Ladies and gentlemen, thank you for standing by. Welcome to the Perion First Quarter 2013 Results Conference Call. All participants are present in listen only mode. Following management's formal presentation, instructions will be given for the question and answer session. As a reminder, this conference is being recorded May 13, 2013.
With us today from Perion, we have Joseph Mandelbaum, CEO and Yaacob Kaufmann, CFO. I will now hand the call over to Deborah Margolit, Director of Investor Relations for the Safe Harbor information. Ms. Margolit, would you like to 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 Q1 2013. The press release detailing the results is available on the company's website atferion.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, performances or achievements to be materially different from any future results, performances or achievements anticipated or implied by these forward looking statements. The company does not undertake to 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 their comparable GAAP measures in our earnings release, which is available on our website and has also been filed on Form 6 ks.
With that, I'll turn the call over to Joseph Mendelbaum, Chief Executive Officer. Joseph?
Thank you, Deborah, and good morning, everyone. Welcome to our 2013 Q1 earnings call. As usual, I will begin with a few remarks about the quarter and provide some color on our operations and Yaakov will review our financials in more detail before opening the call up to questions. The Q1 was an extraordinary start to 2013 for Perion as the team continued to deliver great results. Revenue was a record $27,600,000 up 145 percent over Q1 of 2012 and adjusted EBITDA was $7,900,000 up 2 0 1% compared to Q1 of last year.
These results reflect the strong fundamentals of our business. We had record organic revenue growth. We increased our profitability and generated strong free cash flow. We experienced enthusiastic acceptance of our new incrediML for iPad products and we successfully integrated 3 PAX, our most recent acquisition. In other words, we are hitting on all cylinders and delivering impressive results against each of our operational and financial metrics.
Clearly, we are well underway to achieving and likely exceeding our full year guidance of 80% plus growth. Fundamental to this growth and profitability is our search business. We are very pleased with our search business performance in Q1 and the progress we have made on our diversification strategy. With the acquisition of SuitePaks last November, we succeeded in achieving sufficient scale enabling us to diversify our search business. We signed a non exclusive partner agreement with Microsoft search engine Bing, signed a 3 year non exclusive agreement with IAC's ask.com and as promised signed another 2 year non exclusive agreement with Google.
Bing provides us with very competitive economic terms, flexibility and an additional primary search partner. Ask.com provides us with long term stability, higher conversion rates and favorable economics. We are also in a test phase with a 4th search provider, which should add to and complete our search diversification strategy. In summary, in the last 90 days, we have significantly reduced the risk profile of our search business, while expanding long term profitability going forward by giving us the ability to optimize our traffic for the best possible yield. We expect there to be more settling in the market over the next few quarters, but I can confidently say that our search business has never been in a better strategic position since I joined the company.
As I mentioned in our last earnings call on February 1, new policy guidelines for search distribution were implemented. As we have previously stated, we were aware of the scope of these changes well in advance and have the opportunity to test the potential effects before the changes went live. We also recognize that once fully deployed, the results could fluctuate, particularly in the short term. With this in mind, we negotiated additional partnerships to alleviate the potential adverse effects of these changes. All this was taken into account when we prepared and issued our full year 2013 guidance.
For example, in light of the changes going on throughout this industry, we made the strategic decision to somewhat restrain customer acquisition efforts during the Q1 until we had better visibility on our ROI, return on investment. As you can see in our financial statements, we reduced this investment to 39% of revenues in the Q1 of this year with the majority of that spent in January, down from 45% of revenues in the Q4 of 2012. The timing of our spend gave us a nice bump in profits for the Q1. And while we anticipate very strong profit margins for the rest of the year, the level of profitability in Q1 should not be expected to continue. The main reason for that is basic mathematics.
Given the natural spread of revenues from search and the impact of immediate recognition of marketing costs, future customer acquisition spend even with a higher ROI will decrease EBITDA in outlying quarters as we increase this investment once again. As the market stabilizes and it is stabilizing, we do intend to increase our marketing spend powering future revenue growth and long term profitability at very attractive margins. This demonstrates one of the strengths of our business, our ability to be flexible and adaptable. We can increase or decrease our marketing investments quickly as we react to industry or tactical changes and dial up or dial down our spending to maximize the efficiency of that investment. With very low fixed cost and tremendous control over our variable cost, we can make strategic changes as we did this quarter to harvest profits as we spend our marketing dollars when and where we think they'll create the most value with the greatest return.
Overall, revenue in our search business was up 2 66% over the same quarter in 2012, demonstrating strong growth even after significant policy changes and temporary instability in the market. Turning to the product side of our business. Our new products including the new Incredible App for the iPad continue to be enthusiastically embraced in the marketplace. This product, the first e mail application truly adapted for the touchscreen takes a unique and revolutionary approach to e mail and eventually all of your messaging needs. We had 250,000 installs in the 1st month only on the iPad and with a very high engagement rate.
In total, we have nearly 2,000,000 customers who have downloaded Perion applications on all devices and we are just getting started. We have received tremendously positive consumer reviews for our apps in CreditMail and Smilebox and are continually refining and updating them. We just released a major upgrade to the performance of our IncrediMail app based on consumer feedback and more is on the way. IncrediMail and SmartBox are available for free download in the App Store. We plan on investing more in mobile this year as we look to the future and we will begin experimenting with monetization towards the end of the year having identified multiple monetization options.
We expect to have an Android version of SPAMBLOX ready in Q3 as well as an iPhone version of IncrediMail. These new products as well as potential new accretive acquisitions are expected to increase our user base, enhance our portfolio, ultimately grow all of our revenue streams and diversify and strengthen our business. Our product and advertising revenues increased 27% compared to the Q1 of 2012. Operationally, we continue to enrich our team, work extensively on further improving our systems, promote internal innovation and complete the SuitePAX integration. The sweepstakes team has relocated to our Tel Aviv headquarters and we are very pleased with how the team is collaborating.
We are already starting to benefit from synergies of the SweepEx acquisition and are as pleased with this acquisition as we have been with the SmartBox acquisition. I'd like to turn the call over to Yaakko, who will
review the financials in greater detail. Yaakko?
Thank you, Joseph.
As Joseph mentioned, revenue this quarter were a record $27,600,000 up 145 percent from the Q1 of 2012. The increase reflected growth across all our revenue streams, both year over year and sequentially. Search generated revenues increased in the Q1 266 percent, reaching $20,300,000 reflecting organic and acquired growth as we continue to benefit from the scale, back over technology and marketing expertise from our recent SuitePax acquisition. We remain confident that search revenues will continue to grow going forward as we benefit from optimizing all of our search partnerships. Product and other advertising sales grew as well, reaching $7,300,000 compared to $5,700,000 in the Q1 of last year, reflecting 27 percent organic growth.
Gross profit in the Q1 of 2013 grew both nominally and as a percentage of sales, reaching $26,400,000 or 96 percent of sales, compared to $10,500,000 reflecting 93% of sales in the Q1 of 2012. In the Q1 of 2013, GAAP gross profit was net of $1,900,000 amortization of acquired intangible assets, which were not deducted from our non GAAP gross profit. In the Q1 of 2012, the difference between gross profit in our GAAP report and that in our non GAAP report totaled $900,000 Total operating expenses were $18,700,000 in the Q1 of 2013. Excluding customer acquisition costs of $11,400,000 these expenses totaled $7,300,000 This represents a 35% increase compared to the same expenses in the Q1 of 2012, demonstrating the continued leverage of our model as revenues increased 145%. The Q1 of 2013, we invested $11,400,000 in customer acquisition costs And although lower than Q4 2012 on a pro form a basis, there was more than 4 times the $2,600,000 invested in the Q1 of 2012.
The increase in this marketing expense was the result of our strength in marketing team along with our enhanced back office system. These factors are fueling our extensive growth in search generated revenues and we expect to continue employing and expanding on this strategy in the coming quarters. The dramatic growth in revenues and the leverage achieved from our expense structure provided for our tripling adjusted EBITDA reaching
$7,900,000 in
the Q1 of 2013 compared to $2,600,000 in the Q1 of 2012. In the Q1 of 2013, GAAP operating expenses included $500,000 of non cash share based compensation and another $500,000 of amortization of acquired intangible assets for a total of $1,000,000 deducted from our non GAAP operating expenses. In the Q1 of 2012, expenses included in our GAAP report and excluded from our non GAAP report totals $900,000 Net income in the Q1 of 2013 increased 166 percent, reaching $5,800,000 or $0.45 per share, compared to $2,200,000 or $0.22 a share in the Q1 of 2012. In the Q1 of 2013, GAAP cash flow from operations was $7,500,000 compared to $2,500,000 in the same quarter of 2012. As of March 31, 2013, we had cash and cash equivalents of approximately $27,600,000 up from $21,800,000 as of December 31, 2012.
With such a strong quarter behind us, we are confident we can achieve and are likely to exceed our guidance for 2013. This concludes my financial overview. We will now open the call to questions. Operator?
Thank The first question is from Jared Schram of ROTH Capital Partners. Please go ahead.
Hey, good afternoon and congratulations on the quarter. Thank you, Jared. Turning to the Google renewal here. You mentioned in the release that the new terms of the agreement were slightly better than the previous terms there. What was the main driver behind that improvement?
Was it primarily due to your relationship with Bing right now as that expands?
Just to make sure I understood the question. You're asking me what was the main reason why we said in the press release our terms with Google improved?
I'm just curious what was the catalyst behind the improvement in the terms of the deal?
You don't think it was my personality?
I don't I mean,
I don't know how you could ask. Jared, obviously these things first of all, because of confidentiality, I'm not going
to clearly give an answer
to that question directly. What I would say is in general competition is good in the world. And we think as we said before, the 3 packs acquisition gave us significant scale that allowed us to be attractive. And we certainly tried to leverage that as much as we can this past quarter.
Okay. And as far as customer acquisition cost for 2013, I think last time we spoke you mentioned that probably be around $50,000,000 for the full year. Is that still a number you're looking at for total customer acquisition spend?
Yes. That's the range we're looking at. I mean, as you said in Q1, we are certainly a little bit below what we were going to do on our plan. But we look at opportunities on the ROI side and we as we have in the past, we would and should accelerate our media buying. Once the market as we said before starts to stabilize, we believe we can increase and we have now frankly a lot of good ammunition with Ask and Bing and Google that we can we think we can leverage that to increase at a very good return on marketing spend over the next three quarters.
Okay. And with IncrediMail now getting some traction 250,000 downloads to date, how does this compare with your initial projections for IncrediMail? And what do you think the future growth of that can look like looking out a year per se?
Yes. So first of all, it was 250,000 in the 1st month. So that's good. And I'd say it's tracking pretty much on plan with what we thought. We were hoping to get, I'd say, over 1,500,000 downloads in the 1st year.
And we think we're well on track to do that right now exceeded frankly. And it's just on the iPad. So I think that's the important thing to remember. As we expand now to the iPhone and eventually this year we'll also do an Android version. Based on the feedback we're getting from consumers, I'd say overall the feedback just to give you some perspective has been in 2 camps.
We love the design. It's really something which we haven't seen before. It makes it so easy to use after getting used to it. But the performance was a little slow out of the gate, which we knew. We just released a new update I said, I think it was Friday or Saturday.
And the performance is significantly improved and we expect that will be another catalyst as well as some other features we're adding. So when we add our new platforms iPhone and Android and some of the features, we're very excited. We got great publicity in the tech press as well as the general press. And most importantly, look at the consumer reviews, I think you'll see most of them are very, very positive.
And do you have a target looking at a year as far as total downloads is concerned?
I don't have a specific number to give you today. Each of our products we have certainly has goals, but I don't know if we have a specific I'm prepared to share today.
Okay. And last one here before I jump back in the queue. As far as the Google policy changes being now in existence for a couple of months, have you seen any competitors drop out of the market as a result of those?
I don't think we've seen any competitors drop out of the market. We certainly have seen somewhat of a shift as I think people probably are aware on the phone. You've heard it from other public companies out there where they've shifted to other search providers. And I think there certainly has been some shakeup in the market, but I think what's amazing to me always is the same that water finds a way of getting through, which means people find a way of adjusting and they've adjusted, whether that's adjusting with Google in some cases or adjusting without Google in some cases. I think the assumptions we had most of them have proven out.
Some I think were a little bit either better or worse than we expected. But on an overall basis, it's been roughly what we expected to happen has been happening.
Okay. Thanks for taking my questions and congrats again on the quarter.
Thanks, Jared.
The next question is from Dan Kurnos of Benchmark. Please go ahead.
Yeah. Good evening, guys. I just want to start in on the impact of the new search engines that you guys have signed. I know it was not a major necessarily major impact in the quarter, but just a question on how much you're able to monetize through those channels? What the difference is in pricing there?
I know you were featuring it on Sweet Packs, it seemed for a while at least to me. And how you see maybe the distribution shifting away from Google over the balance of the year?
First of all, thanks Dan for being on the call and asking the question. Good to have you. The way we look at it, I think we said before in the prepared remarks, we're certainly going to look to optimize the yield. The way we look at it going forward is, it's a combination of 3 things that we think will increase the lifetime value and or the ROI. Sometimes your ROI can increase just because your costs go down not because your lifetime value goes up and sometimes your lifetime value goes up.
So for example, in some of the cases, it's no secret I think Bing and Yahoo! And others are very strong or stronger in the Western countries and in U. S. As opposed to other places where Google is certainly dominant. So someone like Google and Ask will win a lot of cases just based on CPC rates and coverage ratios that I'm sure you can ask them about as the primary provider of the search results.
With regards to so one is frankly RPMs and CPCs in the marketplace. 2 is conversion and take rates. So conversion from a download to an install. Each one of those has different conversion rates depending on whether it's an opt in and opt out or other aspects along those lines. And we'll look to manage those with the combination that I just mentioned.
And last but not least is certainly the lifetime value generated by each of these partnerships and that's a combination of our economics with those as well as the effects of the CPC and RPMs. So we're looking at all those three things combined and we think that we have a very good solid foundation of multiple partnerships that provide us the opportunity frankly on a country by country and sometimes on a campaign by campaign basis to optimize for the best yield based on those 3 ingredients.
Got it. Thanks. And then on and turning to mobile, Joseph, you've talked about this a little bit in the past and you touched on it briefly in your prepared remarks. But maybe if you could give us a little bit more color on how you're thinking about the monetization efforts, particularly for iPad since you're off to such a strong start? And then as a follow-up to that, how we should think about investments in mobile and product development if you're ramping that going forward?
Sure. On the I'll take the first one and Jaakko can take the second one just because I don't want to feel Jaakko lift out on all the questions. On the first one, the way we look at monetization is actually fairly simple and we've talked to a few different people out there. We have some deals in place already. First and foremost, I'd say is pure just display advertising.
I don't know the exact number, but it was in the billions already in 2012. It's growing upwards of 50% a year. And on the iPad in particular, first of all, the iPad has the highest CPM rates of any device out there. That's great for us. It has the best target audience.
And when we look at the design of our product, we actually designed it where we think we can strategically when we're ready place advertisements with the consumers' consent. We're going to ask consumers some of it. We're going to test some new theories out there. But the advertising can fit in very nicely similar to like what a Flipboard does and others where we think it's not interfering with the product, but actually even adds. If we can target it even better, we can add some value in the product itself.
That's number 1. We think we're high in advertising. Number 2, we've had this stealth test going on about upselling in app purchases. We have a product called photo e mail, which we launched a little while ago, just to test whether people will pay for content, background and other type of content in e mail. And we've been pleasantly surprised.
I mean small, small numbers are not worth talking about economically. But more importantly on the conversion ratio side, we're actually pleasantly surprised that in app purchases we think is something we can do and we will do probably later on in the year test it out on this product as well. And last but not least, if you're using the product, you know we have a search box in there. Today it's I think powered by Bing. And we believe we're getting some significant metrics to people who are actually opening up links in e mail.
It doesn't go to the Safari default browser, it goes to our browser. When they're in their browser, some people are searching. And Dan, you know the business well. It's a volume game, right? If I get enough people in that application, enough people clicking on links and opening browsers and searching from that, the search revenue can add up over time very nicely.
So those are the three ways we're actually looking at doing it. And I think you'll see that in the next probably 9 to 18 months, we'll roll some things out, try sure some things will get right, some things will get wrong and we'll try to maximize that as we go forward. And with that, I'll turn the second half of the question over to Jakub.
So Dan just to answer your question with regard to our level of expenditure with regard to the R and D, I would just like to just remind you what we said on our Q4 call that is we're increasing our investment nominally and we did increase it actually going forward from the Q4 to the Q1 of 2013. However, because of the leverage that we have in our model, you're seeing that simultaneously the percentage of sales is going down. So that while we increase it nominally going from the Q4 to the Q1 of 2013 as a percentage of sales, R and D went down for about 13% to 12% in the Q1 of 2013. And we intend on continuing with this strategy, continue to invest, while make sure that it doesn't increase as a percentage of sales.
Got it. Thanks. Yes, I just wanted to make sure there wasn't an unexpected ramp in mobile as you roll that out. So then the last one I have for you guys is just could you give us maybe an update on that new product launch that you sort of teased last quarter? And Joseph, is there any change to your acquisition strategy given your strong organic success?
First, I will leave you with the tease I had before. We have been testing in alpha testing and actually we've been getting some very good feedback and consumer feedback in which we're obviously making changes and adjustments to make sure that when we're ready to launch it in beta, it has the best chance of success. We still expect to launch it I believe at the end of this quarter or early Q3. And we're still very excited about it. So stay tuned.
With regard to the other question, which as I blanked on, which was?
Can you repeat? Acquisition. Acquisition.
Thank you. No, we're still committed to doing accretive acquisitions. We still think in fact are as confident and as excited as ever by some of those things we're seeing in our pipeline. Obviously, it takes 2 to 10 go. So sometimes we can be excited about something, doesn't mean we're going to do anything with it because the other person has to agree as well.
But we're still committed to doing accretive acquisitions. We think it will actually be it will be beneficial to the company for its long term strategy.
Got it. Great. Thanks very much.
The next question is from Carey Rice of Needham and Company. Please go ahead.
Thanks a lot.
Most of my questions have been answered, but I was hoping you could maybe give some more details on maybe the growth of organic search? Can you break out the revenue between product and other? And then maybe can you talk about or if there is anything to talk about any partnership you maybe have with Conduit on creating toolbars?
Sure. So I will take the last one first. We do not currently have any partnership with Conduit on any 2 bars going forward. So simple answer from that. We had in the past a while ago, but we do not have anything currently going forward with them.
Haven't had it for a while. Since the Streetpax acquisition, we acquired a toolbar with it, so we don't need anybody else's. That's number 1. With regards to search revenue, we don't break it out because the real issue there is the Streetpaks acquisition frankly unlike Small Box was totally integrated into one business unit focusing on search. So I don't make a distinction anymore between whether it's CPACs or IncrediMail search or credit bar search or smile box search.
It's all coming together as one.
And Just to add on to that, when we gave our guidance for 2013, we indicated that our guidance for the year included 25% organic growth and we can say that we're tracking very well on that organic growth. With regard to your request regarding to breaking out of product and other revenues, as a matter of fact that was in the Q1 of 2013, our product revenues were about $4,500,000 and the other revenues were about 2.8
percent. Okay. Thank you so much.
The next question is from Jay Srivastava of Chardan Capital Markets. Please go ahead.
Thanks for taking the question, Joseph. Yako, nice quarter.
Thanks, Jay. You commented
about the lower acquisition costs in Q1. I know you don't provide quality guidance, but are we to read that Q2 revenues could be negatively impacted because of lower acquisition costs that you spent in Q1?
So it's a good question, Jay. It's I think we don't give quarterly guidance precisely because of the fluctuations in the marketplace as we go forward. I think but it's not a genius and we know we'd like to be transparent. So math is still math. At the end of the day, what we spend will generate future revenues.
If we spend less, it may generate fewer less revenues in a period of time. We're very confident as we said before that not only will we achieve our initial guidance, we are likely to exceed it. So I'm not going to give a quarterly breakdown, but the lower spend we had in Q1 on a yearly basis we do not think will affect us. In fact, as I said, we're very confident we'll likely exceed our initial guidance.
Okay. Going back to changes from Google, I guess the first question is what percent of your revenues was from Google? And then second question as a follow on to that is have the changes started to materially impact your business? I mean, was there any impact in Q1, if at all? And if not, do you expect any negative impact in the subsequent quarters from there?
I'll see. Again, in general, we I'm not going to break out revenues by search partner, because it's not a good thing for me to do and I don't plan on going forward on that basis. I can tell you clearly still in Q1 the majority of revenues came from Google. We only had a Google partnership all of last year. As much as when we added Bing in the Q1, Ask was just signed recently.
So clearly the majority was still Google. On a going forward basis, I think as we mentioned on one of the earlier questions, we're going to optimize that as we can to get the best yield and frankly to hopefully keep our search partners happy. We have enough volume that we think we can do it and keep multiple search partners happy and engaged.
All right. Last question. You've done really well in partnering with other search engines. I guess a 2 part question on that one is when do you expect revenues from Ask and Bing to start to become material? And 2, obviously, there is 1 larger surgeon that's out there.
What are some of the efforts you're putting to strike a partnership with
them? Sure. Well, I'll take them both. First of all, in Q2, you will see already the I think being an asset being materially a part of our revenues already in Q2. So that's a definitive answer to your first question.
With regards to your other one, I'm not going to comment on negotiations at this point in time. Suffice it to say, we have spoken to everybody and I think stay tuned and you'll see who as we alluded to our 4th search provider is.
Okay. Thanks again and good execution on the quarter and congratulations on the great rate in guidance as well.
Thank you. Thanks, Jay.
The next question is from Robert Sussman of Bentley Capital Management. Please go ahead.
Congratulations on an outstanding quarter. I suspect most people on the a lot of people on the call are focusing on your comment that the margins may not be sustainable for the rest of the year that they were in the Q1. The customer acquisition costs, if you did $50,000,000 for the year, would average about $12,500,000 per quarter and they were over $11,000,000 in the Q1, just slightly under. Can you a little bit amplify on what how margins could be for the rest of the year versus this quarter? And also if revenues continue to grow, then the other cost aside from customer acquisition costs could continue to decline as a percentage of sales and offset the higher percentage of customer acquisition costs.
Can you just explain how you think that settles out?
First of all, thanks for asking the question, Robert. And to be candid, I think you just answered your own question. What we just said is that the lower acquisition cost certainly helped profitability in Q1 because of timing. And what we're just making sure people aware of again in transparency is, let's just use your example you mentioned. If on average it's 12,500,000 dollars a quarter, which again I'm not confirming or just using as an example and we're $1,000,000 under that means in Q1 we may be $1,000,000 more profitable than we would have been otherwise.
Now if I spend $13,500,000 in Q2 or in Q3, it means I'll be $1,000,000 less profitable in one of those quarters. Just that's the math, right? Or a little less than $1,000,000 depending on how much revenue and when I spend it. So from that perspective, we just wanted to point out how the math works. You are correct.
If the revenues continue to scale as they have been and the other non variable costs remain roughly the same, then you're right, we certainly can offset the margin as we go forward. But as you know, Robert, I think you know us well. We've been trying to we always try to be transparent and put all the cards on the table. And we just wanted to make sure that people understood that going forward. But your analysis is correct.
We can and potentially will keep the same margins. But until we see how the quarters play out, we wanted to make sure we're being somewhat conservative.
Okay. Second question. On the last quarters on the Q4 call, you mentioned that you would probably not do an acquisition until the second half of the year. My feeling was when I heard that you're saying that because you wanted to make sure you completed the SweetPaks acquisition and integrated it to your full satisfaction. Have you gotten to that point?
Have you realized any of the $2,000,000 to $3,000,000 cost savings you had talked about? And do you consider the SweepPaks acquisition integration done so that you could another acquisition could come even before the second half of this calendar year?
Let me try to answer that in 2 parts. First, the CPAC acquisition is progressing very nicely. Is it completed? No, the answer is not 100% complete. Frankly, acquisitions like this usually in my experience takes at least a year before really things start fully integrated.
We are realizing some synergies already as we expected whether that's partnership synergies between different partners we had and consolidating to one partner, whether it's headcount synergies, all those things we are starting to see some benefit of that as we expected. The second part of your question is acquisition sooner. Well, it's the middle of May. So I don't think well, I'm not going to comment whether in the next 6 weeks it will. But we said originally the second half later half of Q2 early Q3.
I think as we mentioned, if the world was a perfect oyster and it was only us, I would say great, I can live by that. But there are 2 sides to every dance. So sometimes we try, sometimes we look at things and we do due diligence and frankly we pass. We I think as people can attest to as on our shareholders, we've been very disciplined in our acquisition strategy. So there are a lot of things you look at.
Our corporate development team kisses a lot of frogs before we find a prince. And I don't know when that can happen or can't happen. That's always subject to a lot of different factors. We are still actively looking. We have a good pipeline.
When funding materializes, you and other investors will be the 1st to know. Well, maybe second to know. Yaacov and internally people here may know first, but even other investors will certainly know immediately afterwards.
Okay. I think Yaakov is entitled to know first, so that's fine. And thank you.
Thank you, Robert. Appreciate that.
The next question is from Arun Fuchs of Fertiline Capital. Please go ahead.
Hi, Joseph Ignacio. How are you doing?
Good. Thanks for joining.
Good. Just wanted to first start off with the balance sheet. I see that you capitalized a fair amount of software and content this year this quarter about what you did last year. Is that something that we should annualize going forward? Or was this an anomaly?
Well, actually you can't annualize because there's a very specific window from an accounting standpoint what can and cannot be capitalized. We are for instance, in the Q1, what we capitalized was related to our iPad products. But since then, we had a general release on that, so that is no longer being capitalized for that version. There are other products that Joseph already somewhat mentioned or alluded to and those we are working on, their pace is not the same as the iPad. So while we continue capitalizing those kind of projects as we are required for accounting purposes, it's difficult to say whether we will be annualizing that.
I think it will be a little bit lower, but it's difficult to say.
So this is just after technical feasibility is proven, but before commercial release
sort of cut out of there? That is correct.
Okay. And then on the working capital, it's still sort of slightly negative. Is that where you feel comfortable going forward?
No, actually no. I'm the CFO of the company. I would never be half as comfortable with slightly negative working capital. On the contrary, what is improving because of our profitability. And as our profitability improves, I would expect the working capital to improve as well.
Right. I mean the main chunk in current liabilities is that is the earn out, right?
Well, it's a little bit more complicated. It's not one of those. It's actually the deferred payment and it's very far out. The deferred payment of $7,500,000 for the Sweets Act acquisition happened in November of this year. So that it although we were working capital negative in the past, it really wasn't an issue because it's so far out in the year and it will go away at the end of the year.
Okay. And Joseph on the search providers, is this another American search provider or is it in another geography like Asia?
I am not going to comment on that, but it's a nice try.
All right. And then whatever happened, you didn't mention about the replacement in the fixe, the second version of fixe or the speed up the PC category? Yes.
We looked at that. At this point in time, I think we mentioned last time, we shut down the fix the effort. I think as we mentioned early on, we do try a lot of things. Hopefully, most of them will work, but some don't. So we did shut it down.
We do not have immediate plan to replace their product at this point in time. The new product we're working on, we think is a better bet for our future and we're excited about it. And hopefully at the next conference call, we'll be able to share with you more details about it.
Great. That's all I have. Thank you.
Thanks, Aaron.
There are no further questions at this time. Before I ask Mr. Mandelbaum to go ahead with his closing statement, I would like to remind participants that a replay of this call will be available in 3 hours on the company website at www.perion.com. Mr. Mandelbaum, would you like to make a concluding statement?
Thank you. This was an exceptional quarter for Perion and we have very exciting quarters ahead of us. We expect extensive year over year growth coupled with new product introductions and hopefully some exciting accretive acquisitions as well. We have been successfully executing on the plan I outlined to you over 2 years ago and I am very pleased with the progress to date and our trajectory for the future. Of course, none of this could have been achieved without the hard work and dedication of the talented and great team of associates at Parian.
I want to take this opportunity to thank them all for making it possible to achieve these great results. I also want to thank our loyal users and shareholders for their support. And I can assure you more good things lie ahead as we continue on our exciting journey. Thank you all and have a good day.
Thank you. This concludes the Perion First Quarter 2013 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.