Perion Network Ltd. ( PERI)

Q3 2011 Earnings Call

November 14, 2011 10:00 am ET

Executives

Josef Mandelbaum – Chief Executive Officer

Yacov Kaufman – Chief Financial Officer

Analysts

Nick Halen – Sidoti & Company

Christopher L. Ferris – Noble Financial Group, Inc.

Aram Fuchs – Fertilemind Capital

Presentation

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) The first question is from Nick Halen of Sidoti & Company. Please go ahead.

Nick Halen – Sidoti & Company

Hi, guys thanks for taking my questions.

Josef Mandelbaum

Hey, Nick. How are you doing?

Nick Halen – Sidoti & Company

Good, good. So, the first question I had is, I know it’s only been about a month or so, did you mentioned I apologize if I missed it, how much revenue you guys did from Smilebox in the quarter?

Josef Mandelbaum

Yacov did mention it; in the month it’s about $900,000.

Nick Halen – Sidoti & Company

$900,000 okay. Okay. Just in terms of the media buying it seems like you guys are pretty happy with the ROI that you’re seeing on that. But do you guys kind of have somewhat of a timeline as so when you expect to may be scale back a little bit of that spending or is it as long as its ROI positive we can expect to continue seeing higher expenses on that end?

Josef Mandelbaum

I think from our standpoint, as long as the ROI meet certain thresholds obviously have to exceed our weighted average cost of capital as to bigger return. We expect to continue however these things have a natural ceiling and they usually, at some point in time you get to a place were your return isn’t worth it and you level it out and then you start optimizing. And you will not see increases so significantly. I don’t think we’re there yet, but as we even see from the chart that I think, Yacov showed during his presentation, part of the testing process we did had ups and downs, as we mentioned in our previous phone calls. And is really finding, where to get the best return, trying to frankly put the pedal to the metal and see how far we can push that and ultimately, what happens when you do that is, you reach the ceiling and you got to keep on looking in expanding it horizontally. I think there’s still a lot of opportunity there and the ROI is positive. So we’re excited about that, and we think it can continue to fuel growth hopefully for many, many more quarters to come.

Nick Halen – Sidoti & Company

Okay. And just lastly, I know there was a pretty significant jump in accrued expenses on the balance sheet this quarter, did that have anything to do with the acquisition, and I guess, in working we could expect that to be by the end of the year?

Yacov Kaufman

Yes. You hit on the note, that expense is accrual of the coming payment that we’re expecting to pay for the most part in March of 2012 for the acquisition of Smilebox, and we’re expecting that number to be in the neighborhood of $6 million to $7 million.

Nick Halen – Sidoti & Company

$6 million to $7 million. Okay, all right. Great, thank you guys.

Operator

The next question is from Christopher Ferris of Noble Financial. Please go ahead.

Christopher L. Ferris – Noble Financial Group, Inc.

Hi guys. Thank you for taking the question. You touched a little bit on the lower search in the quarter, and I was wondering is that kind of a number we should expect to see going forward over the next couple of quarters down mid single digits number or is that a one-time item in the quarter? And then, I think next question you kind of touch on this, but I was just curious about the customer acquisition cost and if you could drill down a little bit more there and is that sort of the run rate we should expect going forward for the next couple of quarters?

Josef Mandelbaum

Sure. Nice to have you on the phone call, Chris.

Christopher L. Ferris – Noble Financial Group, Inc.

Yeah. Thank you.

Josef Mandelbaum

I’ll answer the first one in order. So, the answer is that as we looked at the business of the searches to date, we believe it was a one-time issue as we adjusted it to a) Google’s changes. I think if you look at a lot of comps out there, there are a lot of companies that had a little bit of a dip as you have to kind of readjust to the new terms of service. We’re already seeing, we’re in the middle of Q4, so we are already seeing the uptick. So we don’t expect, we expect Q4 to be much stronger than Q3. We think it’s one-time, and the bug from one of our partners, it happens sometimes. There was bug in one of our partners we had and now it caused us some issues and we think we had passed it. So we think going forward, we shouldn't see a decrease in our single-digits on a going forward basis, that’s number one.

Number two, with regarding to customer acquisition, I guess I'm not sure what you're looking for more clarity, but I will say the following; we’re looking and I think we’ve mentioned this. In the first six to nine months of the year, we’re pretty consistent in saying, we’re doing a lot of testing, we are building our infrastructure, and we are testing in multiple countries, multiple campaigns, multiple channels, from affiliates to PPC to display advertising. And as long as the return, we think is double-digits and higher for us as we look at how we spend our money given where we can make money today using our cash. It's a pretty good return on investment for us. It also helps us in the long-term by building up our base, which ultimately leads to more vital acquisitions as well both for IncrediMail and for Smilebox.

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