Perion Network Ltd. Q3 2018 Financial Summary
Business Context and Reporting Period
This Form 6-K filing, dated November 1, 2018, reports the financial results for Perion Network Ltd. for the third quarter and nine months ended September 30, 2018. Perion is a global technology company providing digital marketing solutions, including high-impact advertising formats and branded search. The company is currently executing a three-phase turnaround strategy focused on strengthening its financial position and revitalizing growth.
Key Financial Metrics
| Metric (in millions) | Q3 2017 | Q3 2018 | 9M 2017 | 9M 2018 |
|---|---|---|---|---|
| Total Revenues | $65.0 | $57.2 | $196.7 | $180.9 |
| GAAP Net Income (Loss) | $2.6 | $2.2 | $(35.5) | $3.2 |
| Non-GAAP Net Income | $4.1 | $4.3 | $11.1 | $12.0 |
| Adjusted EBITDA | $6.5 | $6.7 | $17.0 | $18.1 |
| Operating Cash Flow | $17.1 | $11.0 | $28.9 | $28.5 |
| Cash and Equivalents (End of Period) | $34.0 | $40.9 | N/A | N/A |
| Total Debt | N/A | $39.7 | $60.7 (Dec 2017) | $39.7 |
Profitability Margins (Q3 2018): Non-GAAP Net Income margin was 7.5% of revenues. Adjusted EBITDA margin was 12% of revenues.
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased 12% year-over-year in Q3 2018. This was driven by a 17% drop in Advertising revenue due to insufficient programmatic inventory to meet demand for high-impact ad units, and a 7% decline in legacy search products.
- Debt Reduction: Total debt decreased to $39.7 million as of September 30, 2018, from $60.7 million at year-end 2017. The company repaid $21 million in debt year-to-date.
- Liquidity Milestone: For the first time in four years, long-term debt fell below net cash levels. Cash and cash equivalents stood at $40.9 million.
- Cost Structure: Customer Acquisition Costs (CAC) as a percentage of revenue increased slightly to 50% in Q3 2018 from 49% in Q3 2017, attributed to header bidding and Chrome ad blockers.
Guidance, Outlook, and Management Commentary
- Full-Year Guidance: Management reaffirmed its expectation for full-year 2018 Adjusted EBITDA to be between $29 million and $32 million.
- Strategic Pivot: With expense restructuring largely complete, the company is pivoting to the next phase of its turnaround. This includes reallocating technology resources to enhance the Undertone platform with AI-based sequential messaging to improve campaign ROIs.
- Operational Challenges: Management noted that current publisher capacity for unique ad units is less than demand, resulting in under-delivered campaigns. The company is working with partners to close this supply gap in 2019.
- Leadership Changes: Tal Jacobson was appointed to lead the CodeFuel business unit within Search and others. Mike Glover transitioned to an advisory role.
- Risks: Forward-looking statements are subject to risks including integration of acquisitions, market acceptance of new products, competitive pressures, and general economic conditions.
Investor Verification Checklist
- Verify the specific timeline and success metrics for resolving the programmatic inventory shortage affecting Advertising revenue.
- Confirm the details of the $21 million debt repayment and the resulting interest expense savings.
- Monitor the progress of the Undertone platform enhancements and their impact on campaign ROI and revenue growth in 2019.
- Review the reconciliation of GAAP to Non-GAAP measures, specifically the treatment of convertible debt fair value revaluations.
- Assess the sustainability of the 12% Adjusted EBITDA margin given the revenue headwinds in the advertising segment.