Vidazoo Ltd. (PERI) Earnings Call Transcript & Summary

[Audio Gap] Containing the transaction details is available on the company's website at perion.com. Before we begin, I'd like to read the following safe harbor statement. Today's discussion includes 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 and any future results, performance or achievements anticipated or implied by these forward-looking statements. The company does not undertake to update any forward-looking statements to reflect future events or circumstances. As in prior quarters, the results reported today will be analyzed both on a GAAP and non-GAAP basis. While mentioning EBITDA, we will be referring to adjusted EBITDA. We have provided a detailed reconciliation of non-GAAP measures to their comparable GAAP measures on Form 6-K, which has been filed and is available on our website as well. Hosting the call are Doron Gerstel, Perion's Chief Executive Officer; Maoz Sigron, Perion's Chief Financial Officer; and Daniel Slivkin, Vidazoo's Chief Executive Officer. I will now turn the call over to Doron Gerstel. Please go ahead.

Hi, everyone. Good morning. Thanks for joining this special conference where we're announcing the acquisition of Vidazoo, Video Monetization System. Let's get started. Okay. So my presentation today is divided into 3 parts. At the beginning, I want to take you a little bit back and talk about why video -- probably you have an idea where we are going. Second is why Vidazoo? And the third part will be -- we'll talk a lot about the synergy for Perion. So with -- why video? So all in all, it always start with the consumer trend, and those are facts that we are taking from social media week from the beginning of 2021 where they did quite a survey as far as comparing the consumer engagement to video versus text and you see the numbers, I will read it for you, but 88% more time spent on website with video and no doubt that we are in this age that video is very much way more preferred by consumers when they are reading content, which is based on video or exposed to any kind of advertising. And talking about advertising, I think the reaction from advertising is definitely there. And as you can see from the number, this is a digital video advertising spending in the U.S. between 2019 and prediction to 2023. We talk about the CAGR of almost 20% year-over-year, and you definitely see the number. This is the fast growing format when it comes to digital advertising. So clearly, advertising are reacting on consumer preference. The next trend which I very much would like to see it is from the publisher standpoint. And what we found out that this is a very, very interesting -- where publisher are struggling and not all of the publisher because those publisher, and this is -- at this point, there is a massive video advertising market concentration, which is very much among the largest most prominent publisher and broadcaster where more than 60% of the pie is -- of ad spend is going in them. And what is the need from the others, which is Tier 2 and Tier 3, large but not as large that they're all looking for a simple, highly scalable plug-and-play video solution. So from a -- there is a need and from a product market fit standpoint, this is what publisher is looking for, which leads me very much into why Vidazoo. And from why Vidazoo, first and foremost, it give you the big picture and looking about the Perion high-impact video suite spend or vide suite advertising dollars between 2020 and 2021. So you basically see that in 2020, we did a $20 million, the number is growing, and this is expected to be $47 million in 2021, which is reflecting the growing dry rig demand that we're getting from a large advertiser for our solution, which is high impact video suite. At the right side, this is the Vidazoo, and this is the Vidazoo number from 2020 to 2021, which is reflecting the publisher side of the equation and they are selling more and increasing it to more publishers that's looking for this plug and play video monetization platform. So the 2 -- so what Perion is looking for? Perion is looking for access to direct video ad supply. And Vidazoo is looking to access to direct video ad budget, which is -- can be a very happy marriage because this is quite a complementary acquisition because if we're looking about growing our business, as we can see in the 2020 to 2021 and beyond, and we have here a high aspiration to grow our business, we definitely need this direct video ad supply. At the same sign for Vidazoo, that when they're looking about growing their business, the fact that we're able to expose their publisher to a direct quality demand, and I will talk about it in large in a second that's complementing and that creates a huge growth for both sides of the equation. So Perion and Vidazoo. First of all, the positioning statement of how the 2 is going to position it to the market the day after. So with the first time we can say on one side to our advertiser, which are brand and agency and on the other side, to publisher that we are offering an end-to-end solution an end-solution for advertiser and publisher. But the most important part is the other part of my sentence that we are eliminating all existing intermediates. And the fact that we're eliminating them gives us a huge benefit. But aside of our own way that we are basically cutting the middlemen and able to improve our operational cost and reduce our media costs, put this a bit aside for a second, most and foremost is for our customers. So brand and agency able to get via this end-to-end platform, way better control on their ad spend, both from a quality, scalability and transparency because its all comes from one platform that is coming from a one vendor. Second: scale. So one of the things that has really helped Perion scale its video business has to do with high-impact video suite, as I mentioned before. And we reached the point that in order to increase and create more engagement between user and our ad units require an intimate relationship with -- for instance, with the video player or other or video monetization platform. And in this way, using Vidazoo existing pub network will really help us to achieve -- to greater scale for high-impact video to their publisher network and [ able ], as I mentioned before, to have better control on the quality of those video. The quality: unique on-page integration tech allows control and transparency, both advertisers and publisher. We touch this one, and I will definitely demonstrate it on the technology that Vidazoo is bringing into the table. So from -- so if the technology is right, definitely, the team is right. And as I mentioned, Daniel is with us. They are 3 cofounders Daniel, Gal and Roman, which established Vidazoo 7 years ago. I will -- Daniel is on the call with us, Daniel, would you like to say a few words?

Yes. Hi to everyone. My name is Daniel Slivkin. I'm one of the original co-founders and this was definitely a ride of 7.5 years that -- as a bootstrap company, we're always seeking for the right partner for us among the years. And the opportunity is definitely huge for us with Perion, as Vidazoo who wants to become the largest global video monetization platform, and in order to do that, we needed a partner that can actually help us to drive the vision forward at large scale. So with the Perion available business units and the resources and business connections, we will definitely be able to deliver products at a grand scale as we could only dream before as a private company.

Thank you, Daniel. And let's move on. And we are still with the why Vidazoo? We have a picture here. Their hot quarters in Tel Aviv and this is the team. Most of it are the technology people, as you can see here. From a tax standpoint, Daniel, you definitely can talk about those 3 factors that we mentioned in our press release, please go ahead.

Yes, sure. Maybe just to explain more about what our technology is doing. So basically, our technology is very unique because it allows every publisher without video knowledge and/or resources or tech to quickly create and syndicate relevant video content through our online video player that later, obviously, can be monetized with video ads and add new incremental revenue from TV budgets. So our -- our technology basically, divided to several products. I would say, like each one of them have their own entity and life. So the first and the most crucial one is the online video player that publishers don't have this technology, they need to license this technology and pay a lot of money for it. Vidazoo provides a service where you can just implement the code and then we will create in the real-time any placement, any video unit that publisher desires that will immediately -- can be monetized with our ad marketplace, which is the second product. And the yield management that is basically a very sophisticated server that behind the scenes can control and automatically optimize all of the programmatic demand, direct demand to eventually optimize and deliver the highest payout to the publisher from the TV budgets. Doron, can you please? Yes. So as I mentioned, the robust marketplace is what the publishers sees in the platform, how much money he made. Also, we have a content marketplace that if a publisher doesn't have production resources or their own video content, they can easily choose any category of videos through our marketplace of content creators and easily create a playlist, implement it on their site and then just monetize it with pre-roll ads that's coming from our marketplace. And then they just go to the platform and see how much money they made every day from the video views and the video ads. So this technology is basically just to sum everything up is the wire plug that connects TV budgets that are being shifted very quickly in the last 8 years or so from linear TV to digital publishers, and we allow this at a very quick and plug-and-play solution, as Doron mentioned, at high scale to every publisher worldwide.

Great. Thanks so much. The numbers are right. So what you're able to see here from a number standpoint, those are the numbers of Vidazoo 2020 to 2021. You're able to look at it from a revenue perspective as well as from adjusted EBITDA. From a revenue perspective, in 2020, the revenue was $31.9 million. They expected to finish 2021, with $45 million, that reflects 41% growth year-over-year. The numbers are even more impressive when it comes to EBITDA, $4.3 million in 2020 and $8 million in 2021, which reflects 86% growth year-over-year. Numbers are not just revenue and EBITDA, I think that we are impressed with the fact that their technology is being installed on a 1,000 publisher world wide. The interesting part is the ability to track and we will share with you the data as it comes in the next calls that we have as far as how their publisher is growing their spend on video with the Vidazoo platform and the main -- so we are working on 2 efforts. One, increase the base of the pyramids, which is the number of publishers and second, looking about this publisher is a revenue unit that is going to consume more and more and more video from the Vidazoo monetization platform. They were working with 20-plus advertising aggregated companies, 80% of the revenue are from U.S. advertisers and users. And for us, we were looking for a company which have developed what we like to call it as deep, as wide technology moat when it comes to this product. The deal is right. And I mentioned to you and it was our Investor Calls, Analyst Investor Calls at the beginning of the year when we did our follow-on and raise money that we are looking definitely to use the money that we raised for acquisition. And we put here a few criteria when it comes to this acquisition. First, we said it needs to be a product market fit. And I think we cover it in depth here because it's from the advertiser that moving spend so much into video from a publisher standpoint, that's looking for a plug-and-play from the fact that it provides a technology that create a differentiation in the marketplace. But that was only the one -- the first and the second criteria of what we're looking at. The other one was we basically stated that it need to be immediately accretive deal for Perion. And yes, it's immediately accretive deal from their Perion. The second -- the fourth criteria that we basically said has to do very much with the structure. And we are -- we believe on this structure where 1/3 of the overall deal, the transaction is providing in cash and the other 2/3 is an earnout. We are doing it, and this is the fourth transaction that we are doing in this way in a very, very successful way, and we are measuring this success by the fact that the acquired team is highly motivated and engaged for us in this case till the end of 2023, all in all, because we have a joint goal and our joint goal is to achieve a $33.2 million EBITDA of Vidazoo. And in this case, we were able to pay their earnout in [ 4 ]. So we believe that this is the right form or right framework of transaction that has to do with the acquisition that we're doing. Why Perion and Vidazoo? So if we cover the why video, and then we talked a lot about the Vidazoo side, let's now look at it together into a one point of view. So this is our Hub & Spoke model, which I shared with you in the past. The new addition and hope you're able to see my cursor. The new addition is this the Vidazoo logo here, but let's take it here. The left side of the Hub & Spoke has to do with the demand side of it. The right side has to do with this supply as you basically see it. And here within the circle is our asset. Our assets, that divided into 2, assets that has to do with demand asset, and asset that has to do with suppliers. This is very much the framework. And in within this framework, we are able to add more and more assets to this equation, which is left side of it and right side of it. But at the middle is the most important thing, which is -- has to do with the intelligent HUB. Internally, we looked at it as a smart routing. I will talk about that value in a second, but it's basically able to give you kind of an air control tower of all demands that is coming from here to the right supplies here. Now this is a very important thing. I mentioned it when we talked about eliminating all intermediators between the demand side, between our customer, brand and agencies and being as well to the right side, the publisher. And here, we're able to develop that's the end-to-end. We're able to connect the left side, the demand, the brand and agency with their advertising campaign all the way to either, own publisher, content publisher asset in this regards, our own O&O and the minisites, the Newsweek of the world that we're working with as well as the network of publisher. This network of publisher that we are working with hundreds of publishers and additional publisher that Vidazoo is working with. So altogether, we are expanding our reach and make this circle bigger and bigger, which gives us more and more opportunities to do -- to increase the revenue. When it comes to the value of it, I want to talk about 3 levels of values that we see by enhancing our Hub & Spoke. Not in any specific order, but those are our main interest. Those are our KPI. One has to do very much of increased operational efficiency because when you are looking about the intelligent HUB, there are a lot of shared services that we are operating here, shared services from the demand side as well as shared services for the supply side, which allows us in a way to be way, way more efficient operationally, which has to do of reducing our OpEx -- on OpEx to revenue, something that I'm sharing all the time when we're doing our IR presentation. The next value item is reduced media cost. Reduced media cost is definitely one of the most important things in -- for Perion as an advertising -- ad tech company. We are reducing this media cost by having this smart route by having it closing the loop and we close the loop. And in this way, we closed the loop because we are serving more and more demand that we're getting here from our customer with our internal assets. And now with Vidazoo, we don't need to use others in order to serve those video format as we did before, and Daniel mentioned it if it has to do with the player, it has to know video monetization platform, it's all being done in-house and closing this loop provide us way, way better opportunity to reduce in media costs. Last but not least, which I think is the most important sum is that we increase the customer value. That's actually creating this flywheel that we all talked about. Why it's creating this flywheel because at the end of the day, the customer here understand that the fact that we are providing it an end-to-end type of solution, they spend more, if they spend more, our public share is getting more, and this is definitely served the purpose and creating a great flywheel that allows us to get, as I said, more campaign and more budget because they definitely see the value. Other dimension is to this value is a huge investment that we're doing because other than the smart routing, we're able to see and capture data that is coming from all our assets, if it's the left side or the right side. But in a way, this data is serving to better target audience in any given campaign. So no doubt that customers start and realize the value of our Hub & Spoke model. Last but not least, this altogether has to do with us providing a revised guidance. And this revised guidance is, first and foremost, for the remaining of 2021 that has to do with the acquisition. What you're able to see here that was the previous guidance. So we increased the guidance from a midpoint of $422.5 million to $437.5 million that's on the revenue side. That's reflecting 33% year-over-year growth, that's 2021. And from an EBITDA standpoint, it's a 60% growth year-over-year at the guidance midpoint between 2020 and 2021. And that's the year ago. When it comes to 2022, I want to mention one thing before I'm going into the numbers. And this is a very important comment that has to do with our visibility. And as I mentioned, the fact that we are adding Vidazoo here give us way better a way to forecast and way better way to predict our numbers and give us a confidence, greater confidence when we're coming -- when we are putting guidance for 2022. And in this way, we increased our guidance, which reflect a 29% year-over-year growth between 2021 and 2021 from the revenue side and 33% growth on adjusted EBITDA between '21 -- 2021 and 2022. All in all, another thing that we're looking at is EBITDA to revenue Ex-TAC, and we are across the 30% line, and we're looking about 31% EBITDA to revenue Ex-TAC. With that, I very much finish our presentation. We are very exciting to have the Vidazoo team as part of the Perion team. There is a tremendous, tremendous opportunity for us in the marketplace. And again, welcome Vidazoo.

Thank you, Doron. And it's also important to mention that we are very thrilled and excited to join the family and looking forward for a very great synergy and road ahead. So thank you very much for the opportunity and ...

That's great. Yes, we will open the guidance. We will open the call for any kind of questions, right? Can we?

[Operator Instructions] Our first question today is coming from Eric Martinuzzi.

Gentlemen, congratulations on the transaction. Daniel, you've created quite a company. I'm a big fan of growth companies, and I like that 41% number for 2021. It's a terrific accomplishment. My question has to do with the competitive landscape. When I -- and I'm still trying to get my arms around the technology that you've acquired here. But to me, it looks like a supply side SSPs will be your competitors here. Do I have that right? Would a Pubmatic, -- would a Magnite either Doron or Daniel, is that who your competitors are?

Daniel, do you want to take it?

Yes, I would love some. So -- in that sense, the SSPs, the Supply Side Platforms are basically have only -- they're only a pipe of budgets, right? So they have budgets that they're driving from the DSPs, which is the Demand Side Platforms to the publishers. And it works that way in display. I mean, SSPs work directly with the publishers when it comes to display. But when it comes to video, they need to buy pre-roll and outstream formats, which they don't have the technology to do. So in that sense, today Vidazoo works with all of the SSPs. And those SSPs, as you mentioned, such as Pubmatic and AppNexus and the rest of them are all acquiring the media and ad placements from Vidazoo, if they want Vidazoo and some other several companies, if they want to access payroll supply outstream video supply. The ...

Go ahead. I'll let you finish.

No. And I just wanted to mention that Doron mentioned that Vidazoo and in order to grow, we need more direct budgets to allow our publishers a higher payout and at the same time, also the brands and agencies want more control and transparency because when you transform the same [ med ] from so many intermediaries in between, you don't always have this confidence and what I'm getting eventually in terms of viewability and other metrics. So in that sense, we are integrated directly on the page with our video player, an outstream video player. And we allow the agencies and brands to have a more transparent path of optimization.

Okay. So that you actually anticipated my next question, which was who are the middlemen who are getting eliminated here? And I'm assuming that you're seeing that friction cost of the SSPs gets eliminated here because now people can use Perion, the Hub & Spoke system of Perion to go direct and get that video reach. Is that what you -- am I understanding that correctly?

Exactly. If Perion has their own DSP and they have their own brands and agencies that are already spending on their platform for specific formats now they can actually extend and expand their offering to their agencies that can now also suggest them pre-roll ad standard video ads and also high impact videos, as Doron mentioned.

Our next question today is coming from Jeff Martin.

Congratulations on a nice transaction here. I wanted to get a sense -- and I joined a little bit late, so I apologize if this is redundant, but I want to get a sense of the competitive moat. How is the platform differentiated? And if you could speak to who you most directly compete with, that would be very helpful?

We just answered this question a minute ago.

Right. But I was wondering if you could name direct competitors.

Daniel?

Yes, sure. So we mainly compete with other similar technologies such as Kinetics, for example, and Advantis and AW Player and Bright, Coaster there some of them direct, some of them indirect, but basically every company that develops their own video player or can provide some video content library to publishers. They're our main competitors. What makes us very unique in that sense is that the technology is our proprietary and our culture and the way to focus our business is always a performance-driven attitude, meaning that we provide to publishers, the technology that creates and drives the highest payout in terms of the dollars that they're getting for every ad. And it's all being done through the sophisticated and comprehensive yield management platform that we've been building since 2014. And this is our secret sauce that eventually can mix all of the programmatic demand and the direct demand together, that publisher can get the highest dollar for the least ads that they can show to the users.

Great. And I did catch you had about 200 publishers on the platform. Could you speak to some of the largest customers, how long they've been with you? How much they're adding? At what rate they're adding? It looks like a very nice growth profile of the business. So obviously, you must be adding publishers and growing the existing publisher base. So if you could comment around that, that would be helpful.

Yes, sure thing. So you are right, in the publishing side of things, we're growing very rapidly because it's a word of mouth out there. So once you provide a very good performance, publishers just kind of speak with each other and then we have inbound leads coming in from publishers. I must mention that most of our publishers are Tier 2, Tier 3 publishers, not the giants that has their own content -- internal content creation teams and resources. So we mainly work with publishers that either has on the content writers and don't have a lot of resources to manage and power ads. So we have -- when it comes to the big names, so we are working with investing.com, which is one of the largest financial portals. We are working with [indiscernible] media brands in Germany, which is one of the largest media publications in Europe in general. We work with also some local news sites, and we also work with a huge entertainment section that doing a lot of social activity, part of which also Doron mentioned, for example, their O&O websites. And those are growing very rapidly, and we're expecting a growth with the synergy of -- with the synergy with Perion, we expect to have a lot of also more premium publishers to come into our platform to help us drive all of this publisher network that obviously Perion has as well.

[Operator Instructions]

Kevin, we will take the question -- one question from the chat. Just to answer about the guidance. The guidance for 2021, updated by $12 million as with the acquisition of Vidazoo and [ $3 million ] just in lining to the midpoint that we have currently. So the main change is from Vidazoo. For 2022, the additional $55 million revenue is directly related to Vidazoo. And now we are expecting $560 million revenue midpoint for 2022.

Thank you. There are no further questions at this time. I'll turn the floor back over to management for any further or closing comments.

Yes. So guys, thank you very much for joining this call. We are so -- we're exciting about this acquisition. Just to remind you, our third quarter earnings call is going to be on October 26, where we're going to, of course, cover the third quarters, and we'll elaborate more on the Vidazoo acquisition in our Hub & Spoke strategy as well. So thanks again for being on our call today. Thanks so much. Bye-bye.

Thank you. That does conclude today's webinar. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.

Thank you, Kevin.