UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

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 2018 (Report No. 1)

Commission File Number: 000-51694

(Translation of registrant's name into English)

1 Azrieli Center, Building A, 4th Floor

26 HaRokmim Street, Holon, Israel 5885849

(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.

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

 

 

 

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.

 

PERION NETWORK LTD. By: /s/ Maoz Sigron Name: Maoz Sigron Title:   Chief Financial Officer

 

Date: September 17, 2018

 

Exhibit	Description
99.1	Unaudited Interim Consolidated Financial Statements as of June 30, 2018.
99.2	Operating Results and Financial Review for the six months ended June 30, 2018.
101.INS	XBRL Instance Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Document

 

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PERION NETWORK LTD. AND ITS SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

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U.S. dollars in thousands (except share data)

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INTERIM CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

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U.S. dollars in thousands (except share and per share data)

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PERION NETWORK LTD. AND ITS SUBSIDIARIES

U.S. dollars in thousands

 

The accompanying notes are an integral part of the interim consolidated financial statements.

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PERION NETWORK LTD. AND ITS SUBSIDIARIES

INTERIM STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

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U.S. dollars in thousands (except share data)

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INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

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U.S. dollars in thousands

The accompanying notes are an integral part of the interim consolidated financial statements.

 

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NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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U.S. dollars in thousands (except share and per share data)

 

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NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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U.S. dollars in thousands (except share and per share data)

 

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NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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U.S. dollars in thousands (except share and per share data)

 

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NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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U.S. dollars in thousands (except share and per share data)

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NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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U.S. dollars in thousands (except share and per share data)

 

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, 2018, 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 2018, the Company determined that there were no indicators of potential impairment with regards to its reporting units which required interim goodwill impairment analysis.

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On March 6, 2018, the Company entered into a fourth amendment to its secured credit agreement which provides for a waiver of the financial covenants of the quarter ending December 31, 2017, and provides certain covenants relief. The Amendment was conditioned upon an $8,000 prepayment of the term loan, which took place the same date. The Amendment also provides for additional covenant relief for every $2,000 increment of voluntary prepayments on the term loan up to $4,000.

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The Bonds are convertible, at the election of each holder, into the Company’s ordinary shares at a conversion price of ILS 100.815 per share ($27.62 on June 30, 2018) from the date of issuance and until March 15, 2020. The ordinary shares issued upon conversion of the Bonds will be listed on the NASDAQ Stock Market (“Nasdaq”) and the Tel-Aviv Stock Exchange (“TASE”), to extent that the Company's ordinary shares are listed thereon at the time of conversion. The conversion price is subject to adjustment in the event that the Company effects a share split or reverse share split, a right offering or a distribution of bonus shares or a cash dividend.

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The Company may redeem the Bonds upon delisting of the Bonds from the TASE, subject to certain conditions. In addition, the Company may redeem the Bonds or any part thereof at its discretion, subject to certain conditions.

The Company elected to apply the fair value option in accordance with ASC No. 825, “Financial Instruments”, to the Bonds and therefore all unrealized gains and losses are recognized in earnings.

The changes of the long-term convertible debt in the six months ended June 30, 2018 were as follows:

 

In order to mitigate the potential adverse impact of the fluctuations in the ILS-USD exchange rate, the Company has entered into a cross-currency interest rate SWAP agreement (the “SWAP”) in order to hedge the future interest and principal payments, which are all denominated in ILS.

As of June 30, 2018, the Company satisfies all the financial covenants associated with both the Bonds and the SWAP.

As of June 30, 2018, the aggregate principal annual payments of the bonds are as follows:

 

		Repayment amount
2019			7,862
2020			7,862
		$	15,724

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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U.S. dollars in thousands (except share and per share data)

a.

Office lease commitments

In June 2018, Undertone entered into a lease agreement for its office at World Trade Center (WTC) New York. The lease expires in May 2026. Additionally, the Company may choose an early termination in 2023.

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NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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U.S. dollars in thousands (except share and per share data)

 

b.

Contingent purchase obligation

c.

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.

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NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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U.S. dollars in thousands (except share and per share data)

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NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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U.S. dollars in thousands (except share and per share data)

 

NOTE 10:       INCOME TAXES

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NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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U.S. dollars in thousands (except share and per share data)

 

NOTE 14:

SUBSEQUENT EVENTS

 

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

IN CONNECTION WITH THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2018

In this report, as used herein, and unless the context suggests otherwise, the terms "Perion," "Company," "we," "us" or "ours" refer to Perion Network Ltd. and subsidiaries. References to "dollar" and "$" are to U.S. dollars, the lawful currency of the United States, and references to "ILS" are to New Israeli Shekels, the lawful currency of the State of Israel. This report contains translations of certain ILS amounts into U.S. dollars at specified rates solely for your convenience. These translations should not be construed as representations by us that the ILS amounts actually represent such U.S. dollar amounts or could, at this time, be converted into U.S. dollars at the rate indicated. Unless otherwise indicated, we have translated ILS amounts into U.S. dollars at an exchange rate of ILS 3.65 to $1.00, the representative exchange rate reported by the Bank of Israel on June 30, 2018.

The following discussion of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements as of and for the six months ended June 30, 2017 and 2018 and the notes thereto (the “Financial Statements”), which are filed with the Securities and Exchange Commission (the "SEC") on this report on Form 6-K on September 17, 2018. In addition to historical financial information, the following discussion and analysis contains forward looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended, including, without limitation, statements regarding the Company’s expectations, beliefs, intentions, or future strategies that are signified by the words "expects," "anticipates," "intends," "believes," or similar language. These forward looking statements involve risks, uncertainties and assumptions. Our actual results, including the timing of future events, may differ materially from those anticipated in these forward looking statements as a result of many factors, including those discussed in our 2017 annual report on Form 20-F filed with the SEC on March 27, 2018 (the “Annual Report”) and elsewhere in this report.

Overview

Perion is a global technology company that delivers high-quality advertising solutions to brands and publishers. Perion is committed to providing outstanding execution, from high-impact ad formats to branded search and a unified social and mobile programmatic platform.

Our headquarters and primary research and development facilities are located in Israel, and we have other offices located in the United States and Europe.

 

Critical Accounting Policies and Estimates

We prepare our consolidated financial statements in accordance with Generally Accepted Accounting Principles in the United States (“U.S. GAAP”). In doing so, we have to make estimates and assumptions that affect our reported amounts of assets, liabilities, revenues and expenses, as well as related disclosure of contingent assets and liabilities. In some cases, we could reasonably have used different accounting policies and estimates. In some cases, changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ materially from our estimates. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations will be affected. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We refer to accounting estimates of this type as critical accounting policies and estimates, which we discuss further below. We have reviewed our critical accounting policies and estimates with the audit committee of our board of directors.

 

 

Please see Note 2 to the Financial Statements for a summary of significant accounting policies. In addition, please see Part I, Item 5, "Critical Accounting Policies and Estimates" in our 2017 Annual Report.

Recently Adopted and Issued Accounting Pronouncements

See the notes to the Financial Statements.

Legal Proceedings

We are involved in various litigation and other legal proceedings. For a discussion of these matters, see “Contingencies” included in note 8 to the Financial Statements.

 

Off-Balance Sheet Arrangements

 

As of June 30, 2018, we did not have any off-balance sheet arrangements.

 

Results of Operations

Six Months Ended June 30, 2018 Compared to Six Months Ended June 30, 2017

Revenues

The following table shows our revenues by category (in thousands of U.S. dollars):

		Six months ended June 30,
		2017				2018
Advertising		$	59,697			$	62,501
Search and other			71,967				61,201
Total Revenues		$	131,664			$	123,702

Revenues decreased by 6% in the six-month period ended June 30, 2018 from the six-month period ended June 30, 2017, as discussed below:

Search and other revenues. Search and other revenues decreased by 15% in the six-month period ended June 30, 2018 compared to the six-month period ended June 30, 2017. This decrease was primarily due to churn of our legacy products and the second quarter of 2017 network cleanup.

 

Advertising revenues. Advertising revenues increased by 5% in the six-month period ended June 30, 2018 compared to the six-month period ended June 30,2017. The increase was primarily due to the attribution of the brand spend in the six-month period ended June 30, 2018.

 

The following table shows costs and expenses by category (in thousands of U.S. dollars):

		Six months ended June 30,
		2017				2018
Cost of revenues		$	11,807			$	11,867
Customer acquisition costs and media buy			63,838				62,990
Research and development			8,967				10,222
Selling and marketing			26,465				19,782
General and administrative			11,188				9,167
Depreciation and amortization			9,909				4,562
Impairment charges			43,847				-
Restructuring costs			-				2,075
Total Costs and Expenses		$	176,021			$	120,665

Cost of revenues

Cost of revenues consists primarily of salaries and related expenses, license fees and payments for content and server maintenance.

Cost of revenues increased from 9% of revenues in the six-month period ended June 30, 2017 to 10% of revenues in the six-month period ended June 30, 2018.

 

CAC and media buy increased from 48% of revenues in the six-month period ended June 30, 2017 to 51% of revenues in the six-month period ended June 30, 2018, the increase as percentage of revenue is attributed to our search and advertising activities. In Search and other revenues, the increase as a percentage of revenues is primarily due to the churn of our legacy products, while in Advertising, the increase is mainly attributed to product mix and due to the effect of header bidding and Chrome ad blocker.

 

Research and development expenses (“R&D”)

Our research and development expenses consist primarily of salaries and other personnel-related expenses for employees primarily engaged in research and development activities, allocated facilities costs, subcontractors and consulting fees.

 

R&D increased from 7% of revenues in the six-month period ended June 30, 2017 to 8% of revenues in the six-month period ended June 30, 2018.

 

Selling and marketing expenses (“S&M”)

Our selling and marketing expenses consist primarily of salaries and other personnel-related expenses for employees primarily engaged in marketing activities, allocated facilities costs, as well as other outsourced marketing activity.

S&M decreased from 20% of revenues in the six-month period ended June 30, 2017 to 16% of revenues in the six-month period ended June 30, 2018, primarily due to the decrease in headcount.

 

General and administrative expenses (“G&A”)

Our general and administrative expenses consist primarily of salaries and other personnel-related expenses for executive and administrative personnel, allocated facilities costs, professional fees and other general corporate expenses. G&A expenses are reflective of an independent public company, with all of its requisite costs, managing organic activity as well as being an active acquirer of other businesses.

G&A decreased from 8% of revenues in the six-month period ended June 30, 2017 to 7% of revenues in the six-month period ended June 30, 2018. The decrease is primarily due to headcount and other corporate expense reductions.

 

Depreciation and amortization

The decrease in depreciation and amortization is primarily attributable to the lower amortization of the acquired intangible assets from the Undertone acquisition, as a result of an impairment charge in 2017.

Impairment charges

In June 2017, we performed an impairment review of our goodwill and intangible assets that were recognized in connection with the acquisition of Undertone, which resulted in an impairment of $43.8 million (see Note 4 to the Financial Statements). In June 2018, the Company determined that there were no indicators of potential impairment with regards to its reporting units which required interim goodwill impairment analysis.

 

Taxes on income

We recorded a tax on income expenses of $0.2 million and tax benefit of $9.8 million for the six-month period ended June 30, 2018 and June 30, 2017, respectively.

The effective tax rate was 15.3% and 20.4% for the six-month period ended June 30, 2018 and June 30, 2017, respectively. The comparison of our effective tax rate between periods is significantly impacted by the level of pre-tax income earned and the mix between the different jurisdictions in which we operate.

 

Net income (loss)

Net income (loss) increased by $39.1 million, from a net loss of $38.1 million in the six-month period ended June 30, 2017 to a net income of $1.0 million in the six-month period ended June 30, 2018. The increase was mainly due to $43.8 million non-cash impairment of goodwill and intangible assets related to the Undertone business in the six-month period ended June 30,  2017.

 

 

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2018, we had $34.7 million in cash and cash equivalents, compared to $31.6 million at December 31, 2017.

Our cash flows were in summary as follows (in thousands of U.S. dollars):

		Six months ended June 30,
		2017				2018
Net cash provided by operating activities		$	11,771			$	17,454
Net cash provided by investing activities			2,865				4,746
Net cash used in financing activities			(17,865	)			(19,149	)
		$	(3,229	)		$	3,051

 

In the six-month period ended June 30, 2018, our operating activities provided cash in the amount of $17.4 million, primarily due to depreciation and amortization of $4.5 million, non-cash share-based compensation expenses of $1.5 million and net changes of $11.4 million in operating assets and liabilities.

In the six-month period ended June 30, 2018, our investing activities provided cash in the amount of $4.7 million, primarily due to $5.9 million proceeds from maturities of short-term bank deposits, partially offset by $1.1 million invested in capitalized development costs and $0.1 million invested in the purchase of property and equipment.

 

Credit Facilities

In December 2014, we executed a cross-currency and interest SWAP transaction with one of the banks in order to mitigate the potential impact of the fluctuations in the ILS/USD exchange rate in regards to the future interest and principal payments of our convertible bonds (described below), which are all denominated in ILS. In April 1, 2015, we amended the agreement in regards to the financial covenants to secure the fulfillment of all the obligations, liabilities and indebtedness, effective December 31, 2014. The agreement contains various provisions, including financial covenants, restrictive covenants, including negative pledges, and other commitments, typically contained in facility agreements of this type.

On May 9, 2017, we secured $17.5 million under a new credit facility from an Israeli bank. The credit facility is secured by a lien on the accounts receivable of ClientConnect Ltd., an Israeli subsidiary, from its current and future business clients and is guaranteed by Perion. Out of the total credit facility, $5.0 million is a long-term loan bearing interest at LIBOR plus 5% per annum, to be repaid in 36 equal installments starting from June 30, 2017, and a $12.5 million revolving credit line bearing interest at LIBOR plus 3.5% per annum. As June 30, 2018, the remaining principal balance of the loan was $3.3 million.

 

The credit facility is available until May 15, 2020, and is not utilized as of June 30, 2018.

 

On November 30, 2015, concurrently with the closing of the Undertone acquisition, Interactive Holding Corp. entered into a new secured credit agreement for $50.0 million, due in quarterly installments from March 2016 to November 2019. The outstanding principal bears interest at LIBOR plus 5.5% per annum and is secured by substantially all the assets of the companies in the Undertone group and by guarantees of such companies. The credit is required to be prepaid by Undertone in certain circumstances, such as from proceeds of asset sales or casualty insurance policies, debt or equity offerings, or from excess cash flow in the event that Undertone's total leverage ratio exceeds specified targets, and a pro rata portion of indemnification payments (or offset of the holdback amount) under the merger agreement with Undertone. The debt issuance cost amounted to $1.4 million, which was deducted from the carrying amount of that debt in the consolidated balance sheets and amortized during the term of the loan as interest expense according to the effective interest method.

 

 

According to the credit agreement, Undertone has the option for prepayment, which shall be applied to principal installments as specified by Undertone. In 2016, Undertone prepaid $5.0 million, In May 2017 an additional $5.0 million, which was applied to the final principal upon maturity. In November 2017, Undertone opted to exercise its equity cure right to cure certain financial covenant defaults for the fiscal quarter ending September 30, 2017.  To this extent, Undertone paid $1.6 million which was applied to subsequent amortization payments in the direct order of maturity.

On March 6, 2018, the Company entered into a fourth amendment to its secured credit agreement which provides for a waiver of the financial covenants of the quarter ending December 31, 2017 and provides covenants relief. The Amendment was conditioned upon an $8,000 prepayment of the term loan, which took place the same date. As of June 30, 2018, the principal outstanding balance was $22.2 million.

The Company was in compliance with all its financial covenants under the credit agreement as of June 30, 2018.

 

Series L Convertible Bonds

On September 23, 2014, we completed a public offering in Israel of Series L Convertible Bonds (the "Bonds"). The Bonds have an aggregate principal amount of approximately ILS 143.5 million, of which, as of July 30, 2018, approximately ILS 57.4 million are outstanding (approximately $15.8 million). The Bonds, which are listed on the Tel Aviv Stock Exchange, are convertible into an aggregate of approximately 2.6 million ordinary shares, at a conversion price of ILS 33.605 per share (approximately $9.20 per share as of June 30, 2018). The principal of the Bonds is repayable in five equal annual installments commenced on March 31, 2016, with a final maturity date of March 31, 2020. The Bonds bear interest at the rate of 5% per year, subject to increases up to 6%, in the event of downgrades of our debt rating. On February 15, 2018, Standard & Poor's Maalot Ratings Services reaffirmed our corporate credit rating of ilA-, with a stable outlook. The interest is payable semi-annually on March 31 and September 30 of each of the years 2015 through 2019, as well as a final payment on March 31, 2020.

The Company may redeem the Bonds upon delisting of the Bonds from the TASE, subject to certain conditions. In addition, the Company may redeem the Bonds or any part thereof at its discretion, subject to certain conditions.

As of June 30, 2018, we were in compliance with all of the financial covenants governing the Bonds.

 

Financing Needs

We believe our current cash, cash equivalents and cash generated from operations as well as our available credit facilities will be sufficient to meet our working capital, debt, convertible bonds and capital expenditure needs for at least the next twelve months.