Company increases 2022 adjusted EBITDA guidance from $102M to at least $120M as a result of a sustainable improvement in profitability

Perion Network Ltd. (NASDAQ & TASE: PERI), a global advertising technology company whose synergistic solutions are delivered across the three primary channels of digital advertising – ad search, social media and display/video/CTV advertising – today reported record financial results for the third quarter ended September 30, 2022.

Doron Gerstel, Perion’s CEO, stated, “Once again, Perion outperformed the adtech industry – and we believe will continue to do so for the following reasons:

• We are leveraging our diversification strategy as advertisers are shifting their direct response budgets from social advertising (mainly Facebook) to search advertising
• We are continuously expanding our profit margins, which demonstrates the strategic and economic value of our Intelligent HUB (iHUB)
• We are bringing innovation – through SORT™ – in response to advertiser recognition that privacy matters more than ever
• We are meeting our clients’ objective to enhance their brand equity by increasing user engagement through Perion’s High-Impact ad suite.”

“This was the eighth consecutive quarter we delivered top and bottom-line double-digit growth on a year-over-year basis,” Mr. Gerstel continued. “The 145% year-over-year increase in operating cash flow to nearly $35 million, reflects the significant earnings power of our business model. With a cash position of $390 million at quarter end, we have significant dry powder to execute on our growth strategy, delivering value to shareholders for years to come.”

Third Quarter 2022 Business Highlights

• Media margin increased to 41%, compared with 39% in Q3 2021
• Adjusted EBITDA to revenue ex-TAC of 51% vs. 37% last year. This is among the highest in the industry
• Video revenue increased by 209% year-over-year, representing 44% of Display Advertising revenue
• CTV revenue increased by 134% year-over-year, representing 9% of Display Advertising revenue compared with 5% last year
• SORT^TM spending increased by 25% over the previous quarter, driven by an 11% increase in the number of customers from 126 to 140
• The increase in market adoption of our holistic Video Platform solution continues to deliver strong results:
  • 88% year-over-year increase in the number of Video Platform publishers
  • 67% year-over-year increase in revenue from existing Video Platform publishers
• The number of search advertising publishers increased by 60% year-over-year, RPM increased by 42% over the same period

   

Third Quarter 2022 Financial Highlights⁽¹⁾

⁽¹⁾ See below reconciliation of GAAP to Non-GAAP measures.

Outlook for 2022

Mr. Gerstel concluded, “Given our strong performance and our sustainable and predictable business model, we are increasing our guidance for 2022 substantially.”

⁽¹⁾ Calculated at revenue guidance midpoint and Adjusted EBITDA of $120 million

Financial Comparison for the Third Quarter of 2022

Revenue: Revenue increased by 31% to $158.6 million in the third quarter of 2022 from $121.0 million in the third quarter of 2021. Display Advertising revenue increased by 26% year-over-year, accounting for 55% of total revenue. This is primarily due to 209% growth in video, now representing 44% of Display Advertising revenue compared with 18% in the third quarter of 2021, 134% growth in CTV revenue, which represents 9% of Display Advertising revenue, as well as a 10% increase in average deal size and a 9% increase in the number of clients for high impact solutions. The number of SORT^TM customers increased by 11% quarter-over-quarter to 140, and SORT^TM customers’ spending during the period increased by 25%, representing 17% of Display Advertising revenue compared with 14% in the previous quarter. Search Advertising revenue increased by 38% year-over-year, accounting for 45% of revenue, primarily due to a 42% increase in RPM and a 60% increase in the number of publishers.

Traffic Acquisition Costs (“TAC”): TAC amounted to $93.6 million, or 59% of revenue, in the third quarter of 2022, compared with $73.6 million, or 61% of revenue, in the third quarter of 2021. The improvement in media margin was primarily due to a favorable product mix of ad formats and the iHUB contribution.

Net Income: On a GAAP basis, net income increased by 141% to $25.6 million in the third quarter of 2022 from $10.6 million in the third quarter of 2021.

Non-GAAP Net Income: Non-GAAP net income was $29.9 million, or 19% of revenue, in the third quarter of 2022, compared with $15.4 million, or 13% of revenue, in the third quarter of 2021. A reconciliation of GAAP to non-GAAP net income is included in this press release.

Adjusted EBITDA: Adjusted EBITDA was $33.0 million, or 21% of revenue (and 51% of revenue ex-TAC), in the third quarter of 2022, compared with $17.6 million, or 15% of revenue (and 37% of revenue ex-TAC), in the third quarter of 2021. A reconciliation of GAAP Net Income to Adjusted EBITDA is included in this press release.

Cash and Cash Flow from Operations: As of September 30, 2022, cash and cash equivalents and short-term bank deposits amounted to $390.4 million. Net cash provided by operating activities in the third quarter of 2022 was $34.7 million, compared with $14.2 million in the third quarter of 2021.

Conference Call

Perion management will host a conference call to discuss the results at 8:30 a.m. ET today. Call details:

• Registration link: https://incommconferencing.zoom.us/webinar/register/WN__Xf964JLR62r9JhUOeJvHg
• Toll Free: 1-877-407-0779
• Toll/International: 1-201-389-0914

A replay of the call and a transcript will be available within approximately 24 hours of the live event on Perion’s website.

About Perion Network Ltd.

Perion is a global advertising technology company whose synergistic solutions are delivered across the three primary channels of digital advertising – ad search, social media and display / video / CTV advertising. These channels are brought together by Perion’s intelligent Hub, which integrates the company’s business assets from both sides of the open Web, providing significant benefit to its brands and publisher customers.

For more information, visit Perion's website at www.perion.com.

Non-GAAP Measures

Non-GAAP financial measures consist of GAAP financial measures adjusted to exclude stock-based compensation expenses, retention and acquisition related expenses, revaluation of acquisition related contingent consideration, amortization of acquired intangible assets and the related taxes thereon, non-recurring expenses, foreign exchange gains (losses) associated with ASC-842, as well as changes in fair value of earnout contingent consideration. Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA") is defined as operating income excluding stock-based compensation expenses, depreciation, acquisition related items consisting of amortization of intangible assets, acquisition related expenses, gains and losses recognized on changes in the fair value of contingent consideration arrangements. Revenue excluding Traffic Acquisition Costs (“Revenue ex-TAC”) presents revenue reduced by traffic acquisition costs, reflecting that a portion of our revenue must be directly passed to publishers or advertisers and presents our revenue excluding such items.

The purpose of such adjustments is to give an indication of our performance exclusive of non-cash charges and other items that are considered by management to be outside of our core operating results. These non-GAAP measures are among the primary factors management uses in planning for and forecasting future periods. Furthermore, the non-GAAP measures are regularly used internally to understand, manage and evaluate our business and make operating decisions, and we believe that they are useful to investors as a consistent and comparable measure of the ongoing performance of our business. However, our non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures, and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP. Additionally, these non-GAAP financial measures may differ materially from the non-GAAP financial measures used by other companies. Due to the high variability and difficulty in making accurate forecasts and projections of some of the information excluded from these projected measures, together with some of the excluded information not being ascertainable or accessible, we are unable to quantify certain amounts that would be required for such presentation without unreasonable effort. Consequently, no reconciliation of the forward-looking non-GAAP financial measures is included. A reconciliation between results on a GAAP and non-GAAP basis is provided in the last table of this press release.

Forward Looking Statements

This press release contains historical information and forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995 with respect to the business, financial condition and results of operations of Perion. The words “will,” “believe,” “expect,” “intend,” “plan,” “should”, “estimate” and similar expressions are intended to identify forward-looking statements. Such statements reflect the current views, assumptions and expectations of Perion with respect to future events and are subject to risks and uncertainties. Many factors could cause the actual results, performance or achievements of Perion to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements, or financial information, including, among others, the failure to realize the anticipated benefits of companies and businesses we acquired and may acquire in the future, risks entailed in integrating the companies and businesses we acquire, including employee retention and customer acceptance; the risk that such transactions will divert management and other resources from the ongoing operations of the business or otherwise disrupt the conduct of those businesses, potential litigation associated with such transactions, and general risks associated with the business of Perion including intense and frequent changes in the markets in which the businesses operate and in general economic and business conditions, loss of key customers, unpredictable sales cycles, competitive pressures, market acceptance of new products, changes in applicable laws and regulations as well as industry self-regulation, data breaches, cyber-attacks and other similar incidents, inability to meet efficiency and cost reduction objectives, changes in business strategy and various other factors, whether referenced or not referenced in this press release. Various other risks and uncertainties may affect Perion and its results of operations, as described in reports filed by Perion with the Securities and Exchange Commission from time to time, including its annual report on Form 20-F for the year ended December 31, 2021 filed with the SEC on March 16, 2022. Perion does not assume any obligation to update these forward-looking statements.

PERION NETWORK LTD. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

In thousands (except share and per share data)

PERION NETWORK LTD. AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

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PERION NETWORK LTD. AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

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PERION NETWORK LTD. AND ITS SUBSIDIARIES

RECONCILIATION OF GAAP TO NON-GAAP RESULTS

In thousands (except share and per share data)

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