day, and welcome to the Purion First Quarter 2017 Earnings Conference Call. Today's conference is being recorded. At this time, it is my pleasure to turn the conference over to Jeremy Stein, Investor Relations. Please go ahead, sir.
Thank you, operator, and good morning, everyone. Thank you for joining us on our Q1 2017 earnings call. The press release detailing the financial results is available on the company's website at carion.com. Joining me on the call today are Doron Gerstel, Carion's newly appointed Executive Officer Yaacob Kaufmann, Chief Financial Officer and Rob Schwartz, President and General Manager of Undertone. 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, 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. In addition, and as in prior quarters, the results reported today will be analyzed both on a GAAP and non GAAP basis.
We will be referring to adjusted EBITDA when mentioning EBITDA in our comments. 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. I would now like to turn the call over to Doron Burstel, Perion's new Chief Executive Officer. Doron, welcome to Perion. The call is yours.
Thank you, Jeremy, and good morning, everyone. I'm excited to be here on my first earnings call with Perion. Before we dive in, I would like to share with you why I decided to join Perion as the CEO. I agreed to accept this position after assessing Perion's capabilities, technology assets and solution, which I see as essential elements of implementing a long term organic growth framework, which I've used as a CEO with 3 different companies over the last 15 years. Since joining Perion on April 2, subsequent to the end of the Q1, my focus has been to lay out the framework for an organic growth strategy along with expense optimization efforts, which are even more relevant given the Q1 results.
Yaacov will discuss the quarterly results in a detail later on the call. My mission as a CEO is clear, to drive long term exponential growth and unlock sustainable shareholder value. The key element of our growth strategy will be to leverage our technology assets, which we have acquired over the past several years. Currently, these assets are siloed as a stand alone product offering. As part of my long term agenda, we will strive to integrate these technology assets into a one company approach.
I am encouraged by the opportunities I see for our Search business. Terren has a long standing strategic partnership with Bing, who has expressed a continuing commitment to our relationship. As a meaningful player in this space, Perion will utilize its knowledge and technology capabilities, especially in the mobile industry, which will add significant value to our partners. The dynamics of search market is that small player struggle to generate significant revenue, which causes them to exit or deemphasize their participation in the market. As such, Perion is poised to capitalize on this and leverage its leadership position and strategic partnership with Bing to gain market share.
Our cash flow from the search business will be used to augment growth investment in our advertising business. On the advertising side of our business, as many of you know, Undertone is highly regarded by the largest and most influential ad agencies, and we do business with some of the most recognizable brand in the world. As the industry continues to shift to higher quality advertising and to more premium label publishers, undertone high impact advertising and highly differentiated offering are uniquely positioned to capitalize on a growing opportunity. We've identified 3 main revenue growth drivers, which reflect our aim to improve our sales efficiency along with our efforts to bring to market a holistic advertisement technology solution. 1st, increase our share of wallet 2nd, increase customer retention and third, increase incremental campaign spend.
We plan to drive initiatives to enhance long term customer engagement and retention, enabling us to reduce customer acquisition cost and media buying cost moving forward. Further, we will use data driven analytics and data optimization capabilities as the glue to create a robust solution, which will resonate with customer, accelerate our growth and enable margin expansion. A significant component of our long term strategy will be to continue to optimize our cost structure, enabling us to redirect investment to further capitalize on our core technology and accelerate our growth trajectory over the next 3 years. I will expand on this in my closing comments. As I mentioned, we have acquired multiple assets that augment our advertising business, but these assets are currently operated as an independent business unit.
We will work to integrate these into a more comprehensive solution based offering. For example, Make Me Reach, MMR, Perion Social Media arm, is one of Facebook's leading marketing partner in Europe. It is well known that social media is an increasingly important part of any advertising campaign. MMR provides Perion with a compelling and unique offering to address this growing need. In addition, we must better integrate our campaign management platform that deliver format seamlessly across devices with unique social, video and interactive capabilities.
This platform is a key differentiator of our technology. Cross device capabilities are increasingly critical to drive effective advertising campaign, and I believe we can further capitalize on this core technology. As part of the initial effort to deliver this holistic solution, we have promoted Chris Hanger to Veperion's new Senior Vice President of Product. Chris brings over 18 years of experience to this new role, including product leadership position at Google and DoubleClick. I am excited to work closely with Chris and confident he will add tremendous value to the company in his new role.
In the coming quarter, I expect to provide more detail about our solution along with initiatives that will drive our business over the near and long term. As we disclosed in the press release that was issued earlier this morning, Yaacov is stepping down as CFO to pursue new opportunity. And Ofir Yaacov Jan will join us as our new CFO on June 30. Yakov joined Perion back in 2,005 when a single product company with 4 d employees known as IntradiMail began preparing for a public listing. Over the course of more than a decade, Yakov has played a vital role in growing the company from less than $8,000,000 in annual revenue into a global leader with annual revenue exceeding $300,000,000 and more than 500 employees worldwide.
On behalf of the Board, our employees and all those that have worked with Yaakov over the past 11 years, thank you. I'll now turn the call over to Yaakov to discuss our Q1 2017 financial performance and operational highlights in more detail.
Thank you, Don, and thank you for your kind words and welcome. Our business, particularly with regards to our Undertone business, is seasonal. As such, we will, for the most part, not be making sequential comparisons. Revenues for Perion in the Q1 of 2017 were $62,000,000 compared to $75,800,000 in the Q1 of last year. This decrease was primarily due to our advertising revenue declining 22% as compared to the Q1 of 2016 and search and other revenues declining 16%.
Macroeconomic factors influencing the digital advertising market, including political and economic uncertainty after the U. S. Election and Brexit contributed to a slower than expected brand spend that carried over into the Q1. Undertone experienced most of the impact from these factors during the month of January, and we saw improved levels of activity and revenue in February March. That monthly trend of improvement accelerated further in the Q2, and we experienced a more than 20% year over year increase in advertising revenues in the month of April.
This growth is primarily a result of the successful launch of our new social video content offering that we launched in February. The decline in search and other revenues primarily reflects the expected decline in expense free search revenues generated from legacy users that were engaged over 2 years ago, the effect of which continues to decrease over time. EBITDA in the Q1 of 2017 was $3,500,000 as compared to $8,800,000 in the Q1 of 2016. The decrease in EBITDA was primarily due to the lower expense free legacy search revenues as well as lower advertising revenues. This was partially offset by an improved cost structure.
Operating expenses outside of CAC and media buying costs were 17% lower in the Q1 of 2017 as compared to the same quarter last year. EBITDA was offset by non cash depreciation, amortization and equity compensation expenses totaling $5,500,000 in the Q1 of 2017. This is almost half the non cash expenses restructuring and acquisition related costs of $10,100,000 we reported in the Q1 of 2016. On a GAAP basis, in the Q1 of 2017, we reported a net loss of $2,100,000 or $0.03 per diluted share compared to a net loss of $5,600,000 or $0.07 per diluted share in the Q1 of 2016. Parion's non GAAP net income in the Q1 of 2017 was $2,800,000 or $0.04 per share, compared to $6,700,000 or $0.09 per share in the Q1 of 2016, reflecting the lower EBITDA, as I explained.
Cash flow from operations in the Q1 of 2017 was $8,200,000 compared to $3,500,000 in the Q1 of 2016. The increase in cash flow from operations was primarily due to the discontinuation of certain activities related to Grow Mobile in 2016 as well as improving our DSO. As of March 31, 2017, we had cash and cash equivalents of $22,800,000 and working capital of $19,900,000 This concludes my financial overview for the Q1 2017. But before I turn the call back over to Doron, I'd like to take a moment to thank the great people I've had the privilege of working with since joining Perion, which used to be in CreditMail. In a meeting with Ofer Adler at Lorsgaard, one of the company's founders, he shared with me that he hadn't imagined what a startup would turn into over the past 10 years.
So I would like to thank Ofer, Yaron and Tammy for bringing me on for this thrilling ride. Through the years, Perion has evolved, changed and most importantly grown, reflecting and adapting to the changing Internet landscape and expect that Doron and the rest of the team will continue to evolve and grow our presence in this exciting market. I'd like to wish Doron good luck in his new role and welcome Ophir to the company and will help him transition into this new role as he joins Perion on June 13. With that, I will now turn the call back to Doron for closing comments.
Thank you, Yaakov. We began focusing on new initiatives last month that will help position Perion for the next phase of its growth and are working to formalize a multiyear strategic plan. As I mentioned earlier, a significant component of our long term strategy will be to continue to optimize our cost structure, streamline our organization and redirect investment to further capitalize on our core technology. To drive this effort, we've hired Ophir Yakovyan as our new CFO. Ophir is an experienced senior executive with a proven track record of affecting strategic turnarounds as a public company.
I'm pleased that he will be joining us, and I look forward to working with him. In the meantime, I'm encouraged by our prospects for the Q2. More specifically, in our advertising business, Q2's strong start, meeting Q2 plan and even closing Q1 GAAP becomes more and more realistic. For now, I'll close by saying that the assets we have in place exceed even the original expectation I had about Perion, which encouraged me to take this position in the 1st place. And I'm eager to move forward.
With that, I will open the call to questions. Operator?
Thank you. And our first question comes from Kerry Rice with Needham.
Thank you. First, Yakov, I want to say it was great working with you and good luck to your future endeavors.
Thank you, Terry.
I guess going forward, well, maybe let's take one look at Q1 on the advertising side. As you mentioned, brand came in a little light. Was there any more context you could provide? I know that programmatic had been kind of a growing area for you. Did that come in a little bit weaker versus maybe what was the core Hydratone business, if you can provide any more detail there?
And maybe as you think about the strength or the good start in Q2, what's driving that? Is that programmatic or is it kind of more the core Undertone business? And then maybe a couple of questions looking ahead to Doran. You talk about driving long term exponential growth and unlocking sustainable shareholder value. Is there as you think about the business is that Perion has today, are any big changes that you kind of view in advertising or things you want to augment specifically there?
And then maybe the final thing on cost structure, you talked about continuing to optimize that. So should we think about you pulling out significant costs, operating costs or is that bringing down customer acquisition cost? Any more details you can provide there would be great. Thank you.
Sure. So for our advertising business, I suggest that Rob Schwartz, Undertone's President, will take this part, and I will talk about the second part of your question. Rob, are you there?
Yes. Thanks, Jerome. Kerry, to your question about Q1, and as Yaakov had mentioned, we were impacted by macroeconomic factors that particularly hit in January. As far as our capability set, programmatic was particularly strong in Q4 of 2016. We're seeing good trends from our programmatic capabilities, which also are in line with enhancements that we're making.
In Q1, the programmatic revenue was continuing to increase. We're seeing that accelerate in Q2 as well pretty substantially. The other impact in Q1 was our launch of our social content product and our new social offering. We're seeing that continue to pick up sequentially in February and in March, and particularly in Q2. To your other question around why Q2 is seeing such a strong start.
I think that's really been driven by our focus on mobile, video, social and the programmatic capabilities that we just discussed. It's the fastest growing part of the digital advertising market. It gives us an opportunity to provide a broader set of solutions to our brand and agency customers, and we're seeing a lot of success with that improved technology and capability offering.
Okay. Maybe as a follow-up to that, it sounds then if I kind of summarize what you said, Rob, is programmatic strong in Q4 continues to increase. So maybe it was kind of the core undertone business that fell off a little bit more than expected in January?
I really think just from an overall perspective, we were seeing brand spend slow into the Q1 of the year and that impacted all parts of our business. The core undertone part of the business outside programmatic just happens to be larger, so you would see a bigger impact. But I don't think it was meaningfully different between the 2.
Okay. And as far as the other part of your question, so there is the growth plan or the strategic growth that we are putting in place as the first one basic assumption that the company needs to look inside. And from in the previous years, I mean, the last 2, 3 years, Perion acquired a lot of assets and a lot of companies that they were instructed to drive what we consider as local optimization. It means each one of them is working and function in silo and need to drive the expected revenue and EBITDA. What we did in the last month, we are basically looking insight into those business units, the big ones and the small ones.
And what we found out, there is a lot of technology that we have by acquiring those company and developing over the years that can be integrated into other business unit, integrated in a more holistic solution. So that's one aspect that we would like to look at. And I think that we would like very much to capitalize as much as we can on the investment that is being done on these acquisitions. And my personal belief that we definitely need to strengthen our technology that serve as core competence and definitely will allow us to not just increase our revenue, but also reduce our cost of acquisition and other very important KPIs that I mentioned. Wallet share is one of them, means we're able to get way more in terms of revenue on a given campaign.
We're able to get where increased customer retention, which also can be translated into reduced cost of acquisition. The other part definitely has to do with cost structure. And company was running in a way as, let's say, as much as a holding company, which they need to optimize the acquisition that they did by us integrating those processes and by integrating some of its function and looking at it from a kind of holistic way, we were able to reduce, I hope, substantial amount of our cost and ability to deliver better support to our customer and running our operation in way more efficient way.
And it sounds then different from
maybe previous strategy of being very active in M and A that you will maybe at least for the near term pull back on that to focus as you said, internally and create a more integrated solution with the technology you have. Is that fair?
Yes, that's the right statement, completely right on.
Okay. Thank you very much.
Thank you.
We'll take our next question from Dan Kurnos with The Benchmark Company.
Yes. Good afternoon, guys. Just first off, Doron, welcome. And second, let me just echo Kerry's statements, Yaacov. I certainly will be sorry to see you go.
You've done a lot for this company, and I certainly wish you the best of luck wherever life takes you next.
Thank you, Dan.
Just a couple of things for me, maybe even for Rob just to start with and then Doron, I want to kind of get into kind of maybe your higher level thoughts and I won't press you too much in your game plan, but I just kind of want to get away a sense of the way you're thinking about things and a little bit more color. But for Rob, just generally on the undertone side, we've obviously seen some continued weakness or pockets of softness in the general ad market. Broadcast has had some pullback, particularly in retail and food categories. Auto has been fine. I don't know, obviously, there was a kind of a lull after the campaign in January got off to a tepid start.
And even though you're seeing that improvement in April, I'm just wondering how kind of the general flavor of the ad market is shaping up from a campaign perspective as people are trying to reallocate or conserve ad dollars at this point?
Thanks, Dan. Your point is spot on. What we're seeing that had been the sentiment in Q2 in Q1 changed pretty dramatically in Q2 and we're seeing brands that were slow to release their budgets looking to spend much more aggressively in Q2 and much more aggressively with us. Those trends were pretty dramatic in the way that they changed heading into February and heading into March, and we have not seen that slowdown into Q2. But the way that you described the beginning of the year was certainly true for us.
Fortunately, we're seeing the type of spend really across all verticals, aside potentially from retail and all geographies.
Can you also maybe give a little bit of color on sort of the multi device strategy and just how given kind of the shift towards the multi screen environment, what you guys are seeing in terms of demand for multi screen campaign, if you're getting any benefits on wise, given sort of the higher touch nature of your advertising platform and if you're working on some tech enhancements to kind of capitalize on some of the newer things out there, whether it's geo targeting or other things that are being developed more in the market more recently?
Yes, definitely. Cross screening, cross device is a strength of ours and one that's being required from our brand advertiser customers, it's no longer an option and that's good for us. In addition to that, as you described, we do have a higher touch model and a better creative model. And as advertisers have seen certain trends in the Q1 around issues with brand safety or issues with the environment that their ads have been shown up on, that also is a place where they come to us for a brand safe environment, a better creative experience, always across screens. Going forward, and one of the areas that I'm really excited to work with Jerome and the team with is being able to have a more significant data offering to help give our customers a better understanding of where their ads are being seen, when and what those results will look like.
Got it. That's helpful. So then let me just turn the ball back over to you Doron and let me ask you some kind of higher level questions here. So look, obviously, search is not a growth business. So you've got but it is kicking you off a ton of free cash.
Assuming that you're going to at least keep it just to fund maybe some incremental investment here. How should we think about your willingness maybe to get more aggressive near term on investment? The company historically has focused on profitability. But now that you've got this sort of mandate to accelerate growth and a lot of it sounds like kind of multi platform integration and I would assume there's going to be a lot of probably back end kind of costs to either migrate, whether it's a cloud migration or other things that you'll need to do from a tech perspective to enhance your data capabilities? How should we think about sort of your investment style and thought process relative to what has historically been kind of more of a strong stable cash flow story?
Right. So a bit first on my background. So I view myself, other than being a professional CEO, it has a product background. So any one of the companies that I manage and ask to, if we call it a turnaround or take it to the next level, we're very much focusing 1st and foremost, that was my agenda, on to what extent the technology and the offering the investment in technology can serve as a pivot of the chains. And I think in this case, Perion is not exception.
First of all, I found here a huge of technology assets. But as Rob mentioned, from the various businesses that we have, we are sitting on a gold mine of data that getting from any parts of the world, mainly from the U. S. And this data is definitely something that can serve, as I mentioned in the call, definitely as a glue, a glue from the different technology component, a glue that can robust our solution. And changing the company from changing the company to a more technology driven company that be more of a data driven company, that's definitely requiring investment.
I think that this investment that we are going to do in this area will definitely will pay off in the future because it will create a differentiation. It will create the stickiness that we are looking from our customer. But I plan to invest heavily on technology, and that's why we have a VP product at Perion, and that's why we are adding more and more data analysts and all kind of technology that can help us in this direction. On top of the data, which you can consider as a bus that is going across the company, the idea is to build all kinds of services that basically enjoy and serve by this data. We will allow ourselves to do better targeting and better retargeting and even to buy our media in a lower rate.
So in any direction that we are going, this investment on data driven analytics and data optimization capability is going to give us a very high return on the short term investment.
Perfect. And then just as a very quick follow-up to that. Obviously, historically, there was given that cash flow focus, there was a thought process of possibly returning capital to shareholders once you got out of the negative retained earnings situation. At this point, it sounds like given the mandate for growth, you're going to keep your powder dry to focus on organic investments and get the company back to a point where you feel more comfortable before addressing maybe that side of the ledger. Is that a fair statement?
Yes. It's a fair statement. And since it's my first earning call, I definitely can say that, that's a long going to be I'm preparing myself for a long ride. And it definitely takes time because the mandate that I received from the Board and the shareholder is definitely to drive exponential growth. And in order to drive sustainable, scalable growth, you need to build the right foundation for it.
And as I mentioned, the foundation for this growth is definitely going to be the technology. And in this sense, that's a new start. And I think it's even a new start in terms of the relationship with the analysts and the investment community. And I have no doubt that the fundamental factor of this long term relationship, it has to do with the trust that we develop and we deliver over time. That's for me the North Star in this relationship.
I plan very much to be as transparent as possible with our strategic plan and how we're able to bring this robust solution to market. I'm planning to be the week after next in the NIDHAM conference. And I would love to have a one on one with each one of you that we're able to explain in detail what is our plan and what are going to be the expected results.
All right. Thank you for the color. Best of luck to you and look forward to seeing what you have in store for us next.
Thank you very much.
Thank you. And there are no further questions at this time. I would like to turn the conference back over to Doron Grisell for closing remarks.
Thank you. We will be embarking on several non deal IR related road shows over the next few months and will be presenting at the Needham Emerging Tech Conference in New York on May 17. As I mentioned, I look forward to meeting many of you during this time and are excited to provide additional detail on our growth initiatives in the coming quarters. Thank you very much.
Ladies and gentlemen, this does conclude today's conference. We thank you for your participation.