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Perion Network Ltd. (NASDAQ:PERI)

Q4 2013 Results Earnings Conference Call

March 3, 2014 10:00 AM ET

Executives

Deborah Margalit - Investor Relations

Josef Mandelbaum - Chief Executive Officer

Yacov Kaufman - Chief Financial Officer

Analysts

Kerry Rice - Needham & Company

Dan Kumos - The Benchmark Company

Jay Srivtsa - Chardan Capital Markets

Jay Kumar - Midsouth Fund

Operator

Please stand by, we are about to begin. Good day everyone, and welcome to the Perion Fourth Quarter 2013 Earnings Conference Call. Today’s conference is being recorded.

At this time, I’d like to turn the call over to Deborah Margalit, Perion Investor Relations. Please go ahead, ma’am.

Deborah Margalit

Thank you. And we appreciate the attention of everyone who is joining us today. On today’s call, management will be reviewing the financial results and business highlights of the fourth quarter and full year as of December 31, 2013. The press release detailing the 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 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 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.

In addition and as in prior quarters, the results reported today will be analyzed on a non-GAAP basis, which management believes better conveys the operational state of the business. 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.

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

Josef Mandelbaum

Thank you, Deborah, and good morning, everyone. Welcome to our 2013 fourth quarter earnings call. This was another record year for Perion with $104.6 million of revenue, slightly better than our guidance of $102 million to $104 million and $25.5 million in EBITDA, also beating our guidance of $24 million to $25 million.

We are very pleased with Perion’s financial performance, resulting in a strong fourth quarter and a record year. But the performance at Perion on a standalone basis is only part of the story. On January 2nd we closed on the milestone acquisition of ClientConnect creating a new much larger company - embarking on the new and exciting strategy.

On a combined basis of 2013, we generated over $400 million of revenues and net income of over $100 million. More importantly, we are now a much stronger company with the talent, scale, resources, infrastructure and expertise necessary to develop and deploy new solutions that leverage our current business and position Perion as a clear industry leader.

Parts of the industry have certainly had its challenges recently and like everyone else it has had an impact on us as well. That is why we view the acquisition of ClientConnect as a unique opportunity to actually lower our risk, gain real scale and emerge as a leading solutions provider in the app and software developer ecosystem. This ecosystem which is the main driver of our business remains and in fact is increasingly [ingrained] [ph].

One of the questions we get most frequently, is regarding the industry’s sustainability, the question focuses on the search providers, the seemingly steady flow of changes in the policies and the overdependence on few providers.

We think it is important to look at the industry from the perspective of consumers and software developers as a core concern of these two important constituencies has not changed and what really drive business fundamentals.

Consumers are less and less willing to pay for software either on the desktop or mobile but developers of consumer software and apps need to monetize their effort to fund their innovations. For developers, the ecosystem is broken, distribution is difficult and monetization even harder, stunting innovation in the process.

We do not see this [inaudible] changing anytime soon and have positioned ourselves as the partner of choice, helping bridge the chasm for developers by providing real value in the ecosystem. We understand these needs first hand through our own apps like IncrediMail, Molto and Smilebox, and are therefore uniquely positioned to help others.

The acquisition of ClientConnect has enabled us to firmly establish the foundation of our solution. Our Lifecycle Management Platform which is still a work in progress will essentially provide a comprehensive cross-platform solution for app developers that want to increase their distribution, optimize the engagement of the users and of course, monetize those users.

Today, we largely utilize search agreements to create monetization. In the coming quarters we will see display advertising playing increasingly prominent role in our monetization efforts and are working up the monetization solution for app developers as well.

Regarding display advertising in particular, our new found scale, the result of our combination with ClientConnect gives us an advantage in this space. In addition, we have proven ability to collect and utilize data to maximize advertising yield, thus increasing the amount of revenue our app developers can generate through their offering.

We have also built a powerful data repository and in this age of big data such a repository will have significant value. Simply put the acquisition of ClientConnect affords us the ability to invest in broadening and deepening our offering for developers and facilitate our ongoing ability to provide great apps for consumers without charge.

In this way, we will aggressively move to differentiate ourselves in the industry growing beyond the search dynamics that dominate the discussion today and emerging with a broader, differentiated and most importantly, even more sustainable platform.

I would like to elaborate on the investments and enhancements we’ve planned to augment this platform in the month and years to come as we reinforce our leadership position in the industry.

While the Search engines continue to adjust their policies, the overarching need of our - and our expertise of our Lifecycle Management Platform remains. We have always adapted to industry changes growing stronger, larger and more profitable along the way.

There will certainly be more changes and we will continue to adapt. Our relationships with all of our search partners are stronger than they ever have been. Perion had great relationships growing from one to five in the last year. And ClientConnect brought with it exceptional relationships as well including preferred contractual terms. We’ll leverage these relationships to the greatest extent possible and continue to ensure that we are insulated from the adjustments of any one search provider may make in the future.

During 2013, our goal is to diversify our search revenue and we did so. As I mentioned, we are highly successful as ever and instead of one search provider in 2012, we now have five. In 2013, no single search provider accounted for more than 38% of Perion’s revenue. And we derived revenue from all five of our search partners, Google, Bing, Ask.com, Conduit and Yahoo!

Building on our successful search diversification plan, our goal in 2014 is platform and revenue diversification. We intend to significantly increase our revenue from display advertising and mobile during 2014 and beyond.

This is a [marathon] [ph] and we are patient and methodical. Having proven that we can execute against our goals, we are confident the same will be true going forward. While we pursue this evolution, we fully expect to increase our investment in the short term. Yet together with this increase in investments as we announced in the guidance section of today’s press release, we still project continued organic growth in 2014 with healthy profit margins.

Our focus in 2014 and 2015 is to grow organically and through acquisition similar to what we have done in the past. On the M&A front, we are focused on acquiring companies in the mobile and data-driven advertising space and we are seeing excellent opportunities in the market.

To effectively pursue this strategy and to minimize dilution, we intend to use most of the cash and to the extent required take on debt to finance these acquisitions easily supported by the cash flow of our business. As with that, we expect that any acquisition of meaningful size will be accretive.

Next, let me speak to the integration with ClientConnect as this is a significant and transformative project for us. I’m pleased to report that the integration is going even better than expected. We have found the ClientConnect team to be enthusiastic, talented and ambitious, sharing our desire to make the new Perion a world’s leading company.

I cannot express enough how impressed I have been with the talent and quality of our combined management team, this collaboration and [inaudible] agendas as well as the blending of employees and cultures which is something not to be taken for granted.

Most acquisitions fail due to unsuccessful integration. And so far, ours has done remarkably well. We are ahead of schedule on many items and from a strategic standpoint we have identified numerous synergies and opportunities.

Before I turn the call over to Yacov for a detailed financial analysis, let me add that our plan for 2014 in addition to the investments mentioned above, includes increase in marketing spend to gain market share and spur organic growth even further. These investments and recent changes with certain browsers are expected to have a modest impact on our revenue and EBITDA [primarily] [ph] in the first and second quarter.

As with previous policy of technological changes in the industry, we have embraced those that sincerely improve the user experience and transparency and have adapted and grown our business each time. As can be seen from our guidance, I’m quite confident that in 2014 the results will be the same.

Finally, since we have a much larger team and two separate offices, we are relocating our headquarters to a single state-of-the-art facility. This [will result in some added] [ph] CapEx approximately $6 million in 2014. But we also expect that this consolidation will result in $3 million in annualized savings beginning in 2015.

In addition, we anticipate synergies as a result of having the entire team in one place. We expect the move to complete -- to be completed by September of this year.

With that, I’ll turn the call over to Yacov and then we’ll take your questions.

Yacov Kaufman

Thank you Josef. I’ll discuss the non-GAAP results for Perion on a standalone basis and also will provide the pro forma non-GAAP results for ClientConnect as received from Conduit. Revenues for Perion this quarter were $31.3 million, increasing 47% compared to $21.4 million in the fourth quarter last year. The increase reflected growth across all of our revenue streams year-over-year.

Specifically this increase was attributable to a 61% year over year increase in search generated revenues from $15.3 million to $24.5 million. In addition, product and other [advertising] [ph] sales increased 12% from $6.1 million in the fourth quarter last year, to $6.8 million this last quarter.

In the GAAP report, $14.5 million of revenue is generated by our agreement with Conduit which was entered into before acquiring the ClientConnect business or detracted as on a consolidated basis, $11.3 million were netted against customer acquisition cost and $3.1 million were deferred.

Total operating expenses including cost for Perion were $24 million in the fourth quarter of 2013. Excluding customer acquisition costs of $14.6 million, these expenses totaled $9.5 million, reflecting a net increase of 31% compared to the fourth quarter last year or an increase of about one-half of the rate of our revenue increase.

As I just mentioned, in the fourth quarter of 2013, Perion’s invested $14.6 million in customer acquisition cost, a significant sequential increase compared to the $8.2 million in the third quarter and also up 50% compared to the $9.7 million in the fourth quarter last year. This reflects improved return on investment metric experienced during the fourth quarter which encouraged us [to have] [ph] investments to drive future growth.

We continue to increase our media buying and customer acquisition efforts in the first quarter. And while this investment will have a short-term impact on our EBITDA, it is a key factor in future growth. In our GAAP report, $11.3 million of these expenses were netted against revenues.

Perion’s EBITDA was $7.7 million or 24% of sales in the fourth quarter of 2013, compared to $4.9 million or 23% of sales in the fourth quarter of 2012. Perion’s net income in the fourth quarter of 2013 was $6.4 million, increasing 77% compared to $3.6 million in the fourth quarter of 2012. Earnings per share this quarter was $0.49 per diluted share, representing a 53% increase from $0.32 in the fourth quarter of 2012.

In the fourth quarter of 2013, the difference in operating expenses and costs between our GAAP and non-GAAP report was primarily due to the exclusion of a $11.3 million in customer acquisition costs related to revenues generated under our commercial agreement with Conduit, which was offset by $0.4 million of non-cash share-based compensation, $2.3 million amortization of acquired intangible assets and $2.8 million of one-time acquisition-related expenses. So that a net total of $5.8 million was included in our non-GAAP operating expenses and excluded from our GAAP report. In the fourth quarter of 2012, expenses included in our GAAP report and excluded from our non-GAAP report totaled $3 million.

The GAAP net loss in the fourth quarter of 2013 inclusive of expenses just mentioned was $1.8 million, or $0.14 net loss per diluted share, compared to net income of $0.6 million, or $0.05 net income per diluted share in the fourth quarter of 2012. The one-time expense of $2.8 million related to the acquisition of Conduit’s ClientConnect business alone, represented $0.21 expense per diluted share.

Turning to the financial results for the full year ended December 31, 2013, total revenues were $104.6 million, a 71% increase, compared to $61.2 million in 2012. This increase was driven by a $38.5 million, or 101% increase in search generated revenues, along with a $5 million, or 21% increase in our product and other advertising revenues.

As mentioned in the quarterly analysis, as a GAAP report revenue generated by our agreement with Conduit, which was entered into before acquiring the ClientConnect business totaling $17.4 million were detracted as on a consolidated basis. $14.3 million were netted against customer-acquisition costs as $3.1 million were deferred.

R&D expenses in 2013 were $13.1 million compared to $10.5 million in 2012. As a percentage of sales, R&D decreased from 17% in 2012 to 13% in 2013. Looking forward, we intend to increase our investment in developing new products for new platforms, without increasing the expense as a percentage of sales.

Sales and Marketing expenses for the year excluding customer acquisition costs were $9.1 million, compared to $6.4 million in 2012. As a percentage of sales, these expenses have decreased as well from 10% in 2012 to 9% in 2013.

Customer acquisition costs for the year reached $46.6 million compared to $22.1 million in 2012. The increased investment was a significant factor in powering our revenue growth. Our G&A expense for the year was $7.8 million, or 7% of revenues, compared to $5.7 million, or 9% of revenues in 2012.

GAAP operating and COGS expenses in 2013 included $1.5 million of non-cash share-based compensation, $9.3 million amortization of acquired intangible assets, $6.2 million in acquisition-related expenses and excluded $14.3 million in customer acquisition costs related to revenues that were generated under our commercial agreement with Conduit for a net total of $2.7 million, which were adjusted for as a non-GAAP number. In 2012, the adjustment of GAAP numbers totaled $6.7 million.

For the year, EBITDA was $25.5 million, or 24% of revenues, up 82% compared to $14 million or 23% of revenues in 2012. Non-GAAP net income in 2013 increased to $20.1 million, or a $1.54 per diluted share, compared to $10.3 million or $0.99 per diluted share in 2012.

For the year, GAAP cash flow from operations was $15.9 million compared to $16.3 million last year. The lower cash flow from operations reflects the cash portion of one-time acquisition expenses of approximately $5 million. As of December 31, 2013, we had cash and cash equivalents of approximately $23.4 million, up from $21.8 million as of the end of last year. This represents approximately $1.07 per share in cash and cash equivalent.

With regards to ClientConnect, their business continued to perform well in the fourth quarter of 2013. Based on the pro forma non-GAAP numbers we received from Conduit, ClientConnect fourth quarter revenues increased 29% year-over-year, reaching $84.1 million.

EBITDA increased 11% year-over-year, reaching $17.3 million and net income increased 29% year-over-year, reaching $17.2 million. The lower EBITDA for the quarter was primarily due to the ramping up of customer acquisition costs in December, powering growth into 2014.

For the year, ClientConnect had revenues of $325.5 million, up 52% compared to 2012. EBITDA was $96.8 million, also up 52% compared to $63.7 million last year and net income for the year was $86.7 million, up 55% compared to the $56 million last year. This concludes my financial overview. Let me now talk about our 2014 outlook.

For the full year of 2014, we expect revenues to be in the range of $460 million to $470 million. EBITDA is expected to be between $125 million and $130 million. And net income is expected to be in the range of $103 million to $108 million.

As you can see and as Josef said, we expect 2014 will be another milestone year in Perion’s history and one that will shape its future for the next two years.

With that, we will now open the call to questions. Operator?

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions) And we’ll take our first call from Kerry Rice with Needham & Company.

Kerry Rice - Needham & Company

Thanks. Couple of questions if I may. Josef, you talked about display advertising and increasing that, can you maybe add a little color around how we expect to see that manifest? Is it through browsers or toolbars, or where will that display advertising kind of show up?

The second question is, you talked about numerous synergies with ClientConnect, one, was the consolidation of facilities and you’ll save $3 million there. Can you talk a little bit about other synergies and if you can quantify those at all?

And then finally, you talked about investment, and obviously, one, it seems to be around display, I assume others are around increasing customer acquisition expenses to ramp revenue there. Is there anything else in that investment -- increased investment that you can call out? Thanks.

Josef Mandelbaum

Sure. First of all, hi, Kerry, nice to have you on the call.

Kerry Rice - Needham & Company

Thanks, Joe.

Josef Mandelbaum

I will try to answer all three questions and we will take it in the order you asked and Yacov can add -- has anything to add to this. On display advertising, the way you see manifested results, it will not come from toolbars. We actually don’t expect toolbars to be - as a meaningful part of our business towards the end of the year, and you will see it mostly in two areas.

One, as I mentioned in our call, we have a lot of data. We’re testing internally and I’m happy to say we are seeing some good results, but basically targeting, retargeting an RTV inventory programmatic ad by using our data. And we think we have an opportunity there to really provide some value to advertisers, because we have a lot of data which is not company based. So, that’s number one. And we’re in the test phases now. We’ll hopefully report on that progress throughout the year. And as we said in the M&A section as well, we will look to do that organically and as well potentially through acquisitions [inaudible].

The second being on display is we are looking to create some what I’d say exclusive type of inventory and we have [to reach] [ph] with our app developers, our software partners and we have some interesting ideas that we’re experimenting with, those as we speak that can create new inventory, again that’s fundamentally is a new [IB] [ph], that’s a standard inventory, whether it’s display or video and use again our data and our partners ability and their reach to do some targeting, pre-targeting or retargeting for that inventory which would not be open to everybody else. It’s more like one you would call the private exchange but [inaudible] of that and we are working on that now. We have a couple of things we’re testing as we speak and hopefully next quarter I can update you on that as well. So that’s specifically on display advertising, really not related to [inaudible], it’s more related to data as the foundation of how we can grow another revenue stream that’s not dependent on search partners.

With regard to synergies, so as we mentioned, I think there is - [inaudible] synergies is clearly the location. The other synergies we have are probably sit in two buckets; and our revenue synergies those I mentioned, I think we mentioned this when we acquired ClientConnect which [inaudible] they were bigger than us than they had better terms with some providers. So we are certainly looking to leverage those terms and to pick up some margin and revenue by looking at those types of things. It’s in the -- we are not quantifying it specifically, but it certainly adds a few millions of dollars to what we’re doing this year.

The other synergies really are people synergies and big example there is [generic growth of] [ph] business. We’re looking at this year probably adding between, let’s say, 50 to 100 new employees. Because of our – the synergies due to new businesses we are probably going to be having most closer to 30 to 50 reps then 50 to 100, and that’s basically [re-launching] [ph] those synergies. We have two people working on for example distribution for toolbars or distribution for our other monetization products. We consolidated that and that’s actually [really happened] [ph] into one group and we freed up the other group to invest in new things.

And that leads me to your third question, investments, and those investments we are working on I would say 2 to 3 major projects internally. One of which I will tell you, today [inaudible] we are not [calling] [ph] yet, but they were excited about them. One is on the average [revenue side] [ph] I mentioned already in terms of the data driven advertising, programmatic advertising business. The other two are centered around mobile and we had some interesting and unique insights to what we can do there that we think we are uniquely positioned to add some value on the cost platform distribution side specifically.

And then lastly on the desktop side in the existing business, we believe there are still opportunities to really invest in some new projects that will provide our partners with alternative revenue and analytics solutions. And those two things we think will help them increase their LTV which subsequently allows them to spend more money hopefully with their partner. And those are things which we really put into play this year from an investment standpoint.

Kerry Rice - Needham & Company

Great. Thank you so much.

Josef Mandelbaum

Thank you, Kerry.

Operator

And we will take our next question from Dan Kumos with The Benchmark Company.

Dan Kumos - The Benchmark Company

Great. Thanks for taking my questions. Josef just quick one on core Perion, just curious how those products are developing and what growth you’re forecasting or embedding in your guidance for 2014?

Josef Mandelbaum

Sure. So I assume you’re talking about IncrediMail, Molto and Smilebox, correct?

Dan Kumos - The Benchmark Company

Yes

Josef Mandelbaum

Modest growth. They are actually good popular businesses for us. They have done nicely. Obviously given the size of the business now, they are very small piece of the business. Frankly, even if they do 100% it still would be a small piece of the business.

Three of them modest growth and [inaudible] the profit margins very good and what we are really doing is we are leveraging those applications to really help us and we think it’s unique advantage we have. We are working now on I forgot to mention [inaudible], but it’s a good example of synergies.

We’re actually providing a lot of insights to the ClientConnect team about what it means to be an app developer, because we are one and how to tweak and improve some of their systems and solutions for app developers, so we are actually not only growing those businesses modestly, we are actually using them as a great feeding ground to help us really collaborate -- to align and improve our product offering to other business partners.

Dan Kumos - The Benchmark Company

Great, that’s helpful. So let me drill down a little bit on the couple of things you said. First, just from a high level perspective, could you give us a little bit more granularity on sort of the breakdown by bucket between search products and I guess other/display that you expect revenue to come from in 2014? And then you did mention that you’ve got some projects internally, I was curious if you could give us an update on how Guardius is performing and just whether or not we should expect similar sized launches and over what course of the year?

Josef Mandelbaum

Yes. So let me start with the Guardius question first. Because of the merger and because of the focus of the business, we actually decided not to focus on Guardius going forward. A difficult decision to make, but as I am sure Dan when you’re running now $400 million to $500 million business, you got to make different decisions than we just felt that Guardius was something that wasn’t going to be the same revenue potential in the larger context than we thought as a standalone Perion. So kind of we’ve got off the ground but before it really got off the ground in a major and put even more investment in it, we actually decided to kind of focus on other things. So I assume that going forward we do some things [inaudible]. In Guardius specifically it really was the result of together, it was just not an area where we’re going to focus on.

With regards to the breakdown of revenues, at this point in time we’re not going to give a breakdown on revenues specifically, but what I think you’ve seen in the past almost, Dan, is we [inaudible]. So we certainly intend to create a better balance of our revenues between search and other revenues, advertising and product throughout the course of the year. And I think by the end of the year, I think you would be pleased with what progress we’ve made on that balance.

Dan Kumos - The Benchmark Company

And in terms of the product rollout schedule over the balance of the year?

Josef Mandelbaum

Well, in terms of, I mean, Smilebox actually, you are talking about Smilebox and Molto again.

Dan Kumos - The Benchmark Company

No. Really just more organic development of things like Guardius?

Josef Mandelbaum

Yeah. All products, yeah, so, I mean, our focus clearly is more on bringing products and solutions for our partners and [inaudible] creating more consumer apps. So again, we like having them consumer apps because they do add a big advantage for us and we’re leveraging the knowledge. What we’ll see over the next -- in Q2, we should have a couple - once again right now, we have a proof-of-concept product out there.

On the advertising side, the programmatic data driven advertising, I mentioned that. And we have -- at Mobile World Congress in Barcelona last week we unveiled a mobile monetization product that we are again testing. It’s not for a major release but we’re testing it out with the few bigger partners and so far we’re encouraged by the reception we’re getting there.

And then in Q2 and Q3, is when you will see some major releases, there are some new initiatives that I mentioned earlier with regards to mobile and advertising and frankly even on the desktop search type of business, we have a few new initiatives we’re doing and we expect in Q2, Q3 to give you more color on those.

Dan Kumos - The Benchmark Company

Great. And then just one last one for me, Josef, I’d love to hear your thoughts on Google, at least delaying the renewal of the mobile portion of their deal with Blucora, and how you think that your search partners in general are approaching mobile monetization?

Josef Mandelbaum

Sure. So, I’m not going to answer the specific question. I’m sure you can ask Bill at Blucora and he will give you the answer. From my perspective, I would say one is, I never had mobile in my Google [context] [ph], so it wasn’t an issue for us. We do have this in some of our other [project] [ph], in fact, Molto is using Bing, [inaudible] on the Molto products on Android and on iOS.

I think in general and this is more important part of your question is, I think the search providers are going to be very, very cautious about opening up the kimono so to speak to all sorts of partners on the mobile platform with regards to search. We are seeing that today and I think they’re trying to, I guess learn from the desktop experience, they are trying to be much more methodical and deliberate about how we do that.

I do think at some point in time and I think just the other day, two weeks ago, if you read in the papers, the EU is doing an investigation on Android and some of their policies with regards to blocking up a lot of manufacturers on what could do with search. So, if I look in the future, I think the search partners, probably in their minds, correctly so are making sure the ecosystems with consumers is not going to be littered with a lot of what they will think is not good practices.

By the same token, I think they will be balanced out by at some point of time it’s hard to argue that some companies aren’t like other big - let’s say almost monopolies out there that also restricted competition on certain platforms. So, I have some faith in the governmental agency that at some point in time, they will make sure that competition is free and fair. Until that happens, we’re focusing on a lot of other things for our partners, our app developers and we are excited about the future and search remains a big part of our desktop business. I do not think it will be a big part of our mobile business at least in the near-term.

Dan Kumos - The Benchmark Company

Got it. Great. Thanks for all the color, Josef.

Josef Mandelbaum

Thanks, Dan.

Operator

And we will take our next question from Jay Srivtsa with Chardan Capital Markets.

Jay Srivtsa - Chardan Capital Markets

Yeah. Thanks for taking my question. Good results and guidance, Josef and Yacov.

Josef Mandelbaum

Thanks, Jay.

Jay Srivtsa - Chardan Capital Markets

You mentioned in the first couple of quarters you could potentially see some impact in the EBITDA because of the policy changes. Could you expand on that, just tell us is it specifically related to Google and if/or are there other factors in play?

Josef Mandelbaum

Sure. Actually, specifically, it’s Chrome. So it’s actually, it’s not Google search side of the business. It’s the Google Chrome side of the business. I am sure many of you are aware on the phone that Chrome has announced a policy change whereby they are limiting the types of extensions and add-on you could have on Chrome. It has to go through the Chrome store, number one, that’s going to be a single purpose extension, and anything that is not, they trying to shut off by June, actually it was supposed to come up [inaudible] I think it’s now, there are two components [inaudible] in June.

So number one is that will mostly have an impact on our sale which is why we say revenue and EBIDTA because, it will have an impact on us, we think we have taken into account in our numbers but that will depress EBITDA, again, modestly in Q1 and Q2 depending on when it’s rolled out.

The other change that Google Chrome has made is Google Chrome also launched a poplog that they are popping up to consumers that is saying someone changed your setting we don’t know who is delivering that, click here to reset your settings, of course when you reset it goes in the factory option which [inaudible] Google.com.

So that one we have seen some impact in Q1 already, Q2 [inaudible] now and they haven’t finished, [inaudible] about it. And so we are looking at those and in the past, we have adapted to all the changes that are going on in the industry, again some of the changes I agree with. And as I said, anything [inaudible] improve the consumer [inaudible] I’m not sure I agree with everything that’s going on but it’s not for me to say, [to meet] [ph] to adapt, and we’ve done that very well and we will continue to do that.

Jay Srivtsa - Chardan Capital Markets

All right. Switching to the mobile side, at a high level, could you give us some sense of what the business model is going to be for you? Is it going to be search driven stuff or are you exploring other partnerships with those providers or app developers just to figure out ways to monetize it? Just try to sketch the landscape for us on how you see ourselves playing in the mobile space and how that market is going to evolve as we go through 2014?

Josef Mandelbaum

Sure. First I’ll start by saying the mobile space is really -- I have been in the industry now 23 years, I’ve been in mobile 1.0. So I got my scars there really. The industry really, [inaudible] itself just reminds of me early days of web 1.0 and mobile 1.0. I do think 2014 and ‘15 will be the years of consolidation. So I do think there will be opportunities for us on the M&A front and I think this is the year that I think some of the winners will clearly be defined.

The way we see it going forward, Jay, is that we intend to take what we’re really good at as combined company on the desktop, particularly the mobile that primarily means helping other app developers monetize their products primarily through advertising. I do not think search today will be a huge part of the business.

Again over time I think that will change but in the short term I don’t think they will be a major part of the business. Though we do think that advertising display or video advertising will be a significant part of the business and if we look at the skill set to bring to the table on the resources, we are very confident that we have what it takes. And in addition to organic stuff as I mentioned, we are also looking to augment that with some strategic acquisitions and we’ll update obviously all of you when and if that happens.

Jay Srivtsa - Chardan Capital Markets

Thank you.

Josef Mandelbaum

Thanks, Jay.

Operator

(Operator Instructions) And we’ll take our next question from Jay Kumar with Midsouth Fund.

Jay Kumar - Midsouth Fund

[Technical difficulty] outstanding number of shares.

Josef Mandelbaum

I am sorry we couldn’t hear you, can you repeat that again?

Jay Kumar - Midsouth Fund

What is going to be the outstanding number of shares going forward, diluted?

Josef Mandelbaum

We are expecting approximately 30 million shares, as we enter the year that number could go up through the year. So we are looking at a range for the year anywhere between 70 million and 73 million share.

Jay Kumar - Midsouth Fund

All right. Thanks, guys.

Josef Mandelbaum

Thank you.

Operator

And at this time, I am showing no further questions, I would like to turn the conference back to management for any additional or closing remarks.

Josef Mandelbaum

Thank you. This is a dawn of a new year for Perion, an exciting time as we evolve into a company that enables innovation across thousands of app developers on the desktop and mobile platform. We are tremendously excited about these opportunities and the integration is going very well. As a new larger and more [inaudible] company, we have the resources to fuel continued organic and inorganic growth. As always I like to thank the great team we have at Perion including our new comers from ClientConnect for their hard work and dedication in helping us achieve these great results. Thank you and have a good day.

Operator

That does conclude today’s conference. We do thank you for your participation.

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