Perion Revenues Increase 31% and Non GAAP Net Income Up 68% in Third Quarter of 2013

  Perion Revenues Increase 31% and Non GAAP Net Income Up 68% in Third Quarter
  of 2013

Business Wire

TEL AVIV, Israel & SEATTLE -- November 12, 2013

Perion Network Ltd. (NASDAQ: PERI) today announced financial results for the
third quarter and nine months ended September 30, 2013.

Q3 2013 non-GAAP Financial Highlights Include:

  *Quarterly revenues increased 31% year-over-year reaching $21.3 million;
  *EBITDA increased 48% year-over-year to $5.6 million;
  *Net income increased 68% year-over-year, reaching $4.5 million; and
  *Earnings per Share increased 31% year-over-year, reaching $0.34.

First Nine Months 2013 non-GAAP Financial Highlights Include:

  *Year-to-date revenues increased 84% year-over-year and were $73.3 million;
  *EBITDA increased 96% year-over-year reaching $17.8 million;
  *Net income increased 105%, reaching $13.6 million; and
  *Earnings per Share increased 59%, reaching $1.05.

ClientConnect Pro-forma non-GAAP Financial Highlights Include:

On September 16, 2013, Perion announced an agreement to combine with Conduit’s
ClientConnect in an all-stock transaction, scheduled to close in early January
2014, subject to a vote of Perion’s shareholders and other closing conditions.
Management does not anticipate any issues with the vote or closing at this
time.

Select highlights of ClientConnect’s Pro-forma non-GAAP third quarter
financial performance as provided by Conduit are as follows^1:

  *Third quarter revenues increased 58% year-over-year reaching $80.9
    million;
  *Third quarter EBITDA increased 48% year-over-year reaching $21.2 million;
  *Third quarter net income increased 44% year-over-year, reaching $19.4
    million;
  *Year-to-date revenues increased 62% year-over-year reaching $241.4
    million;
  *Year-to-date EBITDA increased 65% year-over-year reaching $79.6 million;
    and
  *Year-to-date net income increased 63%, reaching $69.6 million.

Josef Mandelbaum, Perion’s CEO, commented: “This was a momentous quarter for
Perion, highlighted by the agreement to combine with Conduit’s ClientConnect
business to create an industry powerhouse. On a stand-alone basis, we hit the
upper range of our revenue guidance and surpassed our EBITDA and net profit
expectations. With our search diversification strategy now fully implemented,
we are already seeing great progress, and can say with confidence that Q4 will
show significant growth over Q3. From a product standpoint, we launched our
new iPhone and Android app, Molto, and are excited by the great reviews and
ratings Molto has been receiving.”

“The transaction with ClientConnect has not yet closed, however, our optimism
surrounding the combination continues to grow,” continued Mr. Mandelbaum. “As
the new, larger and more profitable Perion, we will be uniquely positioned to
execute our business strategy and become a preferred partner of app
developers, by offering them the best solution to monetize and distribute
their apps across all devices. Furthermore, this combination will enable us to
increase organic investment in our technology and data platforms, expand
faster into mobile and invest in growth through acquisitions. I fully expect
2014 to be another milestone year in Perion’s history, and one that will
positively shape our future in the coming years.”

Non-GAAP Financial Comparison for the First Nine Months and Third Quarter of
2013:

Revenue: In the third quarter of 2013, revenues reached $21.3 million,
reflecting a 31% increase compared to the $16.3 million of revenues in the
third quarter of 2012. This increase was attributable to a 25% year over year
increase in search generated revenues, while other revenues increased 43%. The
increase in search revenues was achieved while continuing to diversify the
Company’s search partners, with no more than 40% of search generated revenues
coming directly from any one of our search partners.

In the first nine months of 2013 revenues were $73.3 million, increasing 84%
from the $39.8 million recorded in the same period in 2012. Search generated
revenues increased by 128% and other revenues grew by 25%. The increase in
search generated revenues was due to both organic growth and the acquisition
of SweetPacks in November 2012. Growth in other revenues was attributable to
other advertising revenues.

Gross Profits: As a result of the increase in revenues, in the third quarter
of 2013 gross profit increased as well, and was $20.4 million, or 96% of
sales, increasing 34%, compared to $15.2 million, or 94% of sales in the third
quarter of 2012. Gross profit in the first nine months of 2013 was $70.1
million, or 96% of revenues, increasing 88% compared to $37.2 million, or 93%
of revenues in the first nine months of 2012.

Customer Acquisition Costs (“CAC”): In the third quarter of 2013, CAC was $8.2
million, 40% higher than the $5.8 million spent in the third quarter of 2012.
In the first nine months of 2013, Perion invested $32.0 million in CAC,
increasing 159% compared to the $12.4 million invested in the first nine
months of 2012. The increase in CAC was lower than initially planned for this
period, as the Company was adapting its acquisition strategy to its new
partners and the new industry environment. Management is in the process of
cautiously ramping up this investment in the fourth quarter, increasing
revenues in that quarter and powering growth into 2014.

EBITDA: In the third quarter of 2013, EBITDA was $5.6 million, increasing $1.8
million, or 48%, compared to $3.8 million in the third quarter of 2012,
despite the $2.3 million increase in CAC. Perion’s EBITDA margin increased
this quarter to 26%, compared to 23% the same quarter last year. In the first
nine months of 2013 EBITDA was $17.8 million, or 24% of revenues, and nearly
double the $9.1 million, or 23% of revenues, in the first nine months of 2012.

Net Income: In the third quarter of 2013, net income increased 68%, reaching
$4.5 million or $0.34 per share, compared to $2.6 million, or $0.26 per share
in the third quarter of 2012. In the first nine months of 2013, net income was
more than double the same period last year, reaching $13.6 million, or $1.05
per share, compared to $6.7 million, or $0.66 per share, in the first nine
months of 2012. The GAAP Net Loss was $1.7 million, due to one-time,
non-deductible, acquisition-related costs of $3.4 million.

Cash Flow from Operations: Based on U.S. GAAP, in the first nine months of
2013, cash flow from operations was $12.7 million, compared to $4.8 million in
the first nine months of 2012. Cash flow from operations in the first nine
months of 2013 was due to $2.1 million in GAAP net income, non-cash
amortization, stock based compensation and accretion expenses of $9.9 million
and $0.7 million from change in operating assets and liabilities.

Financial Outlook

Based on currently available information, Perion is updating its outlook for
fiscal 2013 as follows:

  *Revenue is expected to be in the range of $102 million to $104 million.
  *EBITDA is expected to be in the range of $24 million to $25 million.
  *Non-GAAP Net Income is expected to be in the range of $18 million to $19
    million; and
  *Non-GAAP diluted EPS between $1.38 and $1.45.

“The fourth quarter is shaping up to be a very strong growth quarter for us,
both in terms of revenue and profitability,” concluded Mr. Mandelbaum.
“However, in line with our commitment to the highest industry standards, we
have decided to be even more selective regarding new business partners.
Therefore we are slightly adjusting our full year guidance. While there are
certainly headwinds in the market right now, we have always been proactive in
our support of better policies and in the long term continue to believe this
presents an opportunity for us to capture market share.”

Perion’s expectation of non-GAAP adjusted net income for the fiscal year 2013
excludes share-based compensation expense, acquisition amortization and
certain other adjustments, and assumes an effective tax rate of 25 percent.
For the purpose of calculating diluted EPS and non-GAAP diluted EPS, the
Company assumes approximately 13.1 million weighted-average diluted ordinary
shares outstanding for the fourth quarter and for the full year.

Conference Call

Perion will host a conference call to discuss the results today, November
12^th at 10 a.m. EST (5 p.m. Israel Time). Details are as follows:

  *Dial-in number from within the United States: 1-888-438-5448
  *Dial-in number from Israel: 180-924-5906
  *Dial-in number (other international): 1-719-785-1765
  *Playback, available until November 19, 2013 by calling 1-877-870-5176
    (United States) or 1-858-384-5517 (international). Pin number for the
    replay 3708973.
  *A live webcast is accessible at
    http://www.perion.com/events-presentations.

About Perion Network Ltd.

Perion Network, Ltd. (NASDAQ: PERI) is a global consumer internet company that
develops applications to make the online experience of its users simple, safe
and enjoyable. Perion’s three main consumer brands are: Incredimail, Smilebox
and SweetIM. Incredimail is a unified messaging application enabling consumers
to manage multiple email accounts and Facebook messages in one place with an
easy-to-use interface and extensive personalization features, and is available
in over 100 countries in 8 languages; Smilebox is a leading photo sharing and
social expression product and service that quickly turns life's moments into
digital keepsakes for sharing and connecting with friends and family, in a fun
and personal way. SweetIM  is an instant messaging application that enables
consumers to personalize their everyday communications with free, fun and easy
to use content. Perion products have had over 300 million downloads to date
with more than 50 million monthly unique visitors across all of its brands.
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 http://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, accretion of payment obligation related to
acquisition and taxes on amortization of acquired intangible assets. 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 Operations.

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 Perion. The words “will,” “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 Perion with respect to future events and are subject to risks
and uncertainties. Many factors could cause the actual results, performance or
achievements of Perion to be materially different from any future results,
performance or achievements that may be expressed or implied by such
forward-looking statements, or financial information, including, among others,
the failure of any closing conditions to the Share Purchase to be satisfied
and the failure of the proposed transaction to be consummated for any other
reason, the failure to realize the anticipated benefits of the proposed
transaction; risks entailed in integrating the ClientConnect business with
Perion’s other businesses, including employee retention and customer
acceptance; the risk that the transaction will divert management and other
resources from the ongoing operations of the two businesses or otherwise
disrupt the conduct of those businesses, potential litigation associated with
the transaction, and general risks associated with the business of Perion and
with the ClientConnect business, including changes in the markets in which the
businesses operate and in general economic and business conditions, loss of
key customers, 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 Perion 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/A for the year ended
December 31, 2012. Perion does not assume any obligation to update these
forward-looking statements.

         For the purposes of comparison, ClientConnect financials for the
  ^1  third quarter and first nine months of 2012 have been adjusted to
         reflect 2013 economic terms.
         

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,
                      2013       2012         2013       2012
Revenues:
Search                $ 13,562     $ 10,861     $ 52,008     $ 22,811
Product and Other      7,722       5,413       21,281      17,024
Total revenues        $ 21,284     $ 16,274     $ 73,289     $ 39,835
Gross Profit          $ 20,423     $ 15,233     $ 70,079     $ 37,219
EBITDA                $ 5,634      $ 3,801      $ 17,791     $ 9,068
Net Income            $ 4,454      $ 2,649      $ 13,640     $ 6,665
Diluted EPS           $ 0.34       $ 0.26       $ 1.05       $ 0.66
                                                               
                                                               

PERION NETWORK LTD.
GAAP FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF OPERATIONS
U.S. dollars and number of shares in thousands (except per share data),
(unaudited)

                           Quarter ended             Nine months ended
                             September 30,               September 30,
                             2013         2012         2013       2012
                                                                      
Revenues:
Search                       $ 13,562       $ 10,861     $ 52,008     $ 22,811
Product and Other             7,722        5,354       21,281      16,046
Total revenues                 21,284         16,215       73,289       38,857
Cost of revenues              2,721        1,293       8,790       3,380
Gross profit                  18,563       14,922      64,499      35,477
Operating expenses:
Research and                   2,928          2,711        9,221        7,858
development, net
Selling and marketing          2,761          2,036        8,103        5,260
Customer acquisition           8,162          5,825        32,043       12,363
costs
General and                   5,573        1,738       9,857       5,253
administrative
Total operating expenses      19,424       12,310      59,224      30,734
Operating income (loss)        (861   )       2,612        5,275        4,743
Financial expense, net        483          58          1,284      254
Income (loss) before           (1,344 )       2,554        3,991        4,489
taxes on income
Taxes on income               314          861         1,918       1,548
Net income (loss)            $ (1,658 )     $ 1,693      $ 2,073      $ 2,941
                                                                      
Basic earnings (loss)        $ (0.13  )     $ 0.17       $ 0.17       $ 0.30
per share
Diluted earnings (loss)      $ (0.13  )     $ 0.17       $ 0.16       $ 0.29
per share
                                                                      
Basic weighted number of      12,468       10,003      12,277      9,968
shares
Diluted weighted number       12,468       10,158      12,998      10,062
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,
                           2013         2012         2013         2012
GAAP revenues              $ 21,284      $ 16,215     $ 73,289       $ 38,857
Valuation adjustment
on acquired deferred        -            59          -            978
product revenues
Non-GAAP revenues          $ 21,284      $ 16,274     $ 73,289      $ 39,835
                                                                        
GAAP gross profit          $ 18,563       $ 14,922     $ 64,499       $ 35,477
Valuation adjustment
on acquired deferred         -              59           -              978
product revenues
Share based                  2              2            7              14
compensation
Amortization of
acquired intangible         1,858        250         5,573        750
assets
Non-GAAP gross profit      $ 20,423      $ 15,233     $ 70,079      $ 37,219
                                                                        
GAAP operating             $ 19,424       $ 12,310     $ 59,224       $ 30,734
expenses
Acquisition related          3,432          188          3,432          501
expenses
Share based                  357            246          1,081          775
compensation
Amortization of
acquired intangible         414          211         1,363        632
assets
Non-GAAP operating         $ 15,221      $ 11,665     $ 53,348      $ 28,826
expenses
                                                                        
GAAP operating income      $ (861   )     $ 2,612      $ 5,275       $ 4,743
(loss)
Valuation adjustment
on acquired deferred         -              59           -              978
product revenues
Acquisition related          3,432          188          3,432          501
expenses
Share based                  359            248          1,088          789
compensation
Amortization of
acquired intangible         2,272        461         6,936        1,380
assets
Operating income            6,063        956         11,456       3,648
adjustments
Non-GAAP operating         $ 5,202       $ 3,568      $ 16,731      $ 8,391
income
                                                                        
GAAP net income (loss)     $ (1,658 )     $ 1,693      $ 2,073        $ 2,941
Operating income             6,063          956          11,456         3,648
adjustments
Accretion of payment
obligation related to        293            -            843            76
acquisitions
Taxes on amortization
of acquired intangible      (244   )      -           (732   )      -
assets
Non-GAAP net income        $ 4,454       $ 2,649      $ 13,640      $ 6,665
                                                                        
GAAP diluted earnings      $ (0.13  )     $ 0.17       $ 0.16        $ 0.29
(loss) per share
                                                                        
Non-GAAP diluted           $ 0.34        $ 0.26       $ 1.05        $ 0.66
earnings per share
                                                                        
Shares used in
computing GAAP diluted      12,468       10,158      12,998       10,062
earnings (loss) per
share
Shares used in
computing Non-GAAP          13,123       10,158      12,998       10,062
diluted earnings per
share
                                                                        
Non-GAAP net income        $ 4,454        $ 2,649      $ 13,640       $ 6,665
Income tax expense           314            861          1,918          1,548
Taxes on amortization
of acquired intangible       244            -            732            -
assets
Interest expense, net        190            58           441            178
Depreciation and            432          233         1,060        677
amortization
Non-GAAP EBITDA            $ 5,634       $ 3,801      $ 17,791      $ 9,068
                                                                        
                                                                        

PERION NETWORK LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands
                                                         
                                            September 30,         December 31,
                                            2013                  2012
                                            Unaudited
ASSETS
CURRENT ASSETS:
Cash and cash equivalents                   $   27,276            $   21,762
Trade receivables                               12,024                10,246
Restricted cash                                 10,260                10,260
Other receivables and prepaid                  4,249                5,424
expenses
Total current assets                           53,809               47,692
LONG-TERM ASSETS:
Property and equipment, net                     1,456                 1,522
Goodwill and other intangible                   67,402                72,730
assets, net
Other assets                                   1,433                1,215
Total long-term assets                         70,291               75,467
Total assets                                $   124,100           $   123,159
                                                                  
LIABILITIES AND SHAREHOLDERS'
EQUITY
CURRENT LIABILITIES:
Current maturities of long-term             $   2,300             $   2,300
debt
Trade payables                                  9,322                 9,560
Deferred revenues                               4,800                 5,132
Payment obligation related to                   24,484                20,317
acquisitions
Accrued expenses and other                     17,177               14,679
liabilities
Total current liabilities                      58,083               51,988
LONG-TERM LIABILITIES:
Long-term debt                                  4,825                 6,550
Contingent purchase consideration               -                     6,078
Other long-term liabilities                    3,297                3,833
Total long-term liabilities                    8,122                16,461
                                                                  
SHAREHOLDERS' EQUITY                           57,895               54,710
Total liabilities and shareholders'         $   124,100           $   123,159
equity
                                                                      
                                                                      

PERION NETWORK LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands, (unaudited)
                                          
                                               Nine months ended September 30,
                                               2013             2012
Operating activities:
Net income                                     $  2,073             $ 2,941
Adjustments required to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization                     7,996               2,057
Stock based compensation expense                  1,088               789
Accretion of payment obligation                   843                 389
related to acquisition
Net change in operating assets and               742               (1,418 )
liabilities
Net cash provided by operating                   12,742            4,758  
activities
                                                                             
Investing activities:
Purchase of property and equipment                (545    )           (447   )
Other                                             (171    )           -
Capitalization of software development            (2,033  )           (585   )
and content costs
Acquisition of subsidiary                        -                 (6,626 )
Net cash used in investing activities            (2,749  )          (7,658 )
                                                                             
Financing activities:
Exercise of share options                         -                   75
Deferred payment made in connection               (2,754  )           -
with acquisition
Proceeds from long-term loans                     -                   10,000
Payment of long-term loans                       (1,725  )          (575   )
Net cash provided by (used in)                   (4,479  )          9,500  
financing activities
Net increase in cash and cash                     5,514               6,600
equivalents
Cash and cash equivalents at beginning           21,762            11,260 
of period
Cash and cash equivalents at end of            $  27,276           $ 17,860 
period
                                                                    
Supplemental disclosure of non-cash
investing activities:
Issuance of shares in connection with          $  -                 $ 337
the acquisition of Smilebox
Stock-based compensation that was
capitalized as part of capitalization          $  25               $ 25     
of software development costs

Contact:

Perion Network Ltd.
Deborah Margalit
Perion Investor Relations
+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