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Perion Network Ltd. (NASDAQ:PERI)

SweetPacks Acquisition Call

November 8, 2012, 10:00 AM ET

Executives

Brett Maas - Hayden IR

Josef Mandelbaum - CEO

Yacov Kaufman – CFO

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Perion Conference Call. All participants are in listen-only mode. Following management’s formal presentation, instructions will be given for the question and answer session. For operator assistance during the conference, please press *0. As a reminder this conference is being recorded. With us today from Perion are Josef Mandelbaum, CEO and Yacov Kaufman, CFO. I would now like to turn the call over to Brett Maas of Hayden IR.

Brett Maas

Thank you, and we appreciate the attention of everyone who is joining us today. On today’s call, management will be discussing the SweetPacks acquisition announced earlier today. The press release announcing the acquisition and a detailed presentation are available on the company’s website at perion.com and management will review the slides on this call. Now would be a good time to visit our website at www.perion.com, and download the slides so you can follow along.

Before we begin, I’d like to read the following Safe Harbor Statement: Today’s discussion will include 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 risk associated with uncertainty as to whether the transaction will be consummated, and risk associated with integrating the acquired business, 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 from any future results, performances or achievements anticipated or implied by these forward-looking statements. The Company does not undertake to revise any forward-looking statements to reflect future events or circumstances.

With that, I’ll turn the call over to Josef Mandelbaum, Chief Executive Officer. Josef, the call is yours…

Josef Mandelbaum

Thank you Brett and good morning everyone. Today we announced a transformative acquisition for Perion, acquiring a company called SweetPacks. We are very excited about this acquisition, and what it does for our growth strategy going forward. This transaction is immediately accretive and we expect combined 2013 revenues to exceed $100 million.

This acquisition provides us with four critical elements which we feel significantly strengthen our company, accelerating our long term strategy; scale, talent, a large user base, and advanced back-end systems.

First, as I mentioned in the past scale is important to achieve greater success and this deal will increase both revenues and profits significantly, even before synergies are realized. The increase in scale significantly accelerates Perion’s growth and strengthens our competitive position in the market.

Second, the influx of additional talent and experience to our company is expected to be a major contributor to our future success.

Third, the sophisticated back-end systems we acquired, combined with our own improved systems, will make our entire company more efficient and profitable and expand our business in new directions.

Fourth, we are acquiring other proprietary technologies and tools which will lower our costs and reduce dependency on outside vendors.

And finally, the acquisition nearly doubles our user base by adding roughly 22 million users to our existing 23 million.

Turning to the key transaction terms, the total potential purchase price, as of close of business November 7, 2012, is $41 million, broken down as follows:

An initial payment of $10 million in cash and 1.99 million shares. As of close of business Wednesday, the initial payment would be valued at $25.5 million.

A second payment of $7.5 million in cash is due 12 months after closing.

And a third, conditional payment of $7.5 million in cash is due 18 months after closing, subject to certain milestones and achievements.

We expect to finance this acquisition with the cash on hand and operating cash flow generated by the acquired entity alone, with no additional bank or institutional debt needed. We anticipate closing this acquisition around the end of November, 2012.

Now I’d like to provide some quick facts about SweetPacks and its business:

The company was founded in 2005 in Israel and has 50 employees. SweetPacks’ products include a proprietary toolbar and a variety of free, fun, easy to use, safe apps and downloadable expression content for everyday use. SweetIM, their flagship product, is a leading provider of expression content and add-ons for Instant Messaging and webmail programs, including - animations, emoticons and sound effects.

Its customers are 58% female, with 60% over the age of 30. SweetPacks operates under an advertising based business model, 80% of its revenues are generated from search through a partnership with Google, and 20% are from display advertising

On Slide 6, we outline the key strengths of SweetPacks, which we believe will add significant and immediate value to Perion. We are fortunate to have Nadav Goshen, the CEO of SweetPacks join our company as Chief Operating Officer. At SweetPacks he grew revenues more than threefold over the past three years. Prior to leading SweetPacks, Nadav was the deputy CEO of Babylon, where he was instrumental in implementing their current search business. In addition Nadav handpicked an impressive and talented management team that will certainly contribute to our future success.

As a data-driven company SweetPacks has developed very strong Business Intelligence systems which enable advanced revenue tracking, LTV and ROI calculation, usage and marketing reports, as well as CRM systems. Their capabilities will bolster our existing systems and make our entire company more efficient and profitable. The combination will truly strengthen our competitive advantage.

In addition, SweetPacks has a proprietary toolbar and installer that will reduce our need for third party technologies and tools. They also have strong media buying capabilities and a large distribution network, which we will be able to leverage to increase our ROI.

SweetPacks has been consistently generating cash and is currently on a revenue run rate of almost $2.5 million per month, with strong operating profit margins of roughly 30%.

Now, I’d like to turn the call to Yacov to discuss some of the financial highlights of the acquisition.

Yacov Kaufman

Thank you Josef

From a financial perspective this is truly a great company and a superb acquisition.

Since 2009, the compound annual revenue growth rate was 61%, and even more impressive, the Adjusted EBITDA CAGR during these years was 103%. In 2011 revenue was $15.7 million and in the TTM as of September30th, 2012 it grew to $29.7 million. 2011 Adjusted EBITDA was $4.5 million and in the TTM as of September30th, 2012 ithis grew to $9.0 million.

SweetPacks’ Adjusted EBITDA excludes the impact of non-cash and non-recurring stock based compensation, as its value has not yet been determined. As a privately held company SweetPacks had not valued or accounted for, share based compensation effecting its past operations, in accordance with GAAP. The EBITDA will be finalized prior to closing. These expenses have no impact on the economics of the transaction or future performance under Perion.

Turning to slide number 8, I’d like to focus on the compelling financial returns of the transaction which will create significant value for Perion’s shareholders:

Beyond the payment at closing, this deal basically pays for itself as future payments will be financed by cash flow from the operations acquired. Furthermore, our risk is mitigated by the fact that future revenues from the acquired user base are expected to amount to $15 million.

SweetPacks’ high profits make this acquisition accretive, to Perion’s earnings per share immediately.

Based on trailing twelve month combined operating cash flow of an estimated $14 million; we are expecting strong future cash flow from the combined operations.

And lastly, there is significant future synergy potential arising from new revenue opportunities and operating efficiencies that we estimate at $2 to $3 million annually.

On slide number 9, we provide a financial snapshot of the combined entity, on a trailing 12 month basis as of September 30, 2012. In the table shown, we provide the company’s preliminary financials for these periods. This snapshot demonstrates significant growth, with combined revenues of approximately $81M and Adjusted EBITDA of $19.2 million

We are also expecting enhanced profitability through improved operating margins, with combined EBITDA margins of at least 24%. In short, we are making a highly accretive acquisition that will significantly improve both our top and bottom line results, at a very attractive valuation.

Based on a selected transaction analysis prepared by the investment bank, Needham & Company, the transaction multiples compare very favorably to other recent transactions in the industry. Based on a trailing 12 month basis, as of September 30, 2012, the valuation implies an enterprise value to revenue multiple of 1.3 and an Adjusted EBITDA multiple of 4.5. Both valuations are less than Perion’s current market valuation. These two factors support our belief that this is a truly great financial transaction for Perion and its shareholders, whose impact will be evident already this quarter.

Josef Mandelbaum

As you can see, we expect to nearly double revenues to over $100 million next year, compared to our current guidance of $55 million for this year.

To summarize: this acquisition is highly accretive at great multiples and moves Perion to the next level.

Second, this acquisition accelerates Perion’s growth and expansion plans and strengthens our competitive market position.

Third, we will be able to leverage proprietary technology and realize significant revenue and cost synergies over time.

Fourth, the combined cash generation will bolster our balance sheet and increase our financial flexibility; and

Finally, we will benefit from a great addition of talent to our company and management team, all of which are committed to driving long term shareholder value

I and the rest of the Perion employees in Tel Aviv and Seattle would like to take this opportunity to welcome SweetPacks to the Perion family. Thank you all for joining us and sharing in this exciting announcement.

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