Good day, and welcome to the Perion Investor Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Stephanie Mazer, Perion Investor Relations. Please go ahead.
Thank you, operator. We appreciate you joining us today. On today's call, management will discuss Perion's acquisition of Undertone that was announced this morning. The press release detailing the acquisition as well as a presentation outlining this transformational transaction can be found on the company's website atperion.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 S that may cause actual results, performances 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. In addition, we will be referring to adjusted EBITDA when mentioning EBITDA in our comments.
Adjusted EBITDA consists of EBITDA adjusted to exclude acquisition related expenses and share based compensation expenses. On today's call, we have Joseph Mandelbaum, Chief Executive Officer of Perion Corey Fraangel, Chief Executive Officer of Undertone and Joachim Kaufmann, Chief Financial Officer of Perion. I would now like to turn the call over to Joseph Mandelbaum. Joseph?
Thank you, Stephanie, and good morning, everyone. Today, we announced the acquisition of Undertone, a leader in high impact cross screen advertising formats. We are very excited about this transaction as it personifies everything that we have been looking for over the past year. In Undertone, we have found a premium brand company with scale and profitability with a differentiated and sustainable position in the market. This acquisition firmly positions Parrion as the leader in delivering high quality cross screen advertising solutions for publishers and brands, while providing strong cash flow and revenue diversification.
Additionally, Undertone will add significant depth and talent to our company. Over time, our goal is for the company to become synonymous with engaging and impactful advertising solutions for brands and advertisers. At this point, I'd like to turn the call over to Yaacov, who will walk us through the structure of the transaction. Yaacov?
Thank you, Joseph. As mentioned in our press release, the overall purchase price was $180,000,000 for 100 percent of the equity of Undertone, consisting of approximately $130,000,000 in cash $50,000,000 in long term debt from the existing Undertone lenders. Of the $130,000,000 cash committed, approximately $91,000,000 was paid at closing, $16,000,000 will act as a holdback that can be used to offset any claims and indemnifications over the next 18 months, $3,000,000 will be payable in installments over the next 18 months and another $20,000,000 bearing interest will be paid in 2020. In conjunction with acquisition, we also closed a $10,000,000 equity investment from JPMorgan Asset Management, which is in addition to their existing equity stake in the company and secured a $20,000,000 revolver from LulumeTech, the technology division of Banque Lulume. We are very pleased to receive continued support from JP Morgan as well as to partner with Bank Lillemi.
Combined with our continued strong cash flow, this will ensure that we remain in a very strong financial position. Our total consolidated debt post closing is expected to be $87,000,000 including our public debt in Israel. If you add the $20,000,000 revolver mentioned above, total debt would be $107,000,000 and total net debt would be less than $47,000,000 Our debt and net debt to the last 12 month EBITDA ratios are all expected to be very reasonable at 1.4 and 0.7, respectively. Our cash on hand post closing is expected to be in excess of $60,000,000 This is an accretive transaction as we use leverage and cash on hand to avoid dilution to existing shareholders. Overall, we are very pleased with the acquisition, the improved growth that we expect to deliver looking forward and ultimately the value that we believe it will provide to our shareholders.
Now let me turn the call back to Joseph. Joseph?
Thank you, Yaacov. On the remainder of this call, we will review Undertone in more detail and talk about the strategic rationale behind the acquisition. High impact advertising is synonymous with Undertone. They work with agencies, brands and quality publishers delivering cross screen unique ad formats and have a strong mobile presence, as well as data and programmatic capabilities. Equally important is that Undertone is one of the few profitable ad tech companies of scale in the marketplace today.
At this point, I'd like to officially welcome Corey Ferengo, Chief Executive Officer of Undertone to Perion. We're excited for you and your team, your entire team to be joining us and we look forward to working together. Corey will now review Undertone in more detail. Welcome, Corey.
Thank you, Joseph. I speak for all of Undertone when I say we're excited by the transaction becoming part of the Purion team. This is a great milestone and achievement for our company and I'm proud of our employees who worked very hard to make it possible for us to get to this point. For those not familiar with Undertone, let me give you some background and key facts about the company. We were founded in 2,001 and are based in New York City with about 275 employees across the world.
As Joseph mentioned, we are focused on high impact ads, which are based on proprietary technology. Through our long history, we've been and continue to be profitable. In a nutshell, what we do better than anyone else is create standout brand experiences for advertisers. High impact ads are ones that have great effect on the consumer and are so impactful that they cause the consumer to engage with that ad. And 75% of our campaigns are generally either high impact, cross screen, mobile only.
On these sides, you'll see a few examples. Last year, we had over 600 brand advertisers and worked with all the top agencies to deliver superior results. We expect to have $144,000,000 in revenue with solid profit in 2015. So what problem are we solving? Capturing the attention and engaging consumers in the digital age is extremely difficult.
The proliferation of new devices and the barrage of ads that consumers sees in a given day is staggering. Our job is to help brands stand out from the crowd and do so in a way that consumers will remember and even engage with the ad itself. We accomplished this with a few key elements of our solution. Stunning creative and high impact formats, high quality inventory and innovation in technology. I'll start by explaining what I mean by creative high impact formats.
In most cases, this is proprietary technology used to deliver the high impact ad, several of which come from our own innovation team, in addition to supporting the IAB Rising Stars. The important point to note though that these formats deliver superior results. On all metrics that matter most to brands and agencies, our proprietary ad formats significantly outperform standard ad units. In an independent study we commissioned last year, our ad formats had 124% greater recall than standard display ads and were 40% more likable. Engaging creative is critical, especially on the brand side, but it's equally important for publishers who want their users to have positive experiences within the publishers digital experience no matter what device.
We also help execute the actual creative via our own in house creative team known as Pixel Studio. The creative and high impact formats go hand in hand with our high quality inventory from premium publishers. This is one of the core ingredients to Undertone's successful business. We have a rigorous vetting process called the Green List, which helps ensure the high quality of the inventory where we serve our ads. Since we mostly provide proprietary ad units, this makes our inventory unique.
One of the key areas we focus on is making sure that the publishers also feel good about the quality of the ads on their site, which is a direct result of our focus on engaging creative ad formats for brands executed flawlessly on the publisher side. Lastly, none of this will be possible without our ability to innovate. Innovation happens both on the creative and technology sides of the equation. Our innovation has an emphasis on creating new ad formats for existing and new devices. Listening to brand and agency needs as well as consumer likes and dislikes helps us stay one step ahead of the competition.
However, the value we provide our customers is broader than just unique ad formats. We offer a programmatic stack as we believe programmatic is a big opportunity for high impact and just in its infancy. Specifically, we see potential as the industry shifts to private marketplaces and programmatic direct, as we believe there will be increased adoption of programmatic high impact. Also, we have our own data system driving improved targeting and results for our clients. We top that off with what we're known for, superior execution and service.
The combination of all these capabilities is a sustainable competitive advantage. From a financial perspective, we believe this to be a very scalable and stable business based on our revenue diversity and profitability. While you're active in all major advertising categories, no single vertical accounts for more than 16% of revenue and no single client accounts for more than 6% of revenue. In addition, we have successfully focused on growing our high impact ad formats as we transitioned away from standard display ad formats. We've been consistently profitable for years, making it part of how we run the business.
We expect to end 2015 with $143,000,000 to $145,000,000 in revenue and $21,000,000 to $23,000,000 in EBITDA. Over the long term, we expect our EBITDA margins to stay roughly at the same levels, while growing revenue at more than 15% annually. Now I'll turn it back to Joseph to explain the acquisitions strategic rationale. Joseph?
Thank you, Corey. Our emphasis this year has been on stabilizing our supply side search monetization business, while aggressively investing in our social and mobile marketing platform. Over the course of the year, we have also been observing the secular trends in the ad tech industry and thinking about how to create long term shareholder value through differentiation. We believe this acquisition combined with our existing businesses firmly sets us down that path. One of our main observations is that despite the current negative perceptions, ad tech will continue to be a very big part of the digital ecosystem.
We expect consolidation in the industry to continue and believe this acquisition positions Parion very well for the future. In addition to the big overall winners like Google and Facebook, there will also be multiple category winners. This acquisition creates a great opportunity for us to be one of those category winners with high quality as our differentiator. We have started down this road already at Perion and combined with the existing assets of Undertone have built a differentiated end to end solution, have a prominent position in high growth areas and has a healthy and diversified revenue base. Let me briefly explain what we mean by high quality.
High quality means providing publishers with high impact ad formats and or branded search and in turn providing brands with exclusive inventory. It means making sure that the creative is stunning and engaging. It means making sure that our execution and service in everything we do is outstanding. In a recent white paper commissioned by Undertone, brands and agencies echoed these same sentiments. In summary, we believe high quality is a large and ownable category for us in which we can create a sustainable and competitive advantage.
From the publisher standpoint, they are always eager for high quality, higher CPM based inventory as well as technology to help them optimize and balance between user engagement and monetization. From the advertiser standpoint, it is our estimation that roughly 5% to 10% of their ad budget is spent on high quality ad formats that focus on high engagement, stunning creative and attention getting innovation on both the desktop and mobile devices. As social, mobile and the proliferation of new devices and formats continues to grow, we are well positioned
to take advantage of this opportunity.
Moreover, as brands move more than advertising budgets to digital platforms, it was important for us to increase our presence with agencies and brands. Undertone's brand reputation and existing relationships were a key factor in our decision to acquire them. It goes without saying that this significantly diversifies our revenue base and expands our mobile footprint. We now have a very balanced revenue mix with both sides of the business, our supply side and demand side, contributing nicely to our EBITDA. 2016 revenue growth will be over 60% given the addition of a full year of Undertone and we expect long term revenue growth over the next 3 years to be between 10% to 15%.
As we have mentioned previously, Karyon's EBITDA will be lower next year as we complete the business model transition and continue to invest in our social and mobile marketing platform. Therefore, EBITDA margins in 2016 are expected to be 10% to 12%. We expect long term EBITDA margins, however, to be in the 15% to 18% range. In summary, this acquisition provides us with 3 main advantages. It establishes us as a large differentiated ad tech company with a sustainable and defensible model.
It increases our position in high growth areas like mobile and high impact and it diversifies our revenues. We are excited about welcoming Undertone to our company. Together, we have real scale with profitability and a new and ownable mission to deliver high quality ad solutions to brands and advertisers. With 6 60 employees in offices around the world, we are well positioned to grow our business profitably and further establish ourselves as the leader in this $13,000,000,000 market. I want to take this opportunity to personally welcome all of the Undertone employees to the Perion team.
You have built a great company and we couldn't be happier to have you join our journey. I also want to thank all the Perion employees whose hard work and dedication enabled us to reach this point. Operator, we'll now open the call to questions.
Thank We'll go first to Kerry Rice with Needham.
Thanks a lot. Nice acquisition, Joseph. I think this is really transformative. And so I'm not sure if this question is for you or maybe Corey. When I think about brand advertising, I think generally don't think of programmatic.
And I think you indicated that was pretty early. So how do I think about how the brand advertising, whether it's relationships with the publishers or the advertisers, is this a pretty automated process now? How do I think about is it more of kind of an ad network where you buy impressions upfront? So think about it that way. And then the second question is, I think you said 75% of revenue is high impact cross screen and mobile.
You didn't mention video, although I think video is a pretty key component there as well. If you can talk a little bit about that. And then I just have one kind of housekeeping question.
Okay. I'll let Corey handle the first two questions and then we'll wait for your housekeeping because
Yes. So let me hit the video one first. In video, the reality is we serve video through high impact. So over 30% of the high impact units that we run are actually video. So we go after video budgets by using unique ad units and not competing in commodity spaces like pre roll.
So what you'll find is that we have multiple units that are targeted as high impact video and directly go after the video budget. So we play in that opportunity. We just don't categorize it as a separate revenue category. On the programmatic, the way to think of it is that brands are beginning to look at programmatic as a way of not just providing automation, but also a way of better using their own in house data, better looking at the breadth of an entire campaign. And so over time they're trying to bring more and more capability into their programmatic strategies.
High impact will never be fully automated because there's a certain amount of creative consultation, strategy for the campaign itself and things of that nature that have to be taken into account. However, we right now are very flexible and can really transact with someone in almost every conceivable way programmatically. It just depends on their strategy. And what we see today is very fragmented brand strategies on programmatic. Our job is just to react to those.
If I can just, Kerry, add one thing to that. I think when we look at programmatic from that standpoint, first of all, I think one of the things we really like here, as Corey mentioned, this is a high touch type of business as well. So because not everything will go programmatic, we think that's a really big opportunity for us. We can because it's harder to commoditize and it's not a race to the bottom.
That's right.
But where programmatic direct comes in is imagine now if there are some publishers want to work with us and say, listen, we want to get best price, optimize the best price, we can then open it up to some brands, let's say, 4 or 5 that can compete to buy the inventory of that specific publisher and vice versa. If a brand wants to say, listen, I want to see what prices I can get open up on the publisher side, pre certified publishers of good quality traffic and inventory. That's the way where programmatic can come in here where we can service the needs on both of those things. So it's still nascent, but we think that's where programmatic direct to private marketplaces will go, not typically the standard RTB type of programmatic.
And that's where brands are evolving.
Go ahead.
I'd say that's where brands are evolving past just display and pre roll in much more in a more sophisticated campaign mixes.
Okay. I guess the follow-up to that, I mean, I assume you get paid primarily almost exclusively by the advertiser or through the agencies. But it sounds like you have pretty strong relationships with publishers as well. So again, is there some connection that you guys make specifically to connect publishers and advertisers versus just doing it through an exchange such as DoubleClick or Rubicon?
Yes, it's direct. Our publisher relationships are direct. We have to ensure that our ad units work in their sites and their apps and in their mobile devices and the mobile devices we have to work with each one of them. We have to certify the technology. We actually monitor every day the publishers traffic.
We monitor any issues of non human traffic. We monitor viewability. We look at all those factors and so we work directly with the publishers, not just on working for our advertisers, but in some publisher cases, we even let them bring their own sales team bring to market our ad formats, so that they have some differentiated capability as well. So our relationships are closer with a publisher than you would see in a typical exchange type environment.
Yes. And to answer
your question,
Kerry, on the network, no, not an ad network model because they don't buy the inventory of brands. They have the direct publisher relationships and then they basically work with them on to optimize their revenue with the brands. Exactly.
Okay. That's super helpful. The final could just kind of housekeeping question. So where are we in the deal? Is the deal closed?
If not, kind of when do you expect it? And is there any other shareholder vote, Board votes or anything that need to go on?
No. The deal is closed as of last night. So signing and closing happened simultaneously and all the approvals were already in place, so committed. So we're now one company and moving forward.
Okay, great. Thank you very much.
And we'll take our next question from Dan Kurnos with The Benchmark Company.
Great. Thank you. Good morning, Joseph. Congratulations and good luck. You're certainly going for it.
So I commend you for that.
Thanks, Dan.
Look, I mean, this is right
in my wheelhouse, right? Obviously, I cover a broad range of plays in the advertising space and this is pretty unique. I wasn't familiar with Undertone, the company going in. Thank you, Corey, for providing some more color around that. I'd love to get maybe, if you're willing to provide them to some extent, any metrics you'd be willing to give us around either customer count, repeat usage and the delta that you're getting from obviously your higher CPM based inventory than say traditional Yes.
So
I
mean we saw in the
Yes. So I mean we saw in the presentation is throughout the course of the past year we've done over 600 different advertisers. I don't actually have the number exact on repeat usage, so I'll follow-up with Yakoff to get that information later. But generally speaking, we tend to work with a number of the same advertisers year in and year out. This is not a situation of completely new roster of customers every year.
I just don't want to cite the wrong number.
Yes, I guess it's more of look as we know that Joseph has talked about Grow Mobile in the past and there's clearly some confusion in the marketplace when they look at backlog and in terms of revenue run rate, it really just means that customer hasn't come back into the marketplace. So I'm just trying to get a sense from you guys of how active your campaigns are, how often they're run, how often these guys are reaching out you if they run year long in terms of their contracts or if you have more of set specified campaigns over say our traditional 3 to 6 month time horizon?
Yes. And our campaigns tend to be more in the traditional 3 to 6 month range. And really it just depends on a brand. If it's an automaker and they have a number of new models coming out this year, you may see 7 or 8 major campaigns over the course of the year. If you're a CPG and you're launching a bunch of new products, you may see more or if you're on a new marketing push on a brand, you may see above the normal range of campaigns.
There are some brands we work with that have a pretty standard schedule. Here's their back school schedule. Here's their Halloween schedule in the U. S. Here's their holiday schedule.
And so it really is and really the for us is to work with the brands directly as much as possible and understand that overall strategy. You'll find some things are routine and part of the normal plan and of the normal plan and some things are special event based on a launch or some form of change in their business.
Got it. That's really helpful, Corey. Thanks. And then just on talking about some of the high touch aspects of the business, look, you're almost in a way, you're a native provider really for these guys. And so the question becomes, as you guys offer direct services, is there the possibility that you increase your margins?
I know you said flat margins, but is there a chance to offer value add services in addition to just creating campaigns? Or is that the primary focus of the innovation just because I'm really only asking this because of the nature of how you guys are dealing with this in a relatively unique marketplace?
Yes. So Dan, for us, I think you know us pretty well. So we're trying to be realistic and conservative about how we look at the future. But we believe there is opportunities to do some cross selling and, frankly, value added services, which take us beyond just the campaign. We think the relationships that Frankie Undertone has really affords us the ability to try to deepen and cross sell other platforms, whether it's a Gro Mobile platform, whether it's new publisher centric platforms or native platforms that we're looking to sell.
Over time, we believe this gives us a really good opportunity to organically and inorganically add pieces to the puzzle and feed it to the machine because of the nature of relationships that each of us have on the publisher and the brand side.
I didn't even really think about it, Joseph. Is it I guess is it fair to think that this is also potentially synergistic with the supply side of the business if you can act as either ancillary brands as a distribution partner for white label for them?
100%. That is certainly part of our plan. As you look at the our publish our supply side and Kory's supply side as well as demand side. So we think there's this is complementary acquisition. We're not doing this for cost synergies.
There may be some small here and there, but mostly we think they're good revenue synergies. We'll take our time. We'll do it right and we'll go to the market with it as we roll it out. But we believe that could potentially lead to some good margin expansion over time.
And we'll be conservative in putting those in the financial models.
Right.
Yes, Joseph, in being conservative, yes, I think I've heard that before. Just in terms of a couple more maybe housekeeping type of questions then, can you just break out since you mentioned that Undertone has an international presence what the split is domestic versus international?
Approximately 85% of their business is domestic, about 15% is coming out of Europe.
Perfect. Thank you. And then actually, maybe just one more high level one and I'll step aside, let someone else ask questions. Just Joseph, how you think about I mean, Grow Mobile has had kind of a different angle in terms of its targeted market. And obviously, this is more of a retail presence.
I appreciate all the other colors around the color around synergy that you gave us. Just how we think about Grow Mobile as being part of this offering being integrated or is there some way that this all just gets rolled up into 1 larger mobile or cross multimedia cross screen piece?
So, it's interesting. I'll tell you a funny story that when Corey and I first started talking about this, Corey said, I'm not sure how it fits in exactly, but I could see a little bit let me speak to my sales people and figure out what's going on. And after he spoke to salespeople, they came back and Corey said, you know what, if you have mobile in app and social capabilities, we'd love to see what we can do together. So I think from our standpoint, those are 2 areas where Undertone today doesn't play significantly in the social side for some reasons that are relatively obvious because the Facebook and Instagram and Twitter are more closed platforms. We believe our partnerships can help us open that up.
As well as on the with agencies and brands, they all are using some type of demand side platform to help them buy the media across these networks and social platforms. So we believe that with the reputation Undertone has, then in fact, yes, we can ultimately look to hopefully increase our capacity and our breadth reach with the platform we're offering in the Grow Mobile solution. Because we know all of them are using something, right? It may not be us, but they're using somebody. So with their reputation and our platform, which we think is a high quality platform, we believe it is consistent.
And over time, we'll try to prove that out.
Great. Thanks for all the color guys. Really appreciate it.
Thanks Dan.
And we'll take our next question from Mark Estracharya with Chardan Capital Markets.
Thank you for the call. Congratulations. It seems like a great acquisition. So very excited to get to understand the company more and how it integrates with Perion. With regards to the mobile side of it, can you just comment a little bit about I remember seeing the chart, but in terms of that sort of focus going forward in terms of trying to capture those ad dollars, if you can just give us a little more color on that, please?
Sure. What do you expect going forward?
Yes. I mean, it's no secret, obviously, that the digital ad dollars and frankly users traffic is moving to mobile. I think it's now more than 50% of searches are done on mobile devices and most of the pages and impressions are now done on mobile devices. So when you look at ultimately, when you look at what we're buying, Undertone services that need and as we mentioned, 75% of their campaigns have some type of either mobile only or cross clean aspect to it in their campaigns, which gives us a very nice mobile presence. And combined with what we're doing in Grow Mobile today, we expect to accelerate that and take advantage of the 2 things we mentioned earlier.
1 is the brand is moving their dollars to digital, and a lot of that digital is mobile. And 2 is just the proliferation of the mobile devices and tablets continuing to grow just means that most publishers traffic is going to be on mobile. And as publishers look to monetize their traffic and get higher CPMs, we're positioned very nicely, frankly, both on the search side and on the high impact ad format side.
Great. Thank you. And in terms, I guess, the big themes out there with regards to ad blocking, if you can just make a comment on how your technology or your approach to that is sort of working alongside in terms of a value added proposition versus what a lot of these other advertisers sort of their traditional formulas are not working and what is working for your company?
Well, the good news for Undertone is we're not a direct publisher, right, which means we're not limited to the traffic that comes to our mobile app or our site. So we have a broad range of publishers we work with and if we see issues and we need additional impressions we will work to find additional publishers to work with. So that gives us a bit of an advantage that we don't have any one choke point if you will that ad blocking can impact us. We participate with the IAB and their efforts in working with measurement and strategies to work with the ad blockers and educate consumers. And we also work with publishers directly as the publishers are putting a lot of effort into redesigning sites to make them more appealing to consumers, reducing the clutter, reducing the payload or the size of the ads and really trying to streamline the overall experience to help users understand the potential and why the ads are necessary so they receive free content.
So we do not see any impact on our traffic today. Our avails which is the number of impressions we have available to us has not been impacted. And we have not had any issues in filling campaigns. And we just continue to monitor it and look.
Yes. Let me, if I can, Mark, just add one thing to that, which is because this was a big question, obviously, on due diligence when we're looking at the company and it's happening ad blocking. And I think it relates to our strategy. And actually, I'll tell you, I think the opposite. I think ad blocking is a great thing for us in the long term.
When you think about what's happening in ad blocking today, it's a response to 2 major things and issues in the industry. 1 is page weights and load times and it's just slow, whether it's mobile or desktop. And 2 is clutter and frankly not very good ads, right? And ultimately, there's going to be a flight to quality because either I mean, there's going to be big bifurcation industry. There'll be people just like a NASCAR, just put everything on their websites to make money.
And those are fine. People want to do that. They'll be blocked by ads. But at the end of the day, the volume, they'll make it nice. And then there'll be a flight to quality.
And we think what this transaction does for us, it positions us to leverage Undertone's great brand and reputation. As the flight to quality happens, we're better positioned to frankly pick up market share. Because if you look at Undertone's ads today, I think I could say it's pretty much across the board, They're really actually great ads. I mean, they are engaging, great creative, consumers like them in the case study we showed you before. Really, it's 40% more likeability than the other ads, 58%, I believe, are looking to share it on their social networks.
So when you think what we're doing, we're actually trying to make advertising fun again and engaging. That's for the brand, obviously, but it's also important for the consumers. And I think as that happens, again, there's no magic formula here, but if that happens over time, we believe we're positioned nicely to take advantage of that because we all know, Mark, that ads aren't going away. As much as ad blocking is here today, the world unless the world changes overnight and everybody is willing to pay for content, which in 25 years in the digital space has never happened. I don't expect it to happen.
There will be advertising. It's just a matter of how it eventually evolves. And we think it evolves more to our wheelhouse than not.
Great. No, exactly. I think I totally agree with you in terms of the flight to quality and the value proposition and the new model. So congratulations on that. The Corey, can you just give us a little bit, quick high level of 2,001 you guys started in the market.
When did you hit your stride in terms of your sweet spot in terms of the market? I mean, obviously, you developed today to this nice roll deck of network of contacts on both sides. Can you just give us just a little bit history of how you got to today?
Yes, let me before Cory does that because I'm sure he won't say this himself. But I think the main transition really started when Corey took over as CEO was about 2.5 years ago, I think, 2 years ago. And I'll let him walk through it. But I think we were actually on our due diligence, we're using a research firm to help us. And they had looked at Undertone, I think it was 3 years ago, and they were amazed at the transition the company has gone through over the past 2 plus years.
Just wanted to say that because Corey probably wouldn't say it about himself, but he deserves credit and the team here deserves a lot of credit. I'll let Corey now walk through the history.
That's right. I'll follow that. So the reality is Undertone had and even I joined about 3 years ago and even in doing my diligence in joining the company, had a great reputation in the market, was associated with the term quality, was associated with great service and all of those things were absolutely there and it was a great asset to build upon. And what was already there is that Undertone was already working with brands and already had this reputation within brands. What we changed and what we really attacked was having a unique and highly differentiated offering and that was a lot of investment in technology.
We've done a couple of acquisitions over the past year, year and a half and really taking us more into the high impact unique ad formats making the publisher relationships very unique, direct, certifying the quality even further than had been done previously and really building upon those great market attributes, quality, reputation, brand relationships and now making those unique, creative impactful on the consumer and then ensuring that it was done in a way that's competitively protectable not just done through open marketplaces with any old publisher and with any old technology, our tech, our relationships, our capability.
Great. Thank you for that. How much do you invest in technology per year in terms of R and D? Or do you in terms of, I guess, you're just maintaining and maybe do you protect your IP? Is there IP that you protect?
Yes. So we have a couple of different line items if you will that go investment into tech and so I don't want to cite the wrong number once again, but you're going to find us generally in similar ranges. The one unique investment you'll find with us is it's a substantial investment in the team every year that is the future proof lab which is 100% focused on forward looking innovation. And these folks are experimenting in wide open areas of exploration. On the patent side, we haven't really filed for any patents at this point in time.
Generally speaking, I personally have a lot background in patents. My previous role, our company had done a lot of patenting and what we had found is the ad tech space changes fast enough that the 4 or 5 years it takes to patent things, so much has changed in this marketplace. It doesn't quite bring the same value. And so we had not aggressively approached that. Though I will tell you my innovation team has extensive patent background and if we choose to go down that path, it's pretty easy switch to flip.
Great. And when did, I'm sorry, Undertone become profitable?
Undertone has been profitable every year of its history. Great credit to the founder, Mike Cassidy and Eric Franchi. With him, they did a terrific job of starting the company from day 1 with profitability in mind and actually ran the company until 2,008 with no outside investment and stayed profitable through all that by just funding itself, funding it. And then they brought in the time JMI Equity, which is was still the until yesterday's close of the transaction. JMI was the only major outside investor and only ever put money into the company once.
And so we have the culture of the company has always been profit.
And we're not looking to change that in case anybody
Jacob, you have them under contract for 5 years at least?
Yes, exactly.
It's actually a question.
No, no. I think actually you'll find that it's actually one of the common threads between 2 companies. People ask us, okay, what will carry on to this acquisition? I think one of the things is that we're of a similar mind, meaning that we're both very much looking for growth, but doing it in a prudent way so that we're mindful of the profits and keep a very strong balance sheet as well as profitability.
Great. Just one housekeeping on the balance sheet. The $50,000,000 long term debt and the revolver, can you just give us some tenure and some terms on that?
Sure. Talking about the long term debt is actually long term debt was first established to fund the working capital that had under its own prior to acquisition. Obviously, there was a change in control clause there. We rolled it over and we actually started to talk again on that. So it's going to be pushed out another 5 years.
And we're talking about interest rates, all told, about 5% to 6% with all the fees included there. With regard to the revolver in Israel, we're talking about interest rates of LIBOR plus about 130 points.
Okay. And the $10,000,000 equity private placement, is that additional shares to be issued?
That is correct.
Okay. Thank you so much, guys. Congratulations.
Thank you, Mark.
It appears there are no further questions at this time. I'd like to turn the conference back to our moderators for any additional or closing remarks.
We don't have any other closing remarks. So we thank everybody for coming and joining us on this call today, and we look forward to sharing more with you next year when we outline our Q4 and full year view of 2016. Thanks very much and have a great day.
Thank you.
This does conclude today's conference. We thank you for your participation. You may now disconnect.