Presentation for the Capital Market May 2014 1 www.perion.com - - PowerPoint PPT Presentation

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Presentation for the Capital Market May 2014 1 www.perion.com - - PowerPoint PPT Presentation

Presentation for the Capital Market May 2014 1 www.perion.com Forward-Looking Information This presentation was prepared by Perion Network Ltd. ( the Company ) as a general presentation All forward-looking information is solely intended


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Presentation for the Capital Market

May 2014

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Forward-Looking Information

All forward-looking information is solely intended for the date that it relates to. Other than the

  • bligation to disclose information as required under the securities laws applicable to the Company,

the Company is not required to update or change any information included in this presentation, whether as a result of new information, a future event or other reasons. Similarly, it is clarified that the plans and strategy of the Company included in this presentation are correct as of the publication date and may be changed in accordance with the decision of the Company’s board, as it may be from time to time. Other than trademarks owned by the Company, the trademarks contained in this presentation are the property of their owners and have been used in this presentation for the sake of clarifying the context alone. Use of the trademarks as stated shall not be interpreted as consent or verification regarding the Company’s plans, services or securities. This presentation does not purport to contain or exhaust all of the information which may be relevant for any decision regarding an investment in the Company’s securities. For the avoidance of doubt, it is clarified that the Company does not undertake to update the information included in this presentation. This presentation does not constitute or play a part in any

  • ffer or solicitation to purchase the Company’s securities and does not constitute or play a part in a

solicitation to receive offers as stated. Such an offering will only take place by means of the prospectus published by the Company, after the receipt of the permits required from the Securities Exchange and the Tel Aviv Stock Exchange. In any event of conflict or inconsistency between this presentation and the prospectus, the provisions of the prospectus shall govern. The presentation also does not constitute any recommendation and/or consultation regarding the Company’s securities. This presentation was prepared by Perion Network Ltd. (“the Company”) as a general presentation about the Company. This presentation is not intended to replace the need to review the Prospectus dated May 18, 2014, and the documents incorporated by reference therein, before making a decision regarding an investment in the Company’s securities. In the event of any conflict between the contents of this presentation and the reports of the Company required by law, the contents of the said reports shall govern. The information included in this presentation shall not constitute any advice, recommendation,

  • pinion or offering regarding the profitability of an investment and shall not replace an independent

examination and personal consultation in accordance with the particular circumstances of each investor. This presentation may include forward-looking information as defined in the Securities Law, 5728- 1968, including forecasts, estimations, assumptions and other information regarding future matters and events. In certain cases, forward-looking information may be identified through use of terms such as: “expected”, “believes”, “may”, “estimates”, “anticipates”, “intends”, “continues”, “might”, “plans”, “projects”, and other similar terms and phrases. The forward-looking information in this presentation is based on the updated estimations and assumptions of the Company’s management as of the presentation date, which although the Company believes to be reasonable, are uncertain by nature. The forward-looking information involves risks and uncertainty, including factors which are not under the control of the Company, each of which, or a combination thereof, may materially harm the results of the Company’s

  • perations and cause the actual results to be materially different from the forward-looking

information.

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Business Card

About Perion ▪ Global and leading media & Internet company that operates in search and digital distribution industries ▪ Provides advanced distribution and monetization solutions to applications and software developers ▪ International management team with a proven track record in dynamic and changing markets

  • Josef Mandelbaum, CEO - more than 20 years of experience in the Internet & Mobile industries
  • Yacov Kaufman, CFO - more than 25 years of experience in international corporations

▪ Consistent rational growth in revenues and profits without substantial debt ▪ Commitment to high quality standards

*inc. Client Connect

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Leading financial data

Strong financial outlook for 2014

  • Revenue of $460-470M
  • EBITDA of $125-130M
  • Net Income of $103-108M

Financial results for 2013 (Pro forma*)

  • Revenue of $433M
  • EBITDA of $90M

Market cap of ~ NIS 2.4 billion (15.05.2014)

  • Listed on NASDAQ
  • Listed on TASE

*Inc. ClientConnect, GAAP reconciliations are included in Appendix **Inc. Deferred revenue

Q1 2014 Results: Growth

  • Revenue of $117.1M
  • EBITDA of $33.6M
  • Net Income of $27.6M

March 31 2014 Balance sheet: Strong & without leverage

  • Cash flow from operations: $13.9M
  • Working Capital**: $16.8M
  • Bank debt: $6.1M
  • Total equity: $198.9M
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Strong financial performance

2013 EBITDA of about $90.2M (about 21% of revenues) without significant debt

2012 EBITDA margin of more than 20%

*Perion & Client Connect. The data does not include in 2012 substantial bonus from Bing to ClientConnect. GAAP reconciliations are included in Appendix

276 433 460 - 470 2012 2013 2014F Revenue growth (USD millions pro forma* non GAAP) ~ 7% 57% 39%

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Business development timeline

Successful operations in dynamic and changing market, while performing mergers and acquisitions that complement strategic gaps

2000 2006 2007 2010 2012 2011 2014

Client Connect M&A Sweetpacks acquisition Smilebox acquisition Company name change to Perion Josef Mandelbaum joins as CEO TASE Listing Nasdaq IPO Company’s foundation under the name of IncrediMail

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The value proposition

Perion provides app developers with a portfolio of solutions which enable them to efficiently distribute, generate revenue and optimize their software/app while focusing only on what they do best: making a great product

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Value chain of the Internet industry

Mature and proven business model that Internet industry in general and search engines in particular are based on Search engine (payable click) Advertiser (advertising revenue) Perion App developer Advertiser App’s final user

App’ distribution Revenue from Advertising $$$ Quality App Quality App Receives ads and search services $$$ Revenue from Advertising $$$ Users

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Internet and mobile advertising continue to grow sharply

Internet Ad Mobile Ad Paid search represents about 48% of all internet advertising revenues Mobile ad spending from total global display advertising: ~16% in 2013. ~27% in 2015

33.7 40.2 48.2 57.6 11.0 11.5 12.0 12.6 40.7 46.9 53.6 61.4 10 20 30 40 50 60 70 2012 2013 2014 2015

Global Display Advertising Spend (USD B)

Total Display Classified Paid search 4.0 8.8 15.8 24.9 35.5 47.2 59.7 10 20 30 40 50 60 70 2011 2012 2013 2014 2015 2016 2017

Mobile Ad Spending (USD B)

Mobile Ad spending

Source: eMarketer 2013 Source ZenithOptimedia

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App developers are coping with significant business challenges

There are relatively little profitable applications. Of those, few manage to earn more from $ 5,000

Distribution

  • Buying traffic is extremely

complicated, due to multiple technologies and platforms

  • 1 out of 4 apps never get

installed, mostly for technical reasons

Monetization

  • The business model is based on

free software

  • Search engines do not adjust their

business proposal for software developers

  • It is difficult to navigate through

advertising networks

  • 80% of the developers fail to

establish a profitable business

Optimization

  • Most app developers are small

businesses without analytical capabilities required to:

  • Improve funnel conversion
  • Revenue per user (LTV)

tracking

  • Maximizing distribution

channels acquiring with a positive ROI

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Perion’s value proposition: Profit generating business model for application developers

Perion provides a wide range of digital media and web applications solutions that assist applications developers to increase their content’s distribution and monetization capabilities

Distribution

  • Marketing and media channels

driven by Business Intelligence

  • Dominant player that purchases

media at significant scale media

  • Fast Download Manager that

recommends additional applications to the end user

Monetization

▪ Revenue share on revenue from sponsored links with search engines - Google, Yahoo, Bing and Ask ▪ Segmented and customer

  • rientated advertising

Optimization

▪ Real-time BI platform based on huge amount of data ▪ Extremely accurate ROI models ▪ User friendly analytical and reporting tools for developers

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Perion increases it’s presence in the U.S. market Vs. competitors (Ask, AOL)

Source: Perion’s data & comScore Explicit Core Search Query Report

67.5% 18.6% 10.1% 2.5% 2.1% 1.3%

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0%

Google Microsoft Yahoo Ask Perion AOL

US Search Market Share

(March 2014)

  • 100

200 300 400 500 600

Miilion US Queries

Ask Perion US searches

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Agreements with search engines

Positive reputation among search engines

Search engine U.S market share (January 2014) Cooperation starting year Contract period Google 68% 2007 August 2015 Bing 18% 2010 December 2014 Yahoo 10% 2013 July 2017 Ask 3% 2013 March 2016

*Agreements with search engines renewed every 1 to 4 years

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Business strategy

▪ Strengthening of competitive position and leveraging of scale in the Internet search segment ▪ Strengthening and expanding activities with app and content developers ▪ Ensuring value proposition for app developers and end-user with full transparency ▪ Expanding mobile activities and user centered advertising ▪ Maintaining technological leadership through organic investments and mergers and acquisitions

Extension and expansion activities towards attractive and growing segments that improve Perion’s business and financial positioning

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From S&P Maalot credit rating repot: ilA-/Stable

( 06/03/2014 ) *

▪ “The rating of Perion Network Ltd (hereafter: "Perion") is mainly supported by a low-risk financial risk profile as reflected by

strong debt coverage ratios”

▪ “We estimate that the company's adjusted debt to EBITDA ratio will be lower than 1.5x over the intermediate term,

including M&A activities”

▪ “Our financial risk profile assessment is also supported by the operations of the company, which generally generate positive

free cash flows supporting its debt service capabilities”

▪ “We believe that Perion’s merger with "ClientConnect" strengthened the company’s competitive position as well as its debt

servicing capabilities”

▪ “In our view, over the intermediate term, the company will direct its internal resources to growth initiatives and will not execute

material dividend distribution/buybacks. In addition, we estimate that acquisitions over the near term (up to 1 year), if any, will be funded through debt, and possibly also with an equity component. As previously indicated, we do not expect such acquisition activity to lead to a breach of the coverage ratios which we view as commensurate with the current rating”

*Partial quotes. For more information on Perion Network’s credit rating, see S&P Maalot rating report published March 6, 2014.

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Summary

▪ Perion is among the worldwide leading companies in the search industry and digital distribution ▪ Perion is the second biggest worldwide search services distributor ▪ Business partnerships with leading search engines ▪ Financial strength reflected in high growing profits over the years ▪ Expansion of operations towards attractive segments ▪ Maintaining technological leadership through mergers and acquisitions ▪ Professional management and quality human capital with years of experience and a proven track record in dynamic

markets

▪ Standards of a company listed on NASDAQ

Perion has grown from a small scale company that focused on developing end user’s products to a global leader with a platform of services and a wide range of revenue streams, along with valuable experience which will enable the Company to take advantage of future business opportunities

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Appendix

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GAAP Reconciliation

Perion GAAP reconciliation (in USD 000') Quarter ended March 31 2014 GAAP revenues 114,823 Revenues from discontinued operations

  • Valuation adjustment on acquired deferred product revenues

2,292 Non-GAAP revenues 117,115 GAAP net income 13,816 Valuation adjustment on acquired deferred product revenues 2,292 Acquisition related expenses 2,948 Share based compensation 4,436 Amortization of acquired intangible assets 4,500 Accretion of payment obligation related to acquisitions 268 Taxes related to amortization of acquired intangible assets (662) Non-GAAP net income 27,598 Non-GAAP net income 27,598 Income tax expense 4,622 Interest expense (income), net 393 Accretion of payment obligation related to acquisitions (268) Taxes related to amortization of acquired intangible assets 662 Depreciation 555 Discontinued financial income, net

  • Discontinued tax benefit
  • Non-GAAP EBITDA

33,562 Perion GAAP reconciliation (in USD 000') 2013 GAAP revenues 412,657 Revenues from discontinued operations 3,016 Sales from commercial agreement deducted as intercompany transaction 17,480 Non-GAAP revenues 433,153 GAAP net income 28,926 Sales from commercial agreement deducted as intercompany transaction 17,480 Customer acquisition costs associated with unrecognized sales (14,334) Acquisition related expenses 8,278 Share based compensation 13,163 Amortization of acquired intangible assets 9,269 Finance expense deferred 751 Non recurring tax benefits 8,876 Non-GAAP net income 72,409 Non-GAAP net income 72,409 Income tax expense (benefit) 25,067 Finance expense related to discontinued operations (40) Tax credit on loss from discontinued operations 454 Non recurring tax expense (8,876) Interest expense (income), net (1,617) Finance expense deferred (751) Depreciation and amortization 3,556 Non-GAAP EBITDA 90,202

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GAAP Reconciliation (cont’d)

Perion GAAP reconciliation (in USD 000') 2012 GAAP CC revenue 537,008 GAAP Perion revenue 60,223 Combined GAAP revenue 597,231 ClientConnect Search revenue adjustment (322,308) Perion deferred revenue adjustment 983 Combined non GAAP revenue 275,906 non GAAP CC revenue 214,700 non GAAP Perion revenue 61,206

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Balance sheet

Perion GAAP BALANCE SHEET (in USD 000') March 31 2014 Unaudited Assets Current assets: Cash and cash equivalents 51,174 Restricted cash 1,541 Trade receivables 48,871 Other current assets 6,127 Total current assets 107,713 Property and equipment, net 3,723 Goodwill and other intangible assets, net 191,829 Other assets 3,064 Total assets 306,329 Liabilities and Stockholders' Equity Current liabilities: Current maturities of long term debt 17,133 Trade payables 45,283 Deferred revenues 7,923 Payment obligation related to acquisition 8,996 Accrued expenses and other liabilities 19,455 Total current liabilities 98,790 Long-term debt 3,675 Other long term liabilities 4,927 Total liabilities 107,392 Stockholders' equity: Ordinary shares 183 Additional paid-in capital 184,938 Retained earnings 13,816 Total stockholders' equity: 198,937 Total liabilities and stockholders' equity 306,329