Perion Network Ltd Aktie

Hello, everybody, and welcome to the Perion Network First Quarter 2026 Earnings Conference Call. Today's conference call is being recorded, and an archive of the webcast will be posted on the company's website.

The press release detailing the financial results is available on the company's website at www.perion.com. Before we begin I'd like to read the following safe harbor statement. Today's discussion includes forward-looking statements. These statements reflect the company's current views with respect to future events. These forward-looking statements involve known and unknown risks, uncertainties and other factors, including those discussed under the heading Risk Factors and elsewhere in the company's annual report on Form 20-F, that may cause actual results, performances or achievements to be materially different and any future results, performances or achievements anticipated or implied by these forward-looking statements.

The company does not undertake to update any forward-looking statements to reflect future events or circumstances. As in prior quarters, the results reported today will be analyzed both on a GAAP and on a non-GAAP measure.

Whilst mentioning EBITDA, we will be referring to adjusted EBITDA. We have provided a detailed reconciliation of non-GAAP measures to their comparable GAAP measures in our earnings release, which will be available on our website and has also been filed on Form 6-K.

Hosting the call today is Dale Jacobson, Perion's Chief Financial Officer -- Chief Executive Officer; and Elad Tzubery, Perion's Chief Financial Officer. I would now like to turn the call over to Tal Jacobsen. Please go ahead.

Good morning, and thank you for joining us on Perion's earnings call for the first quarter of 2026. 2025 was year 1 for the new Perion. 2026 focuses on advancing our new technologies and accelerating their adoption among our clients.

In the first quarter of 2026, we saw an increase across all our growth engines. Our fastest-growing channel, CTV and Digital out-of-home outgrew the market. In retail media adoption, we experienced significant growth that Elad will present.

And I'm also happy to share that Outmax, our AI Agent technology that was part of the Green Bits acquisition is growing rapidly and is becoming a meaningful part of Perion One. A few important data points from our quarterly numbers, the Perion One product line is seeing an increase of 6% in marketing budgets which we refer to as spend. This is an encouraging number, as we see a faster adoption of our platform and the Outmax AI agent usage among our clients.

You can also recognize that both acquisitions high stacking green bits were extremely successful as both out-of-home and Outmax numbers are continuing to grow quarter after quarter. This represents our ability to acquire high-quality companies and integrate them efficiently.

Perion One is designed to solve the complexity of the global advertising ecosystem that is both massive and fragmented. Marketers navigate in a universe of screens, platforms, formats, data sets and buying environments, while trying to achieve higher standards of performance.

Budget, signals and optimizations are siloed by channels, creating a challenging fragmentation that leads to efficiency and performance breakdown. This is the core challenge we've been focused on solving. We are building Perion One as an AI-native execution infrastructure to unify the fragmented ecosystem for both advertisers and publishers. Perion One enables advertisers to perform highly complex marketing activities. It allows them to make confident decisions faster while continuously optimizing every campaign in real time.

With Perion One, publishers are able to maximize inventory value through smarter demand allocation and yield optimization. By aligning execution across both sides of the ecosystem, demand and supply, Perion One improves efficiency, performance and outcomes end-to-end. Perion One is an infrastructure, not a tool set.

The most advanced part of Perion One is the Outmax technology, our AI agent, which is showing tremendous growth. Outmax goal is to be the one AI agent for every channel, whether it's YouTube, Facebook, Instagram, NBC or Disney Plus, Outmax is designed to act as an intelligent execution agent that ensures every dollar spent is working at its maximum potential.

Outmax removes the guesswork and replaces it with algorithm certainty. It is designed to allocate spend, manage pacing and optimize outcomes in real time, both inside Perion One and on external platforms.

We are continuously expanding the channels and platforms that Outmax connects to. This quarter, we announced Outmax for TikTok, which is already showing great results. TikTok is one of the fastest-growing advertising platforms in the world with 1.6 billion users and ad revenue projected to exceed $50 billion by next year. Outmax for TikTok early results are strong, with Outmax already delivering up to 25% lift in performance on TikTok.

This is exactly the land-and-expand pattern that we are focusing on, adding new high-growth channels, clear performance advantages in a global path to allow us to scale across more customers and more platforms.

This quarter, we entered into an exclusive partnership with Murley Media and Media Mark, deploying Outmax AI agent across Africa. This new partnership unlocks a programmatic market forecasted to reach $6.5 billion by 2029, growing at a 15.3% CAGR. The value this partnership brings is clear. Outmax AI agent and Perion's programmatic digital out-of-home capabilities paired with our partner's agency footprint across Africa create an accelerated distribution for our technologies across the region.

This expands Perion's commercial footprint and creates new revenue channels without adding further expenses to our P&L. The following case studies show how the same execution model delivers for different brands. Bouygues Telecom, one of the leading French telcos, deployed Outmax across always-on campaigns. The embedded Outmax into their enterprise marketing operations to continuously control and optimize media execution.

The results show 34% lower customer acquisition costs and a 51% reduction in carbon intensity. Bouygues is already extending Outmax to additional channels, another example of the land and expand model in action.

C4 Energy is one of the fastest-growing energy drinks brands in the U.S. with a younger performance-oriented audience. This makes YouTube a crucial channel for reaching their consumers.

C4 energy, turn to Perion to achieve a greater control across their audience targeting and contextual placement on YouTube, and the results speak for themselves. As capable view rate of 80% above the benchmark, a 20.7% lift in brand awareness and a 4.1% lift in brand at recall.

Wener, a clothing brand known for its youthful style and bold statement pieces ran a multichannel campaign across Meta in YouTube with Outmax AI agent, continuously optimizing delivery in real time.

Results show how Outmax delivers performance across multiple platforms with multiple KPIs. And finally, Vazanine, a campaign that demonstrate how our advanced real-time data capabilities and our programmatic digital out-of-home can be leveraged to benefit our brands.

Vaseline integrated live UV index data directly into its digital out-of-home creative, dynamically presenting exposure risks through a clear visual color-coated system updated in real time.

The campaign delivered over 1.65 million impressions, turning everyday commutes into moments of relevant contextual skin care education.

This is an example of how digital out-of-home can offer dynamic data-driven storytelling that performs. Many of the challenges marketers face are consistent. Earlier this quarter, we partnered with eMarketer on a research study of senior marketers and agencies. The findings reinforce exactly what we have been building towards. 89% of marketers say that creative is crucial for their performance, nearly half believed that if creative could be optimized in real time, they would unlock 11% to 30% of performance lift.

And more than half, say, creative insights arrive too slowly to act upon. The conclusion is structural. The industry does not have a creative problem or a media problem, it has an execution problem. Insights exist, signals exist. What is missing is a unified layer that turned those signals into action in real time across channels.

This is exactly the gap Perion One was built to close. We at Perion are committed to continue to evolve. We adjust our processes and our structure whenever we believe they are beneficial for our company's future.

With that, I would like to share that our Chief Revenue Officer, Stephen Yap will be transitioning out of his role. We thank him for his partnership during his tenure. As we enter the next phase of our 2026 road map, we are pivoting our sales leadership team to ensure we are better positioned to convert our growing pipeline into realized revenue.

With that, I will hand it over to Elad to walk through the financials.

Thank you, Tal, and thank you all for joining us on the call today. Our first quarter results reflect a period of disciplined execution, as we are continuing our structural evolution. The results for the first quarter came in largely as we expected, reflecting the seasonally low quarter in our industry. Importantly, we are seeing a significant increase in spend across our core growth engines and the adoption of Perion One continues to build momentum.

This demonstrates that the infrastructure we are building is driving measurable value for our customers. This quarter, we continue the strategic building process of Perion One, as an AI-native multichannel execution infrastructure, driven by the continued momentum in our growth engines, total Perion One spend increased 6% year-over-year. Outmax, our proprietary AI agent is rapidly expanding across customers, regions and platforms.

We recently launched Outmax for TikTok, extending our AI-driven optimization capabilities to one of the fastest-growing digital platforms. This has already generated over $1 million in spend during the first quarter.

To accelerate our global footprint, we continue to add more collaborations and partnerships. In the first quarter, we launched a strategic reseller initiatives in Africa by partnering with Media Mark and [indiscernible] Media to resell Outmax and programmatic digital out of home. As part of Perion One's continued transformation, we will no longer provide a charter revenue breakdown as a primary KPI.

This shift reflects our evolution into a truly channel-agnostic platform centered around Outmax, our proprietary advanced AI agent designed to plan, execute, optimize and measure campaigns across diverse media environments.

By moving away from siloed reporting, we are aligning our financial disclosures with our operational strategy, focusing on how our technology delivers integrated value for the advertiser rather than focusing on the performance of individual channels.

Instead, it makes much more sense to report our growth engines in terms of spend and not as revenue or contribution ex-TAC. Spend represents the total media budget running through our platform.

It is the truest leading indicator of our platform's adoption, customers trust and long-term scale. And now to our quarterly results. Revenue for the first quarter was $90.4 million, a 1% increase year-over-year.

Total contribution ex-TAC was $39.7 million flat year-over-year with a 44% margin consistent with the same period last year.

Adjusted EBITDA for the quarter was $0.5 million compared to $1.8 million in the first quarter of 2025. The decrease was mainly the result of higher go-to-market investments aiming to support our 3-year growth plan. We generated cash flow from operations of $6.7 million and adjusted free cash flow of $7 million.

During the quarter, we repurchased 2.5 million shares for over $24 million, bringing our net cash position to $293 million as of the end of the quarter.

Let's take a look at the momentum of our growth engines through the lens of spend. As advertisers increasingly trust our AI infrastructure to execute their campaigns, we expect more dollars to flow through the Perion One platform. CTV spend grew 68% year-over-year to $18 million, underscoring the strong demand for our performance-driven CTV capabilities.

Digital out-of-home spend grew 29% year-over-year to $60.6 million, reflecting our expanding global footprint and our advanced digital out-of-home technology.

Retail media spend increased by 27% year-over-year to $36.5 million. We continue to unlock commerce-related outcomes for top-tier brands despite some market softness, especially in the CPG sector. It is also important to note that CTV, digital out-of-home and retail media have been consistently outpacing the broader market. These impressive growth rates drove a 6% year-over-year increase in total Perion One spend. compensating for the decrease in web. The aggregate impact of the customer spend shows a growing momentum through this important KPI.

In the first quarter of 2026, we achieved a solid 6% increase in Perion One spend, while navigating the near-term macro headwinds and cautious advertisers' planning cycles. This is a testament of the increasing demand for our solutions and our expected scale, as we look towards the second half of the year.

Revenue for the first quarter came in at $90.4 million, with Advertising Solutions revenue at $66.7 million and search at $23.7 million. Contribution ex-TAC remained flat year-over-year at $39.7 million. The 44% margin was stable and consistent with last year. While Advertising Solutions revenue decreased in the first quarter due to the anticipated decline in the web activity, it is important to emphasize that Perion One contribution ex-TAC increased by 7% year-over-year aligned with the spend trajectory.

This demonstrates that as we are gradually shifting our business to the Perion One platform, contribution ex-TAC and spend are becoming the true indicators of our underlying growth. Perion One Contribution ex-TAC continued to be the main profit driver, representing 81% of the total contribution ex-TAC, up from 75% in the first quarter of 2025.

We expect the structural shift to continue with Perion One growing to 85% to 90% of the full year 2026. With respect to our search revenue, as we transition away from the Microsoft agreement, the margin profile of our search activity is naturally shrinking.

As a result, even though search revenue increased year-over-year by 21%, the related contribution ex-TAC decreased by 70% as expected. Adjusted EBITDA for the first quarter was $0.5 million compared to $1.8 million in the first quarter of 2025. While we are laser-focused on operational efficiency and disciplined execution, the year-over-year delta was expected. This reflects the incremental expense base from the Green Bits acquisition in the second quarter of 2025, and additional go-to-market investments to support our 3-year growth plan.

In addition, during the first quarter of 2026, the headwinds of the U.S. dollar weakness represented $1.4 million impact related to foreign exchange. Excluding this foreign exchange impact, adjusted EBITDA would have been $1.9 million, largely flat year-over-year, despite the additional costs planned for.

As we onboard several large strategic agreements currently in advanced stages, we expect adjusted EBITDA to inflect meaningfully in the second half of the year. This is consistent with the second half-weighted profile of our business similar to last year.

On a GAAP basis, net loss was $10 million or $0.26 per diluted share. This compares with a net loss of $8.3 million or $0.19 per diluted share in the first quarter last year. On a non-GAAP basis, net income was $4.8 million or $0.11 per diluted share.

This compares with $5.4 million or $0.11 per diluted share in the first quarter last year. Net cash provided by operating activities was $6.7 million and adjusted free cash flow was $7 million. The cash generative quality of our business model and our disciplined CapEx investment practices ensure that our internal operations are streamlined to support our growth.

We ended the first quarter with $293 million in cash, cash equivalents, short-term bank deposits and marketable securities on our balance sheet. While we continue to generate positive cash flow from operations, the $20 million reduction from year-end is driven by $24.1 million, returning cash to our investors in the form of share repurchases.

This strong liquidity profile gives us the financial flexibility to pursue organic investments, M&A opportunities and continued shareholders' return. Our capital allocation priorities remain highly disciplined, focused on creating long-term value.

During the first quarter, we repurchased 2.5 million shares for a total of $24.1 million. Under our current authorized program, we have now repurchased a cumulative total of 15.3 million shares for $142.2 million. Since the program's initiation, we have acquired these shares at an average price of $9.27 per share.

This is notably lower than our average stock price at the last 30 days. By doing so, we have already generated immediate tangible value for our shareholders. Buying back our own stock at current valuation levels, alongside disciplined organic and inorganic investments is the most effective use of our excess cash.

It reflects our confidence in Perion's long-term intristic value. Despite the expected macro headwinds for the second quarter, given the momentum we see building in our pipeline for the back half of the year, particularly the several large strategic agreements that are in advanced stages, we are reiterating our full year 2026 guidance.

To conclude, Perion entered 2026 with a strong financial foundation a proven platform strategy, highly disciplined operations and a set of growth engines that are constantly outpacing their markets. The infrastructure is in place. The pipeline is building continuously, and we are prioritizing sustainable, profitable growth and long-term value creation for our shareholders.

With that, I will turn the call back to the operator to open the line for questions. Thank you.

We will now begin the Q&A. [Operator Instructions] Our first question today comes from Andrew Marok at Raymond James. Andrew, you may now unmute your line and ask your question. Thank you.

I wanted to start off with one on Outmax, some really good numbers there. And we're seeing the agentic space getting increasingly crowded. I guess how are you differentiating Outmax in the marketplace and your go-to-market process that is allowing it to more than triple spend year-over-year? And then I have a follow-up.

Yes. Thank you, Andrew. Yes. So you saw Outmax, AI agent technology that we have grew by over 300%. The main thing and our main advantage is we're the only technology out there that can perform this across both CTV, web and social with closed gardens, which is a major advantage to have only 1 AI agent technology and infrastructure that can run across all those channels, all those platforms is a major, major advantage.

Great. And then maybe one for Elad. Can you expand a little bit on the commentary that you gave in your prepared remarks, on the uneven macro conditions and some of the caution you're seeing from advertisers.

From your peer set, we're kind of hearing feedback that's quite variable, so I'd just like to get a little bit more granularity of what you're seeing from your position.

Sure. Thanks, so in terms of having that we are, we see that the inflation in the oil prices, a lot of the attention in the Middle East caused some uncertainty in terms of the bag expenses. Especially, I would say, around CPG, we see and slightly around auto.

In addition to that, we are continuing to see the slow or say, short planning cycles of the [indiscernible] in terms of their budget spend. So this is what we see core towards Q2. But it is important to say that we always start to see some more momentum growing in our pipeline towards the second half of the year.

Now of course, we do not know yet the timing of when all of those headwinds will really be over. We do not know to anticipate, but we do see more and more strength into our pipeline more especially around Outmax, the adoption of more and more customers to this solution.

And of course, we're taking all of those considerations when we are building the guidance towards the rest of the year.

Our next question comes from Jason Holcim at Oppenheimer. [Operator Instructions]

Can you hear me? .

Yes

your comment just about tracking total spend, which we agree with, are you planning to break down total spend by -- between advertising and search or that was just a comment of like just one number for that? And then I've got some follow-ups. .

So in terms of the spend, our main growth -- our main focus and strategic focus is around Perion One. So definitely Perion One will continue to give the spend levels for and to give the trajectory of how much we are growing year-over-year, of course.

And also, as you saw, we started to provide a spend also for our growth engines, how does CTV digital-of-home contribute in terms of spend how exactly how mix is performing in terms of spend. And this is how we are managing our take-doperation in the business as well. So we have tied this one together.

In search, as much as not right now our main strategic focus of the business, we are -- it's still stabilized and we are providing Obviously, most of the trajectory moving forward in terms of contribution next that, of course, to give you the full profitability of the business.

And I think search was better than expected in the quarter. Just any thoughts why that happens?

Yes. So we saw a minor increase in search spend, say, year-over-year. This is contributing to 21% in revenue research year-over-year. But if you are looking at it from a contribution next step, which is more importantly is we are shifting out from Microsoft and focusing on other search providers.

As expected, the margins are lower, the contribution ex TAC from search activity was actually reduced year-over-year. I have to say was exactly as we build into our guidance this year. So recycling the contribution ex-TAC late year-over-year, actually, what you are seeing is that Perion One is increased of 7% year-over-year in the contribution ex-TAC. And search is actually declining, but ended up exactly as we expected at the beginning of the year.

Okay. And then I guess with the weaker advertising in the quarter, I think, relative to what folks were expecting, yet you're still keeping your full year guidance. I mean, how much is this kind of known versus unknown?

I mean, obviously, the macro is unknown, right? I think you said that this macro was maybe a little worse than you thought in the quarter, but yet you're again, still keeping your full year guide the same and you're assuming new clients start spending. So I guess like why is that the most prudent way to look at this right now? Why not lower the full year outlook for the maybe a weaker first quarter, I don't know why is this the right way to look at the business right now?

Okay. So I will answer this in 3 different points. First, we do see tangible pipeline at increasing already towards the second half of the year coming from adoption of Outmax mix. As we saw by the way in the current quarter, if you remember the land and expand model, it takes time to ramp, but we see in the friction right now.

And we see the adoption towards the second half. In addition to that, and I discussed in the my script, we have a few strategic agreements that are expect to be to very soon to onboard already in the next few weeks in Q2, and we will start to see the ramp already in the second half of the year.

So those, I would say, 2 initiatives are tangible things that we see, and we are building into the pipeline. I would add also that in terms of the EBITDA, that will have growth, but also from an expense perspective, we are investing right now in the right place that will give us this growth to H2 sales we did last year, both from a growth perspective and also from EBITDA perspective on the efficiency level.

As we saw last year, the second half of the year is much more -- we are much more heavyweighted towards the second half, and it's very much important right now to continue our investment in terms of the growth, but also in terms of the efficiency that we will be able to see the benefit going into the second half of the year.

Our next question today comes from Matthew Weber at Canacol Matthew.

Just wanted to ask about your comments on pivoting the sales leadership team to better convert pipeline into the realized revenue. Can you just provide some additional color on what this entails? Are you looking to make new hires, altering the compensation structure of employees or reorganizing the team? And then I have a quick follow-up. .

Yes. Absolutely. Thank you for your question. So the main idea is how do we streamline our growing pipeline towards conversion. So we're flattening our organization, as I said, part of the call that Steven Yap is transitioning out of his role and we're eating the organization to make it more streamlined and more efficient.

We're also introducing a lot of new AI capabilities to the sales team, especially a new capability of AI SDR, which is late qualification with faster turnaround from leads to sales. And we are now mainly focusing as we advance our technology, focusing a lot on accelerating ourselves. So that's part of it.

Got it. And then just on the launch of Outmax to African markets, I believe it's currently available in South Africa. What is the timing for a broader Continental rollout look like? And are there any major investments you still need to make to support these efforts? Or is it just a matter of execution?

Right. So we've just launched this new partnership with those 2 new partners to see how do we work on a reseller agreement and have mainly Outmax with resellers across now Africa, but we're going to put a lot of efforts to launch new more and more resellers going forward. .

We believe Outmax is the perfect product for resellers. It's an easy pitch, easy setup. There are worldwide, the majority of budgets in marketing sits within Meta, YouTube and TikTok. So it's pretty perfect anywhere on planet.

At the same time, we can grow without adding extra cost to our P&L. So it's -- we believe it's only the beginning of something that can become much bigger worldwide, the reseller program that we launched.

Our next question today comes from Laura Martin at Needham.

So the advertising growth was negative 4%. Total growth was -- for net TAC was 0. And most of the industry is reported now, I think you're last, so and then really the benchmark was [ 10 ] to [ 12]. So could you talk about how you're planning to close the gap to the rest of the ad tech industry growth rates? And then secondly, AI, could you talk about what you're doing with generative AI internally to cut costs and then externally to increase sales velocity -- not sales velocity, but like new product velocity and how you think it helps you retain growth in the advertising part of your business.

I will take the first question, and then I'll hand over to Tal. So in terms of the advertising solution revenue, the reason for the decrease that we see right now in the other solution revenue line is mainly related to product mix. From an accounting perspective, there are certain products that are recognized on a net basis and some of them are recognized on a gross basis.

That's why we -- and by the way, is more -- as we are leaning more and moving more towards Perion One solution. We'll see more and more revenue recognized on a net basis. That's why we started to focus more and more on the contribution ex-TAC and the spend because as you see in this quarter, those are really reflecting the real trajectory of the business is the leading indicator for how we grow.

So the spend of Perion One increased 7%, the -- 6% sorry, the contribution ex-TAC increased by 7%. So I would say the gap that you're referring to from the peers is not different. We do we are I would say, investing more, as I said, towards the go-to-market, and we changed some of our sales strategy as discussed, and we're building the pipeline.

And in our models, we are seeing much more increased, I would say, growth, more in line, by the way, with the plan that we provided also towards the 2028 events that we provide.

For AI, we have 2 layers of AI. Obviously, Perion One.and Outmax is fully AI driven. And the new products that we're about to launch are fully agenetic. But on the internal part, everything is becoming AI-driven from our R&D, it's fully deployed with cost closed, and we do see accelerated development and accelerated launches or features.

And internally, like I said before, one other example is we now have an AI agent for [indiscernible]. It's all part of the 2028 plan that we announced 3 months ago. We believe we're going to start seeing even more meaningful efficiency in H2 because we do deploy pretty fast our AI solution may put the efficiency part.

Okay. Maybe I'll just follow up. So Google did its IO Developers Conference sort of keynote yesterday. And their vision tile is to get consumers in via search and then keep them in the Google perimeter and become essentially a gatekeeper and not really let them get to the open Internet. .

Is there anything really you or any open Internet company can do if Google's vision is to keep consumers within their perimeter for all discovery, purchase consideration, essentially displacing the purchase funnel that we know today. Do you have any points of view about that?

Yes, absolutely. I think it's a great question. And I actually thought it was kind of related on their behalf. Now as you probably remember, we said that 2 years ago that LLNs are going to take over, [indiscernible] is not going to be in the future, OpenWeb is not going to be the future. This is why 2 years ago, we started moving from Open Web and towards out-of-home, which is a channel that is not going to get affected by L&M and closed gardens.

So Outmax works on YouTube, TikTok things that are not getting affected by those LLNs. But in parallel, our Outmax AI team, the development team are already researching how we deploy Outmax on platforms, such as ChatGPT and Google Shopping ads.

So that's already in the works. It requires a bit more development, but we're focusing on the marketing budgets, not on the channels themselves. And as I said in the past, we want to be channel agnostic, wherever advertisers would want to advertise, we're going to be there.

Now if you look at the new product of Google, the major parts are basically Google shopping ads. So it's not fully organic. Advertisers would still need to go through that. And that's why our Outmax team are investigating how do we get Outmax to deploy also on Google Shopping Ads. That's going to take a bit of time, but we're totally focusing on it.

Our next question today comes from Jason Kreyer at Craig Hallum Capital. [Operator Instructions]. .

Just 1 question for me. I wanted to talk about the customer pipeline. You've talked a few times just about your confidence in the second half of the year. Can you give a color on how the RFP processes has evolved over the last couple of quarters? Maybe how the different conversations have changed as Perion One and as Outmax have evolved?

Sure. Thank you for the question. So I think 2 moving parts. The RFPs, we see that -- and what we saw that last year as well that evidence do not plan a year ahead. It's 3 months to 6 months top ahead. And that didn't change. It's still the same pace.

The things that we have a bit different this year is the reseller agreements, so we launched 2 resellers in Africa. We have a few more agreements, which we consider strategic. We do believe that they're going to start ramping up in H2, which give us a bit more confidence about our pacing.

And we do work on other things that we're going to announce once they're ready. But on an RFP to RFP, it's the same kind of pace that we saw last year. That didn't change. It's mainly the more strategic parts like the things we just announced.

Our next question comes from Eric Martinuzzi at Lake Street.

So the 3-year plan anticipates this -- you talked about the Platform One contribution ex-TAC about a 20% CAGR -- and just based on kind of the early days, typically, CAGRs in the early years are greater and then they slow down in the later years. .

And yet we're in what I think I heard you was 6% or I guess, 7% contribution ex-TAC. Was that where we were for Q1?

Yes, 7%. And remember that our business, like most ethic business is extremely seasonal. So Q1 is the weakest of the quarters, typically, and we do see a 7% increase.

As you go AC I'm just wondering, at a certain point, we've actually got to get better than 20%. I'm just trying to size up this 3-year progression, right, if we're starting out in kind of mid- to high single digits here. And at what point should we anticipate -- are you guys already seeing, "Hey, this is a slam on brady based on the pipeline, we're going to see 20% plus in the back half of 2026?

So to answer your question, I would be not a poser. First of all, when you're looking at 2028, we discussed right out the behind that we'll have to bring some investment in the early stages to ramp it up.

And the reason why we showed the lending expense because it takes time to get to the customers. We started -- if you remember, the previous customer that we saw, the first year was only $50,000 in terms of spend. Second year, it was ramped up to $4.5 million, and the third year was more than $20 million in spend in different channels, et cetera.

So this is very much also how what you are thinking about the 2028 model with the terms of an extent. So it takes time to ramp up. Now when I'm talking specifically about 2026, we do expect to see in the second half of the year to date, I would say in double-digit growth and aiming towards the 20% already towards the fourth quarter of the year.

We will start seeing this [indiscernible].

Sorry, can you repeat that last?

I said it for 2026, we will start, of course, to see the of the year. And I believe that already in Q4, we'll start to see the double-digit growth aiming towards 20% already in Q4 in this year.

And then the contribution ex-TAC margin, was that totally at the -- it was below what I was anticipating. Another way to put it is, say that it was an increased tech. Is that pretty much all search related in your mind? .

It's very much search related. Search becoming, I would say, a smaller part of our business. And Perion One, will increase its part of the overall contribution, we will see the margin goes up, as I discussed earlier about the net recognition and et cetera.

So definitely this is something that we see. We need to remember that the search has lower seasonality than all of the rest of our business. So in Q1, you'll see that the search contribution ex-TAC was roughly 90% million of the or 80% of the overall contribution ex-TAC. So if you remember, last quarter, we certainly said that the overall turn 1 will be 85% to 90%.

So along the year, we'll see the seasonality much more revenue with respect to Perion One and the margin will increase as well.

Our final question today comes from Jeff Martin at ROTH Capital Partners.

I appreciate it. You made mention in your prepared remarks about onboarding agreements will drive a meaningful EBITDA inflection. Just curious if you could elaborate on what those agreements are and the timing in terms of the EBITDA inflection?

So in terms of this agreement a few strategic agreement that we start working on them over the last year, of course, they are taking time. But we are maybe right now with the final stages, and we start to see more of this lock their contribution is start to onboard our platform.

It does take time. We believe that we're going to see some ramp up, but relatively to period in terms of the spread. And then of course, I cannot really speak about who are those names and in terms of geography, but they are very heavy on the spend of how much we are running in different markets.

In the test that we did with them and we saw the network and what is the potential and how much we are believing that the ramp-up of their customers will be, et cetera, we see very good traction towards the second half of the year.

And it should start, of course, building even higher going forward to next year. This is obviously some of the high-volume agreements that we have discussed that we expect to sign during this year.

Great. And then my second question is, and I know this is not the core growth focus of the business. It's not a growth focus at all, but the web advertising you go back 6 to 9 months commentary was that this business was flattening out for you, and it sounds like in Q1, it was more pressure on growth perhaps and relative to your initial guidance for 2026, how much of a headwind is any negative shift in web create a hurdle for hitting your full year guidance? .

So we do not see that we shift is actually. If you look in the revenue, you see the the minus 4%. Obviously, it's come mostly from web, but we need to remember that web was relatively low margin. And we -- at the beginning of 2025, we took proactive action to close some of the web solutions that we are providing.

If we look at the contribution ex-TAC level, you will see that the CTV and out of home and Outmax, of course, are actually compensated on the way of shrinking. So it grew year-over-year.

I believe that this is it's coming from the overall market and budget that are shifting away from Open Web as we have discussed, moving into more closed gardens and CTV and also, of course, I believe, to the LLMs in the next future.

So overall, as we are seeing more revenue flowing for the Perion One, we are becoming more channel-agnostic and we are not really prioritizing or performance -- or doing the performance based on certain channels. and more focusing on the ROI for the advertise. And so overall, we are not expecting this to change where we are at the guidance right now.

Thank you. This concludes today's Q&A. I will now pass back to Tal Jacobson for closing remarks.

Thank you, everyone, for joining us on the Q1 earnings call. We will continue to invest and advance our technologies and continue to invest in our clients and the adoption rate should be increasing. And we'll see you next time. Thank you.

This concludes today's call. Thank you, everyone, for joining. You may now disconnect.

Hello, everybody, and welcome to the Perion Network Q4 and Full Year 2025 Earnings Call. Today's conference is being recorded, and an archive of the webcast will be posted on the company's website. The press release detailing the financial results is available on the company's website at www.perion.com.

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

As in prior quarters, the results reported today will be analyzed both on a GAAP and a non-GAAP basis. While mentioning EBITDA, we will be referring to adjusted EBITDA. We have provided a detailed reconciliation of non-GAAP measures to their comparable GAAP measures in our earnings release, which is available on our website and has also been filed on Form 6-K.

Hosting the call today are Tal Jacobson, Perion's Chief Executive Officer; and Elad Tzubery, Perion's Chief Financial Officer.

I would now like to turn the call over to Tal Jacobson. Please go ahead.

Good morning, and thank you for joining us on the Perion's earnings call for the fourth quarter and full year of 2025. 2025 was a defining year for Perion. For a company that has been around since 1999, we consider 2025 as year 1 for the new Perion, a year in which we changed everything except our name. We redefined our mission, our strategy, our technology, our organizational structure and even our executive team, all in 1 year. Today, we will summarize the results of the pivotal path we took 12 months ago. We will present the Q4 results that gives us the confidence in our Perion One strategy. We will also cover our 2026 guidance and our 3-year organic plan based on the momentum we're seeing.

In 2025, we started building Perion One as a centralized platform for marketers. We integrated our technologies, expanded strategic partnerships and introduced new innovations to drive growth. We are now introducing the next phase of Perion One, deepening our technology and becoming an AI-native execution infrastructure that delivers measurable results across channels, platforms and verticals. Outmax, our AI execution agent, is already getting into more and more channels, delivering meaningful results for our customers. Perion One is becoming the infrastructure that allows our clients to harness the power of AI agents to execute all their media activities.

Let's start with the fourth quarter performance. I'm happy to share that we delivered strong results in Q4. Our main growth engines, CTV, Digital Out-of-Home and Retail Media, all delivered double-digit year-over-year growth, significantly outpacing the market. We accelerated our contribution ex-TAC faster than the revenue growth. We delivered strong adjusted EBITDA growth and generated meaningful operating cash flow, demonstrating that we continue to operate with discipline.

This combination of growth and profitability reflects the strength of the infrastructure we are building and our ability to execute in a highly dynamic market. The global advertising ecosystem is both massive and complex. Marketers navigate in a fragmented universe of screens, platforms, formats and buying environments while being held to higher standards of performance and accountability. Budgets, signals and optimization are often siloed by channels. That fragmentation is where efficiency and performance break down. This is the core challenge we've been focused on solving.

We've built Perion One to unify the fragmented ecosystem. Its AI-powered execution infrastructures enable marketers to harness AI agents to perform highly complex marketing activities. Perion One helps advertisers make confident decisions faster and continuously optimize every campaign in real time. It also helps publishers to maximize inventory value through smarter demand allocation and yield optimization. By aligning execution across both sides of the ecosystem, demand and supply, Perion One improves efficiency, performance and outcomes end-to-end.

At the center of Perion One is Outmax, our AI native execution agent that drives results for our customers. Outmax' goal is to be the one AI agent for every channel, whether it's YouTube, Facebook, Instagram, NBC, Disney+ or digital out-of-home. Outmax acts as the intelligent execution agent that ensures every dollar spent is working at its maximum potential. It removes the guesswork and replaces it with algorithm certainty, allocating spend, managing pacing and optimizing outcomes in real time. Outmax is already showing great results for our customers. Let's take a look.

[Presentation]

Here is a strong example of how Outmax agents performance drives trust and scale. The Outmax AI algorithmic model started with this specific advertiser on a $50,000 YouTube budget test in 2023. The performance justified the budget expansion as we grew the spend to $4.5 million in 2024 and to $20 million in 2025. When technology drives performance, scale comes organically. Another example comes from our digital out-of-home technology, where we're seeing the same pattern. In late 2025, we announced the launch of digital out-of-home player that became the marketing operating system for digital out-of-home publishers. As you can see in this graph, an out-of-home publisher that integrated this solution in September '25 scaled with us from a spend of EUR 200 a month to over EUR 0.5 million a month in just 90 days. This is not an isolated win. It demonstrates the repeatability of our execution model across environments and formats. It's the Perion One infrastructure that scales performance and creates stickiness among our customers.

This next example shows how execution and optimization come together in our Outmax for CTV. With Webroot, we applied Outmax CTV, AI-driven optimization, to continuously improve performance. Outmax drove a significant reduction in cost per action and an uplift in site visitation that led to week-over-week efficiency improvements. It is also important to note that Webroot had a full transparency into performance, allowing them to see what was working and scale with confidence. All these examples prove that the outcome is consistent across different brands, channels and formats. This Outmax outcome delta graph represents how we think about our AI agent models, models that have only one purpose, to create consistent incremental uplift for our customers. It is a difference between having an army of media traders executing with hands-on keyboards versus our Outmax AI agent optimizing in real time.

Following a short learning period, Outmax agent continuously applies dynamic bid and execution adjustments across dimensions, reallocating spend based on live performance signals. This execution capability directly translates into how customers consistently increase ROI at scale with us and why this execution model is trusted by some of the world's largest brands.

Perion's technology serves 52 of the Fortune 100 companies in the U.S. across industries, including retail, pharmaceuticals, airlines, technology, media, financial services and insurance. This wide variety reflects trust in our execution model regardless of the vertical. One of the most exciting things about the new Perion is the level of strategic partnerships we are attracting. We are partnering with the most advanced companies in our industry to accelerate our growth. This quarter, we launched 3 new partnerships with Amazon, Walmart and Mastercard. Through our new Amazon partnership, we are combining Amazon's unique audience data and measurement capabilities with our AI-driven creative technology and premium inventory. This partnership strengthened Perion's long-term programmatic revenue potential with commerce brands.

I'm also happy to share that Perion's AI-powered dynamic creative optimization is now integrated with Walmart Connect's first-party audience and sales insights. This help advertisers better personalize campaigns, explore opportunities for incremental sales lift and improve ROI. And with Mastercard, we're integrating aggregated purchase insight across the U.S. and Europe, particularly strengthening our digital out-of-home and CTV execution. Together, this partnership extends the power of our infrastructure. Collectively, those achievements reflect a structural shift in our business.

2025 marked Perion's transition from reset to execution and scale. We established Perion One as our AI native execution infrastructure. We unified our brands, our technology and our data into a single operating system, powering the execution of planning, activation, optimization and measurement. Our growth engines reaccelerated. CTV, Digital Out-of-Home and Retail Media showed clear momentum and drove advertising solutions back to growth. We strengthened execution across the organization, simplifying the operating model, refreshing leadership and increasing focus and speed. At the same time, we deepened our AI capabilities, introducing advanced execution algorithm agents and expanding performance solution across channels. Importantly, we returned to year-over-year growth in the second half of the year, demonstrating operating leverage and improved cash flow strength.

Taken together, 2025 repositioned Perion for a scalable, durable growth. This foundation is what supports our forward targets. By 2028, we expect Perion One to represent the vast majority of our business with legacy activities remaining stable and no longer defining growth. Today, we present how we think about the future of Perion with our 2028 targets that include 3 main KPIs: Two for accelerated organic growth and the third for EBITDA margin expansion. Specifically, we are targeting Perion One pro forma spend CAGR of at least 25%, contribution ex-TAC CAGR of at least 20% and adjusted EBITDA margins reaching 28% of contribution ex-TAC. These targets are supported by clear structural growth drivers that include continued expansion in our performance-driven AI agents across CTV, Digital Out-of-Home, YouTube, Meta, web and Retail Media. This resonates with a market-wide shift towards performance advertising that is directly aligned with the Perion One offering.

Internal AI-driven automation improves operating leverage, while disciplined cost management and targeted investment in go-to-market and innovation ensure we scale efficiently. This is scalable growth built on execution.

With that, I'll now turn it over to Elad Tzubery, our CFO, who will walk you through the financial results of the fourth quarter, full year 2025, 2026 guidance and our targets for 2028.

Thank you, Tal, and thank you all for joining us on the call today. Our fourth quarter results mark a definitive turning point for Perion. Over the last 18 months, we focused on unifying our advertising solutions under the Perion One strategy. We are now seeing substantial financial impact. This quarter demonstrates the power of our execution. It reflects on our top 3 financial metrics.

We delivered 19% year-over-year growth in contribution ex-TAC resulting from our go-to-market strategy. We achieved a 53% surge in adjusted EBITDA resulting from the efficiency measures we built earlier this year, and we generated over 400% year-over-year increase in operating cash flow, which enabled us to end the year at almost 90% adjusted free cash flow to adjusted EBITDA ratio. The Perion One platform continues to fuel our 3 growth engines: CTV, Retail Media and Digital Out-of-Home. Even more importantly than the outstanding performance of these engines, they are also consistently outgrowing the market. We expect this momentum to continue serving as the primary catalyst for our future expansion.

We are entering 2026 with a highly efficient operating model, strong cash-generating abilities and a clear long-term financial road map to continue our top line growth. Our strong financial results, the successful implementation of the Perion One strategy and our AI-based execution infrastructure are the foundation on which our 2028 target plan is built on. We are backing this confidence in Perion's organic growth trajectory with action. We recently expanded our share repurchase program to a total of $200 million, of which we already executed $118 million.

Moving on to our key financial metrics for the fourth quarter. Revenue for the quarter grew 6% year-over-year to $137.1 million. More importantly, our contribution ex-TAC grew 19% year-over-year to $65.2 million, significantly outpacing our growth in revenue. Adjusted EBITDA reached $24.3 million, an increase of 53% compared to last year. This implies an adjusted EBITDA to contribution ex-TAC margin of 37%, showcasing the operating leverage we have unlocked. The strength of our underlying business model and our consistent ability to generate cash proved itself effective once again. During this quarter, we generated $21.8 million in operating cash flow. We ended the year with $313 million in net cash even after repurchasing shares at almost $24 million in the fourth quarter alone.

Looking at the full year of 2025, revenue was $439.9 million and contribution ex-TAC for the year was $203.4 million. Adjusted EBITDA reached $45.2 million, reflecting a 22% ex-TAC margin. On an annual basis, we generated $41.9 million cash from operations, representing a 504% year-over-year increase. Furthermore, our conversion rate of adjusted free cash flow to adjusted EBITDA was an exceptional 89%. This proves that even during a transition year, Perion's business model is resilient, profitable and highly cash generative.

While our AI execution infrastructure is channel-agnostic, our strategic focus on the fastest-growing channels in digital advertising is bearing fruit. Our growth engines are both growing and outpacing the market. CTV revenue grew 59% in the fourth quarter and 42% for the full year, reaching $62.1 million. As the shift from traditional linear TV to connected TV advertising is accelerating, advertisers are increasing their CTV spend, looking for performance and measurement. This is exactly what Perion is offering. Digital Out-of-Home revenue grew 28% in the quarter and 36% for the full year to $94.9 million. This was driven by our expanded global footprint and our complete end-to-end digital out-of-home full stack solution. Retail Media also continues to be a star performer. Revenue increased 42% in Q4 and 36% for the full year and more than doubled the market growth. As we integrate more deeply with industry-leading retail partners like Walmart and Albertsons, we are seeing higher stickiness and recurring spend from top-tier brands. We expect to continue to capture market share in this rapidly expanding vertical.

Looking at our revenue mix for Q4 and the full year, we see the continued shift towards advertising solutions that stands at the core of Perion One. Advertising solutions revenue increased by 7% year-over-year in Q4. This demonstrates the growing portion of CTV and Digital Out-of-Home, which accounting collectively for 44% of revenue in the fourth quarter and 36% in the full year 2025, accelerating from 34% and 23%, respectively, last year. Web declined 17% year-over-year in the fourth quarter and 13% for the full year. It is important to note that on a pro forma basis, when utilizing the lower-margin activities that were discontinued in late 2024, web revenue declined 12% in the quarter and only 1% for the full year. Search revenue increased 3% year-over-year in Q4, and we expect it to remain stable going forward.

Contribution ex-TAC in the fourth quarter grew by 19% year-over-year to $65.2 million, representing a margin of 48% compared to 42% last year. For the full year 2025, contribution ex-TAC margin was 46% compared to 43% last year. As we move forward with our strategic plan and add more customers to the Perion One platform, we expect a shift in product mix that will grow our contribution ex-TAC at a faster pace compared to the total revenue. This measure better represents our top line performance than revenue alone.

Adjusted EBITDA for the fourth quarter surged 53% year-over-year to $24.3 million, representing 37% of contribution ex-TAC and 18% of total revenue. This compares with 29% and 12%, respectively, last year. The fourth quarter is the second consecutive quarter that delivered year-over-year margin expansion. This reflects our improved operational leverage and is a result of the disciplined cost management structure we implemented earlier this year. We have successfully decoupled our expense base from our revenue growth, allowing a higher share of each incremental dollar to flow to the bottom line. As we increase our investment in innovation and go-to-market initiatives, we will also continue to optimize our cost structure. Those efforts, along with scaling our Perion One platform, will allow us to further expand our margin gradually over the next years.

GAAP net income in the fourth quarter was $8 million or $0.19 per diluted share, a 61% increase compared to the fourth quarter last year. On a non-GAAP basis, net income for the fourth quarter was $21.4 million or $0.49 per diluted share. This reflects a 30% increase compared to the fourth quarter last year. For the full year, GAAP net loss amounted to $7.9 million or a loss of $0.19 per diluted share. On a non-GAAP basis, net income for the year was $51.3 million, delivering a non-GAAP diluted earnings per share of $1.13. In the fourth quarter of 2025, cash generated from operating activities significantly increased to $21.8 million, and our adjusted free cash flow grew to $20.7 million. On an annual basis, cash generated from operating activities significantly increased to $41.9 million and adjusted free cash flow grew 142% to $40.2 million. This reflects an 89% free cash flow conversion ratio, among the highest in our industry.

Turning to our balance sheet. As of December 31, 2025, our balance sheet remains very strong and includes $313 million in cash, cash equivalents, short-term bank deposits and marketable securities. Our strong cash position gives us the financial flexibility to support our balanced capital allocation framework. First, it supports organic investments in our AI infrastructure and an aggressive go-to-market strategy. Next, it allows us to fund our share repurchase program. And lastly, it provides us the flexibility to pursue M&A opportunities that align with our Perion One strategy.

Looking ahead, we expect to continue to generate positive free cash flow and maintain a strong conversion ratio. We remain committed to returning value to our shareholders. In the fourth quarter alone, we repurchased 2.5 million shares for a total amount of $23.9 million. Since the initiation of the program, we have returned over $118 million by repurchasing 12.9 million shares. Reflecting our confidence in our 2028 target plan, our long-term value proposition and our cash generation ability, the Board has recently authorized an expansion of our share repurchase program from $125 million to a total of $200 million. At our current valuation, this program represents in full a 56% return on our market cap.

2025 served as a year in which we focused on consolidating our Perion One platform. We introduced new advanced solutions, implemented Outmax, our Agentic AI execution agent and build the foundations for growth with efficient scale. We expect 2026 to be the year we begin to scale. For the full year 2026, we expect contribution ex-TAC of $215 million to $235 million and adjusted EBITDA of $50 million to $54 million.

Looking ahead for the next 3 years, our strong results, the successful enrollment of the Perion One strategy and the AI-based execution infrastructure we have been building provide us with the substantial foundations for the 2028 target plan we present to you today. As we become the AI execution infrastructure of digital advertising, spend becomes a leading indicator of our platform's adoption and scale. It represents the total media spend running through our platform. On a pro forma basis, Perion One spend grew at a CAGR of 34% in the 2022 to 2025 time frame. Due to our investments in go-to-market, our innovative solutions that allow us to attract new customers and Outmax's ability to improve ROI and retain customers, we remain confident that the growth trajectory will continue moving forward. we project that Perion One spend will continue to grow at a pace of at least 25% CAGR through 2028. The other legacy parts of Perion, primarily our search activities, are expected to slightly decrease going forward and remain relatively stable.

Diving deeper into Perion One, on a pro forma basis, Perion One contribution ex-TAC grew at a CAGR of 19% across the 2022 to 2025 time frame. Moving forward, the surge in spend is expected to translate into growing contribution ex-TAC. This provides us with confidence to target a contribution ex-TAC CAGR for Perion One of over 20% through 2028. Our confidence in this target is supported by 3 key catalysts. First, the ongoing strength of our growth engines; CTV, Digital Out-of-Home and Retail Media continue to provide significant organic tailwinds. Second, the broader market shift to performance advertising aligns perfectly with Perion One's offering. Outmax, our AI agent, demonstrates higher ROI for advertisers, establishing our solutions as value-driven products. Third, our value proposition attracts new customers and drives expansion within existing ones, reflected in our land and expand business model. It is important to emphasize that this growth will be purely organic, driven by the Perion One flywheel.

Starting 2026, we expect Perion One to comprise 85% to 90% of the consolidated contribution ex-TAC. Moving forward, search is becoming a smaller portion of the contribution ex-TAC mix, completing our transition to a Perion One pure-play growth story. The rapid growth of Perion One spend and contribution ex-TAC will be accompanied by a balanced approach in profitability. We are targeting an adjusted EBITDA to contribution ex-TAC margin of 28% by 2028. Achieving this margin expansion relies on 2 complementary levers. First, efficiency. We will continue to drive internal efficiency and utilize AI-based automation to optimize our cost structure. Second, we will invest to scale. We plan to strategically deploy capital into go-to-market and innovation. While this requires upfront investments, it is essential to expedite growth and ensure we capture the full potential of our platform in the long term. As a result, Perion's consolidated profitability margins are expected to expand into 2028. We have always prided ourselves on being a highly profitable and cash-generative business, and our 2028 target plan is designed to amplify that. Even as we continue to invest in our AI infrastructure, we expect to maintain a high adjusted free cash flow conversion ratio.

To summarize, the Perion One model is a combination of top line growth, increased efficiency and strong and sustainable cash flow generation. Perion enters 2026 stronger and more focused than ever. We have the technology, the balance sheet and the strategy to deliver significant value to our shareholders.

With that, I will turn the call back to the operator for questions.

[Operator Instructions] our first question comes from Andrew Marok at Raymond James.

Two, if I could. Can we please start on the 2026 guide? A little bit of a wide range there, about 10 percentage points worth of growth. So I guess, can you walk us through what the low end versus the high end assumptions are there? And what you're maybe thinking for political impact in the second half of the year?

Yes. The guidance for 2026 represents the current view of the business. We expect to see a gradual decline in search and our other legacy activities, in parallel, a sharper increase in the Perion contribution ex-TAC. Given the market dynamics that we see -- I'm sorry, given the market dynamics we see today, we see shift towards performance. And within that, we actually believe that Outmax would be able to deliver -- would be able to capture more scale into our [indiscernible]. And right now with how we're seeing 2026 in terms of the budget spend, we see that advertisers are planning for shorter cycles and the visibility remain 6 months. And since right now at the beginning of the year, we start to stay disciplined in how we're seeing it and taking into account that second half of the year will -- the seasonality of AdTech is thinking much more...

Got it. And then maybe a follow-up on that. I haven't run through all of the numbers, but it seems that there's like an acceleration implied going from '26 in the context of your 2028 guide, accelerating off of '26 into '27 and '28. Is that just an impact of like the mix shift away from search and toward the Perion One platform? Or are there things like incremental product launches and things like that, that are contemplated over the course of your medium-term guide?

We are not actually taking into account the new proposition, but we will add to the market. You take on the point, the growth of the Perion One platform together with the search declining will actually bring -- and expedite the growth towards [indiscernible].

Our next question comes from Eric Martinuzzi at Lake Street.

Yes. I saw that one of your announcements in the past quarter was the integration with the Amazon DSP. Just wondering if you did see wallet share gains with your advertising, both brand and agency advertisers? And then what does that mean for kind of the ramp in 2026? And I have a follow-up.

Yes, absolutely. So the Amazon DSP, that request actually came from our customers for a long time to use our DCO, our dynamic content optimization, with our inventory through the Amazon DSP. So we've been working with Amazon for quite a while on that integration, and we're extremely happy about it. We think that's going to open up a huge opportunity for us. As we just launched this. Obviously, there are things that are going through this, but it's just getting started.

Okay. And then as far as each of the DSPs also has AI tools to optimize spend across -- through their relationships with advertisers. What are you hearing from advertisers as far as the prioritization of using Perion One to manage campaigns as opposed to leaving in place spend at traditional legacy DSP.

That's a great question. I think that's really where we're focusing on. We're not trying to replace other DSPs. I think -- I would carefully predict that all DSPs are going to have their own AI tools if some of them don't already have them. But that's not the case for us. So what we're trying to do is to be a layer above all of those DSPs and optimize cross channel and understand where things operate the best. And that's based in the goal. So if the goal is to drive more people to websites, the goal is to drive more people to physical stores, the goal is to install an app, that is the goal. And then our AI agent can actually run across all DSPs and figure out, on that specific goal, where would that make the most sense and get the best outcome.

So even though currently, most of AI tools that we're seeing out there are mostly UI-based and not the execution layer, I'm sure people are going to add more execution parts, but our execution infrastructure is built in a way where other AI agent can interact with our AI agent. And based on that, get the best yield for the advertiser. So it's kind of a different play. We're not optimizing for inventory, which every DSP optimized for its own inventory. We're optimizing for the outcome of the advertiser across all inventories, which is really the big thing we're trying to solve for that industry.

Our next question comes from Jason Kreyer at Craig-Hallum Capital Group.

So I just want to start out talking about Outmax. If you can talk about maybe what the adoption has been over the last couple of quarters? And then are there any barriers to marketers adopting Outmax?

Yes, absolutely. Thanks for the question. We're seeing strong adoption, and we've shown only one example where we have many examples how the land and expand actually works with Outmax. Outmax is really all about performance. So even though we're extremely excited about the level of technology we have here, our advertisers are actually excited about the level of performance it drives. And we're seeing anything between 40% to almost 80% uplift with some of our advertisers. And it usually starts from budgets for tests and then pretty quickly, it goes into getting more and more budgets, but it's all performance driven. So we're seeing great success with that.

And broader question just on Perion One. Over the course of the last year, as you've rolled this out and you've worked with new customers to onboard, are you seeing anything unique in terms of selling cycles? Or are you seeing selling cycles compress at all over time now that that's been in the market longer?

Yes. So we are seeing people talking less about specific features and more about the outcome of the feature. So people -- in the past, they were tending to look at specific features or specific channels. Now they mainly care about the performance and the outcome. So that's why it kind of makes sense that we combine everything into one AI agent where just tell us what you're trying to achieve and let the agent figure it out. So that made our sales cycle shorter. It's easier to get testing budgets and then through showing actual results, increasing that -- the amount we're getting from the clients.

Our next question comes from Steve Hromin at Oppenheimer.

This is Steve Hromin on for Jason. So just one question from us. So with the very strong 28% guide for '28 EBITDA margin versus, I guess, this year is around 23%. So just if you could double-click on sort of what underpins your confidence in achieving that between cost of revenue efficiencies or OpEx or anything of that nature, AI initiatives?

Sure. Thank you. So I would start by saying that we're already seeing the progress that we did this year with our efficiency. Q4 results proving we jumped from 29% last year in Q4 to 37% this quarter. We took a lot of efficiency measures already this year, and we will continue to invest in them, specifically around the G&A and the cost of revenues using automation and AI tools that we implemented and build on our day-to-day operation. Together with that, we are seeing an increase for next year to 23% since we are about to invest as well in go-to-market and R&D. So as we progress along the year, we'll see more of our ex-TAC growth as a result of our performance, then we're definitely going to see the impact of what's coming as well to the EBITDA contribution ex-TAC ratio. So it's a combination of those 2.

[Operator Instructions] our next question comes from Laura Martin at Needham.

Sure. So my first question is on the web. I think you said it was down 17%. So I'm really -- can you hear me okay? There you go.

We just lost you for a minute. Repeat that, please?

Sure. So the question is on web. I think you said the web piece of the business is down 17%. And so I'm interested in -- is that because -- I'm interested in the fundamentals behind that. Is that CPMs are under pressure or traffic is down because we have AI answers not sending visitors to websites? Or is that -- like tell me what's going on in the fundamentals of web? That's my first question.

Laura, with respect to web, the decline is driven from 2 different reasons. First of all, it's proactively. If you remember, we shut down low tech and low-margin legacy activities at the beginning of '25. So that's part of the decline. On a pro forma basis, if we are neutralizing that, Q4 decline was 12%. And on an overall -- on a yearly basis, it was quite flat. I think that the second reason is that actually human behavior is shifting towards otherworld gardens. What's important to remember that Perion One is channel agnostic. Outmax is optimizing for the ROI of the advertisers without necessarily specification of a certain channel. It's programmatic to hit certain KPIs defined by the customer. And whatever channel presents the best ROI, this is where we're going to see the spend. So it's really a channel agnostic play.

Okay. And then my other question was customers. So to your point about the fact you're not really a DSP, you're sitting on the layer above that because you want to optimize for brand advertising for the advertiser. It feels like there's going to be a big shift in your customer -- like what kind of customer you're calling on. So can you talk about that, please?

Sure. I'm not sure we're going to have a shift in the type of customers. We're still dealing with the majority of our clients come through agencies, but some of them are brand direct. But I think the way we interact with customers is definitely going to change. Up until a year ago, we interacted with them based on specific products or channels. We are now looking at a more holistic approach that let's look at the entire budget, let's figure out what are we trying to achieve, let's see if we can get you guys on better performance. Not necessarily switching between DSPs, but necessarily optimizing algorithmic approach into driving more performance. So the algorithm might choose different creative, it might choose different audiences, might choose different devices, but that's the focus. So we're actually the same type of customers, different level of conversation, which is more holistic and a broader approach.

Our next question comes from Jeff Martin at ROTH.

I was just curious if you could touch on, at least in your core growth areas, the market share gains that you've achieved over 2025. What has been the biggest contributors to the outpaced growth relative to the industry? And could you touch on the sustainability of that outpaced growth?

Sure. I think we see it in the -- our growth in Q4 definitely came from the growth engines that we see. CTV led with almost 60% year-over-year growth. Digital Out-of-Home with 28%. The Retail Media vertical once again increased 42% in Q4. So overall, all of our growth engines were really outpaced the market by double or triple than the industry. And I think this is part of the power of the value proposition that we are providing to customers around -- specifically around those channels. As we said, this is the foot in the door, always to gain more spend and budgets, and we see this in Q4 results.

This now concludes the question-and-answer session. I will hand the call back to Tal Jacobson for closing remarks. Thank you.

Thank you for joining us at our Q4 and full year 2025 earnings call, and thank you for being part of our journey. We'll see you next time.

Thank you.

Hello, everybody, and welcome to the Perion Network Third Quarter 2025 Earnings Conference Call.

Today's conference call is being recorded, and an archive of the webcast will be posted on the company website. The press release detailing the financial results is available on the company's website at www.perion.com.

Before we begin, I'd like to read the following safe harbor statement. Today's discussion includes forward-looking statements. These statements reflect the company's current views with respect to future events. These forward-looking statements involve known and unknown risks, uncertainties and other factors, including those discussed under the heading Risk Factors and elsewhere in the company's Annual Report on Form F-20 (sic) [ 20-F ] that may cause actual results, performance or achievements to be materially different and any future results, performance or achievements anticipated or implied by these forward-looking statements. The company does not undertake to update any forward-looking statements to reflect future events or circumstances.

As in prior quarters, the results reported today will be analyzed both on a GAAP and a non-GAAP basis. While mentioning EBITDA, we'll be referring to adjusted EBITDA. We have provided a detailed reconciliation of non-GAAP measures to their comparable GAAP measures on our earnings release, which is available on our website and has also been filed on Form 6-K.

Hosting the call today are Tal Jacobson, Perion's Chief Executive Officer; and Elad Tzubery, Perion's Chief Financial Officer.

I would now like to turn the call over to Tal Jacobson. Please go ahead.

Good morning, and thank you for joining us at the Perion's earnings call for the third quarter of 2025.

This quarter, we continued to strengthen our foundation and execute our long-term strategy. Our focus remains clear and disciplined, and the results we're sharing today reflects a solid progress across all parts of our business. We're building for sustainable growth for this year and for years ahead. This quarter, we demonstrated progress across all aspects of our business.

We delivered strong financial results, announced new products, initiated new partnerships to support our global expansion and won industry awards. Our key growth engines, CTV, digital out-of-home and retail media continue to expand and present healthy growth. We are also expanding our share repurchase program to $200 million, adding $75 million to the current program. This is pending regulatory approvals. This decision was made after a deep analysis of our future capital needs that will support our growth, and it reflects our confidence in Perion's long-term value for investors and our ability to continue to generate cash.

On the innovation front, we introduced 3 strategic products under the Perion One vision. Outmax, which unifies all our performance-driven AI algorithms for media outcomes across CTV, social and open web. This includes the Greenbids algorithms and our new performance CTV capabilities. By unifying all our AI algorithms for media outcomes under one product, we enable our global sales team to accelerate growth with a simple yet powerful holistic solution.

SODA, our AI for publisher, is our new next-generation supply path optimization for smarter monetization that strengthen our supply-side technology and our new digital out-of-home player, which completes the full-stack marketing operation system for digital out-of-home and retail media. It is designed to drive tremendous value for our digital out-of-home partners and a high-margin and recurring revenue for Perion.

We also advanced strategic partnerships across retail media and digital out-of-home, extending our reach throughout the U.S., Europe and Asia. We continue to gain recognition in our industry with multiple awards, further validating our technology leadership and impact in performance-driven advertising. These achievements highlight how Perion executed by focusing on today, while building a strong foundation for sustainable, profitable growth in the future. All this progress aligns with one clear direction, our vision of becoming the platform of choice for modern CMOs and their teams.

While CROs rely on Salesforce and CTOs on Jira, CMOs still lack a unified platform that connects media, data and outcomes. Our Perion One strategy is the answer for this gap, a multichannel AI-powered platform that brings together creative, data and media to deliver measurable business outcomes, a marketing operating system for modern marketers. Every product we develop and every partnership we form brings us closer to making Perion One the central system for marketing performance.

As we continue our journey towards this vision, we wanted to better understand how do CMOs view the challenges they face today. So in partnership with advertiser perceptions, we surveyed CMOs across North America and the findings were revealing. Research results prove that there is a strong need to solve the fragmentation between marketing and finance, highlighting the growing needs for the unified solution Perion One provides. This validates why our mission matters, helping marketers connect creativity and data to measurable outcomes and bridging the divide between CMOs and CFOs. You are welcome to view the full research report on perion.com website.

One of our new strategic partnerships is with Albertsons Media Collective, a leading retail media network in the U.S. According to eMarketer, retail media in the U.S. is a $60 billion opportunity, growing at double-digit annual rates. This partnership gives Perion a strong foothold with one of the largest grocery retailers in the U.S. By combining Albertsons' first-party data with our retail media technology, we deliver comers connect measurable campaigns that align perfectly with where the market is moving.

A great example is Primo Water, a brand that wanted to drive product sales among Albertsons' shoppers on the go. The campaign delivered over 5.5 million impressions and achieved a 5.5% sales lift. This demonstrates how Perion's technology directly connects ad exposure to measurable business outcomes.

Let's take a look.

[Presentation]

Campaigns like Primo Water demonstrate how our creative data and technology excellence translate into real business performance. Outmax takes that principle further, unifying all our outcome-driven AI algorithms under one solution, a solution designed to maximize outcomes by connecting creative intelligence with real-time optimization.

Outmax is built to power results across every media environment. It represents the next step in Perion's evolution, transforming AI-driven algorithm and insights into measurable, scalable growth. Outmax unifies optimization across CTV, social and open web. It also includes the Greenbids technology that we acquired earlier this year. What sets Outmax apart from all other solutions? Outmax continuously learns where the performance truly happens.

The algorithm analyzes multiple signals such as device, time and context to identify the most effective audience and inventory combination in real time. It then reallocates budgets towards those high-performing segments, driving stronger ROI and more efficient media investment. By connecting insights across CTV, social and open web, Outmax creates one continuous optimization loop, improving results for advertisers while enhancing Perion's scalability and growth potential.

We've already seen strong validation through recent case studies. Outmax optimized YouTube campaigns for Ford using carbon-aware bidding, improving viewability by 12 points, lowering CPMs by 22% and cutting carbon intensity by 33%, demonstrating how the Outmax algorithm delivers better results through advanced AI.

We're continuing to strengthen our supply-side technology with the launch of SODA, our AI monetization engine for publishers. SODA combines Perion's multi-format bidder technology with an AI real-time algorithm that optimizes every impression path. This drives higher yield, reduced waste and provides better ad delivery, both for the publisher and for advertisers.

What's most exciting is that SODA makes Perion an embedded technology partner within the publisher stack. I'm confident that this will expand our recurring high-margin revenue base. It's a clear example of how we're executing and translating innovation directly into growth and operating leverage.

Another major milestone is the launch of the Perion digital out-of-home player. This completes the full-stack marketing operating system for digital out-of-home and retail media. The digital out-of-home player extends our full-stack supply-side technology, giving media owners and digital signage partners a single platform to manage both direct and programmatic campaigns. It replaces fragmented legacy systems with a dynamic hardware-agnostic solution, improving efficiency, transparency and control across global signage networks.

The new Perion digital out-of-home player is designed to drive tremendous value for our digital out-of-home partners and a high-margin recurring revenue for Perion. This new product broadens our total addressable market by integrating with the digital out-of-home media owners and retailers. It has the potential to generate high-margin and recurring software income through embedded deployments over time. It also strengthened our role as a technology partner of choice within the digital out-of-home and retail media ecosystem, another important step in connecting the supply side under Perion One platform.

As we look ahead, it's important to remember that everything we're delivering today is part of a broader long-term transformation. After laying the foundation in 2024, we spent this year activating the Perion One vision, unifying our technologies and brands under one platform and streamlining our operations for improved efficiency and scalable growth.

The next phase beginning in 2026 is about scaling the platform. We are expanding Perion One across more channels, deepening adoption with global brands and increasing recurring high-margin revenue streams, powered by AI, automation and self-service capabilities. Each step brings us closer to our vision: a single intelligent platform that delivers better performance, faster decisions and long-term value for marketers and shareholders.

To conclude, our message to investors is clear. Perion is executing on its strategy and building for long-term value. We operate in high-growth areas, supported by proven track record of profitability and positive cash flow. We have a global team with deep high-growth experience, focused on building technology and accelerating our global go-to-market strategy for the AI-first era in advertising.

With that, I'll now turn it over to Elad Tzubery, our CFO, who will walk you through the financial results for the third quarter.

Thank you, Tal, and thank you all for joining us on the call today.

Our third quarter results mark another strong step forward in Perion's strategic transformation. We are now seeing the tangible impact of the structural, operational and technological foundation we've built over the past 20 months. During this quarter, we achieved our first year-over-year revenue and contribution ex-TAC growth since the first quarter of 2024. This is a milestone that reflects our disciplined execution, and it's a direct result of our enhanced organizational structure, our continued adoption of unified Perion One platform and a strong go-to-market strategy.

Importantly, our adjusted EBITDA increased 63% year-over-year to $12.1 million. This reflects the early results of our efficiency initiatives that are expected to fully materialize in 2026. Our core growth engines: CTV, retail media and digital out-of-home are also among the strongest growing channels and market verticals in ad tech. All of them continued their momentum and delivered strong performances with a year-over-year growth of 75%, 40% and 26%, respectively.

We also continue to execute our capital allocation plan with discipline. During the quarter, we repurchased 800,000 shares for $7.5 million. Due to our confidence in Perion's long-term growth and the strength of our cash generation, we approved in principle an expansion of our share repurchase authorization by an additional $75 million to a total amount of $200 million. It reflects the balance between returning capital to shareholders and continued investment in innovation and in strategic opportunities to strengthen our core businesses and drive sustainable growth. Looking ahead, we are firmly establishing the infrastructure for sustained growth in 2026 and beyond. This is supported by operational efficiency, scalable technology and disciplined capital allocation.

Moving on to our key financial metrics for the third quarter. Revenue accounted for $110.5 million, representing 8% year-over-year growth. Contribution ex-TAC came in at $51 million, up 7% year-over-year, maintaining a healthy 46% margin. Notably, this marks the first time since the first quarter of 2024 that we've achieved year-over-year growth in both revenue and contribution ex-TAC. This is a testament to Perion's growing ability to deliver measurable outcomes for our customers, as well as the strong performance of our core growth engines and our disciplined operational execution.

We believe our revenue contribution, excluding TAC, represents a more accurate measure of our top line performance than the revenue alone. Adjusted EBITDA this quarter was $12.1 million. This represents a 63% year-over-year increase. Our ex-TAC margin was 24%, signifying an encouraging margin expansion. Non-GAAP net income was $12.5 million, resulting in a non-GAAP diluted earnings per share of $0.28. Cash flow from operations was $5.9 million, bringing our year-to-date total to $20.1 million. This further demonstrates the strength of our underlying business model and our consistent ability to generate cash.

Our growth engines continue to be the cornerstone of Perion's future growth. Both CTV and digital out-of-home channels are growing at a fast rate. They are continuously outpacing the overall market growth on an annual basis as projected by eMarketer. This position Perion as a high-growth player in 2 of the most dynamic segments in digital advertising. CTV continues its strong growth trajectory with revenue up 75% year-over-year, driven by sustained demand for our advanced formats.

Looking ahead, we expect CTV revenue to continue outpacing the market, supported by the ongoing shift from linear to connected TV and growing customer adoption of our performance CTV solutions. Our digital out-of-home channel remains a highly strategic entry point into new markets. We continue to leverage its differentiated capabilities to position Perion for sustainable, profitable growth through cross-selling and product synergy.

We recently launched our digital out-of-home player, an advanced solution that completes our full-stack marketing operating system for digital out-of-home and retail media. The digital out-of-home player strengthens our customer stickiness and recurring revenue streams, making our business model more predictable and scalable across this fast-growing channel.

Our Retail Media market vertical continued to demonstrate strong momentum, with revenue up 40% year-over-year. Retail Media remains one of the fastest-growing verticals in advertising. projected to expand at a 14.7% CAGR through 2029. As new and existing customers continue to adopt our retail-focused solutions, we are well positioned to capture market share and outpace market growth.

Our third quarter channel mix demonstrates the growing portion of CTV and digital out-of-home. These 2 channels combined represent 37% of revenue versus 28% in the same quarter last year. Digital out-of-home increased by 26% year-over-year, reaching 22% of revenue, up from 19% last year. This reflects the continued global momentum with new partnerships across APAC, the U.S. and EMEA.

CTV increased by 75% year-over-year, representing 15% of revenue compared to 9% last year. This significant growth is a testament of increasing customer adoption of our full-funnel solutions offering. Web revenue declined by 11% year-over-year due to a continued trend of lower advertiser appetite for standard display and video formats. It is important to note that the comparison to the third quarter of 2024 is skewed due to the discontinuation of lower-margin activities in late 2024 as previously announced this year.

Search increased by 9% year-over-year, representing 21% of revenue and continues the search business stabilization. While in this quarter, we enjoyed strong growth across each of our core growth engines, Perion's platform is built to be channel agnostic. This structure enable us to seamlessly adapt as advertiser spend naturally shifts across channels. This flexibility allows us to capture growth wherever demand emerges and helps to increase advertiser spend and retention.

Contribution ex-TAC in the third quarter grew by 7% year-over-year to $51 million, representing a stable margin of 46%. As we move forward with our unified platform, we expect to grow our revenue contribution, excluding TAC at a faster pace compared to total revenue. This measure better represents our top line performance than revenue alone. Adjusted EBITDA for the third quarter grew 63% year-over-year to $12.1 million, representing 24% of contribution ex-TAC and 11% of total revenue. This significant margin expansion reflects our improved operational leverage.

The efficiency initiative we've implemented this year continue to bear fruit and drive improved profitability. We continue to further optimize our cost structure to align with our unified operating model. We expect to benefit from these improvements throughout the remainder of 2025 and into 2026 as these efforts gain momentum.

On a GAAP basis, our third quarter net loss was $4.1 million, or $0.10 per diluted share. On a non-GAAP basis, net income improved year-over-year to $12.5 million compared to $11.9 million in the third quarter of 2024. This represents a non-GAAP diluted earnings per share of $0.28 this quarter compared to $0.23 per diluted share last year, representing a 22% year-over-year increase. In the third quarter of 2025, cash generated from operating activities was $5.9 million, and our adjusted free cash flow was $4.8 million.

Looking ahead, we are confident that we will maintain a strong cash flow conversion rate of over 70% in 2025. As of September 30, our balance sheet includes $315 million in cash, cash equivalents, short-term bank deposits and marketable securities. Our strong cash position gives us the financial flexibility to support the broader capital allocation framework, pursuing our diversified growth strategy while continuing to return capital to shareholders.

During the quarter, we continued to execute our share buyback program. Due to regulatory volume restrictions, our repurchase activity was limited, leading to the repurchase of 800,000 shares for a total amount of $7.5 million. As of September 30, 2025, we have repurchased a cumulative total of 10.4 million shares for $94.2 million. This continued buyback commitment underscored our confidence in Perion's long-term value proposition. As of today, during the fourth quarter, we already purchased an additional 1 million shares, and we expect to complete the current plan by the end of this year.

We are pleased to announce the principal approval of expansion of our previously authorized share repurchase program. Our confidence in Perion's future allows us to expand the program by an additional $75 million. This increased the total program from $125 million to $200 million. The overall program represents an estimated shareholders' implied return of nearly 50% since initiation. We believe our current share price is not reflective of the value and opportunities we have at Perion. The share buyback program, alongside disciplined investments in organic growth and in M&A opportunities is the best use at present for our excess cash.

Turning to our financial outlook. We are reiterating our full-year 2025 guidance with revenue at $430 million to $450 million and adjusted EBITDA at $44 million to $46 million. The progress we made in Q3 from returning to year-over-year growth to expanding profitability underscores the strength of our transformation and the resilience of our model. As we continue consolidating our operations into the Perion One platform, we are confident that we have established a strong foundation for sustainable growth and profitability heading into 2026.

With that, I'll now turn it back to the operator to open the line for questions. Thank you.[Operator Instructions] We'll take our first question from Andrew Marok with Raymond James.

Maybe one for Tal and one for Elad. Tal, if you could dive into some of the CTV strength drivers we saw in 3Q with the 75% growth. I know you had mentioned some spend shifts or budget shifts last quarter out of 2Q into the second half, but any more specificity there would be appreciated.

And then maybe on the guidance range, given that you're reiterating the guidance range, it does seem like a fairly wide range for 4Q. I guess what should we be inferring from that in terms of what you're seeing to date in either October or expectations for the holiday season?

Yes. Thanks for the question. So absolutely, on CTV, I think what we see is that our performance CTV, together with our new algorithm, Greenbids, which we now call Outmax, are really performing well. We're seeing healthy pipeline and deals from our customers, and that's what drove a significant growth that we're seeing.

Elad, do you want to answer the guidance?

Yes. Sure. In terms of the guidance, the quarter right now is trending in line with our expectations so far as we are entering to an important holiday season. We feel very good with our ability to deliver within this range of guidance. And we already increased the guidance at the beginning of the year in May, and it was important for us, of course, to make sure that we are delivering on everything that we are saying and maintaining the guidance as is, of course. But we do feel very confident in our ability to meet those numbers as we see. Overall, we do not see right now any slowdown, I would say, in spend of the advertiser. It's just a change of how -- in terms of time lines of how the budgets are getting or spending within the month.

Yes. So I'll just add to that, that as Elad said, we did raise our guidance within the year. And ever since then, we continued to build strong momentum. And as Elad said, the quarter is in line with our expectation, but we're waiting for the shopping season to see how that's enabled.

We'll take our next question from Eric Martinuzzi from Lake Street.

Yes. I kind of wanted to revisit the Q4 growth. Just based on the projections here, that growth rate would be down versus the growth you had in Q3. I realized we're early in the holiday spending season. Is it just conservatism that, that sequential growth rate would be down?

Yes, Eric. Thank you. I would say it's a bit conservative as well. As we mentioned, we are -- Q4 is obviously the peak of the year in terms of advertising budget and just before the holiday season, it was important for us to be cautious.

Okay. And then I know you haven't -- you're not addressing 2026. But right now, there is an expectation for double-digit growth there. I think the Street consensus is at 11% growth in 2026. Should that be coming down based on this -- what you're seeing for Q4?

No, not at all. We haven't provided yet the outlook for 2026. We are providing it as usual at the end of the year. I can do -- what I can tell you, by the way, is that we are aiming for next year to capture much, much more market share than we are -- and we actually believe that we will be able to beat next year as well the Street expectation. And our growth engines will continue to outperform the market, and I believe that it will drive our growth going forward. And we are -- as much as we are focusing on the efficiency and we start to see this in terms of the numbers starting already for this Q, we are also investing in our current business to allow us to scale and to grow much faster also for next year.

Our next question comes from Jason Helfstein with Oppenheimer.

So, I guess kind of following on to what you just said, it sounds like you're having more success now selling the package of services across the different disciplines. There's been a pretty significant investment in sales and marketing to kind of get here. Just how are you thinking about the investment needed, particularly as we go into next year in sales and marketing? Is it still like another heavy lift? Or kind of can you harvest?

And then obviously, the implied kind of web business, I think, is down something like 11% year-over-year, give or take, our math in the quarter, but it's still roughly half of revenue. So obviously, CTV, digital out-of-home, some of the other areas are going to grow still meaningfully faster than that. Just how are you thinking about like those -- again, the puts and takes there, right, web declining, everything else or display really declining and everything else really growing as we're just thinking out over the next like 2 years?

Yes. Absolutely. Thanks for the question. So, I'll divide it into a few parts. One, we think that web and search is going to be totally aligned with human behavior. As AI agents or AI chatbots are growing, less and less web search is going to happen. And with this whole trend of 0 clicks on Google, I think less traffic is going to go on web. But that only means that a lot of the budgets are going to shift towards closed gardens, right, Meta, TikTok, Google, YouTube, out-of-home and CTV, which is exactly why we bought Greenbids. That's exactly why we bought Hivestack, and this is exactly why we're investing in those areas just because we think this trend is going to continue. But we do think our algorithm Outmax, our CTV and out-of-home is going to outpace the growth of the market going forward. So, that should show good growth in the next year and the year after that.

In terms of sales and marketing, before Elad is going to go a bit on the numbers, but sales and marketing is now so much easier since we have Perion One. We're seeing more and more an increasingly big number and it's increasing by the day of customers that are using more than one of our products. So, we do have algorithm with CTV customers. We have CTV with out-of-home customers. So, we're seeing synergies even faster than what we could have imagined at this time of stage within the transformation. It also helps us with marketing since we're spending marketing very focused on to drive new customers to the platform. We're seeing great success there.

Elad, do you want to add?

Yes. I would add about the sales, the S&M investment that we are planning to do also for next year to increase our ability to tap into more and more customers into the platform. So first and of course, foremost, we were going to increase, of course, our marketing budget as well as we are going to the market. We want to get a spread as possible when we are going into 2026. As Tal mentioned, '26 and '27 are years that we are aiming to scale Perion One as much as possible globally. As part of the changes also with the agreement, we are increasing also a bit the sales team just to get more and more reach points towards more customers and to be able to showcase the Perion One capabilities into more customers.

So definitely, this is an area that we're going to increase our investments next year. And also around, I would say, R&D as well. This is something that we are planning to increase also some of our resources around, investment around R&D in order to make sure that we are expediting our road map coming to the streets to our customers with more and more solutions and ability to spend more within this platform.

Our next question comes from Jeff Martin with ROTH.

Great. I was curious, you mentioned that there was a clouded comparison on web versus last year due to some low-margin business that was exited. Could you give us an apples-to-apples comparison and then pair that with how web trended relative to your expectation? I know the last 2 quarters, you've talked about a bottoming out of that a little earlier than expected. So, just curious how that trended in the quarter relative to your internal expectations?

Yes. So thanks for the question, Jeff. Actually, web acted exactly as we expected, I would say, even a bit better than our original plans. As I said, if you remember on February's call, we announced that we were closing some of our previous technology that related to web that they were very, very low margin, and they were defocused for Perion One strategy. And when we are comparing Q3 to Q3, major part of the decrease that you see in the web is because of this -- of those business lines we decided we are shutting down. Web, comparing to our expectations, actually did better if we are removing those terminated business.

Great. And just one more, if I could. You've talked in the past about expanding the TAM dramatically. Just curious if you could give us an update on timing of that and how it's trended so far this year?

Yes, sure. So when we bought Greenbids, we got into YouTube and Meta, which is something that we never had the capability to do. So now every advertiser that spends money on YouTube, Google Ads and Meta can actually work with us and to trade us. Now, we're in process of integrating this into more social platforms and more and more DSPs. So, that will continue to increase our TAM. And you're going to see more and more growth out of that part, out of new channels. Hopefully, next year, you're going to see more channels than just web and CTV and out-of-home.

Our next question comes from Laura Martin with Needham.

I need to ask the AI question. So, I'm merely interested in how you're using AI internally because it sounds like you're still hiring people and it's our thesis that if you're a tech company, you're using AI and not people. So, can you talk about internally how you're using new tools with AI to replace people?

And then secondly, I wanted to drill down a follow-up on some of my competitors' questions on web. I know, Tal, you think sort of that the open web is going to lose share, too, and that's why you've gone into digital out-of-home and CTV. But then Elad just said that a lot of the 11% decline in the quarter was attributable to actions you took in February, and therefore, the declines would have been much less, which implies to me, Tal, that by February, we anniversary those, let's call it, self-harm that you decided to do and that we could maybe return to growth in the open web, it sounds like. So, could you talk to me about how much of this web decline you think is structural because it sounds like it's a lot less than the 11% decline that you reported in the web business in the quarter?

Yes. All right. Thanks, Laura. So 2 things. So as you said, I think you're absolutely right. With time and automation, the amount of people we would hire is going to be lower. But as we build this company for scale, there are 2 parts where we do hire people. One, R&D, to continue to build AI-driven products because AI is everything, and we're becoming more and more of a technology company than anything else. And on the other part is sales, which sales should bring our new platform into more clients.

So, those are the areas where we look to hire more people. But everything else, we hired a new COO 6 months ago just for that to transform all our internal operation to be AI-driven and more efficient. So less and less manual work, more and more automation to AI. That's on the internal part. Now within -- when we built -- we're building Perion One. Also within that, everything is AI-driven. Even all -- everything that we built within R&D is now supported with AI. So, we can actually say that 100% of our R&D work is supported now with AI. So, that's on the AI part.

On the web part, I'll just say generally, and then I'll let Elad answer his part. But I'll just say, as far as human behavior, I do not think editorial websites are going to see a huge growth in the future, and that's where -- what we call web. Having said that, we did a few things within in-house like releasing SODA and other products for web. And since we're such a small part of web globally, even though it can grow within us, it doesn't necessarily mean that humans are going to use more and more editorial websites as a general trend. I don't think that's going to be the future.

Elad, anything you want to add to that?

I can just add just to make sure that I was clear. The expectation that we had in shutting down those businesses that we will -- that the web will continue to decline more. Keep in mind, Laura, we are channel agnostic in a way. And that's right that our growth engines are digital out-of-home and CTV, of course, but it also allow us in a way to tap on the opportunity that's related also to web. I'm not expecting, by the way, going to the future that I will see increase in web that dramatically. But on a year-over-year comparison, as we will continue to increase the overall spend that will come through the system, I believe that also the web will capture some of those spend yet.

Was that answering your question?

Well, so I think a lot of what would help me is of the 11% decline, you said that most of it was this decision you've made in February. Was it 8% of the 11%? Like you would have only been down 3% in web if you hadn't taken the actions yourself in February. How much of the 11% decline was your actions in February?

No. Actually, more closely towards 13% was related to our action. So overall, otherwise, I would say the web is increasing at roughly 2%.

Our last question comes from Jason Kreyer with Craig-Hallum Capital Group.

Just one for me. So, you had highlighted how SODA and the out-of-home player create more predictable revenue streams. Wondering if you can just size up those opportunities and give a little more detail on how you monetize those solutions.

Thank you, Jason. And first of all, welcome. We're very happy to have you with us. So in terms of SODA and the digital out-of-home player, the thing is we're trying to be the operating system, the marketing operating system within the tech stack of the inventory part, right? So while Perion One is the operating system for marketers, SODA and the digital out-of-home player is the operating system for the inventory part. And we want to be as implemented as possible within their tech stack.

So, SODA for out-of-home and web publishers and obviously, the digital out-of-home player can get a bigger chunk of all the spend that's going through the screens. What it means is a lot of the time when digital out-of-home screen owners, the budget that we're seeing through them is the programmatic part. But when we implement the digital out-of-home player, we can actually benefit from all the budgets that are going through that. And that means direct and programmatic, that actually increases our TAM quite dramatically. And it does -- once that's going to be deployed in big scale, that will provide us better visibility and predictability into our revenue streams.

Does that answer your question?

Yes.

This now concludes the question-and-answer session. I will now hand back to Tal Jacobson for closing remarks.

Thank you, everyone, for joining us at the Q3 earnings call. We're happy to show that we're making good progress on our Perion One vision, and I hope to see you, everyone, at our next earnings call.

Thank you.

This concludes today's call. Thank you, everyone, for joining. You may now disconnect.

Hello, everybody and welcome to the Perion Network Q2 2025 Earnings Conference Call. Today's conference is being recorded, and an archive of the webcast will be posted on the company website. The press release detailing the financial results is available on the company's website at www.perion.com.

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

As in prior quarters, the results reported today will be analyzed both on a GAAP and a non-GAAP basis. While mentioning EBITDA, we will be referring to adjusted EBITDA. We have provided a detailed reconciliation of non-GAAP measures to their comparable GAAP measures in our earnings release, which is available on our website and has also been filed on Form 6-K.

Hosting the call today are Tal Jacobson, Perion's Chief Executive Officer; and Elad Tzubery, Perion's Chief Financial Officer. I would now like to turn the call over to Tal Jacobson. Please go ahead.

Good morning, and thank you for joining us on the Perion's earnings call for the second quarter of 2025. We continue to focus on our vision, a future where CMOs and their teams are powered by a centralized platform built for their needs, contrary to CROs who rely on Salesforce, CROs on monday.com and CTOs on Jira. CMOs who drive nearly $1 trillion annually through the pipes of digital advertising, lack a centralized platform that supports their needs. As of now, a comprehensive centralized platform tailored for marketer needs has not emerged. This creates a clear gap in the market.

Perion One is a platform that connects media with measurable business outcomes, a channel-neutral platform that brings together creative, data and AI. That's the role we want Perion One to play, and the direction we're steadily moving towards. With every feature we develop, every channel we expand into and every new advertiser we onboard, we're taking a clear step towards becoming the CMO platform of choice. The strategic shift into Perion One strategy didn't happen overnight. We've been planning it since late 2023. We believe this shift towards becoming the CMO centralized platform requires more than one product or 1 quarter. It requires long-term deliberate transformation and that's exactly what we have been building at Perion.

Over the past 18 months, we've been laying the foundation, reorganizing our structure, unifying our technologies and aligning our go-to-market strategy with our long-term platform vision. This is both a product evolution and a company-wide transformation. In December 2023, we acquired Hivestack, an advanced multifunctional digital advertising platform, that we knew would evolve into the Prion One platform. This also allowed us to enter the exciting world of the global digital out-of-home space that shows great growth. In addition, we appointed key global executives to lead our new platform strategy.

At the beginning of 2025, we announced Perion One strategy and focus on [indiscernible]. Our strategy is about bringing together all of our technologies and brands under one unified platform that serves the new needs of the digital advertising world in the AI era.

We acquired Greenbids, an AI-first company to optimize and improve Walled Gardens performance. By that, we extended our TAM and offering to our customers, and initiated a go-to-marketing transformation, focused on vertical solutions and enterprise clients. Looking ahead to 2026 and beyond, we plan to scale this platform. So that Perion One will orchestrate planning, activation and measurement across all major digital channels. We aim to transition towards a platform-led company, expanding recurring high-margin revenue streams powered by AI driven insights, self-service capabilities and creative automation. We aim to improve speed and efficiency while deepening global adoption across brands, agencies and retailers, unlocking long-term growth and margin leverage.

Each step we take now brings us closer to our vision, a single intelligent platform that delivers better performance, faster decisions and long-term value for marketers and shareholders. While this is our long-term journey, we're already seeing the impact of this transformation in our execution, in our innovation and in the progress we saw this quarter.

Let's highlight a few of our most meaningful achievements this quarter. Our non-Search revenue or as we call it, Advertising Solutions, is up year-over-year, the first time since Q3 2023. Our Retail Media, digital-out-of-home and Web are up year-over-year as well. And as for our CTV, which is slightly down, we remain optimistic about our annual growth in this channel, which brings us to the launch of our new performance CTV Solution, a new native feature within Perion One. While Perion was always focused on high-impact CTV ads, now with our performance CTV feature, we are integrating our high-impact technology with a new performance algorithm and measurement capabilities. With this new feature, we focus our activation not only on viewability, but also on actual outcomes.

It's been 3 months since we acquired Greenbids, and our business and tech integrations are fully on track. It is proving to be a strategic fit as it's already generating new synergies. We are excited by the capabilities that Greenbids added to our AI technology under the Perion One suite of solutions. We expanded our programmatic digital-out-of-home footprint in APAC with new partnerships in Korea, expanding our reach in a $21 billion market. We are also expanding our reach in EMEA with 2 new digital-out-of-home partnerships in Germany and Italy. All our achievements are not isolated wins. There are milestones coming to life in our journey towards our goal to become a platform of choice for marketers.

One of the most exciting milestone this quarter is the launch of our new Performance CTV Solution. It brings the precision of performance marketing to Connected TV, one of the fastest-growing, most premium video channels. Our Performance CTV transforms CTV ads into full funnel ROI-focused channel activation by focusing campaigns on the real KPIs and return on ad spend, we're turning what was traditionally an awareness medium into a measurable performance engine. It gives us access to new outcome-driven budgets from advertisers who are previously underserved, especially mid-market brands and retailers looking for high intent accountable inventory. It strengthened the Perion One value proposition as it seamlessly integrates with our Web, Digital-out-of-home, Algo and social offerings. This enables unified activation, cross-channel attribution and platform-wide insights. We believe this new solution positions Perion to capture a greater share in a market projected to exceed $36 billion of ad spend in the U.S. by 2026 as advertisers demand greater accountability from their video investments. I'm proud to share our new Performance CTV clip to showcase this new feature within the Perion One platform.

[Video Presentation]

None of this progress, from launching our new performance CTV to scaling the Perion One platform, would be possible without world-class leadership team behind it. What you see here is a group of highly experienced executives with deep roots in advertising, technology and operations. Each one of them brings expertise from some of the most respected companies in the world. This team has been instrumental in aligning our strategy, accelerating innovation and driving disciplined execution across every part of our business. I'm pleased to welcome Anat Paran, who recently joined us as Chief Operating Officer, to streamline our operations and accelerate our efficiencies as we plan for growth. I'd like to take a moment to thank Maoz Sigron for his incredible contribution to Perion, during his nearly 8 years as our COO and CFO. Maoz has decided to move on, and we're grateful for the impact he's had. He played a key role in transforming Perion into a platform company, and it was truly a positive force throughout our journey. Thank you, Maoz, you will be greatly missed at Perion. .

Anat Paran brings a wealth of operational and organizational leadership. And she's already helping us strengthen the infrastructure needed to scale Perion One globally. The strength of this team and the culture we are building together is one of our greatest long-term advantages with the right strategy in place, strong technology and an experienced team driving it forward. What does it all mean from an investor's perspective? What makes Perion such a compelling investment opportunity?

We operate in a high-growth industry with high-growth verticals and channels. CTV, digital-out-of-home and Retail Media. At our core, we're a tech company with proven innovation culture, and for the past 10 years, we've delivered positive annual adjusted EBITDA and operating cash flow. We have an experienced global management team, and we're building a platform designed for an AI first world. We feel confident in our ability to execute and drive long-term shareholder value as Perion is uniquely positioned to lead the next chapter of digital advertising, a chapter in which performance is the product and Perion One is the platform.

With that, I'll turn it over to our CFO, Elad Tzubery, to walk you through our financial results for this quarter.

Thank you, Tal, and hello, everyone. Our second quarter results mark another important step forward in Perion's strategic transformation. It reflects strong operational execution, a disciplined cost structure and increasing momentum across our core businesses. Our advertising solutions business returned to year-over-year growth for the first time since the third quarter of 2023 earlier than we anticipated. This was driven by healthy performance across Digital-out-of-home, Retail Media and Web. This quarter, we also delivered a robust free cash flow, reinforcing the cash-generative nature of our business model.

Perion's main growth engines continue to demonstrate strength, supported by our strategic partnership and access to high-quality supply. Digital-out-of-home continued its strong growth trajectory, recording a 35% year-over-year growth, and we continue to expand our global programmatic digital-out-of-home presence through strategic partnerships. Despite the 5% year-over-year decline in CTV, going forward, we still see CTV as one of our growth engines. This decline is mostly attributed to CTV budget shifting to the second half of the year. We continue to see a healthy demand for our CTV solutions that now also include performance CTV as presented by Tal.

Our Retail Media vertical continues to gain traction, generating $22.3 million in the second quarter that represent a 27% year-over-year increase. For the full year, we continue to expect above-market growth across our growth engines, including CTV, Digital-out-of-home and Retail Media.

3 months ago, we announced the acquisition of Greenbids, a cutting-edge AI platform that delivers custom algorithms across Walled Gardens and major DSP platforms. Since then, we have been focusing on integrating Greenbids into Perion, aiming to maximize and accelerate the potential synergies we identified pre-acquisition. So far, I can share that we are very pleased with the progress we've made. We are already benefiting from both tangible synergies and a positive market reaction that reflected in early wings for the Perion Algo Solution from both existing and new customers.

As of today, we already booked more than $1 million of Perion Algo deals from existing Perion customers. And our healthy new business pipeline is growing faster than we initially expected. Our quarterly and year-to-date performance gives us the confidence to reiterate our full year outlook that was raised last quarter in May. With that, let's dive into the numbers.

Revenue for the second quarter was $103 million, marked by 8% year-over-year increase in Advertising Solutions revenue. [indiscernible] ex TAC margin was 46%, remaining stable year-over-year. Adjusted EBITDA was $7.1 million, resulting in a 7% adjusted EBITDA margin and a 15% ex-TAC margin. Non-GAAP net income was $12 million, resulting in non-GAAP diluted earnings per share of $0.26. Importantly, we generated $21.3 million in operating cash flow this quarter. This reflects the strength of our business model and our ability to convert earnings into cash.

Looking at our revenue mix, Digital-out-of-home increased by 35% year-over-year, reaching 17% of total revenue up from 12% last year. CTV declined by 5% year-over-year, representing 9% of revenue, same as last year. The decline was primarily due to shifts in advertisers' budget to the second half of the year. This is another example of us being churning neutral and focusing on advertisers' budget rather than specific channels such as CTV. Having said that, we remain confident that our CTV channel will deliver strong results on an annual basis as we are expecting to outpace the CTV market growth.

Web revenue increased by 5% year-over-year. representing 52% of total revenue compared to 47% in the same quarter of last year. Search revenue for the quarter was $22.4 million, representing 22% of total revenue compared to 32% in the same quarter of last year. Revenue from Advertising Solutions grew by 8.3% year-over-year, accounting for 78% of total revenue. This marks the first positive year-over-year growth since the third quarter of 2023, ending a streak of 6 consecutive quarters of decline. Search revenue in the second quarter was $22.4 million accounting for 22% of total revenue. This shows a trend of stability over the past 4 quarters. Looking ahead, we expect this trend to continue generating roughly similar revenue levels per quarter.

In the second quarter of 2025, the contribution, excluding traffic acquisition margin was 46%. This is similar to the second quarter margin of last year. Year-to-date, we have benefited from the product mix that is centered around more profitable solutions. Moving forward this year, we expect to see similar levels of contribution ex-TAC margins.

Adjusted EBITDA for the second quarter was $7.1 million, representing 15% of contribution ex-TAC. As we noted last quarter, we are actively taking steps to optimize our cost structure to better align with our unified operational structure. As we continue to execute on our cost efficiency initiatives, we expect the second half of 2025 to show continued margin expansion. On a GAAP basis, our second quarter net loss was $3.5 million or $0.08 per diluted share. This compares with a net loss of $6.2 million or $0.13 per diluted share in the same quarter last year. On a non-GAAP basis, net income was $12 million compared to $13.4 million in the second quarter of 2024. Despite this income decrease, the earnings per share remained stable at $0.26 per diluted share. This is a direct result of our share buyback plan reflected in a reduced number of outstanding shares.

In the second quarter of 2025, cash generated from operating activities was $21.3 million, and our adjusted free cash flow was $20.7 million. As we mentioned last quarter, our cash performance in the second quarter benefited from the $8 million of collections that shifted from March to April. Yet, this highlights our strategic focus on profitability and our ability to generate positive cash flow. We continue to expect a strong cash flow conversion rate on an annual basis.

As of June 30, our balance sheet includes $318.5 million in cash, cash equivalents, short-term bank deposits and marketable securities. During the quarter, we used $26.6 million for the Greenbids acquisition and $33.4 million for share repurchase under our buyback plan. These were offset by $21.3 million in cash provided by operating activities. During the quarter, we continued to execute our share buyback program, repurchasing a total of 3.6 million shares for a total amount of $33.4 million. This brings our year-to-date accumulated share repurchase spend to $86.7 million. These actions further reinforce our confidence in Perion's long-term value proposition.

Our strong cash balance provides the financial flexibility to execute on both organic and inorganic growth opportunities. while also supporting capital returns to shareholders. We remain disciplined in our approach and focused on maximizing shareholders' value.

Turning to our full year 2025 outlook. Our performance in first half of 2025, combined with the momentum heading into the second half of the year gives us the confidence to reaffirm our guidance. For the full year, we still expect revenue in the range of $430 million to $450 million and adjusted EBITDA in the range of $44 million to $46 million. To conclude, we are pleased with our second quarter results and the positive business momentum that we built. We believe we have considerable opportunities to expand both our top and bottom lines in the second half of 2025 and beyond. We are confident that this marks the beginning of our return to year-over-year growth trajectory. With that, I will now turn it back to the operator to open the line for questions. Thank you.

[Operator Instructions] Our first question comes from Eric Martinuzzi with Lake Street.

I wanted to ask a question regarding kind of the CTV, I was a little bit surprised by the 5% decline in CTV. You attributed that to kind of a budget shift to the second half of the year. Do you feel like this was a macro industry-wide phenomenon or that it was just particular to the advertisers and agencies with which Perion works?

Eric. We don't think it's an actual issue of the industry or within Perion. As you know, we've announced the Perion One strategy, which is focused on CMOs and on outcomes of marketing budgets. And within that, we did see in Q2, people are shifting towards other formats, which tend to perform better than CTV. But we also saw that the CTV budgets are getting shifted towards H2. Now again, as we focus on CMOs, we're channel agnostic right? We're not pushing customers towards specific channels. We're pushing customers towards what works best for them because at the end of the day, we're after the budget, not after channels. And we want to make sure that our customers are getting the best results. So we can expect fluctuation in between channels. But our eyes are always about customers and how much more budgets we're getting, and that's the major focus for us.

I just wanted to say that within that, we obviously launched the Performance CTV Solution now because we know that everybody is focusing on Performance and CTV has to also comes with performance metrics. So that should also help the CTV numbers in H2 and onwards.

Okay. And then you've talked -- there was issues earlier in the year with marketers running shorter campaigns just because of the uncertainty in the overall economy due to tariff concerns. Have you seen any change in the campaign lengths amongst marketers?

No. No, we haven't seen any major changes. I think -- we're not seeing any concerns with regards to tariffs or any of those things. People are still continuing business as usual. So we haven't seen anything unusual.

Our next question comes from Jason Helfstein with Oppenheimer.

A few questions. So continuing with the CTV question. Why are you confident that CTV growth will accelerate in the back half? Question number one.

Number two, just broadly, like is the sales organization rightsized for Perion One? And should we expect sales head count growth in the back half? And then just broadly, how are you thinking about used cash over the next 6 months? Should we expect any meaningful M&A, some kind of buyback or just be conservative with the cash?

Yes. Jason, thank you. So I'll start with CTV for a second. First of all, we are not really concerned about the CTV decrease that we saw in the second half -- in the second quarter because we do see the budget shifting also towards H2. We see a healthy demand, and we do see already the increase in -- towards Q3 and Q4 in terms of the pipeline itself.

It is important to [indiscernible] on an annual basis, we do expect to outpace the market growth in '25. eMarketer is discussing roughly 13% of CTV growth this year. We believe that we will be even above the 13%. So we are very confident in where we are going towards this year in CTV. And as Tal mentioned, by the way, we do see ourselves as channel neutral. Also in Q2, we saw of the budget shifted from CTV to different channels as a result of CMOs needs in some cases.

If I'm looking at -- if discuss about the sales head count. So looking at H2 and even going forward to 2026, as we discussed about the strategy behind Perion One was that agency will already have the white label of the platform of Perion One. It is -- gives us the leverage and the possibility to increase our sales without having always more and more sales person on ground and to be much more efficient in our sales cycles. We have discussed about that -- going to the future, we are expecting to see our EBITDA margin to increase and to be much more efficient in how we are operating, and this is including also the sales operations side. Of course, we are tapping into in '26 and also, I would say, 2027 as Tal mentioned, we are expecting to grow our market share much faster. So I do believe we will increase our sales force in a way.

But when we're looking at the efficiency level, it's not going to be at the same scale in terms of how we are expecting to increase the revenue.

Now in terms of use of capital for H2. We are going to continue, of course, with the buyback as well, and we are stepping into M&A activities. I will give Tal to discuss about M&A in a second. It's too important to say we are constantly reevaluating our capital allocation. What are the needs that we have in terms of investing in our organic growth and how we're planning to increase our market share going forward. We are looking, of course, at M&A opportunities, of course, and to also increase our growth rate to M&As as well. And of course, capital return to the shareholders is also something that we are constantly considering in and always trying to find the right balance.

We still have $38 million in our buyback program that we believe that we will be utilized by the end of the year. We are hoping that it would be closed -- will be ended as soon as possible, of course. And once this will be done, we'll reconvey whether we do need to increase it or any more allocation, but as I said, we are constantly working on the balance between those three [indiscernible]. Tal, do you want to discuss a few words about the M&A?

Yes. So I'll just echo everything that Elad said. And I'll say with regard to the head count as we progress with Perion One. We are moving a lot of things to automation, and we are moving a lot of our features to self-serve. So we do believe that -- as we progress, we're going to become more and more efficient. So we're setting up the company to grow to grow the sales and grow the revenues but not necessarily grow our headcount. As for the capital allocation, as a said, we still have a lot more revenue -- a lot more funds to deploy into the buyback, and we hope to complete that as soon as possible. We are evaluating other M&A opportunities, but we are also doing a lot work on how do we deploy our rest of our capital, and this is in the work now.

Next question comes from Andrew Marok with Raymond James.

I have two different topics that maybe makes sense to take them one at a time. First, with the Web revenue increasing 5% year-over-year, a pretty good result given that we've heard concerns around AI search impacts on publisher traffic. How do you see the impact of that AI search playing out for your Web business given it's still the biggest part of your advertising segment?

So you're asking how do we see Web and Search revenue going forward?

No. So given AI search's impacts on publisher traffic, so on the web formats, how do you see that web business playing out in the potential risks from AI search?

Yes. That's a great question. So as you know, I'm a big believer that web search and websites are not a segment that's going to continue to grow. But as we focus on marketers and budgets, I think human behavior will change. People are going to use less web search and less websites. But marketers are going to continue to look for audiences and deploy budgets and we're channel agnostic, right?

So if people are going to move towards TikTok, we're going to deploy that. If they're going to move to Meta or YouTube, we're going to be there. And as I said before, we're not really focusing on specific channels. We're focusing on customers. How many -- how do we get more customers to spend with us because we can deliver the outcomes that they need. So I think you have to [indiscernible] if we're going to look at the future in the next few years, we would probably see certain web starting to decline a few years, but then we'll see other channels starting to grow. As long as we're sitting with the advertiser itself and deploying their media investment towards outcomes, I think we're on the right path.

Great. And then maybe one on the Performance CTV business. I think you mentioned in the prepared remarks and in the slide deck that you're targeting kind of the mid-market customers. Is there -- and how does that relate to -- we have some firms already in market target SMB segment. Is that something that you maybe intend to take on directly? Or is there a kind of customer segmentation issue where you guys can both kind of coexist and go after different potential marketers?

Absolutely. So that's a great question. As of now, we do not plan to do a self-serve feature for this for the middle market or local markets. We're continuing to attract holding companies, independent agencies and CMOs on a bigger scale, but also the middle market, wherever we can actually deploy their creative to our systems.

As I said a few months ago, I think -- as we progress with Perion One, we're going to have more and more self-serve features, and that's where we're going to start looking at local market and small businesses, but not for the next at least 1.5 years. For now, we're just focusing on providing more outcome-driven results or campaigns versus brand awareness. That's the major thing.

Our next question comes from Laura Martin with Needham.

[indiscernible] So could you talk about what's going on with the cost of revenue was growing so much faster? And then secondly, could you update us on what you guys are doing with Gen AI tools to try to integrate those into automating your Perion One products, please?

We didn't hear the first question, if you can repeat the first one.

Sure. Just the cost of revenue, I think it rose 15%, while your net revenue itself fell 4%. So I'm just wondering why this -- the increase in cost of revenue?

So in terms of the cost of revenue, we -- our LDC, the retail vertical that we have is increasing. And as part of tapping more and more into retailers, we are providing more analysis also for the retailers and more reporting to that. But I would echo important thing on that and also, of course, the hosting services that we have.

When we are -- part of our work this year, and tapping into 2026 is about the efficiency of the business. And this is exactly the area that we are working to automate more and more going into the year. I do believe that already in the second half of the year, we'll start to see the cost of revenue as a percentage of revenue is increasing more and more already in Q3 and Q4.

So I think it's the shift -- what you see right now, it's the shift of the business towards more leaning towards, I would say, towards retailer businesses and more towards the advertising solutions.

Yes. So Gen AI, where are we going? As you saw, we have Anat Paran which is our new Chief Operating Officer, and she's her first job is to see how can we streamline our entire operation with Gen AI. This goes through our entire company from HR to use more Gen AI to answer employees' questions to actually deploying the campaigns themselves through Gen AI. We are focusing to streamline our entire company with AI for the operation part so we can streamline our growth without increasing our head count as we grow. Does that answer your question?

Our next question from Jeffrey Martin with ROTH.

Wondered if you could comment on any noticeable shifts in trends on Digital-out-of-home that's your -- obviously, you're biggest strength at this point from a growth perspective. You mentioned some geographic expansion. Is that mainly focused on digital-out-of-home and how significant do you see that geographic expansion contributing over the next 6 to 18 months?

Yes. Thank you. So yes, the new partnerships that we've announced are all through digital-out-of-home. We're seeing digital-out-of-home as our foot in the door in specific markets. But once we're there, we're already training our system on the ground to start selling, or filing on Algo, which is the Greenbids that we bought to start pushing Perion Algo in those countries. So we're seeing a combination, and we're starting to see a lot cost pollination between our products. We're starting to see digital-out-of-home together with CTV campaigns, digital-out-of-home together with Perion Algo.

So when we have a feature that is pretty unique for us, which is the out-of-home part, it gives us the ability to get into an agency in a smoother way because we don't have a lot of competition. And once we're there, we're actually presenting our entire suite of solutions and then we're starting to create those cross-selling. So our out-of-home is mainly a strategy of expansion, and then we do the cross-selling and the synergies. Does that answer your question?

As there are no further questions, I shall now pass to Tal Jacobson for closing remarks.

Thank you, everyone, for joining us on our earnings of Q2. We hope to see you together in our next earnings when we report our progress on our strategy and business. Thank you.