Welcome to Perion Network First Quarter 2022 Earnings Conference Call. Today's conference call is being recorded. The press release detailing the financial results is available on the company's website at 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 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 also 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, Kevin, and hello everyone. I'm Doron Gerstel, the CEO, and with me is Maoz Sigron, our CFO. Thank you for joining our earnings call for the first quarter of 2022. Let’s begin. Earlier today, we announced that the first quarter of 2022 set a new record for revenue and EBITDA. I want to emphasize that this significant growth is not a one-time occurrence. This is evident when comparing the first quarter of 2021 to the current quarter, showing that we have a stable and predictable business model, which is the main focus of my presentation today. I would like to discuss the key drivers behind this sustained business model. The foundation of our strategy is rooted in understanding the perspective of the Chief Digital Officer for each brand, whose primary challenge is budget allocation across the three main pillars of digital advertising: search, social, and display/CTV. We often observe that Chief Digital Officers allocate their budgets differently, influenced by various factors. Our strategy leverages these changes, proving beneficial since we diversify beyond just one area. For example, the shift in our business from last year to this year shows that last year, search advertising accounted for 58% of our business while display constituted 42%. This quarter, those figures have changed to display comprising 55% and search dropping to 45%. This shift allows us to focus on a high-growth sector. The rapid growth in display advertising, particularly in video, is significant; our video share of display has increased from 50% to 40%, and CTV has nearly doubled from 3% to 5%. We are also targeting another high-growth area, particularly at the start of this year, as we collaborate with notable brands on the retail side, offering an engaging product. These shifts highlight our capability to focus on high-growth sectors, driving overall growth. Regarding EBITDA, I'll address it more broadly. The AdTech sector is expanding at a 23% CAGR from 2020 to 2022, and the entire digital advertising category is growing at a 39% CAGR in the same timeframe. This positions us to achieve significant growth even amidst fluctuating market conditions. I will provide more insights on how we are capturing market share from competitors, outperforming the overall growth rate of the sector. Now from an EBITDA perspective, the numbers are even more interesting. I use the same type of format, which we're not just talking about the 158% year-over-year growth between the first quarter of 2021 to the first quarter of 2022. I would like to emphasize the point that this is the continuous growth of our EBITDA and really has to do with two main drivers that help us to increase our net margin to get them to a point where we were below 20% of EBITDA to revenue ex-tax to a number which we're so proud of, that our EBITDA percentage is 42%, EBITDA to revenue, excluding media cost, at 42%. And what's behind it? What is behind us is very much our structure, and I explained this in previous calls. I would like to focus because it's a key differentiator for our company: the ability to connect all assets, demand and supply, into a central intelligent Hub, known as iHub, that allows us to drive scalable operational efficiency and improve media margin, as Maoz will talk about in his presentation. The two factors, operational efficiency and improved media margin, are definitely reflected in our EBITDA numbers here. Talking about our intelligent Hub, I've illustrated it in a way that you're able to see the demand asset that we have connected to brand agency DSPs to our partner, Microsoft Bing, and then the supply assets that we have on the rise. First and foremost, from a diversification standpoint, the ability to generate revenue from both sides, the demand side and the supply side, which is very important. The huge investment that we did in technology allows us to connect all possible data into one single intelligent Hub. And the benefit of doing it is clear. Those are the three things I touched: the operational cost, and I touched the media costs, but I would like to elaborate on what we're really proud of is the extent to which this hub-and-spoke structure, which we are analyzing and crunching so much data that is coming from all sides of the house—demand and supply—allows us to increase customer value. The first product that we launched is SORT, this is the cookie-less solution. We saw that mid-October and the results are astonishing. This is the operation behind it. We operate 24/7 and what we are doing on predictive analytics, the moment we get an opportunity. But what's more important, we are working with the certification body of Lithuania, and the reason that we are working with them is that every quarter, we send our performance and our results, the contained performance that we did in the given quarter. We ask them to certify this because every campaign, we insist with our customer. We have more than 110 since we launched the SORT solution. Every campaign that we are doing, we insist that it will have cookie-less targeting alongside using third-party cookies. That runs in every campaign, really helping them to certify the fact and coming with this point that SORT demonstrates the ability to outperform to additional third-party tactics and show the largest lift when paired with high impact performance. As an example, I'd like to talk about this campaign we did, which was the Colorado Tourism campaign, a very successful campaign. But what's more important, what is really more critical are these numbers. These numbers represent the fact that we're able to show a huge lift in click-through rate, that's 106. Also, in all formats, it's a huge lift. This is all about the fact that now advertisers have a choice. They have a choice to scale. They have a choice, which is more important, to keep the privacy of their consumer and yet not compromise on performance. It's essential to note that our solution does not require any integration whatsoever with the publisher or with the user. I want to mention that there are other solutions out there like UID 2.0, which require the user to provide their email. We are heading in a different direction, where there is no requirement for any interaction between the user and the publisher. What's interesting here is that once you run these ad units, you're able to see this symbol. When you click on this symbol, you're able to see what stands behind it, which creates a perfect flywheel—because we've seen more and more clicks. Actually, people want to feel safe to click on this type of ad where they identify that there's the source symbol. These clicks drive more CTR for obvious reasons and then it increases the return on spend that drives more advertisers. We're really proud to say that since we launched the SORT solution, mid-October, we have 110 campaigns that have been exposed to 150 million impressions delivered. If I translate it, we have 2 million to 3 million people that clicked on those ads. It's an incredible product, which is a result of the iHub and our ability to connect all assets into a central piece and deliver such a great product to our customers. From a display advertising perspective, we experienced significant growth, with an 80% increase between Q1 2021 and Q1 2022. This momentum is ongoing. It allows us to concentrate on important strategic growth areas in the market. We are hearing from brands and agencies that they seek a comprehensive solution that guides consumers through the entire journey, from awareness to purchase. For example, we executed a campaign with a Vitamin brand that engaged users across various formats, including mobile and connected TV. The connected car aspect is particularly interesting because, with some CTV products, we can’t predict when consumers will decide to make a purchase. By facilitating transactions at every stage, we provide a seamless pathway to the shopping cart, specifically at Walmart. The efficiency is remarkable, as no additional clicks are necessary between the QR code and the shopping cart. In just two months, we added 112,000 products to the Walmart cart, generating over $1 million in product value. Importantly, we achieved a click-through rate that is 2.5 times higher than the Google display benchmark, which ranges from 1.2 to 0.46. This value proposition enables us to attract more business, leading to a 42% increase in average spending per customer. Discussing our market growth, we are capturing market share from competitors by delivering measurable value, reflected in a rise in average client expenditure. Our innovation is in our capacity to synchronize various stages of the consumer funnel, moving from awareness to performance, which is what advertisers seek. Additionally, in search advertising, our business grew by 10% from Q1 2021 to Q1 2022. The key performance indicators include an average of 18.1 million daily monetized searches, although there was a notable decline from 2019 to 2021, impacting revenue. The improvement stems from expanding our publisher base from 95 in Q1 2021 to 120. We are also observing a recovery from COVID, particularly in travel, which is showing more interest than before, giving us reason for optimism in 2022 and beyond. Now, I will turn it over to Maoz to discuss our financials for Q1.

Thank you, Doron. Good morning, everybody. During the first quarter, financial performance continued to demonstrate the company's strong execution and superior growth while keeping all margins growing as well and this momentum continues. Now let me share with you three of the main achievements of the first quarter. Revenue of $125.3 million, a new record, reflecting 40% year-over-year growth—the highest first quarter revenue growth since 2016. Adjusted EBITDA of $22.7 million, or 18% from revenue, compared to 10% last year—a new record with 158% year-over-year growth, the highest first quarter adjusted EBITDA ever. Non-GAAP diluted earnings per share of $0.44— a new record with 132% year-over-year growth. This exceptional growth, increased profitability, and significant cash flow generation is the result of the diversity of our revenue streams and the scalability of the Perion business model that translates into unprecedented profitability. We are disciplined in how we manage growth, deploy capital, and how we successfully integrate acquisitions, as we did with Vidazoo in October 2021. Overall, the first quarter showed that we have a scalable operating model built for possible growth and demonstrating sustainable earnings power. We have the financial trends to continue to execute our strategic plan of organic and inorganic growth and are well positioned for another successful year in 2022. Turning now to the quarterly results. Revenue for the first quarter was $125.3 million, an increase of 40% and 30% on a pro forma basis. We are consistently delivering strong double-digit revenue growth across both display and search advertising. Display advertising revenue was $68.6 million during the first quarter of 2022, up 80%, an increase of 52% on a pro forma basis. The 341% year-over-year growth in video and CTV served as a key driver to the overall display advertising group, leading to an increase in average client spending by 42% and an increase in clients by 3%. Search advertising revenue was $56.7 million during the first quarter of 2022, an increase of 10% year-over-year. Growth was primarily due to $18.1 million average daily commercial search compared to $17.7 million in Q1 2021 as well as the addition of 25 new publishers to our network. In terms of revenue mix, display advertising revenue represented 55% of the first quarter revenue compared to 42% in 2021, with search advertising representing 45% of revenue compared to 58% in 2021. This change in revenue mix is in line with our diversification strategy. Revenue, excluding TAC, was $54.3 million or 43% of revenue compared to $35 million in Q1 2021 or 39% of revenue. The increase of 4% is primarily due to a favorable product mix of ad formats and our ability to connect the supply and demand sides of the open web to our central iHub and Intelligent Control Systems. OpEx and cost expenses were 30% of revenue in Q1 2022 compared to 35% of revenue in Q1 2021. We are achieving higher operating leverage, mainly due to the scalability embedded in our business model as well as the continued successful implementation of iHub. Net income was $15.5 million, or $0.33 per diluted share, an increase of 368% compared to $3.3 million, or $0.09 per diluted share in Q1 2021. Non-GAAP net income was $20.7 million, or $0.44 per diluted share, an increase of 196% compared to $7 million, or $0.19 per diluted share in Q1 2021. Adjusted EBITDA increased by 158% year-over-year to $22.7 million in Q1 2022, representing 18% of revenue compared to $8.8 million, representing 10% of revenue in Q1 2021. This significant improvement is again the result of the high scalability within our business model as well as the successful implementation of iHub. Adjusted EBITDA of revenue, excluding TAC, increased from 25% in Q1 2021 to 42% during Q1 2022. Our efforts to keep the media margin level stable and to generate incremental revenue with lower variable costs continue to improve efficiency and profitability. Net cash provided by operating activities was $23.6 million compared to $13.5 million in Q1 2021, reflecting a 75% year-over-year growth. As of March 31, 2022, we had cash equivalents and short-term bank deposits of $342 million compared to $322 million as of December 31, 2021. This will close my financial overview for the first quarter of 2022. I will now turn the call back to Doron.

So for ending notes, I'd like to close the loop and reemphasize the fact or what is really behind our sustained and predictable business model. We define it as a three-dimensional diversified business strategy. The three-dimensional is the trust channel, as I mentioned at the beginning, the ability to generate revenue both from the demand and supply of the open web and our unique structure of a hub-and-spoke where we're able to connect our assets into a central hub demonstrated by the first product we launched to the market, which is SORT. With that— with the sustainability and predictability of the business, we are feeling confident. We have the confidence of improving the 2022 guidance. Guidance that has to do with the revenue—we put the new guidance in the range between $620 to $640 million, which represents 32% year-over-year growth. The most dramatic improvement of the guidance concerns profitability, midpoint of $100 million this year, representing 40% of EBITDA to ex-TAC. It's 36% last year, and it was 25% the year before. I can tell you that we feel great about it because we are starting to see that this whole structure we bring into place is really kicking off, and we are able to turn it into a great process and leverage our expenses. Last slide. We released earlier today the fact that Microsoft advertising chose Perion and it's ad subsidiary CodeFuel as a Global Supply Partner of the Year. This is a huge achievement. We celebrated 10 years of partnerships in smart advertising. We are in a four-year contract, which goes until 2024. What’s more important for us is our ability to leverage the great partnership we had with Bing into other parts of Microsoft advertising. It's important to mention that it’s really hard work from all the teams. Besides CodeFuel, there are almost 500 employees who worked really hard in this quarter and continue doing this quarter after quarter after quarter. I'm really proud of it. It's important for me, and I feel I should mention the contribution of 32 Ukrainian employees that we have, and that despite the challenges, they are working. They have been essential factors behind this quarter's success. I would like to thank them a lot and pray for their health. With that, I'd like to turn and open the call for Q&A. Thank you so much.

Thank you. We will now begin the question-and-answer session. Our first question today is from Jason Helfstein at Oppenheimer. Your line is open.

Thanks. I'll ask you two questions. The first, we've seen really good improvement in the margin ex-TAC. So maybe talk about how you're thinking about acquisitions going forward. How do you prioritize growth versus being able to maintain the margin? And then secondly, perhaps talk about your outlook for CTV. You've been able to move the numbers nicely over the past year, but it's still a relatively small percent of the business. Maybe expand upon that a bit. Thank you.

Yeah. Thank you. So first of all, it's a rare occasion. But the two questions leading to one have to do with acquisition and CTV. We've identified CTV is definitely a strategic area. To leverage the growing spend in this area requires a different approach. We've narrowed it down to a few companies, and I truly believe that by the end of the year, for sure, we will be able to have some significant strategic acquisitions in this direction. When I'm talking about significant, don't take it in the wrong way. You all know how we do acquisitions and our philosophy regarding acquisitions. But we are crystal clear on this direction. I think when it comes to your first question about profitability, we are very much enjoying the fact that we engage different parts of digital advertising. While you connect them smartly, the huge technology investments we made to optimize the match we call it here—the brain—between impression and request and the demand side and the supply side gives us a huge advantage in terms of optimizing our margin, which translates to optimizing our media cost and later translates to net margin. Kevin?

Any further questions, Jason? Our next question today is coming from Andrew Marok. Your line is now live.

Thank you for taking my questions, and congrats on a great quarter. I wanted to talk a bit about the search business. So with Google calling out strength in search and Microsoft posting a solid quarter. I know they're not directly comparable to your search business. How should we think about how Perion's search growth trends relative to them? With publishers growing to 120 from 95, how should we think about the publisher opportunity?

So first and foremost, we are not competing with them. We are partnering with them. Essentially, we provide them with the search feed. We are working with our partners, and we are using a lot of Bing’s tools to increase the quality searches. That's very much the idea. What we've seen is that again, from the advertiser standpoint, the attractiveness of search advertising is definitely there. Users express the highest possible intent that advertisers are looking for—we see that the RPM, which is the equivalent to a CPM, is going up. We've noticed that in some categories. We have a very good view of how much advertising spend on what keywords, etc., only the fact that we are exposed to a huge amount of searches every day. There are some categories that are growing; there are some that do not. I mentioned travel is growing nicely. It's only the beginning. It's not at the point it was before; let me put it this way. But it's definitely in the right direction. I'm very optimistic as far as our search business.

Great. And then one more, just from a tactical perspective regarding margins. Q1 is typically a low point for EBITDA margins in the year from a seasonal perspective. But this year has a 42% revenue ex-TAC with guidance for the full year of 40% suggesting that this necessarily won’t be the case this year. I guess, how should we think about the scale and phasing of investments over the rest of the year?

So definitely there. I think we are continuing; our engineering R&D investment is just growing. We see ourselves as a technology company. With all the impressive numbers and the EBITDA is growing, the technology and dollars we're investing in developing predictive analytics, which is at the heart of the iHub, are very encouraging and drive us to do more. SORT is a huge investment on our end. To a point—you can imagine beating the third-party cookies CTR without any interaction with the publisher. This is a massive investment, with people, most of them being data scientists and AI engineers, who are very costly to get. We're continuing it because we are able to get dividends on this type of investment. That's something we see. We believe in scalability, and keep in mind that SORT is—this is the first full quarter of SORT, let me put it this way. It's just being launched. We've seen more and more advertisers look for this type of solution, which does not require integration. That’s clear. I wish that from this point, it would be a bit provocative, but I will use the stage and basically ask, how come investors are not jumping on this work? We are not charging for SORT right now; that's not my point for the future, but the performance is better, and you are providing better citizenship without stalking your consumer; why not use SORT? We’re after 100 campaigns and we proved our performance. The key KPI I’m looking at is the average deal size, which is growing rapidly. So the scalability is definitely there, and as I mentioned, from my background, I truly believe technology makes a difference. In our case, it made a difference and continues to be the port of Perion.

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

Good morning. My first question is on SORT just building on what you just said. So I think people here would say that UID is essential to the industry because the industry needs a solution to cookies, the open internet industry. An industry-wide solution is better than individual company solutions. It's also more in keeping with the EU's requirement that every consumer opt-in. It feels like the U.S. is going to follow the EU data privacy. Could you talk about why joining UID 2.0 is better for you as part of this open internet industry and how your solution, SORT, is consistent with the EU's requirements to have consumer choice?

Right. Thanks for the question. First and foremost, when looking at UID, we are supporting UID, because there are some publishers who said, we already have UID and if you want to put your ad there, you have to support UID. UID is an open-source, and everyone can support it. Even though it's driven by Trade Desk, it's open source, and everyone can integrate with them. We designed SORT two years ago with a very clear constraint: the user is not required to cooperate with that solution. We're not asking the user to provide their email. I think that it's still very much relevant. You are right in a way we've seen a trend in Europe; there is some resistance from the audience, from the user, and from the community about providing consent. It's too early to say. We are happy with our technology and performance. I wish others would join because the consumer demands it. I believe there will be more than one solution in the market, especially non-intrusive solutions that do not require any input from the user or publisher. We are all in this case.

Okay. Then my other question is just following up on Facebook's call last night. They called out e-commerce advertising as being much weaker, but retail advertising, which was omnichannel, both physical, brick-and-mortar, as well as e-commerce, was coming back. Have you seen that kind of shift in the retail category in your revenue line as well?

So we are seeing—it's not a shift. I must say that from a CPG standpoint, we definitely see a growing interest. We're receiving a lot of positive feedback from providing this connected car aimed at CPG clients, where the deal size is not significant, and consumers can complete the purchase in one click. This is definitely a growing trend. Simultaneously, we combined the two into shoppable marketing as well, and we are working closely with Albertsons in this regard. They’re our design partner and offering a personalized shoppable marketing offering, which will be one of the key growth drivers behind our display advertising in 2022-2023.

And then just following up on this, and this is my last question. You were thinking of taking inventory to help grow that business. Are you now doing that? Or what's the status of you taking on physical inventory to fill that one-click product?

No, we're not taking inventory. The whole idea was from a Walmart standpoint. They offer kind of a guest checkout option; they don't need to log in—which is a very, very easy way for consumers to click and buy, similar to other e-commerce platforms. Now we are developing something in the next generation as far as offering substitutes in case the product is not available in stock; not to miss opportunities where consumers clicked on it. We are actively working closely on the next generation of the solution. Thank you very much. Great numbers. Congratulations.

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

Thank you very much. Two quick ones. The first one, I guess they’re both on SORT. But the first one is you just mentioned that you started working on SORT two years ago, which is before all these Apple changes that were made. Have you had to make any adjustments along the way with anything that Apple has come out with their more privacy-centric demands across the app and our installed base? And then number two, if you do decide to explicitly charge for SORT, what might that look like, not expecting a timeline here, but just conceptually, how would that work?

To your first question, from a design factor standpoint, SORT was not aimed to support in-app advertising, simply because we're not doing in-app advertising. Their modifications to iOS target apps and the ability to transfer knowledge or data from one to another. SORT at this point does not require any modification. That's the first question. As far as the pricing, if we provide twice the CTR, it translates into return on net spend. While everything is equal, we can provide double the value. We always like to price based on value. It can be two things; we're going in a way where customers see the value. Instead of charging, they increase their spend, almost like being charged. That’s a key driver for us to translate SORT into revenue and margin generation. We don't need to charge for SORT per se, to impact our top line and bottom line. That’s our current philosophy.

If I can maybe ask a quick follow-up to my first question about the Apple changes. I know you don't do any in-app advertising. But I'm just curious. There have been reports that Apple might be clamping down on fingerprinting. I don't know if that's— it looks like you're taking signals from different places. Is there anything you’re doing that could be considered fingerprinting in the eyes of Apple?

Not at this point.

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

Yeah. I wanted to dive into the display advertising topic again. You've talked about an increase in average client spend by 42% and a 3% increase in the number of clients. I wanted to focus on that 3% number and ask what are you doing. It would seem like people would be beating a path to your door. Is this more about increasing awareness? Or is it people are slow to change old habits?

From several perspectives, in Q1, the average client spend was $73,000 and now it's $103,000. That's the average client spend and that's the 42% increase year-over-year. The point here is very simple. We are very much trying to align with our customers that, from a macro perspective, always trying to minimize the number of vendors. These digital campaigns are driven by analytics and reporting and return on ad spend, so they prefer to have a point as much as possible not just from a service standpoint but from a data standpoint. There are pockets we are trying to do. The world I'm using is awareness to performance, and it requires some education. We needed to bridge the two to get more performance dollars. We, as a company, were very much on the awareness side of things. This constant flow along the consumer path allows us to take users from awareness to intention and then to buy—which doesn't happen on all products, and it has to do with the dollars. That’s why I mentioned that CPG is a perfect example for it. We take dollars that weren't designed for us before, mainly from the performance side. The connected car helps us in this sense. The fact that we increased our video offering dramatically, we are offering more video solutions, definitely helps us.

Okay. But regarding the number of new clients, is there an expectation that the 3% number will rise throughout the year?

Yes, definitely.

All right. In the display advertising revenue, are you able to pinpoint the percentage of the display advertising revenue driven by SORT? And what is that?

Currently, it's close to 30% of the display business. Last quarter, we just started. This is a huge factor; the majority of the 100 campaigns we did this quarter, I think 80 of them were utilizing SORT. Even though we launched it mid-October, we did it in small steps. The majority of the campaigns were still cookie-based. We’re trying to convince our customers to allocate more budget towards SORT. This requires demonstrating that we outperform other solutions. There is skepticism about not using third-party cookies, but we need to prove that we can perform. I think we issued this press release about Colorado tourism; it speaks for itself. It's not just about safer solutions without cookies; it has to do with scale as well. I’ll ask Rami to send the link to the use case, and you're able to see it in action. Thank you and congratulations on the numbers. Okay. So are there no more questions, Kevin?

There may have been one that came over.

Please.

I was able to make it back on the call. Thanks for taking my questions. I wanted to get a sense of the key drivers of the average client spend; 42% is an impressive number. So, one, what are the key drivers? And two, is there a potential to expand this from here?

So definitely. The key driver is that we are, as I think I answered it just now, able to shift—get more dollars on the performance side of the house. We were primarily only doing awareness budgets. Expanding into lower funnel—that's one. The expansion into video and the high-impact CTV suite, we are taking video dollars associated with other companies known for their video solutions. We’ve closed the gap, but we’re able to do way more. Additional formats and areas on the funnel all contribute to increasing average client spend.

Okay. And then one other, if I could. On the retail side, you gave a Walmart example. It seems like very encouraging results there. How would you characterize the opportunity in retail? Is that one of the primary focuses strategically for Perion at this point?

Definitely. We found that this is very interesting. With retail, we're looking at two parts. One, called digital circulars, and I mentioned Albertsons as a key customer. We’re transforming this business and want to capitalize on that. The retail connected car is another area of focus. That’s very helpful. Thank you, and congrats on a great quarter.

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

Thank you, everyone, for joining our call. See you next time. Thank you. Goodbye.

Thank you. That does conclude today's teleconference and webcast. You may disconnect now. Have a wonderful day. We thank you for your participation today.