UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
under the Securities Exchange Act of 1934
For the month of September 2020 (Report No. 1)
Commission File Number:
(Translation of registrant’s name into English)
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
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Form 20-F ☒ Form 40-F ☐ |
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): N/A
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): N/A
Explanatory Note
This Report of Foreign Private Issuer on Form 6-K (this “Form 6-K”) is being furnished by Perion Network Ltd. (“Perion”) to the Securities and Exchange Commission (the “SEC”) for the sole purposes of: (i) furnishing, as Exhibit 99.1 to this Form 6-K, unaudited condensed consolidated financial statements of Perion as of and for the six-month period ended June 30, 2020; and (ii) furnishing, as Exhibit 99.2 to this Form 6-K, Management’s Discussion and Analysis of Financial Condition and Results of Operations, which discusses and analyzes Perion’s financial condition and results of operations as of and for the six-month period ended June 30, 2020.
The following exhibits are furnished as part of this Form 6-K:
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Exhibit No. |
Description |
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Unaudited Condensed Consolidated Financial Statements for the Six Months Ended June 30, 2020 | |
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Management's Discussion and Analysis of Financial Condition and Results of Operations | |
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101 |
Interactive data files pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets, (ii) Interim Consolidated Statements of Income (Loss), (iii) Interim Consolidated Statements of Comprehensive Income (Loss); (iv) Interim Consolidated Statements of Changes in Shareholders' Equity, (v) Interim Consolidated Statements of Cash Flows, and (vi) the Notes to Interim Consolidated Financial Statements |
Exhibit 99.1 and 99.2 to this Report on Form 6-K shall be deemed to be incorporated by reference into Perion’s registration statements on Form F-3 (File No. 333-238020) and Form S-8 (File Nos. 333-208278, 333-203641, 333-193145, 333-192376, 333-188714, 333-171781, 333-152010, 333-133968, 333-216494 and 333-237196).
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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PERION NETWORK LTD. | ||
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By: |
/s/ Maoz Sigron | |
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Name: |
Maoz Sigron | |
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Title: |
Chief Financial Officer | |
Date: September 14, 2020
Exhibit 99.1
PERION NETWORK LTD. AND ITS SUBSIDIARIES
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2020
IN U.S. DOLLARS
UNAUDITED
INDEX
PERION NETWORK LTD. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands
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June 30, |
December 31, | |||||||
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2020 |
2019 | |||||||
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(Unaudited) |
(Audited) | ||||||
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ASSETS | ||||||||
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Current Assets: | ||||||||
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Cash and cash equivalents |
$ |
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$ |
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Restricted cash |
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Short-term bank deposits |
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Accounts receivable (net of allowance of $ |
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Prepaid expenses and other current assets |
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Total Current Assets |
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Long-Term Assets: | ||||||||
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Property and equipment, net |
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Operating lease right-of-use assets |
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Intangible assets, net |
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Goodwill |
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Deferred taxes |
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Other assets |
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Total Long-Term Assets |
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Total Assets |
$ |
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$ |
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LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
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Current Liabilities: | ||||||||
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Accounts payable |
$ |
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$ |
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Accrued expenses and other liabilities |
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Short-term operating lease liability |
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Short-term loans and current maturities of long-term |
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Deferred revenues |
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Short-term payment obligation related to acquisitions |
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Total Current Liabilities |
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Long-Term Liabilities: | ||||||||
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Long-term debt, net of current maturities |
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Payment obligation related to acquisition |
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Long-term operating lease liability |
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Other long-term liabilities |
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Total Long-Term Liabilities |
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Total Liabilities |
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Shareholders' equity: | ||||||||
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Ordinary shares of ILS |
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Additional paid-in capital |
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Treasury shares at cost ( |
( |
) |
( |
) | ||||
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Accumulated other comprehensive gain |
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Accumulated deficit |
( |
) |
( |
) | ||||
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Total Shareholders' Equity |
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Total Liabilities and Shareholders' Equity |
$ |
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$ |
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The accompanying notes are an integral part of the interim consolidated financial statements.
F - 1
PERION NETWORK LTD. AND ITS SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)
U.S. dollars in thousands (except share and per share data)
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Six months ended | ||||||||
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June 30, | ||||||||
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2020 |
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2019 | |||||
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(Unaudited) |
(Unaudited) | |||||||
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Revenues: | ||||||||
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Advertising |
$ |
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$ |
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Search and other |
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Total Revenues |
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Costs and Expenses: | ||||||||
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Cost of revenues |
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Customer acquisition costs and media buy |
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Research and development |
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Selling and marketing |
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General and administrative |
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Depreciation and amortization |
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Total Costs and Expenses |
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Income (Loss) from Operations |
( |
) |
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Financial expense, net |
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Income (Loss) before Taxes on income |
( |
) |
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Tax benefit |
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Net Income (Loss) |
$ |
( |
) |
$ |
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Net Earnings (Loss) per Share – Basic and Diluted |
$ |
( |
) |
$ |
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Weighted average number of shares | ||||||||
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Basic |
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Diluted |
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The accompanying notes are an integral part of the interim consolidated financial statements.
F - 2
PERION NETWORK LTD. AND ITS SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
U.S. dollars in thousands
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Six months ended June 30, | ||||||||
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2020 |
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2019 | |||||
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(Unaudited) |
(Unaudited) | |||||||
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Net Income (Loss) |
$ |
( |
) |
$ |
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Other comprehensive income: | ||||||||
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Change in foreign currency translation |
( |
) |
( |
) | ||||
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Cash Flow Hedge: | ||||||||
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Unrealized gain (loss) from cash-flow hedges, net of taxes |
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Less: reclassification adjustment for net losses (gains) included in net income |
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( |
) | |||||
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Net change |
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Other comprehensive income: |
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Comprehensive Income (Loss) |
$ |
( |
) |
$ |
| |||
The accompanying notes are an integral part of the interim consolidated financial statements.
F - 3
PERION NETWORK LTD. AND ITS SUBSIDIARIES
INTERIM STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
U.S. dollars in thousands (except share data)
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Common stock |
Additional paid-in capital |
Accum. other comprehensive income (loss) |
Accumulated deficit |
Treasury shares |
Total shareholders' equity | |||||||||||||||||||||||
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Number of Shares |
$ |
$ |
$ |
$ |
$ |
$ | ||||||||||||||||||||||
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Balance as of December 31, 2018 (audited) |
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( |
) |
( |
) |
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Stock-based compensation |
- |
- |
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- |
- |
- |
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Exercise of share options and vesting of restricted stock units |
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- |
- |
- |
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Other comprehensive income |
- |
- |
- |
( |
) |
- |
- |
( |
) | |||||||||||||||||||
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Net income |
- |
- |
- |
- |
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- |
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Balance as of December 31, 2019 (audited) |
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( |
) |
( |
) |
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Stock-based compensation |
- |
- |
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- |
- |
- |
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Exercise of share options and vesting of restricted stock units |
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- |
- |
- |
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Other comprehensive income |
- |
- |
- |
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- |
- |
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Net loss |
- |
- |
- |
- |
( |
) |
- |
( |
) | |||||||||||||||||||
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Balance as of June 30, 2020 (unaudited) |
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|
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( |
) |
( |
) |
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The accompanying notes are an integral part of the interim consolidated financial statements.
F - 4
PERION NETWORK LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
|
Six months ended | ||||||||
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June 30, | ||||||||
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2020 |
2019 | |||||||
|
(Unaudited) |
(Unaudited) | |||||||
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Cash flows from operating activities: | ||||||||
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Net Income (Loss) |
$ |
( |
) |
$ |
| |||
|
| ||||||||
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Adjustments required to reconcile net income to net cash provided by operating activities: | ||||||||
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Depreciation and amortization |
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Stock based compensation expense |
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Foreign currency translation |
( |
) |
( |
) | ||||
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Accrued interest, net |
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( |
) | |||||
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Deferred taxes, net |
( |
) |
( |
) | ||||
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Accrued severance pay, net |
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( |
) | |||||
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Fair value revaluation - convertible debt |
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Loss from sale of property and equipment |
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Net changes in operating assets and liabilities | ||||||||
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Accounts receivable, net |
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Other receivables and prepaid expenses |
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Other assets |
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Lease right-of-use assets |
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Lease liabilities |
( |
) |
( |
) | ||||
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Accounts payable |
( |
) |
( |
) | ||||
|
Accrued expenses and other liabilities |
( |
) |
( |
) | ||||
|
Deferred revenues |
( |
) |
( |
) | ||||
|
Payment obligation related to acquisition |
|
| ||||||
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Net cash provided by operating activities |
$ |
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$ |
| ||||
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| ||||||||
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Cash flows from investing activities: | ||||||||
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Purchases of property and equipment |
( |
) |
( |
) | ||||
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Short-term deposits, net |
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( |
) | |||||
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Cash paid in connection with acquisitions, net of cash acquired |
( |
) |
( |
) | ||||
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Obligation in connection with acquisitions |
|
| ||||||
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Net cash used in investing activities |
$ |
( |
) |
$ |
( |
) | ||
|
| ||||||||
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Cash flows from financing activities: | ||||||||
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Exercise of stock options and restricted share units |
|
| ||||||
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Payment made in connection with acquisition |
|
( |
) | |||||
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Repayment of convertible debt |
|
( |
) | |||||
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Repayment of long-term loans |
( |
) |
( |
) | ||||
|
Net cash used in financing activities |
$ |
( |
) |
$ |
( |
) | ||
|
| ||||||||
|
Effect of exchange rate changes on cash and cash equivalents and restricted cash |
( |
) |
( |
) | ||||
|
| ||||||||
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Net decrease in cash and cash equivalents and restricted cash |
( |
) |
( |
) | ||||
|
| ||||||||
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Cash and cash equivalents and restricted cash at beginning of period |
|
| ||||||
|
| ||||||||
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Cash and cash equivalents and restricted cash at end of period |
$ |
|
$ |
| ||||
The accompanying notes are an integral part of the interim consolidated financial statements.
F - 5
PERION NETWORK LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
|
Six months ended June 30, | ||||||||
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2020 |
2019 | |||||||
|
(Unaudited) |
(Unaudited) | |||||||
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Reconciliation of cash, cash equivalents, and restricted cash to the consolidated balance sheet | ||||||||
|
| ||||||||
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Cash and cash equivalents |
$ |
|
$ |
| ||||
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Restricted cash included in Long-term interest-bearing bank deposits |
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Total cash, cash equivalents, and restricted cash |
$ |
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$ |
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Supplemental Disclosure of Cash Flow Activities: | ||||||||
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Cash paid during the year for: | ||||||||
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Income taxes |
$ |
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$ |
| ||||
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Interest |
$ |
|
$ |
| ||||
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| ||||||||
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Non-cash investing and financing activities: | ||||||||
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Creation of operating lease right-of-use assets |
$ |
|
$ |
| ||||
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Purchase of property and equipment on credit |
$ |
|
$ |
| ||||
The accompanying notes are an integral part of the consolidated financial statements.
F - 6
PERION NETWORK LTD. AND ITS SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 1:GENERAL
Perion Network Ltd. ("Perion") and its wholly-owned subsidiaries (collectively referred to as the "Company"), is a global technology company that provides agencies, brands and publishers with innovative solutions that cover the three main pillars of digital advertising. From its data-driven Synchronized Digital Branding platform and high-impact ad formats in the display domain; to its powerful social media platform; to its branded search network, Perion is well-positioned to capitalize on any changes in marketers’ allocation of digital advertising spend.
On January 14, 2020, the Company completed the acquisition of Content IQ LLC (see Note 3) and on July 23, 2020, the Company consummated the assets acquisition of Pub Ocean Limited (see Note 14).
In March 2020, the World Health Organization categorized the novel coronavirus (“COVID-19”) as a pandemic. The COVID-19 pandemic has rapidly changed market and economic conditions globally, impacting our customers and channel partners, as well as our business, results of operations, financial position and cash flows. We remain focused on protecting the health and wellbeing of our employees and the communities in which we operate, while assuring the continuity of our business operations.
As a result of the revenue flexibility provided by our product diversity across the three main pillars of digital advertising, cost saving initiatives and experienced management team, we deftly mitigated near-term pressure on advertising budgets resulting from the COVID-19 pandemic, which enable us to protect operating profits and generate cash flow in 2020 while continuing to build a unique strategic asset in the digital media ecosystem.
Management is monitoring and assessing the impact of the COVID-19 pandemic daily, including recommendations and orders issued by government and public health authorities.
NOTE 2:SIGNIFICANT ACCOUNTING POLICIES
a.Interim Financial Statements
The accompanying consolidated balance sheet as of June 30, 2020, the consolidated statements of income (loss), the consolidated statements of comprehensive income (loss) and the consolidated statements of cash flows for the six months ended June 30, 2019 and 2020, as well as the statement of changes in shareholders' equity for the six months ended June 30, 2020, are unaudited. These unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (the "SEC") regarding interim financial reporting. In the management’s opinion, the unaudited interim consolidated financial statements include all adjustments of a normal recurring nature necessary for the fair presentation of the Company’s financial position as of June 30, 2020, as well as its results of operations and cash flows for the six months ended June 30, 2019 and 2020. The results of operations for the six months ended June 30, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020.
The accompanying unaudited interim financial statements should be read in conjunction with the Company’s annual report on Form 20-F for the fiscal year ended December 31, 2019, filed with the SEC on March 16, 2020 (the "Annual Report").
b.There have been no changes to the significant accounting policies described in the Annual Report that have had a material impact on the unaudited interim consolidated financial statements and related notes.
F - 7
PERION NETWORK LTD. AND ITS SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)
c.Use of estimates
The preparation of the consolidated financial statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates, judgments and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes. Actual results could differ materially from those estimates. On an ongoing basis, the Company's management evaluates its estimates, including those related to sales allowances and allowance for doubtful debts, fair value of intangible assets and goodwill, useful lives of intangible assets, fair value of share-based awards, realizability of deferred tax assets, tax uncertainties, and contingent liabilities, among others. Such estimates are based on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of the Company’s assets and liabilities.
d.Revenue recognition
The Company applies the provisions of Accounting Standards Codification 606, Revenue from Contracts with Customers ("ASC 606" or "Topic 606") The Company adopted the provisions of ASC 606 effective January 1, 2018 using the modified retrospective application method for all uncompleted contracts as of that date. The adoption of ASC 606 did not have a material impact on the Company’s consolidated financial statements. In addition, the adoption of ASC 606 had no impact on the Company's accounts receivable and deferred revenues balance as of December 31, 2018 or on the Company's revenues, cost of sales or its operating expenses during 2018, compared to ASC 605.
The Company applies the practical expedient for incremental costs of obtaining contracts when the associated revenues is recognized over less than one year.
The Company generates revenues primarily from two major sources:
Advertising Revenues - the Company generates advertising revenues from delivering, high impact ad formats creatively designed to capture consumer attention and drive engagement, across a hand-picked portfolio of websites and mobile applications. In addition, the Company also generates advertising revenues from digital publishing services, which are being recognizes once the advertisement vendors publish the relevant information across their platform.
Search Revenues - the Company obtains its search revenues from service agreements with its search partners. Search revenue is generated primarily from monthly transaction volume-based fees earned by the Company for making its applications available to online publishers and app developers (either based on fixed price models, pay-per-search fee or portion of the revenue generated by the search partners).
F - 8
PERION NETWORK LTD. AND ITS SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The Company evaluates whether Search and Advertising Revenues should be presented on a gross basis, which is the amount that a customer pays for the service, or on a net basis, which is the amount of the customer payment less amounts the Company pays to publishers. In making that evaluation, the Company considers whether it controls the promised good or service before transferring that good or service to the customer. The Company considers indicators such as whether the Company is the primary obligor in the arrangement and assumes risks and rewards as a principal or an agent, including the credit risk, whether the Company has latitude in establishing prices and selecting its suppliers and whether it changes the products or performs part of the service. The evaluation of these factors is subject to significant judgment and subjectivity. Generally, in cases in which the Company is primarily obligated in a transaction, is subject to risk, involved in the determination of the product (or the service) specifications, separately negotiates each revenue service agreement or publisher agreement and can have several additional indicators, revenue is recorded on a gross basis.
Contract balances are presented separately on the consolidated balance sheets as either Accounts receivable or Deferred revenues. The Company does not have contract assets.
Accounts receivable includes amounts billed and currently due from customers.
Deferred revenues are recorded when payments are received from customers in advance of the Company's rendering of services.
e.Recent Adopted Accounting Pronouncements
In June 2016 the FASB issued Accounting Standards Update (ASU) No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The FASB subsequently issued amendments to ASU 2016-13, which have the same effective date and transition date of January 1, 2020. This standard requires entities to estimate an expected lifetime credit loss on financial assets ranging from short-term trade accounts receivable to long-term financings and report credit losses using an expected losses model rather than the incurred losses model that was previously used, and establishes additional disclosures related to credit risks.
The Company adopted Topic 326 effective January 1, 2020, based on the composition of the Company’s trade receivables and other financial assets, current economic conditions and historical credit loss activity. The adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements.
The interim Consolidated Financial Statements for the six months ended June 30, 2020 are presented under the new standard, while comparative periods presented are not adjusted and continue to be reported in accordance with the Company’s historical accounting policy.
F - 9
PERION NETWORK LTD. AND ITS SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 3:ACQUISITIONS
On January 14, 2020, the Company consummated the acquisition of Content IQ LLC, also known as “Content IQ”.
Content IQ is a privately held company founded in 2014, based in New York City. Content IQ has created data algorithm and analytics tools that deconstruct content, revenue and distribution to solve current major digital publishing challenges.
The total consideration is up to $
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date:
|
Fair value | |||
|
Property and equipment, net |
| ||
|
Technology |
| ||
|
Customer Relationship |
| ||
|
Deferred Taxes |
( |
) | |
|
Goodwill |
| ||
|
Net assets acquired |
$ |
| |
Technology includes publishing orchestration system with proprietary data algorithms and analytic tools which deconstruct content, revenue and distribution to solve digital publishing challenges. The technology is amortized over the estimated useful life of
Customer relationships is derived from customer contracts and related customer relationships with existing customers. Customer relationships is amortized based on the accelerated method over the estimated useful life of
During the six months ended June 30, 2020 (unaudited), the Company recognized acquisition-related costs of $
As of June 30, 2020 (unaudited), the purchase price allocations for the business combinations yet to be completed and the presented table is still preliminary.
F - 10
PERION NETWORK LTD. AND ITS SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 3:ACQUISITIONS (Cont.)
The following table represents the pro-forma (unaudited) condensed consolidated statements of operations as if the acquisition completed during the year ended December 31, 2019 and the six months ended June 30, 2020 (unaudited), had been included in the condensed consolidated statements of operations of the Company for the six months ended June 30, 2020 (unaudited) and 2019 (unaudited):
|
Six months ended | ||||||||
|
June 30, | ||||||||
|
2020 |
2019 | |||||||
|
(Unaudited) |
(Unaudited) | |||||||
|
| ||||||||
|
Revenues |
$ |
|
$ |
| ||||
|
Net Income (Loss) |
$ |
( |
) |
$ |
| |||
The pro-forma results have been calculated after applying the Company’s accounting policies and adjusting the results of all acquisitions to reflect the additional payroll related expenses, revaluation of the earnout liability and depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant and equipment and intangible assets had been applied since the acquisitions date, together with the consequential tax effects.
The pro-forma results are based on estimates and assumptions, which the Company believes are reasonable. The pro-forma results are not the results that would have been realized had the acquisitions actually occurred on January 1, 2019 and 2020, and are not necessarily indicative of the Company’s condensed consolidated statements of operations in future periods.
F - 11
PERION NETWORK LTD. AND ITS SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 4:FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments carried at cost, including cash and cash equivalents, short-term deposits, restricted cash, accounts receivable, prepaid expenses and other assets, accounts payable, accrued expenses and other liabilities approximate their fair value due to the short-term maturities of such instruments.
The following table present assets and liabilities measured at fair value on a recurring basis as of June 30, 2020:
|
June 30, 2020 | ||||||||||||||||
|
Fair value measurements using input type | ||||||||||||||||
|
Level 1 |
Level 2 |
Level 3 |
Total | |||||||||||||
|
Assets: | ||||||||||||||||
|
Derivative assets |
$ |
|
$ |
|
$ |
|
$ |
| ||||||||
|
| ||||||||||||||||
|
Total financial assets |
$ |
|
$ |
|
$ |
|
$ |
| ||||||||
|
| ||||||||||||||||
|
Liabilities: | ||||||||||||||||
|
Derivative liabilities |
|
|
|
| ||||||||||||
|
| ||||||||||||||||
|
Total financial liabilities |
$ |
|
$ |
|
$ |
|
$ |
| ||||||||
The following table present assets and liabilities measured at fair value on a recurring basis as of December 31, 2019:
|
December 31, 2019 | ||||||||||||||||
|
Fair value measurements using input type | ||||||||||||||||
|
Level 1 |
Level 2 |
Level 3 |
Total | |||||||||||||
|
Assets: | ||||||||||||||||
|
Derivative assets |
$ |
|
$ |
|
$ |
|
$ |
| ||||||||
|
| ||||||||||||||||
|
Total financial assets |
$ |
|
$ |
|
$ |
|
$ |
| ||||||||
F - 12
PERION NETWORK LTD. AND ITS SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 5:GOODWILL AND INTANGIBLE ASSETS, NET
a.Goodwill
The changes in the net carrying amount of goodwill in 2019 and six months ended June 30, 2020 were as follows:
|
Balance as of January 1, 2019 |
$ |
| ||
|
| ||||
|
Acquisition of Captain Growth |
$ |
| ||
|
| ||||
|
Balance as of December 31, 2019 |
$ |
| ||
|
| ||||
|
Acquisition of Content IQ |
$ |
| ||
|
| ||||
|
Balance as of June 30, 2020 |
$ |
|
Goodwill has been recorded as a result of prior acquisitions and represents excess of the consideration over the net fair value of the assets of the businesses acquired. As of June 30, 2020, the Company had two reporting units – Search and Advertising. The Company performs tests for impairment of goodwill at the reporting unit level at least annually, or more frequently if events or changes in circumstances occur that would more likely than not reduce the fair value of a reporting unit below its carrying value. As of 30 June 2020, the Company determined that there were no indicators of potential impairment with regards to its reporting units which required interim goodwill impairment analysis.
F - 13
PERION NETWORK LTD. AND ITS SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 5:GOODWILL AND INTANGIBLE ASSETS, NET (Cont.)
b.Intangible assets, net
The following is a summary of intangible assets as of June 30, 2020:
|
December 31, 2019 |
Additions |
Amortization |
OCI |
June 30, 2020 | ||||||||||||||||
|
| ||||||||||||||||||||
|
Acquired technology |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
| ||||||||||
|
Accumulated amortization |
( |
) |
|
( |
) |
( |
) |
( |
) | |||||||||||
|
Impairment |
( |
) |
|
|
|
( |
) | |||||||||||||
|
Acquired technology, net |
|
|
( |
) |
( |
) |
| |||||||||||||
|
| ||||||||||||||||||||
|
Customer relationships |
|
|
|
|
| |||||||||||||||
|
Accumulated amortization |
( |
) |
|
( |
) |
( |
) |
( |
) | |||||||||||
|
Impairment |
( |
) |
|
|
|
( |
) | |||||||||||||
|
Customer relationships, net |
|
|
( |
) |
|
| ||||||||||||||
|
| ||||||||||||||||||||
|
Tradename and other |
|
|
|
|
| |||||||||||||||
|
Accumulated amortization |
( |
) |
|
( |
) |
( |
) |
( |
) | |||||||||||
|
Impairment |
( |
) |
|
|
|
( |
) | |||||||||||||
|
Tradename and other, net |
|
|
( |
) |
|
| ||||||||||||||
|
| ||||||||||||||||||||
|
Intangible assets, net |
$ |
|
$ |
|
$ |
( |
) |
$ |
( |
) |
$ |
| ||||||||
The following is a summary of intangible assets as of December 31, 2019:
|
December 31, 2018 |
Additions |
Amortization |
OCI |
December 31, 2019 | ||||||||||||||||
|
| ||||||||||||||||||||
|
Acquired technology |
$ |
|
$ |
|
$ |
|
$ |
( |
) |
$ |
31,159 | |||||||||
|
Accumulated amortization |
( |
) |
|
( |
) |
|
(21,810 |
) | ||||||||||||
|
Impairment |
( |
) |
|
|
|
(8,749 |
) | |||||||||||||
|
Acquired technology, net |
|
|
( |
) |
( |
) |
600 | |||||||||||||
|
| ||||||||||||||||||||
|
Customer relationships |
|
|
|
( |
) |
31,911 | ||||||||||||||
|
Accumulated amortization |
( |
) |
|
( |
) |
|
(20,727 |
) | ||||||||||||
|
Impairment |
( |
) |
|
|
|
(10,426 |
) | |||||||||||||
|
Customer relationships, net |
|
|
( |
) |
( |
) |
758 | |||||||||||||
|
| ||||||||||||||||||||
|
Tradename and other |
|
|
|
( |
) |
18,284 | ||||||||||||||
|
Accumulated amortization |
( |
) |
|
( |
) |
|
(11,897 |
) | ||||||||||||
|
Impairment |
( |
) |
|
|
|
(5,110 |
) | |||||||||||||
|
Tradename and other, net |
|
|
( |
) |
( |
) |
1,277 | |||||||||||||
|
| ||||||||||||||||||||
|
Intangible assets, net |
$ |
|
$ |
|
$ |
( |
) |
$ |
( |
) |
$ |
2,635 | ||||||||
F - 14
PERION NETWORK LTD. AND ITS SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 6:DERIVATIVES AND HEDGING ACTIVITES
The Company follows the requirements of ASC No. 815, ”Derivatives and Hedging” (“ASC 815”), which requires companies to recognize all of their derivative instruments as either assets or liabilities on the balance sheet at fair value. The accounting for changes in fair value (i.e. gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging transaction and further, on the type of hedging transaction. For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, a cash flow hedge, or a hedge of a net investment in a foreign operation.
To protect against the increase in value of forecasted foreign currency cash flow resulting mainly from salaries and related benefits and taxes paid in ILS during the year, the Company hedges portions of its anticipated payroll denominated in ILS for a period of one to twelve months with forward and options contracts (the “Hedging Contracts”). Accordingly, when the USD strengthens against the ILS, the decline in present value of future ILS currency expenses is offset by losses in the fair value of the Hedging Contracts. Conversely, when the USD weakens, the increase in the present value of future ILS expenses is offset by gains in the fair value of the Hedging Contracts. These Hedging Contracts are designated as cash flow hedges.
For derivative instruments that are designated and qualify as a cash flow hedge (i.e. hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Any gain or loss on a derivative instrument in excess of the cumulative change in the present value of future cash flows of the hedged item is recognized in current earnings during the period of change.
As of June 30, 2020, and December 31, 2019, the notional value of the Company’s derivative instruments was $
F - 15
PERION NETWORK LTD. AND ITS SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 6:DERIVATIVES AND HEDGING ACTIVITES (Cont.)
The fair value of the Company’s outstanding derivative instruments is as follows:
|
|
|
June 30, |
December 31, | |||||||||||
|
|
|
Balance sheet |
2020 |
2019 | ||||||||||
|
|
|
| ||||||||||||
|
Derivatives designated as hedging instruments: |
|
| ||||||||||||
|
Foreign exchange forward contracts and other derivatives |
|
|
''Prepaid expenses and other current assets'' |
$ |
|
$ |
| |||||||
|
|
|
''Accrued expenses and other liabilities'' |
|
| ||||||||||
|
|
|
''Accumulated other comprehensive income (loss)'' |
|
| ||||||||||
The net gains (losses) reclassified from accumulated other comprehensive loss to the operating expenses are as follows:
|
Gain recognized in Statements of Comprehensive Income |
Gain (loss) recognized in consolidated statements of Income | |||||||||||||
|
Six months ended June 30, |
Statement of Income item |
Six months ended June 30, | ||||||||||||
|
2020 |
2020 |
2019 | ||||||||||||
|
Derivatives designated as hedging instruments: | ||||||||||||||
|
Foreign exchange options and forward contracts |
$ |
|
"Operating expenses" |
$ |
( |
) |
$ |
| ||||||
|
| ||||||||||||||
|
Derivatives not designated as hedging instruments: | ||||||||||||||
|
Foreign exchange options and forward contracts |
- |
"Financial expenses" |
( |
) |
| |||||||||
|
SWAP |
- |
"Financial expenses" |
|
| ||||||||||
|
| ||||||||||||||
|
Total |
$ |
|
$ |
( |
) |
$ |
| |||||||
F - 16
PERION NETWORK LTD. AND ITS SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 7:SHORT-TERM AND LONG-TERM DEBT
On December 17, 2018, ClientConnect Ltd., a former Israeli subsidiary of Perion, which merged into Perion on June 30, 2020, executed a new loan facility, in the amount of $
As of June 30, 2020, the aggregate principal annual maturities are as follows:
|
Repayment amount | |||
|
| |||
|
Reminder of 2020 |
| ||
|
2021 |
| ||
|
| |||
|
Present value of principal payments |
| ||
|
Less: current portion |
( |
) | |
|
| |||
|
Long-term debt |
$ |
| |
NOTE 8:COMMITMENTS AND CONTINGENT LIABILITIES
a.Contingent purchase obligation
On November 30, 2012, the Company completed the acquisition of
F - 17
PERION NETWORK LTD. AND ITS SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 8:COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)
b.Legal Matters
On December 22, 2015, Adtile Technologies Inc. filed a lawsuit against the Company and Intercept Interactive Inc. (“Intercept”), a subsidiary of Interactive Holding Corp., in the United States District Court for the District of Delaware. The lawsuit alleges various causes of action against Perion and Undertone related to Undertone’s alleged unauthorized use and misappropriation of Adtile’s proprietary information and trade secrets. Adtile is seeking injunctive relief and, unspecified monetary damages. On June 23, 2016, the court denied Adtile’s motion for a preliminary injunction. On June 24, 2016, the court (i) granted the Company’s motion to dismiss, and (ii) granted Intercept’s motion to stay the action and compel arbitration. In November 2017, the court dismissed the case for administrative reasons, since Adtile had not commenced arbitration proceedings. The Company is still unable to predict the outcome or range of possible loss as of the date of these financial statements, since to date Adtile had not commenced arbitration procedures. Regardless, the Company believes it has strong defenses against this lawsuit and intends to defend against it vigorously.
In addition, from time to time, the Company is party to other various legal proceedings, claims and litigation that arise in the ordinary course of business. It is the opinion of management that the ultimate outcome of these matters will not have a material adverse effect on the Company's financial position, results of operations or cash flows.
NOTE 9:SHAREHOLDERS' EQUITY
a.Ordinary shares
The ordinary shares of the Company entitle their holders to voting rights, the right to receive cash dividend and the right to a share in excess assets upon liquidation of the Company.
On August 2, 2018 the Company's Shareholders' approved a 3:1 “Reverse Share Split” of its Ordinary shares, which became effective on August 26, 2018. The accompanying consolidated financial statements and notes give retroactive effect to the reverse share split for all periods presented. All fractional shares created by the Reverse Share Split have been rounded down to the nearest whole share.
b.Share Options, Restricted Share Units and Warrants
In 2003, the Company's Board of Directors approved the 2003 Equity Incentive Plan (the "Plan") for an initial term of
F - 18
PERION NETWORK LTD. AND ITS SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 9:SHAREHOLDERS' EQUITY (Cont.)
The contractual term of the share options is between to
As of June 30, 2020, there were
The following table summarizes the activities for the Company’s service-based share options for the six months ended June 30, 2020:
|
Weighted average | ||||||||||||||||
|
Number of options |
Exercise price |
Remaining contractual term (in years) |
Aggregate intrinsic value | |||||||||||||
|
| ||||||||||||||||
|
Outstanding at January 1, 2020 |
|
$ |
|
|
$ |
| ||||||||||
|
Granted |
|
|
- |
- | ||||||||||||
|
Exercised |
( |
) |
|
- |
| |||||||||||
|
Cancelled |
( |
) |
|
- |
- | |||||||||||
|
Outstanding at June 30, 2020 |
|
$ |
|
|
$ |
| ||||||||||
|
| ||||||||||||||||
|
Exercisable at June 30, 2020 |
|
$ |
|
|
$ |
| ||||||||||
|
| ||||||||||||||||
|
Vested and expected to vest at June 30, 2020 |
|
$ |
|
|
$ |
| ||||||||||
The following table summarizes the activities for the Company’s performance-based stock options for the six months ended June 30, 2020:
|
Weighted average | ||||||||||||||||
|
Number of options |
Exercise price |
Remaining contractual term (in years) |
Aggregate intrinsic value | |||||||||||||
|
| ||||||||||||||||
|
Outstanding at January 1, 2020 |
|
$ |
|
|
$ |
| ||||||||||
|
Granted |
|
|
) |
- |
- | |||||||||||
|
Cancelled |
( |
) |
|
) |
- |
- | ||||||||||
|
Outstanding at June 30, 2020 |
|
$ |
|
|
$ |
| ||||||||||
|
| ||||||||||||||||
|
Exercisable at June 30, 2020 |
|
$ |
|
|
$ |
| ||||||||||
|
| ||||||||||||||||
|
Vested and expected to vest at June 30, 2020 |
|
$ |
|
|
$ |
| ||||||||||
*)
F - 19
PERION NETWORK LTD. AND ITS SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 9:SHAREHOLDERS' EQUITY (Cont.)
The performance based options’ vesting is contingent upon achieving specific financial targets of the Company, set at the grant date.
In 2015, in connection with the Undertone acquisition, the Company granted warrants to purchase
NOTE 10:INCOME TAXES
The Company had a tax benefit of $
NOTE 11:EARNINGS PER SHARE
The table below presents the computation of basic and diluted net earnings per common share:
|
Six months ended June 30, | ||||||||
|
2020 |
2019 | |||||||
|
| ||||||||
|
Numerator: | ||||||||
|
Net Income (Loss) attributable to ordinary shares – basic and Diluted |
$ |
( |
) |
$ |
| |||
|
| ||||||||
|
Denominator: | ||||||||
|
Number of ordinary shares outstanding during the year |
|
| ||||||
|
Weighted average effect of dilutive securities: | ||||||||
|
Employee options and restricted share units |
|
| ||||||
|
| ||||||||
|
Diluted number of ordinary shares outstanding |
26,564,844 |
| ||||||
|
| ||||||||
|
Basic and Diluted net earnings (loss) per ordinary share |
$ |
( |
) |
$ |
| |||
|
| ||||||||
|
Ordinary shares equivalents excluded because their effect would have been anti-dilutive |
|
| ||||||
F - 20
PERION NETWORK LTD. AND ITS SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 12:MAJOR CUSTOMER
A substantial portion of the Company’s revenue is derived from search fees and online advertising, the market for which is highly competitive and rapidly changing. Significant changes in this industry or in customer buying behavior would adversely affect the Company’s operating results.
The following table sets forth the customers that represent 10% or more of the Company’s total revenues in each of the periods presented below:
|
Six months ended June 30, | ||||||||
|
2020 |
2019 | |||||||
|
| ||||||||
|
Customer A |
|
% |
|
% | ||||
NOTE 13:GEOGRAPHIC INFORMATION
The following table presents the total revenues for six months ended June 30, 2020 and 2019, allocated to the geographic areas in which they were generated:
|
Six months ended June 30, | ||||||||
|
2020 |
2019 | |||||||
|
| ||||||||
|
North America (mainly U.S.) |
$ |
|
$ |
| ||||
|
Europe |
|
| ||||||
|
Other |
|
| ||||||
|
| ||||||||
|
$ |
|
$ |
| |||||
The following table presents the locations of the Company’s property and equipment as of June 30, 2020 and December 31, 2019:
|
June 30, |
December 31, | |||||||
|
2020 |
2019 | |||||||
|
| ||||||||
|
Israel |
$ |
|
$ |
| ||||
|
U.S. |
|
| ||||||
|
Europe |
|
| ||||||
|
| ||||||||
|
$ |
|
$ |
| |||||
F - 21
PERION NETWORK LTD. AND ITS SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 14:SUBSEQUENT EVENTS
1.On July 22, 2020, the Company consummated the assets acquisition ("the Assets Acquisition") of Pub Ocean Limited, or Pub Ocean, a rapidly growing digital publisher-focused technology company with scalable content distribution and real-time revenue analytics technology.
The acquisition is for an aggregate cash consideration of up to $
2.In connection with the Assets Acquisition, the Company amended the Content IQ Membership Interest Purchase Agreement (“MIPA”).
Under the terms of the amended MIPA, it was agreed with the sellers of Content IQ (“the Sellers”), that (i) revenues and EBITDA of Pub Ocean will be attributed towards Sellers’ revenue and EBITDA targets under the MIPA with Perion; and (ii) Sellers will bear 40% of the cost of milestone payments that are ultimately payable to Pub Ocean under the Asset Acquisition agreement, which will be paid solely by deductions from their own earn-out payments and certain escrowed amounts.
3.On August 11, 2020, the Company withdrawn an amount of $
F - 22