Earnings Call Transcript - PERI Q1 2020

Operator, Operator

Good day and welcome to the Perion First Quarter and Annual 2020 Earnings Conference Call. Today's conference 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 will include 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 from any future results, performances or achievements anticipated or implied by these forward-looking statements. The company does not undertake to update any forward-looking statements to reflect future events or circumstances. As in prior quarters, the results reported today will be analyzed both on a GAAP and a non-GAAP basis. While mentioning EBITDA, we will be referring to adjusted EBITDA. We have provided a detailed reconciliation of non-GAAP measures to their comparable GAAP measures in our earnings release, which is available on our website and has also been filed on Form 6-K. Hosting the call today are 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.

Doron Gerstel, CEO

Thank you, and good morning. Before we get started, I want to express my sincere hope that everyone is safe and healthy during these challenging times. I also want to take a moment to thank the entire team at Perion for their professionalism, resilience and commitment during the unprecedented market changes of the last several weeks. Our ability to respond to shifts is our company culture, our DNA, and it's gratifying to see our Perion culture in action. While Perion is reporting strong first quarter results today, we are not immune from the challenges associated with the COVID-19 pandemic in the global business impact. Depending on which statistics you trust, digital ad spending will be down between 25% and 45% for the second quarter and between 10% to 20% in the third quarter of 2020. To frame my comments, my discussion will be divided into four parts. To start, I will discuss our performance during the quarter before the coronavirus pandemic outbreak. Next, I will address how we reacted in early March and responded to the subsequent stages of the pandemic, as well as how our fiscal prudence over the last few years has served us well. Then I will describe the near-term and mid-term future of Perion and its business. And lastly, I will address the resources we've enabled us to effectively navigate the situation, which will empower Perion to emerge from the pandemic in a financially strong and highly competitive position. To begin, we entered the first quarter of 2020 with robust momentum, following strong performance during 2019. January and February were both very strong months. This was bolstered by the closing of the ContentIQ acquisition, positioning us for another great year. Then came March, when we began to see the early signs of the pandemic. Taking all this into account, in the first quarter, consolidated revenue increased 8% organically and 23% overall. Our advertising revenue grew 28% year-over-year for the first time since 2015. This was a result of the contribution of ContentIQ, which performed in line with our expectations during the first quarter. A growing volume of searches was the main driver behind the 20% year-over-year growth that we achieved in our Search business division. Beginning in March, as the pandemic spread and much of the global economy began to shut down, we took action to protect our employees by transitioning to a work-from-home model, and this went smoothly. All our employees are now working from home, and we have not seen any interruption in our productivity. Again, I congratulate our team for successfully navigating the transition into the new normal. We soon began to see a steep decline in the advertising market, which was something that no one in the industry had ever witnessed. Specifically, brands and agencies began reducing and often freezing their advertising budgets, leading to a decline in overall spending. Some industries, such as travel and leisure, were the first to act, but the trend quickly spread across other industries. We estimate that the decline in overall advertising spend was between 15% to 25% in March. As a result, a significant number of advertising campaigns that were planned for the second quarter were put on hold or canceled. The flow of new RFPs for future campaigns was halted, and many campaigns that we were well positioned to win are being delayed. RPMs, which is a key metric for monetization in our search business, began to weaken and decline due to the decrease in ad search spending. In response to this disruption, we swiftly began rolling out strategic initiatives to prepare Perion for an uncertain market environment. We've dramatically reduced the level of advertising spending, at least in the near term. There are three factors helping us to effectively manage the pandemic as it impacts our business. First, our focused effort over the past three years to reduce costs and strengthen our balance sheet while focusing on profitability have prepared us to operate in this type of environment. At the end of the first quarter, Perion had $54 million in cash and $40 million in net cash. Second, we have implemented new cost-saving measures that are expected to yield more than $10 million in incremental annualized savings. We have also adjusted our OpEx budget to prepare for an extended period of uncertainty and stress-tested our model to ensure its capability to withstand far more dire scenarios than those currently predicted. Third, we benefit from Perion’s overall diversification strategy, a go-to-market model which includes product solutions that are relevant across the three main pillars of digital advertising: search, social display, and video. This enables Perion to capitalize on the inherent volatility in digital media spending, which was true before the crisis and is even more so now. The flexibility of revenue from that diversity and business mix is the right approach to minimize risk and reduce volatility, especially during these uncertain times. Finally, our current management team has proven itself to be cautious and prudent with a strong record of fiscal stewardship, managing costs, preserving cash, and maximizing profitability. This bolsters my confidence in our financial resilience and ability to weather uncertainty; we see the situation clearly and are always ready to take steps in order to make quick changes to minimize impact and maximize our potential revenue. Looking forward, the new challenges in the advertising market and lack of visibility have caused us to temporarily withdraw our full-year guidance, as is the case for most advertising industry companies. Nonetheless, we remain confident that we have the diversification and discipline needed to generate significant cash from operations and remain profitable for the year as we weather the near-term uncertainty of the current environment. As our visibility improves, we hope to return to providing estimates regarding our expected results. If we move beyond the first stage of the pandemic and the global economy stabilizes, we expect to be well positioned to capitalize on the expected advertising recovery, but it is premature to comment on timing, given the lack of visibility on the multiple variables at hand. Allow me to share with you some of our expectations for the remainder of 2020. We expect our advertising business to face headwinds in the second and third quarters of 2020, as most brands and agencies reduce, if not freeze, their digital advertising budgets. For search, we expect the surge in desktop grades to continue as more people work and shop from home. However, we also expect the trend of declining RPM in search to continue in the second and third quarters. Before rebounding later in the year, our search business should continue to drive strong positive cash flow, even if RPMs remain volatile for a more extended period of time. Because we are navigating the current environment from a strong financial position and with one objective in mind—growing our top line—the current environment is presenting us with opportunities, especially for companies in our industry with excellent complementary product, service, and technology, who lack the financial strength to weather a period of disruption. As a result, we have made the strategic decision to file a shelf registration statement. With that, I'd like to turn the call over to Maoz to review the financial results for the first quarter. Maoz?

Maoz Sigron, CFO

Thank you, Doron. During the first quarter of 2020, we took significant measures to align our business activity to the COVID-19 environment. These measures are expected to yield more than $10 million of annual cost savings compared to our 2019 pro forma financial results. The 2019 pro forma combined our results with those of ContentIQ, as it was acquired at the beginning of 2019. We believe the measures we have taken will help us to continue generating significant cash flow from operations and be profitable for the full year while decreasing the uncertainty caused by COVID-19. With the current cash level of $54 million, net cash of $40 million, and our ability to generate positive free cash flow, we are in a strong position to weather the COVID-19 outbreak under different scenarios. During the first quarter of 2020, revenues for Perion totaled $66.1 million, composed of $23.7 million from advertising and $42.3 million from sales and other revenues. Total revenue increased by 23% from $53.8 million in the first quarter last year. This increase was primarily achieved as a result of a 20% growth in search and other revenue, resulting from an increased number of unique searches and new partnerships. Advertising revenues increased by 28% as a result of the consolidation of ContentIQ, which was acquired on January 14, 2020. Search and other revenue represented 64% of the first quarter 2020 revenue, with advertising contributing 36%. Customer Acquisition Costs and Media Buy in the first quarter of 2020 were $36.1 million, or 55% of revenues, compared to $27.4 million, or 51% of revenues in the first quarter of 2019. This change is mainly attributable to CIQ performance, typically generating lower media margin than Perion organically. Net income for the first quarter of 2020 was $1.3 million, or $0.05 per diluted share, compared to $1.2 million or $0.05 per diluted share in the first quarter of 2019. Perion’s non-GAAP net income in the first quarter of 2020 was $5 million, or $0.17 per diluted share, compared to $3.3 million or $0.13 per diluted share in the first quarter of 2019. Adjusted EBITDA in the first quarter of 2020 was $6.2 million compared to $5.1 million in the first quarter of 2019. Cash generated from operating activity was $2.5 million during the first quarter of 2020 compared to $14 million during the first quarter of 2019. The main reason for the decrease in cash flow from operations was attributed to one-time working capital requirements for the CIQ operations and collection cycle differences between the business units. As of March 31, 2020, we had cash, cash equivalents, and short-term deposits of $54.1 million compared to $61.6 million as of December 31, 2019. During the first quarter of 2020, we paid $15.1 million as part of the CIQ acquisition. Total debt at March 31, 2020 was $14.6 million compared to $16.7 million as of December 31, 2019.

Doron Gerstel, CEO

I will now turn the call back to Doron for a closing statement. Thanks, Maoz. I would like to highlight a few things worth mentioning before we get into the Q&A. The first quarter of 2020 was the strongest in year-over-year comparison in the last three years, continuing our strong momentum from 2019. We are entering a period of widespread economic disruption with a strong balance sheet and confidence in our ability to generate significant cash from operations that will enable us to remain profitable for the rest of the year. We have moved quickly and have implemented additional cost-saving measures that are expected to yield more than $10 million in incremental annualized savings. Perion’s overall diversification strategy, relevant across the three main pillars of digital advertising (search, social display, and video), allows us to capitalize on the inherent volatility in digital media spending, which was true before the crisis and is more so in the midst of the current uncertainty. Looking forward, the near-term challenges in the advertising market and lack of visibility have caused us to temporarily withdraw our full-year guidance. I want to close this unusual earnings call during these most unprecedented times with a personal comment. This is a crisis that tests the leadership of every CEO, and I've been speaking with many of my peers in this industry and beyond. We are all learning and deriving wisdom and strength from each other. That is what you do when there is no playbook. The virus doesn't pay attention to geography. It is impacting our teams in New York, Israel, France, and Ukraine with the same viciousness. These teams have stepped up to the crisis, and I'm proud of them. To all of you on the call, wherever you may be, the pandemic has brought us closer together. We all need to think about our jobs, but as we do our work, we recognize the common humanity we all share. I wish health and strength to everyone on this call. With that said, operator, will you please open the call for questions?

Operator, Operator

Certainly. [Operator Instructions] And we'll take our first question from Eric Martinuzzi with Lake Street Investments. Please go ahead.

Eric Martinuzzi, Analyst

Thank you. Glad to hear that the company was able to pull together and execute the first quarter as well as they did, given the disruption at quarter. So that's to be commended. I'd like to address my first question to the pulling of the guidance. Obviously, you're lacking visibility now, and so that's the reason behind the withdrawal of the guidance. But I was wondering if you could help me understand within the two segments your comments about the 15% to 25% decline in March and whether that - if I were to just take my old number for Q2 and to haircut it by 15% to 25%, what might be - whether that would be appropriate or I might be flawed in that logic of addressing it by both segments?

Doron Gerstel, CEO

So basically the 15% and 25% decline in March was across search and advertising.

Maoz Sigron, CFO

Okay. And then, Eric, as you've been through, so that was March, April's in the books, consistent trends in April versus March.

Doron Gerstel, CEO

So as I mentioned on our call, let's start with search: we see definitely a growing number of searches. It has reached heights that we have never experienced before. So when it comes to the number of searches, that's evidence that people are spending more time at home and engaging in searching. What is being affected in this business is the RPM, which means how much advertisers are willing to pay for ad searches. And we are experiencing a decline in RPM. The overall multiplication of the number of searches in RPM amounts to the total revenue from search, and we can definitely say that we expect this number to be reduced by 10% to 15%. That's our estimate. And when it comes to advertising, I think the impact of our, let's say, leading advertisers comes from travel and then the automobile industry, which is definitely impacting the number of RFPs that we’re getting. RFPs that either were already on hold with insertion or they needed to activate during Q2 or RFPs that we were in the midst of negotiating and we were well positioned to win. All in all, we are expecting that in the second quarter, our advertising business will be reduced by a level of 15% to 25%.

Eric Martinuzzi, Analyst

Okay. And then just the - okay, I think that answers my question about April versus March. You have - just where you stand right now. The Microsoft relationship, obviously you're sending more volume to them and the RPM is hurt. I mean, I'd like to know, given that relationship, given Parisotto, given budgets, we are still in our renewal year here for them. Can you give us any update on the Microsoft contract renewal?

Doron Gerstel, CEO

Yes. So when it comes to this relationship, it's a very strong relationship. I can tell you that even though we didn't announce it, we have even extended it to other products that are going to be rolled out soon to all of our publishers, which is going to increase, and of course, the number of searches and increased engagement and long-time value of our searchers. So even though it's a renewal year, and definitely we will fit, we feel very, very strong regarding our relationship with Microsoft.

Eric Martinuzzi, Analyst

Okay. But it's safe to say those negotiations are active and constructive, or is that missing too much?

Doron Gerstel, CEO

Very much so - very much so.

Eric Martinuzzi, Analyst

Okay. That's all the questions I have at this point. Thanks, guys.

Doron Gerstel, CEO

Thanks so much.

Operator, Operator

Thank you. We’ll move on to our next question from Austin Moldow with Canaccord.

Austin Moldow, Analyst

Hi. Thanks. You touched on this a little bit…

Doron Gerstel, CEO

Hi, Austin.

Austin Moldow, Analyst

Hi. How are you doing? Can you go into a little more detail on your advertising exposure by vertical as a way to assess how at risk you are?

Doron Gerstel, CEO

Yes. So that's -- traditionally I don't think that the way we divide our business on advertising is different than the market index, which travel represents around 15% of this business and the automobile is another 10% of the overall spend. It has some seasonality, and with this type of business, but this is a good ballpark to use. Both industries are at this point reducing their spend substantially and there are other industries, financial and telco, spending more, but that's not enough to compensate for the losses in the two verticals that I mentioned.

Austin Moldow, Analyst

Given your strong balance sheet and the overall turmoil in the market, can you talk about your near-term philosophy and the opportunities you have because you have the ability to go [indiscernible] here?

Doron Gerstel, CEO

Yes, definitely. So we are not - the framework of our turnaround business has been very much the same. If you all recall, the last phase of it was exponential growth. So with this only one goal in mind, we are looking for complementary solutions to our diverse offerings. In this regard, we are in discussions and we are looking; we're investing a lot of time to explore opportunities that will be able to streamline our efforts on the engineering side, on the go-to-market side, and on geo expansion. I must say that while we are entering this crisis with a strong balance sheet, we are also being profitable, and have a good indication of positive cash from operations during the year. That definitely encourages us to look deeper for this type of opportunity.

Austin Moldow, Analyst

Thanks for that. And then my last question. Assuming that engagement is essentially across the board, can you go into some detail on how ContentIQ's business has been reacting to the crisis?

Doron Gerstel, CEO

So, when it comes to ContentIQ: first and foremost, let's remember that we beat the first two weeks of the first quarter because we consolidated the numbers only from January 14, 2020. We are very, very happy with the results. As I mentioned in one of our calls, the way CIQ is being integrated with our business, we defined it to two efforts: one effort has to do with the synergy, both with our search business and with our advertising business; that's one. The second effort is basically externalizing the CIQ monetization engine that is being executed so effectively on their own sites to other sites. We have already signed two agreements with first-year publishers. I hope we can publish their names soon. Currently, this is already being signed, and this is definitely part of the evolution of ContentIQ, which is going to be very centralized in our advertising business unit.

Austin Moldow, Analyst

Okay. Thanks very much. I'm sorry about that…

Doron Gerstel, CEO

You’re welcome.

Operator, Operator

Thank you. We'll move on to our next question from Chris McGinnis with Sidoti & Company. Please go ahead.

Chris McGinnis, Analyst

Good morning. Thanks for taking my questions, and I hope both you and your families are doing all right.

Doron Gerstel, CEO

Yes…

Chris McGinnis, Analyst

And staying safe in the environment.

Doron Gerstel, CEO

Thank you.

Chris McGinnis, Analyst

I just want to follow up on the search and advertising business. Can you just maybe talk about the growth rates you saw in CIQ before March kind of kicked in? And then also in that same vein, maybe the organic growth of the advertising segment for the other side?

Doron Gerstel, CEO

So all in all, the growth of advertising as we reported was 20%, 27%, 28% year-over-year, and this was very much contributed to ContentIQ. We are reporting from an advertising standpoint the consolidated number that has to do with the three business units which include our Undertone, include MMR, and of course, include ContentIQ, and I can definitely say that across the board, January and February was very, very strong months for all of them.

Chris McGinnis, Analyst

Great. Okay. Thank you very much. And I guess just on the cost savings that you've announced, how quickly can you implement them? Can you talk about where the savings are coming from? And then depending on how the market rebounds, can you talk about how quickly those folks need to come back in depending on, if it's around growth initiatives line?

Doron Gerstel, CEO

That's a very good question. The management has always planned, I must say, for a rainy day. So it was from getting to understand the circumstances of COVID-19, and executing didn't take much time. It has to do very much with the way we negotiated, even before COVID-19, with our vendors. So I think it was – we always left the room for any kind of sudden drop in business, which helped us to act quickly. Some of the savings are coming from our employees. Let’s not go into too much detail; we are very much trying to manage as much as we can. I think the biggest question we have is balancing what is necessary against what is expected for management to react and roll out as soon as possible with this cost-saving plan. On the other hand, when the market will open— and we all hope this market will be back on track, hopefully in the fourth quarter of 2020—we will be able to capture the opportunity. It's a fine line, and it is a fine line, and we are closely monitoring as we speak. If there are signs, then maybe it will come sooner. We are trying not to implement any cost savings that could hurt our ability to capture opportunities when the market rebounds.

Chris McGinnis, Analyst

Okay. Thank you for that. And just—kind of what you’re just talking about, April is seemingly the worst month because of business disruption. Are you starting to see signs or have discussions started to open back up around advertising spend? Can you elaborate a little bit on how it progressed through April and maybe if it's opening up even a little bit at this point? Thanks.

Doron Gerstel, CEO

I think we definitely see signs, and I think the fact that we are diversified in our strategy allows us to see different sides of digital advertising spend. The first and most immediate sign that we see is that RPM is going down, just slightly, but May, or let's say the last week of April, first week of May, is looking better than the beginning of April, and that's a good indicator for us to monetize the market. We talk about the 13 million searches we are having, quite a spread in business there that we're able to monetize these changes. When it comes to the other side of the business, more on the RFP side, this is a longer sales cycle. Even though we have quite a substantial amount of RFPs that currently we won and are on hold, we are getting notices that we need to look at this and look at the advertising. It seems that the market is showing signs of recovery; I need to be very cautious about what I'm saying. We see it more on the RPM side than on the RFPs, and that alone new RFPs and RFPs that were associated more with travel or automobile sectors, but overall there is definitely reason to be more optimistic.

Chris McGinnis, Analyst

Great. I really appreciate that color, Doron. Stay safe…

Doron Gerstel, CEO

Thank you so much.

Operator, Operator

Thank you. And moving on to our next question from John Nobile with Taglich Brothers. Please go ahead.

John Nobile, Analyst

Hello and good afternoon. I just wanted to start and acknowledge and commend you on your donations in the six U.S. markets in support of the COVID-19 response. I thought that was really...

Doron Gerstel, CEO

Thank you for mentioning. Thank you very much.

John Nobile, Analyst

A lot of my questions have been addressed, but in response to the acquisition of ContentIQ, do you have a breakout of what the revenue was in that first quarter?

Maoz Sigron, CFO

We are not providing a breakout of the revenue. The only thing that we can say, and this is something we shared at the time we acquired ContentIQ, is what we were expecting based on their performance in 2019. We are definitely expecting their business to grow. The earn-out, which is a significant part of the total configuration, is based on this expectation, and I can say that they are definitely on track to achieving these numbers which was part of our model. So things are continuing as expected.

John Nobile, Analyst

Okay. And I was hoping to get a better understanding of automated content recognition. Obviously, you recently put out press releases in regard to this. I was hoping that you can talk a little about your role in this and how you see ACR and why particularly has this been a topic of discussion in regard to the COVID-19 pandemic?

Doron Gerstel, CEO

Yes. Very interesting. So ACR is a technology that is used for digital advertisers who would like to leverage the fact that more people are spending time at home and watching TV on their smart TVs. This allows us to connect advertising on different screens to what people are currently watching on their smart TV. ACR is the technology that establishes this connection, allowing for a relevant ad for the content that is being viewed. Content can be whatever it may be, or it can be an ad. ACR is the technology that allows this relationship; we are now seeing that because there are many viewers on smart TVs, having this technology working enables us to provide our customers with very useful ways to substantially increase their spend on digital advertising.

John Nobile, Analyst

Okay. Thank you for that. I just wanted to really understand that link between the two. A lot of my questions were addressed, but in regard to providing those search engine—was it February? I was hoping you may be able to provide some metrics on its adoption.

Doron Gerstel, CEO

So it's too early, but the only thing I can tell you is that there is growing interest, and we are focusing on two metrics: consumer adoption, which is one, and the B2B business adoption, which is another. In terms of business adoption, we are now closed with one telco, which is going to embed Privado as part of their device. In other words, when they activate a mobile device in this country—it is in Europe—you will get Privado embedded into your mobile device. This way we are able to reach an initial 100,000 subscribers for this proof of concept. I must tell you that based on the initial results, we are using it to have advanced discussions with other telco providers that see it as a great addition for their subscribers. This could be a very clever way to expedite the adoption of Privado among users. This is our main focus right now because we want to achieve large adoption as quickly as we can.

John Nobile, Analyst

Okay. Are you saying that you were starting with 100,000 telcos each quarter—that this is already a part of mobile applications run on that many devices?

Doron Gerstel, CEO

Yes. So currently, we are starting with 100,000 subscribers for this specific device from that one telco. It looks very good so far, and with that, we are extending this very successful proof of concept to other telcos with whom we are currently negotiating.

Operator, Operator

Thank you. And we'll move on to Shawn Boyd with Next Mark Capital. Please go ahead.

Shawn Boyd, Analyst

Thanks for taking the questions. Congratulations on a tough quarter here, gentlemen. If we can just get some insight on ContentIQ, I know you closed it two weeks into the quarter. So we're in a stub quarter here. But is there also heavy seasonality such that Q1 is a real low quarter for the year?

Maoz Sigron, CFO

Yes. So, like anything, Q1 is traditionally the lowest quarter. That's true for all businesses, including ContentIQ.

Shawn Boyd, Analyst

Right, okay. And for Q4, could you offer some context? How much of that was in Q4?

Maoz Sigron, CFO

It was around 30% to 35%.

Shawn Boyd, Analyst

Got it. Okay. Thank you. That helps. Maybe thinking about your cash balances as they stand today at $54 million in cash; you haven't paid out anything based on performance guidelines of course because we haven't finished the year. What's about the retention? I think there was $11 million of retention incentives; I assume that hasn't been paid out yet?

Maoz Sigron, CFO

There are some assumptions regarding retention that we are using for the quarterly financials. They are part of the numbers that you can see in the earnings. But yes, the number that you see here includes the earn-out and includes part of the retention relative to this period. So total retention is $11 million, and part of it was already recognized in Q1.

Shawn Boyd, Analyst

Got it. Okay. And then if we could go back to the Customer Acquisition Costs and Media Buy, that level is now at roughly 55% of revenue. Is that a level we should think about going forward now that we have ContentIQ, or should that go up or down as we move forward?

Maoz Sigron, CFO

There is seasonality here. With the uncertainty that we have in the market now, definitely it could change a bit later on. I would say that with this 55% affect, as you understand, the acquisition of CIQ was only at the beginning of the quarter on January 15. So it’s not the full quarter. Looking forward, I'm expecting a bit higher percentage from past acquisition costs, but with different numbers from quarter to quarter, due to the seasonality and pandemic uncertainty; therefore, expect a bit higher number in Q2 and then we should expect to move back to a normal range.

Shawn Boyd, Analyst

Got it. Okay. Just to extrapolate on that one, when you say go back to normal, are we looking back into the low 50s like we had last year, or is that too optimistic?

Maoz Sigron, CFO

No, that wouldn’t be the number we had in 2019 before the acquisition. Again, the 55% with CIQ is lower than what we anticipate for the rest of the year. We're expecting higher numbers in Q2, and then we will move back down, but it will be above the 55%.

Shawn Boyd, Analyst

Got it. Okay. Last thing from me. You talked about $10 million in cost savings that you expect looking at the combined company. Can you give us a little more on that? How much of that would be from operating expenses, or would there be any other costs of goods sold? It looks like we've had adjusted operating expenses of about $55 million in the quarter in March, bringing that down by a $10 million per year kind of run rate. Can you kind of narrow it down a little bit on that?

Maoz Sigron, CFO

There are some soft spots in this saving. One of them has already been mentioned by Doron is payroll. There are items that relate to the synergies; there are some that relate to efficiency we have built in the different business units. These are the first layers. The second set relates to vendors; we were already talking with them before the pandemic and continuing during the pandemic. So that's the second layer. Lastly, some office costs as we already know we're working remotely, part of the offices that we use are vacant and some short-term lease agreements that we are not using now and do not expect to use soon. That contributes to another source of savings for 2020. So those, comparing all with the overall facilities, we expect a $10 million saving.

Shawn Boyd, Analyst

Got it. Thanks so much. Good luck, gentlemen.

Maoz Sigron, CFO

Thank you.

Doron Gerstel, CEO

Thank you.

Operator, Operator

And we have no further questions at this time.

Doron Gerstel, CEO

Okay. I would like to thank you for joining our call today. Thank you very much. Bye-bye.

Operator, Operator

And ladies and gentlemen, that does conclude today's conference. Thank you for your participation. You may now disconnect.