Good day. Welcome to the Perion second quarter 2014 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Deborah Margalit, Perion Investor Relations. You may begin, ma'am.
Thank you. We appreciate the attention of everyone who is joining us today. On today's call, management will be reviewing the financial results and business highlights of the second quarter ended June 30, 2014. The press release detailing the results is available on the company's website at perion.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-F that may cause actual results, performance, 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 revise any forward-looking statements to reflect future events or circumstances. In addition, as in prior quarters, the results reported today will be analyzed on a non-GAAP basis, which management believes better conveys the operational state of the business. 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-K. With that, I turn the call over to Josef Mandelbaum, Chief Executive Officer. Josef?
Thank you, Deborah. Good morning, everyone. Welcome to our 2014 second quarter earnings call. Perion produced another strong quarter with $111 million of revenue and $34 million in EBITDA. The combination with ClientConnect has helped Perion achieve precisely what we thought it would, as we continue to expand our EBITDA margins, driving incremental cash flow and fueling initiatives in the mobile space. Our recent acquisition of Grow Mobile significantly enhances our mobile capabilities and fits perfectly within our new Lightspeed division as the first piece of our strategy to provide app developers the ability to promote, monetize, and optimize their business. We are focusing on helping companies by advertising and track the ongoing performance of their media budget across the complex world of mobile networks and exchanges. According to a recent eMarketer report, the mobile advertising market will more than double in the coming years.
However, it remains a nascent market, highly fragmented and inefficient. There are over 100 ad networks offering advertising solutions, each requiring some technical integration and having its own reporting and analytics systems. Developers have to connect to and analyze data from each traffic source separately in order to optimize, spend, and increase their audience. Perion Lightspeed and Grow Mobile together provide them a unique and comprehensive solution to this problem. Today, we have a fully managed solution, and we will be launching a self-service platform in the next quarter, leveraging Perion's years of experience in the demand, supply, and analytics part of our business. Perion has lived and excelled in the performance-based ecosystem, both on the demand side, having spent last year alone over $200 million in ROI-based advertising, and on the supply side by helping thousands of developers monetize their desktop applications.
Over the years, we have built outstanding analytics capabilities, specifically around cohort analysis and yield optimization of lifetime value and ROI. All of this experience, this expertise, can and is being leveraged to help us expand to and thrive in a mobile-first world. Grow Mobile is growing at a very rapid pace and boasts an impressive roster of clients. We already have 50-plus developers and advertisers working with us and are rapidly signing up new partners. There is still more to be done, but we believe our timing is right to consolidate other parts of the value chain and create a unique offering for our partners. We will further integrate Grow Mobile into Lightspeed, providing a unique offering to help app developers. We believe that already in 2015, a meaningful part of our business will be on and for mobile platforms.
The strong financial performance this quarter comes amidst a challenging time in the Search Monetization portion of our business. It is no secret that this business has seen its share of challenges and changes over the past few years. Policies keep on being updated, as we have seen most recently with Chrome. Before going into more specifics, it is important to note that each time these changes have occurred, we have adapted and within a couple of quarters, returned to growth mode every single time. I expect the same will be true for these most recent changes. While we deliver strong second quarter and first-half results, we have two specific issues to work with in the back half of the year, and these factors will impact our business. The first is changes to the Chrome browser mentioned above, and the second is a one-time technical matter.
Let's first talk about the browser changes, which were released in the latter part of July, and in the short term impact our Search Monetization business, reducing the lifetime value of a user. In brief, the conversion rate of a Chrome user for our partners will go down as Google has instituted a series of added steps to the download process, and in particular, changed the default choice for most third-party downloads. This is not new for Perion, and we have a talented team already hard at work together with our partners to adapt to these changes. Anyone who follows this industry knows that these kind of browser and platform changes are a part of this business. Based on our experience with other major browsers and similar situations, we expect the impact to be more pronounced initially, and then diminish over time as we and others adjust.
The other item was a technical matter that caused a number of searches to go down starting late in the second quarter. This reduction in queries directly affect our future revenues. We are in the process of implementing technical adjustments which will address this issue, and are confident that our searches will rebound by the later part of the year. In anticipation of these changes, we have reduced our customer acquisition costs until the lifetime value and return on investment improves, as we fully expect it will. As many of you are familiar with our business model, you know that since revenues trail marketing spend, and as a result, we no longer be able to achieve our original revenue projections. However, we do anticipate being close to our original EBITDA projections as the reduced spend works in our benefit later in the year.
While this will obviously impact our 2015 numbers, we believe that being prudent with our marketing spend to maintain profitability and cash flow is in the best interest of the company and its shareholders. We anticipate growth to begin again once we settle in at the new level and we ramp up our marketing budget as we see opportunities and a higher ROI. If we see our efforts are fruitful sooner, and as a result, the LTV increases faster, we may revisit our decision as the ROI will be well worth it investing for 2015, despite the potential impact to EBITDA later in the year. It is worth noting that we also had some big milestone announcements this quarter, which position us very nicely for the future in the Search Monetization piece of our business.
We signed and launched a new product initiative with Lenovo to white label our technology as the Lenovo Browser Guard, which will be pre-installed on millions of computers. We are excited about this opportunity and its potential both to expand with Lenovo and potentially other OEM manufacturers. The second major announcement was with regards to Bing. We announced a new 3-year agreement with Bing effective January 2015 through December 2017, with an option for a fourth year. We continue to have an excellent relationship with Bing and are excited about this renewal. In fact, Bing is the only search engine to gain significant market share in the U.S. over the past four years, growing from 11% in June 2010 to 19.2% in June 2014, as reported by Comscore. This bodes well for the future as their coverage and RPM should continue to improve.
While we cannot disclose specifics about the agreement, I can say that the economic terms of the agreement are substantially similar to those of this past year, over time have the potential to be even better for both parties. As to our Google relationship, we have had and continue to have a good relationship with Google. Unfortunately, due to their updated policies, the economics and profitability of working with them have simply become less attractive. We have secured better terms from others in the industry. As such, over time, we have significantly reduced our dependency on Google. Today they are no longer a material part of our revenues.
Since we had two agreements with them as a result of the combination with ClientConnect in parallel to our new Bing agreement, and in conjunction with the fact that the revenues from Google are no longer material to Perion, we decided to exercise an early termination clause in the ClientConnect agreement. This was done in cooperation with Google, and we continue to work with them through our legacy Perion agreement that we have with them until June 2015. Google has been a great partner of ours for the past 8 years, and we will continue to look for other opportunities to expand our relationship. As we have always said, the key benefits of diversifying our search partnerships and maintaining multiple relationships are that we are not reliant on any single partner, and we can shift our business to provider with the best financial returns.
Before I hand over the call to Yacov, I wish to note that while we expect a year-over-year decline in our Search Monetization revenue for the second half of the year, we do expect that decline to stabilize over the course of Q3 into Q4. With close to $400 million in revenue and EBITDA expected to be over $100 million, our sizable and profitable business enable us to build a bright future ahead as we leverage our skills, talents, and cash flow to the mobile ecosystem. With that, I'll turn the call over to Yacov and then take your questions.
Thank you, Josef. As we stated in our press release, the acquisition of ClientConnect was viewed by US GAAP as a reverse merger, and as such, our 2014 performance is being compared to that of ClientConnect in 2013. As you have seen, and I will provide further detail, this comparison shows tremendous year-over-year growth. It goes without saying that a substantial part of that growth is due to the 2013 Perion performance, not included in the ClientConnect business in 2013. Revenue for Perion this quarter was $111.1 million, increasing $29.4 million, or 36%, compared to $81.7 million at ClientConnect in the second quarter of last year. In the second quarter of 2014, non-GAAP revenues include $1.5 million of Perion's deferred product revenues, which were deducted in accordance with US GAAP as a result of the acquisition.
In the second quarter of 2013, non-GAAP revenues include $0.5 million of revenues, which in the GAAP report was associated with discontinued operation. In the second quarter of 2014, Perion increased its investment in customer acquisition by 34%, reaching $56 million, representing 50% of revenues as compared to $41.9 million or 51% of revenues in the second quarter of 2013 by ClientConnect. R&D expenses this quarter were $10.6 million or 10% of revenues, compared to $9.8 million or 12% of revenues in the second quarter of 2013 at ClientConnect. Non-GAAP R&D expenses in the second quarter of 2014 and 2013 do not include $0.5 million and $0.4 million respectively of non-cash employee share-based compensation included in the GAAP report. Non-GAAP R&D expenses in the second quarter of 2013 at ClientConnect include $5 million of expenses classified as discontinued operations in the GAAP report.
Looking forward, we intend to further increase our investment in developing new products for new platforms, enabling us to rapidly create revenues on these platforms. Sales and marketing expenses for the quarter were $3.8 million or 3% of revenues, compared to $4.1 million or 5% of revenues at ClientConnect in the same quarter last year. These expenses were reduced in the non-GAAP reports for the second quarters of 2014 and 2013 by $0.2 million and $0.3 million respectively for non-cash share-based compensation included in the GAAP report. In addition, the non-GAAP report for the second quarter of 2013 included $2 million in expenses classified as discontinued operations in the GAAP report, while the second quarter of 2014 expenses were reduced by $0.7 million amortization of acquired intangible assets.
G&A expenses for the quarter were $4.9 million or 4% of revenues, compared to $2.8 million or 3% of revenues at ClientConnect in the second quarter of last year. The increase in G&A reflects maintaining Perion's position as an active participant in the public and M&A markets, building in part on the management platform created in Perion, which had G&A expenses of $1.8 million in the second quarter of 2013. G&A expenses were reduced in the non-GAAP report for the second quarters of 2014 and 2013 by $3.1 million and $3.3 million respectively for non-cash share-based compensation included in the GAAP reports. In addition, the non-GAAP reports for the second quarter of 2013 included $2.3 million of expenses classified as discontinued operations in the GAAP report, while the second quarter of 2014 expenses were reduced by $0.5 million in expenses associated with acquisitions of Grow Mobile and ClientConnect.
To summarize, GAAP costs and expenses during the second quarter of 2014 included $3.9 million of non-cash share-based compensation, $4.5 million for amortization of acquired intangible assets, and $0.5 million in acquisition-related expenses for a total of $8.8 million in adjustments to GAAP costs and expenses. In the second quarter of 2013, the GAAP costs and expenses at ClientConnect were increased by $9.6 million classified as discontinued operations in the GAAP report, partially offset by a $4 million decrease reflecting non-cash share-based employee compensation. During the second quarter of 2014, EBITDA was $33.6 million or 30% of non-GAAP revenues, up 52% compared to $22.1 million or 27% of non-GAAP revenues at ClientConnect in the second quarter of 2013.
Perion's net income in the second quarter of 2014 was $27.4 million, representing a 25% net profit margin, increasing 56% from $17.6 million or 22% net profit margin at ClientConnect in the second quarter of 2013. GAAP cash flow from operations for the first half of 2014 was $21.9 million. Cash flow from operations was reduced by $29.2 million invested in creating working capital post the ClientConnect acquisition. Specifically, accounts receivable went from a zero balance as of December 31st, 2013, to $42.1 million as at June 30th, 2014. This was partially offset by an $11.3 million increase in accounts payable during this period. As of June 30th, 2014, cash and cash equivalents were $35.6 million or approximately $0.52 per share as Perion paid down its short-term loan from Conduit and other payables from prior acquisitions.
Working capital last quarter went up to $32.5 million compared to less than $9 million at the end of last quarter. We expect cash from operations and working capital to continue and increase in the coming quarters. This concludes my financial overview. Let me now review some key operating metrics for the second quarter and end with our 2014 outlook. Our total queries in the quarter totaled 3.1 billion, of which 1.4 billion were from Tier 1 countries and 1.7 billion from the rest of the world. While total queries decreased 22% year-over-year, Tier 1 queries increased 25% year-over-year as we shifted our CAC to Tier 1 countries away from the rest of the world with the industry changes in February of 2013. As we move more toward advertising, we felt it important to start reporting some relevant metrics.
Ad impressions had totaled 3.8 billion impressions, with 1.5 billion in Tier 1 countries and 2.3 billion in the rest of the world. As Josef indicated, we are adjusting our 2014 full-year guidance. We now expect that revenues will be in the range of $380 million-$400 million, EBITDA will be in the range of $110 million-$120 million, and net income will be in the range of $80 million-$90 million. We believe the headwinds which are causing the guidance adjustment are short-term in nature. We anticipate ramping customer acquisition spending soon, resulting in renewed growth in 2015 and beyond. As our mobile strategy takes hold, we expect mobile to contribute to our growth beginning in 2015. We will now open the call to questions. Operator?
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. That is star one to ask a question, and we'll pause for just a brief moment. We'll go first to Kerry Rice with Needham.
Thank you. Josef, I was hoping that maybe you could provide some additional details around this technical item that seems to have resulted in a fairly sharp decrease in guidance in the second half of the year. I guess if you can provide some details, does it relate anything to the early termination of the contract with Google, or is it something beyond that? How do you get confident that this isn't an ongoing thing or something that can't recur?
First of all, thanks, Kerry, for being on the phone.
Yep.
The confidence comes from, I think, first of all, as you know, Kerry, following the industry around and others in the industry, that typically things like this happen, you adjust, then you adapt, and frankly, growth continues. It's not the first time these things have happened. I think the important matter here on the technical side, and I don't want to get into too many details on it, but I will say the following. That in and of itself is not the major factor. The major factor in lowering our guidance is our reduction of media buying. The reason we're reducing media buying or customer acquisition costs is because we see the Chrome future impact that's going to affect conversion lifetime value. Because of this technical issue that we've had, or matter that we've had, fundamentally, those two things have affected our lifetime value.
Therefore, as we look at our media buying, we're being much more prudent about where to spend the money. Some of our partners who didn't have as high of ROI as we would have liked, we cut down rates. Because we're taking out media buying, you know how the business model works, Kerry. I'll give you an example. In Q2, we had $55 million of customer acquisition costs. We would expect in Q3 that to go down by half. If you take out $26 or $27 million of media buying, almost all that spend in Q3, almost all of it would have been recognized as revenues this year. Maybe not as profit, but as revenues. You're already talking about $25, $26 million of revenues going away.
If I do that in Q4 as well, you would expect in Q4 probably 50% or so of the revenues to be recognized in the year on the media spend. If we take, again, a $26 or $27 million reduction in media spend in Q4, if it doesn't go back up, we're trying to be conservative, then you're talking about almost $40 million or $45 million of the $60 million we just mentioned that are related to the fact that we're just spending less money until we see the LTV and ROI go back up. The technical issue we mentioned had a more of a one-time impact as we looked at the end of Q2 because we lost some queries.
Basically there was a bug in one of the software updates we were doing, fundamentally it caused a glitch that unfortunately, we lost some users out of it. I think it's a one-time issue in the sense of losing the users. We are obviously working to make sure the bug is fixed, which I can tell you on obviously all new installs, we've done that. We're looking to obviously update the existing base, but that takes a little bit of time, and we have to be careful how we do that. We're pretty confident on that side. Listen, these things happen. It doesn't help that they all happen at one time, Kerry, which is unfortunate. Sometimes there's a perfect storm that brews, and it is what it is. That's why we're pretty confident about that issue.
I think the major issue, and to answer your question, is most of this is in our control. If we wanted to hit the revenue numbers, we probably could have come very close, but at the cost of spending money and losing a return on it. We don't think that's the best interest of the company or shareholders. We're trying to be conservative on the cash flow and the EBITDA, we're very confident that as has happened in the past the industry will rebound. I think you've heard other companies also mention the same thing that we're mentioning. It's not by coincidence, no, we didn't talk to each other. It's just because we've all been in the industry for a while, you see the same dynamics play out.
If I can do a couple follow-ups there on the technical issue. It sounds like it was on Perion's side that you fixed it. I don't know if you can disclose any more. Was it just prevented the takeover page of the browser, or I don't know if you can explain that in a little more detail. Then on the Chrome browser side, can you talk a little bit about where you are in the cycle of coming into alignment with the Chrome browser policy changes, and when do you think you'll be complete with that?
Sure. The first one, it was mostly on our side. I don't feel comfortable talking about any more specifics on that. Again, just you can imagine, for a lot of different reasons. It wasn't browser specific. Actually, it was more, we just lost a user. It wasn't because the browser or anything to do with IE or Firefox or Chrome on that one. It happens. On that one, we're pretty confident we understand what happened, and we're working through those issues now. On the Chrome, two weeks ago was when it was announced, I think, or changed, actually, I should say. Like everybody else in the industry, we're trying to now optimize and see how best we can work within the new guidelines and/or adapt to how we work with Chrome, specifically that browser.
It has about a 40%, 45% market share, it is significant. Which is, again, it impacts the overall LTV because the conversion rate did significantly go down. We, like others, are working to test a lot of different things now. Obviously, we'll see how it goes. I think we're at the beginning phases of testing it. As I mentioned, in the past, it's usually taken two quarters before things settle down, we'd expect sequential growth through the start of 2015. If we're lucky and if we're good, which I think we're good, hopefully, we'll be lucky, that may start sooner in Q4. Right now, we're being conservative, and I think all of you know on the phone, or at least, Kerry, you know, this is not something we knew about when we gave guidance in the year. It happened, obviously, after the fact.
Had we known about this, we probably wouldn't have given the guidance we gave. Sometimes things are out of our control. Google had other changes that we did account for, and I think we accounted for it well, as you can see in our Q2 results. This is one which no one really knew about, at least at the time when we gave our original guidance.
Okay. I'll jump back in line if I have additional questions. Thank you.
Thanks, Kerry.
We'll go next to Dan Kurnos with The Benchmark Company.
Yeah, thanks for taking my questions. Hi, Josef. Just to push a little bit on the Chrome factor here. I know that we've heard commentary from IAC, and I'm sure Blucora is talking about it as well. In this particular instance, we know that Chrome is now-- You talked about market share, and they're still 40%-45% of new installs. I'm just wondering, as we go forward, while the industry has dealt with this issue in the past, what prevents Chrome from making the download process so complicated that ultimately, either people just can't monetize through Chrome? Or really, what gives the confidence that in this particular instance, that the situation will rectify itself within the next six months?
Good question, Dan, and thanks for being on the phone call. My answer to that is as follows. First of all, some of those I suggest asking Google. I'll answer at least from our perspective. We look at the glass-- Listen, it's not a pleasant day to sit and lower guidance. I think all of you know me on the phone. I'm taking it like a man, standing up in good times and bad times and giving the news. I look at the glass half full. I'm just optimistic. If Google really wanted to shut down this business, they could have just closed all downloads and all Chrome, any settings they wanted to. They can. It's their platform. I think what Google decided, again, this is me in terms of understanding what they've done, is say, "Listen, we want to put better controls.
We've been doing that slowly over the past year and a half. This is probably the last piece of the puzzle. We're saying you can do downloads, and you can change search settings. We just want you to do it in a certain way, which we think is even more and more transparent to the consumer and make sure that it lowers the potential complaints to consumers." Now, therefore, my confidence in, okay, let's assume that all takes effect. Over time, people learn to adjust and to adapt. It's true the business may decline overall as the overall business declines, but I think the people with scale will actually overall still be able to have a very good and profitable business, albeit it may be a little smaller. It'll still be very profitable, and I think it will still be significant.
I think the smaller players ultimately, without enough scale, won't be able to survive what will be more of a profitability crunch because of just the way the business works. I think my optimism comes from more confidence that if they wanted to, they could have shut it off today. They didn't, and there's no indications that they're planning on doing that. I think they recognize that there's free software out there and free extensions, and advertising is an acceptable way of making money for free extensions or free apps, and they just want to make sure that the user is fully informed when they do that. We may have disagreements in the industry with Google's interpretation of fully informed and how much they go, but those are really in the margins discussions. The real point is They're doing these things for the benefit of the consumer.
As an industry, we're going to have to adapt. We've adapted before. I do believe, and I think others have said this as well, I think the industry will probably be smaller, but smaller doesn't mean It will still be big, and it'll still be profitable. I think it's safe to assume that growing at 15%, 20% a year, it'll probably be difficult in the current environment, and especially over the next 2 quarters. We do expect sequential growth to come in again in 2015.
Okay. That's really helpful to get your thoughts on that. Certainly, it's still 20% of Google's business, and I don't think they're going to close it down tomorrow either. In terms of the technical issue, just to drill down a little bit more, maybe on Kerry's line of questioning here. You mentioned that it was a bug. I'm just curious if any of that was from re-platforming from browser changes, or if it was just something that happened internally, as you were rolling out some sort of either software or firmware update.
Yeah, it was basically, mostly internal. As you can imagine, the browsers change frequently, we have to update our software frequently. It was certainly in response to updates of things that were browser-related or other related, but it wasn't because of browsers or anything else happened. It was something that, a bug that unfortunately caused us to lose some users and therefore queries. We're working through that. I think we have a good grasp on it already. We've fixed some of the things. It was a little complicated this time around, but we're certainly on the right path, and we think that in time, on the new installs, again, looking at that, I think we fixed it, and we're just looking through now the overall network to kind of make sure that Sometimes when you re-release or try to revert back to something, you may cause more damage.
We're trying to be very careful, to do it right. I think that's what we're focusing on. As I mentioned, it was kind of more of a, it took my user base down, but it is what it is. The real impact here today from that is just that it hurt my LTV, and therefore, we're lowering our media buying in accordance with that and the Chrome changes.
Okay, great. Just lastly from me, and I'll step back in the queue. It looks like your product and other revenues were a little bit lower, I think, than most of us were expecting. I'm just trying to get a sense of how much of that was a display issue, if display growth was down sequentially pretty meaningfully, or if there has been a continued scale back on the product side, which doesn't seem to be a real focus of the company going forward, at least at this point.
Yeah, it wasn't the product revenue. It's been pretty stable, flat to slight growth. The bug, obviously, as we lost users, we lost homepages. As we lost homepages, we lost advertising revenue. That's one of the reasons. It wasn't the only, but that was one of the reasons.
You're not seeing, even with the reduced queries, obviously, you'll see lower display, but you're not seeing any particular other headwinds to call out on either the CPC front-
No
Anything else? Okay.
No.
Okay. Great. Thank you.
Okay. Thanks.
We'll go next to Jay Srivatsa with Chardan Capital Markets.
Thanks for taking my question. Josef, going back to the bug and the impact, are you able to quantify what % of customers or what % of revenues were really impacted by that?
In general, yes. I'm not going to go into number of users, but I think as I mentioned on the phone, if you take the overall effect of lifetime value and our reduction in media buying, if we took down our guidance by, let's say, $60 million or $70 million, the majority of that, overwhelming majority, is because of the media buying. I did the math a few minutes ago, the majority is the media buying. The technical matter was a portion of that, the overwhelming majority is the media buying numbers.
All right. Looking ahead beyond the next couple of quarters, when do you foresee getting back to engaging yourself on media buying to start to look at growth for 2015?
Listen, we do that every day. I can assure you that Yacov and I and the team, we get daily cash on cash reports. We get weekly reports on performance. As we start seeing things improve and we start adapting to the changes, we'll increase media buying. Because of the uncertainty today of when that will take place, we decided to be conservative and just take the hit once on the guidance as we go forward. We would hope and expect that by the end of Q3 or early Q4, we should be able to ramp up the media buying. We'll do it slowly. We're not going to do it quickly until we really have a good sense of what the steady state is. As we go forward, that's what we're looking at today.
I think as we mentioned, we fully expect that in 2015, we will resume sequential growth.
All right. In terms of the Google contract, can you give us some idea on what your thinking was when you chose to opt out of the Google contract?
Yeah. Basically, it was simple. We had two contracts. Administratively, we only needed one. Google's no longer material to us in revenues. Typically, we just talked to Google. There is administrative work with two contracts. We decided it didn't make sense, so we opted out of that, and we still have the other one, and we'll continue to work with them until June 2015, and then we'll reevaluate it then.
All right. You mentioned on the mobile side, challenges in monetization. What are some of the things that you're looking at to put in place as you look at launching Grow Mobile as a material part of your revenues?
Yeah. Grow is on the actually advertising side. It's on the promotion side, not the monetization, but I'll address both your points. On Grow and Lightspeed, so Lightspeed, I believe, next month, if I'm not mistaken, we should be launching our self-service platform. We're doing some integration with Grow. Grow is really growing, excuse the pun, nicely in terms of their revenue growth and clients. We think we're well-positioned there precisely because we do know, and frankly, the Grow founders as well, they were media buying people at different big companies, I think Xing and Storm8. We know media buying ourselves, so we have, I think, a unique insight into what our partners need in terms of their analytics, their tracking, and their, obviously, connections to buying across as wide of a network as possible to increase the yield of their advertising.
I think we're making great strides there, and we're very confident that's going to really, hopefully, grow extremely nicely over the next two, three, four quarters, and we're really optimistic about that piece. On the monetization side, which is we'll call the supply side of the business, we're working with leveraging our data, and really looking at the programmatic targeting side of the business, which we think we have a few things which we've learned on the desktop side, applying it to mobile, and looking at acquisitions to kind of augment that in a similar fashion to what we did with Grow and buying for Lightspeed. We have two other divisions we kind of opened up in the past few months, at six months at Perion.
One to focus on the monetization side, the supply side, and one to focus on the analytics or the optimization side excuse me, specifically around user engagement, and increasing the lifetime value of user engagement, cohort analysis, A/B testing, and the like. We're excited about those two things. We're investing in them now. We're obviously using the cash flow of the business. One of the reasons we bought ClientConnect, obviously, despite the volatility in the industry, is because we knew scale and the cash flow and the bigger size would help us as we look to expand and diversify. I think in that sense, we were right. Obviously, we didn't know all the changes that would happen, but changes are constant. I think we're excited about the future. Again, we have a good pipeline of other acquisitions.
I think despite everything that's going on, we have so far done four acquisitions, and all have succeeded, in terms of what we originally were thinking of and hoping from them. I think we have a good team, and I'm excited about the future. Obviously, our focus is going to be to do it faster. Given the nature of the desktop side of the business, we certainly intend to move even faster.
Last question from me. Last time Google made policy changes, there was a lot of fallout from several of your competitors who were simply unable to adapt. Do you foresee similar fallout this time around, given some of the changes they've imposed now? When do you expect to, if at all, to see some form of market share gain following that?
It's a good question. We're not talking about what competitors do or don't do. I think what I'd say is that after the February 2013 changes, many of our competitors really decreased their involvement with Google, other than probably someone like IAC, who obviously has a big, big partnership with Google. I think you look at everybody in the space, the amount of revenues as a percentage of their revenues with Google has just decreased. As I mentioned, Google's a great partner, but just economically, it made more sense to work with people like Yahoo and Bing and others. I think therefore, you saw some shakeout already. I don't know if you'll see a whole lot more shakeout because of this. You may see a little bit here and there, but I think maybe there will be.
I think as you mentioned, Jay, we mentioned before, we think we're in a good position to pick up market share when that happens. Right now, our main focus is adapting to the new changes, focusing on ramping up our media buying again on the desktop side, then investing in the mobile for the future of the company. We remain excited about the future. This is a marathon, not a sprint. Sometimes in mile 13 or 14, you're panting hard and going up the hill is difficult, but you got to get through it. That's what we'll do.
Thank you. Good luck.
Thank you.
We'll go back to Kerry Rice with Needham.
Just a couple more follow-up questions. One about the technical issue, just kind of more of a clarification for me. Did you say that it has been fixed? If it has, why wouldn't you go ahead and accelerate media buying to regain those customers quicker than a couple of quarters out? On the second question is, while I know there's a lot of moving pieces here, just trying to really get a sense of how to think about 2015 and kind of re-acceleration of media buying and kind of the economics around that and trying to get a better understanding of where do you think this business can ultimately grow in 2015? You mentioned kind of a 15%-20% would be tough in the next couple of quarters, but is that kind of what we should think of about a reasonable growth rate in 2015?
Okay. I'll try to answer all those questions, and I'll ask Yacov to jump in as well. First, on the technical issues. As I mentioned, it's largely fixed. I'm not going to say 100% fixed, largely fixed. But again, the drop in revenue, some of that was related to that. The drop in media buying is related to just the overall LTV, and that's mostly the Chrome. If Chrome is 40% market share and your conversion rate drops significantly, that means your lifetime value is going to go down. Until they can adapt to the Chrome issues, I'm not going to spend a lot of money until I know it's going to be profitable. There is some lingering effects from the technical issue. Mostly it's been fixed, but it was a one-time loss of users because I can't get them back.
I can try to buy more new users, but I can't get those back. As you know, those users were profitable users for us because they were with us for a while already. You know the way the model works, right? Our churn is highest in the first month, but if they survive the first month with us, actually, they become a very, very valuable user. In general, that's what hurt us, again, that one-time issue. The rest is totally related to media buying, and we're not going to ramp up the media buying. We're still doing $25, $26 million media buying, but we're not going to ramp up more than that until we understand better the effects and how the industry adapts to the Google Chrome changes. With regards to 2015, I want to be clear.
What I'm saying is, I'm not sure there'll be growth next year in the overall Search Monetization piece of the business. I think at Perion, our growth will come from, hopefully, the fruits of our labor in the mobile space. We'll have sequential growth, I believe, as we look to go down the next two quarters in search. Then we'll have our mobile, hopefully, revenues from what we've done today and from hopefully future acquisitions. I think we still can grow next year. It's going to be off of lower base coming out of 2014. I don't know yet. I would say in terms of the Search Monetization business by itself, it goes back to probably Jay's question earlier about the market share. If a lot of our competitors remain in place, then I think you're still talking about probably next year, a single-digit growth, maybe.
Probably single-digit growth on a year-over-year basis in the Search Monetization business. Then mobile, where you can have high double-digit growth. I think that's what I'd say today, but I think I'll have better information for you, Kerry, in Q3, our earnings call then or in the end of this quarter, early next quarter. It's too early to tell right now, but that'd be my best guess today.
Thank you. Appreciate that.
We'll go next to Dan Kurnos with The Benchmark Company.
Yeah, thanks. Josef, just a quick follow-up on the Bing renewal. Congrats on that, by the way. Just in the press release, you mentioned that there was some limited exclusivity. Just without going into specifics, can you give us any update on the relative terms relative to your prior Bing contract?
Yeah, I'd be happy to. I'm sure my general counsel would love if I itemized to you all the details of the contract. Since we both know I can't do that because of confidentiality, what I can say is as follows. The economic terms are substantially similar to what it has been the past two years. We did change a few things. I will tell you, over the three years, we're actually confident and optimistic that actually we'll make more money over time, both for us and for Bing, if the deal goes as we both expect it to go. I think the other changes were more standard changes today, which because the original deal they had with Conduit was four years ago, more around policy issues. The policy issues, which we fully support and frankly agreed to, and we were doing almost all of them anyway.
More policy issues to protect, I think as we've said before, the user experience. In the previous contract, there just was less of an issue, so there was less restrictions on that, and those are things which we support. Those are the two main areas of changes in the contract. On an economic basis, we think it will be substantially similar, and over time, potentially even better, both for us and for Bing. On the policy side, we're very comfortable with what we did together with Microsoft and Bing to ensure that we have very good and reputable policies for the benefit of consumers.
Got it. That's really helpful. Just one other quick follow-up from me. Since you are launching the self-serve platform on the mobile side, I know that it started with you partnering and helping them buy media. Just maybe a high-level thought on your strategy and how you balance between a hands-on or a hands-off approach and which you think is going to be the most successful going forward, understanding that both will be key components to the strategy.
Yeah, it's a great question. I think you have to look at it, one of the ways we're approaching this is to really segment the market. There are different solutions for different segments of the market. Let's give you an example. An ad agency is almost always going to pick the self-service platform approach, right? It'll be more like a salesforce.com SaaS model. That makes sense for an ad agency. A pretty big media buying gaming company out there, or somebody else who has internal people who would use it, but also a percentage of that media buying, they'll say, in order to balance out and get yield maximization, they may outsource to us 10%, 20%, 30%, for example, of their budget, so it's managed, as well as using our own platform for their own internal people. We see both of those things happening.
I think lastly, there's probably some companies out there just don't have any internal ability to do that, so they'll outsource it to us as a way of really gaining the best of what we have, our platform and our talented and our expertise. I think as more and more grows programmatic, I think first of all, that's good for us in terms of what the technology platform we built and what Grow has built together, we think that's actually excellent and will give us a lot of opportunity for growth in the future. I think as more grows programmatic, I would think that there'll be a healthy balance. I would say today, if you had to push me on this, probably self-service will probably be a higher percentage of clients going to that. I wouldn't say it's 90/10, it's probably 60/40.
Again, that's a guess, Dan, I don't know. Based on speaking to different partners and different potential partners, it would seem, I'd say in the next two or three years, I would expect it to go there. Today, a lot of it is fully managed because the self-service platforms are not fully baked yet in a lot of companies. It's still early in the game, I would expect it to go to that over time.
Got it. Great. That's really good color. Thank you.
We have no further questions in the queue at this time.
Okay. Is it up to me?
Yes, sir. It's back to you.
Okay, thanks. Sorry. All right. To wrap it up, as always, I'd like to thank the talented team at Perion for all their hard work and dedication in helping us achieve these great results in the second quarter. While we work through industry changes on the desktop through the next two quarters, as in the past, we expect the business to stabilize and return to sequential growth in 2015. We remain dedicated and focused on building out our mobile platform and are off to a very encouraging start with Lightspeed and our acquisition of Grow Mobile.
On a personal note, as a sign of my belief in the business and the great talent we have at this company over the long term, I am pleased to announce that as soon as the trading window opens for me, I plan on purchasing stock in the company, and I'm confident that over time it will prove to be one of my best investments. Thank you and have a good day.
This concludes today's conference. Thank you for your participation.