivable, net - 34,250 Other current assets 400 7,345 Total current assets 1,349 140,179   Property and equipment, net 2,189 11,367 Goodwill and intangible assets, net 27,520 208,027 Other assets - 2,401   Total assets $ 31,058 $ 361,974   LIABILITIES AND STOCKHOLDERS' EQUITY:   Current Liabilities: Accounts payable $ 13,358 $ 24,982 Accrued expenses and other liabilities 1,423 17,809 Current maturities of long term debt - 2,300 Deferred revenues 6,250 7,090 Payment obligation related to acquisitions - 10,191 Total current liabilities 21,031 62,372   Long-term debt - 2,525 Long-term convertible debt - 37,279 Long-Term payment obligation related to acquisition - 4,734 Other long-term liabilities - 6,080 Total liabilities 21,031 112,990   Stockholders' equity: Common stock and additional paid-in capital 10,027 200,485 Retained earnings - 48,499 Total stockholders' equity: 10,027 248,984   Total liabilities and stockholders' equity $ 31,058 $ 361,974     PERION NETWORK LTD. GAAP FINANCIAL STATEMENTS CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) U.S. dollars in thousands       Nine months ended September 30, 2013     2014  

Operating activities:

Net income $ 22,222 $ 48,499 Loss from discontinued operations, net (28,312 ) -   Net income from continuing operations 50,534 48,499   Adjustments required to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,536 15,641 Share based compensation 6,856 12,679 Acquisition related expenses paid by shareholders - 3,060 Accrued interest, net 1,284 143 Accretion of payment obligation related to acquisition - 958 Fair value revaluation of convertible debt - (584 ) Capital loss from sale of property and equipment - 104 Deferred income taxes (69 ) (3,889 ) Changes in assets and liabilities 27,584   (29,382 ) Net cash provided by continuing operating activities 87,725 47,229 Net cash used in discontinued operations (18,859 ) -   Net cash provided by operating activities 68,866   47,229    

Investing activities:

  Purchase of property and equipment (1,226 ) (4,930 ) Restricted cash - 435 Investments in short-term bank deposits (75,749 ) - Cash used for the acquisition of Grow Mobile LLC - (4,322 ) Cash acquired through acquisition of Perion Network Ltd. -   23,364   Net cash provided by (used in) continuing operations (76,975 ) 14,547 Net cash provided by discontinued operations 922   -   Net cash provided by (used in) investing activities (76,053 ) 14,547    

Financing activities:

  Proceeds from exercise of employee options 68 1,576 Contribution by shareholders - 585 Deferred payment made in connection with acquisition - (4,079 ) Proceeds from issuance of convertible debt - 37,852 Repayment of long-term loans -   (1,725 ) Net cash provided by financing activities 68   34,209     Net increase (decrease) in cash and cash equivalents (7,119 ) 95,985 Decrease in cash and cash equivalents - discontinued operations 1,699 - Cash and cash equivalents at beginning of period 78,395   949     Cash and cash equivalents at end of period $ 72,975   $ 96,934       PERION NETWORK LTD. RECONCILIATION OF GAAP TO NON-GAAP RESULTS (UNAUDITED) U.S. dollars and number of shares in thousands (except per share data)    

Three months ended September 30,

Nine months ended September 30,

2013     2014   2013     2014     GAAP revenues $ 80,929 $ 86,285 $ 241,379 $ 310,643 Revenues from discontinued operations 639 - 1,548 - Valuation adjustment on acquired deferred product revenues -   1,092   -   4,905   Non-GAAP revenues $ 81,568   $ 87,377   $ 242,927   $ 315,548     GAAP costs and expenses $ 64,015 $ 64,260 $ 170,188 $ 247,188 Acquisition related expenses - (1,010 ) - (4,429 ) Discontinued operations operating expenses 11,492 - 28,736 - Share based compensation (4,088 ) (4,370 ) (9,210 ) (12,679 ) Amortization of acquired intangible assets -   (4,769 ) -   (13,770 ) Non-GAAP costs and expenses $ 71,419   $ 54,111   $ 189,714   $ 216,310     GAAP net income (loss) $ (9,815 ) $ 16,996 $ 22,222 $ 48,499 Valuation adjustment on acquired deferred product revenues - 1,092 - 4,905 Acquisition related expenses - 1,010 - 4,429 Share based compensation 4,088 4,370 9,210 12,679 Amortization of acquired intangible assets - 4,769 - 13,770 Fair value revaluation - convertible note - (584 ) - (584 ) Non-recurring tax expense 11,838 - 11,838 - Accretion of payment obligation related to acquisitions - - - 452 Taxes related to amortization of acquired intangible assets and share based compensation -   (1,006 ) -   (2,511 ) Non-GAAP net income $ 6,111   $ 26,647   $ 43,270   $ 81,639     Non-GAAP net income $ 6,111 $ 26,647 $ 43,270 $ 81,639 Income tax expense 2,082 4,996 10,833 15,561 Financial (income) expense, net (602 ) 1,623 (2,014 ) 2,038 Depreciation 2,504 679 4,014 1,871 Discontinued financial income, net (24 ) - (107 ) - Discontinued tax expense 2,581   -   1,230   -   Adjusted EBITDA $ 12,652   $ 33,945   $ 57,226   $ 101,109     Non-GAAP diluted earnings per share $ 0.11   $ 0.38   $ 0.79   $ 1.18   Shares used in computing non-GAAP diluted earnings per share 55,562   69,449   54,991   69,185  

Perion Network Ltd.Deborah MargalitPerion Investor Relations+972-73-398-1000investors@perion.comorSolebury Communications GroupJamie Lillis+1 (203) 428-3223jlillis@soleburyir.com