Perion Announces Another Record Quarter: Third Quarter Revenues Up 81%; EBITDA Up 71%

  Perion Announces Another Record Quarter: Third Quarter Revenues Up 81%;
  EBITDA Up 71%

Business Wire

TEL AVIV, Israel -- November 01, 2012

Perion Network Ltd. (NASDAQ: PERI), today announced financial results for the
third quarter and nine months ended September 30, 2012.

Q3 2012 non-GAAP Financial Highlights Include:

  *Quarterly revenues increased 81% year-over-year to a record $16.3 million;
  *Product and other advertising revenues increase 78% year-over-year,
    reaching $5.4 million;
  *Search revenue increased year over year 82% to $10.9 million;
  *EBITDA increased year over year 71%, reaching $3.8 million, or 23% of
    revenues; and
  *Net income grew year over year 46%, reaching $2.6 million, or $0.26 per
    share, representing 16% of revenues;

First Nine Months 2012 non-GAAP Financial Highlights Include:

  *Year-to date revenues increased 55% year-over-year to a record $39.8
    million;
  *Product and other advertising revenues increase 153% year-over-year,
    reaching $17.0 million;
  *Search revenue increased year over year 20% to $22.8 million;
  *EBITDA increased year over year 9% to $9.1 million, or 23% of revenues;
    and
  *Net income was $6.7 million, or $0.66 per share, representing 17% of
    revenues;

Josef Mandelbaum, Perion’s CEO commented: “This quarter was a phenomenal
quarter for us in every aspect of our business. A year post the acquisition of
Smilebox, I am proud to announce that Q3 was a record quarter of profitability
for Smilebox and revenues continue to grow at a 30% pace. The acquisition has
truly proven out to be a big win for us.”

“In addition,” continued Mandelbaum, “thanks to efforts invested in our
back-end systems and analytics, we have succeeded in ramping up our customer
acquisition efforts with a very high return on investment which in turn
created rapid growth in search generated revenues. Even more encouraging is
while we have invested in growing our business, our profits and profit margins
have increased dramatically. We intend to build and even further improve on
these successes, as we contemplate new acquisition opportunities and plan for
even greater growth in 2013.”

Non-GAAP Financial Comparison for the Third Quarter and First Nine Months of
2012:

Revenue: Q3’12 revenues were a record $16.3 million, increasing 32% over the
prior quarter and 81% compared to the third quarter of 2011. The accelerating
growth was a result of positive trends in all Perion’s revenue streams, but
primarily as a result of the Company’s search generated revenues increasing
82% year-over-year and 70% sequentially quarter-over quarter. Management
continues to work on improving systems powering the record revenue growth and
expect strong performance in the coming quarters as well.

In the first nine months of 2012, revenues increased 55%, reaching $39.8
million, compared to $25.7 million in the first nine months of 2011, and
surpassing sales for the entire year of 2011. This increase was primarily due
to increasing product sales three-fold and a 20% increase in search generated
revenues.

Gross Profits: Gross profit in the third quarter of 2012 was $15.2 million, up
33% sequentially and up 82% from the third quarter of 2011. The gross profit
margin increased to 94% this last quarter, compared to 93% in the third
quarter of 2011. In the first nine months of 2012, gross profit increased 53%,
reaching $37.2 million, or 93% of sales, compared to $24.3 million, or 94% of
sales.

Customer Acquisition Costs (“CAC”): In the third quarter of 2012, Perion
invested $5.8 million in CAC, compared to $3.9 million last quarter and $2.6
million in the third quarter of 2011. In the first nine months of 2012 the
investment in CAC totaled $12.4 million, compared to only $4.9 million in the
same period last year. The increase in CAC was in conjunction with the
improvement in the return on this investment, credited to the Company’s
enhanced back-end systems and improved methodology. Management continues to
increase this investment, being the main force powering Perion’s search
generated growth, while remaining focused on increasing profits.

EBITDA: In the third quarter of 2012, EBITDA was $3.8 million, or 23% of
sales, increasing 71% compared to the same quarter last year, despite the $3.2
million increase in CAC. In the first nine months of 2012 EBITDA was $9.1
million, increasing $0.8 million from $8.3 million in the first nine months of
2011, even though CAC increased $7.4 million in the 2012 period, compared to
the 2011 period.

Net Income: In the third quarter of 2012, net income was $2.6 million or $0.26
per share, compared to $1.8 million, or $0.18 per share in the third quarter
of 2011. In the first nine months of 2012 net income was $6.7 million, or
$0.66 per share, similar to the first nine months of 2011, offsetting the
decrease in the first half of the year, as the Company rebounded in the third
quarter.

Cash Flow from Operations: Based on reports in U.S. GAAP, in the first nine
months of 2012, cash flow from operations was $4.8 million, compared to $5.4
million in the first nine months of 2011. The decrease in cash flow from
operations is primarily due to the increase in CAC and search revenues
receivable in 2012.

Conference Call

Perion will host a conference call to discuss the results today, November 1^st
at 10 a.m. EDT (4 p.m. Israel Time). To listen to the call please visit the
Investor Relations section of Perion’s website at
www.perion.com/events-presentations. Click on the link provided for the
webcast, or dial 1-866-744-5399. Callers from Israel may access the call by
dialing (03) 918-0685. The webcast will be archived on the company’s website
for seven days.

About Perion Network Ltd.

Perion Network, Ltd. (NASDAQ: PERI) is a global internet consumer software
company that develops applications to make the online experience of its users
simple, safe and enjoyable. Perion’s two main award winning consumer brands
are: IncrediMail and Smilebox. Together these products have had over 150
million downloads. IncrediMail, is a streamlined e-mail and Facebook
application with an easy-to-use interface that allows for more personalized
communications sold in over 100 countries in 8 languages and Smilebox, a
leading photo sharing and social expression product and service that lets
customers quickly turn life's moments into digital creations to share and
connect with friends and family in a fun and personal way. Perion’s
applications are monetized through a freemium model. Free versions of our
applications are monetized primarily through our toolbar which generates
search revenue, and advertising revenue generated through impressions, while a
more advanced feature rich version is available with a premium upgrade. Perion
also offers and develops a range of products for mobile phones and tablets to
answer its users increasing mobile demands. For more information on Perion
please visit www.perion.com.

Non-GAAP measures

Non-GAAP financial measures consist of GAAP financial measures adjusted to
exclude: Valuation adjustment on acquired deferred product revenues,
amortization of acquired intangible assets, share-based compensation expenses,
acquisition related expenses, deferred finance expenses and non-recurring tax
benefits. The purpose of such adjustments is to give an indication of our
performance exclusive of non-cash charges and other items that are considered
by management to be outside of our core operating results. Our non-GAAP
financial measures are not meant to be considered in isolation or as a
substitute for comparable GAAP measures, and should be read only in
conjunction with our consolidated financial statements prepared in accordance
with GAAP. Our management regularly uses our supplemental non-GAAP financial
measures internally to understand, manage and evaluate our business and make
operating decisions. These non-GAAP measures are among the primary factors
management uses in planning for and forecasting future periods. Business
combination accounting rules requires us to recognize a legal performance
obligation related to a revenue arrangement of an acquired entity. The amount
assigned to that liability should be based on its fair value at the date of
acquisition. The non-GAAP adjustment is intended to reflect the full amount of
such revenue. We believe this adjustment is useful to investors as a measure
of the ongoing performance of our business. We believe these non-GAAP
financial measures provide consistent and comparable measures to help
investors understand our current and future operating cash flow performance.
These non-GAAP financial measures may differ materially from the non-GAAP
financial measures used by other companies. Reconciliation between results on
a GAAP and non-GAAP basis is provided in a table immediately following the
Consolidated Statements of Income.

Forward Looking Statements

This press release contains historical information and forward-looking
statements within the meaning of The Private Securities Litigation Reform Act
of 1995 with respect to the business, financial condition and results of
operations of the Company. The words “believe,” “expect,” “intend,” “plan,”
“should” and similar expressions are intended to identify forward-looking
statements. Such statements reflect the current views, assumptions and
expectations of the Company with respect to future events and are subject to
risks and uncertainties. Many factors could cause the actual results,
performance or achievements of the Company to be materially different from any
future results, performance or achievements that may be expressed or implied
by such forward-looking statements, including, among others, changes in the
markets in which the Company operates and in general economic and business
conditions, loss of key customers and unpredictable sales cycles, competitive
pressures, market acceptance of new products, inability to meet efficiency and
cost reduction objectives, changes in business strategy and various other
factors, whether referenced or not referenced in this press release. Various
other risks and uncertainties may affect the Company and its results of
operations, as described in reports filed by the Company with the Securities
and Exchange Commission from time to time, including its annual report on Form
20-F for the year ended December 31, 2011. The Company does not assume any
obligation to update these forward-looking statements.

Source: Perion Network Ltd.


PERION NETWORK LTD.
NON-GAAP SUMMARY FINANCIAL METRICS
U.S. dollars in thousands (except per share data), unaudited
                                       
                  Quarter ended            Nine months ended
                   September 30,            September 30,
                   2012       2011        2012       2011
Revenues:
Search             $ 10,861     $ 5,955     $ 22,811     $ 19,007
Product              4,142        2,006       14,175       4,516
Other               1,271       1,031      2,849       2,207
Total revenues     $ 16,274     $ 8,992     $ 39,835     $ 25,730
Gross Profit       $ 15,233     $ 8,389     $ 37,219     $ 24,284
EBITDA             $ 3,801      $ 2,225     $ 9,068      $ 8,310
Net Income         $ 2,649      $ 1,817     $ 6,665      $ 6,672
Diluted EPS        $ 0.26       $ 0.18      $ 0.66       $ 0.67
                                                         

                                                
PERION NETWORK LTD.
GAAP FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
U.S. dollars and number of shares in thousands (except per share data),
(unaudited)
                                                     
                         Quarter ended               Nine months ended
                         September 30,               September 30,
                         2012         2011         2012         2011
Revenues:
Search                   $ 10,861       $ 5,955      $ 22,811       $ 19,007
Product                    4,083          1,445        13,197         3,955
Other                     1,271        1,031       2,849        2,207  
Total revenues             16,215         8,431        38,857         25,169
Cost of revenues          1,293        686         3,380        1,529  
Gross profit              14,922       7,745       35,477       23,640 
Operating expenses:
Research and               2,711          1,726        7,858          5,067
development, net
Selling and                2,036          712          5,260          2,477
marketing
Customer acquisition       5,825          2,625        12,363         4,942
costs
General and               1,738        2,437       5,253        5,983  
administrative
Total operating           12,310       7,500       30,734       18,469 
expenses
Operating income           2,612          245          4,743          5,171
Financial income          (58    )      100         (254   )     234    
(expense), net
Income before taxes        2,554          345          4,489          5,405
on income
Taxes on income           861          325         1,548        (71    )
(benefit)
Net income               $ 1,693       $ 20         $ 2,941       $ 5,476  
                                                                    
Basic earnings per       $ 0.17        $ 0.00       $ 0.30        $ 0.56   
share
Diluted earnings per     $ 0.17        $ 0.00       $ 0.29        $ 0.55   
share
                                                                    
Basic weighted            10,003       9,740       9,968        9,726  
number of shares
Diluted weighted          10,158       10,013      10,062       10,016 
number of shares
                                                                             

                                                  
PERION NETWORK LTD.
RECONCILIATION OF GAAP TO NON-GAAP RESULTS
U.S. dollars and number of shares in thousands (except per share data),
unaudited
                                                       
                           Quarter ended               Nine months ended
                           September 30,               September 30,
                           2012       2011           2012       2011
GAAP revenues              $ 16,215    $ 8,431        $ 38,857     $ 25,169
Valuation adjustment
on acquired deferred        59          561          978         561    
product revenues
Non-GAAP revenues          $ 16,274     $ 8,992       $ 39,835     $ 25,730 
                                                                             
GAAP gross profit          $ 14,922     $ 7,745        $ 35,477     $ 23,640
Valuation adjustment
on acquired deferred         59           561            978          561
product revenues
Share based                  2            -              14           -
compensation
Amortization of
acquired intangible         250         83           750         83     
assets
Non-GAAP gross profit      $ 15,233     $ 8,389       $ 37,219     $ 24,284 
                                                                             
GAAP operating             $ 12,310     $ 7,500        $ 30,734     $ 18,469
expenses
Acquisition related          188          809            501          1,030
expenses
Share based                  246          326            775          915
compensation
Amortization of
acquired intangible          211          68             630          68
assets
Other                       -           (50    )      -           (50    )
Non-GAAP operating         $ 11,665     $ 6,347       $ 28,828     $ 16,506 
expenses
                                                                             
GAAP operating income      $ 2,612      $ 245         $ 4,743      $ 5,171  
Valuation adjustment
on acquired deferred         59           561            978          561
product revenues
Acquisition related          188          809            501          1,030
expenses
Share based                  248          326            789          915
compensation
Amortization of
acquired intangible          461          151            1,380        151
assets
Other                       -           (50    )      -           (50    )
Operating income            956         1,797        3,648       2,607  
adjustments
Non-GAAP operating         $ 3,568      $ 2,042       $ 8,391      $ 7,778  
income
                                                                             
GAAP Net income            $ 1,693      $ 20           $ 2,941      $ 5,476
Operating income             956          1,797          3,648        2,607
adjustments
Deferred finance             -            -              76           -
expenses
Non-recurring tax           -           -            -            (1,411 )
expense
Non-GAAP net income        $ 2,649      $ 1,817       $ 6,665      $ 6,672  
GAAP diluted earnings      $ 0.17       $ 0.00        $ 0.29       $ 0.55   
per share
Non-GAAP diluted           $ 0.26       $ 0.18        $ 0.66       $ 0.67   
earnings per share
Shares used in
computing US GAAP and       10,158      10,013       10,062      10,016 
Non-GAAP diluted
earnings per share
                                                                             
Non-GAAP net income        $ 2,649      $ 1,817        $ 6,665      $ 6,672
Income tax expense           861          325            1,548        (71    )
(credit)
Non-recurring tax            -            -              -            1,411
expense
Interest expense             58           (100   )       178          (234   )
(income), net
Depreciation and            233         183          677         532    
amortization
Non-GAAP EBITDA            $ 3,801      $ 2,225       $ 9,068      $ 8,310  
                                                                             

                                                             
PERION NETWORK LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands (except share data)
                                                                  
                                                September 30,     December 31,
                                                2012              2011
                                                Unaudited
ASSETS
CURRENT ASSETS:
Cash and cash equivalents                       $    17,860       $   11,260
Trade receivables                                    5,063            3,265
Other receivables and prepaid expenses              6,259           6,459
Total current assets                                29,182          20,984
                                                                  
LONG-TERM ASSETS:
Severance pay fund                                   401              484
Property and equipment, net                          1,256            1,300
Other intangible assets, net                         5,650            6,606
Goodwill                                             24,753           24,753
Other assets                                        700             777
Total long-term assets                              32,760          33,920
Total assets                                    $    61,942       $   54,904
                                                                  
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt            $    2,300        $   -
Trade payables                                       4,195            3,207
Deferred revenues                                    4,380            4,280
Payment obligation related to acquisition            -                6,574
Accrued expenses and other liabilities              7,008           6,950
Total current liabilities                           17,883          21,011
                                                                  
LONG-TERM LIABILITIES:
Long-term debt                                       7,125            -
Deferred revenues                                    -                1,120
Deferred tax liability                               71               12
Accrued severance pay                               881             946
Total long-term liabilities                          8,077            2,078
                                                                      
SHAREHOLDERS' EQUITY                                 35,982           31,815
Shares authorized: 40,000,000

Shares issued and outstanding: 10,040,490
and 9,916,194 as of September 30, 2012 and
December 31, 2011, respectively;
Total liabilities and shareholders' equity      $    61,942       $   54,904
                                                                  

                                            
PERION NETWORK LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands, (unaudited)
                                               
                                               Nine months ended September 30,
                                               2012              2011
Cash flows from operating activities:
Net income                                     $  2,941            $ 5,476
Adjustments required to reconcile net
income to net cash provided by operating
activities:
Depreciation and amortization                     2,057              683
Stock based compensation expense                  789                915
Accretion of payment obligation related to        389                -
acquisition
Amortization of accrued interest on               -                  37
marketable securities
Loss from marketable securities, net              -                  48
Deferred taxes, net                               49                 163
Accrued severance pay, net                        18                 22
Net changes in operating assets and
liabilities:
Trade receivables                                 (1,798  )          (2,698  )
Other receivables and prepaid expenses            210                980
Other long-term assets                            77                 293
Trade payables                                    988                (809    )
Deferred revenues                                 (1,020  )          97
Accrued expenses and other liabilities           58               144     
Net cash provided by operating activities        4,758            5,351   
                                                                   
Cash flows from investing activities:
Purchase of property and equipment                (447    )          (193    )
Long term restricted cash                         -                  100
Capitalization of software development and        (585    )          (1,020  )
content costs
Acquisition of subsidiary                         (6,626  )          (21,708 )
Proceeds from sales of marketable                 -                  26,703
securities
Investment in marketable securities              -                (11,915 )
Net cash used in investing activities             (7,658  )          (8,033  )
                                                                   
Cash flows from financing activities:
Exercise of share options                         75                 29
Proceeds from long-term loans                     10,000             -
Repayment of long-term loans                      (575    )          -
Dividend paid                                    -                (3,885  )
Net cash provided by (used in) financing         9,500            (3,856  )
activities
Increase (Decrease) in cash and cash              6,600              (6,538  )
equivalents
Cash and cash equivalents at beginning of        11,260           16,055  
year
Cash and cash equivalents at end of period     $  17,860          $ 9,517   
                                                                   
Supplemental disclosure of non-cash
investing activities:
Issuance of shares in connection with the        337              -       
acquisition of Smilebox
Stock-based compensation that was
capitalized as part of capitalization of         25               -       
software development costs

Contact:

Perion Investor Relations
Deborah Margalit
+972-3-7696100
investors@perion.com
or
Hayden/MS-IR LLC
Brett Maas / Miri Segal-Scharia
646-536-7331 / 917-607-8654
Brett@haydenir.com / msegal@ms-ir.com
 
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