Good day, everyone, and welcome to the Perion fourth quarter 2013 earnings conference call. Today's conference is being recorded. At this time, I'd like to turn the call over to Deborah Margalit , Perion Investor Relations. Please go ahead, 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 fourth quarter and full year ended December 31st, 2013. The press release detailing the results is available on the company's website at www.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 their 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'll turn the call over to Josef Mandelbaum, the Chief Executive Officer. Josef?
Thank you, Deborah. Good morning, everyone. Welcome to our 2013 fourth quarter earnings call. This was another record year for Perion, with $104.6 million of revenue, slightly better than our guidance of $102 million-$104 million, and $25.5 million in EBITDA, also beating our guidance of $24 million-$25 million. We are very pleased with Perion's financial performance, resulting in a strong fourth quarter and a record year. The performance of Perion on a standalone basis is only part of the story. On January 2nd, we closed on the milestone acquisition of ClientConnect, creating a new, much larger company, embarking on a new and exciting strategy. On a combined basis in 2013, we generated over $400 million of revenues and net income of over $100 million.
More importantly, we are now a much stronger company with the talent, scale, resources, infrastructure, and expertise necessary to develop and deploy new solutions that leverage our current business and position Perion as a clear industry leader. Parts of the industry have certainly had its challenges recently, and like everyone else, it has had an impact on us as well. That is why we view the acquisition of ClientConnect as a unique opportunity to actually lower our risk, gain real scale, and emerge as a leading solutions provider in the app and software developer ecosystem. This ecosystem, which is the main driver of our business, remains, and in fact, is increasingly ingrained. One of the questions we get most frequently is regarding the industry's sustainability. The question focuses on the search providers, the seemingly steady flow of changes in their policies, and the overdependence on a few providers.
We think it is important to look at the industry from the perspective of consumers and software developers, as the core concerns of these two important constituencies have not changed and are what really drive business fundamentals. Consumers are less and less willing to pay for software, either on the desktop or mobile, but developers of consumer software and apps need to monetize their effort to fund their innovations. For developers, the ecosystem is broken. Distribution is difficult and monetization even harder, stunting innovation in the process. We do not see these dynamics changing anytime soon and have positioned ourselves as the partner of choice, helping bridge the chasm for developers by providing real value in the ecosystem. We understand these needs firsthand through our own apps like IncrediMail, Molto, and Smilebox, and are therefore uniquely positioned to help others.
The acquisition of ClientConnect has enabled us to firmly establish the foundation of our solution. Our lifecycle management platform, which is still a work in progress, will essentially provide a comprehensive cross-platform solution for app developers that want to increase their distribution, optimize the engagement of their users, and of course, monetize those users. Today, we largely utilize search agreements to create monetization. In the coming quarters, we'll see display advertising play an increasingly prominent role in our monetization efforts and are working on monetization solutions for app developers as well. Regarding display advertising, in particular, our newfound scale, the result of our combination with ClientConnect, gives us an advantage in the space. In addition, we have proven ability to collect and utilize data to maximize advertising yield, thus increasing the amount of revenue our app developers can generate through their offering.
We have also built a powerful data repository. In this age of big data, such a repository will have significant value. Simply put, the acquisition of ClientConnect affords us the ability to invest in broadening and deepening our offering for developers and facilitate their ongoing ability to provide great apps for consumers without charge. In this way, we will aggressively move to differentiate ourselves in the industry, products that dominate the discussion today and emerging with a broader, differentiated, and most importantly, even more sustainable platform. I'd like to elaborate on the investments and enhancements we have planned to augment this platform in the months and years to come as it reinforces our leadership position in the industry. While the search engines continue to adjust their policies, the overarching need of our end, our expertise of our lifecycle management platform remains.
We have always adapted to industry changes, growing stronger, larger, and more profitable along the way. There will certainly be more changes, and we'll continue to adapt. Our relationships with all of our search partners are stronger than they ever have been. Perion had great relationships growing from one to five in the last year, and ClientConnect brought with it exceptional relationships as well, including preferred contractual terms. We'll leverage these relationships to the greatest extent possible and continue to ensure that we are insulated from the adjustments of any one search provider may make in the future. During 2013, our goal was to diversify our search revenue, and we did so. As I mentioned, we are highly successful in this effort, and instead of one search partner in 2012, we now have five.
In 2013, no single search partner accounted for more than 38% of Perion's revenue, and we derived revenue from all five of our search partners, Google, Bing, Ask.com, Conduit, and Yahoo. Building on our successful search diversification plan, our goal in 2014 is platform and revenue diversification. We intend to significantly increase our revenue from display advertising and mobile during 2014 and beyond. This is a marathon, and we are patient and methodical. Having proven that we can execute against our goals, we are confident the same will be true going forward. While we pursue this evolution, we fully expect to increase our investment in the short term. Together with this increased investment, as we announced in the guidance section of today's press release, we still project continued organic growth in 2014 with healthy profit margins.
Our focus in 2014 and 2015 is to grow organically and through acquisition, similar to what we have done in the past. On the M&A front, we are focused on acquiring companies in the mobile and data-driven advertising space, and we are seeing excellent opportunities in the market. To effectively pursue this strategy and to minimize dilution, we intend to use mostly cash and to the extent required, take on debt to finance these acquisitions easily supported by the cash flow of our business. As in the past, we expect that any acquisition of meaningful size will be accretive. Next, let me speak to the integration with ClientConnect, as this is a significant and transformative project for us. I'm pleased to report that the integration is going even better than expected.
We have found the ClientConnect team to be enthusiastic, talented, and ambitious, sharing our desire to make the new Perion a world-leading company. I cannot express enough how impressed I have been with the talent and quality of our combined management team, their collaboration and equalist agendas, as well as the blending of employees and cultures, which is something not to be taken for granted. Most acquisitions fail due to unsuccessful integration, and so far ours has gone remarkably well. We are ahead of schedule on many items, and from a strategic standpoint, we have identified numerous synergies and opportunities. Before I turn the call over to Yacov for a detailed financial analysis, let me add that our plans for 2014, in addition to the investments mentioned above, include increasing marketing spend to gain market share and spur organic growth even further.
These investments and recent changes with certain browsers are expected to have a modest impact on our revenue and EBITDA, primarily in the first and second quarter. As with previous policy or technological changes in the industry, we have embraced those that sincerely improve the user experience and transparency and have adapted and grown our business each time. As can be seen from our guidance, I am quite confident that in 2014, the results will be the same. Finally, since we have a much larger team in two separate offices in Israel, we are relocating our headquarters to a single state-of-the-art facility. This will result in some added CapEx, approximately $6 million in 2014, but we also expect that this consolidation will result in $3 million in annualized savings beginning in 2015. In addition, we anticipate synergies as a result of having the entire team in one place.
We expect the move to be completed by September of this year. With that, I'll turn the call over to Yacov, and then we'll take your questions.
Thank you, Josef. I'll discuss the non-GAAP results for Perion on a standalone basis and also provide the pro forma non-GAAP results for ClientConnect as received from Conduit. Revenues for Perion this quarter were $31.3 million, increasing 47% compared to the $21.4 million in the fourth quarter last year. The increase reflected growth across all of our revenue streams year-over-year. Specifically, this increase was attributable to a 61% year-over-year increase in search-generated revenues from $15.3 million to $24.5 million. In addition, product and other advertising sales increased 12% from $6.1 million in the fourth quarter last year to $6.8 million this last quarter. In the GAAP report, $14.5 million of revenues generated by our agreement with Conduit, which was entered into before acquiring the ClientConnect business, were retracted as on a consolidated basis. $11.3 million were netted against customer acquisition costs, and $3.1 million were deferred.
Total operating expenses, including COGS for Perion, were $24 million in the fourth quarter of 2013. Excluding customer acquisition costs of $14.6 million, these expenses totaled $9.5 million, reflecting an increase of 31% compared to the fourth quarter last year, or an increase of about one-half the rate of our revenue increase. As I just mentioned, in the fourth quarter of 2013, Perion invested $14.6 million in customer acquisition costs, a significant sequential increase compared to the $8.2 million in the third quarter, and also up 50% compared to the $9.7 million in the fourth quarter last year. This reflects improved return on investment metrics experienced during the fourth quarter, which encouraged our investments to drive future growth. We continue to increase our media buying and customer acquisition efforts in the first quarter.
While this investment will have a short-term impact on our EBITDA, it is a key factor in future growth. In our GAAP report, $11.3 million of these expenses were netted against revenues. Perion's EBITDA was $7.7 million, or 24% of sales in the fourth quarter 2013, compared to $4.9 million or 23% of sales in the fourth quarter of 2012. Perion's net income in the fourth quarter 2013 was $6.4 million, increasing 77% compared to $3.6 million in the fourth quarter of 2012. Earnings per share this quarter was $0.49 per diluted share, representing a 53% increase from $0.32 in the fourth quarter of 2012.
In the fourth quarter of 2013, the difference in operating expenses and COGS between our GAAP and non-GAAP reports was primarily due to the exclusion of $11.3 million in customer acquisition costs related to revenues generated under our commercial agreement with Conduit, which was offset by $4.4 million of non-cash share-based compensation, $2.3 million amortization of acquired intangible assets, and $2.8 million one-time acquisition-related expenses. A net total of $5.8 million was included in our non-GAAP operating expenses and excluded from our GAAP report. In the fourth quarter 2012, expenses included in our GAAP report and excluded from our non-GAAP report totaled $3 million.
The GAAP net loss in the fourth quarter of 2013, inclusive of expenses just mentioned, was $1.8 million or $0.14 net loss per diluted share, compared to net income of $0.6 million or $0.05 net income per diluted share in the fourth quarter of 2012. The one-time expense of $2.8 million related to the acquisition of Conduit's ClientConnect business alone represented $0.21 expense per diluted share. Turning to the financial results for the full year ended December 31st, 2013. Total revenues were $104.6 million, a 71% increase compared to $61.2 million in 2012. This increase was driven by a $38.5 million or 101% increase in search-generated revenues, along with a $5 million or 21% increase in our product and other advertising revenues.
As mentioned in the quarterly analysis, in the GAAP report, revenues generated by our agreement with Conduit, which was entered into before acquiring the ClientConnect business, totaling $17.4 million, were detracted as on a consolidated basis. $14.3 million were netted against customer acquisition costs, and $3.1 million were deferred. R&D expenses in 2013 were $13.1 million, compared to $10.5 million in 2012. As a percentage of sales, R&D decreased from 17% in 2012 to 13% in 2013. Looking forward, we intend to increase our investment in developing new products for new platforms without increasing the expense as a percentage of sales. Sales and marketing expenses for the year, excluding customer acquisition costs, were $9.1 million, compared to $6.4 million in 2012. As a percentage of sales, these expenses have decreased as well from 10% in 2012 to 9% in 2013.
Customer acquisition costs for the year reached $46.6 million, compared to $22.1 million in 2012. The increase in investment was a significant factor in powering our revenue growth. Our G&A expense for the year was $7.8 million or 7% of revenues, compared to $5.7 million or 9% of revenues in 2012. GAAP operating and COGS expenses in 2013 included $1.5 million of non-cash share-based compensation, $9.3 million amortization of acquired intangible assets, $6.2 million in acquisition-related expenses, and excluded $14.3 million in customer acquisition costs related to revenues that were generated under our commercial agreement with Conduit for a net total of $2.7 million, which were adjusted for in the non-GAAP numbers. In 2012, the adjustment of GAAP numbers totaled $6.7 million. For the year, EBITDA was $25.5 million or 24% of revenues, up 82% compared to $14 million or 23% of revenues in 2012.
Non-GAAP net income in 2013 increased to $20.1 million, or $1.54 per diluted share, compared to $10.3 million or $0.99 per diluted share in 2012. For the year, GAAP cash flow from operations was $15.9 million, compared to $16.3 million last year. The lower cash flow from operations reflects the cash portion of one-time acquisition expenses of approximately $5 million. As of December 31st, 2013, we had cash and cash equivalents of approximately $23.4 million, up from $21.8 million as of the end of last year. This represents approximately $1.07 per share in cash and cash equivalents. With regard to ClientConnect, their business continued to perform well in the fourth quarter of 2013. Based on the pro forma non-GAAP numbers we received from Conduit, ClientConnect's fourth quarter revenues increased 29% year-over-year, reaching $84.1 million. EBITDA increased 11% year-over-year, reaching $17.3 million.
Net income increased 29% year-over-year, reaching $17.2 million. The lower EBITDA for the quarter was primarily due to the wrapping up of customer acquisition costs in December, powering growth into 2014. For the year, ClientConnect net revenues of $325.5 million, up 52% compared to 2012. EBITDA was $96.8 million, also up 52% compared to $63.7 million last year. Net income for the year was $86.7 million, up 55% compared to $56 million last year. This concludes my financial overview. Let me now talk about our 2014 outlook. For the full year of 2014, we expect revenues to be in the range of $460 million-$470 million. EBITDA is expected to be between $125 million and $130 million. Net income is expected to be in the range of $103 million-$108 million.
As you can see, and as Josef said, we expect 2014 will be another milestone year in Perion's history, and one that will shape its future for the next few years. With that, we will now open the call to questions. Operator?
Thank you, sir. If you would like to ask a question at this time, please signal by pressing *1 on your telephone keypad. If you are using a speakerphone today, please make sure your mute function has been turned off or pick up your handset to ensure that our equipment can hear your signal. Again, that is *1 at this time for any questions. We'll take our first call from Kerry Rice with Needham & Company.
Thanks. A couple questions, if I may. Josef, you talked about display advertising and increasing that. Can you maybe add a little color around how we expect to see that manifest? Is it through browsers or toolbars, or where will that display advertising kind of show up? The second question is, you talked about numerous synergies with ClientConnect. One was the consolidation of facilities, and you'll save $3 million there. Can you talk a little bit about other synergies and if you can quantify those at all? Finally, you had talked about investments and obviously one seems to be around display. I assume others are around increasing customer acquisition expenses to ramp revenue there. Is there anything else in that increased investment that you can call out? Thanks.
Sure. First of all, hi, Kerry. Nice to have you on the phone.
Hey, Josef.
I'll try to answer all three questions. We'll take them in the order you asked, then Yacov can add if he has anything to add to these. On display advertising. The way you'll see it manifest, first of all, it will not come from toolbars. We actually don't expect toolbars to be something that's a meaningful part of our business towards the end of the year. You'll see it mostly in two areas. One, as I mentioned in our call, we have a lot of data. We are testing internally, and I'm happy to say, seeing some good results about basically targeting, retargeting, and RTB inventory, programmatic ad buying using our data. We think we have an opportunity there to really provide some value to advertisers because we have a lot of data which is not cookie-based.
That's number 1. We're in the test phases now. We'll hopefully report on that progress throughout the year. As we said in the M&A section as well, we'll look to do that organically and as well, potentially through acquisitions to beef that up. The second thing on display is we're looking to create some, what I'd say, exclusive types of inventory that we have through our reach with our app developers and our software partners. We have some interesting ideas that we're experimenting with as we speak that can create new inventory. Again, that's fundamentally new IV type of standard inventory, whether it's display or video, and use, again, our data and our partners' ability and their reach
They do some targeting, either pre-targeting or retargeting, for that inventory, which would not be open to everybody else. It's more like a, I don't know, I wouldn't call it a private exchange, but something similar to that. We're working on that now. We have a couple of things we're testing as we speak, and hopefully next quarter, I can update you on that as well. That's specifically with display advertising, really not related to a toolbar at all. It's more related to data as a foundation of how we can grow another revenue stream that's not dependent on search partners. With regards to synergies, as you mentioned, I think the obvious synergy is clearly the location. The other synergies we have will probably fit in two buckets. There are revenue synergies.
As I mentioned, I think we mentioned this when we acquired ClientConnect. We just mentioned it now. They were bigger than us. They had better terms with some providers. We are certainly looking to leverage those terms and to pick up some margin and revenue by looking at those types of things. We're not quantifying it specifically, but it certainly adds in a few million dollars to what we're doing this year. The other synergies really are people synergies. A big example there is, to really grow the business, we were looking at this year, probably adding between, let's say, was it 50-100 new employees. Because of synergies between the two businesses, we're probably going to be adding much closer to 30-50 rather than 50-100. That's basically by realizing those synergies.
If we have two people working on, for example, distribution for toolbars or distribution for our other monetization products, we consolidate that, and that's actually already happened, into one group, and we freed up the other group to invest in new things. That leads me to your third question, investments. Those investments we are working on, I'd say two to three major projects internally. One of which I'll tell you today, the other two we're not telling yet, but we're excited about them. One is on the advertising side I mentioned already, in terms of data-driven advertising, programmatic advertising business. The other two are centered around mobile, and we have some interesting and unique insights to what we can do there that we think we're uniquely positioned to add some value on the cross-platform distribution side, specifically.
Lastly, on the desktop side, in the existing business, we believe there is still opportunities to really invest in some new projects that will provide our partners with alternative revenue and analytic solutions. Those two things we think will help them increase their LTV, which subsequently allows them to spend more money, hopefully, with us as their partner. Those are things which we really put into play this year from an investment standpoint.
Great. Thank you so much.
Thank you, Kerry.
We'll take our next question from Daniel Kurnos with The Benchmark Company.
Yeah, great. Thanks for taking my questions. Josef, just a first quick one on core Perion. Just curious how those products are developing and what growth you're forecasting or embedding in your guidance for 2014.
Sure. I think we're talking about IncrediMail, Molto, and Smilebox, correct?
Yep.
Yeah. Modest growth. They're actually good profitable businesses for us. They've done nicely. Obviously, given the size of the business now, it's a very small piece of the business. Frankly, even if it grew 100%, it'd still be a small piece of the business. We have good modest growth, and we're keeping the profit margins very good. What we're really doing is we're leveraging those applications to really help us, and we think it's a unique advantage we have. We've been working now, I forgot to mention on Kerry's question, but it's a good example of synergies. We're actually providing a lot of insight to the ClientConnect team about what it means to be an app developer because we are one, and how to tweak and improve some of their systems and solutions for app developers.
We're actually not only growing those businesses modestly, we're actually using them as a great feeding ground to help us really align and improve our product offering to our other business partners.
Great. That's helpful. Let me drill down a little bit on a couple of things you said. First, just from a high-level perspective, could you give us a little bit more granularity on sort of the breakdown by bucket between search product and I guess other/display that you expect revenue to come from in 2014? You did mention that you've got some projects internally. I was curious if you could give us an update on how Guardius is performing and just whether or not we should expect similar size launches and over what course of the year.
Yeah. Let me start with the Guardius question first. Actually, because of the merger and because of the focus of the business, we actually decided not to focus on Guardius going forward. A difficult decision to make, but as I'm sure, Dan, you know, when you're running now a $400 million to $500 million business, you're going to make different decisions. We just felt that Guardius was something that wasn't going to be the same revenue potential in the larger context than we thought as a standalone Perion. It got off the ground, but before it really got off the ground in a major way, and we had to put even more investments in it, we actually decided to kind of focus on other things. Going forward, we do some things, test them out.
In Guardius' specific case, it really was a result of together, it was just not an area where we're going to focus on. With regards to the breakdown of revenues, at this point in time, we're not going to give a breakdown of revenues specifically, but what I think you've seen in the past from us, Dan, is we like balance. We certainly intend to create a better balance of our revenues between search and other revenues, advertising and product, throughout the course of the year. I think by the end of the year, I think you'll be pleased with the progress we've made on that balance.
In terms of the product rollout schedule over the balance of the year?
Well, in terms of Smilebox and Molto again? Is that right?
Oh, no, really just more organic development of things like Guardius.
The old products. Yeah. Our focus clearly is more on creating products and solutions for our partners as opposed to creating more consumer apps. Again, we like having those consumer apps because they do add a big advantage for us, and we're leveraging the knowledge. In Q2, we should have. Right now we have a proof of concept product out there on the advertising side, the programmatic data-driven advertising, I mentioned that. We have, at Mobile World Congress in Barcelona last week, we unveiled a mobile monetization product, that we're again, testing. It's not for major release, but we're testing it out with a few beta partners, and so far we're encouraged by the reception we're getting there.
In Q2 and Q3 is when you'll see some major releases of some new initiatives that I mentioned earlier with regards to mobile, advertising, and frankly, even on the desktop search side of the business. We have a few new initiatives we're doing, and we expect in Q2, Q3 to give you more color on those.
Great. Just one last one for me, Josef. I'd love to hear your thoughts on Google at least delaying the renewal of the mobile portion of their deal with Blucora and how you think that the search partners in general are approaching mobile monetization.
Sure. I'm not going to answer the specific question. I'm sure you could ask Bill at Blucora, and he'll give you the answer. From my perspective, I'd say one is I never had mobile in my Google contract, so it wasn't an issue for us. We do have it in some of our other contracts. In fact, Molto is using Bing, powered by Bing, on the Molto product on Android and on iOS. I think in general, and I think this is the more important part of your question, is I think the search providers are going to be very cautious about opening up the kimono, so to speak, to all sorts of partners on the mobile platform with regard to search. We're seeing that today, and I think they're trying to, I guess, learn from their desktop experience.
They're trying to be much more methodical and deliberate about how they do that. I do think at some point in time, and I think just the other day, two weeks ago, if you read in the papers, the EU is doing an investigation on Android and some of their policies with regards to locking up a lot of manufacturers on what you could do with search. If I look in the future, I think the search partners probably, in their minds correctly so, are making sure the ecosystem for consumers is not going to be littered with a lot of what they would think is not good practices. By the same token, I think they'll be balanced out by, at some point in time, it's hard to argue that some companies aren't like other big, let's say, almost monopolies out there that also restricted competition on certain platforms.
I have some faith in the governmental agencies that at some point in time, they'll make sure the competition is free and fair. Until that happens, we're focusing on a lot of other things for our partners, our app developers, and we're excited about the future, and search remains a big part of our desktop business. I do not think it will be a big part of our mobile business, at least in the near term.
Got it. Great. Thanks for all the color, Josef.
Thanks, Dan.
I will take our next question from Jay Srivatsa with Chardan Capital Markets.
Thanks for taking my question. Good results and guidance, Josef and Yacov.
Thanks, Jay.
You mentioned in the first couple of quarters, you could potentially see some impact on the EBITDA because of the policy changes. Could you expand on that to tell us is it specifically related to Google and if/are there other factors in play?
Sure. Actually, it's specifically related to Chrome. It's not Google search side of the business, it's the Google Chrome side of the business. I'm sure many of you are aware on the phone that Chrome has announced a policy change whereby they are limiting the type of extensions and add-ons you can have on Chrome. It has to go through the Chrome Web Store, number 1, and it has to be a single-purpose extension. Anything that is not, they plan to shut off by June. Actually, it was supposed to come out early. They delayed it. I think there's 2 components, but now it's June. Number 1 is that will mostly have an impact on our tail, which is why we say it's having an EBITDA because it will have an impact on us.
We think we've taken into account in our numbers, that will depress EBITDA modestly in Q1 and Q2, depending on when it's rolled out. The other change that Google Chrome also launched a pop-up that they're popping up to consumers that is saying, "Someone changed your settings. We don't know if it was deliberate or not. Click here to reset your settings." Of course, when it resets it goes to the factory options, which, lo and behold, is google.com. That one, we have seen some impact in Q1 already. Seems to have stopped for now. They haven't said anything else about it. We're looking at those as in the past. We've adapted to all the changes that are going on in the industry.
Again, some of the changes I agree with, as I said, anything that sincerely improves the consumer experience, we're in favor of. I'm not sure I agree with everything that's going on, it's not for me to say. It's for me to adapt to, we've done that very well, we'll continue to do that.
All right. Switching to the mobile side. At a higher level, could you give us some sense of what the business model is going to be for you? Is it going to be search-driven stuff, or are you exploring other partnerships with service providers or app developers to figure out ways to monetize it? Just kind of sketch the landscape for us on how you see yourself playing in the mobile space and how that market's going to evolve as we go through 2014.
Sure. First of all, start by saying, the mobile space, I've been in the industry now 22 years. I've been in mobile 1.0, I got my scars there already. The industry, really, the cycle repeats itself. This reminds me of the early days of web 1.0 and then mobile 1.0. I do think 2014 and 2015 will be the years of consolidation. I do think there will be opportunities for us on the M&A front. I think this is the year that I think some of the winners will clearly be defined. The way we see it going forward, Jay, is that we intend to take what we're really good at as a combined company on the desktop and take it to mobile. That primarily means helping other app developers monetize their products, primarily through advertising.
I do not think search today will be a huge part of the business. Again, over time, I think that will change, but in the short term, I do not think it'll be a major part of the business. We do think that advertising, display or video advertising, will be a significant part of the business. If we look at the skill set to bring to the table and the resources, we're very confident that we have what it takes. In addition to organic stuff, as I mentioned, we're also looking to augment that with some strategic acquisitions, and we will update, obviously, all of you when and if that happens.
Thank you.
Thanks, Jay.
As a reminder, if you would like to ask a question at this time, please signal by pressing star one on your telephone keypad. We'll take our next question from Jay Kumar with MidSouth Fund.
Hey, guys. What's the going forward outstanding number of shares?
I'm sorry, we couldn't hear you. Can you repeat that again?
What's going to be the outstanding number of shares going forward, diluted?
We're expecting approximately 70 million shares as we enter the year. That number could go up through the year. We're looking at a range for the year of anywhere between 70 and 73 million shares.
All right. Thanks, guys.
Thank you.
At this time, I'm showing no further questions. I would like to turn the conference back to management for any additional closing remarks.
Thank you. This is a dawn of a new era for Perion, an exciting time as we evolve into a company that enables innovation for thousands of app developers on the desktop and mobile platforms. We are tremendously excited about these opportunities, and the integration is going very well. As a new, larger, and more powerful company, we have the resources to fuel continued organic and inorganic growth. As always, I'd like to thank the great team we have at Perion, including our newcomers from ClientConnect, for their hard work and dedication in helping us achieve these great results. Thank you, and have a good day.
Again, that does conclude today's conference.