Slight delay, some technical difficulties. I'm happy to have the company's CEO, Tal Jacobson, and the company's newly promoted COO, former CFO, Maoz Sagron. The format of today is fireside chat. Down below, you'll see a place to put questions, so feel free to do that, and I'll ask them. We already have one in so far. We have about 35 or so minutes. Gentlemen, thanks for joining us.
Thanks for having us. It's good to see you.
So, let's start with just the evolution of the business. The DSP business has evolved over the last several years, some things that have been more favorable for Perion, some things less favorable. Just maybe talk about kind of what you see as kind of the biggest challenges that the business is facing, and then kind of the parts of the business that are really working, and ultimately, it's really about getting those parts to become a bigger part of the mix to offset the parts of the business that are more challenged.
Yeah, absolutely. So, you know, you're absolutely right focusing on, on the DSP. You know, when in AdTech, there are only two main parts, right? The demand, demand side, budgets, well, supply sides. And through the past, well, I think almost two years now, we're really focusing, we're shifting a lot of things towards the DSP part. So we're focusing on demand. We're shifting a lot of our moving pieces into the demand part. And we are actually all our technology is now focusing on the advertiser needs, so we can get more and more out of those budgets. So we're, we're looking at ourselves, as very, very focused on demand and nothing else.
When you think about the business, maybe can we highlight, like, what are the areas that are doing particularly well, and what are the areas that right now are a drag on the business?
Yeah, absolutely. So, you know, our goal is to come to advertisers, to basically meet with the CMO of whatever brand or with major agencies and to say, "What do you guys need? We probably have a technology for that," right? And we're building technologies for all the major channels. So we have CTV, we have out-of-home, we have social, we have video, display, we have the entire thing. And we're seeing an increasingly, you know, success on our CTV, technologies and our out-of-home technologies. We bought a state-of-the-art technology of out-of-home in December. Retail technologies, which we're actually using for, physical retailers to push people back into physical stores. So those are the biggest growth engines of the company. We did see some challenges with open web video. In the past, open web video was a big thing for us.
We're shifting away from that. I think a lot of advertisers are shifting away from our side open web video, and we do seem to get a lot of you know a lot of requests to do videos at out-of-home, like on subways in New York or CTV. So videos are actually shifting away to other formats. We just launched our integration with YouTube CTV, which is the second-biggest CTV platform in the U.S., and you know we're focusing on premium inventory for our video, so for our video budgets.
So, let's talk about open web. I mean, what has caused the change there? Is it that, you know, other platforms are able to kind of prove that their channels are more effective? We all know that obviously, the explosion of social video, you know, even TikTok has expanded, or YouTube expanded to it with Shorts. But just, so you have an explosion of kind of social video walled gardens have all these metrics to try to show ROI conversion.
So is it, is it, is it that, or is it just the fact that, like, we've just seen prices come down, and because your business, you know, because DSPs inherently are kind of take rate-oriented, that kind of weighs on your ability to kinda monetize that, and it's a challenge to make the math work for an advertiser? So just, I mean, just elaborate a bit more on, like, why are we seeing weakness in social video, and what's the catalyst?
In social video or open web video?
Oh, sorry, open web. open web, sorry.
Yeah, yeah. So I think, you walled gardens are always good when you wanna track performance. Even now, with the cookies going away, walled garden is good. So for us to use, you know, we're actually driving some walled garden traffic on Facebook, on TikTok, and others. But open web has just become such a commodity, and prices are going down because of that, in on open web. Now, we are on the take rate business, right? If we get $1 million of budget, if rates are going down, we actually can we can provide more inventory for our clients. But at the end of the day, you know, numbers are going down because it performs less good than because anything else. So, we rather shift a lot of the budgets towards things that we see better performance, and that's why we're shifting a lot of that.
And so how do you, you know, insulate the business going forward, so it's not as dependent on ad pricing? At the end of the day, you're running campaigns, you know, if you can deliver performance, irrespective of what the ad cost, you know, that should be in the best interest of the advertiser. So just how do you think about trying to modify the business over time so that, that kind of movement to ad pricing don't weigh as impact, as much on the business?
Right. So since we're not a, an SSP, ad pricing affects us less, but we do focus more and more on most of our technologies going forward are focusing on performance. So we wanna make sure that the advertiser is getting the best ROI with us, so he can come back with more and more budgets. Now, again, it's not about the price of the inventory, it's about the ROI that we can provide through that. I mean, we're thinking like a DSP, not like an SSP. So it's all about, you know, what is the ROI that we can provide?
So is it, is it changing the way you run the contracts with the advertisers and the agencies, so you're paid on a performance basis as opposed to on a kind of-
No
impressions total spend basis?
Right. So that's a, that's an excellent question. Currently, we're not changing our agreements, but we do know. I mean, we're getting a, we're getting a $1 million per campaign, and that's it. But we do know that if we perform good, they're, they're gonna come back with more budgets, right? So even though it's not based- it's not part of the agreement, we do know that that's what's gonna drive them back, so we put a lot of emphasis on that.
So we take a step back and and kinda look at the like longer term opportunity, right? A lot of the functions that that you offer, the capabilities, technically ad agencies could offer that. They could have that as internal capability. They don't, 'cause historically, holding companies have really struggled with executing technology and keeping up with the pace of innovation, and we need the walled garden. So just maybe talk about that and why you think, you know, while the company's going through kind of a slower patch here, ultimately it makes you confident about the future and and the capabilities that that you can offer that the agencies don't wanna bring in-house.
Right. So when I go and meet agencies, the conversation usually goes where we say, "You know, let us be your technology arm. We'll be that layer. So you wouldn't need to focus on that. But you're gonna do the heavy lifting of the brand, right? Figure out strategy, figure out messaging, figure out creative. Let us be the technology arm that you do not wanna deal with." And that goes well. I mean, it really resonates at those meetings that this is needed, right? When they're focusing on margins, they do not wanna spend more money on developers.
They wanna spend more money on gaining more, getting more cl ients, winning those awards, which eventually would get the clients to renew. That's their focus. Our focus is to help them with technology, so they wouldn't need to use 100 different vendors, right? So that, that's our focus, and I think it's kind of resonate from the meeting I personally had, and, you know, Maoz is joining me quite a lot in the past year and or so, where we're seeing now deeper relationship than we ever had with those agencies, and increased budgets.
So, I mean, just on advertising, and we'll go to search for a minute. But, so kind of putting that together, how do you think about ultimately improving the margins in the business? Is this about bringing more automation, kind of getting more technology? But just where do margins go from here for the advertising business?
Yeah. So, I think that's a great question to, you know, to state the last change that we've made with Maoz, where we said, "You know, we have so many different products that are basically selling to the same audience, right? The same customer." And up until now, we've sold that through different salespeople, right? We had a Hivestack salesperson, and an Undertone salesperson, and a business salesperson, and now we're combining all of them. So we're making ourselves a lot more efficient in terms of process, and maybe Maoz can say a few words about that. But we're also making ourselves a lot more efficient in terms of technology. So we're adding a lot of AI automation to our business, so we can run campaigns way faster.
From the minute we get the request to the minute it goes live, it's way, way faster. And we can combine now the view that we have on a client to say: "You're actually working with us on all those different places. How about we gonna combine this into, you know, one view, one billing, maybe a different deal?" So again, maybe Maoz wanna say a few things about that because that's really the strategic move that we've done with the promotion of Maoz.
So, so definitely, I would say that over the years, this is like, you know, a process that started when we did, you know, everything into one place. You know, it was really more optimization, other than really taking it to the opportunity to have more business because you have more holistic solution. So now I think we're moving from optimization, which is still important and still for margin, for media margin, efficiency, and also from OpEx efficiency. This is one, but this is not enough.
Now we are more moving into, adding and making sure that we have, taking all the solutions that we have, all the products into a one, process, into a unified process in all different area. We believe, and also based on the feedback that we're already getting from few meetings that as Tal mentioned before, that we're already doing, we see how advertisers, how agencies are responding, and this is very exciting.
So this is part of this change, and this is part of our ability to take more and more assets that we have internally, and we're leveraging that into a one, into a one holistic solution. And this is something that already started, and now with the new role, I spend more time on this part to make sure that we are not losing any opportunity, that we can really combine everything to a one page. This is not 100% yet. It will be a process, but definitely we're starting to get.
So let me ask you a macro question. Just, you know, more recent, I think investors have gotten just more concerned about macro ad spending, and just maybe talk to us. Obviously, there's Perion kind of specific product category, but maybe can you break it down? So from a vertical standpoint, are there any verticals that have gotten weaker in the past, you know, month or so, whereas you're looking out, kind of factor in your guidance? And then just for Perion specifically, I mean, we obviously highlighted, you know, online video as an area of weakness, but any other areas that investors just should be mindful?
I think, you know, when we're looking at the overall business, we stopped looking at different channels, and we're looking more of, you know, can we get a deeper relationship with the customer? Can he spend more time with us, more money with us through more technology? So, you know, I wouldn't say dependent on us, but he's definitely gonna have a lot of his marketing strategy with all our moving pieces. So that's the way we're looking at it. You're absolutely right. I think, you know, open web video is not gonna grow dramatically. I think we're mainly gonna concentrate on how do we push more, maybe more social, maybe more out-of-home, CTV.
Those are the major things that we're hearing from our clients, that that's what they want. But the key focus is: How do we leverage our data? How do we... If a client comes and wants open web video, that's great. We will do that, but as long as we can leverage our data to make him, you know, get more customers, get more sales. So that's the main focus, not necessarily the channel, but we wanna focus on performance. I think-
Well, let me ask. I guess I'll be more specific. Are you seeing any weakness in consumer, you know, call it, CPG or any kind of consumer discretionary categories right now?
Well, we do see a shift, not weakness, but we do see a shift from brand awareness towards performance. So we do see an increasing demand for, you know, we're gonna spend more money, but you need to show us, sales. I think that's why you would see, you know, Meta performing so well because it's a performance, platform at the end of the day. So we t hat's, that's what we're seeing. We're not I don't think we're seeing a weakness, but we do see a focus. Like two years ago, they've spent money on all direction, right? Performance, awareness, everything. Now it goes back to performance, performance, performance, and that's why we're focusing on that.
Talk about search for a minute. I think there's a lot of confusion out there around the change with Microsoft. I guess to kind of set the record straight, do you. You know, you had, you know, kind of many, almost like a decade-long, I could go back a long time, relationship with Microsoft on the search side, search affiliate side. Is there anything that you can see that caused them to decide to effectively remove, you know, the bulk of the search traffic that they were getting from Perion websites? Does any of this have to do with the Content IQ, which is a business you've now exited? Just broadly, like, you know, is there any reason you're aware of why Microsoft made this change, and maybe what, what you understand is Microsoft's strategy around search going forward?
Yeah. Well, so a few things. One, it wasn't directly for Perion or was against us, right? They've decided that their entire distribution partners, they're gonna change the way they work with them, right? So all their distribution partners, not just Perion. Second, I think, and again, I don't wanna speak on behalf of them, but that's, so that's my only point of view. That's not an official answer from Microsoft. I'm not taking, I'm not making any statements on behalf of them. But I do think, there's a lot more inventory currently than there was three years ago. You know, TikTok came into the U.S., which half of the phones in the U.S. now have TikTok, so a lot of inventory for advertisers. Reddit became big.
You know, you have Pinterest, you have Spotify. You have so many different inventories, so everybody needs to fight for that dollar, and that's why CPMs are going down for everybody. And I think that was, again, that's an assumption that I have, that Microsoft, like anybody else on the supply side, need to be as attractive as possible to attract more and more advertisers, and that's why they lowered their prices. So, you know-
But, uh
Those are my two cents.
Right. Okay. So there wasn't anything, there's nothing you're aware that any of this related to anything Perion specific. This was kind of a change in Microsoft strategy that hasn't necessarily been communicated broadly?
No, no, and then, you know, the other day, the Microsoft distributors are, I don't know what, like maybe 10, so we know all of them. So that happened to everybody, every single one. So it has nothing to do with Perion specifically. Now, as for Content IQ, it has, the Content IQ and the search business were never at one bucket. They, that's not the same traffic. So I don't see any connection there.
Right. So the question-
Wait-
There's a question online. I think kind of relating to this. So now, obviously, with the Microsoft traffic or inventory going away, you know, can you add... I think the person's basically asking, can you add another search partner? Which search partner would be Google, I guess, right? Could you add another search partner to kind of over time make up for that lost inventory or, you know, kind of that business is probably lost forever?
Right. So we currently work with pretty much every search engine on the, I think, on the planet. And the biggest one we currently have is Yahoo! And we do work with Google on different formats, but I don't think, you know, looking forward at our future, I don't think the main growth would come from search. I think the main growth would come from our other side, which is technology tools to generate demand. That's where I think the major growth will come from.
Okay. Another investor question, you know, kind of gets into the undervalued nature of the company, right? Like it's trading at a very low multiple and enterprise value. I mean, the question is: do you believe the company is undervalued? I can imagine the answer to that is yes, but really, I think the question should be, how do you plan to address the, you know, the low kind of enterprise value relative to the cash flow or asset value?
Yeah. So I'll give you my two cents, and I would love, Maoz to answer that as well. So we're doing two things in parallel, right? One, you know, we're working really hard to increase our sales, so revenue should go up, and EBITDA should go up, but that's obvious. And in the meantime, we're using our cash to deploy two methods. One, buyback. So we've already stated that we're gonna do $75 million of buyback, which unfortunately is about 20% of the company, so I think it's a pretty major buyback. And we're focusing also on acquiring new and synergetic growth engines. But as opposed to previous years, we're now focusing...
We have a lot of clients where before we buy a company, we present them with the opportunity, and we ask them, "If we're gonna buy this, would that help you? Would that make you shift more budgets towards us?" So that's a new methodologies, and if we're gonna buy companies, that's only gonna buy meaningful EBITDA, synergetic, technology-oriented, and we're not gonna do any huge acquisition, right? So we're not even looking at kind of tuck-in acquisitions. We're looking at smaller companies. Want to add anything to that?
Yes, no, I think that, you know, the disconnection in my, in our view is clear. We are running here the business. Yes, we face two event this year. One, you know, the announcement from April, and the second is from June. Clearly, people are reacting to the news, and unfortunately, this is really not connected to where we are today with the revenue and the EBITDA that we are still generating and expecting to generate, as Tal said, before in the future. I believe that, you know, as we did in the second quarter, we shared the guidance for the second quarter, and we ended the quarter with more than our original guidance for the second quarter of revenue and EBITDA.
We are, we reiterate our annual guidance for the revenue and for the EBITDA. So quarter after quarter, we planning to, follow our plan and to build this, and to rebuild this, from here. I think we have all what we need. We have the knowledge, we have the executive team, we have the cash, and we have a lot of potential. We see many companies, as part of our M&A scanning, and we see many opportunities. So, you know, we are focusing on really managing the business, focusing on our drivers for 2025 and 2026. This is really our main focus now, and I believe that the gap will close. It's just a matter of time, and this is clearly part of what is happened, but again, it's part of a big picture.
Got it. So if, you know, if we take a look at kind of the guidance for the year, it still assumes you guys- it's implied exit the year, still kind of with advertising growth being negative. So assuming it takes some time next year for advertising to go back to positive, would that mean that you're likely or more likely to kind of buy back stock, you know? Or is it, you know, again, 'cause presumably, you know, the shares are likely to remain undervalued until you get back to positive growth. So are you more likely to continue to buy back stock, or is it really about kind of saving up the cash for kind of a, you know, strategic acquisition, and we can kind of talk about that a little more, what that could be?
So there are three things that we are now focusing for capital allocation. One is the working capital and making sure that we have enough money to run the business. Second is the buyback, because we believe that the stock is undervalued clearly. As long as it will be the case, we will consider a buyback. The plan that we have now is active, and we are running with the plan. We did it in the second. We're going to do the same in Q3 and Q4, and we're expecting this amount to end at the beginning of 2025. The third part, which is super strategic for us, is the M&A. I think that based on where we are now with the cash, which is close to $400 million, we can do all.
And as the stock if that will be the case at the beginning of 2025, but still we will feel that we are undervalued, we will consider and we'll see what we are doing. I don't want now to commit. I will say that our history, and also our long-term strategy, is not a buyback. Buyback is really good tool or good answer for the situation now, but I will not say that this is our main preference. Our main preference is definitely to invest in internal and in organic growth. I believe this is the key for the future.
Yeah.
So, to that point, I mean, you know, I think the areas that you'd like to expand to, if kind of the price and the asset was right, is, you know, retail media, Connected TV, international, probably some other high-growth areas. But, I mean, can you rank all of those, or is it really just a function of, like, each, you know, M&A presents itself, and then kind of it's like, what's the post synergy kind of multiple that you end up acquiring at, given these are cash acquisitions?
Yeah, I think, you know, as I said, we're focusing on delivering the best value for our customers, so we can gain more and more budget. So we're looking at the performance capabilities to the existing products that we have, data capabilities, AI capabilities. So not necessarily adding new things that we never had, but accelerating what we do have. That's, that's a big focus.
I would say that technology and capability that will accelerate the line of business, which we already have, like you mentioned, the retail. I think that everything that we will do will also help and change also the out-of-home. So I think that this is really more the technology behind the area we are already there, rather than, you know, something that is more vertical or something that is more specific.
So, the company has had pretty attractive financial characteristics for a long time, healthy EBITDA margins, healthy free cash flow conversion. This quarter, free cash flow is negative. I think, you know, kind of one-time factors, I mean, I could say in our model, we have free cash flow going back to positive for the foreseeable future. But, you know, Maoz, maybe it was an investor question. Just talk about what were the one-time factors that weighed on free cash in the second quarter, and how you see kind of that, those factors kind of burning out over the next few quarters.
This is really two events that came together, unfortunately. One is the Microsoft that normally they are paying few days before the end of the quarter, and somehow they paid in July first. This is a $17.5 million. This is huge. And the second is really accounting issue or accounting guidelines that classified $9.4 million that related to acquisition to PNL historically and now to the cash flow operation. If you're taking these two items out, you are getting to a positive EBITDA, which is about $5-$6 million, which is not far from the EBITDA, and this is also historically, as you said, Jason, right? In most of the quarters and most of the years, our EBITDA and our free cash flow are similar, and this is what we're expecting moving forward.
Okay. So let's see. What haven't we focused on? You know, it sounds like, you know, again, outside of finding something very kind of unique that fits into one of these areas you're focused on, that's a right-side acquisition. The focus is gonna be on bringing more automation and kind of more sales, I guess, coordination and breadth as you're approaching these customers. I mean, is that kind of the right way to describe kind of what a lot of your time is being spent, thinking-
Yeah
about from a strategy standpoint?
Yeah, absolutely. So, you know, we've... Absolutely right. Even a lot of our technology is now also looking at our internal processes, how do we make them faster, and not being reliant on so many people doing those jobs. So we wanna make sure that once we scale our business, we don't need to also scale our OpEx, right? We don't wanna hire too many people. So we're focusing on that. We're also focusing, when we bought Hivestack in December, we added so many different countries that we never had. So we have a lot of companies, a lot of customers now in Asia. I think we're one of the only companies of AdTech behind the firewall of China. We actually have infrastructure in China, we have people in China, we have people in Australia.
So we wanna see how do we leverage all the relationships that we have with those customers, with those agencies, in all those countries, to now leverage our existing products, right? How do we take the, all the products that Hivestack had and now sell them to those new customers that, that we now have? And again, that goes back to Maoz, you know, unifying the processes, unifying the data of clients, so we do see, an uplift in the future going from that.
Okay. So it looks like that's all the questions that we had. Wanna thank you for your time. Thanks, everybody-
Yeah.
and, we'll, we'll, we'll see you at the next meeting.
Thank you, Jason. Bye-bye.
Bye-bye.