Good day, and welcome to the Perion third quarter 2013 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Deborah Margalit, Perion Investor Relations. You may begin.
Thank you, and 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 third quarter and first nine months of 2013. 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, and as in prior quarters, the results reported today will be analyzed on a non-GAAP basis, which 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. Joseph?
Thank you, Deborah. Good morning, everyone. Welcome to our 2013 third quarter earnings call. As usual, I will begin with remarks about the quarter, provide some color on our operations and our going-forward strategy, and Yacov will review our financials in more detail and also provide updated pro forma numbers of Conduit's ClientConnect business. Following that, we will open up the call to questions. Before I discuss the third quarter, I'd like to share with you our vantage point regarding recent events in the industry. While we understand concerns investors may have in this regard, we look at these changes as an opportunity for growth over the long term. We intend to utilize our expertise and quality relationships to continue to provide real value in the ecosystem by enabling consumers to download their favorite products for free.
Over the last few months, we have further enhanced our controls and systems to enable us to maintain a high-quality business with better insight into how to grow it at an increasing ROI. The third quarter was certainly a momentous quarter for Perion. Obviously, our primary focus is the planned merger with Conduit's ClientConnect business. This combination and the resulting larger and more profitable Perion will be uniquely positioned to execute the company's business strategy and become a preferred partner of app developers by offering them the best solution to distribute and monetize their apps across all devices. We will emerge as an industry powerhouse with the size, recognition, and resources to further strengthen and grow our business. We will be able to increase investment in our technology platform, expand faster into mobile, and invest in growth through acquisitions.
Since the transaction was announced, we are now in a position to selectively pursue more strategic acquisitions focused on mobile, advertising, and data technology companies. I fully expect 2014 will be another milestone year in Perion history and one that will shape its future for the next few years. While our primary focus right now is on the new Perion combined with ClientConnect, we are also very pleased about Perion's financial performance during the quarter, particularly in light of the current headwinds in the industry. We hit the upper range of our revenue guidance with $21.3 million, which represents a 31% increase year-over-year and surpassed our EBITDA net profit expectations with EBITDA of $5.6 million and net income of $4.5 million. During the quarter, we successfully executed on our search diversification strategy with no single partner accounting for more than 40% of our search-generated revenues.
We have expanded from one search partner to five and now work with Google, Bing, Ask.com, Yahoo, and Conduit. The merger with SweetPacks last November provided us with the scale necessary to successfully diversify this business. Once we complete the merger with ClientConnect, we will be an even more attractive partner to such providers, thereby further lowering the risk profile of our business. We maintain strong relationships with all of our search partners, and we are confident these relationships will continue into the future. As we discussed in the second quarter call, the industry is going through a transition period while it adjusts to new policies. We stated that we thought the market would find its equilibrium in six months or so, and while generally that seems to be the trend, it is taking slightly longer than expected.
In addition, we discussed how certain delays in implementing multiple new search partnerships would impact our third-quarter revenue. These issues have been resolved, and we began ramping up our marketing efforts to drive future growth towards the end of the quarter. The fourth quarter will indeed show significant growth over this quarter as well as compared to last year's fourth quarter. Turning to the product side of our business, Guardio was just released to the public last week. With over 120,000 installs to date, we are very happy with its growth and positive consumer feedback. Over 50% of users have acted on the recommendations of other Guardio's users to help speed up their browser experience by removing unwanted add-ons and extensions. In addition, Smilebox and IncrediMail are performing very nicely, and we continue to invest in their mobile expansion.
Smilebox continues to grow at a double-digit pace and is on track to deliver strong profits. In addition, this year's content selection and new website have already taken the user experience to a new level. With over 2 million installs, Smilebox Mobile is progressing steadily and getting great ratings along the way. We are also very proud of our new messaging app, Molto, for the iPad, iPhone, and Android tablet. With great reviews and ratings from consumers, we are hopeful about its success. With that, I'll turn the call over to Yacov. He will take your questions.
Thank you, Josef. As Josef just mentioned, in addition to the operational and strategic achievements, this was a very good quarter from a financial standpoint as well. Revenues this quarter were $21.3 million, increasing 31% compared to the $16.3 million in the third quarter last year. The increase reflected growth across all our revenue streams year-over-year, reflecting organic growth, with added growth coming from our SweetPacks acquisition. Specifically, this increase was attributable to a 25% year-over-year increase in search-generated revenues from $10.9 million to $13.6 million. Product and other advertising sales increased 43%, from $5.4 million in the third quarter last year to $7.7 million this last quarter. Gross profit in the third quarter of 2013 grew both nominally and as a percentage of sales, reaching $20.4 million, up 34% compared to the $15.2 million in the third quarter last year.
This reflects an increase in our gross profit margin to 96% compared to 94% of sales in the third quarter of 2012. Total operating expenses were $15.2 million in the third quarter of 2013. Excluding customer acquisition costs of $8.2 million, these expenses totaled $7 million, reflecting a relatively small increase when looking at our year-over-year top-line growth. As I just mentioned, in the third quarter of 2013, we invested $8.2 million in customer acquisition costs, down sequentially from $12.5 million in the second quarter, but up compared to $5.8 million last year. EBITDA was $5.6 million, or 26% of sales in the third quarter of 2013, compared to $3.8 million or 23% of sales in the third quarter of 2012. Net income in the third quarter of 2013 was $4.5 million, increasing 68% compared to $2.7 million in the third quarter of 2012.
Earnings per share this quarter were $0.34 per diluted share, representing a 31% increase from $0.26 in the third quarter of 2012. In the third quarter of 2013, GAAP operating expenses included $0.4 million of non-cash share-based compensation, $2.3 million amortization of acquired intangible assets, as well as $3.4 million one-time acquisition-related expenses, for a total of $6.1 million excluded from our non-GAAP operating expenses. In the third quarter of 2012, expenses included in our GAAP report and excluded from our non-GAAP report totaled $1 million. The GAAP net loss inclusive of these expenses in the third quarter of 2013 was $1.7 million or $0.13 per diluted share, compared to a net income of $1.7 million or $0.17 per diluted share in the third quarter of 2012. The one-time expense of $3.4 million for the acquisition of Conduit's ClientConnect business alone represented a $0.26 expense per diluted share.
Turning to the financial results for the nine months ended September 30th, 2013, total revenues were $73.3 million, an 84% increase compared to $39.8 million in the first nine months of 2012. This increase was driven by a $29.2 million or 128% increase in search-generated revenues, along with a $4.3 million or 25% increase in our product and other advertising revenues. Gross profit in the first nine months of 2013 increased 88% to $70.1 million or 96% of revenues, compared to $37.2 million or 93% of revenues in the same period of 2012. In the first nine months of 2013, GAAP gross profit was net of $5.6 million amortization of acquired intangible assets, which were not deducted from our non-GAAP gross profits. In the first nine months of 2012, the difference between gross profit in our GAAP report and that in our non-GAAP report totals $1.7 million.
R&D expenses in the first nine months of 2013 were $9 million, compared to $7.7 million in 2012. As a percentage of sales, R&D decreased from 19% in 2012 to 12% 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, excluding customer acquisition costs, in the first nine months of 2013 were $6.6 million, compared to $4.5 million in 2012. This increase resulted from adding to our marketing staff from the SweetPacks acquisition. As a percentage of sales, these expenses have decreased as well from 11% in 2012 to 9% of revenues in 2013. Customer acquisition costs in the first nine months of 2013 reached $32 million, compared to $12.4 million in 2012. The increased expense was a significant factor in powering our revenue growth.
Our G&A expense in the first nine months of this year was $5.7 million, or 8% of revenues, compared to $4.3 million, or 11% of revenues in 2012. GAAP operating expenses in 2013 included $1.1 million non-cash share-based compensation, $6.9 million amortization of acquired intangible assets, and $3.4 million in acquisition-related expenses, totaling $11.5 million, which were adjusted for in the non-GAAP numbers. In 2012, the adjustment of GAAP numbers totaled $3.7 million. In the first nine months of 2013, EBITDA was $17.8 million, or 24% of revenues, significantly up compared to $9.1 million or 23% of revenues in 2012. Non-GAAP net income in the first nine months of 2013 increased to $13.6 million, or $1.05 per diluted share, compared to $6.7 million or $0.66 per diluted share in the same period in 2012.
In the first nine months of 2013, GAAP cash flow from operations was $12.7 million, compared to $4.8 million in the same period last year. This reflects a $1.6 million decrease in cash flow from operations during the third quarter of this year. The primary reason for the decrease is a $3.1 million increase in trade receivables this quarter as compared to last quarter. The increase in trade receivables resulted from new terms of payment from our recently diversified search partnerships, as well as timing of revenues within the quarter. As of September 30th, 2013, we had cash and cash equivalents of approximately $27.3 million, up from $21.8 million as of the end of last year. With regards to ClientConnect, their business continued to perform well in the third quarter of 2013. Based on the pro forma non-GAAP numbers we received, third quarter revenues increased 58% year-over-year, reaching $80.9 million.
EBITDA increased 48% year-over-year, reaching $21.2 million, and net income increased 44% year-over-year, reaching $19.4 million. This concludes my financial review. Let me now talk about our outlook. We are encouraged by the trends we see. As the third quarter progressed, we saw a notable surge in our search-related revenues and improved ROI from our customer acquisition efforts. We see this trend continue into the fourth quarter. As a result, we believe we are emerging from the transition period we spoke of, and the fourth quarter is shaping up to be a very strong quarter for us, both in terms of revenue and profitability. That being said, we are not impregnable to the changes in the market and have become even more selective regarding who we partner with and how we invest in customer acquisitions.
As a result, we are adjusting our guidance for this year and expect revenues to be in the range of $102 million-$104 million. EBITDA is expected to be between $24 million and $25 million, and net income is expected to be in the range of $18 million-$19 million. With that, we will now open the call to questions. Operator?
Thank you. If you would like to ask a question, you may signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, that is star one to be placed into the queue. We'll take our first question from Kerry Rice with Needham & Company.
Thanks a lot. Hi, Yacov. Hi, Josef. Quick questions on growth for Q4. You mentioned being more selective around partners. If I think about the growth or what's going to be the growth drivers in Q4, are you looking for new partners in the industry, or are you planning to do more organic marketing around IncrediMail and Smilebox or drive more tools with our downloads or increase ads in the install process? Maybe some color around that. Other companies, I should say, have highlighted that the competitive environment has been pretty strong, and that's caused some weakness in revenue for other companies. If that's the case, what gives you confidence that you can reaccelerate that revenue growth to 34% sequentially?
Sure. Thanks, Kerry. Thanks for the questions. I'll answer the first part of the question first, then I'll go to the second. With regards to selective, I think partners, when Yacov mentioned partners, we're talking about distribution partners, not search partners. We are very happy with the search partners we have in Google, in Ask, Yahoo, Bing, and Conduit, and we're not looking for new search partners. We're talking about, these are affiliates of ours or distribution partners, and the growth will come from three things. One, we are doing more organic investments in our own downloads for marketing for our own products. More SEM, both display and search marketing, which we're seeing, frankly, that is less sensitive to the market environments out there because you're controlling your own funnel and buying yourself. We're increasing that, number one.
Number two, we do see some distribution partnerships or affiliates that are opportunities for us to grow in the fourth quarter and beyond. We are looking at those, and we are being selective about what we're taking. We do want to maintain, obviously, the position we have in the marketplace today in terms of the quality and so on and so forth. We are looking at additional partnerships or distribution partnerships, I should say. Those are the primary ways we'll be growing. What gives us confidence is we're in the middle of November, and I know what October was, and I know what we're seeing in the marketplace. We're relatively, again, as Yacov said, we're not immune to what's happening.
I think originally, we thought the Q4 would probably be a little bit even better, but we're excited about the 34% growth, as you said, sequentially. We're giving a very good position. I think we prepared, as you know, Kerry, we mentioned, I think on our second quarter earnings call already, we started talking about this in June, that we saw some of the changes and policy changes, and we've been working with it now for six to eight months. I think we've certainly been working hard on the analytics side, on the personnel side, on the marketing side to find ways of going in the headwinds and finding opportunities for growth. What you're seeing in Q4 is a combination of that.
Plus, as I mentioned in our last earnings call, we do have a mix, as we saw the market kind of developing a mix between search revenue shares and obviously pay-per-install deals, and we've been doing both. We're looking to grow as a way of helping us grow through the quarter. Those are the three major things we're doing, and we have confidence because a month is behind us already, and we're seeing the trend. We're fairly confident about the quarter.
Okay, just one follow-up question. As you think about that 34% sequential growth, what does that imply for customer acquisition costs for Q4 and maybe the impact that that could have on margins?
Yeah, I think what we're seeing in general, I think Yacov mentioned this a little earlier about the ROI. By the way, while you mentioned about other people out there, the market is certainly more competitive. There's no question about that, the ROIs, look at our numbers in Q3 as well, and we said that before, are not what they were last year. We are seeing that if you're smart and if you have good systems and you buy right, the ROI can still be very good for us, and we're happy about where it's going. It's a balance between the PPI and the revenue share side of it, which helps us as well.
In terms of the acquisition cost, I don't know if we'll get to the full $50 million we originally thought we would, that's part of the reason why we're still going to be very close to the EBITDA numbers we originally gave. While we'll be a little short of the revenue numbers, we're still very strong year-over-year growth. When you look at the balance between the PPI and the revenue share, that does offset some of the EBITDA hits you'd normally take with just acquisition marketing. I do want to add, though, and I think it's important. As we get into the quarter and we see things evolve, it may be there'll be good opportunities for us to invest more money for future growth in 2014 and beyond.
We would look at that very carefully to see if anything makes sense, if we do that, we'd certainly update investors and the analysts about doing that. Right now, we're comfortable with the numbers we gave. We're very confident we can hit these numbers, I think it shows, at least for us, a very good rebound in our positioning in the marketplace. With the acquisition/combination of Conduit's ClientConnect, we remain very excited about next year.
We'll take our next question from Jay Srivatsa with Chardan Capital Markets.
Yeah. Thanks for taking the question. Josef, it appears at least a few of the other players in the market are still figuring out ways to counter the changes that Google has made. Your guidance seems to suggest you're well past that. Can you clarify what are some of the things you've done that has allowed you to counter some of those changes, and why you expect to have pretty dramatic growth in Q4 while some of the other players appear to still be kind of trying to grapple with the changes?
Well, I'll certainly try, and thanks for asking the question, Jay. I'm not going to give specifics because that's what competitive positioning is about. I'm not about to give you specifics. What I can say, though, is as follows. There certainly has been a shift to more direct media buying ourselves, as opposed to dealing with affiliates. We think that certainly is better for us in terms of the long term and the short term, both with regards to compliance issues as well as with regards to LTV and ROI. That's number one. That's not a secret. That's what we've been doing, and I think we were taking Q3, we got all these other partnerships up and running, Jay. I think we're one of the few companies that has, I think, five partnerships on the search side.
What we're doing is we're utilizing those five partnerships and optimizing them accordingly so that we can actually grow the business and work through some of these changes. The changes, as we've mentioned overall, as we see some of the industry events happening, we think that ultimately, pricing will go down a little bit. It'll provide other opportunities for us in the future. We're seeing a little of that in Q4. I expect more of it next year than this year. That's really what the things we've been focusing on is being smart about how we spend the money. We're not just spending money to get revenues, and that's why we're coming out and saying we'll not get the original full-year guidance for revenues. We are going to show very good growth in Q4.
We're doing that through the combination of the systems we've always talked about, and we're very pleased, and our systems are giving us some very good indications of who to work with, who not to work with, where to buy, where not to buy. We're also looking at doing more direct sales, which gives us more control over our own destiny. Those are the two major things that we're doing that provides us the confidence in the Q4 increase.
All right. In terms of partnerships, at least one of the other players appears to have been dropped by Google and possibly even by Yahoo. As you look ahead to your own contractual agreements, how comfortable are you in terms of continued presence at these large search engine firms' partnerships, and how do you see that playing out over the next years?
Well, first of all, we feel extremely confident that our partnerships will continue. We have good relationships, and from our standpoint, we're very comfortable that moving forward, we'll be working together with them for many years. We did renew with Google in May for two years. We signed a two-year deal with Yahoo, and I think we announced it in July. We signed a multi-three-year deal with Ask. With Bing, we have a multi-year deal. I think we have good relationships, and Conduit, we have obviously a deal as well. We're very confident about the position we're in today.
What I see in the future, I would expect that as the business progresses and evolves, the partners will work with players like us, who obviously post the merger will be a much bigger player, and I think that makes us more attractive as we look at competitiveness down the road. I think that will only work to our benefit as we look over the next one, two, three years.
All right. In terms of the merger itself, can you give us an update on where things are? When do you expect to close?
Sure.
More importantly, what are some of the financial metrics that you think will really start to have an impact in terms of financials next year?
Sure. I'll give you a quick update on where we stand. From an operating standpoint, obviously, the company is still two separate companies, but we have officially kicked off a post-merger integration process where the teams from both respective companies are working hand-in-hand, really just getting to know each other. We've broken up into about 10 different work groups, to basically attack and investigate and analyze different areas of the companies that we either can get synergies from, both in the top line and the bottom line, as well as work through the business to make efficiencies and for future growth to understand how we can integrate better. That process has been kicked off. Obviously, nothing formal can be done until the deal is closed.
We're talking, and we're working together to try to look and see how we can better prepare, so when the deal closes, we can hit the ground running. That's number one. Number two, the vote is next week, as you know, the shareholder vote. We do not anticipate any issues with the shareholder vote. When Yacov and I were on the road a few weeks ago, we've only received pretty much overwhelming support for the merger. We would expect that to go on without a hitch. Once that happens, I think we mentioned before, there are some regulatory approvals we're waiting for. Again, we don't expect any issues with them. I think some of them already we've gotten approvals for. Some we've gotten verbal indications, and we'll get the formal approvals over the next few weeks.
With regards to any obstacles, we do not see any, and we are very optimistic and happy with the progress. Just to remind everybody, what that means is by December 31st, there will be officially a split of Conduit and ClientConnect. Roughly or so, a few days to a week or so afterwards, we would then proceed to close the transaction in early January. I do not know the exact date yet, but it will be as soon as possible in January. We will close the date, close on the merger, and then officially from that point in time, we would be one company. Roughly for now, I would say two months or seven weeks from now, we should be ready to close and move forward.
With regards to metrics and everything else, as you say, for the Q1, when we kind of really talk about our post the merger, and we see things going forward, we will certainly talk about the metrics, and we will, as you know us by now, Yacov and I think we are fairly transparent. We like to put things for investors so that they can see what we are seeing, and we will put up metrics about what we are hoping to do. It is a little premature for me to comment on that now, so we will do that in Q1.
Okay. Last question on the mobile part. What are some of the areas that you think are sectors that we can go after in terms of getting more mobile penetration? When do you expect to start to get some revenues from that, given that the business model of the mobile world is obviously slightly different from the current model that Perion has?
Yeah. It is interesting. It is different in the sense that today, primarily, obviously, search drives a lot of our revenues. When you look at it is just a monetization vehicle, right? On mobile today, search is big for Google, but other than that, not a whole lot of other people. Most of the people are making their money today through advertising, right? Display, video advertising, and virtual currency/in-app purchases and so on and so forth. As we look at mobile, on our existing products, I think we have always mentioned. We are looking to get scale first. It is two million installs on Smilebox. We are very happy about that. We would like to get higher. On Molto, we just launched it on the iPhone. Hopefully by the end of the year, we will come out with an Android phone version, but we just launched on the Android tablet. We are doing okay.
I'd like to see more installs, but we're doing okay, and we're getting great reviews and great customer comments. I think you'll see the mobile revenues for us really have an impact post probably some acquisitions that we'd hope to do over the next, let's say, zero to 24 months. That's where you'll probably see that, and we'll look to round out. Part of our new strategy, as we mentioned last time, is really kind of building this ecosystem for the app developer/publisher, where we can help them with distribution, monetization, and analytics. We think we have a lot of the existing core competencies to do that, but we will need to augment that with some other acquisitions and/or organic investments. Those two things combined, I'd expect mobile revenues to be a little bit next year and then really start scaling up in 2015.
Thank you very much.
Thank you, Jay.
We'll take our next question from Daniel Kurnos with The Benchmark.
Great, thank you. Good evening, gentlemen. Josef, let me just ask you a couple of high-level questions and dig into some of the things you talked about earlier. Just first, and I'm not sure if you'll answer this or not, but if you have any thoughts on AVG's decision to exit the third-party toolbar business, that would be great.
Right. First of all, nice having you on the phone, Jay. Dan, sorry. No, I don't have an opinion on AVG. I think they're a great company, and obviously he's making the best decisions for his company, and that's great. I think you'd have to ask Gary those questions. From our vantage point, we see the business as an opportunity. Hopefully we'll be able to execute against that and increase our market share over time.
Okay, great. Then, we talked about the competitive landscape to a fair degree here. I'm just curious, as we go forward into 2014, excluding any synergies you're going to get or should get from the Conduit acquisition, how do you see your customer acquisition cost pacing, and is there any negative impact to margins due to competition as we go forward?
Yeah. First of all, I think, in general, margin impact in any business, as it matures and goes forward, I'm sure there's competitiveness. We believe, however, that with the recent policy changes that are happening in the marketplace from all the different partners, and I think everybody on the phone knows, we've been very supportive of those policy changes. We think ultimately it favors companies like us. We're not unique, but companies like us, that some of the pricing increases that were happening was because of certain practices that increased the LTV that probably weren't allowed. As those get shut down, the pricing actually, in a lot of cases, will come back to a normal standpoint. For those of us who were ultimately playing more or less by the rules to begin with, fundamentally, that only works to our benefit.
I think as we see it in 2014, there'll still probably be some cleanup in the industry, and that could mean other affiliates of ours as well as we look at next year, as we look to continually clean up and police ourselves. I think that's a responsibility of all the companies in this marketplace if we're going to have a long-term business, which I believe we will. That also, though, should mean, as we see those policies stringencies, as you get now a year past the Google changes and other changes by other partners, I believe the pricing will come to a normal level, and that will benefit people like us.
Great, thanks. That's helpful. Speaking of Conduit, it looks like growth moderated a little bit sequentially for them, but I would think that given some of the opportunities in the environment, particularly with one of the larger competitors citing some issues in the B2B space, that they might be able to take share, particularly given their larger reliance on Bing. I'm curious what you think of Conduit's ability to take share in this marketplace and sort of the growth profile for them going forward.
Yeah, it's a great question. Actually, it's worth explaining. When we announced this deal and we did this deal, obviously, Conduit was splitting the business in two, the Conduit part and then the ClientConnect part, which we're buying. Obviously, in the negotiations and discussions, cash flow is an issue on both sides of revenue. What was decided is we're keeping the level of investment relatively stable since the second quarter. Actually, I do not think that Conduit, in the short term for Q4, is going to be very aggressive in increasing their marketing spend to get new business. It's understandable because the owners of Conduit won't get really the benefit of that because all the revenue goes to ClientConnect.
Obviously from their standpoint, we've agreed that we're going to keep the relative same spend level, and that is what's enabling us, and that's why also the revenues are relatively on a quarter basis relatively flat, some slight growth here and there. To answer your question for 2014, though, yeah, we certainly believe, obviously once the deal closes and now we're one company, yes, we believe that ClientConnect has some opportunities for growth in the market share. As I mentioned, that wasn't really a business we were in, so that is certainly a business which they are very big in, and we think there will be opportunities for us.
Just one point of housekeeping, you did talk about the installs for Guardio. I'm just curious if you could give us the contribution to the quarter from Guardio and what you expect from Guardio in Q4.
Yeah. Our expectations in Guardio in Q4 are not high. We're taking it slow, and we just launched out of beta last week to make it public. Really, the power of Guardio is the power of the people. Again, our objective here is to get a lot of people using it. It's a self-learning application and technology which uses the wisdom of the crowd to help us help them. You'll see a lot of that, we're focusing on tweaking the product, improving the product, going deeper, and frankly, going a little broader in some other activities that we could probably do over the quarter to help the consumer. Next year, I think, is when we'll start looking at that and really helping us grow the business.
Actually, there's some things in the ClientConnect side of the business that similar technology in the background that we think actually can make a very good combination to make an even stronger product. That's really going to be our focus in Q4, is getting more consumers, getting more feedback, working to tweak the product and make it even better, and really 2014, hopefully grow it in a more meaningful way.
Yacov, just maybe one quick point of clarification. Would you be willing to split out what product versus, I guess, display growth was in the quarter in the other category?
Yes, I can do that for you. Just one second. Our product revenues in the third quarter were approximately $4.3 million, and other advertising revenues were about $3.4 million in the third quarter of this year. When you're looking at the third quarter of 2012, the product revenues were $4.1 million, and the other revenues were about $1.3 million.
Great. Thank you very much, Yacov, and thank you, Josef.
Thank you, Dan.
We'll take our next question from Aram Fuchs with Fertile Mind Capital.
Yes. Josef, I was wondering, as a follow-up to that other segmentation, can you talk about a bit why advertising in the other segment is expanding so much more quickly than search?
Sure. The other advertising increased dramatically. It's actually about how we put the emphasis when we distribute our search inventory, or we're looking at the search assets and how we are able to monetize from that distribution. There were some opportunities in the third quarter that enabled us to put a strong emphasis on the advertising part of it as compared to the search part of it. I would expect it to reverse itself actually in the fourth quarter, while search revenues will go up dramatically, I would expect the advertising revenues actually possibly decrease.
Okay. Revenue from things like retargeting, is that placed in the search line item or in the other-
No
line item?
That would be in other advertising. As Yacov mentioned, we're starting to do a little bit of that, and it certainly helped us with CPMs and increasing those as we go forward. We're looking to continually evolve that as we go forward.
Yacov, another question. In the receivables, trade receivables, you mentioned that one of the, I think what you said was one of the new vendors demands slightly better payment terms in terms of schedule. Is that?
Yes. Well, we're very happy with the diversification of our revenues, with the new partnerships come new terms of payment. We had a single partner, Google, in the past, and we had certain terms of payment. Actually, the terms of payment coming from some of the other partners, the likes of Bing and Yahoo, are slightly longer than that, and therefore, the accounts receivable on those accounts would be further pushed out. That was one reason. The second reason was also, as I mentioned, was the mix of revenues within the quarter. We explained, this growth has been happening slowly, and obviously within the third quarter, our best month was the third month, and therefore, the accounts receivable naturally grew, just as a matter of timing, in the third quarter compared to the second quarter.
The payment obligation related to acquisitions. It bumped up from December 2012. Is that SweetPacks? There's nothing in ClientConnect for that, right?
It actually didn't bump up. What happened was it was a shift from long-term to short-term, because our third payment is now classified as short-term.
Okay. Got it. Got it. Josef, you mentioned that mobile might be picking up, that you're projecting to the street that it might pick up in 2015. It seems that this is a duopoly still with Google Play and iTunes. What do you see that gives you confidence that you can start to muscle your way into that revenue stream?
I think it'd be arrogant of me to say I can muscle in between Apple and Google, but I appreciate the contextual reference. It's nice to be included in that sentence. Actually, we don't think search right now will be a big part of the mobile for us. What we're really focusing on is, and this as you mentioned before, is the other advertising revenues and frankly, our products, whether it's in-app purchases or others. We think on a platform basis, we're going to look to invest heavily and organically and through acquisitions in more of the ad tech space and the mobile tech ad space, and leveraging the data we have and really looking to cross-platform the data we have on the desktop with mobile, which now many more companies are doing that.
We think that's the way we can help a lot of app developers and publishers on the mobile front actually make money. We think we have some unique positioning in certain places. That's also a competitive space, but everybody knows mobile advertising is growing exponentially. We think we have a lot of good relationships with a lot of app developers already that we can leverage.
Okay. On this integration with ClientConnect, what oversight? Determining LTV on these things is really the key variable to creating free cash flow through a positive rate of return on these campaigns. I'm just curious, is there a plan where you're sort of overseeing these campaigns that are going on in Q4 into this holiday season? What's the process between the two teams right now?
Yeah. It's important to know, again, we're two separate companies, so we have no oversight and jurisdiction. The only thing we have contractually, for example, both sides have, is they can't make an acquisition without my approval, and I can't make an acquisition without their approval or any out of the ordinary type of expense. Other than that, they're running their business the way they always run their business, which they've done a pretty good job up to now, and that would continue through closing. We're certainly talking to each other, but in terms of business and pricing and things like that, we're not involved, and nor are they involved in ours because we're still two separate businesses, and until it closes, we're not allowed to really discuss those things.
Okay. Thanks for your time.
Thank you, Aram.
At this time, I'd like to turn the conference back to the speakers for any additional or closing remarks.
Thank you. To conclude, our optimism surrounding the ClientConnect merger continues to grow. We believe the industry changes create a tremendous opportunity for the new Perion to increase market share and continue to build upon our strong foundation. As a new, larger, more profitable company, we will have the resources to fuel continued organic and inorganic growth. As always, I'd like to thank the great team we have at Perion for their hard work and dedication in helping us achieve these great results. I am also excited to welcome the ClientConnect team to the family. Together, I know we're going to accomplish great things. Thank you. Have a good day.
That does conclude today's conference. We appreciate your participation. You may now disconnect.