UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
For the fiscal year ended December 31, 2021
OR
Date of event requiring this shell company report ___________
For the transition period from _____ to _____
Commission File No. 000-51694
Perion Network Ltd.
(Exact Name of Registrant as specified in its charter)
N/A
(Translation of Registrant’s name into English)
Israel
(Jurisdiction of incorporation or organization)
26 HaRokmim Street
Holon, Israel 5885849
(Address of principal executive offices)
Maoz Sigron, Chief Financial Officer
Tel: +972-73-3981582; Fax: +972-3-644-5502
26 HaRokmim Street
Holon, Israel 5885849
(Name, Telephone, E-mail and/or Facsimile Number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of Each Class | Trading Symbol(s) | Name of Each Exchange on which Registered |
Ordinary shares, par value NIS 0.03 per share | PERI | Nasdaq Global Select Market |
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
(Title of Class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the Annual Report.
As of December 31, 2021, the Registrant had outstanding 43,696,723 ordinary shares, par value NIS 0.03 per share (excluding treasury shares).
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act
Yes ☐ No ☒
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer, “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act
Large accelerated filer ☐ | Accelerated filer ☒ | Non-accelerated filer ☐ |
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| Emerging growth company ☐ |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ☒ | International Financial Reporting Standards as issued by the International Accounting Standards Board ☐ | Other ☐ |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):
Yes ☐ No ☒
2
• | Our advertising customers may reduce or terminate their business relationship with us at any time. If customers representing a significant portion of our revenue reduce or terminate their relationship with us, it could have a material adverse effect on our business, financial condition and results of operations. |
• | Large and established internet and technology companies, such as Google, Facebook and Amazon, play a substantial role in the digital advertising market and may significantly harm our ability to operate in this industry. |
• | We depend on supply sources to provide us with advertising inventory in order for us to deliver advertising campaigns in a cost-effective manner. |
• | The advertising industry is highly competitive. If we cannot compete effectively and overcome the technological gaps in this market, our revenues are likely to decline. |
• | Increased availability of advertisement-blocking technologies could limit or block the delivery or display of advertisements by our solutions, which could undermine the viability of our business. |
• | Our search advertising solution depends heavily upon revenue generated from our agreement with Microsoft Bing, and any adverse change in that agreement could adversely affect our business, financial condition and results of operations. |
• | Our search advertising revenue business is highly reliant upon a small number of publishers, who account for the substantial majority of pay-outs to publishers and generate most of our revenues. If we were to lose all or a significant portion of those publishers, our revenues and results of operations would be materially adversely affected. |
• | Should the providers of platforms, particularly browsers, further block, constrain or limit our ability to offer or change search properties, or materially change their guidelines, technology or the way they operate, our ability to generate revenues from our users’ search activity could be significantly reduced. |
• | The global COVID-19 health pandemic has had and still has an ongoing adverse effect and could potentially severely affect, our business, results of operations and financial condition due to impacts on our industry, as well as impacts from remote work arrangements, actions taken to contain the virus or treat its impact, and the speed and extent of the recovery. |
• | A loss of the services of our senior management and other key personnel could adversely affect execution of our business strategy. |
• | Competition for highly skilled technical and other personnel in Israel is intense, and as a result we may fail to attract, recruit, retain and develop qualified employees, which could materially and adversely impact our business, financial condition and results of operations. |
• | We have acquired and may continue to acquire other businesses. These acquisitions divert a substantial part of our resources and management attention and could in the future, adversely affect our financial results. |
• | Our share price has fluctuated significantly and could continue to fluctuate significantly. |
• | Our business and financial performance may be materially adversely affected by information technology issues, data breaches, cyber-attacks and other similar incidents and other business disruptions. |
• | If we fail to detect or prevent suspicious traffic or other invalid traffic or engagement with our ads, or otherwise prevent against malware intrusions, we could lose the confidence of our advertisers, damage our reputation and be responsible to make-good or refund demands, which would cause our business to suffer. |
• | We depend on third party internet, telecommunication and hosting providers to operate our platforms, websites and services. Temporary failure of these services, including catastrophic or technological interruptions, would materially reduce our revenues and damage our reputation, and securing alternate sources for these services could significantly increase our expenses and be difficult to obtain. |
• | Regulatory, legislative, or self-regulatory developments relating to e-commerce, internet advertising, privacy and data collection and protection, and uncertainties regarding the application or interpretation of existing laws and regulations, could harm our business and subject us to significant legal liability for non-compliance. |
• | Our proprietary information and intellectual property may not be adequately protected and thus our technology may be unlawfully copied by or disclosed to other third parties. |
• | Our business is significantly reliant on the North American market. Any material adverse change in that market could have a material adverse effect on our results of operations. |
• | Our business may be materially affected by changes to fiscal and tax policies. Potentially negative or unexpected tax consequences of these policies, or the uncertainty surrounding their potential effects, could adversely affect our results of operations. |
• | Political, economic and military instability in the Middle East may impede our ability to operate and harm our financial results. |
Page | |
PART I | |
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7 | |
34 | |
47 | |
47 | |
57 | |
69 | |
71 | |
71 | |
71 | |
81 | |
82 | |
PART II | |
82 | |
82 | |
82 | |
83 | |
83 | |
83 | |
83 | |
84 | |
84 | |
84 | |
84 | |
85 | |
85 | |
PART III | |
85 | |
85 | |
Item 19.Exhibits | 86 |
• | Supply sources may impose significant restrictions on the advertising inventory they sell or may impose other unfavorable terms and conditions on the advertisers using their sites or platforms. For example, these restrictions may include frequency caps, prohibitions on advertisements from specific advertisers or specific industries, or restrictions on the use of specific creative content or advertising formats as well as content adjacent restrictions, which would restrain our supply of available inventory. |
• | Supply sources that offer online content and mobile applications may shift from an advertising-based monetization method to a pay for content/services model, thereby reducing available inventory. |
• | Social media platforms may be successful in keeping users within their sites via products such as Facebook’s Instant Articles which may be competitive to our offerings and solutions. If, as a result, users are not on the open web, advertising inventory outside of such platforms (including our publisher’s and our owned and operated sites) may be reduced or may become less attractive to our advertising customers. |
• | Supply sources may be reluctant or unable to adopt certain of our proprietary and unique high-impact, CTV, iCTV and video ad formats for a variety of reasons (such as user preference changes making such ad formats less desirable, or technological limitations, such as connection with header bidding or the ability to transact programmatically), resulting in limited advertising inventory supply for such formats and inhibiting our ability to scale such formats. |
• | Historically, in most cases our advertising business experienced the lowest revenue levels in the first quarter and the highest revenue levels in the fourth quarter, with the second and third quarters being slightly stronger than the first quarter (except for 2020 as a result of the initial effect of COVID-19); |
• | Product and service revenue are influenced by political advertising in the US, which generally occurs every two years; |
• | In any single period, product and service revenue and delivery costs are subject to significant variation based on changes in the volume and mix of deliveries performed during such period; |
• | Revenues are subject to the changes of brand marketing trends, including when and where brands choose to spend their money in a given year; |
• | Advertising customers generally retain the right to supplement, extend, or cancel existing advertising orders at any time prior to their completion, and we have no control over the timing or magnitude of these revenue changes; and |
• | Relative complexity of individual advertising formats, and the length of the creative design process. |
• | negative fluctuations in our quarterly revenue and earnings or those of our competitors; |
• | pending sales into the market due to the sale of large blocks of shares, due to, among other reasons, the expiration of any tax-related or contractual lock–ups with respect to significant amounts of our ordinary shares; |
• | shortfalls in our operating results compared to levels forecast by us or securities analysts; |
• | changes in our senior management; |
• | changes in regulations or in policies of search engine companies or other industry conditions; |
• | mergers and acquisitions by us or our competitors; |
• | technological innovations; |
• | the introduction of new products; |
• | the conditions of the securities markets, particularly in the internet and Israeli sectors; and |
• | political, economic and other developments in Israel and worldwide. |
• | potential loss of proprietary information due to piracy, misappropriation or laws that may be less protective of our intellectual property rights than those of the United States; |
• | costs and delays associated with translating and supporting our products in multiple languages; |
• | foreign exchange rate fluctuations and economic instability, such as higher interest rates and inflation, which could make our products more expensive in those countries; |
• | costs of compliance with a variety of laws and regulations; |
• | restrictive governmental actions such as trade restrictions and potential trade wars; |
• | limitations on the transfer and repatriation of funds and foreign currency exchange restrictions; |
• | compliance with different consumer, privacy and data collection and protection laws and regulations, and restrictions on pricing or discounts; |
• | lower levels of adoption or use of the internet and other technologies vital to our business and the lack of appropriate infrastructure to support widespread internet usage; |
• | lower levels of consumer spending on a per capita basis and fewer opportunities for growth in certain foreign market segments compared to the United States; |
• | lower levels of credit card usage and increased payment risk; |
• | changes in domestic and international tax regulations; and |
• | geopolitical events, including war and terrorism. |
• | subject to limited exceptions, the judgment is final and non-appealable; |
• | the judgment was given by a court competent under the laws of the state of the court and is otherwise enforceable in such state; |
• | the judgment was rendered by a court competent under the rules of private international law applicable in Israel; |
• | the laws of the state in which the judgment was given provide for the enforcement of judgments of Israeli courts; |
• | adequate service of process has been effected and the defendant has had a reasonable opportunity to present his arguments and evidence; |
• | the judgment and its enforcement are not contrary to the law, public policy, security or sovereignty of the State of Israel; |
• | the judgment was not obtained by fraud and does not conflict with any other valid judgment in the same matter between the same parties; and |
• | an action between the same parties in the same matter was not pending in any Israeli court at the time the lawsuit was instituted in the U.S. court. |
• | we may be unable to meet the requirements for continuing to qualify for some programs; |
• | these programs and tax benefits may be unavailable at their current levels; or |
• | we may be required to refund previously recognized tax benefits if we are found to be in violation of the stipulated conditions. |
• | The growth in search driven by the growing shift to ecommerce; |
• | The growth in video which is outpacing other forms of digital marketing; |
• | The transition from linear TV to Digital TV; |
• | The inevitable disappearance of the cookie in an increasing privacy-centric world and the corresponding imperative of first-party data; |
• | The need for high-engagement creative in what is called the “Attention Economy.”; and |
• | The importance brands provide to advertising creativity vs. standard formats. |
1. | Operational Savings – Shared Resources |
2. | Traffic Acquisition Costs (TAC) Optimization |
3. | Increased Customer Value |
4. | Market Agility and Creative Firepower |
• | Supply and publisher integration; |
• | Innovative Creative; |
• | Demand generation; |
• | Data and Analytics; |
• | AI and optimization; and |
• | Executional channels. |
1. | Supply Management Platform; |
2. | Demand Management Platform; |
3. | Analytics Platform; |
4. | Creative Platform; |
5. | AI Platform; |
6. | Actionable Performance Monitoring; |
7. | Online video player; and |
8. | Content monetization system. |
1. | Publishers management system; |
2. | Search demand management system; |
3. | Monetization products; and |
4. | AI system. |
2019 | 2020 | 2021 | ||||||||||||||||||||||
Search Advertising Revenues | Display Advertising Revenues | Search Advertising Revenues | Display Advertising Revenues | Search Advertising Revenues | Display Advertising Revenues | |||||||||||||||||||
North America (Mainly U.S.) | 67 | % | 91 | % | 73 | % | 95 | % | 80 | % | 95 | % | ||||||||||||
Europe | 25 | % | 9 | % | 24 | % | 5 | % | 18 | % | 4 | % | ||||||||||||
Other | 8 | % | 0 | % | 3 | % | 0 | % | 2 | % | 1 | % | ||||||||||||
Total | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % |
• | Codefuel Ltd., our wholly-owned Israeli subsidiary, incorporated on November 6, 2019. |
• | IncrediMail, Inc., our wholly-owned Delaware subsidiary, owns all of the outstanding shares of common stock of Smilebox Inc., a Washington corporation and all of the outstanding shares of common stock of IncrediTone Inc. and Pub Ocean Inc., our wholly-owned Delaware subsidiaries. IncrediTone Inc. owns all of the outstanding shares of common stock of Interactive Holding Corp., a Delaware corporation, which was acquired, together with its subsidiaries, in November 2015. |
• | Content IQ LLC, our wholly-owned New York subsidiary, was acquired in January 2020, owns all of the membership interest of BT Media LLC, a Nevada limited liability company. |
• | Pub Ocean Media UK Limited, our wholly-owned England and Wales subsidiary, was incorporated in July 2020. |
• | Make Me Reach SAS, dba Paragone, our wholly owned French subsidiary, was acquired in February 2015. |
• | Portilev Ltd., our wholly-owned Israeli subsidiary, incorporated on September 22, 2019 and was merged into the Company on October 25, 2021. |
• | Vidazoo Ltd., our wholly-owned Israeli subsidiary, was acquired on October 4, 2021. |
Square feet (net) | Annual Rent for 2021 in US$ in thousands (net) | Lease expires on (not including options) | ||||||||||
New York, New York | 25,550 | $ | 1,737 | 2026 | ||||||||
Chicago, Illinois | 3,984 | $ | 89 | 2023 |
Year Ended December 31, | ||||||||
2020 | 2021 | |||||||
Display Advertising | $ | 148,698 | $ | 265,323 | ||||
Search Advertising | 179,365 | 213,175 | ||||||
Total Revenue | $ | 328,063 | $ | 478,498 |
Year ended December 31, | ||||||||
2020 | 2021 | |||||||
Cost of revenue | $ | 22,477 | $ | 25,197 | ||||
Traffic acquisition costs and media buy | 197,626 | 288,018 | ||||||
Research and development | 30,880 | 35,348 | ||||||
Selling and marketing | 39,085 | 53,209 | ||||||
General and administrative | 15,819 | 20,933 | ||||||
Depreciation and amortization | 9,923 | 9,897 | ||||||
Total Costs and Expenses | $ | 315,810 | $ | 432,602 |
Year Ended December 31, | ||||||||
2020 | 2021 | |||||||
Revenue: | ||||||||
Display Advertising | 45 | % | 55 | % | ||||
Search Advertising | 55 | 45 | ||||||
Total revenue | 100 | % | 100 | % | ||||
Costs and expenses: | ||||||||
Cost of revenue | 7 | % | 5 | % | ||||
Traffic acquisition costs and media buy | 60 | 60 | ||||||
Research and development | 9 | 8 | ||||||
Selling and marketing | 12 | 11 | ||||||
General and administrative | 5 | 4 | ||||||
Depreciation and amortization | 3 | 2 | ||||||
Total costs and expenses | 96 | 90 | ||||||
Operating income | 4 | 10 | ||||||
Financial expenses, net | 1 | (0 | ) | |||||
Income before taxes on income | 3 | 10 | ||||||
Income tax expense (benefit) | (0 | ) | 2 | |||||
Net Income | 3 | % | 8 | % |
Payments Due by Period(****) | ||||||||||||||||||||
Contractual Commitments as of December 31, 2021 | Total | Less than 1 year | 1-3 Years | 3-5 Years | More than 5 Years | |||||||||||||||
Accrued severance pay (1) | 2,371 | |||||||||||||||||||
Uncertain tax positions (ASC-740) (2) | 6,928 | |||||||||||||||||||
Operating leases | 15,368 | 4,485 | 8,205 | 2,678 | - | |||||||||||||||
Total | $ | 24,667 | $ | 4,485 | $ | 8,205 | $ | 2,678 | $ | - |
(1) | Prior notice to our executive employees as well as severance pay obligations to our Israeli employees, as required under Israeli labor law and as set forth in employment agreements, are payable only upon termination, retirement or death of the respective employee. Of this amount, $1.8 million is unfunded as of December 31, 2021. Since we are unable to reasonably estimate the timing of settlement, the timing of such payments is not specified in the table. See also Note 2 to our consolidated financial statements appearing in “ITEM 18. Financial Statements” of this annual report. |
(2) | Consists of accruals for certain income tax positions under ASC 740 that are paid upon settlement, and for which we are unable to reasonably estimate the ultimate amount and timing of settlement. See Note 14(h) to our consolidated financial statements included in ITEM 18 of this annual report for further information regarding our liability under ASC 740. Payment of these obligations would result from settlements with tax authorities. Due to the difficulty in determining the timing of resolution of audits, these obligations are only presented in their total amount. |
A. | DIRECTORS AND SENIOR MANAGEMENT |
Name | Age | Position | ||
Eyal Kaplan*(1)(2) | 62 | Chairman of the Board of Directors | ||
Doron Gerstel | 61 | Chief Executive Officer; Director | ||
Maoz Sigron | 44 | Chief Financial Officer | ||
Dror Erez*(1)(3) | 52 | Director | ||
Sarit Firon*(1)(4) | 55 | Director | ||
Rami Schwartz* (3)(4) | 64 | Director | ||
Michael Vorhaus*(2)(4) | 64 | Director | ||
Joy Marcus*(2)(3) | 60 | Director | ||
Daniel E. Aks | 62 | President, Undertone | ||
Tal Jacobson | 47 | General Manager, CodeFuel | ||
Eliran Ben Yehuda | 37 | General Manager, CIQ |
• | chairperson of our audit committee: $110,000; |
• | chairperson of our compensation committee: $107,500; |
• | chairperson of our nominating and governance committee: $105,000; and |
• | other non-executive directors: $97,500. |
Name and Principal Position (1) | Salary Cost (2) | Bonus (3) | Equity-Based Compensation (4) | Total | ||||||||||||
Doron Gerstel, Chief Executive Officer | 634 | 1,254 | 946 | 2,834 | ||||||||||||
Maoz Sigron, Chief Financial Officer | 343 | 535 | 514 | 1,392 | ||||||||||||
Daniel E. Aks, President, Undertone Business Unit | 540 | 600 | 202 | 1,342 | ||||||||||||
Tal Jacobson, General Manager, CodeFuel Business Unit | 387 | 677 | 260 | 1,324 |
• | establishing our policies and overseeing the performance and activities of our chief executive officer; |
• | convening shareholders’ meetings; |
• | approving our financial statements; |
• | determining our plans of action, principles for funding them and the priorities among them, our organizational structure and examining our financial status; and |
• | issuing securities and distributing dividends. |
December 31, | ||||||||||||
2019 | 2020 | 2021 | ||||||||||
Cost of sales | 79 | 73 | 83 | |||||||||
Research and development | 117 | 135 | 115 | |||||||||
Selling and marketing | 136 | 146 | 154 | |||||||||
General and administration | 67 | 63 | 68 | |||||||||
Total | 399 | 417 | 420 |
Name | Number of Ordinary Shares Beneficially Owned | Percentage of Ordinary Shares Outstanding | ||||||
All directors and officers as a group (11 persons) (1) | 1,233,406 | 2.78 | % |
(1) | Includes options to purchase 632,539 ordinary shares that are vested or will vest within 60 days of March 5, 2022. |
Name of Beneficial Owner | Shares Beneficially Owned | |||||||
Number | Percentage | |||||||
The Phoenix Holdings Ltd. (1) | 2,443,477 | 5.52 | % |
• | A company's average R&D expenses in the three years prior to the current tax year must be greater than or equal to 7% of its total revenue or exceed NIS 75 million (approximately $21 million) per year; and |
• | A company must also satisfy one of the following conditions: (1) at least 20% of the workforce (or at least 200 employees) are employed in R&D; (2) a venture capital investment of an amount approximately equivalent to at least NIS 8 million was previously made in the company; or (3) growth in sales or workforce by an average of 25% over the three years preceding the tax year. |
• | Amortization of the cost of purchased know-how, patents, and right to use patent or know how, which are used for the development or promotion of the Industrial Enterprise, over an eight-year period; |
• | Accelerated depreciation rates on equipment and buildings; |
• | Under specified conditions, an election to file consolidated tax returns with additional related Israeli Industrial Companies; and |
• | Deduction of expenses related to a public offering in equal amounts over three years. |
• | certain financial institutions; |
• | dealers or traders in securities that use a mark-to-market method of tax accounting; |
• | persons holding ordinary shares as part of a straddle, integrated or similar transaction; |
• | persons whose functional currency for U.S. federal income tax purposes is not the U.S. dollar; |
• | entities classified as partnerships for U.S. federal income tax purposes and their partners; |
• | tax-exempt entities, “individual retirement accounts” or “Roth IRAs”; |
• | persons who acquired our ordinary shares pursuant to the exercise of an employee stock option or otherwise as compensation; |
• | persons that own or are deemed to own 10% or more of our stock by voting power or value; or |
• | persons holding ordinary shares in connection with a trade or business outside the United States. |
• | a citizen or individual resident of the United States; |
• | a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state therein or the District of Columbia; or |
• | an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source. |
U.S. dollars | NIS | Other Currencies | Total | |||||||||||||
In thousands of U.S. dollars | ||||||||||||||||
Current assets | 435,033 | 6,590 | 4,548 | 446,171 | ||||||||||||
Long-term assets | 1,239 | 3,088 | 980 | 5,307 | ||||||||||||
Current liabilities | (174,474 | ) | (14,823 | ) | (558 | ) | (189,855 | ) | ||||||||
Long-term liabilities | (46,124 | ) | (6,188 | ) | (253 | ) | (52,565 | ) | ||||||||
Total | 215,674 | (11,333 | ) | 4,717 | 209,058 |
Year Ended December 31, | ||||||||||||
2019 | 2020 | 2021 | ||||||||||
Average rate for period | 3.564 | 3.437 | 3.231 | |||||||||
Rate at year-end | 3.456 | 3.215 | 3.110 |
(a) | Disclosure controls and procedures |
(b) | Management annual report on internal control over financial reporting |
(c) | Attestation Report of the Registered Public Accounting Firm |
(d) | Changes in internal control over financial reporting |
2020 | 2021 | |||||||
Audit Fees | $ | 500 | $ | 568 | ||||
Tax Fees | 236 | 181 | ||||||
Audit Related fees | 86 | 394 | ||||||
Total | $ | 822 | $ | 1,143 |
• | the securities issued amount to 20% or more of our outstanding voting rights before the issuance; |
• | some or all of the consideration is other than cash or listed securities or the transaction is not on market terms; and |
• | the transaction will increase the relative holdings of a shareholder that holds 5% or more of our outstanding share capital or voting rights or will cause any person to become, as a result of the issuance, a holder of more than 5% of our outstanding share capital or voting rights. |
ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTION |
PERION NETWORK LTD. AND ITS SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
IN U.S. DOLLARS
INDEX
| Kost Forer Gabbay & Kasierer 144 Menachem Begin Road, Building A, Tel-Aviv 6492102, Israel | Tel: +972-3-6232525 Fax: +972-3-5622555 ey.com |
To the Shareholders and the Board of directors of Perion Network Ltd.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Perion Network Ltd. and subsidiaries ("the Company") as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 16, 2022, expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
F - 2
| Kost Forer Gabbay & Kasierer 144 Menachem Begin Road, Building A, Tel-Aviv 6492102, Israel | Tel: +972-3-6232525 Fax: +972-3-5622555 ey.com |
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.
| Revenue Recognition Gross versus Net presentation |
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|
Description of the Matter | As described in Note 2 to the consolidated financial statements, the Company’s revenues are comprised primarily of Search Advertising Revenues and Display Advertising Revenues. To determine whether Search Advertising and Display Advertising revenues should be presented on a gross or net basis, the Company considers whether it controls the promised good or service before transferring that good or service to the customer.
Auditing the Company's gross or net basis evaluation was complex and required a high degree of auditor judgment due to the significant judgment and subjectivity used by the Company in determining whether revenue should be presented on a gross or net basis. The significant judgment was primarily due to the evaluation, for each contract, of whether the Company is the primary obligor in the arrangement. |
|
|
How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls over the Company’s revenue recognition process, including controls over the review of contracts and assessment of principal versus agent, and controls over the completeness and accuracy of data.
Our substantive audit procedures included, among others, reviewing, on a sample basis, the terms of contracts with publishers, evaluating management’s assessment on the principal versus agent analysis, discussing the terms of contracts with legal and finance personnel responsible for managing the contractual arrangements and evaluating the related disclosures in the consolidated financial statements. |
F - 3
| Kost Forer Gabbay & Kasierer 144 Menachem Begin Road, Building A, Tel-Aviv 6492102, Israel | Tel: +972-3-6232525 Fax: +972-3-5622555 ey.com |
| Acquisition accounting for Vidazoo Ltd (Vidazoo) business combination |
|
|
Description of the Matter | As described in Note 4.c to the consolidated financial statements, on October 04, 2021, the Company acquired 100% of the shares of Vidazoo Ltd ("the Vidazoo Acquisition") for a total consideration of $77.7 million, of which $35 million was paid in cash upon the completion of the transaction and $36.6 million as earn-out tied to financial targets over a two-year period. The Vidazoo Acquisition was accounted for as a business combination in accordance with ASC 805 "Business Combinations". Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their respective fair values, including total identified intangible assets of $39.2 million, which consist primarily of $31 million of technology intangible asset.
Auditing the Company's accounting for the Vidazoo acquisition was complex and involved subjective auditor judgment in applying procedures relating to the fair value measurement of the technology intangible asset. The Company used the discounted cash flow method under the income approach ("the valuation model") to measure the fair value of the technology intangible asset. The significant assumptions used to estimate the fair value of the technology intangible asset included the discount rate applied and certain assumptions that form the basis of the forecasted results, such as revenue growth rates and profitability margins. These significant assumptions are forward-looking and could be affected by future economic and market conditions. |
|
|
How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls over the Company's accounting for acquisitions process, such as controls over the measurement of the technology intangible asset, including the valuation model and underlying assumptions used to develop such estimates.
We performed substantive audit procedures that included, among others, evaluating the completeness and accuracy of the underlying data and the reasonableness of management’s significant assumptions and estimates. These procedures included comparing the significant assumptions to current industry, market and economic trends, historical results of the acquired business and to other relevant third-party industry outlooks. We involved our valuation specialists to assist us in evaluating the appropriateness of the Company’s valuation model as well as the significant assumptions used to estimate the fair value of the technology intangible asset such as the weighted average cost of capital calculation. Our audit procedures included comparing the Company’s discount rate to a discount rate range that was independently developed using publicly available market data for comparable peers. We also evaluated the appropriateness of the related disclosures included in Note 4.c to the consolidated financial statements in relation to the Vidazoo Acquisition. |
/s/ KOST FORER GABBAY & KASIERER
A Member of Ernst & Young Global
We have served as the Company‘s auditor since 2004.
Tel-Aviv, Israel
March 16, 2022
F - 4
| Kost Forer Gabbay & Kasierer 144 Menachem Begin Road, Building A, Tel-Aviv 6492102, Israel | Tel: +972-3-6232525 Fax: +972-3-5622555 ey.com |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of Perion Network Ltd.
Opinion on Internal Control over Financial Reporting
We have audited Perion Network Ltd. and it's subsidiaries' ("the Company") internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), (the COSO criteria). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on the COSO criteria.
As indicated in the accompanying Management's Report on Internal Control Over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of the business of Vidazoo Ltd. ("Vidazoo") that was acquired during 2021 and included in the 2021 consolidated financial statements of the Company and constitute 4% of total net assets as of December 31, 2021 and 6% of revenues, for the year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of the business of Vidazoo.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes, and our report dated March 16, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
F - 5
| Kost Forer Gabbay & Kasierer 144 Menachem Begin Road, Building A, Tel-Aviv 6492102, Israel | Tel: +972-3-6232525 Fax: +972-3-5622555 ey.com |
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KOST FORER GABBAY & KASIERER
A Member of Ernst & Young Global
Tel-Aviv, Israel
March 16, 2022
F - 6
December 31, | ||||||||
2021 | 2020 | |||||||
Assets | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 104,446 | $ | 47,656 | ||||
Restricted cash | 1,089 | 1,222 | ||||||
Short-term bank deposits | 217,200 | 12,700 | ||||||
Accounts receivable (net of allowance of $891 and $694 at December 31, 2021 and 2020, respectively) | 115,361 | 81,221 | ||||||
Prepaid expenses and other current assets | 8,075 | 4,560 | ||||||
Total Current Assets | 446,171 | 147,359 | ||||||
Property and equipment, net | 4,211 | 6,770 | ||||||
Operating lease right-of-use assets | 11,578 | 20,266 | ||||||
Intangible assets, net | 56,700 | 24,376 | ||||||
Goodwill | 189,265 | 152,303 | ||||||
Deferred taxes | 5,228 | 7,111 | ||||||
Other assets | 79 | 496 | ||||||
Total Assets | $ | 713,232 | $ | 358,681 | ||||
Liabilities and Shareholders' Equity | ||||||||
Current Liabilities: | ||||||||
Accounts payable | $ | 107,730 | $ | 72,498 | ||||
Accrued expenses and other liabilities | 40,331 | 21,188 | ||||||
Short-term operating lease liability | 3,615 | 4,514 | ||||||
Short-term loans and current maturities of long-term loans | 0 | 8,333 | ||||||
Deferred revenues | 3,852 | 5,711 | ||||||
Short-term payment obligation related to acquisitions | 38,179 | 7,869 | ||||||
Total Current Liabilities | 193,707 | 120,113 | ||||||
Long-Term Liabilities: | ||||||||
Long-term operating lease liability | 9,774 | 17,698 | ||||||
Payment obligation related to acquisition | 33,250 | 30,035 | ||||||
Other long-term liabilities | 9,541 | 6,713 | ||||||
Total Liabilities | 246,272 | 174,559 | ||||||
Commitments and Contingencies | 0 | 0 | ||||||
Shareholders' Equity: | ||||||||
Ordinary shares of ILS 0.03 par value - Authorized: 60,000,000 and 43,333,333 shares at December 31, 2021 and 2020, respectively; Issued: 43,812,062 and 27,467,313 shares at December 31, 2021 and 2020, respectively; Outstanding: 43,696,723 and 27,351,974 shares at December 31, 2021 and 2020, respectively | 375 | 224 | ||||||
Additional paid-in capital | 496,154 | 251,933 | ||||||
Treasury shares at cost (115,339 shares at December 31, 2021 and 2020) | (1,002 | ) | (1,002 | ) | ||||
Accumulated other comprehensive income | (128 | ) | 112 | |||||
Accumulated deficit | (28,439 | ) | (67,145 | ) | ||||
Total Shareholders' Equity | 466,960 | 184,122 | ||||||
Total Liabilities and Shareholders' Equity | $ | 713,232 | $ | 358,681 |
Year ended December 31, | ||||||||||||
2021 | 2020 | 2019 | ||||||||||
Revenues: | ||||||||||||
Display Advertising | $ | 265,323 | $ | 148,698 | $ | 87,863 | ||||||
Search Advertising | 213,175 | 179,365 | 173,587 | |||||||||
Total Revenues | 478,498 | 328,063 | 261,450 | |||||||||
Costs and Expenses: | ||||||||||||
Cost of revenues | 25,197 | 22,477 | 25,520 | |||||||||
Traffic acquisition costs and media buy | 288,018 | 197,626 | 135,891 | |||||||||
Research and development | 35,348 | 30,880 | 22,585 | |||||||||
Selling and marketing | 53,209 | 39,085 | 34,736 | |||||||||
General and administrative | 20,933 | 15,819 | 14,999 | |||||||||
Depreciation and amortization | 9,897 | 9,923 | 9,711 | |||||||||
Total Costs and Expenses | 432,602 | 315,810 | 243,442 | |||||||||
Income from Operations | 45,896 | 12,253 | 18,008 | |||||||||
Financial expenses, net | 581 | 2,638 | 3,470 | |||||||||
Income before Taxes on Income | 45,315 | 9,615 | 14,538 | |||||||||
Taxes on income (benefit) | 6,609 | (610 | ) | 1,645 | ||||||||
Net Income | $ | 38,706 | $ | 10,225 | $ | 12,893 | ||||||
Net Earnings per Share - Basic: | $ | 1.13 | $ | 0.38 | $ | 0.50 | ||||||
Net Earnings per Share - Diluted: | $ | 1.02 | $ | 0.36 | $ | 0.49 | ||||||
Weighted average number of shares – Basic: | 34,397,134 | 26,687,145 | 25,965,357 | |||||||||
Weighted average number of shares – Diluted: | 37,829,725 | 28,797,747 | 26,357,585 |
Year ended December 31, | ||||||||||||
2021 | 2020 | 2019 | ||||||||||
Net income | $ | 38,706 | $ | 10,225 | $ | 12,893 | ||||||
Other comprehensive income (loss): | ||||||||||||
Change in foreign currency translation adjustment | (315 | ) | 49 | (185 | ) | |||||||
Cash Flow Hedge: | ||||||||||||
Unrealized gain (loss) from cash flow hedges | 242 | 697 | 445 | |||||||||
Less: reclassification adjustment for net gain (loss) included in net income (loss) | (167 | ) | (764 | ) | (272 | ) | ||||||
Net change | 75 | (67 | ) | 173 | ||||||||
Other comprehensive loss | (240 | ) | (18 | ) | (12 | ) | ||||||
Comprehensive income | $ | 38,466 | $ | 10,207 | $ | 12,881 |
Common shares | Additional paid-in capital | Accumulated Other Comprehensive income (loss) | Retained earnings (Accumulated deficit) | Treasury shares | Total shareholders' equity | |||||||||||||||||||||||
Number of Shares | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
Balance as of December 31, 2018 | 25,850,188 | 211 | 239,693 | 142 | (90,263 | ) | (1,002 | ) | 148,781 | |||||||||||||||||||
Stock-based compensation | - | - | 2,293 | 0 | 0 | 0 | 2,293 | |||||||||||||||||||||
Proceeds from exercise of stock-based compensation | 392,271 | 2 | 1,225 | 0 | 0 | 0 | 1,227 | |||||||||||||||||||||
Other comprehensive loss | - | 0 | 0 | (12 | ) | 0 | 0 | (12 | ) | |||||||||||||||||||
Net income | - | 0 | 0 | 0 | 12,893 | 0 | 12,893 | |||||||||||||||||||||
Balance as of December 31, 2019 | 26,242,459 | 213 | 243,211 | 130 | (77,370 | ) | (1,002 | ) | 165,182 | |||||||||||||||||||
Stock-based compensation | - | 0 | 4,447 | 0 | 0 | 0 | 4,447 | |||||||||||||||||||||
Proceeds from exercise of stock-based compensation | 1,109,515 | 11 | 4,275 | 0 | 0 | 0 | 4,286 | |||||||||||||||||||||
Other comprehensive loss | - | 0 | 0 | (18 | ) | 0 | 0 | (18 | ) | |||||||||||||||||||
Net income | - | 0 | 0 | 0 | 10,225 | 0 | 10,225 | |||||||||||||||||||||
Balance as of December 31, 2020 | 27,351,974 | 224 | 251,933 | 112 | (67,145 | ) | (1,002 | ) | 184,122 | |||||||||||||||||||
Issuance of shares - Offering | 14,110,592 | 133 | 230,356 | 0 | 0 | 0 | 230,489 | |||||||||||||||||||||
Stock-based compensation | - | 0 | 6,985 | 0 | 0 | 0 | 6,985 | |||||||||||||||||||||
Proceeds from exercise of stock-based compensation | 2,234,157 | 18 | 6,880 | 0 | 0 | 0 | 6,898 | |||||||||||||||||||||
Other comprehensive loss | - | 0 | 0 | (240 | ) | 0 | 0 | (240 | ) | |||||||||||||||||||
Net income | - | 0 | 0 | 0 | 38,706 | 0 | 38,706 | |||||||||||||||||||||
Balance as of December 31, 2021 | 43,696,723 | 375 | 496,154 | (128 | ) | (28,439 | ) | (1,002 | ) | 466,960 |
Year ended December 31, | ||||||||||||
2021 | 2020 | 2019 | ||||||||||
Operating activities: | ||||||||||||
Net income | $ | 38,706 | $ | 10,225 | $ | 12,893 | ||||||
Adjustments required to reconcile net income to net cash provided by operating activities: | ||||||||||||
Depreciation and amortization | 9,897 | 9,923 | 9,711 | |||||||||
Stock-based compensation expense | 6,985 | 4,447 | 2,293 | |||||||||
Foreign currency translation | (223 | ) | 19 | (86 | ) | |||||||
Accrued interest, net | (300 | ) | (125 | ) | (204 | ) | ||||||
Deferred taxes, net | (2,755 | ) | (3,093 | ) | (1,756 | ) | ||||||
Accrued severance pay, net | 663 | (23 | ) | 96 | ||||||||
Change in payment obligation related to acquisitions | 350 | 4,646 | 1,025 | |||||||||
Fair value revaluation - convertible debt | 0 | 0 | 600 | |||||||||
Loss from sale of property and equipment | 121 | 10 | 0 | |||||||||
Net changes in operating assets and liabilities: | ||||||||||||
Accounts receivable, net | (34,239 | ) | (32,049 | ) | 6,416 | |||||||
Prepaid expenses and other current assets | (2,781 | ) | (1,185 | ) | 646 | |||||||
Operating lease right-of-use assets | 8,510 | 2,595 | 3,119 | |||||||||
Operating lease liabilities | (8,643 | ) | (2,255 | ) | (1,518 | ) | ||||||
Accounts payable | 35,222 | 24,742 | 9,459 | |||||||||
Accrued expenses and other liabilities | 21,446 | 2,776 | 1,653 | |||||||||
Deferred revenues | (1,853 | ) | 1,506 | 394 | ||||||||
Net cash provided by operating activities | $ | 71,106 | $ | 22,159 | $ | 44,741 | ||||||
Investing activities: | ||||||||||||
Purchases of property and equipment | $ | (627 | ) | $ | (459 | ) | $ | (1,209 | ) | |||
Proceeds from sale of property and equipment | 95 | 5 | 492 | |||||||||
Short-term deposits, net | (204,500 | ) | 10,534 | (19,234 | ) | |||||||
Cash paid in connection with acquisitions, net of cash acquired | (38,438 | ) | (19,000 | ) | (1,200 | ) | ||||||
Net cash used in investing activities | $ | (243,470 | ) | $ | (8,920 | ) | $ | (21,151 | ) | |||
Financing activities: | ||||||||||||
Issuance of shares in private placement, net | 230,489 | 0 | 0 | |||||||||
Proceeds from exercise of stock-based compensation | $ | 6,898 | $ | 4,286 | $ | 1,227 | ||||||
Payments made in connection with acquisition | 0 | 0 | (1,813 | ) | ||||||||
Repayment of convertible debt | 0 | 0 | (15,850 | ) | ||||||||
Repayment of long-term loans | (8,333 | ) | (8,333 | ) | (8,332 | ) | ||||||
Net cash provided by (used in) financing activities | $ | 229,054 | $ | (4,047 | ) | $ | (24,768 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents | (33 | ) | 81 | (20 | ) | |||||||
Net increase (decrease) in cash and cash equivalents and restricted cash | $ | 56,657 | $ | 9,273 | $ | (1,198 | ) | |||||
Cash and cash equivalents and restricted cash at beginning of year | 48,878 | 39,605 | 40,803 | |||||||||
Cash and cash equivalents and restricted cash at end of year | $ | 105,535 | $ | 48,878 | $ | 39,605 |
Year ended December 31 | ||||||||||||
2021 | 2020 | 2019 | ||||||||||
Reconciliation of cash, cash equivalents, and restricted cash to the consolidated balance sheet | ||||||||||||
Cash and cash equivalents | $ | 104,446 | $ | 47,656 | $ | 38,389 | ||||||
Restricted cash | 1,089 | 1,222 | 1,216 | |||||||||
Total cash, cash equivalents, and restricted cash | $ | 105,535 | $ | 48,878 | $ | 39,605 | ||||||
Supplemental Disclosure of Cash Flow Activities: | ||||||||||||
Cash paid during the year for: | ||||||||||||
Income taxes | $ | 4,365 | $ | 3,180 | $ | 4,007 | ||||||
Interest | $ | 203 | $ | 1,097 | $ | 2,320 | ||||||
Non-cash investing and financing activities: | ||||||||||||
Creation of new lease right-of-use assets arising from lease liability | $ | 0 | $ | 1,671 | $ | 25,537 | ||||||
Purchase of property and equipment on credit | $ | 45 | $ | 3 | $ | 15 |
On January 14, 2020, the Company completed the acquisition of Content IQ LLC and on July 22, 2020, the assets acquisition of Pub Ocean Limited was consummated.
On October 4, 2021, we also completed the acquisition of Vidazoo Ltd. (for additional information on these acquisitions, see Note 4)
F - 13
PERION NETWORK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2021 and 2020, the Company has recorded an allowance for doubtful debts in the amounts of $891 and $694, respectively.
% | ||||
Computers and peripheral equipment | 33 | |||
Office furniture and equipment | 6 - 15 |
F - 14
PERION NETWORK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Goodwill reflects the excess of the purchase price of business acquired over the fair value of net assets acquired. Goodwill is not amortized but instead is tested for impairment, in accordance with ASC 350, “Intangibles – Goodwill and Other”, at the reporting unit level, at least annually at December 31 each year, or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Following the early adoption of ASU 2017-04, "Simplifying the Test for Goodwill Impairment" by the Company in January 2017, any excess of the carrying amount of the reporting unit over its fair value is recognized as an impairment loss, and the carrying value of goodwill is written down to fair value.
F - 15
PERION NETWORK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Revenue recognition
The Company applies the provisions of Accounting Standards Codification 606, Revenue from Contracts with Customers ("ASC 606" or "Topic 606").
The Company applies the practical expedient for incremental costs of obtaining contracts when the associated revenues is recognized over less than one year.
F - 16
PERION NETWORK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F - 17
PERION NETWORK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F - 18
PERION NETWORK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The allowance against gross trade receivables reflects the current expected credit loss inherent in the receivables portfolio determined based on the Company’s methodology. The Company’s methodology is based on historical collection experience, customer creditworthiness, current and future economic condition, and market condition. Additionally, specific allowance amounts are established to record the appropriate provision for customers that have a higher probability of default. Trade receivables are written off after all reasonable means to collect the full amount have been exhausted.
F - 19
PERION NETWORK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Year ended December 31 | ||||||||||||
2021 | 2020 | 2019 | ||||||||||
Risk-free interest rate | 0.94% - 1.52% | 0.29% - 1.60% | 0.70% - 2.90% | |||||||||
Expected volatility | 59% - 60% | 53% - 59% | 43% - 55% | |||||||||
Early exercise factor | 130% - 200% | 110% - 200% | 110% - 230% | |||||||||
Forfeiture rate post vesting | 1% - 27% | 0% - 34% | 0% - 34% | |||||||||
Dividend yield | 0% | 0% | 0% |
F - 20
PERION NETWORK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
• Level 1 - Observable inputs obtained from independent sources, such as quoted prices for identical assets and liabilities in active markets.
• Level 2 - Other inputs that are directly or indirectly observable in the market place.
• Level 3 - Unobservable inputs which are supported by little or no market activity.
F - 21
PERION NETWORK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Recent Accounting Pronouncements not yet adopted
F - 22
PERION NETWORK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3:FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table present assets and liabilities measured at fair value on a recurring basis as of December 31, 2021:
|
| Fair value measurements using input type |
| |||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Assets: | ||||||||||||||||
Derivative assets | $ | 0 | $ | 75 | $ | 0 | $ | 75 | ||||||||
Total financial assets | $ | 0 | $ | 75 | $ | 0 | $ | 75 | ||||||||
| ||||||||||||||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration in connection to the acquisitions |
|
| 0 |
|
|
| 0 |
|
|
| 63,550 |
|
|
| 63,550 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial liabilities |
| $ | 0 |
|
| $ | 0 |
|
| $ | 63,550 |
|
| $ | 63,550 |
|
The following table present assets measured at fair value on a recurring basis as of December 31, 2020:
|
| Fair value measurements using input type |
| |||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Contingent consideration in connection to the acquisitions |
| $ | 0 |
|
| $ | 0 |
|
| $ | 31,859 |
|
| $ | 31,859 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial liabilities |
| $ | 0 |
|
| $ | 0 |
|
| $ | 31,859 |
|
| $ | 31,859 |
|
NOTE 4:ACQUISITIONS
a.Content IQ LLC
On January 14, 2020, the Company consummated the acquisition of Content IQ LLC (“Content IQ”), a privately held company founded in 2014, based in New York City. Content IQ has created data algorithm and analytics tools that deconstruct content, revenue and distribution to solve current major digital publishing challenges.
The total consideration for the acquisition was $37,838, comprised of $15,000 paid in cash at closing and a contingent consideration (with a maximum amount of up to $47,050), tied to revenues and EBITDA-based metrics over a period of two years, estimated at fair value of $22,838 on the acquisition date. As of December 31, 2021, the contingent consideration is estimated at fair value of $17,844. The change in fair value of the contingent consideration was recorded to general and administrative expenses. In addition, the acquisition includes a retention-based component of up to $11,000.
F - 23
PERION NETWORK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
b.Pub Ocean
On July 22, 2020, the Company acquired the net assets of Pub Ocean Limited, also known as “Pub Ocean” (the "Pub Ocean Acquisition"), a rapidly growing digital publisher-focused technology company with scalable content distribution and real-time revenue analytics technology.
The total consideration for the acquisition was $13,399, comprised of $4,000 paid in cash at closing and a contingent consideration (with a maximum amount of up to $17,000), tied to financial targets over a two-year period, estimated at fair value of $9,399 on the acquisition date. As of December 31, 2021, the contingent consideration is estimated at fair value of $8,963. The change in fair value of the contingent consideration was recorded to general and administrative expenses. In addition, the acquisition includes a retention-based component of up to $1,000.
c.Vidazoo
Fair value | ||||
Net Assets | 6,291 | |||
Technology | 31,005 | |||
Customer Relationship | 8,194 | |||
Deferred Taxes | (4,704 | ) | ||
Goodwill | 36,962 | |||
Net assets acquired | $ | 77,748 |
Pro forma results of operations related to this acquisition have not been presented because they are not material to the Company’s consolidated statements of operations.
F - 24
PERION NETWORK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5: PROPERTY AND EQUIPMENT, NET
|
| December 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Cost: |
|
|
|
|
|
| ||
Computers and peripheral equipment |
| $ | 7,219 |
|
| $ | 6,776 |
|
Office furniture and equipment |
|
| 2,686 |
|
|
| 2,682 |
|
Leasehold improvements |
|
| 8,392 |
|
|
| 8,658 |
|
Capitalized software |
|
| 12,473 |
|
|
| 12,473 |
|
|
|
|
|
|
|
|
|
|
Total cost |
|
| 30,770 |
|
|
| 30,589 |
|
Less: accumulated depreciation and amortization |
|
| (26,559 | ) |
|
| (23,819 | ) |
Property and equipment, net |
| $ | 4,211 |
|
| $ | 6,770 |
|
NOTE 6:GOODWILL AND OTHER INTANGIBLE ASSETS, NET
a.Goodwill
The changes in the net carrying amount of goodwill in 2021 and 2020 were as follows:
Balance as of January 1, 2020 | $ | 125,809 | ||
Acquisition of Content IQ | $ | 23,361 | ||
Acquisition of Pub Ocean | $ | 3,133 | ||
Balance as of December 31, 2020 | $ | 152,303 | ||
Acquisition of Vidazoo | $ | 36,962 | ||
Balance as of December 31, 2021 | $ | 189,265 |
Goodwill has been recorded as a result of prior acquisitions and represents excess of the consideration over the net fair value of the assets of the businesses acquired. As of December 31, 2021, the Company has two reporting units – Display advertising and Search advertising. The Company performs tests for impairment of goodwill at the reporting unit level at least annually, or more frequently if events or changes in circumstances occur that would more likely than not reduce the fair value of a reporting unit below its carrying value.
No impairment was incurred for the years ended December 31, 2021, 2020 and 2019.
F - 25
PERION NETWORK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
b.Intangible assets, net
The following is a summary of intangible assets as of December 31, 2021:
December 31, 2020 | Additions | Amortization | December 31, 2021 | |||||||||||||
| ||||||||||||||||
Acquired technology | $ | 53,412 | $ | 31,005 | $ | 0 | $ | 84,417 | ||||||||
Accumulated amortization | (25,548 | ) | 0 | (5,589 | ) | (31,137 | ) | |||||||||
Impairment | (8,749 | ) | 0 | 0 | (8,749 | ) | ||||||||||
Acquired technology, net | 19,115 | 31,005 | (5,589 | ) | 44,531 | |||||||||||
| ||||||||||||||||
Customer relationships | 36,860 | 8,194 | 0 | 45,054 | ||||||||||||
Accumulated amortization | (22,161 | ) | 0 | (1,057 | ) | (23,218 | ) | |||||||||
Impairment | (10,426 | ) | 0 | 0 | (10,426 | ) | ||||||||||
Customer relationships, net | 4,273 | 8,194 | (1,057 | ) | 11,410 | |||||||||||
| ||||||||||||||||
Tradename and other | 18,503 | 0 | 0 | 18,503 | ||||||||||||
Accumulated amortization | (12,405 | ) | 0 | (229 | ) | (12,634 | ) | |||||||||
Impairment | (5,110 | ) | 0 | 0 | (5,110 | ) | ||||||||||
Tradename and other, net | 988 | 0 | (229 | ) | 759 | |||||||||||
| ||||||||||||||||
Intangible assets, net | $ | 24,376 | $ | 39,199 | $ | (6,875 | ) | $ | 56,700 |
The following is a summary of intangible assets as of December 31, 2020:
December 31, 2019 | Additions |
|
| Amortization |
|
| OCI |
|
| December 31, 2020 |
| |||||||||
Acquired technology |
| $ | 31,159 |
|
| $ | 22,101 |
|
| $ | 0 |
|
| $ | 152 |
|
| $ | 53,412 |
|
Accumulated amortization |
|
| (21,810 | ) |
|
| 0 |
|
|
| (3,579 | ) |
|
| (159 | ) |
|
| (25,548 | ) |
Impairment |
|
| (8,749 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (8,749 | ) |
Acquired technology, net |
|
| 600 |
|
|
| 22,101 |
|
|
| (3,579 | ) |
|
| (7 | ) |
|
| 19,115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships |
|
| 31,911 |
|
|
| 4,901 |
|
|
| 0 |
|
|
| 48 |
|
|
| 36,860 |
|
Accumulated amortization |
|
| (20,727 | ) |
|
| 0 |
|
|
| (1,465 | ) |
|
| 31 |
|
|
| (22,161 | ) |
Impairment |
|
| (10,426 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (10,426 | ) |
Customer relationships, net |
|
| 758 |
|
|
| 4,901 |
|
|
| (1,465 | ) |
|
| 79 |
|
|
| 4,273 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tradename and other |
|
| 18,284 |
|
|
| 0 |
|
|
| 0 |
|
|
| 219 |
|
|
| 18,503 |
|
Accumulated amortization |
|
| (11,897 | ) |
|
| 0 |
|
|
| (217 | ) |
|
| (291 | ) |
|
| (12,405 | ) |
Impairment |
|
| (5,110 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (5,110 | ) |
Tradename and other, net |
|
| 1,277 |
|
|
| 0 |
|
|
| (217 | ) |
|
| (72 | ) |
|
| 988 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net |
| $ | 2,635 |
|
| $ | 27,002 |
|
| $ | (5,261 | ) |
| $ | 0 |
|
| $ | 24,376 |
|
F - 26
PERION NETWORK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The estimated useful life of the intangible assets are as follows:
|
| Estimated useful life |
| |
Acquired technology |
|
| 4-7 years |
|
Customer relationships |
|
| 5-8 years |
|
Tradename and other |
|
| 4-11 years |
|
Amortization of intangible assets, net, in each of the succeeding five years and thereafter is estimated as follows:
2022 |
| $ | 11,275 |
|
2023 |
|
| 11,150 |
|
2024 |
|
| 10,963 |
|
2025 |
|
| 7,137 |
|
2026 |
|
| 5,735 |
|
Thereafter |
|
| 10,440 |
|
|
|
|
|
|
|
| $ | 56,700 |
NOTE 7: ACCRUED EXPENSES AND OTHER LIABILITIES
|
| December 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
|
|
|
|
|
|
| ||
Employees and payroll accruals |
| $ | 19,597 |
|
| $ | 13,970 |
|
Obligation related to acquisitions | 8,725 | 0 | ||||||
Government authorities |
|
| 6,706 |
|
|
| 3,422 |
|
Accrued expenses |
|
| 4,560 |
|
|
| 3,003 |
|
Other short-term liabilities |
|
| 743 |
|
|
| 793 |
|
|
|
|
|
|
|
|
|
|
|
| $ | 40,331 |
|
| $ | 21,188 |
|
F - 27
PERION NETWORK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8: DERIVATIVES AND HEDGING ACTIVITES
The fair value of the Company’s outstanding derivative instruments is as follows:
| December 31, | ||||||||
| Balance sheet | 2021 | 2020 | ||||||
| |||||||||
Derivatives designate as hedging instruments: | |||||||||
Foreign exchange forward contracts and other derivatives | ''Prepaid expenses and other current assets'' | $ | 75 | $ | 0 | ||||
| ''Accumulated other comprehensive income'' | 75 | 0 | ||||||
| |||||||||
Derivatives not designated as hedging instruments: | |||||||||
| |||||||||
Foreign exchange forward contracts and other derivatives | ''Prepaid expenses and other current assets'' | $ | 21 | $ | 0 | ||||
| ''Accrued expenses and other liabilities'' | 3 | 0 |
The net amounts reclassified from accumulated other comprehensive loss to the operating expenses are as follows:
Gain recognized in | Gain (loss) recognized in consolidated statements of Income | ||||||||||||||||
|
| Year ended December 31, |
|
|
| Year ended December 31, |
| ||||||||||
|
| 2021 |
| Statement of Income |
| 2021 |
|
| 2020 |
|
| 2019 |
| ||||
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Foreign exchange options and forward contracts |
| $ | (75 | ) | "Operating expenses" |
| $ | 167 |
|
| $ | 764 |
|
| $ | 272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange options and forward contracts |
|
| - |
| "Financial expenses" |
|
| 24 |
|
|
| (166 | ) |
|
| 59 |
|
SWAP |
|
| - |
| "Financial expenses" |
|
| 0 |
|
|
| 0 |
|
|
| 380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
| $ | (75 | ) |
|
| $ | 191 |
|
| $ | 598 |
| $ | 711 |
|
F - 28
PERION NETWORK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9: SHORT TERM AND LONG-TERM DEBT
On December 17, 2018, ClientConnect Ltd., a former Israeli subsidiary of Perion, which merged into Perion on June 30, 2020, executed a new loan facility, in the amount of $25,000. Proceeds of the loan facility were applied to refinancing of the existing debt as well as the debt of Undertone, a US subsidiary of Perion. ClientConnect's obligations under the facility were assumed by Perion in the context of the merger. Principal on the loan is payable in twelve equal quarterly instalments beginning March 2019 and maturing on December 31, 2021. The interest on the loan is at the rate of three-month LIBOR plus 5.7% per annum, payable quarterly. The credit facility is secured by liens on the assets of Perion and Undertone and is guaranteed by Undertone. The guarantee by Undertone is limited to $33,000. Financial covenants for the loan facility are tested at the level of Perion on a consolidated basis.
On March 8, 2021, the Company early repaid the full amount of its loan facility with bank Mizrachi of a principal amount of $8,333 together with the accumulated interest up to this date as per the agreement.
NOTE 10: LEASES
In January 2014, the Company entered into a lease agreement for new corporate offices in Holon, Israel. The lease expires in January 2025, with an option by the Company to extend for 2 additional terms of 24 months each. The Company sublease part of the office to three different sub-tenants.
In June 2018, Undertone entered into a lease agreement for its office at World Trade Center (WTC) New York. The lease expires in May 2026. Additionally, the Company may choose an early termination in 2024.
In January 2019, the Company’s French subsidiary entered into a lease agreement for its office at Paris, France. The Company chose an early termination during December 2021.
Certain other facilities of the Company are rented under operating lease agreements, which expire on various dates, the latest of which is in 2023. The Company recognizes rent expense under such arrangements on a straight-line basis.
The Company's capitalized operating lease agreements have remaining lease terms ranging from 0.67 year to 4.33 years.
The following table represents the weighted-average remaining lease term and discount rate:
|
| Year ended |
| |
|
| December 31, 2021 |
| |
Weighted average remaining lease term |
| 3.72 Years |
| |
Weighted average discount rate |
| 7.67% |
|
The discount rate was determined based on the estimated collateralized borrowing rate of the Company, adjusted to the specific lease term and location of each lease.
F - 29
PERION NETWORK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Maturities of operating lease liabilities were as follows:
Year ending December 31, |
|
|
| |
2022 |
|
| 4,485 |
|
2023 |
|
| 4,104 |
|
2024 |
|
| 4,101 |
|
2025 |
|
| 2,057 |
|
Thereafter |
|
| 622 |
|
|
|
|
|
|
Total lease payments *) |
|
| 15,369 |
|
|
|
|
|
|
Less – imputed interest |
|
| (1,980 | ) |
|
|
|
|
|
Present value of lease liabilities |
| $ | 13,389 |
|
*) Total lease payments have not been reduced by sublease rental payments of $5,838 due in the future under non-cancelable subleases.
Facilities leasing expenses (net) in the years 2021, 2020 and 2019 were $4,441, $3,493, and $3,076 respectively. Out of which, Sublease income amounted to $2,838, $2,682 and $2,213 in the years 2021, 2020 and 2019, respectively.
Cash paid for amounts included in measurement of lease liabilities during 2021 was $8,465.
NOTE 11:COMMITMENT AND CONTINGENT LIABILITIES
a.Contingent purchase obligation
On November 30, 2012, the Company completed the acquisition of 100% of Sweet IM’s shares. Pursuant to the terms of the Share Purchase Agreement (“SPA”) between the Company and SweetIM, the Company was obligated to pay SweetIM's shareholders, among other payments, a payment of up to $7,500 in cash in May 2014 if certain milestones were met (the “Contingent Payment”). The milestones were based on the Company's GAAP revenues in 2013, and the absence of certain changes in the industry in which the Company operates. On May 28, 2014, the Company paid $2,500 in respect of the Contingent Payment. Following such payment, on June 22, 2014, SweetIM’s Shareholders’ representative notified the Company claiming that the Company owes SweetIM’s shareholders the entire Contingent Payment. In April 2015, pursuant to the SPA, an arbitration process with respect to this claim has commenced in Israel. Based on the August 2018 ruling of the arbitrator, the remaining balance of the Contingent Payment shall be paid to SweetIM's shareholders in 3 equal installments, the last of which was paid during January 2019.
b.Legal Matters
On December 22, 2015, Adtile Technologies Inc. filed a lawsuit against the Company and Intercept Interactive Inc. (“Intercept”), a subsidiary of Interactive Holding Corp., in the United States District Court for the District of Delaware. The lawsuit alleges various causes of action against Perion and Undertone related to Undertone’s alleged unauthorized use and misappropriation of Adtile’s proprietary information and trade secrets. Adtile is seeking injunctive relief and, unspecified monetary damages. On June 23, 2016, the court denied Adtile’s motion for a preliminary injunction. On June 24, 2016, the court (i) granted the Company’s motion to dismiss, and (ii) granted Intercept’s motion to stay the action and compel arbitration. In November 2017, the court dismissed the case for administrative reasons, since Adtile had not commenced arbitration proceedings. The Company is still unable to predict the outcome or range of possible loss as of the date of these financial statements, since to date Adtile had not commenced arbitration procedures. Regardless, the Company believes it has strong defenses against this lawsuit and intends to defend against it vigorously.
In addition, from time to time, the Company is party to other various legal proceedings, claims and litigation that arise in the ordinary course of business. It is the opinion of management that the ultimate outcome of these matters will not have a material adverse effect on the Company's financial position, results of operations or cash flows.
F - 30
PERION NETWORK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12:SHAREHOLDERS' EQUITY
a.Ordinary shares
The ordinary shares of the Company entitle their holders to voting rights, the right to receive cash dividend and the right to a share in excess assets upon liquidation of the Company.
b.Share Options, Restricted Share Units and Warrants
In 2003, the Company's Board of Directors approved the 2003 Equity Incentive Plan (the "Plan") for an initial term of ten years from adoption and on December 9, 2012, extended the term of the Plan for an additional ten years. On August 7, 2013, the Company’s Board of Directors approved amendments to the Plan which include the ability to grant RSUs and restricted shares.
The contractual term of the share options is generally no more than seven years and the vesting period of the options and RSUs granted under the Plan is between one and three years from the date of grant. The rights of the ordinary shares issued upon the exercise of share options or RSUs are identical to those of the other ordinary shares of the Company.
As of December 31, 2021, there were 625,477 ordinary shares reserved for future share-based awards under the Plan.
The following table summarizes the activities for the Company’s service-based share options for the year ended December 31, 2021:
Weighted average | ||||||||||||||||
|
| Number of options |
|
| Exercise price |
|
| Remaining contractual term (in years) |
|
| Aggregate intrinsic value |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Outstanding at January 1, 2021 |
|
| 4,527,047 |
|
| $ | 3.24 |
|
|
| 21.79 |
|
| $ | 42,942 |
|
Granted |
|
| 1,567,323 |
|
|
| 1.22 |
|
|
| - |
|
|
| - |
|
Exercised |
|
| (2,219,157 | ) |
|
| 3.11 |
|
|
| - |
|
|
| 39,395 |
|
Cancelled |
|
| (300,812 | ) |
|
| 4.82 |
|
|
| - |
|
|
| - |
|
Outstanding at December 31, 2021 |
|
| 3,574,401 |
|
| $ | 2.46 |
|
|
| 45.90 |
|
| $ | 77,173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2021 |
|
| 968,706 |
|
| $ | 4.45 |
|
|
| 4.27 |
|
| $ | 18,984 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at December 31, 2021 |
|
| 3,432,075 |
|
| $ | 2.54 |
|
|
| 2.13 |
|
| $ | 73,693 |
|
The weighted-average grant-date fair value of options granted during the years ended December 31, 2021, 2020 and 2019 was $18.55, $3.14, and $1.75, respectively.
F - 31
PERION NETWORK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The aggregate intrinsic value of the outstanding share options at December 31, 2021, represents the intrinsic value of all outstanding options since they were all in-the-money as of such date.
The number of options expected to vest reflects an estimated forfeiture rate.
The following table summarizes the activities for the Company’s performance-based share options for the year ended December 31, 2021:
| Weighted average | |||||||||||||||
| Number of | Exercise price | Remaining | Aggregate intrinsic | ||||||||||||
| ||||||||||||||||
Outstanding at January 1, 2021 | 769,311 | $ | 2.78 | 40.53 | 7,653 | |||||||||||
Granted | 436,963 | 0 | - | - | ||||||||||||
Exercised | (15,000 | ) | 0 | - | 228 | |||||||||||
Cancelled | (287,374 | ) | 0 | - | - | |||||||||||
| ||||||||||||||||
Outstanding at December 31, 2021 | 903,900 | $ | 2.37 | 46.16 | $ | 19,599 | ||||||||||
| ||||||||||||||||
Exercisable at December 31, 2021 | 300,000 | $ | 5.35 | 5.58 | $ | 5,610 | ||||||||||
| ||||||||||||||||
Vested and expected to vest at December 31, 2021 | 903,400 | $ | 2.37 | 2.50 | $ | 19,526 |
The weighted-average grant-date fair value of options granted during the year ended December 31, 2021 and 2020 was $20.03 and $3.12, respectively. No performance-based options were granted during 2019.
The aggregate intrinsic value of the outstanding performance-based options at December 31, 2021, represents the intrinsic value of all outstanding options since they were all in-the-money as of such date.
F - 32
PERION NETWORK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes additional information regarding outstanding and exercisable service-based options under the Company's share Option Plan as of December 31, 2021:
Outstanding | Exercisable | |||||||||||||||||||||||||
Range of exercise price | Number of options | Weighted average remaining contractual life (years) | Weighted average exercise price | Number of options | Weighted average remaining contractual life (years) | Weighted average exercise price | ||||||||||||||||||||
$ | 0.01 | 2,009,425 | 78.46 | $ | 0.01 | 8,658 | 78.18 | $ | 0.01 | |||||||||||||||||
2.52 – 3.38 | 521,053 | 3.01 | 3.16 | 456,651 | 2.94 | 3.16 | ||||||||||||||||||||
4.23 – 5.90 | 493,433 | 4.45 | 5.01 | 287,651 | 4.02 | 4.92 | ||||||||||||||||||||
6.23 – 8.34 | 450,989 | 4.49 | 6.77 | 214,413 | 4.45 | 6.72 | ||||||||||||||||||||
$ | 12.02 – 21.35 | 99,501 | 6.24 | 16.28 | 1,333 | 6.11 | 12.02 | |||||||||||||||||||
3,574,401 | 45.90 | $ | 2.46 | 968,706 | 4.27 | $ | 4.45 |
The following table summarizes additional information regarding outstanding and exercisable performance-based options under the Company's share Option Plan as of December 31, 2021:
|
|
| Outstanding |
|
| Exercisable |
| ||||||||||||||||||||
Range of exercise price |
|
| Number of options |
|
| Weighted average remaining contractual |
|
| Weighted average exercise price |
|
| Number of options |
|
| Weighted average remaining contractual |
|
| Weighted average exercise price |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
$ | 0.01 |
|
|
| 503,900 |
|
|
| 78.37 |
|
| $ | 0.01 |
|
|
| 0 |
|
|
| - |
|
| $ | 0 |
| |
$ | 5.35 |
|
|
| 400,000 |
|
|
| 5.58 |
|
|
| 5.35 |
|
|
| 300,000 |
|
|
| 5.58 |
|
|
| 5.35 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
| 903,900 |
|
|
| 46.16 |
|
| $ | 2.37 |
|
|
| 300,000 |
|
|
| 5.58 |
|
| $ | 5.35 |
|
The Company recognized share-based compensation expenses related to its share-based awards in the consolidated statements of operations as follows:
|
| Year ended December 31, |
| |||||||||
|
| 2021 |
|
| 2020 |
|
| 2019 |
| |||
|
|
|
|
|
|
|
|
|
| |||
Cost of revenues |
| $ | 171 |
|
| $ | 102 |
|
| $ | 164 |
|
Research and development |
|
| 946 |
|
|
| 887 |
|
|
| 488 |
|
Selling and marketing |
|
| 3,248 |
|
|
| 1,898 |
|
|
| 515 |
|
General and administrative |
|
| 2,620 |
|
|
| 1,560 |
|
|
| 1,126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
| $ | 6,985 |
|
| $ | 4,447 |
|
| $ | 2,293 |
|
As of December 31, 2021, there was $16,293 of unrecognized compensation cost related to outstanding options. These amounts are expected to be recognized over a weighted-average period of 1.59 years related to outstanding options. To the extent the actual forfeiture rate is different from what has been estimated, share-based compensation related to these awards will differ from the initial expectations.
F - 33
PERION NETWORK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
c.As part of the acquisition of Undertone, the Company granted warrants to purchase 66,666 ordinary shares, at a weighted average exercise price of $9.09 per share, to a third-party vendor that provides development services to Undertone. The warrants were exercisable until December 27, 2020 and wasn’t exercised by this date. No expense incurred in 2020. The total expense incurred in 2019 was $59.
NOTE 13:FINANCIAL INCOME (EXPENSE), NET
|
| Year ended December 31, |
| |||||||||
|
| 2021 |
|
| 2020 |
|
| 2019 |
| |||
|
|
|
|
|
|
|
|
|
| |||
Financial income: |
|
|
|
|
|
|
|
|
| |||
Interest income |
| $ | 539 |
|
| $ | 287 |
|
| $ | 624 |
|
Change in fair value of SWAP |
|
| 0 |
|
|
| 0 |
|
|
| 380 |
|
Other |
|
| 0 |
|
|
| 45 |
|
|
| 147 |
|
|
| $ | 539 |
|
| $ | 332 |
|
| $ | 1,151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation losses |
| $ | (528 | ) |
| $ | (1,537 | ) |
| $ | (950 | ) |
Interest expense on debts |
|
| (119 | ) |
|
| (1,045 | ) |
|
| (2,334 | ) |
Change in fair value of convertible debt |
|
| 0 |
|
|
| 0 |
|
|
| (600 | ) |
Bank charges and other |
|
| (473 | ) |
|
| (388 | ) |
|
| (737 | ) |
|
| $ | (1,120 | ) |
| $ | (2,970 | ) |
| $ | (4,621 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial expense, net |
| $ | (581 | ) |
| $ | (2,638 | ) | $ | (3,470 | ) |
NOTE 14:INCOME TAXES
Year ended December 31, | ||||||||||||
2021 | 2020 | 2019 | ||||||||||
Domestic | $ | 38,854 | $ | 12,175 | $ | 21,095 | ||||||
Foreign | 6,461 | (2,560 | ) | (6,557 | ) | |||||||
Total | $ | 45,315 | $ | 9,615 | $ | 14,538 |
F - 34
PERION NETWORK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
b.Taxes on income
Year ended December 31, | ||||||||||||
2021 | 2020 | 2019 | ||||||||||
Current taxes | $ | 7,891 | $ | 2,498 | $ | 3,816 | ||||||
Taxes in respect of previous years | 1,476 | 6 | (129 | ) | ||||||||
Deferred tax benefit | (2,758 | ) | (3,114 | ) | (2,042 | ) | ||||||
Total | $ | 6,609 | $ | (610 | ) | $ | 1,645 |
Year ended December 31, | ||||||||||||
2021 | 2020 | 2019 | ||||||||||
Domestic | $ | 8,060 | $ | 1,031 | $ | 3,055 | ||||||
Foreign | (1,451 | ) | (1,641 | ) | (1,410 | ) | ||||||
Total | $ | 6,609 | $ | (610 | ) | $ | 1,645 | |||||
Domestic: | ||||||||||||
Current taxes | $ | 7,447 | $ | 1,466 | $ | 3,519 | ||||||
Deferred tax benefit | (980 | ) | (984 | ) | (197 | ) | ||||||
Taxes in respect of previous years | 1,593 | 549 | (267 | ) | ||||||||
Total - Domestic | $ | 8,060 | $ | 1,031 | $ | 3,055 | ||||||
Foreign: | ||||||||||||
Current taxes | $ | 444 | $ | 1,032 | $ | 297 | ||||||
Deferred tax benefit | (1,778 | ) | (2,130 | ) | (1,845 | ) | ||||||
Taxes in respect of previous years | (117 | ) | (543 | ) | 138 | |||||||
Total - Foreign | $ | (1,451 | ) | $ | (1,641 | ) | $ | (1,410 | ) | |||
Total income tax expense (benefit) | $ | 6,609 | $ | (610 | ) | $ | 1,645 |
F - 35
PERION NETWORK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, | ||||||||
2021 | 2020 | |||||||
Deferred tax assets: | ||||||||
Net operating loss and other losses carry forwards | $ | 4,955 | $ | 4,049 | ||||
Research and development | 3,629 | 2,287 | ||||||
Intangible assets | (3,251 | ) | 1,476 | |||||
Other temporary differences mainly relating to reserve and allowances | 2,539 | 1,553 | ||||||
Deferred tax assets, before valuation allowance | $ | 7,872 | $ | 9,365 | ||||
Valuation allowance | 2,644 | 2,254 | ||||||
Total deferred tax assets, net | $ | 5,228 | $ | 7,111 | ||||
Domestic: | ||||||||
Long term deferred tax asset (liability), net | $ | (732 | ) | $ | 2,034 | |||
$ | (732 | ) | $ | 2,034 | ||||
Foreign: | ||||||||
Long term deferred tax asset, net | $ | 5,960 | $ | 5,077 | ||||
$ | 5,960 | $ | 5,077 | |||||
Total deferred tax asset, net | $ | 5,228 | $ | 7,111 |
F - 36
PERION NETWORK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Year ended December 31, | ||||||||||||
2021 | 2020 | 2019 | ||||||||||
Income before taxes on income | $ | 45,315 | $ | 9,615 | $ | 14,538 | ||||||
Statutory tax rate in Israel | 23.0 | % | 23.0 | % | 23.0 | % | ||||||
Theoretical tax expense | $ | 10,422 | $ | 2,211 | $ | 3,344 | ||||||
Increase (decrease) in tax expenses resulting from: | ||||||||||||
"Preferred Enterprise" benefits * | (5,610 | ) | (1,701 | ) | (2,973 | ) | ||||||
Non-deductible expenses | 710 | 2,409 | 374 | |||||||||
Tax adjustment in respect of different tax rate of foreign subsidiaries | 226 | 228 | 397 | |||||||||
Deferred taxes related to prior years | (922 | ) | (1,576 | ) | 0 | |||||||
Previous years taxes | 1,476 | (147 | ) | |||||||||
Change in valuation allowance | 390 | (2,097 | ) | 421 | ||||||||
Other | (83 | ) | 63 | 82 | ||||||||
Taxes on income | $ | 6,609 | $ | (610 | ) | $ | 1,645 | |||||
* Benefit per ordinary share from "Preferred Enterprise" status: | ||||||||||||
Basic | $ | 0.16 | $ | 0.06 | $ | 0.11 | ||||||
Diluted | $ | 0.15 | $ | 0.06 | $ | 0.11 |
F - 37
PERION NETWORK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The Company assessed the criteria for qualifying as a “Preferred Technological Enterprise,” status and concluded that the Company and certain of its Israeli subsidiaries are eligible to the above-mentioned benefits.
F - 38
PERION NETWORK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, | ||||||||
2021 | 2020 | |||||||
Balance at the beginning of the year | $ | 4,525 | $ | 4,232 | ||||
Increase related to prior year tax positions, net | 1,285 | 293 | ||||||
Increase related to current year tax positions, net | 1,118 | 0 | ||||||
Balance at the end of the year | $ | 6,928 | $ | 4,525 |
As of December 31, 2021, the Company’s U.S. subsidiaries have Federal net operating loss carry-forwards of $6,752 and States net operating loss carry-forwards of $5,883. Net operating losses generated in fiscal years prior to 2018 in the U.S. may be carried forward through periods which will expire in the years starting from 2031 up to 2035. Net operating losses generated in 2018 and subsequent years in the U.S. may be carried forward indefinitely for Federal tax purposes yet are subject to certain limitations. Different states have varying rules regarding utilization and expiration of net operating losses. Utilization of U.S. net operating losses may be subject to substantial annual limitation due to the "change in ownership" provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of net operating losses before utilization.
As of December 31, 2021, the Company’s European subsidiaries have net operating loss carry-forwards of $7,293 which may be carried forward indefinitely.
The Company has accumulated net operating losses for Israeli tax purposes as of December 31, 2021, in the amount of approximately $8,534 which may be carried forward and offset against taxable income in the future for an indefinite period. The net operating losses may be offset against taxable income annually with a limitation of up to 20% of the total accumulated losses but not more than 50% of the Company's taxable income. The limitation applies during the years 2020-2024. In addition, the Company has accumulated capital losses for tax purposes as of December 31, 2021, of approximately $1,643, which may be carried forward and offset against taxable capital gains in the future for an indefinite period, but are limited as stated above.
In March 2020, in response to the COVID-19 pandemic the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was enacted. The CARES Act comprises of a spending package and tax reliefs in order to reduce the impact of the pandemic. The tax portion of the CARES Act includes several corporate tax relief provisions such as: eliminating the taxable income limitation and allowing carryback to the prior 5 years for net operating losses (“NOLs”) arising in 2018, 2019 and 2020; increasing the business interest deduction limitation from 30% to 50%; accelerated refunds of AMT credits and other provisions.
F - 39
PERION NETWORK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15:EARNINGS PER SHARE
The table below presents the computation of basic and diluted net earnings per common share:
Year ended December 31, | ||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2019 |
| |||
Numerator: |
|
|
|
|
|
|
|
|
| |||
Net income attributable to ordinary shares - basic |
| $ | 38,706 |
|
| $ | 10,225 |
|
| $ | 12,893 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income - diluted |
| $ | 38,706 |
|
| $ | 10,225 |
|
| $ | 12,893 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
Number of ordinary shares outstanding during the year |
|
| 34,397,134 |
|
|
| 26,687,145 |
|
|
| 25,965,357 |
|
Weighted average effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Employee options and restricted share units |
|
| 3,432,591 |
|
|
| 2,110,602 |
|
|
| 392,228 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted number of ordinary shares outstanding |
|
| 37,829,725 |
|
|
| 28,797,747 |
|
|
| 26,357,585 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net earnings per ordinary share |
| $ | 1.13 |
|
| $ | 0.38 |
|
| $ | 0.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net earnings per ordinary share |
| $ | 1.02 |
|
| $ | 0.36 |
|
| $ | 0.49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential ordinary shares equivalents excluded because their effect would have been anti-dilutive |
|
| 1,035,307 |
|
|
| 3,178,024 |
|
|
| 4,087,559 |
NOTE 16:MAJOR CUSTOMERS
A substantial portion of the Company's revenue is derived from search fees and online advertising, the market for which is highly competitive and rapidly changing. Significant changes in this industry or in customer buying behavior would adversely affect the Company’s operating results.
The following table sets forth the customers that represent 10% or more of the Company’s total revenues in each of the years presented below:
|
| Year ended December 31, |
| |||||||||
|
| 2021 |
|
| 2020 |
|
| 2019 |
| |||
|
|
|
|
|
|
|
|
|
| |||
Customer A |
|
| 37% |
|
|
| 51% |
|
|
| 63% |
F - 40
PERION NETWORK LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17:GEOGRAPHIC INFORMATION
The Company operates as one operating segment. Operating segments are defined as components of an enterprise for which separate financial information is evaluated regularly by the Chief Operating Decision Maker, who is the Chief Executive Officer, in deciding how to allocate resources and assessing performance. Over the past few years, the Company has completed several acquisitions. These acquisitions have allowed the Company to expand its offerings, presence and reach in various markets. While the Company has offerings in multiple enterprise markets, the Company’s business operates in one segment which is the High Impact Advertising solutions, and the Company’s Chief Operating Decision Maker evaluates the Company’s financial information and resources and assesses the performance of these resources on a consolidated basis.
The following table presents the total revenues for the years ended December 31, 2021, 2020 and 2019, allocated to the geographic areas in which they were generated:
|
| Year ended December 31, |
| |||||||||
|
| 2021 |
|
| 2020 |
|
| 2019 |
| |||
|
|
|
|
|
|
|
|
|
| |||
North America (mainly U.S.) |
| $ | 423,571 |
|
| $ | 272,220 |
|
| $ | 195,903 |
|
Europe |
|
| 48,109 |
|
|
| 49,222 |
|
|
| 50,669 |
|
Other |
|
| 6,818 |
|
|
| 6,621 |
|
|
| 14,878 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 478,498 |
|
| $ | 328,063 |
|
| $ | 261,450 |
|
The total revenues are attributed to geographic areas based on the location of the end-users.
The following table presents the locations of the Company’s long-lived assets as of December 31, 2021 and 2020:
|
| December 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
|
|
|
|
|
|
| ||
Israel |
| $ | 8,049 |
|
| $ | 11,343 |
|
U.S. |
|
| 7,524 |
|
|
| 10,157 |
|
Europe |
|
| 216 |
|
|
| 5,536 |
|
|
|
|
|
|
|
|
|
|
|
| $ | 15,789 |
|
| $ | 27,036 |
|
F - 41
Incorporation by Reference | |||||||
Exhibit No. | Description | Form | File No. | Exhibit No. | Filing Date | Filed / Furnished | |
* | |||||||
* | |||||||
* | |||||||
20-F | 000-51694 | 4.1 | April 29, 2013 | ||||
6-k | 000-51694 | 99.9 | October 15, 2013 | ||||
* | |||||||
20-F | 000-51694 | 4.16 | March 19, 2019 | ||||
20-F | 000-51694 | 4.17 | March 27, 2018 | ||||
20-F | 000-51694 | 4.6 | March 25, 2021 | ||||
20-F | 000-51694 | 4.7 | March 25, 2021 | ||||
20-F | 000-51694 | 4.8 | March 16, 2020 | ||||
* | |||||||
* | |||||||
* | |||||||
** | |||||||
** | |||||||
* | |||||||
101.INS | Inline XBRL Instance Document | ||||||
101.SCH | Inline XBRL Taxonomy Extension Schema Document | ||||||
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | ||||||
101.DEF | Inline XBRL Taxonomy Definition Linkbase Document | ||||||
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | ||||||
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | ||||||
104** | Inline XBRL for the cover page of this Annual Report on Form 20-F (embedded within the Inline XBRL document) |
* | Filed herewith. |
** | Furnished herewith. |
*** | Certain confidential information contained in this document, marked by brackets, was omitted because it is both (i) not material and (ii) would likely cause competitive harm to the Company if publicly disclosed. “[***]” indicates where the information has been omitted from this exhibit. |
† | Indicates management contract or compensatory plan or arrangement. |
86
PERION NETWORK LTD. | |||
By: | /s/ Doron Gerstel | ||
Name: Doron Gerstel | |||
Title: Chief Executive Officer | |||
By: | /s/ Maoz Sigron | ||
Name: Maoz Sigron | |||
Title: Chief Financial Officer |