Perion Network's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Perion Network Ltd. (PERI)

Q1 2012 Earnings Call

May 15, 2012 9:30 am ET

Executives

Josef Mandelbaum - CEO

Yacov Kaufman - CFO

Brett Maas - IR, Hayden IR

Analysts

Jared Schramm - Roth Capital

Abba Horwitz - Old School Partners

Kenneth Miller - Nokomis Capital

Presentation

Operator

Welcome to the Perion first quarter 2012 results conference call. (Operator Instructions) With us today from Perion, we have Josef Mandelbaum, CEO; and Yacov Kaufman, CFO. I'll now hand the call over to Brett Maas of Hayden IR, for the Safe Harbor information.

Brett Mass

Thank you. On today's call, management will be reviewing the financial results and business highlights for the first quarter of 2012. The press release detailing Q1 results is available on the company's website perion.com.

Before we begin, I'd like to read the following Safe Harbor Statement. Today's discussion will include forward-looking statements. These statements reflect the company's current views with respect to future events. These forward-looking statements involve known and unknown risks, uncertainties and other factors, including those discussed under the heading "Risk Factors" and elsewhere in the company's annual report on Form 20-F that may cause actual results, performance or achievements to be materially different from any future results, performances or achievements anticipated or implied by these forward-looking statements. The company does not undertake to revise any forward-looking statements to reflect future events or circumstances.

With that, I'll turn the call over to Josef Mandelbaum, Chief Executive Officer. Josef, the call is yours.

Josef Mandelbaum

Thank you, Brett, and good morning, everyone. Today, I'd like to focus my comments on review of our first quarter 2012 results, followed by a few comments about the rest of 2012. I will then turn the call over to Yacov, for more details regarding the first quarter financial results and business metrics, before opening up the call for questions.

The first quarter was another great quarter for the company and the 25 consecutive quarter of growth on a year-over-year basis. We are extremely pleased with our results and accomplishments.

We made considerable progress on our long-term strategy, invested in future growth, execute well throughout the quarter on a variety of fronts and are confident that we will deliver on and perhaps exceed our original 2012 guidance.

Revenues in the first quarter increased by 30% year-over-year to $11.3 million, as a result of an increase in product and advertising revenues largely due to our Smilebox acquisition. This 30% revenue growth was achieved, even though search revenue declined mainly due to significant increase in media buying from competition, which impacted the monetization of our installed base.

The good news is that our installed base grew from 12.3 million to 13.3 million users, demonstrating the strength of our product focus strategy, which gives us the ability to continue to communicate with our users and consequently increase their lifetime value.

We have already begun to test and successfully implement new solutions to recapture our user's monetization. We are confident that search revenue will increase in the coming quarters and should provide us with a significant growth catalyst going forward.

As I mentioned on our last earnings call, we are also very proud to report that Smilebox is cash flow positive and achieved a 14% EBITDA margin in the first quarter. Operationally, our focus continues to be on broadening our product suite, addressing the needs of second wave adopters specifically on new platforms, while continuing to improve our backend systems and technology.

As an example, we have decided to make investments in mobile and tablet, a priority for us, to ensure long-term success. We will develop and offer a range of iPhone, iPad, android and windows mobile products overtime, to answer the increasing penetration and demands of our target.

Based on market research, worldwide penetration of tablet is expected to be over 250 million by 2014, while smartphones will be well over 2 billion. Paradoxically, second wave adopters leapfrogged with regard to tablet adoption using in mainly for e-mails, photo sharing and news consumption, precisely when we offer and will offer in a more user-friendly way.

So far our mobile product offerings include a photo email application; Smilebox mobile, an application with over 500,000 downloads and PhotoJoy, all available for download in the Apple App Store. We are working on additional exciting products to reinvest e-mail communications as well as expand and enhance our photo offering on mobile platforms.

Looking ahead to the rest of the year, we expect premium and advertising revenues to continue to provide a solid base for growth and revenue diversification, generating approximately half of total revenues, up from 31% in 2011. As mentioned earlier, we also expect to see significant growth in our search generated revenue by improving the monetization of our growing user base.

In addition, based on the successful integration performance of our Smilebox acquisition, we continue to actively search for more companies to accelerate growth. We have a strong pipeline of opportunities with one of our prime criteria now being proven profitability.

Now, I'd like to turn the call over to Yacov, for more details on the financial results for the first quarter.

Yacov Kaufman

Thank you, Joseph. As mentioned on our last call, we will be analyzing our results on a non-GAAP basis, which better conveys operational state of the business. There is a detailed reconciliation to GAAP results in the financial tables of the earnings press release.

Revenues this quarter were $11.3 million, similar to the previous quarter and up 30% from $8.7 million in the first quarter of 2011. This quarter's revenue included $5.6 million in search generated revenues, which were lower than the prior quarter's, as Joseph explained earlier.

Read the rest of this transcript for free on seekingalpha.com