Hello, everybody, and welcome to the Perion Network Third Quarter of 2022 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 and 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 and 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 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 been filed on Form 6-K. Hosting the call today are Doron Gerstel, Perion's Chief Executive Officer; and Maoz Sigron, Perion's Chief Financial Officer. I would now like to turn the call over to Doron Gerstel. Please go ahead.

Thank you very much. Good morning, good afternoon, everyone. Thanks for joining our third quarter earnings call. Together with me on the call Maoz Sigron, our CFO. Before I dive into the quarter results, let's start by looking back to the last 8 quarters, taking the rule of 40 model and applying this to our business. The rule of 40 is used by investors to see the long-term health and sustainability of the business. It can also be used by management to make long-term predictions and decisions. In my opinion, the best way to assess performance through the convergent plan of revenue growth and EBITDA margin. The effect that Perion passes the hurdle of the rule of 40 is remarkable for an healthy company and has done so in the last 8 quarters, as you can see from the slide. There are needs to be viewed through this valuation lens, even though it's applied to a high-growth scalable software company and not in my knowledge to our industry. Now I want to deal with the elephant in the room. A big elephant, which can be summarized in 1 question, given our quarterly results. How can we keep outperforming our peers. I keep asked this question, and I think it's more relevant today than ever before. Perion is uniquely able to react and size opportunity based on current trends that might change. But what will not change is our DNA to continue identifying trends and turn them into business opportunities. Looking at the last 8 quarters, our ability to exceed the rule of 40 is not a series of anomaly or a one-off success. Quite the opposite, we are outperforming the industry because we are built on the fundamental recognition that adtech must be able to respond, underlying response to the…

Thank you, Doron. Doron, please let me share my screen. Thank you.

Go ahead, please.

Thank you, Doron. Good afternoon and good morning to those of you joining us from the U.S. I am happy to be here today to present Perion strong results for the third quarter of 2022. As you can see, Perion is performing extremely well. We are overperforming our industry in each of the financial networks consistently improving our results during the last 2 years despite the global macroeconomic challenges and market volatility. The adtech industry is not immune to the challenges. We are navigating our way between the market shift, thanks to our diversification strategy, our ability to execute, our agile business model and our innovative solutions. Giving the sense of our sustainable and predictable business model, which give us good visibility and the actions we have taken to reduce costs and penetrate new fast-growing market segments, we are updating our guidance and are positive about next year. Let's look at the key financial achievements this quarter, reflecting the strength of our business model and our ability to execute our strategy. Revenue of $158.6 million, reflecting 31% year-over-year growth, the highest quarterly revenue since 2014. Adjusted EBITDA of $33 million, 21% of revenue compared with 15% last year, reflecting 87% year-over-year growth. Net -- GAAP net income of $25.6 million, 141% year-over-year growth, the highest quarterly net income since 2014. Non-GAAP diluted earnings per share of $0.61, reflecting 53% year-over-year growth. Turning now to the quarterly results in more detail. The third quarter revenue was $158.6 million, an increase of 31% year-over-year. The strong continued revenue growth reflected a CAGR 38%. Display advertising revenue increased by 26% year-over-year to $86.8 million, 55% of total revenue. Market adoption of our holistic video platform solution continued to rise. Video revenue more than 3% year-over-year, representing 44% of display advertising revenue. The number…

Given our strong performance, in our sustainable and predictable business model and the good visibility into the fourth quarter, we're increasing our guidance for 2022 substantially. More specific, we are calling for $630 million to $640 million in revenue by the end of the year and at least $120 million of EBITDA. That represents 72% year-over-year on the EBITDA growth or 33% year-over-year growth from -- on the revenue side. Another note here is that our CAGR on the revenue between '20 to '22 is 39% and the CAGR on the EBITDA on these 3 years is 91%. Ending note, let me go back to why -- how I started this presentation. Since I became CEO in April of 2017, my mission has been to build the company of the future for the future. That means the company the would be strategically diverse and also lightweight and fluent . And so a future of volatility where new trends would emerge. Others would become less relevant, and we're a successful company needed to shorten the reaction cycle or it would be outlined by circumstances beyond its control. We've built a company that makes the transact trend and what -- and that's why we are outperforming the market and can continue to do so. In a year, those 4 trends may change but it doesn't matter to Perion because we will be able to react immediately to the new trends, gain market share in a high profitability while driving client satisfaction. I'd like to close this call by thanking my team because without their variability and agility, we would not be where we are today. And together, we will continue achieving what we do next. Thanks so much. With that, let's open the line for Q&A.

[Operator Instructions]. Our first questions come from the line of Eric Martinuzzi with Lake Street Capital Markets.

Yes. Congratulations on the strong quarter and the good outlook. Just curious to know, I know you released your prelim Q3 results on October 5. What did you learn during the month of October as far as the trends in the industry, different maybe than what you saw in Q3?

So I didn't -- I don't think that there are changes in October but what we're able to see these days is that this is going to be definitely a strong holiday season. Definitely, when it comes to demand for our advertiser on all channels.

Okay. And as far as your competitors go and just other players in digital marketing, there's definitely been a dramatic deceleration you went through some of the reasons why Perion has not experienced the same decelerations. But -- and I know you're not giving guidance on 2023, but the organic growth that you guided to for Q4, I believe we're in the neighborhood of high 20%. What's the sustainability of that beyond Q4?

So I must say that, that was the heart of our presentation and our ability to keep growing the way we did in the last 8 quarters, I think that diversification is definitely something which is important, but our ability to identify those trends and react quickly is giving us a lot of confidence on our ability to maintain and grow our business. The foundation is definitely there. The foundation from the hub perspective is giving a huge cost leverage and the foundation of our ability to go after new markets, I think that what we are able to achieve with those -- with resellers is definitely evident, so retail marketing is 1 of this. We are investing a lot on developing new high-impact formats, mainly for the CTV. We have advanced conversation with Microsoft advertising. As far as our ability to leverage our great reputation from the search part of the business into Xender and promote IQ, the 2 acquisitions that Microsoft advertising, this is all part of 2023. So we are quite optimistic. We are aware of what is going around. It makes us that we need to really work harder than how we performed in the past.

Okay. And then lastly, you talked about taking the share in social. Is that anecdotal color that you're getting? I mean, or do you have a view into -- your customers are telling you, hey, we're pulling this much out of social and we're shifting it over to search, specifically on that direct response budget shift?

So there are two, I think, two major events that happened on social. One has to do with iOS 14 that was kind of a year ago, and second, the fact that the attribution window in Facebook is being reduced from 28 days to 7 days. Those are mega events when it comes to advertisers, they definitely view the effectiveness of social advertising from a targeted set. And that's -- we definitely see a shift from social into search because there is nothing compared to the intent of the consumer that you're able to target in search advertising. So we see a little rise there as an evidence of it, we shared the RPM increase in the CTR. This all reflected the advertisers will need to pay more to have their ad associated with the keywords this year or this time compared to last year. If the CTR shows that there are more qualified, qualified in respect to high-intent consumer that will be exposed to those ads and being reflected on the CTR. So all in all, definitely a shift. And I think it was a part of what we keep saying for a long time that Perion is in a very interesting position that we are able to capitalize on those shifts that is happening and this is the nature of this industry because from the eyes of the Chief Digital Officer that need to allocate its budget wisely among those 3 main pillars. They shift budget because of what's happened. And the question is how we will be victim of being a point solution that's not able to do anything when there is different trends or you are able to divert your offerings and capitalize on those trends. And I'm glad that we are on the latter than the before.

Our next questions come from the line of Laura Martin with Needham & Company.

Can you hear me okay?

Yes, we can hear you.

So great numbers. Wow, what a performance, congratulations. I guess my first question is, as you think about cost next year, one of the things I'm curious about is we have Twitter laying off half of their workforce and Meta today laying off 13% of their workforce. I'm wondering if that -- my first question is, does that give you opportunities to pick up some excellent engineers and maybe build your cost but really upgrade and add to your talent base because of some of these talented people getting laid off in your -- in the sort of digital ad industry?

Right on, our HR is already all over. They are using LinkedIn and they are using any other resources because there are some great engineers there, and we have great, Perion is a small community and I'm glad that Facebook has a huge lay out here. Some of them are unfortunately looking for a new home. And I think that we have a huge data scientist team that is working on our iHub. And they're hearing me now that's definitely a good place for them. But we are seeing if there's a great opportunity. When it comes to Twitter, I must say that there is a very interesting thing that we notice that has to do with privacy, nothing from the employment and there are some hesitation from advertisers. It's kind of they're on the fence. They're not sure yet what is going on, and we see it immediately when they are shifting budget to other channels. So that's -- I don't know how long this trend will continue, but I can tell you that advertiser acting quite quickly when they are shifting from channel or within channel. And that's something that we noticed initially after the announcement of the Twitter -- Musk acquisition.

And then on interactive ad units, I'm wondering how important you feel that, that is a driver to your 2023 revenue?

You're talking about the interactive ad units? So again you're at -- I'm not -- Laura?

Can you hear me okay or no?

Now I can hear you, but I didn't hear the question well. Can you repeat?

Yes. So I was asking about how important our interactive ad units to drive revenue in 2023?

Very good. So interactive units, especially on the CTV side is part of what we call high-impact suite. And it is not the pivot of it, it's a feature. There are some that like it, some not. There is -- I can tell you that I talked a bit about the laid back type of experience. It is really interesting to know to what extent when you were laid back. The whole performance CTV is very much under kind of the question mark that the interactive forms very well as a way to interact with your TV, make an action. I must say that at this point, the majority of our advertiser is looking at it that, that the viewer is more passive then we were kind of hoping. So it is there, but it's not more than, let's say, 10% to 15% of the overall CTV spend.

Our next questions come from the line of Andrew Marok with Raymond James.

So the trends on SORT look really encouraging. I guess, what does it take to get SORT more involved in more advertisers campaigns? Is it really just an awareness issue right now? And then secondly, kind of separately, on the search market. I guess, could we drill down a little bit there because your search business is growing well in excess of the total search market? Just to get a little sense of some of the drivers there. We understand the shift towards search in a pressured macro environment, but what particularly are you guys doing well?

Great. Thank you. So first on SORT. So there are 2 drivers behind SORT, which makes it quite important. I use the word flywheel, but we truly believe that that's the flywheel. First and foremost from the technology and data standpoint, more SORT campaign we're doing the better we are. That's a very important figure. And I'm happy that we are able to perform well. Now keep in mind that there are 2 forces this year, that's pushing SORT. One is coming from advertisers that they realize that consumer-preferred brand that protect their privacy. It's part of a bigger movement, which is the ESG movement and when we're dealing with a premium advertiser, that's a very important argument. However, at this point, with all the respect to privacy, they said, "well, we love what you're doing, but we don't want to compromise on performance. So all of them with no exception, and we say this was one of them that expecting us to do an ABC benchmark, a SORT, b, third-party, and c, contextual targeting in order to benchmark the performance in SORT. The other thing which is very interesting is what's happening from a legislation standpoint. And that's a very, very interesting movement, even though it will take time, and we have a feeling that this trend definitely left the station. So that's what makes SORT moving. Now to your question, we are working as we speak. Right now on SORT as the service. In other words, currently, SORT is being used at Perion with no exception. And we are -- our intention is to go beyond Perion and have it as a service. The service that we were able to work with publishers, other DSPs and make it . And so far, we are in -- we've just…

Our next questions come from the line of Jeff Martin with ROTH.

Great. Can you hear me?

Yes.

Congrats on a wonderful quarter. I wanted to drill down a little bit more on the publisher growth within search, up 60% year-over-year. You're obviously expanding into new countries. I was curious if there's things beyond that, if the high-impact capabilities within search are attracting publishers. Is there anything in particular that is driving that growth? And what your outlook for additional increase in publisher additions over the next 12 to 18 months looks like?

So just a small correction. The high impact has to be with the display and search has nothing to do with the high impact, high impact suite that we're doing. But to your questions when it comes to publisher, definitely with the new products that we're launching, we're looking about 2 parameters. The increase in spend, the existing publisher is doing and the other one, our ability to attract net new publishers, and that's going very well in both ends. The fact that we are become bigger and bigger gives us also a better Webshare rate, which we are able to share with our publisher and makes us even more competitive compared to other partners. So -- and that gives us an advantage to attract even more publisher.

Great. And then just I was curious if you could give some insight into the potential to continue to grow the average campaign size or average client spend I think, $117,000 in the quarter, and that's up nicely year-over-year. What are some of the factors as we head into 2023 that will enable that to continue to grow?

Absolutely. So the main factor, of course, it has to do with the units. So the whole notion of going into a high impact imposed to standard is you spend more. Yes, it all needs to be translated to a higher return on net spend, quite an effort to educate our customers. Don't measure us based on what you spend, measures based on what you gain out of this campaign, even though you pay premium and I mentioned the $32 CPM, which is a very, very high number. So it has to do with -- continue with the high impact. That's one. Second, it's very important for us to come with this campaign with multiple screens. I mentioned how important it is to having 1 campaign, the ability to want to multiple screen and ability to synchronize between those screens because it's quite different on price, and it's very effective because the consumer is changing screen in its way to work, at work, at office and you name it. So that's another factor. While we're able to have more screens in a single campaign that increased dramatically the spend. Now it fits very well, the agency and the brands that are looking more than ever to minimize the number of vendors. So when you're coming with holistic solutions that cover all their needs on multiple screens, they are willing to give you more and more business. And it's not secrete to say that getting $117,000 average deal IO, it's the same effort in getting a name from it's the same effort. So everything is the same effort because creative is being done, and activation in being done and you need to set the plumbing and you need to do reporting and we need to do everything that's a net, net, net margin that we're able to get. So this is 1 of the -- I think the most important parameter that we should looked at. And we are doing tremendous efforts to increase the spend, but at the same time, it needs to be translated to increase value for the perception of the customer. Otherwise, it cannot be done.

Great. And then last question for me, if I could. You've got a pretty sizable cash flow at this point. Could you give us a look under the hood at what M&A might look like in 2023? Are you planning on continuing down that strategic path?

Yes. So first of all, I must say that I answered this question beginning of 2022. And honestly, I was kind of thinking that we're able to do. If I remember, I said 1 and maybe 2 reasons. And the situation is a bit different. And I think that we all understand that we worked really hard to be in this position where we have now close to $400 million of net cash and no debt. It gives us a wonderful position. We are looking for accretive specific targets that we identified. I can tell you that we are definitely focusing on it. The intention, I know I need to be more careful than last year. So the intention is definitely doing it in 2023. That's the intention. There are some great opportunities in there for us, and I'm very optimistic.

Our next questions come from the line of Mark Kelley with Stifel.

I wanted to ask you about -- you called out a strong holiday season as your expectation for this year? And Criteo is just 1 company in particular that called out a lack of an early holiday ramp in ad spend. And it sounds like maybe you're not seeing that, I guess, is the shape of the fourth quarter playing out as you would typically expect so far? That's my first question. And the second 1 is, and if you answered this, I apologize, but can you please give us the pro forma growth rate for 3Q with Vidazoo?

Very good. So as far as the Q4, so far, November 9, we're definitely -- which we're almost in the mid of the quarter, we are definitely not seeing any slowdown. Plan is that, we're before, it may be changing mix between the different channels, yes, that's definitely something, which we couldn't project but as I mentioned before, the fact that we are diverse, and it gives us a way to capitalize on these changes and they overall looks as we planned.

Perfect. And then on the pro forma growth for 3Q, if you could give us that, that would be great.

Yes, Mark, thank you for the question. We are with pro forma above 15% for Q3. Again, this is, as mentioned during the last call, it's difficult for us to measure the exact number due to the synergy that we have between Vidazoo and the rest of the business unit, which is good. But yes, this is more or less the number. And again, as mentioned during the last call, part of the IR benefit is definitely for Vidazoo, that joined and contribute a lot to the bottom line to the EBITDA.

All right. And that's 15% right, just to make sure.

15%. Right.

Our next questions come from the line of Jason Helfstein with Oppenheimer.

I'll ask one. So it's very clear as earnings are playing out, obviously, a lot this morning last night that -- right now, like being a demand-side platform is definitely a more attractive ways to be because you control effectively like the buying decision as opposed to accepting the bids. In addition, being multi-platform is increasingly important. And then you're also seeing significant benefit by having supply-side capabilities on the margin and control inventory. So far, as we've seen companies scale two side of the marketplaces, it's been incredibly difficult. Talk about kind of where you see the kind of plan from here kind of both organically and through M&A continuing to be a two-sided marketplace, which is clearly working in your favor?

So first of all, Jason, right now, I mean that's a good description, I think, of why we're able to perform quarter after quarter. I can tell you that from an organic standpoint, there is a lot that we can grow. I mentioned a few areas. On the display side, we're definitely putting a lot of effort on retail media. I think that definitely, the customers that we're talking with are very much behind on their media business, and they all want to be where Amazon and Walmart and others are today. They have the data. They have the data. That's the point. The challenge for us is to take them and from where they are today to where they need to be, and I'm very happy that we're able to do it even in an always on fashion. It's only the start but that's definitely an area that we are planning to invest more. That's from a vertical perspective. When it comes to the video, there is quite a very interesting thing that's happening also that those publishers that are joining are very much putting all their video business on our platform, which gives us another very interesting what we call stickiness kind of business, the cost of transitioning or the cost of switching is so high, and we're always looking for those kinds of things that gives us more stability and more predictability on our business. So I think that there is great way organically to grow the business as I mentioned in the call. In terms of the acquisition, yes, we identified 2 areas where we are want -- the CTV is definitely remain high. We truly believe that there are some very, very interesting company in this domain. We're going after those companies. We are -- where we are today and what we are -- wants to accomplish this needs to be a company that definitely represents a leadership position in the domain, not less than that. It's not going to be a technology acquisition. It's definitely a business acquisition, which have prominent first tier agencies and customer. This is what we put and this is the screening that we're doing at this time, and there are some interesting opportunities there. Other area which is something that we start working and start evaluating it has to do with digital out of home. We think that this is really interesting, especially when we are looking about convergence of digital out of home in retail. Having screens in the retail is very interesting. At least this is something that we are hearing from our retail business. So those are the 2 areas that at this point we're looking at.

There are no further questions at this time. So I'll hand the call back over to you for any closing comments.

Very good. All right. Guys, thank you very much for joining and see you next time. Thanks again. Bye, bye.

Bye, bye.

Thank you. This does end today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and enjoy the rest of your day.

Thank you.

Goodbye.