Good day, ladies and gentlemen, and welcome to Perion's Second Quarter and Annual 2020 Earnings Conference Call. For your information, today's conference is being recorded. The press release detailing the financial results is available on the company's website at carrion.com. Before we begin, I'd like to read the policy of our statements. Today's discussion will include forward looking statements.
These statements reflect the company's current views with respect to the 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 reports on Form 20 F that may cause actual results, performance or achievements to be materially different than 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 of prior quarters, the results reported today will be analyzed both on a GAAP and non GAAP basis.
While mentioning EBITDA, we'll be referring to the adjusted EBITDA. We have provided a detailed reconciliation of non GAAP measures to the comparable GAAP measures in our earnings release, which is available on our website and has also been filed on Form 6 ks. Hosting the call today are Doron Gesto, Perion's Chief Executive Officer and Maoz Sigurhan, Perion's Chief Financial Officer. I'd now like to turn the call over to Doran Gesto. Please go ahead, sir.
Thank you, and good morning. As we shared on our last quarterly call, the impact of COVID-nineteen has been broadly evident across the advertising industry in the first half of twenty twenty, with the most severe impact experienced in the Q2. According to a recent eMarketer report, digital ad spending is expected to decline by approximately $20,000,000,000 representing a steep 20% drop from 2019. This estimate, in its absence, point to a second half rebound because depending on how you analyze the data and which statistic you follow, the decline during the Q2 was as much as 45%. Despite its massive and material industry wide decline in spending, Perion delivered consolidated a year over year revenue growth in the first half of twenty twenty and the decline in our second quarter revenue was approximately 5%, far lower than the steep double digit decline experienced across the border industry.
We are achieving this from a position of financial strength while advancing our fundamental strategy of driving additional top line growth and profitability through innovation and accretive M and A without raising additional capital or risking our balance sheet. Our strategic main pillars of the digital media ecosystem served us well as did our ability to cut costs quickly and surgically. Our leadership and management have been through a turnaround plan that requires a cleared eye assessment of the situation and willingness to cut under stress. The culture and muscle memory enable us to get through the devastating second quarter far better than most. Despite the more 15% industry wide decline in paid search advertising and significantly reduced cost per click rates in the first half of twenty twenty, our revenue grew by 8% year to date as we continue to grow the number of monetizable search queries we delivered to Microsoft Bing.
Simply put, we are outperforming our peers and mitigating near term pressure that lower advertising budget. We are leveraging our technology platform and are identifying the new publisher who have been hurt by the crisis and are seeking new sources of revenue. In advertising, reduction in ad spending across all sectors, travel and automobile in particular in a rate of 25% to 35% negatively impacted our advertising business, but to a much smaller extent due to the acquisition of Content IQ. Looking forward, I'm encouraged by business indicators and market trends in the early part of the Q3 that provide us with improved visibility and increasing confidence that the worst of COVID-nineteen impact is behind us, so much so that we have made the decision to provide a revenue and adjusted EBITDA outlook for the second half of the year. While the first half of the year was strong, there is no doubt the second quarter was challenging.
The financial impact of COVID-nineteen and stay at home orders had significant impact on consumer behavior and marketing activity with few exceptions across client industries and geographies. In this regard, management decision to execute $10,000,000 annual cost saving plan happened to be right move. I'd like to move to some highly significant business achievements made during the Q2. We are very pleased with our deep lasting and expanding partnership with Microsoft. The growing number of high quality and monetizable searches is fundamental to the strength of this relationship.
More specifically, over the last 3 months, we enhanced our partnership with Microsoft to cover more products, business model and additional geographies. We partnered with Microsoft MSN to distribute MSN news in 140 countries on a rev share basis. It is a unique opportunity to provide our publisher high quality content from a premium news outlet in 140 countries. This will not only drive new revenue stream for online publisher, but will also keep their visitors engaged. Furthermore, Perion will start distributing product ads in 14 countries, which we estimate will boost CTR and RPM.
We are also happy to announce that Microsoft approved Privado for mobile, and it is now being tested with the large mobile operator in France as privacy was and remains a hot issue in Europe. Content IQ integration has gone smoothly and it is now completed. We are very pleased with the CIQ performance in the Q2 and our confidence in the business and its leadership is behind our recent acquisition of Pub Ocean, which I will get to shortly. As the digital advertising ecosystem is being reshaped, without cookies publisher, we'll have to find new ways to measure and track user engagement. That couldn't be better for CIQ because it dramatically increases the value of what they do, which is create invaluable first party data for brands through engaging content and contextually relevant advertising, keeping the consumer on brand safe sites for up to 7 minutes, an extraordinary long time in today's ADHD consumer world.
We are currently working on developing the infrastructure to enhance the integration of CodeFuel's intense signals into the ContentIQ and PubOcean platform and also integrating Undertone's high impact ad units. This is an example of the cross platform integration and the synergy within the Perion portfolio that will increasingly occupy our strategic and technology focus. Moving to our recent acquisition, Pub Ocean, last month and subsequent to the end of the second quarter, we acquired this innovative publisher technology platform. It's part of our Fabtech strategy. We are impressed by their recommendation engine called Mission and real time revenue analytics technology called LiveU, which are hand in glove fit with CIQ.
This accretive and synergistic acquisition offers significant and immediate synergies to CIQ. With Mission and Lightfield technology, CIQ programmatic bidding algorithm can better optimize media buying campaign by using higher quality data. Improved content recommendation engine will open the door to additional audience segment and further optimizing consumer sessions. In parallel, Content IQ's superior on page monetization capabilities are instantly synergies to Pub Ocean yield and growth. PubOcean is expected to generate an incremental $25,000,000 in revenue $5,000,000 in adjusted EBITDA over the next 12 months.
We were able to make this acquisition from a position of strength without raising additional capital or adding leverage to our balance sheet. Karyan's social brand advertising SaaS platform Make Me Reach has expanded its partnership with Havas Media Group. Havas will leverage Perion's platform across its global network to deliver meaningful social campaign for clients and their consumer across their 140 offices around the world. MMR SaaS platform has now completed over 50% growth year over year in ACV. In our Undertone business, a bright spot was video, which was up 115% in the first half, driven by budgets achieved from linear TV and other digital formats and very high and increasing time spent with digital video, largely connected TV.
With that, I would like to turn the call over to Maoz to review the financial results for the Q2. Maoz?
Thank you, Doron. Amid COVID-nineteen, during the Q2 of 2020, we completed our cost saving plans and experienced better than expected business results both in our advertising and search business units. Based on current visibility, we believe that the growth is behind us, which enable us to provide revenue and adjusted EBITDA outlook for the second half of the year. We believe that the trajectory of the recovery will be gradual and uneven. At the beginning of the Q3, we completed the acquisition of Pub Ocean, further bolstering our advertising business unit.
Similarly to CAQ, this acquisition includes a substantial earnout component back to various financial metrics over the next 2 years. Turning to the results. During the Q2 of 2020, revenues decreased by 5% from $63,600,000 in the Q2 of 2019 to $60,300,000 dollars composed of $18,700,000 from advertising and $41,700,000 from search and other revenue. This decrease was primarily a result of a 12% decline in advertising revenue, mainly due to COVID-nineteen impact on ad spend across the industry. The negative impact was partially offset by the acquisition of CAQ on January 14, 2020.
Search and other revenue decreased by 1% as a result of lower paid search rate due to COVID-nineteen, offset by growing number of monetized search queries. Search and other revenues represented 69% of the Q2 of 2020 revenue with advertising contributing 31%. Customer acquisition costs in MediaBuy in the Q2 of 2020 were $36,800,000 or 61 percent of revenue compared to $33,200,000 or 52 percent of revenue in the Q2 of 2019. The increase as a percentage of revenue is primarily due to the acquisition of CAQ and product mix. Net loss for the Q2 of 2020 was $2,200,000 or $0.08 per diluted share compared to net income of $2,900,000 or $0.11 per diluted share in the Q2 of 2019.
Perion's non GAAP net income in the Q2 of 2020 was $1,900,000 or $0.07 per diluted share compared to $5,000,000 to $4,500,000 or $0.17 per diluted share in the Q2 of 2019. Adjusted EBITDA in the Q2 of 2020 was $2,500,000 compared to $7,400,000 in the Q2 of 2019. Cash provided from operations in the Q2 of 2020 was $200,000 inclusive of approximately 2,000,000 dollars decrease due to working capital needs in connection with the acquisition of CIQ compared to 8,400,000 dollars in the Q2 of 2019. As of June 30, 2020, we had cash, cash equivalents and short term bank deposit of $47,900,000 compared to $61,600,000 as of December 31, 2019. Total debt as of June 30, 2020 was $12,500,000 compared to $16,700,000 as of December 31, 2019.
During the Q2, we paid $2,100,000 of total debt as part of our payment schedule. I will now turn the call back to Doron for closing statements.
Thank you, Maoz. While the pandemic impacted our Q2 results at levels much lower than the overall industry, it has not interrupted the implementation of our strategy to drive additional top line growth and profitability through accretive M and A. The accretive acquisition of Pub Ocean along with rapid cost containment initiatives and successful integration of Content IQ are supporting our growth strategy and enable us to remain highly profitable. Based on business indicators and improving trends that we are experiencing during the Q3, we believe that the worst of the COVID-nineteen disruption is behind us. And while we believe the trajectory of the recovery will be gradual and uneven, we are increasingly confident in our visibility.
Based on this, we are providing guidance for the second half of twenty twenty. We expect to generate revenue between 150 dollars to $160,000,000 We expect to generate $11,000,000 to $13,000,000 in adjusted EBITDA. We are continuing to leverage our diversification strategy to capitalize on increased volatility in the market. We are also building towards a more synergistic Perion, which will simplify and streamline the effectiveness of our go to market effort and create further shareholder value. I would like to end our earnings call by thanking the entire Perion team for their resiliency and agility this quarter through very challenging conditions.
I'm proud of why the step up and didn't miss a bit serving current clients and driving new revenue. Operator, you can now open the call for questions.
Thank you sir. Today's first question is coming from Mr. Eric Martinuzzi calling in from Lake Street. Please go ahead. Your line is open.
Congratulations on the 2nd quarter results. I wanted to ask you a question on your 2 acquisitions and kind of just if you could compare and contrast PubOcean versus CIQ? And then I have a follow-up. I understand they're both publisher facing technologies, but just layer deeper on those 2, please.
Yes, definitely. So I think we described in brief the use case, but they are quite complementary. And what Content IQ was very much missing is what's known in the industry is content recommendation. Content recommendation capability. Content IQ is very much driving its traffic from Facebook through their buying capability in Facebook.
And there is a whole other way of doing it through content recommendation. And that was very much on the plans of Content IQ to develop. And between the decision of building it or buying it, we decided to go and search for companies that has this capability that not just can provide this capability and very much shorten the time to market, but also be accretive. And so together with the buying system of Content IQ and the buying system of SubOcean, that basically cover the entire universe that we have the plan.
With PubOcean, I understand they have some owned websites and that they also provide content recommendation on client sites. What percent of PubOcean revenue is monetized via home sites versus client sites?
So the majority is in their own site. It's like eightytwenty.
Expected to persist? Or is that more things are more like a fiftyfifty percent?
So we're definitely looking to expand our capability to other sites. And at this time, what we are doing, we are consolidating the 2 systems. And Content IT already started with this effort. And there are 2 very large sites. One of them is Newsweek and the other one is Bonaire, which we are providing this capability.
Keep in mind that it must be use our infrastructure visavis the content the CMS, content management system. That's the only way for us to ensure the 5 to 7 minutes time or what we call the session time. So the partnership is that those two sites are providing us valuable content to what we call the mini site that we are operating and basically using our optimization capability that has to do with targeting the right audience, ability to control the layout and the content and provide the right ad unit. All in all, in order to optimize what we call profit per session, even though it's running on domain, which is outside of our own
That makes sense? Yes.
Thank you.
I had a follow-up question regarding the search business, very strong there the 1st 6 months of the year being up 8%. Obviously, Q2 was right around 1%, but sort of to be expected contraction there and certainly being down only single digits relative substantial performer. Just curious to know where we are on that relationship with Microsoft being, I know you've talked in the past about having it renewed around the October timeframe. What can you tell us about the renewal of that relationship?
So I think that 1st and foremost, the revenue in the 6 months is it was very much
driven
also, but new product that we launched, I think that we are very happy about strengthening our partnership. If this is the MSN news that we are feeding to 140 countries, if it's the product adds. And I must say that Bing is very, very happy with the experience that we're doing with a large operator in France. It gives them presence on mobile, which they're looking as a very strategic. And those efforts are very much in line of their expectation.
As I mentioned, it's strengthened our partnership, and I'm very much expecting that we will renew the agreement on October, as I said in previous calls. And the steps that the efforts, the achievements that we're doing in the Q2 is definitely in line with this plan.
Thank you, sir. Now we'll go to Chris McGinnis calling in from Sidoti and Company. Please go ahead. Your line is open, sir.
Good morning. Thanks for taking my questions and nice quarter. I was just wondering if you could dig in a little bit more just in terms of the trends you're seeing on the ad side, it sounds a little bit better than I was expecting. Is there any markets that are coming back quicker? Can you just provide a little bit more color on what you're seeing there?
It's very difficult to hear you. If I got it right, you were asking us to elaborate more on the advertising business?
Yes, it was. Yes. Is that better?
Okay. Yes, yes. Now it's much better. So I think that definitely from the advertising business, as I mentioned, due to the fact that travel and automobile are responsible for good 15% to 20% of our revenue, you would expect that while others are maybe increase their spend, in some cases, due COVID, it's not that compensate the loss of these verticals. And that's definitely something which happened in the Q2.
Our indicators right now, and as you can imagine, based on the clients that we're working with, and those are, let's say, global 1,000 customers, they already placed their campaign for the Q3. And that's very much the optimism and the indicators that we're getting from, which we see it as quite a change from what happened in the Q2. Actually, it started very much on March already, where they were very much on defense. And so we see them coming back. We see them spending more money.
We see them engage with more units. It's not just the display, it's also the video, it's also the CTV units that we are now offering. And so all in all, I think that this is a very, very good indicator for us that gives us the visibility for H2, especially on the advertising business.
Great. No, I appreciate that. That was exactly what I was looking for. Just following the Publishing acquisition, is there anything else you feel like you need to add to strengthen the platform and the offering? Thanks.
No. I think that we're very happy with the technology that they have. I think that we are now, PubOcean was a privately held company, and PubOcean was very much limited with their ability to scale even though we're very happy with their projection in the next 12 months, which is we very much stated. The $25,000,000 and the $25,000,000 in revenue and $5,000,000 in EBITDA. But I think that the capability is their ability to scale is we didn't mention it, but we definitely see a great opportunity there.
It require us to inject more working capital. It requires us to definitely add more people, more on the data science as we see it. But I think that we knew it because our capability is not what they have, and we are very much getting here a core competence that we didn't see, and probably it will take us around 2 to 3 years to develop. So it was a very wide decision. The other element, which I think we put a lot of emphasis on during our diligence, is the company, their management capability, the culture fit that since we are expecting them to contribute, as I mentioned, from their financial from day 1.
Today's next question is coming from Derek Beaud coming in as a private investor. Please ask your question. Your line is open.
Thank you very much and good afternoon to your Jerome team. Congratulations on
Hi, hi.
Hello. Congratulations on showing resilience during a very challenging market. I apologize if any questions are done in the system kicks me off at the beginning of Q and A. So I missed the first couple of questions. So just any more if they're done and I'll listen to replay.
Curious, you did some really great work on search, like you said, demonstrating growth in the first half, despite a very challenging environment, despite downturns in both Microsoft and Google. How did you manage to show the degree of resilience in search despite such a difficult environment?
Yes. So I think that there are 2 factors. And the two factors is very much has to do with the different products that we have. And the different products allows us here, and especially the new products that we launched. As you can imagine, those are coming to it's being installed in mature, large network of publisher that, for instance, if this is the Amazon News, it's something which we have the platform to roll out easily.
And that's also from the product adds that we will add. All those things that their time to market is very, very, very short, allows us once it's being crossed the gate of being take us it's matter of day, till we're able to see a huge scale on our publisher. And that's, I think, a great platform onboarding technology that we have that allows us to take new product off the gate really fast and immediately see the contribution to the revenue.
Thank you. That's helpful. And can you talk a little bit more about industry trends, CPM trends in particular starting in mid March when shelter in place really hit and then through present?
Yes. Yes. So I think that it's the CPM trend is definitely something that hit us hard. Hit us hard because as you can as you know, we are selling high impact or rich media ad units as the industry described it. And rich media ad unit by nature are way higher CPM than standard units.
To some point, we're talking about $15 to $17 CPM versus you can find $2 $3 of banners. And in this situation, advertisers, when they reduce their budget, the first thing is that by reducing the budget, they don't want to reduce the number of impression. And in order to accommodate both, while you reduce budget but you want to keep the number of impression, you're going from a high impact rich media ad units to lower cost ad units and a lower CPM ad unit and which put those from the advertiser portfolio standpoint, and we definitely hit it. One of the indicators that we're looking at is basically see how now large advertisers are putting more and more budget towards those high CPM units that we are selling, and then we are very much encouraging about it. But that was maybe other than the fact that we're few vertical, as I mentioned, that's travel and automobile that completely stopped their advertising budget.
But the others were very much when I'm saying on the fence, they were very much allocate its budget differently and very much towards low end of units, which something that hurt us.
Great. Thank you. Appreciate the color there. And then just thinking about the acquisition, the recent acquisitions of Content IQ and PubOcean, curious what Perion looks like 1 to 2 years out once you have the chance to integrate everything? And then are you anticipating additional acquisitions as well?
Yes. So at this point, we definitely we are really even though we are happy after 6 months, we finished the acquisition of Content IQ January 14. I must say that even though we're happy, the post merger integration efforts is very much still on, and we're looking about the second phase of it, which is very much integrated with other units and assets that we have. That's not trivial. I can say that at the front end is very much the data that we're able to extract from the different units, and that's what we're very much doing.
So I can tell you that we're getting a huge intense signal from the 13,000,000 searches that we're delivering every day to Microsoft Bing. This trend by itself is once you analyze it and analyze it carefully can be a great insight for the consolidate business unit, and this is definitely something that we're busy right now. And we're able to see a great cliff even though we are still in initial stage of how data that is being inject from CodFuel or from Undertone is definitely helping Content IQ and vice versa. So all in all, I think that 2 years from now, we are basically can offer advertiser and I said that we are getting prepared for a cookie less era through our O and O. We are developing our own walled garden, which advertiser will able to put their ads in a complete control, safe environment, which they're able to control their content, their layout.
They're able to control very much the audience that we're targeting, enjoy insight of data that we get from CodeFuel, all in all, to get way higher return on ad spend and enjoy 1st party data and not being relying on 3rd party and things which we expect that 2 years from now will be off the table. So we are building all this in order to serve better our advertisers. Currently, we are serving around almost 700 to 800 campaigns a year at Undertone. We're dealing with the Fortune 500 customer. And we are building together this offering, which will, in a way, need to handle the situation or that is going to be a year from now through the O and O that we're acquiring and other assets that we have from other business units.
That's great. I really appreciate the color, Doron, and congratulations again on demonstrating resilience during a very difficult time and been a long journey for Perion and just wonderful to see how well you've held up now that you've improved the balance sheet and working from a position of strength within a difficult market environment.
We'll now go to Mr. John Nobile calling in from Taglich Brothers. Please go ahead. Your line is open, sir.
Hi. And thanks again, Devon and Maoz for taking my questions on this call.
I just wanted to get a
little better understanding of certain things that you used in the press release related to publishing. In that press release, it stated that the integration of PubOcean into CIQ will benefit a new media supply chain. Could you talk a little about this new media supply chain? And how will this benefit brand recognition?
Yes. The new media supply chain has to do with content recommendation. You need to distinguish between the current tactics that Content IQ is using where they drive their audience mainly from Facebook through their buying platform. And what Popocean is doing, which is driving their audience from content recommendation engine. That's completely 2 different channels.
And combined these 2 into a one buying system, this is very powerful in order, of course, to reduce the cost of driving audience and allows us that the profit per session to optimize the profit per session. That's very much what is behind this acquisition. Okay. So just to translate it into numbers, because we are currently, PubOcean is profitable and it has its own great, great business. If you add it to the existing business of ContentView, that's what you're coming into the $25,000,000 and the $5,000,000 EBITDA because it's on any given point of decision you can ask, and this is the AI element that we're using, is where is the best way to get this audience?
Is it through our Facebook buying system or through the content recommendation? That's a very, very sophisticated, but very essential type of technology, as I said, that can allow us to reduce substantially the cost of acquiring audience.
I appreciate that additional color on that. A lot of my questions have been addressed, but I just have one further question. If you could actually provide us with an update on your collaboration with Check Point's Zone Alarm and your CodeFuel division? Yes.
Yes, definitely. So the Zone Alarm and Check Point was in our presentation is only one example out of the 1,000 example 1,000 partnerships that we have. It is very much showing the value that we're able to bring to this enterprise because at this point, nobody is very much paying for extensions. And the only way for you to monetize your efforts, In this case, the Checkpoint acquisition of ZonaRamp is very much through the fact that you are getting a rev share from searches that going through us, and we are very much optimizing the Zon Alarm search results page in order for them to get the most rev share from any keyword that their user is typing in. So that's very much it.
It's going very well. And I think that the best way for us, and I think that it's something that we need to address in the next call is what we call the lifetime value of those users. Lifetime value is the time that from their download and start basically using the extension and start generating search keywords till they remove the extension. That's a very important KPI that we are using to rank the extension and its revenue and EBITDA contribution. And I can since you mentioned the Zonalarm is very much up because they're providing a true value to their user and their lifetime value is strong.
And one installation is bringing a lot of revenue a lot of searches translated into a rev share for both companies, for us and for Check Point. What was the other thing that you were asking other than Check Point?
I just really wanted to get an update on how that was going as far as that collaboration?
Yes. So that's while they're improving very much their extension and they update the user, we definitely enjoy because it means that the users are active, they're adding new users and their existing users are staying longer because they're providing more value, more features into their installation.
That's good to hear. And thanks again for that additional information on that. Thank you.
Thank you.
Thank you, Mr. Okay. We do not appear to have any further questions at this time. I'll turn the call back over to Stoner Gerstel for any additional or closing remarks.
Yes. I would like to thank you again for joining our call. It's definitely it was a challenging quarter. We are very happy here, management and team that we are looking at the second half and have more visibility and able to share our optimism. I hope you guys are all okay and looking forward talking with you in the coming days.
Thanks so much for joining.
Bye bye.
Thank you much, sir. Ladies and gentlemen, that will conclude today's conference. We thank you for your attendance. You may now disconnect. Have a good day.