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 firstname.lastname@example.org or Hayden / MS-IR LLC Brett Maas / Miri Segal-Scharia 646-536-7331 / 917-607-8654 Brett@haydenir.com / email@example.com
Perion Revenues Increase 31% and Non GAAP Net Income Up 68% in Third Quarter of 2013
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